FEDERAL COURT OF AUSTRALIA State of Queensland v Mantle [1999] FCA 1276 COSTS – appeal against exercise of discretion of Court to refuse to order payment of costs by third parties – where trial judge refused to order that the amount of any shortfall between the amount the trial judge ordered the respondents at first instance to receive by way of costs of and incidental to trial, and the amount met by the securities which had been ordered to be provided by the applicant, be paid by third parties to the litigation – whether exercise of discretion as to costs was so unreasonable or unjust as to require the Court on appeal to substitute its own discretionary order. Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1983-84) 157 CLR 149 cited Knight v FP Special Assets Ltd (1992) 174 CLR 178 referred to STATE OF QUEENSLAND & ANOR v GODFREY NORMAN MANTLE & ORS QG 101 of 1998 SPENDER, COOPER & TAMBERLIN JJ 15 SEPTEMBER 1999 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 101 OF 1998 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: STATE OF QUEENSLAND First Appellant SOUTH BANK CORPORATION Second Appellant AND: GODFREY NORMAN MANTLE First Respondent JENNIFER DEBORAH MANTLE Second Respondent JIMMY'S ON THE MALL PTY LTD Third Respondent JUDGES: SPENDER, COOPER & TAMBERLIN JJ DATE OF ORDER: 15 SEPTEMBER 1999 WHERE MADE: BRISBANE THE COURT ORDERS THAT: The appeal is dismissed with costs, to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 101 OF 1998 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: STATE OF QUEENSLAND First Appellant SOUTH BANK CORPORATION Second Appellant AND: GODFREY NORMAN MANTLE First Respondent JENNIFER DEBORAH MANTLE Second Respondent JIMMY'S ON THE MALL PTY LTD Third Respondent JUDGES: SPENDER, COOPER & TAMBERLIN JJ DATE: 15 SEPTEMBER 1999 PLACE: BRISBANE REASONS FOR JUDGMENT THE COURT: 1 This is an appeal by the State of Queensland and South Bank Corporation against the refusal by a single judge of the Federal Court of Australia (Kiefel J) to order that the amount of any shortfall between the amount that her Honour ordered the respondents to receive by way of costs of and incidental to a lengthy trial, and the amount met by the securities which had been ordered to be provided by the applicant in those proceedings, J L Holdings Pty Ltd (J L Holdings), be paid by third parties to the litigation, namely, Godfrey Norman Mantle (Mr Mantle), his wife Jennifer Deborah Mantle (Mrs Mantle) and Jimmy's On The Mall Pty Ltd. 2 Such an appeal is an appeal against the exercise of the Court's discretion. It is therefore necessary for the appellants to show that the Court's exercise of its discretion was so unreasonable or unjust as to require this Court to substitute its own discretionary order: see Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1983-84) 157 CLR 149 per Brennan J (as he then was) at 176. 3 It is submitted on behalf of the appellants that the learned primary judge refused to make the order because orders for security for costs had previously been made. It was submitted on behalf of the appellants that her Honour had based that view on the observations of McHugh J in Knight v F P Special Assets Ltd (1992) 174 CLR 178 at 217-8. There his Honour had said: "As a matter of policy, provision for security for costs is a better remedy for protecting persons involved in litigation with insolvent companies than ordering a receiver to pay the costs of litigation after verdict. Public policy does not preclude an insolvent company from bringing or defending an action. Where it does so, the ordinary remedy is to stay the action until security for costs is provided. If adequate security is sought and provided, no question of ordering a third party to pay the costs ought to arise. If a party does not seek adequate security for costs, after a receiver has been appointed, it is difficult to see how that party can justly complain that the receiver ought to pay those costs after the litigation has been completed. Furthermore, applications for security 'should be made promptly and before significant expense is incurred' by the company: see Devenish v Jewel Food Stores Pty Ltd (1990) 64 ALJR 533, at p 534; 94 ALR 664, at p 666. It would be an odd result if, in the exercise of the Court's discretion, an application made before trial to provide security for costs was refused on the ground of delay but the court could make an order for costs against the receiver after verdict." (emphasis added) 4 The central submission for the appellants is that Her Honour has treated the remarks of McHugh J as if there is a rule that "…security for costs having been ordered and thought by the court at that stage to be adequate, you can't revisit it…". The contention by the appellants is that the learned primary judge "converted those remarks into a rule". 5 It is further submitted on behalf of the appellants that the effect of her Honour's refusal to make the order sought concerning payment of the shortfall by third parties is that the successful parties to the litigation are out of pocket by "hundreds of thousands of dollars". The appellants ask rhetorically "Where's the justice in that?". This question is a reference to the observations of Mason J and Deane J in Knight (supra) at 192-3: "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 The evidence before this Court indicates that neither Mrs Mantle nor Jimmy's On The Mall Pty Ltd is within the category of case discussed by Mason CJ and Deane J. In that circumstance the question on the appeal is whether the exercise of discretion miscarried because the interests of justice required that a costs order should have been made against Mr Mantle. 7 Knight in the High Court concerned the sole question of whether there was jurisdiction in the circumstances of that case to make a costs order against a non-party. However, in the course of the reasons for judgment of the High Court, there are observations concerning the significance of orders for security for costs in the context of an application for a costs order against a non-party. Mason CJ and Deane J (with whom Gaudron J agreed) said at 190: "The appellants contend that the availability of an order for security for costs where the plaintiff is suing on behalf or for the benefit of another is a strong reason for denying the existence of a jurisdiction to order costs against a non-party. Indeed, it has been said that the practice of making such an order for security for costs and of staying the proceedings until it is given is the appropriate remedy: Ram Coomar Coondoo (1876), 2 App. Cas., at p 211. No doubt it is an appropriate remedy in many cases but there are limitations attaching to the availability of security for costs. These limitations are such that security for costs is not a remedy in all cases in which justice calls for an order for the award of costs against a non-party. Security cannot be ordered against a defendant or a plaintiff who is an individual and who resides in the jurisdiction. The amount awarded as security is no more than an estimate of the future costs and it is not reasonable to expect a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient. And the availability of the remedy is scarcely a reason for denying the existence of jurisdiction to make an order for costs against the 'real party' at the end of the trial of an action. The availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction." 8 Dawson J said at 204: "The only question raised in this appeal concerned the existence of jurisdiction to make an award of costs against a non-party. The question whether, given jurisdiction, an award ought to have been made against the receivers and managers in this case was not argued. There is some authority for making such an award: See In re Arthur Williams & Co; Ex parte Official Receiver [1913] 2 KB 88, at p 94; Re Bacal Contracting Ltd v Modern Engineering (Bristol) Ltd [1980] 2 All ER 655; Greenwood Forest Products (1969) Ltd v Newnes Machine Ltd (1986) 32 DLR (4th) 279; Kelaw Pty Ltd v Catco Developments Pty Ltd (1989) 15 NSWLR 587, at p 593. Having regard to the limited nature of the appeal, I should do no more than observe that an order for security for costs must ordinarily be the appropriate remedy where a receiver and manager conducts litigation through a company which will be unable to pay the costs of the defendant if the defendant is successful in his defence: See Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201, at pp 214-215. Moreover, as Mason CJ recognized in Devenish v Jewel Food Stores Pty Ltd: (1990) 64 ALJR 533, at p 534; 94 ALR 664, at p 666, applications for security for costs should ordinarily be made promptly before significant expense is incurred." 9 The observations of McHugh J have been set out earlier in these reasons. 10 It is therefore necessary to consider the nature of the primary litigation, the costs orders that were made in relation to the issues in the trial, and the history of applications for security for costs that had been made before and during the trial. 11 The company, J L Holdings, brought proceedings against the State of Queensland and South Bank Corporation in respect of a planned development of a theme park on land below the Kangaroo Point cliffs in Brisbane. A lease of Crown land, under the control of the Brisbane City Council as trustee, was required for that purpose. The Minister of the day had approved a draft lease from the Brisbane City Council to J L Holdings with some alterations. After a change of government, the new Minister refused to endorse his approval of the lease in its final form. J L Holdings brought proceedings covering many causes of action concerning its dealings for the development of the theme park, including estoppel, breach of lease, misfeasance in public office, breach of s 45D of the Trade Practices Act 1974, civil conspiracy, fraud, breach of copyright and defamation. 12 On 29 April 1994 Burchett J ordered that the proceedings, which had been commenced in the South Australia District Registry, be transferred to the Queensland District Registry. He also ordered J L Holdings to provide security for costs in the sum of $150,000, being in respect of costs up to the first day of trial, and ordered that the respondents have liberty to apply on or after the first day of trial for further security for costs. 13 On 16 December 1996 Kiefel J was concerned with an application by the respondents seeking the provision of security for costs to the extent of $1,121,890 made up of $571,270 for costs calculated to the commencement of the trial, 18 February 1997, and trial costs of $550,620. On 19 December 1996, the court ordered that the applicant provide further security for the respondents' costs in the sum of $250,000 with respect to pre-trial costs and $350,000 in respect of trial costs. In the course of the reasons for the making of those orders, her Honour noted: "…it needs to be recalled that whilst an order for security for costs requires something of a party and provides a potential benefit for the other, it is made with a view to rendering efficacious orders for costs made by the Court in the proceedings." Kiefel J questioned why the prospect of pre-trial costs exceeding $150,000 was not apparent to the appellants earlier, the costs order by Burchett J being made on 29 April 1994. Kiefel J noted: "The applicant has been frank in its concession that it is impecunious. And it has not sought to disguise the fact that other companies, effectively under Mr Mantle's control, have been funding the litigation and, in that sense, have an interest in its outcome. Moreover one of them may have a further interest in a portion of the damages award." 14 With respect to the amounts to be provided by way of further security Kiefel J said: "With respect to the amount of security, I do not propose to order a full indemnity. It seems to me that it is proper in a case of this kind and with a hearing of some four months ahead, to take into account contingencies relating to costs orders which may be made up to and at the conclusion of the hearing. I also take into account the amount already secured with respect to pre-trial costs." (emphasis added) 15 The trial commenced on 18 February 1997 and the hearing concluded on 27 June 1997. The trial therefore extended over some seventy-six days involving eighty-seven witnesses, 6016 pages of transcript and 1430 exhibits, including experts' reports of some thousands of pages. 16 On 24 April 1997 Mr Hanson QC, senior counsel for the respondents on the trial, foreshadowed an application to vary the security for costs order. He indicated that his material might be ready by the middle of the following week. The trial at that time was almost at the conclusion of the case for the applicant. 17 Her Honour noted: "I am loathe to interrupt the progress of the trial unless there is good reason, but I will think about that." Her Honour enquired: "What is the basis for it? [Is it] simply that those causes of action were not proceeded with?" And Mr Hanson replied: "…the proceedings against South Bank are now at an end…the company is entitled to judgment." Answering her Honour's inquiry as to the basis for the further application for security for costs, Mr Hanson said: "Because in granting security for costs, we would have thought the court usually allows a cushion there for the contingency that the defendants may fail so less than 100 per cent security is always granted. That contingency has now disappeared and South Bank is entitled to its costs in the action. So that cushion has now gone, throwing a greater burden on the other respondents." 18 On 28 April 1997, her Honour referred to the foreshadowed application for security for costs and said: "…I think the basis upon which you put it on Friday was that there is some reduction usually made from the quantum of security for costs because of the prospect of the contingency of lack of success." Her Honour noted: "That is only one of the contingencies I think that is responsible for the discounting, but it occurred to me that the balancing factor against that was that the stance now taken by the applicant in not pursuing the conspiracy has shortened the trial. That is to say, if you are having regard to the quantum of security already ordered, it was on the basis of a longer trial. Since there are fewer witnesses to be called, that might balance out the argument that you are contending for." 19 Her Honour indicated that she raised that aspect now "so you could consider it". And then said: "The other matter is what would we do: stop the trial while security for costs is organised; I am really not disposed to doing that." To which Mr Hanson replied: "Well, if the justice of the case requires that further security be given, it has just got to be done. It does not necessarily mean the trial stops, I would not have thought." Her Honour then said: "All right. Well, I will leave it to you to consider." 20 Later, on 8 May 1997, there was a prospect that the trial would not finish within the time allocated for it and the finalisation of the trial might have to be put over to a later time. In that context, the following exchange occurred: Mr Hanson: "The question of an application for security for costs. If the trial is not going to finish within this time, it is to go over, well this affects our attitude which we are presently considering." Her Honour: "If there is an adjournment---" Mr Hanson: "Yes." Her Honour: "---I think well, that might be so. But if there is not an adjournment I am not inclined in relation to security for costs." The appellants did not make any such application during the course of the trial as had been foreshadowed. 21 On 6 March 1998 Kiefel J gave judgment in some 162 pages, dismissing the claims by J L Holdings. In the course of those reasons, having referred to the complexity of the trial and its extent, her Honour said: "In such a situation there are likely to be differences of approach to the question of costs, and I shall adjourn further hearing on that issue to allow the parties to prepare submissions." 22 On 19 May 1998, the appellants filed the notice of motion seeking that the third parties pay the shortfall between costs to be ordered and the amount of security that had been provided. On the same day an affidavit by Terrie Margaret McCarthy was filed in support of that motion. The costs estimate for the trial at the earlier application for further security was said by Ms McCarthy to be less than fees incurred in respect of various matters. The earlier estimate for counsel's fees, based on one senior counsel and one junior counsel at the trial, was on the same basis shy by $125,000. Witnesses expenses were $42,900 more than had previously been estimated and attendance fees were approximately $11,000 more than that estimated. She then deposed: "I consider that even when the costs orders made against the Respondents throughout the course of the proceedings are offset against the Respondents' party and party costs of and incidental to the action, there is still a significant shortfall between the amount of security for costs provided by the Applicant and the Respondents' costs." 23 On 25 August 1998, Kiefel J gave judgment on costs and on the motion concerning the shortfall. In respect of some of the claims her Honour ordered that J L Holdings pay costs of preparation on an indemnity basis; in respect of the costs ordered to be paid on a party and party basis, there was a percentage reduction in the amount of the costs which the applicant was ordered to pay to the respondents. The orders on costs were: "1. The applicant pay the first respondent's costs of the proceedings including reserved costs, save for twenty per cent of the costs on the hearing and twenty per cent of costs of preparation of witnesses and that it pay costs on an indemnity basis of the first respondent's preparation on the claims of civil conspiracy, breach of copyright and of s 45D Trade Practices Act, and defamation and, on the claim of fraud, fifteen days of hearing. 2. The applicant pay the second respondent's costs of the proceedings on an indemnity basis." 24 In declining to make any order against non-parties, her Honour said: "The respondent seeks an order for costs against Mr Mantle personally. There is no doubt of his connexion with the litigation and that he would have derived benefit from it. He has made no secret of this and has himself provided security for costs. It was not suggested that the Court lacked power to make such an order. It was submitted for Mr Mantle that such an order should not be made in circumstances where security for costs had been previously ordered and where the non-party who has joined in providing it is thereby led to believe that no further demand will be made of him. As a question of fact I do not think the latter part of the submission can be accepted. Applications for orders for costs against non-parties ought not be necessary where applications have already been made for security for those costs, as McHugh J observed in Knight v F P Special Assets (1992) 174 CLR 178, 217-8. Orders made reflect what the Court considers to be adequate in the circumstances. It seems to me that what is now sought, by way of this order, is an increase to the security previously ordered, on the basis that it was not sufficient. The trial was conducted largely within the parameters put forward when security for costs was determined and I do not consider it appropriate, in effect, to revisit it." 25 It is by no means clear, having regard to the costs orders that were made, that there would be a substantial shortfall between the costs the applicant was ordered to pay and the amount that had been ordered to be provided by way of security. A quantification of any shortfall, even on a very broad brush basis, is on the material quite problematic. 26 However, even on the assumption that there was to be a substantial shortfall, the learned primary judge did not apply the observations by McHugh J in Knight as a rule binding on her. What her Honour specifically noted was the following passage from the judgment of McHugh J in Knight ( at 217): "If adequate security is sought and provided no question of ordering a third party to pay the costs ought to arise." 27 The observation by Kiefel J that "…[t]he trial was conducted largely within the parameters put forward when security for costs was determined…",is directed to a comparison between the provision made for costs, as estimated, and what actually occurred at the trial. The finding by her Honour that it was "…not appropriate, in effect, to revisit…" the orders that had been made for security for costs, reflects a conclusion that nothing had been demonstrated in her Honour's view to conclude that adequate security had not been already ordered. That was an assessment well open to her Honour. 28 No error in the exercise of her Honour's discretion in declining to order a third party to meet whatever any shortfall might be, has been demonstrated so as to require this Court to substitute its own discretionary order. 29 The appeal should be dismissed with costs, to be taxed if not agreed. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Spender, Cooper & Tamberlin. Associate: Dated: 15 September 1999 Counsel for the Appellants: Mr R V Hanson QC and Mr J D McKenna Solicitor for the Appellants: Crown Solicitor for the State of Queensland Counsel for the Respondents: Mr T A Gray QC and Mr T Matthews Solicitor for the Respondents: Minter Ellison Date of Hearing: 16 February 1999 Date of Judgment: 15 September 1999