RSL Com Partners v Ad'Tel Digital Systems [2004] NSWSC 299

New South Wales Supreme Court

CITATION : RSL Com Partners v Ad'Tel Digital Systems [2004] NSWSC 299 HEARING DATE(S) : 30 March 2004 JUDGMENT DATE : 30 March 2004 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Application for costs order dismissed

CATCHWORDS : PRACTICE AND PROCEDURE - costs - meaning of "party" in Part 52A rule 4 Corporations Act 2001 (Cth) s 1335 LEGISLATION CITED : Supreme Court Act 1970 (NSW) s 76 Supreme Court Rules Pt 52A r 4 Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd (No 2) (2001) 39 ACSR 622 CASES CITED : Re Minister for Immigration and Ethnic Affairs ex parte Lai Qin (1997) 186 CLR 622 Vestris v Cashman (1998) 72 SASR 449 RSL Com Partners Pty Ltd (P) Ad'Tel Digital Systems Group Ltd (formerly Adlink Group Pty Ltd) (in liq) (D) PARTIES : Anthony Milton Sims (A) Graham Douglas Favell (R1) Rosemary Favell (R2) FILE NUMBER(S) : SC 2751/01 COUNSEL : C D Freeman with D Jarrett (A) M Condon (Rs) SOLICITORS : Purcell Insolvency Lawyers (A) Gilshenan & Luton Lawyers (by their Sydney Agents: Holman Webb Lawyers) (Rs)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

TUESDAY 30 MARCH 2004

2751/01 RSL COM PARTNERS PTY LTD V AD'TEL DIGITAL SYSTEMS GROUP LTD (FORMERLY ADLINK GROUP PTY LTD) (IN LIQ) JUDGMENT (Ex tempore; revised 2 April 2004) 1 HIS HONOUR: This is an application by the liquidator of the defendant company, by interlocutory process filed on 27 February 2004, seeking an order that Rosemary Favell be joined as a party to an earlier interlocutory application by her husband, Mr Favell, of 3 October 2003 and an order that she pay the liquidator's costs with respect to the earlier application. 2 For the purposes of dealing with the application, I can explain the background to the matter fairly briefly. Mr Favell was, at relevant times, a director of the company. There is some evidence to indicate that he was the controller of the company. The liquidator was appointed to office in June 2001 and issued examination summonses to various persons, including Mr Favell. The liquidator's chronology indicates that it was necessary to issue several examination summonses before it was possible for him to serve Mr Favell. It was only in July 2003 that examination, in fact, occurred. It extended for a period of three days. 3 In the meantime, some events occurred which have caused the liquidator some legitimate concern. There is some evidence to indicate that Mr Favell did not supply the liquidator with his residential address when required pursuant to s 530A(5) of the Corporations Act, and that he did not file a report as to affairs as a director pursuant to s 475. The liquidator has adduced evidence intended to show that Mr Favell professed, in May 2003, to be unable to recall his mobile telephone number, because it was new, and yet he had had that mobile telephone number since October in the previous year. He also relied on some evidence intended to show that although Mr Favell obtained extensions of time and was able to defer the examination process by referring to his back condition and brought the examination process to an end, apparently prematurely, on that ground, he nevertheless was able to take a two hour flight to Townsville and return in August 2003. 4 There is evidence read on behalf of Mr and Mrs Favell and evidence of Dr Watson, a witness for the liquidator, which does demonstrate to my mind that Mr Favell has had a quite serious back condition during 2003 and 2004 which led, in August 2003, apparently after the Townsville trip, to hospitalisation including bowel surgery and to a spinal fusion procedure in March 2004. 5 The liquidator also relies on some evidence to the effect that Mr Favell has failed to sign the transcript of the examination in July 2003. 6 All of that is by way of background evidence because the application is directed to Mrs Favell rather than her husband. The condition of Mr Favell becomes relevant because it is advanced on behalf of Mrs Favell as part of her reasons for seeking to have her examination take place on commission in Queensland. I turn to the specific position concerning Mrs Favell. 7 The liquidator caused a summons for examination to be issued in the present proceeding, evidently following the usual ex parte procedure, on 16 September 2003. He is described as the applicant. There is no respondent. Mrs Favell is described as the person to be examined and the summons is directed to her. 8 On 3 October 2003 an interlocutory application was filed in the present proceeding, naming Mr Favell as applicant and seeking orders that his examination, which had at that stage been adjourned to 7 October 2003, be further adjourned to a date to be fixed, and an order that the examination of Mrs Favell also be adjourned to a date to be fixed. The interlocutory application also sought orders that the examinations of Mr and Mrs Favell occur by commission in Queensland at a day care facility. 9 The application was supported by an affidavit made by a solicitor from Queensland, who deposed that he had the care and conduct of the file in relation to Mr and Mrs Favell in respect of the proceedings. He said, as regards Mrs Favell, that she accompanied her husband in travel to Sydney by motor vehicle because of his severe back pain and the consequent need for her to act as a carer for him. After deposing that Mr Favell would seek the indulgence of evidence being taken on commission in Queensland in order to prevent adverse consequences to his health, the solicitor said that Mrs Favell would also seek to be excused from her examination summons for the reason that she needs to care for Mr Favell and their two children and that for the sake of convenience and potential saving of costs, if Mr Favell's evidence was ordered to be taken on commission then Mrs Favell would also seek to have her evidence taken in such fashion. The affidavit deposed to the fact that Mrs Favell cared for Mr Favell by helping him dress and providing other personal assistance and that she was responsible for looking after their children by feeding them and driving them to school. 10 The interlocutory application of 3 October 2003 came before Palmer J on 15 December 2003. His Honour made orders which he expressed to be consent orders. While the heading of the short minutes of order which his Honour initialled referred to Mr Favell as the sole "respondent" and did not designate Mrs Favell as a party to the proceeding or the application, the orders made referred to the interlocutory process as having been filed on behalf of Mr and Mrs Favell and required each of them to file their affidavit evidence in reply by a designated date. 11 On 20 February 2004 the solicitor who had deposed to the affidavit of 2 October 2003 sent a facsimile to the liquidator's solicitor. The facsimile identified Mr Favell, and not his wife, as the client. It stated that Mr Favell did not wish to pursue the application of 3 October 2003. Therefore, when the matter came to me as Corporations Judge on 23 February 2004, all that remained was to deal with the question of costs. When I was informed that the liquidator sought an order for costs against Mrs Favell because her husband is an undischarged bankrupt, I directed that an interlocutory process be filed for that purpose, made returnable today, and the interlocutory process of 27 February 2004 was accordingly filed. 12 Counsel for the liquidator contends that the Court should make an order that Mrs Favell pay the whole or some part of the costs in respect of the application of 3 October 2003. Of course, the vast bulk of the costs would relate to the liquidator's work concerning Mr Favell. That work included arranging for and dealing with the medical report by Dr Watson and also conducting some other investigations, including the taking of a DVD and video recording of Mr Favell designed to establish that his back condition was not an adequate basis for his not travelling to Sydney. 13 The liquidator's essential submission is that the application of 3 October 2003 should be treated as an application made by Mrs Favell as well as her husband, and one made on the basis of Mr Favell's back condition both as regards his examination and also as regards hers. It was contended, given Mr Favell's position, that the appropriate course would be to order Mrs Favell to pay the liquidator's costs now that the application has been abandoned. 14 I have decided, with some hesitation, to deny the application for costs. One of the issues agitated before me is whether Mrs Favell should be regarded as a party for the purposes of making a costs order. Section 76 of the Supreme Court Act, which says that costs shall be in the discretion of the Court, is expressed to be subject to the Court's rules. Part 52A r 4(2) says that subject to sub-r (5), the Court shall not, in the exercise of its powers under s 76, make any order for costs against a person who is not a party. 15 It has not been contended that any part of sub-r (5) has any application in the present case. In Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd (No 2) (2001) 39 ACSR 622 at 628-629 I observed that Pt 52A r 4 had limited the circumstances in which costs could be awarded against a non-party to those stated in sub-r (5), and specifically that it is no longer a ground for making such an order that a party to the litigation is an insolvent person or man of straw and a non-party has played an active part in the conduct of the litigation. 16 Therefore, it would appear that if Mrs Favell is not a party for the purposes of Pt 54A r 4(2), the Court is prohibited by the rule from making an order against her. The word "party" is defined inclusively in s 19(1) of the Supreme Court Act to include any defendant. "Defendant" in turn is defined to include a person served with a statement of claim or summons or served with notice of or entitled to attend any proceedings. 17 It seems to me that Mrs Favell's position is ambiguous. She was not named as a respondent to any application by the liquidator or, for that matter, the plaintiff, and became involved only in September 2003 when she was the person named (but not named as a respondent) in the examination summons. The application of 3 October 2003 was not an application naming her as an applicant, although it sought relief which would operate for her benefit. Palmer J's orders purported to operate with respect to Mrs Favell, though the basis for doing so was not articulated and presumably not explored, given that the orders were made by consent and signed by a solicitor on behalf of Mr and Mrs Favell. 18 I have real doubts as to the meaning of the word "party", in circumstances where examination summonses are issued under the Supreme Court (Corporations) Rules. I shall assume that Mrs Favell is properly described as a party to the proceeding, so that the Court is permitted to make an order against her notwithstanding Pt 52A r 4. Nevertheless, it seems to me that the Court ought not to make an order against her in the circumstances obtaining here. 19 In Vestris v Cashman (1998) 72 SASR 449, 458 Olsson J, with whom Doyle CJ concurred, said this: "To express the concept in another fashion, common fairness dictates that the defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security or, alternatively, at least by letter advising the defendant's intention, place the non-party on notice of that risk, so that the non-party will not, in effect, be lulled into a false sense of security and ambushed, when it is too late for it to reflect as contemplated in Yates Property Corporation Pty Limited v Bolan ." 20 That quotation is not directly applicable, especially if one assumes that Mrs Favell is to be treated as a party. However, the observation seems to me applicable. The matters to which I have referred contain nothing which would have drawn her attention to the risk as to costs that may have arisen, or the risk that the liquidator may have been intending to assert a claim for costs against her. It seems to me that procedural fairness of the kind identified in Olsson J's observations required, given the uncertain status of Mrs Favell in the proceeding, that something be said to her well before it was in fact said, to put her on notice that a claim for costs would be made against her, notwithstanding that she was not the nominal applicant in the application of 3 October 2003. In fact, what happened was that the claim against her was made only after the facsimile of 20 February 2004 notified the liquidator that the application would not be pursued. In those circumstances, therefore, assuming I have the power to make an order for costs against Mrs Favell, I would not think it fair to do so. 21 Other grounds were advanced on behalf of Mrs Favell which I shall note. Counsel for Mrs Favell submitted that there was no basis for joining his client as a party to the proceeding under Supreme Court Rules Pt 8 r 8 because it is not now necessary to the determination of the application of 3 October 2003 that she be joined, if ever it was. I agree with that submission. 22 The motion is now dormant except with respect to costs. The unfairness of joining Mrs Favell as a party simply in order to deal with costs may be assessed against the proposition that costs should not ordinarily be awarded where a matter terminates before hearing. 23 Counsel referred to Re Minister for Immigration and Ethnic Affairs ex parte Lai Qin (1997) 186 CLR 622 at 624-625 per McHugh J. There his Honour observed that ordinarily the power to order costs, being a discretionary power, is exercised after a hearing on the merits and where there has been no hearing on the merits, the Court is necessarily deprived of the key factor that usually determines whether and how it will make a costs order. He said that if it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continues to be reasonable until the litigation was settled, the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceedings. A fortiori, in an application of this sort the Court will make no order for costs against a party who has behaved at all times reasonably. 24 In my view, whatever may be said about the conduct of Mr Favell, in respect of whom some of the evidence read today is quite damning, Mrs Favell does not appear to me to have conducted herself at any stage unreasonably. She became involved, as I have said, only in September 2003. The solicitor whose affidavit supported the application of 3 October 2003 set out reasonable grounds for her to seek an examination on commission provided, of course, that her husband's back condition was established by the evidence. The evidence in her favour was that she had to care for her husband and the children. She does not appear to have had any substantial part in the carriage of the application, particularly bearing in mind that the letter of 20 February 2004 was a letter written on behalf of her husband. She was notified that a claim would be made against her for costs only after the contents of that letter were communicated. 25 In all the circumstances, as I have said, my conclusion is that the liquidator's application for an order for costs against Mrs Favell should be dismissed. 26 In submissions in reply, counsel for the liquidator made an oral application for leave to seek an order for costs against Mrs Favell under s 1335(2) of the Corporations Act. That section says that the costs of any proceeding before a court under the Corporations Act are to be borne by such party to the proceeding as the court in its discretion directs. 27 It seems to me inappropriate for the Court to grant leave to bring an application of this kind on an entirely different and new statutory basis, when the application is made only in reply after the respondent's case had closed. I have therefore decided to reject the oral application under s 1335(2). 28 It seems to me, however, that if the application had been allowed, and given that counsel for the liquidator wished it to proceed on the evidence already adduced, the outcome under s 1335(2) would be no different from the outcome that has been reached on another basis. This is because, whatever may be the precise meaning of s 1335(2), where it applies it confers upon the Court a discretion, which the Court would exercise in this case in favour of Mrs Favell. 29 I grant liberty to the liquidator to apply to the Corporations List judge with respect to the examination of Mr or Mrs Favell on three days' notice. 30 I dismiss the liquidator's application filed on 27 February 2004. I reserve costs of that application. **********