K & A Laird (N.S.W.) Pty Ltd (in liq) v Aidzan Pty Ltd

Supreme Court of NSW|2022-12-23|Before: Black J

Solicitors: Ashurst (First Cross-Claimant to Amended First Cross-Claim) Coleman Greig Lawyers (Second to Fifth Cross-Defendants) File Number(s): 2020/351691

Background to the costs application

By Notice of Motion filed on 3 August 2022, the Second to Fifth Cross-Defendants to the Amended First Cross-Claim, Mr Michael Laird and others ("Laird Siblings"), sought relief including summary dismissal of an Amended First Cross-Claim brought by Aidzan Pty Ltd (in liq) ("Aidzan") or alternatively an order that parts of the Amended First Cross-Claim be struck out under r 14.28 of the Uniform Civil Procedure Rules, or security for costs of that claim.
By my ex tempore judgment delivered on 8 November 2022, I found that Aidzan's claim in the Amended First Cross-Claim was not sustainable, so far as it claimed that it would suffer "loss" in repaying funds to which it would not have been entitled, if the Plaintiffs established that it was the alter ego of Mr Peter Laird and that he had had acted in breach of his directors' duties, or that it had knowingly received the proceeds of sale of a property that were paid to it in breach of fiduciary duty. I held that paragraph 11 of the Amended First Cross-Claim should be struck out, and the consequence of that order was that prayers for relief 1 and 2 and paragraphs 2 - 26 of the Amended First Cross-Claim should also be struck out, because they were either antecedent to, or consequential upon that paragraph. I ordered that Aidzan pay the costs of the Laird Siblings of and incidental to the strike-out application. I also made consequential orders, including orders providing for the determination of costs in respect of remaining aspects of the application and the Laird Siblings' involvement in the proceedings, and dealing with any application further to amend the Amended First Cross-Claim so as to reintroduce the Laird Siblings in the proceedings.

The Laird Siblings' claim as to the costs of the Amended First Cross-Claim

By their submissions filed on 18 November 2022, the Laird Siblings seek to modify the costs order that I made on 8 November 2022 to provide for Aidzan to pay their costs of and incidental to the strikeout application on the indemnity basis; for Aidzan to pay their costs of the First Cross-Claim on the indemnity basis or alternatively to pay their costs of the First Cross-Claim on the ordinary basis; and for Aidzan to pay their costs of and incidental to the balance of the Notice of Motion filed 3 August 2022. They also seek an order that Aidzan pay their costs of the costs application and that all of these costs be payable forthwith.
It was common ground that the Court has a broad discretion to order costs, and may determine by whom, to whom and to what extent costs are to be paid, and whether costs are to be awarded on the ordinary basis or on an indemnity basis under s 98(1) of the Civil Procedure Act 2005 (NSW). Mr Harding, with whom Mr Condylis appears for the Laird Siblings, points out that the Court has power to award costs on an indemnity basis under s 98(1)(c) of the Civil Procedure Act 2005 and that, in order to establish a claim to indemnity costs, a party must ordinarily show conduct of the other party that is unreasonable or delinquent: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324; [2008] NSWSC 199. Mr Harding rightly notes that an indemnity costs order does not punish an unsuccessful party for bringing a case that failed, but compensates the successful party for incurring costs arising from the other party's unreasonable conduct: Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20]. Mr Harding submits that indemnity costs may be ordered in favour of the Laird Siblings, relevantly, where an action was commenced where Aidzan, properly advised, should have known that it had no chance of success, or where there was an unreasonable rejection of a Calderbank offer and the final result was less favourable to Aidzan than that offer.
Mr Marshall, who appears for Aidzan, accepts that a party may be liable to costs on an indemnity basis where it commenced or continued its case in circumstances that it should have known the case had no prospect of success, but points to a relatively high threshold required for such a finding: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202 at [19]; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [8]. Mr Marshall also fairly accepts that a party may be liable to costs on an indemnity basis where it rejected an offer of compromise and has failed to better that offer. He submits that the Laird Siblings are only entitled to costs payable on the ordinary basis and only those costs of and incidental to the successful strike-out application.
Mr Harding submits that Aidzan's conduct in commencing and maintaining the First Cross-Claim against the Laird Siblings was "unreasonable, where the First Cross-Claim was found to be untenable". Mr Marshall responds that Aidzan's case was not so lacking in merit that any lawyer would necessarily have advised that it would fail, adopting the language in Baulderstone Hornibrook at [8]. Mr Marshall points to the manner in which the strike-out application had developed, as noted in my earlier judgment, with Mr Harding's initial focus being on a complex submission as to contribution, and that the simpler contention that Aidzan had suffered no loss only arose only in the course of submissions. Mr Marshall rightly points out that a significant amount of oral argument had been directed to addressing equitable contribution, rather than the latter contention.
It seems to me that the Laird Siblings submission has the proposition on which it succeed can hardly be said to be obvious, where Mr Harding initially advanced the submission the Cross-Claim should be struck out by reference to principles of contribution and, as I noted in the earlier judgment, then happened upon the basis on which the Cross-Claim was struck out in dealing with the case law concerning those principles. I recognise that the Laird Siblings' solicitor had previously written, on 22 March 2022, to Aidzan's solicitor noting the proposition that the relevant proceeds "were never the property of Aidzan nor was Aidzan ever entitled to those monies and as such has not suffered any loss". In submissions in reply made on 9 December 2022, Mr Marshall also points out that this letter did not identify the decision in Burke v LFOT Pty Ltd (2002) 209 CLR 282 as authority supporting the statement that Aidzan had suffered no loss, which founded the Laird Siblings' success in the strike-out application. I am not persuaded that an order for indemnity costs should be made in respect of the strike-out application.
Second, the Laird Siblings also seek the costs of the First Cross-Claim to date, on the basis that the claim has now been struck out in its entirety. By their reply submissions dated 2 December 2022, the Laird Siblings noted the development that Aidzan was not seeking to further amend its Cross-Claim, which would be dismissed, so that the Laird Siblings will no longer be party to the proceedings. Mr Marshall again responds that the Laird Siblings are only entitled to costs payable on the ordinary basis and only those costs of and incidental to the successful strikeout application.
These matters support an order that Aidzan pay the costs of the First Cross-Claim on the ordinary basis. I do not accept that the reference to the "no loss" point in the letter from the Laird Siblings' solicitor from 22 March 2022 is sufficient to support a claim for indemnity costs where, as I noted above, that was not the primary basis on which the Laird Siblings ultimately put the strikeout application. I also do not accept that an offer of compromise dated 22 March 2022, shortly after the First Cross-Claim had been filed, supports an order for indemnity costs, where it was made on the basis that there be judgment for the Laird Siblings on the First Cross-Claim with no order as to costs. That was, with respect, an invitation to surrender, rather than an offer of compromise. Accordingly, Aidzan should be ordered to pay the Laird Siblings' costs of the First Cross-Claim on the ordinary basis.

The Lard Siblings' claim for costs of the summary dismissal and security for costs applications

The Laird Siblings seek the costs of their summary dismissal and security for costs motion filed on 3 August 2022. Mr Marshall responds that the Laird Siblings should not have their costs of and incidental to the summary dismissal or the security for costs applications, which were not determined. In reply, the Laird Siblings submit that the only reason that the security for costs application did not proceed was because the First Cross-Claim affecting the Laird Siblings was struck out. While that submission can be accepted, it says nothing as to the outcome of the security for costs application, had it proceeded.
These motions were dismissed where they became moot, once the whole of Aidzan's Amended First Cross-Claim against the Laird Siblings had been struck out. It seems to me that I should not extend the order made on 8 November 2022 to the costs of the summary dismissal application, which would potentially have raised different issues to the strike-out application and which was not determined. The security for costs application was also not determined on its merits and I am not persuaded that an order for costs should be made in that respect.

The Laird Siblings' claim as to the costs of the Second Cross-Claim

The Second Cross-Claim brought by Laird Siblings for contribution, if the First Cross-Claim was successful, has now been dismissed by consent. The Laird Siblings submit that the Second Cross-Claim was defensive to Aidzan's First Cross-Claim; that its dismissal is a consequence of the dismissal of the First Cross-Claim; and that Aidzan should pay their costs of the Second Cross-Claim. Mr Marshall submits that there is no event in respect of the Second Cross-Claim as to which it can be said that the Laird Siblings have been successful and Aidzan has been unsuccessful, and submits that the Second Cross-Claim was of a similar character to the First Cross-Claim, which Aidzan contends was defensive to the claims brought againat it. I accept the Laird Siblings' submission and Aidzan should pay the costs of the Second Cross-Claim on the ordinary basis, as agreed or as assessed.

The Laird Siblings' claim that costs should be payable forthwith

The Laird Siblings seek an order that costs be payable forthwith. Such an order may be made where a decision relates to the determination of a discrete or self-contained question and there is likely to be a delay in the conclusion of the proceedings. By submissions in reply as to costs made on 9 December 2022, Aidzan took account of subsequent developments including the dismissal of the Cross-Claims and accepts that any orders ordered by the Court should be payable forthwith. I am satisfied that the summary dismissal application and the First Cross-Claim were both discrete aspects of the proceedings and all claims against the Laird Siblings have now been dismissed. I am satisfied that an order should be made that those costs be payable forthwith.

The costs of the costs application

Mr Marshall submits that the Laird Siblings should not have their costs of the costs application of and incidental to their application for indemnity costs. I am not persuaded that an order should be made as to the costs of the costs application, as to which the parties have had mixed success.

Orders

Orders for the dismissal of the Amended First Cross-Claim and the Second Cross-Claim have previously been made on 5 December 2022, by consent of the parties. For the reasons set out above, I do not amend Order 2 made on 8 November 2022 to substitute an order for indemnity costs or to extend it to the summary dismissal application. I make the following orders:
The Cross-Claimant to the Amended First Cross-Claim, Aidzan Pty Ltd (in liq) ("Aidzan") pay the Second to Fifth Cross-Defendants ("Laird Siblings") costs of the First Cross-Claim on an ordinary basis, as agreed or as assessed.
Aidzan pay the Laird Siblings' costs of the Second Cross-Claim on an ordinary basis, as agreed or as assessed.
The costs payable by Aidzan ordered on 8 November 2022 and under these orders be payable forthwith.
There be no order as to the costs of the costs application.

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: 27 December 2022

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