NR Addlestone Pty Ltd v Henry and Kogan (No 2)

[2021] NSWSC 1468

Supreme Court

New South Wales

Medium Neutral Citation:

NR Addlestone Pty Ltd v Henry and Kogan (No 2) [2021] NSWSC 1468

Hearing dates:

On the papers — Submissions received 12 November 2021

Decision date:

16 November 2021

Jurisdiction:

Equity

Before:

Kunc J

Decision:

Receivers’ costs of proceedings to be paid on the ordinary basis

Catchwords:

COSTS — Party/Party — Bases of quantification — Indemnity basis — Where proceedings summarily dismissed — No issue of principle

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Bolger v McDermott (No 2) [2013] NSWSC 1330

Fountain Select Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364

Mead v Watson [2005] NSWCA 133

NR Addlestone Pty Ltd v Henry and Kogan [2021] NSWSC 1410

Category:

Costs

Parties:

NR Addlestone Pty Ltd (Receivers and managers appointed) (First Plaintiff)
Lebron Holdings Pty Ltd (Receivers and managers appointed) (Second Plaintiff)
NR Complex Pty Ltd (Receivers and managers appointed) (Third Plaintiff)
CND 88 Pty Ltd (In external administration) (Fourth Plaintiff)
Tallahon Pty Ltd (In external administration) (Fifth Plaintiff)
Sam Fayad (Sixth Plaintiff)

Jonathan Henry and Barry Kogan (As agents for mortgagee in possession and as Receivers and managers of NR Addlestone Pty Ltd) (First Defendants)
Nonghyup Bank (As a trustee of Pacific Aus Green Real Estate Fund No 25) (Second Defendant)

Representation:

Counsel:

A Vincent (Plaintiffs)
P Newton SC (Defendants)

Solicitors:

Madison Marcus (Plaintiffs)
Colin Biggers & Paisley (Defendants)

File Number(s):

2021/102128

Publication restriction:

Nil

Judgment

Summary

1. By its judgment delivered on 2 November 2021 (NR Addlestone Pty Ltd v Henry and Kogan [2021] NSWSC 1410 (the Judgment)) the Court summarily dismissed the plaintiffs’ claim against the Receivers. These reasons should be read and assume familiarity with the Judgment. Defined terms in these reasons have the same meaning as they did in the Judgment.

2. As a result of the summary dismissal, the Receivers are entitled to an order that the plaintiffs pay the Receivers’ costs of the proceedings “unless the Court orders otherwise” (Uniform Civil Procedure Rules 2005 (NSW) (UCPR) Pt 42, r 42.20). Those costs are to be assessed on the ordinary basis, also subject to the Court ordering otherwise (UCPR Pt 42, r 42.2).

3. Each of the parties sought to persuade the Court that it should order otherwise. It was agreed that their respective applications should be determined on the papers. The main issue was whether, as the Receivers contended, the plaintiffs should pay the Receivers’ costs of the proceedings on the indemnity basis. For the reasons set out below, the Court has concluded that it should not order otherwise under either rule, with the result that the plaintiffs are to pay the Receivers’ costs of the proceedings on the ordinary basis.

4. In summary, the Receivers’ application for indemnity costs is refused because it cannot be said of either the proceedings or the plaintiffs’ defence of the Receivers’ summary dismissal motion that, properly advised, the plaintiffs should have known that they had no chance of success in the proceedings or in resisting that motion. This is because of the combined effect of the size of the Conceded Differential, the nature of the legal issues that had to be decided, the extensive evidence of the Sale Process that had to be considered, and the high threshold that had to be met for summary dismissal.

5. The appearances remained as before, with the Receivers’ submissions prepared by Mr P Newton of Senior Counsel and the plaintiffs’ submissions by Mr A Vincent of Counsel.

The Receivers’ submissions

6. The Receivers sought orders that the plaintiffs pay the Receivers’ costs of the proceedings on the indemnity basis and that such costs be assessed and be payable forthwith.

7. The gravamen of the Receivers’ submissions appears from these paragraphs of their written submissions:

“8. The discretion to award indemnity costs must be exercised judicially: Mead v Watson [2005] NSWCA 133 at [8] and with caution: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [47]; Ng v Chong [2005] NSWSC 385 at [13]. For those reasons the discretion should be the subject of careful reasoning: Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354. Although it has been said that there is no fixed rule or rationale as to when an indemnity order might be made (Harrison v Schipp [2001] NSWCA 13 at [139]), except that it requires a "sufficient or unusual feature" (Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234), such an order is appropriate where the party entitled has been wantonly or recklessly caused to incur costs.

9. A party who commences, continues or defends proceedings which have no prospect of success, such as where the claim (or defence) is “without substance,” “groundless,” “fanciful or hopeless” or so weak as to be futile, may be ordered to pay the other party's costs on the indemnity basis: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [4]. It is not a necessary condition that the party responsible be impugned with a collateral or improper purpose: J-Corp P/L v Australian Builders Labourers Federation Union of Workers (No 2) [1993] FCA 70 at [303]. However, mere weakness of an arguable case is insufficient to warrant an exercise of the discretion to award indemnity costs: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 542.

10.   As indicated, the court concluded that the complaints made in the SOC are manifestly groundless and bound to fail: J[46]. The first defendants invited the plaintiffs to withdraw their claims against them on terms that the proceedings be dismissed with an order for costs and foreshadowed the application for summary dismissal. The plaintiffs maintained their claim causing the first defendants to incur further costs in connection with the application for summary dismissal which was successful. The claims maintained by the plaintiffs against the first defendants were “without substance,” “groundless,” “fanciful or hopeless” or so weak as to be futile.”

The plaintiffs’ submissions

8. The orders sought by the plaintiffs together with their submissions in support are conveniently summarised in these paragraphs of the plaintiffs’ written submissions:

“4.   … The plaintiffs’ position with respect to costs is as follows:

a.   they accept the first defendants were successful on the Motion and accordingly, they ought to be entitled to their costs of the Motion on an ordinary basis, as agreed or assessed;

b.   the first defendants have already obtained an order that their costs of the plaintiffs’ summons filed on 12 April 2021 (Summons) be their costs in the cause. It follows that the first defendants are entitled to their costs of the Summons on an ordinary basis, as agreed or assessed;

c.   no costs order should be made in respect of the first defendants’ costs in responding to the plaintiffs’ statement of claim filed 6 May 2021 (SOC).

…

22.   The plaintiffs repeat their position set forth in paragraph 4 above. They accept that an ordinary costs order ought to be made in favour of the first defendants in respect of the Summons and the Motion.

23.   However, as set out in subparagraph 4(c), the plaintiffs contend that an appropriate cost order in respect of the SOC and the defence ought to be that each party should bear their own costs for at least the following reasons:

a.   First, as noted above, the first defendants refused to provide documents and information to the plaintiffs, including the valuations they relied on in allegedly discharging their duty to exercise reasonable care in selling the Properties for a price not less than market value. This information was only disclosed to the plaintiffs when they were served with Henry #1 [Mr Henry’s affidavit filed on 12 July 2021] and Exhibit JH-1;

b.   Secondly, all of the matters deposed in Henry #1 were known to the first defendants at the time they were served with the SOC. In this respect, it was open to the first defendants to file the Motion on or shortly after receipt of the SOC. Instead, the first defendants elected to request further and better particulars of the SOC and subsequently file a defence;

c.   Thirdly, for inter alia the reasons set out above, the plaintiffs were no better informed by the 28 April Letter of the first defendants’ alleged compliance with their duty to sell the Properties for a price not less than market value. In this respect, the plaintiffs were not duly informed of the steps taken by the first defendants in marketing and selling the Properties until the Motion was filed, when they received Henry #1 and Exhibit JH-1.

d.   Fourthly, Henry #1 and Exhibit JH-1 were incomplete insofar as Henry #1 referred to, but did not exhibit, voluminous material concerning the detail of the steps taken by the first defendants to market and sell the properties. This material was produced by the first defendants less than a month before the hearing of the Motion in answer to a notice to produce issued by the plaintiffs. Because of this late production of material, the plaintiffs were not afforded sufficient time to consider the material prior to the hearing of the Motion.

24.   In the premises, the plaintiffs contend that the costs incurred by the first defendants in respect of the SOC could have been avoided by the first defendants had they:

a.   properly informed the plaintiffs of the steps they took to market and sell the Properties in the manner prescribed in Henry #1 and Exhibit JH-1; and/or

b.   not unnecessarily requested particulars or filed a defence in circumstances where they knew, at the time of receipt of the SOC, of the steps they had taken to market and sell the Properties as set out in Henry #1 and Exhibit JH-1. In this respect, the first defendants could have easily filed the Motion a short time after receipt of the SOC instead of unnecessarily incurring costs in responding to the SOC prior to filing the Motion.”

Consideration

9. Because of the view to which the Court has come, the only aspect of the plaintiffs’ argument which requires consideration is their contention that there should be no costs order made in respect of the Receivers’ costs in responding to the SOC. The basis of the plaintiffs’ submissions is to suggest that it was really the Receivers who were delinquent by requesting particulars and not providing full information about the Sale Process until it was too late for the plaintiffs to consider that information properly before the hearing of the Receivers’ summary dismissal motion.

10. The Court does not accept that argument, which is really a brave attempt to misdirect responsibility away from the plaintiffs. In the events which happened, the position in which the plaintiffs found themselves was entirely of their own making. The Judgment at [50]–[58] sets out the relevant chronology. Two features of that chronology are important for present purposes.

11. First, having received Mr Henry’s affidavit and details of the Sale Process on 12 July 2021 and shortly afterwards foreshadowing the possibility of obtaining expert evidence going to the Sale Process, by 4 August 2021 the plaintiffs had made a forensic decision, communicated on that date, that they did not intended to amend the SOC, asserting that the relevant allegations were adequately pleaded and particularised.

12. Second, the plaintiffs’ reference in [23(d)] of their submissions to the “late production of material” fails to acknowledge the plaintiffs’ own delay. Having nailed their colours to the mast on 4 August 2021, it was not until 17 September 2021 that the plaintiffs took the further step of issuing a notice to produce to the Receivers for the documents referred to in Mr Henry’s affidavit evidencing the Sale Process. They received that material promptly on 30 September 2021, a full month before the hearing of the motion. In that regard, I repeat what I said in Judgment [58] and [59].

13. Insofar as the Receivers’ request for particulars is concerned, that is not a proper matter for criticism. It was entirely appropriate and orthodox that they sought those particulars before bringing their motion. The Court has no doubt that the plaintiffs would now be relying on any failure by the Receivers to have sought particulars.

14. The real dispute between the parties is whether the plaintiffs should pay the Receivers’ costs of the proceedings on the indemnity basis. In approaching that question, the Court must bear in mind that there must generally be some special or unusual feature or circumstance in the case justifying an order for indemnity costs, for example where a party persists in what should have been seen to be a hopeless case: Mead v Watson [2005] NSWCA 133 at [8]. Furthermore, even if there are facts or circumstances which would support the making of an order for indemnity costs, that does not mean that the Court must do so, because costs remain in the discretion of the Court: Bolger v McDermott (No 2) [2013] NSWSC 1330 at [45]. In a case such as the present, the fundamental question is whether the plaintiffs, properly advised, should have known that they had no chance of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; [1988] FCA 364.

15. In my respectful view, the circumstances of this case are a good illustration of the danger of hindsight. The Receivers’ submission is that because the Court found that the SOC did not raise a real question to be tried or a triable issue, the plaintiffs’ case was so hopeless that indemnity costs should be ordered. However, just because the Court has summarily dismissed a claim as not raising a triable issue does not mean that in every such case circumstances justifying an indemnity costs order will be made out. That will depend, among other things, on how the Court came to its conclusion on the question of summary dismissal.

16. This was not, for example, a case where the Receivers have succeeded on an objection in the nature of a demurrer based upon some unanswerable statute or binding authority that should have been known to the plaintiffs. That situation might warrant an indemnity costs order. However, the Receivers’ argument for indemnity costs does not give any, let alone sufficient, weight to the fact that the Court’s conclusion was reached after extensive legal argument and consideration of the detailed evidence about the Sale Process, or the fact that the Receivers had a very high bar to meet before the Court’s power to dismiss summarily was engaged.

17. This last point assumes dispositive importance against the making of an indemnity costs order when combined with the Court’s observation in the Judgment at [44] that “[a]t its highest in some cases, an amount as large as the Conceded Differential could support the conclusion that the proper steps have not been taken in the sale of the Properties.” Whether or not this was such a case required analysis of both the law and the evidence that had been adduced about the Sale Process. Given the substantial size of the Conceded Differential, it could not be said, for example, that commencing the proceedings in reliance upon the Conceded Differential would have been obviously hopeless from the outset. What emerged as the critical factor in the outcome of the Judgment was the plaintiffs’ ultimate failure to attack the Sale Process.

18. It is for this reason that if the Court had been minded to make an indemnity costs order, it would only have been from the point at which notwithstanding the information that had been given to the plaintiffs about the Sale Process in Mr Henry’s affidavit, they made the forensic decision to press ahead without challenging or at least making further inquiries about the Sale Process. That date would be, at the latest, 20 August 2021, which was the last date by which the plaintiffs could have filed evidence criticising the Sale Process had they chosen to do so, notwithstanding the plaintiffs having told the Receivers on 4 August 2021 that they did not intend to amend the SOC (see the Judgment at [55]).

19. While this is not a case where the Receivers made express Calderbank offers, the Receivers did refer in their costs submissions to those occasions when they contend that they had informed the plaintiffs that the plaintiffs’ case was hopeless and invited them to consent to orders that the proceedings be dismissed with costs. Perfectly sensible as that correspondence may have been in the course of interlocutory skirmishing, it does not bear scrutiny for the purposes of the exercise of the Court’s costs discretion. Only two pieces of that correspondence require consideration.

20. First, the Receivers referred to their letter of 28 April 2021 (substantially reproduced in the Judgment at [19]). That letter concludes:

“34.   We therefore invite your clients to consent to orders that:

(a)   the Proceeding be dismissed; and

(b)   the plaintiffs pay the Receivers’ costs of and incidental to the Proceeding,

immediately, and by no later than 4.00pm on Thursday, 29 April 2021.

35.   Our clients reserve the right to rely on this letter in respect of their costs of the Proceeding.”

21. On the question of having any impact on the exercise of the Court’s discretion in relation to costs, I accept the plaintiffs’ submission that the letter of 28 April 2021 cannot affect the Court’s discretion because it makes no reference to the Savills valuations obtained as at 11 November 2020 and 25 March 2021 (see the Judgment at [14]). Those valuations are very relevant to assessing the Receivers’ conduct but were not disclosed to the plaintiffs until they received Mr Henry’s affidavit on 12 July 2021.

22. The second piece of correspondence relied upon by the Receivers is also of no assistance to them. That is their solicitors’ letter of 29 July 2021, which referred only to seeking costs thrown away on an indemnity basis if the plaintiffs sought to amend the SOC. The relevant parts of that letter are:

“11.   The Plaintiffs’ pleading is deficient. Please advise by 12.00pm on Friday, 30 July 2021 if they intend to seek leave to amend their statement of claim to plead any acts or omission of the [Receivers] that may constitute a breach of their statutory or equitable duties and provide a copy of the draft amended statement of claim.

12.   We foreshadow that in the event that leave is granted for the Plaintiffs to amend their statement of claim, as the Plaintiffs have been on notice of the [Receivers’] position since at least our letter of 28 April 2021, we intend to seek the [Receivers’] costs thrown away on an indemnity basis.”

23. This is not a case where the Court’s ultimate finding that there was no triable question can be translated, as it were automatically, into a finding that, properly advised, the plaintiffs ought to have known that their case was hopeless. The plaintiffs had definitively set their course on 4 August 2021 when, notwithstanding the information in Mr Henry’s affidavit, they said they would not be amending the SOC. However, given:

1. the size of the Conceded Differential; and

2. as the course of the hearing before me demonstrated, the issues of law and fact that had to be closely considered,

the Court is not satisfied that as at 4 August 2021, or any earlier point, it could be said that the plaintiffs, properly advised, should have known that they had no chance of success. Properly advised, they should have known that their case was weak, but that conclusion does not justify an indemnity costs order.

24. Focusing on the Receivers’ summary dismissal motion itself, the same conclusion may be reached by recalling Mr Vincent’s argument at the hearing, reproduced in the Judgment at [38]:

“Reduced to its essentials, Mr Vincent’s response on behalf of the plaintiffs was to fasten upon the observation of Hodgson CJ in Eq in Stone that “if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken” (emphasis added). Mr Vincent relied on the Conceded Differential for the proposition that there was evidence, therefore, that proper steps had not been taken so as to give rise to a triable issue. Even if, taking into account the Receivers’ evidence about the Sale Process, the plaintiffs’ prospect of success might appear to be slim, in accordance with the principles identified in [30] above, that was not sufficient to dismiss summarily or strike out the plaintiffs’ claim.”

25. While the Court, after considering all the material put before it, did not accept Mr Vincent’s submission, I again conclude that it could not be said that, properly advised, the plaintiffs should have known that resistance to the motion along the lines of Mr Vincent’s submission was hopeless or bound to fail, especially when the notoriously high threshold for summary dismissal is taken into account. Properly advised, the plaintiffs ought to have known that their prospects of resisting the Receivers’ summary dismissal motion were weak, but not unarguable or bound to fail.

26. For these reasons the Court rejects the Receivers’ application for indemnity costs and will not otherwise order for the purposes of UCPR Pt 42, r 42.2. This means that the plaintiffs will be liable for the Receivers’ costs of the proceedings on the ordinary basis in accordance with UCPR Pt 42, r 42.20.

Conclusion

27. Subject to any appeal from the Judgment, the plaintiffs’ proceedings against the Receivers are at an end. The costs orders that the Court will make will resolve the costs of the proceedings as between those parties, not just interlocutory matters. While that probably makes it unnecessary, there is no reason why, for more abundant caution, the Court should nevertheless make clear that all of the Receivers’ costs of the proceedings are now to be assessed and payable by the plaintiffs, notwithstanding that the proceedings continue in relation other parties.

28. The Court’s orders in relation to the Receivers’ costs are:

1. The plaintiffs are to pay the first defendants’ costs of the proceedings;

2. The costs referred to in the preceding order are to be assessed and payable forthwith.

Decision last updated: 16 November 2021