Wixels Property Holdings Pty Ltd ACN 622 224 533 v THN Property Funding Pty Ltd ACN 659 844 685

Supreme Court of NSW|2024-07-17|Before: Kunc J, Lindsay J

Solicitors: Needham Ainsworth (Plaintiff) Auyeung Hencent & Day (Second Defendant) SMB Law (Fourth Defendant) File Number(s): 2023/248240

Summary

This judgment resolves outstanding issues as to costs where the substantive dispute concerned the sale of a property in Bellevue Hill NSW 2023 (the property). The property was purchased by the Plaintiff, Wixels Property Holdings Pty Ltd in August 2021 for approximately $4.5 million. The purchase settled in December 2021 with finance from the First Defendant, THN Property Funding Pty Ltd ACN 659 844 685, which loaned Wixels approximately $3,375,000. THN took a first registered mortgage over the property.

Procedural history

Before considering the contentions of each party, it is necessary to provide a brief overview of the procedural history of this matter.
The proceedings were commenced by Wixels by summons filed on 4 August 2023 before Lindsay J as Equity Duty Judge seeking orders that: 1. Wixels sell the property for the best price reasonably obtainable and apply the proceeds of sale in the manner outlined in the Summons. 2. The defendants cooperate in every way with Wixels and not take any steps to delay, interrupt or frustrate the sale process sought in Order 1.
On that occasion, Lindsay J made orders for short service on the defendants.
On 9 August 2023, Lindsay J made orders by consent (other than DRE), on a without admissions basis and upon Wixels' counsel providing the Court with the usual undertakings as to damages, requiring the defendants up to and including 16 August 2023 to co-operate with Wixels and not take any steps to delay, interrupt or frustrate the sale process. Wixels was required to give two business days' notice to the defendants of any intention it may have to sell the property prior to a public auction proposed for 23 August 2023. Directions were also made for the defendants to serve any evidence on which they proposed to rely in opposition to the summons. No evidence was ever filed.
On 14 August 2023, DRE served a Notice of Default and Demand under the agreements on Wixels.
On 16 August 2023, Robb J made consent orders (the 16 August 2023 orders) noting: 1. THN and DRE agreed not to exercise any rights to take possession of the property and/or appoint Receivers and/or Managers to the property on or before 23 August 2023 or such further date as agreed provided that Wixels complied with the orders (the forbearance). 2. Without admission or without prejudice to the rights of THN or DRE, the parties agreed that Wixels was to sell the property for the best price in the manner set out in the orders. 3. That process required Wixels to list the property for auction on 23 August 2023 with agents of their choosing, the reserve price be set at $5 million, exchange and settle contracts for any sale as soon as possible and ensure any deposit funds received were held on trust by Wixels' real estate agent until settlement of the sale.
The 16 August 2023 orders also required the proceeds of sale to be paid in the following manner and priority: 1. all reasonable costs and expenses of sale including legal costs and disbursements, agent's commission and auction expenses (including repayment of any such expenses as have been paid up to the time of these orders); then 2. the amounts required to pay all municipal, water rates and land tax (if any) outstanding with respect to the property; then 3. the amounts due to THN in respect of the amounts secured by registered mortgage number XXXXXXXX (subject to Wixels' right to challenge an additional penalty of $100,000 (if any) claimed by THN (which if so challenged that amount was to be paid into court)); then 4. up to an amount of $1,282,646 to DRE in respect of loan amounts secured by registered mortgage number XXXXXXXX; then as to the balance 5. if DRE and Wixels: 1. agreed as to the further amounts contended by DRE as owing by Wixels to DRE the amount agreed to be paid to DRE in discharge of those further amounts properly owing by Wixels to DRE; and 2. could not agree as to the amounts contended by DRE as owing by Wixels, the undisputed amounts were to be paid to DRE in discharge of the amounts properly owing by Wixels to DRE and the balance be paid into Court.
The 16 August 2023 orders also required DRE to provide Wixels with loan statements setting out the amounts said to be owed to DRE by Wixels in respect of the amounts secured by the mortgage and dismissed the proceedings as against KD Funds with no order as to costs. All other questions of costs were expressly reserved.
On 8 September 2023, Slattery J referred the proceedings to the Equity Registrar's List on 18 September 2023. The matter did not in fact return before the Court until 14 November 2023, when the matter was stood over for directions to 5 February 2024.
No further orders were made until 14 February 2024, when the Registrar ordered Wixels to file and serve any notice of motion by 23 February 2024 and stood the matter over for further directions on 14 March 2024. At this point, Wixels was considering filing a motion to set aside the 16 August 2023 orders.
Nothing further happened in this matter until DRE brought a notice of motion before Williams J (sitting as Equity Duty Judge) seeking leave to make the motion returnable instanter and orders for short service upon the other parties. That motion sought the following orders: 1. THN produce to DRE a loan statement disclosing all unpaid principal and interest for the period from 23 August 2023 to 22 March 2024. 2. An order pursuant to s 67 of the Supreme Court Act 1970 (NSW) that receivers be appointed in respect of the Property, Wixels' rights under the call option deed dated 31 October 2023 with the purchaser Mr Ding, the contract for sale of the property dated 2 February 2024 and any other agreements which Wixels may have entered into with the purchaser in respect of the property. The orders sought that the receivers have the power to do all things necessary to ensure that the contract settles in accordance with its terms and that Wixels exercises all its rights under the option. 3. Any proceeds of sale of the property were to be distributed first, in payment of the receivers' reasonable costs and expenses, second, in payment of the receivers' remuneration as approved by the Court, third in payment of the reasonable conveyancing costs and expenses associated with the sale of the property that are incurred prior to the Receivers appointment, fourth the discharge of registered mortgage number XXXXXXXX; and finally the discharge of registered mortgage number XXXXXXXX.
DRE's motion was prepared to be heard on 28 March 2024. On that occasion, Williams J noted that the prayers concerning the appointment of the receivers and the order for payment from the proceeds of sale were not pressed. Her Honour only ordered that THN produce to DRE a loan statement disclosing all unpaid principal and interest for the period 23 August 2023 to 22 March 2024. The matter was referred back to the Equity Registrar's List for directions.
The sale of the property to a nominee of Mr Ding was completed on 9 April 2024.
On 24 April 2024, Registrar Walton made these orders and directions: 1. The proceedings be dismissed as against THN with no order as to costs. 2. The notice of motion filed by DRE be dismissed with no order as to costs. 3. The proceedings be otherwise dismissed save as to the question of costs. 4. Direct that the parties file and serve any submissions and affidavit evidence in support on the question of costs by 17 May 2024. 5. Direct that the parties file and serve any submissions and affidavit evidence in reply on the question of costs by 31 May 2024.
The matter was then subsequently referred to me in the Applications List and the parties agreed that the question of costs should be dealt with on the papers.

DRE's submissions

DRE relies on several terms of the agreements to demonstrate its entitlement to costs against Wixels on the indemnity basis (emphases added): 1. Clause 18 of the memorandum to the Mortgage: 18. Indemnity The Mortgagor and security property indemnify the Mortgagee against all liabilities arising out of the Mortgagee's exercise of its powers hereunder and against any actions or proceedings against the Mortgagee in respect of any action or omission by the Mortgagee whilst exercising the Mortgagee's powers hereunder. Any money received by the Mortgagee may be used to give effect to this indemnity. 1. Clause 21 of the memorandum to the Mortgage: 21. Costs All Costs, fees and expenses including legal expenses on a full indemnity basis in connection with the negotiation, preparation, execution, stamping and registration of this Mortgage, the preservation or protection of the Mortgaged Property or of the title thereto, the repair maintenance and management of the property and the exercise of the powers of the Mortgagee on default, are payable by the Mortgagor to the Mortgagee on demand. 1. Clause 15 of the GSD: 15. Costs and Expenses The Grantor [Wixels] will on demand pay to the Secured Party [DRE as successor to KD Funds] and any Receiver the amount of all costs and expenses (including legal fees and other out-of-pocket expenses and any GST thereon) incurred by any of them in connection with the preservation, enforcement or attempted preservation or enforcement of any of their rights under any Transaction Document (and any documents referred to in any Transaction Document) or in respect of any of the Collateral. 1. Clause 16.2(c) of the SLA: 16.2 Costs and Expenses The Obligors [including Wixels], jointly and severally, must pay or, to the extent already paid by the Financier [DRE as successor to KD Funds] reimburse the Financier on demand for all costs and expenses (including, but not limited to, legal, professional and consultant fees, out-of-pocket expenses, administration costs, travelling, hotel and accommodation costs) incurred by the Financier and its respective advisors in connection with: …. (c) (Exercise, preservation, or enforcement) the exercise, preservation or enforcement or attempted exercise, preservation or enforcement of any of the Financier's rights under any Finance Document (and any documents referred to in any Finance Document)
DRE submitted that it is trite law that a mortgagee is entitled to rely on its contractual entitlement to claim costs of proceedings from a mortgagor on an indemnity basis. Mr Glasson cited two authorities for this proposition: 1. Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]-[14] (per Beazley JA; Hodgson and Ipp JJA agreeing) (emphasis in original): [12] It is well established that a mortgagee may rely upon its contractual entitlement to costs so as to claim an order other than on a party/party basis. In Re Adelphi Hotel (Brighton) Limited [1953] 2 All ER 498, Vaisey J at 502 observed that the prima facie rule was that costs were awarded on a party/party basis unless some alternative basis was shown "either on some well-recognised principle, or under some contract plainly and unambiguously expressed". The New Zealand Court of Appeal applied the rule to the payment of a mortgagee's legal costs in a recovery action: ANZ Banking Group (NZ) Limited v Gibson (Court of Appeal) [1986] 1 NZLR 556 at 566, 569. [13] The application of the principle is well recognised in Australia: see Inglis and Anor v Commonwealth Trading Bank of Australia (1973) 47 ALJR 234 at 235. In AGC (Advances) Limited v West (1984) 5 NSWLR 301, Hodgson J stated (at 304-305) that at general law a mortgagee was entitled to party/party costs only but that the general law was subject to the precise terms of any provision of the mortgage. Cole J accepted this to be correct in Sandtara Pty Limited & Others v Australian European Finance Corporation Ltd & Others (1990) 20 NSWLR 82, at 97. [14] AGC v West and Sandtara were concerned with whether the terms of the mortgage agreement itself provided for costs on a specific basis. The question which arises here is more specific. It is whether the existence of a contractual provision entitling a mortgagee to the costs of litigation in relation to the enforcement of the mortgage governs the parties' entitlements, or whether such a provision is subject to a general discretion in the Court. This question was considered by the Court of Appeal in England in Gomba Holdings UK Limited & Others v Minories Finance Limited & Others (No. 2) [1993] Ch 171. Scott LJ, delivering the Judgment of the Court, after reviewing the cases stated at 194: "In our opinion, the following principles emerge from the cases and dicta… (i) An order for the payment of costs of proceedings by one party to another party is always a discretionary order: s 51 of the Act of 1981. (ii) Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right. (iii) The power of the Court to disallow a mortgagee's costs sought to be added to the mortgage security is a power that does not derive from s 51 but from the power of courts of equity to fix the terms on which redemption will be allowed. (iv) A decision by a court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the s 51 discretion or a decision in the exercise of the power to fix the terms on which redemption will be allowed or a decision as to the extent of a mortgagee's contractual right to add his costs to the security or a combination of two or more of these things. The pleadings in the case and the submissions made to the judge may indicate which of the decisions to which we have referred has been made. (v) a mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee's contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs." Section 51(1) of the Supreme Court Act 1981 (UK), which is in similar terms to s 76 of the Supreme Court Act 1975 (NSW), provides that the costs of proceedings shall be in the discretion of the Court. 1. Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [34] (per Hodgson JA, Allsop P and Macfarlan JA agreeing) [34] Mr Dubler submitted that the clause did not apply, or at least applied only in respect of Area Health's cross-claim. He submitted that, if indemnity costs were to be ordered as a matter of discretion on the basis of a contract, the contract must be "plainly and unambiguously expressed": Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]. He submitted that solicitor and own client costs were different from indemnity costs, particularly in respect of onus of proof: Kumagai Australia Finance v Avarton Limited (NSWSC, Bryson J, 7 June 1991, unreported); and that such costs are in fact closer to party and party costs than to indemnity costs: Bouras v Grandelis [2005] NSWCA 463 ; (2005) 65 NSWLR 214 at [117], [119] and [125].
It was contended that DRE's costs of the proceedings were clearly "in connection with" or "arising out of" its rights as mortgagee under the agreements. That is because the dispute concerned its actions as mortgagee in relation to the sale of the property in circumstances where it had a right to sell the property due to the default of Wixels under the agreements (see SLA cl 10.3, GSD cl 10.3, Mortgage memorandum cl 10). The parties having entered a regime by which Wixels could market and sell the property was submitted to have no bearing on DRE's entitlement to indemnity costs under the relevant clauses of the agreements. DRE contended that it had provided consent to that regime on a without admissions basis and without prejudice to its rights under the agreements.
In the alternative to being awarded costs on the indemnity basis, DRE submitted that it should be entitled to an order that Wixels pay its costs on a party/party basis. DRE contends that the Court would be "almost certain" that DRE would have succeeded in this matter and therefore, notwithstanding that no hearing on the merits had taken place, the Court can be satisfied that an exception to the general principle in Lai Qin (see [44] below) applies and a costs order should be made.
DRE submitted that the Court can be "almost certain" they would have succeeded because Wixels failed to provide any evidence to the Court to satisfy the two bases they used to justify commencing the proceedings, namely: 1. To prevent alleged attempts by Mr Ding to interfere with the sale of the property; and 2. To prevent DRE from exercising its ordinary rights as registered mortgagee to enforce the mortgage due to an apparent concern on the part of Ms Guerin that a sale of the property by a mortgagee in possession or a receiver and manager would, as she put it in her affidavit in support of the summons, "result in a poor financial outcome for all parties involved".
DRE submitted that Ms Guerin failed to provide any evidence of actual interference committed by Mr Ding and failed to show any basis on which DRE's rights as mortgagee should be restrained, for example by Ms Guerin paying the outstanding balance owed under the Mortgage into court. This latter submission relied on the general rule that an injunction to restrain the exercise of a power of sale by a mortgagee will not be granted unless the amount of the mortgage debt is paid into court (see Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161, 164-165, 169). DRE also submitted the fact that Wixels eventually sold the property to Mr Ding's nominee entity is indicative of the unfounded nature of the allegations Wixels made against Mr Ding's actions. For these reasons, DRE contended the Court should exercise its discretion to award costs against Wixels.

Mr Ding's submissions

Mr Ding sought an order that Wixels pay his costs. While not explicitly expressed in these terms, Mr Ding 's written submissions effectively ask the Court to find that Wixels unreasonably prosecuted its case. In support of this contention, the following factors were submitted to be relevant: 1. The orders initially sought in the summons were agreed to by Mr Ding by consent and on a non-admission basis on 16 August 2023. 2. The majority of orders sought by Wixels in the proceedings did not affect Mr Ding. 3. The orders sought were based on Ms Guerin's assertion that Mr Ding interfered with the sale of the property, allegations which Wixels never particularised. Mr Ding submits this caused him to continue expending costs in a proceedings in which the case he had to answer was never clear. 4. Mr Ding agreed to 9 adjournments throughout the course of the proceedings which resulted in significant costs thrown away. 5. Mr Ding also relied on the affidavit of his solicitor Mr Stefan Briggs filed on 24 May 2024 which annexed a letter Mr Briggs sent to Wixels' former solicitors. That letter queried the basis upon which the proceedings were being continued in the absence of pleadings being filed and foreshadowed an application to dismiss the proceedings for want of due dispatch if the matter was not progressed further. Ms Guerin replied to that letter stating it was premature to dismiss the matter as she was seeking her costs against Mr Ding, she believed Mr Ding's conduct would subsequently make Mr Ding breach a deed of call option which would provide Wixels with a further cause of action and also believed that Mr Ding would likely disrupt the sale process in the future making the continuation of the undertakings necessary. 6. Wixels sold the property to Mr Ding's nominee entity.
Mr Ding submitted that the observations of Gleeson JA (with whom Meagher and Barrett JJA agreed) in Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [37]-[40] and the Court in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]-[7] which outlined the principles for determining when a successful party may be deprived of their costs were relevant to the present issue and provided the Court with a basis upon which it could order Wixels to pay Mr Ding's costs.
In the alternative, Mr Ding submitted that there should be no order as to costs, relying on Lai Qin (see [44] below).

Wixels' submissions and parties' reply submissions

Wixels contends that DRE and Mr Ding should pay its costs. It submits that the proceedings were commenced because of steps taken by DRE and Mr Ding to interfere with the sale of the property. In support, Wixels relied on the alleged actions of the defendants outlined in the affidavit of Ms Guerin dated 4 August 2023. Wixels submits the defendants failed to respond to the allegations against them about their involvement in the sale process and that the Court is entitled to draw an inference that any evidence they would have relied upon would not have assisted the defendants. In effect, Wixels is asking the Court to find that they would have been the successful party had the matter proceeded to a hearing. At the same time, Wixels also reiterates that the dismissal of the proceedings should not be treated as a capitulation by it in favour of the defendants.
In reply, Mr Ding submits that throughout the course of the proceedings he has generally consented to the orders sought, albeit on a non-admissions basis, and therefore the costs incurred by Wixels have not been incurred because of Mr Ding's conduct. Mr Ding also submitted that the Court is not entitled to construe the consent he provided to the orders as a reflection of the merits of Wixels' claim.
Wixels rejects DRE 's reliance on the agreements to contend that Wixels pay DRE's costs on the indemnity basis. Wixels submits that the orders sought in the summons necessarily show it disputed DRE 's entitlement to costs. It also submits that allowing DRE to rely on the various agreements would deny Wixels procedural fairness as there has been no evidence from either party supporting the validity of the of the agreements or DRE's entitlement to rely on them. Significantly, assuming the validity of the agreements, Wixels does not submit that the various indemnity provisions are not engaged as a matter of construction in the events which have occurred.
In reply, DRE rejects that Wixels can now seek to impugn the validity of the agreements in circumstances where Wixels has never previously sought to do so. To the contrary, DRE provided three examples where it contended Wixels had implicitly accepted that the agreements were valid. First, Wixels' submissions as to costs had asserted that the proceedings had been commenced "with the purpose of restraining any of the defendants from exercising contractual rights to sell the property". Second, allowing DRE to consent to the 16 August 2023 orders "without prejudice" as to their rights under the agreements was submitted to be a recognition that DRE had rights under those agreements. Finally, Wixels has never challenged the validity of DRE replacing KD Funds as the trustee of the Trust and the assignment or transfer of the of the agreements to it.
Wixels also rejects Mr Ding's contention that it should pay Mr Ding's costs because it never made Mr Ding aware of the case against him and therefore effectively caused Mr Ding to incur costs in a case where he had no case to answer. Contrary to Mr Ding's submission at [35] above, Wixels contends that the affidavit of Ms Guerin dated 4 August 2023 sufficiently informed Mr Ding as to the aspects of his conduct which required Wixels to commence the proceedings and that Mr Ding failed to respond to these allegations. Mr Ding responds by contending that the affidavit never clearly articulated the case against him and Wixels never filed a statement of claim. Therefore, Mr Ding could never have responded to or properly understood the case put against him.
Wixels also rejects any contention that Mr Ding was not a necessary party to be joined to the proceedings. Mr Ding becoming the registered proprietor of the property through his nominated entity is submitted to demonstrate the necessity of Mr Ding being joined to the proceedings. Therefore, Wixels contends Mr Ding has failed to point to any conduct which would warrant Wixels paying his costs.

Lai Qin

The general principles as to costs where there has been no determination of the merits are set out at pages 624-625 of McHugh J's seminal judgment in Lai Qin: 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. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. 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. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. 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.
In short, it is only in circumstances where a judge is confident that one party was almost certain to succeed or that another party acted so unreasonably that a party may be able to obtain their costs even though the case settled before a final determination of the merits. Critically, the Court should not embark upon making a prediction as to the outcome of a hypothetical case.
There are sound public policy reasons for this position. To emphasise a point made by McHugh J in Lai Qin (see page 624), to recreate a hypothetical action would "burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided".
The NSW Court of Appeal also restated and relied on the principles in Lai Qin in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (per Payne JA; Meagher JA agreeing): [30] If both parties to a proceeding which has been settled without a hearing on the merits 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.
His Honour at paragraphs [27]-[30] also outlined several other appellate authorities which had considered Lai Qin. These include Edwards Madigan Torzillo Briggs Pty Ltd [2003] NSWCA 302 where Davies AJA (with whom Mason P and Meagher JA agreed) observed: [5] When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs
Basten JA in Nichols outlined how the Court should approach the question of whether a party has acted unreasonably: [8] Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. [9] ….. Further, once there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses. [10] Once it becomes apparent that such a course is required, the hypothesis on which the examination was undertaken is negated and the inquiry should stop.
The issue of when the Court may determine whether one party has capitulated was also considered in ONE.TEL v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6] by Burchett J who said: [6] In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.
Burchett J's judgment has been cited with approval in several NSW Court of Appeal cases including Nichols, Edwards and Shellharbour City Council v Minister for Local Government [2017] NSWCA 256.

Consideration - DRE and Wixels

While the Court will generally make no orders as to costs where a matter never progressed to a hearing on its merits, that general approach may be displaced in the exercise of the Court's discretion where a party can demonstrate they have a contractual entitlement to their costs. As was said in Kyabram (emphasis in original): [12] It is well established that a mortgagee may rely upon its contractual entitlement to costs so as to claim an order other than on a party/party basis. In Re Adelphi Hotel (Brighton) Limited [1953] 2 All ER 498, Vaisey J at 502 observed that the prima facie rule was that costs were awarded on a party/party basis unless some alternative basis was shown "either on some well-recognised principle, or under some contract plainly and unambiguously expressed".
In a case such as the present, the existence of a contractual right of complete indemnification for legal costs is a factor relevant to the exercise of the Court's discretion. Generally such rights are expressed in absolute terms which do not have as a condition precedent an order of the Court that the costs should be paid. In other words, the contractual right would subsist if the Court made no order as to costs or if it only ordered costs on the ordinary basis. The indemnified party could sue for its costs, or any difference between party/party and indemnity costs, as the case may be. The Court must exercise its discretion to give effect to the overriding purpose. To make an order for costs which reflects a contractual right of indemnification is in accordance with the overriding purpose because it quells there and then (without need for any further suit) any actual or potential dispute about the indemnified party's rights in relation to its costs.
For present purposes, it is sufficient that the Court finds that, from among the several agreements, DRE is contractually entitled to complete indemnification for its costs by reason of cl 21 of the memorandum to the Mortgage, which relevantly provides (emphasis added): 21. Costs All … Costs, fees and expenses including legal expenses on a full indemnity basis in connection with the … exercise of the powers of the Mortgagee on default, are payable by the Mortgagor to the Mortgagee on demand.
As noted by Muir JA in Fraser v Irish Restaurant & Bar Company Pty Ltd [2008] QCA 270, the term 'in connection with' has a wide meaning but that meaning is defined by the context in which it is used: [40] The expression "in connection with" is capable of having a wide meaning but in common with expressions such as "relating to" and "in respect of" its meaning must be derived from the context in which it was used. The following passages from the reasons in Workers' Compensation Board (Qld) v Technical Products Pty Ltd illustrate the point: It has been said, perhaps somewhat extravagantly, that the words 'in respect of' 'have the widest possible meaning of any expression intended to convey some connexion or relation between the two subject-matters to which the words refer': Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 111, cited in State Government Insurance Office (Q) v Crittenden (1966) 117 CLR 412 at 416. The words were cited again by Gibbs J. in McDowell v Baker (1979) 144 CLR 413 at 419, and by Mason J. in State Government Insurance Office (Q) v Rees (1979) 144 CLR 549 at 561, when his Honour added the comment: 'But, as with other words and expressions, the meaning to be ascribed to 'in respect of' depends very much on the context in which it is found'.24 … Undoubtedly the words 'in respect of' have a wide meaning, although it is going somewhat too far to say, as did Mann C.J. in Trustees Executors & Agency Co Ltd v Reilly [1941] VR 110 at 111, that 'they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer'. The phrase gathers meaning from the context in which it appears, and it is that context which will determine the matters to which it extends.
In this case, the language of connection is unambiguous and is clearly satisfied by at least these two matters: 1. Wixels' own submissions acknowledge that the proceedings were brought to stop THN and DRE exercising their rights as mortgagees in relation to the property; and 2. The agreement embodied in the 16 August 2023 orders (see [19] above) expressly noted two matters. The first is the forbearance. To agree not to exercise rights as mortgagee as part of a litigious settlement is "in connection with" the exercise of DRE's rights as mortgagee upon Wixels' default. The second is that the agreement is expressed to be without prejudice to DRE's rights, which must include the preservation of DRE's contractual rights of indemnification as to its legal costs.
To the extent it may be necessary, any demand for the purposes of cl 21 may be taken to have been made by DRE's present application. Alternatively, the Court readily infers that DRE will at some point make a formal demand for its costs of these proceedings if it has not already done so.
The Court reject Wixels' submissions that allowing DRE to have its costs pursuant to any of the agreements would cause an injustice to Wixels on the basis that no evidence has been put forward to determine the validity of the various agreements. The Court will not allow a costs dispute to be used as a vehicle for satellite litigation in the final moments to enliven issues which have never been the subject of a dispute between the parties. The Court accepts DRE's submissions set out in [41] above, other than the contention that allowing DRE to consent to the 16 August 2023 orders "without prejudice" as to their rights under the agreements was a recognition that DRE had rights under those agreements. In my respectful view, without more than the terms of the notations, that could be no more than a concession that DRE may have such rights rather than that it did have such rights. In particular, it is clear that Wixels premised the proceedings upon the validity of THN's and DRE's rights as mortgagees. If Wixels' case had been that the defendants should not interfere with Wixels' sale process because they had no lawful right to do so, then the summons would have included declarations to give effect to that contention, for example that the agreements were void or voidable on some basis.
For the reasons at [68] below, I reject Wixels' submission that it is entitled to its costs from DRE.
Being satisfied of DRE's contractual right to complete indemnification for its costs of the proceedings, the Court will exercise its discretion to give effect to that right and order that Wixels pays DRE's costs of the proceedings on the indemnity basis. It is therefore unnecessary to consider DRE's alternative submission that its costs be paid on the ordinary basis.

Consideration - Wixels and Mr Ding

Mr Ding's reliance on the dicta of Gleeson JA in Sze and of the Court in Ryde Developments is misplaced. Gleeson JA in Sze at [40] and the Court of Appeal in Ryde Developments at [6]-[7] were outlining the principles as to when a court may seek to deprive a successful party of costs. Those cases rely upon the existence of an "event" following which the court will then decide as to who should pay the costs of the proceedings.
In the present case, the proceedings were dismissed without any hearing on the merits of the claim. There has been no 'event'. There are no successful or unsuccessful parties in these proceedings. Prima facie, applying Lai Qin, the general rule in cases such as the present is that the Court should make no orders as to costs. However, Mr Ding has sought to enliven the Court's discretion to make a costs order on the basis that Wixels unreasonably prosecuted its case against him.
The Court rejects that submission because it cannot properly satisfy itself that Wixels unreasonably prosecuted its case for three reasons.
First, the Court cannot make any determination as to the validity of the claims made in the affidavit of Ms Guerin dated 4 August 2023 without impermissibly beginning to investigate the merits of the dispute. The conduct of the defendants, whether it be proper or improper, was a clear fact in issue which was never resolved in the proceedings. The Court cannot now seek to investigate for itself the legitimacy of those claims to determine whether the claim was brought reasonably or were reasonably sustained by trying a hypothetical action between the parties.
Similarly, the Court cannot determine whether Ms Guerin's response dated 1 December 2023 to Mr Briggs' letter dated 28 November 2023 (and therefore her continued prosecution of the matter) was unreasonable without entertaining the merits of the dispute. In the absence of any formal order requiring the matter to proceed on pleadings, the Court cannot make any determination as to whether the absence of any further articulation of Wixels' claim meant it was unreasonably prosecuting its case without embarking on an attempt to resolve facts that were in issue.
Second, the Court is not able to satisfy itself as to whether the various adjournments were reasonable. Records from the online court show that several adjournments were requested for discussions to continue between Wixels and Mr Ding with the hope that those discussions would resolve the proceedings. As McHugh J noted in Lai Qin (at page 624) it is not appropriate for the Court to go behind the settlement discussions of the parties to determine whether their conduct was appropriate unless the unreasonable conduct is clearly identifiable on the objective facts before the Court.
Third, the Court is not able to draw an inference as to the reasonableness of Wixels' conduct based on the fact that Wixels eventually sold the property to Mr Ding's nominee. Without any hearing on the merits of the dispute the Court cannot assume that Wixels' allegations against Mr Ding were unmeritorious simply because it subsequently sold the property to Mr Ding. There may be many reasons why the property was sold to Mr Ding, including that such a sale ensured the best realisable price for the property. In the absence of evidence, the Court cannot draw any inference from to whom the property was sold about the merits of Wixels' claim.
For the same reasons the Court rejects Wixels' submissions that they should be entitled to their costs from DRE and Mr Ding because Wixels brought the claims out of 'necessity' due to the conduct of the defendants. To examine the 'necessity' of the proceedings would be to require the Court to consider the merits of the facts underpinning the claim, an approach expressly rejected by the authorities analysed at [44]-[51] above. Nor is there any basis for the Court to draw the inference requested by Wixels that the defendants' failure to respond to the allegations means that any evidence they would have provided would not have assisted them.

Conclusion

To give effect to these reasons, the Court makes these orders and notations: 1. The Plaintiff pay the Second Defendant's costs of the proceedings on the indemnity basis. 2. Note that the Court makes no order as to the costs of the proceedings as between the Plaintiff and the Fourth Defendant.

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: 17 July 2024

Supreme Court Act 1975(NSW)

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