FEDERAL COURT OF AUSTRALIA Life Therapeutics Limited v Bell IXL Investments Limited (No 2) [2008] FCAFC 158 COSTS – application for costs certificate – matters to be taken into account in exercising discretion to issue certificate – no matters arose in course of conduct of appeal to be taken into account in exercising discretion against grant of certificate. Held: Costs certificate issued. COSTS – where non‑party brought before the Court by a party to proceedings for the purposes of seeking an order for costs against the non‑party – where application may have been premature as the party did not yet know the outcome of the appeal – application for costs of non‑party's appearance to be awarded in favour of non‑party – circumstances in which an order for costs can be made in favour of a non‑party against a party. Held: Court has jurisdiction to make order for costs in favour of a non‑party against a party to proceedings; circumstances appropriate in this case for such an order to be made. Federal Proceedings (Costs) Act 1981 (Cth): s 6 Federal Court of Australia Act 1976 (Cth): s 3, 43 Rules of the Supreme Court of Queensland: O 91 r 1 Kebaro Pty Ltd v Saunders [2003] FCAFC 5, followed Knight v F P Special Assets Limited (1992) 174 CLR 178, cited O'Keeffe Nominees Pty Ltd v BP Australia Limited (No 2) (1995) 55 FCR 591, followed King v GIO Australia Holdings Limited (2001) 116 FCR 509, followed O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559, followed Handberg v Chacmol Holdings Pty Ltd (No 2) [2005] FCA 680, distinguished LIFE THERAPEUTICS LIMITED (ACN 001 001 145) v BELL IXL INVESTMENTS LIMITED (ACN 113 669 908), AEGIS PARTNERS LIMITED and BELL POTTER NOMINEES LIMITED VID 594 of 2008 RYAN, GOLDBERG & GORDON JJ 29 AUGUST 2008 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 594 of 2008 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF LIFE THERAPEUTICS LIMITED (ACN 001 001 145) BETWEEN: LIFE THERAPEUTICS LIMITED (ACN 001 001 145) Appellant AND: BELL IXL INVESTMENTS LIMITED (ACN 113 669 908) First Respondent AEGIS PARTNERS LIMITED Second Respondent BELL POTTER NOMINEES LIMITED Third Respondent JUDGES: RYAN, GOLDBERG & GORDON JJ DATE OF ORDER: 29 AUGUST 2008 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Court grants to the first respondent a certificate certifying that in the opinion of the Court it would be appropriate for the Attorney‑General to authorise a payment under the Federal Proceedings (Costs) Act 1981 (Cth) to the first respondent in respect of the costs incurred by the first respondent in relation to this appeal. 2. The first respondent pay the costs of the non‑parties Michael Milne, Wayne Bellman and Dale Calhoun of and incidental to their appearance before the Court on 15 August 2008. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 594 of 2008 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF LIFE THERAPEUTICS LIMITED (ACN 001 001 145) BETWEEN: LIFE THERAPEUTICS LIMITED (ACN 001 001 145) Appellant AND: BELL IXL INVESTMENTS LIMITED (ACN 113 669 908) First Respondent AEGIS PARTNERS LIMITED Second Respondent BELL POTTER NOMINEES LIMITED Third Respondent JUDGES: RYAN, GOLDBERG & GORDON JJ DATE: 29 AUGUST 2008 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 15 August 2008 we published our reasons for our judgment that the appeal be allowed and that the proceeding be remitted to Finkelstein J for re‑hearing consistently with the reasons for judgment. 2 On that date: · counsel for the first respondent, Bell IXL Investments Limited, made an application for a certificate under s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) ("the Act") in relation to the Full Court's proposed order that it pay the appellant's costs of, and incidental to, the appeal; · Mr A J Kelly S.C. announced an appearance on behalf of the three directors of the appellant who are not parties to the proceeding, Michael Milne, Wayne Bellman and Dale Calhoun, in response to email communications from the solicitors for the appellant sent prior to the publication of our reasons that should the appeal be dismissed the appellant would apply for orders for costs against the non‑party directors. Mr Kelly sought an order that the first respondent pay the costs of the non‑party directors incurred in respect of their appearance before the Court that day. 3 On 15 August 2008 we ordered that the application by the first respondent for a costs certificate pursuant to s 6 of the Act and the application by the non‑party directors of the appellant that the first respondent pay their costs of and incidental to their appearance before the Full Court on 15 August 2008 be reserved for further consideration by the Full Court and that any party who wished to make submissions in relation to those matters file and serve those submissions within seven days. Submissions were received from the first respondent and the non‑party directors. APPLICATION FOR A COSTS CERTIFICATE 4 Section 6 of the Act provides: "(1) Subject to this Act, where a Federal appeal succeeds on a question of law, the court that heard the appeal may, on the application of a respondent to the appeal, grant to the respondent a costs certificate in respect of the appeal. (2) … (3) The certificate that may be granted under subsection (1) or (2) by a court to a respondent to a Federal appeal is a certificate stating that, in the opinion of the court, it would be appropriate for the Attorney‑General to authorize a payment under this Act to the respondent in respect of: (a) the costs incurred by the respondent in relation to the appeal; and (b) any costs incurred by an appellant in relation to the appeal that have been, or are required to be, paid by the respondent to the appellant in pursuance of an order of the court, not being costs to which a costs certificate granted under section 7 relates." 5 It is apparent from our reasons published on 15 August 2008 that the appeal succeeded on a question of law. There were no matters which arose in the course of the conduct of the appeal by the first respondent which we consider ought to be taken into account in determining whether we should exercise the discretion given to the Court under s 6(1) of the Act against the grant of a costs certificate. Accordingly, we consider that the Court should grant to the first respondent a costs certificate in respect of the appeal. COSTS OF THE NON‑PARTY DIRECTORS 6 Senior Counsel for the non‑party directors relied on two emails sent by the solicitors for the first respondent. The first email was sent on 8 August 2008 to the appellant's solicitors in the following terms: "We advise that should the appeal be dismissed our client will apply for orders for costs on a similar basis as at trial, namely: 1. The appellant pay the first respondents costs of the appeal. 2. The directors of the appellant, Michael Milne, Wayne Bellman and Dale Calhoun pay to the appellant the costs payable by the appellant to the first respondent. This letter, and our letter of 30 July 2008, will be relied on as warnings to the directors that their conduct is in breach of duty and that a costs order will be sought against them." 7 On 14 August 2008 the first respondent's solicitors sent an email to the Court, copied to the appellant's solicitors, in the following terms: "Further to your email below [13 August 2008, advising that judgment would be handed down on 15 August 2008] it is possible that there may be argument to be heard following the handing down of judgment on 15 August 2008 as follows: 1. If the appeal is dismissed the first respondent will seek a costs order against non‑parties, being the directors of the appellant. The directors have been warned of such application and, on a similar application before Justice Finkelstein, were represented by Tony Kelly SC. That application is yet to be determined by His Honour. Mr. Kelly submitted that on the proper construction of s.1335(2) of the Corporations Act it was not open to the court to make a costs order against a non‑party in a proceeding under the Corporations Act. Mr. Kelly referred to Australian Forest Managers v Bramley [1996] 65 FCR 13, where Lindgren J. refused an order against non‑parties, and UTSA Pty Ltd (in liq) v Ultratune Australia Pty Ltd (1999) 1 VR 204 where Chernov J. made such an order. The issue has not yet been determined by an appellate court. 2. Orders may need to be made in relation to the adjourned Extraordinary General Meeting which has been enjoined by the Court. My estimate of the time required to hear such issues would be a half hour." 8 Senior Counsel for the non‑party directors submitted that the notice in the email sent to the Court on 14 August 2008 foreshadowed an application to which they were bound to respond and that they were put in peril as to costs if they did not do so. It was submitted that the notice given in the email was premature but, nevertheless, the directors had to protect themselves. 9 The first respondent submitted that any order as to the costs of the non‑party directors should abide the outcome of the retrial on the basis that it was their conduct that lay at the heart of the proceeding. 10 Both the email on 8 August 2008 and the email on 14 August 2008 put the non‑party directors on notice that, at the handing down of judgment and the making of the orders on the appeal in the event that the appeal was dismissed, an application would be made that they pay to the appellant the costs payable to the appellant by the first respondent. In particular, the email sent on 14 August 2008 made it clear that if the appeal was dismissed the first respondent proposed to submit forthwith on 15 August 2008 that the non‑party directors pay these costs. The email stated that an estimate of the time required to hear "such issues" (which included the costs issue) would be half an hour. 11 Senior Counsel for the non‑party directors submitted that this approach to seek costs against the non‑party directors immediately upon delivery of judgment was in contrast to the approach which had been taken earlier before Finkelstein J. His Honour had delivered judgment on 22 July 2008 and the application that the non‑party directors pay the costs of the appellant was made after notice was given and the application was then pressed on 31 July 2008. 12 The intention of the first respondent, announced on 14 August 2008, that, if the appeal were dismissed, it would seek a costs order against the non‑party directors on the day judgment was delivered, was premature as the first respondent did not know whether the appeal would be allowed or dismissed. If the appeal were allowed, as it was, then there would be no need for any application by the first respondent for a costs order against the non‑party directors. Nevertheless, the non‑party directors were put on notice that they were at potential risk on the handing down of the judgment. 13 We consider that the non‑party directors should have assumed that, if an order were sought against them as non‑parties, the Court would give them an opportunity to be heard before considering the application. Was it reasonable in those circumstances, therefore, for the non‑party directors to retain senior counsel to appear on the handing down of the judgment in case the occasion for the application for a costs order against them arose? 14 There was an alternative approach which the non‑party directors could have taken to the first respondent's foreshadowed application. They could have sent an email (or otherwise communicated) to the first respondent and also to the Court saying that they had been put on notice that if the appeal were dismissed a costs order would be sought against them and that, in that event, they would wish to be heard on the application. In those circumstances it would not have been necessary to brief counsel to appear on the day the judgment was handed down as the non‑party directors should have awaited the directions of the Court as to how, and when, any such application for costs should be argued. 15 Should the non‑party directors have taken that approach, rather than briefing senior counsel to attend the handing down of the judgment? Having regard to the fact that they had specifically been put on notice on 14 August 2008 that the application would be made in a certain event, we consider that it was not unreasonable for them so to retain senior counsel. Otherwise they ran a risk that the Court might say that as they had been put on notice that the application would be made on that date, the application should proceed on that date. 16 We do not accept the first respondent's submission that any order as to the costs of the non‑party directors should abide the outcome of the retrial. They are not a party to the principal proceeding and we do not consider that the outcome of the retrial should have any bearing on whatever order might be appropriate in respect of the costs incurred by the non‑party directors by their appearance through senior counsel on 15 August 2008. 17 The first respondent did not submit that the discretion as to costs vested in the Court by s 43 of the Federal Court of Australia Act 1976 (Cth) did not extend to making an order in favour of non‑parties brought to the Court by one of the parties to the litigation. Nevertheless it is still necessary to be satisfied that the Court can make such an order. 18 Section 43 of the Federal Court of Australia Act gives the Court an unfettered jurisdiction to award costs "in all proceedings before the Court". The expression "proceeding" is defined in s 3 of the Federal Court of Australia Act as meaning "a proceeding in a court, whether between parties or not …". 19 It is implicit in the reasoning of the majority of the High Court in Knight v F P Special Assets Limited (1992) 174 CLR 178, that the discretion found in jurisdictions to award costs such as that conferred by s 43 is not limited to orders in favour of or against the parties on the record in the relevant proceeding. In Knight the majority of the High Court held that the discretion to award costs under Order 91 rule 1 of the Rules of the Supreme Court of Queensland was not limited to the parties to a proceeding who were on the record. Order 91, rule 1 provided: "Subject to the provisions of the Judicature Act and these Rules, the costs of and incident to all proceedings in the Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge …" Mason CJ and Deane J (with whom Gaudron J agreed) said at 190: "Against this background, [earlier English cases] it is impossible to construe the wide and general words of O 54, r 1 and its successor O 91, r 1 as delimiting the jurisdiction to order payment of costs as one which was and is confined to parties to the proceedings. The language of the rule is quite inapt to give expression to the complex course of judicial decisions at common law and in equity before the Judicature Acts. Moreover, the extended concept of "party", including as it does a variety of persons on whom notice of proceedings is served, makes it inappropriate to introduce a limitation which was applied at a time when the concept of "party" related to a person on the record of the proceedings. It is preferable to interpret the words of the rule according to their natural and ordinary meaning as conferring a grant of jurisdiction to order costs not limited to parties on the record and ensure that the jurisdiction is exercised responsibly." 20 The jurisdiction granted by s 43 of the Federal Court of Australia Act to award costs was construed as extending to the grant of costs in favour of a non‑party in O'Keeffe Nominees Pty Ltd v BP Australia Limited (No 2) (1995) 55 FCR 591 at 597 per Spender J, King v GIO Australia Holdings Limited (2001) 116 FCR 509 at 515 per Moore J and O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [24] per Nicholson J. 21 In Kebaro Pty Ltd v Saunders [2003] FCAFC 5, Beaumont, Sundberg and Hely JJ appeared to accept the proposition that in appropriate circumstances an order for costs can be made in favour of a non‑party against a party. Their Honours said at par [103]: "In our opinion, the authorities establish, on the foregoing analysis, the following propositions: ● 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) …" 22 In Handberg v Chacmol Holdings Pty Ltd (No 2) [2005] FCA 680 Heerey J said at par [18]: "… While it is now clear, in the light particularly of Knight, that there is jurisdiction to make an order for costs against a non‑party (whether liquidator, receiver, administrator or otherwise) in exceptional circumstances, it is difficult to see how a court could make an order for costs in favour of a non‑party. As Oliver J pointed out [in Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274] it would be unfair to confer on some category of litigant the prospect of the fruits of successful litigation without liability for the risk of failure." 23 We consider that this observation is inconsistent with the reasoning in Knight to which we have referred above (par [19]) and the other decisions to which we have referred (par [20–21]). Heerey J did not explain why he considered it difficult to see how a court could make an order for costs in favour of a non‑party. That is not surprising as the issue before him was whether a costs order should be made against the administrator of a company personally where the proceeding had been brought by him in his capacity as the administrator of a company. Further, it does not appear that his Honour was referred to the authorities to which we have referred or to the particular passage in Knight to which we have referred. 24 Having regard to the authorities to which we have referred, and in particular, to the definition of "proceeding" in s 3 of the Federal Court of Australia Act, we are satisfied that the Court has jurisdiction under s 43 of the Federal Court of Australia Act to award costs in favour of a non‑party where the non‑party has been brought before the Court by a party for the purposes of seeking an order for costs against that non‑party. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Goldberg & Gordon. Associate: Dated: 29 August 2008 Counsel for the Appellant: D J O'Callaghan S.C. & R G Craig Solicitors for the Appellant: Johnson Winter Slattery Counsel for the First Respondent: M A Robins Solicitors for the First Respondent: Pointon Partners Counsel for non‑party directors of the appellant: A J Kelly S.C. Date of Hearing: 15 August 2008 Date of filing written submissions: 21 August 2008 Date of Judgment: 29 August 2008