Supreme Court New South Wales Medium Neutral Citation: In the matter of Tiaro Coal Limited (in liquidation) (ACN 127 936 412) [2018] NSWSC 1043 Hearing dates: 9 May 2018 (last submissions as to costs 2 July 2018) Decision date: 06 July 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: The several Defendants pay the costs of the application forthwith on the ordinary basis. Parties have leave to make submissions as to whether costs payable by each Defendant be reduced by set-off of costs payable to that Defendant in respect of the Plaintiff's application to set aside a notice to produce. Catchwords: COSTS – indemnity costs – where defendants were not granted relief sought but had a chance of success – whether indemnity costs will be awarded pursuant to s 98 of the Civil Procedure Act 2005 (NSW) – costs forthwith – where defendants' application was entirely separate in the early stage of proceedings – where defendants' application failed comprehensively – whether costs should be payable forthwith. Legislation Cited: - Civil Procedure Act 2005 (NSW) s 98 Cases Cited: - Brasington v Overton Investments Pty Ltd [2001] FCA 571 - Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 - Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1 - Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 - Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1682 - Horne v Retirement Guide Management Pty Ltd [2017] VSCA 47; (2017) 118 ACSR 509 - Iacullo v Iacullo [2013] NSWSC 1517 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 - Leichhardt Municipal Council v Green [2004] NSWCA 341 - Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 - Over Fifty Mutual Friendly Society Ltd v Smithies [2007] NSWSC 352 - Rafferty v Time 2000 West Pty Ltd (No 3) [2009] FCA 727; (2009) 257 ALR 503 - Re Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 456 - Re Punters Show Pty Limited [2017] NSWSC 605 - Ritson v Gay & Lesbian Community Publishing Ltd [2012] NSWSC 586 - UGL Services Pty Ltd v F1 Solutions Pty Ltd [2012] FCA 245 - Westpac Banking Corporation v Ollis [2007] NSWSC 1008 Category: Costs Parties: Tiaro Coal Limited (in liquidation) (Plaintiff) Peter Meers (First Defendant) Francis Choy (Second Defendant) Rado Jacob Rebek (Third Defendant) Ibrahim Menudin (Fourth Defendant) Wei Huang (Fifth Defendant) Jianfei Wang (Sixth Defendant) Hudson Resources Limited (Seventh Defendant) Hudson Corporate Limited (Eighth Defendant) Bundaberg Coal Pty Ltd (Ninth Defendant) Representation: Counsel: R A Dick SC/D R Sulan (Plaintiff) M Pesman SC/N M Bender (Second, Fifth, Seventh and Eighth Defendants) Solicitors: Bridges Lawyers (Plaintiff) Baker & McKenzie (Second, Fifth, Seventh and Eighth Defendants) File Number(s): 2017/137955 Judgment 1. By Amended Interlocutory Processes filed on 7 February 2018, several Defendants in these proceedings sought orders setting aside the Originating Process filed by the Plaintiff ("TCL") or the service of the Originating Process and consequential orders dismissing the proceedings. That application was substantially based on a contention that TCL had not served the Originating Process "as soon as practicable after filing" for the purposes of r 2.7(1) of the Supreme Court (Corporations) Rules 1999 (NSW) ("Corporations Rules"), which the several Defendants contended applied to the exclusion of r 6.2(4) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). By my judgment delivered on 5 June 2018 ([2018] NSWSC 828) ("Judgment"), I did not accept that contention and, in any event, found that any non-compliance with r 2.7 of the Corporations Rules would not warrant setting aside service of the Originating Process or dismissing the proceedings. 2. I observed (Judgment [69]) that the several Defendants should pay the Plaintiff's costs of the application and should also pay the costs of and incidental to a Further Amended Interlocutory Process filed by TCL on 9 May 2018, which would have succeeded had the several Defendants' Amended Interlocutory Processes not otherwise been dismissed. TCL indicated that it wished to be heard further as to the basis of such a costs order, and the parties have now made written submissions in that respect. The Plaintiff's application for costs on an indemnity basis 1. The Plaintiffs seek orders that the several Defendants pay their costs of the application on an indemnity basis from 17 February 2018. 2. The principles applicable to such an order are well-established and not in dispute. Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or an indemnity basis. Rule 42.2 of the UCPR provides that, unless the Court orders otherwise or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 deals with an order for costs on an indemnity basis. Costs are awarded on an ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant fully for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 89; Westpac Banking Corporation v Ollis [2007] NSWSC 1008 at [6]. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324, McDougall J observed (at [24]) that there must usually be some special or unusual feature to justify departure from the ordinary rule as to costs, and that delinquency is not necessary for an order for indemnity costs, but is relevant to whether it should be made. The relevant principles were also considered by the Court of Appeal in Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6], where the Court observed that an order for indemnity costs may be made where conduct in proceedings is plainly unreasonable or involves an element of delinquency, and I recently summarised those principles in Re Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 456 on which I have drawn for the summary that appears above. The Plaintiffs also point to the Court's power to award indemnity costs in an interlocutory application that had no chance of success: for example, Over Fifty Mutual Friendly Society Ltd v Smithies [2007] NSWSC 352 at [4]. 3. The Plaintiff refers to its solicitors' letter dated 16 February 2018 to the several Defendants' solicitors, which had observed that the effect of the orders sought by the several Defendants would be that an alleged procedural breach of the Corporations Rules would result in the setting aside of the Originating Process, where those Defendants had led no evidence of prejudice and there would be significant prejudice to the Plaintiffs if the applications were successful. The Plaintiffs' solicitors also there noted that the effect of the applications had been to delay the progress of the proceedings since November 2017 and that the several Defendants had informed the Court that they needed time to serve evidence over the period to January 2018, which had ultimately not been served. That letter invited the several Defendants to withdraw the Amended Interlocutory Processes and indicated that, if they were ultimately unsuccessful in the applications, or the Plaintiff was successful in their cross-application, the Plaintiff would rely on that letter on the issue of costs. The Plaintiff also points out that, when the several Defendants brought their applications, each was initially supported by an affidavit of their solicitor which did not identify the basis of the application. They refer to the several Defendants' indication to the Court, at a directions hearing on 30 November 2017, that time would be required by the several Defendants to lead evidence as to the prejudice which they would suffer from the continuance of the proceedings, and point out that the evidence served (and, I interpolate, the more limited evidence ultimately read by the several Defendants) did not establish that prejudice. 4. The Plaintiff submits that, by the time of its solicitor's letter dated 16 February 2018, it should have been apparent to the several Defendants that their application was inconsistent with earlier authorities that had applied the usual principles regarding extensions of time in corporations matters and that the decision in Horne v Retirement Guide Management Pty Ltd [2017] VSCA 47; (2017) 118 ACSR 509 did not support the construction of r 2.7 of the Corporations Rules for which they contended; they also point to the liquidators' explanation for the delay in service, and to the absence of any evidence led by any of the several Defendants as to any specific or material prejudice arising from that delay. The Plaintiff also refers to several observations in my Judgment, namely that there was an absence of persuasive evidence of any disadvantage suffered by the several Defendants from any delay in service of the Originating Process (Judgment [58]), that the several Defendants had not identified any particular prejudice (Judgment [60]), that their submissions as to "presumptive prejudice" did not significantly advance their position and did not adequately address the need for balancing their interests and TCL's interests (Judgment [63], [65]); and that the relevant considerations supported the exercise of the Court's discretion so as to decline to set aside service of the Originating Process (Judgment [66]). 5. The several Defendants respond that their application was not bound to fail and refer to the possibility, recognised by the Court of Appeal of the Supreme Court of Victoria in Horne v Retirement Guide Management Pty Ltd above that a party may attempt to set aside service by establishing that it had been practicable to effect service at an earlier date. They also submit that it was not "inevitable" (I interpolate, as distinct from, perhaps, likely or highly likely) that the Court would decline to exercise its discretion in the manner in which they proposed because they had pointed only to "presumptive prejudice" rather than actual prejudice from the suggested delay in service of the proceedings. They point to the fact of other decisions, in different circumstances, where service of an Originating Process has been set aside. They also point to the possibly different views expressed in appellate authorities as to the significance of a liquidator's need for litigation funding as a basis for delaying service of proceedings. They also advance a submission relying on Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1682 which is, in my view, not to the point where that decision related to service outside the time required by UCPR r 6.2(4), whereas service in this case was within that time. The several Defendants also submit, although there is no evidence to establish, that the delay in hearing the application resulted from an unsuccessful application by the Plaintiff to set aside a notice to produce served by the several Defendants, for which they were not responsible. 6. Plainly, the several Defendants' application failed comprehensively, where I did not accept the legal analysis that they advanced, they had not led evidence of actual prejudice and it did not seem to me that the matters for which they contended warranted the exercise of the Court's discretion so as to set aside service of the Originating Process or dismiss the proceedings. However, I do not think that it could be said that the application generally, or the several Defendants' reliance on "presumptive prejudice", had no chance of success, although I was also not satisfied that it warranted the relief sought in the circumstances. On that basis, it does not seem to me that the basis for an order for indemnity costs is established. The Plaintiff's application for costs forthwith 1. The Plaintiff also seeks an order that the costs of the application be paid forthwith under UCPR r 42.7(2), where those costs would otherwise not be payable until the conclusion of the proceedings. They submit that an interlocutory costs order may be made payable forthwith where the application relates to a separately identifiable matter, and proceedings are likely to continue for some time: Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1 at [11]ff. 2. Rule 42.7(2) of the UCPR, to which the Plaintiffs refer, provides that, unless the Court otherwise orders, the costs of any interlocutory application in proceedings are to be paid and otherwise dealt with in the same way as the general costs of the proceedings and do not become payable until the conclusion of the proceedings. An order that costs be payable forthwith is most commonly made where a costs order is relevant to a discrete, separately identifiable part of the proceedings or the costs liability will not be affected by the final outcome of the proceedings. The question when the Court could make such an order was considered by Barrett J in Fiduciary Ltd v Morningstar Research Pty Ltd above, on which the Plaintiff relies, where his Honour observed (at [18]) that it was appropriate to make such an order where an interlocutory hearing involved a separate and completed phase of the proceedings; the orders made had the result that, in effect, there would be a new beginning of the proceedings after that application; the defendant's costs of the application were increased by the service of voluminous material, much of which was not referred to; and the likely timing of a final hearing, in that case, was in the order of a year after the interlocutory hearing. 3. In Brasington v Overton Investments Pty Ltd [2001] FCA 571 at [13], to which the several Defendants referred, Emmett J identified the rationale of the principle that costs of interlocutory proceedings were not ordinarily payable forthwith as that: "since an interlocutory proceeding does not resolve the final issues between the parties, it would, in ordinary circumstances, be inappropriate that an unsuccessful party in an interlocutory proceeding be required to pay costs immediately, since that party might ultimately be entitled to an order for costs in the substantive proceedings. The general principle appears to be that costs ought to be resolved when the proceeding has been concluded, and the rights of the parties have been finally determined." On the other hand, his Honour noted at [14] that the principle might not be applied where costs have been incurred by reason of an application that is misconceived and should never have been brought, and that it would be relevant that a final decision is some way off in a proceeding, because it is lengthy and complex or for some other reason. 1. In Rafferty v Time 2000 West Pty Ltd (No 3) [2009] FCA 727; (2009) 257 ALR 503, Besanko J observed that the usual approach that costs are not resolved until the end of a proceeding serves the general interests of justice because it avoids multiple taxations and an apparent unfairness where a party who is initially successful is ultimately unsuccessful or vice versa, and prevents interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties, and also recognised (at [21]) that: "the Court may order that costs be paid forthwith, and the cases suggest that [this] power may be exercised in circumstances in which there is an element of unreasonableness in the conduct of the unsuccessful party, and it is likely that there will be a long delay between the interlocutory proceeding and the conclusion of the principal proceeding." 1. Such an order has been made in this Court, for example, where the result of a motion represents complete success for a party on a discrete and substantial part of the proceedings and, absent that order, costs would not be payable for a significant period: Ritson v Gay & Lesbian Community Publishing Ltd [2012] NSWSC 586 at [4]–[5]. In UGL Services Pty Ltd v F1 Solutions Pty Ltd [2012] FCA 245, Jagot J departed from the usual rule and made an order for costs forthwith where she was satisfied that a summary judgment application was misconceived. I applied those principles in Iacullo v Iacullo [2013] NSWSC 1517 and in Re Punters Show Pty Limited [2017] NSWSC 605 (on which I have drawn for the summary of the applicable principles that appears above) although I was not persuaded to make an order that costs should be paid forthwith in those cases. 2. The Plaintiff submits that the suggested lack of merit in the several Defendants' application should be taken into account in making an order for costs forthwith. They also point out that TCL is a company in liquidation, reliant upon litigation funding of the proceedings, and submit that it would be exposed to prejudice if the litigation funding available to it to conduct the substantive proceedings is eroded by the costs of interlocutory proceedings which cannot be recovered until the conclusion of the proceedings. 3. The several Defendants rely on Brasington v Overton Investments Pty Ltd above for the proposition that, where an interlocutory proceeding does not resolve the final issues between the parties, it would ordinarily be inappropriate that an unsuccessful party in an interlocutory proceeding be required to pay costs immediately, where that party might ultimately be entitled to an order for costs in the substantive proceedings. While I accept that proposition, it does not exclude the power to make an order for costs payable forthwith. 4. The several Defendants also submit that the practical effect of a forthwith order will be to permit a litigation funder to recoup costs now, at the expense of the several Defendants who will need to fund their defence of the proceedings, and contend that it would be unfair for the Court to require them to pay an amount by way of costs now, where they intend to seek security for the costs of the proceedings. I am not assisted by the former proposition, since there is no reason to take anything other than a principled approach to this application by reason that litigation funders, corporate defendants or individual directors have an interest in it. I am not persuaded by the latter proposition, and do not see any unfairness in an order for costs forthwith, where that will not prevent the relevant Defendants seeking such security for costs as they may be advised. The relevant Defendants also submit that a forthwith order would work practical injustice where (they submit) they have the benefit of a costs order in respect of the Plaintiffs' application to set aside their notice to produce, that is not payable forthwith. That matter can readily be addressed by an order that also permits those costs to be assessed forthwith and provides for the costs payable by a Defendant (as assessed) to the Plaintiff to be reduced by the amount of any costs that have at the point been assessed as payable by the Plaintiff to that Defendant, if the relevant Defendants seek such an order. 5. The several Defendants submit that there has been no unreasonableness of a kind that would justify a costs forthwith order being made for the benefit of a well-resourced party, being a company which has the benefit of litigation funding, and refer to my observations in Re Punters Show Pty Ltd above at [51] and [95]. I there noted that the Court could infer that a defendant that was a listed company was well-resourced, a proposition that is not readily extended to a company in liquidation, and that an order for costs forthwith against the individual defendants in that case would have a risk of stultifying the proceeding, of the kind recognised in the case law. There is here no evidence to establish whether the Company is or is not well-resourced, where it is in liquidation but its liquidators have access to litigation funding in respect of these proceedings, and there is no evidence to suggest, still less establish, that the several Defendants' financial position is such that an order for costs against them would prevent their funding their defences. 6. On balance, the separate nature of this application, the early stage of the proceedings, and the several Defendants' comprehensive failure in the application seem to me sufficient to support an order that the several Defendants pay the costs of the application forthwith, although I would be inclined, subject to hearing the parties, to order that the costs payable by each Defendant be reduced (by way of set off) by any amount that, as at the time that payment is demanded, has been assessed and is recoverable by that Defendant in respect of the Plaintiffs' application to set aside the notice to produce. Orders 1. I direct the parties to bring in agreed orders to give effect to this judgment, and any submissions as to the set-off identified in paragraph 16 above, by 4pm on 13 July 2018. ********** 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: 11 July 2018