Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd

Judgment

1. These reasons for judgment concern the costs of proceedings 2022/329426 (the Sunnya proceedings) to date, and the costs of proceedings 2022/333557 (the All168 proceedings).
2. Familiarity with my reasons for judgment delivered on 19 April 2024 is assumed: In the matter of Sunnya Pty Ltd [2024] NSWSC 403 (the principal judgment). The same abbreviations are used in these reasons as in the principal judgment.
3. Those reasons for judgment determined all questions save as to quantum in the Sunnya proceedings, and determined the All168 proceedings.
4. The parties have made written submissions in relation to costs dated 3 May 2024 (in the case of the NZ Parties, being the eighth to tenth defendants in the Sunnya proceedings), 5 May 2024 (in the case of the He Parties, being the first, second and sixth defendants in the Sunnya proceedings, and the All168 plaintiffs respectively) and 6 May 2024 (in the case of the plaintiffs in the Sunnya proceedings and the All168 defendants). Having considered all of those submissions, I have determined that the following costs orders should be made: In the Sunnya proceedings: 1. Order that the plaintiffs are to pay the costs of the first and second defendants (Mr He and Ms Lu) in respect of the undervalue sales claims and the commercial invoices claims referred to in the principal judgment at [459] and [586]-[648] on the ordinary basis, as agreed or assessed. 2. Order that there be no order as to the costs of the fourth defendant (GNT), which did not enter an appearance in the proceedings. 3. Order that the plaintiffs are to pay the costs of the sixth defendant (Ms He) in respect of the plaintiffs' claims against her. 4. Order that the plaintiffs' costs of their claims that are not the subject of orders (1) to (3) above be paid by the following defendants jointly and severally and on the following bases: 1. the first and second defendants (Mr He and Ms Lu), the third defendant (GABT), the seventh defendant (HLW) and the eighth to tenth defendants (Supermega, Megadairy and NZFDA), on an indemnity basis, as agreed or assessed; and 2. the fifth defendant (Sunlife) on the ordinary basis, as agreed or assessed. 1. Order in relation to the first cross-claim that the cross-claimant (GABT) is to pay the costs of the cross-defendant (Sunnya) on an indemnity basis, as agreed or assessed. 2. Order in relation to the second cross-claim that the cross claimants (Mr He and Ms Lu) are to pay the costs of the cross-defendant (Sunnya) on the ordinary basis, as agreed or assessed. 3. Order that the plaintiffs are not to recover any component of their costs of these proceedings twice under orders (4) to (6) above. 4. Order that the net costs payable by each party to each other party under orders (1) to (6) above, after offsetting any costs payable by the second party to the first party under those orders, are payable forthwith. In the All168 proceedings: 1. The plaintiffs (All168, Mr He and Ms Lu), jointly and severally, are to pay the costs of the first to fourth defendants (Jatcorp, Mr Shen, Mr Wang and Mr Zhang), on the ordinary basis as agreed or assessed. 2. For the avoidance of doubt, order that the costs in order (9) above are payable forthwith.
5. I will explain my reasons as briefly as possible.
6. It is open to the Court to exercise its discretion to make an order as to costs in respect of the proceedings to date, notwithstanding that there is to be a further hearing to determine the quantum of the profits for which the unsuccessful defendants are to account to the plaintiffs, or the equitable compensation payable to the plaintiffs: JR Consulting & Drafting Pty Ltd v Cummings [2015] NSWSC 10 at [5]-[13] (Black J) and the authorities there referred to. In my opinion, it is appropriate to do so in all the circumstances of this case. The parties have undoubtedly incurred significant costs to date. I reject the submission made on behalf of the He Parties that it is too early to assess the measure of success of the plaintiffs in the Sunnya proceedings, and that the question of costs should be deferred until the conclusion of the quantum hearing. Whilst the quantum of equitable compensation or profits remains to be determined, the plaintiffs have succeeded in obtaining declarations as to liability and no less than 21 injunctions against Mr He, Ms Lu and various other defendants, declarations that the Australian and New Zealand Guamis trademarks are held on trust for Sunnya, and an order pursuant to s 37A of the Conveyancing Act 1919 (NSW) setting aside payments made by Mr He and Ms Lu to the HLW totalling approximately $4.2 million and an order requiring HLW to repay that sum to Mr He and Ms Lu which will then be available to their creditors, including the plaintiffs. Irrespective of the outcome of the quantum hearing, the plaintiffs have already achieved a substantial measure of success.
7. Order (1) above concerns the costs of two groups of claims prosecuted by the plaintiffs in the Sunnya proceedings that were dismissed - the undervalue sales claims and commercial invoices claims. I do not accept the submission made on behalf of the He Parties that those claims were the most significant part of the plaintiffs' case. For reasons that will be apparent from the principal judgment, the most significant part of the plaintiffs' case was the group of claims known as the Neurio/NRIO claims. However, the undervalue sales claims and commercial invoices claims were also significant in terms of the quantum claimed by the plaintiffs and in terms of the volume of evidence directed to those claims. They were the subject of three reports prepared by an expert witness briefed by the plaintiffs, two reports prepared by an expert witness briefed by the first and second defendants, and a joint report prepared by the two experts following a conclave. Those reports, together with their appendices, occupied several volumes of material that was tendered at the hearing. The undervalue sales claims and commercial invoices claims were also separate from the other claims in the Sunnya proceedings because, as counsel for the first and second defendants submitted, they arose from events that occurred during an earlier period of time than the events giving rise to all of the other claims in the proceedings. There was little, if any, overlap between the lay and documentary evidence relevant to the undervalue sales claims and commercial invoices claims and the lay and documentary evidence relevant to the other claims in the proceedings. The five expert reports and one joint report to which I have referred above related only to the undervalue sales claims and commercial invoices claims.
8. Applying the principles articulated by the Court of Appeal in Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 at [38] (Beazley JA (as Her Excellency then was), Ipp and Basten JJA) and Oikos Constructions Pty Ltd v Ostin (No. 2) [2021] NSWCA 98 at [11]-[16] (White JA, with Basten and Macfarlan JJA agreeing), I accept the submissions made by counsel for Mr He and Ms Lu that, in those circumstances, it would be unfair to Mr He and Ms Lu if this Court were to exercise the costs discretion by making a costs order that did not distinguish between the costs of the failed undervalue sales claims and commercial invoices claims, and the costs of the plaintiffs' other claims in the Sunnya proceedings. However, I reject the submissions made on behalf of Mr He and Ms Lu that the appropriate costs order, in light of the dismissal of the undervalue sales claims and commercial invoices claims and the outcome of all of the plaintiffs' other claims, is to make no order as to costs on the basis that each party is to bear their own costs. The discrete nature of the failed undervalue sales claims and commercial invoices claims from the plaintiffs' other claims in the proceedings means that the parties and any costs assessor should be able to readily identify the costs of those particular failed claims within the whole of the costs of the proceedings, and the quantum of those costs should then be capable of being assessed.
9. All of the plaintiffs' claims other than the undervalue sales claims and the commercial invoices claims were closely related. As explained in detail in the principal judgment, they were founded on a series of interconnected events that occurred within a relatively short time period, and they gave rise to similar and overlapping factual and legal issues. As I have already mentioned, the most significant group of claims was the Neurio/NRIO claims in respect of which the plaintiffs succeeded as against all defendants other than the fourth defendant (GNT) and the sixth defendant (Ms He). In respect of the balance of their other claims, the plaintiffs had a mixture of successes and failures, as recorded in the principal judgment at [1039]-[1045]. Contrary to the submissions made on behalf of the He Parties and on behalf of the NZ Parties, the undervalue sales claims and the commercial invoices claims are the only claims that are separable for the purpose of the exercise of the costs discretion. I reject the submissions made on behalf of the He Parties and on behalf of the NZ Parties which sought to downplay the significance of the Neurio/NRIO claims in respect of which the plaintiffs succeeded against them, in support of their submissions that the plaintiffs should not have any costs order in their favour, or should be awarded only a fraction of their costs of the Sunnya proceedings.
10. Order (2) above reflects the failure of all of the plaintiffs' claims against GNT in the Sunnya proceedings, and the fact that GNT incurred no costs because it did not ever enter an appearance in the Sunnya proceedings.
11. Order (3) above reflects the failure of all of the plaintiffs' claims against Ms He in the Sunnya proceedings. As the plaintiffs accept, costs should follow the event in relation to those claims against Ms He.
12. Order (4) above reflects the overall event of all of the plaintiffs' interrelated claims (excluding the undervalue sales claims and commercial invoices claims) against all defendants other than GNT and Ms He. That event was a successful outcome for the plaintiffs, as I have explained above.
13. Order (4(a)) provides for those costs to be paid by the defendants there named on an indemnity basis rather than the ordinary basis in order to compensate the plaintiffs for the increased costs they incurred as a result of the manner in which each of those defendants conducted the proceedings: see Re Horizons (Asia) Pty Ltd [2022] NSWSC 52 at [7]-[10] (Rees J) and the authorities there referred to.
14. As the plaintiffs submitted, Mr He and Ms Lu were found to have fabricated the Trademark Registration Authorization Agreement and Trademark Usage Authorisation Agreement, both purportedly dated 16 December 2014, for the purpose of manufacturing a false justification for their conduct in causing Sunnya to take steps to transfer the Australian and New Zealand Neurio trade marks to GABT in late October and early November 2022. [1] Mr He and Ms Lu relied on those fabricated documents extensively in their defence of the Sunnya proceedings, including in their unsuccessful defence of the plaintiffs' trade mark transfer claims and Neurio/NRIO claims. GABT relied on those fabricated documents in its pleaded defence to the plaintiffs' claims, and in its cross-claim.
15. During the course of the proceedings, Mr He gave false evidence about documents styled as contracts of purchase between HLW and Mega Aqua, as discussed in the principal judgment at [575]-[584] and [893]. HLW relied on those fabricated documents in its unsuccessful defence of the plaintiffs' claim under s 37A of the Conveyancing Act.
16. The NZ Parties defended the proceedings relying on evidence given by Mr Wu, including false evidence given by Mr Wu about the Brand OEM Authorized Letter, the Production Sales and Confidentiality Agreement, and emails purportedly sent to him on 12 June 2015 and 9 July 2019 attaching those documents, which I found that Mr Wu had fabricated in order to manufacture a false basis for him to endeavour to justify the conduct of Supermega and Megadairy in manufacturing and supplying Neurio-branded products to GABT in 2022 without the express consent of Sunnya as the registered owner of the Neurio trade marks in the place of manufacture: principal judgment at [559]-[566].
17. Mr Wu was also found to have given false evidence about the creation of the NRIO trade mark, which was relied on by NZFDA, and embraced by Mr He, in their unsuccessful defence of the plaintiffs' Neurio/NRIO claims against them: see principal judgment at [769], [775] and [776]-[780].
18. By their conduct described above, Mr He, Ms Lu, GABT, HLW and the NZ Parties unreasonably exposed the plaintiffs to the costs of the forensic exercise required to expose the fabrication of the documents and the falsity of the evidence to which I have referred above, including the costs of adducing extensive expert digital forensic evidence.
19. As the plaintiffs submitted, Mr He and Ms Lu further increased the plaintiffs' costs by the delays caused to the hearing in November and December 2023 as a result of their decision to withdraw the instructions of their legal representatives two days prior to the hearing, and the various adjournments and interlocutory applications that followed which are described in the principal judgment at [39]-[40].
20. The plaintiffs did not seek an indemnity costs order against Sunlife. Order (4(b)) therefore provides for Sunlife's liability for the plaintiffs costs on the ordinary basis, jointly and severally with the defendants named in order (4(a)) who are liable on an indemnity basis.
21. Order (5) requires GABT to pay Sunnya's costs of GABT's cross-claim on an indemnity basis rather than the ordinary basis because GABT's cross-claim pleaded the fabricated Trademark Registration Authorization Agreement and Trademark Usage Authorisation Agreement, both purportedly dated 16 December 2014 to which I have referred above.
22. Order (6) simply follows the event of the second cross-claim in the Sunnya proceedings.
23. Order (7) is in terms proposed by the plaintiff and reflects the intention that orders (4) to (6) should not result in double recovery of any component of the plaintiffs' costs.
24. I accept the NZ Parties' submission that the costs discretion should not be exercised in a way that visits liability on the NZ Parties for the plaintiffs' costs of the undervalue sales claims and commercial invoices claims, which were unsuccessful, and which were not directed to the NZ Parties in any event. The effect of order (1) is that neither the NZ Parties nor any other defendant are liable for the plaintiffs' costs of the undervalue sales claims and commercial invoices claims.
25. Neither the He Parties nor the NZ Parties sought any costs order against the other in respect of the Sunnya proceedings.
26. In relation to order (8), it is appropriate in my opinion to exercise the discretion to order that the costs be payable forthwith because the costs in orders (1) to (6) relate to a discrete aspect of the hearing and it may be some time before the proceedings are finally determined following the conclusion of the quantum hearing: see Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd [2019] NSWSC 1067 at [23] (Ward CJ in Eq, as the President of the Court of Appeal then was) and the authorities there referred to.
27. The effect of order (9) above is that the costs of the All168 proceedings follow the event. I reject the submissions made on behalf of the All168 plaintiffs that that there should be no separate order in relation to the costs of the All168 proceedings on the basis that there was extensive overlap between the issues in those proceedings and the issues in the Sunnya proceedings. Such an approach would leave the three successful defendants in the All168 proceedings, who were not parties to the Sunnya proceedings, without any compensation for their costs incurred in defending the proceedings. Order (10) stipulates that those costs are payable forthwith because the All168 proceedings have been finally determined by the order made on 19 April 2024 dismissing those proceedings.
28. For all of the foregoing reasons, orders will be made in the terms set out in paragraph [4] of these reasons above.

Endnote

1. Principal judgment at [554]-[558]. 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: 05 June 2024