Federal Court of Australia

Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 3) [2020] FCA 1219

ORDERS

THE COURT ORDERS THAT:

1.    Judgment be entered for the applicant against the respondent in the amount of USD$1,045,322.16, pursuant to s 8(3) of the International Arbitration Act 1974 (Cth) (Act), in respect of a foreign award made against the respondent on 1 August 2017 by an arbitration tribunal comprising Mr Kahled Ahmed Al Nasr, Mr Hesham Abdul Majeed and Mr Jaber bin Ali Al Hadafa in Qatar.

2.    The respondent pay the applicant’s costs of these proceedings, as agreed or taxed.

THE COURT DECLARES THAT:

3.    Pursuant to s 8(3) of the International Arbitration Act 1974 (Cth), the award by Mr Kahled Ahmed Al Nasr, Mr Hesham Abdul Majeed and Mr Jaber bin Ali Al Hadafa in Qatar dated 1 August 2017 be enforced as a judgment of this Court.

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

REASONS FOR JUDGMENT

JAGOT J:

1    On 5 August 2020 I published reasons for judgment in which I concluded that the Court should enforce a foreign award as if it were a judgment of this Court in accordance with s 8(3) of the International Arbitration Act 1974 (Cth) (the IAA): Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116 (Judgment). Terms defined in the Judgment take the same meaning in this judgment.

2    The issues which now arise are whether I should make an award of interest under s 51A of the Federal Court of Australia Act 1976 (Cth) and whether I should make a third party costs order against the directors of Hub under s 43(2).

3    As to interest, ECQ conceded that interest was not awarded in respect of the award as it is not permitted under the law of Qatar. However, enforcement of the award is a matter of Australian law and thus an order for interest can and should be made. Hub submitted that as Hub’s obligation to pay the award sum arises under the law of Qatar which does not permit the award of interest, it necessarily follows that Hub’s obligations do not include any obligation to pay interest. Hub accepted that once the award is enforceable as a judgment of this Court, post judgment interest will accrue but until that point the obligations remain subject to the law under which it arose.

4    I accept Hub’s submissions. The award does not include any obligation to pay interest. In these circumstances there should be no order for pre-judgment interest on the award.

5    As to costs, ECQ referred to Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178 at 192-193 in which this was said:

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.

6    ECQ submitted that the categories of cases in which such an order may be made are not closed and may include non-party directors who play an active part in the litigation (and are shielded behind a company of straw which they control): Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 at 695.

7    ECQ referred to Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [103] in which the Full Court said:

A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192 – 193. The width of the jurisdiction is illustrated by a recent English decision that there can be circumstances in which it would be appropriate to order costs in favour of a non-party against a party (see Individual Homes v Macbreams Investments, 23 October 2002, High Court of Justice Chancery Division at 8).

Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J expressed it, a “real and direct and ... material” connection with the principal litigation, must be demonstrated; in the words of Callinan J, the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party.

8    Further, ECQ referred to Vanguard 2017 Pty Limited, in the matter of Modena Properties Pty Limited v Modena Properties Pty Limited (No 2) [2018] FCA 1461 in which Thawley J said at [46]:

However, it is obviously not sufficient of itself that the director, being actively involved in the proceedings, caused the company to defend proceedings. Such conduct is consistent with the director’s duties to the company and would not be described as “exceptional” so as to disengage the ordinary rule that it is the parties to the proceedings who bear the costs. However, there may be situations where the director’s conduct is such that a non-party costs order is appropriate. The question might arise, for example, where the director’s management of the litigation was in breach of a duty to the company or was in some material way improper, or where the director caused the litigation to be conducted in a manner intended to increase irrecoverable costs of the opposing party. Such circumstances are potentially capable of warranting the exercise of the discretion to award costs against a non-party director.

9    I note that Thawley J at [49] agreed with the propositions recorded at [47] as follows:

In Taylor v Pace Developments Ltd [1991] BCC 406 at 409F-H, Lloyd LJ (with whom Nourse and Ralph Gibson LJJ agreed) observed:

… The controlling director of a one-man company is inevitably the person who causes the costs to be incurred, in one sense, by causing the company to defend the proceedings. But it could not be right that in every such case he should be made personally liable for the costs, even if he knows that the company will not be able to meet the plaintiff’s costs, should the company prove unsuccessful. That would be far too great an inroad on the principle of limited liability. I do not say that there may not be cases where a director may not properly be liable for costs. Thus he might be made liable if the company’s defence is not bona fide, as, for example, where the company has been advised that there is no defence, and the proceedings are defended out of spite, or for the sole purpose of causing the plaintiffs to incur irrecoverable costs. No doubt there will be other cases. But such cases must necessarily be rare. In the great majority of cases the directors of an insolvent company which defends proceedings brought against it should not be at personal risk of costs.

10    ECQ submitted that the following factors supported the making of a costs order against the directors of Hub:

(1)    Hub is a company of straw as a restructuring resulted in a transfer of assets and shareholding to another company;

(2)    Mr Matchett was disbelieved as to the principal issue of lack of service;

(3)    As such, there was no bona fide issue about lack of service;

(4)    Mr Matchett was the guiding mind and will of Hub about its response to the notices of the arbitration proceeding;

(5)    Mr Matchett gave evidence that the companies were operated as a group and that the group would meet any legal liabilities;

(6)    Mr Williams and Mr Matchett were both directors of Hub, and are now both directors of the new parent company, Hub SE Holdings Pty Ltd as well as Hub Qatar Pty Ltd and Mr Muraywed reported to both of them;

(7)    Given the positive denials by Mr Williams of the meeting with Mr Muraywed in December, or any knowledge of the arbitration, the interests of justice that the costs order be extended to him and not be limited to Mr Matchett; and

(8)    At Judgment [24] and [25], the Court explained why it was in the interests of Hub and its directors to avoid the appearance of knowledge or, or involvement in, the arbitration with ECQ. That interest extended to the case advanced in these proceedings.

11    Hub submitted that the making of a third party costs order is to be “approached with caution” and should be exercised only in “rare and exceptional cases”: Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 .

12    In the present case, all that has occurred is that the directors caused Hub to defend the proceeding. They did so on reasonable grounds as ECQ did not commence the arbitration in the manner required by the arbitration agreement and the arbitral tribunal was not constituted as required by the agreement. Hub’s defence raised serious grounds in opposition under s 8(5) of the IAA and it cannot be said that they acted “out of spite, or for the sole purpose of causing the plaintiffs to incur irrecoverable costs”: Taylor v Pace Developments Ltd [1991] BCC 406 at 409F-H

13    I accept Hub’s submissions. The fact that I did not accept Mr Matchett’s evidence about lack of service of notice of the arbitration does not mean that Hub did not have bona fide grounds on which to oppose enforcement of the award. It cannot be said that the circumstances of this case are rare or exceptional. Hub is a company of straw and its directors chose to defend the proceeding on multiple grounds. I rejected some of the grounds because I did not accept the directors’ evidence. But other grounds remained which had to be resolved. Nothing in the circumstances takes this matter out of the ordinary run of cases in which directors properly seek to defend proceedings against a company, albeit that the grounds included matters in respect of which I did not accept parts of the directors’ evidence.

14    Orders should be made as Hub proposes for these reasons.

Associate:

Dated:    26 August 2020