Tse v Ngo (No 2) (costs)

Texts Cited: Dal Pont, Law of Costs (4th ed, 2018, LexisNexis)

Category: Costs

Parties: Gordon Tse (First Plaintiff)
Tiehong Chen (Second Plaintiff)
Viet Ngo (Defendant)

Representation: Counsel:
S Jacobs / V Misra (Plaintiffs)
Solicitor:
P Tran (Defendant)
Solicitors:
YML Group (Plaintiffs)
Selective Lawyers (Defendant)

File Number(s): 2023/231043

JUDGMENT

1. HER HONOUR: On 28 February 2025, I gave judgment in this matter in favour of the plaintiffs, with costs: Tse v Ngo [2025] NSWSC 117. The plaintiffs now seek to vary the usual costs order to indemnity costs. The plaintiffs relied on affidavits by their solicitor, Kanin Lwin. The defendant did not respond to this application. This judgment assumes familiarity with my primary judgment.

Facts

2. A statement of claim was filed on 20 July 2023 against the defendant, Mr Ngo. The plaintiffs sought a declaration that they were in a partnership with the defendant. The partnership was said to have begun in 2012 under the banner of “Smart Shop”, importing car accessories from China to Australia for sale via e-commerce stores. The plaintiffs sought a declaration that the e-commerce stores and a warehouse in Chester Hill were partnership assets, as were the proceeds of sale of the warehouse. The plaintiffs also contended that the defendant fraudulently under-reported revenue by $644,000.

3. On 9 August 2023, the defendant requested further and better particulars and sought security for costs, where the first plaintiff, Mr Tse, spent time between Australia and China and the second plaintiff, Mr Chen, was ordinarily resident in China. On 5 September 2023, the plaintiffs provided further and better particulars. There was no response to the request for security for costs (which was later ordered).

4. On 19 September 2023, the defendant filed a defence, denying the existence of the partnership and contending that he operated his business through Great Current Australia Pty Ltd, which rented the Chester Hill warehouse and employed staff. The defendant denied any obligation to provide financial information or share profits. He also filed a cross-claim, seeking declarations that Mr Tse and Mr Chen held various investments on trust for him and seeking an account.

5. On 3 October 2023, the plaintiffs filed a defence to the cross-claim. On 24 October 2023, the plaintiffs requested further and better particulars of the defence and cross-claim. On 26 October 2023, the defendant filed a motion seeking security for costs. On 6 November 2023, the plaintiffs filed a motion seeking particulars and leave to issue interrogatories. On 21 November 2023, the plaintiffs’ motion was dismissed, apparently as the defendant agreed to provide particulars.

6. On 14 November 2023, the plaintiffs issued a notice to produce to the defendant, seeking information in respect of various e-commerce stores operated on eBay. The plaintiffs served a subpoena on eBay as well. On 27 November 2023, the defendant provided particulars of his defence. On 28 November 2023, the defendant advised that he had nothing to produce in answer to the notice. The plaintiffs began to serve their lay evidence.

7. The defendant had been busy divesting himself and two Australian companies of assets. The plaintiffs came to learn of this, which resulted in a flurry of correspondence and various procedural applications, both in these proceedings and in the Federal Court of Australia. To backtrack slightly, on 29 September 2023, the defendant sought the voluntary deregistration of Smartshop International Pty Ltd. He also extended the trial period under a contract to sell various e-commerce stores claimed to be the property of Great Current Australia and Smartshop International (and thus the partnership) to a third party. On 13 November 2023, the plaintiffs’ solicitor wrote, noting that it had come to their attention that Smartshop International was in the process of being deregistered. An explanation was sought. The defendant’s solicitor replied that Smartshop International was a shell company with no purpose.

8. On 11 December 2023, the plaintiffs filed a motion seeking to join Great Current Australia and Smartshop International to the proceedings, and leave to administer interrogatories. On 12 December 2023, eBay produced documents to the Court on subpoena, indicating that 11 eBay stores were now held by Hieu Investment Pty Ltd.

9. On 15 December 2023, the plaintiffs’ solicitor enquired of the defendant’s solicitor about the transfer of the eBay stores previously registered to Smartshop International. An undertaking was sought that the defendant arrange for the voluntary application for the deregistration of Smartshop International to be withdrawn and to re-transfer the eBay stores to the company. Further, the defendant was asked to agree to the appointment of a receiver to Smartshop International, to agree not to deal with the warehouse and to advise whether it had been encumbered since July 2023. On 20 December 2023, the defendant’s solicitor confirmed that the application to deregister Smartshop International had been withdrawn. He also undertook not to deal with the warehouse. Otherwise, there was no agreement.

10. On 19 January 2024, the plaintiffs wrote to Hieu Investment, seeking an undertaking not to deal with the eBay stores. Further undertakings and disclosure was sought from the defendant. On 29 January 2024, the defendant’s solicitor replied that the eBay stores were owned by Great Current Australia, which was entitled to sell them. The stores had been sold. The defendant declined to give any further undertaking.

11. On 29 January 2024, the plaintiffs’ solicitor made an affidavit deposing that three of the eBay stores, which had been apparently sold to Hieu Investment, continued to display the Smartshop logo. On 12 February 2024, the plaintiffs filed an Amended Statement of Claim, joining Great Current Australia and Smartshop International as defendants.

12. On 16 February 2024, orders were made for expedition of these proceedings, which were listed for hearing on 13 May 2024. On 1 March 2024, the defendants filed their defences to the Amended Statement of Claim. On 4 March 2024, Great Current Australia and Smartshop International went into a creditors’ voluntary liquidation. On 7 March 2024, the defendant declared bankruptcy.

13. The appointment of liquidators and a trustee in bankruptcy caused a hiatus in these proceedings. The defendant’s solicitor ceased to act. On 27 March 2024, the plaintiff sought leave under s 500(2) of the Corporations Act 2001 (Cth) to restrain the liquidator of the corporate defendants from dealing with the eBay stores or destroying books and records. On 2 April 2024, the plaintiffs agreed to provide security for the liquidator’s costs in the sum of $20,000. On 5 April 2024, I granted leave to the plaintiffs to proceed against the second and third defendants and injuncted the liquidator from selling the eBay stores for two weeks without giving notice to the plaintiffs.

14. By 26 April 2024, the plaintiffs had resolved their claims with the liquidators, effectively buying back the e-commerce stores. The plaintiffs’ security was returned. The proceedings against the corporate defendants was dismissed with no order as to costs. In May 2024, the plaintiffs sought leave to proceed against the defendant in bankruptcy. This required separate proceedings to be commenced in the Federal Court of Australia. On 10 July 2024, Perry J granted leave to proceed against the defendant under s 58(3)(b) of the Bankruptcy Act 1966 (Cth).

15. On 15 August 2024, the plaintiffs filed a further motion for expedition and leave to file an amended pleading. Difficulties were experienced in serving the defendant personally. Orders for substituted service were made on 6 September 2024. Further directions hearings took place on 20 September 2024 and 4 October 2024 in an effort to progress the proceedings against the defendant, who was then unrepresented. On 25 October 2024, the defendant appointed a solicitor, who filed a defence on 1 November 2024. The defendant put on his affidavit on 1 December 2024, to which the plaintiffs replied. The matter was heard from 16 to 18 December 2024.

Submissions

16. The plaintiffs submitted that indemnity costs is appropriate in light of Mr Ngo’s conduct prior to the hearing and in the course of his unsuccessful defence of the matter, relying on Anderson v Canaccord Genuity Financial Limited (No 2) [2022] NSWSC 649 at [17]-[20] (Ward CJ in Eq); Cargill Australia Ltd v Viterra Malt Pty Ltd (No 32) [2022] VSC 299 at [35] (Elliot J).

17. The plaintiffs submitted that the severity of culpability of the defendant’s conduct from 2019 on warranted the imposition of indemnity costs, where the defendant breached his fiduciary duties to the partnership in relation to the Chester Hill warehouse purchase and subsequently engaged in obfuscatory conduct in response to the plaintiffs’ requests for financial information and dispute resolution attempts. The defendant unnecessarily increased costs and prolonged the trial’s duration, refusing to provide particulars until the last minute and necessitating the administration of interrogatories by reason of his failure to provide a straight answer. The defendant subsequently liquidated partnership assets and declared bankruptcy following the grant of expedition. At trial, he attempted to maintain his cross-claim absent leave from the trustee in bankruptcy to do so. The plaintiffs submitted that the defendant’s conduct during the proceedings was evasive and fabricated false explanations of evidence which required considerable effort of the plaintiff’s legal representative to respond and disprove.

Consideration

18. The defendant certainly led the plaintiffs a merry dance in his business dealings with them, which formed the subject matter of my primary judgment. But it is necessary to determine this application “by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute”: In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8] (per Black J). As Ward CJ in Eq (as her Honour then was) observed in Anderson v Canaccord at [18]-[20]: (citations omitted)

[18] … costs orders in civil litigation are well recognised as being compensatory, not punitive, in nature.

[19] Special costs orders will be warranted in certain circumstances, including … where the conduct of the case by the party against whom costs are sought is plainly unreasonable or amounts to “relevant delinquency” by the party as a litigant.

[20] In that context, “relevant delinquency” does not mean moral delinquency or some ethical shortcoming but delinquency bearing a relevant relation to the conduct of the case. …

19. Conduct which will ground an order for indemnity costs includes misbehaviour of a serious nature in the course of a proceedings, such as fraud (Gate v Sun Alliance Insurance Ltd (1995) 8 ANZ Ins Cas 61-251 at 75,817-75,818), perjury or contempt (Berkeley Administration Inc v McClelland [1990] FSR 565 at 568-569; Ivory v Telstra Corporation Ltd [2001] QSC 102) and dishonest conduct (Vance v Vance (1981) 128 DLR (3d) 109 at 122). As noted in Dal Pont, Law of Costs (4th ed, 2018) at [16.71], “… where the fabrication of evidence, or other misleading conduct, has a direct correlation with unnecessarily exposing the successful party to the incurrence of costs, an indemnity costs order is appropriate”, citing Barrett Property Group Ltd Metricon Homes Pty Ltd (No 2) [2007] FCA 1823 at [16] per Gilmour J; Sande v Medsara Pty Ltd (No 2) [2004] NSWSC 262 at [8]; Stemson v AMP General Insurance (NZ) Ltd [2007] 1 NZLR 289; [2006] UKPC 30 at [28]; Leary v NSW Trustee & Guardian (No 2) [2017] NSWSC 1226.

20. To some extent, the defendant’s conduct in the proceedings was unremarkable, seeking particulars, putting on pleadings and (successfully) seeking security for costs. To another extent, however, the defendant’s response to this litigation led to its prolongation, where he actively sought to escape responsibility for his actions by asset divestiture, placing the relevant corporate entities into liquidation and declaring himself bankrupt. These actions, effectively, waylaid the proceedings for some six months. The plaintiffs were required to take additional procedural steps, both here and in the Federal Court of Australia, to prosecute their claims. Further efforts were expended to serve and engage the defendant in the proceedings, once leave to proceed against him had been granted. I do not doubt that this increased the plaintiffs’ costs.

21. At trial, the defendant’s version of events bore no resemblance to what emerged from the contemporaneous documents. But he did put forward a detailed version of events, which it was necessary for the plaintiffs to meet in their affidavits in reply. (Of course, determining the nature of the parties’ business relationship and obligations would have been far simpler if they had properly documented their arrangements).

22. Overall, the defendant’s evasion of the plaintiffs’ multiple requests for information and transparency in the years leading up to this litigation continued after the litigation was on foot. The defendant’s efforts to escape liability for his actions led to the prolongation of these proceedings and the incurring of additional expense. This is “relevant delinquency” which I consider, in the circumstances, warrants the making of an indemnity costs order. Where the initial steps in the proceedings were unremarkable, I consider that such an order should commence on and from 1 December 2023, when the defendant’s efforts to evade responsibility for his actions appear to have caused the plaintiffs to incur additional expense referable to those actions from then on.

Orders

23. For these reasons, I make the following orders:

24. Vary Order 5 made on 28 February 2025 such that the defendant is to pay the plaintiffs’ costs of the proceedings on an ordinary basis until 1 December 2023 and on an indemnity basis thereafter.

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