Jing Li v Jin Lian Group Pty Ltd (No 2)

[2018] NSWSC 658

Supreme Court

New South Wales

Medium Neutral Citation:	Jing Li v Jin Lian Group Pty Ltd (No 2) [2018] NSWSC 658
Hearing dates:	On the papers (last submissions received 4 May 2018)
Decision date:	15 May 2018
Before:	Gleeson JA
Decision:	(1)   The defendant to pay the costs of Mills Oakley Lawyers Pty Ltd in respect of the interlocutory process filed 15 March 2018 on the ordinary basis.  (2)   The costs the subject of order (1) above be paid forthwith.
Catchwords:	COSTS – costs following dismissal of interlocutory process – where successful third party sought indemnity costs payable forthwith – where special costs order relied upon Calderbank offer and the defendant’s allegedly hopeless interlocutory application – whether costs should be awarded on the ordinary basis or on an indemnity basis – whether costs orders should not be entered pending the determination of winding up proceedings COSTS – interest on costs – where successful third party sought order for interest on costs from date(s) costs paid – Civil Procedure Act 2005 (NSW) ss 101(4), (5) – where application not protracted and no evidence of costs arrangements or that costs had been paid – whether departure from default provision under the rules appropriate
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56, 98, 99, 101 Courts and Other Justice Portfolio Legislation Amendment Act 2015 (NSW) Uniform Civil Procedure Rules 2005 (NSW), rr 36.16(3A), 42.1, 42.7
Cases Cited:	Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1998) 81 ALR 397 Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 In the matter of Optimisation Australia Pty Ltd (Costs) [2018] NSWSC 280 Jones v Bradley (No 2) [2003] NSWCA 258 Leichhardt Municipal Council v Green [2004] NSWCA 341 McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Ragata Developments Pty Ltd v Westpac Banking Corp (1993) 217 ALR 175 Re Consortium Centre Pty Ltd (No 2) [2012] NSWSC 1093 Re Vangory Holdings Pty Ltd [2015] NSWSC 801 Rodi v Gelonesi [2016] NSWCA 348 Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie and Co Pty Ltd (2001) 53 NSWLR 626; [2001] NSWCA 461 Seller v Jones [2014] NSWCA 19 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99
Category:	Costs
Parties:	Jing Li (Plaintiff) Jin Lian Group Pty Ltd (Defendant) Mills Oakley Lawyers Pty Ltd (Respondent to the Motion)
Representation:	Counsel: Mr F Assaf (Plaintiff) Mr H Insall SC (Defendant) Mr A Moses SC /Ms Diana Tang (Respondent to the Motion)   Solicitors: Mills Oakley Lawyers Pty Ltd (Plaintiff) Auyeung Hencent & Day Lawyers (Defendant) Mills Oakley Lawyers Pty Ltd (Respondent to the Motion)
File Number(s):	2018/23986

Judgment

1. GLEESON JA: On 20 April 2018, the Court dismissed an application by the defendant, Jin Lian Group Pty Ltd (JLG), seeking orders to restrain Mills Oakley Lawyers Pty Ltd (Mills Oakley) and its employed solicitors from acting for the plaintiff, Mr Jing Li, in proceedings for the winding up of JLG on the ground of insolvency: Jing Li v Jin Lian Group Pty Ltd [2018] NSWSC 479 (the principal judgment).

2. At the request of the parties, the Court reserved the question of costs. The Court gave directions for the filing of written submissions and indicated that the question of costs would be dealt with on the papers. Written submissions have now been received in relation to costs.

3. Mills Oakley says that there should be a costs order in its favour on an indemnity basis payable forthwith. In support of a special costs order, Mills Oakley relies upon a Calderbank offer and the contention that JLG unreasonably pursued the application.

4. However, Mills Oakley also says that such orders should not be entered pending the determination of the winding up proceedings which have been fixed for hearing on 5 June 2018. The stated reason for seeking, in effect, a stay of entry of any costs order in its favour is that Mills Oakley wishes to reserve its right to make an application that the costs to be paid by JLG be paid by JLG’s solicitors personally pursuant to s 99 of the Civil Procedure Act 2005 (NSW).

5. JLG accepts that it should pay the costs of its unsuccessful application on the ordinary basis and that the costs should be payable forthwith. JLG opposes the application for indemnity costs. JLG also opposes any stay of entry of the costs order pending the outcome of the winding up proceedings.

Relevant principles

6. The Court has a wide discretion to award costs under s 98(1) of the Civil Procedure Act. Costs can be awarded on the ordinary basis or on an indemnity basis: s 98(1)(c). The ordinary rule is that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1.

7. An award of indemnity costs can be made in a variety of circumstances; usually where there has been some relevant delinquency on the part of the unsuccessful party such as unreasonably pursuing or defending proceedings, maintaining a claim for some ulterior purpose or some wilful disregard of known facts or clearly established law: Oshlack v Richmond River Council (1998) 193 CLR 72 at 89; [1998] HCA 11 at [44]; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1998) 81 ALR 397 at 401; Seller v Jones [2014] NSWCA 19 at [58] (McColl JA).

8. It has been said that indemnity costs serve the purpose of compensating the party fully for costs incurred when the Court takes the view that it was “unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 at [20].

9. A Calderbank offer does not automatically result in the Court making a special costs order. The relevant question is whether the offeree’s failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs. That the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure from the ordinary rule as to costs: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] (Giles JA); Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9] (Meagher, Beazley and Santow JJA); Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] (Basten JA).

10. A “walk away” offer may amount to a real compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [36]. It is necessary to consider “whether the particular offer in the circumstances represented a genuine attempt to reach a negotiated settlement, rather than merely to trigger any costs sanctions”: Leichhardt Municipal Council v Green at [39].

11. The factors relevant to whether a rejection of an offer is unreasonable include: whether there was sufficient time to consider the offer; whether the offeree had adequate information to enable it to consider the offer; and whether any conditions are attached and if so, whether those conditions are reasonable. If there are developments in a case after the offer is made, the rejection of an offer may be found to be reasonable: Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie and Co Pty Ltd (2001) 53 NSWLR 626; [2001] NSWCA 461 at [95]-[99].

Indemnity costs

12. Mills Oakley submits that indemnity costs should be awarded because JLG’s application was hopeless, and commenced and continued in circumstances where JLG, properly advised, should have known it had no chance of success, and where it imprudently refused an offer of compromise.

13. JLG disputes the contention that the application was hopeless and misconceived and ought not to have been made. JLG submits that the application involved judgments on matters of degree, such as the likelihood in the circumstances of solicitors from Mills Oakley being called as witnesses for the plaintiff and whether the circumstances indicated that information was being provided in confidence and had been identified with sufficient particularity.

14. Mills Oakley also submits that JLG made allegations of impropriety against Mills Oakley solicitors arising from the witness interview of Mr Jin in July 2017 that were irrelevant or ought never to have been made. This was said to constitute a special circumstance that justifies an indemnity costs order. Reference was made to the remarks of Davies J in Ragata Developments Pty Ltd v Westpac Banking Corp (1993) 217 ALR 175 at 177.

15. JLG says that no allegation of impropriety was made against Mills Oakley and emphasises that, in oral submissions, senior counsel for JLG expressly disavowed any such allegation.

16. The offer of compromise was contained in a letter from Mills Oakley to JLG dated 4 April 2018, and expressed to be a Calderbank offer. The offer was a “walk away” offer, namely, that the application be dismissed with no order as to costs. The offer was open for acceptance until 5pm on 6 April 2018. JLG did not argue that the offer was not a genuine offer. Nor did JLG submit that the period of time the offer was open for acceptance was unreasonably short.

17. Whilst JLG accepts that the offer of compromise was not bettered in the litigation, JLG submits that orders for indemnity costs are to be reserved for “the most unreasonable actions by unsuccessful plaintiffs” referring to Leichhardt Municipal Council v Green at [57]. According to the submission, given that the application was significantly affected by matters which occurred at the hearing, it was appropriate that costs be ordered on the usual basis.

Decision

18. I do not regard this as an appropriate case for the award of indemnity costs.

19. First, I accept JLG’s submission that this type of case involved judgments on matters of degree and that significant matters affecting the outcome occurred during the hearing itself. Those matters were the position taken by the plaintiff’s counsel that the plaintiff would not be calling any of the Mills Oakley solicitors as witnesses in the winding up proceedings; the reading of Mr Li’s affidavit in reply dated 5 April 2018; and Mr Vishney’s further affidavit dated 9 April 2018 that was served on the morning of the hearing.

20. Second, the observation in the principal judgment at [32] that it was mere speculation whether Mills Oakley solicitors asked questions of Mr Jin during the July 2017 interview which should have elicited a response from him disclosing the alleged conversation with Mr Li in June 2016, is not determinative of whether the application by JLG was hopeless. That was not the sole matter relied upon by JLG for its contention that there was a potential that solicitors from Mills Oakley would be called as witnesses.

21. Third, the mere failure by JLG to establish the asserted disclosure of alleged confidential information to Mills Oakley does not demonstrate that this aspect of the application was hopeless. That conclusion involved an assessment of the circumstances in which information was allegedly disclosed to Mills Oakley and whether the information said to be confidential was identified with the requisite degree of precision in relation to the two occasions of alleged disclosure. Whilst that involved an assessment of the quality of the evidence adduced by JLG, other matters were also relevant such as the absence of cross-examination of the Mills Oakley witnesses and that the further affidavit of Mr Vishney dated 9 April 2018 addressing the second occasion of disclosure of alleged confidential information was only served on the morning of the hearing.

22. Fourth, it is not appropriate to attempt to resolve the conflict in the evidence as to the circumstances in which Mr Jin signed an affidavit on 17 July 2017 in the Norwest proceedings on this costs application, when no positive finding was made in the principal judgment. Given that senior counsel for JLG expressly disavowed any allegation of impropriety against the Mills Oakley solicitors, I do not consider that the conduct of JLG grossly prolonged the proceedings, thereby causing Mills Oakley to unnecessarily incur costs.

23. Fifth, I am not persuaded that it was unreasonable for JLG not to accept the “walk away” offer given that two affidavits relied upon by Mills Oakley were served after the offer of compromise on 4 April 2018 and matters which significantly affected the outcome occurred at the hearing (as referred to at [19] above).

Costs payable forthwith

24. The Court has the power to order that costs be payable forthwith under s 98(3) of the Civil Procedure Act and UCPR, r 42.7.

25. One of the recognised category of cases where the Court may depart from the ordinary rule and order costs of an interlocutory application to be payable forthwith, is where the application in respect of which the costs order is sought is one which “represents the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect”: Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432 at [11]-[13] (Barrett J).

26. JLG accepts that the application to restrain Mills Oakley from acting for the plaintiff was a separate and discrete aspect of the proceedings and one where it would be appropriate to order costs be payable forthwith. That concession is properly made. The success of Mills Oakley on the interlocutory application will subsist irrespective of the outcome of the winding up proceedings: Re Vangory Holdings Pty Ltd [2015] NSWSC 801 at [23].

27. Given the concession by JLG, it is not necessary to address Mills Oakley’s alternative submission based on remarks of Black J in Re Consortium Centre Pty Ltd (No 2) [2012] NSWSC 1093 at [8], that an application to restrain solicitors from acting is in substance a separate proceeding and the (successful) solicitors may have been entitled to an assessment of costs forthwith without an order of the Court.

Stay of costs order

28. It is not appropriate to accede to Mills Oakley’s request to defer entering any costs orders pending the determination of the winding up proceedings.

29. First, there is presently no application before the Court by Mills Oakley that a third party also be liable for its costs, either directly or by way of indemnity.

30. Second, there is a significant tension between Mills Oakley’s position in seeking an order that the costs be payable by JLG forthwith (which JLG accepts is appropriate) and at the same time seeking an order that the costs order not be entered pending the determination of the winding up proceedings. That tension should be resolved in a manner consistent with the facilitation of the “just, quick and cheap resolution of the real issues in the proceedings”: Civil Procedure Act, s 56.

31. Third, although different views have been expressed as to whether an application for a third party costs order pursuant to s 99 of the Civil Procedure Act involves a variation of costs orders and is subject to the time limit of 14 days in UCPR, r 36.16(3A) (see, the discussion in Rodi v Gelonesi [2016] NSWCA 348 at [33]-[38] (Payne JA)), that is not a sufficient reason to defer entering the costs orders which should be made in the present case. Whether there is any time limit applicable to a third party costs order under s 99 of the Civil Procedure Act (as to which I express no view), is a matter upon which Mills Oakley must form its own view.

Interest on costs

32. Mills Oakley seeks an order for interest on costs pursuant to s 101(4) of the Civil Procedure Act from the date(s) on which the costs concerned were paid by Mills Oakley (excluding any period during which the orders are not entered).

33. Section 101(4) was amended with effect from 24 November 2015 by the Courts andOther Justice Portfolio Legislation Amendment Act 2015 (NSW) and now provides:

(4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs.

34. Section 101(5) provides that such interest is to be calculated at the prescribed rate (or at any other rate that the Court orders) as from the date the order was made (or any other date that the Court orders).

35. The effect of the amendment to s 101(4) was succinctly explained by Tobias AJA (Macfarlan JA and Emmett AJA agreeing) in McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 at [59]:

It may be observed that the effect of the amendment is that whereas under the previous sub-section the onus lay upon the party seeking an order for the payment of interest, under the new provision the onus is on the party resisting the payment of interest to persuade the court to “order otherwise”. Absent such an order interest is payable by force of the mandatory terms of the sub-section and a court order is no longer required.

36. The amendment to s 101(4) read together with s 101(5) provides a default rule for interest on costs that interest accrues automatically from the date on which the costs are ordered, without the need to make an application for such an order. The Court retains a residual discretion to order otherwise, if the circumstances demand.

37. The legislative history of the power to award interest on costs was recently reviewed by the Court of Appeal in South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 at [19]-[51]. Reference was made to the general factors and range of other considerations that may arise in particular circumstances relevant to the departure from the default position under the rules. One example where departure may well be appropriate is protracted litigation, where costs and liabilities have been paid and/or incurred and a party and/or its solicitors have been out-of-pocket for a significant period: In the matter of Optimisation Australia Pty Ltd (Costs) [2018] NSWSC 280 at [28] (Brereton J).

38. In the present case the application made by JLG was not protracted. Nor is there any evidence as to the arrangements between Mills Oakley and the counsel briefed on its behalf for the application, or what, if any, costs have so far been paid or incurred, and whether Mills Oakley is out-of-pocket. The application by Mills Oakley for a further order under s 101(5) should be refused. It is not otherwise necessary for the Court to make any order in the present case with respect to interest on costs.

Conclusion and Orders

39. JLG should pay Mills Oakley’s costs of the application on the ordinary basis and such costs should be payable forthwith. It is not appropriate to defer entry of these costs orders pending the determination of the winding up proceedings. Nor is it necessary to make an order for interest on costs; s 101(4) and (5) of the Civil Procedure Act will apply according to their terms.

40. Accordingly, the Court makes the following orders:

1. The defendant to pay the costs of Mills Oakley Lawyers Pty Ltd in respect of the interlocutory process filed 15 March 2018 on the ordinary basis.

2. The costs the subject of order (1) above be paid forthwith.

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Decision last updated: 15 May 2018