LNCP002 Pty Ltd v Feridun Akcan

Defendant's written submissions

1. The defendant sought a declaration that the loan contract was repudiated. The reason this declaration was sought was to avoid Mr Akcan having to pay a significant discharge fee that he agreed to when he first signed that loan agreement. The relevant principles regarding termination for breach or repudiation of a contract were set out in detail. It was submitted that the implied term requiring the lender to provide a loan statement upon request (see primary judgment at [205]-[213]) was either a condition or an intermediate term of the contract, such that the lender's breach justified termination. In the alternative it was submitted that the lender's conduct amounted to repudiation.
2. It was noted that upon a valid exercise of the right to terminate, both parties are discharged from performing their outstanding obligations except where a party's rights had accrued unconditionally prior to termination. The relevant distinction was said to be whether the right is contingent upon an event involving future performance. It was submitted that because the discharge fee was only payable "on the discharge of the security", which required further acts of performance on the part of the lender (such as executing relevant documents), the right to payment of the discharge fee had not accrued unconditionally prior to termination. It was further submitted that cl 6.6 contemplated a discharge brought about by the cooperation of the parties, not one brought about by a court order following an unsuccessful claim for possession.
3. In relation to indemnity costs it was submitted that Mr Akcan's solicitor drew the plaintiff's attention to the "fatal flaw" in its case by letter of 16 April 2020 when he noted that the default notice had been issued before Mr Akcan had fallen into default. It was thus submitted that from this date the plaintiff had maintained proceedings that it knew or should have known had no real prospects of success. It was submitted that as of 16 April 2020 the lender was aware of the two key facts upon which Mr Akcan eventually succeeded: that the default notice was not validly issued, and that the lender had failed without justification to provide a loan statement.
4. Reliance was placed on offers of compromise made by Mr Akcan on 1 December 2020 and 29 April 2021. Each of those offers was for $2m, to be paid out by way of refinance at the earliest possible opportunity. The latter of the offers required the lender to provide a default-free statement recording a payout figure of $2m.
5. The defendant also sought a freezing order over the proceeds of the mortgage discharge given that Mr Fleischner had conceded in his evidence that LNCP002 Pty Ltd was a shell company set up specifically for the purposes of the loan to Diamond House. The Security Trust Deed attached to the defendant's email of 9 August 2021 set out the position of LNCP002 more clearly, including that each of the beneficiaries was a trustee and the liability of the beneficiaries was strictly limited. The deed relevantly provided that any money recovered under a loan agreement (whether principal or interest) was to be paid out to the trustees within two business days (cl 2.3).
6. It was submitted that in the event that Mr Akcan obtained refinance and paid out the loan to LNCP002, there would be little chance of recovering costs from that company once the funds had been distributed to the beneficiaries. It was submitted that in this case Mr Akcan's costs could only be recovered from the money paid out under the mortgage and that it was necessary to preserve those funds.
7. The submissions did not address all of the additional proposed orders which covered issues such as the removal of caveats, a future claim for damages, whether Mr Akcan had in fact paid three months' interest in advance and the paucity of information in the loan statements issued pursuant to my previous orders.

Plaintiff's written submissions

1. Mr Young SC noted that orders had been entered on 16 July 2021 and that Order 6 provided that the parties had leave to apply for a variation by consent.
2. He submitted that Order 6 had no work to do in circumstances where, as here, one of the parties did not consent to a variation.
3. Mr Young further submitted that the Court was functus officio given that on his construction, final orders had been entered and Order 6 had no application.
4. It was submitted that the defendant had not identified any basis for a variation to the orders (for example, pursuant to rr 36.15, 36.16 or 36.17 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR")). The plaintiff thus contended that the defendant's application should be dismissed.
5. In response to the declaration sought by the defendant it was submitted that no such declaration had been sought in the substantive proceedings and there was no basis for seeking it now.
6. In relation to the discharge fee, it was submitted that no issue regarding the fee arose in the substantive proceedings and that that fee was payable upon the discharge of every loan, whether in default or not. He observed that if Mr Akcan had been provided with a loan statement in February or March 2020 and had obtained refinance, he would have been obliged to pay the discharge fee.
7. It was submitted that the conduct of LNCP002 in failing to provide the loan statement was unrelated to the obligation to pay a discharge fee.
8. Mr Young referred to the primary judgment at [238] where it was noted that the order should, as near as possible, place Mr Akcan back into the position he would have been in if not for the wrongly issued default notice and the failure to provide the loan statement.
9. In relation to the proposed order seeking leave to file evidence on the question of damages, it was submitted that the orders made had already compensated Mr Akcan (by providing for an interest rate of 2.29% from 8 April 2020) and further damages would represent a double recovery.
10. In relation to indemnity costs, the plaintiff noted that Order 5 of 16 July 2021 already provided for costs to be paid on the ordinary basis and submitted that there was no reason to vary that order. It was submitted that a finding of unconscionability did not justify an order for indemnity costs as unconscionability in trade or commerce did not amount to misconduct of the case itself. It was submitted that this case was a complex one and it could not have been apparent to LNCP002 that it would lose. The plaintiff's submissions did not address the effect of the offers of compromise made by the defendant on 1 December 2020 and 29 April 2021.
11. In relation to the freezing order it was submitted that no such order was sought in the substantive proceedings and no evidence had been advanced in support of the contention that LNCP002 intended to disburse its assets.
12. As to the removal of the caveats in proposed Order 9 it was submitted that no such order was sought in the substantive proceedings and there were no grounds for seeking it now.

Defendant's written submissions in reply

1. The defendant rejected the contention that the orders of 16 July 2021 were intended to be final and submitted that the plaintiff's refusal to consent to reasonable variations should not prevent the Court from refining the orders to give full effect to the findings in the judgment.
2. The defendant further submitted that the plaintiff had effectively cavilled with the relevant orders by failing to provide a default-free loan statement that could be used to obtain refinance. The loan statements provided by the plaintiff were clearly deficient in several respects, not least of which was that they were not on letterhead, not identifiable as a statement from LaunchCap and thus could not be presented to an incoming lender as evidence of the state of the loan.
3. The statements also claimed unpaid interest of $6,562.75 for the first three months of the loan (which had been deducted in advance), an issue that was never raised in the substantive proceedings nor shown on previous loan statements provided by the plaintiff. The defendant noted that the orders required the provision of a default-free loan statement that would enable Mr Akcan to seek re-finance and submitted that no such statement had been provided.
4. In relation to costs the defendant noted that it had put the parties and the Court on notice of an indemnity costs application as soon as judgment was delivered.

The hearing on 11 August 2021

1. At the outset of the hearing I indicated my position that Order 6 of the primary judgment contemplated some of the orders being revisited and I was satisfied that the Court was not functus officio. I should add that in crafting Order 6 in the way I did I failed to anticipate that the parties in these acrimonious proceedings would not be able to agree on anything and I should not have included the word "consent" in Order 6. I propose to vary the order to delete that word.
2. The hearing on 11 August 2021 involved going through each of the proposed changes sought on behalf of the defendant in turn to identify which of them were appropriate variations which reflected my findings (which I was prepared to consider) and those which involved arguments not previously put to me at the hearing (which I had no jurisdiction to consider).
3. The respective arguments and my decision in relation to each proposed order is as follows:

Proposed Orders 3 and 4

1. The proposed orders 3 and 4 provided as follows: "3. The Court notes the terms of the letter from the solicitor for the defendant/cross-claimants to the solicitor for the plaintiff/cross-defendants dated 25 August 2020 formally advising the plaintiff that the defendant/cross-claimants regarded the conduct of the plaintiff/cross-defendants in, inter alia: (a) failing to provide the defendant with a mortgage statement in a timely fashion after 18 February 2020; and, (b) Issuing the defendant with a default notice; As conduct effectively repudiating the contract of loan, which repudiation the defendant/cross-claimants formally accepted and, thereby terminated the said contract of loan. 4. Declaration that by the letter of 25 August 2020 noted above, the defendant/cross-claimants effectively terminated the contract of loan between themselves and the plaintiff."
2. The orders I made on 16 July 2020 did not include a declaration that there had been repudiation of the loan contract. As should be evident from my reasons that is because the orders I made put Mr Akcan back in the position he would have been but for the (wrongful) default.
3. These orders are now sought so Mr Akcan does not have to pay any discharge fee. No other basis for the order was identified.
4. The plaintiff submitted, as outlined above, that this issue was not raised in the substantive proceedings. The defendant maintained that it had.
5. As my judgment records, the defendant pleaded a number of different causes of action some of which were only faintly pressed at the hearing. The relief I ultimately granted reflected the issues that were genuinely in dispute at the hearing on 10-12 May 2021. The issue of repudiation arose at [6]-[7] of the defendant's reply to the defence to the cross-claim. Those paragraphs referred to the letter from Mr Akcan's solicitor of 25 August 2020 in which the cross-claimants gave notice to the first cross-defendant that they accepted the acts of repudiation and terminated the contract. That letter was tendered at the hearing. The letter went on to calculate the interest owing at the Court rate since 15 April 2020 and stated that the defendant would pay interest at the Court rate under protest.
6. Detailed opening written submissions were provided by the defendant. The question of repudiation was not addressed in those submissions. The only time that the question of repudiation was raised during the hearing was when Mr Evans briefly referred to the 25 August 2020 letter in his opening submissions and noted that his client had accepted the repudiation and terminated the contract. Further, in closing submissions, Mr Evans noted that: "… there are two legal aspects in our case that I didn't address in detail in my [initial] written submissions which is estoppel and the right to repudiate and terminate, accept repudiation and terminate the contract so I have the legal basis for that there."
7. In his "Final Written Submissions" Mr Evans set out the principles in relation to repudiation for breach and enumerated the breaches relied upon, namely the failure to provide a loan statement and the issuing of a default notice when the borrower was not in default (as well as the subsequent insistence on payment at the default rate of interest and refusal to provide a default-free statement). Although those submissions outlined the relevant legal principles, they did not at any point identify that the declaration was sought so as to absolve Mr Akcan from liability for the discharge fee.
8. In his final oral submissions, Mr Evans said the following: "The part of the orders we would seek would be a declaration that either [they] had committed a breach justifying termination or they'd repudiated justifying termination and he'd effectively terminated the contract. But when he did, which really was a termination effective from the date of the default, that then relieves him of the obligation to pay interest at the mortgage rate and he's paid it at the court rate which is higher than what he would have been paying on the bank loan and that there would be a mandatory injunction requiring them to issue a statement that in effect recorded those interest payments without default and stated a payout figure on the loan which would be the capital sum plus any relevant discharge fee and that that be open for three months and that [particularly] they provide him with that statement within, say, 48 hours of the order, and that it remain open for three months from the date they provide us with the statement." (emphasis added)
9. In his oral submissions on 11 August 2021 Mr Young submitted that the reference to "any relevant discharge fee" in the submission extracted above at [44] was a concession that the defendant would be bound to pay the Discharge Fee of 1.1% (pursuant to cl 6.6 of the loan agreement) even if he had effectively terminated the contract by his letter of 25 August 2020. Mr Young SC submitted that the defendant should not now be entitled to resile from that concession or re-litigate that aspect of the proceedings.
10. Mr Evans submitted in response that the reference to "any relevant" discharge fee was not a reference to the fee contained in cl 6.6 but rather a reference to any discharge fee that survived the termination of 25 August 2020. It was submitted that on Mr Akcan's case, as outlined in the written submissions of 9 August 2021, the discharge fee contained in cl 6.6 could not survive an effective termination.
11. Mr Evans accepted that he did not make any submission in the substantive proceedings regarding the applicability of the discharge fee in cl 6.6. He explained that this was because Mr Akcan had not yet been provided with a loan statement showing a discharge fee. He stated that Mr Akcan was not aware that the plaintiff intended to charge a termination or discharge fee until the first draft loan statement was provided on 23 July 2021 (which provided for a termination, rather than discharge fee).
12. Having considered the respective submissions, I do not propose to make orders 3 and 4 for the following three reasons.
13. First, they are sought in order that Mr Akcan be relieved of the obligation to pay a discharge fee. That matter was never raised at the hearing and, in the absence of identification of how I could re-open proceedings to deal with it now I have no jurisdiction to do so. It may well be the case that the defendant did not realise that such a fee was to be charged until after the hearing but that is not a basis for me to re-open the hearing to hear further submissions on this issue.
14. Secondly, counsel for the defendant specifically acknowledged that a discharge fee would have to be paid in his closing submissions. He now states that he was not necessarily referring to the discharge fee in cl 6.6, however that submission was not clearly put at the hearing on 10-12 May 2021.
15. Thirdly, as I stated in my judgment, the orders were crafted to put Mr Akcan, as near as possible, in the same position he would have been if there had been no default. It appears that he would always have been required to pay that fee upon discharge of the loan, whether or not he was in default.
16. Despite declining to make Orders 3 and 4, I note that since I reserved this decision two days ago it has come to my attention that the default loan statement provided to Mr Akcan on 18 June 2020 (prior to the purported termination of 25 August 2020), did not claim a discharge fee in the amount of 1.1% of the principal (or $22,275), as is now claimed. Rather, that loan statement claimed a "Loan Security Release Fee" of $12,000. The "Loan Security Release Fee" was not referred to or otherwise defined in the loan agreement before the Court and it is not apparent how that figure was arrived at or under what covenant it might be payable.
17. Consistent with the findings I have already made, the approach taken by the lender to matters pertaining to this loan agreement have been inconsistent from the outset and appear to be based on the whim of the lender at any given time. It was never explained why no discharge fee was initially claimed and now is, nor what a "Loan Security Release Fee" is and why it was initially charged instead of a discharge fee. Despite this further example of troubling behaviour on the part of the lender, I am not satisfied that I have jurisdiction to consider this matter raised for the first time after my judgment.

Plaintiff's proposed Order 1

1. The plaintiff sought the following declaration arising from my findings. It was said to be necessary in order for it to comply with Order 3 of the primary judgment: "Declare that the loan agreement entered into on or about 1 November 2019 to which the plaintiff and the defendants were parties is varied such that: (a) As and from February 2020, interest fell due on the 11th day of each month rather than the 8th day; (b) As and from 11 April 2020, all interest rates under that loan agreemement [sic] are reduced to 2.29% per annum; and (c) The loan the subject of the loan agreement is repayable on 11 November 2021."
2. There was no opposition to this order being made and I propose to make it.

Proposed Order 5 (unpaid interest and discharge fee)

1. The defendant sought the following amendment to Order 3 of the primary judgment (changes underlined): "The plaintiff is to issue a loan statement to Diamond House free of any default notation within seven days of the date of this judgment the making of these orders to enable refinancing of the loan such loan statement not to include: (a) any claim for unpaid interest in respect of the period of the loan prior to 11 February 2020; (b) any claim for a termination fee or discharge fee."
2. The plaintiff proposed the following amendment to that order: "Order that the plaintiff issue a document to the defendants within 7 days, which document: (a) Incorporates the letterhead of the plaintiff; (b) Contains a statement of the amount due to the plaintiff under the loan agreement, as varied as per order 1 above, as at the date of issue of the statement; (c) States that on discharge of the loan a further sum of $22,275 will be payable as a discharge fee; and (d) Expressly states that the loan is not curently [sic] in default."
3. The defendant's amendment was initially opposed by the plaintiff. The plaintiff had previously asserted, contrary to the evidence in the proceedings, that it had not withheld the whole amount of the three months' interest deducted in advance.
4. During the hearing on 11 August 2021, and after some not inconsiderable Court time was spent on this factual issue, the plaintiff withdrew its objection and agreed to the defendant's proposed Order 5(a).
5. As for proposed order 5(b), the issue of the termination fee is dealt with above, in relation to the purported termination for repudiation or breach.
6. I propose to make the order proposed by the plaintiff as well as there was no opposition to that course (save for the specific reference to the discharge fee).

Proposed Order 6 (loan statement)

1. The defendant sought the following amendment to Order 4 of the primary judgment (changes underlined): "The loan statement issued by the plaintiff in accordance with Order 3 above is to be calculated by applying an interest rate of 2.29% from 8 April 2020 until the date of settlement and offsetting that as against the payments already made and charges of interest on the said statement are to be shown as arising on the 11th day of the month as and from 11 February 2020, and such offsets not to include any claim for unpaid interest for the period prior to 11 February 2020."
2. The plaintiff withdrew its opposition to this variation at the hearing on 11 August 2021.

Proposed Order 7 (provision of payout figure)

1. The defendant proposed the following order: "Order that upon notification to the solicitors for the plaintiff that refinance approval has been obtained by the defendant/second cross-claimant, the cross-defendants to provide the defendant/second cross-claimant with a pay out figure forthwith, such pay out figure not to include any termination or discharge fee."
2. The issue of the termination and discharge fees are dealt with above at [49]-[51]. The balance of the proposed order was agreed to by the plaintiff during the hearing on 11 August 2021.

Proposed Order 8 (cooperate on settlement)

1. The defendant proposed the following order: "Order that upon notification to the solicitors for the plaintiff that the party providing refinance is in a position to settle, the cross-defendants do all things and execute all documents necessary to enable discharge of the mortgage in favour of the defendant forthwith and attend to settlement of the said discharge expeditiously."
2. The plaintiff ultimately consented to this proposed order during the hearing on 11 August 2021.

Proposed Order 9 (caveat)

1. The defendant proposed the following order: "The plaintiff to do all things and execute and lodge all documents necessary to withdraw the caveat secured on the property at 30A Bayview Road, Canada Bay 2046, being Caveat AQ47565 (as shown at p 221 of Court Book 2) forthwith."
2. It is unnecessary to explain the background to this proposed order as during the hearing on 11 August 2021 counsel for the plaintiff consented to this order and also that it include caveat AQ29722 (also placed over the same property by the plaintiff).

Proposed Order 10 (credit agencies)

1. The defendant proposed the following order: "The plaintiff/cross-defendants to notify all and any credit agencies notified of the alleged default by the defendant/second cross-claimant on the loan from LNCP002 Pty Ltd to Diamond House Jewellery Pty Ltd that the said is not and has never been in default forthwith."
2. Mr Young stated that the plaintiff did not oppose notifying relevant credit agencies that the loan had never been in default but said that no agencies had been notified in the first place. In those circumstances this order was not pressed by the defendant.

Proposed Orders 11 (evidence on damages), 13(b) and 15 (security for costs for damages)

1. The eleventh proposed order provided as follows: "Grant leave to the cross-claimants to file and serve evidence of the damages suffered by them in respect of the matters pleaded in paragraph 35 of the Cross-claim, in particular sub-paragraphs 35(a) and 35(b) of the said Cross-claim after refinance and settlement of the discharge of the mortgage in favour of the plaintiff."
2. The relevant sub-paragraphs of the cross-claim related to damages for the loss of the opportunity to refinance at an interest rate of 2.29% in March or April 2020. Given that the rate of 2.29% was applied to the loan from 8 April 2020 pursuant to the Court's orders of 16 July 2021, those damages could only be prospective, from the time Mr Akcan obtained re-finance, potentially at a higher rate (or lower, or equal rate).
3. Counsel for Mr Akcan acknowledged that he did not presently have any evidence as to the rate of interest that Mr Akcan would obtain, although he submitted that it could well be higher.
4. It was conceded that this order would not be necessary, provided that leave was granted to later commence proceedings in respect of damages, with no issue of res judicata.
5. I do not propose to make the order set out above at [72]. It is too speculative. In the unlikely event that interest rates have gone up over the last year and Mr Akcan can no longer get the same rate that he would have been able to secure in lockdown last year it would be open to the defendant to bring proceedings at that time. Accordingly, I am prepared to make a declaration that no issue of res judicata arises on that discrete issue.
6. Proposed orders 13(b) and 15 were not pressed on the basis that a claim for damages could be brought at a later time.

Proposed Order 12 (indemnity costs)

1. The defendant proposed the following order: "12. Order that the plaintiff/cross-defendants pay the defendant's/cross-claimants' costs of the proceedings on the indemnity basis: (a) from 16 April 2020 (on the basis of the letter from Atila Lawyers to Summer Lawyers of that date (which letter is at page 198 of Court Book 2); or in the alternative; (b) from 1 December 2020 and on the ordinary basis for the period from 16 April 2020 to 30 November 2020 (on the basis of the offer of compromise made by the defendant/cross-claimants to the plaintiff/cross-defendants on 1 December 2020); or, in the alternative; (c) from 29 April 2021 and on the ordinary basis from 16 April 2020 to 28 April 2021 on the basis of the offer of compromise made by the defendant/cross-claimants to the plaintiff/cross-defendants on 29 April 2021)."
2. As above, the plaintiff opposed an order for indemnity costs on the basis that there was no misconduct on the part of the plaintiff in commencing and maintaining the proceedings. The plaintiff did not specifically address the offers of compromise made by the defendant.
3. The defendant seeks an order for indemnity costs on two alternate bases: first, that the plaintiff ought to have known that the claim had no real prospects of success; and secondly on the basis of its offers of compromise.

Consideration: Indemnity costs

1. Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the Court and s 98(1)(b) provides that the Court has "full power to determine by whom, to whom and to what extent costs are to be paid". This discretion is subject to the qualification that it "must be exercised judicially in accordance with established principle and factors directly connected with the litigation": Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65] per McHugh J.
2. Among the fetters on the discretion to award costs are the rules contained in Part 42 of the UCPR. The usual rule is that costs follow the event, unless it appears to the Court that some other order should be made: UCPR r 42.1. On that basis I made an order that the plaintiff pay the defendant's costs (primary judgment at [242(5)]).
3. UCPR r 42.5 relevantly provides that if the Court determines that costs are to be paid on an indemnity basis then "all" costs are to be allowed. Rule 42.15A of the UCPR further provides as follows: 42.15A Where offer not accepted and judgment no less favourable to defendant … (1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer. (2) Unless the court orders otherwise - (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis - (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made…
4. An order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v State of New South Wales [2002] FCA 424; (2002) 188 ALR 659 at [20].
5. Additionally, indemnity costs can be ordered where a party has maintained proceedings that they should have known had no real prospects of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 364; (1988) 81 ALR 397 at 401.
6. The relevant principles were discussed in Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 where Basten JA (Young CJ in Eq agreeing) observed the following: "[106] … the question of indemnity costs will usually arise in circumstances where it is the losing party which has behaved inappropriately. [Degmam Pty Ltd (In liq) v Wright (No 2) [1983] 2 NSWLR 354] itself was a case in which the unsuccessful defendant made factual allegations which were 'false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability … from herself': at 358. … [107] These principles were applied in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; 81 ALR 397 at 400-401, by Woodward J. His Honour referred to the case where an action had been commenced or continued in circumstances where 'the applicant, properly advised, should have known that he had no chance of success': at 401. His Honour explained: 'In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.' [108] In later cases it has been emphasised that the circumstances identified in Degmam and Fountain are not to be treated as exhaustive of the cases in which indemnity costs may be awarded: see, eg, J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) [1993] FCA 42 ; 46 IR 301 at 303 (French J). It was sufficient, his Honour said, to enliven the discretion to award such costs that 'for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case'. An indemnity costs order will be warranted where proceedings were maintained by a party having 'no reasonable prospect of success': see, eg, Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 (Powell J); Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 at 273 (Mahoney JA). [109] The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257(S) (Pullin and Buss JJA, and Newnes AJA) held that an indemnity costs order must be justified by 'some special or unusual feature of the particular case': at [5]. Nevertheless, in declining to make such an order, the Court merely held that the respondent could not be accused of 'having some ulterior motive, or wilfully disregarding the facts or the law': at [7]. [110] In Colgate-Palmolive, Sheppard J sought to elucidate the principles to be derived from the earlier cases: at pp 232-233. [111] Nevertheless, more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen to be an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: see, eg, Legal Profession Act 2004 (NSW), Part 3.2, Div 10. Such a policy is also reflected in the presumption in favour of an order of indemnity costs where an offer of compromise in accordance with court rules has been made by one party but not accepted by the other and where the offeror has bettered the offer in the litigation. Although the court may otherwise order, the fact that the offeree may be at substantial risk as to an adverse costs order, to be assessed on an indemnity basis, if the offer is bettered, places a significant financial incentive favouring careful consideration of such offers and careful assessment of the benefits of settlement. [112] As appears from the discussion in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Beazley JA, Mason P agreeing) at [48]ff, the test of unreasonableness, applied with respect to the consequences of refusing a Calderbank offer are likely to operate also with respect to other aspects of a party's conduct of litigation: see also Gretton at [117] (Hodgson JA), referring to Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 (Mason P, Clarke AJA agreeing). [113] While the general rule remains that costs should be assessed on a party and party basis, it is important that the standard to be applied in awarding indemnity costs not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part. …"
7. It is to be accepted, as Mr Young submitted, that I was required to consider a number of equitable and statutory defences in this matter that carried a level of curial discretion. Despite this, it must have been obvious to the plaintiff that the contemporaneous documents did not support its case. Nor did the plaintiff even call Mr David Fitzgibbon, who was found to have made the decision to issue the default notice: see primary judgment at [180]. The recent ASIC searches provided by the defendant show that Mr Fitzgibbon was a director of the plaintiff company at the relevant time and Mr Fleischner (who was called as a witness) was not. No reason was ever provided for his absence.
8. Furthermore, the defendant made two offers of compromise, on 1 December 2020 and 29 April 2021 respectively. Both offers were for $2m in full and final satisfaction of the plaintiff's claim, with each party to bear their own costs of the proceedings. Based on the updated loan statement provided by the parties on 11 August 2021, the amount to be paid out under the loan agreement will be less than $2m (and the amount owing has, since 13 July 2020, been less than $2m).
9. Although the orders made are in different terms to the offer of settlement, on my assessment offers were made by the defendant as early as 1 December 2020 on a basis more favourable to the plaintiff than the orders obtained in the primary judgment.
10. I accept the plaintiff's submission that a mere finding that a party has acted unconscionably does not of itself provide a basis for a costs order to be made on an indemnity basis but the defendant does not rely upon that fact alone: it relies upon the findings I made and the letters of compromise. Having regard to all of those matters I am satisfied in the exercise of my discretion that the plaintiff/cross-defendants should pay the defendant's/cross-claimants' costs from 1 December 2020 until the end of the hearing on an indemnity basis and on the ordinary basis for the period from 16 April 2020 to 30 November 2020.

Proposed Orders 13(a) and 14 (freezing orders)

1. The defendant proposed the following orders: "13. Order that upon settlement of the discharge of the mortgage in favour of the plaintiff over the defendant's property at 30 Bayview Road, Canada Bay 2046, the plaintiff/cross-defendants, by their solicitor, retain from the moneys paid in discharge of the said mortgage the following sums: (a) A sum sufficient to secure the defendant's/cross-claimants' costs as ordered to be paid in accordance with Order 12 above (such retained sum to be determined having regard to Order 14 below). … 14. Grant leave to the defendant/cross-claimants to file and serve evidence of the estimated quantum of the costs payable under Order 12 above for the purposes of determining the sum to be retained in respect of costs in accordance with Order 13(a) above."
2. The necessity for these orders arises from the fact that it is common ground that the plaintiff company LNCP002 was set up solely for the purpose of this loan and thus has no other assets. Although Mr Young did not consent to proposed orders, he did not argue against them.
3. I have considered the best way to achieve protection for the defendant given the status of the plaintiff company. I am satisfied that it is necessary to make an order that the plaintiff/cross defendants retain the amount of costs claimed by the defendant out of the moneys paid out from the loan agreement.

Final Proposed Orders

1. The defendant also sought liberty to apply to have the matter re-listed on seven days' notice and that the proceedings be stood over for further mention. The defendant, on the other hand, sought an order in these terms: "The Court notes that these proceedings are now at an end."
2. I have already afforded the defendant a significant degree of leeway in considering the further matters raised. I do not propose to give the parties liberty to apply to have the matter re-listed any further.

Costs

1. Finally, as for costs of the hearing before me on 11 August 2021, both parties have been successful in part. Regrettably, a great deal of Court time was required to adjudicate on matters that the parties should have been able to agree on. Although, on the one hand, the defendant sought a number of orders that did not arise from the matters I determined, on the other hand, the plaintiff did not comply with the spirit of the orders I made, including as to the contents of the loan statement.
2. Accordingly, I order that each party pay its own costs of the hearing before me on 11 August 2021.

ORDERS

1. Accordingly, in addition to the orders made on 16 July 2021, I make the following orders: 1. Order 6 of 16 July 2021 is varied to remove the words "by consent". 2. Declare that the loan agreement entered into on or about 1 November 2019 to which the plaintiff and the defendants were parties is varied such that: 1. As and from February 2020, interest fell due on the 11th day of each month rather than the 8th day; 2. As and from 11 April 2020, all interest rates under that loan agreement are reduced to 2.29% per annum; and 3. The loan the subject of the loan agreement is repayable on 11 November 2021. 1. In lieu of Order 3 made on 16 July 2021, order that the plaintiff issue a document to the defendants within 7 days of the making these orders, which: 1. Incorporates the letterhead of the plaintiff; 2. Contains a statement of the amount due to the plaintiff under the loan agreement, as varied as per Order 8 above, as at the date of issue of the statement; and 3. Expressly states that the loan is not currently in default. 1. Order that upon notification to the solicitors for the plaintiff that refinance approval has been obtained by the defendant/second cross-claimant, the cross-defendants to provide the defendant/second cross-claimant with a payout figure forthwith. 2. Order that upon notification to the solicitors for the plaintiff that the party providing refinance is in a position to settle, the cross-defendants do all things and execute all documents necessary to enable discharge of the mortgage forthwith and attend to settlement of the said discharge expeditiously. 3. Order that the plaintiff do all things and execute and lodge all documents necessary to withdraw the caveats secured on the property at 30A Bayview Road, Canada Bay 2046, being Caveats AQ29722 and AQ47565 forthwith. 4. Order that the plaintiff/cross-defendants pay the defendant's/cross-claimants' costs of the proceedings on an indemnity basis from 1 December 2020 and on the ordinary basis for the period from 16 April 2020 to 30 November 2020. 5. Order that upon settlement of the discharge of the mortgage in favour of the plaintiff over the defendant's property at 30 Bayview Road, Canada Bay 2046, the plaintiff/cross-defendants, by their solicitor, retain from the moneys paid in discharge of the said mortgage a sum sufficient to secure the defendant's/cross-claimants' costs as ordered to be paid in accordance with Order 7 above (such retained sum to be determined having regard to Order 9 below). 6. Grant leave to the defendant/cross-claimants to file and serve evidence of the estimated quantum of the costs payable under Order 7 above for the purposes of determining the sum to be retained in respect of costs in accordance with Order 8 above. 7. Declare that no issue of res judicata arises should the defendant seek to commence proceedings in the future for damages should he not be able to secure an interest rate of 2.29% or better upon refinance of the mortgage over the property at 30 Bayview Road, Canada Bay 2046. 8. The parties are each to pay their own costs of the hearing on 11 August 2021. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 August 2021