//
[2025] NSWSC 1494
General information, not legal advice.
Supreme Court of NSW
2025-12-16
Rees J
Original judgment source is linked above.
Zoe will write a short plain-English brief of this judgment and email it to you: what it was about, what the court decided and why. It can take up to a minute.
General information, not legal advice.
Or create a free account to save it and ask Zoe follow-up questions.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 4) (costs) [2025] NSWSC 1494
Hearing dates: On the papers. Last submissions 2 December 2025
Date of orders: 16 December 2025
Decision date: 16 December 2025
Jurisdiction: Equity - Commercial List
Before: Rees J
Decision: Costs orders made.
Catchwords: COSTS — timing of costs order — whether should defer until remaining discrete issue resolved — where cannot conceive how resolution of remaining issue will affect costs orders, no reason to defer.
SANDERSON OR BULLOCK ORDERS – principles at [31]-[39] — solicitor joined to proceedings after defendants allege that $100M loss wholly caused by solicitor and any damages should be reduced on account of solicitor’s wrongdoing – professional negligence claim not ultimately determined as plaintiffs succeeded in primary claim — whether solicitor a “successful defendant” — whether defendants an “unsuccessful defendant” — whether reasonable to join solicitor — assessment of reasonableness to be made as at time of joinder – whether causes of action substantially connected — whether fair to impose cost liability on unsuccessful defendant — Sanderson order made.
INDEMNITY COSTS – whether defendants persisted in a hopeless case – principles at [51]-[53] – order not made.
UNDETERMINED CLAIMS — unnecessary to determine claims between some parties on cross claim — undetermined claims were minor – claimant represented by same lawyers as successful claimants – substantial overlap of evidence.
OFFER OF COMPROMISE — whether court should make an order otherwise – principles at [66]-[68] —whether offer a “genuine offer of compromise” — indemnity costs ordered.
Legislation Cited: Competition and Consumer Act 2010 (Cth), ss 37CB, 87CD(3)(b), 137B
Uniform Civil Procedure Rules 2005 (NSW), rr 42.1, 42.14, 42.2
Cases Cited: ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd (No 2) [2021] VSC 184
Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304
Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803
Bullock [1907] 1 KB 269
Cappello v Homebuilding Pty Ltd [2023] NSWCA 109
Chan v Acres (No 3) [2016] NSWSC 1389
Dominello v Dominello (No 2) [2009] NSWCA 257
Express Cargo Services Pty Ltd v Mysko (No 2) [2023] SASC 133
Gould v Vaggelas (1984) 157 CLR 215; [1985] HCA 8
J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA branch) (No 2) (1993) 46 IR 301; [1993] FCA 70
Lackersteen v Jones (No 2) (1988) 93 FLR 442; [1988] NTSC 72
Leach v Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391
McCracken & McCracken v Pippett [2000] VSCA 20
Meres v Meres (No 2) [2017] NSWSC 523
Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344
New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100
Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281; [2004] FCA 1437
Quach v Health Care Complaints Commission (No 2) [2015] NSWCA 311
Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368
Ryde Developments Pty Ltd v The Property Investors Pty Ltd [No 2] [2018] NSWCA
Ryde Developments Pty Ltd v The Property Investors Pty Ltd (No 2) [2018] NSWCA 40
Sanderson [1903] 2 KB 533
State of Victoria v Horvath (No 2) [2003] VSCA 24
Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179
Sved v Council of the Municipality of Woollahra (1998) NSW ConvR 55-842
Walker v Harwood [2017] NSWCA 228
Category: Costs
Parties: FX Group Holdings Pty Ltd (Plaintiff)
Perpetual Trustee Company Ltd as trustee of the CPEC 8 Trust A (1st Defendant)
PT Ltd as trustee of the CPEC 8 Trust B (2nd Defendant)
Perpetual Corporate Trust Ltd as trustee of the CPEC 8 Trust C (3rd Defendant)
The Trust Company (Australia) Ltd as trustee of the CPEC 8 Trust D (4th Defendant)
David Swinden (5th Defendant)
Georgina Gane (6th Defendant)
Natalie German (7th Defendant)
Sheldon Chapman (8th Defendant)
Toby Tan (9th Defendant)
Vincent Gross (10th Defendant)
Xiaohong Yan (11th Defendant)
Xingjia Zhang (12th Defendant)
Daniel Poon (13th Defendant)
Fiona Lock Rimmer (2nd Cross-Defendant)
Vishal Ahuja and the other persons also named in Schedule A t/as King & Wood Mallesons (12th Cross-Defendant)
Representation: Counsel:
M Izzo SC, C Hamilton-Jewell, H Whitwell (Plaintiff/1st, 2nd cross-defendants)
PD Herzfeld SC, AG Willoughby (1st - 4th Defendants)
A Munro SC, R Pietriche (12th Cross-Defendant)
Solicitors:
Minter Ellison (Plaintiff)
Arnold Bloch Leibler (1st - 4th Defendants)
Collin Biggers & Paisley (12th Cross-Defendant)
File Number(s): 2022/311060
HER HONOUR: This judgment is about costs. The substantive proceedings concerned a share sale agreement. The plaintiff, FX Group Holdings Pty Ltd, was the purchaser. The first to fourth defendants were the vendors. The shares sold were the majority shareholding in FX HoldCo Pty Ltd (the company), being the holding company of the “Pepperstone” group.
Additional parties joined the proceedings via a cross-claim. The vendors were trustees of investment funds; each had appointed a manager to manage their respective fund. The manager became a cross-claimant. The plaintiff’s director, Fiona Lock, became a cross-defendant. So did the solicitors for the vendors and manager, King & Wood Mallesons.
The parties are agreed that the issue of costs can be determined on the papers but had divergent views on when any costs order should be made. The plaintiff and Ms Lock sought to defer the making of any costs order until determination of the quantum of the judgment debt. The vendors, manager and King & Wood Mallesons sought that orders be made now. The parties agreed that I could determine the issue of the timing of the making of costs orders on the papers.
The plaintiff accepts that it should pay the vendors’ costs of the proceedings. The issues are:
(a) Is the manager entitled to its costs, where the manager’s claims were not ultimately determined? Similarly, should the costs order be made against Ms Lock, where the claims against her were not determined either? (b) Should the costs order be on an indemnity basis, given non-acceptance of an offer of compromise? (c) Should a Sanderson or Bullock order be made in respect of King & Wood Mallesons’ costs, against the plaintiff and / or Ms Lock? (d) Should any Sanderson or Bullock order be on an indemnity basis, given a letter sent on behalf of King & Wood Mallesons without prejudice save as to costs?
The amount of the judgment debt depends on a supplementary joint expert accounting report, which is being prepared on a discreet issue. The company was entitled to retain an agreed amount of capital (a “Buffer Amount”) before declaring a dividend. On receipt of the dividend, the plaintiff was to pay an “Uplift Amount” to the vendors in accordance with the share sale agreement. The accounting experts are calculating the “Uplift Amount” on various dividend payment dates based on the findings in my substantive judgment, including in respect of the appropriate capital retention. The parties are yet to make submissions on the orders which should be made in light of the joint report.
I cannot conceive of how the resolution of this remaining issue will have implications for the issues which need to be considered in respect of costs. Where there is no logical reason to defer determining the issue of costs, I will do so now. I also note at this juncture that there are no neat lines between the issues raised in respect of costs. I have taken each of the four issues into account when formulating the costs orders which I have ultimately made.
Given King & Wood Mallesons’ application for indemnity costs on the basis that the plaintiff / Ms Lock persisted in a hopeless case, it is necessary to say something about the substantive proceedings.
Ms Lock initially negotiated the deal with the manager, which was recorded in a Heads of Agreement. In short, Ms Lock would buy the shares for $150 million, to be wholly funded by vendor finance. The vendor finance would be repaid in five years from Pepperstone dividends. In turn, Ms Lock agreed that, after the vendor finance was repaid, she would split ‘super returns’ with the vendors, being profits in excess of $25 million, for four years. To maximise loan repayments and profit-sharing, Ms Lock would also procure a ‘dividend sweep’ at Pepperstone to the extent permitted by law, leaving an agreed buffer for capital retention purposes (this being the Buffer Amount).
The vendors and manager’s solicitor, King & Wood Mallesons, drafted the share sale agreement to give effect to the deal in the Heads of Agreement. On Ms Lock’s initial review of the first draft of the share sale agreement, she thought that the ‘super returns’ clause may work in a way that involved deducting $25 million and the amount of vendor finance before any ‘super returns’ were payable. This was not the deal recorded in the Heads of Agreement. Nor had that deal been re-negotiated. The commercial implications of the difference between the deal as recorded in the Heads of Agreement and how Ms Lock thought the drafting in the share sale agreement might work were obviously hugely significant. The additional deduction that Ms Lock apprehended that the drafting may require would defer the payment of ‘super returns’ until an additional $150 million had been offset.
Ms Lock recorded her initial analysis in a spreadsheet. Ms Lock sought advice from Clifford Chance. I found that Ms Lock’s initial view was not endorsed by Clifford Chance. Ms Lock deferred to Clifford Chance’s view and thought no more about it. Ms Lock incorporated the plaintiff. The share sale agreement was executed. Ms Lock then thought that the share sale agreement operated in the same manner as she apprehended that the vendors understood it to operate.
After the share sale agreement was executed, Ms Lock acted consistently with such an understanding. This was apparent from her communications with other shareholders who were invited to ‘tag’ (and thereby sell their shares on the same terms). Ms Lock also communicated with her accountants PwC, her fellow investors in the plaintiff and their solicitors Minter Ellison, consistently with such an understanding. Ms Lock prepared various spreadsheets which clearly demonstrated that she understood that the ‘super return’ clause would operate in the same way as envisaged in the Heads of Agreement.
It was not until King & Wood Mallesons proposed amendments to the ‘super returns’ clause two years later, when giving effect to an agreement to increase the Buffer Amount, that Ms Lock was reminded of her initial spreadsheet. Ms Lock circulated the spreadsheet to her fellow investors. They agreed to exploit any drafting infelicity for the purposes of negotiating to buy-out the vendors on most favourable terms. While Ms Lock deployed the suggested drafting error in her negotiations with the vendors, she continued to describe the ‘super returns’ arrangement to potential financiers and her fellow investors in the same way as she had done in the preceding two years.
In October 2022, the plaintiff commenced these proceedings, seeking declarations that the share sale agreement meant what Ms Lock had initially thought. If these declarations were made, then the plaintiff stood to benefit by a very large sum of money, estimated at trial to be $100 million. The vendors stood to lose the same amount.
In December 2022, the vendors and manager filed a Cross-Summons against the plaintiff and Ms Lock.
(a) As against the plaintiff, the vendors sought declarations that the share sale agreement, properly construed, operated as envisaged by the Heads of Agreement. Alternatively, the vendors sought rectification on the basis of common mistake or, alternatively, unilateral mistake. (b) As against the plaintiff and Ms Lock, the vendors and manager sought equitable compensation or an account of profits for breach of fiduciary duty. Alternatively, compensation was sought under the Australian Consumer Law for misleading and deceptive by silence.
As I understand it, the manager became a cross-claimant as the fiduciary duty (and any duty to say something) was primarily owed by Ms Lock to the manager, by reason of her employment arrangements.
In February 2023, the plaintiff and Ms Lock together filed a response to the Cross-Claim. They denied that the plaintiff held a common understanding with the vendors at the time of execution of the share sale agreement. Nor were the vendors said to be entitled to rectification for unilateral mistake in the circumstances. The claims for breach of fiduciary duty or misleading and deceptive conduct were also denied.
Further, the plaintiff and Ms Lock positively asserted that there was a lack of causation and a failure by the vendors to take reasonable care such that the misleading or deceptive conduct claim failed. Specifically, the plaintiff and Ms Lock pleaded that the offending provisions in the share sale agreement had been drafted by the vendors and manager’s solicitors, King & Wood Mallesons. Those provisions were not the subject of material amendments during the negotiation of the share sale agreement and were repeated without material amendment in the executed document. If the vendors suffered loss or damage by reason of the fact that the vendor finance must be deducted before calculating any ‘super return’, then that loss or damage was not caused by the plaintiff and / or Ms Lock. Such loss was caused by the failure of the vendors / manager / King & Wood Mallesons to take reasonable care to protect their own interests by ensuring that the terms of the share sale agreement recorded the deal, or to take steps to identify and correct any mistake in the document prior to its execution. By reason of these matters, any loss or damage was said to be wholly caused by the vendors / manager / King & Wood Mallesons and not by the plaintiff / Ms Lock.
Alternatively, the plaintiff and Ms Lock contended that any loss or damage under the Australian Consumer Law should be reduced to the extent that the Court considered just and equitable having regard to the responsibility of the vendors / manager / King & Wood Mallesons under s 137B of the Competition and Consumer Act 2010 (Cth).
The plaintiff and Ms Lock pleaded a proportionate liability defence. King & Wood Mallesons was said to have breached their obligations to their clients to act with reasonable care and skill, in their clients’ best interests and to provide legal services competently and diligently. The solicitors prepared the first draft of the share sale agreement, which was not materially amended, and which failed to give effect to their clients’ understanding of the deal. The solicitor was said to be a concurrent wrongdoer within the meaning of s 37CB of the Competition and Consumer Act 2010, having also caused the vendors’ loss or damage. Any liability of the plaintiff or Ms Lock for damages under the Australian Consumer Law should be limited to reflect the firm’s comparative liability.
“an artificial contrivance which, as confirmed by the discovery given, was constructed well after the parties’ entry into the [share sale agreement] to be deployed to your clients’ commercial advantage in negotiations with the [vendors] with respect to the [vendors’] exit from its investment. … there is … no explanation for the overwhelming number of documents held by your clients which record the actual agreement as being that advanced by the [vendors]. Even if such evidence were insufficient to establish that the [vendors’] construction is indeed the correct one, the Court will be more than satisfied that the parties’ mutual intention was for the … arrangement to operate consistently with [the vendors’] construction and that the [share sale agreement] should be rectified accordingly.”
In these circumstances, King & Wood Mallesons predicted that the question of proportionate liability would not arise for determination. Even if it did, all responsibility for the vendors and manager’s loss would be attributed to the plaintiff and / or Ms Lock given their conduct, when compared to any alleged wrongdoing by the firm.
Further, the firm’s costs of defending the proceedings were said to be attributable to the plaintiff and Ms Lock’s decision to commence the proceedings and advance allegations which rendered its joinder necessary. Notice was given that King & Wood Mallesons would be seeking their costs of the proceedings from the plaintiff and Ms Lock given that they “have persisted with a hopeless claim that they ought to have realised would not succeed.” The firm advised that they would rely on the letter when seeking an order for indemnity costs in due course.
The solicitors for the plaintiff and Ms Lock replied without prejudice save as to costs, dismissing the firm’s correspondence as “a series of blustering assertions”. The plaintiff’s proffered construction of the share sale agreement was said to be inevitable and the firm’s negligence inescapable. It was not accepted that the firm had any entitlement to indemnity costs based on their letter or at all.
In April 2025, the vendors and manager served an offer of compromise. Their legal costs then stood at $3,679,196.17. The letter was detailed, setting out with precision why the vendors would succeed. The vendors and manager offered to resolve the proceedings on the basis that:
(a) the plaintiff accepted the vendors’ construction of the share sale agreement, (b) the plaintiff remitted dividends payable in accordance with that construction, (c) the “Buffer Amount” be increased from $10 million to $32 million, and (d) the parties would bear their own costs.
The vendors and manager – and King & Wood Mallesons – sought an order that the plaintiff and Ms Lock pay King & Wood Mallesons' costs directly (a Sanderson order) or, alternatively, an order that the plaintiff and Ms Lock indemnify the vendors and manager for those costs (a Bullock order).
The Court’s discretion as to costs extends to making an order that an unsuccessful defendant pay the costs of a successful defendant. In Gould v Vaggelas (1984) 157 CLR 215; [1985] HCA 85 at 229-230, Gibbs CJ identified two requirements: first, suing the successful defendant was reasonable; second, the conduct of the unsuccessful defendant was such as to make it fair to impose some liability on it for the costs of the successful defendant.
Is King & Wood Mallesons a “successful defendant”? Certainly, the claim against the firm was dismissed. But this was because it was unnecessary to decide the professional negligence claim, given the vendors’ success on its primary claims. I did not consider it appropriate to make findings in respect off professional negligence, given that I had concluded that the vendors’ construction of the share sale agreement was correct. As Handley AJA noted in Dominello v Dominello (No 2) [2009] NSWCA 257, many of the cases in this area involve alternate claims where the plaintiff can only succeed against only one of the defendants but had to sue both: at [21]. His Honour gave many examples, including Sanderson [1903] 2 KB 533 and Bullock [1907] 1 KB 269. The position in which King & Wood Mallesons finds itself fits squarely within those examples; it is a “successful defendant” in the relevant sense.
While it may be accepted that the plaintiff is an “unsuccessful defendant”, there is a further question as to whether Ms Lock can be described as an “unsuccessful defendant”, where the claims against her were not determined either. I consider that Ms Lock is an “unsuccessful defendant” in the relevant sense, where both she and the plaintiff alleged that they had no liability as any causal connection between their alleged misleading and deceptive conduct and the vendors’ loss was severed by King & Wood Mallesons’ conduct or their liability should be reduced on account of the solicitors’ wrongdoing. It was by reason of that joint contention that King & Wood Mallesons was joined to the proceedings.
Returning to the matters to be considered in the exercise of the Court’s discretion, further considerations were noted in Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 by Mason P (with whom Stein and Heydon JJA agreed) at [128], quoting from the Asche CJ in Lackersteen v Jones (No 2) (1988) 93 FLR 442; [1988] NTSC 72 at 449:
- It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant.
- The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other.
- While it is essential to find that the plaintiff has acted reasonably and properly, that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion.
- Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful.
In truth there is a single question, namely whether it is fair, as between the plaintiff and the unsuccessful defendant, that the latter should pay the successful defendant's costs. Prima facie, the unsuccessful defendant should not have to do so. There must, as Gibbs CJ … recognized, be something about his or her conduct that makes it appropriate to shift the incidence of the successful defendant's costs. The plaintiff, after all, has been unsuccessful too.
The plaintiff and Ms Lock submitted that none of the considerations in Stevedoring Industry Finance Committee v Gibson were satisfied. As to whether it was reasonable and proper for the vendors and manager to sue King & Wood Mallesons, the plaintiff and Ms Lock submitted that they pleaded apportionment under the Competition and Consumer Act 2010 as a defensive manoeuvre. The Act did not require them to join King & Wood Mallesons to the proceedings: s 87CD(3)(b). It was the vendors and manager who did so, and prosecuted the professional negligence claim at trial. The plaintiff and Ms Lock suggested that it appeared from my judgment that the vendors and manager would not have succeeded against the firm in any event. (I reject that submission. I did not determine the professional negligence claim at all.) In these circumstances, it was submitted that the vendors and manager should pay the firm's costs.
The plaintiff and Ms Lock further submitted that it was also not necessary to join the firm to the proceedings where the proportionate liability defence was only pleaded in respect of the Australian Consumer Law claim, which was said to be minor in the scheme of things. There was said to be no risk that the vendors and manager would not obtain full recovery if any of their construction, common mistake, unilateral mistake, or breach of fiduciary duty claims succeeded. That risk would only come to pass in the event that none of these claims succeeded but, despite that, the misleading conduct claim did succeed. That possibility was said to be remote, where the claim for breach of fiduciary duty claim and misleading and deceptive conduct rested on the same factual basis. In these circumstances, it was submitted that it would not be just to visit the costs of the vendor and manager's decision to join King & Wood Mallesons on the plaintiff and Ms Lock.
One may be in the position to make the latter submission at the conclusion of complex proceedings, after a hard-fought trial, and having completed the task of preparing closing submissions. One then has a highly developed appreciation of how each claim and counter-claims inter-relates, including in respect of the evidence on which each depends. But the point in time at which the reasonableness, or otherwise, of a plaintiff’s decision to sue the successful defendant must, I think, be assessed at the time of joinder.
As Giles CJ noted in Sved v Council of the Municipality of Woollahra (1998) NSW ConvR 55-842, reasonableness in the plaintiff suing the successful defendant “more widely has been found in the unsuccessful defendant telling that the plaintiff in one way or another that it should look to the successful defendant for its remedy”: at 56,605. Raising a proportionate liability defence may also make it reasonable for a plaintiff to join the successful defendant. For example, in [2016] NSWSC 1389, the unsuccessful defendant raised a proportionate liability defence which did more than deny liability and “sought actively to deflect responsibility” to another: at [72]. McDougall J considered that it was fair that the unsuccessful defendant indemnify the plaintiff for costs of suing the successful defendant as “It was in a real sense [his] evidence … that indicated to the plaintiffs the real risk that if they proceeded against him alone, they might not recover the whole of their damages”: at [73]. See likewise [2021] VSC 184 at [23]-[25] (Blue AJ).
King & Wood Mallesons sought that the Sanderson order be made on an indemnity basis from the date of their without prejudice save as to costs letter. The firm submitted that the letter did not offer anything, nor could it given the firm’s ancillary role in the proceedings. But the letter pointed out that the hopelessness of the plaintiff and Ms Lock’s case. A party’s knowledge of their likelihood of success is relevant to the order sought: Quach v Health Care Complaints Commission (No 2) [2015] NSWCA 311 at [10]-[12]; Express Cargo Services Pty Ltd v Mysko (No 2) [2023] SASC 133 at [32]. By the time of the letter, the plaintiff and Ms Lock must have appreciated that, even if their construction case succeeded, any attempt to defend the rectification suit was wholly without merit. There was said to be no credible possibility of Ms Lock explaining away the obvious effect of the substantial documentary record in confirming the parties’ mutual understanding of the ‘super return’ arrangement under the share sale agreement. This was said to be a paradigm case where a party’s persistence with a hopeless case gave rise to the type of “delinquency” and unreasonableness which may justify an order for the payment of costs on an indemnity basis.
The plaintiff and Ms Lock submitted that their case was arguable and in no way approached the extreme descriptions given by King & Wood Mallesons. Nor should these costs be on an indemnity basis, where the firm's without prejudice as to costs letter did not offer anything.
The general rule is that costs will follow the event and be payable on an ordinary basis unless the Court considers that some other order ought to be made: Uniform Civil Procedure Rules 2005 (NSW), rr 42.1, 42.2. The principles were summarised by Michelmore AJ in Cappello v Homebuilding Pty Ltd [2023] NSWCA 109 at [47]:
For an order of indemnity costs to be made, the conduct of the party against whom such costs are sought must usually exhibit some special or unusual feature: Collier at [117]. The focus is on the way the litigation was conducted: Mead v Watson [2005] NSWCA 133 at [8]–[9]. For example, the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case, such as where the case was unduly prolonged by groundless contentions ….
… such costs may be ordered whenever it appears that an action has been commenced in circumstances where the applicant properly advised should have known it had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397. Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.
If an indemnity costs order is sought on the basis that a party’s case lacked merit, a party’s knowledge of their likelihood of success will be relevant. The Court will consider the litigant’s conduct against various matters including the facts known, or which ought to have been known, inquiries a litigant ought reasonably to have made and legal advice which a litigant ought reasonably to have obtained. This exercise may be qualified to some extent in the case of a self-represented litigant.
I do not accept the plaintiff and Ms Lock’s submission that the without prejudice save as to costs letter may not support the making of an indemnity costs order, as King & Wood Mallesons did not offer to pay them anything. There were no claims between them which would have provided a reasoned basis for doing so, particularly not in circumstances where the firm was maintaining that the allegations made by the plaintiff and Ms Lock were completely hopeless.
But I do accept the plaintiff and Ms Lock’s submission that the merits of their contentions, or lack thereof, were not such as to bring them within the type of case in which an indemnity costs order ought be made. I have earlier set out the features of this case on which King & Wood Mallesons relied in support of an indemnity costs order: see [9]-[11]. I agree that there was a substantial body of contemporaneous documents post-dating the share sale agreement which posed a significant challenge to the plaintiff in resisting a rectification suit. But Ms Lock had her initial spreadsheet, which provided some contemporaneous support for the fact that she thought the ‘super return’ provision meant something else when she executed the share sale agreement. The plaintiff could also expect to rely on Ms Lock’s evidence as to what she thought at the time, and her evidence when cross-examined to explain why post-contractual documents should not be taken as an indication that she thought otherwise. The plaintiff also had a number of legal arguments.
The plaintiff and Ms Lock have been ably represented by Minter Ellison throughout the proceedings and, at trial, by experienced senior counsel. While I did not accept Ms Lock’s evidence as to what she thought at the time, nor her efforts to explain away post-contractual documents, I do not consider that the plaintiff, properly advised, should have known that it had no chance of success. I decline to make the Sanderson order on an indemnity costs basis.
The plaintiff and Ms Lock submitted that the manager prosecuted the claim for an account of profits or equitable compensation against Ms Lock and the claim for damages against King & Wood Mallesons. (I note that the professional negligence claim was also prosecuted by the vendors.) The breach of fiduciary duty claim was said to raise issues distinct from those arising on the other claims in the proceedings. Thus, it did not follow from the way in which the Court dealt with those other claims that, had it been necessary to do so, the Court would have determined the breach of the fiduciary duty claim in favour of the manager. The manager could not be said to have enjoyed any success in the proceedings and should bear its own costs.
The vendors and manager submitted that costs should follow the event: r 42.1, UCPR. Ordinarily, the “event” is “the practical result of a particular claim”: Ryde Developments Pty Ltd v The Property Investors Pty Ltd (No 2) [2018] NSWCA 40 at [6]. It was unreal in this case to divide up the claims made by the different cross-claimants. There were, in substance, two sides. One side won. The other side lost. Costs should follow the event. Nor should costs be apportioned as it was not necessary to decide claims brought by the manager because of the vendors’ success on anterior claims. Nor could it be said that the manager’s claims were “clearly dominant or separable” or “took up a significant part of the trial, either by way of evidence or argument” as described in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304. To the contrary, the conduct relied upon to establish the rectification suit was said to be the gist of the manager’s claim for breach of fiduciary duty, being Ms Lock’s deliberate concealment of an error she perceived in the draft share sale agreement.
The true protagonists in this case were Ms Lock and the manager. They negotiated the deal. Ms Lock was the plaintiff’s only witness. The manager’s employees gave evidence in support of the vendors’ claims. But the causes of action pursued in the Summons and Cross-Summons were brought by the plaintiff and vendors, as they had the legal title to bring the various claims and counter-claims.
The apportionment of costs in respect of undetermined claims usually arises in the context of multiple issues being raised between the same parties. The submission made by the plaintiff and Ms Lock is a little different. The submission is that claims that were not determined were between distinct parties, and the costs of those parties should not be included in a costs order made between the parties whose claims were determined. That is a fair distinction. But in determining whether the manager’s costs should be ‘carved out’ from any costs order made in the favour of the cross-claimants, it seems to me that similar considerations arise. In this case, I note:
(a) The vendors and manager were represented by the same solicitors and counsel. (b) A considerable portion of the factual terrain concerning the relationship between the manager and Ms Lock was common to the vendors’ primary claims, specifically, how Ms Lock conducted herself in her dealings with the manager, both when negotiating the deal and thereafter. (c) There were some discrete factual matters which were of brief compass and largely uncontentious, being Ms Lock’s employment arrangements and the fact that the manager apprehended that Ms Lock was acting in her own interest in negotiating the deal. (d) The legal issues in relation to the manager’s discrete claims were distinct. (e) The manager’s claims did not need to be determined because the vendors succeeded in their primary claim against the plaintiff.
Overall, the manager’s undetermined claims were relatively minor and occupied minimal time in the evidentiary phase of the trial and a little more time in closing submissions. I do not consider that it is fair in all of the circumstances to differentiate between the vendor and the manager’s costs in any costs order made. But Ms Lock is not obliged to pay those costs.
I also accept the vendors and manager’s submission that, although the professional negligence claim against King & Wood Mallesons was not determined, the Court should not differentiate between that claim and the other claims on which they succeeded. For the reasons already given, the professional negligence claim was added to the proceedings as a consequence of the plaintiff and Ms Lock's attempt to avoid or reduce their liability. There was very substantial overlap between the facts relevant to the construction and rectification suit, on the one hand, and the professional negligence suit on the other.
The plaintiff submitted that the offer did not involve a "genuine offer of compromise": Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [41] per McColl JA (with whom Gleeson JA and Sackville AJA agreed); Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [16] per Spigelman CJ and Beazley and McColl JJA; Meres v Meres (No 2) [2017] NSWSC 523 at [43] per Hallen J. Rather, the plaintiff was invited to capitulate on everything but the Buffer Amount. The value of that claim to the vendors was said to be minor. While the vendors offered to bear their own costs, those costs paled in comparison to the sum they would have received had the plaintiff accepted the offer. While the offer to bear their own costs may be a significant concession in some cases, it was not in these circumstances: Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 at [13] to [14] per Finkelstein J.
In the alternative, the plaintiff submitted that the Court should "order otherwise": r 42.14, UCPR. As in Leach, the offer was said to be only marginally better than a walk-away offer, which was refused in circumstances where the plaintiff's claim was not frivolous or vexatious, following Regency Media Pty Ltd v AAV Australia Pty Ltd.
The vendors and manager submitted that the offer to increase the Buffer Amount was substantial, proposing effectively that the profits shared with the vendors would be reduced substantially for the remainder of the profit-sharing arrangement. The vendors were entitled to be paid half of the plaintiff’s share in the $22 million that the company would have been able to retain had the offer been accepted. The plaintiff’s shareholding entitled it to about 60% of the $22 million ($13.2 million) and the vendors’ share was equal to about 50% of that figure, being $6.6 million. The vendors effectively offered to relax the ‘dividend sweep’ obligation and give an interest free loan of about $6.6 million for about 18 months. This constituted a real and genuine compromise: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [9]. Permitting the company to retain additional capital had long been an objective of the plaintiff and Ms Lock. In fact, the vendors obtained a much more favourable outcome; the profit-sharing arrangement operates as they contended and the ‘dividend sweep’ obligation is to be performed on the basis that the Buffer Amount remains $10 million.
Where an offer of compromise has been served in accordance with the rules, an order for indemnity costs follows unless the Court orders otherwise: New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100 at 102 (per Gleeson CJ, Clarke and Cripps JJA agreeing); Morgan v Johnson (1998) 44 NSWLR 578 at 581-82 (per Mason P, Sheller and Powell JA agreeing).
For these reasons, I make the following orders:
Order the plaintiff / first cross-defendant, FX Group Holdings Pty Ltd, to pay the first to fourth defendants / first to fourth cross-claimants and the fifth cross-claimant’s costs of these proceedings:
(a) on the ordinary basis until and including 8 April 2025; and (b) on an indemnity basis from 9 April 2025 until the date of judgment, being 18 September 2025, and including the costs of the application for an indemnity costs order.
**********
FX Group Holdings Pty Ltd
Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A
(1984) 157 CLR 215
(1993) 46 IR 301
(1988) 93 FLR 442
(1993) 42 NSWLR 100
(2004) 212 ALR 281
(1988) 81 ALR 397
(1998) 44 NSWLR 578
That is, it was squarely put by the plaintiff and Ms Lock that any problem with the share sale agreement was the fault of King & Wood Mallesons. Further, not only was the plaintiff and Ms Lock’s liability sought to be reduced to reflect the solicitor’s comparative liability, the solicitor’s negligence was said to sever the causal connection such that the plaintiff and Ms Lock had no liability at all. If these contentions were established, either in whole or in part, then the vendors may not be entitled to recover a large portion – or any – of the additional $100 million which they could expect to receive from the deal as originally struck.
Unsurprisingly, in April 2023, the vendors and manager filed an Amended Cross-Claim, joining King & Wood Mallesons. Damages were sought in the event that the share sale agreement was not construed as the vendors contended, nor rectified. The pleading against the firm was put squarely in the alternative, in the event that the plaintiff’s construction of the share sale agreement was correct.
From August to December 2023, the parties served their evidence. In April 2024, orders were made for discovery. In July 2024, the matter was listed for trial in May 2025.
In December 2024, King & Wood Mallesons’ solicitor sent a letter to the plaintiff and Ms Lock’s solicitors marked without prejudice save as to costs. The firm’s joinder was said to be the consequence of the plaintiff and Ms Lock’s proportionate liability allegations. The firm would not have been joined had those allegations not been raised. The letter set out a convenient ‘shopping list’ of contemporaneous documents, including documents discovered by the plaintiff and Ms Lock, being: pre-contractual documents which provided commercial context for the share sale agreement and supported the construction for which the vendors contended; and post-contractual documents which supported the vendors’ rectification suit. In light of these documents, King & Wood Mallesons described the plaintiff’s claim as:
In their response to the Cross-Claim filed in February 2023, the plaintiff and Ms Lock essentially told the vendors and manager that King & Wood Mallesons was responsible for their loss, not them. Not only did the plaintiff and Ms Lock assert that their liability should be reduced but, further, that they had no liability at all due to a severing of the causal connection by the solicitors. The fact that the plaintiff and Ms Lock had pleaded that any causal connection had been severed by King & Wood Mallesons’ actions, or their liability reduced given the conduct of that firm, meant – as ‘night follows day’ – that the firm would be joined.
This is because of the very substantial sums at stake and the implications of those pleaded allegations to the vendors and, potentially, ‘down the road’, to the firm. Had they not joined King & Wood Mallesons, the vendors and manager faced the risk of inconsistent findings in any subsequent proceeding against the firm for breach of duty and, further, the risk of less than full recovery against the plaintiff and Ms Lock even if they otherwise succeeded. It would have been foolhardy for the vendors and manager to proceed otherwise.
Further, as King & Wood Mallesons submitted, it was important to ensure that any claim that might have been available against the firm was resolved within the one proceeding, rather than left to be pursued separately following resolution of the dispute as between the plaintiff / Ms Lock and the vendors and manager. The firm had a clear interest in supporting the construction for which the vendors contended and a similar interest in ensuring that it was given the opportunity to adduce evidence, and make submissions, on the availability of rectification should that construction not be accepted. The proceedings were factually and legally complex, which heightened the unattractiveness of the prospect that additional claims arising out of the same factual context might need to be separately determined. This overlap rendered the firm’s joinder logical and efficient given the proportionate liability defence, thereby avoiding the prospect of inconsistent findings in any subsequent proceedings. I consider that it was reasonable for the vendors and manager to sue King & Wood Mallesons in these proceedings.
As to the second consideration in Stevedoring Industry Finance Committee v Gibson, the plaintiff and Ms Lock submitted that there was no “substantial” connection between the claims pursued by the vendors and manager against them and the claim pursued against King & Wood Mallesons. The legal issues were different. The connection between the claims was limited to some degree of overlap in the background facts and the fact that the professional negligence claim was only pursued in the alternative. But the focus of the claims against the plaintiff and Ms Lock turned on something different, being Ms Lock’s knowledge at the time that the share sale agreement was executed.
I disagree. There was an extensive overlap between the factual issues relevant to the construction and rectification claims on the one hand, and the professional negligence claim on the other. As King & Wood Mallesons put it, the professional negligence claim relied on a detailed factual chronology of its engagement on the transaction in issue, which chronology was similarly significant to the rectification suit.
As to the third consideration in Stevedoring Industry Finance Committee v Gibson, the plaintiff and Ms Lock submitted that, where they left it to the vendors and manager to agitate the issue of professional negligence at trial, what was lacking was "something in the conduct of the unsuccessful defendant" to warrant such an order: State of Victoria v Horvath (No 2) [2003] VSCA 24 at [10] (Vincent JA, Winneke P and Chernov JA agreeing).
I accept that the plaintiff and Ms Lock left it to the vendors and manager to prosecute the professional negligence claim at trial. I rather assumed at the time that this course was being taken to reduce the plaintiff and Ms Lock’s exposure to the costs order now sought against them. But as Handley AJA observed in Dominello v Dominello, the conduct of an unsuccessful defendant which may make it fair to impose liability for the costs of a successful defendant “will typically involve a positive assertion, express or implied, that the relevant defendant is not liable because the other is”: at [20].
Without the plaintiff and Ms Lock’s joint allegation in respect of the firm – which had potentially huge commercial ramifications to the vendors and manager’s claim against the plaintiff and Ms Lock – the firm would not have been joined to the proceedings. Further, where the claims and counter-claims in respect of the proper construction of the share sale agreement and the alternate rectification suits were intricately connected with King & Wood Mallesons’ actions over the relevant time frame, there was really no other practical way to address the allegations made by the plaintiff and Ms Lock and the potential ramifications of those allegations for the vendors and manager, and King & Wood Mallesons. I consider that the conduct of the plaintiff and Ms Lock was such as to make it fair to impose some liability on them for the costs of King & Wood Mallesons.
Turning to the fourth consideration in Stevedoring Industry Finance Committee v Gibson, I consider that the vendors and manager should not be "penalised or lose the fruits of [their] victory in costs on the basis that [they] should have either elected or taken separate actions": Stevedoring Industry Finance Committee v Gibson at [128]. I consider it entirely fair that the plaintiff and Ms Lock bear not only their costs but also King & Wood Mallesons’ costs of meeting the allegations of negligence which emanated from them. There would have been no professional negligence claim without Ms Lock’s assertion of a significant drafting mistake by the firm, coupled with the narrative that Ms Lock spotted the mistake at the time but said nothing, executed the share sale agreement and waited for the moment to reveal the true meaning of the ‘super return’ clause.
I consider that it is fair, as between the vendors and manager, on the one hand, and the plaintiff and Ms Lock, on the other hand, that the latter pay King & Wood Mallesons’ costs. I further consider that a Sanderson order is appropriate such that the plaintiff and Ms Lock must pay King & Wood Mallesons’ costs directly rather than indemnify the vendors and manager for those costs. While there was no suggestion of any insolvency risks which favoured one form or order of the other, a Sanderson order is simpler and alleviates any burden on the vendors and manager of having to pay King & Wood Mallesons’ costs but then wait to be reimbursed by the plaintiff and Ms Lock.
There does not need to be “exceptional circumstances” before the Court will make orders otherwise. Nevertheless, “the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case”: see Leach v Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [47] (per McColl JA, Gleeson JA and Sackville AJA agreeing); Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281; [2004] FCA 1437 at [17] (per Hely J). A “tight leash” should be maintained on the circumstances in which the Court should “order otherwise” so as to promote certainty in the operation of the rules relating to offers of compromise, discourage offerees who seek to ‘game the system’ and to discourage satellite litigation with respect to costs: Walker v Harwood [2017] NSWCA 228 at [22] (per Basten JA).
The onus is on the offeree to demonstrate why the Court should depart from the consequence of its rejection of the offer: Leach at [45]. It is impossible to exhaustively state the circumstances in which the court’s discretion to “order otherwise” might be exercised: Leach at [48]. The mere fact that it was reasonable for the offeree to take the view that they did in rejecting the offer is not enough to displace the rule, although this does not mean that reasonableness of the rejection is an irrelevant consideration: Leach at [48].
By the offer of compromise, the vendors and manager offered to forego their entitlement to costs. That was about all that they could offer to compromise the competing claims for declaratory relief and rectification. But the vendors went further and offered to treble the Buffer Amount, increasing $10 million by $22 million. That was not “minor”. The offer of compromise was not an invitation to capitulate or only marginally better than a walk-away offer. The offer did involve a genuine offer of compromise and, indeed, a generous gratuity of an increase in the Buffer Amount of $22 million in the absence of any contractual obligation to increase that amount.
Nor am I satisfied that an “exceptional circumstance” has been established such that the Court would “order otherwise”. This is just the sort of case where indemnity costs should be ordered. The plaintiff has taken its chances in running an opportunistic and tactical case, and lost. The reasons why that case would likely fail were pointed out, accompanied by a sensible commercial offer. Indemnity costs ought follow from the date of the offer. As to whether I should order the plaintiff to pay the costs of this application on an indemnity basis, the order has been made over strong opposition. The vendors and manager’s costs of the application should be paid on the same basis.