Perpetual Corporate Trust Limited v Ip

These proceedings were commenced on 4 September 2023 by filing a statement of claim. The plaintiff sought possession of a property in Rose Bay belonging to the first and second defendants, possession of two properties in Boyd St, Tweed Heads (“the Boyd St properties”) belonging to the second and third defendants, judgment against the first defendant for $27,643,298.85 pursuant to five different loans, judgment against the second defendant for $27,169,844.64 in respect of four of the five loans claimed against the first defendant, and judgment against the third defendant for $6,027,201.94 in respect of one of the loans claimed against the second and third defendants.

Since the commencement of the proceedings the plaintiff has been paid in full in respect of the loan amount being claimed against the third defendant. Accordingly, the plaintiff intends to discontinue the proceedings, but wishes to do so without being required to pay the costs of the third defendant.

The five loans were made to five different companies. The first defendant was alleged to be the guarantor of all five of those loans. The second defendant was alleged to be the guarantor of four of those loans and the third defendant was alleged to be the guarantor of one of those loans, being a loan to Onward Business Consultants Pty Ltd (“OBC”).

The mortgages were given by the defendants to secure their obligations as guarantors.

On 3 October 2023, the third defendant filed a defence denying that he was the guarantor of the OBC loan but did not admit the paragraphs that alleged that the Boyd St properties were mortgaged to secure his obligations as a guarantor.

On 15 November 2023, the solicitor for the plaintiff sent an email to the solicitors for the three defendants attaching what was described as a revised amended statement of claim. The additional amendments from an earlier circulated proposed amended statement of claim involved deleting claims for possession in respect of the Boyd St properties. The email said that the plaintiff no longer required possession of those properties because receivers were selling the land as it was. The proposed amended statement of claim made no other amendments affecting the third defendant.

At a directions hearing on 23 November 2023, the Registrar ordered by consent (inter alia) that the plaintiff had leave to file and serve by 27 November 2023 its amended statement of claim served under cover of the email of 15 November 2023. The amended statement of claim was not served by 27 November 2023.

At a directions hearing on 7 February 2024, the Registrar ordered by consent that the time for the plaintiff to file and serve its amended statement of claim was extended to 9 February 2024 and that the defendants were to file any defences by 4 March 2024. The amended statement of claim was duly filed on 9 February 2024.

On 5 February 2024, the plaintiff’s solicitors sent an email to the third defendant’s solicitors resisting answering a further request for particulars made by the third defendant’s solicitors. The plaintiff’s solicitors reiterated that, as was evident from the plaintiff’s proposed amendments to the statement of claim, the plaintiff no longer sought any relief in relation to the Boyd St properties. The email went on to say:

The solicitors for the third defendant did not respond to that email, nor did they file their defence to the amended statement of claim by 4 March 2024. When the proceedings came before the Registrar again on 4 April 2024 the Registrar extended the time for the defendants to file and serve defences and any cross claim to 15 April 2024.

On 5 April 2024, the plaintiff’s solicitors sent an email to the third defendant’s solicitors noting that OBC had entered into contracts for the sale of XXX Wharf St, Tweed Heads (“the Wharf St property”), and that the settlement of that property had occurred. The email went on to say:

The solicitors for the third defendant did not respond to that email but, rather surprisingly in the light of what was said in the email, they filed a defence to the amended statement of claim on 16 April 2024.

Rule 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) relevantly provide:

In Furnish & Finish Pty Ltd v Hollands [2020] NSWSC 1593 the plaintiff sought and obtained ex parte relief pursuant to a restraint covenant in the defendant’s employment contract. After some interlocutory skirmishing, the plaintiff indicated about two months after the proceedings commenced that it would not pursue the final relief in the summons and sought to discontinue the proceedings. Justice Ward (then the Chief Judge in Equity) said:

In Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack and Ors [2003] NSWCA 302, Davies AJA (with whom Mason P and Meagher JA agreed) quoted with approval what was said by Burchett J in One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at 553:

In Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32, Basten JA said at [79]:

The third defendant submitted that there were three reasons the plaintiff should pay the third defendant’s costs if it discontinues the claim. First, the “event”, being the sale of the Wharf St property was not a supervening event as contemplated by the authorities. The third defendant submitted that a supervening event is a reference to where the parties have settled proceedings, where there has been a change of legislation since the commencement of the proceedings, or where there has been some conduct on the part of the defendant that has rendered the proceedings futile. The third defendant said that it had not done anything to procure the sale of the Wharf St property. Rather it was the receivers appointed by the plaintiff who had brought about that situation.

Secondly, the third defendant submitted that the courts discretion would not be exercised to deviate from the usual course found in UCPR r 42.19 because of the hedging strategy the plaintiff employed in taking security directly from the borrower as well as security from the third defendant as the guarantor. The third defendant submitted that the discontinuance of the proceedings meant that it no longer had the opportunity to have the issue between the plaintiff and the third defendant heard and determined.

Thirdly, the third defendant submitted that, in relation to the correspondence relied on by the plaintiff, it indicated only that a sale of the Wharf St property was contemplated, the sale had not settled until around 5 April 2024, in the meantime the claims against the third defendant were still being pursued, and it had to incur costs in defending the proceedings.

In my opinion, the plaintiff should be entitled to discontinue the proceedings against the third defendant without being required to pay the third defendant’s costs for two reasons. First, it seems to me that the sale of the Wharf St property which resulted in payment of what the plaintiff claimed from the third defendant was a supervening event. The authorities do not specify the nature of a supervening event. Clearly, a change in legislation, or some act on the part of the defendant which changed the landscape would amount to a supervening event. However, the word “supervene” does not carry with it any connotation of unexpected or unanticipated. Further, the authorities do not qualify “supervening” by any such adjective.

In my opinion, the sale by the plaintiff of another secured property which had the practical effect of eliminating any debt allegedly owed by the third defendant, is a supervening event for the purpose of the principle identified in One Tel and subsequently followed in the cases earlier cited.

Secondly, as Ward CJ in Eq made clear in Furnish & Finish at [35], in the circumstances of a situation where there has been no hearing on the merits, ordinarily for there to be a costs order in favour of one party it is necessary to show that the other party’s conduct as has been so unreasonable as to warrant such an order: see also Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 159 at [55].

In that regard I note the following. The proceedings were commenced on 4 September 2023. On 15 November 2023, the plaintiff indicated that it intended to amend the statement of claim to delete the claims for possession of the Boyd St properties. On 5 February 2024, the plaintiff informed the third defendant that it intended to sell the Wharf St property and that the proceeds of sale would be sufficient to repay in full the debt they said the third defendant owed. They expected settlement to occur on 28 February 2024 and then they intended to discontinue the proceedings against the third defendant. On 5 April 2024, they confirmed that the sale had settled and that the debt being claimed had been repaid.

It is difficult to understand in those circumstances why the solicitors for the third defendant apparently continued on with their conduct of the proceedings as if nothing had happened. As noted earlier, in the face of that email of 5 April 2024, they filed a defence to the amended statement of claim some 11 days later. The explanation for doing so provided by the third defendant relied upon an email only sent to the plaintiff’s solicitor on 11 June 2024 which set out some difficulties the third defendant was having around the time of the email from the plaintiff’s solicitor of 5 April 2024. That email claimed that the third defendant was under pressure to file its defence to the amended statement of claim pursuant to consent orders made on 4 April 2024. However, the email of 5 April 2024 from the plaintiff’s solicitors changed the landscape in that regard.

The significant matter is not, however, whether the third defendant behaved unreasonably, but whether it could be said that the plaintiff’s conduct of the proceedings were so unreasonable as to warrant a costs order when the plaintiff is seeking to discontinue. It is a relevant consideration whether the commencement of the proceedings was justified: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [11]. The claim against the third defendant was based on a Deed of Guarantee and a mortgage given by the third defendant and a default by the borrower OBC. The defence was not that the documents were not agreed to or executed by the third defendant but that they should be set aside for the reasons set out in the defence. Accordingly, the commencement of the proceedings was justified.

Thereafter, in my opinion, the plaintiff acted more than reasonably in keeping the third defendant informed from the moment it decided to amend its claim to delete the claims for possession of the Boyd St properties right up to the settlement of the sale of the Wharf St property.

The authorities make clear that the court cannot embark on a mini trial or satellite litigation to determine issues that would have been determined at a final hearing had the proceedings not been brought to an end. I agree with the plaintiff’s submission that the hedging issue is not something that can be determined on the present application for costs. The circumstances surrounding, and the reasons for, the taking of security over both the borrower’s land and the guarantor’s land might have been an issue in the final proceedings based on what is pleaded in the defence, but the reasonableness of it cannot be determined in the present circumstances.

The third defendant’s submission, that it was deprived of the opportunity to have the hedging issue heard and determined, appears to be based on what was said by Hodgson JA in Bitannia at [57]:

It is not without significance that at the time the plaintiff indicated that it might seek to discontinue, and then when it said that it would seek to discontinue, the proceedings had only reached a relatively early stage. A defence had been filed. Despite the intimation that the statement of claim would be amended in November 2023, no such pleading was filed until 9 February, a date after the third defendant had been informed the Wharf St property would be sold instead. The third defendant then did not file its defence to that amended statement of claim until 16 April, after it had been told there was no debt any longer owing to the plaintiff by the third defendant. Further, the amended statement of claim only deleted claims against the third defendant; it did not add any.

In all of the circumstances where a supervening event made the claim against the third defendant futile and such an early stage, and it cannot be said the plaintiff behaved unreasonably in commencing nor carrying on those proceedings, the plaintiff should not be ordered to pay the third defendant’s costs.

The following orders should be made: