Campbell v Airport Transfer System Pty Ltd & Ors [2006] NTSC 40

PARTIES:	CAMPBELL, LORRAINE as legal representative of the Estate of ROBERT GEORGE MONCKTON (Deceased)

	v

	AIRPORT TRANSFER SYSTEM PTY LTD (ACN 085 785 897)

	AND:
						
	MONCKTON, GERALDINE

	AND:
	
	GOODWIN, REBECCA					

TITLE OF COURT:	SUPREME COURT OF THE NORTHERN TERRITORY

JURISDICTION:	SUPREME COURT OF THE TERRITORY EXERCISING NORTHERN TERRITORY JURISDICTION

FILE NO:	No. 16 OF 2006 (20604992)	

DELIVERED:	1 JUNE 2006

HEARING DATES:	22, 28 MARCH 2006

JUDGMENT OF:	ANGEL ACJ

CATCHWORDS:

PROCEDURE - Costs - proceedings under Corporations Act 2001 (Cth) instituted by solicitors without reasonable grounds and without adequate investigation - dismissal of proceedings - jurisdiction of Court to order solicitors personally to pay costs of proceedings - solicitor’s duty to court and not litigant.

PROCEDURE - Costs - wasted costs order - ground for exercise - extraordinary circumstances required to make order.

CORPORATIONS - Practice and Procedure - costs of proceedings - order against person not party to proceedings - power of court to order not precluded by Corporations Act 2001 (Cth), s 1335(2) - inherent jurisdiction - Supreme Court Rules (NT) - Order 63.21.

STATUTES - Interpretation - Corporations Act 2001 (Cth), s 1335(2) - does not limit power of court to order costs against persons not party to proceedings under Corporations Act 2001 (Cth).

Corporations Act 2001 (Cth), s 1335(2)
Supreme Court Rules (NT), O 63.21

Applied:

Colgate Palmolive v Cussons 1993) 46 FCR 225
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397
Re Struthers (liquidator of PACI Pty Ltd) (No 3) [2005] NSWSC 1113
UTSA Pty Ltd (in liq) & Ors v Ultra Tune Australia Pty Ltd & Ors (1998) 146 FLR 209

Referred to:

Al-Kandari v J R Brown & Co [1988] QB 665
Broughton v Broughton [1955] SASR 241
Business Computers International Ltd v Company Registrar [1988] Ch 229
Caboolture Park v White Industries (1993) 45 FCR 224
Da Sousa v Minister (1993) 114 ALR 708
Knight v F P Special Assets Ltd (1992) 174 CLR 178
Marshall v D G Sundin & Co Pty Ltd (1989) 16 NSWLR 463
Medcalf v Mardell [2003] 1 AC 120
Meyappa Chetty v Supramanian Chetty [1916] 1 AC 603
Myers v Elman [1940] AC 28
Ridehalgh v Horsefield [1994] Ch 205
Stewart v Normandy NFM Ltd (2000) 18 ACLR 814

Not followed:

Australian Forest Managers Ltd (in liq) v Bramley & Ors (1996) 65 FCR 13
Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193

REPRESENTATION:

Counsel:
	Applicant:	K Oldfield
	Respondents:	D Francis

Solicitors:
	Applicant:	Ward Keller
	Respondents:	David Francis & Associates

Judgment category classification:	B
Judgment ID Number:	Ang2006011
Number of pages:	14

IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN

Lorraine Campbell as legal representative of the Estate of Robert George Monckton (Deceased) v Airport Transfer System Pty Ltd (ACN 085 785 897) & Ors  [2006] NTSC 40 
No. 16 of 2006 (20604992)

	LORRAINE CAMPBELL as legal representative of the Estate of ROBERT GEORGE MONCKTON (Deceased)
						Applicant

	v
 
	AIRPORT TRANSFER SYSTEM PTY LTD (ACN 085 785 897)
					First Respondent
	
	GERALDINE MONCKTON
					Second Respondent
	
	REBECCA GOODWIN
					Third Respondent

CORAM:	ANGEL ACJ

REASONS FOR JUDGMENT

(Delivered 1 June 2006)

[1]	The successful respondents in these proceedings seek costs on an indemnity basis against the solicitors for the unsuccessful applicant.
[2]	The application for costs was heard on 22 and 28 March 2006.  I gave leave to the parties to file further submissions in writing.  The last of those submissions were filed on 30 May 2006.
[3]	The application for costs is made in the following circumstances.
[4]	The first respondent, Airport Transfer System Pty Ltd, was incorporated on 7 January 1999 with a paid up capital of $2.00 made up of one ordinary $1.00 share owned by Robert George Monckton and another ordinary $1.00 share owned by his wife, the second respondent.  On 2 February 1999 the second respondent transferred her share at par value of $1.00 to her husband.  On 22 November 2004 Robert George Monckton transferred one of the shares in the first respondent to the second respondent, transferred the other share to his daughter, the third respondent, and resigned as director and secretary of the company.  The shares were transferred for a consideration of $1.00, the company at the time having a net deficiency in assets.  The resignation as director and transfer of the shares were effected through documentation prepared by the company and family accountant Mr Duncan Neil Bell.
[5]	Mr Bell is the principal of BKR Walker Wayland (Darwin) the accountants for the first respondent since its incorporation and for Robert George Monckton since about 1996.  On the same day that Robert George Monckton transferred his shares and resigned as a director of the first respondent, his daughter, the third respondent, consented to act as a director of the first respondent, and his wife, the second respondent, consented to act as secretary of the company.  On 28 September 2004 a Form 484 Notice of Change of Company details in respect of the first respondent was lodged with the Australian Securities Investment Commission.
[6]	Robert George Monckton died on 22 November 2004 in Adelaide following heart surgery.
[7]	By his last will and testament Robert George Monckton appointed his sister Lorraine Campbell, the present applicant, as executrix of his estate.  The sole beneficiaries under the will were the deceased’s widow, the first respondent, and his daughters including the third respondent who were all to share his estate equally.
[8]	In the present proceedings Lorraine Campbell as “legal representative” of the estate of the deceased sought an order pursuant to s 198F (2) Corporations Act (Cth) for an order to inspect the books of the first respondent.  That statutory right of inspection needs be: 
		“… for the purposes of a legal proceeding:
			(a)	…
			(b)	that the person proposes in good faith to bring … .”

[9]	In a letter dated 16 August 2005 the applicant’s solicitors wrote to the third respondent saying, inter alia,
“During the executor’s (sic) administration of Mr Monckton’s estate questions have arisen about the transfer of the company out of his name.  The executor (sic) anticipates that Probate may be delayed by the Court, and that proceedings may need to be instituted by her in relation to that transfer.  She seeks access to the books of the company to explore the necessity for such proceedings and, if possible, to stave off any proceedings by satisfying the Court that Probate should be granted.”

[10]	The application was successfully opposed.  The second and third respondents and the company accountant Mr Bell each deposed to the fact that the deceased had transferred the shares to his wife and daughter, the third respondent and had resigned as director and had done so freely and voluntarily in circumstances where the company had more liabilities than assets.  
[11]	The application to inspect the company’s books was dismissed as having no proper basis, there being no arguable case that the share transfers should be set aside.  The application to inspect was in the nature of a fishing expedition and manifestly failed to meet the requirements of s 198F(2) Corporations Act as explained in Stewart v Normandy NFM Ltd (2000) 18 ACLC 814.
[12]	There has been no grant of probate of the last will of the deceased to the applicant.  The respondents submitted that she therefore had no standing to commence the present proceedings because of s 49 Administration & Probate Act (NT).  Reference was made to Marshall v D G Sundin & Co Pty Ltd  (1989) 16 NSWLR 463.  The solicitors for the applicant submitted the Administration & Probate Act did not oust the common law whereby personal property devolves to an executor appointed under a valid will pursuant to the will and not, as in the case of real property, from the grant of probate, see Meyappa Chetty v Supramanian Chetty [1916] 1 AC 603 at 608–9.
[13]	I find it unnecessary to consider these contentions for present purposes.
[14]	A disturbing aspect of the present proceedings is that the deceased transferred the shares in the company to his wife and daughter and resigned as a director of the company following legal advice given in this regard by his former solicitors, the present solicitors for the applicant.  This fact is deposed to by Mr Bell and the second and third respondents.  I do not wish to dwell on this aspect of the case other than to say that there was and is no foundation for questioning the deceased’s actions and that the applicant’s application to inspect the company books had no basis whatsoever.  Moreover that lack of basis, I infer, must have been known to the applicant’s solicitors who had advised the deceased.  
[15]	In correspondence prior to action the respondent’s solicitor expressed concern about wasted costs and in my view the circumstances of this case justify a wasted costs order against the applicant’s solicitors.  Furthermore, it seems to me, those costs should be on an indemnity basis.
[16]	I fully appreciate that wasted costs orders in favour of a litigant against the solicitors for an opponent are only made sparingly and in circumstances which clearly justify such an order.  In the present case there are extraordinary circumstances: the applicant commenced and pursued legal proceedings pursuant to advice from the solicitors who advised the very transaction sought to be impugned in proceedings which the applicant “proposes in good faith to bring”.  In order to justify a wasted costs order it is not enough that a solicitor has instigated and pursued a hopeless case on behalf of a client.  A practitioner does not act improperly, unreasonably or negligently because he pursues a hopeless case.  Something more is required: Ridehalgh v Horsefield [1994] Ch 205 at 233–234.  In the present case there is “something more”.
[17]	Litigating parties are generally protected from serious misconduct by solicitors acting for their opponent by wasted cost orders as part of the inherent jurisdiction of the court: Myers v Elman [1940] AC 282.  It is a jurisdiction to be exercised with considerable caution and the Court must “be astute to control what threatened to become a new and costly form of satellite litigation”.  See per Lord Bingham of Cornhill in Medcalf  v Mardell  [2003] 1 AC 120 at 136 D.  The inherent jurisdiction in relation to wasted costs is a fault jurisdiction and it is a breach of duty by solicitors to the Court rather than to the opposing party that justifies the intervention of the Court.  It is not limited to misconduct or default but extends to costs incurred improperly or without reasonable cause:  Myers v Elman [1940] AC 282 at 289, 303, 318; Broughton v Broughton [1955] SASR 241 at 247, 248.  Compare Da Sousa v Minister (1993) 114 ALR 708 at 712.
[18]	Unlike the case of a solicitor wasting costs of a client where the potential for personal liability for those costs will encourage the performance of the solicitor’s duty to the client, a wasted costs order at the instance of and in favour of an opposing party gives rise to wholly different considerations.  The risk of personal liability for costs of a client’s opponent may cause a solicitor to put his own interests above those of his client and may well distract the solicitor in the proper representation of his client.  This is one reason why the Court’s discretion to order such costs is to be exercised with care and circumspection.  See generally Ridehalgh v Horsefield [1994] Ch 205 and Medcalf  v Mardell [2003] 1AC 120, and particularly, per Lord Hobhouse of Woodborough at 143 A–C. 
[19]	Bingham LJ, as he then was, said in Al–Kandari v J R Brown & Co [1988] QB 665 at 675, “Ordinarily  … in contested civil litigation a solicitor’s proper concern is to do what is best for his client without regard to the interests of his opponent.”  As Lord Hobhouse of Woodborough pointed out in Medcalf v Mardell [2003] 1 AC 120 at 142 the proper discharge by a barrister of his duty to his own client, will often be disadvantageous to the interests of his client’s opponent.  The same is true of a solicitor.
[20]	In Business Computers International Ltd v Company Registrar [1988] Ch 229 at 240–241 Scott J said, in a judgment approved in Al-Kandari v J R Brown & Co and by Lord Hobhouse of Woodborough in Medcalf v Mardell:
at 240G:
“… control of litigation and of the various steps taken in prosecuting litigation lies in the court and the rules and procedures that govern litigation and cannot be sought via a tortious duty of care imposed on one party for the benefit of the other.”

and further, at 241A:
“In my judgment, there is no duty of care owed by one litigant to another as to the manner in which the litigation is conducted, whether in regard to service of process or in regard to any other step in the proceedings.  The safeguards against impropriety are to be found in the rules and procedure that control the litigation and not in tort.”

Thus it is that a wasted costs order in respect of an opponent’s costs is grounded on a solicitor’s duty to the Court and not the litigant.
[21]	Apart from the inherent jurisdiction of the Court the costs liability of a legal practitioner is contained in rule 63.21 Supreme Court Rules which relevantly provides:
		“63.21 Costs Liability of Legal Practitioner

		1.	Where a solicitor for a party, whether personally or through a 			servant or agent, has caused costs to be incurred improperly or 			without reasonable cause or to be wasted by undue delay or 				negligence or by other misconduct or default, the Court may 				order that – 

			(a) 	…

(b) 	…

(c)	The solicitor pay to the client all or any of the costs 	which the client has been ordered to pay to a party; or

(d)	The solicitor pay all or any of the costs payable by a 	party other than his client.
2.	…

3.	The Court shall not make an order under sub–rule (1) without 	giving the solicitor a reasonable opportunity to be heard.

4.	…

5.	…

6.	The Court may order that notice of a proceeding or order against a solicitor under this rule be given to his client in such manner as it directs.

7.	This rule, with the necessary changes, applies to a barrister as it applies to a solicitor. 

[22]	Counsel made no mention of s 1335(2) Corporations Act which provides:
“The costs of any proceeding before a court under this Act is to be borne by such party to the proceeding as the Court, in its discretion, directs.”

On its face that section confines the Court to awarding costs between the parties to the proceeding.  The application pursuant to s 198F(2) Corporations Act to inspect the books of the first respondent is a proceeding “under” the Corporations Act.  Rule 1.3 of the Corporations Act provides that the provisions of Chapter 1 of the Supreme Court Rules apply so far as they are not inconsistent with the Corporations Act.  There is no inconsistency between the Corporations Act and the Supreme Court Rules, but what of s1335(2) Corporations Act which appears to be inconsistent with O 63.21 Supreme Court Rules, in so far as it does not provide for costs orders against persons who are not parties? 
[23]	There has been some disagreement over the scope and meaning of s 1335(2) Corporations Act.
[24]	In Australian Forest Managers Ltd (in liq) v Bramley & Others (1996) 65 FCR 13, 136 ALR 431, Lindgren J held s 1335(2) Corporations Act confines costs orders inter partes and is inconsistent with s 43 Federal Court Act which gives the Federal Court power to order a non–party to pay costs, Caboolture Park v White Industries (1993) 45 FCR 224, 117 ALR 253.  He therefore held he had no power under s 43 Federal Court Act, despite its terms, to order costs in proceedings “under” the Corporations Act against a liquidator.  In so holding he expressly approved Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193, 117 ALR 479.
[25]	In UTSA Pty Ltd (in liq) & Ors v Ultra Tune Australia Pty Ltd & Ors (1998) 146 FLR 209 Chernov J held s 1335(2) Corporations Act was not inconsistent with s 24(1) Supreme Court Act (Vic) and that in proceedings “under” the Corporations Act he had power to order costs against a non–party pursuant to s 24(1) Supreme Court Act.  His Honour reviewed the legislative history of s 1335(2) Corporations Act and concluded it did not limit the operation of s 24(1) Supreme Court Act (Vic) or the Supreme Court’s jurisdiction as to costs.
[26]	In my view s 1335(2) Corporations Act does not inhibit this Court’s power under O.63.21 to make orders for costs against non–parties in a proceeding “under” the Corporations Act.  Nor, in my view does it inhibit this Court’s inherent power to make costs orders against legal practitioners in such a proceeding.  I respectfully agree with Chernov J in UTSA Pty Ltd (in liq) that s 1335 is an enabling provision rather than a limiting provision.  I also respectfully agree with the additional reasons of Brereton J in Re Struthers (liquidator of PACI Pty Ltd) (No 3) [2005] NSWSC 1113 for reaching that conclusion. 
[27]	Whether orders for costs against solicitors are regarded as an exercise of the Court’s disciplinary power, as in eg. Myers v Elman [1940] AC 282 at 318–319 per Lord Wright, or an exercise of the jurisdiction to award costs of the proceedings, as in Knight v F P Special Assets Ltd (1992) 174 CLR at 178 per Mason CJ and Deane J, Gaudron J concurring, or “but an aspect of the wider power of superior courts to order costs against non–parties”: Da Sousa v Minister (1993) 114 ALR 708 at 712 per French J, I am satisfied I have jurisdiction to make the order sought.
[28]	Speaking generally it is a solicitor’s duty to avoid wasted costs.  Having carefully considered the matter I am of the view that the respondent’s cost of and incidental to the proceedings should be paid by the solicitors for the applicant and that such costs should be taxed on an indemnity basis and forthwith.  
[29]	The applicant’s application was wholly unsuccessful.  It was without merit and unsupported by the beneficiaries named in the deceased’s will.  There was no apparent benefit to be gained by the estate of the deceased in bringing the application.  It was brought in the face of compelling evidence apparent to the applicant’s solicitor well before the application was brought.  The share transfers in question were executed by the deceased in the presence of Mr Bell.  The par value expressed as consideration for those transfers was appropriate.  The only possible basis to set those transfers aside was forgery or other gross impropriety on the part of Mr Bell and the wife of the deceased.  In the absence of evidence supporting impropriety it was improper for the application to be made in the first place and unreasonable to have persisted with so baseless aclaim.  Well before the application was made the applicant’s solicitor was on notice from the solicitors for the respondents, that the respondents were concerned that costs were being wasted in what appeared to be a pointless exercise.  
[30]	The application was brought by the applicant in her purported capacity as legal representative of the deceased’s estate.  There is no suggestion of personal misconduct on her part.  It would be unfair to the beneficiaries to the deceased’s estate including the second and third respondents to order that the applicant pay the respondents’ costs of and incidental to the proceeding were such costs to be recouped from the deceased’s estate.  It would be unfair for the applicant personally to bear the costs of the unsuccessful application.  As was pointed out in argument an order that the applicant bear the costs of the application would not only be to her disadvantage but would also cause further disharmony between the applicant, the deceased’s sister, and the second respondent, the deceased’s widow.  
[31]	The application was apparently brought on the initiative and advice of the solicitors for the applicant.  Those same solicitors had advised the deceased as to financial and legal reasons for transferring his shares in the first respondent to the second respondent, the very transaction said to be liable to be impugned.  The application to inspect the first respondent’s books had no foundation.  The assertion that the share transfers were liable to be impugned failed to pay reasonable attention to the facts and the requirements of s 198F Corporations Act and was implausible and suggestive of an abandonment by the applicant’s solicitors of the objectivity and sense of proportion which the Court is entitled to require of its practitioners.  Particularly was this so having regard to the limited assets of the estate and the poor financial state of the first respondent.  Seeking to impugn the share transfers suggested forgery or fraud on the part of Mr Bell.  It was the applicant’s solicitor’s duty to put before the Court material said to justify so serious an allegation.  No such evidence has been forthcoming.  In my view the applicant’s solicitors’ conduct of the proceedings on behalf of the applicant in the knowledge of the advice they had given the deceased and what the respondents and Mr Bell said of the share transfers and resignation by the deceased as a director of the first respondent was plainly unjustified.  In my view it is therefore appropriate that a wasted costs order be made against the solicitors for the applicant. In these circumstances and in accordance with the principles discussed in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397 at 400–401, per Woodward J and Colgate Palmolive v Cussons (1993) 46 FCR 225 at 233–234, per Sheppard J, it is appropriate that those costs be awarded on an indemnity basis.  The application for inspection having been dismissed it is appropriate that the respondents’ costs be taxed forthwith.
[32]	There will be orders as follows:
(i)	That the respondents’ costs of and incidental to the proceedings be 		paid by the applicants’ solicitors.
(ii)	That such costs be paid on an indemnity basis.
(iii)	That such costs be taxed forthwith.