On 3 June 2022, I delivered my reasons in these proceedings, which arose out of a Sub-Lease of premises at King Street Wharf, Sydney: Markham Real Estate Partners (KSW) Pty Limited v Misan [2022] NSWSC 733 (Judgment). These reasons assume familiarity with Judgment.
I found that the plaintiff, Markham Real Estate Partners (KSW) Pty Limited (Markham), had succeeded with its claim against the defendant, Paul Misan, under the guarantee and indemnity provisions of the Sub-Lease and was entitled to judgment for amounts representing rent arrears and interest on those arrears, loss of bargain damages, re-letting and make good costs and legal costs on an indemnity basis: Judgment at [228]. I deferred making orders to enable the parties to confer and seek to agree on final orders and to approach my Associate in the event no agreement was reached: Judgment at [231].
The Court has received written submissions from Markham and an affidavit of Trevor Zhuang affirmed 10 June 2022 on which Markham relies and an email from Mr Misan sent on 10 June 2022 in relation to the final orders to be made.
The parties are agreed that judgment should be entered for Markham in the amount of $4,102,570.33, and I am satisfied that such an order should be made. That sum reflects the findings of the Court on rent arrears of $532,313.59 (at [197]), loss of bargain damages of $3,057,010.42 (at [213]), incentive payment to GDR of $13,653.23 (at [214]), re-letting costs of $117,540.11 (at [215] and [218]), make good costs of $164,050.00 (at [220]), as well as interest on rent arrears in the amount of $218,002.98 which has been calculated at the rate of 11.31% from 17 May 2019 until 3 June 2022 (at [201] and Mr Zhuang's 10 June affidavit at [3], [4] and Annexure A).
The issue raised by the submissions concerns Markham's claim for an order that Mr Misan pay Markham's legal costs in the amount of $178,786.66 (exclusive of GST).
Markham seeks that order relying on the Court's finding that there was no reason why Markham should not be entitled to recover its legal costs pursuant to the Sub-Lease's guarantee and indemnity, and that no issue was taken by Mr Misan with Markham's legal costs calculation (which at that time had been quantified as $100,085.08 (excluding GST) by reference to invoices dated up to and including 27 July 2021): Judgment at [226] and [227]. Markham also relies on Mr Zhuang's 10 June affidavit, in which he deposes that Markham has incurred legal costs in relation to these proceedings from 28 July 2021 to 9 June 2022 in the amount of $78,701.58 and annexes the front pages of five tax invoices that make up that amount.
In his email dated 10 June 2022, Mr Misan states, in relation to the order sought by Markham, that:
"I had understood Her Honours [sic] orders were in relation to the calculation of interest only, and 2, that [Her] Honour had awarded indemnity costs but had not made an order for lump sum costs which was not made or ordered.
An order for indemnity costs would reserve my rights to have the costs assessed."
As noted above, no orders have been made in this case. I deferred making them to "enable the parties to confer about final orders and interest calculations, having regard to these reasons": Judgment at [231]. The parties were requested to confer and provide agreed final orders that included interest calculations, which the reasons noted needed to be updated in respect of Markham's claim for interest on rental arrears: Judgment at [201] and [231]. Those observations did not limit the final orders to interest calculations only, as Mr Misan's email suggests, but required the parties to confer on a form of orders that would deal with all of the Court's findings.
Mr Misan is correct when he says that the Court has not made a lump sum costs order in this case (which I take as a reference to a gross sum order under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) (CPA)) and that the Court referred to making an order that Mr Misan pay Markham's costs of the proceedings on an indemnity basis: Judgment at [230]. However, that finding needs to be read in the light of the Court's findings at [223] - [227], which related to Markham's claim for legal costs up to 27 July 2021, which was the subject of evidence and had been quantified in the amount of $100,085.08 (excluding GST).
Markham's claim for legal costs and the Court's findings at [223] - [227] were not solely based on the Court's discretionary power under the CPA and the Uniform Civil Procedure Rules 2005 (NSW) to award costs against an unsuccessful party in proceedings on an indemnity basis in a manner consistent with the terms of the guarantee and indemnity under the Sub-Lease, as Mr Misan's submission seems to contend.
A party may seek indemnity against a third party with respect to legal costs incurred in relation to advice and in legal proceedings relying upon an order for costs made in court proceedings or a contractual right of indemnity, such as that found under the Sub-Lease. The terms of the Court's orders and the contract will determine the scope of the entitlement and the framework within which disputation about quantum will be resolved: Ristic v Greater Building Society [2002] NSWCA 266 at [39] - [40].
A court is not bound to give effect to the terms of a contract when exercising its discretion to award costs. The Courts discretion to award costs does not take over from or preclude enforcement of a contract in respect of a claim for legal costs. A contractual right of indemnity for all costs incurred stands independently of the Court's power to make costs orders: Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45 at [9] and [12].
In this case, Markham pleaded that it had incurred legal fees and expenses in connection with the guarantee and indemnity and by reason of the repudiation of the Sub-Lease and that Mr Misan was liable to pay Markham's legal fees and expenses in connection with and pursuant to the guarantee and indemnity: SOC at [33], [34] and [35]. Markham claimed an order that Mr Misan pay Markham costs, charges and expenses, including but not limited to legal costs and, in the alternative, claimed an order for costs: SOC at [36(d)] and [36(e)]. Thus, Markham's primary claim sought to enforce its contractual right to payment of its legal costs on an indemnity basis under the guarantee and indemnity provisions in the Sub-Lease, rather than relying on the curial right to make an order for costs of the proceedings based on the exercise of the Court's discretion.
The terms of the guarantee under the Sub-Lease relevantly provides that Mr Misan was contractually obliged to pay on demand Markham's costs, charges and expenses, including legal costs on a full indemnity basis, in connection with the guarantee and indemnity under the Sub-Lease but not limited to its enforcement (Judgment at [24], Sub-Lease, cl 17.10(a)). The indemnity relevantly provides that Mr Misan is also liable to pay on demand any sum equal to all costs, charges and expenses directly or indirectly arising from or incurred in connection with Wayl not paying the Guaranteed Money on time; Wayl not complying on time with its obligations under the lease or in connection with its occupation of the Premises; or Markham not being able to recover all of the Guaranteed Money from Wayl or enforce all of Wayl's obligations under the Sub-Lease or in connection with Wayl's occupation of the Premises for any reason (Judgment at [21(c)]), Sub-Lease, cl 17.5(a)-(c)).
There was no dispute at the hearing, and I was satisfied that, the legal costs incurred by Markham up to and including 27 July 2021, which were described by Mr Zhuang as legal fees incurred as "a consequence of Wayl's breach of the [Sub-]Lease" (Zhuang 3 at [27]) and described in the attached invoices as "professional costs relating to the "Markham Real Estate Partners (KSW) Pty Ltd and Wayl Pty Ltd (in administration) t/as Kobe Jones - leasing dispute and administration advice", were legal costs, charges or expenses that engaged the terms of the guarantee or indemnity, having arisen in connection with Wayl's failure to comply with its obligations under the Sub-Lease and enforcement of the guarantee and indemnity against Mr Misan. Those costs were not limited to the costs of these legal proceedings, noting that the evidence demonstrated that they included costs incurred in relation to the "administration advice".
Mr Misan did not take any issue in relation to the calculation of the costs the subject of Markham's evidence at the hearing, which was that Markham had incurred legal costs in the amount of $100,085.08 (excluding GST) up to and including 27 July 2021. No submission was advanced at the hearing that those costs were unreasonable or that they should be ordered on the basis that they would be subject to an assessment process.
It follows, in my view, that consistently with the claim advanced at the hearing and the findings in the reasons, Markham established an existing contractual entitlement to indemnity for the legal costs it had incurred up to and including 27 July 2021 and an order should be made in its favour for Mr Misan to indemnify it for that amount.
Although Markham's claim for legal costs incurred in relation to the proceedings since 28 July 2021, which amounts to $78,701.58 (excluding GST), is seemingly premised on the same contractual rights under the Sub-Lease, I am not persuaded by Markham's submissions that this amount should be the subject of a fixed sum order. In my view, the proper order in relation to those costs, which relate solely to these proceedings, is to order that Mr Misan pay them on an indemnity basis, consistent with the proposal at [230].
Mr Misan did not have an opportunity at the hearing to challenge whether those costs were unreasonably incurred or not and leave was not granted to Markham to re-open to adduce further evidence on the issue of costs for the purposes of final orders. It also seems to me that Markham's right to enforce its contractual right to indemnity for some (if not all) of the costs claimed since 28 July 2021 had not yet crystallised before the hearing was completed given that at least some of the costs claimed had not yet been incurred. In addition, no application has been made by Markham under s 98(4)(c) of the CPA for a specified gross sum order for those costs, and Mr Misan had indicated he wishes to reserve his rights to have costs in relation to the proceedings assessed.
For these reasons, I make the following orders:
1. Judgment for the plaintiff in the amount of $4,102,570.33.
2. Pursuant to the guarantee and indemnity provisions of the Sub-Lease, the defendant to indemnify the plaintiff by paying its legal costs incurred up to and including 27 July 2021 in the amount of $100,085.08 (excluding GST).
3. The defendant to pay the plaintiff's costs of these proceedings from 28 July 2021 on an indemnity basis.
[2]
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: 20 June 2022