Chu v Lin, in the matter of Gold Stone Capital Pty Ltd

JACKMAN J: 1 I gave judgment in these proceedings on 15 July 2024: Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (Trial Judgment) [2024] FCA 766. At the conclusion of the judgment, I set a timetable for the exchange of draft orders and submissions to give effect to my reasons. The parties have commendably been able to reach agreement on the calculation of principal amounts and compound interest, save for one relatively small issue. That issue concerns the payment of $300,000 on 21 July 2016, to which I referred at [163] and [248] of the judgment. The question concerns the impact, if any, of that payment on the interest calculation in relation to misappropriation claims against Ms Lin. 2 At [249] of the trial judgment, I dealt with a similar issue concerning an amount of $99,613.21, and expressly said that no adjustment for interest should be made in relation to the deduction of that amount from the principal amount awarded to the plaintiffs as equitable compensation, as the defendants' entitlement to that credit does not strictly arise until the trust fund is restored. Counsel for Ms Lin was unable to point to any ground of distinction between the interest treatment in relation to that payment, and the interest treatment in relation to the $300,000 payment on 21 July 2016, and, for my part, I cannot see any point of distinction. 3 Accordingly, in my view, there should be no adjustment for interest in relation to the $300,000 amount, as the defendants' entitlement to any credit in relation to that amount does not arise until the trust fund is restored, by reason of the operation of the clear accounts rule to which I referred. 4 In relation to costs, there is some agreement, and considerable dispute, between the parties as to the appropriate costs orders. In my view, the appropriate costs orders are as follows. 5 As between the plaintiff and the first, second, and third defendants, the plaintiffs are entitled to an order for costs. Although the plaintiffs failed on the managed investment scheme allegations, and misleading conduct claims, those claims were based on the same factual substratum as the breach of trust claims on which the plaintiffs did succeed. The costs to be awarded to the plaintiffs as against the first, second, and third defendants do not include costs which are shown to have been incurred only in relation to the plaintiffs' claims against the fourth and fifth defendants, but will include costs incurred where the work involved aspects of the claims against the fourth and fifth defendants, which overlapped with or related to the claims against the first, second, and third defendants. 6 In relation to the fourth defendant (Fiducia Asset) and the fifth defendant (Mr Wu), those parties were successful only on a limitation question which occupied relatively little time. In saying that, I am cognisant that Fiducia Asset also succeeded on a minor aspect of the claim against it, concerning credit licence fees. But apart from the limitation question, Fiducia Asset would have been liable for a very substantial amount to the plaintiffs. The fifth defendant would also have been liable for substantial amounts to the plaintiffs but for the limitation question. The limitation question was a clearly severable issue. 7 In my view, the appropriate order is that the plaintiffs pay 20 per cent of the costs of each of the fourth and fifth defendants, reflecting the relative amount of time which is likely to have been spent by their legal representatives on that particular issue compared to the other issues, and bearing in mind also the fact that the fourth and fifth defendants ultimately succeeded on that issue. 8 I note that Hall J reached the same conclusion in comparable circumstances in Artistic Builders Pty Limited v Nash [2011] NSWSC 350. The fifth defendant sought to distinguish that case on the basis of the prolonged factual investigation into the circumstances concerning breach of duty in that case, compared to, what he submitted, was a relatively short exercise in the present case of establishing liability. I note that there is a difference in terms of the amount of time having been spent in establishing the factual allegations concerning breach of duty, but in the present case, the fifth defendant would have saved a very substantial amount of preparation time and court time if the breach of duty had been conceded and the fifth defendant simply maintained the limitation point. 9 The solicitor for Mr Darmali and Fiducia Asset, Ms Johnstone, has apportioned the costs incurred by Mr Darmali and Fiducia Asset in the ratio of 85:15. Accordingly, the quantification of the costs incurred by Fiducia Asset should be on the basis that Fiducia Asset incurred 15 per cent of the combined costs of the third and fourth defendants. 10 The fourth defendant relies on an offer made pursuant to the principle in Calderbank v Calderbank [1975] 3 All ER 333, dated 4 March 2022, and an offer of compromise under the Federal Court Rules 2011 (Cth) (FCR) r 25.01 made on 20 July 2023. The offer was for the plaintiffs to discontinue or consent to dismissal, as the case may be, against both the third and fourth defendants, with no order as to costs. No offer was made in relation to the claim against the fourth defendant alone. The plaintiffs have achieved a better result than that offer, given their very substantial success against the third defendant, and there is no basis for any claim for indemnity costs pursuant to either of the offers. 11 The fourth and fifth defendants also submit that the plaintiffs failed to undertake genuine steps to resolve the matter with the third and fourth defendants before commencing the proceedings pursuant to their obligations under the Civil Dispute Resolution Act 2011 (Cth). I reject that submission. The plaintiffs sought to engage with Mr Darmali in April 2018 before commencing proceedings, but all he was interested in discussing was his outstanding invoices. The plaintiffs also made detailed complaints to the Australian Financial Complaints Authority in 2021, which were ultimately terminated for lack of jurisdiction, but the articulation of those claims, in my view, also satisfied the plaintiffs' obligation to take genuine steps to seek to resolve the matter before litigation. 12 The fifth defendant seeks indemnity costs from such time as it appeared that the fifth defendant was not involved in the conduct of the transactions engaged in by Gold Stone, which are the subject of the proceedings. I reject that submission. Mr Wu's non-involvement and apathy towards the company's affairs were the fundamental reason for his breach of director's duties. Accordingly, establishing by way of pleadings and correspondence that Mr Wu was not involved and appeared to have engaged in a degree of apathy, although not as extreme as was ultimately revealed in cross-examination, does not indicate that the plaintiffs' claim against him was unreasonable. On the contrary, that was the very basis for the merit in the plaintiffs' allegations that Mr Wu had breached his duties. 13 The plaintiffs seek an order pursuant to the principle in Sanderson v Blyth Theatre Company [1903] 2 KB 533, that the costs of the fourth and fifth defendants should be paid directly by the first, second, and third defendants. In my view, there is no sufficient basis shown for such an order. While the decision to join the fourth and fifth defendants was not unreasonable in the circumstances of the case, the conduct of the first, second, and third defendants and the circumstances generally did not sufficiently contribute to the plaintiffs' decision to proceed against the fourth and fifth defendants so as to justify such an order. The plaintiffs' success against the fourth and fifth defendants on questions of liability, except for the limitation issue, is already reflected in the 20 per cent apportionment of costs. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.

SCHEDULE OF PARTIES NSD 32 of 2022 Defendants Fourth Defendant: FIDUCIA ASSET MANAGEMENT PTY LTD Fifth Defendant: XIAO WU Sixth Defendant: JOSEPHINE DARMALI Seventh Defendant: GOLD STONE CAPITAL PTY LTD ACN 167 931 026