By Interlocutory Process filed on 31 January 2024, Mr O'Brien in his capacity as liquidator of H&H Funding Pty Ltd ("H&H Funding") seeks an order that Mr Zheng Qiang Huo be personally liable for costs orders made on 17 January 2024 against Noda Development Ltd ("Noda") in the proceedings. Mr O'Brien also seeks an order that the amount of $70,000, which was previously paid into Court by Noda pursuant to a security for costs order that was made by consent, be paid to him and H&H Funding on account of their costs in the proceedings.
By way of background, Noda sought an order in these proceedings that Mr O'Brien pay amounts held by H&H Funding to receivers it had appointed to H&H Funding, while Mr O'Brien as liquidator of H&H Funding was at the same time conducting investigations as to the circumstances in which H&H Funding had granted the security on which Noda relied, which had the capacity to support a challenge to the validity or enforceability of that security. Initially, Noda sought to establish the validity and enforceability of that security in these proceedings, which would potentially have pre-empted Mr O'Brien's investigations unless the proceedings were adjourned until those investigations were complete.
Subsequently, by Amended Originating Process filed on 23 October 2023, Noda abandoned its attempt to establish the validity or enforceability of its security in these proceedings, but persisted in its claim for an orders that Mr O'Brien cause H&H Funding to pay the relevant amounts to the receivers it had appointed to H&H Funding. The abandonment of the former claim avoided the risk that the proceedings would be adjourned pending the outcome of Mr O'Brien investigations, although it was not readily apparent how the other orders that Noda sought could be made without determining the validity and enforceability of the security on which it relied, which it no longer sought to have determined.
Mr O'Brien then sought security for costs of the proceedings, where it is common ground that Noda is incorporated overseas and does not have a bank account. The parties agreed the terms on which that security should be provided by Noda and, on 11 December 2023, I made orders by consent that provided for security for costs to be given by Noda in the sum of $70,000.
The narrower claim then brought by Noda was listed for hearing before me on 17 January 2024. Noda's outline of submissions on that date (MFI 1) indicated that it sought a range of orders as against Mr O'Brien, namely that he cause certain amounts to be paid to receivers appointed by Noda; he provide to the receivers a full reconciliation and accounting of all money that H&H Funding held; and he pay to the receivers appointed by Noda the amounts that he had caused to be paid or disbursed out of the relevant funds. Noda also sought orders sought that the Third Defendant, a controller previously appointed by H&H Funding, cause certain monies to be paid to the receivers appointed by it, and sought an order that Mr O'Brien, as distinct from H&H Funding, pay the Plaintiffs' costs of the proceedings. Those submissions indicate that, in substance, the relief that Noda sought at the hearing on 17 January 2024 was sought against Mr O'Brien, albeit in his capacity as liquidator of H&H Funding, rather than against H&H Funding.
I set out the subsequent developments at the hearing on 17 January 2024 in two ex tempore judgments delivered on that date. The matters recorded in those judgments extend well beyond the simple proposition, accepted by Mr Krochmalik who now appears for Noda and Mr Huo, that Noda was unsuccessful in the proceedings.
In the first of those judgments, I recorded that, after its opening submissions had highlighted potential difficulties with its claim, Noda had applied to amend its Amended Originating Process so as to reinsert the claim for a substantive determination as to the validity or enforceability of its security that it had previously abandoned. I there recorded the circumstances in which that claim had previously been abandoned, and pointed to the obvious difficulties which would have faced Noda in pursuing, and the Court in determining, that claim while the liquidator's investigations into the validity of that security were ongoing. I declined to permit Noda to reverse its previous position and reintroduce that claim, where the earlier abandonment of that claim had reflected a strategic choice previously made by Noda, on the basis of which the proceedings had been listed for hearing. After Noda was unsuccessful in amending the application, Noda then abandoned its claim and indicated that it would consent to the dismissal of the proceedings and could not resist an order for costs against it. I there noted, in my costs judgment, that the other Plaintiffs, the receivers appointed by Noda, had previously confirmed to the Court that they were content to be bound by any adverse order for costs in the proceedings, and an adverse order for costs was also made against them. I will return to that matter in dealing with a submission made by Mr Krochmalik concerning the relevance of receivers' liability for costs below.
On 17 January 2024, I therefore made orders that the proceedings be dismissed, on Noda's application, and ordered that Noda and the receivers appointed by it jointly and severally pay the costs of the proceedings, as agreed or as assessed. Subsequently by the Interlocutory Process filed in these proceedings, Mr O'Brien as liquidator of H&H Funding sought the orders as to costs to which I referred above.
[3]
Affidavit evidence
I now turn to the affidavit evidence led in this application. Mr O'Brien read the affidavit dated 31 January 2024 of his solicitor, Mr Connor, in support of the relief that he seeks. Mr Connor there refers to evidence given by Mr Huo (against whom the third party costs order is sought) in an earlier liquidator's examination that Noda is a company incorporated in the Marshall Islands, Mr Huo is its sole director and shareholder and Noda does not have a bank account. Mr Connor also refers to the consent order by which Noda paid $70,000 into Court by way of security for costs in the proceedings. Mr Connor also gives evidence that the aggregate amount of Mr O'Brien's and H&H Funding's costs incurred in connection with the hearing of the proceedings are in excess of $175,000.
By a second affidavit dated 19 February 2024, Mr Connor leads further evidence, including exhibiting documents which include bank statements which record payments out of Mr Huo's accounts in respect of dealings between Noda and H&H Funding, and payments made directly to Mr Huo for amounts claimed by Noda. There is nothing particularly surprising about those payments being made by and to Mr Huo, where payments could not have been made by or to Noda from or to a bank account or by conventional transactions in the financial system, where it did not have a bank account. Mr Connor also there exhibits a spreadsheet itemising legal costs and disbursements incurred by Mr O'Brien and H&H Funding in respect of the proceedings and copies of disbursement invoices listed in the spreadsheet. Mr Krochmalik advances a criticism of at least one of the disbursements claimed, by reference to accounting costs which are not, on their face, referable to the matters in issue in these proceedings, although it will not ultimately be necessary to determine that matter which could not have any impact upon the conclusion which I reach below.
Noda in turn relies on Mr Huo's affidavit dated 4 March 2024. Mr Huo refers to previous proceedings brought by Noda against H&H Funding and some aspects of the timing of those proceedings are relevant to this application. I note that Mr O'Brien was appointed as liquidator of H&H Funding on 11 September 2022, when proceedings between Noda and H&H Funding were underway. On 13 March 2023, several months later, but prior to the hearing of those proceedings, Mr O'Brien caused H&H Funding to file a submitting appearance in those proceedings. The Court then granted leave to Noda to proceed against H&H Funding under s 500(2) of the Corporations Act 2001 (Cth), although there is no evidence as to whether that leave was granted on the standard condition that no judgment could be enforced against H&H Funding without leave of the Court, and it is not necessary to determine that matter for present purposes. On 31 March 2023, Darke J deliver judgment in favour of Noda against H&H Funding and a Mr Hu (as distinct from Mr Huo) for a substantial amount. His Honour subsequently delivered a costs judgment in those proceedings, and ordered that H&H Funding pay Noda's costs in a gross sum referable to the period up to the date of appointment of the liquidator, and not including any costs for the period in which the liquidator was in office.
By an affidavit dated 8 March 2024 in reply to Mr Huo's affidavit, Ms Johnstone, who is also a solicitor retained by Mr O'Brien and H&H Funding, addresses matters relating to the security for costs application in these proceedings and the orders made in respect of security for costs, and also refers to the hearing on 17 January 2024. Mr Krochmalik refers, inter alia, to evidence exhibited to her affidavit which indicates that H&H Funding has a significant claim against another entity, Bridgeland Second Pty Ltd (in liq) ("Bridgeland Second"), which is the subject of other proceedings in this Court. It is not necessary to determine anything further as to the content of that claim, or the extent of the disputes about it, which also could not affect the conclusions I reach below.
[4]
The claim for a third party costs order against Mr Huo
As I noted above, Mr O'Brien now seeks a third party costs order against Mr Huo in respect of the costs order made against Noda in these proceedings on 17 January 2024.
The relevant principles are well established, and have been addressed by the parties in submissions, and I have been taken at some length to the applicable cases.
I should add to the review of the cases in my oral ex tempore judgment that, in Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-193; [1992] HCA 28 ("Knight v FP Special Assets"), Mason CJ and Deane J (with whom Gaudron J agreed at 205) observed that:
"For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party … 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 a separate judgment in Knight, Dawson J observed (at 202) that:
"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."
Ms King, who appears for Mr O'Brien, refers to the well-known summary of the applicable principles in FPM Construction Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 ("FPM Construction") at [210], where the Court of Appeal referred to the High Court's analysis of the relevant issues in Knight v FP Special Assets. Basten JA there identified several elements arising from the case law, as relevant to whether an order for costs should be made against a non-party, namely that the unsuccessful party to the proceedings was the moving party and not the defendant; the source of funds for the litigation for the non-party or its principal; the conduct of the litigation was unreasonable or improper; and the non-party, or its principal, had an interest 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. Basten JA then noted that cases where such orders had been made against non-parties were typically cases where some, if not a majority, of those criteria were satisfied. Ms King here contends that each of those criteria were satisfied, and I will return to that question below.
I also recognise that these factors should not be treated as a from of statutory test for making a third party costs order. As Basten J also there observed (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 runs 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."
Mr Krochmalik in turn refers to the decision in Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276 at [150], where reference was made to the decision in Symphony Group PLC v Hodgson [1994] QB 179, which referred to the relevance of whether a non-party had notice of the prospect that a costs order would be made against it, at least in circumstances that that non-party gave evidence in the proceedings. I will assume, without deciding, that that is a relevant matter, although I also recognise that costs orders have been made against third parties in many cases where there is no suggestion that had occurred. Here, there is no suggestion that Mr Huo had been given notice that a third party costs order would be sought against him.
Mr Krochmalik draws attention to the review of the relevant case law by Leeming JA (with whom McColl and Basten JJA agreed) in PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168, at [26]ff, where his Honour also referred to the High Court's reasoning in Knight v FP Special Assets and to the earlier decisions to which the High Court referred. His Honour there emphasised, by reference to authority including FPM Construction, that third party costs orders were the exception rather than the rule. His Honour also there observed at [36] that it would ordinarily not be sufficient basis to make a third party costs order merely that the unsuccessful party was the moving party; that the source of funds for the litigation was the non-party or its principal; and that the unsuccessful party was insolvent or could otherwise be described as a person of straw since, if a third party costs order were ordinarily made in that situation, the jurisdiction would lose its "exceptional" character. I proceed on the basis that that proposition is generally true, and that it will ordinarily be necessary to establish something further, likely including the other matters identified in FPM Construction, that the conduct of the litigation was unreasonable or improper or that the non-party had a substantial interest in the litigation, or possibly both. I also recognise that, as Mr Krochmalik pointed out, Leeming JA also emphasised (at [39]) the need to avoid the third party cost rule "swallowing up" the general rule, by too readily making such an order.
I also recognise that, in Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWSC 633 ("Mistrina"), Hammerschlag J (as the Chief Judge in Equity then was) reviewed the relevant case law and emphasised that the factors specified in that case law are not to be treated as separate and independent factors and that an evaluative assessment of all of those factors should be made. His Honour also emphasised (at [25]), that:
"The discretion is at large. In determining whether to exercise its discretion to make such an order, the court will have regard to all the relevant circumstances. If those circumstances warrant making the order because it is just to do so, giving it the description exceptional does not add much. The description exceptional is not some additional criteria".
His Honour went on to observe that, in that case, a third party costs order should be made against a litigation funder, where the funding of the proceedings was the litigation funder's business, and where that funder funded the proceedings to serve its own commercial and financial ends rather than to facilitate access to justice in any abstract sense. His Honour also observed (at [39]) that:
"Justice dictates that the successful defendant against the impecunious plaintiffs funded by the commercial funder should not be left with an empty costs order against persons of straw".
For completeness, I note that I also reviewed the relevant principles in Redman v JTS Investment Holdings Pty Ltd [2012] NSWSC 1575, which was approved by Hallen J in Tanamerah Estates Pty Ltd v Tibra Capital Pty Ltd (No 2) [2013] NSWSC 616 at [70], and in Riva NSW Pty Ltd v The Official Trustee in Bankruptcy [2023] NSW 896 at [36] - [37].
Ms King submits that the matters necessary for a third party costs order against Mr Huo are established on a simple basis, and it seems to me that, notwithstanding the elaborate and detailed submissions made by Mr Krochmalik, the matter is a simple one. Ms King submits that, here, Noda was the moving party in the proceedings; Noda was not the source of the funds for the litigation, not having a bank account; the proceedings were dismissed as a result of Noda failing to secure an amendment that it sought on the day of the hearing; Mr Huo had a direct interest in the proceedings, and she refers to a previous transaction which it is not necessary for me to address in that respect; and Noda is a "person of straw". She also submits, by reference to several additional decisions, that it is in the interests of justice that Mr Huo be liable for the costs of the proceedings, and I will return to that proposition below.
It seems to me that each of those factors is satisfied, while I recognise that the case law to which I have referred above does not necessarily require that all of them be satisfied in order to establish the basis of a third party costs order. Noda was the moving party in the proceedings, to the extent that that is a necessary element for such an order. I understand Mr Krochmalik to have accepted, fairly, that Mr Huo funded the proceedings, rather than Noda having done so.
Mr Krochmalik, perhaps surprisingly, contested the proposition that Noda's conduct of the litigation (in fairness, at a point where he was not appearing for Noda) was unreasonable and sought to characterise the matter as one where Noda had simply failed in obtaining the relief that it sought. That characterisation does not seem to me to properly reflect events, in two respects. First, this is not a situation where Noda had simply failed to obtain the relief that it had sought, where it abandoned its claim to that relief on the day on which the matter had been listed for final hearing, having put Mr O'Brien and H&H Funding to the cost of reaching that final hearing. Second, Noda's abandonment of that claim occurred in circumstances that, as I noted above, Noda had initially sought to establish its substantive entitlement as a secured creditor of H&H Funding; then abandoned its attempt to do so (likely recognising that question could not practically be determined until the liquidator had completed the investigations he was then undertaking); then sought, notwithstanding its previous abandonment of that claim, to reinsert it at the hearing on 17 January 2024; and then, having unsurprisingly failed to reverse its previous position, abandoned the proceedings and accepted that it was liable for the costs of the proceedings. It seems to me that, on any view, that conduct amounted to unreasonable conduct of the proceedings, and, if it were necessary to do so, I would find that it was inconsistent with Noda's obligations under s 56 of the Civil Procedure Act 2005 (NSW) in respect of the just, quick and cheap resolution of the real issues in dispute in the proceedings. In those circumstances, the third element recognised in the cases as one that will support a third party costs order is satisfied.
Fourth, the case law has recognised a question whether the non-party, or its principal, had an interest that was equal to or greater than that of the party or, if financial, was a substantial interest. Mr Krochmalik here accepts that at least aspects of that proposition are established, where Mr Huo is the sole director and sole shareholder of Noda. He points out, consistent with the case law to which I have referred above, that that is not sufficient, in itself, to support a non-party costs order, where that would deprive such an order of its "exceptional" character. However, the position is here not only that Mr Huo was the director and sole shareholder of Noda, but he was also, by inference from the fact that Noda does not have a bank account, the funder of the proceedings and, also by inference from the fact that Noda does not have a bank account, is likely to have funded other expenditures of Noda, and obtained the benefit of other payments to Noda, whether personally or through associated entities, since that is the only way in which those funds could have passed through the financial system. The proceedings were also brought so as to seek to force Mr O'Brien to pay funds held by H&H Funding to the receivers appointed by Noda, before the liquidator completed the investigations which were then under way and (in one of its versions noted above) without determination of the substantive validity of Noda's security. It seems to me that Mr Huo had a substantial interest in that result, where he would have benefitted from any payment to the receivers appointed by Noda, and then, notionally, to Noda, which could only have been made to a bank account held by Mr Huo or his associated entities where Noda had no such account.
The fifth element identified in the case law is that the unsuccessful party was insolvent or could otherwise be described as a "person of straw". Again, perhaps surprisingly, that proposition was contested by Mr Krochmalik. It seems to me that that proposition is plainly established. The fact that Noda did not have a bank account supports inferences that Noda did not have funds in a bank account from which any liabilities could be paid and was dependent on Mr Huo or his associated entities paying such liabilities. That inference could only be displaced by evidence led by Noda of other presently available assets, not of a monetary character, which could be realised in order to meet such liabilities. Noda did not lead such evidence and, in those circumstances, I can properly infer that any evidence that it could have led as to other assets that were presently available to it would not have assisted it to displace the inference that it was impecunious and dependent on funding of its liabilities by Mr Huo or his associated entities. Mr Krochmalik also submitted, by reference to claims that Noda has upon H&H Funding, and claims that H&H Funding in turn has upon Bridgeland Second, that Noda can expect to receive substantial recoveries from the liquidation of Bridgeland Second. It seems to me that that proposition does not assist Noda or Mr Huo. The potential of future recoveries by Noda or Mr Huo on its account, however substantial, does not have the consequence that Noda is not now a person of straw.
In these circumstances, it seems to me that all of the factors referred to in the case law, as supporting a non-party costs order against Mr Huo are satisfied. It also seems to me that Hammerschlag J's observations in Mistrina, while directed to the position of a litigation funder, could equally be applied to the position of Mr Huo as Noda's sole director and sole shareholder who chooses to fund the conduct of proceedings by a company with no apparent funds, in order to advance his commercial ends in achieving a recovery by that company which will in turn benefit himself as its sole shareholder.
I have not neglected a further submission by Mr Krochmalik that there is less reason to make a third party costs order here because orders for costs had been made against the receivers appointed by Noda, who had accepted that they would be bound by such orders, and that there is no reason to doubt that they have the capacity to meet an order for costs against them. I proceed on the basis that there is no reason to think that the receivers do not have the ability to meet a costs order against them. However, it escapes me why that would be a reason to decline to make a third party costs order against Mr Huo, in circumstances that that order would otherwise be justified, so as to leave the receivers exposed to costs which could otherwise properly be borne by Noda but for its lack of funds, and by Mr Huo if such an order is made. To put that proposition differently, it seems to me that there is no less reason to make a third party costs order, where one plaintiff is impecunious, because other plaintiffs could be left to bear a share in the costs which they would not have to bear, but for the fact that that plaintiff was impecunious.
For these reasons, I am comfortably satisfied that an order should be made that Mr Huo be personally liable for the costs order made on 17 January 2024 against Noda.
[5]
Payment of security for costs out of Court
Mr O'Brien also sought an order that the amount of $70,000 paid into Court on 13 December 2023 by Noda, or perhaps more likely by Mr Huo on Noda's behalf, be paid to Mr O'Brien and H&H Funding on account of their costs in the proceedings. The basis on which that order was sought was straightforward. As I understand it, Mr O'Brien simply contends that an order was made by consent that an amount be paid into court for security for costs; an order for costs has now been made, although I accept that those costs have not been assessed or agreed or the subject of a gross sum costs order; the evidence led by Mr O'Brien is such that, on any view, the costs that he and H&H Funding incurred are likely to substantially exceed the amount that has been paid into Curt; and that is sufficient reason for the order sought to be made.
Mr Krochmalik puts more complex submissions in response. In particular, Mr Krochmalik submits that an "entitlement" to set off is available as between Noda and H&H Funding which means that, after setting off the amounts owing, Noda is a net creditor and not a net debtor of H&H Funding. Mr Krochmalik points to several forms of set off on which Noda relies in the circumstances, including set off under s 21 of the Civil Procedure Act, equitable set off or the exercise of an inherent power of the Court to permit set off with respect to judgments and costs. Mr Krochmalik also referred to observations of White J in Australian Beverage Distributors v Evans and Tate Premium Wines Pty Ltd (2006) 58 ACSR 22 which dealt with the circumstances in which set off may be available, in respect of orders for costs, and the observations of Kunc J in Al Maha Pty Ltd v Coplin [2018] NSWSC 1623 and Meek J in Riva NSW Pty Ltd v Key Nominees Pty Ltd [2023] NSWSC 711 in that regard.
Mr Krochmalik submitted that Noda is a substantial creditor of H&H Funding, where it claims the amount of the judgment in the previous proceedings to which I referred above, which will be provable in the winding up, irrespective of whether Noda is entitled to prove as a secured creditor in that respect. He also submits that Noda is also owed a gross sum costs amount as a result of the costs order made in the earlier proceedings, Mr Krochmalik submitted that that debt was not a provable debt for the purposes of s 553 of the Corporations Act, because it is a post liquidation debt, where the costs order was made after Noda was placed in liquidation, although it related to costs that were incurred prior to the appointment of the liquidator to H&H Funding. Mr Krochmalik expressly did not seek to establish a set-off for the purposes of s 553C of the Corporations Act 2001 (Cth) on the basis that there were mutual debts as between Noda and H&H Funding, possibly because he recognised that the factors emphasised by the High Court in Metal Manufacturers Pty Ltd v Morton (2023) at 406 ALR 711; [2023] HCA 1 would cause substantial difficulty for such a claim. In particular, the High Court there rejected the proposition that a set-off was available between a creditor's claim against a company in liquidation and a liquidator's preference claim in the liquidation, where, inter alia, the dealings were not mutual, because one was between the creditor and the company and the other was for the benefit of persons entitled to payment under the statutory provisions for the proof and ranking of debts and claims in a liquidation, rather than for the benefit of the company.
Mr Krochmalik also drew attention to observations of Wright J in Romani v State of New South Wales (No 2) [2023] NSWSC 1044 at [39], which emphasised that the Court's inherent discretion to order a set-off was exercised by matters including the public interest, the efficient administration of justice, the conduct of the parties, the solvency of the parties, and fairness. Mr Krochmalik here submitted that that tended in favour of a set-off, and declining an order for payment of the amount of security out of Court, because otherwise Noda would be left to prove its claim in the liquidation, while H&H Funding (and, importantly, the liquidator in his capacity as liquidator) would have his costs of these proceedings met.
I am here comfortably satisfied that an order should be made for the payment to the liquidator and H&H Funding of the amount of $70,000 paid into Court, for several reasons, and the matters identified by Mr Krochmalik do not have the contrary result. First, an order was here made by consent that the amount be paid by Noda as security for Mr O'Brien's and H&H Funding's costs of these proceedings, and the intent of that order was, as it plainly provided, that the moneys be paid into Court and then used for that purpose. It seems to me that there is nothing unjust, and nothing contrary to the public interest, in allowing funds that were expressly paid into Court under a consent arrangement as security for costs to be used for the very purpose for which they were paid into Court.
Second, it seems to me that Mr Krochmalik's submissions ultimately did not come to grips with the fact that, here, Mr O'Brien was joined personally as a party to these proceedings, and I have referred above to the relief which was sought against him, plainly, personally, albeit in his capacity as liquidator of the company. I recognise that neither party led evidence as to how Mr O'Brien's and H&H Fundings' costs of the proceedings were paid, whether directly by Mr O'Brien or from funds held by H&H Funding, or whether they had not yet been paid. However, it is plain enough that Mr O'Brien was, albeit in his capacity as liquidator, joined as party to these proceedings and substantive relief was sought against him. The fact that the proceedings were brought against Mr O'Brien, and not only H&H Funding, tends against the Court treating any set-off of a debt owed by H&H Funding to Noda to which he was not party as now preventing a claim against the monies paid into Court as security for costs.
Further, it seems to me that, here, the Court should approach the question of any set-off, to the extent that it involves a matter of discretion, having regard to the factors to which the High Court referred in Metal Manufacturers. Even if the costs of the proceedings were payable, or paid, by H&H Funding rather than by Mr O'Brien, the dealings between Noda and H&H Funding were not mutual in the relevant sense, adopting the language of Metal Manufacturers, since H&H Funding's principal debt to Noda and the costs of the earlier proceedings were referable to dealings between Noda and H&H Funding prior to the appointment of the liquidator, whereas the costs of these proceedings was recoverable for the benefit of the liquidator or at least for the benefit of persons now entitled to payment under the statutory provisions for the proof of debts and claims in a liquidation, rather for the benefit of the company. It also seems to me that the public interest; the efficient administration of justice; the conduct of the parties, including the fact that security for costs was provided in the first place; the solvency of the parties, viewed by reference to the different interests to which I have referred; and fairness, all support an order that the security for costs be paid out of Court so that Mr O'Brien and H&H Funding's creditors are not left out of funds in that respect.
I have not neglected the fact that the amount of costs payable by Noda to Mr O'Brien and H&H Funding has not been assessed, and there has been no agreement or gross sum costs order made in that respect. It seems it me plain, however, that the amount of costs recoverable by Mr O'Brien and H&H Funding will substantially exceed the amount of $70,000 paid into Court as security for costs. The amount of the costs incurred, when discounted by the percentage that is commonly seen by this Court in gross sum costs applications and in costs assessments, would substantially exceed the amount of funds held in Court, and the one expenditure challenged by Mr Krochmalik, in submissions, would not alter that result.
[6]
Orders and costs
For these reasons I will make the two orders sought in the Interlocutory Process. So far as the costs of this application are concerned, and at the risk of a process of continued repetition of the same issues, it seems to me that the circumstances for an order for costs against both Noda and Mr Huo in respect of this application will be established. In any event, Mr Krochmalik fairly accepts that Mr Huo was a respondent to the application and unsuccessfully opposed the relief sought, and that an order for costs would be made against him as well as Noda on that basis.
For these reasons I make the following orders:
Order that Zheng Qiang Huo be personally liable for the costs order made on 17 January 2024 against the First Plaintiff in these proceedings, jointly and severally with the First Plaintiff.
Order that the amount of $70,000 paid into Court on 13 December 2023, pursuant to order 1 made on 11 December 2023, be paid to the First and Second Defendants on account of the costs in these proceedings, such payment to be set-off against any costs recoverable by them.
The First Plaintiff and Mr Huo pay the costs of and incidental to the Interlocutory Process filed 31 January 2024 and this hearing, as agreed or as assessed.
[7]
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Decision last updated: 14 March 2024