Ghougassian v Sutherland

Costs of the Costs Application

1. As I noted above, by their Interlocutory Process filed on 2 March 2020, the Messrs Ghougassian sought an order that costs orders made against them by Emmett AJA in the 2018 Proceedings be set aside. As I noted above, Emmett AJA reserved the costs of that Interlocutory Process when he granted leave for the Messrs Ghougassian to discontinue that application on 16 July 2020. The Liquidators now seek their costs of the Costs Application on an indemnity basis, and rely on two affidavits in support of that application, namely the affidavit of their solicitor, Mr Hegarty, sworn 25 May 2020 (and exhibit PJH-1 to that affidavit) and Mr Hegarty's further affidavit dated 11 June 2020 (and the exhibit to that affidavit).
2. Mr Newton, who appears for the Liquidators, refers to the background to the application, to which I have referred above. Mr Newton also refers to the subsequent steps taken to prepare the Costs Application for hearing, including the affidavit evidence of the Messrs Ghougassian's solicitor in support of the application, which contended that the Messrs Ghougassian would not have sought to terminate the winding up had the existence of a proposed distribution of funds of the Association been known to them, and the Liquidators' evidence in response to that claim, which demonstrated that the proposed distribution had previously been disclosed to the Messrs Ghougassian. The Liquidators also refer to a further affidavit dated 9 June 2020 of the Messrs Ghougassian's solicitor, which raised other matters to be relied on in the Costs Application, including allegations as to misconduct of Ms Young, the sister of a former liquidator who had worked on aspects of the liquidation. The Liquidators submitted out that that alleged misconduct appeared to have occurred well after Emmett AJA's decision as to costs in the 2018 Proceedings. The Liquidators also pointed to my order dismissing the Messrs Ghougassian's application for leave to issue several subpoenas in respect of the Costs Application, to which I referred above.
3. The Liquidators refer to the principles on which an order for indemnity costs may be made and to my summary of those principles in Re Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8] as follows: "The principles on which an order for indemnity costs may be made are also well established. Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, unless the Court otherwise orders or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 of the Uniform Civil Procedure Rules deals with an order for costs on an indemnity basis. Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute."
4. The Liquidators submit that the Costs Application involved allegations of improper conduct against a former liquidator of the Association, for which the Messrs Ghougassian had no evidentiary foundation; that that application was "hopeless" for legal and factual reasons, including those identified by Gleeson JA in his March 2020 judgment, and emphasise the evidence that the matters which the Messrs Ghougassian say would have affected their decision to bring the application to terminate the winding up had previously been disclosed to them; and also point to correspondence from the Liquidators' solicitors which had drawn those matters to the Messrs Ghougassian's attention. The Liquidators also submit that there was no evidentiary basis for further allegations of excessive remuneration made by the Messrs Ghougassian and no logical connection between those allegations and the Costs Application.
5. By their submissions dated 3 August 2020, the Messrs Ghougassian contend that an order for costs should be made against them in respect of the Costs Application Interlocutory Process filed on 2 March 2020 on an ordinary basis only. They submit that the affidavit dated 9 June 2020 of their solicitor, Mr Balzola, and the issues raised by their draft Points of Claim should be noted as reasons for declining an order for indemnity costs in respect of the Costs Application. I have noted that affidavit and that draft Points of Claim, but they do not seem to me to support that position, so far as they advanced a range of allegations without properly articulating a factual basis for those allegations.
6. Mr King, who appears for the Messrs Ghougassian, also refers to recent developments in respect of a prosecution which has been brought against Ms Young. That submission does not assist the Messrs Ghougassian, where they have not articulated any adequate factual basis to treat the former liquidator of the Association as responsible for the conduct alleged against Ms Young in the proceedings that have been brought against her, nor have they identified any basis on which that matter (had it then arisen) would have supported an order to terminate the winding up of the Association in the 2018 Proceedings, as distinct from, at best, an order replacing the former liquidator, which was the order the Court made after the matters alleged against Ms Young arose.
7. I am satisfied that an order for indemnity costs should be made against the Messrs Ghougassian in respect of the Costs Application, although on a somewhat narrower basis than that for which the Liquidators contended. It seems to me that the Messrs Ghougassian were squarely placed on notice of the difficulties with the original basis of that application by the observations of Gleeson JA to which I have referred above, the correspondence from the Liquidators' solicitor and the evidence led by the Liquidators; they then sought to develop alternative bases for that application, including in their draft Points of Claim and by the 10 June Subpoena Application which I address below, but never adequately articulated a factual basis of those alternative claims; and they pursued the Costs Application until shortly before the hearing, putting the Liquidators to additional costs and leading the Court to set aside two days of hearing time that could otherwise have been made available to other members of the community. It seems to me that this conduct unreasonably subjected the Liquidators to the expenditure of those additional costs and involved a significant degree of delinquency on the part of the Messrs Ghougassian in respect of the conduct of the Costs Application, sufficient to amount to exceptional circumstances that warrant an order for indemnity costs against them in respect of that application.

Costs of the 10 June Subpoena Application

1. As I noted above, by the 10 June Subpoena Application, the Messrs Ghougassian sought leave for the issue of four subpoenas, and in the course of the hearing of that application, sought leave for the issue of two further subpoenas. The Liquidators, by their written submissions dated 23 June 2020, contended that the Messrs Ghougassian should pay the costs of the 10 June Subpoena Application on an indemnity basis, and also sought to reserve the question whether the Ghougassian's legal representatives should be ordered to pay the costs of that application until after the final determination of their substantive application. The Messrs Ghougassian responded, in written submissions dated 7 July 2020, contending that the Court should order that the pay those costs on the ordinary basis only.
2. The Liquidators again refer to my summary of the applicable principles relating to the making of indemnity costs orders in Re Indoor Climate Technologies Pty Ltd above in respect of this application. They rightly point to the fact that indemnity costs orders have been made where, for example, unfounded allegations of fraud or improper conduct are made or where cases are commenced or continued where there is no prospect of success or involve an abuse of process. The Liquidators submit that the Messrs Ghougassian, through their legal representatives, improperly made assertions of conduct amounting to "fraud or improper conduct" for which they had no evidentiary foundation in the 10 June Subpoena Application, and point to the matters to which I referred in paragraphs [10]-[14] of my judgment in respect of that application. They also point to submissions by Mr King that the Australian Securities & Investments Commission had appointed a disciplinary committee to investigate possible misconduct in relation to Mr Arnautovic, a former liquidator of the Association. That proposition was not established by evidence, although a disciplinary committee was appointed in respect of alleged conduct of Ms Young. The Liquidators also pointed to a question raised by Mr King whether the Court was misled or not properly informed by an officer of the Court, implicitly the former liquidator, which was not properly supported by any identification of material facts in the Messrs Ghougassian's draft Points of Claim, and Mr Balzola's allegations in his affidavit dated 9 June 2020 of "misappropriation" of the Association's funds by the former liquidator. Again, a proper basis for that allegation appears to have been raised in respect of Ms Young, but not in respect of Mr Arnautovic.
3. The Liquidators also point to the allegation in the Messrs Ghougassian's draft Points of Claim that the former liquidator had failed immediately to disclose to the Court the receipt of funds by his sister, and point out that that amounts to an allegation that the former liquidator knew of Ms Young's alleged conduct at an early point and did not disclose it. The Points of Claim did not identify any proper factual basis for that allegation. The Liquidators also submit that there was no logical connection between the matters raised in the 10 June Subpoena Application and the Costs Application, and go further to submit that the subpoenas were sought to be issued for a collateral purpose or amounted to an abuse of process.
4. Mr King responded by lengthy written submissions, which significantly exceeded the page limit ordered by the Court, to the matters raised in the Liquidators' submissions. As I noted above, the Messrs Ghougassian there accepted that they should pay the costs of the 10 June Subpoena Application on the ordinary basis, but contested any liability to costs on an indemnity basis. I have not sought to repeat each of the intricate submissions made by Mr King, where the question I am here required to determine relates to the costs of one of several interlocutory applications, and I have only addressed those matters that are material to the determination of that question.
5. Mr King set out, and I have had regard to, the procedural background to the 10 June Subpoena Application, and to the basis on which Emmett AJA had ordered that the winding up not be terminated, and to his Honour's observations as to the process for distribution of any surplus provided by the Associations Incorporation Act 1984. Mr King advanced detailed submissions as to the Court's jurisdiction to deal with the Costs Application. It is not necessary to address those submissions, where that application has not been pressed and the immediate issue relates to the costs of the 10 June Subpoena Application, as to which the Messrs Ghougassian were unsuccessful. Mr King then reiterates the position that the draft Points of Claim sought to establish non-disclosure by the former liquidator to the Court, including of an actual or apparent conflict of interest affecting the former liquidator, the involvement of Ms Young in the liquidation, and "her and his other relevant non-disclosures and irregularity [sic]". That submission highlights the absence of an adequate pleading of material facts in respect of those allegations in the draft Points of Claim.
6. Mr King also draws attention to matters which he contends were not dealt with, when the 10 June Subpoena Application was heard on 18 June 2020, including the possibility of further case management directions in the application or an opportunity for the Messrs Ghougassian to revise the draft Points of Claim and seek leave to issue subpoenas and notices to produce in appropriate form. That submission seems to me of limited relevance, not least because the Messrs Ghougassian did not later seek to propound any revised draft Points of Claim, including in any application made before Emmett AJA in the pre-hearing directions, and instead discontinued the Costs Application before it reached a hearing. Mr King submits, rightly, that the Messrs Ghougassian had had a relatively short time to prepare the draft Points of Claim before the hearing of the 10 June Subpoena Application, since the direction for them to do so was made on 15 June 2020 and that application was heard on 18 June 2020. It does not seem to me that that proposition assists the Messrs Ghougassian, because the difficulty with their draft Points of Claim was not any deficiency arising from a shortness of time, but a deficiency arising from the absence of identification of material facts to support the allegations made within a lengthy document. There can be no realistic suggestion that the Messrs Ghougassian had the capacity to plead such material facts, but neglected to do so despite the length of the draft Points of Claim, because of time constraints.
7. Mr King in turn submits that it is not a proper exercise of the Court's discretion to order indemnity costs for failures as to "form" unless made in the face of prior Court orders or other delinquent conduct. It seems to me that an order for indemnity costs can properly be made where the defects of "form" are such that a party acting reasonably would not have advanced a document in that form. Mr King also submits, and I accept, that the Court cannot decide whether there was an (I interpolate, unidentified) evidentiary basis for the claims of improper conduct made at the hearing, where the deficiencies in the draft Points of Claim related to the identification of material facts on which the allegation was put and there has been no substantive hearing at which any such evidence was led. Mr King also advances further submissions which seek to explore the implications of any issues in respect of Ms Young for the performance of the former liquidator's duties. It is not necessary to address that question, in respect of the costs of the 10 June Leave application before me, or in respect of the Costs Application, where the latter was not pursued by the Messrs Ghougassian. Mr King also advances detailed submissions as to the basis on which the Costs Application was to be pursued. It is not necessary to address those matters, including in response to the Liquidators' contention that there was no logical connection between the allegations to be made and that application, where the Costs Application was discontinued by the Messrs Ghougassian prior to the hearing, as I noted above.
8. It seems to me that the draft Points of Claim and the proposed subpoenas on which the Messrs Ghougassian relied in the 10 June Subpoena Application had significant deficiencies, to which I referred in my judgment in that application. However, I am not persuaded that I should make an order for indemnity costs against the Messrs Ghougassian in respect of the 10 June Subpoena Application, where the questions that were addressed before me in that application was the adequacy of the Messrs Ghougassian's draft Points of Claim to raise the matters to which the subpoenas were directed and the adequacy of the form of the subpoenas. Those matters ordinarily arise in applications to strike out pleadings or set aside subpoenas, and do not seem to me to rise to the level that an order for indemnity costs should be made against the unsuccessful party. No substantive allegations of misconduct against the former liquidator were pursued or determined (as distinct from foreshadowed) in the 10 June Subpoena Application or determined by the Court.
9. For these reasons, the Messrs Ghougassian must pay the costs of and incidental to the 10 June Subpoena Application on the ordinary basis, as agreed or as assessed. I am not persuaded that I should reserve the question of costs against the Messrs Ghougassian's legal representatives in respect of the 10 June Subpoena Application, since I am not satisfied that the relatively demanding threshold for such an order could potentially be met. The position might have been different had the Costs Application proceeded to a hearing, and had those legal representatives in fact advanced the various allegations which they had foreshadowed against the former liquidator at that hearing, and not sustained them at that hearing.

Costs of the Interlocutory process dated 15 July 2020

1. As I noted above, the Messrs Ghougassian filed a further Interlocutory Process on 15 July 2020 ("15 July Application"), by which they sought an order that there be no order as to costs in relation to that Interlocutory Process. The Liquidators initially accepted that position by their submissions dated 27 July 2020. The Messrs Ghougassian now seek to depart from that position. The Messrs Ghougassian relied on the affidavit of Mr Balzola dated 15 July 2020, and the Liquidators in turn relied on an affidavit dated 7 August 2020 of Mr Hegarty in response.
2. By their submissions dated 3 August 2020, the Messrs Ghougassian submit that the Liquidators should pay the costs of the 15 July Application, because they obtained the orders granting leave to discontinue the proceedings from Emmett AJA, which they sought by that interim application. I do not accept that submission. The essential issue between the parties before Emmett AJA at the pre-hearing directions hearing on 16 July 2020 was whether the Messrs Ghougassian should be permitted to discontinue the proceedings on the basis that they pay their costs on an ordinary basis, as the Messrs Ghougassian contended, or on an indemnity basis, as the Liquidators contended. Emmett AJA expressly reserved that question for further determination, and it has now been determined in the Liquidators' favour. That provides no support for an order for costs in favour of the Messrs Ghougassian in respect of the 15 July Application.
3. The Liquidators respond that there should be no order as to costs of the 15 July Application, where the Messrs Ghougassian sought such an order in that Interlocutory Process which has not since been amended. They also submit that the matter was listed for directions before Emmett AJA on 16 July 2020, and the parties were required to attend on that day, irrespective of the Messrs Ghougassian's filing their Interlocutory Process. I do not accept that submission, since that attendance could have been vacated had agreement been reached between the parties to grant leave to discontinue the Interlocutory Process and as to costs, allowing that order to be made in Chambers and vacating that directions date. I note, however, that there would have been no time for that to occur after the late despatch of the letter dated 15 July 2020 from the Messrs Ghougassian's solicitor and the filing of the Interlocutory Process on 15 July 2020, to which I now turn. The Liquidators also submit, and I accept, that there is no basis to criticise them for any lack of response to Mr Balzola's letter dated 15 July 2020 indicating the Messrs Ghougassian would seek leave to discontinue the Costs Application, which was sent at 8.34pm that evening, before the Interlocutory Process was served at 10.48pm that evening, when the matter was next listed before Emmett AJA on 16 July 2020. The Liquidators also point out that they had communicated their position to the solicitor acting for the Messrs Ghougassian by email on the next morning, 16 July 2020.
4. For these reasons, I accept the Liquidators' submission that there should be no order as to the costs of the 15 July Application.

The costs of this costs application

1. By their submissions filed on 3 August 2020, the Messrs Ghougassian also seek an order that the Liquidators should pay the costs of this costs application. I am not persuaded that such an order should be made. The Liquidators have been substantially successful in respect of their claim to the costs of the Costs Application on an indemnity basis and in resisting the Messrs Ghougassian's application for the costs of the 15 July Application. Although the Liquidators unsuccessfully pursued an order as to costs on an indemnity basis in respect of the 10 June Subpoena Application, the Messrs Ghougassian should have no expectation of recovering those costs, where Mr King's submissions disregarded, in a substantial way, the order which the Court had made limiting the length of submissions. The Liquidators did not seek any order in their favour as to the costs of this costs application.

Orders

1. I therefore make the following orders: 1 The Plaintiffs/Applicants, the Messrs Ghougassian, pay the Defendants/Respondents costs of and incidental to their Interlocutory Process filed on 2 March 2020 on an indemnity basis, as agreed or as assessed. 2 The Plaintiffs/Applicants, the Messrs Ghougassian, pay the Defendants/Respondents costs of and incidental to their Interlocutory Process filed on 10 June 2020 and the hearing on 18 June 2020 on an ordinary basis, as agreed or as assessed. 3 There be no order as to the costs of the Interlocutory Process filed by the Plaintiffs/Applicants, the Messrs Ghougassian, on 15 July 2020 or the costs of this costs application.

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