Misan v Markham Real Estate Partners - [2022] NSWCA 155 - NSWCA 2022 case summary — Zoe

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Misan v Markham Real Estate Partners

[2022] NSWCA 155

Court of Appeal (NSW)|2022-08-11|Before: Leeming JA, Henry J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2022-08-11

Before

Leeming JA, Henry J

Catchwords

[2008] NSWCA 83 Misan v Markham Real Estate Partners (KSW) Pty Ltd [2022] NSWCA 154 Rinehart v Welker (2012) 83 NSWLR 347

Source

Original judgment source is linked above.

Catchwords

[2008] NSWCA 83 Misan v Markham Real Estate Partners (KSW) Pty Ltd [2022] NSWCA 154 Rinehart v Welker (2012) 83 NSWLR 347

Judgment (5 paragraphs)

[1]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[2]

Judgment

LEEMING JA: On 11 August 2021, I determined most aspects of two motions filed by the appellant, Mr Paul Gerald Henry Misan, against the respondent, Markham Real Estate Partners (KSW) Pty Ltd. I granted a stay of execution of the judgment at first instance pending the determination of Mr Misan's appeal, which is listed on 4 November 2022 on the basis of an undertaking that he would not dissipate or encumber certain assets, I set aside a writ for the levy of property which had been filed, I resolved disputes concerning the entirety of a subpoena to Mr Misan's spouse, and one paragraph of a notice to produce, and ordered Markham to pay Mr Misan's costs of the motions. I gave reasons at the conclusion of the hearing for most of the dispute: Misan v Markham Real Estate Partners (KSW) Pty Ltd [2022] NSWCA 154.

[3]

The subpoena and notice to produce

The background is contained in the reasons delivered on 11 August. Briefly, the judgment from which Mr Misan appeals was delivered in June 2022. Orders were made on 17 June, and the notice of appeal was filed on 24 June 2022. The appeal is listed for hearing on 4 November 2022, with an estimate of a day.
Paragraph 15 of the notice to produce sought production of: "Any estimates or projections for Paul Gerald Henry Misan's legal costs for this proceeding, being proceeding 2022/187883."
Production was sought in aid of Markham's opposition to a stay of execution of the judgment pending appeal. The paragraph was evidently directed at a document produced in compliance with s 174(1)(a) of the Legal Profession Uniform Law 2014 (NSW) which requires the law practice to provide as soon as practicable after instructions are initially given in a matter an estimate of the total legal costs. If such a document exists, it would indicate that Mr Misan would incur costs of some thousands of dollars to prosecute his appeal. It might also indicate whether the law firm or his counsel were prepared to be retained on a contingent basis.
Mr Misan submitted that the document was privileged. Markham denied that it was, in accordance with Cook v Pasminco Pty Ltd (No 2) (2000) 107 FCR 44 and CSR Ltd v Eddy (2008) 70 NSWLR 725; [2008] NSWCA 83.
Mr Misan also submitted that the paragraph was an abuse of process. In response, Markham submitted that such a document might disclose that Mr Misan had ability to access some thousands of dollars. There was said to have been a legitimate forensic purpose in seeking such a document, because Mr Misan had sworn that: "I do not have the financial capacity or resources to pay the Judgment or any contribution towards it, either from my own resources or with assistance from any lender, friend or family."
Mr Misan had also sworn that: "To enable me to fund the legal fees and disbursements to pursue these appeal proceedings, I have borrowed money from [my spouse] and have also approached a friend (although the friend has not yet agreed to loan me money to pursue the appeal)."
Counsel for Markham relied upon what was said by Hodgson JA, sitting hearing a contested stay pending the hearing of an application for special leave to appeal, in Adeels Palace Pty Ltd v Moubarak; Adeels Palace Pty Ltd v Najem (No 2) [2009] NSWCA 130. There the defendant had lost at trial and in this Court. His Honour applied the test formulated in Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685. That is not the test which would be applied today, as was explained in Rinehart v Welker (2012) 83 NSWLR 347; [2012] NSWCA 1. But that does not detract from the authority of what Hodgson JA said as to the risk of a diminished ability to pay in Alexander which continues to apply where a stay of execution is sought pending an appeal to this Court. Hodgson JA said at [7]: "In my opinion the onus referred to in Alexander does mean that, unless the circumstances make it reasonably clear that delay will not involve a risk of diminished ability to pay, there is an onus on an applicant to show that there is no such risk of this kind as to justify refusing a stay or imposing conditions to minimise the risk. If the applicant for a stay is a Government instrumentality, or if the case is a motor accident case or a case between an employer and an employee, where the court can assume there is a satisfactory statutory insurance policy in place, then there will probably not need to be any evidence about this. However in other cases, in my opinion, it may be necessary for an applicant to bring evidence excluding this risk, or showing that it is small; and I do not see any reason why that is not so in this case." (bold and underlining added).
In reliance upon that passage, especially the words I have emphasised in bold, counsel made this submission: "In paragraph 7, the assessment is whether there is a risk of a diminished ability to pay and it doesn't matter how small that risk is, but if there is a risk to my client that there is a diminished risk to it pending the outcome of the appeal then what the Court said there, and it's been followed in other decisions which are referred to in the submissions, then the onus is on the appellant to show there is no diminished risk to my client of being paid. Here we have an undertaking not dispose of the property at all, but not to encumber or sell the property except to the extent necessary to make the legal costs and the first question is, well, what are those costs going to be? What is the estimate to inform the risk? That's why we say it's relevant."
I set aside the paragraph, and indicated the following: "I will give full reasons at a later time. The essence, however, which I have indicated I will give to the parties now is that: a) I do not accept Mr Misan's secondary submission that the document is privileged, but b) I do accept his primary submission that the document is not shown to be materially relevant to the only issue before me which is as to be granting of a stay of execution of the judgment and, if so, on what terms. The reason for that, in essence, is that the actual or likely costs in the projection for this appeal must be dwarfed by the size of the judgment which is sought to be set aside. The likely ratio is in the order of a 100:1. The judgment, including the indemnity costs, would have been in the order of magnitude of $5 million. I accept that the costs bear upon the likely ultimate recovery by the respondent to the appeal if the appeal is dismissed, and I accept that the alteration in terms of dollars may be a sum of tens of thousands of dollars, but I do not accept that there will be a material difference sufficient to inform the exercise of discretion in granting a stay; and, contrary to what has been said in Adeels Palace Pty Ltd v Moubarak [2009] NSWCA 130 at [7]. I do not accept that it is sufficient for a respondent to point to any risk, in Mr Hyde's words, 'no matter how small it is', in order to justify production."
When giving those brief reasons, I was conscious that it might seem that I was departing from the reasons given by Hodgson JA, which I would not lightly do. I explain below why the passage from Adeels Palace on which Markham relied does not in fact support paragraph 15 of the notice to produce.
A subpoena or notice to produce will have a legitimate forensic purpose if the documents sought to be produced have an apparent relevance to the issues: Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [80], [88]-[89]. In the present case, the only issue was whether a stay of execution should be granted and, if so, on what terms. Relevant to the exercise of that discretion was the assets owned by Mr Misan upon which a judgment creditor could levy execution. Also relevant were the liabilities owed by Mr Misan, including liabilities which Mr Misan would incur in the short term while the stay of execution was in place.
However, contrary to Markham's submission, that does not make any document which is likely to shed light upon the assets of which Mr Misan can avail himself amenable to compulsive production under subpoena. Markham's submission overlooks a threshold issue of materiality.
Mr Misan might, for all I know, have a subscription to a newspaper and a streaming service, and be paying $20 or $50 per month which will be money he does not have to meet Markham's judgment if the appeal is dismissed. That does not make the documents disclosing the terms on which he has contracted with the newspaper publisher or the streaming service apparently relevant. They are self-evidently de minimis.
Mr Misan's liability to pay the legal costs of his appeal is, in the circumstances of this case, no different.
Mr Misan gave evidence that there was a deficiency of some $4.5 million between his assets and liabilities, allowing for a judgment debt of $4,205,655 and ignoring the unquantified liability to pay Markham's costs at first instance. In fact the deficiency is greater than $4.5 million. There was no suggestion, nor could there be, that Markham would, if the appeal were dismissed or dismissed in large measure, recover anything like the whole of its judgment debt.
How much it will cost to run a one day appeal cannot be known in advance. In part it will depend upon choices such as the briefing of counsel. But whether it be $30,000 or $60,000 or $90,000, the cost will be utterly insignificant in comparison with the judgment debt. Markham's judgment debt could easily be 100-fold greater than Mr Misan's costs of running the appeal, and it would be very surprising if it were not at least 50-fold greater than his costs of running the appeal.
Another way of putting this is that the consequence of Mr Misan running this appeal, if he fails, is that he may have some tens of thousands dollars less assets to his name. But this will leave unaffected the fact that Markham will not be able to recover millions of dollars of the judgment debt which it has obtained.
This having been exposed during the hearing, Markham's submission relied upon the opening sentence of paragraph [7] of Adeels Palace, with a heavy emphasis on the words "no such risk" of a diminished ability to pay. Markham's point was that the fee estimate was relevant to quantifying the extent of Mr Misan's diminished ability to pay the judgment which was sought to be stayed.
Without any documents, it is plain that there is a 100% certainty that Mr Misan is unable to pay the judgment debt. That certainty will remain in place after the appeal, unless the appeal is very substantially successful.
Without any documents, it is plain that Mr Misan will only be able to pay a tiny minority of the judgment debt. That percentage will be reduced after appeal, assuming the appeal is dismissed, unless Mr Misan is able to avoid paying the costs and disbursements incurred in prosecuting the appeal. It is impossible to quantify the percentage because Mr Misan's realisable assets are not fully quantified, and Markham is but one of a number of unsecured creditors, and the actual costs of the appeal are not known. But even if estimates were given of those matters, the magnitude of the judgment debt, which is 50-fold or 100-fold greater than the costs of a one day appeal, means that the diminution in the cents in the dollar which Mr Markham may be able to obtain will be de minimis. To use the example proffered during submissions, the effect of running the appeal may be to diminish Markham's recovery in Mr Misan's bankrupt estate from 10c in the dollar to 9c in the dollar. "HYDE: That is where the assessment comes and $50,000 may represent extra cents in the dollar, well, that isn't true for my client if we're paid HIS HONOUR: Why is it material? That's what I really want to know. HYDE: If we're paid 10 cents in the dollar HIS HONOUR: Yes. HYDE: as opposed to 9 cents. HIS HONOUR: Why is it material? HYDE: It's material in terms of our recovery if the total is different."
A $5,000,000 judgment creditor whose claim swamps all other claims in a bankrupt estate who receives $500,000 from a trustee in bankruptcy will nonetheless be $50,000 better off than a judgment creditor who receives $450,000 from the trustee. But nothing turns on this. Whether the return to a judgment creditor is 10c in the dollar, or 9c in the dollar, the diminution in the judgment creditor's return is irrelevant to the only matters in issue, namely, whether to grant a stay and if so on what terms.
The position may be different in other appeals, where the judgment debt is not orders of magnitude greater than the costs of running an appeal, or where the appellant has less assets than Mr Misan. The most significant thing here is that the judgment Mr Misan challenges is many times greater than the cost of running the appeal.
None of the foregoing is inconsistent with Hodgson JA's reasons, if they are read as a whole and in their context, as they must be, as Lord Porter emphasised in the Bank Nationalisation case (1949) 79 CLR 497 at 637-638. The concluding sentence in paragraph [7], which is underlined in the passage reproduced above, refers not merely to "excluding this risk" but also to "showing that it is small". It is plain when the paragraph is read as a whole that his Honour did not have in mind any risk of a diminished ability to pay a judgment creditor, but only a materially diminished risk.
Accordingly, I concluded that there was no legitimate forensic purpose in paragraph 15 of the notice to produce.
Turning to the subpoena, during the hearing, and after hearing in full from Markham, I said the following: "in the same way as I did for paragraph of the notice to produce give you a précis of reasons [in] anticipation of what's to come. I'm going to order now that paras 1 to 6 inclusive, 8, 9, and 11 of the subpoena which is exhibit A be set aside. The essential reason is that those paragraphs seeks documents bearing upon Mr O'Connor's financial history over the last three and a half years and I'm unpersuaded that there is a legitimate forensic purpose for those."
Each of the paragraphs I set aside sought documents which could bear upon Mr O'Connor's financial circumstances since 2019. Markham has no claim upon Mr O'Connor. The paragraphs were apt to require production of a swathe of documents. No attempt was made in those paragraphs to identify particular categories or particular documents which bore upon the issues arising on the application for a stay.
I was also influenced by the fact that Markham tendered a bundle of 1036 pages, the overwhelming majority of which comprised documents produced on notice to produce or subpoena. The tender was subject to relevance and I made it clear that documents to which I had not been referred would be regarded as irrelevant. At the time the subpoena was debated, almost no reference had been made to any document in the bundle. By the end of the hearing, I had been referred to 4 documents, one ASIC search, and a handful of pages of Mr Misan's bank statements. Many, many hundreds of pages of documents tendered by Markham were not referred to at any stage of the application. There was a sound basis for inferring that a similarly undiscriminating attitude informed the drafting of the subpoena.

[4]

Costs

On 12 August 2022, the solicitor for Markham advised that it did not wish to make any submissions against the proposition that it should pay Mr Misan's costs of the amended motion filed on 11 August 2022 on an indemnity basis. However, concerning the motion filed on 19 July 2022, Markham submitted that these costs should be on an ordinary basis because there was mixed success on this motion, with some categories of the subpoena not set aside.
On 15 August 2022, the solicitor for Mr Misan made the following submissions in support of orders that Markham pay the costs of both motions on an indemnity basis: "1. the Motion of 19 July was inextricably linked to the stay Motion. The 19 July Motion was only necessary as the Respondent contested the stay Motion and sought issue of the Subpoena to Mr O'Connor ("O'Connor Subpoena") in respect of it; 2. the Appellant succeeded on the stay Motion and costs of it will be awarded on the indemnity basis (noting the Respondent does not speak against indemnity costs); 3. on and from 11 July 2022 (3 days after the O'Connor Subpoena and Notice to Produce to the Appellant ("NTP") were issued) the Appellant contended the documents sought were not relevant and did not go to any legitimate forensic purpose. The Appellant maintained that position at all times thereafter - for example, see attached letter of 15 July and reply of 19 July; 4. the O'Connor Subpoena sought 12 categories of documents, many of which contained sub-categories. After a lengthy interlocutory hearing, the Court set aside paragraph 15, NTP and 9 (of the 12) paragraphs of the O'Connor Subpoena. At the hearing, the Respondent did not call on paragraph 7 of the O'Connor Subpoena. In short, only 2 (of 12) paragraphs were upheld; 5. as to these 2 paragraphs (and as indicated by the Appellant both before and during the hearing), no documents were produced in answer to paragraph 10 and the same two documents, which the Appellant had already produced, were produced in answer to paragraph 12; 6. at all times, the Appellant sought to avoid a contested hearing on paragraph 15, NTP and the O'Connor Subpoena; 7. unreasonably, the Respondent pressed paragraph 15, NTP and the O'Connor Subpoena. The majority of the hearing on 11 August concerned this argument (not the stay); 8. the Appellant relies on his Calderbank offer of 8 August 2022, which requires consideration of the Respondent's Calderbank offer of the same date - both offers are attached. The Appellant's offer, as put, was open for acceptance until 10am, 10 August 2022. The Appellant submitted his offer at 8.10pm on 8 August 2022. The Appellant withdrew his offer at 1.43pm on 9 August 2022, as a result of the Respondent seeking issue of a Writ for Levy of Property (and seeking it in breach of the agreement to give 24 hours' prior notice)."
If the principles applicable to unaccepted Calderbank offers applied, other issues would evaporate, so I commence with this. The parties exchanged Calderbank letters on 8 August 2022, three days prior to the hearing. Both letters referred to the dismissal of the motion seeking to set aside the subpoena, and both must be taken to have proceeded implicitly on the basis that there was an undertaking not to call on the subpoena (which would have been overtaken by a consensual outcome of the application for a stay of execution). Speaking generally, Markham proposed payment into Court of $230,000 and an undertaking not to sell, dispose of or otherwise encumber the two lots where Mr Misan lives as the price of a stay and dismissing the motion setting aside the subpoena. Mr Misan's solicitors said that there was no capacity to pay $230,000, consistently with the financial information already provided, but offered to settle the motions on terms of an undertaking not to sell, dispose of or otherwise encumber the lots, an undertaking to prosecute the appeal diligently, the motion to set aside the subpoena to be dismissed, with costs being costs in the cause.
Mr Misan did not achieve an outcome which was better than the offer in the Calderbank correspondence, albeit only by a small margin. Three paragraphs of the subpoena were not set aside, although no documents were produced in response to those paragraphs. It is unnecessary, on the view I take, to consider whether the principles governing Calderbank offers inform the discretion as to costs.
The reason which led Markham not to oppose an order that it pay Mr Misan's costs of the motion seeking a stay of execution on an indemnity basis is not disclosed. Two aspects were relevant. One was that Markham had breached an agreement concerning taking steps towards executing its judgment without first giving 24 hours notice, in circumstances that were (and remain) unexplained, which I addressed in the ex tempore judgment. The other was that Markham's purpose in opposing the motion, and issuing subpoenas and a notice to produce, was unwarranted.
As is plain from the above, Markham will never be paid in full if it holds onto the judgment it has obtained at trial. Every dollar which is spent on interlocutory disputes pending appeal is a dollar which is irrecoverable. That strongly suggests that money is being spent for a purpose which is foreign to the purposes of the appeal. And indeed, Markham confirmed that it was a landlord of a number of tenants with the benefit of guarantees, and that it had a wider commercial interest in ensuring that it was, and was seen to be, vigorous in its assertion of its rights. It was said on Markham's behalf that: "My client is a large property holder, mainly by way of sublease and owner of large properties, and has a number of lease agreements which are guaranteed by various individuals around New South Wales, in relation to King Street Wharf and other significant property sites."
Counsel added that "[Markham] does take the view that the guarantees are important and need to be honoured, and [it] will take steps to enforce its contractual rights to the extent of the law".
I have no difficulty with accepting the rationality of spending Markham's and Mr Misan's money fighting interlocutory disputes, on the basis that there may be a benefit in Markham's relations and negotiations with other tenants. But the hearing was completed in a single day only through sitting extended hours, and then only because I insisted that, contrary to Markham's preference, it be completed in a single day rather than two days. It could not be right in any ordinary case for more time to be spent, and more of the parties' resources to be consumed, by an interlocutory dispute about a stay of execution of a judgment pending appeal than the appeal itself, and yet that is what Markham sought to achieve.
I accept that Markham has a commercial reason to oppose Mr Misan's application for a stay of execution vigorously. But Markham is under a duty to assist the court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in the proceedings: Civil Procedure Act 2005 (NSW), s 56(3). Markham's lawyers are under the same duty. Markham's commercial interests are subordinate to that duty. That seems not to have been appreciated.
As Markham may concede by its non-opposition to indemnity costs of the principal motion seeking a stay of execution, there should never have been a dispute about the stay. Mr Misan filed an appeal promptly, accompanied by appropriate undertakings. There was never any reason to think that if the appeal were dismissed, Markham would recover anything beyond a small fraction of the judgment debt, such that the time and money that has been spent by it to date has been wasted. Insofar as Markham has a commercial interest in being perceived to pursue guarantors aggressively, that must be subordinate to its duty under s 56 of the Civil Procedure Act. The result is that Mr Misan (and his spouse) should not have been subjected to any of the time, expense and stress of the last few weeks.
The position was correctly encapsulated in Mr Misan's solicitor's letter of 15 July 2022: "Your client's vehement opposition to a stay (pending the appeal being determined), forcing our client to file a Motion seeking a stay and now issuing a raft of processes (akin to discovery from our client and his de-facto husband) is hindering the prompt determination of the real issues in dispute (the appeal) and consuming unnecessary time and costs for the Court of Appeal and our respective clients."
The appropriate exercise of the discretion as to costs in those circumstances is that Markham pay Mr Misan's costs of each motion on an indemnity basis.

Misan v Markham Real Estate Partners

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (5 paragraphs)

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Legislation Cited (1)

Cases Cited (11)

Cited By (2)