Push Button P/L v Khabbaz - [2006] SADC 83

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
PUSH BUTTON P/L v KHABBAZ
[2006] SADC 83
Judgment of His Honour Judge David Smith
28 July 2006
PROCEDURE - COSTS
Appeal against decision of Master requiring appellant to pay forthwith costs thrown away as a condition of setting aside default judgment – whether order should be made that costs be payable forthwith – discussion of considerations relevant to exercise of discretion pursuant to r101.01(7) – whether trial in default of appearance is an interlocutory proceeding within the meaning of r101.01(7).
Held: that not only r101.01(7) but also r101.01(1) and (6) apply as a trial in default of a party attending is not an interlocutory proceeding within the meaning of r101.01(7) but the application to set aside the default judgment is such a proceeding.
Held: dismissing appeal that Court would not interfere with Master’s exercise of discretion and orders. Appeal dismissed.
District Court Act 1991 s43(2)(a); District Court Rules r97.01, r101.01(1), (6) & (7), referred to.
Police v Cadd (1997) 69 SASR 150; O’Brien Lovrinov Crafter Pty Ltd v Corradini [1999] SASC 1549; Transeast Pty Ltd v Commonwealth Bank (1990) 157 LSJS 447; O’Sullivan v Farrer (1989) 168 CLR 210; Cretazzo v Lombardi (1975) 13 SASR 14; Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors [2006] SASC 87; Gattellari v Meagher [1999] NSWSC 1279, considered.

PUSH BUTTON P/L v KHABBAZ
[2006] SADC 83
Introduction

In this matter the defendant appeals against an order made by Master Norman on the 6^th April 2006 which required the defendant forthwith to pay costs thrown away as a condition precedent to the setting aside of a default judgment.
Background Circumstances
The appellant (defendant), Leslie Paul Khabbaz (“Khabbaz”), guaranteed the performance by Finish Line Pty Ltd (“Finish Line”) of its obligations under a lease entered into on the 27^th February 2003 with the respondent (plaintiff) Push Button Pty Ltd (“Push Button”) in respect of a commercial property at Salisbury. Finish Line defaulted. Push Button instituted two actions in this Court against, respectively, Finish Line (Action No. 1715 of 2004) and Khabbaz (Action No. 1712 of 2004). On 22^nd July 2005, Finish Line was placed in Administration. In August 2005, a Deed of Company Arrangement was accepted by a majority of the creditors, not however, including Push Button. So subject to leave to proceed being given, the further prosecution of proceedings against Finish Line was statute barred. Accordingly, Push Button pressed on with the action herein against the guarantor Khabbaz.
The action was listed for trial on the 20^th September 2005. On the approach to the trial, Khabbaz represented himself. Due to a misunderstanding on his part he did not appear at the trial. Accordingly, in this Court, on the 20^th September 2005, Beazley DCJ entered judgment against him in default of his attendance. His Honour was satisfied that Push button’s claim was for liquidated sums and so, after taking some evidence and hearing argument, in an extempore judgment, His Honour fixed the amount of the judgment at $49,957.68 inclusive of interest.
By Notice for Specific Directions dated the 14^th October 2005, Khabbaz applied to set aside that judgment. On the 23^rd March 2006, Master Norman ordered the setting aside of the judgment. Then on the 6^th April 2006, having heard argument as to costs, he made the following orders:
1.On the plaintiff’s oral application for costs following the publication of my reasons and decision on 23.3.06 and having heard submissions from counsel for the parties I award to the plaintiff its costs of the trial thrown away together with the costs of the application to set aside judgment and costs of argument on that application. I certify both the trial and the argument on the application as fit for counsel.
2.I decline, however, the plaintiff’s application for costs thrown away to include the costs of the bankruptcy notice and subsequent proceedings issued by it. I have regard to the decision of the Court of the Appeal in Andromeda v Holme (1923) Weekly Notes 250 and also to the fact that the bankruptcy proceedings were commenced by the plaintiff after the defendant had applied to set aside the judgment.
3.I order that it be a condition of judgment being set aside that the above costs are first paid to the plaintiff and in this regard I make the following further order.
4.In regard to the taxation of costs as aforesaid I waive the requirement for a short form bill and the plaintiff may formulate its costs in a long form bill format. This bill is to be filed and served within 14 days.
5.Any notice of dispute to this bill is to be filed and served within a further 14 days.
6.If any of the items are disputed and require adjudication parties are at liberty to contact my clerk and I will appoint a date for taxation.
7.If there is no notice of dispute filed or served the plaintiff is at liberty to obtain a default allocatur.
8.Following the issue of the allocatur and service of the allocatur if the defendant make payment thereof within 21 days the court is to be notified in which case judgment is set aside and a directions hearing will be fixed. If payment is not made within that 21 day period the judgment will stand.
9.In the above circumstances I will not fix a directions hearing but if the action is to continue plaintiff is to notify the court in which case it will be fixed.
10.My clerk to fax these orders to the parties today.
Appeal Grounds
The appellant appeals against the order requiring him to pay the respondent’s costs thrown away as a condition of setting aside the judgment. In particular, the grounds of appeal are as follows:
1.In all of the circumstances no order requiring the payment of costs as a condition of the order setting aside the default judgment should have been made;
2.The Plaintiff had not established sufficient grounds for an order to be made pursuant to Rule 101.01(7) departing from the usual interlocutory costs order.
Nature of Appeal
This appeal is instituted pursuant to s43(2)(a) of the District Court Act 1991 and r97.01 of the District Court Rules, and is by way of rehearing, which means that this Court may exercise its own discretion without regard to the manner in which it was exercised by the Master (see Police v Cadd[1]; O’Brien Lovrinov Crafter Pty Ltd v Corradini[2]; see also Transeast Pty Ltd v Commonwealth Bank[3]). An appeal by way of rehearing does not mean that this Court should not give appropriate weight to, in this case, the decision of the Master (see In re Flinders Trading co Pty Ltd[4]). This must be so, particularly where, as here, the evidence remains the same as it was before the Master. Rule 97.01 indicates that “... in matters involving the exercise of a discretion the judge may exercise his own discretion ...”. So at the threshold in an appeal such as this, the Court has a discretion as to whether it should intervene at all.
[1] (1997) 69 SASR 150 per Lander J at 189
[2] [1999] SASC 1549
[3] (1990) 157 LSJS 447 at 450 per Perry J
[4] (1977) 20 SASR 14 at 28
No additional evidence was called on the appeal. I relied on the helpful arguments and written submissions of counsel.
Arguments
The appellant in summary contended that by reason of r101.01(7) there was a general rule or practice that costs are not payable until the conclusion of the action. The appellant argued that there were insufficient grounds justifying a departure from the ordinary practice as prescribed by r101.01(7).
The respondent, in answer, contended that the orders made by the Master were, in the circumstances, well within his discretionary power.
Legal Principles
As can be seen, the appellant’s argument focused exclusively on sub-rule (7) of r101.01 of the Rules of this Court, which provides:
(7)An order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded or further order.
(the italics are mine)
So r101.01(7) applies only to costs “… of an interlocutory proceeding …”. The order for costs, the subject of this appeal, was specifically as follows:
... I award to the plaintiff its costs of the trial thrown away together with the costs of the application to set aside judgment and costs of the argument on that application ...
(see para 1 Master’s order 6^th April 2006)
The default trial on the 20^th September 2005 was not “an interlocutory proceeding”. Rather, it was a final hearing. On the other hand, the application to set aside judgment was an interlocutory proceeding.
So this appeal is not disposed of by reference only to r101.01(7). Rather, r101.01(1) and r101.01(6) also apply. Those two rules provide:
(1)Notwithstanding the following provisions of this Rule and of the provisions of Rule 101A.01, the costs of any party, the amount thereof, the person by whom, or the fund or estate, or portion of an estate, out of which they are to be paid are in the discretion of the Court ...
......................
(6)Where the Court makes an order in any proceeding for the payment of costs the Court may require that the costs be paid forthwith notwithstanding that the proceeding is not concluded.
It is rather obvious to say that sub-rules (1), (6) and (7) of r101.01 give the Court an absolute and unfettered discretion. However, strictly speaking, there is no such thing as an unfettered discretion. Its exercise is controlled by the scope, intent, policy and purpose of the legislation (see O’Sullivan v Farrer[5]). Further, it must be exercised judicially, not arbitrary or capriciously and it cannot be exercised on grounds unconnected with the litigation (see Cretazzo v Lombardi[6]).
[5] (1989) 168 CLR 210 at 216
[6] (1975) 13 SASR 14 per Bray CJ at 11
The Applicable Principles
I start with r101.01(7).
The applicable principles guiding the exercise of the discretion embodied in r101.01(7) are spelled out by Debelle J in Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors[7]. Debelle J at [4] said:
The discretion with which r 101.01(7) invests the court is unfettered. The rule is expressed in terms which make it clear that the general rule is that a taxation of costs will occur at the conclusion of the proceedings, unless the court makes an order to the contrary. It is not appropriate to state that the order for costs shall be paid forthwith will be made in “rare” or in “exceptional” circumstances. The rule clearly states the general position so that to add epithets such as “rare” or “exceptional” is to add words to the rule in an impermissible manner, which may cause the exercise of the court’s discretion to be improperly fettered.
[7] [2006] SASC 87
In Alstom (supra), Debelle J at [6] identified the policy considerations which guide the exercise of the discretion as including:
·discouraging interlocutory applications;
·avoiding the inconvenience and possible oppression involved in a series of taxations where there are successive interlocutory applications; and
·the fact that it is usually inappropriate to require the unsuccessful party to interlocutory proceedings to pay costs immediately, since that party might ultimately succeed in the substantive proceedings and set-offs can be made in the light of the ultimate orders as to costs.
Then Debelle J at [7] concluded that the ultimate question in relation to the exercise of the discretion in r101.01(7) is, whether in the particular case it is in the interest of justice to make an order that the costs be paid forthwith having regard to the general rule or practice that costs of interlocutory proceedings are not payable until the conclusion of the action.
At [8, 9 and 10] in Alstrom (supra), Debelle J identified the considerations relevant to the exercise of the discretion to make such an order in the face of the general rule. They included the following, which are particularly relevant to this matter:
·whether the interlocutory proceeding involves a discrete issue which has been resolved;
·whether the principal proceedings are not likely to be resolved for some time so that, in the absence of an order, the successful party will not enjoy the fruits of the interlocutory order for along period;
·whether the order will affect the ability of the party who must pay the cost to prosecute or defend the proceedings; and
·whether there has been unreasonable conduct on the part of a party against whom costs have been ordered.
I turn now to r101.01(1) and (6).
It is sufficient to say that the discretion involved in r101.01(1) and (6) requires the Court to decide whether in the circumstances of the particular case it is in the interests of justice to make the order that the costs thrown away be paid forthwith. Considerations of justice would require that the Court consider putting the parties in the position they would have been in had there been no default. So requiring that the party in default forthwith make good the wasted expenditure of the innocent party is a relevant consideration. So too some of the considerations set out above from Alstom are relevant.
I have addressed the relevant rules as if separate consideration of the costs thrown away is required in relation to, on the one hand the application to set aside the default judgment, (ie an interlocutory proceeding), and on the other hand, the trial in default (ie a final proceeding). Such an approach would be artificial. The default trial in the context of the action is in the nature of an interlocutory proceeding because upon the successful application to set aside it became a pre-trial proceeding akin to an interlocutory proceeding. Therefore, it is appropriate to have regard to the discretionary considerations particularised above by Debelle J in Alstom (supra at [8]). But in any event, those discretionary considerations as suggested above are clearly pertinent whatever the character of the pre-trial proceeding.
Conclusion
I consider that the question to be answered in this case by the Master was whether, in all the circumstances, it was in the interest of justice to make an order that the costs be paid forthwith, rather than at the conclusion of the action.
The default trial and the application to set aside the default judgment were discrete proceedings. Save for this appeal, those proceedings are completely resolved and cannot now be the subject of any appeal. So whatever happens in the litigation, Push Button is entitled to the benefit of the costs order.
Further, this action has some time to go before resolution and so Push Button, who is entitled to the fruits of this order in any event, will be kept out of its entitlement if the collection of costs awaits the outcome of the litigation. The fact that Push Button may amend its Statement of Claim, and so add to the time it takes to resolve the litigation, does not undermine this consideration.
On the 23^rd March 2006 in his reasons for setting aside the default judgment, the Master foreshadowed that he was not inclined to make Push Button wait for the reimbursement of its costs thrown away (see [113, 112] reasons of Master 23.03.06). Notwithstanding that intimation, the appellant did not adduce any sufficient evidence before the Master establishing that Khabbaz was impecunious so that “a forthwith” costs order would stifle the defence of the claim. As a result, the Master proceeded on the basis that it was not an issue.
I accept the contention of counsel for the appellant that there was no evidence that the appellant, Khabbaz, had acted unreasonably in the matter. The Master made no such finding and was clearly correct and so concluding (see [110] of Master’s reasons 23.03.06). I add merely that the fact that Khabbaz failed to attend trial does not constitute the disentitling unreasonableness envisaged by the authorities (see Gattellari v Meagher[8]).
[8] [1999] NSWSC 1279
The appellant’s counsel accepted that the appellant was clearly liable to pay Push Button’s costs of the default trial thrown away as a result of the order setting aside the judgment, but contended that because Push Button contested the actual application to set aside, then the costs of that application should be in the cause. The Master rejected this contention (see p16 of transcript of 6.04.06). I agree. The appellant, Khabbaz, required the Court’s indulgence. The judgment was regularly entered. Push Button was entitled to test Khabbaz’s entitlement to relief without putting itself in jeopardy of an unfavourable costs order. Accordingly, dealing with this matter discretely, I conclude that there is no basis to interfere with the Master’s decision rejecting that argument.
In my view, for the above reasons, there is no basis to interfere with the overall decision and orders made on the 6^th April 2006. In the circumstances, it was clearly within the Master’s discretion to order that the costs thrown away be paid as a pre-condition to the setting aside of the default judgment. Were I to exercise this discretion afresh I would make the same decision.
I will hear the parties as to costs.