District Court New South Wales Medium Neutral Citation: Hume Plasterboard Pty Ltd v Best Interiors Aust Pty Ltd & Ors (No.2) [2021] NSWDC 514 Hearing dates: On the papers Date of orders: 27 September 2021 Decision date: 27 September 2021 Jurisdiction: Civil Before: Abadee DCJ Decision: See paragraph 27 Catchwords: COSTS – whether part of successful defendant's costs should not be paid because of non-compliance with procedural directions – whether costs payable by unsuccessful defendant should be paid on indemnity basis – whether Bullock order should be made Legislation Cited: Civil Procedure Act 2005 (NSW) ss 56, 61, 98 Uniform Civil Procedure Rules 2005 (NSW) r 42.1 Cases Cited: Bullock v London General Omnibus Co [1907] 1 KB 264 Dominello v Dominello (No. 2) [2009] NSWCA 257 Gould v Vaggelas (1985) 157 CLR 215 Mead v Watson (2005) 23 ACLC 718 Oshlack v Richmond River Council (1998) 193 CLR 72 Stephens v Givoenco (No.2) [2011] NSWCA 144 Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 388 Yerkey v Jones (1939) 63 CLR 649 Texts Cited: Nil Category: Costs Parties: Hume Plasterboard Pty Ltd (plaintiff) Best Interiors Aust Pty Ltd (first defendant) Mr M Li (second defendant) Ms Y M Chu (third defendant) Representation: Counsel: Mr R Quickenden for the plaintiff No appearance by first defendant Mr M Li appeared in person Mr J Lee for the third defendant Solicitors: CBD Law for the plaintiff Fortis Law for the third defendant File Number(s): 2020/00179594 Judgment Background 1. On 15 September 2021, I delivered reasons for my decision in which a creditor (Hume) successfully sued one guarantor of a corporate debt (Mr Li), but failed in its suit to enforce it against the other guarantor (Ms Chu). This difference in outcome was attributable to my determination that the latter defendant successfully invoked the Yerkey v Jones [1] defence. Judgments were rendered accordingly, with the questions of costs to be reserved. 2. In his closing argument at the trial, Counsel for Hume made an application on costs which anticipated this outcome: he argued that the Court should make a Bullock order [2] : that part of the costs that Mr Li (as unsuccessful defendant) should pay to Hume included Hume's liability to pay Ms Chu for her costs (as successful defendant). 3. Subsequent to the delivery of my reasons, Mr Li and Ms Chu were both given the opportunity to make submissions as to costs, and Hume was given the opportunity to make submissions in reply. 4. Mr Li made no submissions. Ms Chu submitted the usual order should apply so that Hume pays Ms Chu's costs of the proceeding and no Bullock order should be made for three reasons: 1. although it was reasonable for Hume to sue Ms Chu, no conduct of Mr Li (the unsuccessful defendant) was identified as causing Hume to sue Ms Chu; 2. Mr Li did nothing to induce Hume to sue Ms Chu. It was, implicitly, only Hume's forensic decision to sue Ms Chu, for which Hume alone was responsible; and 3. Hume continued its pursuit of Ms Chu even after she had filed a defence right through to the trial. 1. After Ms Chu made her submissions, Hume made submissions which went beyond the application on costs it had contingently made in its submissions during the trial. It not only sought a Bullock order, but also sought other orders: 1. in relation to its proceeding against Ms Chu, each party pay their own costs, or Hume only pay a proportion of her costs; 2. in relation to its proceeding against Mr Li, Mr Li pay Hume its costs on an indemnity basis. 1. In circumstances where these additional, or alternative, costs orders had not been telegraphed by Hume at trial, I gave opportunity to Mr Li and Ms Chu to respond to these additional orders. Mr Li, again, did not make submissions. Ms Chu did make submissions, which I have taken into account. PRINCIPLES General 1. It is trite that the Court's power to order costs is discretionary (Civil Procedure Act 2005 (NSW) (the 'CP Act'), s 98). Ordinarily, the usual rule is that costs follow the event: r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). Given the joinder of multiple defendants, there were two 'events' in this litigation: Hume's proceedings against Mr Li and Ms Chu, respectively [3] . Ordinarily, there would be two separate costs orders to reflect the two separate events. This is what Campbell JA described in Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 388 at [46] as a 'per-defendant order'. Non-compliance with case management obligations 1. By s 56(5) of the CP Act, the Court may take into account any failure by a party to comply with its (or its legal representatives') case management obligations (in ss 56(3) & (4)) in the CP Act. Those case management obligations may be distilled in the terms referred to in s 56(1): to facilitate the "just, quick and cheap resolution of the real issues in the proceeding". 2. But the power in s 56(5) is also exercisable by reference to s 61(3)(f) of the CP Act, through which the Court is also empowered to make costs orders against parties who do not comply with court directions as to the conduct of proceedings. Indemnity costs 1. Section 98 of the CP Act permits the Court, when exercising its discretion, to order that costs be payable on an indemnity basis. This may be so where there has been unreasonable action by a party in the conduct of a proceeding [4] . Certain well-known categories include where parties raise hopeless cases, or inordinately or unnecessarily prolong proceedings. However, the impugned conduct necessary to found an order for indemnity costs on this basis must be connected with the litigation itself, or causative of it, not the underlying subject matter of the litigation [5] . Bullock orders 1. The exercise of the Court's discretion is partly informed, or guided, by well-established principles under the general law, such as the principle which Hume now invokes, being that there are cases where "the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who failed are ordered to be paid by the unsuccessful defendant on the grounds that those costs have been reasonably and properly incurred by the plaintiff as between (him) and the (unsuccessful) defendant" [6] . That is, the unsuccessful defendant pays the plaintiff, by reimbursement, any costs the plaintiff has to pay the successful defendant. This commonly is manifested, or is conditional upon proof that: (a) it was reasonable for the plaintiff to proceed against the successful defendant; and (b) conduct by the unsuccessful defendant makes it fair to impose upon it liability for the costs of the successful defendant. 2. It has been said that the conduct of the unsuccessful defendant need not amount to actual misconduct, it should go beyond a denial of liability; it may be an assertion that the (unsuccessful) defendant is not liable because another (successful) one is [7] . 3. Although it is not a precondition to such order, it has been said that the circumstance that the causes of action against both successful and unsuccessful defendants are substantially connected or interdependent, is a typical category of circumstance demonstrating the reasonableness of the joinder of the successful defendant [8] . I note, further, that although initially Ms Chu was represented by the same lawyers as Mr Li, at least for the purpose of preparing a common defence, ultimately, she was represented at the hearing; unlike Mr Li, who represented himself. CONSIDERATION Application against Ms Chu that each party pay their own costs 1. The proceeding commenced on 17 June 2020. Defences were filed by 23 July 2020. Counsel for Hume cited a string of what it contends were serial non-compliances with Court directions, and also delayed responses to the services of notices to produce, starting from 16 December 2020 through to August 2021. 2. There is no evidence that Hume ever applied to the Court, as it was entitled to apply to the Court, for costs orders as a result of non-compliance with procedural directions or the issue of court process. Even though, in one instance, one such suggested non-compliance was with one of the directions I personally made (on 17 May 2021), it is inappropriate for parties and their legal representatives to effectively store up grievances about other parties' non-compliance with directions and then seek to ventilate them before the trial judge who, subject to the qualification I have indicated, cannot be expected or assumed to have oversight of the conduct of proceedings before trial. To do so would embroil a trial judge in an extensive retrospective inquiry as to why earlier court directions or court process was not complied with; thereby generating satellite disputation. That would represent a significant diversion of judicial resources away from the interests of other litigants. In short, if it had good cause to complain about earlier non-compliance with directions or court process Hume should have sought costs orders earlier. It is too late to do so now. 3. Further, this is not the case where it may be appropriate to engage in the intricate exercise of parsing through the various issues to be determined, to see if any were sufficiently severable or discrete to warrant some adjustment to the usual order that the successful party gets all of its costs. 4. The ordinary operation of the court rules, whose force Hume otherwise acknowledges, should apply. The plaintiff is to pay the third defendant's costs, as agreed or assessed. Application against Mr Li for indemnity costs 1. Although Hume identified the principle that might entitle the Court to order that Mr Li pay costs on an indemnity basis, there is nothing, other than inferentially, the matters relied upon to sustain a Bullock order (referred to below), that Hume articulated why he should pay Hume's costs of its claim against him on an indemnity basis. 2. The difficulty for Hume however, is that even though Mr Li ultimately capitulated on the issue of his liability as a guarantor, he had always put in issue the quantum. Ultimately, Hume adopted Mr Li's estimate of the quantum of his liability. To that (limited) extent, Mr Li's resistance to the claim against him was vindicated. At any rate it cannot be said, therefore, that his defence was entirely hopeless or that he unnecessarily prolonged proceedings. Further relevant considerations in this regard is that, for a significant part of the proceeding, Mr Li was unrepresented. This is not to put unrepresented litigants into a special caste, but it does illuminate the importance of a party, who anticipates applying for indemnity costs against an unrepresented litigant, to at least foreshadow that course. There is no suggestion that Hume did this here. Secondly, it was open to Hume to serve an offer of compromise which, if it bettered the ultimate outcome, would have presumptively have indicated an entitlement to indemnity costs. That did not occur. 3. As noted, I did find Mr Li's conduct in the lead up to the impugned conduct to be unsatisfactory. For reasons earlier explained, that does not yield an entitlement to indemnity costs against him. It may, however, be relevant to the making of a Bullock order; an issue to which I will shortly turn to. 4. I am not persuaded that the Court should exercise its discretion to order Mr Li to pay Hume's costs against him on an indemnity basis. Application for Bullock order 1. Here, Hume's cause of action was the same against both defendants. Hume's case was that each defendant had the same liability, or source of liability, being the guarantee. In my view, it was reasonable for Hume to join Ms Chu on that basis, and it was correct for Counsel for Ms Chu to concede as much. 2. The contentious question, in accordance with the applicable principles is whether there was conduct by Mr Li which makes it fair to impose liability upon him for Ms Chu's costs. 3. Hume made a forensic decision to join both guarantors with the borrower as defendants in the proceeding. The Court found that the Yerkey v Jones defence was engaged, and accordingly determined that with the knowledge that Ms Chu was Mr Li's wife and in circumstances where she was a volunteer, it took no steps to ensure that she understood the guarantee; and she did not understand it. It did not matter, for the purpose of that principle, whether or not Mr Li was morally or legally at fault in failing to explain it himself. Hume did not establish that Mr Li did anything to indicate, prior to March 2015, that Ms Chu did in fact understand the nature and effect of the transaction, or personally benefited from her agreeing to act as surety. Nor did it matter whether he practised actual undue influence upon her: this was, as my reasons indicated, a second category Yerkey v Jones case; not a first category case. Being a second category Yerkey v Jones case, it had no one to blame for the circumstance that Ms Chu succeeded with her defence but itself. Further, Hume made another forensic decision to continue to prosecute the proceeding against Ms Chu in the face of her defence which notified Hume of her reliance upon this special defence; and evidence from Mr Li which, objectively, could not have induced Hume to believe that Ms Chu understood the transaction or personally benefited from it prior to March 2015. 4. To the extent that it is said that conduct by Mr Li contributed to a non est factum defence later abandoned by Ms Chu, the causal connection is not apparent and even if it did, it has not been shown to have made any material difference, given the factual findings in Ms Chu's favour. 5. In my view, the costs order should reflect these considerations. In my view, whatever criticism might be made of Mr Li, for his conduct towards Ms Chu prior to the date she entered into the transaction, it is inappropriate for him to bear Hume's costs of its failure against Ms Chu. To do so would effectively make him an insurer for Hume's forensic decisions to join and thereafter continue to prosecute its claim against Ms Chu in the circumstances that I have referred to. Imposing such an obligation would effectively take away Hume's agency and responsibility for making its own forensic decisions. I am not persuaded that it is fair to impose this burden upon Mr Li. Orders 1. The Court orders that: 1. The second defendant is to pay the plaintiff's costs of the claim against him, as agreed or assessed. 2. The plaintiff is to pay the third defendant's costs of the proceeding, as agreed or assessed. ********** Endnotes 1. (1939) 63 CLR 649 2. Bullock v London General Omnibus Co [1907] 1 KB 264 3. This excludes the 'event' concerning the corporate borrower's liability for the debt, which event was not determined because of the stay of the proceeding arising from the debtor's winding up. 4. Oshlack v Richmond River Council (1998) 193 CLR 72 5. Mead v Watson (2005) 23 ACLC 718 at [9]-[10] 6. Gould v Vaggelas (1985) 157 CLR 215 per Gibbs CJ at 229-230 7. Dominello v Dominello (No. 2) [2009] NSWCA 257 at [19]-[25] 8. Stephens v Givoenco (No.2) [2011] NSWCA 144 at [18] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 September 2021