Globe Capital Administration Pty Ltd v Cecil Developments Pty Ltd atf the Cecil Developments Unit Trust (Receivers and Managers appointed) (No. 2)

[2023] NSWSC 1220

Supreme Court

New South Wales

Medium Neutral Citation:

Globe Capital Administration Pty Ltd v Cecil Developments Pty Ltd atf the Cecil Developments Unit Trust (Receivers and Managers appointed) (No. 2) [2023] NSWSC 1220

Hearing dates:

20 September 2023

Date of orders:

13 October 2023

Decision date:

13 October 2023

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Respondents ordered to pay two thirds of the applicant’s costs of the application for preliminary discovery, subject to an order that the applicant pay the respondent’s reasonable costs of producing the documents being discovered.

Catchwords:

COSTS – costs follow the event – Civil Procedure Act 2005, s 60 application for preliminary discovery – application successful after strong contest by the respondents – preliminary discovery relief granted in terms that amend the orders originally sought – whether the applicant should have an order for costs in its favour – whether an order should be made compensating the respondents in relation to the costs of complying with the orders made for preliminary discovery – discussion of the requirement for proportionality in incurring legal costs in Civil Procedure Act2005, s 60 – discussion of the obligation of cooperation in fulfilling the objectives of Civil Procedure Act2005, ss 56, 57 and 58.

Legislation Cited:

Civil Procedure Act2005, ss 56, 57,58 and 60

Cases Cited:

Airways Corp of New Zealand & Anor v The Present Partners of Pricewaterhouse Coopers Legal & Anor [2002] NSWSC 521

Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd & Ors [2008] NSWCA 243

BGS Securities (Australia) Pty ltd v Shillington [2022] NSWSC 807

Globe Capital Administration Pty Ltd v Cecil Developments Pty Ltd atf the Cecil Developments Unit Trust (Receivers and Managers appointed) [2023] NSWSC 574

Gooley & Ors v Breda Pty Ltd & Ors (No. 2) [2017] NSWSC 1505

Steffen v ANZ Banking Group [2009] NSWSC 883

Texts Cited:

D. Ipp, “Lawyers Duties to the Court” (1998) 114 Law Quarterly Review 63.

Category:

Costs

Parties:

Applicant: Globe Capital Administration Pty Ltd ACN 608 004 299
First Respondent: Cecil Developments Pty Limited atf the Cecil Developments Unit Trust (Receivers and Managers appointed) ACN 619 221 644
Second Respondent: Gemi 168 Pty Ltd ACN 638 719 641
Third Respondent: David Hurst in his capacity as Receiver and Manager over properties owned by Cecil Developments Pty Ltd
Fourth Respondent: David Sampson in his capacity as Receiver and Manager over properties owned by Cecil Developments Pty Ltd

Representation:

Counsel:
Applicant: M. Thompson
Respondents: H. Sommerville;

Solicitors:
Applicant: Ramy Qutami, Madison Marcus Law Firm
Respondents: Peter Leigh Harrison, Thomson Geer Law Firm

File Number(s):

2022/340158

Publication restriction:

No

Judgment

1. In the Court’s first judgment in these proceedings, given on 31 May and 2023, the applicant was successful in obtaining orders for preliminary discovery: Globe Capital Administration Pty Ltd v Cecil Developments Pty Ltd atf the Cecil Developments Unit Trust (Receivers and Managers appointed) [2023] NSWSC 574. The respondents had resisted those orders. The applicant was also granted liberty to further amend its Amended Summons to seek judicial sale of the mortgaged property the subject of the proceedings.

2. The applicant now seeks an order for costs. It claims that it was successful in its application for preliminary discovery and that costs should follow the event. The respondents resist the application and submit that the Court should treat the applicant’s success as in substance the grant of an indulgence. The respondents initially submitted that the applicant should pay the respondents’ costs of the preliminary discovery application and the costs incurred in the respondents complying with the preliminary discovery orders, subject to the applicant seeking recovery of those costs, if it commenced and successfully prosecuted proceedings based on the preliminary discovery obtained. The respondents amended their submissions during oral argument on 20 September 2023, contending that the appropriate result would be that each party should bear its own costs.

3. This judgment should be read with the Court’s first judgment. Events, matters and persons are referred to in both judgments in the same way.

4. The financial context of the transaction between these parties makes the present costs contest of little moment. The applicant, Globe, is the second mortgagee of the Castle Hill property. The first respondent, Cecil, is the registered proprietor, and the second respondent, Gemi is the first mortgagee. As the first judgment explained, default interest on the first mortgage has been running at more than $35,000 per day for a substantial period. The outcome of the present contest must at its highest, amount to less than a few days of accrued interest. Moreover, whatever costs order the Court now makes, the terms of Gemi’s first mortgage may well give Gemi a contestable claim to priority recovery under its mortgage, both to its costs of this application and possibly to any liability to pay costs to Globe on the application.

Events Since the First Judgment

5. By the time this matter was re-listed for argument about costs and consequential issues on 20 September 2023, almost four months after the Court’s first judgment, not all the documents ordered by the defendant to be disclosed had been provided to the applicant. The applicant filed an amended summons pursuant to the Court’s grant of leave adding a claim for judicial sale and other relief, which Amended Summons had been listed for directions before the Registrar in Equity on 21 September 2023. The respondents disputed that the Amended Summons that had been filed fell within the leave granted in the first judgment and that some of the relief sought was destined to fail. But the Court allowed the Amended Summons and its merits will be determined at a final hearing.

6. The parties had agreed upon a timetable for pleadings in relation to the judicial sale issue. But neither party could identify any expected issues of fact that might arise on an application for the discretionary remedy of judicial sale. So, at the hearing on 20 September 2023 the Court vacated the orders for pleadings and made directions for filing evidence to allow the applicant to have a motion returnable in the Expedition List on Friday, 20 October 2023.

7. But the total of the documents produced by Globe to Gemi by 20 September 2023 still did not enable Gemi to determine whether the quantum of Gemi’s first mortgage debt compared with the probable value of the Castle Hill properties, and whether the claim for judicial sale was likely to be financially unviable. The respondents contended that the requested loan agreement between Gemi and Cecil was dated outside the period provided for in the preliminary discovery orders and so was not caught by those orders. The Court asked the applicant whether it wanted the orders amended to embrace the loan agreement. But that became unnecessary, as the respondents indicated, the loan agreement would be produced. Gemi also pressed for an undertaking as to confidentiality. At the oral hearing the parties then agreed-upon a suitable form of undertaking as to confidentiality and the loan agreement was to be handed over.

8. Despite the Court’s orders of 31 May 2023 Gemi had still not given over the valuation of the Castle Hill properties before 20 September. But that was finally handed over to Globe at the hearing on 20 September. Now Globe should be at last able to assess, whether pursuing judicial sale proceedings or any other relief is viable. Regrettably it has taken too long since the Court’s first judgment to reach this position. In the meantime, a further $3.78 million in interest accrued on Gemi's first mortgage between the first judgment and the hearing on 20 September 2023.

The Costs Contest

9. Globe places its application to costs on three main grounds: (1) Globe’s claimed substantial success in the proceedings; (2) the respondents’ adversarial approach to the proceedings; and (3) the respondents’ conduct causing delay in the resolution of the proceedings. These reasons deal briefly with each of these matters.

10. (1) Globe’s Success. Globe submits it was substantially successful on the preliminary discovery application, obtaining discovery in each category sought. It recognises it was not entirely successful and that the Court modified the scope of the documents to be produced in certain categories. Globe submits costs should follow the event under Uniform Civil Procedure Rules 2005 r 42.1. For that reason, it only seeks 80% of its costs.

11. Globe submits that of the six categories of documents it sought only three were modified to obtain greater clarity, together with an amendment to the opening words of the request for documents. The respondents submit that they were entitled to contest the form of the preliminary discovery sought. They were. But the discussion in the first judgment (at [75] to [89]) shows just how easily this could have been fixed with a cooperative response from the respondents followed by a degree of flexibility on the part of Globe. It would not have been difficult for the respondents to propose the discovery sought being narrowed in exactly the way that the Court ultimately did. Indeed, the respondents pointed out deficiencies in the breadth of what the applicant had requested in email correspondence on 11 May 2023, shortly before the hearing on 15 May 2023. The respondents complain that no response was received to this email. That is correct and Globe should have responded. And Globe is partly to blame for not narrowing its categories much earlier. But a duty lies on both parties to cooperate to identify and present the real issues for trial to fulfil the objectives of Civil Procedure Act s 56, 57 and 58, and the duty must be discharged by conducting the litigation with clarity, precision and openness: there are many examples of judicial pronouncements on this subject but see for example Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd & Ors [2008] NSWCA 243 at [160] and [161], see also the classic article D. Ipp, “Lawyers Duties to the Court” (1998) 114 Law Quarterly Review 63.

12. But the respondents also submit that the result obtained was a mixed one and that greater clarification was needed to understand Globe’s claimed causes of action. This submission somewhat overstates both the respondents’ degree of success on the application and the true need for clarification of Globe’s claim.

13. (2) The Respondents’ Adversarial Approach. Globe also submits that because the respondents took a robust adversarial approach in the proceedings and although they were entitled to take every point open to them, that they must nevertheless live with the costs consequences of doing so: Steffen v ANZ Banking Group [2009] NSWSC 883. Globe submits that if the defendant takes an adversarial approach to an application and then fails it will normally be appropriate for the court to order that costs follow the event: BGS Securities (Australia) Pty ltd v Shillington [2022] NSWSC 807 at [8].

14. Globe submits that the respondents took every technical point available to them and briefed two counsel at the hearing and disputed issues of confidentiality which should not have been controversial and should have been resolved with one of the usual regimes that regulate confidentiality issues cooperatively.

15. Globe points out that the respondents even took issue with whether Globe “may” have a cause of action and were wholly unsuccessful in that contention. Their only real success related to the breadth of the document requests made.

16. The respondents contend they were entitled to test the availability of Globe’s cause of action. They were. But as the first judgment explained, Globe’s case was clearly arguable: first judgment at [48] to [65]. The confidentiality issues were not a matter of serious contest and should always have been resolved cooperatively between the lawyers. The document requests that Globe made were too wide, but the respondents’ correct response to that (as the authority discussed above requires) was to respond cooperatively early with clarity, precision, and openness to narrow and identify the real issues between the parties so that the Court saved from unnecessary conflict.

17. (3) The Respondents’ Uncooperative Conduct. Globe submits that many of the costs in these proceedings have been occasioned by the delays for which the respondents are responsible. Globe presents a sound argument in this respect. The respondents’ conduct was wholly responsible for delays that have led to unnecessary legal expenses for Globe, quite aside from the hefty daily interest cost that comes with any delay in the resolution of these proceedings. The respondents did not have an adequate explanation for these delays. A few examples will suffice.

18. First, after the summons was filed, Gemi initially took a cooperative approach, through its then solicitors, Summer Lawyers, who indicated that that they were collecting documents to respond to the request for preliminary discovery. But with a change of lawyers came a change of instructions. The respondents changed tack and indicated they no longer intended to provide any materials in response to the summons. The sudden change in instructions was not explained and caused its own disruption. Meanwhile it had the effect of delaying the determination of the summons whilst interest continued to accrue at $35,000 a day.

19. Secondly, Globe made a mistake in the name of Gemi, which was evident at the first return date of the summons on 8 December 2022. This was an unsurprising error given that there are many Gemi entities, differentiated only by their number. Globe entitled the second respondent in the proceedings “Gemi 169” rather than “Gemi 168”, even though the facts alleged in the summons were clearly referable only to Cecil and the Castle Hill properties. After the error was first signalled through Summer Lawyers on 15 November 2022 Globe confirmed two days later that it would amend its summons to rectify the clerical error. This should have been the end of the matter. Remarkably after the change of lawyers, Gemi refused to consent to the amendment causing unnecessary exchanges of correspondence about a matter that should never have been an issue and wasted legal costs. Finally, Registrar Walton intervened to quell this absurd dispute. At a directions hearing on 16 February 2023 she required consent orders to be filed agreeing to the change. Once again this had the result of further interest accruing on the first mortgage because of delay in the determination of the summons.

20. The respondents contended that on 8 December 2022 they could not determine whether to consent to the relief that Globe then sought, because Globe proposed to amend its summons. There is no basis for this contention. The only amendment that Globe foreshadowed at that time that it wanted was to correct Gemi’s name: a matter that was uncontentious and did not affect the respondents’ orderly consideration of whether to consent to the substance of the relief sought.

21. The respondents knew by no later than 14 December 2022 that all that Globe wanted was to amend the name of Gemi from Gemi 169 to Gemi 168. Instead between 14 December 2022 and 9 February 2023 the parties generated a blizzard of correspondence. An objective reading of this correspondence is an occasion for judicial despair at either the widespread ignorance or disregard of Civil Procedure Act s 60 within the legal profession. This sound statutory guideline requires the procedure of the Court to be implemented with the object of “resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject matter in dispute”.

22. The subject matter of the dispute here was merely the amending of a clerical error. Proportionality implies that fixing such an error should incur minimal costs. Instead between 14 December 2022 and 9 February 2023 the parties debated why with a change of lawyers the respondents had apparently changed their attitude to the amendment, the form of the amended summons, whether costs thrown away should be payable to Gemi 169 or to Cecil by reason of the amendment, and the quantum of the costs thrown away by the amendment. The solicitor for Globe correctly described the situation that had evolved by 22 December 2022 in the following terms:

“Overall, we observe there has been an unnecessary delay in finalising consent orders for a relatively simple amendment. The cost that both our offices have incurred in engaging in multiple back-and-forth correspondence with respect to these consent orders cannot be substantiated in light of the amendments actually sought. As such we are instructed to press the consent orders in the form provided by our office on 14 December 2020 to be executed at the earliest so that it may be filed and served prior to the closure of our offices tomorrow.”

23. In response to this, as late as 9 February 2023 the respondents were still pointing to Thomson Geer’s 21 December 2022 correspondence in which they had asked for Cecil’s legal costs of the amendment and contended that the replacement of Gemi 169 with Gemi 168 really amounted to the dismissal of the proceedings against the former entity. It is very difficult to conceive that the wrongly named entity Gemi 169 or Cecil could have reasonably and properly incurred anything other than nominal costs, given that it was Summer Lawyers on behalf of the respondents who first pointed out to Globe on 15 November 2022 that the second respondent should be correctly named as Gemi 168, not Gemi 169 and two days later Globe accepted that this clerical error needed to be fixed. The whole contest should have been treated from the beginning by both sides as the trifling clerical error that it was.

24. On the other hand, it is a mystery why Globe’s lawyers, Madison Marcus, did not try and prevent this abuse of the principle for which Civil Procedure Act s 60 stands. The solution to this stand-off was simple and readily available. Globe could have avoided this delay and wasteful consumption of resources merely by listing the matter before the Registrar in Equity by the end of 2022, presenting a set of short minutes of order to the Registrar which amended the name of the second respondent and offering to pay some minimal fixed amount of costs thrown away by reason of the amendment. Globe should have requested that the orders be made on the spot. It is likely that that is exactly what the Registrar would have done.

25. Thirdly, at the first directions hearings on 8 December 2022 the respondents sought a timeline to put on evidence in response to the summons by 3 February 2023. They ultimately put on no evidence. Despite that, they sought an extension of the time for them to put on further evidence in response to 16 March 2023 and several directions hearings were held to manage the potential preparation and filing of their evidence. It is still not clear why the respondents could not have decided well before 3 February 2023 not to put on evidence in response and on 3 February 2023 to have had the matter set down for hearing, saving about six weeks delay. The respondents’ management of this aspect of their defence not only occasioned unnecessary legal costs to Globe but resulted in interest continuing to accrue on Gemi’s first mortgage for about six weeks.

26. These delays have continued since the Court’s first judgment. There was nothing unclear about the order (2) of the orders made with the Court’s first judgment. On 9 June 2023 the Court ordered the required discovery should occur by 7 July 2023. This was not done, and Globe agreed to an extension to 28 July 2023. Remarkably, by the time the proceedings came back before the Court for a final contest on costs on 20 September this had still not occured. Globe contended this was “consistent with the approach taken by [the respondents] to frustrate at every step [Globe’s] well-founded application for preliminary discovery”. Assuming that was not the respondents’ intention, the conduct certainly had that effect. But once again it must be said Globe was slow in seeking to remedy the respondents’ defaults by relisting the matter.

Consideration

27. The circumstances of this case are somewhat like those facing the Court in Gooley & Ors v Breda Pty Ltd & Ors (No. 2) [2017] NSWSC 1505 and in Airways Corp of New Zealand & Anor v The Present Partners of Pricewaterhouse Coopers Legal & Anor [2002] NSWSC 521. These proceedings were hard fought. The respondents actively contested the proceedings, rather than merely putting the applicant to proof. The respondents could have offered a limitation on the wider aspects of Globe’s request for documents and then produced the documents requested in accordance with the limitation. Instead, almost every available argument was deployed against the application and the respondents’ conduct caused delay and unnecessary costs. The costs incurred were substantially but not wholly the result of the respondents’ active opposition, so it is appropriate to make a costs order. But to take account of Globe’s co-responsibility for this procedural miasma the Court will only allow it to recover two thirds of its costs.

28. Globe has always maintained that it will pay the respondents reasonable costs of complying with the preliminary discovery orders and production of the documents. The Court will order that Globe pay the respondents’ reasonable costs of complying with these orders for preliminary discovery. But this order will be defeasible in one respect in future proceedings. Should Globe commence and be successful in proceedings based upon the preliminary discovery obtained in these proceedings, Globe will be to claim those costs back as one of its outgoings in those proceedings.

Conclusion and Orders

29. For these reasons the Court makes the following orders:

1. subject to order (2) below, order that the respondents pay two thirds of the applicant’s costs of these proceedings,

2. order that the applicant pay the respondents’ reasonable costs of complying with these orders for preliminary discovery,

3. note that the making of order (2) will not prevent the applicant from claiming and receiving those costs back in any proceedings that the applicant may bring based upon the preliminary discovery that it has obtained in these proceedings, and

4. the costs payable in order (2) may be offset against the costs payable pursuant to order (1).

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Decision last updated: 13 October 2023