Option Funds Management Ltd v Tung Chit Real Estate Investment Australia Ltd (No 2)

Representation: Counsel: G Sirtes SC/A Hourigan (Plaintiff)
D L Cook SC (First Defendant)
Ms L O’Keeffe, Solicitor (Second Defendant)
R Glasson (Third Defendant)
Solicitors: Chancery Legal (Plaintiff)
Auyeung Hencent & Day (First Defendant)
Amberlake Lawyers (Second Defendant)
Hilton Bradley (Third Defendant)

File Number(s): 2025/149215

Publication restriction: Nil

JUDGMENT

Summary

1. The Court delivered its principal judgment in these proceedings on 25 September 2025: Option Funds Management Ltd v Tung Chit Real Estate Investment Australia Ltd [2025] NSWSC 1142. These reasons assume familiarity, and should be read with, the principal judgment. Defined terms in the principal judgment have the same meaning in these reasons.

2. The outcome of the principal judgment was that the proceedings were dismissed. At [68] of the principal judgment, I said that “subject to hearing the parties, costs should follow the event”.

3. The parties agreed that the question of costs should be determined on the papers after the exchange of written submissions. There was ultimately no dispute that OFM should pay Tung Chit’s costs on the indemnity basis.

4. The essential question raised for determination by OFM was whether Zhao’s Brothers and the receivers had a sufficient interest to be separately represented and actively participate as would give rise to an entitlement to their costs. For the reasons which follow, the Court has determined that issue in favour of Zhao’s Brothers and the receivers. Furthermore, as a matter of discretion, the Court will not accede to OFM’s submission now opposing their separate representation and active role in circumstances where there was no complaint made about the separate representation of Zhao’s Brothers and the receivers at or before the hearing.

Tung Chit’s costs

5. OFM did not dispute that it should pay Tung Chit’s costs of the proceedings. In its submission, Tung Chit contended that those costs should be paid on the indemnity basis to reflect contractual indemnities of which Tung Chit had the benefit from OFM under the facility agreement and the GSA.

6. Tung Chit relied upon what I had said in Wixels Property Holdings Pty Ltd ACN 622 224 533 v THN Property Funding Pty Ltd ACN 659 844 685 [2024] NSWSC 866:

“53 In a case such as the present, the existence of a contractual right of complete indemnification for legal costs is a factor relevant to the exercise of the Court’s discretion. Generally such rights are expressed in absolute terms which do not have as a condition precedent an order of the Court that the costs should be paid. In other words, the contractual right would subsist if the Court made no order as to costs or if it only ordered costs on the ordinary basis. The indemnified party could sue for its costs, or any difference between party/party and indemnity costs, as the case may be. The Court must exercise its discretion to give effect to the overriding purpose. To make an order for costs which reflects a contractual right of indemnification is in accordance with the overriding purpose because it quells there and then (without need for any further suit) any actual or potential dispute about the indemnified party’s rights in relation to its costs.”

7. In its written submissions in reply, OFM (correctly, in my respectful opinion) did not dispute Tung Chit’s application for costs on the indemnity basis. For the same reasons as are set out in Wixels, the Court accepts Tung Chit’s application for costs on the indemnity basis.

Zhao’s Brothers’ and the receivers’ costs – principles

8. As I noted in [7] of the principal judgment, the proceedings were efficiently conducted by the parties. To my observation, each of the defendants was careful to ensure that there was no duplication in their evidence or submissions.

9. Insofar as a failure to raise the question of separate representation of defendants before the hearing is concerned, I respectfully adopt and apply what was said by Ipp JA (Macfarlan JA and Sackville AJA agreeing) in Milillo v Konnecke [2009] NSWCA 109:

“109 In Statham v Shephard (No 2) (1974) 23 FLR 244 Woodward J examined a number of authorities that discussed the factors governing the award of costs to successful defendants between whom there were no conflicts of interest. His Honour extracted the following principles from these authorities (at 246-247):

“[T]he Court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. I would add to this basic proposition three provisoes. In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary enquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants. (See In re Lyell [1941] VLR 207).

Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arms length during the general course of litigation.

Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time.”

110 Statham v Shephard (No 2) is consistent with the approach of Kirby P in Credit Lyonnais Australia Ltd v Darling (1991) 5 ACSR 703. In the latter case, his Honour was inclined to hold that the successful respondents had virtually identical interests and ought not to have been represented separately at the trial and on the appeal. His Honour proposed no order in this regard, however, as he was of the view that the matter should be returned to the Commercial Division. Kirby P noted, nevertheless, that no point as to the parties’ common interests and separate representation had been taken at trial, nor was the point raised before the hearing of the appeal commenced. Kirby P said (at 710) that the proper time to raise such an objection was “in advance of, or at, the hearing.” His Honour considered that in the circumstances of that case it was too late for the matter to affect costs orders for past proceedings.

111 Kirby P noted that the Supreme Court Rules, as then constituted, made provision for an objection to the costs of separate representation being taken by an appellant. His Honour observed, however, that the Rules did not “limit the powers of the court to act on its own motion”. His Honour referred in this regard to Harbin v Masterman [1896] 1 Ch 351 (at 364) and Richard Brady Franks Ltd v Price [1937] HCA 42; (1937) 48 CLR 112 (at 127, 136, 145).

112 The equivalent provisions in the Uniform Civil Procedure Rules 2005 to those to which Kirby P referred in Credit Lyonnais v Darling are r 51.4(5) and (6). Significantly, r 51.4(7) - unlike the earlier Supreme Court Rules - provides:

“The failure by a party to give notice under subrule (5) or (6) does not limit the powers of the Court with respect to the costs of the proceedings.”

Thus, the Uniform Civil Procedure Rules make it clear (as Kirby P, in any event, observed in Credit Lyonnais v Darling) that the Court retains the inherent power to act on its motion to make appropriate orders should it decide that costs have been incurred through unnecessary separate representation.

113 In determining whether the principles expressed in Statham v Shephard (No 2) should be applied to Gina’s costs, due regard must be had to Kirby P’s statement that the proper time to raise an objection to unnecessary representation is in advance of, or at, the hearing.”

Zhao’s Brothers’ costs

10. OFM submitted that Zhao’s Brothers had duplicated costs by not entering a submitting appearance because Zhao’s Brothers’ evidence was of no relevance or utility to the issues in dispute in the proceedings. This was because the receivers of Zhao’s Brothers had no involvement in the formation or operation of the joint venture prior to Tung Chit’s appointing them over OFM and Zhao’s Brothers.

11. The difficulty with this submission is the narrow view taken by OFM of the “issues in dispute in the proceedings”. As was apparent from Zhao’s Brothers’ written outline of submissions filed before the hearing, it confined its role to what it described as “a unique issue” to Zhao’s Brothers. This was its removal as trustee of the Zhao Family Trust and the effect that removal may have on orders sought by OFM for the appointment of a receiver to wind up the alleged partnership.

12. In its reply submissions, OFM did not dispute Zhao’s Brothers’ characterisation of the “unique issue”. Rather, OFM submitted that “if a partnership had been found, the relief sought for the appointment of a receiver and manager over the whole of the joint venture property, would be able to be contested following these proceedings if such orders were made by the Court and disputed by” Zhao’s Brothers. OFM submitted that this would have been the appropriate course, given that the formation or operation of the joint venture constituted “the predominant issue in dispute in these proceedings”.

13. OFM’s response highlights its attempt to present the “issue in dispute” as a narrow one. The Court does not agree that what was before it was so confined. The “unique issue” raised by Zhao’s Brothers would undoubtedly have to have been dealt with if the Court had found the arrangement between the parties was a partnership. As to the partnership argument, Zhao’s Brothers properly did no more than to adopt the submissions of Tung Chit.

14. The fact that the “unique issue” did not have to be decided because the Court concluded that the arrangement between the parties was a joint venture is not a reason to disqualify Zhao’s Brothers from a costs order. This is particularly the case when it is understood that there had been no order made for the separate determination of the question of the nature of the relationship between the parties. The hearing was a hearing on all issues.

15. I further accept Zhao’s Brothers’ submissions that there was no basis to deprive Zhao’s Brothers of its costs because:

16. The issue of representation had not been raised in any substantive way prior to it being raised in OFM’s costs submissions, being after the conclusion of the determination of the substantive issues in the proceedings;

17. Tung Chit in its position of appointor of the receivers does not have access to the books and records of Zhao’s Brothers that would be required for the proper conduct of the latter’s defence of the proceedings, not would an appointor ordinarily be granted unlimited access to those books and records; and

18. In an entirely appropriate fashion, Zhao’s Brothers had sought to minimise costs by being represented by its solicitor without the retainer of counsel.

19. For these reasons, the Court accepts Zhao’s Brothers’ submissions that OFM should pay its costs of the proceedings on the ordinary basis.

The receivers’ costs

17. OFM submitted in chief that, at least in relation to their appearance at the hearing, it should have been obvious to the receivers that they had no basis to be actively involved in the proceedings. This was because insofar as there was a challenge to their appointment, the appropriate contradictor was Tung Chit as their appointor. OFM submitted that the receivers had joined themselves to the proceedings by filing a notice of motion on 4 July 2025 which sought to challenge the standing of OFM to bring the proceedings as then constituted. That motion having been dismissed, there was no proper basis for the receivers to remain active in the proceedings.

18. The receivers, relying on Mil**illo, submitted that because no complaint had been made about their ongoing involvement prior to the hearing, it was now too late for OFM to question the receivers’ entitlement to costs. Furthermore, the receivers submitted that their notice of motion had not been pressed, and an order made that the costs of that motion be costs in the cause, because OFM had informed the parties that it would amend its claim to include a challenge to the validity of the appointment of the receivers. This amendment was made by introducing the claim for a declaration pursuant to s 418A of the Corporations Act 2001 (Cth) (CA) that “the appointment of the third defendant to the plaintiff by the first defendant was invalid on the specific ground that receivers cannot be appointed by one partner over another partner in a partnership, or over partnership property”.

19. In addition, the receivers relied on the fact that far from objecting to the separate representation of the receivers, prior to the hearing OFM director Mr Jason Meares provided an undertaking as to the receivers’ costs, which was confirmed in writing by OFM’s solicitor by email on 14 August 2025:

“We confirm we have been instructed by the director of our Client, Option Funds Management Limited (the Plaintiff), Jason Bernard Meares, that he provides an undertaking as to the costs of the Third Defendant in these proceedings.

The undertaking was provided verbally between Counsel for the Plaintiff and Counsel for the Third Defendant on Friday 8 August 2025 and has now been confirmed in writing.

We anticipate filing and serving the Amended Statement of Claim later today.”

20. In reply, OFM made the serious allegation that the receivers had breached their obligation under s 181 of the CA – to act in good faith in the best interests of OFM and for a proper purpose – by joining themselves to the proceedings, filing an application for dismissal of the proceedings and instructing counsel to appear at the hearing.

21. The Court accepts that, in the ordinary course, the appointor of a receiver is the proper party to defend the validity of the appointment. However, the notice of motion was brought before such relief was part of the proceedings. OFM has not suggested, nor do I think it could be sensibly suggested, that the notice of motion was frivolous or vexatious.

22. The Court accepts the receivers’ submissions. It would be both unjust and incongruous for the Court to not order OFM (or, more precisely, Mr Meares) to pay the receivers’ costs when OFM not only acquiesced in their continuing involvement in the proceedings upon the making of an amendment to raise the question of the validity of their appointment, but also where OFM’s director undertook to meet their costs.

23. I do not give any weight to OFM’s submission in reply that, by their conduct, the receivers breached their statutory duty to OFM. This is for two reasons.

24. First, if it was to be made, it is not a contention that should have been made in reply, given its seriousness. Second, and again because it is a serious allegation against independent professionals with duties to the Court, it would be necessary to allow for further submissions and evidence to be filed.

25. Given the circumstances to which I have referred in [22] above, it is not necessary to determine the allegation of a breach of duty. In any event, for the reasons in the preceding paragraph, it would be inconsistent with the overriding purpose that a matter of such seriousness should be determined as incidental or satellite litigation in relation to what is otherwise a relatively straightforward question of costs.

26. The receivers submitted that, given his undertaking, it is Mr Meares who should be ordered to pay their costs (which will include the costs of the notice of motion as costs in the cause) on the ordinary basis. The Court accepts that submission, including that by reason of his undertaking it is appropriate that the order be made against Mr Meares as a non-party (see Civil Procedure Act 2005 (NSW) s 98(1)(b)).

Conclusion

27. The Court dismissed the proceedings at the time the principal judgment was delivered. The Court’s orders as to costs are:

28. The plaintiff is to pay the first defendant’s costs of the proceedings on the indemnity basis.

29. The plaintiff is to pay the second defendant’s costs of the proceedings on the ordinary basis.

30. Mr Jason Meares is to pay the third defendants’ costs of the proceedings (including the costs of their notice of motion filed on 4 July 2025) on the ordinary basis.

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