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Wilex Coca and Coconut Products Ltd v Electric Power Corporation [2011] WSCA 9 (26 August 2011)

IN THE COURT OF APPEAL OF SAMOA
HELD AT MULINUU

C.A. 25/10B

BETWEEN:

WILEX COCOA AND COCONUT PRODUCTS LTD a duly incorporated company having its registered office at Apia
Appellant/Respondent

AND:

THE ELECTRIC POWER CORPORATION a body corporate established under the Electric Power Corporation Act 1972 and continued under the Electric Power Corporation Act 1980
Respondent/Appellant

Coram: Honourable Justice Baragwanath
Honourable Justice Fisher
Honourable Justice Hammond

Counsel: C Meechan, P Fepuleai and A Roma for Wilex
A Hooker and D Clarke for the Electric Power Corporation

Hearing: 22 August 2011

Judgment: 26 August 2011

JUDGMENT (No. 2) OF THE COURT

Introduction

1. Industrial premises in Apia being utilised as a chocolate factory and retail outlet burnt down on 1 June 2003. The owner, Wilex, was not insured. But it took the view that this fire was caused by the negligence of EPC.
   
2. EPC thoroughly and promptly investigated the cause of the fire and its associated electrical systems. It said the fire was not its fault and it resisted liability.
   
3. The litigation went to trial in the Supreme Court in August 2010. The Court found in favour of EPC.
   
4. Wilex then appealed to this Court which, by a contemporaneous judgment, has upheld the Supreme Court decision.
   
5. EPC had incurred total costs in excess of $2 million with respect to this litigation. It applied for party and party costs against Wilex. Slicer J. awarded EPC $1,283,396 under that head. A good deal of the costs involved reimbursements for the extensive expert evidence.
   

The possibility of costs against Wilson

6. EPC took the view, from an early stage, that this litigation had no prospect of success and that it was being put to major expense for no good reason, both by Wilex and Mr Wilson.
7. So Wilex gave notice in its formal pleadings that it intended, in due course, to seek costs from Mr Wilson personally, in addition to the usual party and party costs.
   
8. Mr Wilson is the managing director of Wilex and has a substantial personal stake in the company. Doubtless there was a measure of forensic posturing by EPC in this tactic. But undoubtedly EPC's position has been made plain from the outset and Mr Wilson knew it, that in the event that the claim failed a costs order was likely to be sought against him personally.
   
9. In due course EPC did seek such an order. Slicer J, who had heard the merits of the case, declined that order. He did so for two reasons.
   
10. First the Judge said notice to Mr Wilson of his potential liability was necessary and had not been given. The Judge was in error on that point. For the purposes of this argument we are content to assume that notice is necessary. In any event, the Judge here overlooked the clear pleading point. In an affidavit Mr Wilson maintained that he had to be served personally. But as Ms Meechan correctly, and we think properly, conceded her clients simply could not succeed on the facts on this point: Mr Wilson well knew from an early stage that his potential personal liability was in issue.
    
11. Secondly, the Judge said that EPC could have applied for a greater amount of security. A relatively modest security costs order was in place as a result of an order of the Chief Justice. The argument was that the security route should have been taken, by applying for an increase, perhaps prior to trial when inevitably costs go up substantially. The principal difficulty here is that, as will become apparent, the company was in some real difficulty. It had only been able to meet the previous security order by resorting to personal guarantees from Mr Wilson and others as funders.
    
12. It is as well to make it plain that the quantum of the order for party and party costs of some $1.25 million has not been challenged by either side.
    

The real cause of the fire

13. It will be apparent from today's merit judgment, but it may be as well to add here, that not only had EPC's experts rejected negligence on its part; they had pinpointed negligence on the part of Wilex in the maintenance of its own plant. Slicer J. held that to have caused the fire and we have not disturbed his finding. In short, what had happened was the fault of Wilex itself but it would not or could not come to terms with that and persisted in the litigation.
    

The law

14. We turn now to the principles which govern third party costs application.
    
15. The starting point is that as a general principle only the parties to litigation may become subject to orders for costs incurred with respect to that litigation. The litigation is the business of those parties, alone.
    
16. However a modest incursion into that fundamental principle has been recognised by Commonwealth courts, particularly in recent years. There is undoubtedly jurisdiction to make a costs order against a non-party. If any authority is required for that proposition the decision of the Judicial Committee of the Privy Council in Dymocks Franchise Systems (NSW) Pty Limited v Todd (No. 2) [2004] UKPC 39; [2005] 1 NZLR 145 will suffice.
    
17. This is sometimes said to be an "exceptional" jurisdiction, but that is not entirely accurate (see Lord Phillips' judgment in TGA Chapman Limited v Christopher [1997] EWCA Civ 2052; [1998] 2 All E R 873). The outcome of an application cannot turn on statistical frequency but must depend on fact-based considerations of justice.
    
18. Without constituting an exclusive list, there are two broad reasons which may justify a costs award against a non party.
    
19. The first is that a non-party may be ordered to pay costs if he or she controlled the proceedings for his or her own benefit. In cases of this kind the non-party is effectively a party, and since he or she could benefit from the outcome of the proceedings, he or she should also bear his or her burden of costs.
    
20. The second and more complex and arguable type of justification arises where a non-party has helped a party to bring or sustain proceedings by providing finance or other assistance, without which the litigation would not have taken place and the successful party would not have incurred expenses. We are not concerned with this kind of case here and express no concluded view on this category.
    
21. An illustration of the first category is itself a fire case, namely TGA Chapman (above). Property having been damaged by fire, insurers took over under their subrogated rights, and pursued the claim to avoid their own liability. The Court of Appeal held that they were in reality the true defendants and should pay Mr Chapman's costs. As other illustrations, there are now a number of reported authorities where costs orders have been made where the litigation of a company is controlled and directed by a director or major shareholders.
    
22. Important considerations in the exercise of the discretion are the kind and degree of control, the possible benefit to the third party and the appropriateness of the steps taken by that third party in relation to the litigation. And a company officer must have acted in good faith, and reasonably, in the litigation. For a straightforward illustration of inappropriate behaviour, a trustee in bankruptcy who unreasonably revived a moribund action was ordered to pay costs personally in a Canadian appellate decision (Trustee of the Property of Vickery v Modern Security System Limited [1998] 1 BCLC 428 (CA)).
    

An order in this case?

23. We consider this to be an appropriate case for a costs order against Mr Wilson, for the following reasons.
    
24. First, this litigation as such was always a very long bow. It depended on demonstrating that a big electrical surge had given rise to this fire as a result of some negligence on the part of EPC. At the outset there were never any overt signs of such a surge, in that the usual consequences of it could not be identified. Somewhat unsurprisingly in those circumstances an alternative fire cause did then come to light: Wilex had not properly maintained the wiring in relation to its own air conditioning. The appeal was an even longer bow accompanied by an endeavour to repair and re-jig a fundamentally weak trial case on appeal.
    
25. In connection with the litigation there was no unreasonable withholding of technical information by EPC. Its experts had (properly and reasonably) conveyed their views openly to Wilex's people. Hindsight is always wonderful; but so is foresight in litigation. And this litigation was distinctly prospectless from an early stage.
    
26. Second, Wilex itself was in deep financial difficulties at the time of the fire, the inception of the proceedings, and has been ever since. We have the benefit of Mr Wilson's affidavit which was before the Supreme Court (and a copy of it is part of the proceedings file before us) on the security for costs application. Wilex owed external creditors in mid-2008, $2.3 million, so it was income insolvent (because it was not trading). If the case was lost those external liabilities, according to Mr Wilson's affidavit, would be borne by the shareholders in the form of personal guarantees they had given. Current operating capital assets were minimal. The fixed assets of $10.7 million, on closer examination, were the value of what Mr Wilson estimated the claim to be worth: the value of the burnt out plant.
    
27. In short, the company was not trading, could not trade, and there was nothing in it for the company for the future save for what it could extract from this claim. And if that was unsuccessful Mr Wilson (who holds a substantial shareholding of 48%) and his fellow shareholders were going to be facing substantial personal liabilities on their guarantees so the fate of Mr Wilson and Wilex was deeply intertwined. But for Mr Wilson's financial interest in and promotion of the case, the litigation would not have proceeded. And we have considered and rejected the proposition that he should only have to face 48% of the costs. The overall justice of the case requires otherwise.
    
28. Thirdly, the litigation was controlled and directed by Mr Wilson. He of course says as a company measure; but in reality this was for the benefit of him and his family. This was a rescue operation to try and retrieve the worst of a very bad situation for him and his family.
    
29. Fourthly, when viewed in the round in the manner contemplated by the Judicial Committee, it is wrong in these circumstances that EPC should be left without a costs remedy against Mr Wilson.
    

Conclusion

30. The cross-appeal is allowed.
    
31. There will therefore be an order that Mr Edward Lotasiano Wilson is jointly and severally responsible with Wilex for the costs of $1,283,396 awarded to EPC.
    
32. Mr Wilson is also jointly and severally responsible for the costs of this appeal which have been fixed at $10,000 and disbursement.
    

Honourable Justice Baragwanath

Honourable Justice Fisher

Honourable Justice Hammond