Supreme Court New South Wales Medium Neutral Citation: Australian Financial Services and Leasing Pty Ltd v Hills Industries Limited & Ors [2011] NSWSC 912 Hearing dates: 17 August 2011 Decision date: 18 August 2011 Jurisdiction: Equity Division - Commercial List Before: Einstein J Decision: The parties pay their own costs of both the 25 July 2011 motion and the present application. Catchwords: COSTS: Costs of motion without decision on merits - Section 131 Evidence Act Legislation Cited: Evidence Act 1995 (NSW) Cases Cited: Ann Street Mezzanine Pty Ltd v KPMG [2011] FCA 453 Atlas Financial International Ltd v Nortbale & Ors [2011] NSWSC 815 Austotel Management Pty Ltd v Jamieson (1995) 57 FCR 411 Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No. 2) [2011] FCA 276 Bloss Holdings Pty Ltd v Brackley Industries Pty Ltd [2005] NSWSC 756 Brown v Commissioner of Taxation [2001] FCA 596; (2001) 187 ALR 714 Finn & Ors v Carelli [2007] NSWSC 261 Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 Immigration and Ethnic Affairs, Re Minister for: Ex parte Lai Quin (1997) 186 CLR 622 Korean Air Lines Co Ltd v Australian Competition and Consumer Commission (No 3) (2008) 247 ALR 781 Muhibbah Engineering (M) BHD v Trust Company Ltd [2009] NSWCA 205 Pitts v Adney (1961) 78 WN (NSW) 886 Rodgers v Rodgers (1964) 114 CLR 608 Category: Costs Parties: Australian Financial Services and Leasing Pty Ltd (Plaintiff) Jetobravo Pty Limited (Third Defendant) Representation: Counsel Mr A Moses SC, Mr M Cleary (Plaintiff) Mr R Marshall (Third Defendant) Solicitors Berry Buddle Wilkins Lawyers (Plaintiff) Lee Hourigan & Brooks (Third Defendant) File Number(s): 2010/0133256 Judgment 1These proceedings are brought by the plaintiff and concern the costs of its notice of motion dated 25 July 2011. Background to the motion 2The Court handed down judgment in these proceedings on 5 April 2011 ([2011] NSWSC 267). Verdicts were given for the plaintiff as against the first and third defendants and for the second defendant as against the plaintiff. There was a rather lengthy hiatus, with the parties finally returning on 20 June 2011 to hand up proposed short minutes of order and address on costs. On this occasion, the Court made final orders, including orders as to interest and costs . 3In between judgment and the final orders, the plaintiff says by way of affidavit evidence that on 17 June 2011, Mr Christowski, director of the third defendant (" Jetobravo" ) phoned Mr Sam Sofi and had a conversation with Mr Sofi and his son Matthew, the director of the plaintiff (" AFS" ). 4It is the plaintiff's evidence that Mr Christowski threatened "to appeal" and then "regardless of what happens during the appeal process place my company into administration," then "buy back the company for a minimal amount". He further threatened that the plaintiff would, as a result, "get nothing" 5The third defendant contends that evidence of this conversation is excluded by reason of section 131 of the Evidence Act 1995 (NSW). 6Following this conversation, on 23 June 2011 the plaintiff's solicitor wrote to the third defendant's solicitor and sought various undertakings that no action would be taken by Mr Christowski to dissipate the third defendant's assets. The third defendant refused to give the undertakings sought and sought further time to consider its position. 7Some two weeks later, on 7 July and then again on 11 July 2011 the plaintiff's solicitor pressed the third defendant's solicitor for a response to the plaintiff's letter of 23 June 2011 and the request for various undertakings 8The third defendant refused these requests and instead filed a notice of intention to appeal on 12 July 2011. 9One week later, on 19 July 2011 the plaintiff's solicitor wrote to the third defendant's solicitor and advised that if payment of the judgment sum ($170,270.37) together with a reasonable amount for costs ($55,000) were not received by 22 July 2011, the plaintiff would approach the Court and seek a freezing order. 10On the same day, the solicitor for the third defendant wrote to the plaintiff's solicitor and advised that the third defendant was making arrangements to pay the judgment debt within 7 days, but made no mention of its obligation to pay the plaintiff's costs of the trial as against the third defendant . 11The following day, on 20 July 2011 the plaintiff's solicitor responded and advised that unless security for the plaintiff's costs of the trial as against the third defendant was provided by 4pm on 21 July 2011 (either in the form of payment into the plaintiff's solicitor's trust account, or in the form of a bank guarantee) the plaintiff would approach the Court and seek a freezing order. The plaintiff did not receive a reply to its 21 July fax . 12Consequently, on 25 July 2011 the plaintiff filed and served a notice of motion seeking a freezing order, which included an amount for its costs of the trial as against the third defendant. 13The motion was filed and served at 3.10pm on 25 July. 14At 4.30pm on 25 July 2011 (after the Motion had been filed and served) the third defendant paid the judgment sum of $170,780.48 by delivering a bank cheque to the plaintiff's solicitor . 15Following payment, by letter dated 3 August 2011 the third defendant's solicitor agreed to providing the plaintiff with a bank guarantee in respect of the plaintiff's costs of the trial as against the third defendant . There was further agreement reached regarding the provision of a bank guarantee by the third defendant, including an agreement that a bank guarantee would be provided by 12 August 201. 16No such guarantee was provided on 12 August 2011, however the issue has now been resolved by agreement. 17Further, in the same letter dated 3 August 2011, the third defendant refused to agree to an order to pay the plaintiff's costs of the notice of motion it filed on 25 July 2011. The present application 18The plaintiff seeks the costs of its notice of motion dated 25 July 2011. Plaintiff's submissions 19The plaintiff relies on Muhibbah Engineering (M) BHD v Trust Company Ltd [2009] NSWCA 205, in which the Court of Appeal re-stated the principles relating to the question of how costs are to be dealt with where, before the hearing of a Notice of Motion, the respondent capitulates to orders sought by the applicant on the Motion. After setting out the judgment of McHugh J in Re Minister ex parte Lai Quin (1997) 186 CLR 622 at 624, Handley AJA held: "In my judgment [the Court] ha[s] power to make an order for costs although there ha[s] been no hearing on the merits provided [it] could find the [respondent] had acted unreasonably." 20The plaintiff submitted that applying this principle to the present case, although there has been no hearing on the merits of the plaintiff's notice of motion dated 25 July 2011 for a freezing order, the third defendant has acted unreasonably by: (1)Firstly, refusing to agree to give the undertakings to the plaintiff as set out in the letter from the plaintiff's solicitor dated 23 June 2001; (2)Secondly, by carrying out (in part) the threat made on 17 June 2011 by appealing from the judgment dated 5 April 2011 and orders made on 20 June 2011, by filing a Notice of Intention to Appeal on 12 July 2011, (3)Thirdly, by responding to the letter dated 19 July 2011 but not dealing with issue of the plaintiff's costs of the trial as against the third defendant; (4)Fourthly, by failing to agree to including an amount for the plaintiff's costs of the trial as against the third defendant in any proposed freezing order as requested in the letter dated 20 July 2011 from the plaintiff's solicitor, and (5)Fifthly, on 3 August 2011, only days after being served with the Notice of Motion, the third defendant agreed to provide a bank guarantee for the plaintiff's costs of the trial as against the third defendant, thereby obviating the need for the Notice of Motion. 21For these reasons the plaintiff contends that the Court should order that the third defendant pay the plaintiff's costs of the notice of the motion dated 25 July 2011 as agreed or assessed. Third defendant's submissions 22The third defendant contends there is a dispute between the parties as to whether the conversation referred to in the Affidavit of Sam Sofi was said to be "Without Prejudice", but even if the conversation was not predicated by such statement, the third defendant submits that the conversation is privileged pursuant to Section 131 of the Evidence Act . 23The third defendant further contends that even if the conversation is not privileged, the conversation does not disclose evidence of conduct which of itself will be the cause of frustration or inhibition of the Courts process. cf Brerton J in Finn & Ors v Carelli [2007] NSWSC 261 [5] It is important to bear in mind that the jurisdiction to make orders of this type was never intended simply to enable a plaintiff or judgment debtor to obtain security for its judgment in advance of execution, but was firmly founded on the jurisdiction of the Court to prevent abuses of its process by preventing a defendant or jud g ment debtor from embarking on a course of conduct which would have the effect of defeating the Court's jurisdiction. It also needs to be borne in mind that the mere fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process. Indeed, it has been pointed out on several occasions that the prospect of impending insolvency is not a reason to grant a Mareeva injunction [ Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 558]. 24The defendant also relied on the fact that the order being sought by the plaintiff to freeze assets sought to freeze assets which do not belong to the third defendant. 25At the time the plaintiff filed the Notice of Motion for the freezing order, the third defendant had already: (1)confirmed that it was making arrangements to pay the full amount of the judgement debt within 7 days, (2)asked the plaintiff to confirm the payee for payment of the judgement debt and calculation of interest accrued on the judgment debt, and (3)requested particulars of the plaintiff's assessment of its party/party costs in the proceedings. 26The third defendant paid the amount of the judgment debt together with interest to the plaintiff on 25 July 2011, the date on which the motion was filed. 27In these circumstances, the third defendant submitted that the plaintiff should be seen to have proceeded with the motion for the purposes of maximising the amount of party/party costs it will recover from the third defendant by agreement as opposed to assessment and thus the third defendant seeks the costs of the motion. Decision Section 131 of the Evidence Act 28The third defendant submitted that the statements made by Mr Christwoski on 17 June 2011 should be excluded under section 131 of the Evidence Act 1995 (NSW). 29The relevant parts of section 131 provide: (1)Evidence is not to be adduced of: (a)a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or (b)a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute. (2)Subsection (1) does not apply if: (a)the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent, or (b)the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute, or (c)the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced, or (d)the communication or document included a statement to the effect that it was not to be treated as confidential, or (e)the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute, or (f)the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue, or (g)evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence, or (h)the communication or document is relevant to determining liability for costs, or (i)making the communication, or preparing the document, affects a right of a person, or (j)the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty, or (k)one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power. 30It is trite law that the use of the words "without prejudice" is not determinative or necessary, provided the communication was made in connection with an attempt to negotiate a settlement of the dispute. c.f. Rodgers v Rodgers (1964) 114 CLR 608 at 614. Hence, the point at which Mr Christowski notified the plaintiff of the without prejudice nature of the conversation is irrelevant. Prima facie the evidence of the conversation is excluded under section 131(1) because the conversation was made in connection with an attempt to resolve the dispute. 31The plaintiff relied on two submissions as to why the evidence of the conversations should be admissible. Firstly, the plaintiff argued that Mr Christowski's words were threats and were not a genuine attempt to negotiate. In these circumstances section 131(1) is not engaged. Reading the conversations as a whole, and in particular Mr Christowski's offer to settle the entirety of the proceedings for $75 000, this submission must be rejected. The conversation as a whole clearly engages section 131(1). 32The second argument put forward by the plaintiff was that evidence of settlement negotiations are not privileged for the purposes of determining costs. This is a well accepted proposition and is caught by section 131(2)(h) of the Evidence Act , even where there has been no determination on the merits, cf Ann Street Mezzanine Pty Ltd v KPMG [2011] FCA 453. For this reason, the evidence is admissible. 33Although not raised, the evidence would also be admissible under section 131(2)(g). In Atlas Financial International Ltd v Nortbale & Ors [2011] NSWSC 815, I recently had reason to examine in detail the exclusionary provisions listed in subsections 2(e),(f) and (g) of section 131. 34In regards to section 131(2)(g), I said: In Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No. 2) [2011] FCA 276 questions arise in a dispute over the admissibility of communications made between the parties concerning an attempt to resolve a copyright dispute. The plaintiffs contended, that the communication is proved an alternative course of events to that lead in evidence and on this basis the correspondence should be admissible. Addressing this question Bromberg J said at [45] -[47]: "It is apparent that the applicants seek to use the disputed evidence to show that agents of the respondent have made prior inconsistent statements to those to be relied upon at trial. The applicants contend that without reference to the disputed evidence the Court will likely be misled into accepting the accounts as to the derivation of the Grange designs given by Ms Wilson or Mr Rowley. The difficulty for the applicants is that the construction of s 131(2)(g) contended for by them pays insufficient regard to the context in which the words utilised in s 131(2)(g) are found and fails to properly take into account the origin of the provision and its intended purpose. It is of particular importance in the context of a qualification or exception, such as that contained in s 131(2)(g), to identify the mischief, which the provision is concerned to address. Section 131(2)(g) identifies a number of limited qualifications to an exclusionary rule which protects privileged settlement communications from being used at trial. In that context, paragraph (g) should be understood to be dealing with the non-applicability of the privilege or protection provided by s 131(1) because, unless that is done, the court is likely to be mislead. That suggests that paragraph (g) is addressing the need to ensure that reliance upon the privilege or protection is not the source of or reason for the court being misled. In other words, the privilege afforded by s 131(1) is not to be abused by allowing a party that has adduced evidence to use the privilege to hide the truth and mislead the court. That is the mischief to which the paragraph is directed. Critically at [50] - [53] his Honour explains that: "As is apparent from that passage, the limitation upon the exclusionary privilege at common law is based upon a causal connection between a party's reliance upon the privilege and the court being misled. In Austotel Management Pty Ltd v Jamieson (1995) 57 FCR 411, Burchett J at 415-416 referred to the principle in Pitts v Adney and to its affirmation by the Court of Appeal of New South Wales in Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) [1] BPR 97,00014. In Brown v Commissioner of Taxation [2001] FCA 596; (2001) 187 ALR 714, Emmett J explained that the source of exceptions to the general law exclusionary principle recognised under the general law are concerned with reprehensible behaviour and impropriety. His Honour observed that it is appropriate to consider the exceptions listed in s 131(2) in the light of the general law: at [183]. Emmett J also acknowledged the link between the principle in Pitts v Adney and s 131(2)(g) in the following passage at [184]-[185]: I consider that s 131(2)(g) is designed to deal with the sort of circumstances that arose in Pitts v Adney (1961) 78 WN (NSW) 886. Evidence of a "without prejudice" communication was admitted in that case in order to prove the fact of and the nature of the communication. It was not tendered in order to contradict evidence as to the matters in issue, or as an admission. It is not appropriate to attempt an exhaustive exposition of the effect of s 131(2)(g). However, I consider that it will not be attracted simply because evidence to which s 131(1) applies contradicts or qualifies evidence that has already been adduced. Section 131(2)(g) will apply where the court would be likely to be misled as to the existence or contents of an excluded communication or document, where those matters are in issue in the proceeding. The construction of s 131(2)(g) applied by Emmett J in Brown was adopted by Hamilton J in Bloss Holdings Pty Ltd v Brackley Industries Pty Ltd [2005] NSWSC 756. In Korean Air Lines Co Ltd v Australian Competition and Consumer Commission (No 3) (2008) 247 ALR 781 , Jacobson J referred to Brown at [78] without apparent dissent. 36It is the third defendant's case that the plaintiff did not seek a freezing order by reason of Mr Christowski's threat to dissipate his assets, but rather the plaintiff did so to secure its judgment debt. Unless the evidence of the 17 June 2011 conversation is admitted, the Court will not be able to appreciate the plaintiff's reasons for why they initiated their notice of motion. Only with this evidence is the Court able to effectively weigh up the cases of the parties and determine if the notice of motion of 25 July 2011 was initiated because of Mr Christowski's threat or rather was as the defendant contends nothing more than an attempt by the plaintiff to obtain security for judgment. Without the admission of this evidence, the Court will be blind to one side of the case and be misled into believing that the notice of motion was motivated out of nothing more than an attempt by the plaintiff to secure its judgment debt. 37In all the circumstances which are currently before the Court, the third defendant's contention that evidence of the material conversation is excluded by reason of section 131 of the Evidence Act 1995 (NSW) cannot be sustained. Costs of the 25 July 2011 notice of motion 38The general principles to be followed in determining the costs of a motion disposed of prior to being heard on the merits was set out by McHugh J in Re, The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1987) 186 CLR 622 at 625. His Honour stated: "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. This approach has been adopted in a large number of cases. The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the Minister to pay the whole or part of the cost of the proceedings. In determining whether or not the prosecutor acted reasonably, it is necessary to mention some further facts in the matter." 39Considering the entirety of the events leading up to the 25 July 2011 notice of motion, I am not persuaded that the third defendant acted so unreasonably, such that the Court should depart from the usual order as to costs. 40It is evident that the plaintiff had real concerns about the third defendant's conduct and they acted reasonably in ensuring the Court's judgment was not frustrated. At the same time, considering the draconian nature of the undertaking presented to the third defendant on 23 June 2011, Mr Christowski's refusal to accept it was not unreasonable. The order was very broad and sought to limit the third defendant's dealing with property it no longer owned. As the facts set out above indicate, the third defendant took real steps towards paying its judgment debt and although its correspondence was vague in relation to whether the costs of the original hearing would be paid, its conduct was not so unreasonable as to warrant an unfavourable costs order. Decision 41The principled exercise of the Court's discretion is to order that the parties pay their own costs of both the 25 July 2011 motion and of the present application. ********** 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: 18 August 2011