Lee v Mavaddat
[2005] WASC 68 (S)
•29 APRIL 2005
LEE -v- MAVADDAT [2005] WASC 68 (S)
| Link to Appeal : | [2007] WASCA 141 [2007] WASCA 141(S) |
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 68 (S) | |
| Case No: | CIV:1862/2001 | 8-12, 15-19, 22-26, 29 NOVEMBER 2004, 17 JANUARY & 22 JUNE 2005 | |
| Coram: | ROBERTS-SMITH J | 29/04/05 | |
| 7/07/05 | |||
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Plaintiff's application granted | ||
| B | |||
| PDF Version |
| Parties: | KYUNG HEE LEE MICHAEL MOOJAN MAVADDAT |
Catchwords: | Practice Orders Defendant found liable to repay partnership funds Whether judgment should be held pending distribution of dividend by the liquidator Practice Orders Use of partnership funds to pay deposit on purchase of property by fiduciary Partnership funds only part of purchase price Whether there should be declaration fiduciary holds whole of property on constructive trust Practice Costs Conduct of defendant Whether circumstances justifying special costs order Whether conduct went to way litigation conducted |
Legislation: | Nil |
Case References: | Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1991) 4 WAR 14 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 Cretazzo v Lombardi (1975) 13 SASR 4 Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors (1988) 81 ALR 397 Harrison v Schipp [2001] NSWCA 13 Henderson v Amadio Pty Ltd, unreported; FCA; 22 March 1996 Hypec Electronics Pty Ltd (In liq) v Mead & Ors (2004) 61 NSWLR 169 Lee v Mavaddat [2005] WASC 68 SDS Corporation Ltd v Pasdonnay Ltd & Anor [2004] WASC 26 (S2) Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
DECISION : 7 JULY 2005 FILE NO/S : CIV 1862 of 2001
- CIV 1824 of 2001
Consolidated by Order dated 24 October 2001
- Plaintiff
AND
MICHAEL MOOJAN MAVADDAT
Defendant
Catchwords:
Practice - Orders - Defendant found liable to repay partnership funds - Whether judgment should be held pending distribution of dividend by the liquidator
Practice - Orders - Use of partnership funds to pay deposit on purchase of property by fiduciary - Partnership funds only part of purchase price - Whether there should be declaration fiduciary holds whole of property on constructive trust
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Practice - Costs - Conduct of defendant - Whether circumstances justifying special costs order - Whether conduct went to way litigation conducted
Legislation:
Nil
Result:
Plaintiff's application granted
Category: B
Representation:
Counsel:
Plaintiff : Mr S M Davies
Defendant : Mr N W McKerracher QC
Solicitors:
Plaintiff : Stables Scott
Defendant : Freehills
Case(s) referred to in judgment(s):
Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163
Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1991) 4 WAR 14
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Cretazzo v Lombardi (1975) 13 SASR 4
Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors (1988) 81 ALR 397
Harrison v Schipp [2001] NSWCA 13
Henderson v Amadio Pty Ltd, unreported; FCA; 22 March 1996
Hypec Electronics Pty Ltd (In liq) v Mead & Ors (2004) 61 NSWLR 169
Lee v Mavaddat [2005] WASC 68
SDS Corporation Ltd v Pasdonnay Ltd & Anor [2004] WASC 26 (S2)
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Case(s) also cited:
Nil
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1 ROBERTS-SMITH J: These are supplementary reasons for decision concerning certain costs and other orders following upon my judgment in the substantive action in these proceedings on 29 April 2005 (Lee v Mavaddat [2005] WASC 68). These reasons should be read with that.
2 Following my judgment on 29 April, I suggested the parties confer and attempt to reach agreement on the orders which should be made to give effect to it. The plaintiff's solicitors subsequently filed a minute of proposed orders dated 17 June 2005. Following further discussion, a further minute was handed up to me on the adjourned hearing on 22 June. The orders sought were:
"1. There be judgment for the plaintiff in the sum of $2,246,467.98.
2. If the plaintiff recovers any sum from the liquidator of Ark Securities Pty Ltd then the plaintiff is not to enforce the judgment to the extent of any such recovery.
2A. If the plaintiff recovers any further sum from the liquidator of Ark Securities Pty Ltd when the plaintiff has already recovered the full extent of the judgment sum, interest and costs, then such amount be held by the plaintiff on trust for the defendant and delivered to him.
3. Interest on the judgment is to accrue at the rate of 7.32% compounded daily.
4. The counterclaim be dismissed.
AND IT IS HEREBY DECLARED THAT:
5. The defendant holds the property at 817 Canning Highway Applecross being the land in Certificate of Title Volume 1451 Folio 389 on trust for the partnership.
AND IT IS HEREBY ORDERED THAT:
6. The defendant pay the plaintiffs costs of the action and of the counterclaim to be taxed.
7. In relation to costs:
(a) There be a certificate for two counsel.
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- (b) There be a certificate for transcript.
(c) The costs be taxed without regard to the limits imposed for the work described in items 16, 19(a), 19(b), 19(c), 19(d), 24 of the Scale.
(d) The taxing officer allow the cost of preparing the written outline of closing submissions.
(e) The taxing officer allow the costs of the interpreter as a disbursement.
- 8. All costs due from the defendant to the plaintiff be taxed on an indemnity basis such that the defendant pay all the costs incurred by the plaintiff except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that subject to the above exceptions, the plaintiff be completely indemnified by the defendant for its costs.
9. There be liberty generally in relation to these orders."
3 There was agreement between the parties that the amount at (1) ("the principal sum") was the appropriate amount which should be ordered to be paid, were I to order payment rather than defer doing so until the liquidator of Ark Securities had paid out the dividend distribution on liquidation. It was likewise agreed there should be orders in the form of (2) and (2A) were I to give judgment immediately for the principal sum. Proposed orders (3), (4), (6) and (7) were agreed. Proposed orders (5) (declaration of trust), (8) (indemnity costs) and (9) (liberty to apply) were in dispute.
4 The first point of contention was whether I should make an order for payment of the principal sum forthwith, or delay that pending finalisation of the distribution by the liquidator of Ark Securities. Having heard counsel, I determined that I should make that order forthwith, as well as that at (5). I did so, and indicated I would give my reasons later. I reserved my decision on (8) and (9). I shall deal with those matters separately below.
Immediate payment of the judgment amount
5 It was common ground that the plaintiff will receive some moneys from the liquidator, but the amount is not presently ascertainable. It is expected to be some hundreds of thousands of dollars. The submission on
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- behalf of the defendant was that there should be precision about the amount for which judgment is entered, otherwise there would be uncertainty and the likelihood of ongoing disputation between the parties. Mr McKerracher QC framed his submission in a way which anticipated the distribution would probably be made within a few weeks from that date. That was based on a facsimile message from Messrs Stables Scott, the plaintiff's solicitors, dated 13 June 2005, in which they advised:
"The cut-off date for objections to the adjudications to proofs of debt was 7 June 2005. Mr Woodhouse of PPB advised today that there had been no objections to the adjudications and therefore Mrs Lee and Western Power were the only two creditors who would receive distributions. The Liquidator's current position is that an interim distribution will be made because he will retain some funds pending the outcome of the litigation between our respective clients. The retention figure has not yet been determined. The interim distribution will not be made until next week. We are informed that we will receive correspondence next week from the Liquidator concerning the matter."
7 The rate of interest of proposed order (3) was that being charged to the plaintiff by St George Bank on the outstanding loan moneys which could not be repaid until she recovers from the defendant. Mr Davies suggested one reason the plaintiff wanted liberty to apply was to cover the possibility the Bank might change its interest rate, necessitating a variation of the order. I indicated that possibility could be accommodated by an appropriate amendment to the proposed order, adding words to the effect that the rate of interest would be 7.32 per cent or such higher rate that the Bank charges the plaintiff, and that I would make the order in those terms.
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Declaration of trust - property at 817 Canning Highway
8 The defendant's opposition to an order in these terms was based on the notion that the property could not properly be said to be held by the defendant in trust for the partnership, because the partnership contribution was only as to some 46 per cent of the purchase price.
9 The case as pleaded was that $150,000 of Ark Securities' funds were applied as part of the consideration for the acquisition of the premises at 817 Canning Highway, Applecross. That claim was made out. The payment was unauthorised and constituted a breach of the defendant's fiduciary duty. The purchase price was $320,000. The evidence was (and I found) that the defendant used partnership funds to pay the deposit on the property and to undertake what were described as improvements to it.
10 In relation to this proposed order, it is submitted on behalf of the defendant that the highest the plaintiff's case could be put is that the partnership had a 46.875 per cent interest in the property (reflecting the $150,000), giving the plaintiff a 23.4 per cent interest. As Mr Davies for the plaintiff points out, this formulation would give the defendant a benefit to the extent of 50 per cent of the $150,000 (presumably by virtue of his interest in the partnership), which would be quite misconceived because the partnership did not authorise expenditure of those moneys for that purpose at all. That must be so. But the substance of the objection was that a declaration that the defendant holds the whole of the property by way of constructive trust on behalf of the partnership ought not to be made because the partnership funds amounted to only some proportion of the total expenditure on the property.
11 It is clear that where a fiduciary makes a profit out of his relationship, he will become a constructive trustee of that profit or all of the property so acquired by him (see "Jacobs Law of Trusts in Australia", 6th ed, [208]). A partnership is a recognised relationship giving rise to fiduciary duties. As pointed out in "Jacobs" (supra) at [1330]:
"(7) '[A] fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict or possible conflict of interest and duty or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position' (Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 107, 55 ALR 417 per Mason J).
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- (8) Any profit or benefit obtained by a fiduciary in either of these two situations is held by him as a constructive trustee (At 107, 417 per Mason J; see also the same case in the Court of Appeal [1983] 2 NSWLR 157 at 212).
(9) Contrary to the holding of McLelland J at first instance in United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 813-14), both the Court of Appeal ([1983] 2 NSWLR 157 at 233-43) and Mason J on further appeal to the High Court (1984) 156 CLR 41 at 102-10) were at pains to point out that it was no objection to the imposition of a constructive trust that it was not the duty of the defendant to obtain for the plaintiff the profit or benefit in question; the only issue was whether the profit or benefit had accrued to him in breach of his duty, that duty having two limbs as described in (7) above."
Pertinently to the present case, the authors note (at [1331]):
"Where the gain is an asset to which the defendant has himself contributed, the court may by charge or severance distinguish the respective interests therein, but where the court is unable to make the distinction, the trust will extend to the whole asset lest the fiduciary take advantage of his own wrong and the plaintiff lose all (United States Surgical Corp v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 at 238-42; Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 at 499)."
12 As I have found, what occurred here, is that the defendant took advantage of the partnership assets and used them to purchase a property in his own name. The primary position therefore is that the property should be regarded as being held on trust by him for the benefit of the partnership. This is not a case in which the defendant ran a case to the effect that just allowances should be made to him in relation to this prayer for relief. The case was not pleaded in that way and no evidence was led with respect to it (as was the situation in Harrison v Schipp [2001] NSWCA 13 at 143 et seq). In these circumstances, I reached the conclusion that the proper order was for a declaration in the terms sought by the plaintiff.
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Indemnity costs
13 The usual course is that costs are ordered to be paid on a party/party basis. It is accepted that indemnity costs can be ordered as and when the justice of the case so requires.
14 I considered the authorities in relation to indemnity costs in SDS Corporation Ltd v Pasdonnay Ltd & Anor [2004] WASC 26 (S2) (delivered 27 February 2004 at [46] - [106]). I adhere to what I said there and will not repeat it.
15 The submissions advanced against the orders sought are in substance that whilst the principle may be applied to defendants as well as plaintiffs, a court ought to be slower in being prepared to presume an ulterior motive in the absence of any evidence from which such emotive may fairly be inferred, eg Biltoft Holdings Pty Ltd v Casselan Pty Ltd (1991) 4 WAR 14 at 20. It is submitted that in this case there is no evidence upon which any "ulterior motive" may be established, and it ought not to be inferred; there were no "known" facts which made the defendant's case hopeless (see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd & Ors (1988) 81 ALR 397 at 401); and had the defendant's evidence been accepted, it would have given the defendant a defence to the plaintiff's claims. It is further submitted that in these circumstances the plaintiff's argument is tantamount to a proposition that where a defendant gives evidence which, if accepted, sounds in a good defence, but that evidence is not accepted, he ought to have known that he had no defence and therefore an indemnity order as to costs ought be made - which proposition, it is said, cannot be and is not correct.
16 The plaintiff referred to the judgment of Holland J in Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358. There his Honour held a case had been made out for the making of a special costs order, it being:
"… sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant. As well as that, she 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 to cause the other parties to incur liability for solicitor and client costs far
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- beyond what they could reasonably have expected to incur in litigation of genuine issues."
17 In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, Sheppard J presented a useful distillation of principles (at 232 - 234) from his survey of the authorities in this area. It is clear from those that the "settled practice" is for costs orders to be made on a party/party basis, and a different order usually ought not be made. It will be made only where justified by the circumstances. As Sheppard J pointed out, the tests have been variously put, but in essence all seem to come to the existence of some special or unusual feature of the particular case justifying such an order. Some examples of such circumstances given by his Honour include the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; evidence of particular misconduct that causes loss of time to the court and to other parties; the fact that the proceedings were commenced or continued for some ulterior motive, or in wilful disregard of known facts or clearly established law; and the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions, amongst others.
18 Having instanced these and other examples, his Honour reiterated (at 234) that the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
19 Senior counsel for the defendant argued in effect that comparisons with other cases may lead to differing results. He referred to Hypec Electronics Pty Ltd (In liq) v Mead & Ors (2004) 61 NSWLR 169. That was a case which involved the conduct of litigation by a liquidator, it being found that his conduct of it was improper in the sense of being not reasonable nor honest. On the issue of indemnity costs, Campbell J discussed Colgate and authorities in which the principles summarised by Sheppard J had been considered. Pertinently to the present point, the case is important because of its recognition of the principle it is the party's conduct of the proceedings as litigant which bears on the issue of indemnity costs.
20 Campbell J noted at the outset ([41]) that conduct of a party prior to the litigation commencing, and which is a direct cause of it, is not among the examples Sackville J gave in his collection of relevant principles in respect of indemnity costs orders in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [7] - [8]. Campbell J referred to the decision of the Full Court of
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- South Australia in Cretazzo v Lombardi (1975) 13 SASR 4 at 11, which affirmed that the general discretion to make an order for costs is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation. His Honour observed that if that be true of the general discretion as to costs, it must also be true of the discretion to order indemnity costs. Then considering what sort of connection with the litigation is necessary, Campbell J quoted the following passage from the judgment of Heerey J in Henderson v Amadio Pty Ltd, unreported; FCA; 22 March 1996:
"… the authorities cited by Sheppard J in his summary in Colgate Palmolive Co v Cussons Pty Ltd … at 233 suggest that the improper conduct of an unsuccessful party which will lead to an award of indemnity costs is usually related to the way the litigation is conducted, rather than the inherent badness of the conduct which gave rise to the litigation. This is not universally true; for example contempt of court usually attracts costs on an indemnity basis. Nevertheless, it seems to be rare that findings of serious misconduct such as fraud of itself gives rise to an order for costs on an indemnity basis."
"Giles JA [sic] (with whom Handley J and Fitzgerald JA agreed) said (at [136]-[139]):
'[136] The trial judge did not exercise his discretion by regard to the time taken by Mr Harrison in propounding false documents, or otherwise by regard to delinquency in the conduct of the proceedings. Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400 provides no support for indemnity costs as a means of providing complete restitution, or otherwise for regard to the substantive unconscionable conduct or breach of fiduciary duty when exercising the discretion as to costs, and such regard would in my view not be correct. The unconscionable conduct or breach of fiduciary duty leads to compensatory or other
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- relief and costs on the normal basis, and more must be established for a special order as to costs. In my opinion his Honour's exercise of his discretion was on a wrong principle.
[137] The discretion must be re-exercised. It is true that evidence of Messrs Cameron and Harrison was not accepted, indeed they were found to have given false evidence and propounded false documents. But I do not think there was delinquency approaching that considered to justify a special order as to costs in Degmam Pty Ltd (in liq) v Wright (No 2) (1983) 2 NSWLR 354, or that departure from the ordinary basis on which costs should be assessed between litigants was otherwise warranted.
[138] It was necessary that the circumstances in which Mrs Schipp came to put her money into the two properties and leave it with Messrs Cameron and Harrison be gone into, in particular with exploration of her understanding of what she was doing and the influences working upon her. I am not satisfied that this was a case in which the appellants, properly advised, should have known that they would be found liable (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401), or that the court's time and Mrs Schipp's money were wasted on 'totally frivolous and thoroughly unjustified defences' (Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362), to use some of the expressions relevant in this area.
[139] Departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down. Some of the matters thought to justify it are collected by Sheppard J in Colgate-Palmolive Pty Ltd v Cussons (1993) 46 FCR 225 at 233-234. In the present case no other sufficient special or unusual feature is present. The trial judge's order as to costs should be set aside so far as it provided for costs on an indemnity basis.'
- In NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77, Lindgren J said (at 92 [56]):
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- 'The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.'
- See also, to similar effect, Sande v Medsara Pty Ltd (No 2) [2004] NSWSC 262 at [7], per Burchett AJ; White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 303 at [10]-[11], per McDougall J. A connection with litigation, which takes the form of being the facts which are themselves the subject matter of the litigation, is not a relevant type of connection for the purposes of making an indemnity costs order. Nor is it a relevant sort of connection that a person has, in the circumstances which are the subject of the litigation, breached duties which they owe to one of the litigants, where that breach of duty is not itself the subject of the litigation. …"
22 I accept the foregoing to be an accurate statement of the relevant principles and in this case I am satisfied the following aspects of the defendant's conduct went to his conduct of the litigation and had such an impact upon it from the point of view of the plaintiff and the court itself, as to justify the unusual course of making an indemnity costs order.
23 As I have found, this is a case in which the evidence of the defendant and his whole defence to the claim was a deliberate concoction. His conduct prolonged the trial. That was so not only because of the many false issues raised by the defendant including "SMS Technologies" and "Dizzy Lamb Park" but by his lengthy and persistent obfuscation, dissembling and prevarication in cross-examination (see my reasons for judgment at [314] to [383]). The defendant propounded false documents
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- to the Court in the course of this litigation (see reasons at [375] - [382]). The defendant must, or ought to, have known at all material times that he had no chance of success in his defence of the claim or in his counterclaim - this is not simply a case of the defendant's evidence not being accepted. In the circumstances his defence of the case and prosecution of the counterclaim must be presumed to have been continued for some ulterior motive or in wilful disregard of the known facts and the established law. That motive must have been a desire to keep the plaintiff out of her funds and to retain for himself the benefit of them for as long as possible. I am satisfied that by reason of his manner of conducting this litigation, the defendant has caused considerable unnecessary expense and cost to the plaintiff beyond that which could reasonably be expected to be incurred in litigation of genuine issues. The justice of the case requires an order for indemnity costs.
Liberty to apply
24 I am not disposed to give the parties liberty to apply. The judgment is final. I agree with senior counsel for the defendant, albeit expressed in the context of a different proposed order, that there should be finality. Mr Davies' main concern was the possible need to revise the rate of interest should St George Bank change that charged to the plaintiff. That possibility has now been accommodated. The other matters which may necessitate adjustment of the judgment amount have likewise been accommodated, as to reduction of the sum by reason of payment of a dividend by the liquidator either before payment by the defendant or afterwards. Relief sought by the plaintiff by way of an accounting has not been pursued. Any further matters relating to costs can be dealt with in the ordinary way.
25 In addition to the orders made on 22 June, I would order that the defendant pay the plaintiff's costs on an indemnity basis and I consider the form in which the proposed order is expressed, to be appropriate (see Degmam (supra).
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