Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd and Others

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Hayne,Crennan JJ,Heydon J
• Judgment Date: 13 October 2009
• Neutral Citation: [2009] HCA 43,2009-1013 HCA B
• Court: High Court
• Docket Number: Matter No S167/2009
• Date: 13 October 2009

Jeffery & Katauskas Pty Limited

Appellant

and

SST Consulting Pty Ltd & Ors

Respondents

Jeffery & Katauskas Pty Limited

Appellant

and

Rickard Constructions Pty Limited (Subject To Deed Of Company Arrangement) & Ors

Respondents

[2009] HCA 43

French CJ Gummow, Hayne, Heydon and Crennan JJ

Matter No S167/2009

Matter No S168/2009

HIGH COURT OF AUSTRALIA

Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd

Jeffery & Katauskas Pty Limited v Rickard Constructions Pty Limited (subject to a deed of company arrangement)

Practice and procedure — Costs — Order against non-party — Where non-party, for a contingency fee, funded impecunious corporate plaintiff without providing plaintiff with indemnity against adverse costs orders — Whether power of Supreme Court of New South Wales to order costs against non-party enlivened — Whether non-party had committed abuse of process of the court within the meaning of Uniform Civil Procedure Rules 2005 (NSW), r 42.3(2)(c).

Words and phrases — ‘abuse of process of the court’, ‘occasioned by’.

Uniform Civil Procedure Rules 2005 (NSW), r 42.3.

Civil Procedure Act 2005 (NSW), s 98(1).

Representation:

D F Jackson QC with J A Steele for the appellant in both matters (instructed by Colin Biggers & Paisley)

B W Walker SC with T G R Parker SC and R E Steele for the respondents in S167/2009 and for the fourth to seventh respondents in S168/2009 (instructed by J Biady & Associates)

No appearance for the first respondent in S168/2009

Submitting appearance for the second and third respondents in S168/2009

ORDER

Appeal dismissed with costs.

French CJ, Gummow, Hayne and Crennan JJ.

Introduction

1 The costs of civil proceedings in the Supreme Court of New South Wales are ‘in the discretion of the court’. Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) (‘CP Act’) so provides. Power expressed in those terms extends to the award of costs against non-parties 1. However, the power given by s 98(1)(a) of the CP Act is expressed to be ‘[s]ubject to rules of court’ 2. One of those rules, r 42.3(1) of the Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’), provides that ‘the court may not, in the exercise of its powers and discretions under section 98 of the [CP Act], make any order for costs against a person who is not a party’ 3. A qualification to that prohibition follows immediately in r 42.3(2), which provides:

‘This rule does not limit the power of the court:

…

(c) to make an order for payment, by a person who has committed contempt of court or an abuse of process of the court, of the whole or any part of the costs of a party to proceedings occasioned by the contempt or abuse of process …’

These appeals raise the question whether the Supreme Court of New South Wales has power to order costs against a non-party which, for a contingency fee, has funded an impecunious corporate plaintiff without providing the plaintiff with an indemnity for adverse costs orders. Whether the Court has the power depends upon whether the litigation funder has ‘committed … an abuse of process of the Court’, thus attracting the application of r 42.3(2)(c).

2 For the reasons that follow, the power of the Court to make an order for costs against a litigation funder who is not a party to the proceedings was not enlivened in this case.

Factual and procedural history

3 On 23 April 1998, Rickard Constructions Pty Limited (‘Rickard Constructions’) and SST Consulting Services Pty Ltd (‘SST’) (then Port Botany Container Park Pty Ltd) entered into a contract for the construction of pavement at a container terminal at Port Botany. The pavement was designed by Rickard Hails Moretti Pty Ltd. Jeffery & Katauskas Pty Ltd (‘Jeffery & Katauskas’) provided geotechnical services. SST assigned its interest in the contract to Mayne Nickless Ltd (‘Mayne Nickless’) as part of the sale of its business to Mayne Nickless and MPG Logistics Pty Limited (‘MPG Logistics’). The pavement failed on 29 August 1999, three days after practical completion. On 3 May 2000, Rickard Constructions agreed to undertake rectification works in consideration of an assignment from Mayne Nickless and MPG Logistics of any rights they might have against parties involved in the design of the pavement and the supervision of its construction 4.

4 Rickard Constructions commenced proceedings against Jeffery & Katauskas and others in the Supreme Court of New South Wales on 5 September 2000. On 13 October 2000, Rickard Constructions entered into a deed of charge over all of its assets and undertaking in favour of SST. The deed recited a debt of $200,000 owed by Rickard Constructions to SST ‘arising from a loan to fund litigation concerning failed pavement and working capital’. The loan was said to have been ‘on the date of this Deed’. The charge nevertheless secured payment of a sum of $930,000 and interest.

5 On 19 October 2000, an administrator was appointed to Rickard Constructions by resolution of the directors. On 22 December 2000, a deed of company arrangement (‘DOCA’) was entered into between Rickard Constructions, its director (Charles Rickard), the administrator and two companies together designated ‘the Secured Creditor’, namely SST and SST Services Pty Ltd.

6 Upon execution of the DOCA, control of Rickard Constructions was to revert to its director 5. The administrator was to establish a fund designated ‘the Fund’ 6. The administrator was to appropriate to the Fund the property of the

company, defined as ‘the whole of the assets and undertaking’ 7, together with part of a sum advanced to the company by Mr Rickard and the Secured Creditor 8. The administrator was also to appropriate to the Fund ‘the amount of any settlement or verdict obtained by [Rickard Constructions] in the Construction List proceedings in accordance with clause 15.7’ 9.

7 Clause 15.1 of the DOCA provided that Mr Rickard and SST would ‘jointly covenant and agree to pay all legal fees and expenses incurred in the conduct of the Construction List proceedings by [Rickard Constructions]’. This was expressed to be subject to a limit not defined in terms, but to be inferred from cl 15.2, which provided:

‘The Director and the Secured Creditor will fund the Construction List proceedings to an amount of $150,000 or until 31 March 2001, whichever first occurs. The Director and Secured Creditor may at any time source litigation insurance or other funding to further fund the continued conduct of the Construction List proceedings. Such litigation insurance or other funding shall be subject to the agreement or approval of the Administrator which shall not be unreasonably withheld. Fees and expenses incurred in consequence of an increase in the monetary limit or the extension of the period of the conduct of the Construction List proceedings will form part of the amount payable under sub-clause 6.1.2 of this Deed.’

In the event that the monetary or time limits prescribed in cl 15.2 were exceeded, the administrator could decide, in his ‘complete discretion’, whether or not to accept litigation insurance ‘to further fund’ the proceedings 10. The company was to report to the administrator on the conduct of the proceedings 11 and not to ‘capitulate in, settle or compromise’ the proceedings without the prior written approval of the administrator, which was not to be unreasonably withheld 12.

Mr Rickard undertook to provide all reasonable assistance to the company and to its legal advisers in prosecuting the Construction List proceedings 13.

8 Clause 15.7 provided:

‘15.7 The Company will pay into the Fund all amounts recovered by way of settlement or a verdict in the Construction List proceedings. The Company shall only be obliged to pay into the Fund the net amount actually received by the Company after deducting:

15.7.1 the amount of any cost order made against the Company in the Construction List proceedings

15.7.2 the amount of any legal costs or other costs incurred in the conduct of the Construction List proceedings in addition to the funding by the Director and the Secured Creditor under clause 15.2

15.7.3 the amount paid to any litigation insurance funder or other funder agreed or approved by the Administrator under clause 15.3.’

9 SST was prohibited from enforcing its charge during the currency of the DOCA 14. It was to surrender its security 15 on the basis that it would receive payment of $350,000 in priority to unsecured creditors but after payment, inter alia, of the fees and expenses incurred in the conduct of the proceedings and the administrator's fees and expenses. Its entitlement to the further sum of $300,000 was to rank equally with other creditors. Payment of the balance secured by the charge was to be deferred until after payment of other creditors.

10 Jeffery & Katauskas obtained orders for security for costs of the trial, as to $47,750 by order of Rolfe J on 15 December 2000 and as to $140,000 by order of the trial judge (McDougall J) made on 6 October 2004, the day after commencement of what became a 19 day trial. An order for security in the amount of $50,000 in favour of another defendant, Allianz Australia Insurance

Ltd (‘Allianz Australia’) had been made by McClellan J on 15 November 2002. During the trial, on 11 October 2004, the trial judge dismissed an application by Allianz Australia for further security.

11 The action was dismissed 16. The shortfall between the costs of Jeffery & Katauskas of the trial and the security provided was in excess of $450,000.

12 Rickard Constructions appealed against the judgment dismissing its action, but the appeal was dismissed 17. Orders for security for the costs of the appeal were also made.

13 Meanwhile, the successful defendants in the proceedings sought from the trial judge, McDougall J, orders for the costs of the trial against SST and its directors under UCPR, r 42.3(2)(c)....