Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers

Judgment

I gave judgment in this matter on 22 August 2019: Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd [2019] NSWSC 1069. I shall use the same abbreviations here.
On 26 September 2019, I dismissed Hurford's application for a freezing order: Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd (No 3) [2019] NSWSC 1285.
These reasons deal with the costs of that application.
As Hurford was unsuccessful, costs should follow the event unless there is reason to make a different order: Uniform Civil Procedure Rules 2005 (NSW) r 42.1.
Mr McCall, for Hurford, submitted that because Kempsey Timbers has engaged in "disentitling conduct" a different order should be made, namely that there be no order as to the costs of Hurford's unsuccessful application.
The relevant principles were summarised by the Court of Appeal recently in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 by McColl JA (with whom Macfarlan and Leeming JJA agreed) at [52]-[53] as follows: "In Oshlack v Richmond River Council [(1998) 193 CLR 72; [1998] HCA 11], McHugh J summarised what may be regarded as conduct disentitling a successful party from receiving a costs order as follows: ''Misconduct' in this context means misconduct relating to the litigation: King & Co v Gillard & Co [1905] 2 Ch 7; Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812, or the circumstances leading up to the litigation: Bostock v Ramsey Urban District Council [1900] 2 QB 616. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation: Jones v McKie [1964] 1 WLR 960; [1964] 2 All ER 842; Bostock…at 622, 625, 627; unnecessarily protracts the proceedings: Forbes v Samuel [1913] 3 KB 706; succeeds on a point not argued before a lower court: Armstrong v Boulton [1990] VR 215 at 223; prosecutes the matter solely for the purpose of increasing the costs recoverable: Hobbs v Marlowe [1978] AC 16; or obtains relief which the unsuccessful party had already offered in settlement of the dispute: Jenkins v Hope [1896] 1 Ch 278." Disentitling conduct does not necessarily need to amount to misconduct. It may simply be any conduct 'calculated to occasion unnecessary expense' [Moseley v AB (No 2) [2017] NSWSC 1812 at [71], referring to Lollis v Loulatzis (No 2) [2008] VSC 35 at [29]; Keddie v Foxall [1955] VLR 320 at 323-324]."

Mr Worthington's letter of 11 September 2019

Although this letter is dated 11 September 2019, it was not received by Hurford's solicitor until 13 September 2019; the day after Hurford filed its notice of motion seeking a freezing order.
Mr Worthington's letter revealed the existence of the mortgage by Kempsey Timbers to Oakley Investments over the Wauchope property to which I referred at [18]-[19] of the 26 September 2019 judgment.
Mr Worthington said that the mortgage facility was for $1.5 million, that "amounts have been drawn on that facility" and that part of the money drawn down had been used to pay a "previous and long standing loan from Oakley Investments".
The evidence adduced by Kempsey Timbers on the motion showed that this was not correct. The loan from Oakley Investments was long standing. The mortgage was granted to secure that existing loan.
The true position was not revealed until Mr Dowsett swore his affidavit of 18 September 2019 on Hurford's application for a freezing order.
Thus, prior to service of that affidavit, Mr McCall made this submission based on the content of Mr Worthington's letter: "In particular, the first defendant would appear to have borrowed from Oakley Investments so that it could repay an existing debt to Oakley Investments. The apparent result would appear to be that it still has a debt to Oakley but this time it is now supported by a mortgage over the Bago road property. The purported transaction is a nonsense. All that has occurred is that the first defendant has encumbered the property to the benefit of a related entity. Prima facie, it is a transaction entered into to transfer the first defendant's equity in the Bago Road property to a third party outside these proceedings. Note that the loan was for the full value of the property, that is unusual and shows the un-commerciality of the transaction."
However, the substance of the position was revealed, namely that Kempsey Timbers was indebted to Oakley Investments in some amount less than $1.5 million, that Kempsey Timbers was entitled to increase that debt to $1.5 million and that the loan was now secured by a mortgage over the Wauchope property.
To the extent that the incomplete disclosure in Mr Dowsett's 2018 Affidavit and the misstatement in Mr Worthington's letter of 11 September 2019 might be said to constitute a "lax" conduct of the kind described by McHugh J in Oshlack v Richmond River Council, a difficulty I have in describing that conduct as "disentitling" is that, as I emphasised in my 26 September 2019 judgment, that evidence was not tested in cross-examination (see [28], [33], [37] and [38] of the judgment).
Mr McCall did not go so far as to submit, and I am not prepared to infer that, had the true position been known, Hurford would not have brought the freezing order application.
However, Mr McCall submitted that: "The letter gave good reason for the plaintiff to continue to pursue the motion and, indeed, to seek for it to be expedited."
That submission overlooks the fundamental reason that I refused to make the freezing order. The evidence concerning the imminent approval of the development application in respect of the Wauchope property showed that, contrary to Hurford's submissions, Kempsey Timbers intended to increase the value of the Wauchope property, rather than diminish it; let alone diminish it with the object of frustrating Hurford's ability to recover the costs the subject of my order of 19 September 2019.
Hurford had notice of the development application.
Mr Worthington mentioned that in his letter dated 11 September 2019 when he stated: "The Wauchope property is a valuable asset. The property has an approximate value of $1,550,000. There is a development application before Council for a subdivision of the property into 40 industrial lots. The application is currently being processed and, when approved, will substantially increase the value of the property."
Indeed, in his affidavit sworn in support of the application for a freezing order, Mr McCall's instructor, Mr Braid, annexed the development application.
Argument before me on the application for the freezing order proceeded upon the basis that it was likely that the development application would be approved by the end of October.
In those circumstances, I see substance in the submission of Mr Glasson, for Kempsey Timbers, that Hurford was "on notice of the very strong possibility of precisely" the finding that I made about that aspect of the matter.
Overall, I am not satisfied that Hurford has shown sufficient reason why the usual order for costs should not be made.
I order that the plaintiff pay the defendants' costs of the plaintiff's notice of motion of 12 September 2019.

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Judgment (5 paragraphs)

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