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

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.

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).

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.

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.

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 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.

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

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

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.

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.

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.

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].

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.

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.

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.

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.

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.

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]).

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.

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

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.

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:

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:

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]:

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.

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.

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.

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