FEDERAL COURT OF AUSTRALIA

 

Macks v Hedley [1999] FCA 1208

 

COSTS – appeal against an order for costs on an indemnity basis against the liquidator of plaintiff companies – plaintiff’s actions dismissed as an abuse of process – review of the exercise of discretion – relevant principles

 

Antonovic v Volker (1986) 7 NSWLR 151

Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256

Bent v Gough (1992) 36 FCR 204

Bishop v Adams [1992] Bischof VR 198

Colgate Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225

Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Cummings v Lewis (1993) 41 FCR 559

Flower & Hart v White Industries (Qld) Pty Ltd [1999] FCA 773

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803

Grundy v Lewis [1998] FCA 1537

Hammer v Sunman [1998] FCA 1254

Hi-Fert Pty Ltd v United Shipping Adriatic Inc [1998] FCA 1672

Hongkong Bank v Murphy [1993] 2 VR 419

House v R (1936) 55 CLR 499

Huntsman Chemical Co v International Pools (1995) 125 FLR 151

Knight v F P Special Assets Ltd (1992) 174 CLR 178

Lek v Minister for Immigration, Local Government and Ethnic Affairs (1993) 43 FCR 100

Metalloy Supplies Ltd (In Liq) v MA (UK) Ltd [1997] 1 AllER 418

Petreski v Cargill (1987) 18 FCR 68

Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146

Queensland Wire Industries Pty Ltd v BHP Co Ltd (1987) 17 FCR 211

Telstra v BT Australasia Pty Ltd (1998) 156 ALR 634

White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169

 

 

 

PETER IVAN MACKS v ANTHONY ROBERT HEDLEY & ORS

AG 4 OF 1998

 

 

CANBERRA

GALLOP, MOORE AND MADGWICK JJ

3 SEPTEMBER 1999

 

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	AG 4 OF 1998

 

BETWEEN:	PETER IVAN MACKS Appellant
AND:	ANTHONY ROBERT HEDLEY & ORS Respondent
JUDGE:	GALLOP, MOORE and MADGWICK JJ
DATE OF ORDER:	3 SEPTEMBER 1999
WHERE MADE:	CANBERRA

 

THE COURT ORDERS THAT:

 

1.         The appeal is allowed.

2.         Order 3 of the orders of Higgins J of 19 December 1997 is set aside.

3.         The matter is remitted to Higgins J.

4.         The respondents pay the appellant’s costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	AG 4 OF 1998

 

BETWEEN:	PETER IVAN MACKS Appellant
AND:	ANTHONY ROBERT HEDLEY & ORS Respondent

 

JUDGE:	GALLOP, MOORE and MADGWICK JJ
DATE:	3 SEPTEMBER 1999
PLACE:	CANBERRA

REASONS FOR JUDGMENT

Introduction

1                     This is an appeal against a judgment of a judge of the Supreme Court of the Australian Capital Territory, Higgins J, of 19 December 1997 ordering that Mr Peter Macks ("Macks") pay the defendants’ costs in proceedings in that Court on an indemnity basis.  The costs order was made against Macks personally though he was not a party to the proceedings. Macks was the liquidator of two companies, Emanuele Holdings Pty Ltd (In Liquidation) ("Emanuele Holdings") and Emanuele Management Pty Ltd (In Liquidation) ("Emanuele Management") which were the second and third plaintiffs in the proceedings.  The first plaintiff was Mr Guiseppe Emanuele ("Emanuele") who, at the time the costs order was made, was a bankrupt.  In this appeal Macks has put in issue both whether an order for costs should have been made against him at all and, if so, whether it should have been on an indemnity basis.

 

Background

2                     The events leading to this appeal commenced in November 1985 when Emanuele was charged with proffering a bribe to Mr Anthony Hedley who was the first defendant in the proceedings in which the costs order was made.  Hedley was then the First Assistant Secretary, Department of Territories, and chairman of a committee overseeing the sale by tender of the Belconnen Mall which was a large shopping complex owned by the Commonwealth in Canberra.  Committal proceedings commenced on 4 November 1991 and Emanuele was ultimately convicted on 4 February 1994.  In the intervening period Emanuele, Emanuele Holdings and Emanuele Management commenced proceedings in the Supreme Court of the ACT which became proceedings SC 796 of 1991.  Emanuele appealed against his conviction and on 16 March 1995 Higgins J quashed his conviction, and a subsequent appeal from that judgment was unsuccessful: see (1995) 78 ACrimR 242 and (1995) 60 FCR 270.  On 30 August 1995 Macks was appointed the liquidator/provisional liquidator of 64 companies with which Emanuele was associated including Emanuele Holdings and Emanuele Management.

3                     The proceedings commenced on 4 November 1991, SC 796 of 1991, were ultimately the subject of summary judgment as were related proceedings.  An appeal to a Full Court of this Court against the summary judgment was dismissed on 19 June 1998: [1998] FCA 709.  The Full Court set out in some detail the history of the litigation:

Two actions [were] instituted in [the Supreme Court of the Australian Capital Territory] by three plaintiffs, Guiseppe Emanuele, Emanuel Holdings Pty Ltd and Emanuel Management Pty Ltd.  The two actions are SC796 of 1991 and SC994 of 1996.  At the time of his Honour’s order [of 7 March 1997 giving summary judgment] there were eleven surviving defendants in each action:  Anthony Robert Hedley, Ronald Alwin Grey, Brian Bates, Peter John Lamb, Arthur Brown, Allan John Dau, Peter Edward Phillips, Ian Douglas Temby, Mark Samuel Weinberg, Michael Rozenes and the Commonwealth of Australia…

Action SC796 of 1991 was commenced on 4 November 1991.  At that time a Writ of Summons was filed that named 21 defendants, including Mr Hedley but not the Commonwealth of Australia.  The indorsement to the Writ of Summons alleged eight causes of action against Mr Hedley alone; three counts of conspiracy against all 21 defendants; and two counts of trespass and one count of detinue, against various police officers.  For a long time, nothing much happened in connection with the action.  The criminal proceeding was still on foot.  The writ remained unserved and was renewed from time to time.  After the Full Court decision, on 4 December 1995 [dismissing the appeal from the quashing of the conviction], finally concluded the criminal proceeding, the plaintiffs applied to the Registrar of the Supreme Court for orders granting them leave to amend the writ in various respects, including by the joining of some additional defendants, amongst them the Commonwealth, and the addition of claims for malicious prosecution and abuse of process.  By that time both plaintiff companies were in liquidation. On the instruction of the liquidator, the plaintiffs’ solicitors sought to continue the proceedings on behalf of the companies and to amend the writ accordingly.  All the desired orders were made, ex parte, on 9 April 1996.  In August 1996 other defendants were added. 

On 9 August 1996 the defendants applied for summary judgment in relation to some of the claims.  On 21 August 1996 the plaintiffs filed a Statement of Claim. On 16 October Higgins J made orders granting the plaintiffs leave to discontinue against all defendants other than the eleven defendants named earlier in these reasons.  His Honour also granted the plaintiffs leave to further amend the indorsement to the writ, subject to the right of the defendants to object to the insertion of causes of action by way of amendment that would have been statute-barred if asserted in a new proceeding: see Weldon v Neal (1887) 19 QBD 394.  The result of those amendments was a series of causes of action against Mr Hedley that Higgins J summarised in this way:

“1.       Damages for abuse of process to attain an improper and collateral purpose actuated by malice.

2.         Damages for misfeasance in public office.

3.         Damages for negligent/fraudulent misrepresentation on 27 and 28 November 1985, (apparently by falsely representing that he was prepared to accept a bribe).

4.         Damages for negligence and/or breaches of duties of care, including statutory duties.

5.         Damages ‘on the case’ for directing unlawful acts at the plaintiffs so as to cause them damage.

6.         Damages for the ‘tort of negligent or intentional infliction of harm, upon the plaintiffs.’”

The same causes of action were pleaded against the Commonwealth, substantially on the basis that it was vicariously liable for Mr Hedley’s acts and omissions.

On 4 December 1996 the plaintiffs instituted action SC994 of 1996.  The writ claimed damages for malicious prosecution against the then remaining 11 defendants, including Mr Hedley and the Commonwealth.  On the same day the plaintiffs filed an Amended Statement of Claim relating to action SC796 of 1991.

The defendants applied for summary judgment in each action, in relation to all the remaining claims, pursuant to Order 17 rule 1 of the Rules of the Supreme Court of the Australian Capital Territory. They sought other relief in the alternative, including the striking out of the relevant Statement of Claim.  Higgins J heard the applications on 19 and 20 December 1996. 

On 7 March 1997 his Honour delivered reasons for judgment in which he discussed each of the causes of action pressed by the plaintiffs.  In each action, he entered summary judgment for the defendants in respect of all causes of action. On 2 April 1997 the plaintiffs filed Notices of Appeal against those orders.

 

4                     It will be necessary to return to some aspects of the events described by the Full Court in more detail later.  However it should be noted now that the amended writ in SC 796 of 1991 was conditionally served on the defendants other than Hedley on 7 June 1996 by copy being forwarded to the Australian Government Solicitor though service was not accepted till late July 1996.  Hedley was served with the originating process during August 1996.  After the primary judge had given summary judgment in both matters, his Honour heard, on 12 September 1997, an application by the defendants for costs orders including costs orders against Macks personally on an indemnity basis.  Again it will be necessary to return to events leading to this hearing.  That hearing gave rise to the judgment of the primary judge of 19 December 1997 against which this appeal is brought.

The reasons of the primary judge

5                     The primary judge commenced his reasons of 19 December 1997 by noting that Emanuele was bankrupt and both Emanuele Holdings and Emanuele Management were in liquidation.  His Honour indicated that there was no real question that the plaintiffs should be liable jointly and severally to pay the taxed costs of the defendants on at least a party/party basis.  After discussing what was comprehended by an order that costs be paid on a party/party basis, his Honour posed what he viewed as the relevant questions to be decided:

The question in the present case is whether the costs orders in favour of the defendants should be taxed (or assessed) on an indemnity basis against the plaintiffs or any of them.  The next question is whether, upon whatever basis the corporate plaintiffs are ordered to pay the costs of the defendants, there should also be an order for costs against the liquidator of the corporate plaintiffs and whether to the same or a lesser extent.

 

6                     His Honour then embarked upon a consideration of whether the discretion to order indemnity costs against the plaintiffs had been enlivened having regard to the history of the matter and the nature of the proceedings that had been brought.  Reference was made to the earlier judgment in which his Honour gave summary judgment and he repeated his conclusion that the plaintiffs’ claims were both hopeless and unarguable. 

7                     The primary judge referred to the judgment of Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 and the circumstances in which costs might be awarded on an indemnity basis.  The primary judge set out, in summary form, the principles or guidelines that Sheppard J had distilled from relevant authorities concerning this issue.  As summarized, costs might be awarded on an indemnity basis in the following circumstances:

(1)               The making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud.

(2)               Evidence of particular misconduct that causes loss of time to the court and to other parties.

(3)               The fact that the proceedings were commenced or continued for some ulterior motive.

(4)               The fact that the proceedings were commenced or continued in wilful disregard of known facts or clearly established law.

(5)               The making of allegation which ought never to have been made or the undue prolongation of a case by groundless contentions.

(6)               An imprudent [or unreasonable] refusal of an offer to compromise.

(7)               An award of costs against a contemnor.

 

8                     The primary judge indicated that certain of these circumstances had no application to the present proceedings.  While he did not identify them one can assume his Honour had in mind those identified in paragraphs (6) and (7).  His Honour expressly excluded the circumstance identified in paragraph (3) by indicating he did not consider that the proceedings had been commenced for an ulterior or collateral purpose and explained why.

9                     The primary judge did say, however, that the facts known, at least when the writs were served (in the middle of 1996), did not warrant the allegations of fraud, conspiracy and misconduct against the second to eleventh defendants.  His Honour also expressed the view that, in respect to all defendants, the clearly established law was firmly against there being any cause of action available.  His Honour then said:

Now, I appreciate that interpretation of the law and its application to assumed facts may be difficult for a lay person to appreciate.  Such a person may have a profound sense of grievance but a competent legal adviser might be unable to find an arguable case for a legal remedy.  Further, even a competent legal adviser might seek to agitate an apparently unarguable case in the hope that the law may be developed or differently interpreted so as to embrace the case so presented.  It may be that such cases would be adjudged arguable on that basis.  It may be that the proposition so advanced would be adjudged to be so hopeless as to be eccentric.  Views may differ on that question.  I take the view in the present case, that the attempt to argue for a new view or extension of the law was such as was necessary to embrace the plaintiff’s [sic] case, was so doomed to failure as properly to be characterized as eccentric.  No competent legal adviser could seriously have offered the plaintiffs anything other than a fanciful prospect for a recovery of damages.  Further, the claim was egregiously unmeritorious.

In those circumstances, a decision to proceed with the action carried within it a risk that indemnity costs might be sought and granted.

 

10                  His Honour then referred to the judgments of the members of the Court of Appeal in Huntsman Chemical Co v International Pools (1995) 125 FLR 151 and their differing approaches to the question of costs in an appeal which had been abandoned (in substantial part).  Kirby P (Mahoney JA agreeing) refused indemnity costs because no notice had been given to the appellant that indemnity costs would be sought.  Rolf AJA characterized the appeal as a form of abuse of process and awarded indemnity costs.  Higgins J concluded that notwithstanding the differing approaches in that case:

[There was no] disagreement as to the underlying principle that if a case is or should have been perceived by the party prosecuting it to be hopeless to the point of vexation or oppression then the discretion to award indemnity costs will have been enlivened.

Whether the order should be made and, if so, the extent of it may well depend not only upon the inherent hopelessness of the case but also other relevant circumstances including due and reasonable warning or the lack of it by the defending parties.

 

11                  The primary judge went on to indicate that the discretion to award indemnity costs had been enlivened and proceeded to address how the discretion might be exercised in the circumstances of this case.  His Honour briefly summarized the history of the proceedings which is unnecessary to repeat.  However his Honour did note that the applications for summary judgment were before him on 16 October 1996 at which time the plaintiffs were given leave to replead the amended and remaining causes of action.  The significance of this was adverted to by the primary judge in his reasons:

I accept that it was reasonable for the plaintiffs to have some time to respond to the stated objections of the defendants to causes of action alleged.  The defendants are not precluded from seeking indemnity costs retrospectively but they, clearly enough, have a stronger case for the exercise of discretion in their favour, after the plaintiffs had reflected on the original form of the proceedings and made a deliberate decision to amend and proceed as they did on 16 October 1996.  There is a stronger case, also, following 16 December 1996 when the issue of the indemnity costs was expressly raised by the defendants other than Hedley.

 

12                  Shortly after these remarks his Honour made clear that he did view 16 October 1996 as a significant date and he ordered that all of the defendants, though he considered the position of the first defendant separately, be entitled to costs on an indemnity basis against the plaintiffs after 16 October 1996, though, for the first defendant, they were to be assessed in accordance with the Supreme Court scale.

13                  Having reached this conclusion in relation to the plaintiffs, the primary judge commenced to consider whether a costs order should be made against Macks personally.  His Honour noted that when the writs were served each of the plaintiffs was insolvent and that the driving force behind the commencement and continuance of the proceedings was the first plaintiff, Emanuele.  His Honour also noted that the defendants elected not to pursue applications for security for costs, which if successful, might have resulted in a stay of proceedings, preferring instead to pursue their application to strike out the statement of claim and to have summary judgment.

14                  Evidence Macks had given in the application for a costs order against him was then summarized by the primary judge.  It appears his Honour accepted much of what Macks said.  This included that Macks believed that the proceedings involved causes of action which were arguable and worth preserving, the proceedings would continue at the first plaintiff’s behest even without the second and third corporate plaintiffs and the additional costs occasioned by the corporate plaintiffs’ involvement would be insignificant.  Macks had made it a condition of his consent to the matter proceeding with the continuing involvement of the corporate plaintiffs that the solicitors for the first plaintiff continue to act for the corporate plaintiffs without fee.  However, as his Honour noted, Macks did not seek nor obtained any indemnity from the first plaintiff’s trustee in bankruptcy or his creditors, the companies’ creditors or anyone else.  Macks appreciated the actions were unusual but did not appreciate that they were ill founded.  He believed that, if successful, damages would be of the order of many millions of dollars.  The primary judge accepted that Macks had a genuine concern that any error he made in the liquidation of the corporate plaintiffs would be seized upon and made the subject of legal action by the first plaintiff, his family members or associates.

15                  The primary judge noted that Macks had no legal qualifications and the area of law involved in the proceedings was outside his experience as a liquidator and accountant.  Macks was aware of the decision of the High Court in Knight v F P Special Assets Ltd (1992) 174 CLR 178 though Macks was unsure as to when he became aware of it or its implications for a liquidator becoming involved in litigation particularly litigation of an unusual and speculative kind.  His Honour noted that Macks had acknowledged that if the proceedings were successful, funds would become available to pay his expenses as liquidator.

16                  The primary judge went on to make some findings which figured prominently in his consideration of whether costs should be awarded against Macks personally.  His Honour said:

It is apparent that Macks sought no independent legal advice, even of the most cursory kind, before authorizing the first plaintiff’s solicitors to effect service of the writ on behalf of the corporate plaintiffs.  Any view he had formed seems to have been based on the advice of Emanuele’s legal advisers.  It seems to me that there were several reasons which explain why Macks acted as he did. 

·        He did not appreciate that substantial costs would be incurred following service of the writ and before the applications for security for costs and/or summary judgment were made.

·        He believed that he would have the opportunity more carefully to assess the prospects for success of the actions at a later date.

·        He feared that if he did not “preserve the asset” for the corporate plaintiffs, Emanuele would sue or cause him to be sued for abandoning an asset.

·        He accepted that Emanuele would pursue the proceedings in any event and he, Macks, would have a “free ride”.

I do not accept, nor was I asked to accept, that Macks acted with an conscious ill-will or impropriety.  However it seems to me that he did act imprudently and without due regard for the expense and inconvenience to the defendants, the public and to the Court system which, had the action proceeded to a full hearing, could be expected to have devoted considerable resources to determining the matter.

 

17                  The primary judge noted that Macks did not consider that creditors might be further disadvantaged and that he was well aware that the plaintiffs would not be able to meet any order for costs made against them directly.  His Honour expressed the view that in commercial litigation Macks would not have contemplated taking proceedings or authorizing their continuance unless there were clear prospects the creditors would benefit and would not have done so without taking competent independent legal advice.

18                  The primary judge then referred to the appropriate test to determine whether circumstances existed which justified the making of a costs order against a third party.  His Honour viewed that question as having been answered by the High Court in Knight’s Case.  Reference was made to the observations of Mason CJ and Deane J at 192-193 as identifying what the primary judge appears to have treated as a test involving two elements.  The first element was whether the third party had an interest in the litigation and the second was whether the third party had played an active part in the conduct of the litigation.  As to the first matter the primary judge noted that Macks did have an interest embracing not only funds which might become available to creditors but “also protection of otherwise available funds from adverse costs orders against the corporate plaintiffs”.  His Honour also noted that if the action succeeded funds would become available to Macks to pay his fees and expenses.

19                  The primary judge then addressed the question of whether Macks had played an active part in the conduct of the litigation and, in that context, whether it might be said that the third party caused other parties to incur costs, though it is not entirely clear whether his Honour took the view that the continuation of the proceedings had been caused by the conduct of Macks.  After referring to the special position of a liquidator and its consideration by a Full Court of this Court in Bent v Gough (1992) 36 FCR 204, his Honour concluded that "the acts" of the liquidator "are capable of being regarded as sufficiently ‘active’ to enliven the discretion to make a non-party costs order against him".

20                  Five matters were then referred to by the primary judge which might weigh in the balance as to how the discretion should be exercised.  They were the interests of justice, whether security for costs should have been pursued, the absence of notice to Macks of a potential liability for costs personally, whether Macks caused the defendants to incur costs and whether Macks had acted diligently.  The first matter, the interests of justice, was seen by his Honour as “the touchstone as to whether a non-party costs order should be made against a relevantly proximate non-party”.  That involved ascertaining what was just and reasonable in a particular case.  The other matters were considerations which might elicit an answer to that question. 

21                  His Honour indicated it had been reasonable for the defendants to have sought summary judgment rather than security.  That was because, as his Honour had earlier explained, the preparation and presentation of a case for security for costs would have resulted in most, if not all, of the costs incurred by the time of the costs application being determined (or an equivalent amount) being incurred in any event.  Also the action would have remained potentially on foot, a lasting threat to the defendants leaving serious defamatory allegations against them unresolved.  His Honour also thought that notwithstanding that no notice had been given to Macks before the determination of the application for summary judgment that he was at risk to pay cost personally, Macks would have been aware of the High Court’s judgment in Knight’s Case and the import of that judgment.  His Honour said:

He would have appreciated the real risk of a non-party costs order being made, but for his neglect to seek independent advice.

 

22                  As to the question of whether Macks caused the defendants to incur costs, his Honour took the view that given that Macks had taken an active role in the proceedings the concept of causation had little or no relevance. 

23                  As to the diligence or otherwise of Macks, the primary judge returned to the question of independent legal advice and said:

I have already concluded that, in failing to obtain independent legal advice concerning claims, obviously outside his own experience, obviously involving allegations of misconduct of a serious kind against police prosecutors as well as Hedley, the liquidator, acted both imprudently and irresponsibly.  He has, in my view, been knowingly concerned in proceedings which, had he acted prudently, he would have realised or been advised were a serious abuse of the processes of this Court.

Higgins J concluded that the case he confronted was one of those exceptional cases in which an order for costs should be made against the liquidator personally.

24                  As to whether those costs should be ordered on an indemnity basis the primary judge concluded they should be.  His reasons were stated in the following brief passage:

Should the order for costs against the liquidator be on an indemnity basis?

I have concluded that it is a proper case for the defendants to be paid costs on an indemnity basis from 16 October 1996.  Those costs should, in my view, be defined in similar terms to the costs order made by Branson J in Yates Property Corporation Pty Limited v Boland & Ors…

That order would have little practical value if it is to be satisfied out of the funds of the plaintiffs.  Further, it is my view that no responsible adviser of any of the plaintiffs could have advised or encouraged the continuance of these proceedings on the part of ‘men of straw’ without themselves being guilty of complicity in a serious abuse of process.  The liquidator, should, in my view, not escape personal liability on the grounds that others may have been equally culpable.

The order against Macks should therefore, be on the same basis as that against the corporate plaintiffs.

 

Nature of Appeal

25                  This is an appeal against the exercise of a discretionary power to award costs against a third party on an indemnity basis.  Ordinarily a Full Court would be constrained by well established principles concerning appeals against the exercise of a discretion.  That is, the appellant must demonstrate that the primary judge acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect his judgment, was mistaken as to the facts or failed to take into account material considerations: see House v R (1936) 55 CLR 499 at 504 – 505; Queensland Wire Industries Pty Ltd v BHP Co Ltd (1987) 17 FCR 211 at 222; Cummings v Lewis (1993) 41 FCR 559; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803; Antonovic v Volker (1986) 7 NSWLR 151 and Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256.  However in this appeal evidence was tendered by the respondents with the consent of the appellant.  The evidence related to whether Macks had sought independent legal advice concerning the further prosecution of the proceedings in the Supreme Court.  That evidence is considered in more detail shortly.  However the fact that fresh evidence has been led means that the factual matrix in which the Full Court reviews the exercise of the discretionary power has altered.  To that extent the principles in House v R are to be treated as modified: see Petreski v Cargill (1987) 18 FCR 68.

Evidence concerning whether Macks sought independent legal advice

26                  It can be seen from the preceding summary of the primary judge's reasons that an important consideration was whether Macks had sought independent legal advice concerning the further prosecution of the proceedings and whether he had relied only on advice from Emanuele's solicitors.  Before proceeding to consider generally the issues in the appeal it is convenient to deal now with the factual issue of what advice Macks sought.  In the appeal, Macks challenged the finding made by the primary judge on the evidence before him that no independent legal advice was sought.  In Macks' affidavit of 5 September 1997, filed in the costs application, no reference is made to seeking independent advice about the further prosecution of the proceedings.  It might be thought that had independent advice been sought, the fact that it had been sought would have been referred to in this affidavit.

27                  At the hearing of the costs application on 12 September 1997 an issue arose about the production of documents by Macks as a result of subpoenas issued on the application of the first defendant.  The subpoenas were directed to Emanuele Holdings, Emanuele Management and Macks personally.  They were in substantially the same terms and sought:

All or any opinions or advices:

(a)               received directly or indirectly prior to 18 December 1996 from Mr Gary B Hevey, Andersons solicitors or other barristers or solicitors whether or not retained by the second plaintiff for that purpose;

(b)               in respect of or relating to the prospects of success of the plaintiffs or any of them in proceedings SC 796 of 1991 and SC 994 of 1996.

 

28                  The reference to the "second plaintiff" became the "third plaintiff" and "Peter Ivan Macks" in the subpoena to those parties.  At the hearing of the costs application on 12 September 1997, counsel for the first defendant called on the subpoenas.  That was met by an oral application by counsel for Macks, Emanuele Holdings and Emanuele Management to set aside the subpoenas.  Counsel said:

The subpoena, your Honour, is directed exclusively at documents, the subject of legal professional privilege, on its face.  It actually seeks opinions and advices provided to the companies, and seeks nothing else.

We submit, your Honour, respectfully submit that it is an abuse of process, for a party to issue a subpoena solely for documents the subject of legal professional privilege.

 

29                  That submission was met by a submission by counsel for the first defendant:

Your Honour, any privilege which exists has been waived by the liquidator's affidavit.  He has said, on oath, that he considered that the various causes of action in various manifestations of the pleadings were arguable.  He has said that he indeed thought there were prospects of success.  That is the first point.

The second point is that unless my friend can produce a list of the various opinions, it is not at all clear that the opinions in the liquidator's possession were opinions from either barristers or solicitors retained by the liquidator.

30                  The submissions concerning this issue continued at a later point.  Generally the hearing of the costs application by the primary judge was interrupted from time to time because his Honour had to attend to issues arising in other proceedings in which a jury was deliberating.  At the point where further submissions were made, counsel for Macks and the two companies said that the affidavit of Macks did not refer to the existence of legal advice let alone its contents.  That was said in the context of making a submission that any legal professional privilege had not been waived.  Counsel for the first defendant responded by referring to various parts of Macks' affidavit where reference was made to consultation with the solicitors acting for Emanuele.

31                  This led to an intimation by the primary judge that he did not consider there had been disclosure of the type which would have enlivened s 122(4) of the Evidence Act 1995 (Cth).  On this question the following appears in transcript:

HIS HONOUR:   Yes.  Well, it does not say to me that the section 122(4) would apply to enable the disclosure of the document to which reference has been made in those circumstances.  I would set aside each of the subpoenas, though that does lead to a difficulty in your case, Mr Blue [counsel for Macks and the two companies in liquidation], does it not?

MR BLUE:  Well, it may or may not, your Honour.

HIS HONOUR:  Well, it does, not it may or may not; it does lead to a difficulty that I cannot have regard to – I cannot assume that Mr Mack [sic] has done anything but made up his own mind.

MR BLUE:  Yes, your Honour.  Indeed, of course, we are in the dilemma that …

HIS HONOUR:  Yes.  I mean, if you are going to make out a case that I had made up my mind on particular advices, obviously you would need to show the advices and say "this is what I relied on".  If you will not do that, and you are perfectly entitled not to, then you cannot have that inference drawn in your favour, can you?

MR BLUE:  I understand what your Honour is saying. 

HIS HONOUR:  All right.  I am just putting that just so you will be on notice about it.

MR BLUE:  Yes, your Honour.

 

32                  It is probable his Honour accepted there were documents that would be produced if the subpoenas were not set aside and accepted Macks and the two companies were entitled to resist their production under compulsion of a subpoena.  In his affidavit of 5 September 1997, Macks raised, as an issue, his state of mind during 1996 about the strength or otherwise of the Supreme Court proceedings.  Fairly clearly he was raising as an issue the basis upon which he made an assessment of the legal and factual issues likely to arise and how they might be determined in those proceedings.  Having raised that issue, the defendants were entitled to test and contradict Macks’ evidence.  One obvious way of doing so was to obtain from him copies of advices and opinions he had received.  They might be used to show, if that was apparent from the advices and opinions, that he could not have had the state of mind he asserted he had in his affidavit.  In this sense the documents were relevant.  Because they were relevant documents the defendants were probably, on the law as it presently stands (see Telstra v BT Australasia Pty Ltd (1998) 156 ALR 634 at 645 – 646), entitled to have access to them.  It must be accepted however that at the time the issue was considered by the primary judge the law was not (or was not as clearly (but see Hongkong Bank v Murphy [1993] 2 VR 419)) that production of the documents might be compelled on the basis that arguably privilege had been impliedly waived by Macks raising, as an issue, his state of mind about the strength of the claims: see also Hammer v Sunman [1998] FCA 1254; Grundy v Lewis [1998] FCA 1537; Hi-Fert Pty Ltd v United Shipping Adriatic Inc [1998] FCA 1672.

33                  Part of the case of the defendants ultimately relied on (though it was initially raised by the primary judge in the passage just quoted) was that one feature of the circumstances confronting his Honour justifying a costs order against Macks was that Macks did not take independent legal advice.  It was a matter the defendants had to establish.  The question then is whether the finding made by the primary judge was open on the evidence.  There was no direct evidence that Macks had not sought independent legal advice.  It may be accepted that were there some evidence that he had not, then Mack's failure to advert to having received the advice in his affidavit and the failure of his counsel to ask him about it in chief would enable the inference to more readily be drawn that he had not sought independent legal advice: see Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 and White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 at 226 – 227.  However it was necessary for there to be some evidence from which the inference might be drawn: see the discussion by Wilcox J in Lek v Minister for Immigration, Local Government and Ethnic Affairs (1993) 43 FCR 100 at 124.

34                  Counsel for the respondents identified the finding of the primary judge that "no competent legal adviser could seriously have offered the plaintiffs anything other than a fanciful prospect for recovery of damages" and that the claims were "both hopeless and unarguable" as providing a foundation for inferring that Macks did not receive independent advice.  If he had, it was reasoned, the advice would not have been to continue and could not have led Macks to the belief, as he asserted in his affidavit he believed, that the claims were good. That is one possible inference.  Another would be that he had had bad advice.  It is enough to say that there is no sufficiently compelling basis for drawing the former inference.   Indeed the evidence actually given suggests such an inference should not be drawn.

35                  While no evidence was led from Macks in chief about this and that might have led to an inference that Macks was making no such case, or it might provide an acceptable basis, together with the matters just discussed, for an inference that Macks had not had any legal advice, matters did not rest there.  The subject was raised by Macks, admittedly unresponsively, in cross-examination.  Macks was asked by counsel for the first defendant several questions about his dealing with Andersons who were the solicitors for Emanuele and, before they were placed into liquidation, Emanuele Holdings and Emanuele Management.  During that cross examination the following appears:

 

Were you in discussions with Andersons at any stage than April? … My recollection is this, that in or about December of the previous year, or January '96, I was made aware of the proceedings.  After that time, discussions commenced with the solicitors acting for Mr Emanuele and their barristers, and the solicitors acting for me. (emphasis added)

 

36                  A little later in the proceedings Macks was cross examined by counsel for the other defendants about his opinion that the proceedings should continue.  The following appears in transcript:

And what factors did you look at in determining whether or not allegations of those kind would be proceeded with? … I had conducted examinations in the Supreme Court in South Australia over two or three months.  During those examinations we had uncovered a number of third party records.  In particular in those records there were some references to the fact that the secured creditor in the Emanuele group may have changed its view significantly in relation to the Emanuele group because of the proceedings.  I had a mind to consider the comments made by his Honour Higgins J in relation to Mr Hedley which weighed on my mind.  I also examined the position of the creditors in the Emanuele group and whether or not any of them firstly had the financial clout to support an indemnity of the type that may be required.  I had discussions with them and certainly I sought advice.

(emphasis added)

 

37                  This latter reference, in isolation, may arguably be a reference to advice from Andersons.  However when taken together with the earlier reference to "solicitors acting for me", the clear import of the evidence of Macks was that he had sought and obtained advice concerning the continuation of the proceedings.  That is, he had sought advice apart from advice that had been proffered by the solicitors acting for Emanuele.  While, as earlier noted, it may be accepted that no evidence was led from Macks in chief (either in his affidavit or orally) that he sought legal advice, his evidence in cross examination was that he had. It appears that his Honour overlooked that evidence.  In any event, the finding of the primary judge that Macks had not done so is erroneous.

38                  One matter should be mentioned here but only to indicate it is of no relevance.  At the time of the hearing of the costs application on 12 September 1997, the appeal against the judgment of Higgins J summarily dismissing the proceedings was on foot.  The appeal had not been argued.  The hearing of the appeal took place on 28 October 1997.  It might be thought that it would have been unreasonable to require Macks to produce copies of legal advice on 12 September 1997 which might contain a discussion of the strength or otherwise of the Supreme Court proceedings at a time when the parties were on the verge of arguing that issue before a Full Court.  That may have been the dilemma  Blue was about to identify in the passage in the transcript earlier set out immediately before the primary judge indicated it would be necessary to show what the advices were.  Blue did say, however, in his written submissions dated 10 October 1997 that it would be unfair for the defendants to invite the Court, in the absence of evidence about details of the legal advice Macks received, to take this further (presumably whether advice was or was not given) into account against Macks.  Blue submitted that this would be unfair when Macks was in a position where to disclose the advice he received might be significantly to the detriment of Emanuele Holdings and Emanuele Management.  However what both Blue and Macks knew at the hearing on 12 September 1997, and the defendants and the primary judge did not, was that on 5 September 1997, Mansfield J of this Court had given a direction to Macks under s 479(3) of the Corporations Law 1989 (Cth) (upon application made by Macks by motion on 30 July 1997) that he would act appropriately in the absence of any opportunity in the immediate future to negotiate some other resolution, in discontinuing the proceedings in the Supreme Court which were then alive only through the appeals.  Thus, at the time the costs application was being heard by the primary judge, Macks had secured a direction, in effect, permitting (and perhaps even requiring) him to discontinue the appeals.  He did discontinue them on 28 October 1997.

39                  The erroneous finding of the primary judge earlier referred to is of limited relevance given that fairly extensive documentary evidence has been tendered in this appeal by the respondents with the consent of the appellant.  The appellant originally sought to tender the documents but withdrew the tender on the stated basis that their tender would prolong the hearing of the appeal.

40                  From this material the following emerges which represents findings of fact made in the appeal.  On 8 December 1995 Mr Chris Byrt of Prentice Parbury Barilla, Chartered Accountants ("PPB"), spoke to Mr Peter Norman of Andersons.  PPB was the firm in which Macks was a partner.  As a result of the conversation, Byrt made a file note that his firm had to make a decision on whether or not the civil proceedings were to continue and the decision had to be made by 16 April 1996.  That date was the time to which the writs had then most recently been extended.  In a PPB file note dated 15 January 1996 a summary was prepared in point form concerning "bribery trial costs".  The note refers at two points to getting an opinion about the civil action though one reference was qualified by indicating that would occur when funds were available.  The note mentions that it might be possible to get one more extension of the writ though that might have to be argued before time ran out.  In a written proposal which was to be put to a meeting of creditors on 29 March 1996 Macks indicated that he was considering whether action should be brought to recover compensation for the damage suffered by the Emanuele companies by the unsuccessful prosecution.  Macks indicated there was a requirement to obtain an indemnity from creditors to obtain an opinion on these matters and if necessary undertake the proceedings.  It is not clear why the matter is put this way given that the proceedings were then on foot. 

41                  In a letter dated 2 April 1996, Mr James Marsh (partner in Fisher Jeffries, solicitors), wrote to Macks.  The letter included:

In his discussion with Malcolm Blue, Peter Norman stated that he proposes to:

1.         Amend the names of the plaintiff companies to show that they are in liquidation.

2.         Amend to join the Commonwealth of Australia as a defendant.

            …

4.         Seek to make the amendments prior to the expiry of the writ or if that is not possible, seek one further extension of time for service of the writ.

On the face of it, we can see no reason why you should not agree to those steps.  Please may I have your instructions as to whether you agree to Peter Norman taking those steps.

 

From other parts of this letter, it appears it was written shortly after Fisher Jeffries were retained by Macks to advise in relation to the Supreme Court proceedings.

42                  On 9 April 1996, the writ in SC 796 of 1991 was renewed and amended.  That was done on the application of Blake Dawson Waldron.  The amendment involved, amongst other things, the identification of the second and third defendants as companies in liquidation and their address for service as the offices of PPB in Adelaide.  It appears from a letter dated 27 August 1996 from Fisher Jeffries to Andersons (which is referred to again shortly) that Blake Dawson Waldron sought and was given instructions directly from PPB to take this step.  Thus Macks was committing, at least for the time being, the companies in liquidation to the proceedings which had hitherto been maintained by the companies themselves with Emanuele.  However he was doing so in the context of the advice he received from Marsh in the letter of 2 April 1996.

43                  A meeting took place on 15 April 1996 attended by Macks, Mr Hugh Martin (an employee of PPB), Marsh, Mr Malcolm Blue (counsel ultimately retained by Macks), Emanuele, Norman, Mr Gary Hevey (barrister retained by Emanuele), Mr Jonathan Clarke (solicitor from Andersons), Mr Kevin Borrich (counsel) and one other.  At this meeting there was a lengthy discussion about the causes of action raised in the proceedings.

44                  A further meeting took place on 23 April 1996 attended by Macks, Martin, Marsh, Blue, Emanuele, Norman, Hevey and Clarke. Notes from that meeting suggest there was an agreement reached that the two companies in liquidation and Emanuele would pursue the claims in the Supreme Court and an agreement was reached about the manner in which damages would be apportioned between those companies and Emanuele.  However, later correspondence indicates that Macks did not, at that stage, unreservedly agree that the companies would continue to pursue the claims.

45                  A further meeting took place on 16 May 1996 when there was discussion about Macks (presumably someone acting on his behalf) and Norman developing the statement of claim.  Who attended this second meeting is not clear.  Both at this second meeting and the earlier meeting it had been noted that an opinion sought from Hevey had not yet been completed and produced.  It was completed on 21 May 1996 and was entitled "Preliminary Opinion – No 2" which was said to supplement an opinion of 15 April 1996.  That latter opinion is not in evidence but the former is.  The opinion of Hevey was said to be in response to a request by Macks in relation to the law applicable to the Canberra proceedings.  The advice canvassed, in a summary form, the causes of action founding the proceedings and, to the limited extent it canvassed prospects of success, it was positive.  However the advice concluded:

This opinion is prepared solely as a discussion paper between the representative of Emanuele and Holdings and Management.  The opinion has been prepared in some haste and without full research.  It is prepared for the limited circulation and should not form the basis of any party deciding to take any action or continue in any action without a further detailed opinion being sought.

 

46                  In a letter from Andersons to Fisher Jeffries dated 14 June 1996, it is suggested that at about the time this opinion was produced and probably shortly before it, Macks was asked by Andersons whether he wanted to participate in the proceedings commenced in the name of Emanuele and that Macks indicated that he wished to get advice from counsel.  That this was the position is consistent with steps taken on Macks’ behalf by Marsh who, on 29 May 1996, sent a brief to Blue.  In the letter the scope of Blue's retainer was identified:

You are retained by this firm on behalf of Peter Macks, as liquidator of 64 companies in the Emanuele group to advise generally in relation to:

1.                  Negotiations with Guieseppe Emanuele and his solicitors in relation to the recovery of costs and the companies' compensation claim for damages suffered as a result of the unsuccessful prosecution;

2.                  To advise on Mr Macks and/or the companies' ability to recover from Guiessepe Emanuele amounts paid by the companies by way of costs; and

3.                  To advise generally on any claim by the companies for compensation as a result of the unsuccessful bribery prosecution.

…

In relation to 3, the substantive work to be undertaken in the short term is preparation of the parts of the statement of claim relating to the companies' claim and providing Mr Hevey with any comments on the statement of claim generally.  Mr Hevey's draft statement of claim is included in the brief.  Perhaps you could read that draft with a view to conferring with me in the next day or two.  I will, in the meantime, rough out the paragraphs I consider need to be inserted.

 

47                  The letter of instructions set out the agreement concerning Blue's fees and noted that Blue agreed not to have recourse to Fisher Jeffries or Macks for his fees.  To that extent Blue was being retained on a speculative basis.  That is, it is probable his fees would be paid only if the Supreme Court proceedings succeeded.  It is clear that at this stage, Macks had, through his solicitors, further committed himself to the Canberra proceedings at least to the extent of having his counsel collaborate (with counsel retained by Andersons) to draft the statement of claim.

48                  It is to be recalled that on 7 June 1996 the writ was served informally on the Australian Government Solicitor.  As earlier noted on 14 June 1996 Andersons wrote to Fisher Jeffries.  The letter stated, amongst other things, that Andersons were awaiting the Commonwealth's response whether service would be accepted by it on behalf of the various defendants.  Andersons canvassed in its letter what might happen if the Commonwealth did not accept service.  If that happened they would either delete the companies as plaintiffs and proceed on behalf of Emanuele or seek the permission of the Supreme Court to proceed on behalf of the two companies in liquidation.  The terms of the letter suggest that Macks had given no express instructions for the service of the amended writ on the Commonwealth even though, on its face, it involved proceedings brought by not only Emanuele but the two companies in liquidation as well.  In his affidavit of 5 September 1997 Macks said that Andersons sought his instructions whether they were authorized to serve "the action" on behalf of the companies. However the terms of the affidavit suggest that instructions were sought after a copy of the writ had been sent to the Australian Government Solicitor with a view to it accepting service on behalf of the defendants.  While not said directly, it can be inferred that Macks accepted that whatever service had been effected could be treated as service on behalf of the companies.  There is no evidence to suggest he took steps to disabuse Andersons, Blake Dawson Waldron (who actually effected service) or the Australian Government Solicitor that service of the writ, apparently on behalf of all plaintiffs, was not authorized by each of them.  Marsh conferred with Blue on 17 June 1996 and discussed the matter.  During the course of that conference Blue expressed the opinion there were "massive problems" with causation though the precise context in which that statement was made is not entirely clear.

49                  On 9 August 1996 Mr Wayne Arthur of Blake Dawson Waldron wrote to Norman seeking instructions about a notice of motion that had been filed on behalf of the second to twenty-third defendants seeking summary judgment in relation to all the causes of action pleaded in the writ.  Arthur wrote to Norman again on 12 August 1996 outlining what had happened at court that day.  Norman reported to Marsh what had occurred both orally and in writing on 15 August 1996.  Arthur corresponded with Norman again on 18 and 27 August 1996.  On 27 August 1996 Marsh wrote to Norman setting out, in some detail, the position of Macks and his understanding of the position that had, by then, been reached.  The letter concerns the status of Blake Dawson Waldron as solicitors acting on behalf of the companies.  In the letter Walsh said:

To date, there has still been no agreement as to the disposal of the proceeds of the action and no agreement as to the funding of the action.  Accordingly, neither the liquidator nor the companies have any liability to pay for your firm or Blake Dawson Waldron's costs in respect of this action.

The liquidator is still considering whether it is in the interest of the companies for this action to continue or for them to contribute to the funding of the action.  On the basis of the comments made by his Honour Justice Higgins in his decision handed down on 1 August 1996, the liquidator is leaning towards the view that the action should not be pursued.  His Honour Justice Higgins made it quite clear that he considered that Guiessepe Emanuele had committed the offence alleged against him but was, for other reasons, entitled to be paid his costs of the action.  In a nutshell, it appears to the liquidator that Giuessepe Emanuele is seeking to obtain damages as a result of a crime which his Honour Justice Higgins found he had committed.

50                  The reference to the judgment of Higgins J of 1 August 1996 was to the judgment ordering the Commonwealth to pay Emanuele's costs in the criminal proceedings in the sum of $600,000.  The letter goes on to complain about Andersons' refusal to provide Fisher Jeffries with a copy of the statement of claim that had been served on Hedley notwithstanding that counsel and solicitors retained by the companies in liquidation had contributed to the formulation of the pleading.

51                  Andersons provided Fisher Jeffries with a copy of the statement of claim by letter dated 2 September 1996.  On 4 September 1996 a date was fixed (16 October 1996) for the hearing of the notices of motion of the defendants (other than the first defendant) for security for costs and summary judgment.  On 25 September 1996 the Australian Government Solicitor wrote two letters to Arthur.  One concerned the application for security for costs which was to be heard on 16 October 1996.  The letter seeks a response from the plaintiffs about the application and whether they would volunteer security.  The other letter concerns the application for summary judgment.  It was a lengthy letter comprising over four pages and involved a detailed critique of the writ and statement of claim.  On 4 October 1996 Marsh wrote to Macks (but to the attention of Martin) seeking instructions and proffering certain advice.  After summarizing the nature of the attacks the Australian Government Solicitor proposed to make on the originating process Fisher Jeffries said:

We are unable to advise you on the prospects of success of the Commonwealth's attack on the writ of summons and the statement of claim as to date we have been provided with inadequate information and no funding has been provided for that work.  It is however unlikely that the Court would dismiss all the claims against both Hedley and the Commonwealth entirely if the notice of motion is defended.  If it is not defended all claims are likely to be struck out.  If the notice of motion is properly defended Mr Emanuele and the companies may be given leave to amend their pleadings to satisfy the Commonwealth's complaints. 

It is a matter for you to decide whether to take any action to preserve the companies' claims in this action.  Mr Emanuele's solicitors have requested that we contact them to discuss the notice of motion however we have not yet discussed it with them.

We recommend that you either:

1.                  instruct us urgently to obtain counsel's advice as set out below.  If that advice is for the companies to abandon the compensation claim, then no further action need be taken in relation to the notice of motion.  If counsel's advice is that the compensation claim has merit and reasonable prospects of success, then you can consider your options to provide funding in order to be represented at the hearing of the notice of motion before Justice Higgins on 16 October 1996; or

2.                  try to obtain the agreement of the Commonwealth's solicitor, Ms Zeeta Rowling to put off the Commonwealth's notice of motion as against the companies, pending the outcome of the hearing of their notice of motion against Mr Emanuele.  The factors against that course of action are that:

2.1              Ms Rowling is unlikely to agree to that proposal.

2.2              If Mr Emanuele's solicitors are not given access to funding to defend the notice of motion they may not attend the hearing on 16 October 1996.  The companies will then be no better off as the Commonwealth's notice of motion will be granted unopposed.

 

52                  As to the application for security of costs the advice proffered by Fisher Jeffries was:

On the information available to us including the Commonwealth's proposed grounds for seeking security we do not consider that an application for security for costs would be successful, but it is a matter in the discretion of the court.  Again, if the application is not opposed it may succeed.

 

53                  Fisher Jeffries then went on to deal with the question of obtaining independent advice.  The letter said:

Independent Opinion

We and counsel, Malcolm Blue have previously given you informal advice that the compensation claim may be weak because:

1.                  In the comments made by his Honour Justice Higgins in his costs decision handed down on 1 August 1996 it is clear that he considered that Mr Emanuele had committed the offence alleged against him but he was, for other reasons, entitled to be paid his costs of the action.  In the compensation claim Mr Emanuele and the companies are seeking to obtain damages as a result of crime which his Honour Justice Higgins found Mr Emanuele committed.

2.                  Your instructions are that your investigations have not disclosed any loss suffered by either companies as a result of Mr Emanuele's prosecution.

Before reaching a decision to pursue or abandon the compensation claim, you may consider that as a matter of prudence you should seek independent advice as to the prospects of success of the compensation claim because:

1.                  The compensation claim is potentially a multi-million dollar claim on behalf of the companies.  You may consider it appropriate to obtain formal written advice from independent counsel before a decision is made by you either to abandon or to pursue the claim.

2.                  Mr Jonathan Clark as solicitor for Mr Emanuele has previously suggested that an independent opinion as to the merits of the compensation claim be obtained.  Mr Clark suggested that it may not be appropriate for Fisher Jeffries or counsel, Mr Blue, to provide that opinion because of the level of outstanding fees owed to them.  We consider Mr Clark's suggestion is of little weight.  However, it would assist in defeating any criticism if an independent opinion were obtained.

An independent written opinion would also be relevant to:

1.                  settlement discussions with Mr Emanuele;

2.                  your decision with respect to the Commonwealth's notice of motion.

 

54                  There was then a discussion in the letter about who might be briefed and the source of funds that might be available for the advice.  Those were Macks' own resources, whatever funds may exist in bank accounts of the two companies in liquidation or thirdly the $600,000 currently held by Scales & Partners.  There is no document in evidence indicating that this letter was responded to at least promptly.  On 14 October 1996 a meeting was held between Norman and Mr Robert Sallis (who, it appears was a solicitor working for Norman), and Blue and Mr Andrew Chung, solicitor from Fisher Jeffries.  During the course of their discussions Sallis proffered the view that it was in Macks' best interest to be involved in the proceedings at least until he knew whether there would be separate trials to determine the questions of liability and quantum, whether the rules permitted an amendment to the endorsement of the writ of summons to allow the companies to claim against each of the defendants and whether Higgins J made orders for security for costs.  Blue agreed with this and was thereby signifying at least his agreement that it was in Macks' best interest to be involved in the proceedings for the time being.

55                  By letter dated 14 October 1996 Chung wrote to Macks seeking instructions about writing to Andersons authorizing Sallis and Mr Kevin Borrick (senior counsel) to appear on behalf of Emanuele Holdings and Emanuele Management on 16 October 1996.  A draft letter to Andersons was enclosed.  In that letter of 14 October 1996 Chung made only bare reference to the earlier letter of 4 October 1996.  There was no complaint about instructions not having been received as earlier requested.  The draft letter was, in final form, actually sent to Andersons and it can be inferred that was done on instructions arising from the letter of 14 October 1996.

56                  For whatever reason the position of Fisher Jeffries had altered.  It had been suggested by its letter of 4 September 1996 that certain steps should be taken but by its letter of 14 September 1996 it impliedly suggested that some less demanding course might be taken by Macks.  The service of the writ on the defendants (other than Hedley) put in train a process involving the Australian Government Solicitor moving the Supreme Court for orders for security for costs or summary judgment.  While Macks was advised by Fisher Jeffries to seek independent advice, that firm appears to have later adopted an approach implying that it was unnecessary to get that advice before counsel appeared at the hearing on 16 October 1996 representing the two companies in liquidation.  They did appear and on 25 October 1996 Macks wrote to Fisher Jeffries asking them what had transpired at the hearing.  This followed an earlier telephone discussion on 18 October 1996 between Martin (of PPB) and Marsh about this matter.  No written reply is in evidence.  However by 29 October 1996 a decision had been made by Macks to brief counsel (apart from Blue) to advise him on the proceedings in the Supreme Court. 

57                  By letter of that date Fisher Jeffries sent a brief to advise Mr Mark Rice of counsel indicating that Macks had agreed to pay him $3,000 to prepare his opinion.  The brief contained, amongst other documents, the letter of 4 October 1996 from Fisher Jeffries to Macks.  The instructions indicated that Rice was being asked to advise on the merits of the claims that had been brought by Emanuele Holdings and Emanuele Management.  The brief to Rice did not include details of what had occurred at the hearing on 16 October 1996 nor were the written submissions filed by the defendants for that hearing provided to Rice.  Specifically Rice was asked to advise on whether Emanuele Holdings and Emanuele Management had a sustainable cause of action even assuming loss could be shown.  Rice was asked to assume that the Emanuele group of companies were in severe financial difficulties during the period of Emanuele's prosecution and that Emanuele had been unable to identify any development opportunities that the companies had lost as a direct result of his prosecution. 

58                  On 28 November 1996 Fisher Jeffries wrote to Andersons asking for an outline of submissions that had been made at the hearing on 16 October 1996 and details of orders made or undertakings given.  This information was sought so as to be able "to advise (their) clients", presumably Macks.  The letter noted that a facsimile had been received the day before from Andersons which indicated an amended statement of claim had to be filed by 5 December 1996.  This letter was written by Chung who appears, at this point, to have assumed responsibility for the file at Fisher Jeffries.

59                  On 29 November 1996 Blue wrote to Chung.  He referred to a meeting that had occurred on 13 November 1996 between Norman, Sallis and Blue.  At that meeting there had been discussion about what occurred on 16 October 1996 and what had to be done including amending the statement of claim.  Chung had missed this meeting which is why, notwithstanding the matters discussed on 13 November 1996, Chung wrote on 28 November 1996 asking for essentially the same information.  Blue, in his letter of 29 November 1996 to Chung, proffered the following advice:

I further confirm that Peter Norman and Roger Sallis invited the liquidator to make no final decision on whether to remain as a plaintiff in the proceedings until the amended documents are filed, and a final determination is made by Justice Higgins on the strike out application.  I confirm my recommendation that the liquidator agrees to that course.  I also confirm that we made it clear to Peter Norman and Roger Sallis that, in the meantime, the liquidator had not accepted on behalf of the companies any responsibility to pay the costs of the solicitors or counsel for the plaintiffs.  Peter Norman accepted that this was the position.

 

60                  On 11 December 1996 Chung wrote to Macks outlining what had happened on 16 October 1996.  In that letter, after noting that counsel instructed by Andersons had been authorized to appear on behalf of Emanuele Management and Emanuele Holdings, Chung complained that Andersons had not provided information as to what had happened at the hearing despite requests that they do so.  Chung noted that he had received from Blue a copy of the outline of submissions and the orders that had been made.  Chung noted that the application for security for costs and the hearing of any objections to the amended endorsement and statement had been adjourned until 19 and 20 December 1996.  Chung repeated the advice Blue had given in the letter of 29 November 1996 and proffered his own advice in these terms:

On the basis of the above reservations as to your commitment in these proceedings, we recommend that the companies remain parties to these proceedings, at least until after the hearing of the defendants' objections to the amended writ of summons and statement of claim.  Once Justice Higgins has ruled on those objections, we will be in a better position to advise you of your commercial options.

 

61                  A further meeting took place on 12 December 1996 between Chung, Blue, Norman and Sallis.  By then an amended writ and an amended statement of claim had been filed and served in SC 996 of 1991 and proceedings SC 994 of 1996 had been commenced.  At that meeting Sallis provided Blue with an index of the amended statement of claim and the statement of claim in the malicious prosecution proceedings (SC 994 of 1996) and, it appears, explained to Blue the structure of each of those statements of claim.  Apart from the discussions which Blue had with Norman and Sallis at the meeting on 13 November 1996 there appears, from the documents, to have been no involvement in the formulation of the amended pleadings and their service on the part of those representing Macks.  That is so, notwithstanding that Blue's note made at the meeting of 13 November 1996 indicates Sallis and Norman said they would provide those representing Macks and the company with the proposed amendments for comment and instructions prior to issue.

62                  At the meeting on 12 December 1996 Sallis expressed concern about the possibility of Macks withdrawing from the proceedings and sought to persuade Blue and Chung that Macks should not make a decision to withdraw from the proceedings at this stage.  One point relied upon by Sallis was information he had concerning the involvement of a senior Commonwealth figure in the entrapment of Emanuele.  Sallis also addressed, at that meeting, problems in the proceedings that Blue had earlier identified.  There was then discussion about how access might be gained to the funds resulting from the payment of the $600,000 costs by the Commonwealth to Emanuele to fund the Supreme Court proceedings.  Sallis said it would be necessary for him to "fly around the country" to obtain witness statements to support this new allegation concerning the senior Commonwealth figure.  The meeting concluded on the basis that Blue would give Sallis an answer before the next hearing in Canberra.

63                  On 13 December 1996 Chung met with Rice though what occurred does not emerge from the documents.  The application for summary judgment was heard on 19 and 20 December 1996.  On 23 December 1996 Macks met with Blue and Chung.  Blue informed Macks of what had been discussed at the meeting on 12 December 1996.  At that meeting Macks said he remained unconvinced that the proceedings in the Supreme Court had any merit and that if it was pursued he did not want Cowell Clarke involved and he wanted to ensure that Andersons did not increase their claim on the $600,000 paid to Emanuele as costs.  Blue assured Macks that neither would happen.  Blue told Macks that he was now of the opinion that the proceedings in the Supreme Court may have some merit and that he had been persuaded by Sallis that many of the problems that he, Blue, had foreseen were not real problems.  Macks indicated that he thought it would be difficult to prove Emanuele Holdings and Emanuele Management had suffered loss as a result of the persecution of Emanuele.  Macks also said that he did not see any problem with deferring any action until the end of February provided that by then Andersons had established that there was a strong case and Emanuele had agreed to a basis for dividing the proceeds of the action.

64                  On 9 January 1997 Chung sent a facsimile message to Blue.  He was seeking Blue's views about a draft letter he proposed to send to Macks.  The letter was sent on 16 January 1997.  In his facsimile message Chung noted that Rice had not started to prepare the advice earlier requested and canvassed with Blue whether it would be inappropriate for him to undertake the task.

65                  Several days later there was a discussion between Byrt of PPB and Mr Switajewski of Fisher Jeffries about whether the Rice advice should proceed.  While telephone records of those discussions indicate a decision was made to defer the Rice advice pending an advice being prepared by Sallis, a letter to Macks dated 16 January 1997 from Chung suggested no steps had been taken to ask Rice not to proceed to prepare his opinion.  However by 20 January 1997 it was clear that those instructions had been given.  On that day Switajewski wrote to Rice informing him that the liquidator's instructions were for Rice to "put your work in relation to that opinion on hold".  This was to be pending the receipt of an opinion and information from Sallis.

66                  On 21 January 1997 Sallis, Newman, Blue and Chung met.  They discussed at length the merits of the case and possible deficiencies in it.  The discussion was generally an optimistic one.  They also discussed the involvement of the senior Commonwealth figure that Sallis had referred to late the previous year.  Chung wrote to Macks on 31 January 1997 setting out what had been discussed at the meeting on 21 January 1997.  The letter had been settled by Blue.  It repeated opinions Sallis had expressed including that three principal causes of action would survive the strike out application namely the malicious prosecution claim, the claim in negligence and the claim of misfeasance in public office.  The letter recorded that Sallis had endeavoured to persuade Blue and Chung that the causes of action were properly founded on the facts.  The letter also recorded that Blue was concerned about some of the legal elements but that Sallis would provide him with references to satisfy him that Sallis's views were correct.  Chung then wrote:

On the basis of Mr Sallis's presentation, and assuming that his representations as to the law prove to be correct, Mr Blue formed the preliminary opinion that each of the main causes of action had some merit in terms of establishing liability on the part of the defendants.

 

67                  Chung then turned to the question of causation and damage.  The letter recorded the discussion that had occurred between Sallis and Blue though Chung did not express an opinion on his own behalf or on Blue's behalf about those matters.  Chung then addressed the question of terms upon which an agreement might be reached between Macks and Emanuele about the apportionment of any damages recovered.  Chung also addressed the question of the future of the action and indicated that because Sallis appeared reluctant to gather new evidence (as suggested at the meeting on 12 December 1996), there was no longer any need for Rice to delay the preparation of his opinion.  Chung indicated that a position had now been reached where Blue and Rice could give an advice jointly though Chung suggested a further $1,000 might be required in addition to the $3,000 to which Macks had already committed himself.  Chung indicated that it was preferable that Macks have the formal opinion before he decided whether to proceed with the action.  Chung invited Macks to give him instructions.  On 17 February 1997 Ms Mariana Tuccia of Fisher Jeffries wrote to Blue formally instructing him to provide a joint opinion with Rice.  On the same day Tuccia wrote to Rice asking him whether the $3,000 earlier discussed would be sufficient.  The documents in evidence do not disclose whether agreement was reached about fees.

68                  On 7 March 1997 Higgins J gave judgment summarily dismissing the proceedings.  On 11 March 1997 Blue spoke with Switajewski and proffered the view that having seen, but not read, the judgment of Higgins J, the opinion should be abandoned.  He said he had not done any work on it as he had been awaiting authorities from Sallis.  Switajewski spoke again with Blue on 17 March 1997.  Blue indicated that the liquidator should settle the case now.  On 24 March 1997 Rice wrote to Marsh of Fisher Jeffries.  Rice commenced by saying that it was not an opinion.  He also noted that he was not aware of the application for summary dismissal nor of the fact that it had been argued.  Rice then set out a number of points which he described as points which "might help the liquidator come to the view independently of my own opinion that the plaintiffs have no claim".

The challenge to the approach of the trial judge to award costs against Macks personally

69                  Counsel for Macks challenged the approach of the primary judge in several respects. Each is addressed shortly.  However a consideration of his Honour's approach is of limited assistance in disposing of the appeal since it is an approach founded on a premise that is wrong, namely that Macks had not sought independent legal advice.

70                  One ground of challenge concerned the primary judge's consideration of whether Macks had been an active party and had caused the incurring of costs for which he should be responsible.  It was a consideration that had been discussed by Gobbo J in Bishof v Adams [1992] 2 VR 198.  The primary judge characterized Macks' role as an active one.  It is not entirely clear why his role was characterized this way but it is probably because, or principally because, Macks failed to decline to support the proceedings.  That is, he failed to discontinue the proceedings in the name of the two companies.  Implicit in the primary judge's approach is that Macks should have declined to support the proceedings, because the proceedings were entirely unmeritorious and Macks would have known that had he taken advice.  For reasons discussed shortly Macks’ approach to his continued involvement in the proceedings was not so unreasonable as to warrant the order for costs against him personally.

71                  Another ground of challenge was the consideration by the primary judge of the special position of liquidators discussed in Bent v Gough (supra).  That authority was referred to by the primary judge and there is nothing apparent in his Honour's reasons to suggest he was not alive to the special position of liquidators.  Indeed much of the primary judge's reasons was a discussion of the competing factors likely to have been influencing Macks, as liquidator, in electing to follow the course he did.  In the discussion his Honour identified factors, most notably the abject weakness of the claims, which should have influenced Macks, but did not because he had not taken independent advice.  Any error of the primary judge does not derive from any failure to take into account the special position of Macks as a liquidator.  Rather it flows from the balancing of considerations to ascertain whether, given Macks’ special position, an order against him should be made in circumstances where the balance is distorted by the erroneous finding that Macks had not taken independent advice.

72                  The next ground of challenge concerned the primary judge's consideration of the role an application for security for costs should play in considering the liability of a liquidator for costs in proceedings he has maintained or brought.  For the reasons already summarized, his Honour concluded that the election made by the defendants to seek to have the proceedings summarily dismissed rather than seeking security did not tell against ordering Macks to pay the costs.  Making an application for security would, in many instances, be the appropriate way for a party to guard against incurring costs that might not be recovered in proceedings brought or maintained by a company in liquidation, rather than later seeking to obtain a costs order against the liquidator: see Metalloy Supplies Ltd (In Liq) v MA (UK) Ltd [1997] 1 All ER 418 and Knights Case (supra).  However there is no inflexible rule that this be done.  Indeed this case, for the reasons given by the primary judge, illustrates a situation where the course taken by the defendants was an appropriate one.

73                  The last ground of challenge that can be disposed of briefly is the question of notice to Macks.  It was not until after Higgins J gave judgment summarily dismissing the proceedings that Macks was put on notice that he might personally be liable for the costs of the proceedings.  It was ultimately common ground in the appeal that Macks was first given notice informally at a meeting on 7 April 1997.  It was noted by the primary judge that Macks was not given notice till after summary judgment.  His findings that Macks was broadly aware of the possibility of costs being awarded against him was open.  However, as with a number of what have become subsidiary issues, the primary judge’s consideration of this issue was linked to his view that Macks had not taken independent legal advice which is discussed shortly.  The failure to give a third party, and particularly a liquidator, express and early notice that costs will be sought against them personally will often be a factor militating against making such an order.  All the more so if the conduct of the third party during the currency of the proceedings is relied on in support of the order.  However, whether notice is given is only one consideration.  In the present case, its consideration by the primary judge against what he understood the position to have been was unexceptionable.  However given what in fact was the position, early notice to Macks (for example at the time of service of the writs) might have prompted Macks to follow a different course.  He may, for example, have informed the defendants that he was not committed to the proceedings and wished to get advice.  He may have sought advice more promptly and insisted on the early production of the advice.  In those circumstances the defendants may have agreed to defer pursuing the interlocutory application for summary dismissal until that advice had been received.  Thus, the failure to give early notice is a factor that, on the facts as they are now known, would militate against ordering Macks to pay the costs personally.

74                  It now is necessary to return to what has become the central issue in this appeal, the conduct of Macks in the context of the legal advice he was given and, in certain respects, was not getting.

75                  Much, but not all, of the material tendered in the appeal relates to the period between the time Macks was appointed liquidator of Emanuele Holdings and Emanuele Management and the time Higgins J gave judgment summarily dismissing the proceedings.  It is in this period that the conduct of Macks must be scrutinized and an assessment made concerning the extent to which he acted on the advice of others.  There were, in this period, six events of significance concerning the prosecution of the proceedings in the Supreme Court in which Macks was involved.  Before considering each it is desirable to say something about the state of the evidence.  The fresh evidence before this Court is documentary evidence only.  The primary judge had the benefit of hearing evidence from Macks.  Nonetheless this documentary evidence paints a far more complete picture than that emerging from the evidence before the primary judge of what occurred in late 1995, during 1996 and in early 1997.  However some aspects of the chain of events revealed in the documents remain obscure and there is no oral evidence to explain them.  Some of the affidavit and oral evidence of Macks before the primary judge is very difficult to reconcile with some of the documents.  A stark example is the note of the meeting of 23 December 1996 which records that Macks then said that he remained unconvinced that the Supreme Court proceedings had any merit.  That is to be contrasted with Macks’ statement in his affidavit that at that stage he thought the claims were good.  An inconsistency such as this raises a real question about whether Macks’ account in his evidence before the primary judge can be relied on at least as it concerns his views from time to time about the prospects of the proceedings succeeding.  It perhaps even raises a question about whether he was a truthful witness.  However matters such as this have not been put to Macks for him to explain and it is inappropriate to express a concluded view about them.  The task of this Court is to distil, as far as possible, what occurred in relation to these six events and assess their relevance to the issue of whether Macks should be required to pay the costs personally and on an indemnity basis.

76                  The following is, in summary form, how Macks reacted to or was involved in, each of the six events.  The first was the amendments of the writ in SC 796 of 1991 on 9 April 1996.  By that stage Macks was conscious of the need to obtain independent legal advice about the proceedings.  Several days after the writs were amended Macks conferred with lawyers advising Emanuele and lawyers he had retained himself.  While the instructions to renew and amend the writ were given directly to Blake Dawson Waldron by PPB that occurred when lawyers had been retained by Macks who, in substance, advised him to agree to this course.  The second event in which Macks was involved was the finalization of the statement of claim in the proceedings.  His involvement was through counsel (Blue) he had retained to advise him.

77                  The third event was the service of the writ on the defendants (other than Hedley).  That process began by the writ being sent to the Australian Government Solicitor either directly by Andersons or through Blake Dawson Waldron.  It appears from the documents tendered in the appeal and the evidence of Macks before the primary judge that this step was taken without the express instructions of Macks.  However, he plainly acquiesced in the service when he became aware that it had taken place in the sense that a request had been made of the Australian Government Solicitor to accept formal service.  This event is probably the most significant.  That is because by serving the defendants, the plaintiffs effectively lost control over the course the proceedings would take.  They did so in the sense that from that point the events which resulted in the application for summary dismissal were substantially influenced by the attitude taken by the defendants in the proceedings.

78                  The fourth event was the initiation by the Australian Government Solicitor of the interlocutory application seeking summary judgment and the hearing on 16 October 1996.  It was plainly a matter Macks discussed with Fisher Jeffries as is apparent in the letter from Marsh to Norman of 27 August 1996 in which Marsh sets out the attitude of the liquidator.  After the date was fixed for the hearing of that application, Macks was given advice by both Blue and Fisher Jeffries that he ought to remain in the proceedings and that it was unlikely security would be ordered or that summary judgment would be given at least without a further opportunity being provided to amend the pleadings.  It must be accepted that at this stage advice was given to Macks by Fisher Jeffries to obtain legal advice from other counsel.  While Macks did not act on this advice until after the hearing on 16 October 1996, the advice he received shortly before the hearing was not that he should not be involved in that hearing without the advice of other counsel, but rather that he could instruct counsel to appear on his behalf which he did.  The advice from Fisher Jeffries concerning a course involving contacting the Australian Government Solicitor and seeking the deferral of the hearing of the interlocutory application was, in substance, that it was unlikely to bear fruit.

79                  The fifth event was the amendment of the statement of claim following the hearing on 16 October 1996 and the filing of the writ in SC 994 of 1996.  It appears those representing Macks had no substantial involvement in the reformulation of the amended statement of claim and the institution of the fresh proceedings.

80                  The sixth event was the hearing of the application for summary judgment on 19 and 20 December 1996.  The plain advice of both Blue and Chung from Fisher Jeffries was that Macks should maintain the companies' involvement in the proceeding until Higgins J dealt with the application for summary judgment.  As earlier discussed, in December 1996 Macks was expressing his reservations about the causes of action and it can be inferred that he had had them for some time.  However the advice he was getting and in particular the advice given on 23 December 1996 was that the claims had some merit.  There is nothing to suggest there was a material change in this position before Higgins J gave judgment on 7 March 1997 summarily dismissing the proceedings.

81                  It cannot be said that Macks did not retain independent legal advice in the sense that he relied only on the advice of lawyers advising Emanuele.  He plainly did not.  However Macks was slow to seek independent advice in the sense of briefing counsel, whose fees Macks would pay, to advise him of the two companies prospects in the proceedings.  Further he did not seek independent advice of the latter type before he acquiesced in the service of the writs on the defendants and did not obtain it before agreeing to the course that was adopted on behalf of all plaintiffs in the hearings in October and December 1996.  However at all material times Macks was acting through lawyers he had retained.  At no stage, apart from the letter of 4 October 1996 advising that independent counsel should be briefed, did Macks receive advice from them that greater caution should be exercised than he had been exercising to that point.  Even then, within two weeks the firm who had sent the letter of 4 October 1996 was suggesting Macks be further involved in the proceedings without that advice being sought let alone received.  Apart from that letter, the lawyers acting for him either did not advise him to refrain from taking the steps that were taken or advised him to take them.

Whether Macks should be ordered to pay the costs

82                  Bent v Gough was decided three weeks before Knight v FP Special Assets Ltd.  In Bent it was unanimously held that, in exercising the discretion as to whether to award costs against a non-party liquidator, it is proper to give significant weight to the special position of an official liquidator. Black CJ said:

In his careful argument, counsel for the appellant emphasised the special position and the duties of an official liquidator and the undesirability of liquidators being deterred in the performance of their important functions by the prospect of a personal liability for costs. The special position of a liquidator is undoubtedly a matter that ought to be given substantial weight when consideration is being given to an order that a liquidator pay costs personally, although it must be borne in mind that the circumstances in which a liquidator is appointed, can vary greatly from case to case.

In my view, it has not been shown that Fogarty J was in error in the way in which he dealt with these important matters. His Honour noted that the circumstances where a person who is not a party is ordered to pay costs need to be "exceptional or unusual and of a compelling nature (or) power" and his Honour added:

 

'This is particularly so in a case such as this where the liquidator initiated the proceedings in his capacity as liquidator, a capacity which carries with it the connotations of an officer of the court and a person carrying out a public duty.'

 

 

Later his Honour said:

 

'It would not be in the interests of justice if liquidators were discouraged from performing their largely public duty and duty as officers of the court in taking curial proceedings because of the risk of having to bear personally the costs if the litigation proved unsuccessful.'

 

 

His Honour's reference to 'unusual' circumstances was not a reference to circumstances that were merely unusual and not otherwise compelling. He expressly referred to the need for the circumstances to be of a compelling nature and I think it clear that his discretion was exercised on that basis. In the great majority of cases it would no doubt not be right to order a liquidator who is not a party to pay costs personally (pp 210-211)

 

 

Northrop and Ryan JJ said, at 219:

It was also conceded on behalf of the appellant that Fogarty J correctly took into account the need not to discourage liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties. However, it was then said that the reference to Latoudis v Casey (1990) 170 CLR 534 distracted attention from "the real issue". We do not understand his Honour to have given himself any direction other than that the discretion should be exercised sparingly, not by way of punishing an imprudent liquidator, but only where the circumstances make it just or appropriate for the successful party to be indemnified against his or her costs. We regard that approach as unexceptionable.

 

 

83        Thus there is recent authority of a Full Court of this Court that liquidators do stand in a special position (indeed, as Black CJ said, this has been "undoubted") and their position is, in general, deserving of more benign consideration than that of receivers.  Knight was a case of a receiver and manager.  Primarily it dealt with the power of a court to make orders against non-parties and it was held that, under a statutory formulation commonly used to confer a discretionary power to award costs, the Queensland Supreme Court had such power.  Accordingly, Mason CJ and Deane J, with whom Gaudron J agreed, said at 192:

The conclusion that [there was such power] does not, of course, mean that a judge has an unfettered discretion to make any order that he or she chooses. The wide jurisdiction conferred by the rule 'must be exercised judicially and in accordance with general legal principles pertaining to the law of costs', to take up the words of Lambert J.A. in Oasis Hotel Ltd v  Zurich Insurance Co.

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.

 

However they added:

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.

 

84                    It seems to us that their Honours were at most stating a mere prima facie rule as to how the discretion should be exercised in such a case.  Their view was that, in addition to the conditions set out, “the interests of justice [should] requirethat [a costs order] be made”.

85                We do not consider that Knight was erecting a new rule with the result that the "special position" of liquidators should not continue to be recognised in the exercise of the discretion or that the circumstances in which a costs order should be made against a non-party liquidator need not be "unusual and of a compelling nature" (c.f. Bent).  Among other things, the "interests of justice" is a notion apt to refer to the interests of classes of persons broader than the actual parties to litigation (including, within the concept of litigation, a costs application):  see, for example, Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146.

86                Once it is acknowledged that there is to be restraint in the exercise of the discretion to order a non party to pay costs where that non party is a liquidator, an inquiry into a wider range of matters than in the case of somebody not entitled to the special protection of a liquidator will often be necessary.  Whether a liquidator has been inexcusably indifferent to the possible consequences of his conduct for one or more of the parties to the litigation would normally involve an investigation of whether the liquidator has displayed reasonable prudence.  A judgment about that would naturally include consideration of whether he or she obtained and acted in accordance with legal advice.  We accordingly consider the question of legal advice a relevant matter for inquiry.  If a liquidator non-party should avoid a costs liability for costs personally because he or she had behaved prudently in relation to legal advice which, as it happens, was bad enough to amount to an abuse of the Court's processes, the disappointed applicant for costs may yet have a remedy against the perpetrator: see Flower & Hart v White Industries (Qld) Pty Ltd [1999] FCA 773.

87                    As discussed earlier, while this is an appeal against the exercise of a wide discretionary power to award costs, the reception of fresh evidence in the appeal alters the basis upon which the appellate court approaches its task.  Moreover, in this case, the exercise of the discretion was based on an erroneous finding of fact.  Proper and due weight must be given to the views of the primary judge on issues unaffected by that erroneous finding or the material tendered in the appeal.  However the fact that Macks did act on advice and retained lawyers himself through the relevant period is a matter of considerable significance and materially alters the mix of considerations bearing upon the exercise of the discretionary power.

88                    In the present case Macks did not initiate the proceedings.  His appointment as liquidator occurred when they were on foot.  The central issue is whether, paying due regard to the special position of liquidators, Macks’ conduct in not discontinuing the proceedings or at least in involving himself in them to the extent already discussed should result in him paying the defendants' costs.  The liquidation of the Emanuele group of companies was not straightforward and the conduct of Macks was being carefully scrutinized by Emanuele.  At the time Macks acquiesced in the service of the writ by its delivery to the Australian Government Solicitor in June 1996 it was thought, at least by those advising Emanuele (who would have acted alone if necessary) and probably those advising Macks that the writ could not be further renewed and should be served.  However it was then that the prudent and appropriate course for Macks was to get independent advice from counsel whose fees Macks would underwrite especially given the course the proceedings then took, which were substantially influenced by the position adopted by the defendants and particularly those represented by the Australian Government Solicitor.  The action of the defendants raised the issue of whether the proceedings were entirely groundless.  Macks was slow to commit himself to getting that advice.  However, had he acted more quickly after the writs were served it is probable it would not have altered the course of events.  It is relatively clear that at least the Australian Government Solicitor was intent, quite properly, on bringing the proceedings to finality by means of summary dismissal as soon as practicable.  Macks was advised by solicitors and counsel he had retained to participate in the proceedings on 16 October 1996, redraw the statement of claim and to appear on 19 and 20 December 1996.  Macks was not put on notice by the defendants that costs would be sought against him personally until after summary judgment had been given and after a considerable portion of the defendants’ costs had been incurred. While Macks' conduct was not beyond criticism and might be said to have fallen short of entirely prudent conduct, in all the circumstances, we are not satisfied there is a sufficiently compelling case, in the interests of justice, (to adapt the formulations of the majority in Knight and of Black CJ in Bent), to warrant an order for costs against Macks.

89                    A further matter might be mentioned.  It was the primary judge's view, expressed in the context of a discussion of the practical futility of an order for indemnity costs against the plaintiffs in the action, that “no responsible [legal] adviser of any of the plaintiffs could have advised or encouraged the continuance of these proceedings on the part of the 'men of straw' without themselves being guilty of complicity in a serious abuse of process”.  If that were correct, it might, in our view, be another reason for not ordering costs against the liquidator.  But his Honour's view was that: “The liquidator should, in my view, not escape liability on the grounds that others may have been equally culpable”.  The liquidator was not a lawyer and it is incorrect, in our view, to say that he was equally culpable.  There is a special position of official liquidators which is to be protected, absent serious delinquency on their part.  Lawyers, by contrast, are supposed to be adequately trained guardians of the court against abuse of its process.

90                  The conclusion we have reached as to costs relieves us of the obligation to consider whether the primary judge made a discrete error in ordering Macks to pay indemnity costs, assuming any costs order against him was justified.  However, the considerations which have led the common law to put liquidators in a special position, so far as concerns ordering costs against them when they are non-parties, do not cease to have relevance or cogency in relation to the subsidiary, but nonetheless important, question of whether any such costs order should be on an indemnity basis.  In our view, his Honour did not properly approach that separate question.  Where a liquidator is concerned, as a non-party, the discretion to order indemnity costs should be even more sparingly exercised than in the ordinary case.  The learned primary judge does not seem to have considered whether, recognising the need for such restraint, an indemnity costs order was appropriate.  As we have indicated, it is not an answer to that question to point, as his Honour did, to a supposed equivalence of liquidators with lawyers.

91                  The appeal should be allowed and the order that Macks pay the defendants costs be set aside. The matter should be remitted to his Honour for consideration of any further questions as to costs which any party or person may wish and be able to raise.  The respondents should pay the appellants costs of the appeal.

 

 

 

 

I certify that the preceding ninety one (91) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gallop, Moore and Madgwick JJ.

 

 

Associate:

 

Dated:              3 September 1999

 

 

Counsel for the Appellant:	G. Griffith QC with K. Eastman
Solicitor for the Appellant:	Minter Ellison
Counsel for the 1st Respondent:	A. Meagher SC
Solicitor for the 1st Respondent	Clayton Utz
Counsel for the 2nd-24th Respondents:	J. Hilton
Solicitor for the 2nd-24th Respondents:	Australian Government Solicitor
Date of Hearing:	13 November 1998, 29 & 30 March 1999
Date of Judgment:	3 September 1999