Supreme Court New South Wales Medium Neutral Citation: Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial Australia Ltd & Ors (Costs) [2016] NSWSC 1182 Hearing dates: On the papers Date of orders: 29 August 2016 Decision date: 29 August 2016 Jurisdiction: Equity - Commercial List Before: Bergin CJ in Eq Decision: The plaintiffs are to pay the defendants' costs of the proceedings. No order as to costs in respect of the Cross-Claim. Gross sum costs award in the amount of $200,000 against each plaintiff. Catchwords: COSTS – where main proceedings dismissed for want of due despatch – where cross-claim dismissed – where in previous applications plaintiffs' claims described as "defensive" – applications for costs orders – defendants' application for gross sum costs order – whether a gross sum costs award should be made. Legislation Cited: Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 Cases Cited: Citadel Property Group v Capital Finance Australia [2008] NSWSC 1470 Capital Finance Australia Ltd v Citadel Property Group Pty Ltd [2009] NSWCA 196 Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial Australia Ltd & Ors [2016] NSWSC 890 Hamod v State of New South Wales and Anor [2011] NSWCA 375 Harrison & Anor v Schipp (2002) 54 NSWLR 738 Wilkie v Brown [2016] NSWCA 128 Category: Costs Parties: Citadel Property Group (Rockdale No 1) Pty Ltd (1st Plaintiff) Antonio Maiolo (2nd and 3rd Plaintiff) Capital Financial Australia Limited (1st Defendant) Murray Campbell Smith (2nd Defendant) Joseph David Hayes (3rd Defendant) Steven John Sherman (4th Defendant) Peter James Gothard (5th Defendant) Paul Andrew Billingham (6th Defendant) Peter Grealish (7th Defendant) Representation: Counsel: BW Walker SC/AR Vincent (Plaintiffs) A Leopold SC/E Holmes (Defendants) Solicitors: Salim Rutherford Lawyers (Plaintiffs) Gadens (Defendants) File Number(s): 2008/290508 Publication restriction: Nil Judgment 1. These reasons relate to the issue of costs of proceedings that were dismissed for want of due despatch on 29 June 2016. The Cross-Claim was also dismissed: Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial Australia Ltd & Ors [2016] NSWSC 890 (the Judgment). These reasons should be read with the Judgment. 2. The parties were unable to agree on a costs order and on 11 July 2016 each party filed their written submissions on the issue of costs which was to be determined on the papers. However the defendants sought to rely upon detailed affidavit evidence in support of a claim under s 98(4)(c) of the Civil Procedure Act 2005 (CPA) for a gross sum costs award. The matter was listed for directions on 22 July 2016 and the plaintiff was directed to file and serve any evidence in reply and submissions in respect of the application for a gross sum award by no later than 5 August 2016 (later extended by consent to 15 August 2016). The parties indicated they were content for all issues in respect of costs to be determined on the papers. 3. The plaintiffs contend that the appropriate order in the circumstances is that each party pay their own costs of the proceedings or that each party pay their own costs, save that the plaintiffs are to pay CFAL's costs of the Future Projects Claim. CFAL seeks an order that the plaintiffs pay the defendants' costs of the proceedings, excluding the Cross-Claim, in respect of which it seeks no order as to costs. Costs of the proceedings 1. The first issue for determination is whether the plaintiffs should pay the defendants' costs of the proceedings. The starting point is that costs should follow the event unless some other order should be made: r 42.1 of the Uniform Civil Procedure Rules 2005. The defendants claim that the "event" is the dismissal of the proceedings for want of due despatch and costs should accordingly be awarded in their favour. 2. The plaintiffs submit that the following circumstances warrant an order being made that each party pay their own costs: (1) there has been no final determination of the issues in dispute; (2) the issues in dispute in the main claim and in the Cross-Claim were so intermingled and entwined that neither party has in effect succeeded on an event; (3) CFAL's security for costs application was refused on the basis that the plaintiffs' claims were properly characterised as "defensive"; (4) the Defence to the Cross-Claim pleaded the same matters that were raised in the Statement of Claim; (5) the Court of Appeal held that CFAL could apply for security for costs for those parts of the plaintiffs' cases that were "not wholly defensive" (described by the plaintiffs as the "Future Projects Claim"); (6) security in the amount of $130,000 was provided in respect of the Future Projects Claim; and (7) the Cross-Claim was dismissed and the parties effectively walked away from the proceedings. 3. CFAL relied upon the affidavit of Justin Bates sworn on 11 July 2016 in support of its contentions on the costs orders generally and also in support of its application for a gross sum costs order. Mr Bates has been in practice as a solicitor since 14 December 1994. Since January 1997 he has practised in commercial litigation with a focus during the last ten years on acting for banks and receivers. He has been a partner of Gadens since 1 July 2004. The majority of his practice has been in the Supreme Court and Federal Court and he has had the conduct of a number of large commercial disputes. He estimated that he had run at least one hundred cases since 1997. From time to time he has had cause to have costs assessed and has also been the recipient of costs assessments. 4. Mr Bates conducted company searches in relation to Rockdale which record that it was placed into receivership on 29 September 2008 which came to an end on 13 August 2010. During that receivership the Receivers sold the company's only asset being the development site mortgaged to CFAL. Mr Bates has been unable to find any property owned by Mr Maiolo (who was substituted in place of Berala). Shellbridge was placed into liquidation on 19 October 2012. Had the proceedings not been dismissed it was proposed that Mr Maiolo would also be substituted for Shellbridge. An ASIC search shows that Mr Maiolo has a shareholding in Soukutsu Pty Ltd but Mr Bates was unable to assess what value, if any, can be attributed to that shareholding. 5. Mr Bates analysed the issues that were common between the main claim and the Cross-Claim and those claims that are unique to the main claim. He claimed that the allegations unique to the main claim were that each of Rockdale and Berala denied CFAL's claims of default; alleged that the s 57(2)(b) Notice and appointment of the receivers was invalid, void and of no effect as there had been no events of default; challenged the refusal of the drawdown by CFAL; and alleged that CFAL represented that it would continue to provide finance to them. Mr Bates claimed that the unique claims in respect of Shellbridge were the denial of any default; a similar claim in relation to the s 57(2)(b) Notice with a claim that there was no obligation to repay the $10,615,974 demanded; an allegation that in February 2007 there was a representation that interest would be reduced to 7.5% and that time for repayment would be extended to February 2009 provided the facility would be reduced to $7.8 million; and that in about 2006 CFAL represented that Shellbridge's liability under the Cross-Collateralisation Deed would be capped at $2 million. 6. Mr Bates claimed that the allegations common to the main claim and the Cross-Claim were for misleading and deceptive conduct; unconscionable conduct; allegations of an invalid appointment of the receivers and managers; allegations of joint venture fiduciary relationships and breaches of fiduciary obligations; and damages for the Future Projects Claim. 7. Notwithstanding Mr Bates' analysis of the various issues in the main claim and in the Cross-Claim it is appropriate to refer to McDougall J's analysis of the plaintiffs' claims in CFAL's application for security for costs in Citadel Property Group v Capital Finance Australia [2008] NSWSC 1470: 30. In substance, Mr Newlinds relied on some three matters in opposition to the application for security. The first is that Mr Maiolo has given each of the plaintiffs his personal guarantee to accept liability for its costs of the proceedings. Thus, Mr Newlinds submitted, Mr Maiolo has "put his money where his mouth is". 31. The second matter on which Mr Newlinds relied was that the plaintiffs' case was in substance defensive. He said, in effect, that it was a pre-emptive strike in answer to CFAL's claim for the debt (or whatever would be left over after the receivers have executed their responsibilities). He acknowledged that in some respects the case went further. However, he submitted, the great bulk of the matters raised were in substance answers to the claim that, clearly enough, CFAL has indicated it will bring. 32. Further, Mr Newlinds submitted, the matters that it was seeking to agitate would be agitated in any event, because CFAL had made it clear that it would claim against Mr Maiolo pursuant to his guarantee. Mr Newlinds submitted that when (not if) this happened, Mr Maiolo would raise, by way of defence, the proposition that he had no liability under his guarantees because the present plaintiffs had no liability; the second part of that proposition, of course, would be dependent on the matters that the plaintiffs seek to agitate in these proceedings. … 36. In this case, the determinative factor, in relation to the exercise of the discretion, seems to me to be that it is likely to the point of inevitability that the issues on which the plaintiffs found their case will be investigated in any event. I think it is correct to characterise the plaintiffs' case as one that, in substance, is defensive. In truth, I think, the action that the plaintiffs are taking is to be viewed as an answer, in advance or pre-emptively, to the claim that CFAL has against each of them for what it says is the balance owing. 37. Further, I think, it is likely to the point of inevitability that Mr Maiolo will be sued on his personal guarantee of each of the plaintiffs. Thus, again, it is likely to the point of inevitability that the relevant issues will be relied upon by way of defence to that claim. 1. On appeal, in Capital Finance Australia Ltd v Citadel Property Group Pty Ltd [2009] NSWCA 196 Handley AJA (with whom Young JA and Sackville AJA agreed) said (at [7]): In the circumstances, I have not been persuaded that the Judge erred in characterising the proceedings as in substance defensive although they had an offensive element. 1. The fact that the plaintiffs took the pre-emptive strike in forcing matters to a head does not mean that there should be no order as to costs. The prediction of the inevitable claim came to fruition and the defendants filed their Cross-Claim against Mr Maiolo. However it was the plaintiffs who were propounding their claims for an outcome to defeat the claims that would inevitably be made by CFAL. The fact that the proceedings were dismissed for want of due despatch is an event which the defendants are entitled to claim costs should follow. 2. During the argument on the Motion for dismissal the defendants advised that if the proceedings were dismissed for want of due despatch they would not be pressing the Cross-Claim against Mr Maiolo. This was an indication that was relevantly taken into account on the exercise of the discretion in dismissing the proceedings. 3. There was some complexity to the plaintiffs' claims. This was in part evidenced by the need for the particulars that were ordered to be provided so that the defendants could understand the claim made against them. The failure to comply with those orders over a number of years caused delay and it was a matter that was never properly explained. Nor was there any proper explanation for the abandonment of the claims during the course of the application to amend the pleadings. 4. Although there has been no hearing on the merits, the defendants were brought to Court and were obliged to answer the various claims made against them, including very serious allegations that hung over their heads for years and were ultimately abandoned without explanation. It is also clear that there was some degree of overlap between issues in the main claim and issues in the Cross-Claim. 5. I am satisfied in all the circumstances that the fairest approach to the costs issue is that the plaintiffs should pay the defendants' costs of the proceedings and that there should be no order as to costs in respect of the Cross-Claim. Gross sum costs award 1. The next matter for determination is whether in all the circumstances it is appropriate to make a gross sum costs award. 2. The discretion under s 98(4)(c) of the CPA is very broad and empowers the Court to make a gross sum costs order "whenever the circumstances warrant" it: Harrison & Anor v Schipp (2002) 54 NSWLR 738 at [21] (Giles JA referring to the similarly worded, but now repealed, Pt 52A, r 6(2) of the Supreme Court Rules 1970). However it is constrained by: (a) the need for fairness between the parties; (b) the availability of evidence to enable the Court to confidently award an "appropriate" sum in all the circumstances; and (c) the requirement that the approach taken to estimate costs be fair, logical and reasonable. The matters to be taken into account as part of the circumstances include: (1) whether the assessment of costs may be protracted; (2) whether the assessment process may be expensive; and (3) whether there is doubt that the party obliged to pay the costs may not be able to comply with an order to do so. Other matters to be taken into account include the relative responsibility of the parties for the costs incurred and the nature and degree of complexity of the proceedings: Hamod v State of New South Wales and Anor [2011] NSWCA 375 at [813]-[820]. 3. Mr Bates obtained an estimate of the professional costs and the likely amount of time a costs assessment application would take in the circumstances of this case from a legal costs consultant solicitor, Ross Nicholas. Mr Nicholas estimated fees of $80,000 and a period of twelve to eighteen months in respect of the costs assessment process. 4. Mr Bates itemised the solicitor/client costs for CFAL at $1,087,971 (excluding GST). His evidence in relation to party/party costs was that: costs assessors discount the solicitor component of the costs by about 30% and will not apply any discount to the disbursements, including counsel's fees; solicitor costs excluding GST total $711,630 and the disbursements exclusive of GST total $376,341; a costs assessment would be expected to reduce the solicitor costs to $498,141 (being the correct calculation of 70% of $711,630; Mr Bates mistakenly had $547,955 recorded in his affidavit); total assessed costs could, therefore, be expected to be approximately $874,482 (which is the sum of $498,141 plus $376,341; Mr Bates still ended up arriving at this figure), inclusive of disbursements but exclusive of GST; after reducing that amount by $103,565 to take into account various interlocutory orders, the final figure is reduced to $770,917. Mr Bates then divided $770,917 by four and rounded it down to the nearest thousand to calculate a 40% discount to reach a figure in respect of each plaintiff of $230,000. That division was based on the assumption that in broad terms each of the three sets of unique issues were responsible for the same amount of work and therefore costs; and the work up until the proceedings were dismissed on the issues associated with the common costs was the equivalent of one set of unique issues. 5. CFAL conceded that if a gross sum costs order were to be made under s 98(4)(c) of the CPA the costs of the oral application for the stay and the application for dismissal would be absorbed into the gross sum costs order. It was submitted that the gross sum it seeks, of $230,000 as against each plaintiff, is a very significant discount on the costs that have been incurred in the proceedings. 6. CFAL also submitted that a costs assessment would be unduly complex; that there is a real doubt about the plaintiffs' capacity to pay any assessed costs; that the process would probably cost $80,000 and take twelve to eighteen months to complete; and that the costs assessment process in those circumstances would be futile. It submitted that after years of delay an additional twelve to eighteen months plus the expenditure of $80,000 with the prospect of there being no capacity to recover anything from the plaintiffs would render it unfair for CFAL to have to take part in such a process. 7. CFAL submitted that the costs have been incurred over a lengthy period of time and the plaintiffs are entirely responsible for those costs being incurred. They made serious allegations against officers of CFAL and CFAL itself and failed to prosecute them. CFAL also emphasised its willingness to accept a significant reduction in its costs if a gross sum order is made. It was submitted that its approach is fair, logical and reasonable and that a gross sum award should be made. 8. The plaintiffs submitted that the main difficulty with the proposed gross sum award of costs sought by CFAL is that it does not take into account the costs of the Cross-Claim other than an assessment that only $5,000 of the costs incurred by CFAL (on a party/party basis) are attributable to the Cross-Claim. It was submitted that having regard to the findings made by McDougall J in Citadel Property Group v Capital Finance Australia that the plaintiffs' proceedings were in large part defensive in nature, it would seem that the $5,000 figure is not appropriate. 9. The plaintiffs relied upon the affidavit of Daniel Salim, solicitor on the record for the plaintiffs, sworn on 16 August 2016. In that affidavit Mr Salim sets out his assessment of the unique and common issues to the main claim and the Cross-Claim. Mr Salim concludes that in general terms the division of the issues and the time spent on the issues were that: the unique issues were spread equally between the plaintiffs; the unique issues are the same as the Cross-Claim issues and are applicable equally to both aspects of the claim; and the common issues only form about 10% of the time spent and costs incurred in the proceedings. The plaintiffs submitted that in those circumstances 90% of the time spent and costs incurred in the proceedings were in respect of the issues that arose on the Cross-Claim. 10. I do not agree with the plaintiffs' assessment in this regard. I prefer Mr Bates' careful assessment and analysis. 11. The plaintiffs also relied upon the affidavit of Antonio Andrew Maiolo sworn on 16 August 2016. Although this evidence is not relevant in the circumstances of my conclusion as to the costs orders of the main proceedings and the Cross-Claim, I will record it. In his affidavit Mr Maiolo sets out the costs and disbursements that had been incurred by the plaintiffs in the proceedings. Those costs are recorded as solicitor's fees of $416,696.80; counsel's fees of $344,258; and disbursements of $45,462.35, totalling $806,417.15 (including GST). 12. Mr Salim claimed that if an award is made in favour of the plaintiffs on the Cross-Claim it should be a gross sum of $278,580; and that if an award is made in favour of CFAL the gross sum should be in the amount of $184,000 against each plaintiff. 13. This case, like some other cases in which gross sum costs awards have been made, has had a lengthy and unfortunate history: Wilkie v Brown [2016] NSWCA 128 at [52]. There is no doubt that the plaintiffs' conduct in failing to provide the particulars as ordered added to the delay by reason of the stay that was then in place. The plaintiffs' conduct in introducing serious allegations and then abandoning them without any proper explanation (other than an inference of a strategic advantage) also added to the complexity of the circumstances in which a costs award must be assessed. 14. There is little doubt that any costs assessment would be contested and there is real doubt about the plaintiffs' capacity to pay any amount over and above that which is in Court pursuant to the order for security for costs ($130,000). 15. The analysis of the costs by Mr Bates was logical and in my view quite reasonable. I think the fair outcome is to award a gross sum with an adjustment to Mr Bates' figures. I am satisfied in the circumstances that a gross sum costs award should be made in the amount of $200,000 against each plaintiff. Orders 1. I make the following orders: 1. The plaintiffs are to pay the defendants' costs of the proceedings in the amount of $200,000 as against each plaintiff. 2. There be no order as to costs of the 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: 29 August 2016