Hu v Cheung (No 2)
[2022] VCC 1923
| IN THE COUNTY COURT OF VICTORIA AT Melbourne commercial DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-21-03222
| XIAOYONG HU | Plaintiff |
| WEIYANG CHEUNG | Defendant |
| AUST LANDING GROUP PTY LTD (ACN 151 193 092) | Third Party |
---
JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15, 16, 17 and 19 August 2022 | |
DATE OF JUDGMENT: | 11 November 2022 | |
CASE MAY BE CITED AS: | Hu v Cheung & Anor (No 2) | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 1923 | |
REASONS FOR JUDGMENT (No 2)
---
Subject:COSTS
Catchwords: Pre-judgment interest – declaration of indemnity – third party costs
Legislation Cited: Civil Procedure Act 2010 (Vic); Penalty Interest Rates Act 1983 (Vic); Supreme Court Act 1986 (Vic)
Cases Cited:Gerson v Simpson [1903] 2 KB 197; Hoare v Frames Carrying Company Ltd [1961] NZLR 891; Jerred v T Roddam Dent & Son Ltd [1948] 2 All ER 104; Re International Contract Co Hughes’ Claim (1872) LR 13 Eq 623; Roach v Thompson (1830) M & M 487; 173 ER 1233; South v Bloxam (1865) 2 Hem & M 457; 71 ER 541
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Clarke | Jiangty Law |
| For the Defendant | Mr P W Lithgow | SLF Lawyers |
| For the Third Party | Mr T Clarke | Jiangty Law |
HIS HONOUR:
Introduction
1 On 20 September 2022, I handed down reasons for judgment in this matter (“the principal reasons”). This judgment assumes familiarity with the principal reasons and uses the same terminology.
2 I gave judgment for the plaintiff (“Hu”) in the following terms:
(a) there be judgment for Hu against Cheung in the sum of $2,343,541.11; and
(b) upon Cheung fully satisfying the judgment against him in the primary proceeding (including any order as to interest and costs), Cheung is entitled to indemnity from ALG.
3 At the conclusion of my judgment I specified a timetable for the filing of submissions about the form of final orders and costs in the event that the parties could not agree upon orders giving effect to my judgment.
4 Where the parties could not agree by 4.00pm on 27 September 2022, each party was to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor.
5 On 27 September 2022, the Court was informed that the plaintiff had sent proposed orders to the defendant but had not received any document in return. Later that day, the defendant informed the Court that the defendant had attempted to contact the plaintiff’s counsel, but it was understood that the plaintiff’s counsel was on vacation.
6 On 4 October 2022, the Court contacted the parties directing them to file submissions in relation to the final orders and costs by 4.00pm on Thursday 6 October. The parties were told that if the Court did not receive anything from them, it would make such orders as it saw fit.
7 On 6 October 2022, the Court was informed that no agreement had been reached. The plaintiff filed proposed orders and submissions. The defendant informed the Court that he needed to engage a new solicitor and required an extension of time to prepare his materials. Jesse LaGreca, on behalf of Pentana Stanton Lawyers, contacted the Court confirming that his firm had been instructed to act on behalf of the defendant and sought an extension of time to prepare written submissions. In circumstances where the defendant had retained new solicitors, I granted the defendant an extension until 10.00am on 13 October 2022.
8 On 12 October 2022, Chloe Singh from SLF Lawyers informed the Court that her firm had been instructed to act on behalf of the defendant and sought a further extension until 26 October 2022 to file written submissions. In line with this, Jesse LaGreca emailed the Court saying that the defendant had changed legal representation and Pentana Stanton Lawyers were no longer instructed to act for the defendant.
9 By email dated 12 October 2022, the Court informed the parties that the delay was inconsistent with the objectives of the Civil Procedure Act 2010 (Vic) whereby the Court is obliged to act in a way which facilitates the just, efficient, timely and cost-efficient resolution of a dispute. However, as a final indulgence, the Court granted the defendant until 4.00pm on 17 October 2022 to file submissions.
10 The matter was then further delayed by my taking sabbatical leave.
Issues
11 There is no dispute that the defendant is to pay the plaintiff’s costs of the proceeding, including reserved costs, on a standard basis. What remains in issue is:
(a) the amount of interest to be paid by the defendant to the plaintiff;
(b) whether, once Cheung has fully satisfied the orders for contribution, interest and costs in favour of the plaintiff, Cheung’s entitlement to indemnity from ALG is limited to the contribution sum or whether he is entitled to indemnity from ALG for the contribution sum, plus the amounts of interest and costs that he is ordered to pay the plaintiff; and
(c) who is to bear the costs of the third party proceeding.
What amount of interest must be paid by Cheung to Hu?
Hu’s submissions
12 Standing in Westpac’s shoes, Hu contends that he is entitled to the benefit of the interest and default interest covenants of the facility agreement.
13 The default interest rate payable under the facility agreement is Westpac’s unarranged lending rate. Default interest accrues on any amount overdue for payment or, if there were a Default Event, on the total amount then owing to Westpac.[1]
[1]I note that there were no submissions made about whether the default interest covenant could constitute a penalty. Accordingly, I have not considered this issue.
14 Hu contends that from 8 June 2021, when he paid Westpac in full, until 16 July 2021, being the date that his first demand for contribution became due, interest accrued at the facility rate of 4.450% per annum. However, after 17 July 2021 interest accrued at the default rate of 15.01% per annum.
15 Under the Business Finance Agreement assigned to him, Hu contends that he is entitled to pre-judgment interest at 15.01% per annum.
16 As at 18 October 2022, Hu calculated the total amount of pre-judgment interest to be $455,263.91, which continues to accrue at $968.21 per day.
Cheung’s submissions
17 Cheung contends that the recovery of interest by Hu is governed by section 58 of the Supreme Court Act 1986 (Vic) (“the Act”). Section 58 provides that:
58 Interest to be allowed when debts or sums certain recovered
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
18 Cheung contends that once Hu made demand, interest may have contractually run at 15.01% but by operation of section 58, the Court cannot award interest at a rate which exceeds the rate under section 2 of the Penalty Interest Rates Act 1983 (Vic) unless good cause is shown to the contrary. Cheung argued that no “good cause” was shown in this case.
19 Therefore, Cheung contends that interest accrued at the facility rate of 4.450% per annum from 8 June 2021 to 16 July 2021. However, when Hu made demand for contribution on 16 July 2021 interest accrued at the rate of 10%, the rate fixed by the Attorney-General under section 2 of the Penalty Interest Rate Act 1983 (Vic).
20 As at 17 October 2022, Cheung calculated the total amount of pre-judgment interest to be $304,923.59, which continues to accrue at $642.06 per day.
Analysis
21 Section 57(2) of the Act provides that penalty interest rates only apply as a cap for contractual interest claims if the parties have not previously agreed the rate of interest.
22 In this case the parties had agreed upon the rate of interest.
23 The Business Finance Agreement sets the interest rate as variable. However, interest accrues under the Agreement at the default interest rate on:
· any amount overdue for payment, from the time the amount becomes overdue for payment until it is paid; and
· if there is a Default Event, on the total amount the borrower owes to the lender under the Agreement from the date specified in any notice the lender gives the borrower that there is a Default Event until the borrower is notified that the Default Event is no longer continuing.
24 A Default Event occurs if the borrower does not pay the lender any amount due. Hu’s first demand for contribution fell due on 16 July 2021 so the default interest rate commences from 17 July 2021.
25 The default interest rate payable is Westpac’s unarranged lending rate of 15.01% per annum.
26 Accordingly:
(a) from 8 June 2021, when Hu paid Westpac in full, until 16 July 2021, being the date when Hu’s first demand for contribution fell due, interest accrued at the facility rate of 4.450% per annum:
$2,343,541.11 x 4.45% x 38 days / 365 = $10,857.34
(b) thereafter, from 17 July 2021 until 11 November 2022, being the date of judgment, interest accrued at the default rate of 15.01% per annum:
($2,343,541.11 + $10,857.34) x 15.01% x 483 days / 365 = $467,643.52
27 The total amount of pre-judgment interest is therefore $10,857.34 + $467,643.52 = $478,500.86.
After Cheung has satisfied his obligations towards Hu, how much can Cheung recover by way of indemnity from the principal debtor, ALG?
Hu’s submissions
28 Hu contends that Cheung’s entitlement to indemnity should be limited to the contribution sum, namely $2,343,541.11.
29 It is Hu’s submission that Cheung had no properly arguable defence to the plaintiff’s claim for contribution. Hu contends that the costs and pre-judgment interest incurred by Cheung were a result of his groundless refusal to pay and his unsuccessful defence of the plaintiff’s proceeding. Hu contends that there is no proper basis on which Cheung should be entitled to visit those costs upon the third party.
Cheung’s submissions
30 Cheung contends that his entitlement to indemnity should include the contribution sum, plus the amounts of interest and costs that he is ordered to pay the plaintiff.
31 Cheung submits that while his defence did not succeed, it does not follow that it was not a properly arguable defence. He argued that Hu did not seek and would not have obtained summary judgment, and the trial consumed four days.
Analysis
32 I do not consider the duration of the trial to have any bearing on whether Cheung’s defence was properly arguable.
33 Cheung’s initial defence relied upon an alleged common assumption between the co-guarantors. This allegation necessitated the hearing of evidence at trial. An application for summary judgment would not have been appropriate in the circumstances.
34 Unfortunately for Cheung, his case failed from the outset because there was no evidence from Liu to the effect that he signed the guarantee in reliance on the assumption. In fact, there was no evidence at trial from Liu at all and neither Hu nor Cheung explained in evidence why he had not been joined to the proceeding.
35 A guarantor may be entitled to recover from the principal debtor its costs of resisting a creditor’s claim provided that those costs were incurred in reasonably defending the proceedings in the interests of the debtor.[2] Conversely, the guarantor may be denied the costs of contesting the creditor’s claim when there was clearly no defence[3] or where the guarantor defends the creditor’s action solely for his own benefit.[4]
[2]South v Bloxam (1865) 2 Hem & M 457; 71 ER 541
[3]Roach v Thompson (1830) M & M 487; 173 ER 1233
[4]Re International Contract Co Hughes’ Claim (1872) LR 13 Eq 623 at 624, 625 per Wickens VC
36 I am not satisfied that Cheung’s defence of Hu’s claim was conducted on a basis which would allow recovery from the principal debtor. Cheung’s case lacked essential evidence which one would have expected him to adduce. Further, he argued for propositions which were inconsistent with established authority. The case he ran was designed to assist and protect his own position, not that of the principal debtor. Accordingly, I find that Cheung’s entitlement to indemnity should be limited to the contribution sum, namely $2,343,541.11.
Who is to bear the costs of the third party proceeding?
Hu’s submissions
37 Hu contends that the defendant should be ordered to pay the third party’s costs of the third party proceeding. The third party was successful in the third party proceeding, having properly accepted that it was obliged to indemnify the defendant. However, the third party’s obligation to indemnify is postponed to and conditional upon, Cheung satisfying his liability to contribution, interest and costs in the primary proceeding in full.
Cheung’s submissions
38 Cheung contends that the third party’s defence was contradictory and without merit. Cheung pleaded that if he were liable to the plaintiff or in the event of him making payment to the plaintiff, he was entitled to an indemnity from the third party. Cheung argues that the third party did not plead to this claim but later denied that it was liable to indemnify the defendant. Cheung contends that the third party did not qualify this denial until trial.
Analysis
39 A defendant who fails against the third party, whether or not he has succeeded against the plaintiff, is ordinarily ordered to pay the third party’s costs.[5]
[5]Hoare v Frames Carrying Company Ltd [1961] NZLR 891 at 900 per Richmond J
40 A defendant who succeeds against the third party is usually entitled not only to his costs against the third party,[6] but also to an indemnity for the costs he is ordered to pay the plaintiff proportionate to the contribution the third party’s acts or omissions made to the defendant’s liability.[7]
[6]Jerred v T Roddam Dent & Son Ltd [1948] 2 All ER 104 at 110 per Atkinson J
[7]See for example, Gerson v Simpson [1903] 2 KB 197 at 203 per Collins MR
41 There was no change of position by the third party. The third party’s pleaded defence to Cheung’s claim for indemnity relied upon Cheung’s inability to claim indemnity so long as any of the guaranteed money remained unpaid. The Court accepted the substance of the third party’s submissions on this point.
42 Cheung was unsuccessful on the question of whether his right to indemnity should be deferred until after payment in full of his liability in contribution.
43 Accordingly, Cheung should pay the third party’s costs to the extent that they are specifically referrable only to that party. In so finding, I note that the same solicitors and counsel represented Hu and the third party. That being so, I would expect any costs claimed by the third party to be minimal. The third party might seek the costs of pleading to Cheung’s third party claim but it should not recover, for example, full counsel fees for the trial. It would be inappropriate for Cheung to pay two sets of counsel’s fees when the same barrister represented both Hu and ALG.
Conclusion
44 For the reasons set out, I order that:
(a) there be judgment for the plaintiff against the defendant in the sum of $2,343,541.11;
(b) the defendant pay the plaintiff pre-judgment interest in the sum of $478,500.86;
(c) the defendant pay the plaintiff’s costs of the proceeding, including reserved costs, on a standard basis; and
(d) the defendant pay the third party’s costs of the proceeding on a standard basis.
In addition, the Court declares that upon the defendant satisfying its obligations in orders (a) to (c) above, he is entitled to indemnity from the third party in the sum of $2,343,541.11.
0
0
0