LGS v Barbagallo

[2013] NSWSC 68

Supreme Court

New South Wales

Medium Neutral Citation:	LGS v Barbagallo [2013] NSWSC 68
Hearing dates:	06/12/2012
Decision date:	13 February 2013
Jurisdiction:	Equity Division - Commercial List
Before:	McDougall J
Decision:	Special costs order made: see at [89]
Catchwords:	COSTS - indemnity costs - abuse of process - evidence did not establish improper purpose or malice COSTS - indemnity costs - whether properly advised plaintiff should have known case had no prospects of success - test is objective COSTS - fixed costs - where no basis for concluding upon a particular gross figure and where process of reaching that assessment unlikely to be protracted or expensive COSTS - indemnity costs - third party costs PRACTICE & PROCEDURE - applications - funds paid into court - claim for payment out of court
Legislation Cited:	Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules (2005)
Cases Cited:	Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Harrison v Schipp (2002) 54 NSWLR 738 Idoport Pty Ltd v National Australia Bank Ltd [2005] NSWSC 1273 Leary v Leary [1987] 1 All ER 261 LGS v Barbagallo [2012] NSWSC 1099 Old v McInnis [2011] NSWCA 410 Oshlack v Richmond River Council (1998) 193 CLR 72 Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 Vieira v O'Shea (No.2) [2012] NSWCA 121
Category:	Costs
Parties:	LGS (NSW) Pty Limited (Formerly In Vivo Communications Pty Ltd) (Subject to deed of company arrangement) ACN 076 083 013 (First Plaintiff) LGS (VIC) Pty Limited ACN 079 799 787(Second Plaintiff) Francesco Barbagallo (First Defendant) Chiron Communications Pty Ltd (ACN 068 226 166) (Second Defendant) Adrenalin Strategics Pty Ltd (Third Defendant)
Representation:	Counsel: I M Jackman SC / M R Tyson (Plaintiffs) D R Pritchard SC (Defendants) Solicitors: Bartier Perry (Plaintiffs) HWL Ebsworth (Defendants)
File Number(s):	2006/293462

Judgment

1. HIS HONOUR: I gave judgment in these proceedings on 18 September 2012: [2012] NSWSC 1099. I ordered that there be judgment for the defendants on the plaintiffs' claim with costs, and gave leave for any application for a further or special costs order to be made by notice of motion filed within 14 days.

1. The defendant (Dr Barbagallo) has moved for special costs orders:

(1) that his costs be paid on the indemnity basis, either in whole or from specific dates;

(2) fixing those costs in a gross sum;

(3) that the moneys held in court as security for his costs be paid out to him forthwith; and

(4) that non-parties to the litigation, Ms Sullivan and a company controlled by her, LGS Enterprises Pty Limited, pay his costs.

The application for indemnity costs

1. The application for indemnity costs is made on alternative bases:

(1) that the proceedings were an abuse of process;

(2) a document said to be an offer of compromise, alternatively a "Calderbank" offer, served on 19 September 2006; or

(3) a document said to be a Calderbank offer, served on 6 January 2009.

Abuse of process

1. Mr Jackman of Senior Counsel, who appeared with Mr Tyson of counsel for Dr Barbagallo (and who had appeared for Dr Barbagallo during the hearing), submitted that the proceedings were an abuse of process for the following reasons:

(1) the circumstances in which Dr Barbagallo left the employ of one of the plaintiffs, In Vivo Vic (as I called it in my earlier reasons), caused Ms Sullivan, the effective owner and controller of In Vivo Vic and the other plaintiff, to hold a grudge against him and in turn inspired in her the desire to cause him harm;

(2) these proceedings were commenced in furtherance of that desire;

(3) the allegations made in the proceedings included grave allegations akin to fraud (this, in the context of a "Barnes v Addy" claim for accessory liability);

(4) the proceedings were always hopeless, and doomed to fail - this was said to lend strength to the submission that the proceedings were commenced only with the desire to cause harm to Dr Barbagallo; and

(5) Ms Sullivan and another witness, her partner Mr Vincent, gave evidence, on a matter integral to their case, which was knowingly false, and concocted for the purpose of furthering the plaintiffs' case and thus of causing harm to Dr Barbagallo.

1. Mr Pritchard of Senior Counsel, who appeared for the plaintiffs (but who did not appear for them at the hearing) submitted that:

(1) the evidence fell far short of showing that Ms Sullivan held a grudge against Dr Barbagallo, or that she wished to cause him harm;

(2) the proceedings could not be said to have been hopeless (or that they should or must have been appreciated to have been hopeless), bearing in mind that the plaintiffs' solicitor had given the appropriate certificate and that the plaintiffs had been represented by capable and experienced senior and junior counsel;

(3) in the way in which these proceedings came to an end (at the conclusion of the plaintiffs' case, I entertained an application for judgment on the basis that the evidence, considered on the "jury basis", did not make good the pleaded cause of action; and I came to the conclusion that the submission was good), the court would not be justified, not having heard all the evidence that would otherwise have been available, in reflecting adversely on the credibility of Ms Sullivan and Mr Vincent; and

(4) indeed, the allegations of abuse of process had not been properly or adequately put to Ms Sullivan.

1. Mr Pritchard pointed to the fact that the plaintiffs had provided security for costs of almost $500,000.00 (the precise amount was, I think, $482,880.00). Further, he said that the court could infer that the plaintiffs had spent, in respect of costs, amounts probably equivalent to those shown to have been spent by Dr Barbagallo (which exceeded $930,000.00). He submitted that the court could not infer that the plaintiffs would have risked those sums purely to pursue some grudge, by prosecuting a claim that they knew or must have appreciated was hopeless.

Decision

1. I accept Mr Pritchard's submission that the evidence does not show that Ms Sullivan caused the plaintiffs to commence the proceedings, regardless of any merit, for the purpose of causing harm to Dr Barbagallo.

1. I am prepared to accept, as Mr Jackman submitted, that Ms Sullivan was displeased that Dr Barbagallo had left the employ of In Vivo Vic. The reasons that he gave were rational, and (if it matters) were justified on the state of affairs existing at the time he resigned. But that did not appease or diminish Ms Sullivan's displeasure.

1. Mr Jackman relied on the notes of what might be called an "exit interview" between Ms Sullivan, Mr Vincent and Dr Barbagallo. The notes show, and I find, that Ms Sullivan insisted that Dr Barbagallo would "have to give a proper notice period and not [leave] at such short notice", and that she was aggrieved because the short notice would be inconvenient having regard to "current commitments" and "fall out" in relation to clients if Dr Barbagallo left precipitately.

1. Equally, the notes show, and I find, that Mr Vincent expressed a suspicion (emphatically denied by Dr Barbagallo) that Dr Barbagallo might be either joining a competitive business or commencing his own business in competition with the In Vivo group.

1. The notes show further, and I find, that Ms Sullivan did say that if Dr Barbagallo joined a competitor "that will change everything including our relationship and you will get lots of flack".

1. After Mr Vincent suggested that Dr Barbagallo should "make a proper and planned exit strategy from the business", Ms Sullivan is recorded as saying: "we should do so so that you can be comfortable with the process as there will be other ways so that we don't make your life a hell".

1. Further discussions related to the brevity of the notice period, proposals that Dr Barbagallo should continue to work, not full time, to ensure continuity with clients, and generally "a proper transition".

1. It is clear from the note that Ms Sullivan was extremely upset at Dr Barbagallo's announcement of his intention to resign on short notice. It is clear that she thought that she (or more accurately In Vivo Vic) was entitled to more, including a longer period of notice, and Dr Barbagallo's working to ensure an effective and smooth "transition".

1. Equally, it is clear that Ms Sullivan raised, at least as a prospect, that Dr Barbagallo would "get lots of flack" if he moved immediately to take up employment with a competitor of the plaintiffs. I infer that the comment about making his life "a hell" was made in the same context.

1. But none of this explains why the plaintiffs waited for six years - almost until the relevant limitation period had expired - before commencing proceedings. I should note that Mr Jackman submitted that this was a factor lending support to the allegation of abuse of process. I am not quite sure why this is so, unless perhaps on the basis that the court can take judicial notice of the principle that "revenge is a dish best served cold".

1. It is not as though Ms Sullivan or Mr Vincent were unaware, for some six years, of matters that would cause them to suspect that Dr Barbagallo had taken and misused confidential information. On the contrary, and even accepting the evidence at its most favourable from their perspective (and I hasten to say that this is merely an assumption, not a finding of fact), they became aware, shortly after Dr Barbagallo left, of what they characterised as a questionable transaction that Dr Barbagallo had caused In Vivo Vic to undertake with a particular client relatively shortly before he left. On the same basis, the evidence shows that they had become aware that In Vivo Vic had lost this client, and that Dr Barbagallo had gained it, relatively shortly after he left the employment of In Vivo Vic.

1. If Ms Sullivan's motive in commencing proceedings were revenge, and if this motive were so strong as to cause her to institute what were characterised as hopeless proceedings simply for the purpose of punishing Dr Barbagallo, one would have expected the administration of the punishment to commence much earlier than it did.

1. I do not find that the institution and prosecution of the proceedings were motivated by actual malice, or by some improper purpose such as the sole desire to cause harm to Dr Barbagallo.

1. However, that is not the end of the matter. Mr Jackman relied on the principle enunciated by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at, in particular, 401. In that case, Woodward J said (at 401) that indemnity costs could be awarded where the action was commenced or continued in circumstances where the applicant, properly advised, should have known that there was no chance of success. That would lead, his Honour said, to the presumption of ulterior purpose, or to the inference that the action had been commenced "because of some wilful disregard of the known facts or the clearly established law".

1. In this case, I found that the plaintiffs' evidence, taken at its highest - as I have said, on the "jury basis" - fell short of making good the pleaded case. For present purposes, there were two basic reasons for coming to that view:

(1) I concluded that the plaintiffs had not proved that the allegedly confidential information said to have been taken and misused by Dr Barbagallo was indeed confidential in the sense that the law requires if it is to be afforded protection; and

(2) in any event, the plaintiffs had failed to prove that Dr Barbagallo had taken, let alone that he had misused, any such information.

1. Mr Pritchard submitted that this was an insufficient foundation for the imposition of indemnity costs, in circumstances where the plaintiffs had had legal advice throughout, where their lawyers had given the appropriate certificates, and where senior and junior counsel, no doubt fully cognisant of their obligations, had presented the plaintiffs' case at the hearing.

1. However, I am not concerned with an inquiry into what the lawyers knew or advised. Nor am I concerned to inquire what they made of their instructions. As Woodward J said in Fountain Selected Meats at 401, the question is whether the plaintiffs "properly advised, should have known that [they] had no chance of success". The conclusion to be drawn from my reasons is that proper advice on the whole of the evidence amassed by the plaintiffs (which, one must assume, reflected the instructions given by them throughout), requires that question to be answered "yes". It leads to the conclusion that the action was started and prosecuted with "wilful disregard of the known facts or the clearly established law".

1. In this context, the requirement for a plaintiff, seeking protection of its confidential information, to identify with specificity the information said to be confidential, and to prove adequately why it was confidential, is hardly novel or surprising. Nor was it in April 2006, when these proceedings were commenced.

1. It is significant that, in the course of her cross-examination, Ms Sullivan acknowledged that she perhaps had a different concept of confidentiality to that understood by the law, as worthy of protection. In her evidence at the hearing, the following passage occurred (T83.31 -.36):

Q. So it is not the case that you regarded the whole document as confidential, correct? Is that correct?

A. We actually do regard the whole document as confidential but I accept that there are sections that are in the public domain and therefore in your terminology would not be confidential. But as far as an agency producing a proposal for a client, it is absolutely confidential.

1. That passage conveys strongly the impression that Ms Sullivan was seeking to protect information that she regarded as commercially confidential, even though she knew that at least some of it might not be confidential in the eyes of the law - "in your terminology".

1. Also of note in this context is that the plaintiffs' ultimate response to requests made repeatedly of them to identify the information claimed to be confidential was to produce a large bundle of documents. In her affidavits, Ms Sullivan accepted that many of the documents thus identified as being confidential were in fact not confidential. In her cross-examination, she abandoned many more claims to confidentiality. I dealt with this at [140] to [146] of my reasons of 18 September 2003.

1. Mr Pritchard protested that this was an inadequate basis to order indemnity costs, at least without some further complicating factor. If it were not so, he submitted, any decision to grant summary judgment would carry with it the proposition that the party entitled to judgment was entitled also to costs on the indemnity basis. It is unnecessary to say more than that is not the situation with which I am concerned. I do not think that it is particularly helpful to analyse the issue arising on the facts of this case by relevant to extrinsic, hypothetical and distinguishable facts.

1. Mr Pritchard submitted further, that the plaintiffs had never been put on notice that Dr Barbagallo considered their case to be hopeless on this basis: at least, Mr Pritchard submitted, until Mr Jackman came into the matter and (with Mr Tyson) furnished Dr Barbagallo's opening written submissions.

1. I do not accept that submission. The failure to particularise "Confidential Information" was the subject of complaint in a letter of 24 September 2007. Further, and whilst the proceedings were still in the District Court, there were repeated applications for particulars, for strike-out and the like, in the course of which the adequacy of the pleading and particularisation of the plaintiffs' confidential information case was raised. On one occasion, Phegan DCJ ordered that the relevant paragraphs of the then statement of claim be struck out, although with liberty to replead.

1. I am satisfied that the adequacy of the pleading and particularisation of the confidential information case was a live matter from early in the history of the proceedings, and that it continued to be live until the matter was heard and determined. Thus, I do not accept that, if it were otherwise appropriate to order costs on the indemnity basis, that consequence should be deflected simply because Dr Barbagallo had not raised his complaints on this issue until the last moment.

1. In this case, the articulation of the plaintiffs' case, and the sufficiency (or otherwise) of their demonstration of what the information was and why it was confidential, were always live issues. Unless and until those issues were addressed adequately, there could be no assessment of the consequential question, of whether Dr Barbagallo had taken or misused confidential information of the plaintiffs.

1. In my view, looking at the matter as a whole, and taking into account (as I am bound to do) my reasons for finding for Dr Barbagallo on the plaintiff's claim, I conclude that the Fountain Selected Meats test has been satisfied. I find that the plaintiffs, properly advised, should have known that their case was hopeless. It is immaterial whether or not they were properly advised. The test postulated by Woodward J is objective. It does not bear on the content or quality of any advice actually given. In any event, there was no such advice proved.

1. Thus, whilst I have not found that the proceedings were commenced for some actual improper reason, I do find that their commencement and continuation demonstrates wilful disregard of the facts and the relevant principles of law. Of course, Woodward J said that this may justify the court's drawing an inference of ulterior purpose. But it is not the inference (if drawn) that supports the award of costs on the indemnity basis. It is the underlying issue: put shortly, the decision to commence and prosecute an obviously hopeless case.

1. To my mind, that amounts to "relevant delinquency" (to adopt the words of Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]) sufficient to justify an order for indemnity costs.

1. For those reasons, I conclude that Dr Barbagallo (and the second defendant, his company) should have their costs on the indemnity basis, from the commencement of the proceedings.

The offer of compromise and Calderbank offers

1. In those circumstances, it is unnecessary to express a concluded view as to the offer of compromise, considered either as an offer made pursuant to UCPR r 20.26 (as Dr Barbagallo said it was) or as a Calderbank offer; nor as to the (later) Calderbank offer.

1. There was a debate as to whether the offer of compromise did comply with r 20.26. It was in the following terms:

1. Judgment for the plaintiffs in the sum of $10,000.00;

2. The first defendants cross-claim against the plaintiffs be dismissed; and

3. The first and second defendants to pay the plaintiffs' costs as assessed.

1. Mr Pritchard submitted, on the authority of Old v McInnis [2011] NSWCA 410 at [18], that the offer did not comply with the rule. Mr Jackman submitted to the contrary, relying on, among other decisions, Vieira v O'Shea (No.2) [2012] NSWCA 121 at [7]. It is unnecessary to enter on that debate.

1. I will however say something about the offer of compromise, considered as a Calderbank offer, and about the second Calderbank offer.

1. Mr Pritchard accepted that the offer of compromise could be considered as a Calderbank offer, because the letter under cover of which it was sent was stated to be "without prejudice save as to costs."

1. For the same reasons, the second letter of offer, of 6 January 2009, was treated as a Calderbank offer because it too was sent "without prejudice save as to costs".

1. Mr Pritchard submitted that the first offer, considered as a Calderbank offer, was not sufficient to enliven the discretion because it did not offer a genuine compromise and because, in any event, the reasons why it was made had not been explained. I think that there is force in the latter part of this submission. The letter simply referred to the proceedings, enclosed the offer of compromise and requested acknowledgment of receipt. The letter making complaints about the adequacy of the particularisation of the confidential information case was not written until a year later, on 24 September 2007.

1. There is nothing in the evidence to show that, as at 19 September 2006, Dr Barbagallo had made clear to the plaintiffs (as later he did) his reasons for suggesting that their case was bound to fail. To put it another way, it does not appear that, as at 19 September 2006, the plaintiffs had been made aware of what Dr Barbagallo perceived to be (and were ultimately held to be) the significant - indeed fatal - problems with their case.

1. Thus, if the offer of 19 September 2006 fell to be considered only as a Calderbank offer, I would not conclude that it gave a proper basis for the award of costs on the indemnity basis.

1. I turn to the Calderbank offer of 6 January 2009. That was expressed to be open until 16 January 2009. The "compromise" proposed was of that of the sum of $272,880 then held in court as security for Dr Barbagallo's costs, some 80% should be paid out to him (with interest) and the balance to the plaintiffs.

1. Mr Pritchard submitted, again, that there was no real element of compromise. He submitted, further, that the time allowed for consideration of the offer was inadequate.

1. Again, I think, there is force in the second submission. The letter was written during the law vacation. It allowed only 7 business days for its acceptance. In those circumstances, were it necessary to do so, I would conclude that the time held open for acceptance of the offer was inadequate.

Application for a gross sum order

1. Mr Jackman submitted that it was appropriate to make a gross sum order, because Dr Barbagallo had been out of pocket over a period of six years for his legal costs, and because, if the matter were to proceed to assessment, it would be likely to take a year or more before the amount of his entitlements could be ascertained.

1. Mr Jackman relied on the affidavit evidence of a costs assessor, Ms Deborah Vine-Hall.

1. Mr Pritchard submitted that there were no unusual features sufficient to take the matter out of the ordinary process of assessment. In particular, he submitted, there was no real basis for thinking that the process of assessment would cause undue delay. He relied on the affidavit evidence of another costs assessor, Ms Kerrie-Ann Rosati.

1. Ms Vine-Hall and Ms Rosati gave estimates of the costs recoverable, on various assumptions, on the ordinary basis and on the indemnity basis. They gave evidence, further, as to the way in which the process of assessment worked and as to the likely duration of that assessment. Neither was cross-examined on her affidavit.

1. On the question of duration, I prefer the evidence of Ms Rosati. Thus, I do not find that it is likely that the process of assessment would take as long as Ms Vine-Hall had suggested it might, or that it would cost as much as Ms Vine-Hall suggested it might. But in any event, I do not regard those considerations as dispositive.

1. The rationale for ordering costs to be paid on a gross sum basis has been examined in a number of cases. The power to make that order derives from s 98(4)(c) of the Civil Procedure Act 2005 (NSW). The court is in empowered, "at any time before costs are referred for assessment" to order that the beneficiary of a costs order receive "a specified gross sum instead of assessed costs".

1. In Harrison v Schipp (2002) 54 NSWLR 738, Giles JA considered the equivalent power under SCR pt 52A r 6(2). There was no material difference between that provision and s 98 (4)(c).

1. One of the matters that Giles JA noted, as relevant to the exercise of the discretion, was that the assessment of costs was likely to be protracted and expensive; in particular, if the party obliged to pay costs might not be able to meet the further costs liability likely to result from the process of assessment (at [21]).

1. Giles JA noted, further, that the court was bound to fix a sum that was fair between the parties, on a "logical, fair and reasonable" basis (at [22]). It followed, his Honour said, that the power should only be exercised when the court was confident that the materials before it provided an adequate basis for assessing a figure that was appropriate in all the circumstances.

1. In Idoport Pty Ltd v National Australia Bank Ltd [2005] NSWSC 1273, the relevant propositions stated by Einstein J at [9] included that:

The discretion is particularly suited to complex litigation where the costs of assessing or taxing a bill would be considerable, and the delay and inconvenience involved would also be considerable...

1. Ms Vine-Hall expressed the view that, on the indemnity basis, the costs incurred by Dr Barbagallo would be allowed in full (in round figures, $933,500.00). She took that approach because, in her view, there was no reason to think that any of those costs were unreasonably incurred.

1. Ms Rosati expressed a different view. She pointed to matters that, in her opinion, suggested that even on the indemnity basis, Dr Barbagallo's incurred costs would not be allowed in full on assessment. Her opinion was that, on this basis, his costs would be allowed in a range (and again, I round off) $789,100.00 to $833,600.00.

1. Since I have concluded that Dr Barbagallo should have his costs on the indemnity basis, it is not, strictly speaking, necessary to consider the experts' views as to what he might receive on an assessment of costs on the ordinary basis. However, since others may take a different view, and because in any event the figures are relevant to the next question (payment out of the security held), I set out their views.

1. The primary view taken by Ms Vine-Hall was that, on her analysis of the costs and the basis on which they have been calculated, all of the costs incurred by Dr Barbagallo were reasonably necessary for his defence of the proceedings. Thus, she said, even on the ordinary basis, it was likely that the process of assessment would entitle Dr Barbagallo to all the costs that he has incurred. However, she said, if some discount were to be applied, it should be at the lower end of what in her opinion is generally regarded as the applicable range, leading to a discount of 15%. That would produce a figure, rounded off, of $793,400.00.

1. Ms Rosati again took a different approach. She said, by reference to a number of factors, that there were areas where Dr Barbagallo had incurred costs which, whilst it might have been reasonable to do so on a solicitor and client basis, would not be allowed on assessment. She referred, by way of example, to what she said were instances of double handling because Dr Barbagallo used interstate solicitors, and instances where counsel's fees, although properly charged, would exceed what is normally allowed. Ms Rosati said that a likely range of figures to be allowed on assessment would be (rounded off) from $734,000.00 to $789,100.00.

1. I should say that in each case Ms Rosati's view was subject to the caution that she had not had the opportunity of carrying out a full investigation and analysis of all items of costs charged. Nonetheless, since Ms Rosati was also of the view that, by and large, the materials already available were sufficient to enable an assessment to proceed swiftly and economically, it may be thought that there was a sufficient factual basis for her opinions.

1. The primary position established by the rules is that costs, if they cannot be agreed, should be assessed. The party who is obliged to pay costs is entitled to have the amount payable in effect verified by an independent expert. Equally, the party entitled to the benefit of the costs order is entitled to have objections settled by that independent expert.

1. Thus, to deprive the parties of the process of assessment is to deprive them of a right which might prove to be significant. In the present case, even on the indemnity basis, the difference between the experts is $100,000.00 or more. The experts were not cross-examined. The court has not had the opportunity of hearing them explain and justify their competing views. The court is not in a position to conclude that the view of one or the other should be accepted; or, perhaps, that some intermediate position should be taken.

1. In those circumstances, there is no apparent logical basis for the fixing of a particular gross sum. Since it is inherent in the exercise of any otherwise uncontrolled judicial discretion that it be exercised in a reasoned and reasonable manner, it must follow, in my view, that the discretion cannot be exercised in the present case.

1. That conclusion can be tested simply, and again by looking at the disparate views in relation to indemnity costs. If the court were to fix the sum of $933,500.00 as the gross sum, it would not be fair or reasonable to the plaintiffs, because to do so would effectively deprive them of the reasoned but untested views of their independent expert. However, there is no basis in the evidence to justify the court's selecting either end of the range stated by the plaintiffs' expert, or any point within that range, or for that matter any point between the higher end of that range and the figure of $933,500.00, as the appropriate gross sum.

1. I do not think that the requirement that the discretion be exercised logically and reasonably is satisfied simply by fixing, on an arbitrary basis, a particular point along a continuum.

1. This point is emphasised by the observations of Purchas LJ in Leary v Leary [1987] 1 All ER 261 at 266. His Lordship said that on the one hand the court must be astute to avoid prejudice to the unsuccessful party by overestimating costs; but, at the same time, must be astute not to cause injustice to the successful party by imposing some arbitrary discount on a "fail safe" basis. I respectfully agree.

1. In this case, it would only be possible to exercise the discretion if the court could be satisfied, on the balance of probabilities, either as to the views of one expert or the other (and, in the case of Ms Rosati's evidence, as to an appropriate point within the range suggested by her), or as to some mid point between the views expressed by the experts. In the absence of cross-examination, testing the reasoning and assumptions of each, it is not possible for the court to do that.

1. Thus, I conclude, the discretion to order that costs be paid in a gross sum should not be exercised.

1. As I have said at [53] above, I prefer Ms Rosati's assessment of the likely difficulty, expense and delay of the process of assessment. Thus, I do not think that this is a case where the process of assessment is likely to be protracted or expensive (in the words of Giles JA), or productive of considerable cost, delay and inconvenience (to adapt the words of Einstein J). That is another, although secondary, consideration telling against the order sought.

Application for payment out

1. The amount held in court as security for costs, including accrued interest, is (in round figures) $540,000.00. On any view, the costs payable to Dr Barbagallo will exceed that figure by a substantial amount. Even if the assessment is to be conducted on the ordinary basis, and even if, on that basis, costs are assessed at the low point of Ms Rosati's range, the difference between the moneys in court and the amount likely to be payable exceeds $190,000.00. There is no basis, on the evidence, for concluding that the extent of the plaintiffs' costs liability might be reduced to below the amount presently held in court.

1. Thus, it seems to me, the real or practical opposition to payment out could only be on the basis that Dr Barbagallo would not be able to repay the money in the event that it became necessary to do so. Since there is no evidence on this point (and one might think that the very fact that he had paid more than $930,000.00 in costs over seven years of itself tended to the opposite conclusion), it seems to me that the interest of justice require that Dr Barbagallo have access to the moneys in court.

1. Payment out will, to the extent of the amount paid out, alleviate the continuing burden of interest. I note that the plaintiffs did not offer, as an alternative to payment out, to pay interest on the costs incurred from Dr Barbagallo to the extent that those costs might be allowed on assessment.

Third party costs orders

1. It was common ground that the court has power to order that the costs of a party to litigation be paid by a non-party or non-parties. It is thus unnecessary to go to the sources of that power, except to note that, for the reasons I gave in Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2006) 66 NSWLR 724 at, in particular, [76], the repeal of the express "third party costs" power in UCPR r 42.3 (2)(c) did not intend to abolish this power; nor does it do so.

1. It seems to me that there are two separate bases for considering this question. The first relates to the period when the plaintiffs were deregistered, and thus non-existent. That period was from 29 August 2008 until 2 August 2012 (when an order was made "with immediate effect" reinstating registration of each of the plaintiff. The effect of that orders was restrospective: to undo their statutory non-existence over the period of deregistration.

1. During the period of deregistration, it seems to me to be plain that instructions were provided either by the plaintiffs' holding (or ultimate holding) company, LGS Enterprises Pty Ltd, or by Ms Sullivan herself, who held all the issued shares in that company.

1. In those circumstances, given that the holding company and in substance Ms Sullivan caused litigation to be prosecuted on behalf of non-existent plaintiffs, it is appropriate that they be ordered to pay so much of Dr Barbagallo's costs as were incurred over that period. I do not think that the statutory fiction of retrospective existence and personality requires the real-world position to be overlooked for present purposes.

1. Before and after the period of deregistration, the position is somewhat different. The evidence for the plaintiffs is that effectively instructions in relation to the litigation were given by Mr Vincent. Whilst I have no doubt that Mr Vincent consulted with his partner (in business and in life) Ms Sullivan, the evidence on this point was unchallenged. So, too, was the evidence that:

(1) before about April 2008 (that is to say, up until about four months before deregistration) it was the plaintiffs themselves that paid costs; and

(2) from April 2008, and with one exception (which does not seem to me to be material), all costs were paid by a related company known In Vivo Communications (Australia) Pty Ltd.

1. Mr Jackman submitted that, regardless of the legal entities involved, the proceedings were being conducted in substance for the benefit of Ms Sullivan and that it was she who in substance bore the economic burden of the costs incurred. That may be so; but it is not to the point.

1. There must be something more than simply (ultimate) benefit to justify a non-party costs order. That "something" is normally considered in terms of whether the involvement of the non-party funder has caused some abuse of the court's processes. (I put the matter this way because, in circumstances where the proceedings have been completed, the analysis is retrospective rather than prospective, for the reasons I gave in Rickard Constructions at [93] to [95].)

1. Since I have concluded that actual abuse of process has not been shown, it must follow that, outside the period of deregistration, there is no basis for making a third party costs order.

Summary of conclusions

1. My conclusions may be summarised as follows:

(1) Dr Barbagallo is entitled to his costs on the indemnity basis.

(2) It is not appropriate to order that the costs so payable be fixed as a gross sum.

(3) It is appropriate that the moneys held in court as security for those costs, including interest thereon, be paid out to Dr Barbagallo.

(4) During the period 13 May 2012 to 2 August 2012, LGS Enterprises Pty Ltd and Ms Sullivan should be jointly and severally responsible with the plaintiffs for the payment of Dr Barbagallo's costs.

(5) Otherwise, there should be no third-party costs order made.

Costs of the notice of motion

1. The parties did not address on this aspect of costs. Dr Barbagallo has enjoyed substantial, but not entire, success on his application. The respects in which he failed were not insignificant, in terms of either their substance or the way in which they were approached in the evidence and in submissions.

1. In the circumstances, it is my tentative view that Dr Barbagallo should have some, but not all, of his costs of the application; that the appropriate percentage is about 75%; and that those costs should be payable on the ordinary, not the indemnity, basis.

1. If any party (or non-party) wishes to dispute costs orders in those terms, they should provide written submissions in chief within 14 days of the date of these orders, and written submissions in answer should follow within a further seven days. The dispute will then be decided "on the papers".

Orders

1. For those reasons, I make the following orders:

(1) Subject to order (5) below, order that the costs payable by the plaintiffs to the defendants be assessed on the indemnity basis.

(2) Order that the moneys paid into court by the plaintiffs as security for the defendants' costs, together with all interest accrued on those moneys, be paid out to the defendants forthwith.

(3) Stay order (2) for 21 days from the date of delivery of these reasons.

(4) Order that, for the period 13 May 2012 to 2 August 2012, LGS Enterprises Pty Ltd and Lisa Gaye Sullivan be jointly and severally liable with the plaintiffs for payment of the defendants' costs.

(5) Subject to order [6] below, order the respondents to the notice of motion filed on 7 September 2012 to pay 75% of the applicants' costs thereof, assessed on the ordinary basis.

(6) Order that any application to discharge or vary order (5) be made by written submissions served and delivered to my Associate within 14 days of the date of publication of these reasons, identifying both the orders sought and the reasons why they are sought; submissions in answer to be served and delivered to my Associate within 7 days thereafter; any such contest to be decided "on the papers".

(7) Order that the said notice of motion otherwise be dismissed.

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Decision last updated: 28 March 2013