Jun International Property Pty Ltd v Fullerton Property Pty Ltd

Supreme Court of NSW|2019-04-08|Before: Ward CJ

J D Heydon, LexisNexis Australia, Cross on Evidence (at 23 April 2019) Lexis Nexis Australia, Ritchie's Uniform Civil Procedure NSW (at 23 April 2019) Category: Costs Parties: Jun International Property Pty Ltd (Plaintiff) Fullerton Property Pty Ltd (First Defendant) Shun Fang Wang (Second Defendant) Yu Wang (Third Defendant) Representation: Counsel: C Freeman (Plaintiff) D Delaney (Defendants)

Solicitors: Goodwin & Co Lawyers (Plaintiff) CKSD Lawyers (Second Defendants) File Number(s): 2018/00248835 Publication restriction: Nil

Judgment

HER HONUOR: This is an application by the plaintiff, Jun International Property Pty Limited (Jun), for costs of these proceedings on the ordinary basis and for pre-judgment interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) on a sum of $2 million that was claimed by it in the proceedings, in circumstances where the parties reached agreement around November 2018 for the settlement of Jun's claim (effectively, for the payment of that $2 million sum), other than in relation to those questions of costs and interest.

Background

The dispute between the parties which led to the commencement of these proceedings relates to a profit sharing deed dated 28 October 2015 (the Deed) entered into between Jun and each of the defendants: the first defendant, Fullerton Property Pty Limited (Fullerton), and the second and third defendants (Shun Fang Wang and Yu Wang), the guarantors under the Deed, in relation to a development at Bankstown (the Bankstown Project).
The background to the dispute can be summarised by reference to the submissions made and affidavit evidence read on the present application. I make no findings as to disputed questions of fact. (I also note that some of Jun's affidavits were only read subject to relevance, in circumstances where the defendants say that it is inappropriate for me now to explore the merits of the dispute since the proceedings have settled without a hearing on the merits.)
The Bankstown Project concerned the development of two properties in Kitchener Parade, Bankstown (the Bankstown Properties) and the construction of 33 residential lots on that land. Pursuant to the Deed, Jun agreed to make available the sum of $2 million (defined in the Deed as the Investment Sum) to Fullerton on or prior to 5 November 2015 (defined in the Deed as the Contract Completion Date) (see cl 3.1 of the Deed). It is clear that the provision of this sum was for the purpose of investment into the Bankstown Project (see cl 5.1).
Shortly after entry into the Deed, Jun entered into a Joint Venture Agreement on 30 October 2015 in relation to another property development, this time in respect of land in Liverpool (the Liverpool Project). The other parties to that agreement were ABG Group Pty Limited (ABG) and Australian Brothers Group Pty Limited as trustee for the Wang Family Trust (Australian Brothers Group). The sole shareholder of ABG is Australian Brothers Group. The second and third defendants are the directors of Australian Brothers Group and the third defendant holds 50% of its shares. Thus, the second and third defendants controlled both Fullerton and, effectively, ABG through the shareholding in Australian Brothers Group.
The dispute in these proceedings concerned only the Bankstown Project. However, Jun submits that the Liverpool Project is of relevance because significant sums of money were transferred to ABG from the Bankstown Project without the prior knowledge or consent of Jun. The defendants dispute the relevance to the present application of the allegations made by Jun in relation to the Liverpool Project.
Returning to the Bankstown Project, in its written submissions Jun argued that the Deed relevantly imposed three specific obligations on Fullerton: repayment of the sum of $2 million within 30 days of the Completion Date (which was 28 June 2018) (see cl 5.3 of the Deed); disclosure to Jun of all Project Expenses, as defined, within 14 days of receipt of an invoice (see cl 6.1 of the Deed); and access by Jun to the books and records of Fullerton to view the progress of the Bankstown Project (see cl 4.1(c) and cl 7.1(b) of the Deed). Jun submitted that the failure by Fullerton to comply with any one of these three obligations establishes either that: it behaved unreasonably; or that Jun would "certainly" have succeeded in the proceedings (those matters being relevant to the costs submissions). In oral submissions, however, it was accepted that the 30 days payment obligation in cl 5.3 of the Deed related not to the Investment Sum but to the JIP Return (as defined in the Deed) (as to which see further below).

The Deed

The relevant terms of the Deed are identified by Jun in its written submissions and need not here be extracted. For present purposes, it suffices to note that the Deed specified (in cl 5.1) the order of priority in which the proceeds of sale of the then proposed residential lots were to be paid "after payment of the Project Expenses", namely: (a) firstly, to repay all moneys owing to any financier (excluding JIP [as Jun was defined in the Deed]) in respect of the Bankstown Project until all such amounts, facilities or securities have been paid and discharged in full; (b) secondly, in repayment of the Investment Sum to JIP; (c) thirdly, in repayment to Fullerton of any Project Expenses paid by Fullerton; (d) fourthly, as to the balance on a pro-rata basis: (i) to JIP in payment of the JIP Return |35%]; and (ii) to Fullerton in payment of the Fullerton Return [65%].
The term "Project Expense" was defined in cl 1.1 of the Deed to mean: … all costs directly attributable to the Bankstown Project including but not limited to: (a) all acquisition costs and expenses including but not limited to legal costs, stamp duty, purchase price, GST, registration fees, financing costs; (b) all architects, surveyors and all other consultants' flees incurred in relation to the planning and design of any works and the preparation and completion of any plans and specifications, surveys and any other matter relating to the Bankstown Project; (c) any GST amount and other taxes relating to the Bankstown Project; (d) construction costs; (e) finance costs; (f) marketing and advertising costs; (g) headwork and authorities fees and contributions; (h) sales commissions; (i) insurance costs; (j) management fees; (l) quantity surveyor's costs; (m) legal and due diligence costs; (n) any costs associated with obtaining a valuation of the Land and/or the Bankstown Project; (o) all principal contractor fees incurred in relation to the Bankstown Project.
Pausing here, the defendants argue that cl 5.1 is to be understood in the context that the Project Expenses were to be incurred out of the joint venture funds (to which the Investment Sum contributed) and hence the reference to payment of the Project Expenses in the chapeau to cl 5.1 is a reference to payments occurring out of the joint venture funds (those having priority over repayment of the amounts in (a)-(d)) and that the "Project Expenses paid by Fullerton" in (c) refers to any expenses that Fullerton itself paid (i.e., not out of joint funds).
Pursuant to cl 5.3, as adverted to above, Fullerton agreed to pay Jun the JIP Return (35%) within 30 days from the Completion Date.
Pursuant to cl 5.4, the parties acknowledged and agreed that Fullerton might in its absolute discretion retain the Retained Lots (defined as up to five lots in the Bankstown Project) on Completion (i.e., completion of the Bankstown Project) in accordance with cl 10 (which provided that the retention of the Retained Lots was to be treated as consideration in full or in part of the Fullerton Return and there was a mechanism by which the value of those lots was to be apportioned and for the payment by Fullerton to Jun of the excess of the value of the Retained Lots over the value of the Fullerton Return). There was a dispute in the proceedings as to whether Fullerton in fact exercised its rights under cl 5.4 in respect of the four lots that were unsold as at the end of July 2018.
Reference was also made in submissions to the undertaking provided by Fullerton in cl 7.1(h) of the Deed that Fullerton not, without Jun's prior written consent (such consent not to be unreasonably withheld), incur any indebtedness in an amount exceeding $50,000 in relation to any one transaction or in relation to any number of transactions taken as a whole, unless permitted by the Deed or such indebtedness was granted by Fullerton in accordance with cl 4 of the Deed.
Clause 17 of the Deed contained the guarantee and indemnity by the second and third defendants on which they were sued in the proceedings.

The Bankstown Project

It is not disputed that Fullerton acquired the Bankstown Property and obtained certain facilities from St George Bank Ltd (St George) for the purpose of undertaking the Bankstown Project (see [20]-[21] of the statement of claim, in substance admitted in the corresponding paragraphs of the defence); nor that Fullerton granted a registered mortgage over the land to Westpac Banking Corporation (Westpac) to secure the advances, interest and other charges under the facilities (see [22] of the statement of claim, admitted in the defence).
The defendants further admit that Jun provided the whole of the Investment Sum to Fullerton on 29 October 2015 (see [23] of the statement of claim, admitted in the defence) and that, between 7 June 2018 and 28 June 2018, completion occurred of contracts for sale in respect of 29 residential lots (see [24] of the statement of claim, admitted in the defence).
The defendants admit that, including the deposit, the proceeds of sale of those sold lots totalled $16,462,816.13, inclusive of GST (see [25] of the defence), though they deny receipt of that amount (in essence, as I understand it, because the bulk of those funds went to discharge the St George facilities). (In their defence, the defendants further admit that four lots had not been sold but do not admit that those lots were Retained Lots under the Deed (see [25] of the defence).)
In this regard, Jun points to a letter dated 9 July 2018 from St George to Fullerton (Annexure A to the affidavit affirmed 16 October 2018 of its solicitor, Chenzi Yang), in which the bank advised as to the completion of various settlements and the application of the total amounts received to the various facilities. Jun notes that the letter recorded the last settlement date as occurring on 28 June 2018 and the total, inclusive of deposit, received of $16,462,816.13. That letter further recorded that surplus funds of $6,536,204.67 had been credited to a named account (ending in "132"), including interest of $544.75 accrued from 1 June 2018 to 30 June 2018.
Jun submits that there are two significant matters to note in relation to the above. First, that the St George letter was not provided to Fullerton until it was sent by email to Jun's former solicitors on 23 July 2018 (see affidavit affirmed by Yang on 11 March 2019 at [10] and Annexure G thereto), by which time the settlements of the residential lots had occurred (and, it is said, the $6,536,204.67 surplus had already been disbursed by Fullerton to third parties without reference to Jun). Second, that Fullerton had retained four lots in the development (lots 1, 2, 12 and 33) and the Westpac mortgage over them had been discharged (see Yang's 11 March 2019 affidavit at [11]-[12] and Annexure H thereto). Jun asserts (but, as noted earlier, the defendants deny) that these four lots were retained by Fullerton pursuant to its right to do so under cl 5.4 of the Deed. Jun says that these lots were not sold for alleged "Project Expenses".
Jun alleged (at [26] of the statement of claim) that the Completion Date under the Deed in respect of the Bankstown Project occurred on 28 June 2018. This was not admitted by the defendants.
At [28] of the statement of claim, allegations were made as to how the surplus moneys were dealt with by Fullerton (some of those allegations being denied by the defendants at [28] of their defence). What was not denied is that there was a surplus of $6,536,204.67 and that it was paid into an account that was not an account of Fullerton. Jun's submission, as noted above, is that the surplus moneys were disbursed without its knowledge (referring to an affidavit affirmed 7 September 2018 by its director, Jun Ling, at [49]-[51] - I interpose to note that the written submissions also refer to [52] but that this paragraph was not in fact read). Jun says that the effect of what was done was to "sweep" Fullerton's St George bank account so that no money was left to pay Jun. The defendants (at 28 of their defence) asserted that they proceeded to pay Project Expenses from the Surplus Fund in accordance with the Deed.
By letter dated 29 June 2018, Jun's former solicitors sent to the second and third defendants a Notice of Dispute issued pursuant to cl 11 of the Deed (see Annexure Q to Yang's affidavit affirmed 11 March 2019). The alleged breaches of the Deed there notified included failure to make payment of the Investment Sum and failure to make payment of the JIP Return. Copies of particular documents in respect of the Bankstown Project were sought.
The response, by letter dated 9 July 2018, from lawyers acting for the defendants, was to deny a number of the allegations of breach and, in relation to the alleged failure to make payment of the Investment Sum and the JIP Return, to assert that Fullerton was not required to make any payment to Jun until the Project Expenses had been met (and then only if there are surplus funds available after all Project Expenses had been paid). The letter stated that Fullerton had yet to finalise its accounts and therefore had not attended to payment of all Project Expenses. As to the request for documents, it was said that the defendants were in the course of obtaining them and that they required a further 10 working days to produce them for inspection (a response characterised by Jun in oral submissions as an attempt to delay the matter).
It was only following the above correspondence that a copy of the 9 July 2018 St George letter was forwarded by email on 23 July 2018 to Jun's former solicitors (as referred to above).
On 31 July 2018, a formal Notice of Events of Default under the Deed was issued (see annexure S to Yang's 11 March 2019 affidavit), alleging nine separate breaches, including breaches in relation to the failure to provide the requested information or documentation and the failure to pay the Investment Sum and the JIP Return. Complaint was also made as to two loan agreements allegedly entered into by Fullerton (the Loan Agreements) without disclosure to Jun and without its prior written consent (including one involving the third defendant's wife) (see [32] of the statement of claim).

These proceedings

On 13 August 2018, Jun commenced these proceedings by statement of claim, seeking a variety of declaratory and other relief, including both equitable damages (prayer 4) and damages (prayer 5). As to the declarations sought, prayers 1 and 2 sought declarations in relation to the loans about which complaint had been made (in effect that the lenders were not financiers within the meaning of cl 5.1 of the Deed - an issue relevant in terms of the priority clause for payment of the proceedings of sale); prayer 3 sought a declaration that Fullerton held the Retained Lots subject to a constructive trust, equitable lien or charge in favour of Jun to secure the sum of $2 million and the JIP Return; and prayer 6 sought a declaration that the second and third defendants were liable to indemnify Jun for the moneys claimed as damages for breach of the Deed against the first defendant, together with interest and costs. Judgment was sought against the second and third defendants in relation to the amount necessary so to indemnify Jun (prayer 7). Interest was sought pursuant to s 100 of the Civil Procedure Act, including compound interest (prayer relief 8).
Interlocutory relief was also sought (prayers 11 and 12), in effect for Fullerton to serve an affidavit deposing to various matters in relation to the Project Expenses and for the appointment of an investigating accountant to inquire into and determine various payments and expenses in relation to the Bankstown Project (including any payments and transfers of money made by Fullerton which "were not for bona fide business expenses in undertaking the development pursuant to the [Deed]").
The allegations made in the statement of claim included allegations of breach of the Deed (see [40]-[53]; [61]-64]) and breach of fiduciary duties ([54]). The loss and damage claimed to be suffered by reason of the breach of fiduciary duties was particularised as the $2 million (i.e., the Investment Sum) and the JIP Return. The loss and damage particularised as having been suffered as a consequence of one or more of the alleged breaches of contract included: those amounts, the cost of an investigating accountant on an indemnity basis; and the return that Jun would have received had the said loan agreements not been entered. It is clear therefore that the claim went beyond simply a claim in relation to the Investment Sum (that being the amount which was paid under the settlement ultimately reached).
On 10 September 2018, by consent, orders were made by Robb J in the duty list for the payment into Court by Fullerton of the sum of $2 million.
By letter dated 16 October 2018, Jun's solicitors served on the defendants' solicitors an offer of compromise dated 15 October 2018 (indicating an intention to rely on this as a Calderbank letter if, for any reason, it failed to have effect as a valid offer of compromise), offering to compromise the whole of the claim against the first and third defendants in the proceedings by verdict and judgment in favour of the plaintiff against the first defendant and the third defendant in the sum of $2,350,000.
That offer was rejected by a without prejudice letter dated 23 October 2018 from the defendants' solicitors, with which a document headed "Offer of Compromise" was served (expressed in the text of the offer to be made according to the principles in Calderbank v Calderbank [1975] 3 WLR 586; [1975] All ER 333 (Calderbank)) proposing the following orders for the disposal of the proceedings, as follows: (a) The plaintiff be entitled to claim $2,000,000.00 from the interest bearing account held by the Court for the defendants ("Account"); (b) The balance of the Account be released to the defendants; (c) The plaintiff's claim is otherwise dismissed, and (d) Each party to bear its own costs
By letter dated 26 October 2018, the defendants' solicitors notified Jun that Fullerton intended to sell or mortgage two of the remaining unsold lots within seven days, enclosing a payment claim and a statement of tax liability both said to disclose expenses that should have been paid in preference to the Investment Sum (totalling $523,083.38).
On 1 November 2018, on the application of Jun, orders were made by Pembroke J in the duty list, on the plaintiff's usual undertaking as to damages, restraining Fullerton, until 7 November 2018, from selling, transferring, mortgaging or encumbering two lots in the Bankstown Project save on terms agreed by the solicitors for the parties in writing. On 7 November 2018, similar orders were made by Hallen J in the duty list, in effect continuing the restraint until 27 November 2018.
On 16 November 2018, the defendants filed their defence. The defendants alleged that the JIP Return was not payable because there was no JIP Return available for distribution (see 46) and that Jun was not entitled to demand the Investment Sum until all "Project Expenses" (within the meaning of the Deed) had been paid (see 50).
By letter dated 21 November 2018, the defendants' solicitors wrote to Jun's solicitors on a without prejudice basis, advising that there was no profit and that the maximum amount to which Jun would be entitled under the Deed would be $2 million but again asserting that cl 5.1 only entitled Jun to repayment of that amount once all Project Expenses had been paid (and stating that all Project Expenses had not yet been paid). It was proposed that orders be made on 27 November 2018, inter alia, for the release of $1,476,916.70 out of the funds held in Court to Jun on account of the amount to which Jun was entitled under the Deed and for $523,083.38 to be released to Fullerton for the purpose of paying the expenses set out in the letter of 26 October 2018, with Fullerton then to pay Jun the sum of $523,083.38 from the first proceeds of sale received on the sale of three of the lots then unsold.
On 27 November 2018, I made orders by consent substantially in the form that had been proposed by the defendants' solicitors in their letter of 21 November 2018. (See also the orders I made on 4 December 2018, under which Fullerton was to pay Jun the sum of $523,083 30 by no later than 4 April 2019. I understand that sum has now been paid.)
On 28 February 2019, in the applications list, the only remaining issues (i.e., as to interest and cost) were set down for hearing on 8 April 2019.

Interest

I deal first with the claim for pre-judgment interest.
As to the claim for pre-judgment interest, it is not disputed that the award of interest under s 100 of the Civil Procedure Act is discretionary (see Lahoud v Lahoud [2011] NSWSC 994 (Lahoud) per Campbell JA); and that, until the exercise of that discretion, a plaintiff has no accrued entitlement to pre-judgment interest (see State of New South Wales v Avery (2016) 92 NSWLR 141 at [81]; [2016] NSWCA 147). It may also here be noted that an award of interest compensates a successful plaintiff for loss and detriment suffered by being kept out of its money during the relevant period (see MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657; [1991] HCA 3, Haines v Bendall (1991) 172 CLR 60 at 66-67; [1991] HCA 15, Ruby v Marsh (1975) 132 CLR 642; [1975] HCA 32).
An issue was raised by the defendants in their submissions as to whether the Court has the power to award pre-judgment interest when there has been no judicial determination of the merits of the claim. Reference was made in that regard to what was said by Campbell JA in Lahoud at [31]: … the awarding of pre-judgment interest under s 100 involves the exercise of a judicial discretion, at the time the judgment is given. Prior to that time, there is no judicial decision that the party who has proved successful in the case would receive pre-judgment interest, and that party has no other source of a right to receive pre-judgment interest. (Sometimes as in cases like that of an action on a contract that itself set a rate of interest for unpaid amounts, a party who proves successful in litigation might have a right, prior to judgment, to receive interest on the judgment debt, but s 100(3)(b) Civil Procedure Act makes s 100 inapplicable in those circumstances.) [emphasis added]
It is submitted by the defendants that, on one view, the reference in the above passage to "the party who has proved successful in the case" (together with the fact that under s 100(1)(b), a court may only award interest from the period a cause of action arose until the time the judgment takes effect) might suggest that unless and until the court has determined the merits of a claim (including when the relevant cause of action arose), the discretion under s 100 of the Civil Procedure Act is not enlivened.
That said, the defendants also note the definition of "judgment" in s 3 of the Civil Procedure Act as including "any order for the payment of money"; and that, in In the matter of CRC Civil & Drainage Pty Ltd [2013] NSWSC 1085, Brereton J (as his Honour then was) heard and determined an application for pre-judgment interest under s 100 of the Civil Procedure Act in respect of a consent judgment (and, although the application was there rejected, seems to have proceeded on the basis that there was power to make the order that had been sought).
It is not necessary here to determine whether, in the context of the consent orders made on 27 November 2018 and 4 December 2018, the discretion under s 100 of the Civil Procedure Act is enlivened because, for the reasons set out below, I am not persuaded that any such order should here be made.
The basis that Jun submits that the Court ought exercise its discretion to award interest is that it was kept out of its money. In its interest calculations (for interest at Court rates, since the Deed itself does not make provision for interest), interest was calculated from 28 July 2018 (being 30 days after Jun contends that the project was completed. (As noted, there was a dispute in the proceedings as to the Completion date.) Jun says that no legitimate excuse has been put forward as to why the $2 million was not paid on 28 July 2018.
However, as noted above, in oral submissions it was accepted that the provision in the Deed stipulating payment within 30 days was one that related only to the JIP Return, not to the Investment Sum. Accordingly, the claim for pre-judgment interest that was ultimately pressed was a claim for interest from whatever date it might be found that there was first an admission by the defendants (or Fullerton) as to the Investment Sum being due and payable.
The defendants note that the Court's power in relation to pre-judgment interest is constrained in that interest under s 100 can only be awarded from the period of time the cause of action arises (s 100(1)(b)); i.e., from the time the combination of facts which gives rise to a right to sue arises (State of New South Wales v Loh Min Choo [2012] NSWCA 275 at [57]).
The defendants put forward two reasons as to why no award for interest should be made in the present case.
First, that it is not clear who has been successful in the proceedings, having regard to the following matters: that Jun sought a variety of different relief, including payment of the JIP Return; that the defendants alleged that the JIP Return was not payable, and that they were not obliged to pay the sum of $2 million until certain expenses were paid; and that the parties then agreed to a regime whereby money would be paid into Court and Jun would be paid the sum of $2 million in tranches. It is submitted that "[e]ven on a superficial view", this is not success for Jun.
Second, that, at the time of the consent orders made on 4 December 2018, the parties were in dispute as to when Jun's right to sue for the $2 million Investment Sum arose (the defendants claiming that the right had not arisen, as Fullerton had not paid all Project Expenses, whereas Jun claimed the sum was due and owing). It is submitted that the Court is not now in a position to determine that question (given that the parties have agreed an approach to the disposition of proceedings); and so, having regard to s 100(1)(b) of the Civil Procedure Act, pre-judgment interest should not be awarded.

Determination as to pre-judgment interest claim

While I consider it difficult to accept the defendants' submission that Jun has not been successful in these proceedings (Jun having ultimately obtained repayment of the Investment Sum that had not earlier been forthcoming), I accept that this was only part of its overall claim. Moreover, there is force to the submission that a determination cannot and should not now be made as to when the cause of action for payment of the Investment Sum arose (or, indeed, if it had arisen by the time the parties reached agreement to resolve the proceedings). This is because it would require a determination as to whether, by a particular date (and, if so, what date), all Project Expenses (as referred to in the chapeau to cl 5.1) had been paid and any financier (properly defined) within cl 5.1(a) of the Deed had been repaid. Those were matters in dispute and I am not satisfied (as I will explain below) that there was a relevant admission to that effect or, if there was, that it was one by which the defendants would ultimately have been bound (in light of their pleading to the contrary) if the matter had proceeded to the conclusion of a contested hearing of the dispute.
It was open to the parties to reach agreement back in December last year as to the payment of interest on the Investment Sum. They apparently did not reach any such agreement. It is not in the interests of the just, quick and cheap resolution of the real issues in dispute to have a contested hearing on the substantive matters in dispute solely in order to resolve the question of pre-judgment interest. It is clear that interest cannot be claimed from 28 July 2018 simply by reference to the 30 day period specified for repayment of the JIP Return (as was fairly conceded by Counsel for the defendants). I am unable on the material before me to conclude when any cause of action for repayment of the Investment Sum first accrued. In those circumstances, I do not consider that any pre-judgment interest can or should be awarded.

Costs

In the ordinary case that proceeds to the determination of a contested hearing, costs will follow the event (see Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1). However, where there has been no final hearing on the merits, the starting position is that each party pay his, her or its own costs. There was no dispute between the parties as to the applicable principles in that regard.
In order to warrant a departure from that starting position, it is necessary for the party seeking such a departure (who bears the relevant onus) to show that the other party's conduct has been "so unreasonable" as to warrant a departure from that starting position or that there has been, effectively, a capitulation by the other party (or that the party seeking costs would almost certainly have succeeded) (see Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622 at 624-5 (McHugh J); [1997] HCA 6 (Lai Quin); Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865 at [27] (Ball J); and Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159 (Freelancer)at [70]-[73]). Sometimes the second of those exceptions is put as being where the Court is satisfied that one party has had a substantial victory and the other a substantial loss (see Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 at [5])).
In Freelancer, I noted what was said by each of Payne JA (Meagher JA agreeing) and Basten JA in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 (Nichols) as to the appropriate considerations in cases where there has been no hearing on the merits. It bears repeating in the present context. At [30], in Nichols, Payne JA said: If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
Earlier in Nichols, at [8]-[9], Basten JA said: Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. [my emphasis] Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses. [my emphasis]

Jun's submissions

Jun argues for a departure from the starting position in essence on two grounds. First, that it had to sue for the Investment Sum owing to it under the Deed and Fullerton ultimately agreed to pay that amount (what I will refer to as the capitulation/inevitability of success argument). Second, that Fullerton behaved unreasonably in refusing to pay the Investment Sum and in refusing to disclose relevant documentation to which Jun was contractually entitled under the Deed (which information was required to calculate any return under the Deed) (what I will refer to as the unreasonable conduct argument).

Capitulation/inevitability of success

As to the capitulation/inevitability of success argument, reliance is placed on what are said to have been admissions made by Fullerton orally and in writing as to the payment being due and owing.
In this regard, Jun refers to the following: the evidence as to a meeting on 9 July 2018, between Mr Jun Ling (a director of Jun) and Mr Siqing Shen (the manager of Jun) with the third defendant (referred to as Michael) and Mr Lawrence Wong (a director of ABG referred to as Justin), in which Jun says payment of the Investment Sum was promised the following week (see Shen's affidavit affirmed 10 March 2019 at [6]); a letter dated 17 August 2018 from Fullerton's solicitors stating that the $2 million would be paid (Yang's 16 October 2018 affidavit at [8]); a telephone conversation on 20 August 2018, in which the third defendant told Mr Shen that a cheque for $2 million would be made available that afternoon and that he should come to the office to collect the cheque (Shen's 10 March 2019 affidavit at [7]); and an email sent at 12.26 pm on 20 August 2018 by the third defendant to Mr Shen confirming payment of $2 million "today" and wanting confirmation of the payee of the cheque (Shen's 10 March 2019 affidavit at [8]). It is noted that the third defendant then deferred the meeting and ultimately said that "my lawyers told me not to give the cheque to you now" (Shen's 10 March 2019 affidavit at [10]-[12]).
As to the conversations on which reliance is placed, the first was on 9 July 2018 (and it is said not in dispute) (see Shen's affidavit at [6]): Jun: Since the Bankstown Project is not completed when can we receive the principal sum of $2 million from you. Justin: We will certainly repay you $2 million and $1 million can be paid next week. [Justin is a reference to Lawrance Wong]
The account given by Jun Ling of that conversation (in his affidavit at [115]) is in slightly different terms. There, it is said: Justin: We will repay you $2 million for sure, and we will calculate the profits. Jun: Then, when can I get $2million back? Justin: Well, I will first ask accountant to calculate the figures, then I probably will pay you in a week, and no later than in 2 weeks. Or maybe 2-3 weeks? What do you think? Or if you really need money, I could give you $ 1 million first …. Jun: So you have repaid all the money borrowed from others? Michael & Justin: Yes, all repaid. Jun: So how much was left in the account? Justin: there is … let me see … eh … after deducting this and that … it's enough to pay you anyway
As to the 17 August 2018 letter, this stated that We advise that Fullerton intends to respond to the Default Notice on or before 22 August 2018. Accompanying that response will be a bundle of financial statements, accounts and documents requested in the Default Notice. Also accompanying that response will be a cheque for $2 million, in payment of the Investment Sum " (as defined in the [Deed]).
As to the second conversation on 20 August 2018, Mr Shen says that the third defendant said (see Shen's affidavit at [7]): Can you assure that if we pay $2 million to you for Bankstown Project, [Jun] will pay the bills and GST to [ABG]in relation to [the] Liverpool Project? If you can promise that, we will give you $2 million to you today and that when the response to that was in the affirmative, the third defendant said "OK, and if you can withdraw the caveat, we will pay $2 million to you"; and that he would arrange a cheque that afternoon. In the 20 August 2018 email from the third defendant there was a statement in unconditional terms "[w]e will give you a cheque for your $2m investment sum today".
It is submitted by Jun that the above communications amounted to an acknowledgement by Fullerton (and its lawyers) that the sum of $2 million was owing (and Jun says that the conduct of Fullerton in the "sweeping" of the St George bank account funds to related entities, and the ultimate consent by the defendants to payment of $2 million to Jun, should fortify this conclusion).

Unreasonable conduct argument

As to the unreasonable conduct argument, this encompasses the complaint made by Jun as to the conduct of Fullerton of "sweeping" its bank account by payments of substantial amounts of money to third parties which Jun maintains were not payable under the Deed in priority to Jun and refusing to pay Jun (which, together with the refusal or delay in relation to the provision of information, is said to amount to unreasonable conduct that led to the unnecessary prolongation of the proceedings).
In this regard, Jun complains that five requests were made for the bank statements and four requests were made for details of the payments out of the bank account of the sum of $6,536,204.67 and that it was met with an "outright refusal" to disclose the details of the payments, culminating in the filing of its notice of motion on 11 September 2018. It says that full access to the documents in respect of the Bankstown Project was not finally granted by Fullerton until 11 December 2018 (see Yang's 11 March 2019 affidavit at [31]).
The defendant maintains that it is not appropriate here to explore the merits of the substantive dispute (having regard to what has been said in authorities such as those referred to above) but says that were I to entertain an exploration as to the conduct of the parties in the course of the proceedings, then in that event there should be orders for the dismissal of the proceedings and that Jun pay their defendants' costs on the ordinary basis up until 24 October 2018, and on the indemnity basis after then, in reliance on the offer made by the defendants on 23 October 2018 (which it was accepted in oral submissions was not a valid offer of compromise but was expressly made by reference to the provisions in Calderbank). In that regard, the defendants say that the result ultimately obtained in the proceedings (in substance an order to the effect that Fullerton cause the sum of $2 million to be paid to Jun) places the defendants in a better position than the offer of compromise made by the defendants on 23 October 2018. Hence, in that case, the defendants seek an order that Jun pay the defendants' costs on the ordinary basis to 23 October 2018, and on the indemnity basis thereafter (referring to r 42.15A of the UCPR).

Capitulation/inevitability of success argument

As to the alleged admissions, there is debate (as I noted in In the matter of Le Meilleur Pty Ltd (subject to Deed of Company Arrangement); Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) & Ors v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115 (Le Meilleur) (from [292] onwards)), as to whether admissions of matters of mixed law and fact are admissible as evidence (see Pitcher v Langford (1991) 23 NSWLR 142 at 160 per Handley JA; Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 at 68 per Lockhart and Gummow JJ; Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51 per Gummow, McHugh and Heydon JJ; and the commentary in Heydon's Cross on Evidence (online edition) (at [33465])).
It is not necessary here to explore that debate (and would not be appropriate in the absence of any submissions by the parties on this issue). That is because I am not persuaded that the conversations and correspondence on which Jun relies amount to an unequivocal admission by Fullerton that the Investment Sum was an amount which was then due and payable (i.e., that it had an obligation at that stage to pay that sum). The communications in question are in my opinion equally consistent with the defendants at that stage being prepared to accede to, or accommodate, Jun's demand but without necessarily conceding that they were obliged to do so. This is reinforced when those communications and communications are seen in the context that, as at 9 July 2018, the position that had been taken by Fullerton was that it was not required to make payment until all Project Expenses had been paid and there still remained, at November 2018, a dispute as to whether all Project Expenses had not been paid (and hence whether there was an entitlement to payment of the Investment Sum at that stage).
Insofar as Jun poses, rhetorically, the question why there would be an agreement to pay the Investment Sum if it were not conceded then to be owing, there may have been all sorts of reasons why, commercially or otherwise, the defendants might have been prepared to pay the sum in advance of it having strictly fallen due (not least if they were seeking to amend examination into the affairs of the Property as Jun's submissions suggest).
Even if those communications did amount to admissible admissions, they were not formally made under the procedure contained in Rule 17.2 of the UCPR. (Had there been formal admissions, which foreclose proof of facts to the contrary of the admission, for leave for withdrawal of the admission to be granted it would be necessary at the very least that there be an explanation of the circumstances in which the admission was made and the circumstances relied upon to justify its withdrawal (see Ritchie's Uniform Civil Procedure NSW at [17.2.5] and the cases there cited).)
As I explained in Le Meilleur, two competing policies can be identified at least in relation to the withdrawal of formal admissions: the first, that an admission should not be permitted easily to be withdrawn, so as to make the procedure for formal admissions meaningless; the second, that parties should not be discouraged from making admissions for fear that, once given, they cannot be withdrawn (see Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738 (Panfida Foods) at 750 per Rogers CJ at Comm D).
The question whether to permit withdrawal of an admission is ultimately one of "the attainment of justice" (see Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309; (2003) 204 ALR 327 (Jeans v CBA), where the Full Court of the Federal Court (Hill, Madgwick and Conti JJ), referred to the observations of Dawson, Gaudron and McHugh JJ in State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 154; 141 ALR 353 at 357; [1997] HCA 1). This would involve a balancing of all relevant circumstances, including the prejudice to one party or the other as a result of the leave being either granted or refused.
It has been said that it will not usually be appropriate to grant leave to withdraw an admission where, among other things, the admission has been made after obtaining relevant advice and is deliberate and clear (see Ritchie's (online edition) at [17.2.7] and the cases there cited in this regard) or where the party with the benefit of the admission is likely to be prejudiced by the withdrawal, either as a result of having changed its position in reliance upon the admission (H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694; [1965] 1 All ER 934; Panfida Foods at 745) or as a consequence of the unavailability of evidence, or likely significant deterioration in its quality, as a result of the delay (SLE Worldwide Australia v WGB & Ors [2005] NSWSC 816 at [57]-[59]); or where the application is made at a late stage of the proceedings (Jeans v CBA; Essex Securities Pty Ltd v Lunt [2006] WASC 58 at [34]), but that, conversely, leave to withdraw an admission may be appropriate where the admission was made inadvertently or without due consideration of material matters (Khouri v National Australia Bank Ltd [2007] NSWSC 987 at [18]).
I also note that in The Nominal Defendant v Gabriel (2007) 71 NSWLR 150; [2007] NSWCA 52 at [113] and [144], it is suggested that admissions made otherwise than in the formal course of proceedings have merely an evidentiary significance and that the "admitting" party is entitled to dispute the accuracy of the admission (by evidence that it was influenced by mistake, misunderstanding or ignorance, or that it is otherwise inaccurate or unreliable).
Here, as already noted, there is no admission on the pleadings that the Investment Sum was due and payable, or presently owing, at the relevant time, and the pleaded defence is to the contrary. What is relied upon can only be (taken at their highest) express or implied admissions, arising out of the promises that payment would be made, as to a conclusion of law (i.e., that a particular sum was payable on the proper construction of the Deed) or involving a mixed admission of fact and law (i.e., that the sums ranking in priority before the Investment Sum in terms of payment had by then all been made, such that the Investment Sum was then due and payable on the proper construction of the Deed).
The particular status of the alleged admissions was not explored in argument on the present application. Assuming, for the sake of argument, that the statements did amount to admissions (albeit not formally made) and that they would have been received into evidence as part of the evidentiary material before the Court on a final hearing of the matter on its merits, one would also need to take into account not only any evidence contradicting the effect of those admissions but also the possibility that the defendants could have sought leave at the final hearing to withdraw any admissions found to have been made (whether inadvertently or otherwise). That would no doubt have raised further issues as to whether Jun had in some way changed its position in reliance upon the admissions or was otherwise prejudiced.
None of those matters can here properly be tested, in circumstances where the matter did not proceed to a final hearing on the merits. Therefore, the capitulation/inevitability of success argument has not been established to my satisfaction.

Unreasonable conduct argument

In my opinion, in order to determine issues of the kind here raised would involve an exercise of the kind that Basten JA in Nichols has made very clear one should not embark upon - such as an investigation of the matters disputed in the pleadings in relation to the "sweeping" of the Bankstown Project account. Indeed the account "sweeping" allegation goes not to the conduct of the proceedings at all but, rather, to the matters the subject of the substantive dispute. Similarly, the circumstances in which the responses to the requests for documentation were made would also seem likely to involve investigation into factual circumstances that may well have been in dispute.
I am not persuaded that the delay in provision of documentation or in payment of the Investment Sum, however unmeritorious Jun may have perceived it to be, of itself amounts to conduct that is "so unreasonable" as to warrant departure from the usual costs order. Therefore, the unreasonable conduct argument has also not been established to my satisfaction.

Conclusion

Accordingly, I am of the view that there should be no departure from the usual starting position in relation to costs. Having reached that conclusion, it is unnecessary to consider the submission for the defendants that they should have an order for costs in their favour (and I note that if the Calderbank offer were to be relied upon to warrant a special costs order it would need to have been shown that it was unreasonable for Jun, at that stage, not to accept it -- as to which I have my doubts).

Orders

For the reasons above, I consider that there should be no order for pre-judgment interest nor should there be any order as to costs (other than as to the costs of the hearing before me, which should follow the event).
Accordingly, the orders I now make are as follows: 1. Dismiss the plaintiff's claim for pre-judgment interest. 2. Subject to order 3, order that there be no order as to the costs of the proceedings. 3. The plaintiff pay the defendants' costs of the hearing on 8 April 2019.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2019

At a glance

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