Yay v Sarunn (No 2)

[2008] SADC 81

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil: Minor Civil Review)

YAY & ANOR v SARUNN (No 2)

[2008] SADC 81

Judgment of His Honour Judge Tilmouth

26 June 2008

PROCEDURE - COSTS - JURISDICTION - COSTS INDEMNITY ONLY

The fact that a plaintiff obtains interlocutory injunctive relief over property against a party, who turns out to have no interest in that property, is not necessarily of itself sufficient for making an order for indemnity costs against the plaintiff.

Project Development Co Ltd SA v KMK Securities Ltdd [1983] 1 All ER 465; Norilya Minerals Pty Ltd v Ireland & Ors [1994] 12 WLR 485, distinguished.
District Court Rules 2006 r 264, considered.

YAY & ANOR v SARUNN (No 2)
[2008] SADC 81

The issues

1. The court delivered judgment in these proceedings on 20 June 2008.  It determined there was an express trust to the effect that although the first defendant held the legal title to real property in the Riverland, the beneficial ownership resided in an intervening party, Mr Touch[1].

   [1]    Yay & Sim v Sarunn [2008] SADC 78.

2. The court heard further submissions from the parties as to consequential orders, following which order no. 2 of 7 May 2008 requiring any proceeds of the sale of the subject property be paid into the Suitors Fund, was discharged.   Counsel for Mr Touch thereupon sought orders for costs in his favour, on an indemnity basis. 

   History of the proceedings

3. This matter initially came before the Court on 7 May 2008.  The first defendant, who was self-represented, advised the court he did not own the property and that Mr Touch did.  Mr Touch obviously sought legal advice in the meantime.  On 14 May 2008 a letter was sent to the solicitors for the plaintiffs forwarding a copy of the instrument of trust dated 10 April 2000, considered in the earlier reasons of the court[2].  Having received that document the plaintiff’s solicitor, quite reasonably, wrote to the conveyancing agent involved in its preparation.  A letter in response of 16 May 2008,  explained the circumstances in which the document was drawn up.  This, too, is referred to in the earlier reasons of the court[3]. 

   [2] Above at [10].

   [3]    Above at [10] and footnote 2.

4. Having considered this information, Mr Esau then advised the solicitors for Mr Touch, that although the document was accepted, its legal affect remained in issue.  The matter was mentioned again in open court on 22 May 2008, when it was adjourned to enable the point to be fully argued.  That took place on 28 May 2008.  This is the issue resolved in the reasons of the court of 20 June 2008.  Although determined adversely to the plaintiffs, the points taken by Mr Easu in relation to the proper construction of the trust, were both reasonably arguable and succinctly made.

   Costs on an indemnity basis

5. Orders for costs are now governed by r 264 of The District Court Rules 2006, under which as a general rule “costs are awarded as between party and party”: r 264 (2).  The rules repose in the court an unfettered “general discretion” to award costs on an indemnity basis: r 264(5)(b) and for that matter “on any other basis the court considers appropriate”: r 264(5)(d).

6. Indemnity costs usually only come into play (absent a special entitlement) when there is identifiable misconduct of a party in the conduct of the litigation, as an incidental aspect of its general power to control proceedings: Oshlack v Richmond River Council[4], Rosniak v GIO[5], Pope v Pope[6].  Examples are where a party has pursued hopeless proceedings or defences: Pasco Ltd v Lucas[7], an improper or ulterior purpose in litigating:  Walton v McBride[8], Battye v Shammall[9], unreasonably declined to accept open offers to settle: MGICA (1992) Ltd v Kenny and Good Pty Ltd (No 2)[10], Leighton Contractors Pty Ltd v C E Heath Underwriting Agency[11], Multicon Engineers Pty Ltd v Federal Airports Corp[12], and where unreasonable delay and expense are caused: Wentworth v Rogers[13] . 

   [4] (1998) 193 CLR 72.

   [5] (1997) 41 NSWLR 608.

   [6] [2001] SASC 26.

   [7] (1999) 75 SASR 246.

   [8] (1995) 36 NSWLR 440 at 451.

   [9] (2003) 86 SASR 254.

   [10] (1996) 70 FCR 236.

   [11] (1995) 8 ANZ Ins Cas 61-231.

   [12] (1996) 138 ALR 425.

   [13] [1999] NSWCA 403.

7. This is not such a case.  The conduct in this litigation by the plaintiffs was wholly unexceptional.  The point made by counsel for Mr Touch, must then, have its genesis in different considerations, if at all.  It was that invoking the extraordinary remedy of obtaining a Mareva injunction or freezing order, carries with it a corresponding costs consequences, where the party effected by the order is “innocent” or faultless.  Reliance was placed on the judgment of Parker J in: Project Development Co Ltd SA v KMK Securities Ltd [14]:

   In my judgment an innocent third party affected by a Mareva injunction ought, if he has to apply to the court for variation of the order and is successful in so doing, to have all costs incurred so long as they are not unreasonable in amount or unreasonably incurred; and a plaintiff who resorts to the draconian remedy of a Mareva injunction should expect to pay such costs.  If in pursuit of his rights against a defendant he initiates an order of the court affecting assets in the hands of third parties, and that order is later varied at the instance of third parties so as to exclude assets in their hands, justice appears to me to require that all the innocent third parties’ costs should be paid by the plaintiff unless they are unreasonable.

   This passage was quoted with approval by Kennedy J in Norilya Minerals Pty Ltd v Ireland & Ors[15].  There Kennedy J concluded[16]:

   The intervener should not be out of pocket in seeking to vary an injunction which impacted adversely upon its rights, particularly in view of the fact that its application was initially opposed.

   [14] [1982] 1 WLR 1470 at 1471-1472; [1983] 1 All ER at 466-467.

   [15] [1994] 12 WLR 485 at 487-488.

   [16]   Above at 488.

8. These principles may be accepted, but the real question remains of their application to the particular circumstances of this case.  The decision in Project Development Co. Ltd SA v KMK Securities Ltd concerned third parties, who successfully applied for variation of an order, as against them.  Unfortunately the underlying facts are not discussed at any length, nor is it explained what “innocent” means, either generally or in specific context.  In the latter case of Norilya Mineral Pty Ltd v Ireland & Ors the plaintiff sough damages against various defendants in deceit.   A Mareva injunction was granted preventing them from dealing with their assets.  An intervenor was successful in an action against the first defendant and commenced execution proceedings against him, of which the injunction prevented enforcement.  The intervening party applied to amend the injunction to allow for the release of the first defendant’s assets.  The plaintiff consented to this course and the intervenor then sought costs from the plaintiff on an indemnity basis, which Kennedy J granted. 

   Application of principles to the facts

9. It is to be recalled the underlying action between the parties to this action was a simple debt, in which Mr Touch was in no way concerned.  A Mareva injunction or freezing order is not intended to give a plaintiff the status of a judgment creditor prior to judgment, to confer any priority to which he is not otherwise entitled, nor indeed to preserve assets for the satisfaction of the claim, should it succeed.  Therefore, care must be taken by an applicant to ensure injunctions do not bear heavily, or unreasonably, or unnecessarily on “innocent” third parties:  Searose Ltd v Seatrain UK Ltd[17], Ghoth v Ghoth[18].  Such orders are exceptional – perhaps at times draconian remedies – never to be made lightly: Hortico (Australia) Pty Ltd v Energy Equipment Co Pty Ltd[19].

   [17] [1981] 1 WLR 894 at 897.

   [18] [1992] 2 All ER 920.

   [19] (1985) 1 NSWLR 545.

10. Moreover, before such orders can be made there must be underlying proceedings already lying within the jurisdiction of the court, disclosing a valid cause of action as against the defendant.  A consequence of the ruling of 20 June 2008, is that there was no such cause of action. 

11. The interim freezing order in this case was granted on the basis that there was evidence of intention to sell the two properties involved, and when the subject property was registered on the public record as belonging to the first defendant.  It was only the institution of the proceedings that served to tease out the fact that the property was held in trust.  Even then the plaintiffs’ solicitors acted reasonably, firstly in verifying the trust, and secondly on being satisfied it was genuine and by taking a point of construction which was by no means untenable.  On one view, the proper discharge of the solicitors’ duty of care required the matter to go to curial determination.

    Conclusion and orders

12. No conduct on the part of the plaintiffs is identified as potentially rendering them amenable to adverse orders for the payment of indemnity costs, according to accepted principles.  None of the attributes that might ordinarily trigger an order for indemnity costs are present in this case.  In the only two cases where such costs have been awarded in similar circumstances, the original orders for injunctive type relief, appear to have been either unnecessary, or proved to create an unjustifiable priority. 

13. But whatever the basis of those decisions was, the intervening party in the present litigation, is not “innocent” in the requisite sense, as he was an undisclosed beneficial owner of the subject property, which the plaintiffs could not be expected to have known or detected.  Once they did, their response and their stance in the litigation was faultless.

14. Accordingly the Court declines to make any order for the payment of indemnity costs against them.  There will however, be an order that Mr Touch recover costs against the plaintiffs according to the general rule, of and incidental to the appearances of 22 and 28 May, on a party and party basis.  Costs of 20 June 2008 and of today are to be as agreed between the parties, if not, liberty to both parties to file written submissions with respect thereto. Otherwise, as between them, they should bear their own costs.