The plaintiffs, Peter and Vicki Kazacos, were the registered proprietors of property at 311-317 Sussex Street, Sydney (317 Sussex Street). On 14 March 2013, they entered into a Contract for the sale of that property to Shuangling International Development Pty Limited (Shuangling) which was guaranteed by Xiyan Guan (the guarantor). The purchasers failed to comply with the terms of the Contract and failed to complete the Contract in 2014.
On 10 June 2014, the plaintiffs terminated the Contract. It is apparent that the plaintiffs were able to sell that property in October 2014 for a greater price than the Contract price ($17 million adjusted to $17.5 million) at $18 million.
On 15 October 2014, the plaintiffs commenced proceedings against Shuangling and the guarantor for damages in the amount of $2.34 million. That claim related to a balance of the deposit, holding costs and expenses, including a rather large commission of a real estate agent. On 12 March 2015, the defendant's put on a defence to that claim denying that the moneys were owing and claiming that some aspects of those claims amounted to a penalty. There was also a cross-claim brought by the defendants in those proceedings.
On 15 May 2015, the plaintiffs filed a Notice of Motion in which they sought to restrain CLGC Investment Holdings Pty Limited (CLGC) from taking certain steps in relation to 319 Sussex Street, Sydney, next door to the property that had been sold. That property had been purchased by Shuangling on 29 July 2013 for $4 million with a deposit of $200,000. That Contract was to be settled the following year and, on 13 August 2014, that purchase was completed. It is noted that completion of that sale occurred about two months after the Contract for 317 Sussex Street had been terminated.
On 3 September 2014, Shuangling transferred 319 Sussex Street to CLGC for $1.00. CLGC planned to auction 319 Sussex Street on 30 June 2015. The Motion that was brought by the plaintiffs to restrain CLGC from dealing with 319 Sussex Street was amended on 12 June 2015. It was heard by Darke J on 22 June 2015. The plaintiffs contended before Darke J that the property transferred from Shuangling to CLGC was a transaction that would give rise to his Honour granting a Mareva injunction/freezing order. CLGC contended that Shuangling purchased 319 Sussex as trustee for the 319 Sussex Street Unit Trust. The plaintiffs contended that there was no mention of any trust in the Contract dated 29 July 2013 for the purchase of the property by Shuangling. The purchase of the property was funded, in part, by the Commonwealth Bank of Australia (CBA) and by an associated company of CLGC. The plaintiffs contended before Darke J that no advice was given to CBA that the application for funding was in any way related to a trust arrangement. They also contended that there was no evidence that 319 Sussex Street had been accepted as property of the trust. They also raised the issue of ad valorem stamp duty that was paid which militated against any proposition that there was a mere change of trustee. The plaintiffs contended that Shuangling was the beneficial owner of 319 Sussex Street and that the transfer of the property for $1.00 would ground an injunction.
Peter Kazacos v Shuangling International Development Pty Limited [2016] NSWSC 1725 | Case summary | Zoe
CLGC contended that there was no basis upon which an injunction should be granted and pointed to various steps taken by CLGC including that the Contract was entered into on the day after the establishment of the trust and that, following completion, steps were taken to incorporate the company, to stamp the trust deed, to appoint CLGC as trustee of the trust and to transfer the property appropriately.
The application for the freezing order before Darke J was made pursuant to r 25.14 of the Uniform Civil Procedure Rules 2005. Darke J delivered judgment on 26 June 2015: Kazacos v Shuangling International Development Limited [2015] NSWSC 835. Those reasons for judgment included the following:
21. I have concluded that, on the evidence before the Court, a serious question does exist as to whether the first defendant [Shuangling] has a beneficial interest in the property at 319 Sussex Street. The first defendant entered into the contract to purchase the property the day after the trust was established with it as the trustee. An inference could be drawn from those circumstances that the first defendant was purchasing as trustee. However, such an inference might not be drawn if the evidence showed that both in its dealings with the vendors of the property, and in its dealings with the Commonwealth Bank in relation to the obtaining of finance, the first defendant made no mention of purchasing the property as trustee. Still less might the inference be drawn if there was no evidence of steps taken by the first defendant to acquire the property as trustee. That is the position as the evidence currently stands. Accordingly, there is in my view a serious question about whether the first defendant purchased the property as trustee of the trust.
22. There is evidence that when completion of the purchase occurred in August 2014, almost half of the purchase price was provided by CLGC Australia Pty Ltd. Prima facie, any beneficial interest of the first defendant would be diminished accordingly. Of course, by that time, the first defendant had failed to complete its purchase of 311-317 Sussex Street and was facing at least a potential damages claim from the plaintiffs. That was also the position when steps were taken to incorporate CLGC Investment and have the property transferred to it.
23. The plaintiffs' claims for damages against the first defendant appear to have at least reasonable prospects of success. No suggestion was made to the contrary. It seems that the first defendant does not (apart from its possible interest in 319 Sussex Street) have any substantial assets. In all the circumstances, there is a danger that a prospective judgment will be wholly or partly unsatisfied because CLGC Investment, as registered proprietor of the property, has the power to dispose of assets of the first defendant, or is in a position of control or influence concerning assets of the first defendant. The power under Uniform Civil Procedure Rules r 25.14(5) to make a freezing order against CLGC Investment is thus enlivened.
Darke J ordered the parties to bring in short minutes in respect of the orders to be made in relation to the freezing of the assets.
The parties returned to Court on 14 July 2015. There was debate about the form of the orders which were ultimately made. One aspect pertinent to today's application that was raised during the course of that debate was the question of costs. The order sought in the Notice of Motion and the Amended Notice of Motion was that costs of the application for a freezing order be reserved.
Counsel briefed for CLGC, Mr JL Clark, submitted that this was the appropriate order in the circumstances. That was opposed by the plaintiffs. Mr DD Knoll, of counsel, who appeared for the plaintiffs on that occasion, submitted that there was an event that costs would follow (the granting of the injunction) and that this was the appropriate order.
During the course of debate, Darke J said that it was not clear "exactly how the matter is going to proceed" as against CLGC. It was not a party to the proceedings, but was the subject of the injunction. Mr Clark then said (tr 11):
Well, it's not clear at all to me. That's one aspect of it, but, in any event, whatever claim might be brought might ultimately be unsuccessful. We are not in a position to know one way or the other at this point and costs should only be determined once that is known.
Darke J concluded that as the orders sought in the Notices of Motion were for costs to be reserved, and since there was "some lack of clarity about exactly how the matter will proceed" against CLGC, an order should be made reserving the costs. The relevant orders made on 14 July 2015 in respect of the freezing orders and costs were as follows:
Upon the plaintiffs by their Counsel giving the usual undertaking as to damages, the Court:
1. Orders that until further order, CLGC Investment Holdings Pty Ltd (CLGC Investment) only be permitted to sell, dispose of, or diminish the property located at 319 Sussex Street, Sydney and having Certificate of Folio Identifier 1/168328 (Property) at public auction or by arm's length private sale, as a standalone property for sale, to a purchaser who is unrelated (whether directly or indirectly) to each of the defendants and CLGC Investment;
2. Orders that CLGC be restrained from charging, mortgaging or otherwise encumbering the Property to any extent greater than existed on 26 June 2015, without first obtaining the plaintiffs' consent, which shall not be unreasonably withheld;
3. Orders that CLGC Investment be restrained from dealing with the proceeds of any sale of the Property other than as follows:
a. firstly, paying to the Commonwealth Bank of Australia the sum necessary to discharge the mortgage over the Property having mortgage registration number AJ237940 (Mortgage);
b. secondly, paying all reasonable costs, commissions, and expenses incurred for the sale of the Property and pay any statutory rates including council, water, strata and land rates outstanding in respect of the Property (Costs); and
c. thirdly, depositing the remainder of the proceeds of sale following the payment of the Mortgage and the Costs up to $2.34 million into an interest bearing account in the name of the CLGC Investment's solicitors as trustee and stakeholder where they are to remain (together with any interest) until further order of the Court;
4. CLGC must give the plaintiffs 1 working day's written notice of any and all cheque directions to be provided to the purchaser or transferee of the sale or transfer of the Property (Cheque Directions) when CLGC Investment provides the Cheque Directions to the purchaser or transferee of the Property and any such written notice must disclose fully the details of whom the cheque is drawn to and the amount of the cheque;
5. The costs of the Notice of Motion (including the Amended Notice of Motion) as between the plaintiffs and CLGC Investment are reserved;
In August 2015, the plaintiffs filed a Notice of Motion seeking to amend the Statement of Claim in the form attached to the Notice of Motion. That application ultimately came before Darke J for hearing on 18 September 2015. His Honour indicated to counsel for the plaintiffs, once again Mr Knoll, that there were "difficulties" with the pleading in the form that had been proposed. Mr Knoll said he could rectify those defects "fairly promptly" and sought two weeks in which to deal with that amendment, indicating that such a period would not prejudice CLGC because it did not have to do anything until after judgment in respect of the claim between the plaintiffs and Shuangling. By this stage, it had been agreed that there would be a hearing between those parties which was fixed on that day to occur on 30 October 2015 before White J. In response, Mr Clark said (tr 11): "I appreciate my friend's position, but we would like it done soon because we will still have a freezing order on foot". His Honour did not grant leave to file an Amended Statement of Claim in circumstances where there was no proposed pleading. His Honour reserved the question of costs in respect of CLGC on the basis that it would "either be consented to or it will have to come back on another occasion".
No amended pleading was ever served and CLGC was never joined to the proceedings. The plaintiffs proceeded to trial against Shuangling and the guarantor on 30 October 2015 and 2 November 2015, on which latter date judgment was reserved. Regrettably, there was a lengthy delay in delivery of the judgment.
In the meantime, there was an exchange of Contracts to sell 319 Sussex Street. On 2 August 2016, the solicitors for CLGC wrote to the plaintiffs' solicitors, indicating that the plaintiffs were aware that CLGC had exchanged Contracts for the sale of 319 Sussex Street and noting that, following settlement, CLGC was required to deposit the remainder of the proceeds of the sale up to $2.34 million into an interest bearing account in the name of its solicitors until further order of the Court. CLGC's solicitors sought a variation of the quantum of the freezing order from the maximum amount of $2.34 million, down to $214,812. This proposal was said to be based on a change in circumstance, described as "a business opportunity" that was available to the sole director and shareholder of CLGC. The plaintiffs' solicitors had some difficulty responding promptly, by reason of other professional commitments. However, on 12 August 2016, they wrote to CLGC's solicitors indicating that, unless further information and documentation concerning the proposed business opportunity or alleged investment was provided, there would be no consent forthcoming in respect of the reduction in the amount of the freezing order.
On 26 August 2016, CLGC's solicitors wrote again indicating that they had instructions to apply to vary the quantum of the freezing order for the reasons set out in their earlier letter. CLGC prepared a Notice of Motion dated 22 September 2016 seeking that proposed variation. That matter was listed before White J on 10 October 2016 at which time his Honour granted CLGC leave to file that Motion. His Honour then put in place a timetable for the filing of evidence and submissions, and listed the Notice of Motion for hearing today.
On 27 October 2016, White J delivered judgment in the matter between the plaintiffs and Shuangling and the guarantor: Kazacos v Shuangling International Development Pty Limited [2015] NSWSC 1504. The plaintiffs' claims were dismissed. On the same day, CLGC's solicitors wrote to the plaintiffs' solicitors suggesting that there was no basis for the freezing order to continue and contending that it should be discharged immediately. That letter included the contention that CLGC was entitled to its costs of the plaintiffs' application for the freezing order, with a proposal for orders in respect of which it sought the plaintiffs' consent. Those orders were in the following terms:
1. Orders 1, 2, 3 and 4 of the orders of 14 July 2015 be set aside.
2. Any monies deposited into an account in the name of CLGC Investment Holdings Pty Ltd's (CLGC) solicitors pursuant to order 3(b) of the orders of 14 July be released forthwith to CLGC or its nominee.
3. The plaintiffs pay CLGC's costs of and incidental to the plaintiffs' Notice of Motion filed 15 May 2015 (including the Amended Notice of Motion filed 12 June 2015).
4. CLGC's Notice of Motion dated 22 September 2016 be dismissed with no order as to costs.
There was no immediate response to that letter.
On 31 October 2016, CLGC's solicitors wrote again referring to the earlier correspondence and to a message left that morning for the plaintiffs' solicitors to respond. Nothing occurred and, later that same day, CLGC's solicitors wrote again indicating that if they did not hear from the plaintiffs' solicitors within the next 24 hours, they were instructed to file a Motion seeking the orders that had been proposed in the correspondence of 27 October 2016.
On 2 November 2016, CLGC filed a Notice of Motion seeking those orders.
On 2 November 2016, the plaintiffs' solicitors forwarded a form of proposed consent orders effectively agreeing to the CLGC's proposed orders, but for costs. That email included the following: "If your client wishes to have an argument about costs, the parties can have that argument" when counsel is available.
On 4 November 2016, White J made orders in Chambers by consent listing the costs argument for hearing today.
The application by CLGC is for: (1) costs of the Notice of Motion for the freezing orders of 15 May 2015, as amended on 12 June 2015; (2) costs of the hearing on 18 September 2015 in respect of the amendment to the pleading; and (3) costs of the Notice of Motion of 2 November 2016. It seeks those costs on an indemnity basis.
The plaintiffs resist an order for costs in respect of the Notices of Motion for the freezing orders. They agree that CLGC should have its costs for the 18 September 2015 hearing, but only on a party/party basis. They resist the order sought by CLGC in respect of the Notice of Motion of 2 November 2016. The plaintiffs submit that there should be no order as to costs in respect of the Notices of Motion for the freezing orders and the Motion of 2 November 2016.
Mr IR Pike SC, leading Mr Clark, for CLGC, relied upon a number of authorities to submit that this is an appropriate case in which an order for indemnity costs should be made. I should say immediately that both parties accept that the undertaking as to damages that was given by the plaintiffs when the injunction was granted is extant, Mr Knoll, who appears for the plaintiffs today, indicated that such undertaking will be honoured when anything is put to the plaintiffs relevant to that undertaking.
Mr Pike made very clear that this is not a case in which it is submitted that the plaintiffs acted unreasonably. Rather, he submitted that, in line with the authorities to which I will shortly refer, CLGC is an "innocent third party" that, in the circumstances, is entitled to its reasonable costs that have not been unreasonably incurred and that costs be awarded on an indemnity basis.
In support of that submission, CLGC relies upon the following passage of Parker J's judgment in Project Development Co Limited SA v KMK Securities Limited [1982] 1 WLR 1470 at 1470-1472:
In my judgment an innocent third party affected by a Mareva injunction ought, if he has to apply to the court for variation of the order and is successful in so doing, to have all costs incurred so long as they are not unreasonable in amount or unreasonably incurred; and a plaintiff who resorts to the draconian remedy of a Mareva injunction should expect to pay such costs. If in pursuit of his rights against a defendant he initiates an order of the court affecting assets in the hands of third parties, and that order is later varied at the instance of third parties so as to exclude assets in their hands, justice appears to me to require that all the innocent third parties' costs should be paid by the plaintiff unless they are unreasonable. Hence I reject the party and party basis.
His Lordship concluded at 1473:
It should, I think, be stressed that a plaintiff who resorts to the Mareva jurisdiction must expect to pay, and should in justice pay, all reasonable expenses and all reasonable costs to which innocent third parties may be put by his actions; and it is on that basis that I make the order which I do.
Mr Knoll submitted that, assuming the principle as stated by Parker J is applicable in this case, CLGC could not be reasonably described as an "innocent third party". In detailed written submissions, Mr Knoll set out a number of aspects of the transaction between Shuangling and CLGC suggesting that CLGC received the property for $1.00 at a time when Shuangling held the beneficial interest in the property outright and not as trustee. Mr Knoll analysed the loan documentation for the purposes of establishing that proposition. He also referred to the other matters that I have outlined that were raised before Darke J in respect of the application for the freezing order.
Mr Pike submits that there has never been a claim properly pleaded against CLGC; that the freezing orders were discharged (appropriately so) and that, in the circumstances, CLGC falls within the description "innocent third party".
Another case relied upon by the plaintiffs, although distinguishable, is the decision in Westpac Banking Corporation v Hilliard [2001] VSC 198. In that case McDonald J said:
Ms McCready was not a party to the proceedings instituted by the plaintiff and at no time did it seek to have her made a party to the proceeding. Rather the plaintiff on its ex parte application successfully obtained an order preventing her from having the use of the net proceeds of sale of the property which was registered solely in her name in circumstances which were known to the plaintiff, but not disclosed to the court. Further Ms McCready was successful in her application when consideration was given to the facts known to the plaintiff and not disclosed to the court when the ex parte order was made. In my view it is in such circumstances that she should now have her costs against the plaintiff on a more generous scale than on a party and party basis. It is just such a case as this that illustrates that there are categories of cases other than those identified by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd and by Warren J in Czerwinski that warrant the court making an order for costs against a party to proceedings on a "higher measure" than on a party and party basis. In my view in the circumstances existing in this proceeding on which Ms McCready has been successful she should have her costs against the plaintiff to be taxed on a solicitor and client basis. It is ordered that the plaintiff pay to Ms McCready her costs, of and incidental to the summons filed on her behalf in the proceedings on 10 April 2001 and that such costs be taxed on a solicitor and client basis.
The first question for determination is whether, as the plaintiffs claim, CLGC is not an innocent third party, or, as CLGC claims, it is. Some assistance in this regard comes from McKerracher J's decision in Sebastian v Strongwall International Ltd (Deregistered) (No. 2) [2011] FCA 1105 in which his Honour said:
4. In my respectful view these assertions do not really grapple with the principle that a freezing order against an innocent third party may be in a special category because an innocent third party would normally be totally removed from the ambit of the litigation.
5. Nevertheless, it appears to me that it may be too sweeping a generalisation to assert that whenever an innocent third party succeeds in setting aside a freezing order it should have all its costs on an indemnity basis rather than a party/party basis."
His Honour went on to say as follows:
10. The subtlety of the distinction has not otherwise been particularly topical in the Australian authorities. The Australian cases have focussed more on two other issues. First, whether the party setting aside the freezing order is truly an innocent third party (or whether it is somehow involved in the actual matter in dispute). Secondly, the cases have taken into account conventional indemnity costs concepts, particularly the question of whether it should have been obvious that the very unusual relief given under a freezing order was very likely to be set aside or discharged, that is, whether it was 'hopeless'.
11. The present application was not, from the outset, an instance of a 'hopeless' freezing order application such as where the incorrect plaintiff applied for it (Tremaine Developments Pty Ltd (in liq) v Courtney Develops Pty Ltd [2011] VSC 112). Indemnity costs are always the exception rather than the rule as noted, in the context of a freezing order, by Wilson J in Trustee for Peter and Tanya Zufic Family Trust and Eyears [2008] QSC 355 (at 6).
His Honour concluded that the applicant was "nevertheless a relatively innocent third party put to the expense" by compliance with, and in setting aside, the freezing order (at [13]).
McKerracher J categorised an innocent third party as one "totally removed from the ambit of litigation". In that case, although the party was apparently not totally removed, his Honour was satisfied that it was a "relevantly innocent third party".
I am not satisfied that the description "innocent third party" requires a moral judgment about the general conduct of the party who is the subject of the freezing order. Rather, the description requires an assessment of what the reality of the relevant relationships was at the time the injunction was granted. In this case, CLGC involved itself in a transaction that was subject to Darke J's decision in June 2015 where a prima facie case or a serious issue to be tried was established as between the plaintiffs and the first defendant, Shuangling. The transaction was one in which Shuangling's property went from its hands into CLGC's hands. Albeit that CLGC was never joined to the proceedings, I would not describe it as being totally removed from the ambit of the litigation. It was clearly involved in the transaction that caused Darke J to reach the conclusion that there was a serious issue to be tried in respect of the plaintiffs' entitlement to a freezing order against CLGC effectively in aid of the litigation between the plaintiff and Shuangling.
I respectfully agree with McKerracher J's observation that it is too sweeping a generalisation to contend that where an innocent third party succeeds in setting aside a freezing order all costs should be paid on an indemnity basis. Obviously, each case must be looked at carefully and determined on the merits of each transaction. The myriad of situations and circumstances that occur must accommodate some flexibility to the approach. Otherwise it would be too rigid an approach with the prospect of unfairness to applicants for freezing orders who have acted reasonably to adopt in such cases. Even where parties may not be totally removed from the ambit of litigation, there may still be an entitlement to indemnity costs. There may be circumstances where a party has been brought into litigation and kept within it unreasonably that may warrant such an order being made.
In this case the defendants were Shuangling and the guarantor. I understand from what Mr Knoll has said from the Bar Table today that notwithstanding what I have outlined above, there was an understanding that there was no necessity to amend the pleading, at least until after judgment was delivered in the main proceedings before White J. There is no question about that understanding or misunderstanding. In any event, the delay between the reservation of judgment in November 2015 and the delivery of judgment in October 2016 was a period during which the parties did not debate whether an amended pleading should be proposed and did not debate anything about the freezing order until CLGC entered into a Contract to sell 319 Sussex Street in August 2016. It was then that matters came to a head and the only application made by CLGC was to reduce the relevant amount in the freezing order, rather than to have the freezing order discharged. The parties sat by patiently and waited for the delivery of the judgment.
Once judgment was delivered, CLGC moved promptly to obtain the relief to which it was entitled. In my view, albeit that there were a couple of days delay, the plaintiffs also moved promptly (although after the filing of the Motion) to agree to orders that were obviously appropriate in the circumstances.
I do not agree with Mr Knoll's submissions that there should be no order as to costs in respect of the freezing order applications. On the other hand, I am not satisfied that it is appropriate to order indemnity costs. This was not a party removed from the litigation. There was a close association with the litigation, albeit not as a party. I am satisfied in the circumstances of the transaction and the finding by Darke J of a serious issue to be tried that I have outlined, that the appropriate order in respect of the applications for the freezing orders is that the plaintiffs pay CLGC's costs on a party/party basis. An order has been agreed in respect of the hearing on 18 September 2015. I am also satisfied that the fair and just outcome in respect of the Notice of Motion of 2 November 2016 is that the plaintiffs pay CLGC's costs of that application on a party/party basis.
[2]
Orders
The plaintiffs are to pay CLGC's costs of the Notices of Motion of 15 May 2015 and 12 June 2015 and the hearings in respect of those Motions on a party/party basis.
By consent, the plaintiffs are to pay CLGC's costs of the hearing on 18 September 2015 on a party/party basis.
The plaintiffs are to pay CLGC's costs of the Notice of Motion of 2 November 2016 filed on 23 November 2016 on a party/party basis.
The plaintiffs are to pay CLGC's costs of today on a party/party basis.
[3]
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Decision last updated: 06 December 2016