CGU Workers' Compensation (Vic) Limited v Carousel Bar Pty Ltd

8. This was a notice of motion issued in a corporations matter. Rule 3.01 of the Corporations Rules 1992 provides that Chapter 1 of the Rules of Court for the time being in force and the general practice of the court apply in relation to proceedings to which the rules apply "save so far as the Corporations Law otherwise provides."

"The costs of any proceeding before a court under this law shall be borne by such party to the proceeding as the court, in its discretion, directs."

15. The general power to order costs in this court is found in s.24(1) of the Supreme Court Act 1986.

18. The sub-section gives the court a wide discretion. It does not set out any criterion to guide the court in the exercise of its discretion but it is to be exercised in accordance with Order 63 of the Rules of Court.

21. In my opinion, s.1335(2) of the Law does not in any way qualify the jurisdiction of this court to make orders for costs in accordance with Order 63 of the Rules of Court. Indeed, the sub-section may be limited in its application. - see Re Interdisciplinary Health Consultancy Pty Ltd (1993) 12 ACSR 185 at 186.

24. The sub-section is complementary to the court's general jurisdiction

27. The discretion given to the court must be exercised judicially, that is, taking in to account all relevant matters and making a decision ensuring justice between the parties.

"63.02 The power and discretion of the court as to costs under s.24 of the Act shall be exercised subject to and in accordance with this order."

34. Order 63 empowers the court to make an order that the unsuccessful party pay the costs on a solicitor client basis or on some other basis as the court may direct. - see Rule 63.28.

37. I am satisfied that the court has power to make an order for indemnity costs.

40. Even though the court is given power to award costs on different bases nevertheless the general rule is that costs should be paid on a party party basis and this is made clear by the terms of Rule 63.31. A litigant is not fully reimbursed for his costs on a party party basis.

43. There has been much criticism over the years of the general rule because there is a fair point to be made that a successful party seeking justice should not be out of pocket but the fact is, the party party basis has been the general rule now for well over 100 years.

46. In this day and age where the gap between costs on a party party basis and a solicitor client basis is greater than in yesteryears, the criticism has much force, but despite that, the general rule still applies.

49. Accordingly, one commences with the proposition that the general rule applies and it should only be departed from for good cause.

52. The general approach was expressed by Nathan J in Bass Shire Council v. King (unreported 15 August 1994) when he said -

"It is undoubtedly a principle of law that costs follow the event on a party party basis, but that the courts are free to depart from that principle if confronted with circumstances where the conduct of one or other of the parties ... would warrant the ordering of costs on an indemnity basis. There must be special circumstances which lifts the case out of the ordinary."

56. This dicta was quoted with approval by the Court of Appeal in Spencer v. Dowling [1996] VSC 51; (1997) 2 VR 127 at 147 and 163.

59. Over the past 20 years the courts in this country have become more prepared to make orders on a solicitor client or full indemnity basis when cause is shown.

62. Usually orders are made where there is evidence of some inappropriate conduct on the part of a party, although in some cases indemnity costs can be ordered even though a party has not been guilty of inappropriate conduct. However, the general rule which emerges from the cases is that one of the parties has behaved in an inappropriate manner and the circumstances demand that he should pay the costs on a solicitor client or full indemnity basis.

65. I refer to Australian Guarantee Corporation v. De Jager [1984] VicRp 40; (1984) VR 483 where Tadgell J orders costs on a solicitor client basis where one of the parties had behaved in a irresponsible manner.

68. There are many instances where courts have ordered solicitor client or full indemnity costs. One instance is where a proceeding is brought which is an abuse of the process of the court.

71. In Colgate Palmolive v. Cussons [1993] FCA 536; (1993) 46 FCR 225 Sheppard J considered the principles in respect of the discretion to order solicitor client or full indemnity costs and agreed with the observation that the categories in which the discretion may be exercised are not closed. At p.233 his Honour set out instances of conduct which warranted solicitor client or full indemnity costs being ordered.

74. One of the examples was where a party in wilful disregard of known facts or clearly established law proceeded to bring and prosecute a proceeding. Further, another instance is the making of an allegation which ought never have been made.

"Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party party basis."

81. Before turning to the question whether costs should be paid on an indemnity basis it is necessary to deal with a submission made by Mr Sanger of counsel on behalf of CGU. He submitted that the successful applicant, Carousel Bar, should not get its costs in any event because its conduct contributed to the error which vitiated the proceeding.

84. He referred to the fact that the notice of change of registered office which was given in the annual return was ineffective for a period of time as the annual return was sent back to Carousel Bar's agent because it had not been properly completed. As I stated in my reasons it would appear that the annual return was sent to ASIC on 29 January 1999 but ASIC did not process it until 29 March 1999. The inference was that the return was sent back to the company for completion. He submitted that it was part of the duty of Carousel Bar to reveal that fact in the present proceeding.

87. There is no evidence properly before the court in respect to this matter. Accordingly, there is no factual basis for it. But even if there was, that in my view, does not in the circumstances of this case disqualify the successful applicant, Carousel Bar, from obtaining its costs in the proceeding.

90. The fact was that as at 26 March 1999 the extract obtained from ASIC showed that the annual return which was lodged on 29 January 1999 had not been processed but a close perusal of the search extract would have revealed the notice of change to the registered office. Further, CGU knew at the time when it issued the notice of motion that an error had been made with respect to the service of the statutory demand but took no steps to correct it. The fact was the applicant was obliged to issue the summons to prevent an injustice occurring and it did so after CGU refused to withdraw the motion. The summons was properly issued and pursued.

93. The fact that the annual return had been forwarded back to Carousel's agent who had lodged it, assuming that to be so, did not, in my view, have any relevance to the propriety of the applicants, Carousel Bar, bringing the application to set aside the notice of motion to wind up.

96. The normal rule applies and Carousel Bar is entitled to its costs.

99. I now turn to the question whether there are special circumstances which warrant the court making an order different to the usual order and order CGU to pay costs on an indemnity basis. In my opinion there are special circumstances.

102. The special circumstances can be summarised as follows:

105. The statutory demand was served on the purported registered office of Carousel Bar and returned unclaimed within the 21 days' period, namely, 8 April 1999. CGU and its solicitors took no steps to bring the demand to the attention of Carousel Bar. A solicitor acting reasonably on 8 April, after receipt of the returned envelope containing the demand, would have immediately investigated the circumstances relating to the non-delivery. Limited investigation would have revealed the error. There is no evidence that any steps were taken to bring the statutory demand to the attention of Carousel Bar. If the search extract which was obtained on 26 March was closely perused as at 8 April it would have revealed that there was a document which had been lodged with ASIC to change the registered office. Further, if a search had been done of the ASIC records on 8 April 1999 it would have revealed a change in the registered office as from 5 February 1999. Those simple steps would have demonstrated an error had been made and it would have involved little expense and little loss in time to have served the demand again.

108. Further, a consideration of the authorities concerning service would have quickly demonstrated that the service was not in accordance with s.109Y(b) of the Law. In addition, the research would have revealed the authority of F.P. Leonard Advertising Pty Ltd v. K.D. Travel Service Pty Ltd 12 ACSR 136 which made it clear that if documents were received back from the registered office within the statutory period in circumstances where it was clear that the demand did not come to the notice of the company then it was an abuse of process to seek to wind up the company based upon the failure to comply with the statutory demand unless steps were taken to bring the statutory demand to the notice of the company.

111. As I have said, no effort was made at all by CGU or its solicitors to bring the statutory demand to the notice of Carousel Bar.

114. It was in these circumstances that CGU issued the notice of motion knowing the demand had not come to the notice of Carousel Bar. Within three days of the issue of the motion Carousel Bar's solicitors wrote to CGU's solicitors alleging that the proceeding was an abuse of process, demanded that it be withdrawn and that CGU pay indemnity costs of the proceeding. CGU's solicitors refused the demands and accordingly it was necessary for Carousel Bar to issue the summons. At this point, if CGU and its solicitors had considered the relevant principles of law it would have been realised that the motion should not proceed.

117. For reasons which I stated in the judgment the notice of motion should never have been issued because CGU could not establish insolvency based upon a failure to comply with the statutory demand.

120. Further, once Carousel Bar raised its objection to the motion, CGU should have withdrawn. CGU, in wilful disregard of the facts, issued and continued with the motion. It should not have done so. Arguably, the proceeding was an abuse of the process of the court.

123. In my opinion there are special circumstances and accordingly the appropriate order to make is that CGU should pay Carousel Bar's costs of the proceeding and its summons on an indemnity basis.