Yu v Cao

1. [1]

   McCOLL JA: The applicant, Mr George Yu, seeks leave to appeal from a decision of Acting Judge Walmsley SC in the District Court ordering him to indemnify the respondent, Mr Ping Cao, in respect of a costs order made against Mr Cao at the conclusion of a defamation trial and also in respect of costs paid or payable by Mr Cao to his former solicitor, Mr Barrie Goldsmith, in connection with that trial. [1] The Court was informed the quantum of those costs is in the order of $300,000.

2. [2]

   The judgment under appeal arose in the aftermath of a defamation trial, also heard by the primary judge, in which Mr Cao sued Mr Yu’s wife, Ms Shengrong Liu, as the alleged publisher of a defamatory email sent on 20 November 2011 to members of the Chinese Professional Club of Australia (the “CPCA”), of which Mr Yu and Mr Cao were members. On 6 September 2013, the primary judge found Mr Cao had failed to prove publication of the matter complained of by Ms Liu, entered a verdict and judgment in her favour, and ordered Mr Cao to pay her costs. [2] Those costs were agreed to be $105,000.

3. [3]

   On 25 September 2013, Mr Cao filed a notice of motion in the proceedings (the “non-party costs motion”), seeking an order pursuant to s 98 of the Civil Procedure Act 2005 (NSW) (the “CPA”) that Mr Yu, who had testified but not been joined as a party to the proceedings, wholly or partly indemnify him in respect of the costs he had been ordered to pay Ms Liu and also that he indemnify Mr Cao in respect of any costs paid or payable to Mr Goldsmith.

4. [4]

   The motion also sought an order pursuant to s 99 of the CPA or s 348 of the Legal Profession Act 2004 (NSW) (the “LPA”) that Mr Goldsmith pay to Mr Cao any costs the latter had been ordered to pay Ms Liu and, too, an order pursuant to the same provisions that the whole of the costs between Mr Cao and the solicitor be disallowed as between solicitor and client (the “wasted costs application”). However the wasted costs application was withdrawn by consent before the costs judgment was handed down. [3]

5. [5]

   Leave to appeal was no doubt sought out of abundant caution having regard to s 101(2)(c) of the Supreme Court Act 1970 (NSW) which requires leave to appeal be granted where an appeal is from orders as to costs only which are in the discretion of the Court. There may be room for debate whether leave is required where the costs order is one against a non-party, albeit made in exercise of the costs discretion in s 98 of the CPA. [4] Neither party addressed the issue. It is unnecessary for this Court to resolve it either as, for the reasons that follow, I am of the view that, if required, leave to appeal should be granted, the appeal allowed with costs and the non-party costs motion dismissed with costs.

6. [6]

   The power to make the costs order against Mr Yu was indisputably found in s 98(1)(b) of the CPA which empowers the Court to determine, inter alia, by whom and to what extent costs are to be paid. The principal controversy was whether the primary judge erred in a manner reviewable on appeal in exercising the discretion as to costs s 98(1)(b) conferred.

7. [7]

   Mr Yu had been a president of the CPCA, as too had Mr Cao. Mr Yu also controlled the CPCA email system. Mr Yu and Mr Cao had different views about modern China. On 20 November 2011, the matter complained of was published under an email address (liunancyXXX) apparently in Ms Liu’s name. [5] “Nancy” was an anglicised version of Ms Liu’s name by which some knew her and with which the email was signed. The matter complained of was written in Chinese. It was sent to members of an email chat group (the “TALK group”) which had been set up within the CPCA and was used to discuss matters of mutual interest. [6]

8. [8]

   Mr Cao viewed the email as a personal attack accusing him of being part of a political plot to change an election result for a position on the Board of the CPCA, of being dishonest and of betraying a professor who had been elected to the Board.

9. [9]

   Mr Cao and several of his friends immediately saw the email as the work of the defendant’s husband, Mr Yu. As the primary judge found, soon after publication Mr Cao and others sent an email asserting that Mr Yu had been using the liunancy email account under cover of which the matter complained of was sent. [7]

10. [10]

    On 22 November 2011, Mr Cao retained Mr Goldsmith and his firm to advise him whether defamation proceedings could be brought in relation to the matter complained of.

11. [11]

    Part 3 of the Defamation Act 2005 (NSW) establishes a procedure for the resolution of civil disputes without litigation. It enables a publisher, in certain circumstances, to make an offer of amends. [8] Such an offer cannot be made if 28 days have elapsed since the publisher was given, inter alia, a “concerns notice by the aggrieved person”. [9] A “concerns notice” must be in writing and inform the publisher of the defamatory imputations the aggrieved person considers are or may be carried about the aggrieved person by the matter in question. [10]

12. [12]

    Early in his retainer, Mr Goldsmith wrote to Mr Cao advising of the offer of amends procedure available under s 14 and suggesting that if he wished to pursue the matter further, it may be appropriate to serve a concerns notice upon Ms Liu.

13. [13]

    On 29 November 2011 Mr Yu sent an email to the TALK group referring to the author of the matter complained of as “Nancy” and “Lady Nancy”. He sent similar emails on 29 November and twice on 30 November 2011. On 1 December 2011 Mr Yu sent an email acknowledging his wife was “Nancy Liu”. All these emails were sent to the TALK group from Mr Yu’s email account with Yahoo. I shall refer to them as the “November emails”.

14. [14]

    On 1 December 2011, shortly after he received Mr Goldsmith’s advice concerning the offer of amends procedure, Mr Cao sent an email to Ms Vanessa Chou, who was handling his matter in Mr Goldsmith’s firm, seeking advice about “add[ing] George Yu into the case”, referring to an attachment and asking that the “concerns notice” be sent by 6 December 2011 if possible. The attachment was headed “Possible claim against George Yu.” It identified Mr Yu’s role in the CPCA and said “it seems Nancy Liu is George’s wife …” and “I was told by several CPCA members their believe [sic, as in original] that those emails from Nancy Liu was written by George himself (no evidence).”

15. [15]

    Mr Yu was not “added” to the case. On 5 December 2011 Mr Goldsmith sent the “concerns notice” on behalf of Mr Cao to the email address from which the matter complained had emanated. It was also served personally on Ms Liu on 10 December 2011, and “when that occurred she made some statements which suggested she, rather than her husband, had sent the email.” [11]

16. [16]

    On 10 December 2011 a Mr Cheng sent an email in Chinese to the TALK group to which, the primary judge found, Mr Cao and others were signatories. [12] The English translation of that email relevantly stated:

17. [17]

    The papers are silent as to what happened between 10 December 2011 and 3 September 2012 when the statement of claim commencing the defamation proceedings against Ms Liu was filed. It was served shortly after. In it Mr Cao alleged that the matter complained of conveyed imputations that he had engaged “in betrayal, sought to falsify election results and was secretly manipulative.” The matter complained of did not name Mr Cao. Accordingly, he relied on an extrinsic fact for the purposes of identification. [13] On 20 September 2012 Mr Goldsmith received a letter from Ms Liu denying she had published the matter complained of.

18. [18]

    On 25 September 2012 Mr Cao sent Ms Chou an email advising of the following matters: first, that Ms Liu was Mr Yu’s wife, secondly, that Mr Yu was the CPCA’s Committee Advisor when the “incident” (presumably the publication of the matter complained of) occurred and, thirdly, that Mr Yu, on behalf of Ms Liu, had attended two meetings that year arranged to discuss the possibility of Mr Cao withdrawing his claim against Ms Liu.

19. [19]

    Later that afternoon, Ms Chou sent Mr Cao an email attaching a draft letter to Ms Liu. The draft letter referred to Ms Liu’s letter of denial and asked her to confirm her denial, indicating that in that case, the firm intended to serve a subpoena upon the CPCA “to require it to produce its appropriate records.”

20. [20]

    Mr Cao responded by email pointing out that Ms Liu had “denied that she produced those emails and [asserted she was] not the owner of the mailbox ‘liunancy’” and commenting:

21. [21]

    On 26 September 2012 Ms Liu’s verified defence to Mr Cao’s defamation proceedings was filed in the District Court. The primary judge found that it was prepared, filed and served by Mr Yu, who also “acted for his wife until [shortly before the trial], attending directions hearings and preparing any documents she needed to sign.” [14] The defence pleaded that Ms Liu had “never produced or published” the matter complained of, had never been the owner of the mailbox “liunancy” and that based on those two points, “the plaintiff has filed a case against the wrong person, so that the defendant denies the allegations in the Plaintiff’s Statement of Claim”. It added:

22. [22]

    On 26 September 2012 Mr Cao sent an email to Mr Goldsmith reiterating his belief based on what “a few people advised me … that these emails seemed like from George Yu’s hands. But I have no evidence.”

23. [23]

    Mr Goldsmith wrote to Mr Cao the next day, pointing out that Ms Liu had put “the entire identity or publisher question” in issue. He advised that, accordingly, it was essential to adduce “whatever evidence we can to try and show who ‘Nancy Liu’, being the publisher of the comments, really is”. The letter suggested that if Ms Liu continued to deny publication it would be possible to serve interrogatories upon her to “try and ascertain to whom she granted access to her user name” and hypothesised:

24. [24]

    Mr Goldsmith’s letter then set out the costs of the steps he advised might be taken addressing the publication issue, which he described as “fundamental”. It suggested that Mr Cao consider whether he wished to proceed with the claim, because:

25. [25]

    With proceedings listed in the District Court Defamation List for the following day, Mr Cao responded on 28 September 2012 by email to Mr Goldsmith’s letter of advice. He did so by interposing his comments under extracts from the letter. In respect to that part of the advice referring to the issue of publication, he wrote:

26. [26]

    Against that part of the advice referring to the possibility of adding other persons as co-defendants, Mr Cao said he needed further clarification “on how to add other persons as co-defendants, such as, George Yu, if necessary.”

27. [27]

    In relation to the constitution of the proceedings, Mr Cao said, “I do have evidence and witnesses. My claim is to do with Nancy Liu.” He then referred to Mr Yu “recogniz[ing] that Nancy Liu is his wife publicly [on the TALK group] when people linked him with Nancy Liu after the messages published.” He also wrote:

28. [28]

    There was no appearance for Ms Liu on 29 September 2012, and the matter was adjourned, as it would be repeatedly until finally being set down on 1 February 2013 for hearing on 21 May 2013. [16]

29. [29]

    On 1 October 2012, Mr Goldsmith responded to Mr Cao’s email of 28 September 2012 by asking him, “what evidence, on any basis, is there to show that [Mr Yu] posted the comments (which are clearly expressed to have been posted by Nancy)?

30. [30]

    On 2 October 2012 Ms Chou emailed Mr Goldsmith in relation to a telephone call from Mr Cao of the same date. Ms Chou’s file note of the call recorded Mr Cao referring to an email from Mr Goldsmith and querying whether “You or BG read the things that I provide”. The note added:

31. [31]

    In her 2 October 2012 email, Ms Chou told Mr Goldsmith that parts of Mr Cao’s suggestions were “simply inappropriate”. She observed:

32. [32]

    Ms Chou added that once Mr Cao “shows us his further material, we may have a clearer idea as to whether “to amend the SOC” and “to add George as a co-defendant.”

33. [33]

    On 12 October 2012 Mr Cao sent an email to Ms Chou stating that he “attached a number of emails as evidence that Nancy Liu and/or George Yu couple did the publications” and advised that those people referred to were willing to provide statutory declarations if needed. The emails did not appear to be in the papers before the Court.

34. [34]

    Although Mr Liu’s defence had been filed in the District Court on 26 September 2012, it was not served. Mr Goldsmith obtained a copy of it on 18 October 2012 from the District Court registry.

35. [35]

    On 19 October 2012 Mr Cao sent Ms Chou an email asking, “should we consider to link her with her husband George Yu (I call the mastermind behind), who could be the publisher in a high probability?”

36. [36]

    On 24 October 2012 Mr Goldsmith sent Mr Cao a letter of advice. The letter referred to there being “only one ground of defence raised by the defendant that she did not publish the email.” Under a heading querying whether Mr Cao would be able to prove that Ms Liu published the matter complained of, Mr Goldsmith referred to “various witness statements” provided in the form of emails to Mr Cao. He advised that, assuming Mr Cao’s witnesses would be willing to attend at court to give evidence on his behalf and their evidence was accepted, “it is likely that you will be able to satisfy a judge that the defendant did publish the posts.” He counselled, however, that Mr Cao “should keep in mind the inevitability that the defendant will give evidence that she did not post the comments.” He advised that it would assist in due course if subpoenas were served “to show that the defendant did use the username ‘liunancy’”.

37. [37]

    Mr Goldsmith also advised that the next step in the proceedings was discovery of documents and the administration of interrogatories. Discovery was effectively discounted as Mr Goldsmith assumed “she will say she has no documents to discover, for the obvious reason that she says she did not publish the posts”. The interrogatories were described as important in order to ask Ms Liu such questions as to whether or not she had ever used the user name “liunancy”. Mr Goldsmith also advised that at the time of writing “there appears to be no evidence that would support your adding Mr Yu as a second defendant, or even substituting him as the defendant in place of the current defendant.”

38. [38]

    On 30 October 2012 Mr Cao sent Ms Chou an email commenting on Mr Goldsmith’s letter of advice. He queried the utility of subpoenas or, it would seem, interrogatories in terms of showing “that the defendant did use the username ‘liunamcy [sic liunancy]’ in a subpoenas”, saying “[i]n reality, no-one can prove someone typed keyboard in front of a home computer in my view.” He queried whether, if Ms Liu denied everything in interrogatories, Mr Yu could be interrogated. The email concluded:

39. [39]

    On 31 October 2012 Mr Goldsmith sent Mr Cao a letter of advice responding to the 30 October email. He advised that there “appears to be no proper basis to add Mr Yu as a defendant.” He also said:

40. [40]

    On 2 November 2012 Mr Yu appeared for Ms Liu in the District Court Defamation List. He advised her Honour Judge Gibson that Ms Liu was ill and that she had authorised him to represent her. [18]

41. [41]

    On 16 November 2012 a file note made by Ms Chou recorded a phone call from Mr Cao which, somewhat presciently, recorded as the fourth bullet point:

42. [42]

    On 16 November 2012, Ms Chou sent to Ms Liu, via an email address in Mr Yu’s name, a letter setting out the classes of documents Mr Cao required for discovery. It included all documents referencing, relating or referring to Ms Liu’s membership with the Club, her registration to any online forums, including those through which the matter complained of was sent, her written and electronic communications with the Club and its members, her attendance at club events, any names or aliases by which she was known, and her marriage to any member or past member of the Club.

43. [43]

    The limitation period for any cause of action Mr Cao had for defamation expired on 20 November 2012. However, an order extending the limitation period for such a cause of action could be sought to have the effect of extending the limitation period to a period of up to three years running from the date of publication. Such application could be made even though the limitation period for the cause of action had expired. [19]

44. [44]

    On 26 November 2012 Mr Cao forwarded to Ms Chou an email from the secretary of the CPCA, Mr Zhong, dated 23 November 2012 responding to questions he had asked about the “liunancy” account. The email stated that that account was added to the TALK group’s member list on 14 April 2009 by Mr Yu. It also described Mr Yu as “the current owner of” the user name for the CPCA’s TALK group list. In a subsequent email, Mr Cao advised Ms Chou that Mr Yu was president of the CPCA on 14 April 2009.

45. [45]

    Later on 26 November 2012, Ms Chou forwarded the 23 November 2012 email to Mr Goldsmith, who was apparently away, with the comment that “[t]he evidence may suggest that George is the owner of the liunancy account”. She suggested the matter should be reviewed when he was back.

46. [46]

    On 27 November 2012, Mr Cao sent an email to Ms Chou with another copy of Mr Zhong’s email. Mr Cao explained the difference between the two Yahoo groups the CPCA operated to which Mr Zhong’s email referred. He commented that Ms Liu had been registered to a group which was for committee members only by Mr Yu on 9 September 2012 several days after the statement of claim was served. He asserted “clearly, George Yu knows who is the owner of the email address liunancyXXX.” He repeated his earlier advice that the second group (the TALK Group) “where Nancy Liu’s email were published … she was added into the group by George Yu too … on 14 Apr 2009 (the time that George Yu as [sic, was] President of CPCA).” He then asked:

47. [47]

    Ms Chou forwarded Mr Cao’s 27 November email to Mr Goldsmith the same day. Insofar as Mr Cao had commented on the topic raised in their discussion on 16 November 2012 concerning Mr Yu’s possible evidence at the trial, Ms Chou said:

48. [48]

    On 30 November 2012 Mr Goldsmith sent Mr Cao a letter referring to his emails to Ms Chou and addressing Mr Cao’s assertion that “George Yu knows who owns the email address.” Mr Goldsmith posed the question as to how Mr Yu could be compelled to provide that information. He added that Mr Cao would not want to serve a subpoena on Mr Yu, as then he might say “he was the owner, [and] that would be the end of your claim against the current defendant.” He contrasted that situation with one in which Mr Yu gave evidence on behalf of Ms Liu to the effect that “he published the email”, advising that in those circumstances, Mr Yu could be cross-examined on a wider scale than he could if he gave evidence in chief. He explained that if Mr Yu gave evidence on behalf of his wife, he would be open to cross-examination about his indication at mediations that Ms Liu had published the email, and his failure, at mediations, to mention that he was the publisher. He did not explain the utility of these lines of cross-examination.

49. [49]

    On 29 January 2013 Mr Cao forwarded to Ms Chiu a statement from a Mr Cheng which, he said, “gives evidence that Nancy Liu made a mention in Dec 2011 that the email account is her account and those publications are her own action.” The email also asked:

50. [50]

    Mr Cheng’s “statement” was an email to Mr Cao dated 29 January 2013. It appears that Mr Cheng had served the Concerns Notice on Ms Liu. He said that in the course of a conversation with her after he had done so, she “denied” an earlier suggestion that her husband Mr George Yu might be involved in the incident, and told him “that those publications were her own opinions [and] [s]he also emphasised that her email account was not accessible by anyone including her husband as it was simply a matter of privacy.”

51. [51]

    On 31 January 2013, Mr Goldsmith sent a letter to Mr Cao advising him that evidence drawn from mediations could be used as evidence in support of his claim against Ms Liu. [20] He suggested emails from such people “suggest[ed] that Mr Yu admitted [the matter complained of] was sent by his wife”. He suggested that Mr Cao had, in substance, a number of witnesses whose evidence could persuade a court Ms Liu was the publisher of the matter complained of despite her denial. It also advised, in relation to the letter requiring documents for discovery of 16 November 2012, that Ms Liu had sent a similar note to him requiring discovery. Mr Goldsmith expressed the opinion that:

52. [52]

    Mr Goldsmith also expressed the opinion in the 31 January 2013 letter that “it appears that the evidence that you have to prove that Ms Liu authored and published the e-mail complained of is ‘as good as it gets’.” With that in mind, in the interests of time and cost, he advised that “it may be practical simply for you not to pursue discovery of documents by Ms Liu.” Similarly, he advised that interrogatories would “be limited to the question of publication, and, again, if you are going to rely upon the various witness statements [giving evidence on what was said at mediations], that is a procedural step that likely can be avoided.” On that advice, Mr Cao sent an email in reply later that day agreeing that pursuit of discovery and interrogatories was no longer needed.

53. [53]

    On 4 February 2013 Mr Cao asked Ms Chou whether Mr Yu could “claim that he was actually the publisher during the trial? If so can the court treat him as a co-defendant automatically?” The documents do not record her response.

54. [54]

    On 14 February 2013, in proceedings before Gibson DCJ to determine an application by Mr Yu to appear on behalf of his wife at the trial of the defamation proceedings, the question of mediation was raised. The following exchange then took place:

55. [55]

    Gibson DCJ refused Mr Yu’s application to appear for Ms Liu. Her Honour referred Mr Yu to the New South Wales Bar Association’s pro bono assistance scheme and ordered mediation. She also ordered Mr Cao to serve statements, limited to publication only, in 14 days. [21]

56. [56]

    Later that day, Mr Goldsmith sent a letter to Mr Cao advising him on the outcome of the morning’s hearing and the progress of the matter generally. He referred to a “without prejudice” discussion with Mr Yu following the hearing, during the course of which he advised Mr Yu of the nature of the evidence that would be called against Ms Liu on the issue of publication. These included admissions made “during the course of meetings and the admission made when the Concerns Notice was served.” He reported that Mr Yu appeared “amenable to settlement, but still steadfastly denies that his wife published the email.” He noted that Gibson DCJ had directed Mr Cao to serve his witness statements addressing the issue of Ms Liu’s publication of the matter complained of, of which there appeared to be 3 – 4 at that stage, and advised such service prior to trial would not disadvantage him.

57. [57]

    Pursuant to Gibson DCJ’s order, Mr Cao served two statements. One of them suggested that when she received the “concerns notice” on 10 December 2011, Ms Liu had conceded that she had an email address which her husband did not use and that she had used it to send the matter complained of. Although not obliged to do so, Ms Liu responded to Mr Cao’s statements by serving two statements, one from herself and one from her husband. Her statement “agreed she had on 10 December 2011” said words suggesting she used emails and had an email address and that her husband did not use her email address. But she denied saying she had in fact sent the email or had been the owner of the liunancyXXX email address. Mr Yu’s statement was not in evidence, its tender by Mr Cao having been rejected. [22]

58. [58]

    On 4 April 2013 there was a further directions hearing before Gibson DCJ at which Mr Yu and Ms Liu appeared. Handwritten notes extracted from Mr Goldsmith’s file recording a meeting afterwards are somewhat equivocal. They appear, however, to record the author’s views that he or she had no doubt Mr Yu “sent the emails … that’s why he’s so defensive of her”, but that the “evidence points to [Ms Liu, and therefore] we have to sue her”, and also that he sent the emails but her name … we don’t have evidence it’s Yu”.

59. [59]

    A further directions hearing took place before Gibson DCJ on 18 April 2013. Ms Liu appeared with Mr Yu.

60. [60]

    Mr Goldsmith sent another email to Mr Cao on 28 April 2013 in the course of which he referred to the fact there had been three mediations, concluding, “Mr Yu is, very simply, just not going to budge on the publication issue.” He added:

61. [61]

    On 30 April 2013, Mr Cao sought clarification of that statement, asking how the view attributed to Gibson DCJ might affect her Honour’s final judgment, her Honour at that stage having apparently been designated as the trial judge. Mr Goldsmith responded by repeating his view that he had “no doubt that Mr Yu wrote the email + I also have no doubt that her Honour shares that view.” However, he reiterated his advice that “the evidence all points to the defendant and, at the end of the day, her Honour … is required to make a decision based upon the evidence (rather than what amounts to suspicion).”

62. [62]

    On 14 May 2013 Mr R Rasmussen appeared at a directions hearing before Gibson DCJ representing Ms Liu. He was granted leave to file an amended defence adding a defence of triviality, in addition to the publication issue. [23] A proposed defence of qualified privilege was rejected.

63. [63]

    On 15 May 2013 Mr Rasmussen gave notice of Ms Liu’s intention to ask Gibson DCJ to disqualify herself on the ground of reasonable apprehension of bias. Her Honour did so on 17 May 2013.

64. [64]

    The liability hearing commenced before the primary judge on 21 May 2013. It was listed for two days, but went for twelve days concluding on 31 July 2013. Mr Goldsmith appeared for Mr Cao. Mr Rasmussen appeared for Ms Liu. Judgment was delivered on 6 September 2013.

65. [65]

    The primary judge found:

66. [66]

    The primary judge referred to the order Gibson DCJ had made directing Mr Cao to serve statements prior to the hearing confined to the issue of publication. His Honour described the statements served by both Mr Cao and Ms Liu in terms set out above. [25] There was no evidence before his Honour to show who had set up the liunancyXXX email address, and what other emails had been sent from it. [26]

67. [67]

    Mr Cao adduced evidence from two witnesses that Ms Liu had used words at a club function on 10 December 2011 which amounted to an admission she had composed and sent the email. Ms Liu agreed she had said those words but said “that had not been the truth.” She also gave an explanation for not telling the truth to Mr Cheng it is unnecessary to reproduce. [27]

68. [68]

    On 31 May 2013, the ninth day of the trial, Mr Yu gave evidence in which he said he had set up the liunancyXXX email address and written and sent the matter complained of. The primary judge sufficiently summarised Mr Yu’s evidence relevant to the issue before this Court and Mr Goldsmith’s response as follows:

69. [69]

    In the course of considering Mr Yu’s credit, the primary judge set out the following passage of Mr Yu’s evidence:

70. [70]

    Mr Goldsmith submitted that the primary judge should not accept Mr Yu’s evidence that he had sent the matter complained of. Alternatively, he contended that if Mr Yu had sent it, his Honour would conclude that the email was a “joint effort”. [28]

71. [71]

    The primary judge concluded that, while there were matters which gave him concern about Mr Yu’s credit, he was “inclined to the view that he was generally truthful.” [29]

72. [72]

    Two other matters from the liability judgment should be mentioned. First, one of the matters which Mr Goldsmith apparently relied upon to challenge Mr Yu’s credit as to his admission that he wrote the matter complained of, was Mr Yu’s statement before Gibson DCJ at the directions hearing on 14 February 2013 to the effect that “somebody else” had written the email. [30] Mr Rasmussen submitted that this question should not have been asked at the directions hearing and that Mr Yu’s response was understandable in the circumstances. [31]

73. [73]

    The primary judge found that Mr Yu “was being untruthful in saying he did not know” who wrote the matter complained of on 14 February 2013 to Gibson DCJ. However, his Honour appears to have accepted the submission that Mr Yu was “in an unusual and difficult position” and that had he been legally represented, he “might well have told the judge the question should not have been asked [as] the only question was whether the defendant had sent it, and that it was for the plaintiff to prove who had sent it.” [32]

74. [74]

    Secondly, Mr Goldsmith cross-examined Mr Yu to the effect that he had never before trial said he was either the owner of the account from which the matter complained of was sent or the sender of the matter complained of “and he was therefore blameworthy”. The primary judge concluded that Mr Yu was not “obliged to tell the plaintiff those matters, given he was not a party.” [33]

75. [75]

    The primary judge noted that Ms Liu had “consistently denied on oath since the statement of claim was served on her, that she sent the email.” [34] His Honour accepted Mr Yu’s evidence that he sent the email. [35] In this respect he found:

76. [76]

    His Honour rejected a submission apparently advanced by Mr Goldsmith to the effect that Mr Yu sent the email at Ms Liu’s behest or in collaboration with her and, accordingly, rejected a case advanced on the basis of Webb v Bloch. [36]

77. [77]

    His Honour held that he was not satisfied on the balance of probabilities that Ms Liu sent the email or caused it to be sent. [37] He concluded:

78. [78]

    The primary judge found that the matter complained of had been published to “about 125 people, both past and present members, who read it and understood it to refer to the plaintiff.” [38] Had he found in Mr Cao’s favour, having regard to the number of people to whom the matter complained of was published, he would have awarded compensatory damages of $30,000. [39]

79. [79]

    His Honour gave a verdict and judgment for Ms Liu and ordered Mr Cao to pay her costs. On 10 October 2013, the primary judge ordered Mr Cao to pay those costs on an indemnity basis. [40] The reason for that order does not appear from the papers.

80. [80]

    On 31 May 2013, the trial was stood over, part heard, to 31 July 2013. As appears from the liability judgment, during the trial Mr Goldsmith foreshadowed joining Mr Yu for the sole purpose of seeking a costs order against him if it were found he had been responsible for the plaintiff’s incurring unnecessary costs. No such application was made before the liability judgment was delivered. [41]

81. [81]

    On 13 June 2013, during the adjournment, Mr Goldsmith wrote to Ms Liu’s solicitors. The letter was written to that firm on the assumption it would be retained to act for Mr Yu. It referred to Mr Yu’s “confession on 31 May 2013 … that he wrote and sent the e-mail”. It noted that Mr Cao “continued to assert there [was] evidence Ms Liu published … the email”, but recognised that if her and Mr Yu’s evidence was accepted, the case would be dismissed. It warned that “even if the claim is dismissed, our client will be seeking an order for costs against your client and/or Mr Yu.” The letter conveyed Mr Cao’s concern that he had “incurred very substantial costs in pursuing a claim which Mr Yu has now confessed to be misleading and deceptive.”

82. [82]

    The letter also referred to a number of meetings in which Mr Yu had participated during which attempts had been made to “resolve the issue”, and to Mr Yu’s court attendances on about eight occasions when “the issue arose as to who had written and sent” the matter complained of, and asserted that “at no time did Mr Yu say that he had.” It said that Mr Yu’s “confession” was “the first occasion upon which he [had] made that confession, despite his multiple attendances at Court on behalf of Ms Liu.”

83. [83]

    Finally, the letter advised that Mr Cao would file an application to extend the time within which to commence defamation proceedings against Mr Yu. It said Mr Cao wished Mr Yu to be on notice of the steps he was proposing to take in order to give him an opportunity to advance any reasons why Mr Cao should not take them. The papers do not disclose any response to that letter. There is no suggestion Mr Cao has ever applied for an extension of time to sue Mr Yu. The time to which the limitation period could have been extended to enable that to happen expired the day after the hearing in this Court. [42]

84. [84]

    Following delivery of the liability judgment on 6 September 2013, Mr Cao retained new legal advisers. On 25 September 2013 he filed the notice of motion in the District Court proceedings seeking costs indemnities from both Mr Yu and Mr Goldsmith. On 15 November 2013 he filed points of claim in support of the application. The points of claim recited, insofar as Mr Yu was concerned, that he had published the matter complained of, relevantly, “using the email address ‘liunancyXXX’ with a result that the defamatory email was expressed to be published on behalf of liunancy”. Paragraph 5 asserted that by publishing the matter complained of using that address Mr Yu had represented to members of the TALK group that Ms Liu was the author of the matter complained of and that he (Mr Yu) was not.

85. [85]

    The points of claim asserted that at the time he made those representations, Mr Yu, “knew they were false and … and intended that the members of the TALK group, including the plaintiff, should believe in and rely on them.” Next the points of claim referred to the November emails Mr Yu had sent to the TALK group using his email address and asserted that those emails “reinforced the representations in paragraph 5.” Next, the points of claim asserted that by reason of the making of the representations and/or their reinforcement, Mr Cao joined Ms Liu as a party to the proceedings and did not join Mr Yu.

86. [86]

    The points of claim concluded by asserting that Mr Yu had misled Mr Cao into commencing the proceedings against Ms Liu, as a result of which Mr Cao had “incurred the plaintiff’s costs and the defendant’s costs”, and that Mr Yu should be ordered to indemnify Mr Cao for those costs.

87. [87]

    Insofar as Mr Goldsmith was concerned, the points of claim asserted that the costs Mr Cao had been ordered to pay Ms Liu had been incurred “by the serious neglect and/or serious incompetence by Mr Goldsmith.” Particulars of that allegation were, in substance, failing to advise that Mr Yu should be joined as a defendant when proceedings were commenced, and alternatively, failing to seek to join Mr Yu as a defendant at any time prior to the hearing.

88. [88]

    Mr Cao swore an affidavit in support of the costs application dated 15 November 2013. He referred to the fact that when he first read the matter complained of and saw the email address from which it was sent he “knew at that time that Mr Yu was married and his wife was known by the English name ‘Nancy’.” He then referred to the November emails he had received following the publication of the matter complained of, which, it will be recalled, were received “in the TALK Group on behalf of Mr Yu [and] made reference to ‘Nancy’, ‘the lady Nancy’, ‘the female member’ and ‘a lady’.” He said that as a result of reading the matter complained of he decided to seek legal advice in relation to defamation and “came upon Mr Goldsmith’s firm using Google.”

89. [89]

    Paragraph 7 of Mr Cao’s affidavit said:

90. [90]

    Mr Cao then referred to various email exchanges with Goldsmiths extracted from the firm’s files which were exhibit PC1 to his affidavit. He also annexed pages 5 and 6 of the transcript of the proceedings before Gibson DCJ on 13 March 2013.

91. [91]

    The costs application was heard on 17 March 2014. Several days later, Mr Cao reached an accommodation with Mr Goldsmith and discontinued the wasted costs application. Mr K Smark of Senior Counsel appeared with Ms Y Guo for Mr Cao. Mr Rasmussen appeared for Mr Yu.

92. [92]

    The primary judge described the issue in the case as being “whether I ought make an order against Mr George Yu, who is not a party to the relevant proceedings, that he indemnify the plaintiff in respect of a costs order in favour of the defendant”. [43]

93. [93]

    The primary judge recognised that it was exceptional for a costs order to be made against a non-party. However, Mr Smark submitted it was an appropriate case for such an order:

94. [94]

    His Honour described the course the defamation proceedings took:

95. [95]

    His Honour determined the costs application both by reference to his findings in the liability judgment and those made on the application itself by reason of new material Mr Cao tendered. [46]

96. [96]

    The November emails were tendered on the costs application, but were not in evidence at the trial. [47] His Honour concluded those emails (as the points of claim asserted) could be read as reinforcing the view that Ms Liu was the author of the matter complained of. The primary judge was satisfied on the basis, I infer, in particular of the new material and, too, that which had been before him in the liability trial, that “because of the acts of Mr Yu, [Mr Cao] did sue the wrong person.” [48]

97. [97]

    The primary judge recorded Mr Rasmussen’s submission, among other matters, that Mr Yu had been an “obvious defendant” who would be prejudiced if his Honour acceded to the costs application because he would lose the rights he would otherwise have had if joined as a defendant at an early stage of the proceedings. He contended Mr Yu had been put on notice that such an application might be made only late in the piece. [49]

98. [98]

    The primary judge drew the following inferences from Mr Goldsmith’s files:

99. [99]

    His Honour found that:

100. [100]

     His Honour held it was in the interests of justice to make the orders sought. He considered the case to be an exceptional one warranting that conclusion because:

101. [101]

     The primary judge held that the sequence of events supported the conclusion that Mr Yu’s acts led to, and were the cause of, the litigation. He rejected Mr Rasmussen’s submission that there was some form of unfairness to Mr Yu because he was not cross-examined about the November emails. In this respect his Honour observed:

102. [102]

     The primary judge also rejected Mr Rasmussen’s submission that Mr Cao was “not tricked”. In his Honour’s view:

103. [103]

     Accordingly, his Honour concluded it was Mr Yu’s conduct in sending the matter complained of in his wife’s name which caused the litigation and was a “significant causal factor in Mr Cao’s not joining him, despite his suspicions.” Further, “his conduct throughout was consistent with an intention to hide authorship of the email with the matter complained of and to have his wife seen as the author.” [55]

104. [104]

     Counsel for both Mr Yu and Mr Cao had submitted to the primary judge that Mr Goldsmith had been negligent in not joining Mr Yu as a defendant albeit for different reasons. Mr Rasmussen contended that negligence demonstrated there was no causal connection between Mr Yu’s conduct and the costs order made against Mr Cao. Mr Smark, on the other hand, contended “the negligence [was] a by-product of Mr Yu’s mischievous conduct, so that it does not detract from his liability to [Mr Cao] for a non-party costs order”. [56] His Honour found:

105. [105]

     Accordingly, his Honour concluded that Mr Goldsmith’s potential negligence in not joining Mr Yu did not break the chain of causation. Rather:

106. [106]

     As to Mr Yu’s potential disadvantage in not being joined as a party to the liability proceedings, his Honour said:

107. [107]

     The primary judge accepted “that Mr Yu was given notice very late” that he would be subject to the costs application, and that “late notice has at times led to an order being refused”. [60] He concluded, however, that this was not decisive, because Mr Yu had been “involved in the litigation in quite a close way from its very beginning and was, in any event, put on notice … when, had he chosen, he could have taken some steps to protect his position.” His Honour found that making the orders sought would not “amount to punishment,” but would ameliorate Mr Cao’s position “costs-wise.” [61]

108. [108]

     Accordingly, upon Mr Cao undertaking to pursue his rights against Mr Goldsmith to have the latter’s costs assessed, his Honour made the following orders:

109. [109]

     Mr Yu relies on the following grounds of appeal:

     1. (1)

        His Honour erred in finding that Mr Cao was in fact deceived.

     2. (2)

        His Honour erred by finding that Mr Yu had deceived Mr Cao such as to cause Mr Cao to sue Mr Yu’s wife and not also join Mr Yu as a co-defendant.

     3. (3)

        His Honour erred in finding that Mr Yu’s conduct in sending emails was done with a view to conveying the false impression that his wife had sent the matter complained of and he had not.

     4. (4)

        His Honour erred by finding that such conduct of Mr Yu had the causative effect of persuading Mr Cao that Mr Yu’s wife had been the author and sender of the matter complained of.

     5. (5)

        His Honour erred in finding that Mr Yu’s conduct throughout the proceedings was consistent with an intention to hide authorship of the matter complained of and have his wife seen as the author.

     6. (6)

        His Honour erred in finding that the acts of Mr Yu’s wife, Mr Cao’s solicitor and Mr Cao’s own wilful blindness did not break the necessary connection between Mr Yu’s conduct and Mr Cao’s decision to sue Mr Yu’s wife only.

     7. (7)

        His Honour’s order was an impermissible punishment of Mr Yu.

     8. (8)

        His Honour erroneously applied the principles applicable to non-party costs orders.

     9. (9)

        His Honour failed to take into account relevant principles applicable to non-party costs orders.

110. [110]

     Mr Yu seeks orders granting leave to appeal, allowing the appeal, setting aside the judgment and orders of Walmsley ADCJ of 20 March 2014, dismissing Mr Cao’s non-party costs application with costs and ordering him to pay Mr Yu’s costs of the application for leave and the appeal.

111. [111]

     Mr T Blackburn of Senior Counsel, who appeared with Mr Rasmussen for Mr Yu on appeal but not before the primary judge, submitted that, contrary to what Mr Cao had urged on the costs application, Mr Yu had not sought to disguise his authorship of the matter complained of “for the rather cheap purpose of deflecting legal liability in case the target sued for defamation”, but had done so because he did not want his position of authority within the CPCA to unduly add to the weight of the views expressed. Mr Blackburn submitted that Mr Yu’s conduct should have been characterised as misguided rather than intentionally misleading.

112. [112]

     Mr T Blackburn submitted that the primary judge’s discretion to make the costs order miscarried in four ways.

113. [113]

     First, because the primary judge found that Mr Cao was persuaded or tricked by Mr Yu’s conduct into believing that Ms Liu was the author and sender of the matter complained of, when the evidence showed that Mr Cao always strongly believed that it was Mr Yu who was primarily responsible. In addition, he contended that finding was incompatible with the case Mr Cao advanced on the motion, particularly that pressed against Mr Goldsmith. He also relied on the fact that Mr Cao did not give evidence on the costs application that he had been persuaded or tricked into thinking that Ms Liu, rather than Mr Yu, was the author. He argued that this was a striking omission on the costs motion, where the effect of Mr Yu’s conduct was the central concern.

114. [114]

     Mr Blackburn submitted that the only finding available on the evidence was that, at its highest, Mr Cao believed that Ms Liu may have had an involvement in the publication of the matter complained of, but that he strongly believed that Mr Yu was responsible for it.

115. [115]

     Secondly, Mr Blackburn submitted that the primary judge’s exercise of his discretion was unreasonable in circumstances where, contrary to his Honour’s finding, the evidence from Mr Goldmith’s files and Mr Cao’s affidavit on the wasted costs application demonstrated Mr Cao always strongly believed that Mr Yu was likely to have written and sent the matter complained of and the failure to join him deprived Mr Yu of the opportunity to plead potential defences of qualified privilege, truth and fair comment. Mr Blackburn submitted that, in truth, Mr Cao was the author of his own misfortune in circumstances where he knew or very strongly suspected Mr Yu was responsible, but did not instruct Mr Goldsmith to join him.

116. [116]

     Thirdly, Mr Blackburn argued that it was open, throughout, for Mr Cao to join both Mr Yu and Ms Liu as defendants and seek a Bullock costs order at the end of the proceedings if he failed against one or the other. He also embraced the proposition which fell from the bench in the course of argument that when Mr Goldsmith foreshadowed the costs application following Mr Yu’s confession, there was still time to seek an extension of the limitation period under s 56A against Mr Yu which, if successful, would have given Mr Yu the opportunity to defend the proceedings.

117. [117]

     In addition, Mr Blackburn submitted Mr Yu was prejudiced by Mr Cao’s failure to give him timely notice of the non-party costs application. He submitted that earlier notification would have given Mr Yu the opportunity to seek some kind of involvement in the proceedings, but that was effectively impossible at the end of the trial.

118. [118]

     Fourthly, Mr Blackburn contended the primary judge misapplied the law in concluding the case warranted the exercise of the “exceptional” power to make a non-party costs order.

119. [119]

     Mr Blackburn submitted that it was relevant to have regard to the case Mr Cao sought to advance against Mr Goldsmith on the wasted costs application (the “wasted costs case”). He contended that that case supported his submission that Mr Cao was not, in fact, deceived by Mr Yu’s conduct and that the primary judge erred in concluding that Mr Goldsmith’s conduct did not break the necessary connection between Mr Yu’s conduct and Mr Cao’s decision to join Ms Liu, but not Mr Yu. Mr Smark did not oppose that course. The case against Mr Goldsmith emerges from the points of claim to which I have already referred and Mr Smark’s written submissions before the primary judge on this issue.

120. [120]

     First, the thrust of the wasted costs application was not that Mr Goldsmith had pursued a hopeless case against Ms Liu but, rather, that he had failed to join Mr Yu as an additional defendant. Mr Cao’s proposed submission was that the exchanges between Mr Cao, Mr Goldsmith and Ms Chou demonstrated that Mr Goldsmith strongly advised Mr Cao that even though he wished Mr Yu to be joined as a defendant, it would not be proper for him to do so. He relied, in this respect, on Mr Goldsmith’s letters of advice of 24 October 2012 and 31 October 2012. [62] He argued that, in effectively countermanding Mr Cao’s instructions to join Mr Yu, Mr Goldsmith had acted rather remarkably, particularly bearing in mind his emails of 28 and 30 April 2013 in both of which he had expressed a view that he had “no doubt” Mr Yu had written the matter complained of. [63]

121. [121]

     The wasted costs submissions also contended that Mr Goldsmith’s position in relation to Mr Yu’s joinder was surprising given his awareness of the following matters pointing towards Mr Yu as the author of the matter complained of:

     1. (1)

        The subject matter of the matter complained of was the history of elections for the CPCA committee and Mr Cao’s role in it. He contended that these were matters with which Mr Yu, and not Ms Liu, was concerned with and, further, pointed out that there was a history of animosity between Mr Cao and Mr Yu. Accordingly, it was contended, the possibility Mr Yu was using his wife’s email address was “obvious from the start”.

     2. (2)

        Next, Mr Cao contended that emails Mr Yu wrote to the TALK group about the time the matter complained of was published made plain his animosity towards Mr Cao and his engagement in the issues with which the matter complained of was concerned and those emails had been provided to Mr Goldsmith at the outset.

     3. (3)

        Next, Mr Cao relied on the facts that there were no emails sent from the “liunancy” email address to the TALK group before or after the day surrounding publication of the matter complained of, a matter he contended Mr Cao drew to Mr Goldsmith’s attention in September 2012.

122. [122]

     Mr Cao also relied on a number of matters concerning Mr Yu’s role in the CPCA, the fact that Ms Liu was his wife, and the fact that several CPCA members informed Mr Cao they believed Mr Yu wrote emails from Ms Liu, and a number of matters concerning Mr Yu’s control of, and access to, the TALK group, the fact that it was Mr Yu who added the “liunancy” account to mailing groups of the CPCA, the fact that Ms Liu and Mr Yu both denied that she had published the email and a number of other circumstances.

123. [123]

     Mr Cao contended that Mr Goldsmith’s responses to some of these matters, such as advising more evidence was required and that there was no proper basis to add Mr Yu, were “simply reckless”. He submitted that in light of the matters to which I have referred there was a proper basis to join Mr Yu, who would then be required to put on a defence, if necessary, make admissions (presumably in response to a notice to admit facts), give discovery and answer interrogatories. He contended that there was no proper basis for Mr Goldsmith’s squeamishness in the face of a reasonably arguable, albeit circumstantial, case against Mr Yu.

124. [124]

     Finally, Mr Cao contended that Mr Yu’s ultimate “confession” was only a statement of what was a reasonably available inference from material known to Mr Goldsmith from an early stage in his retainer by Mr Cao.

125. [125]

     Mr Smark accepted that Mr Cao had a cause of action against Mr Yu as had been framed in the wasted costs order submissions, in respect to which he could reasonably have commenced proceedings even before Mr Yu’s “confession” at trial. He also accepted that the primary judge had not directly referred to that factor in considering the costs application. However he argued it could not be concluded that his Honour did not have that fact in mind when considering the costs application, particularly when the references he made to the liability judgment were taken into account.

126. [126]

     Mr Smark submitted the primary judge had adverted to the cause of action factor, albeit indirectly, when dealing with the fact that Mr Goldsmith’s files showed Mr Cao had frequently raised the possibility of joining Mr Yu. He contended his Honour also referred to that factor, albeit again indirectly, when discussing Mr Yu’s causation submission concerning the significance of Mr Goldsmith’s alleged negligence in not joining Mr Yu. [64]

127. [127]

     Mr Smark accepted the primary judge was correct when his Honour held in the liability judgment that Mr Yu was not obliged to tell Mr Cao he was, in effect, the real publisher of the matter complained of. [65] Nevertheless, he submitted that what made the case exceptional such as to warrant the exercise of the Court’s non-party costs jurisdiction was the fact that in writing the matter complained of and sending it from the “liunancy” email address (and in sending the November emails), Mr Yu had “masqueraded” as Ms Liu. As he colourfully expressed it in argument, Mr Yu had “painted a target on his wife’s head and ought not, as a matter of justice as between the applicant and the respondent, to be able to say, ‘Oh, I didn’t think they’d go this far’ at least in circumstances where he was a party to the maintenance of the defence.”

128. [128]

     As to Mr Cao’s beliefs as to the true author of the email, Mr Smark first submitted that the plausible reason Ms Liu was made the defendant was because of Mr Yu’s dishonest styling of the matter complained of so as to make it appear that Ms Liu was its author and he was not. He argued that the fact Mr Cao may have been uncertain as to the authorship of the matter complained of was beside the point, because Mr Yu’s conduct was the only reason he could have entertained the false belief that Ms Liu may have been the author.

129. [129]

     Secondly, Mr Smark submitted that, contrary to Mr Blackburn’s submissions, Mr Goldsmith’s file showed that both Mr Cao and Mr Goldsmith were acting on the basis that Ms Liu was, or may indeed have been, the author of the matter complained of – the source of that belief again having been Mr Yu’s conduct.

130. [130]

     Thirdly, Mr Smark pointed to the November emails which, as the primary judge found, reinforced the view that it was “Lady Nancy” and not he who sent the matter complained of.

131. [131]

     In response to Mr Blackburn’s submission that the primary judge erred in failing to take into account the timing of the application for the costs orders against Mr Yu, Mr Smark submitted that his Honour was aware of that factor, and of the fact that not being joined as a defendant meant Mr Yu lost the opportunity to raise defences. However, he argued his Honour was correctly of the view that such considerations were countervailed by other factors, including Mr Yu’s close involvement in the litigation from the outset.

132. [132]

     Mr Smark submitted that the fact that Mr Cao urged his former solicitor to join Mr Yu did not suggest that he was thereby proposing not to proceed against Ms Liu as well. He pointed out that the orders sought against Mr Yu were based on his conduct having caused the erroneous inclusion of Ms Liu as a defendant, which arose squarely from Mr Yu’s conduct. He added that Mr Yu’s conduct continued after the commencement of the proceedings against Ms Liu, including, for example, Mr Yu’s answer to Gibson DCJ on 14 February 2013 when asked who had sent the matter complained of.

133. [133]

     As to causation, Mr Smark submitted that it was enough, at law, that Mr Yu’s misrepresentation was “a” reason for Mr Cao commencing proceedings against Ms Liu. [66] He argued that a misrepresentation may induce a party to act to his or her detriment even if he or she is uncertain as to its truth or falsity, as long as it can be seen to be a material factor for the action taken. He contended that the materiality of a dishonest assertion of authorship was self-evident in the decision to sue the falsely named author.

134. [134]

     Mr Smark submitted that the primary judge’s finding that it was effectively Mr Yu’s conduct which led to a state of affairs which was causative of the joinder of Ms Liu and the non-joinder of Mr Yu was open to his Honour.

135. [135]

     Mr Smark submitted that the contention that Mr Goldsmith’s failure to join Mr Yu broke the chain of causation between Mr Yu’s and Mr Cao’s loss to such an extent that it could no longer be regarded as sufficiently causally potent to warrant an exercise of the non-party costs power failed to grapple with the principle that a person who engages in certain classes of conduct is not permitted to blame the victim. He relied on Capital Securities (Aust) Pty Ltd v Perpetual Trustees Vic Ltd & Anor. [67]

Non-party costs orders – scope of the power

1. [136]

   Prima facie, an order for costs is only made against a party to the litigation. However, in the exercise of the Court’s costs discretion pursuant to s 98, CPA (a discretion which is unfettered, save that it should be exercised judicially in accordance with general legal principles relating to the law of costs) an order for costs may be made against a non-party if, in the circumstances of the case, the interests of justice require that it be made. [68]

2. [137]

   The s 98 discretion is not subject to any express limitations. [69] Such an order may be made “where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation.” [70] While some criteria have been identified as present when a non-party costs order is made, those criteria are not closed or exhaustive and it is not necessary for each to be present before a costs order may be made under s 98. [71]

3. [138]

   Non-party costs orders have been said to be exceptional. [72] They should not be made where “an exercise of the jurisdiction against a non-party would be extravagant and unjust.” [73] Elsewhere it has been said that such applications should be treated “with considerable caution” [74] and that the power should be “exercised sparingly.” [75]

4. [139]

   “[E]xceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense … [t]he ultimate question [being] whether in all the circumstances it is just to make the order.” The power to order non-party costs “is inevitably to some extent a fact-specific jurisdiction and … there will often be a number of different considerations in play, some militating in favour of an order, some against.” [76]

5. [140]

   As will be apparent from Knight, the non-party’s connection to the proceedings is central to the inquiry whether a non-party costs order should be made. Further, there must be a causal connection between the actions of the non-party and the occasion for ordering costs. [77]

6. [141]

   Mr Smark contended before the primary judge that the non-party costs order should be made because Mr Yu caused the action, a proposition drawn from Balcombe LJ’s reasons in Symphony Group. His Lordship’s reasons repay examination for the discussion, among other matters, of principles which may inform the exercise of the non-party costs power.

7. [142]

   In Symphony Group, the plaintiff employed the defendant under a contract of service a term of which restricted him from engaging in the same area of employment for one year after his employment with the plaintiff came to an end. H Ltd, one of the plaintiff’s competitors, employed the defendant. It knew of the restrictive covenant. Symphony instituted proceedings against the defendant seeking injunctive relief. About a month before the trial of the injunction proceedings commenced, the plaintiff’s solicitors wrote to H Ltd referring to its knowledge of the restrictive covenant, its employment of the defendant which, the letter contended, demonstrated H Ltd had induced the defendant to breach his contract of employment. The letter advised Symphony intended to issue proceedings against H Ltd to recover such damages in that respect. No such proceedings were ever issued, nor did Symphony seek to join H Ltd to the injunction proceedings.

8. [143]

   Symphony did not tell H Ltd prior to the trial of the injunction proceedings that it might seek to make it liable for payment of the costs of that action. However, after judgment was delivered and Symphony had been granted substantial injunctive relief against the defendant, it successfully sought such an order essentially on the basis of H Ltd’s employment of the defendant with knowledge of the restrictive covenants and other matters relating to the conduct of the defence to the injunction proceedings. Balcombe LJ observed of the former matters, that these were “all issues which could have been raised by Symphony against [H Ltd] if the latter had been joined as a party to the action.” [78]

9. [144]

   Balcombe LJ summarised some decisions in which courts had made non-party costs orders as indicating the sorts of connections which had led courts to entertain such a claim. These included the category upon which Mr Smark relied, “where a person has caused the action”. [79]

10. [145]

    Despite recognising that there are “no immutable rules” in relation to costs, Balcombe LJ also identified “some principles for the guidance of judges of first instance when they are asked to make an order for costs against a non-party”. [80] These included the following, which Mr Blackburn emphasised:

11. [146]

    These two principles were said to be obvious applications of basic principles of natural justice. [82]

12. [147]

    The sixth principle revolved around the premise that “The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action.” The effect of this is that in cases, for example, where there is a close connection between the non-party and the original proceedings, judicial findings made in the original proceedings which would ordinarily be inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger, can be used in an application for a non-party costs order. [83] Both counsel accepted that the primary judge and this Court could have regard to the findings in the liability judgment in considering the costs application.

13. [148]

    The seventh principle Balcombe LJ considered should be taken into consideration was:

14. [149]

    It was “clear” in Symphony Group that Symphony had at all material times had a cause of action in tort against H Ltd. Symphony had threatened to commence proceedings against it prior to the trial of the main action. Balcombe LJ did not regard Symphony’s justification for not doing so on the basis it had “immediately obtained an immediate interlocutory injunction against [the defendant] it had suffered, and would suffer, no damage” as “a sufficient justification for a departure from this basic principle.” [85] In his Lordship’s view:

15. [150]

    In considering the absence of notice issue, Balcombe LJ was influenced by the fact that H Ltd’s managing director gave evidence “in ignorance of what lay in store,” and decided “with the benefit of hindsight” it appeared that “some part of his cross-examination was with a view to this application being made.” The lack of forewarning also meant H Ltd did not have “the opportunity to protect itself by applying to be made a party.” For these, and other reasons not presently germane, Balcombe LJ concluded the non-party costs order had been made in error. [87]

16. [151]

    Absence of timely notice of a non-party costs order has also been a significant factor militating against the making of non-party costs orders in other cases. [88]

Non-party costs orders – causation

1. [152]

   The primary judge applied both Capital Securities and Palmer-Bruyn on the issue of the role of Mr Goldsmith’s negligence on the causation issue. Neither case concerned non-party costs orders.

2. [153]

   In Capital Securities, the question arose whether negligence on the part of the conveyancing solicitors broke the chain of causation between the plaintiff lender’s loss and the fraud of an agent of a “loan originator” in executing critical documents in reliance upon which the lender had advanced $220,500. Kennedy CCJ held that it had not. [89] Byrne AJA approved Kennedy CCJ’s reliance on Mason CJ’s statement in March v Stramare Pty Ltd [90] to the effect that “it makes no sense to regard the negligence of the plaintiffs or a third party as a superseding cause or novus actus interveniens when the defendant’s wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiffs or third party and that injury occurs in the ordinary course of things.” [91]

3. [154]

   In Palmer-Bruyn in the passages to which the primary judge referred, Gleeson CJ and Gummow J discussed the role of reasonable foreseeability of harm in discussing the elements of the tort of injurious falsehood, a question Gummow J observed had been left open in previous cases. His Honour held that that question should be answered by denying the applicability of reasonable foreseeability as a means of limiting liability in the tort of injurious falsehood. [92] It is not clear what reliance the primary judge placed on this proposition.

4. [155]

   In Dymocks, the Privy Council appeared to propound a “but for” test of causation in relation to a non-party costs order. [93] A “but for” test does not operate in the area of misrepresentation where it is sufficient that the “misstatement was actively present in the [representee’s] mind” when the relevant decision was made. [94] That is the test for which Mr Smark contended in the present case. [95]

5. [156]

   It is unnecessary to decide whether materiality is a sufficient causation test for present purposes. The overriding test is what the “interests of justice” require. The test for causation may turn on the facts relied upon to found the non-party costs application. It is always necessary to look at all the circumstances of the case. [96]

Application of principles

1. [157]

   It was common ground that as the costs order involved the exercise of the s 98 costs discretion, the success of the appeal depended on demonstrating error in the House v R sense. Such error may be demonstrated if the primary judge acted upon a wrong principle, mistook the facts or failed to have regard to material considerations or reached a conclusion which was, on the facts, “unreasonable or plainly unjust”. [97]

2. [158]

   As I have said, Mr Smark’s case against Mr Yu was based on the proposition that he “caused the action”. That was the primary focus of the costs judgment. The principal reason the primary judge concluded the non-party costs order should be made was that because the matter complained of was sent by Mr Yu, but disguised by him by use of the liunancy email address, Mr Cao sued only Ms Liu and not Mr Yu. [98] Although his Honour accepted that Mr Cao had frequently raised with Mr Goldsmith the possibility that Mr Yu should be joined, he said it was unnecessary for him to consider why that did not occur. [99] That was despite his conclusion that “Mr Yu, when Mr Cao told Mr Goldsmith of his suspicion, should have been joined”, [100] a conclusion which repeated his finding at trial that Mr Yu was the “obvious alternative defendant who could have been sued but was not.” [101]

3. [159]

   This was, with respect, in my view a fundamental error in the circumstances of this case. His Honour effectively confined his consideration of the exercise of his power to the commencement of the proceedings against Ms Liu. However that joinder did not bring to an end Mr Cao’s opportunity to join Mr Yu. He could have been joined even at the stage when he confessed to having written and sent the matter complained of at trial.

4. [160]

   The fact that Mr Yu may have “caused” the action by sending the matter complained of under cover of the liunancy email address was clearly highly significant. However, almost as soon as the matter complained of was sent another potential defendant was identified. Mr Cao “and several of his friends immediately saw [the matter complained of] as the work of [Mr Yu].” [102] By 1 December 2011, Mr Cao had sought Mr Goldsmith’s advice about “add[ing] George Yu into the case.” [103] By 10 December 2011 Mr Cao and others had circulated an email among the TALK group suggesting Mr Yu was operating his wife’s email and had been using it to send emails. [104] All these matters were known to Mr Goldsmith.

5. [161]

   There are many cases where there is more than one possible defendant. The primary judge had found Mr Yu the “obvious alternative defendant”. [105] In other words, Mr Cao had a cause of action against Mr Yu he failed to pursue. As Symphony Group demonstrates, this was a material consideration, yet his Honour paid almost no regard to it. Rather, as I have said, his Honour focussed almost exclusively on the commencement of the proceedings against Ms Liu. However, the question the primary judge had to determine was whether this case was “outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense”. [106] In the larger matrix, that question too fell for consideration in the context of the adversary system. [107]

6. [162]

   That called for an examination of all the circumstance of the case, at least those relevant to the identification of the parties and their possible joinder.

7. [163]

   In the context of characterising Mr Yu’s conduct, it was also relevant, in my view, for his Honour to have regard to his finding in the liability judgment that, given Mr Yu was not a party to the proceedings, he was not obliged to tell Mr Cao that he either was the owner of the email address from which the matter complained of was sent or, indeed, had sent the matter complained of “and was therefore blameworthy.” [108]

8. [164]

   While it is not necessary to demonstrate “improper conduct” on the part of the non-party against whom a costs order is sought, such conduct may be a relevant factor in the exercise of the discretion. [109] Equally, too, the fact that conduct is not “improper” is a matter to be taken into account. Accordingly, the fact that his Honour recognised Mr Yu was not obliged to disclose his part in the publication of the matter complained of was, in my view, a material consideration to the exercise of his discretion.

9. [165]

   It will also be recalled that in the liability judgment, the primary judge found that Gibson DCJ should not have asked Mr Yu who sent the matter complained of. [110] Yet, in the costs judgment, his Honour took Mr Yu’s answer to this question into account as consistent with a continuing course of conduct of hiding the true authorship of the matter complained of. [111]

10. [166]

    In contrast, the primary judge, with respect, brushed aside as unnecessary to consider, why, despite Mr Cao’s repeated instructions, requests and queries concerning Mr Yu’s joinder, Mr Goldsmith never took that step. At the risk of repetition, that was a highly relevant inquiry in light of his Honour’s finding Mr Yu was the “obvious alternative defendant”. Even when he turned his attention to the fact that Mr Goldsmith should have advised Mr Cao to join Mr Yu when he was instructed about Mr Cao’s suspicions, the primary judge dismissed any “breach of duty” to Mr Cao on Mr Goldsmith’s part on the ground that it “would not have occurred absent Mr Yu’s “effort to disguise authorship of the email.” [112] This was, it will be recalled, an effort his Honour had effectively found in the liability judgment to have been unsuccessful, when he concluded Mr Yu was the “obvious alternative defendant”. [113]

11. [167]

    I would also accept Mr Blackburn’s submission that the primary judge’s finding that Mr Cao was “deceived” by Mr Yu’s use of the liunancy email address was not open to him. First, such a finding was contradicted by the objective circumstances which led Mr Cao to form the belief to which I have earlier referred that, at the very least, Mr Yu was also involved in the publication of the matter complained of. Secondly, his Honour found the materials in Mr Goldsmith’s files were sufficient to point to the joinder of Mr Yu. [114] As far as the materials before the Court demonstrated, Mr Cao never resiled from that contention. Thirdly, it is significant in that light that Mr Cao did not give evidence of having been so deceived in support of the application for the costs order. In such circumstance the primary judge ought not to have drawn an inference in Mr Cao’s favour that he had been deceived by Mr Yu’s conduct. [115]

12. [168]

    Although the primary judge referred to the “cause of action” issue indirectly in considering the prejudice to Mr Yu in not being joined as a defendant, his Honour dismissed that as in “the nature of a s 98 application”. [116] It is difficult, with respect, to understand how that was a sufficient answer to Mr Rasmussen’s submission in this respect. As Balcombe LJ made clear in Symphony Group, the fact that a costs application is a summary procedure and not subject to the rules which would apply in an action heightens the necessity to ensure that any departures from fundamental principle do not wreak an injustice. [117] The fact that Mr Cao had a cause of action against Mr Yu and could, and should (had Mr Goldsmith accepted his instructions) have joined him was a substantive consideration. It should not have been treated as a mere incident of the non-party costs application.

13. [169]

    All of these matters were material to his Honour’s conclusion that the case was an exceptional one warranting acceding to Mr Cao’s application. His Honour with respect both failed to take account of material considerations and drew conclusions concerning the effect of Mr Yu’s conduct which were not open on the evidence. Accordingly, I would conclude that the primary judge’s exercise of his discretion miscarried.

Re-exercising the discretion.

1. [170]

   The parties accepted that if the Court reached this conclusion, it should reconsider the non-party costs motion.

2. [171]

   There can be no controversy that Mr Yu had a connection to the proceedings. Indeed, Mr Smark’s submission that he was the cause of them in the direct sense that he composed and published the matter complained of can be accepted. It is relevant, too, that, as the primary judge held in the liability judgment, Mr Yu ultimately conceded “he had used the ‘liunancy’ account to disguise the fact that it was he who was sending the emails.” [118]

3. [172]

   Symphony Group was also a case where H Ltd could be said to have “caused” the action because it employed the defendant with knowledge of the restrictive covenant, yet, as the case demonstrates, that was only the starting point of the inquiry as to whether it should be subjected to a non-party costs order.

4. [173]

   There was clearly a basis for joining Ms Liu as a defendant. There were reasonable grounds for believing she published the matter complained of on the basis that it was sent from an email address purporting to be hers. Secondly, when the concerns notice was served Mr Cheng contended she had confessed to being its author. Thirdly, there appear to have been other witnesses whose evidence supported the proposition she published the matter complained of. [119]

5. [174]

   However, as Mr Blackburn submitted and as Mr Smark’s submissions in the abandoned wasted costs application demonstrated, and as he frankly conceded in the course of argument, there was a considerable circumstantial case that Mr Yu was also involved in the publication of the matter complained of even before his “confession”. Mr Cao was clearly strongly of the belief that, in all the circumstances, set out, for example, in the wasted costs submissions, and the liability judgment, [120] Mr Yu was the author of the matter complained of. Despite, as I have said, his instructing, urging and encouraging Mr Goldsmith to join Mr Yu, Mr Goldsmith did not do so. Why this did not occur is not apparent from the papers. There was no suggestion the matter complained of could have been published by anyone other than either or both Mr Yu and Ms Liu.

6. [175]

   In early October 2012 Mr Cao was querying whether Mr Goldsmith or Ms Chou read “the things that I provide” and pointing out that “[o]nly person who can send the email is George.” [121] A few weeks later, Mr Cao’s opinion could not have been clearer than when, on 30 October 2012 (with 3 weeks left before the 12 month limitation period on joining Mr Yu expired), he sent Mr Goldsmith an email expressing his incredulity that Mr Yu had not been added as the second defendant and reminding him, in substance, that all the circumstances pointed to Mr Yu’s involvement. [122]

7. [176]

   By April 2013 Mr Goldsmith had formed the view that he had “no doubt” Mr Yu had sent the emails but was nevertheless still of the view that there was no evidence it was Mr Yu. [123] It is not apparent what had changed his mind.

8. [177]

   The evidence on the basis of which the primary judge concluded Mr Yu was the “obvious alternative defendant” clearly included the circumstances which led Mr Cao and his colleagues to form the view Mr Yu was responsible for or at least directly implicated in the publication of the matter complained of virtually from the outset, and many of the matters on which Mr Cao had relied to form his opinion about Mr Yu’s complicity.

9. [178]

   Mr Goldsmith is not a party to these proceedings and it is necessary to be circumspect about making findings adverse to him in his absence. Nevertheless he conducted the trial and had the opportunity to dissuade the primary judge from reaching the conclusion that “there was an obvious alternative defendant who could have been sued but was not.” [124] In that light, it is open to this Court, in my view, to conclude that Mr Goldsmith could have certified that he had “reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that [a claim against Mr Yu had] reasonable prospects of success”. [125]

10. [179]

    Further, had Mr Goldsmith joined Mr Yu as the second defendant, it should have been possible either by obtaining discovery or administering interrogatories to determine precisely the role he played in the publication of the matter complained of.

11. [180]

    Had Mr Cao joined Mr Yu and succeeded against him but not Ms Liu, it is highly likely he could have successfully applied for a Bullock costs order making Mr Yu liable for whatever costs Mr Cao was ordered to pay Ms Liu. An application for such an order could have been made on the basis that Mr Yu’s conduct in disguising himself as Ms Liu to send the matter complained of made it reasonable for Mr Cao to incur the costs of suing them both, he being uncertain as to which of them was responsible for its publication. [126]

12. [181]

    Further, had Mr Yu been joined as a defendant, he would have had the benefit of the ordinary rules which govern actions in terms of pleading a defence, seeking to resolve the proceedings including by making offers of compromise and the like. [127] Alternatively, even if Mr Goldsmith was of the view that there was not a prima facie case against Mr Yu, he could have notified him, in effect, that should events transpire and evidence emerge that he was the publisher, a non-party costs application would be made against him. He did not do so until after Mr Yu’s “confession”.

13. [182]

    I have already explained why, in my view, the finding that Mr Yu’s conduct deceived Mr Cao was not open. Further, while Mr Yu’s conduct might not be described as ideal, there was room for the conclusion (which the primary judge considered open), that he used the liunancy email address “for the purpose of changing a topic in the TALK group, without seeming to be giving a command from a position of authority in the club.” [128]

14. [183]

    Finally, I would observe that it was open to Mr Cao to have applied to join Mr Yu to the proceedings before the primary judge. He could also have sought an extension of time of the cause of action in defamation against Mr Yu up to and including the time the application for leave to appeal was heard.

15. [184]

    In my view, when the circumstances of the case are examined, there is nothing which took it out of the “ordinary run of cases” where there is the possibility of more than one person being responsible for committing a tort. There is, of course, as Mr Smark submitted, the unusual feature that Mr Yu “painted a target on his wife’s head”. Nevertheless his ruse was easily seen through virtually from the time the matter complained of was published. There are principles of law which enable a plaintiff to join more than one defendant when uncertain as to which is liable. Mr Cao could, had he been properly advised, have joined Mr Yu from the outset had his instructions been followed. Mr Yu would then, too, have had the benefit of the principles of law to defend the proceedings to which I earlier referred.

16. [185]

    In my view, the circumstances of this case were not such as to warrant, in the interests of justice, the exercise of the exceptional power to order Mr Yu to pay the costs sought in the non-party costs motion.

17. [186]

    I propose the following orders:

    1. (1)

       Grant leave to appeal;

    2. (2)

       Appellant to file the notice of appeal in the form of the draft appearing in the White Book at page 235 within seven days;

    3. (3)

       Appeal allowed;

    4. (4)

       Set aside the orders made by Walmsley ADCJ on 20 March 2014;

    5. (5)

       Dismiss the respondent’s notice of motion filed on 25 September 2013 insofar as it sought orders against the appellant with costs;

    6. (6)

       Respondent to pay the appellant’s costs of the application for leave to appeal and of the appeal and to have a certificate under the Suitors’ Fund Act 1951 (NSW) if otherwise qualified.

18. [187]

    SACKVILLE AJA: I agree with McColl JA that leave to appeal should be granted and the appeal allowed.

19. [188]

    McColl JA has identified a number of reasons why the primary Judge’s exercise of discretion miscarried. I agree that, in re-exercising the discretion conferred by s 98(1)(b) of the Civil Procedure Act 2005 (NSW), the Court should decline to order Mr Yu to indemnify Mr Cao against the costs he was ordered to pay Ms Liu in the defamation proceedings.

20. [189]

    In essence, this is a case where it should have been obvious, if not before the defamation proceedings were commenced then shortly thereafter, that Mr Yu should have been joined as a defendant. Ms Yu’s conduct undoubtedly influenced the decision to sue Ms Liu. But the evidence established that, from an early stage, Mr Cao strongly believed, for very sound reasons, that Mr Yu had been responsible for sending the email. Had Mr Yu been joined as a defendant in the defamation proceedings, as he should have been, the litigation would have taken a very different course.

21. [190]

    The primary Judge seems to have regarded these matters as largely irrelevant to the costs application, but they were highly significant to the exercise of the discretion conferred by s 98(2)(b) of the Civil Procedure Act 2005 (NSW).

22. [191]

    ADAMSON J: I agree with McColl JA and with the additional reasons of Sackville AJA.