The Recyclers (NSW) Pty Ltd v Ayoub

Supreme Court of NSW|2016-06-17|Before: Stevenson J, Giles JA, Young JA, Darke J

Solicitors: MJF Legal Pty Ltd (Applicants) File Number(s): SC 2015/299325

EX TEMPORE Judgment (Revised)

On 9 May 2016 I ordered that the amended defence of the first, third and fourth defendants and the first cross-claim be dismissed with costs: The Recyclers (NSW) Pty Ltd v Ayoub (No 3) [2016] NSWSC 576. The procedural history of this matter is set out in that judgment. This judgment assumes familiarity with that detail. I shall use the same abbreviations here as in that judgment.
There is no dispute that Mr Ayoub, Illawarra and Milana are jointly and severally liable for the costs order I made.
By notice of motion filed on 11 May 2016, Aus Wide and its director, Mr George Faddoul (who was the second cross-defendant), seek the following orders: "1. An order that the first defendant's tutor, Mr Paul Joseph Donnelly, is also liable to pay the costs ordered against the first, third and fourth defendants on 9 May 2016. 2. An order that the costs order made by the Court on 9 May 2016 against the first, third and fourth defendants (including Mr Donnelly) (as varied by order 1 above) be fixed as a gross sum, pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW). 3. In the alternative to paragraph 2 above, an order that the costs order made by the Court on 9 May 2016 against the first, third and fourth defendants (including Mr Donnelly) (as varied by order 1 above) be assessed and payable forthwith."

Mr Donnelly remains Mr Ayoub's tutor

Mr Donnelly was appointed to be Mr Ayoub's tutor on 19 October 2015 by Darke J on the basis that Mr Ayoub was unable to manage his affairs and was a "person under legal incapacity". Darke J's order was made on the basis of medical evidence then before him.
On 26 February 2016 I found Mr Ayoub was competent to give evidence for the purpose of s 13 of the Evidence Act 1995 (NSW): The Recyclers (NSW) Pty Ltd v Ayoub [2016] NSWSC 144.
Ms Haddad, who appears today for Mr Donnelly, Mr Ayoub, Illawarra and Milana, submitted the effect of that finding was that "Mr Ayoub was never a person of legal incapacity and therefore Mr Donnelly's role of tutor at any stage from the commencement of these proceedings is invalid".
In oral submissions Ms Haddad developed that submission by contending that it must follow from my finding that Mr Ayoub was competent to give evidence that Mr Ayoub is not, and was never, under a legal incapacity.
Ms Haddad in particular drew attention to what I said at [57] and [59] of the 26 February 2016 judgment: "[57] The Donnelly Affidavit contains a very detailed account of a complicated series of commercial transactions. That account refers to a large number of documents and to a large number of detailed conversations to which Mr Ayoub is said to have been a party. Mr Donnelly states in the affidavit that almost all of the information contained in it (including as to conversations) was provided to him by Mr Ayoub. … [59] Further, examination of Mr Ayoub's cross-claim of 15 February 2016 strongly suggests that it was prepared on the basis of instructions from Mr Ayoub. He must be the person who gave instructions about those matters and must have been able to understand questions asked of him about various matters of fact alleged."
Ms Haddad submitted: "[I]t was inferred [evidently by me] [that] Mr Ayoub continued the proceedings by providing evidence and instructions that was the basis of Mr Paul Donnelly's affidavit sworn on 15 December 2015. The consequence of this inferred action is that Mr Ayoub made an election, on behalf of the defendants, to do anything that could reasonably be considered as an adoption of the proceedings."
I do not accept that this follows from my conclusions.
What I was meaning to convey in the paragraphs set out at [9] was that I inferred from the form of the Donnelly affidavit and the 15 February 2015 cross-claim that Mr Ayoub was able to understand questions asked of him and to give comprehensible answers to those questions.
It does not follow from what I said that I was expressing any view about whether Mr Ayoub was under a legal incapacity.
There is a distinction to be drawn between a person being unable to manage his or her affairs and thus being under a legal incapacity, on the one hand, and a person not being competent to give evidence on the other.
The question of competence to give evidence focuses on the person's capacity to understand a question about a fact and give an answer to such a question that can be understood, as s 13 of the Evidence Act makes clear.
It appears to me that the question of whether a person is under a legal incapacity raises much broader questions.
Section 3 of the Civil Procedure Act 2005 (NSW) describes "[a] person under legal incapacity" to mean: "[A]ny person who is under a legal incapacity in relation to the conduct of legal proceedings (other than an incapacity arising under section 4 of the Felons (Civil Proceedings) Act 1981) and, in particular, includes: (a) a child under the age of 18 years, and (b) an involuntary patient, a forensic patient or a correctional patient within the meaning of the Mental Health Act 2007, and (c) a person under guardianship within the meaning of the Guardianship Act 1987, and (d) a protected person within the meaning of the NSW Trustee and Guardian Act 2009, and (e) an incommunicate person, being a person who has such a physical or mental disability that he or she is unable to receive communications, or express his or her will, with respect to his or her property or affairs."
There is no question in this case of pars (a) to (d) of that definition being engaged. It is not clear whether par (e) is said to be engaged.
That definition is in effect extended by Uniform Civil Procedure Rules 2005 (NSW) r 7.13 which provides that, for the purpose of the appointment of tutors, a person under legal incapacity includes a person who is incapable of managing his or her affairs.
The test to be applied in relation to that definition has been considered in many cases including Stokes v McCourt [2014] NSWSC 61.
In that case McDougall J cited with approval the observation of Chadwick LJ in Masterman-Lister v Brutton & Co [2003] 1 WLR 1511 at [75]: "[T]he test to be applied…is whether the party to legal proceedings is capable of understanding, with the assistance of such proper explanation from legal advisers and experts in other disciplines as the case may require, the issues on which his consent or decision is likely to be necessary in the course of those proceedings."
I do not accept that it follows from my findings as to Mr Ayoub's competence, that he is no longer under a legal incapacity, in the sense described by Chadwick LJ.
In any event, the fact is that Mr Donnelly was Mr Ayoub's tutor for the purpose of these proceedings on the day I made the costs order. The only means by which a tutor may be appointed or removed is by order of the Court under UCPR r 7.18. Mr Donnelly sought to be appointed as tutor and has not (to this day) sought to be removed. For that reason alone, he remains liable to pay the costs that I have ordered.
Accordingly, I find that Mr Donnelly is liable for the costs I have ordered.

Gross sum costs order

I turn to the question of whether a gross sum costs order should be made under s 98 of the Civil Procedure Act.
Mr McInerney SC who appears with Mr Robertson for Aus Wide and Mr Faddoul submitted that the following factors have been held to favour the making of a lump sum costs order: 1. the responsibility of the party against whom the order is made for the costs incurred; 2. whether the party's conduct has unnecessarily contributed to the incurring of costs; 3. whether the conduct of the proceedings suggests any costs assessment process is likely to be unduly protracted; and 4. the prospects of the party against whom the costs are ordered paying such costs (for example, Hamod v New South Wales [2011] NSWCA 375 at [816] to [823] per Beazley JA (as her Honour then was) with whom Giles and Whealey JJA agreed).
Mr McInerney made detailed submissions as to why these criteria were satisfied.
He submitted that Mr Ayoub (by his tutor), Illawarra and Milana: 1. made complex and elaborate allegations including elements of fraud against Aus Wide and Mr Faddoul; 2. served almost no evidence to substantiate those allegations; 3. were constantly in default of the Court's orders in the proceedings; and 4. conducted themselves in the proceedings in a manner that suggests the likelihood of a costs assessment process being protracted.
Mr McInerney also submitted that there is reason to doubt Mr Ayoub's capacity to meet the costs order.
I consider there is substance in each of these submissions.
In all the circumstances, I am persuaded that this is a proper matter in which to make a gross sum costs order.
As to quantum, the calculation of costs proffered on behalf of Aus Wide and Mr Faddoul is in the range of some $287,000 to $337,000.
Those figures are based on the actual solicitor and client fees, counsel fees and disbursements incurred, discounted by 20 per cent to reflect the fact that some costs were incurred which do not relate to the defence and cross-claim. Those figures are further discounted by a range of evidently arbitrary percentages to reflect the fact that "the Court does not have the benefit of a detailed examination of the costs claimed as occurs during formal costs assessment". A further figure of $20,000 is deducted to take account of an earlier gross sum costs order I made on 15 April 2016.
Accepting that a broad brush approach is called for, I do not feel confident that I can make a fair assessment of properly recoverable costs in this range.
However, Ms Haddad in her submissions accepted that the costs properly recoverable by Aus Wide as at April 2016 would have been $155,000. To that must be added the costs reasonably recoverable since that date, particularly in relation to the strike out motion, the subject of my May 2016 judgment.
In those circumstances, doing the best I can on the material available, I have concluded that Aus Wide's and Mr Faddoul's costs should be specified for the purposes of s 98(4) of the Civil Procedure Act at $225,000.00.
I propose to give Aus Wide and Mr Faddoul an option. They can either accept that figure or they can immediately proceed to an assessment of their costs and the basis that the costs of that assessment will follow the event. By that I mean if the costs recoverable on assessment are more than $225,000, Mr Donnelly will bear the costs of that assessment. If the costs recoverable are less than $225,000 then Aus Wide and Mr Faddoul will bear the costs of that assessment.
Mr McInerney has informed me that Mr Faddoul has decided on behalf of the company to accept the figure of $225,000.
I order that the costs of Aus Wide and Mr Faddoul arising from my order of 9 May 2016 be specified pursuant to s 98(4) of the Civil Procedure Act at $225,000.
The intent of my orders is that Mr Ayoub, Illawarra and Milana are jointly and severally liable to pay Aus Wide's and Mr Faddoul's costs at that figure.
I order that Mr Donnelly, as tutor of Mr Ayoub, is jointly and severally liable with Mr Ayoub to pay those costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 June 2016

Trustee and Guardian Act 2009(NSW)

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