An v Joo

Supreme Court of NSW|2019-12-02|Before: Kunc J

Summary

These proceedings concern a dispute about the management of the Open Door Church, which is a Korean Presbyterian Church and a member of the Australian Synod of the General Assembly of Korean Presbyterian Churches in Oceania.
On 29 January 2019, the Court heard two motions in connection with the dispute. Those motions were resolved by orders made on 31 January 2019 and a judgment delivered on 4 February 2019: An v Joo [2019] NSWSC 39 (the "Principal Judgment").
This judgment deals with the costs of the proceedings after a hearing held on 2 December 2019 and further written submissions and evidence. It assumes familiarity, and should be read with, the Principal Judgment. Defined terms in the Principal Judgment have the same meaning in these reasons. The legal representation of the parties at the costs hearing was the same as at the hearing which gave rise to the Principal Judgment.
The effect of the orders made on 31 January 2019 was for fresh elections of the Management Committee of the Church to be conducted. As part of the election process, the orders also provided for an independent financial audit of the Company and the Church to be undertaken and reported to members before the election.
Both of those steps have now occurred. The parties are in agreement that the proceedings should be brought to an end by the further amended statement of claim (the "FASOC") and the cross claim being dismissed without any further hearing or judicial determination of the merits of the issues raised on the pleadings. However, the parties are in complete disagreement about the costs consequences of those orders. In particular, Mr An pressed for his costs of the proceedings.

Events since the Principal Judgment

Mr An's case developed in two iterations. As originally pleaded, Mr An sought to challenge the validity of the transfer of the registration of the Society to become the Company, sought declarations concerning irregularities in the conduct of annual general meetings of the Church from 2012 and orders for the appointment of a receiver and manager to the assets of the Church and the Company in order to conduct elections of their management committees and to investigate their financial affairs. These matters were all taken up in a statement of claim that was filed on 30 May 2017.
On 13 September 2018, Mr An filed a notice of motion for leave to file the FASOC to incorporate complaints about meetings that had been held in March and July 2018 ("Mr An's motion").
On 21 December 2018, Mr Jeon, one of the New Defendants, filed his notice of motion ("Mr Jeon's motion"), seeking relief which included: "1. Pursuant to section 1322(4)(a) of the Corporations Act 2001 (2001) ("Corporations Act"), section 96 of the Associations Incorporation Act 2009 (NSW), regulation 18 of the Associations Incorporation Regulation 2016 (NSW), and Part 3 of the Corporations (Ancillary Provisions) Act 2001 (NSW), a declaration, conditional on order 2 below, that the appointment of Abraham Min, Chang Gun Jeon, Ho In Park, In Soon Kang, Hongkuk Kim, Sang Lip Kim, and Young Kwon to the management committee of The Open Door Church Incorporated (NSW INC 9880520) ("Church") and as directors of Open Door Korean Cultural Society Limited (ACN 615 471 068) ("Society") was not invalid by reason of any contravention of the Corporations Act or any provision of the Church's constitution or the Society's constitution. 2. Pursuant to the Court's plenary power under section 1322 of the Corporations Act and/or the Court's ability to make an ancillary order where it is just and equitable to do so, an order requiring the Church to hold an extraordinary general meeting, in accordance with the directions of the Court, for the purpose of electing a management committee of the Church. 3. A declaration that the newly elected management committee of the Church may exercise the power of the Church as the sole member of the Society to appoint directors of the Society. 4. An order for declarations 1 and 3 above and order 2 above be heard and determined prior to the determination of any other claims in the proceedings."
At the hearing on 29 January 2019, the active parties, in particular the New Defendants, consented to the relief sought in Mr An's motion.
As I recorded in paragraph [29] of the Principal Judgment, the parties ultimately came to accept for the purposes of Mr Jeon's motion that there had been certain irregularities (the "Irregularities") in relation to the affairs of the Church: "(1) The Tenth Defendant was on 11 March 2018 purportedly elected to the management committee of the Church for a two-year term (when only a one year term was lawfully available under the Model Rules); (2) At the general meeting held on 1 July 2018 Mr An was not permitted to stand for election to the management committee of the Church by reason of the improper rejection of his nomination form; (3) At the general meetings on 11 March and 1 July 2018 a rule was applied to the effect that a person could only be elected to the management committee of the Church if that person received two-thirds of votes cast (which rule was contrary to the Model Rules); and (4) The New Defendants were appointed (not elected) as members of the management committee of the Church."
The only opposition to a solution along the lines proposed in Mr Jeon's motion came from Mr An (see paragraph [31] of the Principal Judgment). That opposition was not pressed after I indicated that the Court would make orders to the effect of those proposed in Mr Jeon's motion, subject to some further submissions about the detail. That is what occurred.
The Court made orders for fresh elections to be conducted and a financial audit to be undertaken. After the filing of the FASOC, the New Defendants, other than the eleventh defendant (Mr Jeon), filed submitting appearances.
On 18 March 2019, Mr Hong, the accountant who had been retained to investigate the financial affairs of the Church, issued a qualified audit report. He was unable to give an unqualified opinion because the Church and the Company did not have systems for recording petty cash in circumstances where he noted "Petty cash expenditures are a substantial portion of the administrative expenses and other expenses of the Company and the Church".
In accordance with the orders which the Court had made, an election was conducted on 31 March 2019 at an extraordinary general meeting. That resulted in the election of the New Defendants as the management committee of the Church.
On 5 April 2019, the solicitors for the first, second and third defendants wrote to Mr An's solicitors saying that those defendants wished to be removed as parties to the proceedings. The first and second defendants had been represented at the hearing of the motions in January 2019. On that occasion their solicitor informed the Court that his clients no longer had any position in the Open Door Church or its related entities and did not wish to be heard in opposition to either of the motions. They and their solicitor were excused from the hearing without objection by any other party.
On 18 April 2019, Mr An's solicitor wrote to the solicitors for the New Defendants (now the management committee) and asked how they proposed to address the matters raised in Mr Hong's report. The New Defendants' solicitors responded by letter dated 7 May 2019 including to say that the New Defendants had "implemented measures to significantly reduce the use of cash expenditure" and that they were "currently considering Mr Hong's suggestions in light of current practices".
On 20 May 2019, Mr An's solicitor wrote to the other parties, including: "I am instructed that my client wishes to bring these proceedings to a close on the basis that he has been substantially vindicated in the proceedings to date, including as follows: 1. The first-third defendants and the fifth-seventh defendants capitulated by stepping down from their positions in the Church and Society in January 2018 and each of them admitted significant irregularities as pleaded, in particular, that there was never a special resolution of members authorising the transfer of registration of Society. In February 2019, the fifth-seventh defendants filed submitting appearances. 2. The Court has found irregularities in relation to the management of the Church and the Society over a number of years: see paragraphs [29] and [39] of the judgment of Kunc J in An v Joo [2019] NSWSC 39. In the latter paragraph his Honour said: "It is clear from the existing defendants' own pleadings and the evidence to date that for some years the financial and constitutional affairs of the Church and the Society have been run with disregard for the relevant legal requirements that apply to incorporated entities." 3. The tenth-sixteenth defendants admitted the existence of irregularities in respect of the 2018 elections/appointments (leading to the Further Amended Statement of Claim being filed), which contraventions were declared to be not invalid by Kunc J by an order pursuant to s.1322(4)(a) of the Corporations Act on 31 January 2019; and 4. As was sought by my client, fresh elections have now been held and the financial affairs of the Church and the Society have been investigated, at least in part. My client intends to seek an order for his costs of the proceedings against the first-third defendants and the fifth-sixteenth defendants."

Mr An's submissions

In the parties' initial round of arguments as to costs Mr An sought these orders to bring the proceedings to an end: 1. The FASOC be dismissed; 2. The amended cross claim of the first, fifth, sixth and seventh defendants be dismissed; 3. The tenth defendant (Mr Min) pay the costs of the plaintiff and of the Attorney General on a party and party basis from the commencement of the proceedings; 4. The first, second, third, fifth, sixth and seventh defendants be jointly and severally responsible with the tenth defendant to pay the costs of the plaintiff and of the Attorney General on a party and party basis from the commencement of the proceedings up to and including 30 June 2018; 5. The New Defendants (other than Mr Min) be jointly and severally responsible with Mr Min to pay the costs of the plaintiff and of the Attorney General on a party and party basis from 1 July 2018; and 6. The eighth and ninth defendants (being the Company and the Church) pay the costs of the plaintiff and of the Attorney General on a solicitor and own client basis, less any amount received by the plaintiff and the Attorney General from the other defendants to the proceedings.
Mr An submitted that because the subject of the proceedings was the affairs of the Church and the Company, and that these were both conducted for charitable purposes, the Court should apply the principles relating to litigation concerning a "common" fund. Attention was drawn to this statement by Meagher JA (with whom Leeming and Simpson JJA agreed) in James v Douglas [2016] NSWCA 178: "55. His Honour then addressed the principles to be applied where there was a dispute as to costs in proceedings involving the construction of a will or settlement in the context of the administration of an estate or fund. As Lord Hoffmann observed in McDonald v Horn [1995] 1 All ER 961 at 970-971, the classic statement of the principles upon which the Court should act is that of Kekewich J in Re Buckton; Buckton v Buckton [1907] 2 Ch 406 at 413-415. Lord Hoffmann concisely summarised that statement: While warning that it was 'well nigh impossible to lay down any general rules which can be depended on to meet the ever varying circumstances of particular cases' he said that trust litigation could be divided into three categories. First, proceedings brought by trustees to have the guidance of the court as to the construction of the trust instrument or some question arising in the course of administration. In such cases, the costs of all parties are usually treated as necessarily incurred for the benefit of the estate and ordered to be paid out of the fund. Secondly, there are cases in which the application is made by someone other than the trustees, but raises the same kind of point as in the first class and would have justified an application by the trustees. This second class is treated in the same way as the first. Thirdly, there are cases in which a beneficiary is making a hostile claim against the trustees or another beneficiary. This is treated in the same way as ordinary common law litigation and costs usually follow the event. 56. The primary judge also referred to the more recent statement of Campbell JA in this Court in BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; 82 NSWLR 336 at [213]: The form of the proceedings, as inter partes litigation, is not decisive of how the costs of that litigation should be dealt with. Courts exercising equity jurisdiction encounter a variety of situations where a fund is being administered subject to the control of the court, and a question arises about the proper manner in which that fund should be administered. Such a situation can arise concerning administration of deceased estates, concerning administration of trusts, … In those situations, whether the costs of the court deciding the question that has arisen should be treated as costs of administration of the fund is significantly influenced by whether the proceedings are in substance adversarial ones."
Mr An submitted that his conduct fell into the second category set out in Re Buckton; Buckton v Buckton [1907] 2 Ch 406 ("Re Buckton"), because he was not seeking any private benefit, but was endeavouring to enforce the proper administration of the Church and the Company by those charged with that responsibility.
On the other hand, it was also submitted for Mr An that the defendants were not entitled to the benefit of the principle in Re Buckton because it was subject to what was referred to as "the principle of reasonableness". It was said that the defendants had engaged in unreasonable conduct designed to protect their own personal interests and had not acted in the interests of the Church and the Company as a whole.
Mr Condon SC further submitted that the first to seventh defendants (other than the fourth defendant, against whom Mr An had discontinued) and the New Defendants had capitulated to Mr An's claim, the former by resigning their posts and ceasing their involvement with the Church, and both by finally admitting the Irregularities at the hearing, being the principal allegations made by Mr An. The conduct of all of the defendants in requiring Mr An to bring and maintain the proceedings before those admissions were made was unreasonable such that they ought to bear the costs of proceedings.
Furthermore, in relation to Mr Jeon's motion for relief under s 1322 of the Corporations Act 2001 (Cth) ("CA"), and the application by the cross claimants for such relief on a final basis, Mr An's submission was that those applications were for an indulgence. Reliance was placed on the "general principle" that an applicant seeking an indulgence must pay costs citing, for example, the decision of Parker J in Wang v ABC Homes (NSW) Pty Ltd (No 2) [2018] NSWSC 1736.

The first, second and third defendants' submissions

The first, second and third defendants sought these orders: 1. The FASOC be dismissed; 2. The cross claim filed on 17 August 2017 be dismissed; 3. The plaintiff pay the first, second and third defendants' costs of the costs application; and 4. There otherwise be no order as to the costs of the proceedings as between the first, second and third defendants and the plaintiff.
These defendants began their submissions by taking up the observation which I made in the Principal Judgment (at [16]) that "Mr An had not identified in his pleadings any specific, alleged examples of financial impropriety". Their case was that to the extent there were irregularities in the management of the Church and the Company, those irregularities were the product of: 1. An honest belief as to the requirements of the relevant legislation; 2. An honest belief that they had complied with the requirements of the relevant legislation; 3. An honest belief that they acted in accordance with oral legal advice received by the Church and the Company; and 4. No intention to mislead or cause harm or detriment to the Church, the Company, their members or the public.
These matters were pleaded in their original defence filed in August 2017 and in their defence to the FASOC filed on 12 April 2019.
The first defendant, together with the fifth, sixth and seventh defendants, had filed a cross claim in the proceedings seeking orders pursuant to CA s 1322 substantially to like effect to Mr Jeon's motion. Furthermore, it was common ground that none of the first, second or third defendants had attended the Church since about 14 January 2018.
On 5 April 2019, the solicitors for these defendants wrote to Mr An's solicitors proposing that the proceedings against them be discontinued because the FASOC sought no relief against them (other than costs) and they no longer held any affiliation with the Company or the Church. They were prepared to consent to the discontinuance of the proceedings against them on the basis that there would be no order as to costs. That proposal was rejected by Mr An.
These defendants principally relied on what was said by McHugh J in Lai Qin (at 624-625) (citations omitted): "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases."
These defendants submitted that, because there had been no trial on the merits, the appropriate order was that there should be no order as to costs (except in respect of the costs application). It was not appropriate for the Court to engage in a hypothetical trial. To attempt to guess the outcome had the proceedings gone to trial would involve entering into complex factual matters where credit would be an issue. Furthermore, to the extent there were any matters arising from Mr Hong's report, the resolution of the proceedings meant that the first to third defendants had been deprived of any opportunity in the litigation to challenge, question, explain or comment on the auditor's findings. Similarly, the extent to which the cross claim for orders pursuant to CA s 1322 could properly characterised as an indulgence was only a matter which could be determined after a hearing on the merits. The termination of the principal proceedings rendered the cross claim otiose, such that it should also be dismissed.
The first, second and third defendants submitted that they had not acted unreasonably in their conduct of the defence of the proceedings. They said that they had frankly conceded the Irregularities in the management of the Church and the Company in their defence and cross claim filed on 17 August 2017 and had twice put to Mr An that he should discontinue his claims on the basis that there be no order as to costs. They had not capitulated and had filed a defence to the FASOC. Nor could capitulation be inferred from the fact that they had resigned their positions and cut their ties with the Church and the Company.
The first to third defendants sought their costs of the costs application, not least because they had offered to resolve the proceedings on the very basis of there being no order as to costs. Had that offer been accepted, the costs of the present application would not have been incurred.

The submissions of the fifth, sixth and seventh defendants

The submissions of the fifth, sixth and seventh defendants were to the same effect as those of the first, second and third defendants. They consented to the FASOC being dismissed. Because that step rendered it otiose, they also consented to the dismissal of the cross claim pursuant to which they were cross claimants with the first defendant for relief under CA s 1322.
The fifth, sixth and seventh defendants submitted that the Court should exercise its discretion as to costs in accordance with Lai Qin so that there should be no order as to costs. Mr An should not be permitted, it was contended, to use the costs application as what was described as a "back door" to determine the substantial issues in the case and to resolve, adversely to the fifth, sixth and seventh defendants, serious allegations about their conduct. They submitted they had not capitulated or acted unreasonably, but remained in the proceedings to defend them (and their reputations) until the hearing in January 2019 had, for all practical purposes, rendered the continuation of the proceedings unnecessary.
The fifth, sixth and seventh defendants submitted that no costs order should be made adverse to them, but that Mr An should pay their costs of the costs application.

The New Defendants' submissions

The New Defendants sought these orders to bring the proceedings to an end: 1. In relation to Mr Jeon's motion: 1. An order that Mr An pay Mr Jeon's costs on the ordinary basis; 2. In the alternative, an order that each party bear their own costs. 1. In relation to Mr An's motion, an order that the plaintiff and the new defendants bear their own costs. 2. In relation to the proceedings generally: 1. Mr An pay the costs of the New Defendants on the ordinary basis; 2. In the alternative, the plaintiff, the New Defendants and all other parties bear their own costs; 3. The FASOC be dismissed.
In relation to Mr Jeon's motion, it was submitted that this had been opposed by Mr An (see paragraph [31] of the Principal Judgment) until the Court had indicated that it was minded to grant such relief. Mr Jeon was successful on his motion and costs should follow the event, such that Mr An should pay Mr Jeon's costs of the motion. In the alternative, it was submitted that each party should bear their own costs of the Motion.
In relation to Mr An's motion, as far as it concerned the New Defendants, they had either consented to the relief sought in the motion or had given undertakings, such that Mr An was not entitled to recover his costs of the motion against the New Defendants. This result was all the more obvious when it was appreciated that, with the exception of Mr Jeon, none of the New Defendants filed a defence, but instead filed a submitting appearance to the FASOC.
In relation to the costs of the proceedings generally, it was submitted that: 1. To the extent it could be said that Mr An had achieved any vindication, that had occurred over Mr An's opposition to the solution that had been proposed by Mr Jeon in his motion. Mr Jeon was the only one of the New Defendants who had taken an active role. Because of that circumstance, and that the other New Defendants had filed a submitting appearance, Mr An should pay the costs of the New Defendants on the ordinary basis. In the alternative, it was submitted that the New Defendants and Mr An should each bear their own costs of the proceedings. 2. Insofar as Mr An sought to fix special responsibility for costs on Mr Min, that depended upon the determination of a number of serious allegations made about Mr Min's conduct. Those allegations lacked evidentiary foundation and it would be entirely inappropriate to make the findings sought by Mr An in the context of a costs hearing when there had been no hearing on the merits. 3. There was no basis for the New Defendants to pay Mr An's costs from 1 July 2018, not least when they were only parties to the proceedings from January 2019 and the respondents to Mr An's motion from September 2018. In any event, much of the conduct which Mr An complained about in the FASOC occurred before the New Defendants were appointed and they had acted entirely reasonably in the very limited extent to which they had participated in the litigation. 4. It was not appropriate for the Church and the Company to pay any part of Mr An's costs by reference to "common fund" costs orders. This was for at least two reasons. First, despite having been invited to do so, Mr An had declined to inform the other parties of the amount of his costs and, therefore, the size of any potential call on the funds of the Church and the Company. Second, the Church and the Company were registered charities and Mr An had given an undertaking to the Court not to seek costs against the Church and Company, except on notice to the Attorney General (this being a requirement of the Attorney General to authorise the continuation of the proceedings pursuant to s 6(2A) of the Charitable Trusts Act 1993 (NSW) (the "CTA")).
The New Defendants said that they wished to be heard as to the costs of the costs application.

The submissions of the Attorney General

The Attorney General: 1. Consented to the ending of the proceedings by orders dismissing the FASOC and the cross claim. 2. Did not seek costs from anyone. 3. Noted that, appropriately, no one sought cost from him. 4. Noted that none of the defendants sought costs from the Company and the Church, which relevantly were charitable trustees. 5. Submitted that the Company and the Church should not be ordered to pay anyone's costs; and 6. Did not wish to be heard on the inter partes claims other than as they related to the Attorney General, the Company and the Church.
Against that background, the Attorney General made four points.
First, he reminded the Court that Mr An, by his solicitors, had written to the Attorney General to seek authorisation, pursuant to s 6 of the CTA, to commence the proceedings. The Attorney General authorised the proceedings, but on the condition that Mr An undertook not to seek any of his costs from the Company and the Church, except on notice to the Attorney General. Mr An gave that undertaking to the Court and to the Attorney General.
Second, similarly, early in the proceedings the first to third and fifth to seventh defendants had undertaken, upon the request of Mr An, that they would not "use the funds of the [Company and the Church] to indemnify their own legal costs in connection with" the proceedings.
Third, the parties had conducted the proceedings on the basis, demonstrated by the preceding undertakings, that the assets of the charitable trusts would not be imperilled by being available to pay any party's costs. No reason has been demonstrated to depart from that position. No order should be made for any party's costs to be paid by the Company and the Church. Alternatively, if the Court came to the view that Mr An's costs should be paid by the Company and the Church to the extent he remained out of pocket after exhausting all of the other costs orders which he obtained, in those circumstances the liability of the Company and the Church should be capped.
Fourth, the only basis upon which Mr An could obtain his costs against the Company and the Church was to bring his claim within the second category of Re Buckton. Mr An's submissions had properly acknowledged that the rule in Re Buckton only described what was "usually" the case, and that each case turned upon its own facts. In the present case the Attorney General accepted that Mr An was primarily motivated to regularise the Church's affairs, and not motivated by a desire on his part to advance his own interests. Nevertheless, it was submitted that there could be no doubt that the proceedings were in substance adversarial. The case was not about the construction of the terms any trust or its administration. Mr An had alleged fraud and related unsatisfactory conduct and his case was ultimately about who would control the Company and the Church (even if not him), rather than about how the charities should be administered. In those circumstances, Mr An's costs should be paid by those whose conduct had necessitated the proceedings and not by the Company and the Church.

A further issue arises

During the course of the costs hearing, a further issue - to some extent anticipated by the New Defendants (see paragraph [41(4)] above) - arose. This came from the Court's observation that while many factors pointed to the conclusion that the Court should apply the principles in Lai Qin with the result that there should be no order as to costs, the charitable context of the litigation and the fact that, by these proceedings, Mr An had achieved the regularisation of the affairs of the Company and the Church, meant that such an order could result in an injustice to Mr An. However, to properly consider the ramifications of this observation in circumstances where, even if only as a fall back, Mr An sought costs against the Company and the Church, it was relevant for the Court to know what Mr An's costs were. Furthermore, given that the Court would be very reluctant to make a costs order that would seriously impact upon the financial viability of the charities (and thereby undo so much of the purpose of the litigation that was altruistic) it would be necessary for the Court to have evidence of the financial position of the Company and the Church and their capacity to pay any costs order.
The parties were given an opportunity to file further evidence and submissions on these matters. These are summarised in what follows.
Mr An relied on the evidence of his solicitor, who the Court accepts was well qualified to give that evidence, that on an assessment on an indemnity basis Mr An was likely to recover $306,994.76 and on the ordinary basis he was likely to recover $247,430.64. After making what was said to be the appropriate adjustment warranted by the authorities on gross sums costs orders, it was submitted by Mr An that if the Court found it appropriate for the Church and the Company to be liable for his costs, then the Court ought fix that liability at $250,000 on the indemnity basis and $200,000 on the ordinary basis.
The Attorney General did not take issue with the costs calculations advanced for Mr An. The Attorney General's submission may be reduced to two propositions: 1. The Court's power to award costs was discretionary. Charitable trust proceedings involve considerations beyond those in normal adversarial litigation because the Court is also concerned to protect the charity itself. To the extent it is possible to avoid significant injustice to a plaintiff such as Mr An, the charitable context of the litigation meant that the Court should strive to save the charities from expense as far as possible. 2. A costs order should not be so great that it would inflict material damage on the charity, even if the avoidance of that damage meant that an otherwise entitled plaintiff would receive less than, absent charitable considerations, they should receive.
The New Defendants' submissions began by focusing on how Mr An's costs had been calculated. This had been done by reference to four stages: 1. From the commencement of proceedings until the first to third and fifth to seventh defendants stepped down in about mid-January 2018 ($147,365.30 on a solicitor client basis); 2. From about mid-January 2018 till late September 2018, being up to and including the filing of Mr An's motion ($56,399.02 on a solicitor client basis); 3. The period from November 2018 to 31 March 2019, including dealing with Mr Jeon's motion, the hearing before the Court on 29 January 2019, and dealing with the independent audit report of Mr Hong of 18 March 2019 and the elections overseen by the independent auditor on 31 March 2019 ($70,451.33 on a solicitor client basis); and 4. The period from about April 2019 to date, being the period relating to the plaintiff's costs application ($80,286.27 on a solicitor client basis).
Based on that information, the New Defendants submitted that if the Court was to make an order in favour of Mr An: 1. The costs order should be made against the Company for an amount not exceeding $45,000. This was arrived at by excluding Mr An's stage 4 costs (which related to the costs application itself), applying a 70% discount for "reasonableness and proportionality", applying a further discount for what could be expected for an assessment on the ordinary basis and then making a further adjustment to take into account contingencies that would be relevant in any formal costs assessment. It was submitted this figure also took into account the limited cash flow of the Company. 2. No order should be made against the Church because it had no real assets and its income only just covered its ordinary expenses; and 3. Each party for bear their own costs for the costs application. This last submission was based on what was said to be Mr An's intransigence in not providing information about his costs, as the New Defendants had requested, before the costs hearing on 2 December 2019. This had necessitated a further round of evidence and submissions. Furthermore, Mr An had, by reason of other interlocutory steps that had been taken and more generally, adopted an approach that was completely disproportionate to a costs application, particularly one involving charities.
Mr An objected to much of the evidence of the financial position of the Church and the Company that was adduced. I am satisfied that the evidence is admissible for the purposes of an interlocutory application such as the present. However, as will be seen, the admission of that evidence in itself makes no difference to the outcome of the costs application.
That evidence, according to the New Defendants, disclosed that any costs order against the Church would cause material damage because as between the two entities, it was the Company rather than the Church that held valuable assets. The Church had no real assets and minimal cash. There had been a significant drop in Church attendance since the proceedings were commenced. The Church had been struggling to meet its ordinary expenses and did not have the financial capacity to meet any costs order in favour of the plaintiff. To the extent it would have been relevant, given the onset of the current Covid-19 pandemic and the closure of places of public worship, I would be prepared to take judicial notice that the Church's income from attendances must have fallen even further.
While it was accepted that the Company owned two significant properties, it had very little cash flow. It had recently settled on a new loan to refinance its existing indebtedness and intended to sell one of its properties to be able to refinance the balance of the loan in 12 months' time.
From its $3.5 million refinanced loan, the Company would need to repay its previous loan ($2,458,000), pay fees and upfront interest on a new loan ($379,050), pay outstanding debts ($83,311), pay for rectification works on the property to be sold ($99,600), allow for further interest and loan fees in case that property could not be sold in 12 months ($379,050), and allow for potential shortfalls in income against ordinary expenditure ($42,000 in FY 2019, excluding interest). This could leave a balance of about $58,000 in reserve for unexpected expenses or drops in income. If a large costs order were made the Company could struggle to obtain extended finance or service its existing loan. It could be forced to sell its remaining property and the Company and Church could then struggle to find affordable and suitable accommodation in the area.
Mr An's submissions in reply may be summarised as: 1. Impecuniosity was not a sufficient factor to displace the rule that costs should follow the event, although it may have an impact upon how any costs order is structured: Northern Territory v Sangare [2019] HCA 25 at [31]-[36]. 2. Much of the New Defendants' evidence about the financial position of the Company and the Church was inadmissible, and even if admissible, was inherently contestable. On the grounds of procedural fairness Mr An ought to have had an opportunity to seek discovery, issue subpoenas and obtain his own expert valuation evidence in relation to their financial circumstances. 3. The Church and Company were not impecunious. While they may be cash poor, they were asset rich. The Court would be able to stay its costs order or make such an order on terms to allow them (and the congregants) to find funds to pay any costs order. 4. The analysis and various discounts undertaken by the New Defendants to arrive at the figure of $45,000 were unsupportable by reference to any principle. There were multiple discounts said to reflect the principle of reasonableness and their application more than once meant that the final result was plainly inadequate compensation. Attempts at mathematical precision to reflect success or failure on particular issues when making costs orders was deprecated by the authorities: see, for example, Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38].

Resolution

Accepting that questions of costs are in the discretion of the Court, the starting point is that costs follow the event. In this litigation the only "event' is what occurred at the hearing on 29 January 2019. If I were dealing with only the costs of that hearing, the Court would not have made any order as to costs. That is because each side of the record enjoyed a real measure of success. Mr An succeeded in obtaining leave to file the FASOC and obtained the forensic benefit of the admission of the Irregularities. On the other hand, the New Defendants, through Mr Jeon's motion (which it must be recalled was opposed by Mr An), ultimately succeeded in obtaining relief under CA s 1322 which established the pathway that led to the practical resolution of the dispute.
Turning then to the balance of the proceedings, in circumstances where the parties are agreed that both the FASOC and the amended cross claim should be dismissed, there has been no resolution of the proceedings on the merits and the proper outcome, applying the analysis in Lai Qin, is for there to be no order as to costs. In reaching this conclusion, I make three particular observations: 1. I am satisfied that, looking at the proceedings overall, all parties acted reasonably in commencing the proceedings and their conduct thereafter. That reasonableness, if I may respectfully say so, reached its high point in the way the motions heard on 29 January 2019 were presented for argument. Even assuming in Mr An's favour that there is no apparent reason why the Irregularities were not admitted earlier, that is in and of itself insufficient to derogate from my overall conclusion as to the reasonableness of how the parties conducted the litigation. 2. Insofar as Mr An points to other matters in support of his submission that the various defendants acted unreasonably, resolution of those matters would involve a hypothetical hearing on the merits, which is precisely what must be avoided when parties have otherwise compromised proceedings. 3. This is not a case where the outcome of the proceedings was so obvious that the Court would, in any event, make a costs order. I adhere to the conclusion I expressed in paragraph [32] of the Principal Judgment that these were proceedings which were attended by a real risk that, if they continued, they would be complex, lengthy and expensive. Their outcome was uncertain.
Subject to consideration of what follows, the Court is therefore satisfied that the principles in Lai Qin should be applied in this case with the result that the Court will make no order as to costs of the proceedings (excluding the costs of the costs application itself).
The only matter which may derogate from this conclusion arises from the fact that, as I concluded in paragraphs [39] and [40] of the Principal Judgment, "It is clear from the existing defendants' own pleadings and the evidence to date that for some years the financial and constitutional affairs of the Church and the Company have been run with disregard for the relevant legal requirements that apply to incorporated entities … However, the course of the proceedings thus far shows that many of Mr An's concerns have been vindicated and that he had good grounds to bring this case." It must be recognised that Mr An has achieved a level of vindication and succeeded in regularising the affairs of the Company and the Church.
Notwithstanding that outcome, and despite my initial attraction to the possibility, I have come to the definite view that it would be an error to exercise the Court's discretion to make orders that any part of Mr An's costs should be paid by either or both of the Company and the Church. There are five reasons for this.
First, assuming for the sake of argument, that this was a case which fell within the second category of Re Buckton, the application of the principles in that case would still depend upon there having been a litigated outcome. The only litigated outcome in these proceedings is what occurred on 29 January 2019 and I have already indicated in paragraph [60] above what my view is as to the appropriate costs outcome of that occasion. In the absence of a litigated outcome about anything else, the principles in Lai Qin apply. One does not reach the point of applying the principles in Re Buckton.
Second, in any event, this is not a case which falls within the second category of Re Buckton. The Court accepts the Attorney General's submission that while Mr An was not primarily motivated by a personal benefit in bringing these proceedings, the litigation nevertheless had a strongly adversarial character. That character has, regrettably, carried through to the way in which the costs application has itself been prosecuted. There is a great deal of force in the New Defendants' submission that the conduct of the costs application has been disproportionate to the rest of the case, including the production of a three volume court book, a separate volume of authorities and extensive written submissions with further evidence. I shall return to this observation at the conclusion of these reasons.
Third, no sufficient reason has been demonstrated to depart from the basis on which the proceedings have been litigated from the outset by the various protagonists, namely that they would not look to the Company or the Church for their costs. While no formal application has been made by any of them to be released from their relevant undertakings, no proper basis has been demonstrated for that to occur even if such applications had been made.
Those undertakings were an important feature of the litigation and the Court expects them to be adhered to. So that there can be no doubt that the resolution of the proceedings is not intended to bring those undertakings to an end, the Court will direct that they continue until further order.
Fourth, the Court accepts that the ability of a party to pay costs is generally irrelevant to whether or not a costs order should be made (see paragraph [59(1)] above). Given the overriding purpose mandated by s 56 of the Civil Procedure Act 2005 (NSW), it would require an extraordinary case (of which this is not one) for the Court to embark on a course which invited a detailed examination of the capacity of charitable entities such as the Company and the Church to meet any costs order. This would be to open up, in effect, a piece of satellite litigation. Allied to this proposition is the acceptance of Mr An's submission that it would not be procedurally fair for him to be bound by decisions made by the Court on the basis of material which he has not had a proper opportunity to test.
Fifth, I have been unable to identify any principled basis on which the Court could engage in the discounting exercise of the kind advanced by the New Defendants to arrive at the figure of $45,000 (see paragraph [54(1)] above), or to determine a figure by reference to the Company's and Church's capacity to pay. Judgments as to costs are necessarily often made with the proverbial broad brush or as a matter of overall impression. The authorities correctly, in my respectful view, urge that attempting to apply scientific or mathematical precision is no more than illusory. In the present case, any amount the Court might have arrived at would, in reality, have passed beyond the broad brush and the impressionistic to the arbitrary. This would risk injustice to all concerned, giving no real compensation to Mr An and potentially causing real detriment to the charities which the proceedings were brought to protect.

The costs of the costs application

I refer to paragraph [66] above. The costs application has been a completely discrete part of the proceedings. Costs follow the event. Mr An has failed to obtain an order for his costs. In the result, the various defendants who sought an outcome that there should be no order as to costs have been successful and, prima facie, are entitled to their costs of the present application.
Because this outcome was not canvassed in Mr An's various written submissions in response to those parties who expressly sought their costs of the costs application, the Court will give Mr An opportunity to file brief written submissions as to why he should not be ordered to pay the defendants' costs of the costs application on the ordinary basis (excluding the Company, the Church and the Attorney General). Unless any party applies otherwise, the Court will also then resolve that final question on the papers.

Conclusion

The Court's orders are: 1. The further amended statement of claim is dismissed; 2. The amended cross claim is dismissed; 3. If the plaintiff opposes an order that he pay the defendants' costs of the costs application on the ordinary basis (excluding the eighth, ninth and seventeenth defendants), he is to serve and file by email to the Associate to Kunc J any written submissions on that issue on or before 17 April 2019; 4. Order that any party who has undertaken not to seek to be reimbursed his or her costs of the proceedings from either the eighth or ninth defendant remains bound by that undertaking until further order; 5. Note that the Court declines to make any order as to any party's costs of the proceedings other than in relation to the costs of the plaintiff's costs application.

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