Melbourne Yifang Group Pty Ltd v Guangao A Group Pty Ltd & Ors (Costs Ruling)
[2024] VSC 131
•22 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2022 02771
BETWEEN:
| MELBOURNE YIFANG GROUP PTY LTD (ACN 625 091 616) | Plaintiff |
| and | |
| GUANGAO A GROUP PTY LTD (ACN 622 458 806) & ORS (according to the attached Schedule) | Defendants |
JUDGE: | Tsalamandris J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers (written submissions filed on 13 November 2023 and 19 February 2024 by the plaintiff, on 14 November 2023 and 8 December 2023 by the defendant, on 13 November 2023 and 19 February 2024 by the second defendant by 1st counterclaim, and on 8 February 2024 by non-party Mr Wanyu Chen) |
DATE OF RULING: | 22 March 2024 |
CASE MAY BE CITED AS: | Melbourne Yifang Group Pty Ltd v Guangao A Group Pty Ltd & Ors (Costs Ruling) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 131 |
COSTS – Application by plaintiff for indemnity costs – Plaintiff obtained a judgment more favourable than the terms contained in offer of compromise – Non-party costs order – Application by second defendant by counterclaim for indemnity costs refused – Sanderson order – Supreme Court Act 1986, s 24 – Supreme Court (General Civil Procedure) Rules2015, Order 63 – Civil Procedure Act 2010, Part 4.5 - Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd (No 3) [2015] VSC 644.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms G Costello KC with Mr T Staindl | Verge Legal |
| For the Defendant | Mr A Rodbard-Bean | Aitken Partners |
| For the Second Defendant by 1st Counterclaim | Mr W Rimmer | Pauline Madden Conveyancing Legal |
HER HONOUR:
Preliminary
On 28 September 2023, I delivered reasons for judgment in this proceeding.[1] The proceeding related to a contract for sale of land entered into by Guangao A Group Pty Ltd (GAG) with the vendor, Nevas Pty Ltd. GAG subsequently nominated Melbourne Yifang Group Pty Ltd (MYG) as its nominee purchaser under a nomination deed. In short, GAG alleged that MYG had breached, rescinded and/or repudiated the nomination deed by entering into a variation deed with Nevas, and that GAG was therefore entitled to proceed as purchaser of the land. MYG denied this and sought an order that it be entitled to settle on the land in accordance with the nomination deed. I held that MYG did not breach, rescind or repudiate the nomination deed, and was entitled to settle on the land.[2] In my judgment, I found: the settlement date under the contract of sale was 24 November 2021; the time provided for settlement under the nomination deed was up to and including 31 December 2021; and the variation deed had delayed the time for MYG to settle with Nevas on the land until 24 November 2023.[3]
[1]Melbourne Yifang Group Pty Ltd v Guangao A Group Pty Ltd & Ors [2023] VSC 577 (principal judgment)
[2]The background to the proceeding is detailed in the principal judgment, and the terms used here, including contract of sale, nomination deed, variation deed and Land A are as defined in the principal judgment.
[3]Principal judgment (n 1) [184].
The parties were unable to agree on proposed orders as to costs, and were invited to provide written submissions (and affidavit material in support).
MYG sought orders that GAG and Mr Wanyu Chen (the sole director of GAG’s parent company, Grand Sanxing Investment Group Pty Ltd) pay its costs of the proceeding on a standard basis until 11am on 31 July 2023, and on an indemnity basis thereafter. It additionally sought an order that GAG pay Nevas’ costs of the proceeding (including Nevas’ costs of MYG’s amended statement of claim filed on 9 May 2023) directly, without recourse to MYG (Sanderson order),[4] or in the alternative that GAG indemnify MYG for any costs it was ordered to pay to Nevas (Bullock order).[5]
[4]After the authority in Sanderson v Blyth Theatre Co [1903] 2 KB 533.
[5]After the authority in Bullock v London General Omnibus Co [1907] 1 KB 264.
GAG opposed the orders sought by MYG. It submitted that MYG ought pay GAG’s costs of the proceeding, or alternatively that there be no order as to costs between the two parties. GAG did not oppose an order that it pay Nevas’ costs, but submitted that MYG should indemnify GAG as to any costs paid.
Nevas sought an order that GAG and Mr Chen pay its costs of the proceeding on an indemnity basis, including any reserved costs, the costs of defending the amended counterclaim, and the costs of defending MYG’s contingent claim in the amended statement of claim. In circumstances where the Court was not minded to make an order that GAG pay the costs of its defence to MYG’s amended statement of claim (an order that was also sought by MYG), then Nevas alternatively sought an order that MYG pay those costs on an indemnity basis, and that GAG indemnify MYG for those costs.
In support of its submissions, MYG relied upon an affidavit of its solicitor, Mr Netwon Han, dated 13 November 2023. GAG relied upon affidavits of its solicitors, Ms Bingqi Zhou dated 14 November 2023, and Mr Andrew Blogg dated 8 December 2023. Nevas did not file any affidavits in support of its submissions.
Mr Chen was a non-party to the proceeding. Accordingly, when MYG and Nevas sought costs orders against him, I ordered that he be given notice of this.[6] In opposing the costs orders, Mr Chen relied upon submissions dated 8 February 2024, his own affidavit dated 2 February 2024, and an affidavit from his wife and current sole director of GAG, Ms Libo An, dated 7 February 2024.
[6]On 8 December 2023, GAG’s solicitors advised the Court and the other parties that Mr Chen did not require a summons be served upon him, and that he consented to GAG’s solicitors acting on his behalf in respect of MYG’s application for a non-party costs order.
I have considered each of the parties’ submissions and supporting affidavit material. I set out below a summary of the relevant principles, the parties’ submissions, and my reasons for making the following orders as to costs:
(i) GAG pay MYG’s costs of the proceeding:
(a) on a standard basis until 11am on 31 July 2023; and
(b) on an indemnity basis thereafter.
(ii) Wanyu Chen pay MYG’s costs of the proceeding:
(a) on a standard basis until 11am on 31 July 2023; and
(b) on an indemnity basis thereafter.
(iii) GAG pay Nevas’ costs of the proceeding on a standard basis.
(iv) Wanyu Chen pay Nevas’ costs of the proceeding on a standard basis.
Relevant principles
Section 24 of the Supreme Court Act 1986 (Vic) and Part 4.5 of the Civil Procedure Act 2010 (Vic) (the CPA) confer a broad discretion on the Court to award costs. This discretion must be exercised in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the Rules).[7]
[7]Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’) r 63.02.
The general rule is that the costs of litigation follow the event – that is, ‘[a]bsent disqualifying conduct, the successful party should recover its costs even when it has not succeeded on all heads of claim.’[8]
[8]Chen v Chan [2009] VSCA 233 (‘Chen’) [10(1)].
Further, ‘the Court is entitled to examine the realities of the case and will attempt to do “substantial justice” as between the parties on matters of costs.’[9]
[9]Ibid [10(2)].
Unless provided for by the Rules or an order of this Court, costs are to be taxed on a standard basis.[10]
[10]The Rules (n 7) r 63.31.
It is well established that for a court to depart from the usual order and award costs on an indemnity basis, special or unusual circumstances must be demonstrated.[11]
[11]Spencer v Dowling [1997] 2 VR 127. See also Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, 233; Oshlack v Richmond River Council (1998) 193 CLR 72, 89 [44].
In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd,[12] Woodward J observed that such special circumstances may include where:
‘…it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that [they] had no chance of success.’[13]
[12](1988) 81 ALR 397 (‘Fountain Selected Meats’), cited and approved in Murdaca v Maisano [2004] VSCA 123, [40].
[13]Fountain Selected Meats (n 12) 401.
In Chen v Chan,[14] the Court of Appeal considered what might constitute appropriate costs orders, in circumstances where parties had enjoyed ‘mixed success’[15] on appeal. In Chen, the third appellant had been wholly successful in her appeal against the findings of the trial judge, and sought her costs from the respondents on an indemnity basis. She contended that the unsuccessful respondents ought to have known her appeal would inevitably succeed, and that they had no honest belief in the truth of the allegations made against her.
[14]Chen (n 8).
[15]Ibid [2].
The Court of Appeal noted that:
‘…an order for costs on a[n]… 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.’[16]
[16]Ibid [10(7)] (citations omitted).
In thereafter dismissing the third appellant’s application for indemnity costs, the Court held that no special circumstances had arisen which warranted an award of indemnity costs.[17]
[17]Ibid [34].
As to the Court’s discretion to make a non-party cost order, the relevant principles were helpfully identified by Elliot J in Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd (No 3).[18] Bakers involved an application by the successful defendants for a costs award against persons who were non-parties to the proceeding, in circumstances where the defendants expected the plaintiff company would not be able to meet an outstanding costs award. In his judgment, Elliot J classified the non-parties as either ‘Associated Non-Parties’, which included directors and shareholders associated with the plaintiff company, or ‘Funding Non-Parties’, comprising the litigation funder (Global Litigation Funding Pty Ltd) and its associated directors and shareholders.
[18]Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd (No 3) [2015] VSC 644 (‘Bakers’).
The Court was satisfied that the plaintiff company was a ’person of straw’, in that its financial position indicated it would be able to meet none, or only a very small fraction, of the costs that had been awarded against it.[19] However, as none of the Associated Non-Parties had taken an active role in the litigation beyond the duties they owed to the company, and none were entitled to the proceeds of the litigation (save for repayment of monies they had advanced to fund the litigation), his Honour held that the circumstances did not warrant the making of a costs order against any of them.[20]
[19]Ibid [30].
[20]Ibid [37]-[50].
However, Elliot J found that Global was involved in the litigation ‘purely for commercial gain’[21] and with ‘the right to closely monitor the conduct of the proceeding and any settlement discussion’.[22] In light of such matters, the Court held that Global could ‘properly be characterised as a party to the proceeding’,[23] and ordered it to pay costs from the time of its involvement in the proceeding. Further, his Honour made costs orders against other members of the Funding Non-Parties who ‘stood behind’ Global, and who had previously been given express notice of the defendants’ intention to seek a non-party costs order against them in the event they were successful in their claim.
[21]Ibid [88].
[22]Ibid [71].
[23]Ibid [89].
His Honour declined to make a non-party costs order against a person who was not a director, secretary or shareholder of Global at any time during the course of the proceeding, notwithstanding that particular person had attended a mediation on behalf of Global.
In discussing the relevant principles to be applied in his consideration of the defendants’ application, Elliott J made the following remarks:
12The making of orders against non-parties under s 24(1) is exceptional. But care must be taken in using this term, so that it is not understood as imposing a threshold that goes beyond the language of the statutory provision. As was stated by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd:
Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order.
13 The discretion to be exercised is unfettered. There is no onus of proof.
14In Knight v FP Special Assets Ltd, Mason CJ and Deane J referred to a category of cases in which a non-party order might be made, stating:
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.
(Emphasis added.)
15In determining whether or not a costs order ought to be made against a non-party, the moving party need not establish that the non-party is, in effect, the opposing party. It may be sufficient if the non-party, by its involvement, may properly and fairly be described as a real party to the litigation.
16Each case must depend upon its own facts, and no restriction ought to be placed upon the court’s discretion other than that it is to be exercised judicially. The following factors may be relevant to the exercise of the court’s discretion:
(1) The extent to which the non-party has funded the litigation.
(2)The extent to which the non-party has a real interest in the fruits of the litigation if the assisted party were successful.
(3)The level of control the non-party exercised, or was entitled to exercise, over the conduct of the litigation, including its resolution.
(4) Whether or not the non-party attended any mediation of the dispute.
(5) The financial position of the assisted party.
(6)Whether the conduct of the litigation by the assisted party, or, if applicable, the funding non-party, in either prosecuting or defending a claim, was unreasonable, improper or an abuse of process.
(7) Whether security for costs was previously sought.
(8)Whether a timely warning was given by the successful party to the non-party that costs would be sought against it.
(9)The extent of the impact on the court of the involvement of the non-party.
(10)Whether the non-party agreed to provide an indemnity to the assisted party for any adverse costs order.[24]
[24]Ibid [12]-[16] (citations omitted).
MYG’s submissions
In support of its claim for indemnity costs from 11am on 31 July 2023, MYG relied upon an offer of compromise it served on GAG on 27 July 2023. The offer was in the following terms:
1. Judgment in favour of MYG.
2. GAG’s counterclaim be dismissed.
3. MYG pay GAG the sum of $5,000, inclusive of costs.
4.MYG and GAG otherwise bear their own costs of and incidental to the proceeding.
MYG submitted that its offer of compromise had been made in accordance with the Rules,[25] and that MYG had obtained a judgment no less favourable to it than the terms of the offer as:
[25]The Rules (n 7) Order 26.
(i) MYG had been successful in establishing that it was entitled to settle on Land A on or before 24 November 2023;
(ii) GAG had been unsuccessful in establishing a rescission or repudiation of the nomination deed or contract of sale, and its counterclaim had therefore been dismissed; and
(iii) MYG had offered the sum of $5,000, whereas GAG had not established any entitlement to damages or monetary payment.
In the premise of the above, MYG sought its costs on a standard basis until 11am on 31 July 2023, and on an indemnity basis thereafter.
In support of its application for a non-party costs order against Mr Chen, MYG submitted that he was the effective litigant and promoter of the litigation, with a substantial financial interest in its outcome. MYG submitted that GAG was not likely to have sufficient assets to meet an order that it pay MYG’s costs, and that it would not be in the interests of justice to allow Mr Chen to rely on a corporate ‘façade’ to avoid exposure to costs.
In respect of Nevas’ costs, MYG submitted that either a Sanderson or Bullock order should be made, in circumstances where Nevas had been joined to the proceeding as the result of an application by GAG which was initially opposed by MYG. Further, it submitted that the only relief sought by MYG against Nevas was in a contingent claim, which would only have arisen if GAG was successful in its counterclaim, and that it was therefore appropriate for MYG to seek contingent relief against Nevas to prevent it being estopped from this at a later stage. As GAG’s counterclaim was unsuccessful, MYG submitted it was appropriate that GAG pay Nevas’ costs of MYG’s contingent claim.
Nevas’ submissions
Nevas submitted that it ought not have been joined to the proceeding at all, and that GAG should have known it had no basis for seeking orders against Nevas in its counterclaim. In light of this, it sought its costs on an indemnity basis.[26]
[26]Citing Fountain Selected Meats (n 12) 401.
Nevas relied upon evidence given at the trial by GAG’s former solicitor, Mr Adam Cooke, regarding his communications with Nevas’ solicitor in the period leading up to November 2021. It submitted Mr Cooke’s evidence confirmed that Nevas had never denied the validity and enforceability of the contract of sale, and that with time of the essence having been waived, the settlement had to be deferred to a later date.
Nevas also referred to reasons given by Derham AsJ on 15 March 2023 (Derham AsJ’s reasons),[27] concerning GAG’s application by way of summons to join Nevas as a defendant to its counterclaim. His Honour made orders adjourning the summons, and outlined a number of deficiencies in GAG’s proposed amended pleadings.
[27]Orders of Derham AsJ in Melbourne Yifang Group Pty Ltd v Guangao A Group Pty Ltd (Supreme Court of Victoria, S ECI 2022 02771, 15 March 2023).
It was put that, had GAG adopted Derham AsJ’s suggestions in its pleadings and not sought any specific relief against Nevas, then Nevas could have agreed to abide by the Court’s decision at the commencement of the trial, and subsequently apply to be excused from any further participation in it.
Nevas adopted MYG’s submissions that either a Sanderson or Bullock order should be made against GAG in relation to MYG’s liability for Nevas’ costs. However, Nevas additionally sought orders that these be paid on an indemnity basis, in light of its submissions noted above.
GAG’s submissions
In its submissions, GAG referred to MYG’s original pleading, which alleged that the variation deed had effected a novation of the contract of sale. As MYG maintained this claim until three days prior to the commencement of the trial, GAG submitted that the late abandonment of this claim should result in costs consequences for MYG, as GAG had been required to prepare for trial, based on that pleading.
GAG submitted that my finding as to the construction of the settlement date under the nomination deed, had not been referred to by MYG in its pleadings, written opening and closing submissions, and had only been referred to in its oral closing submissions, in a manner GAG characterised as having been ‘cloaked in obscurity’. Further, GAG submitted it had been successful at trial in its submissions that the settlement date under the contract of sale, and at the time of both the deed of nomination and variation deed, was 24 November 2021, and that MYG had been unsuccessful in its arguments to the contrary.
In light of the above, GAG submitted that I ought make orders that MYG pay GAG’s costs of the proceeding, or alternatively that there be no order as to costs between MYG and GAG.
GAG submitted that MYG should not be entitled to rely upon its offer of compromise in support of its claim for indemnity costs, as at the time the offer was made, the mainstay of MYG’s claim against GAG was the novation claim which was subsequently abandoned. Further, it submitted that MYG had failed in its pleaded claim that the date for settlement under the contract of sale was 24 November 2023, and that on this basis it could not be said that MYG obtained a judgment which was more favourable or no less favourable than the terms of its offer of compromise.
In respect of Nevas’ costs, GAG submitted that its application for joinder of Nevas was made in accordance with legal advice, and to penalise it for acting on legal advice would be ‘an extraordinary result and against authority.’[28]
[28]Citing Fountain Selected Meats (n 12), as applied in Yunghanns v Colquhoun-Denvers [No 2] [2021] VSCA 57.
In his affidavit, GAG’s solicitor Mr Blogg deposed to matters including his advice to GAG regarding whether Nevas was an appropriate party to the proceeding, communications between himself and Nevas’ solicitor prior to its joinder, and his advice to GAG following the parties’ receipt of Derham AsJ’s reasons.
GAG submitted that Nevas had not applied to strike out the amended defence and counterclaim at any stage following its joinder to the proceeding. Nor had Nevas made any application for summary judgment against GAG or a no case submission in response to the claim against it by GAG. It was also put that Nevas had taken an active part in the proceeding, and made several additional claims for relief against both MYG and GAG. In those circumstances, GAG submitted I should reject Nevas’ application for indemnity costs.
As to who should pay Nevas’ costs, GAG submitted that it had only claimed declaratory relief against Nevas as a direct result of MYG’s claim that the contract of sale had been novated, which was ‘untenable’ but had been maintained until three days prior to the commencement of the trial. On this basis, it submitted MYG should bear the consequences of its pleading, and the necessary joinder of Nevas. GAG additionally submitted that, as MYG had made payments to Nevas under the variation deed, in the event that the Court was satisfied GAG’s recission notice was valid, then the Court would have needed to determine how to deal with such payments.
Mr Chen’s submissions
In Mr Chen’s affidavit, he deposed to his involvement in the decision to purchase Lands A, B and C, and his desire to develop those lands for the principal benefit of his son, Mo Chen, and Ms An.
Mr Chen deposed that, from 24 November 2017 to 5 December 2017, he had advanced approximately $1.136 million to assist GAG in making payments due under the contract of sale, and towards various costs associated with the development of Land A. This amount was repaid to him in full by GAG prior to 3 October 2022, including a partial repayment of $521,500 in the 2021 financial year (being the payment made by MYG for substitution as purchaser of Land A).
Mr Chen deposed that he had not advanced any monies, nor contributed to any legal or associated costs incurred by GAG in relation to the proceeding. He further deposed that he had attended mediations held in the proceeding on 27 January 2023, 28 July 2023, and 18 August 2023, and at the trial on a number of sitting days.
Ms An’s affidavit confirmed the substance of Mr Chen’s affidavit. This included her desire (shared by Mr Chen) to ensure that the benefit of the development of any of Lands A, B and C was to be for Mo Chen and herself.
Ms An deposed that GAG was incorporated on 25 October 2017, and that an accountant had recommended a family trust be established with a trustee company to hold the shares in GAG, GBG and GCG on trust, with Mo Chen and herself the designated beneficiaries. She deposed that on 20 November 2017, Guangao Holding Pty Ltd (G Holding) was incorporated for the establishment of the Guangao Investment Trust (GI Trust). Ms An deposed that she and Mo Chen were the directors of G Holding from its incorporation, and that Mo Chen was appointed as sole director of GAG, GBG and GCG until 22 May 2022, when he resigned from these roles and she became sole director of those companies.
Ms An’s affidavit exhibited financial statements of GAG for the 2020, 2021, 2022 and 2023 financial years, as well as draft management accounts for the six months ending 31 December 2023. She deposed that these financial statements gave a ‘true and fair view of the financial position of GAG’ in relation to each of the financial periods. Further, in the two most recent financial statements, Ms An declared that in her opinion ‘there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.’
Ms An deposed that GAG had incurred legal costs and disbursements of approximately $176,000 (excluding GST) during the 2023 financial year, and approximately $470,000 (excluding GST) in the financial year to date. Ms An deposed that these costs related ‘almost entirely’ to legal costs incurred in the proceeding and had been paid from GAG’s cash reserves, which totalled $2,696,296 as at 30 June 2022 and $563,404 as at 30 June 2023. Ms An confirmed that Mr Chen had made no contribution towards GAG’s legal costs.
The financial documents exhibited in Ms An’s affidavit also indicated:
(i) In June 2023, GAG had $563,550 in cash and cash equivalents on its balance sheet. By 31 December 2023, this figure had been reduced to $4,716;
(ii) GAG was run at a loss throughout the period from 2019 to December 2023, with its net liabilities at 31 December 2023 totalling $1,854,183.
Mr Chen submitted that he should not be the subject of a costs order, as GAG had funded its defence of the proceeding from its own resources. Further, it was put that Mr Chen did not stand to substantially benefit from the fruits of the litigation, as he was a ‘mere contingent beneficiary of a discretionary trust along with numerous other beneficiaries’. GAG had been established following advice from accountancy professionals, almost five years prior to the commencement of this proceeding. Further, Mr Chen submitted that the beneficiary of any successful development of Land A was to be the GI Trust, which had been established for the principal benefit of Mo Chen and Ms An.
Mr Chen submitted that, whilst it had been an agreed fact in the proceeding that he was an agent of GAG, this was not determinative of a non-party costs application, nor remarkable when corporations were involved in the litigation. Further, it was never put to him at trial that he had sole control of the litigation. Mr Chen submitted that his attendance at the mediations in the proceeding did not evidence his standing behind the litigation, and that this could be expected of him as the husband and father of those who stood to benefit from the land development.
In addition, Mr Chen submitted that GAG is, and always was, solvent. I was referred to the financial statements exhibited to Ms An’s affidavit, in which she declared that there are reasonable grounds to believe that GAG would be able to pay its debts.
Other factors which Mr Chen submitted made it appropriate that the Court elect not to make a non-party costs order included that:
(i) the conduct of the litigation by GAG was entirely proper and reasonable;
(ii) GAG was not ‘the moving party’ to the issues in dispute in this proceeding;
(iii) Mr Chen’s involvement did not extend the duration of the trial;
(iv) MYG or Nevas had not previously sought security for costs against GAG;
(v) Mr Chen was never warned that if GAG was unsuccessful, a non-party costs order would be sought against him; and
(vi) Mr Chen was not asked to provide an indemnity for any costs orders against GAG if GAG was unsuccessful in its defence of the proceeding.
Analysis
MYG’s costs
There is no sound basis for GAG to contend that MYG pay its costs of the proceeding. Whilst it is fair to observe that, on what was effectively the eve of trial, MYG abandoned its claim that the variation deed effected a novation of the contract of sale, and that the parties had mixed success on the numerous questions I was required to answer in my judgment, I am not persuaded such matters are sufficient to rebut the well-established rule that costs of litigation should ordinarily follow the event.
MYG’s abandonment of its novation claim was consistent with its obligation under the CPA to narrow the issues in dispute. In the circumstances of this case, where that pleading was formally abandoned before trial, and I did not adjudicate on its merits, it is not a matter which I consider sufficient to disentitle MYG to recover its costs of the proceeding.
There was no agreement between the parties as to the date of settlement under the contract of sale, the nomination deed or the variation deed. Whilst I was ultimately satisfied that the date of settlement in the contract of sale was 24 November 2021, I found that this date did not apply under the two subsequent agreements. I therefore reject GAG’s contention that I found that the date of settlement under each contract was 24 November 2021. MYG expressly pleaded that, in accordance with the variation deed, the new settlement date was to be a date agreed between Nevas and MYG, being on or before 24 November 2023. For the reasons given in my principal judgment I was so satisfied, and I made orders in accordance with this finding.
Whilst there were multiple issues before me at trial, GAG failed in respect of all of these, save for the date of settlement under the contract of sale. In particular, it failed in respect of its allegations that MYG had rescinded or repudiated the nomination deed. There is therefore no basis for GAG to seek that its costs be paid by MYG.
In the absence of disqualifying conduct, and in view of the above, I am satisfied that GAG should pay MYG’s costs of the proceeding.
GAG’s submission that MYG did not obtain judgment on its claim more favourable or no less favourable than the terms of its offer is entirely without merit. Further, there is no basis for GAG to contend that the offer of compromise was uncertain.
Therefore, in circumstances where a valid offer of compromise was served, and the outcome from my judgment is more favourable to MYG than the terms of the offer, in accordance with the Rules and well established authority, I will order that GAG pay such costs on a standard basis until 11am on 31 July 2023 (being the 2nd business day after the offer of compromise was served) and on an indemnity basis thereafter.
Non-party costs order
The next matter I must determine is whether, in addition to this costs order being made against GAG, a costs order should also be made against Mr Chen.
At the outset, I acknowledge that costs orders are not ordinarily made against non-parties. Thereafter, applying the principles outlined in Bakers, I make the following findings:
(i) Mr Chen was the mastermind of the proposed development of Lands A, B and C for the collective benefit of his immediate family. Whilst Mr Chen did not have a direct financial interest in the fruits of the litigation, his wife and son were the intended beneficiaries.
(ii) Mr Chen was present at the mediations held in this matter, and was present in court throughout much of the trial. I am satisfied that for practical purposes, notwithstanding that Mr Chen was not a director of GAG, he nonetheless had significant control over the conduct of the litigation, including its potential resolution. I consider it disingenuous for Mr Chen to claim that he attended the mediations in his role as husband and father of the relevant directors.
(iii) Mr Chen denied providing litigation funds to GAG. It was claimed that GAG provided its own funding for the litigation. However, GAG does not trade or carry on operations, and its sole purpose was for the development of land which it is no longer the purchaser of. The underlying source of the cash reserves to fund the litigation was not adequately explained in the affidavit material relied upon by Mr Chen.
(iv) GAG’s financial statements evidence that it has run at a loss since December 2020. Further, as at December 2023, it held only $4,716 in cash, and had accumulated $1,854,183 in total liabilities. The incorporation of GAG was for the purpose of creating a corporate vehicle to develop Land A. The effect of the primary judgment is that GAG is not entitled to develop Land A. Whilst GAG is not insolvent, based on the financial material exhibited to Ms An’s affidavit, I consider it is effectively an entity of straw. There is, therefore, a real risk it will not be able to satisfy the cost orders made against it.
Collectively, these factors support the making of a non-party costs order against Mr Chen. There is no basis for Mr Chen to assert that MYG and Nevas ought to have put such matters to him in cross-examination. Mr Chen’s control over the proceeding and his interest in its outcome is relevant to MYG’s non-party cost application, but would have been irrelevant to any fact in issue at trial.
Mr Chen had sought to compare himself to one of the Funding Non-Parties in Bakers, who had avoided a costs order notwithstanding his attendance at a mediation. That non-party in Bakers was not ordered to pay costs, as he was found not to be standing behind the litigation; was not to benefit from it; and had not received prior notice of any intention of the defendants to make him personally liable for an adverse costs order. Mr Chen submitted that, consistent with this reasoning, it was inappropriate for a non-party costs order to be made against him.
I am not persuaded that this is a fair comparison. For the reasons explained above, I am satisfied that Mr Chen was indeed standing behind the proceeding, and that his immediate family members were the intended beneficiaries of the litigation.
In considering this application for a non-party costs order, I note that: MYG or Nevas had not previously sought security for costs against GAG; Mr Chen was never warned that if GAG was unsuccessful, a non-party costs order would be sought against him; and Mr Chen was not asked to provide an indemnity for any costs orders against GAG if GAG was unsuccessful in its defence of the proceeding. Whilst such factors were acknowledged in Bakers as being relevant to the exercise of the Court’s discretion, none are a pre-requisite to the making of a non-party costs order.
Having synthesised all of the relevant factors, including those matters referred to in paragraph [61] above, I am satisfied that it is in the interests of justice that a non-party costs order be made against Mr Chen.
Nevas’ costs
In respect of Nevas’ costs, none of the parties contended that these should not be paid. What was in dispute, and to be determined by me was on which basis such costs should be awarded, and who should be ordered to pay them.
As outlined above, a successful litigant is ordinarily awarded its costs on a standard basis, unless special circumstances exist to justify an award of indemnity costs, or any other costs order the Court deems appropriate.
Both Nevas and GAG sought to rely upon Derham AsJ’s reasons in support of their respective positions regarding indemnity costs. Neither parties’ submissions assist me here. Following the release of Derham AsJ’s reasons and their consideration by GAG, it made further amendments to the proposed amended counterclaim. Thereafter, on 27 March 2023 and with MYG’s consent, GAG joined Nevas as the second defendant to the counterclaim. At that time, it is apparent that GAG and MYG both considered Nevas to be a proper party to the proceeding.
I am not satisfied that there are any special circumstances to justify Nevas recovering its costs on more than a standard basis. Whilst Nevas submitted there was no basis for GAG to seek a declaration against it, this ignored the inter-relationship between the three parties, the uncertainty as to which party was to settle on the land and when, and how prior payments made by the parties to each other under the various agreements should be dealt with.
I am satisfied that GAG acted reasonably by accepting Mr Bloggs’ legal advice that it join Nevas as a second defendant to its counterclaim. There is nothing before me to demonstrate that the proceedings against Nevas ought not have been maintained, or that they were continued for an ulterior purpose. It is only through the prism of litigation hindsight that it has become apparent the proceeding could have been conducted as between GAG and MYG.
For those reasons, Nevas ought only be awarded its costs on a standard basis.
The next issue to be determined by me is who should pay such costs – either GAG directly, or MYG, with an indemnity from GAG.
GAG did not succeed in its counterclaim against Nevas. The only substantive relief sought by MYG against Nevas was that, in the event that I found GAG’s rescission notice was effective, I make an order for restitution of the monies paid by it to Nevas under the variation deed, on the basis that such payments were made by reason of a mistake. In circumstances where GAG failed in in its allegation that the rescission notice was valid, MYG’s alternate claim did not require consideration.
I am satisfied that MYG’s claim against Nevas was necessitated by GAG’s claim, and that it was reasonable and proper for MYG to plead this alternative claim. GAG was unsuccessful in its claim. In the circumstances, ‘the requirements of justice and reason would be best met by a costs order in the Sanderson form’.[29] I will therefore order that Nevas’ costs of the proceeding, including Nevas’ costs of defending MYG’s contingent claim against Nevas and Nevas’ third party claim against MYG, be paid directly by GAG (and/or Mr Chen).
[29]State of Victoria v Horvath & Ors [No 2] [2003] VSCA 24, [19].
SCHEDULE OF PARTIES
S ECI 2022 02771
BETWEEN:
| MELBOURNE YIFANG GROUP PTY LTD (ACN 625 091 616) | Plaintiff |
| - v - | |
| GUANGAO A GROUP PTY LTD (ACN 622 458 806) | Defendant |
| - and - | |
| GUANGAO A GROUP PTY LTD (ACN 622 458 806) | Plaintiff by 1st Counterclaim |
| MELBOURNE YIFANG GROUP PTY LTD (ACN 625 091 616) | First Defendant by 1st Counterclaim |
| NEVAS PTY LTD (ACN 116 459 539) | Second Defendant by 1st Counterclaim |
| GUANGAO A GROUP PTY LTD (ACN 622 458 806) | First Third Party |
| MO CHEN | Second Third Party |
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