Supreme Court New South Wales Medium Neutral Citation: Eco-Pact Pty Ltd v Law Society of NSW (No 2) [2023] NSWSC 410 Hearing dates: On the papers Date of orders: 21 April 2023 Decision date: 21 April 2023 Jurisdiction: Common Law Before: Griffiths AJ Decision: Order 1 dated 29 March 2023 be varied such that the plaintiff is to pay the defendant's costs as agreed or assessed, including the costs of the notice of motion filed on 15 October 2021 and the costs in finalising the orders as to costs. Catchwords: COSTS – Appeal against unsuccessful claim on Fidelity Fund – Where generally no costs order is to be made – Where plaintiff entirely failed in its appeal – Illegal transaction – In the interests of justice to make costs order Legislation Cited: Corporations Act 2001 (Cth) Legal Profession Uniform Law (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Di Simone v Legal Services Board [2017] VSC 644 Eco-Pact Pty Ltd v Law Society of NSW [2023] NSWSC 283 Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 The Solicitor's Trust v Oxenbould [2013] 22 Tas R 235; [2013] TASFC 2 Wang v Council of the Law Society of New South Wales [2009] NSWSC 67 Wang v Law Society of New South Wales (No 2) [2022] NSWSC 1720 Category: Costs Parties: Eco-Pact Pty Ltd (Plaintiff) Law Society of NSW (Defendant) Representation: Counsel: P Barham (Plaintiff) T Prince (Defendant) Solicitors: Fraser Clancy Lawyers (Plaintiff) Courtenay & Co Solicitors (Defendant) File Number(s): 2021/00263934 Publication restriction: Nil JUDGMENT 1. These reasons for judgment relate to the issue of costs arising from my earlier reasons for judgment in Eco-Pact Pty Ltd v Law Society of NSW [2023] NSWSC 283 (primary judgment). These reasons assume familiarity with the primary judgment and the same abbreviations will continue to be used. 2. In the primary judgment the Court ordered that the plaintiff's amended summons be dismissed. The Court ordered the plaintiff to pay the defendant's costs as agreed or assessed, including the costs of the notice of motion filed on 15 October 2021, subject to the parties having leave to make brief written submissions on costs. The parties have availed themselves of that opportunity. 3. Sub-section 247(7) of the LPUL provides: 247 Right of appeal against decision on claim … (7) No order for costs is to be made on an appeal under this section unless the designated tribunal is satisfied that an order for costs should be made in the interests of justice. 1. It is well established that, although this provision displaces the ordinary rule under r 42.1 of the UCPR that costs generally follow the event, the power to make an order for costs is nevertheless discretionary. Moreover, in circumstances where the LPUL does not identify matters to be taken into account in determining the "interests of justice", all relevant circumstances may be considered (see The Solicitor's Trust v Oxenbould [2013] 22 Tas R 235; [2013] TASFC 2 at [107] and Di Simone v Legal Services Board [2017] VSC 644 at [10]). Ultimately, the outcome is likely to turn on the relative weight given to all relevant considerations, noting that some of those considerations are likely to be in competition with others. 2. The plaintiff relied on a range of considerations in support of its claim that it was not in the interests of justice to make an order as to costs. It pointed to seven matters in support of its contention that the appeal had been brought bona fide and on reasonable grounds (notwithstanding that the plaintiff failed on all its grounds of appeal). Before turning to consider each of those seven matters, I should observe that, although there was some ambiguity in the plaintiff's submissions, I did not understand it to deny that, in considering costs, the Court is entitled to take into account its finding that the transaction involving the payment of $80,000 was an illegal transaction and also that the plaintiff has entirely failed in its appeal. In my view, these two matters plainly are relevant and are to be given considerable weight. I accept, however, that neither is determinative. They need to be weighed along with all other relevant considerations. 3. I make the following observations in respect of the seven particular matters relied upon by the plaintiff. First, the plaintiff contended that there was no dispute that it entrusted the relevant monies to the law practice and that Ms Saldaneri had misappropriated at least $74,468 of the $94,468 claimed. This contention warrants little weight because it needs to be assessed in the context of the Court's central finding that there was illegality in the transaction comprising the payment of the $80,000. 4. Secondly, the plaintiff submitted that it had reasonable grounds for contending that the $80,000 payment was trust money, relying on Wang 2009 and notwithstanding Wang 2022. This consideration warrants little weight. As was pointed out in the primary judgment at [142], the facts in Wang 2009 and Wang 2022 are quite different and, to the extent that they are not distinguishable, I explained why Basten AJ's approach in Wang 2022 was preferred. 5. Thirdly, the plaintiff submitted that it had reasonable grounds for claiming that it did not have any intention to defraud creditors, given that there was no net change in its asset position from 10 September 2015 (when Mr Meknas first learned of the order for substituted service) and 18 September 2015 (by which date all six instalments of the $80,000 had been transferred). It claimed that its only asset was and remained its QBE claim and that to delay creditors was not to defraud them. 6. These submissions attract little weight. As was pointed out in the primary judgment at [63], Mr Meknas candidly agreed in cross-examination to the proposition that he "wanted to deprive Eagle Boys from getting access to the $80,000", even though he added that he did not intend to "deprive them of being paid in the end". Mr Meknas went to considerable lengths to avoid being served with legal documents concerning his and the plaintiff's debts. Moreover, for reasons which are set out in the primary judgment at [151]ff, findings were made that Mr Meknas' relevant conduct constituted an offence under both ss 590(1)(c)(i) and 596(1)(b) of the Corporations Act. Express findings were made at [159] and [166(2)] that the transfer of the $80,000 to Ms Saldaneri was done for the purpose of concealing from the plaintiff's creditors the plaintiff's true assets and with an intention to defraud those creditors. 7. Fourthly, the plaintiff submitted that it had reasonable grounds to claim that the Court should not find that it ought reasonably to have known that the transaction was illegal. It pointed to the fact that the defendant had abandoned its earlier allegation of conspiracy and identified the basis of the alleged illegality of the transaction only 10 days before the hearing. I do not accept those submissions. They are inconsistent with the Court's findings regarding the two offences under the Corporations Act, which included findings at [164] and [166(4)] that there was no doubt that, given Mr Meknas' role as sole director and his personal involvement in the payment of the $80,000, the plaintiff knew or ought reasonably to have known of the illegality. As to the defendant's initial claim of conspiracy, see at [20(2)] below. 8. Fifthly, the plaintiff submitted that it had reasonable grounds for claiming that, even if the Court found that the conditions in s 240(4)(d) of the LPUL were satisfied, the Court retained a discretion which should be exercised in the plaintiff's favour. That submission must be rejected. At [172] of the primary judgment, the Court noted that it was unnecessary to express a final view on whether 240(4)(d) confers a discretion. However, even if the Court retained a discretion, as claimed by the plaintiff, there was no reasonable basis for the plaintiff to believe that the discretion would be exercised in its favour having regard to the illegality of the $80,000 payment (see the primary judgment at [172]). 9. Sixthly, it appears that the plaintiff submitted that some account should be taken of the fact that, because of the deficiencies and omissions in Ms Saldaneri's conduct, it and Mr Meknas suffered significant detriment, as reflected in the fact that the plaintiff was put into administration and Mr Meknas was made bankrupt. These matters attract little weight on the issue of costs. There were significant deficiencies and omissions in Ms Saldaneri's conduct but Mr Meknas' personal actions cannot be ignored. This includes his involvement in the illegal transaction, as well as the fact that he placed the plaintiff into voluntary administration. 10. Seventhly, the plaintiff submitted that account should be taken of the fact that the Court found Mr Meknas to be a truthful, albeit unreliable, witness. It is true that the Court rejected the defendant's submissions regarding Mr Meknas' credibility (as opposed to his reliability: see the primary judgment at [11]–[25]). This deserves some limited weight because it is one of a very few issues upon which the plaintiff succeeded. The other issue upon which it succeeded related to the Court's finding in the primary judgment that the initial payment of $20,000 and part of the transaction comprising the transfer of the $80,000 was paid by Mr Meknas personally at the direction of the plaintiff, and that any pecuniary loss relating to that sum would be the plaintiff's loss (see the primary judgment at [122] and [129]). However, these isolated successes attract little weight when compared with the host of other issues upon which the plaintiff failed, as well as the finding of illegality. 11. The plaintiff made a number of additional submissions in favour of its position on costs. It said that its appeal included a claim of a denial of procedural fairness, which related to the defendant's alleged refusal to provide a copy of Ms Higinbotham's report. It submitted that if this refusal had not occurred, it may have affected its decision to appeal or, at least, narrowed the ambit of the appeal. I do not accept this submission. This particular claim of procedural unfairness was raised by the plaintiff in [4(c)] of the amended summons. This complaint fell away, however, in circumstances where a copy of the report was annexed to Ms Higinbotham's affidavit dated 28 July 2022, which was served on the plaintiff on or about that time, which is well before the hearing of the appeal. 12. Other matters raised by the plaintiff in favour of its position that there be no order as to costs take the matter no further. First, while I accept that the plaintiff's claim on the Fidelity Fund was for "a substantial amount", I do not consider that that matter warrants significant weight. 13. Secondly, I do not attach great significance to the fact that the plaintiff served an offer of compromise and the defendant did not. The plaintiff was wholly unsuccessful in establishing any of its numerous grounds of appeal. It needs to be borne in mind that the fundamental function of an order for costs is compensatory and not to penalise a party (see Latoudis v Casey (1990) 170 CLR 534 at 567; [1990] HCA 59 per McHugh J). 14. Thirdly, I accept that the plaintiff complied with the Court's timetable, but that is not a matter which attracts particular weight, particularly when balanced against all the other matters which favour the plaintiff bearing the defendant's costs (by way of compensation and not punishment and it being in the interests of justice). 15. Fourthly, the plaintiff contends that it "sought to save costs by having the appeal determined on the basis of the documents and information on which the defendant had made its decision, hence the notice of motion – but the defendant pressed for a fully contested hearing" (emphasis in original). It is difficult to understand this submission. In [6] of its amended summons, the plaintiff expressly sought "a merits review" (while also complaining of procedural unfairness in relation to various matters which were capable of being remedied by such a review). A notice of motion was filed by the defendant in circumstances where the plaintiff sought a merits review but then questioned whether the appeal was by way of a de novo hearing. Subsequently, the plaintiff belatedly accepted that a de novo hearing was involved, which led to the defendant's notice of motion filed on 15 October 2021 being dismissed by consent, with costs reserved. The defendant cannot be criticised for having had that matter clarified. 16. The plaintiff's reliance on Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 in support of the proposition that, because the notice of motion did not proceed to judgment, costs should not be awarded against it, is misconceived. As noted above, the notice of motion was dismissed by consent. 17. I do not accept the plaintiff's claim that it incurred unnecessary costs because of the manner in which the defendant conducted the proceedings. In particular: 1. The plaintiff complained that the defendant only agreed to give a waiver under s 247(3)(a) of the LPUL (in relation to the issue of whether the whole or part of the amount sought to be recovered was not reasonably available to be recovered from other sources) after the plaintiff served a notice to admit facts. That notice is dated 22 September 2021 and the defendant admitted the matter by an email dated 11 November 2021. I see no basis for criticising the defendant's conduct in this regard. 2. The plaintiff complained that it was not until 10 days before the hearing that the defendant made clear that it was not pressing any alleged conspiracy, but was relying upon other reasons for its claim of illegal conduct. That is true but it also should be noted that the defendant's written submissions actually preceded the plaintiff's written submissions by a few hours. Thus presumably the plaintiff had an admittedly brief opportunity to review the defendant's submissions before finalising its own. Part of its written submissions addressed why there was no illegality. It is notable that many of those submissions address the question whether there was any conspiracy, notwithstanding that that claim was not pressed by the defendant (see, for example, [110], [115] and [122] of the plaintiff's written submissions). 3. The plaintiff repeated that the Court rejected the defendant's claims with regard to who paid the first $20,000 as well as part of the $80,000 payment. These matters have been dealt with above. They attract only limited weight when weighed against the number and significance of the adverse findings made against the plaintiff. 1. Finally, it is appropriate to emphasise that I consider that a matter of particular significance in determining whether or not it is in the interests of justice to make an order for costs under s 247(7) of the LPUL arises from the findings that the plaintiff (through Mr Meknas) was involved in an illegal transaction in respect of the $80,000 payment. I accept the defendant's submission that, in general, the resources of the Fidelity Fund should not be depleted by claimants who have engaged in unlawful conduct. Conclusion 1. For all these reasons, order 1 dated 29 March 2023 should be varied such that the plaintiff is to pay the defendant's costs as agreed or assessed, including the costs of the notice of motion filed on 15 October 2021 and the costs in finalising the orders as to costs. ********** 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: 21 April 2023