Jm Properties Pty Ltd v Strata Corporation No 13975 Inc (No 3) - [2006] SADC 46

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
JM PROPERTIES PTY LTD v STRATA CORPORATION NO 13975 INC & ORS (No 3)
Judgment of Her Honour Judge Simpson
28 April 2006
PROCEDURE - MISCELLANEOUS PROCEDURAL MATTERS
Applications brought by plaintiff after trial for orders in the alternative for reduction or assessment of strata fees or account and enquiry into strata fees and for leave to amend pleadings and call fresh evidence, not pursued: applications dismissed

EQUITY - EQUITABLE REMEDIES - INJUNCTIONS
Application by first, third, fourth and sixth defendants for orders restraining the plaintiff and others from disposing of property to continue after judgment - application by plaintiff to discharge, vary, or qualify restraining orders - application for court to direct Registrar to issue summons pursuant to r 93.03 - Held: no basis established by plaintiff to discharge, vary or qualify orders made - plaintiff's application refused - restraining orders to continue until further order
Sufficient evidence for Registrar to be directed to issue summons against plaintiff and its directors to answer a charge of contempt of court
District Court Act 1991 ss 8, 31; District Court Rules 1992 rr 68.02, 93.01, 93.03, referred to.
A and another v C and others (No 2) [1981] 2 All ER 126; RTP Holdings Pty Ltd and anor v Roberts and ors (No 2) [2000] SASC 390; Cirillo and another v Citicorp Australia Ltd and others [2004] SASC 293; Earlscroft University Ltd v Brown (2003) 226 LSJS 194; Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd [1984] 1 WLR 1097, [1985] 3 All ER 747; Mane Market Pty Ltd and ors v Temple SC (SA) unreported, No S6986, 27 November 1998; Jet West & anor v Haddican & ors [1992] 2 All ER 545, applied.

PROCEDURE - COSTS - SCALES OF COSTS - DISCRETION TO VARY SCALE
Application by first, third, fourth and sixth defendants for order for costs on basis other than party and party costs - application for order for costs against non-parties - consideration of circumstances in which such orders should be made - Held: special circumstances of the case warrant order for the costs of the defendants to be paid by the plaintiff on solicitor and client basis - directors of plaintiff and associated company standing behind plaintiff to be jointly and severally liable with plaintiff for defendants' costs
District Court Act 1991 ss 31, 42; Strata Titles Act 1988 s 41A; District Court Rules 1992 rr 68.02, 101.01, 101.07, referred to.
Pascoe Ltd (in Liq) v Lucas (1999) 75 SASR 246; Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Thors v Weekes (1989) 92 ALR 131; Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd unreported, Federal Court, 3 May 1991; Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175; MGICA (1992) Ltd v Kenny and Good Pty Ltd (No 4) (1996) 70 FCR 236; Morris v McEwen and Another (2005) 92 SASR 281; Pirotta v Citibank Ltd and Others (1998) 72 SASR 259; Yates Property v Boland (No 2) (1997) 147 ALR 685; Groom v Earth Moving Contractors Association of SA Inc (No 2) unreported [2001] SASC 241; Sheahan v Northern Australia Land and Agency Co Ltd [1995] SASC unreported 4 November 1993; Australian Guarantee Corporation v De Jager [1984] VR 483; Knight v FP Special Assets Ltd (1992) 174 CLR 178; Forrest Pty Ltd v Keen Bay Pty Ltd (1991) 4 ACSR 107; Bischof v Adams [1992] 2 VR 198; Carborundum Abrasives Pty Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757; R v Foster; Ex parte Foster v Duus (1994) 121 ALR 494; Oz B&S v Elders (1993) 117 ALR 128, applied.

JM PROPERTIES PTY LTD v STRATA CORPORATION NO 13975 INC & ORS (No 3)
[2006] SADC 46

Reasons for judgment against the plaintiff in the action, JM Properties Pty Ltd (‘JM Properties’), were delivered in this action on 16 February 2006. Judgment for the defendants was not entered at the time reasons were published. I refer to the reasons for judgment, without repeating them here.
There were then two outstanding applications, brought by JM Properties by separate Notice for Specific Directions, both filed on 8 September 2005, as well as orders made on 15 August 2005, restraining JM Properties, its two directors, Mr and Mrs Balalis, and another company, Cos Holdings Pty Ltd, from disposing of assets, without notifying the first defendant and without the consent of the third, fourth and sixth defendants, which remained to be further considered.
There was also the question of an order for costs.
Application brought by JM Properties in respect of Strata Contributions

8 September 2005
By Notice for Specific Directions filed on 8 September 2005, JM Properties brought an application for the following orders:
1.That in respect of the period 31 July 2002 to date, strata fees payable by JM Properties to Strata Corporation No 13975 Inc (‘the Strata Corporation’) be reduced by the amount ($16,052.96) set out in paragraph 15.3 (wrongly described as paragraph 16.3) of the affidavit sworn by Mrs Marina Balalis on 8 September 2005;
2.That in the alternative, an assessment be undertaken by the court as to the proper level of strata fees to be paid by JM Properties to the Strata Corporation from 31 July 2002 to the date of the assessment, in such manner, including re-opening the trial to hear evidence as to the assessment, as the court deemed fit;
3.That in the further alternative, there be an account and enquiry as to the proper level of strata fees to be paid by JM Properties to the Strata Corporation from 31 July 2002.
The application was brought at a time when JM Properties was subject to and in default in respect of an interim order made on 15 June 2005, pursuant to section 41A(11) of the Strata TitlesAct 1988, for payment by JM Properties of the sum of $63,225.30 in respect of outstanding strata contributions owed to the first defendant, Strata Corporation 13975 Inc (‘the Strata Corporation’). The first payment of $31,612.65 was to be made within 14 days of the order and the second payment in the same sum by 3 August 2005. The second payment was not made by 3 August 2005, or at all.
The interim order ceases to have effect upon the determination or resolution of the proceedings brought under section 41A of the Act.
The application was adjourned on a number of occasions at the request of counsel for JM Properties.[1] On 22 March 2006, counsel for JM Properties advised that the application was not pursued.[2]
Application to amend pleadings in Action No 394 of 2003 and Action No 1030 of 2003
[1] See [2006] SADC 12 paras 448 et seq
[2] Transcript pp 58-62 22 March 2006
21 March 2006
In substitution for the above application of 8 September 2005, JM Properties brought an application by Notice for Specific Directions filed on 21 March 2006 to amend the Third Further Amended Statement of Claim in this action, and the Amended Defence in Action No 394 of 2003, to include relief in the form of orders for an account and enquiry by a Master into strata contributions owed by JM Properties to the Strata Corporation, and/or an order varying or reversing decisions of the Strata Corporation to levy contributions against JM Properties.
The application of 21 March 2006 was not pursued in this action.[3] In so far as it related to Action No 394 of 2003, the action brought against JM Properties by the Strata Corporation for the recovery of unpaid strata contributions, the application has been dealt with in that action.[4]
Applications brought by JM Properties for Variation of Injunction

[3] Transcript pp 58-62 22 March 2006
[4] See [2006] SADC 37
8 September 2005
On 8 September 2005, JM Properties also brought an application for a variation of the following orders made on 15 August 2005[5]:
[5] See [2005] SADC 105
1.ON THE Undertaking given by the first defendant to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge should hereafter be of the opinion that JM Properties Pty Ltd, Mr Jack Balalis and Mrs Marina Balalis shall have sustained any by reason of this order which the first defendant ought to pay:
(a)     That until such time as judgment is delivered in this action, the plaintiff, whether by itself, its agents or employees, do provide the first defendant with written notification of any contract for sale including a copy of any contract for sale of real property entered into by or on behalf of the plaintiff within seven (7) days of the date of the contract and, in any event, 48 hours prior to settlement on the contract, save in respect of a contract on the property at 3/8 Railway Terrace, Port Elliot, which may be sold if the net proceeds are to be paid entirely to mortgagees in respect of the property and in respect of legal fees already incurred.
(b)     That until such time as judgment is delivered in this action, the plaintiff’s directors, Mr Jack Balalis and Mrs Marina Balalis, do provide the first defendant with written notification of any contract for sale including a copy of any contract for sale of real property entered into by them or on their behalf within seven (7) days of the date of the contract and, in any event, 48 hours prior to settlement on the contract.
2.ON THE Undertaking given by the third, fourth and sixth defendants by their counsel Mr S Walsh QC to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge should hereafter be of the opinion that JM Properties Pty Ltd, Mr Jack Balalis and Mrs Marina Balalis, and Cos Catering Pty Ltd shall have sustained any by reason of this order which the third, fourth and sixth defendants ought to pay:
Until further order:
(a)JM Properties Pty Ltd be restrained from disposing of, charging, encumbering or otherwise dealing with those assets held by it (including but not limited to Units 4, 5 and 6 of the Strata Corporation No.13975 Inc) without the written consent of the third, fourth and sixth defendants, save that the property at 3/8 Railway Terrace, Port Elliot, may be sold if the net proceeds are to be paid entirely to mortgagees in respect of the property and in respect of legal fees already incurred.
(b)     Marina Balalis and Jack Balalis be restrained from disposing of, charging, encumbering or otherwise dealing with assets whether real property or the business of Cos Catering Pty Ltd, without the written consent of the third, fourth and sixth defendants.
The net financial position of JM Properties, Mr and Mrs Balalis and Cos Catering Pty Ltd, was as at 22 July 2005 at their own estimation between $1.244 and $1.494 million as follows:
Units 4, 5 and 6 Renaissance Arcade                   $ (156,000)
3/8 Railway Terrace Port Elliott
(on the market)  $ 150,000
50 (50A) Clifford Street Torrensville
(under development)  $    70,000
               21 Caroline Drive Allenby Gardens  $ 230,000
               Cos Catering Pty Ltd
               Catering Business  $ 700,000 - 950,000
               Furniture and personal effects  $ 250,000_________
$1,244,000-1,494,000
It was assumed by Mr and Mrs Balalis for the purpose of their estimation that the three units in the Renaissance Arcade owned by JM Properties would be disposed of at a loss.
The application of 8 September 2005 sought an order giving Mr and Mrs Balalis liberty to sell the property situated at 50A Clifford Street, Torrensville, (previously incorrectly referred to as 50 Clifford Street, Torrensville). The proposed sale was pursuant to a contract for the sale of the Torrensville property for the sum of $350,000. The contract had been executed by the prospective purchaser on 3 August 2005 for settlement on 31 October 2005.[6] The net proceeds of the sale of the property were to be applied towards repayment of the debt owed to the mortgagee, Macquarie Bank, including debt secured by mortgage over other properties.[7]
[6] Affidavit of Mrs Balalis sworn 3 August 2005
[7] Affidavit Mrs Balalis sworn 8 September 2005, 14 November 2005
Consideration had been given to excluding the property at 50A Clifford Street, Torrensville from the orders made on 15 August 2005 on an earlier application of the plaintiff, supported by affidavits sworn by Mrs Balalis on 3 August and 8 August 2005. It was my opinion then that it was not appropriate to do so.[8]
[8] [2005] SADC 105, paras 34, 50
The consent of the third, fourth and sixth defendants to the proposed sale of the Torrensville property was sought on or around 2 November 2005, by letter to their solicitors from the solicitor for JM Properties. The third, fourth and sixth defendants sought particulars of the debt secured by mortgages over various properties generally and of the application of proceeds of the proposed sale to repayment of debt to the Macquarie Bank.[9] Particulars have not been provided to the defendants or to the court.
[9] Affidavit of Mrs Balalis sworn 14 November 2005; Affidavit of Mr Fotheringham affirmed on 17 March 2006
The application was adjourned, with the application referred to above, on 12 September, 15 November, 21 November and 6 December 2005, on the application of counsel for JM Properties, for reasons associated with the conduct of the plaintiff’s case and as a result of no application or fault of the defendants.
27 February 2006
On 27 February 2006, by Notice for Specific Directions, JM Properties brought a further application, in substitution for the application filed on 8 September 2005, for orders as follows:
1.That the order made on 15 August 2005 restraining Marina Balalis and Jack Balalis from disposing of, charging, encumbering or otherwise dealing with assets whether real property or the business of Cos Holdings Pty Ltd (formerly known as Cos Catering Pty Ltd), without the written consent of the third, fourth and sixth defendants be discharged, or in the alternative, the order be amended by the addition of the words “save and except in the ordinary course of business”.[10]
2.That Mr and Mrs Balalis be at liberty to sell the Torrensville land to apply the whole of the net proceeds of sale to the mortgagee, Macquarie Bank.
3.That Mrs Balalis be at liberty to sell the matrimonial home at Allenby Gardens in order to apply not less than $100,000 from the net proceeds of sale to:
3.1existing legal fees in this action;
3.2 judgment entered against JM Properties in either action.
4.That the first, third, fourth and sixth defendants pay to JM Properties the cost of interest due under the mortgage on the Torrensville property until settlement on the sale of the property by way of damages sustained as a result of the orders made on 15 August 2005 and 25 November 2005.
[10] Oral application at hearing on 22 March 2006
Save and except for any orders as to costs associated with the abandoned application of 8 September 2005, it is the application of 27 February 2006 that remains to be considered.
Cos Catering Pty Ltd
A search conducted on behalf of the third, fourth and sixth defendants on 10 November 2005[11] disclosed that the company, Cos Catering Pty Ltd, was incorporated in Queensland on 12 April 1994. Its only two directors and shareholders are Mr and Mrs Balalis. Mrs Balalis was appointed as a director and secretary on 12 April 1994, and Mr Balalis was appointed as a director on 22 September 2004. The registered office is 21 Caroline Drive, Allenby Gardens, South Australia, which is the matrimonial home of Mr and Mrs Balalis, and the principal place of business is described as Adelaide Institute of TAFE - Cafeteria, 120 Currie Street, Adelaide, South Australia.
[11] Affidavit of Mr Fotheringham affirmed on 21 November 2005
In an affidavit sworn on 22 July 2005, Mrs Balalis said that the business of the company she described as Cos Catering Pty Ltd, for the day-to-day running of which Mr Balalis was responsible, had a market value then between $750,000 and $1,000,000.[12] Its only assets are eight cafeteria businesses. It had then a debt to a mortgagee of $50,000, reflected in registered charges.
[12] And see affidavit of Mr Balalis sworn 24 July 2005
In July and August 2005, when the court was considering whether or not to make restraining orders, counsel for JM Properties asked the court to proceed on the basis that, leaving aside ordinary living expenses, JM Properties and Mr and Mrs Balalis were not and would not be able to meet their major financial obligations, including payments under mortgages and other business expenses, without the disposal of assets, including real property.[13]
[13] Transcript hearing 4 August 2005, p 177-178
The assets not only of JM Properties but also its directors, Mr and Mrs Balalis, including their business of Cos Catering Pty Ltd, were advanced by JM Properties and Mr and Mrs Balalis as providing the other parties to the litigation with some confidence that any judgment or order of the court against the plaintiff would not go unsatisfied or be rendered ineffective by the disposal of assets otherwise available to the plaintiff.
Mrs Balalis said that the ordinary business expenses of JM Properties, Mr and Mrs Balalis and Cos Catering Pty Ltd, and the usual living expenses incurred by Mr and Mrs Balalis, were paid from the profits of the business of Cos Catering Pty Ltd. If the income of Cos Catering Pty Ltd were insufficient for that purpose in the future, then resort to refinancing of assets or the sale of assets might be required. No information about the profits generated by the business of Cos Catering Pty Ltd has ever been provided.
On the other hand, the disposition of other Balalis’ funds to the account of liabilities of the business of Cos Catering Pty Ltd, when the finances of all business and private financial concerns were inextricably intermingled, was a relevant factor in the decision to include Cos Catering Pty Ltd in the orders made on 15 August 2005. There was nothing then to suggest any compromise to the ability of Cos Catering Pty Ltd to pay the ordinary debts of the business, if orders were made. There is no evidence of that now.
Cos Holdings Pty Ltd
The search conducted on behalf of the third, fourth and sixth defendants on 10 November 2005 further disclosed that on 8 July 2005, following a resolution of the company at a meeting held on 1 July 2005, a change of the name of the company, from Cos Catering Pty Ltd to Cos Holdings Pty Ltd, was registered with the Australian Securities and Investment Commission. It is not irrelevant to note that the applications for orders against JM Properties, Mr and Mrs Balalis and Cos Catering Pty Ltd, restraining them from further dealing with certain assets, including the business or real property owned by Cos Catering Pty Ltd, were filed on behalf of the first, third, fourth and sixth defendants on 29 June 2005.
The change of name was brought to the attention of the court by the third, fourth and sixth defendants. On 25 November 2005, the reference to “Cos Catering Pty Ltd” in the orders was amended, without opposition by Mr or Mrs Balalis, to correct the company name to “Cos Holdings Pty Ltd”.
No explanation was provided by way of affidavit as to the reason for the change of the company’s name or for the failure of Mr and/or Mrs Balalis to advise the court of it at the time of the hearings in July and August 2005, in respect of which they both filed affidavits, or at any time thereafter. Counsel for JM Properties and Mr and Mrs Balalis, stated that on his instructions, it was an oversight.

No basis has been established in support of the application to discharge the order in respect of Cos Holdings Pty Ltd. In an affidavit sworn on 21 March 2006[14], Mrs Balalis, who is not the person primarily responsible for running the business, simply asserted that Cos Holdings Pty Ltd is a trading entity, whose only assets are plant and equipment. It owns no real property. It requires an overdraft facility from time to time:
(I)t accordingly has been and will be inappropriate to continue injunctive orders…in respect of Cos Holdings Pty Ltd, which injunction only has the effect of inhibiting its ordinary trading and thereby only creates problems for Cos Holdings Pty Ltd and does not provide any degree of protection for the defendants in the within Action.
[14] Affidavit sworn 21 March 2006, para 15.4
No evidence has been provided to the court regarding the financial position of Cos Catering Pty Ltd or Cos Holdings Pty Ltd. In particular, no evidence has been produced to suggest that as a result of the orders made on 15 August 2005, the ordinary trading of Cos Holdings Pty Ltd is now inhibited, and if so, in what way, or to suggest that it has not been able to pay its debts in the ordinary course of its business.
On the other hand there is evidence, not disputed, that Mr and Mrs Balalis failed to advise the court and the other parties that two days after applications were brought for orders restraining the disposal of assets by the plaintiff, including assets of Mr and Mrs Balalis and Cos Catering Pty Ltd, the name of Cos Catering Pty Ltd was changed to Cos Holdings Pty Ltd.
The Torrensville Property
The application of 27 February 2006 renewed the previous application on behalf of the Balalis’ interests to exclude the Torrensville property from the restraining orders. It is supported by the affidavits of Mrs Balalis sworn on 27 February and 21 March 2006, in which she refers mainly to matters previously raised in affidavits, and the affidavit of Mr Dimitrak, also sworn on 27 February 2006.
Mr and Mrs Balalis wish to sell the Torrensville property and apply the whole of the net proceeds, after paying the surveyor’s fees in the sum of $7,300, to the Macquarie Bank, the mortgagee in respect of the Torrensville and other property, towards repayment of monies loaned to Mr and Mrs Balalis, and/or associated concerns[15]. Other borrowings in the sum of $52,000, referred to below, appear to be secured by the Torrensville property.
[15] Affidavits of Mrs Balalis sworn 27 February and 21 March 2006
Mr Dimitrak is a licensed land agent. He has said that he was responsible for obtaining the purchaser for the Torrensville property in August 2005. The purchaser has apparently advised Mr Dimitrak that he is still willing to proceed on the contract for the sale and purchase of the property, but is not willing to wait indefinitely. It is the opinion of Mr Dimitrak that if the purchaser is lost, another purchaser is likely to offer a sum approximately 10% less for the purchase of the Torrensville property.
The mortgage on the Torrensville property, owned by Mr and Mrs Balalis, partly secures the debt to Macquarie Bank in respect of the property owned by JM Properties at 3/8 Railway Terrace, Port Elliot.[16] The valuation prepared on the Port Elliot property on 11 June 2005 for mortgage purposes on behalf of the Bank of Western Australia, was $480,000.[17]
[16] Affidavit Mrs Balalis sworn 8 August 2005
[17] Affidavit Mr Fotheringham sworn 17 March 2006 Ex MAF3
Under the terms of the orders made on 15 August 2005, the sale of the Port Elliot property was not the subject of restraint, if the entire net proceeds of sale were to be paid to mortgagees in respect of that property and in respect of legal fees already incurred as at 15 August 2005. It was on the market in July 2005. Its net value was said by Mrs Balalis to be $150,000. No explanation is offered as to why the sale of the Port Elliot property has not proceeded.
Allenby Gardens Property
The property at 21 Caroline Drive, Allenby Gardens is owned by Mrs Balalis. Mr Dimitrak also obtained an offer, for a sum not disclosed in the affidavits sworn on 27 February 2006, for the purchase of the Allenby Gardens property, subject to a contract being signed by Mrs Balalis within the following week. The further affidavit of Mrs Balalis, sworn on 21 March 2006, exhibited to it a contract for the sale and purchase of the Allenby Gardens property for the sum of $580,000. The contract was apparently signed by the purchaser on 23 February 2006 and by Mrs Balalis on 6 March 2006. It is said to be subject to the discharge of the injunctive orders of 15 August 2005 by 22 March 2006.
If the sale does not proceed, in the opinion of Mr Dimitrak, the vendor would be fortunate to find another purchaser for the property for a sum of $550,000, or $30,000 less than the contract, and advertising and marketing fees in the order of $7,000 would be incurred.
Mrs Balalis has said that she wishes to sell the Allenby Gardens property in order to pay the sum of not less than $100,000 from the net proceeds of sale towards legal fees incurred by the plaintiff in this action, and any judgment against JM Properties in Action 394 of 2003.[18]
[18] Affidavit of Mrs Balalis sworn 27 February 2006
In July 2005, the equity in the Allenby Gardens property was given by Mrs Balalis as a sum of $230,000. The evidence is now that there is a mortgage over the Allenby Gardens property in the sum of approximately $520,000, leaving at most a sum of $60,000 after discharge of the mortgage and with no allowance for selling expenses. The difference is unexplained. A further sum of $23,000 has apparently since been borrowed in respect of the legal fees of JM Properties in this action against the Allenby Gardens property.
Macquarie Bank
By letter[19] dated 5 September 2005, the Account Manager and the Account Executive, Professional and Business Banking, Macquarie Bank:
·referred to the proposed contract for the sale and purchase of the Torrensville property and advised that it wished Mr and Mrs Balalis to effect settlement on the contract and pay the full proceeds to repay the debt secured over that property
·asked that Mr and Mrs Balalis inform the court that the Bank was ‘in no position to further fund any developments’ by Mr and Mrs Balalis or their related entities
·noted that recent sales of various properties agreed to by Mr and Mrs Balalis had assisted in the continuing litigation in this action
·asked that Mr and Mrs Balalis seek permission from the court to sell the Torrensville property as a matter of urgency, or the Bank would take its own steps to effect a sale, or require the debt to the Bank to be refinanced.
[19] Exhibit MB 1 to Affidavit of Mrs Balalis (7pp) sworn 8 September 2005
A letter dated 4 April 2006[20] from Macquarie Bank to the solicitor for JM Properties advised that the Bank required all net proceeds realised on the sale of the properties at Torrensville or Allenby Gardens to be paid to Macquarie Bank.
[20] Exhibit to affidavit of Mr Costi sworn 5 April 2006, and handed up (not filed)
If the property at Port Elliott were sold, the Bank would request the repayment of all monies owing under the mortgage before releasing any balance to the mortgagor or the second mortgagee. The Bank required ‘full net proceeds from any sale” to finalise mortgages prior to ‘releasing any funds to the mortgagee’(sic).
By facsimile dated 5 April 2006[21], Macquarie Bank advised the solicitor for JM Properties that the sum it required “to clear our debts plus all accrued interest and charges” was the sum of $1,090,555.02.
[21] Exhibit to second affidavit of Mr Costi sworn 5 April 2006, and handed up (not filed)
Matters arising after Orders were made on 15 August 2005
The third, fourth and sixth defendants have made an application for an order directing the Registrar to issue a summons pursuant to Rule 93.03 of the District Court Rules 1992 against the company JM Properties Pty Ltd (ACN 062 504 590), and Jack Balalis and Marina Balalis in their capacity as its directors, and in their personal capacity, for contempt, that is, on account of their contumacious refusal to obey or comply with the orders made on 15 August 2005.[22]
[22] Rule 93.01
In around March 2006, the solicitors for the third, fourth and sixth defendants became aware of a number of matters relevant to the application to vary injunctive orders and to compliance with the orders. Those matters are deposed to by Mr Fotheringham in his affidavit affirmed on 17 March 2006 as follows:
1.Mr and Mrs Balalis are the directors and shareholders of a company, Lamonaca Pty Ltd, a fact not previously disclosed;
2.A Caveat was lodged on 14 September 2005 by Finance Co Pty Ltd over the whole of the land comprised in Certificate of Title Register Book Volume 5906 Folio 450 (50A Clifford Street, Torrensville) - the caveator claiming against the caveatee, the registered proprietors, Mr and Mrs Balalis:
An estate as an equitable mortgagee pursuant to a certain agreement dated 10 September 2005 between the caveator and the caveatee wherein the caveatee agreed to mortgage the said land above described in favour of the caveator.
3.A Caveat was lodged on 25 November 2005 by Ralph Mitrovic and Guiseppe Sidari over the whole of the land comprised in Certificates of Title Register Books Volume 5868 Folio 714, Volume 5856 Folio 512; Volume 5853 Folio 859 (Units 4, 5 and 6 in the Renaissance Arcade) – the caveator claiming against the caveatee, the registered proprietor, JM Properties:
An estate as an equitable mortgagee pursuant to a certain agreement dated 25 November 2005 between the caveator and the caveatee wherein the caveatee agreed to mortgage the said land above described in favour of the caveator.
4.A Caveat was lodged on 1 March 2006 by Frank Borg over the whole of the land comprised in Certificate of Title Register Book Volume 5380 Folio 777 (21 Caroline Drive, Allenby Gardens) - the caveator claiming against the caveatee, the registered proprietor, Mrs Balalis:
An estate as an equitable mortgagee pursuant to a certain agreement dated 24 March 2006 (sic) between the caveator and the caveatee wherein the caveatee agreed to mortgage the said land above described in favour of the caveator.
In an affidavit sworn on 21 March 2006, Mrs Balalis said that she obtained a short-term loan in the sum of $52,000 from Finance Co Pty Ltd on or about 10 September 2005 for a period of 6 weeks. She signed a loan agreement. She did not read it carefully. She understood the loan was unsecured. She was not asked to sign and has no recollection of signing a mortgage document.
She obtained a short-term loan in the sum of $23,000 from Frank Borg, procured through Finance Co Pty Ltd, in or about late February 2006. She signed a loan agreement. She did not read it carefully. She understood the loan was unsecured. She was not asked to sign and has no recollection of signing a mortgage document.
In respect of both loan transactions, Mrs Balalis understood that the lenders might lodge caveats. She made no objection to them when she became aware of them. She did not understand the concept of a ‘caveatable interest’. She did not understand that an equitable mortgage might arise in circumstances where no mortgage document was signed. She had no intention of creating an equitable mortgage or caveatable interest to the lenders in each case.
In another affidavit, sworn on 22 March 2006, Mrs Balalis deposed to matters related to the company, Lamonaca Pty Ltd. Mrs Balalis said that she and Mr Balalis had forgotten about it. She said that Lamonaca Pty Ltd is a shelf company established by a former accountant for use as a trustee of a trust company, although it was never used for that purpose and Mr and Mrs Balalis have instructed their current accountant to attend to its deregistration.
Mr Balalis has not provided any information, by way of affidavit or otherwise, about the matters raised by the third, fourth and sixth defendants, as they concern him.
On 5 April 2006, the solicitor for JM Properties handed up an affidavit sworn the same day exhibiting to the affidavit a copy of a facsimile dated 4 April 2006 from Rikki Loffler, on the letterhead of ‘LOANCO PLUS Pty Ltd’, as follows:
After discussing the situation with Marina I have the following information to advise in regards to the caveats on her properties.
I can confirm that the caveat that was lodged on 21 Caroline Drive Allenby Gardens SA 5009 has been lifted today. The title should be clear of this encumbrance as of tomorrow.
I would also hope that the caveat lodged on the property at 50A Clifford Street Torrensville SA 5031 could be lifted in the next few days once the caveator has given final permission and all the necessary paper work completed.
There has been no previous reference in the proceedings to LOANCO PLUS Pty Ltd. No information is given in the affidavit by the solicitor, or by Mr or Mrs Balalis, about the position of Rikki Loffler in LOANCO PLUS Pty Ltd, his or her authority to speak on behalf of Mr or Mrs Balalis, or the role he or she or the company might have played in their finances or real property transactions.
Written submissions filed on 19 April 2006 on behalf of JM Properties state that Rikki Loffler has told the solicitor for JM Properties that LOANCO PLUS Pty Ltd is a broker responsible for loans from Finance Co Pty Ltd. It would be inappropriate and I would not be prepared to accept any information about LOANCO PLUS Pty Ltd provided in that form. In any event, the information takes the matter no further.
I note that in an affidavit sworn on 29 November 2005, four days after the caveats over the units had been lodged, Mrs Balalis did not then mention any transaction involving the units. She said that JM Properties was unable to pay strata contributions levied against it by the Strata Corporation from its own resources, without borrowing money or selling assets. Its ability to borrow money against its real property assets for the payment of strata contributions or its own ongoing litigation fees she said had been exhausted.[23]
[23] Affidavit of Mrs Balalis sworn 29 November 2005
No mention is made in any affidavit by Mrs Balalis, or anyone else, of a transaction involving JM Properties giving rise to an equitable mortgage over Units 4, 5 and 6 in the Renaissance Arcade, or otherwise. No explanation at all is given for the caveat lodged over Units 4, 5 and 6 in the Renaissance Arcade, owned by JM Properties.
For the purposes of the applications before the court, it is sufficient to note that the explanations offered about dealings with the assets evidenced by the caveats lodged at the Lands Titles Office do not include a denial of the transactions themselves.
Conclusion
The matters now raised in the application by Mr and Mrs Balalis on their own behalf and on behalf of JM Properties confirm that their collective financial position is not secure.
Orders were made on 15 August 2005[24] on account of:
·the financial difficulties then faced by JM Properties and Mr and Mrs Balalis
·the intermingling of funds and security between JM Properties, Mr and Mrs Balalis jointly and Mrs Balalis individually, and Cos Catering Pty Ltd (later corrected to Cos Holdings Pty Ltd)
·a number of dispositions of property by Mr and Mrs Balalis after entering into a Deed of Undertaking and Guarantee and
·a failure on the part of Mr and Mrs Balalis to provide relevant information.
Those factors remain. JM Properties and Mr and Mrs Balalis continue to face financial difficulties. There continues an apparent unwillingness on the part of JM Properties and its directors to reply to enquiries made by the other parties.[25]
[24] See [2005] SADC 105
[25] Affidavit of Mr Fotheringham affirmed on 17 March 2006
The nature of the evidence now advanced in support of the application of JM Properties and Mr and Mrs Balalis to vary those orders, in particular when taken with evidence produced by other parties in relation to undisclosed dealings, gives rise to a high degree of concern about its accuracy and its sufficiency. There can be little or no reliance placed on it, in my opinion.
The debt to Macquarie Bank is apparently a single debt owed at least by JM Properties and Mr and Mrs Balalis collectively. The security for the borrowing seems to be over property owned variously by JM Properties, Mr and Mrs Balalis jointly and by Mrs Balalis alone. In spite of a number of affidavits filed by Mr and Mrs Balalis on this or on the previous applications, and notwithstanding numerous requests on behalf of the first, third, fourth and sixth defendants for details of the total debt and the security for it, no particulars have been given.
There is evidence since the orders were made of a change of the company name, Cos Catering Pty Ltd to Cos Holdings Pty Ltd, not disclosed, effected by a meeting of the company before the orders were made, and not properly explained.
There is evidence of further dealing with property after the orders were made. Those dealings have not been adequately explained, in spite of a number of opportunities given to JM Properties and Mr and Mrs Balalis. No explanation at all is given for the caveat lodged over the units in the Renaissance Arcade. Mrs Balalis has said only that she did not understand the possible impact of short-term loan arrangements on interests in real property. No contract or other document associated with the agreements entered into by JM Properties, or Mr and/or Mrs Balalis, or in support of the possible basis for Mrs Balalis’ misunderstanding, has been provided to the court or to the other parties.
No basis has been established to qualify the restraint of the disposal of real property. JM Properties and Mr and Mrs Balalis have produced no evidence to justify the variation of orders made on 15 August 2005 to allow for the sale of the Torrensville property or the property at Allenby Gardens, or for discharging the order against the property of Cos Holdings Pty Ltd.
A qualification to the injunction might be permitted if the court can be satisfied that money is required for a purpose which does not conflict with the policy underlying the restraining orders. An assertion, unsupported by adequate evidence, or at all, that the financial position of JM Properties and Mr and Mrs Balalis would be improved by repayment of money owed to Macquarie Bank and others, or an assertion that Cos Holdings Pty Ltd requires an overdraft from time to time does not discharge the burden of proof required to satisfy me that any variation of the orders will not conflict with the purpose for which they were made in the first instance. (A and another v C and others (No 2) [1981] 2 All ER 126)
Rather, the subsequent evidence confirms the real sense of unease already evident in August 2005 that assets of JM Properties and of third parties associated with it will be so dealt with that any judgment or costs order against JM Properties, or order for costs given by the court against third parties associated with it, will be rendered ineffective. (RTP Holdings Pty Ltd and anor v Roberts and ors (No 2) [2000] SASC 390)
Damages
The undertakings as to damages given to the court in respect of orders made on 15 August 2005 required the first, third, fourth and sixth defendants to abide by any order the court or judge may make as to damages sustained by JM Properties, Mr and/or Mrs Balalis, or Cos Holdings Pty Ltd by reason of the orders and which in the opinion of the court, or judge, the defendants, or any of them, ought to pay.
Damages are claimed by Mr and Mrs Balalis for interest payments on the real property which they assert has not been disposed of by reason of the court orders. Mr and Mrs Balalis continue to be responsible for interest payments on borrowings in respect of properties they wish to sell. The fact that orders prevent the disposal of assets without the prior notification or consent of some of the defendants to this action does not transfer the liability for the cost of maintaining those assets, or the borrowings on those assets, to the parties on whose application the orders were made.

Mrs Balalis has also said that losses have been sustained in respect of what are described generally as lost development opportunities.[26] No particulars of any development opportunities are given. There is no evidence to suggest lost development opportunities, if any, are associated with the orders made on 15 August 2005.
[26] Affidavit of Mrs Balalis sworn 21 March 2006
An inquiry as to damages consequent upon an undertaking is conditional upon the court being of the opinion that the interlocutory injunction ought not to have been made. (Cirillo and another v Citicorp Australia Ltd and others [2004] SASC 293 (Full Court)) There is no basis on which an order for an inquiry into damages consequent on undertakings given to the court by the first, third, fourth or sixth defendants could be made.
Application by the first, third, fourth and sixth defendants for orders to continue
The orders restraining the further disposal of assets were made after the hearing of these proceedings but before the final determination of the issues between the parties. The court has the power, pursuant to section 31 of the District Court Act 1991 and Rule 68.02 to make an order preventing or restricting dealing with property of a defendant if the action appears to have been brought on reasonable grounds, the property may be required to satisfy judgment and there is a substantial risk that the defendant will dispose of property before judgment is given or it can be enforced. The application may be made before, during or after the trial of the action. A restraining order may be granted in aid of execution, without the necessity of a fresh application being brought. (Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd [1984] 1 WLR 1097; [1985] 3 All ER 747)
Pursuant to section 8 of the District Court Act 1991, this court has the same civil jurisdiction as the Supreme Court, giving it inherent jurisdiction to protect the integrity and effectiveness of its process, including jurisdiction to restrain a plaintiff from dealing with its assets in a way which will prevent recovery of a defendant’s costs. (Earlscroft University Ltd v Brown (2003) 226 LSJS 194) An injunction may be granted in favour of a successful defendant after judgment is given and prior to the taxation of costs. (Jet West & anor v Haddican & ors [1992] 2 All ER 545)
The proceedings have now been finally determined. JM Properties has been wholly unsuccessful in both Action No 394 of 2003 and Action No 1030 of 2003.
Judgment has been entered against JM Properties in Action No 394 of 2003 in the sum of $178,405.85, plus interest in the sum of $5,252.97. An order for costs has been made against it in that action. Judgment is entered today against JM Properties in this action. By its counsel, JM Properties accepts that an order for costs is to be made against it in favour of the defendants in this action. The evidence is, and it is not submitted otherwise, that JM Properties is unlikely to be able to meet any order for costs made against it.
Mr and Mrs Balalis have executed a Deed of Undertaking and Guarantee in favour of the third, fourth and sixth defendants in the sum of $120,000 in respect of any costs orders made against JM Properties in this action. The third, fourth and sixth defendants abandoned applications for security for costs when the personal guarantees were given. The costs of those defendants are I understand unlikely to be covered by the guarantees.
I am satisfied that the orders made on 15 August 2005, as amended on 25 November 2005, against JM Properties, Mr and Mrs Balalis and Cos Holdings Pty Ltd, restraining the further disposal of property, not only should have been made but should continue until further order.
Registrar’s Summons
I am also satisfied that there is sufficient evidence for the Registrar to be directed, pursuant to r 93.03 of the District Court Rules 1992, to issue a summons against the company, JM Properties Pty Ltd (ACN 062 504 590), and Jack Balalis and Marina Balalis in their capacity as its directors, and in their personal capacity, to answer a charge of contempt of court.
I bear in mind that:
When determining whether there is sufficient evidence, it must be remembered that there is no longer any distinction between civil and criminal contempts. All contempts should be punished as if they are quasi-criminal in character: Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 109, and the burden of proof in civil proceedings is proof beyond reasonable doubt: Witham v Holloway (1995) 131 ALR 401.
(Mane Market Pty Ltd and ors v Temple SC (SA), Debelle J, Judgt No S6986, 27 November 1998, unreported)
It is not appropriate to make any findings in relation to the circumstances or the nature of the contempt alleged. It is only necessary to determine whether there is sufficient evidence which, if accepted, would prove a contempt of orders of the court. Without making any finding but drawing the inference most favourable to the parties applying for an order directing a Registrar’s summons to issue, in my opinion, it is open on the evidence to conclude that the transactions apparently entered into constitute a wilful and therefore contumacious breach of the orders. (Mane Market Pty Ltd and ors v Temple SC (SA), Debelle J, above)
Applications for Costs
Section 42(1) of the District Court Act 1991 provides:
Subject to subsection (2) and the rules, costs in any proceedings in the Civil Division will be in the discretion of the Court and may be awarded against any person (whether a party to or a witness in the proceedings or not).
Subsection (2) is not relevant in this case.
Counsel for JM Properties accepts that an order for costs will be made against the company as the unsuccessful party, on a party and party basis.
District Court Rule 101.01 provides that:
(1)Notwithstanding the following provisions of this Rule and of the provisions of Rule 101A.01, the costs of any party, the amount thereof, the party by whom, or the fund or estate, or portion of an estate, out of which they are to be paid are in the discretion of the Court, and the Court may:
(a)     award a lump sum in lieu of, or in addition to, any taxed costs;
(b)     in any action seeking damages for personal injury order that the plaintiff shall not recover costs or shall recover part only of the costs if the plaintiff has failed to submit, at least 90 days before the institution of the proceedings, to the defendant’s insurer, if he is aware of such insurer, or, if he is not so aware, to the defendant, a detailed claim in writing together with copies of supporting documents including medical reports which set out the nature and extent of the plaintiff’s injuries and residual disabilities as known to the plaintiff at that time;
(c)     direct whether or not the costs are to be set off;
(d)     where the costs of one defendant against a plaintiff ought to be paid by another defendant, order payment to be made by one defendant to the other directly, or the plaintiff to pay the costs of the successful defendant and allow him to include those costs as a disbursement in the costs payable to him by the unsuccessful defendant;
(e)     where an indemnity has been given for costs by a person not a party, inquire into and determine that person’s liability as to costs in order that a final order can be made as to the costs of the proceeding.
(2)This Rule is not intended to deprive executors, administrators, trustees or mortgagees who have not unreasonably carried on or resisted any proceedings, or any right to costs out of an estate or fund to which they would hitherto have been entitled.
(3)The Court in exercising its discretion as to costs may take into account (inter alia) any:
(a)     payment into Court;
(b)     offer to consent to judgment, including a notice under Rule 41;
(c)     offer of contribution
(4)     The Court may deal with costs at any stage of a proceeding.
(5)If the proceedings are removed from an inferior Court, the costs prior to removal shall be in the discretion of the Court. Where punitive orders for costs have already been made in the Court below, they shall not be disturbed except for good cause shown by the party against whom they were made.
Rule 101.07 (6) provides as follows:
In any rule or order unless the contrary meaning is indicated by the context or other factors:
(a)     Costs as between party and party, or a like expression, means only the costs which have been necessarily and reasonably incurred by the party in the conduct of the litigation;
(b)     Costs, or a like expression, means costs as between party and party;
(c)     Costs as between solicitor and client, or a like expression, means all costs reasonably incurred by the party in respect of the litigation and having regard to the proper interests of the persons who will ultimately bear the burden of such costs;
(d)     Costs as between solicitor and own client, or a like expression, means costs as a complete indemnity against the costs incurred by the party in respect of the litigation provided that they are not to include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them;
(e)     Indemnity costs, or a like expression, mean the same as costs as between solicitor and own client.
Order for costs on the basis of solicitor and client, or solicitor and own client rather than party and party
The first, third, fourth and sixth defendants took the most active part in defending the proceedings brought by JM Properties. They have made an application for costs on the basis of solicitor and client, or on an indemnity basis. The director of the fifth defendant, Mr Brew, was in court on most occasions and Mr Brew gave evidence. The fifth defendant applies for costs. The second and seventh defendants effectively took no part in the proceedings, except preserving their respective right to apply for an order as to costs, which each party has done.
In Pascoe Ltd (in Liq) v Lucas ((1999) 75 SASR 246 at 279 per Lander J), the Full Court referred to the principles upon which application for costs on a solicitor and client or indemnity basis should be determined, set out at first instance by Debelle J, as follows:
The circumstances in which indemnity costs should be awarded have been discussed in a number of cases. I refer in particular to Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Casley-Smith v F S Evans & Sons (1989) 148 LSJS 483 and especially to Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. It is well settled that the general rule is that a successful party should recover only party and party costs and that special or unusual circumstances are required to justify the making of a different order: Fountain Selected Meats (supra) at 400; Colgate-Palmolive (supra) at 230 to 231. In Colgate-Palmolive at 233 to 234 Sheppard J noted instances of cases which would justify departure from the general rule. The question must always be whether the particular facts and circumstances of the case in question warrant a departure from the usual rule that costs be awarded on a party and party basis. Thus, the court will not make an order that costs be paid on a solicitor and client basis merely because the losing party’s case lacked merit: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534. A court’s discretion to award solicitor and client or indemnity costs is activated when a plaintiff has failed in an action which has been commenced or continued in circumstances where the plaintiff, properly advised, should have known he had no chance of success: Fountain Meats at 401; Colgate-Palmolive at 233.
In Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 at 232-234), Sheppard J distilled from the authorities some general principles or guidelines relevant to a court exercising a discretion to depart from the normal practice of making an order which has the effect of providing for taxation of costs on a party and party basis:
1.The question of the basis for an order for costs arises in litigation where the parties are at arm’s length, and costs are not to be paid from a fund under the control of a trustee, government agency or statutory authority.
2.The ordinary rule is that where the costs of one party to the litigation are ordered to be paid by another party, the order is for payment of those costs on the party and party basis.
3.Any change in the entrenched practice would require resolution by higher authority or legislation of the competing considerations of the potential for a crushing cost burden on a successful litigant as against a compromise between successful and unsuccessful litigants, encouraging settlement, and public interest requiring a litigant to exercise a degree of austerity, unless some additional ground can be shown for reimbursement over and above the mere fact that he has been successful.
4.The Court ought not usually make an order for the payment of costs on a basis other than the party and party basis, unless the circumstances of the case warrant a departure from the settled practice. The categories in which the discretion may be exercised “as and when the justice of the case might so require” are not closed.
5.Some circumstances which have warranted a departure from settled practice include:
·Making allegations of fraud knowing them to be false (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Thors v Weekes (1989) 92 ALR 131;
·Particular misconduct causing loss of time to the Court and other parties (Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd, unreported, Federal Court, 3 May 1991, per French J)
·Proceedings commenced or continued for an ulterior motive (Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175 or in wilful disregard of known facts or clearly established law (Fountain Selected Meats, above; J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers(WA Branch) (No 2) (1993) 46 IR 301)
·Imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721
Other cases in the future will have different features about them which may in the particular facts and circumstances warrant the making of an order for payment of costs on other than a party and party basis.
6.Notwithstanding that there are particular facts and circumstances capable of warranting an order for costs, for example, on an indemnity basis, the costs are always in the discretion of the judge, on whom there is no obligation to exercise the discretion to make such an order.
In Ragata Developments Pty Ltd v Westpac Banking Corporation, above, Davies J said at 177:
The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose. See Simpson v Malherbe (1865) 4 Giff. 707; Packer v Meagher (1984) 3 NSWLR 486, Daniell's Chancery Practice, 8th Ed 1086-1087; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd at 401.
In the last mentioned case, Woodward J at 401 also mentioned the circumstance where an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, as where, for example, there was wilful disregard of the known facts or the clearly established law. See also Australian Guarantee Corp Ltd v De Jager (1984) 4 VR 483 and Blackburn v State of New South Wales (Hunt J, 9 August 1991, unreported) which is referred to in Hurstville Municipal Council v Connor (1991) 24 NSWLR 724 at 733.
In Degmam Pty Ltd (In Liq) v Wright (No 2) (1983) 2 NSWLR 354, Holland J awarded costs on an indemnity basis where the unsuccessful defendant had so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby causing the other parties to incur costs far beyond what they could reasonably have expected to incur in litigation of the genuine issues. See also Andrews v Barnes (1888) 39 ChD 133; Forester v Read (1870) 6 LR Ch App 40; Christie v Christie (1873) 8 LR Ch App 499.
Costs on an indemnity basis have also been awarded where there has been a breach of an undertaking given to the Court, or some other contempt of court. See Hoffman-LaRoche and Co, AG v Sieczko (1968) RPC 460; Faith Panton Property Plan Ltd v Hodgetts (1981) 1 WLR 927; Chanel Ltd v 3 Pears Wholesale Cash and Carry Co (1979) FSR 393. In the Supreme Court of New South Wales, orders for costs on an indemnity basis are commonly made following an imprudent refusal of an offer of compromise; see Pt52 r17(4) of the Rules of the Supreme Court; Messiter v Hutchinson (1987) 10 NSWLR 525; Hurstville Municipal Council v Connor at 733-734.
The above circumstances all fall within the category of litigation instituted or prolonged to an extent which ought to have been unnecessary. But that is not the only type of case in which indemnity costs may be awarded. In Baltic Shipping Co v Dillon; "Mikhail Lermontov" (1991) 22 NSWLR 1 and in Australian Federation of Consumer Organisations v Tobacco Institute of Australia Ltd, special orders of costs were made where the case was understood to be a test case, or to have a wider effect than merely inter parties, in which circumstance additional and special work and responsibilities would have been undertaken.It is clear that the categories for the award of indemnity costs are not rigid. Each case must be considered on its own particular facts, having regard to the general principle that the usual award of party/party costs to the successful party should be made unless there are special circumstances to justify the making of a different order.
In my opinion, there are special circumstances in this case which are capable of justifying a departure from settled practice.
JM Properties sought a declaration first, that the first general meeting of the Strata Corporation on 18 December 1996, a resolution passed at it adopting Articles, and all subsequent meetings and resolutions of the Strata Corporation were in breach of the Strata Titles Act 1988, unconstitutional, invalid, null and void, and secondly, that the Articles therefore were unconstitutional, invalid, null and void.
The evidence available to JM Properties was necessarily incomplete because at that time JM Properties had no interest in the Strata Corporation or in the original registered proprietors, the directors of which had no knowledge of any documents and no relevant recollection of the events which led to the disposal of the property in the Renaissance Arcade and the establishment of the Strata Corporation. The evidence that was available and which was led, far from providing a basis for the declarations sought by JM Properties, supported a conclusion of regularity in the conduct of the first Strata Corporation meeting if, contrary to my view, the defendants had had an onus to prove it.
No criticism was made of JM Properties on account of a failure to call Mr Grant Paterson, the company secretary of each original registered proprietor, as a witness. Assuming that his evidence would have been favourable to the plaintiff, although it is difficult to see how it could have been, but assuming it was, in my opinion, his evidence could have made no difference to the conclusion reached, on the facts and on the law. In my judgment,[27] the evidence did not establish and could not have established any basis for the findings for which JM Properties contended.
[27] [2006] SADC 12 paragraphs 1-170

A concern about the lack of evidence to support the declarations sought by JM Properties was raised in correspondence dated 22 December 2003 to its solicitors from the solicitors then acting for the sixth defendant[28]. It was raised again in correspondence dated 19 November 2004, although I note that the following pages of that correspondence appear to have a different date, and reference is made to the third and fourth defendants for whom the solicitors ultimately also acted, rather than the sixth defendant[29]. No issue has been raised as to the dates appearing on the correspondence, or the content. It appears in any event that an offer was made to JM Properties in or around November 2004 by the third, fourth and sixth defendants to consent to the withdrawal of the paragraphs in the pleadings which asserted that the first and subsequent meetings of the Strata Corporation, and resolutions made at them, were invalid, on condition that the plaintiff pay a sum in respect of costs. The correspondence identified the evidence which pointed to a conclusion contrary to the declarations sought by the plaintiff, evidence which was ultimately led by the plaintiff. No response was received from the plaintiff.
[28] Affidavit of Mr Fotheringham affirmed27 February 2006, Ex MAF 1
[29] Ibid, Ex MAF 2
The solicitors for the first defendant also made an offer to consent to the withdrawal of the relevant paragraphs in the pleadings by letter to the plaintiff’s solicitors dated 4 November 2004, on payment of its costs on a party and party basis to be taxed if not agreed. It was re-iterated in a second letter dated 17 November 2004.[30] No response was received. The position of the Strata Corporation in therefore being obliged to answer the allegations in relation to the validity of the Articles was again stressed in correspondence dated 21 December 2004.
[30] Affidavit of Mr Berg sworn 20 March 2006, Ex SGB 2 and SGB 3
The offers made on behalf of the first, third, fourth and sixth defendants are a relevant consideration in the application for costs on a basis other than party and party, although they do not create a presumption that costs will be ordered on an indemnity basis in favour of the offerors. It was not inappropriate in my opinion for the offer to be made by way of letter rather than as an offer under the Rules, which do not readily provide for the particular circumstances, including the nature of the litigation and the number of parties involved. Taking the offers made by the defendants into account is consistent with the encouragement to be given to parties to settle differences outside of the litigation. The offers were open to acceptance by the plaintiff for seven days, less than the period provided for by offers to settle under the Rules. There is however no suggestion that the time within which the offers could be accepted was in any way responsible for the plaintiff making no response at all. (MGICA (1992) Ltd v Kenny and Good Pty Ltd(No 4) (1996) 70 FCR 236; Morris v McEwen and Another (2005) 92 SASR 281 at 289, 296-300; Pirotta v Citibank Ltd and Others (1998) 72 SASR 259)
In my opinion, the following circumstances special to these proceedings are sufficient to warrant a departure from the settled practice of an order for costs against the plaintiff, as the unsuccessful party, on a party and party basis:
1.There were obvious and significant deficiencies in the evidence to support the declarations sought by JM Properties on the issue of invalidity of the Articles.
2.The plaintiff persisted with the litigation, after it must have been aware that its own evidence was contrary to the allegations made and contrary to inferences the court was being asked to make. (Yates Property v Boland (No 2) (1997) 147 ALR 685)
3.The issue of irregularity of the first Strata Corporation meeting and the invalidity of the Articles was not an issue dependent on a finding on the question of the credit of any witness. (cp Groom v Earth Moving Contractors Association of SA Inc (No 2) unreported [2001] SASC 241 per Gray J)
4.The claim in respect of the invalidity of the Articles was commenced or continued in circumstances where the plaintiff, properly advised, should have known that it could not succeed. The action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401)
5.The plaintiff did not respond at all to informal offers to allow it to withdraw the allegations in relation to the invalidity issue at a stage in the proceedings where costs penalties against it could be contained.
6.It is not appropriate to disadvantage the defendants now on account of their having made no submission that there was no case for them to answer or for the summary dismissal of part of the plaintiff’s claim. The test applied to such an application is stringent. (Yates Property Corporation Pty Ltd v Boland (No 2) above, at 693; Sheahan v Northern Australia Land and Agency Co Ltd [1995] SASC unreported 4 November 1993 per Perry J and see [1995] SASC 5363, Full Court, 31 December 1995) It is unlikely that such an application would have saved time or costs. It was very difficult to know what the plaintiff’s case was. The Statement of Claim was amended to a significant degree on a number of occasions up to and including during the trial.
In my opinion, the application pursuant to section 41A of the Strata Titles Act 1988 was also misconceived, or more likely, constructed or contrived in order to achieve an extraneous purpose. There were significant deficiencies in evidence, to the extent that a serious question arises as to the bona fides of the application in respect of the relief claimed. I refer to my reasons for judgment in the proceedings, but in particular, I have regard to the following:
1.The plaintiff purchased each of the three units at different times, in full knowledge of the provisions of the Articles.
2.The unequal distribution of the liability for contributions was known to result in the effect of which the plaintiff now complains and was a factor in market value at the time of purchase.
3.There is a strong inference to be drawn from the evidence that the plaintiff had a challenge to the Articles in mind at least from the time of the purchase of Unit 4, in order to achieve a financial advantage for itself by increasing net return on its investment.
4.The plaintiff, since early 2002, had made attempts to apply pressure on the other members of the Strata Corporation to agree to alter the Articles of Association in a way which favoured the plaintiff.
5.The plaintiff did not seek any orders, consistent with the basis on which it was bringing the action pursuant to section 41A of the Strata Titles Act 1988, to remedy any default, or to resolve any dispute. The plaintiff did not seek an order that any party refrain from further action of any kind. The plaintiff did not seek an order to vary or reverse any decision of the Strata Corporation.
6.There was clear evidence that any alteration of the Articles and, in particular, by deleting Article 17, would result in a very significant financial detriment to other unit holders.
7.The remedy the plaintiff sought was relief from a financial burden to which it is subject, as are all other unit holders, by the lawful operation of the Articles of the Strata Corporation. The plaintiff asked the court to order, over objection by other unit holders, that the Articles be altered to give the plaintiff a financial advantage over other unit holders.
8.The failure of the plaintiff in the proceedings did not depend on adverse findings as to credit.
9.No consideration was given by the plaintiff in the way its case was conducted to the legislative requirement pursuant to section 41A(10)(c) of the Strata Titles Act 1988 that the court must be satisfied that an order altering articles was essential to achieving a fair and equitable resolution of the matters in dispute, nor to the fact that the matters in dispute bore no relation to granting relief by an order altering the Articles. It gives rise to an inference that the action was commenced not for a bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose, that is, to obtain commercial advantage without proper legal foundation. (Australian Guarantee Corporation v De Jager [1984] VR 483)
10.The approach taken by the plaintiff continued after trial in the applications it brought subsequently. The nature of the applications, the fact that invariably applications and affidavits were filed on the eve of other proceedings without adequate warning to the other parties, and the fact that applications were not prosecuted in a timely way, or at all, suggests either a disregard for rules and the rights of other parties or use of proceedings by the plaintiff to delay compliance with its legal obligations.
Where there is more than one inference open on the facts as to the nature of the proceedings and the conduct of the proceedings by the plaintiff, I draw that most favourable to the plaintiff. I bear in mind that an order for costs against the unsuccessful litigant on a basis other than party and party should not be made because the party and party basis is likely to be inadequate compensation. Such an order is not to be punitive in nature.
Order for costs against non-parties
The District Court has jurisdiction to award costs against a person who is not a party to the proceedings[31]. The principles which govern the discretion to award costs against a non-party are conveniently set out in Vestris v Cashman ((1998) 72 SASR 449 at 457 per Olsson J and see 467-468 per Lander J).
[31] Section 42 amended as from 3 October 1999, after Vestris v Cashman
The discretion to order costs against a non-party to litigation is to be exercised judicially and will only be made if the justice of the case requires it. (Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192)
It is not necessary that fraud, bad faith or some improper conduct be established against them, although in some cases, improper conduct will be a relevant factor in the exercise of the discretion.
In this case, Mr and Mrs Balalis have in some instances chosen to withhold material matters and in others have apparently not been willing to provide information. (Forrest Pty Ltd v Keen Bay Pty Ltd (1991) 4 ACSR 107)
Although details of the interconnection of finances have never been provided in spite of many requests made over the whole course of the litigation, the financial affairs of Mr and Mrs Balalis, JM Properties and Cos Holdings Pty Ltd are on their own evidence inextricably intermingled. There is no doubt that Mr and Mrs Balalis and indirectly Cos Holdings Pty Ltd would have been the beneficiaries of a judgment in favour of JM Properties. That factor by itself would not be a proper basis for an order for costs against them – the connection must be material to the question of costs. (Bischof v Adams [1992] 2 VR 198)
In this case, the proceedings have been initiated and controlled by Mrs Balalis, with the consent and agreement of Mr Balalis. Although not parties to the proceedings, they have a direct personal financial interest in the result. It would be unjust for them to have pursued their own interests with no risk to themselves when the proceedings failed. (Carborundum Abrasives Pty Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757)
The existence of their special personal interest in or potential benefit from the litigation, as distinct from simply funding the litigation, is a critical factor warranting an order for costs against them. (R v Foster; Ex parte Foster v Duus (1994) 121 ALR 494; Oz B&S v Elders (1993) 117 ALR 128)
There is also no doubt that Mr and Mrs Balalis stand behind the company and Mrs Balalis has had, with the approval of Mr Balalis, the conduct of the litigation. Those standing behind JM Properties have made decisions at an early stage of proceedings to make the necessary financial commitment, from the collective financial resources, to allow the litigation to proceed. Mr and Mrs Balalis have been before the court in the relevant sense at various times throughout the proceedings and represented by the solicitors and counsel for JM Properties.
A failure on the part of the successful litigant to make a timely application for security for costs is a relevant consideration. More particularly, it is relevant to ask whether or not a non-party has had warning that an application for costs may be made against him or her and therefore had an opportunity to be joined as party and obtain protection from such an order through the rules, or to make a decision to terminate proceedings. (Knight v FP Special Assets Ltd (1992) 174 CLR 178)
Mr and Mrs Balalis have understood from an early stage of proceedings that the first, third, fourth and sixth defendants were looking to them to provide security for an order for costs against JM Properties. The first defendant raised the apparent incapacity of JM Properties to meet any order for costs in favour of the first defendant in correspondence dated 21 December 2004.[32] An application for security for costs was made by the third, fourth and sixth defendants and not pursued only when security was provided by Mr and Mrs Balalis. An application was made to join Mr and Mrs Balalis as parties to the litigation, after the hearing. Mr and Mrs Balalis however accepted that orders might be made against them and did not themselves seek to be joined as parties at any stage.[33]
[32] Affidavit of Mr Berg sworn 20 March 2006, Ex SGB 4
[33] See [2005] SADC 105
In respect of the period following the hearing, by letters dated 27 October 2005, 7 November 2005 and 16 January 2006, the solicitors for the first defendant made it plain to Mr and Mrs Balalis, in their personal capacities and as directors of JM Properties, that the nature of the conduct of the proceedings on behalf of the plaintiff would be relied on in an application for costs, if the plaintiff failed in the action, and that the first defendant would be seeking orders for costs against each of them as non-parties apparently concerned in the plaintiff’s litigation.[34]
[34] Affidavit of Mr Berg sworn 20 March 2006, Ex SGB 8, SGB 9, SGB 10
Orders for costs
In my opinion, the justice of this case requires that orders be made against the plaintiff, JM Properties Pty Ltd, for the payment of the first to seventh defendants’ costs, including the costs of all applications and costs reserved during the course of the proceedings. There should be no distinction made in the orders for costs as between each of the defendants.
In the special circumstances of this case, in my opinion, an order for costs against the plaintiff in favour of the successful defendants is warranted on a basis other than party and party. The interests of justice in this case require maintaining some compromise as to the costs of the action between the unsuccessful plaintiff and the successful defendants, which should be reflected in the basis of the costs awarded to the defendants. That compromise is achieved by an order for costs on a solicitor and client basis, rather than on an indemnity basis.
The costs of the defendants, including the costs which are subject to a previous order for costs on a party and party basis, are to be paid by the plaintiff on a solicitor and client basis, to be taxed. The parties standing behind the plaintiff, its directors, Mr and Mrs Balalis, and the company, Cos Holdings Pty Ltd, are to be jointly and severally liable with the plaintiff to meet the costs of the defendants.
Orders
1.The applications brought by the plaintiff JM Properties Pty Ltd by Notice for Specific Directions filed on 8 September 2005 and 21 March 2006 respectively for orders in relation to reduction or assessment of strata contributions and for leave to amend the Third Further Amended Statement of Claim are dismissed.
2.The applications brought by Notice for Specific Directions filed on 8 September 2005 and 27 February 2006 to vary restraining orders made on 15 August 2005, and amended on 25 November 2005, are dismissed.
3.Judgment in this action is entered for the defendants. The action is dismissed.
4.Save and except for orders for costs previously made, the plaintiff is to pay the costs of the defendants of and incidental to the action generally, including costs of all applications, brought by the plaintiff and/or the defendants or any of them, and costs reserved in the course of the proceedings. Certified fit for senior counsel.
5.The costs of the defendants, including their costs which are the subject of a previous order for costs on a party and party basis, are to be paid on a solicitor and client basis, to be taxed.
6.Mr Jack Balalis, Mrs Marina Balalis and Cos Holdings Pty Ltd are jointly and severally liable with the plaintiff for the costs of the defendants.
7.The orders made on 15 August 2005 are to continue until further order as follows:
1.     ON THE Undertaking given by the first defendant, Strata Corporation 13975 Inc, to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge should hereafter be of the opinion that JM Properties Pty Ltd, Mr Jack Balalis and Mrs Marina Balalis shall have sustained any by reason of this order which the first defendant ought to pay:
Until further order:
(a)The plaintiff, whether by itself, its agents or employees, do provide Strata Corporation 13975 Inc with written notification of any contract for sale including a copy of any contract for sale of real property entered into by or on behalf of the plaintiff within seven (7) days of the date of the contract and, in any event, 48 hours prior to settlement on the contract, save in respect of a contract on the property at 3/8 Railway Terrace, Port Elliot, which may be sold if the net proceeds are to be paid entirely to mortgagees in respect of the property and in respect of legal fees incurred up to 15 August 2005.
(b)The plaintiff’s directors, Mr Jack Balalis and Mrs Marina Balalis, do provide the first defendant with written notification of any contract for sale including a copy of any contract for sale of real property entered into by them or on their behalf within seven (7) days of the date of the contract and, in any event, 48 hours prior to settlement on the contract.
2.ON THE Undertaking given by the third, fourth and sixth defendants, Duke Constructions Pty Ltd, Duke Properties Pty Ltd and Anglican Superannuation Australia Limited, by their counsel Mr S Walsh QC to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge should hereafter be of the opinion that JM Properties Pty Ltd, Mr Jack Balalis and Mrs Marina Balalis, and Cos Holdings Pty Ltd (formerly Cos Catering Pty Ltd) shall have sustained any by reason of this order which the third, fourth and sixth defendants ought to pay:
Until further order:
(a)JM Properties Pty Ltd be restrained from disposing of, charging, encumbering or otherwise dealing with those assets held by it (including but not limited to Units 4, 5 and 6 of the Strata Corporation No.13975 Inc) without the written consent of Duke Constructions Pty Ltd, Duke Properties Pty Ltd and Anglican Superannuation Australia Limited save that the property at 3/8 Railway Terrace, Port Elliot, may be sold if the net proceeds are to be paid entirely to mortgagees in respect of the property and in respect of legal fees incurred up to 15 August 2005.
(b)Marina Balalis and Jack Balalis be restrained from disposing of, charging, encumbering or otherwise dealing with assets whether real property or the business of Cos Holdings Pty Ltd (formerly Cos Catering Pty Ltd), without the written consent of Duke Constructions Pty Ltd, Duke Properties Pty Ltd and Anglican Superannuation Australia Limited.
3.    Liberty to any party to apply at short notice.
8. I direct the Registrar to issue a summons against the company JM Properties Pty Ltd (ACN 062 504 590), and Jack Balalis and Marina Balalis in their capacity as its directors, and in their personal capacity, to answer a charge of contempt of court in that they failed to comply with the orders of this court made on 15 August 2005, and amended on 25 November 2005, as follows:
ON THE Undertaking given by the third, fourth and sixth defendants by their counsel Mr S Walsh QC to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge should hereafter be of the opinion that JM Properties Pty Ltd, Mr Jack Balalis and Mrs Marina Balalis, and Cos Holdings Pty Ltd (formerly Cos Catering Pty Ltd) shall have sustained any by reason of this order which the third, fourth and sixth defendants ought to pay:
Until further order:
(a)     JM Properties Pty Ltd be restrained from disposing of, charging, encumbering or otherwise dealing with those assets held by it (including but not limited to Units 4, 5 and 6 of the Strata Corporation No.13975 Inc) without the written consent of the third, fourth and sixth defendants save that the property at 3/8 Railway Terrace, Port Elliot, may be sold if the net proceeds are to be paid entirely to mortgagees in respect of the property and in respect of legal fees incurred up to 15 August 2005.
(b)     Marina Balalis and Jack Balalis be restrained from disposing of, charging, encumbering or otherwise dealing with assets whether real property or the business of Cos Holdings Pty Ltd (formerly Cos Catering Pty Ltd), without the written consent of the third, fourth and sixth defendants;
And in particular, it is alleged that they disposed of, charged, encumbered or otherwise dealt with assets the subject of the orders without the consent of the third, fourth and sixth defendants as follows:
1.On 14 September 2005, a Caveat was lodged by Finance Co Pty Ltd over the whole of the land comprised in Certificate of Title Register Book Volume 5906 Folio 450 (50A Clifford Street Torrensville) - the caveator claiming against the caveatee, the registered proprietors, Jack Balalis and Marina Balalis:
An estate as an equitable mortgagee pursuant to a certain agreement dated 10 September 2005 between the caveator and the caveatee wherein the caveatee agreed to mortgage the said land above described in favour of the caveator.
2.On 25 November 2005, a Caveat was lodged by Ralph Mitrovic and Guiseppe Sidari over the whole of the land comprised in Certificates of Title Register Books Volume 5868 Folio 714, Volume 5856 Folio 512; Volume 5853 Folio 859 (Units 4, 5 and 6 in the Renaissance Arcade) – the caveator claiming against the caveatee, the registered proprietor, JM Properties Pty Ltd:
An estate as an equitable mortgagee pursuant to a certain agreement dated 25 November 2005 between the caveator and the caveatee wherein the caveatee agreed to mortgage the said land above described in favour of the caveator.
3.A Caveat was lodged on 1 March 2006 by Frank Borg over the whole of the land comprised in Certificate of Title Register Book Volume 5380 Folio 777 (21 Caroline Drive Allenby Gardens) - the caveator claiming against the caveatee, the registered proprietor, Marina Balalis:
An estate as an equitable mortgagee pursuant to a certain agreement dated 24 March 2006 (sic) between the caveator and the caveatee wherein the caveatee agreed to mortgage the said land above described in favour of the caveator.