Brown v The Stables Perisher Management Pty Ltd (No 2)

1. [1]

   BELL CJ: By judgment delivered on 21 December 2021 (Brown v The Stables Perisher Management Pty Ltd [2021] NSWSC 1688; referred to subsequently as the principal judgment), I made various declarations in favour of the Plaintiffs together with an order that the Defendant was bound to account to the Plaintiffs for their respective incomes and expenses in relation to Apartments 9-1 and 26 in The Stables resort complex in the Perisher Valley.

2. [2]

   I also ordered that the parties file and serve written submissions with respect to the costs of the proceedings.

3. [3]

   The proceedings concerned the legal validity and, to the extent that the question of relief against forfeiture arose, the propriety, in the eyes of equity, of The Stables Perisher Management Pty Ltd’s (SPM or the Defendant) purported termination in July 2020 of two valuable long-term subleases of apartments held by the Plaintiffs.

4. [4]

   These reasons presuppose familiarity with the principal judgment but it is necessary to recount the following short facts.

5. [5]

   On 23 July 2020, SPM purported to terminate the subleases and to retake possession of Apartments 9-1 and 26, causing the locks on both apartments to be changed. Notices of Default had been served on the Plaintiffs on 27 May 2020. The respective Notices of Default asserted that monetary amounts were owing in the sums of $210,053.04 (in respect of Apartment 26) and $110, 679.01 (in respect of Apartment 9-1).

6. [6]

   The circumstances surrounding the issue of the Notices of Default, attempts on the part of the Plaintiffs’ solicitor to ascertain the basis upon which it was asserted that these amounts were owing, and the wholly unsatisfactory response on behalf of the Defendant were set out in considerable detail in the principal judgment at [199]–[206] and [249]–[345]. My conclusion was that, apart from some de minimis charges in relation to one of the underlying invoices referenced in the Notice of Default regarding Apartment 26, the amounts claimed were not in fact owing and had been illegitimately and unjustifiably charged.

7. [7]

   In relation to Mr Matthew Anstee, the sole director of the Defendant, I concluded at [231] that he was the principal architect of the idea to issue crippling and unjustified invoices to the Plaintiffs in May 2020 for some amounts which he knew were not warranted or could not be justified, and others which were specious or problematic.

8. [8]

   I also concluded that the purported termination of the subleases was invalid and that the Notices of Termination were issued for an improper purpose and were of no effect. At [378]–[379] of the principal judgment, I wrote as follows:

9. [9]

   I went on to observe at [383] that:

10. [10]

    It is evident from the passages above that the Plaintiffs enjoyed success in the proceedings and that, prima facie, costs should follow the event.

Costs

1. [11]

   The Plaintiffs have submitted that the following costs orders should be made:

2. [12]

   The date 2 July 2020 is significant because, on that day, the Plaintiffs’ solicitor wrote a detailed letter to the Defendant’s solicitor, advancing many of the detailed criticisms, which were vindicated in the principal judgment, of the Defendant’s claims to be entitled to substantial sums of money. The letter concluded with the following open offer:

3. [13]

   The date 7 September 2021, referred to in the Plaintiffs’ proposed costs orders, is relevant as it was on that date that a Calderbank letter was sent, some two weeks prior to the commencement of the hearing, offering to forgo holiday letting income, yet to be accounted for, from the apartments following the Defendant’s re-entry in July 2020, and to discontinue the proceedings on the basis that the Notices of Termination were withdrawn by the Defendant and that the Plaintiffs were permitted to sell the apartments. This offer, which was only open for three days, was not accepted and the proceedings were conducted over some four days.

4. [14]

   The principles relating to the rejection or non-acceptance of a Calderbank letter were recently summarised by Ward CJ in Eq (as her Honour then was) in Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd (No 3) [2021] NSWSC 1537:

5. [15]

   The Plaintiffs rest their claim to indemnity costs not only on the basis of the Calderbank letter, but by reference to the conduct of the Defendant more generally and, in particular, from 2 July 2020. In this context, they submitted:

6. [16]

   Recently (In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356), Black J summarised the principles applicable to the making of indemnity costs orders at [8]:

7. [17]

   A flavour of the “relevant delinquency” referred to in this passage is provided by the well-known observations of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233; [1993] FCA 801:

8. [18]

   The Plaintiffs have placed particular reliance upon my summary conclusions, reproduced at [8]–[9] above, in support of their application for indemnity costs.

9. [19]

   The Defendant, on the other hand, does not accept that it should be liable for costs at all. To the contrary, it asserts a contractual entitlement to have its costs paid on the basis that, although the amounts that were originally sought, as particularised in the Notices of Default, were held not to be owing, some far smaller amounts were found to be owing. On this basis, it was put that the Plaintiffs were in breach of the subleases and indemnity provisions thereunder were engaged.

10. [20]

    I reject this argument.

11. [21]

    There was no finding that the Plaintiffs were in fact in breach of the subleases and it is not open to the Defendant to assert, after the event, that they were in breach by not having paid particular small amounts, in circumstances where the Defendant had either been unable to or had refused to provide any clarity or substantiating documentation in support of the invoices that had been raised. This was a matter dealt with in the principal judgment, including at [370]–[371]. The parties also adopted the conventional practice, deposed to in unchallenged evidence at trial, that there would be a set-off of any expenses carried forward against income received from the rental of the apartments: see [179] and [332] of the principal judgment. In light of this conventional practice and the Defendant’s failure to provide any proper particularisation of the extraordinary amounts sought to be charged (a failure founded on the fact that there was no proper basis for the charges), there was no relevant breach of the subleases which would have engaged any contractual obligation to meet the Defendant’s costs. That contractual provision, in any event, would not have supported or supplied an indemnity to the Defendant for its improper and unreasonable actions.

12. [22]

    The Defendant also relies on the fact that the Plaintiffs elected not to seek equitable compensation or damages, heads of relief which were originally claimed but not pursued at the hearing. As to the non-pursuit of a claim for equitable compensation or damages, two points may be made. First, the Plaintiffs sought an account; secondly, the non-pursuit of such a claim made the proceedings shorter than they otherwise would have been. The Plaintiffs filed no evidence in support of such a claim and none, so far as I am aware, was prepared in response by the Defendant.

13. [23]

    The decision not to pursue a claim for damages or equitable compensation, especially in circumstances where an account was sought, supplies no reason for depriving the Plaintiffs of an order for costs. The real issue is whether costs should be awarded on an indemnity basis.

14. [24]

    In my opinion they should be.

15. [25]

    I base this conclusion not on the rejection or non-acceptance of the Calderbank letter of 7 September 2021, but by reason of the Defendant’s approach to and conduct of the proceedings more generally. This included the rejection of the proposal contained in the 2 July 2020 letter (see [12] above) and the non-acceptance of a proposal advanced by the Plaintiffs’ solicitor on 29 July 2020 to permit the sale of Apartment 26 and to quarantine the sum of $210,053.04 (being the amount claimed in the Notice of Default in relation to Apartment 26) pending the orderly resolution of the proceedings: see [204] of the principal judgment.

16. [26]

    The passages extracted earlier in these reasons as to my summary conclusions were just that: conclusions. They were reached following the interrogation of the basis for the asserted underlying indebtedness. Time and time again, the Defendant was wholly unable to substantiate the claims that had been made. They could not be defended either by Mr Anstee (who took refuge in seeking to blame his ignorance on the staff of SPM, who were not called) or by Mr Moore (SPM’s counsel) who, as recorded in the principal judgment, was wholly unable to justify or supply any proper legal basis for a number of the items claimed: see, for example, [283], [300], [329], [340], [345]. A similar inability to justify charges and supply particulars had confronted the Defendant’s previous legal adviser, Mr Dowling: see the principal judgment at [196]–[197]. There is also the fact that no particulars whatsoever were supplied in respect of the charges sought to be raised in relation to Apartment 9-1 prior to the commencement of proceedings.

17. [27]

    The Plaintiffs’ solicitor, Mr Aaran Johnson, had sought details, proper particulars and substantiation of the amounts claimed from well prior to the commencement of proceedings. The responses he received were exiguous at best and, as was held in the principal judgment, Mr Anstee was motivated by a “desire to force [Mrs Brown] to capitulate to his demands to recompense him for moneys which he considered Mr Brown had caused him to lose in the failed Kangaloon Road Development”: [318]; see also [354]. This motivation was demonstrated by the Defendant’s demands for the provision of bank guarantees by the Plaintiffs, in the sums of $10,000 and $20,000 respectively, which had no contractual foundation and were an attempt to squeeze the Plaintiffs financially in circumstances where Mr Anstee knew full well that their financial position was poor: see [376]. As stated at [378], the Defendant’s course of conduct was heavy handed and was pursued by Mr Anstee in order to extract amounts from the Plaintiffs for which they were not liable and to which SPM was not entitled. As stated in the principal judgment at [378], that course of conduct was “deliberate, calculated to apply pressure to capitulate or to force capitulation, and utterly unconscionable”.

18. [28]

    For the purposes of considering indemnity costs, which must focus principally on the manner in which the proceedings were conducted (see [16]–[17] above), the stance taken by the Defendant in the proceedings was a continuation of its earlier conduct. The only concessions that were made emerged during Mr Moore’s closing submissions and they were not, in truth, volunteered but emerged as a result of the complete absence of instructions or any evidentiary basis for supporting particular charges.

19. [29]

    A four-day hearing occurred, in which all matters were put in issue, and the Defendant’s underlying case that the terminations were valid as large amounts were owing by the Plaintiffs was maintained where there was no proper foundation for it. The Defendant was aware of Mrs Brown’s straitened financial circumstances, both by reason of her own Affidavit evidence (see [213]–[214] of the principal judgment) and as a result of her husband’s business failures. Mr Anstee held the whip hand and knew that no income had flowed from the apartments to the Plaintiffs after the Defendant had re-taken possession in July 2020.

20. [30]

    The circumstances of this case attract, in my opinion, the principles referred to in cases such as those quoted at [16]–[17] above. The Plaintiffs should have their costs on an indemnity basis from 2 July 2020.

Gross sum costs

1. [31]

   As to whether costs should be awarded by way of a gross sum pursuant to s 98(4)(c) of the Civil Procedure Act, the Defendant does not oppose the award on such a basis if the Plaintiffs are otherwise entitled to costs. The Defendant maintains, however, that any gross sum should be reduced by reason of the fact that the Plaintiffs did not pursue all of the relief they had originally claimed and by reason of the fact that, according to the Defendant, the Plaintiffs were in breach of the subleases, albeit for much smaller sums than were originally claimed. These were essentially the same two considerations advanced in favour of a costs order against the Plaintiffs, which I rejected at [21]–[23] above. For the same reasons there given, they are not good arguments and should not result in a reduction of any gross sum.

2. [32]

   In my opinion, this is an appropriate case for a gross sum costs order and, as noted above, this was not in issue (as opposed to the quantum of such an award).

3. [33]

   As to the assessment of a gross sum, I adopt the valuable summary given by Beazley JA (as her Honour then was) in Hamod v State of New South Wales [2011] NSWCA 375:

4. [34]

   Evidence as to the professional costs incurred by the Plaintiffs in bringing the proceedings was contained in Mr Johnson’s Affidavit of 3 February 2022, and the exhibit thereto. Both the Affidavit and the invoices (forming part of the exhibit) contain detailed narratives of the work done. This extended to all aspects of trial preparation, including attendance at various directions and interlocutory hearings. The invoices also itemised counsel’s fees of $56,325.00 which, given the length and complexity of the case and the amount of preparation necessarily involved, appear to be reasonable.

5. [35]

   As noted above, Mr Johnson annexed invoices to his Affidavit totalling some $227,442.15. From this sum should be deducted $9,168.50, being the sum of invoices in relation to work done up until 26 June 2020, prior to the purported termination of the subleases on 23 July 2020.

6. [36]

   No submission was made by the Defendant that the amounts charged by the Plaintiffs’ legal representatives (and now claimed as gross sum costs) were excessive, either by comparison to the Defendant’s costs or more generally.

7. [37]

   The Plaintiffs submitted that a discount of 10–20% is usually applied in the case of an indemnity order when calculating gross sum costs. That submission may represent the usual practice, although the observations of Brereton J (as his Honour then was) in Hancock v Rinehart (Lump sum costs) [2015] NSWSC 1640 should be noted:

8. [38]

   I do not consider that the legal representatives of the successful Plaintiffs in the present case erred on the side of excessiveness in their representation of the Plaintiffs and no such suggestion was made by the Defendant.

9. [39]

   In all of the circumstances, I would apply a 10% discount to the sum of $227,442.15 less $9,168.50 (see [35] above), resulting in a sum of $196,446.29. The Plaintiffs’ evidence as to costs did not include any amount in relation to the application for costs or the deficiencies in the Defendant’s account (dealt with below). For that reason, I would round the gross sum of costs awarded in favour of the Plaintiffs up to $200,000.

Accounting

1. [40]

   As noted at [1] above, the Defendant was ordered to account to the Plaintiffs for their respective incomes and expenses in relation to Apartments 9-1 and 26 in The Stables resort complex in the Perisher Valley.

2. [41]

   The Defendant purported to provide this account by a summary spreadsheet detailing income and expenses to 21 February 2022, which showed a deficit (i.e. an amount said to be owing by the Plaintiffs) for Apartment 26 in the sum of $4,247.69 and a deficit in respect of Apartment 9-1 in the sum of $20,605.12. Indeed, in its submissions, the Defendant sought judgment in these amounts.

3. [42]

   The spreadsheet summary included, as expenses, estimated insurance premiums and energy bills post-dating 21 February 2022 in the sum of $7,941.10 (for Apartment 26) and $4753.48 + $5,279.11 (for Apartment 9-1), totalling $10,032.59. These should not have been taken into account in the accounting exercise, the purpose of which was to fix the amounts owing as at 21 February 2022.

4. [43]

   The Plaintiffs also complained that in respect of “amounts owing”, the Defendant claimed “Land Tax 2015-2020” in the sum of $3,261.14 for Apartment 26. This claim repeated the vice pointed out in the principal judgment, namely that Mrs Brown did not come into ownership of Apartment 26 until November 2017 and was not liable for expenses incurred prior to that time. There was no legitimate basis for claiming land tax in respect of Apartment 26 in the years 2015–2017. The sum of $3,261.14 should not have been claimed as an expense.

5. [44]

   The Plaintiffs also complain that the calculation of management fees involves an error and overstatement in that the fees do not represent 25% of what is shown as the gross income. The fees do, however, appear to be 25% of the gross income when GST is included, and there does not appear to me to be any error in this respect.

6. [45]

   Finally, the Plaintiffs raise a number of issues in relation to the income received for the respective apartments. They point out that in respect of Apartment 9-1, despite the fact that the ski season traditionally commences on the June long weekend, the first rental in 2020 is not shown as commencing until 23 August; and the first rental in 2021 is not shown as commencing until 23 June. In respect of Apartment 26, the first rental in 2020 is not shown as commencing until 19 July; and the first rental in 2021 is not shown as commencing until 11 June.

7. [46]

   In respect of the 2020 ski season, it would appear from the summary spreadsheet that the Defendant has chosen to commence the accounting exercise from 24 July 2020, being the day after it purported to terminate the subleases. As I understand matters, however, there has been no accounting to the Plaintiffs for income derived from the leasing of the apartments for any of the 2020 season, including the first seven or eight weeks of that season prior to 24 July 2020. The intention of the order to account was just that, but that is not what has been done. I note, by way of contrast, that the Defendant has sought to offset expenses including amounts owing as of 30 June 2020.

8. [47]

   A consequence of this is that there has not been a proper account and orders must be made to redress that situation. I propose to order the Defendant to furnish an Affidavit of Mr Anstee setting out the income for each of the apartments for the period from 1 June 2020 until 19 July 2020 (in the case of Apartment 26) and from June 2020 until 23 August 2020 in the case of Apartment 9-1. The Affidavit should annex all relevant documentation in relation to the lettings of each apartment and should also provide a calculation of any management fees payable in relation to the income for those periods.

9. [48]

   The Plaintiffs also point out that they were notified of a number of forward bookings for the 2021 ski season that are not shown on the Defendant’s summary spreadsheet. These included periods when the apartments were noted in forward booking statements as being rented by Mr Anstee and SPM. It may or may not be that these bookings were cancelled but, even if they were, there may be some cancellation fee to which the Plaintiffs are entitled. Mr Anstee should also include in his further Affidavit an account of what income, if any, was received in relation to cancelled bookings, forecasted cancelled bookings and/or forward bookings as shown in Annexure C to the Plaintiffs’ Submissions in Reply as to Costs.

10. [49]

    Until the information identified in [47] and [48] of this judgment has been provided, it will not be possible for a proper account to be taken. The Affidavit should be filed and served with a copy sent to my Associate by 4.00pm on 14 July 2022. Any further submissions in relation to it should be filed with my Associate by 4.00pm on 18 July 2022. A final judgment in relation to the account will be delivered shortly thereafter.

11. [50]

    It goes without saying that the Defendant is under a continuing obligation to account to the Plaintiffs for income received as a result of the letting of the apartments during the current ski season.

Orders

1. [51]

   I make the following orders:

   1. (1)

      the Defendant to pay the Plaintiffs’ costs of the proceedings in the sum of $200,000.

   2. (2)

      The Defendant to file and serve an Affidavit of Mr Anstee with a copy sent to my Associate by 4.00pm on 14 July 2022 addressing the matters set out in paragraphs [47] and [48] of this judgment.

   3. (3)

      Any further submissions in relation to the account should be filed with my Associate by 4.00pm on 18 July 2022.