Energy Global Logistics Pty Ltd v Zigga Zagga (Australia) Pty Ltd

Case •

[2021] NSWSC 348

•

08 April 2021

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Energy Global Logistics Pty Ltd v Zigga Zagga (Australia) Pty Ltd [2021] NSWSC 348
Hearing dates: 1 April 2021
Date of orders: 8 April 2021
Decision date: 08 April 2021
Jurisdiction:Equity
Before: Ward CJ in Eq
Decision:

1.   As to the costs reserved on the summons for the transfer of the District Court proceedings to this Court, order that those costs be costs in the cause (noting that the proceedings have now been transferred back to the District Court).

2.   As to the costs of the plaintiff’s notice of motion filed on 23 December 2020 and amended on 12 January 2021, order that (subject to order 3 below) there be no order as to costs of that notice of motion with the intent that each party bear its own costs.

3.   As to the hearing before me of the extant prayers for relief in the plaintiff’s notice of motion (prayers 3 and 4), order that the plaintiff pay the defendants’ costs, assessed on the ordinary basis.

4.   Note that the plaintiff’s notice of motion is now finally disposed of and that the proceedings will be transferred by consent back to the District Court of New South Wales.

Catchwords:

COSTS – Party/Party – Costs orders in interlocutory proceedings – Costs in the cause – Bases of quantification – Indemnity basis – Timing – Costs payable forthwith

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 98

District Court Act 1973 (NSW), s 47

Service and Execution of Process Act 1992 (Cth)

Uniform Civil Procedure Rules 2005 (NSW), rr 1.12, 10.14, 10.20, 10.26, 11.7, 11.8, 11.8AA, 42.1, Pts 10, 11

Cases Cited:

Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32

Calderbank v Calderbank [1975] 3 All ER

Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353

Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801

Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46

Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432

Flo Rida v Mothership Music Pty Ltd [2013] NSWCA 268

Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet AG [2002] NSWSC 727

Hamod v New South Wales [2011] NSWCA 375

Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213

Harrison v Schipp [2001] NSWCA 13

Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298

J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301; [1993] FCA 70

Leichhardt Municipal Council v Green [2004] NSWCA

Mead v Watson (2005) 23 ACLC 718; [2005] NSWCA 133

Ng v Chong [2005] NSWSC 385

Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84

One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270

Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

Ralph Lauren 57 Pty Limited v Byron Shire Council (2014) 199 LGERA 424; [2014] NSWCA 107

Re Minister for Immigration and Ethnic; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6

Renton v Kelly [2018] NSWSC 1377

Stateland Developments Pty Ltd v Princi [2007] NSWSC 709

Category:Costs
Parties: Energy Global Logistics Pty Ltd (Plaintiff)
Zigga Zagga (Australia) Pty Ltd (First Defendant)
Adrian Ferrand (Second Defendant)
Representation:

Counsel:
M Kalyk (Plaintiff)
M Fernandes (Defendant)

Solicitors:
Carmody Lawyers (Plaintiff)
Fox & Staniland Lawyers (Defendants)
File Number(s): 2019/00348937
Publication restriction: Nil

Judgment

  1. HER HONOUR: Before me for hearing on 1 April 2021 were two interlocutory applications: a costs application by the plaintiff (Energy Global Logistics Pty Ltd) and an application by the first defendant (Zigga Zagga (Australia) Pty Ltd) to set aside a notice to produce issued by the plaintiff in advance of the hearing of its costs application. The first defendant did not ultimately press its opposition to the notice to produce and so the only issue now for determination is the plaintiff’s costs application.

  2. That costs application could have been dealt with on the day of the hearing but for the request by the defendants’ Counsel to file brief written submissions on an issue raised by the plaintiff in its submissions but not the subject of any claim for relief under the plaintiff’s notice of motion. Directions were made to permit this to occur but later that day I was advised that the defendants did not seek to avail themselves of the leave so granted.

  3. Directions were also made on that occasion for the plaintiff to file a further amended notice of motion by close of business on 1 April 2021 detailing the additional category of costs sought (the further amended notice of motion dated 1 April 2021 was filed on 6 April 2021).

  4. The costs sought by the plaintiff fall within the following categories:

  1. costs of the plaintiff’s notice of motion filed on 23 December 2020 and amended on 12 January 2021 which sought a variety of relief including: (i) an order that the further amended statement of claim filed 2 September 2020 be taken to have been served on the second defendant (Mr Adrian Ferrand) on 11 November 2020 pursuant to r 10.14(3) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); (ii) to the extent that the second defendant did not file a notice of appearance in accordance with r 11.8 of the UCPR, the plaintiff have leave to proceed against the second defendant in his absence pursuant to r 11.8AA; and (v) pursuant to r 1.12 of the UCPR, the court grant an extension of time for service of the further amended statement of claim filed on 2 September 2020, on the second defendant to 23 February 2021 (plaintiff’s motion);

  2. costs of the plaintiff’s summons filed on 10 November 2020 to transfer the proceedings that are now 2020/320794 from the District Court to the Supreme Court (plaintiff’s summons); and

  3. the plaintiff’s costs otherwise thrown away as a result of certain conduct of the first and/or second defendant (plaintiff’s further costs) (see prayer 4A of the further amended notice of motion filed 6 April 2021). I note these are the costs which were not identified as being sought in the plaintiff’s motion dated 12 January 2021 and which the defendants opposed on the present applications (resulting in the defendants’ ultimately abandoned request to file further written submissions – see above).

  1. Further, in oral submissions, the plaintiff sought an order that certain of the costs be payable forthwith and on an indemnity basis; as well as a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (though none of this was raised in the plaintiff’s motion as originally filed).

  2. At the conclusion of the hearing of the plaintiff’s costs application (though reserving judgment on that application), I made orders by consent for the transfer of the proceedings back to the District Court, having regard to the monetary quantum of the plaintiff’s claim (some $250,000). I interpose here to note that it is the plaintiff’s apparent frustration at the refusal of the second defendant (Mr Ferrand) to accept (or instruct the first defendant’s solicitors to accept) service of the District Court documents (and hence to enliven the jurisdiction of the District Court in circumstances where the second defendant resides out of the jurisdiction) that seems to have been the impetus for the present costs application or at least the indemnity costs component of that application.

Background

  1. By way of background to the present costs application, I note the following, by reference to the pleadings, the affidavit evidence relied upon for the present application and the parties’ submissions, without making any findings as to any disputed questions of fact.

Commencement of proceedings in the District Court

  1. The plaintiff carries on the business of an international freight forwarder and customs agency (further amended statement of claim at [3]). The first defendant is a company, trading as Brandinc Australia, that required the transportation and shipping of branded merchandise from time to time (further amended statement of claim at [4]). At all material times, the first defendant has had two directors, one of whom is the second defendant, Mr Ferrand. Mr Ferrand is both a director and shareholder of Brandinc (further amended statement of claim at [7A]).

  2. In November 2019, the plaintiff commenced proceedings against the first defendant in the District Court of NSW, filing a statement of claim dated 6 November 2019, seeking liquidated damages based on unpaid invoices. The quantum claimed was $249,146.56 plus interest and fees. The first defendant filed an appearance in those proceedings on 12 December 2019.

  3. On 20 December 2019, the plaintiff filed an amended statement of claim against the first defendant. The plaintiff says that this was largely clarifying the invoices to which the claim related. The amendment did not seek joinder of the second defendant.

  4. On 13 February 2020, the first defendant filed its defence to the amended claim, contending in part that the relevant contracting entity was not the first defendant but one or more of the other Brandinc entities located overseas.

  5. On 3 March 2020, the pleadings having closed, orders were made in the District Court for the service of evidence, following which it would be anticipated that the matter would have been ready to be fixed for hearing.

  6. In July 2020, after pleadings had closed, the plaintiff served a draft further amended statement of claim. This proposed further amended pleading named the second defendant as a party for the first time. The plaintiff says that, in part, the amendment also sought to clarify the way the case was put against the first defendant. The first defendant opposed the grant of leave to amend and the plaintiff then filed a notice of motion seeking leave to amend its amended statement of claim.

  7. On 6 August 2020, Dicker DCJ declined to grant the plaintiff leave to file the version of its further amended claim for which leave had been sought but gave it leave to serve (but not file) a further iteration of the proposed further amended statement of claim. The defendants say that, at this time, the plaintiff (and its solicitor) knew that the second defendant lived and was located overseas but that the issue of the location of the second defendant was not raised before Dicker DCJ. The plaintiff says, in this regard, that, while many issues were raised by the first defendant with the proposed further amended statement of claim, no issue was then raised as to the District Court having no jurisdiction over the second defendant.

Attempts to effect service of the further amended statement of claim on the second defendant

  1. On 1 September 2020, the plaintiff was granted leave to file the further amended statement of claim (which named the second defendant as a party). The further amended statement of claim was filed on 2 September 2020 and it was served on the first defendant (see the affidavit of the plaintiff’s solicitor, Mark Carmody, sworn 23 December 2020 at [6]-[7]).

  2. Between 2 September and 15 October 2020, various attempts were made to serve the second defendant (see Mr Carmody’s affidavit sworn 23 December 2020 at [9]).

  3. Meanwhile, on 8 October 2020, the first defendant filed its defence to the further amended statement of claim.

  4. On 28 and 29 September 2020, Mr Carmody requested the solicitor for the first defendant (Mr Campbell) to accept service on behalf of the second defendant. On 29 September 2020, Mr Campbell advised Mr Carmody that “[w]e are not authorised to accept service on behalf of Mr Ferrand”.

  5. Meanwhile, on 28 September 2020, Mr Carmody had instructed a lawyer in Los Angeles (Mr Zelener) to serve the further amended statement of claim on the second defendant (see Mr Carmody’s affidavit sworn 15 October 2020 at [15]; Mr Carmody’s affidavit sworn 3 December 2020 at [17]).

  6. On 14 October 2020, the plaintiff sent an email to the second defendant (at his Brandinc email address), noting that the second defendant was overseas and requesting his cooperation to save unnecessary costs by accepting service. There was no response to that email (see Mr Carmody’s affidavit sworn 15 October 2020 at [33]).

  7. On 15 October 2020, the plaintiff filed a notice of motion in the District Court proceedings seeking an order for substituted service of the second defendant (see Mr Carmody’s affidavit sworn 15 October 2020 at [9]). The Registrar refused the notice of motion on the papers (without, the plaintiff notes, a hearing on the merits) on the basis that the District Court had no jurisdiction (see Mr Carmody’s affidavit sworn 15 October 2020 at [10]). The reasons for dismissal stated briefly that (see Ex 1 at 111):

Investigations indicate that the Second Defendant resides overseas. Having regard to the judgment in Flo Rida v Mothership Music Pty Ltd [2013] NSWCA 268, the application is REFUSED and the notice of motion is dismissed …

  1. Pausing here, the defendants say (and I agree) that the motion seeking substituted service on the second defendant was misconceived, as the District Court (as was correctly recognised by the Registrar) did not have jurisdiction to make such an order (see Flo Rida v Mothership Music Pty Ltd [2013] NSWCA 268 (Flo Rida) per Macfarlan JA (with whom Gleeson JA and I agreed)). In Flo Rida, it was held that the District Court could not validly make an order for substituted service on a defendant residing overseas, Macfarlan JA observing that “[i]t would be a subversion of the policy” underlying Pt 10 of the UCPR to permit the District Court to make such an order (see at [31]).

  2. The defendants point out that, in the affidavit in support of the substituted service motion (Mr Carmody’s affidavit sworn 15 October 2020), there was no assertion of effective personal service; rather, it was accepted that, to date, the plaintiff had been unable “to duly serve” the second defendant with the further amended statement of claim (see at [6] [sic] of that affidavit). In that affidavit, Mr Carmody deposed to his belief that there been an attempt personally to serve the second defendant (see at [18]).

  3. On 26 October 2020, the plaintiff again requested the first defendant’s solicitors to seek instructions to accept service on behalf of the second defendant, noting that the refusal to accept service meant increased costs resulting from the need to transfer the proceedings to the Supreme Court. The response, on 28 October 2020, from the first defendant’s solicitors was that “[w]e do not act for Mr Ferrand in his personal capacity and are not authorised to accept service on his behalf” (Ex A at 58).

  4. Mr Carmody has deposed that, on 31 October 2020, the solicitor engaged by the plaintiff in Los Angeles (Mr Zelener) effected service of the further amended statement of claim at an office address listed on the BrandInc website (see Mr Carmody’s affidavit at [31]; Ex A at 61); and that Mr Zelener also left telephone messages for the second defendant between 1 and 5 November 2020 (see Mr Carmody’s affidavit sworn 23 December 2020 at [29]-[30]). (Pausing here, it would seem to me to be more accurate to say that the Los Angeles lawyer left the further amended statement of claim at the said office address, rather than that he effected service at that address, given that there is a hot dispute between the parties as to whether personal service was ever validly effected in the USA.)

  5. On 2 November 2020, the plaintiff’s solicitors wrote to the defendants’ solicitors, asserting the position that the District Court did in fact have jurisdiction (given that service had now been effected) and that transfer to the Supreme Court was unnecessary (Ex A at 64-67). The plaintiff did not receive a response thereto (see Mr Carmody’s affidavit sworn 23 December 2020 at [37]).

  6. On 6 November 2020, the plaintiff’s solicitors wrote to the first defendant’s solicitors asking them to re-consider their position in relation to the second defendant, having regard to the unnecessary costs of transferring the proceedings (Ex A at 69-71). In this letter, the plaintiff’s solicitors foreshadowed an application for indemnity costs if the proceedings needed to be transferred to the Supreme Court.

  7. On 11 November 2020, the plaintiff’s solicitor was sent an email from the Los Angeles solicitor attaching a report titled “Confirmation for Process Serving” (Ex A at 72). The report states that, on 31 October 2020, the further amended statement of claim was left at the second defendant’s residential address with a woman (bearing the second defendant’s surname) who it is said was a member of the household over the age of 18 (Ex A at 74). Again, the plaintiff’s submissions refer to this as effecting service (which the defendants dispute).

Summons to transfer proceedings

  1. On 10 November 2020, the plaintiff filed in this Court its summons to transfer the proceedings to this Court. The summons was given a 9 December 2020 return date.

  2. On 12 November 2020, the first defendant’s solicitors sent a letter to the plaintiff saying that the first defendant did not oppose the transfer of the proceedings, did not wish to be heard on the summons, and would sign consent orders for it to be determined in Chambers (Ex A at 95). However, the first defendant’s solicitors again advised that they did not act for the second defendant and did not have instructions to accept service.

  3. Also on 12 November 2020, the first defendant updated the ASIC register, noting the second defendant’s address as an address in Culver City, California (Ex A at 99-113).

  4. On 18 November 2020, the plaintiff’s solicitors wrote to the second defendant requesting that he reconsider his position on jurisdiction (Ex A at 115-120). The letter set out the plaintiff’s contention that the District Court either had jurisdiction or would inevitably have jurisdiction in circumstances where the plaintiff maintained that it was inevitable that the second defendant would need to attend and give evidence in the proceedings. Again, there was no response to this (see Mr Carmody’s affidavit sworn 23 December 2020 at [43]-[44]).

  5. On 3 December 2020, the plaintiff filed in the District Court a (second) notice of motion for substituted service in relation to the second defendant. This notice of motion was served on the first defendant on 4 December 2020. That motion was dismissed, again without a hearing on the merits, on 4 December 2020 (Mr Carmody’s affidavit sworn 23 December 2020 at [47]). The reasons given for the dismissal of that motion were by the following notation (Ex 1 at 152):

While the exhibit to the affidavit of Mark John Carmody sworn on 3 December 2020 has not been provided, it is clear that the second defendant is presently overseas (and was overseas at the time the statement of claim was purportedly served on him) and is outside the territorial jurisdiction of the District Court of New South Wales. Refer: Flo Rida v Mothership Music Pty Ltd [2013] NSWCA 268.

  1. On 7 December 2020, in a letter marked “without prejudice”, the first defendant’s solicitors advised that their position was that the District Court did not have jurisdiction and that the first defendant would oppose an application to have the District Court deal with the matter.

Transfer of proceedings to this Court

  1. On 9 December 2020, orders were made on the plaintiff’s summons for the transfer of the District Court proceedings to this Court, reserving the costs of that application. The defendants note that the second defendant did not appear (and so did not oppose the order) and that the first defendant appeared by Counsel and indicated that it did not oppose the order.

  2. On the same day, the plaintiff’s solicitor wrote to the first defendant’s solicitor requesting that the first defendant’s solicitors communicate with the second defendant and inform the plaintiff as to whether the second defendant would file an appearance (and avoid “further wasted costs” in relation to service). It is noted that there was no response to this letter or a further letter on 10 December 2020 (see Ex A at 132-133; Mr Carmody’s affidavit sworn 23 December 2020 at [48]-[49]).

  1. On 11 December 2020, the plaintiff’s solicitor wrote to the second defendant informing him of the transfer of the proceedings and again seeking his cooperation in the proceedings. No response was forthcoming to this letter or a further letter to similar effect on 14 December 2020 (see Ex A at 136-138; Mr Carmody’s affidavit sworn 23 December 2020 at [50]-[51]).

  2. On 17 December 2020, again in a letter marked “without prejudice”, the first defendant’s solicitor made an offer by the first defendant to settle “the whole of the plaintiff’s claim (including as against the second defendant)” (Ex B at 92). (The plaintiff attaches some weight to the fact that the offer included settlement of the whole claim “including as against the second defendant”. However, there seems to me to be nothing untoward in one party wanting to bring the entirety of the proceedings to an end including as against another related party and/or for that other party’s benefit; without this necessarily meaning that the other party was providing instructions in relation thereto.)

  3. On 23 December 2020, which the plaintiff calculates as the expiration of the time for the second defendant to file a notice of appearance (assuming service was effected on 11 November 2020), the plaintiff’s solicitors filed and served a notice of motion (this being the motion here defined as the plaintiff’s motion), characterised by the plaintiff as seeking leave to proceed in the absence of the second defendant. As above, in terms, the plaintiff’s motion sought an order of deemed service by informal service under r 10.14(3) of the UCPR, with leave to proceed in his absence if no notice of appearance was served.

  4. The plaintiff says that the letter serving this motion indicated that no satisfactory response had been provided as to why the second defendant was not responding to any communications and to what extent he had engaged the first defendant’s solicitors to act for him in proceedings; and indicated that costs would be sought on an indemnity basis (Ex B at 11-14).

  5. On 13 January 2021, the plaintiff’s solicitor wrote to the second defendant attaching an amended notice of motion (following, it is said, the request of the registrar) and asking whether he intended to be present or had engaged a lawyer (Ex B at 21).

  6. On 21 January 2021, in a communication with the subject line “without prejudice”, the second defendant wrote personally to the plaintiff’s solicitors (by email from the second defendant’s Brandinc email address). The second defendant noted that his lawyer in Los Angeles advised that he was entitled to personal service which had not occurred. The second defendant offered to resolve the motion by accepting service by email if the motion was dismissed with no order as to costs (Ex B at 22). (I note that the defendants rely on this letter in support of the making of an indemnity costs order in their favour – see below. I also note that the plaintiff contends that the letter, and certain of the earlier communications so labelled, is not properly subject to without prejudice privilege.)

  7. In response, on 22 January 2021 at 2.29pm, the plaintiff’s solicitor replied to the second defendant confirming the plaintiff’s position that he had been served and that the plaintiff would be pressing for costs in light of what it contended to be the second defendant’s unreasonable conduct, but offering to resolve the motion on the basis that the plaintiff would not press for costs to be paid forthwith and would agree to a discounted rate of costs (Ex B at 24).

  8. At 2.33pm on the same day, the second defendant wrote to the first defendant’s solicitor stating “Please take this as formal notice that I wish to engage your firm as my personal representative in this case” (Ex 1 at 153). The plaintiff notes that the defendants’ solicitor (Mr Campbell) has deposed that, at some point prior to this, the second defendant had indicated to him that he would probably want to instruct Mr Campbell’s firm if he were properly served by any claim (see Mr Campbell’s affidavit sworn 8 February 2021 at [29]). The plaintiff complains that, whatever was the position before 22 January 2021 as to communications between the second defendant and Mr Campbell about the issue of service, the second defendant’s notice to engage Mr Campbell’s firm was not at that stage communicated to the plaintiff.

Notice of appearance and instructions to act

  1. On 1 February 2021, the solicitors for the first defendant wrote to the plaintiff’s solicitors stating that “[w]e have now been instructed to act for the Second Defendant” and enclosing a notice of appearance on the second defendant’s behalf (Ex B at 49-53). The letter sought consent from the plaintiff for the plaintiff’s motion to be dismissed. (Some complaint is made by the plaintiff as to the delay between 22 January 2021 and the filing of the notice of appearance on 1 February 2021 but there may be any number of explanations for this and nothing seems to turn on that lapse of time.)

  2. The plaintiff says that, since 1 February 2021, its position has consistently been articulated that the conduct of the first defendant and/or the second defendant has been a significant waste of time and costs and that a costs order should be made (referring to letters dated 3 February 2021, 9 February 2021; 12 February 2021; 18 February 2021; 19 February 2021 and 23 February 2021 from Carmody Lawyers) and that the first and second defendants have consistently refused to consent to such orders (referring to letters dated 8 February 2021; 9 February 2021; 18 February 2021; and 23 February 2021 from Fox & Staniland Lawyers).

  3. On 1 March 2021, Registrar Walton dismissed the prayers for relief sought at 1, 2 and 5 of the plaintiff’s motion with no order as to costs (leaving extant only the relief sought in prayers 3 and 4, i.e., as to costs, which is what is now before me).

Plaintiff’s submissions

  1. The plaintiff emphasises the duty of all parties to assist the Court in furthering the overriding purpose mandated by s 56 of the Civil Procedure Act (referring to Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46). (The defendants do not dispute the existence of such a duty but contend that, until the second defendant filed his notice of appearance, he was not strictly a party, since he had not at any time been personally served; and they maintain that a non-party has no such obligations.)

  2. As to the claim for indemnity costs, it is noted that the discretion to award indemnity costs must be exercised judicially (see Mead v Watson (2005) 23 ACLC 718; [2005] NSWCA 133 at [8]) and with caution (see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [47]; Ng v Chong [2005] NSWSC 385 at [13]). However, the plaintiff emphasises that the power to make an indemnity costs order is an important case management tool, as it promotes the making of settlement offers and discourages the litigation (referring, by way of example, to what was said in Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [111]).

  3. It is noted that there is no fixed rule or rationale as to when an indemnity order might be made, except that it requires a “sufficient or unusual feature” (Harrison v Schipp [2001] NSWCA 13 at [139] referring to Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at 232–234). The plaintiff submits that such an order is appropriate where the party entitled has been wantonly or recklessly caused to incur costs by the other party and that this will often be the case where the party liable is guilty of some “relevant delinquency” (see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [44] per Gaudron and Gummow JJ). The plaintiff notes that it is not a necessary condition that the party responsible be impugned with a collateral or improper purpose (citing J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301; [1993] FCA 70 at [303]).

  4. As to the claim for costs to be payable forthwith, it is noted that costs may be ordered to be paid forthwith where the determination relates to a “separately identifiable matter or may be viewed as the completion of a discrete aspect” and where there has been unreasonable conduct on the part of the party against whom costs is to be ordered (Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 at [10]-[13]).

  5. As to the application for a gross sum costs order, it is noted that the power “should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available” (Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [22]). The plaintiff submits that a gross sum costs order is particularly appropriate where it is desirable to avoid the expense, delay and aggravation likely to be involved in a costs assessment or where a party’s conduct has unnecessarily contributed to the costs of the proceedings and “especially where the costs incurred have been disproportionate to the result of the proceedings” (Hamod v New South Wales [2011] NSWCA 375 at [817]-[818]).

  6. In the present case, the plaintiff submits that the conduct of the second defendant has been patently unreasonable in that, despite clearly being on notice of the proceedings (as to which I was referred to the documents produced on the (ultimately not contested) notice to produce), the second defendant has refused to respond to correspondence and has refused to accept service of the originating process. The plaintiff says that the second defendant appears to have taken the deliberate step of instructing the first defendant’s solicitors not to accept service of the originating process. It is submitted that the second defendant has provided no meritorious basis or justification for the position he has taken. The plaintiff says that an available inference is that the second defendant has been manifestly unwilling to facilitate the just, quick and cheap resolution of the dispute.

  7. The plaintiff complains that the second defendant’s conduct has been a “complete waste of costs and time”. It is said that the result has been that, on 1 February 2021, the second defendant took the very step that had been implored on him by the plaintiff since at least 28 September 2020, being a step that would have enlivened the jurisdiction of the District Court and obviated the need for everything that has followed.

  8. Further, the plaintiff says that the second defendant’s conduct is particularly egregious in circumstances where the second defendant “was always going to be a witness in the proceedings and therefore his capacity to be personally served was inevitable”.

  9. It is submitted that the conduct and state of mind of the second defendant should be attributed to the first defendant in circumstances where he is one of only two directors and where the second defendant was providing instructions to Fox & Staniland Lawyers on behalf of the first defendant (Ex B at 72). It is said that the first defendant has adduced no evidence whatsoever that would run counter to that obvious inference.

  10. As to the quantum of costs, it is said that a gross sum costs order is appropriate in the present proceedings due to the unreasonable conduct of the defendants, the disproportionate nature of this dispute to the substantive proceedings and the undesirability of further prejudice to the plaintiff by the costs and expenses of a costs assessment.

  11. The quantum of costs sought has been particularised as being $41,496.36 (excl GST) or $45,051.01 (incl GST) (see Mr Carmody’s affidavit sworn 8 March 2021 at [12]).

  12. The plaintiff thus seeks an order that the first and second defendants pay the plaintiff’s costs of the plaintiff’s motion, the plaintiff’s summons, and the plaintiff’s further costs on an indemnity basis and payable forthwith. The plaintiff submits those costs should be fixed in the sum of $41,496.36 (excl GST) or $45,051.01 (incl GST) and reduced by such proportion (if any) as the Court considers reasonable.

Defendants’ submissions

  1. The defendants emphasise that the plaintiff’s motion in this Court sought an order confirming informal service of its statement of claim on the second defendant, who it is not disputed was living overseas at all material times; and that the plaintiff’s motion was resolved (without a determination on its merits) by the second defendant filing a notice of appearance on 1 February 2021. As against the first defendant, it is noted that the plaintiff’s motion only ever sought costs.

  2. Insofar as the plaintiff also seeks its costs of the transfer application to this Court (under the rubric of ancillary relief but not expressly sought in the plaintiff’s motion as originally filed), the defendants note that the transfer was not opposed by the first defendant and that the second defendant did not appear conditionally to oppose it.

  3. The defendants say that, in these circumstances, the usual approach applies; namely, that costs remain where they fall unless the conduct of the first or second defendant was relevantly so unreasonable as to warrant an order otherwise (citing Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin) per McHugh J). It is noted that it is not the Court’s function on a costs application to predict the outcome of an hypothetical case (see Lai Qin at 626). Further, it is submitted that Courts “should be careful not to raise the ogre of shadow trials of issues in cases that have not compromised a hearing on the merits [because that] would discourage parties from settling their disputes and is not a process that the court should encourage in the just, quick and cheap resolution of the real issues in dispute” (citing Stateland Developments Pty Ltd v Princi [2007] NSWSC 709 at [11] per Gzell J). The defendants say that these observations have all the more force in the circumstances of an interlocutory dispute.

  4. The defendants submit that the plaintiff has not established that their conduct was delinquent or so unreasonable as to warrant a costs order against either of them.

  5. As to the first defendant, it is said that the first defendant was not a proper party to the plaintiff’s motion and there was never any proper basis for costs to be awarded against it (noting that the first defendant is a separate legal entity to the second defendant).

  6. As to the second defendant, it is submitted that “[l]ike any litigant, he was entitled to personal service of originating process” (a proposition with which the plaintiff cavils, at least insofar as the submission speaks of an entitlement). The defendants point out that, unless dispensed with, personal service is a requirement of the Court’s rules; and they contend that the plaintiff never complied with those rules. Further, the defendants say that the requirement of personal service of an originating process was all the more important in the case of the second defendant as he was a natural person residing overseas. It is said (as is undoubtedly the case) that the plaintiff chose to sue in the District Court (which has limitations on its jurisdiction including as to substituted service on persons outside the jurisdiction) and that the issue of service only arose because of the plaintiff’s belated amendment (after pleadings had already closed and an evidence timetable was on foot).

  7. The defendants say that in fact the plaintiff never effected personal service on the second defendant in California where he was living. As to the attempts to do so (over the period October/November 2020), the defendants say that this endeavour was also misconceived. In that regard, it is noted that, in Flo Rida, the conclusion that the substituted service order was a “subversion” of the process required under the rules was premised on the basis that District Court process cannot validly be served outside Australia even if it is served personally and otherwise in accordance with Pt 10 of the UCPR (see at [31]; for the reasons set out at [17]-[19]).

  8. In summary, the defendants note the following propositions from the reasons in Flo Rida: (i) that the District Court is an inferior court of limited jurisdiction defined by statute ([17]); (ii) that s 47 of the District Court Act 1973 (NSW) sets the territorial limitation on its jurisdiction ([18]); (iii) that the existence of a sufficient territorial connection depends on due service “by or under” the District Court Act or the Service and Execution of Process Act 1992 (Cth) ([19]); (iv) that neither the Service and Execution of Process Act nor the District Court Act provides for service outside Australia; (v) that while service “by or under” the District Court Act includes service under Pt 10 of the UCPR, Pt 11 of the UCPR (dealing with service of documents outside Australia) confers that power solely on the Supreme Court and not the District Court ([23]).

  9. Thus, the defendants say that, despite the (first) substituted service motion already having been dismissed, the plaintiff embarked on a futile attempt to serve the second defendant in a manner that would never have been valid. Further, it is submitted that, given that the District Court did not have jurisdiction, it is doubtful whether this could have been cured by an order confirming service.

  10. The defendants say that the plaintiff continued on this futile course despite the District Court having given brief reasons, in dismissing the first substituted service motion, as to why it did not have jurisdiction (see above at [21]).

  11. The defendants further say that, even if the District Court had had jurisdiction for service of its originating process on a person residing overseas, the plaintiff’s attempt to serve the second defendant in California failed. The defendants say that, even within the terms of Pt 10 of the UCPR, there would not have been valid personal service for the following reasons.

  12. First, it is noted that in Flo Rida the Court stated that “[p]ersonal service on the defendant is the primary means of service for which Pt 10 of the UCPR provides” ([28]). The defendants say that this is clear from the requirements of personal service under r 10.20(2)(a), which provides that:

[e]xcept as otherwise provided by these rules … any originating process … in proceedings in the Supreme Court … [or] the District Court … must be personally served

  1. It is submitted that it is not a matter of what the defendant does or does not do, or where the defendant is located. Rather, personal service is a requirement of the Court’s own rules that must be complied with before the Court’s jurisdiction is properly invoked against a defendant.

  2. Second, it is noted that (even had r 11.7 applied to District Court process, which it does not) there was no compliance with r 11.7 of the UCPR. That rule provides:

11.7   Notice to person served outside Australia

If a person is to be served outside of Australia with an originating process, the person must also be served with a notice in the approved form informing the person of:

(a)    the scope of the jurisdiction of the court in respect of claims against persons who are served outside Australia, and

(b)    the grounds alleged by the plaintiff to found jurisdiction, and

(c)    the persons’ right to challenge service of the originating process or the jurisdiction of the court or to file a conditional appearance.

  1. It is said that the plaintiff made no attempt to comply with this requirement until 23 December 2020 (referring to the 23 December 2020 email from the plaintiff’s solicitor to the second defendant (Ex B at 1-2; Mr Carmody’s affidavit sworn 8 March 2021 at [9])). The defendants say that that email cannot have satisfied r 11.7 since it also was not served personally.

  1. Third (which the defendants emphasise), what the plaintiff did was not personal service under Pt 10 of the UCPR. It is noted that the plaintiff asserts there was personal service effected in October 2020 (of the District Court process) by two methods: the document being left at a certain Californian business address; and the document being left at a Californian residential address but not handed to the second defendant.

  2. It is submitted that the first method is not personal service, on any view; and it is said that, in fact, the business address was a former address where the second defendant’s employer had not been located for several months. Thus, it is said that, not only was the second defendant not given the document at the address, he also was not present when the document was delivered and had not been present at the location for months.

  3. It is submitted that the second method is also not personal service, noting that the second defendant was not at the residential address when the document was left there (see Mr Campbell’s affidavit sworn 8 February 2021 at [28]). As a result, it is said that there cannot have been personal service and that there was no other deemed personal service in accordance with the rules.

  4. It is said that, even if the second defendant had been present when the document was left, the facts fall well short of establishing valid service under r 10.26 of the UCPR (where a defendant keeps house to avoid service) because it is not proved that the second defendant was in fact there. Further, it is said that the requirements in r 10.26(1)(a) and (b) were not met: noting that, in respect of (a), there is no evidence that the document was placed in the mail-box, affixed to an outer door of the premises or affixed to some part of the premises (or to some fence or wall surrounding the premises); and, in respect of (b), that there is no evidence that, within 24 hours of whichever step was taken under (a), the plaintiff caused a notice to be posted to the premises informing the person of the fact the document had been so placed or affixed.

  5. Thus, it is submitted that, even if the District Court had had extra-territorial jurisdiction (which it does not), there was no personal service in accordance with Part 10 of the UCPR (and it is noted that the plaintiff has never called in aid Californian law as to service; and that there is no evidence about that).

  6. The defendants say that the plaintiff’s motion in this Court sought deemed personal service based solely on the fact that the second defendant had already been personally served with the claim; and it is contended that (even leaving aside the fact the District Court did not have jurisdiction), the proposition that the second defendant was served personally is simply not correct. Thus, it is said that the key premise on which the plaintiff maintains this costs application is not made out.

  7. The defendants submit that the plaintiff is complaining about the second defendant’s conduct in circumstances where the plaintiff never personally served him, despite that being required by the Court’s rules and despite the second defendant being a natural person living overseas.

  8. It is submitted that it also follows that the plaintiff is complaining about conduct of the second defendant before he was ever a party to the proceedings. The defendants say (correctly) that the second defendant was not a party to the proceeding (whether it be viewed as a District Court or Supreme Court matter) until he caused a notice of appearance to be filed on 1 February 2021. It is submitted that, in these circumstances, it may be doubted whether it would ever be a proper exercise of the Court’s costs discretion to impose an adverse costs order on a litigant for conduct before the litigant had been properly joined (and in circumstances where the litigant was in fact never properly served but voluntarily came to the Court and filed a notice of appearance).

  9. As to the filing of a second notice of motion in the District Court seeking substituted service on 3 December 2020, it is noted that the reasons for dismissal again referred to the Flo Rida decision.

  10. The defendants emphasise that the affidavit in support of the second substituted service motion (the affidavit of Mr Carmody sworn 23 December 2020) again did not assert that there had been personal service; rather, Mr Carmody again deposed (at [29]) that (again as at 15 October 2020), the plaintiff had been unable to serve Mr Ferrand personally with the further amended statement of claim. The affidavit did, however, attach two emails dated 31 October and 10 November 2020 from the Los Angeles lawyer containing attached reports as to purported service (Ex A at 60-63; 72-75).

  11. As to the plaintiff’s motion, seeking an order under r 10.14(3) of the UCPR, it is noted that this rule provides that:

If steps have been taken, otherwise than under an order under this rule, for the purpose of bringing the document to the notice of the person concerned, the court may, by order, direct that the document be taken to have been served on that person on a date specified in the order.

  1. The defendants emphasise the following about the prayers for relief contained in the plaintiff’s motion: (i) that the main relief sought is the order under r 10.14(3); (ii) that that order is sought on the sole basis that the second defendant be deemed to have been served “on 11 November 2020”; (iii) that no relief is sought under r 10.14(1) or r 10.14(2) which would have given the plaintiff the benefit of a deemed service if the plaintiff had asked for a direction as to what would constitute appropriate service in the circumstances; and (iv) that no order or relief is sought against the first defendant, and yet costs are claimed against the first defendant (which, of itself, the defendants say is unreasonable conduct on the part of the plaintiff).

  2. The defendants further say that, despite the primary relief sought in the plaintiff’s motion being deemed service “on 11 November 2020”, it is far from clear from the affidavit in support of the motion (Mr Carmody’s affidavit sworn 23 December 2020) on what basis the plaintiff asserts that the second defendant was served “on 11 November 2020”. Reference is made to the evidence of Mr Carmody at [39]-[40] of his affidavit that:

39.    On 10 November 2020, I received an email from Mr Zelener [the Los Angeles lawyer] with a document attached titled “Confirmation For Process Serving” …

40.    On 10 November 2020 at 3:19pm, I sent an email to Mr Campbell [then only engaged as the first defendant’s solicitor] attaching [the Supreme Court Summons for transfer] …

  1. As to [40], the defendants say that service of the summons on the first defendant’s solicitor was not a proper basis to make an order that the second defendant be deemed to have been served.

  2. As to [39], the defendants say that this should be read with what was said by Mr Carmody at [25]:

25.    As at 10 November 2020, Mr Zelener had advised me and I verily believe that he had instructed his process server “One Legal” to attempt to personally serve Mr Ferrand at the following addresses:

(1)    Business addresses: [two Brandinc addresses] …

(2)   Residential Address: [the second defendant’s Californian residential address]

  1. The defendants say that the email from the Los Angeles lawyer (referred to at [39]) provides no basis for a contention that the second defendant was personally served (notwithstanding the Los Angeles lawyer’s hearsay assertions about what his process server had done). The defendants say that the only new information is what purports to be a one-page affidavit of service in accordance with Californian law (citing Ex A at 74-77) and that, even if that hearsay be taken into account, it merely states that the document was left with the second defendant’s partner on 31 October 2020, not with the second defendant:

6.    Manner of Service: By leaving the copies with on in the presence of Annita Ferrand, a competent member of the household (at least 18 years of age) at the dwelling house or usual place of abode of the person served.

  1. The defendants say that this does not amount to personal service on the second defendant; nor even is it service under r 10.26 (as there was no placing or affixing of the document, even if the truth of the hearsay were accepted, under r 10.26(1)(a); and no proper basis to conclude that r 10.26(1)(b) was complied with by posting a notice to the person within 24 hours of the placing or affixing). It is noted that the process server merely says that he “caused the copies to be mailed (if applicable)” and the declaration of mailing said to be attached appears to be a reference to a document which appears to state that the document was mailed “[o]n 11/05/2020” – i.e., at least 4 days after the 24-hour period in r 10.26(1)(b) had expired (Ex A at 75).

  2. The defendants say that whether there was service according to some law or rule of the USA or California is “unknown, unexplored, unasserted and not a matter of evidence”.

  3. In any event, it is noted that this was still a service of the District Court process, which it is said by definition cannot have been validly served, given that the proceedings had not yet been transferred to this Court.

  4. Thus, the defendants say that the basis of the plaintiff’s motion (for which the plaintiff now seeks costs) was that the plaintiff was asking the Court to make a deeming order under r 10.14(3), without having first obtained a direction from the Court under r 10.14(1), in circumstances where: there was no jurisdiction for extra-territorial service of the District Court claim at the time of the conduct that the plaintiff was asserting forms the basis for the deemed service; and taking the plaintiff’s evidence at its highest, there was no evidence whatsoever of proper personal service under Pt 10 of the UCPR.

  5. The defendants say that, in those circumstances, it is most unlikely that in the proper exercise of the Court’s jurisdiction under r 10.14(3) the order sought would have been made (even leaving aside what the factual position would have been if the second defendant had contested the motion and put on his own evidence).

  6. It is noted that, on 12 January 2021, in response to requisitions from the Registry, the plaintiff filed an amended version of the motion but that the primary relief sought was not altered. It is noted that costs were still sought against the first defendant; and that costs of the transfer summons were not specifically sought; the only change being inclusion of a prayer for extension of time for service on the second defendant (see at [3(a)] above).

  7. It is against this background that, on 21 January 2021, the second defendant made the offer referred to earlier (to file a notice of appearance if the plaintiff agreed to there being no costs order). The defendants say that, by 21 January 2021, the plaintiff had exactly what it wanted (other than costs), despite never having personally served the second defendant. That offer (as noted earlier) was rejected, with the plaintiff’s solicitor asserting an entitlement to indemnity costs.

  8. The defendants say that the difficulty for the plaintiff is that it must show that the second defendant acted unreasonably, before being served with process joining him to any proceeding and despite never having been validly served; and they say that the plaintiff’s own unreasonable or misconceived conduct must also be taken into account (in particular, the failure to accept the 21 January 2021 offer, which they say was unreasonable).

  9. In summary, therefore, the defendants resist an order that they pay the plaintiff’s costs of the plaintiff’s motion for the following reasons. First, that the first defendant was not a proper party to the plaintiff’s motion and there was never any proper basis for costs to be awarded against it. Second, that, as the plaintiff’s motion was not determined, there was no “event” under r 42.1 of the UCPR and the plaintiff must prove unreasonable or delinquent conduct on the second defendant’s part before an order for costs would be made against him. Third, that the conduct complained of is conduct of a person before that person was joined as a party by being properly served (both in accordance with the Court’s rules by way of personal service and in circumstances where there was actually a jurisdictional basis for service). Fourth, that the second defendant’s conduct was not unreasonable in circumstances where: he was never personally served; and even if the attempts at service had amounted to personal service, there would have been no jurisdiction for service of the District Court claim and service would have been irregular or defective for failure to comply with r 11.7 (as explained above).

  10. Further, it is said that the second defendant, within a fortnight of the plaintiff filing the amended motion on which it was to proceed, made a reasonable offer to accept service (in order to bring the issue to an end and get on with the case) and the plaintiff, with a degree of contumely, rejected that offer. The defendants say that the second defendant attempted to bring the issue to an end by simply filing the notice of appearance; and that he took that reasonable step despite the fact that the plaintiff’s motion was not plainly destined to succeed in the above circumstances (indeed, the defendants submit that the primary relief sought was unlikely to have been ordered).

  11. The defendants say that the plaintiff’s own conduct was unreasonable in circumstances where: its attempts to serve the District Court process were fundamentally misconceived; it never personally served the second defendant; after the transfer to this Court, it did not then try to serve the second defendant properly by personal service; and, instead, it filed its motion (which the defendants say had the difficulties identified above including that there was no evidence of personal service in circumstances where the document purportedly personally served had been the District Court process without jurisdiction); and it unreasonably rejected the second defendant’s offer to resolve the dispute as to service with no order as to costs. The defendants further say that the plaintiff’s motion, insofar as it seeks costs against the first defendant, disregards the fundamental fact that the first defendant is a separate legal person to the second defendant (noting that the second defendant is not even the sole director or sole shareholder of the first defendant).

  12. The defendants say that it cannot be the case that, unless a proposed defendant gives up its “entitlement” to service in accordance with the UCPR at the request of a plaintiff, the proposed defendant has acted unreasonably and so is at risk of a costs order. It is submitted that this would, in effect, entirely undermine the legislature’s requirement of personal service.

  13. Accordingly, the defendants say that the plaintiff’s costs application should be rejected and the plaintiff’s motion dismissed. The defendants seek their costs of the costs application after 1 February 2021, relying on the 21 January 2021 offer. Although reference was made in the defendants’ written submissions to reliance on a subsequent offer, in oral submissions Counsel for the defendant clarified that the defendants were relying solely on the January 2021 offer (at T 24).

Determination

  1. It is not in dispute that the Court has a broad discretion as to costs which must be exercised judicially (s 98 of the Civil Procedure Act; Oshlack). Nor is it in dispute that the general rule is that costs follow the event (see r 42.1 of the UCPR); and that, where there has been no hearing on the merits, ordinarily in the proper exercise of the Court’s discretion there will be no order as to costs (see Lai Qin at 624-625 per McHugh J).

  2. In the present case, the plaintiff invokes the observations made in Lai Qin by McHugh J to the effect that, although the court cannot try a hypothetical action, there may be some cases in which the court is able to conclude that one of the parties has acted “so unreasonably” that the other party should obtain a costs order; or where the court feels confident that, although both parties have acted reasonably, one party was almost certain to have succeeded had the matter been fully tried (at 624-625).

  3. Further, the plaintiff points to cases where it is said that a distinction must be drawn between the situation where one party has effectively capitulated to the successful party and circumstances where there has been “some supervening event” (citing One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 per Burchett J at [6]). Reference is made by the plaintiff in this regard to the decisions of the Court of Appeal in Ralph Lauren 57 Pty Limited v Byron Shire Council (2014) 199 LGERA 424; [2014] NSWCA 107 at [20]-[34] per Preston CJ of LEC (with whom Beazley P, as Her Excellency then was, and I agreed) and Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [75]-[81] per Basten JA.

  4. The plaintiff also placed weight on the following observation of Young J, as his Honour then was, in Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet AG [2002] NSWSC 727 (Gate Gourmet) (a decision in which an order for substituted service was made), at [9]:

9. The material strongly suggests that the persons proposed to be served have instructed a Sydney firm of solicitors to watch their interests, but have been very careful not to instruct those solicitors to accept service. This makes me think that if I were to order substituted service in the way sought by the plaintiff, and allow three weeks after service for the persons purportedly served to move under Pt 11 r 8 of the Supreme Court Rules to set aside the service, then the court would be likely to have reasoned arguments on both sides of the matter, after which it could make a decision as to whether to follow or not follow those English cases. There would be no prejudice suffered by the defendants, and there would be no encouragement to foreign people, who are involved in an Australian dispute, to get the best of both worlds by watching what is happening, but never entering the arena. [Emphasis as per the plaintiff’s oral submissions]

  1. The position of the first defendant must be considered separately from that of the second defendant.

First defendant

  1. I see no basis for the first defendant to pay the costs of the plaintiff’s motion; nor for that matter do I see that there is any proper basis for the first defendant to be ordered to pay the costs of the summons for the transfer of the proceedings.

  2. As to the former, the plaintiff’s motion sought nothing more than costs as against the first defendant and the basis for that claimed relief appears to be simply the fact that the first defendant did not procure the second defendant’s instructions to accept service of the District Court process. The first defendant’s obligations, as a party to proceedings in the District Court, do not in my opinion extend to the first defendant being obliged (at risk of an adverse costs order) to procure consent from another proposed party to be joined to the proceedings (even where, as here, that proposed party is a director and shareholder of the first defendant) (and particularly not where there was a very real issue as to jurisdiction). Moreover, the attribution to the first defendant of knowledge of the second defendant is problematic even accepting that the second defendant may have been providing instructions to the first defendant’s lawyers as to the conduct of the litigation on behalf of the first defendant (as one of its two directors).

  3. As to the latter, it was the plaintiff’s choice to commence proceedings in the District Court and, in circumstances where the plaintiff later wished to join the second defendant as a party, the fact that it became necessary for the plaintiff to seek to have the proceedings transferred to this Court (in order to invoke the jurisdiction for service outside the jurisdiction or substituted service, which jurisdiction the District Court lacked) does not mean that the first defendant should bear any costs in relation thereto. Indeed, the first defendant quite promptly indicated that it would consent to the transfer order being made. No costs have been unreasonably incurred by the plaintiff due to the first defendant’s conduct in relation to the transfer application in my opinion.

  1. The complaint against the first defendant in essence (and the basis for the third category of claimed costs – costs thrown away in relation to the attempts at service of the second defendant) seems to be a complaint that the first defendant did not facilitate the plaintiff’s attempts to join the second defendant to the proceedings. I see no basis for any suggestion that the first defendant acted unreasonably, or in breach of any obligation imposed on a party to litigation under the Civil Procedure Act, in acting as it did.

Second defendant

  1. As to the second defendant, I do not accept that a person who has not yet been properly served with legal process (and who has not yet, on that hypothesis, become a party to the proceedings) has the obligations imposed on a party to litigation by the Civil Procedure Act. Nor do I see a proper basis to impose on the second defendant a costs order in respect of applications made by the plaintiff in an attempt to commence proceedings against the second defendant – which applications were (unsurprisingly as he was not yet a party) not contested by the second defendant (i.e., the initial relief sought under the plaintiff’s motion and the summons itself).

  2. I do not accept that, absent some dispensation as to the rules for personal service such as by way of an order for substituted or deemed service, the second defendant’s conduct in (in effect) insisting that he be personally served before accepting that the District Court had jurisdiction in the District Court proceedings, is unreasonable (let alone so unreasonable as to warrant a costs order against him). I consider that the attempts taken in the District Court in relation to substituted service were misconceived (for the reasons articulated by the defendants by reference to the reasoning in Flo Rida, to which the plaintiff’s attention had squarely been drawn at the time of the dismissal of the first substituted service application and again with the second such application) and that neither of the defendants should be liable for those costs.

  3. To support the suggestion that it was unreasonable for the second defendant not to instruct the first defendant’s solicitors to file a notice of appearance in the District Court proceedings on his behalf, the plaintiff submitted that it was inevitable that the second defendant would be called as a witness in the District Court proceedings and, hence, that it was inevitable that he would ultimately be able to be served personally. This submission seems to me to involve an unwarranted assumption as to how the first defendant might choose to defend the claim against it (and I do not consider it appropriate to engage in speculation in that regard); and, in any event, again it must be emphasised that the second defendant was not at that stage properly joined as a party to the District Court proceedings. I do not consider the observations of Young J in Gate Gourmet here to be apposite. The fact that the second defendant was aware of the proceedings (and may well be said to have been watching them from afar, to adopt his Honour’s terminology) might have warranted an order (from this Court; not the District Court) for substituted service. It does not warrant a costs order for the costs thrown away in the misguided attempts that appear to have been taken to cloak the District Court with jurisdiction in the matter as against the second defendant who at all relevant times appears to have been resident overseas.

  4. As to the proposition that the filing of a notice of appearance in the proceedings in this Court amounted to a capitulation on the second defendant’s part, I do not accept that it has been shown that the plaintiff’s motion in this Court would inevitably have succeeded (again, for the reasons put forward by the defendants). Thus, I do not accept that this is a case falling within that category of case recognised in Lai Qin where costs can confidently be awarded notwithstanding that the motion has not been determined on its merits. The second defendant’s conduct in ultimately filing a notice of appearance (for whatever reason) as he did is in furtherance of the just, quick and cheap resolution of the real issues in dispute; not a cause for a costs order against him.

  5. Therefore, I do not propose to make a costs order against either of the defendants in favour of the plaintiff in respect of any of the categories of costs here sought.

  6. It is not, therefore, strictly necessary to consider the plaintiff’s submission that certain of the costs should be ordered to be paid on an indemnity basis forthwith and on a gross sum basis. Had those issues fallen for consideration, I would have concluded that any costs ordered against the defendants should be payable on the ordinary basis and in the ordinary course (i.e., at the conclusion of the matter and not payable forthwith) in circumstances where the proceedings should now be able to proceed without delay to a final hearing in the District Court. Had I made a gross sum costs order I would have discounted, in any event, the amount claimed to reflect an assessment on the party/party basis (and to reflect the contingencies that might arise on an assessment) and so would not have ordered more than, say, at best 60% of the solicitor/client costs claimed.

Defendants’ indemnity costs submission

  1. As to the submission by the defendants that they should have a costs order in their favour from 1 February 2021 on the indemnity basis by reason of the rejection by the plaintiff of the second defendant’s offer to file a notice of appearance (on the basis that there be no order as to costs), in effect this appears to be a submission made in reliance on the principles articulated in Calderbank v Calderbank [1975] 3 All ER.

  2. It is necessary for the applicant for such an order to establish that it was unreasonable of the offeree to reject or not to accept the offer. The factors to be taken into account in this context were considered in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA. These factors were not expressly addressed in submissions on the present applications. As to the 21 January 2021 letter (which I accept appears to have been a genuine attempt by the second defendant to resolve a dispute as to the issue of service and hence properly the subject of without prejudice privilege), the letter in terms did not invoke the Calderbank principles (no doubt this is not surprising as it was a letter from the second defendant personally) and was not couched as an offer to settle as such.

  3. That said, it clearly put forward a proposal that the second defendant would agree to file a notice of appearance but on the basis that there be no order as to costs. Acceptance of that offer might in one sense be said to have amounted to a capitulation by the plaintiff (which was maintaining an entitlement to indemnity costs) but it, relevantly, would have resolved the dispute the subject of the plaintiff’s motion (which, as noted above, was seeking leave for deemed service based on the so-called informal service of the second defendant at the former business address and on a member of his household). However, that motion was itself, in my opinion, misconceived since (even leaving aside the difficulty that what was being served was a District Court process in the absence of there being jurisdiction in the District Court for such service at that stage) there had been no personal service effected in a way that would have complied with the rules for service out of the jurisdiction.

  4. On balance, I am not persuaded that it was unreasonable of the plaintiff to reject the offer and to pursue its application for deemed service (not least because it might potentially have been the case that further evidence could have been adduced as to the basis for that application). Moreover, it has been recognised more than once that it is not appropriate for the Court to entertain an hypothetical hearing in order to determine the merits of an application for the purposes of a satellite costs application (see Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84; Renton v Kelly [2018] NSWSC 1377) (and in that regard I consider that there should be no encouragement for the proliferation of unedifying costs disputes where interlocutory applications have been disposed of without a hearing on the merits).

  5. Therefore, I am not persuaded that it is appropriate to make an indemnity order for costs in favour of the defendants. However, I do consider that costs should follow the event in respect of the application that was before me and on which the plaintiff has failed.

Orders

  1. For the above reasons, I make the following orders:

  1. As to the costs reserved on the summons for the transfer of the District Court proceedings to this Court, order that those costs be costs in the cause (noting that the proceedings have now been transferred back to the District Court).

  2. As to the costs of the plaintiff’s notice of motion filed on 23 December 2020 and amended on 12 January 2021, order that (subject to order 3 below) there be no order as to costs of that notice of motion with the intent that each party bear its own costs.

  3. As to the hearing before me of the extant prayers for relief in the plaintiff’s notice of motion (prayers 3 and 4), order that the plaintiff pay the defendants’ costs, assessed on the ordinary basis.

  4. Note that the plaintiff’s notice of motion is now finally disposed of and that the proceedings will be transferred by consent back to the District Court of New South Wales.

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Decision last updated: 08 April 2021

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H, AW v K, S [2023] SASCA 26
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