District Court New South Wales Medium Neutral Citation: Xu v Jiang [2020] NSWDC 302 Hearing dates: 12 June 2020 Date of orders: 12 June 2020 Decision date: 12 June 2020 Jurisdiction: Civil Before: Gibson DCJ Decision: (1) Pursuant to r 12.7(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), these proceedings are dismissed with costs. (2) Pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), make gross sum costs orders against the plaintiff as follows: (a) As to the costs set out in the itemised account which is annexure f to the affidavit to Mr Cai of 19 May 2020, the sum of $30,000 costs plus $9,012.53, making a total of $39,012.53; and (b) As to the estimated future costs referred to in paragraph 19 of Mr Cai's affidavit, the sum $2,750, making a total of $41,762.53. (3) Pursuant to UCPR r 29.7, the court is to notify the plaintiff of these orders by forwarding a copy of the entry of the orders onto JusticeLink to the trustee in bankruptcy, Mr David John Kerr of RSM Australia Pty Ltd, the trustee of the plaintiff's estate. Catchwords: PRACTICE AND PROCEDURE – application for summary dismissal pursuant to UCPR r 12.7(1) – plaintiff commences proceedings for repayment of alleged loan – defendant files defence asserting claim is fraudulent and brings application for security for costs on the basis that the defendant is ordinarily resident in China – plaintiff declares himself bankrupt – trustee in bankruptcy does not make any election to continue the proceedings in accordance with s 60 of the Bankruptcy Act 1966 (Cth) – application for summary dismissal of proceedings and a gross sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW) – whether the usual order of costs to follow the event may be made where proceedings abandoned by reason of bankruptcy – whether an order for a gross sum costs order is appropriate – whether the court can be satisfied with the information provided as to quantum – gross sum costs order for $41,762.53 Legislation Cited: Bankruptcy Act 1966 (Cth), s 60 Civil Procedure Act 2005 (NSW), s 98(4)(c) Uniform Civil Procedure Rules 2005 (NSW), rr 12.7 and 29.7 Cases Cited: Auspine Ltd v Australian Newsprint Mills Ltd [1999] FCA 673; (1999) 93 FCR 1 Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 Cole v Challenge Bank Ltd [2002] FCAFC 200 Frigger v Rowe Bristol Lawyers Pty Ltd [2020] WASC 5 Hamod v State of New South Wales and Anor [2011] NSWCA 375 Harrison & Anor v Schipp (2002) 54 NSWLR 738 Idoport Pty Limited v National Australia Bank Limited & Ors, Idoport Pty Limited v Argus [2007] NSWSC 23 Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681 Penson v Titan National Pty Limited (No 3) [2015] NSWCA 121 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Star Diamond v Diamond (No 4) [2013] NSWCA 811 Tim Barr Pty Ltd & Anor v Narui Gold Coast Pty Ltd [2011] NSWSC 11 Vumbaca v Sultana (No. 2) [2013] NSWDC 195 Yue'e Zhao v Suzhou Haishun Investment Managing Co Ltd [2020] VSCA 34 Category: Principal judgment Parties: Plaintiff: Lawrence Xu Defendant: Samuel Jiang Representation: Counsel: Plaintiff: No appearance Defendant: Mr N Furlan Solicitors: Plaintiff: No appearance Defendant: Zhang Shijing Lawyers File Number(s): 2019/322266 Publication restriction: None Judgment The application before the court 1. The defendant, by notice of motion filed on 19 May 2020, seeks orders as follows: 1. An order, pursuant to r 12.7(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), that the proceedings be dismissed. 2. An order, pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW), that the plaintiff pay the defendant's costs of the proceedings including this notice of motion in the gross sum of $42,011.22. 3. Any such further or other orders as this Honourable Court thinks fit. 1. The defendant relies upon the affidavit of Wenhao Cai sworn on 19 May 2020, which sets out a history of these proceedings as well as the quantum of costs sought. 2. The plaintiff did not appear on the application. It is not in dispute that he went into bankruptcy on 2 April 2020. On 8 May 2020, the plaintiff's trustee in bankruptcy advised the solicitors for the defendant that the trustee had not made an election to continue these proceedings pursuant to s 60 of the Bankruptcy Act 1966 (Cth) (affidavit of Mr Cai, annexure B). As the decisions discussed in more detail below demonstrate, the trustee's failure to make an election means that the action commenced or defended by the bankrupt is deemed to have been abandoned and the proceedings including costs applications by the opposing party, must then be finalised on that basis. 3. Pursuant to r 29.7 of the Uniform Civil Procedure Rules, 2005 ("UCPR"), I am satisfied that the plaintiff has been made aware of this application, as has the trustee in bankruptcy. On 15 May 2020, Mr Cai sent an email to the plaintiff's trustee in bankruptcy advising that orders for dismissal of proceedings and for the payment of costs would be sought. An employee of the trustee sent an email to the court in the following terms: "With respect of the above proceedings, the Bankruptcy Trustee has not made an election in these proceedings, in accordance [sic] Section 60(3) of the Bankruptcy Act (1966) [sic] (Cth). That section provides that: If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. The Trustee did not make any election on or before the 28 day period required by the Act. On behalf of the Trustee I responded to the defendant's email of 8 May 2020 in which the defendant requested that the Trustee notify them of any election. In response to the defendant's request I informed them through email that the Trustee had not made any election in respect of these proceedings. With respect to these proceedings the Trustee submits to the court that he is deemed to have abandoned the action, thus we will not make an appearance at Monday's directions. While your Honour and the Court have our sincerest apologies it appears as if this information has not been provided to you. We therefore do not believe that we can provide any further assistance to the Court with respect to these proceedings." 1. Conformably with the requirements of UCPR r 29.7, I am satisfied that the plaintiff is aware of this application. The costs orders to be made in these proceedings 1. The application for summary dismissal by reason of the plaintiff's bankruptcy means that there has been no determination of the issues in this case on the merits: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 ("Lai Qin"). Are there special rules in relation to the costs orders to be made where the intention of the trustee in bankruptcy is not to continue the proceedings? 2. In Cole v Challenge Bank Ltd [2002] FCAFC 200, Gray J (with whom Emmett J agreed) stated at [16]-[17]: "16 The question is whether, in these circumstances, there should be an order for costs in favour of the respondents. Two issues arise in relation to costs, one as to the costs of the appeal, the other as to the costs of the motion. Ordinarily, if an appeal is discontinued, costs follow the event. If an appeal were to be abandoned in normal circumstances by express statement of the appellant, it would be open to a respondent to put an end to it by moving the Court to have the appeal dismissed for want of prosecution. In those circumstances, costs would still follow the event and an order would be made against the appellant in respect of those costs. Such costs would, of course, include the costs of moving the Court to dismiss the appeal for want of prosecution. 17 I am not aware of any authority on the effect of s 60 of the Bankruptcy Act on the matter of costs when either there is an election to discontinue a proceeding or there is a deemed abandonment of it. In my view, the Court should follow the normal practice and costs should follow the event." 1. A challenge to the making of such an order was made in Frigger v Rowe Bristol Lawyers Pty Ltd [2020] WASC 5, on the basis that the proceedings had vested in the trustee and orders could not be made against the plaintiff personally, particularly in circumstances where there had been no hearing on the merits. Hill J noted the statement of principle in Cole v Challenge Bank Ltd and went on to state at [70]-[71]: "70 Pursuant to O 23 r 2(1) of the RSC, if a party discontinues a proceeding or withdraws part of the complaint, they are liable to pay the costs occasioned by the discontinuance or withdrawal. For this reason, if these proceedings were discontinued by the applicants, the usual costs order would be that the applicants pay the respondent's costs of the proceeding, including the costs of any motion required to be filed by the respondent. 71 While the proceedings vested in the trustee in bankruptcy as at the date of the applicants' bankruptcy, the trustee is not a party to the proceedings; the applicants are. For this reason, it is appropriate that any order for costs be against the applicants personally." 1. In the recent decision of Yue'e Zhao v Suzhou Haishun Investment Managing Co Ltd [2020] VSCA 34, this issue was considered in the context of a party having some prospects of ultimate success. The plaintiff sought to enforce three Chinese judgments in Australia which the defendant denied were bona fide judgments, invoking the doctrine of duress as an exception to enforceability. When the first instance judge struck out the defence, the defendant appealed but then went bankrupt. The Court of Appeal acknowledged (at [4]) that the defendant "had a reasonably arguable case that the primary judge had erred in determining the factual disputes on a conflict of affidavits, including by drawing inferences from disputed facts" and that she may well have been entitled to a costs order. However, before the defendant could proceed with her appeal, she was declared bankrupt. Did this make a difference? 2. Hargrave JA, writing for the court, noted that, in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681, the New South Wales Court of Appeal applied the principles stated in Lai Qin and allowed an appeal against a trial judge's decision to award costs. Hargrave JA went on to add that, in the course of reviewing the authorities following Lai Qin, Payne JA (Basten and Meagher JJA agreeing) accepted that, absent any consideration of the merits of the proceeding, costs may be ordered where there is a capitulation by one party, in the sense that it 'effectively surrenders to the other' which was, in the opinion of Payne JA, consistent with the judgment of McHugh J in Lai Qin. 3. Hargrave JA went on to note: "12 In fact, the quoted words which Payne JA attributes to McHugh J in Lai Qin do not appear in McHugh J's judgment. They are a quote from Sackville AJA's judgment in Muhibbah Engineering. However, the principles stated by McHugh J in Lai Qin were, in his words, intended to 'govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means'. We accept as a general principle that where a party litigates for some time and then acts so as to effectively surrender or capitulate to the other, that will usually be a strong ground to award costs against the party who has surrendered or capitulated. But each case will depend on its own facts. 1. The plaintiff sought costs on an indemnity basis but the defendant submitted that the appropriate order, on Lai Qin principles, was for no order as to costs. 2. Hargraves JA considered that, notwithstanding the defendant's arguments as to the exceptional nature of bankrupt parties as well as the very real potential for success if the litigation had continued, the costs order sought by the opposing party should be made, although not on an indemnity basis: "19 In all the circumstances, we conclude that this is a case where the applicant has, after litigating her application for leave to appeal and putting the respondent to considerable cost in that regard, made the tactical decision to present her own bankruptcy petition and thus, subject to the right of her bankruptcy trustees to pursue the application for leave to appeal, effectively surrendered. 20 For these reasons, the applicant should pay the respondent's costs of and incidental to the application for leave to appeal. Given our view that the proposed appeal was reasonably arguable, we are not prepared to order that those costs be on an indemnity basis. The position is analogous to the filing of a notice of discontinuance under Supreme Court (General Civil Procedure) Rules 2015 r 25.04, where the usual position is that standard costs are payable (r 63.15). This is not a case where the application was deemed abandoned under r 64.45, where the default position is that indemnity costs are payable. 1. Conformably with these statements of principle, I am satisfied that the costs order in question should be made against the plaintiff. The question of the merits of the litigation (which in the present case seem scant in any event) is no bar to the making of such an order. The defendant will then be entitled to lodge a proof of debt in the bankruptcy proceedings for the amount. Should the court exercise its discretion to make a gross sum costs order under s 98(4)(c) of the Civil Procedure Act 2005 (NSW)? 1. After many years of caution, during which time gross sum costs orders were generally only made in "mega-litigation" cases (Idoport Pty Limited v National Australia Bank Limited & Ors, Idoport Pty Limited v Argus [2007] NSWSC 23 at [23]ff), courts in New South Wales have increasingly come to the view that the power to award a gross sum should be exercised. 2. Additionally, courts have become increasingly flexible about whether or not these costs should be prepared by a costs assessor as a form of expert evidence (Harrison & Anor v Schipp (2002) 54 NSWLR 738 at [22]) or by the solicitor with conduct of the matter, assuming that solicitor has sufficient expertise. 3. Another factor increasingly regarded as relevant is whether a party's conduct has in some way contributed to the desirability of such a course: Hamod v State of New South Wales and Anor [2011] NSWCA 375 at [818]; Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 at [13]. Circumstances where the court has considered it appropriate to make such orders include: 1. Where the party obliged to pay the costs would not be able to meet the assessment (Harrison & Anor v Schipp at [21]-[22]); 2. Where the issues of expense, delay and aggravation are argued to have arisen by reason of the conduct of the proceedings (Star Diamond v Diamond (No 4) [2013] NSWCA 811 at [8]); 3. Where proceedings had been completed or are otherwise at a stage where the making such an order will not stultify the conduct of litigation (Tim Barr Pty Ltd & Anor v Narui Gold Coast Pty Ltd [2011] NSWSC 11). 1. Looking at the subject matter and history of these proceedings, which include challenges to the circumstances in which affidavits were sworn, the place of residence of the plaintiff and the circumstances in which the plaintiff's bankruptcy followed an application for security for costs, I am satisfied that all of these factors apply. Accordingly, an order for gross sum costs is appropriate in the circumstances. The method of assessment 1. The term "broad brush" is commonly applied by judges hearing such applications, as to require the same or similar level of detail as a formal costs assessment would defeat the purpose of the gross sum order: Auspine Ltd v Australian Newsprint Mills Ltd [1999] FCA 673; (1999) 93 FCR 1 at [5]; Penson v Titan National Pty Limited (No 3) [2015] NSWCA 121 at [7]. 2. The court must be satisfied as to the adequacy of the material put before it in order to ensure that all relevant information has been provided. Such costs assessments are often performed by costs assessors and in general practice the "rule of thumb" discount for costs likely not to be permitted as assessments is correspondingly lower than in cases where the costs are assessed by the solicitor seeking those costs. 3. Mr Furlan acknowledged that the itemised breakdown and assessment attached to Mr Cai's affidavit was prepared on a solicitor/client basis. Accordingly, there must be some adjustment made for costs which are of a solicitor/client nature. However, given the modesty of the sums Mr Cai's firm seeks and the careful description of the matters the subject of charge, this deduction will be much smaller than would generally be the case. 4. To the deduction that should be made there must be a "rule of thumb" discount. The "rule of thumb" discount 1. Where a gross sum costs order is made, the courts have generally applied a discount in assessing costs on a gross sum basis: Hamod v State of New South Wales and Anor at [814]. In Vumbaca v Sultana (No. 2) [2013] NSWDC 195 at [23]-[24], I listed some of the percentages allowed pursuant to this rule of thumb, as well as noting expert evidence from the costs assessor called in those proceedings as to the range likely to be reduced on assessment. 2. Given the moderate amounts charged by the solicitors for the defendant, I am of the view that any such deduction would be small and I have accordingly reduced this sum to $30,000. Disbursements 1. These add up to $9,012.53. 2. I do not consider any solicitor/client deduction need be made against any of the disbursements, all of which are reasonable; counsel's fees and other disbursements are rarely reduced on assessment to any significant extent. These disbursements largely relate to necessary searches, such as the $100 fee charged for searches of Qichacha (企查查), a China-based company search site. I also note the very modest fees charged by counsel retained in these proceedings. 3. Although a "rule of thumb" is generally applicable to profit costs, it is rarely applied to disbursements. The nature of the disbursements listed makes their reasonableness clear. Future costs 1. I am only provided with a very general estimate of "future costs", namely the costs since the detailed memorandum of costs was prepared, which essentially relate to the bringing of this application. I understand these amounts to $3,500 but I have little further information. Accordingly I have accordingly allowed a slightly greater deduction of $750, resulting in a sum of $2,750. Conclusions and orders 1. For the above reasons, I made the following orders: 1. Pursuant to r 12.7(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), these proceedings are dismissed with costs. 2. Pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), make gross sum costs orders against the plaintiff as follows: (a) As to the costs set out in the itemised account which is annexure f to the affidavit to Mr Cai of 19 May 2020, the sum of $30,000 costs plus $9,012.53, making a total of $39,012.53; and (b) As to the estimated future costs referred to in paragraph 19 of Mr Cai's affidavit, the sum $2,750, making a total of $41,762.53. 3. Pursuant to UCPR r 29.7, the court is to notify the plaintiff of these orders by forwarding a copy of the entry of the orders onto JusticeLink to the trustee in bankruptcy, Mr David John Kerr of RSM Australia Pty Ltd, the trustee of the plaintiff's estate. ********** Amendments 16 June 2020 - Typographical error in Catchwords 18 June 2020 - Unimported fields in the coversheet imported. 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