Penhall (as executor of the estate of the late Paul Sukkar) v Abu.Tony Pty Ltd atf Abu.Tony Discretionary Trust (No 2)

The Court delivered its principal judgment in these proceedings on 28 April 2023: see Penhall (as executor of the estate of the late Paul Sukkar) v Abu.Tony Pty Ltd atf Abu.Tony Discretionary Trust [2023] NSWSC 434.

These reasons assume knowledge of the principal judgment. The same terms will be used as in that judgment.

The plaintiff in the proceedings was originally Mr Paul Sukkar. Following his death, his solicitor, Mr Garry Neville Penhall, was appointed as his executor and was substituted as the plaintiff. When I refer to the plaintiff, I will mean Mr Sukkar and Mr Penhall, as the plaintiffs for the time being.

The first defendant is Abu.Tony as trustee for the Abu.Tony Discretionary Trust. The second defendant, Mr Michael Taouk, was at all material times a de facto director of Abu.Tony. His wife, Mrs Amal Taouk, was at all material times the sole appointed director of Abu.Tony.

It is proper to refer to Mr Taouk as a de facto director of Abu.Tony even though a formal finding was not made to that effect in the primary judgment. Mr Taouk actually signed the two contracts for the sale of Lots 15 and 16 that were the subject matter of these proceedings, as if he were entitled to do so as a director of Abu.Tony. As noted at J [6], although the defendants initially claimed that Mr Taouk did not have authority to bind the company, they eventually conceded that Mr Taouk acted as the company’s agent. There was no suggestion that Mr Taouk was appointed as the agent of the company. It is clear that Mr Taouk exercised de facto control over Abu.Tony in all of its dealings with Mr Sukkar, including the execution of the two contracts for sale.

The Court made the following substantive orders to give effect to the primary judgment on 13 June 2023:

The Court heard oral submissions concerning the costs orders that should be made in these proceedings on 6 December 2023. These reasons deal with the issue of costs.

Mr Penhall proposed that the following costs orders should be made:

These proposed orders do not include an order that Abu.Tony pay the plaintiff’s costs of the successful claim against it. In par 22 of his written submissions dated 4 August 2023, Mr Penhall referred to “the order for costs already made against the Company in favour of the plaintiff.” A review of the Court’s file shows that the orders made by the Court on 13 June 2023 were made on the basis of short minutes of order that originally included an order 7 in the following terms: “The First Defendant is to pay the Plaintiff’s costs of the proceedings on the ordinary basis as assessed or agreed.” The Court has crossed out that order, and an order to that effect was not made on 13 June 2023. That is likely to be because Mr Penhall wanted to apply for a different basis for the costs order, instead of the proposed order that the costs be on the ordinary basis. It does not appear that the Court has made a costs order against Abu.Tony after 13 June 2023.

I understand Mr Penhall’s position to be that he prefers that the costs order following his success in the proceedings be made against Mr and Mrs Taouk, because Abu.Tony is apparently insolvent and he apprehends that a costs order against the company will not be satisfied. However, Mr Penhall does want the usual costs order to be made against Abu.Tony, whether or not the same order is also made against Mr and Mrs Taouk. I note, however, that in par 22 of his written submissions dated 4 August 2023, Mr Penhall submitted that at least from the commencement of the trial on 28 July 2022, an order should be made that Mr and Mrs Taouk be jointly and severally liable with Abu.Tony for payment of the plaintiff’s costs.

The Court made substantive orders in the proceedings in favour of Mr Penhall, as executor of the estate of Mr Sukkar, against Abu.Tony. An outline of the claims made against Mr and Mrs Taouk may be found at J [51]. As explained at J [7], in opening, senior counsel for Mr Penhall abandoned the claims pleaded against Mr and Mrs Taouk personally.

In essence, Mr Penhall nonetheless seeks orders that the plaintiff's costs of the proceedings be payable by Mr and Mrs Taouk because it was discovered, after the Court delivered its primary judgment, that there was evidence that Mr and Mrs Taouk ought to have known that Abu.Tony was hopelessly insolvent from a time before the hearing in these proceedings, but they, as its de facto director and director, nonetheless caused it to strenuously, but unsuccessfully, resist the plaintiff's claim. On that basis, Mr Penhall submits that the Court should exercise its discretion under s 98 of the Civil Procedure Act 2005 (NSW) to order that the plaintiff's costs be paid by Mr and Mrs Taouk personally.

Mr Penhall's application for an order that part of the plaintiff's costs be paid on the indemnity basis is based upon the principles stated by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-4, and Calderbank offers made on 10 October 2021 and 27 April 2021. In par 23 of his 4 August 2023 submissions, Mr Penhall submitted that costs in the plaintiff’s favour should be ordered on the indemnity basis from 26 October 2021, because that was the date of expiry of a Calderbank offer made on 10 October 2021.

Abu.Tony did not appear at the hearing to contest the making of any costs orders against it. Apparently, the company is in the hands of an external administrator appointed by a lender with security over the assets of the company.

The orders for costs proposed by Mr and Mrs Taouk were:

Proposed order 1 refers to the following applications. On 13 February 2020, a directions hearing was adjourned because of the death of Mr Sukkar and the need for a legal personal representative to be appointed. Directions hearings on 24 March 2020 and 6 May 2020 were adjourned for the same reason. Mr Penhall did not contest order 1 proposed by Mr and Mrs Taouk, and given the reason for the adjournments I think that the order is appropriate.

If proposed order 2(a) to (c) were made, it would have the effect of confirming costs orders already made in these proceedings. Mr Penhall agreed that existing costs orders should not be disturbed.

Mr and Mrs Taouk sought order 2(d) because, after the death of Mr Sukkar, Mr Penhall was appointed as Mr Sukkar's executor. As such, Mr Penhall was substituted for Mr Sukkar as the plaintiff. Mr Penhall, or his firm (in fact Penhall & Co, not Penhall & Associates), have subsequently acted as the solicitor for the plaintiff in these proceedings. The objective of order 2(d) is to deny Mr Penhall and his firm an entitlement to their professional costs of the proceedings on the basis of the decision of the High Court in Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333; [2019] HCA 29 (Pentelow).

Proposed order 4 is based upon the fact that Mr Penhall abandoned his claims against Mr and Mrs Taouk personally at the hearing. The proposed order proceeds upon the basis that it will be appropriate for the Court to attribute 50% of the total costs incurred by the defendants in these proceedings to Mr and Mrs Taouk's costs of defending the claim against them.

As to proposed order 5, Mr and Mrs Taouk sought an order that those costs be paid on the indemnity basis, relying upon a Calderbank offer made to the plaintiff. That was an offer made on 8 May 2023 for the costs issues to be determined on the basis that the plaintiff would pay Mr and Mrs Taouk 45% of the total costs incurred by the defendants. The Court was informed by counsel for Mr and Mrs Taouk at the hearing that they abandoned the application that the costs be on the indemnity basis, and that they would be content for those costs to be ordered on the ordinary basis.

I note for completeness that in par 20 of their written submissions dated 8 August 2023, Mr and Mrs Taouk sought an order that they be paid their costs of the whole of the proceedings against them on the indemnity basis in reliance on a Calderbank offer made on 5 June 2020 by all three defendants. As the costs orders proposed by Mr and Mrs Taouk at the hearing on 6 December 2023 did not include an order that their costs generally be paid on the indemnity basis, I have assumed that they have abandoned that claim.

I will say at the outset in relation to order 4 proposed by Mr and Mrs Taouk that, if the Court makes any order that Mr Penhall pay part of their costs of the proceedings, I will not be able to determine an appropriate percentage of the whole of the costs incurred by the defendants. I noted at J [7] that Mr Penhall had abandoned his claims against Mr and Mrs Taouk personally, and at J [52], I observed that it was not necessary for the Court to comment on the validity of the claims pleaded against Mr and Mrs Taouk. The position is that the Court has not given any consideration to the evidence that concerned the claims against Mr and Mrs Taouk. I am not sure whether all of that evidence was tendered at the hearing, as the claims were abandoned at its commencement. I have no basis for assessing the relative costs or forensic effort relevant to the defence of the claims against Mr and Mrs Taouk personally, compared to the evidence and forensic effort necessary for the defendants' defence as a whole.

In par 12(b) of their written submissions dated 8 August 2023, Mr and Mrs Taouk relied upon a supposed “rule of thumb” that, where three defendants are represented by a single legal representative, pursuant to three separate costs agreements, each defendant should be treated as having incurred one third of the aggregate costs of the defendants. On the basis of the need to act reasonably and to have regard to possible overlap of forensic effort, Mr and Mrs Taouk submitted that the plaintiff should be ordered to pay 50% of the total costs incurred by the defendants to them. For a detailed consideration of the “rule of thumb” see the judgment of Parker J in Makaritis v Makaritis (No 3) [2023] NSWSC 409 at [103]-[122].

I have had regard to the submissions made by Mr and Mrs Taouk at pars 27 to 32 of their 8 August 2023 submissions, concerning the desirability of the trial judge making a broad assessment of an appropriate apportionment of costs between the parties where differential costs orders are to be made for and against the parties. However, the forensic complexity of that issue is apparent from pars 13 to 16 of the submissions, which contain detailed assertions concerning the proportion of the costs that could have been saved if the plaintiff had not made a claim against Mr and Mrs Taouk, instead of abandoning the claim at the hearing. Those submissions include assertions about the significance of substantial parts of the 2,843 page court book, including as to the limited amount of evidence relied upon by Mr Penhall in his case in chief, after the abandonment of the claim against Mr and Mrs Taouk. I note, for example, that the parties were able to limit the evidence by agreeing the values of Lots 15 and 16 and the amount of the rents received by Abu.Tony. It would be an unwarranted post-judgment collateral exercise for the Court to attempt to analyse all of the evidence for the purpose of attempting to make judgments as to the parties’ responsibility for wasted costs.

It may be that if Mr Penhall had pressed the claim against Mr and Mrs Taouk and failed, the Court would have become aware in the ordinary course of the trial of which parts of the evidence related to the successful claim against Abu.Tony, rather than the unsuccessful claim against Mr and Mrs Taouk. It is probable that in that case the Court would have been armed with a basis to fairly apportion the costs between the different issues, even if only on a broad brush basis. However, for the Court to attempt that exercise now, it would have to embark upon an unguided analysis of a 2,843 page court book. Not only is that not a proper use of judicial time, but there is an inherent risk that any summary judgment made by the Court would be unfair to one or more of the parties.

Consequently, the only course open will be to leave the apportionment to a costs assessor, if the parties are not able to agree to an apportionment.

The first issue of substance is whether Mr Penhall, or Penhall & Co, should be denied their professional costs, as sought by Mr and Mrs Taouk in their proposed order 2(d). It is clear in principle that Mr Penhall is entitled to an order that Abu.Tony pay his costs of the proceedings. The Court will make that order, but it seems likely that the order will not avail Mr Penhall, given the apparent depth of its insolvency.

As noted above, Mr Penhall is the executor of the estate of Mr Sukkar. Mr Penhall was appointed as executor by a will made by Mr Sukkar on 18 January 2016: Exhibit D1.

The proceedings were commenced by statement of claim filed on 31 August 2018. Mr Sukkar died on 17 October 2019. Probate of Mr Sukkar’s will was granted to Mr Penhall on 14 May 2020. On 3 June 2020, Darke J made the following orders in these proceedings:

Pentelow establishes that a solicitor who acts for him or herself in proceedings in which they act in their own interest and in whose favour an order for costs is made against the other party, is not entitled to recover their personal professional costs of representing themselves in the proceedings. The High Court abrogated the so-called Chorley exception as being part of the common law of Australia: see London Scottish Benefit Society v Chorley (1884) 13 QBD 872. The issue on the present application is whether this principle applies to a solicitor who acts for themselves in the capacity of the executor of a deceased estate in which the solicitor has no interest as a beneficiary.

Mr and Mrs Taouk submit, at par 10 of their written submissions: “Mr Garry Penhall became the substituted Plaintiff in these proceedings on 3 June 2020…and continued to act for himself to the present day. In this regard, Mr Penhall is not entitled to his legal fees after 3 June 2020 being a self-represented litigant.”

Mr and Mrs Taouk rely on statements made by Mr Penhall in correspondence to the effect that he was not acting for the beneficiaries of the estate, to support their argument that he is a self-represented litigant: par 14. Of course, an executor does not in a strict sense represent the beneficiaries. The executor is the deceased’s legal personal representative in order to execute the will. Consequently, a solicitor who is a party to proceedings in their capacity as executor does not strictly act for the beneficiaries.

At par 12 and 13, Mr and Mrs Taouk rely on the decision in United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2020] VSCA 15 (United Petroleum) at 121 to submit that the bar to the plaintiff’s recovery of costs applies not only to Mr Penhall, but extends to work done by employees of his firm, Penhall & Co.

Although the evidence may not be entirely clear, I understand it to be the case that Mr Penhall has acted personally as the solicitor for the plaintiff during the time that he has been the plaintiff. Mr Penhall was the solicitor on the record. If that is correct, then the submission based on the United Petroleum case, that the bar to Mr Penhall recovering his costs applies not only to him but extends to work done by employees of his firm, might not be relevant. However, it is to be noted that, after that submission was made, the Court of Appeal on 15 December 2023 in Atanaskovic v Birketu Pty Ltd [2023] NSWCA 312 held by majority (Kirk JA and Simpson AJA; Ward P dissenting) that the Pentelow principle does not preclude recovery by way of indemnity of the professional costs of employees of an unincorporated firm of solicitors which represents itself, or one of the partners of the firm.

At the hearing, the Mr and Mrs Taouk relied on the case of Giurina v Greater Geelong City Council [2021] VSCA 318 (Giurina) for the proposition that a solicitor acting in the role of executor is considered a self-represented litigant.

In Giurina, the applicant was the executor of an estate, who was admitted as an Australian legal practitioner, but did not hold a practicing certificate: [1]. The applicant was granted probate of the estate of the deceased in 2002, and was the beneficiary to whom the property the subject of the litigation had been left in the will: [6]. Issues had arisen between the applicant and the Council as early as October 2003 [7]. The property had been vacant since approximately 2006, had fallen into disrepair, and was subject to two emergency orders made in 2019 by the Council, including that the owner carry out demolition work: [2]-[3], [6]. The applicant had sought judicial review of the Council’s decisions, which was dismissed by the trial judge: [4]-[5]. Giuruina was an appeal from the trial judge’s decision. Leave to appeal was refused.

The Victorian Court of Appeal refused an application by the applicant for leave to represent the estate as a legal practitioner, as separate from his capacity as executor.

Relevantly, the Court of Appeal held:

A distinction may be drawn between an executor (and beneficiary) who happens to be a solicitor but does not hold a practicing certificate, whose actions following the grant of probate some 20 years earlier are the cause of the relevant litigation, and who at all times has been the applicant in the proceedings, and Mr Penhall. In Giurina both the trial judge and the Court of Appeal identify that the applicant was really representing himself. Order 2 of the orders made by Darke J on 3 June 2020 make clear that Mr Penhall was to be appointed “as plaintiff in his representative capacity”. Mr Sukkar died after the proceedings were commenced, and Mr Penhall was appointed executor well in advance of the filing of the originating process. In no relevant sense was Mr Penhall personally the plaintiff in these proceedings. Further, the Court of Appeal in Giurina at [111] explicitly stated that they were not determining the status of the applicant as either legal practitioner or executor in relation to costs in the decision, as “this would only occur at the stage that costs were being considered”. The Court in the current proceedings is considering Mr Penhall’s status in relation to the question of costs: Giurina does not apply in the sense that Mr and Mrs Taouk suggest.

The distinction between a solicitor on the record acting in a professional capacity, and a self-represented litigant who happens to be a solicitor, was drawn by Kunc J in Stejskal v Hely [2019] NSWSC 1417. In that judgment his Honour said:

Mr Sukkar’s will (Exhibit D1) has a similar provision allowing for the charging of professional fees: see cl 5. It entitles Mr Penhall as trustee “to charge and be paid and retain all usual professional and other charges for work including work of a non professional nature done by my trustee or my trustee’s firm or employees in connection with the administration of my estate or the trusts of this my Will or any Codicil hereto in the same manner in all respects as if my trustee were not an executor or trustee thereof.”

I do not accept that the Pentelow decision has had the effect of denying the right of a solicitor in favour of whom a costs order is made to recover the solicitor’s own professional costs where the solicitor is a party solely in their capacity as the legal personal representative of a deceased person whose estate is entitled to bring or defend the proceedings, provided at least that the solicitor is not a beneficiary of the estate of the deceased. That is especially so, in my view, where the solicitor has accepted the appointment as the legal personal representative of the deceased under a will that entitles the solicitor to be paid their professional fees as an expense of the estate. If it were otherwise, the party against whom the order for costs was made would be spared the obligation to pay legal costs genuinely and reasonably incurred by the estate of the deceased, in circumstances where those costs would then have to be paid out of the estate. If that were the result imposed by the law, the beneficiaries, as the parties entitled beneficially to success in the proceedings, would have to meet their own costs.

I do not express any view about whether this exception to the principle decided in Pentelow requires either that the solicitor have no beneficial interest in the estate of the deceased, or that under the will of the deceased the solicitor as executor is entitled to recover their professional fees out of the estate. The boundaries of the principle established in Pentelow might not yet entirely be established, and I do not wish to go further than is necessary for the purpose of determining the present case.

Even though Ward P was in dissent in Atanaskovic v Birketu Pty Ltd, I respectfully consider that her Honour's analysis of the reasons for the decision in Pentelow provide correct guidance as to the boundaries of the Pentelow principle, insofar as they apply to the present case. Her Honour said:

In my view, it is not an affront to equality before the law to permit a solicitor who is an executor, and who is entitled to be paid their professional fees out of the estate, a right to recover those professional fees as part of the costs awarded against another party in the proceedings. Further, this situation does not involve the solicitor profiting personally from their exertions in the conduct of the proceedings in their own name, when they do so as an executor for the benefit of the estate of the deceased. In substance, the solicitor is not acting for themselves, but is acting for the beneficiaries of the estate. The solicitor is doing so because the solicitor has been chosen as the executor by the deceased, or has otherwise become the legal personal representative of the deceased by some process in which the beneficiaries of the estate had an interest.

I consider that the essential criterion is that stated by Ward P at [157], where her Honour said: "that the question thrown up on the present fact situation… is best answered by reference to whether the partners of the unincorporated legal practice were, as a matter of substance, effectively acting for themselves (i.e. self-represented) when they defended the Equity proceedings…" A party who is only a party in the capacity of the legal personal representative of a deceased estate, and who becomes entitled to be paid their professional fees out of the estate, is not as a matter of substance effectively acting for themselves.

The next issue for determination is Mr Penhall's application for an order that Mr and Mrs Taouk pay the plaintiff's costs personally.

Mr Penhall relies upon s 98(1)(b) of the Civil Procedure Act which provides: “Subject to rules of court and to this or any other Act the court has full power to determine by whom, to whom and to what extent costs are to be paid”.

Abu.Tony, the registered proprietor of Lots 15 and 16, was controlled by Mr and Mrs Taouk, as de facto and appointed directors, and was the trustee of a discretionary trust in which Mr and Mrs Taouk’s children were the “specified beneficiaries”, and Mr and Mrs Taouk, as their parents, were included in the category of “general beneficiaries.” Mr and Mrs Taouk between them therefore had full discretionary power to appoint the assets of the trust, which included the subject matter of the proceedings, in favour of themselves or their children. Furthermore, under clause 1(a) of the discretionary trust deed, Mr Taouk was nominated as the Appointer. Pursuant to clause 18 of the discretionary trust deed, Mr Taouk as Appointer had power to replace Abu.Tony with any new trustee of his own choosing.

Mr Penhall submitted that his costs application against Mr and Mrs Taouk should not be determined solely on the technical basis that Abu.Tony was the first defendant in the proceedings, so that Mr and Mrs Taouk had only caused the company to defend the claim that the plaintiff had decided to prosecute against it. The forensic reality was that the plaintiff was seeking specific performance of contracts between Abu.Tony and Mr Sukkar for the sale of Lots 15 and 16. The plaintiff was entitled to that remedy on the face of the contracts, and the only impediment to specific performance being ordered were the defences of no consideration and duress that were raised by Abu.Tony. Virtually the whole of the forensic effort in the proceedings related to these defences, which is reflected in the brevity of the plaintiff’s case in chief at the trial.

Mr Penhall became aware of the apparent insolvency of Abu.Tony in about April 2023. On 17 June 2022, Abu.Tony failed to repay a debt of more than $17 million that it owed to La Trobe Financial. The eight-day trial commenced on 28 July 2022. Mr Penhall submitted that knowledge of the enormity of the debt that Abu.Tony was unable to pay ought to have caused Mr and Mrs Taouk to disclose to Mr Penhall and to the Court that Abu.Tony was insolvent and that its capacity to pay any legal costs that may be ordered against it was in doubt. Had that disclosure been made, Mr Penhall could have saved the costs of the eight-day trial and subsequent legal work by moving for a winding up order of the company, based upon the debt ultimately found by the Court in order 5 made on 13 June 2023. That would have left Mr Penhall to negotiate the performance by Abu.Tony of the two contracts for sale with the liquidator of the company. Mr Penhall submitted that although the parties to the loan entered into a deed of forbearance, that did not affect the insolvency of Abu.Tony, as clause 2.1(e)(i) of the deed provided that the default was not waived, and in any event, the underlying reality was that the company had little prospect of repaying the debt.

I respectfully adopt the following consideration of the applicable principles given by Beech-Jones J in AB Developments (Australia) Pty Ltd v El-Sayed (No 2) [2017] NSWSC 1530:

Mr and Mrs Taouk did not attempt to prove that they were not aware that Abu.Tony defaulted in payment of the $17 million plus debt on 17 June 2022. Self-evidently, Mr Taouk must have known of this event because of its significance. Mr Taouk must have appreciated for some time that it was a likely occurrence. Mrs Taouk, as the only formally appointed director of the company, was responsible for knowing what its financial position was. As I found at J [175], it is likely that Mr and Mrs Taouk discussed the financial position of Abu.Tony.

However, it is stated in Mr and Mrs Taouk’s 4 September 2023 submissions that La Trobe Financial did not appoint receivers for Abu.Tony until 23 January 2023. The receivership has not run its course, and it is not now known what the outcome will be and whether there will be any deficiency in the repayment to the creditor. Although the failure of Abu.Tony to pay a debt of more than $17,000,000 on time bodes ill for its financial future, the evidence at present does not enable the Court to make any definite findings about whether the company will be unable to satisfy any order for costs that is made against it in favour of the plaintiff. In effect, the Court has made case management orders setting a timetable for the determination of all outstanding costs questions which, in the events that have happened, has required the Court to determine the plaintiff’s application for a special costs order against Mr and Mrs Taouk at a time when it is not practicable (in the limited context of a costs hearing) for the parties to be able to prove to the Court’s satisfaction what the financial future of Abu.Tony will be.

In a real and practical sense, the defence of the plaintiff’s claim against Abu.Tony was conducted for the benefit of Mr and Mrs Taouk and their children. The company had no business other than that of being the trustee of the discretionary trust. Mr and Mrs Taouk were wholly responsible for the conduct of the defence. As explained above, this is a case where proof of the plaintiff’s case was a formality, and the substance of the case was in the defence. In a real and practical sense, the defendants were the moving parties. Although Mr and Mrs Taouk ceased to be at risk of orders being made against them when the plaintiff’s claims against them personally were abandoned, it was plainly necessary that they remain active in the defence because Abu.Tony’s defence depended entirely on their evidence.

The defence that the contracts for sale were not supported by consideration raised only issues of legal principle. That was not so for the duress defence that was in substance a claim that Mr Sukkar had intimidated Mr Taouk to cause Abu.Tony to execute the contracts for sale by threatening his death, in part at the hands of two notorious underworld figures who were mutually known to Mr Sukkar and Mr Taouk. I dealt with the duress defence at J [114]-[172]. In particular, at J [162]-[172], I considered the significance of Mr Taouk’s evidence, including what I described as his prevarication in attempting to support the defence in the face of the obvious evidence. In short, I found that the defendants had tried to avoid Abu.Tony being ordered to perform its obligations under the two contracts for sale by making a trumped up claim that Mr Sukkar had obtained the contracts by making death threats against Mr Taouk.

In my view, the defence of the plaintiff’s claim against Abu.Tony on the duress ground was unreasonable and delinquent in the circumstances. It was an attempt to manufacture a way to deprive Mr Sukkar’s beneficiaries of their rightful interest in Lots 15 and 16, in circumstances where the evidence showed that Mr Sukkar did not leave a substantial estate.

I am satisfied that, from the time Mr and Mrs Taouk became aware that Abu.Tony had failed to pay the debt that it owed to La Trobe Financial, there was a real and substantial risk that the company would not be able to satisfy any costs order in favour of the plaintiff if the company’s defence failed.

However, I am not satisfied that these circumstances justify the Court making an order against Mr and Mrs Taouk that they be jointly and severally liable with Abu.Tony to Pay the whole of the plaintiff’s costs of the claim against the company.

First, there is no satisfactory evidence that Mr and Mrs Taouk ought to have appreciated that there was a risk that Abu.Tony’s financial circumstances would not be sufficient to enable it to satisfy any costs order in favour of the plaintiff until the actual default occurred on 17 June 2022. There are obviously grounds for suspicion that they understood that the default was approaching, but that is a matter for speculation on the evidence that is before the Court. Consequently, the risk of default by Abu.Tony in the payment of the plaintiff’s costs can only be sheeted home to Mr and Mrs Taouk from the beginning of the trial on 28 July 2022.

Secondly, I am not satisfied that the circumstances justify an order that Mr and Mrs Taouk be jointly and severally liable for the costs with Abu.Tony from that date. That is because, as explained above, the evidence is presently indefinite on the issue of whether the company will be able to pay the plaintiff’s costs. In that circumstance, the appropriate order is that Mr and Mrs Taouk pay so much of the plaintiff’s costs as is not paid by Abu.Tony.

I will now consider the basis upon which the defendants should be ordered to pay the plaintiff the costs of the plaintiff’s claim against Abu.Tony.

The plaintiff’s Calderbank letter dated 10 October 2021 was written after the plaintiff had provided a draft reply to the defendants. The letter set out the plaintiff’s position concerning the probable legal outcome of the issues, and offered to settle the proceedings on the following terms:

Annexure A is a 12 page draft deed which provided in clause 2.4 for an agreement that the sale contracts were not validly executed on behalf of Abu.Tony and that all claims in respect of those contracts were released. Clause 4.1 would require Abu.Tony to transfer Lots 15 and 16 to Mr Penhall as executor of Mr Sukkar’s estate. Other parts of clause 4 required the transfer to be subject to existing tenancies, for Mr Penhall to be responsible for stamp duty and Abu.Tony to be responsible for GST. Clause 5 provided for the plaintiff’s claim to be dismissed on the basis that all parties paid their own costs, and clause 6 provided for mutual releases.

There was no separate Annexure B. Annexure C consisted of draft short minutes of order to give effect to clause 6.

As the letter explained, the plaintiff would not receive compensation for the rents of Lots 15 and 16 that had been retained by Abu.Tony (ultimately found to be $114,480.08) and the plaintiff would bear his own costs. As Mr Penhall would be acquiring the home units second hand rather than new, the sales would be input taxed and free of GST.

The result that the plaintiff has obtained in its claim against Abu.Tony is more favourable to the plaintiff than he offered in the Calderbank offer, in that the plaintiff offered to forgo his claim for the rents from Lots 15 and 16 and he offered to pay his own costs. However, the significance of the failure of Abu.Tony to accept the offer in relation to the basis upon which the defendants should be ordered to pay the plaintiff’s costs depends upon whether or not it was unreasonable for Abu.Tony not to have accepted the offer: see for example Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481 at [31] per McDougall J.

The claim against Abu.Tony, as pleaded, was an application for specific performance of two contracts for sale that had been executed in particular circumstances. The Calderbank offer did not require the performance of those contracts, but instead their rescission by agreement and the transfer of the subject properties by the performance of a new agreement constituted by the Deed of Settlement and Release. The object was to change the original position for the purpose of the application of the law governing GST on the sale of real property. Whatever might be thought about the commercial reasonableness of the offer made by the plaintiff, it was an artificial one made to avoid the payment of GST. It was not unreasonable for the defendants to have failed to accept an offer that had this artificial element relevant to the application of the taxation legislation.

In any event, the Calderbank offer relied upon by the plaintiff was served long before Abu.Tony defaulted on the payment of the debt that it owed to La Trobe Financial. Even if the Court had decided to make an order that the company pay the plaintiff’s costs on the indemnity basis from the time the plaintiff’s Calderbank offer expired, at that time there was no basis for holding Mr and Mrs Taouk responsible for costs ordered to be paid by Abu.Tony. It would not be just in the circumstances for the Court to have retrospectively sheeted home responsibility for Abu.Tony’s liability to pay costs to the plaintiff from 28 July 2022 on the indemnity basis.

I am satisfied that, as a consequence of the plaintiff having abandoned his claim against Mr and Mrs Taouk, the costs of that claim should follow the event and an order be made that the plaintiff pay those costs to Mr and Mrs Taouk. As I have explained above, I have not been able to determine the true nature and forensic extent of that claim. However, it appears from the submissions made on behalf of Mr and Mrs Taouk that the costs they incurred in defending the claim may be substantial. The appropriate way for the Court to minimise any injustice arising out of the costs orders is to make an order that makes it clear that the only amounts that the parties should be required to pay are net amounts after there has been a set-off of the costs orders.

In these circumstances, the orders of the Court are: