Prime Capital Securities Pty Ltd v Elizabeth Ann Calleja;; Caleja PJC Furniture Freighters Pty Ltd v Prime Capital Securities;; Elizabeth Ann Calleja v Prime Capital Securities Pty Ltd

The Submissions of the Parties

Accepting that, ordinarily, a costs order is made only as against a party, and that a non-party costs order should be made only very rarely, the Calleja interests submits that this is a case where such an order should be made, in the interests of justice.
The Calleja interests submit that a non-party costs order is justified because the evidence supports a conclusion that Prime is not able or willing to pay a costs order. The following features are relied upon: 1. Prime was the moving party in the litigation which, had it not been defended, would have seen Mrs Calleja lose her home; 2. On the available evidence Prime has no assets and is a "straw man"; 3. The fact of the change of Prime's name after the hearing but before judgment, together with the evidence of the apparent use of more than one name and place of birth by Mr Scanlon in his role as director and shareholder of multiple companies, suggests that Prime will not pay any costs order; 4. The evidence in the hearing established that Prime was not the source of the funds disbursed by Prime, and there is no evidence that Prime funded its own litigation, as opposed to one of Mr Scanlon's many other companies; 5. Mr Scanlon has been "the controlling mind" behind Prime, its dealings with the Calleja interests, and the litigation; 6. The person or entity with the most significant interest in the proceedings is Mr Scanlon; 7. Mr Scanlon was the person who gave directions with respect to all aspects of the case pleaded against the Calleja interests, and personally attended to many of the critical decisions and actions relevant to the litigation; 8. The loan agreement advanced by Prime as the document giving rise to the alleged debt by the Calleja interests was suspicious, and not capable of proving execution of a loan agreement; 9. There was no adequate evidence presented to establish authority to pay monies disbursed pursuant to the purported loan agreement; 10. The proceedings brought by Prime were unreasonable and improper.
Without a non-party costs order making Mr Scanlon jointly and severally liable for the costs of the proceedings on an indemnity basis, the Calleja interests are likely to suffer loss.
Prime argues that there is no sound basis for a costs order to be made against it, as Prime is not a "straw man", with monies standing to its credit in a bank account, and Mr Scanlon is merely a representative of Prime, there being no evidence that he funded the litigation, either personally or through another of his corporate entitles.

Consideration

The principles relevant to an order for non-party costs have been helpfully referred to by the parties in submissions.
The Court has the power to make an order of the nature sought, pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (NSW): Knight v FP Special Assets Ltd [1992] 174 CLR 178; Selig & Another v Wealthshure Pty Ltd & Others (2015) 255 CLR 661.
In Knight v FP Special Assets the High Court said (per Mason CJ and Deane J), at 192, Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made. 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. That 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 [footnotes omitted].
The principles have been summarised in Yu v CAO (2015) 91 NSWLR 190 at [136] - [140] per McColl JA, with whom Sackville AJA and Adamson J agreed: Prima facie, an order for costs is only made against a party to the litigation. However, in the exercise of the Court's costs discretion pursuant to s 98, CPA (a discretion which is unfettered, save that it should be exercised judicially in accordance with general legal principles relating to the law of costs) an order for costs may be made against a non-party if, in the circumstances of the case, the interests of justice require that it be made. The s 98 discretion is not subject to any express limitations. Such an order may be made "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." While some criteria have been identified as present when a non-party costs order is made, those criteria are not closed or exhaustive and it is not necessary for each to be present before a costs order may be made under s 98. Non-party costs orders have been said to be exceptional. They should not be made where "an exercise of the jurisdiction against a non-party would be extravagant and unjust." Elsewhere it has been said that such applications should be treated "with considerable caution" and that the power should be "exercised sparingly. "[E]xceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense … [t]he ultimate question [being] whether in all the circumstances it is just to make the order." The power to order non-party costs "is inevitably to some extent a fact-specific jurisdiction and … there will often be a number of different considerations in play, some militating in favour of an order, some against." As will be apparent from Knight, the non-party's connection to the proceedings is central to the inquiry whether a non-party costs order should be made. Further, there must be a causal connection between the actions of the non-party and the occasion for ordering costs [footnotes and citations omitted].
There should be no real question that Mr Scanlon played an active part in the litigation and has a real interest in the subject of the litigation. There should equally be no question that Mr Scanlon was the controlling mind, making all important decisions as to the dealings between Prime and the Calleja interests, and with respect to the litigation.
I have already concluded in Prime v Calleja that Prime's case was significantly flawed, in two respects. Firstly, the loan agreement document that Prime relied upon to establish the indebtedness to it of Calleja PJC was dubious to say the least. It was not capable of proving on the balance of probabilities that a loan agreement had been executed by Calleja PJC. Secondly, the evidence of authority to disburse monies relied upon by Prime consisted of no more than unsupportable assertions by Mr Scanlon and his employee Mr Ainsworth that verbal directions had been given by persons who were not officers of the company.
Thus, some of the criteria identified by Basten JA in FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 have been satisfied. Those criteria are: 1. Prime was the moving party in the litigation and not the defendant; 2. The conduct of the litigation by Prime could be said to have been unreasonable or improper.
Other of the criteria referred to by Basten JA are not established in the circumstances of this case: 1. There is no evidence that Mr Scanlon was the source of litigation funding; 2. Although it is clearly likely, there is no evidence that his interest in the litigation was greater to or equal to that of Prime; 3. There is no evidence that Prime is insolvent.
On the evidence adduced by Prime, which there is no good reason to reject in the present context, Prime funded its own litigation, and it could not be said to be a straw man. It has considerable monies standing to its credit in a bank account, together with a sizeable loan portfolio, and is capable of meeting an order for costs on an indemnity basis.
Whilst the Court reached a number of adverse conclusions regarding Prime and its director and employed investment director, and the conduct of the litigation more generally, those conclusions do not dictate that a non-party costs order should be made against Mr Scanlon.
It is true that Mr Scanlon is the controlling mind (or "driving force" to use the term adopted in FPM Constructions) behind Prime, and both directed the coursed of litigation and represented Prime during the court proceedings. That does not necessarily mean, however, that the benefit of the proceedings brought by Prime would have flowed to him rather than to Prime. That Mr Scanlon was the sole director and secretary of the company is not inconsistent with that conclusion.
The final feature of some significance is the assets Prime has, inclusive of funds standing to its credit. Whilst the unexplained timing of the company's name change, and Mr Scanlon's apparently flexible use of surname and place of birth with respect to his many corporate roles is such as to raise suspicion, I do not conclude that it is necessarily indicative that Prime will not abide by the Court's orders, and pay any costs order made against it. It has the capacity to do so on the evidence.
I am concerned that to join Mr Scanlon personally to a costs order against Prime could work the sort of injustice on him that the authorities caution against.
Accordingly, I propose to dismiss the application for a non-party costs order, and confirm the order for costs in favour of the Calleja interests, against Prime, on an indemnity basis, foreshadowed on 6 December 2017.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (7 paragraphs)

Legislation Cited (1)

Cases Cited (4)

Cited By (2)