Chung-Yi Pty Limited v Justin Chih-Yang Chang

Supreme Court of NSW|2018-09-14|Before: Ball J

Introduction

On 20 July 2018, I delivered reason for judgment in this matter (see Chung-Yi Pty Limited v Justin Chih-Yang Chang (No 2) [2018] NSWSC 1112) and on 15 August 2018, the Court gave effect to those reasons by entering judgment in favour of the first plaintiff, Chung-Yi Pty Limited, against the defendant, who, consistently with my earlier judgment, I will refer to as Justin, in the sum of $8,410,957.15. At the same time, the Court dismissed Justin's cross-claim against the plaintiffs.
The only outstanding question is costs. The plaintiffs seek the whole of their costs of the proceedings (including the cross-claim) on an indemnity basis. Justin, on the other hand, contends that the plaintiffs are only entitled to recover part of their costs and must pay some of his costs. Justin also submits that any costs orders against him should be on the ordinary basis.
The plaintiffs also seek a gross sum costs order. However, it is agreed that consideration of that issue should be postponed until the Court determines the basis on which costs should be ordered.

Are the plaintiffs entitled to all of their costs of the proceedings?

The relevant legal principles are not in doubt. The Court has a broad discretion in relation to costs: see Civil Procedure Act 2005 (NSW) s 98(1). Normally, costs follow the event. The "event" is generally the practical outcome of the proceedings. However, a successful party may be deprived of its costs or have to pay the other party's costs in relation to an issue on which it was unsuccessful and which was clearly dominant or severable: Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [15] per Hodgson JA citing Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Waters v P C Henderson (Australia) Pty Ltd (1994) 254 ALR 328; [1994] NSWCA 338. See also Turkmani v Visvalingam (No 2) [2009] NSWCA 279 at [9]-[13] per Hodgson JA (with whom per Beazley and McColl JJA agreed); James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]-[33] per Beazley, Tobias and McColl JJA. The "issue" need not involve a separate claim. It can relate to any disputed question of fact or law: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. However, the Court should be reluctant to depart from the general principle that costs follow the event: Waterman v Gerling Australia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111 at [10] per Brereton J; In the matter of Cheal Industries Pty Ltd - Fitzpatrick v Cheal [2012] NSWSC 932 at [181] per Ward J.
In the present case, Justin contends that the individual plaintiffs' claim failed and therefore they should pay his costs of that claim. He also contends that the plaintiffs' claims that had their genesis in the Second Cross-Claim were largely abandoned and most of what remained failed, with the result that Chung-Yi should pay his costs of that claim or at least those costs not referable to that part of the claim that succeeded. In support of that contention, he points out that his defence and claim based on the Equalisation Agreement were that between 2009 and 2014, he caused Chung-Yi to distribute $5,000,000 to each of his siblings, which was the amount that it was said he had caused Chung-Yi to improperly distribute to himself. His case was that he was entitled to keep the amount he distributed to himself in accordance with the Equalisation Agreement or, if he was not, then his siblings were also obliged to disgorge the amounts distributed to them. On the other hand, the plaintiffs' claim that was ultimately abandoned went back to 2006 and depended on an examination of all the payments made by Chung-Yi since that time. Justin submits that that is significant because a great deal of the costs of the case related to the work done by the expert accountants on both sides, which was largely only relevant to a case which was abandoned or which failed.
It is convenient to deal first with Chung-Yi's costs. I have concluded that Chung-Yi is entitled to recover all of its costs of the proceedings. I do not accept that the claim that had its genesis in the Second Cross-Claim can properly be characterised as a clearly severable claim on which Chung-Yi failed. Rather, in the proceedings, Chung-Yi claimed that Justin caused it to make various payments to himself that were not authorised because they were not authorised by the company or by Mr Cheng. It claimed that it was entitled to recover those payments from Justin. In relation to some payments, it was able to trace the payments directly to Justin or to Justin through an ECYMF account. In relation to others, its claim relied on inferences that it was said could be drawn from the payments that were known to have been made. Ultimately, Chung-Yi succeeded in relation to some of the payments in respect of which it made a claim, it abandoned some and failed on the remainder. In practical terms, it was successful but not wholly successful in its claim that Justin had misappropriated a substantial sum of money from it.
In addition, Justin defended the claim on the basis of the Equalisation Agreement. As finally put, that defence differed somewhat from the way it was originally pleaded. The defence was that the payments he caused Chung-Yi to make to himself were made pursuant to a general direction given by his father that each sibling should be treated equally and that Chung-Yi should pay all taxes payable on distributions made to the siblings. That raised the question whether those directions were given and whether the payments could be justified by those directions. As I have explained, Justin also claimed that if Chung-Yi was entitled to recover payments he received, it was also entitled to recover payments made to his siblings. Justin failed on both of those issues.
The various issues raised in relation to payments to Justin and his siblings necessarily involved a forensic accounting investigation of the payments made by Chung-Yi and payments made to and from the ECYMF accounts. That investigation was made far more complicated than it ought to have been because of the large number of payments that Justin caused to be made for which there was no explanation. In my opinion, it is not possible to separate out work that was done on claims made by Chung-Yi that succeeded and work done in relation to Justin's defence and cross-claim from work done in relation to that part of Chung-Yi's claim that failed. The history of Chung-Yi, the relationship between the family members and a detailed understanding of the payments that were made from accounts controlled by Chung-Yi and the ECYMF accounts were all matters that were relevant to issues on which Chung-Yi succeeded as well as issues on which it did not.
Justin submitted that the Equalisation Agreement as pleaded by him was made, or was the subject of directions given by his father, no earlier than 2008 and related to payments made during the period from 2008 to 2014 whereas the plaintiffs' claims which were ultimately abandoned and the evidence in support of them dealt with payments going back to 2006. However, in my opinion, that does not affect the position. It was reasonable for the plaintiffs to consider the period from the time the first property was sold in 2007 and 1 July 2006 seems a reasonable starting point to capture all relevant payments and, so far as the evidence allowed, to give a complete understanding of what happened. It is not suggested that a large amount of costs were incurred in investigating the earlier period. There does not appear to be any easy or rational way for dividing those costs from the rest. For those reasons, I do not think that any costs order should create an exception in respect of evidence relating to the earlier period.
I accept that the individual plaintiffs are not entitled to recover the costs of their claims to the extent that those costs were additional to the costs incurred by Chung-Yi. Their claims failed and it is difficult to see why in those circumstances they should be entitled to recover any costs they incurred in bringing those claims.
However, I do not accept that Justin is entitled to recover his costs of defending the claims brought by the individual plaintiffs. The individual plaintiffs and Chung-Yi were represented by the same lawyers. Their claims depended on the same set of facts. The individual plaintiffs were joined as plaintiffs because Justin had caused some of the money in dispute to be paid by Chung-Yi into ECYMF accounts and it appeared to be common ground that money held in the ECYMF accounts was "Family money" rather than money belonging to Chung-Yi. In other words, the individual plaintiffs were joined as plaintiffs against the possibility that the money paid into ECYMF accounts ceased to belong to Chung-Yi. Their claims were not separate from those of Chung-Yi. The vast bulk of the work that Justin did in defending those claims, if not all of it, would have to have been done if the claim had only been brought by Chung-Yi. Chung-Yi was successful. I have concluded that as a result, Chung-Yi is entitled to recover all of its costs of the proceedings and is not liable to pay any of Justin's costs. There is no reason why Justin should be entitled to recover some of his costs in defending those claims from the individual plaintiffs in those circumstances.

Indemnity costs

Costs are normally awarded on the ordinary basis. However, one circumstance in which the Court may be prepared to order costs on an indemnity basis is where there has been relevant delinquency on the part of the party liable to pay costs. As Gaudron and Gummow JJ said in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (at [44]): It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstances of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part. [footnotes omitted]
One form of delinquency where it may be appropriate to order costs on an indemnity basis is where the claim or evidence has been fabricated: Resource Equities v Carr; Resource Equities v Garrett [2010] NSWSC 44 at [13] per McDougall J; Blazai Pty Ltd v Maclarens (No 2) [2013] NSWSC 31 at [39] per Adamson J; Royal Guardian Mortgage Management Pty Limited v Nguyen (No 2) [2014] NSWSC 1327 at [8] per Adams J.
In the present case, I have concluded that it is not appropriate to order that Justin pay Chung-Yi's costs on an indemnity basis. It is true that in my earlier judgment I concluded that evidence on the topic of whether Mr Cheng had given directions to the effect that each of his children should be treated equally so far as distributions from Chung-Yi were concerned was fabricated: at [58]. Mr Gyles SC, who appeared on behalf of Justin, submitted that that finding should not be understood as a finding that Justin deliberately invented evidence for the purpose of defeating the claim made against him. I do not accept that submission. The plain meaning of the word and the context in which it was used made it clear that my finding was that Justin had deliberately invented the conversations with his father on which the Equalisation Agreement was ultimately based. He did so as a means of resisting the claims against him and, ultimately, in one form or another, the Equalisation Agreement formed a central plank of his defence.
However, this is not a case where the whole case could have been avoided if Justin had not given the evidence he gave. The records of Chung-Yi were so poor and the time between the events giving rise to the plaintiffs' claims and the commencement of the proceedings was so long that it seems to me that it was inevitable that there would be a dispute about how much Chung-Yi was entitled to recover, which would have involved considerable time and costs to resolve, including a substantial investigation by forensic accountants. As events turned out, the plaintiffs were not successful in recovering all that they claimed, including some amounts claimed in Chung-Yi's original Commercial List Summons. The likelihood, then, is that the case would have involved considerable costs irrespective of the fabricated evidence given by Justin.
Justin was partly responsible for that state of affairs because of the way he conducted Chung-Yi's business (in particular, the large number of unexplained payments from Chung-Yi to the ECYMF accounts and between the ECYMF accounts). But an order for indemnity costs must be founded in the way the proceedings were conducted, not in the way the affairs of a company which brings the proceedings were conducted. Moreover, the complexity of the case was exacerbated by the delay in the plaintiffs' bringing it. For example, had it been brought earlier, it is likely that bank statements that were no longer available would have been and it is possible that the availability of those bank statements would have simplified the investigations that needed to be undertaken.
It follows that Chung-Yi's application that its costs be paid on an indemnity basis must be rejected.

Orders

The orders of the Court are: 1. The defendant pay the first plaintiff's costs of the first plaintiff's claim; 2. The second to eighth plaintiffs bear their own costs of their claim against the defendant insofar as those costs were additional to any costs incurred by the first plaintiff in respect of its claim; and 3. The defendant pay the cross-defendants' costs of the defendant's 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: 21 September 2018

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