O.D. Transport (Australia) Pty Ltd v O.D. Transport Pty Ltd

[1998] FCA 526

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - costs of application under s 500(2) of Corporations Law

Corporations Law s 500(2)
Federal Court Rules O62 r3(2)

Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 applied
Fielding v Vagrand Pty Ltd (1992) 111 ALR 368 mentioned
In re Wanzer Ltd [1891] 1 Ch 305 mentioned
J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, (unreported, French J, Federal Court, 19 February 1993) applied
JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liq) (1986) 11 ACLR 224 mentioned
Maher v Taylor (1984) 8 ACLR 931 mentioned
Ragata Developments Pty Ltd v Westpac Banking Corporation, (unreported, Davies J, Federal Court, 5 March 1993) discussed

O.D. TRANSPORT (AUSTRALIA) PTY LTD, RICHARD GELL MANSELL and SIMON ALEXANDER WALLACE-SMITH v O.D. TRANSPORT PTY LTD, NOEL ROBERT MAY and            LYNETTE CHRISTINE MAY
VG 3145 of 1997

FINKELSTEIN J
MELBOURNE
15 MAY 1998  

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3145 of 1997

BETWEEN:                 O.D. TRANSPORT (AUSTRALIA) PTY LTD, RICHARD   GELL MANSELL and SIMON ALEXANDER WALLACE-   SMITH
   Applicants
AND:   O.D. TRANSPORT PTY LTD, NOEL ROBERT MAY and   LYNETTE CHRISTINE MAY
   Respondents

JUDGE:	FINKELSTEIN J
DATE OF ORDER:	15 MAY 1998
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The first respondent pay the first applicant’s costs of and incidental to the motion on        notice dated 22 January 1998 including the costs of the hearing on 10 February 1998.

1. The first respondent pay the first applicant’s costs of and incidental to the various            applications by the first respondent to amend its defence including the costs of the      directions hearings held on 2 April 1998, 6 April 1998 and 17 April 1998.

1. Pursuant to O62 r3(2) of the Federal Court Rules, the first applicant’s costs are to be        taxed and paid forthwith.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
DISTRICT REGISTRY	VG 3145 of 1997

BETWEEN:	O.D. TRANSPORT (AUSTRALIA) PTY LTD (IN LIQUIDATION), RICHARD GELL MANSELL and SIMON ALEXANDER WALLACE-SMITH Applicants
AND:	O.D. TRANSPORT PTY LTD, NOEL ROBERT MAY and LYNETTE CHRISTINE MAY Respondents

JUDGE:	FINKELSTEIN J
DATE:	15 MAY 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

The first respondent has made two applications under s 500 of the Corporations Law for leave to commence a proceeding by way of cross-claim against the first applicant a company in liquidation. The first application was not successful (see my reasons published on 10 December 1997) and the second application was successful only in part (see my reasons published on 20 March 1998). The circumstances that gave rise to the first application led me to form the view that although the first respondent did not obtain the order that it sought it should not suffer an order for costs against it. When disposing of the second application I did not deal with the costs because the parties had not been given the opportunity to address me on the issue.

I have now had their submissions and in the light of them the order that I propose to make is that the first respondent pay the costs of the second application.  There are a number of reasons why I consider this to be the appropriate order and I will mention them shortly.  First I should say that my researches did not disclose there to be any usual orders for costs in an application for leave to proceed.  Most commonly the order that is made is that the costs are reserved to the trial judge to be dealt with at the conclusion of the action: see e.g. Palmer’s Company Precedents (17th ed) Form 340; see also Fielding v Vagrand Pty Ltd (1992) 111 ALR 368. Sometimes the costs are ordered to be the applicant’s costs in the cause: see Maher v Taylor (1984) 8 ACLR 931. On other occasions a successful applicant is required to pay not only the costs of the application for leave to proceed (see In re Wanzer Ltd [1891] 1 Ch 305) but also the costs of the proposed action irrespective of the result: see e.g. JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liq) (1986) 11 ACLR 224.

Here the first applicant successfully resisted most of the claims that the first respondent sought leave to bring against it.  Much of the time occupied during the course of the hearing involved a consideration of these unsuccessful claims.  If the first respondent had limited its claim for relief to that in respect of which it was successful it is likely that its application would not have been opposed.  The reason the first respondent was given leave to bring a claim to rectify the franchise agreement was that the first applicant, by its liquidator, led evidence that demonstrated that the first respondent had an arguable case for rectification.  That evidence was also available to the first respondent but for some reason it did not seek to present it.  In the absence of that evidence the first respondent would have been wholly unsuccessful in its application.

The first respondent also sought leave to amend its defence on a number of occasions.  Three directions hearing were taken up with this matter.  The first respondent did not persuade me that its defence should be amended.  The reasons for this are known.  In substance the various proposed formulations of the amendments did not conform to the rules of pleadings and more particularly sought to raise matters in an impermissible and often contradictory manner.

It is necessary to deal with the costs incurred by the first applicant in dealing with the proposed amendments.  It is not in dispute that the first respondent should pay them.  Those costs include the costs of the directions hearings on 2 April, 6 April and 17 April 1998 as well as the costs incurred by the first applicant’s solicitors in considering the various formulations of the proposed pleading.

There was a directions hearing on 10 December 1997 when the issue of the pleadings was also discussed.  The first applicant will obtain the costs of that hearing in so far as they were concerned with the application for leave to proceed: it will be recalled that I delivered my judgment on the first application for leave to proceed on 10 December 1997.  I do not believe that anything of consequence occurred on that day in relation to the pleadings and accordingly no further order will be made in relation to the costs of that day.

The first applicant submits that it should recover the costs of the failed applications to amend the defence on a solicitor and client basis.  Such costs are only awarded in exceptional circumstances.  They will be awarded where it is apparent that a party is bringing a hopeless case: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, (unreported, French J, 19 February 1993).  They will also be awarded if a claim is being brought for some ulterior motive: Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 at 288. In Ragata Developments Pty Ltd v Westpac Banking Corporation, (unreported 5 March 1993) Davies J said:

“An order for costs on an indemnity basis may be made only in a special case, where the circumstances justify departure from the ordinary principle.  The circumstances must be such as to justify an award indemnifying the successful party in respect of all of the costs incurred, save only as to those which are unreasonable in amount.

The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate.  Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose.”

The circumstances of this case do not justify the making of an order for the payment of costs on a solicitor/client basis.  True it is that the proposed amendments to the defence were deficient in significant respects.  It is also true that the deficiencies should have been apparent to those advising the first respondent.  Nevertheless the amendments were prepared by counsel.  I cannot assume, indeed I do not assume, that counsel was of the view that the amendments would be disallowed.  Further, there is no improper or ulterior motive that can be discerned from the making of the application.  On the contrary, the proposed amendments were formulated for the sole purpose of enabling the first respondent to mount a particular defence to the first applicant’s claim against it.

However, this is a case where it is appropriate that an order to be made under O 62 r 3(2) that the first applicant’s costs be taxed and paid forthwith.  The principal reason why such an order should be made is that the first applicant is a company that is being wound up in insolvency and the costs occasioned to the liquidator in dealing with the applications will deplete the funds of the company available for distribution among its creditors.  In due course these costs will be paid by the first respondent for it does not bring a money claim against which it could set off those costs.  Thus, rather than have the creditors await the determination of the proceeding to receive the benefit of the costs order, an event which will take some time to occur, there is no reason why the creditors should not have their money now.

I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:

Dated:            15 May 1998

Counsel for the Applicant:	T Irlicht
Solicitor for the Applicant:	Irlicht & Broberg
Counsel for the Respondent:	S. Glacken
Solicitor for the Respondent:	Coltmans Price Brent
Date of Hearing:	17 April 1998
Date of Judgment:	15 May 1998