On 11 May 2020, I published reasons for judgment dismissing the plaintiffs' application for a freezing order and other ancillary orders (the Application): Zhao v Bonheur Holdings Pty Ltd atf Bonheur Holdings Trust [2020] NSWSC 535 (the Judgment). These reasons concern the costs of the Application, and assume familiarity with the Judgment.
The parties agreed that the costs of the Application should be determined on the papers. The Court has received and considered the first defendant's written submissions dated 18 May 2020 (which were adopted by the second defendant), the plaintiffs' written submissions dated 20 May 2020 together with further affidavit evidence relied on by the plaintiffs on the question of costs, and written submissions in reply from each of the first and second defendants dated 22 May 2020. The plaintiffs' further affidavit evidence comprises an affidavit of the first plaintiff affirmed on 20 May 2020, and an affidavit of the plaintiffs' solicitor, Mr Ibrahim Kammoun, affirmed on 20 May 2020.
[2]
The parties' submissions
The plaintiffs accept that they should pay the defendants' costs of the Application on the ordinary basis. The defendants seek an order that the plaintiffs pay their costs on an indemnity basis, and an order that such costs be payable forthwith.
The defendants submit that the Court should exercise its discretion under s 98 of the Civil Procedure Act 2005 (NSW) and rr 42.2 and 42.7 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to order the plaintiffs to pay the defendants' costs of the Application on an indemnity basis forthwith because the circumstances of the Application are sufficiently "special" or "unusual" to warrant departing from the usual order for costs on the ordinary basis, or that there has been "some relevant delinquency" on the part of the plaintiffs in the conduct of the proceeding: see Oshlack v Richmond River Council (1998) 193 CLR 72 at [44] (Gaudron and Gummow JJ); Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233; Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1 at [8]-[13]; Baller Industries Pty Ltd v Mero Mero Leasing Pty Ltd [2019] NSWSC 1067 at [23].
The object of an indemnity costs order is not to punish the unsuccessful party, but to more fully compensate the successful party for its costs of the proceeding or application prosecuted in a manner that involved some relevant delinquency on the part of the unsuccessful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at [44] (Gaudron and Gummow JJ).
In substance, the defendants advance three matters which they contend constitute special or unusual circumstances or "relevant delinquency" on the part of the plaintiffs warranting an order for indemnity costs payable forthwith.
First, the defendants submitted that the plaintiffs' conduct throughout the course of this proceeding leading up to the Application has been highly unsatisfactory and that responsibility for this conduct cannot be "sheeted home" to the plaintiffs' legal representatives.
Second, the defendants submitted that the plaintiffs' unsatisfactory conduct of the proceeding to date was compounded by their conduct in bringing the Application in a manner that was inconsistent with their obligations under s 56 of the Civil Procedure Act 2005 (NSW).
The defendants refer to correspondence from the plaintiffs' solicitor to the first defendant's solicitor dated 16 April 2020 in which the plaintiffs sought information about the first defendant's "current asset position" and supporting documentation by 4:00pm on 22 April 2020 and foreshadowed an application for a freezing order.
The response from the first defendant's solicitor dated 17 April 2020 outlined the history of the proceedings to date, including the circumstances in which earlier ex parte freezing orders were obtained and later dissolved as well as the refusal by the Court to make disclosure orders sought by the plaintiffs (see Judgment at [31]-[50]). The letter stated that the plaintiffs' request for information amounted to an abuse of process where:
1. the request sought to circumnavigate Practice Note SC Eq 11 in relation to disclosure;
2. previous requests by the plaintiffs for disclosure orders had been refused by the Court on 8 and 12 July 2019 (see Judgment at [33]-[34]); and
3. the request for information implicitly sought to re-agitate the substance of the issues in relation to the ex parte freezing orders that were dissolved by consent.
The first defendant also noted that the plaintiffs' request for information fell afoul of the observations made by the Court in Tugrul v Tarrants Financial Consultants Pty Limited (No 5) [2014] NSWSC 437 at [72] where Kunc J said that "if one party requires information or an explanation from another, then the request should be reasonable and focused. A clear justification for the request should be given."
For those reasons, the first defendant declined to respond to the plaintiffs' request for information unless the plaintiff addressed why any proposed application for a freezing order would not be flawed in all the circumstances, and provided reasons why the plaintiffs claimed to be entitled to the information sought. The first defendant also stated that it would assume that the plaintiffs would not proceed with any freezing order application unless 72 hours' written notice was given.
The plaintiffs did not respond to the first defendant, but instead filed the Application in the Equity Duty Judge List with only a few hours' notice to the defendants.
The defendants submitted that, if the plaintiffs had conducted themselves in accordance with the judgment of Kunc J in Tugrul, supra:
"… [the plaintiffs] would have realised, before wasting the resources of the Court and the defendants that the Application was flawed and that many of the matters being relied on were not supported by evidence or contrary to the true position."
In Tugrul, supra, the third defendant had made an application for the first to fifth plaintiffs to provide security for the third defendant's costs of the proceeding. Kunc J had dismissed that application. His Honour ordered the third defendant to pay the first to fourth plaintiffs' costs of the application on an indemnity basis in the particular circumstances of that case. His Honour did not order those costs to be paid forthwith. In the course of his reasons for judgment, his Honour made the following observations about how the requirements of ss 56 and 59 of the Civil Procedure Act translate into practice when interlocutory issues arise:
"68 … Assuming compliance by the practitioner with the relevant professional conduct rules, nine points may be made by way of general, practical guidance. Nevertheless, the variety of circumstances confronted in practice means that what follows cannot be exhaustive.
69 First, it must be emphasised that s 56 of the CP Act and its related provisions are not just pious exhortations to be acknowledged and then ignored. They have real consequences for the clients and lawyers in this Court and are to be applied rigorously in the conduct of all litigation, great or small.
70 Second, solicitors and barristers are members of a profession. It is of the essence of a profession that relations between its members are characterised by civility, trust and mutual respect. The Court sees far too much correspondence between lawyers that bears none of those qualities. They must never be abandoned at the behest of clients or in the misguided belief that that is what successful representation of a client requires.
71 Third, many interlocutory issues can be solved or at least better understood by a simple telephone call. It has been suggested that some lawyers no longer speak to their opponents on the telephone for fear of being "verballed" in an affidavit. If that is true, then it is a retrograde development which the CP Act gives legislative authority to the profession to reverse.
72 Fourth, if one party requires information or an explanation from another, then the request should be reasonable and focused. A clear justification for the request should be given.
73 Fifth, faced with a reasonable request, the recipient should not automatically respond with an unthinking denial of legal entitlement to the information. The obligation to facilitate the overriding purpose will sometimes require information or an explanation to be given to which the party may not be "legally" entitled. Furthermore, if it is information which would be required to be produced in response to a subpoena or notice to produce then it is contrary to the s 56 obligations of a party and that party's lawyers to resist providing it unless and until the Court's process is invoked. If there is concern for the confidence of such material then an undertaking of the kind considered in Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 (which would apply if the information were provided under compulsion) should be sought and given.
74 Sixth, the filing of a motion should be regarded as a last resort. It will inevitably add to costs, and delay the progress of the matter to hearing.
75 Seventh, no motion should be filed without the putative respondent being given final, written notice of the relief to be sought, the reason for it and a reasonable opportunity to respond. The Court sees far too many examples of deadlines of a day or less being set in correspondence. My own view, as a rule of thumb, is that three clear business days is reasonable to allow for a response on any matter of substance. If the recipient requires more time to obtain instructions, then they should send a prompt request with an explanation to that effect and an indication of when a proper reply will be provided. In relation to challenges to pleadings it was once the practice for opposing counsel to confer before a strike out motion was filed. To the extent that practice has been lost, it should resurrected.
76 Eighth, once a motion is filed, the parties are obliged to ensure that only the real or essential issues are litigated. This calls for discrimination in both the preparation of evidence and argument. As to the former, real thought must be given to the precise evidence required. The practice of exhibiting "everything" or "the file" to provide an evidentiary cornucopia from which only a few morsels are ultimately selected to be referred to in argument is completely unacceptable. Where it becomes apparent that an application or argument is unsustainable, it should be abandoned, and that abandonment notified to the other parties, at the earliest opportunity.
77 Ninth, where delay or unnecessary expense has been caused by conduct which is contrary to the obligations of parties and their lawyers under s 56 and its related provisions, parties and lawyers should not be in any doubt that in appropriate cases the Court will exercise its power in relation to costs (see s 56(5) of the CP Act) to provide some measure of justice in response to such conduct."
I understand the defendants' submission in reliance on Tugrul, supra, as both a complaint about the plaintiffs' failure to respond to the letter dated 17 April 2020 and to give at least 72 hours' notice to the defendants before approaching the Equity Duty Judge, and a complaint about the voluminous evidence relied on by the plaintiffs in support of the Application. The latter complaint is the third matter referred to immediately below.
Third, the defendants submitted that the Application was unnecessarily burdensome having regard to the serious allegations and voluminous evidence relied on in support of the Application, and ultimately groundless in that the matters relied on by the plaintiffs (including alleged fraud and serious misconduct) were either withdrawn by the plaintiffs during the hearing of the Application, not established or not considered to support a finding that there was a risk of the defendants dissipating their assets in a manner that would frustrate the Court's process.
The first defendant also referred to the absence of any evidence of the plaintiffs' ability to honour the undertaking to pay damages in the event the Court made the freezing order as sought.
As to the first matter relied on by the defendants, the plaintiffs' submissions acknowledged that their conduct of the proceeding prior to 18 October 2019 "may not have been ideal". However, it was submitted that such conduct was referrable to decisions taken by the plaintiffs' former legal representatives.
In addition, the plaintiffs submitted that the Court had previously made adverse costs orders against them, including on 18 October 2019 when an order was made that the plaintiffs pay the defendants' costs of and incidental to the plaintiffs' earlier application for freezing orders on an indemnity basis (including the defendants' court appearances of 3, 4 and 6 September 2019 and 9, 11, 14 and 18 October 2019). The plaintiffs' conduct of the proceeding in the period up to the filing of the Application is not likely to have caused the defendants to have incurred unnecessary costs for which they have not been compensated by the past costs orders.
As to the second matter relied on by the defendants, the plaintiffs rejected any implicit assertion in the defendants' submissions that the Application constituted an abuse of process. It was put that it is common practice (and permitted by UCPR r 25.11) that a freezing order is customarily made without notice to the other party (or parties) for fear that notice of such application could prompt a dissipation of assets. Notwithstanding this, the plaintiffs pointed out that notice was in fact given to the defendants on the morning of the occasion when the plaintiffs approached the Equity Duty Judge for leave to file and serve the Application. The first defendant, who did not appear that day, requested by email sent to the plaintiffs' legal representatives and to the Associate to the Equity Duty Judge to have the Application heard the following week. This request was brought to the Court's attention by senior counsel for the plaintiffs and acceded to.
As to the third matter relied on by the defendants, the plaintiffs submitted that they relied on only three affidavits in support of the Application. It was submitted that the lengthiest of those affidavits, the first plaintiff's affidavit of 25 March 2020, was the "principal evidence in chief of the plaintiffs" which was relied upon only for the purposes of establishing the existence an arguable substantive case for trial. The defendants' concession that there existed a good arguable case on the pleadings meant that it was not necessary for any party to address the content of that affidavit in any detail for the purpose of the Application.
Save for one exception, the plaintiffs' submissions did not address the defendants' submission that the matters relied on by the plaintiffs in support of the Application were either withdrawn by the plaintiffs, not established or not considered to support a finding of risk of the frustration of the Court's process.
The exception is that the plaintiffs' submissions and the affidavit of the first plaintiff affirmed on 20 May 2020 did address the defendants' submissions concerning the misleading impression created by the plaintiffs' reliance on the "critical" draft letter referred to in the Judgment at [88]-[89]. That letter had been sent by email from Mr Michael Vella of RF Eclipse to recipients including the first plaintiff, the second defendant and a Ms Eve Tan on 11 December 2018 at 10.03am. In a subsequent email sent by the second defendant at 4.55pm on the same day, the second defendant had marked up comments on the draft letter, including a comment to the effect that Sustainable Infrastructure Pty Limited was not the proposed borrower. That development removed any basis for the plaintiffs to rely on the 10:03am email and attached draft letter as evidence of conduct of the second defendant from which it might be inferred that he would deal with the assets in a manner that would frustrate the processes of the Court. On the face of the second defendant's 4.55pm email, it appears to have been copied to the same email addresses for the first plaintiff and Ms Tan to which the 10.30am email had been sent.
The effect of the plaintiffs' evidence in her affidavit affirmed on 20 May 2020 is that, whilst she received the 10.03am email, she did not receive the 4.55pm email and she had not been aware that the second defendant had sought to amend the name of the borrower. The first plaintiff says that she has been unable to locate the 4.55pm email in her hotmail email database. She says that she made enquiries of Ms Tan as to whether Ms Tan received the 4.55pm email. Ms Tan's reply to that inquiry, which was annexed to the first plaintiff's affidavit, states that the finance application did not proceed but does not answer the question whether Ms Tan received the 4.55pm email.
The plaintiffs submitted that the first plaintiff's failure to refer in her affidavit to the subsequent correspondence in which the name of the borrower was corrected was due to the first plaintiff being unaware of such correspondence.
The defendants submitted that the first plaintiff's evidence did not raise sufficient doubt to displace the presumption under s 161 of the Evidence Act 1995 (NSW) that she had received the 4.55pm email. It was submitted, in effect, that it was inherently unlikely that the first plaintiff had not received the 4.55pm email in circumstances where she had acknowledged receiving the 10.03am email sent to the same email address and there was evidence adduced by the plaintiffs that she had received unrelated email correspondence to that same email address that was sent to her at 7.05pm on the same day (11 December 2018).
The defendants also submitted that the Court should not accept the first plaintiff's evidence that she did not receive the 4.55pm email in light of two aspects of the first plaintiff's evidence that the defendants submitted had been exposed as "misleading" during the hearing of the freezing order.
In relation to the lack of evidence concerning their capacity to honour the undertaking as to damages, the plaintiffs relied on the evidence of their solicitor in his affidavit affirmed on 20 May 2020 that the plaintiffs had prepared and served two affidavits on 8 and 11 May 2020 on which the plaintiffs would have relied if the Court had granted their application for leave to re-open to adduce evidence on this subject.
Finally, the plaintiffs submitted that there was an unnecessary duplication of costs by the defendants because the first and second defendant are separately represented, notwithstanding that their interests overlap.
[3]
Consideration and determination
Relevant aspects of the plaintiffs' conduct of the proceeding prior to the Application are summarised in the Judgment at [31]-[50]. As I said in the Judgment at [65], certain aspects of that conduct have been highly unsatisfactory. In circumstances where the Court has already made costs orders in relation to those earlier stages of the proceeding, including the indemnity costs orders referred to in [17] above, I do not consider that prior conduct to be a special or unusual feature which warrants an order that the plaintiffs pay the defendants' costs of the Application on an indemnity basis.
Essentially for the reasons identified in the plaintiffs' submissions, and because the Application was not an abuse of process for the reasons in the Judgment at [62]-[66], I do not consider that the Court should exercise the discretion to award indemnity costs or to order the plaintiffs to pay the defendants' costs of the Application forthwith, by reason of the plaintiffs' failure to respond to the matters raised in the letter dated 17 April 2020 from the first defendant's solicitor (referred to in [9]-[12] above) or by reason of the plaintiffs giving less than 72 hours' notice to the defendants of their approach to the Equity Duty Judge for orders abridging the time for service and facilitating an early hearing of the Application.
I am of the opinion that the plaintiffs failed to fully comply with s 56 of the Civil Procedure Act in the eighth respect identified by Kunc J in Tugrul, supra (see [15] above), in that they failed to give real thought to the effect of their own evidence in respect of many of the grounds relied on in support of the Application and to consider whether or not that evidence in fact supported the proposition that there was a risk of frustration of the Court's process if the freezing order was not made.
In particular, the matters relied on by the plaintiffs as supporting a conclusion that the relevant risk existed included:
1. that it would be open to the Court to find at trial that the second defendant, acting for and on behalf of the first defendant, has made a misleading representation to the effect that the sale of a particular apartment would be completed shortly after completion of the construction of the development. However, the plaintiffs' own evidence did not support a finding that any such representation had been made, much less that the first plaintiff had relied on it: see Judgment at [72]-[74];
2. that the second defendant was subject to a police investigation for fraud in respect of the matters that are the subject of this proceeding. However, the first plaintiff had been informed by police that the investigation had been suspended and it was unlikely that the police would be able to meet a prima facie case: see Judgment at [76]-[78];
3. that entities related to the first defendant had been, or were being, wound up and deregistered with outstanding debts. However, the plaintiffs' evidence did not identify that those entities owed any debts: see Judgment at [79]-[86];
4. that entities related to the first defendant may have transferred assets to the first defendant. However, the transfer of assets to the first defendant does not logically point to a risk of the defendants dissipating or dealing with assets in a manner calculated to frustrate the execution of any judgment in favour of the plaintiffs in this proceeding: see Judgment at [100]-[101]; and
5. that the first defendant had paid claims made against it by third parties in other proceedings and disputes, including paying judgments entered against it in other proceedings. Again, this does not logically point to a risk of frustration of the Court's process in this proceeding. Indeed, it tends to point to the very opposite conclusion: see Judgment at [107]-[108], [118]-[119].
In relation to the draft letter from RF Eclipse which the plaintiffs described as "critical" to the Application, I do not think that the evidence summarised in [24]-[28] above raises sufficient doubt to displace the presumption under s 161 of the Evidence Act that the first plaintiff did receive the 4.55pm email attaching the revised version of that draft letter at her email address on 11 December 2018. It is implausible that the first plaintiff received other emails at earlier and later times on that date, yet did not receive the 4.55pm email. The fact that the first plaintiff cannot now locate that email in her email database is not determinative. There is no evidence as to the length of time for which emails are ordinarily retained in that database. The evidence as to whether Ms Tan received the 4.55pm email is equivocal. Ms Tan's email annexed to the first plaintiff's affidavit does not answer the first plaintiff's inquiry about whether she received the email.
However, the relevant question for the purpose of determining the costs of the Application is whether the first plaintiff was aware in March and April 2020 when she affirmed her affidavits in support of the Application that the second defendant had sought to correct the error made by RF Eclipse in the draft letter as to the identity of the proposed borrower. Assuming that the first plaintiff received the 4.55pm email in December 2018, it does not follow that she had a copy of that email or that she recalled that email in 2020. As referred to in the Judgment at [87]-[89], senior counsel for the plaintiffs very properly withdrew reliance on the RF Eclipse letter as soon as the existence of the 4.55pm email emerged during the course of the hearing of the Application.
To the extent that the defendants' submissions invited the Court to disbelieve or reject the first plaintiff's evidence that she was not aware of the 4.55pm email when she affirmed her affidavits in March and April 2020, that invitation is declined in circumstances where the parties agreed that the costs of the Application should be determined on the papers and there has therefore been no cross-examination of the first plaintiff about this evidence.
I do not think it can be said that the Application would not have been pursued, or could not properly have been pursued, if the plaintiffs had given proper consideration to the matters referred to in paragraph [35] above or if the plaintiffs had been aware of the 4.55pm email. The Court ultimately found that the other matters relied on by the plaintiffs did not warrant a freezing order, but it does not follow that the plaintiffs should not have made the Application at all.
The matters referred to at [35] above and the 4.55pm email did not account for a substantial proportion of the parties' evidence or written submissions or the time taken at the hearing. On the contrary, whilst all issues received some attention at the hearing, the issues that occupied most of the hearing time were the defendants' submission that the Application was an abuse of process having regard to the history summarised in the Judgment at [31]-[50] (a submission that was ultimately rejected) and the parties competing submissions about the substance of the pleaded case and whether a case of fraud had been pleaded (in respect of which the defendants' submissions were ultimately accepted).
For those reasons, in all of the circumstances of this case, I do not think that the non-compliance with s 56 of the Civil Procedure Act to which I have referred in [34] and [35] above warrants an order that the plaintiffs pay the defendants' costs of the Application on an indemnity basis.
The defendants' submissions did not identify specific reasons why the absence of evidence of the plaintiffs' ability to honour the undertaking as to damages might warrant the costs order sought by the defendants. In my opinion, the absence of that evidence does not warrant the exercise of the discretion to order the plaintiffs to pay the defendants costs of the Application on an indemnity basis. That is because the plaintiffs' conduct in making and prosecuting the Application without such evidence, despite being on notice that their financial capacity to satisfy the undertaking was disputed, did not in fact prolong the hearing or determination of the Application. Nor was it the basis on which the Application was dismissed: Judgment at [55]-[61] and [125].
For all of the reasons above, I have concluded that the plaintiffs should be ordered to pay the defendants costs on the ordinary basis and not on the indemnity basis.
However, I am satisfied that it is appropriate to order that those costs be payable forthwith. The determination of the Application represents the completion of a discrete aspect of the proceedings. The matter has not yet been listed for hearing, and it is therefore likely that the proceeding will not be finally disposed of for some time to come: Baller Industries Pty Ltd, supra, at [23] and the authorities there referred to.
For the reasons above, I make the following orders:
1. Grant leave to the plaintiffs to file in Court the affidavit of Yan Zhao affirmed on 20 May 2020 and the affidavit of Ibrahim Kammoun affirmed on 20 May 2020.
2. Order that the plaintiffs pay the defendants' costs of and incidental to the plaintiffs' notice of motion filed on 29 April 2020.
3. Order that those costs, as agreed or assessed, be payable forthwith.
[4]
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Decision last updated: 28 May 2020