Supreme Court New South Wales Medium Neutral Citation: Balout v Bella Ikea Cronulla Pty Ltd (No 2) [2024] NSWSC 1173 Hearing dates: On the papers; last submissions 27 August 2024 Date of orders: 20 September 2024 Decision date: 20 September 2024 Jurisdiction: Equity - Expedition List Before: Rees J Decision: Costs orders made. Catchwords: COSTS – proceedings overtaken by subsequent events – no final determination on merits – rule 42.20, Uniform Civil Procedure Rules 2005 (NSW) – complex and protracted proceedings partly resolved interlocutory orders and defendant terminating contracts for sale of land – remaining causes of action premised on contracts proceeding to completion – whether grounds for Court to "order otherwise" – principles at [48]-[54] – plaintiffs have effectively obtained the relief sought – remaining issues became otiose as proceedings developed and by defendant's actions – plaintiff acted reasonably – defendant acted unreasonably for portion of litigation. Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Uniform Procedure Rules 2005 (NSW), rr 12.1, 42.19, 42.20 Cases Cited: Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Balout v Bella Ikea Cronulla Pty Ltd [2024] NSWSC 775 Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 Donald Campbell & Co Ltd v Pollak [1927] AC 732 Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 Foukkare v Angreb Pty Ltd [2006] NSWCA 335 Hunter Development Corporation v Save Our Rail NSW Incorporated (No 2) [2016] NSWCA 375 Ibrahim v PERI Australia Pty Limited [2013] NSWCA 328 In the matter of Jimmy's Recipe Pty Limited (No 4) [2020] NSWSC 1244 In the matter of Ming Tian Real Property Pty Ltd [2021] NSWSC 386 Kiama Council v Grant [2006] NSWLEC 96 Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Roache v News Group Newspapers [1992] TLR 551 Sydney Markets Credit Services Co-operative Ltd v Taylor (No 3) [2015] NSWSC 1236 The Metropolitan Asylum District Managers v Hill (1880) 5 AC 582 Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue (CSR [2021] NSWSC 159 Category: Costs Parties: Alan Balout (First Plaintiff) Wisefox Holdings Pty Ltd (Second Plaintiff) Bella Ikea Cronulla Pty Ltd (First Defendant) Bella & SEB Holdings (Second Defendant) Joseph Touma (Third Defendant) 11 Kingston Avenue Pty Ltd (Fifth Defendant) Representation: Counsel: P Afshar (First and Second Plaintiffs) C P O'Neill / A Rizk (First to Third Defendants) A Byrne (Fifth Defendant) Solicitors: Mistry Fallahi (Plaintiffs) Hicksons Lawyers (First to Third Defendants) Thurlow Fisher (Fifth Defendant) File Number(s): 2023/156633 JUDGMENT 1. HER HONOUR: This judgment concerns what costs orders, if any, should be made where the claim and cross-claim will not be proceeding to final determination, having been largely overtaken by events. 2. The plaintiffs, Alan Balout and Wisefox Holdings Pty Ltd, seek an order that their costs of the proceedings be paid by the third defendant, Joseph Touma, and fifth defendant, 11 Kingston Avenue Pty Ltd, or alternatively that there be no order as to costs. The plaintiffs relied on an affidavit by their solicitor, Jana Smith. 3. The first and second defendants, Bella Ikea Cronulla Pty Ltd and Bella & SEB Holdings Pty Ltd, and Mr Touma seek an order that the plaintiffs pay their costs, alternatively, that there be no order as to costs. These defendants relied on affidavits of Mr Touma and a director of 11 Kingston, Youssef Dimassy. 4. 11 Kingston says the proceedings are effectively being discontinued and costs should follow accordingly: rr 12.1 and 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). 11 Kingston relied on an affidavit by its solicitor, Stephen Barry. Mr Barry exhibited a number of affidavits, some of which appear to have been filed in these proceedings and others which did not appear to have been filed. I take these affidavits to be tendered as evidence of the assertions made, rather than the truth of those assertions. Facts 1. The turgid history of these, and related Corporations List, proceedings is set out in my earlier judgment, Balout v Bella Ikea Cronulla Pty Ltd [2024] NSWSC 775, on which I have drawn. In short, these and related Corporations List proceedings concern a failed collaboration by Mr Balout and Mr Touma to develop a block of units in Cronulla. As appears from Mr Touma's affidavit on this application, this was one of several business ventures in which these gentlemen were involved. 2. The Cronulla site had five apartments and the benefit of development approval. Bella Ikea owned Unit 1, Unit 2 and Unit 4. Bella & SEB owned Unit 3 and Unit 5. Most of the units were acquired before Mr Balout became involved in the project. The finance arrangements are not necessary to ascertain for the purposes of this application. Put roughly, Mr Touma's company, Bilpin Projects Pty Ltd, lent money to Bella Ikea, which was partially refinanced by the Commonwealth Bank of Australia. The bank was granted a mortgage over Units 1, 2 and 4. Mr Balout provided funds. A loan was also obtained from BNY Trust Co, which was granted a mortgage over Units 1, 3 and 5. 3. In June 2020, Mr Touma and Mr Balout fell out in what would appear to have been quite a spectacular fashion, given the intensity with which these proceedings were fought. In August 2020, Mr Touma sent a letter of demand to Mr Balout. 4. Mr Dimassy is a builder and runs his own demolition and excavation works business known as DC Earthworks. He also undertakes property development. Mr Dimassy was the sole director and shareholder of Ybami Pty Ltd. In August 2021, Ybami exchanged contracts with Bella Ikea and Bella & SEB to purchase Units 1, 3 and 5. The sale purchase prices fell far short of what Bella Ikea and Bella & SEB had paid for the units some years earlier, by roughly one-third. Mr Barry pointed out that the sale prices were not that far off a real estate appraisal obtained by Bella Ikea and Bella & SEB in November 2020. Mr Touma said he had good reason to sell the units at that price at that time, given the circumstances that he then faced. Mr Balout obviously held a different view. Corporations List proceedings 1. The plaintiffs commenced proceedings against Bella Ikea, Bella & SEB, Mr Touma and others in the Corporations List, seeking inter alia to restrain the sale of the units to Ybami. An interim injunction was ordered by consent and without admission. In September 2021, Ybami terminated the contracts to purchase Units 1, 3 and 5. The Corporations List proceedings continued towards final hearing, in the form of an oppression suit. In September 2022, the matter was listed for hearing before Black J on 21 February 2023 for three days. 2. In October 2022, BNY Trust Co appointed agents as mortgagee in possession, with a view to selling Units 1, 3 and 5 to pay out the secured debt. In December 2022, however, BNY Trust Co assigned its rights as mortgagee in possession to the fourth defendant, Benthos Investments Pty Ltd. By February 2023, the plaintiffs understood that Benthos was considering taking possession of Units 1, 3 and 5 due to the default of Bella Ikea and Bella & SEB under the mortgage. 3. On 21 February 2023, Black J made orders in chambers to resolve the Corporations List proceedings inter alia by the appointment of an independent real estate agent to advise the sales prices which the units may achieve, either by sale as individual lots or in one line. On receipt of the agent's advice, the plaintiffs would nominate which method of sale to pursue. The independent real estate agent would then market the apartments for sale, either in one line or individually, as nominated by the plaintiffs. The sales process was to be completed within six weeks by the exchange of contracts. On completion of the sale of the apartments, the proceeds were to be applied to discharge any mortgages, with the surplus to be paid into a controlled moneys account in the joint names of the parties and to be held pending agreement or an order of the Court. The hearing was vacated. 4. In March 2023, Alex Pitsis of "Ray White Sutherland Shire" was appointed as selling agent. He advised that the Cronulla property could expect to achieve more if sold in one line. On 13 March 2023, the plaintiffs nominated the sale of the units in one line. 5. Mr Dimassy had another company, 11 Kingston. Mr Dimassy said he became aware in about March 2023 that Units 1, 3 and 5 were likely to come onto the market with a sale by the mortgagee. Whether he became aware from Mr Touma or otherwise was unstated. When asked what relationship, if any, there was between Mr Touma and Mr Dimassy, I was informed by the defendants' counsel that they had no formal relationship "other than they were persons that may have been able to do business, in that they were discussing a joint venture in some future period of time, but it's not like they are related in any sense." 6. In any event, on 17 March 2023, Mr Dimassy contacted Benthos' agent, Derek Cheung of Salvo Property Group, expressing interest in purchasing Units 1, 3 and 5 again. As I noted in my earlier judgment, where Mr Dimassy was the sole director and shareholder of 11 Kingston, his frequent use of the plural in his communications with Benthos' agent – referring to "our offer" and "we" – was curious. It could have been his manner of speaking or suggest that he was progressing the proposed purchase of Units 1, 3 and 5 with another person, such as his prospective joint venturer, Mr Touma. Either way, purchasing three units in this manner was outside the consensual regime which Mr Touma had agreed and which had been given effect by consent orders made in the Corporations List proceedings on 21 February 2023. The emails between Mr Dimassy and Mr Cheung also indicate that Mr Dimassy was aware of the compulsory sale process and wished to secure the three units outside that process. 7. On 6 April 2023, Mr and Mrs Touma signed agency agreements on behalf of Bella Ikea and Bella & SEB for all five apartments. The same day, Benthos exchanged contracts for the sale of Units 1, 3 and 5 to 11 Kingston. On 12 April 2023, Mr Cheung advised the plaintiffs' solicitor that contracts had been exchanged for Units 1, 3 and 5 as mortgagee in possession. On 13 April 2023, the plaintiffs' solicitors sought documents and information from Benthos. On 20 April 2023, the plaintiffs relisted the Corporations List matter. On 24 April 2023, Black J granted leave to the plaintiffs to file an Interlocutory Process in respect of the sale of the properties. 8. Bilpin had also stopped making loan repayments on its loan from the Commonwealth Bank, which, it will be recalled, was secured by a mortgage granted by Bella Ikea over Units 1, 2 and 4. On 5 May 2023, the Commonwealth Bank wrote to Mr Touma as director of Bilpin, noting that Bilpin's loan was in arrears and the bank may exercise its rights. These proceedings 1. On 16 May 2023, the plaintiffs commenced these proceedings against Bella Ikea, Bella & SEB, Mr Touma, Benthos and 11 Kingston, seeking interlocutory injunctions restraining Benthos and 11 Kingston from completing the contracts for sale for Units 1, 3 and 5. A declaration was sought that Mr Touma had breached his duties as a director of Bella Ikea and Bella & SEB, knowingly assisted by Benthos and 11 Kingston. Injunctions were sought against Bella Ikea and Bella & SEB, restraining the companies from selling the properties other than in accordance with the orders made by Black J. Damages and equitable compensation were also sought. Mr Balout also sought leave to bring a derivative action on behalf of Bella Ikea and Bella & SEB. 2. On 17 May 2023, Hammerschlag CJ in Eq heard the plaintiffs' application for an interlocutory injunction, which was opposed. On the plaintiffs paying into Court the amount owing to Benthos of some $2 million, Benthos and 11 Kingston were restrained from completing the contracts for sale. The proceedings were expedited. 3. On 8 June 2023, the plaintiffs filed a Statement of Claim, setting out the events which led to commencement of the Corporations List proceedings, being Mr Touma's suggested attempt to sell the units to "his associates", including Ybami, at an undervalue. The contracts for sale with Ybami were then terminated. An arrangement, agreement or scheme was then said to have been formed between Mr Touma, Benthos and Mr Dimassy as director of 11 Kingston. Mr Touma was said to have taken steps to cause Bella Ikea to fall into default under the terms of the BNY Trust Co mortgage, which led to BNY Trust Co appointing receivers to Units 1, 3 and 5. Pursuant to the arrangement, Benthos acquired BNY Trust Co's rights. The Corporations List proceedings were set down for hearing but consent orders were made as earlier described. 4. Mr Touma was then said to have provided Benthos and Mr Dimassy with Mr Pitsis' report, recommending that the Cronulla property be sold in one line. Whilst delaying in compliance with the orders made by Black J, Mr Touma was said to have agreed with Mr Dimassy and Benthos to sell Units 1, 3 and 5 to persons associated with Mr Touma or Mr Dimassy, so that they could benefit from the development of the property themselves and thereby deprive the plaintiffs of the benefit of the orders made by Black J. This led to the commencement of these proceedings and the interlocutory injunction preventing completion of the sale of those units. 5. In so doing, Mr Touma was said to have breached his duties as a director of Bella Ikea and Bella & SEB. 11 Kingston was said to have been knowingly involved in these breaches of duty. Bella Ikea and Bella & SEB thereby suffered loss and damage, for which compensation was sought from Mr Touma under s 1317H of the Corporations Act 2001 (Cth). As a consequence of being knowingly involved in Mr Touma's breaches of directors' duties, equitable compensation was also sought from 11 Kingston. Bella Ikea and Bella & SEB were also said to have suffered loss and damage as a consequence of the unconscionable conduct of Mr Touma, Mr Dimassy and 11 Kingston in breach of the Australian Consumer Law. Damages for tortious interference with a contractual agreement are also sought. 6. Noteworthy, the particulars of loss and damage in respect of each cause of action was premised with the following words, "In the event that the sales of Units 1, 3 and 5 is completed …", then the loss and damage was said to be the loss of the opportunity to sell the units in one line and thereby attain the highest possible price. The loss was the difference between what Bella Ikea and Bella & SEB would receive if the five units were sold in one line and the purchase price of the units if sold separately. 7. Defences were filed. In August 2023, Mr Dimassy made an affidavit denying that he or his company had come to any arrangement, agreement or scheme with Mr Touma, Benthos or others as alleged. Mr Cheung made an affidavit on behalf of Benthos, setting out his dealings with Mr Dimassy, denying that he had met with Mr Touma at a restaurant as described by Antonio Rotondo, who had made an affidavit for the plaintiffs. Mr Touma also made an affidavit, denying any discussions with Mr Dimassy in respect of an alleged arrangement, agreement or scheme in relation to the property as claimed by the plaintiffs. 8. On 23 August 2023, Parker J granted leave to the plaintiffs to bring a derivative suit. The plaintiffs filed a cross-claim by Bella Ikea and Bella & SEB against Mr Touma, Benthos and 11 Kingston, seeking an injunction to restrain completion of the contracts for sale and alleging a breach of directors' duties, in which Benthos and 11 Kingston were said to have been knowingly involved. The Statement of Cross-Claim made essentially the same allegations and sought the same relief as the Statement of Claim. Defences to the cross-claim were filed. 9. On 1 September 2023, Parker J listed these proceedings for hearing on 4 December 2023 for four days. However, on 19 September 2023, 11 Kingston issued a notice of termination to Benthos in respect of the contracts for sale for Units 1, 3 and 5. 10. On 24 October 2023, Parker J directed the parties to file any application to vary Black J's consent orders in the Corporations List matter or the interlocutory injunctions ordered by Hammerschlag CJ in Eq. On 3 November 2023, the plaintiffs filed an interlocutory process in the Corporations List proceedings, seeking to join Benthos, vary the consent regime by extending time to complete the steps envisaged in the consent orders, and restrain Benthos from entering into any contract of sale, transfer or otherwise dealing with Units 1, 3 or 5 other than in accordance with that regime. On 24 November 2023, Benthos and 11 Kingston filed motions seeking to discharge the interlocutory injunctions ordered by Hammerschlag CJ in Eq. On 11 December 2023, Parker J varied the consent regime in Black J's orders, extending the time to sell the properties to 29 February 2024. His Honour also varied the interlocutory injunctions ordered by Hammerschlag CJ in Eq such that 11 Kingston could complete any contracts of sale if the contracts were entered into after carrying out the marketing campaign ordered by Black J. 11. On 8 February 2024, Mr Touma filed an interlocutory application seeking to restrain the auction. The problem which had emerged was that, since the agent had been chosen by the defendants in February 2023, the selling agent had changed his business arrangements, moving from the "Ray White" banner to "Pitsis Property". Mr Touma said he filed the motion as he believed that "Pitsis Property" would not be able to sell the Cronulla property for the maximum amount possible; he had selected "Ray White" as the agent as he understood it had a reputation as the biggest real estate agency in Australia. 12. I heard the application on 19 February 2024, when Benthos informed the Court that, if the injunctions sought by Mr Touma were made, it would file an interlocutory process in the Corporations List proceedings, seeking possession of Units 1, 3 and 5. In that event, Units 1, 3 and 5 would be sold by Benthos such that the higher value hoped to be achieved by a sale in one line would not be realised. Mr Touma withdrew his interlocutory process but would not be drawn to provide any assurance that the agent's authority to conduct the upcoming auction would not be further challenged, nor that he would not challenge the validity of any contract of sale entered into after the hammer fell. As I noted in an ex tempore judgment, "Any suggestion, at the auction, that the agent does not have authority to sell, or that a successful bidder will not gain good title, will be value destructive for all concerned, including Mr Touma." The plaintiffs then sought an interlocutory injunction ore tenus restraining Mr Touma from interfering in the conduct of the auction, which I granted as such an order would likely benefit Mr Touma by preserving the prospect of selling all five units in one line rather than having the sales fragmented by the intervention of Benthos. 13. On 22 February 2024, the auction was held. The plaintiffs' solicitor, Ms Smith, attended the auction, as did Mr Touma. According to Ms Smith, Mr Touma was the highest bidder, at $6.1 million, but then said "something fishy is going on here. I am done with this" and left the auction, confirming that his bid was withdrawn such that the property was passed in. According to Mr Touma, the auctioneer refused to sell the property to him despite the fact that he had been pre-approved to bid. The auctioneer variously said to him: in order for his bid to be accepted, a personal guarantee was required; although Mr Touma had been approved to bid with a 5% deposit, he would have to have a 10% deposit; he was then told that he could bid with a 5% deposit. Mr Touma said "but by this point I had become frustrated as it was clear to me that my bid was not being taken seriously. I subsequently withdrew my offer to purchase the Cronulla Property because the auctioneer would not accept my bid". 14. In any event, Mr Pitsis contacted all interested parties and told them to submit their best and final offer and terms. Mr Balout and Mr Touma were both interested. On 29 February 2024, the property was sold in one line for $5.5 million, to a company in which Mr Balout has a 34% shareholding. 15. In advance of settlement of the sale of the Cronulla property, the independent solicitor appointed under the consent regime ordered by Black J requested that caveators, including Bella Ikea Developments Pty Ltd (not to be confused with the first defendant) and Bilpin, withdraw their caveats on title. There was no response from these caveators and, ultimately, the plaintiffs sought leave to bring a derivative suit in the name of Bella Ikea and Bella & SEB in respect of the withdrawal of the caveats. I granted leave to bring a derivative suit on 22 March 2024. On 5 April 2024, I made orders that the caveats be withdrawn. 16. Settlement took place on 24 April 2024. Benthos was paid out. The net proceeds of sale were paid into a controlled moneys account in accordance with the orders made by Black J, pending the outworking of the consent orders made by his Honour so long ago. (The parties had agreed to appoint a single expert to prepare accounts for Bella Ikea and Bella & SEB, to determine the quantum of any loans and contributions, and to make adjustments if the expert determined that funds had been misappropriated or revenue diverted or funds applied to payments outside the ordinary course of business to Mr Balout, Mr Touma or their related parties). 17. On 26 April 2024, the plaintiffs filed a motion seeking the release of the security paid into court in respect of the money then owed to Benthos: see [20]. On 3 May 2024, the proceedings against Benthos were dismissed with no order as to costs. 18. On 20 May 2024, Bella Ikea, Bella & SEB and Mr Touma filed a motion seeking compensation of $977,927.01, being interest charged and legal costs incurred by Benthos during the currency of the injunction and on-charged to Bella Ikea and Bella & SEB. The defendants proposed that this sum be paid out of the security in Court, with the balance remitted to the plaintiffs. That motion was unsuccessful inter alia as the defendants did not establish that they had suffered loss. The sale of the Cronulla property 'in one line' meant that the companies were still ahead by some $720,000 after deducting Benthos' additional pay-out figure. 19. On 12 July 2024, the matter was listed for directions to see what remained to be dealt with in the Corporations List and these proceedings. Directions were made by consent for the parties to file submissions and evidence on costs "and the question of election", which I understand to be a reference to whether the plaintiffs wished to discontinue the proceedings against the defendants. The parties agreed that these issues were to be determined on the papers. The balance of the Corporations List proceedings were referred back to Black J for conclusion. Submissions 1. The plaintiffs sought an order that their costs of the proceedings be paid by Mr Touma and 11 Kingston or alternatively that there be no order as to costs. The Court has the power to determine by whom, to whom and to what extent costs are to be paid: Civil Procedure Act 2005 (NSW), s 98. Rule 42.1 of the UCPR provides that ordinarily "costs follow the event". Where there has been no final hearing on the merits, such that there is no readily ascertainable "event", it is often appropriate that there be no order as to costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6. However, costs may be awarded where it is possible to assess the practical consequences of the action. That is, the Court may be guided by "the reality of the contest": Sydney Markets Credit Services Co-operative Ltd v Taylor (No 3) [2015] NSWSC 1236 at [32]. The enquiry can be posed in this way: "[has] the plaintiff won anything of value or anything he could not have won without fighting the action through to a finish?": Roache v News Group Newspapers [1992] TLR 551; quoted in Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 at [26]. In determining whether, and by whom, costs ought to be awarded, the Court's assessment may not "merely depend upon the merits of the cause as finally decided, but may, to a very great extent, depend upon the mode in which it has been conducted throughout by the parties": Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 755 quoting The Metropolitan Asylum District Managers v Hill (1880) 5 AC 582. 2. The plaintiffs submitted that they had achieved practical success in the proceedings, successfully shepherding the sale process to its conclusion. The Court should regard that outcome as success in the "reality of the contest": Sydney Markets at [32]. Had these proceedings not been commenced by the plaintiffs, the sale to 11 Kingston would have been completed and the mechanism under the orders made by Black J to effect a settlement of the Corporations List proceedings would have been frustrated. The plaintiffs avoided that outcome through the institution of these proceedings. Applying the test in Roache, the Court can be satisfied that the plaintiffs have achieved something "of value … which [they] could not have won without fighting the action". A trial of the proceedings proved unnecessary as a consequence of the voluntary action of 11 Kingston in terminating the contracts shortly before trial. The Court should infer that the prospect of the hearing was a material, if not the principal, factor in 11 Kingston's termination of the contracts. 3. Further, the plaintiffs submitted that Mr Touma's conduct throughout the litigation had been unreasonable. Mr Touma resisted the plaintiffs' attempts to restore the Black J's orders on multiple occasions, including by (unsuccessfully) seeking orders to restrain the auction from taking place. In the face of that conduct, the plaintiffs pursued these proceedings to achieve an outcome that, ironically, was to the benefit of Mr Touma by obtaining a higher sale price. In those circumstances, notwithstanding that these proceedings did not proceed to a final hearing, the Court would conclude that the plaintiffs have enjoyed substantial success against each of Mr Touma and 11 Kingston. 4. The first to third defendants submitted that the plaintiffs should pay their costs as the proceedings were unreasonably brought against those parties. Alternatively, there should be no order as to costs with each party to bear their own costs. The ordinary rule that "costs follow the event" had no application where there has been no determination of the proceedings on their merits: In the matter of Ming Tian Real Property Pty Ltd [2021] NSWSC 386 at [2] (Black J). Costs may be ordered where: one party effectively surrenders to the other party; a party acted so unreasonably that the other party should obtain the costs of the action; or, one party was almost certain to have succeeded if the matter had been fully tried: Kiama Council v Grant [2006] NSWLEC 96 at [80]; Hunter Development Corporation v Save Our Rail NSW Incorporated (No 2) [2016] NSWCA 375. 5. The first to third defendants submitted that the plaintiffs made serious allegations of an arrangement, agreement or scheme between Mr Touma, Benthos and 11 Kingston to cause Bella Ikea to fall into default on its mortgage, for Benthos to obtain an assignment of the lender's rights and to exercise those rights, to effect the sale of the units to 11 Kingston and thereby deprive the plaintiffs of the benefit of the orders made by Black J. The allegation was never prosecuted. Rather, 11 Kingston withdrew from the contracts. Steps were taken to sell the property in one line. The sale was completed to a company affiliated with Mr Balout. The sale amounted to a supervening event that removed or modified the subject of the dispute, albeit one that was contemplated from the outset of the proceedings (and did not involve the first to third defendants). While that would ordinarily result in the Court making no order as for costs, here that result was unfair having regard to the serious allegations the plaintiffs chose to advance. 6. The first to third defendants submitted that they had no say in the decision by Benthos to enter the relevant contracts for sale for 11 Kingston and were not involved in that decision. No evidence had been adduced to suggest otherwise. Rather, the evidence showed direct negotiation, in writing, between Mr Dimassy and Benthos; that was not suggestive of conspiracy. The plaintiffs could have challenged the terms of sale without involving Mr Touma. Given the gravity of the allegations, Mr Touma could not sit idle but was required to join the fray. Mr Touma's decision to sell the units in the first place was logical, given his evidence that Mr Balout failed to meet his obligations to fund the companies. The plaintiffs had not achieved any success in the proceedings against Mr Touma as enjoining the sale had nothing to do with him. For the reasons advanced by Mr Touma, his conduct had not been unreasonable. 7. The fifth defendant submitted that the allegation of wrongdoing in respect of its later engagement with Benthos to seek to purchase Units 1, 3 and 5 was flawed. Benthos was a third-party mortgagee in possession with whom Mr Dimassy engaged in commercial negotiations in relation to the terms by which 11 Kingston would purchase the units. There was no basis to suggest that those negotiations were some kind of sham. The allegations would inevitably have failed at final hearing. 8. The fifth defendant submitted that Mr Dimassy inadvertently became entangled in the dispute between Mr Balout and Mr Touma. Mr Balout pressed baseless allegations that 11 Kingston was knowingly involved in breaches of directors' duties and other obligations by Mr Touma, sounding in an unquantified entitlement to compensation under s 1317H of the Corporations Act 2001 (Cth). Those allegations remained on foot. The claim against the fifth defendant was being effectively discontinued; costs should follow: rr 12.1 and 42.19 of the UCPR; Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [68]. The rule provides a starting point, and the Court will only make a different order if that starting point is displaced by a discretionary decision: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; In the matter of Jimmy's Recipe Pty Limited (No 4) [2020] NSWSC 1244 at [24]; Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue (NSW) [2021] NSWSC 159 at [56]; Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681 at [25]-[30]; Ibrahim v PERI Australia Pty Limited [2013] NSWCA 328 at [17] (Beazley P, with whom Leeming JA concurred). The discretion to depart from the rule will not be exercised where there has been a capitulation or abandonment of a claim: Lai Qin at 624; Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 at [22]. 9. The fifth defendant submitted that the primary allegations made by the plaintiffs was that the company worked in concert with Mr Touma to transfer Units 1, 2 and 3 at an undervalue to a purchaser with an undeclared shared interest with Mr Touma. The only evidence proffered in support of the allegations were vague recollections in affidavits of Mr Balout and his associate Mr Rotondo of their having purportedly been introduced to Mr Dimassy by, or seen Mr Dimassy with, Mr Touma at a restaurant in Elizabeth Bay. Some of that evidence was retracted. Those assertions were denied by Mr Dimassy on various bases, including that he has never been to the restaurant in question. Even if the assertions were accepted at their highest, this fell short of evidence that could properly support allegations of the kind made against Mr Dimassy and the fifth defendant. The contemporaneous documents were said to show that Mr Dimassy's interest in acquiring Units 1, 3 and 5, and the steps he took to seek to buy the properties, were commercial and at arm's length. The allegation that Ybami in effect colluded with Mr Touma was unsustainable and would fail at final hearing. 10. The fifth defendant submitted that it had not capitulated but had strongly denied any involvement in any alleged wrongdoing. There was no capitulation by Mr Dimassy's decision in 2021 to terminate the contracts exchanged by Ybami or, in 2023, to terminate the contract exchanges by 11 Kingston. This was said to be a purely commercial decision to withdraw from the transactions, where the units had become encumbered by injunctions and were the subject of uncertain future litigation. The withdrawal from the transaction should be seen as having been facilitative of the Court processes that had then been engaged. The only capitulation was by the plaintiffs, who now sought to walk away from their serious claims. Given the obvious flaws in the claims made, the plaintiffs should have withdrawn these claims long ago and it was unreasonable and unsatisfactory that that did not occur. It was no answer to suggest that the claims had, for practical purposes, somehow gone away: they remained on foot and continued to impugn 11 Kingston and Mr Dimassy. 11. In reply, the plaintiffs submitted that the suggestion that Mr Touma was drawn into the matter unnecessarily did not explain why he opposed the initial injunction sought by the plaintiffs, resisted the plaintiffs when the related Corporations Proceedings were listed before Black J in June 2023, sought to restrain the auction, attended and scuttled the auction, or opposed the return of the monies to the plaintiffs from Court. Mr Touma could not explain why he invited the sale of the units in 2021 at an undervalued price, why he did not tell Mr Balout about that sale, or how Mr Dimassy knew to approach Benthos in 2023. The plaintiffs' case was conceptually coherent and consistent with Mr Touma's conduct in the litigation. Costs where proceedings will not be finally determined 1. Rule 12.1(1) of the UCPR provides that the plaintiff may, by filing a notice of discontinuance, discontinue the proceedings with the consent of each other active party in the proceedings, or with the leave of the Court. In that event, "unless the Court orders otherwise", the plaintiff must pay the defendant's costs incurred in respect of the proceedings: r 42.19. Similarly, r 42.20(1) provides that if the Court makes an order for the dismissal of proceedings then, "unless the Court orders otherwise", the plaintiff must pay the defendant's costs of the proceedings. These rules create "a starting point" for the Court's deliberations as to the appropriate costs order, being that the plaintiffs should pay the defendants' costs: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [48], [53] (per Bryson JA); followed in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [53]-[54], [69]-[74]. 2. While "there is no close control over the discretion of the Court to order otherwise … there must be some sound positive ground or good reason for departing from the ordinary course": Australiawide Airlines v Aspirion at [54] (Bryson JA). The matters to be considered at the discretionary stage are "little altered" and may include the matters referred to in Lai Qin: Australiawide Airlines v Aspirion at [53]; Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue (CSR [2021] NSWSC 159 at [56] (Ward CJ in Eq, as the President then was). In Lai Qin, McHugh J stated at 624–625: "When there has been no hearing on the merits … a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits … The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings." 1. In Ibrahim v PERI Australia Pty Limited [2013] NSWCA 328, Beazley P summarised the matters to be considered when "the Court orders otherwise" including: "whether a party acted reasonably in commencing the proceedings; whether a party had been successful in obtaining interlocutory relief; whether the party sued had acted reasonably; whether the responding party had acted reasonably in defending the proceedings; whether the proceedings terminated after interlocutory relief had been granted; and further, whether the primary judge was satisfied that the party seeking to terminate the proceedings prior to a full hearing had almost a certain chance of success": at [17]. The President also noted that, in making its determination, the Court should take into account the objective circumstances rather than the subjective motives of the party seeking to discontinue, "nor does the Court determine the dispute that the parties sought to avoid by discontinuing": at [19]. 2. The Court of Appeal has continued to cite the observations of Burchett J in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at [6]: "… it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs." 1. More recently in Nichols v NFS Agribusiness, Payne JA, with whom Meagher JA agreed, observed at [30]: "If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings." 1. Basten JA also observed in Nichols v NFS Agribusiness at [8]-[9]: "… although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. … once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses." Consideration 1. The plaintiffs do not seek the discontinuance, nor the dismissal, of the proceedings. Nor do the defendants consent to discontinuance or dismissal on terms. But the balance of these proceedings will need to be dismissed, where the plaintiffs do not propose to continue to a final hearing as events have unfolded. Where the Statement of Claim and Statement of Cross-Claim ought to be dismissed, the starting point is that the plaintiffs should pay the defendants' costs of the proceedings. As to whether there is "some sound positive ground or good reason" from departing from that course (Australiawide Airlines v Aspirion at [54]), the following matters come to mind. 2. First, as I noted in my earlier judgment, these proceedings were effectively 'satellite' litigation to the Corporations List proceedings, commenced to ensure that the consensual regime ordered by Black J was adhered to and not circumvented. That appears to have been achieved. The plaintiffs have largely obtained the relief sought. Putting to one side the claims against Benthos, the plaintiffs sought an order that 11 Kingston be restrained from completing its contracts to buy Units 1, 3 and 5. An interim injunction was obtained to that effect, over the opposition of 11 Kingston (and others). An order was also sought that Bella Ikea and Bella & SEB be restrained from selling the units other than in accordance with the orders made by Black J on 21 February 2023. That is what has happened. Leave was also sought to bring a derivative suit; that leave was granted. 3. What remains of the plaintiffs' claims as advanced by the Statement of Claim and the derivative suit brought by Bella Ikea and Bella & SEB by the Statement of Cross-Claim, are the claims for damages and compensation for breach of directors' duties, knowing involvement in these breaches and the like. As earlier mentioned, the particulars of the loss and damage sought in respect of these causes of action was premised on the sale of Units 1, 3 and 5 to 11 Kingston being completed, thereby losing the opportunity to sell the units in one line and attain the highest possible price. As that event has not occurred, the loss has not been sustained. To establish the alleged breaches of directors' duties or the alleged arrangement or understanding in the absence of a complete cause of action becomes, effectively, an academic exercise. 4. Second, the main reason why the eventuality referred to in the particulars of loss and damage did not occur is because 11 Kingston terminated the contracts for sale. That may be because, as 11 Kingston submitted, it made a purely commercial decision to withdraw from the transactions given the interim injunction and the uncertainties of litigation. Or it may be because, as the plaintiffs suggested, Mr Dimassy decided that discretion was the better part of valour. This issue will not now be determined. But having terminated the contracts for sale, the remaining causes of action became otiose. 5. Nor can it be said that the plaintiffs "effectively surrendered" to the defendants in this regard. Rather, "some supervening event" in the form of 11 Kingston's termination of the contracts for sale, and submission to interlocutory orders permitting the auction to be completed, removed the subject of dispute: One.Tel at [6]. 6. Third, I am not in a position to feel confident that, had the plaintiffs prosecuted the remaining causes of action, it is almost certain that they would have succeeded if the matter had been fully tried. But nor do I accept the defendants' submission that the allegations of an arrangement or scheme would have surely failed. Whilst the contemporaneous documents do not suggest any wrongdoing on the part of Benthos, Mr Dimassy's involvement in the Cronulla property may have had some unusual features. Basten JA's observations in Nichols v NFS Agribusiness have particular application here. Mr Touma's affidavit sets out his evidence on the substantive claims and cross-claims made in these and related Corporations List proceedings. So too does the affidavit of Mr Dimassy and other affidavits exhibited by Mr Barry. I am in no position to determine, on a costs application, any of these matters. Whether the plaintiffs would have been able to establish the alleged arrangement or understanding at trial, or whether Mr Touma and Mr Dimassy's disavowal of any such arrangement would have been accepted, is unknown and will not now be determined. 7. Fourth, whether the parties acted reasonably in commencing and defending the proceedings until further prosecution became futile is significant. The plaintiffs' commencement of these proceedings appears to have been reasonable, given the potential circumvention of the consent orders made by Black J by the proposed sale of Units 1, 3 and 5 to 11 Kingston rather than the sale of five units in one line. The defendants generally resisted each of the steps sought to be taken by the plaintiffs in this endeavour. Whilst the defendants were entitled to do this, I consider that Mr Touma's efforts to disrupt the much-delayed auction by his motion filed on 8 February 2024, his subsequent withdrawal of the motion but refusal to give an assurance not to interrupt the auction, and his subsequent conduct at the auction was unreasonable. 8. Having considered each of these matters, I consider that the Court should "order otherwise" in respect of the plaintiffs' costs of the proceedings vis a vis the first, second and third defendants where the plaintiffs have achieved what they set out to do in these proceedings and where Mr Touma's opposition to that course became unreasonable for a portion of the proceedings. I consider, overall, that Mr Touma should pay 50% of the plaintiffs' costs. 9. As against 11 Kingston, I consider that the Court should also "order otherwise". Where the plaintiffs have largely obtained the relief sought, over 11 Kingston's opposition, and where 11 Kingston, by its own actions, rendered other causes of action otiose, I consider that there should be no order as to costs as between the plaintiff and the fifth defendant. 10. For these reasons I make the following orders: 1. Order the third defendant to pay 50% the plaintiffs' costs of these proceedings. 2. Make no order as to costs of these proceedings as between the plaintiff and the fifth defendant. 3. Otherwise dismiss the Statement of Claim and Statement of Cross-Claim. ********** 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: 20 September 2024