Madsen v Darmali (No 2)

[2024] NSWSC 268

Supreme Court

New South Wales

Medium Neutral Citation:

Madsen v Darmali (No 2) [2024] NSWSC 268

Hearing dates:

On the papers; last submission received 15 March 2024.

Date of orders:

19 March 2024

Decision date:

19 March 2024

Jurisdiction:

Equity - Expedition List

Before:

Rees J

Decision:

Costs of application to set aside ex parte orders payable forthwith

Catchwords:

COSTS – ex parte orders set aside for lack of candour – proceedings expedited given plaintiff’s terminal illness – some evidence that plaintiff had divested himself of assets – plaintiff’s claim being reformulated.

PAYABLE FORTHWITH – r 42.7 Uniform Civil Procedure Rules 2005 (NSW) – court’s discretion to “order otherwise” – principles at [2]-[7] – motion concerned a discrete matter – existence of some unreasonable conduct – some distance to go in the litigation – no evidence that a ‘forthwith’ costs orders would stultify the proceedings – defendants ought nor bear credit risk associated with plaintiff’s asset divestiture – payment of costs order should be finalised given plaintiff’s terminal illness and likelihood of additional disruption to the litigation.

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW) r 42.7

Cases Cited:

Australiawide Airlines Ltd t/as Regional Express v Aspirion Pty Ltd [2006] NSWCA 365

Bradman v Allens Arthur Robinson (No 2) [2009] SASC 180

FiduciaryLtdvMorningstarResearchPty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432

Madsen v Darmali [2024] NSWSC 76

Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31

Richards v Kadian (No 2) [2005] NSWCA 373

Royal Australian Naval Reserve Rifle Club Inc v New South Wales Rifle Association Inc [2010] NSWSC 351

W Hoy Pty Ltd v WTH Pty Ltd (No 2) [2018] FCA 506

Texts Cited:

G E Dal Pont, LawofCosts (5th ed, 2021, LexisNexis) at [14.51], [14.52]

Category:

Costs

Parties:

Benny Madsen (Plaintiff)
David Darmali (First Defendant)
Chu Li (Second Defendant)

Representation:

Counsel:
Mr A Cheshire SC / Mr JD Cook (Plaintiff)
Mr MA Friedgut (First and Second Defendants)

Solicitors:
YST Legal (Plaintiff)
TEP Legal (Defendants)

File Number(s):

2024/5024

JUDGMENT

1. HER HONOUR: On 7 and 9 February 2024, I made orders discharging ex parte passport, freezing and disclosure orders, together with an order that the plaintiff pay the defendants’ costs of the application to set aside the orders. I gave reasons on 13 February 2024: Madsen v Darmali [2024] NSWSC 76. The defendants now seek to vary the costs order, seeking costs on an indemnity basis payable forthwith. The plaintiff has agreed to pay indemnity costs but not forthwith. The parties provided written submissions (by and large, it is not necessary to set those submissions out here). There were no further affidavits. This judgment assumes familiarity with my earlier judgment.

Costs payable forthwith

2. The costs of interlocutory applications are dealt with by r 42.7 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which provides:

(1)   Unless the court orders otherwise, the costs of any application or other step in any proceedings … are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

(2)   Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.

3. As explained in Australiawide Airlines Ltd t/as Regional Express v Aspirion Pty Ltd [2006] NSWCA 365, albeit in the context of a different costs rule in the UCPR, such rules create a “starting point” as to what the costs order is to be unless that outcome is displaced by a discretionary decision: at [48]. In this case, the starting point is that the costs of the motion are the parties’ costs in the cause.

4. As to when a Court may order otherwise, there are (at least) three recognisable categories of case: where the application or aspect in respect of which the costs order is made “represents the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect” of the proceedings; there is “some unreasonable conduct on the part of the party against whom costs have been ordered”; and, there is still some considerable distance to go in the litigation: Fiduciary Ltd v Morningstar Research Pry Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 at [11]-[13] (per Barrett J). It is not necessary that all of these factors are present for such an order to be made: Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31 at [24] (per Bathurst CJ Beazley P and Meagher JA).

5. The financial position of the parties is also relevant. If the party entitled to costs is impecunious, then the Court may make a ‘forthwith’ order so that their funds are replenished, having been diverted to attend to the particular application on which they have succeeded; the substantive litigation can then progress without delay: Royal Australian Naval Reserve Rifle Club Inc v New South Wales Rifle Association Inc [2010] NSWSC 351 at [29] (per Biscoe AJ). Likewise, evidence that payment of costs ‘forthwith’ will stultify the proceedings or be unduly burdensome on the party obliged to pay costs may tell against such an order; otherwise the payor’s access to justice may be denied “where they appear to have some prospect of finally succeeding in their claim”: G E Dal Pont, Law of Costs (5^th ed, 2021, LexisNexis) at [14.52], citing W Hoy Pty Ltd v WTH Pty Ltd (No 2) [2018] FCA 506 at [14] (per Barker J).

6. Procedural considerations may also be relevant. The Court may decline to make a ‘forthwith’ order if it will give rise to further interlocutory applications and distract the parties from the substantive proceedings: Dal Pont, Law of Costs at [14.52], citing Bradman v Allens Arthur Robinson (No 2) [2009] SASC 180 at [23]-[25] (per Kourakis J). Similarly, the Court may consider that there should only be one occasion on which costs are enforced, being at the end of the proceedings, to enable “costs orders going different ways [to be] set off”: Richards v Kadian (No 2) [2005] NSWCA 373 at [7] (per Hodgson JA).

7. Finally, the Court’s discretion to “order otherwise” is to be exercised judicially, having regard to all relevant circumstances of the case and the interests of justice: Pavlovic at [16]-[18].

Consideration

8. Of the three recognised categories of case described in Fiduciary v Morningstar, all are present here. As the plaintiff accepted, the motion related to a discrete matter. Whether or not the defendants should be permitted to leave Australia, and whether their companies’ bank accounts should be frozen, has been determined.

9. There was some unreasonable conduct on the part of the plaintiff, as recognised by his consent to an order to pay the defendants' costs on an indemnity basis.

10. There is also some distance to go in this litigation. Only part of the plaintiff's prayers for relief have been expedited. The prayer for relief concerns whether the Madsen Family Group Rules is void. A wide range of other relief is sought, not only against the defendants involved in this application but also the plaintiff's solicitor. At the hearing of the defendants' application on 2 February 2024, the plaintiff was considering joining a large number of other defendants, some located overseas.

11. Helpfully, the plaintiff has now retained experienced, senior counsel, who is in the process of reviewing the plaintiff's claims with a view to putting on proper pleadings. While I do not criticise the plaintiff's senior counsel for taking the time needed to fully consider what claims should be brought, the fact of the matter is that the Court presently has no indication as to which of the plaintiff's claims will be prosecuted, nor whether any claim maintained against the defendants remains appropriate for expedition. As matters presently stand, the plaintiff’s claim has yet to make it out of the ‘starting blocks’ and involves multiple claims for relief against multiple defendants, with further defendants in view. There is a long way to go before these proceedings are finally concluded.

12. Neither party has put on evidence that their own financial circumstances are such that a “forthwith" order should either be made, or not made. In particular, there was no evidence that such an order will stultify the proceedings or deny the plaintiff access to justice. Contrary to the plaintiff’s submission, I consider that it is relevant that the plaintiff does appear to have been concerned that he should not be associated with the $14 million proceeds of sale of the caravan park and that no assets should be held in his name: Madsen v Darmali at [33], [37], [54], [57], [59], [80]. That is, it cannot be assumed that the plaintiff can or will pay the costs order already made. Whilst the defendants would not ordinarily be entitled to security for costs from an individual, nor do I think they should necessarily be exposed to the 'credit risk' inherent in the plaintiff's asset divestiture for the lifespan of this litigation.

13. True it is that, in advancing this application, the defendants engaged with the substance of the plaintiff's allegations, indeed, to an extent which is unusual on an interlocutory application brought at the commencement of litigation. The defendants did so in support of an argument, which was accepted, that the plaintiff's counsel failed to discharge their duty of candour. In addition, the defendants were so engaged in order to advance a submission that the submissions made at the ex parte hearings were simply wrong, that is, there was no serious issue to be tried. There is some merit in the plaintiff's submission that, as a consequence, the defendants' costs expended on the interlocutory application have not been wasted.

14. But whatever 'crash course' the defendants undertook in the plaintiff's case and their answer to it, this is unlikely to materially reduce the need to incur further costs looking at all of this again, and more closely, as the case progresses. The plaintiff is yet to plead his case properly and may well put his case in a more confined or different way under the ministrations of experienced senior counsel. The defendants will need to carefully review the plaintiff’s allegations, whatever those allegations may ultimately be, before verifying their defences. The same exercise will need to be done again once the plaintiff completes the service of all evidence in support of any claim against them.

15. Finally, I cannot overlook the fact that these proceedings were expedited given the plaintiff's terminal illness, first diagnosed in January 2022: Madsen v Darmali at [61]. The plaintiff relied on a medical certificate dated 22 December 2023 at the ex parte hearings in January 2024, which noted that the plaintiff had decided not to undergo surgery, chemotherapy or radiotherapy for his cancer and his life expectancy was limited to a few months at best. Whilst all would hope that this medical opinion proves wrong, the evidence suggests that the plaintiff may not see the conclusion of this litigation. In that event, it is likely that the proceedings will be interrupted by additional steps which will need to be taken to obtain a grant of probate and the like. I do think there is something to be said for permitting the defendants to endeavour to finalise payment of the costs order sooner rather than later in all the circumstances.

Orders

16. For these reasons, I consider that it is appropriate to make an order that the defendants' costs of the motion to set aside the ex parte orders be payable forthwith.

17. I note that the plaintiff has agreed to pay the defendants’ costs on an indemnity basis. I do not cavil with this. There was certainly an arguable basis for the defendants to seek such costs. The plaintiff has also agreed to pay the defendants' costs of written submissions prepared and provided to the Court other than in accordance with directions and orders made by the Court. While the plaintiff may choose to pay those costs if he wishes, it will not be pursuant to an order made by this Court. I make the following order:

1. Vary Order 4 made on 9 February 2024 such that the plaintiff is to pay the first and second defendants’ costs of the motion filed on 30 January 2024 on an indemnity basis payable forthwith, other than the costs of the defendants’ written submissions served on 5 February 2024.

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Decision last updated: 19 March 2024