Zhao v Ausin Group (Australia) Pty Ltd (No 2)

In the case of Zhao v Ausin Group (Australia) Pty Ltd (No 2), the applicant, Zhao, sought costs against the first respondent, Ausin Group, following the discontinuance of proceedings which were initiated against Ausin and a second respondent, Jin, a former director and shareholder of Ausin. The proceedings were instituted to enforce a security interest over shares held by Jin in Ausin and a related entity, Thrivero Pty Ltd. However, it was discovered that the shares were of no real commercial value, leading to the discontinuance of the proceedings. Both parties sought costs following the discontinuance, and the court had to determine the appropriate allocation of costs. The court found that the first respondent acted unreasonably by failing to disclose the true value of the shares, which rendered the proceedings futile. Consequently, the court ordered that each party bear their own costs up to 31 August 2020, and the first respondent should pay the applicant's costs from 1 September 2020.

The legal issue before the court was whether the presumption created by rule 26.12(7) of the Federal Court Rules 2011 (Cth) that the discontinuing party should pay the costs of the other side was displaced. The court considered the conduct of both parties and the reasons for the discontinuance. The court noted that the onus was on the applicant to demonstrate why costs should not be awarded in accordance with this presumption. The court further considered whether the parties had acted reasonably in commencing and defending the proceeding until the realisation that further prosecution would be futile. The court found that the first respondent's failure to disclose the true value of the shares constituted unreasonable conduct, leading to the discontinuance of the proceedings. Therefore, the presumption was displaced, and the court exercised its discretion to order that the first respondent pay the applicant's costs from 1 September 2020.

In summary, the court ordered that each party bear their own costs up to 31 August 2020, and the first respondent should pay the applicant's costs from 1 September 2020. The applicant's costs were to be assessed in a lump sum, and a Registrar of the Court was directed to determine the amount of those costs and make an order fixing the amount, payable within 14 days of the order. The court exercised its discretion in light of the unreasonable conduct of the first respondent, which rendered the proceedings futile, and the justice of the particular case.