AB Developments (Australia) Pty Ltd v El-Sayed

Supreme Court of NSW|2017-05-25|Before: Beech-Jones J

Solicitors: Edgeworth Legal Pty Ltd (Plaintiffs) Smith Leonard Fahey Lawyers (Defendant) File Number(s): 2014/312841

Judgment

The subject of this judgment is an amended notice of motion filed 13 April 2017 on behalf of the defendant, Ahmed El-Sayed. The motion has had a difficult history.

Mr El-Sayed's case for Indemnity Costs and a Personal Costs Order

The written submissions filed on behalf of Mr El-Sayed outline the course of the proceedings up to judgment in AB v El-Sayed and contend that Ms Georges was intricately involved in the conduct of the proceedings. The principal basis for the orders sought was that AB's conduct of the proceedings against Mr El-Sayed was improper and that Ms George participated in that impropriety. Thus, the written submissions contended [1] :
"…… there is clear objective evidence that [AB] had no basis to lodge caveats over [Mr EL-Sayed's] land, relied on false documents and affidavit material as the foundation for both the caveats and for the action, never should have commenced the proceedings for either the Larger Claim [i.e. the abandoned action] or the Smaller Claim [i.e. Mr Hamdan's unsuccessful action] against the defendant, and should not have continued the proceedings."
As I will explain, throughout the proceedings, Mr El-Sayed maintained that the signature that was said to be his on the transaction documents that were the basis for the caveats referred to in this passage were forgeries. In AB v El-Sayed I noted that Mr El-Sayed had sought to attack Mr Hamdan's credit by seeking a finding that Mr Hamdan either forged his signature or procured a forgery on those documents. In AB v El-Sayed at [39] I found:
"In support of the accusation of forgery, Counsel for Ahmed El-Sayed pointed to various documents obtained from AB and Abdul Hamdan's solicitor suggesting that the Deed of Loan, Guarantee and Mortgage were drafted well after February 2012 when Abdul Hamdan claims that Ahmed El-Sayed signed them. … The material referred to provides considerable support for that contention but nevertheless I am not persuaded that Abdul Hamdan procured a forgery. That said, for other reasons I consider Abdul Hamden's evidence should be treated with caution and I accept Ahmed El-Sayed's evidence." (emphasis added)
On the hearing of the amended notice of motion I made it clear that this finding would not be revisited especially as a costs application is not a forum to try the case that never ran (Re The Minister for Immigration and Ethnic Affairs of the Cth of Australia; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 at 624). Even though the above extract from the written submissions lodged on behalf of Mr El-Sayed seeks to traverse that statement, ultimately Counsel for Mr El-Sayed, Mr Barham, did not press for a finding that the documents were forgeries. However, consistent with the balance of AB v El-Sayed at [39], Mr Barham contended that, to the knowledge of Ms Georges, the evidence in support of the contention that Mr El-Sayed executed the relevant documents on the date they bear, namely 17 February 2012, was false and that they must have been backdated by a substantial period. These allegations were clearly made in the written submissions served on behalf of Mr El-Sayed in advance of the hearing of the amended notice of motion and were put to Ms Georges in cross examination [2] . It was not contended on behalf of AB or Ms Georges that Mr El-Sayed could not seek such a finding and, if made, rely on it in support of his application for an indemnity costs order and a costs order against Ms Georges. For the reasons set out below I accept Mr El-Sayed's contention.
The Claims against Mr El-Sayed
Ms Georges has been the sole director of AB since it was incorporated in April 2011 [3] . She has been its sole shareholder since October 2013 [4] .
In November 2013, AB lodged caveats over three properties in Auburn that were owned or partly owned by Mr El-Sayed. The caveats asserted an interest in land arising from a Deed of Loan allegedly dated 17 February 2012 between AB as mortgagee, AK Property Group NSW Pty Limited ("AK") as mortgagor and Mr El-Sayed as guarantor (the "Deed of Loan"), a Deed of Guarantee allegedly dated 17 February 2012 between Mr El-Sayed as guarantor and AB as lender (the "Guarantee") and a mortgage between Mr El-Sayed as mortgagor and AB as mortgagee over the three properties (the "Mortgage"). The Mortgage was said to secure repayment of an advance of $1 million under the Deed of Loan by AB to AK.
On 4 December 2013 Mr El-Sayed's then solicitors wrote to AB's then solicitors denying that their client had executed any such documents. On 10 December 2013, AB's then solicitors replied enclosing "copies of documents in our possession" [5] being the Deed of Loan, the Guarantee and the Mortgage [6] . The Deed of Loan had a handwritten date "17 Feb 2012" inserted. A schedule to the Deed of Loan defined the principal sum as $1,000,000 which had to be repaid by 30 June 2013. The "collateral security" was defined in the schedule to the Deed of Loan as a "mortgage over the interest of Ahmed El-Sayed" in three properties, namely 4 Carnegie Street, Auburn, 2 Antwerp Street, Auburn and 41 New Street, Auburn and a "Deed of Guarantee and Indemnity from Ahmad El-Sayed" [7] . The Deed of Loan bore the signature of Ms Georges and what purported to be the signature of Mr El-Sayed [8] .
The Mortgage also bore the signature of Ms Georges, and what was said to be the signature of Mr El-Sayed. Even though the Deed of Loan referred to AK as the mortgagor none of its property was mortgaged, only the three properties owned or partly owned by Mr El-Sayed. The stamp recording that duty was paid on the Mortgage bore the date 28 February 2014 [9] .
The Guarantee also bore the handwritten date "17 Feb 2012". It was signed by Ms Georges, Mr Hamdan and purportedly by Mr El-Sayed as guarantor [10] . The three properties owned by Mr El-Sayed just noted were securities for his alleged guarantee.
Mr El-Sayed's solicitors responded by letter on the same day denying that their client had signed the documents and that he knew or had ever met Omar Hamdan or Ms Georges [11] . AB's solicitors responded on 15 December 2013 asserting that the origins of the transaction were discussions in May 2011 and October 2011 between Mr Hamdan and Mr El-Sayed about the advance of funds. The letter asserted that, during the conversations in October 2011, it was agreed that Mr Hamdan was "to arrange his solicitor to prepare the legal documents" and provide them to Mr El-Sayed. The letter continued [12] : "Abdul then went to Lou Wehbe [a solicitor] to have those documents prepared. … In early 2012 [Mr Hamdan] delivered those documents to [Mr El-Sayed]. [Mr Hamdan] recommended that [Mr El-Sayed] see a solicitor. [Mr El-Sayed] asked [Mr Hamdan] to leave the documents with him. .. In February 2012 [Mr Hamdan] approached [Mr El-Sayed] at 63 Macquarie Road Auburn about whether he had signed the documents. [Mr El-Sayed] retrieved the documents from his car and said that he would sign them. [Mr El-Sayed] signed the documents in front of Omar Hamdan and Bilal Hamdan who were working at the site at the time. The execution was formally witnesses by Omar. As Omar cannot write English, Bilal wrote Omar's name under Omar's signature at each place it was signed…."
Mr El-Sayed's solicitors responded on 3 February 2014 denying these assertions. They served lapsing notices on 8 October 2014 [13] .
On 24 October 2014 AB filed a summons seeking an extension of the caveats. The summons was initially supported by an affidavit of Abdul Hamdan sworn 23 October 2014 and later supported by affidavits of Omar Hamdan sworn 25 October 2014, Abdul Hamdan sworn 6 November 2014 and Ms Georges sworn 6 November 2014.
In his affidavit sworn 23 October 2014, Mr Hamdan claimed that during 2011 AB advanced money to AK at Mr El-Sayed's request. He said that he spoke to Mr El-Sayed in October 2011 about documenting the advances. He said that "shortly after" this conversation he approached Mr Wehbe to prepare "legal documents". Mr Hamdan stated that "in 2012 after receiving" the relevant documents from Lou Wehbe he telephoned Mr El-Sayed and arranged to meet him at 63 Macquarie Road Auburn. He said that he provided the documents to Mr El-Sayed. He stated that "a few weeks later", while they were both at 63 Macquarie Street Auburn, he asked Mr El-Sayed to sign the documents. Mr El-Sayed retrieved the Deed and Mortgage from his car and Mr El-Sayed signed them in "front of both" Omar Hamdan and Bilal Hamdan. Mr Hamdan said that Omar Hamdan signed as a witness and Bilal Hamdan wrote "Omar's name as a witness" as Omar could not read English [14] . In his affidavit sworn 6 November 2014 Mr Hamdan added that Mr El-Sayed also signed the Guarantee at the same time as the Deed of Loan and Mortgages. He said that, after the documents were signed, he delivered them to Ms Georges "on the same day" [15] .
In his affidavit sworn 25 October 2014, Omar Hamdan stated that "in about February 2012" he was present at 63 Macquarie Street, Auburn when Mr El-Sayed signed a document at the request of Mr Hamdan [16] .
Ms Georges' affidavit sworn 6 November 2014 is critical to this application. She stated: "On 17 February 2012 I had a conversation with Abdul Hamdan to the following effect in Arabic: AH: Ahmad [El-Sayed] has signed the documents prepared by Lou Wehbe. RG: Good. AH: You need to sign documents on behalf of AB Developments Pty Ltd." (emphasis added)
Ms Georges stated that "Abdul then gave to me" the Deed of Loan, the Mortgage and the Guarantee. Ms Georges stated that she "then took the documents to my solicitors, Strathfield Law in Liverpool" and signed them in front of a solicitor in that office and that her solicitor dated each of the documents. A subpoena was issued to Strathfield Law on behalf of Mr El-Sayed. No documents were produced [17] . As I will explain, Mr Barham contended this affidavit was false, to Ms Georges' knowledge, because, so it was submitted, Mr Wehbe did not prepare these documents until 2013.
On 19 November 2014 Slattery J made orders extending the operation of the caveats until further order. Also on that day Mr El-Sayed's solicitor filed an affidavit in relation to an application for security for costs recording his client's instructions that the Deed of Loan, Guarantee and Mortgage were forgeries [18] . On 19 December 2014, AB filed a statement of claim. In February 2014 Mr El-Sayed filed a defence denying execution of any of the documents sued on.
In March 2015 security for costs in the amount of $40,000.00 was ordered in favour of Mr El-Sayed.
On 31 July 2015 an Amended Statement of Claim was filed adding Mr Hamdan as an additional plaintiff and pleading the claim that was rejected in AB v El-Sayed. [19]
During March 2016, Mr El-Sayed served a report from a handwriting expert, Dr Steven J Strach, which supported his defence. At the same time an affidavit was served from Mr El-Sayed in which he denied executing the Deed of Loan and the Mortgage and said that the signature on those documents was not his signature [20] . In August 2016 an affidavit was served from Mr El-Sayed, which attached various documents with his signature which had been provided to Dr Strach [21] .
Tendered on this motion were a number of emails between AB's former solicitors and Ms Georges sent between January 2016 and the time they ceased acting in July 2016 [22] . It seems that in January 2016 the solicitors received some parts of Dr Strach's report and advised that a report be obtained in response. In February 2016 they emailed Ms Georges and identified an expert and sought instructions to retain him [23] . No response was forthcoming. During April 2016 the relationship with the solicitors became strained after a garnishee order was applied to AB's bank account. On 10 May 2016 Ms Georges emailed AB's solicitors advising that she was placing "considerable pressure" on Mr Hamdan's cousins to "give evidence as to witnessing [Mr El-Sayed's] signature", however this was causing stress within the family. She instructed the solicitors to make an offer of settlement involving payment by Mr El-Sayed of $100,000 to "allow Gazwan to be paid back his money" and $12,000 for costs. She noted that "Abdul fully agrees with my instructions" [24] . The amount of $100,000 is clearly referable to the claim that was ultimately pressed and rejected in AB v El-Sayed. This offer represented a capitulation in respect of the claim based on the Deed of Loan, Mortgage and Guarantee. On 12 May 2016 Ms Georges emailed AB's solicitors stating that "Abdul's instructions" were that he did not want "to engage the [handwriting] expert at this stage" [25] .
On 1 June 2016, AB's solicitors sent an email to Ms Georges recording their concern that the relationship between them and Ms Georges had broken down. The email noted that the proceedings had only commenced "after draft affidavits were obtained by Abdul, Bilal and Omar" but that "[t]oday, regrettably, all three witnesses appear to be reluctant to give evidence about the execution of the Deed of Loan" [26] . On 14 July 2016 the solicitors gave 14 days' notice that they intended to cease acting. A notice of ceasing to act was filed at the end of July 2016. In an affidavit sworn 4 November 2016 that was not read at the hearing in November 2016 but was read on this application, Ms Georges stated that the solicitor who had carriage of the proceedings since their inception experienced significant health problems in 2015 and 2016 and she became concerned about his capacity to conduct the proceedings.
Ms Georges was overseas from 7 July 2017 to 27 August 2016. In early October 2016 she exchanged emails with Mr El-Sayed's solicitors about the possible settlement of the proceedings. [27] On 6 October 2016 Mr El-Sayed's solicitors emailed Ms Georges seeking to settle the proceedings on the basis that AB and Mr Hamdan drop their claims and pay $100,000 towards Mr El Sayed's costs. This was rejected [28] .
As noted, the hearing of the proceedings commenced on 7 November 2016. Mr Duc of Counsel appeared for both AB and Mr Hamdan. He sought and was granted an adjournment for one day to confer with witnesses. It seems that his instructing solicitors had only just been retained by AB. On 8 November 2016, Mr Duc advised the Court that AB's claim against Mr El-Sayed was not pressed.

Subpoena to Mr Wehbe

On or about 10 October 2016 Mr El-Sayed's solicitor, Ms Pavey, caused to be issued a subpoena to Mr Wehbe seeking production of his files in relation to any work done in relation to the Deed of Loan, the Guarantee, the Mortgage and the caveats that were lodged [29] : The documents produced in response were tendered at the hearing of the original proceeding and retendered on this motion. [30] .
Included amongst the subpoenaed documents was a letter from Mr Wehbe addressed to Mr Hamdan dated 16 May 2012. The letter was entitled "Re: AB Developments Pty Ltd Mortgage from AK Property Group Pty Ltd, Property: 63 Macquarie Road Auburn". The letter stated that enclosed was a mortgage, a mortgage by guarantor, a loan agreement, a deed of guarantee and indemnity, an authority to complete documents, "independent advice documents" and "our invoice" [31] . The letter states that "[t]hese documents will need to be executed by the mortgagor A.K. Property Group NSW Pty Ltd and Ahmed El-Sayed in the presence of their own independent solicitor".
The file contains an invoice with the same title as the letter dated 16 May 2012 for the cost of "taking instructions regarding preparation of mortgage and other security documents" [32] as well as another invoice dated 7 March 2013 for "professional costs of acting on [your] behalf ….. in respect of preparation of mortgages on your instructions including title searches, company searches, preparation of documentation and then not proceeding" [33] .
The file contains a number of transactional documents that appear to correspond with what was said to be enclosed with the letter of 16 May 2012, namely, a mortgage identifying AK as mortgagee and the secured property as 63 Macquarie Road, Auburn, NSW [34] , a "Deed of Guarantee" naming Mr El-Sayed as guarantor [35] , a memorandum of mortgage that bears a print date of 30 April 2012 [36] , a company search of AK that also bears that print date, an unexecuted deed of loan similar to the Deed of Loan except that the principal sum was $1,500.000 and the definition of collateral security included 63 Macquarie Road, Auburn and only two of Mr El-Sayed's properties. The file also contains a mortgage which describes Mr El-Sayed as the mortgagee but leaves the title details blank [37] .
The inference that the draft deed of loan, draft mortgage and draft deed of guarantee found in Mr Wehbe's file are earlier iterations of the Deed of Loan, the Mortgage and the Guarantee that were sought to be relied on by AB is overwhelming. The format and font of the documents are identical. The only changes between the draft deed of loan in Mr Wehbe's file and the Deed of Loan upon which the caveats were based is a change in the principal sum from $1,500,000 to $1,000,000, the deletion of a mortgage from AK over 63 Macquarie Street, Auburn from the definition of collateral security and the addition of an additional security owned by Mr El-Sayed. The only change between the draft Guarantee found in Mr Wehbe's file and the allegedly executed Guarantee is the addition of a third property of Mr El-Sayed's as security [38] .
Mr Barham submitted that Mr Wehbe's invoice dated 7 March 2013 demonstrated that signatures were not applied to the Deed, Mortgage and Guarantee relied on by AB to lodge caveats until 2013. He contended that the terms of the invoice dated 7 March 2013 suggest that there was further work undertaken in 2013 and that Mr Wehbe was then advised that the transaction would not proceed. It was contended that in 2012 Mr Wehbe prepared a draft deed of loan, a draft mortgage and draft guarantee that included AK's property at 63 Macquarie Street and two of Mr El-Sayed's properties as security. It was further submitted that it should be inferred that in 2013 Mr Wehbe was instructed to amend these documents to remove 63 Macquarie Street and instead add a third property of Mr EL-Sayed's as additional security. According to the submission, Mr Hamdan then applied signatures or procured signatures on that iteration of the documents. On this hypothesis the final drafts of the Deed, Mortgage and Guarantee are not found on Mr Wehbe's file because Mr Hamdan or someone associated with AB obtained them from Mr Wehbe in 2013. Accordingly, it was submitted that, as the Deed of Loan, Mortgage and Guarantee were not prepared until 2013, they could not have been signed by anyone including Mr El-Sayed in February 2012 as the various affidavits noted in [17] asserted [39] .
There is considerable force in this line of reasoning but it is not necessary to go so far as to conclude that the Deed of Loan, Mortgage and Guarantee were not prepared until 2013 or later. As those documents were not found on Mr Wehbe's file, there remains the real possibility that the final drafts of those documents were prepared by someone else based on the documents enclosed with Mr Wehbe's letter of 16 May 2012. However, notwithstanding Ms Georges' evidence, I am satisfied that, at the very least, the signatures that were applied to the Deed, Mortgage and Guarantee sought to be relied on by AB to support the lodgement of caveats were not applied until after 16 May 2012. Until Mr Wehbe obtained a company search of AK and a printout of the memorandum of mortgage, he could not have provided a draft of any deed of loan, mortgage or guarantee containing those details to AB. His letter dated 16 May 2012 makes it clear that those documents were first being provided to AB with that letter. Sometime after the receipt of those documents by AB in May 2012, the drafts prepared by Mr Wehbe were altered to the versions that had signatures applied to them and which were the basis for the lodgement of the caveats.

Ms Georges' Evidence

In her affidavit sworn 4 November 2016, Ms Georges described herself as a "professional director" who controls AB "in a manner that supports the securing and carrying out of formwork with Abdul Hamdan as the lead formwork manager". Nevertheless, as noted, she has been the sole shareholder of AB since October 2013. She denied that she holds her shares on trust for Mr Hamdan [40] but also denied that she stood to gain from the litigation [41] . This discrepancy was not explained. It may be that it was intended to use any funds derived from the litigation to fund more formwork business. Nevertheless, I am proceeding on the basis that she was the sole owner of AB and stood to benefit from any profit that it ultimately derived from its business generally including the litigation against Mr El-Sayed.
In her affidavit sworn 18 April 2017, Ms Georges stated that she was not present and never stated that she was present "when Mr El-Sayed allegedly signed the Guarantee and security documents dated 17 February 2012". She stated that "[a]s the Director of [AB] I relied upon the evidence of Mr Hamdan in pursuing the claim against" Mr El-Sayed [42] . In her affidavit sworn 4 November 2016, Ms Georges stated that "whilst discharging my duties as sole director of [AB] I have relied upon the advice and recommendations of AB's solicitor" (presumably until he ceased to act) [43] .
In cross-examination, Ms Georges stated that she "never took an interest" in the transaction between AB and Mr El-Sayed from the time when she was appointed a Director until the time when "we opened up the office in September 2014" [44] . Ms Georges was taken to her affidavit of 6 November 2014. Ms Georges maintained that she saw the documents that were purportedly executed by Mr El-Sayed but said she could not remember the date when she did so. [45] However, she agreed that when she swore her affidavit of 6 November 2014 she "probably" had a good recollection of the date Mr Hamdan provided the documents to her. [46] Ms Georges identified the solicitor to whom she said that she provided the documents. [47] Ms Georges was taken to the invoice that accompanied Mr Wehbe's letter of 16 May 2012 [48] . Ms Georges denied that she knew her affidavit was false when she swore it [49] .
At this point I note three matters.
First, consistent with what I have already stated I am not prepared to make a finding that Abdul Hamdan forged or procured a forgery of Mr El-Sayed's signature on the Deed of Loan, the Guarantee or the Mortgage. However as noted in [36], I am satisfied that the documents were not signed by anyone until sometime after 16 May 2012. The company search and memorandum of mortgage necessary for Mr Wehbe to prepare the first iterations of those documents were not obtained by him until 30 April 2012 and he did not provide them to AB until 16 May 2012 at the earliest.
Second, it follows that, in relation to Ms Georges, it may have been that Mr Hamdan presented the documents to her at some point and told her that Mr El-Sayed had signed them. However, that could only have occurred after 16 May 2012. When this proposition was raised with Mr Duc he stated "I can't make a submission with regard to Ms Georges in relation to that issue, your Honour" [50] . Ms Georges was an astute witness and had a good recall of time frames. A finding that a person deliberately swore a false affidavit is a serious one. It should only be made bearing in mind the strictures against making serious findings based on "inexact proofs, indefinite testimony, or indirect inferences" (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 at 362; Evidence Act 1995, s 140(2)). Nevertheless, I am satisfied that when Ms Georges swore her affidavit dated 6 November 2014 she knew that it was not true that Mr Hamdan handed her the documents on 17 February 2012 or any time within months of that date. This is not a mere quibble over a date because 17 February 2012 was inserted as the date on the documents and both Ms Georges and Bilal Hamdan identified it as the date they were signed. I am satisfied that Ms Georges included that date in her affidavit to bolster Abdul Hamdan's response to Mr El-Sayed's contention that his signature had been forged. She adopted the date 17 February 2012 in her affidavit because that is the date included on the Deed of Loan, the Mortgage and the Guarantee.
In these circumstances, it is not correct that, in pursuing AB's case, Ms Georges simply acted on the basis of the evidence of Abdul Hamdan and his relatives. Instead I am satisfied that, at least from early November 2014, Ms Georges knew that Mr El-Sayed did not execute the Deed of Loan, the Mortgage and the Guarantee on the day stated in those documents or within months of the dates stated in those documents, yet she falsely swore an affidavit to that effect. When doing so, at the very least, Ms Georges strongly suspected that the evidence supporting the contention that Mr El-Sayed executed it any time was dubious.
Third, in his oral submissions Counsel for Ms Georges submitted that she gave "believable evidence that she was instructed and dictated to by the real controlling mind" of AB [51] . I do not accept this contention. In both her oral evidence and her emails Ms Georges made reference to seeking Mr Hamdan's approval to take various steps. However, ultimately she caused AB to maintain its claim against Mr El-Sayed over a number of years and then to capitulate at the hearing. The emails from 2016 reveal that Ms Georges was heavily involved in giving instructions for the conduct of the proceedings. In any event, even if Ms Georges was "dictated" to by Mr Hamden, it would not assist her. As the sole Director of AB, Ms Georges was obliged to take an active role in major litigation conducted by AB as this was. Ms Georges cannot absolve herself by asserting that she simply did what Mr Hamdan told her to do.

Indemnity Costs against AB Developments

Section 98(1)(c) of the Civil Procedure Act 2005 confers on the Court power to order that costs are to be awarded "on the ordinary basis or an indemnity basis". Rule 42.2 of the Uniform Civil Procedure Rules 2005 provides that unless the Court orders otherwise or the rules otherwise provide "costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis".
Leaving aside the effect of not accepting an offer of compromise under the Uniform Civil Procedure Rules, the power to award indemnity costs is discretionary. There is no fixed rule governing the making of such an order other than the necessity to point to some special or unusual feature of the case (Rosie Ianelli v John Leslie Hancock t/as Hancocks Solicitors [2012] NSWSC 417 at [28]). Often such an award is made where it is established that a party committed a "relevant delinquency" in the conduct of the proceedings (see Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 at [139]).
The findings I have made concerning the conduct of AB's claim against Mr El-Sayed warrant the making of an indemnity costs order against AB in respect of its claim. The proceedings were commenced based on affidavits that falsely stated the dates upon which the Deed of Loan, Guarantee and Mortgage were signed. AB's sole Director and Shareholder, Ms Georges, was one of the deponents of those affidavits. AB maintained the proceedings before capitulating on the eve of the hearing. The maintenance and abandonment of a case based on false evidence was a "relevant delinquency".
The written submissions lodged on behalf of Mr El-Sayed contended that the indemnity costs order should extend to Mr Hamden's claim against him that was rejected in AB v El-Sayed. They contended that claim was doomed to failure and was only included as an attempt to force some form of settlement from him [52] . I do not accept that AB should wear the costs of Mr Hamdan's claim. It was not demonstrated that AB or Ms Georges was responsible for the inclusion of the claim or assumed responsibility for its conduct.

Costs against Ms Georges

Section 98(1)(b) of the Civil Procedure Act confers on this Court "full power to determine by whom, to whom and to what extent costs are to be paid". As noted the extent of the power includes the power to award costs on an ordinary basis or on an indemnity basis (s 98(1)(c)). The power conferred by s 98(1)(b) enables the Court to order that the director of a corporate plaintiff pay the costs of proceedings (see for example Blazai Pty Ltd v Maclarens (No 2) [2013] NSWSC 31, "Blazai").
In Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 at 192 to 193 Mason CJ and Deane J stated:
"Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. … 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."
In Knight at 202, Dawson J referred to the principle in the following terms:
"The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court. Even if the cases were confined to ejectment proceedings (and clearly they are not), the principle lying behind the ejectment cases is that the real litigant rather than the nominal party may be made liable for costs." (emphasis added)
In FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [201] to [213] ("FPM") Basten JA discussed the three factors stated by Mason CJ and Deane J in Knight. In relation to the first, his Honour noted that it was not established in that case but his Honour did not regard this as determinative, i.e. insolvency is not a necessary condition to the making of a personal costs order (at [211]). In relation to the second, his Honour noted that while a non-party such as a receiver and manager may play an active role in litigation before they are exposed to a costs order "in a proper exercise of discretion, something more should generally be found, although it may be sufficient that the third criterion is satisfied" (at [212]). The "something more" includes some delinquency or unreasonableness in the conduct of the litigation. Thus, in Blazai, Adamson J made a costs order against the sole director of a company who fabricated documents, destroyed other documents and gave false evidence (at [29] and [38]).
Ultimately in FPM Basten JA concluded (at [214]):
"The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact. Nor should it be forgotten that the power is only to be exercised in exceptional cases. In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non-party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success. The fact that it is entirely proper for legal practitioners to run… cases on a speculative basis, so long as satisfied that they have reasonable prospects of success, demonstrates that care must be taken not to apply the criteria mechanically. Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the "interest" in its outcome or subject-matter." (emphasis added)
Earlier in FPM (at [210]) Basten JA stated that a "survey of the cases in which orders have been made against non-parties" reveals that they exhibited "some, if not a majority, of [certain] criteria" namely, that the "unsuccessful party to the proceedings was the moving party and not the defendant", the "source of funds for the litigation was the non-party or its principal", the "conduct of the litigation was unreasonable or improper", the "non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest" and the "unsuccessful party was insolvent or could otherwise be described as a person of straw".
In Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [80] Gleeson JA noted the discussion in FPM and added that "[w]hat needs to be emphasised is that the exceptional jurisdiction to make a non-party costs order is only to be exercised where, in the circumstances of the case, the interests of justice require that such an order be made".
In this case the unsuccessful party, AB, was the moving party to the litigation. As discussed, and contrary to the written submissions lodged on her behalf, [53] as sole Director and shareholder Ms Georges can be taken to have had an interest in the litigation, she was involved in the litigation from its commencement and she caused the proceedings to be maintained. The financial position of AB is considered below. Nevertheless, a consideration of these matters individually and in combination does not warrant the making of a costs order against her. Instead what is significant is a consideration of her conduct and that of AB. I have found that at the outset of the proceedings she swore a false affidavit. At the very least, she strongly suspected that the evidence supporting the case against Mr El-Sayed was dubious. Ms Georges was responsible for the initiation and maintenance of the proceedings over a number of years before AB eventually capitulated. Using the phraseology of Basten JA in FPM, "careful attention to the conduct of the party" leads to the conclusion that the pursuit of the proceedings was unreasonable or improper. Subject to considering two points raised on behalf of Ms Georges, the interests of justice require that the sole Director of AB, Ms Georges, bear AB's costs of the proceedings against Mr El-Sayed and those cost being paid on an indemnity basis (Blazai at [39]). (I note that Mr El-Sayed conceded that Ms Georges should not have to pay the costs of Mr Hamdan's unsuccessful claim [54] .)
To this point I have addressed all but two of the arguments raised on behalf of Ms Georges for resisting an indemnity costs order against her [55] .
The first of the remaining submissions concerned the capacity of AB to meet a costs order. Some material was tendered on behalf of AB and Ms Georges in an endeavour to demonstrate that AB had the financial capacity to meet any costs order that may be made against it. As I understand the submission, this was said to be at least a factor that tended against the making of a non- party costs order.
Attached to Ms Georges' affidavit dated 18 April 2017 was an unverified balance sheet for AB dated 31 March 2017. The balance sheet listed AB as having net assets of just under $1,800,000. However, of its gross assets of $3,582,000, it had $2,171,000 in "work in progress" and just over $572,000 in loans owed by Abdul Hamdan. There is no evidence to justify the valuation of the work in progress or that Mr Hamdan has the capacity to repay those loans. Reliance was also placed on entries in its bank account but these only show significant cash flows in and out of its account.
Mr Barham objected to Ms Georges relying on this material. His client served a notice to produce seeking access to the underlying material that would enable him to scrutinise the unverified balance sheet. It was strenuously argued that the notice was repeatedly and deliberately not complied with. It is unnecessary to consider this contention as the material relied on by Ms Georges does not satisfy me that AB can meet any costs order made against it. While it has also not been demonstrated that AB cannot meet the costs order made against it, as explained, that is not determinative of whether to make a non-party costs order. The other matters noted above, specifically Ms Georges' conduct, warrant that order.
In the end result, if AB has the assets to meet a costs order then it can satisfy any obligation of Ms Georges'. In light of my findings, Ms Georges should bear the risk of it not being able to do so and not Mr El-Sayed.
The second submission was that the failure of Mr El-Sayed to seek further security for costs against AB was a factor that tended against the making of a personal costs order against Ms Georges [56] . However, that factor is of most relevance where the, or at least a, main basis for the proposed costs order is the insolvency of the party (Knight at [30]). It has little relevance in a case where the main basis for the application is the improper conduct of the principal and that was only able to be demonstrated once material was subpoenaed from Mr Wehbe and any claim for legal professional privilege was either waived or not maintained. This matter does not dissuade me from making an order against Ms Georges.

Orders

It follows from the above findings that AB and Ms Georges should also bear the costs of Mr El-Sayed's amended notice of motion.
Accordingly, the Court orders that: 1. AB Developments (Australia) Pty Ltd pay the defendant's costs of the proceedings, including the costs of the defendant's amended notice of motion filed 13 April 2017, but excluding the costs of the second plaintiff's claim, on an indemnity basis; 2. Rhonda Georges pay the defendant's costs of the proceedings, including the costs of the defendant's amended notice of motion filed 13 April 2017, but excluding the costs of the second plaintiff's claim, on an indemnity basis; and 3. The Amended Notice of Motion filed 13 April 2017 is otherwise dismissed.

Endnotes

Submissions of the defendant/applicant on costs application filed 19 April 2017 at [9]
T 07/09/2017 at p 21.45
Affidavit of Margaret Pavey sworn 14 February 2017 at [5] ("Pavey affidavit 14/2/2017")
T 07/09/2017 at pp 18.45, 31.31
Pavey affidavit 14/2/17 at p 17
Exhibit 8 from trial on 9/11/2016; affidavit of Abdul Hamdan sworn 23 October 2014 at p 73ff ("Abdul Hamdan affidavit 23/10/2014")
Abdul Hamdan affidavit 23/10/2014 at p 79
Abdul Hamdan affidavit 23/10/2014 at p 77
Abdul Hamdan affidavit 23/10/2014 at p 78
Abdul Hamdan affidavit 23/10/2014 at p 100
Pavey affidavit 14/2/2017 at p 18
Pavey affidavit 14/2/2017 at p 20
Pavey affidavit 14/2/2017 at p 24
Abdul Hamdan affidavit 23/10/2014 at [21] to [24]
Abdul Hamdan affidavit filed 6 November 2014 at [3] to [4]
Omar Hamdan affidavit sworn 25 October 2014 at [7]
Pavey affidavit 14/2/2017 at [36]
Affidavit of Daniel Clarke sworn 19 November 2014 at [13]
Pavey affidavit 14/12/2017 at [27]
Affidavit of Ahmed El-Sayed sworn 8 March 2016 at [111]
Affidavit of Ahmed El-Sayed sworn 10 August 2016
Ex 2
Ex 1 Tab 4
Ex 1 Tab 10
Ex 1 Tab 11
Ex 1 Tab 14
Ex 1 dated 20/4/2017
Affidavit of Margaret Pavey sworn 27 March 2017, Annexure A
Pavey affidavit 14/2/2017 at p 97
Pavey affidavit 14/2/2017 at p 105ff
Pavey affidavit 14/2/2017 at p 109
Pavey affidavit 14/2/2017 at p 106
Pavey affidavit 14/2/2017 at p 105
Pavey affidavit 14/2/2017 at p 110
Pavey affidavit 14/2/2017 at p 119
Pavey affidavit 14/2/2017 at p 156
Pavey affidavit 14/2/2017 at p 141
Affidavit of Abdul Hamdan sworn 23 October 2014 at p 99
Submissions of the defendant/applicant on costs application filed 19 April 2017 at pp 5 to 6
T 07/09/2017 p 31.34
T 07/09/2017 pp 31.24 to 31.34
Affidavit of Rhonda Georges 4 November 2016 at [17] ("Georges affidavit 4/11/16")
Georges affidavit 4/11/16 at [7]
T 07/09/2017 at pp 11.12 to 11.13
T 07/09/2017 at p 13.13
T 07/09/2017 at p 13.23
T 07/09/2017 at p 14.40
T 07/09/2017 at p 16.12
T 07/09/2017 at p 21.45
T 07/09/2017 at p 61.1
T 07/09/2017 at p 59.16
Submissions of the defendant/applicant on costs application filed 19 April 2017 at [11] to [12]
Submissions by the plaintiff and Ms Rhonda Georges handed up in Court on 7/9/2017 at [17]
Submissions of the defendant/applicant on costs application filed 19 April 2017 at [10]
The submissions by the plaintiff and Ms Rhonda Georges handed up in Court on 7/9/2017 at [19] to [21] also addressed a claim for indemnity costs based on the rejection of the offer of 6 October 2016. However that does not arise.
T 07/09/2017 at p 63.25; submissions by the plaintiff and Ms Rhonda Georges handed up in Court on 7/9/2017 at [22] to [28] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 November 2017

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Judgment (9 paragraphs)

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Cases Cited (12)

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