Kekecial Pty Ltd v Aus Made Express International Group Pty Ltd (No 2)
[2023] VCC 876
•1 June 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne commercial DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-05300
| KEKECIAL PTY LTD (ACN 620 714 383) | Plaintiff |
| v | |
| AUS MADE EXPRESS INTERNATIONAL GROUP PTY LTD (ACN 604 566 065) & ORS (ACCORDING TO THE SCHEDULE ATTACHED) | Defendants |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 March 2023 and written submissions filed 31 March 2023 | |
DATE OF RULING: | 1 June 2023 | |
CASE MAY BE CITED AS: | Kekecial Pty Ltd v Aus Made Express International Group Pty Ltd & Ors (No 2) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 876 | |
REASONS FOR RULING
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Subject: COSTS
Catchwords: Indemnity costs – reservation of rights to seek costs order against non-parties – taxation forthwith
Legislation Cited:
Cases Cited:Australian Guarantee Corp Ltd v De Jager (1984) VR 483; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; Czerwinski v Syrena Royal Pty Ltd (No 2) [2000] VSC 135; Dale v Clayton Utz (No 3) [2013] VSC 593; Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397; Ragata Developments Pty Limited v Westpac Banking Corporation (Federal Court of Australia, 5 March 1993, unreported); Setka v Abbott (No 2) [2013] VSCA 376; Spencer v Dowling & KL Dowling & Co (a firm) [1997] 2 VR 127; Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Federal Court of Australia, 3 May 1991, unreported); Tremaine Developments Pty Ltd v Courtney Develops Pty Ltd & Ors [2011] VSC 112; Westpac Banking Corporation v Hilliard & Ors [2001] VSC 187; Westpac Banking Corp v Hilliard & Ors (No 2) [2001] VSC 198
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Magowan | Lin Legal |
| For the Defendant | Mr T J Scotter | WB Legal |
HIS HONOUR:
1 I delivered my reasons for ruling in this matter on 29 March 2023 (“the principal reasons”). This ruling assumes familiarity with the principal reasons and uses the same terminology. In the principal reasons I held that the freezing order made by Judge Burchell on 21 February 2023, as extended from time to time, was to be discharged. Orders were made to this effect on 29 March 2023 with the issue of the costs of the plaintiff’s summons dated 20 February 2023 to be determined on the papers upon receipt of the parties’ submissions.
2 Both parties have filed a written submission on the issue of costs.
3 The defendants seek their costs of and incidental to the plaintiff’s summons, and those of Qiujia Zhang (“Zhang”), on an indemnity basis and an order that the issue of whether any costs orders should be made against a non-party, such as the plaintiff’s solicitors and Zhenhua Yang (“Yang”), be reserved.
4 Kekecial accepts that costs should be awarded against it but contends that these costs should be taxed on a standard basis only.
Defendants’ submissions
5 The defendants submit there was no proper basis for Kekecial’s application. They contend that because the application was refused on the basis that the ex parte applicant failed to make full disclosure, costs should be awarded on a higher scale than the standard basis. Further, they say that the circumstances in which the application was refused combined with the fact that the costs include those of a non-party, namely Zhang, the costs ought to be taxed forthwith.
6 In regard to the reservation of its rights, the defendants seek an order that:
“The issue of if others, including the Plaintiff’s solicitors and/or Zhenhua Yang, ought to pay the Defendants’ and Qiujia Zhang’s costs of and incidental to the Plaintiff’s Summons be reserved. This issue may be brought back before the Court on 7 days written notice.”
The defendants submit that most or all of the matters which ought to have been disclosed, but were not, were within the knowledge of Kekecial’s solicitors. They say that where the failure to make full disclosure was due to the solicitors’ conduct, the solicitors may be ordered to pay the costs caused by this failure.
7 The defendants acknowledge that the solicitors would be entitled to notice of such an application, the opportunity to notify insurers and to obtain separate representation. Accordingly, the defendants seek an order that their right to pursue this issue be reserved in the hope that the plaintiff will be funded to pay the costs, and the solicitors’ liability need not be determined. If I am not minded to reserve this right, the defendants press their costs application against the plaintiff’s solicitors now.
8 The defendants also seek an order that their rights be reserved in relation to a costs order against Yang personally. Yang, the second defendant to the counterclaim, is the sole director and majority shareholder of the plaintiff. In the principal reasons I found that Kekecial is not a company of substance. The defendants contend that costs can be ordered against directors if the directors are using the corporate veil to frustrate a costs order and such an order should be made in circumstances where the proceedings have been brought for the benefit of the director rather than the company. If I am not minded to reserve the defendants’ right to seek a costs order against Yang, the defendants also press that application now.
Kekecial’s submissions
9 Kekecial contends that whilst the application before Judge Burchell was ex parte, Kekecial’s counsel was not aware of this fact until the commencement of the hearing. Kekecial asserts that its written submissions were prepared on the assumption that the defendants would appear because they were given notice, albeit erroneously, by the court. Kekecial was not aware that the correspondence from the court to all parties, confirming the listing of the hearing via Zoom, had been sent to the defendants in error.
10 I do not find this reasoning to be particularly persuasive. Kekecial sought the application on an urgent ex parte basis on 20 February 2023. Upon filing its summons, Kekecial should have prepared its supporting material (including submissions) on the assumption that the court would facilitate the ex parte hearing they requested.
11 Furthermore, it should have been apparent to the plaintiff’s counsel at the commencement of the Zoom hearing that no one had appeared for the defendants and thus the ordinary ex parte disclosure obligations applied.
12 Kekecial acknowledges that the written submissions on the ASIO assessment point relied upon before Judge Burchell were almost identical to those relied upon before Judge Woodward in 2021. However, Kekecial notes that Judge Woodward’s ruling was also put before Judge Burchell and Her Honour was taken to it. Kekecial nevertheless asked Judge Burchell to infer that a risk of dissipation existed simply because of Liu’s adverse ASIO assessment.
13 In relation to the undertaking for damages, Kekecial submits that this matter is complicated by the fact that a sum of $691,931.89 is owed to the plaintiff by the first defendant and, it contends, this money is in effect being held as security for the first defendant’s counterclaim. Despite being a company of no substance, Kekecial submits that it does have a substantial asset to meet its undertaking but that this asset is being held by a prospective creditor, namely the first defendant.
14 None of this information was disclosed to Judge Burchell at the hearing of the plaintiff’s summons. The explanation proffered now is both flawed and too late. The mere assertion that this money is owed to Kekecial by the first defendant is not supported by evidence. If called upon to honour its undertaking, Kekecial relies both upon a finding that this money is owed, and an order that this money be paid by the first defendant. At the very least, these matters ought to have been disclosed earlier so Judge Burchell could determine whether any further security was required to support the plaintiff’s undertaking.
Legal principles
Indemnity costs
15 The power of the court to make an order for costs on a measure higher than the standard basis is a discretionary one.[1] The court must determine whether in the particular circumstances, justice requires that an order for costs be made other than on the usual basis.[2]
[1]See r 63A.02 of the County Court Civil Procedure Rules 2018
[2]Spencer v Dowling & KL Dowling & Co (a firm) [1997] 2 VR 127
16 In Colgate-Palmolive Co v Cussons Pty Ltd[3] Sheppard J noted that the circumstances in which the court might award costs on a measure higher than the usual basis were not closed but His Honour set out a number of situations where departure from the ordinary rule had been held to be warranted. Included in these examples were cases where:
[3](1993) 46 FCR 225
· the applicant, properly advised, should have known that he had no chance of success. As such, the proceedings were presumed to have been commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law.[4]
[4]See Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 at 400-01 referring to Australian Guarantee Corp Ltd v De Jager (1984) VR 483
· there was evidence of particular misconduct that caused loss of time to the court and to other parties.[5]
[5]See Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Federal Court of Australia, 3 May 1991, unreported) per French J
· allegations were made which ought never to have been made.[6]
[6]See Ragata Developments Pty Limited v Westpac Banking Corporation [1993] FCA 115 per Davies J
17In Czerwinski v Syrena Royal Pty Ltd (No 2)[7] Warren J set out a number of grounds whereby the court in the exercise of discretion should award solicitor and client costs. These grounds and their respective authorities are helpfully summarised as follows:[8]
“1. Where the bringing of the application was high handed: AGC Limited v De Jager (1984) VR 483, 502.
2. If the application had no chance of success: Colgate-Palmolive Company v Cussons Pty Ltd, supra, 231.
3. If the application was hopeless: J. Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No. 2) (1993) 46 IR 301, 303.
4. If the application was unnecessary: Regata Developments Pty Ltd v Westpac Banking Corporation, unreported judgment of the Federal Court, 5 March 1993.
5. If the application was not brought for a bona fides purpose but to achieve an ulterior purpose: Regata Developments Pty Ltd, supra.
6. If the application was commenced in wilful disregard of known facts or contrary to well established law: Fountain Selected Meats [(1998) 81 ALR 397].
7. If the justice of the case warrants solicitor and client or indemnity costs: Andrews v Barnes (1887) 39 Ch D 133.
8. If there are special or unusual features that warrant the exercise of the discretion to order solicitor and client or indemnity costs: Fountain Selected Meats, supra, 400.”
18As outlined by Croft J in Tremaine Developments Pty Ltd v Courtney Develops Pty Ltd & Ors[9], the granting of a freezing order is a very serious matter “which demands the highest degree of caution and care and attention to detail on the part of the applicant – even more so when heard in the absence of some or all of the respondents.”[10] In that case, His Honour found that the freezing order application had been brought by the wrong plaintiff and that, save in the most exceptional circumstances, an application for a freezing order by the wrong plaintiff has no real prospect of success. His Honour held that, despite leave being sought to join the proper plaintiff, the circumstances were such that they were “likely to indicate a lack of candour or attention to detail, or both”[11] on the part of the applicant. His Honour ordered costs on an indemnity basis.
[7][2000] VSC 135
[8]Ibid at [3]
[9][2011] VSC 112
[10]Ibid at [16]
[11]Ibid
Taxation forthwith
19 In Setka v Abbott (No 2)[12] the Court of Appeal held that the default position namely, that costs in an interlocutory application are costs in the proceeding, may be upset where:[13]
(a) there is prospect of considerable delay in completion of the proceeding;
(b) the issue the subject of the interlocutory order was discrete from what will finally require determinations;
(c) the party against whom the substantive order was made was guilty of unsatisfactory conduct — described variously as ‘unreasonable’ or ‘reprehensible’, or as involving a want of ‘competence and diligence’.[14]
[12][2013] VSCA 376
[13]Ibid at [27]
[14]Dale v Clayton Utz (No 3) [2013] VSC 593 at [58]–[71], [80]–[82]
Analysis
20 Freezing orders are drastic interim remedies because they can restrict a party’s right to deal with assets before judgment is entered. Kekecial sought this extreme injunctive relief on an ex parte basis which placed it under a duty to provide full and frank disclosure of all material facts to the court.
21 I have already found that the initial ex parte order was granted in circumstances where Kekecial failed to disclose all material facts. This non-disclosure was not innocent in the sense that the plaintiff was unaware of these facts or did not perceive their relevance. The plaintiff was well aware of various matters the defendant might raise in opposition to its application because the same application had been made, and refused, on notice to the other side. The plaintiff brought its urgent ex parte application in wilful disregard of these known facts.
22 In addressing the issue of a party’s obligations to the court in ex parte applications there was no need for me to assess the merits of Kekecial’s case. However, as outlined in the principal reasons, I expect I would have refused to continue the freezing order because:
(a) Kekecial’s claim against Liu was not sufficiently strong;
(b) the balance of convenience did not favour the freezing order; and
(c) the risk of removal or dissipation of assets was not sufficiently compelling.
23 The plaintiff, properly advised, ought to have appreciated the fact that this application had previously been refused and that the material presented to Judge Burchell did not substantially change the basis for its claim. A freezing order is not designed to provide security. There must be a proper basis for seeking such a drastic remedy.
24 In failing to disclose all relevant material at its ex parte application before Judge Burchell, the plaintiff engaged in unsatisfactory conduct that caused a loss of time to both the court and the defendants. The matter has had to return to court on an urgent basis more than once after the grant of the initial freezing order as the restraint placed on the defendants and on Zhang was significant.
25 Accordingly, I am satisfied that in circumstances where:
· legal practitioners have special disclosure obligations to the court on ex parte applications;
· the plaintiff should have been aware of its obligations to the court in this application;
· the plaintiff failed to disclose all relevant material to the court in this ex parte application; and
· the plaintiff’s explanation for not complying with its obligations was weak
an order for indemnity costs is appropriate.
26 Furthermore, Kekecial sought a non-party order as against Zhang as well as an order against Liu insofar as the shareholdings remained in his name. In Westpac Banking Corp v Hilliard & Ors (No 2),[15] the plaintiff obtained an ex parte freezing order which prevented a non-party from having use of the net proceeds of sale of a property which was registered solely in her name. These circumstances were known to the plaintiff but not disclosed to the court. McDonald J concluded that the plaintiff had failed to make full and fair disclosure of facts known to it and material to it obtaining the freezing order. His Honour also found that when regard was had to the material facts which were not disclosed by the plaintiff, the order made affecting the non-party should not stand.[16]
[15][2001] VSC 198
[16]Westpac Banking Corporation v Hilliard & Ors [2001] VSC 187
27 McDonald J held that this case illustrated that there are categories of cases other than those identified in Colgate-Palmolive Co v Cussons Pty Ltd[17] and Czerwinski[18] that warrant an order for costs on a “higher measure” than the usual basis. The plaintiff was ordered to pay the non-party’s costs on an indemnity basis.
[17](1993) 46 FCR 225
[18]Czerwinski v Syrena Royal Pty Ltd (No 2) [2000] VSC 135
28 Zhang is not a party to the proceeding and the plaintiff has not sought to join her. It nevertheless brought an ex parte application which restrained her from dealing with her shareholdings in various companies. I note that in practical terms, the restraint placed on Zhang was far greater than intended by the scope of the order and she was unable to withdraw money from accounts with ANZ Banking Group Limited and National Australia Bank Limited. This necessitated further orders from the court clarifying the scope of the initial freezing order. In the circumstances, I am satisfied that Kekecial should pay both the defendants’ and Zhang’s costs of and incidental to the plaintiff’s summons dated 20 February 2023, on an indemnity basis.
29 As to the timing of the taxation, the default position under rule 63A.20.1 is that costs are not taxed until the completion of the proceeding. The court has the power to order an immediate taxation. The court must exercise that discretion judicially and the circumstances of the case would have to warrant the making of such an order. While I have ruled that the plaintiff’s conduct was such as to justify the dissolution of the freezing order and a costs order against the plaintiff, that does not automatically mean that costs should be taxed immediately. I have referred above[19] to factors which the court might consider in bringing forward the time for taxation. These factors are not a checklist but examples of which matters can be relevant to the exercise of the court’s discretion.
[19]See paragraph 19 above
30 Delay is not a major consideration in this case. The interlocutory steps have already been timetabled and the trial is due for hearing in October this year.
31 The question of the freezing order raises some discrete issues separate from the substance of the dispute between the parties. However, matters concerning the substance of the proceeding are not irrelevant to the decision about whether or not to grant a freezing order.
32 On the basis of the material before me, I do not consider that there are other factors or matters in this case which are of significance to the court’s discretion.
33 While aspects of the plaintiff’s conduct of the application were unsatisfactory, the weight of the material is not in my view sufficiently strong to require a change from the usual taxation timetable. Rule 63A.20.1 came into operation in April 2013 and was a novel rule to the extent that it did not replace an earlier or equivalent provision. Before its introduction, a party could seek the immediate taxation of any costs order. Accordingly, the legislative intention with the new rule was to effect a major change in the default position which the court should adopt.
34 I have already found that the plaintiff is a company of minimal substance and accept the possibility that it may not have the financial resources to meet a costs order against it. I am prepared to reserve the defendants’ rights to claim recovery of its costs from the plaintiff’s solicitors or Yang, or both. I note that any such application, if it is to be brought, should be brought on proper notice and supported by relevant affidavit material. Also, the respondents to such an application need adequate time both to consider the application and to obtain representation (if they so choose). In saying this, I acknowledge that there were strict page limits on the parties’ submissions and the costs were dealt with on the papers without an oral hearing.
Conclusion
35 For the reasons set out above, I order that:
(a) the plaintiff pay the defendants’ and Qiujia Zhang’s costs of and incidental to the plaintiff’s summons dated 20 February 2023, such costs to be taxed on an indemnity basis in default of agreement.
(b) the issue of whether others, including the plaintiff’s solicitors and/or Zhenhua Yang, ought be liable to pay the defendants’ and Qiujia Zhang’s costs of and incidental to the plaintiff’s summons dated 20 February 2023 is reserved.
(c) Reserve liberty to the parties to apply by email to the Commercial Division Registry ([email protected]) for further directions upon giving reasonable notice to all other parties.
SCHEDULE OF PARTIES
BETWEEN
| KEKECIAL PTY LTD (ACN 620 714 383) | Plaintiff |
| and | |
| AUS MADE EXPRESS INTERNATIONAL GROUP PTY LTD (ACN 604 566 065) | First defendant |
| HUIFENG LIU | Second defendant |
| AUS MADE EXPRESS INTERNATIONAL GROUP PTY LTD (ACN 604 566 065) HUIFENG LIU and KEKECIAL PTY LTD (ACN 620 714 383) ZHENHUA YANG | First plaintiff by counterclaim Second plaintiff by counterclaim First defendant by counterclaim Second defendant by counterclaim |
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