Yu v Cao

[2015] NSWCA 276

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:	Yu v Cao [2015] NSWCA 276
Hearing dates:	19 November 2014
Date of orders:	14 September 2015
Decision date:	14 September 2015
Before:	McColl JA at [1]; Sackville AJA at [187]; Adamson J at [191]
Decision:	(1)   Grant leave to appeal; (2)   Appellant to file the notice of appeal in the form of the draft appearing in the White Book at page 235 within seven days; (3)   Appeal allowed; (4)   Set aside the orders made by Walmsley ADCJ on 20 March 2014; (5)   Dismiss the respondent’s notice of motion filed on 25 September 2013 insofar as it sought orders against the appellant with costs; (6) Respondent to pay the appellant’s costs of the application for leave to appeal and of the appeal and to have a certificate under the Suitors’ Fund Act 1951 (NSW) if otherwise qualified.
Catchwords:	Procedure – costs – s 98, Civil Procedure Act 2005 (NSW) – costs order against non-party – where plaintiff allegedly defamed in email sent from email address appearing to be defendant’s – where email in fact composed and sent by defendant’s husband –where plaintiff instructed solicitors to advise in relation to defamation proceedings – where plaintiff immediately saw email as work of defendant’s husband – where solicitors commenced defamation proceedings against defendant – where defendant denied publishing email – where plaintiff frequently sought advice from solicitors as to joining defendant’s husband – defendant’s husband not joined – where at trial defendant’s husband gave evidence he composed and sent email from email address appearing to be defendant’s – where trial judge found plaintiff failed to prove defendant published the email – where trial judge found defendant’s husband obvious alternative defendant – whether trial judge erred in exercising discretion to award non-party costs in ordering defendant’s husband to pay costs plaintiff was ordered to pay defendant and costs for which plaintiff liable to solicitors   Procedure – costs order against non-party – principles for exercising discretion to award costs against non-party – relevant circumstances
Legislation Cited:	Civil Procedure Act 2005 (NSW) Defamation Act 2005 (NSW) Evidence Act 1995 (NSW) Legal Profession Act 2004 (NSW), Limitation Act 1969 (NSW) Suitors’ Fund Act 1951 (NSW) Supreme Court Act 1970 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Almeida v Universal Dye Works Pty Limited (No 2) [2001] NSWCA 156 Arena Management Pty Ltd (Receiver & Manager Appointed) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128; (2011) 80 NSWLR 652 Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406 Barton v Armstrong [1976] AC 104 Bullock v London General Omnibus Company [1907] 1 KB 264 Cao v Liu [2013] NSWDC 8 Cao v Liu [2013] NSWDC 172 Capital Securities (Aust) Pty Ltd v Perpetual Trustees Vic Ltd & Anor [2009] VSCA 259 Central Queensland Development Corp Pty Ltd v Sunstruct Pty Ltd [2015] FCAFC 63; (2015) 106 ACSR 127 Commercial Union Assurance Co of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; (2012) 200 FCR 154 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2005] 1 NZLR 145 Edgington v Fitzmaurice (1885) 29 Ch D 459 Flinn v Flinn [1999] VSCA 134 FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 Gore v Justice Corp Pty Ltd [2002] FCA 354; (2002) 119 FCR 429 Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 House v R [1936] HCA 40; (1936) 55 CLR 499 Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75 Kebaro Pty Ltd v Saunders [2003] FCAFC 5 Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 Links Golf Tasmania Pty Ltd v Sattler (No 2) [2012] FCA 1271; (2012) 297 ALR 724 March v Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 May v Christodoulou [2011] NSWCA 75; (2011) 80 NSWLR 462 Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 Palmer Bruyn and Parker v Parsons [2001] HCA 69; (2001) 208 CLR 388 Perpetual Trustees v Capital Securities [2009] VCC 34 Ridehalgh v Horsefield [1994] Ch 205 Selig v Wealthsure Pty Ltd [2015] HCA 18; (2015) 89 ALJR 572 Shah v Karanjia [1993] 4 All ER 792 Sved v Council of the Municipality of Woollahra (1998) NSWConvR ¶55-842 Symphony Group Plc v Hodgson [1994] QB 179 Vestris v Cashman (1998) 72 SASR 449 Wentworth v Wentworth [1999] NSWSC 317; (1999) 46 NSWLR 300 Wentworth v Wentworth [2000] NSWCA 350; (2000) 52 NSWLR 602
Texts Cited:	Handley, K R, Actionable Misrepresentation (5th ed, LexisNexis, 2014)
Category:	Principal judgment
Parties:	George Yu (Appellant) Ping Cao (Respondent)
Representation:	Counsel: TD Blackburn SC with R Rasmussen – Applicant KP Smark SC with Y Guo – Respondent     Solicitors: Etheringtons Solicitors (Appellant) Fitzpatrick Solicitors (Respondent)
File Number(s):	CA 2014/100983
Publication restriction:	No
Decision under appeal	Court or tribunal: District Court of New South Wales Jurisdiction: Civil Date of Decision: 20 March 2014 Before: Walmsley SC ADCJ File Number(s): 2012/275052

HEADNOTE

[This headnote is not to be read as part of the Judgment]

Mr Ping Cao brought proceedings for defamation against Ms Shengrong Liu as the alleged publisher of a defamatory email published under an email address apparently in her name. Soon after the email was published, Mr Cao saw it as the work of Ms Liu’s husband, Mr George Yu. Mr Cao retained a firm of solicitors, in particular the principal solicitor in that firm, to advise him whether defamation proceedings could be brought in relation to the email. Early in that retainer, Mr Cao sought advice from that solicitor about adding Mr Yu to the case. The solicitors commenced proceedings against Ms Liu alleging she was the publisher of the email. She denied that allegation. Over an extensive period prior to the trial, Mr Cao continued to seek the solicitor’s advice about adding Mr Yu to the proceedings. Mr Yu was never joined as a party to the defamation proceedings.

During the trial of the defamation case against Ms Liu, Mr Yu gave evidence that he had set up the email address from which the email had been sent and had written and sent the email. The primary judge accepted that evidence. He found that Mr Cao had not established that Ms Liu sent the email or caused it to be sent. He concluded that the evidence showed there was an obvious alternative defendant who could have been sued but was not. It was clear his Honour intended to refer to Mr Yu in making that finding. Mr Cao lost the defamation case and was ordered to pay Ms Liu’s costs.

Following the trial Mr Cao retained new legal advisers. He filed a notice of motion seeking a costs order against Mr Yu pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (NSW) and against his former solicitor pursuant to s 99 of the same Act. He alleged that by reason of Mr Yu’s representations that the email had been sent by Ms Liu, he had joined her as the defendant to the proceedings and not Mr Yu. Insofar as the former solicitor was concerned, Mr Cao asserted that the costs he had been ordered to pay Ms Liu had been incurred by that solicitor’s serious neglect and/or serious incompetence in failing to advise that Mr Yu should be joined as a defendant when the proceedings were commenced, or alternatively, in failing to seek to join him as a defendant prior to the hearing. The application for a costs order against the solicitor was discontinued after the costs application was heard but before judgment was delivered.

The primary judge held on the basis of the composition of the email and by reference to other emails tendered on the costs application that Mr Yu had represented that Ms Liu was the author of the email and that because of Mr Yu’s acts, Mr Cao sued the wrong person. His Honour also found that Mr Yu should have been joined when Mr Cao told his former solicitor of his suspicion that Mr Yu had sent the email. Although his Honour referred to the fact that Mr Cao had frequently raised with his former solicitor the possibility of joining Mr Yu, he said it was not necessary for him to consider why that solicitor never advised Mr Yu be joined as an alternative defendant.

His Honour concluded that it was in the interests of justice to make the orders sought because it was Mr Yu’s conduct which brought about the litigation. His Honour ordered Mr Yu to wholly or partly indemnify Mr Cao in respect of such costs as he was ordered to pay Ms Liu and, too, to wholly or partly indemnify Mr Cao in respect of any costs paid or payable by him to his former solicitor and to pay the costs of the costs application.

Mr Cao sought leave to appeal, and to appeal, from those orders.

Held by McColl JA (Sackville AJA and Adamson J agreeing), granting leave to appeal and allowing the appeal:

(1) The Court’s discretion to make a costs order against a non-party pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (NSW) is an exceptional jurisdiction which may be exercised where, in the circumstances of the case, the interests of justice require that such an order be made (at [137], [139]).

Knightv FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178; Selig v Wealthsure Pty Ltd [2015] HCA 18; (2015) 89 ALJR 572 applied.

DymocksFranchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2005] 1 NZLR 145; Gore v Justice Corp Pty Ltd [2002] FCA 354; (2002) 119 FCR 429 referred to.

(2)   It will be more exceptional for an order for the payment of costs to be made against a non-party where the applicant has a cause of action against the non-party and could have joined that person as a party to the original proceedings (at [145]).

Symphony Group Plc v Hodgson [1994] QB 179 applied.

(3) The primary judge erred in the exercise of his discretion in confining his consideration of the exercise of his s 98(1)(b) power to the commencement of the proceedings against Ms Liu and failing to consider the circumstances which led to Mr Yu not having been joined at any stage in the proceedings and, further, in failing to place any weight on his finding at trial that Mr Yu was the obvious alternative defendant who could have been sued but was not (at [158] – [159], [166]).

Symphony Group Plc v Hodgson [1994] QB 179 applied.

(4)   “Exceptional” in the context of the exercise of the non-party costs jurisdiction means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense (at [139]).

DymocksFranchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2005] 1 NZLR 145; Gore v Justice Corp Pty Ltd [2002] FCA 354; (2002) 119 FCR 429 applied.

(5)   The fact that a costs application is a summary procedure and not subject to the rules which would apply in an action heightens the necessity to ensure that any departures from fundamental principle do not wreak an injustice (at [168]).

Symphony Group Plc v Hodgson [1994] QB 179 applied.

Ridehalgh v Horsefield [1994] Ch 205; Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678; Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 referred to.

(6)   In re-exercising the costs discretion, when the circumstances of the case were examined, there was nothing which took it out of the ordinary run of cases where there is the possibility of more than one person being responsible for a tort (at [184]).

(7)   The circumstances of the case were not such as to warrant, in the interests of justice, the exercise of the exceptional power to make a non-party costs order against Mr Yu (at [185]).

**********

JUDGMENT

HEADNOTE

JUDGMENT

Statement of the Case

The Liability Judgment

The Third Party Costs Application

The Costs Judgment

Issues on Appeal

Mr Yu’s submissions

The Wasted Costs application

Mr Cao’s Submissions

Consideration

Non-party costs orders – scope of the power

Non-party costs orders – causation

Application of principles

Re-exercising the discretion.

Orders

1. McCOLL JA: The applicant, Mr George Yu, seeks leave to appeal from a decision of Acting Judge Walmsley SC in the District Court ordering him to indemnify the respondent, Mr Ping Cao, in respect of a costs order made against Mr Cao at the conclusion of a defamation trial and also in respect of costs paid or payable by Mr Cao to his former solicitor, Mr Barrie Goldsmith, in connection with that trial. [1] The Court was informed the quantum of those costs is in the order of $300,000.

   1. Ping Cao v Shengrong Liu (District Court (NSW), Walmsley SC ADCJ, 20 March 2014, unrep) (the “costs judgment”).

2. The judgment under appeal arose in the aftermath of a defamation trial, also heard by the primary judge, in which Mr Cao sued Mr Yu’s wife, Ms Shengrong Liu, as the alleged publisher of a defamatory email sent on 20 November 2011 to members of the Chinese Professional Club of Australia (the “CPCA”), of which Mr Yu and Mr Cao were members. On 6 September 2013, the primary judge found Mr Cao had failed to prove publication of the matter complained of by Ms Liu, entered a verdict and judgment in her favour, and ordered Mr Cao to pay her costs. [2] Those costs were agreed to be $105,000.

   2. Cao v Liu [2013] NSWDC 172 (the “liability judgment”).

3. On 25 September 2013, Mr Cao filed a notice of motion in the proceedings (the “non-party costs motion”), seeking an order pursuant to s 98 of the Civil Procedure Act 2005 (NSW) (the “CPA”) that Mr Yu, who had testified but not been joined as a party to the proceedings, wholly or partly indemnify him in respect of the costs he had been ordered to pay Ms Liu and also that he indemnify Mr Cao in respect of any costs paid or payable to Mr Goldsmith.

4. The motion also sought an order pursuant to s 99 of the CPA or s 348 of the Legal Profession Act 2004 (NSW) (the “LPA”) that Mr Goldsmith pay to Mr Cao any costs the latter had been ordered to pay Ms Liu and, too, an order pursuant to the same provisions that the whole of the costs between Mr Cao and the solicitor be disallowed as between solicitor and client (the “wasted costs application”). However the wasted costs application was withdrawn by consent before the costs judgment was handed down. [3]

   3. Costs judgment (at 2).

5. Leave to appeal was no doubt sought out of abundant caution having regard to s 101(2)(c) of the Supreme Court Act 1970 (NSW) which requires leave to appeal be granted where an appeal is from orders as to costs only which are in the discretion of the Court. There may be room for debate whether leave is required where the costs order is one against a non-party, albeit made in exercise of the costs discretion in s 98 of the CPA. [4] Neither party addressed the issue. It is unnecessary for this Court to resolve it either as, for the reasons that follow, I am of the view that, if required, leave to appeal should be granted, the appeal allowed with costs and the non-party costs motion dismissed with costs.

   4. See Arena Management Pty Ltd (Receiver & Manager Appointed) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128; (2011) 80 NSWLR 652 (“Arena Management”) (at [104] – [121]) per Campbell JA (McColl and Macfarlan JJA agreeing).

Statement of the Case

6. The power to make the costs order against Mr Yu was indisputably found in s 98(1)(b) of the CPA which empowers the Court to determine, inter alia, by whom and to what extent costs are to be paid. The principal controversy was whether the primary judge erred in a manner reviewable on appeal in exercising the discretion as to costs s 98(1)(b) conferred.

7. Mr Yu had been a president of the CPCA, as too had Mr Cao. Mr Yu also controlled the CPCA email system. Mr Yu and Mr Cao had different views about modern China. On 20 November 2011, the matter complained of was published under an email address (liunancyXXX) apparently in Ms Liu’s name. [5] “Nancy” was an anglicised version of Ms Liu’s name by which some knew her and with which the email was signed. The matter complained of was written in Chinese. It was sent to members of an email chat group (the “TALK group”) which had been set up within the CPCA and was used to discuss matters of mutual interest. [6]

   5. The email address has not been reproduced in accordance with the Court’s policy on identity theft prevention

   6. The matter complained of is set out in the liability judgment (at [25]).

8. Mr Cao viewed the email as a personal attack accusing him of being part of a political plot to change an election result for a position on the Board of the CPCA, of being dishonest and of betraying a professor who had been elected to the Board.

9. Mr Cao and several of his friends immediately saw the email as the work of the defendant’s husband, Mr Yu. As the primary judge found, soon after publication Mr Cao and others sent an email asserting that Mr Yu had been using the liunancy email account under cover of which the matter complained of was sent. [7]

   7. Liability judgment (at [2], [39]).

10. On 22 November 2011, Mr Cao retained Mr Goldsmith and his firm to advise him whether defamation proceedings could be brought in relation to the matter complained of.

11. Part 3 of the Defamation Act 2005 (NSW) establishes a procedure for the resolution of civil disputes without litigation. It enables a publisher, in certain circumstances, to make an offer of amends. [8] Such an offer cannot be made if 28 days have elapsed since the publisher was given, inter alia, a “concerns notice by the aggrieved person”. [9] A “concerns notice” must be in writing and inform the publisher of the defamatory imputations the aggrieved person considers are or may be carried about the aggrieved person by the matter in question. [10]

    8. Defamation Act 2005 (NSW) s 13.

    9. Defamation Act 2005 (NSW) s 14(1)(a).

    10. Defamation Act 2005 (NSW) s 14(2).

12. Early in his retainer, Mr Goldsmith wrote to Mr Cao advising of the offer of amends procedure available under s 14 and suggesting that if he wished to pursue the matter further, it may be appropriate to serve a concerns notice upon Ms Liu.

13. On 29 November 2011 Mr Yu sent an email to the TALK group referring to the author of the matter complained of as “Nancy” and “Lady Nancy”. He sent similar emails on 29 November and twice on 30 November 2011. On 1 December 2011 Mr Yu sent an email acknowledging his wife was “Nancy Liu”. All these emails were sent to the TALK group from Mr Yu’s email account with Yahoo. I shall refer to them as the “November emails”.

14. On 1 December 2011, shortly after he received Mr Goldsmith’s advice concerning the offer of amends procedure, Mr Cao sent an email to Ms Vanessa Chou, who was handling his matter in Mr Goldsmith’s firm, seeking advice about “add[ing] George Yu into the case”, referring to an attachment and asking that the “concerns notice” be sent by 6 December 2011 if possible. The attachment was headed “Possible claim against George Yu.” It identified Mr Yu’s role in the CPCA and said “it seems Nancy Liu is George’s wife …” and “I was told by several CPCA members their believe [sic, as in original] that those emails from Nancy Liu was written by George himself (no evidence).”

15. Mr Yu was not “added” to the case. On 5 December 2011 Mr Goldsmith sent the “concerns notice” on behalf of Mr Cao to the email address from which the matter complained had emanated. It was also served personally on Ms Liu on 10 December 2011, and “when that occurred she made some statements which suggested she, rather than her husband, had sent the email.” [11]

    11. Liability judgment (at [2]).

16. On 10 December 2011 a Mr Cheng sent an email in Chinese to the TALK group to which, the primary judge found, Mr Cao and others were signatories. [12] The English translation of that email relevantly stated:

“It appears George Yu are [sic] operating two email accounts, one is his own, the other is his wife’s. Under such intense circumference [sic, circumstances] and during the process of mediation, Nancy has not publicly expressed her identity, we ought to review those attacking words used by Nancy Liu and by George Yu against Ping Cao, we can see the highly similarity.

Furthermore it is reasonable to suppose that George Yu has been using both mailboxes to send email to CPCA members and committee.”

12. Liability judgment (at [39]).

17. The papers are silent as to what happened between 10 December 2011 and 3 September 2012 when the statement of claim commencing the defamation proceedings against Ms Liu was filed. It was served shortly after. In it Mr Cao alleged that the matter complained of conveyed imputations that he had engaged “in betrayal, sought to falsify election results and was secretly manipulative.” The matter complained of did not name Mr Cao. Accordingly, he relied on an extrinsic fact for the purposes of identification. [13] On 20 September 2012 Mr Goldsmith received a letter from Ms Liu denying she had published the matter complained of.

    13. Liability judgment (at [26] – [28]).

18. On 25 September 2012 Mr Cao sent Ms Chou an email advising of the following matters: first, that Ms Liu was Mr Yu’s wife, secondly, that Mr Yu was the CPCA’s Committee Advisor when the “incident” (presumably the publication of the matter complained of) occurred and, thirdly, that Mr Yu, on behalf of Ms Liu, had attended two meetings that year arranged to discuss the possibility of Mr Cao withdrawing his claim against Ms Liu.

19. Later that afternoon, Ms Chou sent Mr Cao an email attaching a draft letter to Ms Liu. The draft letter referred to Ms Liu’s letter of denial and asked her to confirm her denial, indicating that in that case, the firm intended to serve a subpoena upon the CPCA “to require it to produce its appropriate records.”

20. Mr Cao responded by email pointing out that Ms Liu had “denied that she produced those emails and [asserted she was] not the owner of the mailbox ‘liunancy’” and commenting:

“I think she will do the same in court. A few people advised me before that those emails seemed like from George Yu’s hands. But I have no evidence, no one has I believe.”

It is not apparent from the papers whether Ms Chou’s draft letter was ever sent to Ms Liu.

21. On 26 September 2012 Ms Liu’s verified defence to Mr Cao’s defamation proceedings was filed in the District Court. The primary judge found that it was prepared, filed and served by Mr Yu, who also “acted for his wife until [shortly before the trial], attending directions hearings and preparing any documents she needed to sign.” [14] The defence pleaded that Ms Liu had “never produced or published” the matter complained of, had never been the owner of the mailbox “liunancy” and that based on those two points, “the plaintiff has filed a case against the wrong person, so that the defendant denies the allegations in the Plaintiff’s Statement of Claim”. It added:

“4. The defendant has responded to the legal representative of the plaintiff on 20/09/2012 and suggested the plaintiff to double check and make sure the right person who produced & published the email message as referred to in the Plaintiff’s Statement of Claim, Schedule ‘A’.”

14. Liability judgment (at [4]).

22. On 26 September 2012 Mr Cao sent an email to Mr Goldsmith reiterating his belief based on what “a few people advised me … that these emails seemed like from George Yu’s hands. But I have no evidence.”

23. Mr Goldsmith wrote to Mr Cao the next day, pointing out that Ms Liu had put “the entire identity or publisher question” in issue. He advised that, accordingly, it was essential to adduce “whatever evidence we can to try and show who ‘Nancy Liu’, being the publisher of the comments, really is”. The letter suggested that if Ms Liu continued to deny publication it would be possible to serve interrogatories upon her to “try and ascertain to whom she granted access to her user name” and hypothesised:

“[I]t is always possible that the comments were actually posted by her husband, but using her user name. You will see that the defendant denies any knowledge of the publication and it could always be that the comments were posted him [sic, “by him”] without her knowledge.

Finding out who had access to her user name, if the user name ‘liunancy’ was registered to the defendant will no doubt entitle you to add other persons as co-defendants.”

24. Mr Goldsmith’s letter then set out the costs of the steps he advised might be taken addressing the publication issue, which he described as “fundamental”. It suggested that Mr Cao consider whether he wished to proceed with the claim, because:

“[I]f you cannot prove, on a balance of probabilities, who published the matter complained of, your claim will fail, irrespective of any other matters. As I have advised earlier, it may even be necessary to make an application to add another defendant if any available evidence suggests that, for example, the comments were posted by the defendant’s husband, or someone else using her individual account.”

25. With proceedings listed in the District Court Defamation List for the following day, Mr Cao responded on 28 September 2012 by email to Mr Goldsmith’s letter of advice. He did so by interposing his comments under extracts from the letter. In respect to that part of the advice referring to the issue of publication, he wrote:

“Someone used the email account of ‘liunancyXXX’, either her or someone is able to access her user name. Most of the on-line people believed that the [matter complained of] was published by her husband.”

26. Against that part of the advice referring to the possibility of adding other persons as co-defendants, Mr Cao said he needed further clarification “on how to add other persons as co-defendants, such as, George Yu, if necessary.”

27. In relation to the constitution of the proceedings, Mr Cao said, “I do have evidence and witnesses. My claim is to do with Nancy Liu.” He then referred to Mr Yu “recogniz[ing] that Nancy Liu is his wife publicly [on the TALK group] when people linked him with Nancy Liu after the messages published.” He also wrote:

“I sent a ‘Possible Claim against George Yu’ to Vanessa on 1/12/2011, in which I found a defamatory matter too. Should add George Yu as a co-defendant?”[15]

15. See [14] above.

28. There was no appearance for Ms Liu on 29 September 2012, and the matter was adjourned, as it would be repeatedly until finally being set down on 1 February 2013 for hearing on 21 May 2013. [16]

    16. Cao v Liu [2013] NSWDC 8 (“Cao DC1”) (at [5], [7]).

29. On 1 October 2012, Mr Goldsmith responded to Mr Cao’s email of 28  September 2012 by asking him, “what evidence, on any basis, is there to show that [Mr Yu] posted the comments (which are clearly expressed to have been posted by Nancy)?

30. On 2 October 2012 Ms Chou emailed Mr Goldsmith in relation to a telephone call from Mr Cao of the same date. Ms Chou’s file note of the call recorded Mr Cao referring to an email from Mr Goldsmith and querying whether “You or BG read the things that I provide”. The note added:

“Only member of the [Club] can send that email.

Only person who can send the email is George.” [17]

Mr Cao sought a meeting with Ms Chou and Mr Goldsmith in relation to “some emails”.

17. Mr Blackburn submitted that the “email” referred to the matter complained of. Mr Smark did not contend otherwise.

31. In her 2 October 2012 email, Ms Chou told Mr Goldsmith that parts of Mr Cao’s suggestions were “simply inappropriate”. She observed:

“Nancy never denied that she is the owner of the ‘e-mail box’ [liunancyXXX], she denied that she is the owner of the mail box ‘liunancy’”.

32. Ms Chou added that once Mr Cao “shows us his further material, we may have a clearer idea as to whether “to amend the SOC” and “to add George as a co-defendant.”

33. On 12 October 2012 Mr Cao sent an email to Ms Chou stating that he “attached a number of emails as evidence that Nancy Liu and/or George Yu couple did the publications” and advised that those people referred to were willing to provide statutory declarations if needed. The emails did not appear to be in the papers before the Court.

34. Although Mr Liu’s defence had been filed in the District Court on 26 September 2012, it was not served. Mr Goldsmith obtained a copy of it on 18 October 2012 from the District Court registry.

35. On 19 October 2012 Mr Cao sent Ms Chou an email asking, “should we consider to link her with her husband George Yu (I call the mastermind behind), who could be the publisher in a high probability?”

36. On 24 October 2012 Mr Goldsmith sent Mr Cao a letter of advice. The letter referred to there being “only one ground of defence raised by the defendant that she did not publish the email.” Under a heading querying whether Mr Cao would be able to prove that Ms Liu published the matter complained of, Mr Goldsmith referred to “various witness statements” provided in the form of emails to Mr Cao. He advised that, assuming Mr Cao’s witnesses would be willing to attend at court to give evidence on his behalf and their evidence was accepted, “it is likely that you will be able to satisfy a judge that the defendant did publish the posts.” He counselled, however, that Mr Cao “should keep in mind the inevitability that the defendant will give evidence that she did not post the comments.” He advised that it would assist in due course if subpoenas were served “to show that the defendant did use the username ‘liunancy’”.

37. Mr Goldsmith also advised that the next step in the proceedings was discovery of documents and the administration of interrogatories. Discovery was effectively discounted as Mr Goldsmith assumed “she will say she has no documents to discover, for the obvious reason that she says she did not publish the posts”. The interrogatories were described as important in order to ask Ms Liu such questions as to whether or not she had ever used the user name “liunancy”. Mr Goldsmith also advised that at the time of writing “there appears to be no evidence that would support your adding Mr Yu as a second defendant, or even substituting him as the defendant in place of the current defendant.”

38. On 30 October 2012 Mr Cao sent Ms Chou an email commenting on Mr Goldsmith’s letter of advice. He queried the utility of subpoenas or, it would seem, interrogatories in terms of showing “that the defendant did use the username ‘liunamcy [sic liunancy]’ in a subpoenas”, saying “[i]n reality, no-one can prove someone typed keyboard in front of a home computer in my view.” He queried whether, if Ms Liu denied everything in interrogatories, Mr Yu could be interrogated. The email concluded:

“THE PROSPECT OF ADDING GEORGE YU AS A SECOND DEFENDANT

I still don’t understand this. All existing evidence and witness statements and George YU’s emails have showed that he knew everything and he did defend his wife. He was involved in the mediation meetings, negotiated the sharing the costs spent [sic, as in original].

If George YU accepted he did, would this become a new case or the same case if he was not a second defendant?” [Emphasis added.]

39. On 31 October 2012 Mr Goldsmith sent Mr Cao a letter of advice responding to the 30 October email. He advised that there “appears to be no proper basis to add Mr Yu as a defendant.” He also said:

“[Mr Yu] appears to have attended two mediation meetings on behalf of his wife and appears to have accepted she was the publisher of the posts. Your witnesses will need to give evidence of that, with a view to satisfying the Court that, on a balance of probabilities, she did post the comments.”

40. On 2 November 2012 Mr Yu appeared for Ms Liu in the District Court Defamation List. He advised her Honour Judge Gibson that Ms Liu was ill and that she had authorised him to represent her. [18]

    18. Cao DC 1 (at [5]).

41. On 16 November 2012 a file note made by Ms Chou recorded a phone call from Mr Cao which, somewhat presciently, recorded as the fourth bullet point:

“What happens if George is publisher?

→ What if George stands up in Ct & say he’s the publisher.”

42. On 16 November 2012, Ms Chou sent to Ms Liu, via an email address in Mr Yu’s name, a letter setting out the classes of documents Mr Cao required for discovery. It included all documents referencing, relating or referring to Ms Liu’s membership with the Club, her registration to any online forums, including those through which the matter complained of was sent, her written and electronic communications with the Club and its members, her attendance at club events, any names or aliases by which she was known, and her marriage to any member or past member of the Club.

43. The limitation period for any cause of action Mr Cao had for defamation expired on 20 November 2012. However, an order extending the limitation period for such a cause of action could be sought to have the effect of extending the limitation period to a period of up to three years running from the date of publication. Such application could be made even though the limitation period for the cause of action had expired. [19]

    19. Limitation Act 1969 (NSW) (the “Limitation Act”) ss 56A, 56D.

44. On 26 November 2012 Mr Cao forwarded to Ms Chou an email from the secretary of the CPCA, Mr Zhong, dated 23 November 2012 responding to questions he had asked about the “liunancy” account. The email stated that that account was added to the TALK group’s member list on 14 April 2009 by Mr Yu. It also described Mr Yu as “the current owner of” the user name for the CPCA’s TALK group list. In a subsequent email, Mr Cao advised Ms Chou that Mr Yu was president of the CPCA on 14 April 2009.

45. Later on 26 November 2012, Ms Chou forwarded the 23 November 2012 email to Mr Goldsmith, who was apparently away, with the comment that “[t]he evidence may suggest that George is the owner of the liunancy account”. She suggested the matter should be reviewed when he was back.

46. On 27 November 2012, Mr Cao sent an email to Ms Chou with another copy of Mr Zhong’s email. Mr Cao explained the difference between the two Yahoo groups the CPCA operated to which Mr Zhong’s email referred. He commented that Ms Liu had been registered to a group which was for committee members only by Mr Yu on 9 September 2012 several days after the statement of claim was served. He asserted “clearly, George Yu knows who is the owner of the email address liunancyXXX.” He repeated his earlier advice that the second group (the TALK Group) “where Nancy Liu’s email were published … she was added into the group by George Yu too … on 14 Apr 2009 (the time that George Yu as [sic, was] President of CPCA).” He then asked:

“My question is, if George Yu said in court ‘I was the person who published the emails, it was nothing to do [with] Shengrong (Nancy) Liu’ what would this mean to my claim?” (Emphasis in original.)

47. Ms Chou forwarded Mr Cao’s 27 November email to Mr Goldsmith the same day. Insofar as Mr Cao had commented on the topic raised in their discussion on 16 November 2012 concerning Mr Yu’s possible evidence at the trial, Ms Chou said:

George Yu will not say this … and if he does, we need to add him as the defendant or substitute him as the defendant.”

48. On 30 November 2012 Mr Goldsmith sent Mr Cao a letter referring to his emails to Ms Chou and addressing Mr Cao’s assertion that “George Yu knows who owns the email address.” Mr Goldsmith posed the question as to how Mr Yu could be compelled to provide that information. He added that Mr Cao would not want to serve a subpoena on Mr Yu, as then he might say “he was the owner, [and] that would be the end of your claim against the current defendant.” He contrasted that situation with one in which Mr Yu gave evidence on behalf of Ms Liu to the effect that “he published the email”, advising that in those circumstances, Mr Yu could be cross-examined on a wider scale than he could if he gave evidence in chief. He explained that if Mr Yu gave evidence on behalf of his wife, he would be open to cross-examination about his indication at mediations that Ms Liu had published the email, and his failure, at mediations, to mention that he was the publisher. He did not explain the utility of these lines of cross-examination.

49. On 29 January 2013 Mr Cao forwarded to Ms Chiu a statement from a Mr Cheng which, he said, “gives evidence that Nancy Liu made a mention in Dec 2011 that the email account is her account and those publications are her own action.” The email also asked:

“Another concern I mentioned before, what would be your measures [sic, as in original] if Nancy’s husband George Yu claimed that he is that email account owner and that he published those messages, though the current evidences do not support that?”

50. Mr Cheng’s “statement” was an email to Mr Cao dated 29 January 2013. It appears that Mr Cheng had served the Concerns Notice on Ms Liu. He said that in the course of a conversation with her after he had done so, she “denied” an earlier suggestion that her husband Mr George Yu might be involved in the incident, and told him “that those publications were her own opinions [and] [s]he also emphasised that her email account was not accessible by anyone including her husband as it was simply a matter of privacy.”

51. On 31 January 2013, Mr Goldsmith sent a letter to Mr Cao advising him that evidence drawn from mediations could be used as evidence in support of his claim against Ms Liu. [20] He suggested emails from such people “suggest[ed] that Mr Yu admitted [the matter complained of] was sent by his wife”. He suggested that Mr Cao had, in substance, a number of witnesses whose evidence could persuade a court Ms Liu was the publisher of the matter complained of despite her denial. It also advised, in relation to the letter requiring documents for discovery of 16 November 2012, that Ms Liu had sent a similar note to him requiring discovery. Mr Goldsmith expressed the opinion that:

“It appears that she has done so not so much because she is of the view that you ought properly discover those documents but more because she believes that, if she has to discover the documents referred to in your notice, then you should be required to discover the same documents.”

20. Cf Evidence Act 1995 (NSW) s 131.

52. Mr Goldsmith also expressed the opinion in the 31 January 2013 letter that “it appears that the evidence that you have to prove that Ms Liu authored and published the e-mail complained of is ‘as good as it gets’.” With that in mind, in the interests of time and cost, he advised that “it may be practical simply for you not to pursue discovery of documents by Ms Liu.” Similarly, he advised that interrogatories would “be limited to the question of publication, and, again, if you are going to rely upon the various witness statements [giving evidence on what was said at mediations], that is a procedural step that likely can be avoided.” On that advice, Mr Cao sent an email in reply later that day agreeing that pursuit of discovery and interrogatories was no longer needed.

53. On 4 February 2013 Mr Cao asked Ms Chou whether Mr Yu could “claim that he was actually the publisher during the trial? If so can the court treat him as a co-defendant automatically?” The documents do not record her response.

54. On 14 February 2013, in proceedings before Gibson DCJ to determine an application by Mr Yu to appear on behalf of his wife at the trial of the defamation proceedings, the question of mediation was raised. The following exchange then took place:

“YU: Just regarding mediation.

HER HONOUR: Yes.

YU: Yeah. I agree, yeah, we should have a mediation, because for this case, actually it can be avoided, if they are, the plaintiff check with the, the defendant before he lodge case, and to check with a – a defendant –

HER HONOUR: Look, well who do you say wrote the letter? Who wrote the email? If it wasn’t your wife, who was it?

YU: Don’t know. Somebody else.

HER HONOUR: Well, somebody else, is this your wife’s email address?

YU: No, not my wife’s email address. That’s the problem. So the defendant should check to find out who is that email, who owns the email, and who sent the message, before he lodge the case, that’s a big problem, I say.”

55. Gibson DCJ refused Mr Yu’s application to appear for Ms Liu. Her Honour referred Mr Yu to the New South Wales Bar Association’s pro bono assistance scheme and ordered mediation. She also ordered Mr Cao to serve statements, limited to publication only, in 14 days. [21]

    21. Cao DC1 (at [24]).

55. Later that day, Mr Goldsmith sent a letter to Mr Cao advising him on the outcome of the morning’s hearing and the progress of the matter generally. He referred to a “without prejudice” discussion with Mr Yu following the hearing, during the course of which he advised Mr Yu of the nature of the evidence that would be called against Ms Liu on the issue of publication. These included admissions made “during the course of meetings and the admission made when the Concerns Notice was served.” He reported that Mr Yu appeared “amenable to settlement, but still steadfastly denies that his wife published the email.” He noted that Gibson DCJ had directed Mr Cao to serve his witness statements addressing the issue of Ms Liu’s publication of the matter complained of, of which there appeared to be 3 – 4 at that stage, and advised such service prior to trial would not disadvantage him.

56. Pursuant to Gibson DCJ’s order, Mr Cao served two statements. One of them suggested that when she received the “concerns notice” on 10 December 2011, Ms Liu had conceded that she had an email address which her husband did not use and that she had used it to send the matter complained of. Although not obliged to do so, Ms Liu responded to Mr Cao’s statements by serving two statements, one from herself and one from her husband. Her statement “agreed she had on 10 December 2011” said words suggesting she used emails and had an email address and that her husband did not use her email address. But she denied saying she had in fact sent the email or had been the owner of the liunancyXXX email address. Mr Yu’s statement was not in evidence, its tender by Mr Cao having been rejected. [22]

    22. Primary judgment (at [4]).

57. On 4 April 2013 there was a further directions hearing before Gibson DCJ at which Mr Yu and Ms Liu appeared. Handwritten notes extracted from Mr Goldsmith’s file recording a meeting afterwards are somewhat equivocal. They appear, however, to record the author’s views that he or she had no doubt Mr Yu “sent the emails … that’s why he’s so defensive of her”, but that the “evidence points to [Ms Liu, and therefore] we have to sue her”, and also that he sent the emails but her name … we don’t have evidence it’s Yu”.

58. A further directions hearing took place before Gibson DCJ on 18 April 2013. Ms Liu appeared with Mr Yu.

59. Mr Goldsmith sent another email to Mr Cao on 28 April 2013 in the course of which he referred to the fact there had been three mediations, concluding, “Mr Yu is, very simply, just not going to budge on the publication issue.” He added:

“I have no doubt, and the judge has no doubt, that Mr Yu wrote the email. However, he tried to disguise it by using the Nancy Liu email address. However … the evidence … all points to the defendant.”

61. On 30 April 2013, Mr Cao sought clarification of that statement, asking how the view attributed to Gibson DCJ might affect her Honour’s final judgment, her Honour at that stage having apparently been designated as the trial judge. Mr Goldsmith responded by repeating his view that he had “no doubt that Mr Yu wrote the email + I also have no doubt that her Honour shares that view.” However, he reiterated his advice that “the evidence all points to the defendant and, at the end of the day, her Honour … is required to make a decision based upon the evidence (rather than what amounts to suspicion).”

62. On 14 May 2013 Mr R Rasmussen appeared at a directions hearing before Gibson DCJ representing Ms Liu. He was granted leave to file an amended defence adding a defence of triviality, in addition to the publication issue. [23] A proposed defence of qualified privilege was rejected.

    23. Defamation Act 2005 (NSW) s 33.

63. On 15 May 2013 Mr Rasmussen gave notice of Ms Liu’s intention to ask Gibson DCJ to disqualify herself on the ground of reasonable apprehension of bias. Her Honour did so on 17 May 2013.

The Liability Judgment

64. The liability hearing commenced before the primary judge on 21 May 2013. It was listed for two days, but went for twelve days concluding on 31 July 2013. Mr Goldsmith appeared for Mr Cao. Mr Rasmussen appeared for Ms Liu. Judgment was delivered on 6 September 2013.

65. The primary judge found:

“[2] Publication of the email (I shall call it ‘the email’ or ‘the matter complained of) occurred on 20 November 2011 when an email in Chinese was received in Sydney by some members of a club established to further the interests of Chinese born Australians. The club was called the Chinese Professional Club of Australia (the club). The email alleged inter alia the plaintiff, a former president of the club, had been disloyal to a friend of his in connection with a club election. The email address used suggested the sender had been the defendant, because it incorporated an anglicised version of her name, and was signed ‘Nancy’, a name by which some knew her. But the plaintiff and several of his friends immediately saw it as the work of the defendant's husband, Mr George Yu, also a former president of the club, a man of forthright views, and a man whose views about modern China were different from those of the plaintiff. Mr Yu controlled the club's email system, pursuant to which many club members would engage in a ‘chat’ group, ‘chatting’ by email about matters of mutual interest. Soon after publication the plaintiff and several of his friends sent an email in which they asserted that Mr Yu had been sending emails using his wife’s email address. But a ‘concerns notice’ (under s 14(2) Defamation Act 2005 (‘the Act’)) inviting an offer of amends was served personally on the defendant on 10 December 2011, and when that occurred she made some statements which suggested she, rather than her husband, had sent the email.” [24]

24. Liability judgment (at [2]; see also [39]).

66. The primary judge referred to the order Gibson DCJ had made directing Mr Cao to serve statements prior to the hearing confined to the issue of publication. His Honour described the statements served by both Mr Cao and Ms Liu in terms set out above. [25] There was no evidence before his Honour to show who had set up the liunancyXXX email address, and what other emails had been sent from it. [26]

    25. See [57] above.

    26. Liability judgment (at [11]).

67. Mr Cao adduced evidence from two witnesses that Ms Liu had used words at a club function on 10 December 2011 which amounted to an admission she had composed and sent the email. Ms Liu agreed she had said those words but said “that had not been the truth.” She also gave an explanation for not telling the truth to Mr Cheng it is unnecessary to reproduce. [27]

    27. See liability judgment (at [6], [8])

68. On 31 May 2013, the ninth day of the trial, Mr Yu gave evidence in which he said he had set up the liunancyXXX email address and written and sent the matter complained of. The primary judge sufficiently summarised Mr Yu’s evidence relevant to the issue before this Court and Mr Goldsmith’s response as follows:

“[10]   Mr Yu then told me he had set up the email address and sent the email. It was suggested to Mr Yu in cross examination that his evidence was false and had been given to shield his wife. He did not accept that. He agreed he had helped his wife with the proceedings, in particular by preparing her statement, and he said she had told him she had used words to Mr Cheng along the lines that she had and used an email account. Mr Yu said however that to his knowledge his wife did not use emails.

[11]   There was no evidence before me from the internet service provider to show for example who had set up the email address, and what other emails had been sent from it.

[12]   After Mr Yu gave evidence that the defendant had not sent the email, (evidence I ultimately accepted), Mr Goldsmith foreshadowed that the plaintiff would join Mr Yu, but for the sole purpose of having a costs order made against him on an indemnity basis, if it were found he had been responsible for the plaintiff’s incurring unnecessary costs. Thus far however, no application has been made to join him …

[97]   Mr Yu told me he had set up the relevant ‘liunancy’ email account 10 years ago and had added it to the club’s list in 2009 and had composed and sent the matter complained of, along with the other emails in the chain sent from the ‘liunancy’ address.

…

[103]   Mr Yu would not agree he had used the ‘liunancy’ account to disguise the fact that it was he who was sending the emails. But I then took him to concede that he had. There was this evidence:

‘Q. What you were trying to do when you sent the emails from the Liunancy address, was disguise the fact that it was you who was sending the emails, isn’t that correct?

A. Not correct. Incorrect. I totally disagree with that.

Q. And in case there were any responses or any issues, what you wanted to do was send a message to the members that the email was coming from your wife, that’s why you used the email address, wasn’t it?

A. No. No. No. No. I totally disagree. This mailbox has nothing to do with my wife. And as I just mentioned that email response to Rupeng Zhou is nothing like, you know, offensive or try to using a disguising things. Because they just change topics. Very – what I say, just say, sir, can we talk something about present topics or something like that one. That’s very general. I don’t need to disguise myself.

Q. Mr Yu, if you didn’t need to disguise yourself, why did you disguise yourself?

A. As I mentioned, I already mentioned to you, I don’t wish to change topic in the power of advisor. I will prefer using as a general member of the club. For the club.’

...

[112]   Mr Yu did seem to me however to regard the enquiry into the identification of the owner of the ‘liunancy’ email account as a form of sport.” (Emphasis added.)

69. In the course of considering Mr Yu’s credit, the primary judge set out the following passage of Mr Yu’s evidence:

“[108]   Mr Yu would at times not answer appropriately, and would give an answer to a question not asked, and then make a small speech. For example:

‘Q. Mr Yu, it’s always been a significant matter in these proceedings who sent or who published the email, hasn’t it?

A. Well, this email is very, very insignificant email. Because it’s a discussion with the club members. Discussion about the election issue. So, the plaintiff have many chances to avoid proceedings court case. And even up to the legal action in September last year and when the defendant has clearly provided you that you sue the wrong person. And advise you and your client to double check who is the real publisher of the message. And each is ignore those message. And just stick to the wrong person to sue. I just can’t understand. If you follow that message I’d say all this cost can be avoided.’”

70. Mr Goldsmith submitted that the primary judge should not accept Mr Yu’s evidence that he had sent the matter complained of. Alternatively, he contended that if Mr Yu had sent it, his Honour would conclude that the email was a “joint effort”. [28]

    28. Liability judgment (at [123] – [125]).

71. The primary judge concluded that, while there were matters which gave him concern about Mr Yu’s credit, he was “inclined to the view that he was generally truthful.” [29]

    29. Liability judgment (at [128]).

72. Two other matters from the liability judgment should be mentioned. First, one of the matters which Mr Goldsmith apparently relied upon to challenge Mr Yu’s credit as to his admission that he wrote the matter complained of, was Mr Yu’s statement before Gibson DCJ at the directions hearing on 14 February 2013 to the effect that “somebody else” had written the email. [30] Mr Rasmussen submitted that this question should not have been asked at the directions hearing and that Mr Yu’s response was understandable in the circumstances. [31]

    30. See [54] above; see also liability judgment (at [114]).

    31. Liability judgment (at [115]).

73. The primary judge found that Mr Yu “was being untruthful in saying he did not know” who wrote the matter complained of on 14 February 2013 to Gibson DCJ. However, his Honour appears to have accepted the submission that Mr Yu was “in an unusual and difficult position” and that had he been legally represented, he “might well have told the judge the question should not have been asked [as] the only question was whether the defendant had sent it, and that it was for the plaintiff to prove who had sent it.” [32]

    32. Liability judgment (at [116]).

74. Secondly, Mr Goldsmith cross-examined Mr Yu to the effect that he had never before trial said he was either the owner of the account from which the matter complained of was sent or the sender of the matter complained of “and he was therefore blameworthy”. The primary judge concluded that Mr Yu was not “obliged to tell the plaintiff those matters, given he was not a party.” [33]

    33. Liability judgment (at [127]).

75. The primary judge noted that Ms Liu had “consistently denied on oath since the statement of claim was served on her, that she sent the email.” [34] His Honour accepted Mr Yu’s evidence that he sent the email. [35] In this respect he found:

“[133]   As unsatisfactory as Mr Yu was in the various ways I have described, I consider he is far more likely to be the author, by reason of his involvement in club activities, especially club politics: he is a past president and there is a history between him and the plaintiff: he is highly literate and educated, his wife is in my view relatively unsophisticated.”

34. Liability judgment (at [140]).

35. Liability judgment (at [141]).

76. His Honour rejected a submission apparently advanced by Mr Goldsmith to the effect that Mr Yu sent the email at Ms Liu’s behest or in collaboration with her and, accordingly, rejected a case advanced on the basis of Webb v Bloch. [36]

    36. [1928] HCA 50 (1928) 41 CLR 331; liability judgment (at [142]).

77. His Honour held that he was not satisfied on the balance of probabilities that Ms Liu sent the email or caused it to be sent. [37] He concluded:

“[144]   Accordingly the plaintiff has failed to prove publication by her of the matter complained of and there must be judgment for the defendant. Mr Goldsmith when making final submissions asked rhetorically when could a plaintiff ever prove publication by a defendant when an email is sent, if the plaintiff has not proved it here. But as the evidence shows, there was an obvious alternative defendant who could have been sued but was not.” (Emphasis added.)

37. Liability judgment (at [143]).

78. The primary judge found that the matter complained of had been published to “about 125 people, both past and present members, who read it and understood it to refer to the plaintiff.”[38] Had he found in Mr Cao’s favour, having regard to the number of people to whom the matter complained of was published, he would have awarded compensatory damages of $30,000. [39]

    38. Liability judgment (at [160].

    39. Liability judgment (at [173]).

79. His Honour gave a verdict and judgment for Ms Liu and ordered Mr Cao to pay her costs. On 10 October 2013, the primary judge ordered Mr Cao to pay those costs on an indemnity basis. [40] The reason for that order does not appear from the papers.

    40. Points of claim filed in non-party costs application.

The Third Party Costs Application

80. On 31 May 2013, the trial was stood over, part heard, to 31 July 2013. As appears from the liability judgment, during the trial Mr Goldsmith foreshadowed joining Mr Yu for the sole purpose of seeking a costs order against him if it were found he had been responsible for the plaintiff’s incurring unnecessary costs. No such application was made before the liability judgment was delivered. [41]

    41. Liability judgment (at [12]).

81. On 13 June 2013, during the adjournment, Mr Goldsmith wrote to Ms Liu’s solicitors. The letter was written to that firm on the assumption it would be retained to act for Mr Yu. It referred to Mr Yu’s “confession on 31 May 2013 … that he wrote and sent the e-mail”. It noted that Mr Cao “continued to assert there [was] evidence Ms Liu published … the email”, but recognised that if her and Mr Yu’s evidence was accepted, the case would be dismissed. It warned that “even if the claim is dismissed, our client will be seeking an order for costs against your client and/or Mr Yu.” The letter conveyed Mr Cao’s concern that he had “incurred very substantial costs in pursuing a claim which Mr Yu has now confessed to be misleading and deceptive.”

82. The letter also referred to a number of meetings in which Mr Yu had participated during which attempts had been made to “resolve the issue”, and to Mr Yu’s court attendances on about eight occasions when “the issue arose as to who had written and sent” the matter complained of, and asserted that “at no time did Mr Yu say that he had.” It said that Mr Yu’s “confession” was “the first occasion upon which he [had] made that confession, despite his multiple attendances at Court on behalf of Ms Liu.”

83. Finally, the letter advised that Mr Cao would file an application to extend the time within which to commence defamation proceedings against Mr Yu. It said Mr Cao wished Mr Yu to be on notice of the steps he was proposing to take in order to give him an opportunity to advance any reasons why Mr Cao should not take them. The papers do not disclose any response to that letter. There is no suggestion Mr Cao has ever applied for an extension of time to sue Mr Yu. The time to which the limitation period could have been extended to enable that to happen expired the day after the hearing in this Court. [42]

    42. See s 56A(2), Limitation Act.

84. Following delivery of the liability judgment on 6 September 2013, Mr Cao retained new legal advisers. On 25 September 2013 he filed the notice of motion in the District Court proceedings seeking costs indemnities from both Mr Yu and Mr Goldsmith. On 15 November 2013 he filed points of claim in support of the application. The points of claim recited, insofar as Mr Yu was concerned, that he had published the matter complained of, relevantly, “using the email address ‘liunancyXXX’ with a result that the defamatory email was expressed to be published on behalf of liunancy”. Paragraph 5 asserted that by publishing the matter complained of using that address Mr Yu had represented to members of the TALK group that Ms Liu was the author of the matter complained of and that he (Mr Yu) was not.

85. The points of claim asserted that at the time he made those representations, Mr Yu, “knew they were false and … and intended that the members of the TALK group, including the plaintiff, should believe in and rely on them.” Next the points of claim referred to the November emails Mr Yu had sent to the TALK group using his email address and asserted that those emails “reinforced the representations in paragraph 5.” Next, the points of claim asserted that by reason of the making of the representations and/or their reinforcement, Mr Cao joined Ms Liu as a party to the proceedings and did not join Mr Yu.

86. The points of claim concluded by asserting that Mr Yu had misled Mr Cao into commencing the proceedings against Ms Liu, as a result of which Mr Cao had “incurred the plaintiff’s costs and the defendant’s costs”, and that Mr Yu should be ordered to indemnify Mr Cao for those costs.

87. Insofar as Mr Goldsmith was concerned, the points of claim asserted that the costs Mr Cao had been ordered to pay Ms Liu had been incurred “by the serious neglect and/or serious incompetence by Mr Goldsmith.” Particulars of that allegation were, in substance, failing to advise that Mr Yu should be joined as a defendant when proceedings were commenced, and alternatively, failing to seek to join Mr Yu as a defendant at any time prior to the hearing.

88. Mr Cao swore an affidavit in support of the costs application dated 15 November 2013. He referred to the fact that when he first read the matter complained of and saw the email address from which it was sent he “knew at that time that Mr Yu was married and his wife was known by the English name ‘Nancy’.” He then referred to the November emails he had received following the publication of the matter complained of, which, it will be recalled, were received “in the TALK Group on behalf of Mr Yu [and] made reference to ‘Nancy’, ‘the lady Nancy’, ‘the female member’ and ‘a lady’.” He said that as a result of reading the matter complained of he decided to seek legal advice in relation to defamation and “came upon Mr Goldsmith’s firm using Google.”

80. Paragraph 7 of Mr Cao’s affidavit said:

“I recall raising with Mr Goldsmith on many occasions whether Mr Yu could be added as a defendant to the case and told him I wished this to be done”.

90. Mr Cao then referred to various email exchanges with Goldsmiths extracted from the firm’s files which were exhibit PC1 to his affidavit. He also annexed pages 5 and 6 of the transcript of the proceedings before Gibson DCJ on 13 March 2013.

91. The costs application was heard on 17 March 2014. Several days later, Mr Cao reached an accommodation with Mr Goldsmith and discontinued the wasted costs application. Mr K Smark of Senior Counsel appeared with Ms Y Guo for Mr Cao. Mr Rasmussen appeared for Mr Yu.

The Costs Judgment

92. The primary judge described the issue in the case as being “whether I ought make an order against Mr George Yu, who is not a party to the relevant proceedings, that he indemnify the plaintiff in respect of a costs order in favour of the defendant”. [43]

    43. Costs judgment (at 1).

93. The primary judge recognised that it was exceptional for a costs order to be made against a non-party. However, Mr Smark submitted it was an appropriate case for such an order:

“[B]ecause Mr Yu had been the main author of the plaintiff’s misfortune … had engaged in an elaborate hoax … which had the effect that when, as I found, he sent a defamatory email concerning the plaintiff, using an email address incorporated in his wife’s anglicised name and signing it with his wife’s name, his wife rather than he was identified as the author and sender. As it happens, his wife did not even use emails let alone open the account and she, as I found, did not send the email.” [44]

44. Costs judgment (at 2).

94. His Honour described the course the defamation proceedings took:

“At the trial, the defendant swore that she did not use emails and did not use the relevant email address and had not sent the matter complained of. Mr Yu, on the other hand, swore that he had opened the email address and had used that address to send the email containing the matter complained of. When that evidence was accepted by me, the proceedings against Ms Liu were, not surprisingly, dismissed, so that Mr Cao wasted all of the money that he had paid to his solicitors and when he lost his case he was ordered to pay the costs of Mr Yu’s wife.” [45]

45. Costs judgment (at 2).

95. His Honour determined the costs application both by reference to his findings in the liability judgment and those made on the application itself by reason of new material Mr Cao tendered. [46]

    46. Costs judgment (at 3).

96. The November emails were tendered on the costs application, but were not in evidence at the trial. [47] His Honour concluded those emails (as the points of claim asserted) could be read as reinforcing the view that Ms Liu was the author of the matter complained of. The primary judge was satisfied on the basis, I infer, in particular of the new material and, too, that which had been before him in the liability trial, that “because of the acts of Mr Yu, [Mr Cao] did sue the wrong person.” [48]

    47. Costs judgment (at 4).

    48. Costs judgment (at 2, 4).

97. The primary judge recorded Mr Rasmussen’s submission, among other matters, that Mr Yu had been an “obvious defendant” who would be prejudiced if his Honour acceded to the costs application because he would lose the rights he would otherwise have had if joined as a defendant at an early stage of the proceedings. He contended Mr Yu had been put on notice that such an application might be made only late in the piece. [49]

    49. Costs judgment (at 9).

98. The primary judge drew the following inferences from Mr Goldsmith’s files:

“I infer from those files and his affidavit evidence that Mr Cao sued only the defendant because although he had his suspicions that Mr Yu had been the author of the email, the email address on the matter complained of was that of Nancy Liu and the email was signed ‘Nancy’, and his thinking was then reinforced by the emails later sent by Mr Yu.

Because of Mr Cao’s suspicions, he frequently raised with his former solicitor, Mr Goldsmith, the possibility that Mr Yu should be joined, but for various reasons, which it is not necessary for me to consider here, Mr Goldsmith never took the step of advising that Mr Yu be joined as an alternative defendant.” [50]

50. Costs judgment (at 5).

99. His Honour found that:

“[I]t was Mr Yu who on 20 November 2011 published what I later found to have been a defamatory email to various people who were members of a talk group … The email address used to send the defamatory email was [liunancyXXX]. Mr Yu’s wife was at the time known in Australia as Nancy Liu. The email was signed ‘Nancy’.” [51]

51. Costs judgment (at 3 – 4).

100. His Honour held it was in the interests of justice to make the orders sought. He considered the case to be an exceptional one warranting that conclusion because:

“[I]t was Mr Yu’s conduct which brought about the litigation. I am satisfied, and I find, that Mr Yu’s conduct in sending the email with the matters complained of, using what I am satisfied was his wife’s Anglicised name and signing it ‘Nancy’, was done with a view to convey the false impression that his wife had sent it and that he [had] not.

In the course of the trial Mr Yu when cross-examined said that he had used the email account so that his position in authority at the club would not add unduly to the weight of any views that were expressed. I found in my judgment after the trial that the facts were consistent with that explanation, thought I did not reach a final conclusion on the matter. I did not then have available to me the correspondence which was tendered on this application by Mr Smark. Whether that was his reason or whether it was, as Mr Smark contended, to avoid liability for a defamatory publication, does not much matter in the end. I have no doubt that he intended to have others, including the plaintiff, believe, one, that his wife had sent the email with the matter complained of, and, two, that he had not.

I find that the use of that email account in the name ‘Nancy’, especially backed up by the later emails referring to her as another person, had the causative effect that Mr Cao was persuaded that the defendant had been the author and sender of the email with the matter complained of. Of course, Mr Yu, when Mr Cao told Mr Goldsmith of his suspicion, should have been joined, but this was far from a case of wilful blindness, as submitted by Mr Rasmussen. Mr Cao, I am satisfied, did all he reasonably could to protect his own interests, including retaining a firm said to specialise in defamation cases. But given the steps taken by Mr Yu, which I am satisfied were to hide his authorship, and given his use of his wife’s name, I infer it would have been obvious to Mr Yu that in the event that the plaintiff sued for defamation, his wife would be sued. Mr Cao would have been most ill-advised not to have sued her in the circumstances.” [52] (Emphasis added.)

52. Costs judgment (at 10 – 11).

101. The primary judge held that the sequence of events supported the conclusion that Mr Yu’s acts led to, and were the cause of, the litigation. He rejected Mr Rasmussen’s submission that there was some form of unfairness to Mr Yu because he was not cross-examined about the November emails. In this respect his Honour observed:

“[The emails] were put in to reinforce the argument Mr Yu was going out of his way to disguise the identity of the sender and to have the finger of suspicion pointed against his wife. There was no contrary evidence put on by Mr Yu. Indeed, there was no evidence put on at all … in response to the points of claim.” [53]

53. Costs judgment (at 11).

102. The primary judge also rejected Mr Rasmussen’s submission that Mr Cao was “not tricked”. In his Honour’s view:

“The use of the name ‘Nancy’ … was calculated … to throw readers off the track. That was more than an absence of knowledge to Mr Cao. I reject the submission that no deception occurred. It is true Mr Cao was suspicious, but that does not mean that he was not also deceived. I am satisfied he was deceived.” [54]

54. Costs judgment (at 11 – 12).

103. Accordingly, his Honour concluded it was Mr Yu’s conduct in sending the matter complained of in his wife’s name which caused the litigation and was a “significant causal factor in Mr Cao’s not joining him, despite his suspicions.” Further, “his conduct throughout was consistent with an intention to hide authorship of the email with the matter complained of and to have his wife seen as the author.” [55]

     55. Costs judgment (at 12).

104. Counsel for both Mr Yu and Mr Cao had submitted to the primary judge that Mr Goldsmith had been negligent in not joining Mr Yu as a defendant albeit for different reasons. Mr Rasmussen contended that negligence demonstrated there was no causal connection between Mr Yu’s conduct and the costs order made against Mr Cao. Mr Smark, on the other hand, contended “the negligence [was] a by-product of Mr Yu’s mischievous conduct, so that it does not detract from his liability to [Mr Cao] for a non-party costs order”. [56] His Honour found:

“[A]lthough on the face of it Mr Goldsmith should have advised Mr Cao to join Mr Yu when he was instructed of Mr Cao’s suspicion … any such breach of duty by Mr Goldsmith, if that is what it was … would not have occurred absent Mr Yu’s effort to disguise the authorship of the email”. [57]

56. Costs judgment (at 5).

57. Costs judgment (at 12); see also liability judgment (at [103]).

105. Accordingly, his Honour concluded that Mr Goldsmith’s potential negligence in not joining Mr Yu did not break the chain of causation. Rather:

“The initial wrongdoer was Mr Yu and no negligence by Mr Goldsmith had the potential to break the chain of causation so as to be treated as the actual cause of the damage”. [58]

58. Costs judgment (at 13); citing Capital Securities (Australia) Pty Ltd v Perpetual Trustees Victoria Ltd & Anor [2009] VSCA 259 (at [12]) per Byrne AJA (Buchanan and Mandie JJA agreeing); Palmer Bruyn and Parker v Parsons [2001] HCA 69; (2001) 208 CLR 388 (“Palmer Bruyn”) (at [13]) per Gleeson CJ; (at [64]) per Gummow J.

106. As to Mr Yu’s potential disadvantage in not being joined as a party to the liability proceedings, his Honour said:

“It is true that by not taking action against him in tort [Mr Cao] has prevented him from having available remedies such as discovery, third party procedures and the like and it is true that as he was never joined as a defendant he did not have available the opportunity to file a defence such as one of qualified privilege or to take interlocutory steps. But that is the nature of a s 98 application. It is also, no doubt, why the authorities say that the case must be exceptional and causation established before an order can be made. In any event, given his conduct, it seems to me that any qualified privilege defence would have its difficulties if, as it would have been expected, he were to face an averral of malice.” [59] (Emphasis added.)

59. Costs judgment (at 13 – 14).

107. The primary judge accepted “that Mr Yu was given notice very late” that he would be subject to the costs application, and that “late notice has at times led to an order being refused”. [60] He concluded, however, that this was not decisive, because Mr Yu had been “involved in the litigation in quite a close way from its very beginning and was, in any event, put on notice … when, had he chosen, he could have taken some steps to protect his position.” His Honour found that making the orders sought would not “amount to punishment,” but would ameliorate Mr Cao’s position “costs-wise.” [61]

     60. Costs judgment (at 14 – 15), citing Vestris v Cashman (1998) 72 SASR 449 (“Vestris”) (at 458 – 459).

     61. Costs judgment (at 15).

108. Accordingly, upon Mr Cao undertaking to pursue his rights against Mr Goldsmith to have the latter’s costs assessed, his Honour made the following orders:

“1.   An order that a third party, Mr George Yu, wholly or partly indemnify the plaintiff in respect of such costs as the plaintiff is ordered to pay to the defendant.

2.   By reason of the Undertaking of 20 March 2014, on [sic, “an”] order that a third party, Mr George Yu, wholly or partly indemnify the plaintiff in respect of any costs paid or payable by the plaintiff to his former solicitor, Mr Barrie Goldsmith.

3.   An order that a third party, Mr George Yu, pay the plaintiffs [sic] cost of the Notice of Motion filed 25 September 2013.”

Issues on Appeal

109. Mr Yu relies on the following grounds of appeal:

1. His Honour erred in finding that Mr Cao was in fact deceived.

2. His Honour erred by finding that Mr Yu had deceived Mr Cao such as to cause Mr Cao to sue Mr Yu’s wife and not also join Mr Yu as a co-defendant.

3. His Honour erred in finding that Mr Yu’s conduct in sending emails was done with a view to conveying the false impression that his wife had sent the matter complained of and he had not.

4. His Honour erred by finding that such conduct of Mr Yu had the causative effect of persuading Mr Cao that Mr Yu’s wife had been the author and sender of the matter complained of.

5. His Honour erred in finding that Mr Yu’s conduct throughout the proceedings was consistent with an intention to hide authorship of the matter complained of and have his wife seen as the author.

6. His Honour erred in finding that the acts of Mr Yu’s wife, Mr Cao’s solicitor and Mr Cao’s own wilful blindness did not break the necessary connection between Mr Yu’s conduct and Mr Cao’s decision to sue Mr Yu’s wife only.

7. His Honour’s order was an impermissible punishment of Mr Yu.

8. His Honour erroneously applied the principles applicable to non-party costs orders.

9. His Honour failed to take into account relevant principles applicable to non-party costs orders.

110. Mr Yu seeks orders granting leave to appeal, allowing the appeal, setting aside the judgment and orders of Walmsley ADCJ of 20 March 2014, dismissing Mr Cao’s non-party costs application with costs and ordering him to pay Mr Yu’s costs of the application for leave and the appeal.

Mr Yu’s submissions

111. Mr T Blackburn of Senior Counsel, who appeared with Mr Rasmussen for Mr Yu on appeal but not before the primary judge, submitted that, contrary to what Mr Cao had urged on the costs application, Mr Yu had not sought to disguise his authorship of the matter complained of “for the rather cheap purpose of deflecting legal liability in case the target sued for defamation”, but had done so because he did not want his position of authority within the CPCA to unduly add to the weight of the views expressed. Mr Blackburn submitted that Mr Yu’s conduct should have been characterised as misguided rather than intentionally misleading.

112. Mr T Blackburn submitted that the primary judge’s discretion to make the costs order miscarried in four ways.

113. First, because the primary judge found that Mr Cao was persuaded or tricked by Mr Yu’s conduct into believing that Ms Liu was the author and sender of the matter complained of, when the evidence showed that Mr Cao always strongly believed that it was Mr Yu who was primarily responsible. In addition, he contended that finding was incompatible with the case Mr Cao advanced on the motion, particularly that pressed against Mr Goldsmith. He also relied on the fact that Mr Cao did not give evidence on the costs application that he had been persuaded or tricked into thinking that Ms Liu, rather than Mr Yu, was the author. He argued that this was a striking omission on the costs motion, where the effect of Mr Yu’s conduct was the central concern.

114. Mr Blackburn submitted that the only finding available on the evidence was that, at its highest, Mr Cao believed that Ms Liu may have had an involvement in the publication of the matter complained of, but that he strongly believed that Mr Yu was responsible for it.

115. Secondly, Mr Blackburn submitted that the primary judge’s exercise of his discretion was unreasonable in circumstances where, contrary to his Honour’s finding, the evidence from Mr Goldmith’s files and Mr Cao’s affidavit on the wasted costs application demonstrated Mr Cao always strongly believed that Mr Yu was likely to have written and sent the matter complained of and the failure to join him deprived Mr Yu of the opportunity to plead potential defences of qualified privilege, truth and fair comment. Mr Blackburn submitted that, in truth, Mr Cao was the author of his own misfortune in circumstances where he knew or very strongly suspected Mr Yu was responsible, but did not instruct Mr Goldsmith to join him.

116. Thirdly, Mr Blackburn argued that it was open, throughout, for Mr Cao to join both Mr Yu and Ms Liu as defendants and seek a Bullock costs order at the end of the proceedings if he failed against one or the other. He also embraced the proposition which fell from the bench in the course of argument that when Mr Goldsmith foreshadowed the costs application following Mr Yu’s confession, there was still time to seek an extension of the limitation period under s 56A against Mr Yu which, if successful, would have given Mr Yu the opportunity to defend the proceedings.

117. In addition, Mr Blackburn submitted Mr Yu was prejudiced by Mr Cao’s failure to give him timely notice of the non-party costs application. He submitted that earlier notification would have given Mr Yu the opportunity to seek some kind of involvement in the proceedings, but that was effectively impossible at the end of the trial.

118. Fourthly, Mr Blackburn contended the primary judge misapplied the law in concluding the case warranted the exercise of the “exceptional” power to make a non-party costs order.

The Wasted Costs application

119. Mr Blackburn submitted that it was relevant to have regard to the case Mr Cao sought to advance against Mr Goldsmith on the wasted costs application (the “wasted costs case”). He contended that that case supported his submission that Mr Cao was not, in fact, deceived by Mr Yu’s conduct and that the primary judge erred in concluding that Mr Goldsmith’s conduct did not break the necessary connection between Mr Yu’s conduct and Mr Cao’s decision to join Ms Liu, but not Mr Yu. Mr Smark did not oppose that course. The case against Mr Goldsmith emerges from the points of claim to which I have already referred and Mr Smark’s written submissions before the primary judge on this issue.

120. First, the thrust of the wasted costs application was not that Mr Goldsmith had pursued a hopeless case against Ms Liu but, rather, that he had failed to join Mr Yu as an additional defendant. Mr Cao’s proposed submission was that the exchanges between Mr Cao, Mr Goldsmith and Ms Chou demonstrated that Mr Goldsmith strongly advised Mr Cao that even though he wished Mr Yu to be joined as a defendant, it would not be proper for him to do so. He relied, in this respect, on Mr Goldsmith’s letters of advice of 24 October 2012 and 31 October 2012. [62] He argued that, in effectively countermanding Mr Cao’s instructions to join Mr Yu, Mr Goldsmith had acted rather remarkably, particularly bearing in mind his emails of 28 and 30 April 2013 in both of which he had expressed a view that he had “no doubt” Mr Yu had written the matter complained of. [63]

     62. See [36] and [39] above.

     63. See [60] and [61] above.

121. The wasted costs submissions also contended that Mr Goldsmith’s position in relation to Mr Yu’s joinder was surprising given his awareness of the following matters pointing towards Mr Yu as the author of the matter complained of:

1. The subject matter of the matter complained of was the history of elections for the CPCA committee and Mr Cao’s role in it. He contended that these were matters with which Mr Yu, and not Ms Liu, was concerned with and, further, pointed out that there was a history of animosity between Mr Cao and Mr Yu. Accordingly, it was contended, the possibility Mr Yu was using his wife’s email address was “obvious from the start”.

152. In Capital Securities, the question arose whether negligence on the part of the conveyancing solicitors broke the chain of causation between the plaintiff lender’s loss and the fraud of an agent of a “loan originator” in executing critical documents in reliance upon which the lender had advanced $220,500. Kennedy CCJ held that it had not. [89] Byrne AJA approved Kennedy CCJ’s reliance on Mason CJ’s statement in March v StramarePty Ltd [90] to the effect that “it makes no sense to regard the negligence of the plaintiffs or a third party as a superseding cause or novus actus interveniens when the defendant’s wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiffs or third party and that injury occurs in the ordinary course of things.” [91]

     89. Perpetual Trustees v Capital Securities [2009] VCC 34 (at [79] – [90]) per Kennedy CCJ.

     90. March v Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 (at 518 – 519).

     91. Capital Securities (at [12]), (Buchanan and Mandie JJA agreeing; see also Mandie JA (at [22])).

153. In Palmer-Bruyn in the passages to which the primary judge referred, Gleeson CJ and Gummow J discussed the role of reasonable foreseeability of harm in discussing the elements of the tort of injurious falsehood, a question Gummow J observed had been left open in previous cases. His Honour held that that question should be answered by denying the applicability of reasonable foreseeability as a means of limiting liability in the tort of injurious falsehood. [92] It is not clear what reliance the primary judge placed on this proposition.

     92. Palmer-Bruyn (at [65]) (Gleeson CJ agreeing).

154. In Dymocks, the Privy Council appeared to propound a “but for” test of causation in relation to a non-party costs order. [93] A “but for” test does not operate in the area of misrepresentation where it is sufficient that the “misstatement was actively present in the [representee’s] mind” when the relevant decision was made. [94] That is the test for which Mr Smark contended in the present case. [95]

     93. Dymocks (at [20]).

     94. Handley (at [6.09]) referring to Edgington v Fitzmaurice (1885) 29 Ch D 459 (at 483) per Bowen LJ.

     95. See [133] above.

155. It is unnecessary to decide whether materiality is a sufficient causation test for present purposes. The overriding test is what the “interests of justice” require. The test for causation may turn on the facts relied upon to found the non-party costs application. It is always necessary to look at all the circumstances of the case. [96]

     96. See Knight (at 193); Dymocks (at [25]).

Application of principles

157. It was common ground that as the costs order involved the exercise of the s 98 costs discretion, the success of the appeal depended on demonstrating error in the House v R sense. Such error may be demonstrated if the primary judge acted upon a wrong principle, mistook the facts or failed to have regard to material considerations or reached a conclusion which was, on the facts, “unreasonable or plainly unjust”. [97]

     97. House v R [1936] HCA 40; (1936) 55 CLR 499 (at 504 – 505).

158. As I have said, Mr Smark’s case against Mr Yu was based on the proposition that he “caused the action”. That was the primary focus of the costs judgment. The principal reason the primary judge concluded the non-party costs order should be made was that because the matter complained of was sent by Mr Yu, but disguised by him by use of the liunancy email address, Mr Cao sued only Ms Liu and not Mr Yu. [98] Although his Honour accepted that Mr Cao had frequently raised with Mr Goldsmith the possibility that Mr Yu should be joined, he said it was unnecessary for him to consider why that did not occur. [99] That was despite his conclusion that “Mr Yu, when Mr Cao told Mr Goldsmith of his suspicion, should have been joined”, [100] a conclusion which repeated his finding at trial that Mr Yu was the “obvious alternative defendant who could have been sued but was not.” [101]

     98. See costs judgment (at 2, 4, 5, 10 – 11).

     99. Costs judgment (at 5).

     100. Costs judgment (at 10).

     101. Liability judgment (at [144]).

159. This was, with respect, in my view a fundamental error in the circumstances of this case. His Honour effectively confined his consideration of the exercise of his power to the commencement of the proceedings against Ms Liu. However that joinder did not bring to an end Mr Cao’s opportunity to join Mr Yu. He could have been joined even at the stage when he confessed to having written and sent the matter complained of at trial.

160. The fact that Mr Yu may have “caused” the action by sending the matter complained of under cover of the liunancy email address was clearly highly significant. However, almost as soon as the matter complained of was sent another potential defendant was identified. Mr Cao “and several of his friends immediately saw [the matter complained of] as the work of [Mr Yu].” [102] By 1 December 2011, Mr Cao had sought Mr Goldsmith’s advice about “add[ing] George Yu into the case.”[103] By 10 December 2011 Mr Cao and others had circulated an email among the TALK group suggesting Mr Yu was operating his wife’s email and had been using it to send emails. [104] All these matters were known to Mr Goldsmith.

     102. Liability judgment (at [2], [39]).

     103. See [14] above.

     104. See [16] above.

161. There are many cases where there is more than one possible defendant. The primary judge had found Mr Yu the “obvious alternative defendant”. [105] In other words, Mr Cao had a cause of action against Mr Yu he failed to pursue. As Symphony Group demonstrates, this was a material consideration, yet his Honour paid almost no regard to it. Rather, as I have said, his Honour focussed almost exclusively on the commencement of the proceedings against Ms Liu. However, the question the primary judge had to determine was whether this case was “outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense”. [106] In the larger matrix, that question too fell for consideration in the context of the adversary system. [107]

     105. Liability judgment (at [144]).

     106. Dymocks (at [25](1)).

     107. Arundel Chiropractic (at [34]).

162. That called for an examination of all the circumstance of the case, at least those relevant to the identification of the parties and their possible joinder.

163. In the context of characterising Mr Yu’s conduct, it was also relevant, in my view, for his Honour to have regard to his finding in the liability judgment that, given Mr Yu was not a party to the proceedings, he was not obliged to tell Mr Cao that he either was the owner of the email address from which the matter complained of was sent or, indeed, had sent the matter complained of “and was therefore blameworthy.” [108]

     108. Liability judgment (at [127]).

164. While it is not necessary to demonstrate “improper conduct” on the part of the non-party against whom a costs order is sought, such conduct may be a relevant factor in the exercise of the discretion. [109] Equally, too, the fact that conduct is not “improper” is a matter to be taken into account. Accordingly, the fact that his Honour recognised Mr Yu was not obliged to disclose his part in the publication of the matter complained of was, in my view, a material consideration to the exercise of his discretion.

     109. Vestris (at 467); Dymocks (at [33]); Central Queensland Development Corp Pty Ltd v Sunstruct Pty Ltd [2015] FCAFC 63; (2015) 106 ACSR 127 (at [94]).

165. It will also be recalled that in the liability judgment, the primary judge found that Gibson DCJ should not have asked Mr Yu who sent the matter complained of. [110] Yet, in the costs judgment, his Honour took Mr Yu’s answer to this question into account as consistent with a continuing course of conduct of hiding the true authorship of the matter complained of. [111]

     110. Liability judgment (at [116], [127]).

     111. Costs judgment (at 12).

166. In contrast, the primary judge, with respect, brushed aside as unnecessary to consider, why, despite Mr Cao’s repeated instructions, requests and queries concerning Mr Yu’s joinder, Mr Goldsmith never took that step. At the risk of repetition, that was a highly relevant inquiry in light of his Honour’s finding Mr Yu was the “obvious alternative defendant”. Even when he turned his attention to the fact that Mr Goldsmith should have advised Mr Cao to join Mr Yu when he was instructed about Mr Cao’s suspicions, the primary judge dismissed any “breach of duty” to Mr Cao on Mr Goldsmith’s part on the ground that it “would not have occurred absent Mr Yu’s “effort to disguise authorship of the email.” [112] This was, it will be recalled, an effort his Honour had effectively found in the liability judgment to have been unsuccessful, when he concluded Mr Yu was the “obvious alternative defendant”. [113]

     112. Costs judgment (at 12).

     113. Liability judgment (at [144]).

167. I would also accept Mr Blackburn’s submission that the primary judge’s finding that Mr Cao was “deceived” by Mr Yu’s use of the liunancy email address was not open to him. First, such a finding was contradicted by the objective circumstances which led Mr Cao to form the belief to which I have earlier referred that, at the very least, Mr Yu was also involved in the publication of the matter complained of. Secondly, his Honour found the materials in Mr Goldsmith’s files were sufficient to point to the joinder of Mr Yu. [114] As far as the materials before the Court demonstrated, Mr Cao never resiled from that contention. Thirdly, it is significant in that light that Mr Cao did not give evidence of having been so deceived in support of the application for the costs order. In such circumstance the primary judge ought not to have drawn an inference in Mr Cao’s favour that he had been deceived by Mr Yu’s conduct. [115]

     114. Costs judgment (at 5, 12).

     115. Commercial Union Assurance Co of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 (at 418 – 419).

168. Although the primary judge referred to the “cause of action” issue indirectly in considering the prejudice to Mr Yu in not being joined as a defendant, his Honour dismissed that as in “the nature of a s 98 application”. [116] It is difficult, with respect, to understand how that was a sufficient answer to Mr Rasmussen’s submission in this respect. As Balcombe LJ made clear in Symphony Group, the fact that a costs application is a summary procedure and not subject to the rules which would apply in an action heightens the necessity to ensure that any departures from fundamental principle do not wreak an injustice. [117] The fact that Mr Cao had a cause of action against Mr Yu and could, and should (had Mr Goldsmith accepted his instructions) have joined him was a substantive consideration. It should not have been treated as a mere incident of the non-party costs application.

     116. Cost judgment (at 13).

     117. Symphony Group (at 193); see also in the context of the summary procedure followed in determining applications for wasted costs, Ridehalgh v Horsefield [1994] Ch 205 (at 238 – 239); Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 (at [50]); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 (at [24]).

169. All of these matters were material to his Honour’s conclusion that the case was an exceptional one warranting acceding to Mr Cao’s application. His Honour with respect both failed to take account of material considerations and drew conclusions concerning the effect of Mr Yu’s conduct which were not open on the evidence. Accordingly, I would conclude that the primary judge’s exercise of his discretion miscarried.

Re-exercising the discretion.

170. The parties accepted that if the Court reached this conclusion, it should reconsider the non-party costs motion.

171. There can be no controversy that Mr Yu had a connection to the proceedings. Indeed, Mr Smark’s submission that he was the cause of them in the direct sense that he composed and published the matter complained of can be accepted. It is relevant, too, that, as the primary judge held in the liability judgment, Mr Yu ultimately conceded “he had used the ‘liunancy’ account to disguise the fact that it was he who was sending the emails.” [118]

     118. Liability judgment (at [103]).

172. Symphony Group was also a case where H Ltd could be said to have “caused” the action because it employed the defendant with knowledge of the restrictive covenant, yet, as the case demonstrates, that was only the starting point of the inquiry as to whether it should be subjected to a non-party costs order.

173. There was clearly a basis for joining Ms Liu as a defendant. There were reasonable grounds for believing she published the matter complained of on the basis that it was sent from an email address purporting to be hers. Secondly, when the concerns notice was served Mr Cheng contended she had confessed to being its author. Thirdly, there appear to have been other witnesses whose evidence supported the proposition she published the matter complained of. [119]

     119. See [15] and [36] above.

174. However, as Mr Blackburn submitted and as Mr Smark’s submissions in the abandoned wasted costs application demonstrated, and as he frankly conceded in the course of argument, there was a considerable circumstantial case that Mr Yu was also involved in the publication of the matter complained of even before his “confession”. Mr Cao was clearly strongly of the belief that, in all the circumstances, set out, for example, in the wasted costs submissions, and the liability judgment, [120] Mr Yu was the author of the matter complained of. Despite, as I have said, his instructing, urging and encouraging Mr Goldsmith to join Mr Yu, Mr Goldsmith did not do so. Why this did not occur is not apparent from the papers. There was no suggestion the matter complained of could have been published by anyone other than either or both Mr Yu and Ms Liu.

     120. At ([2]).

175. In early October 2012 Mr Cao was querying whether Mr Goldsmith or Ms Chou read “the things that I provide” and pointing out that “[o]nly person who can send the email is George.”[121] A few weeks later, Mr Cao’s opinion could not have been clearer than when, on 30 October 2012 (with 3 weeks left before the 12 month limitation period on joining Mr Yu expired), he sent Mr Goldsmith an email expressing his incredulity that Mr Yu had not been added as the second defendant and reminding him, in substance, that all the circumstances pointed to Mr Yu’s involvement. [122]

     121. See [30] above.

     122. See [38] above.

176. By April 2013 Mr Goldsmith had formed the view that he had “no doubt” Mr Yu had sent the emails but was nevertheless still of the view that there was no evidence it was Mr Yu. [123] It is not apparent what had changed his mind.

     123. See Mr Goldsmith’s file notes of 4 April 2013 and his 28 April 2013 email to Mr Cao at [58] and [60] above.

177. The evidence on the basis of which the primary judge concluded Mr Yu was the “obvious alternative defendant” clearly included the circumstances which led Mr Cao and his colleagues to form the view Mr Yu was responsible for or at least directly implicated in the publication of the matter complained of virtually from the outset, and many of the matters on which Mr Cao had relied to form his opinion about Mr Yu’s complicity.

178. Mr Goldsmith is not a party to these proceedings and it is necessary to be circumspect about making findings adverse to him in his absence. Nevertheless he conducted the trial and had the opportunity to dissuade the primary judge from reaching the conclusion that “there was an obvious alternative defendant who could have been sued but was not.” [124] In that light, it is open to this Court, in my view, to conclude that Mr Goldsmith could have certified that he had “reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that [a claim against Mr Yu had] reasonable prospects of success”. [125]

     124. Liability judgment (at [144]).

     125. Legal Profession Act 2004 (NSW), s 347(2) as in force when the defamation proceedings were commenced in 2012.

179. Further, had Mr Goldsmith joined Mr Yu as the second defendant, it should have been possible either by obtaining discovery or administering interrogatories to determine precisely the role he played in the publication of the matter complained of.

180. Had Mr Cao joined Mr Yu and succeeded against him but not Ms Liu, it is highly likely he could have successfully applied for a Bullock costs order making Mr Yu liable for whatever costs Mr Cao was ordered to pay Ms Liu. An application for such an order could have been made on the basis that Mr Yu’s conduct in disguising himself as Ms Liu to send the matter complained of made it reasonable for Mr Cao to incur the costs of suing them both, he being uncertain as to which of them was responsible for its publication. [126]

     126. Bullock v London General Omnibus Company [1907] 1 KB 264; see also Almeida v Universal Dye Works Pty Limited (No 2) [2001] NSWCA 156 (at [7]) approving Sved v Council of the Municipality of Woollahra (1998) NSWConvR ¶55-842 (at 56,605) per Giles J.

181. Further, had Mr Yu been joined as a defendant, he would have had the benefit of the ordinary rules which govern actions in terms of pleading a defence, seeking to resolve the proceedings including by making offers of compromise and the like. [127] Alternatively, even if Mr Goldsmith was of the view that there was not a prima facie case against Mr Yu, he could have notified him, in effect, that should events transpire and evidence emerge that he was the publisher, a non-party costs application would be made against him. He did not do so until after Mr Yu’s “confession”.

     127. Cf Symphony Group (at 193).

182. I have already explained why, in my view, the finding that Mr Yu’s conduct deceived Mr Cao was not open. Further, while Mr Yu’s conduct might not be described as ideal, there was room for the conclusion (which the primary judge considered open), that he used the liunancy email address “for the purpose of changing a topic in the TALK group, without seeming to be giving a command from a position of authority in the club.” [128]

     128. Liability judgment (at [139]); see also costs judgment (at 10).

183. Finally, I would observe that it was open to Mr Cao to have applied to join Mr Yu to the proceedings before the primary judge. He could also have sought an extension of time of the cause of action in defamation against Mr Yu up to and including the time the application for leave to appeal was heard.

184. In my view, when the circumstances of the case are examined, there is nothing which took it out of the “ordinary run of cases” where there is the possibility of more than one person being responsible for committing a tort. There is, of course, as Mr Smark submitted, the unusual feature that Mr Yu “painted a target on his wife’s head”. Nevertheless his ruse was easily seen through virtually from the time the matter complained of was published. There are principles of law which enable a plaintiff to join more than one defendant when uncertain as to which is liable. Mr Cao could, had he been properly advised, have joined Mr Yu from the outset had his instructions been followed. Mr Yu would then, too, have had the benefit of the principles of law to defend the proceedings to which I earlier referred.

185. In my view, the circumstances of this case were not such as to warrant, in the interests of justice, the exercise of the exceptional power to order Mr Yu to pay the costs sought in the non-party costs motion.

Orders

186. I propose the following orders:

1. Grant leave to appeal;

2. Appellant to file the notice of appeal in the form of the draft appearing in the White Book at page 235 within seven days;

3. Appeal allowed;

4. Set aside the orders made by Walmsley ADCJ on 20 March 2014;

5. Dismiss the respondent’s notice of motion filed on 25 September 2013 insofar as it sought orders against the appellant with costs;

1. Respondent to pay the appellant’s costs of the application for leave to appeal and of the appeal and to have a certificate under the Suitors’ Fund Act 1951 (NSW) if otherwise qualified.

187. SACKVILLE AJA: I agree with McColl JA that leave to appeal should be granted and the appeal allowed.

188. McColl JA has identified a number of reasons why the primary Judge’s exercise of discretion miscarried. I agree that, in re-exercising the discretion conferred by s 98(1)(b) of the Civil Procedure Act 2005 (NSW), the Court should decline to order Mr Yu to indemnify Mr Cao against the costs he was ordered to pay Ms Liu in the defamation proceedings.

189. In essence, this is a case where it should have been obvious, if not before the defamation proceedings were commenced then shortly thereafter, that Mr Yu should have been joined as a defendant. Ms Yu’s conduct undoubtedly influenced the decision to sue Ms Liu. But the evidence established that, from an early stage, Mr Cao strongly believed, for very sound reasons, that Mr Yu had been responsible for sending the email. Had Mr Yu been joined as a defendant in the defamation proceedings, as he should have been, the litigation would have taken a very different course.

190. The primary Judge seems to have regarded these matters as largely irrelevant to the costs application, but they were highly significant to the exercise of the discretion conferred by s 98(2)(b) of the Civil Procedure Act 2005 (NSW).

191. ADAMSON J: I agree with McColl JA and with the additional reasons of Sackville AJA.

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Endnotes

Amendments

15 September 2015 - "Orders" heading reformatted.

Decision last updated: 15 September 2015