Eatten's Pty Ltd & Anor v JLW (NSW) Pty Ltd & Anor [1998] FCA 1799

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 802 of 1996

BETWEEN: EATTEN'S PTY LIMITED

(acn: 008 596 316)

Applicant

AND: JLW (NSW) PTY LIMITED

(acn: 004 851 925)

first Respondent

THE COLONIAL MUTUAL LIFE ASSURANCE SOCIETY LIMITED

(acn: 004 021 809)

SECOND RESPONDENT

PERMANENT TRUSTEE AUSTRALIA LIMITED

(acn: 008 412 913)

THIRD RESPONDENT

JUDGE(S): BRANSON J

DATE: 22 September 1998

PLACE: SYDNEY

REASONS FOR JUDGMENT (EX TEMPORE) Judgment in this matter was given on 20 February 1998. The application was dismissed and judgment given for the cross-claimant, who was also the third respondent, on the cross-claim. On 5 May 1998 costs orders were entered against the applicant but without prejudice to the rights of the respondents to seek costs orders against Mr Anthony Senti, a director of the applicant. The costs orders that were entered against the applicant were that it pay the costs of the respondents on the basis that such costs since 1 May 1997 are to be paid on an indemnity basis, and that the applicant pay the costs of the cross-claimant on the cross-claim with such costs to be paid on an indemnity basis from 19 March 1997.

All respondents now seek orders that Mr Senti be jointly and severally liable with the applicant to meet the costs orders made against the applicant. It is not, I think, in dispute that section 43 of the Federal Court Act 1976 (Cth) confers jurisdiction on the Court to order costs on an indemnity basis against a non-party. It is also, I think, accepted that the relevant principles are those outlined in Knight v FP Special Assets Limited (1992) 174 CLR 178. I find that Mr Senti was in effective control of the applicant throughout the conduct of the proceedings. I also find that he had a real and personal interest, along with Mrs Senti, in the subject of litigation (Yates Property Corporation Pty Ltd v Boland & Ors (No.2) (1997) 147 ALR 685). I further find that the applicant is without means to pay the judgment debt and to meet the costs orders made against it. So much is apparent from its financial records which were discovered by the applicant in the proceeding. The respondents acknowledge that they have, at least from the time of discovery, been aware that the applicant is without significant assets. It is, in my view, significant so far as the present application is concerned, that no respondent approached the Court seeking an order for security for costs in this matter. The first and second respondents did not seek security for costs from the applicant at all. The third respondent did request the applicant to provide security for its costs. The applicant voluntarily provided such security to the third respondent in the sum of $20,000. The first and second respondents apparently formed the view that, in the circumstances of this case, an application for security for costs made by them would not succeed on the basis that the applicant would allege that its impecuniosity was the result of the conduct of the first and second respondents or one of them. This approach of the first and second respondent reflects, in my view, a failure to distinguish between two concepts. The first is whether a court would allow a respondent to proceedings to cause them to be stifled where the conduct of the respondent may have been the cause of the applicant being without means to meet an adverse order for costs. The second is whether a court will allow individuals who stand behind a company, and who will be the persons likely to benefit from litigation should it succeed, to shield themselves from liability for costs should litigation pursued by the company fail. If the first and second respondents had brought an application for security for costs in this case, it would, in my view, have been likely to have failed had the directors for the applicant agreed to make themselves personally liable for any costs orders to be made against the applicant. However, in my view, it would have been likely to succeed if the directors of the applicant had refused to assume any such personal liability. In Yates, at page 695 I said: "Where a company which is apparently without means to pay an order for costs in favour of a respondent initiates litigation, the appropriate course will ordinarily be for such respondent to seek an order for security for costs: see Knight's case per Dawson J at 204. Those who stand behind the company may then make a decision, ordinarily at an early stage, as to whether to make the financial commitment necessary to allow the litigation to proceed." This is not a case in which Mr Senti acted to disguise the true financial position of the applicant from the respondents, thus misleading them into concluding that the applicant had financial strength. In the Yates case, I concluded that Mr Yates had withheld information which, if known to the respondents, would have raised real questions as to the financial strength of the applicant in that case. I have therefore reached the view that the interests of justice require that the application for costs orders against Mr Senti personally be dismissed. Ordinarily, an order for costs will follow the event of an application. On this application, however, I am of the view that the ordinary rule ought to be departed from. Although I have not made an order that Mr Senti be personally liable for costs in the matter, I am of the view that he adopted, as a director of the applicant, a cavalier attitude to the responsibility of the applicant with respect to any costs orders which might be made against the applicant with respect to the costs of the respondents, particularly the third respondent against whom the applicant eventually conceded that it could not press any claim for relief. In my view the interests of justice will be served in this case if there is no order for costs in respect of the applications made today. I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson