In these proceedings I delivered judgment on 29 August 2017; Jana Pty Ltd atf Azizi Family Trust & Anthony Azizi v Ezistripdemo Pty Ltd & Sam Sharan [2017] NSWSC 1135.
The Defendants were successful. Orders were made on 1 September 2017 dismissing the Plaintiffs' Summons. The only question outstanding is the question of costs.
The Defendants seek an order the Plaintiffs pay the Defendants' costs of the proceedings, including the Cross-Claim, on an indemnity basis. The basis for the indemnity costs order is clause 15.2 of the Nomination Deed entered into between the parties on 27 January 2017.
The Plaintiffs accept costs ought to follow the event, but oppose the application for indemnity costs.
[2]
The parties' submissions
The Defendants correctly submit, pursuant to UCPR 42.1, the Court will order costs follow the event unless there is some reason to otherwise order. The Defendants submit that consistent with the outcome, the Plaintiffs should pay the Defendants costs of the Summons and Cross-Claim.
In addition however, the Defendants rely upon a contractual entitlement under the Nomination Deed in support of their claim for indemnity costs. It is submitted Courts have held on a number of occasions that where parties have contracted that where costs are to be paid on an indemnity basis, it will usually be appropriate that the statutory discretion as to costs be exercised so as to approximate as closely as possible the parties contract; Joseph Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778 at [19] and [24].
Clause 15.2 of the Nomination Deed is in the following terms:
15.2 Should the Nominee be in default of its obligations under this deed then the Nominee agrees to pay or reimburse Ezistripdemo on demand for:
(a) Ezistripdemo's costs, charges and expenses in making, enforcing and doing anything in connection with this deed … including, without limitation, legal costs and expenses on a full indemnity basis; …
The Defendants accept an order for indemnity costs was not pleaded. They also accept that in some cases this may be a reason why indemnity costs would be refused. The Defendants submit however they were not the moving party and the Plaintiffs commenced by Summons so there were no pleadings on the Plaintiffs' case to respond to.
The Defendants also submit clause 15.2 is engaged because Jana was in default of its obligations under the Nomination Deed, in particular, clauses 9.2(a) and 9.2(b). The Defendants submit once it is established Jana was in default of the Nomination Deed, the remaining question is whether Ezistripdemo's costs of the proceedings fall within the terms of clause 15.2(a). It is submitted they do by reason of the clear words of the clause. By defending the proceedings and bringing the Cross-Claim, the Defendants were "enforcing" the Nomination Deed. Alternatively, they submit by defending the proceedings and bringing the Cross-Claim the Defendants were "doing anything in connection with the Deed."
The Plaintiffs appropriately highlight the fact the contractual right can only be exercised by Ezistripdemo (and not by Mr Sharan). Further however, the Plaintiffs submit the right, pursuant to clause 15.2, is only crystalised after the demand has been made, which has not occurred in this case. Further, for clause 15.2 to have any effect there has to be a "default" and it is submitted no finding has been made by the Court to that effect.
The Plaintiffs therefore submit the Court ought not convert an uncrystallised contractual right attaching to one Defendant, into a curial right attaching to both Defendants, in circumstances where the Court was not seized to determine whether the relevant precondition to the right (default) has occurred.
The Plaintiffs accept in an appropriate case, where a right has crystallised and the issue was raised on the pleadings - which they emphasize is not the case here - it is open to a Court to exercise a discretion to award indemnity costs giving effect to a contractual right. However in this case where the issue was not pleaded, and any right is held by one Defendant alone and is uncrystallised, dependant on findings not made, the Court should adhere to the usual rule that costs are awarded on the ordinary basis.
[3]
Consideration
The main issues arising from the parties' submissions are therefore whether the Court should refrain from exercising its discretion to award costs on an indemnity basis because a) the contractual entitlement under clause 15.2 was not pleaded or b) the contractual entitlement has in any case not crystallised. The third issue raised by the Plaintiffs is c) whether indemnity costs should only be ordered in respect of Ezistripdemo, since Mr Sharan has no contractual entitlement under clause 15.2.
[4]
a) Contractual entitlement not pleaded
There is no doubt the authorities emphasize a distinction between a curial right to costs and a contractual right to costs, and that the two cannot operate in parallel. As Stein JA pointed out in Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45 at [9]-[10], a Court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs. His Honour however went on to point out it does not follow the discretion takes over from the contract and the exercise of discretion should be exercised so as to preclude enforcement of the contract made at arm's length. The contractual right stands independently of any curial power.
It is true, as the Plaintiffs point out, the contractual entitlement was not the subject of any pleading. However, as the Defendants respond, the Plaintiffs proceedings were commenced by Summons. That of course would not exclude a claim being made explicitly in the Cross-Claim. However, in my view it can hardly be suggested that such a contractual claim has taken the Plaintiffs by surprise, which is the whole purpose of a pleading.
Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [15]-[17] is a case where the Court of Appeal (Beazley JA with Hodgson and Ipp JJA agreeing) was of the view that in circumstances where a bank brought proceedings relying on a mortgage which provided default interest payable on costs, that particular matter should have been pleaded. In my view, the current situation is a very different one. As the Defendants point out, they were not the moving party. The existence of clause 15.2 is a matter which the Court is entitled to take into account in exercising the relevant discretion.
Thus, the absence of any pleading in this case, in my view, should not count against the Defendants in respect of their claim under clause 15.2.
[5]
b) Contractual rights not crystallised
Further, it does seem to me Ezistripdemo's costs fall within clause 15.2 of the Nomination Deed, and it is somewhat artificial to suggest, consistently with the judgment, that the relevant rights did not crystallise. Jana was found to be in breach of the Deed in a number of respects by reason of the Court's construction of the Deed.
As the Defendants point out in the two respects already mentioned in their submissions, the Plaintiffs were in default in clauses 9.2(a) and 9.2(b) of the Nomination Deed, by reason of the fact Jana failed, contrary to its obligations, to exercise the relevant option on 28 June 2017, which was critical to the release of the funds contemplated by the Nomination Deed. Clause 9.2(b) required Jana, on the Completion Date, to pay the balance of the Nomination Fee. Therefore Jana breached 9.2(b) of the Nomination Deed by paying the balance of the Nomination Fee, subject to a condition, namely that the Nomination Fee be held on trust pending further order, which was not a term of the Deed.
[6]
c) Mr Sharan not entitled to contractual right
Both Mr Sharan and Mr Azizi are parties to the Nomination Deed, each being a guarantor of the obligations of the Nominee and/or Ezistripdemo respectively. However, strictly speaking, only Ezistripdemo's should have its costs paid on an indemnity basis given clause 15.2 only provides a contractual entitlement to costs to Ezistripdemo, rather than Mr Sharan.
In the end, this is unlikely to make any material difference. Although it is theoretically possible both Ezistripdemo and Mr Sharan were represented by the same solicitors and counsel, I cannot imagine any additional costs would have incurred for Mr Sharan over and above those incurred by Ezistripdemo. On that basis, the distinction - although an entirely appropriate one to make - is probably of theoretical interest only.
[7]
Conclusion
In the circumstances it seems to me the Nomination Deed, in particular clause 15.2, has application, and I would order Jana pay Ezistripdemo's costs of the proceedings, including the Cross-Claim on an indemnity basis.
[8]
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Decision last updated: 22 September 2017
Parties
Applicant/Plaintiff:
Jana Pty Ltd atf Azizi Family Trust & Anthony Azizi