Supreme Court New South Wales Medium Neutral Citation: Puddick v Dyamond Developments Pty Ltd (No 2) [2019] NSWSC 738 Hearing dates: 24 May 2019 Date of orders: 24 May 2019 Decision date: 19 June 2019 Jurisdiction: Equity Before: Robb J Decision: (1) Declare that the transfer by the first defendant to the third defendant of 19,500,000 shares in Pacifico Minerals Ltd was for no consideration. (2) Order the defendants to pay the plaintiffs' costs of the proceedings on the ordinary basis. Catchwords: JUDGMENTS AND ORDERS — Consequential orders — First defendant transferred shares to third defendant for no consideration — Issue sufficiently litigated to justify a declaration to that effect – Parties did not contest the issue of whether the third defendant holds the shares on a resulting trust for the first defendant – No declaration to that effect COSTS — Party/Party — Bases of quantification — Ordinary vs indemnity basis — Ordinary basis appropriate because the defendants' conduct the subject of the proceedings cannot of itself found an entitlement to indemnity costs, and the defence itself was not conducted with the requisite degree of delinquency to justify indemnity costs Legislation Cited: Civil Procedure Act 2005 (NSW) Cases Cited: Hypec Electronics Pty Ltd (in liq) v Mead; BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2004) 61 NSWLR 169; [2004] NSWSC 731 Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431 Category: Costs Parties: Justin Frank Puddick (First Plaintiff) John Edward Puddick (Second Plaintiff) Dyamond Developments Pty Ltd (First Defendant) George Hatzipapas (Second Defendant) Gaks Investment Holdings Pty Ltd (Third Defendant) Representation: Counsel: Dr E Peden (Plaintiffs) Solicitors: O'Loughlin Westhoff (Plaintiffs) Tomaras Lawyers (Defendants) File Number(s): 2018/185865 Judgment 1. The Court delivered judgment in these proceedings on 18 April 2019: see Puddick v Dyamond Developments Pty Ltd [2019] NSWSC 431. 2. The plaintiffs substantially succeeded in obtaining the relief that they sought. 3. The Court made final orders on 24 May 2019 in terms that were agreed between the parties. 4. The parties were in disagreement as to whether the Court should make two of the orders sought by the plaintiffs. The Court received written submissions and heard oral argument on 24 May 2019. 5. The first order as to which there was disagreement was in the following terms: 4. A declaration that the Third Defendant holds 19,500,000 shares in Pacifico Minerals Limited (PMY), or if those shares have been disposed of by the Third Defendant, the value of those shares as at 3 May 2019, on trust for Dyamond Developments Pty Ltd. 1. The effect of this declaration, if made, would be to establish that the third defendant holds the PMY shares on trust for the first defendant. Alternatively, if the third defendant has disposed of the PMY shares, the effect of this declaration would be to establish that the third defendant would hold the value of those shares on trust for the first defendant. I observe in passing that it is difficult to see how the third defendant could hold the value of the shares on trust for the first defendant. A trust can only exist over distinct property in the hands of the trustee. If the third defendant had sold the shares for a price, it would be possible for the Court to declare that the third defendant holds so much of the price as it retains on trust for the first defendant. The only way that the first defendant could recover the value of the shares from the third defendant would be to obtain an order for equitable compensation in the amount of that value. 2. The plaintiffs did not seek a declaration in these terms in their amended statement of claim. However, in the conventional way, they sought further orders as the Court sees fit. I am satisfied that the parties litigated the issue of whether the third defendant gave consideration for the transfer of the PMY shares that were transferred to it for apparently nil consideration. I found, at [108] of the principal judgment, that the transfer took place for nil consideration. 3. Section 90(1) of the Civil Procedure Act 2005 (NSW) provides: The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires. 1. That provision requires the Court to make all necessary orders to determine the issues in dispute between the parties. In my view, it justifies the Court in principle making a declaration that the transfer took place for no consideration, provided that it is otherwise appropriate for the Court to do so. 2. The defendants objected to the Court making the declaration sought by the plaintiffs on the following grounds: first, that the plaintiffs did not plead in their claim matters that entitle them to the declaration; and secondly, that it was not established that all of the PMY shares that were transferred by the first defendant to the third defendant had been acquired with either of the plaintiffs' money. In fact, as the submission went, the evidence would suggest that only part of the transferred shares could have been acquired with either of the plaintiffs' money. 3. As to the first of these grounds, for the reasons that I have given above, the Court is not precluded from making an appropriate declaration on the ground that it was not specifically claimed in the amended statement of claim. However, in my view, the declaration should only be made to establish that the transfer was for no consideration. Transfers of property can, in some circumstances, be effective in changing the beneficial ownership of the property, notwithstanding that the transferee does not provide consideration for the transfer. In certain circumstances, gifts of property will be effective. That will usually depend upon the intention of the transferor, and whether any essential formal requirements have been complied with. Not only was the issue of whether the transfer of the shares was effective to convey beneficial title to the third defendant not pleaded by the plaintiffs, it was also not addressed at the hearing. 4. As to the defendants' second ground, I do not accept that the plaintiffs are precluded from obtaining from the Court an appropriately worded declaration concerning the basis upon which the transfer of shares took place, by reason of the fact that the rights the subject of the declaration are between defendants, and do not concern any direct right of the plaintiffs, and it may be that some of the PMY shares were acquired by the first defendant other than with the money of the plaintiffs. The Court will, in due course, make orders for the carrying out of a tracing process, if the first and second defendants do not first pay to the plaintiffs the monies now owing to them under the judgments that the Court has already entered. The granting by the Court of a suitably worded declaration in favour of the plaintiff, as to the absence of consideration for the transfer, may have utility in relation to the working out of the tracing exercise that may need to be conducted. 5. Consequently, the Court will make a declaration, but in a more limited form than was sought by the plaintiffs. 6. The second order that was in dispute between the parties was in the following terms: 7. Costs in favour of the Plaintiffs to be payable forthwith on an indemnity basis. 1. The plaintiffs sought indemnity costs, essentially on the grounds that the first defendant became a trustee in favour of the plaintiffs for the amounts that the plaintiffs had paid to the first defendant under their agreement with the second defendant, and at his direction, as soon as the purpose for which the payments had been made failed. The plaintiffs submitted that the proceedings were, in effect, proceedings to recover trust monies. The plaintiffs also submitted that the first and second defendants had acted unreasonably in defending the proceedings, as the reasons for judgment demonstrate that they had no basis for doing so. 2. The principles governing the circumstances in which the Court will order that costs be paid on the indemnity basis, including the significance of the conduct of the defendant which gave rise to the proceedings, were considered in detail by Campbell J (as his Honour then was) in Hypec Electronics Pty Ltd (in liq) v Mead; BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2004) 61 NSWLR 169; [2004] NSWSC 731. It will be appropriate to set out his Honour's discussion at [40]-[46] at some length: Principles on which indemnity costs awarded [40] In Australian Competition & Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [7]–[8], Sackville J helpfully collects principles concerning the award of indemnity costs: "By s 43(2) of the Federal Court of Australia Act 1976 (Cth), the award of costs is in the discretion of the court or judge. See also Federal Court Rules 1979 (Cth), Order 62, r 4. In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152–153, Black CJ stated the principles applicable to a claim for indemnity costs: '… it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless, the court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So, indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the court exercising its discretion in that way: see John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 203, per Hill J … But as Hill J pointed out in John S Hayes (at 203): "… care must be taken not to circumscribe the discretion by reference to closed categories. It is not a necessary condition of the power to award costs that a collateral purpose be shown. The categories warranting the exercise of the discretion are not closed. … In each case it will be necessary to look at the particular facts and circumstances to see whether an exercise of discretion to order costs on an indemnity basis is warranted." ' See also (at 156–157) per Cooper J and Merkel J. In Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232–234, Sheppard J set out circumstances in which costs may be appropriately awarded on a basis other than a party and party basis. The circumstances identified by his Honour include the making of allegations that ought never to have been made, the undue prolongation of a case by groundless contentions and an imprudent refusal of an offer to compromise. Other decisions have recognised that it is sufficient to enliven the discretion to award costs on an indemnity basis that a party, for whatever reason, persists in what should have been seen to be a hopeless case: J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301 at 303, per French J. In Davids Holdings Pty Ltd v Coles Myer Ltd (1995) ¶ATPR 41-383 at 40,303, Drummond J said that if a respondent, at an appropriate stage, puts an applicant on notice that it regards the action as misconceived and sets out detailed reasons for so thinking, and if the applicant nevertheless proceeds and fails, there may be good reason to consider an order for indemnity costs." [41] It is to be observed that conduct of a party prior to the litigation commencing, and which is a direct cause of it, is not amongst the examples which Sackville J gives of circumstances warranting an indemnity costs order. … [43] In Henderson v Amadio Pty Ltd (Federal Court of Australia, Heerey J, 22 March 1996, unreported), his Honour said (at 503): "… the authorities cited by Sheppard J in his summary in Colgate- Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233 suggest that the improper conduct of an unsuccessful party which will lead to an award of indemnity costs is usually related to the way the litigation is conducted, rather than the inherent badness of the conduct which gave rise to the litigation. This is not universally true; for example contempt of court usually attracts costs on an indemnity basis. Nevertheless, it seems to be rare that findings of serious misconduct such as fraud of itself gives rise to an order for costs on an indemnity basis." [44] In Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13, the New South Wales Court of Appeal overturned a trial judge's decision which had granted indemnity costs because, broadly, the defendants had engaged in unconscionable conduct and breaches of fiduciary duty in a particularly deplorable way. Giles JA (with whom Handley J and Fitzgerald JA agreed) said (at [136]–[139]): "[136] The trial judge did not exercise his discretion by regard to the time taken by Mr Harrison in propounding false documents, or otherwise by regard to delinquency in the conduct of the proceedings. Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400 provides no support for indemnity costs as a means of providing complete restitution, or otherwise for regard to the substantive unconscionable conduct or breach of fiduciary duty when exercising the discretion as to costs, and such regard would in my view not be correct. The unconscionable conduct or breach of fiduciary duty leads to compensatory or other relief and costs on the normal basis, and more must be established for a special order as to costs. In my opinion his Honour's exercise of his discretion was on a wrong principle. [137] The discretion must be re-exercised. It is true that evidence of Messrs Cameron and Harrison was not accepted, indeed they were found to have given false evidence and propounded false documents. But I do not think there was delinquency approaching that considered to justify a special order as to costs in Degmam Pty Ltd (in liq) v Wright (No 2) (1983) 2 NSWLR 354, or that departure from the ordinary basis on which costs should be assessed between litigants was otherwise warranted. [138] It was necessary that the circumstances in which Mrs Schipp came to put her money into the two properties and leave it with Messrs Cameron and Harrison be gone into, in particular with exploration of her understanding of what she was doing and the influences working upon her. I am not satisfied that this was a case in which the appellants, properly advised, should have known that they would be found liable (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401), or that the Court's time and Mrs Schipp's money were wasted on 'totally frivolous and thoroughly unjustified defences' (Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362), to use some of the expressions relevant in this area. [139] Departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down. Some of the matters thought to justify it are collected by Sheppard J in Colgate-Palmolive Pty Ltd v Cussons (1993) 46 FCR 225 at 233–234. In the present case no other sufficient special or unusual feature is present. The trial judge's order as to costs should be set aside so far as it provided for costs on an indemnity basis." [45] In NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77, Lindgren J said (at 92 [56]): "The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant." [46] See also, to similar effect, Sande v Medsara Pty Ltd (No 2) [2004] NSWSC 262 at [7], per Burchett AJ; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 303 at [10]–[11], per McDougall J. A connection with litigation, which takes the form of being the facts which are themselves the subject matter of the litigation, is not a relevant type of connection for the purposes of making an indemnity costs order. Nor is it a relevant sort of connection that the person has, in the circumstances which are the subject of the litigation, breached duties which they owe to one of the litigants, where that breach of duty is not itself the subject of the litigation. Nor is the fact that someone has engaged in tax fraud in the circumstances which have led up to the litigation. 1. In the light of these principles, I reject the plaintiffs' submission that costs should be awarded on the indemnity basis, because the defendants' conduct the subject of the proceedings constituted breaches of trust or wrongful involvement in such breaches. I am also not satisfied that the defendants conducted the defence with the degree of delinquency that would justify the award of indemnity costs. The defence was conducted in a proper way, and it does not follow from the fact that the Court thoroughly rejected the defences raised by the defendants that the defendants necessarily acted unreasonably in defending the claims made against them by the plaintiffs. 2. I will therefore make the following orders, in addition to the orders made on 24 May 2019: 1. Declare that the transfer by the first defendant to the third defendant of 19,500,000 shares in Pacifico Minerals Ltd was for no consideration. 2. Order the defendants to pay the plaintiffs' costs of the proceedings on the ordinary basis. ********** Amendments 19 June 2019 - Decision date correction 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: 19 June 2019