Case: Knight v FP Special Assets Ltd [1992] HCA 28 ; (1992) 174 CLR 178
Outcome: followed
Caboolture Park [1993] FCA 471 ; (1993) 45 FCR 224 the respondent to those proceedings obtained judgment against the applicant including an order for costs, which judgment was entered. The applicant subsequently went into liquidation and the respondent sought a supplemental costs order against the applicant's solicitors which would have had the effect of making them liable for those costs. The solicitors submitted that, once the proceedings had been concluded by judgment being entered and by an order for costs being made inter partes , there was no jurisdiction thereafter for the Court to reopen the case. The solicitors also submitted that the jurisdiction contained in s 43 of the Federal Court Act to "award costs in all proceedings" was spent once there was no longer a "proceeding" before the Court. Applying Knight v FP Special Assets Ltd [1992] HCA 28 ; (1992) 174 CLR 178 , the Full Court held that s 43 conferred jurisdiction to award costs against non-parties to a proceeding (at 229). In relation to the submission of the solicitors concerning whether there was still a "proceeding" before the Court, the Full Court observed that the submission incorrectly confined the meaning of the word "proceeding" to the original action, and was inconsistent with the definition of "proceeding" in s 4 of the Federal Court Act (at 230). The Court continued: What s43 requires is that the jurisdiction to order costs be one limited to costs relating to a proceeding. In other words, there is no jurisdiction to order costs at large. There has to be or have been, within the Court's jurisdiction, instituted a proceeding. It is irrelevant, subject to the application of common law principles discussed later, that judgment has been given and entered . (emphasis added) Although as a general rule costs are not awarded against a stranger to litigation, as I have already indicated it is well-settled that the Court has a discretion pursuant to s 43 of the Federal Court Act to order costs against a non-party in appropriate circumstances ( Knight [1992] HCA 28 ; (1992) 174 CLR 178 , Caboolture Park [1993] FCA 471 ; (1993) 45 FCR 224 , Gore v Justice Corp Pty Ltd (2002) 119 FCR 429, Kebaro Pty Ltd v Saunders [2003] FCAFC 5 , Life Therapeutics Ltd v Bell IXL Investments Ltd (No 2) [2008] FCAFC 158 ; (2008) 170 FCR 595). The exercise of such discretion is approached with caution indeed it has been described as "rare and exceptional" ( Vestris v Cashman (1998) 72 SASR 449 at 467, Kebaro [2003] FCAFC 5 at [103] ) and depends on the circumstances of each case as it is a "fact-specific jurisdiction" ( Kebaro [2003] FCAFC 5 at [69] ). Principles guiding the approach of the Court to the exercise of the include the following: In this case the applicants submitted that the circumstances articulated by Mason CJ and Deane J in Knight [1992] HCA 28 ; (1992) 174 CLR 178 must be present before the Court should exercise its discretion to make a costs order against a non-party, namely as follows at 192: 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. It cannot be correct that the circumstances described in Knight [1992] HCA 28 ; (1992) 174 CLR 178 constitute necessary pre-conditions to the exercise of the Court's discretion to award non-party costs pursuant to s 43 as submitted by the applicants. While obviously the comments of Mason CJ and Deane J would be an appropriate guide to the exercise of discretion in an appropriate case, they were clearly obiter (see observations of the Full Court in Yates v Boland [2000] FCA 1895). As the exercise of the discretion in s 43 is unfettered, other than the requirement that it be exercised judicially ( Knight [1992] HCA 28 ; (1992) 174 CLR 178 at [192] ; Gore (2002) 119 FCR 429 at 447-448), it follows that the comments in Knight [1992] HCA 28 ; (1992) 174 CLR 178 could not prescribe prerequisites to the exercise of discretion to award costs against a non-party. Inevitably, as the Full Court pointed out in Gore (2002) 119 FCR 429 at 437: ...there is no reason to suppose that the remarks of the members of the High Court in Knight have closed the door to the categories of third parties who may be made liable for the costs of litigation nor that the circumstances that were identified by their Honours were exhaustive. ... and later ...the learned trial judge erred when he regarded the passage in Knight as laying down three principles, each of which must be present before a stranger to the litigation could be made liable for costs. (at 451) I consider that it is appropriate to consider any potential liability of Mrs Tracy in terms of principles arising from cases where the courts have considered the exercise of the discretion to award costs against a non-party. The principles articulated in Knight [1992] HCA 28 ; (1992) 174 CLR 178 are relevant as guiding factors only, in appropriate circumstances. Consideration It is common ground that the causes of action determined in the primary proceedings were purportedly assigned by the applicants to Mrs Tracy on 17 June 2005 and then from Mrs Tracy to Janling Pty Ltd on 4 July 2005. (It is not in contention that at all material times the sole shareholder of Janling Pty Ltd was a corporation the sole shareholder of which in turn was Mrs Tracy, and that Mrs Tracy herself was the sole director of Janling Pty Ltd.) I say "purportedly" because the first and second respondent filed a notice of motion on 8 December 2005 seeking orders that the proceedings be dismissed and/or struck out on the basis that, inter alia , the causes of action the subject of the primary proceedings were not assignable (TS 14 December 2005 p 2 ll 35-43). Whether the assignment of the causes of action was valid ceased to be contentious when the parties agreed, and the Court ordered by consent on 15 February 2006, that the strike out motion of the first and second respondents be dismissed, that Janling Pty Ltd be removed as the applicant to the primary proceedings, and that the first, second and third applicants be substituted as applicants. However notwithstanding the orders of 15 February 2006 there is no evidence that the benefit of the relevant causes of action was reassigned by Janling Pty Ltd to the applicants. Accordingly any purported assignment of the causes of action, to the extent that the assignment took effect, remained with Janling Pty Ltd. It followed that presumably financial benefits of any success of the applicants in the proceedings would flow to Janling Pty Ltd, and thence to Mrs Tracy. The fact that the applicants were unsuccessful with respect to their claims against the first and second respondents (other than with respect to a number of reserved costs) is irrelevant in the context of this notice of motion. However in my view, notwithstanding potential financial benefits accruing to Mrs Tracy from the proceedings, the circumstances of this case do not warrant the exercise of the Court's discretion to award costs against Mrs Tracy pursuant to s 43 of the Federal Court Act. As I have already observed, the mere fact that a person may benefit from litigation will not, without more, suffice to justify an award of costs. I form this view for the following reasons.