Highstoke Pty Ltd v Hayes Knight GTO Pty Ltd (No 2) FCA [2007] FCA 36 (19 January 2007)

Last Updated: 1 February 2007

FEDERAL COURT OF AUSTRALIA

Highstoke Pty Ltd v Hayes Knight GTO Pty Ltd (No 2) FCA [2007] 36

COSTS – intervenor – examination proceedings under Corporations Act 2001 (Cth) - powers of court – constitutional validity – intervention by Australian Securities and Investments Commission – whether intervenor liable to costs – substantive participation – costs awarded against ASIC and apportioned with other respondents









Corporations Act 2001(Cth) s 1330

Highstoke Pty Ltd v Hayes Knight GTO Pty Ltd [2007] FCA 13 cited



HIGHSTOKE PTY LTD (ACN 109 142 225) AS TRUSTEE FOR HOLDERS OF DEBENTURE STOCK ISSUED BY PERFORMANCE FINANCE LIMITED (IN RECEIVERSHIP) v HAYES KNIGHT GTO PTY LTD (ACN 009 101 286) AND JOHN MICHAEL O’BRIEN
WAD 198 OF 2005


FRENCH J
19 JANUARY 2007
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD198 OF 2005

BETWEEN:	HIGHSTOKE PTY LTD (ACN 109 142 225) AS TRUSTEE FOR HOLDERS OF DEBENTURE STOCK ISSUED BY PERFORMANCE FINANCE LIMITED (IN RECEIVERSHIP)
AND:	HAYES KNIGHT GTO PTY LTD ACN 009 101 286 First Respondent JOHN MICHAEL O’BRIEN Second Respondent

JUDGE:	FRENCH J
DATE OF ORDER:	19 JANUARY 2007
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

The respondents’ costs of the application up to 8 February 2006 be paid by the applicant and the costs thereafter be paid as to two-thirds by the applicant and one-third by the intervener.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 198 OF 2005

BETWEEN:	HIGHSTOKE PTY LTD (ACN 109 142 225) AS TRUSTEE FOR HOLDERS OF DEBENTURE STOCK ISSUED BY PERFORMANCE FINANCE LIMITED (IN RECEIVERSHIP)
AND:	HAYES KNIGHT GTO PTY LTD ACN 009 101 286 FIRST RESPONDENT JOHN MICHAEL O’BRIEN SECOND RESPONDENT
JUDGE :	FRENCH J
DATE:	19 JANUARY 2007
PLACE:	PERTH

REASONS FOR JUDGMENT ON COSTS

1 On 3 August 2005 the Australian Securities and Investments Commission (ASIC) authorised Highstoke Pty Ltd (Highstoke) to apply to the Court for the issue of a summons under s 596A of the Corporations Act 2001 (Cth) (the Act) in relation to Hayes Knight GTO Pty Ltd (Hayes Knight). Highstoke was the successor to Hayes Knight as the trustee for the debenture holders of Performance Finance Ltd (Performance Finance). Receivers had been appointed to Performance Finance by Hayes Knight as trustee shortly before its removal from that office on the application of two of the debenture holders. On 2 September 2005 Lee J made an ex parte order on the application of Highstoke for a summons to issue for the examination of John O'Brien, a director of Hayes Knight, in relation to the examinable affairs of that company.

2 The purpose of the examination was to ascertain, inter alia, the level of insurance cover carried by Hayes Knight at the relevant time so that Highstoke could assess the prospect of satisfying any judgment it might obtain in a damages action commenced by it against Hayes Knight on behalf of the debenture holders. Hayes Knight applied to the Court in those proceedings (the Examination Proceedings) for an order discharging the summons on the basis that the power of the Court to conduct an examination in connection with the examinable affairs of a company did not extend beyond companies under external administration, and if the power did extend to a company not under such administration, it involved the exercise by the Court of non-judicial or executive power beyond the competence of the Parliament to confer upon it.

3 Hayes Knight also sought judicial review of the ASIC decision to authorise Highstoke to apply for the summons (the Judicial Review Proceedings). Hayes Knight first raised the constitutional point at the commencement of the hearing before Siopis J on 18 November 2005. The point having been raised, the hearing was adjourned so that notices could be issued under s 78B of the Judiciary Act 1903 (Cth) to the Attorneys-General of the Commonwealth and the States. On 8 February 2006, ASIC filed a notice of intervention pursuant to s 1330 of the Act. That section provides:

‘(1) ASIC may intervene in any proceeding relating to a matter arising under this Act.

(2) Where ASIC intervenes in a proceeding referred to in subsection (1), ASIC is taken to be a party to the proceeding and, subject to this Act, has all the rights, duties and liabilities of such a party.’

Subsection (3) is not relevant for present purposes.

4 The Examination Proceedings and the Judicial Review Proceedings were heard together. At the hearing ASIC, as intervenor, supported Highstoke’s construction of the power under s 596A as extending beyond corporations subject to external administration. It also argued for the constitutional validity of the section thus construed. ASIC opposed the judicial review application in which it was named as a respondent along with Highstoke.

5 On 16 January 2006 I delivered judgment discharging the examination summons and quashing the decision made by ASIC on 3 August 2005. ASIC and Highstoke were directed to pay the costs of the judicial review proceedings. Costs were reserved until today on the application to discharge the summons. The parties were given an opportunity to make submissions as to the costs in the Examination Proceedings – Highstoke Pty Ltd v Hayes Knight GTO Pty Ltd [2007] FCA 13.

6 Hayes Knight seeks an order that ASIC pay two-thirds of its costs in the Examination Proceedings from 8 February 2006, which was the date upon which ASIC intervened. Its submissions were, in substance, as set out at par 15, listing circumstances which it said weighed heavily in favour of an order that ASIC pay two-thirds of its costs in relation to the constitutional matter:

‘(a) ASIC’s charter, under s 1(2) of the Australian Securities and Investments Commission Act 2001(Cth), is to duly and properly administer the laws conferring functions and powers on it;

(b) this proceeding, and WAD 281 of 2005, arose as a result of ASIC having improperly exercised the powers conferred on it;

(c) ASIC elected to intervene in this proceeding under s 1330(1) of the [Corporations Act], and by virtue of s 1330(2) of the [Corporations Act] is taken to be a party with all the duties and liabilities of a party;

(d) the interpretation of the [Corporations Act] is a matter of public importance and as ASIC is charged with administering the legislation, it was appropriate for ASIC to intervene under s 1330(1) of the [Corporations Act]. However, parliament has seen fit to impose on ASIC, by s 1330(2) of the [Corporations Act], the usual liabilities of a party (including costs) as a consequence of intervening under s 1330(1) of the [Corporations Act];

(e) ASIC aggressively defended its position generally. In this regard:

(i) the Respondents’ first submissions on the constitutional matter dated 4 April 2006 set out the legal argument on the constitutional matter in 8 paragraphs (at [16] to [23];

(ii) ASIC’s submissions filed on 2 May 2006 raised detailed arguments concerning the construction of s 596A of the [Corporations Act], as well as detailed arguments on the constitutional validity of the proposed examination; and

(iii) ASIC filed supplementary submissions on 18 May 2006;

(f) ASIC contentions have been held to be incorrect;

(g) ASIC’s involvement in this proceeding caused the Respondent to incur substantial, additional costs in responding to ASIC’s submissions and additional hearing time; and

(h) the Respondents were entirely successful’

7 Highstoke, seeking to spread the burden of the costs in the Examination Proceedings, submits that ASIC and itself should be ordered to pay them, in effect, jointly and severally. It submits that if there is any differentiation to be drawn then ASIC should bear two-fifths of the costs and Highstoke three-fifths. Highstoke, in effect, accepts that any costs order, as against ASIC, should apply to costs incurred after 8 February 2006, the date of ASIC’s intervention.

8 ASIC argues that the ordinary rule that costs follow the event, does not apply to interveners. It says that there should be no order as to costs against it and its reasons for that are set out in summary in par 15 of its submissions. I refer to those now:

‘15.1 the respondents raised the constitutional matter on 18 November 2005 against the applicant;

15.2 the hearing scheduled for 18 November 2005 was adjourned to allow the respondents to issue notices under section 78 of the Judiciary Act;

15.3 ASIC intervened on 8 February 2006;

15.4 the respondents were required to file submissions in support of the constitutional matter first;

15.5 the intervener and the applicant filed responsive submissions;

15.6 the intervener did not adduce any evidence;

15.7 the constitutional matter raised novel and important questions concerning the interpretation of Commonwealth legislation;

15.8 there was [sic] conflicting interpretations of the judicial opinions related to this issue and no case directly on point;

15.9 if the intervener had not become involved, the constitutional matter would still have been argued between the respondents and the applicant;

15.10 the hearing was rescheduled for 24-26 May 2006 to ensure sufficient time for all arguments in this application and WAD281 of 2005;

15.11 the intervener made oral submissions on the afternoon of 24 May 2006 only, and the hearing time was not extended due to the intervenor’s involvement;

15.12 the intervener’s role was to assist the Court in the interpretation of a new issue raised in relation to the Corporations Act which the intervener administers;

15.13 a courtesy extended to the intervener’s senior counsel to address the Court before the applicant’s counsel in order to permit senior counsel to save time, resulted in the applicant being in a position to endorse any submissions made on behalf of the intervener, which were of principal benefit to the applicant in assisting its case. It did not mean that the intervener was responsible for the majority of the submissions associated with the constitutional matter, as the applicant made some different submissions on the point;

15.14 the interpretation of the Corporations Act is a matter of general public importance, and the intervener should not be discouraged from actively participating to assist the Court by costs orders which effectively penalise the intervener for its involvement;

15.15 there are no special circumstances which require that the intervener pay all or part of the respondents’ costs on the constitutional matter they raised.’

9 In my opinion s 1330 of the Act does contemplate that an intervener, as a party, may be liable to a costs order. It is not necessary, for present purposes, to expound any general rules for the imposition of a costs order on an intervener under that provision. In my opinion if special circumstances are required to support such an order and I am inclined to think that they are not, albeit there may be a restraint principle which emerges from the very nature of intervention, they are made out here. ASIC was the decision-maker, which, in a sense, precipitated the proceedings by authorising Highstoke, as an eligible applicant, to apply for a summons for a purpose which, as I have held, was beyond power. ASIC took a substantive and not merely an assisting role in the proceedings. The public interest dimension of that role did not have any special features about it and was closely related to the particular interest of other parties, as well as the legitimate interest of ASIC in the scope of the powers, which are conferred by the particular provisions with which the Court was concerned.

10 In my opinion ASIC should bear some, but not all, of the costs of the Examination Proceedings from the date of its intervention. I do not consider that they should be limited to the costs of the constitutional matter. ASIC put in substantive submissions in relation to the constructional issue, which was, of course, of equal importance to it as a matter of principle, it being one of the classes of eligible applicant who may apply for a summons under s 596A. I will order that ASIC pay one-third of the respondents’ costs of the application from 8 February 2006 and that Highstoke pay two-thirds of the costs from that date. Highstoke is to bear the costs of the application up to that date.

11 While Highstoke argued for an equal apportionment from that date, I consider it had the principal carriage of the proceedings and occasioned the litigation by its application. The order, in the Examination Proceedings, WAD198 of 2005, will be:

The respondents’ costs of the application up to 8 February 2006, be paid by the applicant and the costs thereafter be paid as to two-thirds by the applicant and one-third by the intervener.

I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French .

Associate:
Dated: 31 January 2007

Counsel for the Applicant:	Mr DR Kilpatrick
Solicitor for the Applicant:	Williams & Hughes
Counsel for the Respondents:	Mr J Garas
Solicitor for the Respondents:	Allens Arthur Robinson
Counsel for the Intervenor: Solicitor for the Intervenor:	Ms KA Vernon Australian Securities and Investments Commission
Date of Hearing:	19 January 2007
Date of Judgment:	19 January 2007