Pinata Pty Ltd v Hamilton [2005] NSWSC 1103 | Case summary

3346/01 PINATA PTY LIMITED v WILLIAM JAMES HAMILTON & 5 ORS JUDGMENT 1 This is an appeal from a decision of Macready AsJ concerning a matter of security for costs. His Honour's decision was a decision upon an application under Part 61 rule 3 of the Supreme Court Rules 1970 for review of a decision of the Prothonotary who, on 28 April 2004, for reasons he then published, ordered that the plaintiff give security in the sum of $160,000 for the costs of the second and third defendants and security also in the sum of $160,000 for the costs of the fourth and fifth defendants. On 30 June 2005, Macready AsJ varied these orders by reducing the sums to $100,000 and $130,000 respectively. 2 All parties were represented by solicitors and counsel before both the Prothonotary and the Associate Judge. Upon the appeal to the court constituted by a judge, however, the plaintiff (by which the appeal was brought) was not legally represented. One of its directors, Mr Bryce Killen, appeared on its behalf, having previously drafted and filed a notice of appeal and submissions in support thereof. Mr Killen made oral submissions on the plaintiff's behalf upon the hearing of the appeal. The second and third defendants were again represented by counsel (Mr Harper SC), as were the fourth and fifth defendants (for whom Mr Henskens appeared). 3 Before outlining and considering the grounds of appeal, I should refer to the nature of the appeal and to the principles to be applied in determining it. The decision of the Associate Judge, upon the application for review of the Prothonotary's decision, was a decision made in exercise of a discretion upon a procedural matter. The discretion was one that fell to be exercised having regard to all the circumstances of the case. The guiding principle in cases of this kind is stated in the judgment of Santow J in Westpac Banking Corporation v Abemond Pty Ltd (unreported, NSWSC, 3 November 1994): "In this regard there is no dispute as to the applicable principles for such a review, namely that an appeal from the Master to a single Judge is not a re-trial in any sense but an appeal. Further that upon the appeal the normal and usual principles as to review of findings of fact or exercise of discretion are applicable so that, on such an appeal, if no fresh evidence is called to warrant a departure from a Master's primary finding of fact, those findings of fact are binding on the Court hearing the appeal. This is unless those findings, or the inferences drawn from them, are so flawed as to l ead to their being set aside, in the same way and with the same limitations, as the Court of Appeal would examine the exercise of a discretion by a Judge, that is to say in the manner set out in House v the King (1936) 55 CLR 489 at 504, 505." 4 The passage in House v The King (1936) 55 CLR 489 at pp.504-5 thus referred to is the following passage in the judgment of Dixon, Evatt and McTiernan JJ: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." 5 The fact that the discretionary decision is a decision on a matter of practice and procedure makes particularly pertinent the following observations of Gibbs CJ, Aickin, Wilson and Brennan JJ in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at p.177: "Nor is there any serious dispute between the parties that appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure. Counsel for Brown urged that specific cumulative bars operate to guide appellate courts in the discharge of that task. Not only must there be error of principle, but the decision appealed from must work a substantial injustice to one of the parties. The opposing view is that such criteria are to be expressed disjunctively. Cases can be cited in support of both views: for example, on the one hand, Niemann v Electronic Industries Ltd , [1978] VR 431 at p. 440; on the other hand, De Mestre v A. D. Hunter Pty Ltd , (1952) 77 WN (NSW) 143 at p. 146. For ourselves, we believe it to be unnecessary and indeed unwise to lay down rigid and exhaustive criteria. The circumstances of different cases are infinitely various. We would merely repeat, with approval, the oft-cited statement of Sir Frederick Jordan in In re the Will of F. B. Gilbert (dec.) (1946) 46 SR (NSW) 318, at p. 323: ' ... I am of opinion that, ... there is a material difference between and exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal. See also, Brambles Holdings Ltd v Trade Practices Commission 28 ALR, at p. 193; Dougherty v Chandler (1946) 46 SR (NSW) 370, at p. 374. It is safe to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration." 6 These principles have been frequently and consistently applied. During 2005, for example, they have been applied by the Victorian Court of Appeal (Savcor Pty Ltd v Cathodic Protection International APS [2005] VSCA 213 - see paragraph [57] of the judgment of Gillard AJA with whom Ormiston and Buchanan JJA agreed) and the New South Wales Court of Appeal (Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331). In the latter case, Handley JA said: "The claimant has not established that the Judge's exercise of discretion miscarried. The errors that have been identified are not material and do not vitiate his exercise of discretion. The principles in House v The King (1936) 55 CLR 499, governing appellate review of the exercise of a judicial discretion, apply with special stringency in appeals, such as the present, from a discretionary judgment in a matter of practice and procedure: Adam P Brown Male Fashions Pty Ltd v Phillip Morris Incorporated (1981) 148 CLR 170, 176-7. In my judgment the claimant has failed to establish error and this Court is not entitled to interfere and re-exercise the discretion." 7 It is significant that, in this passage, Handley JA says that the appellate tribunal is "not entitled to interfere and re-exercise the discretion" where the appellant fails to establish error. By "error", he obviously meant error other than any which he said were "not material and do not vitiate his exercise of discretion". 8 The grounds of appeal upon which the plaintiff challenges the Associate Judge's exercise of discretion are set out in the notice of appeal. The contention is that the Associate Judge fell into error (a) in making and relying upon an assumption (at paragraph 13) that any proceeds the plaintiff obtained from the action would go to the its major creditor (Baldon Pty Ltd) rather than its shareholders; (b) in "not perceiving that [the plaintiff] though a nominal plaintiff was not a true plaintiff" - which I have taken to be a contention that the plaintiff should have been regarded, for security for costs purposes, as an actual plaintiff rather than a nominal plaintiff (with the reference to "nominal plaintiff" being understood as a plaintiff suing for the benefit of some other person); (c) in not referring in the judgment to the plaintiff's allegations in the proceedings that the fourth and fifth defendants committed the tort of conversion in relation to a quantity of water pipe; (d) in concluding that the plaintiff had spent somewhat more than $180,000 on legal proceedings when there was evidence that the sum expended was more than $280,000; and (e) in concluding that the Darrell Killen interests would benefit from success by the plaintiff in the litigation. 9 The errors thus alleged do not involve any allegation of departure from correct principle. The Prothonotary had summarised some of the factors relevant to the decision before him by setting out a passage in the judgment of Young J in Morris v Hanley [2000] NSWSC 957 and the Associate Judge, by clear implication, proceeded on the same basis. While Mr Killen pointed out in submissions that the Court of Appeal had, in Morris v Hanley [2001] NSWCA 374, allowed an appeal in that matter, it is clear that, in doing so, it did not in any way question the statement of relevant considerations given by Young J - which, it should be said, are uncontroversial and in line with established authority. The plaintiff's complaint is thus really that the Associate Judge mistook the facts or failed to take material considerations into account or did both those things. But, of course, it does not follow that the discretion should or will be re-exercised upon appeal even if the plaintiff succeeds in establishing either or both of those things. Such intervention would be permissible and necessary only if it could be seen that the particular errors had so infected the decision that it was unreasonable or plainly unjust. Only then would the error be properly regarded as having resulted in a clear miscarriage of the discretion. 10 In relation to ground (a) - in essence, that it was wrong for the Associate Judge to make and rely upon an assumption that any proceeds derived by the plaintiff from the action would go to its major creditor, Baldon Pty Ltd, rather than to its shareholders - counsel for the second and third defendants and counsel for the fourth and fifth defendants both say that there was no error. Mr Harper says that such an inference is both reasonable and sensible; that, in the ordinary scheme of things, a company's creditors have a claim on its cash resources superior to that of the shareholders. Mr Killen's argument is that the directors will decide what to do with any money if and when received and that the assumption is for that reason unjustified. But the directors will not have complete freedom, given the practical need for them to recognise creditors' claims as superior to those of shareholders. Mr Henskens, in his submissions, took the matter beyond this theoretical plane. He pointed to evidence that the plaintiff had a large debt to Baldon. He also pointed to a passage in the cross-examination of Mr Richard Killen, a director of the plaintiff before the Prothonotary as follows: "Q. But it's the case isn't it, that if Pinata succeeds in this litigation in recovering some damages, that money will be used to pay Baldon is that right? A. Well they are one of the creditors. Q. You say they are the only major creditor don't you? A. Yes I think that's probably where it'll go. We have to - we'll have to pay our legal costs of course. Q. Successful litigation will be dealt with by payment of your legal costs plus the balance is likely to go to Baldon, that's correct isn't it? A. Yes." 11 It is clear from this that there was evidence on the basis of which it was open to the Associate Justice to form and adopt for guidance the assumption as to the likely destination of litigation proceeds. Ground (a) is therefore not made out. 12 As to ground (b) - that the Associate Judge failed to appreciate the true position regarding whether anyone stood behind the plaintiff - it is pertinent to note in the first place that the Prothonotary had identified as relevant, among the considerations listed by Young J in Morris v Hanley (above), "whether there is anyone standing behind the plaintiff who might benefit from the action but who is unwilling to contribute to the risk involved in the action". The Prothonotary made findings adverse to the plaintiff on that matter, mainly because there was no evidence from Darrell Killen, described as "a major beneficiary should the action succeed", about his financial position. Nor did any evidence before the Prothonotary throw light on that. The Prothonotary therefore properly took the matter into account. 13 In the Associate Judge's judgment, the question of impecuniosity of persons standing behind the plaintiff was not mentioned. This is because no point was taken on that matter when the application for review was argued before the Associate Judge. And because the question was not ventilated upon the review, it cannot now be ventilated upon appeal: see, for example, Metwally v University of Wollongong (No 2) (1985) 59 ALJR 481. 14 Ground (c) refers to the failure of the Associate Judge to mention particular allegations in the statement of claim. The simple reality here is, first, that the Associate Judge could not have failed to appreciate the existence of the allegations (which occupy several pages of the statement of claim) but, second, that failure to mention them in the judgment is simply irrelevant to proper discharge of the review function upon which the Associate Judge was engaged. Had he included an extensive description of the allegations, there is nothing to suggest that his decision would or should have been different. 15 The conclusion in relation to Ground (d) is the same. The formation of the opinions relevant to the proper performance of the review function would not have been affected one way or the other if the relevant sum was $280,000 rather than $180,000 when it is recognised that the figure was said to be that involved in a course of proceedings including but broader than the present proceeding. 16 Ground (e) predicates error in the conclusion that the Darrell Killen interests would benefit from success by the plaintiff in the litigation. The defendants say that there is no error here. The relevant analysis is at paragraphs 10 to 14 of the Associate Judge's judgment. Mr Henskens has handed up a copy of the submissions of his clients that were before the Associate Judge, pointing to the parts of those submissions on the relevant matter that the Associate Judge accepted and those that he did not and referring also to the relevant aspects of the evidence. I am satisfied, having regard to those matters, that once the proposition about the major creditor (Baldon Pty Ltd) discussed in relation to ground (a) is found to be sustainable, the evidence about family relationships and trusts supports the conclusion challenged under ground (e). 17 The plaintiff has not shown that the Associate Judge's exercise of discretion on this matter of practice and procedure was affected by any error activating the very limited power to interfere, upon appeal, with the discretionary decision of the Associate Judge. 18 The appeal is therefore dismissed with costs. **********

Pinata Pty Ltd v Hamilton

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Judgment (11 paragraphs)

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Cases Cited (8)