Linchi Group Pty Ltd v Wen Yong Wang

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST

S CI 2016 4179

LINCHI GROUP PTY LTD (ACN 146 504 716)	Plaintiff
v
WEN YONG WANG	First Defendant
NEW EASTERN GROUP PTY LTD (ACN 082 692 680)	Second Defendant

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JUDICIAL REGISTRAR:	Matthews JR
WHERE HELD:	Melbourne
DATE OF HEARING:	22 June 2018
DATE OF RULING:	31 August 2018
CASE MAY BE CITED AS:	Linchi Group Pty Ltd v Wen Yong Wang & Anor
MEDIUM NEUTRAL CITATION:	[2018] VSC 482

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COSTS – Leave to discontinue proceeding – Rule 63.15 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) – No adjudication of claims on the merits – Whether costs should be payable on an indemnity rather than standard basis – Whether plaintiff had a proper or reasonable basis for commencing and maintaining the proceeding – Alleged breaches of overarching obligations under Civil Procedure Act 2010 (Vic) not made out – Plaintiff did not have proper or reasonable basis for maintaining the proceeding after 6 January 2018 – indemnity costs ordered for period after that date – Plaintiff’s rejection of two Calderbank offers not unreasonable in the circumstances – Discretion to make non-party costs order – Costs order sought against sole director and shareholder of plaintiff – Not established that non-party was a ‘real party’ to the litigation – Section 24 Supreme Court Act 1986 (Vic) – Sections 10, 18, 29, 56 Civil Procedure Act 2010 (Vic) – Knight v FP Special Assets Limited (1992) 174 CLR 178 – Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348 – Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298 – Course v Hannan & Ors [2018] VSC 401.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Lee, solicitor	Spencer Reyner Law Office Pty Ltd
For the Defendant	Mr G Redenbach	Leem Lawyers

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Background......................................................................................................................................... 3

Applicable law.................................................................................................................................... 8

The Court’s approach to determining liability for costs when a proceeding is discontinued 8
Applicable law regarding ordering costs to be paid by a party on an indemnity basis... 9
Ordering a non-party to pay a party’s costs........................................................................... 12

Consideration – Should indemnity costs be awarded and if so, from what date?.............. 16

Have the defendants established that the plaintiff did not have a proper or reasonable basis for commencing the proceeding? If so, should indemnity costs be ordered?.............. 16
Defendants’ submissions.................................................................................................. 16
Plaintiff’s submissions...................................................................................................... 20
Analysis............................................................................................................................... 22
Conclusion.......................................................................................................................... 24

Should indemnity costs be awarded on the basis that the plaintiff did not have a proper basis for continuing with the proceeding?.................................................................................... 24
Should indemnity costs be awarded for the plaintiff’s rejection of either of the two Calderbank offers?.............................................................................................................................................. 27
The First Offer.................................................................................................................... 27
Defendants’ submissions.................................................................................... 27
Plaintiff’s submissions......................................................................................... 28
Analysis and conclusion..................................................................................... 29

The Second Offer............................................................................................................... 31
Submissions.......................................................................................................... 31
Analysis and conclusion..................................................................................... 32

Should indemnity costs be awarded due to the plaintiff’s alleged failure to comply with its discovery obligations?........................................................................................................................ 32
Defendants’ submissions.................................................................................................. 32
Plaintiff’s submissions...................................................................................................... 33
Analysis and conclusion................................................................................................... 34

Consideration – Should Ms Tan be ordered to pay the defendants’ costs?......................... 36

Defendants’ submissions........................................................................................................... 36
Plaintiff’s submissions............................................................................................................... 39
Analysis and Conclusion........................................................................................................... 40

Conclusion......................................................................................................................................... 43

JUDICIAL REGISTRAR MATTHEWS:

Introduction

By email dated 18 May 2018, the plaintiff’s solicitors notified my Associate and the defendants’ solicitors that they held instructions to discontinue the proceeding against the defendants.

By summons dated 7 June 2018 (‘Application’),[1] the defendants seek orders that the plaintiff pay the defendants’ costs of the proceeding and that those costs be paid on an indemnity basis. Further and alternatively, the defendants seek orders that the sole director, secretary and shareholder of the plaintiff, Ms Lingzhi Tan, be jointly and severally liable with the plaintiff for the defendants’ costs on an indemnity basis. The Application is made on a number of alternative bases, which I will set out more fully later in these reasons.
[1]On the Court’s own motion, the Application was referred to me for hearing and determination, pursuant to Rule 84.03 of the Supreme Court (General Civil Procedure Rules) 2015 (‘Rules’).

The defendants rely on an affidavit of Chuen Lim, the principal of the firm of solicitors acting for the defendants, Leem Lawyers, sworn 6 June 2018 (‘Lim Affidavit’). During the course of the hearing, counsel also referred to and relied on an affidavit of Ms Tan affirmed 19 March 2018 (‘Tan March Affidavit’), which had been made in respect of a separate application in the proceeding.

The plaintiff relies on the following affidavits, filed at 2.56pm on 21 June 2018:

(a) Ms Tan, affirmed 19 June 2018 (‘Tan June Affidavit’);

(b) Ms Mi Ni Cheng, a daughter of Ms Tan, affirmed 19 June 2018 (‘Cheng Affidavit’); and

(c) Chang Chan Siah, a solicitor of the firm Thomasz & Xie Lawyers, who states that they have assisted Ms Tan in interpreting legal documents in this proceeding, sworn 14 June 2018 (‘Siah Affidavit’).

It was common ground, in light of the plaintiff’s earlier communications, that the proceeding was to be discontinued. The plaintiff did not object to an order being made that it pay the defendants’ costs on a standard basis.

The plaintiff objected to the defendants’ costs being payable on an indemnity basis.

In relation to the costs order sought against Ms Tan, at the beginning of the hearing I asked whether a summons had been issued to Ms Tan.[2] Mr Lee informed me that no summons had been issued to her and that while he took issue with it, it was a minor issue as the plaintiff was a sole director company. Mr Lee agreed with my observation that it would be hard to say Ms Tan was not on notice that costs orders were sought against her personally, given that those orders were referred to in the Application.[3]
[2]The summons filed by the defendants on 7 June 2018 was addressed only to the plaintiff, and not to Ms Tan.
[3]Transcript, 3.16-24.

The matters for consideration are:

(a) whether the plaintiff should pay the defendants costs on an indemnity, rather than standard, basis and if so, from which date; and

(b) whether any costs order should be made against Ms Tan.

For the reasons set out below, the plaintiff will be ordered to pay the defendants’ costs of the proceedings to 6 January 2018 on a standard basis and thereafter on an indemnity basis. I will not make any costs order against Ms Tan.

For completeness, I record here that on 16 July 2018, the plaintiff’s solicitor sent an email to my Associate, attaching letters between the parties which had been written after judgment in respect of the Application was reserved. Subsequent emails to my Associate then followed, from both parties. I have not reviewed this material other than to note that it appeared to be an attempt by the plaintiff to provide subsequent material to the Court relating to the Application and that the material was not sent to my Associate with the defendants’ consent. On my instructions, my Associate responded to both solicitors by email, in which (inter alia) it was stated that:

The defendants’ application for costs has been heard and judgment is reserved. If either party wishes further material to be considered, then an application (supported by affidavit) is required. Unless such application is made and granted, additional information such as the correspondence sent to these Chambers this week will not be taken into account.

No such application has been made. I confirm that the emails and attachments sent to my Associate on 16 and 18 July 2018 have not been taken into account when considering the Application and preparing these reasons. Further, the plaintiff should not have sent this material to my Associate, particularly in circumstances where the defendants had not consented to that course.

Background

One of the grounds relied upon by the defendants for costs on an indemnity basis is an allegation that the proceeding was commenced by the plaintiff without a proper basis. Accordingly, it is necessary to set out a brief description of the subject matter of the proceeding, along with relevant steps taken during the course of the proceeding and some of the matters deposed to.

The proceeding was commenced on 13 October 2016 by way of writ and statement of claim (‘SOC’). At all material times, the first defendant was the director of the second defendant.

In summary, the plaintiff alleges in the SOC that:

(a) by an oral agreement made in or around August 2013 (‘Initial Agreement’) by discussions between Ms Tan and the first defendant on his own behalf and on behalf of the second defendant, the plaintiff agreed to lend and the defendants agreed to borrow and repay the sum of $550,000 plus interest at the rate of 2% per month, with repayment to occur within one year from the date of the agreement;

(b) the plaintiff advanced $550,000 to the defendants in four tranches, between 13 August 2013 and 21 May 2014,[4] which were paid to the first defendant in cash;
[4]These were $100,000 on each of 13 and 14 August 2013 and 26 November 2013, and $250,000 on 21 May 2014.

(c) there was no repayment of these advances or interest by the defendants;

(d) on or about 11 July 2014, in order to formalise and vary the Initial Agreement and following discussions between Ms Tan and the first defendant, the plaintiff and defendants executed a written instrument of loan (‘Loan Agreement’). The Loan Agreement contained terms (inter alia) reducing the loan amount from $550,000 to $500,000, the loan was to be repaid in full by 11 January 2015, interest of 5% per month was to be paid, and the defendants agreed that the plaintiff could lodge caveats on any properties owned by the defendants to secure the plaintiff’s interest, and the defendants charged their assets in favour of the plaintiff if the debt was not repaid in full by the due date. The Loan Agreement was said to be signed by Ms Tan on behalf of the plaintiff and by the first defendant on behalf of both defendants;

(e) the defendants did not repay the principal or interest under the Loan Agreement; and

(f) the plaintiff lodged caveats over four parcels of land of which the second defendant is the registered proprietor.

The relief sought by the plaintiff included repayment of $500,000 under the Loan Agreement and payment of interest, and the enforcement of its alleged interest in the second defendant’s properties.

By way of their defence filed 14 December 2016 (‘Defence’), the defendants:

(a) deny the existence of the Initial Agreement and say that a man called Tony, who the first defendant subsequently learned was Tony Cheng, the husband of Ms Tan, agreed to make a personal loan of $230,000 with interest of 2% per month to the first defendant;

(b) deny that advances of $550,000 were made to them by the plaintiff between August 2013 and 21 May 2014 in cash. They say that the first defendant received the sum of $230,000 in Crown casino chips from Mr Cheng on or about 11 July 2014;

(c) say that Minggui Zhu had borrowed $370,000 from Mr Cheng. Minggui Zhu gave $370,000 to the first defendant to give to Mr Cheng, which he did not do. Mr Cheng then added that $370,000 to the amount payable by the first defendant;

(d) deny that the advances were not repaid, and say that in full satisfaction of the debt owing to Mr Cheng, Mr Cheng instructed the first defendant to make full payment by transferring two apartments to Ms Tan and/or Green Refresher Pty Ltd for $250,000 when their market value at the time was $1,000,000, which the first defendant did;

(e) deny entering into the Loan Agreement. The first defendant denies speaking with Ms Tan about the Loan Agreement and denies signing the Loan Agreement on his behalf or on behalf of the second defendant;

(f) say that the Loan Agreement is unenforceable as the first defendant was under a special disability in dealing with Mr Cheng and it would be unconscionable for it to be enforced, and that it was a credit contract within the meaning of the National Credit Code and should be set aside for failing to meet specified requirements of the Code; and

(g) deny that any money is owing pursuant to the Loan Agreement.

On 7 November 2016, Beatrice Shang Yi Duong of the plaintiff’s then solicitors, Richmond Law, filed a certificate in accordance with s 42 of the Civil Procedure Act 2010 (Vic) (‘CPA’) certifying that on the factual and legal material available to her at present, there was a proper basis for each allegation of fact, denial, and non-admission in the SOC (‘Proper Basis Certificate’). Neither party addressed me in relation to the Proper Basis Certificate having been filed. For completeness, I will note here that I do not regard the existence of the Proper Basis Certificate as determinative, and since I was not taken to it, I have not had regard to it (one way or the other) in formulating these reasons.

On the same day, Ms Duong filed a certificate purportedly in accordance with s 41 of the CPA (‘Overarching Obligations Certificate’). Section 41 of the CPA requires that at the time of filing their first substantive document in a civil proceeding, the party must personally certify that they have read and understood the overarching obligations set out in sections 16 to 26 of the CPA and the paramount duty set out in s 16 of the CPA. The Overarching Obligations Certificate was signed by Ms Duong, not the plaintiff (or Ms Tan as director of the plaintiff). Consequently, the plaintiff has not complied with s 41 of the CPA. Regardless, the overarching obligations apply to the plaintiff by operation of s 10(1) of the CPA.

On 13 December 2017, I made orders by consent which, inter alia, required the plaintiff to make the original Loan Agreement available by 3 January 2018 for inspection by the defendants or their expert. It is common ground between the parties that this order was never complied with, despite repeated demands by the defendants’ solicitors.

Ms Tan deposes that she regarded the Loan Agreement as an important document and kept the original document at her residential premises. She says that between about 2006 and September 2017, another of her daughters, Leny Cheng, assisted her with various legal matters including interpretation to her lawyers. She says that on or about 3 January 2018 she was at her home looking for the original Loan Agreement to deliver it to her lawyers, but could not locate it. She says that Mi Ni Cheng told her that on 11 December 2017 Leny Cheng had entered the house and taken the original Loan Agreement. Ms Tan says that Mi Ni Cheng told her that that when taking the document, Leny Cheng had said she needed it to take it to Ms Tan’s lawyers. Ms Tan said she did not instruct, consent to or permit Leny Cheng to take the original Loan Agreement, and her lawyers had confirmed they had not received it. Ms Tan says she no longer has the original Loan Agreement and that she has attempted to obtain it from Leny Cheng but has not been able to contact her.[5]
[5]Tan June Affidavit, [3]–[14].

Mi Ni Cheng deposes to her conversation with Leny Cheng on 11 December 2017 as described above, to her taking the original Loan Agreement, and to the conversation with her mother on or about 3 January 2018 when she was looking for the document.[6]
[6]Cheng Affidavit, [6]–[11].

Mi Ni Cheng also deposes to overhearing a telephone conversation between her mother and Leny Cheng on about 5 or 6 January 2018, where she heard Leny Cheng tell Ms Tan that she no longer had the original Loan Agreement and that Mr Cheng (their father) would no longer be a witness for her mother.[7]
[7]Cheng Affidavit, [12]–[13].

Ms Tan deposes that up until about early December 2017, Leny Cheng had confirmed to her that Mr Cheng would be a witness for the plaintiff in this proceeding. She says that on about 5 or 6 January 2018, Leny Cheng informed her that Mr Cheng was unwilling to be her witness in this proceeding. She says she asked Leny Cheng why, but she did not give a reason and said she did not know. Ms Tan says that at the time of making her affidavit, she does not know why Mr Cheng would no longer be her witness.[8]
[8]Tan June Affidavit, [15]–[18].

Various interlocutory applications were made in the proceeding, most of which are unnecessary to relate here. One of the interlocutory applications requires a brief mention: on 18 May 2018, the defendants filed a summons seeking orders for the dismissal of the proceeding due to the plaintiff’s failure to comply with a notice of default in making discovery pursuant to a Form 29D Notice served on 2 May 2018 (‘Form 29D Notice’). That summons was returnable on 25 May 2018.

On 18 May 2018, after the summons was filed, the plaintiff’s solicitor sent an email to my Associate, copied to the defendants’ solicitors, which amongst other things stated:[9]

We refer to [the proceeding] and note our instructions to discontinue this proceedings [sic] against the Defendants.
Please note that our office will endeavour to either (i) obtain consent from the Defendants to discontinue prior to our return date or (ii) seek leave from this Honourable Court on 25 May 2018 if such an indulgence could be provided to the Plaintiff from the Honourable Court.

[9]Email from Simon Lee of the plaintiff’s solicitors to the Associate to Judicial Registrar Matthews sent 18 May 2018 at 2.52pm, exhibit CL-10 to the Lim Affidavit.

On 20 May 2018, the defendants’ solicitors sent an email to my Associate, stating that in light of the plaintiff discontinuing the proceeding against the defendants, the only remaining issue for the Court was the question of costs, and the defendants would be seeking their costs of the proceeding on an indemnity basis. The defendants’ solicitor requested an adjournment of the date for the discovery summons for one week so as to prepare that material regarding costs. After further correspondence between the parties and my Associate, the defendants’ summons in respect of costs was fixed for 22 June 2018.

Applicable law
The Court’s approach to determining liability for costs when a proceeding is discontinued

The starting point in respect of costs is the Court’s general power as to costs. Unless otherwise expressly provided by any Act or by the Rules, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid.[10]
[10]Supreme Court Act 1986 (Vic), s 24(1) (‘Supreme Court Act’).

The parties were not in dispute as to the applicable law, and it was accepted that the discontinuance of the proceeding by the plaintiff engaged r 63.15 of the Rules.

Rule 25.05 of the Rules provides as follows:

Where a proceeding, counterclaim or claim by third party notice is discontinued, or where part of a proceeding, counterclaim or third party notice is withdrawn, liability for costs shall be determined in accordance with Rule 63.15.

Rule 63.15 of the Rules then provides:

Unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding, counterclaim or claim by third party notice shall pay the costs of the party to whom the discontinuance or withdrawal relates to the time of the discontinuance or withdrawal.

In Course v Hannan & Ors, Connock J set out a useful summary of the relevant law regarding costs in the context of the proceedings being discontinued.[11] It is not necessary for me to set this out in detail, given that it was already common ground between the parties that the plaintiff should pay the defendants’ costs of the proceeding, with the dispute being whether those costs should be paid on an indemnity (rather than standard) basis and whether there should be a non-party costs order made against Ms Tan.
[11][2018] VSC 401, [23]–[26] (‘Course v Hannan’). See also Dina Constantina Soteriadis v Nillumbik Shire Council [2015] VSC 363, [8]–[13] (per Derham AsJ) (‘Soteriadis v Nillumbik’).

Thus by r 63.15 of the Rules, amongst other things, the wide discretion of the Court as to costs is modified in the context of a discontinuance of the proceeding. As noted by Derham As J in Soteriadis v Nillumbik, the burden is on the party who seeks to persuade the court that a contrary order should be made,[12] that is, that the plaintiff should not be ordered to pay the defendants’ costs.
[12]Soteriadis v Nillumbik [2015] VSC 363, [12(d)].

That is not the outcome that is sought here. As noted above, the plaintiff concedes that it should pay the defendants’ costs. The issue is whether it should be ordered to do so on an indemnity basis, and whether the non-party costs order against Ms Tan should be made. Therefore, the defendants bear the onus in persuading the Court as to those matters.

Applicable law regarding ordering costs to be paid by a party on an indemnity basis

The defendants contend that the plaintiff should pay their costs on an indemnity basis, relying on a number of alternative grounds. These are:

(a) the contention that the plaintiff did not have a reasonable or proper basis for commencing the proceeding, such that indemnity costs for the whole proceeding should be ordered pursuant to s 24 of the Supreme Court Act and/or s 29 of the CPA;

(b) pursuant to s 56 of the CPA, the contention that the plaintiff has failed to comply with its discovery obligations; and

(c) the plaintiff’s refusal to accept offers from the defendants to compromise the proceeding, made on 11 October 2017 for the proceeding to be dismissed with each party to bear their own costs (‘First Offer’),[13] and 8 December 2017 for the defendants to pay $10,000 to the plaintiff and for the parties to bear their own costs (‘Second Offer’).[14]

[13]Exhibit CL-2 to the Lim Affidavit.

[14]Exhibit CL-3 to the Lim Affidavit.

Section 24(1) of the Supreme Court Act provides as follows:

Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.

Section 56(1) of the CPA relevantly provides as follows:

A court may make any order or give any direction it considers appropriate if the court finds that there has been—
(a) a failure to comply with discovery obligations;

Section 29(1) of the CPA relevantly provides as follows:

If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a) an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;

Section 10(1) of the CPA provides that the overarching obligations set out in that Act apply to any person who is a party to the proceeding (amongst others). The overarching obligations are set out in Part 2.3 of the CPA. Section 18 of the CPA refers to an overarching obligation that a claim in a civil proceeding must have a proper basis, and relevantly provides as follows:

A person to whom the overarching obligations apply must not make any claim or make a response to any claim in a civil proceeding that—
…
(d) does not, on the factual and legal material available to the person at the time of making the claim or responding to the claim, as the case requires, have a proper basis.

In Chen & Ors v Chan & Ors, the Court of Appeal summarised the Court’s approach to costs, stating that in respect of whether costs are ordered on a standard (at that time, referred to as party/party) or indemnity basis:[15]

Usually, an order for costs will be made on a party/party basis. But an order for costs on a solicitor/client or indemnity basis may be made where special or unusual circumstances have been demonstrated, for example, by establishing misconduct in the proceeding, that the proceeding was brought for an ulterior purpose, or that it was patently unreasonable to institute, or maintain, the proceeding. Special circumstances may also include the making of an allegation of fraud which is not proved.

[15][2009] VSCA 233, [10] (citations omitted).

The principles associated with an exercise of the Court’s discretion in respect of costs to order that costs be paid on an indemnity basis by reason of the failure to accept an offer to compromise the proceeding are well established.

In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2), the Court of Appeal stated that the correct approach is to treat the unreasonable rejection of a Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs.[16] The Court of Appeal then went on to state the following:[17]

The critical question is whether the rejection of the offer was unreasonable in the circumstances.
…
Of course, deciding whether conduct is “reasonable” or “unreasonable” will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson, C.J. said recently, “unreasonableness is a protean concept”. But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.

[16][2005] VSCA 298, [20] (‘Hazeldene’).

[17][2005] VSCA 298, [23]–[24] (citations omitted).

The Court of Appeal stated the following in Hazeldene, in respect of factors relevant to assessing unreasonableness (‘Hazeldene Factors’):[18]
[18][2005] VSCA 298, [25] (citations omitted).

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a)       the stage of the proceeding at which the offer was received;
(b)       the time allowed to the offeree to consider the offer;
(c)       the extent of the compromise offered;
(d)      the offeree’s prospects of success, assessed as at the date of the offer;
(e)       the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for an [sic] indemnity costs in the event of the offeree’s rejecting it.

Ordering a non-party to pay a party’s costs

The Court has power, pursuant to s 24(1) of the Supreme Court Act, to order that costs be paid by a person who is not a party to the proceeding.

The overarching obligations set out in the CPA also apply to certain persons who are not parties to a civil proceeding. This includes, pursuant to s 10(1)(d) of the CPA:

any person who provides financial assistance or other assistance to any party in so far as that person exercises any direct control, indirect control or any influence over the conduct of the civil proceeding or of a party in respect of that civil proceeding, including, but not limited to—

(i) an insurer;

(ii) a provider of funding or financial support, including any litigation funder.

Accordingly, the Court can make orders pursuant to the CPA in respect of a non-party who is bound by the overarching obligations.

In Knight v FP Special Assets Limited, Mason CJ and Deane J (Gaudron J agreeing) of the High Court stated:[19]

For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or a [person] of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.

[19](1992) 174 CLR 178, 192-193 (‘Knight’).

Referring to this passage from Knight, the Court of Appeal in Carter v Caason Investments Pty Ltd & Ors went on to state:[20]

Each case must depend on its own particular facts. There are, however, a number of factors that are commonly taken into account in determining whether or not to exercise the judicial discretion in favour of making an order against a non-party. Such matters include: the financial position of any party against whom a costs order would be made; whether there have been orders made for security for costs; whether the non-party has a ‘real interest’ in the litigation, and if so, its extent; the amount of funding contributed by the non-party; and whether the non-party has agreed to provide an indemnity if an adverse costs order is made against a funded party.

[20][2016] VSCA 236, [13] (‘Carter v Caason Investments’) (citations omitted).

The defendants also relied on 1165 Stud Road v Power & Ors (No 2), where Vickery J noted that the Knight principles apply where proceedings have been discontinued,[21] and then went on to refer to the factors which may be taken into account in the following terms:[22]
[21][2015] VSC 735, [80(b)] (‘1165 Stud Road’) (citations omitted).
[22][2015] VSC 735, [80(g)] (citations omitted).

As the breadth of the concept affirms, there are numbers [sic] of factors which may be taken into account in determining whether the interests of justice call for an order to be made. They include factors such as those as illustrated in the current case-law listed below. In making these observations, it is important to recognise that each of the examples is no more than one of the many relevant matters that may be considered when weighing the interests of justice in an application for costs against a stranger to the litigation. The examples include:
(i)a recognition that there are two important principles at stake: on the one hand the proper ambit of limited liability, and on the other a facility to provide fair costs compensation for successful defendants. An application for security for costs at an early stage reconciles these imperatives;
(ii)whether an application for a security for costs order was made promptly at an early stage of the proceeding, and whether any decision not to apply for security for costs was reasonably justified and satisfactorily explained;
(iii)whether the non-party was warned or put on notice of the risk of a non-party cost application at an early stage, and whether the failure to give such a warning was justified or unreasonable in the circumstances and satisfactorily explained;
(iv)whether the Plaintiff company was used simply as a vehicle set up to conduct the litigation in order to protect the individuals standing behind it;
(v)whether there are findings of fact at trial which may be relevant in considering the conduct of the non-party; and
(vi)when standing back and weighing each of the relevant factors which relate to a particular case, it would be unjust, in the circumstances, if the successful defendants were unable to recover their costs.

The defendants’ counsel did not draw to my attention that 1165 Stud Road was over-turned on appeal in Gdanski v Palms Court Management Pty Ltd.[23] That may be due to the Court of Appeal not expressing any disapproval of the passage relied upon by the defendants, as set out above.
[23][2017] VSCA 348 (‘Gdanski v Palms’). The relevant passage from 1165 Stud Road is cited at [33] of Gdanski v Palms.

However, the Court of Appeal in Gdanski v Palms went on to consider the basis on which the discretion to order costs against a non-party is enlivened in the category of cases identified in Knight. As will be seen, this is crucial to the consideration of whether costs should be ordered against Ms Tan, and so I have set out the Court of Appeal’s consideration in some detail, as follows:[24]
[24]Gdanski v Palms [2017] VSCA 348, [66]–[70] (citations omitted).

66.The informing principle is clear enough. It is that, if a party to litigation is liable to pay the costs of the successful party but is unable because of insolvency to do so, justice may require the costs to be paid by a non-party if it can be shown that the non-party played an active part in conducting the litigation and stood to benefit from a successful outcome. Senior counsel for Palms accepted that this was the operative principle of justice.
67.Thus understood, an order for non-party costs in a case of this kind is a corollary of the usual rule as to costs. In the usual case, where a person prosecutes or defends a civil claim, and fails, justice requires that that person should pay the costs which the other party has been obliged to incur. As the Full Federal Court explained in Dunghutti:
An order for costs is made because the successful party has been put to expense which that party would have avoided if the litigation or particular application had not been brought. The order for costs seeks to compensate the successful party for that result and for the costs to which that party has been put. The order is not in any sense meant to be a penalty; costs are awarded to indemnify a successful party in litigation, not to punish an unsuccessful party.

68.The Knight exception applies where recourse to the losing party is unavailable because it is insolvent, and where the non-party can be seen to have, in substance, prosecuted the claim (or defence) in pursuit of his or her own interests. As was made clear in Dunghutti, an order for costs is not punitive but compensatory. An order for non-party costs is made out of
a recognition that it is just that the compensation which is made to the [successful party] for the costs to which the [successful party] has been put should be paid by someone other than the [losing party].

69.Decisions since Knight have drawn on the language used in the joint judgment, as well as that of Dawson J, to describe the twin requirements that the non-party have an active role in the litigation and an interest in its subject matter as a single requirement that the non-party be ‘a real party’ to the litigation in ‘critical’ and ‘important’ respects. This formulation was approved by the Full Court of the Federal Court in Keboro Pty Ltd v Saunders, in passages cited with approval by this Court in Ipex ITG Pty Ltd (in liq) v Victoria. It may therefore be convenient to describe the threshold issue as being whether the non-party is ‘a real party’ to the litigation. Whether or not that language is apt to describe every situation in which the Knight discretion is attracted need not be explored in this case, as the parties accepted the formulation for the purposes of the present appeal.
70.Where (as here) a case is said to fall into the Knight category, the discretion will therefore only be enlivened if the non-party is shown to have been a ‘real party’ to the litigation in this sense. As we have explained, it is that which makes it just to order the non-party to pay the costs of the successful party. Unless the non-party can be properly so characterised, no question of the ‘interests of justice’ — or of ‘exceptional circumstances’ — arises.

Accordingly, the question is whether the plaintiff is insolvent (or a person of straw) and whether Ms Tan is shown to be the ‘real party’ to the litigation, which reflects the twin requirements that she has an active role in the litigation and an interest in its subject matter.

Consideration – Should indemnity costs be awarded and if so, from what date?

Both parties made submissions as to whether indemnity costs should be ordered and from what date. Most of those submissions did not delineate whether they were addressing the proper/reasonable basis for commencing or maintaining the proceeding, the rejection of the two Calderbank offers, or discovery.

In my view, it is necessary for each basis relied on for an indemnity costs order to be approached separately and the evidence and submissions analysed within the framework of each of those bases. I have therefore summarised the submissions within that framework, rather than the order in which they were made by the parties. Obviously, some of the submissions go to more than one aspect, and where that is the case I will cross-refer to it rather than repeat it.

Have the defendants established that the plaintiff did not have a proper or reasonable basis for commencing the proceeding? If so, should indemnity costs be ordered?
Defendants’ submissions

The defendants submit that the plaintiff did not have a proper basis for commencing the proceeding, for the following reasons:

(a) the plaintiff’s pleaded case was not sustainable, as the plaintiff will not be able to establish that it entered into the Loan Agreement with the defendants;[25]
[25]Transcript, 5.5-21.

(b) even if the Loan Agreement was so entered into, it was void or voidable due to the National Credit Code arguments;[26]
[26]Transcript, 5.22 – 6.11.

(c) the plaintiff did not have, or did not discover, evidence which was sufficient to maintain the claim. The defendants say that the plaintiff has ultimately discontinued the proceeding because it has no evidence to support its claim, and that this was the case at the time the proceeding was commenced;[27]
[27]Transcript 6.11-12.

(d) the plaintiff was never able to produce the original of the Loan Agreement.[28] A copy of the Loan Agreement was discovered and produced for inspection,[29] however it is common ground that the original was never produced, even after the Court made orders by consent for its production. The plaintiff obtained an expert report dated 22 April 2018 from a forensic document examiner, Trevor Joyce of HD Forensic Experts Pty Ltd, which concluded that evidence existed to both support and exclude common authorship of the first defendant’s specimen signatures and the signature purporting to be that of the first defendant on the Loan Agreement (‘Joyce Report’). Mr Joyce recommended in his report that the original of the Loan Agreement be examined;[30]

(e) the plaintiff had no evidence to refute the defendants’ defence that some of the funds were advanced to the first defendant by Mr Cheng in Crown Casino chips, and no evidence to support its allegation in its reply that Mr Cheng could not have done so as he has limited means. The defendants say that they had subpoenaed documents from Crown Casino of Mr Cheng’s gambling records which demonstrated that he had a substantial gambling turnover.[31] I note that none of these documents were in evidence before me; and

(f) the Court should infer, from the lack of evidence, the last minute production of the affidavits relied on by the plaintiff in the Application, and the delays in the prosecution of the proceeding by the plaintiff, that the plaintiff never had a reasonable basis to initiate the proceeding. The defendants say that the plaintiff deliberately delayed the provision of the affidavits so as to deny them an opportunity to really test the questions of fact.[32]

[28]Transcript 7.17.

[29]A copy of the Loan Agreement was listed in Ms Tan’s affidavit of documents affirmed 19 October 2017 and a copy of it was included in the exhibit to the Lim Affidavit: see exhibit CL-9 to the Lim Affidavit.

[30]Exhibit CL-4 to the Lim Affidavit.

[31]Transcript 6.27–7.14.

[32]Transcript 16.21-25.

In regard to the alleged lack of evidence, the defendants refer to the plaintiff not discovering documents going to the heart of the defendants’ National Credit Code case, specifically documents which the defendants say will establish that the plaintiff was in the business of providing finance.

The defendants also refer in this regard to the evidence regarding the payment of the alleged advances by the plaintiff to the defendants. The only documents discovered by the plaintiff regarding this topic are heavily redacted single pages from different bank statements,[33] with every detail redacted except for an account number and amounts of cash withdrawals adding up to $550,000. These redacted documents do not show the name of the account holder. The defendants submit that these redacted bank statements do not amount to evidence that the plaintiff advanced $550,000 to the defendants in several tranches of cash, as alleged.[34]
[33]Exhibit CL-9 to the Lim Affidavit.
[34]Transcript, 10.9-25.

In relation to bank statements, the defendants also rely on an email dated 1 June 2017 (‘June 2017 Email’) from the plaintiff’s then solicitors, Richmond Law, to Ms Tan.[35] Part of the email as exhibited is redacted, however amongst other things, Jacky Wong of Richmond Law wrote the following in the email to Ms Tan:[36]

As the applicant, it is your responsibility to prove your claim against the defendant.
During our meeting, we advised that you provide us with bank statements showing the dates and amounts of cash that you withdrew to lend to the defendant. However, we have not received any such bank statements.
The only new information we have received to support your claim is the contracts of sale from your previous conveyancers. These contracts show that you purchased these at market value.
Apart from the above, we do not have any further information or documents to support your claim.
In the circumstances, we advise that your claim is not strong.

[35]Exhibit CL-1 to the Lim Affidavit.

[36]Exhibit CL-1 to the Lim Affidavit.

The defendants submit that as at 1 June 2017, the plaintiff had been advised that its claim was not strong, for the reason that they don’t have any relevant evidence.[37]
[37]Transcript, 9.28-31.

The defendants also say that I should give the Tan June Affidavit and the Cheng Affidavit little weight.

In relation to the Cheng Affidavit, the defendants submit that:

(a) It contains a very specific description of a conversation between the deponent and her sister on 11 December 2017 which should be given little probative value as it is unlikely that she would have such a specific recollection of the conversation unless she had made contemporaneous notes of it, and there was no evidence that she had;[38] and

(b) Ms Cheng’s description of what she overhead of her mother’s conversation with Mi Ni Cheng is hearsay and cannot be admitted as truth of the contents of the statement, although it is evidence of the fact that it may have been said.[39]

[38]Transcript 13.25–14.7, 15.16-24.

[39]Transcript 34.2-6.

In relation to the Tan June Affidavit, the defendants submit that:

(a) Ms Tan deposes to having kept the original Loan Agreement for safekeeping at her personal residence, whereas it would be expected that someone involved in Supreme Court litigation would give those documents to their solicitors;[40]

(b) Ms Tan deposes to not having been in contact with Mr Cheng since March 2016, and so a submission that she only recently became aware that he would not be a witness should be given little weight, as she could not reasonably have expected him to be available if she did not keep in contact with him;[41] and

(c) It is contradictory to the Tan March Affidavit, in that in the earlier affidavit she deposed that ‘I do not keep in touch with Leny Cheng’, whereas in the later affidavit she deposed to speaking with her in January 2018 about the original of the Loan Agreement.[42]

[40]Transcript 15.25–16.1.

[41]Transcript 47.30–48.6.

[42]Transcript 48.8–18.

Plaintiff’s submissions

In relation to the defendants’ submissions as summarised at paragraph 53 above, the plaintiff submitted that:

(a) it was not until early January 2018 that the plaintiff knew it did not have, and could not obtain, the original of the Loan Agreement, and that Mr Cheng would not be a witness for it at trial;[43]
[43]Transcript 35.10–14.

(b) it was not until April 2018 that the plaintiff obtained the Joyce Report and learned that his conclusions were inconclusive, due in part to not having the original of the Loan Agreement. The plaintiff submits that the Joyce Report did not conclude that the first defendant had not signed the Loan Agreement, it concluded that there was evidence to support and exclude that the first defendant had signed it;[44]
[44]Transcript 42.9–43.13.

(c) the advice contained in the June 2017 Email from the plaintiff’s then solicitors as to the case not being strong was based, from the wording of the email, on them not at that time having been given any of the bank statements to support the advances, and these were subsequently available;[45]

(d) the plaintiff was in the process of obtaining bank statements from its bank, so as to deal with the defendants’ complaints about the redactions, including redactions of the account details (including the account holder). However, this was ‘put on hold’ due to the plaintiff deciding to discontinue the proceeding;[46] and

(e) the affidavits relied on by the plaintiff in respect of the Application were provided late due to work commitments of the plaintiff’s solicitor, in particular him being instructing solicitor at a recent trial in this Court, and the Court should not use the late provision of affidavits to make the inference urged upon it by the defendants.[47]

[45]Transcript 37.30–38.7.

[46]Transcript 23.29–24.22.

[47]Transcript 23.21–28.

The plaintiff urged me to reject the defendants’ submissions about the Tan Affidavits and the Cheng Affidavit. In particular, the plaintiff submitted that one doesn’t need contemporaneous notes to remember what someone has said. The plaintiff also attempted to provide reasons as to why Ms Cheng remembered the conversation with her sister in some detail, however there was no evidentiary basis for such submissions.[48]
[48]Transcript 31.22–33.23.

In summary, the plaintiff stated that relying on a document-only trial would make it difficult for it to succeed,[49] and it was only relatively recently that it became apparent that Mr Cheng would not be available as a witness and the failure to produce the original of the Loan Agreement would have the impact it did on the forensic analysis of the signatures.
[49]Transcript 24.25–27.

The plaintiff referred to Ugly Tribe Co Pty Ltd v Sikola,[50] where Harper J stated that special circumstances were required to depart from the court’s usual course and order indemnity costs, and summarised some of the special circumstances. While the language used in that case is slightly different to that used by the Court of Appeal in Chen v Chan,[51] for example, Harper J refers to ‘the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law’, whereas the Court of Appeal refers to it being ‘patently unreasonable to institute, or maintain, the proceeding’, I do not regard these as different tests. Chen v Chan was determined by the Court of Appeal, after the single judge decision in Ugly Tribe, and so if the tests are different, I will apply the former.
[50][2001] VSC 189, [7] (‘Ugly Tribe’).
[51]See paragraph 39 above.

Analysis

A number of the matters relied upon by the defendants to say that the plaintiff did not have a proper basis for commencing the proceeding are matters which go to refuting the defendants’ defence, rather than to establishing the plaintiff’s positive case. I view the matters raised in paragraphs 53(b) and (e) as falling within this category. I do not accept that these matters mean that the plaintiff did not have a proper basis for commencing the proceeding. I do not see how it could be said that a failure to discover documents which are relevant by virtue of the defendants’ defence based on the National Credit Code can go to whether the plaintiff had a proper basis for commencing the proceeding. While it might be said that such documents may be relevant to refuting the defendants’ defence, or may be used by the defendants to support its defence, it cannot be the case that the existence (or otherwise) of such documents were part of the plaintiff’s case. Similar comments can be made of the documents subpoenaed from Crown Casino as to Mr Cheng’s gambling records.

I do not accept the defendants’ submission that I should infer, from the late filing of the affidavits relied upon by the plaintiff in relation to the Application and the alleged delays by the plaintiff in prosecuting this proceeding, that it did not have a proper basis to institute the proceeding. First, the timing of the relevant affidavits has nothing to do with whether a proper basis existed as at October 2016, when the proceeding was commenced. Second, there were no substantial submissions made in respect of this alleged delay in the proceeding, apart from the timing of some of the pleadings and delays in discovery. There was no effort made to set this out with any precision, or to explain the reasons for the delay (including whether that was due to the plaintiff’s conduct), and there was no attempt made to link this with the substantive aspects of the proceeding. I am therefore not prepared to make the inference urged upon me on these bases.

In relation to the alleged lack of evidence, I do not accept the submission that this is established by the June 2017 Email. That the solicitors had not at that time been provided with bank statements did not mean they did not exist or that the allegations could not be proved in some other way. That those solicitors concluded at that time that the plaintiff’s case was ‘not strong’ is a far cry from it having no proper basis.

In relation to evidence to support the plaintiff’s case, it seems to me that the original of the Loan Agreement and the evidence to be obtained from Mr Cheng were vital to the claim as pleaded in the SOC.

As set out above, the defendants submitted that little weight should be given to the Tan June Affidavit and the Cheng Affidavit. I do not accept the submission that I should give little weight to Mi Ni Cheng’s description of her conversation on 11 December 2017 with her sister: it did not take place that long ago, and I accept that Mi Ni Cheng may have been able to recall it without having taken a contemporaneous note. While Ms Tan’s affidavits could be seen as inconsistent in respect of her contact with Leny Cheng, that is only one way to view the statement that she does not keep in contact with her (as made in the Tan March Affidavit) and that she had a discussion with her on 5 or 6 January 2018 (as made in the Tan June Affidavit). These statements are not necessarily inconsistent, since ‘keep in contact with’ is not necessarily a precise concept. Further, the statement ‘I do not keep in touch with Leny Cheng’ was made on 19 March 2018, and it may well have been the case at that point in time.

I do not consider that there is a sufficient basis for me not to accept the evidence from Ms Tan and Mi Ni Cheng that it was not until 3 January 2018 that Ms Tan knew the original Loan Agreement was not within her possession, and not until 5 or 6 January 2018 that either of them knew that Mi Ni Cheng no longer had the document and that Mr Cheng would no longer be a witness in the case for the plaintiff. Further, Chang Chan Siah deposes that he saw the original Loan Agreement and that he last saw it with the plaintiff in about early December 2017.[52] No criticism was made by the defendants of the Siah Affidavit (other than the timing of its provision).
[52]Siah Affidavit, [3]–[4].

It follows, therefore, that I do not accept the submission that the plaintiff did not have a proper basis for commencing the proceeding, as it has not been established that the difficulties with the original Loan Agreement or Mr Cheng’s willingness to be a witness were known to the plaintiff at that time. Rather, Ms Tan says that up until about early December 2017, Leny Cheng had confirmed to her that Mr Cheng would be a witness.

Conclusion

For the reasons set out above, I am not satisfied that the defendants have established that the plaintiff did not have a proper basis for making the claims it did when commencing the proceeding (to use the language of s 18(1)(d) of the CPA). Nor am I satisfied that the defendants have established that, as set out in Chen v Chan,[53] it was patently unreasonable for the plaintiff to have instituted the proceeding.
[53][2009] VSCA 233, [10].

Therefore, I do not consider it appropriate to order that the plaintiff pay the defendants costs of the entire proceeding on an indemnity basis on these grounds.

However, this does not entirely dispose of the question: in Chen v Chan, the Court of Appeal stated that special or unusual circumstances justifying costs on an indemnity basis may be demonstrated, inter alia, where it was ‘patently unreasonable to … maintain the proceeding.’[54] I will consider this next. Nor does it dispose of the other grounds upon which the defendants seek indemnity costs.

Should indemnity costs be awarded on the basis that the plaintiff did not have a proper basis for continuing with the proceeding?

[54][2009] VSCA 233, [10].

In the Application, the defendants sought orders that their costs be paid on an indemnity basis from a number of alternative dates: for the entire proceeding; or from 27 October 2017; or from 22 December 2017; or such other later date as the Court considers reasonable.

The two dates referred to are the dates upon which the two offers expired. For the purposes of this section of these reasons, I will leave aside the question of whether indemnity costs should be ordered based on the rejection of either offer, or on the basis of a failure to comply with discovery obligations.

As is apparent from the discussion in the preceding section, particularly paragraphs 65 to 73 above, the plaintiff finding out that it no longer had the original Loan Agreement and that Mr Cheng was no longer available as a witness were crucial events in the context of the plaintiff’s case.

Properly advised (which also involves giving proper and timely instructions to one’s solicitors), the plaintiff ought to have realised by around 6 January 2018 that its prospects of succeeding in the proceeding were severely diminished, and should have given serious consideration to discontinuing the proceeding at that time.

It ought to have been apparent then that a document-only trial would make it difficult for the plaintiff to succeed.

The plaintiff’s solicitor conceded as much during the hearing, but also linked it to the conclusions in the Joyce Report.

During the hearing, I asked the plaintiff’s solicitor when the plaintiff first began contemplating discontinuing the proceeding, acknowledging that there was no affidavit material about this. Mr Lee said that he had concerns from April 2018 and that due to difficulties in obtaining instructions from Ms Tan as an interpreter was always required, the decision to discontinue the proceeding was not made until middle to late May 2018.[55]
[55]Transcript 43.14–44.4.

In response to my question as to why the plaintiff didn’t do something about discontinuing in January 2018, when it knew that Mr Cheng was not going to provide evidence for the plaintiff and that it did not have the original Loan Agreement, Mr Lee stated that at that stage a handwriting expert report was not finalised. He said that if a report was obtained which had confirmed that the first defendant had signed the Loan Agreement, then that may have affected the decision. Mr Lee also referred to an application made earlier this year, heard by Derham AsJ in March 2018, where the plaintiff had sought that the first defendant produce his original passport and driver’s licence for inspection. The purpose of that application was said to be for the purpose of preparing an expert report, and Mr Lee agreed with my assumption that this was for the purposes of undertaking signature comparison.[56]
[56]Transcript 44.17–46.30.

Given that the first defendant had always denied signing the Loan Agreement, the authenticity of that document was clearly and always an issue in the proceeding. It is also apparent, from the plaintiff seeking other original documents with the first defendant’s signature for the purposes of signature comparison by a forensic handwriting expert, that the plaintiff or its legal team understood that original documents were likely to be required for the purposes of producing a conclusive handwriting report.

As well as the plaintiff losing Mr Cheng as a witness, it knew by the same time (ie 5 or 6 January 2018) that a case based only on documents was further diminished as it did not have the original Loan Agreement.

I do not accept the submission that it was only after obtaining the Joyce Report that the plaintiff needed to consider discontinuing the proceeding. For the reasons I have just outlined, the plaintiff was not justified in maintaining the proceeding after around 6 January 2018.

Further, the plaintiff knew well before January 2018 that providing the original Loan Agreement was a matter the defendants had been agitating for some time. As noted above, I made orders by consent on 13 December 2018 that the plaintiff produce the original Loan Agreement for inspection by the defendants by 3 January 2018. No evidence has been adduced before me to show that the plaintiff told the defendants it was not able to produce the original before that information was contained in the Tan June Affidavit and the Cheng Affidavit. It may have occurred earlier, but there was no evidence before me of the plaintiff having informed the defendants any time between 6 January 2018 and the day before the hearing of the Application. To allow the defendants to continue to prepare for trial, with the trial fixed for 25 July 2018, without revealing that the plaintiff did not have the original Loan Agreement, is not justifiable.

In my view, and leaving aside the two issues still to be considered on the question of the level of costs, the plaintiff should pay the defendants’ costs of the proceeding after 6 January 2018 on an indemnity basis.

Should indemnity costs be awarded for the plaintiff’s rejection of either of the two Calderbank offers?
The First Offer

The First Offer was made by letter dated 11 October 2017 from the defendants’ then solicitors, Henley Legal, to the plaintiff’s solicitors, Spencer Reyner Law Office (‘Spencer Reyner’).[57] It was an offer that the proceeding be dismissed with no order as to costs, was open for acceptance until 27 October 2017, and was expressed to have been made to avoid the cost and inconvenience of litigation. It was also stated that if the offer was not accepted, then the defendants reserved their right to rely on the First Offer on the question of costs, in accordance with Calderbank v Calderbank[58] and Hazeldene. The letter briefly set out the reasons why the defendants contended that the First Offer should be accepted: essentially, the argument was that the Defence demonstrated that the plaintiff’s pleaded case was not sustainable, by reason of the matters pleaded in the Defence.

Defendants’ submissions

[57]Exhibit CL-2 to the Lim Affidavit.

[58][1975] 3 All ER 333 (‘Calderbank v Calderbank’).

In essence, the defendants’ submission as to why it was unreasonable for the plaintiff to have rejected the First Offer are that the First Offer represented a better outcome for the plaintiff than that now obtained, given that the proceeding is to be discontinued with the defendants being paid their costs (at least on a standard basis), whereas the defendants would have borne their own costs had the First Offer been accepted.[59]

Plaintiff’s submissions

[59]Transcript 6.13–17.

The plaintiff’s primary submission was that the First Offer was nothing more than an invitation to capitulate and it was therefore not unreasonable for the plaintiff to have rejected it.[60]
[60]Transcript 35.20–28.

The plaintiff’s solicitor referred to Williams v Katis (Costs Ruling)[61] and VWA v O’Brien & Ors (Costs Ruling)[62] in this regard.
[61][2014] VSC 471.
[62][2017] VSC 68 (‘VWA v O’Brien’).

In VWA v O’Brien, J Forrest J summarised the relevant authorities, as follows:[63]
[63]VWA v O’Brien, [8]–[10] (citations omitted).

8.In Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2), the Court of Appeal made the following observations as to an offer which does not represent a genuine compromise and therefor fails the reasonableness test:
There is authority to the effect that where the offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it.
In Berrigan Shire Council v Ballerini & Anor (No 2) Callaway JA observed that the treatment of Calderbank offers comes down to the question of whether the rejection was unreasonable in the circumstances. In that case, the offer was an offer to walk away. Callaway JA characterised it as a demand to capitulate that could reasonably be rejected.
In the case of Truenergy Pty Ltd v Dispute Resolution Panel (No 2) Cavanough J considered that in order for a Calderbank offer to be taken into account by the court, it should be attractive in all the circumstances and not merely comprise, in effect, a demand to capitulate.
In the recent case of Pepe v Platypus Asset Management Pty Ltd (No 2) Almond J held that offers of $65,000 and $90,000 (inclusive of costs) were properly rejected in circumstances where the claim was in excess of one million dollars.
In our opinion and in the circumstances of this case, it was not unreasonable for the Commissioner to reject the offer made on 18 March 2011. The offer, in effect an offer to walk away, in our opinion amounts to a demand to capitulate. A reduction of $5000 from a costs order may realistically be regarded as de minimis in the circumstances. The offer does not represent (in financial terms) a serious endeavour to resolve the proceeding. It was, given the amount involved in the case, no more than a token offer.

9.In addition to the cases referred to by the Court of Appeal in Commissioner of State Revenue, there are other recent decisions of trial judges in this state in which walkaway offers have been treated as no more than an offer to capitulate and not a genuine offer which has been unreasonably refused.
10.In Nilumbik Shire Council v Victorian YMCA Community Program Pty Ltd, the Court of Appeal considered whether there was error on the part of a trial judge who, applying the principles stated by the Court of Appeal in Hazeldene and Commissioner of State Revenue, declined to make an order as to solicitor-client costs on the basis that the offer was an invitation to capitulate or derisory. Tate JA said as follows:
In my view it cannot be concluded that the judge failed to take account of the relevant principles governing an award of costs in a context in which a Calderbank offer or an Offer to Contribute has been made and rejected. Her Honour’s reasons make it apparent that she was live to the criteria expressed in Hazeldene and engaged in a careful dissection of the facts in applying them to determine that the rejection of the offers was not unreasonable. The judge was particularly conscious, quite properly, of the need to assess the reasonableness or otherwise of the rejection of an offer at the time, and in the circumstances, in which it was rejected, and not with the benefit of hindsight or through the prism of a subsequent appellate determination.

Analysis and conclusion

I was not taken to any cases where indemnity costs were sought in the context of a discontinuance and a failure to accept a previously made Calderbank offer. Both parties appeared to approach the question on an assumption that the usual principles, as outlined in Hazeldene, apply to such situations. This appears to be the case, from the limited research I have since conducted.[64]
[64]By way of example, see Mandie, Re; Mandie v Danos [2015] VSC 55.

In terms of the Hazeldene Factors, the parties’ submissions focussed on those identified in sub-paragraphs (a), (c) and (d) of paragraph 42 above. There were no submissions made in respect of the other factors identified in that paragraph, and it is apparent from the terms of the First Offer that these were all met such that they are not factors which would weigh against granting indemnity costs. I will consider the three factors upon which the parties focused in turn.

The stage of the proceeding at which the First Offer was received: it was received at a time when there were a number of significant steps still to be taken. The defendants had provided discovery, but the plaintiff had not. More importantly, it was received at a time when, for the reasons I have already expressed, it could not be said that the plaintiff did not have a reasonable or proper basis for commencing and maintaining the proceeding. As set out above, it was not until January 2018 when I consider that the plaintiff no longer had a reasonable or proper basis for maintaining the proceeding.

The extent of the compromise offered: I accept the plaintiff’s submission that the First Offer represented an offer to capitulate. Given what I have already said about it not being established that the plaintiff did not have a proper or reasonable basis for commencing and maintaining the proceeding at the time the First Offer was made, I do not consider it unreasonable for the plaintiff to have rejected an offer to capitulate at that time. Several of the cases referred to in VWA v O’Brien involved ‘walk away’ offers which were characterised as demands to capitulate that could reasonably be rejected. This obviously still requires consideration of all of the circumstances and the other Halzeldene Factors, it being clear that the authorities require that analysis to be conducted.

The plaintiff’s prospects of success, assessed as at 11 October 2017: it may well be said that this case, particularly in terms of the allegations made in the Defence, is an unusual one. However, that does not mean that as at 11 October 2017 the plaintiff had no, or only little, prospects of success. For the same reasons as set out above regarding a proper or reasonable basis for commencing and maintaining the proceeding, I do not consider it unreasonable for the plaintiff to have rejected the First Offer at that time.

Therefore, I have concluded that it is not appropriate to order indemnity costs from the date of the expiry of the First Offer.

The Second Offer

The Second Offer was made by letter dated 8 December 2017 from Leem Lawyers to Spencer Reyner.[65] It was an offer to settle the proceeding by the defendants paying the plaintiff $10,000, inclusive of costs, was open for acceptance until 22 December 2017, and was expressed to have been made to obviate the requirements for further costs and expenses to the defendants in circumstances where the defendants’ view was that the plaintiff’s prospects of success at trial were low to very low. It was also stated that if the offer was not accepted, then the defendants reserved their right to rely on the Second Offer on the question of costs, in accordance with Calderbank v Calderbank. The Second Offer set out, in more detail than the first, the factual matters which the plaintiff would have to establish, referred to the plaintiff not yet having produced the original Loan Agreement, and set out why a rejection of the offer would be unreasonable.

Submissions

[65]Exhibit CL-3 to the Lim Affidavit.

The defendants submit that the Second Offer was ‘exceedingly generous compared to a proceeding ultimately being discontinued, and the plaintiff receiving what should be an adverse costs order, on the basis they had no evidence,’ and was more generous than the First Offer.[66]
[66]Transcript, 7.21-27.

The plaintiff submits that rejecting an offer of $10,000 on a claim of $500,000 after the proceeding had been going for over a year was really offering to make part payment of the plaintiff’s legal costs, and that in those circumstances its rejection of the Second Offer was not unreasonable. The plaintiff submitted that Mr Cheng was a witness to the moneys being handed over to the first defendant and that its case heavily relied on that witness. At the time of the Second Offer, including when it lapsed on 22 December 2017, the plaintiff thought Mr Cheng was available to be a witness.[67]

Analysis and conclusion

[67]Transcript 35.29–36.23.

For the same reasons as set out above regarding a proper or reasonable basis for commencing and maintaining the proceeding, and despite the Second Offer containing more detail about the defendants’ view as to the plaintiff’s prospects, I do not consider the plaintiff’s rejection of the Second Offer to have been unreasonable at the time. In my view, the analysis of the Hazeldene Factors is the same. The offer to pay $10,000 at that time can be characterised as derisory, which is in a similar category to an invitation to capitulate.[68]
[68]VWA v O’Brien, [8].

Should indemnity costs be awarded due to the plaintiff’s alleged failure to comply with its discovery obligations?
Defendants’ submissions

The defendants submit that the plaintiff failed to comply with its discovery obligations and invoke s 56(1)(a) of the CPA, which provides that a court may make any order it considers appropriate if it finds that there has been a failure to comply with discovery obligations.

This alleged failure was not clearly articulated in submissions, but it appeared to me that the defendants’ submission was that the plaintiff had not made any discovery until October 2017,[69] which was substantially after the time at which discovery was due,[70] and that the discovery once provided was deficient. The defendants issued the Form 29D Notice to the plaintiff on 2 May 2018. In that notice, the defendants stated that the plaintiff had failed to make discovery of documents within the time specified and that unless discovery is made within 7 days of the service of the Form 29D Notice, the defendants would apply to the Court for an order that the proceeding be dismissed. The letter dated 2 May 2018 from Leem Lawyers to Spencer Reyner which accompanied the Form 29D Notice set out details of the alleged default and described the documents which the defendants said were required to discover.[71] In summary, these were unredacted copies of all bank records of the plaintiff for August 2013, November 2013 and May 2014, and pleadings filed in previous cases and demands made involving the plaintiff relating to the provision of credit (‘Other Pleadings’),[72] which were relevant due to the allegations in the Defence that the plaintiff was in the business of providing credit.
[69]Transcript, 10.1-2.
[70]On 3 March 2017, I made orders by consent that discovery be provided by 31 March 2017. The plaintiff did not make discovery at that time. I subsequently made orders by consent on 12 October 2017 that the plaintiff make discovery by 19 October 2017, which is the date upon which Ms Tan’s affidavit of documents was sworn and filed.
[71]The Form 29D Notice and the 2 May 2018 letter were contained in exhibit CL-2 to the affidavit of Mr Lim sworn 18 May 2018, which was the affidavit filed in support of the defendants’ summons of the same date: see paragraph 24 above.
[72]This was by reference to paragraph 7(e) of the Defence, and the 2 May 2018 letter also listed the proceedings.

As described in paragraphs 24 to 26 above, the defendants filed a summons following the plaintiff’s failure to comply with the Form 29D Notice, which effectively ended up not being proceeded with as it was overtaken by the plaintiff’s decision to discontinue the proceedings.

The defendants submit that it was completely within the plaintiff’s power to discover the two categories of documents which were required by the Form 29D Notice, and that these were documents which were always discoverable by reason of the issues raised on the pleadings.

Plaintiff’s submissions

The plaintiff did not accept that it had failed to comply with its discovery obligations.

The plaintiff did not address its delay in initially providing discovery.

It submitted that it was in the process of obtaining unredacted bank statements when the decision was made to discontinue the proceeding, and that had it continued with the proceeding, those would have been forthcoming.

In relation to the Other Pleadings, the plaintiff’s submission was that the defendants had only been able to include reference to these other cases in their Defence, as their solicitors at the time, Henley Legal, had acted in those other cases for the plaintiff or Ms Tan. The plaintiff submitted that Henley Legal had used confidential information belonging to the plaintiff and Ms Tan[73] from those other proceedings to list them in the particulars to paragraph 7(e) of the Defence. When asked about the relevance of this submission, particularly in circumstances where no such allegation had ever been heard and determined by the Court, the plaintiff’s solicitor said that it was relevant to the complaint that the documents had not been discovered. It was also said to be relevant to this Application because all that the defendants had to do was contact their former solicitors to have them transfer those court documents to the defendants’ new solicitors. That may be the case if copies of those documents were on the defendants’ file maintained by the former solicitors, but the plaintiff’s solicitor was not able to satisfactorily explain to me how those solicitors could take them from other clients’ files and give them to a separate client.[74]
[73]It appears that the plaintiff was a party in all of the cases referred to and Ms Tan was also a party in 4 of the 8 proceedings: see exhibit CL-2 to the affidavit of Mr Lim sworn 18 May 2018 and the particulars to paragraph 7(e) of the Defence.
[74]Transcript 28.28–30.1.

In respect of this point, the defendants’ counsel submitted that the fact of there being other legal proceedings involving the plaintiff and Ms Tan is publicly available information, and that including these matters in the Defence and demanding discovery of relevant documents did not involve use of confidential or privileged information.[75]
[75]Transcript 30.2-8.

Analysis and conclusion

By reason of the matters described in paragraph 105 above, there has been no separate hearing or determination that the plaintiff failed to comply with its discovery obligations. Therefore, it was up to the defendants, on the evidence relied upon and the submissions made at the hearing of the Application, to both establish that there had been such a failure and that it justified the making of an indemnity costs order.

While the plaintiff submitted that it was in the process of obtaining bank statements from its bank, its solicitor was unable to explain why the plaintiff had chosen to initially discover the bank statements it did discover in October 2017 in the form that it did. Leaving aside the redaction of most of the transactions, the plaintiff’s solicitor was unable to explain why the account holder details and other matters had been redacted. Indeed, the plaintiff’s solicitor accepted that this was deficient.[76] Nor was any explanation given as to why, given that redacted versions had been discovered, the plaintiff could not at least have produced unredacted versions of the bank statements which had been discovered and why it needed to obtain them from its bank.
[76]Transcript, 27.27.

I do not accept the plaintiff’s position in respect of the Other Pleadings. The plaintiff did not deny that these documents were discoverable and it did not make any submissions to that effect. On the face of the Defence, unless the allegations about the plaintiff being in the business of providing credit were admitted in a reply,[77] then documents relevant to that allegation were discoverable, and I have no reason to think that these particular documents were not relevant.
[77]I could not locate a copy of the plaintiff’s Reply on the Court file. I gather from some of the correspondence to which I was taken and the submissions that there was a Reply, but I have not seen it.

Therefore, I am satisfied that the plaintiff had not fully complied with its discovery obligations as set out in the Form 29D Notice and the accompanying letter.

However, other than noting that the Court could make any order it considered appropriate if there had been such a failure, the defendants did not make any submission explaining why this justified an indemnity costs order. No evidence was led in this regard. Further, there were no submissions as to matters such as the date from which indemnity costs should be payable on that basis. It should not be left for me to speculate as to why an indemnity costs order would be appropriate on this ground. At best, on the available information the Court would be justified in granting indemnity costs associated with the service of the Form 29D Notice and the subsequent application in respect of it. I observe that since costs after 6 January 2018 will be ordered on an indemnity basis for other reasons as set out above, the defendants are effectively getting those costs on an indemnity basis.

In those circumstances, I am not prepared to make an indemnity costs order on the basis of a failure to comply with discovery obligations.

Consideration – Should Ms Tan be ordered to pay the defendants’ costs?

The defendants seek orders that Ms Tan be liable, jointly and severally with the plaintiff, for its costs of the proceeding.

The defendants contend that Ms Tan is a person to whom the overarching obligations set out in the CPA apply, pursuant to s 10(1)(d) of the CPA. This section is set out in paragraph above, however the question is whether Ms Tan has provided financial or other assistance to the plaintiff and exercised control (direct or indirect) or influence over the conduct of the proceeding or of the plaintiff.

As set out in paragraph 50, the question when considering whether to order a non‑party to pay the costs of a proceeding, pursuant to the general discretion regarding costs in s 24 of the Supreme Court Act and Knight, is whether the plaintiff is insolvent and Ms Tan is shown to be the ‘real party’ to the litigation, in that she has played an active role in the litigation and has an interest in its subject matter.[78]
[78]Gdanski v Palms, [2017] VSCA 348, [69].

Some of the issues regarding these two bases relied upon by the defendants for a non‑party costs order overlap, as will be seen.

Defendants’ submissions

The defendants submit that the available evidence demonstrates that the plaintiff is insolvent or a person of straw, in that:

(a) an ASIC search in respect of the plaintiff shows that it has $100 of paid up capital;[79]
[79]Exhibit CL-5 to the Lim Affidavit.

(b) the plaintiff does not own any real property in Victoria;[80]
[80]Lim Affidavit, [12] and exhibit CL-6 thereto.

(c) the extensive redactions of the bank statements discovered by the plaintiff, so that the identifying features of the account holder are not shown, supports an inference that they are not in the name of the plaintiff;[81]

(d) as Ms Tan paid the amount agreed between the parties for security for costs,[82] the Court can infer that the plaintiff has no assets sitting behind it;[83] and

(e) in the language of Vickery J in 1165 Stud Road, the plaintiff ‘was used simply as a vehicle to conduct the litigation, in order to protect the individuals standing behind it’,[84] which can be inferred from all of the evidence.[85]

[81]Transcript, 19.21-24.

[82]See paragraph 123(d) below.

[83]Transcript 19.6-9.

[84][2015] VSC 735, [80(g)(iv)].

[85]Transcript 20.12-15.

Although it was not put in precisely these terms, the defendants submit that Ms Tan is the real party to the litigation. They relied on the following in support of that submission:

(a) as the sole director of the plaintiff, she is the controlling mind of the plaintiff;[86]
[86]Transcript, 2.24-31.

(b) advice from the plaintiff’s previous solicitors was addressed to Ms Tan, not to the plaintiff. This is said to be evident from the June 2017 Email, in that it was sent to an email address which appeared to be a personal email address[87] and it began with ‘Dear Ms Tan’. It was said that there was no explicit reference to the previous solicitors sending her this email in her capacity as a director of the plaintiff;
[87]I see no reason to set out that email address here, but note that it contains a phonetic approximation of Ms Tan’s name and the domain is one of the widely available free email services.

(c) as the redacted bank statements discovered by the plaintiff had the details as to the account holder redacted, the Court should infer that perhaps the relevant account is not the plaintiff’s account, but someone else’s;[88]
[88]Transcript, 10.22–25.

(d) Spencer Reyner’s trust account receipt dated 8 May 2018 (‘Trust Receipt’) showing the payment of $50,000 by way of security for the defendants’ costs recorded the client as ‘Ms Lingzhi Tan’. It also recorded that the payment had been received from ‘Ms Lingzhi Tan’.[89] This is said to constitute financial assistance and to be sufficient to enliven s 10(1)(d) of the CPA,[90] and to fulfil the requirements under s 24 of the Supreme Court Act;[91]

(e) Ms Tan is the sole director, she is the person with whom the plaintiff’s solicitors are corresponding, and she is controlling the proceeding;[92] and

(f) the Trust Receipt refers to Ms Tan as the ‘client’ for this matter.[93]

[89]Exhibit CL-8 to the Lim Affidavit.

[90]Transcript 17.25–18.3.

[91]Transcript 18.20–21.

[92]Transcript 18.4–11.

[93]Transcript 18.18–21.

In relation to the factors identified in 1165 Stud Road,[94] the defendants submit that the only factor which may go against them in respect of a non-party costs order is that of security for costs and whether it was sought promptly at an early stage of the proceeding.[95]
[94][2015] VSC 735, [80(g)]; see paragraph 47 above.
[95]Transcript, 21.11–14.

Mr Lim deposes that he first wrote to Spencer Reyner on 26 February 2018 requesting that the plaintiff voluntarily provide security for the defendants’ costs. There was subsequent correspondence on four occasions in April 2018 where the plaintiff sought more information or more time before providing security. Such security not being forthcoming, the defendants made an application by summons filed 3 May 2018 seeking security by way of payment into Court of $50,000. Shortly thereafter, the plaintiff agreed to provide that security by payment into Spencer Reyner’s trust account, which was confirmed to Mr Lim on 11 May 2018.[96]
[96]Lim Affidavit, [13]–[15].

The defendants submit that when one looks at the chronology of the proceeding, not a great deal had happened before that date and several of the delays (in providing discovery, and in complaining about the defendants’ previous solicitors acting for them in the proceeding which, while not conceded, did result in the defendants engaging new solicitors in December 2017) were due to the plaintiff’s conduct.[97]
[97]Transcript, 21.15–22.10.

Plaintiff’s submissions

The plaintiff submitted that a non-party costs order should not be made against Ms Tan, referring to the following:

(a) the plaintiff’s solicitor said that the Trust Receipt referred to Ms Tan as the client, as that is how Spencer Reyner’s computer system records it, and it does not signify that the plaintiff is not the client;[98]
[98]Transcript, 37.9-15.

(b) the plaintiff is not a public company or firm, and that just because a director uses a personal email account does not indicate that Ms Tan is the client or that the plaintiff is a person of straw;[99]
[99]Transcript, 37.16-23.

(c) as noted above, the plaintiff was not able to explain why the bank statements had been redacted so as to conceal the identity of the account holder. Nonetheless, the plaintiff submitted that I should not infer that the account holder was someone other than the plaintiff, as this was mere speculation by the defendants;[100]

(d) the defendants did not seek security for costs at an early stage of the proceeding;[101] and

(e) Ms Tan was not, at an early stage, put on notice or warned of a risk that a non-party costs order may be sought against her. It also says that the failure to give such a warning was not justified or reasonable in the circumstances, and it was not satisfactorily explained, particularly when reliance was placed on the June 2017 Email which the defendants had had for many months.[102] The defendants dispute this, saying that the only time at which the defendants had reasonable documentary evidence to justify a warning as to the potential for a non-party costs order was when it received a copy of the Trust Receipt in May 2018. Given that was only just over a month before the hearing, and around a month before the Application was issued, they say it was not a failure to warn that should tell against them.[103]

[100]Transcript, 26.31–27.4.

[101]Transcript, 37.23-26.

[102]Transcript, 38.16-29, referring to the factor set out in paragraph 80(g)(iii) of 1165 Stud Road.

[103]Transcript, 48-30–49.6.

Analysis and Conclusion

I accept the defendants’ submission that on the basis of its nominal paid up capital and not owning any real property in Victoria, an inference may be drawn that the plaintiff is insolvent. The plaintiff has not led any evidence to the contrary.

However, I do not accept the defendants’ other reasons (set out in sub-paragraphs (c) to (e) of paragraph 122 above) for saying that the plaintiff is insolvent. There is simply not a sufficient basis for me to do so. In particular, in relation to the submission that the plaintiff was used as a vehicle for the litigation so as to protect Ms Tan from personal liability, this seems to me to be contradictory to the defendants’ Defence that the plaintiff was in the business of providing credit and was involved in at least 8 other cases named in the particulars to that allegation as a party.[104] When I raised this with the defendants’ counsel, he said that the plaintiff hadn’t discovered the relevant documents or led any evidence in this Application about them. He submitted that the plaintiff could have, but did not, provide documents such as board minutes and resolutions and company reports to show that the plaintiff was real and substantial.[105] I do not accept this submission.
[104]Defence, [7(e)].
[105]Transcript 20.16–21.11.

For the purposes of this analysis, however, I am prepared to assume that the plaintiff is insolvent. That then leads to a consideration of whether Ms Tan is a ‘real party’ to the proceeding.

The defendants have not established that Ms Tan is a ‘real party’ to this proceeding, for the following reasons:

(a) I do not accept the submission that I should infer, from the address which the June 2017 Email was sent to and the opening salutation, that Ms Tan was the real party. I consider it unrealistic to think that solicitors would include in such an email a reference to it being sent to her in her capacity as a director of the plaintiff;

(b) I also do not accept the submission that Ms Tan was controlling the litigation in her personal capacity. The company can only act through its relevant people: as the sole director of the plaintiff company, it is difficult to see how it could act authoritatively other than through its director, unless that director had delegated the relevant authority to someone else. To justify a non-party costs order, there must be something more than she was the person giving instructions to the solicitors and receiving advice;

(c) it does appear as if Ms Tan may have paid the security for costs into Spencer Reyner’s trust account, based on the only evidence that there is, being the Trust Receipt. Even if that be the case, I am not willing to infer from that and/or the redacted bank accounts that Ms Tan has been paying all of the costs of the litigation personally, as the defendants submitted.[106] There is no basis for that inference and there is no other evidence in that regard; and

(d) while I did not find the explanation by the plaintiff’s solicitor convincing, I am not willing to infer, from Ms Tan being referred to as the client on the Trust Receipt, that she was Spencer Reyner’s client and not the plaintiff. The Trust Receipt is an insufficient basis for me to make that inference.

[106]Transcript, 19.17–20.

The matters referred to in the preceding paragraph go to the requirement that Ms Tan have an active role in the litigation (as referred to in Gdanski v Palms), or that she provide financial assistance (as required for the overarching obligations to apply to her). These matters do not address the other requirement referred to in Gdanski v Palms, that she have an interest in the subject matter of the litigation. The defendants did not specifically address this. The fact that Ms Tan is the sole director and shareholder of the plaintiff cannot be sufficient to say that she has an interest in the subject matter of the litigation. If that were the case, then a non-party costs order could be made against directors of companies who are parties to litigation, as a matter of course.

Referring to some of the conclusions of Vickery J in 1165 Stud Road, the Court of Appeal in Gdanski v Palms went on to say:[107]

These conclusions accord with what has been said consistently in this context about the position of directors and shareholders of a company involved in litigation. As Muir J said in Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd:
In my view the mere fact that a person is the sole director and shareholder of an unsuccessful litigant corporation will not, without more, suffice to justify a costs ordered against that person. And that is so even if the person was the corporation’s sole principal or ultimate decision maker in relation to the litigation.
To conclude otherwise would be to ignore the principle that costs orders against non-parties are ‘exceptional’ and ought be made only if appropriate in the interest of justice. The control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence. It is sanctioned by a long established legislative framework which recognises that a company has an independent legal personality distinct from that of its members and that neither members nor directors, as a general proposition, are personally liable for its acts and defaults.

[107]Gdanski v Palms, [43] (citations omitted). At footnote 20 of Gdanski v Palms, the Court of Appeal lists a number of cases in respect of the same proposition.

Here, the defendants have not established anything exceptional or remarkable so as to justify an order for costs being made against Ms Tan. In my view, there is insufficient evidence to establish that Ms Tan’s conduct went beyond that of what one would normally expect of a director. Payment of the security for costs, on its own, does not establish exceptional circumstances.

Further, the defendants did not make a timely and early application for security for costs. Nor did they warn Ms Tan of the possibility they may seek a non-party costs order against her: the first time it was communicated was with service of the Application upon the plaintiff. I do not regard the defendants’ explanation as to the reason for failing to warn as satisfactory: while providing financial assistance may be a requirement in s 10(1)(d) of the CPA regarding the application of the overarching obligations, it is not a requirement for non-party costs orders under s 24 of the Supreme Court Act and Knight.

I do not accept the defendants’ submission that Ms Tan is covered by s 10(1)(d) of the CPA. Even if the payment by her of the security for costs amounts to financial assistance, for the reasons I have already expressed I do not consider that she was relevantly controlling the litigation, which is the other element of s 10(1)(d) of the CPA.

Even if I had found that Ms Tan was covered by s 10(1)(d) of the CPA, apart from the defendants’ general submission that Ms Tan was controlling the litigation, the defendants made no submission as to how it contended that Ms Tan had breached the overarching obligations. It may be that the defendants’ position was that as the controlling mind of the plaintiff, the plaintiff’s alleged breaches were also Ms Tan’s alleged breaches. However, this was not put to me. In any event, there was no sufficient evidence to establish that Ms Tan had breached any of the overarching obligations.

For all of these reasons, I am not prepared to make a non-party costs order against Ms Tan, on any of the grounds upon which it is sought.

Conclusion

In summary, therefore, I do not accept that indemnity costs should be awarded in favour of the defendants for:

(a) the entire proceeding, as I have rejected the contention that the plaintiff did not have a proper or reasonable basis for commencing the proceeding, whether by reference to s 24 of the Supreme Court Act and Knight, or by reference to s 29 of the CPA;

(b) the entire proceeding, for failure to comply with discovery obligations, as there were no submissions made or evidence adduced as to why this justified an indemnity costs order. As set out in paragraph 116, I may have been inclined to order indemnity costs in respect of the service of the Form 29D Notice and the subsequent application in that regard; and

(c) the plaintiff’s failure to accept the two Calderbank offers.

The plaintiff should pay the defendants’ costs of the proceeding after 6 January 2018 on an indemnity basis, as it did not have a proper or reasonable basis for continuing with the proceeding after that date.

I will not make any orders requiring Ms Tan to pay the defendants’ costs.

Accordingly, I am minded to make orders to the following effect:

(a) granting leave to the plaintiff to discontinue the proceeding, with it considered discontinued forthwith;

(b) the plaintiff is to pay the defendants’ costs of the proceeding up to and including 6 January 2018 on a standard basis, and thereafter on an indemnity basis; and

(c) the defendants’ summons dated 6 June 2018 is otherwise dismissed.

I will hear the parties on the precise form of orders and as to the costs of the Application.

[2018] VSC 482

31 August 2018