Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [No. 3]

[2016] NSWSC 526

Supreme Court

New South Wales

Medium Neutral Citation:	Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [No. 3] [2016] NSWSC 526
Hearing dates:	15 and 20 April 2016
Decision date:	29 April 2016
Before:	Ball J
Decision:	See para 102 below.
Catchwords:	PROCEDURE – costs – general rule – costs follow the event – multiple issues – whether to apportion costs of separate issues – offer of compromise – whether proper particulars given – whether prior amendment changed case substantially – Set-off – prior interlocutory costs orders PROCEDURE – stay – whether interests of justice require stay PROCEDURE – security for costs – undertaking as substitute for security – release of security ESTOPPEL – by judgment – Issue estoppel – whether previous interlocutory order binding
Legislation Cited:	Civil Liability Act 2005 (NSW) Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Adeels Palace Pty Ltd v Moubarak [2009] NSWCA 130 Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 Bass v Permanent Trustee Company Limited [1999] HCA 9; (1999) 198 CLR 334 Blair v Curran [1939] HCA 23; 62 CLR 464 Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue (No 2) [2014] NSWCA 128 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Calderbank v Calderbank [1975] 3 WLR 586 Challenger Group Holdings Ltd v Concept Equity Pty Ltd (No 2) [2008] NSWSC 1002 Cretazzo v Lombardi (1975) 13 SASR 4 Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 Jelbarts Pty Ltd v McDonald [1919] VLR 478 Julia Farr Services Inc v Hayes [2003] NSWCA 142 Lahoud v Lahoud [2006] NSWSC 126 Lawrence v Gunner [2015] NSWCA 322 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 NSW Bar Association v Stevens [2003] NSWCA 95 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Penrith Whitewater Stadium Ltd & Anor v Lesvos Pty Ltd & Anor [2007] NSWCA 103 Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 Saint-Gobain Abrasives Pty Ltd v McPherson [2008] NSWCA 262 Sinclair v William Arnott Pty Ltd (1963) 64 SR (NSW) 88 TCN Channel 9 Pty Ltd v Antoniadis (No 2) [1999] NSWCA 104; (1999) 48 NSWLR 381 Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd & Anor [2013] NSWSC 1645 Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 Williams v Stanley Jones & Co Ltd [1926] 2 KB 37 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515
Texts Cited:	G E Dal Pont, Law of Costs, LexisNexis, 3rd ed, 2013
Category:	Costs
Parties:	Tzaneros Investments Pty Ltd (ACN 114 879 524) (Plaintiff) Walker Group Constructions Pty Ltd (ACN 097 303 716) (First Defendant | Cross Claimant) AMT Engineers Pty Limited formerly Alan L Wright & Associates Pty Limited (ACN 001 582 029) (Second Defendant | Cross Defendant)
Representation:	Counsel: M Dempsey SC with JA Hogan-Doran (Plaintiff) MG Rudge SC with FP Hicks and Ms EE Whitby (First Defendant | Cross Claimant) MS White SC with Ms N Shaw (Second Defendant | Cross Defendant)   Solicitors: Sarvaas Ciappara Lawyers (Plaintiff) Squire Patton Boggs (First Defendant | Cross Claimant) Norton Rose Fulbright Australia (Second Defendant | Cross Defendant)
File Number(s):	2009/298899
Publication restriction:	Nil

Judgment

Introduction

1. On 12 February 2016, I delivered reasons for judgment in this matter (Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50) and on 18 March 2016 to give effect to those reasons the court:

1. entered judgment for the plaintiff (Tzaneros) against the first defendant (WGC) in the sum of $11,612,013.53;

2. entered judgment for WGC against the second defendant/cross defendant (AMT) in the sum of $11,612,013.53; and

3. dismissed the second further amended summons as against AMT.

2. Three issues remain. One concerns the costs of the proceedings. The second concerns the question of a stay pending an appeal. The third concerns the question whether security provided by Tzaneros in respect of WGC and AMT’s costs should be released. This judgment is concerned with those issues, other than the question whether WGC’s judgment against AMT should be stayed.

Costs

The issues in the case

3. In the proceedings as tried, Tzaneros claimed damages from WGC and AMT arising from defective concrete paving at a container terminal at Molineaux Point, Port Botany. WGC was responsible for the design and construction of the terminal in 2003 and 2004. Walker Corporation Ltd (Walker), of which WGC is a wholly owned subsidiary, engaged AMT to design the pavement. There was a question in the proceedings whether the contract between Walker and AMT was novated to WGC or whether AMT was estopped from asserting that WGC was the contracting party. Those issues were resolved against AMT.

4. The land on which the terminal was constructed is owned by the Sydney Ports Corporation and, at the time the terminal was constructed, was leased to P&O Trans Australia Holdings Limited (P&O). P&O (or, more accurately, one of its subsidiaries) sold the terminal (including its leasehold interest) to Tzaneros in December 2005. In February 2015, Tzaneros entered into a number of contracts by which The Trust Company (Australia) Limited (TCAL) became the lessee of the terminal and the whole of the terminal was subleased to ACFS Port Logistics Pty Ltd (ACFS), which is owned as to 50 percent by Tzaneros family interests and 50 percent by Patrick Container Ports Pty Ltd, a subsidiary of Asciano Limited.

5. At trial, in light of expert evidence that Tzaneros had served from Professor Roesler and Mr Davis, WGC did not dispute that the pavement failed to meet specifications set out in the contract between P&O and WGC for the design and construction of the pavement (the D&C Contract) – namely, that the pavement should be able to withstand certain specified loads with a minimum design life of 20 years with minimum maintenance. In addition, WGC did not dispute that the design of the pavement was negligent. It did, however, dispute liability on the basis that the terminal (including the pavement) was constructed before it was acquired by Tzaneros and an assignment by P&O to Tzaneros of contractual warranties given by WGC in the D&C Contract was not effective to assign to Tzaneros the claims Tzaneros brought in these proceedings. It also disputed liability on the basis that Tzaneros had subsequently transferred its interests in the terminal to TCAL and ACFS. Both those defences failed.

6. In addition, WGC took issue with the quantum of Tzaneros’s claim. The amount claimed by Tzaneros was calculated as the cost of replacing the entire pavement using a design recommended by Mr Davis, which was costed by an expert quantity surveyor, Mr Sturgess. WGC contended that the pavement did not need to be replaced and that Tzaneros was not entitled to recover the full cost of Mr Davis’s design, which WGC said would produce a pavement that was substantially better than the one contracted for. WGC also contended that in some respects Mr Sturgess’s costs were excessive. Again, WGC substantially failed on each of those contentions, although I did accept that it was not necessary to replace that part of the pavement under the warehouse awnings.

7. In addition, WGC raised a defence of contributory negligence on the basis of the way in which Tzaneros used and maintained the pavement. That defence was all but abandoned at the hearing and also failed.

8. Lastly, WGC contended that Tzaneros’s claim was an apportionable one, that AMT was a concurrent wrongdoer and that WGC’s liability should be reduced under s 35 of the Civil Liability Act 2005 (NSW) having regard to AMT’s responsibility for the loss. That contention failed because I held that AMT did not owe Tzaneros a duty of care.

9. Both Tzaneros and WGC made claims against AMT. AMT raised various defences to those claims. It denied that it owed a duty of care to Tzaneros and WGC. It contended that ultimately Connell Wagner, a design consultant engaged by P&O, not it, was responsible for the design of the pavement. It also denied that it had been negligent. To the extent that WGC’s claim was brought in contract, it contended that its contract was with Walker, not WGC. AMT also contended that WGC was guilty of contributory negligence because of the way in which the pavement was constructed. Lastly, it claimed its liability should be reduced because Connell Wagner was a concurrent wrongdoer who bore some responsibility for the loss.

10. AMT did not file any expert evidence relating to the question whether the design of the pavement was negligent. It relied on the expert evidence filed by WGC in relation to the issues concerning quantum. It did, however, rely on its own expert evidence from Mr Munn in support of a contention that WGC was guilty of contributory negligence because of the way the pavement had been constructed.

11. AMT succeeded in its contention that it did not owe Tzaneros a duty of care. It failed on all other issues.

The parties’ contentions

12. Tzaneros was successful in the proceedings against WGC. On that basis, it seeks an order that WGC pay its costs of the proceedings against WGC and interest on those costs. Relying on formal offers of compromise, it also submits that WGC should pay those costs on an indemnity basis from 14 December 2010 or, alternatively, 17 October 2013.

13. WGC on the other hand submits that Tzaneros should pay its costs, or alternatively Tzaneros should bear its own costs, of the claim against WGC up until 22 November 2013, which is when Tzaneros amended its claim against WGC and AMT. WGC submits that the case pursued by Tzaneros as a consequence of those amendments was a new case and it is entitled to its costs of a case that effectively was abandoned as a result of the amendments. WGC denies that Tzaneros is entitled to an order for indemnity costs based on the offers of compromise.

14. Tzaneros failed against AMT and accepts that it must pay some of AMT’s costs. However, it submits that it only failed on the issue whether AMT owed Tzaneros a duty of care. It succeeded on all other issues. In those circumstances, it submits that it should only be liable for 10 percent of AMT’s costs. Originally, it sought an order that it pay 10 percent of AMT’s costs of Tzaneros’s claim against AMT. However, following a suggestion raised by the court, it accepted that it would be appropriate for the court to order that Tzaneros pay 10 percent of AMT’s costs of the proceedings. The advantage of an order in those terms is that it would obviate the need on assessment of determining which of AMT’s costs related to a defence of Tzaneros’s claim and which of AMT’s costs related to the defence of the cross-claim brought by WGC, which would be a difficult, time consuming and costly task.

15. AMT’s initial position was that Tzaneros should pay all of its costs of Tzaneros’s claim. However, it accepted that if the court’s order was expressed in terms of the costs of the proceedings rather than the costs of Tzaneros’s claim, then it was not entitled to 100 percent of those costs, since some of them related to WGC’s cross-claim. Nonetheless, it submitted that any order should reflect the fact that it was successful and that it would be inappropriate to discount the costs to which it is entitled because it failed on some issues.

16. Tzaneros also submits that WGC should pay the costs that Tzaneros is required to pay to AMT from 25 April 2015 on the basis of an offer made by Tzaneros at that time to discontinue its claim against AMT if WGC withdrew its defence that Tzaneros’s claim was an apportionable one and AMT was a concurrent wrongdoer in respect of that claim. That defence obviously failed as a result of the failure of Tzaneros’s claim against AMT.

17. WGC succeeded on its cross-claim against AMT. Consequently, it contends that it is entitled to its costs of the cross-claim. It claims that those costs include WGC’s liability for Tzaneros’s costs.

18. AMT accepts that it is liable to pay WGC’s costs of the cross-claim. However, it submits that it should not be liable for those costs prior to 20 November 2013, which is the date that the cross-claim was filed (in fact, it was filed on 22 November 2013). It also submits that it should not be liable for Tzaneros’s costs and, in any event, should not be liable for those costs assessed on an indemnity basis.

History of the proceedings

19. Before addressing the parties’ contentions, it is necessary to say something about the history of the proceedings.

20. Tzaneros commenced the proceedings on 30 September 2009 against WGC, Walker and AMT. It claimed that WGC and Walker were liable for breach of contractual warranties because the pavement did not satisfy the specifications set out in the D&C Contract. It also alleged that each of the defendants owed it a duty of care and that in breach of that duty WGC did not execute the design and construction of the pavement in a workmanlike manner and that AMT did not design the pavement in a workmanlike manner.

21. On 4 June 2010 and 16 June 2010, Mallesons Stephen Jaques, who were then acting for WGC and Walker, asked for particulars including particulars of the causes of the alleged defects.

22. Tzaneros’s solicitors replied to the request for the particulars on 18 June 2010. In relation to the request that Tzaneros provide particulars of the causes of the defective pavement they said:

It is not a matter for the Plaintiff to provide particulars of the causes of the defective pavement. Depending upon the allegations made by the Defendants in the Amended List Response, this is likely to be addressed in expert reports that will be served in due course.

The Plaintiff has alleged that WGC contracted to design and construct the Pavement in accordance with the Performance Specifications, and that these Performance Specifications required the Pavement to have a minimum design working life of 20 years with minimum maintenance, with design working life defined as the period for which the pavements are to be used for its intended purposes with identified acceptable maintenance but without major repair or replacement being necessary, and in the case of Pavements maintenance being identified as being “None” (section 2.4 of the Performance Specification Document). The table in section 2.4 also defines unacceptable repairs/replacement as being “any removal/replacement”.

It is the Plaintiff’s case that the Pavement was used within the design loadings specified in the Contract (C.25 and C.26 and response 4 above).

The Plaintiff has further alleged that the Pavement is defective in that numerous of the individual pavement slabs require replacement or repair. Full particulars as to the defects in relation to each of the 1,096 individual pavement slabs were provided in a Scott Schedule running to 7 volumes which was served with the original Summons in these proceedings.

It is the Plaintiff’s position that the fact of the existence of these defects (fully particularised) within the 20 year warranty period constitutes a breach of the design and construction obligations of WGC under the 2003 Contract, 2004 Contract and the Contractual Warranties; and a breach by Walker Corporation of the Collateral Warranty.

23. Tzaneros amended its claim on 29 September 2010. The amendments were made in connection with a partial settlement of the case which involved Tzaneros discontinuing its claim against Walker and Walker agreeing to guarantee the payment of any judgment Tzaneros obtained against WGC.

24. By its amended Technology and Construction List statement, Tzaneros abandoned its claim that the design and construction of the pavement was negligent. As against WGC, it relied solely on its claim that WGC was in breach of the contractual warranties. As against AMT, it introduced a new claim based on an inspection that was carried out and a report that was prepared in June 2006 concerning the condition of the pavement. Tzaneros alleged that AMT carried out the inspection and prepared the report negligently. That claim was maintained until shortly before the trial, when it was abandoned.

25. On 27 October 2010, WGC filed its Technology and Construction List response. That response, among other things, raised the proportionate liability defence based on the allegation that AMT was a concurrent wrongdoer who was responsible for part of the loss for which WGC was sued.

26. On 13 December 2010, Tzaneros made a formal offer of compromise (the 2010 Offer). The offer was expressed to be made in accordance with Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 20.26 and was for an amount of $5,970,000 exclusive of costs. The offer was expressed to expire on 17 February 2011.

27. On 22 December 2010, Tress Cox, who by then were acting for WGC, wrote to Tzaneros’s solicitors saying:

The First Defendant cannot fully consider the Offer because the Plaintiff has not provided particulars of the causation of the alleged failures in the Pavement. We refer to subrules 4 and 5 of rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).

The First Defendant requests that the Plaintiff provide particulars of the causation of the alleged failures in the Pavement. We also refer to the requests for particulars of the causation in Mallesons Stephen Jacques’s letters to you dated 4 June 2010 (at paragraph 10), 16 June 2010 (at paragraph 6) and 22 June 2010 (at paragraph 3).

We note that in your letter to Mallesons Stephen Jaques dated 18 June 2010, you suggest on page 5 that proof of the existence of the defects and the warranty pleaded by the Plaintiff are sufficient to entitle the Plaintiff to substantial damages. Since our client alleges that your client has failed to comply with the O&M Manual and given clause 3.41 of the Special Conditions of the Contract, the Plaintiff will need to establish causation.

The First Defendant also requires particulars of the causation of the alleged failures in the Pavement in order to understand its position regarding potential ‘concurrent wrongdoers’ (as that phrase is used in the Civil Liability Act 2002 (NSW)) and potential cross defendants.

Tzaneros did not respond to that letter.

28. In the second half of 2011 and in 2012, the parties jointly engaged a number of experts to undertake investigations relevant to the causes of the cracking and spalling of the pavement. The following experts were engaged:

1. a qualified engineer from Fugro PMS Pty Ltd to undertake the obtaining of core samples and heavy weight deflectometer drops and testing of the pavement at locations agreed between the parties;

2. a qualified geotechnical engineer from Douglas Partners to undertake testing of the materials underlying the pavement;

3. a qualified concrete analyst from Hanson-Hymix to undertake concrete strength testing of the core samples that were obtained;

4. a qualified chemist from Sharp Howells Pty Ltd to undertake chemical analysis of the core samples.

29. After the reports prepared by those experts had been obtained, Tzaneros served reports from Professor Roesler and Mr Davis. Professor Roesler and Mr Davis took account of the reports obtained by the parties jointly in concluding that the design of the pavement was defective because the pavement as designed was not suitable to bear the loads specified in the D&C Contract.

30. On 20 June 2013, Tzaneros filed a notice of motion seeking leave to file a further amended summons and list statement. Relevantly, the amendments fell into two categories. First, in the existing version of the list statement Tzaneros alleged that in breach of the contractual warranties “WGC failed to construct the pavement works” for the movement and storage of shipping containers “with a minimum design working life of 20 years” without any removal or replacement being necessary. By the amendments, Tzaneros sought to allege that WGC failed “to design and construct” the pavement as specified.

29. Second, Tzaneros sought to allege that AMT owed it a duty to “take all reasonable measures so as to ensure that the Pavement Works were designed, supervised, inspected, certified and performed” with skill, care and diligence and in compliance with the contractual specifications and that AMT breached that duty.

30. On 29 August 2013, WGC filed a motion seeking leave to file a cross-summons and cross-claim list statement against AMT.

31. On 16 October 2013, Tzaneros made a further offer of compromise (the 2013 Offer). The offer was expressed to be made in accordance with UCPR r 20.26 and was for an amount $9,000,000 exclusive of costs. The offer was expressed to be open until 14 November 2013.

32. The motions filed by Tzaneros on 20 June 2013 and by WGC on 29 August 2013 were heard by Sackar J on 8 November 2013. His Honour delivered judgment on that day allowing the amendments to Tzaneros’s claim and allowing WGC’s cross-claim: see Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd & Anor [2013] NSWSC 1645. In allowing the amendments, Sackar J observed (at [10]) that WGC had alleged that effect of the amendments would be to introduce a new claim against WGC because up until that time Tzaneros had only alleged a breach against WGC “in relation to the construction of the pavement works, but not their design”. Commenting on that allegation, his Honour said (at [15]):

The change in language, and the procedural history, of Tzaneros’ pleading, are strong indications, at least in my mind, of the existence of a distinction between an allegation of defective construction, and an allegation of defective design. Such a distinction accords with common sense, and the plain English meaning of the words. Walker submitted that it never understood the relevant contentions in Tzaneros’ pleading filed on 29 September 2010 as attributing blame for the defective design of the pavement works to Walker. I accept Walker’s submission, and consider its position to be appropriate, especially given the procedural history of Tzaneros’s pleading. I reject Tzaneros’ submission that the proposed amendments are of little or no consequence to Walker. …

35. On 21 November 2013, orders were made giving effect to the decision of Sackar J and on 22 November 2013 Tzaneros filed a further amended summons and further amended list statement and WGC filed its cross-claim.

36. On 27 March 2014, the matter was listed for hearing commencing on 9 November 2015. At that time, the court directed that counsel for the parties confer and prepare and file an agreed statement of issues by 30 April 2015. That date was extended. No agreement on the list of issues was reached and eventually, on 5 June 2015, each party was directed to file its own version of the statement of issues. For the purpose of attempting to reach agreement limiting the issues in the case, Tzaneros prepared a without prejudice document described as “Draft Proposal for Limitation of Issues at Trial” in which it proposed that each of the parties make a number of concessions so as to limit the issues in the case. Paragraphs 1 and 2 of that document were in the following terms:

1. Walker withdraws its contention that the plaintiff’s claim against it is an apportionable claim within the meaning of Part 4 of the Civil Liability Act 2002.

2.   If so, the plaintiff does not press its claim in negligence against AMT.

37. On 1 October 2015, Tzaneros’s solicitors wrote to the solicitors for the defendants enclosing a copy of that document and stating:

Both of the defendants declined the plaintiff’s invitation to narrow the issues for trial in accordance with the plaintiff’s proposal including by making the proposed concessions set out at paragraphs 1, 7, 12, 14, 17 and 21.

Please be on notice that the plaintiff reserves the right to rely on the above documents and the defendants’ failure to limit the issues for trial by the making of appropriate concessions in support of an application for special orders as to costs in respect of specific issues, and the basis of costs in respect of those specific issues.

Relevant legal principles

38. The court has a broad discretion to determine by whom, to whom and to what extent costs are to be paid by a party: Civil Procedure Act 2005 (NSW), s 98; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72.

39. The general rule is that costs follow the event: UCPR r 42.1.

40. In Bostik Australia Pty Ltd v Liddiard(No 2) [2009] NSWCA 304, which was applied in Hawkesbury District Health Service Ltd v Chaker(No 2) [2011] NSWCA 30 at [14], the Court of Appeal relevantly summarised the application of these provisions to cases involving multiple issues in these terms (at [38]):

Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).

In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.

...

Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).

A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].

Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.

41. Generally, in applying these principles, the court is less willing to separate issues in relation to the costs of a successful defendant. As Hodgson JA (with whom Allsop P and Macfarlan JA agreed) explained in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [10]:

Where a plaintiff’s case fails, it may sometimes be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant, even if those issues are severable, so long as the defendant acted reasonably in raising those issues. It is I think less often the case that a defendant would be ordered to pay the costs of severable issues unsuccessfully raised by an otherwise successful plaintiff. However, the requirements of s 56 of the Civil Procedure Act 2005 that parties assist the court to facilitate the just, quick and cheap resolution of the real issue on the proceedings, and take reasonable steps to resolve or narrow the issues in dispute, do apply to defendants as well as plaintiffs; and this is relevant to the exercise of the costs discretion.

See also Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19] (per Hodgson JA, with whom Basten JA and McClellan CJ at CL agreed); Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue (No 2) [2014] NSWCA 128.

42. The rules relating to the making of offers of compromise changed between the time the 2010 Offer and the 2013 Offer were made. At the time the earlier offer was made, UCPR r 20.26 was relevantly in the following terms:

(1)   In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.

…

(4)   Despite subrule (1), a plaintiff may not make an offer unless the defendant has been given such particulars of the plaintiff’s claim, and copies or originals of such documents available to the plaintiff, as are necessary to enable the defendant to fully consider the offer.

(5)   If a plaintiff makes an offer, no order may be made in favour of the defendant on the ground that the plaintiff has not supplied particulars or documents, or has not supplied sufficient particulars or documents, unless:

(a)   the defendant has informed the plaintiff in writing of that ground within 14 days after receiving the offer, or

(b)   the court orders otherwise.

43. Rule 20.26 was amended in 2013. The amendments took effect on 7 June 2013. Sub-rule (1) was not changed. Sub-rules (4) and (5) were replaced by the following:

(4)   If the offeror makes an offer before the offeree has been given such particulars of the offeror’s claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that:

(a)   the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and

(b)   in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14 (2).

44. UCPR r 42.14 provides:

(1)   This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.

(2)   Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim:

(a)   assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b)   assessed on an indemnity basis:

(i)   if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii)   if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

45. These rules alone determine the position in relation to costs where an offer is made in accordance with r 20.26: see Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [51] per Barrett JA (with whom Beazley P and McColl JA agreed).

46. The onus lies on the offeree to persuade the court that the facts of the case justify a different costs order from the one provided for by the rules: Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [28].

47. There is a question whether the court should only make a different costs order in exceptional circumstances or whether it should exercise its discretion to order otherwise having regard to all the circumstances of the case. The latter seems more consistent with the wording of the rules, but in any event as Gleeson JA and Tobias AJA pointed out in Perisher Blue at [36] “the difference in view may be more a matter of semantics, particularly if the reference to “exceptional circumstances” is understood as explaining the operation of the relevant rule rather than impermissibly attempting to place a fetter on the exercise of the Court’s discretion”.

Tzaneros’s claim for costs against WGC

48. In my opinion, Tzaneros is entitled to the whole of its costs of its claim against WGC from WGC.

49. I do not accept WGC’s contention that the amendments made by Tzaneros in 2013 essentially raised a new claim that the design of the pavement was defective. In support of the contention that it did, WGC relied on the judgment of Sackar J and submitted that that judgment determined the issue for the purposes of the case. That submission is said to follow from the decision of Diplock LJ in Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630, which was referred to with approval by the High Court in Bass v Permanent Trustee Company Limited [1999] HCA 9; (1999) 198 CLR 334 at [57]. In the former case, Diplock LJ said this (at 642):

Where the issue separately determined is not decisive of the suit, the judgment upon that issue is an interlocutory judgment and the suit continues. Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate court to adduce further evidence.

50. Contrary to WGC’s submission, the point made by Diplock LJ was that the determination of a separate question was binding, notwithstanding that it was interlocutory in nature, not that all interlocutory decisions are binding. The conclusion that Sackar J reached was that the amendment should be allowed notwithstanding that it introduced a change of substance to the case. That conclusion did not dispose of any issue in the case and cannot be determinative of the question whether the amendment was such as to disentitle Tzaneros to some of its costs: see Blair v Curran [1939] HCA 23; 62 CLR 464 at 531-532.

51. Since the proceedings were commenced, Tzaneros’s primary claim against WGC has been that WGC was in breach of the warranties contained in the contract for the design and construction of the terminal. As Tzaneros’s solicitors pointed out in their letter dated 18 June 2010, that case did not depend on establishing that there were defects in the design of the pavement or defects in its construction. Rather, it depended on Tzaneros proving that the pavement was incapable of supporting the contracted-for loads for a minimum life of 20 years with minimum maintenance. In support of that contention, Tzaneros relied on the degree of cracking and spalling of a large number of panels that comprised the pavement. It was Tzaneros’s case that, as a result of that cracking and spalling, the pavement needed to be replaced. The causes of the defects may have been relevant to a number of issues raised by WGC’s defence. It may also have been relevant to the design adopted for the replacement pavement and consequently the costs of replacement. But it was not relevant to Tzaneros’s case that the pavement failed to meet the contractual specification and had to be replaced and that WGC was liable for the costs of replacement. That claim was part of the proceedings as commenced. It did not change in substance during the course of the proceedings and was the claim on which Tzaneros succeeded.

52. In my opinion, Tzaneros is entitled to its costs on an indemnity basis from the day after the 2010 Offer was made. That offer was a genuine offer of compromise and Tzaneros did substantially better than it. WGC submits that Tzaneros is not entitled to rely on the offer because it did not give WGC the particulars it had requested. However, Tzaneros’s obligation was to give “such particulars of the plaintiff’s claim … as are necessary to enable the defendant to fully consider the offer”. For the reasons I have given, I do not accept that the causes of the defective pavement were proper particulars of Tzaneros’s claim. Tzaneros was entitled to succeed if it established that the pavement failed to meet the contractual specification whatever the causes of that failure. Consequently, particulars of the causes were irrelevant to its claim.

53. I should add that, if I am wrong in that conclusion, I would have ordered that WGC pay Tzaneros’s costs on an indemnity basis from the day after the 2013 Offer was made. Again, it cannot be disputed that the 2013 Offer was a genuine offer of compromise and that Tzaneros did better than that offer. WGC submits in relation to that offer that the court should make an order different from the one provided for by UCPR r 42.14 because, at the time the offer was made, the pleadings were in a state of flux and it was not unreasonable in those circumstances for WGC to have rejected the offer. In support of this submission, it relied on the decision in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 at [17]-[21].

54. I do not accept that submission. It is true that, at the time the offer was made, Tzaneros’s application to amend had not been determined. However, for the reasons I have given, I do not consider that the amendments changed the nature of Tzaneros’s case substantially. Nor do I accept that the correct question is whether WGC acted unreasonably in rejecting the offer. The question whether an offeree acted reasonably in rejecting an offer is relevant to the question whether the court should make a costs order that is more favourable than the one to which the offeror would normally be entitled on the basis that the offeror does better than an offer of compromise made in accordance with the principles stated in Calderbank v Calderbank [1975] 3 WLR 586. That was the issue with which Illawarra Hotel was concerned. But the question under UCPR r 42.14 is whether the court should order otherwise. It is for the offeree to satisfy the court that the facts of the case are such that it should. The offeree does not discharge that onus merely by proving that it acted reasonably in rejecting the offer.

55. No submission was advanced against Tzaneros’s claim for interest on its costs. The proceedings have been on foot for a long period of time. In those circumstances, I think it is appropriate to make an order for interest on costs. The order for interest sought by Tzaneros is in the form proposed by Campbell J in Lahoud v Lahoud [2006] NSWSC 126. Again, no reason was advanced why an order should not be made substantially in that form.

AMT’s claim for costs from Tzaneros

56. AMT succeeded in its defence of Tzaneros’s claim. It did so on the basis that it owed no duty of care to Tzaneros in relation to the design of the pavement. Shortly before the hearing, Tzaneros abandoned its claim based on AMT’s inspection of the pavement in 2006 and the preparation of a report following that inspection. In the normal case, in my opinion, AMT would have been entitled to its costs of defending Tzaneros’s claim, even though it failed on a number of issues. Tzaneros abandoned one claim. The claim that it pursued had little prospects of success in light of the High Court’s decision in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515. AMT acted reasonably in raising the other defences that it did. If they were the only relevant facts, I cannot see why AMT should not recover its costs of defending the claim.

57. However, the position is complicated by the fact that much of the work done by AMT was also relevant to WGC’s claim, which AMT defended unsuccessfully. That work would have been undertaken by AMT whether or not Tzaneros pursued its claim. In particular, it would have been necessary for AMT to lead detailed evidence concerning its involvement in the design of the pavement, which it did. The only other evidence led by AMT was from Mr Munn, which was directly relevant to WGC’s claim. In my opinion, it would not be reasonable to require Tzaneros to reimburse AMT for costs that AMT would have incurred in any event in defending the claim brought by WGC which succeeded.

58. On the other hand, AMT did incur costs that were only relevant to its defence of the claim brought by Tzaneros. Those costs included the costs of preparing its defence to Tzaneros’s claim, the costs of investigating the circumstances surrounding the inspection in 2006 and the preparation of the report on which Tzaneros sued, the costs of considering evidence served by Tzaneros that was relevant to the claim against AMT, the costs associated with cross-examining Tzaneros’s witnesses on matters relevant to Tzaneros’s claim and the costs of preparing submissions in relation to that claim.

56. It would be difficult and time consuming to seek to separate out the costs relevant to Tzaneros’s claim from other costs AMT incurred in the proceedings. In my opinion, it is preferable simply to order that Tzaneros pay AMT a proportion of its costs of the proceedings. That necessarily involves taking a broad-brush approach based on impression. Taking that approach, Tzaneros submitted that it should pay 10 percent of AMT’s costs. In making that submission, I think that Tzaneros understates to some extent the work that was done by AMT in relation to Tzaneros’s claim. Tzaneros appears to have made no allowance for its abandoned claim based on the 2006 inspection and report. It submits that the duty of care point on which AMT was successful raised a legal point. However, as I have indicated there was other work that needed to be done to address Tzaneros’s claim. On the other hand, I accept that most of the work that was done by AMT would have to have been done in any event in defence of the claim brought by WGC. Taking these matters into account, in my opinion, it is reasonable to order that Tzaneros pay 20 percent of AMT’s costs of the proceedings. There is no reason why Tzaneros should not pay interests on those costs.

Tzaneros’s costs of the claim against AMT from 25 April 2015

60. Tzaneros claims that WGC should pay Tzaneros’s costs of pursuing its claim against AMT from 25 April 2015, including the costs that Tzaneros is ordered to pay AMT, on the basis of WGC’s refusal to accept Tzaneros’s proposal that Tzaneros would abandon its claim in negligence against AMT if WGC withdrew its contention that Tzaneros’s claim was an apportionable one. 25 April 2015 is the date on which the proposal was first put.

61. In my opinion, it is not appropriate to make an order in the terms sought by Tzaneros. Although it is apparent from the history of the matter that Tzaneros re-introduced its claim that AMT owed it a duty of care in relation to the design of the pavement because of WGC’s proportionate liability defence, that was not Tzaneros’s only claim against AMT. Moreover, Tzaneros’s initial proposal was expressed as a draft proposal for narrowing the issues in the case. It was not clear from the proposal whether it was an offer that was capable of being accepted and whether Tzaneros was prepared to accept only parts of the proposal. Tzaneros did not make it clear until 1 October 2015 that it would rely on the offer in relation to costs. By that stage, it is apparent that Tzaneros maintained its claim against AMT only as a matter of form, and it incurred very few costs in relation to the claim. It is true that AMT continued to incur costs in defending the claim for which Tzaneros is liable. But it is difficult to separate those costs out from AMT’s total costs of defending Tzaneros’s claim, and it is not obvious that the same percentage as an estimate of AMT’s total costs of defending Tzaneros’s claim can be applied to costs it incurred after 1 October 2015. It was open to Tzaneros at the time it sought to amend its claim to write to WGC indicating that it was only doing so because of WGC’s proportionate liability defence, that it intended in support of that claim to rely only on material relied on by WGC in its defence and that it would seek to recover any costs it was ordered to pay in relation to the claim from WGC. However, it did not do so.

WGC’s costs of the cross claim against AMT

62. As I have said, AMT accepts that it is liable to pay WGC’s costs. Three issues remain. The first is whether those costs should include costs incurred before 19 November 2013 (or 22 November 2013, which is the date the cross-claim was actually filed). The second is whether they should include Tzaneros’s costs. The third is whether, if the costs include Tzaneros’s costs, those costs should be assessed on an indemnity basis.

63. As to the first issue, any order will be expressed in terms of an order that AMT pay WGC its costs of the cross-claim. An order in that form provides sufficient protection to AMT. It will be a matter for the assessor to determine which costs incurred by WGC before the cross-claim was filed, if any, can properly be said to be costs of the cross-claim. To the extent that costs incurred before that date meet that description, there is no reason why AMT should not pay them. To the extent that costs incurred before that date do not meet that description, AMT will not be liable for them.

64. As to the second issue, AMT advances two reasons why it should not be required to bear the costs payable by WGC. First, it submits that the order sought is an order for damages, not costs; and the court has already dealt with the question of damages. Second, it submits that it was open at any time to WGC to admit liability to Tzaneros or to accept the offers made by Tzaneros.

65. I do not accept either of those submissions. The issue concerns Tzaneros’s costs and the court has full power to determine by whom those costs are payable. Where a cross-claimant succeeds on a cross-claim and fails in defending the claim brought by the plaintiff, it is normal to order the cross-defendant to pay a share of the costs payable by the defendant which is proportionate to the contribution the cross-defendants conduct made to the defendant’s liability: Sinclair v William Arnott Pty Ltd (1963) 64 SR (NSW) 88 at 96 per Walsh J. See also G E Dal Pont, Law of Costs, LexisNexis, 3rd ed, 2013 at [11.34]. There is no reason to depart from that principle in this case. On the conclusions that I reached, the responsibility for the defective pavement ultimately lay with AMT because of its defective design. It was open to AMT to admit liability or make an offer of compromise. It did not do so. It contested the issues relating to quantum contested by WGC and relied heavily on the evidence filed by WGC in doing so. In those circumstances, it should bear Tzaneros’s costs of its claim against WGC.

66. On the other hand, I do not think that AMT should bear the consequences of WGC’s failure to accept the 2010 Offer. The cross-claim was not on foot at the time that offer was made. There is nothing that AMT could have done to avoid the consequences of non-acceptance of the offer (such as offering to indemnify WGC in the event that it accepted the offer). In those circumstances, the consequences of non-acceptance should not be visited on AMT. Nor do I think that AMT should be liable for the costs payable by WGC in respect of Tzaneros’s claim before WGC’s cross-claim was filed. Before that time, AMT had no control over those costs. It could not, for example, be expected to settle a claim that had not been brought against it.

67. It follows that in principle AMT should pay WGC the costs payable by WGC in respect of Tzaneros’s claim from 22 November 2013 assessed on the ordinary basis. However, from a practical point of view it seems highly undesirable to make orders that would require Tzaneros’s costs to be assessed both on an indemnity basis and on the ordinary basis. It is doubtful that the costs and difficulties of doing so would be justified. In my opinion, it would be preferable to order that AMT pay a proportion of the costs payable by WGC to Tzaneros from 22 November 2013. A reasonable proportion would be 80 percent of the costs payable by AMT.

68. Consistently with the approach taken in relation to Tzaneros’s costs, there is no reason why AMT should not pay interest on the costs payable to WGC in respect of its cross-claim.

Setoff

69. Interlocutory costs orders were made in favour of WGC against Tzaneros and in favour of AMT against Tzaneros on 27 May 2010, 21 November 2013 and 16 October 2015. Tzaneros proposes that the amount of the costs in favour of WGC be set off against the costs payable by WGC to Tzaneros and that the costs orders in favour of AMT be set off against an interlocutory costs order made in favour of Tzaneros against AMT on 27 May 2010.

70. In my opinion, orders to that effect should not be made. The setoff in relation to the costs payable by WGC to Tzaneros would have consequences for the costs order against AMT in respect of Tzaneros’s costs. There is no reason to interfere with the other interlocutory costs orders.

Stay of the judgment

Relevant principles

71. The starting point is that the judgment appealed from is assumed to be correct and a successful plaintiff is entitled to the fruits of its victory: TCN Channel 9 Pty Ltd v Antoniadis (No 2) [1999] NSWCA 104; (1999) 48 NSWLR 381; Julia Farr Services Inc v Hayes [2003] NSWCA 142 at [24] per Santow JA; Lawrence v Gunner [2015] NSWCA 322 at [11] per Gleeson JA.

72. However, the court will stay a judgment where the interests of justice require it to do so: NSW Bar Association v Stevens [2003] NSWCA 95 at [83] per Spigelman CJ. One type of case where the interests of justice will almost inevitably lead to a stay is where the appellant has an arguable case on appeal and where if the appeal is successful the successful appellant will be unable to recover the judgment from an impecunious plaintiff: see Saint-Gobain Abrasives Pty Ltd v McPherson [2008] NSWCA 262 at [18] per McColl JA.

73. It may also be appropriate to grant a stay where there is a risk that the plaintiff will be unable to repay the judgment sum without difficulty or delay if the appeal were to succeed: TCN Channel 9 at [15]. However, it is necessary to assess that risk and balance it against the interests of the plaintiff in obtaining the fruits of its victory so as to produce a result that is fair to both parties. In doing so the court will weigh considerations such as the balance of convenience and the competing rights of the parties before it: Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 694 (CA); Adeels Palace Pty Ltd v Moubarak [2009] NSWCA 130 at [5] per Hodgson JA.

Background

74. Tzaneros has obtained judgment against WGC for approximately $11.6 million. Walker has guaranteed the payment of that judgment and, having regard to its financial position, and barring the most unexpected events, it seems plain that it will be in a position to honour that guarantee whenever it is called upon.

75. Tzaneros is the trustee of the Tzaneros Investment Trust. It has no assets of its own. It has sold its interest in the terminal and distributed the proceeds of sale. It owns (as trustee) a leasehold interest in a shipping container park at Matraville. Mr Bryson has been since 2005 the external accountant for entities in the Tzaneros group, including various family trusts and Mr Arthur Tzaneros and his wife, Mrs Anne Tzaneros. He estimates the value of that leasehold interest at approximately $4 million. Tzaneros’s only other assets are the judgment it has obtained against WGC and the security it has deposited for WGC and AMT’s costs ($750,000 in each case).

76. Tzaneros’s principal liability is the obligation to rectify the defects in the pavement under the contract by which it transferred the lease of the terminal to TCAL and under a side deed that it entered into with TCAL in connection with the sale of the terminal. Under the former contract, Tzaneros is required to undertake the rectification work if ACFS requests that work to be undertaken or if it would be reasonable for ACFS to request that the work be undertaken, ACFS does not object to the work and there has been a deterioration in the condition of the pavement which would justify the work being carried out. Under the side deed, Tzaneros is required to commence some but not all of the rectification work by 1 December 2016 and to complete that work by 1 December 2017 (subject to the possibility of extensions).

77. It is apparent from what I have said that Tzaneros does not have the financial capacity to undertake the rectification work without access to the judgment sum. It is required to commence some of that work no later than 31 December 2016. It may be required to commence work earlier, but that depends on whether ACFS serves a notice requesting work to be done and the extent to which there is any further deterioration of the pavement. If work is undertaken and Tzaneros pays for it from the judgment sum, it is unlikely that it will be in a position to repay the judgment sum in the event that WGC is successful on appeal, although ultimately that will depend on when judgment is handed down, what costs have been incurred and the ability of Tzaneros to realise its interest in the shipping container park.

78. No doubt conscious of Tzaneros’s financial position, Mr and Mrs Tzaneros have offered, as a condition of the court refusing a stay, an undertaking to meet any order to repay the judgment amount, costs and interest. The undertaking is given on their own behalf and on behalf of a number of companies and trusts they control and of which they are beneficiaries. Mr and Mrs Tzaneros also give an undertaking not to cause or permit the net assets of the entities on behalf of which the undertakings are given to fall below $25 million and an undertaking that if the judgment amount is paid to Tzaneros, Tzaneros will only use the amount in the ordinary course of the business of the trust of which Tzaneros is the trustee (other than making distributions). The proposed undertaking is Annexure A - Undertaking (36.1 KB, pdf) Annexure A - Undertaking (36.1 KB, pdf) to this judgment.

79. According to Mr Bryson, the net assets of the entities covered by the undertaking (leaving aside Mr and Mrs Tzaneros’s superannuation) are approximately $70 million. That figure includes the judgment sum but does not include Tzaneros’s liability to repair the pavement.

80. In calculating the net assets, Mr Bryson gives evidence that the total liabilities of the entities are approximately $29,300,000. There is no reason to doubt that evidence.

81. Mr Bryson identifies four main assets of the entities covered by the undertaking.

82. First, Mr and Mrs Tzaneros are the owners as joint tenants of a property at Darling Point, which they bought in June 2015 for $23,200,000. There is nothing to suggest that that was not an arms-length transaction. In those circumstances, it is reasonable to assume that the value of the property remains at about that figure.

83. Second, there is the interest in ACFS. ACFS is the company which now owns the terminal, among other assets. As I have said, ACFS is a joint venture between Tzaneros family entities and Asciano Limited. In July 2015, it issued 90 million shares for $90 million. The transactions by which that occurred are complicated. However, it is clear from the terms of a Business Purchase Agreement entered into on 10 April 2015 that ACFS agreed that the value of the assets sold to it by the Tzaneros family interests was $44,480,000 and ACFS agreed to issue 44,479,990 shares in exchange for those assets.

84. TZI 1 Pty Ltd (TZI) now owns 44,480,000 of the shares in ACFS, ZED Group Australia Pty Limited (ZED Group) owns 416,000 of those shares and Mr Arthur Tzaneros (Mr Tzaneros Jnr), Mr Tzaneros’s son, owns 104,000 of those shares.

85. ZED Group owns 80 percent of the shares in TZI. The remaining 20 percent are owned by Mr Tzaneros Jnr. Mr Tzaneros and Mr Tzaneros Jnr are its directors. TZI is the trustee of a unit trust now known as the Australian Container Freight Services Trust. Mr Tzaneros holds 35 A Class Units and 5 D Class Units. ZED Group holds 35 B Class Units, 5 D Class Units and 21,750,000 Ordinary Units. Mr Tzaneros Jnr holds 20 C Class Units. The different classes of unit entitle the holders of those units to different shares of the income and capital gains of the trust. The trust deed gives the trustee power to give guarantees.

86. Mr Tzaneros owns all the shares in ZED Group and is its sole director. ZED Group is the trustee of the Z Group Trust, which is a discretionary trustee of which Mr and Mrs Tzaneros and their family are beneficiaries and Mr and Mrs Tzaneros are the appointors. The trust deed gives the trustee broad powers including a power to borrow funds and an absolute discretion to distribute the income of the trust, and from the vesting day (which can be varied with the consent of the appointors) the trust fund, to any of the beneficiaries.

87. The third asset identified by Mr Bryson is an interest in AGS Group Holdings Pty Ltd (AGS Holdings). AGS Holdings, through its wholly owned subsidiary, AGS World Transport Pty Ltd, carries on a wholesale freight forwarding business. At the commencement of 2016, ZED Group as trustee of the Z Group Trust held 29.4 percent of the shares in AGS Holdings. The balance of the shares was held by Perpetual Corporate Trust Limited as custodian for Wolseley Partners Fund II LP and another entity. In about March 2016 ZED Group acquired those shares for $10,700,000. It has paid that price through vendor finance. That transaction values ZED Group’s 29.4 percent of the shares at $4,455,807 and its total interest in AGS Holdings as a result of the acquisition of the remaining shares at approximately $15 million.

88. The fourth asset identified by Mr Bryson is the interest in Tzaneros. I have already described the assets of that company. Since it is a party to the proceedings, it is not necessary to say anything further about its ownership and the extent to which its assets would be available to meet any order for the repayment of the judgment amount as a result of the undertaking offered by Mr and Mrs Tzaneros. It is sufficient to observe that Mr Tzaneros is the director of Tzaneros (Mr Tzaneros Jnr is his alternate).

The parties’ contentions

89. Tzaneros submits that the undertaking offered by Mr and Mrs Tzaneros provides ample protection to WGC in the event that WGC is successful on appeal. On any view, the entities on behalf of whom the undertaking is given have net assets far in excess of the amount of the judgment. Mr and Mrs Tzaneros personally undertake not to take any action nor to permit any action to be taken that would reduce the net value of those assets below $25 million. In addition, Mr Tzaneros undertakes that Tzaneros will only use the judgment amount in the ordinary course of the trust other than making distributions.

90. WGC makes three main points in response to these submissions. First, it takes issue with the valuation of some of the assets relied on by Tzaneros. There is no current valuation of the house at Darling Point and there are no up to date accounts for the corporations or trusts. Some of the financial information that is available suggests that the assets are worth less than the amount ascribed to them by Mr Bryson. Second, WGC submits that the structure of the assets is complicated and that realising an amount to repay the judgment amount will take time and is likely to be difficult. Third, WGC submits that the undertaking only to use the judgment amount in the ordinary course of the trust business is unclear. However, if it means that Tzaneros will only use the judgment amount to pay for the costs of rectifying the pavement there is no reason why it needs to be paid now. Under the side deed, rectification work does not need to start until 31 December 2016. With expedition, there are reasonable prospects that the appeal could be determined before then.

Consideration

91. I am prepared to accept that WGC has an arguable case on appeal and, in particular, has an arguable case that the assignment to Tzaneros of the warranties given by WGC to P&O was ineffective to assign the rights on which Tzaneros relied.

92. However, in my opinion, if the judgment amount was paid and the appeal succeeded, WGC would be sufficiently protected by the undertaking proffered by Mr and Mrs Tzaneros. I accept that the assets identified by Mr Bryson may not have or retain the value he attributes to them. I also accept that realisation of those assets would be difficult having regard to the complicated structure through which they are held and the interests of Mr Tzaneros Jnr, who has not given an undertaking. Nonetheless, the house at Darling Point and the interests in trusts of which Mr and Mrs Tzaneros are beneficiaries and which they control are plainly valuable. There is no reason to think that the value of the property at Darling Point will decline substantially during the period the appeal remains unresolved. WGC took issue with the value of ACFS. To some extent it did so on the basis of a misreading of the available accounts. No doubt, it would have been preferable to have up to date accounts of the relevant entities. However, what is clear is that a public company unrelated to the Tzaneros interests was recently prepared to enter into a joint venture that valued ACFS at $90 million and valued the assets being contributed by the Tzaneros family interests at approximately half that amount. There is no suggestion that things have changed so significantly so as to affect that value substantially. Taking account of interest and costs, the total amount that Tzaneros will have to pay or repay is in the order of $15 million. On any reasonable view, the assets identified by Mr Bryson are worth a great deal more than that. In addition, Mr and Mrs Tzaneros have given a personal undertaking not to do anything that would have the effect of diminishing the net value of those assets below $25 million.

91. I accept that it would be time consuming and difficult for Mr and Mrs Tzaneros to realise the assets that are affected by their undertakings. However, that is not the relevant question. The question is whether it would be difficult for WGC to enforce any order for repayment of the judgment amount. Having regard to the value of the assets that are covered by the undertaking compared to the amount of the judgment debt, the likelihood is that Mr and Mrs Tzaneros will have no difficulty raising the amount necessary to satisfy their obligations under the undertaking. Having regard to the personal consequences for them if they did not do so, they have a strong incentive to raise those funds.

92. WGC submits that there is no reason why the judgment sum needs to be paid now, particularly having regard to Mr and Mrs Tzaneros’s undertaking that it will only be used in the ordinary course of Tzaneros’s business. In my opinion, there is nothing unclear about the form of that undertaking. As Tzaneros pointed out in submissions, it is the form of undertaking or order that is frequently given in connection with freezing orders. It would prevent Tzaneros from using the judgment amount other than the purpose of discharging ordinary business expenses, including its obligations to rectify the pavement. It is unclear when Tzaneros will have to rectify the pavement. Work may not need to start before the appeal is determined, but there can be no certainty that that will be the case. If work has to commence before that time, it is likely that Tzaneros will have to borrow money against the judgment amount, presumably supported by guarantees given by Mr and Mrs Tzaneros, to fund that work.

93. The position, then, is that on the undertakings given by Mr and Mrs Tzaneros, the judgment amount or most of it may remain in an account controlled by Tzaneros pending the appeal because no rectification work is necessary during that time. In that case, there will be a ready source for the repayment of the money if WGC succeeds on appeal. It is no answer to that to say that there is no reason why the judgment amount should be paid in that case. That submission reverses the onus. On the other hand, some rectification work may be necessary. In that case, if the judgment amount is not paid, Tzaneros will have to incur the costs and inconvenience of borrowing the funds to fund that work in circumstances where, if WGC fails on appeal, it would have done so unnecessarily. The high likelihood is that if WGC succeeds on appeal and the funds have to be repaid, Mr and Mrs Tzaneros will have no difficulty in raising those funds to discharge their obligations under the undertaking.

94. As I have said, the starting point is that Tzaneros is entitled to the fruits of its victory. For the reasons I have given, if WGC is successful on appeal, Tzaneros will be able to repay any judgment amount. The balance of convenience does not favour a stay. In those circumstances, in my opinion, no stay should be granted.

95. In the event that I reached that conclusion, WGC requested a short stay so that it could apply to the Court of Appeal for a stay. Tzaneros did not suggest that there was any urgency in it receiving the judgment amount. In those circumstances, I think it is appropriate that I stay the judgment for a period of 14 days to give WGC an opportunity to apply to the Court of Appeal for a stay.

Security for costs

98. Currently, Tzaneros’s solicitors hold in their trust account $750,000 as security for WGC’s costs and $750,000 as security for AMT’s costs.

99. Tzaneros accepts that, in principle, WGC continues to be entitled to security for its costs at first instance on the basis that Tzaneros may be liable to pay those costs in the event that WGC succeeds on appeal: see Penrith Whitewater Stadium Ltd & Anor v Lesvos Pty Ltd & Anor [2007] NSWCA 103; Challenger Group Holdings Ltd v Concept Equity Pty Ltd (No 2) [2008] NSWSC 1002. However, it seeks to substitute for the security that it has provided the undertaking given by Mr and Mrs Tzaneros.

100. In my opinion, there is no reason why Tzaneros should not be permitted to substitute the security it has provided for security in the form of the undertaking given by Mr and Mrs Tzaneros. The undertaking includes an undertaking to meet any adverse costs order made by the Court of Appeal in respect of the appeal proceedings and the proceedings at first instance. On the conclusions I have reached, there will not be any undue difficulty or delay in WGC enforcing that undertaking. It does not receive interest on the security it has currently deposited. Moreover, it is one thing to require a party to lodge security as a condition of it being permitted to continue an action it has commenced. It is another thing to require it to lodge security for a judgment that may be obtained against it. Consequently, in my opinion, it is reasonable for Tzaneros to seek a release of the security that it has provided.

101. AMT has obtained an order for costs in its favour against Tzaneros. Tzaneros accepts that it should provide security for those costs. I have concluded that Tzaneros should pay 20 percent of AMT’s costs of the proceedings assessed on a party/party basis. The evidence is that AMT’s total costs to date are in the order of $1.4 million. It may incur further costs on assessment which it is entitled to recover from Tzaneros. Taking those matters into account, it is reasonable that Tzaneros continue to provide $250,000 in respect of AMT’s costs.

Orders and costs

102. The orders of the court are:

1. The first defendant pay the plaintiff’s costs of the proceedings against the first defendant including on an indemnity basis from 14 December 2010.

2. The first defendant pay interest on the costs referred to in order (1) pursuant to sections 101(4) and (5) of the Civil Procedure Act 2005 (NSW) from the date on which the costs were paid at the prescribed rate on the Allowed Percentage (as defined below) of each amount of costs and disbursements actually paid by the plaintiff, from the date of payment by the plaintiff of each such amount of costs and disbursements until the first to occur of:

1. such time as the first defendant has paid the costs due to the plaintiff under any order made in these proceedings, or

2. any further order relating to interest on costs in these proceedings;

3. in accordance with the following calculation:-

X – equals the total amount of costs and disbursements which the plaintiff has paid or is liable to pay to its legal advisers in connection with the proceedings against the first defendant.

Y – equals the total amount of costs and disbursements allowed on assessment to the plaintiff in connection with the proceedings against the first defendant.

The Allowed Percentage equals ((Y/X) x 100)%.

3. The second defendant pay the first defendant’s costs of the first defendant’s cross-claim.

4. The second defendant pay interest on the costs referred to in order (3) pursuant to sections 101(4) and (5) of the Civil Procedure Act 2005 (NSW) from the date on which the costs were paid at the prescribed rate on the Allowed Percentage (as defined below) of each amount of costs and disbursements actually paid by the first defendant, from the date of payment by the first defendant of each such amount of costs and disbursements until the first to occur of:

1. such time as the second defendant has paid the costs due to the first defendant under any order made in these proceedings, or

2. any further order relating to interest on costs in these proceedings;

3. in accordance with the following calculation:-

X – equals the total amount of costs and disbursements which the first defendant has paid or is liable to pay to its legal advisers in connection with the first defendant’s cross-claim.

Y – equals the total amount of costs and disbursements allowed on assessment to the first defendant in connection with the first defendant’s cross-claim.

The Allowed Percentage equals ((Y/X) x 100)%.

5. The second defendant pay the first defendant 80% of the costs that the first defendant is required to pay the plaintiff pursuant to orders (1) and (2) in respect of the period from 22 November 2013.

6. The plaintiff pay 20% of the second defendant’s costs of the proceedings.

7. The plaintiff pay interest on the costs referred to in order (6) pursuant to sections 101(4) and (5) of the Civil Procedure Act 2005 (NSW) from the date on which the costs were paid at the prescribed rate on the Allowed Percentage (as defined below) of each amount of costs and disbursements actually paid by the second defendant, from the date of payment by the second defendant of each such amount of costs and disbursements until the first to occur of:

1. such time as the plaintiff has paid the costs due to the second defendant under any order made in these proceedings, or

2. any further order relating to interest on costs in these proceedings;

3. in accordance with the following calculation:-

X – equals the total amount of costs and disbursements which the second defendant has paid or is liable to pay to its legal advisers in connection with these proceedings.

Y – equals the total amount of costs and disbursements allowed on assessment to the second defendant in connection with these proceedings.

The Allowed Percentage equals ((Y/X) x 100)%.

8. Subject to order (9), the order for security for costs made on 7 April 2014 in favour of the first defendant is discharged and the solicitor for the plaintiff is at liberty to release to the plaintiff the sum of $750,000 held as security for costs in respect of the costs of the first defendant.

9. Order (8) is conditional on the plaintiff filing in court and serving on the first defendant a signed undertaking substantially in the form of Annexure A - Undertaking (36.1 KB, pdf) to this judgment.

10. The order for security for costs made on 23 October 2014 in favour of the second defendant is varied so as to reduce the amount of security provided in respect of the second defendant’s costs to $250,000 and the solicitor for the plaintiff is at liberty to release to the plaintiff the sum of $500,000 held as security for costs in respect of the costs of the second defendant.

11. The judgment obtained by the plaintiff against the first defendant be stayed until the later of:

1. 13 May 2016.

2. The date on which the plaintiff files with the court and serves on the first defendant a signed undertaking substantially in the form of Annexure A - Undertaking (36.1 KB, pdf) to this judgment.

103. That leaves the costs of the costs hearing itself and the stay application. If the parties cannot reach agreement on those costs within 7 days they should each provide to my Associate within a further 14 days written submissions not exceeding five pages in relation to those costs and I will determine the matter on the papers.

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Decision last updated: 02 May 2016