Sunny Superior Seafood Pty Ltd v Stevens

Costs

1. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provides that unless the Court otherwise orders, costs are to be assessed on the ordinary basis. In exceptional cases, the Court may, in its discretion, award costs on an indemnity basis: Civil Procedure Act 2005 (NSW), s 98(1)(c).
2. In written submissions, counsel for Ms Stevens submitted that this is an appropriate case for an order of indemnity costs for a number of reasons. First, the argument for invalid termination was never particularised. Second, given Sunny Superior had no capacity to pay the outstanding rent owing to Ms Stevens, there was never any realistic chance it could obtain relief against forfeiture. Counsel submitted this was a wilful disregard of the established legal principles upon which relief against forfeiture may be granted. In such circumstances, counsel submitted that it was unreasonable for Sunny Superior to subject Ms Stevens to the expenditure of legal costs.
3. Counsel referred me to the decision of Black J in In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356. His Honour stated the applicable principles as follows (at [8]): Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute.
4. Counsel also referred me to the decision of the Court of Appeal in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12. In that case, Allsop P noted at [4] that costs on an indemnity or solicitor and client basis should be awarded where "an action has been commenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance of success". His Honour cited the well-known decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401: I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. 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. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.
5. On the other hand, Sunny Superior submitted that there should be no order as to costs. It contended that where there has been no determination on the merits, there should be no order as to costs. In support of this proposition I was referred to the decision of McHugh J in Re Minister for Immigration & Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at 624-625: In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs… When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. . . . If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
6. However, McHugh J also noted that in an appropriate case, the Court can make an order for costs "even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action".
7. I reject the submission that there should be no order as to costs. Sunny Superior abandoned its claim against Ms Stevens and there is no reason why costs should not follow the event.
8. But I do not think that Sunny Superior's conduct in the proceedings was so unreasonable as to justify an award of costs on an indemnity basis. Although in hindsight it is clear that Ms Stevens' notice of termination was valid, and that relief against forfeiture was not a viable option, the case must be assessed having regard to the urgent context in which it occurred.
9. At the time Ms Stevens terminated the lease, the Chinese New Year was fast approaching and Sunny Superior had already made a number of bookings in its restaurant for the following week. I was told that it had food that would spoil and water tanks holding live seafood that needed to be maintained. In his supporting affidavit, the director of Sunny Superior, Sunny Cheng, estimated that the business was expected to receive increased cash flow during the week of the Chinese New Year.
10. Gordian Runoff and Fountain Selected Meats were both appellate cases. In such a case there is ample opportunity to obtain proper advice as to the appeal's viability. It is understandable that an appellant who nevertheless proceeds to advance a hopeless case should be presumed to have acted for "some ulterior motive or because of some wilful disregard to the known facts or the clearly established law".
11. But in my view, the same reasoning does not necessarily apply to cases brought on an urgent basis in the Duty List. Plaintiffs in such cases will not always have had the opportunity for full research and dispassionate consideration.
12. In the present case, when the obstacles to Sunny Superior's claim were pointed out at the hearing on 10 February, its legal representatives quite properly acknowledged the problem and sought instructions. I see nothing in this which merits criticism or suggests abuse of process. The very fact that Sunny Superior abandoned the proceedings once it realised it had no valid claim suggests that it was not acting in "wilful disregard of the law". Given the urgency of the matter, and the fact that the prescribed period under the COVID-19 Regulations had only recently ended, it seems much more likely that Sunny Superior was not fully informed of its legal position when the proceedings were commenced.
13. Sunny Superior did not have a valid claim and will have to pay Ms Stevens' costs as a result. But in my view this is not a case in which there were any "special or unusual features" that would justify the Court departing from the ordinary measure of assessment: see Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233. I do not propose to make an order for indemnity costs.
14. The orders of the Court are: 1. Order that the plaintiff pay the defendant's costs of the proceedings on the ordinary basis.

Amendments 16 April 2021 - amend typographical error 16 April 2021 - amend representation 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 April 2021