Royal Guardian Mortgage Management Pty Ltd v Nguyen

[2012] NSWSC 769

Supreme Court

New South Wales

Medium Neutral Citation:

Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 769

Hearing dates:

9 July 2012

Decision date:

13 July 2012

Before:

Adamson J

Decision:

(1) Appeal allowed.

(2) Set aside order 1 made by Associate Justice Harrison on 15 May 2012 and in lieu thereof order the defendants to pay the plaintiff's costs of the notice of motion filed on 5 May 2011, including the costs of the application for the costs of that motion.

(3) Order the defendants to pay the costs of this appeal.

Catchwords:

APPEAL - appeal from an award of costs - principles governing appeals concerning the exercise of a discretion
PRACTICE AND PROCEDURE - costs - principles governing the exercise of costs discretion

Legislation Cited:

- Uniform Civil Procedure Rules 2005
- Supreme Court Act 1970

Cases Cited:

- House v The King [1936] HCA 40; 55 CLR 499
- Re Minister for Immigration & Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; 186 CLR 622
- Hession v Century 21 South Pacific Limited (in liquidation) (1992) 28 NSWLR 120

Category:

Principal judgment

Parties:

Royal Guardian Mortgage Management Pty Ltd (Plaintiff)
Beth Ngoc Nguyen (First defendant)
Ian Stolyar (Second defendant)

Representation:

Counsel:
M Young SC (Plaintiff)
D Baran (Defendants)
Solicitors:
Bransgroves Lawyers (Plaintiff)
Gilbert + Tobin (Defendants)

File Number(s):

2010/105936

Judgment

Introduction

1. By notice of motion filed 30 May 2012 (the Appeal Motion) the plaintiff appealed from the order made by Associate Justice Harrison (the Court below) on 15 May 2012 that the plaintiff pay the defendants' party/party costs of the defendant's notice of motion filed on 5 May 2011 seeking security for costs (the Security Motion).

1. The Security Motion came on for hearing on 8 September 2011 before the Court below. Counsel announced that the matter had been resolved by the defendants accepting, by way of security for costs, a guarantee from another entity, Royal Guardian Mortgage Corporation Pty Limited (RGMC). The costs of the motion were reserved. Each party sought an order that their costs be paid on an indemnity basis. Subsequently the question of costs was referred to the Court below, which determined the issue on the papers. Written submissions were exchanged and filed in March 2012.

1. The plaintiff sought indemnity costs on the basis that, by letter dated 10 December 2010, some six months before the Security Motion was filed, it had made an offer to the defendants which was, in effect, the same as that for which the defendants ultimately agreed to resolve the motion on 8 September 2011: namely, that RGMC guaranteed to meet such costs orders as are made in the proceedings in favour of the defendants against the plaintiff.

1. The defendants sought indemnity costs on the basis that they were, by reason of the plaintiff's financial position, entitled to security for costs and it was reasonable for them to insist on a bank guarantee or payment into court until detailed, verified information about RGMC was provided to them and a draft deed of guarantee was proffered. Once this occurred they resolved the Security Motion.

The evidence on the Security Motion

1. As the Security Motion was determined in chambers, evidence was not formally read on the question of costs. However it was common ground that I should regard any evidence referred to in the written submissions of either party to the Court below as evidence on the Security Motion.

The chronology

1. The provision of security was first raised in the defendants' solicitors' letter dated 18 October 2010. The defendants sought to establish that there was credible evidence that the plaintiff would not be in a position to meet a costs order and therefore security for costs ought be given by bank guarantee or payment into court. The letter concluded in the following terms:

"By way of information, our client will accept (in lieu of lodgement of cash or a bank guarantee in the Court in accordance with the relevant UCPR) the following:

1. Personal guarantee by Anthony Tomizan guaranteeing the payment of the costs in the event of any adverse costs order against the plaintiff; and

2. guarantee from Royal Guardian Mortgage Corporation Limited."

1. By letter dated 22 October 2010, the plaintiff's solicitors wrote that they were seeking instructions about the allegations in the letter of 18 October 2010 and sought particulars of the "credible evidence".

1. By letter dated 28 October 2010, the defendants' solicitors said that they would provide the particulars as sought. By letter dated 3 November 2010, the plaintiff's solicitors accused the defendants of failing to provide the so-called "credible evidence". By letter dated 26 November 2010, the defendants' solicitors provided what appears to be "credible evidence" by setting out the details of a sale of a property by the plaintiff and annexed a bank statement that showed that the plaintiff had $16.30 in its bank account as at 29 October 2010.

1. On 10 December 2010, the plaintiff's solicitors wrote to the defendants' solicitors, offering security for costs in the following terms:

"We are instructed that Royal Guardian Mortgage Corporation Pty Ltd will offer a guarantee for the payment of any adverse costs order made against Royal Guardian Mortgage Management Pty Limited in these proceedings.

Please provide us with the necessary documentation to effect such a guarantee." (the December 2010 Offer)

1. I note that the December 2010 Offer differed from the offer made by the defendants on 18 October 2010 only to the extent that it did not include a personal guarantee from Anthony Tomizan.

1. There was no response to the December 2010 offer. On 21 January 2011, the plaintiff's solicitors wrote to the defendants' solicitors to remind them of the December 2010 Offer and invite a response.

1. On 25 February 2011, the defendants rejected the December 2010 Offer in the following terms:

"Our clients are not satisfied with this form of security and require the security to be in the usual form of cash or bank guarantee." [Emphasis added.]

1. In a further letter of 24 March 2011, the defendants reiterated their demand that the plaintiff offer security in the form of cash or a bank guarantee. By letter dated 29 March 2011, the plaintiff's solicitors refused to provide security in that form.

1. As referred to above, the Security Motion was filed on 5 May 2011.

1. On 11 May 2011, the plaintiff's solicitors renewed the December 2010 Offer and provided financial information with respect to RGMC, and established that the company had a gross income of $4,468,518 in the previous financial year, an approximate monthly income of $330,878 and owned four strata units, one of which was unencumbered and the remaining three having a net equity of $3,300,000.

1. On 7 June 2011, the defendants' then solicitors filed a notice of ceasing to act.

1. There was no response to the plaintiff's solicitors' letter of 11 May 2011 until 29 June 2011, when Avondale Lawyers, the defendants' new solicitors, wrote to the plaintiff's solicitors to ask whether the December 2010 Offer was still available. They also asked about the relationship between RGMC and the plaintiff, the extent and nature of the proposed guarantee and the ability of RGMC to meet any costs orders. This was the first occasion on which the defendants had shown any interest in the December 2010 Offer.

1. The next day, 30 June 2011, the plaintiff's solicitors confirmed that the offer was still open. They noted the common directorship of the plaintiff and RGMC. They also confirmed that the guarantee would not be in the form of a mortgage but it would be "a written and executed guarantee for payment that ought to be prepared by your clients". The capacity of RGMC to meet an adverse costs order was addressed by annexing a copy of the 11 May 2011 letter.

1. When the defendants did not respond, the plaintiff's solicitors sent another letter dated 2 August 2011, reiterating the December 2010 Offer and seeking a prompt response.

1. By letter dated 8 August 2011, the defendants' solicitors responded in the following terms:

"We are instructed that it is inappropriate for our client to accept an offer of guarantee by Royal Guardian Mortgage Corporation (RGMC) at this stage. Our client will require further evidence as to the financial position of the RGMC in order to make an assessment including the following..."

1. The letter then set out seven categories of documents sought in relation to the affairs of RGMC.

1. On 19 August 2011, the plaintiff's solicitors served an affidavit of Mark Stariha, RGMC's general manager, dated 19 August 2011. In [74]-[83] of the affidavit, an account of RGMC's financial situation was given, supported by approximately 150 pages of relevant exhibited documents.

1. On 6 September 2011, the defendants served submissions in opposition to the Security Motion and pressed their claim for a bank guarantee or payment into court. They did not address the December 2010 Offer in their submissions, although they were entitled to do so as it was not made without prejudice.

1. On 7 September 2011, the defendants, by their counsel, negotiated with a view to resolving the matter on the basis of the December 2010 Offer. Clause 2 of the draft deed of guarantee proffered by the plaintiff and RGMC provides:

"RGMC hereby guarantees the payment of any costs (as agreed or assessed) which RGMM is ordered to pay Nguyen and/or Stolyar in the Proceedings".

1. On 8 September 2011, shortly before the commencement of the hearing of the Security Motion and associated motion for strike out, the defendants' counsel advised that the security for costs motion would not be pressed, and the motion was resolved on the basis of RGMC providing a guarantee in the form of the draft. This consensual resolution did not include any agreement on the costs of the motion.

1. As recited above, there was some delay in the determination of the reserved costs. Ultimately, on 15 May 2012, the Court below ordered the plaintiff to pay the defendants' cost of the Security Motion on a party/party basis.

1. The reasons of the Court below are contained in [31]:

"Both parties were tardy in answering correspondence from each other in relation to security for costs prior to the motion being filed. It is my view that it was reasonable for the defendants to request and be provided with financial information concerning RGMC before the offer of the guarantee was accepted. This information was only supplied after the motion was filed. The plaintiff should pay the defendant's costs. The plaintiff's conduct cannot be said to be unreasonable, there are no other factors that warrant the making of an order that the costs be payable on an indemnity basis. Costs are payable on a party/party basis."

The Nature of the Appeal

1. It is common ground that the principles of House v The King [1936] HCA 40; 55 CLR 499 apply: namely, in an appeal from a discretionary judgment, the court determining the appeal cannot override the exercise by the trial judge of her discretion and substitute for that the appeal court's discretion unless an error can be shown in the manner that the discretion was originally exercised.

1. Costs are pre-eminently a matter of discretion. Were this appeal an appeal to the Court of Appeal, rather than to a single judge, leave to appeal would be required under s 101(1)(c) of the Supreme Court Act 1970. Although no leave is required to appeal from a decision of an Associate Justice pursuant to Part 49, Division 3 of the UCPR, the restraints on appellate intervention in discretionary decisions are greater where, as here, the discretion is a matter of practice and procedure: Hession v Century 21 South Pacific Limited (in liquidation) (1992) 28 NSWLR 120 at 122, per Meagher JA, Kirby P and Cripps JA agreeing.

The principles that apply to awards of costs where there has been no hearing on the merits

1. The relevant principles are set out authoritatively in Re Minister for Immigration & Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; 186 CLR 622 (Lai Qin) at 624-625, per McHugh J. They are, in summary:

(1)   Where there is a hearing on the merits, the general rule is that costs follow the event.

(2)   Where there has been no hearing on the merits:

(a)   a court still has jurisdiction to make an order for costs, although it will not try a hypothetical action between the parties;

(b)   in some cases, a court can conclude that a party has acted so unreasonably that the other party should obtain the costs of the action;

(c)   in rare cases, a court may feel confident that one party would almost certainly have succeeded and therefore award that party its costs; and

(d)   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.

1. It was common ground that the question whether one party would almost certainly have succeeded was not raised in the Court below and therefore ought not be considered on appeal.

1. The determination of the question of costs therefore turned, as a matter of law, on whether the starting point that there ought be no order as to costs was displaced by the unreasonableness of either party.

The grounds of appeal

1. The grounds of appeal are contained in the Appeal Motion as follows:

"1. The Associate Justice erred at [31] of her Honour's reasons in determining that the Plaintiff should pay the Defendants' costs of the Notice of Motion filed by the Defendants on 5 May 2011 because the Plaintiff did not prior to that filing supply the financial information requested by the Defendants, in the circumstances that the Defendants did not request any financial information until 8 August 2011, and that the Plaintiff had in fact provided financial information on 11 May 2011 prior to any request being made by the Defendants.

2. The Associate Justice erred in ordering that the Plaintiff pay the Defendant's costs of the Notice of Motion filed 5 May 2011, despite the fact that the motion had been resolved by consent and the Associate Justice found at [31] that the Plaintiff had not acted unreasonably in relation to the motion.

3. The Associate Justice erred in failing to find that the Defendants acted unreasonably by not accepting until 8 September 2011, being the morning of the hearing of the Notice of Motion filed 5 May 2011, the offer the Plaintiff had previously made on 10 December 2010 to resolved the question of security for costs, which offer the Plaintiff had repeatedly renewed in the intervening period.

4. The Associate Justice erred in failing to find that the Defendants acted unreasonably by proceeding to file the Notice of Motion on 5 May 2011 without first seeking from the Plaintiff such further information as the Defendants considered necessary in order to consider the Plaintiff's offer made 10 December (and since renewed).

5. The Associate Justice's exercise of her discretion with respect to determining the costs of the Notice of Motion of 5 May 2011 miscarried in the circumstances set out in Grounds 1-4 above, and hence needs to be re-exercised on appeal.

6. The proper exercise of the discretion with respect to the cost of the Notice of Motion filed on 5 May 2011 involves the making of an order that the Defendants pay the Plaintiff's costs of that motion on an indemnity basis."

Preliminary point

1. The defendants submitted that the plaintiff's Appeal Motion was not sufficient to encompass the arguments put on appeal and that the defendants were prejudiced if the plaintiff was permitted to stray beyond the grounds set out in the Appeal Motion.

1. UCPR 49.9(b) requires a notice of motion filed under Division 3 of Part 49 (Procedures for Appeal to Court from Decisions of Associate Judge) to state:

"briefly, but specifically, the grounds relied on in support of the appeal."

1. I do not accept the defendants' submission. I consider that the grounds sufficiently disclosed the arguments that were ultimately put. Ground 1 identified an alleged error of material fact. Ground 2 highlighted the apparent inconsistency between a finding that the plaintiff had not conducted itself unreasonably, and the order for costs, which implied, on the basis of the principles in Lai Qin, that it had behaved unreasonably. Grounds 3 and 4 raised the issue of the implicit finding that the defendants had not acted unreasonably. Although Mr Young SC, who appeared on behalf of the plaintiff, developed these grounds further in his oral submissions, I do not consider that he went beyond the grounds contained in the Appeal Motion.

Ground 1: error in material findings of fact

1. The plaintiff submitted that the following findings were errors of material fact:

"it was reasonable for the defendants to request and be provided with financial information concerning RGMC before the offer of the guarantee was accepted"

"This information was only supplied after the motion was filed."

1. The plaintiff submitted that implicit in the reasons are the assumptions that the defendants had requested RGMC's financial information before 5 May 2011 when the Security Motion was filed and that the plaintiff had not provided any such information until after that date. These assumptions were erroneous since the defendant had not sought financial information about RGMC until more than three months after 5 May 2011.

1. Because this ground is related to grounds 3 and 4, I will set out my reasons relating to this ground when I address grounds 3 and 4.

Ground 2: failure to apply the relevant principle

1. The plaintiff submitted on the basis of Lai Qin that there is a general rule that if a matter for hearing is settled, there should be no order as to costs unless the Court finds that one of the parties has acted unreasonably. It submitted that there was no such finding in the instant case and indeed such finding as there was, was to the contrary, since the Court below said, at [31]:

"The plaintiff's conduct cannot be said to be unreasonable..."

1. The defendant submitted that her Honour's finding that the plaintiff's conduct cannot be said to be unreasonable was made in the context of the defendants' application for indemnity costs and that its relevance is confined to that aspect of the decision. I reject this submission. Although the syntax in [31] supports, to some extent, the defendants' submission, I consider it to be artificial in the extreme to quarantine a finding that the plaintiff was not unreasonable to the second aspect of the decision: whether costs should be on the ordinary basis or on an indemnity basis; rather than apply it to the first aspect: whether an order for costs should be made at all.

1. The Court below did not give reasons for any departure from the general rule. If the Court below had applied the correct principle, I would expect that it would do so on the basis of a finding of unreasonableness and indicate the reasons for such a finding. Her Honour's failure to do so may not of itself demonstrate error (and indeed the failure to give reasons is not a ground of appeal) but it does indicate that the Court below may not have fully considered and applied the principle.

1. There is no express statement in the written submissions in the Court below to the principle that the general rule is apt to be displaced by a finding of unreasonable conduct by one party or another. There is no reference to Lai Qin. However, in all the circumstances, I accept the plaintiff's submission that the applicable principles were sufficiently well established and well-known for the parties to assume that they did not need to set them out in terms for the Court below.

1. In my view it can be inferred that the Court below acted in error or on the basis of a wrong principle and that, accordingly, the discretion miscarried.

Grounds 3 and 4

1. The plaintiff submitted that it was a corollary of: first, her Honour's express finding at [31] that "it was reasonable for the defendants to request and be provided with financial information concerning RGMC before the offer of the guarantee was accepted"; and secondly, the implied finding in the same paragraph that this should have occurred prior to the filing of the notice of motion for security that the defendants, in not requesting that financial information until more than 3 months after they filed their notice of motion, acted unreasonably.

1. The plaintiff submitted that the Court below in exercising its discretion failed to have regard to a relevant matter, namely whether the defendants' conduct in refusing to accept the December 2010 Offer from the time of its making until 8 September 2011, was unreasonable.

1. In its written submissions the plaintiff said:

"Further, once it is understood that the Defendants failed to request any financial information with respect to RGMC prior to the their filing of the security motion, had expressed no interest in the guarantee offer at any time prior to the filing of that motion and had in fact by 5 May 2011 twice rejected it outright by letters dated 25 February 2011 and 24 March 2011, the non-provision of financial information with respect to RGMC cannot be seen as a justification for the Defendant's continued refusal until the week of the 8 September 2011 hearing to seriously countenance the guarantee offer. Even after Mark Stariha's affidavit (which fully addressed RGMC's financial circumstances) was served on 19 August 2011, it took more than 2 weeks for the Defendants to so much as intimate that they might be prepared to reconsider the guarantee offer (and even then, presumably, only because the hearing of the motion was a matter of days away).

For the Defendants to have repeatedly rejected the 10 December 2010 offer and to have maintained that position for almost 9 months, only changing their position an accepting that offer on the very morning of the 8 September 2011 hearing, is patently unreasonable behaviour on the part of the Defendants, and the Associate Justice should have made a finding to that effect."

1. I accept the plaintiff's submissions. The questions germane to the exercise of a discretion to make an order for costs when a matter has resolved prior to a hearing on the merits are: first, has any party acted unreasonably; and secondly, was any party bound to succeed. It was not suggested by the plaintiff that the second matter arose since it was not addressed in submissions before the Court below. However, the reasonableness of the conduct of the plaintiff on the one hand and the defendants on the other were, effectively, relevant considerations that the Court below was obliged to take into account before displacing the general rule that there should be no order for costs.

1. The making of an adverse order for costs against the plaintiff required a finding that the plaintiff had behaved in some way unreasonably. There was no such finding; indeed, as the plaintiff submitted, there was a finding to the contrary since the Court below expressly found that it had not acted unreasonably.

Re-exercising the discretion

1. Since I have found, for the reasons given above, that her Honour's discretion miscarried, it falls to me to re-exercise it.

1. The plaintiff contended that I ought find that the defendants acted unreasonably and accordingly that I should order them to pay the plaintiff's costs of the Security Motion. It further submitted that the defendants' conduct was so unreasonable as to warrant an order for indemnity costs.

1. The plaintiff relied on the chronology set out above and in particular the December 2010 Offer, which was made almost five months before the security for costs motion was filed by the Defendants on 5 May 2011, and almost nine months before it was ultimately accepted on the very morning of the hearing on 8 September 2011. The plaintiff submitted that the December 2010 offer was "continually on the table" and referred to the five subsequent occasions (21 January 2011, 11 May 2011, 30 June 2011, 2 August 2011 and 19 August 2011) on which the offer had been renewed, the defendants' attention was drawn to the offer, or further information was provided in support of the offer.

1. The plaintiff submitted that the defendants' responses (prior to 7 September 2011) were either to reject the offer or simply ignore it. Although the defendants apparently took some interest in the offer (on 8 August 2011) and requested financial documentation to support RGMC's wherewithal to meet future costs orders, when the plaintiff served an affidavit and 150 pages of financial documents 11 days later there was still no acceptance of the offer. The plaintiff submitted that there was no material change in the plaintiff's position from 10 December 2010 to 8 September 2011 when the settlement in fact occurred. There was no material further concession in the draft guarantee, with the remainder of the text little more than boilerplate to support an operative clause in no wider terms than the wording originally contained in the December 2010 Offer itself.

1. The plaintiff submitted that if the defendants considered they required financial information for RGMC and/or a fully engrossed draft guarantee in order to consider the December 2010 Offer, they should have asked for it.

1. The defendants submitted that the plaintiff ought to have provided detailed, verified, financial information about RGMC with a draft form of the guarantee, and that, in the absence of these two things, the defendant could not properly consider the matter. They also submitted that there was no good reason why a bank guarantee or payment into court was not offered and therefore the onus of verifying the worth of the offer and providing the documentation that would make it enforceable, if accepted, rested with the plaintiff. The defendants submitted that the draft deed of guarantee was provided to them only the day before the motion was listed for hearing. Once it was analysed, together with Mr Stariha's affidavit, the defendants accepted the plaintiff's offer.

1. I am persuaded by the plaintiff's submissions. I consider that the plaintiff was entitled to assume, when its December 2010 Offer was rejected, that the position could not have been rectified by the provision of verified financial information. That it served such information, which was ultimately verified, showed a persistence that the defendants' diffidence hardly warranted. I consider that the chronology shows that the defendants did not properly analyse what was being offered at the time of the December 2010 Offer or, effectively, until shortly before the hearing of the Security Motion. It initially rejected the offer out of hand; a considerable time elapsed before they indicated that they would even countenance it or in any way compromise their position of insistence on either a bank guarantee or payment into court.

Conclusion

1. In my view, it is appropriate that the defendants pay the plaintiff's costs of the Security Motion since the plaintiff had made an offer on 10 December 2010 which was not bettered by the result to which the defendants agreed on 8 September 2011. Although it was not unreasonable for the defendants not to accept the December 2010 Offer until it had had an opportunity to assess the financial wherewithal of RGMC, it was, in my view, unreasonable of the defendants to take no action for a substantial period to ascertain the worth of the offer and RGMC's ability to meet a costs order.

1. The defendants' trenchant insistence on a bank guarantee or payment into Court dissolved shortly before the hearing. Mr Baran, counsel for the defendants, sought to defend the delay on the basis that it was reasonable for the defendants to defer accepting the offer until it had been served with an affidavit verifying the financial position of RGMC and a draft guarantee. This argument might have had some force if the defendants had sought verification of financial information or a draft guarantee at an earlier stage. In all the circumstances, the plaintiff was entitled to understand that its offer was being rebuffed because the defendants would accept nothing less than a bank guarantee or a payment into court, rather than because the financial information relating to RGMC was neither substantiated nor verified.

1. Although the defendants' tardiness in accepting the plaintiff's offer and seeking the information that would enable them to assess its worth has resulted in an adverse costs order, I do not consider that their conduct warrants indemnity costs. It would be undesirable if parties felt constrained from resolving applications lest capitulation would attract indemnity costs rather than cost on an ordinary basis. Furthermore, although I have found the defendants' conduct to be unreasonable, I do not consider that it was so unreasonable as to warrant indemnity costs.

Orders

1. The orders I make are:

(1)   Appeal allowed.

(2)   Set aside order 1 made by Associate Justice Harrison on 15 May 2012 and in lieu thereof order the defendants to pay the plaintiff's costs of the notice of motion filed on 5 May 2011, including the costs of the application for the costs of that motion.

(3)   Order the defendants to pay the costs of this appeal.

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Decision last updated: 13 July 2012