Plaintiff v First Defendant Second Defendant Third Defendant

1 This proceeding was commenced by writ, filed on 7 December 2010. On that day, the plaintiff issued a summons seeking, on an urgent basis, a freezing order and related orders against the defendants. On the basis that the application was urgent it was heard on that day.

"1. That of [sic] until the trial of this proceeding or further order of the Court the Defendants by their servants and agents or howsoever, be restrained from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of their assets which are in Australia including but not limited to any proceeds arising from the settlement of the sale of the property situated at and known as 68 - 74 Courtney Street, North Melbourne, being the land described in Certificate of Title Volume 08800 Folio 654, ("the Land") up to the unencumbered value of $475,000.00.

1. 2. That within 14 days, or such other time as the Court may fix, the Defendants to the best of their ability swear and serve on the Plaintiff an affidavit identifying the sum received by them (or any of them) from the sale of the Land and the present whereabouts of such proceeds of sale of the Land together with the extent of their interest in such proceeds.
2. Such further or other orders as the Court deems appropriate.
3. That costs be reserved."

3 The plaintiff's application was unsuccessful and all that remains for determination is the question of who should pay the first defendant's costs of the application and on what basis.

4 The plaintiff claimed that it made payments in connection with a piece of land situated at 68 - 74 Courtney Street, North Melbourne ("the Land"). It alleged that the registered proprietor of the Land since 22 July 2002 has been the first defendant, Courtney Developments Pty Ltd. The plaintiff said that it contributed $200,000 of the $1.82 million purchase price, the residue of which was obtained by the first defendant with a loan from the Commonwealth Bank. The plaintiff said that from the time of the acquisition of the Land by the first defendant until November 2006 it paid interest due on the Commonwealth Bank loan and also paid rates and land tax incurred by the first defendant with respect to the Land. The plaintiff submitted that by reason of these alleged payments it was entitled to an implied, constructive or a resulting trust, or a combination of the same, in such proportion as it was entitled to as a result of the payments it claimed to have made.

5 The plaintiff made an alternative claim against the second and third defendants. The plaintiff said that if it is found that the sum of $200,000 was not advanced by the plaintiff to the first defendant to fund the acquisition of the Land, then such sum was advanced by it to the second and third defendants and that is a debt to it from those defendants which has not been repaid. The plaintiff also said that on 15 October 2003 it advanced money to the second and third defendants by way of a loan of $197,000 and that the loan is repayable on demand. The plaintiff said that a demand has been made and that the money has not been repaid.

6 The plaintiff said the application was urgent as it believed that settlement of a sale of the Land was going to occur soon. The plaintiff submitted that it did not wish to frustrate the sale, but that it did seek to have the sale proceeds, after discharge of encumbrances and selling costs, preserved by freezing order.

7 At the outset of the application the first defendant submitted that there was a question as to whether the proper plaintiff was Delle Vie Pty Ltd rather than Tremaine Developments Pty Ltd. This submission was made on the basis of a Deed of Assignment between the plaintiff (the assignor), its liquidator and Delle Vie Pty Ltd (the assignee) dated 20 September 2010 ("the Deed of Assignment"). The relevant parts of the Deed of Assignment are:

1. C. The Assignor has certain claims against Courtney Developments Pty Ltd (ACN 100 148 561), Mr Andreas Ktori, Mrs Korallia Ktori, Mr Ektoras Ktori and K & K Industries Pty Ltd (ACN 084 7389 803) to recover certain amounts owing to the Assignor.

1. D. To better secure the rights which the Assignor has against Courtney Developments Pty Ltd (ACN 100 148 561), the Liquidator through its solicitors has lodged a caveat over the property owned by Courtney Developments Pty Ltd (ACN 100 148 561) known as 68 - 74 Courtney Street, North Melbourne, Victoria, 3051 comprised within Certificate of Title Volume 08800 Folio 654, being Caveat No. AH249853W ('the Caveat')

Effective as at the date of this Deed and in consideration for the payment of the sum of three thousand, five hundred dollars ($3,500.00) by the Assignee to the Assignor (receipt of which is acknowledged), the Assignor hereby irrevocably and unconditionally assigns, grants and transfers all rights, title, interest, claims and causes of action which the Assignor has against any one or more of Courtney Developments Pty Ltd (ACN 100 148 561), Mr Andreas Ktori, Mrs Korallia Ktori, Mr Ektoras Ktori and K & K Industries Pty Ltd (ACN 084 738 803) to the Assignee.

...

The Liquidator and the Assignor acknowledge, agree and consent to the Assignee issuing proceedings in the name of and for and on behalf of the Assignor to enforce the caveatable interest of the Assignor under the Caveat and to sustain the lodgement of the Caveat on the condition that the Assignee agrees to indemnify the Assignor in relation to any adverse costs orders made against the Assignor in relation to such proceedings."

8 Delle Vie Pty Ltd, the assignee of the Deed of Assignment, was at the date of the hearing a company controlled and owned by Mr Dimitrios Jimmy Diakou. Mr Diakou was at that time also a director of Kerrili Pty Ltd trading as Diakou Faigen Lawyers which is the solicitor for the plaintiff in these proceedings. Mr Diakou's affidavit of 7 December 2010 explained his involvement in the proceeding:

"35. My firm trading as Diakou Faigen, Lawyers acted for Tremaine Developments Pty Ltd and for Mr Andreas Ktori, director of Tremaine Developments Pty Ltd during the period on or about February 2005 to on or about February 2007 in relation to assisting them to defend certain proceedings that had been issued against them by George, Gerasimos and Stamatia Korfiatis in the Victorian Civil and Administrative Tribunal relating to a building dispute ... .

36. The details of those proceedings are not relevant to this matter, save that as a result of the directors of Tremaine Developments Pty Ltd resolving to appoint Mr Peter Vince of the firm Vince & Associates as administrator to Tremaine Developments Pty Ltd on 16 July 2007 pursuant to the provisions of section 436A of the Corporations Act 2001 and then the creditors resolving to appoint him as liquidator of the company on 10 August 2007 pursuant to the provisions of section 446A of the Corporations Act 2001, I through my firm, lost approximately $200,000 - $350,000 in professional fees and disbursements which had been incurred by my firm in acting for Tremaine Developments Pty Ltd and Mr Andreas Ktori in those proceedings, which have not been paid."

9 In summary, Mr Diakou said that due to his dissatisfaction with the investigations by the liquidator he arranged or caused to be arranged a formal examination of Tremaine Development's directors. The precise details of the manner in which this was achieved are not relevant for present purposes. Mr Diakou, through his law firm, arranged for an accountant to examine the books of Tremaine Developments. The accountant raised issues with the liquidator in relation to payments that were said to be made in relation to the Land. On 26 May 2010, the solicitor for the liquidator lodged a caveat over the Property claiming an equitable estate in fee simple pursuant to an implied or constructive trust. The first defendant subsequently applied under section 89A of the Transfer of Land Act 1958 for removal of the caveat unless the liquidator commenced proceedings in a court to substantiate the claim the basis of the caveat. Mr Diakou continued:

"51. [The liquidator] did not want to issue the proceedings to sustain the lodgement of the caveat and so a deal was done which resulted in the execution of the Deed of Assignment of Rights dated 20 September 2010.

52. From the correspondence provided to me by Serry White Lawyers, and whilst at that time I had not received a copy of the notice sent by the Titles Office to Serry White Lawyers, pursuant to section 89A(3) of the Transfer of Land Act 1958, I was under the mistaken belief that the proceedings to sustain the lodgement of the caveat and the giving of notice to the Titles Office of the proceedings being issued needed to be done by 21 September 2010. On that basis I caused such proceedings to be issued in the Supreme Court of Victoria and notice of same to be given to the Titles Office on 21 September 2010 but the caveat subsequently lapsed as the notice sent by the Titles Office to Serry White Lawyers properly set out that such proceedings were required to be issued and notice of same to be given by 20 September 2010, therefore I was one (1) day late.

53. On or about 19 November 2010 whilst doing a Google search of the Property I found a webpage which indicated that the Property had been sold at a price of $4,000,000.00."

10 Clause 12 of the Deed of Assignment purports to give Delle Vie Pty Ltd the right to issue proceedings in the name of and for and on behalf of the plaintiff to "enforce the caveatable interest of the Assignor under the Caveat and to sustain the lodgement of the Caveat". As Mr Diakou said in his affidavit, that caveat has lapsed. After hearing the submissions of counsel for both the plaintiff and the first defendant it was my view that clause 12 could no longer be relied upon as it only purported to grant rights in relation to the lapsed caveat. Consequently, only clause 1 of the Deed of Assignment can be relied upon. That clause purports to assign, grant and transfer all rights, title, interest, claims and causes of action which Tremaine Developments has against, amongst others, the defendants in this proceeding to Delle Vie Pty Ltd. Consequently, in the absence of any other evidence, and on the basis of submissions by the first defendant, it was and is my view that the proper plaintiff was Delle Vie Pty Ltd. Counsel for the plaintiff submitted that this problem could be remedied by seeking leave to join Delle Vie as a plaintiff.

11 The first defendant sought an order that Dimitrios Jimmy Diakou, who is a not a party to the proceeding, pay the its costs of and incidental to the application for a freezing order on an indemnity basis. The first defendant made submissions on the principles to be applied on an application for an order for costs against a non party. The plaintiff agreed with the first defendant's formulation of these principles. The first defendant relevantly submitted that:

"3. The Court's power to order costs is to be found in section 24 of the Supreme Court Act and Order 63 of Chapter 1 of the Rules of Court.

4. Rule 63.02 provides that the Court's power and discretion to award costs under section 24 of the Act shall be exercised subject to and in accordance with Order 63.

5. The bases on which the Court can make costs orders is dealt with in Rules 63.28 - 63.30.1. They include costs on a solicitor and client basis and on an indemnity basis.

...

7. In Knight v FP Special Assets Ltd[1992] HCA 28; (1992) 174 CLR 178 at 192-3 the High Court recognised that a court, such as the Supreme Court, has jurisdiction to award costs against a non party.

...

9. It appears clear that a non party will be ordered to pay costs if the non party is the real party to the litigation.

10. In the case of a corporation, which is the real party, the Court will order costs against the director or directors if the latter are using the corporate veil to frustrate a costs order. If the proceedings have been brought for the benefit of the director, rather than the company, then the Court is more likely to make a costs order against the director.

11. The relevant law was considered by Branson J in Yates Property Corporation Pty Ltd v Boland (No 2) [1997] FCA 760; (1997) 147 ALR 685 at 695. Her Honour made a costs order against the director because he was in effective control of the company, and he had a real and personal interest in the subject matter of the litigation.

12. It must also be established that there is a causal connection between the conduct of the non party and the costs that have been incurred."

12 In circumstances where there is no proper plaintiff on the record against which a costs order might be made, it is appropriate to look to the substance of the proceeding to decide who is the real party to the litigation. As discussed above,[1] it is my view that the proper plaintiff was Delle Vie Pty Ltd, a company controlled by Mr Diakou. However, there is no evidence to suggest whether Delle Vie Pty Ltd can satisfy a costs order. The first defendant submitted, and I accept on the basis of the material before me and for the reasons already indicated, that the litigation was commenced for the benefit of Mr Diakou and was, at least in part, commenced for the purpose of recovering legal fees which he claimed to be owed to him by Tremaine Developments Pty Ltd and Mr Andreas Ktori, the second defendant. The plaintiff's counsel in its written submissions said that:

"If the Court is minded to make an order against a non party it is submitted that the obvious party against whom such an Order is to be made is the company Kerrili Pty Ltd ("Kerrili") of which Mr Diakou is a director, and conducts the legal practice of Diakou Faigen."

In response, the first defendant submitted that there is no evidence of the solvency of Kerrili or the precise relationship between Kerrili and Mr Diakou. I accept these submissions, there was no such evidence before the court. Consequently, I will order that the first defendant's costs of the application be paid by Mr Diakou personally.

13 The first defendant also sought an order that Mr Diakou pay the first defendant's costs on an indemnity basis. The authorities on the circumstances in which the discretion to award indemnity costs should be exercised are summarised in my judgment in Auswest Timbers Pty Ltd v Secretary to the Department of Sustainability & Environment (No. 2):[2]

"7. The usual order as to costs is an award of costs to the successful party on a party and party basis.[3] This position is reflected in rule 63.31 of the Rules. While the Court has a discretion to make special costs orders, guidance is provided by previously identified categories of circumstances that warrant a special costs order. In Colgate Palmolive Company v Cussons Pty Ltd, Sheppard J identified some of the categories as:[4]

'...the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud ...; evidence of particular misconduct that causes loss of time to the Court and to other parties ...; the fact that the proceedings were commenced or continued for some ulterior motive ... or in wilful disregard of known facts or clearly established law ...; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions ...; an imprudent refusal of an offer to compromise ...; and an award of costs on an indemnity basis against a contemnor...'

8. In relation to commencing or continuing proceedings with no chance of success, Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd said that a special costs order may be warranted when:[5]

'... it appears that an action has 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 laws.'

9. The Victorian Court of Appeal in Macedon Ranges Shire Council v Thompson said that:[6]

'Where the proceeding has no prospect of success

[15] Costs may be ordered whenever it appears that an action has been commenced in circumstances where the applicant properly advised should have known it had no chance of success. When a litigant presses on where on proper consideration their case should have been seen to be hopeless, the discretion to make a special costs order may be enlivened. French J (as he then was) in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers Western Australia & Anor[7] considered that the discretion to award such costs would be enlivened when a party persisted, for whatever reason, in what should on proper consideration have been seen to be a hopeless case, and alluding to the presumption referred to by Woodward J in Fountain Selected Meats said that it was an unnecessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. But where the litigant did not recognise that its case was without merit a court may be disinclined to make a special costs order.[8] The Court must measure the litigant's conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained.[9] This exercise may be subject to some qualification in respect of a self represented litigant.'"

14 The first defendant in its written submissions said that:

"38. ... if the defendant is to be properly compensated (since it is settled law that proper orders for costs are compensatory and not punitive) for having to defend an injunction application that had no real prospects of success, and which failed at the first hurdle, then it is appropriate and just for costs to be awarded on an indemnity basis in such circumstances.

39. By reason of the following facts it is submitted that costs should be paid on an indemnity basis because the application made against the defendant by the incorrect plaintiff was adventurous and/or had little or no prospect of success and/or was made for a collateral purpose and/or involved Mr Diakou acting unreasonably..."

The first defendant then listed the factors that it said supported the exercise of the discretion in favour of the making of an indemnity costs order. It is sufficient for present purposes to note that they include the failure by the plaintiff to satisfy the threshold for obtaining a freezing order and that the application, indeed the whole proceeding, was brought by a party which was not the proper plaintiff.

15 The application for a freezing order was rejected on the merits (assuming a proper plaintiff for the purpose of considering the merits) on the basis that I was not satisfied that the plaintiff had established a prima facie or good arguable case.[10] As discussed above, I was also concerned that the proper plaintiff was not the plaintiff on the writ or the party bringing the application for a freezing order. This was despite the solicitors for the first defendant raising the issue of the proper plaintiff with Mr Diakou in writing prior to the hearing of the application.

16 The granting of a freezing order is a very serious matter, which significantly affects the rights of the respondent party with respect to the enjoyment of his, her or its property. The granting or withholding of such an order is a matter within the discretion of the Court, after weighing all relevant circumstances. Consequently it is the type of application which demands the highest degree of caution and care and attention to detail on the part of an applicant - even more so when heard in the absence of some or all of the respondents. It follows that save in the most exceptional of circumstances - into which the present application does not fall - an application for a freezing order by the wrong plaintiff has "no real prospect of success". This position may apply even if leave is sought at the hearing of the application for a freezing order to join the proper plaintiff, if only because this, in the particular circumstances, is likely to indicate a lack of candour or attention to detail, or both; the more so if the application is made ex parte. If made inter partes an application of this nature may have the effect of depriving the respondent of proper notice of the nature of the application it is required to meet, particularly if the application is made urgently - as was the present application.

17 Consequently, I will order that Mr Diakou pay the first defendant's costs of the application on an indemnity basis.

[2] [2010] VSC 513 at [7] - [9].

[3] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [67]- [69] (McHugh J).

[4] [1993] FCA 536; (1993) 46 FCR 225 at 233-234; and see also Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at [7].

[5] [1988] FCA 202; (1988) 81 ALR 397 at 401. This passage has been cited with approval in many subsequent decisions, including by French J (as he then was) in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers Western Australia (unreported, Federal Court of Australia, 9 February 1993), and in the Supreme Court of Victoria in Murdaca v Maisano [2004] VSCA 123 at [40]; Aljade and MKIC v OCBC [2004] VSC 351; and Macedon Ranges Shire Council v Thompson [2009] VSCA 209 at [15].

[6] [2009] VSCA 209 at [15]

[7] Unreported FCA, 9 February 1993 (French J).

[8] Hurstville Municipal Council v Connor (1991) 24 NSWLR 724; Monitronix Ltd v Michael (1992) 7 WAR 195; Ugly Tribe Co Pty Ltd v Sikola, [2001] VSC 189, [18] (Harper J); Clarke v Deputy Commissioner of Taxation [2002] FCA 75; (2002) 50 ATR 173.

[9] Aljade and MKIC v OCBC [2004] VSC 351.

[10] See Sydney Jacobs, Maeve McCarthy, Daniel Neggo, Injunctions: Law and Practice (Thompsons, 2009) 4.210.