Yang v Hypec Electronics Pty Ltd (in Liquidation) & 2 Ors

[2003] NSWCA 181

NEW SOUTH WALES COURT OF APPEAL

CITATION:      Yang v Hypec Electronics Pty Ltd (In Liquidation) & 2 Ors [2003]  NSWCA 181

FILE NUMBER(S):
40659/02

HEARING DATE(S):            27 August 2003

JUDGMENT DATE: 27/08/2003

PARTIES:
Grace Yang (Appellant)
Hypec Electronics Pty Ltd (In Liquidation) (First Respondent)
Colin Mead (Second Respondent)
BL & GY International Company Ltd (Third Respondent)

JUDGMENT OF:      Spigelman CJ Handley JA Santow JA   

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S):        SC 12674/97

LOWER COURT JUDICIAL OFFICER:     Mathews AJ

COUNSEL:
J Kildea (Appellant)
V Bedrossian (Second Respondent)

SOLICITORS:
Ma & Company (Appellant)
Etheringtons (First & Second Respondents)

CATCHWORDS:
COSTS - cross-defendant party to principal proceedings - amenable as such to order for costs of principal proceedings

LEGISLATION CITED:
Supreme Court Act 1970 s 76(1)
Supreme Court Rules 1970 Pt 52A r 4
Supreme Court Rules (Amendment Number 310) 1997

DECISION:
(1) Appeal allowed. (2) Order for costs made by Mathews AJ pursuant to SCR Pt 52A r 4(5)(g) set aside. (3) In lieu thereof substitute an order in the same terms against the appellant as a party to the principal proceedings with effect from 28 June 2002. (4) The appellant to pay the respondent's costs of the appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

40659 of 2002

SPIGELMAN CJ
HANDLEY JA
SANTOW JA

27 AUGUST 2003

GRACE YANG v HYPEC ELECTRONICS PTY LTD (IN LIQ) & 2 ORS

Judgment

1. SPIGELMAN CJ:  I will invite Handley JA to deliver the first judgment.

2. HANDLEY JA:  This is an appeal by a cross-defendant, by leave of this court, from an order for costs made by Mathews AJ, at the conclusion of proceedings in the Common Law Division.

3. The appellant was joined as one of the cross-defendants in a cross-claim by the defendant Hypec Electronics Pty Ltd, which had been sued by a Taiwanese corporation, BL & GY International Company Pty Ltd, for goods sold and delivered.

4. Her Honour, in a reserved judgment, dismissed the action on 14 February 2002 and expressed highly critical views about the proceedings and the involvement of the plaintiff’s directors, Lucy Mead and Grace Yang, in those proceedings.  Her Honour reserved the question of costs which became the subject of a later hearing.

5. Her Honour dealt with three costs issues in her second judgment of 28 June 2002, but this Court is only concerned with the question whether her Honour had power to order, as she did, that the appellant, as a cross-defendant, pay the successful defendant’s costs of the whole proceedings.

1. Her Honour considered the power to make such an order on the basis that the cross-defendant was not a party to the proceedings between the plaintiff and the defendant.

2. Section 76(1) of the Supreme Court Act provides:

   “Subject to this Act and the rules …

   (a)   costs shall be in the discretion of the Court,

   (b)   the Court shall have full power to determine by whom and to what extent costs are to be paid.”

3. SCR Pt 52A r 4 defines the circumstances in which orders for costs can be made against persons who are not parties to the proceedings. Her Honour identified two possible bases for an order that the cross-defendant, Grace Yang, pay the defendant’s costs of the whole proceedings. Rule 4(5)(d) deals with cases of abuse of process while r 4(5)(g), applies where a person carries on proceedings as an authorised director of a corporation.

4. Her Honour found that Grace Yang was an authorised director of the plaintiff corporation for the purposes of r 4(5)(g) and on that basis made the order appealed from. The fact that Grace Yang was an authorised director for present purposes was expressly conceded before her Honour.

5. After her Honour made the costs order against the appellant she took further advice and obtained leave to appeal notwithstanding the concession made on her behalf before the trial judge. A new point of law was taken, as to the Judge’s power to make the order under r 4(5)(g), which could not have been answered by evidence. On that basis leave to appeal was granted in accordance with the principles in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418.

6. Counsel appearing for the second respondent did not seek to justify her Honour’s order as one that could be under r 4(5)(g). However, in a notice of contention the second respondent asserted that her Honour had power to make the order because Grace Yang as a cross-defendant was a party to the proceedings as between the plaintiff and the defendant. On this issue the court first called on Mr Kildea, counsel for the appellant.

7. Section 78 of the Supreme Court Act provides in sub-s (4):

   “Subject to the rules, a person against whom relief is claimed under this section:

   (a)   shall, if not a party to the first proceedings, become a party to the first proceedings”

8. Thus when Grace Yang was sued as a cross-defendant she became a party to the proceedings as between the plaintiff and the defendant. Her status as such a party enlivened the court’s power and discretion under s 76 and the Rules to order that she pay the defendant’s costs of the whole proceedings.

9. Mr Kildea fastened on the opening words of s 78(4) “Subject to the rules” and drew our attention to SCR Pt 6 dealing with cross-claims and in particular with r 4 and r 6.

10. Equivalent rules in the District Court were considered by this Court in Insurance Exchange of Australasia v Dooley (2000) 50 NSWLR 222. In that case the Court held that, where an order had not been made for separate trials of the action and the cross-claim, a cross defendant is bound by the findings in the principal proceedings and entitled, in accordance with the general rules of natural justice, to take part in those proceedings as a party. As a result the cross-defendant had standing to appeal from a judgment in favour of the plaintiff against the defendant which affected its interests although the defendant did not wish to challenge it.

11. In the present case an order was not made for the separate trial of the action and the cross-claims. Accordingly the present appellant, as a cross-defendant, was a party to the principal proceedings for all purposes and amenable to an order for costs in the exercise of the judge’s discretion under s 76 of the Supreme Court Act. The exercise of that discretion by the trial judge has not been challenged. The only challenge was to the power to make that order.

12. In these circumstances I would propose that:

    (1)   The appeal be allowed.

    (2)The order for costs made by Mathews AJ pursuant to SCR Pt 52A r 4(5)(g) be set aside but the Court should substitute an order in the same terms against the appellant as a party to the principal proceedings with effect from 28 June 2002.

13. The appellant has failed in substance and in my judgment should be ordered to pay the costs of the appeal. This order is justified because the appellant conceded the basis on which the judge made the order. Had the point been taken below that there was no power under Pt 52A r 4(5)(g) attention would have been focused, as it has been in this Court, on the position of a cross-defendant as a party to the principal proceedings.

14. Accordingly I would propose that the orders already announced be made and that the appellant pay the costs of the appeal.

15. SPIGELMAN CJ:  I agree with the orders proposed by Handley JA and his Honour’s reasons.  However, I wish to add a few words of elaboration as to the basis of the order actually made by Mathews AJ.

16. The Appellant was not a director of the Plaintiff.  However, she did swear an affidavit verifying the statement of claim which initiated the proceedings, in the course of which she said that she was a director of the Plaintiff and was “authorised to swear this affidavit”.

17. This formulation was, by means of a concession before Mathews AJ, the basis for her Honour proceeding as if the Appellant was an authorised director”, within the meaning of Pt 52A r 4(5)(g). The submissions before this court by Mr Kildea, who appeared on behalf of the Appellant, and which Mr Bedrossian, who appeared for the Second Respondent, did not contest, established the inappropriateness of the assumption on which Mathews AJ proceeded.

18. Sub-paragraph (g) was, as Mr Kildea submitted, added to r 4 (5) by cl 5(d) of the Supreme Court Rules (Amendment Number 310) of 1997.  That amendment also encompassed cll 5(a), (b) and (c), which respectively:

• Omitted Pt 4 r 4 and substituted new rr 4 and 4A.

• Omitted Pt 11 r 1 and substituted new rr 1 and 1A.

• Inserted into Pt 52A r 4(3), a cross-reference to Pt 4 r 4A and Pt 11 r 1A.

1. The purpose of those amendments was to distinguish the manner in which proceedings could be conducted by persons and corporations. As Mr Kildea submitted, the term “authorised director” in Pt 52A r 4(5)(g) corresponds with “authorised director” in Pt 4 r 4A and Pt 11 r 1A.

2. The Appellant was not an “authorised director” in that sense.  The assertion made by means of verification of the affidavit annexed to the statement of claim did not constitute her as such.  It was for that reason that the appeal has to be allowed.  The Second Respondent’s concession was based on a recognition of the force of the submissions made Mr Kildea on that subject.

3. SANTOW JA:  I agree with Handley JA and the additional observations of Spigelman CJ.

4. SPIGELMAN CJ:  The orders of the court are as indicated by Handley JA.

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LAST UPDATED:            02/09/2003