Candibon Pty Ltd v Minister for Planning & Anor

2 The Court has now been asked to determine questions of costs. Costs are sought against both the plaintiff ('Candibon') and its director, Mr Souhail Mondous. In relation to the latter, the Court has before it a summons dated 5 March 2012 filed on behalf of the defendants seeking an order pursuant to s 24(1) of the Supreme Court Act 1986 (Vic) and/or r 63.02 of the Supreme Court (General Civil Procedure) Rules 2005 (the 'Rules') that Mr Mondous be ordered to pay the defendant's costs of and incidental to the proceeding, including reserved costs, to be taxed on an indemnity basis, or alternatively on a party/party basis, up to 8 January 2008, and thereafter on an indemnity basis on such terms as the Court deems fit.

3 In addition to the summons directed to Mr Mondous, the defendants seek costs against Candibon, and they seek those costs on an indemnity basis.

4 Further, Cardinia Shire Council has filed a summons dated 16 March 2012 seeking orders that the plaintiff and Mr Mondous pay the costs of the Council incurred as a non-party:

(a) in relation to Candibon's summons dated 6 May 2008 seeking non-party discovery from the Council;

(b) in complying with the orders for non-party discovery made on 11 June 2008;

(c) in responding to further requests for non-party discovery in accordance with Candibon's letter to the Council's solicitors dated 30 April 2010;

(d) in relation to Candibon's summons dated 28 May 2010, including the costs reserved on 16 July 2010;

(e) in complying with subpoenas issued to the Council and to its officers dated 12 March 2010 and 22 September 2010; and

(f) in relation to requests to review draft witness statements of Council officers and former Council officers.

5 The costs referred to in (a) and (d) are sought on a solicitor/client basis.

6 The defendants submit that their costs should be paid on an indemnity basis on the following grounds:

(a) a serious allegation of fraud was made against the Crown, including the making of irrelevant allegations of fraud, which failed;

(b) as to the remaining claims, these ought not to have been brought as they were statute-barred, yet they were commenced or continued in wilful disregard of known facts or clearly established law;

(c) the plaintiff failed, until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and may very possibly have avoided the trial;

(d) the plaintiff conducted the proceeding in a manner which caused loss of time to the Court and other parties.

7 Alternatively, the defendants rely upon an offer of compromise made in early 2008 and submit that costs should be paid on a party/party basis up to the date of the offer of compromise and on an indemnity basis thereafter.

8 The defendants served an offer of compromise on 9 January 2008 in the amount of $100,000 plus party/party costs. The offer remained open for 14 days. The plaintiff rejected the offer. It has now failed to obtain a judgment in excess of the offer, or indeed any amount at all.

9 As the defendants point out, r 26.08(3) of the Supreme Court (General Civil Procedure) Rules 2005 refers only to the situation where the plaintiff recovers a judgment that is not more favourable to the plaintiff than the terms of the offer, and it is silent on the question of costs where the plaintiff fails altogether and judgment is given for the defendant. Nonetheless, the Court may exercise its discretion under s 24 of the Supreme Court Act 1986 (Vic) to have regard to the unaccepted offer as a factor in the exercise of this discretion. The Court may, in the exercise of its general discretion as to costs, award costs to the defendant on a more generous basis than a party/party basis from the time the offer was served.[2] In such a case, the principles enunciated by the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[3] will apply, including the matters to which a trial judge should ordinarily have regard in awarding costs on a more generous basis. A special order for costs should not be made for non-acceptance of a Calderbank offer unless the offeror demonstrates that the offeree's failure to accept the offer was unreasonable.[4]

10 The defendants submitted that it was unreasonable in the circumstances for the plaintiff to have rejected the offer, having regard to the extent of the offer and the stage of proceedings at which the offer was received. They submitted that in the present case, each of the factors in Hazeldene's Chicken Farm indicated that rejection of the offer was unreasonable.

In terms of reasonableness in the present matter, significance may be placed upon:

(a) the failure to discover or produce (until called upon) the file of Mr Gibson, which demonstrated the absence of any sense of acting under the threat of compulsion, and the payment of a commission despite Mr Mondous and counsel having conferred with Mr Gibson and reviewed the file;

(b) the failure to discover or produce the file of Mahon & Mahon, which demonstrated Candibon's clear intent at the September meeting to pursue a residential subdivision of the land;

(c) the failure to call Sebastian Canzoneri, who signed letters on behalf of Candibon concerning the threat to sell the subject land on the open market.[5]

12 I am at a loss to understand how these matters bear upon the reasonableness or otherwise of the plaintiff's refusal of the offer of compromise at the time that it was made in early 2008. The events referred to occurred much later in 2010. In determining the reasonableness of the plaintiff's conduct in rejecting the offer of compromise, it is necessary to place oneself in the position of the plaintiff at the time.

13 The offer of compromise was made in January 2008. It predated an amendment to the statement of claim to include the allegation of deceit which, in the event, became central to the proceedings. Candibon was given leave to amend its statement of claim by order of the Court of Appeal in February 2010. This followed a protracted process of seeking to obtain evidence to support the claim for deceit by way of applications for discovery against the State of Victoria and Mr Robert Maclelland, the former Minister for Planning. Candibon asserts, and I have no reason to doubt, that its counsel were not prepared to sign an amended statement of claim alleging deceit against Mr Maclelland until it had obtained sufficient evidence to support the claim. This is said to have occurred when the so-called 'Intel letter' was finally located in an archive held by the University of Melbourne.

14 In the circumstances, having regard to the stage of the proceeding at which the offer was made, it could not be said that it was unreasonable for Candibon to have rejected the offer. Candibon had yet to mount the claim for deceit that went to the heart of its complaint against Mr Maclelland and the State of Victoria. Moreover, the offer was for a token amount, in circumstances where Candibon alleged that it had been wrongfully deprived of a property worth tens of millions of dollars.

15 I am not persuaded that Candibon's rejection of the offer of compromise was unreasonable, given the early stage in the proceeding in which it was made, having regard to the case that Candibon intended to run and to the amount of the offer, which was a derisory amount compared to the value of the land in question.

16 The fact that Candibon failed in its claims is not a basis to find that the rejection of the offer was unreasonable. As Hollingworth J said in Stipanov v Mier (No 2),[6] the Court must be alive to the dangers of judging the reasonableness of a settlement offer through the prism of hindsight. There is a real risk that a Court, upon making findings concerning contested questions of fact, may too readily embrace a submission that it was always inevitable that the proceeding would fail.[7]

17 The defendants refer to the decision of Harper J in Ugly Tribe Co Pty Ltd v Sikola,[8] in which his Honour set out the circumstances in which costs may be awarded on an indemnity basis:

In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v. Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v. Towney (No. 2). These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd.

(ii) The making of an irrelevant allegation of fraud: Thors v. Weekes.

(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty. Ltd. v. Keeprite Australia Pty. Ltd.

(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty. Ltd. v. Westpac Banking Corporation.

(v) Conduct which amounts to a contempt of court: EMI Records Ltd. v. Ian Cameron Wallace Ltd.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp. Pty. Ltd. v. Australian Builders Labourers Federation Union of Workers (W.A.) Branch (No. 2).

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v. Petit-Breuilh (No. 2).[9]

18 In effect, the defendants rely on all of these categories except categories (iv) and (v). They say that Candibon:

(a) made an allegation of fraud known to be false and/or an irrelevant allegation of fraud;

(b) engaged in conduct causing a loss of time to the court and other parties by not bringing its application to plead deceit until shortly before the trial, by failing to discover the Gibson file, by having its expert redraft his report as a result of the inadmissibility of large portions of it, by adjourning the trial for two days due to Senior Counsel's illness and by failing to respond to requests for discovery of financial information;

(c) brought the remaining claims in wilful disregard of clearly established law in relation to the limitation of actions; and

(d) failed to make timely discovery of documents which would have shortened or avoided the trial.

19 I am not persuaded that the claim in deceit involved either the making of an irrelevant allegation of fraud or the making of an allegation of fraud known to be false. The allegation of fraud is clearly not irrelevant to the claim in deceit. It goes to the heart of that claim. Further, although the Court found that the statements giving rise to the alleged deceit were not made as alleged, the findings made by the Court do not establish that Candibon made an allegation of fraud knowing it to be false. The Court held, on the balance of probabilities, that the statements were not made as alleged. However, it found that on several occasions there were discussions between Mr Mondous and Mr Maclelland behind closed doors in Mr Maclelland's electorate office about the very matters upon which the claim for deceit was based, namely the future use and development of the subject land and whether or not the Minister should acquire it, either by way of compulsory acquisition or as a negotiated sale. As the Court of Appeal determined, Candibon was entitled to bring this claim. In my view, it was entitled to do so without necessarily being exposed to a special costs order.

20 As to the commencement and continuation of the claims that were statute barred, Candibon advanced a novel argument based upon mistake to contend that the statutory limitation period did not apply to the negligence claim. Although that argument was not accepted, I am not persuaded that it was so lacking in merit to justify an award of indemnity costs. The Court of Appeal noted the difficulties with the claim in negligence, but allowed it to go forward. In any event, the claim in negligence took up very little time in the proceeding, as it was based on the same evidence as the deceit claim. Likewise, the claims based on unconscionable conduct and s 109 of the Land Acquisition and Compensation Act 1986 (Vic) (the 'LAC Act') that also failed by reason of the operation of the Limitation of Actions Act 1958 (Vic) were dealt with by way of submission, and did not take up much of the Court's time.

21 Finally, the instances of delay relied upon by the defendants are insufficient to warrant an award of indemnity costs. A number of the instances referred to were able to be accommodated by the Court without significant loss of time. The most serious, in my view, concerned delay in discovering the Gibson file and what is described as delay in providing financial information. In fact, virtually no financial information was ever provided. This was not of great significance, as the plaintiff's claims fell at the first hurdle, which was the need to establish that the representations were made as alleged. Although the lack of financial information resulted in repeated calls for that information during the course of the trial, I am not persuaded that the failure to provide that information caused much loss of time during the trial.

22 As to Mr Gibson's file, there is some question as to whether, and if so when, it was in the possession or custody of Candibon so as to impose on Candibon an obligation to discover it. I do not propose to examine that question. The Gibson file became available during the course of the hearing and the defendants had a full opportunity to review it, to cross-examine on its contents and to make submissions about them. Again, I do not consider that the failure to discover this material at an earlier date caused significant delay in the preparation or trial of the proceeding, and the defendant was not prejudiced by any such failure. In the event, the defendants made good use of the contents of the Gibson file.

23 It follows from the foregoing that the Court will not exercise its discretion to make a special costs order. Costs will be awarded on a party/party basis.

24 It has long been established that the Court's full power to determine by whom and to what extent costs are to be paid[10] enables the Court to make a costs order against a non-party.

25 In Knight v FP Special Assets Ltd,[11] Mason CJ and Deane J said of the jurisdiction to order non-parties to pay costs:

Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made.

For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.[12]

26 In the present case, both the defendant and the Council seek an order that Candibon and Mr Mondous, as a non-party, be jointly and severally liable for their costs. They submit that:

(a) Candibon is a 'man of straw' and is unable to meet significant orders for costs made against it;

(b) Mr Mondous played an active part in the conduct of the litigation;

(c) Mr Mondous has an interest in the subject of the litigation; and

(d) exceptional circumstances otherwise exist for the making of a non-party costs order.

27 There is now no dispute that Candibon has no assets and should be regarded as 'a man of straw'. Candibon is the trustee of the Candibon Unit Trust, which was originally established in 1987 with three equal unit holders: Kameel Pty Ltd, controlled by Mr Mondous, Isildur Pty Ltd, controlled by Mr Mondous' brother-in-law, and Tintale Pty Ltd, controlled by the Canzoneri family. Since before the litigation commenced in February 2006, Kameel has held one half of the 300 issued units in the Candibon Unit Trust and a Canzoneri family company has held the remainder of the units.

28 In his affidavit sworn on 14 May 2012, Mr Mondous deposes that by February 2012, the Candibon Unit Trust had exhausted the money that it had on the litigation. There were no other assets in the Trust apart from Candibon's claims against the State government, which depended on a successful appeal. He acknowledges that costs claims will have to be dealt with 'on an insolvency administration of Candibon'.

29 It is also common ground that Mr Mondous played an active part in the litigation on behalf of Candibon. Mr Mondous was the only one of the five former directors of Candibon to give evidence at trial. He was in Court throughout the trial and gave instructions in relation to the conduct of the trial. The limited evidence available also discloses that Mr Mondous was actively involved in the preparation for trial and in the strategic decisions that were taken during the course of that preparation.

30 It is also plain that Mr Mondous had an interest in the proceeding, albeit, according to Mr Mondous, only of an indirect kind. Mr Mondous is the sole director and company secretary of Kameel. Kameel is the trustee of the Mondous Family Trust and Mr Mondous is one of a number of beneficiaries of the Mondous Family Trust. However, Mr Mondous deposes that the purpose of the Trust is to provide for Mr Mondous' wife, Naila, and their children over the longer term. Mr Mondous has his own money, earned over his career, and he neither wishes, needs, nor has the intention of taking a distribution from the Mondous Family Trust. His personal income is from his superannuation fund. So far as he is concerned, the Mondous Family Trust is for his family.

31 Nonetheless, insofar as the Mondous Family Trust and Mr Mondous' immediate family stood to gain if Candibon was successful in the litigation, I find that Mr Mondous had an interest in the subject of the litigation.

32 The first three of the factors referred to by the High Court in Knight have been established. However, the High Court made clear that the decision as to whether to order costs against a non-party did not involve a simple process of 'ticking boxes'. The Court must also be satisfied that the interests of justice require an order to be made against Mr Mondous personally. An order for the payment of costs by a non-party will always be exceptional.[13] As Ashley J said in Guss v Geelong Building Society (in liq)[14]:

The Court's power to award costs under s 24(1) of the Supreme Court Act is wide enough to order that costs be paid by a non-party. Focussing upon the general situation - that is, putting the circumstances raised by r 63.23 to one side - it may be said that such an order is always exceptional. In the vast majority of cases it would be unjust to make an award of costs against a non-party.[15]

33 In FPM Constructions Pty Ltd v Council of the City of the Blue Mountains,[16] Basten JA (with whom Beazley and Giles JJA agreed), referred to the High Court decision in Knight and warned that the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. His Honour said:

The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact. Nor should it be forgotten that the power is only to be exercised in exceptional cases. In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non-party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success ... Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the 'interest' in its outcome or subject-matter.[17]

34 The exceptional nature of a non-party costs order was emphasised by the Full Federal Court in Kebaro Pty Ltd v Saunders:[18]

In our opinion, the authorities establish, on the foregoing analysis, the following propositions:

• A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192 - 193...
• Whilst such an order is extraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J expressed it [in Bischof v Adams [1992] VicRp 61; [1992] 2 VR 198, 205], a 'real and direct and ... material' connection with the principal litigation, must be demonstrated; in the words of Callinan J, the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party.[19]

35 The defendants submit that there are exceptional circumstances warranting an order against Mr Mondous. They rely on the following matters:

(a) the fact that the proceeding should not have been brought in the first place based on the matters relied upon in relation to the claim for indemnity costs;

(b) the status of Candibon as a mere trustee was not disclosed until trial, depriving the defendants of the opportunity to obtain security for costs from the commencement of the proceeding or soon after;

(c) the pleading failed to disclose that Candibon was a trustee company, in contravention of the rules, which require disclosure;

(d) the true financial position of Candibon was concealed from the defendants, despite their proper request for financial information well before trial; and

(e) Mr Mondous told the Court at trial that Candibon was a very wealthy company or an extremely wealthy company, which misled the defendants as to its true financial position.

36 I have already said that I do not accept the proposition that the proceeding should never have been brought. Quite apart from the claims based upon the alleged representations, there were further significant claims based upon rights conferred upon land-owners by the LAC Act. These were claims that were treated seriously by the Court and involved difficult issues of statutory interpretation.

37 The remaining grounds raised by the defendants are based on Candibon's failure to reveal its representative status and to provide financial information in the course of discovery and at trial. The consequence of that failure was that the defendants were not alerted to the need to protect themselves against Candibon's inability to meet a costs order by obtaining security for their costs at an appropriate point in the proceeding.

38 The defendants contend that they were misled by Candibon as to its financial position because Candibon did not indicate in its pleading that it brought the proceeding in a representative capacity and, further, that they had difficulty obtaining financial information from Candibon under the processes of discovery and at trial. Moreover, they say that counsel for Candibon in the Court of Appeal and Mr Mondous at trial assured the Court that Candibon was a very wealthy company.

39 For his part, Mr Mondous submits that Candibon's inability to meet a costs order should have been dealt with early in the proceeding by way of an application for security for costs. He deposes[20] that if the defendants[21] had sought security for costs during the early phase of the proceeding, he could not say that Candibon would have posted the security and pressed on regardless. It might have been a difficult decision. However, by late 2007, the defendants' conduct in relation to discovery had heightened his suspicions and had security been sought for the first time at this point, he believes that Candibon would have posted security in order to proceed. Moreover, had the defendants given him early on notice of its intention to seek non-party costs from him personally, he would have required the unit holders to arrange for him to be secured against the potential liability. Without such an assurance, he could not have continued as a director of Candibon, giving instructions in the litigation.

40 Mr Mondous also refers to Candibon's decision to abandon the appeal that it had instituted, having regard to the order for security for costs that was made by the Court of Appeal. He deposes that the decision had to be taken in the interests of the unit holders of the Candibon Unit Trust and that he and Mr Canzoneri took the decision to abandon the appeal before he became aware of the defendant's application that he pay the costs of the proceeding personally. As a result, he did not appreciate the importance of the appeal to protect his personal finances. Had he been told in February 2012 that the defendants would seek costs from him personally, he would have personally financed the appeal, including the security requirements, and would have indemnified Candibon against any adverse costs orders in order to protect his financial position. However, he now finds himself in a position where he can no longer arrange for Candibon to appeal the Court's judgment.

41 According to Mr Mondous, there are, in the application against him personally, two important principles at stake. One is respect for the proper ambit of limited liability; the other is to ensure fair cost compensation for successful defendants. An application for security for costs at an early stage reconciles these imperatives perfectly. It does not involve imposing on those who are protected by the corporate structure a risk that they are not prepared to embrace, because the Court does not compel money to be paid into Court. Moreover, it does not do violence to the principle of limited liability because no-one standing behind the wall of limited liability will find themselves affixed with an unexpected personal liability.

42 I am not persuaded that Candibon's failure to plead its trustee status or to provide financial information on discovery can be blamed for the defendants' decision not to seek security for costs, although disclosure might have made a prompt application for security more likely. Candibon was a property development company and one of a number of companies used by the Mondous family to undertake its property developments. A simple company search would have revealed that Candibon had limited paid up capital and that further inquiries about its financial situation were in order. It is not unusual for companies with only a small amount of paid up share capital to undertake significant business activities. Having no real assets from which to meet a potential costs order is not limited to companies that are trustees. The defendants enjoyed the wealth of legal expertise and the significant resources of the State of Victoria. They were well able to take steps to protect themselves against an impecunious plaintiff.

43 In my view, none of the matters said to have misled the defendants as to Candibon's financial health would have prevented the defendants from making an application for security for costs early on in the proceeding or, indeed, when leave was granted to amend the pleadings to include the claim for deceit. It was always open to the defendants to make basic inquiries of Candibon's solicitors as to Candibon's financial position. A failure to provide financial information or the provision of inadequate financial information at that time would have provided a good basis for an order for security for costs to be made.

44 I am not persuaded that the failure to reveal Candibon's trustee status in the pleadings or otherwise, or to provide financial information on discovery requires the corporate veil to be lifted as a matter of justice to the defendants.

45 I am satisfied that Mr Mondous was less than forthright about Candibon's financial position in his evidence to the Court. Mr Mondous' counsel has provided an outline of submissions (one of no less than eight written submissions relied upon by Mr Mondous and Candibon in the costs application) concerning representations that were made about Candibon's financial position by both junior counsel in the Court of Appeal in February 2010 and by Mr Mondous himself at trial. The submissions seek to persuade the Court that when Mr Mondous was asked whether counsel for Candibon told the Court of Appeal in February 2010 that Candibon was a very wealthy company, and he answered, 'Very wealthy company, Your Honour',[22] Mr Mondous was in fact talking about Candibon's state of health at a much earlier point in time. However, Mr Mondous was then asked about outstanding costs orders against Candibon and he gave evidence that Candibon was able to meet those costs orders. He told the Court that the litigation was costing over $1 million and that if Candibon did not have funds, it would not be able to run the case. He said: 'So I make it very clear to Your Honour Candibon and associated company is very, very wealthy people, and we have no issue about compliance'.[23]

46 In fact, Mr Mondous now says that legal costs will only be recoverable from Candibon in an administration, in other words, that it will not be able to comply with a costs order against it. I note that the emphatic way in which Mr Mondous gave this evidence about Candibon's wealth is consistent with the emphatic way that he gave his evidence in relation to his conversations with the Minister.

47 Notwithstanding Mr Mondous' assurances to the Court and the dim view that I take of them in the light of what Mr Mondous now says about Candibon's ability to meet costs orders against it, I do not consider that Mr Mondous' evidence at trial would or could have made any difference to the defendants' capacity to protect themselves against the possibility that Candibon would not be able to meet a costs order in due course.

48 I am not persuaded that exceptional circumstances exist in this case to justify an order for costs against Mr Mondous as a non-party.

49 Critically, there was nothing artificial or calculated about the use of Candibon as the plaintiff in the proceeding. Costs orders may be made against directors personally who use the company as the litigant on the record to ensure that the corporate veil is not used to frustrate a potential costs order.[24] Thus it has been said that '[t]here is no reason why the presence of a corporate veil should preclude a costs order against a controlling director who stands to benefit from the proceedings'.[25] However, Candibon was not simply a vehicle set up to conduct the litigation in order to protect the individuals standing behind it. It was the owner of the land, which it acquired in 1987, many years before the litigation was commenced in 2006. It owned the land until the events which are the subject of the proceeding occurred in 1998. It was a legitimate property development company acquired in order to hold and develop land on behalf of the Mondous, Nassrawi and Canzoneri families. As counsel for Mr Mondous submitted, Candibon was an established entity that had a real business, undertook real investments and took on real risks, including becoming embroiled in litigation such as the present.

50 As to the justice of the situation more generally, I am not satisfied that Candibon can be regarded exclusively, or even predominantly, as a creature of Mr Mondous. It was the business vehicle used by three extended families at the outset and subsequently by two extended families. Kameel held units in the Candibon Unit Trust on behalf of the Mondous Family Trust. The trust deed for the Mondous Family Trust casts a very wide net to include in the class of beneficiaries brothers, sisters, spouses, widows, widowers, children and grandchildren of the specified beneficiaries, as well as trusts and other entities in which beneficiaries have an interest. It also includes charities. The class of beneficiaries of the Mondous Family Trust that stood to benefit from the litigation is very large indeed. The guardian and appointor under the trust arrangement is not Mr Mondous but Mrs Mondous. Mrs Mondous can unilaterally remove and replace the trustee (and Mr Mondous) at any time.

51 The Mondous Family Trust is, of course, only half of the equation. The Canzoneri family also had an interest in the outcome of the litigation. Mr Canzoneri deposes that the beneficial interest in the units in the Candibon Unit Trust held by the Canzoneri company lies with trusts in favour of three Canzoneri families, namely the families of Sebastian, Joe and Charlie Canzoneri.[26]

52 Mr Canzoneri's role in the litigation and in Candibon's property development activities generally is obscure. He did not give evidence at trial even though he was the author of important documents, yet he remained in the court room throughout the trial. It remains unclear whether he was the puppet or the puppet-master or something else altogether. Whatever role Mr Canzoneri played, if costs are awarded against Mr Mondous personally, Mr Mondous will be made to bear all of the responsibility for the proceedings and the members of various Canzoneri families will bear none of it.

53 More importantly, I am not satisfied that the proceeding was one that should never have been brought, or that its conduct was unreasonable or improper so as to justify a the making of a non-party costs order against Mr Mondous. Many years ago, Mr Mondous had a number of discussions with the then Minister for Planning, Mr Maclellan, about the development of the land. He subsequently formed the view that Mr Maclellan deceived Candibon into selling the land to him. Candibon was entitled to bring an action in deceit, for negligence and unconscionable conduct and for remedies available by reason of non-compliance with the requirements of the LAC Act. It was entitled to refrain from pleading deceit until it had obtained material on discovery to support such a claim. It was also entitled to argue that the limitation periods did not apply in the circumstances of the case. The fact that the various claims were not made out presents no reason to depart from the usual order as to costs.

54 I find that the circumstances of the litigation, although difficult and in many respects unsatisfactory, were not exceptional so as to justify an order for costs against Mr Mondous as a non-party. The justice of the situation does not require a non-party costs order to be made against Mr Mondous.

55 The Council seeks its reasonable costs and expenses of its discovery given in 2008 pursuant to Candibon's summons dated 6 May 2008, further non-party discovery given by it in 2010 and arising from the requirement that it respond to three subpoenas: the first to produce documents served on 15 March 2010; the second to a Council officer to give evidence and produce documents served on 22 September 2010; and the third to the former CEO of the Council to give evidence also served on or about 22 September 2010.

56 The Council seeks to have those costs, to which it is entitled as a non-party, paid by Candibon and/or Mr Mondous.

57 The Council relies on the Court's powers under r 32.11 of the Rules to make orders in respect of discovery for the costs and expenses of the person against whom the order is made and, in respect of the subpoenas, under r 42.11 to order the issuing party to pay the amount of any reasonable loss or expense incurred by the persons complying with the subpoena. It also relies on s 24(1) of the Supreme Court Act, which confers a wide discretion on the Court in relation to ordering costs generally.

58 In the case of non-party discovery orders, the usual position will be that an applicant party will be required to pay the reasonable costs of the non-party order to make discovery. In ordering such costs, in Australian Competition and Consumer Commission v Boral Ltd,[27] Heerey J said as follows in relation to the analogous Federal Court provision:

It seems to me only basic fairness that a non-party, who has neither instigated litigation nor engaged in conduct which has provoked another to litigate, should not be out of pocket. Put another way, it does not seem reasonable that a non-party should be effectively compelled by Court order to subsidise litigation in which it has no interest.

59 His Honour went on to say that the public interest in encouraging non-parties to make as full and complete discovery as possible will be served if these parties are aware that their legal costs will be recoverable.[28]

60 In relation to subpoenas to non-parties, the courts have also commented that a non-party put through the trouble of producing a document as a stranger to litigation so as to forensically aid a party to the controversy is entitled to look to the issuing party for the costs of seeking advice as to his or her obligations under the subpoena and the steps that must be undertaken to discharge these obligations.[29] In principle, there is no reason why a stranger to the litigation should suffer loss or expense in being drawn into a controversy in which he or she has no interest other than the community or public interest of ensuring that disputes are resolved in the interests of justice between the parties by reference to the documents relevant to the issues to be determined.[30]

61 In the normal course, therefore, the Council would be entitled to its reasonable costs of complying with the subpoenas and the requests for non-party discovery. However, Candibon and/or Mr Mondous assert that at least some of those costs are unrecoverable, because non-party discovery was inadequate.

62 The Council's application has a long history which unfolded broadly as follows:

(a) On 6 May 2008, Candibon filed a summons directed to Mr Maclellan and the Council seeking an order for non-party discovery under r 32.07 of the Rules. On 11 June 2008, consent orders were made requiring the Council to make an affidavit of documents and Candibon to pay the Council's reasonable costs and expenses of preparing the affidavit (the '2008 discovery costs'). Mr Garry McQuillan, CEO of the Council, made an affidavit of documents on 24 July 2008.

(b) In August and September 2008, Candibon's solicitors wrote to the Council's solicitors alleging that the Council had not complied with the 2008 orders. The Council denied this allegation. The question of the Council's costs remained unresolved.

(c) On 12 March 2010, Candibon filed a subpoena directed to the Council seeking Council reports and minutes from 1997 and 1998 (the 'first subpoena'). These documents were produced by the Council on 30 April 2010. On 12 April 2012, Candibon made an offer to pay the Council $3,000 in full and final satisfaction of the costs incurred by the Council in responding to the first subpoena. The Council said it would agree to a payment of $3,500 and would forgo the 2008 discovery costs. This offer was rejected. On 30 April 2012, Candibon's solicitors wrote to the Council's solicitors alleging further non-compliance with the Council's obligations under the 2008 orders.

(d) On 5 May 2010, Candibon's solicitor, Mr Jerry Belleli, swore an affidavit deposing, amongst other things, that Candibon had concerns about the adequacy of the Council's discovery.

(e) On 12 May 2010, the Council's solicitors wrote to Candibon's solicitors disputing that the Council's compliance with the 2008 orders was a complete answer to Candibon's liability for the costs incurred by the Council in responding to the first subpoena.

(f) On 31 May 2010, Candibon filed a summons directed to the Council seeking orders under r 40.04(1) that Mr McQuillan be examined in respect of his affidavit sworn on 24 July 2008. This summons came on for hearing on 8 June 2010, but was then subsequently adjourned twice to a date to be fixed. No date was ever fixed for the hearing of the summons.

(g) On 22 July 2010, the Council's solicitors sent a preliminary list of 88 documents to Candibon's solicitors and documents in question were provided to Candibon on or about 4 August 2010.

(h) On 3 September 2010, Candibon's solicitors sought further documents from the Council and, on 9 September 2010, Ms Fiona Hodges, Acting Chief Executive Officer of the Council, swore an affidavit of documents (the '2010 non-party discovery').

(i) On 22 September 2010, Candibon's solicitors filed a subpoena directed to Mr Eric Hesketh seeking a Council file and all documents relating to it (the 'second subpoena').

(j) On the same day, Candibon filed a subpoena directed to Mr David Roff, a former Chief Executive Officer of the Council, requiring him to attend before the Court to give evidence (the 'third subpoena').

63 The Council relies on the affidavit of Christopher Nathaniel Cantor sworn on 8 May 2012 in which Mr Cantor deposes that the costs in relation to the 2008 discovery have not been paid and that, although Council agreed to forego the 2008 costs when attempting to negotiate recovery of additional costs incurred in 2010 by reason of Candibon's further requests, that attempt was unsuccessful. Candibon has refused to pay the Council's costs of the first subpoena, despite initially making an offer to do so. It has not responded to Council's request for payment of its costs in respect of Candibon's further demands made in 2010, being the two further subpoenas and the further summons for non party discovery addressed to the Council's CEO.

64 After it had produced documents under the first subpoena, Council sought to recover its costs of compliance with the first subpoena and provided an itemised schedule of costs to Candibon's solicitors. Candibon made an offer to settle the claim, which was then withdrawn when a higher amount of costs was sought by the Council ($3,500, rather than $3,000). On 23 April 2010, Candibon's solicitors wrote to the Council's solicitors in the following terms:

We refer to the thread of emails below and advise that we are instructed to reject your proposal. The simple fact is that your client should have discovered the documents in the proceedings already and by failing to do so has caused it to incur the additional expense of issuing a subpoena.

Any application will be vigorously defended.

65 A further letter from Candibon's solicitors dated 30 April 2010 sought to condition the Council's subpoena-related costs to the question of its compliance with the 2008 order for non-party discovery. The letter stated:

... our client has serious concerns about the adequacy of Council's non-party discovery. Our client therefore requires three things of Council: first an explanation of why Council's non-party discovery is as deficient as it seems to be; secondly, an undertaking to make proper discovery under the orders of 11 June 2008 as a matter of urgency; and thirdly, an indication of when that proper discovery is likely to be made.

You will appreciate that [it] is now almost three years since Council first made non-party discovery. The case has substantially progressed towards trial. It is utterly unsatisfactory for our client to now have to learn that the discovery is apparently deficient in important respects. The case is now being managed in the Major Torts List on a strict timetable. Therefore we require your urgent response to this letter.

You will appreciate that the issues raised in this letter impact on the question of the subpoena-related costs claimed in your email letter dated 30 March 2010. Until the issues have been resolved, our client will not be in a position to come to an informed view on the question of costs.

66 There was a flurry of activity in August 2010 in relation to the Council's discovery that involved a summons to Mr McQuillan to appear to explain the discovery made in 2008. The summons was adjourned and never brought on for hearing. Further documents were produced by the Council by way of further non-party discovery and the Council's former acting CEO appeared to give evidence at trial. The trial was conducted over a number of weeks in October, November and December 2010. Judgment was delivered on 29 August 2011.

67 In September 2011, the Council made a further attempt to resolve its costs claims against Candibon. It said that it was prepared to bear its own costs of the initial discovery made under Mr McQuillan's affidavit of 24 July 2008. Those costs totalled $5,920.

68 Candibon did not respond to this offer. An itemised bill of the Council's costs of responding to the subpoenas and the non-party discovery orders was sent to Candibon's solicitors under cover of the letter dated 8 September 2011. Candibon has not paid this bill. In fact, it has not compensated the Council for any of its costs.

69 There is a plainly dispute as to whether the discovery given by the Council in 2008 was adequate. Candibon alleges that the discovery was deficient and that it was put to additional expense by reason of having to issue the first subpoena.[31] Ultimately, the Council proposed a resolution which involved it foregoing the costs of the discovery in 2008, but on the basis that it would be paid the costs of complying with the first subpoena.

70 I accept the Council's submission that it was not for Candibon to say that the Council's entitlement to recover the costs of complying with further requests for documents (including the first subpoena) should be conditioned by its discovery in 2008. Those costs should have been paid upon demand.

71 A non-party is entitled to recover its costs of complying with subpoenas and orders for discovery and to expect that those costs will be paid in a co-operative and orderly manner. On the basis of the material before me, the Council is entitled to be compensated for its reasonable costs of complying with the non-party discovery applications and the subpoenas.

72 The question remains as to whether Mr Mondous should be ordered to pay those costs. The question is to be answered by reference to whether there are exceptional circumstances, and whether justice requires the corporate veil to be lifted.

73 I have held that Mr Mondous ought not to be made personally liable to pay the defendants' costs. The Council's position as a stranger to the proceedings places it in a different position from the defendants when dealing with Candibon. Although it was open to the Council to seek security for its costs of discovery, it would have been unusual for such an application to have been made, particularly given the amounts involved and the fact Candibon apparently remained in funds for the purpose of conducting the litigation.

74 However, so far as I can tell from Mr Cantor's affidavit, the only costs that were sought by the Council from Candibon prior to the trial (when Candibon was apparently in a position to pay them) were the costs of the first subpoena. The Council assessed those costs as $3,500. The Council made no demand for payment of the remaining costs until September 2011, over a year after it had incurred the last of the costs.

75 Candibon had funds to conduct the litigation. However, with the passage of time Candibon's financial position has changed. I am unable to conclude that the Council was somehow duped into withholding the demand for payment of its costs and expenses by the conduct of Candibon or Mr Mondous. There is no explanation for why it waited so long to seek payment from Candibon. Although Candibon's solicitors treated the Council in a bullying and inappropriate fashion in their letter of 30 April 2010, that does not provide a reason to order Mr Mondous to pay the Council's costs. Candibon's failure thereafter to pay the Council's reasonable costs of complying with Candibon's various demands for documents and attendances at Court appears to be a function of the fact that no demand was made until September 2011.

76 I am therefore not satisfied that the interests of justice require an order to be made that Mr Mondous to pay the costs personally.

77 The Council is entitled to its reasonable costs of the subpoenas and to its costs of making discovery. Orders to that effect will be made against Candibon.

78 Candibon submits that the following costs should be dealt with on what it describes as a 'counter-trend basis':

(a) Costs associated with obtaining access to Mr Maclelland's ministerial files, including Candibon's costs of its further and better discovery application, and its costs of non-party discovery from Mr Maclelland. Further, the defendants should not have their costs of trawling through the archives at Melbourne University or the papers stored at Mr Maclelland's home.

(b) In respect of interrogatories, the defendants should not have their costs of answering the interrogatories (or alternatively only a fraction of those costs), Candibon should have the costs of all the efforts it made to establish that the Intel letter related to Greenhills and the defendants should not have their costs of complying with the Court's order made on 29 July 2010 in respect of the Intel letter.

(c) The defendants should not have their costs of preparing Mr Maunder's witness statement, as it was not truly what it purported to be, namely a statement from Mr Maunder. Rather, it was a document that was prepared by a lawyer that Mr Maunder was asked to sign.

(d) Candibon should have its costs of pleading and prosecuting the deceit claim until the day in September 2010 when the defendants first served a witness statement from Mr Maclelland. Candibon alleges that the defendants hid their version of events and adopted false and evasive positions in respect of key circumstances and that, as a result, any litigant in Candibon's position would have been encouraged to infer and plead fraud.

79 Rule 63.04 of the Supreme Court (General Civil Procedure) Rules 2005 provides:

(1) The Court may make an order for costs in relation to a particular question in or a particular part of a proceeding.

(2) Where the Court makes an order under paragraph (1), the Court shall by order fix the proportion of the total costs of the proceeding which is attributable to the particular question in or the particular part of the proceeding.

80 The Court has power to make orders for costs relating to particular questions in or 'parts' of a proceeding both by depriving an ultimately unsuccessful party of its costs or (additionally) by awarding an unsuccessful party some part of its costs.[32] However, courts have warned of the difficulty of revisiting each issue and tallying 'wins and losses', a concern being that a just and equitable decision on the question of costs is not reached 'simply as a matter of arithmetic'. [33]

81 What Candibon seeks is not issue apportionment so much as a recognition that unnecessary costs were incurred by the parties as a result of the acts and omissions of the defendants.

82 I have dealt with a similar submission from the defendants in relation to their claim for indemnity costs. There were things that Candibon did that made the litigation more difficult than it should have been. The defendants struggled with the late arrival of the claim in deceit and with the ambit of discovery. However, in the exercise of the Court's discretion as to costs, I have declined to re-visit the minutiae of events leading up to and including the trial of the proceeding and to apportion blame for disruptions, delays or difficulties one way or the other. The proceeding was a difficult one for a number of reasons. The passage of time since the relevant events, the fact that the critical events took place behind closed doors in informal circumstances (even though they involved a Minister of the Crown), the involvement of local government and local politics in what became of the land, the retirement of the former Minister a good decade before the trial came on for hearing, and the difficulties associated with locating his papers that had been dispersed to the four winds, all created problems for the parties and for the Court.

83 I am not prepared to dissect the conduct of the parties in the litigation in the manner required by Candibon.

84 The costs of the proceeding should follow the event.

1. Candibon pay the defendants' costs of the proceeding, including any reserved costs, on a party/party basis.

2. Candibon pay the costs of the Council pursuant to r 42.11 of the Rules for the reasonable loss or expense incurred in complying with the following subpoenas:

(a) the Subpoena for Production filed 12 March 2010 and addressed to the Proper Officer at Cardinia Shire Council;

(b) the Subpoena directed to Mr Eric Hesketh of Cardinia Shire Council filed 22 September 2010; and

(c) the Subpoena directed to Mr David Roff (formerly of Cardinia Shire Council) filed 22 September 2010.

3. Candibon pay the costs and expense of the Council, pursuant to r 32.11 of the Rules for:

(a) complying with the orders for non-party discovery made 11 June 2008; and

(b) responding to the further requests for non-party discovery in accordance with the Plaintiff's letter to the Council's solicitors dated 30 April 2010.

4. Candibon pay the costs of the Council on a solicitor / client basis for:

(b) the plaintiff's summons dated 28 May 2010, including the costs reserved on 16 July 2010.

[1] The orders made by the Court were made in an endeavour to regularise a notice of appeal filed by the plaintiff, which was filed prior to the making of final orders in the proceeding.

[2] See Mutual Community Ltd v Lorden Holdings Pty Ltd (Unreported, Supreme Court of Victoria, Byrne J, 28 April 1993).

[3] [2005] VSCA 298; (2005) 13 VR 435 ('Hazeldene').

[4] Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435, [19].

[5] Defendant's Outline of Submissions dated 6 March 2012.

[6] [2006] VSC 424.

[8] [2001] VSC 189.

[9] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7] [Citations omitted].

[10] Section 24 of the Supreme Court Act 1986 (Vic).

[11] [1992] HCA 28; (1992) 174 CLR 178 ('Knight').

1. [13] Symphony Group Plc v Hodgson [1994] QB 179, 192-193; Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965, 980.

[14] [2001] VSC 288.

[16] [2005] NSWCA 340.

[18] [2003] FCAFC 5.

[19] Ibid [103] (Beaumont, Sundberg and Hely JJ).

[20] Affidavit of Sam Mondous sworn 16 May 2012.

[21] Mr Mondous refers to 'the government'.

[22] Transcript of Proceedings, Candibon Pty Ltd (ACN 006 867 358) v The Honourable Justin Madden (in his capacity as Minister for Planning) and The State of Victoria (Supreme Court of Victoria, S CI 2006 4637, Emerton J, 14 October 2010) 719 ('Trial Transcript').

[24] G E Dal Pont, Law of Costs (2nd ed, LexisNexis Butterworths, 2009) 764 [22.35].

[25] National Mutual Life Association of Australasia Ltd v Chris Poulson Insurance Agencies Pty Ltd (1998) 8 Tas R 123, 135.

[26] Affidavit of Sebastian Canzoneri sworn 23 May 2012.

[27] [1999] FCA 663, [2].

[29] See Pyramid Building Society (in liq) v Farrow Finance Corp Ltd (in liq) [1995] VicRp 30; [1995] 1 VR 464.

[30] Akiba v State of Queensland [2010] FCA 321, 107.

[31] Transcript of Proceedings, Candibon Pty Ltd (ACN 006 867 358) v The Honourable Justin Madden (in his capacity as Minister for Planning) and The State of Victoria (Supreme Court of Victoria, S CI 2006 4637, Emerton J, 1 June 2012) 204 ('Costs Transcript').

[32] In Spotless Group Ltd v Premier Building & Consulting Pty Ltd [2008] VSCA 115, Redlich JA said: 'In certain cases it is apposite for a trial judge to apportion costs having regard to the multiplicity of parties, actions, issues and the mixed success enjoyed by the plaintiffs. Under r 63.04, the judge may award costs in relation to particular questions or parts of the proceeding. The rules of court are wide enough to permit an apportionment of costs according to issues or causes of action, which enable a court to look at the realities of the case and attempt to do substantial justice.' (at [14])

[33] Dal Pont, above n 24, [8.7] [Citations omitted].