Supreme Court New South Wales Medium Neutral Citation: Peri v A1 Civil Formwork Pty Ltd [2013] NSWSC 73 Hearing dates: 7 February 2013 Decision date: 13 February 2013 Jurisdiction: Equity Division Before: Macready AsJ Decision: 1. Leave given to plaintiff to discontinue the proceedings against all defendants. 2. Second defendant to pay plaintiff's costs of proceedings against second defendant. 3. Subject to the solicitors retaining the exhibits for the appeal period order that the exhibits except EXH1 and EXHD be returned. Catchwords: PROCEDURE - discontinuance of proceedings - determination of costs - principles of proper approach to award of costs where proceedings discontinued Legislation Cited: Building and Construction Industry Security of Payment Act 1999 Uniform Civil Procedure Rules 2005 Cases Cited: Australian Securities Commission v Aust-Home Investments Limited (1995) 34 FCR 194 Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Fordyce v Fordham [2006] NSWCA 274 Keays v J P Morgan Administrative Services Australia Ltd [2012] FCAFC 100 Minister for Immigration and Ethnic Affairs, Re; ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 One Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270 Category: Principal judgment Parties: Peri Australia Pty Limited (Plaintiff) A1 Civil Formwork Pty Ltd (First Defendant) Romeo Ibrahim (Second Defendant) Representation: Counsel: E. Finanne (Plaintiff) Maghami (First Defendant) Raphael (Second Defendant) Solicitors: File Number(s): 2012/223507 Judgment 1This is the hearing of a motion filed on 7 March 2012 seeking leave to discontinue these proceedings and orders in relation to costs. 2The proceedings were commenced on 18 July 2012 and they were a claim for the return of scaffolding hired and sold to the first defendant. The third defendant was the principal of the first defendant who had guaranteed payment of monies due by the first defendant to the plaintiff under the arrangements between them. 3The second defendant seems to be the person who obtained possession of the scaffolding and made arrangements to have it used on various building sites. 4There were substantial monies due to the plaintiff and no ongoing payments were made. After commencement of the proceedings the majority of the scaffolding was returned to the plaintiff. The plaintiff settled with the first and third defendants and as part of that settlement $15,000 was paid to the plaintiff and there was to be an agreed discontinuance by the first plaintiff with no orders as to costs. 5For commercial reasons the plaintiff did not wish to proceed further against the second defendant. The second defendant consented to the discontinuance. 6The second defendant asks for an order that the plaintiff pay its costs and the plaintiff seeks an order that the defendant pay its costs and on an indemnity basis after 18 November 2012. Background Facts 7In August of 2011, the plaintiff hired out some concrete formwork equipment, at the request of the second defendant, who at all times purportedly acted as agent of the first defendant. This was done over a series of dealings between the plaintiff and the second defendant but the contract was with the first defendant guaranteed by the third defendant. 8Apart from the initial sum of $10,000, the monthly hire charges were not paid. 9The second defendant in fact took control of the goods and they were employed for his projects. 10In February 2012 the hired goods were subsequently sold by the plaintiff to the first defendant, for $325,000 plus $50,000 which was to be paid for outstanding hire. Again, the plaintiff dealt with the second defendant in relation to this transaction. The payment requirements were $62,500 per month commencing 28 March 2012. 11The sale contract included a retention of title clause. The purchase price, and the outstanding hire charges, were not paid. The goods were not returned. 12Further goods were the subject of a subsequent hire contract purportedly with the first defendant, represented by the second defendant. Again, the hire fees were not paid. 13Some of the goods to a value of less than $20,000 were damaged while in the control of the second defendant. A wall had collapsed and destroyed the formwork. 14Mr Genova as agent of the plaintiff started chasing the second defendant for money on 23 April 2012. He telephoned the second defendant for payment and a conversation to the following effect occurred: Frank: Rome, when is A1 Civil going to pay for the formwork? Romeo: Frank, a brick wall has fallen on approximately half of the PERI equipment and I will be collecting insurance monies to cover what was lost and then pay PERI in full. Frank: Your insurance claim is between yourself and your insurance company. You still have to pay PERI the monies owed. Romeo: Can you assist with our insurance claim? With paperwork and the like? Frank: Yes, that should be fine. But it could take months or even years for the payment to be received by A1 Civil. You've got to make payment to PERI in the meantime as soon as possible. Romeo: Yes, okay, we'll send you a cheque very soon. 15Mr Genova received a subsequent telephone call from Romeo Ibrahim in which Mr Ibrahim promised to return the material and stated that the insurance claim was being handled by Allianz Insurance and that as soon as Mr Ibrahim received any monies, PERI Australia would be paid. Mr Ibrahim also advised that he was having money troubles and asked that PERI give him more time to pay. 16In June 2012 PERI made an adjudication application under the Building and Construction Industry Security of Payment Act 1999, and this led to an adjudication in favour of PERI. The application for adjudication related solely to the amounts outstanding for goods sold to A1 Civil, and did not include any claim in respect of rental of the goods hired after the sale of those goods. 17The amount due under adjudication is $452,344. 18To the plaintiff's knowledge, some of the equipment was used on a site at Dee Why. 19On 12 July Mr Dunn, the plaintiff's National Sales Manager, had a call from Mr Swade, one of their customers. According to Mr Dunn they had a conversation to the following effect: Dunn: Hello. Swade: Nic, its Wally here. Do you know of any Gridflex for sale? Dunn: You mean stolen gear or borrowed gear? Swade: I know a customer who is trying to sell some and I just want to find out if he is legit. Dunn: If it's with A1 Civil Formwork, don't touch it, its stolen. Do you know where it is? Swade: Yeah, I'm looking at it right now. Dunn: Can you tell me where? Swade: Yeah, it's in a yard on the Hume Highway at Greenacre. I think its number 239 it says out the front. It's up the back. Dunn: Who owns the yard? Wally: Its Romeo Ibrahim's yard. I'm not sure if he is renting or he owns it, but he's the guy selling your Gridflex. Dunn: Thanks for letting me know. Definitely don't buy it - they haven't paid a cent for it. 20There is a dispute as to this conversation. According to the evidence given by Romeo Ibrahim, Nicholas Dunn telephoned him and they had a conversation to the following effect: ND: Someone told me that you are selling our Gridflex, even though you haven't paid for it. RI: That is not true. If anyone is saying that, give me his telephone number and you can bring him to meet me on Thursday in Burwood for lunch or coffee, like usual. If my uncle is saying I am selling the Gridflex, it is not true. We have not been talking to each other because of the problems on the jobs at Dee Why and mortlake, and because of the money owing to you. ND: But you are moving the material. RI: Yes. I am moving the material to a job site. It is not being sold. ND: You have to return the materials within 48 hours. RI: No I don't. We have until September to pay your bill. If not, we will be happy to return the goods to you in September, and I will fix you up for any damage. ND: Can you confirm this in writing. RI: I can't do it today. I am out of the office. Come and see me on Thursday for lunch at Burwood. 21The conversation continued to the following effect: RI: You have taken my uncle for Adjudication and are getting a judgment against him. Legally, how can I return the material without my uncle suing me? ND: If you give the material back, we will give credit to your uncle against the Adjudication". RI: That's fine. I will return the material in September, but I am trying to get the money to pay you. ND: You won't have time to use the material until September. You will hae the Sheriff knocking on your door to get it back. If it's not back within 48 hours, the matter is going to our lawyers. RI: Nick, please help me. I am trying to do the right thing to make everyone happy. I am not here to screw anyone. Please come and see me on Thursday. 22Mr Ibrahim's evidence is that Mr Dunn did not ring him back to confirm any meeting. Instead, Mr Ibrahim was served with the Supreme Court summons and orders. 23The next thing that happened appears from the second defendant's own affidavit sworn after proceedings started. 24The suggestion that they did not have to pay until September was contrary to the arrangements for payment of sale proceeds which required monthly payments, none of which had been paid. 25The proceedings were commenced by the plaintiff, by summons, in the duty judge's list, on 18 July 2012. The primary relief sought in the summons was an order for the delivery up of the goods, together with relevant declaratory relief. Interim relief was also sought, initially on an ex part basis, to preserve the goods until further order. No notice was given to any of the defendants. 26On that day, the duty judge, Nicholas J, granted interim relief by way of property preservation orders. An important affidavit relied upon was the affidavit of Mr Dunn setting out his version of the conversation with Mr Swade. The summons and affidavits were then served on the named defendants. On 20 July 2012, at a hearing inter partes, the injunctive relief was extended, and the matter was adjourned to 27 July 2012. 27In the period between 20 and 27 July 2012, significant steps were taken towards the return, to the plaintiff's control, of its goods, save for some that had been damaged or destroyed. This was not a requirement of the orders made by the court; it was voluntary. None of the defendants, nor any of the third parties who had been dealing with the goods, sought to dispute the plaintiff's entitlement to the return of the goods, which was the plaintiff's primary claim in the proceedings. 28The plaintiff also, on 24 July 2012, formally terminated its sale contract (to the extent that this had not been done already by, inter alia, the terms of the summons). 29By 27 July 2012 the process of return of goods was nearly, but not quite, complete, and the court was so advised. The property preservation orders had been made "until further order", and they were not revoked, and so they continued. In addition, the duty judge, Nicholas J, made an order by consent that made it clear that by returning the goods to the plaintiff, the defendants would not be in breach of the property preservation order. His Honour also made directions for the further progress of the proceedings, by way of pleadings. 30By 2 August 2012, the process of return of goods to the plaintiff had been completed, and a stocktake carried out, revealing some goods not returned. This was a consequence of some goods having been damaged or destroyed so that they could not be returned. 31The plaintiff, having been directed to file pleadings, then filed and served a statement of claim on 17 August 2012. By the statement of claim the plaintiff now sought damages, primarily against the first and second defendants, but also with an alternative claim against the second defendant for breach of warranty of authority. 32The second defendant, Romeo Ibrahim, filed a defence on 27 August 2012. 33On 15 November 2012, the plaintiff and the first and third defendants agreed to resolve the plaintiff's claim on the basis that those defendants pay the sum of $15,000 and there be no order as to costs. 34Also on 15 November 2012, the plaintiff offered to discontinue its proceedings against the second defendant, on the basis that there be no order to as costs. 35That offer was repeated by the plaintiff on 19 November 2012. 36The second defendant rejected that offer, by letter from his solicitor dated 20 November 2012. 37Once proceedings were commenced and affidavits ordered by the judge were filed it became clear that the second defendant was using the goods for his benefit and they were out on a number of his jobs. 38Unbeknown to the plaintiff, at this and earlier times, the second defendant was bankrupt and the involvement of the first and third defendants was simply a mechanism for the second defendant to avoid the consequences of his bankruptcy. 39The first defendant's evidence in the proceedings was that it never had possession of the goods. It effectively was the second defendant and plaintiff who arranged the return of the goods. 40I referred earlier to Mr Dunn's evidence of his conversation with Mr Swade. 41Mr Swade gave evidence that he had a conversation on or about 12 July 2012 to the following effect: WS: Hi Nick. Its Wally Swade here, I have some material left over from Trio Wall System. Would you be interested to have a look at it? ND: Yes. We can arrange a time to meet. Are you still over in Perth or back in Sydney? WS: I'm back in Sydney. We are very busy. Do you know anything about Gridflex?" ND Yes. We hire some of that. We have some in stock. WS: No. I don't want to hire anything. There is some Gridflex in the yard next door to my yard at Greenacre. Do you own it? If so, perhaps I can buy some". ND: No. We have hired a lot of Gridflex to Sarkis Ibrahim, that's probably the Gridflex you are talking about. WS: That's probably right. ND: Can you tell me where this Gridflex is? WS: Yes. I'm looking at it now. It's across the road from the Volvo truck yard on the Hume Highway Greenacre. ND: What is the number at Hume Highway? WS: I'll just have a look. It is 239. ND: I'll probably come out sometime and take some photos of it. WS: Would you like me to take some photos for you ND: That would be good. Now I owe you two beers. WS: You can take your own photos. When you come out, I live around the corner. 42In relation to the affidavit of Nicholas Dunn, Mr Swade gave evidence that: (a) there was no discussion or suggestion about "stolen gear or borrowed gear" (b) There was no discussion about "a customer who is trying to sell some and I just want to find out if he is legit"; (c) The name of "A1 Civil Formwork" was not mentioned. That name was unknown to me anyway. (d) The words "don't touch it, its stolen" were not mentioned; (e) I did not make the statement "It's Romeo Ibrahimi's yard. I'm not sure if he is renting or he owns it, but he is the guy selling your Gridflex"; (f) The words "definitely don't buy it - they have haven't paid a cent for it" were not used. 43Mr Swade gave further evidence that he did not know at the time that either Sarkis Ibrahim or Romeo Ibrahim had anything to do with the formwork in the yard next door. According to Mr Swade, if he had known, he would have telephoned Romeo, rather than telephoning PERI. 44Mr Swade stated that he had known Romeo Ibrahim since 2004, and previously worked for one of his companies. He further stated: "It is embarrassing to me that Nicholas Dunn is misquoting me; and suggesting that Sarkis Ibrahm and/or Romeo Ibrahim were attempting to sell me Gridflex. I have a good relationship with Romeo Ibrahim, and would have spoken with him direct, if I had any idea that the Gridflex in the Lot next to mine was stored there either by Sarkis Ibrahim or Romeo Ibrahim. The substance of the conversation I am alleged to have had with Nicholas Dunnn is untrue." 45Plainly there is a contest in respect of that conversation and it is not appropriate for me to resolve that aspect. 46It is useful to note what is the proper approach of the Court when determining matters such as the present. The principles normally applied in these circumstances were summarised by Hill J in Australian Securities Commission v Aust-Home Investments Limited (1995) 34 FCR 194. At p 201 his Honour summarised the cases in the following way: "1. Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford and the SEQUEB case. 2. It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the cost of the proceedings should be borne to endeavour to determine for itself the case on the merits, or, as it might be put, to determine the outcome of a hypothetical trial; Stratford. This will particularly be the case where a retrial of the merits would involve complex factual matters, where credit could be an issue. 3. In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQUEB). 4. In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v Macintosh (1933) 33 SR (NSW) 371. 5. Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd (1973) 1 NSWLR 603 at 606, a case which, however, depended upon the specific working of the statute under consideration." 47Some of these principles have been approved by McHugh J in Re Minister for Immigration and Ethnic Affairs; ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622. His Honour noted that the Court when it does not determine a matter is deprived of the factor that usually determines whether or how it will make a costs order, namely, the result. He then went on to say: "In an appropriate case, a Court will make an order for costs even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. 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. In some cases, however, the Court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power, and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex Parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a Prosecutor seeking mandamus the cost of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable grounds for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. 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. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission, where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs, even though his Honour found that those parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that those 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 costs of the proceedings. This approach has been adopted in a large number of cases." 48In One Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270 Burchett J had reason to comment on the above two cases. In paragraph 6 he said: "6. In my opinion, 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." 49In the present case the parties seek to discontinue with the leave of the court under UCPR 42.19. The principles I have mentioned above apply where there has been such discontinuance. For example, in Fordyce v Fordham [2006] NSWCA 274 it was stated: "84 It is apparent from this review of authority that the UCPR 42.19 and 42.20 default orders do not create a presumption that the opponents ought pay the cost of the Equity Division proceedings. They are a relevant, but not determinative, consideration. Other relevant considerations were, as the primary judge concluded, usefully gathered in Lai Qin and Australian Security Commission v Aust-Home Investments Ltd & Ors [1993] FCA 585; (1993) 44 FCR 194, notwithstanding, as the discussion below reveals, that they were decided in a different statutory context. 85 Lai Qin turned on the application of Order 71 r 39 of the High Court Rules 1952 (Cth) which dealt with the situation in which "the further prosecution of a proceeding becomes unnecessary, except for the purpose of determining by whom the costs of the proceeding should be paid" and enabled any party to apply to the Court or a Justice to determine the question and "thereupon the Court or Justice must make such order as is just." 86 Australian Security Commission v Aust-Home Investments Ltd & Ors, upon which McHugh J drew heavily in Lai Qin, turned on O 62 r 3 of the Federal Court Rules which, as Hill J observed at (198-199) did not "lay down [any] criteria to determine how costs should be awarded", leading him to conclude that "ultimately costs in interlocutory proceedings, like costs in the main proceedings, lie in the discretion of the Court, which discretion must be exercised judicially." The same Rule was, no doubt, the subject of Pincus J's decision in South-East Queensland Electricity Board v Australian Telecommunications Commission (unreported, Federal Court of Australia, 10 February 1989) to which Hill J referred (at 199). It was the same situation in the two Queensland cases to which Hill J referred (at 200) both of which were dealt with pursuant to O 91 r 16 of the Supreme Court Rules (Qld) 1981 which was in substantially the same terms as O 71 r 39 of the High Court Rules 1952. In addition O 30 r 2 of the Supreme Court Rules (Qld) which was referred to in Austcorp Finance and Leasing Pty Ltd v Thomas (unreported, Supreme Court of Queensland, 23 August 1991) to which Hill J referred (at 200) dealt with discontinuance, but provided that on discontinuance the Court or Judge should make costs orders "as may be just". Similarly in J T Stratford & Sun Ltd v Lindley (No 2) [1969] 1 WLR 1547 (to which Hill J referred at 200-201) which dealt with the consequences of an order giving the plaintiffs leave to discontinue, RSC 0 21, r 3(1) left it to the Court to make such order as to costs 'as it thinks just.' 87 Once it is recognised, however, that the costs discretion conferred by UCPR 42.19 and 42.20 is unconfined, the matters referred to in the Lai Qin line of authority are plainly pertinent, although, again, not necessarily determinative." 50It is also useful to note what was said in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 where the Court said: "81 As has been noted on more than one occasion, the variety of relevant factors renders it difficult to reduce the exercise of discretion by characterisation of the reason for discontinuance: see, eg, O'Neill v Mann [2000] FCA 1680 at [13] (Finn J). There is also a risk that the subjective motivations of the plaintiff in discontinuing may be put forward as a basis for some other order. Except to the extent that such views may have been put before the defendant, for example as a basis for settlement, and be established as such on the evidence, subjective considerations of one party will generally be immaterial, so that the discretion will be exercised on the basis of the objective circumstances established on the evidence." 51I turn to the question of whether the plaintiff acted reasonably in commencing the proceedings. As there is a dispute about the conversation between Mr Dunn and Mr Swade I will assume for this purpose that the conversation did not occur. 52What is important is the conversation to which the second defendant deposed occurred on 12 July. It is plain from that conversation that: (1)The second defendant was moving material to a job site. (2)A demand for return of material was made. (3)He refused to give the material back as he wished to have the benefit of the use of it until September. (4)His excuse was patently false as he had signed the purchase agreement on behalf of the first defendant and it required monthly payments. 53At that stage the plaintiff was faced with a situation where materials had been rented since the end of 2011, sold in February and it had received nothing except the initial payment of $10,000 at the end of 2011. 54It had obtained a determination under the Building and Construction Security of Payment Act and nothing had been paid. 55It was entitled to recover possession of the goods as it still held the title to them. 56Given that the second defendant had made it plain that he was in control of the good it was very appropriate that he be joined as a defendant. 57In my view the plaintiff was acting reasonably in joining the second defendant in proceedings where the object was to recover the goods. 58As Burchett J said in OneTel where one party effectively surrenders to the other there normally would be an award of costs to the successful party. 59This is what happened here after a few initial attempts by the second defendant to try and retain the goods until 30 September 2012. The second defendant's application of 24 July 2012 sworn in response to the court orders show he knows where he has put the goods and the difficulty he might have in getting them back from the building sites. Notwithstanding this, as the first defendant did not claim to have possession and control the second defendant was the one who with some help from the plaintiff got the goods back to the plaintiff. 60In my view the second defendant surrendered to the plaintiff and he should pay the plaintiff's costs of the proceedings against the second defendant. 61So far as the claim for indemnity costs is concerned, plainly the second defendant has done more than the offers. The offers were late in the proceedings and were short documents which were not accompanied by any statement of reasons as to why the second defendant's application for costs would fail. See Keays v J P Morgan Administrative Services Australia Ltd [2012] FCAFC 100. In these circumstances I will not order indemnity costs. 62Accordingly, the orders I make are as follows: (1)Give leave to the plaintiff to discontinue the proceedings against all defendants. (2)Order the second defendant to pay the plaintiff's costs of proceedings against the second defendant. (3)Subject to the solicitors retaining the exhibits for the appeal period pecuniary order that the exhibits except EXH1 and EXHD be returned. 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: 14 February 2013