Solicitors:
Malcolm McDonald & Co (Plaintiffs)
Mistry Fallahi (Respondent in the application)
File Number(s): 2018/91831
[2]
Judgment
This is an application to determine whether the Court should adopt a referee's report of Mr Gregory Burton SC. By way of background to the application, Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs. apptd) ("Fearndale") owned certain land at Luddenham in New South Wales, which has now been sold by the administrator appointed to Fearndale. The Plaintiffs in the proceedings, the Messrs Harpley, are directors of Fearndale and own a substantial percentage of its shares, and they participated in the reference.
Fearndale guaranteed certain obligations of another entity, Equivest Holdings Pty Limited ("Equivest") under two loans made by Australia and New Zealand Banking Group Limited ("ANZ") to Equivest, to which I will refer as the "Term Loan" and the "Overdraft Facility" respectively. The terms of those arrangements were originally set out in a letter of offer dated 12 August 2011 from ANZ to Equivest (Ex ALI-1, 329); the terms of Fearndale's guarantee of Equivest's performance of its obligations under the Term Loan and Overdraft Facility were set out in a Corporate Guarantee and Indemnity also dated 15 August 2011 (Ex ALI-1, 607); and the land owned by Fearndale was mortgaged (Ex ALI-1, 228) to secure its obligations under that guarantee. The terms of the loans were then varied by a letter dated 15 March 2012 from ANZ to Equivest (Ex ALI-1, 338). The letter of offer and variation letter also incorporated other terms and conditions set by ANZ, including ANZ's General Service Fees and Charges (Ex ALI-1, 508).
On or about 10 December 2014, ANZ assigned the Term Loan, the Overdraft Facility, Fearndale's guarantee and the mortgage and its rights thereunder to a Defendant in the proceedings, Consolidated Capital and Funding Pty Ltd ("CCF"). It is common ground that Equivest and Fearndale did not make payments to ANZ or CCF in respect of the Term Loan and Overdraft Facility from at least 19 December 2014.
Disputes arose between, inter alia, Fearndale and CCF and, by orders made by consent on 2 May 2018, Leeming JA (sitting at first instance in the Corporations List) ordered, inter alia, that there be a referral under rr 20.14, 20.15 and 20.17 of the Uniform Civil Procedure Rules 2005 (NSW) to a referee for hearing and determination of the reasonable and proper amounts to which CCF was entitled to receive out of the proceeds of the sale of the land owned by Fearndale in satisfaction of its entitlements under the guarantee and mortgage, including receivers' fees and expenses.
After a lengthy process, including submissions and an oral hearing involving cross-examination, Mr Burton delivered a comprehensive report on 8 July 2019. The referee first determined the amount of principal payable to CCF, which was conceded, and certain additional amounts to be added to the principal. The referee determined that interest was to be allowed at a rate of 8.66% per annum compounding with daily rests from 19 December 2014 to and including 19 January 2015 and at a rate of 11.66% compounding with daily rests from 20 January 2015. The referee also determined the amount of receivers' fees and expenses and the administrator's fees and expenses and CCF's legal expenses and management expenses that were properly recoverable. The referee determined that CCF was not entitled to receive certain other amounts that it had claimed and expressed a provisional view as to costs of the reference, at the parties' request, namely that CCF should pay 30% of the Plaintiffs' costs of the reference on the ordinary basis as agreed or assessed. There is now no contest as to the substantial majority of those matters. As I noted above, the matter is now listed for the Court to determine whether to adopt, vary or reject the referee's report.
By the time of this hearing, CCF had assigned its interest in the relevant loan and securities to Australian Lending Investment Pty Ltd ("ALI"), and ALI participated in this hearing and filed a Notice of Contention on 20 November 2019 in substantially similar form to that which had previously been filed by CCF. That Notice of Contention raised three issues, as to the calculation of interest on the loans, as to whether two additional fees were recoverable by CCF, and as to the referee's provisional view as to costs. Each of those applications was pressed, and I will deal with them in turn.
The Plaintiffs also filed a Notice of Contention which took objection to the referee's determination of the basis on which interest should be calculated and contended for a different result as to costs of the reference from the preliminary view that the referee had expressed. The Plaintiffs ultimately did not press either of those matters at the hearing before me. I note, for completeness, that ALI fairly conceded, and I noted in the course of the hearing, that an adjustment should be made to the amount owing by Fearndale to ALI in respect of monies paid by the liquidator of another entity, Epic Mining Pty Ltd to CCF in the amount of $100,000.
[3]
Applicable legal principles
It was common ground between the parties that the Court has a judicial discretion to adopt, vary or reject the referee's report, in whole or in part, under r 20.24 of the Uniform Civil Procedure Rules. That rule provides that:
"20.24 Proceedings on the report
(1) If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following -
(a) it may adopt, vary or reject the report in whole or in part,
(b) it may require an explanation by way of report from the referee,
(c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report,
(d) it may decide any matter on the evidence taken before the referee, with or without additional evidence,
and must, in any event, give such judgment or make such order as the court thinks fit.
(2) Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court."
In Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [6]-[8] (to which Mr Ashhurst, who appears with Mr Afshar for ALI, refers), McDougall J summarised the principles applicable to the Court's discretion in the adoption or rejection of a referee's report, observing that:
"The principles to be applied, in exercising the discretion conferred upon the Court by Pt 72 r 13 to adopt, vary or reject in whole or in part a report of a referee, are well established. There are a number of cases to which, customarily, reference is made. They include Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; the unreported proceedings in that case before Giles J (19 May 1992: the relevant considerations referred to by his Honour are sufficiently extracted in the decision of the Court of Appeal); Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60; White Constructions (NT) Pty Ltd v Commonwealth of Australia (1990) 7 BCL 193; and Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615. As to the nature and content of the referee's obligation to give reasons, the relevant authorities include Xuereb v Viola (1989) 18 NSWLR 453 and Hughes Bros Pty Ltd v Minister for Public Works (Rolfe J, 17 August 1994 unreported; BC 9402885).
The relevant principles, distilled from those decisions, can be stated as follows:
(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.
(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.
(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.
(6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory".
(7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.
(12) The right to be heard does not involve the right to be heard twice.
(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it". The real question is far more limited: "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence".
(14) Where, although the referee's reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee's findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.
(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.
The twelfth point restates the aphorism of Mahoney JA in Super at 567. The thirteenth, fourteenth and fifteenth points are drawn (and include direct quotations) from the judgment of Hodgson CJ in Eq (with whom Priestley JA agreed and with whom, as to the relevant principles, Fitzgerald AJ also agreed) in Franks & Anor v Berem Constructions Pty Ltd (NSWCA 2 December 1998, unreported; BC 9806367). If I may say so with respect, I regard what his Honour said as giving content, on the facts of the particular case, to the operation of relevant principles rather than as stating any new principle."
Those principles have since been adopted on many occasions: New South Wales v Bovis Lend Lease Pty Ltd [2007] NSWSC 1045 at [7]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 at [12]; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163 at [30]-[31]; Sangain Pty Ltd v Italform Pty Ltd [2009] NSWSC 74 at [14]; and see Mainteck Services Pty Limited v Stein Heurtey SA [2013] NSWSC 266. In Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [47]-[48], Spigelman CJ and Allsop P (with whom Campbell JA agreed) referred, without criticism, to that approach and observed that:
"We would only add that the approach of a judge faced with the requested adoption of a referee's report should be determined according to the nature of the issues and the circumstances of the case.
Highly relevant to that general overall consideration is the historical context of the rules concerning references, the recognition of the reference as a special form of hearing or trial (though not one leading, without more, to a verdict or judgment) over which the Court has a power of review, and the recognition of the place of references within the wider modern framework of alternative dispute resolution: see the discussion of these matters in the reasons for judgment of Gleeson CJ in Super v SJP Formwork at 558-564. The history of references under an order of the Court in the disposition of justiciable controversies that is the subject of discussion by Stephen J and Jacobs J in Buckley v Bennell Design & Constructions Pty Ltd (1978) 140 CLR 1 at 15-22 and 28-38, respectively, by Gleeson CJ in Super v SPJ Formwork and by Brooking J in Nicholls v Stamer [1980] VR 479 illuminates the wide general power available to the Court in the review and adoption process."
In Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd [2013] NSWCA 6 at [16], Barrett JA (with whom Meagher and Ward JJA agreed) also observed that:
"a judge considering whether or not to adopt a referee's report is called upon to exercise a discretion - whether to give the court's imprimatur to a decision made outside the normal curial process by a person charged with the duty of assessing a particular question in the light of the evidence and coming to an informed conclusion, often as to matters lying within a field in which that person has special expertise."
Mr Ashhurst also refers to Depofo Pty Ltd v Barnes [2019] NSWSC 949 at [35], where Kunc J observed that, to reject a report based on a finding of fact, it must be shown that that finding was one "which no reasonable tribunal of fact could have reached". Mr Ashhurst also submits, and it is uncontroversial that, the express terms of the relevant financing documents should be construed in accordance with the usual principles that apply to construing commercial contracts.
[4]
The referee's calculations of the rate of interest
The Plaintiffs point out that the claim for interest raised by CCF for the referee's determination was a claim for interest at rates set in a letter dated 18 February 2015 to Equivest, of 20.67% from 20 February 2015 and 30.67% from 1 July 2018, and CCF did not put the arguments before the referee which ALI now advances in this hearing. I accept Mr Ashhurst's submission that these arguments are fairly raised before the Court, so far as they address the approach to interest adopted by the referee when he did not accept either the Plaintiffs' or CCF's contentions, and are relevant to whether his report should be adopted, varied or rejected in respect of this issue.
As Mr Ashhurst recognised in his opening outline of submissions, the referee made several findings in his report, anterior to the finding in paragraph 147 of that report which is now challenged by ALI. The referee made findings (which are not challenged) as to the absence of evidence of the interest rate for the Term Loan and Overdraft Facility prior to the assignment to CCF, and found that a base interest rate of 7.66% and a margin for non-performing loans of 4% were consistently set out in ANZ's documents. Mr Ashhurst also referred to the referee's analysis of the position emerging from the transaction documents at paragraphs 136-140 of his report, and to the basis on which the referee rejected CCF's claim to substantially higher interest rates as set out in a letter dated 18 January 2015 to Equivest. ALI does not challenge the referee's findings in that respect.
In paragraph 147 of his report, the referee then set out his conclusion that:
"In the circumstances, and allowing some margin for risk assessment being increased and recouped through the interest rate, it seems to me that a reasonable amount (which is what I am required to find for the reference) for the interest is a rate of 8.66% from 19 December 2014 to 19 January 2015 both inclusive (being the ANZ margin on the base rate while the loan was not in default to the assignee) and 11.66% from 20 January 2015 (being the base rate plus 4%)."
By its Notice of Contention, ALI contended that that finding should be set aside or varied, because the referee:
"(a) Incorrectly calculated the rate of interest for the period between 19 December 2014 to 18 January 2015, in that the correct rate should have been 9.67% per annum for that period.
(b) Incorrectly calculated the rate of interest for the period after 18 January 2015 to date, in that the correct rate for that period should have been 13.67% per annum for that period, alternatively 12.67% per annum, alternatively, the rate specified in the correspondence to Equivest Holdings Pty Ltd, including the letters dated 18 January 2015 and 27 June 2018."
In oral submissions, Mr Ashhurst clarified that paragraph (a) quoted above should be limited to a contention that the rate of interest for the Overdraft Facility for the period to 18 January 2015 should have been 9.67% per annum, and that ALI did not contend that there was any error in the referee's calculation of the interest rate payable under the Term Loan for that period. Mr Ashhurst also significantly narrowed the challenge to the referee's findings set out in paragraph (b) above.
Mr Ashhurst submitted, first, that the referee had erred in finding in paragraph 147 that the interest rate payable for the Term Loan from 19 February 2015 should be 11.66%, and submitted that it should instead be 12.66%, made up of a base rate of 8.66% (which would correspond to a base rate of 7.66% and the additional margin of 1% payable when the loan was not in default) and the default margin of 4%. Mr Ashhurst originally submitted that the referee had simply made a mathematical error, on the basis that the base rate plus 4% would total 12.66% rather than 11.66%. That does not seem to me to be correct, because the referee had distinguished between the base rate of 7.66%, the additional margin payable when the loan was not in default of 1%, and the default margin of 4%. The sum of the base rate of 7.66% to which the referee referred in paragraph 147 and the default rate of 4% to which he also referred in that paragraph was 11.66% and not 12.66%. Any error in that calculation would only be demonstrated if the base rate was 8.66% not 7.66% or the 1% margin payable prior to default should be included in that calculation in addition to a base rate of 7.66% and the default rate of 4%.
In oral submissions, Mr Ashhurst submitted (T18) that ANZ had varied the margin to 1% making the base rate 8.66%. However, he did not identify any contractual step that amounted to a variation, as distinct from the addition of the 1% margin to the existing 7.66% base rate to calculate the total interest rate payable in the period prior to default, and I am not satisfied that such a variation to the base rate was established. Absent a variation of the base rate, the approach for which ALI contends - of taking a pre-default base rate of 7.66% and adding both the margin of 1% applicable prior to default and the default margin of 4% to derive the higher interest rate of 12.66% - is merely an alternative which the parties could have put to the referee (although CCF did not) and the referee could have adopted. The existence of that alternative does not undermine the referee's finding of an 11.66% rate, by not adding both the 1% margin and the 4% default margin to the base rate.
While the approach for which ALI contends was a possible approach, the referee rightly recognised that his task was to determine a reasonable rate for interest. It seems to me that to do so by adding the default rate to the base rate to derive the rate of 11.66%, as he did, and not also add the additional 1% margin applied prior to default, does not involve any error of principle, misapprehension of the evidence or unreasonableness.
Next, ALI contends that the interest rate for the Overdraft Facility should be 9.67% for the period to 18 February 2015 and 13.67% thereafter, rather than the same interest rates that applied to the Term Loan. In oral submissions, Mr Ashhurst noted that the Term Loan and the Overdraft Facility had been addressed in paragraph 147 of the referee's report by applying the same interest rates. Mr Ashhurst submitted (T19) that that approach reflected the referee's finding in paragraph 116 that CCF had combined the two loans in setting the 20% interest rate it claimed on 20 January 2015, and that the referee had rejected that approach and instead calculated the interest rate by reference to the loan documentation. Mr Ashhurst also submitted (T19) that:
"When the referee calculated the loans by reference to the loan documentation rather than by reference to the interest rates claimed in the letter, then with respect the referee should have applied the interest rates that were applicable to the two loans, because they were not the same."
It seems to me that, contrary to this submission, the referee had reached his finding that the reasonable rates for the Term Loan and the Overdraft Facility were the same, as determined by paragraph 147 in his report, on the basis of the manner in which the principal of the loan was treated by CCF, as to which he made findings in paragraph 116 of his report. I can see no reason that the referee could not properly have regard to the practice adopted by the lender in, as he noted, treating the loan principal as an entire sum and then determine which of several possibilities was a reasonable interest rate on that principal.
Mr Ashhurst submitted (T25) that the referee had simply overlooked that the rates charged under the Term Loan and the Overdraft Facility are not the same rate. I do not accept that submission. As I noted above, the referee had noted the approach taken by CCF, which had not distinguished between the principal amounts referable to the Overdraft Facility and the Term Loan in calculating interest, and indicated that he would take the same approach. Once the referee took that approach, different approaches could then have been adopted to determine a reasonable rate of interest to be applied to both the Term Loan and the Overdraft Facility, including applying the lower interest rate applicable to the Term Loan to the whole of the principal amount (as the referee did), applying the higher interest rate applicable to the Overdraft Facility to the whole of the principal amount (although that approach might well have been inconsistent with CCF's statutory and general law duties) or applying a blended or weighted interest rate to the whole of the principal amount. The availability of alternative approaches does not demonstrate error in the approach that the referee adopted.
No error of principle, misapprehension of the evidence or unreasonableness is shown in the referee's accepting CCF's treatment of the principal sum as entire for the purposes of interest, and then applying the lower interest rate applicable under the Term Loan rather than the higher interest rate applicable to the Overdraft Facility to that principal amount. That approach was not complex and required no further explanation that was given in paragraphs 116 and 147 of the referee's report. The Court should not adopt the different approach for which ALI now contends.
The referee's report should be adopted without amendment in respect of interest rates.
[5]
Fees
ALI rightly recognised that the referee had rejected some of the fees charged by CCF in a letter dated 18 January 2015 to Equivest ("18 January 2015 letter"), but contended that he had not had regard to a "business select fee" of $32 plus GST and an "administration charge" of $187.50 per quarter, for which the ANZ documentation provided. I do not accept that submission, because the referee had recognised the potential for such a fee, but found that the basis for charging it was not established. The referee had referred, in paragraph 107 of his report, to the 18 January 2015 letter which had noted the facilities were in default and had referred to the fees and charges that would be applied from 18 February 2015, if the default was not rectified, including the "monthly business select fee" and a range of other fees. The referee had then referred, at paragraph 157 of his report, to two fees applicable by the ANZ documentation and, at paragraph 158, observed that:
"Beyond that, all the provisions in the documentation set out earlier in this report required substantiation that, in broad terms, the fee charged was a recompense for losses or expenses incurred by ANZ in the attempted or actual exercise of its powers under the various loan and security documentation or by reason of default by the borrower, guarantor or mortgagor."
That paragraph plainly referred to the earlier fees, including those which ALI now contends should have been allowed. The referee then concluded, as a factual finding, that there was inadequate substantiation in the terms required by the power to recoup expenses, and the assertion of such expenses in the 18 January 2015 letter was insufficient for that purpose. The referee also observed at paragraph 161 of his report that:
"Accordingly, all the fees in items 2 to 4 in the letter of 18 January 2015 should be discarded from the principal and for the calculation of interest."
Accordingly, CCF's claim that the referee had not had regard to the relevant fees is not correct. He had found, as a matter of fact, that they were not substantiated and should be discarded. ALI did not, and could not, show any evidentiary or other basis for the Court to reach a different conclusion as to that question of fact. The basis for this challenge is also not established, and the referee's report should be adopted without amendment in respect of fees.
[6]
Costs
Applicable principles
The referee had, at the parties' invitation, expressed a provisional view as to the costs of the reference, although he noted that it was a matter for the Court to deal with those costs which had not been referred to him by the consent order of 2 May 2018. I will first address the applicable principles, which are not controversial in this application and which the parties did not consider it necessary to address in submissions, before turning to the referee's provisional view and the parties' submissions. I have drawn on my summary of these principles in Lukaszewicz v Polish Club Limited [2019] NSWSC 860 at [2]ff in doing so.
The Court has discretion to determine by whom, to whom and to what extent costs are to be paid, and costs will ordinarily follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs, in accordance with r 42.1 of the Uniform Civil Procedure Rules. A successful party has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [44], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that:
"… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs."
That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98].
In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the Court of Appeal noted that, in relation to trials, it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party were unsuccessful took up a significant part of the trial, either by way of evidence or argument. In Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 456 at [8], to which the Court of Appeal referred with apparent approval in Correa v Whittingham (No 2) [2013] NSWCA 471 at [35], I noted that the Court may limit the costs awarded to a party, or not award costs to a party, if its conduct obscured the issues, caused unnecessary evidence to be led or inappropriately prolonged proceedings and increased their cost.
I also addressed the circumstances in which costs could reflect a mixed result of proceedings in Re Metal Storm Ltd (subject to deed of company arrangement) [2014] NSWSC 1170 at [47] as follows:
"In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], the Court of Appeal noted that, where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. However, the Court also pointed to several circumstances in which a different approach might be justified, and noted (at [38]) that:
"Whether an order contrary to the general rule of costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the Court, which powers should be liberally construed."
Similarly, in Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [28]-[31], in a passage recently approved by McDougall J in The Owners - Strata Plan 61162 v Lipman [2014] NSWSC 622 at [241], Hammerschlag J referred to the general rule and to cases where its application may be displaced. In particular, the Court may deprive a successful party of the costs relating to an issue on which it lost when that issue is clearly dominant or separable: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Doppstadt Australia Pty Ltd v Lovick & Son Development Pty Ltd (No 2) [2014] NSWCA 219 at [17]. Where there has been a mixed outcome in proceedings, and costs should be apportioned as between different issues, the Court will generally take a relatively broad brush approach, largely as a matter of impression and evaluation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22."
In Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]-[7], the Court of Appeal in turn noted that:
"Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The "event" may be characterised in more than one way. Generally the "event" refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22.
The relevant principles for the determination of costs on an issue-by-issue basis were stated in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] per Beazley, Ipp and Basten JJA:
"Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).
In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.
If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27].
Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).
A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.""
In Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 2) [2019] NSWCA 19 at [5], the Court of Appeal noted that:
"There is no issue as to the relevant principles. The discretion under Civil Procedure Act 2005 (NSW), s 98 is ordinarily exercised by requiring that "costs follow the event": Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. This default position was historically understood to mean (so as to preserve the practice, where any issue was tried with a jury, that those costs followed the outcome of that event) "that the costs of the several issues went to the party who succeeded on them respectively, while the general costs went to him who on the whole succeeded on the action" … But more recent authority favours the award of the costs of proceedings to the party successful overall without any differentiation as to issues, at least "unless a particular issue or group of issues is clearly dominant or separable" … And the costs arising from such issues have more readily been apportioned where the party successful overall is the plaintiff ..." [citations omitted]
The referee's provisional view and the parties' submissions
Turning now to the referee's provisional view and the parties' submissions, the referee referred to the manner in which the reference was conducted and observed that the bulk of the affidavit evidence and some documentation focused on highly contested items on which CCF had not succeeded and that (at [353]):
"Those items also took up the bulk of the hearing; without them there would have been no need for a hearing."
Mr Ashhurst challenged that observation, but it seems to me to have been correctly made. The referee's report referred to cross-examination at the hearing directed, for example, to the range of substantial expenses claimed by CCF. As Mr Coles points out, matters may well have been able to have been dealt with on the papers had those claims not been pressed. Had an oral hearing still been required, it would plainly have been much abbreviated had CCF not pursued the claims upon which it failed.
The referee then referred to several other matters relevant to an assessment of costs and observed (at [356]-[357]) that:
"… my provisional view is that the proportion of time and effort expended on issues on which the [Messrs Harpley] effectively succeeded in resisting [CCF's] claims significantly outweighed the time and effort expended on issues on which [CCF's] succeeded, even when one takes into account some loading on issue-based proportionality for the fact that [CCF] was required to pursue the reference to get a remedy it sought.
In those circumstances, my provisional view is that [CCF] should pay 30% of the [Messrs Harpley's] costs of the reference on the ordinary basis as agreed or assessed. If this is considered too high, my provisional view as a base line is that the apportionment is such that [CCF] should not receive any of its costs of the reference and that the best outcome it could achieve is that each party pays its or their costs of the reference."
In its outline of submissions, ALI submitted that:
"Throughout the Reference, the position of the Harpleys was that the secured mortgagee was not entitled to any costs etc above $1.8m. Even on the Referee's calculations, which included many of the claims by [CCF] including fees, costs etc, all of which had been resisted by the Harpleys, the outcome was significantly higher than the limit for which the Harpleys contended. CCF accepts that the costs of the one-day hearing were incurred in relation primarily to the 10% claim made by CCF. Accordingly, ALI proposes an order that sets off the reasonable costs of the one-day hearing against its entitlements under the transaction documents and an order that there be no order as to the costs of the Reference."
The Plaintiffs in turn referred to the range of claims made by CCF and rejected by the referee, including its claim to interest at a rate of 20.67% from 20 January 2015 to 30 June 2018 and 30.67% from 4 July 2018; a large number of fees set out in a letter dated 19 December 2014 to Equivest; consultant's fees claimed by companies associated with CCF of over $995,000; a claim to 10% of the contract price on sale of the land; and a claim to the costs of the reference. That is, on any view, a significant number of unsuccessful claims for a large amount in total.
ALI responds, in submissions in reply, that the reference was not necessitated by conduct of CCF, but reflected consent orders made by Leeming JA on 2 May 2018 to which I have referred above; that CCF made certain claims, in pursuit of which it was unsuccessful, but those claims had a reasonable basis; that the amount established by CCF was significantly more than the amount of $1.8 million, being a limit for which the Messrs Harpley had unsuccessfully contended in the reference. In a schedule to those submissions, ALI refers to a number of submissions advanced by the Messrs Harpley which were unsuccessful, as well as to their submissions that were successful or partly successful.
The referee's provisional view as to costs is supported by a concession in ALI's outline of submissions (from which Mr Ashhurst later sought to retreat, at least to some extent) that the costs of the hearing were incurred "primarily" in relation to CCF's unsuccessful claim that it was entitled to 10% of the proceeds on the sale of the land owned by Fearndale. So far as ALI submits that CCF had achieved a better result than that for which the Messrs Harpley contended, that submission neglects the other matters which the referee had rightly regarded as relevant, and in particular the extent of time which had been devoted to dealing with the issues on which CCF failed and the fact that CCF had not achieved, in respect of numerous claims, the position for which it contended.
Having regard to these principles and the evidence as to the conduct of the reference, it seems to me that the referee's preferred position was appropriate, and the position for which ALI contended, that each party pay its own costs would not fairly reflect the outcome of the reference. The issues on which CCF failed occupied an extensive amount of time in the reference, and in the oral hearing, and the costs order made should reflect that result. While the Messrs Harpley had significantly contributed to delays in the reference, and also failed on several issues, the referee has taken account of that matter in allowing them only a portion of their costs of the reference. I am comfortably satisfied that the Court should make orders for the costs of the reference in accordance with the referee's preliminary view.
Whether ALI or CCF can rely on contractual rights to recover costs of the reference
A further issue arose as to whether ALI could take advantage of any right of CCF to recover costs of the reference under the mortgage documents, although ALI did not seek to have the Court determine that issue. While ALI contended (as I noted above) that the Court should make no order as to the costs of the reference, Mr Ashhurst submitted that ALI would have a separate contractual entitlement to recover the costs of the reference under the mortgage documentation. The question of ALI's ability to rely on its contractual rights is relevant now, so far as Mr Ashhurst raises the possibility that it might impinge on the orders the Court should make. That question will also arise in addressing the distribution of monies paid into Court by Fearndale's administrator or if ALI seeks to rely on those rights in a manner inconsistent with the Court's orders, and the Plaintiffs then seek an interlocutory or final injunction to prevent its doing so, and I should address the parties' submissions in that regard.
In oral submissions, Mr Ashhurst submitted (T29) that, in reaching his provisional view as to costs:
"… the referee seems to have overlooked the fact that the secured creditor had a right to claim these costs of the reference pursuant to the terms of the mortgage documentation itself."
Mr Ashhurst also submitted (T29-30) that:
"The secured creditor says that contractually it is entitled to its costs pursuant to the terms of the loan documentation and that that is not a matter that the Court has to expressly make an order for. It follows pursuant to the terms of the contract itself, so we are pressing that claim but it's not the subject of any matter before [the Court] except insofar as it impinges upon any order for costs that [the Court] might make."
While there was a degree of ambiguity in that submission, I do not understand ALI to be contending that it had an entitlement to costs that CCF rather than it had incurred in the reference, but rather to contend that it had the benefit of any contractual entitlement of CCF to recover the costs that CCF had incurred in respect of the reference. The latter formulation highlights the question whether CCF had such an entitlement under the financing documentation in the relevant circumstances.
Mr Ashhurst referred to clauses 9.2(e) and (f) of ANZ's memorandum of mortgage (Ex ALI-1, 566) which provided that the mortgagee will reimburse ANZ for its expenses in relation to the "contemplated, actual or attempted enforcement of, or exercise of, its powers under this mortgage" and for the "contemplated, actual or attempted preservation or maintenance of any Property [as defined]". Mr Ashhurst also referred to cl 15.1(e) of the Corporate Guarantee and Indemnity given by Fearndale to ANZ (Ex ALI-1, 622) which similarly required Fearndale to reimburse ANZ for its expenses in relation to the "contemplated, actual or attempted enforcement or exercise, preservation or consideration of ANZ's rights, powers or remedies under this Guarantee". Mr Ashhurst also referred to cl 15.2(c) of the guarantee which required Fearndale to indemnify ANZ against any loss, cost, charge, liability and expense (including legal costs on a full indemnity basis) in respect of any "exercise or attempted exercise of any right, power or remedy under this Guarantee…". It is not immediately apparent why CCF's participation in a Court-ordered reference would properly be characterised as the enforcement of, or exercise of powers under the mortgage or guarantee, still less the preservation or maintenance of "Property" as defined in that mortgage, or the exercise of rights, powers or remedies under the guarantee.
Mr Ashhurst relies, in order to establish a wider basis for CCF to recover costs, on an observation of Hodgson J in Project Research Pty Ltd v Permanent Trustee of Aust Ltd (1990) 5 BPR 97,341 that:
"If the mortgagee acted reasonably in stating the figure which he did, but nevertheless is found to be incorrect, though not in such a way to constitute misconduct, then the principles laid down in the cases I have referred to strongly suggest that he should normally be entitled to his costs of the proceedings which determine the matter, irrespective of the particular form which they take."
Mr Coles responds that those observations were made in the particular context that a mortgagee provided a discharge figure to a mortgagor, which the mortgagor proposed to pay under protest, and in a very different setting to this case.
It seems to me that there are more fundamental difficulties with ALI's reliance on the principle expressed in Project Research Pty Ltd v Permanent Trustee of Aust Ltd above. The findings made in the referee's report as to CCF's claims in the reference to a 10% share of the sales proceeds of the land and to over $995,000 in fees claimed by associated entities, which are not contested by ALI, would support a provisional view that CCF had not acted "reasonably in stating the figure" for which it contended in the reference and had not determined that figure "bona fide and on reasonable grounds" and that its conduct of the reference amounted to "misconduct", in the sense noted by Hodgson J in Project Research Pty Ltd v Permanent Trustee of Aust Ltd above, and that would be sufficient to deprive CCF (and ALI as its assignee) of any contractual or wider right to the costs of the reference. Although ALI has already had an opportunity to lead such evidence and make such submissions as it wished in respect of this hearing, I will nonetheless allow it a brief further opportunity to make further submissions limited to that issue if it seeks to establish the contrary.
For these reasons, and subject to the leave to make submissions limited to the matter noted in paragraph 49 above, orders for costs should be made in accordance with the provisional view as to costs expressed by the referee.
[7]
Orders
Accordingly, and again subject to the leave to make submissions limited to the matter noted in paragraph 49 above, the Court will adopt the referee's report and make orders in accordance with his provisional view as to costs, and ALI should pay the Plaintiffs' costs of and incidental to this application.
I make the following orders:
1 Grant leave to Australian Lending Investment Pty Ltd to make any further submissions as to the provisional findings in paragraph 49 of this judgment by 4pm on 19 December 2019.
2 Otherwise direct the parties to bring in, by 4pm on 20 December 2019, agreed orders to give effect to this judgment or, if there is no agreement between them, their respective draft orders and submissions of no more than 5 pages in one and a half spacing as to any differences between them.
[8]
Amendments
20 December 2019 - Amended to change decision date.
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Decision last updated: 20 December 2019