Zhu v Wang [2022] NSWCA 105 | Case summary

Court of Appeal (NSW)|2022-06-23|Before: Gleeson JA, Payne JA, Rothman J

Background to the cost issues

The nature of the claims in the proceedings below by De Rucci International and cross-claim by Ms Zhu, HQ Living and De Rucci Bundall Pty Ltd (De Rucci Bundall) are summarised at [4]-[6] of the principal judgment. The judgment below in favour of De Rucci International for a total of $230,473.90 represented damages for repudiation of the management agreement (in an amount of $123,156) and for return of the funds provided to support the bank guarantee (in the sum of $107,317.90).
There were five appellants in this Court; Ms Zhu and the four corporate appellants - HQ Living, De Rucci Bundall, HQ Living (Moore Park) Pty Ltd (HQ Moore Park) and HQ Bedding Pty Ltd (HQ Bedding). Ms Zhu was self-represented and appeared with leave for all four corporate appellants.
The appellants achieved the following success on appeal: 1. Ms Zhu succeeded in setting aside the judgment against her insofar as it concerned damages for repudiation of the management agreement. That was because Ms Zhu was not a party to that agreement. That success was reflected in a reduction in the judgment in favour of De Rucci International against Ms Zhu by $123,156; a reduction in the order of about 53 per cent; 2. HQ Living succeeded in reducing its liability for damages for repudiation of the management agreement from $123,156 to $30,789; a reduction in the total judgment of about 40 per cent; and 3. HQ Moore Park and HQ Bedding both succeeded in setting aside the judgment for $230,473.90 and costs orders made against them. Those companies were not parties to the management agreement or involved in the bank guarantee.
This success was offset by the failure of Ms Zhu, HQ Living and De Rucci Bundall to set aside the primary judge's dismissal of their cross claim seeking damages for repudiation of a series of other agreements concerning the distribution of furniture and sale of businesses in Queensland.
Although the costs order made by the primary judge in favour of De Rucci International was against all the appellants in respect of its costs of and incidental to the proceedings, which may be taken to include De Rucci International's costs on the cross-claim, the primary judge made no order as to costs in favour of Mr Wang, the first cross-defendant. There was no cross-appeal by Mr Wang seeking a different costs order in his favour in respect of the cross-claim. Thus, there is no basis upon which this Court should now make an order for costs in favour of Mr Wang on the cross-claim, as sought by the respondents.

Costs at first instance

It is necessary for this Court to reconsider the question of costs at first instance, taking into account the somewhat different outcome on appeal as indicated above. The starting point is that costs are in the discretion of the Court: s 98, Civil Procedure Act 2005 (NSW). The usual rule is that costs follow the event, unless it appears to the Court that some other order should be made as to the whole or part of the costs: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. Here, the "event" is the outcome of the claim and the cross claim respectively.
As to the cross-claim, Ms Zhu, HQ Living and De Rucci Bundall have failed on their cross-claim and there is no reason why costs should not follow the event.
As to the claim, there are two aspects to be considered.
First, De Rucci International has failed completely against HQ Moore Park and HQ Bedding, and there is no reason why costs should not follow the event. That HQ Moore Park and HQ Bedding were not legally represented at trial, and any costs order in their favour could not result in a substantial recovery, is not a sufficient reason to make an order otherwise than costs follow the event.
Second, De Rucci International has been successful at first instance against Ms Zhu and HQ Living in a reduced amount of approximately $107,000 against Ms Zhu and a reduced amount of approximately $138,000 against HQ Living.
Whilst, De Rucci International failed on some claims against Ms Zhu and/or HQ Living (its claims associated with title to the display stock and its claim to be paid an amount of $100,000 on early termination of the management agreement), the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Nor was it submitted by the appellants that the issues on which De Rucci International failed against Ms Zhu and HQ Living were clearly dominant or separable: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [18] and the authorities there referred to.
The appropriate costs orders at first instance are: 1. the first, second and third defendants (Ms Zhu, HQ Living and De Rucci Bundall) pay the plaintiffs' (De Rucci International) costs of and incidental to the proceedings; and 2. De Rucci International pay the fourth and fifth defendants' costs of the proceedings.

Costs on appeal

The respondents described the appellants' success on appeal as "limited". That characterisation of the outcome on appeal is inapt.
First, it ignores that HQ Moore Park and HQ Bedding have completely succeeded on appeal.
Second, it ignores that both Ms Zhu and HQ Living have achieved a substantial reduction in the monetary judgments against them; over 50 per cent in the case of Ms Zhu and about 40 per cent in the case of HQ Living. However, that success was offset by the failure of the appellants' challenge to the dismissal of the cross-claim.
The respondents say that they should receive an award of costs on appeal because the appellants "unfairly, improperly or unnecessarily" increased the costs of the appeal, including by their late application on 17 August 2021 to amend their notice of appeal to prosecute the appeal in respect of the dismissal of the cross-claim, having earlier abandoned relevant grounds directed to that issue on 5 July 2021 when the appellants served their written submissions.
As explained in the principal judgment at [10]-[11], the appellants' application for leave to file an amended notice of appeal was dealt with at the hearing in circumstances where, on 25 August 2021, the day before the hearing of the appeal, the appellants produced a revised version of the amended notice of appeal, together with further submissions dated 25 August 2021, which were not provided to the respondents until the morning of the hearing on 26 August 2021. Ultimately, however, the respondents were able to meet the grounds in the revised notice of appeal and oral argument proceeded on the basis of those grounds.
The Court indicated in its principal judgment at [15] when granting leave to the appellants to file a further amended notice of appeal in the form of the revised notice of appeal, that the costs thrown away by the amendments should be borne by the appellants in any event. No substantive submissions were advanced by the appellants as to why such an order should not be made. The Court will make an order in those terms.
Otherwise, given the mixed outcome on appeal, the appropriate order is that there be no order as to costs of the appeal.

Orders

Accordingly, the Court makes the following orders: 1. The first, second and third defendants to pay the plaintiff's costs of and incidental to the proceedings at first instance. 2. The plaintiff to pay the fourth and fifth defendants' costs of the proceedings at first instance. 3. The appellants to pay the respondents' costs thrown away by reason of the further amended notice of appeal dated 25 August 2021 and filed 14 October 2021. 4. Subject to order (3) above, make no order as to the costs of the appeal.

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Solicitors: Auyeung Hencent & Day Lawyers (Respondents) File Number(s): 2020/369381 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Citation: [2020] NSWSC 1720 Date of Decision: 2 December 2020 Before: Rothman J File Number(s): 2019/293452

Judgment

THE COURT: On 7 October 2021, the Court delivered a judgment on this appeal: Zhu v Wang [2021] NSWCA 240 (the principal judgment). It allowed the appeal in part and set aside several orders, including that the appellants, jointly and severally, pay the second respondent De Rucci International Pty Ltd (De Rucci International), the sum of $230,473.90, together with pre-judgment interest on that amount from 7 December 2019, and that the appellants pay De Rucci International's costs of and incidental to the proceedings. In lieu, this Court ordered that: 1. the second appellant, HQ Living Pty Ltd (HQ Living), pay De Rucci International the sum of $30,789; and 2. the first appellant, Ms Lucy Zhu (Ms Zhu), and the second appellant, HQ Living, are jointly and severally liable to pay De Rucci International the sum of $107,317.90.
Given the mixed outcome, the Court did not determine the issue of costs at first instance or on appeal and directed the parties to file written submissions on the question of costs and indicated that those submissions would be determined on the papers.
Although the parties filed submissions on costs, unfortunately, those submissions were overlooked until the matter was drawn to the Court's attention by the solicitors for the respondents by email dated 6 June 2022.

The costs orders which are sought

The appellants submitted that the appropriate order for costs at first instance and on appeal would be that each party pay its own costs or alternatively, the costs orders be deferred until after the decision of the High Court in relation to the appellants' application for special leave to appeal.
The appellants' application for special leave to appeal filed on 18 November 2021, was dismissed by the High Court on 10 March 2022: Zhu v Wang [2022] HCASL 32. Accordingly, the alternative submission does not require consideration.
The respondents submitted that they should receive an order for their costs at first instance. As to the appeal, the respondents submitted that (a) they should receive an order for their costs relating to the appellants' failed challenge to the primary judge's dismissal of the cross-claim, and (b) insofar as the appeal was allowed in part, reducing the award of damages to the respondents, the respondents should receive their costs of the appeal, discounted by an appropriate amount to reflect the appellants' partial success on the appeal.
In their reply submissions, the appellants changed their position. It was submitted that the respondents should pay their own costs at first instance, the respondents should pay their own costs of the appeal in respect of the appellants' unsuccessful challenge to the primary judge's dismissal of the cross-claim and the respondents should pay the costs of the appeal in respect of the partially successful challenge to the primary judge's award of damages to the respondents.

Zhu v Wang

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