FEDERAL COURT OF AUSTRALIA MG Corrosion Consultants Pty Ltd v Vinciguerra (No 2) [2011] FCAFC 48 Citation: MG Corrosion Consultants Pty Ltd v Vinciguerra (No 2) [2011] FCAFC 48 Appeal from: Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763 Parties: MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 v ALBERTO CESARIO VINCIGUERRA File number: WAD 260 of 2010 Judges: NORTH, MCKERRACHER AND JAGOT JJ Date of judgment: 4 April 2011 Catchwords: COSTS - application for costs against a non party – jurisdiction to award costs against non-parties – discretion to award costs against non-parties Legislation: Corporations Act 2001 (Cth) ss 242, 1335(2), 1337S(1) Federal Court of Australia Act 1976 (Cth) s 43(3) Federal Court (Corporations) Rules 2000 (Cth) r 11.10 Cases cited: City of Swan v Lehman Bros Australia Ltd (No 3) [2009] FCA 1190 Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd (2009) 176 FCR 348 Re Firepower Operations Pty Ltd (in liq) (No 3) (2010) 183 FCR 150 HPM Pty Ltd v Fear [2002] WASCA 249 Huntingdale Village Pty Ltd v Corrs Chambers Westgarth [2011] WASC 44 Knight v FP Special Assets Ltd (1992) 174 CLR 178 MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31 Symphony Group PLC v Hodgson [1994] QB 179 Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503 Date of hearing: Heard on the papers Date of last submissions: 30 March 2011 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 23 Solicitor for the Appellant: K Dundo of Q Legal Solicitor for the Respondent: C Williams of Solomon Brothers IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 260 of 2010 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 Appellant AND: ALBERTO CESARIO VINCIGUERRA Respondent JUDGES: NORTH, MCKERRACHER AND JAGOT JJ DATE OF ORDER: 4 APRIL 2011 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Mr Malcolm Stewart Gilmour do indemnify the appellant in respect of the costs of the appeal payable by the appellant to the respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 260 of 2010 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177 Appellant AND: ALBERTO CESARIO VINCIGUERRA Respondent JUDGES: NORTH, MCKERRACHER AND JAGOT JJ DATE: 4 APRIL 2011 PLACE: PERTH REASONS FOR JUDGMENT THE COURT: INTRODUCTION 1 In MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31 (MGCC 1) we dismissed the appeal and ordered that the appellant (the Company) pay the costs of the respondent (Mr Vinciguerra) to be taxed or agreed. These reasons should be read with those in MGCC 1. 2 On delivery of the judgment, Mr Vinciguerra moved for a further order that Mr Malcolm Stewart Gilmour (Mr Gilmour) do indemnify the Company in respect of the costs of the appeal payable to Mr Vinciguerra. The Company opposed the motion. The parties accepted that the debate could be resolved on the papers after receipt of written submissions. 3 Mr Vinciguerra relies on s 242 of the Corporations Act 2001 (Cth) (CA) which is in the following terms: 242 Power of the Court to make costs orders The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs. (emphasis added) 4 Mr Vinciguerra contends that both the first instance proceeding and the appeal have essentially constituted a contest between himself and Mr Gilmour. Without the order for indemnification and by virtue of the respective shareholdings in the Company, Mr Vinciguerra will bear 30% of the ultimate costs of the appeal and Mr Gilmour will ultimately bear 70%. It is argued that as the contest has essentially been between the individuals, Mr Gilmour should bear all the costs as the conclusions reached at first instance and on appeal were in favour of Mr Vinciguerra and effectively against Mr Gilmour. THE COMPANY'S SUBMISSIONS 5 From the perspective of the Company, it is argued that Mr Gilmour is one only of three directors now, is not a party to the proceeding and any such costs application should have been sought in advance of the appeal. 6 The Company was represented by solicitors who did not represent Mr Gilmour in this proceeding as he was not a party. They have explained that they do represent him on other matters and have consulted him in relation to this application. 7 The company argues that s 43(3) of the Federal Court of Australia Act 1976 (Cth) (FCA) empowers the Court to make costs orders against parties but there is no express provision for the Court to make a costs order against non-parties. The general position is that costs are not awarded against a non-party. The broad jurisdiction conferred on the Court by s 43(1) FCA should be 'exercised judicially and in accordance with the general legal principles pertaining to the law of costs': Knight v FP Special Assets Ltd (1992) 174 CLR 178 (at 192). Although the power to award costs against non-parties is contained in s 242 CA, it is a power to be exercised in very limited circumstances: HPM Pty Ltd v Fear (2002) HPM Pty Ltd v Fear [2002] WASCA 249. 8 The Company stresses that it is inappropriate to characterise the contest as being between Mr Gilmour and Mr Vinciguerra for the reason that the Company has, since correspondence ensued between the parties, been controlled by three directors. It has not been demonstrated or alleged that Mr Gilmour exercised control of the Company in relation to the conduct of the appeal. 9 It is argued that the authorities dealing with exceptional circumstances should not be followed in the present situation where Mr Gilmour was not shown to be in control of the Company, the defence of the proceedings at first instance or the conduct of the appeal. Further, the position taken by the Company was not motivated by an improper purpose. MR GILMOUR'S POSITION 10 Mr Gilmour has indicated through the Company's solicitors that he does not wish to make his own submissions beyond adopting those advanced for the Company. CONSIDERATION 11 Section 43 FCA relevantly provides: 43 Costs … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. (3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: (a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial; (b) make different awards of costs in relation to different parts of the proceeding; (c) order the parties to bear costs in specified proportions; (d) award a party costs in a specified sum; (e) award costs in favour of or against a party whether or not the party is successful in the proceeding; (f) order a party's lawyer to bear costs personally; (g) order that costs awarded against a party are to be assessed on an indemnity basis or otherwise. 12 Section 1337S(1) CA relevantly provides as follows: 1337S Rules of the Federal Court (1) The power to make rules of court conferred by section 59 of the Federal Court of Australia Act 1976 extends to making rules of court: (a) … (b) … (c) without limitation, with respect to costs, and with respect to rules about meetings ordered by the Federal Court of Australia. 13 s 1335(2) CA provides: 1335 Costs … (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs. (emphasis added) 14 Section 43 FCA, despite giving quite detailed treatment to possible costs orders and the broad discretion in relation to costs, does not contain an express provision for making costs orders against a non-party. The Company relies on the fact that s 1335 CA refers only to costs orders being made against parties to the proceedings. 15 In Re Firepower Operations Pty Ltd (in liq) (No 3) (2010) 183 FCR 150, Siopis J was required to consider whether the Court had jurisdiction to order Mr Johnston (a non-party) to pay costs for his failure to appear at a liquidator's examination. Mr Johnston was ordered to pay the wasted costs of the liquidator in respect of his failure to appear and costs of a notice of motion. Mr Johnston had submitted that the Court had no jurisdiction to order that he pay the liquidator's costs as he was a 'non-party'. Reliance was placed on the statutory provisions of s 43 FCA and on s 1335(2) CA and r 11.10 of the Federal Court (Corporations) Rules 2000 (Cth). Siopis J rejected the argument that the broad jurisdiction conferred on the Court by s 43 FCA was fettered in any way by the provisions of s 1335(2) CA. Siopis J followed Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd (2009) 176 FCR 348 per Lander J noting (at [16] – [18]): 16 The Court, in the case of Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd (2009) 176 FCR 348 (Consolidated Byrnes), considered a similar argument to that which is raised by Mr Johnston as to the construction of s 43 of the Federal Court Act and s 1335(2) of the Corporations Act. Lander J found that s 1335(2) was not intended to limit the jurisdiction of this Court described in s 43(1) of the Federal Court Act to make costs orders in respect of proceedings before the Court brought under the Corporations Act. 17 Lander J reached this conclusion after closely examining the existing authorities. Lander J found the reasoning of Chernov J in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1999] 1 VR 204 (UTSA) compelling. Lander J also observed that Brereton J in the case of Re Struthers (Liquidator of Project Management, Architecture and Construction Interior Pty Ltd) (No 3) (2005) 64 NSWLR 392, had also found the reasoning of Chernov J in UTSA compelling and had followed the decision in UTSA in preference to the first instance decisions in this Court in Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193 (Wridgemont) and Australian Forest Managers Ltd (in liq) v Bramley (1996) 65 FCR 13. Lander J also noted the criticism of the Wridgemont decision by Professor Dal Pont in Law of Costs (2nd ed, Lexis Nexis Butterworths, 2009). 18 Like Lander J and Brereton J, I, too, find the reasoning of Chernov J in UTSA compelling and, therefore, follow Lander J's decision in Consolidated Byrnes. Accordingly, I find that s 1335(2) does not have the effect of preventing this Court from making an order for costs against non-parties under s 43 of the Federal Court Act in proceedings brought under the Corporations Act; nor does it preclude the making of rules which permit the making of such costs orders in respect of the Corporations Act proceedings. 16 Similarly, in City of Swan v Lehman Bros Australia Ltd (No 3) [2009] FCA 1190 (at [13]), Rares J concluded that under s 1337S(1)(c) CA, the Court's rule making powers under s 59 FCA were extended 'without limitation, with respect to costs'. It followed that the width of the costs powers in s 1337S(1)(c) CA could extend to non-parties despite the word 'parties' in s 1335(2) CA. 17 A similar power was also exercised in Huntingdale Village Pty Ltd v Corrs Chambers Westgarth [2011] WASC 44 by Le Miere J (at [30]-[34]). 18 It follows, therefore, that there is power to make an order with respect to costs in relation to a non-party to a proceeding. 19 In terms of the applicable considerations for the making of such an unusual order, the Court of Appeal of the Supreme Court of Western Australia in HPM, after noting Knight and s 242 CA, cited with apparent approval Waller LJ (with whom Tuckey and Simon Brown LJJ were in agreement) in National Justice Compania Naviera SA v Prudential Assurance Co Ltd (No 2) [2000] 1 WLR 603, saying (at [4]-[10]): 4 As Steytler J has mentioned in Duskwood Pty Ltd v Bellara Willows Pty Ltd [2001] WASC 281 at [13], the power to make an order for costs against a person who was not a party to the proceedings is one which is rarely exercised. That is because it will ordinarily be unjust to make such an order: see the comments of Lord Goff of Chieveley, in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965, at 980, and see also In re Land and Property Trust Co Plc [1991] 1 WLR 601, at 604; Symphony Group Plc v Hodgson [1994] QB 179, at 192 - 193; Vestris v Cashman (1998) 72 SASR 449, at 467; and Flinn v Flinn [1999] 3 VR 712, at 760. 5 Recently, in National Justice Compania Naviera SA v Prudential Assurance Co Ltd (No 2) [2000] 1 WLR 603, Waller LJ (with whom Tuckey and Simon Brown LJJ were in agreement) said, at 611: "The exercise of the power to order costs to be paid by a party not named is an order made in those proceedings and it will only be exercised on the basis of a substantial connection with those proceedings by a non-party. It is worth reminding oneself of the summary of the decisions relating to the award of costs against a non-party in the judgment of Balcombe LJ in Symphony Group Plc v Hodgson [1994] QB 179, 191 - 192: 'These decisions may be conveniently summarised under the following heads. (1) Where a person has some management of the action, eg. a director of an insolvent company who causes the company improperly to prosecute or defend proceedings: see In re Land and Property Trust Co Plc [1991] 1 WLR 601; In re Land and Property Trust Co Plc (No 3) [1991] BCLC 856; In re Land and Property Trust Co Plc (No 2) The Times, 16 February 1993; Court of Appeal (Civil Division) Transcript No 160 of 1993; Taylor v Pace Developments Ltd [1991] BCC 406; In re A Company (No 004055 of 1991) [1991] 1 WLR 1003 and Framework Exhibitions Ltd v Matchroom Boxing Ltd (unreported), 23 September 1992; Court of Appeal (Civil Division) Transcript No 873 of 1992. It is of interest to note that, while it was not suggested in any of these cases that it would never be a proper exercise of the jurisdiction to order the director to pay the costs, in none of them was it the ultimate result that the director was so ordered. (2) Where a person has maintained or financed the action. This was undoubtedly considered to be a proper case for the exercise of the discretion by Macpherson of Cluny J in Singh v Observer Ltd [1989] 2 All ER 751, where it was alleged that a non-party was maintaining the plaintiff's libel action. However, on appeal the evidence showed that the non-party had not been maintaining the action and the appeal was allowed without going into the legal issues raised by the judge's decision: see Singh v Observer Ltd [1989] 3 All ER 777n. (3) In Gupta v Comer [1991] 1 QB 629 this court approached the power of the court to order a solicitor to pay costs under Ord 62, r 11 as an example of the exercise of the jurisdiction under section 51 of the Act of 1981. (4) Where a person has caused the action. In Pritchard v J H Cobden Ltd [1988] Fam 22 the plaintiff had suffered brain damage through the defendant's negligence. That resulted in a personality change which precipitated a divorce. This court held that the defendant's agreement to pay the costs of the divorce proceedings could be justified as an application of the Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 principle: see [1988] Fam 22, 51. (5) Where the person is a party to a closely related action which has been heard at the same time but not consolidated - as was the case in Aiden Shipping itself. (6) Group litigation where one or two actions are selected as test actions: see Joseph Owen Davies v Eli Lilly & Co [1987] 1 WLR 1136. I accept that these categories are neither rigid nor closed. They indicate the sorts of connection which have so far led the courts to entertain a claim for costs against a non-party.'" 6 While we have been hampered by the fact that Mr Blakeley has declined to make any submissions on his own behalf in respect of the application for costs against him personally, it seems to us, after a consideration of any points which might have been raised by him, that good grounds have been shown for making an order of the kind sought. 7 There is no doubt that Mr Blakeley has had the management of these proceedings and that it was him who caused them to be irregularly commenced and continued. That he has been the driving force in the pursuit of the company's claim is quite apparent from its history, which is set out in our reasons given in the appeal, which we shall not repeat. He consequently falls squarely within the first of the categories identified by Balcombe LJ in Symphony Group Plc v Hodgson, above. 8 Also, in Knight v FP Special Assets Ltd, above, at 192, Mason CJ and Deane J, while acknowledging that the prima facie general principle is that an order for costs is only made against a party to the litigation, accepted that there is "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". Their Honours there thought it appropriate to recognise a general category of case in which an order for costs should be made against a non-party if the interests of justice should require that, being one which "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" (pages 192 - 193). In this case, as has been mentioned in Steytler J's judgment given in the appeal, Mr Blakeley was the major shareholder in the company. He consequently has an interest in the subject of the litigation in the sense that, if the litigation should be successful, it may ultimately result in a return to him. 9 We have given some thought to the question whether the respondents should earlier have given notice of their intention to claim costs against Mr Blakeley personally, should he be unsuccessful in the appeal. It is, we think, established in the cases that one of the more important considerations, in dealing with an application of this kind, is that of whether an application for security for costs has been made against the non-party or whether some other timely warning of an intention to claim costs against the non-party has been given. (See Duskwood Pty Ltd v Bellara Willows Pty Ltd, above, at [18]; Vestris v Cashman, above, at 457 and Knight v FP Special Assets Ltd, above, at 191.) However, as Mason CJ and Deane J pointed out in Knight, at 191, there are limitations attaching to the availability of security for costs, particularly when it is sought against an individual who resides in the jurisdiction. Also, it seems most unlikely that Mr Blakeley would have been deterred by any warning as he intimated to us, on the hearing of the appeal, that he was willing, if required to do so, to provide security for the costs of the action itself. That being so, we do not consider that the respondents' failure to give prior notice of their intention to bring an application of this kind should disqualify them from obtaining the orders sought by them. 10 Taking all of the circumstances of this case into account, it seems to us that, when regard is had for Mr Blakeley's interest in and management of the litigation, the interests of justice require that he should be ordered to bear the costs of the appeal. As was pointed out by Olsson J (with whom Doyle CJ was in agreement) in Vestris v Cashman, above, at 457, where proceedings are initiated and controlled by a person who, although not a party to the proceedings, has a direct personal financial interest in the result, it would rarely be just for such a person, pursuing his own interests, to be able to do so with no risk to himself should the proceedings fail. (See also Carborundum Abrasives Pty Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757.) 20 Of the six categories identified by Balcombe LJ in Symphony Group PLC v Hodgson [1994] QB 179 (at 191-192), those into which Mr Gilmour would fall would be the first and the fourth. While there is no direct evidence or indication that Mr Gilmour gave instruction in relation to the hearing at first instance or the appeal, nevertheless, the conclusions have been reached that: 1. Mr Gilmour was the sole director and 70% shareholder of the Company at the time when the transactions which gave rise to the proceedings took place; 2. Mr Gilmour was the sole or at least primary beneficiary directly or indirectly as a result of the impugned transactions; 3. Although Mr Gilmour appointed two other directors to deal with the matters the subject of these proceedings, one of those is not independent of Mr Gilmour and little is known of the other. Thus effectively broad control still rests with Mr Gilmour; 4. The interests that the Company strenuously defended in the proceedings and on appeal were entirely consistent with the interests of Mr Gilmour in resisting independent examination of the conduct the subject of complaint by Mr Vinciguerra at first instance; 5. At first instance and on appeal, the Court concluded that there was a proper basis to permit Mr Vinciguerra to pursue on behalf of the Company a derivative action despite the strenuous opposition advanced by the Company; 6. The opposition was advanced notwithstanding that if the derivative action on behalf of the Company were successful, the Company would benefit even though Mr Gilmour would not benefit. 21 Finally, on the question of notice to Mr Gilmour, Mr Vinciguerra gave notice of intention to claim costs of the appeal from Mr Gilmour in written submissions filed a few days before the appeal was heard. In reality, the possibility would or should have occurred to Mr Gilmour at the time of initiating the appeal (and it is not said that he was taken by surprise) because a similar claim was pursued and acceded to in relation to the earlier contested application for access to the books of the Company (Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503). Further even if the warning had been given before the commencement of the appeal, it is most improbable that the Company or Mr Gilmour would have been deterred from pursuing the appeal (cf HPM (at [9])). 22 In all these circumstances, the further relief sought by Mr Vinciguerra should be granted. 23 The Court orders that: 1. Mr Malcolm Stewart Gilmour do indemnify the appellant in respect of the costs of the appeal payable by the appellant to the respondent. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices North, McKerracher and Jagot. Associate: Dated: 4 April 2011