Mao v Yehuaxin Enterprise Pty Limited

[2009] NSWSC 1270

CITATION:	Mao v Yehuaxin Enterprise Pty Limited & Ors [2009] NSWSC 1270
HEARING DATE(S):	29 September 2009
JUDGMENT DATE :	25 November 2009
JURISDICTION:	Equity
JUDGMENT OF:	Slattery J at 1
DECISION:	ORDER: 1. Grant leave to the plaintiff to discontinue these proceedings against all the defendants by filing a notice of discontinuance in conformity with UCPR r 12.1; and 2. Order that the first, second and third defendants pay the plaintiff’s costs of these proceedings incurred after 30 December 2008 including the costs of the motion for leave to discontinue.
CATCHWORDS:	EQUITY - equitable remedies - alleged agreement for sale of business - failure of defendants during the proceedings to cause the exercise of the option to renew lease over premises from which the business is conducted - PROCEDURE - costs - recovery of costs - leave to discontinue granted under UCPR r12.1 - non appearance of defendants - first, second and third defendants to pay the plaintiff's costs of proceedings incurred after 30 December 2008, the date on which the defendants failed to cause the exercise of the option to renew lease over subject premises
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005 r 12.1, r 42.19
CATEGORY:	Principal judgment
CASES CITED:	Australiawide Airlines Ltd t/as Regional Express v Aspirion Pty Ltd [2006] NSWCA 365 Bitannia Pty Limited v Parkline Constructions Pty Limited [2009] NSWCA 32 Fordyce v Fordham [2006] NSWCA 274 Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VR 469 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6 Reid v Shearan [2002] NSWSC 902
PARTIES:	Plaintiff: Yaming Mao First Defendant: Yehuaxin Enterprise Pty Limited ACN 084 885 790 Second Defendant: Zhen Huang Third Defendant: Ya Li Fourth Defendant: Yamay Pty Limited ACN 130 066 698
FILE NUMBER(S):	SC 6193/08
COUNSEL:	Plaintiff: Mr C Harris SC Defendants: No appearance
SOLICITORS:	Plaintiff: Ku & Sin Solicitors Defendants: No appearance

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SLATTERY J

WEDNESDAY 25 NOVEMBER 2009

6193/08 YAMING MAO V YEHUAXIN ENTERPRISE PTY LIMITED (ACN 084 885 790); ZHEN HUANG; YA LI; AND YAMAY PTY LIMITED (ACN 130 066 698)

JUDGMENT

Introduction

1 HIS HONOUR: Mr Yaming Mao has known Mr Zhen Huang and Ms Ya Li, a married couple, for over seven years. In 2001 a friend of Mr Mao introduced him to Mr Huang and Ms Li just after they migrated from China to Australia.

2 Mr Huang and Ms Li control Yehuaxin Enterprise Pty Limited (“Enterprise”). Mr Huang and Ms Li are directors of Enterprise. Mr Huang is the sole shareholder of Enterprise.

3 Until 12 March 2008 Enterprise carried on a retail supermarket business under the name “Daily Fortune Supermarket” at an address in the Sydney suburb of Hurstville. In conformity with the Court’s policy of reducing the risk of identity theft, the address of this Hurstville supermarket is not published in this judgment but is ascertainable from the Court file. Alana Sharp Nominees Pty Limited leased the supermarket premises to Enterprise.

4 Commencing in September 2007 Mr Huang and Mr Mao engaged in a series of mutual financial transactions. Mr Mao believed that through these transactions either he or the corporate vehicle Yamay Pty Limited had acquired the supermarket business from Enterprise. Mr Huang and Ms Li dispute that any sale occurred. Misunderstandings about these transactions generated the issues between the parties that resulted in Mr Mao commencing these proceedings as plaintiff.

5 Mr Mao sought performance of the alleged sale agreement and related consequential orders against Enterprise as first defendant, Mr Huang as second defendant and Ms Li as third defendant. Mr Mao joined Yamay for completeness as fourth defendant. On 17 December 2008 the Court granted an injunction against Enterprise, Mr Huang and Ms Li both to preserve and to prevent disposal of the supermarket business pending final hearing.

6 These proceedings were expedited. They were set down for hearing before me for four days commencing on 1 September 2009. On Thursday 6 August 2009 Mr Mao applied for orders dissolving the injunction and vacating the hearing date. Mr Mao had only just then discovered that the defendants had allowed the lease of the supermarket premises to expire. As a result the business could not be conducted from the premises after 30 June 2009 and was worthless. Ms Li was legally represented on this occasion. Mr Huang appeared in person. Enterprise and Yamay were unrepresented. Indeed Yamay has not been represented in or taken an active part in the proceedings since being joined and Mr Mao does not seek costs against Yamay. For the reasons given in my judgment that day I dissolved the injunction and vacated the hearing date: Mao v Yehuaxin Enterprise Pty Limited & Ors [2009] NSWSC 1269. In light of the changed circumstances Mr Mao needed a little time to assess whether or not to continue the proceedings. In the presence of Mr Huang and the legal representative of Ms Li I adjourned the matter for mention to Friday 14 August 2009 and reserved questions of costs. It was quite clear on 6 August that further steps may well be taken in the proceedings on or after 14 August. Mr Huang and Ms Li chose not to appear on 14 August.

7 By notice of motion dated 7 August 2009 Mr Mao sought orders under the Uniform Civil Procedure Rules 2005 r 12.1(1)(b) for leave to discontinue these proceedings. The motion also sought an order that Enterprise, Mr Huang and Ms Li pay Mr Mao’s costs of the proceedings generally and of the motion, including reserved costs. These are the two issues on the motion. This judgment determines those two issues. More detailed background is required to permit determination of those two issues.

8 Notice of the hearing of this motion has been given to the defendants. Because of their non-appearance on 14 August I gave directions that Mr Mao’s solicitor notifies Enterprise, Mr Huang and Ms Li of the planned date of 22 September for hearing of the motion. I directed that notice of the date be given to their last known addresses and to their former solicitor. Mr Mao’s solicitor, Mr Carl Ku gave notice in accordance with these orders as is deposed to in his affidavit of 11 September 2009. Notice of the motion was served at the defendants’ last known addresses and at the residential address of Ms Li. None of the defendants subsequently attempted to make contact either with the Court or with Mr Mao’s solicitors. Indeed a Notice of Ceasing to Act was only served on the solicitor for Mr Mao by Ms Li’s solicitor as late as 16 September 2009.

9 The motion was adjourned to 29 September and the defendants were also given notice of this adjourned date. Although there was a mistake in the letter giving notice of the adjourned date I consider the notice given to be sufficient in the circumstances. Argument on the two issues on this motion took place before me on that later date. Sufficient attempts have been made to give notice to the defendants of the further steps being taken in these proceedings.

More Detailed Background

10 The relationship between Mr Mao and Mr Huang and Ms Li dates back to at least December 2001 when Mr Mao assisted Mr Huang to satisfy the terms of his 457 Visa. Mr Huang’s 457 Visa conditions required him to set up a business in Australia employing at least three people. Mr Mao provided assistance to Mr Huang and Ms Li in establishing business contacts to set up their first supermarket business – not the business the subject of these proceedings. In about July 2004 Mr Mao assisted Mr Huang to set up another supermarket business known as the “Daily Fortune Supermarket”, the business in question in these proceedings. In September 2007 Mr Huang borrowed $50,000 from Mr Mao to provide working capital for this supermarket business.

11 In February 2008 Mr Huang sought more money from Mr Mao to provide funds to set up a seafood export and import business. Mr Mao says that Mr Huang offered to sell the supermarket business to Mr Mao to allow Mr Huang the liquidity to move into the seafood import export business. Negotiations proceeded in March 2008 to a more concrete proposal for the acquisition. Because Mr Huang owed about $300,000 to the suppliers of the supermarket business he proposed selling it for $300,000 and walking away subject to early payment of $50,000 which he needed immediately to pay some of the more pressing creditors.

12 On or about 5 March 2008 Mr Mao drew a cheque for $50,000 in favour of Enterprise at Mr Huang’s request. Mr Mao says that this money was paid pursuant to a sale agreement that Mr Huang promised he would later provide for Mr Mao to sign. Up to the time of drawing this first cheque Mr Mao says that the agreement to sell the business was verbal.

13 After receiving the cheque Mr Huang promised to arrange for the lease over the premises to be transferred. Mr Huang indicated that it would be unwise to publicise the fact that the business was being sold until the whole of the balance of $250,000 was paid to its creditors. From this developed a face-saving arrangement to allow Mr Huang and Ms Li to appear still to be one of the supermarket’s owners until all the creditors were paid. Mr Mao volunteered to arrange for a new company to be set up to achieve this.

14 On 7 March 2008 Mr Mao set up Yamay. Ms Li and Mr Mao became the directors and shareholders of the company. This was to give effect to the interim operating arrangement developed between the parties pending payment of the full purchase price.

15 On 10 March 2008 Mr Mao gave another $50,000 by cheque to Mr Huang. The money was paid to allow the business to continue to trade and pay some other creditors.

16 On the afternoon of 11 March 2008 after payment of the second $50,000 a total of $100,000 had been paid on account of the purchase price. Under the arrangements of the parties the payment of this threshold sum triggered Mr Mao’s right to take possession of the supermarket. He started to make arrangements on 11 March 2008 to take over. On that day Mr Huang gave Mr Mao a copy of the settlement calculation sheet. On the same evening Mr Huang provided Mr Mao with a document that he described as a written sale agreement. This document was written in Mandarin. Mr Huang and Ms Li signed the agreement. Mr Mao then drew cheques to Mr Huang for $110,699.88 on account of the equity in the plant and equipment of the business as had also been discussed and for $14,466.00 on account of two weeks rent of the premises which had already been paid by Enterprise in advance.

17 Mr Mao took over the business from Mr Huang the following day, 12 March 2008. Mr Mao immediately pursued Mr Huang to obtain the lessor’s consent to the transfer the lease of the supermarket premises. Later that month Mr Huang suggested to Mr Mao that to make it easier for the lease transfer to occur he, Mr Huang should take a majority interest in Yamay. Mr Huang explained that this was so that the lessor would believe that the transferee was effectively the same supermarket operator that the lessor had been dealing with for some years.

18 As a result of Mr Mao’s conversation with Mr Huang he instructed his accountant to reduce his and Ms Li’s shareholding in Yamay from 50% for each of them to 20% and 30% respectively. The other 50% of Yamay’s capital was allocated to Mr Huang. Mr Mao’s partner, Min, commenced to attend at the business and was trained by Ms Li in its operation.

19 An odd arrangement about the takings of the business was put in place after Mr Mao commenced to operate it. This arrangement contributed to the subsequent growth of distrust and a falling out between the parties. After assuming control of the business in March 2008 Mr Mao only had control of the portion of the takings received through the cash register. This money was paid into a bank account maintained by Enterprise. The other income from the business was EFTPOS receipts that were paid into another bank account operated by Enterprise to which Mr Mao had no access.

20 By mid June 2008 the parties’ arrangements became complicated by the divergence of Mr Huang and Ms Li’s interests. Ms Li indicated that she wished to divorce Mr Huang and needed an investment for the future. Mr Mao and Ms Li discussed her taking an interest in the new business. Mr Mao indicated a willingness to sell half the business to her but if a sale were to occur he wanted Ms Li to pay him something immediately so he could start to recoup some of his capital. Ms Li said that she was unable to pay Mr Mao anything at that time. They made an informal arrangement to allow her to work in the supermarket so she could raise the money to pay for her share of the business.

21 That did not happen. Instead complications arose when Mr Mao’s partner Min fell out with Ms Li on 15 October 2000. This falling out was followed by a confrontation between Mr Huang and Mr Mao on the evening of 15 October 2008. On this occasion Mr Mao alleged to Mr Huang that Ms Li had behaved quite violently towards his partner Min. Mr Mao said that he did not want Ms Li to come to the shop anymore. Mr Huang indicated that he was thinking about buying the shop back from Mr Mao and Mr Mao indicated willingness to hand back the business and take his money back. The problem was that Mr Huang did not have any cash to complete the re-transfer of the shop at that stage. Mr Huang then requested time to come up with the money to re-purchase. The parties tried to operate with the business as usual in the meantime.

22 By mid November 2008 further management disagreements arose between Mr Mao’s partner Min and Ms Li. These disputes related to how stock would be sold at the premises and about the employment of staff. Mr Huang became involved in these disputes. Mr Huang and Ms Li were attempting to set up a counter inside the shop where they were going to conduct their own independent business selling goods at a lower price to those being sold in the supermarket itself. This appears to have been one of the ways Ms Li was going to raise the money to fund buying back the business. Mr Mao naturally protested at this unwanted in-house competition. As a result Mr Huang threatened to go back on the informal arrangement he had made to buy the business back. Mr Mao became upset about this situation and purchased a lock from the local hardware shop and returned to the premises. When all the customers had left the premises during that day he locked the front gate of the premises. This was about the middle of the day on 15 November 2008.

23 This was not the end of the matter for the day. After the lockout Mr Huang and Ms Li returned to the shop with two policemen and gained entry with their assistance. The police attitude was that they wished to restore order without becoming involved in the disputes that had arisen between Mr Mao and Mr Huang and Ms Li. Mr Mao re-attended the premises with his solicitor Mr Ku that afternoon to find to his surprise the police telling him to leave. Mr Mao left with his partner Min and his solicitor Mr Ku.

The Statement of Claim, the Defences and the Interlocutory Hearing

24 In response to this situation Mr Mao commenced these proceedings by statement of claim. The statement of claim sought a declaration that Mr Huang and Ms Li hold their shares in Yamay on trust for Mr Mao and a declaration that Yamay has since 12 March 2008 been the owner of the supermarket business. Various machinery orders were sought to place the business back under the control of Mr Mao and to render an account of the profits for Mr Huang and Ms Li’s stewardship of the business after Mr Mao was excluded from it.

25 The substance of the allegations made in the statement of claim was that Mr Mao made an oral agreement with Mr Huang on behalf of Enterprise in which Mr Mao agreed to purchase the supermarket business from Enterprise upon the payment to Enterprise of (1) an initial $100,000, (2) a further $110,699.88 for equity in certain plant and equipment used by the supermarket, (3) $300,000 to creditors as and when obligations to those creditors fell due for payment, and (4) two weeks’ rent for the premises.

26 The statement of claim further alleges that Enterprise would procure a transfer of the lease of the business premises and that Mr Huang and Ms Li would exercise their rights as shareholders of Yamay as directed by Mr Mao and for his benefit and that Ms Li would do the same as a director. Finally upon transfer of the lease of the supermarket premises it was alleged Ms Li would resign as a director of Yamay. The payments of the various sums of money set out above and the incorporation of Yamay were all characterised as acts of part performance of the agreement alleged in the statement of claim.

27 Finally the statement of claim pleads that Enterprise, Mr Huang and Ms Li had refused to acknowledge that Yamay or alternatively Mr Mao own the supermarket business and that they had refused to allow either Yamay or Mr Mao to exercise control over its management.

28 Many defences were deployed in answer to these allegations. The active defendants denied that the agreements were in the terms pleaded by the plaintiff. They pleaded that any transfer of the business to Yamay was dependant upon conditions that Mr Mao had not satisfied. They further pleaded that Mr Mao had committed an anticipatory breach of any agreement that existed and that as a result the defendants were entitled to retain possession of the business.

29 The matter came before Palmer J on 17 December 2008. Enterprise, Mr Huang and Ms Li were represented before Palmer J at this interlocutory hearing on 17 December 2008. Palmer J made orders restraining Enterprise, Mr Huang and Ms Li from dealing with or disposing of the supermarket business. The orders further required them to pay all income from its operations into a nominated bank account and to make certain bank records available for Mr Mao’s inspection. These orders were made pending the trial of the action. The proceedings were then adjourned into the New Year.

30 Shortly after this interlocutory hearing an event occurred quite unbeknown to Mr Mao that altered the commercial rationale of the proceedings from his perspective. Enterprise had a right to exercise the option to renew the lease on the supermarket premises. The time to give notice for the exercise of that option expired on 30 December 2008. The defendants did not give notice. Mr Mao was not aware of the imminent expiry of the lease or of the failure of the defendants to give notice of exercise of option. Enterprise’s lease of the premises expired on 30 June 2009. His becoming aware of this fact prompted Mr Mao to attempt to negotiate for a new lease directly with the landlord. He was able to achieve this on 3 August 2009. Mr Mao then took the view that there was little point in pursuing the proceedings any further as the defendants may not be persons of substance. This was the reason the proceeding came before me on 6 August 2009 for the vacation of the hearing commencing on 1 September 2009.

31 Mr Mao’s motion first raises the question whether leave should be granted to discontinue the proceedings. The second question is whether Enterprise, Mr Huang and Ms Li should pay Mr Mao’s costs of the proceedings.

Leave to Discontinue

32 The first issue is whether Mr Mao should have leave to discontinue the proceedings under UCPR r 12.1(1)(b). That rule provides for a grant of leave as follows:

12.1 Discontinuance of proceedings
(cf SCR Part 21, rules 2 and 5; DCR Part 18, rule 1; LCR Part 17, rule 1)

(1) The plaintiff in any proceedings may, by filing a notice of discontinuance, discontinue the proceedings, either as to all claims for relief or as to all claims for relief so far as they concern a particular defendant:

(a) with the consent of each other active party in the proceedings, or
(b) with the leave of the court.

(2) A notice of discontinuance:
(a) must bear a certificate by the plaintiff, or by his or her solicitor, to the effect that the plaintiff does not represent any other person, and
(b) except where it is filed with the leave of the court, must be accompanied by a notice from each party whose consent is required by subrule (1) to the effect that the party consents to the proceedings being discontinued in accordance with the notice of discontinuance.

33 The discretion to grant leave to discontinue is unconfined. Leave to discontinue should be granted. None of the defendants have appeared at any of the hearings since 6 August 2009 despite attempts having been made to notify them. Mr Mao has some basis from their conduct to conclude that the defendants are not persons of substance. He does not wish to invest any further resources in the proceedings. He says that he should not be required to commit any further resources to bring the proceedings to conclusion by judgment. He submits that being granted leave to discontinue is the most cost effective way to terminate his involvement in the proceedings. He submits that if leave is not granted he will be forced to go on with the proceedings to commit his financial resources where proof is uncertain and expensive and any judgment obtained will be unlikely to be enforceable. I agree that it is neither necessary nor fair to require him to proceed to judgment in order to finalise the proceedings.

34 Second, proceedings in the Court should be efficiently concluded by settlement, disposal or discontinuance. Unfinished proceedings that are not being pursued by either party are a burden on the Court’s administrative resources. It is in the public interest that they be brought to a conclusion. To achieve that end proceedings can be concluded in a way that minimises the burden on the plaintiff by a grant of leave.

35 I will grant leave to Mr Mao to discontinue these proceedings. UCPR r 12.1 requires that such discontinuance be implemented by filing a Notice of Discontinuance in accordance with UCPR r 12.1. Such a notice has not yet been filed.

The Claim for Costs

36 The next issue is whether Enterprise, Mr Huang and Ms Li should pay Mr Mao’s costs of these proceedings upon the discontinuance. The applicable principle is that a plaintiff who discontinues proceedings must ordinarily pay the costs of the party against which the discontinued claim was brought unless the court otherwise orders or the notice of discontinuance makes some other provision: UCPR r 42.19. That would mean that Mr Mao would pay the costs of the defendants on this discontinuance. However, the rule falls short of a presumption that costs will be ordered against the discontinuing party: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497. The ultimate order as to costs even in these circumstances remains a matter in the Court’s discretion: Australiawide Airlines Ltd t/as Regional Express v Aspirion Pty Ltd [2006] NSWCA 365. The Court may even award costs to the discontinuing party in certain circumstances.

37 Mr Mao argues for costs on two bases. The first is that the discontinuance of these proceedings is a consequence of his having achieved practical success in relation to the claim. The second basis is that Mr Mao’s costs have been increased by the unreasonable conduct of the defendants. I will deal with each of these submissions in turn.

Would Mr Mao have succeeded?

38 The courts have recognised that a plaintiff may be forced to discontinue proceedings in circumstances such as the present. A discontinuing plaintiff may be relieved of costs or awarded costs where the plaintiff has obtained practical success in the litigation: Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VR 469 at 473. Where in a possession suit such as Garwolin Nominees the defendant surrenders possession of the subject premises prior to trial the plaintiff will have achieved what he set out to obtain by the issue of the proceedings and it would be unfair for the plaintiff to be denied his costs incurred in achieving the relief that he sought.

39 But has Mr Mao achieved practical success in the claim that he commenced? He sought performance of an agreement to acquire the supermarket business conducted at the premises. Enterprise’s failure to exercise the option to renew the lease and its decision to close the business down and abandon the premises has rendered Mr Mao’s claim futile, as he submits. Faced with the removal of the premises as a base for the conduct of the business Mr Mao adopted the commercial solution of negotiating a new lease over the same premises so that he could establish a new supermarket there without acquiring Enterprise’s business.

40 Mr Mao’s practical success is really the product of his own commercial ingenuity in opening negotiations with the landlord when he found out that the lease had not been renewed, rather than a result of the commencement of these proceedings. This is not a case where the conduct of a defendant, for example in surrendering up possession of the subject premises, as in Garwolin Nominees, clearly acknowledges the validity of a plaintiff’s claim to possession. Here the defendants have not by their conduct acknowledged the validity of the plaintiff’s claim at all. Rather, by Enterprise’s neglect in exercising the lease option and by Mr Mao’s consequent failure to appreciate that the option was unexercised a situation was created which has rendered the proceedings nugatory. There is no value to Mr Mao in pursuing an action for the acquisition of this business if it cannot trade from the premises where it is located. I do not think this case falls within the principle of Garwolin Nominees, because the defendants’ own conduct here did not give Mr Mao what he set out to obtain by the issue of proceedings.

41 Accordingly I would not be prepared to order costs against Enterprise, Mr Huang or Ms Li on this first basis. Mr Mao’s claim on the alternative basis has greater substance.

Unreasonable Conduct of the Defendants

42 Mr Mao submits that Enterprise, Mr Huang and Ms Lin should pay his costs because of their unreasonable conduct. The principle behind this submission is well established. In an appropriate case the Court can make an order for costs even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The Court may be able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624 per McHugh J. This is the principle that is engaged in the present argument. It is a principle that is also applied in the exercise of the Court’s costs discretion upon a grant of leave to discontinue: Reid v Shearan [2002] NSWSC 902 and Bitannia Pty Limited v Parkline Constructions Pty Limited [2009] NSWCA 32.

43 As an aside I should say that Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 also allows an order for costs to be made without a hearing on the merits where the Judge is confident that “although both parties have acted reasonably one party was almost certain to have succeeded if the matter had been fully tried”. It is not possible in my opinion to apply that part of Qin’s case in the present circumstances. Indeed this aspect of Qin is in substance the same as the principle applied in Garwolin Nominees. In this case Mr Mao’s success at final hearing would have depended upon findings as to disputed oral conversations conducted in Mandarin between the parties about (1) whether or not there was an agreement to sell the business, (2) the basis on which Mr Mao paid money to Enterprise, (3) the threshold conditions on which Mr Mao or Yamay would be permitted to take over the business and (4) whether Mr Mao was in breach of such the agreement himself. It is difficult to know what would have been the outcome of such allegations at a contested hearing. There are unread affidavits sworn by the defendants on the Court file that may well cover these issues and which I have not been asked to consider. It cannot be inferred that Mr Mao would have been successful merely because the defendant has abandoned the active defence of the proceedings. I do not ground consideration of the making of a costs order against Enterprise, Mr Huang and Ms Li on this aspect of Qin or Garwolin Nominees.

44 Mr Mao also says that Enterprise, Mr Huang and Ms Li are guilty of two kinds of unreasonable conduct sufficient to ground an order for costs against them. The first is the defendants’ non-compliance with procedural directions that caused delay in the proceeding. The second is the defendants’ failure to exercise the option for renewing the lease of the premises without notifying the plaintiff, Mr Mao, or the Court of this fact thereby causing the plaintiff to continue the proceedings and to waste costs in doing so. Mr Mao says both kinds of conduct were unreasonable.

45 There was substantial non-compliance by the defendants with the directions of the Court. On 17 December 2008 all the defendants were ordered to file defences by 20 January 2009. The active defendants, Enterprise, Mr Huang and Ms Li failed to do so. The matter was adjourned to 12 February 2009 when the active defendants had still not filed defences. On 12 February the matter was adjourned to 27 February 2009 but still no defences were filed by that date. On 27 February 2009 the defendants were directed to file defences by 11 March 2009. Finally on 6 March 2009 defences were received. The defences did not comply with the rules in significant ways. When the matter came back to Court on 20 March 2009 Enterprise, Mr Huang and Ms Li sought leave to amend their defences. Leave was granted and amended defences were received on 27 March 2009. This was achieved some three months after the defendants had been served with the statement of claim and after four adjournments. Even then Mr Mao requested further and better particulars of each amended defence. No particulars were ever provided. The defendants’ conduct during this period would certainly warrant the making of an order for costs in respect of the attendance by Mr Mao’s legal representatives at each of these adjourned hearings between January and March 2009. The defendant’s conduct during this period would also justify an order for costs in respect of Mr Mao’s solicitors’ follow up correspondence attempting to get the defendant to comply with the court’s orders.

46 There is however a wider basis on which an order for costs should be made against the defendants in this case. The subject of the principal relief in these proceedings was Enterprise’s business conducted at the premises. A component of the value of that business was the option to renew the lease of the premises for a further five years by written notice served on the lessor prior to 30 December 2008. This right existed in Enterprise, a company that was controlled by Mr Huang and Ms Li. These defendants must have appreciated after service of the statement of claim on them that exercise of the option to renew the lease was an essential foundation of the subject matter of Mr Mao’s proceedings. Indeed order 4 of the relief claimed was:

“order that [Enterprise] take all reasonable steps to procure the transfer to [Yamay] or alternatively [Mr Mao] of the lease of the premises from which the supermarket business is operated at … Hurstville.”

47 Enterprise did not give notice of exercise of the option by 30 December 2008 and lost the right to renew the lease. Neither Enterprise nor Mr Huang or Ms Li warned Mr Mao that they were not going to give notice of exercise of option. They did not inform him after 30 December that the lease had not been renewed. This was remarkable in circumstances where Mr Mao had laid out substantial sums to Enterprise before proceedings were commenced pursuant to what he alleged was a written contract to acquire the business. It was equally remarkable in circumstances where the defendants were refusing to acknowledge that the plaintiff had purchased the business, were refusing to procure an assignment of the lease of the premises and had removed Mr Mao and his partner from the premises forcing him to commence proceedings.

48 The defendants failure to exercise the option or alternately at least to inform the plaintiffs that they would not be exercising the option denied the plaintiff an opportunity to take steps to preserve the subject matter of the proceedings. Had such notice been given Mr Mao would have had an opportunity to seek urgent interlocutory relief requiring Enterprise to give notice. This relief would probably only have been granted on terms that Mr Mao give an undertaking to indemnify Enterprise in respect of the liabilities incurred under the renewed lease. Given Mr Mao’s desire to operate the business, given the relief Mr Mao was seeking for an assignment of the lease to him and given that Mr Mao had already invested substantial sums in the business, it is likely that he would have provided such an indemnity.

49 It was unreasonable of the defendants not to inform Mr Mao of their determination not to renew the lease. Were they to have participated in the contest on this motion they may perhaps have said that they were entitled to stand back and allow Mr Mao to discover for himself that the lease was not to be renewed. Even if that were arguable, once the lease was not renewed it was likely that all costs incurred after 30 December 2008 in the proceedings would be wasted. They must have been aware of this and that Mr Mao was probably unaware of it. The defendants’ continuing failure after 30 December to inform Mr Mao or the Court of the position with the lease unreasonably caused Mr Mao to waste his expenditure on the proceedings he ultimately and predictably had to abandon. Enterprise, Mr Huang and Ms Li are all responsible for this outcome as Mr Huang and Ms Li have effective control of Enterprise.

Conclusion

50 I do not think that it is possible to award Mr Mao costs of commencing these proceedings. To do so would require the court to determine whether or not he would have been successful on the allegations in the statement of claim. On the evidence available the Court is not in a position to determine this question.

51 However Enterprise’s Mr Huang’s and Ms Li’s unreasonable conduct caused Mr Mao to incur all the costs in the proceedings from 30 December 2008, the date on which Enterprise failed to exercise the option to renew the lease over the premises.

52 Accordingly I make the following orders.

a Grant leave to the plaintiff to discontinue these proceedings against all the defendants by filing a notice of discontinuance in conformity with UCPR r 12.1; and

b Order that the first, second and third defendants pay the plaintiff’s costs of these proceedings incurred after 30 December 2008 including the costs of the motion for leave to discontinue.

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