The Recyclers (NSW) Pty Ltd v Ayoub (No 5)

1. [1]

   On 9 May 2016 I ordered that the amended defence of the first, third and fourth defendants and the first cross-claim be dismissed with costs: The Recyclers (NSW) Pty Ltd v Ayoub (No 3) [2016] NSWSC 576. The procedural history of this matter is set out in that judgment. This judgment assumes familiarity with that detail. I shall use the same abbreviations here as in that judgment.

2. [2]

   There is no dispute that Mr Ayoub, Illawarra and Milana are jointly and severally liable for the costs order I made.

3. [3]

   By notice of motion filed on 11 May 2016, Aus Wide and its director, Mr George Faddoul (who was the second cross-defendant), seek the following orders:

4. [4]

   It is common ground that, normally, a tutor is personally liable for costs awarded against the party he or she represents (Yakmor v Hamdoush (No 2) [2009] NSWCA 284; 76 NSWLR 148 at [18]-[24] per Giles JA, with whom Ipp and Tobias JJA agreed) and is entitled to indemnity from that person’s estate (Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [147] per Young JA with whom Tobias and Campbell JJA agreed).

Mr Donnelly remains Mr Ayoub’s tutor

1. [5]

   Mr Donnelly was appointed to be Mr Ayoub’s tutor on 19 October 2015 by Darke J on the basis that Mr Ayoub was unable to manage his affairs and was a “person under legal incapacity”. Darke J’s order was made on the basis of medical evidence then before him.

2. [6]

   On 26 February 2016 I found Mr Ayoub was competent to give evidence for the purpose of s 13 of the Evidence Act 1995 (NSW): The Recyclers (NSW) Pty Ltd v Ayoub [2016] NSWSC 144.

3. [7]

   Ms Haddad, who appears today for Mr Donnelly, Mr Ayoub, Illawarra and Milana, submitted the effect of that finding was that “Mr Ayoub was never a person of legal incapacity and therefore Mr Donnelly’s role of tutor at any stage from the commencement of these proceedings is invalid”.

4. [8]

   In oral submissions Ms Haddad developed that submission by contending that it must follow from my finding that Mr Ayoub was competent to give evidence that Mr Ayoub is not, and was never, under a legal incapacity.

5. [9]

   Ms Haddad in particular drew attention to what I said at [57] and [59] of the 26 February 2016 judgment:

6. [10]

   Ms Haddad submitted:

7. [11]

   I do not accept that this follows from my conclusions.

8. [12]

   What I was meaning to convey in the paragraphs set out at [9] was that I inferred from the form of the Donnelly affidavit and the 15 February 2015 cross-claim that Mr Ayoub was able to understand questions asked of him and to give comprehensible answers to those questions.

9. [13]

   It does not follow from what I said that I was expressing any view about whether Mr Ayoub was under a legal incapacity.

10. [14]

    There is a distinction to be drawn between a person being unable to manage his or her affairs and thus being under a legal incapacity, on the one hand, and a person not being competent to give evidence on the other.

11. [15]

    The question of competence to give evidence focuses on the person’s capacity to understand a question about a fact and give an answer to such a question that can be understood, as s 13 of the Evidence Act makes clear.

12. [16]

    It appears to me that the question of whether a person is under a legal incapacity raises much broader questions.

13. [17]

    Section 3 of the Civil Procedure Act 2005 (NSW) describes “[a] person under legal incapacity” to mean:

14. [18]

    There is no question in this case of pars (a) to (d) of that definition being engaged. It is not clear whether par (e) is said to be engaged.

15. [19]

    That definition is in effect extended by Uniform Civil Procedure Rules 2005 (NSW) r 7.13 which provides that, for the purpose of the appointment of tutors, a person under legal incapacity includes a person who is incapable of managing his or her affairs.

16. [20]

    The test to be applied in relation to that definition has been considered in many cases including Stokes v McCourt [2014] NSWSC 61.

17. [21]

    In that case McDougall J cited with approval the observation of Chadwick LJ in Masterman-Lister v Brutton & Co [2003] 1 WLR 1511 at [75]:

18. [22]

    I do not accept that it follows from my findings as to Mr Ayoub’s competence, that he is no longer under a legal incapacity, in the sense described by Chadwick LJ.

19. [23]

    In any event, the fact is that Mr Donnelly was Mr Ayoub’s tutor for the purpose of these proceedings on the day I made the costs order. The only means by which a tutor may be appointed or removed is by order of the Court under UCPR r 7.18. Mr Donnelly sought to be appointed as tutor and has not (to this day) sought to be removed. For that reason alone, he remains liable to pay the costs that I have ordered.

20. [24]

    Accordingly, I find that Mr Donnelly is liable for the costs I have ordered.

Gross sum costs order

1. [25]

   I turn to the question of whether a gross sum costs order should be made under s 98 of the Civil Procedure Act.

2. [26]

   Mr McInerney SC who appears with Mr Robertson for Aus Wide and Mr Faddoul submitted that the following factors have been held to favour the making of a lump sum costs order:

3. [27]

   Mr McInerney made detailed submissions as to why these criteria were satisfied.

4. [28]

   He submitted that Mr Ayoub (by his tutor), Illawarra and Milana:

   1. (1)

      made complex and elaborate allegations including elements of fraud against Aus Wide and Mr Faddoul;

   2. (2)

      served almost no evidence to substantiate those allegations;

   3. (3)

      were constantly in default of the Court’s orders in the proceedings; and

   4. (4)

      conducted themselves in the proceedings in a manner that suggests the likelihood of a costs assessment process being protracted.

5. [29]

   Mr McInerney also submitted that there is reason to doubt Mr Ayoub’s capacity to meet the costs order.

6. [30]

   I consider there is substance in each of these submissions.

7. [31]

   In all the circumstances, I am persuaded that this is a proper matter in which to make a gross sum costs order.

8. [32]

   As to quantum, the calculation of costs proffered on behalf of Aus Wide and Mr Faddoul is in the range of some $287,000 to $337,000.

9. [33]

   Those figures are based on the actual solicitor and client fees, counsel fees and disbursements incurred, discounted by 20 per cent to reflect the fact that some costs were incurred which do not relate to the defence and cross-claim. Those figures are further discounted by a range of evidently arbitrary percentages to reflect the fact that “the Court does not have the benefit of a detailed examination of the costs claimed as occurs during formal costs assessment”. A further figure of $20,000 is deducted to take account of an earlier gross sum costs order I made on 15 April 2016.

10. [34]

    Accepting that a broad brush approach is called for, I do not feel confident that I can make a fair assessment of properly recoverable costs in this range.

11. [35]

    However, Ms Haddad in her submissions accepted that the costs properly recoverable by Aus Wide as at April 2016 would have been $155,000. To that must be added the costs reasonably recoverable since that date, particularly in relation to the strike out motion, the subject of my May 2016 judgment.

12. [36]

    In those circumstances, doing the best I can on the material available, I have concluded that Aus Wide’s and Mr Faddoul’s costs should be specified for the purposes of s 98(4) of the Civil Procedure Act at $225,000.00.

13. [37]

    I propose to give Aus Wide and Mr Faddoul an option. They can either accept that figure or they can immediately proceed to an assessment of their costs and the basis that the costs of that assessment will follow the event. By that I mean if the costs recoverable on assessment are more than $225,000, Mr Donnelly will bear the costs of that assessment. If the costs recoverable are less than $225,000 then Aus Wide and Mr Faddoul will bear the costs of that assessment.

14. [38]

    Mr McInerney has informed me that Mr Faddoul has decided on behalf of the company to accept the figure of $225,000.

15. [39]

    I order that the costs of Aus Wide and Mr Faddoul arising from my order of 9 May 2016 be specified pursuant to s 98(4) of the Civil Procedure Act at $225,000.

16. [40]

    The intent of my orders is that Mr Ayoub, Illawarra and Milana are jointly and severally liable to pay Aus Wide’s and Mr Faddoul’s costs at that figure.

17. [41]

    I order that Mr Donnelly, as tutor of Mr Ayoub, is jointly and severally liable with Mr Ayoub to pay those costs.