Babsari Pty Ltd v Wong

Representation

1. Mr G O'Mahoney of Counsel continued his appearance for Marcus and Graham.
2. Dr O'Connor appeared for himself as the respondent to the application for the personal costs order.
3. The day before the hearing, the Court was informed that Mr Ruberto, as the director of Twinkledom, had terminated the retainer of Twinkledom's solicitors. Without objection from any other party, I granted Mr Ruberto leave to appear for Twinkledom at the hearing.

Marcus and Graham's application for a freezing order against Twinkledom

1. I record at the outset that Mr Ruberto opposed the application. I informed Mr Ruberto that while it would not necessarily be granted, he was entitled to apply for an adjournment if he felt he needed further time to prepare to meet the application. He said the hearing could proceed. He told me that he opposed the application on the basis that he did not consider it to be fair and just.
2. I was satisfied that Marcus and Graham were entitled to a freezing order against Twinkledom in relation to the costs order which I had previously made. That order was that Twinkledom is to pay 90% of Marcus and Graham's costs of the proceedings on the ordinary basis up to and including 11 July 2018 and thereafter on the indemnity basis.
3. There was no dispute that Twinkledom is not trading and that its only asset of any value was its entitlement to a payment from the Administrators in respect of a debt of $390,097.39 which the Court declared was owing by CZAPL to Twinkledom. While there was no evidence as to how much any final payment from the Administrators might be, the Court infers that it will necessarily be less than the amount declared. This is because it will be after deduction of the Administrators' costs and expenses.
4. Insofar as Marcus and Graham had to demonstrate there was a serious question to be tried, there was no issue that they have the benefit of a costs order against Twinkledom.
5. The Court's principal judgment is replete with findings as to the deep animosity between Mr Ruberto, the controlling mind of Twinkledom, and Marcus and Graham. Those findings are sufficient to support the finding which I now make: that Marcus and Graham have demonstrated a real risk of dissipation of Twinkledom's assets because that evident animosity demonstrates the real possibility that Mr Ruberto will cause Twinkledom to do whatever it can to ensure the costs judgment is frustrated. If further confirmation were required, it may be found in two recent developments. First, Twinkledom did not comply with the Court's earlier directions to file and serve any evidence and submissions in relation to Marcus and Graham's application for the freezing order. Second, Mr Ruberto terminated Twinkledom's legal representation immediately before the hearing of that application.
6. Given Marcus and Graham's clear entitlement to the benefit of the costs order and that the Court was well satisfied of the risk of dissipation, the balance of convenience clearly lay in favour of making the freezing order, especially when it is understood that whatever is paid by the Administrators to Twinkledom is likely to be the only source of funds out of which Marcus and Graham may be able to satisfy their costs order.
7. Three other matters should be noted.
8. First, Marcus and Graham, appropriately in my respectful view, proffered an undertaking (which the Court accepted) to pursue the assessment of their costs expeditiously.
9. Second, the Court accepted evidence given by Marcus and Graham's solicitor that their likely recoverable costs up to 23 December 2019 were $381,048.48, and that since that date further professional fees on a solicitor/client basis estimated at $20,448.50 had been incurred. Given that evidence, the Court was satisfied that it was appropriate to make the freezing order to the extent of $390,097.39, being the amount which the Court has declared was owing from CZAPL to Twinkledom.
10. Third, I confirm the view that I expressed during the course of argument that, if sought by Marcus and Graham, it would be appropriate for the Administrators to agree to give reasonable notice to Marcus and Graham of any intended payment to Twinkledom so that all parties might co-operate to ensure that the freezing orders were complied with.
11. In relation to the costs of this part of the application, costs follow the event. Mr Ruberto was not able to suggest any reason why that should not be the case. Accordingly, the Court ordered Twinkledom to pay Marcus and Graham's costs of the application for the freezing order.

Marcus and Graham's application for a personal costs order against Dr O'Connor

1. There was no dispute that Dr O'Connor was the controlling mind of Busy Traveller. Busy Traveller was the trustee of his family trust. Dr O'Connor was not the only beneficiary of that trust. He told the Court that, as a result of the failed investment in Carzapp, neither Busy Traveller nor the family trust had any assets.
2. In an earlier costs judgment, the Court had ordered Busy Traveller to pay 10% of Marcus and Graham's costs of the proceedings, on the ordinary basis up to and including 11 July 2018 and thereafter on the indemnity basis. The application for a personal costs order against Dr O'Connor had been brought because after the Court's principal judgment had been delivered on 8 November 2019, it was discovered before the costs hearing that Busy Traveller had been deregistered.
3. For the purposes of the personal costs application. Dr O'Connor tendered this statement without objection by Marcus and Graham: "I applied for the de registration of Busy Traveller on the 21/11/2019 and this was confirmed by ASIC on 6/12/2019. This occurred after the judgment given on the 8/11/2019. The company Busy Traveller had no assets and I saw no prospect of receiving any payments from the liquidator therefore after discussion with an accountant I applied for voluntary de registration. I now understand this decision may not have been appropriate. I considered re registering the company but it was apparent this would involve further costs that I could not afford. Were the company to have been re registered it would still have no assets. As a consequence I have not re registered the company."
4. Mr O'Mahoney relied on the summary of the applicable principles set out in the judgment of Leeming JA (with whom McColl and Basten JJA agreed) in PM Works Pty Ltd v Management Services Australia Pty Ltd t/as Peak Performance PM [2018] NSWCA 168: "35. It is thus quite plain that the "exceptional" nature of a non-party costs order means that courts must be astute not to permit its availability to expand to the general run of cases where non-parties have played an active role in unsuccessful litigation. It is important to bear that steadily in mind when considering the criteria which were identified in FPM (and which were prominent in the parties' submissions in this appeal), which were identified at [210] as follows: "What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) 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 (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw."
5. Having set out those criteria, Leeming JA went on to observe (at [37]) that there was a "need to avoid a mechanical application of the criteria which informed the exercise of the power". His Honour also accepted (at [39]) that, in accordance with Privy Council authority, exceptional meant "no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense".
6. Mr O'Mahoney also referred to Babsari Pty Ltd v Wong [2000] QSC 380 ("Babsari"), in which one of the factors that led White J to make a personal costs order against a director was that the director had immediately sought to deregister the relevant company following the making of an adverse costs order against it. White J characterised this (at [28]) as "plainly a dishonest attempt to avoid the consequences of the judgment".
7. Without intending any disrespect to the careful and thorough way in which Mr O'Mahoney put his submissions, I came to the view that the strength of his clients' application turned on whether or not the circumstances of the present case were "exceptional". Assuming in Marcus and Graham's favour that all five of the criteria identified by Leeming JA were satisfied in the present case, I asked Mr O'Mahoney what he contended were the exceptional features that would warrant the making of a non-party costs order, what is described in some of the authorities as the "something more".
8. Mr O'Mahoney submitted there were two such features: 1. The deregistration of Busy Traveller. Although Mr O'Mahoney accepted that, unlike what had occurred in Babsari, the deregistration of Busy Traveller came between the delivery of the Court's principal judgment and the making of costs orders, it would nevertheless have been obvious from the outcome of the proceedings that Busy Traveller was going to have to pay costs. He submitted that, like Babsari, the Court should find Dr O'Connor's deregistration of Busy Traveller to have been a dishonest attempt to avoid the consequences of the judgment. In the alternative, he submitted that the deregistration of Busy Traveller was in itself sufficient, even if the Court was not satisfied that it was dishonest. 2. Dr O'Connor's explanation (see paragraph [21] above) was completely unsatisfactory.
9. Marcus and Graham's application for a personal costs order against Dr O'Connor failed because I did not accept that either of the matters advanced by Mr O'Mahoney was "exceptional" in the requisite sense.
10. Taking into account Dr O'Connor's explanation (upon which he was not cross-examined), I am not satisfied on the balance of probabilities, including to the Briginshaw standard, that Dr O'Connor's conduct in deregistering Busy Traveller had a dishonest intent. While Dr O'Connor might be criticised for not having sought legal advice (he accepted that his solicitors in the proceedings were still acting for Busy Traveller at the time of the deregistration), I am satisfied that his conduct in deregistering Busy Traveller was not dishonest, but was the response of an intelligent lay person to the predicament in which Busy Traveller found itself.
11. Turning to Mr O'Mahoney's alternative submission, even though the Court is satisfied that the deregistration was not motivated by any dishonest intent, the Court is still not satisfied that the fact of the deregistration itself constitutes an exceptional circumstance. There are two reasons for this.
12. First, there was nothing left in Busy Traveller. Second, if Marcus and Graham had reason to believe that enforcement against Busy Traveller was likely to be fruitful, it was open to them to apply to ASIC or the Court to reinstate the registration of Busy Traveller on the basis that they were persons aggrieved by the deregistration (see s 601AH of the Corporations Act 2001 (Cth)).
13. Nor did the Court accept Mr O'Mahoney's second submission to the effect that Dr O'Connor's explanation was inadequate. The Court is satisfied that, whatever else may be said about it, it is an explanation for the deregistration of Busy Traveller which is sufficient in all the circumstances to avoid that deregistration being an exceptional circumstance that justified a personal costs order against Dr O'Connor.
14. Finally, whether viewed as another reason why there was not "something more" or as a matter of general discretion, I did not make the personal costs order because over the long history of this matter (including in early correspondence seeking security for costs) Dr O'Connor was never put on notice by Marcus and Graham that an application of the present kind might be made against him. While it is not the case that prior express notice is a necessary prerequisite to a non-party costs order being made, the absence of such notice can be (and is in this case) a matter that will weigh against the exercise of the Court's undoubted discretion.
15. Accordingly, the Court dismissed Marcus and Graham's application for a personal costs order against Dr O'Connor. Dr O'Connor did not seek his costs of that application. Because he was unrepresented, it was in any event not apparent to what costs he might be entitled. The Court therefore made no order as to his costs of the application.

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