Raja v Darul-Iman (WA) Incorporated [No 2]
[2011] WASCA 251 (S)
•14 JUNE 2012
| JURISDICTION | : | SUPREME COURT OF WESTERN AUSTRALIA |
| TITLE OF COURT : | THE COURT OF APPEAL (WA) | |
| CITATION | : | RAJA -v- DARUL-IMAN (WA) INCORPORATED [No 2] [2011] WASCA 251 (S) |
| CORAM | : MARTIN CJ NEWNES JA MURPHY JA | ||
| HEARD |
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| DELIVERED |
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| SUPPLEMENTARY | |||
| DECISION |
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| FILE NO/S |
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| BETWEEN | : FAYYAZ AHMAD RAJA |
Appellant
AND
DARUL-IMAN (WA) INCORPORATED
Respondent
ON APPEAL FROM:
| Jurisdiction | : | SUPREME COURT OF WESTERN AUSTRALIA |
| Coram | : MASTER SANDERSON | ||
| Citation |
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| File No |
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[2011] WASCA 251 (S)
Catchwords:
Costs - Non-parties - Solicitors
Legislation:
Associations Incorporation Act 1987 (WA), s 15
Rules of the Supreme Court 1971(WA), O 66 r 1, O 66 r 5
Supreme Court Act 1935 (WA), s 37
Result:
Costs reserved
Category: A
Representation:
Counsel:
| Appellant | : | Mr A M Houghton |
| Respondent | : | Mr S K Shepherd |
Solicitors:
| Appellant | : | Arns & Associates |
| Respondent | : | Tottle Partners |
Case(s) referred to in judgment(s):
AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450
Darul-Iman (WA) Incorporated v Raja [2010] WASC 299
Flinn v Flinn [1999] VSCA 134
Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147
HPM Pty Ltd v Fear [2002] WASCA 249 (S)
Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178
Massey v Wales [2003] NSWCA 212; (2003) 57 NSWLR 718
Michael v Freehill Hollingdale & Page (1990) 3 WAR 223
National Justice Compania Naviera SA v Prudential Assurance Co Ltd (No 2)
[2000] 1 WLR 603
Raja v Darul-Iman (WA) Incorporated [No 2] [2011] WASCA 251
Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
REASONS OF THE COURT:
Introduction
1 On 17 November 2011, this court allowed an appeal against a
decision of Master Sanderson, in which the master had not granted a stay of an action, despite finding that the action had been commenced without the authority of the plaintiff: Raja v Darul-Iman (WA) Incorporated [No 2] [2011] WASCA 251. The action had been commenced purportedly on behalf of the respondent, an incorporated association (the plaintiff), against the appellant (the defendant). This court held that the action should be stayed, pending determination of the question of who constitutes the members and office bearers of the association.
2 Following delivery of the court's reasons, the appellant raised the
question of costs against non-parties. The court ordered that there be liberty to apply to determine the question of costs, including whether or not a person other than the plaintiff to the substantive action should pay the appellant's costs of the application and of the appeal. Programming orders were made for service of submissions by the appellant on any non-party from whom the appellant intended to seek costs.
3 The appellant now seeks, under the liberty to apply, an order for
costs against the solicitors on the record for the respondent (the solicitors) and, or alternatively, against Mr Bin Omar (Mr Omar) and Mr Abdullah Saaid (Mr Abdullah) who, it is alleged, had the management of the action below.
4 Neither the solicitors nor Mr Omar or Mr Abdullah were parties to
the application before the master, or to the appeal. In the 'orders wanted' filed in the appeal, the appellant did not seek orders for costs against the solicitors or Mr Omar or Mr Abdullah.
5 In this application, there was no appearance on behalf of the
respondent association and (for obvious reasons) no order for costs was sought by the appellant against the respondent association. The solicitors and Mr Omar and Mr Abdullah were represented by counsel.
The background
The underlying proceedings - an action for specific performance
6 Proceedings were commenced on 2 March 2005 in the name of the
respondent, seeking specific performance of a contract for the sale of land against the appellant. The appellant did not lodge a defence but applied,
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
by chamber summons, to have the proceedings struck out or dismissed. It was alleged that the action was a nullity, or irregular, by reason of it having been commenced without the authority of the respondent. That application was brought approximately four months after the commencement of the substantive action: Darul-Iman (WA) Incorporated v Raja [2010] WASC 299 [12].
7 The respondent is an incorporated association which, according to its
constitution, is a non-profit association the objects of which are, in effect, to encourage and promote religious, social and educational interests of Muslims in Australia. There are two disparate groups that claim to represent, and control, the association.
8 The first group is the 'Ahmed Group' which comprises Mr Ahmed,
Mr Raja (the appellant), and various others. In the application before the master, the Ahmed Group asserted that as a result of an annual general meeting held on 3 October 2004, it controlled the respondent and did not instruct the respondent's lawyers to commence the substantive action. On that basis, the appellant sought to have the action struck out or dismissed.
9 The second group is the 'Omar Group' which comprises Mr Omar,
Mr Abdullah, and various others. The Omar Group asserted that as a result of an annual general meeting held on 10 October 2004, it controlled the respondent and that it instructed the lawyers to commence the substantive action. The Omar Group caused the respondent to resist the application before the master.
The master found, relevantly, that (Darul-Iman (WA) Incorporated
v Raja):
• the Omar Group instructed the solicitors, purportedly on the basis of the authority derived from the 10 October 2004 meeting: [5(a)], [6], [26], [37]; • the annual general meeting held on 10 October 2004 was not properly called, with the result that the Omar Group were not properly elected to their respective positions, and did not have actual authority to act on behalf of the respondent to instruct the lawyers to commence the action: [6], [37]; • the solicitors, in commencing the action, did not have the authority of the respondent: [6], [26], [37], [38];
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
• the respondent and the solicitors entered into the contractual arrangement in circumstances where the solicitors did not have actual notice of the want of authority of the Omar Group: [12], [26]. 11 The master's findings were reached after hearing a considerable body
of evidence and with the benefit of cross-examination, and after having made adverse findings on the credibility of Mr Omar [36]. The master held that, despite the want of authority, there were no grounds for staying the action, because he accepted the argument, advanced by counsel for the respondent, that the solicitors' retainer was not open to challenge by virtue of s 15 of the Associations Incorporation Act 1987 (WA).
12 The appellant appealed the decision of the master alleging, inter alia,
that the master should have dismissed, or alternatively, stayed, the action following the finding that the Omar Group were not authorised to instruct the solicitors. The appeal was allowed. This court held that s 15 of the Associations Incorporation Act 1987 was irrelevant to the disposition of the appellant's application. The court noted that an action, though brought without authority, is not a nullity in the sense that it is void ab initio without the possibility of subsequent ratification and that ratification, once effected, relates back to the date of the institution of the action. The court ordered that the action be stayed pending determination of the substantive matter of the membership and current office bearers of the respondent. An action in that regard has now been commenced, as discussed below.
The action to determine the membership and office bearers of the respondent association
13 On 20 January 2012, a writ was filed by Mr Omar, in an alleged
representative capacity, seeking, amongst other things, declarations as to the membership and office bearers of the respondent association. The appellant is a defendant to that action (the membership action). The membership action is in the CMC List.
The parties' arguments
14 The appellant contends, in substance, that the solicitors should pay
the costs of the application before the master, and of the appeal, on the basis that the master had found that the Omar Group, who had instructed the solicitors, did not have the authority of the respondent association to do so. The appellant also contends that Mr Omar and/or Mr Abdullah should similarly be liable for the costs as they were involved in the management of the action.
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
15 The solicitors, and Mr Omar and Mr Abdullah, principally contend
that the application for costs is premature, pending a final determination
of the membership action.
General rules as to costs
The general power to order costs comes from s 37 of the Supreme Court Act 1935 (WA). Section 37(1) provides that:
Subject to the provisions of this Act and to the rules of court and to the express provisions of the Magistrates Court (Civil Proceedings) Act 2004, or any other Act, the costs of and incidental to all proceedings in the Supreme Court … shall be in the discretion of the Court or judge, and the Court or judge shall have full power to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid.
Order 66 r 1(1) of the Rules of the Supreme Court 1971 (WA)
provides that:
Subject to the express provisions of any statute and of these rules the costs of and incidental to all proceedings … shall be in the discretion of the Court but, without limiting the general discretion conferred on the Court by the Act, and subject to this Order, the Court will generally order that the successful party to any action or matter recover his costs.
Costs against non-parties generally
18 There is nothing in the Supreme Court Act, or the rules of court, which would preclude the making of an order for the payment of costs by a non-party: HPM Pty Ltd v Fear [2002] WASCA 249 (S) [3]. The power to make an order for costs against a person who is not a party to proceedings is one which is rarely exercised. That is because it would ordinarily be unjust to make such an order: HPM v Fear [4].
19 Non-parties against whom costs have been ordered include persons
who have been involved in the management of the action, persons who have maintained or financed the action, and solicitors: National Justice Compania Naviera SA v Prudential Assurance Co Ltd (No 2) [2000] 1 WLR 603, 611; HPM v Fear [5].
Costs against legal practitioners
In Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, Dawson J said at 198, 199:
[T]here is a certain artificiality in any proposition that an award of costs cannot be made against a person merely because he is not a party to the
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
proceedings. If that were all, then it would be possible simply to join the person as a party for the purpose of obtaining an order for costs against him. Indeed, in the case of Mathias v Yetts that was said to have been the practice where it was otherwise appropriate to make an award of costs against a person who was not a party. When it is said that as a general principle costs ought not be awarded against a person who is not a party to the proceedings, what is really being asserted is, not that there is no jurisdiction to do so, but that there is no justification for it because generally speaking persons who are not parties lack a sufficient connection with the litigation to provide a proper basis upon which to award costs against them…
[T]he situation of a solicitor is admittedly a special one. The jurisdiction to order him to pay the costs, whether of his own client or of the opposite side, is a summary jurisdiction to punish for misconduct and would appear to rest upon the duty of the court to supervise the conduct of its solicitors. (citations omitted)
Express provision is made in the rules of court for (amongst other things), the award of costs against a legal practitioner: O 66 r 5.
Order 66 r 5 provides, relevantly:
5. Lawyer may be ordered to pay costs etc.
(1) Where in any proceedings costs are incurred by a party -
(a)
as a result of any improper, unreasonable, or negligent act or omission; ...
the Court may order any practitioner whom it
considers to be responsible ...
(c) to pay those costs personally ...
(2) No order under this rule shall be made against a practitioner unless he has been given a reasonable opportunity to appear before the Court and show cause why the order should not be made...
23 The foundation for the exercise of the jurisdiction under provisions
such as O 66 r 5(1) is the misconduct of the lawyer: Michael v Freehill
Hollingdale & Page (1990) 3 WAR 223, 228.
In Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447, Bryson J (as his Honour then was) had dismissed an action against certain defendants on the ground that the plaintiff company had not authorised the commencement of the proceedings. After the dismissal of the action, he also ordered the solicitors who had purportedly acted for the plaintiff
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
company, to pay the costs. His Honour outlined the principles on which a court may order costs against a solicitor where the solicitor has acted without the authority of the parties for whom the solicitor purports to act. His Honour said [8], [10]
[T]he court must exercise a discretion and should only order costs on the basis of some sound or positive ground for making the order, and on a review of relevant discretionary considerations to which its attention is directed. It would not be correct to regard the court as committed to some established outcome by earlier judicial decisions, or by analyses found in them, such as the treatment in Yonge v Toynbee of the situation as one of breach of warranty of authority.
…
Young J considered the liability of a solicitor who purports to act for a company but without the actual authority of the company in AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450 at 458 to 460. Young J said at 458: 'As to costs, the ordinary rule is that the solicitors whose retainer is challenged pay all the costs of the proceedings up until the order is made.' His Honour thus stated the outcome which would usually be produced in a sound exercise of discretion; his Honour was not, of course, attempting to state a legal rule, and the reference to the ordinary rule is an indication that, on adequate grounds, the ordinary rule may be departed from. The burden of his Honour's consideration was directed to whether the costs should be assessed on the indemnity basis, in support of which counsel contended that there was a warranty of authority and relied on cases including Yonge v Toynbee which have referred to a warranty of authority. Young J said of Nelson v Nelson (at 459) 'However, it is also authority for the proposition that the analogy with breach of warranty of authority cases must not be pressed too far, and that the circumstances and degree of negligence or fault in the solicitor is relevant to the order to be made as to costs.' In my respectful view this is correct; the references to breach of warranty of authority are figures of speech but are not closely related to the true basis on which orders should be made.
25 His Honour observed that the 'opportunity to ascertain facts and
come to a position of certainty about whether authority existed was in the hands of the solicitors, both before the litigation was commenced and at all times while it was pending, in a way which and with opportunities which were simply not available to the defendants' [17]. His Honour said that, in the face of a known conflict and challenge to authority, the solicitors had failed to 'take any steps to review and establish, on a proper basis, whether [the persons from whom they took instructions] were in a position to give instructions and to commence proceedings on behalf of the company' [19]. Bryson J's decision was affirmed on appeal: Massey v Wales [2003] NSWCA 212; (2003) 57 NSWLR 718, although the appeal
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
turned on the issue of ratification. Bryson J's observations in Zimmerman, to which we have referred, were also approved by the New South Wales Court of Appeal in Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147 [50] - [52].
26 The result in Zimmerman may be contrasted with the result in Hillig v Darkinjung (No 2). In the latter case, despite an ultimate finding as to the absence of authority, the solicitors were not ordered to pay the costs. In that case McColl JA (Beazley & Giles JJA agreeing) said [56]:
A solicitor placed on notice of a challenge to retainer would do well to determine, as Zimmerman demonstrates, whether the client's authority to retain him or her can be objectively determined. Where that cannot be done, the court must be anxious to ensure that an order that the solicitor bear the costs is appropriate in all the circumstances. Those circumstances include, in my view, the public interest that citizens have legal representation for the purposes of the conduct of litigation: Orellana-Fuentes v Standard Knitting Mills Pty Ltd [2003] NSWCA 146; (2003) 57 NSWLR 282 (at [96]) per Ipp JA (Spigelman CJ and Handley JA agreeing).
Earlier, McColl JA said [53]:
The first question is whether [the solicitor] should be visited with the costs orders ... to the extent he conducted the proceedings on [the company's] behalf. In determining this question it should be taken into account that all three applications before the primary judge turned on the one issue: the efficacy of the Resolutions. This was not a case, such as Zimmerman, where the directors who purported to instruct solicitors on behalf of a company were not validly appointed due to the want of a quorum: Massey (at [18]) per Hodgson JA. [The solicitor] could not determine by reference to objective facts whether or not the Resolutions were effective and, therefore, whether or not [the company], and ergo its directors, had authority to retain him. Rather, as the outcome of the primary proceedings demonstrated, there was at least an arguable case that the Resolutions were ineffective. (emphasis added)
| Disposition |
28 This application against the solicitors involves, in substance, the
operation of O 66 r 5. The solicitors are 'before the court' to show cause why the costs orders, sought by the appellant, should not be made against them.
29 Neither the solicitors, nor Mr Omar nor Mr Abdullah, contended that
the master's finding that the Omar Group did not have the authority to instruct the solicitors was inadmissible against them on the basis that they
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
were not parties to the interlocutory application before the master. See in that regard Flinn v Flinn [1999] VSCA 134 [4] - [11]; cf AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450, 451 where the solicitors were joined to the challenge to the retainer, and were represented.
30 Nevertheless, a finding of absence of authority is not, in itself,
dispositive of the application to order costs against the solicitors. The court has a broad discretion, which remains to be exercised, upon a review of all relevant considerations, including the 'degree of negligence or fault in the solicitor': AW & LM Forrest v Beamish (459); Zimmerman [10].
31 It is to be recalled that the underlying action concerns proceedings to
enforce a contract for the sale of land by the appellant, as vendor, to the respondent association, as purchaser. The subject matter of the action is, it may be inferred, a valuable asset, the beneficial entitlement to which, it appears, is not in substance disputed by the appellant. In this regard the appellant, by his counsel in submissions to the master, said that the appellant 'would honour his contract to transfer the land to the entity represented by a properly appointed council and committee of [the respondent]'.
32 Proceedings are presently underway, in the form of the membership
action, which are intended to resolve that issue and to resolve the question
of ratification.33 If, as a result of the membership action, the respondent association
ratified the action for specific performance against the appellant, that would clearly be relevant to the question of who should bear the costs of the interlocutory application before the master and of the resultant appeal to this court. In that event, the proceedings would be regarded as having been properly instituted from the filing of the writ. Conversely, if, for example, the action for specific performance were not ratified, that would itself be a relevant consideration on the question of costs. Also, the issues canvassed in the membership action might, eg, cast light on, and be arguably relevant to, a consideration of whether or not there existed 'objective facts' (see Hillig v Darkinjung (No 2) at [53]), indicating a lack of authority which the solicitors could have ascertained upon making proper inquiry.
34 In all the circumstances, we consider that it would not be
appropriate, at this stage, to make orders as to costs against the solicitors
or against Mr Omar or Mr Abdullah.
| REASONS OF THE COURT | [2011] WASCA 251 (S) |
| Conclusion |
We would order that:
(1) the costs of the application before the master and of the appeal be
reserved; and(2) there be liberty to apply.
0
2
3