Hung v Aquamore Credit Equity Pty Ltd

EX TEMPORE Judgment

1. LEEMING JA: Mr Edgar Yan Kai Hung, Mr Trevor David Chappell and First on First Development Pty Ltd appeal from a judgment following a three day hearing in the Common Law Division: Aquamore Credit Equity Pty Ltd v Hung; First on First Development Pty Ltd v Aquamore Credit Equity Pty Ltd [2021] NSWSC 1681. The respondents to the appeal, Aquamore Credit Equity Pty Ltd, as trustee for the Spring Park Unit Trust and Messrs Allen Hsu and Zachary Chang, by notice of motion filed 6 May 2022 amended on 3 June 2022, have sought security for the costs of the appeal.
2. The appeal arises out of the following facts which may briefly be stated. Aquamore advanced money to First on First on 7 December 2016. Its obligation to repay was secured by a mortgage over property at Blacktown and guarantees from Messrs Hung and Chappell. The advance was just less than $8 million, plus four months' prepaid interest of $926,530. The amount of interest was so large because the "Lower Rate" under the loan facility was 2.5% per month compounding monthly. The facility seems to have been intended to have been short term of only a number of months. There were negotiations to extend it in mid 2017, which ultimately did not proceed. This is described in Meagher JA's reasons at [9]-[16]; it is not necessary for present purposes to set out any more details. Aquamore took the view that there was an event of default and took steps to exercise its security. It sold the property purportedly under a power of sale for $10 million plus GST. Subsequent to entering the contract of sale Aquamore negotiated variations with its purchasers, which resulted in delay but also a greater sale price. There was nonetheless a shortfall for which Aquamore sued the guarantors, Messrs Hung and Chappell, claiming it was entitled to the "Higher Rate" of 5% per month.
3. The primary judge found at [65] that the property was sold: "in circumstances which did not enliven either the power under s 58 of the Real Property Act or the authority conferred under cll 9.1 and 9.4 of the mortgage. However, First on First had notice of the proposed sale and did not move to restrain it. The question remains, what damages did it suffer as a result of the unauthorised sale of which it had advance notice but did not seek to restrain."
4. His Honour dismissed claims that there had been a breach of the mortgagee's duties when exercising its power of sale, dismissed the claim that First on First had suffered loss from the wrongful exercise of the power of sale, but found that the Higher Rate was a penalty. Ultimately, following a second hearing, that resulted in a judgment of $10,175,367 against Messrs Hung and Chappell and a declaration that the "Higher Rate" was a penalty, but otherwise dismissing First on First's claim.
5. The issues in the notice of appeal are primarily focussed upon whether there was a breach of duty when exercising the power of sale. Ground 1 of the appeal points to a conflict in the evidence as to value of the property of $9.825 million, as opposed to $15 million and involves a challenge to the resolution of the dispute in the evidence by the primary judge. Grounds 2 and 4 assert error in the failure by the primary judge to find either that the mortgagee had failed to act in good faith or had acted in breach of s 420A of the Corporations Act 2001 (Cth). Ground 3 maintains that the primary judge erred in failing to take into account evidence and submissions on First to First's loss from the wrongful exercise of the power of sale. If I may say so, the notice of appeal is a model of its kind. It is succinct and informative.
6. There is also a cross-appeal from the declaration that the Higher Rate (which translates to some 79% per annum) is a penalty.
7. The application for security for costs was filed slightly more than six weeks after the notice of appeal was filed (and rather longer after a notice of intention to appeal). No point was taken about the delay, although it is desirable in applications of this kind for them to be brought promptly, before any substantial costs are expended by the appellants, noting that a substantial component of the appellant's costs will be preparation of the submissions, ordinarily to be filed six weeks after the notice of appeal is filed: UCPR r 51.37(1)(a).
8. The application seeks security by payment into a court of the amount of $336,728 or such other amount as the Court finds. That is based upon an estimate that the respondents' costs of the appeal and their cross-appeal will be $434,461.50. Very appropriately, no attempt was made to defend all aspects of that estimate in the hearing today. Mr Hogan-Doran SC's written submissions dated 20 June 2022 accepted that some of its components, including the costs of the cross-appeal and some of the "contingencies", should not be included. Those submissions contended, on the basis that it can be expected that the respondents' costs of dealing with this appeal will be $324,379, and that 70% of costs would be recovered on assessment, that the respondents nonetheless could expect to recover $227,065.30 if the appeal were dismissed and they obtained a costs order and invited me to order security in that amount.
9. The threshold question which arises is as to the test which applies, bearing in mind that the first and second appellants are natural persons and the third is a company. I accept that the company is, from its own resources, unable to provide security in any significant amount, and will be unable to meet any adverse costs order.
10. The discretion to make orders for security for the costs of an appeal, in the case of an appeal brought by a natural person, requires the finding of special circumstances: UCPR r 51.50. However, in the case of an appeal brought by a company, there is no such requirement, because an order may be made under s 1335 of the Corporations Act 2001 (Cth). How do those principles interact when as here both natural persons and a company are appellants? The authorities in this Court are consistent.
11. In Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300, Kirby P addressed this circumstance and, relying upon an unreported judgment at first instance of Rogers CJ of Comm Div, considered it appropriate to treat the discretion applying to natural persons as extending to the whole of the costs of the appeal.
12. In Macedonian Orthodox Community Church St Petka Incorporated v Petar [2012] NSWCA 304, Allsop P said at [10]: "without undertaking minute analysis of the issues, the Community Church and the other individual appellants and applicants share a common interest in the fate of the applications and will share a common responsibility for costs in respect of a significant number of them. A differential approach to individuals and corporations in the one appeal is ordinarily inappropriate: Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No 1) (1993) 11 ACSR 300 at 303 (Kirby P). I do not consider that this consideration is limited by any narrowly framed rule that might be drawn (impermissibly) from the remarks of Mason P in dealing with the facts before him in Winnote Pty Ltd v Page [2005] NSWCA 362; 64 NSWLR 244 at [43]."
13. Most recently, in Zhu v Wang [2021] NSWCA 109, Macfarlan JA, once again dealing with an application for security for costs in relation to an appeal brought by a natural person and companies she controlled, proceeded on the same basis (see at [9] although it was noted that there was not argument on the point in that case).
14. It was not said that those authorities were wrong. Instead, it was said that "it's apparent that the appeal is an appeal by the third appellant, the corporation, where the first two appellants are essentially just hangers-on to that appeal". I was taken to two judgments, of Ormiston J in Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 and Brereton J in Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317.
15. In the former, Ormiston J addressed the point at 624-625 asking whether the claims of the natural persons at trial were sufficiently intertwined or interrelated with those of the corporate persons. A similar test was applied by Brereton J in Street v Luna Park at [27]-[28]: "It is undoubtedly relevant to the exercise of the discretion to order security that there is one or more individual co-plaintiffs against whom an order for security could not or would not be made [Pearson v Naydler [1977] 1 WLR 899; Interwest Ltd v Tricontinental Corporation Ltd & Anor (1991) 5 ACSR 621, 635 (Ormiston J); Fiduciary Ltd & Ors v Morningstar Research Pty Ltd & Ors (2004) 208 ALR 564]. This appears to have originated with cases in which there was a plaintiff outside the jurisdiction (against whom security might be ordered) but also a plaintiff, albeit an impecunious one, within the jurisdiction. The view was taken that the defendant's position should not be improved by the mere circumstance that there was an additional plaintiff. In other words, as the defendant would not have been able to get an order for security against the impecunious plaintiff in the jurisdiction, it should be no better off by reason of the circumstance that a plaintiff outside the jurisdiction was also joined [Sykes v Sykes (1869) LR 4 CP 645; D'Hormusgee & Co v Grey (1882) 10 QBD 13]. The rationale of these cases was examined in this court by Studdert J in Maples v Hughes [2002] NSWSC 617, in the course of which his Honour referred to Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523; (1984) 8 ACLR 835, a decision of the Queensland Full Court in which a natural person was joined with three companies as plaintiffs. The leading judgment was given by Connolly J who (at 841) having posed the question 'What is the rule when there is more than one plaintiff', proceeded: 'The "two plaintiff" cases start with the situation in which one is out of the jurisdiction. Prima facie he ought to be ordered to provide security but his co-plaintiff is within the jurisdiction. In such a case it was considered that there was no ground for ordering security. See Sykes v Sykes (1869) 4 LR CP 645 at 648 per Byles J and Montague Smith J. This principle was held to apply even where the plaintiff within the jurisdiction was insolvent. I take the underlying reason to be that the defendant was really in no worse position than if he had been sued by a single plaintiff resident within the jurisdiction and insolvent. As Brett J remarked at 650, the cases show that, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any.' However, this is not an absolute rule, as appears from the judgment of Plowman J in John Bishop (Caterers) Ltd v The National Union Bank Ltd [1973] 1 All ER 707; see also Fiduciary Ltd v Morning Star Research. Where there is a complete identity between the corporate plaintiff and the individual plaintiff, so that all plaintiffs are suing in relation to one and the same defendant, and all plaintiffs must succeed or fail together, security will not ordinarily be ordered against only one of them [Bishop, 709-710]. But where the various plaintiffs' claims have different elements and aspects, so that they will not all necessarily succeed or fail together, although the existence of individual plaintiffs is a factor that diminishes the defendant's claim to be entitled to security against the corporate plaintiff, it does not extinguish it [Interwest Ltd v Tricontinental]. And where the degree of overlap between the claim of the individual and corporate plaintiffs is comparatively small, such that separate orders for costs might be made in respect of each of the plaintiffs, it is usually appropriate that an order for security be made [Bishop, 716; Fiduciary v Morning Star, 33-36]." (emphasis added)
16. In particular, in the passage emphasised above, his Honour referred to the circumstance of there being a complete identity between the corporate plaintiff and the individual plaintiff so that all plaintiffs are suing in relation to one and the same defendant and all plaintiffs must succeed or fail together. Brereton J said that in those circumstances "security will not ordinarily be ordered against only one of them".
17. In the present case, the borrower was the company and the natural person appellants were the guarantors. The guarantors have not paid the judgments that have been entered against them and from which they bring appeals. If the natural person guarantors had discharged their liabilities on the guarantees they executed, then they would be entitled to stand in the shoes of the borrower and enforce such rights as it had against its lender. Further, insofar as the borrower succeeds in reducing or eliminating its liability to repay its lender, then to that extent the natural person appellants will benefit; obviously the lender cannot recover twice. I did not understand there to be any dispute about this when it was raised during the hearing.
18. It was in those circumstances that the respondents/applicants submitted that the natural persons, who are the first and second appellants to this appeal, were "hanging on" to the success of the company. In a sense, that is true. But that is only true because their judgment debts are founded on liabilities based on a guarantee and therefore are secondary to the primary obligation owed by their company. That is quite different from the circumstances which Ormiston J and Brereton J had in mind, where different plaintiffs prosecuted different causes of action, which were independent of each other in the sense that some might succeed and others might fail.
19. If the third appellant succeeds to any extent, there is corresponding success by the first and second appellants. This is a case where so far as the issues in the appeal arise, there is complete identity between the corporate and natural person appellants. There is only one set of costs in relation to which any application for security can be brought, namely the respondents' costs. There is, in my opinion, no sound basis to displace the ordinary rule and obtain the unusual order that is sought by the respondents, namely an order that the corporate appellant provide security for the costs of the appeal in circumstances where special circumstances for the purposes of UCPR 51.50 have not been established.
20. If I came to that view, Mr Hogan-Doran, with commendable candour, accepted that that was the end of the application. That acceptance was properly given, although I am conscious of other submissions which had been made in writing, including concerning the joinder of the second and third respondents to the appeal. If it turns out that their joinder is improper, that may conceivably have costs consequences, as is pointed out in the submissions, but that does not undercut the entitlement or absence of entitlement to security for costs. Accordingly, in accordance with the line of authority in this Court I have referred to above, this is not an appropriate case for the award of security.
21. Something needs to be said about the estimate of costs. I have already mentioned that counsel did not seek to defend a substantial amount of the costs to which the solicitor for the respondents, Mr Seelenmeyer, deposed. Those costs were estimated at an early stage in the litigation, when it was not clear whether the appeal would be one or two days - my present view, based on the appellants' written submissions, is that this is an appeal that can be accommodated in a single day - and were prepared at a time when there were uncertainties, including the possibility of an amendment to the notice of appeal. Further, it should fairly be said that Mr Seelenmeyer had not been actively involved in the litigation at trial, the solicitor with carriage of the matter having left the firm, and that to an extent contributes to the estimates that he gave. (I have put to one side whether the fact that the respondent is using a new solicitor from the same firm, and has briefed senior counsel who did not appear at trial, has any bearing upon this application.)
22. Nonetheless, it is troubling when a solicitor of this Court produces an affidavit containing estimates of costs such as those which were relied upon before me. This is not a case where estimates have been given which are contestably high. This is a case where many of the estimates of costs bear no relationship with the realities of defending an appeal. They included amounts (all exclusive of GST) of: 1. $8,380 (including 2 hours of senior counsel's time and 16 hours of solicitors' and junior counsel's time) attending and preparing for directions hearings; 2. $16,840 dealing with a potential application seeking leave to amend a notice of appeal - there are few occasions when there can be sensible opposition to an amendment to a notice of appeal, and there is nothing to suggest that there was any proper basis in the present case to oppose an amendment; 3. $17,550 reviewing the appeal books prepared by the appellants with a view to either including extra documents or excluding documents from them - the burden lies on the appellants to include the evidence and transcript which is relevant and necessary for the determination of the proceedings (UCPR rr 51.28 and 51.29) and if that is complied with, nothing more need be done by the respondents, and there is nothing to suggest that the appellants will fail to do this; 4. $9,010 for the contingency that the respondents will incur costs in that amount "for any motion dealing with leave of the Court to make any Additions to the Appeal Book" - even if that contingency came to eventuate, when a respondent wishes to supplement the record books, the Registrar will ordinarily direct the preparation by the respondent of supplementary appeal books; 5. contingencies totalling $111,130 (including the $9,010 mentioned above), all of which had in common that the possible expense was unlikely to be incurred, in which case it is difficult to see a proper basis for ordering the appellants to provide security against the possibility that it is incurred and the respondents obtain a favourable costs order which they cannot enforce; 6. the astonishing sum of $27,440 for reviewing the appellants' chronology and preparing the respondents' own chronology - it is to be borne in mind that (a) only if the appellant's chronology is inadequate is any chronology by the respondents warranted, and (b) even if a chronology were prepared afresh, it could not conceivably warrant 6.5 hrs of senior counsel's time, 14 hours of junior counsel's time, and 44 hours of solicitors' time; 7. $3,690 for marking up submissions in order to put blue and black book references on the submissions supplied by the respondents - this is administrative and should be the work of an hour or so.
23. I do not seek to be exhaustive in identifying the items which Mr Hogan-Doran, once they were pointed out to him, very properly accepted should not be included in the total. The result was that he accepted that more than a quarter of a million dollars of estimated costs contained in Mr Seelenmeyer's affidavit could not be justified. The concession was, self-evidently, properly made; it is absurd to think that the respondents to a one or even a two day appeal could properly incur costs of $434,461 or anything like that amount.
24. The reason for what was concededly a very substantially overinflated amount of the respondents' costs being included in this application for security for costs - something which was pointed out pithily by the appellants' written submissions - is not known to me. One possibility is that the deponent was incompetent or completely unfamiliar with the ordinary course of litigation in the Court of Appeal. Another possibility is that those costs or something like them will in fact be incurred, in which case there would be what could only be described as massive overcharging of the client. A third possibility is that the affidavit has been prepared with a view to very substantially inflating the likely costs, in order to obtain either by compromise or by Court order a much greater award of security than that to which the respondents would otherwise be entitled.
25. I do not know and I express no view as to whether any of those possibilities be the case. There may be other possibilities for the inflated estimates, although I made it plain during the hearing, including by giving what turned out to be a significant adjournment to permit anything that could be said in relation to those estimates being put to me. No attempt was made to produce any further evidence or explanation, save for what was said from the bar table to which I have already referred. But whatever be the reason, the fact is that the estimates are grossly inflated, far beyond the realm of what might be reasonably arguable as an estimate of the costs of an appeal.
26. I mention all of those things for this reason. If contrary to what I have already decided this were a case for security for costs, I would, in the exercise of my discretion, order none. That is because, irrespective of the reason such a wildly exaggerated estimate was deposed to, it is quite wrong for such estimates to be propounded in this Court. The respondents seek a discretionary order, but rely on an obviously untenable evidentiary basis for an essential element of the order they seek. As much was pointed out to them in advance of the hearing. No attempt was made to attend to the self-evident deficiencies in the evidence. A less unrealistic amount of security might be $50,000 or $70,000, as was pointed out in the appellants' submissions, but why should even that amount be ordered when the moving party has so grossly inflated its estimate of its own costs?
27. The real issues in dispute are raised on the notice of appeal and the respondents' cross-appeal from the declaration that their interest rate of some 79% per annum is an unenforceable penalty. The costs of the appeal are well removed from the real issues. The provision of security for those costs is still further removed. It is difficult to see how what has occurred on this motion could accord with the overriding purpose and the obligations to which both the respondents and their lawyers are subject in s 56 of the Civil Procedure Act. Estimates such as the grossly inflated estimates on which the respondents relied are also apt to produce disputes which cannot be resolved; hence the two hours we have spent this morning dealing with this application.
28. Such complaints are not new. They were explained more concisely than I have managed to achieve by Young JA in Nicholls v Michael Wilson & Partners Ltd [2010] NSWCA 100 at [11]-[16] more than a decade ago. So far as I can see the situation has not improved subsequently; to the contrary.
29. For those reasons I dismiss the notice of motion filed 6 May 2022.
30. [Discussion as to costs].
31. HIS HONOUR: The order of the Court is notice of motion filed 6 May 2022 dismissed with costs. Despite what I just said and the tone of it, I could not have dealt with the motion today but for the assistance I've received from those at the bar table and those instructing them. I'm grateful for that.

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