Plaintiff v Defendants

(ppp) Palms was represented by counsel before Daly AsJ at the directions hearing on 12 May 2014. Counsel for Palms did not make any application for any non-party costs order pursuant to s 29 of the CPA or otherwise, by foreshadowed the making of a non-party costs order against Gdanski, Sackville Wilks and Rockwell Olivier.

(qqq) On 13 May 2014, Rockwell Olivier sent a letter to the Associate to Daly AsJ, requesting that her Honour revisit the conditional leave to file a notice of ceasing to act. In response, on 14 May 2014, Daly AsJ extended the date for compliance and her Honour's Associate wrote to the parties stating that:

I note that the "liberty to apply" in paragraph 3 of the orders of 12 May 2014 is limited to the question of the costs payable by the Plaintiff pursuant to paragraph 2 of the orders. Her Honour's recollection is that the order was made in circumstances where counsel for the third defendant foreshadowed that the third defendant may be making an application for costs against a non party, possibly entities or individuals associated with Rockwell Olivier. Her Honour has indicated that, in light of the enclosed correspondence and the events of recent days, it would not be appropriate for her to hear any such application. ...

(rrr) On 14 May 2014 Daly AsJ extended the time for compliance on the part of Rockwell Olivier with paragraph 1 of the 12 May 2014 Orders to 16 May 2014.

(sss) On 19 May 2014, Rockwell Olivier filed a Notice of Discontinuance against Palms together with a Notice of Ceasing to Act, both dated 16 May 2014;

(ttt) In September 2014, ABL sent to Gdanski and Rockwell Olivier draft submissions and a draft affidavit of Alex King in support of proposed non-party costs orders relying in part on breaches of the CPA;

(uuu) On 23 December 2014, the summons was issued. Gdanski did not discuss with anyone at Rockwell Olivier the risk that Rockwell Olivier might have in relation to a costs exposure resulting from the discontinuance of the proceeding; and

(vvv) In February 2015 and April 2015, further orders were made in relation to the summons.

Application of Civil Procedure Act - Section 29

97 Section 29 of the CPA enables the Court to make certain orders in the event that it is found, on the balance of probabilities, that a person has contravened any overarching obligation defined in the Act. Such orders may be made as appropriate in the interests of justice, including but not limited to an order which is sought in this application, that the respondent non-parties pay the costs of Palms of the proceeding.

98 However, the capacity of the Court to make orders of this kind pursuant to s 29 of the CPA is governed by the time limit found in s 30(2), which is expressed in mandatory terms. Subject to an extension of time being granted under s 31, an application for an order under s 29 must be made prior to the finalization of the civil proceeding to which the application relates (excluding any period for appeals).

99 If the time limit is not observed, the rights of a person to make an application under s 29 are statute barred.[59]

100 The orders made by Daly AsJ on 12 May 2014 as extended on 14 May 2014 provided for the discontinuance of the proceeding as against Palms. The filing of the Notice of Discontinuance, substantially in accordance with the time set by the orders of Daly AsJ, brought the proceeding as against Palms to an end and constituted a 'finalisation of the civil proceeding' to the purposes of s 30(2) of the CPA.[60]

101 No application was made by Palms for any order under s 29 of the CPA prior to the finalization of the proceeding against it. Although Palms was represented by counsel before Daly AsJ at the directions hearing on 12 May 2014. Counsel for Palms did not make any application for any non-party costs order pursuant to s 29 of the CPA or otherwise, but merely foreshadowed the making of a non-party costs order against Gdanski, Sackville Wilks and Rockwell Olivier.

102 No extension of time within which to bring an application under s 29 was made, and in any event would not have been likely to succeed because of the apparent awareness on the part of Palms of alleged contraventions of the overarching obligations by the non-party lawyers - Gdanski, Sackville Wilks and Rockwell Olivier - which could found such an application. Palms had turned its mind to the making of non-party costs orders as evidenced by it foreshadowing seeking such an order before Daly AsJ on 12 May 2014.

103 Palms did not appeal the orders allowing for the discontinuance of the proceeding by the filing of the Notice of Discontinuance, which notice was filed on 19 May 2014. It remained bound by those orders and its consequences.

104 Accordingly, there is no basis upon which Palms can succeed under s 29 of the CPA against any of the non-party respondents, and its application to that extent must fail.

105 Palms submits that the real parties to the litigation were Gdanski and Chilelli who each had a close connection with the litigation in important respects and that, in accordance with the principles in Knight, costs orders should be ordered against them personally.

106 Both Gdanski and Chilelli gave evidence that they didn't actually know of the obstructed easement before June 2012.

107 In relation to Gdanski it was conceded that the Plaintiff party to the litigation, 1165 Stud Road was at material times an insolvent person and that he Gdanski, as a non-party, played an active part in the conduct of the litigation.[61]

108 In relation to Chilelli, application of all of the Knight principles was put in issue.

109 I turn to consider each of the elements in Knight by reference to the facts of this case.

110 I am satisfied that at all material times the Plaintiff, 1165 Stud Road, was an 'insolvent person' with no liquid or other assets and was a 'man of straw' as described in Knight.

112 For the purposes of the claim made against Chilelli, the finding of insolvency is founded on evidence which discloses that:

(a) from April 2014, it was externally administered pursuant to a creditor's voluntary winding up;

(b) other than the claims in the proceeding, it had no assets;

(c) the liquidator elected not to continue with the proceeding;

(d) prior to winding up, the only apparent asset was the Property, which was sold and the proceeds distributed, leaving the Plaintiff without any assets or funds;

(e) the deposit held in the Plaintiff's solicitors' trust account has been dissipated; and

(f) the ASIC records show that the paid up capital was $120.00 at the time of the winding up.

Whether Gdanski Played a Relevantly Active Part in the Litigation

113 I am satisfied that Gdanski played an active part in the conduct of the litigation for the purposes of the Knight principles, as he frankly conceded. In fact he was the principal mind behind the proceeding on behalf of the Plaintiff, 1165 Stud Road. He drove the litigation and had an intimate knowledge of all steps in the Proceeding. His role placed him in an exceptional position in relation to the conduct of the litigation by the Plaintiff, well beyond that to be expected of a reasonable director carrying out the duties of his office.

114 In short, I am well satisfied that Gdanski had a sufficiently active role in directing the litigation beyond that of his co-partners, which included Chilelli, to be fairly described as a 'real party' in 'critical' or 'important' respects. Gdanski attended all relevant mediations, settlement discussions and directions hearings and controlled the litigation.

115 The evidence as to the central role played by Gdanski on behalf of the Plaintiff in the litigation was that:

(a) he was, until late February 2014, a director, the company secretary and a shareholder, both personally and through a corporate entity, of the Plaintiff;

(b) he was actively involved in negotiations in relation to the Plaintiff's purchase of the Property in 2007 and in raising issues concerning access to the Property at that time;

(c) he was actively involved in meetings with the Council concerning plans to develop the Property;

(d) he was actively involved in negotiations with Palms to secure a rear easement on the Neighbouring Property;

(e) he was a principal / director or employee solicitor of the various law practices which acted for the Plaintiff in the underlying transactions the subject of these proceedings and in the prosecution of this proceeding. He was:

• (i) the principal of Fetter Gdanski, the law firm which acted for the Plaintiff in purchasing the Property;
• (ii) a director of Sackville Wilks, the law practice which acted for the Plaintiff in selling the Property to the first and second defendants, and the solicitors on the record for the Plaintiff in prosecuting these proceedings until October 2013; and
• (iii) an employee solicitor at Rockwell Olivier, the law practice which acted for the Plaintiff in re-selling the Property in September 2013 and in prosecuting these proceedings from October 2013 until May 2014;

(f) he signed the overarching obligations certificate required by the Civil Procedure Act 2010 as officer of the Plaintiff when these proceedings were issued in September 2012;

(g) he issued a VCAT application on behalf of the Plaintiff opposing a Council decision to enable a variation of the easement and then failed to appear at a hearing of the application;

(h) he attended each of the without prejudice meetings and mediations conducted in relation to this proceeding;

(i) he attended at least one directions hearing on behalf of the Plaintiff and as instructing solicitor;

(j) he was an officer of the Plaintiff and the solicitor on the record when the Property was re-sold in September 2013;

(k) he was the solicitor on the record for the Plaintiff when he was at Sackville Wilks;

(l) he was solicitor on the record at Rockwell Olivier, which acted for the Plaintiff between October 2013 and May 2014;

(m) he arranged for the liquidator to be appointed.

116 It was Gdanski, who was the only lawyer amongst the natural person joint venture partners, who had the care and conduct of the proceeding on behalf of the Plaintiff, and made or strongly influenced the course of decision making in relation to the litigation on behalf of the Plaintiff against Palms. [62] The following passage from the cross-examination of Chilelli makes the point:[63]

In relation to your business ventures with Mr Gdanski, is it normally the case that Mr Gdanski does all the legal work involved?---Yes, he does.

So he acts on your behalf and on his own behalf in respect of all of those ventures, does he?---Yes, and all the other partners are involved as well.

Which of the other partners in the ventures are lawyers?---No one.

None?---None.

So he does all of the legal work in respect of all of those ventures, is that correct?---Correct, yes.

And that's always been the case, is that correct?---Yes.

Whether Chilelli Played a Relevantly Active Part in the Litigation

117 Chilelli played a part in the conduct of the litigation against Palms on behalf of the Plaintiff, 1165 Stud Road, although his role was to a considerably lesser degree than that of Gdanski.

118 For the purposes of the Knight principles, I am satisfied that Chilelli did not have a role in the conduct of the litigation beyond that to be expected of a director of a corporate litigant in the usual case.

119 The evidence as to the role played by Chilelli in the litigation was that:

(a) until late February 2014, he was a director and shareholder, through a corporate entity, of the Plaintiff;

(b) he was actively involved in meetings with the Council concerning plans to develop the Property;

(c) he was a director of the Plaintiff when the Property was re-sold in September 2013;

(d) Chilelli, along with his other partners in the joint venture all agreed to commence the legal proceedings on behalf of the Plaintiff;[64]

(e) in about September of 2013 Chilelli met with Gdanski and discussed how the proceeds of the sale were to be dispersed to the other companies that had loaned money to the Plaintiff;

(f) Chilelli was kept generally informed as to what was going on with the case by Gdanski through regular communications and by the provision of documents.[65]

(g) Chilelli, along with his other partners in the joint venture, discussed in September 2013 the risk that if the Plaintiff was unsuccessful, it could have to pay legal costs;[66]

(h) Chilelli, along with his other partners in the joint venture discussed the quantum of a figure that the Plaintiff company ought to pay to settle the Proceeding.[67]

120 In an affidavit sworn by Gdanski on 5 May 2014, which was filed in support of the application of Rockwell Olivier to file and serve a Notice of Solicitor Ceasing to Act on behalf of the Plaintiff, Gdanski said this:[68]

1. At all material times I have had the care and conduct of this proceeding on behalf of the Plaintiff. Until recently, my instructions have been received from Mr Renato Chilelli, a director of the Plaintiff.

121 However, I am not satisfied that Chilelli was the exclusive source of instructions to Gdanski as to the conduct of the proceeding as stated by Gdanski. The instructions from the Plaintiff, such as they were, appeared to be provided by all of the joint venture partners. Chilelli was not the only source of those instructions.[69] The four joint venture natural person partners, which included Chilelli, reached a collaborative consensus before making decisions in relation to the litigation. The following passages of the cross-examination of Chilelli illustrate the point:[70]

And who made the decisions about what steps 1165 Stud Road would take in the litigation?---We all did.

When you say we all did, what actually happened that enables you to say we all did?---Well we'd have meetings where it was discussed and we'd decide on - on what to do next.

So who attended these meetings?---Well it was usually

Max Hudghton and Bob Lang and myself.

So all four of you was it?---Yes.

All right, and what happened? Did Mr Gdanski explain what was going on in the case?---Yes.

And then you reached consensus as to what your next move would be, is that correct?---Yes.

122 Further, the lesser role of Chilelli in the conduct of the litigation, as compared to the role of Gdanski, is illustrated by a number of important matters which were not discussed with Chilelli personally, or which he had little or no knowledge of. Included in this category were:

(a) the difficulty with Rockwell Olivier ceasing its legal representation of the Plaintiff;[71]

(b) the Calderbank letters sent by Palms to the Plaintiff,[72] or the offer of compromise which was filed and delivered by Palms in April 2014.[73] The only offer Chilelli was aware of was possibly an offer for a payment from another party, Bestway, and even then Chilelli appeared to be confused as to the substance of this offer.[74] Chilelli was surprised that Gdanski did not inform him of these offers of compromise which were on the table from time to time.[75]

(c) I accept that Chilelli was not aware of any correspondence from Palms or its lawyers relating to a claim for security for costs, or what the process was in relation to security for costs;[76]

(d) Chilelli was not aware of any obligation to advise Palms that the Property had been sold;[77]

(e) I am satisfied that Chilelli did not consider that Gdanski, in acting for the Plaintiff as its solicitor, given his participation in the Plaintiff, its enterprise and the litigation, was exposed to a conflict of interest, or in fact ever turned his mind to the matter;[78]

(f) Chilelli was not privy to much of the important correspondence in relation to the issues in dispute;[79]

(g) Chilelli did not receive independent legal advice in relation to the conduct of the litigation. He got advice only from an accountant;[80] and

(h) Further, certain things were done in relation to the conduct of the litigation, which he did not know about, or did not fully appreciate, and with which, in hindsight, he did not agree.[81]

123 It is entirely to be expected that Chilelli, in his capacity as a director of the Plaintiff, should have assumed, and indeed had a duty to assume, a role in giving instructions in relation to the litigation being conducted on behalf of the Plaintiff. However, I am not satisfied that Chilelli went beyond his director's role as one of the directing minds of the Plaintiff for the purposes of the Proceeding. In this respect and there was nothing exceptional in the manner in which he participated in the proceeding, given the office he held with the Plaintiff.

124 In short, Chilelli, in spite of having a role on the conduct of the Proceeding, did not have a sufficiently active role beyond that of his co-partners, which included Gdanski, to be fairly described as a 'real party' in 'critical' or 'important' respects. The real party to the litigation was the Plaintiff, as a corporate litigant, directed by Gdanski.

125 Palms contended that each of Gdanski and Chilelli had an interest in the subject of the litigation, by reason that:

(i) they were each shareholders (whether individually or through a corporate vehicle) of the Plaintiff;

(ii) in relation to the proceeds of sale from the 2013 contract, both Gdanski and Chilelli, it may be inferred by virtue of their interests in the ownership of the Plaintiff, each received (whether individually or through a corporate vehicle) the benefit of some of the proceeds of sale from the 2013 contract;

(iii) the claims in the proceeding sought to recover alleged losses arising from the lost 2012 sale and the consequent holding costs which each stood to benefit from if the claims were successful.

126 These factors, standing alone in my view, do not amount to a relevant interest in the subject of the litigation for the purpose of the application of the Knight principles.

127 There is nothing exceptional in Gdanski and Chilelli, as human agents and as persons having an interest as shareholders in the Plaintiff company, standing to benefit directly or indirectly from success in the Proceeding or anything exceptional in some of their corporate entities as shareholders standing to gain directly or indirectly from a successful outcome, having regard to the nature of 1165 Stud Road as a commercial entity and a private company.

128 Further, there is nothing unusual in a director having an interest in a corporate entity which lends money for working capital to the company in which the director is an office holder, or that money loaned in these circumstances is ultimately repaid.

129 However, the position of Gdanski is different in a critical respect from that of Chilelli. Gdanski was not only a director and, through a corporate vehicle, a shareholder of the Plaintiff. He was also its solicitor at all material times.

130 This position gave rise to exceptional circumstances.

131 Conducting the Proceeding as a solicitor on behalf of the Plaintiff, as Gdanski did, serves to satisfy the 'interest in the litigation' element of the Knight principles as far as he is concerned. The firm of which he was a principal, Sackville Wilks, and later the firm where he was employed, Rockwell Olivier, stood to benefit directly by deriving fees from the Plaintiff for the legal work performed for it and by potentially benefitting from any costs ordered to be paid by any of the defendant parties in the event that the litigation produced such an order in favour of the Plaintiff. Gdanski, in his capacity as a principal of Sackville Wilks and later as an employee of Rockwell Olivier, could be expected to benefit either directly or indirectly from these outcomes.

132 In contrast, Chilelli, who was not legally qualified and provided no legal services to the Plaintiff company, gained nothing from the litigation.

133 As each of the elements of Knight are established, the interests of justice need to be satisfied before costs orders can be made against each of Gdanski and Chilelli. The principal factors of relevance are considered below.

134 In considering this element, I am mindful of the case law summarising the basic principles to be applied in the making of a costs order which have been marshalled in a judgment of the Full Court of the Federal Court in Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) as follows:[82]

Although an order for costs is discretionary, a successful party generally can expect to be compensated for that party's costs: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 at [25] per Gleeson CJ, Gummow, Hayne and Crennan JJ. Costs usually follow the event: Ritter v Godfrey [1920] 2 KB 47. An order for costs is made because the successful party has been put to expense which that party would have avoided if the litigation or particular application had not been brought. The order for costs seeks to compensate the successful party for that result and for the costs to which that party has been put. The order is not in any sense meant to be a penalty; costs are awarded to indemnify a successful party in litigation, not to punish an unsuccessful party: Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 542 per Mason CJ; Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [1] per Brennan CJ.

135 Palms incurred substantial legal fees in defending claims which did not proceed. Between 7 September 2012 and 29 August 2014 the solicitors for Palms ("ABL") rendered accounts to Palms for legal work undertaken on its behalf in the Proceeding totalling $301,303. Palms paid these fees.

136 Palms will be deprived of the benefit of any costs orders made in its favour following the discontinuance of the Proceeding if non-party costs orders are not made.

137 This is a substantial factor to be weighed in considering the interests of justice.

138 It is clear that Gdanski, in conducting the Proceeding as a solicitor on behalf of the Plaintiff, in respect of which he was not only a director but also, through a corporate vehicle, a shareholder, was in breach of paragraphs 9.2 and 13.4 of the Professional Conduct and Practice Rules 2005 and placed himself at serious risk of being in breach of paragraph 13.1 of the rules. As a solicitor in active practice, Gdanski ought to have been aware of the effect of these Rules.

139 This placed Gdanski in a conflict of interest and rendered his conduct of the litigation on behalf of the Plaintiff improper.

140 This was so despite the fact that, during the life of the Proceeding, neither Palms nor its solicitors ABL ever once raised the issue of conflict of interest or demand that Mr Gdanski, or any of the firms at which he worked, cease to act in the Proceeding due to his conflict.

141 Reference is made to paragraphs 9.2, 13.1 and 13.4 of the Professional Conduct and Practice Rules 2005 published by the Law Institute of Victoria, which was tendered in evidence:

9.2 A practitioner must not accept instructions to act or continue to act for a person in any matter when the practitioner is, or becomes, aware that the person's interest in the matter is, or would be, in conflict with the practitioner's own interest or the interest of an associate.

13.1 A practitioner must not act as the mere mouthpiece of the client or of the instructing practitioner and must exercise the forensic judgments called for during the case independently, after appropriate consideration of the client's and any instructing practitioner's wishes where practicable.

13.4 A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner's considered opinion:

13.4.1 appear for a client at any hearing, or

13.4.2 continue to act for a client,

in a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence material to the determination of contested issues before the court.

142 It is likely that Gdanski was not able to bring an independent mind to decisions made on behalf of the Plaintiff in the conduct of the Proceeding by reason of his conflict of interest and it is likely that a number of the decisions he made were infected with this conflict.

143 An order for costs against a non-party is not dependent upon, but can take into account, any improper conduct by the non-party.[83] I take into account the conduct of Gdanski in breaching the Professional Conduct and Practice Rules 2005 as being a relevant factor of some significance in considering whether a non-party costs order should be made against him.

144 In contrast, I am satisfied that Chilelli did not consider that Gdanski, in acting for the Plaintiff as its solicitor, given his participation in the Plaintiff, its enterprise and the litigation, was exposed to a conflict of interest, and never turned his mind to the matter.[84]

Palms Not Informed of Distribution of Proceeds of Resale and Voluntary Liquidation

145 Palms was not informed, and had no knowledge, of the resale of the Property, the distribution of the proceeds to the shareholders of the Plaintiff or their corporate entities and the entry of the Plaintiff into voluntary liquidation.

146 I am not satisfied that Gdanski and Chilelli had any general duty to inform Palms of these matters although, in adhering to the obligations of discovery (discussed below), Gdanski had an obligation to discover the 2013 contract of sale for the Property dated 27 September 2013 pursuant to which the Plaintiff entered into to sell the Property to Traian Iurescu for $2.1 million.

147 In relation to Chilelli, I have earlier found that he was not aware of any correspondence from Palms or its lawyers relating to a claim for security for costs, or what the process was in relation to security for costs. Further, as I have earlier found, Chilelli was not aware of any obligation to advise Palms that the Property had been sold.

148 In contrast, Gdanski, knew of and directly participated in the exchanges of correspondence with ABL on behalf of Palms in relation to security for costs between February and April of 2013. He gave at that time what could only be described as assurances to ABL on behalf of Palms as to the capacity of the Plaintiff to meet any costs order anticipated at that time, which was in the order of $105,000. A year later the position had changed markedly. The costs expended by Palms had grown substantially, indeed had trebled. By 4 March 2014 the Property had been sold. By 17 April 2014 a liquidator was appointed to the Plaintiff.

149 In these circumstances, and in the absence of any Court order, I do not consider that Gdanski, save for the requirement to adhere to the obligations of discovery (discussed below) in relation to the 2013 contract of sale for the Property, was under any general legal duty to advise Palms or its solicitors either of the sale of the Property and distribution of the proceeds or the appointment of the liquidator. Nevertheless, in the circumstances where Gdanski had given the earlier assurances as to the financial position of the Plaintiff in his correspondence between February and April 2013 in relation to security for costs, it was sharp practice on his part not to have advised Palms of the change of position.

150 In contrast to the manner in which the litigation was conducted in Manderson[85] (cited above), that was found to be reasonable and proper, and conducted with 'absolute professional propriety'. The conduct of the Proceeding by Gdanski on behalf of the Plaintiff fell short of this standard.

151 In my view, this brought him into the category of exceptional circumstances which justify a non-party costs order being made against him.

152 Although Gdanski had a direct involvement in the security for costs correspondence with the solicitors for Palms between February and April of 2013 and for this reason was made aware of its concerns as to the capacity of the Plaintiff to pay its costs of the Proceeding, should it be ordered to do so, Chilelli, on the other hand was not aware of any correspondence from Palms or its lawyers relating to a claim for security for costs or what the process was in relation to security for costs.[86]

153 Accordingly, Chilelli, for present purposes and given the state of the evidence, is rendered immune from the conduct of Gdanski in failing to advise Palms either of the sale of the Property and distribution of the proceeds or the appointment of the liquidator. This is underscored by the fact that Chilelli was not aware of any obligation to advise Palms that the Property had been sold.[87]

154 Palms submitted that the failure to bring an earlier security for costs application is explicable and reasonable given the early 2013 correspondence between the parties and the non-disclosure of the details of the re-sale.

155 In these circumstances, Palms says that it was not unreasonable for it not to apply for security for costs prior to March 2014 in circumstances where the Plaintiff expressly assured Palms that it had sufficient equity to meet an adverse costs order and never disclosed any change to this position until it was known that the Plaintiff was in a parlous financial position.

156 I do not accept that Palms was denied the opportunity to seek security for its costs by reason of any conduct on the part of Gdanski or Chilelli, in particular, the failure to inform Palms of the resale of the Property, the distribution of the proceeds of sale, and the entry of the Plaintiff into voluntary liquidation.

157 Palms did not proceed with any application for security for costs in the context of the events surrounding this decision, which are summarised below:

(a) Palms says that the issue of security for costs, first raised in February 2013, was "parked" following the parties' exchange of correspondence in the first half of 2013. Palms claims, however, that it never abandoned its entitlement to seek security for costs.

(b) On 28 February 2013 ABL wrote to Sackville Wilks and requested that the Plaintiff provide:

(i) evidence that the Plaintiff would be able to meet an order for costs in the sum of $105,000 (representing 70% of Palms' likely costs of defending the Proceeding from the date of the letter until the end of trial); or

(ii) confirmation that the Plaintiff would provide security for Palms' costs in the sum of $105,000.

(c) On March 7 2013 Sackville Wilks wrote to ABL stating that the Plaintiff had sufficient equity in the Property to meet a costs order in the amount of $105,000 by either increasing the loan balance or selling the Property.

(d) On 20 March 2013 ABL wrote to Sackville Wilks and requested evidence of the current value of the Property, the assets and liabilities of the Plaintiff, and the use of the Property as security for any facility or loan. The letter stated that failing receipt of that evidence, Palms required the provision of security in the amount of $105,000.

(e) On 25 March 2013 Sackville Wilks wrote to ABL, stating that the Property was not security for any other facility (other than the NAB mortgage), enclosed a copy of a search of the register of titles, and stated that, even if the Property was valued at $1.5 million, the Plaintiff would still have sufficient equity in the Property to repay the NAB mortgage and any costs order that may be made against the Plaintiff.

(f) On 2 April 2013 ABL wrote to Sackville Wilks and requested evidence of the fair market value of the Property and copies of the Plaintiff's recent financial statements.

(g) On 4 March 2014 Mr King caused to be conducted a search of the Register of Titles in respect of the Property. The search revealed that the Plaintiff was no longer the registered proprietor of the Property.

(h) On 31 March 2014 ABL wrote to Rockwell Oliver stating that the Property had been sold and enclosed a copy of the property search. The letter also stated that the sale of the Property raised serious concerns about the Plaintiff's ability to meet Palms' cost of the Proceeding, if successfully defended, which costs were then estimated to be at least $340,000. The letter requested that the Plaintiff provide by 14 April 2014:

(i) evidence that the Plaintiff would be able to meet an order for costs in the sum of $238,000 (representing 70% of Palms' likely costs of defending the Proceeding until the end of trial); or

(ii) confirmation that the Plaintiff would provide security for Palms' costs in the sum of $238,000, failing which (the letter stated) Palms would apply to the Court for an order for security for costs.

(i) Neither the Plaintiff nor Rockwell Olivier responded to ABL's letter dated 31 March 2014.

(j) On 17 April 2014 ABL received a letter from Richard Rohrt, the liquidator of the Plaintiff, informing ABL of the Plaintiff's liquidation.

(k) On 24 April Mr King obtained company and financial information in relation to the Plaintiff which included:

(i) the total paid up capital of the Plaintiff was $120; and

(ii) the Plaintiff entered into voluntary liquidation on 9 April 2014.

(l) Neither Gdanski nor Rockwell Olivier disclosed the fact of the liquidation to Palms. The first Palms heard of it was by letter dated 17 April 2014.

(m) On 24 April 2014 Mr King obtained from the solicitors for the First and Second Defendants a copy of the liquidator's report dated 16 April 2014 and a notice of meeting of creditors of the Plaintiff. The summary of assets and liabilities recorded that the Plaintiff was said to have total assets of $730,000 with unsecured creditors totalling $129,691.

(n) On 1 May 2014 Palms issued a security for costs application against the Plaintiff, returnable on 6 May 2014, relying on an affidavit affirmed by Mr King on 1 May 2014. There is no satisfactory explanation for Palms delaying for nearly two months in taking this step after March 2014.

(o) On 19 May 2014 Rockwell Olivier filed a Notice of Discontinuance against Palms, together with a Notice of Ceasing to Act, both of which were dated 16 May 2014.

(p) Palms and Mr King (the ABL solicitor having the care and conduct of the proceeding on behalf of the parties) knew that the Plaintiff had been trying to sell the Property from mid-2012 but the Plaintiff never disclosed to Palms or Mr King that the Plaintiff had in fact sold the Property, the details of the sale and what would or had become of the proceeds from the sale.

158 It is clear that Palms had been informed through its solicitors that it was equity in the Property which the Plaintiff relied upon to meet any costs order. It is also clear that Palms, through its solicitors, knew that the Plaintiff had been trying to sell the Property from mid-2012.

159 However, Mr King of ABL received instructions in April 2013 not to apply for security for costs arising from the information provided by Gdanski through Sackville Wilks. This was so even though Mr King was not satisfied that the material provided by Gdanski demonstrated a capacity on the part of the Plaintiff to meet an order for costs.

160 In these circumstances, I am satisfied that Palms took the risk of proceeding without making an application for security costs and instructed Mr King not to proceed with the application. This remained the position between 2 April 2013 and 1 May 2014, during which time no step was taken by Palms to agitate the security question.

161 It wasn't until after Mr King learned of the appointment of the liquidator to the Plaintiff that he commenced an application for security for costs in the light of the impending trial. Palms was notified of the appointment of the liquidator on 17 April 2014. The application for security was issued on 1 May 2014. As to the delay in bringing the application after 17 April 2014, Mr King said in cross-examination:

Well, how you explain that further delay in bringing an application?---I can't recall precisely what was happening in the meantime. It may have been we were just prepping for trial. So no, I don't have a ready explanation for you for what was done in that period.

162 The failure to take any step to proceed with the application to obtain security after 1 May 2014 is explained by the pending discontinuance of the Proceeding, which event finally occurred on 19 May 2015.

163 However, I am not satisfied that Palms had any reasonable basis for not proceeding with an application for security for costs at a much earlier time, in April of 2013.

164 This is a matter which bears directly upon the interests of justice in the present application by Palms for a non-party costs order against Gdanski and Chilelli and clearly favours the Respondents.

165 Whether any failure to give a warning is a factor counting against the making of an order depends on the circumstances of the particular case.[88] It may amount to a material consideration depending on the facts under consideration. In Yates v Boland,[89] the Full Federal Court observed:

Whether such a requirement [the need for a warning] arises in a particular case depends on the facts and circumstances of the individual case. The necessity to warn a non-party of an intention to claim costs is not a principle applicable in every case in which costs are sought against a non-party. Rather it may be a material consideration depending on the situation disclosed in the case under consideration.[90]

166 As to the rationale behind the giving of a warning, it has been said that it provides the non-party with an opportunity to:[91]

(a) be joined in the proceedings and thereby have the capacity to influence the proceedings;

(b) protect itself by making an offer in accordance with the rules; or

(c) terminate the proceedings by way of discontinuance, negotiation, payment or otherwise.

167 Palms submitted that non-party costs applications against the respondents were expressly foreshadowed in Court shortly after the Plaintiff went into liquidation.

168 However, the position is that Palms was represented by counsel before Daly AsJ at the directions hearing on 12 May 2014. At the hearing, counsel for Palms foreshadowed the making of a non-party costs order against Gdanski, and the two firms associated with Gdanski, namely Sackville Wilks and Rockwell Olivier. No application against Chilelli was foreshadowed.

169 In the circumstances, I am satisfied that Gdanski, at least from 12 May 2014, was put on notice by Palms that a non-party costs application against him was within the active contemplation of Palms.

170 However, and in contrast, no such notice was given to Chilelli which is in evidence.

171 This factor too serves to distinguish the position of Gdanski from that of Chilelli.

172 As earlier noted, an order for costs against a non-party is not dependent upon, but can take into account, any improper conduct by the non-party.[92]

173 Four issues emerge as relevant to Gdanski arising from his conduct of the Proceeding.

174 The first is whether the prospects of success in the Proceeding were so low that they ought never to have been brought; the second is the degree to which the efforts of Gdanski to settle the Proceeding ought to have any and what bearing on the question as to whether, in the interests of justice, a non-party costs order ought to be made against him; the third is alleged delay in prosecuting the Proceeding caused by the Plaintiff at the hands of its solicitor and guiding hand, Gdanski; the fourth is the failure on the part of Gdanski to discover documents concerning and arising from the sale in September 2014 which were of clear relevance to the issues in the Proceeding of alleged losses, security for costs and proportionate liability.

175 As to the prospects of success of the Proceeding, in the absence of a trial, where the merits could have been appropriately evaluated, I am not in a position to be positively satisfied on the balance of probabilities, that the Proceeding was devoid of prospects of success to the point where it should never have been brought or maintained as against Palms.

176 Accordingly, this factor is discounted from consideration for the purposes of application of the Knight principles, and whether Gdanski should be subject to a non-party costs order.

177 As to the efforts of Gdanski to settle the proceedings, I accept that he did take reasonable steps to negotiate this outcome from time to time in the course of acting as solicitor for the Plaintiff. There is evidence that counsel for the parties, including counsel briefed by Gdanski, were in active discussions to settle the Proceedings from November 2013 to early 2014.

178 As such, Gdanski's conduct of the Proceeding, at least in this respect, was consistent with the overarching purpose of s 7 of the CPA which, by s 7(2)(b) prescribes "agreement between parties" as one of the means by which the overarching purpose of the Act provided for under s 7(1) may be achieved.

179 In consideration of this application for a non-party costs order against Gdanski, I give some weight to his efforts to achieve a resolution of the Proceeding by agreement of the parties, consistently with s 7(2)(b) of the Civil Procedure Act 2010.

180 As to the alleged delay in prosecuting the Proceeding on the part of the Plaintiff, the evidence establishes that between October 2013, when a trial date was fixed and various pre-trial steps were ordered, and May 2014, the only active step taken to progress the proceeding by the Plaintiff was the provision of a draft Court Book index in April 2014, several weeks late.

181 However, I do not take the view that there was any material delay in the conduct of the Proceeding caused by Gdanski which ought to have any bearing on the non-party costs application pressed against him. In particular, I am not satisfied that non-compliance on the part of the Plaintiff with some Court orders is of such gravity and persistence as to amount to a factor which should be held against Gdanski in consideration of this application, particularly in the light of the settlement discussions which were taking place during this period.

182 As to discovery, the Civil Procedure Act 2010 and the common law impose obligations on all participants in litigation, including their lawyers, to disclose the existence of discoverable documents. Section 26 of the Act provides for an ongoing overarching obligation for the duration of the civil proceeding to disclose to each party the existence of all documents that are, or have been, in that person's possession, custody or control - of which the person is aware and which the person considers, or ought reasonably consider, are critical to the resolution of the dispute.

183 The documents concerning the 2013 contract of sale for the Property dated 27 September 2013 pursuant to which the Plaintiff entered into to sell the Property to Traian Iurescu for $2.1 million, including most relevantly the contract of sale, were directly relevant to the issues of alleged losses allegedly suffered by the Plaintiff claimed and pleaded in the Proceeding. Gdanski, as the solicitor for the Plaintiff and with knowledge of the sale, failed to discover these documents to Palms, in breach of his overarching obligation to do so under s 26.

184 I am satisfied that Chilelli had no knowing involvement in this conduct.

185 However, this is a factor of relevance which I take into account against Gdanski.

186 As is clear from the above analysis of the factors relevant in this case on the issue of the interests of justice, some factors go one way, others the other way.

187 All of the circumstances established by the evidence are to be considered and weighed in deciding whether the interests of justice justify an order for costs against a non-party in application of the Knight principles. In approaching this task I have sought to evaluate the evidence as a whole in order to fairly determine where the interests of justice lie. The method is not dissimilar to the consideration of circumstantial evidence in a civil case as described by Tadgell JA in Transport Industries Insurance Co Ltd v Longmuir[93] where His Honour observed:

The evidence is to be evaluated as a whole in order fairly to consider whether the party bearing the onus of proof has established what is ultimately sought to be proved. The object of the exercise of evaluation is to discover whether the evidence paints a picture reflecting real life, rather than to place a tick or cross against paragraph after paragraph of torpid pleading. A true picture is to be derived from an accumulation of detail. The overall effect of the detailed picture can sometimes be best appreciated by standing back and viewing it from a distance, making an informed, considered, qualitative appreciation of the whole. The overall effect of the detail is not necessarily the same as the sum total of the individual details.

188 After standing back and making an informed decision, taking into account and giving due weight to my findings on the relevant matters, and making qualitative appreciation of the whole, the interests of justice call for a non-party costs order to be made against Gdanski but not as against Chilelli.

189 On the application of the Knight principles, I am satisfied that Gdanski should be ordered to pay the costs ordered to be paid in favour of Palms by the Plaintiff, 1165 Stud Road as a consequence of its discontinuance of the proceeding.

190 The application against Rockwell Oliver was advanced on the principles set out in Flower & Hart, r 63.23 of the Rules and breaches of the CPA giving rise to liability under s 29.

191 The evidence establishes that Gdanski brought the litigation file in relation to the Proceeding with him from Sackville Wilks and thereafter continued to manage the file in the Proceeding on behalf of the Plaintiff and direct the course of the litigation on behalf of the Plaintiff.

192 Gdanski is a senior legal practitioner with 20 years' experience. He came to Rockwell Olivier as a successful lawyer with some 30 to 40 clients and approximately 100 files, about half of which were litigation files. In these circumstances I accept that it was not unreasonable for Rockwell Olivier to have not conducted a detailed investigation into the facts and the merits underpinning Gdanski's files. Rockwell Olivier was entitled to trust that Gdanski had administered these files in accordance with the Civil Procedure Act 2010 and would continue to do so, and I am not satisfied on the evidence that Rockwell Olivier should have proceeded otherwise.

193 Rockwell Olivier was on the record for only 7 ½ months of the life of the proceeding (with a Christmas break intervening) before the Plaintiff was placed into liquidation and the proceedings were discontinued. During that period of time settlement discussions were occurring, offers were being exchanged, and an extension of time was being sought to the interlocutory timetable and the joinder of further parties was being contemplated (a course to which some parties had consented).

194 Rockwell Olivier is an incorporated legal practice, being a corporation that engages in legal practice in Victoria under Part 2.7 of the Legal Profession Practice Act 2004. As such, Rockwell Olivier was not at all material times a partnership within the meaning of the Partnership Act 1958 (Vic) by the operation of s 5(2) of that Act.

195 Gdanski was an employee of the corporation Rockwell Olivier. He was not a legal practitioner director of Rockwell Olivier within the meaning of s 2.7.10 of the Legal Profession Practice Act 2004.

196 As observed earlier, the evidence establishes that between October 2013, when a trial date was fixed and various pre-trial steps were ordered, and May 2014, the only active step taken to progress the proceeding by the Plaintiff was the provision of a draft Court Book index in April 2014, several weeks late.

197 However, I do not take the view that there was any material delay in the conduct of the Proceeding caused by Rockwell Olivier which ought to have any bearing on the non-party costs application pressed against the corporation. As I have found in relation to Gdanski on this issue, I am not satisfied that non-compliance on the part of the Plaintiff with some Court orders during this period, is of such gravity and persistence as to amount to a factor which should be held against Rockwell Olivier in consideration of this application, particularly in the light of the settlement discussions which were taking place during this period.

198 In relation to the Flower & Hart principles, Palms submits that Rockwell Olivier continued an action against Palms with substantially no worthwhile prospects.

199 True it is that Rockwell Olivier sought no report from Gdanski (or anybody else) in relation to the Proceeding at the time it came to the firm.

200 However, Rockwell Olivier, as a corporate entity, was entitled to assume that there was no irregularity with the file. In particular, the corporation was entitled to assume that Gdanski, as a practising solicitor, was in a position to continue to act for the Plaintiff and assume that there was no material conflict of interest in him continuing to act in the matter.

201 Further, in circumstances where the Proceeding was commenced by Gdanski under the regime of the CPA, the corporation was entitled to assume that the Proceeding had sufficient merit to justify its continuance

202 Again, in the absence of a trial, where the merits could have been appropriately evaluated, I am not in a position to be positively satisfied on the balance of probabilities that the Proceeding was devoid of prospects of success to the point where it should never have been brought or maintained as against Palms.

203 I find that there was nothing in the conduct of Rockwell Olivier in relation to the Proceeding which could justify an order that it pay all or some of the costs of Palms under the principles of Flower & Hart.

204 In relation to the CPA, Palms submits that Rockwell Olivier has breached the overarching obligations to only take steps to resolve or determine the dispute (s 19), to cooperate in the conduct of a civil proceeding (s 20), not mislead or deceive (s 21), to use reasonable endeavours to act promptly and minimise delay (s 25) and to disclose the existence of discoverable documents (s 26). Palms relies on the following matters:

(a) Mr Gdanski was both an officer of the Plaintiff (who signed the overarching obligations certificate) and the principal solicitor on the record for the Plaintiff;

(b) the Plaintiff's and Mr Gdanski's knowledge that Palms was relying on earlier assurances as to the net equity in the Property meeting any adverse costs order;

(c) whilst Rockwell Olivier was on the record, the Property was re-sold, the transfer effected and proceeds from the sale distributed pursuant to a contract of sale dated 27 September 2013;

(d) the details and documents concerning this re-sale were not disclosed by Gdanski or Rockwell Olivier;

(e) the details of the re-sale were relevant to both the security for costs issue and to the Plaintiff's claimed losses in the proceeding; and

(f) the complete lack of progress in this proceeding and no attempts to communicate with Palms' lawyers or to extend the time for compliance with various interlocutory steps as described in the previous paragraph.

205 In these circumstances, Palms submits that Rockwell Olivier has breached a number of overarching obligations under the CPA.

206 It is claimed by Palms that these breaches resulted in Palms incurring substantial legal costs in continuing to defend the claims and not issuing an earlier security for costs application against the Plaintiff. This may have resulted in much of its legal costs from late 2013 being avoided.

207 Palms submits that in these circumstances, the Court should order that Rockwell Olivier pay at least some of Palms' costs arising out of Rockwell Olivier's breaches.

208 However, as earlier found, the application of Palms founded on s 29 of the CPA, is barred by the operation of s 30 of the Act.

209 Accordingly, for the purposes of making a non-party costs order, the alleged breaches of the overarching obligations under the CPA, per se, are not relevant to the founding of any claim for such costs against Rockwell Olivier, by reason of my finding that the application purportedly made under s 29 of the Act is incompetent by the operation of the time limit in s 30.

210 For this reason, the application for a non-party costs order against Rockwell Olivier based on s 29 of the CPA fails.

211 In relation to r 63.23, Palms submits that Rockwell Olivier has caused costs to be incurred by Palms improperly or without reasonable cause because of Rockwell Olivier's failure to act with reasonable competence and expedition. Palms relies on the following matters:

(a) Mr Gdanski was an officer of the Plaintiff and the solicitor with the carriage and conduct of the proceeding on behalf of the Plaintiff;

(b) from October 2013 to May 2014, the only active step taken by the practice to progress the proceeding was providing a draft Court Book index in April 2014 which was several weeks late;

(c) Rockwell Olivier did not disclose matters concerning the sale and settlement of the Property in 2013 nor the fact of liquidation in early April 2014;

(d) Rockwell Olivier did not seek any extension of time to comply with various pre-trial orders;

(e) the Plaintiff failed to comply with orders for the provision of evidence; and

(f) Rockwell Olivier then filed a notice of discontinuance and a notice of ceasing to act on 19 May 2014.

Conclusions as to Non-Party Costs Order Against Rockwell Olivier Under Rule 63.23 Supreme Court Rules

212 It is well established that, where a costs order is sought against a lawyer under r 63.23 of the Rules, the claimant needs to show a causal connection between the lawyer's conduct and the particular financial loss which is sought to be recovered.[94]

213 However, Palms has failed to show any causal link between Rockwell Olivier's alleged breaches and specific costs which have been incurred.

214 It is accepted that, in the period from 4 October 2013 to 29 August 2014, Palms incurred legal costs of approximately $134,000.

215 It is also accepted that Palms incurred substantial legal fees in defending claims which did not proceed. As earlier found, between 7 September 2012 and 29 August 2014 ABL rendered accounts to Palms for legal work undertaken on its behalf in the Proceeding totalling $301,303. Palms paid these fees.

216 However, it has not been established that these costs would have been avoided, had, for example, the Plaintiff advised Palms of the sale of the Property on or about 27 September 2013. It is possible that Palms, in these circumstances, would have made an immediate application for security for costs upon receipt of the notification. I am not satisfied, on the balance of probabilities, that this would have occurred, particularly given the delay between 4 March 2014, when Palms discovered the Property had been sold and 1 May 2014, when the application for security for costs was issued, nearly two months later. Whether and when Palms would have made such an application had it been advised earlier of the sale, and the outcome of such an application had it been made, and critically, whether further costs would have been avoided, even if the application was successful, is left clouded with conjecture.

217 I find that there was nothing in the conduct of Rockwell Olivier, as an incorporated legal practice, in relation to the Proceeding which could justify an order that it pay all or some of the costs of Palms under r.63.23 of the Rules.

218 Further, I apply the following approach to r 63.23 in this case, which was discussed in Kenny & Anor v Gippsreal (No 2):[95]

Having dismissed the application insofar as it was founded on s 29 of the CPA by reason of non-compliance with the statutory time limit under s 30, in my opinion, it would work to circumvent the very clear statutory requirements under the CPA if an applicant was in effect permitted to maintain the very same case to found a non-party costs order against lawyers, but do so under r 63.23 of the Rules.

To my mind, a powerful, and in this case an insurmountable, element in the exercise of the discretion under r 63.23, is the necessity to comply with the statutory requirement of s 30 of the CPA and prevent the force and effect of that provision being undermined by application of a Rule of a Court in the manner urged by the applicant. The proper administration of the CPA and the protection of the regime of checks and balances established in Part 2.4, calls for this approach.

219 When this approach is applied to the very similar facts of the present case it is clear that the discretion should be exercised against making an order under r 63.23 on a similar basis.

220 Palms submits that the costs orders against the non-parties in this proceeding should be awarded on an indemnity basis because:

(a) their conduct caused costs to be incurred unnecessarily and loss of time to the Court and to the other parties; and

(b) there were a number of attempts to resolve the Proceeding through Calderbank offers each of which was rejected by the Plaintiff unreasonably.

221 Whether to allow costs on an indemnity basis is in the discretion of the Court.[96] The exercise of the discretion is generally exceptional, being reserved for cases where the losing party has engaged in unmeritorious or deliberate or high-handed or other improper conduct such as to warrant the court showing its disapproval and preventing the successful party being left out of pocket.[97]

222 In my opinion, Gdanski engaged in relevant misconduct in acting on behalf of the Plaintiff when, well knowing of the existence of the document and, I infer, well understanding its relevance to the issue of damages in the Proceeding or being in a position where he ought to have understood its relevance, he failed to discover the contract of sale of the Property which was entered into on 27 September 2013.

223 This was the first obvious example where his conflict as the solicitor for the Plaintiff on the one hand and his interest in the Plaintiff as its director and, through associated companies, his interest as a shareholder on the other, more than likely inhibited him from exercising sound forensic judgment and providing independent advice to his client, to which it was entitled.

224 Further, it will be recalled that it was between 28 February 2013 and 2 April 2013, that ABL, on behalf of Palms, and Gdanski of Sackville Wilks, on behalf of the Plaintiff, corresponded on the issue of security in the "security for costs correspondence". Central to the assurances given to Palms through ABL by Gdanski, that the Plaintiff had sufficient assets to meet any costs order against it, was its ownership of the Property and its value as an asset. In the circumstances, the failure of Gdanski to disclose to Palms the sale of the Property on or shortly after 27 September 2013, in my opinion, amounted to sharp practice on his part, no doubt also a product of a judgment clouded by his conflict of interest.

225 For this reason, I will order that Gdanski pay the costs of Palms of the Proceeding on an indemnity basis from 27 September 2013.

226 In the course of the Proceeding there were three Calderbank offers made by Palms to the Plaintiff:

(a) offer dated 20 February 2013 for the Plaintiff to pay Palms' costs in the amount of $30,000 (excl. GST);

(b) offer dated 15 May 2013 for the Plaintiff to pay Palms' costs in the amount of $45,000.00 (plus GST); and

(c) offer dated 31 March 2014 for the Plaintiff to pay Palms' costs in the amount of $130,000 (incl. GST).

227 Reasons were provided in the second and third of the offers as to why the Plaintiff's claims would fail and why the offer should be accepted. None of these offers was accepted by the Plaintiff.

228 It is well accepted that the existence of a Calderbank offer is a factor to be taken into account in the Court's discretion with respect to costs. The principles in relation to Calderbank offers were summarised in Hazeldene's Chicken Farm Pty Ltd v WorkCover Authority (No 2).[98] In considering whether the rejection of a Calderbank offer was unreasonable, the Court usually takes into account the stage of proceeding, the period allowed for acceptance, the extent of the compromise offered, the offeree's prospects and the clarity of the offer.

229 However, although the three Calderbank offers were made by Palms to the Plaintiff, no Calderbank offers were made to any of the non-party respondents to this application, including Gdanski and Chilelli.

230 Although Gdanski knew of the Calderbank offers made to the Plaintiff company, Chilelli did not know of them.

231 I reject the relevance of the Calderbank offers to the present application because:

(a) I am not satisfied that it was not unreasonable for the Plaintiff to have rejected the offers made on 20 February 2013 and 15 May 2013;

(b) None of the Calderbank offers was directed to any of the non-party respondents to this application, and there is no proper basis for costs orders to be made against them founded on non-acceptance of these offers when they were not then put on notice of any non-party costs application proposed to be made against them, until, in the case of Gdanski, he was put on notice at the hearing before Daly AsJ on 12 May 2014, well after the expiry of the last of the three Calderbank offers; and

(c) In any event, and on other grounds, I have found that Gdanski should pay the costs of Palms on an indemnity basis from 27 September 2013, for the reasons earlier discussed.

1. John Gdanski, the respondent to the summons issued by the Third Defendant dated 22 December 2014, is ordered to pay the costs of the Third Defendant of the Proceeding up to and including 27 September 2013 on a standard basis and thereafter on an indemnity basis.

2. The summons issued by the Third Defendant dated 22 December 2014 as against Renato Chilelli and Rockwell Bates Pty Ltd (an incorporated law practice trading as "Rockwell Olivier") is otherwise dismissed.

233 I will hear the parties on the orders which should be made as to costs.

[1] [1999] FCA 773; (1999) 87 FCR 134.

[2] As to which see: Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31, [32] (Black CJ); Winterton Constructions Pty Ltd v Hambros Australia Ltd [1992] FCA 582; (1992) 39 FCR 97, [114] (Hill J); McMahon v Pomeray Pty Ltd & Ors [1991] ATPR 41-125, 52,857-858; and Fraser v NRMA Holdings Ltd ( 1995) 55 FCR 452, 453.

[3] [2015] VSC 284, [16]-[41] ("Gippsreal").

[4] [2013] VSCA 337 ('Yara').

[10] See Hudspeth and Scholastic Cleaning and Consultancy Services (No 4) [2013] VSC 14, [5]-[7] (Dixon J).

[11] Yara [2013] VSCA 337, [26].

[12] [1940] AC 282.

[14] Michael v Freehill Hollingdale & Page (1990) 3 WAR 223, 233. See also Davy-Chiesman v Davy-Chiesman [1984] Fam 48; [1984] 1 All ER 321, 328; Monitronix Ltd v Michael (1992) 7 WAR 195, 200; De Sousa v Minister for Immigration, Local Government and Ethnic Affairs [1993] FCA 146; (1993) 41 FCR 544; Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (No 1) (1993) 45 FCR 224; 117 ALR 253, 261; Deputy Commissioner of Taxation v Levick (1999) 168 ALR 383; [1999] FCA 1580; affirmed in Levick v DCT (2000) 44 ATR 315; [2000] FCA 674. See also: White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 229; affirmed in Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (1999) 87 FCR 134; 163 ALR 744; [1999] FCA 773.

[15] Knight v FP Special Assets Limited (1992) 174 CLR 178; Permark International Interiors Pty Ltd v Amoveo Pty Ltd [2013] VSC 563, [16] per Croft J citing Knight v FP Special Assets Limited (1992) 174 CLR 178; Guss v Geelong Building Society (in liq) [2001] VSC 288, [7] (Ashley J).

[16] (1992) 174 CLR 178 ("Knight").

[19] Ibid 192-3, quoted with approval in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75, 94-5.

[21] See, for example, Ian Huntly Philip v JPM Developments [2015] NSWSC 495; IPEX ITG Pty Ltd (in liq) (receivers appointed) v Victoria [2014] VSCA 315; Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406; Permark International Interiors Pty Ltd v Amoveo Pty Ltd [2013] VSC 563; Kebaro Pty Ltd v Saunders [2003] FCAFC 5.

[22] [2005] NSWCA 340 (Beazley, Giles and Basten JJA) ("FPM ConstructionsI").

[26] Re Lorie Najjar & Sons Pty Limited (in liq) (No 9) [2014] NSWSC 56 (Black J); HM&O Investments Pty Ltd (in liq) v Ingrain [2013] NSWSC 1778 (Stevenson J); The Beach Retreat Pty Ltd v Mooloolaba Yacht Club Marina Ltd [2009] QSC 84 (Stevenson J); Manderson M&F Consulting v Incitec Pivot Ltd (No 3) [2011] VSC 441 (Croft J); Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; (2012) 200 FCR 154, [83] (Keane CJ, Lander and Foster JJ); Permark International Interiors Pty Ltd v Amoveo Pty Ltd [2013] VSC 563, [28]-[29] (Croft J) ("Permark"); Refractory Constructions Pty Ltd in the matter of A4dable Geeks Pty Ltd (in liq) v A4dable Geeks Pty Ltd (in liq) [2014] FCA 1162 (Logan J), [21]-[23].

[27] Kebaro Pty Ltd v Saunders [2003] FCAFC 5, [103] (Beaumont, Sundberg and Hely JJ) ("Kebaro"); Permark International Interiors Pty Ltd v Amoveo Pty Ltd [2013] VSC 563, [75] (Croft J).

1. [28] Guss v Geelong Building Society (in liq) [2001] VSC 288, [7] (Ashley J).

[29] Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406; Permark [2013] VSC 563.

[30] Permark [2013] VSC 563, [39].

[31] Kebaro [2003] FCAFC 5, [103].

[32] Ibid [111]-[114]; Arundel Chiropractic v DCT [2001] HCA 26; (2001) 179 ALR 406, 414 (Callinan J). The Kebaro reasoning was cited with approval in IPEX ITG Pty Ltd (in liq) (receivers appointed) v Victoria [2014] VSCA 315, [42].

[33] IPEX ITG Pty Ltd (in liq) v State of Victoria [2011] VSCA 134, [15]-[16] (Tate JA and Macauley AJA); Ballantyne Suites Pty Ltd v Ballantyne Chambers Pty Ltd (in liq) (No 2) [2014] VSC 147, [16]-[17] (Hargrave J) cf. IPEX ITG Pty Ltd (in liq) v State of Victoria (No 2) [2011] VSC 39, [15] (Sifris J).

[34] IPEX ITG Pty Ltd (in liq) v State of Victoria [2011] VSCA 134, [15] (Byrne J); Ballantyne Suites Pty Ltd v Ballantyne Chambers Pty Ltd (in liq) (No 2) [2014] VSC 147, [16]-[17] (Hargrave J).

[35] Kabaro [2003] FCAFC 5, [113]-[114]; IPEX ITG Pty Ltd (in liq) (receivers appointed) v Victoria [2014] VSCA 315, [42] (Neave, Santamaria and Kyrou JJA).

[36] Candibon Pty Ltd v Minister of Planning (No 2) [2012] VSC 424, [41] (Emerton J).

[37] Permark [2013] VSC 563, [68].

[39] [2013] VSC 563, [27]-[35].

[40] Oz B and S Pty Ltd v Elders IXL Ltd [1993] FCA 371; (1993) 117 ALR 128; Yates Property Corp Pty Ltd v Boland (No 2) [1997] FCA 760; (1997) 147 ALR 685; Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 595; (2000) 185 ALR 463; Waiviata Pty Ltd v New Millenium Publications Pty Ltd [2002] FCA 481; FMP Constructions Pty Ltd v Council of the City of the Blue Mountains [2015] NSWCA 340; Rushton (Qld) Pty Lt v Rushton NSW Pty Ltd [2004] QSC 47.

[41] Permark [2013] VSC 563 [79].

[42] [2004] QSC 47.

[44] Permark [2013] VSC 563, [83].

[45] [2011] VSC 441.

[47] Permark [2013] VSC 563, [33] (Croft J).

[48] [2014] VSC 147. Leave to appeal of this decision was refused: Ballantyne Suites Pty Ltd (in its own right and as trustee of the Ballantyne Property Suite Unit Trust and Ballantyne Property Suite 2 Unit Trust) v Ballantyne Chambers Pty Ltd (in liq) [2014] VSCA 223.

[50] 229; affirmed in Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (1999) 87 FCR 134; 163 ALR 744; [1999] FCA 773.

[51] White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169, 239.

[52] [1992] HCA 34; (1992) 174 CLR 509, [39].

[53] (1955) Ch 600, 623-624.

[54] [2009] HCA 43; (2009) 239 CLR 75.

[57] See Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435.

[58] Yara [2013] VSCA 337, [56].

[59] Kenny v Gippsreal [2015] VSC 284, [54].

[60] [2015] VSC 284, [57].

[61] Final Submissions for Gdanski and Chilelli, page 23 Paragraph (2).

[65] Transcript page 246, lines 22-31; page 247 lines 1-8.

[68] Affidavit sworn by Gdanski on 5 May 2014, paragraph 3.

[76] Transcript page 249 lines 1-23; page 249 lines 29-31; and page 250 lines 1-4.

[78] Transcript page 250 lines 24-31; page 251 lines 1-7.

[79] For example, see: Transcript page 282 lines 1-6.

[81] For example, see: Transcript page 248 lines 16-29; and page 289 lines 2-20.

1. [82] [2012] FCAFC 50, [93].

[83] Vestris v Cashman (1998) 72 SASR 449, 467 (Lander J).

[84] Transcript page 250 lines 24-31; page 251 lines 1-7.

[85] [2011] VSC 441.

[86] Transcript page 249 lines 1-23; page 249 lines 29-31; and page 250 lines 1-4.

[88] Permark International Interiors Pty Ltd v Amoveo Pty Ltd [2013] VSC 563.

[89] [2000] FCA 1895.

[91] Vestris v Cashman (1998) 72 SASR 449, 468 (Lander J).

[92] Vestris v Cashman (1998) 72 SASR 449, 467 (Lander J).

[93] [1997] 1 VR 125, 141; cited with approval by the Court of Appeal of Victoria in Nolan v Nolan [2004] VSCA 109, [120-121] in the joint judgment of Chernov and Eames JJA (Ormiston JA concurring).

[94] Byrne v Sefton Health Authority [2001] EWCA Civ 1904; [2002] 1 WLR 775, 783, Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd & Ors (No 8) [2014] VSC 567, [161].

[95] Kenny & Anor v Gippsreal (No 2) [2015] VSC 737, [51]-[52].

[96] See Supreme Court Act 1986 (Vic), s 24(1).

[97] Australian Guarantee Corp Ltd v De Jager [1984] VicRp 40; [1984] VR 483, 502.

[98] [2005] VSCA 298.