Montague Mining Pty Limited v Gore & Ors

The current application 23 The hearing of the motion was delayed by discussions between the parties concerning the quantum of the costs. By a letter dated 30 March 2001, the solicitors for Clayton Utz set out an estimate of their costs and disbursements, broken into four periods: 20 August 1998 to 21 April 1999 (the date of the Litigation Agreement), 22 April 1999 to 23 August 1999 (the date of filing Clayton Utz's motion for provision of security for costs by Justice Corporation), 24 August 1999 to 22 December 1999 (the date of my final orders) and 23 December 1999 to 31 December 2000. 24 At the hearing of the motion, counsel informed me Montague has applied to the High Court of Australia for special leave to appeal against the Full Court's decision. The application is expected to be heard on 10 August 2001. However, it is not suggested the pendency of the special leave application affects the desirability of my dealing immediately with the present motion.

Contentions for Clayton Utz 25 In supporting the motion for costs, counsel for Clayton Utz, Mr David Pritchard, relied heavily upon the decision of the High Court in Knight v F P Special Assets Limited (1992) 174 CLR 178. That case concerned a provision in the Supreme Court Act 1867 (Qld) and the Rules of the Supreme Court of Queensland. By majority (Mason CJ, Deane, Dawson and Gaudron JJ; McHugh J dissenting) the High Court held the power of the Queensland Supreme Court to award costs is not confined to orders against parties to the proceeding; under some circumstances, an order may be made against a non-party. 26 It is common ground that the same statements may be made about the power of this Court to order costs, under s 43 of the Federal Court of Australia Act 1976; as to which point see the Full Court decisions in Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 and Levick v Commissioner of Taxation [2000] FCA 674; 102 FCR 155 and the cases mentioned in those decisions. It is also common ground that the principles enunciated in Knight, as to the circumstances in which that power may be exercised, equally apply to proceedings in this Court. 27 In their joint judgment in Knight,Mason CJ and Deane J reviewed the reported cases in which costs orders had been made against non-parties. They commented 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." 28 At 192-193 their Honours said: "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. The 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." 29 Dawson J at 202 expressed the relevant principle in the following (perhaps narrower) way: "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. Even if the cases were confined to ejectment proceedings (and clearly they are not), the principle lying behind the ejectment cases is that the real litigant rather than the nominal party may be made liable for costs." 30 Gaudron J agreed with Mason CJ and Deane J. 31 Mr Pritchard argues that, by reason of the Litigation Agreement, Justice Corporation became "the effective litigant standing behind" Montague, to use Dawson J's formulation. Also, he says, applying the words of Mason CJ and Deane J, Justice Corporation both "played an active part in the conduct of the litigation" and had "an interest in the subject of the litigation". Mr Pritchard asserts that, without assistance from Justice Corporation, Montague would have been unable to pursue its claim to the point of assessment of its damages. 32 Mr Pritchard contends the situation in this case is similar to that in Yates v Boland [2000] FCA 1895. In that case a Full Court upheld an order by Branson J making Mr I F Yates jointly and severally liable for costs ordered to be paid by a company of which he was at material times in effective control: see Yates Property Corporation Pty Limited v Boland (No 2) (1997) 147 ALR 685. Branson J (at 694) referred to the statement of Mason CJ and Deane J in Knight, quoted at para 28 above. Her Honour commented the statement was "strictly obiter"; nevertheless she thought it an appropriate guide to the exercise of her discretion. 33 In his Outline of Submissions, Mr Pritchard suggested the Court would be satisfied about ten stated matters. However, those matters included references to affidavit material to which objection was successfully taken. Excluding that material, and references by Mr Pritchard to the evidence supporting a particular proposition, the following remains: "(a) Montague is a 'man of straw' and the evidence suggests [it] will not be able to meet the order for costs made against it. At the very latest, Justicecorp was aware of that fact by 23 August 1999 at the hearing of Clayton Utz's notice of motion for security for costs as against Justicecorp; (b) … (c) pursuant to the Litigation Agreement, Justicecorp became a proprietor of 8% of any judgment debt obtained against Clayton Utz plus an entitlement to costs up to a total of payments made by Justicecorp. The lowest formal offer of Montague was $3,000,000 … and, accordingly, Justicecorp would have been entitled to $240,000 plus costs if the offer had been accepted; (d) clause 2.1 of the Litigation Agreement expressly provides that Justicecorp would pay any costs order made against Montague in favour of Clayton Utz in these proceedings. This was a matter highlighted by counsel for Montague (and not disputed by counsel for Justicecorp) at the hearing of the notice of motion for security for costs against Justicecorp on 23 August 1999 ...; (e) Justicecorp was attempting to use these proceedings as a vehicle to test the validity of the Litigation Agreement. Mr Rayment of Justicecorp requested that a challenge to the Litigation Agreement be made by Clayton Utz. On 21 July 1999, he stated that if Clayton Utz did challenge, Justicecorp would bear its own costs of the application and would provide security for Clayton Utz's costs ...; (f) at the hearing on 23 August 1999, specific reference was made to Knight v F P Special Assets and the discretionary consideration concerning a prior application for security for costs. It was noted … that it could not be submitted by Montague and Justicecorp that Clayton Utz could have got security for costs earlier on. Accordingly, that discretionary consideration is irrelevant; (g) Justicecorp has engaged in some questionable and unexplained conduct by entering an agreement with Montague 3 days prior to the Full Court hearing to void the Litigation Agreement and purport to put in place the Loan Agreement whereby the money already advanced by Justicecorp was only to be treated as a loan secured by a mortgage over any judgment obtained. Justice Corporation has not led any evidence in relation to those circumstances …; There is no evidence to suggest that Justicecorp has any right to terminate the Litigation Agreement or had complied with clause 7.3 of the Agreement concerning the exercise of the right to terminate. Further, notwithstanding that submissions had been made on 23 August 1999 concerning Montague's contractual right of indemnity pursuant to clause 2.1 in respect of Clayton Utz's costs, Clayton Utz was not informed of the voiding of the Litigation Agreement until 18 September 2000 …; (h) presumably (and the Court should infer) Justice Corporation was aware of the offer of compromise of Clayton Utz rejected by Montague on 20 August 1998 and the consequent risk in relation to costs. Justicecorp has certainly led no evidence to the effect that it was unaware of that offer; (i) these proceedings did not involve any public interest or interest beyond those of the immediate parties and should be distinguished, for example, from an insurer funding a liquidator to pursue persons for recovery of funds for the general body of unsecured creditors; and (j) there is no evidence to suggest that the actual costs of Clayton Utz are unreasonable or excessive."

Contentions for Justice Corporation 34 Mr Rowan Darke, counsel for Justice Corporation, disputes Mr Pritchard's claim that Justice Corporation was the effective litigant standing behind Montague. He says the Litigation Agreement provided for Montague to retain complete control of the proceeding; his client merely agreed to meet certain costs, in exchange for an 8% interest in any fruits of success. 35 Dealing with the test stated by Mason CJ and Deane J in Knight, Mr Darke concedes the Litigation Agreement conferred on his client "an interest in the subject of the litigation"; although he says this was only an 8% interest, Montague retained the other 92%. However, according to Mr Darke, it is inaccurate to say Justice Corporation "played an active part in the conduct of the litigation"; the conduct of the litigation was entirely controlled by Montague. Montague could even settle the case without reference to Justice Corporation; Justice Corporation was entitled only to be informed of the settlement terms. 36 Mr Darke argues the basis of the power to make a costs order against a non-party that was upheld in Knight is the desirability of getting at the "real party to the suit". He refers to the citation, by Mason CJ and Deane J at 187, of a comment by Lord Tenterden CJ in Doe dem Masters v Gray (1830) 10 B&C 615 at 616; 109 ER 579 at 579: "In ejectment we can make the real party to the suit pay the costs." Mason CJ and Deane J commented "this approach was not confined to ejectment" and cited authority for their statement. 37 Mr Darke contends the only role of Justice Corporation in this litigation was that of "a provider of financial support to a litigant to enable a case to be pursued". He says "this minor interest does not place Justice Corporation in any significantly different position to many litigation lenders or legal practitioners conducting litigation on a contingency basis". Mr Darke points out that, when Justice Corporation came on the scene, Montague already had the benefit of a finding in its favour on liability. He says: "It would not be in the interests of justice that litigants in the position of Montague Mining be unable to continue with apparently meritorious litigation due to a lack of funds." 38 Mr Darke referred to a comment by the Judicial Committee of the Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 AC 186 at 210: "Their Lordships think it may properly be inferred from the decisions above referred to, and especially those of this tribunal, that a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner." 39 Mr Darke also drew attention to the discussion, by a Full Court of this Court (Lockhart, Cooper and Kiefel JJ), of maintenance and champerty in Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 at 267-268. In that passage the Court described maintenance as "assistance or encouragement of a party to an action in which the maintainer had no interest". The Court said champerty "was a species of maintenance, on terms that the maintainor and the plaintiff would share in the outcome of the action". The Court said "public policy considerations shaped the attitude of the Courts towards agreements to maintain litigation", but noted: "concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which face the ordinary litigant in funding litigation and gaining access to the Courts." The Court referred to a comment of Danckwerts J, in Martell v Consett Iron Co Ltd [1955] Ch 363, that support of legal proceedings based upon a bona fide common interest, financial or philosophical, must be permitted if the law itself was not to operate as oppressive. The Full Court added (at 267): "Courts today … are likely to take an even wider view of what might be acceptable …". The Full Court noted (at 267-268) the offences and torts of maintenance and champerty had been abolished by legislation in three Australian States; including - relevantly for this litigation - New South Wales. However, the Full Court held this did not strip courts of their ability to hold particular maintenance agreements to be contrary to public policy and illegal. 40 Mr Darke further pointed out that New South Wales law now enables legal practitioners to make conditional costs agreements with their clients and permits such an agreement to provide for the payment of a premium, up to 25%, on the costs otherwise payable under that agreement: see Legal Profession Act 1987 (NSW) ss 186 and 187. Although he accepted that s 188 of this Act bars a provision that costs are to be determined as a proportion of, or are to vary according to, the amount recovered in a proceeding, Mr Darke contended the argument advanced in this case by Mr Pritchard could equally be put against a solicitor who entered into a conditional costs agreement containing a provision for a premium on the costs otherwise payable. 41 In his Outline of Submissions, Mr Darke said: "The position of Justice Corporation in this case may be compared to that of a solicitor conducting litigation on behalf of a client on a contingency basis. Such arrangements commonly involve the solicitor being permitted to charge a premium over and above usual fees in the event of a successful outcome. In such cases, the solicitor has a financial stake in the outcome of a case. Depending on the particular circumstances, that financial stake may be considerable. In addition, the solicitor in those circumstances is directly involved in the conduct of the case and provides advice to the client concerning matters such as settlement. If Justice Corporation was ordered to pay costs in this case, why would not any solicitor conducting litigation on a contingency basis be similarly liable in the event of an unsuccessful outcome? However, the cases make it clear that solicitors in those circumstances are not liable to for costs unless they have engaged in unreasonable or unprofessional conduct in the conduct of the litigation, such as the advancing of clearly hopeless arguments (see, for example, Levick v Deputy Commissioner of Taxation (2000) 102 FCR 155; Re Bendeich (No 2) (1994) 53 FCR 422 at 427C-D; Cook v Pasminco Ltd (No 2) [2000] FCA 1819 at paragraphs 55 to 65). A comparison can also be made between the position of Justice Corporation in this case and a lender to a litigant where the purpose of the loan is to fund the litigation and where the prospect of repayment may depend upon a successful outcome. This may be the case, for example, where the lender takes as security a charge over any future proceeds of the litigation. Even where no security is taken, as a matter of practicality, the loan may in many cases only be likely to be repaid in the event of a successful outcome. This would be the case where the litigant owns no assets apart from the litigation itself. Again, if Justice Corporation was ordered to pay costs in the circumstances of this case, why would not any lender in the above described circumstances be equally susceptible of a costs order in the event of the litigation being unsuccessful?" 42 Finally, Mr Darke cited Metalloy Supplies Ltd (In Liq) v M A (UK) Ltd [1997] 1 All ER 418, a decision of the English Court of Appeal. The case concerned an action by a company liquidator that was discontinued after a judge made an order requiring the company to provide security for costs. An order was made that the liquidator personally pay the defendant's costs, but the Court of Appeal set aside that order. In doing so, the Court of Appeal affirmed jurisdiction to make an order against a non-party; but it held the jurisdiction should be exercised only in exceptional circumstances, where there had been impropriety by the liquidator. 43 I do not think Metalloy Supplies is relevant to this case. The liquidator was there acting on behalf of a party, to enforce a right of action claimed by it. That situation is distinct from the position of Justice Corporation, which was a stranger to the litigation.

Conclusions 44 It seems to me that, on any view of the central issue in this case, the claim made by Clayton Utz against Justice Corporation is excessive. At para 23 above, I specified the four periods of time into which the costs claim is broken. The first period, 20 August 1998 to 21 April 1999, occurred prior to execution of the Litigation Agreement. The costs incurred by Clayton Utz in that period were incurred before Justice Corporation became involved in the case. There is no suggestion Clayton Utz had any fore-knowledge of Justice Corporation's proposed involvement or that it incurred costs in anticipation of that event. Consequently, Clayton Utz has suffered no greater loss in respect of those costs than if Justice Corporation had never become involved, or never existed. 45 The claim for costs incurred before 21 April 1999 must be rejected on the simple basis that there was no causal connection between those costs being incurred and the involvement in the case of Justice Corporation. 46 The fourth period commenced on the date of my final orders. The costs incurred by Clayton Utz in the fourth period must have related only to the Full Court appeal and the subsequent application for payment of costs by Justice Corporation. Accordingly, it seems to me, these costs also fall outside any appropriate order on this motion. 47 The Litigation Agreement provided for the financial support of Montague by Justice Corporation only in respect of the first-instance hearing. It made no provision concerning costs incurred in connection with any appeal against the decision at that hearing. Also, and perhaps more importantly, these are costs that Clayton Utz would have needed to incur in any event, if it wished to overturn the orders I made on 22 December 1999. The quantum of costs would not have been significantly increased by the circumstance that the appeal was actively resisted on behalf of Montague. 48 Insofar as the costs incurred in the fourth period include costs of the correspondence between Clayton Utz's solicitors and Justice Corporation and of the present motion, these are costs to be taken into account in assessing the quantum of any costs awarded to Clayton Utz in respect of this motion. 49 The second and third periods remain; that is, the time that elapsed from the date of execution of the Litigation Agreement to the date of the final first-instance orders. The recoverability of these costs has to be determined in the light of the principles laid down in the authorities, especially in Knight. It is important to observe that, although Mr Pritchard placed some emphasis upon the obligations undertaken by Justice Corporation in cl 2.1 of the Litigation Agreement (see para 9 above), he put no submission based upon contractual right or obligation. 50 It is clear that Montague is a "man of straw". There is no evidence as to the financial status of Mr Williams, who has executed a deed of guarantee in respect of Montague's costs. However, this litigation was conducted on the basis that, at the time of the events with which it was concerned, Mr Williams had no significant assets. From the fact that this application has been pressed, I assume that is still the case. 51 Also, it is clear Justice Corporation had an interest in the litigation during the period, 22 April 1999 to 22 December 1999, with which, on proper analysis, I am concerned. During that period, Justice Corporation held an 8% stake in any judgment sum Montague might recover. 52 It follows two of the three circumstances, specified in Knight by Mason CJ and Deane J, are satisfied. What of the third? Can it be said Justice Corporation relevantly "played an active part in the conduct of the litigation"? 53 There is no evidence as to the financial contribution made by Justice Corporation to the litigation between 22 April and 22 December 1999. However, as Montague was represented at the assessment of damages hearing by senior and junior counsel and solicitors, Justice Corporation may have made a significant financial contribution during that period. Justice Corporation may have provided the "sinews of war", notwithstanding it had no say in how the war was conducted. Is that enough? 54 I have concluded it is not enough; for two reasons. First, even on the assumption that Justice Corporation provided the funds used in connection with the hearing for assessment of damages, I cannot be satisfied, upon the balance of probabilities, that, absent that provision, there would have been no assessment hearing. Montague was represented, by senior and junior counsel and experienced solicitors, at the liability hearing that took place in 1998, before Justice Corporation's involvement. The evidence does not disclose how that was arranged. Perhaps funds were found from some source, not revealed by the evidence. Perhaps the lawyers, or some of them, acted on a conditional costs basis, as they were entitled to do under the Legal Profession Act. Whatever the position, it is not fanciful to believe it may have been possible for Montague to arrange representation on some such basis at the assessment hearing, liability having already been established. In short, I cannot be satisfied the involvement of Justice Corporation made any difference to the quantum of the costs incurred by Clayton Utz. 55 The second reason for my conclusion is that I do not think the Knight principle is invoked merely by the provision of financial support for a litigant. I know of no decision that has gone so far. 56 Knight was a case of alleged abuse of their position (receivers and managers of a company) by persons having control of the company's actual or potential litigation. It dealt with a situation different from that arising in this case, where the costs claim is based on the behaviour of a stranger to the litigation. It follows the observations of the majority Justices in Knight, about the circumstances in which courts will make a costs order against a non-party in the second situation, are obiter dicta. Nonetheless, they are entitled to be accorded great weight. And I agree with Mr Darke that the idea underlying those observations is the desirability of a court being able to provide a costs remedy against the "real party" to the litigation. See the comment of Mason CJ and Deane J set out in para 27 above and that of Dawson J quoted in para 29. 57 Looked at in this light, it is apparent it is not enough that the person has facilitated or supported the litigation. Were this enough, it would be dangerous for a lawyer to agree to act in litigation on a speculative or conditional costs basis. A lawyer is likely to agree to act on that basis only in a case where the client is unable to defray costs as they are incurred. In that type of case, the lawyer's decision to act on a speculative or conditional costs basis will generally be the critical factor in determining whether the action proceeds or not. The support provided by the lawyer may extend beyond providing services for which the lawyer may never be remunerated; the lawyer may (and often will) outlay his or her own money to defray disbursements. 58 A lawyer acting on a speculative or conditional costs basis may not have an interest in the judgment sum; although I apprehend the lawyer would be entitled to deduct from the judgment sum any disbursements advanced and (possibly) the costs due under a costs agreement. However, even without a charge on the judgment sum, a lawyer acting on this basis has an interest in the orders sought by the client. In the words of Mason CJ and Deane J, the lawyer "has an interest in the subject of the litigation". Depending upon circumstances, the lawyer's costs interest in the litigation may rival in size the stake of the client. 59 Mr Darke's submission includes other examples of people who would be put at risk by an application of the Knight observations in a manner wide enough to cover this case. Knight ought not to be regarded as going so far. 60 There is no proper basis for making a costs order against Justice Corporation. The motion should be dismissed with costs.

I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Solicitor for the Applicant: Brian Bartley & Associates