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[2025] NSWSC 1072
General information, not legal advice.
Supreme Court of NSW
2025-09-19
Faulkner J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Bridge Street Capital No.2 Pty Ltd v Manta Group Pty Ltd & Ors [2025] NSWSC 1072
Hearing dates: 3 June 2025
Date of orders: 19 September 2025
Decision date: 19 September 2025
Jurisdiction: Equity
Before: Faulkner J
Decision: The Plaintiff pay the Defendants’ costs of the proceedings
Catchwords: COSTS – plaintiff agrees to dismissal of proceedings – plaintiff agrees to orders sought under cross-claim – proceedings not decided on the merits – defendant almost certain to have succeeded at trial – plaintiff ordered to pay defendants’ costs – no issue of principle
Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56, 98
Real Property Act 1900 (NSW), ss 74J, 74K, 74MA
Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases Cited: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; [1992] HCA 10
Bayblu Holdings Pty Ltd v Capital Finance Australia Limited [2011] NSWCA 39
Catholic Metropolitan Cemeteries Trust v Attorney General of New South Wales [2024] NSWCA 30
Dymocks Franchise Systems (NSW) Pty Ltd v Chapter Three Pty Ltd [2022] NSWSC 35
Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240
In the matter of Pak Brothers Pty Ltd [2021] NSWSC 1247
Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59
Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794
Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84
Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11
Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
Rinehart v Rinehart (No 2) [2020] NSWSC 235
Sze Tu v Lowe (No 2) [2015] NSWCA 91
Category: Costs
Parties: Bridge Street Capital No.2 Pty Limited (Plaintiff)
Manta Group Pty Limited (First Defendant)
Al-Somai Developments Pty Ltd (Second Defendant)
Renato Licata (Third Defendant)
RL 888 Pty Ltd (Fourth Defendant)
Representation: Counsel:
M Daniels (Plaintiff)
B Ng (First and Second Defendants)
Solicitors:
VMV Lawyers (Plaintiff)
Mills Oakley (First and Second Defendants)
File Number(s): 2025/00034795
These proceedings were commenced by a Summons by which the Plaintiff sought a declaration about the existence of a charge to support Caveats which the Plaintiff had lodged over the Defendants’ land. The Defendants filed a Cross-Claim by which they sought removal of the Caveats. Days before the final hearing date the substantive dispute was resolved by consent in terms favourable to the Defendants. Costs are the outstanding dispute the subject of this judgment.
The Plaintiff asks the Court to make no order as to costs in the substantive proceedings and seeks an order for its costs in the costs dispute. The Plaintiff contends that its commencement and maintenance of the proceedings was not unreasonable and that the outcome was not a capitulation but a commercial decision that has rendered otiose the substantive issues.
The Defendants seek an order for indemnity costs. They claim that the Plaintiff’s commencement and maintenance of the proceedings was unreasonable and the outcome has been an inevitable capitulation.
The Defendants are to have an order for costs in their favour but there is no basis for those costs to be ordered on an indemnity basis.
The substantive dispute concerned eight contiguous residential lots in Middleton Grange, a suburb west of Liverpool in New South Wales. I will refer to the lots as the Lots. The First Defendant, Manta Group Pty Ltd, is the registered proprietor of seven of the Lots. The Second Defendant, Al-Somai Developments Pty Ltd, is the registered proprietor of the eighth.
On 23 November 2022 the Defendants entered into a loan agreement with Alceon Pty Ltd under which the Defendants were granted a loan facility to finance the subdivision, development and sale of several properties including the Lots. Money was advanced. Alceon registered a first-ranking mortgage over the Lots to secure repayment.
The Plaintiff, Bridge Street Capital No.2 Pty Ltd, is a commercial lender offering mostly subordinate and mezzanine loans. In early 2024 the Defendants approached the Plaintiff to secure further finance. On 15 July 2024 the Plaintiff offered terms set out in a Terms Sheet which the Defendants accepted on 23 July 2024.
Under the Terms Sheet, finance of $21.15m was offered subject to due diligence, more than twenty preconditions and further documentation.
There were some provisions in the Terms Sheet which came immediately into effect upon acceptance by the Defendants. The first of these was the Defendants’ promise to pay an Application Fee. The Terms Sheet relevantly provided as follows:
“An Application Fee of 1.00% + GST, calculated on the Loan Facility Amount, is payable by the Borrower and Guarantor. Upon execution of the Term Sheet and payment of the Application Fee, the Lender will formally commence due diligence, instruct its lawyers to commence documentation of the Facility and allocate funds for the purpose of providing the Loan Facility.
The Lender may accept a partial payment of $22,000 ( PAID ) (incl. GST) towards the Application Fee, payable to the Lender or its nominee. The remaining balance of the Application Fee is payable upon the Lender’s demand. At the discretion of the Lender, this balance may be deducted from the loan advance and will, in that event, be set off against the Lender’s Establishment Fee.
If the Lender decides not to proceed after conducting its due diligence, the offer contained in this Term Sheet is withdrawn and the agreement constituted by acceptance hereof is terminated.”
“3.00% + GST calculated on the Loan Facility Amount of $21,150,000. Payment of this fee may, at the Lender’s discretion, be deducted from the loan advance.”
“By signing or otherwise accepting this Term Sheet, the Borrower and Guarantor(s) (jointly and severally) are obligated to pay all Costs and fees referred to herein, and other expenses incurred by the Lender in connection with this transaction (Fees and Costs).
The Borrower and Guarantors hereby grant to the Lender a charge over their assets including the Security Properties, all other property (Other Property) and all interest the Borrower and Guarantors have in the Security Properties and Other Property, by way of security for payment of the Fees and Costs, interest on these Fees and Costs, and any loss and expenses incurred by the Lender in the event the loan does not settle after the Borrower has signed or otherwise accepted the offer of loan in this Term Sheet because:
- the Borrower does not wish to proceed with the loan;
- the Lender is not satisfied with the due diligence, including because the Borrower made a material misrepresentation to the Lender, or
- for any other reason.
The Lender shall be entitled to lodge a Caveat over the Security Property and Other Property pursuant to this charge and the Borrower and Guarantors shall not take any action to remove such Caveat/s until payment in full of all moneys due to the Lender.”
The Security Properties referred to in this charging clause were the Lots.
On the last page of the Terms Sheet, under the heading “Acceptance of Term Sheet”, paragraph 3 provides as follows:
“I/We the Borrower(s) and the Guarantor(s) hereby confirm that we grant the Lender a charge over any and all real property owned now or in the future as well as a PPSR (Personal Property Securities Register) charge over all personal property, by way of security for the payment of the Fees and Costs set out above.”
After the Terms Sheet was accepted the Plaintiff undertook due diligence and ultimately declined to proceed with this loan as it was unable to agree on the terms of an intercreditor deed with Alceon.
On 16 August 2024 the Plaintiff lodged Caveat AU 337576 over the First Defendant’s seven Lots and Caveat AU 337577 over the Second Defendant’s single Lot. In each Caveat the estate or interest claimed was stated to be a charge by virtue of the Terms Sheet.
On 12 September 2024 the Defendants’ solicitors contacted the Plaintiff to ask why the Plaintiff had lodged the Caveats even though the loan had not proceeded. On 19 September 2024 the Plaintiff’s solicitors responded and said that even though the loan had not proceeded the Defendants were liable for fees under the Terms Sheet. The amount owing was said to be:
“1. The balance of the Application Fee in the amount of $210,650 (our client having already received $22,000);
- Lender’s Establishment Fee of $697,950 (incl. GST);
- Due diligence expenses incurred by the Lender, including property consultant fees in the sum of $1,581.25 and disbursements of $2,347.37. Please find attached tax invoices for these fees. The amount of legal professional fees incurred by our client to date are estimated to be $10,000, with further legal costs expected.
Accordingly, your clients are liable to [the Plaintiff] in the sum of $922,528.62 (“Total Amount Due”). Our client hereby demands immediate payment of this Total Amount Due.”
On 25 October 2024 the Defendants’ solicitors responded, accepting that the Plaintiff was entitled to the Application Fee and Due Diligence Expenses but rejecting the Establishment Fee. Neither in this correspondence nor at any other time did the Defendants dispute that the Lots were subject to a valid charge nor that the Plaintiff had a caveatable interest.
There were further communications between the Defendants and the Plaintiff over several weeks. By 21 November 2024 the matter seemed close to settlement. The Plaintiff’s solicitors sent an email to the Defendants’ solicitors accepting an offer of settlement subject to certain clarifications. There was no reply to that email, nor to the follow-up email sent over a week later.
Unbeknownst to the Plaintiff, the Defendants had defaulted on the Alceon Loan. On 29 November 2025 Mr Nicodemou was appointed receiver and manager of the Defendants. He was appointed as an agent of the Defendants’ property.
The solicitors who had hitherto acted for the Defendants continued in that role. On 8 January 2025 the Receiver caused them to serve Lapsing Notices for the Plaintiff’s Caveats, the operation of which would cause the Caveats to lapse 21 days after service.
On 15 January 2025 the Plaintiff’s solicitors wrote and inquired why the Lapsing Notices had been issued. On 17 January 2025 the Defendants’ solicitors responded and said that the Lapsing Notices had been issued “to facilitate settlement and create by subdivision, new lots and public roads”.
On 21 January 2025 the Plaintiff’s solicitors wrote and requested information about the “settlement”. They asked whether there were contracts for sale of any Lots, the settlement date of any such contract for sale and the amount owing to other encumbrancers. They also requested a copy of any contract for sale and a copy of the proposed draft plan of subdivision.
On 23 January 2025 the Defendants’ solicitors responded and said that the Lapsing Notices had been issued because the Defendants had entered into transaction documents for Lots 4 and 5. They said that these transactions were subject to the registration of the plan of subdivision, which registration was restrained by the Caveats. The front pages of the contracts for the sale were attached. Lot 4 was to be sold for $19.8m and Lot 5 for $30.25m, a total of $50.05m (including GST). The date for completion of the sale of each Lot was specified on the front page as 31 January 2025. The Defendants’ solicitors in their correspondence further estimated that the remaining Lots (Lots 2, 3 and 7) could collectively be sold for $13.2m. The estimate was based on indicative offers received during an expression of interest campaign run in late-2024. On that estimate, the total amount to be received from sale of the Lots would be $63.25m. The Defendants’ solicitors further stated that the balance outstanding on the Alceon Loan was just over $69m and that completion of the subdivision would cost around $10.6m. The Defendants would likely owe Alceon over $80m on completion of the subdivision. Though it was not explicit in the email, a substantial shortfall seemed inevitable according to the Defendants’ solicitors’ letter. Mathematically, the shortfall would be about $17m.
Absent an application to the Court, under s 74J of the Real Property Act 1900 (NSW) the Plaintiff’s Caveats would have lapsed on 29 January 2025.
On 28 January 2025 the Plaintiff commenced these proceedings by way of a Summons filed in Court before the Duty Judge. The Plaintiff sought interim orders extending the Caveats, which orders were granted that day.
The following final relief was sought in the Summons:
“10. A declaration that each of the following properties is charged to secure payment to the Plaintiff all of the interest, fees, and expenses, including the application fee, establishment fee, legal costs and expenses in accordance with an agreement headed “Second Mortgage Loan Facility Term Sheet – Bridge Street Capital No.2 P/L – RL888 Pty Limited (ACN 612 937 309) and Manta Group Pty Ltd (ACN 149 474 699)” (Agreement):
(a) 80B Southern Cross Avenue Middleton Grange NSW, being the land contained in folio identifier 1/1078564.
(b) Lot 2 Flynn Avenue Middleton Grange, NSW, being the land contained in folio identifier 2/1207518.
(c) Lot 3 Southern Cross Avenue, Middleton Grange NSW, being the land contained in folio identifier 3/1207518.
(d) Lot 4 Southern Cross Avenue, Middleton Grange, NSW, being the land contained in folio identifier 4/1207518.
(e) Lot 5 Southern Cross Avenue, Middleton Grange, NSW, being the land contained in folio identifier 5/1207518.
(f) Lot 6 Flynn Avenue, Middleton Grange, NSW, being the land contained in folio identifier 6/1207518.
(g) 60 Hall Circuit, Middleton Grange NSW, being the land contained in folio identifier 12/1108343.
(h) Lot 1/SP100948, 231A Woolware Road, Burraneer.
- Judgment for the Plaintiff in the amount of $922,528.62.
- Interest pursuant to the Agreement, or in the alternative, pursuant to section 100 of the Civil Procedure Act 2005 calculated from 23 July 2024 to the date of judgment.
- Post-judgment interest pursuant to the agreement, or in the alternative, pursuant to section 101 of the Civil Procedure Act 2005.
- Costs.”
On 3 February 2025 the Summons was returned before the Duty Judge, and the Caveats were further extended until 5pm on 17 February 2025.
On 7 February 2025 the Defendants’ solicitors wrote to the Plaintiff’s solicitors and described the Plaintiff’s Summons as futile because Alceon was facing a shortfall of over $22m. The letter continued:
“In the above circumstances, even if the Court did grant [the Plaintiff] the relief that it seeks… continuing these proceedings would be futile where [the Defendants] are in no position to make any sort of payment to the Plaintiff. As an unsecured creditor of [the Defendants], the debts [the Plaintiff] alleges are payable to it will rank behind the significant debt owing to the Secured Creditor in any liquidation of [the Defendants].”
Near the end of the letter, the Defendants’ solicitor said “if you require any further documents or information to obtain instructions on the matters set out in this letter, please advise what information is required as soon as possible noting the proceeding is listed for directions on 17 February 2025.”
On 12 February 2025 the Plaintiff’s solicitor requested a copy of the special conditions to the exchanged contracts for the sale of Lots 4 and 5. Nothing else was sought.
Later that day, the Plaintiff’s solicitors sent a settlement offer under which the Caveats would be extended until 5pm on 28 February 2025, the proceedings would be dismissed with no order as to costs and the Defendants would consent to the Plaintiff lodging further caveats which were to be withdrawn upon settlement of the relevant Lots.
On 13 February 2025 the Defendants’ solicitors rejected the request for the special conditions due to confidentiality provisions. The Plaintiff’s settlement offer was also rejected.
On 14 February 2025 the Plaintiff’s solicitors wrote and stated the Plaintiff’s preparedness to cooperate in the subdivision and development of the Lots. The Plaintiff’s solicitors described the Receiver’s position on the anticipated shortfall as “speculative”.
On 17 February 2025 the case was listed for directions before the Duty Judge. The Caveats were by consent extended until further order of the Court.
On 28 February 2025 the Defendants’ solicitors wrote and reiterated the futility of the Plaintiff commencing and maintaining the proceedings.
On 12 March 2025 the Defendants filed a Cross-Summons seeking orders that the Caveats be withdrawn under s 74MA of the Real Property Act 1900.
On 12 March 2025 the Defendants also served an Affidavit by the Receiver to which was exhibited the complete contracts for the sale of Lots 4 and 5. This was the first time the Plaintiff saw the complete contracts. The Receiver stated that he was working towards completion of the contracts by 31 July 2025. He estimated an overall shortfall of $28m for Alceon.
At paragraph 18 of his Affidavit, the Receiver said that the Defendants “do not dispute that the Middleton Grange Properties are charged in favour of the Plaintiff pursuant to the Terms Sheet, however, the question of the debt owing to the Plaintiff is in dispute.”
On 28 April 2025 the Defendants served a further Affidavit by the Receiver. The Receiver expressed the opinion that it was highly unlikely that the sale of Lots 4 and 5 would not proceed, but that there would be a delay until early 2026.
On 9 May 2025 the Receiver caused the Defendants to rescind the existing contracts for the sale of Lots 4 and 5 and simultaneously to enter into new contracts with entities related to the original purchasers. The Plaintiff was not aware of this development at the time.
On 14 May 2025 the Plaintiff’s solicitors wrote and sought a further update from the Receiver. On 19 May 2025 the Defendants’ solicitors responded and said that the Receiver expected to provide an updated Affidavit “slightly closer to the hearing”.
On 26 May 2025 the Plaintiff made a settlement offer whereby the Caveats would be removed and the Establishment Fee claim forfeited in exchange for the Plaintiff’s purchase of Lots 2, 3 and 7 for $13m. The offer was rejected.
On 27 May 2025 the Plaintiff’s solicitors served an Affidavit of the Plaintiff’s sole director. The Affidavit contained an undertaking on behalf of the Plaintiff to participate in the PEXA settlement for any contract for the sale of the Lots and to withdraw the Caveats once the Plaintiff received the relevant contract for sale and settlement adjustment sheet.
About an hour later the Defendants served the foreshadowed further Affidavit of the Receiver. The Affidavit exhibited the documentation by which the changes to the sale of Lots 4 and 5 were brought about on 9 May 2025. It also provided an update on the finance costs based on the new, delayed completion date. The anticipated total debt owed to Alceon would on completion be just over $97m, with an estimated shortfall to Alceon of over $33.8m.
Later on 27 May 2025 the Plaintiff formally offered to settle the proceedings on terms that the Caveats would be withdrawn, the proceedings would be dismissed and there be no order as to costs. The offer was not accepted because the Defendants required a costs order in their favour.
On 29 May 2025 the parties agreed to consent orders in the following terms:
“1. The Plaintiff’s Claim as against the First and Second Defendant be dismissed.
- Pursuant to s 74MA of the Real Property Act 1900, the following caveats be withdrawn by no later than 6 June 2025:
a. Caveat AU 337576 lodged by the Plaintiff/Cross-Defendant over the following properties:
i. 80B Southern Cross Avenue Middleton Grange NSW, being the land contained in folio identifier 1/1078564.
ii. Lot 2 Flynn Avenue Middleton Grange, NSW, being the land contained in folio identifier 2/1207518.
iii. Lot 3 Southern Cross Avenue, Middleton Grange NSW, being the land contained in folio identifier 3/1207518.
iv. Lot 4 Southern Cross Avenue, Middleton Grange, NSW, being the land contained in folio identifier 4/1207518.
v. Lot 5 Southern Cross Avenue, Middleton Grange, NSW, being the land contained in folio identifier 5/1207518.
vi. Lot 6 Flynn Avenue, Middleton Grange, NSW, being the land contained in folio identifier 6/1207518.
b. Caveat AU 337577 lodged by the Plaintiff/Cross-Defendant over the property known as 60 Hall Circuit, Middleton Grange NSW, being the land contained in folio identifier 12/1108343.
- The Plaintiff/Cross-Defendant, its servants and agents be restrained from lodging any caveat in respect of the land comprised in the Schedule to these orders or any part of it based upon the same grounds as those set out in Caveat AU 337576 or Caveat AU 337577 or claiming an interest to the same effect as the interest claimed in it.
- The Plaintiff/Cross-Defendant and the First and Second Defendant/First and Second Cross-Claimant be heard on the question of costs only on 3 June 2025.”
There is no material dispute between the Plaintiff and the Defendants about the principles to be applied in this case.
Under s 98 of the Civil Procedure Act 2005 (NSW) this Court has a discretion, subject to the rules of Court and any other Act, to order costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the Court is to order that costs follow the event unless it appears to the Court that some other order should be made.
In exercising the costs discretion the Court must take into account the overriding purpose contained in s 56 of the Civil Procedure Act 2005, which is the just, quick and cheap resolution of the real issues in the proceedings. Costs orders are not punitive but compensatory: Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [37] where Gleeson JA, with whom Meagher and Barret JJA agreed, cited Latoudis v Casey (1990) 170 CLR 534 at 543 (Mason CJ); [1990] HCA 59.
A successful party’s reasonable expectation of being awarded costs against an unsuccessful party is a presumption that should only be displaced by a good reason: Oshlack v Richmond River Council (1998) 193 CLR 72 at 86; [1998] HCA 11.
However, where the parties have settled the dispute without a hearing, there is no event which costs can follow. In such circumstances, the exercise of discretion will usually mean that there will be no order as to costs: Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681 at 682 (Basten JA); [2018] NSWCA 84.
There may nonetheless be cases where the discretion is exercised otherwise. One case is where one of the parties can demonstrate that the other party has acted so unreasonably in either bringing or defending the proceedings up to settlement that the other party should obtain an order for the costs of the action: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625 (McHugh J); [1997] HCA 6. There must be a level of unreasonableness which is established by the circumstances in which the costs were incurred: Rinehart v Rinehart (No 2) [2020] NSWSC 235 at [155] (Ward J).
Another possible case where a costs order is made is where, even though both parties have acted reasonably, the Court is confident that one party was almost certain to have succeeded if the matter had been fully tried. The Court may have that confidence even though it has not tried the hypothetical action between the parties: Lai Qin at 624-625. In this regard, the Court may have regard to whether one party has effectively capitulated or whether there has been some supervening event or settlement which removed the subject of the dispute. Where there is no determination on the merits but one party effectively surrenders and the other emerges as the clear winner the surrendering party can be said to have capitulated: Dymocks Franchise Systems (NSW) Pty Ltd v Chapter Three Pty Ltd [2022] NSWSC 35 (Stevenson J); In the matter of Pak Brothers Pty Ltd [2021] NSWSC 1247 (Black J).
The Plaintiff submits that there ought to be no costs order other than in relation to the argument about costs, which costs the Plaintiff submits ought to be paid by the Defendants.
The Defendants seek an order that the Plaintiff pay their costs of the proceedings on an indemnity basis.
Reflecting the above principles, the Defendants put forward two reasons why a costs order ought to be made in their favour:
(a) the Plaintiff has acted so unreasonably; and (b) the Plaintiff capitulated.
The Defendants submit that the Plaintiff acted so unreasonably in commencing and maintaining its proceedings as well as its opposition to the Cross-Claim. As for commencement, the Plaintiff was made aware of Alceon’s anticipated shortfall on 23 January 2025. On that date the Defendants’ solicitors sent the front pages of the contracts for the sale of Lots 4 and 5; estimated the price for Lots 2, 3 and 7 and noted the amount likely to be owed to Alceon. That occurred before the Plaintiff chose to commence the proceedings.
As for maintaining the proceedings, the Defendants contend that it was unreasonable for the Plaintiff to continue after any of the following events:
the letter on 7 February in which the Defendants’ solicitors stated, “there is no utility in continuing these proceedings as there is zero prospect that [the Defendants] will be in any position to make payment to the Plaintiff in any amount”, provided the Receiver’s calculation of the estimated shortfall of over $22m and noted that the Defendants would seek indemnity costs should the proceedings remain on foot;
the letter on 28 February 2025 in which the Defendants’ solicitors provided further information about the anticipated shortfall, specifically referring to the maintenance of the Caveats as “futile” due to the anticipated $22m shortfall; and
service of the Affidavits of the Receiver on 12 March 2025, 28 April 2025 and 27 May 2025.
The Defendants submit that there was always going to be a significant shortfall. They further submit that the Plaintiff was definitely on notice of the shortfall from 7 February 2025 and arguably from 23 January 2025. While the precise amount of the shortfall varied after those dates, it was at all times very substantial.
The Plaintiff submits that it acted reasonably both in commencing and in maintaining the proceedings and in opposing the Cross-Claim. With respect to commencing the proceedings, the Plaintiff relies on the following circumstances:
the Receiver served the Lapsing Notices without notice to the Plaintiff even though the Defendants acknowledged that the Caveats were properly lodged;
pursuant to the Terms Sheet, the Defendants promised not to take any action to remove the Caveats until payment of all monies due to the Plaintiff;
after receipt of the Lapsing Notices, the Plaintiff received from the Receiver only general information regarding the cost to complete the development of the Lots and the expected sale price of Lots 2, 3 and 7; and
the Plaintiff was only informed later that the plan of subdivision was delayed until 2026, which would significantly increase the Defendants’ debts to Alceon.
With respect to maintaining the proceedings, the Plaintiff relies on the following circumstances:
the Receiver, citing confidentiality provisions, refused to provide the Plaintiff with the complete contracts for Lots 4 and 5;
vital information concerning the anticipated shortfall was only received on 12 March 2025 when the Plaintiff received the complete contracts for Lots 4 and 5 and the Receiver’s calculation of the anticipated shortfall;
it was clear at that time that registration of the plan of subdivision would not occur before the completion date specified by the contracts and that the prospective purchaser would then be entitled to rescind the contracts, which undermined the certainty of the Receiver’s calculations;
the Plaintiff indicated its willingness to cooperate with the Receiver in completing the development;
the Receiver’s Affidavit served on 28 April 2025 indicated that settlement would be delayed until early 2026, but on 14 May 2025 the Plaintiff requested information about the new contracts and, even though the new contracts were signed on 9 May 2025, on 19 May 2025 the Defendants’ solicitors said that an updated Affidavit would be provided “slightly closer to the hearing date”;
on 27 May 2025 the Plaintiff served the Affidavit of its sole director in which he undertook to withdraw the Caveats on settlement of the sale of any of the Lots; and
in light of the updated settlement date and corresponding increase in costs, the Plaintiff then concluded that there was no commercial utility in the Plaintiff proceeding.
The Plaintiff submits that the information about the delayed settlement was a supervening commercial circumstance that caused it to settle the matter on terms favourable to the Defendants. The Plaintiff submits that it was not unreasonable for it not to settle earlier. It submits that the circumstances of the case demonstrate that it was entirely justified in commencing and maintaining the proceedings up until settlement.
The Plaintiff submits the reasonableness of its approach is to be viewed in the context of the dispute. There was never any dispute that the Plaintiff was owed some money and that it had a charge. It submits that the relief claimed would be granted subject to the balance of convenience, which was a finely balanced question. It argues that this is not a case where it acted so unreasonably that a costs order of the kind sought by the Defendants ought to be made.
On the question of capitulation, the Defendants submit that the Plaintiff capitulated as demonstrated by the terms of the final orders made by consent. The Defendants emerged as the clear winners.
In view of Alceon’s shortfall, the Defendants submit that the Caveats secured nothing. They were futile and should have been withdrawn. In support of that submission they rely on the following statement from Pembroke J in Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794 at [11]:
“The fact of the matter is that a commercial party who takes an equitable charge pursuant to a secured guarantee and indemnity, knows that his caveat will only be as effective as the amount of money left over the discharge of registered interests. If there will be no money left over after satisfaction of the monies due to the registered mortgagee, the charge’s equitable interest recorded in its caveat secures nothing. There is no utility in maintaining the caveat. It will only cause difficulty to parties dealing in the land without securing a legitimate advantage to the defendant.”
The Plaintiff submits that it did not capitulate. It submits that had the case not settled, the Court would have been required to determine the following two issues:
what fees and expenses were payable pursuant to the Terms Sheet in circumstances where no loan was advanced; and
whether the balance of convenience favoured extension or removal of the Caveats.
The first issue was only concerned with the Establishment Fee since the Receiver acknowledged that the Application Fee and expenses were validly secured under the Terms Sheet. That was a dispute between the parties which was never decided. As noted above, the Plaintiff’s decision to settle the case did not arise from a lack of merit in its claim. The Plaintiff submits that the balance of convenience issue was “finely balanced”. It too was never decided. The Plaintiff submits that its decision to settle in the face of the commercial reality of the Alceon shortfall was not a capitulation.
A consideration of both reasonableness and whether there has been a capitulation requires an understanding of the claims made by the respective parties.
The Caveats having already been extended under s 74K of the Real Property Act 1900, the Plaintiff sought declaratory relief. The prayed declaration was that the Lots were charged to secure payment of all fees and expenses, including the disputed Establishment Fee.
The Defendants’ Cross-Claim was the other side of the coin. They sought orders under s 74MA of the Real Property Act 1900 that the Caveats be withdrawn.
Section 74MA of the Real Property Act 1900 provides as follows:
74MA Application to Court for withdrawal of caveat
(1) Any person who is or claims to be entitled to an estate or interest in the land described in a caveat lodged under section 74B or 74F may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator or another person who by virtue of section 74M is authorised to withdraw the caveat.
(2) After being satisfied that a copy of the application has been served on the person who would be required to withdraw the caveat if the order sought were made or after having made an order dispensing with service, the Supreme Court may—
(a) order the caveator or another person, who by virtue of section 74M is authorised to withdraw the caveat to which the proceedings relate, to withdraw the caveat within a specified time, and
(b) make such other or further orders as it thinks fit.
(3) If an order for the withdrawal of a caveat is made under subsection (2) and a withdrawal of the caveat is not, within the time limited by the order, lodged with the Registrar-General, the caveat lapses when an office copy of the order is lodged with the Registrar-General after that time expires.
Courts have approached applications for the withdrawal of caveats pursuant to s 74MA by applying principles analogous to those in applications for interlocutory injunctions: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [77].
The Defendants submit that where a caveator will receive no money the receipt of which is secured by the charge protected by the caveat, it is usually not possible for the caveator to show that the balance of convenience favours maintenance of the caveat. In support of that proposition they rely on Bayblu Holdings Pty Ltd v Capital Finance Australia Limited [2011] NSWCA 39, in which Campbell JA (Tobias and Macfarlan JJA agreeing) said at [42]:
“There are occasions where land which is subject to a mortgage has been sold for a price which it is clear will be completely payable to a first mortgagee. On some such occasions, the court has held that someone with an interest in the land to which that mortgage has priority is usually not entitled to maintain a caveat which will prevent completion of that sale: Wildschut v Borg Warner Acceptance Corporation (Aust) Limited (1984) 4 BPR 9453 at 9455 (Needham J); Dunecar Pty Ltd (in liq) v Colbron [2001] NSWSC 1181; (2001) 40 ACSR 342 at [18]-[19] (Young CJ in Eq). In Wildschut Needham J evidently regarded such a situation as one in which the caveator "seeks to maintain his caveat solely for the purpose of placing pressure upon the registered proprietor to give him something to which [he] is not entitled". This usual result is a consequence of the test for whether a caveat should be ordered to be removed being whether, at the time the court comes to consider whether the caveat should be removed, an interlocutory injunction would be granted to protect the interest claimed in the caveat ([20] above). In the situation where the caveator would receive no money from maintaining of the caveat and establishing that he had the interest claimed in it, it is usually not possible for the caveator to show that the balance of convenience favours the maintenance of the caveat. That is a matter of evaluation of the facts of the instant case, not that there is a principle of law whereby a caveat can never be maintained in such a situation.”
Returning to the other side of the coin, the fact that all the proceeds of sale will go entirely to the first mortgagee is likely to mean that there is no utility in making a declaration that the property is subject to a charge in favour of a caveator, even if that be the fact. Declaratory relief should generally be refused where the Court’s declaration will produce no foreseeable consequences for the parties: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582; [1992] HCA 10 (Mason CJ, Dawson, Toohey & Gaudron JJ); Catholic Metropolitan Cemeteries Trust v Attorney General of New South Wales [2024] NSWCA 30 at [27] (Leeming JA, with whom Bell CJ and Ward P agreed).
In this light, the Court can feel confident that the Defendants were almost certain to succeed even if their construction of the Terms Sheet was wrong about the Establishment Fee. No finding of fact is necessary for that conclusion other than that Alceon will suffer a substantial shortfall upon realisation of the Lots over which the Plaintiff claimed a charge.
The fact of a shortfall is not a real issue in the proceedings. Apart from the Affidavits served by the Receiver, which were on each occasion plausible and compelling, the shortfall is made apparent by the Plaintiff’s decision not to proceed with its claims in these proceedings. The decision not to proceed included abandonment of the claims for a judgment against the Defendants for $922,528.62 (Prayer 11 of the Summons) and interest from 23 July 2024 (Prayers 12 and 13 of the Summons). Without the benefit of the charge, the Plaintiff has demonstrated by its actions that it was not worth pursuing the Defendants for a judgment of almost $1m, even in circumstances where the Defendants had already admitted that they were liable for over $200,000 of the amount claimed.
The Plaintiff submits that the balance of convenience issue would have been finely balanced at trial, but no submissions were made to develop that contention beyond the assertion.
In the face of the likely outcome, the Defendants’ submission that the Plaintiff capitulated in the relevant sense is to be accepted. The Plaintiff resists that conclusion by seeking to draw a distinction between a decision to settle necessitated by a lack of merit, which may be viewed as a capitulation warranting a costs order, as opposed to a commercial assessment that continuing the proceedings is no longer justified. The distinction is illusory, if not generally then at least in a case such as this where the Plaintiff seeks an equitable remedy such as a declaration which is contingent on utility. It is likely to appear illusory to the Defendants who, absent a costs order, will be left uncompensated for the cost they incurred in defending the proceedings.
In any event, the Plaintiff has not succeeded in demonstrating that the proceedings were at the outset commercially justified and only became unjustified on 27 May 2025 when the Receiver’s updating Affidavit was served. As I understand it, the Plaintiff contends that the updating Affidavit annexed replacement transaction documents which revealed a delay in realisation of Lots 4 and 5 which would result in increased finance costs and a substantial shortfall for Alceon. The shortfall, which was described as “speculative” when the proceedings were commenced, had now become inevitable. It became commercially obvious that the Plaintiff had to end the litigation.
I do not accept this argument. There is no evidence from the Plaintiff which explains why it decided to settle on 27 May 2025. The sole director made two Affidavits in the substantive proceedings but he did not make an Affidavit for the purposes of the costs dispute. The Plaintiff’s solicitor made an Affidavit on 30 May 2025 which was read at the costs hearing. She states that she acted for the Plaintiff throughout its dealings with the Defendants and that she is familiar with the Plaintiff’s business activities. She narrates the sequence of information received from the Defendants, including the Receiver’s Affidavits, culminating in the Affidavit dated 27 May 2025. The following paragraph then states:
“Without intending to waive any privilege, upon reviewing those updated timelines and figures provided by the Receiver, [the sole director] instructed [that] [the Plaintiff] had formed the view that there was no commercial basis for [the Plaintiff] to proceed with its application.”
A fair reading of the solicitors’ Affidavit reveals the incremental receipt of information which allowed to Plaintiff to satisfy itself that there would be a shortfall to Alceon. However, there was no change in the underlying fact that there would be a shortfall.
On 23 January 2025 the Defendants’ solicitors provided figures which showed a shortfall of almost $17m. On 7 February 2025 the Defendants’ solicitors sent a letter which included a calculation of an estimated shortfall of $22,437,018. The Receiver’s Affidavit served on 12 March 2025 estimated the shortfall at $32,165,489. The Receiver’s Affidavit served on 27 May 2025 estimated the shortfall at $33,865,267.
The information provided to the Plaintiff did not depict a marginal case where there was even a slim chance of recovery by the Plaintiff. The first (and lowest) estimate of the shortfall of $17m was over 26% of the estimated value of the secured property.
The magnitude of the anticipated shortfall also undermines any reliance placed by the Plaintiff in the original sale of Lots 4 and 5 collapsing and being replaced by a new sale at a higher price. The original sale was for more than $50m, yet a shortfall of more than $17m was expected. A new sale would have to be achieved at a dramatically higher price for the shortfall to be eliminated.
Absent direct evidence, these facts do not give rise to an inference that there was a shortfall which only became apparent to the Plaintiff on 27 May 2025.
There are other surrounding facts, some of which support an inference that there would be a shortfall (for example, from November 2024 the Plaintiff stopped dealing with the directors of the Defendants and began instead dealing with a receiver appointed by the first-ranking secured mortgagee) and some of which do not (for example, in November 2022 the first mortgagee had obtained a valuation of the project which, if still accurate in 2025, may have enabled Alceon to recover all funds advanced). Be that as it may, the evidence strongly indicated a shortfall.
Another relevant matter is the fact that the Plaintiff was itself a commercial party which already had a degree of familiarity with the Defendants’ financial circumstances and the development project. In mid-2024 the Plaintiff had conducted due diligence on an application for finance from the Defendants. On 26 May 2025 the Plaintiff made an offer to purchase some of the Lots in the subdivision for $13m, which demonstrates a high degree of understanding of the commercial parameters within which the Defendants were operating. The proposition that the Plaintiff only obtained clarity on the likely futility of proceedings on 27 May 2025 is implausible having regard to the objective facts.
For those reasons I find that the Plaintiff did capitulate in the sense described by the authorities referred to above. In those circumstances it is not necessary for me to find that the Plaintiff acted so unreasonably in commencing or maintaining the proceedings so as to warrant an adverse costs order in any event, and I make no such finding.
I do not consider that the Defendants have identified anything which constitutes delinquency on the part of the Plaintiff to warrant a costs order other than on the ordinary basis.
The orders of the Court are:
The Plaintiff pay the Defendants' costs of the proceedings.
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Correction to typographical error at [92].
Bridge Street Capital No.2 Pty Ltd
Manta Group Pty Ltd & Ors [2025] NSWSC 1072
(1992) 175 CLR 564
(2016) 93 NSWLR 1
(1990) 170 CLR 534
(2018) 97 NSWLR 681
(1998) 193 CLR 72
(1997) 186 CLR 622