Moyes v J & L Developments Pty Ltd (No 3)

[2007] SASC 268

Supreme Court of South Australia

(Civil: Application)

MOYES & ANOR v J & L DEVELOPMENTS PTY LTD & ANOR (No 3)

[2007] SASC 268

Judgment of The Honourable Justice Debelle (ex tempore)

13 July 2007

PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS

Application by appellants and second respondent for order that costs be paid on indemnity basis – relevant principles – whether conduct of the first respondent could be described as conduct of party as a litigant – application dismissed.

Corporations Act 2001 (Cth) s 444D(1), s 444H; Supreme Court Act 1935 s 40(1), referred to.
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225; Henderson v Amadio Pty Ltd (Federal Court of Australia, 22 March 1996, unreported); NMFM Property Pty Ltd v Citibank Ltd (No.2) (2001) 109 FCR 77; re Wilcox; ex parte Venture Industries Pty Ltd (No.2) (1996) 72 FCR 151, applied.
Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169; J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (Western Australian Branch) (No 2) (1993) 46 IR 301; Moyes v J & L Developments Pty Ltd (No.2) [2007] SASC 261; re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99, considered.

MOYES & ANOR v J & L DEVELOPMENTS PTY LTD & ANOR (No 3)
[2007] SASC 268

Land and Valuation Division

1. DEBELLE J.        On 11 July 2007 I allowed an application for an order for costs against a non-party: Moyes v J & L Developments Pty Ltd (No.2) [2007] SASC 261 and I published my reasons. I ordered that the first respondent pay the costs of the appellants and the second respondent.

2. The appellants and the second respondent, the Adelaide Hills Council, applied for an order that costs be payable on an indemnity basis.  At the request of the first respondent, I adjourned argument on the application until today.

3. Mr Heinrich, who now appears for J & L Developments Pty Ltd, seeks to raise fresh arguments in opposition to the orders proposed in the reasons delivered on 11 July.  It is entirely inappropriate for these arguments to be raised at this late stage and after judgment has been delivered.  I have no regard to them.

4. Mr Heinrich also seeks to rely on the fact that J & L Developments Pty Ltd has entered into a deed of arrangement with its creditors. He refers to the provisions of s 444D(1) and s 444H of the Corporations Act2001 (Cth). This submission must fail. Where creditors of a trust avail themselves of a right of subrogation after a corporate trustee has gone into liquidation, the trust creditors are entitled to recover the amount due to them out of the trust assets: re Suco Gold Pty Ltd(in liq) (1983) 33 SASR 99. These principles apply with equal force where a corporation enters into a deed of arrangement. More importantly, the submission fails to have regard to the fact that the liability for costs accrued and the fact that the trust assets were transferred from J & L Developments Pty Ltd to Palm Hills Pty Ltd long before the deed of arrangement was executed. In relation to the costs of the appeal, the appellants and the Council are entitled to trace the trust assets and recover their costs from those assets. In my view, the same principle applies in respect of the costs of the application made to recover the costs which was the subject of the judgment delivered on 11 July.

5. I turn to the application for the costs to be paid on an indemnity basis. As a general rule, costs in adversary litigation are awarded on a party and party basis. However, the court will depart from its normal practice in certain circumstances: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 230, where the principles and some relevant decisions are reviewed. Such an order can only be made where the circumstances justify a departure from the ordinary principle: Colgate-Palmolive at 232 and 233. Those principles have been affirmed by the Full Court of the Federal Court in re Wilcox; ex parte Venture Industries Pty Ltd (No.2) (1996) 72 FCR 151 at 152 to 153 per Black CJ and at 156 to 158 per Cooper and Merkel JJ. See also Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [7]-[9]. The categories warranting the exercise of the discretion are not closed: Colgate-Palmolive at 233 and re Wilcox at 153. Care must be taken not to circumscribe the width of the Court’s discretion as to costs.

6. Like the Federal Court of Australia, this Court has a wide discretion as to costs: see s 40(1) of the Supreme Court Act1935.  The principles which I have just mentioned have been consistently applied in this Court.

7. The circumstances in which a court may appropriately order costs to be paid on an indemnity basis are, generally speaking, associated with the conduct of the litigation.  The instances mentioned in Colgate-Palmolive include the making of allegations that ought never have been made, the undue prolongation of a case by groundless contentions and an imprudent refusal of an offer to compromise.  Another instance is where an action has been commenced or continued where the applicant, properly advised, should have known that he had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; see also J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (Western Australian Branch) (No 2) (1993) 46 IR 301. There are instances where other forms of conduct will attract an order for indemnity costs but the general rule is that it is the conduct of a party in the course of the litigation that is relevant. In Henderson v Amadio Pty Ltd (Federal Court of Australia, 22 March 1996, unreported) Heerey J said:

   …the authorities cited by Sheppard J in his summary in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233 suggest that the improper conduct of an unsuccessful party which will lead to an award of indemnity costs is usually related to the way the litigation is conducted, rather than the inherent badness of the conduct which gave rise to litigation. This is not universally true; for example contempt of court usually attracts costs on an indemnity basis. Nevertheless, it seems to be rare that findings of serious misconduct such as fraud of itself gives rise to an order for costs on an indemnity basis.

   Lindgren J expressed a similar view in NMFM Property Pty Ltd v Citibank Ltd (No.2) (2001) 109 FCR 77 at [56]:

   The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ.  In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation.  Even in a proved case of fraud, for example, in  my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis.  The conduct of a party that is relevant to the issue of indemnity costs is the party’s conduct as litigant.  But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.

   These principles were applied in Hypec Electronics Pty Ltd (inliq) v Mead (2004) 61 NSWLR 169 at [40] to [46]. Unless there are special circumstances, indemnity costs will not be ordered where the losing party was guilty of ethical and moral delinquency in the events that constitute the issues at the trial.

8. In this case J & L Developments Pty Ltd has acted in an attempt to exclude any liability for costs should it fail on this appeal. It was aware that it had a potential liability for costs and, with that knowledge, deliberately amended the trust deed so that it might avoid any liability for costs should it fail.  In a sense, this is conduct which could be described as the conduct of a party in the course of the litigation. On the other hand, it is an attempt by a person to take a step believed to be lawfully available to protect itself from the liability for costs. That conduct resulted in an application to recover the costs from a non-party. In that sense, the application to recover costs from the non-party is similar to proceedings brought by a party who has been guilty of fraud. For that reason, while the conduct of the company and of its controlling director Mr Viscariello might have been morally or ethically wrong, a matter on which I express no opinion, it does not, I believe, justify the Court in ordering that the costs be paid on an indemnity basis. An award of costs is an award of compensation for the expense incurred in prosecuting litigation. It is not a means of punishing that person for wrongful conduct outside the litigation.

9. For these reasons, but not without a good deal of hesitation, I dismiss the application for an award of costs on an indemnity basis. The costs will be paid on a party and party basis.