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Federal Court of Australia - Full Court Decisions |
Last Updated: 11 February 2003
Kebaro Pty Ltd v Saunders [2003] FCAFC 5
COSTS - appeal to Full Court from non-party costs order awarded in favour of successful respondents - where applicants at trial people of straw - whether primary Judge erred in finding that interests of justice required non-party costs order - whether primary Judge erred in finding that non-party had a relevant interest in the litigation - whether primary Judge erred in finding that non-party played an active part in the litigation - whether primary Judge should have found that failure of respondents to give notice to non-party disentitled them to costs order - no basis for appellate intervention.
Federal Court of Australia Act 1976 (Cth) ss 43, 56
Real Property Act 1886 (SA) s 136
Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965 applied
Bischof v Adams [1992] 2 VR 198 considered
Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406 followed
Carborundum Abrasives Ltd v Bank of New Zealand (No. 2) [1992] 3 NZLR 757 considered
Chapman v Luminis Pty Ltd (1998) 86 FCR 513 cited
Chapman v Luminis Pty Limited (No. 5) [2001] FCA 1106 referred to
Chapman v Luminis Pty Limited (No. 7) [2002] FCA 1098 affirmed
Condliffe v Hightop [1996] 1 WLR 753 considered
Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712 considered
Gore (t/as Clayton Utz) v Justice Corporation Pty Ltd [2002] FCA 354; (2002) 189 ALR 712 followed
Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division cited
Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 followed
McFarlane v E E Caledonia Ltd (No. 2) [1995] 1 WLR 366 considered
Murphy v Young & Co's Brewery [1996] EWCA Civ 1000; [1997] 1 WLR 1591 considered
Oasis Hotel Ltd. v. Zurich Insurance Co. (1981) 124 DLR (3d) 455 referred to
Re Sturmer and Town of Beaverton (1912) 2 DLR 501 referred to
Shah v Karanjia [1993] 2 All ER 792 considered
Symphony Group Plc v Hodgson [1994] QB 179 distinguished
Taylor v Pace Developments Ltd [1991] ECC 406 cited
TGA Chapman Ltd v Christopher [1997] EWCA Civ 2052; [1998] 1 WLR 12 considered
Symphony Group Plc v Hodgson [1994] QB 179 considered
Vestris v Cashman (1998) 72 SASR 449 distinguished
Yates v Boland [2000] FCA 1895 applied
P. Butt Land Law 4th ed (2001)
KEBARO PTY LIMITED V CHERYL ANNE SAUNDERS, ROBERT EDWARD TICKNER AND COMMONWEALTH OF AUSTRALIA
NO. S 223 OF 2002
BEAUMONT, SUNDBERG & HELY JJ
10 FEBRUARY 2003
SYDNEY (HEARD IN ADELAIDE)
IN THE FEDERAL COURT OF AUSTRALIA |
|
SOUTH AUSTRALIA DISTRICT REGISTRY |
S 223 OF 2002 |
The appeal be dismissed, with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
SOUTH AUSTRALIA DISTRICT REGISTRY |
S 223 OF 2002 |
BETWEEN: |
KEBARO PTY LIMITED APPELLANT |
AND: |
CHERYL ANNE SAUNDERS, ROBERT EDWARD TICKNER and COMMONWEALTH OF AUSTRALIA RESPONDENTS |
JUDGES: |
BEAUMONT, SUNDBERG & HELY JJ |
DATE: |
10 FEBRUARY 2003 |
PLACE: |
SYDNEY (HEARD IN ADELAIDE) |
INTRODUCTION
1 This is an appeal, by leave granted by the primary Judge (von Doussa J), from a non-party costs order (see Chapman v Luminis Pty Limited (No. 7) [2002] FCA 1098) made by his Honour on 10 September 2002 in the following context. After a long and complex trial, on 21 August 2001 the primary Judge dismissed the claims of Thomas Lincoln Chapman, Wendy Jennifer Chapman (collectively "the Chapmans") and a Chapman family company, Binalong Pty Limited (Receivers and Managers Appointed) (In Liquidation) ("Binalong"), for damages against five respondents (including the present respondents): Chapman v Luminis Pty Limited (No. 5) [2001] FCA 1106 ("the principal proceedings"). By their notice of motion dated 27 February 2002, Professor Cheryl Saunders, Mr Robert Tickner and the Commonwealth of Australia ("the present respondents") sought orders that Kebaro Pty Limited ("Kebaro") (the present appellant, another Chapman family company, but not a party to the principal proceedings) pay to the present respondents their costs of those proceedings.
2 Before his Honour, as before us, the existence of the Court's power, in an appropriate case, to order costs against a non-party under s 43 of the Federal Court of Australia Act 1976 (Cth) was not disputed. Section 43(1) relevantly provides that the Court or a Judge has jurisdiction to award costs in proceedings. Section 43(2) relevantly provides that the award of costs is "in the discretion of the Court or Judge". The dispute at first instance, and before us, centred on the question whether it was appropriate to make such an order in the present circumstances.
3 The principal proceedings, commenced on 23 May 1997 by the Chapmans, were brought by them as assignees, pursuant to two deeds of assignment from Binalong dated respectively 22 May 1997 ("the first deed of assignment") and 25 September 1997 ("the second deed of assignment"). The Chapmans sought, in the principal proceedings, to recover damages which, they alleged, Binalong had suffered in consequence of the wrongful conduct of each of the respondents at trial. In their defences, the respondents pleaded that the deeds of assignment were not valid and effective. This led to an application by the Chapmans to join Binalong as an applicant, and leave to do so, on terms, was granted pursuant to O 6, r 8 of the Federal Court Rules on 4 September 1998: Chapman v Luminis Pty Ltd (1998) 86 FCR 513 (Chapman (No 1)). The action, as it proceeded to trial, was constituted with the Chapmans and Binalong as applicants, and Luminis Pty Limited and Dr Deane Fergie ("the Luminis respondents") and the present respondents, as the five named respondents.
THE BACKGROUND FACTS, AS FOUND BY THE PRIMARY JUDGE
4 The primary Judge described the background to the present dispute as follows:
5 Mr Chapman was a director of Binalong, and the Chapmans owned 50 per cent of the issued shares; the remainder were owned by Mr Chapman's mother. Binalong was the developer of a marina complex on Hindmarsh Island, future stages of which were dependent upon the construction of the Hindmarsh Island Bridge. Even before action was taken under the Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) to halt the construction of the bridge, Binalong was "in dire financial straits". On 30 March 1994 its financier Partnership Pacific Ltd ("PPL") had served a notice of demand for some $15.4 million; the demand was not met and Receivers and Managers were appointed on 8 April 1994; and on 2 May 1994 PPL applied to the Supreme Court of South Australia to wind up Binalong; that order was made on 8 August 1994.
6 On 5 May 1994, Kebaro was incorporated. Its sole director was, and always had been, Mr Chapman. It had a paid-up share value of $3.
7 On 6 May 1994, The Lincoln Trust was established by deed. It was a discretionary trust, the beneficiaries being Mr Chapman's mother and her descendants and their spouses. Kebaro was appointed trustee. The Trust Deed empowered Mr Chapman to remove the trustee and appoint others.
8 By deed dated 30 June 1997, Mr Chapman removed Kebaro as trustee of The Lincoln Trust and appointed himself and Mrs Chapman as trustees in its place.
9 The Chapmans gave evidence in the principal proceedings that they had entered into the first deed of assignment, and the second deed of assignment, as trustees for The Lincoln Trust, although there was no mention of that fact in either of the deeds of assignment; and no contemporaneous declaration of trust or other documentation evidenced this. Their evidence was that The Lincoln Trust was established for the purpose of prosecuting the proceedings, and that apart from the interest received under the assignments, the Trust had no other assets.
10 On 30 June 1997, The Galle Trust was established by deed, and Kebaro was appointed trustee. The Galle Trust was a discretionary trust. Like The Lincoln Trust, the potential beneficiaries of The Galle Trust were Mr Chapman's mother and her descendants and their spouses.
11 In his evidence in the principal proceedings, Mr Chapman said that between May and September 1997, confidential negotiations took place between PPL, its holding company Westpac Banking Corporation ("Westpac") and the Chapmans, concerning the sale and purchase of the marina. The trial evidence indicated that the Chapmans "were trying every way possible to regain control" of the marina development, and that, as a part of the incentive being offered by them to Westpac/PPL, had proposed that Westpac/PPL receive a proportion (50 per cent) of the proceeds of the action to be taken by them against the respondents (his Honour's Reasons at [18]).
12 The terms of the first deed of assignment (dated 22 May 1997, that is, the day before the commencement of the principal proceedings) assigned to the Chapmans causes of action against the first, second and third respondents (Luminis Pty Limited, Dr Fergie and Professor Saunders). The stated consideration payable to the liquidator of Binalong was the sum of $1 and 20 per cent of the net proceeds from pursuing the assigned causes of action. Clause 4 of the deed provided:
"The Chapmans will diligently pursue the causes of actions only in their own names, and use their best endeavours within their available resources to maximise the return to [Binalong] from the same as soon as reasonably practicable."
13 By cl 8, the Chapmans agreed that, if they were in breach of any obligation pursuant to the deed, they would assign back to Binalong the causes of action for the consideration of $1.
14 In September 1997, the Chapmans reached agreement with Westpac/PPL about the sale of the marina.
15 On 19 September 1997, The Hindmarsh Trust was established by deed. Kebaro was appointed the trustee. The Trust was a discretionary one, in favour of the Chapmans and their children. The evidence was that The Galle Trust was established to become the owner of that part of the marina's operation that involved the development and sale of land; and that The Hindmarsh Trust was to operate the mooring and other water-orientated aspects of the marina.
16 On 25 September 1997, a "complex" deed of sale was executed by many parties, pursuant to which Kebaro acquired the marina from Westpac/PPL as mortgagees in possession. The transaction was settled on 30 September 1997. Thereafter, Kebaro operated the marina development, "ostensibly" as trustee for The Galle Trust in respect of the land development; and as trustee of The Hindmarsh Trust in respect of the other aspects of the undertaking (Reasons at [22]). Recitals T and V of the deed of sale expressly referred to the first and the second deeds of assignment respectively. Recital W stated that the Chapmans intended to join Mr Tickner and the Commonwealth as defendants in the litigation. Besides Westpac and PPL, the parties to the deed of sale included Kebaro, Mr Chapman's mother and the Chapmans and their children. Kebaro was initially described as "the Purchaser" - "in its capacity as trustee of the trust known as `The Galle Trust'"; however, in the body of the deed (cl 20.3.2.1) Kebaro and the Chapmans represented, warranted, undertook and agreed with Westpac and PPL that:
"The Purchaser [Kebaro] enters into this Deed and any other security required to be given by the Purchaser under this Deed both in its own right and as Trustee of the Galle Trust."
17 By the second deed of assignment, also made on 25 September 1997, Binalong assigned, inter alia, its causes of action against Mr Tickner and the Commonwealth to the Chapmans. Clause 3 of the deed relevantly provided:
"3.1 As consideration for the assignment the Chapmans will pay $1.00 upon the execution of this deed.3.2 In the event that the Chapmans receive any proceeds by exercising the just terms rights or bringing the Commonwealth causes of action, they must pay 50% of the net proceeds of the same to the Liquidator and in consideration of this Deed the Chapmans agree to pay a further 30% of any net proceeds recovered (a total of 50%) of the net proceeds from any cause of action referred to in the May Deed. In this regard, clause 3.2 of the May Deed is varied by changing `20%' to `50%'."
18 Clause 4, like the corresponding clause in the first assignment, imposed an obligation on the Chapmans to pursue diligently the assigned causes of action. However, the second deed did not contain any provision for re-assignment in the event of breach.
19 Thus, by the terms of cl 3.2, the proportion of the proceeds from the action payable to the liquidator (in reality, because of the Westpac/PPL securities, to Westpac/PPL) were retrospectively increased from 20 per cent to 50 per cent. Having regard to the negotiations between May and September 1997 between the Chapmans and Westpac/PPL, the inference was that the increased percentage was part of the deal struck with Westpac/PPL.
20 Hence, in consequence of the second deed of assignment, and the amendment made by it to the first deed of assignment, on 25 September 1997, the day when the deed of sale was executed, Westpac/PPL was "in effect" entitled to 50 per cent of the proceeds of the action against the five respondents in the principal proceedings, which action the Chapmans had undertaken to pursue diligently.
21 The primary Judge next noted that, by way of a discretionary defence to the claim for a non-party costs order, the respondents had contended that cl 21 of the deed of sale (which had been discovered in the litigation) indicated that the parties to the deed recognised the potential for the respondents to seek security for the costs of the action, and also potentially, a non-party costs order against Westpac/PPL, should the action fail. Clause 21 provided:
"21 FERGIE/SAUNDERS ACTION AND TICKNER/COMMONWEALTH ACTION21.1 The parties to this Deed acknowledge that Tom and Wendy Chapman in their capacity as trustees of The Lincoln Trust have commenced the Fergie/Saunders Action and may commence the Tickner/ Commonwealth Action.
21.2 The Purchaser [Kebaro] and the Guarantors acknowledge and agree that if, for any reason whatsoever, an Order is made by the Court or Courts in which the Fergie/Saunders Action and/or the Tickner/Commonwealth Action have been commenced whereby either or both of PPL and Westpac are required to either give security for or to pay costs to the Defendants in those actions:
21.2.1 that they will indemnify PPL and Westpac and keep them indemnified in respect of any moneys which PPL and/or Westpac may be required to pay by way of costs under any such Order and pay to Westpac and/or PPL any amount so paid by them or either of them by way of such costs when the balance of the purchase price payable by the Purchaser for the Land is paid or if such balance has been paid then upon demand.
21.2.2 that payment by the Purchaser to PPL and/or Westpac of any amount so paid by them or either of them by way of such costs will be secured by the Chapman Securities.
21.3 In the event that an Order for security for costs or for the payment of costs is made against either or both of PPL or Westpac in the Fergie/Saunders Action and/or the Tickner/Commonwealth Action, the Purchaser and the Guarantors, and in particular Tom and Wendy Chapman, undertake and agree with PPL and Westpac that they will not continue or permit allow or procure the continuance of those actions or either of them unless and that any further prosecution of those actions or either of them will be subject to:
21.3.1 Westpac and/or PPL consenting to and approving the continuation of the prosecution of such actions, which consent and approval may be withheld or given on such terms and conditions as Westpac and/or PPL in their/its absolute discretion shall determine; provided that such consent and approval maybe withheld only if advice is received from senior counsel either approved or appointed by Westpac or PPL that neither of those actions has any reasonable prospect of success on the question of liability and that the quantum of damages likely to be recovered under them or either of them as the case may be, will not be sufficient to justify their continued prosecution; and
21.3.2 if so required by Westpac and/or PPL, the providing by the Purchaser and/or the Guarantors to Westpac and/or PPL of such further security for the repayment of those costs to Westpac and/or PPL as Westpac and/or PPL may reasonably require over property legally or beneficially owned by the Purchaser and/or the Guarantors or any of them or to which they or any of them have any legal or beneficial right or entitlement at that time."
22 By cl 5 of the deed of sale, the Land (effectively the marina complex) had been sold, subject to a registered debenture charge granted by Binalong to PPL. The floating charge had crystallised on the appointment by Westpac/PPL of agents to enter into possession of the Land.
23 Recital X of the deed of sale acknowledged that the causes of action that were the subject of the litigation were subject to the charge (a result presumably achieved by clauses in the deeds of assignment (cl 6 in each deed), which provisions charged the assigned choses in action with the due performance and observance of the terms and conditions of the deeds of assignment in favour of Binalong). However, the deed of sale provided for the discharge of the charge in the following events, stipulated in cl 24:
"24. BINALONG DEBT24.1 Westpac and PPL acknowledge, undertake and agree with the Chapmans, and in particular Thomas Lincoln Chapman, Wendy Jennifer Chapman and Ruth Galle Chapman, the Associated Companies and MS Co that upon payment to PPL or to the Liquidator of Binalong, as the case may be, of all moneys which may be or become due by Thomas Lincoln Chapman and Wendy Chapman to the Liquidator of Binalong under the First Assignment of Rights and the Second Assignment of Rights:
24.1.1 that Westpac and PPL will accept the same in full satisfaction and discharge of the obligations under any guarantee or guarantees which may have been given by Thomas Lincoln Chapman, Wendy Jennifer Chapman or Ruth Galle Chapman, the Associated Companies and MS Co to PPL in respect of the Binalong Debt and which are either contained in or form part of the Binalong Securities; and
24.1.2 that PPL will give such releases, discharges and assurances in respect of such guarantees and any security which PPL may hold over the Land and/or the Binalong Assets which forms part of the Binalong Securities as may reasonably be required in the circumstances. Any such release, discharge or assurance shall be at the cost in all things of Thomas Lincoln Chapman, Wendy Jennifer Chapman, Ruth Galle Chapman, the Associated Companies and MS Co.
24.2 It is expressly acknowledged and agreed by the Chapmans, the Associated Companies and MS Co that until the payments referred to in Clause 24.1 have been made and any release discharge and assurance referred to in that Clause is given by PPL all of PPL's rights against Binalong and under such of the Binalong Securities as shall then be in force and effect shall continue in full force and effect, until the payments referred to in Clause 24.1 have been made.
...." (Emphasis added by his Honour)
24 (As will be seen, before the primary Judge, and before us, the respondents contended that Kebaro had a direct interest in the outcome of the litigation so as to ensure that under cl 24 the Binalong debt, and, in turn, the charge referred to in cl 5, could have no further impact on the Land.)
25 The circumstances surrounding the joinder of Binalong as a party to the proceedings were these:
26 In March 1998, the respondents had asserted that the deeds of assignment were not valid or effective, and thus the Chapmans had no standing to maintain the litigation. The Chapmans then sought the consent of the liquidator of Binalong to use the name of Binalong in the proceedings, without prejudice to their contention that the assignments were valid. The order of the Court made on 4 September 1998 relevantly provided as follows:
"1. Subject to the first and second applicants and Kebaro ... entering into a Deed in terms handed to the Court and marked `A' and further subject to Kebaro granting the security referred to in the Deed in the form of a mortgage in the form handed to the Court and marked `B', the first and second applicants at their own expense and risk as to costs be authorised to use the name Binalong ... as joint applicant with the existing applicants in this action.2. That the applicants have leave to amend the application herein to name the aforesaid company as applicant.
..."
27 A deed in terms of the document marked "A" was executed on 2 October 1998. The parties were Binalong, the Chapmans and Kebaro. By cl 3, the Chapmans and Kebaro jointly and severally undertook to indemnify and keep indemnified Binalong and the liquidator against costs, charges and expenses, more particularly described in the deed in connection with or arising out of the proceedings. Further, by cl 4, Kebaro agreed to provide to Binalong and the liquidator security for the indemnity. By cl 2.2 that security was to be a first ranking security. Clause 10 provided:
"The Chapmans and Kebaro at their cost shall cause their solicitors to provide reports in writing on the status of the proceedings to the Liquidator upon his reasonable request from time to time."
28 On 2 October 1998, Kebaro gave Binalong and the liquidator a first mortgage over some thirty-two allotments of land in the Hindmarsh marina, and negotiated a deed of priority with Westpac. Westpac otherwise held a first mortgage over the marina land to secure the balance of the purchase price payable under the deed of sale. In short, Kebaro provided security over its assets to meet the condition imposed by the Court order, and by the liquidator, for the use of Binalong's name in the litigation.
29 On 4 March 1998 (in the principal proceedings), the Luminis respondents applied for security for costs against the Chapmans. But it was not until 10 November 1998 that the Chapmans swore an affidavit in opposition to the application for security, disclosing for the first time that the Chapmans asserted that the deeds of assignment had been entered into by them on trust for The Lincoln Trust. The Chapmans said that they were without assets; and that they worked at the marina for Kebaro and "drew" the sum of $1,000 per week (tax returns and later evidence indicated that they asserted that their actual wages were "very modest" - in that year they each disclosed taxable earnings of $6,150). They said that, since September 1997, they had become entitled to approximately $104,166, before the payment of legal costs, by way of settlement or judgment in defamation actions; and that this money had either been expended on, or was committed to meeting, the disbursements of the litigation. They said the liquidator of Binalong had no funds - a matter that was common knowledge to all concerned. They said that no other party had provided any funding in respect of the litigation save that Kebaro Pty Ltd had paid some disbursements in respect of the litigation, all of which (except for $5,000 outstanding) had been subsequently reimbursed by the Chapmans.
30 On 19 November 1998 the Luminis respondents reached agreement with the Chapmans to compromise the application for security, by Kebaro granting a registered second mortgage over marina land in favour of the Luminis respondents to a maximum sum of $50,000. The settlement was stated to be in full and final satisfaction of any security for costs application against any applicant, regardless of any changed circumstances or financial status.
31 Additional information later became available to the respondents in the course of their application for security for costs in the appeal which the Chapmans had instituted against the dismissal of the action, such information revealing that Kebaro had, to a substantial extent, provided funding for disbursements and counsel fees during the trial. Through 1999 - 2001, Kebaro was selling land in the marina development. Proceeds from the sale of allotments were credited to accounts within the firm of the applicants' solicitors, from which disbursements in litigation were met, totalling in the order of $680,000. Kebaro lent monies to the Chapmans for the purposes of the litigation, and did so in its capacity as trustee of The Galle Trust and The Hindmarsh Trust. However, no papers were produced on subpoena recording the terms of the loans, or the involvement of the Trusts in providing them. No security was provided by the Chapmans to Kebaro for the loans.
32 In answer to a written request by the respondents, made after judgment in the principal proceedings, as to how the applicants had funded the proceedings, the applicants said that they had funded the disbursements from their personal funds; the first source of these funds was proceeds from defamation actions, actual receipts from which totalled in excess of $550,000, plus additional sums by way of costs; most of these sums which the Chapmans received had been applied by them to fund the payment of disbursements in the litigation, including one payment of $150,000 to refund The Galle Trust for monies advanced to the Chapmans; the total advances by The Galle Trust to the Chapmans were said to be in the order of $700,000 (which was in line with the evidence about payments made by Kebaro from land sales); however, they said that at least $140,000 of that sum had been applied to disbursements in other matters; thus, The Galle Trust had advanced some $560,000 in respect of the litigation against the respondents, $150,000 of which had later been refunded from the fruits of defamation actions brought by the Chapmans.
33 Substantial drawings by the Chapmans from The Hindmarsh Trust between 13 December 1999 and 3 July 2000 took place, for which no documentary record or explanation was offered. Their drawings accounts increased between those dates from a net $63,060 to $240,827 - an increase of $177,767. On the evidence that the applicants were drawing $1,000 a week, some $140,000 was "unaccounted for" (Reasons at [38]). This illustrated the absence of records being kept by the Chapmans and the "inter-mingling" of monies said to belong to the Trusts and Kebaro with the affairs of the Chapmans.
34 As to the way in which the funds under the control of Kebaro as trustee of The Galle Trust and The Hindmarsh Trust had been used, cl 8 of each of the Trust deeds provided:
"8 The powers of the trusteeSubject to this deed, the trustee has all the powers in relation to this trust as if the trustee was a natural person and the trust fund was beneficially owned by the trustee.
Without limiting the generality of the preceding paragraph, the trustee also has all the following powers.
...
8.4 To manage the whole of the trust fund as if the trustee was the beneficial owner of it without restriction and without being responsible for loss except as provided in this deed."
35 Clause 14 of each deed also provided:
"14.1 No trustee is liable for any neglect or default, or any losses or liabilities, in carrying out this trust, except those arising from a breach of trust committed by the trustee actually knowing it to be a breach of trust."
36 His Honour noted, also, a letter in evidence from the Chapmans' solicitors saying that no-one but the Chapmans had controlled the conduct of the proceedings, and the personal observation of counsel for the respondents at trial, that Mr Chapman was in Court for the vast majority of the trial, and appeared frequently to be conferring with and providing instructions to his counsel and solicitors.
THE PRIMARY JUDGE'S REASONING
37 His Honour arrived at the following conclusions:
* (As was conceded) the Chapmans were "people of straw" (Reasons at [43]).
* Kebaro had played an active part in the litigation. It provided security to the Chapmans to enable them to obtain the liquidator's consent to the use of the name of Binalong as an applicant. It further provided security to enable the Chapmans to compromise the application for security for costs which was made by the Luminis respondents. In the early stages of the proceedings, Kebaro had also initially met some disbursements. Apparently, most of those disbursements were later refunded by the Chapmans. As noted, the amount outstanding at 10 November 1998 was said to be about $5,000 which, in the overall magnitude of the case was a small amount. It was doubtful that these three matters, if they stood alone, would be sufficient to establish that Kebaro had so involved itself in the conduct of the litigation that it should be held liable for the costs of the successful parties to the litigation. However, these matters did not stand alone. Of much greater significance is the fact that in the later stages of the case, large sums of money were advanced to support disbursements and counsel fees - apparently up to $560,000 (at [44]).
* But for this support, the litigation could not have continued. The fact that the Chapmans had outstanding liabilities to their solicitors in respect of these proceedings was powerful evidence that finance was not available from any other source to fund the litigation (at [45]).
* Kebaro was acting on behalf of the Chapmans, by whom it had been appointed, when it provided security to the liquidator and to the Luminis respondents, and in funding disbursements. It was also acting on behalf of the Chapmans, and in their interests, in accepting obligations under the deed of sale to indemnify Westpac/PPL in the event that Westpac/PPL were required to pay the respondents' costs in the proceedings or give security for costs (at [45]).
* Kebaro had an interest in the litigation. The Land had been transferred to it under the deed of sale subject to the charge to Westpac/PPL securing the Binalong debt. Absent any evidence from Kebaro to the contrary (and Kebaro called no evidence at all) it should be inferred that it was "of very substantial importance" to Kebaro that it ensured that the Land was freed from the charge pursuant to the provisions of cl 24 of the deed of sale (at [46]).
* Kebaro had an interest in ensuring that the litigation proceeded successfully, so as to avoid liability under the security given to the Luminis respondents. It should be inferred that the prospects of Kebaro's recovering monies which it had advanced by way of disbursements, or otherwise, to the Chapmans to maintain the litigation would be slight indeed, in the event that the litigation were to fail to produce a positive result (at [47]).
* The Chapmans had arranged their affairs so that they could obtain financial support as required, and to the extent possible, as beneficiaries under discretionary family trusts, whilst not exposing the same source of funds to risk in the litigation. As the Chapmans put into operation their "unswerving desire" to regain control of the marina from Westpac/PPL, Kebaro was removed as the trustee of The Lincoln Trust, and that role was assumed by the Chapmans who were, at the time, the only applicants in the litigation; Kebaro then assumed the role as trustee of the trust entities through which the marina, once acquired, was operated. Through this structure, the Chapmans endeavoured to "shelter" the assets and income stream, over which they had control, from risk in the litigation, whilst at the same time enjoying benefits under the trusts which were run by Mr Chapman as if they were his own. In the operation of this scheme Kebaro played a "central role" (at [48]).
* Kebaro "fund[ed] the litigation", in the sense of providing its own funds at risk. Had it not provided security to the liquidator and to the Luminis respondents, and met disbursements, the litigation could not have been maintained by the Chapmans. Kebaro's money was directly at risk both under the security and in respect of the disbursements, for the reason that "no realistic prospect" of reimbursement from any other source existed in the event of failure of the litigation (at [49]).
HIS HONOUR'S CONSIDERATION OF SPECIFIC DEFENCES RAISED BY KEBARO
38 His Honour then addressed several specific defences raised by Kebaro.
39 His Honour turned first to Kebaro's contention that an order for costs should not be made against it because the respondents did not, at an early stage in the proceedings, seek security for costs from it; or warn Kebaro that it might be exposed to an application for non-party costs, in the event that the litigation failed.
40 The Judge rejected the suggestion that the respondents should have made application against Kebaro for security for costs. Kebaro was not a party to the litigation, so that an application under s 56 of the Federal Court of Australia Act for security for costs would have failed. Symphony Group Plc v Hodgson [1994] QB 179, relied on by Kebaro, should be distinguished here. There, an order for costs was not made against a non-party on the ground that the successful party in the litigation could have joined the non-party early in the case, thereby giving the non-party the opportunity to participate in the litigation and protect its position as it saw fit.
41 The present case was also, the Judge held, unlike Vestris v Cashman (1998) 72 SASR 449, where the non-parties would have escaped a costs order (had the District Court had jurisdiction to make it) on the ground that an application for security for costs had not been made against the plaintiff company. The plaintiff there was a corporate trustee. The non-parties were its shareholders, and were beneficiaries of the trust administered by it. An application made against the plaintiff for security of costs would inevitably have required the non-parties to confront a potential exposure to the financial risks of the litigation. But here, the parties against whom security for costs could have been sought were the Chapmans, and once Binalong was joined, Binalong. An application for security for costs against Binalong would have failed, having regard to the limited basis upon which leave was granted for Binalong's name to be used in the proceedings. An application for security for costs against the Chapmans would have confronted the considerable obstacle that the Chapmans would have asserted that their impecuniosity was the consequence of the defaults of the respondents. It was now, his Honour said, "unrealistic" for Kebaro to assert that justice required that it be released from liability for costs on the ground that the respondents did not pursue a doubtful claim for security against other parties (at [52]).
42 As to the defence of an absence of an early warning notice to Kebaro that it was at risk of an application for a non-party costs order, his Honour said (at [53]) that there was no absolute rule that a party will be disqualified from claiming a non-party costs order if notice is not given to the non-party; rather, it may, depending on the circumstances of the case, be a material consideration to be taken into account in the exercise of the discretion whether or not an order should be made, his Honour citing Yates v Boland [2000] FCA 1895 at [34] and Gore (t/as Clayton Utz) v Justice Corporation Pty Ltd [2002] FCA 354; (2002) 189 ALR 712 at [51] (both these cases are further discussed below).
43 Counsel for Kebaro having asserted from the bar table that, had a warning been given, Kebaro could have taken steps to arrange alternative funding for the action, or taken other protective action, the Judge noted (at [55]), however, that no evidence of prejudice was actually put forward by the Chapmans. Further, as was held in Gore, above, at [61], it was not helpful to enter into speculation about what might have happened, had notice been given. The better and correct approach was to examine what did happen, putting aside speculation. As in Gore, Kebaro did give financial support to the Chapmans.
44 His Honour held (at [56]) that the evidence did not establish that the respondents should have realised, before judgment, that the conduct of Kebaro, viewed overall, was such that Kebaro was exposing itself to a non-party costs order. The knowledge of the respondents was that Kebaro had given security on behalf of the Chapmans to the liquidator, had given security to compromise the Luminis respondents' application for security, and, in the early stages of the proceedings, had made some advance in respect of disbursements, all but a modest amount of which had been refunded. The mere fact that a non-party makes a loan to a litigant, knowing that the proceeds may be used by the litigant for the purpose of the litigation was not in itself enough, in the Judge's view, to attract liability for a non-party costs order. The Chapmans were beneficiaries of The Galle Trust. The mere fact that the trustee had agreed to provide the security, as was known by the respondents, and had made a modest loan to the Chapmans, would fall short of exposing Kebaro to a non-party costs order. The deed of sale had in fact been discovered to the respondents, yet the complexity of the document was such that it was most unlikely that the present significance of the terms relating to Kebaro's interest in the litigation would have been understood. The Judge was not satisfied that, by reading the deed of sale, and knowing of the other matters just mentioned, the respondents should then have realised that Kebaro's role in the litigation brought it into the category of a case of a person liable for a non-party costs order.
45 His Honour went on to observe that, if the respondents had studied the deed of sale closely, they would also have noted that cl 20.3 of the deed of sale provided that the Purchaser (Kebaro) and the Chapmans represented, warranted, undertook and agreed with Westpac and PPL that:
"20.3.3.11 the Trustee will not otherwise than in the ordinary course of business:20.3.3.11.1 intermingle or mix the Trust's assets;
20.3.3.11.2 compromise any claim in relation to the Trust assets;
20.3.3.11.3 incur any debt;
20.3.3.11.4 dispose of any property of the Trust;
20.3.3.11.5 mortgage, charge, pledge or otherwise encumber any assets of the Trust."
46 For the purpose of cl 20.3.3.11, the Trust assets, in the case of Kebaro, were the assets of The Galle Trust. Having regard to these restrictions, the respondents would have had no reason to suspect that Kebaro, using The Galle Trust assets, would become a financier of the litigation.
THE GROUNDS OF THE APPEAL
47 By its notice of appeal, Kebaro now relies upon the following grounds:
* Neither the circumstances of the case, nor the interests of justice, justified the making of a non-party costs order.
* The failure of the respondents to give notice of their intention to claim costs against Kebaro should disentitle the respondents to any costs order.
* It should have been found that Kebaro had no relevant interest in the outcome of the litigation, other than the recovery of commercial loans, and that Kebaro was not "the real party" to the litigation.
* It should not have been found that Kebaro had played an "active part" in the conduct of the litigation; or that the provision of security by Kebaro and the making of disbursements amounted to playing an "active part" in the litigation; or that the advance of monies amounted to playing an "active part" in the litigation; or that any interest which Kebaro had in the subject of the litigation was a circumstance such as to justify a liability to pay the costs of the respondents. Further, the interests referred to in pars [46] and [47] of the Reasons for Judgment (summarised above), and whatever other interest which Kebaro had in the litigation, was not a relevant or material circumstance to be taken into account for present purposes.
* To take into account the way in which the Chapmans had "arranged their affairs", was not an appropriate consideration for the Judge to rely upon.
* It should not have been found that Kebaro had "funded" the litigation.
CONCLUSIONS ON THE APPEAL
48 As has been noted, it is common ground that the Court's general discretionary power, conferred by s 43 of the Federal Court of Australia Act, "to award costs in ... proceedings", is available against a person who is not a party on the record, in appropriate circumstances; and that the question for the primary Judge was whether the present circumstances were appropriate in that sense. The question for us is, of course, whether his Honour's order was vitiated by appellable error.
The nature of the judicial discretion
49 We were referred to many of the decided cases in this area. It will be convenient to commence with a review of the principal authorities, both in the House of Lords and in the High Court of Australia.
(a) Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965
50 In Aiden Shipping, the House of Lords construed the provisions of s 51(1) of the Supreme Court Act 1981 (UK) relevantly as follows:
"... the costs of ... all proceedings ... shall be in the discretion of the court, and the court shall have full power to determine by whom ... the costs are to be paid."
51 The House of Lords held that there was no justification for implying a limitation to the effect that costs could only be ordered to be paid by parties to the proceedings.
52 Speaking for the House, Lord Goff, noting (at 975) that s 51(1) was "concerned with the jurisdiction of the court to make orders as to costs" and was "expressed in wide terms", said (at 975):
"Such a provision is consistent with a policy under which jurisdiction to exercise the relevant discretionary power is expressed in wide terms, thus ensuring that the court has, so far as possible, freedom of action, leaving it to the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court, and to the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised. Such a policy appears to me, I must confess, to be entirely sensible."
53 Lord Goff went on to say (at 980):
"... [Counsel's] submission is relevant not to the construction of the statute conferring the jurisdiction, but to the exercise of the discretionary jurisdiction conferred by the statute. In the vast majority of cases, it would no doubt be unjust to make an award of costs against a person who is not a party to the relevant proceedings. But, as the facts of the present case show, that is not always so."
(b) Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178
54 Aiden Shipping was considered by the High Court of Australia in Knight, where the relevant provision, O 91, r 1 of the Queensland Supreme Court Rules, provided relevantly as follows:
"... the costs of ... all proceedings in the Court ... shall be in the discretion of the Court or Judge ... ."
55 It was held (Mason CJ, Deane, Dawson and Gaudron JJ, McHugh J dissenting) that this discretion was not confined to the parties to the proceedings; and, accordingly, the rule conferred jurisdiction to make an order for costs against the receivers of companies which were unsuccessful parties in the proceedings, notwithstanding that the receivers themselves were not parties.
56 Of the Queensland rule of Court, Mason CJ and Deane J observed (at 185):
"The jurisdiction and the discretion thereby conferred are not limited. Because they are not limited it is easy to postulate a variety of circumstances where an exercise of the jurisdiction against a non-party would be extravagant and unjust. However, the existence of that possibility provides no justification for the imposition by the courts, by way of implication, of an arbitrary limitation upon the general jurisdiction conferred by the rule. To do so would, as will appear, deny power to the Court to order costs against a non-party in cases in which, in the interests of justice, such orders should be made."
57 Upon an analysis of the earlier English cases, their Honours concluded (at 188):
"The cases awarding costs against non-parties are more readily explicable on the footing that there was no absence of jurisdiction to order costs against non-parties in the strict sense and that the jurisdiction could be exercised against persons who were considered to be the `real parties' to the litigation."
58 Mason CJ and Deane J went on to say (of the earlier English cases) (at 190):
"It may be that these cases are capable of being explained on various grounds, including the ground that the non-party ordered to pay costs was guilty of abuse of process, taking a very broad view of what constitutes an abuse of process, but to say that does not deny that there was jurisdiction to make an order for costs against a non-party even if the jurisdiction was exercised in limited circumstances only.Against this background, it is impossible to construe the wide and general words of O. 54, r. 1 and its successor O. 91, r. 1 as delimiting the jurisdiction to order payment of costs as one which was and is confined to parties to the proceedings. The language of the rule is quite inapt to give expression to the complex course of judicial decisions at common law and in equity before the Judicature Acts. Moreover, the extended concept of `party', including as it does a variety of persons on whom notice of proceedings is served, makes it inappropriate to introduce a limitation which was applied at a time when the concept of `party' related to a person on the record of the proceedings. It is preferable to interpret the words of the rule according to their natural and ordinary meaning as conferring a grant of jurisdiction to order costs not limited to parties on the record and ensure that the jurisdiction is exercised responsibly."
59 Their Honours observed (at 190 - 191) that, in many cases, it is appropriate to seek security for costs and a stay of proceedings early in the litigation, but there are limitations here; for instance, since the amount awarded as security is no more than an estimate of the future costs, it is not reasonable to expect a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient. Mason CJ and Deane J added (at 191):
"And the availability of the remedy is scarcely a reason for denying the existence of jurisdiction to make an order for costs against the `real party' at the end of the trial of an action. The availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction."
60 Having expressed their agreement with Aiden Shipping (at 191 - 192), their Honours said (at 192):
"The conclusion that the wide words of O. 91, r. 1 should not be read down so as to preclude jurisdiction to make an order for costs against a non-party does not, of course, mean that a judge has an unfettered discretion to make any order that he or she chooses. The wide jurisdiction conferred by the rule `must be exercised judicially and in accordance with general legal principles pertaining to the law of costs', to take up the words of Lambert J.A. in Oasis Hotel Ltd. v. Zurich Insurance Co. [(1981) 124 DLR (3d) 455, at p 462)]."
61 Their Honours then noted that in Oasis Hotel, an order for costs as between solicitor and client was made against a director and principal shareholder of the insolvent plaintiff company, notwithstanding that he was a non-party, on the ground that he had instigated an action which sought to make the court an instrument of fraud.
62 Mason CJ and Deane J continued (at 192):
"Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made (78)."
63 Their Honours referred (at footnote (78)) to observations in Oasis Hotel at 458 - 459. There, Lambert JA quoted a summary of the power at common law by Middleton J in Re Sturmer and Town of Beaverton (1912) 2 DLR 501 (at 505 - 506) that -
"... the Common Law Courts always had power to award costs against one unsuccessfully invoking the aid of its process, even when the Court had no jurisdiction to entertain the application: Rex v. Bennett (1902), 4 O.L.R. 205; Re Cosmopolitan Life Association (1893), 15 P.R. 185; In re Bombay Civil Fund Act (1888), 40 Ch. D. 288. And the Court always had power to award costs against the real applicant when the motion was made by him in the name of a man of straw for the purpose of avoiding liability. The Courts were never so blind as to be unable to see through the flimsy device nor so impotent as to be unable to act."
64 Mason CJ and Deane J then said (at 192 - 193) (in a passage now relied upon by Kebaro as limiting the scope of the discretion):
"For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made."
65 Their Honours then summarily concluded their reasons by stating (at 193):
"The conclusion that the jurisdiction conferred by O. 91, r. 1 is not limited to parties requires that the appeal be dismissed."
66 Dawson J also (at 201 - 202) cited the observations of Middleton J in Re Sturmer, and then said (at 202):
"The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court."
67 Noting (at 204) that the only question reserved for the High Court in Knight was the challenge to the existence of jurisdiction, Dawson J, however, added this observation (at 204 - 205):
"... an order for security for costs must ordinarily be the appropriate remedy where a receiver and manager conducts litigation through a company which will be unable to pay the costs of the defendant if the defendant is successful in his defence. Moreover, as Mason C.J. recognized in Devenish v. Jewel Food Stores Pty. Ltd., applications for security for costs should ordinarily be made promptly before significant expense is incurred." (References omitted)
68 Gaudron J said (at 205):
"I agree with the judgment of Mason C.J. and Deane J. I would add one observation.It is contrary to long-established principle and wholly inappropriate that the grant of power to a court (including the conferral of jurisdiction) should be construed as subject to a limitation not appearing in the words of that grant. Save for a qualification which I shall later mention, a grant of power should be construed in accordance with ordinary principles and, thus, the words used should be given their full meaning unless there is something to indicate to the contrary. Powers conferred on a court are powers which must be exercised judicially and in accordance with legal principle. This consideration leads to the qualification to which I earlier referred. The necessity for the power to be exercised judicially tends in favour of the most liberal construction, for it denies the validity of considerations which might limit a grant of power to some different body including, for example, that the power might be exercised arbitrarily or capriciously or to work oppression or abuse." (References omitted)
Cases considering the exercise of the jurisdiction explained in Aiden and Knight
69 Although, as will be seen, none of the other reported cases in this area to which we were taken is on all fours with the circumstances of the present case, guidance is available from the explanations given in these cases why it was held to be appropriate in some instances, but not in others, for the exercise of the judicial discretion to order costs against a person not a party. As will appear, this is a fact-specific jurisdiction.
70 In Bischof v Adams [1992] 2 VR 198, the conduct of a non-party in destroying evidence significantly extended the trial of an action. In ordering a proportion of the action's costs against the non-party, Gobbo J rejected an argument that the discretion could only be exercised in certain well recognised situations, but held (at 204 - 205) that "there is an obligation to find a connection between the non party and the proceedings ... [which] must be real and direct and ... material to the issue of costs. The mere fact that a person may benefit from the litigation will not, without more, suffice". His Honour held (at 206) that the non-party "had a link" with those proceedings because it was the agent that had brought about the relevant contract; and because as agent for a then undisclosed principal, it was a party to the contract. Moreover, it had an interest in the fate of the proceedings because in the event of the plaintiffs failing in their claim, it was exposed to proceedings by the plaintiffs for possible breach of its contract with the plaintiffs.
71 In Carborundum Abrasives Ltd v Bank of New Zealand (No. 2) [1992] 3 NZLR 757, the directors (non-parties) of the plaintiff company had caused the plaintiff to commence and maintain proceedings when they ought to have known that, if the proceedings were unsuccessful, it was unlikely that the plaintiff could meet an order for costs. In refusing to order costs against the directors, Tompkins J, after citing the warning of Lloyd LJ in Taylor v Pace Developments Ltd [1991] ECC 406 (at 408) of the danger of laying down too many principles in the area of costs, nonetheless held (at 764) that "[a]s a general approach, costs will not be awarded against a person not a party".
72 His Honour said (at 764) that costs are not to be awarded against the directors of an insolvent company only because they cause the company to bring or defend proceedings when they know or suspect that the company may not be able to meet an order for costs against it. However, Tompkins J added (at 765) that if a non-party causes a party to bring or defend proceedings for his own financial benefit, either to gain the fruits of the litigation, or to preserve assets in which the person has an interest, "it may, depending upon the circumstances, be appropriate to make an order for costs against that person".
73 In Symphony Group Plc v Hodgson (above) the English Court of Appeal (Balcombe LJ, Staughton and Waite LJJ concurring) held that the exercise of the Court's discretion to order costs in favour of a successful plaintiff against a non-party was not justified there because: (a) the issues on which the plaintiff had relied in the action also formed the basis of a cause of action against the non-party, and it would be unjust to allow those issues to be raised in a summary application for costs where the non-party was deprived of the procedural protection to which it would have been entitled if it had been a defendant to the action; (b) the non-party had been disadvantaged by the plaintiff's failure to inform it of its intention to make the application; and (c) the non-party's connection with the original proceedings was not close enough to justify admission of the Judge's findings of fact in the action as evidence in the costs application.
74 Balcombe LJ identified (at 191 - 192) several situations where courts have been prepared to order non-party costs, including:
* Where a person has some management of the action, e.g. a director of an insolvent company who causes the company improperly to prosecute or defend proceedings.
* Where a person has maintained or financed the action.
* Where a person has caused the action.
75 Balcombe LJ said (at 192 - 194) that the following are material considerations to be taken into account, without suggestion that there may not be others which are relevant:
q Since such an order will always be exceptional, any such application should be treated "with considerable caution".
q Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party, at the earliest opportunity, of the possibility that he may seek to apply for costs against him. At the very least, this is required by the rules of natural justice, so as to give the non-party an opportunity to apply to be joined as a party to the action.
q Because the procedure here is summary, the rules that would apply in an action do not necessarily all apply. For instance, unlike the position in an action, judicial findings made in the original proceedings might be admissible in this summary procedure against a stranger to the original proceedings. However, this departure from basic principles can only be justified "if the connection of the non-party with the original proceedings was so close that he will not suffer an injustice by allowing this exception to the general rule".
q The fact that an employee, or even a director or the managing director, of a company gives evidence in an action does not normally mean that the company is "taking part in that action ... ."
76 A non-party costs award sought by successful defendants was also refused in Shah v Karanjia [1993] 4 All ER 792. The trial judge had found that the plaintiffs' claim was a malicious fabrication. The plaintiffs' case had been supported by the non-party, who had been closely involved in the transactions. The action had been partly funded by companies controlled by the non-party. Vinelott J (at 804) refused to order non-party costs because, applying the principles stated by Balcombe LJ, the non-party had not been separately represented at the hearing, and he had not been warned that there might be a claim that he should pay the costs of the action. Furthermore, no order should be made against the companies controlled by the non-party, Vinelott J held (at 810), since there was no evidence that those companies had a direct interest in the outcome of the proceedings, and they could not be said to have funded an action brought on their behalf.
77 In McFarlane v E E Caledonia Ltd (No. 2) [1995] 1 WLR 366, the plaintiff, who had no means of financing litigation, retained the services of a company formed to handle personal injury claims on a contingency fee basis. The plaintiff's action failed and the defendants then sought costs against the company, which was not a party to the action. Longmore J granted the order, holding (at 373) that, given the business context, the company had been illegally maintained.
78 Longmore J (in a passage approved by the English Court of Appeal (Kennedy LJ, Peter Gibson LJ and Sir Roger Parker agreeing) in Condliffe v Hightop [1996] 1 WLR 753 at 761) said (at 373):
"It may well be that it is not necessary to every case of lawful maintenance that the maintainer should accept a liability for a successful adverse party's costs: for example, a member of a family or a religious fraternity may well have a sufficient interest in maintaining an action to save such maintenance from contractual illegality, even without any acceptance of liability for such costs. But in what one may call a business context (e.g. insurance, trade union activity, or commercial litigation support for remuneration) the acceptance of such liability will always, in my view, be a highly relevant consideration."
79 In Murphy v Young & Co's Brewery [1996] EWCA Civ 1000; [1997] 1 WLR 1591, the English Court of Appeal held that a non-party costs order should not be made against a legal expense insurer. Phillips LJ (Butler-Sloss LJ and Sir John Balcombe agreeing) noted (at 1600) that the reasoning of Longmore J in McFarlane differed from that of Vinelott J in Shah, and went on to say (at 1602):
"Sun Alliance have funded the Murphys' litigation under a commercial agreement, but that is, it seems to me, the only ground that can validly be advanced in support of Youngs' contention that Sun Alliance should be ordered to pay their costs. In particular: (1) Sun Alliance have had no interest in the result of this litigation, save in so far as this has affected their liability to pay costs. (2) Sun Alliance did not initiate the litigation. They were contractually bound to fund it up to their limit of liability of £25,000 and would, in consequence, have been better off if the litigation had never been commenced. It has not been suggested, nor could it have been, that Sun Alliance could properly have refused their consent to this litigation. Counsel had advised the Murphys that they had `a strong case.' (3) Sun Alliance exercised no control over the conduct of the litigation. (4) Sun Alliance cannot be accused of `wanton and officious intermeddling' [being the test for maintenance as explained by Lord Mustill in Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 at 164] in the dispute. Legal expenses insurance is a respectable and well recognised form of insurance and is subject to express regulation under statutory instruments pursuant to the Insurance Companies Act 1982."
80 In expressing his agreement, Sir John Balcombe added (at 1604):
"As will usually be the case, the legal expenses insurance with which we are here concerned did not relate to a specific piece of litigation, and this distinguishes this case from one where a third party funds a particular claim and has a direct commercial interest in the outcome of that claim."
81 For similar reasons, the same Court of Appeal in Tharros Shipping Co Ltd v Bias Shipping Ltd [1997] 1 Lloyd's Rep 246 at the same time dismissed an appeal from the refusal of a trial judge to order costs against a P & I Club. The Court (Phillips LJ) said (at 250):
"FundingIn Murphy we held that the mere fact of funding did not render it reasonable and just that the funder should pay the costs of the successful adverse party. We further rejected the submission that legal expense insurance should carry such a consequence for the insurer, so as to impose a risk of liability to costs beyond the limit of the cover.
The question remains as to whether the unusual facts of the present case render it reasonable and just for the club to bear part of Tharros' costs.
...
What finally tilted the balance in favour of the club, so far as the Judge was concerned, were, inter alia, the following factors: (i) the club had no interest in the litigation but was only involved as a provider of Class II cover; (ii) provisions such as the r. 9 proviso are common; (iii) it has not been shown that P. & I. clubs universally pay the costs of the successful adverse party in all circumstances.
In these circumstances the Judge considered that the Court should pay particular attention to the terms on which the club had provided support. His conclusion was that it was not appropriate to order the club to make any payment in respect of Tharros' costs which the club was not obliged to make under the terms of its cover.
For the reasons given earlier in this judgment I do not consider that the Judge's decision offends against any general principle governing the exercise of his discretion."
82 On the other hand, in TGA Chapman Ltd v Christopher [1997] EWCA Civ 2052; [1998] 1 WLR 12, the English Court of Appeal (Phillips, Waller and Mummery LJJ) dismissed an appeal from a non-party costs order where the non-party was the insurer against liability for damages under a policy which limited indemnity for all damages and claimants' costs to £1m; and in an action for negligence, the insured defendant was found liable for a sum in excess of £1m plus interest and costs; the Plaintiff accepted £1m from the defendant in full settlement, but reserved the right to contend that the insurer should be liable in addition for the costs of the action. It was held (at 20) that, although the insurer had not "maintained" the action, a costs order against the insurer was justified because (1) it determined that the claim would be fought; (2) it funded the defence of the claim; (3) it had the conduct of the litigation; (4) it fought the claim exclusively to defend its own interests; and (5) the defence failed in its entirety.
83 Recently the English Court of Appeal, in affirming the rejection of an application for non-party costs against "pure funders", who had contributed to a "fighting fund", held (Hamilton v Al-Fayed (No. 2) [2003] 2 WLR 128) that pure funders were generally exempt from the costs of the successful unfunded party; that the unfunded party's ability to recover his costs had to yield to the funded party's right of access to the courts; that the pure funding of litigation was in the public interest, provided that its essential motivation was to enable the funded party to litigate what the funders perceived to be a genuine case; and that such an approach ought not to be confined merely to relatives moved by natural affection, but should extend to anyone who wished to ensure that a genuine dispute (in that case a libel claim) was not lost by default or inadequately contested. Simon Brown LJ said (at [40]) that the facts in Murphy, above, "support the view that mere funders (as opposed to those with a direct commercial interest in the litigation) ought not to be liable for costs ... [and] [at [47]] ... if pure funders are regularly exposed to liability ... such funds will dry up and access to justice will thereby on occasions be lost."
84 In Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712, an application was made that a non-party pay the costs of an appeal. The Court of Appeal of the Supreme Court of Victoria (Brooking, Charles and Batt JJA) held (at 755 - 757), following Symphony Group, that having regard to the cost and inconvenience of undertaking the necessary fact-finding task, the coincidence of issues at the trial and the summary costs application, and the non-party's failure to object to the procedure, this was an appropriate case to permit reliance upon evidence given and facts found in the litigation. The Court of Appeal said (at 757):
"If this was an application to the trial judge for an order for costs against Robbie [the non-party], it would be well open to him to conclude (and we would ourselves conclude) that Robbie's connection with the action was so close that he would not suffer any injustice if the judge treated himself as at liberty to use for the purposes of the costs application such of the evidence given at the trial as could properly be said to be relevant to that application. We say this notwithstanding Robbie's affidavit. It would be for the judge to determine what procedure should be adopted, and it would seem that the just course would be for the judge to have regard to relevant evidence given on the trial but also to take into account any further relevant evidence tendered by Robbie or the plaintiffs, on the basis that evidence tendered could be tested by cross-examination."
85 The Court of Appeal further held, applying Knight, that an order for costs of the appeal should be made against the non-party, because he had financed and conducted the appeal, which had substantially failed, the nominal appellant being mentally incompetent throughout the pendency and hearing of the appeal, and the non-party having a most substantial interest in the outcome of the appeal. The Court of Appeal noted (at 760) that the authorities, including Aiden Shipping, Symphony Group and Knight, have held that an order for non-party costs is exceptional, and that the power must be exercised judicially. After citing the observations in Knight at 192 - 193 on the "general category of case" quoted above, the Court of Appeal said (at 760):
"It is accepted in other decisions that relevant considerations include whether the person concerned has managed the legal proceedings or has financed them: Symphony Group Plc. v. Hodgson [1994] Q.B. 179 at 192-3 per Balcombe L.J.; Nordstern Allgemeine Versicherungs A.G. v. Internav Ltd. [1999] 2 Lloyd's Rep. 139 at 156 per Waller L.J.In the present case Robbie has played an active part in the institution and conduct of the appeal; indeed, he has been the real controller of it. The party on the record has in our view throughout the pendency and hearing of the appeal been incapable by reason of senility or mental infirmity of managing her affairs in relation to the appeal and incapable of discharging her duties as executrix. Robbie has a most substantial interest in the outcome of the appeal. Under Mary's last will he is the specific devisee and legatee of the farm land and associated personal property. He has financed the appeal, both by making substantial payments out of his own funds and by giving the appellant's solicitors security for costs over his own property - the $150,000 he is entitled to receive under the judgment. ... "
86 In Yates v Boland, above, the Full Federal Court (O'Loughlin, North and Weinberg JJ) dismissed an appeal from a non-party costs order where the primary Judge (Branson J) had held that three of the circumstances postulated by Mason CJ and Deane J in Knight at 192 - 193 had been demonstrated; that is to say, that the plaintiff (the applicant company) was a "man of straw"; that the non-party had played an active part in the conduct of the litigation since, by virtue of his control of the applicant, he had given all significant instructions concerning the proceedings; and that, since the non-party and his family were the plaintiff's beneficial shareholders, the non-party had a real and personal interest in the subject of the litigation.
87 In considering how the fourth Knight factor, that is, the interests of justice, should be accommodated, the primary Judge, citing Dawson J in Knight at 204 - 205, had held that any failure to apply for security for costs was potentially a material consideration there. However, her Honour noted that the plaintiff's (applicant's) annual returns, which had been seen by the defendants (respondents), indicated that the company had significant shareholders' equity. Accordingly, it was not unreasonable for the defendants not to have sought security. In the Full Court, it was common ground (at [15]) that the appeal, being (as here) from a discretionary order, was governed by the principles classically stated in House v The King [1936] HCA 40; (1936) 55 CLR 499 (at 504 - 505):
"The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."
88 Of the several challenges to her Honour's order, the Full Court turned first to the contention that the primary Judge had acted upon some wrong principle. The Full Court said (at [17], [18]):
"The appellant contended that the discretion to award costs was not unfettered. The wide discretion must be exercised judicially and in accordance with the general legal principles pertaining to the law of costs: Knight per Mason CJ and Deane J at 192. The appellant submitted that as a matter of principle a litigant intending to claim costs from a non-party is bound to give timely notice of that intention to the non-party. He relied upon the following statement of Olsson J (with whom Doyle CJ agreed) in Vestris v Cashman (1998) 72 SASR 449 at 458:`... common fairness dictates that a defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security, or alternatively, at least by letter advising of the defendant's intention, place the non-party on notice of that risk, so that the non-party will not, in effect, be lulled into a false sense of security and ambushed, when it is too late for it to reflect as contemplated in Yates Property Corporation Pty Ltd v Boland.'
The genesis of the need to give warning of an intention to claim costs against a non-party can be traced to another case relied upon by the respondent, namely, Symphony Group Plc v Hodgson [1994] QB 179."
89 The Full Court cited the observations of Balcombe LJ in Symphony Group at 192 - 193, also quoted above, noting (at [23]) that the matters mentioned by Balcombe LJ were "referred to ... variously as `material considerations' and `principles'".
90 The Full Court next referred to Vestris, and said (at [29]):
"Olsson J set out a number of what he described as `broad propositions' which had been established by the authorities concerning the exercise of the discretion to award costs against a non-party. One of those propositions was:"A failure on the part of the successful litigant to make a timely application for security for costs is a relevant consideration, where it appears unlikely that a corporate litigant will be unable to pay any costs awarded against it. The availability of an order for security for costs at an earlier stage of the litigation will, in any situation, be a strong argument for refusing to exercise a discretion to order costs against a non-party: see Knight v FP Special Assets Ltd per Mason CJ and Deane J.'"
91 The Full Court (at [31]) noted that Olsson J had added (at 459) that:
"Orders as to costs are typically the product of discretionary decisions, particularly as they reflect the assessment of the trial judge arrived at against the background of the trial and his full appreciation of all relevant features of the conduct of the relevant parties."
92 The Full Court went on (at [32]) to cite the observations of Lander J (with whom Doyle CJ also agreed) (at 458) in Vestris, in particular that -
"A failure to make an application for security for costs cannot be decisive. At the very best a failure to make an application for security for costs is a factor which may be taken into account in determining whether it would later be just to make an order that a non-party to the proceedings pay the costs of a successful party."
93 And that -
"Another factor which may and usually would be taken into account is whether the non-party against whom the application for costs is made has been given any warning at any time during the proceedings that such an application might be made in the event that the party now applying is successful."
94 The Full Federal Court then said (at [33] - [34]):
"In House a distinction is drawn between an error of principle and other errors, such as the failure to take into account a material consideration. For the purpose of this distinction a principle is a rule which governs all cases of a particular type under consideration. Thus, the relevant principles governing the exercise of discretion to award costs against non-party are set out in the passage from the judgment of Mason CJ and Deane J in Knight ... [at 192 - 193]. Her Honour referred to that passage and addressed each principle in turn. That is to say, she considered whether the company was insolvent, whether the appellant played an active role in the litigation, whether the appellant had an interest in the subject of the litigation and whether the interests of justice required the order to be made. In our view her Honour made no error in identifying the relevant principles.The necessity, if it existed, of warning the appellant was not a principle for the purpose of the test formulated in House. The discussion concerning Symphony and Vestris ... shows that the question of warning has been treated as a material consideration in certain circumstances. Whether such a requirement arises in a particular case depends on the facts and circumstances of the individual case. The necessity to warn a non-party of an intention to claim costs is not a principle applicable in every case in which costs are sought against a non-party. Rather it may be a material consideration depending on the situation disclosed in the case under consideration."
95 The Full Court, treating a failure to warn as a potential "material consideration" if the circumstances warranted it, rather than as a "principle", further concluded (at [35] - [39]) that the fact that the defendants (respondents) were unaware of the plaintiff's (applicant's) financial problems until after the trial, meant that, in the circumstances, it was not material there.
96 In Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406, Callinan J awarded costs against a non-party, the Institution of Taxation Research Pty Ltd ("ITR"), which had supported and backed (for a substantial retainer) hopeless litigation. His Honour accepted that the power to award non-party costs should be exercised sparingly, but it was warranted there because although not "the only real party" to the litigation in the sense explained in Knight, ITR was nonetheless "a real party in ... very important and critical respects ..." (at [37]).
97 Finally, in Gore, above, the Full Federal Court (O'Loughlin, Whitlam and Marshall JJ) reversed a judgment refusing to award non-party costs. The application for non-party costs was based upon a "Litigation Agreement" entered into by the (ultimately) unsuccessful plaintiff (applicant) and the non-party, Justice Corporation, by which Justice Corporation gave financial assistance to the plaintiff in litigating an issue of damages, in return for 8 per cent of an award of damages. After analysing many of the English authorities considered earlier in these reasons, including Tharros, the Full Court said (at [44] - [45]):
"The interesting feature about Tharros is that the Court of Appeal relieved the Club of liability, even though it had accepted liability to fund the litigation on terms that it would not only bear Bias' costs, but would also meet any order that might be made against Bias in respect of Tharros' costs. There were, however, two distinguishing features between the facts in Tharros and the case that is presently under appeal:* the Club had no financial interest in the outcome of the litigation whereas Justice Corporation stood to gain 8 per cent of the claim proceeds;
* Tharros did not know of, and did not in anyway rely on, the cover that the Club had given Bias, whereas Clayton Utz were made aware of the Litigation Agreement within about a month or so of its execution.
In addition to these two important distinctions, it is also of interest to note that the Court relieved the Club of liability for Tharros' costs, even though there had been a finding that the Club exercise supervision over the preparations for the trial - a factor that could not be held against Justice Corporation in these proceedings; as has already been noted, Montague was to retain control of the litigation."
98 Their Honours also (at [47]) distinguished Symphony Group on the basis that there were obvious grounds for that plaintiff to sue the non-party for inducement of breach of contract.
99 With reference to the general operation of the "relevant principles and the criteria or guidelines that may assist in the exercise of the [Court's] discretion", the Full Federal Court said (at [49]):
"... it is important to heed the warning that such principles, criteria or guidelines are neither a substitute for, nor a fetter upon, the general discretion of the Court: Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 538-541 per Mason CJ. As is apparent from the decisions to which reference has been made in these reasons, the ultimate decision will always be dependent upon the facts of the case."
100 Their Honours went on to say (at [52]):
"As can be seen, the decisions in Symphony Group and Vestris are far removed from the issues that are presently under consideration. There may be a case for saying that, within a particular category, notice of intention to seek costs from a third party may be a necessary prerequisite, but probably it might be more appropriate to say that the question of the need for prior notice is no more than one of many relevant matters that should be considered... ."
101 In Gore, the primary Judge had proceeded upon the footing that an applicant for non-party costs had to show, in the words of Mason CJ and Deane J in the passage in Knight at 192 - 193, that Justice Corporation had relevantly "played an active part in the conduct of the litigation"; and, that, in this connection, merely to provide the "sinews of war" without having a "say in how the war was conducted" was not enough, because Montague, the plaintiff (applicant), may have been able to mount the litigation without aid from Justice Corporation, say with representation by a lawyer agreeing to act on a speculative or conditional costs basis. But the Full Court held otherwise (at [62]):
"... the learned trial judge erred when he regarded the passage in Knight as laying down three principles, each of which must be present before a stranger to the litigation could be made liable for costs. It is true that Justice Corporation had no control over the litigation, as did the receivers in Knight, but Justice Corporation was entitled to share in the proceeds of a victory - a factor that would not have been enjoyed by the receivers in Knight. Furthermore the supply of a copy of the Litigation Agreement to Clayton Utz and the disclosure of the fact that Justice Corporation was, in appropriate circumstances, to pay Clayton Utz's costs, leaves open the inference that this would have lulled Clayton Utz into a false sense of security. The sharing in the anticipated results of the litigation and the obligation to meet Clayton Utz's costs were both factors of material importance and his Honour, with respect, in terms of House v The King (above), failed to have adequate regard to those material considerations."
102 Their Honours went on to say (at [64]):
"Justice Corporation, whilst not controlling the litigation, had a direct financial interest in the outcome of the case; it offered no explanation for its participation in the litigation and the only inference must be that it was a commercial investment. It was prepared to take a commercial risk, to meet Montague's costs, to protect Montague against an order for costs in favour of Clayton Utz and, in return, it hoped to profit from its investment. No extenuating circumstances exist to save Justice Corporation from an order that it pay some of Clayton Utz's costs. There was no question of it being involved through friendship or because of family ties; there was no question of public interest and no moral high ground that might have justified its involvement. It was a simple straightforward commercial arrangement. If Montague had been successful there was every likelihood that there would have been a costs order against Clayton Utz, thereby recouping to Justice Corporation much of what it had outlaid by way of expenditure on Montague's costs. It seems to us, as a logical consequence of these circumstances, that in return for the chance of obtaining 8 per cent of the judgment debt and a recoupment of much of its outlay for costs, Justice Corporation should be expected to incur the risk of a costs order in the event of Clayton Utz being the successful party."
Summation: what do the authorities teach on the nature of the discretionary power?
103 In our opinion, the authorities establish, on the foregoing analysis, the following propositions:
* A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192 - 193. The width of the jurisdiction is illustrated by a recent English decision that there can be circumstances in which it would be appropriate to order costs in favour of a non-party against a party (see Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division at 8).
* Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J expressed it, a "real and direct and ... material" connection with the principal litigation, must be demonstrated; in the words of Callinan J, the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party.
Has Kebaro demonstrated appellable error here?
104 It will be convenient to proceed, at this point, by reference to Kebaro's elaboration of the grounds of its appeal in its written outline of submissions dated 13 December 2002.
105 Kebaro first submits that "the burden of the ... judge's decision is, in essence, that because [Kebaro] provided financial assistance to the ... [Chapmans] in connection with the proceeding, it was liable ... for a non-party costs order".
106 Whilst we accept, as his Honour's reasons plainly indicate, that the Judge did rely on the fact that Kebaro did provide such assistance, his Honour equally clearly relied upon the full context, explained in those reasons, in which that assistance was provided, especially the dynamics of the intimate relationship between Kebaro and the Chapmans in the difficult financial situation in which the Chapmans found themselves.
107 It is then submitted by Kebaro that "[t]he principle which informs the exercise of [this] discretion ... has been stated by Mason CJ and Deane J, Gaudron J agreeing, in Knight ... at 192-193 ... ".
108 As has been seen, the issue in Knight was whether or not the particular jurisdiction or power existed. Mason CJ and Deane J were careful, in the passages already quoted at 185, 190 and 192, not to read the words of the general costs rule down, consistently with the power being exercised "judicially and in accordance with general legal principles pertaining to the law of costs". Gaudron J wrote to the same effect at 205 in the passage quoted.
109 It is true that in the passage at 192 - 193 Mason CJ and Deane J did recognise a general category of case which did in fact conform to the circumstances of the case then at hand. But, in our view, when their Honours' reasons, together with those of Gaudron J, are read as a whole, it is plain that the High Court had no intention of confining the exercise of this discretion to the formula, or template, stated at 192 - 193. This is indicated, for example, by their Honours' reference at 192 to Oasis and the "several long-established categories of case ..." (our emphasis) and their explicit picking up of the "instrument of fraud" observation in Oasis at 458 - 459 where, as has been noted, Middleton J in Re Sturmer is quoted in holding - "The Courts were never so blind as to be unable to see through the flimsy device nor so impotent as to be unable to act".
110 Kebaro next submits that Mason CJ and Deane J "emphasised throughout their reasons that [this] jurisdiction ... is directed to `persons who were considered the `real parties' to the litigation' [citing from 188 and referring also to 189, 190 and 191], such as the receivers in that case" (our emphasis).
111 It is true that, in considering whether the costs power was confined to the parties on the record, their Honours pointed to a line of cases where it had been held that the jurisdiction could extend to "the real parties". But, as has been said, when their Honours' reasons are read as a whole, they clearly did not intend to confine the power only to the case of the receiver, who may fairly be characterised as the real party. When the whole course of authority is reviewed, it may be seen that it can be appropriate to exercise the power against a person who may be characterised as no more than a real party to the litigation in "critical" and "important" respects, albeit not the only such party. Callinan J so held in Arundel. We propose to follow this reasoning, which is consistent also with the Full Court's decision in Gore.
112 Kebaro next challenges the primary Judge's conclusion that it had "played an active part in the conduct of the litigation", by contending that financial assistance alone is insufficient to demonstrate this.
113 Although the phrase "played an active part in the conduct of the litigation" was used in Knight at 193, in the context of the role played by the receivers in that case, the phrase is not a term of art and thus can have no technical meaning. Moreover, as has been said, whilst his Honour did rely on the provision of funding, he viewed this in the much broader spectrum of events he described. Further, as in the case of "the", contrasted with "a", real party issue, it is not, in our view, necessary to demonstrate that the non-party exclusively controlled the conduct of the proceedings. It is enough to point to its role as one of the actors in the scene in important and critical respects.
114 In our view, the matters mentioned by the Judge as constituting the playing of an active part in the conduct of the litigation were reasonably capable of that characterisation, bearing in mind always that the issue here is whether the conduct of the non-party is sufficiently closely connected with the prosecution of the litigation, so that the non-party may fairly be described as "a real party" in "critical" and "important" respects. Such a finding was, we think, not only reasonably open here, but correct. Given that not only the funding, but also the provision of security to the other side was crucial to the maintenance of the momentum of the litigation, and that only Kebaro had the resources available to deliver this crucial input, in no sense, in our view, could Kebaro's role be described as other than an "active" one.
115 Kebaro then challenges his Honour's conclusion (at [46], [47]) that it had an interest in the litigation.
116 As has been seen, this feature, which was described by Mason CJ and Deane J in Knight in terms of "an interest in the subject of the litigation", has been regarded in many of the authorities in this area as one indicator of a sufficiently close connection with the litigation in a real, direct and material sense, such as to indicate that the person may fairly be regarded as a real party to the proceedings although not actually on the record.
117 In this connection, Kebaro contends that "at bottom, his Honour again held that [it] had an interest in the litigation because it had provided financial assistance to the Chapmans".
118 But, as we have already indicated, we cannot accept this submission.
119 It is true that the provision of funding by Kebaro was one of the matters taken into account generally by the primary Judge; and that it was plainly a relevant consideration on this specific issue. It is also true, as an abstract proposition, that the mere provision of funding may, of itself, be equivocal on the present question. But his Honour clearly recognised this, and, as our previous summary of his Reasons indicates, the Judge plainly relied on the several other considerations he mentions (at [46], [47]) in concluding that Kebaro did have the requisite interest.
120 Kebaro then challenges his Honour's reliance, in this connection, upon the importance to Kebaro of ensuring that the Land be freed from the charge in favour of Westpac/PPL, which charge would be released upon payment, by the Chapmans to Binalong's liquidator, of moneys which may be or become due under the assignments.
121 Kebaro submits that, upon its true construction, the effect of the deed of sale and of cl 24 in particular, was as follows:
q The Land would be freed from the charge, whether or not there was recovery by the Chapmans in the litigation. If there was recovery, Westpac/PPL or the liquidator would be entitled to 50 per cent of the net recovery, and upon payment, the charge would be released.
q If there was no recovery, there would be no liability to share anything, and, accordingly the charge would again be released.
q It follows, Kebaro's argument runs, that "it was a matter of indifference to Kebaro's right to be freed of the charge whether the litigation was successful or not"; and, accordingly, it could not be said of Kebaro that it was "interested in the subject of the litigation on that score".
122 We cannot accept the argument.
123 As has been seen, this argument is one of a particular construction of the deed of sale. But, in our view, it cannot fairly bear that interpretation. On the contrary, its construction should, as the present respondents submitted, be approached as follows:
* The deed recognised the existence of "the Binalong Debt", which it defined in cl 2.2.9 to mean "the amount which is now or which may from time to time in the future be or remain owing by Binalong to PPL, the payment of which is secured by the Binalong Securities"; those Securities are defined in cl 2.2.9 to mean "the Securities granted by Binalong to PPL to secure the repayment of the Binalong Debt, details of which are set out in Item 4 of the Schedule"; and in that Item, there was included (as No. 8) the "Binalong Charge", also defined in cl 2.2.9 to mean the "Debenture Deed dated 6 June 1989 granted by Binalong in favour of PPL and registered at the Australian Securities Commission as Charge No. 170999". Moreover, as has been seen, cl 24.1.1 also specifically recognised the existence of the Binalong Debt.
* By cl 5.2 of the deed, the Land is -
"... sold subject to:-...
5.2 the mortgages, encumbrances, liens, charges and interests referred to in Item 7 of the Schedule ..."
* In Item 7 reference is made to "Registered Debenture Charge No. 170999 dated 6 June 1989 granted by Binalong to PPL".
* Clause 24.3 of the deed provides that, subject to cl 24.2, Westpac and PPL will not make any demand against the Chapmans under the Binalong Securities unless and until Kebaro has failed to comply with its obligations under cl 6 of the deed (to pay the purchase price). (It will be recalled that cl 24.2 provided that "until the payments referred to in Clause 24.1 have been made and any release discharge and assurance referred to in that Clause is given by PPL all of PPL's rights against Binalong and under such of the Binalong Securities as shall then be in force and effect shall continue in full force and effect, until the payments referred to in Clause 24.1 have been made"; and that cl 24.1 provided that, upon payment to PPL or to the Binalong liquidator, as the case may be, "of all moneys which may be or become due" by the Chapmans to the liquidator under the assignments, then: (1) Westpac and PPL will accept this in full satisfaction and discharge of the Chapmans' guarantees of the Binalong Debt; and (2) PPL will, inter alia, discharge any security which PPL may hold over the Land.)
* The effect of cl 24.1 (and in particular cl 24.1.2) was to mandate the release by PPL of any security held by PPL over the marina land and assets, if (and only if) the payment of all monies required by cl 24.1 to be paid, were paid.
* The payments so required were payments, contingent upon success in the proceedings, under the deeds of assignment of rights.
124 Thus, in our view, the effect of cl 24 of the deed was to give Kebaro a direct interest in the litigation since, if the litigation were successful, and the agreed share of its proceeds were, as contemplated by the assignments, to be paid to PPL, any security held by PPL over the Land would then have to be released. If, on the other hand, the litigation failed to produce an entitlement for Westpac to receive the share of the proceeds stipulated by the assignments, the security held by Westpac/PPL under the debenture charge dated 6 June 1989 would remain on foot.
125 Kebaro's argument to the contrary was put in two ways in its oral submissions:
126 First, it was said that because the deed was intended to achieve a "once and for all" resolution of all outstanding disputes between its parties, there should be implied in its terms a provision that, if the litigation failed, PPL would nonetheless release its security, notwithstanding that it received nothing in reduction of its debt.
127 But, in our view no basis, of logic or experience, for importing such a drastic limitation upon PPL's rights appears.
128 Secondly, Kebaro, for the first time, seeks now to rely upon the indefeasibility provision of the South Australian Torrens Title legislation to the following end. As has been noted, under the deed of sale, PPL, in selling as mortgagee in possession to Kebaro, sold by the terms of cl 5.2 "subject to" the debenture charge in favour of itself. It is now submitted for Kebaro that this "cannot happen ... [b]y [virtue of the indefeasibility provisions of] section 136 of the [Real Property Act 1886 (SA)]". That is, Kebaro's argument runs, upon registration of the transfer on the sale to Kebaro, the purchaser took free of all interests save those on the Register, and PPL's charge was not on that Register.
129 Section 136(1), an indefeasibility provision in the usual terms, states:
"Transfer upon sale by mortgagee or encumbrancee136. (1) Upon the registration of a transfer by a mortgagee or encumbrancee exercising the power of sale conferred by this Act the estate or interest of the mortgagor or encumbrancer passes to the transferee -
(a) freed and discharged from the mortgage or encumbrance and from all estates, interests and rights to which the mortgage or encumbrance has priority, ... ."
130 In our opinion, even if such an argument should be permitted at this late stage, it has neither substance, nor merit. It is sufficient to note that we are here concerned with the position as between Kebaro and PPL, both of whom were, of course, parties to the deed of sale. Plainly, registration of the transfer could not destroy any personal rights existing between those parties under the deed of sale, either at law or in equity. It is settled law that one of the exceptions to indefeasibility are "rights in personam", or "personal equities" (see, e.g., P. Butt Land Law 4th ed (2001) at 676 - 678 and the cases there cited). That is to say, as between the parties to the deed, their contractual rights and obligations will survive registration of their transfer, even if third parties, in the absence of fraud, are entitled to proceed on the face of the Register.
131 Kebaro also challenges, in this connection, his Honour's reliance (at [47]) upon the circumstances (a) that success by the Chapmans in the litigation would avoid Kebaro's liability under the security for costs provided by Kebaro; and (b) that success in the litigation would enhance the prospects of recovery by Kebaro of the amount of disbursements advanced to the Chapmans. Kebaro submits that his Honour's decision "is tantamount to concluding that every lender ipso facto has an interest in litigation conducted by the borrower. ... More needs to be shown than existence of the debt and the enhancement of the likelihood of repayment".
132 We cannot accept the submission in the present circumstances. When viewed in the wider context described by his Honour's Reasons, the considerations described at [47] were plainly relevant to the question then addressed, and also to the broader consideration of the degree of Kebaro's proximity to the conduct of the litigation.
133 In this context, Kebaro further challenges his Honour's finding (at [49]) that Kebaro put its own funds at risk by funding the disbursements incurred by the Chapmans. Kebaro argues that this finding is contradicted by the access of the Chapmans to the trusts, of which they were beneficiaries.
134 We cannot agree. As noted, these were discretionary trusts and there was no evidence from the trustee (Kebaro) of any proposal to distribute trust assets or income to the Chapmans and they gave no evidence to that effect. In their unexplained absence, it should be inferred that their evidence would not have assisted Kebaro's case.
135 Kebaro further argues that the order made was not required in the interest of justice, for the following several reasons:
136 First, reference is made to the fact that, upon the Luminis respondents making an application for security during the trial, Kebaro gave security for costs in a (compromised) sum of $50,000, but no further application for security was ever made. It is contended that Kebaro "was therefore lulled into the belief that the extent of its liability for costs was $50,000. It is now unfair to mulct it with an order to pay all costs".
137 Yet Kebaro gave no evidence to support this assertion. Moreover, as his Honour noted (at [27]), by virtue of the provision of cl 21.2 of the deed of sale, Kebaro must be taken to have recognised that it was at risk of an order for costs (and, further, cl 21.3 evidenced its capacity to control the prosecution of the litigation).
138 Secondly, Kebaro submits that the respondents' failure to warn it that they might apply for Kebaro to pay their costs "deprived Kebaro of the opportunity to protect itself". Reliance is placed, in particular, upon the observations made in this regard in Symphony Group.
139 We cannot agree with the submission in the present factual context.
140 As we have noted in our summary of his Honour's Reasons, the Judge accepted that lack of a warning may, legitimately, be taken into account as a consideration for declining to make a non-party costs order. However, for all of the reasons the Judge then gave, as summarised above, he concluded that the absence of a warning should not deprive the respondents of the order. In our view, the factors then enumerated by his Honour were relevant to his discretion and in this regard we can see no error in its exercise.
141 Thirdly, Kebaro complains of the use made by the Judge of evidence and findings in the principal proceedings.
142 We are not, however, persuaded that any unfairness could have resulted. For one thing, most of the evidence relied upon by his Honour for his main findings here was in documentary form and discovered by the Chapmans. For another, Kebaro decided to call no evidence in the present application. Moreover, as Balcombe LJ observed in Symphony Group (at 193), in this summary procedure, use may be made of findings made in the original proceedings "if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule". Given the closeness of the connection between the Chapmans and Kebaro, and the dynamics of that relationship as described by the Judge, Kebaro has, we think, failed to demonstrate any basis for appellate intervention on this account.
ORDERS
143 Accordingly, the appeal will be dismissed, with costs.
I certify that the preceding one hundred and forty-three (143) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. |
Associate:
Dated: 10 February 2003
Counsel for the Appellants: |
Mr J Karkar QC Mr D Crocker |
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Solicitor for the Appellants: |
Wallmans Lawyers |
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Counsel for the Respondents: |
Mr T Hughes QC Mr M Frayne |
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Solicitor for the Respondents: |
Australian Government Solicitor |
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Date of Hearing: |
19 December 2002 |
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Date of Judgment: |
10 February 2003 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCAFC/2003/5.html