Milne v Attorney-General

Judgment 1The Plaintiffs, Ke Qin Ren ("KQR"), Pei Xu ("PX"), Yi Cheng Jiang ("YCJ") and Gloconnect Pty Limited ("Gloconnect") sought leave under s 471B of the Corporations Act 2001 (Cth) to bring proceedings against Wan Ze Property Development (Aust) Pty Limited seeking to set aside a judgment that I delivered in May 2012 (Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722) on the basis that it was procured by fraud or by conduct in bad faith by the Plaintiffs in the earlier proceedings, Hong Jiang ("HJ") and Yong An Xie ("YX"). 2In my judgment delivered on 13 March 2013 ([2013] NSWSC 189) ("13 March judgment") I ordered that the Originating Process and Interlocutory Process by which KQR, PX and YCJ sought that leave be dismissed, for the reasons set out in that judgment. I expressed the preliminary view that KQR, PX and YCJ should pay the Company's and the Liquidator's and HJ's and YX's costs of the proceedings, subject to hearing the parties on the question of costs. Each of the parties has subsequently provided written submissions in respect of the costs. I invited the parties to indicate whether an oral hearing as to costs was required, and no party requested such a hearing. 3I should at this point note an error in respect of the question of costs in my 13 March judgment, which is relevant to this application. I noted, in paragraph 2 of that judgment, that HJ and YX were heard in respect of this application under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). As HJ and YX have pointed out, and as I had recorded in my earlier ex tempore judgment delivered on 10 December 2012, HJ and YX had sought to be joined as party to the proceedings under r 6.24 and/or 6.27 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") or alternatively r 2.13 of the Supreme Court (Corporations) Rules. I had accepted that they were properly joined as party to the proceedings under r 6.24 of the UCPR and added that, had I not granted leave for the joinder of HJ and YX under r 6.24 of the UCPR, I would have granted leave for them to be heard under r 2.13 of the Supreme Court (Corporations) Rules. Since the joinder of HJ and YX was in fact under r 6.24 of the UCPR, the principles that are applicable to an order for costs where a party is joined under r 2.13 of the Supreme Court (Corporations) Rules, to which I referred in paragraphs 115-116 of the 13 March judgment, are not applicable. I have proceeded on that basis in this judgment. 4HJ and YX seek an order that KQR, PX and YCJ pay the Company's, the Liquidator's and HJ's and YX's costs of the proceedings, which is consistent with the order that I foreshadowed in my 13 March judgment. HJ and YX submit that they should be entitled to their costs of the proceedings, on the basis that costs follow the event. HJ and YX submit that the liquidator's costs of the proceedings are also properly to be provided for as costs following the event, in circumstances that KQR, PX and YCJ had joined the Company (which was then in liquidation) as first defendant in the proceedings. 5The Liquidator points out that he took a neutral approach in the proceedings but contends that he was required to invest significant time in reading and considering the evidence filed by KQR, PX and YCJ in the proceedings. He advances, and KQR, PX and YCJ contest, criticisms of the extent of evidence filed by KQR, PX and YCJ in the proceedings and also of their conduct in the earlier proceedings that were the precursor to this application. I do not consider it necessary to address these issues in order to determine the question of costs in these proceedings. 6Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court; and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Rule 42.1 of the UCPR in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 7The principles underlying an award of costs include that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation; a wholly successful party should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tas) [1956] HCA 48; (1956) 95 CLR 460 at 477; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 119-123 per Kirby J; Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234. 8KQR, PX and YCJ submit that costs should not follow the event, and some other order should be made, on the basis, first, that an order for costs should not be made in favour of HJ and YX because they have obtained a "benefit" from the 13 March judgment. However, as HJ and YX point out, the primary "benefit" they obtained is that they, and the Company in which they have an interest, avoided the costs of a potentially lengthy trial and, incidentally, also avoided the need to defend allegations of fraud which I held did not have a solid foundation or reasonably arguable basis. That, in a sense, is a benefit, but it is the consequence of their success in defending the application, and not a reason to deprive them of the costs of doing so. 9KQR, PX and YCJ also submit that HJ and YX obtained the benefit, or the Company obtained the benefit, of both being paid by HJ and YX for the units in issue in the proceedings and retaining the units. In my view, this proposition is not sustainable. KQR, PX and YCJ point out that I referred, in the 13 March judgment, to a statement in the Liquidator's report to creditors dated 1 November 2012, by which the Liquidator confirmed that the sale proceeds were actually paid to the Company, and to my observation that there did not appear to be any real dispute that the amounts claimed by YCJ and PX to be referable to the purchase of townhouses 16 and 20 were paid to the Company. However, I also found that: "The evidence of monies withdrawn from the Company's account at the same time the purported payments were made into them (including by NAB in respect of townhouse 20) is sufficient to exclude actual knowledge by HJ, YX and their legal representatives that YCJ and PX had (as a matter of substance) paid the consideration for the townhouses, because, even if payments into the accounts were identified, the real possibility of a round robin remained open." It therefore does not follow, as KQR, PX and YCJ contend, that the Company retains both the benefit of the purchase price and the properties. In particular, that proposition does not follow if the Company, rather than YCJ and PX had, as a matter of substance, funded the purchase price for the properties. Moreover, as HJ and YX point out, one of those units remains subject to a mortgage taken out to support a borrowing by PX in respect of part of the purchase price. 10In these circumstances, it does not appear to me that some other order should be made as to the whole or any part of the costs of the proceedings than that would follow from the usual position under UCPR r 42.1 that costs follow the event. 11KQR, PX and YCJ also submit that only one set of costs should be allowed. In my view, HJ and YX on the one hand, and the Company and its Liquidator on the other, were in different interests in the proceedings. HJ and YX had an interest in defending their conduct in respect of the earlier proceedings; the Liquidator had no interest in that matter, but had an interest in defending the Company's position, so far as it would be exposed to the costs and the Liquidator would be exposed to the diversion of effort arising from the proceedings which KQR, PX and YCJ sought leave to bring. The Company was a necessary party to the proceedings, and is entitled to its costs in the application of the usual position under UCPR r 42.1. HJ and YX were also necessary party to the proceedings, given their different interests, and are also entitled to their costs on the same basis. I should, however, make clear that only one set of costs should be allowed as between the Liquidator and the Company, where the Liquidator was appearing in the proceedings in order to represent the Company's interest in them. 12HJ and YX also point out that, in my 10 December judgment, I had ordered that HJ's and YX's costs of the application for joinder be costs in the cause, with the intent that they be entitled to those costs, as agreed or as assessed, if they were ultimately successful in resisting the application for leave to proceed under s 471B of the Corporations Act. They have been successful in resisting that application and should be entitled to those costs. 13Accordingly, I order that: 1 The Plaintiffs pay the costs of the defendants (on the basis that there be only set of costs for the first defendant and its liquidator), including the joinder application heard on 10 December 2012, as agreed or as assessed.