Kofoo Sussex Pty Ltd v Commerce Building Pty Ltd

Judgment 1On 8 August 2014 I published reasons for judgment in these proceedings: [2014] NSWSC 1074. 2The plaintiff, Kofoo Sussex Pty Ltd, had sought relief against forfeiture in respect of a lease of premises in Sussex Street Sydney against the first defendant, Commerce Building Pty Ltd, which had terminated the lease following breach by the plaintiff. 3Hours after the plaintiff gave the first defendant notice that it would shortly commence proceedings for relief against forfeiture, the first defendant executed a lease to the second defendant, Hawker Restaurant Pty Ltd. The defendants had agreed to the terms of the lease before the plaintiff gave notice of its intention to commence proceedings, and all that remained outstanding was the execution of the lease document. 4When the plaintiff commenced the proceedings in the duty list on 22 July 2014, it joined the second defendant, as it had an interest in the subject matter of the dispute by reason of its lease from the first defendant. 5It is not necessary that I relate the effect of my earlier reasons for judgment in detail. I said that the plaintiff was, in principle, entitled to orders for relief against forfeiture, but it would be necessary for the court to decide the conditions that should properly be imposed upon the plaintiff before it was given the relief that it sought. I raised a number of possible conditions at [163] to [172]. Some of the possible conditions were gleaned by me from my consideration of earlier authorities dealing with the conditions that the court may impose upon plaintiffs before relief against forfeiture is granted. 6The issue of the conditions that should be imposed was raised by me in a tentative way, without any decision being made, and I had not received submissions from the parties as to the proper course to be followed. Consequently, on 12 August 2014 I gave directions for the service of evidence and submissions on the issue. 7On 14 August 2014 Ms Lin Wei, who is the leasing officer for the first defendant, affirmed an affidavit in which she set out the amounts that the first defendant submitted the court should order the plaintiff to pay to it as a condition to the making of any order in favour of the plaintiff for relief against forfeiture of the lease. 8It is sufficient to set out par 17 of the affidavit, which said: In summary, the total to be paid prior to obtaining access to the restaurant is as follows: Kofoo Sussex arrears up to 31 August $164,670.26 Kofoo Sussex rent in advance Sept-Nov $79,322.65 Kofoo Australia arrears up to 31 August $39,761.05 Ray White commission $51,948.13 Total to be paid prior to access $335,702.09 Top up bank guarantee to 6.6 months $73,692.46 Total to be paid including provision for 6.6 month $409,394.55 bank guarantee 9On 20 August 2014 the plaintiff's solicitor informed the solicitors for the defendants that the plaintiff did not wish to continue the proceedings. The reason given was: After Mr Heo considered the costs, charges and expenses in the affidavit of Lin Wei dated 14 August 2014, he decided that the costs to satisfy the conditions for the plaintiff to obtain relief against forfeiture were too great. 10The plaintiff made an offer that its application for relief against forfeiture be dismissed, and that it be ordered to pay the costs of the defendants as agreed or assessed. 11The first defendant ultimately accepted this offer, and on 26 August 2014 I made an order that the summons filed on 22 July 2014 be dismissed, and also an order that the plaintiff pay the first defendant's costs as agreed or assessed. The latter order had the effect that the plaintiff would be required to pay the first defendant's costs on the ordinary basis. 12The second defendant consented to the order that the proceedings be dismissed. However, it sought an order that its costs of the proceedings be paid by the plaintiff on the indemnity basis. That is the issue now before the court for determination. 13As I understand the second defendant's argument, it submits that the commencement by the plaintiff of the proceedings against it, and the prosecution of those proceedings, was plainly unreasonable because the plaintiff (as suggested in my earlier reasons for judgment) had been guilty of significant delay in commencing proceedings for relief against forfeiture, which had the result that the defendants agreed that a new lease would be granted to the second defendant some time before the plaintiff warned the first defendant that it would commence proceedings, and the new lease was actually granted to the second defendant within hours of that warning. The second defendant pointed to the fact that the plaintiff had advised the first defendant that it would claim damages against the first defendant (rather than to implement its earlier threat to seek relief against forfeiture), and it was only thereafter that, that the first defendant entered into an agreement in principle to give a new lease to the second defendant. The second defendant said that it then became necessary for the plaintiff to join it as a defendant (which really was a result of its delay in commencing proceedings), and the second defendant was an entirely innocent party. Then, after my reasons for judgment were published, and the plaintiff became aware by means of Ms Wei's affidavit of the possible amount of money that the plaintiff may have to pay to the first defendant as a condition to the grant of relief against forfeiture, the plaintiff effectively abandoned the proceedings. 14The plaintiff submits in response that, to the extent that I foreshadowed in my reasons for judgment that the plaintiff may have had to indemnify the defendants for their costs, as a condition to the grant of relief against forfeiture, the plaintiff is no longer seeking that relief, so the possibility that costs should be payable on the indemnity basis for that reason was no longer relevant. Instead, the plaintiff submits, the costs issue in the present case should be dealt with on the same basis as any other case where the plaintiff decides that it is in its interests to submit to the dismissal of its proceedings, or the discontinuance of the proceedings. 15The plaintiff challenged any suggestion that it was a general rule that, where a lessee is required to pay the legal costs of other parties as a condition to the grant of relief against forfeiture, those costs should be assessed on the indemnity basis. It is no longer necessary to consider this issue, as it would only have been relevant if the plaintiff had continued with its claim for relief against forfeiture. 16The plaintiff submits that the court should apply the general principles concerning the circumstances in which the court may order one party to pay the other party's costs on an indemnity basis, which were set out by the Court of Appeal in Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [5]-[6]: [5] The general rule is that costs payable under an order of the Court are to be assessed on the "ordinary basis": Uniform Civil Procedure Rules 2005, r 42.2. [6] A number of circumstances have been recognised as capable of warranting the making of an order for payment of costs on an indemnity basis: see, for example, Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 at 257. They include where conduct in the proceedings of the party against whom the order is sought is "plainly unreasonable" or involves some "delinquency": Oshlack v Richmond River Council [1998] HCA 11 ; 193 CLR 72 at [44]; Mead v Watson [2005] NSWCA 133 ; 23 ACLC 718 at [8]-[9], [156]; Sydney City Council v Geftlick [2006] NSWCA 280 at [90]; Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 18 at [7]-[9]. 17The plaintiff also relied upon others submissions, which in the circumstances, it is unnecessary for me to relate. 18I find that the plaintiff should only be ordered to pay the second defendant's costs on the ordinary basis. 19The plaintiff, in my view, did not conduct itself before or during the proceedings in a way that was "plainly unreasonable" or involved some "delinquency". Furthermore, the circumstances in which the plaintiff agreed to the dismissal of its proceedings do not constitute an abandonment of its claims within the principle set out in LexisNexis Butterworths, Ritchies Uniform Civil Procedure NSW, Vol 1 (at service 80) [42.5.7(c)]. 20While it is true that I found in my earlier reasons for judgment that the plaintiff was guilty of excessive delay in commencing the proceedings, I found that the delay and its consequences were not sufficient to justify denying the plaintiff relief against forfeiture, subject to the plaintiff satisfying conditions, which, in the circumstances will now never be determined. It would therefore be difficult to describe the delay as plainly unreasonable or delinquent for the purposes of imposing an order for indemnity costs to be paid. 21It is also to be borne in mind that I found that the second defendant had actual notice of the plaintiff's right to make an application for relief against forfeiture, and it would appear on the evidence that the second defendant did not enquire of the first defendant as to whether there had been any threat by the plaintiff to make that application. 22It is true that, when the plaintiff commenced its proceedings, it should have understood that, if it made out a case for relief against forfeiture, it was probable that the court would impose some conditions on the relief being granted. That would at least extend to payment of all outstanding rent owed by the plaintiff, and the topping up of its bank guarantee to the level required by the lease. 23In my reasons for judgment, however, I raised the possibility that, in the circumstances of the present case, it might be appropriate to impose a number of more onerous conditions on the plaintiff. I took that course principally because I thought that the plaintiff had taken too long to commence its proceedings, the plaintiff itself was a $2 company, it relied upon funding from Mr Heo, a resident of South Korea, and the evidence provided as to the financial position of Mr Heo and his South Korean company caused me some concern as to whether the plaintiff would in fact be able to reinstate the restaurant and cause it to trade profitably. 24However, the issue of whether any unusual conditions should be imposed upon the plaintiff was entirely open, and subject to evidence and submissions, at the time the plaintiff decided to accept the dismissal of its proceedings. 25Put shortly, of the amounts set out in par 17 of Ms Wei's affidavit, the plaintiff may, when it commenced its proceedings, reasonably have not expected that it may be required to pay the rent of $39,761.05 owed by Kofoo Australia. It would not have known of the $51,948.13 commission that the first defendant had become liable to pay to its agent. It would not have expected that it might have to top up its bank guarantee for a number of additional months to provide the first defendant extra security that was not required by the lease. 26The evidence showed, albeit on the basis of information and belief, that Mr Heo had some US$296,384.11 in cash available. That is substantially less than the $409,394.55 sought in Ms Wei's affidavit. The plaintiff's counsel suggested in submissions that, when the plaintiff commenced the proceedings, it expected that it would have to pay substantially less than the amount of cash available in order to secure a grant of relief against forfeiture. I have not attempted to verify this claim by reviewing the evidence, but I accept that the submission was genuine, and likely to be substantially true. 27Accordingly, the position is that the plaintiff was required to join the second defendant in the proceedings, and the second defendant had actual notice that it could be embroiled in a claim such as that which has been made. The plaintiff succeeded in establishing a prima facie entitlement to a grant of relief against forfeiture, over the opposition of both defendants. The issue that remained outstanding was to determine the conditions that the plaintiff should meet before the relief was granted. Some possible conditions may not reasonably have been anticipated by the plaintiff. Instead of the plaintiff battling on, and taking up court time and increasing the costs incurred by the defendants, it made a commercial decision that it would not be able to afford to pay the amount necessary to secure victory in the proceedings. It therefore made a commendable decision that it should not continue to prosecute its claim. It would in my view be wrong for the court to punish the plaintiff in these circumstances, by ordering it to pay costs on the indemnity basis. 28I accept the plaintiff's argument that, as the second defendant refused to accept the offer made by the plaintiff in its solicitor's 20 August 2014 letter, to pay the second defendant's costs on the ordinary basis, and the second defendant has failed to obtain an order for indemnity costs at the hearing that took place on 26 August 2014, the second defendant should be ordered to pay the plaintiff's costs for that day on the ordinary basis. 29I will therefore make the following additional orders to deal with the issue of costs as between the plaintiff and the second defendant: (1)Order the plaintiff to pay the second defendant's costs of these proceedings except for the hearing on 26 August 2014 on the ordinary basis. (2)Order the second defendant to pay the plaintiff's costs for the hearing on 26 August 2014 on the ordinary basis. 30In addition I order that the exhibits in this matter should be returned on the basis provided for in the Rules.