Mahmoud El Ali v JGYM Pty Ltd (No 2)

[2019] NSWSC 681

Supreme Court

New South Wales

Medium Neutral Citation:	Mahmoud El Ali v JGYM Pty Ltd (No 2) [2019] NSWSC 681
Hearing dates:	26 April 2019
Date of orders:	07 June 2019
Decision date:	07 June 2019
Jurisdiction:	Equity
Before:	Henry J
Decision:	(1)   Subject to order 7, there be judgment by admissions for the third cross-claimant against the cross-defendant for $65,000.00 plus interest at 10% p.a. up to the end of 23 October 2015 of $3,250 and interest at 15% p.a. on $68,250.00 from 24 October 2015 to 26 April 2019 in the amount of $35,901.37, a total of $104,151.37. (2)   The amended cross-claim otherwise be dismissed. (3)   The first and second cross-claimants pay the cross-defendant’s costs of the cross-claim and amended cross-claim. (4)   The cross-defendant’s notice of motion for security for costs be dismissed with no order as to costs. (5)   The enforcement of the judgment in Order 1 be stayed pending the assessment of the costs orders made against the second, third and fifth defendants on 6 September 2018, the costs orders made against the first and second cross-claimants on 17 September 2018, the costs order made on 28 November 2018 and the costs order made in order 3 of these orders or until further order of the court. (6)   The stay in order 5 is conditional upon the plaintiff/cross-defendant: (a)   serving on the cross-claimants by their solicitors an application for assessment of the costs referred to in order 5 above by 5 July 2019; (b)   filing with the Manager Costs Assessment his application for assessment of the orders referred to in order 5 by 9 August 2019; and (c)   proceeding with all due expedition in the costs assessment. (7)   The amount determined in favour of the cross-defendant in the costs assessment referred to in order 5 is to be set-off against the judgment amount in order 1 of these orders. (8)   The parties have liberty to apply.
Catchwords:	CIVIL PROCEDURE — Cross-claims — Right of set-off — Costs — No issue of principle
Legislation Cited:	Civil Procedure Act 2005 (NSW) 2005 ss 21, 56, 57, 58, 59, 60, 98 Uniform Civil Procedure Rules 2005 (NSW) r 42.1
Cases Cited:	Australian Beverages Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2006) 230 ALR 184; [2006] NSWSC 560 Barescape Pty Limited as trustee for the V's Family Trust & Anor v Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust & Anor (No 10) [2012] NSWSC 1275 Corbett v Nguyen (No 2) [2012] NSWSC 673 Mahmoud El Ali v JGYM Pty Ltd [2018] NSWSC 1298 Padkohe Pty Ltd v Fletcher [2006] NSWSC 1239 Ventura v Higgins [2018] NSWSC 909
Category:	Procedural and other rulings
Parties:	Mahmoud El Ali – plaintiff /cross-defendant JGYM Pty Ltd (deregistered) – first defendant  Ozem Kassem as joint and several liquidator of 39 Edward Street Sylvania Pty Ltd (in liq) – second defendant/first cross-claimant  Jason Tang as joint and several liquidator of 39 Edward Street Sylvania Pty Ltd (in liq) – third defendant/second cross-claimant  39 Edward Street Sylvania Pty Ltd (in liq) – fifth defendant/third cross-claimant
Representation:	Counsel: M Elliott SC – plaintiff/cross-defendant  R Marshall SC – second, third and fifth defendants/first, second and third cross-claimants    Solicitors: Roberts and Partners Lawyers –plaintiff/cross-defendant   Rostron Carlyle Lawyers –second, third and fifth defendants/first, second and third cross-claimants
File Number(s):	2018/89376

Judgment

1. On 26 April 2019, the Court heard argument on two notices of motion in these proceedings. The first seeks summary judgment or judgment on admissions on the amended cross-claim, and the second seeks security for costs in respect of the amended cross-claim.

2. After the hearing, the parties provided the Court with draft final orders and short written submissions in support of the orders they each proposed. The parties accepted that I would consider the issues relating to the proposed orders on the papers and then make final orders.

Background and these proceedings

3. The plaintiff/cross-defendant (Mr El Ali) commenced these proceedings by way of summons seeking a range of orders, including that certain monies paid into Court should be released to him. Those orders were disputed by the second and third defendants/first and second cross-claimants (the liquidators) as they claimed the monies were owed to a company, 39 Edward Street Sylvania Pty Ltd (in liq) (the Company) (the fifth defendant and/third cross-claimant in these proceedings) pursuant to a Deed of Loan between the Company and Mr El Ali. The liquidators are the liquidators of the Company.

4. On 23 August 2018, Pembroke J gave judgment on Mr El Ali’s summons in Mr El Ali’s favour, based on the operation of a deed of settlement entered into by Mr El Ali and the liquidators (on behalf of the Company) on 23 April 2015 (Deed of Settlement): Mahmoud El Ali v JGYM Pty Ltd [2018] NSWSC 1298. Pembroke J also ordered the liquidators to pay Mr El Ali’s costs of the summons (Costs Orders).

5. In his reasons, his Honour noted that the Company had not filed a cross-claim seeking judgment on the liquidated debt to which it seemed entitled under the Deed of Settlement.

6. After Pembroke J’s judgment, the liquidators filed a cross-claim seeking recovery of the liquidated debt of $65,000 and interest under the Deed of Settlement. On 19 September 2018, the liquidators filed an amended cross-claim to include the Company.

7. Mr El Ali’s defence to the amended cross-claim admits that the Company entered into the Deed of Settlement, admits that he was indebted to the Company for the liquidated debt and some interest pursuant to the Deed of Settlement, and claims a set-off on the basis of the Costs Orders.

8. The notice of motion seeking summary judgment or judgment on admissions on the amended cross-claim was filed by the Company and the liquidators. At the hearing, it was conceded that judgment could only be sought by the Company as the debt and interest under the Deed of Settlement were not amounts owed to the liquidators.

9. Mr El Ali’s notice of motion seeks security for his costs on the amended cross-claim.

10. It is apparent from reviewing the draft orders proposed by the parties that there is significant agreement between them and limited issues remain in dispute.

11. The parties consent to orders being made by the Court for judgment by admissions for the Company against Mr El Ali in the amount of $104,151.37 (Admissions Judgment), for the dismissal of the amended cross-claim and Mr El Ali’s notice of motion for security for costs, for a stay of enforcement of the Admissions Judgment pending the assessment of the Costs Orders and other costs orders made in the proceedings in favour of Mr El Ali, and for the stay to be conditional on Mr El Ali serving his application for an assessment of those costs by a certain date.

12. The issues to be determined are:

1. what costs orders should be made in relation to the amended cross-claim and the security for costs motion;

2. whether any further conditions should be imposed in relation to the stay of the Admissions Judgement; and

3. whether an order should be made giving effect to the set-off defence raised by Mr El Ali.

Costs of the amended cross-claim

13. The parties consent to an order that the liquidators pay Mr El Ali’s costs of the cross-claim and the amended cross-claim. This was appropriate in the context where the liquidators abandoned their claims against Mr El Ali in Court on 26 April 2019.

14. The issue to be determined is whether the Company should be ordered to pay Mr El Ali’s costs of the amended cross-claim (as contended by Mr El Ali) or whether he should pay the Company’s costs (as contended by the Company and the liquidators).

15. The Company submits that it should be entitled to its costs of the amended cross-claim as the defence made significant admissions leading to judgment and because Mr El Ali did not volunteer payment or judgment. Mr El Ali submits that the Company should pay his costs because the Company has, in practical terms, accepted his set-off defence.

16. Costs are in the discretion of the Court: s 98(1) of the Civil Procedure Act2005 (NSW). That discretion is broad and must be exercised consistently with the overriding mandate regarding the conduct of litigation of the Court as provided for in ss 56 to 60 of the Civil Procedure Act.

17. The usual rule is that costs follow the event, unless it appears to the Court that some other order should be made: r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

18. The Company’s claim has been resolved by the Admissions Judgment and there is merit in the submission that costs should follow the event in those circumstances. Yet, the Company’s acceptance of the stay on the enforcement of the Admissions Judgment and my order providing for a set-off (see further below) mean that Mr El Ali has also had some practical success in respect of his defence.

19. Both the Company and Mr El Ali have had some measure of success in relation to the amended cross-claim and there is no evidence before me to provide a basis for seeking to apportion the costs as between them to reflect their respective wins.

20. In these circumstances, I consider the appropriate course is to make no order as to costs in relation to the Company, with the intent that it should bear its own costs of the amended cross-claim but that it will not be responsible for Mr El Ali’s costs.

Costs of the security for costs motion

21. The parties consent to an order dismissing Mr El Ali’s notice of motion seeking security for costs. Mr El Ali seeks an order that his costs in relation to that motion be paid by the liquidators and the Company. This is on the basis that the motion would not have been required and the costs avoided if the set-off defence had been accepted earlier.

22. The liquidators and the Company contend that Mr El Ali should pay their costs as the motion has been dismissed, it should not have been brought and costs should follow the event in accordance with r 42.1 of the UCPR.

23. I do not accept the submission of the liquidator and the Company that, because the motion has been dismissed, costs should follow the event and Mr El Ali should pay their costs. The motion has been dismissed because the parties have resolved the proceedings by agreement, not because there has been any event which has determined the outcome of the motion and on which it could be said that either party had success.

24. In circumstances where the motion for security has been dismissed as part of the resolution of the proceedings, it is not necessary or appropriate for the Court to determine the likely outcome of the motion in deciding what costs orders should now be made. There is no utility in doing so when the motion is not being pursued.

25. As to whether the motion should have been brought at all, there may have been merit in bringing a motion for security for costs against the Company given it was in liquidation.

26. On the other hand, the motion was also brought against the individual liquidators and there was little evidence to support making an order against them personally. Further, and as pointed out at the hearing, the amount claimed appeared to be based on calculations that included steps that would not be required for a final hearing, such as discovery. These matters suggest that there were arguments to support the position that the motion should not have been brought in the terms that it was.

27. In any event, it seems to me that a costs order in favour of Mr El Ali should not follow simply because there may have been some merit in bringing the motion. The motion was contested at the hearing, there has been no determination of the outcome of that contest and the motion itself is now otiose. In that context, I do not consider that either party should recover their costs and will order that Mr El Ali’s notice of motion for security for costs be dismissed with each party to pay their own costs.

Conditions of the stay

28. The parties consent to an order that the enforcement of the Admissions Judgment be stayed pending the assessment of certain costs orders and a condition of that stay requiring Mr El Ali to serve an application for a costs assessment by a certain date. The only dispute relates to whether further conditions should be imposed in relation to the stay.

29. The Company and the Liquidator seek additional conditions regarding Mr El Ali’s prosecution of the costs assessment, as well as an order requiring him to pay an amount into Court representing the difference between the amount claimed by him in his costs assessment and the Admissions Judgment.

30. Mr El Ali opposes the payment into Court but does not address the other conditions sought by the liquidators and the Company.

31. I accept it is appropriate to include further conditions in order 5 regarding the prosecution of the costs assessment as sought by the liquidators and the Company. The conditions requiring Mr El Ali to file his application for assessment of the orders with the Manager Costs Assessment within a specified time and to proceed with all due expedition should ensure that Mr El Ali’s costs are promptly determined, and will allow the Company to take practical steps to enforce the Admissions Judgment in a timely manner. As time has passed since the parties first proposed those conditions, I will extend the time allowed for compliance.

32. As to the proposed order that Mr El Ali be required to make a payment into Court after filing his application for the costs assessment, I was not taken to evidence that suggests that Mr El Ali might dissipate assets, frustrate satisfaction of the Admissions Judgment or indicates that there is a need for him to provide some form of security by way of a payment into court. As submitted by Mr El Ali’s counsel, the Company stands as an unsecured creditor with no entitlement to security in respect of its position.

33. The additional conditions on the stay which I am ordering should ensure that the costs assessment process is completed in a timely manner. The Company also has a remedy if those orders are not complied with, given the stay is conditional on compliance with them and I have amended the stay order to provide that it will continue until the costs assessment is completed or until “further order of the court”.

34. Accordingly, I am not satisfied that it is necessary or appropriate to make an order for payment into court as sought by the Company and the liquidators.

Set-off

35. Mr El Ali seeks an order which provides a set-off of the Admissions Judgment against the amount owed to him pursuant to the costs orders. He submits that this course is appropriate because the cross-claimants’ consent to the Admissions Judgment being stayed (pending the costs assessment) constitutes a practical acceptance of his set-off defence.

36. The Company and the liquidators submit that there is no need for set-off orders and that there may be injustice if the order is made and Mr El Ali does not prosecute his costs assessment.

37. Section 21 of the Civil Procedure Act does not permit a statutory set-off as between the Admissions Judgment and the costs orders made in Mr El Ali’s favour because those costs have not been assessed and are therefore not a liquidated claim. However, general equitable principles of set-off, the Court’s inherent jurisdiction and the control it exercises over its own proceedings allow for a set-off of an unquantified costs order against a judgment sum, and for orders to be made reflecting that set-off: Corbett v Nguyen (No 2) [2012] NSWSC 673; Australian Beverages Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd (2006) 230 ALR 184; [2006] NSWSC 560; Padkohe Pty Ltd v Fletcher [2006] NSWSC 1239.

38. I accept Mr El Ali’s submission that the agreed stay regime amounts to a practical acceptance of the set-off defence. The parties have agreed to allow time for the unquantified cost orders to be assessed before the Admissions Judgment can be enforced. Once the costs have been assessed, the amount of the costs to be set-off against the Admissions Judgment will be known and the Admissions Judgment will be able to be enforced to the extent of any difference.

39. In support of their position, the Company and the liquidators referred to Black J’s comments in Barescape Pty Limited as trustee for the V's Family Trust & Anor v Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust & Anor (No 10) [2012] NSWSC 1275 (Barescape v Bacchus) at [13] – [20], and Ventura v Higgins [2018] NSWSC 909 (Ventura v Higgins).

40. In Barescape v Bacchus, the plaintiff/cross-defendant and the first defendant/cross-claimant were both successful in obtaining judgments and costs orders against the other. The cross-claimant then sought to stay enforcement of the plaintiff’s judgment pending assessment of the costs orders. Black J refused to order a set-off, referring to the assessment process taking some time and it not being possible to determine the overall outcome as to costs in the proceedings. But this was in a context where no stay regime was ordered.

41. In Ventura v Higgins, Robb J dealt with the aftermath of Barescape v Bacchus. Some years after Black J’s orders, the costs were ultimately assessed. Robb J found that the plaintiffs/respondents had behaved with “considerable dilatoriness” in conducting the costs assessment process and that the defendant/applicant’s costs had not been finally quantified. In those circumstances, Robb J ordered a stay on the enforcement of the plaintiffs’/respondents’ cost order to allow the defendant/applicant time to finalise its assessment, on the condition that the defendant/applicant did so expeditiously.

42. The concerns identified in those cases are not, in my view, persuasive nor is the submission regarding the potential for injustice if Mr El Ali does not prosecute the costs assessment given the way the orders in these proceedings are to be framed and the mechanisms included within them.

43. The orders in these proceedings provide, as conditions for the stay, for the application for costs assessment to be served by a certain date, for it to be filed with the Manager Costs Assessment by a certain date, and for Mr El Ali to proceed with all due expedition. There are, therefore, requirements for the assessment to be prosecuted in a timely way.

44. The parties will also have liberty to apply. If Mr El Ali delays the assessment process, the court may review the orders and the stay of enforcement of the Admissions Judgment because the order for a stay will include the words “or until further order of the court”.

45. I am satisfied that the Court has the power to make a set-off order of the type proposed by Mr El Ali and that making such an order would be a corollary of the stay regime agreed between the parties. The terms of the orders and conditions imposed on the stay should deal with the prejudice to the Company and the liquidators, to the extent any arises.

Orders

46. For these reasons, the Court orders:

1. Subject to order 7, there be judgment by admissions for the third cross-claimant against the cross-defendant for $65,000.00 plus interest at 10% p.a. up to the end of 23 October 2015 of $3,250 and interest at 15% p.a. on $68,250.00 from 24 October 2015 to 26 April 2019 in the amount of $35,901.37, a total of $104,151.37.

2. The amended cross-claim otherwise be dismissed.

3. The first and second cross-claimants pay the cross-defendant’s costs of the cross-claim and amended cross-claim.

4. The cross-defendant’s notice of motion for security for costs be dismissed with no order as to costs.

5. The enforcement of the judgment in Order 1 be stayed pending the assessment of the costs orders made against the second, third and fifth defendants on 6 September 2018, the costs orders made against the first and second cross-claimants on 17 September 2018, the costs order made on 28 November 2018 and the costs order made in order 3 of these orders or until further order of the court.

1. The stay in order 5 is conditional upon the plaintiff/cross-defendant:

1. serving on the cross-claimants by their solicitors an application for assessment of the costs referred to in order 5 above by 5 July 2019;

2. filing with the Manager Costs Assessment his application for assessment of the orders referred to in order 5 by 9 August 2019; and

3. proceeding with all due expedition in the costs assessment.

7. The amount determined in favour of the cross-defendant in the costs assessment referred to in order 5 is to be set-off against the judgment amount in order 1 of these orders.

8. The parties have liberty to apply.

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Decision last updated: 07 June 2019