Balout v Bella Ikea Cronulla Pty Ltd

Submissions

1. The plaintiffs sought an order that their costs of the proceedings be paid by Mr Touma and 11 Kingston or alternatively that there be no order as to costs. The Court has the power to determine by whom, to whom and to what extent costs are to be paid: Civil Procedure Act 2005 (NSW), s 98. Rule 42.1 of the UCPR provides that ordinarily "costs follow the event". Where there has been no final hearing on the merits, such that there is no readily ascertainable "event", it is often appropriate that there be no order as to costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6. However, costs may be awarded where it is possible to assess the practical consequences of the action. That is, the Court may be guided by "the reality of the contest": Sydney Markets Credit Services Co-operative Ltd v Taylor (No 3) [2015] NSWSC 1236 at [32]. The enquiry can be posed in this way: "[has] the plaintiff won anything of value or anything he could not have won without fighting the action through to a finish?": Roache v News Group Newspapers [1992] TLR 551; quoted in Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 at [26]. In determining whether, and by whom, costs ought to be awarded, the Court's assessment may not "merely depend upon the merits of the cause as finally decided, but may, to a very great extent, depend upon the mode in which it has been conducted throughout by the parties": Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 755 quoting The Metropolitan Asylum District Managers v Hill (1880) 5 AC 582.
2. The plaintiffs submitted that they had achieved practical success in the proceedings, successfully shepherding the sale process to its conclusion. The Court should regard that outcome as success in the "reality of the contest": Sydney Markets at [32]. Had these proceedings not been commenced by the plaintiffs, the sale to 11 Kingston would have been completed and the mechanism under the orders made by Black J to effect a settlement of the Corporations List proceedings would have been frustrated. The plaintiffs avoided that outcome through the institution of these proceedings. Applying the test in Roache, the Court can be satisfied that the plaintiffs have achieved something "of value … which [they] could not have won without fighting the action". A trial of the proceedings proved unnecessary as a consequence of the voluntary action of 11 Kingston in terminating the contracts shortly before trial. The Court should infer that the prospect of the hearing was a material, if not the principal, factor in 11 Kingston's termination of the contracts.
3. Further, the plaintiffs submitted that Mr Touma's conduct throughout the litigation had been unreasonable. Mr Touma resisted the plaintiffs' attempts to restore the Black J's orders on multiple occasions, including by (unsuccessfully) seeking orders to restrain the auction from taking place. In the face of that conduct, the plaintiffs pursued these proceedings to achieve an outcome that, ironically, was to the benefit of Mr Touma by obtaining a higher sale price. In those circumstances, notwithstanding that these proceedings did not proceed to a final hearing, the Court would conclude that the plaintiffs have enjoyed substantial success against each of Mr Touma and 11 Kingston.
4. The first to third defendants submitted that the plaintiffs should pay their costs as the proceedings were unreasonably brought against those parties. Alternatively, there should be no order as to costs with each party to bear their own costs. The ordinary rule that "costs follow the event" had no application where there has been no determination of the proceedings on their merits: In the matter of Ming Tian Real Property Pty Ltd [2021] NSWSC 386 at [2] (Black J). Costs may be ordered where: one party effectively surrenders to the other party; a party acted so unreasonably that the other party should obtain the costs of the action; or, one party was almost certain to have succeeded if the matter had been fully tried: Kiama Council v Grant [2006] NSWLEC 96 at [80]; Hunter Development Corporation v Save Our Rail NSW Incorporated (No 2) [2016] NSWCA 375.
5. The first to third defendants submitted that the plaintiffs made serious allegations of an arrangement, agreement or scheme between Mr Touma, Benthos and 11 Kingston to cause Bella Ikea to fall into default on its mortgage, for Benthos to obtain an assignment of the lender's rights and to exercise those rights, to effect the sale of the units to 11 Kingston and thereby deprive the plaintiffs of the benefit of the orders made by Black J. The allegation was never prosecuted. Rather, 11 Kingston withdrew from the contracts. Steps were taken to sell the property in one line. The sale was completed to a company affiliated with Mr Balout. The sale amounted to a supervening event that removed or modified the subject of the dispute, albeit one that was contemplated from the outset of the proceedings (and did not involve the first to third defendants). While that would ordinarily result in the Court making no order as for costs, here that result was unfair having regard to the serious allegations the plaintiffs chose to advance.
6. The first to third defendants submitted that they had no say in the decision by Benthos to enter the relevant contracts for sale for 11 Kingston and were not involved in that decision. No evidence had been adduced to suggest otherwise. Rather, the evidence showed direct negotiation, in writing, between Mr Dimassy and Benthos; that was not suggestive of conspiracy. The plaintiffs could have challenged the terms of sale without involving Mr Touma. Given the gravity of the allegations, Mr Touma could not sit idle but was required to join the fray. Mr Touma's decision to sell the units in the first place was logical, given his evidence that Mr Balout failed to meet his obligations to fund the companies. The plaintiffs had not achieved any success in the proceedings against Mr Touma as enjoining the sale had nothing to do with him. For the reasons advanced by Mr Touma, his conduct had not been unreasonable.
7. The fifth defendant submitted that the allegation of wrongdoing in respect of its later engagement with Benthos to seek to purchase Units 1, 3 and 5 was flawed. Benthos was a third-party mortgagee in possession with whom Mr Dimassy engaged in commercial negotiations in relation to the terms by which 11 Kingston would purchase the units. There was no basis to suggest that those negotiations were some kind of sham. The allegations would inevitably have failed at final hearing.
8. The fifth defendant submitted that Mr Dimassy inadvertently became entangled in the dispute between Mr Balout and Mr Touma. Mr Balout pressed baseless allegations that 11 Kingston was knowingly involved in breaches of directors' duties and other obligations by Mr Touma, sounding in an unquantified entitlement to compensation under s 1317H of the Corporations Act 2001 (Cth). Those allegations remained on foot. The claim against the fifth defendant was being effectively discontinued; costs should follow: rr 12.1 and 42.19 of the UCPR; Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [68]. The rule provides a starting point, and the Court will only make a different order if that starting point is displaced by a discretionary decision: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; In the matter of Jimmy's Recipe Pty Limited (No 4) [2020] NSWSC 1244 at [24]; Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue (NSW) [2021] NSWSC 159 at [56]; Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681 at [25]-[30]; Ibrahim v PERI Australia Pty Limited [2013] NSWCA 328 at [17] (Beazley P, with whom Leeming JA concurred). The discretion to depart from the rule will not be exercised where there has been a capitulation or abandonment of a claim: Lai Qin at 624; Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 at [22].
9. The fifth defendant submitted that the primary allegations made by the plaintiffs was that the company worked in concert with Mr Touma to transfer Units 1, 2 and 3 at an undervalue to a purchaser with an undeclared shared interest with Mr Touma. The only evidence proffered in support of the allegations were vague recollections in affidavits of Mr Balout and his associate Mr Rotondo of their having purportedly been introduced to Mr Dimassy by, or seen Mr Dimassy with, Mr Touma at a restaurant in Elizabeth Bay. Some of that evidence was retracted. Those assertions were denied by Mr Dimassy on various bases, including that he has never been to the restaurant in question. Even if the assertions were accepted at their highest, this fell short of evidence that could properly support allegations of the kind made against Mr Dimassy and the fifth defendant. The contemporaneous documents were said to show that Mr Dimassy's interest in acquiring Units 1, 3 and 5, and the steps he took to seek to buy the properties, were commercial and at arm's length. The allegation that Ybami in effect colluded with Mr Touma was unsustainable and would fail at final hearing.
10. The fifth defendant submitted that it had not capitulated but had strongly denied any involvement in any alleged wrongdoing. There was no capitulation by Mr Dimassy's decision in 2021 to terminate the contracts exchanged by Ybami or, in 2023, to terminate the contract exchanges by 11 Kingston. This was said to be a purely commercial decision to withdraw from the transactions, where the units had become encumbered by injunctions and were the subject of uncertain future litigation. The withdrawal from the transaction should be seen as having been facilitative of the Court processes that had then been engaged. The only capitulation was by the plaintiffs, who now sought to walk away from their serious claims. Given the obvious flaws in the claims made, the plaintiffs should have withdrawn these claims long ago and it was unreasonable and unsatisfactory that that did not occur. It was no answer to suggest that the claims had, for practical purposes, somehow gone away: they remained on foot and continued to impugn 11 Kingston and Mr Dimassy.
11. In reply, the plaintiffs submitted that the suggestion that Mr Touma was drawn into the matter unnecessarily did not explain why he opposed the initial injunction sought by the plaintiffs, resisted the plaintiffs when the related Corporations Proceedings were listed before Black J in June 2023, sought to restrain the auction, attended and scuttled the auction, or opposed the return of the monies to the plaintiffs from Court. Mr Touma could not explain why he invited the sale of the units in 2021 at an undervalued price, why he did not tell Mr Balout about that sale, or how Mr Dimassy knew to approach Benthos in 2023. The plaintiffs' case was conceptually coherent and consistent with Mr Touma's conduct in the litigation.

Costs where proceedings will not be finally determined

1. Rule 12.1(1) of the UCPR provides that the plaintiff may, by filing a notice of discontinuance, discontinue the proceedings with the consent of each other active party in the proceedings, or with the leave of the Court. In that event, "unless the Court orders otherwise", the plaintiff must pay the defendant's costs incurred in respect of the proceedings: r 42.19. Similarly, r 42.20(1) provides that if the Court makes an order for the dismissal of proceedings then, "unless the Court orders otherwise", the plaintiff must pay the defendant's costs of the proceedings. These rules create "a starting point" for the Court's deliberations as to the appropriate costs order, being that the plaintiffs should pay the defendants' costs: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [48], [53] (per Bryson JA); followed in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [53]-[54], [69]-[74].
2. While "there is no close control over the discretion of the Court to order otherwise … there must be some sound positive ground or good reason for departing from the ordinary course": Australiawide Airlines v Aspirion at [54] (Bryson JA). The matters to be considered at the discretionary stage are "little altered" and may include the matters referred to in Lai Qin: Australiawide Airlines v Aspirion at [53]; Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue (CSR [2021] NSWSC 159 at [56] (Ward CJ in Eq, as the President then was). In Lai Qin, McHugh J stated at 624-625: "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. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits … 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. … 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. … 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."
3. In Ibrahim v PERI Australia Pty Limited [2013] NSWCA 328, Beazley P summarised the matters to be considered when "the Court orders otherwise" including: "whether a party acted reasonably in commencing the proceedings; whether a party had been successful in obtaining interlocutory relief; whether the party sued had acted reasonably; whether the responding party had acted reasonably in defending the proceedings; whether the proceedings terminated after interlocutory relief had been granted; and further, whether the primary judge was satisfied that the party seeking to terminate the proceedings prior to a full hearing had almost a certain chance of success": at [17]. The President also noted that, in making its determination, the Court should take into account the objective circumstances rather than the subjective motives of the party seeking to discontinue, "nor does the Court determine the dispute that the parties sought to avoid by discontinuing": at [19].
4. The Court of Appeal has continued to cite the observations of Burchett J in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at [6]: "… it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs."
5. More recently in Nichols v NFS Agribusiness, Payne JA, with whom Meagher JA agreed, observed at [30]: "If both parties to a proceeding which has been settled without a hearing on the merits 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."
6. Basten JA also observed in Nichols v NFS Agribusiness at [8]-[9]: "… 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. … once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses."

Consideration

1. The plaintiffs do not seek the discontinuance, nor the dismissal, of the proceedings. Nor do the defendants consent to discontinuance or dismissal on terms. But the balance of these proceedings will need to be dismissed, where the plaintiffs do not propose to continue to a final hearing as events have unfolded. Where the Statement of Claim and Statement of Cross-Claim ought to be dismissed, the starting point is that the plaintiffs should pay the defendants' costs of the proceedings. As to whether there is "some sound positive ground or good reason" from departing from that course (Australiawide Airlines v Aspirion at [54]), the following matters come to mind.
2. First, as I noted in my earlier judgment, these proceedings were effectively 'satellite' litigation to the Corporations List proceedings, commenced to ensure that the consensual regime ordered by Black J was adhered to and not circumvented. That appears to have been achieved. The plaintiffs have largely obtained the relief sought. Putting to one side the claims against Benthos, the plaintiffs sought an order that 11 Kingston be restrained from completing its contracts to buy Units 1, 3 and 5. An interim injunction was obtained to that effect, over the opposition of 11 Kingston (and others). An order was also sought that Bella Ikea and Bella & SEB be restrained from selling the units other than in accordance with the orders made by Black J on 21 February 2023. That is what has happened. Leave was also sought to bring a derivative suit; that leave was granted.
3. What remains of the plaintiffs' claims as advanced by the Statement of Claim and the derivative suit brought by Bella Ikea and Bella & SEB by the Statement of Cross-Claim, are the claims for damages and compensation for breach of directors' duties, knowing involvement in these breaches and the like. As earlier mentioned, the particulars of the loss and damage sought in respect of these causes of action was premised on the sale of Units 1, 3 and 5 to 11 Kingston being completed, thereby losing the opportunity to sell the units in one line and attain the highest possible price. As that event has not occurred, the loss has not been sustained. To establish the alleged breaches of directors' duties or the alleged arrangement or understanding in the absence of a complete cause of action becomes, effectively, an academic exercise.
4. Second, the main reason why the eventuality referred to in the particulars of loss and damage did not occur is because 11 Kingston terminated the contracts for sale. That may be because, as 11 Kingston submitted, it made a purely commercial decision to withdraw from the transactions given the interim injunction and the uncertainties of litigation. Or it may be because, as the plaintiffs suggested, Mr Dimassy decided that discretion was the better part of valour. This issue will not now be determined. But having terminated the contracts for sale, the remaining causes of action became otiose.
5. Nor can it be said that the plaintiffs "effectively surrendered" to the defendants in this regard. Rather, "some supervening event" in the form of 11 Kingston's termination of the contracts for sale, and submission to interlocutory orders permitting the auction to be completed, removed the subject of dispute: One.Tel at [6].
6. Third, I am not in a position to feel confident that, had the plaintiffs prosecuted the remaining causes of action, it is almost certain that they would have succeeded if the matter had been fully tried. But nor do I accept the defendants' submission that the allegations of an arrangement or scheme would have surely failed. Whilst the contemporaneous documents do not suggest any wrongdoing on the part of Benthos, Mr Dimassy's involvement in the Cronulla property may have had some unusual features. Basten JA's observations in Nichols v NFS Agribusiness have particular application here. Mr Touma's affidavit sets out his evidence on the substantive claims and cross-claims made in these and related Corporations List proceedings. So too does the affidavit of Mr Dimassy and other affidavits exhibited by Mr Barry. I am in no position to determine, on a costs application, any of these matters. Whether the plaintiffs would have been able to establish the alleged arrangement or understanding at trial, or whether Mr Touma and Mr Dimassy's disavowal of any such arrangement would have been accepted, is unknown and will not now be determined.
7. Fourth, whether the parties acted reasonably in commencing and defending the proceedings until further prosecution became futile is significant. The plaintiffs' commencement of these proceedings appears to have been reasonable, given the potential circumvention of the consent orders made by Black J by the proposed sale of Units 1, 3 and 5 to 11 Kingston rather than the sale of five units in one line. The defendants generally resisted each of the steps sought to be taken by the plaintiffs in this endeavour. Whilst the defendants were entitled to do this, I consider that Mr Touma's efforts to disrupt the much-delayed auction by his motion filed on 8 February 2024, his subsequent withdrawal of the motion but refusal to give an assurance not to interrupt the auction, and his subsequent conduct at the auction was unreasonable.
8. Having considered each of these matters, I consider that the Court should "order otherwise" in respect of the plaintiffs' costs of the proceedings vis a vis the first, second and third defendants where the plaintiffs have achieved what they set out to do in these proceedings and where Mr Touma's opposition to that course became unreasonable for a portion of the proceedings. I consider, overall, that Mr Touma should pay 50% of the plaintiffs' costs.
9. As against 11 Kingston, I consider that the Court should also "order otherwise". Where the plaintiffs have largely obtained the relief sought, over 11 Kingston's opposition, and where 11 Kingston, by its own actions, rendered other causes of action otiose, I consider that there should be no order as to costs as between the plaintiff and the fifth defendant.
10. For these reasons I make the following orders: 1. Order the third defendant to pay 50% the plaintiffs' costs of these proceedings. 2. Make no order as to costs of these proceedings as between the plaintiff and the fifth defendant. 3. Otherwise dismiss the Statement of Claim and Statement of Cross-Claim.

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: 20 September 2024