FEDERAL COURT OF AUSTRALIA

WA Property Holdings Pty Ltd v Hampton Transport Services [2017] FCA 1310

ORDERS

THE COURT ORDERS THAT:

1.    Mr Charles Joseph Morrone pay the second respondent’s costs of the action fixed in the sum of $365,736.87.

2.    Mr Charles Joseph Morrone pay the second respondent’s costs of this application, to be taxed if not agreed.

3.    Mr Charles Joseph Morrone pay interest on the Taxed Costs pursuant to r 40.32(3) of the Federal Court Rules 2011 (Cth) from 24 May 2017 until the date of payment.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GILMOUR J:

1    The application before me seeks orders as to costs against a non-party director of the applicant company in these proceedings.

Background

2    The proceedings, although they have a long history, were discontinued by orders of this Court by consent on 11 April 2016. The only matter which required judgment was that of costs upon the discontinuance.

3    On 7 September 2016, I made orders that the applicant company, WA Property Holdings Pty Ltd (Holdings), pay the second respondents’, Colliers International (WA) Pty Ltd (Colliers), costs on a party/party basis up to 19 August 2013 and from 20 August 2013 on an indemnity basis to be taxed if not agreed (Costs Orders): WA Property Holdings Pty Ltd v Colliers International (WA) Pty Ltd [2016] FCA 1089 (Judgment). I granted liberty to Colliers to apply for non-party costs orders in the event Holdings did not satisfy the Costs Orders, because ‘Colliers should not be held out of its costs in the event Holdings is impecunious and cannot meet a costs order’: Judgment at [106].

4    On 18 May 2017, Colliers’ costs were assessed pursuant to the provisions of r 40.20 of the Federal Court Rules 2011 (Cth) and allowed at $365,736.87 (Taxed Costs).

5    Colliers has brought this application on the purported basis that Holdings has not satisfied Colliers’ Taxed Costs. Accordingly, Colliers seeks non-party costs against Mr Charles Joseph Morrone, who has been the sole director of Holdings since 17 November 2004, by its interlocutory application dated 1 August 2017.

6    Colliers filed submissions in support of its application on 11 September 2017. Shortly after, a representative of Colliers’ solicitors firm, Ms Christine Arthur, advised my chambers that Holdings and Mr Morrone did not propose to file any material in opposition to the application, and would neither oppose nor consent to the proposed orders being sought. Colliers requested that the application therefore be determined on the papers, to which I acceded.

7    I have considered Colliers’ submissions and the affidavits of Ms Clara Hagan (sworn on 31 July 2017) and Mr Ali Qamar (sworn 1 August 2017). I am content to make the proposed orders requiring Mr Morrone to pay Colliers’ costs and interests in respect of the action and interest on the Taxed Costs, as well as Colliers’ costs for this application.

Cost orders against a non-party

8    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers jurisdiction on the Court to make an order for costs ‘in all proceedings before the Court’. The Full Court has held on numerous occasions that the s 43 power extends to making an order for costs in favour or against a non-party to litigation: Life Therapeutics Limited v Bell IXL Investments Limited (No 2) [2008] FCAFC 158 at [18]–[19]; Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50 at [71]–[75].

9    The discretion to order costs against a non-party must be exercised judicially and in accordance with general legal principles. The Full Court in Dunghutti considered these principles at considerable length. There are a variety of circumstances that may support making a non-party costs order and the categories of case in which a non-party costs order will be made are not closed: Dunghutti at [88]. As the Full Court concluded at [89], the only precondition to the exercise of the discretion is that the non-party has a connection with the unsuccessful party and the litigation, material to the question of costs, sufficient to warrant an adverse costs order.

10    Principles, criteria and guidelines are neither a substitute for, nor a fetter upon, the Court's discretion. However, the following criteria, based on those Basten JA identified in FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210], support the exercise of the discretion to make a non-party costs order:

(1)    the unsuccessful party to the proceedings was the moving party and not the defendant;

(2)    the non-party has played an active part in the conduct of the litigation;

(3)    the non-party has an interest in the subject of the litigation or is the ‘real party’;

(4)    the source of funds for the litigation was the non-party or its principal;

(5)    the conduct of the litigation was unreasonable or improper; and

(6)    the party to the litigation is an insolvent person or man of straw.

11    Costs have been awarded against a director of an impecunious applicant company on the basis that the director was the ‘real party’ to the litigation. As the Full Court in Dunghutti at [87] observed, impecuniosity of the unsuccessful party is not a precondition to awarding non-party costs. Nonetheless, I consider the unsuccessful party’s inability to meet the costs order to be a significant consideration in exercising the discretion in this case.

12    Colliers submits that Holdings is unable to meet the costs order due to its insolvency. The certificate of taxation of Colliers’ costs dated 18 May 2017, as discussed at [4] above, was served on Holdings on 24 May 2017.

13    Colliers submits that Holdings has not paid the Taxed Costs or any part of the Taxed Costs to Colliers, despite Colliers:

(1)    demanding payment of the Taxed Costs by letter dated 29 May 2017; and

(2)    issuing a creditor's statutory demand for payment of debt to holdings on 1 June 2017, demanding payment of the Taxed Costs (Statutory Demand).

14    The period for compliance with the Statutory Demand expired on 22 June 2017, with Holdings having failed to comply with it by then or at all. Accordingly, the statutory presumption of insolvency arose. By letter dated 19 July 2017, Colliers put Holdings on notice that the statutory presumption of insolvency had arisen, and as a consequence Colliers considered Holdings to be impecunious. Holdings has not responded substantively to the content of that letter.

15    Searches, undertaken by Colliers’ solicitors, of the records maintained by the Australian Securities and Investments Commissions, Landgate and of the PPSR reveal that Holdings:

(1)    has paid up share capital of $2.00;

(2)    is a registered proprietor of one real property that is jointly owned with Boss Corp (WA) Pty Ltd, which property is subject to two mortgages and a caveat; and

(3)    has granted a security interest over all its present and after acquired property to Intesta Pty Ltd.

16    Mr Morrone is the sole director and secretary of both Holdings and Boss Corp (WA) Pty Ltd. However, Mr Morrone’s connection with the unsuccessful party and the litigation must be material to the question of costs.

17    Colliers further submits that Holdings’ presumed insolvency would mean that its defence was maintained on a knowingly false basis. In Greenacre Business Park Pty Ltd v Deliver Australia Pty Ltd [2014] NSWSC 1646 the director of the defendant was ordered to pay the plaintiff's costs on the basis that the defence and cross-claim had been maintained on a knowingly false basis. The Court at [19] found that:

…[C] orders against a non-party, whether director or solicitor, would be warranted where the unsuccessful party is a person or entity of straw and where the conduct of the litigation by the non-party in question is improper. Maintaining a claim or a defence on a knowingly false basis is improper conduct that warrants the exercise of the power.

18    Colliers submit that such circumstances apply in these proceedings.

Consideration

19    I accept Colliers’ submissions that Mr Morrone ought to be made liable for Colliers' Taxed Costs for the following reasons:

(1)    Holdings has failed to pay the Taxed Costs to Colliers and is now presumed to be insolvent for the purposes of part 5.4 of the Corporations Act 2001 (Cth);

(2)    Holdings was the moving party in the proceedings;

(3)    Mr Morrone had a personal interest in the outcome of the litigation as he and his wife each hold one of the two issued shares in Holdings;

(4)    Mr Morrone is the controlling mind of Holdings by reason that he is the sole director and secretary;

(5)    Mr Morrone, as the controlling mind of Holdings, played an active role in the conduct of this litigation, including by instructing Lawton Gillon on behalf of Holdings in relation to the proceedings, filing a witness statement on 15 January 2014, attending a Court ordered mediation and swearing an affidavit on 18 April 2016 in support of Holdings' costs submissions dated 10 May 2016;

(6)    in WA Property Holdings Pty Ltd v Colliers International (WA) Pty Ltd [2016] FCA 1089 the Court found that the evidence of Holdings and Mr Morrone in commencing and continuing to prosecute Holdings' claim against Colliers was unreasonable, at [75], and was such that Colliers should not be held out of its costs in the event that Holdings did not satisfy the costs orders made in favour of Colliers.

20    Colliers submits that the Court identified in WA Property Holdings Pty Ltd v Colliers International (WA) Pty Ltd [2016] FCA 1089 that the conduct of the litigation by Holdings and Mr Morrone was unreasonable or improper for the following reasons:

(1)    Holdings delayed commencing the action against Colliers until immediately before the expiration of the limitation period and as a result of the delay, failed to complete the necessary genuine steps before the proceedings were commenced: at [40];

(2)    the case as originally formulated against Colliers was doomed from the outset and was abandoned in February 2014: at [84] and [92];

(3)    from 19 August 2013 Mr Morrone and Holdings knew the case, at least as originally formulated, was doomed because Mr Morrone's memory had been faulty in relation to a material matter in dispute: at [86]. Despite this:

(i)    Holdings filed Mr Morrone's witness statement dated 15 January 2014, which did not mention Mr Morrone's revised memory;

(ii)    Holdings and Mr Morrone did not disclose the "faulty memory" admission at the mediation conference held on 2 May 2014; and

(iii)    Holdings and Mr Morrone did not file a corrective witness statement, disclosing the "faulty memory" admission at any stage because Holdings and Mr Morrone appreciated the damaging and potentially fatal impact the disclosure would have on Holdings' case;

(iv)    the "faulty memory" admission was disclosed for the first time to Colliers and the Court in Mr Morrone's affidavit filed 18 April 2016, after Holdings had abandoned the proceedings.

(4)    throughout most of the duration of the proceedings Holdings and Mr Morrone very much appreciated the significant difficulties Holdings confronted in establishing its case against Colliers and that various other aspects of the case were doomed to fail; despite this they continued to maintain Holdings' position: at [35];

(5)    by at least December 2015, Holdings had no intention of taking the action to trial but did not disclose that fact to Colliers because doing so would damage its prospects of extracting a settlement from Colliers: at [102];

(6)    Holdings continually breached Court orders and caused delays, including during the period of February 2015 to 11 April 2016 when Holdings failed to take any substantive step to prosecute its case against Colliers: at [71] and [103];

(7)    Holdings' proffered explanation for the delay was that by late March 2016 it had determined that 'it was no longer sensible, or in the interest of the parties or the Court, to pursue the balance of the proceedings against Colliers': at [31];

(8)    despite the above, the case as reformulated by Holdings in February 2014 was only abandoned when Holdings discontinued the proceedings on 11 April 2016.

Conclusion and orders

21    For the reasons set out above, I am satisfied that the present circumstances warrant making non-party costs orders against Mr Morrone. Those orders are that:

(1)    Mr Morrone pay the second respondent's costs of the action fixed in the sum of $365,736.87.

(2)    Mr Morrone pay the second respondent's costs of this application, to be taxed if not agreed.

(3)    Mr Morrone pay interest on the Taxed Costs pursuant to r 40.32(3) of the Federal Court Rules 2011 (Cth) from 24 May 2017 until the date of payment.

Associate:

Dated:    13 November 2017