Australian Karting Association Ltd v Karting (NSW) Incorporated (No 2)

On 25 August 2021, I made orders and published reasons in this matter: Australian Karting Association Ltd v Karting (NSW) Incorporated [2021] NSWSC 1075 (the principal judgment). I made the following orders:

In compliance with order 3, Karting (NSW) Incorporated (Karting NSW) provided short minutes of order setting out the pre-judgment interest on the cross-claim, calculated in accordance with s 100(1) of the Civil Procedure Act 2005 (NSW). Australian Karting Association Ltd (Karting Australia) does not contest these calculations or the making of these orders. The agreed amount for interest on the principal sum of $616,065.06 for the period from 11 October 2018 to 25 August 2021 (the date of judgment) is $84,834.71, calculated as follows:

The issue between the parties relates to order 4, which concerns the parties’ liability for costs. To save repetition, these reasons ought be read with the principal judgment.

By written application received on 1 September 2021, within the time specified in order 4, Karting NSW applied for the following order in lieu of order 4:

The basis of Karting NSW’s application was the following Offer of Compromise, which was accepted to have been made in accordance with the Uniform Civil Procedure Rules 2005 (NSW):

In its written submissions dated 8 September 2021, Karting Australia accepted that it was obliged, by reason of the Offer of Compromise served by Karting NSW, to pay Karting NSW’s costs of the cross-claim on the ordinary basis and on an indemnity basis for the periods provided in Karting NSW’s draft order. However, Karting Australia contended that the costs of its claim ought be excluded from such an order.

Karting Australia proposed the following changes to Karting NSW’s proposal: first, that the words “Subject to Order 4” be added to proposed order 1; and, secondly, that proposed order 4 read as follows:

Karting Australia submitted that because Karting NSW had, in effect, capitulated on its claim by repaying the principal amounts due under the three loan agreements, Karting Australia had partially “succeeded” on its claim. It argued that it ought not be required to pay Karting NSW’s costs of the principal proceedings. In the alternative, it submitted that if it were so ordered, it ought not be ordered to pay all of the costs or that it ought not be ordered to pay the costs on an indemnity basis.

Karting NSW opposed the amendments sought by Karting Australia. First, it contended that the prefatory words in order 1 were both unnecessary and inappropriate. Secondly, it refuted the suggestion that there should be any carve-out for the costs of the principal proceedings. Karting NSW pointed out that all it had done was to treat the three loan agreements as remaining on foot and continue to repay the principal amounts in accordance with their terms. As it happened, this resulted in the principal amount advanced pursuant to the first loan being repaid in full on 17 May 2020 and the principal amount advanced pursuant to the second loan being repaid in full on 21 January 2021. The third loan remains on foot, there having been no breach by the defendant, by reason of the unenforceability (as I found in the principal judgment) of the provisions for accelerated payment of principal and interest.

I accept the submissions of Karting NSW. It has been wholly successful in defeating Karting Australia’s claim and in prosecuting its cross-claim and is, accordingly, entitled to the benefit of the Offer of Compromise. The payments it made under the loan agreements after the commencement of proceedings did not amount to capitulation. They accorded with the position it took at trial, which was vindicated by the principal judgment: namely, that it was obliged to continue to make periodic repayments of principal pursuant to the terms of the loan agreements but it was not bound to make an accelerated payment of principal or any payments of interest, because these terms were, in the circumstances, penalties and unconscionable.

I note for completeness that the parties proposed that I dismiss the statement of claim. In circumstances where a defendant has succeeded in defending a claim on a statement of claim, it is appropriate to enter judgment for the defendant (which is to be compared with the appropriate order in proceedings commenced by summons, which is, in that event, that a summons be dismissed), which is what occurred on 25 August 2021. Accordingly, I do not propose to order that the statement of claim be dismissed.

For the reasons given above, I make the following orders: