Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd

The present application

1. Baller now seeks an order that Mero Mero pay its costs of the proceedings before this Court for three reasons: first, that it was successful in obtaining the interlocutory relief sought (in the course of which it is said that Baller established that there was a strong prima facie case that the assets would be disbursed); second, on the basis that Mero Mero's conduct was so unreasonable as to warrant the making of such an order notwithstanding that there had not as yet been a hearing on the merits of the substantive dispute between the parties (based on correspondence emanating from Mero Mero, which it is said gave Baller no choice but to apply for the injunction so as to preserve the assets); and, third (and related to the second), that not only was there no response from Mero Mero (to the demand for return of the moneys or for a regime to be put in place for their preservation) and no reason put forward as to why the claim to the $66,000 would be contested, Mero Mero "was carrying on this course of conduct effectively behind the back of [Baller]".
2. Mero Mero's position on this costs application is that the injunctive relief was premature and that, as there was no substantive determination of the dispute, there ought to be no adverse order against it as to costs.

Applicable Principles

1. The general rule as to costs is that costs follow the event unless it appears to the court that some other order ought to be made as to the whole or part of the costs (r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Rule 42.7 provides that the costs of interlocutory applications are to be paid and otherwise dealt with in the same way as the general costs of the proceedings, unless the Court otherwise orders.
2. Ordinarily, where an interlocutory injunction is granted and the defendant did not concede that injunctive relief, the costs of that application will be costs in the cause (or the plaintiff's costs in the cause) (see the explanation given by the Court of Appeal in His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 (the Macedonian Church case) at [16]-[32] in the joint judgment of Beazley JA (as Her Excellency then was), Giles and Hodgson JJA).
3. Furthermore, where there has been no hearing on the merits, it is not appropriate for the Court to conduct what would amount in effect to an hypothetical trial in order to determine an application for costs (see Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (Lai Qin) at 624 per McHugh J). In Lai Qin, McHugh J observed, among other things, that when there has been no hearing on the merits, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order (namely, success in the action or on particular issues). However, his Honour went on to say (at 624-625) that: 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. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation… 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 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.
4. The use of the word "so" in the first of the paragraphs extracted above indicates a level of unreasonableness which is established by the circumstances in which the costs were incurred (as I noted in Renton v Kelly [2018] NSWSC 1377 at [56]).
5. In Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 (Agribusiness) as to the appropriate considerations in cases where there has been no hearing on the merits, Basten JA said (at [8]) that: … although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.
6. It is also relevant here to emphasise that the overriding mandate in respect of the conduct of litigation in this Court (see s 56 of the Civil Procedure Act) is for the just, quick and cheap resolution of the real issues in dispute.
7. As to the making of an order that costs be payable forthwith, such an order in relation to an interlocutory application (involving a departure from the ordinary rule in that regard) may be appropriate where there has been the determination of a separately identifiable matter or the completion of a discrete aspect of the proceedings; where there is some unreasonable conduct on the part of the party concerned; or where the final disposal of the dispute will not be until some time hence (see Fiduciary v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 (Morningstar) at [11]-[13]; Sayour v Elliott (No 2) [2018] NSWSC 146 at [44]).
8. Finally, as to the discretion to make a gross sum costs order, the considerations material to the exercise of that discretion principally include: the complexity of proceedings in relation to their cost; the degree of any disproportion between the issues litigated and the costs claimed; the relative responsibility of the parties for the costs incurred; and the capacity of the unsuccessful party to satisfy any costs liability (see Hamod v New South Wales [2011] NSWCA 375 at [813]-[820]; Ritchie's Uniform Civil Procedure NSW at [s 98.60]).

Baller's submissions

1. The first basis on which Baller puts its claim for costs is the separate nature of the proceeding (i.e., an application for interlocutory relief to preserve the status quo) and the fact that it was successful in establishing its claim for injunctive relief.
2. Reference is made to McNamara Business & Property Law v Kasmeridis (No 3) [2006] SASC 262 at [8], where an application for a Mareva injunction was held to be a discrete matter for the purposes of making an order that the costs of that application be payable forthwith; and to Benson v Seven Network (Operations) Limited [2015] SASC 185 (Benson v Seven Network), where Stanley J (see at [11]) was satisfied that the justice of that case (namely, where the plaintiff had established not only that the balance of convenience favoured the grant of the relief she sought but also that, on the evidence, the plaintiff had a strong case for breach of confidence) warranted an order that the plaintiff have her costs of the application for an interim injunction in any event.
3. As at the time of the hearing before me, Baller's complaint was that Mero Mero had not yet particularised the basis of its "purported claim" to the bank guarantee funds, contending that Mero Mero's reasons for disputing Baller's entitlement were raised "superficially" in conversations between the respective solicitors for the first time at the appearance before Slattery J on 5 July 2019, on which occasion Mero Mero's solicitor claimed that Baller had not paid applicable royalties and the entirety of an initial deposit. Baller says that no particularised account of these matters has ever been provided to its solicitors and asserts that, in contrast, it has a "robust contractual claim" (and hence that the principle in Benson v Seven Network should apply).
4. As to the second basis on which Baller puts its claim for costs (i.e., unreasonable conduct on the part of Baller), Baller accepts that it is not appropriate to conduct an hypothetical trial on an application of this kind but places reliance on Burrows v Council for the Law Society of New South Wales (No 3) [2018] NSWSC 737 (Burrows v Law Society) for the proposition that the history of the matter may relevantly be taken into account (see at [5] per Adamson J).
5. Baller points to the following instances as amounting to unreasonable behaviour on the part of Mero Mero immediately preceding the application for injunctive relief; circumstances in which Baller says it had no choice but to commence the proceedings in order to preserve the funds the subject of the dispute.
6. First, Baller points to what it characterises as repeated attempts to avoid paying it the bank guarantee funds "with no rationale for non-payment provided" (referring to emails dated 16 December 2018 and 1 April 2019, respectively) and to the absence of any response from Mero Mero's solicitors to the letter dated 30 April 2019 from Baller's solicitors which, amongst other things, put Mero Mero on notice that, should the bank guarantee be released by the lessor and Mero Mero fail to return those funds to Baller, then Baller would commence recovery proceedings.
7. Second, the fact that, despite Baller's solicitors having written to Mero Mero's solicitors on 30 April 2019 regarding the status of Mero Mero's registration, Baller was not informed when Mero Mero was subsequently re-registered. Significance is attributed to this because it is said that Mero Mero was required to be registered in order to receive the bank guarantee funds.
8. Third, the fact that Mero Mero's solicitors forwarded a letter dated 16 May 2019 to the lessor demanding that the bank guarantee be returned to Mero Mero (Baller, noting that it was not provided with a copy of this letter at the time and only discovered that the letter had been sent when it was forwarded to Baller by the lessor on 23 May 2019). Significance is attached to the fact that the letter included the following statement: The request by Origin Lawyers [Baller's solicitors] that the former Bank Guarantee be retained by you until such time as any dispute "between our client and Mero Mero Leasing Pty Ltd is resolved" is on any view simply nonsense based on a spurious claim, and need not be considered by you in carrying out your obligations under the Deed.
9. Baller argues that the fact that Mero Mero's solicitors labelled its claim "spurious", when the claim is based on a clear contractual obligation between the parties (cl 6.5 of the Heads of Agreement) and appeared to have been acknowledged as being owed to it (referring to the email sent on 16 December 2019 from Mero Mero's solicitors), is "highly problematic".
10. Next, Baller refers to the absence of any response from Mero Mero or its solicitors to a letter dated 29 May 2019 from Baller's solicitors in which agreement was sought to a regime whereby the bank guarantee funds would be released and immediately directed to an account as nominated by Baller ("in an effort to reduce legal costs for all parties involved") and a personal undertaking and guarantee was requested from the sole director of Mero Mero (Ms Cevallos) (in terms said to be consistent with cl 6.5 of the Heads of Agreement, namely, that should the bank guarantee funds be returned to Mero Mero she would direct those funds to Baller in accordance with the Heads of Agreement) and to the lack of response to a follow-up email sent on 6 June 2019. It is noted that, following a further follow-up letter on 13 June 2019, the response from Mero Mero's solicitors was an enquiry as to how the amount of the claim had been calculated rather than a substantive response to the issues raised in the 29 May 2019 letter.
11. It is further noted that, on 17 June 2019, Baller's solicitors responded, stating that the amount of $66,000 was calculated pursuant to the application of cll 6.4 and 6.5 of the Heads of Agreement, a copy of which Heads of Agreement was forwarded with the email; that on 26 June 2019 a further follow-up email was sent noting that there had been no substantive response to the letter of 29 May 2019; and that it was only on 26 June 2019, in a conversation with a representative of the lessor, that Baller's solicitor learnt that Mero Mero had been re-registered; that Mero Mero had demanded that the lessor return the bank guarantee to it forthwith; and that the lessor's in-house legal team was of the view that, once the lessor received the bank guarantee, the lessor had "no choice" but to return it to Mero Mero.
12. Baller notes that on 27 June 2019 its solicitors sent correspondence to both the lessor and Mero Mero's solicitors putting them on notice that Baller intended to approach the duty judge for relief the following day and that no response was received from Mero Mero's solicitors until 2.13pm on 28 June 2019, when they stated that they were "not instructed to appear at this stage".
13. Baller points to Burrows v Law Society, Martin v Martin [2016] NSWSC 1964 and National Australia Bank v New Road Holdings Pty Ltd [2010] VSC 184 as instances where "non-responsiveness" has been found to constitute unreasonableness on the part of a party sufficient to warrant the making of a costs order or special costs order against that party.
14. It is submitted here that had Mero Mero or its solicitors agreed (though presumably the solicitor could only have done so on instructions from Mero Mero so I doubt that the fact that the solicitors separately did not agree to the regime assists Baller's position) for the bank guarantee funds to be placed in trust pending resolution of the dispute, Baller would not have been compelled to approach the duty judge for a mandatory injunction.
15. The third factor to which Baller points is the "appearance of deception". It is submitted that it is open, from the chronology of events referred to above, to infer that Mero Mero sought to take receipt of the bank guarantee funds and that it had no intention of transferring the entirety, or any part, of the sum of $66,000 to Baller; and that, had Mero Mero received the bank guarantee funds, Ms Cervallos would have transferred the sum from Mero Mero and Mero Mero would again have been de-registered, leaving Baller with no remedy.
16. Emphasis is placed on the fact that, but for representatives at the lessor "being aware of [Baller]'s predicament" and having forwarded the relevant communication to it, Baller would have had no knowledge regarding the re-registration of Mero Mero and the imminent transfer of the bank guarantee in late June 2019 (and, it is said, the funds would have been transferred to Mero Mero and Baller would have been left with nothing).
17. Finally, significance is attached to the fact that the principal proceedings have yet to be transferred to the Local Court and it is said that the proceedings are unlikely to resolve in the short term.
18. Baller also submitted that it might be appropriate to specify a gross sum for the costs of the application pursuant to s 98(4) of the Civil Procedure Act. The affidavit of Lisa Cox sworn 24 July 2019 [12]-[18] details the costs incurred by the plaintiff between 27 June to 5 July 2019 as totalling $10,867.35. (It may here be noted that a gross sum costs order should be based on an informal assessment of the actual costs having regard to the information before the court (see Beach Petroleum NL & Claremont Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123).)

Mero Mero's submissions

1. Mero Mero notes that it agreed (on 5 July 2019) to the orders requiring Dexus to pay the proceeds of the bank guarantee into its solicitor's trust account (in line what would have occurred under cl 6.5 of the Heads of Agreement) without there being a hearing on the merits. Thus, it says that unless it can be concluded that Mero Mero acted "so unreasonably" that Baller should obtain its costs of the action, there ought to be no order as to costs (referring to Lai Qin).
2. Mero Mero says that it cannot be said that there was capitulation on its part; rather that it consented to the orders as a sensible way of resolving a preliminary skirmish with minimal cost and expense (with the result being that the proceedings have been or are to be transferred to the Local Court for determination).
3. It is submitted that it cannot be concluded (from the correspondence prior to commencement of the proceedings) that Mero Mero's conduct was so unreasonable as to warrant the making of a costs order. In that regard, Mero Mero points out that the bank guarantee was issued by the Commonwealth Bank of Australia to SAS Trustee Corporation (Dexus) as security for Mero Mero's obligations to Dexus under the lease and that Dexus was not in a position to release the bank guarantee to a party other than Mero Mero. (So much may be accepted, although I interpose here to note that it begs the question as to whether Mero Mero could have directed the release of the bank guarantee to Baller in its place.) In any event, the proposition here made appears to be that the request made of Ms Cevallos on 26 June 2019, following re-registration of Mero Mero, for the return of the bank guarantee to Mero Mero accords with the provisions of the lease.
4. Mero Mero notes that under cl 6.5 of the Heads of Agreement, Mero Mero undertook to pay or refund to Baller amounts "paid or released to Mero Mero by the Lessor under the Lease, including without limitation a part or whole refund of the bank guarantee, within 7 days of Mero Mero receiving such monies". It is said that the majority of the pre-commencement correspondence was directed at obtaining agreement from Dexus not to return the bank guarantee to Mero Mero. It is further said that there was no evidence (beyond Baller's mere speculation) that Mero Mero would not comply with its obligations under the Heads of Agreement or would dissipate the funds upon receipt.

Determination

1. It is clear from Lai Qin and the authorities that have applied Lai Qin (including Agribusiness) that, where there has been a determination of proceedings or an application in the course of proceedings without a substantive hearing on the merits, the Court should not entertain a hypothetical trial in order to determine a costs application of the present kind.
2. Mero Mero's Counsel, in oral argument, cavilled with the proposition that there was a clear, or even strong, prima facie risk that once the proceeds had been obtained by Mero Mero they would be disbursed; noting that there was no evidence of this and that the fact that the company had been de-registered and then re-registered does not assist in giving rise to any inference in that regard. As to the proposition that Mero Mero was in some way shirking its responsibilities in not paying over the claimed moneys, Mero Mero points to correspondence which indicates that there was a dispute as to moneys claimed to be owing under the Heads of Agreement in respect of which an off-setting claim was said to arise (see Exhibit 1; T 12.25ff). Thus, it is submitted (and it must in my view be accepted) that the Court at this stage does not know and cannot anticipate what the ultimate result (in the Local Court) of those substantive proceedings might be.
3. The fact that Robb J granted interlocutory relief on an ex parte basis (without the benefit of argument on the part of Mero Mero) says nothing more than that his Honour was then satisfied at that stage that there was a serious question to be tried, that damages would be an inadequate remedy and that the balance of convenience favoured such relief. Even if his Honour had considered (and I was not taken to any transcript or ex tempore reasons to support such a conclusion) that the case for interlocutory relief was clear (or strong), that would necessarily only have been a preliminary view (and one formed without the benefit of evidence or submissions from Mero Mero). It does not lead in my view to the conclusion that there should be a costs order in Baller's favour in relation to the making of that application. So much is evident from the decisions in Lai Qin and the Macedonian Church case to which reference has already been made. This is certainly not a case where it could be said that the substantive issue in dispute between the parties is a foregone or inevitable conclusion (something that could not possibly be determined at this stage on the evidence before the Court).
4. The issue is therefore whether it can be concluded that Mero Mero's conduct leading up to the interlocutory application was so unreasonable as to warrant the making of a costs order against it (as opposed to the usual order in relation to interlocutory applications of this kind). It is only relevant to have regard to its conduct before the commencement of the proceedings since there was no issue as to any conduct after the ex parte injunction was obtained.
5. I am not persuaded that the conduct of Mero Mero leading up to the commencement of these proceedings in which urgent interlocutory relief was sought was "so" unreasonable, with the emphasis placed on the requisite level of unreasonableness in Lai Qin, as to warrant the making of an order against Mero Mero for the costs of the interlocutory application. In essence, the complaint appears to be that Mero Mero did not immediately capitulate to Baller's demands (whether for payment to it of the bank guarantee funds or to agree to a regime to preserve those funds pending resolution of the dispute).
6. Insofar the correspondence from the lessor refers to it coming into possession of the bank guarantee, the position as I understand it is that what was provided to the lessor was in fact a bank guarantee, albeit that the funds provided to enable that guarantee to be issued were funds provided by Baller. If so, then even leaving aside the difficulty that the lessor owed obligations to Mero Mero and was not in a position (without Mero Mero's imprimatur) to agree to return the bank guarantee (or release funds) to Baller, it seems likely that Baller would have had difficulty in obtaining the return of the funds even if the bank guarantee had been returned to it (since what it really sought was presumably not the cancellation or return of the bank guarantee as such but rather the return of the funds that had been provided by it for its issue). That practical difficulty was not, however, explored in the course of argument.
7. That said, the obligation of Mero Mero, under the Heads of Agreement, (see cl 6.5) was an obligation to pay or refund to Baller amounts paid or released to Mero Mero by the lessor under the lease (including the bank guarantee) within seven days of Mero Mero receiving such moneys. Accordingly, Mero Mero's obligation to pay any amount to Baller in respect of the bank guarantee funds would not strictly have arisen until seven days after the receipt of such funds by Mero Mero from the lessor.
8. What clearly triggered Baller's concern (and is said to have led to the application for interlocutory relief) was the description by Mero Mero's solicitors (in correspondence with the lessor) of Baller's claim as "spurious" (and the failure of Mero Mero to confirm the fact of its re-registration). Baller argues that such conduct was in effect going behind its back or deceptive. However, it is in my view no more than speculation to infer from that conduct that the intention of Mero Mero's sole director was to disburse any funds received from the lessor out of the company and then to de-register the company (all without notice to Baller) so as to frustrate Baller's claim for recovery of those funds.
9. Accepting that, as a matter of professional courtesy if nothing else, criticism can be made of Mero Mero (or its solicitors) in failing to respond in a more timely fashion to the correspondence emanating from Baller's solicitors in relation to the bank guarantee funds, I do not consider that the delay in such responses (or the failure to capitulate to Baller's demands) in the present case warrants a departure from the ordinary costs order that would be made where there has been a successful (and not conceded) interlocutory application but the substantive merits of the dispute have not yet been heard.
10. Emphasis was placed by Baller on the fact that an application for leave to appeal from the decision of Adamson J in Burrows v Law Society had been refused (see Burrows v Law Society). However, even apart from the lack of precedential value of reasons given on applications for leave to appeal (see Maguire v Makaronis [1997] 188 CLR 449), I see Burrows v Law Society as arising in a particular context, namely, the position of a body charged with the responsibility in the public interest of oversight of the professional obligations of solicitors. The present case is in a very different context - a dispute between commercial parties as to the rights or obligations flowing from the contractual arrangements between them.
11. There is also the question of proportionality to consider. The substantive dispute concerns a relatively small amount and has been transferred to the Local Court. The costs of the proceedings in that Court would include costs of the commencement of proceedings in this Court before the matter was transferred to the Local Court. It is not suggested that the Local Court would not have jurisdiction to make costs orders at the end of a contested hearing that would reflect the ultimate success in that hearing. The effect of the present application has been for the parties to incur further costs in the making of a costs application at this stage and in this Court, as opposed to waiting until the resolution of the substantive dispute and being dealt with at that time. The making of costs applications of this kind (at the further cost to the respective parties and at the expense of other litigants whose matters cannot be heard while Court time is taken up with such applications) is not to be encouraged. The overriding mandate in the conduct of litigation in this Court is, as provided for in s 56 of the Civil Procedure Act for the just, quick and cheap resolution of the real issues in dispute. Satellite litigation of this kind is not consistent with that overriding purpose.
12. In any event, even without regard to the questions of proportionality and case management concerns, I am firmly of the view that the conduct of Mero Mero (frustrating as it may well have been for Baller), as evidenced by the correspondence between the parties, is not so unreasonable as to warrant the making of a costs order in Baller's favour at this stage. The question whether any costs order should be on a "payable forthwith" basis therefore does not arise; nor does the question as to whether a gross sum costs order should be made.
13. The appropriate orders in my opinion are for the costs of the interlocutory application in this Court to be costs in the cause and (on the basis that costs follow the event) that Baller should pay Mero Mero's costs of the costs application.

Orders

1. For the reasons set out above, I make the following orders: 1. Order that the costs of the plaintiff's application for interlocutory relief in this Court be costs in the cause. 2. Order that the plaintiff pay the defendant's costs of and incidental to the hearing of the plaintiff's unsuccessful application for costs of its application for interlocutory relief in this Court.

Amendments 26 August 2019 - [20] - 'payments' to 'paragraphs' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 August 2019