[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
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Judgment
THE COURT: By judgment delivered on 6 November 2018, this Court allowed the appeal brought by Global Consulting Services Pty Ltd and RGN Pty Ltd, set aside the orders made at first instance and in lieu thereof granted declaratory relief as to the distribution of the net sale proceeds presently held by the receivers and managers of the second, third and fourth respondents, and ordered that the only active respondent, Gresham Property Investments Ltd, pay the appellants' costs at first instance and of this appeal: Global Consulting Services Pty Ltd v Gresham Property Investments Ltd [2018] NSWCA 255.
The reason for the litigation, and the expected result of those orders, is that when the proceeds of sale of three development properties are distributed, the appellants (GCS and RGN) will receive a greater share of the proceeds than they would under the regime proposed by the respondent Gresham and upheld by the primary judge. It is not necessary in these reasons to summarise precisely how that comes about. It is sufficient for present purposes to state that although some dollar figures were mentioned in the judgments at first instance and on appeal, and in the parties' submissions, there has as yet been no final distribution to creditors and those numbers were necessarily approximate. Paragraph 32 of this Court's reasons explained:
"The appeal materials do not appear to disclose how those conclusions work out in terms of the dollars to be received by Gresham (and, perhaps, GCS and RGN). That is not intended as any criticism; to the contrary, the procedure adopted, of granting declaratory relief in relation to the questions of priority, and leaving it to the receivers to determine the consequences, seems apt and efficient so as to avoid distraction by pecuniary minutiae."
Within the time prescribed by the Uniform Civil Procedure Rules r 36.16, GCS and RGN filed a notice of motion seeking a more favourable order as to costs, based upon a Calderbank letter dated 31 July 2018. The order sought by the appellants only affects the cost of the appeal, and indeed only affects the appellants' costs incurred on and after 11 August 2018; the appellants ask that those costs be paid on an indemnity basis, rather than on the ordinary basis. All of the parties' written submissions on the appeal, including the appellants' reply, were filed and served prior to 10 August 2018. The appeal was heard on 17 September 2018. The costs which are the subject of the appellants' notice of motion, therefore, are the costs of the hearing of the appeal and those costs incurred in the roughly five weeks immediately preceding the hearing of the appeal, and exclude all costs directed to the preparation of the submissions.
It is accepted that GCS and RGN are entitled to orders that Gresham pay their costs both at first instance, and in this Court until and including 10 August 2018, on the ordinary basis. The only question dividing the parties is whether Gresham should pay the costs of GCS and RGN in this Court incurred from 11 August 2018 on an ordinary basis or on an indemnity basis.
The substance of the Calderbank offer was as follows:
"The true position is that our clients' submissions have shown, with great clarity, the errors committed by His Honour and properly set out why the appeal should succeed. In our view, the appeal is more likely than not to succeed.
The effect of our clients' appeal being allowed would likely be:
(a) the full amount currently held (which our clients understand to be approximately $2,700,000.00) being paid to our clients;
(b) the costs order made at trial will be reversed leading to a costs order in our clients' favour of approximately $300,000.00; and
(c) our clients will be awarded the costs of the appeal.
However, our clients are also interested in resolving this matter, albeit at a price which properly reflects the value of our clients' prospects on appeal.
Accordingly, our clients are willing to fully and finally resolve the Appeal Proceedings (as defined in your letter) on the basis that:
(i) the amount of $1,500,000.00 is released to our clients and the Appeal Proceedings is dismissed;
(ii) your clients will forever waive and release its rights to recover from our clients your client's costs in the proceeding at first instance; and
(iii) the parties otherwise enter into a deed of settlement containing these terms.
Our clients' offer is open for acceptance by your client until 5.00pm on 10 August 2018."
There was no response to that letter.
The parties have now exchanged submissions and affidavit evidence. The parties' submissions were dated 28 November, 5 December and 7 December 2018. It is not necessary for present purposes to summarise those submissions in full. It is sufficient to note that Gresham, in opposition to the special costs order, makes (inter alia) the following two submissions:
"(a) the exact amount available to any of the parties with a claim to the surplus is so uncertain as to make it impossible for Gresham, or the Court, to determine if the offer is a genuine compromise;
(b) the amount claimed in the Offer was substantially in excess of funds likely to be available to the Appellants when the surplus is released and therefore did not offer a discount (and thus did not represent a compromise)".
Gresham submits, with respect correctly, that the amounts referred to in the judgment were approximate. In part that is because the ultimate amount will depend on the quantum of fees incurred by the receiver. Gresham also maintains that the amount is also subject to other priority creditor claims, including what it describes as a "Call Option Cancellation Fee". That is a claim of "at least $850,000 (plus interest)" which, so Gresham contends, is a prior ranking claim on the fund. Further, Gresham maintains that it has priority in relation to the first $600,000 released by the receivers.
On the other hand, GCS and RGN submit that the "newly propounded $850,000 'Option Cancellation Fee'" is based on a misconception of documents which had not previously been in evidence at trial or referred to in the appeal. GCS and RGN accept that any surplus left over from the sale of the PV lot sale proceeds (which was estimated at $600,000) is an amount available to secured creditors of PV including Gresham. However, they do not accept that Gresham is entitled to be paid a fixed sum in that amount in priority to them over all of the assets held by the receivers.
It is to be borne in mind that all that will be determined on the motion for a special costs order is whether the costs incurred by GCS and RGN in the period after 10 August 2018 will be the subject of a favourable cost order on an indemnity basis rather than on the ordinary basis. In other words, the amount in issue on this motion is relatively small. It is relatively small in two respects. First, it is relatively small in relation to the total costs incurred by GCS and RGN - for nothing in the motion impacts upon the entitlement of GCS and RGN to be paid their costs prior to 11 August 2018, including the entirety of their costs at first instance (which are estimated in the Calderbank letter at some $300,000). Secondly, it is relatively small compared with the submission as to the various claims as to a preferred distribution of amounts of $850,000 and $600,000.
In those circumstances, it is inappropriate for this Court, in order to determine an application for a special costs order, to determine questions as to the substantive legal entitlements of the parties in the administration of the fund, including questions which have not hitherto been raised either in this Court or at first instance. That is so for the following reasons.
First, this Court's reasons would have an impact upon the orderly conduct of the distribution of the proceeds of sale. The questions raised by the parties in their submissions directed to a favourable costs order will, in the ordinary course, be determined (and any disputes resolved including if necessary by application to the Court) in the usual way. It would be unusual for the resolution of a costs argument following an interlocutory appeal to have that effect.
Secondly, there is at present an unavoidable element of speculation as to the actual distributions which will be made. In part that is from the disagreement between the parties, but in part also it is an inevitable consequence of the fact that the receivers' fees have not yet been determined. When actual distributions are made, the actual amounts received by the appellants will replace the estimates which are all that are presently available. In short, there is every reason to think that the parties' dispute and the resolution of the submissions raised on the costs application will become simpler.
Thirdly, we are conscious that very little, in the scheme of things, turns upon the present application. The subject matter is costs, and even if there is delay in the determination of the motion, that will not prevent further steps being taken to agree or have assessed the large majority of the costs to which GCS and RGN are entitled. Against the possibility that there is a difficulty arising from the fact that the costs at first instance and in this Court were contained in a single order, the orders below will split that favourable costs order to make clear what is unchallenged and what is subject to the notice of motion.
Fourthly, Gresham has filed an application for special leave to appeal. As presently advised, there is no reason to think that the parties would wish to take steps to have any costs orders assessed, whatever the outcome of the present motion, until that application is determined.
Finally, there is no reason for three Judges of Appeal to determine the notice of motion. Section 46(1)(d) of the Supreme Court Act 1970 (NSW) authorises a single Judge of Appeal to exercise the powers of the Court of Appeal to deal with costs. It is appropriate in the circumstances of this application for that power to be exercised, with the intent that a single judge will hear further from the parties as to the most efficient timing for the resolution of the motion.
Accordingly, the Court will make the following order:
Set aside order 3 made on 6 November 2018 and in lieu thereof order that:
3A. The first respondent Gresham pay the appellants' costs at first instance.
3B. The first respondent Gresham pay the appellants' costs of this appeal up to and including 10 August 2018 on the ordinary basis.
3C. Orders 3A and 3B are taken to have effect on 6 November 2018.
3D. Order that the notice of motion filed 20 November 2018 as to the appellants' costs of the appeal from 11 August 2018 be heard and determined, on the papers, by a single Judge of Appeal.
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Decision last updated: 18 December 2018