Plaintiff v Defendants

2 Sandpiper was incorporated on 25 May 2021 as a special purpose vehicle to undertake the redevelopment of an existing apartment complex at 155 Old Burleigh Road, Broadbeach on the Gold Coast ('development'). The complex had 48 lots. A company, C Bay Management Pty Ltd, owned management and letting rights in respect of the property. Sandpiper contemplated undertaking the development in one of two ways. They were:

(a) by demolishing the existing complex and constructing a new 35 storey luxury apartment building; or

(b) if all lots could not be acquired, by refurbishing the existing lots and improving the common property and facilities.

3 Mr Priest was at all material times the sole director of Sandpiper, Trenert Projects and Trenert Investments. All shares in Sandpiper were owned by Trenert Projects. In turn, all shares in Trenert Projects were owned by Trenert Investments. All shares in Trenert Investments were owned by Mr Priest. The three companies were owned and directed by Mr Priest in every respect.

4 On 24 March 2022, Sandpiper obtained a loan of $5.2 million from GI 367 Pty Ltd at a discount interest rate of 25% per annum and standard rate of 32% per annum secured by mortgage over 5 units in the development and another property in New South Wales.

5 In April and May 2022, Sandpiper and the defendants engaged in a due diligence process for the sale of the development to the first defendant, Main Beach Developments Qld Pty Ltd (ACN 653 389 201) ('Main Beach'). Prior to the commencement of the due diligence process, Dean Giannarelli, the fourth defendant, and a director of Main Beach, signed a confidentiality deed on behalf of Main Beach.

6 During the due diligence process Sandpiper gave the defendants access to a data room which included all of the contracts that Sandpiper had signed with owners of lots in the development. Sandpiper provided an Excel spreadsheet to Mr Giannarelli which gave detailed information about Sandpiper's negotiations with lot owners. In June 2022, Sandpiper did not complete contracts of sale for Lots 29 and 41 which it had purchased from Mr and Mrs Gruber ('Grubers') despite two extensions. The second defendant, Petros Qld Pty Ltd (ACN 659 919 258) then purchased these apartments.

7 Sandpiper filed a writ on 26 August 2022 claiming the misuse of confidential information by the defendants. Seven defendants were named in the proceeding. Sandpiper alleged that by approaching the Grubers and purchasing their lots the defendants had stifled its ability to undertake the development. Sandpiper sought interim and interlocutory injunctions restraining the defendants from contacting or dealing with owners in the complex including the Grubers and for the delivery up or destruction of documents containing confidential information. The defendants opposed the application contending that Sandpiper was never able to acquire the necessary lots, and that the development of a new complex was never feasible. They said that Sandpiper represented to them it had acquired or would shortly acquire all of the lots in the development. That was not the case.

8 Each party filed affidavits in support of its position.

9 On 15 September 2022, Button J granted interim injunctions in substance restraining the defendants from contacting or dealing with any owners of lots in the complex in relation to the purchase or proposed purchase of lots, or taking steps to purchase any lots or acquire any interest in the complex until further order. They were also restrained from entering into contracts or leases or from encumbering Lots 29 and 41 except to the extent necessary for the day-to-day management and maintenance of these lots.

10 Sandpiper gave the usual undertaking as to damages and also undertook to advise the defendants by 15 March 2023 whether any lots that were the subject of a contract of sale or an option deed had not settled.

11 Button J held that Sandpiper had made out a strong prima facie case that confidential information was communicated in circumstances where the defendants understood or should have understood it to be confidential, and that this information was used to purchase Lots 29 and 41 from the Grubers. Her Honour considered the balance of convenience holding that the lesser risk of injustice lay in favour of granting the injunction.

12 On 29 September 2022, Button J made consent orders for pleadings and for mediation.

13 At a directions hearing on 14 December 2022, her Honour made orders for discovery, exchange of expert evidence, filing and service of witness outlines, and service of a draft court book index.

14 By 15 March 2023, Sandpiper decided that it would not exercise its options or settle the lots that were subject to option deeds. It advised the defendants that it did not intend to purchase any further uncontracted lots and agreed to vacate the injunction granted by Button J. Sandpiper's solicitors provided draft orders to the defendants' solicitors to vacate the injunction orders. Consent orders on the papers vacating the injunction and releasing the undertakings were made by Gitsham JR on 28 April 2023.

15 These steps followed a commercial decision by Sandpiper not to proceed with the development. According to the administrators' report to creditors dated 9 August 2023, Mr Priest said that the reasons for Sandpiper's decision were in substance:

(a) an inability to acquire all of the apartments in the development, as a result of the acquisition of a blocking stake by the Victorian developer rendering the project unviable;[1]

(b) the costs associated with the resulting legal proceedings; and

(c) an unwillingness on the part of Sandpiper management to continue with legal proceedings while interest on Sandpiper's debt facilities continued to accrue.

16 In breach of the directions orders made by Button J on 14 December 2022, and despite a number of requests by the defendants, Sandpiper did not:

(a) make discovery of documents;

(b) file and serve expert evidence;

(c) file and serve witness outlines; or

(d) file and serve a draft court book index.

17 Sandpiper took no action to comply with the court orders, or to be relieved from compliance with them.

18 On 23 March 2023, the defendants served a Calderbank offer which offered to agree to the dismissal of the proceeding and accept 80% of the defendants' costs on the standard basis. The offer was not accepted by Sandpiper.

19 On 9 June 2023, Sandpiper entered into a contract of sale of all 19 of its units to another company for a price of $15.5 million. The sale settled on 23 June 2023. The sale proceeds were distributed in payment or part-payment of Sandpiper's selling agent, statutory and secured creditors and to other creditors that had provided funding to Sandpiper. The reduction of liabilities was insufficient to pay all amounts owed by Sandpiper.

20 On 18 May 2023, the defendants issued a summons seeking an order for the dismissal of the proceeding ('the dismissal summons'). This was listed before me as an opposed matter for hearing on 14 July 2023.

21 No affidavit or advice to the court was provided by Sandpiper that it was not going ahead with the proceeding.

22 On the return of the summons on 14 July 2023, I was advised by the solicitor for Sandpiper that Mr Priest, as Sandpiper's sole director, had voluntarily appointed administrators to Sandpiper late on the previous evening. Given the continuing non-compliance with Button J's order and the lack of explanation, I dismissed the proceeding without final adjudication. The defendants were given liberty to apply generally in respect of costs.

23 Less than a month later, on 8 August 2023, Trenert Projects, by Mr Priest as its sole director, proposed a deed of company arrangement ('DOCA') to Sandpiper's creditors on the basis that it would make a DOCA contribution of $300,000-$350,000. It proposed that the DOCA contribution be distributed in payment of the administrators' fees with the balance of funds to be paid as to 75% to the secured creditor GI 367 Pty Ltd and remaining 25% to unsecured creditors. The DOCA was approved by Sandpiper's creditors, with the result that Sandpiper came out of administration.

First issue - should an indemnity costs order be made against Sandpiper?

24 The defendants submit that Sandpiper should pay their costs of and incidental to the proceeding including all reserved costs on an indemnity basis.

25 They rely on the affidavits of their solicitor Julian Vagg filed 18 May and 13 July 2024. They also rely on the affidavit of Patrick Dunnell filed 22 January 2024, and written submissions filed on 12 July 2023, and 28 March 2024. Sandpiper did not appear on the return of the costs summons to oppose an order for costs.

26 The non-party respondents to the costs summons appeared at the costs hearing. They relied on written and oral submissions.

27 There was no dispute that the defendants are entitled to a costs order on the standard basis against Sandpiper as the proceeding was brought by Sandpiper, but not pressed and later dismissed. The defendants seek, however, an indemnity costs order against Sandpiper.

28 Sandpiper's conduct of the proceeding is conveniently considered in two periods:

(a) from the commencement of the proceeding on 26 August 2022 until about 15 March 2023 when Sandpiper decided not to proceed; and

(b) from 15 March 2023 until the proceeding was dismissed on 14 July 2023.

29 The Court has a wide discretion as to whether costs are ordered on a standard basis or an indemnity basis.[2] The circumstances considered appropriate for costs to be ordered on an indemnity basis have been discussed in many cases. In Fountain Selected Meat (Sales) Pty Ltd v Int Produce Merchants Ltd,[3] Woodward J said:

I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action had been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or, because of some wilful disregard of the known facts or the clearly-established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.

30 In Ugly Tribe Co Pty Ltd v Sikola,[4] Harper J said that circumstances in which it had been held proper to order indemnity costs, characterised as special circumstances, included the following:

(a) the making of an allegation known to be false, that the opposite party is guilty of fraud;

(b) the making of an irrelevant allegation of fraud;

(c) conduct which causes loss of time to the court and to other parties;

(d) the commencement or continuation of proceedings for an ulterior motive;

(e) conduct which amounts to a contempt of court;

(f) the commencement or continuation of proceedings in wilful regard of known facts or clearly established law; and

(g) the failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided the trial.

31 In their written and oral submissions, the defendants advanced arguments as to why an indemnity costs order should be made against Sandpiper relating to the whole of the proceeding. Essentially, they were:

(a) Sandpiper's conduct of the proceeding;

(b) the proceeding was doomed to failure;

(c) Sandpiper misled the defendants and the Court as to the number of apartments that it had acquired;

(d) Sandpiper acted in a high-handed and contumelious manner and flagrantly disregarded court orders; and

(e) Sandpiper did not comply with the overarching obligations set out in Part 2.3 of the Civil Procedure Act 2010 (Vic).

32 I do not accept these submissions in relation to the first period. Far from its proceeding being doomed to failure, Sandpiper was successful in its injunction application before Button J, and established a strong prima facie case. Sandpiper may or may not have ultimately succeeded in a claim for breach of confidence and obtained injunctions or damages, but its claim was not hopeless or foredoomed to failure. It was Sandpiper's commercial decision not to go ahead with the proceeding that gives rise to its liability to pay costs, rather than any inherent deficiency in its claim. The defendants also had arguable defences based on misrepresentation, and misleading and deceptive conduct. They did not seek security for costs against Sandpiper.

33 It is true that Mr Priest, in paragraph 41(c) of his affidavit filed 26 August 2022, understated the number of units that remained to be acquired. However, the misstatement was fully exposed and discussed in open court by Sandpiper's senior counsel at the hearing before Button J on 15 September 2022. Her Honour was not misled as to the position. The defendants did not suffer any detriment as a result of the misstatement by Mr Priest.

34 In relation to the first period that the defendants have not persuaded me that an indemnity costs order should be made. Rather, I am satisfied that the interests of justice are well served by an order that during the first period Sandpiper pay the defendants' costs of the proceeding on the standard basis.

35 Essentially the position is the same as would have obtained had Sandpiper by consent, or leave of the court filed a notice of discontinuance after deciding not to continue with the proceeding.[5]

36 During the whole of the second period, Sandpiper acted in contravention of Button J's orders. It took no action to comply. It would have been much better if it had been candid with the Court. It should have filed a notice of discontinuance, or sought consent or leave to do so. Instead it sought to postpone the inevitable dismissal of the proceeding. After it was issued the dismissal summons remained on foot for two months before it was heard.

37 The last minute appointment of administrators on the eve of the Court hearing on 14 July 2023 was discourteous to the Court and to the defendants. It was coupled with an adjournment application made the next day at the hearing of the dismissal summons.

38 Under Part 2.3 of the CP Act Sandpiper had overarching obligations:

(a) to co-operate with the defendants and the court in the conduct of the proceeding (s 20); and

(b) to use reasonable endeavours to act promptly and minimise delay (s 25).

39 I find that during the second period, Sandpiper acted in breach of is obligation to co-operate with the defendants and the Court by not being candid with the Court about its decision not to continue with the proceeding. The result was that the Court was uninformed about the true position even as late as the return of the dismissal summons on 14 July 2023.

40 I also find that Sandpiper was in breach of its overarching obligation to use reasonable endeavours to act promptly and minimise delay. Sandpiper did not comply with the orders of Button J made on 14 December 2022 or inform the Court as to why it did not comply. It delayed finalisation of the proceeding over the whole of the second period.

41 On 23 March 2023, the defendants offered to settle the proceeding on the basis that Sandpiper pay 80% of the defendants' costs in the proceeding to be taxed on the standard basis. This was a 20% reduction in Sandpiper's standard costs liability on discontinuance. The offer was not accepted. The defendants submit that Sandpiper should pay the costs of the proceeding after 23 March 2023 on an indemnity basis.

42 In Hazeldene's Chicken Farm Pty Ltd v WorkCover Authority (Vic) (No 2),[6] the Court of Appeal held that a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the offer was expressed; and

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.

43 I will now turn to the relevant factors to be taken into account as set out in Hazeldene's Chicken Farm. The list of factors is not exclusive. No party submitted that there were additional relevant factors that should be taken into account.

44 The offer was made following Sandpiper's decision not to exercise its options and settle the lots that were then subject to the option deeds. The offer related to the final disposition of the proceeding given that the development was not going ahead.

45 The extent of the compromise offer was limited. If Sandpiper had discontinued the claim, it would be liable to pay the defendants' costs of the proceeding taxed on the standard basis. If Sandpiper accepted the offer it would get a 20% discount on those costs. In both eventualities, the proceeding would be dismissed. Essentially, the defendants offered a 20% discount on the costs of the proceeding with the object of ending the proceeding expeditiously.

The time allowed to the offeree to consider the offer

46 No time was specified for Sandpiper to consider the offer. The Calderbank letter did not state the time within which the offer could be accepted. A period of fourteen days is commonplace in Calderbank offers.

The offeree's prospects of success assessed as at the date of the offer

47 At the time of the Calderbank offer, the parties were aware that Sandpiper did not intend to pursue the development or the proceeding. The Calderbank offer was essentially about the extent of costs that would be payable by Sandpiper following the dismissal of the proceeding.

48 The offer was clear. The contrary was not suggested.

Whether the offer foreshadowed an application for indemnity costs in the event of the offeree refusing it

49 The offer foreshadowed an application for indemnity costs in the event that it was refused.

Conclusion as to the second period and Calderbank offer

50 Overall, I am satisfied that the interests of justice are well-served by an order that Sandpiper pay the costs of the dismissal summons on an indemnity basis representing the costs that the defendants incurred in seeking to have the proceeding dismissed following Sandpiper's decision not to continue with the proceeding. It should not have been necessary for the dismissal summons to have been issued. It should not have been necessary for the Court and the parties to have to wait a further two months which was the time necessary for the dismissal summons to be listed and heard.

51 Sandpiper should not have ignored Button J's orders for a period of about five months. It should have filed an affidavit or informed the Court of its position earlier. It was discourteous to the Court and the defendants in appointing administrators to Sandpiper only at the last minute and on the eve of the hearing on 14 July 2023. Sandpiper could have implemented its decision not to go ahead with the proceeding in a manner which complied with its overarching obligations under the CP Act and avoided these consequences.

52 The Calderbank offer was made shortly after Sandpiper decided that it did not intend to pursue the development or the proceeding. It offered a 20% reduction in costs liability to Sandpiper in the event that the proceeding was discontinued. It was not accepted, and the proceeding lingered on for four more months.

53 It is appropriate to order that the defendants be awarded their costs of the dismissal summons on an indemnity basis. They are entitled to their costs of the balance of the proceeding on the standard basis.

Second issue - should costs be ordered against the non-parties?

54 The defendants seek an order that their costs of the proceeding be paid by the non-parties as well as by Sandpiper. Sandpiper does not have the capacity to pay the defendants' costs of the proceeding. It is insolvent or at best a man of straw. It had total negative equity each of the financial years 2022, 2023 and in 2024 prior to the appointment of administrators.

55 The leading decision as to the Court's discretion to order costs against a non-party is the High Court's decision in Knight v FP Special Assets Ltd, where the plurality held:

For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party ... That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.[7]

The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court.[8]

57 In Dymocks Franchise Systems (NSW) Pty Ltd v Todd, the Judicial Committee summarised the main principles governing the proper exercise of the discretion in these terms:

(1) Although costs orders against non-parties are to be regarded as 'exceptional', exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. (2) Generally speaking the discretion will not be exercised against "pure funders",... "those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course". In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. (3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation, a concept repeatedly invoked throughout the jurisprudence... Nor, indeed, is it necessary that the non-party be 'the only real party' to the litigation in the sense explained in the Knight case, provided that he is "a real party in...very important and critical respects".[9]

58 In Gdanski v Palms Court Management Pty Ltd, the Court of Appeal explained the informing principle in these terms:

The informing principle is clear enough. It is that, if a party to litigation is liable to pay the costs of the successful party but is unable because of insolvency to do so, justice may require the costs to be paid by a non-party if it can be shown that the non-party played an active part in conducting the litigation and stood to benefit from a successful outcome.

...

The Knight exception applies where recourse to the losing party is unavailable because it is insolvent, and where the non-party can be seen to have, in substance, prosecuted the claim (or defence) in pursuit of his or her own interests.

Decisions since Knight have drawn on the language used in the joint judgment, as well as that of Dawson J, to describe the twin requirements that the non-party have an active role in the litigation and an interest in its subject matter as a single requirement that the non-party be 'a real party' to the litigation in 'critical' and 'important' respects...It may therefore be convenient to describe the threshold issue as being whether the non-party is 'a real party' to the litigation. Whether or not that language is apt to describe every situation in which the Knight discretion is attracted need not be explored in this case, as the parties accepted the formulation for the purposes of the present appeal.[10]

59 Courts have also given close attention to the position of a sole director of a company. In FPM Constructions Pty Ltd v Council of the City of Blue Mountains, Basten JA observed:

In the present case, it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the "real party" to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case.[11]

60 In Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd, Muir J similarly held that:

In my view the mere fact that a person is the sole director and shareholder of an unsuccessful litigant corporation will not, without more, suffice to justify a costs order against that person. And that is so even if the person was the corporation's sole, principal or ultimate decision maker in relation to the litigation.

To conclude otherwise would be to ignore the principle that costs orders against non-parties are "exceptional" and ought be made only if appropriate in the interest of justice. The control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence. It is sanctioned by a long established legislative framework which recognises that a company has an independent legal personality distinct from that of its members and that neither members nor directors, as a general proposition, are personally liable for its acts and defaults.[12]

61 In Manderson M & F Consulting v Incitec Pivot Ltd (No 3), Croft J held:

Clearly, like any corporate entity, the corporate partners of MMFC can only 'think and act' through natural persons. Consequently, it was unsurprising that Manderson and Karis were the directing minds of MMFC in the conduct of the litigation. There is, however, no evidence that the litigation was conducted in a way that was unreasonable or improper. At all times throughout the proceeding, MMFC was represented by reputable solicitors and by senior counsel with very substantial experience and expertise in relation to intellectual property matters. Each version of the statement of claim or drafts were put forward by MMFC signed by one of these senior counsel (or with drafts indicating that one of these senior counsel would sign). There is no suggestion that any of these senior counsel acted otherwise than with absolute professional propriety and in accordance with their obligations as senior counsel in signing a statement of claim or appearing in support of a proposed statement of claim which was indicative of their intention to sign. In these circumstances, and where MMFC was the proper plaintiff to the proceeding, the making of a costs order against Manderson and Karis would have the effect of setting aside the effect of the separate legal personality of the corporate partners of MMFC as corporate entities and put at risk of personal liability directors and, possibly, other officers of these corporations who conducted the litigation on their behalf. For these reasons, I am of the opinion that it would not be appropriate to make any costs order against Manderson or Karis.[13]

62 Finally, in JAB Nominees (Aust) Pty Ltd v Auswild, Riordan J observed that to enliven the discretion to award costs against a non-party 'something more' is required than a director merely assisting the corporate litigant in the conduct of litigation, which may be in accordance with his or her fiduciary duties. The 'something more' required to enliven the discretion may be:

(a) a director giving instructions to pursue a claim or defence that has no real prospects of success;

(b) the institution of a proceeding based on fraud without reasonable grounds; or

(c) the continuation of such a proceeding on the basis of a 'stubbornly and totally unreasonably' held belief.[14]

(a) Mr Priest had total control of the proceeding on behalf of Sandpiper, as the sole director and secretary of Sandpiper, Trenert Projects and Trenert Investments;

(b) Mr Priest is and was at all material times the sole decision-maker for all three companies;

(c) Mr Priest was the driving force behind the development;

(d) as the sole shareholder of Sandpiper's holding company, Trenert Investments, Mr Priest stood to benefit from the fruits of the proceeding;

(e) at all relevant times Sandpiper had no employees;

(f) Sandpiper had a paid up capital of $100;

(g) it was Mr Priest who decided that Sandpiper should go into administration, and under a month later out of administration through a deed of company arrangement; and

(h) Mr Priest arranged for Trenert Projects to put up the necessary funds under the DOCA.

64 In the proceeding, Mr Priest deposed to the principal affidavit relied on by Sandpiper and two supplementary affidavits. All of the other affidavits relied on by Sandpiper before Button J were deposed by its solicitors and predominantly dealt with procedural matters or produced correspondence.

65 In his affidavit filed 26 August 2022, Mr Priest described himself as the managing director of Trenert, a property development consultancy which provides development management, advisory and capital services to the property industry. It also manages developments on behalf of clients and carries out its own developments.

66 Mr Priest said that he caused Sandpiper to be incorporated on 25 May 2021 for the purpose of carrying out the development.

67 In his affidavits, Mr Priest stated his address to be Level M1, 88 Creek Street, Brisbane. This is the principal place of business of Sandpiper.

68 Mr Priest also said that as at 26 August 2022, Sandpiper had spent approximately $13.5 million acquiring lots or the rights to lots, engaging consultants, and paying deposits and legal fees. He estimated that the total cost of the development would be approximately $31.25 million if Sandpiper were able to acquire the balance of lots and management rights and undertake the development. He said that Sandpiper had obtained finance that was due to expire in September 2022.

69 In his second supplementary affidavit filed 15 September 2022, Mr Priest said that he had obtained an extension of time from Sandpiper's financier, Archibald Capital Pty Ltd until 22 September 2022. Sandpiper was also discussions with its financier regarding a further $10 million facility to allow it to settle its acquisition of all the lots which it currently had under contract or option.

70 Mr Priest produced a management report prepared by external accountants. As at 30 August 2022, this showed Sandpiper's current assets to amount to $50,000, fixed assets at $8,978,525.47, and non-current assets at $16,845,626, giving total assets of $25,874,151.47. Non-current liabilities were in the amount of $20,746,540.88 giving net assets and total equity of $5,127,610.79.

71 On 13 July 2023, Sandpiper, by its sole director Mr Priest, appointed administrators. On 9 August 2023, the administrators provided a report to creditors recommending that Sandpiper's creditors approve a deed of company arrangement at the creditors' meeting on 17 August 2023.

72 The report made it clear that the administrators relied on discussions with Mr Priest and his solicitors, and a report and questionnaire completed by Mr Priest.

73 The report stated that Mr Priest advised the administrators that Sandpiper was established as a special purpose vehicle to amalgamate 48 apartments in the development, and apply for approval for a 38 level residential tower. Redevelopment of the existing scheme was also considered. The administrator reported that they were informed by Mr Priest in substance that:

(a) the legal proceeding by Sandpiper unsettled owners in the development who were yet to enter into a contract;

(b) Mr Priest considered the additional legal expenses, interest, body corporate costs, and inflated prices for purchasing the remaining apartments to finalise the amalgamation rendered the project unviable;

(c) in June 2023, Mr Priest took steps to mitigate any further losses by selling Sandpiper's position in the project; and

(d) Mr Priest decided to place Sandpiper into voluntary liquidation.

74 The administrators reviewed Sandpiper's financial performance concluding that it made losses of $1,024,000, $3,071,000 in FY22 and FY23 respectively and a profit of $22,000 in YTD24. They observed that Sandpiper had incurred considerable losses since inception. They considered that this was not unusual in a special purpose vehicle as the potential upside from the development was expected to cover historical trading losses and provide a substantial return on investment.

75 The administrators determined that Sandpiper's balance sheet showed a negative total equity of $1,024,000, $4,094,000 and $4,072,000 for FY22, FY23 and YTD24 respectively. As at the date of their appointment, Sandpiper had cash at bank of only $449.27. They also observed that the sale of Sandpiper's position in the development for $15.5 million in June 2023 was on reasonable commercial terms but was insufficient to reduce all amounts owing. A contingent amount exceeding $200,000 was allowed by the administrators for the costs of the defendants in this proceeding giving a total debt to unsecured creditors exceeding $3,309,000.

76 The administrators reported that they were advised by Mr Priest that the reasons for the failure of Sandpiper were:

(a) an inability of Sandpiper to acquire all of the apartments in the development as a result of a blocking stake taken by the defendants making the project unviable;

(b) the costs associated with the legal proceedings in relation to the alleged breach of confidentiality; and

(c) an unwillingness to continue with the legal proceedings as the outcome and timing was too risky while interest in the debt facility was continuing to accrue.

77 The administrators recommended that creditors enter into a deed of company arrangement on the basis that $300,000-$350,000 be provided as a deed fund. Control of Sandpiper would then revert to the sole director or directors.

78 I am not satisfied that a non-party costs order should be made against Mr Priest in relation to the costs incurred during the first period. While Mr Priest alone was in total control of Sandpiper at all relevant times and stood to benefit as Trenert Investment's sole shareholder, there is nothing about his conduct of the proceeding that constitutes the 'something more' that might enliven the discretion to award costs against him. In my view, there is insufficient justification to enliven the court's discretion to make a non-party costs order relating to the first period.

79 The position is different in relation to the second period. Over this period, Mr Priest had full control over the litigation and the way in which it was conducted. I have made findings above as to Sandpiper's conduct at the proceeding over the second period.[15] Mr Priest directed and authorised Sandpiper to act in the manner in which it did. He should have given instructions that would have ensured that Sandpiper discharged its duties and responsibilities including its duties and obligations under the CP Act. He has not provided an affidavit in relation to the defendants' costs application or sought to justify Sandpiper's conduct.

80 I find that the interests of justice require that an order for costs should be made against Mr Priest personally for the costs incurred by the defendants over the second period. He was responsible for Sandpiper's conduct when court orders were ignored for five months, and there was a failure to be candid with the court. He was actively responsible for the appointment of the administrators at the last moment before the court hearing on 14 July 2023, and for the decision under a month later to take Sandpiper out of administration on the basis of a $300,000 payment made by Trenert Projects to the administrators at his direction. He was the real party to the litigation over this period, having total control over Sandpiper as its sole director, as well as being the owner of all the shares in its ultimate holding company, Trenert Investments.

81 I am not satisfied that a non-party costs order should be made against these companies. While they are part of Sandpiper's company group, no proper basis has been shown as to why a non-party costs order should be made against either company. The claim for non-party costs orders against Trenert Projects and Trenert Investments must be dismissed.

82 The court will make orders for the costs of and incidental to the dismissal summons to be paid by Sandpiper and Mr Priest on an indemnity basis, and for all other costs of the proceeding to be paid by Sandpiper on the standard basis.

83 Subject to what counsel may say, I will deal with the costs of the costs summons by way of written submissions. Otherwise the costs summons will be dismissed.

SANDPIPER DEVELOPMENTS PTY LTD (ACN 650 486 490)

MAIN BEACH DEVELOPMENTS QLD PTY LTD (ACN 653 389 201)

PPA REALTY INVESTMENTS PTY LTD (ACN 150 701 652)

[1] The Victorian developer was Main Beach which belonged to the Pelligra Group of companies.

[2] Supreme Court Act 1986 (Vic) s 24(1); Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.02 ('Rules').

[3] (1988) 81 ALR 379, 401.

[4] [2001] VSC 189, [7].

[6] [2005] VSCA 298; (2005) 13 VR 435, [25] (Warren CJ, Maxwell P and Harper AJA) ('Hazeldene's Chicken Farm').

[7] (1992) 174 CLR 178, 192-193 (Mason CJ, Deane J, Gaudron J agreeing) ('Knight').

[9] [2004] 1 WLR 2807, 2815 [25] (PC).

[10] Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348, [66]-[69] (Maxwell P, McLeish JA and Keogh AJA) (citations omitted).

[11] [2005] NSWCA 340, [206] (Basten JA; Beazley JA agreeing).

[12] [2004] QSC 47, [12]-[13].

[13] [2011] VSC 441, [37].

[14] [2020] VSC 731, [273] (citations omitted).

[15] Above [36]-[40],[50]-[53].