New South Wales Supreme Court CITATION : Kalls Enterprises Pty Ltd (In Liq) v Baloglow [2006] NSWSC 1021 HEARING DATE(S) : 23 June 2006 JUDGMENT DATE : 23 June 2006 JURISDICTION : Equity JUDGMENT OF : Hamilton J DECISION : First defendant to pay costs of cross defendant on ordinary basis. Plaintiffs to pay first defendant's costs of proceedings (including costs ordered to be paid to cross defendant) on ordinary basis. CATCHWORDS : PROCEDURE [559] - Costs - General rule - Third parties - Cross defendant - Whether costs of cross claim which failed because of plaintiff's failure against defendant should be regarded as "private issues" and therefore not visited on plaintiffs. LEGISLATION CITED : Civil Procedure Act 2005 s 98 Uniform Civil Procedure Rules 2005 r 42.3 Barnes v Addy (1874) LR 9 Ch App 244 Furber v Stacey [2005] NSWCA 242 CASES CITED : GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 Kalls Enterprises Pty Ltd (In Liq) v Baloglow 58 ACSR 63 Lombard Insurance Co Pty Ltd v Pastross (1994) 175 LSJS 448 Kalls Enterprises Pty Limited (In Liquidation) (P1) AA Australian Commercial Laundries Pty Limited (P2) PARTIES : Christopher Damien Darin (P3) Theo Baloglow (D1 & XC) Simon Konstantinidis (D2) Peter Kaliaropoulos (XD) FILE NUMBER(S) : SC 1841/99 P A Fury (Ps) COUNSEL : B W Rayment QC & C P Locke (D1 & XC) No appearance (D2) Y R Hazan, Solicitor (XD) Koffels (Ps) SOLICITORS : Oliveri Attorneys (D1 & XC) Charles G Roth & Co (D2) Hazan Hollander (XD) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 23 JUNE 2006 1841/99 KALLS ENTERPRISES PTY LIMITED (In Liquidation) & ORS v THEO BALOGLOW & ANOR JUDGMENT 1 HIS HONOUR: Questions of costs in this matter consequent upon my substantive judgment Kalls Enterprises Pty Ltd (In Liq) v Baloglow (2006) 58 ACSR 63 ("my judgment") have been argued before me today. Calderbank letters have been tendered on behalf of both the defendant and the cross defendant, which, combined with other factors have been submitted to me as a basis for the whole or part of the defendant's and cross defendant's costs being ordered on the indemnity basis. Mr Rayment, of Queen's Counsel for the defendant, has conceded that, as is apparent from the cases, the sending of a Calderbank letter that contains an offer better than the ultimate result does not automatically give the party who sent it a right to indemnity costs. The question is whether after the Calderbank letter was sent it was reasonable for the opposing party to continue with the litigation in the face of the offer. 2 Taking the defendant's case against the plaintiffs first, it is clear enough, as things stand at the moment, that the plaintiffs entirely failed. However, the case as between the plaintiffs and the defendant was a complex one. The area of uncommercial transactions, as appears from my judgment, is one that has not received a great deal of judicial attention compared with its companion, preferential transactions. What is more, the legislation is quite complicated and the meaning of "transactions", which was central in this case, as is apparent from my judgment, is a difficult matter. It is equally apparent from my judgment that, in my view, if there is anything more complicated and difficult than that, it is the present correct statement of the law relating to the first limb of Barnes v Addy (1874) LR 9 Ch App 244. In this case, perhaps, the plaintiffs' ultimate failure did not turn so much on legal complications as on factual questions as to the defendant's knowledge, but those factual questions were themselves matters of considerable difficulty and uncertainty. In my view, it was not unreasonable for the plaintiffs to proceed with the litigation in the face of the defendant's Calderbank letter. 3 The considerations as between the cross defendant and the defendant are somewhat different. The defendant's cross claim against the cross defendant had to be amended a number of times before it reached its final form. Also, the defendant was expressing the view that the plaintiffs' chances of success against him were slim, which, indeed, ultimately proved to be an overstatement. Furthermore, I did not form any view about the strength of the defendant's claim against the cross defendant. This had its own complications and difficulties. But in the end it did not arise, because of the plaintiffs' failure against the defendant. However, as I shall have occasion to comment hereafter, the case between the defendant and the cross defendant was in the same general area as the case between the plaintiffs and the defendant and, although I have not had to give it detailed consideration, it seems to me it was in an unprecedented and fairly difficult area. In those circumstances, I do not think that the defendant's conduct was unreasonable in persisting with the claim against the cross defendant in the same proceedings. Furthermore, I do not think the defendant was unreasonable in insisting that that claim be determined at the same time as the claims in the principal proceedings. I think that, as in most cases, there could have been a quite unfortunate result if the proceedings upon the cross claim were determined at a later and separate time. 4 In all the circumstances, I do not think it appropriate to order costs on the indemnity basis as opposed to costs on the ordinary basis at all in these proceedings. In my view this does not have the dire consequences that once it would have had, in that, in this day and age, the difference between ordinary and indemnity costs is not nearly as great as the difference was between party and party and solicitor and client costs in earlier days. 5 In relation to the defendant's costs, what I am proposing is, therefore, an order that the plaintiffs pay the defendant's costs on the ordinary basis. 6 So far as concerns the order for the cross defendant's costs, the cross defendant at one stage sought to have, in effect, both a Bullock order and a Sanderson order made in respect of his costs, that is, a Bullock order in traditional form, but also an order that the plaintiffs pay his costs direct. I do not think this appropriate. Whilst the discretion under s 98 of the Civil Procedure Act 2005 ("the CPA") is general - and I am not to be taken as saying there may not be circumstances in which both forms of order can be made so as to operate concurrently in the same proceedings - I do not think this will generally be done. The cross defendant, it being indicated that he would be limited to one type of order, has elected to have a Bullock order. That will be for his costs on the ordinary basis. 7 A further substantial matter of contest before me on costs this morning has been that the plaintiffs have argued that they should not in this case in any way have to bear the cross defendant's costs. Mr Fury, of counsel for the plaintiffs has referred me to the decision of the Court of Appeal in Furber v Stacey [2005] NSWCA 242. He has referred me to part of the discussion in that case of the authorities and to a statement of principle by Hodgson JA. With that statement of principle by Hodgson JA, Einstein J agreed, but Basten JA disagreed. In his discussion, Hodgson JA cited long passages from the judgment of King CJ in Lombard Insurance Co Pty Ltd v Pastross (1994) 175 LSJS 448 and of Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55 at [72] - [75]. 8 Hodgson JA and Einstein J agreed that the general principle stated by King CJ should be taken as being subject to the qualifications put on it by Finn J. In particular their Honours referred to Finn J's statement that "causation alone without regard to the nature of the cross claim itself hardly seems to justify a pass-on order" in relation to the costs of an unsuccessful cross claim and his Honour's statement that a "common instance of where the third party costs will not be passed on is where the third party claim raised 'private issues' and the third party was not necessarily joined because of the applicant's claim." 9 With respect, like Hodgson JA and Einstein J, I entirely agree with the propositions put by Finn J. In my view, however, those propositions do not lead to the conclusion that the costs of the cross claim ought not be passed on by a Bullock order to the plaintiffs in these proceedings. 10 In coming to a provisional conclusion that a Bullock order was appropriate, before attending to Mr Fury's submissions, I considered that it was clear that the bringing of the plaintiffs' claims against the defendant caused him to bring the cross claim proceedings against the cross defendant. I also considered, in the further words of Finn J, "the relationship of the nature of the original application to that of the cross claim being brought". 11 Whilst the cause of action and considerations relating to the claims on the one hand and the cross claim on the other were different, they arose out of the same central transaction, that is, the transaction which occurred on 19 December 1995, as discussed in my judgment. It was important that the cross defendant be bound by the judgment as between the plaintiffs and the defendant as to what occurred at that time. 12 The defendant, if he suffered judgment at the hands of the plaintiffs, would have been obliged to pay them $555,000 and, in the absence of relief obtained under the cross claim, would remain deprived of the right he had prior to 19 December 1995 to recover a greater sum than that from the cross defendant. 13 All of these matters turned on the creation, execution and consequences of the deed of 19 December 1995. Not only was the plaintiffs' claim the catalyst for the third party claim, but, in my view, it is quite unrealistic to regard the issues between the defendant and the cross defendant as "private issues" in this context, that is, that the issues themselves were unrelated to the plaintiffs' claim. 14 In the circumstances, I go back to what Finn J said, which, with respect, correctly put as the ultimate question the question whether or not in the circumstances the costs of the successful third party "ought fairly to be borne" by the "unsuccessful" plaintiffs. In my view, they ought fairly to be borne by the plaintiffs in the circumstances which I have stated. 15 I therefore propose to make an order for costs on the ordinary basis in favour of the cross defendant against the defendant and a Bullock order that the plaintiffs pay the defendant's costs of the proceedings including the costs which he is obliged to pay to the cross defendant. 16 At one stage, there was some discussion that both the defendant and the cross defendant ought also have an order for costs against IMF (Australia) Ltd ("IMF"), the litigation funder, which funded the plaintiffs' litigation. That company has given an undertaking to the Court to pay any order for costs which the Court makes in these proceedings against the plaintiffs in favour of the defendant, in so far as the costs were incurred during the term of the funding agreement. The defendant is entitled to rely on that undertaking. In these circumstances, IMF, not being a party to the proceedings, should not be subject to an order for costs, at least at this stage. 17 I have been reminded of the provisions of r 42.3 of the Uniform Civil Procedure Rules 2005. That rule, would, indeed,preclude the making of an order against IMF as a non party at the present stage, although it would seem from the form of the rule that the defendant may have available to it, as well as other remedies for breach of the undertaking, an ability to apply for an order against the litigation funder, although a non party, under the general discretion conferred by s 98 of the CPA, if it fails to meet its undertaking. 18 Those things, however, are matters for another day, if they ever arise. 19 There will be orders in accordance with short minutes initialled by me and placed with the papers. ********** 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. 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