Firmtech Aluminium Pty Ltd v Xie; Zhang v Xu; Xie v Auschn Conveyancing & Associates Pty Ltd (No 4)

1. [1]

   These three related proceedings concern the affairs of a company, Firmtech Aluminium Pty Ltd, which was established and operated by Mr Xu, Mr Zhang and Ms Xie, and various other dealings between, on the one hand, Mr Xu and entities associated with him (the Xu parties) and, on the other, Mr Zhang, Ms Xie and entities associated with them (the Zhang/Xie parties).

2. [2]

   I have previously delivered reasons for judgment in these proceedings, as follows:

   1. (1)

      on 21 October 2024: Firmtech Aluminium Pty Ltd v Xie; Zhang v Xu; Xie v Auschn Conveyancing & Associates Pty Ltd [2024] NSWSC 1293 (Primary Judgment);

   2. (2)

      on 12 November 2024: Firmtech Aluminium Pty Ltd v Xie; Zhang v Xu; Xie v Auschn Conveyancing & Associates Pty Ltd (No 2) [2024] NSWSC 1427 (Procedural Judgment); and

   3. (3)

      on 11 December 2025: Firmtech Aluminium Pty Ltd v Xie; Zhang v Xu; Xie v Auschn Conveyancing & Associates Pty Ltd (No 3) [2025] NSWSC 1496 (Account Judgment).

3. [3]

   These reasons assume familiarity with each of the Primary Judgment, the Procedural Judgment and the Account Judgment, and adopt defined terms used therein.

4. [4]

   In the Primary Judgment, I determined that:

   1. (1)

      in respect of the Principal Proceeding (2022/221710):

   2. (2)

      in respect of the Panania Proceeding (2022/277905):

   3. (3)

      in respect of the Lansvale Proceeding (2022/259467), Mr Zhang had failed to establish the claims which he brought in his own name and on behalf of Firmtech Holdings Pty Ltd.

5. [5]

   At trial, Firmtech and Mr Xu led expert evidence regarding the quantification of profits and compensation on a “whole of business” approach (Whole of Business Case). This involved quantifying the profits earned by Aluminum and Logikal from all of the projects which were undertaken by them in the period from FY2020 onwards, irrespective of whether such projects were diverted from Firmtech or subsequently obtained by Aluminum and Logikal after Firmtech ceased its operations. In the Primary Judgment (at [597]-[598]), I rejected the Whole of Business Case and held that Firmtech was entitled, at its election, to an account of profits, or to equitable compensation, in respect of a number of specific construction projects which were diverted to Aluminum and Logikal, prior to Firmtech ceasing its operations (the Relevant Projects).

6. [6]

   In the Procedural Judgment, I determined that Firmtech should have the opportunity, in advance of making an election between equitable compensation or an account of profits, to obtain further documents from Aluminum and Logikal in relation to the Relevant Projects and to lead supplementary expert evidence regarding the profits earned from, or losses suffered in respect of, the diversion of each of the Relevant Projects. In addition, I granted the relief sought by Mr Xu in respect of his oppression claim and made orders that the Principal Proceeding be dismissed against the Fifth to Eleventh Defendants (noting that the Plaintiffs did not press any claims against those Defendants in closing address at trial).

7. [7]

   In the Account Judgment, I determined that Firmtech was entitled to an account of profits in respect of the thirteen Relevant Projects which were profitable (the Profitable Projects), and that the loss on the remaining Relevant Project (which was referred to as the “Spring Square Project”) should not be set off against the liability to account for the profits of the Profitable Projects. I accordingly determined that the amount of the profits to which Firmtech was entitled was $2,863,485. This figure had been agreed by the parties to be the total amount of the net profit earned on each of the Profitable Projects. That agreement had been reached following a hearing on 6 and 7 November 2025, at which Mr Zhang was cross-examined at some length regarding his evidence concerning the allocation of revenue and expenses as between individual projects. After this agreement was reached, there was a further date set for the hearing of the remaining points in dispute, namely, whether the loss on the Spring Square Project should be brought to account and whether Firmtech was entitled to interest on the profits of the Profitable Projects (and if so, whether on a simple or compound basis). Following a further hearing on 20 November 2025, I determined those matters in favour of the Plaintiffs.

8. [8]

   It was common ground between the parties that, in accordance with the Account Judgment, Aluminum and Logikal should be ordered to pay the sum of $2,863,485 to Firmtech. The evidence before the Court was that Aluminum and Logikal, which have the same ultimate common owner and director, were effectively operated as a single business and the parties’ respective accounting experts proceeded on the agreed basis that the profits of the two companies should be assessed on a consolidated basis, referring to the two of them combined as “A&L”.

9. [9]

   The two principal matters which remain to be determined, and which were the subject of a further hearing on 2 March 2026, are:

   1. (1)

      the calculation of pre-judgment interest on the profits earned by A&L; and

   2. (2)

      the form of costs orders in each of the three proceedings (including whether there should be an award of interest on costs, and whether Mr Xu is entitled to be indemnified by Firmtech in respect of any costs which he does not recover from the Defendants in the Principal Proceeding).

Calculation of Interest

1. [10]

   The calculation of interest is complicated by the fact that the parties agreed figures for the net profit in respect of each Profitable Project, without allocating any part of this profit to a particular financial year. That is, there was no agreement, in respect of any of the Profitable Projects, as to when the revenue was earned or the costs were incurred which gave rise to the agreed figure for the net profit for that Project.

2. [11]

   It was common ground that it was impractical to determine the allocation of the agreed profit to particular financial years by analysing the revenue and income for each of the Profitable Projects on a line-by-line basis. This was precisely the exercise which the parties intended to circumvent by their agreement in November 2025 (in particular because it would be time-consuming and expensive to perform this task).

3. [12]

   The Plaintiffs’ expert, Mr Martin Cairns, adopted the following methodology for calculating interest:

   1. (1)

      first, he adopted, as a starting point, the line-by-line analysis of revenue and costs for each of the Profitable Projects which was set out in his report dated 14 October 2025 (MC4), including the allocation of the revenue and expenses to particular financial years (this analysis being the basis for his calculation of a figure for the net profit for each Profitable Project that differed from the figure that was ultimately agreed for that Project);

   2. (2)

      secondly, he determined the ratio of the net profit which was agreed for each Profitable Project to the profit figure that he determined in MC4 for that Project (as a percentage); and

   3. (3)

      thirdly, he applied this percentage to the results of his earlier analysis.

4. [13]

   By way of example:

   1. (1)

      in MC4, Mr Cairns expressed the opinion, based on his analysis of revenue and costs relating to the Founders Lane Project, that this Project earned a total profit of $1,091,926, which was allocated between the following financial years:

   2. (2)

      following the hearing on 6 and 7 November 2025, the parties agreed that the total profit for the Founders Lane Project was $784,194 (the agreed figure being approximately 71.8% of the figure determined by Mr Cairns in MC4);

   3. (3)

      in order to apportion the agreed profit for the Founders Lane Project as between specific financial years (so as to allow interest to be calculated), Mr Cairns applied this percentage to the amount of profit for each financial year which he had calculated in MC4, resulting in:

   4. (4)

      Mr Cairns then calculated interest on the amounts in subparagraph (3) above, with such interest being calculated (in accordance with the Account Judgment at [137]) on a compound basis at annual rests, compounding on the first day of each calendar year, using the applicable Court rates.

5. [14]

   The Defendants’ expert, Mr Mullins, expressed the view that Mr Cairns’ approach was flawed because interest on the “net profit” of a project cannot be assessed until “net profit” itself can be determined, and this cannot be determined until the project has been completed and all revenues and costs are known and have been recognised (which occurs at the end of the financial year in which the last transaction relating to the project is recorded).

6. [15]

   In his report dated 6 February 2026 (WM3), Mr Mullins adopted the following methodology for calculating interest:

   1. (1)

      first, he identified the date of the final revenue transaction (unless the final transaction was for an immaterial amount, or appeared not to be related to a finalisation payment on the Project, in which case Mr Mullins selected the last antecedent revenue transaction which was material);

   2. (2)

      secondly, he identified the date of the final direct cost transaction relating to the Project; and

   3. (3)

      thirdly, he identified the financial year in which the later of the transactions in paragraphs (1) and (2) above occurred, and calculated interest from the beginning of the following financial year.

7. [16]

   For example, in respect of the Founders Lane Project, Mr Mullins identified that the final direct cost transaction was 18 August 2022, but that the final revenue transaction was 28 March 2025. (Counsel for the Defendants explained that the final revenue transaction, which occurred well after the Founders Lane Project was completed, was the receipt of a retention amount.) By reason of those matters, Mr Mullins calculated interest from the start of the financial year after the final revenue transaction, that is, from 1 July 2025.

8. [17]

   The Plaintiffs advanced two main criticisms of Mr Mullins’ approach.

9. [18]

   First, the Plaintiffs pointed out that Mr Mullins’ approach in WM3 was inconsistent with the approach which he had adopted in the report that he prepared for the hearing on 6 and 7 November 2025 (WM2). In particular, in WM2, Mr Mullins stated as follows (at [5.8.2]-[5.8.3]):

10. [19]

    Mr Mullins did not, in WM3, explain why he had departed from his previous approach (which was consistent with Mr Cairns’ approach).

11. [20]

    Secondly, the Plaintiffs noted that Mr Mullins’ objection to Mr Cairns’ approach is fundamentally an objection based on accounting principles and, in particular, on a principle that the net profit of a project cannot be determined until the project has been completed and all revenues and costs are known and have been recognised. However, any such accounting principle should not distract from the equitable principles regarding an account of profits, which focus on the disgorgement of gains that have in fact been received by the errant fiduciary.

12. [21]

    In Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 at [24], Kiefel CJ, Keane and Edelman JJ observed that “the liability to account for a profit was described in Warman as concerned with ‘a profit or benefit’ in language divorced from a confined conception of benefit as accrued profit in narrow accounting terms” (emphasis added). Similarly, Gageler J stated (at [75]) that: “[a]lthough commonly referred to as an ‘account of profits’, there is no reason why a benefit or gain to be made the subject of an account must answer the description of a ‘profit’ in conventional accounting terms”.

13. [22]

    Equity requires the errant fiduciary to disgorge “the full value of an advantage obtained in a situation of conflict of duty” (subject to the errant fiduciary establishing some basis for ordering otherwise): Ancient Order of Foresters at [13].

14. [23]

    The purpose of an award of compound interest is not to punish the defendant, but to ensure that no profit should remain in the hands of the errant fiduciary: BCEG International (Australia) Pty Ltd v Xiao [2022] NSWSC 972 at [394] (Rees J).

15. [24]

    Given those principles, there is an evident artificiality in the approach adopted by Mr Mullins in WM3. While I do not take any issue with the proposition (whether as a matter of accounting principle or logic) that the total net profit of a project cannot be determined until all items of revenue and cost are known, this principle cannot be relied upon to shield the errant fiduciary from disgorging the full value of the gains received by their wrongdoing. To take the Founders Lane Project as an example, it is evident that A&L made substantial gains in the period up to 30 June 2023 from this project (including receiving the bulk of revenue in FY2022). However, Mr Mullins’ approach involves proceeding on the basis that no profit should be recognised, and no interest should be applied to any such profit, until the beginning of the financial year after a retention sum was repaid in respect of the Founders Lane Project (that is, until 1 July 2025). Such an approach would ignore the benefit that A&L in fact obtained as a result of having received substantial profits from that Project for several years prior to 1 July 2025.

16. [25]

    The Defendants appeared to recognise this difficulty as they offered, in oral address, a fall-back position, which involved ignoring the final transaction date for three of the Profitable Projects (including the Founders Lane Project), in circumstances where the final payment appeared to be the receipt of a retention payment, and adopting an earlier date than set out in WM3 for the recognition of profit in respect of each of those Projects. This had the effect of increasing the Defendants’ calculation of interest by more than 75%.

17. [26]

    I am not satisfied that this hybrid approach should be adopted. Such an approach would involve recognising the difficulties in Mr Mullins’ methodology, but seeking to address those difficulties only in respect of three Projects, while leaving the methodology in place for the other ten Profitable Projects.

18. [27]

    I accept the Plaintiffs’ submission that Mr Mullins’ approach is not consistent with the equitable principles outlined above regarding an account of profits, and that Mr Cairns’ approach does appropriately reflect those principles.

19. [28]

    The main objection raised by the Defendants to Mr Cairns’ methodology is a practical one. In short, the Defendants submitted that Mr Cairns’ analysis in MC4, including his allocation of revenue and costs for particular Projects to particular financial years, has never been tested, and could not now practically be tested, because of the parties’ agreement to total figures for the net profit for each of the Profitable Projects (which were, in each case, different from the figures determined in MC4).

20. [29]

    I acknowledge that Mr Cairns’ methodology does not provide a basis for determining, with precision, the proportion of the agreed net profit for each of the Profitable Projects which was received in each particular financial year. That is because there is necessarily a mismatch between the agreed net profit figure for each Project and Mr Cairns’ analysis (which resulted in a different net profit figure for each Project).

21. [30]

    At the same time, it is common ground that the work required to produce precision (being a line-by-line analysis of revenue and costs by each expert, followed by a contested hearing on those matters) would be impractical, costly and disproportionate.

22. [31]

    In those circumstances, I am satisfied that Mr Cairns’ approach, while necessarily involving an element of estimation, provides a reasonable basis for allocating the profit for each of the Profitable Projects as between financial years. It involves adapting the analysis that was previously undertaken by Mr Cairns, in a manner that is intended to acknowledge and reflect the difference between the net profit figures assessed by Mr Cairns and those agreed by the parties.

23. [32]

    The assumption of a proportionate reduction in respect of the profit in each financial year, in order to take account of this difference, is a rough-and-ready approximation, but one that is fair as between the parties. Further, it was open to the Defendants to cross-examine Mr Cairns regarding the basis of his allocation, or to lead evidence from Mr Mullins in respect of any competing allocation (particularly in circumstances where, as is apparent from paragraph [18] above, Mr Mullins had previously undertaken such an allocation). However, the Defendants chose not to take any such step.

24. [33]

    Having regard to those matters, I will make an award of compound interest in accordance with Mr Cairns’ analysis. The total amount of interest up to the date of the hearing on 2 March 2026 was $1,050,502, with the amount of daily interest thereafter being $804.75. This results in an amount of $1,068,206 as at the date of this judgment.

25. [34]

    Accordingly, I will make an order in the Principal Proceeding that Aluminum and Logikal pay to Firmtech the agreed aggregate profit of the Profitable Projects (being $2,863,485), together with pre-judgment interest in the sum of $1,068,206, totalling $3,931,691.

26. [35]

    In circumstances where all questions of relief have now been determined, the Defendants sought that orders 1-11 of the orders made by Robb J in the Principal Proceeding on 5 September 2022 be discharged. Those orders, which were expressed to operate “until the determination of these proceedings or further order of the Court”, imposed various obligations on Aluminum and Logikal regarding the conduct of their business, the retention of documents, and the maintenance of books and records, and required Mr Zhang and Ms Xie to use all reasonable endeavours to cause Aluminum and Logikal to comply with those obligations.

27. [36]

    The Plaintiffs agreed that, with the making of final orders in the Principal Proceeding, it is appropriate that the orders made by Robb J now be discharged. Accordingly, I will also make an order to this effect.

Costs – Overview

1. [37]

   The parties agree that:

   1. (1)

      in the Panania Proceeding, an order should be made that the Plaintiff/Cross-Defendant (Ms Xie) pay the Defendants’/Cross-Claimant’s costs of the proceeding on the ordinary basis, as agreed or assessed;

   2. (2)

      in the Lansvale Proceeding, an order should be made that the Plaintiff (Mr Zhang) pay the First, Second, Fourth and Fifth Defendants’ costs of the proceeding, on the ordinary basis, as agreed or assessed; and

   3. (3)

      in the Principal Proceeding, the Plaintiffs pay the Fifth to Eleventh Defendants’ costs of the proceeding, on the ordinary basis, as agreed or assessed.

2. [38]

   Accordingly, the issues in dispute are, in broad terms, the costs of the Principal Proceeding as between the Plaintiffs and the First to Fourth Defendants, and whether, in each of the three proceedings, the Court should award interest on costs.

3. [39]

   The costs of the Principal Proceeding fall to be considered in two distinct phases: first, the costs of the proceeding from commencement up until the Procedural Judgment on 12 November 2024 (First Period); and secondly, the costs of the proceeding from 13 November 2024 up until the Account Judgment on 11 December 2025 (Second Period).

4. [40]

   The reason for this split is that, following the Procedural Judgment, Firmtech elected to pursue an account of profits against Aluminum and Logikal, and did not seek any further relief (whether monetary or otherwise) against Mr Zhang and Ms Xie. Given this was so, the Defendants submitted that, insofar as any orders were made against the Defendants in respect of the costs of the Principal Proceeding following the Procedural Judgment, those orders should be made only against Aluminum and Logikal. Counsel for the Plaintiffs acknowledged “the force” in this submission. I will accordingly consider each of the First Period and the Second Period separately below.

5. [41]

   The Plaintiffs sought their costs of both Periods of the Principal Proceeding, on the ordinary basis, on the grounds that they had achieved substantial success, and costs should follow the event. The Defendants contended that the Court, in framing costs orders, should take into account that the Plaintiffs had failed on a number of issues which were dominant or separable, and also that some issues were resolved by agreement or were abandoned by the Plaintiffs. The Defendants submitted that the Court should order that the Plaintiffs pay the Defendants’ costs of some issues, should make no order as to the costs of other issues, and should otherwise only allow the Plaintiffs a percentage of their costs.

6. [42]

   In addition, as noted above, the Plaintiffs sought interest in respect of any costs award in their favour, and the First to Fourth Defendants disputed any such entitlement to interest on costs (but said that, if it were awarded, then it should also be awarded on any costs order made in the Defendants’ favour).

7. [43]

   Finally, there was a dispute between the parties regarding:

   1. (1)

      whether Mr Xu should be released from an order made by the Court on 2 February 2023, as a condition of the grant of leave to bring the derivative action, that Mr Xu indemnify Firmtech in respect of the costs of the Principal Proceeding; and

   2. (2)

      the extent to which Mr Xu was entitled to be indemnified by Firmtech in respect of any amount which has been expended on the costs of the Principal Proceeding, and which is not recovered by way of any costs order made in the Principal Proceeding.

Relevant Principles – Costs

1. [44]

   Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provides that if the Court makes any order as to costs, the Court is to order that costs follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs.

2. [45]

   The "event" typically refers to the event of the claim or counter-claim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] (Ward, Emmett and Gleeson JJA).

3. [46]

   Generally, a successful party should be entitled to the whole of its costs of the proceeding, including costs on an issue on which it has failed. However, in an appropriate case, a costs order may be formulated to reflect the degree of success on distinct issues. Relevant circumstances in which apportionment across different issues has been said to be appropriate include where a successful party has, in respect of one or more issues, unfairly, improperly or unnecessarily increased costs; where the bulk of the time has been taken on an issue on which the unsuccessful party has succeeded; or where a particular issue or group of issues is clearly dominant or separable: see Access Training Group Ltd v Jane [2024] NSWCA 204 at [190]-[191] per Ward P (with whom Payne JA agreed).

4. [47]

   A separable issue can relate to any disputed question of fact or law before a Court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA), referring to James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].

5. [48]

   It may be appropriate to deprive a successful party of its costs or a portion of its costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Bostik Australia at [38], referring to Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. However, in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6], the High Court observed that there are “good reasons not to encourage applications regarding costs on an issue by issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like”. Accordingly, where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed; and, unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Bostik Australia at [38].

6. [49]

   Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the Court, which powers should be liberally construed: Bostik Australia at [38], referring to State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). In Access Training Group at [192], Ward P observed that:

7. [50]

   In Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [41], Gleeson JA (with whom Meagher and Barrett JJA agreed) observed that, in approaching the question of apportionment where there are multiple issues, it has been recognised that there is a basis for distinguishing between the position of successful defendants and successful plaintiffs. In this regard, his Honour referred, with approval, to the following observations of Hodgson JA in Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19] regarding this distinction (emphasis added):

8. [51]

   Where there is a mixed outcome in a proceeding, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends on matters of impression and evaluation: Bostik Australia at [38], referring to James v Surf Road Nominees Pty Ltd (No 2). In general, such an exercise will be carried out on a relatively broad-brush basis: Doppstadt at [19].

9. [52]

   Where a claim is withdrawn by consent, the general expectation is that each party should bear its own costs, subject to some exceptions which are conveniently summarised by McHugh J in Re Minister for Immigration & Ethnic Affairs (Cth); ex parte Lai Qin (1997) 186 CLR 622 at 624-625; [1997] HCA 6. One such exception is that a costs order may be made where one party has acted unreasonably in a way which should be compensated by costs: Lavercombe v Auscott Ltd [2006] NSWSC 867 at [44] per Barrett J.

10. [53]

    If both parties to a proceeding, which has been settled without a hearing on the merits, have acted reasonably in commencing and defending the proceedings, and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the Court will make no order as to the cost of the proceedings: Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [30] per Payne JA (with whom Meagher JA agreed).

11. [54]

    I deal separately below with the relevant principles regarding interest on costs.

Costs of Principal Proceeding – First Period

1. [55]

   In respect of the First Period of the Principal Proceeding – that is, up until the Procedural Judgment – the Plaintiffs submitted that the Court should order that Ms Xie, Mr Zhang, Aluminum and Logikal pay the Plaintiffs’ costs of the proceeding, on the ordinary basis, with such costs being payable to Mr Xu (since he funded the claim in Firmtech’s name). The Plaintiffs submitted that, in circumstances where they were successful in establishing their claims for breach of fiduciary and statutory duties and oppression against Ms Xie and Mr Zhang, and knowing assistance against Aluminum and Logikal, costs should follow the event.

2. [56]

   The First to Fourth Defendants submitted that:

   1. (1)

      Mr Xu was not entitled to any costs award in his favour; and

   2. (2)

      the Court should order that:

3. [57]

   Given that the starting point is that costs should follow the event, it is convenient to approach the issue of the costs of the First Period of the Principal Proceeding by reference to the matters raised by the Defendants.

4. [58]

   As regards Mr Xu’s costs, the First to Fourth Defendants contended that no award should be made in Mr Xu’s favour as he was unsuccessful in the proceeding and, in particular, failed to establish:

   1. (1)

      his claim against Mr Zhang and Ms Xie for damages for an alleged breach of the terms of their pre-incorporation contract with him (Primary Judgment at [429]-[437]); and

   2. (2)

      his claim for an account of profits or equitable compensation, for the alleged breach by Ms Xie and Mr Zhang of fiduciary duties which they owed to him personally (Primary Judgment at [520]-[536]).

5. [59]

   This submission ignores that, in the Primary Judgment, I found that Mr Xu had established his claim that, by reason of the diversion by Ms Xie and Mr Zhang of valuable business opportunities from Firmtech to Aluminum and Logikal, the affairs of Firmtech were conducted in a manner that was contrary to the interests of the members as a whole and was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Xu within the meaning of s 232 of the Corporations Act 2001 (Cth) (Primary Judgment at [545]-[550]).

6. [60]

   Mr Xu’s claims of oppression were founded on essentially the same factual matters as Mr Xu’s claims for breach of contract, Mr Xu’s claims for breach of fiduciary duties, and Firmtech’s claims for breach of fiduciary and statutory duties, namely, the wrongful diversion, by Ms Xie and Mr Zhang, of the Relevant Projects to Aluminum and Logikal.

7. [61]

   I accept the Plaintiffs’ submission that, if Mr Xu had not sought and obtained leave to bring the derivative action in the name of Firmtech, he could have sought substantial relief in respect of his oppression claim (for example, an order that Ms Xie and Mr Zhang buy out his shareholding in Firmtech, with those shares being valued on the basis that the wrongful conduct – namely, the diversion of the Relevant Projects from Firmtech to A&L – had not occurred).

8. [62]

   For those reasons (but subject to the further matters addressed below), both Firmtech and Mr Xu are entitled to a costs order in their favour in respect of the First Period of the Principal Proceeding.

9. [63]

   The First to Fourth Defendants submitted that, after putting to one side the costs of the Whole of Business Case (which are addressed below), the Plaintiffs should be awarded only 70% of their costs of the First Period, as agreed or assessed, by reason of the “mixed results achieved by the Plaintiffs” in the Primary Judgment. In particular, the First to Fourth Defendants referred to the following matters:

   1. (1)

      first, the Court rejected the claim that Ms Xie and Mr Zhang breached their pre-incorporation contract with Mr Xu;

   2. (2)

      secondly, the Court rejected the Plaintiffs’ argument that, after the meeting between Mr Xu, Ms Xie and Mr Zhang on 30 January 2021, it was agreed that Mr Xu would assume control of Firmtech and its business, with Firmtech Aluminium Windows and Doors Pty Ltd being the vehicle for the operation of the windows and doors business (Primary Judgment, [402]-[415]);

   3. (3)

      thirdly, the Court rejected the Plaintiffs’ argument that the incorporation of Logikal constituted a breach by Ms Xie and Mr Zhang of the duties owed by them (Primary Judgment, [477]-[479]);

   4. (4)

      fourthly, the Court accepted the Defendants’ contention that the duties owed by Ms Xie and Mr Zhang to Firmtech not to promote their personal interests ended in the last quarter of 2021 (Primary Judgment, [600]-[607]);

   5. (5)

      fifthly, the Court rejected the Plaintiffs’ argument that Ms Xie and Mr Zhang owed fiduciary duties to Mr Xu (Primary Judgment, [520]-[536]);

   6. (6)

      sixthly, the Court rejected the Whole of Business Case (Primary Judgment, [563]-[597]);

   7. (7)

      seventhly, the Court noted that the Plaintiffs did not provide any evidence “regarding the profits which have been earned … from the specific projects” (Primary Judgment, [608]-[628]); and

   8. (8)

      eighthly, although it was unnecessary to do so (by reason of the rejection of the Whole of Business Case), the Court addressed various disputes arising on the expert evidence, and resolved a number of those matters in the Defendants’ favour.

10. [64]

    The matters in paragraphs (6)-(8) above all relate to the Whole of Business Case, which I address below.

11. [65]

    The other five matters do not, individually or in combination, provide a sufficient basis for departing from the general rule that costs follow the event. I have already addressed the matters in paragraphs (1) and (5) above, and have noted that these claims did not raise any substantive factual matters beyond those raised by those claims of Firmtech and Mr Xu which were found to be established. The matter in paragraph (3) was a very minor issue, which occupied an inconsequential amount of time at the hearing. As regards the matters in paragraphs (2) and (4), these represent some factual and legal propositions which the Plaintiffs failed to establish, in the context of a case that raised a myriad of factual and legal issues. Further, I did not, in the Primary Judgment, accept the position advanced by the First to Fourth Defendants in respect of the matters in paragraphs (2) and (4). In particular, I rejected their contention that there was an agreement with Mr Xu prior to, or alternatively by, January 2021, that Ms Xie and Mr Zhang were free to pursue a windows and doors business on their own account, such that they were able to divert any business opportunities to Aluminum or Logikal from that point in time, without breaching any duties to Firmtech.

12. [66]

    In the Primary Judgment (at [563]-[619]), I rejected the Plaintiffs’ Whole of Business Case, being their claim that:

    1. (1)

       Firmtech was entitled to an account of profits in respect of the whole of the business of A&L (or a constructive trust over the whole of their assets and undertaking); and

    2. (2)

       Firmtech was entitled to compensation assessed on the basis that the current value of the whole of the business of A&L represents the loss in the value of Firmtech’s shares (which are currently worth $nil) as a result of the Defendants’ wrongdoing.

13. [67]

    I determined that Firmtech was entitled to an account of profits in respect of the Relevant Projects which were diverted to A&L prior to around July 2021, or to equitable compensation for the profits lost by Firmtech as a result of the diversion of those Projects. However, the Plaintiffs did not advance, at the initial hearing, any evidence as to those matters. (As I explained in the Procedural Judgment at [17], that forensic choice was made in circumstances where there was late production, or a lack of production, of documentary material in relation to a number of the individual Projects.)

14. [68]

    I accept the Defendants’ submission that the Whole of Business Case was a separable issue, on which the Plaintiffs were unsuccessful.

15. [69]

    Although, as the Plaintiffs submitted, the facts relied on to establish causation in respect of the Whole of Business Case were essentially the diversion of the Relevant Projects, the assessment of the claim for an account of profits or compensation on a “whole of business” basis was a substantial matter, which was distinct from the other issues in the case. It was a matter in respect of which the parties led competing expert evidence, with a number of separate reports prepared, prior to the experts meeting in conclave and preparing a joint report. It was a matter which took up two days of time at the hearing, with the cross-examination of the experts taking a day, and the parties being out of court for another day prior to this for preparation purposes, by reason that the joint expert report was only served in the course of the hearing. It was a matter that occupied a considerable portion of written and oral submissions.

16. [70]

    I do not consider it appropriate to make an order that the Plaintiffs pay the Defendants’ costs of the Whole of Business Case. That is because:

    1. (1)

       there may be a dispute regarding whether some aspects of the work undertaken by the experts related solely to the Whole of Business Case or was also relevant to the assessment of the profits of the individual Relevant Projects (for example, it appears that some of the issues raised in the expert evidence for the Whole of Business Case, regarding whether certain types of costs were business expenses or not, were relevant to the assessment of costs of the business which were then apportioned to individual Projects as indirect costs); and

    2. (2)

       there was an overlap between the factual matters relied upon to establish liability in respect of the Whole of Business Case and those relied upon to establish the claims which were established in respect of the Relevant Projects.

17. [71]

    Adopting a broad-brush approach, and having regard to the extent of the expert evidence relating to the assessment of profits or damages on a “whole of business” basis, the time spent at the hearing on this issue, and the extent of written and oral submissions directed to this issue, I have determined that the appropriate order is that the First to Fourth Defendants pay 70% of the Plaintiffs’ costs of the Principal Proceeding in the period up until 12 November 2024, as agreed or assessed.

18. [72]

    The Plaintiffs sought an order that those costs be paid to Mr Xu, as he funded the costs of pursuing the Plaintiffs’ claims (and, if the costs are paid to Firmtech instead of Mr Xu, he will then need to rely on his indemnity to recover those costs). The Defendants did not dispute that this was an appropriate form of order.

Costs of Principal Proceeding – Second Period

1. [73]

   In the Second Period of the Principal Proceeding – that is, the period after the Procedural Judgment up until the Account Judgment – the active parties in the proceeding were Firmtech, Aluminum and Logikal, with the main issue in contention being Firmtech’s claim for an account of profits in respect of the Relevant Projects.

2. [74]

   The Plaintiffs sought an order that Aluminum and Logikal pay Firmtech’s costs of the Second Period, on the basis that Firmtech was successful in establishing that it was entitled to an account of profits in the amount of $2,863,485 plus interest, and costs should follow the event.

3. [75]

   The First to Fourth Defendants submitted that the Court should order that:

   1. (1)

      Firmtech pay Aluminum’s and Logikal’s costs of and incidental to considering and responding to the expert report of Mr Cairns dated 27 October 2025 (MC5), including the cost of preparing the affidavit of Mr Zhang sworn on 4 November 2025 (Fourth Zhang Affidavit) and the costs of preparing for the cross-examination of Mr Cairns in respect of MC5;

   2. (2)

      subject to paragraph (1) above, there be no order as to the costs of the quantification of the Relevant Projects, including the expert evidence served by the parties and the hearing on 6 and 7 November 2025; and

   3. (3)

      Aluminum and Logikal pay Firmtech’s costs, as agreed or assessed, in respect of the issues determined in the Account Judgment including, but not limited to, the hearing on 20 November 2025.

4. [76]

   Given that the default position is that costs follow the event, it is convenient, once again, to consider the issue of the costs of the Second Period of the Principal Proceeding by reference to the Defendants’ submissions.

5. [77]

   Leaving aside the issue of MC5 (which is addressed below), the Defendants submitted, in respect of the period up until and including the hearing of 6 and 7 November 2025, that the dispute between the parties regarding the quantification of the profit of each of the Relevant Projects had been resolved by agreement, such that there was no “event” and therefore, in accordance with the principles in Lai Qin, there should not be any order as to costs.

6. [78]

   The problem with this submission is that this is not a case where a plaintiff’s claim was settled or withdrawn, without any need for Court determination. Instead, Firmtech pursued to judgment, and was successful in establishing, a claim for an account of profits in a substantial amount (of almost $4m, including interest). It is true that one important step in achieving this outcome was that the parties agreed a figure for the net profit for each of the Relevant Projects, without the need for any determination by the Court. However, that is no different from any other case in which the parties and their legal representatives co-operate to reduce the matters in dispute which require the Court’s determination. For example, it is not uncommon for parties to file competing quantum evidence and then, following an expert conclave and joint report, for there to be agreement on a figure for damages in the event that liability is established. This agreement on a necessary integer of the plaintiff’s claim does not mean that the claim has been “settled” in part, or that there is no relevant “event” when the Court subsequently determines that damages should be awarded in the agreed sum.

7. [79]

   The purpose of an award of costs is not to punish the unsuccessful party, but to compensate the successful one. In the present case, the Plaintiffs had to expend significant costs in preparing expert evidence, in reviewing the Defendants’ lay and expert evidence in response, and in preparing for and attending the hearing on 6 and 7 November 2025, in order to reach the point where the parties were able to agree on figures for the net profit of the Relevant Projects (being in most cases a figure between the respective experts’ assessments). The Plaintiffs are not to be denied compensation for those costs, which were necessary to expend in order to vindicate Firmtech’s claim for an account of profits, merely because the parties commendably co-operated to reduce the number of matters which it was necessary for the Court to determine in order to resolve that claim.

8. [80]

   Counsel for the Plaintiffs submitted that:

9. [81]

   I accept this submission. For the reasons set out above, the starting position should be that Firmtech, having succeeded in the Account Judgment in establishing its claim for an account of profits in the amount of almost $4m including interest, should be entitled to its costs. However, I consider that the parties’ agreement on profit figures on the morning of 7 November 2025, which meant that the hearing on that day did not proceed, is appropriately taken into account by carving out from the costs order the costs of 7 November 2025.

10. [82]

    I accept the Defendants’ submission that, by the service of MC5, the Plaintiffs raised a separable issue, on which significant costs were expended, before that issue was abandoned by the Plaintiffs at the hearing on 6 November 2025.

11. [83]

    The relevant background is as follows.

    1. (1)

       On 14 October 2025, the Plaintiffs served MC4, quantifying Firmtech’s claim for an account of profits.

    2. (2)

       On 27 October 2025 (without any new documents, instructions or assumptions having been provided to Mr Cairns), the Plaintiffs served MC5. In that report, Mr Cairns expressed an opinion regarding the “completion dates” for five of the Relevant Projects and, on this basis, excluded from the direct costs of those five Projects any costs which were invoiced or otherwise incurred after those “completion dates”. As a consequence, Mr Cairns increased his assessment of the profit of the Profitable Projects from $4,094,138 (in MC4) to $5,690,303 (in MC5). This represented an increase in Firmtech’s claim of almost 40%.

    3. (3)

       On 4 November 2025, Mr Cairns and Mr Mullins issued a joint report regarding the quantification of the profits of the Relevant Projects, following their conclave, in which Mr Cairns maintained the position in MC5 regarding “completion dates” (while making some adjustments to the figures in MC5 for some matters which were unrelated to the “completion date” issue).

    4. (4)

       On 4 November 2025, the Defendants served a further affidavit of Mr Zhang, which addressed the “completion date” issue. This was a substantial affidavit, with an exhibit of more than 1,600 pages. The Defendants’ legal advisers plainly expended a significant amount of effort, in the period of around one week between the service of Mr Cairns’ report and the service of Mr Zhang’s affidavit, in seeking to address the issue raised by MC5 (which is unsurprising given its impact on the size of Firmtech’s claim).

    5. (5)

       At the hearing on 6 November 2025, the Plaintiffs did not cross-examine Mr Zhang regarding any matters in his affidavit of 4 November 2025 or regarding the “completion date” issue. It was only when I raised a question about the status of this issue, in circumstances where Mr Zhang’s cross-examination had been completed without any reference to it, that Senior Counsel for the Plaintiffs indicated that this issue was not being pressed, and that Firmtech was not placing any reliance on MC5, but was instead relying on figures contained in MC4 (but taking into account amendments arising from the experts’ joint report).

12. [84]

    By reason of those matters, I consider that it is appropriate to reduce the costs award to Firmtech in respect of the Second Period of the Principal Proceeding, to take account of the separable issue of the “completion date”, which led to substantial costs being incurred before it was abandoned.

13. [85]

    Adopting a broad-brush approach, and having regard to the extent of the evidence going to the “completion date” issue, relative to the other evidence in the proceeding, and therefore the extent of the preparation time spent on this issue relative to other matters, I have determined that the appropriate form of costs order in respect of the Second Period of the Principal Proceeding is that Aluminum and Logikal pay 85% of Firmtech’s costs (excluding the costs of the hearing on 7 November 2025) on the ordinary basis, as agreed or assessed.

Interest on Costs

1. [86]

   In each of the Principal Proceeding, the Lansvale Proceeding and the Panania Proceeding, the Xu parties seek an order pursuant to s 101(5) of the Civil Procedure Act 2005 (NSW) for interest on any costs awarded to them, with such interest to be calculated at the rate prescribed under UCPR r 36.7 as applied from the date or dates on which the costs were paid, or the date of the costs order, whichever is the earlier.

2. [87]

   Section 101 of the Civil Procedure Act relevantly provides as follows:

3. [88]

   Pursuant to this provision, a party in whose favour a costs order is made is entitled to interest on those costs, unless the Court orders otherwise; and interest is calculated at the prescribed rate from the date of the order, unless the Court orders otherwise.

4. [89]

   In DSHE Holdings Ltd (recrs and mgrs apptd) (in liq) v Abboud (No 4) [2022] NSWSC 91 at [51], Ball J observed that:

5. [90]

   A common form of such order is a “Lahoud order”, named after Lahoud v Lahoud [2006] NSWSC 126. In that decision, Campbell J explained that the award of interest was consistent with the compensatory purpose of a costs order, stating as follows (at [83], citations omitted):

6. [91]

   In Tjiong v Tjiong (No 2) [2018] NSWC 1981 at [69], Parker J observed that:

7. [92]

   Mr Zhang and Ms Xie did not advance any written or oral submissions as to why an order for interest on costs should not be made in, respectively, the Lansvale Proceeding or the Panania Proceeding.

8. [93]

   In their written submissions, the First to Fourth Defendants advanced three main reasons as to why an award of interest on the Plaintiffs’ costs would be “unfair and unjust” in the circumstances of the Principal Proceeding, as follows:

   1. (1)

      first, while the Plaintiffs have been successful, they have failed in respect of a number of issues which they advanced including, most relevantly, the Whole of Business Case;

   2. (2)

      secondly, the matters in paragraph (1) above are such as to warrant:

   3. (3)

      thirdly, the Plaintiffs’ costs are disproportionate and well exceed the quantum of the award in their favour.

9. [94]

   As regards the first and second matters, I have determined, in respect of each of the First and Second Periods of the Principal Proceeding, that the Plaintiffs should be awarded only a specified percentage of their assessed costs, having regard to separable issues on which they failed (in the First Period) or abandoned (in the Second Period).

10. [95]

    However, I am not satisfied that this provides a basis for refusing an award of interest on costs. The Defendants submitted, by reference to Lahoud at [84], that “where a plaintiff has been unsuccessful in respect of various issues, the formulation of an appropriate order can be difficult”. However, this submission fails to acknowledge that this difficulty, while recognised by Campbell J in Lahoud, was addressed by the form of order which his Honour proposed. In particular, Campbell J observed as follows (at [84]-[85]):

11. [96]

    Consistently with those observations, the form of order adopted in Lahoud (which is the basis for the Plaintiffs’ proposed form of order) was as follows:

12. [97]

    The reasoning in Lahoud therefore supports the Plaintiffs’ form of proposed order for interest on costs as being appropriate in circumstances where the Plaintiffs have had mixed success on issues in the Principal Proceeding.

13. [98]

    As regards the issue of proportionality, the Defendants relied on evidence from the Plaintiffs’ solicitor that the total amount of fees and disbursements (including expert and counsel fees) in respect of the proceedings up to the Account Judgment was around $3.9m. That is an amount roughly the same as the amount that Firmtech has recovered in the Principal Proceeding.

14. [99]

    The Defendants relied on the following statement of principle by Ipp JA (with whom Sheller JA and Grove J agreed) in Skalkos v T & S Recoveries Pty Ltd (2004) 65 NSWLR 151; [2004] NSWSC 281 at [8]:

15. [100]

    That case was an appeal from a challenge to a costs assessment. No issue of assessment arises in the present case. If the amount of costs for which the Zhang/Xie parties are liable in each of the three proceedings is not agreed, and the costs orders go to assessment, then the issue of proportionality will be addressed in the course of that process.

16. [101]

    The proposed Lahoud order for interest is, as set out above, an order that operates in respect of “the total amount of costs and disbursements allowed on assessment to the plaintiffs in connection with these proceedings” (emphasis added). In determining whether such an order should be made, I am proceeding on the basis that the total amount of costs and disbursements that is allowed on assessment in these proceedings will take into account the issue of proportionality. It follows that the need for the issue of proportionality to be addressed in the course of assessment does not provide a reason to decline to make the proposed order for interest on costs.

17. [102]

    In any case, I would not have reached any view that the costs were not reasonably and properly incurred simply by reason of their quantum, especially in circumstances where the three proceedings raised complex issues of fact and law, and where a number of those issues (including, in particular, quantum) were complicated by the manner in which A&L’s records were kept. Further, I note that there was no evidence before the Court as to the total costs incurred by the Zhang/Xie parties in respect of these proceedings.

18. [103]

    For those reasons, I am not satisfied that any of the matters raised in the First to Fourth Defendants’ written submissions provides a sufficient basis for declining to make an order for interest on costs in the Principal Proceeding.

19. [104]

    In oral address, the First to Fourth Defendants raised an additional matter, namely, that there was evidence that a number of the invoices issued by the Plaintiffs’ solicitors had been paid by Auscon Global Pty Ltd, rather than by Mr Xu. The First to Fourth Defendants tendered a company search for this entity which indicated that the sole shareholder and director was Mr Jinting Xu.

20. [105]

    I made a number of findings regarding Auscon in the Primary Judgment (see at [412]-[415], [517], [595], [603]-[606]). In short, this was a company which was established by Mr Xu, with the intention of using this entity for new construction projects after Mr Zhang and Ms Xie left Firmtech. Mr Xu was previously the sole shareholder and director of this entity. Although Mr Jinting Xu (who is Mr Xu’s brother) subsequently became sole shareholder and director of Auscon, Mr Xu continues to be associated with Auscon, as he holds the building licence upon which Auscon operates, and he is responsible for the aluminium windows and doors component of its business.

21. [106]

    The Plaintiffs tendered bank records which showed substantial sums being paid into the bank account of Auscon, including payments by Mr Xu and also payments by his wife (with the narrative “kevin [Mr Xu] to auscon”). For example, on 24 and 25 July 2024 (that is, in the first week of the hearing of these three proceedings), Mr Xu deposited an amount of $1m into Auscon’s account, by way of two deposits of $500,000 each. Around the same time, Auscon made payments totalling $900,000 to the Plaintiffs’ solicitors.

22. [107]

    This evidence provides a basis for inferring that Mr Xu has provided Auscon with the funds to make various payments to the Plaintiffs’ solicitors. In any case, the First to Fourth Defendants did not refer to any authority in which the Court has refused an award of interest on costs to a successful party on the basis that the payment of that party’s costs was funded by another person (such as a litigation funder, or an insurer).

23. [108]

    In the present case, I am satisfied that, in circumstances where these three proceedings have been on foot for several years, where substantial sums have been expended over the course of those years in successfully prosecuting the Principal Proceeding, and successfully defending the Lansvale Proceeding and the Panania Proceeding, it is consistent with the compensatory purpose of a costs order that the Xu parties be awarded, in respect of the three proceedings, interest on the costs orders in their favour.

24. [109]

    I will accordingly make a Lahoud order for interest on costs awarded to the Xu parties in respect of each of the Lansvale Proceeding, the Panania Proceeding and the First Period of the Principal Proceeding. However, given that there has been a period of only around one year between the commencement of the Second Period of the Principal Proceeding and the present date, I will not make any award of interest on costs in respect of the Second Period (since Mr Xu will not have been out of pocket in respect of those costs for any significant period of time, such as to engage the compensatory principle that underlies an award of interest on costs).

Indemnities

1. [110]

   In connection with his application for leave to bring a claim in Firmtech’s name, Mr Xu gave an undertaking to the Court on 2 February 2023 to indemnify Firmtech in respect of the costs, charges and expenses incurred in the Principal Proceeding, including any adverse costs order that is made against Firmtech.

2. [111]

   Mr Xu sought to be relieved of this undertaking, given that the Principal Proceeding has now been finally determined, with success on Firmtech’s part, such that Firmtech is no longer exposed to the risk of an adverse costs order.

3. [112]

   The Defendants resisted this release, on the basis that there were a number of existing costs orders against the Plaintiffs in the Principal Proceeding.

4. [113]

   However, it was common ground that (as is obvious) the assessed amount of any costs orders made against the Plaintiffs in respect of any previous interlocutory hearings in the Principal Proceeding will be much lower than the assessed amount of the costs orders made in favour of the Plaintiffs as a result of their success in the Principal Proceeding.

5. [114]

   Counsel for the Defendants confirmed that, so long as the Plaintiffs did not dispute that set-off was available as between the various costs orders against and in favour of the Plaintiffs in the Principal Proceeding, then this would deal with their concern. In that regard, Counsel for the Plaintiffs confirmed that “we accept that there should be an offsetting” between those costs orders. Accordingly, I will make an order granting the release sought by Mr Xu from his undertaking.

6. [115]

   Further, I will order that Mr Xu, rather than the Plaintiffs, pay the Fifth to Eleventh Defendants’ costs of the proceeding, so that it is not necessary for the undertaking to remain in place solely for the purposes of that order.

7. [116]

   At the time of granting Mr Xu leave to bring the Principal Proceeding in the name of Firmtech on 2 February 2023, Richmond J granted liberty to Mr Xu “to apply to the Court for further orders that [Firmtech] bear the costs, charges and expenses incurred by [Mr Xu] in the bringing of this proceeding under ss 241 and 242 of the Corporations Act and the Court’s inherent/implied jurisdiction”.

8. [117]

   Following the determination that Firmtech should be granted a substantial award in the Principal Proceeding, Mr Xu seeks an order, pursuant to s 242 of the Corporations Act, that Firmtech indemnify Mr Xu for the difference between:

   1. (1)

      the total amount of costs and disbursements which Mr Xu has paid, has caused to be paid, or is liable to pay to his legal advisers in connection with the Principal Proceeding; and

   2. (2)

      any amounts which Mr Xu recovers from the First to Fourth Defendants in respect of the costs orders made in the Plaintiffs’ favour in the Principal Proceeding (less any input tax credit claimed, or to be claimed, in respect of such amount).

9. [118]

   The Defendants resisted any order being made in this form.

10. [119]

    Section 242 of the Corporations Act provides as follows:

11. [120]

    This provision gives the Court a broad discretion in dealing with applications for indemnification. In Foyster v Foyster Holdings Pty Ltd [2003] NSWSC 135 at [12], Barrett J observed that:

12. [121]

    In Maher v Honeysett and Maher Electrical Contractors Pty Ltd [2009] NSWSC 445 at [7], Barrett J observed that:

13. [122]

    A relevant consideration in determining whether an indemnity should be granted, and (if so) to what extent, is whether the outcome of the proceeding has resulted in a substantial award to the company. In Maher v Honeysett at [9], Barrett J quoted the observations of White J (with whom Doyle CJ and Anderson J agreed) in FWV Stanke Holdings Pty Ltd v O’Meara [2007] SASC 413 at [126]-[132]. In particular, White J observed that:

    1. (1)

       if the derivative action “produce[s] a substantial financial benefit” for the company, “it may be unjust for [the person who was granted leave to bring that action] not to recover a full costs indemnity”, as otherwise he or she “personally will have expended the monies to produce a benefit shared by all shareholders of [the company]”;

    2. (2)

       however, if the company “succeed, but only modestly, after extensive expenditure of costs resulting from the manner of conduct of the proceedings” by the person who was granted leave to bring the action, “[d]ifferent considerations could apply”.

14. [123]

    So, in Maher v Honeysett, Barrett J determined that, where the derivative action resulted in only a modest award of damages, the company should indemnify the person who was granted leave to bring the action only up to the amount of that award.

15. [124]

    In the present case, Firmtech has, as a result of the grant of leave pursuant to s 237 of the Corporations Act and the efforts of Mr Xu, achieved a very substantial award of around $3.93m, including interest. That is not, by any measure, a “modest” award (cf Maher v Honeysett).

16. [125]

    I accept that this success has come at a significant cost. Around $3.9m of costs have been incurred and paid to the Plaintiffs’ solicitors for fees and disbursements (including expert and counsel fees) in the Principal Proceeding. Mr Xu stands to recover a significant proportion of those costs from the First to Fourth Defendants. However, there will be a shortfall, and Mr Xu seeks that this shortfall be met by Firmtech out of the substantial award that it will receive.

17. [126]

    The First to Fourth Defendants did not dispute that Mr Xu was entitled to an indemnity pursuant to s 242 of the Corporations Act, but submitted that the indemnity should be limited, such that:

    1. (1)

       Mr Xu should be entitled to only recover from Firmtech those costs which the Defendants are ordered to pay Firmtech;

    2. (2)

       Mr Xu should be liable to pay Firmtech those costs which it is ordered to pay to the Defendants; and

    3. (3)

       Mr Xu should not be entitled to any costs from Firmtech where the Court makes no order as to costs as between Firmtech and the Defendants.

18. [127]

    I accept Mr Xu’s submission that there would be evident unfairness in this result, which can be illustrated by using the following simplified figures (and without expressing any view on the outcome of any assessment process).

19. [128]

    Assume that a $4m judgment has been received by Firmtech, that $4m has been paid to Firmtech’s solicitors by or on behalf of Mr Xu, and that only $2m is recovered pursuant to the costs orders in the Plaintiffs’ favour, after assessment. On the First to Fourth Defendants’ proposed orders, Mr Xu would only be entitled to be recover from Firmtech the amount of costs which the First to Fourth Defendants are ordered to pay Firmtech (that is, an amount of $2m). The result would be that Mr Xu has achieved a substantial judgment for Firmtech, for the benefit of its two equal shareholders (who stand to be distributed $2m each), but Mr Xu will be left solely to bear $2m of the costs expended in order to achieve that result.

20. [129]

    In contrast, on the Plaintiffs’ proposed orders, Mr Xu would, in the above scenario, be entitled not only to receive the amount of $2m paid by the First to Fourth Defendants in respect of the costs orders against them, but also to receive a further $2m from Firmtech (being the gap between the costs expended and the costs recovered in the Principal Proceeding), with such payment by Firmtech being funded from the $4m judgment. The outcome would be that Firmtech would retain $2m of the judgment amount, with each of the two equal shareholders standing to be distributed $1m, and with Mr Xu not being left solely to bear of the costs expended in order to achieve that result.

21. [130]

    I acknowledge that, in the present case, the judgment sum is to be paid by entities which are associated with one of the two shareholders of Firmtech (Mr Zhang). However, I do not see any reason why, in a situation where a company in a derivative action obtains a substantial judgment from a third party, the question as to whether the person who brought the action on the company’s behalf should receive an indemnity in respect of costs should depend on whether or not the defendant was an entity related to another shareholder of the company.

22. [131]

    The First to Fourth Defendants placed some reliance on Reale v Duncan Reale Pty Ltd [2006] NSWSC 1099. In that case, a derivative action was brought in the name of one company (Duncan Reale Company) against another (Cameda Investments), in circumstances where each of those companies was associated with a married couple (Ms Reale and Mr Duncan), who were described as the real protagonists in the dispute. Austin J determined (at [49]-[50]) that “costs should lie where they fall, as between Ms Reale and Mr Duncan, and that there should be no costs locked up in either of the companies”. His Honour gave the following explanation for this result:

23. [132]

    The First to Fourth Defendants submitted that a similar approach should be adopted in the present case.

24. [133]

    However, Reale was far removed from the circumstances of the present proceeding. It was, essentially, a dispute between a husband and wife about the control of matrimonial assets, which occurred in this Court against the background of other proceedings between the protagonists in the Family Court. The two companies involved were owned and controlled by Ms Reale and Mr Duncan, and were not trading entities, but were “vehicles through which the matrimonial assets are held”. No monetary judgment was sought or obtained in the derivative action. Instead, the only relief sought was the appointment of an independent director to the board of Cameda Investments. This was resolved by consent orders, which were never implemented, because the parties subsequently agreed that the relief was unnecessary.

25. [134]

    In contrast, the present case concerns a claim about the diversion, by officers of a trading company, of millions of dollars’ worth of profitable projects to competing businesses in the same industry which were owned and controlled by those same officers, pursuant to a fraudulent and dishonest scheme, and this proceeding has resulted in an award of more than $3.9m (including interest) in favour of the company against those other businesses. There is no justification, in the present case, for leaving the costs to “lie where they fall”.

26. [135]

    Although I have determined that the Plaintiffs should not be awarded the whole of their costs of the Principal Proceeding, in respect of either the First Period or the Second Period, that is because there were separable issues which occupied a substantial period of time and on which the Plaintiffs were unsuccessful. However, there was nothing unreasonable about the Plaintiffs’ conduct in raising those issues.

27. [136]

    As regards the First Period of the Principal Proceeding, the forensic decision by the Plaintiffs to seek damages at the 2024 hearing only on the basis of the Whole of Business Case, and not in respect of individual projects, was taken in circumstances where there was late production, or a lack of production, of documentary material in relation to a number of the individual projects (see Procedural Judgment at [17]).

28. [137]

    As regards the Second Period of the Principal Proceeding, in circumstances where Mr Cairns changed his opinion on a material matter after providing MC4 to the Plaintiffs’ solicitors, he was required, in accordance with the Expert Witness Code of Conduct, to provide the Plaintiffs’ solicitors with a supplementary report (being MC5, which the Plaintiffs then served on the Defendants). The Plaintiffs sought, and obtained, leave to rely on this report prior to the hearing. The Plaintiffs’ decision not to rely on the opinions in MC5, and to abandon the “completion date” issue, is a decision that has costs consequences, but was not unreasonable conduct.

29. [138]

    The First to Fourth Defendants noted that this application has been brought at a time when “the reasonable costs haven’t been assessed”, and submitted that: “[i]t would seem an odd proposition that costs that are disallowed as being unreasonable could then be recovered through the back door against Firmtech as a consequence of the indemnity”.

30. [139]

    I do not accept this submission, which elides two distinct concepts. The fact that, on an assessment, certain costs may not be allowed to the Plaintiffs because it is determined that those costs do not bear “a reasonable relationship to the value and importance of the subject matter in issue” (Skalkos at [8]), does not mean that Mr Xu has acted in an unreasonable manner in the conduct of the Principal Proceeding, such as to warrant a limit being placed on the extent of any indemnity pursuant to s 242 of the Corporations Act.

31. [140]

    It is to be expected, in any matter that goes to costs assessment, that the successful party will not recover the full amount expended on costs. It is not unusual (without intending to express any view about an assessment in the current proceedings) for a successful party to recover only around 65-75% of their solicitor’s costs. It does not follow, from the extent of recovery, that the successful party has conducted the proceeding in an unreasonable manner, or has acted unfairly, improperly or in such a manner as to unnecessarily increase costs.

32. [141]

    In the present case, the First to Fourth Defendants have not established that Mr Xu conducted the Principal Proceeding in a manner which was unreasonable and which led to unnecessary costs being incurred, such as to provide a basis for refusing an indemnity under s 242 of the Corporations Act.

33. [142]

    Nor do I consider that the fact that a number of the invoices issued by the Plaintiffs’ solicitors were paid by Auscon provides a basis for denying Mr Xu an indemnity in respect of the costs incurred on behalf of Firmtech.

34. [143]

    As noted above, there was evidence that Mr Xu had, at least partly, provided funds to Auscon for the purpose of making these payments. In any case, the Plaintiffs submitted that the fact that invoices were paid by a third party on behalf of Mr Xu should not affect the making of an indemnity if that is otherwise appropriate, since Mr Xu was the person who was the client and who bore sole contractual liability for the costs incurred by the Plaintiffs’ solicitors in respect of the Principal Proceeding (noting that Firmtech was never a party to the costs agreements, because it was either under the control of Mr Zhang or deadlocked for the entire period). I accept this submission.

35. [144]

    The Plaintiffs did, however, acknowledge that Auscon had claimed some input tax credits and those should be excluded when assessing the net liability, and proposed a form of orders to deal with this issue. The First to Fourth Defendants did not advance any submission that this issue was not appropriately addressed by the proposed form of order.

36. [145]

    It is, of course, important that the order regarding the indemnity be framed in such a manner as to make it clear that the indemnity only applies in respect of the costs of the Principal Proceeding, and not the costs of either the Lansvale Proceeding or the Panania Proceeding (since Firmtech was not a party to either of those proceedings). I have amended the form of proposed order accordingly. Otherwise, I will make an order under s 242 of the Corporations Act in the form proposed by the Plaintiffs.

Costs of the hearing on 2 March 2026

1. [146]

   The Plaintiffs have had substantial success on the matters which were in issue at the hearing on 2 March 2026. Costs should follow the event.

2. [147]

   I will therefore make an order in the Principal Proceeding that the First to Fourth Defendants pay the Plaintiffs’ costs of and incidental to the hearing of 2 March 2026.

3. [148]

   For the reasons set out above, I make the following orders:

   1. (1)

      Judgment for the Plaintiffs against the First to Fourth Defendants.

   2. (2)

      The Third and Fourth Defendants pay to the First Plaintiff the amount of $3,931,691, comprising:

   3. (3)

      In respect of the period up to and including 12 November 2024, the First to Fourth Defendants pay 70% of the Plaintiffs’ costs of the proceeding on the ordinary basis, as agreed or assessed.

   4. (4)

      In respect of the period from 13 November 2024 up to and including 11 December 2025, the Third and Fourth Defendants pay 85% of the First Plaintiff’s costs of the proceeding (excluding the costs of 7 November 2025) on the ordinary basis, as agreed or assessed.

   5. (5)

      The First to Fourth Defendants pay the Plaintiffs’ costs of and incidental to the hearing on 2 March 2026 on the ordinary basis, as agreed or assessed.

   6. (6)

      In respect of each of orders (3)-(5) above, the payment of such costs is to be made to the Second Plaintiff.

   7. (7)

      In respect of the costs ordered in order (3) above, pursuant to s 101(5) of the Civil Procedure Act 2005 (NSW), the First to Fourth Defendants are to pay to the Second Plaintiff interest on the Plaintiffs’ costs and disbursements:

   8. (8)

      The Second Plaintiff pay the Fifth to Eleventh Defendants’ costs of the proceeding, on the ordinary basis, as agreed or assessed.

   9. (9)

      Orders 1-11 of the orders made by Robb J on 5 September 2022 be discharged.

   10. (10)

       Order that the Second Plaintiff be released from the undertaking given by him to the Court on 2 February 2023, as noted in order 4 of the orders made by Richmond J on that date.

   11. (11)

       Order, pursuant to s 242 of the Corporations Act 2001 (Cth), that the First Plaintiff indemnify the Second Plaintiff for the difference between:

   12. (1)

       The Plaintiff pay the First, Second, Fourth and Fifth Defendants’ costs of the proceeding, on the ordinary basis, as agreed or assessed.

   13. (2)

       In respect of the costs ordered in order (1) above, pursuant to s 101(5) of the Civil Procedure Act 2005 (NSW), the Plaintiff is to pay to the First, Second, Fourth and Fifth Defendants interest on their costs and disbursements:

   14. (1)

       The Plaintiff / Cross-Defendant pay the Defendants’ / Cross-Claimant’s costs of the proceeding, on the ordinary basis, as agreed or assessed.

   15. (2)

       In respect of the costs ordered in order (1) above, pursuant to s 101(5) of the Civil Procedure Act 2005 (NSW), the Plaintiff / Cross-Defendant is to pay to the Defendants / Cross-Claimant interest on their costs and disbursements: