Li v Xin (No 2)
[2013] VSC 139
•25 MARCH 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 2009 08906
| PHILLIPS YIWEI LI | Plaintiff |
| v | |
| CINDY YAN XIN AND THE REGISTRAR OF TITLES | Defendants |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 25 MARCH 2013 | |
DATE OF JUDGMENT: | 25 MARCH 2013 | |
CASE MAY BE CITED AS: | LI v XIN (NO 2) | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 139 | |
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Costs – Whether indemnity costs should be ordered – First defendant falsely denying that property held on trust for plaintiff – Whether costs should be ordered against non-parties – Husband and wife involved in denial of trust arrangement – False evidence given, particularly by wife – Whether costs should be ordered against first defendant’s solicitor personally – Solicitor involved in issues adding to costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Hawas | Batten Sacks Harvey Bruce |
| For the First Defendant | Mr F Lim | Francis Lim |
| For the Second Defendant | No appearance | |
| For the Non-Parties, Ms Lihua Li and Mr D Dover | In person |
HIS HONOUR:
The issue before me today is the appropriate orders for costs as a result of this complicated factual dispute. The plaintiff seeks costs against the defendant not only the costs thrown away as a result of the setting aside of the judgment which had been entered after a trial in the absence of the defendant, but also the costs of the proceeding itself, judgment again having been entered or having been found to be in favour of the plaintiff. The plaintiff seeks costs of both of those orders on an indemnity basis.
The plaintiff also seeks costs against two non parties, Lihua Li, whom I referred to in the judgment as Lucy Li, and her husband, Donald Leslie Dover. The plaintiff seeks similar orders against each of those non parties as against the defendant herself.
Thirdly, the plaintiff seeks two orders for costs against the defendant's solicitor, Mr Francis Lim. The first order is limited to the costs of the preparation of an affidavit by the defendant's former solicitor, Mr Henry Wong, and the giving of his evidence which the plaintiff submits should be allowed at half a day, plus the costs of the adjourned earlier hearing of the application to set aside judgment on 14 May 2012. The second order sought by the plaintiff is that Mr Lim personally pay 30 per cent of the plaintiff's costs of the proceeding because it was submitted that time was wasted on the issue of whether or not a person by the name of David Jie Li existed and played the role that it was said that he did. It was submitted that as a solicitor owing a duty to the Court, Mr Lim should have admitted the claim by the plaintiff that there was such a person as David Jie Li and that he was also the person known as Xin Hua Zhu, the husband of the defendant.
I will deal with the claim against Mr Lim first, and I will deal with the second of those claims first. In my opinion, there should be no order for costs against Mr Lim in respect of that issue. Whatever one may think about the rights and wrongs of the evidence concerning the existence of David Jie Li, the fact is, or at least I have to accept, that Mr Lim was acting on instructions from his client in denying that such a person existed. As I said during argument, at the end of the day whilst there was some documentary evidence that pointed to the existence of a person known as David, much of the evidence relied on the statements by the plaintiff's witnesses that they knew a person known as David Jie Li and then their identification of the person in the photograph of Xin Hua Zhu as the person known to them as David Jie Li. Equally all of the defendant's witnesses denied any knowledge of such a person.
I am not persuaded that Mr Lim had any alternative, given what I assume to be his instructions, but to persist with this issue. I am not to know, because legal professional privilege has not been waived by the defendant, what advice he might have given his client. Counsel for the plaintiff did make a point of the initial pleading in the amended defence in response to an allegation that a receipt for payments made to the defendant had been signed by David Jie Li that the pleading responded simply that the defendant had not authorised anyone known as David Jie Li to take any action on her behalf. It was submitted that that implied that there was such a person known as David Jie Li but that he was not authorised to act on behalf of the defendant.
If the instructions at that time had been that there was no such person known to the defendant, one might have thought that a proper pleading would have included such a denial in the defence. Nevertheless it seems to me that that is not enough to require a practitioner, particularly one who had no involvement for the client at the time that pleading was prepared, to make an admission when the client's instructions, I assume, were quite firmly to the effect that she knew no such person. I do not understand how Mr Lim would have been able to do anything other than continue to act on his instructions. The extreme result of having to say to his client that he could no longer continue to act because he personally had formed the view that the Court's time was being wasted on such an issue would have involved further disruption and cost to the parties rather than continuing to deal with the issue as a fact in dispute between the parties.
So I will make no order with respect to that particular application against Mr Lim. He seeks the costs that he has incurred in meeting that allegation and that seems to me to be appropriate result, subject to one matter that I will come to in a moment.
I return then to the first aspect of the claim against Mr Lim, which was that the issue of the substance of a telephone conversation between Mr Wong and Mr Lim in September 2011 involved wasted costs. The issue arose in this way. The defendant's third affidavit in support of her application to set aside the judgment obtained at the trial without her appearance, was an affidavit on information and belief as to what had been said in this telephone conversation between her former solicitor, Mr Wong, and her current solicitor, Mr Lim. A number of important admissions were said to have been made and were recounted by the defendant in her affidavit on information and belief from Mr Lim. When the matter came back to me for the first time on the application to set aside the judgment on 14 May 2012 the plaintiff’s lawyers had in their possession a draft affidavit by Mr Wong prepared by himself in which he disputed and refuted each of the points made in Ms Xin's affidavit as to what he had allegedly said to Mr Lim. The issue then arose that Mr Lim, who was appearing as Ms Xin's counsel on the application, was in the position of being both counsel and a potential witness and it was agreed by everyone that the matter could not proceed on that day and that Ms Xin would need separate representation.
That was done, as far as I was concerned, on the basis that I assumed that Mr Lim was then of the view that he was going to contradict Mr Wong's affidavit material. What of course became clear when I read Mr Lim's affidavit filed in opposition to the application for costs was that the denial by Mr Wong in the draft affidavit was the first Mr Lim knew of this dispute. He did not receive the draft affidavit until the morning of 14 May 2012. So in many respects, as he said, he was caught by surprise and the matter probably would have had to be adjourned in any event because of the late attempt to rely on this material.
After the adjournment, the plaintiff filed an affidavit by Mr Wong sworn on 18 June 2012 in which he dealt with each of the alleged admissions as to what he had or had not done with respect to passing on the information to his former client concerning the dates for appearance at the Court and the hearing date of the trial, which the Court had ordered be served on him. The matter then came back before me on 10 September 2012. There had been no rebuttal by Mr Lim in the form of an affidavit by him as to the contents of the conversation that he had said he had with Mr Wong.
Mr Wong was called as part of the plaintiff's case and gave evidence about his actions in respect of sending on the material by email to the defendant, advising her of the trial date. He also gave evidence about the contents of the telephone conversation. There was no challenge to Mr Wong’s evidence about the telephone conversation by any cross-examination. Indeed, it would seem to have been very difficult for the defendant to do that given that there was no contrary material filed by the other participant to the telephone conversation.
The explanation given by Mr Lim in his affidavit as to why no responding material was filed was that I had observed at an early stage of the proceeding that an arguable defence on the merits had been raised and that the plaintiff had decided to consent to the setting aside of the default judgment on 10 September and to proceed to a full trial on 11 September 2012 in an effort to avoid wasting further costs on whether or not the judgment should be set aside. There was also a reference to the granting of leave to appeal in the matter of Xiao v Perpetual Trustees (Victoria) Limited,[1] a decision of Buchanan and Mandie JJA on 3 May 2012 in which their Honours had ruled in an application for leave to appeal against a refusal of an application to set aside judgment that it was strongly arguable that insufficient weight had been given to the fact that the defendant in that case appeared to have an arguable defence, notwithstanding that their Honours found that leave to appeal against the refusal by the trial judge to grant an adjournment of the trial, on the application made on behalf of, but in the absence of, the defendant due to her ill health, should be refused. Mr Lim also made the point that because of his personal involvement in this issue counsel was briefed and that the decision was made by counsel in consultations with the defendant and himself that to save costs and time that is how they would proceed.
[1][2012] VSCA 85.
The difficulty I have with the first two of those grounds given by Mr Lim is that they did not operate or have any impact until 10 September 2012. As I point out in my substantive judgment, the fact is that between 18 June 2012 and the start of the hearing on 10 September 2012, there had been no contradiction of Mr Wong's evidence. I found that quite surprising given that it left unexplained how it was that the defendant could have sworn an affidavit on information and belief from her solicitor as to a whole range of admissions allegedly made by Mr Wong.
It seems to me that the plaintiff may well have wanted to call Mr Wong, in any event, on the application to set aside the judgment and even on the trial itself to establish that the defendant did know about the trial date, because of the possible impact that such evidence might have on how the Court might view her credibility and her attitude to her claim to be the beneficial owner of the land in question. But the contents of the particular telephone conversation and whether or not that was an issue of dispute may not have arisen if there had not been this affidavit filed by the defendant, setting out the alleged contents of the telephone conversation.
Given the late production of the draft affidavit of Mr Wong, it seems to me that there should be no order specially dealing with the costs incurred on that day. But I do consider that there are some costs incurred by the plaintiff in dealing with the plaintiff's third affidavit concerning the contents of the alleged telephone conversation and the preparation of Mr Wong's affidavit, and the small amount of time that was spent at the trial with this issue (not the half a day suggested by the plaintiff) that Mr Lim should bear personally.
However, taking the broad brush approach to costs that judges in my view are entitled to do, I consider that in order not to waste further costs on this already incredibly expensive exercise, the best way to proceed with this aspect of costs dispute, is to say that there is to be no order as to costs pursuant to the application against Mr Lim or arising out of that application. In other words, to set off the costs that otherwise would have been payable to Mr Lim against the costs that otherwise would be payable by him.
I turn then to the issue normally dealt with first, and that is the costs that the plaintiff should have against the defendant. The first issue is the question of the costs thrown away, and occasioned by, the setting aside of the judgment obtained without an appearance by the defendant at the trial. In my opinion, whatever might be the strength of a defendant's possible defence, unless it can be shown that a defendant had no knowledge of the trial date and was not at fault in any way in not turning up for the trial, the plaintiff is, in the normal course, entitled to recover these costs.
I am also of the view that where, as here, I have found that the defendant did have knowledge of the trial date, and for whatever reason decided not to appear, that the costs should be awarded in such a way that the plaintiff should not be out of pocket. Even if the plaintiff eventually lost the trial, it seems to me that when one party has chosen not to appear, they should bear the costs burden as part of the price of obtaining the setting aside of the judgment.
Mr Lim submitted that apart from the costs of the actual first trial, the hearing on 22 March 2011, each party should bear their own costs. That, it seems to me, would be an extraordinary result. There have been a considerable number of appearances, the filing of affidavits which require reading and responding to and then the very start of the hearing on 10 September.
Mr Lim's second submission was that, at least from the handing down of the decision in Xiao on 3 May 2012, the plaintiff should have recognised the inevitable and consented to the setting aside of the judgment. Whatever one might say about that point in other cases, in this case I do not accept that that is appropriate. The affidavits then filed on behalf of the defendant contained admittedly false assertions, such as that the defendant had met with the plaintiff's mother and negotiated the purchase of the business. As I point out in my reasons for judgment, that allegation was not corrected in any of the following three affidavits and it was only when she came to give evidence in the trial, that she conceded that in fact it was her friend Lucy Li who had allegedly responded to the advertisement and met the plaintiff's mother to discuss the purchase of the business.
So that is one example of what I refer to in some detail in my reasons for judgment of other difficulties with the defendant's material in support of the application to set aside. In those circumstances, I do not see why the plaintiff should be deprived of any costs of the events leading up to the decision made on 10 September 2012 to accept what then perhaps seemed to be the inevitable result and to consent to the setting aside of judgment. Doing that of course did save further costs being incurred and then having to be reincurred at a trial. So, in my view, the appropriate order is that the defendant should pay the plaintiff's costs thrown away as the result of, and occasioned by, the setting aside of the judgment entered on 22 March 2011, such costs to be taxed in default of agreement on an indemnity basis.
The second aspect of the claim against the defendant is the costs of the proceeding itself. The general rule is the costs follow the event and that is not really disputed by Mr Lim, on behalf of the defendant. The only question is whether the plaintiff's claim for indemnity costs is an appropriate order. This was an unusual case in that the decision revolved around determining who was telling the truth and who was not telling the truth as the competing versions of what had occurred with respect to the purchase of the property could not sit with each other. One side or other had to be telling complete falsehoods.
At a very early stage of the trial, if not on the day preceding the start, I pointed out to the parties that this appeared to be the case, and I warned the parties that whoever was found to be not telling the truth might suffer the consequences in terms of costs. I understand that Mr Lim, on behalf of the defendant, and the non-parties, both still maintain their position, no doubt saying that I have reached the wrong result. However that may be, that is the conclusion which I have reached, namely that the plaintiff and his witnesses were telling the truth and the defendant and her witnesses were not. One of the grounds for indemnity costs is that the case is a result of fraud. It seems to me that a case such as this fits into that category. One can hardly get a better example of fraud than telling complete falsehoods about circumstances of the purchase, as to whether or not it was purchased beneficially by the defendant or on trust for the plaintiff with the plaintiff's family making all the payments.
In those circumstances, I think the plaintiff is entitled to some costs on an indemnity basis against the defendant. However, what I propose to order is that the defendant pay the plaintiff's costs up to a certain date on a party and party basis, being 21 March 2011, and that thereafter, subject to one matter I will come to, the costs of the proceeding be on an indemnity basis.
The matter I just referred to is that Mr Lim on behalf of the defendant, submitted that there were findings made by me about certain factual matters where either I did not accept the evidence of one or other or both of the plaintiff's parents, or where I had stated that I did not think that either side had been telling the full story. There were issues where I was not satisfied with the evidence of the plaintiff's parents and those are detailed in the judgment. In my view, there should be some deduction with respect to such issues. However, this is a very minor part and what I propose is to say that with respect to the costs from the start of the retrial until the end that the plaintiff recover 90 per cent of those costs and that such costs in default of agreement be taxed on an indemnity basis.
I will just pause there because I am trying not to overlap on the costs. What I am proposing is that the order will be along the lines that the defendant pay the plaintiff's costs of the proceeding such costs to be taxed in default of agreement on a party and party basis up to 21 March 2011, and from, say 10 September 2012, because there would have been preparation costs on that day, on an indemnity basis but only 90 per cent of those costs. Does that make sense? Obviously I can word that better when I draft the order. Then, of course, I have made an order for the costs incurred in the gap between 22 March 2011 and the end of 10 September 2012, being the costs thrown away, all on an indemnity basis.
I come now to the final claim which is that the plaintiff should be able to recover costs from the non party, Lucy Li, and her husband, Donald Dover. Regrettably, they have not thought it necessary or appropriate or were not in a position to be represented today despite the very serious claim being made against them. This is despite the fact that in another proceeding which I have referred to in my reasons for judgment, Ms Li had solicitors acting for her with respect to an application to restrain the Sheriff from proceeding to sell the property pursuant to a warrant obtained by her subsequent on her obtaining a default judgment against Ms Xin. The circumstances of those events are set out in some detail in my judgment. The issue in that proceeding is similar to one of the many issues in this proceeding. It would seem to me that it would have been very sensible for that solicitor to have been asked to attend today to oppose the orders for costs being sought against them.
As I mentioned in my judgment, Ms Li was one of the many witnesses who gave evidence through an interpreter although I believe from some of her answers, that she obviously understands some English. That is not a comment critical of her for relying on an interpreter. In the absence of legal representation, the situation is that Mr Dover put the arguments against any costs orders being made against either him or his wife.
There is a clear line of authority that the court has the power to make orders against non-parties in appropriate circumstances. One of the categories where such an order might be appropriate is where the non party has an interest, not necessarily financial, which is equal to or greater than that of the party or if financial, was a substantial interest. It is also relevant whether or not the unsuccessful party is insolvent or could otherwise be described as a person of straw. I am referring there to a passage from the judgment of Croft J in Manderson M & F Consulting v Insitec Pivot Ltd (No 3)[2] which referred, not surprisingly, to the High Court case in Knight v F P Special Assets Ltd,[3] which recognised the court's jurisdiction to make an order for costs against a non party.
[2][2011] VSC 441.
[3][1992] 174 CLR 178.
What I said in my judgment was that the defendant was really a pawn in the hands of people such as David Jie Li and Lucy Li. I said she seemed prepared to do whatever she was told, regardless of the consequences to her credibility. The involvement of David Jie Li and Lucy Li was very significant in these events. Lucy Li, I found, gave false evidence about the purchase of the business, gave false evidence about the loan of $200,000 from the plaintiff's mother and she stood to gain financially from the defendant successfully resisting this claim by the plaintiff. At the very least there was the claim that she had lent the sum of $82,800 to the defendant, which together with the high rate of interest that she claims, has transformed that debt into a sum, I think, of over $135,000, and a judgment for that amount, pursuant to which the warrant was issued in an attempt to have the sheriff execute against the property. That step, as I say in the judgment was reprehensible, knowing as Lucy Li knew, at the time she sued the defendant, entered judgment in default and issued the warrant, that there was an outstanding judgment against the defendant saying that she had no beneficial interest in the property.
Secondly, in what I found was a belated and quite fraudulent scheme to try and rescue something from this dispute in the event that the plaintiff was successful, there was the agreement of 4 October 2011 relying on an earlier alleged agreement made on 28 September 2008, which, if upheld, would mean that her company, Qing Qing Australia Pty Ltd, would recover, or be entitled to look to the property, for the sum of $230,000. I do not consider that, without people such as David Jie Li and Lucy Li being involved in the planning and execution of all of these steps, the defendant would have ever got embroiled in this dispute. In those circumstances, I think it entirely appropriate that there be an order against Lucy Li to the full extent of the costs of the proceeding to the same extent as the order made against the defendant.
The second non party against whom an order was sought was Ms Li's husband, Donald Dover. His role was very much a lesser role. It seems to me that he basically followed his wife and did what she suggested. Were it not for his role in the preparation of the September 2008 alleged agreement I would not have been persuaded to make an order for costs against him. However, I have found that his evidence was false in certain respects as set out in the judgment. As a shareholder in Qing Qing he stood to gain financially from this agreement dated 28 September 2008 which he said he prepared and which I found could only have been prepared more recently, years after the event. In those circumstances, I consider that the appropriate order is that there be an order that the non party, Donald Dover, pay 25 per cent of the plaintiff's costs of the proceeding.
What I have not spelled out and have not yet addressed is whether or not those two orders should also relate to the costs thrown away. As far as Lucy Li is concerned, it is obvious that she was involved from the very start of the attempt to set aside the judgment. She said that she had collected the papers from Mr Wong's office which he denied and he was never challenged. That, of course, was a critical part of the denial that the defendant had received the relevant information about the judgment having been entered and the orders that were being sought. Ms Li swore an affidavit in support of the application to set aside. She did not correct the defendant's false assertion about the first meeting to which I have previously referred. Just as there was a financial benefit to her in defeating the plaintiff's claim, equally that could only arise if the judgment was set aside. Otherwise there could be no benefit to her. So with respect to Lucy Li, the order will be that she also pay the costs of the application to set aside in the same terms as the order against the defendant. With respect to Mr Dover, I will limit the 25 per cent costs that he has to pay to the costs of the proceeding itself.
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