FEDERAL COURT OF AUSTRALIA PRACTICE AND PROCEDURE - Costs - Jurisdiction to award costs to a non-party - cross claim on non-party in contemplation but leave of the Court not yet sought - Whether proceeding before the Court - Federal Court of Australia Act 1976 s43. Words and phrases "proceedings before the Court" Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 117 ALR 253 (followed) Danieletto v Khera (1995) 35 NSWLR 684 (distinguished) Knight v FP Special Assets Ltd (1992) 174 CLR 178 (followed) Re Ayre; Ex parte Deputy Commissioner of Taxation (1995) 130 ALR 648 (followed) Re Crittenden; Ex parte The Law Institute of Victoria [1958] VR 101 (applied) Ricegrowers Co-operative Ltd v ABC Containerline NV (1996) 138 ALR 480 (followed) Smith Kline & French Laboratories (Australia) Limited v Secretary, Department of Community Services & Health (1989) 89 ALR 366 (applied) JAMES LIDDEN and OTHERS (Applicant) v COMPOSITE BUYERS LIMITED and ANOTHER (Respondent) AG 19 of 1992, AG 67 of 1995 FINN J CANBERRA 3 SEPTEMBER 1997 IN THE FEDERAL COURT OF AUSTRALIA ) ) AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY ) AG 19 of 1992 ) AG 67 of 1995 ) GENERAL DIVISION ) BETWEEN: JAMES LIDDEN and OTHERS Applicant AND: COMPOSITE BUYERS LIMITED and ANOTHER Respondent JUDGE: FINN J PLACE: CANBERRA DATED: 3 SEPTEMBER 1997 MINUTES OF ORDER THE COURT ORDERS THAT: 1. There be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY ) AG 19 of 1992 ) AG 67 of 1995 ) GENERAL DIVISION ) BETWEEN: JAMES LIDDEN and OTHERS Applicant AND: COMPOSITE BUYERS LIMITED and ANOTHER Respondent JUDGE: FINN J PLACE: CANBERRA DATED: 3 SEPTEMBER 1997 REASONS FOR JUDGMENT The firm of accountants, Ernst & Young, though not parties to this proceeding (since settled), seek an order for costs against the respondents. The factual circumstances can be stated briefly. The principal application involved, if I may put it inexactly, a Trade Practices Act 1974 (Cth), claim for damages relating to the sale and purchase of a supermarket in Bombala. It would appear that prior to the purchase Ernst and Young had provided advice of some form to the applicants. The application itself was filed on 19 May 1992. It finally was set down for hearing on 21 July 1997. On 24 April 1997 the solicitors for the respondents sent the following letter to Ernst & Young that said (inter alia): "We forward herewith, by way of service, a copy of; 1. The Amended Double Intituled Statement of Claim; 2. Our clients Double Intituled Amended Defence and Cross Claim (to recover the debt); and 3. A Second Cross Claim for indemnity and contribution against Ernst and Whinney, now Ernst and Young. The matter is listed for final hearing in the Federal Court in Canberra for two weeks commencing Monday 21 July. A directions hearing is listed for Friday week, 2 May in Canberra." It is, of course, the case that the leave of the Court is required before a respondent may cross-claim against a person not being a party: Federal Court Rules O5 r8(1). It is clear that at the time of the above letter, Ernst & Young was not a party to the proceeding then on foot between the applicant and the respondents: on the meaning of "party" as used in the Rules see Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1989) 89 ALR 366 at 369. On 2 May 1997 (the day on which the application was set down for further directions), Ernst & Young's solicitors purported to appear for their client, the "second cross-respondent". The respondents had not, and did not then, seek leave to cross-claim against Ernst & Young although counsel for the respondent indicated that a motion could well be put on and, against that contingency, a date (5 June) was given for its return and future directions. On 20 May 1997 Ernst & Young's solicitors wrote to the respondents' solicitors noting (inter alia) their surprise that no notice of motion had been filed. Then on 27 May 1997 the respondents' solicitors wrote in reply to Ernst & Young's solicitors indicating (inter alia) that: "We confirm that; ... 2. Due to the closeness of the final hearing date, our clients have decided not to file and argue the Cross Claim in the present proceedings (and at the final hearing in July) but reserve their right to bring separate proceedings for contribution and indemnity depending on the outcome of the present proceedings. Accordingly, there will be no Notice of Motion filed seeking the leave of the Court to join your client by way of Cross Claim." At the directions hearing on 5 June, Ernst & Young sought to appear by counsel for the purpose of seeking an order for costs. Such an order was resisted by the respondents. After hearing brief argument on the matter, I invited written submissions be filed on this question. The Jurisdiction to Award Costs The Federal Court Act 1976 (Cth) s43 provides (inter alia): "43. (1) Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. ... (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. The width both of the power and of the discretion so given has been recognised on many occasions: see eg Ricegrowers Co-operative Ltd v ABC Containerline NV (1996) 138 ALR 480 at 485; Re Ayre; Ex parte Deputy Commission of Taxation (1995) 130 ALR 648 at 651. Equally, this Court has held in light of the decision of the High Court in Knight v F P Special Assets Ltd (1992) 174 CLR 178 that s43 confers a jurisdiction upon the Court that extends to the award of costs, not only against or in favour of persons who are parties, but also against or in favour of persons who are not: see eg Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 117 ALR 253; Ricegrowers Co-operative Ltd v ABC Containerline NV, above. The first question to arise here is whether the situation in which Ernst & Young found itself vis-a-vis the respondents was such as to bring it within the s43 jurisdiction. That question turns, for its part, on whether there was, relevantly, a 'proceeding before the Court' in relation to which the costs claimed had been incurred. The short answer, in my view, is that there was not. Until a notice of motion had been filed seeking leave to cross-claim, or until the court had otherwise entertained the matter of such leave - until the respondents actually made "use of the machinery of the Court" to obtain leave: cf In re Crittenden; Ex parte The Law Institute of Victoria [1958] VR 101 at 102 - there was not such a 'proceeding' on foot in relation to the cross-claim as would justify a conclusion that Ernst & Young was a non-party - let alone a party - to a "proceeding before the Court". The Federal Court Act 1976, s4 defines "proceeding" as follows: " 'proceeding' means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal;" In its written submissions Ernst & Young sought to avail of this definition, by submitting that the principal application was the primary "proceedings" to which the cross-claim related and that the cross-claim was "incidental" to that proceeding. To overcome the difficulty that the cross-claim itself would, even on this view, have to be an "incidental proceeding", it is claimed that the respondents made an oral application for leave at the 2 May directions hearing. If such was the case I would be prepared to find that the jurisdiction of the Court had been sufficiently attracted - its "machinery" sufficiently used - in relation to the cross-claim as to make it the subject of a "proceeding" and hence of the Court's costs power. Whether or not the Court's discretion to order costs would be exercised in favour of a non-party such as Ernst & Young in such circumstances is another matter. While it clearly is the case that at the directions hearing of 2 May, counsel for the respondents gave significant intimations that a motion for leave would be brought on - and he was aware that Ernst & Young wished to contest it - no actual oral application was made on that date. Ernst & Young may well have felt reasonably confident that leave to cross-claim was going to be sought at some time and that, moreover, it was going to be given notice of when this was to occur such that it could itself seek leave to contest that grant of leave. But notwithstanding the initial misapprehension of both sets of solicitors that the cross-claim had been made and that Ernst & Young had been made a party - this was evidenced in (a) the respondents' solicitors' letters of 24 April 1997 and (b) the manner in which Ernst & Young's solicitors announced their "appearance" at the 2 May directions hearing - it is clear that the respondents did not, and have not at any time, actually sought leave to make a cross-claim. Additionally I would note that in all of the decisions to which I have earlier referred in which costs orders have been made (or refused) against or in favour of a non-party, the Court in each instance had a proceeding before it in consequence of an actual application or motion made and to which the costs order related: see eg the Ricegrowers Co-operative case, above. The only authority upon which Ernst & Young has sought to rely apart from the High Court's decision in Knight's case, above, was the subpoena case of Danieletto v Khera (1995) 35 NSWLR 684. But even in that case, assuming its relevance to the present, the order there made was for expenses incurred in consequence of a subpoena that actually had been issued by the Court in question though compliance with which was later not insisted upon. Whatever the merits of Ernst & Young's claim for costs the conclusion that there was no proceeding before the Court is sufficient to dispose of the present matter. Nonetheless, I should indicate that, if I am incorrect in the conclusion at which I have arrived in relation to s43 and its requirement of an actual proceeding (whether or not incidental to another), I would not have made the order sought in any event. Ernst & Young may well by its lights have acted prudently in making preliminary and let it be said anticipatory outlays by way of legal expenses in order to protect its own position. These were not expenses it was required to incur at that time. It chose to do so, partly because of its own error as to the true legal position in which it found itself. The case, furthermore, is not one in which an abuse of process has occurred. Errors and tactical judgments have been made. But no more. Ernst & Young have, doubtless, been inconvenienced and put to some expense by what proved to be a false alarm. Those consequences of themselves would not warrant my taking the a-typical course of ordering costs in favour of a non-party. Neither the reason for Ernst & Young's incurring the costs in question when and to the extent that they did, nor the respondents' conduct in precipitating that course of expenditure warrant an order of the type sought. Even if, contrary to my view, I had power to award costs in the present matter, I would in the exercise of my discretion refuse to do so. I will, then, make no order as to costs. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn Associate: Dated: 3 September 1997 Counsel for Ernst & Young: C Erskine Solicitor for Ernst & Young: Deacons Graham & James Counsel for the Respondent: Boettcher Solicitor for the Respondent: Holman Webb Dates of Hearing: 5 June 1997