O'Keefe v Hayes Knight GTO Pty Ltd

factual background 4 In an amended application filed on 13 September 2004 the applicants relied on s 283AE of the Corporations Act 2001 (Cth) to terminate the respondent's appointment as trustee to the holders of debenture stock issued by Performance Finance Ltd and to seek appointment of the New Trustee. The application was conceded by the respondent at the hearing on 13 September 2004 and an order was made appointing the New Trustee as the trustee of the Trust Deed. The Trust Deed is dated 10 June 1993, made between Golden Dolphin Limited and Gillard Turner & O'Brien Pty Ltd and each several stock holder and, with its subsequent amendments, is referred to throughout the orders of 13 September 2004 as the Trust. 5 The parties have agreed to the application being decided on the following papers: (a) Affidavit of Vanessa Bransby sworn 5 November 2004; (b) Affidavit of David Ross Kilpatrick sworn 16 November 2004; (c) Outline of submissions in support of The New Trustee's application for directions, filed 16 November 2004; (d) Submissions to the New Trustee's request for the respondent to pay its costs on an indemnity basis, filed 8 December 2004; (e) Affidavit of John Michael O'Brien sworn 7 December 2004; (f) The New Trustee's submissions on the issue of the respondent paying its costs on an indemnity basis, filed 7 February 2005; and (g) Respondent's submissions on the issue of the respondent paying the New Trustee's costs on an indemnity basis, filed 3 March 2005. Subsequent to this the parties were given the opportunity to file submissions on costs in favour of a non-party. 6 At the New Trustee's request, the matter was listed for directions on 17 and 24 November 2004. Submissions in support of the listing noted that, to comply with Order 5, the delivery of trust documents by the respondent to the New Trustee was required within 21 days, that is by 5 October 2004. Within that period the respondent did not provide a list of documents identifying why any document was not trust property or a trust document. However, on 13 October 2005 such a list of documents was provided to the applicants. After correspondence between the parties, the respondent delivered the majority of the documents in the list to the New Trustee on or about 9 November 2004. Despite numerous requests, at that date, written confirmation had not been received by the New Trustee that all documents falling within Order 5 had been delivered to it. Those circumstances appear from the affidavits of Mr Kilpatrick. 7 Following the directions hearing on 24 November 2004, several orders were made. Orders 1 and 2 provided: '1. By 7 December 2004 the respondent do file and serve an affidavit ("the Affidavit") stating on oath: 1.1 whether the documents detailed at points 1 to 7 of the letter from Messrs Price Sierakowski to Williams & Hughes dated 9 November 2004 ("the List") is a complete list of all documents which fall within paragraph 5 of the orders of the Court in this matter dated 13 September 2004 ("the Orders") which have been withheld by the respondent and not delivered to Highstoke Pty Ltd ("the Trustee"); 1.2 if the List does not contain all the documents whch [sic] fall within paragraph 5 of the Orders which have been withheld by the respondent, then stating in detail what other documents have been withheld and in respect of each such document the basis on which it has been withheld. 2. By 7 December 2004 the Respondent do deliver to the Trustee the documents referred to at paragraph 5, 6 and 7 of the facsimile from Price Sierakowski to Williams & Hughes dated 9 November 2004 ("the 9 November letter") annexed at page 10 to the affidavit of David Ross Kilpatrick sworn 16 November 2004 or include in the affidavit referred to in order 1 a statement and claim of any legal basis upon which it is contended such production should not occur.' It is not in dispute that the respondent complied with these orders.

Applicants' contentions 8 Referring to the affidavits of Mr Kilpatrick and a letter received from the respondent's solicitors dated 9 November 2004 ('the letter') which outlined documents that were not provided to the New Trustee, the New Trustee submits that prior to the letter, the respondent failed to comply 'adequately or timeously' with the Court's orders. Until the letter the respondent had not responded in any substantive way to correspondence from the New Trustee's solicitors. 9 The New Trustee submits that prior to the letter the respondent failed to state the basis for withholding documents from it, had not confirmed that the list of documents withheld included all of them and had failed to provide any meaningful account of the respondent's dealing with the trust property. It is contended the respondent also failed to explain why, on 13 September 2004, it had sought 21 days to provide the documents and comply with the Court's orders when it was then stated they had no dealings with the trust property. Following the letter, the New Trustee submits the respondent still had not provided any meaningful account of its dealings with the trust propertyand had not clearly confirmed that they had no other documents falling within Order 5. 10 The New Trustee notes that at the first re-listing of the matter on 17 November 2004 after non-compliance with Order 5 by the respondent, the respondent was effectively unrepresented. This required the need for written submissions because the Court could not deal with the issue of costs in the respondent's absence. 11 The New Trustee also submits that if responses to the correspondence from the respondent's solicitors had been adequate, the matter may not have had to have been re-listed. It states that it appears there is no issue between the parties that the respondent ought to pay the New Trustee's costs of re-listing the matter and no disagreement that the respondent failed to comply with Order 5 resulting in the further orders made. Thus, it is contended the New Trustee should be fully indemnified in relation to costs it incurred solely as a consequence of the respondent's breach of Order 5.

Respondent's contentions 12 The respondent filed submissions in which it is stated that, following the orders made by the Court on 13 September 2004, it commenced a review of all the documents it held in relation to its appointment as trustee of Performance Finance Ltd. The respondent submits that a litigation funding company, IMF (Australia) Ltd has claimed the applicants are their client and that they seek to rely on the respondent's Professional Indemnity Insurance as the 'commercial basis for justifying recovery proceedings for alleged breaches of duty'. The respondent submits that IMF (Australia) Ltd has advised the applicants and other investors in Performance Finance Ltd that they are prepared to fund litigation against the respondent. 13 In these circumstances, the respondent submits that it has been careful to preserve the validity of the insurance it holds. Prior to disclosing the documents as required by Order 5, the respondent claims it consulted its insurers and was advised by its solicitors in a letter dated 22 September 2004 to not release any privileged documents. 14 The respondent also submits that its review of trust documents prior to their release to the applicants has been an 'extremely lengthy and protracted process'. This is because documentation dated back ten years and was extremely voluminous and the review was hampered by changes in staff and the need to copy files prior to their release. The respondent further submits that it deemed it prudent to have all the documents reviewed by its solicitors and to obtain advice on the types of documents that fell within Order 5's ambit. 15 In relation to its solicitors not responding adequately to correspondence from the applicants' solicitors, the respondent submits that they were unable to instruct their solicitors in respect of some of the issues raised until the insurer's solicitors had reviewed certain documents considered to be privileged or which belonged to the trustee and were not trustee documents. 16 The respondent submitted that it was entitled to 'take' legal advice on whether particular documents were trust documents. It argues it was obliged to refer all documents over which professional privilege could be claimed to its insurers, as their release may have affected its indemnity insurance. It was also submitted that many of the trust documents were provided in a timely fashion and the applicants have suffered no loss due to the re-listing of the matter because its costs are being met by IMF (Australia) Ltd. In the alternative, if an order is made against it, it is submitted it should be limited to an order for costs on a party/party basis.

power to award costs in favour of non-party 17 The jurisdiction of the Court to award costs is found in s 43 of the Federal Court of Australia 1976 (Cth) ('the Act'). It follows from the terms of that section that the jurisdiction is conditioned by there being 'costs' and those costs being in 'proceedings before the Court'. Section 4 of the Act defines 'proceeding' to mean 'a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding …'. In Knight v FP Special Assets Limited (1992) 174 CLR 178 it was held by Mason CJ, Deane, Dawson and Gaudron JJ, McHugh J dissenting, that the discretion to award costs under O 91 r 1 of the Rules of the Supreme Court of Queensland was not confined to the parties in the proceedings. That rule provided for the costs of and incidental to all proceedings in the court to be in the discretion of the court or judge. Gaudron J at 205 stated that it was contrary to long-established principle and wholly inappropriate that a grant of power to a court should be construed as subject to a limitation not appearing in the words of the grant; that is, the words used should be given their full meaning unless there is something to indicate to the contrary. Therefore, her Honour stated the necessity for the power to be exercised judicially tends in favour of the most liberal construction. 18 In O'Keeffe Nominees Pty Ltd v BP Australia Ltd (1995) 55 FCR 591 at 597 Spender J stated that, in the absence of any express restriction on the orders for costs that may be made concerning intervention or associated with it, the unfettered discretion conferred on the Federal Court by s 43 of the Act applied in the context of awarding costs in favour of a non-party intervener. 19 In King v GIO Australia Holdings Limited (2001) 116 FCR 509 at 515, after referring to what was stated by Spender J in O'Keeffe, Moore J said he was prepared to assume that s 43 of the Act is cast in sufficiently wide terms as to enable the Court to make an order for costs in the proceeding for the benefit of a non-party. 20 This line of authority, although not greatly developed, would support a conclusion that there is power in the Court pursuant to s 43 to make an order for costs in favour of a non-party. 21 However, recently in Handberg v Chacmol Holdings Pty Ltd (No 2) [2005] FCA 680 at [18], Heerey J stated: 'While it is now clear, in the light particularly of Knight,that there is jurisdiction to make an order for costs against a non-party (whether liquidator, receiver, administrator or otherwise) in exceptional circumstances, it is difficult to see how a court could make an order for costs in favour of a non-party. As Oliver J pointed out [in Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274] it would be unfair to confer on some category of litigant the prospect of the fruits of successful litigation without liability for the risk of failure.' Heerey J did not refer to the decision in King. 22 The circumstances in which a costs order may be made against a non-party were considered by the Full Court (Beaumont, Sundberg and Hely JJ) in Kebaro Pty Ltd v Saunders [2003] FCAFC 5. In the course of summarising their opinion on the effect of the authorities on the award of costs against a non-party the Full Court made reference to the jurisdiction to award costs in favour of a non-party. It said: '103 In our opinion, the authorities establish, on the foregoing analysis, the following propositions: · A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192 - 193. The width of the jurisdiction is illustrated by a recent English decision that there can be circumstances in which it would be appropriate to order costs in favour of a non-party against a party (see Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division at 8). · Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J expressed it, a "real and direct and ... material" connection with the principal litigation, must be demonstrated; in the words of Callinan J, the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party.' (emphasis in original) 23 In Individual Homes Steinfeld QC, sitting as a Deputy Judge of the High Court, said: '… the Court undoubtedly has in my judgment jurisdiction through the combined effect of s.51 of the Supreme Court Act 1981 and r.48.2 to make an order in favour of a non-party such as the Bank in this case. Mr. Spratt referred me to the decision of the Court of Appeal in Symphony Group Plc v. Hodgson [1994] Q.B. 179 which dealt with the circumstances in which it would be appropriate for the court to make an order against a non-party. Various guidelines for the making of such an order are set out in the judgment of Balcombe L.J. at p. 192-194 but none of those guidelines, so far as I can see, provides any assistance as regards the circumstances in which it would be appropriate for the court to make an order in favour of a non-party against a party to the action, although I would accept that the first guideline, namely that an order for the payment of costs by the non-party would always be exceptional, would equally apply to an order for the payment of costs in favour of a non-party.' Steinfeld QC granted an order to a non-party bank for costs being costs it incurred in assisting one of its employees to comply with a witness summons requiring him to attend trial to give evidence and produce certain documents. In doing so, he relied on the observation by Lord Goff in Aiden Shipping Company Limited v Interbulk Limited [1986] AC 965 at 975, cited by Balcombe LJ in his judgment in Symphony Group PLC, that: 'Courts of first instance are I believe well capable of exercising their discretion under the statute in accordance with reason and justice.' Steinfeld QC also made an order joining the bank as an additional party for the purposes of costs pursuant to r 48.2 of the Civil Procedure Rules. 24 From this examination of authorities I draw the following principles: 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. 25 Here the respondent has not ultimately challenged the jurisdiction of this Court to make a costs order in favour of the New Trustee as a non-party. I consider that is correct in view of the weight of authority which I have set out above. 26 In my view the reasoning in Handberg should be distinguished from the present application on three grounds. First, it does not appear to have had the benefit of being informed by the reasoning in King. Further, it was a case concerned with the issue of whether a costs order should be made against an administrator. Additionally, Lovatt cited in the reasoning in Handberg was a case where a costs order was made against a liquidator. The dicta of Oliver J was concerned with the position of liquidators.

whether there are 'costs' 27 As has been seen, the question as to whether the Court should exercise its discretion depends on whether the expenses sought by the non-party (in this case the New Trustee) amount to 'costs' within the meaning of that term in s 43 of the Act: King at [18]. The respondent contends that the New Trustee has not identified such 'costs'. 28 In support, the respondent refers to the form of Order 5 and the associated Order 7 that both parties and the New Trustee 'have liberty to apply in relation to Order 5 and generally'. Therefore is it said that the New Trustee should establish on admissible evidence that it was necessary for it to enforce Order 5, that it actually incurred expenditure in such enforcement and that such expenditure amounted to 'costs'. It is submitted if the 'costs' incurred by the New Trustee are not reasonable or are not in fact costs associated with enforcing Order 5, the Court ought not to exercise its discretion under the Act and that, in the absence of evidence, the discretion should not be exercised. 29 In my view these submissions for the respondent are consistent with the necessary caution with which the Court is required to approach the making of a costs order in favour of a non-party and the exceptional character of such an order. In the absence of admissible evidence in relation to 'costs' said to have been incurred as a consequence of the making of Order 5, the Court could not go beyond the making of a costs order in the usual form involving taxation. It would be on the occasion of the taxation that the reasonableness of such costs would be determined and their character as costs would be open to scrutiny. Given that protection, there is no reason why the discretion should not be exercised subject to taxation. 30 If a claim is made for items which are truly trustee's expenses not in the character of costs, they would doubtless be disallowed on taxation.

whether the discretion should be exercised 31 On the exercise of the discretion it is relevant that the New Trustee was the subject of Order 5. Obligations were created by Order 5 for delivery of property and documents to the New Trustee. The New Trustee's role was recognised by Order 7 including it among the parties given liberty to apply in relation to Order 5 and generally. Consequently, the respondent was on notice that the New Trustee was an entity affected by Order 5 with the liberty referred to. 32 Additionally, the obligation for delivery was one in which the New Trustee had an interest. Failing delivery, the New Trustee would be unable to execute its duties in its new office. It would be affected by non-performance of the terms of Order 5. It was therefore reasonable and just that it take steps to endeavour to ensure compliance with Order 5. 33 In these circumstances and in the circumstances of the respondent's non-compliance with Order 5, I consider that it is reasonable and just, and that the weight of the circumstances supports the exercise of the discretion in favour of the New Trustee in respect of its costs.

whether costs to non-party should be on an indemnity basis

34 Costs may be awarded on an indemnity basis where an action has been commenced or continued in circumstances where an applicant, properly advised, should have known that he or she had no chance of success: Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J, see also Botany Municipal Council v Secretary, Department of the Arts, Sport and the Environment, Tourism and Territories (1992) 34 FCR 412 at 415 and Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 230 - 234. Such costs may be appropriate also where there is a wilful disregard of known facts.

35 There is no evidence here of an ulterior motive activating the respondent. There has been disregard of Court orders and hence of known facts but it is not established that such disregard is wilful. While there appears to be no issue between the parties that the respondent ought to pay the New Trustee's costs of re-listing the matter and it is not in issue that the respondent failed to comply with the Court orders necessitating the orders made on 24 November 2004, I do not consider that in the circumstances there is a proper basis for ordering costs to be paid on an indemnity basis.

conclusion 36 For these reasons I consider that an order should be made that the respondent pay the New Trustee's costs of and incidental to the orders made on 13 September 2004, including the re-listing of this matter on 17 and 24 November 2004, to be taxed. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson.

Date of Directions Hearing: 17 and 24 November 2004