In the matter of Charles Henry Pty Ltd (In Liquidation): Burness (in his capacity as Liquidator) v Latimer

IN THE MATTER OF FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549) (IN LIQUIDATION) BRYAN KEVIN HUGHES AS LIQUIDATOR OF FIREPOWER OPERATIONS PTY LTD (ACN 112 074 549) (IN LIQUIDATION)

REASONS FOR JUDGMENT 1 The plaintiff (the liquidator) served an examination summons issued under s 596A of the Corporations Act 2001 (Cth) on Mr Timothy Francis Johnston. The examination summons required that Mr Johnston attend for examination before this Court on 26 November 2009. 2 Mr Johnston did not appear at the Court on 26 November 2009 in answer to the examination summons. 3 On 26 November 2009, the liquidator filed a notice of motion for the issue of a warrant for the arrest of Mr Johnston pursuant to r 11.10 of the Federal Court (Corporations) Rules 2000 (the Corporations Rules). This notice of motion was returnable on 27 November 2009 and was served on Mr Johnston. 4 On 27 November 2009, I made directions for the hearing of the notice of motion. Mr Johnston was represented by senior counsel at that directions hearing. Mr Johnston filed a notice of appearance. In accordance with the directions, Mr Johnston filed affidavits in opposition to the issue of a warrant for his arrest. 5 At the hearing of the motion on 2 December 2009, Mr Johnston was again represented by senior counsel. Mr Johnston read and relied upon affidavits sworn by himself and Dr Robert Hugo Mackay. Mr Johnston and Dr Mackay were cross-examined. At the conclusion of the hearing, I made orders for the issue of a warrant for the arrest of Mr Johnston (Hughes, in the matter of Firepower Operations Pty Ltd (In Liquidation) (No 2) [2009] FCA 1457 (Firepower Operations (No 2)). I also ordered both parties to file further submissions on the question of costs. 6 The following issues have emerged from the submissions. 7 First, whether the Court has jurisdiction to order that Mr Johnston pay the liquidator's costs in respect of the notice of motion and his wasted costs in respect of Mr Johnston's failure to attend this Court on 26 November 2009. 8 Secondly, if the Court does have such jurisdiction: (a) whether costs should be awarded on an indemnity basis; (b) whether the costs should be ordered to be paid to forthwith.

DOES THE COURT HAVE JURISDICTION TO ORDER THAT MR JOHNSTON PAY THE LIQUIDATOR'S COSTS? 9 Mr Johnston contended that the Court had no jurisdiction to order that Mr Johnston pay the liquidator's costs. 10 The statutory provisions relevant to Mr Johnston's contention read as follows: (1) Section 43 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act): (1) …the Court or a Judge has jurisdiction to award costs in all proceedings before the Court…other than proceedings in respect of which this or any other Act provides that costs shall not be awarded. (1A) … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

(2) Section 1335(2) of the Corporations Act: (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs. (3) Rule 11.10 of the Corporations Rules: (1) This rule applies if a person is summoned or ordered by the Court to attend for examination, and: (a) without reasonable cause, the person: (i) fails to attend at the time and place appointed; or (ii) fails to attend from day to day until the conclusion of the examination; or (iii) refuses or fails to take an oath or make an affirmation; or (iv) refuses or fails to answer a question that the Court directs the person to answer; or (v) refuses or fails to produce books that the summons requires the person to produce; or (vi) fails to comply with a requirement by the Court to sign a written record of the examination; or (b) before the day fixed for the examination, the person who applied for the summons or order satisfies the Court that there is reason to believe that the person summoned or ordered to attend for examination has absconded or is about to abscond. (2) The Court may: (a) issue a warrant for the arrest of the person summoned or ordered to attend for examination; and (b) make any other orders that the Court thinks just or necessary. 11 Mr Johnston contended that he was not a party to the notice of motion, nor to the examination proceeding, and, therefore, the Court had no jurisdiction to award costs against him as a "non-party". This was because the liquidator's examination and motion were proceedings brought under the Corporations Act and, in those circumstances, s 43 of the Federal Court Act, did not afford jurisdiction to the Court to award costs against a non-party in respect of those proceedings. Mr Johnston contended that when s 43 of the Federal Court Act was read with s 1335(2) of the Corporations Act, the jurisdiction of the Court hearing a Corporations Act proceeding, was confined to awarding costs against a party to that proceeding. 12 Mr Johnston went on to contend that the provisions of r 11.10(2)(b) of the Corporations Rules, which permitted the Court to "make any other orders that the Court thinks just or necessary", did not provide an independent head of jurisdiction to permit an order to be made against a non-party. This was because the Corporations Rules had to be read subject to the jurisdiction conferred on the Court in the enabling Acts, and s 43 of the Federal Court Act could not operate as an enabling Act to permit the making of non-party costs orders, in respect of the Corporations Act proceedings. 13 Mr Johnston contended further that no reliance could be placed on the cases of In the matter of Charles Henry Pty Ltd (In Liquidation): Burness (in his capacity as Liquidator) v Latimer [2005] FCA 343 (Charles Henry) and Crosby and Bryant, in the matter of Australian Motor Finance Limited (Receivers and Managers Appointed) and Australian Motor Finance Corporate Pty Ltd (Receivers and Managers Appointed [2009] FCA 707 (Crosby and Bryant). In those cases, the Court had made orders pursuant to r 11.10(2)(b) that a defaulting examinee pay the liquidator's wasted costs caused by a defaulting examinee not attending an examination, and the liquidator's costs of the application for the issue of a warrant for the arrest of the defaulting examinee, respectively. Mr Johnston contended that in those cases no consideration had been given to the argument that that rule could not found an independent head of jurisdiction to make an award of costs against a non-party examinee. 14 Mr Johnston submitted that, in any event, the power to award costs under s 43 of the Federal Court Act against a non-party was confined to categories which did not include a defaulting examinee. 15 In my view, Mr Johnston's argument that the jurisdiction conferred on the Court by s 43 of the Federal Court Act to award costs is limited by the provisions of s 1335(2) of the Corporations Act, cannot be accepted. 16 The Court, in the case of Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd (2009) 176 FCR 348 (Consolidated Byrnes), considered a similar argument to that which is raised by Mr Johnston as to the construction of s 43 of the Federal Court Act and s 1335(2) of the Corporations Act. Lander J found that s 1335(2) was not intended to limit the jurisdiction of this Court described in s 43(1) of the Federal Court Act to make costs orders in respect of proceedings before the Court brought under the Corporations Act. 17 Lander J reached this conclusion after closely examining the existing authorities. Lander J found the reasoning of Chernov J in UTSA Pty Ltd (In liquidation) v Ultra Tune Australia Pty Ltd [1999] 1 VR 204 (UTSA) compelling. Lander J also observed that Brereton J in the case of Re Struthers, Liquidator of Project Management, Architecture and Construction Interior (PACI) Pty Ltd (No 3) (2005) 64 NSWLR 392, had also found the reasoning of Chernov J in UTSA compelling and had followed the decision in UTSA in preference to the first instance decisions in this Court in Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193 (Wridgemont) and Australian Forest Managers Limited (in liq) v Bramley (1996) 65 FCR 13. Lander J also noted the criticism of the Wridgemont decision by Professor Dal Pont in Law of Costs (2nd ed, Lexis Nexis Butterworths, 2009). 18 Like Lander J and Brereton J, I, too, find the reasoning of Chernov J in UTSA compelling and, therefore, follow Lander J's decision in Consolidated Byrnes. Accordingly, I find that s 1335(2) does not have the effect of preventing this Court from making an order for costs against non-parties under s 43 of the Federal Court Act in proceedings brought under the Corporations Act; nor does it preclude the making of rules which permit the making of such costs orders in respect of the Corporations Act proceedings. 19 There is, therefore, no reason why the Court should not give full effect to the terms of r 11.10 of the Corporations Rules. That rule deals specifically with the Court's powers in circumstances where a person is summoned under s 596A of the Corporations Act to attend for an examination, and does not do so without reasonable excuse. As mentioned, r 11.10(2)(b) provides specifically that the Court may "make any other orders that the Court thinks just or necessary". 20 In my view, r 11.10(2) provides a sufficient basis upon which the Court may order that Mr Johnston pay the liquidator's wasted costs of his failure to attend the Court on 26 November 2009 in answer to the examination summons; and also the liquidator's costs in respect of the notice of motion which the liquidator was required to file in order to compel Mr Johnston's attendance at the examination summons. (See, Charles Henry and Crosby and Bryant.)

INDEMNITY COSTS 21 The next issue is whether the costs should be awarded against Mr Johnston on an indemnity basis. 22 In the case of Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 (Colgate-Palmolive), Sheppard J said that to warrant a departure from the ordinary rule that costs be paid on a party and party basis there should be some "special or unusual feature in the case"; and that the cases in which indemnity costs may be ordered were not closed. Sheppard J then went on to observe at 233-234, at [5]: Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp…); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records…). 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 and party basis. 23 In light of my findings in Firepower Operations (No 2) that Mr Johnston's failure to answer the examination summons occurred in circumstances where he deliberately set out to obtain a medical certificate for the purposes of avoiding his attendance at the examination, whether warranted by the state of his health or not, Mr Johnston had acted in deliberate disregard of the Court summons. Further, in contending that the medical certificate obtained in those circumstances constituted a reasonable excuse, Mr Johnston put forward a case which was, once the true facts were revealed, bound to fail. 24 In my view, those circumstances constitute special circumstances of the kind referred to by Sheppard J in Colgate-Palmolive, which warrant an order that costs be payable on an indemnity basis.

COSTS PAYABLE FORTHWITH 25 The next question is whether the costs should be ordered to be payable forthwith. 26 The Court has a discretion as to whether to order that the costs be payable forthwith. The general position is that costs in respect of interlocutory proceedings would not be payable forthwith. 27 However, in my view, the costs in question relate to a specific episode, namely, the failure of Mr Johnston to attend an examination pursuant to an order of the Court and the steps taken by the liquidator in order to ensure compliance with that order. 28 That episode is a separate episode which is now finalised. The matter was concluded in favour of the liquidator who succeeded in procuring Mr Johnston's attendance at the examination. There is no need for the payment of the costs to await the completion of Mr Johnston's examination. No further circumstances will affect the costs question in respect of the finalised episode. 29 In those circumstances, the costs should be payable forthwith. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.