Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: St George Bank - A Division of Westpac Banking Corporation (formerly St George Bank Ltd) v Jin [2013] NSWCA 306
• Hearing dates: 29 August 2013
• Decision date: 29 August 2013
• Before: Meagher JA at [1]; Leeming JA at [2]

Decision

Leave to appeal refused, with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: COSTS - application for leave to appeal from order as to costs - principles governing costs discretion in multiparty litigation - no error of principle shown - leave refused
• Legislation Cited: Supreme Court Act 1970; Uniform Civil Procedure Rules 2005
• Cases Cited: ACQ v Cook (No 2) [2008] NSWCA 306; Bullock v London General Omnibus Company [1907] 1 KB 264; Commissioner of Taxation v Sims [2008] NSWCA 298; (2008) 72 NSWLR 716; Commonwealth of Australia v Gretton [2008] NSWCA 117; Council of the City of Botany Bay v Michos [2013] NSWCA 244; Council of the City of Liverpool v Turano [No 2] [2009] NSWCA 176; Edginton v Clark [1964] 1 QB 367; Gould v Vaggelas (1984) 157 CLR 215; House v The King (1936) 55 CLR 499; Latoudis v Casey (1990) 170 CLR 534; Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133; Ohn v Walton (1995) 36 NSWLR 77; Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; Sanderson v Blyth Theatre Co [1903] 2 KB 533
• Category: Principal judgment
• Parties: St George Bank - A Division of Westpac Banking Corporation (formerly St George Bank Ltd) (Applicant); Wenguo Jin (First Respondent); Xiongying Li (Second Respondent)
• Representation: Counsel: J Kirk SC with P Newton (Applicant); A A Henskens SC with D W Robertson (First Respondent); Solicitors: Kemp Strang Lawyers (Applicant); Polczynski Lawyers (First Respondent)
• File Number(s): 2013/136109

Decision under appeal

• Citation: [2013] NSWSC 291
• Date of Decision: 2013-04-05 00:00:00
• Before: Adams J
• File Number(s): 2007/260695

Judgment

1 MEAGHER JA: The reasons for which I joined in the Court's order that leave to appeal be refused with costs are the same as those recorded in the judgment of Leeming JA.

2 LEEMING JA: These are my reasons for refusing leave to appeal from an order made by Adams J that the applicant (Bank) pay the costs of the first respondent (Mr Jin) in respect of his action and its cross-claim up to and including 20 February 2012. Leave to appeal was required because the order relates only to costs: Supreme Court Act 1970, s 101(2)(c). In deference to the quality of the argument, which diverged from the written submissions, the Court refrained from giving reasons when leave was refused immediately after the hearing on 29 August 2013.

Background

3 The costs the subject of the impugned order were the cost of proceedings for almost five years. The course of those proceedings was summarised by Adams J at [6]-[11] of his reasons on costs: [2013] NSWSC 291, and may be dealt with concisely and with some simplification for present purposes. Mr Jin brought proceedings against the Bank on 8 May 2007 seeking to set aside a registered mortgage over two apartments owned by him, and relief as to a guarantee he had executed in respect of moneys lent by the Bank to another party (Mr Li), and corporate entities associated with him. (In what follows, it is unnecessary to distinguish between Mr Li and his companies, and I shall refer simply to Mr Li. It may also be noted that Mr Li, but not his companies, was joined to the summons seeking leave to appeal; he did not appear and it was not established that personal service had been effected).

4 The Bank defended the proceedings and cross-claimed against Mr Jin, seeking judgment against him in various amounts in the alternative ranging from $360,750 to $3,182,089.35 plus interest and costs, together with an order for possession of the two apartments. The Bank also cross-claimed against Mr Li in September 2008, and ultimately there were cross-claims directly between Mr Jin and Mr Li.

5 The trial of the proceedings was set down for 27 February 2012. By letter dated 20 February 2012, the Bank advised the parties that "our client will submit to all orders of the Court except as to costs". That was a consequence of the fact that all monies owing to it had been repaid. At the commencement of the hearing, the Bank by its solicitor confirmed that position, and was excused from any further attendance. Over the next four days the trial proceeded as between Mr Jin and Mr Li. The primary Judge indicated at the end of the fourth day that he had "formed a very adverse view about Mr Li's credibility" (see at [4]), and the proceedings between the active parties settled on the following day. The primary judge thereupon made orders declaring that the signatures of Mr Jin on various mortgages and guarantees were forgeries which were unenforceable against Mr Jin, and dismissed the Bank's cross-claim. His Honour ordered that Mr Li pay Mr Jin's costs, in two agreed tranches of $150,000. It is not clear on the materials before this Court whether those payments were made. The Court was told, and there is no reason to doubt, that the costs order under challenge is one which, when it is worked out, will be substantial.

6 Naturally, the Court's final orders bound the Bank, notwithstanding that they were made by consent of the active parties Mr Jin and Mr Li. Being bound by the outcome of the litigation was the inevitable consequence of the Bank's decision to submit to any order save as to costs. In relation to costs, the parties were afforded the opportunity to supply written submissions, and the matter was determined on the papers. The Bank primarily sought an order that each of it and Mr Jin pay their own costs; alternatively, it sought an order that Mr Li pay Mr Jin's costs. The primary judge rejected those submissions.

The Bank's submissions that its conduct was reasonable

7 Prominent in its written and oral submissions in support of its application for leave was the Bank's submission that it behaved reasonably. It submitted that it had evidence that Mr Jin's signatures were genuine, that it took an appropriately restrained approach, and that the real dispute was between Mr Jin and Mr Li. The Bank pointed out that it too had been defrauded by Mr Li. Ultimately, the Bank submitted that the primary judge erred in finding that the reasonableness with which it defended the proceedings was immaterial, which it said amounted to an House v The King (1936) 55 CLR 499 error of principle. Against this, as his fallback position, Mr Jin maintained that the Bank had not behaved reasonably, but had been served before litigation with expert evidence finding that the signatures were forgeries, had caused the proceedings to be prolonged through its delays and expansion of the proceedings to include Mr Li, and had put him to proof on a range of issues until the week before the (delayed) trial.

8 In my opinion, all this factual background is beside the point, and Mr Jin's primary submission, which was that the reasonableness of the Bank's defence is immaterial, should be accepted.

9 The starting proposition, reflected in r 42.1 of the Uniform Civil Procedure Rules, is that costs follow the event, irrespective of whether the unsuccessful party conducted litigation reasonably or otherwise. That position may be displaced in various circumstances, such as when a successful party's unreasonable conduct leads to it not obtaining a favourable costs order, or where the unsuccessful party is ordered to pay costs on an indemnity basis because of its improper conduct, or pursuant to the rules and principles governing offers of comprise and Calderbank letters.

10 In the present case, the Bank was an active defendant, and filed a cross-claim. It failed in its defence, and it failed on its cross-claim. The fact that it chose not to defend the claim at trial, or to propound its cross-claim, may have contributed to its lack of success at trial, but is not to the point.

11 The reasonableness of a party's conduct of litigation is important where there is no "event" because the proceedings have been compromised. As McHugh J said in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625:

"If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings."

But there was no settlement of the proceedings brought by Mr Jin against the Bank, nor of the Bank's cross-claim. Instead, both were determined by the Court, on a basis wholly unfavourable to the Bank. Although the Court's judgment was made with the consent of the active parties and the submission of the Bank, it gives rise to res judicata and issue estoppels no differently from a fully contested judgment, and constitutes the starting point of the exercise of a costs discretion.

12 True it is that costs incurred by Mr Jin after the Bank had advised it would submit are in a different category, but the costs order which was made applied only to costs up to the time the Bank advised it would submit save as to costs. As the primary judge said at [20], the reasonableness or otherwise of the stance of the losing party may be relevant to a question of indemnity costs, but it is not a basis for declining to order costs to a successful party. Most losing plaintiffs and defendants in civil litigation conduct their claims or defences reasonably; nevertheless, the prima facie position is that they must pay the successful party's costs. Indeed, as Mr Henskens SC who appeared for Mr Jin pointed out, Mason CJ and McHugh J regarded it as appellable error for a magistrate to decline to award costs in favour of a successful defendant in summary proceedings by taking into account that the informant had acted reasonably: Latoudis v Casey (1990) 170 CLR 534 at 544 and 570. The position is the same in civil proceedings, reflecting the "fundamental proposition" that costs are not awarded by way of punishment of the unsuccessful party, but to indemnify (partially) the successful party: Ohn v Walton (1995) 36 NSWLR 77 at 79 (Gleeson CJ).

13 Mr Kirk SC, who appeared for the Bank, conceded that that principle was correct in the case of bilateral litigation, but submitted that the underlying principle of "fairness" meant that a different approach was required in multiparty litigation. He relied on decisions in which this Court said that the costs discretion must be exercised fairly, and "that underlying that concept itself involves a consideration of the responsibility of parties in incurring the costs": Commonwealth of Australia v Gretton [2008] NSWCA 117 at [85] (Beazley JA) and [121] (Hodgson JA), with both of whom Mason P agreed; Council of the City of Liverpool v Turano [No 2] [2009] NSWCA 176 at [14] (Beazley, Hodgson, McColl JJA).

14 In multiparty litigation, there are two ways in which the exercise of the costs discretion can become more complex. First, there may be questions of apportionment, because the same costs may be incurred in relation to more than one party. For example, in the present case, Mr Jin's cost of obtaining expert handwriting evidence was occasioned by both the prosecution of his claim against the Bank, and his defence of Mr Li's cross-claim against him.

15 However, difficulties of apportionment do not impact upon the present application, because the only costs the subject of the decision of the primary Judge were Mr Jin's costs as against the Bank. There is no doubt that Mr Jin incurred costs which were solely attributable to his claim against the Bank, and the Bank's cross-claim against him. Likewise, there is no doubt that some of Mr Jin's costs would also be referable to Mr Jin's case against Mr Li, but the extent to which that was so is a matter of assessment, not something that fell within the exercise of discretion in the present case. In short, the limited costs discretion for the determination by the primary judge was a bilateral one.

16 Secondly, the costs discretion is potentially more complex in multiparty litigation because additional orders are possible. There is full power to make such costs orders against any parties as the justice of the case may require: Edginton v Clark [1964] 1 QB 367 at 384; Commissioner of Taxation v Sims [2008] NSWCA 298; (2008) 72 NSWLR 716 at [38]. In particular, orders commonly known as Sanderson orders or Bullock orders may be made so that the burden of a successful party's costs order is borne directly or indirectly by a party other than the one against which the costs were incurred. But it is well established that fairness requires a party to show something more in order to displace the ordinary rule of costs following the event. In Turano the Court said at [15] that "there must be some conduct on the part of the unsuccessful defendant which would make it fair to impose liability on it for the costs of the successful defendant." To the same effect are the decisions referred to by Gibbs CJ in Gould v Vaggelas (1984) 157 CLR 215 at 229-230, and the more recent decisions reviewed by Campbell JA in ACQ v Cook (No 2) [2008] NSWCA 306 at [32]-[43] and applied at [48]-[51].

17 Once again, although those principles are relevant to the determination of an application for a special order which shifts the identity of the party who will bear the successful party's costs, they do not speak to the primary matter raised by the Bank. It will be necessary to return to the Bank's submissions based on the Sanderson order it sought in the alternative, but for the present purpose of addressing the Bank's primary submission, which was that Mr Jin should not obtain a favourable costs order in respect of his costs against the Bank at all, the reasonableness of the Bank's conduct of the litigation is irrelevant.

18 Finally, in support of the reasonableness of the Bank's conduct, it pointed to Mr Li's serious wrongdoing. But again, that is not presently to the point. The conduct which is the subject matter of the litigation is distinct from the manner in which the litigation is conducted. It is the latter, not the former, which matters when indemnity costs are sought: Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133 at [9]. The position is no different when it is sought to displace the prima facie entitlement of a successful party to costs. In my view, no error is disclosed by the approach taken by the primary judge.

The failure to determine the Bank's application for a Sanderson order

19 Mr Kirk SC, who had not previously been involved in the matter, gave prominence to the Bank's second point, which was the primary judge's failure to address an alternative submission made by the Bank for an order that the parties associated with Mr Li pay Mr Jin's costs of the entire proceedings, invoking Sanderson v Blyth Theatre Co [1903] 2 KB 533. It is fair to say that the submission was not developed in the Bank's written submissions to the primary judge (or indeed to this Court). Nevertheless, there is force to the proposition that it was squarely raised as an alternative, and was entirely unaddressed by the primary judge. That said, in my view, that omission does not warrant a grant of leave.

20 In cases seeking leave to appeal on the question of costs, this Court has said, consistently, that it is necessary to demonstrate more than arguable error, and that ordinarily it is necessary to show there is an issue of principle, a question of general importance, or an injustice which is reasonably clear, in the sense of going beyond what is merely arguable: Council of the City of Botany Bay v Michos [2013] NSWCA 244 at [28] (Gleeson JA, Barrett JA and Sackville AJA agreeing).

21 I see no sound basis on which the successful party, Mr Jin, who obtained substantial relief against the sole defendant, the Bank, should be left to bear the solvency risk of the fraudster Mr Li, who was not a necessary party to the proceedings brought by Mr Jin and who was joined by the Bank, in terms of enforcing the costs order to which Mr Jin was entitled following his success against all parties. True it is that there might have been some force in a submission that the Bank be ordered to pay Mr Jin's costs, and that Mr Li be ordered to pay to the Bank those costs paid by the Bank. But no such order (which resembles that in Bullock v London General Omnibus Company [1907] 1 KB 264 although the Bank and Mr Li were not co-defendants) was ever sought by the Bank before the primary judge. Since the order that was sought was not one which, in my opinion, could properly have been made, the primary judge's failure to address the submission is not an error on which anything turns, and does not warrant the grant of leave to appeal.

The Bank's conduct made little difference to the litigation

22 The third submission advanced orally, and briefly, was that there was very substantial overlap between the costs incurred by Mr Jin against the Bank, and those incurred by Mr Jin against Mr Li, such that there was in effect a single set of costs. That was denied as a matter of fact (and on any view could not be so of the costs incurred before Mr Li was joined), but, in any event, is not to the point. It may be accepted that Mr Jin is not to be indemnified twice pursuant to two costs orders against different parties in respect of the same work. But that is a question of assessment, and does not disclose error in the exercise of the discretion as to costs.

The Bank's remaining submissions

23 In its written submissions, which were not developed orally, the Bank advanced a series of House v The King errors said to have been made by the primary judge failing to have regard to various matters. These submissions were not well founded.

24 The Bank submitted that the primary judge failed to have regard to the fact that Mr Jin alleged that his signatures were forged by Mr Li (or someone acting on his behalf), of which the Bank was unaware. However, his Honour expressly had regard to that submission at [19] and [23]. The Bank submitted that the primary Judge failed to have regard to the fact that Westpac obtained an affidavit from Mr Li to the effect that he did not forge Mr Jin's signature. But his Honour expressly had regard to that at [19]-[20]. More generally, it was submitted that "the fact that the trial continued for five days in the absence of [the Bank], established that the cause of the dispute was the Li parties". That may be so, although nothing turns on it in order to answer the question as to who should bear Mr Jin's cost of the proceedings between him and the Bank.

25 Accordingly, I considered that no error of principle has been demonstrated to warrant the grant of leave to appeal where the subject matter of the appeal is costs. For those reasons, I joined in the Court's order that leave be refused with costs at the conclusion of the hearing.

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Decision last updated: 11 September 2013