Chapman v Luminis Pty Ltd

41 Finally, the respondents relied on a letter from the Chapmans' solicitors saying that no-one but the Chapmans had controlled the conduct of the proceedings, and upon 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 respondents point out that throughout the trial Mr Chapman "wore two hats". To say that he was giving instructions leaves open the question whether he was doing so as one of the controllers of The Lincoln Trust, or as the controller of Kebaro, or in both capacities. 42 On the factual material summarised above the respondents contend that the circumstances which fulfil the requirements of the general category of case in which a non-party order for costs should be made, identified by Mason CJ and Deane J in Knight at 192‑193, have been fulfilled. 43 The evidence establishes that the Chapmans are people of straw. That proposition is conceded, and there is no need to spend further time analysing the evidence on that topic. Insofar as it is relevant to take into account that as trustees of The Lincoln Trust they would have a right of indemnity in respect of the costs of the litigation, the trust has no assets. 44 The respondents contend, and Kebaro denies, that Kebaro played an active part in the conduct of the litigation. On this question, when all the evidence is considered together, I am satisfied, and so find, that Kebaro 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 provided security to enable the Chapmans to compromise the application for security for costs which was made by the Luminis respondents. It appears from the affidavit of the Chapmans sworn on 10 November 1998 in opposition to the application by the Luminis respondents, that in the early stages of the proceedings Kebaro also initially met some disbursements. Apparently most of those disbursements were later refunded by the Chapmans. 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 is 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 do 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. 45 In my opinion it is plain on the evidence that, but for this support, the litigation could not have continued. The fact that the Chapmans have outstanding liabilities to their solicitors in respect of these proceedings is powerful evidence that finance was not available from another source to fund the litigation. I also accept the respondent's contention that the evidence establishes that Kebaro was acting on behalf of the Chapmans by whom it had been appointed. It was doing so 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. 46 I also accept the respondents' submission that the evidence establishes that 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, I infer that it was of very substantial importance to Kebaro that it ensured that the Land become free of the charge pursuant to the provisions of cl 24 of the deed of sale. 47 Further, Kebaro had an interest in ensuring that the litigation proceeded successfully so as to avoid liability under the security given to the Luminis respondents. The clear inference from the evidence is that the prospects of Kebaro recovering monies which it advanced by way of disbursements or otherwise to the Chapmans to maintain the litigation would be slight indeed in the event that the litigation failed to produce a positive result. 48 The respondents contend that in the circumstances of the case the interests of justice require that Kebaro be held liable for the respondent's costs of the proceedings. The overwhelming picture from the evidence is that the Chapmans 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. I agree with the respondents' submission that it is significant that 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 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. I accept the respondents' submission that 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 has played a central role. As the litigation has failed, in my opinion justice requires that Kebaro (and through it, the assets of The Galle Trust and The Hindmarsh Trust) be exposed to a liability to meet the respondents' costs. 49 Kebaro seeks to resist such an order on several grounds. Its contentions that it played no active part in the conduct of the litigation and had no interest in the subject matter of the litigation I have already rejected. I also reject the argument that Kebaro did not fund the litigation in the sense of providing its own funds at risk. In my opinion it did precisely that. Had it not provided security to the liquidator and to the Luminis respondents, and met disbursements, I am satisfied that 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, expressed above, that no realistic prospect of reimbursement from any other source existed in the event of failure of the litigation. 50 Kebaro contends 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 it that it might be exposed to an application for non-party costs in the event that the litigation failed. 51 The suggestion that the respondents should have made application against Kebaro for security for costs is misconceived. Kebaro was not a party to the litigation. An application under s 56 of the Federal Court of Australia Act for security for costs would therefore have failed. This is not a case like Symphony Group Plc v Hodgson [1994] QB 179 where 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. 52 The present case is also unlike Vestris v Cashman (1998) 72 SASR 449. There the non-parties would have escaped a costs order (had the District Court jurisdiction to make it) on the ground that an application for security for costs had not been made against the plaintiff company. The plaintiff 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. In the present case, the parties against whom security for costs could have been sought were the Chapmans, and once Binalong was joined, Binalong. In my opinion an application for security for costs against Binalong would have failed having regard to the limited purpose and condition 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. I think it is now unrealistic for Kebaro to assert that justice requires 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. 53 I turn to the absence of a warning notice to Kebaro. There is 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: Yates v Boland [2000] FCA 1895 at [34] and Gore v Justice Corporation [2002] FCAFC 83 at [51]. 54 Counsel for Kebaro asserts 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 (although no such possibility was identified). In short, Kebaro asserts that it has been prejudiced by the absence of a warning. 55 Where a party seeks to avoid a remedial order of the Court in favour of the opponent on the ground that the party will suffer unfair prejudice, it behoves that party to identify, on oath, the alleged prejudice. He who asserts must prove. See for example Ulowski v Miller [1968] SASR 277 at 283-284. Here no evidence of prejudice has been put forward by the Chapmans. Further, I respectfully agree with the observation of the Full Court in Gore v Justice Corp Pty Ltd at [61] that it is not helpful to enter into speculation about what might have happened had notice been given. The better and correct approach is to examine what did happen putting aside issues of speculation. As in that case, Kebaro in this case did give financial support to the Chapmans. 56 In this case I do not think that the evidence establishes 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. As I indicated at [36] 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 is not in itself enough to attract liability for a non-party costs order. The Chapmans were beneficiaries of The Galle Trust. In my opinion the mere fact that the trustee agreed to provide the security that was known to 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 been discovered, but the complexity of the document is such that I think it is most unlikely that the present significance of the terms relating to Kebaro's interest in the litigation would have been understood. The document was one amongst many hundreds of discovered documents. Its relevance to the issues in the principal proceedings was quite different. I am not satisfied that by reading the deed of sale, and knowing of the other matters just mentioned, the respondents should have realised that Kebaro's role in the litigation brought it into the category of case for a non-party costs order. 57 Had the respondents studied the deed of sale closely they would also have noted that cl 20.3 of the deed of sale provides that the purchaser (Kebaro) and the Chapmans represent, warrant, undertake and agree 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." For the purpose of cl 20.3.3.11 the Trust assets in the case of Kebaro are 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. 58 Now, with the benefit of evidence gathered in the recent hearing over security for costs of the appeal, the respondents understand the position to be different. However, the significance of not giving a warning to Kebaro must be determined on the state of the respondents' knowledge at the time when it is suggested notice should have been given. I am not satisfied that the state of the respondents' knowledge at relevant times was such that they should now be deprived of the order they seek. 59 In my opinion there is no reason to differentiate between the Luminis respondents and the Commonwealth respondents. I think the way in which the case was conducted by the respondents justifies the conclusion that whatever the Commonwealth respondents knew about the applicants and their related entities would have been made known to the Luminis respondents, and vice versa. 60 In my opinion orders should be made in terms of par 2 of the notices of motion of both the Luminis respondents and the Commonwealth respondents. 61 The parties should now apply for a date for hearing the balance of the notices of motion, including the applications for costs therein. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa.

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Judgment (12 paragraphs)

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Cases Cited (8)