Citation : WILLIAMSON -v- NAIDOO [2006] WADC 193

Company law - Call on unpaid share capital - Articles of Association - Resolution made to call on unpaid capital - Notice of call - Whether notice needs to strictly comply with resolution - Questions of construction of Articles - Turns on own facts

Costs - Assignment of cause of action - Court's discretion to award - Whether costs can be awarded for costs incurred by assignee prior to assignment - Costs in favour of non­parties - Wide discretion of court to order costs under Supreme Court Act and Rules of the Supreme Court

Federal Court of Australia Act 1976 (Cth), s 43(1)

Rules of the Supreme Court 1971 (WA), O 66 r 1(1)

Supreme Court Act 1935 (WA), s 37

Supreme Court Act 1970 (NSW), s 76(1)

1 STEYTLER P: This appeal against the judgment of a District Court judge, Mazza DCJ, concerns the efficacy of a call on shares. In order to understand the two surviving grounds, it is necessary to set out some background.

2 A company, LPO Transact Pty Ltd (LPO), commenced a civil action against the appellant, Mr Ramakrishna Naidoo, in August 1999. It claimed payment of an amount of $31,500. Mr Naidoo had held 120,000 $1 shares in LPO. These were issued to him on 22 February 1996. LPO asserts that, on 31 May 1999, the amount due in respect of the shares was only partly paid. On that day, LPO's only director, Mr Ian Williamson, resolved to make a call on Mr Naidoo's shares in the sum of $31,500. The resolution reads as follows:

1. That a call of $31,500 be made upon Rama Naidoo being the balance due and payable to the company in respect of 120,000 ordinary shares of $1.00 held by Rama Naidoo in the share capital of the company, such call to be paid on or before 5pm on 21st day of June 1999, at the company's registered office.
2. That pursuant to Clause 17 of the Memorandum and Articles of Association of the company, interest at the rate of 8% per annum be charged to Rama Naidoo if the sum of $31,500 is not paid on or before 5 pm on the 21st June 1999.

3 Clause 14 and cl 15 of LPO's Articles of Association read as follows:

1. (1) The Directors may make calls upon the members in respect of any money unpaid on the shares of the members (whether on account of the nominal value of the shares or by way of premium) and not by the terms of issue of those shares made payable at fixed times.

(2) Each member shall, upon receiving at least 14 days notice specifying the time or times and place of payment, pay to the Company at the time or times and place so specified the amount called on his shares.

(3) The directors may revoke or postpone a call.

1. A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed and may be required to be paid by instalments.

4 Notice of the call was sent out pursuant to Article 14(2). This was done on 31 May 1999. Omitting formalities, the notice reads as follows:

In my capacity as the sole director of LPO Transact Pty Ltd, I have resolved to call up the balance of $31,500, due to the company in respect of the 120,000 ordinary shares of $1.00 held by you in the share capital of the company.

I require payment of the sum of $31,500 to be made on or before 5.00 pm on 21 June 1999 at the company's registered office situate at Napoli, Fernandes & Moore, Chartered Accountants of 5th Floor, London House, 216 St George's Terrace, Perth.

I invite your attention to Clause 17 of the Memorandum of Articles of Association of the company which provides for payment of interest, up to the rate of 8% per annum, on the balance due to the company, in respect of this call, if payment to the company is delayed beyond the due date.

I hereby give you formal notice that interest at the rate of 8% per annum will be charged against the amount owing by you if you delay payment by 5.00 pm on Monday, 21 June 1999.

Mr Naidoo did not make the payment by the due date, or at all. At the trial, his counsel contended, amongst other things, that the notice of call was invalid for two reasons.

5 The first was that the notice wrongly specified the address to which payment was to be made. As will be apparent, the resolution required that payment of the call be made at LPO's registered office. Although the notice reflected this, it gave the wrong address for the registered office. LPO's registered office was not the office of the chartered accountants referred to in the notice. It was a shop in the Kingsway City Shopping Centre, where LPO conducted its business of running a post office.

6 The second reason put forward on behalf of Mr Naidoo was that only one notice was given when two were required. This contention relied upon Articles 17, 21 and 22(1) of LPO's Articles. These read as follows:

1. If a sum called in respect of a share is not paid before or on the day appointed for payment of the sum, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment of the sum to the time of actual payment at such rate as the Directors may determine, but not exceeding 8% per annum as the Directors determine, but the Directors may waive payment or in part.

1. (1) If a member fails to pay a call or instalment of a call on the day appointed for payment of the call or instalment, the Directors may, at any time thereafter during such time as any part to the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest that has accrued.

(2) The notice shall name a further day (not earlier than the expiration of 14 days from the date of service of the notice) on or before which the payment required by the notice is to be made and shall state that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

1. (1) If the requirements of a notice served under Article 21 are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect.

7 The first of the two notices said by counsel for Mr Naidoo to be necessary is one pursuant to Article 14(2), requiring payment of the call. He contends that the second notice is required if, as in this case, payment is not made by the due date specified in the first notice. The second notice, issued pursuant to Article 21(1), was said to be necessary in order to demand payment (on pain of possible forfeiture) together with interest at such rate as the directors might determine pursuant to Article 17. If payment is not made by the date appointed (in the second notice) pursuant to Article 21(2), the shares may be forfeited by resolution, pursuant to Article 22(1).

8 Mr Williamson, as LPO's sole director, determined the rate of interest to be paid, if the call was not met, when he resolved to make the call. Counsel for Mr Naidoo contended that, under the Articles, he could not do this. He said that Article 17 requires that the determination of the rate of interest be made in a separate resolution, after default has been made in payment of the call.

9 Mazza DCJ did not accept either of the suggested bases for invalidity: Williamson v Naidoo [2006] WADC 193.

I accept the proposition put to me ... that notices must strictly comply with the articles of the company. Article 14(2) provides that the notice must specify the 'time or times and place of payment'. The notice in this case specifies both the time and the place of payment. The place of payment is expressed to be LPO's then accountants. Although that address is erroneously expressed to be the company's registered office, there is no requirement in article 14(2) that payment be made to the company's registered office. In my opinion the notice sufficiently complies with the articles of LPO.

[T]he requirement to send a second notice is only relevant where the company seeks forfeiture of the shares. At no stage did LPO seek forfeiture of the shares. The provisions in article 21 plainly relate to a situation where forfeiture is sought. This is obvious by reference to the words of the article and in particular the last line of article 21(2).

... [T]here is no statement in article 17 that the determination of the rate of default interest can only be made after default on the call has occurred. The article makes it clear that the company may charge interest if the call is not paid at a rate it chooses but no greater than eight percent per annum. The provision does not require the directors of the company to meet twice - once to resolve that a call should be made and a second time, after default, to determine the interest rate.

12 There was subsequently argument concerning the costs of the proceedings. Mazza DCJ ordered Mr Naidoo to pay Mr Williamson's costs of the action, to be taxed. This was done against a background in which Mr Williamson had become the plaintiff in the action after taking an assignment of 'all of [LPOs] right, title and interest in the ... Action' (including in relation to costs) pursuant to a deed executed in October 2004. The award of costs in favour of Mr Williamson was not limited to costs incurred after the date of the assignment, notwithstanding that, by then, the action had been on foot for some five years.

13 The two grounds of appeal read, unusually, as follows:

1. The company's Articles of Association specified a procedure for making a call on shares, which the director purported to follow. There was a single director's meeting to make the call, and a notice had been issued for the call. The single notice specified a different place of payment to that identified in the director's resolution, and demanded interest on unpaid amounts. His Honour ruled the notice valid. Was this correct?

1. The trial judge awarded the plaintiff costs of the action from its inception in circumstances where the plaintiff was not the original plaintiff and purchased the cause of action on 29 October 2004. Should the plaintiff be entitled to costs during a period of time when he was not a party to the proceedings[?]

Ground 1 - the wrong address - preliminary issue

14 I will deal first with that part of ground 1 which relies upon the proposition that the call notice specified the wrong address for payment. However, there is a preliminary issue. Counsel for the respondent contends that the argument now advanced in this respect was neither pleaded nor put in the District Court.

15 The relevant plea is par 8 of the amended defence filed 10 May 2006. That paragraph seemingly deals with par 16 of the statement of claim, although it refers to par 12. Paragraph 16 of the statement of claim alleges that, by letter dated 31 May 1999, LPO demanded that Mr Naidoo pay the unpaid share capital of $31,500 and interest at 8% per annum by 5.00 pm on 21 June 1999. Paragraph 8 of the defence reads as follows:

As to paragraph 12 of the amended statement of claim the defendant:

8.1 does not admit;

8.1.1 receipt of the letter dated 31 May 1991;

8.1.2 that, in any event, the provisions of the Memorandum and Articles of Association of LPO relating to calls on shares were complied with;

8.2 says that the letter, if it was sent or delivered to the plaintiff, emanated from LPO and not the plaintiff;

8.3 admits that for the reasons stated herein the amount of $31,500 has not been paid to LPO.

16 Further and better particulars of the defence were provided on 14 August 2006. Paragraphs 3 and 4 of those particulars read as follows:

1. In addition to LPO's failure to comply with call procedures, the call notice that was issued specifies the company's registered office as the address of the firm Napoli Fernandes.
2. At that time, it was not the company's registered office address. According to the annual returns and ASIC searches, the registered office address was the Kingsway Post Office.

17 There was consequently no plea, either in the defence or in the further particulars, that the notice was bad because it did not comply with the terms of the resolution.

18 The oral submissions that were addressed, at the trial, to par 8 of the defence, read with particulars 3 and 4, were very brief. The effect of them was that the notice was deficient because it wrongly said that the address for payment was that of the company's registered office. There is only one passage in the transcript of oral argument in which there is any suggestion that the notice was invalid because it did not reflect the terms of the resolution making the call and, hence, did not comply with the Articles. After referring to Re Cawley & Co (1889) 42 Ch D 209, counsel for the appellant said (ts 292):

[W]e say that what this indicates is the strictness with which the courts construe these provisions. We say that Lord Esher's judgment, where he said in the course of analysis that if you have a resolution that's not in conformity with the articles, that resolution is bad - that's how far the court is prepared to go. So we therefore submit that, by reference to the notice and the resolution, the notice is bad.

In that passage, the argument is put only obliquely. It is consequently not surprising that the trial judge did not deal with the submission in the terms in which it is now put. Notwithstanding this, I am prepared to assume, for the purposes of the appeal, that the point is open to the appellant. The point is one of construction. Counsel for Mr Williamson concedes that it could not have been met by the calling of additional evidence at the trial: Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 438; Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491, 497; Mostert v Durban Roodepoort Deep Ltd [2004] WASCA 309 [53] - [55]. He has had adequate notice of the point for the purposes of the appeal.

Ground 1 - the wrong address - merits of the argument

19 As I understand the appellant's argument, it is as follows. Article 14(2) requires that the notice must specify the time and place for payment. The Articles assume that the notice will mirror the director's resolution. This is supported by Article 15, which deems a call to have been made when the resolution authorising it was passed. The resolution that was passed specified payment at LPO's registered office. The notice, while specifying that payment was to be made at the company's registered office, gave the wrong address for that office. Consequently, the notice did not mirror the resolution, with the result that it did not satisfy the requirement of the Articles and was consequently invalid.

20 The appellant relied, in support of this argument, primarily on two cases.

21 The first of these is Langton v Forsayth Mineral Exploration NL (1975) 1 ACLR 227. This case concerned the validity of a call made on a no-liability company. Section 322 of the Companies Act 1961 (NSW) provided that, when a call upon shares in a no-liability company is made, notice of the amount of the call, the day when it is payable and the place for payment must be published in a daily newspaper and sent by post to each shareholder on whom the call is made. This must be done not less than seven days before the date upon which the amount is payable. The directors of the company had resolved that the call should be made payable 'at either the Registered Office or the Share Registry Processing Office of the Company'. The registered office was in Sydney and the share registry processing office was in Perth. The advertisement that was published specified, as the place for payment, 'the Company's Share Registry'. No mention was made of the registered office and, in any event, there was no suggestion that the 'Share Registry Processing Office' was the same place as the 'Share Registry'.

22 Mahoney JA (with whom Street CJ and Glass JA agreed) held that, if a company specifies either of two places for payment of a call, an advertisement which specifies only one of them does not give notice of 'the place for payment' in accordance with s 322(3) of the Companies Act (233). He also found that the notice was deficient because of the lack of correspondence between the company's share registry and its share registry processing office (234). He said, in the course of his judgment (234):

The notice is to be notice of a place. Adequate notice may be given in various ways, eg, by identification according to street and number in the conventional fashion. It may be also sufficient, to constitute such notice, that the place be identified by another description from which its location will be ascertainable. However, I do not think that the nomination of place by reference only to the fact that a particular activity is there being carried on will normally be notice of that particular place for present purposes.

However, he considered that non-compliance with s 322 fell within the scope of the then s 366 of the Companies Act. The matter was remitted to the primary judge so that he could consider the potential application of that section (which dealt with procedural defects, irregularities or deficiencies).

23 The second case relied upon is Re Cawley. This raised the question whether a call that had been made by a company on one of its shareholders had given rise to a debt owed to the company by the shareholder at a particular date. If it did, the directors were justified in declining to register a transfer of the shareholder's shares because money was owing by him in respect of them. The shareholder contended that, under the company's Articles, no valid call was made until the time and place for payment was appointed by the board by resolution. He argued that this had not happened by the time his transfer was lodged for registration. The resolution that had been passed had left the date and place for payment blank.

24 The company's Articles in that case were similar in effect to those in the present case. Article 42 provided that all calls in respect of shares were to be deemed to be made at the time when the resolutions authorising them were passed. Article 45 required that the shareholder be given 21 days notice of the call, including 'notice of the time and place originally, or by any subsequent resolution, appointed for the payment thereof'. Lord Esher MR concluded that, because the Articles required a resolution of the directors in order to make a call, and because Article 38 provided that the time and place for payment must be stated, there could be no valid call until the time and place for payment had been appointed by the board (228). Cotton LJ expressed a similar opinion (232 - 233), although he found it unnecessary to decide the case upon that ground. The third judge, Fry LJ, relied only upon the failure to fix a time for payment. He said that, under Article 42, 'time was of the essence in the making of a call' and that he 'scarcely [knew] what the making of a call is, except the fixing of the time in which the money is to be paid'. He consequently held that, according to the company's constitution, no call was made until the time for payment was fixed. Lord Esher subsequently added, in an addendum to his reasons, that his decision did not rest only on the company's Articles. He said that he took it 'to be of the very essence of a call that the time and place for payment should be determined' (236).

25 I am not persuaded by the appellant's submissions. Nor do they seem to me to be supported by the cases cited. In the present case, Article 14(1) gives the directors the power to make calls in respect of money unpaid on shares. The power is not expressly conditioned by reference to a stipulation of the place (or even the time) for payment. No doubt, a time for payment is essential to the making of a call, and required to be dealt with in the director's resolution and accurately mirrored in the notice. However, if a place for payment is also required to be stipulated in the resolution as well as in the notice (which I will assume, without deciding), that does not have the consequence that any difference between the two, no matter how immaterial to the company and to the recipient of the notice, must inevitably lead to invalidity of the notice. Whether the notice adequately reflects the terms of the resolution will depend upon the circumstances of the individual case.

26 In the present case, Mr Williamson, as LPO's sole director, passed the resolution. He also signed and sent the notice. When he did each of those things, he believed that the office of the company's accountants was LPO's registered office (this is the effect of his evidence at ts 163 - 164). He consequently intended that payment be made at that office. He was not asked what address he would have specified had he appreciated that the office of the company's accountants was not LPO's registered office. The fact that the notice specified what he mistakenly believed to be the address of LPO's registered office, and wrongly described it as the registered office, seems to me to present no basis for its invalidation. The resolution accorded with the Articles. It specified a date and a place for payment, albeit, as I have said, Mr Williamson thought that the address that he was specifying by his reference to the registered office was that of the company's accountants. The notice that was issued accurately reflected the intention of the director who had passed the resolution, even if that intention was the product of his misunderstanding of the whereabouts of LPO's registered office. There is nothing to suggest that the error prejudiced, or even could have prejudiced, Mr Naidoo, or anyone else, in any way.

27 Langton seems to me to have no bearing on the present case. It did not deal with compliance with a company's Articles. It dealt with compliance with s 322 of the Companies Act, in circumstances very different from the present. I have said that, in that case, the advertisement did not identify either of the places for payment that had been specified by the board, in contravention of s 322.

28 Similarly, Re Cawley seems to me to lend little assistance to the appellant's contentions. Even if there is no valid call until both the time and place for payment have been appointed by the board, by resolution, that was done in this case. Re Cawley does not deal with a situation in which a time and place are validly fixed by resolution, but the notice mis-describes the place for payment in circumstances of the kind that existed in this case.

29 The cases requiring strict compliance with a company's constitution in respect of calls on shares do so because the person whose shares are being forfeited is entitled to insist upon the strict fulfilment of the conditions prescribed for forfeiture and also because forfeiture may result in a permanent reduction of a company's capital: Devi v People's Bank of Northern India Ltd (in liq) [1938] 4 All ER 337, 344 (Lord Romer). It is important that the shareholder should know where, and when, the amount of the call is to be paid so that he or she is not wrongly deprived of the shares. In the present case, Mr Naidoo knew when and where to pay. As I have said, the only error was that the sole director of the company mistook the whereabouts of LPO's registered office at the time of the resolution and carried that error through to the drafting of the notice. There is no evidence that Mr Naidoo was, or even might have been, misled or confused by the error.

30 There is authority for the proposition that minor or technical failures to comply with required procedures do not necessarily result in invalidity. One example is Shackleford, Ford & Co Ltd v Dangerfield (1868) LR3CP 407. In that case, a company which was proposing to change its name made a call under its new name before a certificate of incorporation in that name had been issued. The error did not invalidate the notice. The shareholders were aware of the intended change of name and accordingly knew that the notice was intended to inform them that a call had been made upon shareholders in that company. They were consequently held to have had due notice of the call. Another example is McDougall v Moonlight Extended Quartz Mining Co NL [1888] VicLawRp 172; (1888) 14 VLR 987. In that case, it was held that, if a notice of call was reasonably sufficient to satisfy shareholders that a call had been made on the shares in question, it did not matter that the name of the company had been misstated.

31 Although the present case is, of course, distinguishable from either of these cases, it seems to me that a similar principle should be applied. There was here a specification, in the resolution, of a time and place for payment. The same is true of the notice. I have stressed that the only error was that, because the company mistook the whereabouts of its registered office at the time of the resolution and the notice, it mis-described the address given in the notice as being that of the registered office of the company. The error was immaterial. It did not prejudice, and could not have prejudiced, the shareholder in any way. I am consequently not prepared to find that the error was sufficient to invalidate the notice.

33 The second part of ground 1 raises the argument that I have mentioned earlier in these reasons (which, contrary to the contentions advanced on behalf of the respondent, was made at the trial).

34 The argument is as follows. Article 14(2) requires a notice, specifying a time and place for payment, in respect of a call for payment of unpaid money on shares. Article 17 provides for the payment of interest if 'a sum called in respect of a share is not paid before or on the day appointed for payment'. That rate of interest is to be 'as the Directors may determine'. Article 21(1) deals with the consequence of failure to pay a call on the day appointed for payment. This is that the directors may serve a notice requiring payment of the unpaid portion together with interest, naming a further day upon which the shares will be liable to be forfeited if payment is not made by that date. Article 22(1) provides for forfeiture, by resolution of the directors, if a notice served under Article 21 is not complied with. Counsel for Mr Naidoo contends that this gives rise to a scheme in which interest is fixed only for the purposes of the second notice and in which the company could not demand it in the first notice, or even determine the rate of interest until after default had been made in respect of the first notice.

35 In my respectful opinion, Mazza DCJ was right, for the reasons that he gave, to reject these contentions. The question is exclusively one of construction of the Articles. On my reading of them, there is no requirement, whether in Article 17 or anywhere else, that the determination of the rate of default interest be made only after default on the call has occurred. The fact that Article 17 starts with the word 'if' does not require that conclusion. All that can be drawn from it is that the obligation to pay interest will not arise unless and until default is made in paying the call by the appointed date. Nor is there anything in the Articles which prevents the directors, in a notice under Article 14(2), specifying what the default rate of interest will be if payment is not made by the appointed time. In circumstances in which the company is not proposing to forfeit the shares there is no need to send a second notice.

37 The appellant contends by ground 4 that, as a matter of principle, it is not open to a trial judge to award costs incurred prior to the date of an assignment in favour of an assignee to a successful cause of action. He does not assert that the trial judge erred in the exercise of his discretion concerning costs. Rather, he asserts that the trial judge had no discretion to award Mr Williamson any costs incurred prior to the assignment. I should add that there is no challenge to the efficacy of the assignment which, as I have said, included LPO's entitlement to costs of the action.

38 The power to make a costs order comes from s 37 of the Supreme Court Act 1935 (WA). Section 37(1) provides that:

Subject to the provisions of this Act and to the rules of court and to the express provisions of the Magistrates Court (Civil Proceedings) Act 2004, or any other Act, the costs of and incidental to all proceedings in the Supreme Court ... shall be in the discretion of the Court or judge, and the Court or judge shall have full power to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid.

Order 66 r 1(1) of the Rules of the Supreme Court 1971 (WA) provides that:

Subject to the express provisions of any statute and of these Rules the costs of and incidental to all proceedings ... shall be in the discretion of the Court but, without limiting the general discretion conferred on the Court by the Act, and subject to this Order, the Court will generally order that the successful party to any action or matter recover his costs.

39 The discretion is very wide: Wentworth v Attorney-General (NSW) [1984] HCA 70; (1984) 154 CLR 518, 528 and McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190, 192 (concerning the similar provisions of s 76(1) of the Supreme Court Act 1970 (NSW)). The only fetters are those provided elsewhere in the Supreme Court Act and the Rules, or in any other Act (none of which is presently applicable) and, of course, the fact that the discretion must be exercised judicially. The discretion has been held to extend to an award of costs in favour of a party against a non-party: see, for example, UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1997) 1 VR 667, 708. More pertinently, there are cases in which costs have been awarded against parties to litigation in favour of non-parties.

40 In Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; (2004) 48 ACSR 681 Barrett J was concerned with an application for costs by a non-party pursuant to s 76(1) of the Supreme Court Act 1970 (NSW). That section provided that, subject to the Act and the Rules, and subject to any other Act, costs 'shall be in the discretion of the court' and 'the court shall have full power to determine by whom and to what extent costs are to be paid'. It was argued that, if the section was broad enough to allow a costs order to be made against a non-party in favour of a party (as it undoubtedly was), then it must also be broad enough to accommodate an order against a party in favour of a non-party. Barrett J said, of that submission [13] - [16]:

That submission not only has a logical attraction but may also derive some support from observations of Dawson J in Knight v F P Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178. The High Court was there called upon to consider a provision of the rules of the Supreme Court of Queensland in terms substantially similar to those of s 76 of the Supreme Court Act. The question for determination concerned jurisdiction to make a costs order in favour of a party against a non-party, being the receiver of a company. The converse question of jurisdiction to order that a party pay costs of a non-party did not arise for determination but appears to have been the subject of comment by Dawson J (198):

'The respondents' primary submission is that either O 91, r 1 or s 58 is sufficient to authorize the Supreme Court, in a proper case, to award costs against a person not a party to the proceedings before it. This submission basically raises no more than a question of construction. But the respondents also rely upon the recognized exceptions to the general principle that costs may not be awarded against a non-party. They say that this case falls within those exceptions or is sufficiently analogous to be included in them. In one sense, the exceptions, which admittedly do exist, create a logical difficulty in the way of the appellants' argument. If there are exceptions allowing costs to be awarded to non-parties, then the provisions conferring jurisdiction to award costs must encompass them. That is to say, the provisions must contemplate the award of costs to a non-party, if only in an exceptional case.'

Dawson J also referred (at p 199) to a situation in which costs were historically allowed to a non-party, being the real person standing behind a fictitious party to an action of ejectment at common law:

'But there was a clear exception to any rule that costs could not be awarded to a person who was not a party to the proceedings in the case of ejectment proceedings. This was recognized in Hayward v Giffard [(1838) [1838] EngR 122; 4 M&W 194; 150 ER 1399].'

'The wording of O 91, r 1 does not confine the discretion to award costs to the parties to the proceedings. The circumstances in which it would be appropriate to award costs to a non-party would necessarily be confined, but that is a question of discretion, not jurisdiction.'

Taken in their context, these observations of Dawson J, although appearing, in terms, to contemplate the making of an order for costs against a party in favour of a non-party, may in reality be references to the opposite situation where it is sought to subject a non-party to a costs order in favour of a party, being the situation actually before the High Court. But given the comprehensive nature of s 76 of the Supreme Court Act, there is a statutory basis for the view that, although the statutory jurisdiction will not support orders for and against persons having nothing to do with the proceedings, it will permit an order that a party pay costs incurred in relation to proceedings by a non-party having some connection with the case. In Petrovski v Radin [2000] NSWSC 323, Sperling J regarded the section as sufficiently general to support such an order and in fact made a costs order against a party in favour of a non-party in circumstances where, 'although [the non-party] was not a party to the notice of motion as a matter of form, he was a party as a matter of substance'. There also exist reasonably well established principles on which a non-party creditor supporting a winding up application may be allowed costs: see Re Obie Pty Ltd (1983) 8 ACLR 439 and other cases referred to by Austin J in Cresvale Far East Ltd v Cresvale Securities Ltd [2001] NSWSC 791; (2001) 39 ACSR 622 [101].

These considerations, coupled with the emphasis by members of the High Court in Knight's case on the extraordinary nature of the aspect of the general costs power that involves orders against non-parties, lead me to think that some very special factor outside the ordinary and expected course of events and engendering a justifiable expectation of compensation in the mind of the non-party would have to be found before any relevant aspect of the comprehensive jurisdiction with respect to costs might be regarded as properly and regularly invoked in favour of a non-party as against a party. In other words, such an award, if ever appropriate, will be extraordinary and exceptional.

41 A number of cases touching upon this issue (including Knight v F P Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178) were reviewed by Nicholson J in O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559. In that case the issue arose in the context of s 43(1) of the Federal Court of Australia Act 1976 (Cth). That section gave the court jurisdiction to award costs in all proceedings before the Court, subject to exceptions that are not presently relevant. Section 4 of the Act defined 'proceeding' to mean 'a proceeding in a court, whether between parties or not'. From his examination of the authorities, Nicholson J drew the following principles [24]:

1. Section 43 of the Federal Court of Australia Act is cast in sufficiently wide terms to enable the Court to make an order for costs in a proceeding for the benefit of a non-party.
2. For such an order to be made there must be 'costs' and they must be incurred in 'proceedings before the Court'.
3. Even if those requirements are met, the section requires an exercise of discretion in the particular circumstances in which the issue arises and the requirements of reason and justice.
4. The making of an order for payment of costs in favour of a non-party will be exceptional and therefore must be treated 'with considerable caution'.
5. The nature of the relationship between the non-party and the litigation will be relevant.

42 These cases, and others (see, for example, New Cap Reinsurance Corp Ltd v General Cologne Re Australia Ltd (No 2) [2005] NSWSC 276 [29] (Young CJ in eq); Re HIH Casualty & General Insurance Ltd [2006] NSWSC 6; and Van Hemmen on behalf of The Kabi Kabi People No 3 v State of Queensland [2007] FCA 1185 [39] - [42] (Collier J)), seem to me to establish that, in the context of a wide conferral of jurisdiction such as that given by s 37 of the Supreme Court Act, a judge of the Supreme Court has jurisdiction to award costs against a party in favour of a non-party, although that jurisdiction will be exercised only in exceptional cases and with considerable caution.

43 The trial judge consequently had the necessary jurisdiction in the present case. Moreover, there was unchallenged evidence before him in the form of an affidavit sworn by Mr Williamson on 5 February 2007 in which he said that, at the time that the action was commenced by LPO against Mr Naidoo, LPO did not have the funds to pay for legal advice. He consequently provided indemnities of $5,500 in April 2003 and $25,000 in May 2004 to the then liquidator of that company. He also deposes to the fact that, both before and after the appointment of the liquidator, he personally paid the solicitors for LPO legal costs incurred by LPO in relation to the action. He identified five payments made between 17 August 1999 and 29 February 2000 (all of which preceded the assignment). Two of those payments were made by LPO with funds provided for that purpose by Mr Williamson. The remaining payments were initially made by a third party, Mr Yogan Naidoo, and reimbursed by Mr Williamson. Mr Williamson did not seek reimbursement, by LPO, of the money that he had made available to it for legal costs.

44 In these circumstances, and having regard for the terms of the assignment, it seems to me that it was open to the trial judge, in the exercise of his discretion, to make an order for costs of the action, prior to the assignment, in favour of Mr Williamson. Of course, the amount that may be awarded to Mr Williamson in that respect will have to be determined by a taxing officer.

48 MURRAY AJA: I agree with Steytler P, for the reasons given by him, that the appeal should be dismissed.