Greenacre Business Park Pty Ltd & Ors v Deliver Australia Pty Ltd

Judgment 1HIS HONOUR: This is an application for a non-party costs order against a director of the defendant. Costs are sought against the director on the indemnity basis and in a specified gross sum instead of assessed costs. The basis for the application is that, according to the plaintiffs' submissions, the director was responsible for the defendant's raising a defence and cross claim based on matters that the director knew were untrue. In other words, the plaintiffs say that the defendant has promulgated a false defence and cross-claim, the director of the defendant is responsible for that and an order for costs should be made against him. The defendant is a company which is now in liquidation. 2The proceedings were commenced in the District Court on 15 June 2012. The plaintiff claimed unpaid rent under a lease made between the plaintiffs and the defendant that commenced on 2 September 2011. The plaintiffs terminated the lease on or about 31 May 2012. The amount of unpaid rent sought was about $331,034. Interest was also sought. 3The defendant did not dispute that rent was unpaid. The defendant alleged in substance that it leased the premises for warehousing and general distribution of freight and that access to the premises was constantly obstructed and interrupted by the construction of a new Bunnings warehouse adjacent to the leased premises. The defendant contended that because of the obstruction of access to the premises it was unable to use the leased premises for the purpose intended or at least that its enjoyment of the leased premises was substantially interrupted. It alleged that at relevant times the plaintiffs were aware of the proposal for the construction of a new Bunnings warehouse on the adjacent land and were aware of the likelihood that access to the premises would be constantly blocked and interrupted as a result of the construction works and did not disclose those matters. 4A cross-claim was filed that sought damages of approximately $1.5 million together with reimbursement of rent paid, the repayment of a bond and additional damages for what were called relocation and staff redundancy costs. The defence and cross-claim raised issues of frustration and claims for misleading or deceptive conduct. In support of its defence and cross-claim, the defendant served an affidavit of its director, Mr Nicholas Heath, and of a former general manager of the defendant, a Mr Steven Biggs. The effect of the affidavits served by the defendant was that during the negotiations preceding entry into the lease there were no construction vehicles or construction workers visible at the adjacent Bunnings site, but that shortly after the defendant moved into the leased premises, the defendant's operations were continually obstructed as a result of the construction activities that had started on the Bunnings site. 5Mr Heath exhibited to his affidavit a letter that he deposed had been sent to the plaintiff dated 25 November 2011 complaining that since the defendant moved into the premises in September that year it had encountered significant entry and exit access issues to the site for its trucks and that this meant that the defendant had not been able to service customers within agreed delivery timeframes, and as a result the defendant had lost customers and incurred increased costs in providing services to them that rendered its business in New South Wales unviable. According to the letter, allegedly sent to Mr Harb, a director of the plaintiff companies, the defendant advised that it would be closing its New South Wales business on 1 December 2011. 6As a result of the service of the defence and cross claim, and the affidavits in support thereof, the plaintiffs prepared and served some 16 affidavits. The effect of those affidavits is to show, convincingly, that construction on the Bunnings site was well under way at the time of the negotiations for the lease to the defendant. This evidence is supported by photographs and there is clear evidence as to the time at which the photographs were taken that convincingly shows that the matters deposed to in the affidavits of Mr Heath and Mr Biggs, on this aspect of the case, were false. 7The evidence adduced for the plaintiff also convincingly shows that the work being done on the Bunnings site did not cause interruptions to or obstruction of access to the leased premises in the way claimed in the defendant's affidavits. Evidence to that effect was given by former employees of the defendant who worked in the defendant's depot on the leased premises as well as by a manager of an adjoining site which would have been affected by the construction activities of Bunnings if those activities had the effect claimed by the defendant. 8The plaintiffs' evidence was that the letter dated 25 November 2011 allegedly sent to it was never received. 9The affidavits served by the plaintiffs also included evidence from a former employee of the defendant who was the author of emails that had been exhibited to Mr Heath's affidavit. The emails in question referred Mr Heath to the loss of customers' business. The author of the emails deposed that the loss of that business had nothing to do with asserted access problems to the site but was due to the unavailability of trucks for the defendant to carry the freight for its customers. 10The defendant's solicitor filed a notice of ceasing to act on 16 May 2014. On 10 June 2014 Mr Heath made an affidavit in accordance with r 7.2 of the Uniform Civil Procedure Rules that he had been authorised, by a resolution of directors of the defendant, to carry on the proceeding for the defendant. The affidavit included his acknowledgement that he was aware that he might be liable to pay some or all of the costs of proceedings. 11On 20 June 2014, the proceedings were listed for hearing today. On 20 August 2014 the plaintiffs filed a notice of motion that sought an order for provision of security for costs or, alternatively, an order for the cross-claim to be dismissed pursuant to r 13.4 of the Uniform Civil Procedure Rules as being frivolous or vexatious or an abuse of the process of the Court. The notice of motion also sought an order that Mr Heath pay the costs of the notice of motion and of the defendant's cross claim. 12On 1 October 2014 Robb J made an order that the defendant provide security for the plaintiffs' costs in the sum of $75,000 and stood over the balance of the plaintiffs' notice of motion to the final hearing that had been fixed for today. No security was provided. On 31 October 2014 the defendant was placed into external administration under a creditor's voluntary winding up. A Mr Rohrt was appointed liquidator. It appears that he had been appointed as administrator of the company, by its directors, on 29 September 2014. 13In a notice to creditors of 5 November 2014 the liquidator reported that it appeared that there would be sufficient funds only to declare a dividend to priority creditors being employees of the company. The liquidator advised that at present he did not intend to ask creditors to lodge formal proofs of debt. It appears that the defendant will be unable to pay any part of the rent the plaintiffs claim or any costs. 14Orders were made this morning, with the consent of the liquidator, for the plaintiffs to have leave to discontinue their claim. Leave was given for the plaintiffs to proceed against the defendant for the purpose of having their costs paid by the defendant on an indemnity basis and to be ranked as unsecured creditors in the winding-up of the defendant. By consent the defendant's cross claim was dismissed. The liquidator consented to the defendant's being liable to pay costs of the plaintiffs on the indemnity basis. 15On 10 November 2014 Mr Heath was advised by the plaintiffs' solicitor that the plaintiffs intended to file in Court a notice of motion that sought an order that he pay the plaintiffs' costs not only of the defendant's defence and cross-claim but of the proceedings generally. On 13 November 2014 Mr Heath was advised by the plaintiffs' solicitor that the plaintiffs would be seeking orders that he pay the plaintiffs' costs of the proceedings and that those costs be assessed, but on the following day, 14 November, he was advised by the plaintiffs' solicitor that the plaintiffs would be asking the Court for orders that he be jointly liable with the defendant for the plaintiffs' costs of the whole of the proceedings on the indemnity basis with the costs to be assessed by the Court immediately. 16Mr Heath was aware, of course, that the notice of motion filed on 13 August 2014, which included an order for costs against him personally, was in any event returnable at today's hearing. Today, when the matter was called there was no appearance from Mr Heath. He had sent an email to the plaintiffs' counsel, copied to my associate on Sunday, 16 November, in which he advised that he was based in Victoria and would not be able to attend today's proceedings. He stated that he had not at that point read an affidavit from the plaintiffs' solicitor dated 14 November, but he opposed any costs order being made against him personally because he was not a party to the proceeding. 17The fact that Mr Heath is not a party to the proceeding is not a bar to a costs order being made against him personally. However, the power under s 98 of the Civil Procedure Act 2005 (NSW) to make costs orders against non-parties is a power to be exercised only in exceptional circumstances, that is, outside the ordinary run of cases, and is a power to be exercised sparingly (FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210], [214]; May v Christodoulou [2011] NSWCA 75; (2011) 80 NSWLR 462 at [107]-[116]). See also Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [103]). In Knight v FP Special Assets Ltd (1992) 174 CLR 178, Mason CJ and Deane J (with whom Gaudron J agreed on this matter) said (at 192 to 193): " ... the prima facie general principle is that an order for costs is only made against a party to the litigation ... there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awarding of costs, support an order for costs against a non-party ... For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made." 18In FPM Constructions Pty Ltd v City of the Council of Blue Mountains Basten JA said (at [210]) that whilst the categories of case which may attract the exercise of the power to make costs orders against a non-party are not closed, the requirements of justice should not be allowed to expand an exception to the general rule so as to undermine the rule itself. His Honour observed that cases in which orders have been made against non-parties tended to satisfy some, if not a majority, of the following criteria: "(a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw." 19It is clear from May v Christodoulou that the fact that the proceedings are being conducted for the defendant by its director from the time the defendant's solicitor filed a notice of ceasing to act is not of itself a sufficient reason for ordering costs against the director. Rather, similar considerations would apply to the director as would apply to a solicitor acting for the defendant company if costs orders were sought against the solicitor. But it is clear in my view that costs orders against a non-party, whether director or solicitor, would be warranted where the unsuccessful party is a person or entity of straw and where the conduct of the litigation by the non-party in question is improper. Maintaining a claim or a defence on a knowingly false basis is improper conduct that warrants the exercise of the power. The same conduct justifies the making of a costs order on the indemnity basis. 20I am satisfied in this case that the defence and cross-claim were propounded on a basis that Mr Heath knew to be false. It may be observed that he has not taken up the opportunity to appear to defend his conduct. Nor were any affidavits served in response to the affidavits served by the plaintiffs that convincingly challenged the accuracy of the facts deposed to by Mr Heath and Mr Biggs. In my view, an order should be made that Mr Heath personally be liable for the plaintiffs' costs, and the costs for which he should be liable should be assessed on the indemnity basis. I also think that the plaintiffs should not be further delayed by having to have their costs assessed. Pursuant to s 98(4)(c) of the Civil Procedure Act, the Court may make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs. This is a proper case for the exercise of that power. 21There is, however, one qualification, albeit a minor one, to my conclusion that Mr Heath personally should be required to pay the plaintiffs' costs. The exception is this: I do not consider he ought to be personally liable for the costs that the plaintiffs would, in any event, have had to incur in order to obtain judgment against the defendant. But for the delinquent conduct on the part of the defendant's director, the defendant should have consented to judgment. Nonetheless the costs of preparing, filing and serving the statement of claim would be costs that the plaintiff in any event would have had to incur. Those were not costs incurred as a result of any relevant delinquency on the part of Mr Heath. However, it seems to me costs incurred subsequently were incurred as a result of his delinquency. The defendant should have consented to judgment. 22Costs incurred as between solicitor and client to date, as set out in the plaintiffs' solicitor's detailed summary of costs, total $131,594. Of that sum $5,047 was incurred up to the end of June 2012, leaving a balance of $126,507. In addition the plaintiffs have incurred counsel's fees of $81,423, a total of $207,970. The question then is whether there should be any adjustment to that sum to reflect the contingency that there might be a reduction of such costs on an assessment, even if the assessment is conducted on the indemnity basis. Where costs are assessed on the indemnity basis all costs are to be allowed, other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount (UCPR r 42.5(b)). 23Mr Heath has not appeared to point to any items in the plaintiffs' bill which he might contend were unreasonably incurred or unreasonable in amount. There was read on this application an affidavit of a costs assessor prepared for the purposes of the application for security for costs. The costs assessor Ms Fogl considered that there might be some, albeit small, reduction of solicitor's costs if costs were assessed on the ordinary basis and that there might be some reduction of counsel's fees if costs were assessed on the ordinary basis. She did not express an opinion as to whether there would be any reduction on an assessment made on the indemnity basis. 24In my view I should allow for a contingency that there might be such a reduction on an assessment, even on the indemnity basis. In assessing the amount of that contingency I have regard both to Ms Fogl's affidavit as to the likely extent of a reduction if costs were assessed on the ordinary basis and also my general knowledge, from other proceedings, as to what other costs assessors have said as to the usual reductions where costs have been assessed on the indemnity basis. 25In my view the costs claimed by the plaintiffs should be discounted by 10 per cent for the purposes of the gross sum costs order. The plaintiffs have indicated, through their counsel, that rather than seeking an assessment on the indemnity basis they would ask the Court to make an order for a gross sum on the basis indicated. That discount reduces the costs to be payable by Mr Heath to $187,173. 26 For these reasons, I order that Nicholas Heath pay the plaintiffs' costs in the sum of $187,173. 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: 02 December 2014