Reliance Financial Services Pty Ltd v Altair Investments Pty Ltd

[2020] NSWSC 1138

Supreme Court

New South Wales

Medium Neutral Citation:

Reliance Financial Services Pty Ltd v Altair Investments Pty Ltd [2020] NSWSC 1138

Hearing dates:

9 July, 7 August 2020 and then on the papers

Date of orders:

26 August 2020

Decision date:

26 August 2020

Jurisdiction:

Equity - Applications List

Before:

Kunc J

Decision:

Indemnity costs ordered; gross sum costs order made

Catchwords:

COSTS — Party/Party — Bases of quantification — Indemnity basis — Gross sum costs order — Sufficiency of evidence to enable fair determination — No issue of principle

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Cases Cited:

Bechara trading as Bechara & Company v Bates [2016] NSWCA 294

Calderbank v Calderbank [1975] 3 All ER 333

Fiduciary Ltd v Morningstar (2002) 55 NSWLR 1; [2002] NSWSC 432

Category:

Costs

Parties:

Reliance Financial Services Pty Ltd ACN 146 317 919 (First Plaintiff)
Nancy Morvillo (Second Plaintiff)
Marginata Securities Pty Ltd (Third Plaintiff)
Accolade Advisory Pty Ltd (Fourth Plaintiff)

Altair Investments Pty Ltd (Eighth Defendant)
Xi He (Ninth Defendant)

Representation:

Counsel:

D Allen (Plaintiffs)
M Karam (Eighth and Ninth Defendants)

Solicitors:

McEvoy Legal (Plaintiffs)
Gilchrist Connell (Eighth and Ninth Defendants)

File Number(s):

2019/372019

Publication restriction:

No

Judgment

1. This judgment resolves the question of costs in relation to two applications brought in the context of much larger proceedings.

2. The four plaintiffs (“Reliance”) sue a number of defendants, including the eighth and ninth defendants (the “Altair Parties”). By notice of motion dated 21 May 2020, the Altair Parties brought an application for summary dismissal of Reliance’s claim against them (the “Altair Motion”). In response, by notice of motion dated 29 May 2020, Reliance brought an application for summary judgment against the Altair Parties (the “Reliance Motion”).

3. The Altair Parties succeeded with the result that Reliance was ordered to pay the Altair Parties’ costs of both motions.

4. The Altair Parties have applied for orders that their costs of the motions should be paid forthwith on the indemnity basis and for a gross sum costs order.

5. The Court’s conclusions are:

1. There was never any proper basis for the Reliance Motion such that the Altair Parties are entitled to their costs of that motion on the indemnity basis.

2. The Altair Parties are entitled to their costs of the Altair Motion on the ordinary basis up to and including 16 June 2020 and thereafter on the indemnity basis because Reliance unreasonably failed to accept the Altair Parties’ offer to settle the motions on terms substantially identical to the result which the Altair Parties obtained.

3. The Altair Parties are entitled to a gross sum costs order in the amount of $35,800 payable forthwith.

Procedural History

6. Reliance’s claim against the Altair Parties was pleaded in an amended statement of claim filed on 14 January 2020:

“H. Claim against Altair Investments Ply Ltd and XI He;

244   In September and October 2018, Altair Investments exercised a power of sale over the Campbell Land.

245   At the time XI He was the sole director of Altair Investments.

246   At the time XI He was the sole controlling mind of Altair Investments and the person through which Altair Investments acted.

247   Altair took possession of the Campbell Land.

248   As at that date Reliance had a caveat registered on title to the Campbell Land.

249   The caveat gave notice that Reliance claimed an equitable mortgage over the Campbell Land.

250   In order to complete the sale of the Campbell Land by Altair Investments as mortgagee, Altair Investments removed Reliance's caveat.

251   By removing Reliance's caveat, Altair Investments was on notice of Reliance’s claim that it was an equitable mortgagee of the Campbell Land.

252   Upon complete (sic) of the sale of the Campbell Land, Altair Investments Pty Ltd held a surplus of $1,034,699.52.

253   Upon holding the surplus, Altair Investments owed a fiduciary duty to Reliance.

254   The scope of the duty was not to prejudice Reliance’s security and Interest in the surplus.

255   In breach of the duty, Altair Investments paid the surplus to Price.

256   This prejudiced Reliance’s security.

257   XI He made the decision for Altair Investments for the surplus to be paid to Price.

258   XI He made the decision so that Reliance would not be paid.

259   At the time XI He was on notice of Reliance’s claim.

Particulars

He was the sole director of Altair Investments and the person who made the decision not to pay Reliance. He made the decision so that Reliance would not be paid,

260   In the circumstances, XI He was a knowing participant in Altair Investment's breach of fiduciary duty and he acted dishonestly In that he undertook a course he knew would deprive Reliance of money to which had a claim.

261   If Altair had not breached the duty, Reliance would have received the sum of $1,034,699.52.

262   Accordingly, Altair Investments and XI He are liable to pay Reliance equitable compensation,

263   The quantum is $1,034,699.52 plus Interest.”

7. The $1,034,699.52 claimed by Reliance from the Altair Parties (the “Amount”) was being held by the seventh defendant, the Commissioner for Australian Capital Territory Revenue (the “Commissioner”). Sometime during April 2020, the Commissioner paid the Amount to Reliance.

8. At a directions hearing on 12 May 2020, Counsel for Reliance informed the Court that the only claim left against the Altair Parties was for costs and for interest on the Amount. With that in mind, the Court made these orders:

1. The eighth and ninth defendants are to serve any request for particulars of the amended statement of claim dated 14 January 2020 on or before 15 May 2020; and

2. The plaintiffs are to provide a response to the request for particulars on or before 5.00pm on 18 May 2020.

9. The Altair Parties’ solicitor made the request for particulars by letter dated 15 May 2020 (the “15 May Letter”). However, that letter began:

“1. DEFICIENCIES IN THE ASOC AS AGAINST OUR CLIENTS

1.1 Consistent with the overriding purpose set out in section 56 of the Civil Procedure Act 2005 (NSW) (CPA), we now write to you in respect of fundamental and fatal issues in respect of the ASOC insofar as it concerns our clients.

1.2   The basis of your clients’ claim as against our clients is that that our clients’ payment of the surplus proceeds of the mortgagee sale of the Campbell Land to the fifth defendant was in breach of an alleged fiduciary duty owed to Reliance, which your clients’ say resulted in Reliance being deprived of $1,034,699.52 and a liability for our clients to equitably compensate Reliance in the sum of $1,034,699.52 plus interest.

1.3   The claim as against our clients is entirely misconceived. The reasons for this are broadly that your clients:

(a)   were paid $1,034,699.52 from the proceeds of the Campbell Land, via the ACT Office of State Revenue (Payment) and rather than acknowledge the Payment, in the ASOC, your clients have pleaded an ongoing entitlement to that same sum of money;

(b)   are well aware that they have no entitlement to claim a further $1,034,699.52 from our clients. This has been previously brought to the attention of your clients, through their legal representatives in the ACT, by way of correspondence and it was also acknowledged in open court before her Honour Chief Justice Ward by your clients’ legal representative at the telephone directions hearing on 12 May 2020; and

(c)   have not pleaded material facts sufficient to establish any entitlement to interest against our clients, even if your clients’ claim for $1,034,699.52 were valid (which for the reasons set out above, it is not).

1.4   As such, the claim as put is without merit and the pleadings are embarrassing, meaning that the Proceedings are liable to be dismissed and/or the ASOC is liable to be struck pursuant to rules 13.4 and 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), respectively.

1.5 We therefore request that you confirm, by return, that your clients will now take steps to withdraw their claim and the Proceedings as against our clients. If no such confirmation is forthcoming, and the claim and the Proceedings as against our clients are not withdrawn, we anticipate receiving instructions to file in short order an application seeking orders pursuant to rules 13.4 and 14.28 of the UCPR.”

10. At a further directions hearing on 19 May 2020, the Court was informed that Reliance would not be providing the particulars because they were said to be futile in the light of the pleading issues raised by the Altair Parties. The Court made orders including that the Altair Motion be filed on or before 22 May 2020 and that it would be fixed before me for hearing on 9 July 2020.

11. On the same day, the Altair Parties’ solicitor wrote a letter to Reliance’s solicitor marked “Without Prejudice Save as to Costs” (the “19 May Letter”). That letter reiterated the Altair Parties’ complaints about Reliance’s claim, including:

“(a)   Your clients have no entitlement to the $1,034,699.52 they claim from our clients, as your clients were paid $1,034,699.52 from the proceeds of the Campbell Land, by the ACT Office of State Revenue (Payment).

(b)   Your clients have not pleaded sufficient material facts to support their claim for interest on $1,034,699.52. Specifically, your clients have not identified whether their claim is for Court-rate interest or interest arising pursuant to some other agreement, nor the date on which it is asserted that interest began to accrue, nor whether they asserts (sic) that interest continues to run or ceased to accrue on a particular date.

In the absence of a maintainable cause of action against our clients on the principal debt claimed of $1,034,699.52, an entitlement to interest does not and cannot arise.”

12. The 19 May Letter also included an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 All Er 333, which if not accepted was to be relied upon in respect of an application for costs, including on the indemnity basis:

“2.1   Notwithstanding the above, solely in order to avoid the time and costs that would be incurred if our clients’ intended Notice of Motion to dismiss the Proceedings as against them (Dismissal Motion) is required or if the Proceedings run to a contested hearing, and without admission, we are instructed to offer to resolve your client’s claim against our clients in the Proceedings by way of judgment in favour of our client with no order as to costs as between our respective clients. This is to be effected by way of a Consent Judgment in such terms executed by our respective clients and filed in the Proceedings within 7 days of the acceptance of this offer.”

13. The offer was expressed to be open until 5.00pm on 21 May 2020, on the basis that the Altair Motion was due to be filed on 22 May 2020.

14. The Altair Motion was filed on 22 May 2020, claiming relief which included:

“1. The Amended Statement of Claim dated 14 January 2020 filed in this proceeding be summarily dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW);

2.   In the alternative to order 1, Amended Statement of Claim dated 14 January 2020 filed in this proceeding be struck out in whole or in part pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW);

3.   Costs …”

15. The affidavit in support of the Altair Motion summarised the reasons for the orders sought in that motion as including:

“18. …

(c)   On or about 1 April 2020, by release of funds from Court, the third plaintiff was transferred $1,034,699.52 from the Garnished Funds;

(d)   The plaintiffs having acknowledged, at both the 12 May 2020 Directions and the 19 May 2020 Directions, that the $1,034,699.52 has been paid;

(e)   The plaintiffs have failed to take any steps to amend their pleaded case against the eighth and ninth defendants, despite the payment of the principal claim having been made; and

(f)   The plaintiffs have not pleaded material facts sufficient to establish any entitlement to interest against the eighth and ninth defendants.”

16. On 29 May 2020, Reliance filed the Reliance Motion, which claimed:

“1.   Summary judgment, or in the alternative, default judgment in favour of the Third Plaintiff (Marginata Securities Pty Ltd ACN 610 129 630) against the Eighth and/or the Ninth Defendants, with equitable compensation to be assessed.

2.   Costs on the indemnity basis.”

17. On 5 June 2020, Reliance’s solicitor wrote to the Altair Parties’ solicitor, including:

“Separately, we refer to paragraphs 244 to 263 of the Amended Statement of Claim filed 14 January 2020 and note the references therein to “Reliance” ought to be references to “Reliance, Marginata and Accolade”. The Plaintiffs seek leave to amend accordingly.

If your client’s Notice of Motion filed 22 May 2020 was premised on the failure to plead a case by Marginata, please let us know as we recognise that Marginata will be liable for any wasted costs caused by this error.”

18. On 10 June 2020, the Altair Parties’ solicitor wrote to Reliance’s solicitors (the “10 June Offer)”. That letter reiterated the Altair Parties’ complaints concerning the adequacy of the pleading of Reliance’s claim against them, and after referring to the request for particulars (see paragraph [8] above), concluded:

“1.5   Despite our request, your clients have:

(a)   not provided any explanation as to how they say they could be entitled to pursue the Principal Debt from our clients in circumstances where they themselves have separately provided evidence to the Court that such sum has been repaid; and

(b)   refused to provide a response to our clients’ request for particulars dated 15 May 2020, which also included requests for pleadings (unavailable to us) and other parties particulars requests and responses.”…

19. The 10 June Offer also went on to set out the reasons why the Altair Parties said the Reliance Motion was bound to fail. In summary, those reasons were that Reliance would be unable to demonstrate that the Altair Parties had no defence. As to this, the 10 May Offer said:

“2.3   We anticipate that our clients will be successful on the orders sought in the Dismissal Motion for the reasons set out above. However, if the Dismissal Motion is unsuccessful, the Proceedings will be vigorously defended. It is plain, on the matters we have set out above, that your clients have:

(a)   no prima facie entitlement to the Principal Debt from our clients and have not sought to amend their pleadings to reflect the payment received in respect of the Principal Debt;

(b)   have not pleaded any contractual or statutory basis for claiming interest on the Principal Debt; and

(c)   have not set out material facts in respect of a breach of fiduciary duties claim to ground a claim for equitable compensation against our clients (notwithstanding that your clients’ Counsel has indicated that such a residual claim exists subsequent upon the Principal Debt being paid).

2.4   Noting the above, our clients have a defence to the ASOC available to them. As such, it is unclear how it could be said that the plaintiffs would be entitled to orders for summary judgment. As stated above, the Cassiniti December Affidavit also does not point to any matters referrable to the prospects of our clients’ defence to the ASOC.

2.5   Also, where the Dismissal Motion was on foot in advance of the Summary Judgment Motion being filed, the plaintiffs’ election to take such a step is highly anticipatory noting that:

(a)   our clients have complained about the adequacy of the plaintiffs’ pleadings in the ASOC;

(b)   your clients have elected to ignore the reasonable requests for particulars seeking to elucidate their claim (notwithstanding that a response to particulars is not a substitute for a proper pleading);

(c)   the Dismissal Motion has not been disposed of; and

(d)   our clients have not yet been ordered to file a defence in the Proceedings.”…

20. The 10 June Offer concluded with:

“3.1   For the reasons, set out in this letter, you are invited to consent to orders being made in the Proceedings as follows:

(a) The Amended Statement of Claim dated 14 January 2020 filed in this proceeding insofar as it relates to the eighth and ninth defendants be summarily dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW);

(b)   In the alternative to order 1, the Amended Statement of Claim dated 14 January 2020 filed in this proceeding insofar as it relates to the eighth and ninth defendants be struck out in whole or in part pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW);

(c)   The plaintiffs are to pay the eighth and ninth defendants’ costs of the notice of motion dated 21 May 2020;

(d)   The notice of motion dated 29 May 2020 filed by the plaintiffs (Summary Judgment Motion) is dismissed;

(e)   The plaintiffs are to pay the eighth and ninth defendants’ costs of the Summary Judgment Motion.

3.2   This is an open offer, which is open for acceptance until 5pm on 16 June 2020.

3.3   Should this open offer not be accepted, and our clients obtain orders in accordance with those set out above at the hearing on 9 July 2020, we will tender this letter to the Court on the question of our clients’ costs being paid by the plaintiffs on an indemnity basis."

21. By letter from their solicitor dated 15 June 2020, Reliance rejected the 10 June Offer.

22. At 5.29pm on 6 July 2020 (in effect, two business days before the motions were due to be heard), Reliance’s solicitor sent the Altair Parties’ solicitor an affidavit by Reliance’s solicitor, Mr Matthew Sibley, which included:

“2.   Annexed hereto and marked “A” are Points of Claim that the First and Third Plaintiffs, Reliance Financial Services Pty Ltd and Marginata Securities Pty Ltd, seek leave to rely upon at the hearing of the Notices of Motion before his Honour Justice Kunc on 9 July 2020.

3.   The Points of Claim would enable the Plaintiffs’ case as against the Eighth and Ninth Defendants to be dealt with separately from the other matters in the proceedings per the Amended Statement of Claim filed 14 January 2020 (ASOC).

4.   In the “Pleadings and Particulars” part of the Points of Claim, the numbering is the same as the numbering in the ASOC.

5.   The changes to the ASOC are marked in the Points of Claim in underline.”

23. As to the claim against the Altair Parties, the “Points of Claim” amended paragraphs 244 to 261 of the Amended Statement of Claim (see paragraph [6] above) to include specific references to Marginata. The “Points of Claim” continued:

“261A.   After the commencement of these proceedings, on 18 April 2020, Marqinata and Reliance agreed that Marqinata had priority to Reliance’s claim.

261B.   After the commencement of these proceedings, on 18 April 2020, Marqinata recovered the sum of $1,035,692.52.

Particulars

The calculation of this figure is set out in the affidavit of Sam Cassaniti filed 11 June 2020 at paragraph [9]

261C.   The recovered sum of $1,035,692.52, included the sum of $1,034,699.52 paid by Altair to Price.

261D.   In recovering the sum of $1,034,699.52, Marqinata paid and incurred the liability to pay legal costs.

261E.   If Altair had paid Marqinata the sum of $1,034,699,52, instead of paying Price, Marginata would not have paid nor incurred the liability to pay legal costs.

261F.   Marginata is able to make a claim for costs against Altair and Xi, as part of a claim for equitable compensation.

Particulars

Marginata can bring this claim to the extent that the costs were incurred before Altair Investments and Xi entered an appearance and which were incurred in prosecuting the claim against ACT Revenue.

However, pursuant to section 56 of the Civil Procedure Act 2005 (NSW) Marginata accepts that costs can be more effectively dealt with pursuant to the following paragraph.

261G. Marginata is able to make a claim for costs against Altair and Xi pursuant to section 98 of the Civil Procedure Act 2005 (NSW),

261H.   The Court ought to order that Altair Investments and Xi pay Marginata’s costs of the proceedings referable to Marginata’s claim to the sum of $1,034,699.52 plus interest and costs on an indemnity basis, to be assessed.

262.   Accordingly, Altair Investments and Xi He are liable to pay Marginata Reliance equitable compensation.

263.   The quantum is $1,034,699.52 plus interest and costs, less the application of the money recovered since the commencement of the proceedings, being the sum of $1,035,692.52.

Particulars

(a)   On 18 October 2019, Altair ought to have paid $1,034,699.52 to Marginata.

(b)   At the time, Marginata was a lender of money in return for the re-payment of the principal and interest.

(c)   On 18 October 2019, had Marginata received $1,034,699.52 from Altair, Marginata would have used the money to lend for the return of interest.

(d)   At the time, Marginata had an opportunity to lend the sum of $2 million on terms.

(e)   A term of the loan, had it gone ahead in November 2019, would have been that interest would have been paid to Marginata at the rate of 22% per annum compounding daily.

(f)   By reason of Altair not paying the sum of $1,034,699.52 to Marginata. Marginata did not make the loan as Marginata was short by $1 million.

(g)   The loss to Marginata is the interest which would have accrued in the period 1 November 2019 to 18 April 2020 at 22% per annum compounding daily on the sum of $1 million.

(h)   After receipt of the $1,034.699.52, Marginata in fact made a loan to Somersby Aust Ptv Ltd of $2 million.

(i)   It was a term of the loan that the interest would accrue at 22% per annum compounding daily on the sum of $2 million.

(j)   The terms of the loan are recorded in a registered mortgage and a Deed of Variation.

(k)   In November 2019, Marginata had the opportunity to make this loan to Somersby Aust Pty Ltd.

(l)   In the alternative, Marginata claims interest at the cash rate plus 2% for the period of 18 October 2019 (the day Marginata ought to have been paid the money by Altair) to 18 April 2020 (the day money was released from Court).

(m)   Marginata will provide particulars of legal costs if Altair Investments and Xi dispute that Marginata’s costs can be dealt with by an order for costs to be assessed.”

24. On 8 July 2020, the Altair Parties’ solicitor responded to the provision of the “Points of Claim” by a letter which included:

“The email purportedly serving the Sibley Affidavit seeks our clients’ consent to your clients’ reliance on the Sibley Affidavit at the Hearing. Please confirm by return the basis upon which your clients are seeking to read the Sibley Affidavit at the Hearing.

Specifically:

1. Are your clients intending seeking leave to amend the Amended Statement of Claim dated 14 January 2020 in the Proceedings pursuant to section 64 of the Civil Procedure Act 2005 (NSW) and/or rule 19.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)?

2. In light of paragraph 3 of the Sibley Affidavit, are your clients seeking to have the claim in the Amended Statement of Claim against the our clients dealt with separately and, if so, do they intend to apply to the Court for an order to that effect, pursuant to rule 28.2 of the UCPR?

3.   Are your clients intending to issue either of these above applications prior to the Hearing?

We otherwise note that paragraph 3 of the Sibley Affidavit, and the annexed “Points of Claim”, together unquestionably amount to an acceptance by your clients that their case as against our clients is deficiently pleaded. As you are well aware, the deficiencies in your clients’ pleadings have been identified and put to your clients on behalf of our clients for some time and your clients repeated refusal to accept this necessitated the issue of the Dismissal Motion.

The deficient pleading and the position taken by your clients exposes them to pay our clients costs of the proceedings (including the Dismissal Motion and the Summary Judgment Motion) on an indemnity or a solicitor and client basis in accordance with the long line of cases that stand for the principle that costs are payable on such a basis when it appears that an action has been commenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance of success.

We therefore invite your clients to now consent to the relief sought by our clients in the Dismissal Motion and to the dismissal of the Summary Judgment Motion, both with costs. This invitation is open until 2pm today.

Particularly having regard to the matters set out above, if no such consent is forthcoming by that time, then our clients will rely upon this communication at the Hearing to seek an order that costs be payable by the plaintiffs on an indemnity basis.”

25. In a response on the same day, Reliance’s solicitor took issue with the contentions referred to in the letter set out in the preceding paragraph.

26. When the matter came on for hearing before me, Mr D Allen of Counsel appeared for Reliance and Mr M Karam of Counsel appeared for the Altair Parties.

27. At the outset of the hearing I had this exchange with Mr Allen:

“HIS HONOUR: I have read all the papers and submissions in some detail. I think I should indicate some preliminary views that may be of some assistance to the parties. Mr Allen, do you intend to rely on the affidavit of Mr Sibley that came through on 6 July with these points of claim attached?

ALLEN: Yes, your Honour.

HIS HONOUR: Well, that is really the case that you want to make, isn't it?

ALLEN: Yes.

HIS HONOUR: That is not the case that is currently in the amended statement of claim, is it?

ALLEN: It is in the amended statement of claim, subject to two matters; one is the correction of inclusion of Marginata and more detailed claim for interest.

HIS HONOUR: Mr Allen, we can have a philosophical debate whether it is in the statement of claim or not, but one would have thought, for good reason, something that is now three or four pages longer than what is in the statement of claim, might suggest it is material not in the statement of claim. I don't think we need to detain over that. Why shouldn't I simply allow you to amend, subject to some comments I have about the pleading, and allow Mr Karam's side to file a defence and see where we get to.

ALLEN: Sensible course, your Honour.

HIS HONOUR: Because it seems to me, with respect, as matters presently stand, I can't see how you're possibly entitled to summary judgment, and certainly the matters you now which rely on in the points of claim would suggest this is not a matter suitable for summary judgment.

While I'm looking at your pleading, Mr Allen, for whatever reason, it seems to me that the draftsperson has sort of snuck in the particulars, paragraph 263, what is in fact a proper pleading. I am certainly not going to allow an amendment that will have all those matters in the particulars because they are, with respect, it seems to me, though you can talk me out of this, try to if you wish, they are material facts and should be pleaded.

ALLEN: I am responsible and the criticism is well made.”

28. The parties sensibly accepted that leave to amend to the effect of the “Points of Claim” should be granted, but with the particulars to paragraph 263 being properly pleaded as material facts. I invited Counsel to prepare short minutes and briefly adjourned the hearing.

29. On the resumption of the hearing there was debate as to costs. At the outset of the hearing Mr Allen had described the Reliance Motion as “purely reactive” to the Altair Motion. Mr Allen accepted that, in the circumstances, the Reliance Motion should be dismissed and that his client should pay the Altair Parties’ costs of that motion. He was, with respect, entirely correct to do so.

30. In relation to the Altair Motion, Mr Allen submitted that there should be no order as to costs because the basis of the Altair Motion was that there was no maintainable cause of action and the Altair Parties had failed to make that out. I did not accept that submission. As I put to Mr Allen in the course of argument, the main point of the claim against the Altair Parties in the amended statement of claim was to recover the Amount and that, by the time the Altair Motion was filed, Marginata had in fact received those funds. The claim to recover the Amount was therefore not maintainable. The extensive amendments foreshadowed in the Points of Claim was a belated recognition that, by reason of the receipt of the Amount, whatever claim Reliance had left against the Altair Parties (said to be for interests and costs) had to be recast and properly pleaded. I therefore concluded that Reliance should pay the Altair Parties’ costs of the Altair Motion.

31. The Court resolved the motions on 9 July 2020 by making these orders:

“The Court orders:

1   The plaintiffs to provide the defendants with a proposed Further Amended Statement of Claim on or before 23 July 2020.

2   The defendants to provide any consent to the filing of the Further Amended Statement of Claim on or before 30 July 2020.

3   The plaintiffs’ notice of motion dated 29 May 2020 is dismissed.

4   The plaintiffs’ pay the eighth and ninth defendants’ costs of:

(1)   the eighth and ninth defendants’ notice of motion dated 21 May 2020; and

(2)   the plaintiffs’ notice of motion dated 29 May 2020.”

32. I did not consider it necessary to strike out the amended statement of claim as against the Altair Parties because Counsel were in agreement that a further pleading should be provided and I had been informed by Mr Karam that, provided the proposed particulars to paragraph 263 were pleaded as material facts, he did not expect there would be an objection to an amended pleading being filed, subject to his clients being given an opportunity to consider the final proposed form of the amendment.

33. I also made directions for the filing and service of submissions and any evidence in relation to special costs orders foreshadowed by Mr Karam (being for indemnity costs, a gross sum costs order and costs payable forthwith). Those directions were complied with. The Court received written submissions from Mr Karam supported by a further affidavit from the Altair Parties’ solicitor and written submissions by Mr Allen in response, together with an affidavit from Reliance’s solicitor. When the matter came back before me on 7 August 2020, Counsel agreed that I should determine the costs applications on the papers.

Indemnity costs – submissions

34. There was no issue between the parties as to the relevant principles, which were summarised by the Altair Parties as:

“6.1.   [F]or such an order to be made, there must be some delinquency on the part of the unsuccessful party justifying an award of indemnity costs, with the result being directed to more fully or adequately compensating the successful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at [44];

6.2.   [T]he focus is chiefly on relevant delinquency or unreasonable conduct on the part of the unsuccessful party in the conduct of the litigation: Liverpool City Council v Estephan [2009] NSWCA 161 at [95]; Dal Pont, Law of Costs (4th ed, 2018) at [16.46];

6.3.   [I]t is not necessary for the successful party to prove that the conduct in issue was deliberate, knowing or intended: Cleary Bros (Parramatta) Ltd v Commonwealth Bank of Australia [2009] ACTSC 72 at [32];

6.4.   [E]xamples where indemnity costs may be appropriate include:

6.4.1   where proceedings were an abuse of process or maintained for an ulterior purpose: Cultrus Petroleum v OMV Australia [1999] NSWSC 435;

6.4.2   where a party has engaged in conduct that wastes the Court’s time, such as where arguments that have no prospects of success are advanced or maintained: Buckingham Gate v ANZ [2000] NSWSC 946; and

6.4.3   where reasonable offers to resolve issues in dispute are rejected and such rejection was unreasonable: Multicon Engineering v Federal Airports Corporation (1996) 138 ALR 425.”

35. The Altair Parties submitted that Reliance was on notice of the deficiencies in their pleaded case from at least the time of the 15 May Letter (see paragraph [9] above) and that, notwithstanding those matters, Reliance had persisted up to and included the hearing on 9 July 2020. This was said to constitute delinquent and unreasonable conduct justifying an order for indemnity costs in relation to the Altair Motion.

36. In relation to the Reliance Motion, the Altair Parties submitted that it had been conceded (see paragraph [29] above) that the Reliance Motion had been brought for tactical reasons. It had accordingly been commenced for a collateral purpose, such that it was an abuse of process justifying an order for indemnity costs.

37. In the alternative, the Altair Parties submitted that by reference to the 10 June Offer (see paragraph [20] above), an order for indemnity costs should be made in relation to both motions on and from 17 June 2020 (that offer having been open for acceptance until 16 June 2020). I note in passing that, in contending for this date, the Altair Parties seem to have overlooked that the 10 June Offer had in fact been rejected on 15 June. As the difference is immaterial and the Altair Parties’ evidence was based on the offer having been open until 16 June 2020 (see paragraph [49] below), I have dealt with their applications accordingly.

38. It was submitted for Reliance that it was wrong to view the Altair Motion as anything other than an attempt to have Reliance’s (primarily Marginata’s) claim dismissed, a result which the Altair Parties had failed to achieve. There had always been a proper claim for interest and costs, the only issue being the need to amend the pleading. So understood, there was no relevant misconduct or delinquency that would warrant the making of indemnity costs orders. To order indemnity costs in this case would be to punish and not to compensate, which would not be a proper exercise of the Court’s discretion.

Indemnity costs – resolution

39. The Court does not accept Reliance’s characterisation of what had occurred as summarised in paragraph [38] above. The Altair Parties’ attack on the claim against them had always been two pronged: that the claim for the Amount could no longer be pressed because it had been paid by the Commissioner (which was plainly correct) and that the claim for interest and costs had not been properly pleaded (which the Court accepts was correct and was in reality, if not in terms, acknowledged as such by Reliance’s last minute production of the “Points of Claim”).

40. Insofar as the Reliance Motion is concerned, Mr Allen’s description of it as “purely reactive” (see paragraph [29] above) was, with respect, both candid and correct. The Altair Parties had an obvious defence to the claim for payment of the Amount. The inadequate pleading for interest and costs made it equally impossible for Reliance to demonstrate that the Altair Parties did not have a defence to that part of the claim. The Court therefore finds that the Reliance Motion never had any prospect of success and that, properly advised, Reliance ought to have understood that (if in fact it was not understood).

41. The Court also accepts the Altair Parties’ submission that having been filed as nothing more than a tactical response, the Reliance Motion was not filed for a proper purpose. For all of these reasons, its filing was delinquency of a kind which warrants the Court making an order that Reliance pay the Altair Parties’ costs of the Reliance Motion on the indemnity basis.

42. The outcome in relation to the Altair Motion is slightly different to the Reliance Motion.

43. I do not accept Altair’s submission that Reliance’s persistence with its pleading in the face of the 15 May Letter (see paragraph [9] above) is sufficient to engage the jurisdiction to order indemnity costs. It was, in the events which have happened, wrong to have persisted, but in and of itself that conduct does not have the relevant character of delinquency or unreasonableness to support an order for indemnity costs. This is particularly the case when the option presented to Reliance in the 15 May Letter was to “take steps to withdraw their claim and the Proceedings as against” the Altair Parties. That is not the result which the Altair Parties have achieved as an outcome of the resolution of the motions.

44. However, the Court accepts the Altair Parties’ submissions that they should have their costs on the indemnity basis by reason of the 10 June Offer (see paragraph [20] above). The reasons why the Altair Parties succeeded in relation to both motions were, with respect, correctly identified in the 10 June Offer. The orders which the Court ultimately made (see paragraph [31] above) were, with one irrelevant exception, identical to those proposed in the 10 June Offer. The irrelevant exception is that the Court has not made an order striking out the relevant part of the amended statement of claim, but in substance the same result has been achieved (see paragraph [32] above) by the Court making orders for the provision of a further amended statement of claim.

45. The reasons advanced in the 10 June Offer were cogent, correct and have been vindicated in the outcome. Properly advised, Reliance should have accepted the force of what was said in the 10 June Offer. The Altair Parties have achieved a result in effect identical to that which they proposed in the 10 June Offer. For those reasons, Reliance’s rejection of that offer on 15 June 2020 was unreasonable. As submitted by the Altair Parties, the Court will order Reliance to pay the Altair Parties’ costs of the Altair Motion on the ordinary basis up to and including 16 June 2020 and thereafter on the indemnity basis.

Gross sum costs order – the parties’ submissions

46. There was no dispute between the parties as to the applicable principles in relation to an application for a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (the “CP Act”). A convenient summary is provided in the judgment of the Court of Appeal in Bechara trading as Bechara & Company v Bates [2016] NSWCA 294, which I respectfully adopt and apply:

“12.    The power to award a lump-sum should only be exercised when the Court considers that it can do so fairly between the parties and where an appropriate sum can be determined from the available materials: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at 742-723 [21]-[22]; Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123.

13.   The power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Hamod v New South Wales [2011] NSWCA 375 at [818] per Beazley JA (Giles and Whealy JJA agreeing).

14.   A “broad brush” approach is appropriate. To require the same or similar level of detail as in a formal costs assessment would defeat the purpose of the lump sum order: Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1; [1999] FCA 673 at 5 [16]; Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 at [7].

15.   The courts have typically applied a discount in assessing costs on a gross sum basis: Hamod v New South Wales at [814].”

47. The Altair Parties relied on an affidavit sworn by their solicitor, Mr Alexander Haslam. This annexed invoices dated 31 May 2020 and 30 June 2020, and a work in progress report as at 22 July 2020, together with a copy of a tax invoice from Mr Karam of 12 July 2020 in the sum of $13,365 (GST inc). In what follows all figures are inclusive of GST. The invoices had been redacted, a matter which I consider in paragraphs [53] and [56(1)] below.

48. Mr Haslam was appropriately qualified to express the opinions which he did. He undertook calculations by reference to the tax invoices and work in progress report applying his opinions, which the Court accepts, that on the ordinary basis approximately 70% of solicitor-client costs would be recoverable and 95-100% of counsel’s fees. On the indemnity basis, he was of the view that 90% of solicitor-client costs would be recoverable and 95-100% of counsel’s fees.

47. The total solicitor-client costs (including disbursements such as Counsel’s fees) incurred by the Altair Parties which Mr Haslam said were referable to the Altair Motion and Reliance Motion were $52,299.83. After applying the various discounts to which he had deposed, the final figures which emerged from his evidence were:

1. Recoverable costs on a full indemnity basis:    $48,430.00;

2. If awarded on the ordinary basis to 16 June 2020 and the indemnity basis on and from 17 June 2020:         $44,754.00; and

3. Full ordinary basis:               $40,690.00.

50. The Altair Parties submitted that while a “broad brush” should be applied, the Court had sufficient material before it to assess their costs fairly in a fixed sum. Those costs were not unreasonably high. They had been incurred during a confined period of time on a discrete issue. It would be contrary to the overriding purpose to require the parties to go through the cost and delay of formal assessment.

51. Reliance did not adduce any evidence in response to Mr Haslam’s calculations. It is sufficient to reproduce Mr Allen’s written submissions in full:

“6. Further, it is not clear that justice will be achieved between the parties, in that the quantum sought is large for a simple motion and the time and costs of the application are, contrary to section 60 of the Civil Procedure Act 2005 (NSW), disproportionate to the issue. The quantification of the costs is not dependent upon any special understanding of a trial judge of the matters in issue.

7.   No utility at all has been demonstrated by Altair.

8.   That said, the quantum seems to unreasonably relate to the costs to date, and not just the costs of the motion. For instance, the costs in determining, on the view of Altair, that there was no maintainable cause of action.

9.   Marginata objects to tender of the invoice beginning at page 32 of the Exhibit ABH-2, as Marginata is entitled to the unredacted document, if Altair chooses to deploy the documents.”

Gross sum costs order – resolution

52. The first point to consider is Mr Allen’s objection to Mr Haslam’s reliance on redacted invoices. Mr Haslam explained this in his affidavit as: “The line entries that have been redacted is for work performed in respect of the substantive Proceedings and unrelated to the Altair Motion and Reliance Motion”.

53. I reject Mr Allen’s objection as to the admissibility of the redacted tax invoices. However, the redactions do deprive the Court of the capacity to examine the basis, and be satisfied of the consistent application, of the reasons why Mr Haslam says that some costs are, and other costs are not, referable to the motions. I return to this point in paragraph [56(1)] below.

54. Having regard to the overriding purpose under the CP Act, this is a case where, if it can be done fairly, it would be appropriate to make a gross sum costs order for the reasons advanced by the Altair Parties (see paragraph [50] above). The Court does not accept Mr Allen’s submission that the quantum of the amounts claimed by the Altair Parties is, on its face, unreasonably large. This is hard fought commercial litigation.

55. However, there is some force in Mr Allen’s submission that the quantum does not readily appear to be confined to the costs of the motions as opposed to the costs of the proceeding generally, notwithstanding Mr Haslam’s assertion that his redactions have had that effect. This has given me some hesitation about whether on the basis of Mr Haslam’s affidavit, including the redacted invoices, the Court is in a position to be fair to both parties and to determine an appropriate sum.

56. In this regard, I have taken into account the following matters:

1. The difficulty I have already adverted to in paragraph [53] above that, by reason of the redactions, the Court cannot check the internal logic or consistency of what Mr Haslam has concluded is or is not related to the motions as opposed to the proceedings generally.

2. I have read the narratives to the invoices and work in progress report. Without attempting to conduct a detailed costs assessment, which is not practical and would be contrary to authority, I am nevertheless concerned that items are claimed which are properly to be characterised as referable to the proceedings rather than the motions. These include a number of earlier attendances such as those on 11 May 2020 (e.g. “reviewing amended statement of claim to identify background and factual allegations against Altair/Mr Hi in preparation for directions hearing tomorrow”).

3. There are examples of attendances which, while relating to the request for particulars, also state that the task was undertaken “to assist with the preparation of Defence if the claim is not withdrawn” (entries on 14 May 2020).

4. Comparing the solicitors’ invoices between 13 and 16 June 2020 with Mr Karam’s invoice, there appears to be an overlapping of the task of drafting submissions which, in the Court’s experience, would be unlikely to survive assessment without reduction on either the ordinary or even the indemnity basis.

57. Notwithstanding the matters to which I have just referred, given the amount claimed by the Altair Parties (not large in the context of litigation such as this) and the likely time and costs that will be taken up on an assessment, I remain of the view that, if it can be done fairly to both parties, this is a case where a gross sum costs order should be made. I am satisfied that fairness - neither undercompensating the Altair Parties nor overcharging Reliance - will be ensured by applying an overall discount of a kind which is commonly applied by the Court in arriving at a final figure in gross sum costs applications. Given the matters to which I have referred in the preceding paragraph, that discount should be applied even in relation to so much of the costs as has otherwise been calculated on the indemnity basis and to Counsel’s fees.

58. I should also add for completeness that in undertaking this exercise, although the Court has determined that the Altair Parties are entitled to all of their costs of the Reliance Motion on the indemnity basis, the evidence does not permit the costs to be disaggregated to identify all such costs. However, given the way in which the arguments were presented, the Court finds that the Altair Parties’ costs solely referable to the Reliance Motion are likely to be de minimis when compared to the total costs to which the Altair Parties are entitled.

59. The Court has determined (see paragraphs [41] and [45] above) that the Altair Parties are entitled to their costs of the motions on the indemnity basis on and from 17 June 2020. Mr Haslam’s calculation of his clients’ recoverable costs on the ordinary basis up to 16 June 2020 and on the indemnity costs thereafter is $44,754. The Court accepts that figure and applies a 20% discount for the reasons set out above, which with slight rounding gives a figure of $35,800. This is the amount that Reliance will be ordered to pay.

Costs payable forthwith

60. Finally, the Altair Parties sought an order that any costs be payable forthwith by reference to the principles in Fiduciary Ltd v Morningstar (2002) 55 NSWLR 1; [2002] NSWSC 432 at [11]-[13]. Mr Allen made no submissions in opposition to such an order.

61. The order should be made. The costs relate to a discrete or self-contained issue; the proceedings undoubtedly will not be finally determined for some time; and the Court is satisfied that a large majority of those costs was incurred because of Reliance’s unreasonable conduct, in particular failing to accept the 10 June Offer (see paragraph [45] above).

Conclusion

62. The orders of the Court are:

1. Vacate order 4 made on 9 July 2020.

2. The plaintiffs are to pay forthwith the eighth and ninth defendants’ costs of:

1. the eighth and ninth defendants’ notice of motion dated 21 May 2020 on the ordinary basis up to and including 16 June 2020 and on the indemnity basis thereafter; and

2. the plaintiffs’ notice of motion dated 29 May 2020 on the indemnity basis,

to which the eighth and ninth defendants are entitled in the gross sum of $35,800 (GST inc) instead of assessed costs.

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Decision last updated: 26 August 2020