The Commonwealth of Australia v Merilla Pty Ltd
[2016] WASC 150 (S)
•26 JULY 2016
THE COMMONWEALTH OF AUSTRALIA -v- MERILLA PTY LTD [2016] WASC 150 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 150 (S) | |
| Case No: | CIV:2795/2015 | ON THE PAPERS | |
| Coram: | BEECH J | 26/07/16 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Costs order made against defendants only Indemnity costs order in relation to the plaintiff's application for an interlocutory injunction | ||
| B | |||
| PDF Version |
| Parties: | THE COMMONWEALTH OF AUSTRALIA MERILLA PTY LTD ARTUS PTY LTD |
Catchwords: | Practice and procedure Costs Whether costs should be ordered to be paid by non-party Whether some costs should be ordered to be paid on an indemnity basis Turns on own facts |
Legislation: | Supreme Court Act 1935 (WA), s 37(1) |
Case References: | Bischof v Adams [1992] 2 VR 198 Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [No 4] [2012] FCAFC 50; (2012) 200 FCR 154 Duskwood Pty Ltd v Bellara Willows Pty Ltd [2001] WASC 281 Kebaro Pty Ltd v Saunders [2003] FACFC 5 Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309 Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309 (S) Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) Tey v Optima Financial Group Pty Ltd [2012] WASCA 192 The Commonwealth of Australia v Merilla Pty Ltd [2016] WASC 150 Vestris v Cashman (1998) 72 SASR 449 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
MERILLA PTY LTD
ARTUS PTY LTD
Defendants
Catchwords:
Practice and procedure - Costs - Whether costs should be ordered to be paid by non-party - Whether some costs should be ordered to be paid on an indemnity basis - Turns on own facts
Legislation:
Supreme Court Act 1935 (WA), s 37(1)
Result:
Costs order made against defendants only
Indemnity costs order in relation to the plaintiff's application for an interlocutory injunction
Category: B
Representation:
Counsel:
Plaintiff : No appearance
First-named Defendant : No appearance
Second-named Defendant : No appearance
Michael Franks & Sara Margaret Franks : No appearance
Solicitors:
Plaintiff : Minter Ellison
First-named Defendant : No appearance
Second-named Defendant : No appearance
Michael Franks & Sara Margaret Franks : Kott Gunning
Case(s) referred to in judgment(s):
Bischof v Adams [1992] 2 VR 198
Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [No 4] [2012] FCAFC 50; (2012) 200 FCR 154
Duskwood Pty Ltd v Bellara Willows Pty Ltd [2001] WASC 281
Kebaro Pty Ltd v Saunders [2003] FACFC 5
Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178
Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309
Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309 (S)
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
Tey v Optima Financial Group Pty Ltd [2012] WASCA 192
The Commonwealth of Australia v Merilla Pty Ltd [2016] WASC 150
Vestris v Cashman (1998) 72 SASR 449
- BEECH J:
Introduction
1 On 19 May 2016, I published reasons for decision in these proceedings.1 On the same day, I made a declaration in terms sought by the Commonwealth. In substance, I declared that the determination of market rent made by a valuer in January 2016 was valid and effective to determine the rent for the fourth Rent Period.
2 I also ordered that the question of costs be determined on the papers, after the exchange of submissions by the parties.
3 The Commonwealth substantially succeeded in the proceedings. Consequently, it should have a costs order in its favour. The Commonwealth's submissions on costs seek orders that, in two respects, go beyond an ordinary order for costs in favour of the Commonwealth. First, the Commonwealth seeks orders that costs be payable not only by the Owners, the defendants in the proceedings, but also by the individuals who are the directors and shareholders of the Owners (the Directors). Secondly, the Commonwealth seeks an order that the Owners and the Directors pay the costs of the Commonwealth's application for an interlocutory injunction on an indemnity basis.
4 I begin with the question of whether orders for costs should be made against the Directors.
Should costs be ordered against the Directors?
5 The broad powers of the court in relation to costs under s 37 of the Supreme Court Act 1935 (WA) encompass the power to make an order that the costs of proceedings be paid by a non-party. Such an order may be made if the interests of justice warrant the departure from the ordinary starting point that it is the parties to proceedings who are the subject of costs orders.2
6 An order for costs against a non-party will only be made in exceptional circumstances.3
7 There is a general category of cases in which an order for costs should be made against a non-party if the interests of justice require that it be made. That category consists of cases where:
(a) the party to the litigation is an insolvent person or a 'man of straw';
(b) the non-party has played an active part in the conduct of the litigation; and
(c) the non-party, or some person on whose behalf the non-party is acting or by whom the non-party has been appointed, has an interest in the subject of the litigation.4
8 In exercising its discretion, the court will have regard to the connection between the proceedings and the non-party, and the causal connection between the non-party and the incurring of costs in the proceedings.5
9 The categories of cases in which an order for costs may be made against a non-party are not closed.6
10 In FPM Constructions Pty Ltd v Council of the City of Blue Mountains7 Basten JA, with whom Beazley JA agreed, said that a survey of the cases in which orders had been made against a non-party showed that they tended to satisfy at least some, if not a majority, of the following criteria:
(a) the unsuccessful party to the proceedings 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'.
11 It is not a necessary precondition that the unsuccessful party is impecunious, although this is a relevant factor.8
12 The court has a discretionary power to make an order for costs against a non-party where the non-party is connected with the unsuccessful party to the proceeding, and has caused that party to start, continue or prosecute the proceeding. This power can be exercised where the non-party's conduct makes it just and equitable for them to be visited with an order for costs in favour of the successful party, either in addition to such an order against the unsuccessful party or in substitution for it.9
13 Whether an early warning has been given of an intention to seek a non-party costs order is a factor to be considered in the exercise of the discretion.10
14 In support of its contention that costs orders should be made against the Directors, the Commonwealth submits that:
(1) the Owners were not legally represented, and the Directors informed the court that this was because of the Owners' impecuniosity;
(2) the Directors were permitted to appear and make submissions to advance the Owners' case; and
(3) the Directors are both the directors and the only shareholders of the Owners.
15 In all the circumstances, I am not persuaded that costs orders should be made against the Directors. Those circumstances include the following. The Owners were not the moving party to the proceedings; they were the defendants. The Directors did not fund the litigation, or have an interest in it equal to or greater than that of the Owners. While there is room for concern as to whether the Owners will be able to meet any costs orders, it cannot be said that the Owners are persons of straw. Nor have they been shown to be insolvent, either now or at the time of the commencement of these proceedings. Although the proceedings were initially commenced in response to the Owners' threat to lock out the Commonwealth, in substance the proceedings became concerned with whether the determination of rent made in January 2016 was valid and effective. In that respect, there was nothing unreasonable in the conduct of the proceedings on behalf of the Owners. The Commonwealth did not give notice to the Directors of its intention to seek costs against them personally.
16 For these reasons, I decline to exercise my discretion to order costs against the Directors.
17 I turn to the question of whether an indemnity costs order should be made in respect of the Commonwealth's application for an injunction.
Indemnity costs in relation to the injunction application?
18 The principles relevant to whether costs should be ordered on an indemnity basis are well known. They were outlined by the Court of Appeal in Swansdale Pty Ltd v Whitcrest Pty Ltd.11
19 In this case, the Commonwealth points to the conduct of the Owners in writing the letter of 15 October 2015, in which the Owners asserted that rent had been fixed at the old rent and that, if payment was not made accordingly, the Owners would lock out the Commonwealth from the premises. The Commonwealth, by its solicitors, invited the Owners to withdraw that threat and to have the rent determined by an independent valuer as was contemplated under the Lease.12 By letter of 9 November 2015, Mr Pitman, on behalf of the Owners, stated that their position was unchanged and remained as set out in the letter of 15 October 2015.13
20 As a result, the Commonwealth commenced these proceedings and applied for an interlocutory injunction restraining the Owners from exercising any power of re-entry. I made interim (12 November 2015) and interlocutory (20 November 2015) orders to that effect without opposition from the Owners.
21 In opposition to the Commonwealth's application for indemnity costs, Mr Franks, one of the Directors, has sworn an affidavit in which he states that in October 2015 the Owners were continuing to consult with their previous solicitors, and that the letter of October 2015 was sent after those solicitors had advised that the position asserted in that letter was correct.14 Mr Franks says that had the Owners received advice that they were not entitled to lock out the Commonwealth, as threatened in the letter of 15 October 2015, Mr and Mrs Franks, as Directors of Artus Pty Ltd, would not have approved of the letter of 15 October 2015 or the letter of 9 November 2015.15
22 One category of cases where an indemnity costs order may be appropriate is where a party persists in what on proper consideration should be seen to be a hopeless case. Another is where, by asserting a position that is entirely baseless, a party necessitates another party to bring proceedings.
23 In either such case, the fact that the party against whom indemnity costs is sought obtained legal advice to the effect that their position was at least arguable is relevant, but not decisive. In the end, the question of whether the position adopted by that party was baseless is an objective one.
24 In my view, the position adopted by the Owners in their letters of 15 October 2015 and 9 November 2015 was entirely baseless. The effect of my 2015 Decision16 was that rent for the fourth period had not yet been determined, and could be determined by a valuer appointed in accordance with the Lease. To the extent that this was not clear from that decision, it was spelt out, in terms, in my decision on the costs of the action.17 That decision was delivered on 11 September 2015.
25 In the circumstances, I am unable to see any basis upon which the Owners could have asserted that, as at October and November 2015, the rent had been determined in an amount equal to the rent for the third period and that, failing payment by the Commonwealth of that rent, the Commonwealth could be locked out of the premises.
26 In my view, the Owners' conduct in asserting that untenable position necessitated the commencement of these proceedings by the Commonwealth, and sustains an order that the Commonwealth's costs of its application for an injunction be paid on an indemnity basis.
27 Mr and Mrs Franks submit that the Owners' conduct did not necessitate the commencement of an injunction application because it was open to the Commonwealth to pay the amount claimed by the Owners under protest and then commence proceedings seeking to recover that amount. While that was a course open to the Commonwealth, in my view the Commonwealth was not reasonably required to adopt it. The Owners made a baseless assertion of an existing right to rent at the rate applicable to the preceding Rent Period, coupled with a threat to lock out the Commonwealth if payment was not forthcoming. In those circumstances, it was not incumbent on the Commonwealth to accede to the Owner's demand in order to avoid being locked out of the premises of which it was tenant. The Commonwealth's response to the threat in applying for an interlocutory injunction was entirely reasonable, and should reasonably have been anticipated as the consequence of the baseless threat made and repeated by the Owners' letters of 15 October 2015 and 9 November 2015.
28 I am mindful that the Owners have not been represented in these proceedings. That circumstance calls for caution before the making of an indemnity costs order.18 In the end, however, there are cases where, when that circumstance is taken into account, the conclusion may nevertheless be that the untenable nature of the position adopted by a party makes an indemnity costs order appropriate. To my mind, this is such a case.
29 For these reasons, I would make an order that the Owners pay the Commonwealth's costs of its application for an interlocutory injunction on an indemnity basis.
Conclusion
30 For the reasons I have given, I make the following orders:
(1) The Owners pay the Commonwealth's costs of its application for an interlocutory injunction, including the reserved costs of 12 November 2015 and 20 November 2015, except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that subject to those exceptions the Commonwealth is completely indemnified by the Owners for its costs.
(2) Otherwise, the Owners pay the Commonwealth's costs of the proceedings, to be taxed if not agreed.
1The Commonwealth of Australia v Merilla Pty Ltd [2016] WASC 150. In these reasons I will use the terminology that I used in the reasons of 19 May 2016.
2Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, 192 - 193.
3Vestris v Cashman (1998) 72 SASR 449, 467; Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [No 4] [2012] FCAFC 50; (2012) 200 FCR 154 [90].
4Knight v FP Special Assets Ltd (192 - 193); Dunghutti Elders Council [76].
5Bischof v Adams [1992] 2 VR 198, 205; Dunghutti Elders Council [81].
6Kebaro Pty Ltd v Saunders [2003] FACFC 5 [103]; Dunghutti Elders Council [82].
7FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 [210]; cited with approval in Dunghutti Elders Council [83].
8Dunghutti Elders Council [87].
9Dunghutti Elders Council [88].
10Duskwood Pty Ltd v Bellara Willows Pty Ltd [2001] WASC 281 [18]; Vestris v Cashman (468).
11Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10].
12 Letter of 6 November 2015, Annexure GJSS-8 to the affidavit of Geoffrey John Seymour Shaw sworn 10 November 2015.
13 Affidavit of Mr Shaw sworn 12 November 2015, Annexure GJSS-10.
14 Affidavit of Michael Franks sworn 18 July 2016 [19].
15 Affidavit of Mr Franks [20].
16Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309.
17Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309 (S) [19], [23].
18Tey v Optima Financial Group Pty Ltd [2012] WASCA 192 [16].
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