Xiao v BCEG International

The outcome on appeal

1. The decision at first instance led to a judgment of some $17 million against the first and second appellants, Mr Xiao and Ms Chen, a judgment of some $3.7 million against the fifth appellant (WWM) and an order for taking of accounts against the fourth appellant (IWC). The judgment against the third appellant (IWL) of some $6 million was not the subject of appeal.
2. Of the six grounds of appeal in the amended notice of appeal, the appellants succeeded on ground 4, being the "causation" ground, and were unsuccessful on four grounds, three of which related to the split election issue and one related to the procedural fairness issue. The final ground, being the quantum ground, had no bearing on the outcome of the appeal as it was an alternative to the causation ground. The result of the appeal is to reduce the judgment against Mr Xiao and Ms Chen to some $4.5 million, and to set aside the order against IWC for the taking of accounts.

The competing positions as to costs

1. The appellants seek orders that the respondent (BCEG) pay 100 per cent, or alternatively 50 per cent, of their costs of the appeal. They also seek orders that BCEG should pay the fourth appellant's (IWC) costs at first instance, including the costs of the referee who was appointed below for the purpose of the inquiry as to profits, and that the unsuccessful appellants should pay 90 per cent of BCEG's costs at first instance on an indemnity basis.
2. BCEG seeks an order that the appellants pay 50 per cent of its costs of the appeal. It submits that the costs order made against the appellants at first instance should not be disturbed. BCEG accepts that it ought to pay the costs of the abortive inquiry as to profits against IWC but submits that such liability ought to be set off against the appellants' cost liability to BCEG. Alternatively, BCEG says that the costs orders against all other appellants at first instance ought to remain undisturbed, with only the costs order against IWC being set aside.

Costs in this Court

1. The question is whether, given the mixed outcome on the appeal, some other order should be made than the default position that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1. The relevant principles are summarised in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA).
2. The split election and causation issues involved separable and discrete issues which took up a significant portion of the proceedings; the procedural fairness issue was a relatively discrete issue which occupied relatively little time. It is common ground that it is appropriate to apportion costs as between the different issues.
3. The parties diverged as to the relative significance of each parties' success; each asserted that it had more success than the other. The appellants say that the causation issue was the most significant ground in terms of its "consequences" in several senses: in terms of quantum, impact on the personal liability of Mr Xiao and Ms Chen, elimination of the liability of IWC and cessation of continued curial involvement as the order for taking accounts was set aside.
4. BCEG says that it had the greater share of success on appeal. It is said that the "significance" assumed by an issue is to be measured in terms of the time spent on that issue, not its "consequences" or monetary value, referring to Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425 at [31] (Macfarlan JA, Meagher and Barrett JJA agreeing) and Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (No 2) [2019] NSWCA 173 at [14] (Bathurst CJ, Leeming and McCallum JJA).
5. The appellants' submission that they should be paid all, or alternatively, half their costs, puts the matter too high. The costs incurred by the appellants were not necessarily related to the value of each ground on which they succeeded or failed. For this reason, it would not be appropriate to make a costs order that simply reflected the proportion of the value of the causation issue without recognition of the significance that the split election issue assumed in the conduct of the appeal: Mount Bruce Mining at [31]; Wollongong Coal at [14].
6. Contrary to the appellants' reply submissions, the reference in Wollongong Coal at [21] to the "legal complexity" of an issue was in the context of whether two issues should be treated as equivalents, one cancelling the other out. Neither party suggested that such an approach should be taken here.
7. As a matter of impression, it can be expected that the appellants would have incurred more costs on the split election issue which was more legally complex than the causation issue and assumed the major significance on the appeal in terms of its treatment in the parties' submissions and focus of oral address. It is not in dispute, as BCEG submitted, that there is no warrant to draw a distinction between the appellants, as all appellants had an interest in the split election question. There should be a significant reduction in the appellants' costs as the successful party overall for the issues on which it failed.
8. Adopting the broad-brush approach, and allowing for the appellants' partial success on appeal, the appropriate order is that BCEG pay 25 per cent of the appellants' costs of the appeal.

Costs at first instance

1. The primary judge ordered the defendants to pay BCEG's costs on a party/party basis up to and including 31 August 2020 and on an indemnity basis from 1 September 2020 onwards on the basis that the appellants' conduct of the proceedings "amount to relevant delinquency or exceptional circumstances warranting an indemnity costs order": BCEG International (Australia) Pty Ltd v Xiao (No 3) [2022] NSWSC 1221 at [63]. Given the different outcome on appeal, it is necessary to reconsider the question of costs at first instance.

IWC

1. The appellants say that IWC should have its costs of the trial paid by BCEG because it has succeeded on appeal in establishing that it has no liability to BCEG.
2. BCEG says that IWC incurred no additional costs to those of the other defendants. The appellants correctly respond that this is a matter for assessment if costs cannot be agreed.
3. BCEG also says that there are good reasons to displace the default position that costs follow the event. One is that misconduct relating to the litigation can disentitle the successful party to a beneficial exercise of the discretion (Oshlack v Richmond River Council (1998) 193 CLR 72 at [69] (McHugh J); [1998] HCA 11). BCEG points to the findings by the primary judge of disentitling conduct by the appellants including IWC, specifically that their conduct of the proceedings was directed towards misleading the Court as to what had happened: Costs Judgment at [52]-[58], [63]. The other is that the causation point was not pleaded or put at first instance in the manner it succeeded on appeal.
4. The appellants respond that IWC's conduct of the proceedings does not meet the threshold of misconduct that causes the costs of litigation to increase, in circumstances where IWC has been wholly successful. The difficulty with this submission is that it is no answer to the detailed reasons given by the primary judge why the conduct by all appellants including IWC amounted to a relevant delinquency.
5. Although the claim against IWC has ultimately failed, there are good reasons why costs should not follow the event: (a) the disentitling conduct of IWC which amounted to a relevant delinquency, and (b) the causation point was not pleaded or put at first instance in the manner it succeeded on appeal. The costs order against IWC at first instance should be set aside and there should be no order as to costs as between IWC and BCEG, with the intent that each bear their own costs at first instance.

Mr Xiao and Ms Chen

1. Turning to the partially successful appellants, the question is what recognition, if any, should be given to the success on appeal of Mr Xiao and Ms Chen in reducing the judgment against them by some $9 million in relation to the Wagga project.
2. The impression from the parties' lengthy written submissions at trial is that BCEG's claim for equitable relief against Mr Xiao and Ms Chen in relation to the Wagga project occupied relatively little time at the hearing; only about two pages of the parties' respective written submissions related to this claim. It may be doubted that the issue of causation of loss in relation to the Wagga project should be viewed as a discrete and severable issue in respect of which there should be some reduction in the costs awarded to BCEG at first instance.
3. In any event, that BCEG has ultimately failed on appeal on one of its claims for relief against Mr Xiao and Ms Chen does not alter the fact that BCEG is the successful party overall at first instance. For the same reasons as given at [19] above in relation to IWC, the costs order in favour of BCEG at first instance should not be disturbed.

Inquiry as to profits

1. It is common ground that BCEG should pay the costs of the abortive inquiry as to profits against IWC. Contrary to BCEG's submissions, this costs liability of BCEG to IWC should not be set off against the other appellants' costs liability to BCEG at first instance. This is for two reasons. One is the occasion giving rise to this cost liability of BCEG, being the post-trial inquiry as to profits, is separate and discrete from the occasion giving rise to the cost liabilities of the appellants to BCEG arising from the trial itself. The other is that there is a lack of mutuality between the cost liability of BCEG to IWC and the cost liabilities of the other appellants (not including IWC) to BCEG.

Orders

1. The orders I propose are as follows: 1. The respondent pay 25 per cent of the appellants' costs of the appeal. 2. Set aside the costs order made by the primary judge on 12 September 2022 against the fourth defendant by varying order 2 made on 12 September 2022 by inserting the words "first, second, third and fifth" before the word "defendants". 3. Subject to order 4 below, make no order for costs at first instance as between the plaintiff and the fourth defendant. 4. The plaintiff to pay the fourth defendant's costs of the inquiry as to profits.
2. MITCHELMORE JA: I agree with Gleeson JA.
3. GRIFFITHS AJA: I agree with Gleeson JA.

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