BARRETT AJA: On 8 February 2017, I heard an application by the successful plaintiff in proceedings 2016/226585 for an order that a non-party to the proceedings pay its costs of the proceedings.
That successful plaintiff is Condor Blanco Mines Ltd ("Condor"). In the substantive proceedings heard by me on 18 and 19 August 2016, Condor sued a single defendant, Domenic Calabretta, who, on 4 July 2016, was purportedly appointed administrator of Condor under Part 5.3A of the Corporations Act 2001 (Cth). For reasons published on 30 August 2016, it was declared that Mr Calabretta's appointment was invalid, void and of no effect: In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196. It was subsequently ordered that Mr Calabretta pay one-half of Condor's costs of the proceedings: In the matter of Condor Blanco Mines Ltd (No. 2) [2016] NSWSC 1304.
On 6 September 2016, Condor filed in the proceedings it had brought against Mr Calabretta an interlocutory process naming Glen Paul Darby as the sole respondent. Condor sought an order that Mr Darby pay Condor's costs of the proceedings. Mr Darby, of course, was not a party to the proceedings.
At the commencement of the hearing of Condor's application on 8 February 2017, counsel for Mr Darby sought dismissal of the application without a hearing on the merits. For reasons to be mentioned presently, I refused that application. Counsel for Mr Darby then asked that I disqualify myself from hearing the application. I declined to do so. Again, I shall state my reasons presently.
After I had disposed of those preliminary applications, I proceeded to hear the interlocutory process. Counsel for Condor read a short affidavit of his instructing solicitor, Mr Wilson, and indicated reliance on findings in the reasons for judgment of 30 August 2016. Counsel for Mr Darby read an affidavit of Mr Darby sworn on 15 November 2016. Mr Darby was cross-examined.
The basis on which Condor seeks the costs order against Mr Darby, broadly stated, is that, although Mr Darby was a non-party, the substantive proceedings were an inevitable consequence of his actions. To be more precise, the allegation is that Mr Darby's actions on 4 July 2016 described and discussed in some detail in the principal judgment of 30 August 2016 were self-interested and improper actions in breach of duties owed by Mr Darby as a director of Condor and produced consequences leaving Condor with no realistic option but to commence the proceedings against Mr Calabretta in order to extricate itself from those consequences.
Condor points to the following aspects of the reasons of 30 August 2016 (the summary descriptions following are those of counsel for Condor):
Findings at [112] - [115] that Mr Darby, in purporting to appoint Mr Calabretta as administrator, acted with an improper purpose of self-interest that was contrary to the interests of the company as a whole and inconsistent with due performance of his duties as a director;
Findings at [140] - [148] that Mr Darby's improper purpose was not, on the evidence, readily apparent to Mr Calabretta when he accepted the purported appointment and Mr Calabretta was not subject to any legal duty to inquire into Mr Darby's purposes before accepting appointment as administrator;
Findings at [149] that Mr Calabretta, having accepted the appointment, could not properly "retire from the field" once put on notice of Mr Darby's improper purpose since the validity of the appointment could only be decided by a court.
Reliance in this way on findings recorded in the principal reasons raises a question whether facts there found may be deployed against Mr Darby on the costs application brought against him by Condor. Counsel for Condor submitted that that question should be answered favourably to Condor and referred to the following passage concerning applications of this kind in the judgment of Balcombe LJ in Symphony Group Plc v Hodgson [1994] QB 179 at 193:
"The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F Hewthorn & Co Ltd [1943] KB 587 and Cross on Evidence 7th ed (1990) pp 100-101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v Spiro [1938] 1 KB 176, 192 per Scott LJ, cited with approval by this court in Bahai v Rashidian [1985] 1 WLR 1337, 1343D, 1345H. 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 any injustice by allowing this exception to the general rule."
In this court, however, regard must be had to s 91(1) of the Evidence Act 1995 (NSW) which states that evidence of a finding of fact in a proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding. Here, Condor relies on the fact that the court made the findings summarised at [7] above. Necessarily, however, it also relies on the facts as there found. It is by no means clear to me that s 91(1) allows it to do so as against Mr Darby when he was not a party to the original litigation and is a stranger to the findings. He is not, in any event, a person with a close connection to the original proceedings, as referred to in the final sentence of the passage in Symphony Group Plc v Hodgson just quoted. He had no connection with them at all.
I note that, in Yu v Cao (2014) 91 NSWLR 190; [2014] NSWCA 276, the parties agreed that the findings in the principal judgment could be used in considering the subsequent non-party costs application. That agreement meant that the court had no occasion to consider the issue. I also note that the potential operation of s 91(1) was apparently not raised in Zhang v Popovic (No 2) [2016] NSWSC 666 and Sargeant v HE & FE Campbell Agricultural Machinery (No 2) [2016] NSWSC 667 where Yu v Cao was regarded as sanctioning reliance on the findings in the principal judgment.
Ultimately, however, I do not need to decide the question posed by s 91(1) of the Evidence Act since I am satisfied that, even if the facts as found in the principal judgment are capable of being deployed against Mr Darby on this application, the order Condor seeks should not be made.
The jurisdiction to order costs against a non-party has been described as exceptional. It is nevertheless clear that such an order may be made where the making of it is supported by considerations of justice underlying general principles as to the award of the costs of an action. The existence of the jurisdiction, based on both s 98 of the Civil Procedure Act 2005 (NSW) and general law principles, is undoubted: Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28.
Generally speaking, however, the persons against whom non-party orders are made in particular proceedings are confined to persons who have played an active and intimate role in the initiation or conduct of the proceedings themselves (or their defence) and have thus influenced the incurring and quantum of costs. A solicitor whose decision-making has shaped the course of litigation is an example of such a person, as is a sole or dominant director of a corporate party who has determined the stance taken by that party in the proceedings: FPM Constructions Pty Ltd v Council of the City of the Blue Mountains [2005] NSWCA 340 at [214]; Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [80] - [81]. In Ashby v Slipper (No 3) [2015] FCAFC 9; (2015) 317 ALR 623 (at [73] - [74]), the Full Federal Court used, in relation to the proceedings themselves, the words "prompted", "supported", "steered" and "influenced" in discussing the proposition that a costs order should be made in those proceedings against a non-party.
Mr Darby did not occupy any such position in relation to the substantive litigation in this case. As well as not being a party to the litigation, he played no role in deciding whether it should be brought, how any aspect of it should be structured or the course that a party should pursue in relation to the action. Mr Darby had no ability to influence the way in which either party proceeded or any decision that resulted in the incurring of costs or affected their quantum. Nor did he do so.
In contending that Mr Darby should be ordered to pay its costs, Condor points to a category of cases identified in Symphony Group Plc v Hodgson (above) at 192, being cases in which the person against whom a costs order is sought has "caused the action". The only case mentioned in Symphony Group as within that category is Pritchard v JH Cobden Ltd [1988] Fam 22. That case was an appeal following trial of a negligence action in which the victim of a motor accident recovered damages for personal injuries. The English Court of Appeal held (at 51) that it had been open to the parties to agree in the court below that costs the plaintiff incurred in separate divorce proceedings precipitated by a change of personality attributable to injuries suffered in the accident (and therefore to the defendant's negligence) were properly to be regarded as an element of the costs of the negligence action.
The appeal court in Pritchard v JH Cobden Ltd did not, in terms, recognise as a basis for the making of a costs order the circumstance that the person against whom the order was made had "caused" the litigation. As Peter Lyons J pointed out in Grocon Contractors (Qld) Pty Ltd v Juniper Developer No 2 Pty Ltd [2015] QSC 333 (at [34]), the true basis of the Pritchard decision seems to be that the personal injuries proceedings and the divorce proceedings were related; and that "all the circumstances" (including, no doubt, that the defendant's tortious conduct caused the matrimonial proceedings and that defendant consented to the non-party order at trial) were such that the order at first instance should not be disturbed. His Honour correctly said that the Pritchard case does not stand as authority for "the proposition that where any conduct whatsoever of a non-party is causally related to the bringing of litigation, then an order for costs may be made against that person".
In Yu v Cao (above), the Court of Appeal (at [144]) noted the reference in Symphony Group to cases in which the respondent to the costs application "caused the action" as a category relevant to the non-party costs jurisdiction. The Court of Appeal had no occasion to examine that concept. But the substance of its decision tends against the recognition of any category broadly defined in the abstract way for which Condor contends. In Yu v Cao, a plaintiff had sued a defendant for defamation by reference to material which, while ostensibly composed and disseminated by that defendant, had in fact been composed and disseminated by her husband in her name - a circumstance of which the plaintiff was aware. The court set aside a non-party costs order made at first instance against the husband.
The thesis propounded by Condor, on the basis of the findings in the principal judgment, is that there would have been no litigation but for the purported appointment of Mr Calabretta as administrator, that there would have been no appointment but for actions of Mr Darby and his co-director Mr Stops and that Mr Darby, in becoming party to those actions, acted in breach of duties he owed to Condor. It may be that wrongful conduct of Mr Darby, as against Condor, was causally related to the subject matter of the litigation in that there would have been no occasion for litigation but for results of those actions. But that, in my view, is insufficient to form a basis for the making of a non-party costs order against him in the litigation. Otherwise, there would be a group of potential respondents to a non-party costs application in every action against a company in which an outsider plaintiff succeeds in establishing that some corporate action or decision is voidable because of motives or purposes on the part of the company's directors determined to be legally impermissible. In such a case - as in the present case - the actions of the directors, although causative in an abstract sense, are too remote from the conduct of the litigation subsequently emerging to justify the making of an order against them in the litigation.
Condor did not join Mr Darby as a defendant to the substantive proceedings in order that it might pursue against him there allegations of misfeasance in relation to the appointment of Mr Calabretta. If Condor were to commence new proceedings against him on that basis and recover damages or equitable compensation for such misfeasance, the award might well include an element compensating Condor for expense to which it was put by way of costs in the principal proceeding. But that is a separate issue unrelated to any question of liability for costs as such in that proceeding itself.
I am not satisfied that principled exercise of the discretion as to costs warrants the making of a non-party costs order against Mr Darby in the present proceedings.
It remains to record briefly my reasons for the two interlocutory decisions referred to at [4] above. The application for an order dismissing the application without a hearing was based on an argument that Condor had not articulated any basis of claim in a way that enabled Mr Darby to understand the case sought to be made against him. Reference was made to the fact that Mr Darby had been given no more than a letter which, it was said, inaccurately represented findings made in the principal judgment. On that matter, I was satisfied that Condor had sufficiently communicated an intention of relying on the whole of the findings in the principal judgment and that Mr Darby was on notice of the case thus to be advanced.
The recusal application was made on the basis that, because I was the trial judge and had made the findings recorded in the principal judgment (some of them adverse to Mr Darby), there were grounds for a reasonable apprehension that I might not bring an impartial mind to bear on the issues arising on the hearing of the interlocutory process. Two observations in Symphony Group Plc v Hodgson (above) led me to refuse the recusal application. The first (at 193) is that an application of the present kind should normally be determined by the trial judge. The second (also at 193) is:
"The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party neither constitutes bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v Rashidian [1985] 1 WLR 1337 at 1342, 1346."
In the result, the interlocutory process filed by Condor Blanco Mines Ltd on 6 September 2016 is dismissed with costs.
[3]
Amendments
14 February 2017 - Typographical error para [13] - "solicitors" changed to "solicitor"
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 14 February 2017