Zhou v Xixiamodu Consultancy Pty Ltd as Trustee for Xixiamodu Consultancy Trust
[2024] VSC 287
•3 June 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 01289
| HUAN ZHOU (and others according to the Schedule) | Plaintiffs |
| v | |
| XIXIAMODU CONSULTANCY PTY LTD as trustee for XIXIAMODU CONSULTANCY TRUST (ACN 610 004 101) (and others according to the Schedule) | Defendant |
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JUDGE: | Cosgrave J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers, the Court received written submissions from the second and ninth plaintiffs on 29 April 2024 and from the third defendant on 6 May 2024 |
DATE OF JUDGMENT: | 3 June 2024 |
CASE MAY BE CITED AS: | Zhou & Ors v Xixiamodu Consultancy Pty Ltd as Trustee for Xixiamodu Consultancy Trust & Ors |
MEDIUM NEUTRAL CITATION: | [2024] VSC 287 |
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Catchwords: COSTS - Failure by second and ninth plaintiffs to comply with self-executing order – Proceeding dismissed – General costs order subject to judicial discretion – Self-represented litigant has a limited entitlement to costs – Settlement terms with other plaintiffs requested by Court and not disclosed by third defendant – No order as to costs.
Legislation Cited: Civil Procedure Act 2010 (Vic); Supreme Court Act 1986 (Vic).
Cases Cited: Cachia v Hanes (1994) 179 CLR 403; Latoudis v Casey (1990) 170 CLR 534; Northern Territory v Sangare (2019) 265 CLR 164; Oshlack v Richmond Rover Council (1998) 193 CLR 72; Rowan v Cornwall (No 6) [2002] SASC 234; Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [No 2] [1953] 1 WLR 1481; [1953] 2 All ER 1588; Willing v Hollobone (1972) 3 SASR 532.
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APPEARANCES: | Counsel | Solicitors |
| For the second and ninth plaintiffs | --- | Self-represented |
| For the third defendant | --- | Self-represented |
HIS HONOUR:
Introduction
This proceeding has a lengthy history at the Court. This judgment addresses the question of costs.
Background
On 23 February 2024, the Court received an email from the third defendant seeking clarification as to the trial scheduled for June 2024. She advised that a settlement had been reached between herself and all plaintiffs except the second and ninth plaintiffs. She said that her attempts to ascertain from those plaintiffs whether they could commit to a June trial date had gone unanswered and she expressed concern as to the likelihood of the trial proceeding. The third defendant noted that two prior trial dates were vacated and that the plaintiffs had failed to pay the trial fees on both occasions.
On 7 March 2024, the Court contacted the parties confirming that the matter was listed for trial on 3 June 2024. The email reminded the plaintiffs of their obligation to pay the setting down for trial fee which was due no later than six weeks prior to the trial date, being 22 April 2024. The plaintiffs were told to pay particular attention to this deadline and, having regard to the existing delays in the conduct of this litigation, the Court advised that if payment of the setting down fee was not received within the required timeframe, the Court would consider whether the proceeding ought to be dismissed.
Having not heard from any party after the distribution of this email, on 2 April 2024 the parties were notified that the matter would be listed for directions on 5 April 2024.
On 5 April 2024, the Court made orders inter alia that:[1]
[1]In the orders of 5 April 2024 the Court noted in other matters that: (a) the third defendant advised the Court that the only remaining dispute is between the second and ninth plaintiffs and the third defendant; (b) neither the Court, nor the third defendant received any correspondence from the second or ninth plaintiffs explaining their absence at the directions hearing; (c) the third defendant indicated that she could not ascertain the plaintiffs’ position with respect to the continuation of this proceeding; (d) the Court notes that on two previous occasions, the plaintiffs have failed to pay the setting down for trial fee; (e) the Court notes that the plaintiffs must pay the setting down fee for trial no later than 22 April 2024.
(a) The proceeding is set down for trial and fixed for hearing on 3 June 2024 on an estimated duration of 5 days.
(b) If the setting down fee for the trial is not paid by 12 noon on 26 April 2024, the proceeding will be dismissed.
(c) The proceeding be referred to a mediator to be agreed between the parties, or in default of agreement to be appointed by the Court, such mediation to take place by 27 May 2024.
I made a self-executing order because the Court had set the proceeding down for trial twice before but, on each occasion, the plaintiffs had failed to pay the setting down fee and the trial was vacated. In my view, this behaviour was contrary to the overarching purpose set out in the Civil Procedure Act 2010 (Vic) (‘CPA’).
Although the Court notified the parties of the directions hearing, neither the second or the ninth plaintiffs attended in person or by Zoom. The third defendant attended the directions hearing by Zoom from China.
The plaintiffs failed to pay the setting down fee in accordance with the order and the proceeding thereby stood dismissed after noon on 26 April 2024.
On 26 April 2024 at 4:50pm, the Court sent an email to the parties advising that, because the second and ninth plaintiffs had failed to pay the setting down fee in accordance with the Court order made on 5 April 2024, the proceeding was dismissed. The Court advised that, subject to hearing from the parties, the Court proposed to order that the second and ninth plaintiffs pay the third defendant’s costs of the proceeding, such costs to be taxed on a standard basis in default of agreement. The Court directed that if the second and ninth plaintiffs sought to make submissions to the contrary, they could do so by 4:00pm on 1 May 2024. Assuming the plaintiffs made submissions, the third defendant was to file any responsive submissions by 10:00am on 6 May 2024. The Court advised that, unless it decided otherwise it would determine the question of costs without any further hearing.
In addressing the question of costs, it is relevant to note that the third defendant is a self-represented litigant. This affects her ability to recover legal costs. The third defendant was formerly represented by lawyers earlier in the proceeding. For example, counsel appeared for her at the directions hearing before Kennedy J on 11 April 2019 and 28 May 2019 and she had solicitors at those times. Having changed solicitors once, the third defendant’s second firm of solicitors, Robinson Gill, ceased acting for her in August 2019.
Parties’ submissions
By email sent about 11:05pm on 29 April 2024 the second and ninth plaintiffs objected to the proposition that they should pay the setting down fee for trial. They made a number of points. First, they said that the plaintiffs had previously agreed that the costs of the litigation were to be apportioned between them according to the “investment ratios”. I infer that this was a reference to each plaintiff’s proportionate share of the money claimed from the defendants. The second and ninth plaintiffs said that this agreement was made before the other plaintiffs settled with the third defendant. In the circumstances, the second and ninth plaintiffs contended that expecting them to bear the full burden of the setting down fee was inequitable.
Secondly, the second and ninth plaintiffs contended that the other plaintiffs reached unconditional settlements with the third defendant. They alleged that:
(a) the third defendant demanded payment of $25,000 from the second plaintiff to settle with her;
(b) this was not the case with the other plaintiffs.
Thirdly, the second and ninth plaintiffs said that they were not proficient in English and the second plaintiff was “a septuagenarian”. There had been an understanding whereby one individual represented the plaintiffs in dealings with the defendants and the Court. The other plaintiffs settled without informing the second and ninth plaintiffs. This left the second and ninth plaintiffs feeling dismayed and entrapped.
Fourthly, the second and ninth plaintiffs invested $160,000 and $800,000 respectively through the third defendant. They said it was morally untenable for the third defendant to deny responsibility for the losses of the money and further, to claim compensation for herself against them.
Fifthly, the second and ninth plaintiffs were each in a difficult financial position due to the depletion of their funds. They contended that they could not afford to pay the setting down fee, translation costs and legal fees.
On 29 April 2024, the ninth plaintiff sent an email to the Court responding to the email which the Court sent to the parties on 26 April 2024. The ninth plaintiff objected to the Court’s actions and gave reasons for his inability to comply with the Court’s orders.
First, he said that he could not respond to the order made on 5 April 2024 because, from 5 January 2024 until 16 April 2024, he was on a business trip to China and could not access Gmail emails.
Secondly, he said that he was not fluent in English and since the beginning of the Court proceedings in 2019, a spokesperson who was proficient in English and had some understanding of legal procedures represented him and six other plaintiffs. The ninth plaintiff indicated that he had received no notification from that person of the 5 April 2024 order.
Thirdly, when the ninth plaintiff returned to Australia, he learned that the other five members of the plaintiffs’ team had settled with the third defendant. He vigorously opposed any application by the third defendant for payment of her legal costs. He contended that the third defendant exploited the trust which existed between the plaintiffs and the third defendant because they were all friends of the third defendant through a Church network.
After receiving these emails, the Court forwarded them to the third defendant. The Court advised that the third defendant’s submissions should directly address the points raised by the second and ninth plaintiffs in their email submissions. In addition, the Court noted that it would be assisted if the third defendant could also inform the Court about the terms upon which the third defendant settled the proceeding with the plaintiffs other than the second and ninth plaintiffs.
The third defendant forwarded her submissions to the Court by email on 6 May 2024. She disputed the explanation provided by the ninth plaintiff about his inability to access emails in China. She said that he had two different email addresses.[2] She noted that, under the timeline which the ninth plaintiff gave, there was ample opportunity for him to comply with the Court’s order. I infer that this referred to the comment that the ninth plaintiff left China on 16 April 2024 and the submissions were to be filed by 1 May 2024. The third defendant made various allegations and comments about the ninth plaintiff and contended that his conduct damaged her reputation.
[2]In April 2024 the Court directed its emails to both email addresses given by the ninth plaintiff.
The third defendant said little about the second plaintiff other than that the losses which the second and ninth plaintiffs allegedly sustained were due to the failure of the company and its owners (being the first and second defendants) to perform their contractual obligations.
The third defendant submitted that how the plaintiffs agreed to divide the burden of the costs obligation was a matter for them. She said, in effect, that she considered the settlement with the other plaintiffs to be irrelevant to the situation with the second and ninth plaintiffs. She suggested that other plaintiffs were willing to apologise, admit mistakes and assist the third defendant to restore her reputation. Also, the settlements with the other plaintiffs reflected in part personal emotions and relationships which existed between the relevant parties.
In a separate part of the submissions, the third defendant claimed that the plaintiffs caused her significant financial losses, emotional distress, security threats and damage to her reputation. The third defendant said that she had suffered from severe depression and had attempted suicide. She said that members of her family had to leave Church communities and her three children had withdrawn from the Church school. She further said that she had lost her house as a result of paying her legal fees and she was now self-represented. She claimed legal expenses of about $81,000, loss of her husband’s time in connection with the litigation of $25,000, a written apology from the plaintiffs, and payment of $100,000 as compensation for mental stress and reputational damage.
Legal principles
Section 24(1) of the Supreme Court Act 1986 (Vic) and s 49(3)(k) and Part 4.5 of the CPA deal with the Court’s powers as to costs.
Rules 63.02, 63.03 and 63.04 provide that the Court has a broad discretion in determining questions of costs. Pursuant to s 65C(1) of the CPA, the Court can make ‘any order as to costs it considers appropriate to further the overarching purpose’. Such an order may ‘make different awards of costs in relation to different parts of a proceeding’ or ‘order that parties bear costs as specified proportions of costs.’[3]
[3]Civil Procedure Act 2010 (Vic) at s 65C(2)(a) and (b).
Generally, where a party is successful, costs will follow the event and a successful party will usually obtain its costs of the action. In Oshlack v Richmond River Council, McHugh J helpfully summarised the general position on the ‘usual order as to costs’, and the objectives the Court seeks to meet in exercising its discretion as to costs, as follows: [4]
The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party.[5] If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
[4]Oshlack v Richmond Rover Council (1998) 193 CLR 72 at [67] (‘Oshlack’). I note that while McHugh dissented in the result in Oshlack, his Honour’s statement of the relevant principles do not conflict with the reasoning of the majority.
[5]Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason CJ, at 562-563 per Toohey J, at 566-567 per McHugh J; Cachia v Hanes (1994) 179 CLR 403 at 410 per Mason CJ, Brennan, Deane, Dawson and McHugh JJ.
The High Court has described the Court’s power to award costs as a discretionary one which must be exercised judicially by reference to relevant considerations and facts connected with, or leading up to, the litigation.[6] In Northern Territory v Sangare, the Court said that the successful party is generally entitled to his or her costs by way of indemnity[7] against the expense of litigation that should not, in justice, have been visited upon that party.[8] The application of this principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome.[9]
[6]Northern Territory v Sangare (2019) 265 CLR 164 at [24] (‘Sangare’).
[7]In practical terms, the indemnity is usually only a partial indemnity.
[8]Sangare at [25] citing Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [No 2] [1953] 1 WLR 1481 at 1484; [1953] 2 All ER 1588 at 1590.
[9]Sangare at [25].
In exercising its discretion as to costs, the Court can have regard to the conduct of the parties to the litigation. With a case such as the present, a Court would usually adopt a prima facie position that the party whose proceeding was dismissed would pay the costs of the other party. But such a rule is not absolute and the Court’s discretion is sufficiently broad to reach a different conclusion where the circumstances warrant it.
The costs indemnity rule does not operate to recompense a successful litigant not represented by a lawyer for work done in the preparation and conduct of their case. [10] A successful unrepresented litigant can recover only out-of-pocket expenses.[11] This will generally not include the value of time spent preparing the case unless there is clear evidence of a service contracted and charged for on a commercial or quasi-commercial basis.[12] Here, any costs order in favour of the third defendant would be limited to legal costs incurred before the third defendant became self-represented and out-of-pocket expenses arising from the litigation.
[10]Willing v Hollobone (1972) 3 SASR 532 at 534-5 per Bray CJ.
[11]Ibid at 533-4 per Bray CJ.
[12]See for example Rowan v Cornwall (No 6) [2002] SASC 234 at [16] per Debelle J.
Analysis
As previously noted, generally, when a party fails to comply with a self-executing order and, as a result, a plaintiff’s case is dismissed or a defendant’s defence is struck out and the plaintiff enters judgment, the party who fails to comply with the order would pay the costs of the other party.
In the present case most of the other plaintiffs had settled with the third defendant before I made the self-executing order. Given that context, I was interested to know the terms upon which the third defendant settled with those plaintiffs. In the email to the third defendant on 2 May 2024 I specifically asked the third defendant to provide the Court with information about the terms upon which she settled with the other plaintiffs. I sought this information because I was keen to know what amount, if any, the other plaintiffs had paid the third defendant by way of costs. The third defendant had a limited entitlement to costs in circumstances where she initially had legal representation but later became a self-represented litigant. I wanted avoid a situation in which:
(a) the third defendant received more by way of costs than she was properly entitled to; or
(b) the second and ninth plaintiffs paid the third defendant more for costs than was legally appropriate.
If the third defendant received as costs an amount greater than a proportion of her legal fees, together with her out-of-pocket expenses, then this would not be a just outcome consistent with legal principle.
For no reason articulated in her submissions, the third defendant did not provide any detail about the essential elements of the terms of settlement reached with the other plaintiffs. In particular, the third defendant’s material did not address the question of costs in a way which enabled me to form a view about the extent of the costs compensation paid by the other plaintiffs. Further, I was unable to identify with clarity the full extent of the cost compensation sought against all plaintiffs and how much the plaintiffs in fact paid the third defendant for her legal costs of the proceeding. The information about these settlements was, as between the third defendant on the one hand and the second and ninth plaintiffs on the other, peculiarly within the knowledge of the third defendant. At the time, the second and ninth plaintiffs were unaware of the settlements reached between the third defendant and the other plaintiffs. Even now, they do not know the terms of settlement, only the fact that they occurred.
In the circumstances described, I do not know what amounts, if any, the plaintiffs paid to the third defendant as costs under the settlements reached. Accordingly, I cannot assess whether the third defendant would be excessively compensated if I made a costs order in her favour against the second and ninth plaintiffs. Because the third defendant caused this situation of uncertainty to arise and could have provided the information sought, I have decided not to make any order as to costs in favour of the third defendant.
The second and ninth plaintiffs raised issues about the fairness of requiring them to pay costs notwithstanding the cost-sharing arrangements made between all the plaintiffs. None of the matters they raised was especially relevant, much less decisive.
I note also that the third defendant made demands upon the second and ninth plaintiffs for the payment of various expenses, costs and compensation.[13] The third defendant did this in a situation where she had no counterclaim against the plaintiffs and, therefore, was not entitled to make such demands. Nor was the third defendant entitled to recover costs associated with the time her husband spent working on the case.
[13]See [24] of these reasons.
Conclusion
For the reasons given, I order that as between the second and ninth plaintiffs on the one hand and the third defendant on the other hand, there be no order as to costs.
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SCHEDULE OF PARTIES
| HUAN ZHOU | First Plaintiff |
| FENGMING SHI | Second Plaintiff |
| KE SHI | Third Plaintiff |
| CHENGENG WU | Fourth Plaintiff |
| JIA XIE | Fifth Plaintiff |
| XUEBING LI | Sixth Plaintiff |
| BINGJUN XIE | Seventh Plaintiff |
| LI LU | Eighth Plaintiff |
| QINGLONG GONG | Ninth Plaintiff |
| ACL CAPITAL PTY LTD ATF THE ACL FAMILY TRUST | Tenth Plaintiff |
| - and - | |
| XIXIAMODU CONSULTANCY PTY LTD as trustee for | First Defendant |
| TONGLIANG LI | Second Defendant |
| XIAOLI ZHU | Third Defendant |
| JIAYIN YUAN | Fourth Defendant |
| YUYIN ZHOU | Fifth Defendant |
| ESTRALA CAPITAL & ADVISORY PTY LTD (ACN 617 053 728) | Sixth Defendant |
| TANGREN CULTURAL FILM GROUP PTY LTD (ACN 621 089 352) | Seventh Defendant |
| TANGREN CULTURAL FILM HOLDINGS GROUP PTY LTD (ACN 629 075 350) | Eight Defendant |
| AUSTRALIA XIYANG MOVIES PTY LTD (ACN 618 767 801) | Ninth Defendant |
| - and – | |
| TONGLIANG LI | First Third Party |
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