Noble Earth Technologies Pty Ltd v Hampic Pty Ltd (in liquidation) t/as Cyndan Chemicals (No 2)

1. [1]

   I gave judgment in these proceedings on 2 May 2017: see Noble Earth Technologies Pty Ltd v Hampic Pty Ltd (in liquidation) t/as Cyndan Chemicals [2017] NSWSC 502.

2. [2]

   I ordered that the plaintiffs’ claim should be dismissed with costs. I also ordered that the costs should be payable on the ordinary basis unless the defendants informed the court that they wished to argue that the costs should be payable on some different basis.

3. [3]

   As I noted in my judgment, an order for the winding up of the first defendant was made at some stage during the course of the proceedings. Leave was not given to the plaintiffs to proceed against the first defendant. The proceedings were subsequently conducted without any involvement of the first defendant. The only active defendants are the second defendant, Mr Raheb, and the third defendant, Loremo Pty Ltd t/as Cyndan Manufacturing. When I refer to the “defendants” I will mean only the active defendants.

4. [4]

   As commonly occurs, I made directions that have had the effect that the costs issues will be decided on the papers in chambers. The parties provided written submissions. There was no oral argument, and the parties were not given an opportunity to tender additional evidence. I am of the view that it is appropriate for the court in these circumstances to take into account its recollection of the course of the trial, and the various documents that comprise the court’s file in so far as they properly bear on the costs issue.

Costs orders sought by defendants

1. [5]

   On 2 May 2017, counsel for the defendants informed the court that the defendants would make an application that their costs be payable by the plaintiffs on an indemnity basis.

2. [6]

   On 19 June 2017, the defendants filed a notice of motion in which they seek the following order:

3. [7]

   As I recorded at [4] of my judgment in these proceedings, Mr Pearsall has at all relevant times been the principal of the first plaintiff. Mr Pearsall for all relevant purposes acted as the agent of the first plaintiff in the dealings the subject of the proceedings. It was not necessary for the purposes of the judgment to identify the precise nature of the relationship between Mr Pearsall and the first plaintiff.

4. [8]

   The notice of motion was supported by an affidavit made on 19 June 2017 by the solicitor who had the carriage of the proceedings for the defendants, Mr Atanaan Ilango. That affidavit also supports the defendants’ claim that the defendants’ costs be paid by the plaintiffs on the indemnity basis, and the other orders now sought by the defendants.

5. [9]

   Written submissions made on 19 June 2017 were also served on behalf of the defendants. Those written submissions stated that the defendants seek the following orders (which I have paraphrased):

   1. (1)

      An order that Mr Pearsall and the second plaintiff, Mr Schwind, pay the defendants’ costs on an indemnity basis, being a specified or gross sum of $250,733.51.

   2. (2)

      Alternatively, an order that Mr Pearsall and Mr Schwind pay the defendants’ costs on the ordinary basis up to and including 29 May 2015 (the date on which an offer that the defendants say was a Calderbank offer was made) and on the indemnity basis thereafter, being a specified or gross sum of $246,179.01.

   3. (3)

      In the further alternative, if an order is not made that Mr Pearsall pay the defendants’ costs personally, the orders sought in (1) and (2) should be made against the plaintiffs.

   4. (4)

      An order that Mr Pearsall and Mr Schwind, or alternatively the plaintiffs, are to pay the costs of the costs hearing on an indemnity basis, being $11,464.

6. [10]

   The plaintiffs accepted that the costs of the proceedings should follow the event and they should be ordered to pay the defendants’ costs on the ordinary basis. They submitted that there was no proper basis for ordering Mr Pearsall to pay the defendants’ costs personally, or for an order that anyone pay those costs on the indemnity basis. They opposed the assessment of costs on a gross sum basis, as they submitted that the circumstances did not disentitle them from challenging the amount of the costs sought by the defendants by the ordinary process of assessment.

Background

1. [11]

   This matter was originally set down for hearing before Darke J commencing on 1 June 2015

2. [12]

   On 1 June 2015, when the proceedings were called on for hearing, Mr Zmood announced his appearance for the first defendant. There was no appearance for Mr Raheb, the second defendant. According to the transcript, Mr Zmood specifically confirmed on a number of occasions that he only appeared for the first defendant.

3. [13]

   Senior counsel for the plaintiffs advised Darke J that his solicitors had previously served a proposed draft amended statement of claim on the then solicitors for the first defendant, who the legal representatives for the plaintiffs understood also acted for Mr Raheb.

4. [14]

   Senior Counsel acknowledged that it would be difficult to deal with the proposed amendment, as there was no appearance for Mr Raheb, and no arrangements had been made to bring him to court from Parklea Correctional Centre where he was incarcerated at the time.

5. [15]

   Darke J adjourned the proceedings to 2 June 2017, and arrangements were made for Mr Raheb to be brought to court on that day.

6. [16]

   The transcript for 2 June 2015 records that Mr Raheb was present in court. He was not legally represented, and had made no preparations to conduct a defence of the plaintiffs’ claim. Mr Raheb said that he thought he was represented by the legal representatives of the first defendant, and was somewhat nonplussed to learn that he was not so represented and nothing had been done to advise him of the hearing.

7. [17]

   Darke J vacated the hearing. His Honour directed the plaintiffs to file and serve any amended statement of claim within 7 days. He noted that a copy of the court book and a copy of the bundle of emails had been given to the correctional services officer who accompanied Mr Raheb to court. He directed Mr Raheb to take reasonable steps to engage a solicitor within 14 days. He adjourned the matter to 29 June 2015 for directions. Finally, his Honour reserved all costs of and incidental to the vacation of the hearing.

8. [18]

   On 29 June 2015, Darke J granted the plaintiffs leave to file an amended statement of claim, and ordered the plaintiffs to pay the costs of, and occasioned by, the amendment. The defendants were ordered to file and serve defences, and directions were made for the filing and service of affidavits.

9. [19]

   One aspect of the amended statement of claim that was filed on 29 June 2015 was that the third defendant was joined to the proceedings.

Power of court to award costs

1. [20]

   The primary source of the court’s power to award costs is s 98 of the Civil Procedure Act 2005 (NSW), which relevantly provides:

2. [21]

   Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) in turn provides that, where the court makes an 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. The manner in which costs ordered to be paid on the indemnity basis are to be assessed is set out in r 42.5 of the UCPR.

Claim for indemnity costs from plaintiffs

1. [22]

   The defendants’ first ground for the claim that the plaintiffs should be ordered to pay their costs on the indemnity basis rests on the plaintiffs’ conduct of the proceedings. The defendants rely upon the following aspects of the plaintiffs’ claim:

   1. (1)

      The plaintiffs alleged that Mr Raheb and the third defendant in various ways participated with knowledge in a dishonest and fraudulent design by the first defendant, when there was no evidence of such design, and in closing submissions the plaintiffs abandoned the primary fiduciary claim against the first defendant and Mr Raheb.

   2. (2)

      The plaintiffs alleged that a joint-venture was entered into between the plaintiffs and the first defendant when the plaintiffs’ own evidence confirmed that no agreement had been reached.

   3. (3)

      The plaintiffs pleaded that a joint-venture existed when they ought to have known that this claim was bound to fail because there was no evidence of the agreement to an essential term, being the share of profits between the parties.

   4. (4)

      The plaintiffs prosecuted a claim for an account of profits from the defendants when there was no evidence of any further sales than were alleged in the statement of claim and admitted by the defendants.

2. [23]

   It is appropriate that I make a number of introductory observations before I deal with the substance of the defendants’ arguments that the plaintiff should be ordered to pay their costs on the indemnity basis.

3. [24]

   It is true, to use the vernacular, that the plaintiffs lost the case hands down. There are quite a few places in my primary judgment where I explained that it was my view that the plaintiffs’ case simply could not succeed on the evidence before the court. The defendants have relied upon those aspects of the primary judgment in their submissions in support of their claim for indemnity costs, and those aspects form the basis of some of the grounds for the plaintiffs’ claim that I have identified above.

4. [25]

   There has been many a case that has been conducted responsibly and with a genuine belief in its merits that has failed completely. That is a frequent consequence of the vicissitudes of litigation. The court should be careful when it considers the appropriate basis for a costs order in respect of a case that has entirely failed to distinguish between cases that involve an element of delinquency that should not have been commenced or continued, and cases that are genuine and have been approached conscientiously by the parties who have initiated them, but where the outcome at the end of the day is total failure.

5. [26]

   I am clearly of the opinion, having observed Mr Pearsall and Mr Schwind under cross-examination and by observing their attentiveness throughout the seven days of the hearing that they were genuine and believed they had a meritorious claim against the defendants.

6. [27]

   The plaintiffs’ case faced forensic difficulties in that it ultimately depended upon proving that there was sufficient evidence that one or other of the defendants had made substantial sales of Vitroglaze to Emirates Glass or other purchasers in the Middle East to justify the court in making an order against the defendants for an account. The court could only make such an order if the plaintiffs also established some breach of duty by the defendants that made them accounting parties to the plaintiffs.

7. [28]

   While proof that substantial sales of Vitroglaze were made was only one of the crucial issues, if it had been established it would probably have had significant consequential effects on the outcome of the court’s findings in relation to other issues. It is not appropriate to venture too far into this issue as it is a matter of speculation, but if the court had found that one or other of the defendants had sold substantial quantities of Vitroglaze to Emirates Glass that would have substantially undermined the credibility of Mr Raheb’s evidence.

8. [29]

   There were forensic difficulties involved in the plaintiffs proving that sales of Vitroglaze had taken place. It is unlikely that the plaintiffs were in a position to compel the production of documents by Emirates Glass. There was apparently an application for preliminary discovery and notices to produce were served on various defendants. There was apparently a threat made on behalf of the plaintiffs at one stage to seek an order for discovery, but that was apparently not pursued. Those efforts yielded nothing more than the evidence of the few sales pleaded in the amended statement of claim and admitted by the defendants. It also yielded the testimonial that I set out at [206] of the primary judgment. That testimonial stated that Emirates Glass had been purchasing Vitroglaze for more than three years.

9. [30]

   In the absence of any other evidence, I accepted the evidence given by the principal of the third defendant concerning the significance of the testimonial: see [208]. At some stage, the time of which is unclear to me, the first defendant went into liquidation. The first defendant was the primary defendant and if substantial sales of Vitroglaze were made to Emirates Glass, they were likely made by the first defendant. It cannot be known whether the fact of the first defendant’s winding up had any negative effect on the capacity of the plaintiffs to obtain evidence from sources in Australia that substantial sales of Vitroglaze had been made to Emirates Glass. At one point counsel for the defendants suggested that if any documentary evidence was available it could have been found by issuing a subpoena to Australian Customs. I do not know whether that course would have been feasible to the plaintiffs.

10. [31]

    I mention these matters because of an incident that occurred on the fourth day of the hearing, 11 July 2016, that in my view is important to the court’s determination of whether the plaintiffs acted reasonably in pursuing their claim against the defendants. The case was originally set down for hearing over the three days between 8 and 10 February 2016. At the end of 10 February 2016, Mr Pearsall and Mr Schwind had finished giving their evidence, but the plaintiffs’ case was not closed. One issue that had arisen during the first part of the hearing was the need for the plaintiffs to prove that at least substantial sales of Vitroglaze had been made by one or other of the defendants to Emirates Glass that would satisfy the court that the ordering of accounts against the defendants would not be futile. The case was then set down for 11 and 12 July 2016 for a continuation of the hearing (which also required 16 December 2016 and 6 March 2017).

11. [32]

    On 11 July 2016, the plaintiffs applied for leave to read the affidavit of Thomas Moore sworn 3 June 2016. The affidavit had been served on the defendants’ solicitors on 6 June 2016, but it had not come to their counsel’s attention until shortly before the resumed hearing, for reasons that are not now material. The principal problem faced by the plaintiffs was that Mr Moore was apparently in New Zealand, and for reasons that were not disclosed the plaintiffs were unable to bring him to court to be cross-examined. The defendants objected to the plaintiffs being given leave to read Mr Moore’s affidavit because of his unavailability for cross-examination, and also because they had not had enough time to prepare a response to his evidence.

12. [33]

    I rejected the plaintiffs’ application for leave to read Mr Moore’s affidavit notwithstanding his absence for the purposes of cross-examination in an ex tempore judgment that I gave on 11 July 2016. The reasons for my decision are not now material, but it will be important that I set out the part of the judgment in which I described the effect of Mr Moore’s evidence. I said:

13. [34]

    Mr Moore’s affidavit became MFI 2 in the proceedings. Mr Moore said that he personally signed orders for the purchase by Emirates Glass of 110,000 L of Vitroglaze, and there was approximately 20,000 L of the product in the store room when he commenced employment. Mr Moore estimated that the cost of the 130,000 L of Vitroglaze would be approximately US $13 million. As Mr Moore had left the employee of Emirates Glass, he could not support his evidence by any documentation.

14. [35]

    As Mr Moore’s affidavit was not read, it was not tested by cross-examination. I therefore cannot draw any conclusions of fact based upon the contents of the affidavit, but on the issue of costs in my view it is proper to have regard to the fact that the affidavit exists, it was apparently made by a person in a position of authority who was able to observe the matters of which he deposed, and its contents were made known to the plaintiffs before they closed their case at the hearing. It is reasonable to infer that the evidence that Mr Moore would have given is broadly consistent with the belief of Mr Pearsall and Mr Schwind concerning sales made by one or more of the defendants to Emirates Glass.

15. [36]

    At the time the court rejected the plaintiffs’ application for leave to read Mr Moore’s affidavit, the plaintiffs still had the opportunity to cross-examine Mr Raheb. While it is true that they were bereft of documentary evidence to assist them in the cross-examination on the issue of sales of Vitroglaze that the first defendant may have made to Emirates Glass before its winding up, it would not in my view have been unreasonable for the plaintiffs to hope to gain admissions from Mr Raheb of at least sufficient sales to justify the court ordering an accounting to take place. As it happened, the plaintiffs got no joy on this issue from Mr Raheb.

16. [37]

    The court was then required to put the contents of Mr Moore’s affidavit entirely out of mind for the purpose of deciding the plaintiffs’ claim.

17. [38]

    The circumstances in which a court may order that costs be paid on the indemnity basis rather than the ordinary basis have been considered in many cases. It is not necessary to canvass all of those authorities. The judgment of Sheppard J in Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 at 256–257 has been frequently cited. His Honour said:

18. [39]

    For the purposes of the present case it is to be noted that Sheppard J said in relation to allegations of fraud that the discretion to order that the unsuccessful plaintiff should pay costs on the indemnity basis may be enlivened if the plaintiff knew that the allegations were false or made them notwithstanding that they were irrelevant to the proceedings. His Honour referred to misconduct in relation to the causation of the loss of the court’s time, to commencing proceedings with an ulterior motive, or wilfully disregarding known facts and established principles. It may be relevant if allegations are made that ought never to have been made. A common theme of these examples is that they involve some form of misconduct or unjustifiable behaviour.

19. [40]

    It will be sufficient to refer to the following part of the judgment of McDougall J in White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 303 at [5]–[11], which his Honour repeated in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]. McDougall J summarised the applicable principles for an award of indemnity costs as follows:

20. [41]

    While the circumstances in which the court may order that costs be paid on the indemnity basis are more complex than could be described by the use of single words such as “misconduct” or “delinquency”, these words are useful to distinguish situations where an award of indemnity costs may be appropriate from others where in reality all that can be distilled from a retrospective examination of the proceedings is that one party has comprehensively lost the case.

21. [42]

    In the exercise of my discretion, I have decided that this is not an appropriate case for the court to order the unsuccessful plaintiffs to pay the defendants’ costs on the indemnity basis.

22. [43]

    Having had the benefit of observing the manner in which this hard-fought case was conducted, I have not detected any relevant misconduct or delinquency in the way the plaintiffs commenced or conducted of the case. As it has turned out, their inability to obtain objective admissible evidence of any significant sales of Vitroglaze by the first defendants to Emirates Glass has proved destructive of their case. It cannot be known whether if more determined steps had been taken on their behalf the plaintiffs would have succeeded in obtaining documentary evidence from the liquidator of the first defendant that would have proved the making of sales, or whether more timely preparation and the availability of Mr Moore to attend the court for cross-examination would have improved their position. I am satisfied on the materials that are available that the plaintiffs had a genuine and not entirely baseless belief that they could succeed in their case against the defendants.

23. [44]

    The ultimate inability of the plaintiffs to establish a significant level of sales of Vitroglaze by the first defendant to Emirates Glass had damaging consequences to the plaintiffs’ case based upon the claim that the joint-venture that was being negotiated had reached a sufficient stage that fiduciary obligations were imposed upon the first defendant to the knowledge of Mr Raheb, and ultimately the third defendant who sold limited amounts of Vitroglaze to Emirates Glass. The plaintiffs’ case was not based upon a final and complete joint-venture, but on the claim that the arrangements between the parties had proceeded sufficiently to a point where fiduciary obligations may have arisen in advance of the formal commencement of a joint-venture: United Dominions Corporation Ltd v Brian Pty Ltd (1984-1985) 157 CLR 1 at 11-12.

24. [45]

    It is clear, speaking briefly, that the plaintiffs introduced the first defendant and Mr Raheb to the opportunity of making sales of Vitroglaze to customers in the Middle East, and Mr Pearsall, Mr Schwind and Mr Raheb visited Dubai together to interview contacts made available by Mr Schwind, with the objective of establishing a joint-venture of some form. Had the plaintiffs been able to establish that the first defendant had made significant sales of Vitroglaze behind their backs, there may well have been a basis for them to succeed in an equitable claim notwithstanding that the negotiations for the terms of the joint-venture were incomplete. In this regard it should be noted that the three gentlemen initially visited Dubai in September and October 2009, and Mr Moore’s affidavit contained a statement that he observed approximately 20,000 L of Vitroglaze in Emirates Glass’ store room in about June 2010.

25. [46]

    In conclusion, I am satisfied that the present is a case where it would be wrong for the court to reason retrospectively from the outcome that the plaintiffs were delinquent in pursuing their claims against the defendants.

Claim for indemnity costs based upon ‘Calderbank offer’

1. [47]

   The defendants seek an order that the plaintiffs pay their costs on the indemnity basis from the 29 May 2015, as a result of exchanges of emails between counsel.

2. [48]

   On 29 May 2015, Mr Zmood of counsel sent a without prejudice email to the then senior counsel for the plaintiffs, in the following terms:

3. [49]

   The plaintiffs’ senior counsel responded by email on the same day to Mr Zmood, without prejudice, as follows:

4. [50]

   Mr Zmood in turn responded by email on 29 May 2015, by saying:

5. [51]

   There is no statement in Mr Zmood’s emails that they were intended to have the effect of a Calderbank offer or that they would be relied upon on the question of costs if not accepted by the plaintiffs.

6. [52]

   This email correspondence occurred on 29 May 2015, in anticipation of the commencement of the hearing that was then fixed for 1 June 2015 before Darke J.

7. [53]

   The circumstances that I have outlined above provide the first reason why the defendants are not entitled to rely upon the emails as if they had the effect of a Calderbank offer. The reason is that when Mr Zmood communicated with the then senior counsel for the plaintiffs, he only did so as counsel for the first defendant. Mr Zmood’s own statements to Darke J establish that he did not represent Mr Rehab, and he could not have represented the third defendant, as it was not then a party. There is no evidence that any offer made in the emails was renewed on behalf of the defendants.

8. [54]

   In any event, Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [42] and Treloar Constructions Pty Ltd v McMillan (No 2) [2017] NSWCA 146 at [10] establish that an indication that an offer will be relied on in relation to the question of costs should a verdict more favourable be achieved is the essence of a Calderbank offer. There was no such indication in the emails relied upon by the defendants, and accordingly the court should not read the emails together as having the effect of a valid Calderbank offer.

Claim for gross sum costs orders

1. [55]

   The defendants seek a gross sum costs order. The court has power to make that order under s 98(4)(c) of the Act.

2. [56]

   The principles that are to be applied to decide whether the court should make a gross sum costs order, and if so, how the court should determine the proper amount of those costs, have been authoritatively and conveniently set out by Beazley JA (as her Honour then was), with the agreement of Giles and Whealy JJA, in Hamod v New South Wales [2011] NSWCA 375, as follows:

3. [57]

   The decisions relied upon by the defendants, being Keen v Telstra Corporation (No 2) [2006] FCA 930 at [5], Siteberg Pty Ltd v Maples [2010] NSWSC 307 at [22], and Zandata Pty Ltd v Riley [2013] NSWSC 49 at [89] are consistent with these principles.

4. [58]

   In seeking the making of a gross sum costs order by the court, the defendants rely upon the following factors:

   1. (1)

      the plaintiffs’ conduct of the proceedings;

   2. (2)

      whether the plaintiffs would be able to meet any liability which is likely to result from assessment; and

   3. (3)

      whether the cost of assessment would be disproportionate to the amounts claimed.

5. [59]

   As the defendants seek a gross sum costs order against the plaintiffs, it will be appropriate to make the following observations concerning the tax invoices that were put into evidence as an exhibit to Mr Ilango’s affidavit in support of that claim.

6. [60]

   Relevantly:

   1. (1)

      The invoices cover the period from 30 October 2013 to 24 June 2017.

   2. (2)

      Senses Legal were the original defendants’ solicitors up to about 25 February 2015 and Baron & Associates issued tax invoices for acting for the defendants between 29 May 2015 and 24 June 2017.

   3. (3)

      All of the solicitors’ tax invoices only contain a general description of the work done, and none of them approximate a detailed bill of costs suitable for an assessment.

   4. (4)

      Two junior barristers acted for the defendants: Mr Maltz and Mr Zmood. Counsel’s tax invoices were relatively detailed and self-explanatory, and in the usual way were addressed to the solicitors who acted at the time.

   5. (5)

      The solicitors’ tax invoices must be considered on the basis that, at least at and around the time of the first hearing on 1 June 2015, no solicitor acted for Mr Raheb.

   6. (6)

      Senses Legal’s tax invoices were addressed to the first defendant and Mr Raheb, except for the first one dated 30 October 2013, which was only addressed to the first defendant.

   7. (7)

      Baron & Associates’ invoices dated 29 May 2015, 5 June 2015, 24 July 2015, 16 October 2015, 17 November 2015, 2 June 2017 and an amended tax invoice dated 29 April 2016 were addressed to the first defendant alone.

   8. (8)

      Baron & Associates’ 1 September 2015 invoice was addressed to the first defendant and Mr Raheb and their invoice dated 2 June 2017 was addressed to Mr M Snounou of the first defendant. Their invoices between 14 July 2016 and 14 June 2017 were addressed to Mr Raheb and the third defendant.

   9. (9)

      At least three tax invoices, being Baron & Associates 29 May 2015, 17 November 2015 and 2 June 2017 contained substantial barrister’s fees as disbursements. It is not clear whether or not those disbursements have separately been included in the barristers’ tax invoices.

   10. (10)

       I have not noticed in the evidence any information concerning when the first defendant was placed into liquidation, or what has happened concerning the winding up of that company. I do not think that the evidence establishes whether or not the first defendant has been deregistered.

   11. (11)

       The evidence does not establish who paid the solicitors’ and barristers’ tax invoices at times when the first defendant was the only represented party, or at other times when the first defendant and Mr Raheb may have been represented, but in many cases the client identified in the remittance instructions that formed part of the solicitors’ tax invoices was only the first defendant.

7. [61]

   In summary, while the tax invoices submitted by counsel for the defendants are reasonably informative, the solicitors’ tax invoices are not, and they are not conducive to the court’s forming an objective judgment as to the necessity and reasonableness of the fees claimed. It is not sufficiently clear in all cases before the joinder of the third defendant whether both the first defendant and Mr Raheb were liable to pay the fees or only one of them. It at least appears that only the first defendant was liable for some of the fees. There is reason to think that most of the fees were paid by the first defendant and not Mr Raheb. It is not clear whether both the first defendant and Mr Raheb are entitled to be reimbursed by any costs order or only the first defendant (and, as I have mentioned, it is not even clear whether the first defendant still exists).

8. [62]

   In the exercise of my discretion, I do not accept that this is an appropriate case for the court to make a gross sum costs order on the evidence that is before the court.

9. [63]

   Even though my reasons for judgment establish that the plaintiffs’ case has failed comprehensively, I do not think that there is anything exceptional about this case that takes it out of the ordinary situation where the unsuccessful parties who have been ordered to pay the costs of the successful parties are entitled to the benefit of an assessment to quantify the amount of the costs that are payable.

10. [64]

    According to Mr Ilango’s affidavit, the total costs and disbursements incurred to date are $277,990.19. As the plaintiffs have not succeeded in obtaining an order that an account be given by the defendants, there is no objective measure of the result of the proceedings against which the amount of the costs expended could be considered to be disproportionate. Nonetheless, while the amount of the costs incurred by the defendants is a substantial sum, I do not consider it to be exceptional in proportion to the forensic contest between the parties, and the length of the hearing that took place.

11. [65]

    I do not consider the present to be a particularly complex case. Nor do I consider the process of assessment of costs in the ordinary way to be necessarily protracted. I consider the plaintiffs to have conducted the case conscientiously, notwithstanding their lack of success. Mr Pearsall was unhelpful on the issue of providing information to the defendants after the judgment was handed down, but it does not follow that he will have great scope for protracting the ordinary process of assessment. I do not see that there will be any particular expense, delay and aggravation in any contested cost assessment.

12. [66]

    There is evidence that casts doubt on the capacity of Noble Earth to contribute to the payment of costs. Noble Earth’s income tax return for 30 June 2015 states that it had a total income of $101,158, and a taxable income of $28,242. It had total assets of $203 and total liabilities of $192,966. It had total carried forward losses of $190,196. Noble Earth’s financial statements for the same period contain equivalent information.

13. [67]

    Mr Schwind is, however, jointly liable to pay the defendants’ costs. My understanding of the submissions that have been made on this issue is that Mr Schwind is the owner of real property jointly with his wife, and he has given an undertaking not to dispose of his interest pending the satisfaction of the costs order made against him. The defendants have asserted that the property owned by Mr Schwind and his wife is encumbered by a mortgage, and that Mr Schwind’s equity may be insufficient to meet the whole of the costs order, to the extent that Noble Earth is unable to contribute to the costs payable.

14. [68]

    However, I do not consider that these matters justify the court in treating this matter in an exceptional way and depriving the plaintiffs of the benefit of the assessment process in respect of the costs they have been ordered to pay.

Claim for costs order against Mr Pearsall

1. [69]

   There was no issue between the parties in this case about the court having power to award costs against a non-party in an appropriate case: see Knight v FP Special Assets Ltd (1992) 174 CLR 178. The question was whether such an order should be made against Mr Pearsall.

2. [70]

   It will therefore be necessary to consider the principles that govern the circumstances in which the court will make a costs order against a non-party. It will be appropriate to consider the reasons on this issue of Basten JA in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 (with whom Beazley JA – as her Honour then was – and Giles JA agreed) in some detail, as his Honour not only considers the principles, but provides guidance as to how they are to be applied by reference to the facts of that case:

3. [71]

   At [208], Basten JA noted the importance of the observation made by McHugh JA, in dissent, that: “As a matter of policy, provision for security for costs is a better remedy for protecting persons involved in litigation with insolvent companies than ordering a receiver to pay the costs of litigation after verdict”. Experience suggests that there are many cases where a company sues to enforce obligations owed to it, but the financial circumstances of the company are marginal. The claim by the company is genuine, but in various ways it may be the principals of the company who stand to benefit from the success of the plaintiff’s claim. The defendant has the ability to protect itself by applying for an order for security for costs if it can establish that the plaintiff may not have the financial resources to meet any order for costs in favour of the defendant. If an order for security for costs is made, the principals of the company will know where they stand and can provide the security to avoid the company’s claim being stayed, or not, as they may choose. There is a serious risk of injustice if the defendant does not apply for security for costs in an appropriate case, and then seeks an order for costs personally against the principals after the event.

4. [72]

   The defendants seek a costs order against Mr Pearsall personally in this case for the reasons set out in par 81 of their written submissions. In outline, the defendants submit that Mr Pearsall was the ‘real party’ and the person standing behind the litigation. They submit that the first plaintiff is a ‘straw man’, and that it appears that Mr Pearsall has removed all cash from the company’s bank account. They submit that Mr Pearsall was the true source of funds for the litigation and that Mr Pearsall had a substantial financial interest in the outcome. The defendants submit that the conduct of the litigation was unreasonable and improper.

5. [73]

   I do not accept that this is a special case that warrants Mr Pearsall being treated any differently than the usual case where a plaintiff is effectively the corporate embodiment of the business conducted by a single person. The corporate veil should not so lightly be cast aside. The evidence in the proceedings as a whole satisfies me that the first plaintiff was intended by Mr Pearsall as the real vehicle through which he would participate in the proposed joint-venture. The first plaintiff had for a significant period engaged in the business of marketing chemicals of various types. The first plaintiff sued to enforce its own rights. Mr Pearsall was in the present case in very much the same position as was Mr Yazbeck as considered by Basten JA in the extract from the FPN Constructions case set out above. The first plaintiff was not a nominal party. The only way it could act was through Mr Pearsall. This is a case where, to use Basten JA’s words, for the court to order that Mr Pearsall is to be personally liable to meet the first plaintiff’s liability for costs, the exception to the principle would overtake the principle.

6. [74]

   Accordingly, I reject the defendants’ application for an order making Mr Pearsall liable to pay the costs payable by the first plaintiff.

Conclusion

1. [75]

   As I have rejected the defendants’ claim that the plaintiffs be ordered to pay their costs on the indemnity basis, the conclusions I reached at [236] and [237] of the primary judgment will stand, and the plaintiffs must pay the defendants’ costs on the ordinary basis.

2. [76]

   As the defendants’ claim for indemnity costs and the claim in their notice of motion filed on 19 June 2017 have failed, the defendants must pay the plaintiffs’ costs of the costs argument on the ordinary basis.

3. [77]

   I have noted above that on 2 June 2015, Darke J reserved the costs of the vacation of the first hearing in this matter. The parties have not made any submissions directed at whether any special order should be made in relation to those reserved costs. On the one hand, the hearing could not proceed because Mr Raheb was not legally represented, he did not have notice of the proceedings, and was not in a position to represent himself. On the other hand, the plaintiffs proposed to file an amended statement of claim, and even though the amendments were not substantial, they ultimately involved joining the third defendant as a new party. In the absence of submissions to the contrary, I propose to treat both sides as equally responsible for the vacation of the first hearing, so that the costs involved will be costs in the cause, and will accordingly be payable by the plaintiffs on the ordinary basis.

4. [78]

   I have noted from the review of the court’s record of proceedings that a number of interlocutory costs orders have been made, including against the defendants. All interlocutory costs orders should stand.