H & Q Cafe Pty Ltd v Hu
[2022] VSC 632
•19 October 2022 ex tempore; revised 21 October 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 04030
IN THE MATTER OF H & Q CAFE PTY LTD (ACN 624 852 179)
| H & Q CAFE PTY LTD (ACN 624 852 179) (and others according to the Schedule) | Plaintiffs |
| v | |
| RAYMOND BING HU (and others according to the Schedule) | Defendants |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 October 2022 |
DATE OF JUDGMENT: | 19 October 2022 ex tempore; revised 21 October 2022 |
CASE MAY BE CITED AS: | H & Q Cafe Pty Ltd & Ors v Hu & Ors |
MEDIUM NEUTRAL CITATION: | [2022] VSC 632 |
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COSTS — Leave to discontinue proceeding — Rules 25.03 and 63.15 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — No adjudication on merits — The costs ‘starting point’ on discontinued proceedings — Plaintiffs effectively capitulated or surrendered — Yue’e Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34; Re Minister for Immigration and Ethnic Affairs;ex parte Lai Qin (1997) 186 CLR 622 applied — Leave to discontinue proceeding seeking a freezing order and ancillary order — Rules 37A.05(5)(a) and (b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — Freezing order application against a third party — Ancillary order against a third party — Meaning of ‘a process in the Court’ under r 37A.05(5)(b) — Prospective costs order in a proceeding not ‘a cause of action’ for the purposes of r 37A.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) — Leave to discontinue granted to the plaintiffs — Costs orders against the plaintiffs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Rubenstein | Verge Legal |
| For the First Defendant | Mr S Wang (Solicitor) | Hall & Wilcox |
| For the Second and Third Defendants | No appearance |
HIS HONOUR:
Introduction and summary
By their originating process filed on 10 October 2022 the plaintiffs sought:
(a) a freezing order against the third defendant, Ms Guan (Guan Freezing Order), restraining her from disposing of, diminishing or dealing with the land and property at 48 Deakin Street, Bentleigh East, Victoria, being the land contained in Certificate of Title Volume 08067 Folio 170 (Bentleigh Property), pursuant to rule 37A.05(5) of the Supreme Court (General Civil Procedure) Rules 2015 (Rules), alternatively the inherent jurisdiction of the court; and
(b) an ancillary order against the first defendant, Mr Hu (Hu Ancillary Order), who is Ms Guan’s former husband, requiring Mr Hu to make and serve an affidavit disclosing full information regarding his assets wherever they are located pursuant to rule 37A.03 of the Rules, or the inherent jurisdiction of the court.[1]
[1]The plaintiffs did not press their application for joinder of parties that was referred to in the originating process. They had filed a summons seeking to amend the originating process to remove this aspect of the relief sought. This amendment application was not heard because the plaintiffs sought leave to discontinue the proceeding on the day that the summons was scheduled to be heard, which was also the same day that the trial of the substantive issues in the proceeding was to commence.
The plaintiffs brought their application on for hearing on an urgent basis the day after the originating process was filed, and this hearing took place before Elliott J on 11 October 2022. At that time it was apparent to the plaintiffs and Elliott J that the circumstances did not warrant the hearing proceeding ex parte against Ms Guan, or proceeding with that level of urgency in any event. Consequently, directions were made for the filing and service of affidavit material and the application was adjourned, with the hearing to take place before the Commercial Court duty judge a few days later on 19 October 2022.
Mr Hu filed an appearance and was defending the proceeding. Service of the originating process was not effected on Ms Guan, although it was effected on the second defendant (HGPY), which is the corporate trustee of the Hu Family Trust. Neither Ms Guan nor HGPY have filed appearances to date, although at the first hearing before Elliott J Mr Wang appeared as HGPY’s solicitor. He informed the court at the hearing before me that he was not appearing for HGPY and that HGPY was not appearing because no relief in the originating process was sought against it.
By open letter dated 18 October 2022 (18 October Letter) sent by the plaintiffs’ solicitors to Mr Hu’s solicitors at approximately 2:30pm on 18 October 2022, the plaintiffs informed Mr Hu, among other things, that they offered to withdraw the proceeding against the defendants, with no order as to costs, and that they required a response to that offer by 5pm the same day. This was the day before the hearing of the substantive issues in the proceeding. The 18 October Letter also stated that if the offer was not accepted, the plaintiffs would not proceed with the claims in the proceeding but would seek orders that the defendants pay the plaintiffs’ costs of the proceeding. The 18 October Letter also referred to six attempts having been made to serve the documents on Ms Guan, and recorded the plaintiffs’ solicitors’ view that Ms Guan was aware of the proceeding and was deliberately evading service.
A little after 6pm on 18 October 2022, Mr Hu’s solicitors responded to the plaintiffs’ solicitors’ offer, stating that it was not accepted. The response also informed the plaintiffs’ solicitors that Mr Hu was going to press for his costs of the proceeding to be paid by the plaintiffs in accordance with the ‘ordinary rule’ as recorded in r 63.15 of the Rules. The response also made an open offer with respect to the amount of costs to be paid by reference to what was a modest fixed sum, with the offer being aimed at avoiding further cost and time in connection with disagreement between the parties about costs.
Notwithstanding the circumstances (discussed further below), and the modest amount that was the subject of Mr Hu’s open offer, that offer was not accepted by the plaintiffs. Rather, the plaintiffs pressed an application for an order that Mr Hu pay the plaintiffs’ costs of and associated with the proceeding,[2] which occupied about half a day of court hearing time. In the alternative, the plaintiffs sought an order that there be no order as to the costs of the proceeding.
[2]Originally this had been expressed by the plaintiffs as seeking an order that the defendants pay the costs of the plaintiffs, but this position was understandably recalibrated by counsel for the plaintiffs at the commencement of the hearing.
At the commencement of the hearing counsel for the plaintiffs made an oral application for leave to wholly discontinue the proceeding against all defendants pursuant to r 25.03 of the Rules. The grant of leave was not opposed and an order was made to that effect.
For the reasons that follow, I have concluded that the plaintiffs should pay the defendants’ costs of and associated with the proceeding, to be assessed on a standard basis if not agreed. Given the relatively small amount of costs involved I will also address with the parties whether a direction should be made requiring the parties to confer with a view to agreeing the costs amount in an attempt to avoid potentially disproportionate further steps, cost and delay.
Brief background
The manner in which the application for the Guan Freezing Order and the Hu Ancillary Order came to be made was somewhat unusual, and it is first desirable to elaborate a little regarding aspects of the background to the commencement of the proceeding.
Mr Hu and the second plaintiff (Ms Qiu) are shareholders in the first plaintiff (Company). The Company was formed to purchase a café in Parkville (Parkville Café) to be operated by the Company, with each of Mr Hu and Ms Qiu contributing agreed amounts of capital to the Company for that purpose. The Parkville Café business has not travelled well since it was purchased, and Mr Hu and Ms Qiu no longer get along. Ms Qiu owns 64% of the shares in the Company and Mr Hu owns the remaining 36%. Ms Qiu is a director of the Company, but Mr Hu is not.
Mr Hu is the first plaintiff in an oppression proceeding in this court (S ECI 2021 00125) (Oppression Proceeding). The second plaintiff in that proceeding is HGPY. The defendants are the Company, Ms Qiu, and a trustee company associated with Ms Qiu. By its originating process in the Oppression Proceeding the plaintiffs sought, among other things, orders requiring Ms Qiu to purchase the first plaintiff’s shares in the Company and the related units in the unit trust held by HGPY, and of which the Company is the trustee (HQ Unit Trust). In the alternative, the plaintiff sought orders that the Company be wound up pursuant to ss 233 or 461 of the Corporations Act 2001 (Cth) (Act).
By the plaintiffs’ amended points of claim in the Oppression Proceeding dated 25 August 2022 the plaintiffs in that proceeding no longer seek orders requiring the purchase of the shares and the units, but press their application that the Company be wound up pursuant to ss 233 or 461 of the Act. They also seek orders appointing receivers to the assets of the HQ Unit Trust.
The trial of the Oppression Proceeding is adjourned part-heard before Efthim AsJ. To date there have been six days of hearing, which occurred on 23 to 26 August 2022 and 12 to 13 October 2022. Mr Hu’s evidence was that there was one more day of trial, which is presently listed for 5 December 2022.
The plaintiffs in this proceeding originally sought to bring the application for the Guan Freezing Order and the Hu Ancillary Order by summons in the Oppression Proceeding. Associate Justice Efthim determined that that was not an appropriate course, which resulted in this proceeding being commenced.[3]
[3]Although this proceeding should have been commenced by originating motion under the Rules, together with a summons on originating motion, given the nature of the relief sought, that minor procedural irregularity is in this case inconsequential. Understandably, no point was taken by Mr Hu about it.
None of Ms Qiu, the Company, or the third plaintiff (Hostec) bring a substantive claim against Mr Hu or Ms Guan in the Oppression Proceeding or elsewhere. However, as plaintiffs in this proceeding they asserted that it is probable that Mr Hu and HGPY will be unsuccessful in the Oppression Proceeding and that costs will follow the event. It was contended that this will mean that Mr Hu and HGPY will be ordered to pay Ms Qiu’s, the Company’s, and Hostec’s costs of the Oppression Proceeding and that this will involve a significant sum.[4]
[4]Although this amount was not quantified or estimated in any meaningful way by the plaintiffs.
Relevantly, Ms Qiu and the Company contended that, since the commencement of the Oppression Proceeding, Mr Hu has sought to render himself judgment proof. In this context they relied almost entirely upon the transfer by him of his interest in the Bentleigh Property to his former wife, Ms Guan. It is in this context that the plaintiffs in this proceeding seek the Guan Freezing Order against Ms Guan and the Hu Ancillary Order against Mr Hu.
Affidavit material and written submissions
The affidavit material sought to be relied upon by the plaintiffs for the hearing of the substantive application in this proceeding was extensive and voluminous. It included not only the affidavits filed in this proceeding but also three substantial affidavits filed by Ms Qiu that had been read in the Oppression Proceeding trial, a detailed expert report from the Oppression Proceeding, and exhibits spanning more than 1,500 pages.
Mr Hu filed a short affidavit in reply, the body of which was a little over two pages long. The exhibits to that affidavit included a divorce order in respect of his marriage to Ms Guan that was made by the Federal Circuit Court of Australia on 8 December 2020, and a binding financial agreement between Mr Hu and Ms Guan made under s 90D of the Family Law Act 1975 entered into in November 2021 (Family Law Agreement). The exhibits to Mr Hu’s affidavit were only 30 pages in length, 13 of which comprised the Family Law Agreement.
The Family Law Agreement recorded, among other things, Mr Hu’s agreement to transfer his interest in the Bentleigh Property to Ms Guan and her agreement to assume all liabilities in connection with the substantial mortgage over the Bentleigh Property, as well as liability for rates, taxes and other amounts.
The plaintiffs and Mr Hu each relied upon a written submission in respect of the substantive issues in the proceeding. On the morning scheduled for the commencement of the hearing of the substantive issues, being 19 October 2022, a further written submission was filed on behalf of Mr Hu in respect of the costs of the foreshadowed discontinuance (Hu Costs Submission), together with correspondence that had passed between the parties in relation to the plaintiffs’ offer the subject of the 18 October Letter, and Mr Hu’s solicitors’ tax invoice in respect of legal fees incurred by Mr Hu up to 18 October 2022.
Principles and observations
Rule 25.03 of the Rules provides as follows:
A proceeding not commenced by writ may be discontinued and any part of a proceeding not commenced by writ may be withdrawn at any time—
(a) by leave of the Court; or
(b) with the consent of all other parties.
Costs are first addressed in r 25.05 of the Rules, which provides as follows:
Where a proceeding, counterclaim or claim by third party notice is discontinued, or where part of a proceeding, counterclaim or third party notice is withdrawn, liability for costs shall be determined in accordance with Rule 63.15.
Rule 63.15 of the Rules is in the following terms:
Unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding, counterclaim or claim by third party notice shall pay the costs of the party to whom the discontinuance or withdrawal relates to the time of the discontinuance or withdrawal.
Costs issues that arise in circumstances where proceedings are discontinued or otherwise resolved without adjudication on the merits have been addressed in many cases and I referred to a number of these authorities in Course v Hannan & Ors.[5] It is convenient to repeat here, in almost identical terms, what I said in that case.[6]
[5][2018] VSC 401, [22]–[26].
[6]I refer also to Firkin v Pease [2020] VSC 539, [27]–[37] (Cavanough J) and the additional cases there cited.
In Dina Constantina Soteriadis v Nillumbik Shire Council, Derham AsJ helpfully summarised aspects of the relevant law as follows (footnotes omitted):[7]
[8] The starting point is the court’s general power as to costs. Unless otherwise expressly provided by any Act or by the Rules, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid: Supreme Court Act 1986 (Vic) s 24(1).
[9] The discretion regarding costs has been described as absolute, unconfined or unfettered, although that discretion must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation: see for example Latoudis v Casey. In the exercise of the discretion, practices or guidelines have been developed: Oshlack v Richmond River Council. These practices or guidelines are not legal rules that confine the exercise of the discretion: Norbis v Norbis; Oshlack v Richmond River Council.
[10] Rule 25.05 of the Rules provides:
Where a proceeding, counterclaim or claim by third party notice is discontinued, or where part of a proceeding, counterclaim or third party notice is withdrawn, liability for costs shall be determined in accordance with Rule 63.15.
[7][2015] VSC 363, [8]–[13]. See also Just Group Limited v Joseph Van Dyk and Ors [2016] VSC 66; AS v Minister for Immigration and Border Protection and Ors [2017] VSC 300, [14]–[26].
[11] Rule 63.15 of the Rules provides:
Discontinuance or withdrawal
Unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding, counterclaim or claim by third party notice shall pay the costs of the party to whom the discontinuance or withdrawal relates to the time of the discontinuance or withdrawal.
[12] By these rules the wide discretion of the Court as to costs is modified. The modification is that the onus is on the party seeking to discontinue the proceeding (in this case the applicant) to satisfy the Court that the costs should not be paid by her. The principles and factors that the authorities outline on these, and other similar rules in other jurisdictions, have been collected and summarised by Hallen AsJ (as he then was) in Johnson v Clancy. My summary of them is as follows:
(a) The rule does not give rise to a presumption that costs will be ordered against the discontinuing party;
(b) However, the rule does create a starting position for the plaintiff or discontinuing party to pay the defendant’s costs, subject to a contrary order;
(c) The contrary order itself involves a discretionary decision to be exercised judicially. If there is to be a departure from the starting position, it should be done in a particularised, and principled way. The court is required to make such order as it thinks just in the particular circumstances of the case;
(d) The burden is on the party who seeks to persuade the court that a contrary order should be made. If facts are to be relied upon to found the court making a different order, the plaintiff will bear the onus of proving the relevant facts;
(e) All the relevant circumstances, and not just the fact of discontinuance, should be considered. This may include a consideration of the whole of the proceedings. Generally the discretion will be exercised on the basis of the objective circumstances established on the evidence and not involve the subjective considerations of one party;
(f) A relevant consideration is whether the plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them. It might also be appropriate for the court to consider the conduct of the defendant prior to the commencement of the proceedings where such conduct may have precipitated the litigation;
(g) Generally there must be some proper justification, sound positive ground, or a good reason, for departing from the starting position. The reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs, so for example, it may be appropriate to make a contrary order:
(i) Where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff’s control;
(ii) Where the plaintiff achieved practical success in the proceedings;
(iii) Where costs have been significantly increased by the unreasonable conduct of the defendant;
(h) Where the proceedings are discontinued prior to any hearing on the merits, usually it will be impracticable to assess the eventual prospects of success in the action and the court cannot try a hypothetical action between the parties to determine the question of costs;
(i) There is a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs; and
(j) Where the proceedings are discontinued after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted;
[13] In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin, (one of the many cases cited by Hallen AsJ), McHugh J observed in a different context, that is not one where the starring [sic] position was an order for costs in favour of the defendant:
The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action by which settlement or extra curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action ...
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried ...
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continue to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the costs discretion will usually mean that the court will make no order as to the cost of the proceeding. This approach has been adopted in a large number of cases. [footnotes omitted]
These observations were referred to with approval by Sloss J in Just Group Limited (ACN 096 911 410) v Joseph Van Dyk & Ors,[8] where her Honour also drew attention to the observation of Hill J in Australian Securities Commission v Aust-Home Investments Ltd (Aust-Home Investments)[9] that ‘[w]here neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a costs order’, and Hill J’s further observation that:
It would rarely, if ever, be appropriate where there has been no trial on the merits for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
[8][2016] VSC 66, [29]–[35].
[9](1993) 44 FCR 194, 201.
As Sloss J also observed, in One. Tel Ltd v Commissioner of Taxation,[10] Burchett J, citing Aust-Home Investments and Lai Qin, accepted that where a case terminates before a hearing has taken place ‘the Court should not resolve the issue of costs by engaging in something of the nature of a hypothetical trial.’ He also said that ‘this does not mean that the Court can never make an order for costs’ and emphasised the point also referred to in paragraph [12](i) of the reasons of Derham AsJ referred to above.
[10](2000) 101 FCR 548.
The observations of Forrest J in AS (by her litigation guardian Marie Theresa Arthur) v Minister for Immigration and Border Protection & Ors are also worth repeating:[11]
It is now clear that a court, in exercising its discretion to grant leave to discontinue third party proceedings pursuant to r 25.02(6) of the Rules, must have regard to the provisions of the CPA and in particular, s 7 which states that the overarching purpose of the Act and Rules in civil proceedings is to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.
By s 8(1) of the CPA, the court is required to give effect to the overarching purpose in exercising its powers. In doing so, s 9 of the CPA directs the court to further the overarching purpose by having regard to the objects and matters which include the efficient use of judicial and administrative resources and dealing with the proceeding in a manner proportionate to the complexity and importance of the issues and amount in dispute.
Third, the effect of rr 25.05 and 63.15 should not be overstated. In Just Group Ltd v Joseph van Dyk & Ors, Sloss J held that the wide discretion conferred on the Court to order costs must be exercised in conformity with rr 25.05 and 63.15 of the Rules. However, her Honour then observed:
In essence, the cases summarised in Soteriadis and Johnson show that r 63.15 does not give rise to a presumption that costs will be ordered against the discontinuing party. Rather (and paraphrasing what their Honours have said), it creates ‘a starting position’ and the burden is on the party who seeks to persuade the court that a different order should be made to prove the relevant facts. All relevant circumstances, not just the fact of discontinuance, should be considered. If there is to be a departure from the starting position the Court should do so in a particularised and principled way and make such order as it thinks just in the particular circumstances of the case.
[11][2017] VSC 300, [23]–[25].
I refer also to the Court of Appeal’s recent observations regarding questions of costs where there has been no adjudication on the merits, and their discussion of the decision of McHugh J in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin[12] in Yue’e Zhao v Suzhou Haishun Investment Management Co Ltd (Zhao).[13] These observations follow below:[14]
[12](1997) 186 CLR 622, 624–5.
[13][2020] VSCA 34, [9]–[12] (Tate, McLeish and Hargrave JJA).
[14]These issues were also addressed in Kevin Hughes Investments Pty Ltd v Ebert Unit Developments Pty Ltd [2020] VSC 167 (Connock J).
[9] The parties agree that the general rule to be applied in circumstances such as the present is that stated by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin[15] in the following terms:
[15](1997) 186 CLR 622; [1997] HCA 6 (‘Lai Qin’).
…It will be necessary to return in a little more detail to the facts of the case, but it is first necessary to state the principles which govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means.
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant’s taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.[16]
[16]Ibid 624–5 (citations omitted) (emphasis added).
[10] In Nichols v NFS Agribusiness Pty Ltd,[17] the New South Wales Court of Appeal applied the principles stated in Lai Qin, as explained in later cases,[18] and allowed an appeal against a trial judge’s decision to award costs.[19] In the course of reviewing the authorities following Lai Qin, Payne JA (Basten and Meagher JJA agreeing) accepted that, absent any consideration of the merits of the proceeding, costs may be ordered where there is a capitulation by one party — in the sense that it ‘effectively surrenders to the other’.[20] In his Honour’s view, this approach is consistent with the judgment of McHugh J in Lai Qin.[21] Payne JA referred to the dissenting judgment of Sackville AJA in Muhibbah Engineering (M) BHD v Trust Co Ltd,[22] and to the reference by Sackville AJA in that decision to the following statement by Burchett J in ONE.TEL Ltd v Deputy Commissioner of Taxation:
[17](2018) 97 NSWLR 681; [2018] NSWCA 84 (‘Nichols’).
[18]Ibid 686–90 [25]–[38].
[19]Ibid 686–92 [23]–[54].
[20]Ibid 687–90 [29]–[38].
[21]Ibid 689–90 [37]–[38].
[22][2009] NSWCA 205 (‘Muhibbah Engineering’).
It is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.[23]
[11] In Nichols, Payne JA considered that, in Muhibbah Engineering:
Sackville AJA was explaining that when in Lai Qin McHugh J described a case where the party seeking costs “in effect, has succeeded in obtaining the relief sought in the proceedings”, his Honour was referring to a case where one party, after litigating for some time, effectively surrenders to the other.[24]
[12] In fact, the quoted words which Payne JA attributes to McHugh J in Lai Qin do not appear in McHugh J’s judgment. They are a quote from Sackville AJA’s judgment in Muhibbah Engineering.[25] However, the principles stated by McHugh J in Lai Qin were, in his words, intended to ‘govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means’.[26] We accept as a general principle that where a party litigates for some time and then acts so as to effectively surrender or capitulate to the other, that will usually be a strong ground to award costs against the party who has surrendered or capitulated. But each case will depend on its own facts.
[23](2000) 101 FCR 548, 553 [6]; [2000] FCA 270, [6] (emphasis added), referred to with approval by the Full Federal Court in Chapman v Luminis Pty Ltd [2003] FCAFC 162, [7].
[24]Nichols (2018) 97 NSWLR 681, 690 [38]; [2018] NSWCA 84, [38].
[25]Muhibbah Engineering [2009] NSWCA 205, [52].
[26]Lai Qin (1997) 186 CLR 622, 624; [1997] HCA 6.
Similar issues were recently addressed by Darke J in Franpina Developments Pty Ltd v John Anthony Arena Pty Ltd,[27] where his Honour made the following observations:
[27][2022] NSWSC 57.
[20] Where proceedings have been determined without a hearing on the merits it is commonly appropriate for the Court to make no award of costs. As stated by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624, the Court in those circumstances is necessarily deprived of the factor that usually determines whether or how it will make a costs order. Where there has been no trial there is generally no “event”, although in unusual cases it may be possible to say that one party has been successful and the other unsuccessful (see Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [2] per Basten JA).
[21] In Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302, Davies AJA (with whom Mason P and Meagher JA agreed) stated at [5]:
When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs.
His Honour then referred to One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 where Burchett J said (at 553; [6]):
In my opinion, it important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.
[22] In Shellharbour City Council v Minister for Local Government [2017] NSWCA 256 the Court of Appeal said at [6]-[7]:
6. …The appellant described the Minister’s abandonment of the proposed amalgamation as “a complete capitulation.” It contended that if the appeal had proceeded it would “almost certainly” have succeeded. That was because the appeal which was listed for hearing on the same days, brought by Ku-ring-gai Council on identical grounds, was upheld. Further, it submitted that the Minister had been unreasonable in her conduct of the proceedings.
7. It should be accepted that both these characterisations, if made good, may provide a basis for awarding costs against a party who has capitulated, as was recognised by Burchett J in One Tel Ltd v Commissioner of Taxation, in a passage cited with approval by Davies AJA (Mason P and Meagher JA agreeing) in Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack. If the appellant made good its claim that, without addressing the merits, this Court could be satisfied that it would have succeeded in any event, it would also be appropriate to set aside the costs order made in the Land and Environment Court and allow the appellant its costs of the trial.
[23] In FCA US LLC v Mahindra Automotive Australia Pty Ltd [2021] FCA 1091 Halley J stated at [35]:
Second, where the Court is satisfied that one party has effectively surrendered or capitulated it may also make a costs order in favour of the other party notwithstanding that there has been no determination of the merits of the proceedings. The following principles emerge from the authorities with respect to surrender or capitulation:
(a) either an applicant or respondent might be found to have effectively surrendered or capitulated;
(b) it is necessary to have regard to the conduct of the parties not to determine whether a party has acted in a manner that can objectively be characterised as unreasonable, but rather to determine whether by their respective conduct one party has, in substance, capitulated or surrendered to the other party: see generally Chapman v Luminis Pty Ltd [2003] FCAFC 162 (Chapman) at [5]-[8] (Beaumont, Sundberg and Hely JJ); Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34 at [19]- [20] (Tate, McLeish and Hargrave JJA); cf Diamond Ace Super Fund Pty Ltd v Rodapa Development Pty Ltd [2020] FCA 1582 (Diamond Ace) at [65]-[68] (Griffiths J);
(c) it is necessary to distinguish between cases in which a party seeking to discontinue proceedings can be said to have effectively surrendered or capitulated and cases in which a supervening event renders the proceedings futile or moot: Diamond Ace at [59] (Griffiths J) citing Travaglini v Raccuia [2012] FCA 620 at [13] (McKerracher J); and Chapman at [7], citing ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 (ONE.TEL) at [6] (Burchett J);
(d) an assessment of the degree to which the outcome achieves the relief sought is a threshold issue of significant weight in determining whether a party has effectively surrendered or capitulated. A party does not have to achieve complete success in order to establish that the other party effectively surrendered or capitulated. It is enough to demonstrate that the outcome secured sufficiently achieves the party’s purpose in bringing the proceedings: Diamond Ace at [67]; Balanggarra Aboriginal Corporation v State of Western Australia [2018] FCA 1538 (Balanggarra) at [50] (Barker J); Stephens v Sena, in the matter of Vtara Solar Pty Ltd [2020] FCA 1179 at [30] (Stewart J);
(e) generally it is not the function of the Court to make a prediction as to the outcome of a hypothetical case in assessing the degree of success or failure achieved by a party in proceedings in which there has been no determination of the merits: Elevate Brandpartners Ltd v Hammond (No 4) [2020] FCA 421 (Elevate Brandpartners (No 4)) at [20] (Stewart J); Clark v ING Life Limited [2007] FCA 1960 at [16] (Rares J); Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited (2010) 265 ALR 112; [2010] FCAFC 16 at [118]-[119] (Jacobson, Siopis and Foster JJ); Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700 at 6 (Lee, Tamberlin and R D Nicholson JJ); and
(f) in some cases it is relevant to have regard to the likelihood of success, but only insofar as it is possible to identify a likely “clear winner”: ONE.TEL at [7]; and Balanggarra at [71]-[73].
Submissions
Plaintiffs’ submissions
As mentioned, the plaintiffs submitted that Mr Hu should pay the plaintiffs’ costs of and associated with the proceeding or, alternatively, that there should be no order as to costs. As counsel for the plaintiffs said, the ‘crux’ of the plaintiffs’ submission was that Mr Hu had prior opportunities to inform the plaintiffs regarding the details of the transfer of his interest in the Bentleigh Property pursuant to the Family Law Agreement in the way that he explained in his affidavit. Had he done so, it was said that there was a reasonable prospect or likelihood that it would not have been necessary for the plaintiffs to proceed with the proceeding.
The points at which it was said there were such opportunities for Mr Hu to explain the position were said to have included the following: during Mr Hu’s cross-examination on 24 August 2022 in the Oppression Proceeding; following the receipt by Mr Hu’s solicitors of a copy of the plaintiffs’ solicitors’ letter addressed to Ms Guan dated 5 September 2022, in which the plaintiffs’ solicitors sought an undertaking from Ms Guan not to take any steps to deal with, dispose or transfer the Bentleigh Property without first giving the plaintiffs 21 days’ notice (Proposed Guan Undertaking); on 6 October 2022 when the plaintiffs’ solicitors wrote to Hall & Wilcox asking if they were authorised to accept service on behalf of Ms Guan; and on 7 October 2022 when Mr Hu’s solicitors were copied into correspondence sent to the associate to Efthim AsJ, and in which the plaintiffs sought to have a summons seeking the Guan Freezing Order and Hu Ancillary Order returnable before Efthim AsJ.
In the context of the transfer of Mr Hu’s interest in the Bentleigh Property and the Family Law Agreement, the plaintiffs submitted, among other things, as follows:
(a) They only became aware of the transfer on 22 August 2022, being a day before the commencement of the trial in the Oppression Proceeding.
(b) On 5 September 2022 they became aware that the instrument of transfer recorded that the transfer had occurred for no monetary consideration, following which they wrote to Ms Guan seeking the Proposed Guan Undertaking.
(c) No response was received from Ms Guan in relation to the Proposed Guan Undertaking and it was not provided by her.
(d) Mr Hu, through his solicitors Hall & Wilcox, did not provide information regarding the Family Law Agreement and the transfer, or volunteer any other details about it following receipt of a copy of the letter of 5 September 2022.
(e) Evidence given by Mr Hu during cross-examination in the Oppression Proceeding regarding the transfer of his interest in the Bentleigh Property to Ms Guan, and regarding his divorce and the ‘family law arrangement’, was unclear and contradictory when considered in the context of other parts of his evidence.
(f) Given that Mr Hu had not volunteered to the plaintiffs further information about the Family Law Agreement and the circumstances of the transfer of his interest in the Bentleigh Property, the plaintiffs had ‘no choice’ but to file and proceed with the present proceeding in this court on an urgent basis.
The plaintiffs further submitted that the difficulties with the service of Ms Guan were also matters proper for the plaintiffs to take into account regarding their decision not to proceed with the application in this proceeding given that further cost and delay would be involved with attempts to serve or applications for substituted service. In exchanges during the course of these oral submissions, counsel for the plaintiffs responsibly acknowledged that, although this was a matter taken into account by the plaintiffs, it was not determinative. Counsel also responsibly acknowledged that, even if Ms Guan had been present, the plaintiffs would still be seeking to wholly discontinue the proceeding against all defendants given the knowledge they now have regarding the transfer of Mr Hu’s interest in the Bentleigh Property pursuant to the Family Law Agreement.
Further submissions of the plaintiffs included the following:
(a) Submissions in relation to the proper construction of r 37A.05 of the Rules, which in part resulted in counsel for the plaintiffs understandably accepting that r 37A.05(5)(a) could not engage. It was also ultimately accepted that r 37A.05(5)(b) could not engage insofar as the plaintiffs sought to rely upon possible action by a trustee in bankruptcy against Mr Hu under ss 120 or 121 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).[28] This is because, pursuant to s 27 of the Bankruptcy Act, this court does not have jurisdiction in such matters and therefore any claim to be made under those sections in another court does not constitute ‘a process in the Court’ under r 37A.05(5)(b) of the Rules.
(b) There was nothing of substance in the timing of the plaintiffs’ decision to discontinue the proceeding, or the fact that it occurred a number of days after Mr Hu’s affidavit of 14 October 2022 was provided to the plaintiffs. In this context it was emphasised that it remained the fact that it was the knowledge regarding the Family Law Agreement, and its role in connection with the transfer of the interest in the Bentleigh Property, that was the determinative factor in deciding to discontinue the proceeding.[29]
(c) Submissions regarding the proposed Hu Ancillary Order, even though no freezing order was to be sought against him. It was submitted that an ancillary order may have been appropriate against Mr Hu because the information could have assisted in the enforcement of any costs orders obtained in the Oppression Proceeding against him, even if it was concluded that such an order was not necessary or desirable to be made for the purpose of the Guan Freezing Order.
[28]Which was the basis upon which the plaintiffs had pursued their claim against Ms Guan under r 37A.05(5)(b) of the Rules.
[29]Reference was also made to some logistical difficulties in terms of timing as a result of counsel having been away from Friday 14 October 2022 to Sunday 16 October 2022 for personal reasons, and not having the opportunity to read the material until 17 October 2022 in circumstances where reply affidavit material was due to be filed by midday on 18 October 2022.
For completeness I add that, subsequent to the delivery of oral reasons ex tempore and indicating what orders I proposed to make, counsel for the plaintiffs informed the court that another possible ‘process in the Court’ that might have been utilised for the purpose of r 37A.05(5)(b) of the Rules was s 172 of the Property Law Act 1958 (Vic), which relevantly provides that:
… every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.
This had not been the basis upon which the plaintiffs had put or advanced their claims prior to being granted leave to discontinue the proceeding, with reliance having been placed solely on ss 120 and 121 of the Bankruptcy Act.[30] Counsel for the plaintiffs informed the court in this context that he was raising the point more for completeness but did not contend that it made any difference to the position, or the plaintiffs’ desire to discontinue the proceeding.[31]
[30]During exchanges with counsel there was some reference to the prospect of a constructive trust arising, although this had not been the basis upon which the proceeding had been advanced either. It was also ultimately (and responsibly) acknowledged that, on the evidence before the court, counsel for the plaintiffs could not see a basis on which such a contention could be advanced.
[31]During this exchange counsel also confirmed that the plaintiffs have not been able to uncover any authorities directly addressing a circumstance where an ancillary order had been made against a person where such an order was not ancillary to the freezing order made against the same person, but ancillary to a freezing order or prospective freezing order made against another person. Reference was made to the decision in Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 (Forrest J) as potentially being a tangential or indirect support for such a position.
Mr Hu’s submission
Mr Wang, the solicitor who appeared for Mr Hu, relied upon the Hu Costs Submission, to which I refer but will not set out, and supplemented the matters raised in that submission orally. Mr Hu submitted that the plaintiffs should pay the costs of and associated with the proceeding, fixed in the sum of $8,000, and that they should be paid forthwith. In the alternative, it was submitted that the plaintiffs should pay Mr Hu’s costs of and associated with the proceeding, to be assessed on a standard basis. In substance, Mr Hu’s submissions and position were to the following effect:
(a) Any difficulties with effective service on Mr Hu’s ex-wife, Ms Guan, were irrelevant and did not provide any support for the plaintiffs’ primary or alternative positions in relation to costs.
(b) It was wrong to suggest that the plaintiffs were not aware that the transfer of Mr Hu’s interest in the Bentleigh Property was linked to his divorce from Ms Guan and a family law arrangement. This, so it was said, was because it was apparent from evidence Mr Hu gave in answer to questions asked in cross-examination by the plaintiffs’ counsel in the Oppression Proceeding on 24 August 2022. In this context it was contended that the plaintiffs were clearly on notice of the connection with the divorce and a family law arrangement but, instead, they chose not to believe Mr Hu, and proceeded with the application on a speculative basis underpinned by guesswork.
(c) The plaintiffs had previously had the opportunity to ask Mr Hu for more details about the divorce and family law arrangement if they wanted them, and they had either failed or chosen not to do so. It was submitted that this could have been explored further during Mr Hu’s cross-examination on the topic on 24 August 2022 in the Oppression Proceeding. Alternatively, it was said that it could and should have been followed up thereafter, by writing to Mr Hu through his solicitors and making such enquiries of him as the plaintiffs wished. It was emphasised that the plaintiffs did not do so but proceeded, so it was said, hastily and speculatively with the commencement of the proceeding seeking the Guan Freezing Order and the Hu Ancillary Order.
(d) There ought to be some doubt as to whether it was in fact the knowledge of the Family Law Agreement and its connection with the transfer of Mr Hu’s interest in the Bentleigh Property that was the determinative factor given the timing of the plaintiffs’ decision to discontinue the proceeding. In this context reference was made to Mr Hu having served detailed written submissions on 17 October 2022 setting out numerous reasons why it was said that the application must inevitably fail. Reference was also made to the fact that the plaintiffs had been in possession of Mr Hu’s affidavit since 14 October 2022, that addressed the Family Law Agreement, but had continued to press on with the application. This was said to include the filing of a further affidavit of the plaintiffs’ solicitor on 18 October 2022 that was seemingly directed towards questioning whether the divorce and Family Law Agreement were in some way not genuine.
(e) In any event, it was said that there was no onus on Mr Hu, as a prospective respondent to a freezing order application, to assist the plaintiffs to prove their own case. It was submitted that there was no reason why Mr Hu should have been required to disclose the terms of the Family Law Agreement, which contains personal, sensitive and confidential matters.
(f) The plaintiffs’ application for the Guan Freezing Order and the Hu Ancillary Order were bound to fail.
(g) The claimed opportunities for Mr Hu to volunteer information to the plaintiffs about the divorce and the Family Law Agreement were not really opportunities at all, and there was no obligation upon Mr Hu to do so. In this context it was emphasised that Mr Hu’s evidence in cross-examination in the Oppression Proceeding revealed the link between the divorce and family law arrangement, and the transfer of his interest in the Bentleigh Property.
(h) It was emphasised that: the letter of 5 September 2022 was addressed to Ms Guan and not Mr Hu; neither that letter, nor any other correspondence prior to 7 October 2022, foreshadowed that relief might be sought against Mr Hu; no correspondence sought information from Mr Hu in relation to the transfer of his interest in the Bentleigh Property; and that the plaintiffs proceeded in haste and urgently in circumstances where there was no real urgency, resulting in an unnecessary urgent hearing before Elliott J on 11 October 2022, which the plaintiffs conceded at that time and subsequently did not need to proceed with such urgency.
(i) The affidavit material and exhibits relied on by the plaintiffs were excessive and largely unnecessary given the nature of the application being pursued.
(j) The proceeding had been commenced and continued in a reckless manner where it was evident that it was based upon guesswork and speculation and in circumstances where it ought not to have been pursued.
With respect to the amount of costs, reference was made to the open offer made by the defendants to resolve the costs issue for $5,000 prior to today’s hearing, in circumstances where there was evidence that Mr Hu’s costs were in the order of $14,000 up to the day prior to the hearing, but excluding costs associated with the Hu Costs Submission and some other disbursements. This offer was not accepted and it was submitted that the suggested $8,000 amount for costs was conservative.
Consideration and disposition
I do not accept the plaintiffs’ submission that Mr Hu should pay the plaintiffs’ costs of and associated with the proceeding. Nor do I accept their alternative contention that there should be no order as to the costs of the proceeding.
In the circumstances of this case the ‘starting point’ under r 63.15 of the Rules is that the plaintiffs, as the discontinuing parties, should pay the costs of the defendants. Having considered the evidence and submissions, taking into account the principles and observations earlier referred to, and recognising that the issue before me involves the court’s discretion, to be exercised judicially having regard to the circumstances, I am not persuaded by the plaintiffs that the costs position should be other than as is reflected in r 63.15 of the Rules. In my view this is a clear case where, as discontinuing parties, the plaintiffs should pay the defendants’ costs of and associated with the proceeding. Given the circumstances of this case, this would have remained the position even if r 63.15 of the Rules had not been the ‘starting point’.
Conscious as I am of the Court of Appeal’s observations in Luxmore Pty Ltd v Hydedale Pty Ltd[32] regarding the nature and extent of reasons relating to costs issues, and the amounts involved, I shall elaborate relatively briefly regarding the reasons for the conclusion that I have reached.
[32](2008) 20 VR 481, [12] (Maxwell P and Kellam JA).
Whilst I accept that the evidence showed that there have been difficulties serving Ms Guan, that does not in my view provide any relevant support or basis for the primary or alternate costs positions advanced by the plaintiffs in circumstances where the proceeding was also commenced and vigorously and urgently pursued against Mr Hu. Further, it was and remained open for the plaintiffs to seek an order for substituted service against Ms Guan which, on the material before me, would have had good prospects of success and could have been dealt with at short notice. In addition, counsel for the plaintiffs acknowledged that the plaintiffs would have discontinued the proceeding even if Ms Guan had been served, and acknowledged that the determinative consideration for the discontinuance related to the divorce and Family Law Agreement and not the cost, delay or related considerations connected with challenges with service on Ms Guan. Although I accept that the service issue is one of the circumstances appropriate to be taken into account in the exercise of my discretion, it is not a matter which, whether alone or in combination with any other circumstances, aids or supports the plaintiffs’ position regarding costs.
This is a case where, although there has been no adjudication on the merits, the circumstances reveal that the plaintiffs have effectively capitulated and surrendered completely late in the day before the hearing of the substantive matters in the proceeding was to take place — being an urgent hearing arranged by the court that was to take place only days after the filing of the originating process. It is also apparent from the evidence and submissions that Mr Hu has had to deal with an extensive and voluminous amount of material and that it has been necessary for Mr Hu to devote time and money in order to deal with the proceeding.
The plaintiffs’ decision to seek leave to wholly discontinue the proceeding against all defendants and abandon that which they had commenced without obtaining any aspect of the relief that they were seeking, in the context and circumstances in which their abandonment came about, demonstrates a capitulation or surrender by one party to another of the kind addressed in the authorities to which I have earlier referred. That being so, this is sufficient reason of itself to require the plaintiffs to pay the defendants’ costs of and associated with the proceeding unless there are other circumstances properly to be taken into account in the exercise of the court’s discretion that would lead to a different result. In this case there are no such circumstances, recognising also that the starting point under r 63.15 of the Rules is that the plaintiffs shall pay the costs of the parties against whom the proceeding is discontinued and that, consistent with the authorities referred to above, the onus is upon the plaintiffs as discontinuing parties to persuade the court that it should ‘otherwise order’.
For the avoidance of doubt, I add that the above observations are not intended to, and do not, carry with them a criticism of the plaintiffs’ decision to wholly discontinue the proceeding against the defendants, which was plainly taken by the plaintiffs after receiving advice. On the evidence before me, this presents as an understandable position for the plaintiffs to take. That, however, does not alter the fact that the plaintiffs have capitulated and surrendered.
I do not accept that the plaintiffs’ primary submission, regarding Mr Hu’s claimed failure to disclose sufficient information about the transfer of his interest in the Bentleigh Property, weighs in the balance in a way that would justify adopting the plaintiffs’ primary or alternate position on costs. It is desirable that I make some further brief observations regarding this submission and some other matters raised.
I do not regard there to be persuasive force in the plaintiffs’ contention that it was incumbent upon Mr Hu to volunteer further information to the plaintiffs about his divorce, the Family Law Agreement, or its connection with the transfer of his interest in the Bentleigh Property to his former wife, Ms Guan. In this context, I note the following.
The plaintiffs commenced the proceeding with urgency in the circumstances that I have earlier referred to, named Mr Hu as a defendant, and sought substantive relief against him in the form of the Hu Ancillary Order.
I do not accept the implicit and express submission that Mr Hu was delinquent in some relevant way by not volunteering additional information regarding the divorce and the Family Law Agreement at an earlier time. Mr Hu was under no obligation to do so. The letter of 5 September 2022 was not addressed to him but to his former wife. The letter was copied to Mr Hu’s solicitors, but nothing was sought from him and the letter did not foreshadow any proposed application or proceeding against him.
Further, the plaintiffs did not make any enquiry of Mr Hu through his solicitors in relation to the divorce or any link with the transfer of his interest in the Bentleigh Property before proceeding to seek to bring the application in the Oppression Proceeding or before filing the originating process in this proceeding. The proceeding was then urgently pressed, with events moving rapidly between 7 October 2022 and 11 October 2022 when the proceeding came before Elliott J, even though there was no demonstrated need to proceed with such urgency.[33]
[33]Which was responsibly accepted by counsel for the plaintiffs before Elliott J and before me.
In addition, a review of Mr Hu’s evidence given during cross-examination by counsel in the Oppression Proceeding reveals that Mr Hu said in his evidence that the transfer of his interest in the Bentleigh Property was linked to the divorce from his former wife. A moment later he agreed that the transfer occurred in the context of what cross-examining counsel said was a ‘family arrangement’. To the extent that it was submitted that Mr Hu’s evidence did not reveal that the transfer was or may have been linked to Mr Hu’s divorce and some form of family law settlement, I do not accept that submission. I reach this conclusion considering Mr Hu’s evidence not in isolation but in the context of the other evidence given, including that referred to by counsel for the plaintiffs. It is sufficient to say for present purposes that a review of the transcript shows, plainly in my view, that part of Mr Hu’s evidence was to the effect that the transfer of his interest in the Bentleigh Property came about in connection with the divorce from his former wife, Ms Guan.
Further, the evidence of Mr Hu also revealed that it was open for counsel to continue that part of his cross-examination in the Oppression Proceeding and explore further the nature and extent of the link between the divorce and the transfer of Mr Hu’s interest in the Bentleigh Property. Perhaps all the more so if, as was contended, such evidence was said to be inconsistent with, or sit in tension with, earlier parts of Mr Hu’s evidence. The plaintiffs did not pursue further cross-examination on the topic. This observation is not a criticism of how counsel dealt with the topic in cross-examination in the Oppression Proceeding, which of course involved different issues and forensic and other considerations.
It is also the case that, from at least 22 August 2022, the plaintiffs were aware of the transfer; and from 24 August 2022, were aware of Mr Hu’s evidence. From that time until the time this proceeding was commenced there was an extended period of time in which the plaintiffs could have enquired in writing through Mr Hu’s solicitors, regarding the circumstances of the divorce and the property transfer, which they did not. This occurred in circumstances where it is apparent that the plaintiffs harboured doubt as to whether Mr Hu’s evidence regarding his divorce was true or genuine. So much is evident from the plaintiffs’ solicitors’ affidavits of 7 October 2022 and 18 October 2022. For example, in the first of those affidavits reference is made to Mr Hu’s evidence about the divorce, but Mr Han deposes that ‘… there is no evidence that this is true …’. Mr Han also makes reference to Mr Hu having referred to Ms Guan as his ‘wife’ in his evidence. The existence of doubt being harboured by the plaintiffs is further reinforced in Mr Han’s affidavit of 18 October 2022, where he recounts observations of interactions between Ms Guan and Mr Hu that he describes as being of a ‘loving and caring manner towards one another’. He also refers to further instances of the use of the word ‘wife’ in Mr Hu’s evidence.
If, as is apparent, the plaintiffs harboured doubts about whether Mr Hu was in fact divorced, or whether the divorce was genuine, that could have been readily pursued by the plaintiffs in at least two ways. First, during cross-examination on 24 August 2022. Second, at any time between 24 August 2022 and the commencement of the proceeding, by writing a letter and making some straightforward enquiries. As I have said, this did not occur.
In all the circumstances, I do not accept that Mr Hu not volunteering, without enquiry of him, information regarding his divorce, financial circumstances, or the Family Law Agreement, weighs at all against him in the exercise of my discretion in this costs context. On the other hand, I do accept Mr Hu’s submission that, given the circumstances, the plaintiffs’ failure to enquire further of Mr Hu before commencing the proceeding does weigh in favour of Mr Hu’s position. It will be apparent that I do not accept the plaintiffs’ submission that the plaintiffs were left with no choice but to commence and pursue this proceeding.
By pursuing the matter in the way that the plaintiffs have, they put Mr Hu in a position where he was entitled and required to defend himself, as he has. It was necessary for him and his advisers to consider and address a vast volume of material and a number of issues, which is apparent from both the evidence and the written submissions. This material reveals that Mr Hu’s solicitors have proceeded with this task in a considered and genuine manner, and in circumstances where they have been controlled in the work that has been undertaken and the professional costs that have been incurred.
In my view what the plaintiffs seek to do in this case is to impose something of a disclosure burden on Mr Hu that he simply did not bear. It is also not to be forgotten in this context that, as the authorities earlier referred to make clear, orders of the kind sought by the plaintiffs are a drastic remedy and a court must exercise a high degree of caution. Plainly enough, the burden was upon the plaintiffs, and if they harboured doubts about the divorce or the family law position they could and should have enquired about them, but did not.
In these circumstances it is not strictly necessary to address and decide whether, as Mr Hu submitted, the application was doomed to fail. This is because, thus far, I have proceeded on the assumption that there was a good arguable case for the plaintiffs on the substantive issues and still concluded that the plaintiffs should pay the defendants’ costs.[34]
[34]It is not necessary to address the tension in the authorities regarding the question of whether the ‘good arguable case’ standard is to be imported into r 37A.05(b), although I observe without analysis that such language is used expressly in r 37A.05(1) but not in r 37A.05(5).
That said, given the submissions made in the costs context, and the fact that I had the opportunity to read and consider the extensive affidavit evidence and written submissions in advance of the hearing, I am in a position to make three brief additional observations regarding the application notwithstanding that it was not ultimately pursued.[35]
[35]But recognising that the issues to which I refer below were not fully argued.
First, in my view r 37A.05 of the Rules was not engaged. The rule only applies in the circumstances referred to in r 37A.05(1) (a) or (b). There was no judgment in favour of the plaintiffs and therefore r 37A.05(1)(a) does not engage. To engage r 37A.05(1)(b) it is necessary that the applicant — being the plaintiffs in this case — has a ‘good arguable case’ on an ‘… accrued or prospective cause of action justiciable in …’ (relevantly) ‘… the Court …’.
In this case the Guan Freezing Order was being sought only in connection with what was said to be a likely costs order in favour of the defendants in the Oppression Proceeding[36] following the determination of that proceeding.
[36]Being the plaintiffs in this proceeding.
No other existing or prospective claim against Mr Hu or any other party was raised or identified. In my view, this prospective claim for costs does not constitute a ‘cause of action’ within the meaning of that expression in r 37A.05(1)(b). If that is correct then r 37A.05 cannot engage in the present case.[37]
[37]However, the question would remain as to whether, in an appropriate case, a freezing order could be made in connection with an existing or prospective costs order pursuant to the court’s inherent jurisdiction even if r 37A.05(1)(b) was not engaged. So much is reinforced by the terms of r 37A.06, which provides that nothing in Order 37A limits the inherent, implied or statutory jurisdiction of the Court to make a freezing order or ancillary order.
Second, given that the application was pursued only on the basis that Ms Guan may be required to divest Mr Hu’s transferred interest in the Bentleigh Property pursuant to ss 120 or 121 of the Bankruptcy Act, r 37A.05(5)(b) could not be satisfied and therefore the court’s discretion under that rule could not be enlivened. This is because, by reason of the operation of s 27 of the Bankruptcy Act, this court does not have jurisdiction to hear and determine such claims. Consequently, the process for making a claim under those sections is not a ‘process in this Court’ as required by r 37A.05(5)(b).[38]
[38]Given that Mr Hu’s interest in the Bentleigh Property was transferred to Ms Guan, it was understandably accepted by the plaintiffs during argument that r 37A.05(5)(a) of the Rules would not engage because the relevant transferred property is no longer the property ‘of the’ relevant prospective judgment debtor (being Mr Hu in this case).
Third, even if the court’s discretion was enlivened, the circumstances were such that it was at least highly likely that the application against Ms Guan and Mr Hu would have failed. However, given the conclusion I have reached above that the plaintiffs should pay the defendants’ costs even if the plaintiffs had a good arguable case and the court’s discretion was enlivened, it is neither necessary nor desirable to elaborate further on these matters. I am also conscious of the observations in the authorities earlier referred to regarding hypothetical hearings.[39]
[39]Although it may be noted that, in this case, the nature of the application, the consideration of the evidence and submissions in advance of the hearing, and the merits related submissions made on the costs application, have allowed for a more detailed consideration of the merits than is often necessary, possible or desirable when a proceeding has been discontinued.
The end point is that the plaintiffs should pay the defendants’ costs of and associated with the proceeding. I propose to make orders to the effect referred to below and address with the parties whether I should make a direction requiring the parties to confer with a view to agreeing the amount of costs to be paid by the plaintiffs. There is no need to make an order that the payment of costs be made forthwith because the proceeding will be at an end when these orders are authenticated.
I do not propose to specify a fixed sum for costs as I do not have sufficient evidence before me and, in any event, additional costs have now been incurred in connection with what turned out to be a somewhat lengthy oral hearing in relation to the costs issue.
I propose to make the following orders:
1.The plaintiffs’ summons filed 11 October 2022 seeking to amend the originating process be dismissed without adjudication on the merits.
2.The plaintiffs have leave to wholly discontinue this proceeding against the defendants, with such discontinuance to take effect at the time and date of authentication of these orders.
3.The plaintiffs pay the defendants’ costs of and associated with the proceeding, to be assessed on a standard basis if not agreed.
SCHEDULE OF PARTIES
S ECI 2022 04030
BETWEEN
| H & Q CAFE PTY LTD (ACN 624 852 179) | First plaintiff |
| XIN QIU (ALSO KNOWN AS CINDY QIU) | Second plaintiff |
| HOSTEC HOMES PTY LTD (ACN 139 620 723) ATF SJS FAMILY TRUST | Third plaintiff |
| - and - | |
| RAYMOND BING HU | First defendant |
| H.G.P.Y. PTY LTD (ACN 105 241 478) ATF HU FAMILY TRUST | Second defendant |
| CATHERINE WEI GUAN | Third defendant |
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