Wieland v Texxcon Pty Ltd

[2017] VSCA 73

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2013 0093
DAVID CHARLES WIELAND and ANOR	Appellants
v
TEXXCON PTY LTD (ACN 120 272 880)	Respondent
S APCI 2013 0106
GEOFFREY GORDON PORZ  and ANOR	Appellants
v
TEXXCON PTY LTD (ACN 120 272 880)	Respondent
S APCI 2013 0110
NOMINEXX PTY LTD (ACN 121 396 503) and ANOR	Appellants
v
DAVID CHARLES WIELAND and ORS	Respondents

---

JUDGES:	BEACH JA and CAMERON AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	31 March 2017
DATE OF JUDGMENT:	31 March 2017
MEDIUM NEUTRAL CITATION:	[2017] VSCA 73

---

PRACTICE AND PROCEDURE – Costs – Applications for non-party costs orders - Discretion to make non-party costs order – Whether discretion should be exercised to make non-party costs order – Interests of justice – Interests of justice not requiring non-party orders for costs – Supreme Court Act 1986, s 24.

---

APPEARANCES:	Counsel	Solicitors
For the Appellants,  Cross Respondents and Respondents, Mr Wieland and Mr Goldberger	Mr M P Costello	Arnold Bloch Leibler
For the Appellants, Cross Respondents  and Respondents, Mr Porz and Mr Cowan	Mr R M Garratt QC with Mr C E Shaw	Logie-Smith Lanyon
For the Respondents, Mr Gray and Mr Henderson.	Mr J H Karkar QC with Mr C Möller	HWL Ebsworth

BEACH JA
CAMERON AJA:

1. During April, May and June of 2013, a judge of the Trial Division heard a proceeding in which Texxcon Pty Ltd and Nominexx Pty Ltd claimed damages from David Charles Wieland, David Goldberger, Geoffrey Gordon Porz and Christopher Cowan.  On 2 July 2013, the judge entered judgment for Texxcon in the amount of $9,161,484.91 and ordered each of Messrs Wieland, Goldberger, Porz and Cowan to pay 25 per cent of that amount ($2,290,371.23).

1. The orders of the judge spawned an appeal by Mr Wieland and Mr Goldberger, in which Texxcon cross-appealed;  an appeal by Mr Porz and Mr Cowan, in which Texxcon cross-appealed;  and an appeal by Nominexx and Texxcon.  The three appeals, the two cross-appeals, four notices of contention and three applications for leave to appeal against costs orders made by the judge were heard by this Court[1] over two days in August 2014.

   [1]Nettle, Hansen and Beach JJA.

1. On 5 September 2014, this Court allowed the appeals of Messrs Wieland, Goldberger, Porz and Cowan, dismissed the appeals and cross-appeals of Texxcon and Nominexx, and refused the various applications for leave to appeal.[2]  In the Wieland and Goldberger appeal, Texxcon was ordered to pay the costs of Mr Wieland and Mr Goldberger at first instance, and of the appeal, the cross-appeal and the application for leave to appeal.  In the Porz and Cowan appeal, Texxcon was similarly ordered to pay the costs of Mr Porz and Mr Cowan at first instance, and of the appeal, the cross-appeal and the application for leave to appeal.  In the Texxcon and Nominexx appeal, Texxcon and Nominexx were ordered to pay the costs of the Appeal of Mr Wieland, Mr Goldberger, Mr Porz and Mr Cowan.[3]

   [2]Wieland v Texxcon [2014] VSCA 199 (‘Appeal Reasons’).

   [3]In the Texxcon and Nominexx appeal, the application for leave to appeal against the judge’s costs order was refused with no order as to costs.

1. Applications by Texxcon and Nominexx for special leave to appeal to the High Court were refused with costs on 13 February 2015.  Following the refusal of the special leave applications, there have been proceedings in this Court and the Costs Court concerning the assessment of the costs to which Messrs Wieland, Goldberger, Porz and Cowan are now entitled by reason of this Court’s orders made on 5 September 2014.

The present applications

1. Mr Wieland and Mr Goldberger and, separately, Mr Porz and Mr Cowan, now seek supplemental orders as to costs, ‘in augmentation of the orders as to costs made on 5 September 2014’.  The costs orders made in their favour on that date, against Texxcon and Nominexx, remain unpaid.  The supplemental costs orders are sought against Simon James Gray and Noel Raymond Henderson.  Mr Gray and Mr Henderson were the sole directors and shareholders of Texxcon. 

Relevant background

1. The background facts to this litigation are set out in the reasons given by this Court on 5 September 2014.[4]  In summary, Texxcon and Austexx were joint venturers in an unincorporated joint venture, which was established to carry out the design and construction of various commercial developments for the Austexx group of companies.  Nominexx was jointly owned and controlled by the joint venture parties, and was appointed by them to undertake the joint venture works on their behalf.  Messrs Wieland, Goldberger and Porz held substantial indirect shareholding interests in the Austexx group, and were also directors of Austexx.  Mr Porz was the Austexx group’s chief executive officer and, during the relevant time, Mr Cowan was its chief financial officer.

   [4]Appeal Reasons [19]–[50].

1. In October 2008, Nominexx made a loan of $14 million of joint venture funds to Austexx.  The circumstances in which Nominexx came to lend the $14 million to Austexx are set out in the Appeal Reasons and do not need to be repeated here.[5]

   [5]The circumstances are set out at Appeal Reasons [21] and following.

1. The claim for misleading or deceptive conduct made by Nominexx and Texxcon was based on representations which were alleged to have been made by Mr Cowan and/or Mr Porz, during three meetings, with Mr Gray, in the second half of October 2008.  This claim was also based upon representations said to have been conveyed by the provision of a funding document (‘the funding document’), a copy of which was subsequently emailed by Mr Cowan to Mr Gray.[6]

   [6]Appeal Reasons [35]–[49].

1. After the three meetings in October 2008 and the provision of the funding document, Mr Gray and Mr Henderson approved the loan, and loan funds were advanced by Nominexx (from funds in a joint venture account) to Austexx.  The loan was never repaid.  Texxcon and Nominexx contended at trial that the loan was made in reliance upon the representations alleged by them.

1. Additionally, at trial, Nominexx alleged that Messrs Porz, Wieland and Goldberger (who were three of the six directors of Nominexx, the others being Mr Gray, Mr Henderson and Mr Joseph John Gianfriddo) breached their duties as directors of Nominexx in approving the making of the loan. 

1. The trial judge upheld Texxcon’s claims for misleading or deceptive conduct and accessorial liability against Messrs Porz, Cowan, Wieland and Goldberger.  The judge, however, dismissed Nominexx’s claims for breaches of directors’ duties on the basis that Nominexx lent the joint venture funds as agent for the joint venturers.  The judge held that Texxcon was accordingly entitled to an order that Messrs Wieland, Golberger, Porz and Cowan pay damages quantified in the amount of $7 million (Texxcon’s share of the joint venture funds), plus interest.  Security for costs orders previously made were discharged.

1. On appeal, this Court reversed the judge’s findings of misleading or deceptive conduct and accessorial liability, holding that the judge was wrong to find that any relevant representation was made in October 2008.[7]  Moreover, the Court concluded that the issue of reliance (causation) should also have been determined against Texxcon and Nominexx.[8]  Similarly, Nominexx was unsuccessful on appeal in relation to its claim for breach of directors’ duties.[9]

   [7]Ibid [64].

   [8]Ibid [65].

   [9]Ibid [75]–[97].

The contentions of Messrs Wieland, Goldberger, Porz and Cowan

1. In summary, Messrs Wieland, Goldberger, Porz and Cowan (collectively, ‘the applicants’) contend that the supplemental costs orders that they now seek against Mr Gray and Mr Henderson should be made because:

·Texxcon and Nominexx were, and remain, ‘persons of straw’;

·Mr Gray and Mr Henderson played an active part in the litigation brought by Texxcon and Nominexx;

·Mr Gray and Mr Henderson had an interest in the subject of the litigation;

·unless supplemental costs orders are made, ‘the intent’ of the orders made on 5 September 2014 would be thwarted;

·the ultimate beneficiaries of the litigation were interests associated with Mr Gray and Mr Henderson, and Mr Gray and Mr Henderson conducted the litigation for the benefit of those interests, using heavily indebted companies — that is, without putting assets belonging to Mr Gray or Mr Henderson or their interests at risk of an adverse costs order;  and

·the interests of justice required that supplemental costs orders be made.

1. In support of these contentions, the applicants submitted that, on appeal, this Court found that the evidence ‘on which the case was pressed was simply not credible, not having found mention, evidently, to the plaintiffs’ lawyers for the first two years of the litigation’.

1. Further, in oral argument, counsel for Messrs Wieland and Goldberger highlighted the loss of the security, that had been provided pursuant to security for costs orders previously made, against Texxcon, upon the judgment at first instance being given in favour of the plaintiffs by the trial judge.  This was said to be a basis upon which this Court might more readily make non-party costs orders against Messrs Gray and Henderson.

The contentions of Messrs Gray and Henderson

1. Messrs Gray and Henderson oppose the supplemental costs orders sought in these applications.  In summary, they contend:

·Nominexx and Texxcon were the proper plaintiffs in the litigation.  Nominexx was the company to whom Austexx owed the $14 million borrowed and never repaid, and the money lent came from a joint venture account containing funds belonging to Texxcon.

·As to Texxcon’s financial position, it is to be remembered that the loan represented a valuable asset to which Texxcon had entitlements as a joint venturer, and, in any event, Texxcon had the benefit of a mortgage over land owned by another Austexx company (a company that had borrowed money from Nominexx and settled a recovery action by the provision of this mortgage).

·The applicants allowed Austexx to have the benefit of the loan from Nominexx, never caused the loan to be repaid, and actively took steps to prevent recovery of the loan (including by refusing to give Nominexx authority to commence a proceeding, and by resisting a summary judgment application).  As it was put on behalf of Messrs Gray and Henderson:

The applicants thus shield themselves behind the corporate veil of Austexx Corporation but, on the other hand, seek to pierce through Texxcon and fix Messrs Gray and Henderson with liability for the costs awarded against Texxcon.

Analysis

1. The principles governing applications for non-party costs orders are not in dispute between the parties in the present applications.  Undoubtedly the Court has jurisdiction to make the supplementary costs orders sought against Mr Gray and Mr Henderson.[10]  However, even accepting that Texxcon and Nominexx were, and remain, persons of straw;  and that Mr Henderson and Mr Gray played an active part in the litigation and that the ultimate beneficiaries of the litigation were Mr Gray and Mr Henderson and/or interests associated with them, we are not persuaded that costs orders should be made against them.

   [10]See s 24(1) of the Supreme Court Act 1986. See also, Knight v FP Special Assets Ltd (1992) 174 CLR 178; and Carter v Caason Investments [2016] VSCA 236 [10]-[13], [49]-[51] (Weinberg, Ferguson and Kaye JJA). But see also, FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 [205]-[206], [209]-[214] (Basten JA, with whom Beazley JA and Giles JA agreed) (‘FPM Constructions’). See further, Plante v James [2011] QCA 109 [4] (McMurdo P), [58]-[59] (Muir JA) and [62] (White JA) (‘Plante’).

1. As the Appeal Reasons show, there were aspects of the plaintiffs’[11] case which were not well founded.  Specifically, the claim based upon oral representations was, as the Appeal Reasons disclose, particularly devoid of merit.[12]  The claim based on the funding document was, however, of greater substance.  There were issues of construction concerning that document that were of some substance, albeit they were ultimately resolved against Nominexx and Texxcon.  Further, although it might be said that the claims for accessorial liability against Messrs Wieland and Goldberger were even more difficult for the plaintiffs than the direct claims against Messrs Porz and Cowan, ultimately we are not persuaded that this fact should lead to different outcomes between the applications brought by Messrs Wieland and Goldberger on the one hand, and the applications by Messrs Porz and Cowan on the other hand.

   [11]Texxcon and Nominexx.

   [12]Appeal Reasons [56] and following.

1. There may be good reasons for making costs orders against non-parties[13] who conduct litigation for their own benefit through (or hiding behind) companies that are either heavily indebted or otherwise have no assets.  That criticism, however, is not apposite in the present case.  A cause of Texxcon’s current financial position is the failure by Austexx to repay its loan.  Moreover, we accept the submissions of Mr Gray and Mr Henderson that Nominexx and Texxcon were the appropriate plaintiffs in this proceeding.  There was no other entity that could have sought to recover the moneys lent by them to the benefit of Austexx and its interests.

   [13]In fact, Messrs Gray and Henderson were defendants at first instance as a result of being joined for the purpose of an argument that they were concurrent wrongdoers in the breach of directors’ duties claims. For present purposes, however, nothing turns on this fact and the parties were prepared to proceed in these applications on the basis that Messrs Gray and Henderson were, in reality, non-parties.

1. While the claims brought by Texxcon and Nominexx against the applicants were not particularly strong, we are not persuaded that they were all so lacking in merit as to justify costs orders now being made against the applicants in all the circumstances.  Moreover, we reject the notion that there was some ‘intent’ of the orders made on 5 September 2014 that would now be ‘thwarted’ if supplemental costs orders were not made.  This was hard-fought litigation between Texxcon and its related parties (including Mr Gray and Mr Henderson) and Austexx and its related parties (including Messrs Wieland, Goldberger, Porz and Cowan).  Texxcon was, and remains, owed repayment of its money that was borrowed by Austexx.  It has attempted to recover its money but, as we have said, the money remains unpaid.

1. We are not persuaded that, in the circumstances of this case, it is in the interests of justice that supplemental costs orders be made.  Courts should not readily (or even at all) make non-party costs orders merely because funds may be available to satisfy orders from identified non-parties. Moreover, it is, of course, not the function of the Court to assist litigants, without a proper basis, to find a funding source to satisfy extant orders.[14]  Finally, we are not persuaded that the circumstance surrounding the loss of security previously ordered is a valid basis for making non-party costs orders against different parties in the circumstances that now prevail.

   [14]Cf FPM Constructions [2005] NSWCA 340 [205]-[206], [209]-[214]; Plante [2011] QCA 109 [4], [58]-[59], [62].

Conclusion

1. The applications for supplemental orders for costs by Messrs Wieland, Goldberger, Porz and Cowan will be dismissed.

- - -