Sanelli v Acee Victoria Pty Ltd (No 2)
[2012] VSC 190
•14 May 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2008 08028
| CAROLINA SANELLI | Plaintiff |
| – and – | |
| ACEE VICTORIA PTY LTD | Defendant |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 October 2011 | |
DATE OF JUDGMENT: | 14 May 2012 | |
CASE MAY BE CITED AS: | Sanelli v Acee Victoria (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 190 | |
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COSTS ― Judgment for plaintiff after defendant company withdrew defence ― Costs order in favour of plaintiff ― Insolvent defendant ― Application for company directors to pay plaintiff’s costs ― Principles applicable for costs orders against non parties ― Application refused
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Bevan-John | O’Donnell Salzano Lawyers |
| For the Defendant | Mr W F Rimmer | E.P. Johnson & Davies |
HIS HONOUR:
This is a second serious costs fight instigated by the plaintiff. It is a sequel to the Court’s costs decision in Sanelli v Sanelli[1] published on 17 March 2010. In that application, the plaintiff failed in her claim for indemnity costs of the proceeding as against the second defendant, Acee Victoria Pty Ltd (“Acee”). Although the proceedings at one stage had four defendants, the trial was fixed ultimately to proceed only as against Acee for reasons that do not matter for present purposes.
[1][2010] VSC 78.
The plaintiff had sought indemnity costs, an exceptional order, after Acee withdrew the entirety of its defence six days before the commencement of the trial. That occurred in circumstances described in my previous judgement which need not be repeated. As a legal consequence of Acee’s withdrawal, on 11 February 2010 the Court gave judgment for the plaintiff which entitled her to receive funds of $568 784 that had been paid into court by Westpac Banking Corporation (which was once the fourth defendant). Those funds were the surplus net proceeds of sale obtained by Westpac after it sold as first mortgagee a matrimonial home in East Ivanhoe owned by the plaintiff and her husband Giuseppe Sanelli (who was once the first defendant).
The plaintiff had sought indemnity costs of the proceedings contending that Acee never had a case and had defended the claim, until a last minute withdrawal, in wilful disregard of known facts and the applicable law. Acee defended its conduct of the litigation by contending there should be no order for costs on the withdrawal because such was the nature of the case, Acee was at a disadvantage and had to pursue tenaciously the facts underlying the plaintiff’s claim which were uniquely in the plaintiff’s knowledge. In that pursuit, Acee contended that the plaintiff and her legal advisers had conducted the case with “obstructionism, delay and obfuscation”. It said that such conduct impaired it from gaining the facts in order to form a considered view about the merits of the plaintiff’s case, and it could only do so finally when the plaintiff filed her witness statement shortly before trial. I rejected the plaintiff’s application for indemnity costs for reasons I shall return to later. I ordered Acee to pay the plaintiff’s costs of the proceeding on the usual party/party basis. According to the plaintiff’s solicitor, those costs exceed $170 000.
Acee’s accountant has told the plaintiff’s solicitor that the company has not traded since year ended 30 June 2008 (this case was commenced on 22 August 2008); its only asset is a Supreme Court judgment debt of about $300 000 against Giuseppe Sanelli and another which now has slim prospects of being satisfied; and the company has liabilities (unquantified) to its directors “in respect of funds advanced to it to pay the legal fees of and incidental to the proceedings…”. As the plaintiff’s solicitor says, whilst it is not clear whether the directors paid for all of Acee’s legal fees, Acee has not said it paid for any of them, and the directors paid for at least some of them. The plaintiff now seeks a special costs order against the four directors of Acee, namely, Messrs Peter Mandjian, Gastone Panella, Salvatore Sorace and Claudio Grossi that they indemnify Acee for the plaintiff’s costs, or that they pay the plaintiff’s costs.
Although generally speaking, only parties to the proceedings are bound by the orders made in the proceedings, it is established that the Court’s “full power” under s 24 of the Supreme Court Act “to determine by whom and to what extend the costs are to be paid” is not restricted to costs as between parties to the litigation. It is wide enough to permit the Court to order costs against a non‑party. But such an order truly is exceptional and has to be called for by considerations of justice in accordance with principles relating to awards of costs.
In Knight v FP Special Assets Ltd[2] the High Court recognised a general category of case in which an order should be made against a non‑party, and which applied in that case to justify a costs order against two receivers of a plaintiff company for their failed litigation. Mason CJ and Deane J said:
That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non‑party has played an active part in the conduct of the litigation and where the non‑party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the litigation. Where the circumstances of the case fall within that category an order for costs should be made against the non‑party if the interests of justice require that it be made.[3]
[2](1992) 174 CLR 178.
[3]At 192-3.
In looking at instances when courts of common law or the Court of Chancery (acting not from authority but from conscience) could or would award costs against a non‑party, their Honours regarded them as explicable on the grounds that the non‑party was the “real party”, and there was something which on a very broad view constituted an abuse of process.[4] I doubt that the presence of an abuse of process has to be shown necessarily to justify an order for costs against a non‑party, but it is I think right to say that the power is more readily exercised when there was some abuse of process such as unreasonably bringing or defending a proceeding through a man of straw for the purpose of avoiding liability in a case. Much will depend on the nature and elements of the case and how it was conducted for that is what inflicts costs. But the Knight principle guiding the discretion looks to those non parties that abuse the legal process, or play abusively the game of legal process by hiding behind an insolvent litigant. By that I mean it is an abuse of process, in a broad sense, to put someone forward who is not really defending the action. This was referred to by Dawson J in Knight:
The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or an abuse of the process of the court. Even if the cases were confined to ejectment proceedings (and clearly they are not), the principle lying behind the ejectment cases is that the real litigant rather than the nominal party may be liable for costs. As Lord Campbell C.J. said in Hutchinson v. Greenwood [199 E.R. at 126]:
The principle is that the individuals who order an appearance to be entered in ejectment, in the names of those not really defending the suit, abuse our process, and that, as they substantially are the suitors, we have jurisdiction to make them pay the costs.
There is no compelling reason to my mind why that principle should be confined to cases of ejectment.
[4]At 188-190.
Ordinarily, a director of a company does not “hide” behind the company when acting as its organ, including acting instrumentally in the conduct of litigation. Directors’ loans are not exceptional if done for the benefit of a company even if that transmits theoretically to possible dividends to directors who are also shareholders. So how does the plaintiff put its application here? The issue, as the plaintiff puts it, is whether the directors have improperly caused Acee to defend or prosecute proceedings despite knowing that the company was insolvent. The plaintiff by her counsel, Mr Bevan-John, contends Acee was not a “normal defendant” because:
(a)Mrs Sanelli was “compelled” to litigate a case which was akin to an interpleader;
(b)Acee “manoeuvred itself” into the position of defendant;
(c)had Acee been the plaintiff, it would have been susceptible to an order for costs;
(d)Acee is the “man of straw”; it had no assets from which to fund the defence of Mrs Sanelli’s claim; and the directors funded the litigation knowing that the company had no funds to pay costs should Mrs Sanelli succeed in her claim.
The plaintiff’s statement of the issue creates its own difficulty. If the question activating the costs discretion is whether the directors have improperly caused Acee to defend the proceedings because the case was bound to fail, then the answer is no. On the indemnity costs application, I made a finding that it was not improper for Acee to conduct the litigation in the way that it did, and it was not conducted in wilful disregard of known facts or the applicable law, because the facts were not known to Acee and were being pursued by Acee. The plaintiff seems to want to put that to one side as irrelevant on this application. But it is indeed relevant. Mrs Sanelli was propounding a claim that she was entitled to the surplus funds (or more precisely, that Acee had no claim as judgment creditor to the surplus funds) because the money was her property under the equitable doctrine of exoneration. But as I found, it was not until halfway in the 18 month life of the case, that the plaintiff’s case was amended to definitely plead the equity of exoneration. Moreover, and more importantly, I concluded that –
I accept the submission that Acee was entitled to pursue discovery to see if facts existed to raise the equity in the first place. Discovery is all it had to investigate the facts. I am not willing to conclude that discovery was aimless here or designed to harass or inflict tactical delay. As already stated, the doctrine [of exoneration] creates a presumption but it recognises that circumstances and dealings and arrangements “behind the scenes” or within the relationship could conceivably furnish proof of an actual intention as between husband and wife in the Westpac loan that she was to be more than a surety. To expect Acee to capitulate just because it was plain that the Westpac funds were paid to Acee and on the face of it the plaintiff got no benefit is, I think unrealistic and unreasonable. Moreover I do not see it as “wilful disregard” of the law to investigate the presence of facts to ascertain or infer the presence of a different intent. I think I can add that experience has it that creditors and their lawyers view unconscionability claims in commercial dealings with initial disquiet and feel impelled to fully investigate the claimant’s personal circumstances and other banking and property dealings before conceding a financial loss from a joint mortgage security given by a husband and wife and accepted in good faith.
Thus to my mind, there is no question, or question to be revisited, about abuse of process by Acee in its broader sense or some impropriety in the way Acee conducted the litigation as a party. This application for costs therefore comes to be decided on the basis that the directors were acting as directors and pursuing the money in court in the interests of the company. Thus, as I understand the plaintiff’s approach, and the articulation of the issue, the question is: even though the directors were pursuing the case in the interests of the company, should they as directors of Acee be responsible for the plaintiff’s costs if the company was in no position to be able to pay her costs should she succeed? On the principle in Knight, it would need to be shown that the directors were the “real parties”. To do that, it would need to be shown that directors were doing things ordinarily outside their role as directors and organs of the company. Otherwise, there would, as Mr Rimmer counsel for the directors submitted, be an invasion of the principles of limited liability under company law.
It is unnecessary to revisit the elements of the case and my previous decision most of which concerned the doctrine by which an equity of exoneration might arise. But what has to be revisited, without great detail, are the facts inducing the litigation because of the submission that the plaintiff was forced to be the plaintiff and the defendant put itself out of reach of a security for costs order. In addition, the Court has to consider the financial position of Acee at the time this litigation was commenced. Only then can the Court better consider the question: did the directors “put up” a man of straw and seek as the real defendants to hide behind it?
The facts
Mr Giuseppe Sanelli was a director of a company, Sanfol Pty Ltd. So was a Mr Theologus Foullas. I think they were property developers. Sanfol purchased from Acee a property at 115 Augustines Road in Glenroy for about $1.8m. The finance for that purchase was obtained under a first mortgage from Australian Executor Trustees Limited. Sanfol also gave a second mortgage over that property to Acee as security for a loan of about $289 000. That debt was also personally guaranteed by Sanfol’s two directors, Sanelli and Foullas.
Giuseppe Sanelli and his wife, Carolina, were registered proprietors of a matrimonial home in Ivanhoe East. In August 2006, they mortgaged that home to Westpac Banking Corporation under a loan which resulted in Giuseppe Sanelli obtaining funds of $733 312 payable to Acee presumably to do with the purchase of the Glenroy property.
Sanfol defaulted in its loan obligations to Acee. On 14 September 2007, Acee obtained a judgment in default of defence for $306 093 against Sanfol as principal debtor and as against the two guarantors Giuseppe Sanelli and Foullas. Acee then looked to enforce its judgment. On 17 October 2007, it filed a warrant of seizure and sale on its judgment as against the property of the judgment debtors. In the case of Giuseppe Sanelli, that would include his interest in the matrimonial home in East Ivanhoe.
At around this time, Sanfol was also in default to the first mortgagee of the Glenroy land. The first mortgagee was willing to let Sanfol attempt to sell the mortgaged land by public auction on 13 December 2007. A sale was achieved for a price of $2.75 million. It is said that as at January 2008, the first mortgage debt was $2 261 007. That meant there would be enough to meet Sanfol’s debt to Acee. Despite that, Acee was entitled to look to pursue its judgment debt as against Giuseppe Sanelli as guarantor.
On 20 May 2008, Giuseppe and Carolina Sanelli made a contract to sell the East Ivanhoe property for $1.35m with settlement due to take place by 30 June 2008. But settlement did not occur on that date. Then, on 12 August 2008, Acee commenced proceedings in this Court returnable in the Practice Court on 18 August seeking, amongst other things, an order that Mr and Mrs Sanelli give effect to and complete the sale of the property under its contract of sale dated 20 May 2008. I have never understood on what basis Acee could compel the Sanelli’s to proceed with the contract. What matters is that Mrs Sanelli was not a party to that proceeding but she was served with the summons and was concerned to ensure that if the sale of the matrimonial home was to proceed, then her share of the proceeds of sale as joint proprietor had to be protected from any claim by Acee as judgment creditor. Her case, broadly speaking, was that she was at a disadvantage because she was unaware of her husband’s dealings including the loans and the mortgages. It was in that context that in this proceeding she came to rely upon an equity of exoneration, that is, her interest in the property as joint tenant was protected where the land was mortgaged to secure the repayment of a loan from which she received no direct benefit.
In this proceeding, Acee applied and obtained an order from Hargrave J on 14 August 2008 that required the net proceeds of sale of the East Ivanhoe property (after the discharge of any mortgage, agent’s commission and fees) to be paid into court immediately. The sum of $568 784 was paid in on 20 August 2008. The Court’s order also acknowledged the claimed rights of Carolina Sanelli to the moneys, and recorded that any proceedings by her had to be issued by 22 August 2008. The plaintiff then commenced these proceedings.
Pausing there, I do not think it right to say that Mrs Sanelli was “compelled” by Acee to litigate. Nor do it think it right to say that Acee “manoeuvred itself” into the position of defendant if that is meant to suggest some sneaky or shrewd litigation tactic to avoid being the plaintiff in the case and vulnerable therefore to an order for security for costs. It is correct to say that Acee instigated the application which gave rise to the mortgage proceeds being paid into court, but it was Mrs Sanelli who then stepped forward, as she had to, to make her claim to the moneys. And to that end it was the Court that required her to commence these proceedings by a certain date, which she did. The litigation was akin to an interpleader as between her and Acee. Acee was claiming the money under a warrant of possession for a judgment debt. Carolina Sanelli was seeking to actively insulate the proceeds from the reach of any judgment creditor. If I had to ascribe a description to the relative position of the parties, I think it would be fair to say that it was Carolina Sanelli who was positively propounding for herself a legal basis to be entitled to the money. Acee could not be said to be passive but it was seeking to do no more than enjoy the fruits of a judgment and was, I would say, put on the “back foot” when met with the case based on an equity of exoneration and from there had to pursue all of its enquiries to understand the underlying facts.
Therefore, I see it as idle for the plaintiff to contend that had Acee been the plaintiff, then it would have been susceptible to a security for costs order. The fact is, Acee was not the plaintiff. Mrs Sanelli was the plaintiff. And she was the plaintiff because, as I say, she stepped forward to assert a claim to the money. The situation therefore is that she was suing a limited liability company. Fortunately, as the moneys at stake were paid into and preserved in Court there was no risk of her not obtaining the funds. But like any other litigant she always faced the risk of suing a limited liability company which might not have the assets or means to meet a costs order. This now sharpens the question whether there was something about the directors’ conduct of the case which took it out of the ordinary course of directors’ responsibilities so as to attract a costs order against them personally.
Can it be said that the directors “put up” a man of straw? As I say, Acee had what I think could be described as a substantial judgment debt against Sanfol and its directors. Before the Sanellis made a contract to sell their home in May 2008, the sale of the Glenroy property had still not occurred. According to documents obtained on subpoena for this application, come September 2008 (after this case had started) settlement of the sale had still not occurred but the contract of sale was still on foot. It seems that the mortgagee then served the purchaser with a notice to complete the contract, with which the purchaser failed to comply. Eventually, the mortgagee resold the property in early November 2009 for only $1.55m which appeared to be substantially below the first mortgagee’s debt. It was not until June 2010 (which was after Acee had withdrawn its defence in the proceeding) that Acee was definitely informed by the first mortgagee’s lawyers that settlement occurred on 9 June 2010 and there was a shortfall from the first mortgage, and the mortgagee was contemplating suing the first purchaser for the loss.
I have avoided the details of other documents that were put before me because I think the important point is that as at 14 August 2008 when Acee came to this Court and obtained orders which required Carolina Sanelli to bring forward her claim, Acee had an asset in the form of a judgment against Mr Giuseppe Sanelli as guarantor, which it was pursuing under a warrant of possession against valuable property. Secondly, there were delays and problems with the first mortgagee sale of the Glenroy property but there was a prospect of Acee recovering money on its judgment from the Glenroy property which only was exposed as fruitless after the proceeding had commenced.
Returning to the issue
The principle in Knight looks ultimately to making an order against a non‑party if the interests of justice require that it be made. The question is whether directors who choose to fund litigation for their cashless company, being under no obligation to do so, therefore can be regarded as the real litigants and therefore should be made to assume the responsibility for paying the costs personally.
The question of a company director’s responsibility for an adverse costs order against the company has arisen in a number of cases on which Mr Rimmer relies. Those cases show that careful attention has to be given to the conduct of the director as non party and the nature of the non party’s interest in the litigation. The cases also show, not unexpectedly, the law’s concern to ensure that exceptional circumstances be shown before nullifying the protection given by company the law to shareholders and directors against personal liability. That is why, as I said at the outset, the findings in my earlier decision about the conduct of the case cannot be disregarded by the plaintiff. It is worthwhile I think to consider the cases.
In FMP Constructions Pty Ltd v Council of the City of the Blue Mountains[5] a local council claimed damages for breach of contract. The sole director of the defendant company was the only witness and the litigation was held to have been “effectively run for his benefit”. At first instance, costs were awarded against the sole director. The decision was reversed by the New South Wales Court of Appeal.
[5][2005] NSWCA 340
The judgment of Basten JA (with whom the other members of the court agreed) and explained the applicable principles in this way:
… the principle established in Knight v FP Special Assets cannot be limited to the specific circumstances of the case, the joint judgment having expressed a conclusion in more general terms…It is clear that the categories of case which may attract the exercise of the power are by no means closed, nor should they be. Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non‑parties is that they tend to satisfy at least some, if not a majority, of the following criteria:
(a)the unsuccessful party…was the moving party and not the defendant;
(b)the source of funds for the litigation was the non‑party or its principal;
(c)the conduct of the litigation was unreasonable or improper;
(d)the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and
(e)the unsuccessful party was insolvent or could otherwise be described as a person of straw.
... The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact. Nor should it be forgotten that the power is only to be exercised in exceptional cases. In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non‑party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success … Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the ‘interest’ in its outcome or subject-matter.
It is not enough to say that the director was the driving force of the company and suppose that the benefit went the director’s way, and therefore conclude the director was the real litigant. On the facts of the case, Basten JA said:[6]
In the present case, it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the “real party” to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case.
[6]at [206].
The same concern about an invasion into the principle of limited liability was expressed by Muir J in Rushton (Qld) Pty Ltd v Rushton NSW Pty Ltd[7] another case involving a sole director and shareholder of a company that was the unsuccessful party to litigation. His Honour held that the fact that the sole director and shareholder was the ultimate decision maker was not necessarily decisive and that to hold otherwise would be to undermine the exceptional nature of non‑party costs orders and the long‑established principles of the separate legal identity of a corporation. It was said:[8]
In my view the mere fact that a person is the sole director and shareholder of an unsuccessful litigant corporation will not, without more, suffice to justify a costs order against that person. And that is so even if the person was the corporation’s sole, principal or ultimate decision maker in relation to the litigation.
To conclude otherwise would be to ignore the principle that costs orders against non‑parties are “exceptional” and ought be made only if appropriate in the interests of justice. The control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence. It is sanctioned by a long established legislative framework which recognises that a company has an independent legal personality distinct from that of its member and that neither members nor directors, as a general proposition, are personally liable for its acts and defaults.
[7][2004] QSC 47.
[8]at [12]-[13].
His Honour went on to say:[9]
A reluctance to ground non-party costs orders merely on the circumstances of sole ownership and control of the defendant corporation is evident in Taylor v Pace Developments Ltd in which it was observed that the controlling director of a one‑man company was inevitably the person who caused the costs of the litigation to be incurred, by causing the company to defend the proceedings. In that context Lloyd LJ noted –
But it could not be right that in every such case he should be made personally liable for costs, even if he knew that the company would not be able to meet the plaintiff’s costs should the company lose its case.
That would be far too great an inroad on the principle of limited liability. In the great majority of cases the directors of an insolvent company, which defended proceedings brought against it, should not be at personal risk for costs.
[9]at [15]
Finally, in this Court, Croft J recently considered an application for a special non-party costs order against directors of corporate trustees in partnership, who had failed in the course of protracted attempts to plead a case for breach of confidence. see Manderson M & F Consulting (a firm) v Incitec Pivot Limited (No 3).[10] Like this case, his Honour declined to order costs against the plaintiffs on an indemnity basis. His Honour also declined to make a costs order against the directors, having regard to the principles of limited liability and separate legal personality, and, the inability to conclude that the litigation was conducted in a way that was unreasonable or improper. His Honour held:[11]
Clearly, like any corporate entity, the corporate partners of MMFC can only “think and act” through natural persons. Consequently, it was unsurprising that Manderson and Karis were the directing minds of MMFC in the conduct of the litigation. There is, however, no evidence that the litigation was conducted in a way that was unreasonable or improper. At all times throughout the proceeding, MMFC was represented by reputable solicitors and by senior counsel with very substantial experience and expertise in relation to intellectual property matters. Each version of the statement of claim or drafts were put forward by MMFC signed by one of these senior counsel (or with drafts indicating that one of these senior counsel would sign). There is no suggestion that any of these senior counsel acted otherwise than with absolute professional propriety and in accordance with their obligations as senior counsel in signing a statement of claim or appearing in support of a proposed statement of claim which was indicative of their intention to sign. In these circumstances, and where MMFC was the proper plaintiff to the proceeding, the making of a costs order against Manderson and Karis would have the effect of setting aside the effect of the separate legal personality of the corporate partners of MMFC as corporate entities and put at risk of personal liability directors and, possibly, other officers of these corporations who conducted the litigation on their behalf. For these reasons, I am of the opinion that it would not be appropriate to make any costs order against Manderson or Karis.
[10][2011] VSC 441
[11](at [37])
All these cases, and the underlying principles do support the directors’ resistance to the claim for non party costs. In the principal proceeding, Acee was entitled to run its defences and put the plaintiff’s case to the test. The directors were looking to enforce a judgment for their company. As directors they were I think acting in the ordinary course of expectable directorial duties in conducting litigation and taking a robust approach to challenging Mrs Sanelli’s claim especially as they did not have the facts with which to test the merits of her equity of exoneration. In my view, there is nothing out of the ordinary in directors funding litigation in order to enable the company to pursue the case. In truth, the plaintiff is returning to collaterally challenge my first decision and in effect saying that the directors, knowing that their company did not have liquid assets, should have simply given up and accepted Mrs Sanelli’s claim rather than putting her to the test and putting her in a position where they may not be able to pay her costs.
Thus, in the end, if the question is where the interest of justice lies, this is how I would assess the position –
(a)Mrs Sanelli says that she was forced to litigate to get her money only to find that Acee then gave up in its defence. In my view, no‑one forced Mrs Sanelli to litigate. Acee was pursuing a judgment debt and Mrs Sanelli stepped forward to assert a claim. The Court has already found that Acee was entitled to pursue facts and once it found them, it chose to withdraw from the proceeding.
(b)The case has cost Mrs Sanelli $170 000 which she cannot now recover from Acee, and this is said to be manifestly unfair. But in my view, every plaintiff faces that problem when suing a company with limited assets. What the plaintiff must do in that situation is show that those that stand behind the company acted exceptionally or improperly in some way. I have already found that it was not reasonable to expect the company simply to give up. The directors are doing no more than not unreasonably putting the plaintiff’s case to a test and that there was nothing exceptional in the directors’ funding that litigation.
(c)The four directors put up a man of straw and they are the real plaintiffs, therefore it is only fair they should pay. In my view, the directors did not “put up” Acee. Acee was always there as a judgment creditor looking to pursue its judgment debt and could simply not give up. They are its directors and they were pursuing the case in the company’s interests. Just because they funded the litigation does not make them the real plaintiffs.
I see in a broad sense the unfairness that Mrs Sanelli faces in that the funds she has obtained are now to be reduced by costs which she cannot obtain from Acee. But where lies the greater injustice? To my mind there would be a greater injustice imposed in making directors of a company pay the costs when they were doing no more than pursuing their company’s interests in the ordinary way. To order costs against them would, on the authorities, be too great an invasion into the principles concerning limited liability. That may be justified, exceptionally, if directors can be shown to have acted in some way unreasonably or exceptionally in the conduct of the litigation. That would tend to show they were not acting as directors, but acting in their personal interests. I have found that their conduct in defending this case was not unreasonable or exceptional.
For those reasons, the Court will refuse the plaintiff’s application. I propose to order that the summons be dismissed with costs.
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CERTIFICATE
I certify that the 13 preceding pages are a true copy of the reasons for judgment of the Honourable Associate Justice Mukhtar delivered on 14 May 2012.
DATED: 14 May 2012
Nigel Cooper
Judge’s Associate
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