er (Second Defendant)
Fuller Holdings International Pty Ltd (Third Defendant)
Bellingen Management Pty Ltd (Fourth Defendant)
Tradebase International Pty Ltd (Fifth Defendant)
Sunway Solar Australia Pty Ltd (Sixth Defendant)
Representation: Counsel:
P Abdiel (Plaintiff) (setting aside application)
C Perry (Solicitor) (Plaintiff) (costs application)
P Afshar (Defendants)
[2]
Solicitors:
Pure Legal (Plaintiff)
Philip Sim & Associates (Defendants)
File Number(s): 2017/00094255
[3]
Judgment
By Notice of Motion filed 19 July 2018, the plaintiff in these proceedings sought orders relating to an agreement allegedly entered into between the parties settling litigation in this court. Under s 73 of the Civil Procedure Act 2005 (NSW), the court, in any proceedings, has and may exercise jurisdiction to determine any question in dispute between the parties to the proceedings as to whether, and on what terms, the proceedings have been compromised or settled between them.
By reasons for decision handed down on 7 September 2018 after the judgment was reserved ("the Primary Decision"), the court found that there was a binding agreement between the plaintiff and the defendants to resolve the proceedings and for certain payments to be made by the defendants to the plaintiff: Kerry Albert Pty Ltd trading as Kerry Albert & Co v Fuller [2018] NSWDC 254.
On 7 September 2018, the court made the following orders:
1. Judgment for the plaintiff against the defendants.
2. The parties are to bring in agreed Short Minutes of Order within seven days for the judgment amount together with any applicable interest.
3. The Notice of Motion filed 19 July 2018 is otherwise dismissed.
4. The defendants are to pay the plaintiff's costs of the Notice of Motion filed 19 July 2018 as agreed or assessed.
5. Leave is granted to the parties to apply to vary the costs order in paragraph (4).
6. The exhibit on the application is to be returned after 28 days.
7. Liberty to the parties to apply to the Associate to Dicker SC DCJ on three business days' notice.
Orders could not be made on 7 September 2018 for the precise sum of the judgment to be awarded to the plaintiff against the defendants, as interest needed to be calculated.
On 14 September 2018, the court made the following order in chambers with the consent of the parties:
"Judgment be entered against the Defendants for the Plaintiff in the sum of $248,641.03 together with interest in the amount of $3,933.93, making a total Judgment of $252,574.96."
The plaintiff gave notice that it wished to make an application that the court determine the costs of the Notice of Motion awarded to it on a gross sum basis. On 30 September 2018, the solicitor for the plaintiff Ms Perry forwarded to my Associate by way of email:
1. An affidavit of Ms Perry sworn 13 September 2018; and
2. An outline of written submissions in support of the costs application.
On 28 September 2018, the defendants filed a Notice of Motion seeking the following prayers for relief in paragraphs 1-3 of the Notice of Motion:
"1. An order that the orders of Dicker SC DCJ made on 14 September 2018 (Orders) be set aside, including pursuant to rule 36.15 of the Uniform Civil Procedure Rules 2005.
2. In the alternative to order 1 above, an order granting the defendants leave to reopen the hearing of the plaintiff's Notice of Motion filed on 19 July 2018.
3. An order that any execution of the Orders be stayed pending the resolution of the defendants' application."
In support of the Notice of Motion filed 28 September 2018, was an affidavit of Philip Sim sworn 28 September 2018 which was in due course read on the application. Paragraphs 4 and 5 of Mr Sims' affidavit sworn 28 September 2018 are as follows:
"4. On 7 September 2018, Dicker SC DCJ pronounced judgment in this matter. His Honour's judgment pertained to a Deed of Settlement and Release, a copy of which is annexed hereto and marked "A".
5. The defendants respectfully request the Court to find that clauses 2.3 and 2.4 of the Deed are in the nature of penalties and to set aside the judgment, which was entered based on those clauses."
Clauses 2.3 and 2.4 are contained in the document entitled "Deed of Settlement and Release" ("the Deed") which was the crucial document before the court in the substantive hearing. In order to understand properly the argument of the defendants, in my view it is necessary to set out the entirety of clauses 1 and 2 of the Deed in question which are as follows:
"1. Payment of Settlement Sum
1.1 Upon execution of this Deed the parties agree to the following.
1.2 Eric is to pay or cause to be paid by bank cheque or electronic transfer of funds to KAPL BSB 032 576 Account No. 542933 as follows:
(a) $34,925.28 on or before 18 March 2018 (the First Settlement Payment).
(b) $142,800 on or before 29 June 2018 (the Second Settlement Payment). (collectively, the Settlement Sum).
1.3 The Parties are to cause their respective legal advisors to execute the consent orders annexed to this Deed and marked "A", "B" and "C" to be held in escrow by Pure Legal.
1.4 Upon execution of this Deed and the consent orders, the Parties will cause to be filed in the Proceedings the consent orders marked and annexed "A" to this Deed.
2 Dismissal of Proceedings
2.1 Upon receipt of the Settlement Sum the Parties will cause to be filed in the Proceedings the consent orders annexed and marked "B" to this Deed.
2.2 In the event the First Settlement Payment is not paid on 18 March 2018, interest will run on that amount until 30 June 2018 pursuant to s.101 of the Civil Procedure Act currently 7.5%.
2.3 If the First Settlement Sum and Second Settlement Payment is not received pursuant to clause 1.2 the Parties agree to the filing by KAPL of the consent orders marked and annexed "C" to this Deed.
2.4 To the extent that any amount is paid pursuant to clause 1.2 KAPL is to notify the court of such payment and cause Judgment to be entered for the $283,566.31 less the amount received together with any interest accrued arising from the non-payment of the First Settlement Payment or Second Settlement Sum."
It should be noted that Mr Sim is the defendants' current solicitor. It should also be noted that Mr Sim appeared representing the defendants at the hearing before the court on 16 August 2018 in which the plaintiff claimed that there was a binding settlement agreement reached between the parties in the form of the Deed and the defendants denied that any such binding agreement had been reached. On 16 August 2018, the court reserved its decision and, as stated above, handed down its reasons for decision on 7 September 2018.
As is clear from the Notice of Motion filed 28 September 2018, the defendants seek orders setting aside the orders of the court made on 14 September 2018 which related to the amount of the judgment debt, or in the alternative, seek leave to reopen the hearing of the Notice of Motion filed on 19 July 2018 and determined in accordance with the reasons for decision handed down on 7 September 2018. The basis, as set out in Mr Sim's 28 September 2018 affidavit, was that Clauses 2.3 and 2.4 of the Deed are in the nature of penalties and accordingly, the judgment was entered against the defendants for the wrong amount.
On 9 October 2018, the matter was mentioned before the court. On that date counsel appearing for the defendants handed up detailed written submissions.
In those submissions, the following is submitted on behalf of the defendants by counsel for the defendants:
1. The orders made by the court on 14 September 2018 requiring the defendants (jointly and severally) to pay to the plaintiff $248,641.03 ought be set aside pursuant to the Court's general powers or Parts 36.15 and 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") on the basis that Clause 2.3 of the Deed offends the doctrine of penalties;
2. In the Primary Decision of the court dated 7 September 2018, the court found that the defendants were bound by the terms of the Deed. Those findings were not in dispute on the defendants' application;
3. The terms of the Deed are significant. Recital A of the Deed says that the accounting fees sought to be recovered by the plaintiff were alleged to be owing by the defendants. Recital B of the Deed makes clear that the parties had resolved the dispute between them without admission of liability. Clause 2.3 provides that if the two settlement payments are not made, then the parties agree to the filing of the Consent Orders marked and annexed "C" to the Deed, which recorded the judgment amount to be $283,566.31. Clause 7 provides that any provision that is illegal, void or unenforceable is to be severed without invalidating or otherwise affecting the operation of the remaining provisions of the Deed;
4. The court has the power pursuant to Parts 36.15 and 36.16 of the UCPR, to set aside a judgment or order in certain circumstances. Those rules should be read together. The discretion to set aside the judgment properly entered requires the exercise of a discretion which must be exercised judicially. Part 36.16 is applicable if an application to set side or vary a judgment or order is filed within 14 days "after the judgment or order is entered". The application of the defendants to set aside or vary the 14 September 2018 orders as to the judgment amount was made within 14 days after the judgment or order was entered;
5. The applicant bears the onus of demonstrating under Part 36.15 not only that there is an "irregularity" with the order but also there is "sufficient cause" for the order to be set aside. The fundamental principle is that there needs to be finality of judgments. The court would not exercise its power to set aside a judgment for slight or uncertain causes or where any irregularity is inconsequential. However, it is submitted that the court would set aside a judgment, which has been entered without legal basis and significantly affects the parties' rights and obligations. Further, the court would not readily allow a judgment to stand where it lacks proper legal basis or is otherwise demonstrably unjust;
6. Pursuant to High Court authority, a contractual requirement to pay a sum of money conditioned on a failure to observe a particular contractual stipulation is capable of being a penalty regardless of whether it is payable upon breach. In considering whether Clause 2.3 of the Deed is penal in character, the test is generally whether the payment of the sum is out of all proportion to the interests of the party, it is the purpose of the provision to protect. A sum stipulated for payment on default is a penalty that bears no relation to the possible damage to or interest of the innocent party arising from breach by the other party of a contractual term;
7. Clause 2.3 is a penalty and should be excised from the Deed or considered unenforceable. First, the higher amount in the Deed bears no rational relationship whatsoever to the loss the plaintiff has suffered or is likely to suffer by the late payment of the second instalment. There is a very substantial uplift factor of over $100,000 in the present case. It cannot be considered proper compensation for damage arising from failure by the defendants to comply with Clause 1.2 of the Deed. Having regard to this, it is a penalty;
8. Secondly, the claimed amounts were never acknowledged, either expressly or by implication by the defendants, as being payable. The defendants entered into the Deed without admissions, which is of "great significance". The recitals make clear that the amounts were disputed at the time the Deed was made;
9. Accordingly, the court should grant the relief sought in the application. Without Clause 2.3, the Deed does not provide a proper legal basis for the making of the orders made on 14 September 2018. The problem with the Deed has been brought to the court's attention promptly after it was discovered and soon after the orders were made;
10. Thirdly, the sole focus of the parties' arguments considered in the Primary Decision appears to have been whether the Deed was binding rather than the nature and effect of Clause 2.3. Even if the application succeeded, the plaintiff has some relief and alternative orders could be made. In the end, the plaintiff suffers no unfair prejudice if the Court were to decide that Clause 2.3 was a penalty and the orders made on 14 September 2018 should be set aside with costs.
It was stated in the course of the mention by counsel for the defendants, that it is not as if the Deed provided for the payment of the higher amount but if the lower amount was paid by a certain time that this would be regarded as full satisfaction of the obligations of the defendants. Rather, the Deed provided that if a lower amount was not paid on time then the higher amount was payable. It was submitted that this was the classic hallmark of a penalty.
On 4 October 2018, the plaintiff filed a second affidavit of Ms Perry. This affidavit was sworn on 4 October 2018. The plaintiff in due course read four affidavits of Ms Perry sworn 13 September 2018, 4 October 2018, 16 October 2018 and 5 November 2018 on the hearing of the application for a fixed lump sum costs order and the Notice of Motion filed 28 September 2018 subsequent to the Primary Decision being handed down.
In her affidavit sworn 4 October 2018, Ms Perry gives evidence on the following matters:
1. On 10 July 2018, the proceedings in the court were listed before the court having been placed in the matters settled list: paragraph 3;
2. On 10 July 2018, the court made orders for the filing of evidence in relation to the alleged settlement of the proceedings including that the Notice of Motion be listed for hearing on 16 August 2018. The plaintiff subsequently filed a Notice of Motion with evidence in support on 19-20 July 2018: paragraphs 4-5;
3. The defendants filed their evidence in reply by affidavits from the defendants Andrew Fuller and Eric Fuller: paragraph 6;
4. The Notice of Motion was listed and heard on 16 August 2018: paragraph 7;
5. The defendants Messrs Fuller were present in person at the hearing of the Notice of Motion and were represented by their solicitor, Mr Sim. The plaintiff was represented by counsel instructed by Ms Perry at the hearing. Leave was granted to Mr Sim to cross-examine Ms Perry even though no prior notice was provided to Ms Perry of the application. At the luncheon break, Mr Sim was granted an adjournment to enable him to find any relevant case law relating to the principle of ostensible authority which he wished to place before the court. Mr Sim in due course relied upon the authority of Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313: paragraphs 8-11;
6. Judgment was delivered by the court on 7 September 2018. Ms Perry gives evidence she forwarded to Mr Sim draft Short Minutes of Order and an interest calculation. By email dated 14 September 2018, Mr Sim stated inter alia:
"We accept your Short Minute of Order as to interest and judgment amount. In respect of costs, we are still seeking instructions as to whether your costs are as agreed or whether we will seek to have them assessed … The letter to the Court should only relate to the terms of your Short Minute of Order".
1. As stated, on 14 September 2018, the court made Short Minutes of Order as to the judgment amount of $248,641.03 together with interest in the amount of $3,933.93: paragraphs 13-16;
2. Subsequently, Ms Perry sent a letter dated 18 September 2018 to the defendants and their solicitor demanding payment of the judgment sum. In paragraph 17 of her affidavit, Ms Perry says that no payment has to the date of that affidavit been tendered by the defendants in response to the demand;
3. In paragraph 18 of her affidavit Ms Perry states:
"On 30 September 2018 upon receipt of the Motion filed 29 September 2018 by the Defendants, I forwarded an email to Philip Sim a copy of which is annexed and marked "F". I have not received a response to my email at the date of swearing this Affidavit.
This paragraph contains an inaccuracy as the Notice of Motion of the defendants was filed not on 29 September 2018 but on 28 September 2018. The email referred to by Ms Perry to Mr Sim sets out arguments as to why the judgment of the court was not made "irregularly, illegally or against good faith". It notes that the judgment was delivered following a defended hearing in which Mr Sim appeared for the defendants and claims that the Notice of Motion is an attempt to re-litigate issues which have been already determined or an attempt to litigate issues which could and should have been litigated in the previous proceedings. It is submitted in the email that the defendants' Notice of Motion was an abuse of process and was being employed as a delaying tactic. In paragraph 19 of her affidavit, Ms Perry notes that the orders made by the court on 14 September 2018 were in the form which was consented to by Mr Sim on behalf of the defendants;
1. In paragraphs 27 to 33 of her affidavit, Ms Perry sets out what she describes in a heading as "Other Discretionary Factors". It is stated in summary in these paragraphs:
1. A request for particulars on behalf of the defendants resulted in all timesheets and tax invoices in respect of the plaintiff's claims being provided to the defendants' solicitors. There were allegedly numerous defaults in the court timetable on the part of the defendants;
2. An application for summary judgment was filed on 15 November 2017 by the plaintiff and was partially successful. The proceedings were listed for hearing on 1 February 2018 but were adjourned until 7 July 2018 and were placed in the settled matters list. No part of the judgment debt has been paid into court or into any trust account;
3. The plaintiff is an accounting firm that has been in operation for in excess of 33 years with established offices in Coffs Harbour. Ms Perry is instructed by a director of the plaintiff that in the event the judgment debt was paid by the defendants and an appeal was subsequently filed and was successful, the plaintiff would have sufficient funds and assets in which to repay any judgment sum plus interest and costs in accordance with any judgment.
Two sets of written submissions were filed and relied upon by the plaintiff. The first was prepared by Ms Perry and was filed on 4 October 2018. This outline of submissions provides as follows:
1. The outline sets out the procedural history in the proceedings. This included that Mr Sim, who appeared for the defendants at the hearing on 16 August 2018, made submissions on behalf of the defendants and was granted further time to consider any further cases in relation to ostensible authority. It was also noted that Mr Sim, consistent with Ms Perry's affidavit, consented to the form of orders which was made on 14 September 2018;
2. The orders made on 14 September 2018 were not made irregularly, illegally or against good faith within Part 36.15 of the UCPR as they were consented to by the solicitor for the defendants and there was no evidence to suggest that any of these three requirements is established;
3. In order for a judgment to be obtained "irregularly, illegally or against good faith" there must be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermines the authority of the judgment requiring the court to exercise the exceptional course of setting aside the judgment or orders: Kendell v Carnegie [2006] NSWCA 302; (2016) 68 NSWLR 193 at [44] and [53]. See also Zakaria v Dr Noyce [2012] NSWSC 891 at [22] per Davies J. His Honour stated that the rule "sits uneasily with a judgment obtained after a hearing at which the complaining party is present and/or represented". At paragraph [24] in Zakaria v Dr Noyce, Davies J stated as follows:
[24] Ordinarily irregularity is concerned with a failure to comply with the Rules of Court: Arnold v Forsythe [2012] NSWCA 18 at [88]. That will extend to the position where, for example, default judgment has been obtained on a Statement of Claim that does not properly plead a debt or liquidated sum: Arnold at [59]; or does not plead an essential element of the cause of action: Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80 ; (2010) 78 NDWLR 20 at [39] and [63]. In addition, a judgment entered for more than is due will be irregular: Alexander v Ajax Insurance Co Ltd [1956] VLR 436; H R Turner & Son Pty Ltd v Rhodes [1970] 1 NSWR 305.
1. In Dimitrovski v Australian Executor Trustees Ltd [2013] NSWSC 337 at [2], Pembroke J stated that Part 36.15 was "not a general panacea but is confined in its operation to strictly limited circumstances". It must be shown that the order was made irregularly and that there is "quite sufficient cause" to justify the application of the rule in the present circumstances. In paragraph [3] Pembroke J stated that the rule focuses:
"On the steps pursuant to which the judgment or order was "given" or "entered" or "made". It does not direct attention to the underlying merits of the position of the party against whom the decision was made. The rule is concerned with the regularity in the process by which the judgment was obtained, not with the correctness of the decision. It is certainly not concerned with whether there was an available defence that might have been relied upon at the time the judgment was given or the order was made";
1. The exercise of the power under Part 36.15 is to be considered having regard to the principle of finality of litigation. The Part requires the exercise of a discretionary power which should have regard to this principle;
2. The relief under the Part is discretionary;
3. There is no irregularity, illegality or lack of good faith on the part of the plaintiff at any stage. The principles of finality are material. The Notice of Motion of the defendants seeks to agitate matters which should or could have been dealt with as part of the plaintiff's Notice of Motion filed 19 July 2018. The application in the alternative involves an attempt to re-litigate issues which could and should have been litigated in previous proceedings;
4. All of these matters lead to the conclusion that the Primary Decision and the orders made following it ought not be set aside or the proceedings reopened.
Following the filing of the plaintiff's submissions dated 4 October 2018, a third affidavit of Ms Perry dated 16 October 2018 was filed. This affidavit:
1. States that Ms Perry in preparation for the mediation which occurred between the parties on 23 February 2018 received an email claiming that one or more of the defendants or the Fuller Family Partnership owed to the plaintiff amounts totalling $239,507.91: paragraph 6;
2. States that the terms of the retainer agreements between the plaintiff and the defendants for accounting services included a term for payment of fees within 30 days and that thereafter interest on amounts outstanding would be calculated at 1.5% monthly: paragraph 12;
3. States that the legal costs and disbursements for the plaintiff for the Notice of Motion in this court heard on 2 February 2018 for summary judgment were $14,807.16: paragraph 13;
4. States that the legal costs incurred by the plaintiff in respect of these proceedings, excluding costs in relation to the Notice of Motion heard on 2 February 2018, are $28,496.09: paragraph 14;
5. States that on her instructions, the debt owed to the plaintiff by the defendants as at the date of the 23 February 2018 mediation including fees allegedly owed, interest on those fees, legal costs and disbursements and costs relating to the mediation, was $283,566.31 (this is the figure appearing in annexure C referred to in clause 2.3 of the Deed asserted by the defendants to be a penalty - see page 23 of the affidavit). It is stated that this figure was understated as the amounts awarded in the summary judgment Notice of Motion heard on 2 February 2018 were unpaid as at 23 February 2018, the mediation date: paragraph 16;
6. At the hearing on 19 July 2018, the defendants were represented by Mr Sim, solicitor. Ms Perry was present during the entirety of the hearing and was also cross-examined by Mr Sim. At no time was any issue of penalties raised. The issue of penalties was first raised by the defendants on 28 September 2018: paragraph 34.
An affidavit of Philip Sim, the solicitor for the defendants, dated 26 October 2018 was filed in court on that day. This affidavit was also later read in support of the 28 September 2018 Notice of Motion. The affidavit of Mr Sim:
1. States that he was engaged by Eric Fuller to act for the defendants in Supreme Court proceedings on 1 June 2018: paragraph 2;
2. States that on or about 18 June 2018, he was requested by Mr Fuller to assist him in respect of District Court proceedings: paragraph 4;
3. States that it was not until early July 2018 that he sought and obtained documentation relating to the District Court proceedings: paragraph 5;
4. States it was not until 3 August 2018 that he received the Deed: paragraph 6. However, this appears to be incorrect. The Deed was annexed to Ms Perry's affidavit dated 10 July 2018 relied on at the hearing of the 19 July 2018 Notice of Motion. This affidavit was served on Mr Sim by letter dated 19 July 2018: see annexure A to Mr Perry's 5 November 2018 affidavit;
5. States Mr Sim's firm first appeared in the District Court proceedings on 10 July 2018: paragraph 7;
6. States that on 19 July 2018, a Notice of Motion and supporting affidavits were filed by the plaintiff: paragraph 9;
7. States that on 16 August 2018, Mr Sim was handed a copy of the plaintiff's submissions while sitting at the bar table: paragraph 12.
Very detailed written submissions were filed on behalf of the plaintiff on 5 November 2018 and dated also that date. A third affidavit of Ms Perry sworn 5 November 2018 was also filed on that day. This affidavit was also read on the hearing of the applications.
In her affidavit sworn 5 November 2018, Ms Perry:
1. Refers to documentation which suggests that the defendants' previous solicitors had copied the defendants' current solicitor, Mr Sim, with their Notice of Ceasing to Act;
2. States the Deed in question was annexed to Ms Perry's affidavit sworn 19 July 2018 which was served upon Mr Sim around four weeks prior to the hearing of the Notice of Motion considered in the Primary Decision. This appears to be an error. The Deed was annexed to Ms Perry's 10 July 2018 affidavit;
3. Mr Sim informed Ms Perry that he was acting for the defendants in the District Court proceedings as well as other matters;
4. Ms Perry's 4 July 2018 letter to Mr Sim referred to specific provisions in the Deed yet she received no requests from Mr Sim for a copy of the Deed;
5. The Notice of Motion filed and served on 19 July 2018 also specifically referred to particular provisions of the Deed: paragraph 8;
6. Asserts that Mr Sim was aware or ought reasonably to have been aware that the issue raised in the Notice of Motion was one of ostensible authority. It is asserted that Mr Sim had time to brief counsel if he wished. This paragraph was relied on heavily by the defendants at the hearing of the application as establishing that the 16 August 2018 hearing was in substance about ostensible authority and any other issues were secondary;
7. States that the continuation of the proceedings has had a substantial effect on Mr Kerry Albert, the principal of the plaintiff: see paragraph 10.
As stated above, also filed on 5 November 2018 were extensive written submissions prepared, it appears, by Ms Perry and the current counsel briefed by Ms Perry, Ms Abdiel.
While the written submissions are lengthy, in general summary, they submit as follows:
1. The defendants' Notice of Motion should be dismissed. It suffers from several fundamental defects including that it is barred by Anshun estoppel and/or issue estoppel and constitutes an abuse of process;
2. It fails the technical and substantive requirements of Parts 36.15 and 36.16 of the UCPR;
3. The amount payable by virtue of Clause 2.3 of the Deed does not constitute a penalty. That amount is referable to actual and pre-existing sums owed by the defendants to the plaintiff and is not out of all proportion to the debts owed to the plaintiff;
4. Parties cannot attempt to re-litigate issues which have already been determined. An issue estoppel arises in the present case. Also an Anshun estoppel arises as the penalty matter raised by the defendants could and should have been litigated in previous proceedings. It could have been raised in the Notice of Motion determined in the Primary Decision;
5. The court clearly had jurisdiction to entertain the question of a penalty;
6. There is no evidence of any change in circumstances since the Primary Decision was handed down, explaining or justifying the defendants' failure to raise the matter before the court at the time the primary application was heard;
7. Any residual discretion for the court must be considered in the light of a number of factors against the defendants' application;
8. The strength of the argument as to whether the relevant clause in the Deed was a penalty is simply irrelevant to the application as it was not brought to the court's attention to adjudicate and is a new argument: see the comments of Pembroke J in Dimitrovski, above. The defendants' failure to raise the matter earlier was unreasonable because it was wholly within the purview of the court to consider it under s 73 of the Civil Procedure Act;
9. The matter is an abuse of process as a party is seeking to re-litigate an issue already determined and it would contradict the earlier judicial determination;
10. Further, the defendants do not meet the technical requirements of Part 36.16. The defendants have not identified any irregularity with the judgment and the defendants have identified no reason to re-hear the matter including in relation to any procedural fairness matters;
11. Part 36.16 is inapplicable as the orders made on 14 September 2018 cannot be excised from the orders made on 7 September 2018. In the earlier orders, the court found there to be a binding and valid settlement agreement between the parties, including as to Clause 2.3. The court noted that judgment could be sought in the amount in the Deed plus interest. As the 7 September 2018 primary judgment would need to be altered, the judgment was not challenged within 14 days and the defendants are out of time;
12. Even if the requirement of Part 36.16 is met, the defendants have provided no showing of sufficient cause to reopen the proceedings and re-examine the validity of Clause 2.3 of the settlement Deed under Part 36.15. The orders were not made irregularly. An injustice or misapprehension of law or fact is not caused by the plaintiff and must be weighed against the objective of the finality of litigation. There is no failing to afford the defendants an opportunity to be heard and the discretion should not be exercised to permit a general reopening of the case. There was nothing unfair in the process by which the judgment was obtained within Dimitrovski. Irregularity does not extend to errors attributable to the forensic decisions of the parties or their failures to raise an arguable point. The rules also cannot be used as a substitute for an appeal. There is no sufficient cause to exercise the discretion in any case. The defendants have failed to demonstrate any irregularity associated with the judgment and there is no procedural unfairness. The power to reopen or vary is not exercisable in favour of an applicant who was at fault in failing to raise the matter in issue at an earlier stage;
13. There is no cause to rehear the matter. The question of a penalty was not raised before 28 September 2018 and particularly at the hearing of the primary Notice of Motion. There is a clear interest in the court and the general public in the finality of litigation;
14. Further, there was not a penalty in the present case as the judgment sum bore a rational relation to, and was not out of all proportion to, the debts owed to the plaintiff. The judgment sum comprised the total amount the plaintiff stood to be awarded with costs should it have succeeded in the ultimate hearing. The amount to be paid is not out of all proportion to the original debt owed. Notwithstanding the recitals in the Deed, the defendants acknowledge that the judgment sum was the full amount of pre-existing debt by agreeing that that amount would be entered as a judgment for the plaintiff in the main proceedings. Such proceedings were a suit on debt;
15. There is no basis for a stay pending the resolution of the defendants' application and it should not be granted. The discretionary factors in determining whether to grant the stay weigh heavily in favour of the plaintiff.
The defendants filed reply submissions dated 15 November 2018. These provided, in general summary, as follows:
1. They disputed the plaintiff's submissions;
2. Nothing in the plaintiff's submissions provided a principled basis for resisting the finding of a penalty;
3. Anshun did not apply to this case;
4. The court should not let an order stand requiring a party to pay more than it was lawfully due;
5. Parts 36.15 and 36.16 are not limited by estoppel;
6. Abuse of process is inapplicable as the issue was not litigated;
7. Negotiations prior to the Deed are irrelevant;
8. The Zenith case strongly supports the defendants' position on the penalty issue;
9. The plaintiff's arguments on the discretion point under Part 36.16 should be rejected.
Further detailed oral submissions were made by the parties. These raised similar submissions as were made in the written submissions or variants on those submissions. Where relevant, I will refer to the oral submissions below.
[4]
Findings of Fact
Taking into account the evidence before me on the applications and the submissions made on behalf of the parties, I make the following findings of fact on an interlocutory basis:
1. These two applications arise in the District Court proceedings. The plaintiff commenced proceedings in this Court by way of a Statement of Claim filed on 28 March 2017 in which it asserted that it was owed money by the defendants for accounting services said to have been provided by it to some of the defendants in the period 2011-2015. An Amended Defence was filed on 8 August 2017 in which the defendants disputed any liability to pay the accounting fees sought by the plaintiff;
2. The defendants' previous solicitor was Mr Andrew Ford. A Notice of Ceasing to Act was filed by Mr Ford on 26 June 2018. The defendants' current solicitor is Mr Philip Sim from Crowther Sim Lawyers. A Notice of Appointment of Mr Sim as the solicitor for the defendants was filed on 10 August 2018;
3. However, Mr Sim had involvement in the proceedings prior to that. I will come back to this issue in due course;
4. In paragraphs 6-54 of the Primary Decision, I set out the background to the matter;
5. Prior to the mediation which was held in the matter on 23 February 2018, Acting Judge Cowdroy QC made orders on a summary judgment application for certain moneys to be paid by Mr Eric Fuller, Mr Andrew Fuller and the defendants: see paragraph 13 of the Primary Decision;
6. A mediation was held between the parties on 23 February 2018;
7. In preparation for the mediation, Ms Perry was instructed that one or more of the defendants or the Fuller Family Partnership owed to the plaintiff amounts totalling $239,507.91;
8. Substantial legal costs and disbursements were incurred by the plaintiff through services provided by Ms Perry, the solicitor for the plaintiff, prior to the mediation on 23 February 2018. These totalled $43,303.25;
9. On the instructions provided to Ms Perry by the plaintiff, the alleged debt owed to the plaintiff by the defendants as at the date of the 23 February 2018 mediation including fees allegedly owed by the defendants to the plaintiff, interest on those fees, legal costs and disbursements and costs relating to the mediation was $283,566.31;
10. The figure of $283,566.31 is the figure appearing in Annexure C to the Deed which is referred to in Clause 2.3 of the Deed;
11. On 18 June 2018, Mr Sim was requested by Mr Fuller to assist him in respect of the District Court proceedings;
12. In early July 2018, Mr Sim sought and obtained documentation relating to the District Court proceedings;
13. On or soon after 19 July 2018, Mr Sim was provided with the plaintiff's Notice of Motion filed 19 July 2018 and Ms Perry's affidavits sworn 10 and 19 July 2018. The Deed is Annexure B to Ms Perry's 10 July 2018 affidavit. Accordingly, Mr Sim had a copy of the Deed on or shortly after 19 July 2018;
14. Mr Sim therefore had the Deed in which Clause 2.3 and Annexure C appeared, for about four weeks prior to the hearing of the Notice of Motion on 16 August 2018;
15. On 10 July 2018, the Court made orders that the Notice of Motion be listed for hearing on 16 August 2018. The 19 July 2018 Notice of Motion was subsequently filed with the affidavits in support on 19‑20 July 2018;
16. The individual defendants, Messrs Eric and Andrew Fuller, were present in person at the hearing of the Notice of Motion on 16 August 2018. They were represented by their solicitor, Mr Sim. The plaintiff was represented by counsel instructed by Ms Perry, the solicitor for the plaintiff, at the hearing. Leave was granted to Mr Sim to cross-examine Ms Perry even though no prior notice was provided to Ms Perry of the application. At the luncheon break, Mr Sim was granted a short adjournment to enable him to find any relevant case law relating to the principle of ostensible authority which he wished to place before the court;
17. Subsequently, detailed submissions were made by Mr Sim on behalf of the defendants and Ms Hall of counsel on behalf of the plaintiff;
18. The plaintiff's written submissions were provided to Mr Sim at the bar table on 16 August 2018. This was the date that they were also first provided to the court. During the hearing, time was taken by the court and apparently by Mr Sim to review the written submissions prepared on behalf of the plaintiff;
19. Judgment was reserved by the court on 16 August 2018;
20. The court handed down its reasons for decision on 7 September 2018 and made orders including that judgment was given for the plaintiff against the defendants. It was ordered that the parties were to bring in agreed Short Minutes of Order within seven days for the judgment amount together with any applicable interest;
21. It was noted in paragraph 94 of the reasons for decision that under the draft consent order which is Annexure C to the Deed, judgment was to be entered for the plaintiff in the sum of $283,566.31. It was further stated in paragraph 94 of the reasons for decision:
"However, the defendant should be given credit for the First Settlement Payment leaving the amount outstanding of $248,641.03. Interest will need to be added to that sum for the relevant period";
1. On 14 September 2018, Ms Perry forwarded to Mr Sim draft Short Minutes of Order and an interest calculation. Also on 14 September 2018, Mr Sim sent an email to Ms Perry in which he stated that he accepted the Short Minute of Order as to interest and judgment amount;
2. On 14 September 2018, the court made Short Minutes of Order as to the judgment amount of $248,641.03 together with interest in the amount of $3,933.93;
3. Ms Perry on behalf of the plaintiffs sent a letter dated 18 September 2018 demanding payment of the judgment sum. No payment has been received;
4. The Notice of Motion filed by the defendants to set aside the orders made by the court was filed 14 days after the orders for the judgment amount, being on 28 September 2018.
[5]
The Rules
Parts 36.15 and 36.16 of the Uniform Civil Procedure Rules ("UCPR") provide as follows:
"36.15 General power to set aside judgment or order
(cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3)
(1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.
(2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent.
36.16 Further power to set aside or vary judgment or order
(cf SCR Part 40, rule 9)
(1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order.
(2) The court may set aside or vary a judgment or order after it has been entered if:
(a) it is a default judgment (other than a default judgment given in open court), or
(b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or
(c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order.
(3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it:
(a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or
(b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief.
(3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered.
(3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered.
(3C) Despite rule 1.12, the court may not extend the time limited by subrule
(3A) or (3B).
(4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order."
The plaintiff does not consent to any orders or any judgment being set aside. Accordingly, Part 36.15(2) is inapplicable.
The question therefore arises whether the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.
In the present case, the defendants wish to raise a legal argument that Clauses 2.3 and 2.4 of the Deed are penalties and are invalid. This was an argument which could have been raised by the defendants at the hearing of the Notice of Motion on 16 August 2018. There is no evidence, nor is it suggested, that the failure by the defendants to raise this legal argument was due to any fault or act of the plaintiff. The defendants were legally represented by Mr Sim who had access to the Deed in question for some four weeks prior to the hearing. He was clearly able, following a review of the Deed and any arguments available to the plaintiff, to raise the penalty argument at the 16 August 2018 hearing.
While I accept the submission by counsel for the defendants that the focus of the hearing was on ostensible authority, this did not prevent the defendants' solicitor Mr Sim raising other arguments. The plaintiff, for example, also raised the issue of ratification at the 16 August 2018 hearing.
In my view, Part 36.15 is inapplicable to the current situation. I accept the submissions on behalf of the plaintiff, that in order for a judgment or order to be obtained "irregularly, illegally or against good faith" there must generally be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermines the authority of the judgment or order or some other procedural irregularity requiring the court to exercise the exceptional course of setting aside the judgment or order: Kendell v Carnegie [2006] NSWCA 302; (2006) 68 NSWLR 193 at [44] and [53]; Zakaria v Dr Noyce [2012] NSWSC 891 at [22] and [24]. There is no suggestion in the present case of a failure by any party to comply with the rules of court. Nor was there any breach of the rules of natural justice in the present case. The defendants had a full opportunity to make any submissions they wished. There was no conduct by or on behalf of the plaintiff which appears to fall within the principle stated.
I accept the view of Justice Pembroke in Dimitrovski, above, at [2], that Part 36.15 is "not a general panacea but is confined in its operation to strictly limited circumstances". I also accept Justice Pembroke's view at [3] that the rule is concerned with the "regularity in the process by which the judgment was obtained, not with the correctness of the decision". I accept his Honour's view that it is not concerned with whether there is an available defence that might have been relied upon at the time the judgment was given or the order was made, but which was not put forward by the defendants in the present case. See at [3], [6] and particularly at [13].
The defendants rely on Kassem & Secatore v Koutavas [2012] NSWSC 236 especially at [19] where Ward J stated that a judgment is irregular under Part 36.15 where it has been entered for more than is due or the debt has been paid at the time the order is made. In my view, that would apply to situations where there had been errors in calculations or where there had been oversights as to payments made in relation to a debt. I do not consider that her Honour's analysis would cover a case like the present where a potential defence to a substantive claim was not raised or argued at a hearing.
That leads to a consideration of Part 36.16 of the UCPR. The plaintiff argues that the relevant date is 7 September 2018 and not 14 September 2018, as the orders made on 14 September 2018 cannot be excised from or considered in isolation from the orders made on 7 September 2018. It is said that the earlier orders made on 7 September 2018 arose out of the Primary Decision in which the court found there was a valid and binding settlement agreement between the parties, including as to Clause 2.3. See paragraphs [73], [85] and [94] of the Primary Decision.
In my view, that argument is simplistically attractive. See in particular the reasoning in paragraph 94 of the Primary Decision. However, in the end, the only order made relevantly on 7 September 2018 was that there be judgment for the plaintiff against the defendants. Clearly, the reasons for decision assumed that the higher amount was owed by the defendants. However, it was not until the 14 September 2014 orders that payment of the specific sum which included the alleged penalty amount was made and entered by the Court. On balance, I prefer the submission of counsel for the defendants on this issue and I reject the submission by the plaintiff. In my view, the relevant orders were those made on 14 September 2018 and accordingly, the Notice of Motion filed by the defendants filed on 28 September 2018 was filed within 14 days of making of the relevant orders. If I am wrong in relation to that finding, then clearly, in my view, Part 36.16(3A) is inapplicable.
Having found that the Notice of Motion for setting aside of the relevant order was filed within 14 days after the order was entered, the question therefore arises whether the court should set aside or vary the order as if the order had not been entered.
[6]
Penalty
The defendants submit that Clauses 2.3 and 2.4 of the Deed contain a penalty and should be found to be invalid. That is because, in the event that the defendants do not pay the lower sums referred to, they are obliged to pay a much higher amount which has a significant uplift factor. It is said that this is the clear hallmark of a penalty. It is submitted that the position would be different if the higher amount was obliged to be paid but if the smaller amount was paid then this would fulfil any obligations which the defendants had to the plaintiff.
I have set out above, a summary of the detailed submissions made on behalf of the defendants on this issue.
In Mansfield Corp Pty Ltd v Chengcheng (Aust) Enterprise Melbourne Pty Ltd [2018] NSWDC 12, I considered the principles relating to contractual penalties in paragraphs 139-158 particularly at paragraphs 149-154. In paragraph 154 of Mansfield I summarised the relevant principles in the following way:
"[154] Accordingly, the relevant principles are as follows:
(a) The essence of a penalty is a contractual provision for the payment of money in terrorem, stipulated to intimidate or punish the offending party;
(b) A penalty is a stipulation that has no purpose other than to punish. The real objection to a penalty clause as a matter of public policy is that it is not the part of the law of contract to allow one party to punish the other for non-performance;
(c) A critical issue is whether the sum agreed to be paid is commensurate with the interests protected by the bargain. The test is whether the impugned provision is a secondary obligation which imposes a detriment on the defendant out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The reasoning is that the innocent party can have no proper interest in simply punishing the other party;
(d) In determining whether the agreed sum is commensurate with the interest protected by the contractual bargain, whether the sum or remedy stipulated is exorbitant or unconscionable when regard is had to the innocent party's interest in the performance of the contract is relevant.
That decision was upheld by the Court of Appeal on other grounds: Chengcheng (Aust) Enterprise Melbourne Pty Ltd v Mansfield Corp Pty Ltd [2018] NSWCA 244.
The defendants submit:
1. Nowhere in the Deed do the defendants concede liability for the amount referred to in Clause 2.4. The recitals of the Deed referred to the parties agreeing to resolve the dispute between them without admission of liability;
2. A contractual requirement to pay a sum of money conditional on a failure to observe a particular contractual stipulation is capable of being a penalty regardless of whether it is payable upon breach;
3. Clause 2.3 of the Deed is penal in character as the payment of the sum is out of all proportion to the interests of the party, it is the purpose of the provision to protect. The sum stipulated for payment on default is a penalty as it bears no relation to the possible damage to or interest of the innocent party arising from breach by the other party of the contractual term;
4. The court should follow Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd [2000] QCA 221 referred to with apparent approval in Lachlan v HP Mercantile Pty Ltd [2015] NSWCA 130 which was submitted to be directly on point;
5. Evidence of the plaintiff's claims as to the debt owed prior to the mediation was irrelevant.
The plaintiff rejects these arguments. It is submitted by the plaintiff that Clause 2.3 is not a penalty as the judgment sum in Annexure C to the Deed bore a rational relationship with, and was not out of all proportion to, the debts owed to the plaintiff. It was submitted that the judgment sum comprised the total amount the plaintiff stood to be awarded with costs should it have succeeded in the ultimate hearing and was thus was not out of all proportion to the original debt owed and the legitimate interests of the plaintiff which Clause 2.3 sought to protect if the agreed amounts under the Deed were not paid on time.
In Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 the High Court stated as follows in paragraph 10:
[10] In general terms, a stipulation prima facie imposes a penalty on a party ("the first party") if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation.
In Cameron v UBS AG [2000] VSCA 222 the Victorian Court of Appeal considered a dispute for non-compliance with a deed of settlement where a judgment had been obtained against the defendant in Switzerland for the equivalent in Swiss currency of A$8.4 million. The Court of Appeal held that a provision which stated that if the defendant defaulted in payment of any one of five one million dollar instalments, the plaintiff would be at liberty to apply for reinstatement of the proceeding and entry of judgment in the sum of A$8.4 million plus costs less any payments made, was not unenforceable as a penalty. That was because the sum of A$8.4 million did not relate to non-compliance with the Deed of Settlement between the parties but rather was the sum due and allegedly owing under the Swiss judgment debt. See at paragraph [4] per Winneke P, at paragraphs [19]-[22] per Phillips JA and at [28] per Buchanan JA.
In Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd, above, the Queensland Court of Appeal considered, as here, a deed where the sum stipulated in the clause as the default amount to be paid was neither in form nor in substance a present debt but merely an amount claimed in the proceedings by the plaintiff. Their Honours held that where the higher amount bore no rational relationship to the loss the plaintiff suffered by late payment of an instalment under the deed, the clause was unenforceable as a penalty provision. Pincus JA stated the following at paragraphs [1]-[2] and [9]-[10]:
"[1] This is an application for leave to appeal against a judgment of Judge Wylie QC given in the District Court. The question for his Honour was whether the applicant could recover a sum said to be due under a deed of settlement and a guarantee. The applicant sued the first respondent for money claimed under a contract to carry out engineering work. A defence was filed disputing liability for certain of the sums making up the applicant's claim and counter-claiming for alleged bad work. After negotiations the case was settled. The deed of settlement required the first respondent to pay the sum of $55,000 by certain instalments "in full settlement of the plaintiff's claim and the defendant's counter-claim". The claim as finally pleaded in the action was $72,567.13, so that the amount of the settlement was substantially less than the claim. The second respondent guaranteed payment of the money under the deed.
[2] There were five instalments to be paid under the deed; the first and second were paid on time, but the third, fourth and fifth (and last) instalments were paid late. After payment of the fourth instalment, the applicant applied for judgment on the basis of cl4 of the deed, reading as follows:
"If any payment is not made on the due date, in respect of which time is agreed to be of the essence, the Plaintiff will be entitled to enter judgment against the Defendant for the full amount claimed in the Amended Claim plus interest and costs".
Judge Wylie QC dismissed the application, on the ground that the default provision constituted a penalty."
"[9] In my opinion the law as it presently stands is correctly stated in Professor Rossiter's chapter on relief against penalties in "The Principles of Equity" (1996), edited by Professor Parkinson:
"Where a stipulated sum is presently due and owing as a debt and the creditor grants the debtor an indulgence to pay the debt by instalments, it is not a penalty for the creditor to provide, as a condition of granting the indulgence, that the indulgence will be withdrawn if the debtor defaults in the payment of an instalment. However this principle ... has no application where, having regard to the substance and notwithstanding the form of the transaction, the stipulated sum is not owing as a present debt". (296)
Here the stipulated sum was neither in form nor in substance a present debt; it was merely an amount claimed. That is, the case is one in which the obligation sought to be enforced was one to pay a much larger sum than that agreed to be due, upon default in payment of agreed instalments of the latter: Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 87, para4(b). And as the learned primary judge pointed out, the additional amount which would, if cl4 of the deed is enforceable, become payable bears no rational relationship to the loss the applicant suffered by late payment of an instalment.
[10] I agree with the primary judge's view that cl4 is unenforceable, as a penalty provision."
Similarly at [13] White J stated as follows:
"[13] It seems clear that the amount claimed in the pleading which was disputed in the defence and counterclaim could not be characterised as a "present debt, a debt actually due and owing", (O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 374)."
The case of Zenith appears to be indistinguishable from the facts of the present case. The amount referred to in Clause 2.4 and Annexure C was the total claimed by the plaintiff in the proceedings plus interest plus costs. It was never conceded by the defendants that that amount was owing by them. Accordingly, the amount referred to could not be regarded as a present debt but merely an amount claimed. Further, in the recitals to the Deed, there was a reference in Recital A to the "accounting fees alleged to be owing by the Fuller Parties to KAPL" and in Recital B to the Deed being "without admission of liability".
The position in Zenith should be contrasted with the position in Lachlan v HP Mercantile Pty Ltd [2014] NSWSC 356 where the recitals to the deed "unconditionally" affirmed and confirmed the debt obligations under the relevant loans. Darke J found that to be a distinguishing fact which made the facts different to Zenith: see at [52]-[59]. Zenith was not criticised by Darke J.
On appeal in Lachlan v HP Mercantile Pty Ltd, the Court of Appeal confirmed Darke J's reasoning and again referred to Zenith without any disapproval: [2015] NSWCA 130 at [47], [49] and [54]-[56].
This line of cases raises a real issue for the court. On the one hand, the plaintiff arguably had a legitimate interest in the higher amount in Clauses 2.3 and 2.4. That was the amount it claimed was owing to it in the proceedings. On the other hand, it was simply a claim by the plaintiff which had not been determined. It was not a clear debt. Whether the claim had force could not be determined in this application.
In my view, this case is indistinguishable from Zenith. As a considered appellate judgment in another state court, in my opinion I should follow it particularly where it was not criticised by the Court of Appeal in Lachlan, above.
In my view, Clauses 2.3 and 2.4 therefore amount to a penalty at common law following Zenith as the obligation to pay the higher amount arises under the Deed if there is a breach of the Deed by not making the relevant payments.
I take into account the arguments of the plaintiff that the evidence as to how the amounts were arrived at in Ms Perry's 16 October 2018 affidavit shows the interest of the plaintiff which the Deed was seeking to protect.
However, it seems from Zenith that the interest sought to be protected was the breach of the obligation to pay the second instalment. There was no evidence of particular loss suffered by the plaintiff, for example, a real estate transaction where the money was required, which would justify the higher amount.
Accordingly, in my view Clauses 2.3 and 2.4 of the Deed are penal in nature and would have been found to be invalid if the issue was raised by the defendants at the 16 August 2018 hearing.
I will proceed to consider the other arguments of the plaintiff.
In Power v Deputy Commissioner of Taxation (No 2) [2014] NSWCA 77 the Court of Appeal stated the following in paragraphs [2]-[6]:
"[2] By Notice of Motion filed on 23 December 2013, the appellant has applied for an order that the orders made on 12 December 2013 be set aside and, in lieu thereof, that there be an order that the appeal be allowed with costs. The basis for the application is the assertion that, in its reasons, the court failed to deal with an argument advanced on behalf of Mr Power.
[3] There is no doubt that the court has power to re-open a judgment or order to reconsider a point. It may do so if it is convinced that, in the earlier consideration of the point, it has proceeded on a misapprehension as to the facts or the law, or there is some matter calling for review, or the interests of justice so require. However, a heavy burden rests upon the applicant for re-opening to show that such an exceptional course is required, on the assumption that there has been no fault on the part of the applicant (see De L v Director-General, NSW Department of Community Services (No 2) (1997) 190 CLR 207 at 215). The Commissioner has not suggested that there has been any fault on the part of Mr Power that would preclude his making this application.
[4] There are two competing objectives of the law that must be considered when dealing with an application for the court to reconsider a point that it has already decided. The first is that justice ought to be done and ought to be seen to be done. Accidents and oversights can sometimes occur that will occasion injustice if they are not repaired. In so far as the High Court of Australia may grant leave to appeal from an intermediate appellate court, an intermediate appellate court such as this court is not the final court of appeal. Nevertheless, any injustice resulting from an oversight by an intermediate appellate court may be difficult to remedy. Competing against that objective is the objective of finality of litigation: interest reipublicae ut sit finis litium (see Rogers v R (1994) 181 CLR 251 at 273). The object of finality reinforces the respect that should be shown to orders that are final on their face, addressed to the world at large, and upon which conduct may be ordered in reliance upon their binding authority (see De L v Director General, NSW Department of Community Services (No 2) (1997) 190 CLR 207 at 215).
[5] In the present case, Mr Power has not endeavoured to identify an accident or oversight that would occasion an injustice or a misapprehension on the part of the court as to the facts or the law. The mere absence of a reference in reasons for judgment to a submission made by a party, or to cases cited by that party in support of the submission, does not mean that the court has not given consideration to the submission. An intermediate appellate court is bound to give only such reasons as are required for a proper determination of the proceedings before it and to enable the parties, and, if appropriate, the High Court, to see clearly why the proceedings were decided in the way they were decided (see 260 Oxford Street Pty Ltd v Premetis [2006] NSWCA 96 at [135]).
[6] In essence, Mr Power is inviting the court to give further consideration to the oral submissions made by Senior Counsel on his behalf on 5 November 2013. The court does not consider that its jurisdiction to re-open the proceedings has been enlivened in the present circumstances. Nevertheless, it is not inappropriate to make some brief observations about the submission in question."
In First Mortgage Managed Investments Pty Ltd v Pittman (No 2) [2014] NSWCA 272, the Court of Appeal considered an application under Part 36.16(3A). The court stated as follows at paragraphs [12] to [13]:
"[12] The respondents' written submissions on the motion stated the principles governing an application to set aside a judgment or order under UCPR r 36.16.first Subject to one matter, FMI does not challenge the respondents' statement of principles, which is as follows:
The principles relevant to that question were discussed in Smith v New South Wales Bar Association (1992) 176 CLR 256 at [265]-[267], and may be summarised as follows:
'(a) the power is discretionary, and is exercised having regard to the public interest in maintaining the finality of litigation;
(b whether there is a relevant avenue of appeal;
(c the importance of the matter calling for review;
(d if … ; and
(e embarrassment or prejudice to the other party'.
The Court may re-open its judgment if it has proceeded on a misapprehension as to the facts or the law, where there is some matter calling for review or where the interests of justice so require: De L v Director-General, NSW Department of Community Services (No 2) (1997) 190 CLR 207 at [215] (and the cases there cited). The jurisdiction to recall a judgment or orders extends beyond cases where a party is not given an opportunity to be heard on an issue held to be determinative: Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd (No 2) (2013) 87 ALJR 1159 at [15].
A paradigm example of whether the power should be exercised is where the Court does not determine a centrally relevant issue, or fails to consider submissions which, if accepted, could materially affect the outcome of a case …
[13] The qualification to these principles added by FMI is that a heavy burden is imposed on a party who seeks to re-open a judgment or order. In Power v Deputy Commissioner of Taxation (No 2) [2014] NSWCA 77, the Court explained (at [3]) the reasons why that is so:
There is no doubt that the court has power to re-open a judgment or order to reconsider a point. It may do so if it is convinced that, in the earlier consideration of the point, it has proceeded on a misapprehension as to the facts or the law, or there is some matter calling for review, or the interests of justice so require. However, a heavy burden rests upon the applicant for re-opening to show that such an exceptional course is required, on the assumption that there has been no fault on the part of the applicant … There are two competing objectives of the law that must be considered when dealing with an application for the court to reconsider a point that has already been decided. The first is that justice ought to be done and ought to be seen to be done. Accidents and oversights can sometimes occur that will occasion injustice if they are not repaired. In so far as the High Court of Australia may grant leave to appeal from an intermediate appellate court, an intermediate appellate court such as this court is not the final court of appeal. Nevertheless, any injustice resulting from an oversight by an intermediate appellate court may be difficult to remedy. Competing against that objective is the objective of finality of litigation … The object of finality reinforces the respect that should be shown to orders that are final on their face, addressed to the world at large, and upon which conduct may be ordered in reliance upon their binding authority … [emphasis added]."
In Mosman Municipal Council v Minister for Local Government (No 2) [2017] NSWCA 255, Macfarlan JA and Sackville AJA stated as follows at paragraph [34]:
"[34] The Minister expressly agreed with the following statement of principle in the Councils' written submissions:
10. … The principles relevant to [the exercise of the power to reopen] were discussed Smith v New South Wales Bar Association (1992) 176 CLR 256 at 265-267, and may be summarised as follows:
(a) the power is discretionary, and is exercised having regard to the public interest in maintaining the finality of litigation;
(b) whether there is a relevant avenue of appeal;
(c) the importance of the matter calling for review;
(d) if the application involves an application to adduce further evidence the reasons the evidence was not previously tendered; and
(e) embarrassment or prejudice to the other party.
11. The Court may re-open its judgment if it has proceeded on a misapprehension as to the facts or the law, where there is some matter calling for review or where the interests of justice so require: De L v Director-General, NSW Dept of Community Services (No 2) (1997) 190 CLR 207 at 215 (and the cases there cited). The jurisdiction to recall a judgment or orders extends beyond cases where a party is not given an opportunity to be heard on an issue held to be determinative: Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd (No 2) (2013) 87 ALJR 1159 at [15].
12. A paradigm example of where the power should be exercised is where the Court does not determine a centrally relevant issue, or fails to consider submissions which, if accepted, could materially affect the outcome of the case …
The Councils' reply submissions accepted a qualification to this statement proposed by the Minister, namely that there is a heavy burden on a party seeking to reopen orders pursuant to UCPR r 36.16. This Court has recently emphasised that it is well established that the jurisdiction to set aside orders should be exercised sparingly and with caution, having due regard to the importance of the finality of litigation."
In Majak v Rose (No 5) [2017] NSWCA 238 at [11]-[13] the Court of Appeal stated as follows:
"[11] UCPR 36.16 relevantly provides:
36.16 Further power to set aside or vary judgment or order
(1) The court may set aside or vary a judgment or order if Notice of Motion for the setting aside or variation is filed before entry of the judgment or order.
…
(3A) If Notice of Motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered.
…
(4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order."
The applicant's Notice of Motion was filed within the time prescribed by subr (3A) and, accordingly, subr (1) applies.
[12] The rule is, like all rules made under the Uniform Civil Procedure Act 2005 (NSW), subject to the "overriding purpose" of facilitating the "just, quick and cheap resolution of the real issues" between the parties to litigation (s 56). It does not give a licence to disgruntled litigants to re-agitate, in the hope of obtaining a more favourable outcome, issues that have been determined against them. Nor does it make of a court some sort of magic pudding from which unsuccessful litigants may take slice after slice, ever hopeful that the next will be more palatable than the last. The rule has a serious, but limited, purpose which is to permit readily identifiable, readily rectifiable, inadvertent errors to be corrected without the complication and expense of an appeal (or, in the case of this Court, an application for special leave to the High Court). Abuse of the rule is detrimental to the administration of justice in unnecessarily and unfairly (to other litigants) taking up the time of the court. Nor does abuse of the rules facilitate the just, quick and cheap resolution of the issues between parties. On the contrary, unwarranted reliance on r 36.16 is oppressive to the successful party and a drain on the Court's resources.
[13] It is well established that a court's jurisdiction to set aside orders should be exercised sparingly and with caution, having due regard to the importance of the finality of litigation (see, for example, Wentworth v Woollahra Municipal Council (No 2) (1982) 149 CLR 672at 684; [1982] HCA 41; State Rail Authority of NSW v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 38; [1982] HCA 51; Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300at 302; [1993] HCA 6 ; Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd (No 2); Carelli v FS Architects Pty Ltd (No 2) [2008] NSWCA 205 at [9])." (emphasis added)
In the light of those principles, I turn to consider the other arguments raised by the plaintiff.
[7]
Issue estoppel
The argument as to issue estoppel was not pressed in final submissions.
[8]
Anshun estoppel
I do not think that the usual principles relating to Anshun estoppel apply as asserted by the plaintiff. That is because Part 36.16(3A) provides a particular rule applicable in a specific situation where the application is made within 14 days after the particular order is entered. The matters raised relating to that principle may well have some relevance to discretionary matters which the court must take into account, but they do not prevent the discretion being available in appropriate circumstances. I do not consider that Welker v Rinehart (No 6) [2012] NSWSC 160 relied on by the plaintiff conflicts with that view.
[9]
Abuse of Process
I also do not consider there is an abuse of process. The penalty issue was never considered by me following the hearing on 16 August 2018 in the Primary Decision. It is raised for the first time in this application under Parts 36.15 and 36.16. There is no evidence which suggests it is raised by the defendants for any improper reason or only to delay enforcement.
[10]
The discretion under Part 36.16
Having regard to my view on the penalty issue, the court must consider whether it should exercise its discretion to set aside the orders made on 14 September 2018 pursuant to Part 36.16(3A) of the UCPR. The power in that rule is discretionary but it must be exercised judicially. It must be exercised taking into account the matters which are referred to in the Court of Appeal cases I have set out above and having regard to the public interest in maintaining the finality of litigation. It seems to be clear that the following principles apply:
1. The court may reopen its judgment if it has proceeded on a misapprehension as to the facts or the law, where there is some matter calling for review or where the interests of justice so require;
2. The jurisdiction to recall a judgment or order extends beyond cases where a party is not given an opportunity to be heard on an issue held to be determinative;
3. There is a heavy burden on a party seeking to reopen orders pursuant to UCPR Part 36.16(3A). It is well-established that the jurisdiction to set aside orders should be exercised sparingly and with caution, having due regard to the importance of the finality of litigation;
4. The rule is subject to the "overriding purpose" of facilitating the "just, quick and cheap resolution of the real issues" between the parties to litigation in s 56 of the Civil Procedure Act 2005 (NSW);
5. The rule does not give a licence to disgruntled litigants to re-agitate issues that have been determined against them;
6. Readily identifiable, readily rectifiable, inadvertent errors may be corrected without the complication and expense of an appeal;
7. The importance of the matter calling for review is relevant;
8. The prejudice to the other party is relevant;
9. A clear example where the power should be exercised is where the court does not determine a centrally relevant issue, or fails to consider submissions which, if accepted, could materially affect the outcome of a case;
10. Whether there has been any fault on the part of the other party is an important matter to consider;
11. The final test is what is in the interests of justice having regard to the objective of the finality of litigation.
The submissions of the parties as to the relevant matters are set out generally above and have been taken into account by me. I take into account the defendants' arguments as follows:
1. That ostensible authority was the main issue raised at the 16 August 2018 hearing;
2. The uplift factor in Clauses 2.3 and 2.4 is very substantial;
3. The plaintiff will still have its judgment but for a reduced amount;
4. The qualitative nature of the issue is significant;
5. The prejudice to the defendants if the orders cannot be altered is significant.
In my view, taking into account all the evidence and the submissions, I should not exercise the discretion which I have in favour of the defendants for the following reasons:
1. The legal representative for the defendants, Mr Sim, who appeared at the hearing had the Deed for about a month before the hearing;
2. Clauses 2.3 and 2.4 of the Deed were specifically referred to in prayer numbered 2 in the Notice of Motion filed 19 July 2018;
3. The defendants (and/or their solicitor Mr Sim) did not retain counsel to appear for them at the hearing of the Notice of Motion, as was their right;
4. Mr Sim appeared for the defendants at the hearing of the Notice of Motion. He was given the right to cross-examine Ms Perry and the right, as was the defendants' entitlement, to make all relevant submissions;
5. Whilst written submissions were only handed up by counsel for the plaintiff on the day, Mr Sim was given a full opportunity to review those submissions and make responsive submissions;
6. Mr Sim was given a short additional time in which to locate further authorities which he wished to rely upon;
7. The failure of the defendants to raise the penalty issue was not due to any act or omission or misrepresentation of the plaintiff and none is suggested. The penalty issue could have been raised by the defendants and would have been ruled upon;
8. In the Primary Decision, the Deed was held to reflect an agreement entered into between the parties. In practical terms, there has been a delay in the plaintiff's ability to pursue the amount found due to the penalty issue being raised late;
9. Whilst the application is important to the defendants, it is also important to the plaintiff and practically delays its ability to recover the amount entered;
10. The evidence shows that Mr Sim agreed to the orders entered on 14 September 2018. Whilst I accept the defendants' submission that this was not a true consent in the form of a true agreement, he had another opportunity to review the obligations under the Deed at that time if he wished;
11. No submission was made as to the penalty issue by Mr Sim at the hearing of the Notice of Motion. There were no submissions which were ignored or not taken into account by the Court. In considering the application there was no misapprehension as to facts or law relating to the submissions which were made;
12. While the interests of justice are the significant guiding principle, a heavy burden rests upon the defendants to show that setting aside the orders, which is an exceptional course, should be adopted where there is no fault on the part of the plaintiff. I take into account the principles in the Court of Appeal authorities referred to above particularly Majak, above at [12];
13. The amount at issue is a large amount for both sides;
14. The object of finality is significant and is taken into account by me. There is no suggestion that there has been a breach of the rules of natural justice in the present case. The error was not a mere error as to calculation or as to fact but a failure to raise and argue a substantial legal argument which was available to be argued on 16 August 2018;
15. Having regard to all of these matters, in my view I should not exercise the discretion which I have in favour of the defendants in the present case;
16. For similar reasons, I refuse the application of the defendants to reopen the hearing of the Notice of Motion filed 19 July 2018. The Motion was heard, reserved on and a considered written judgment was handed down. There are no compelling reasons to reopen hearing of the application.
[11]
Costs
In relation to the lump sum costs application, s 98(4) of the Civil Procedure Act 2005 (NSW) provides as follows:
"(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:
(a) costs up to, or from, a specified stage of the proceedings, or
(b) a specified proportion of the assessed costs, or
(c) a specified gross sum instead of assessed costs, or
(d) such proportion of the assessed costs as does not exceed a specified amount."
There is no evidence before me that the costs of the Notice of Motion decided in the Primary Decision have been referred for assessment.
The defendants do not object to a lump sum costs order on the ordinary basis being the amount of 70% of the actual solicitor/client costs: see Perry 13 September 2018 affidavit paragraph 31, first table.
The question therefore arises whether the court should specify a gross sum for the costs of the Notice of Motion on an indemnity or near indemnity basis.
Section 98(4)(c) of the Civil Procedure Act permits the court, at any time before costs are referred for assessment to make an order to the effect that the party to whom the costs are to be paid is entitled to a specified gross sum instead of assessed costs.
The court has a discretion as to whether to make a specified gross sum costs order and as to the amount of that order.
Various matters must be taken into account in deciding whether to exercise the discretion including:
1. The responsibility of the parties relatively for the costs incurred;
2. Any disproportion between the issue litigated and the costs claimed;
3. The complexity of the proceedings in relation to the costs sought;
4. The capacity of the unsuccessful party to satisfy any costs liability;
5. The general considerations reflected in ss 56, 57 and 60 of the Civil Procedure Act;
6. In particular, it is important as stated in s 60 of the Civil Procedure Act, that costs should be proportionate to the importance and complexity of the subject matter in dispute;
7. A specified lump sum costs order should only be made where the court has sufficient confidence to arrive at an appropriate sum on the materials available;
8. A further relevant factor is whether making a specified gross sum costs order will save time and further costs.
In deciding whether to make a specified gross sum costs order I take into account the matters set out in the affidavit of Ms Perry sworn 13 September 2018 and the submissions relied upon by her. Having regard to the material in her 13 September 2018 affidavit and the position taken by the defendants on the issue, in my view it is appropriate to make a specified gross sum costs order:
1. The issue determined in the Notice of Motion was important to both parties being whether there was a binding agreement;
2. The dispute required a detailed considered judgment and a review of voluminous correspondence between the parties;
3. I am satisfied that there is sufficient material in Ms Perry's 13 September 2018 affidavit to enable me to reach a conclusion;
4. The costs referred to in paragraph 31 of that affidavit do not appear to me to be disproportionate to the amount at issue or the complexity of the dispute;
5. Further substantial costs are likely to be incurred if the matter proceeds to an assessment.
I accept that the charge out rate of Ms Perry of $500 per hour is not unreasonable in all the circumstances and for this litigation.
In my view, indemnity costs should not be awarded against the defendants. There was no formal offer of compromise which was not accepted. There was no formal Calderbank letter. The correspondence and background facts were fairly complicated. The conduct of the defendants in disputing the Notice of Motion does not appear to me to have been calculated merely to delay the plaintiff or to have been unreasonable (adopting similar principles to those applicable as to Calderbank letters): see the comments of the Court of Appeal as to Calderbank letters in King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11]. The 4 July 2018 letter (Exhibit A on the costs application) does not appear to offer any degree of compromise.
Taking into account all the matters in the 13 September 2018 affidavit and in the written submissions of Ms Perry, also dated 13 September 2018, in my view there should be a discount to take into account possible reductions on an assessment. I would therefore allow recovery of a fixed gross sum calculated at 70% of professional costs plus disbursements as set out in paragraph 31 of Ms Perry's 13 September 2018 affidavit in the sum of $15,684.37.
In relation to the plaintiff's application to be awarded interest on costs, this was not referred to in the Notice of Motion filed 19 July 2018 and, in my discretion, I decline to award it. It was also not referred to in the 4 July 2018 letter which is Exhibit A on the application.
[12]
Disposition
In relation to the plaintiff's application to vary the costs order made on 7 September 2018 by the court, I make the following orders:
1. Order 4 made on 7 September 2018 is vacated.
2. Pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW), the defendants are to pay the plaintiff's costs of the Notice of Motion filed 19 July 2018 in the specified gross sum of $15,684.37.
3. I will hear the parties on the costs of the application.
4. The plaintiff's application in relation to costs is otherwise dismissed.
In relation to the Notice of Motion filed 28 September 2018 by the defendants:
1. The Notice of Motion filed 28 September 2018 is dismissed.
2. The defendants are to pay the plaintiff's costs of the Notice of Motion filed 28 September 2018 as agreed or assessed.
[13]
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Decision last updated: 12 December 2018