XR Property Developments Pty Ltd v Sekers [2018] NSWSC 1181 | Case summary

Supreme Court of NSW|2018-07-27|Before: Kunc J, Mr J

Summary

Last Friday, after a hearing in the Applications List which took most of the day and concluded after 4.00pm, I made these orders: "The Court orders: 1. The defendant is to pay the plaintiff within seven days: (a) $294,602.84; and (b) interest on the sum referred to in paragraph 1(a) calculated from that date which is 28 days after 5 December 2017 up to and including today at the rate prescribed pursuant to s 101 of the Civil Procedure Act NSW (2005). 2. The defendant is to pay the plaintiff's costs of the proceedings on the indemnity basis. 3. DIRECT the plaintiff to provide to the Court and to the defendant on or before Monday 30 July 2018 the calculation of the amount of interest referred to in order 1(b)."
The orders have the effect of requiring the defendant ("Mr Sekers") to perform a personal undertaking which he had given to the Court in August 2017 (the "Undertaking"). The Undertaking was to guarantee the payment by Mr Sekers' company Denning Real Estate Pty Ltd ("Denning") of costs for which Denning had been held liable to pay the plaintiff, XR Property Developments Pty Ltd ("XR"). The principal of XR is Mr Frank Shien ("Mr Shien").
In making the orders set out above, the Court refused Mr Sekers' application that he be released from the Undertaking on the basis that he would agree to pay into Court the money which was the subject of the Undertaking, to be held pending the resolution of proceedings recently commenced by Denning against XR (the "Compensation Proceedings"). The Court was not satisfied that the commencement of the Compensation Proceedings, or their subject matter, showed that there were any new or exceptional circumstances which made it unjust to enforce the Undertaking against Mr Sekers.
What follows are the reasons for making the orders and for refusing Mr Sekers' application.
Mr J Doyle of Counsel appeared for XR. Ms C Lee of Counsel appeared for Mr Sekers.

Preliminary matters

It is convenient to begin with four preliminary matters which will provide context for what follows.
First, by its Amended Summons dated 21 May 2018 (see paragraph [60] below), XR sought declarations and orders for the enforcement of the Undertaking. Correctly, no point was taken by Ms Lee as to the form of the proceedings. In circumstances where Mr Sekers had failed to perform the Undertaking after demand for such performance had been made by XR, Mr Sekers was prima facie in contempt of court. That outcome reflects the classical distinction between an undertaking inter partes and an undertaking to the Court. The former is the product of an agreement between the parties enforceable in accordance with the usual principles of contract. In most cases, even where it is given as part of an agreement between the parties, the latter is enforced by the beneficiary of the undertaking or the Court itself charging the party which has given the undertaking with contempt of court. However, at least in the case of a breach of an undertaking to pay money, there is no doubt that the beneficiary of that undertaking is entitled to sue for orders that the undertaking be performed rather than bring a prosecution for contempt: Spindler v Balog (1959) 76 WN (NSW) 391.
Nevertheless, it should be recorded that even when proceedings such as those at bar are brought to compel performance of an undertaking given to the Court, it remains the case that the undertaking, its performance and the consequences for its breach remain in the control of the Court in the exercise of its power (and associated discretions) to ensure the proper administration of justice. Elements of policy and public interest intrude which transcend and, where necessary, can override the private interests of the litigants in whose dispute the undertaking had its origins.
Second, Ms Lee submitted that her client had "never disputed" that he "will live up to his undertaking". However, he now wished to pay the money into Court to abide the outcome of the Compensation Proceedings. These had recently been commenced by Denning against XR for damages allegedly suffered by Denning as a result of XR's tardiness in withdrawing a caveat over Denning's land. Ms Lee accepted that, both as a matter of form and substance, it would be necessary for Mr Sekers to apply for leave from the Court to withdraw the Undertaking on the basis that an alternative undertaking would be offered. That alternative, proposed undertaking was: "Daniel Sekers gives a personal undertaking to the Court that he will pay the sum of $294,602.84 into Court no later than close of business 30 July 2018 being payment by Denning Real Estate Pty Ltd ACN 002 876 539 of the amount that Denning Real Estate Pty Ltd was found to be liable for in respect of the costs order made by Young AJ on or about 5 May 2016 in Supreme Court Proceedings 2015/00259773. Such funds to be held in Court pending resolution of Supreme Court Proceedings 2018/00212125."
In circumstances which I will more fully set out below, no prior notice had been given to XR of this application, which Ms Lee made orally from the Bar table. When asked by the Court if he required an adjournment to deal with the application, Mr Doyle responded that, in the interests of resolving what had turned into a long running issue, he was in a position to deal with Mr Sekers' application, including the evidence which was to be relied upon.
Third, Ms Lee accepted on behalf of her client that if his application to be relieved from the Undertaking was unsuccessful, he had no defence to an order that he comply with the Undertaking.
Fourth, and no doubt informed by his client's instructions that the matter should be resolved without further delay, Mr Doyle did not suggest that because Mr Sekers was prima facie in contempt of court, he should not be heard on his application. Where a party is prima facie in contempt, reference is often made to the decision of Young J (as his Honour then was) Young v Jackman (1986) 7 NSWLR 97 to the effect that such a party should not be heard and that the Court had no discretion to depart from that position. Because it is not necessary for me to decide, I need do no more than record my respectful opinion that, consistently with the observations made in paragraph [8] above, whether or not a party who is prima facie in contempt of court should be heard remains a matter to be determined by the Court in the exercise of its discretion: see, for example, Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) [2014] FCA 461; (2014) 315 ALR 523 at [47] per Robertson J.

The Facts

The origin of the dispute between XR and Denning is that the two companies owned neighbouring development sites in Alexandria. At some point in time, the two sites had been in common ownership. It was common ground that there was an encroachment by Denning's building onto XR's land because the purlins which supported the roof of a building on Denning's land rested upon a one skinned wall which was wholly on XR's land.
The dispute between the parties under the Encroachment of Buildings Act 1922 (NSW) was heard by Young AJA (XR Property Developments Pty Limited v Denning Real Estate Pty Limited [2015] NSWSC 1937). On 5 May 2016, in XR Property Developments Pty Limited v Denning Real Estate Pty Limited (No 2) [2016] NSWSC 556, Young AJA made a costs order on the ordinary basis in favour of XR against Denning (the "Costs Order").
On 27 June 2016, Denning was served with notice of a caveat by XR over Denning's land (the "Site") referring to the judgments of Young AJA and claiming an estate or interest in Site by reason of an "obligation to remove encroachment onto adjoining land pursuant to the Encroachment of Buildings Act 1922" (the "Caveat").
On 5 August 2016, Denning filed a summons seeking leave to appeal against the Costs Order.
On 19 October 2016, the Court of Appeal dismissed Denning's summons referred to in the preceding paragraph.
On 31 October 2016, Denning served a lapsing notice in respect of the Caveat on XR.
In early November 2016, XR commenced proceedings to extend the Caveat (the "Caveat Proceedings").
On 30 November 2016, XR filed an application for assessment of costs in respect of the costs order (the "Costs Assessment Application").
Another company associated with Mr Sekers, Blueshore Development Group Pty Ltd ("Blueshore") had been engaged by Denning to develop the Site. On 9 December 2016, Blueshore received a bank letter of offer ("BLO") from National Australia Bank to fund that development. The BLO was open for acceptance up to 14 March 2017.
On 15 December 2016, Blueshore entered into a voluntary planning agreement ("VPA") with the City of Sydney in respect of the Site. The VPA was then placed on public exhibition on 13 January 2017 which concluded on 10 February 2017.
On 21 December 2016, the Caveat Proceedings were resolved by the making of these consent orders: "1. The defendant remove its encroachment from the plaintiff's land by no later than 2 February 2017; 2. Pursuant to s 74K of the Real Property Act Caveat AK532908 be extended until the removal of the encroachment referred to in order 1 above or further order of the Court; 3. Proceedings otherwise dismissed; 4. Each party bear its own costs;"
On 1 February 2017, Denning's solicitor wrote to XR's solicitor saying that the encroachment (being the purlins) had been removed. The letter asked for the immediate withdrawal of the Caveat. That did not happen.
On 7 February 2017, Blueshore received an updated BLO from National Australia Bank that was open for acceptance up to 8 May 2017.
On 16 March 2017, Mr Sekers wrote to XR's solicitor informing him that XR's failure to remove the Caveat was causing Denning "significant delays and costs". The letter included the statement that "I see no choice but to seek immediate injunctive relief from the courts together with damages".
On 8 May 2017, the National Australia Bank's updated BLO to Blueshore expired.
On 17 May 2017, the costs assessor determined the Costs Assessment Application and provided certificates of determination and a statement of reasons to the Manager of Costs Assessment. The assessment was for a total of $360,598.26 and was provided to the parties on 24 May 2017.
On 25 May 2017, XR withdrew the Caveat.
On 26 May 2017, the certificates of determination in relation to the Costs Order were registered as a judgment of this Court (the "First Costs Judgment").
On 7 June 2017, relying on the First Costs Judgment, XR filed a notice of motion for a writ for levy of property against Denning's property.
On 13 June 2017, Blueshore commenced further negotiations with the National Australia Bank for a new BLO.
On 26 July 2017, Denning filed and served an application for review of the costs assessment referred to in paragraph [28] above (the "Review Application").
On 11 August 2017, Denning filed a notice of motion seeking orders to stay enforcement of the First Costs Judgment pending the outcome of the Review Application.
On 14 August 2017, Pembroke J made consent orders (which included the Undertaking) to resolve XR's attempts to enforce the First Costs Judgment and Denning's notice of motion for a stay. Those orders included (emphasis added): "1. The order in proceedings 2017/00159025 issued by the Court obtained through the filing of cost certificates relating to proceedings 2015/00259773 is stayed until the defendant's review of the costs assessment the subject of the proceedings is determined. 2. Pursuant to section 135(2)(b) of the Civil Procedure Act 2005, an order that the Sheriff be prohibited from taking any further action on the Writ for Levy of Property issued by this Court in proceedings 2017/00159025 on or about 26 June 2017 until the defendant's review of the costs assessment the subject of the proceedings is determined. 3. Pursuant to s135(2)(d) of the Civil Procedure Act 2005, an order that the Registrar-General cancel all recordings of the Writ, including without limiting the generality of the foregoing, the recordings made pursuant to dealing AM568509 on Lot 1 in Deposited Plan 88622, being the property known as 158-160 Botany Road, Alexandria. 4. Daniel Sekers gives a personal undertaking to the Court that he will guarantee the payment by the Defendant of the amount that the Defendant is found to be liable for in respect of the costs order made by Young AJ on or about 5 May 2016 in Supreme Court Proceedings 2015/00259773. 5. The Plaintiff undertakes not to register any writ or other instrument on title of Lot 1 in Deposited Plan 88622 being the property known as 158-160 Botany Road, Alexandria in respect of the costs order made by Young AJ on or about 5 May 2016 in Supreme Court Proceedings 2015/00259773. 6. Costs of the Defendant's motion dated 11 August 2017 are reserved. 7. That the defendant's notice of motion dated 11 August 2017 be otherwise dismissed."
On 11 October 2017, the National Australia Bank issued a new BLO to Blueshore. This was executed by Blueshore on 19 October 2017. A condition of the BLO was that National Australia Bank was to have a mortgage over the Site. The interest rate payable by Blueshore under this latest BLO was higher than that under the BLO referred to in paragraph [25] above.
On 27 October 2017, the review panel determined the Review Application and provided certificates of determination and the statement of reasons to the Manager of Costs Assessment. These were provided to the parties on 15 November 2017. As a result of the review, the amount assessed in respect of the Costs Order was $294,602.84. Denning had until 15 December 2017 to apply for a further review.
On 22 November 2017, the new certificate of determination of review was registered as a judgment in the District Court (the "Revised Costs Judgment").
On 24 November 2017, XR served a creditor's statutory demand on Denning for payment of the Revised Costs Judgment.
On 5 December 2017, XR's solicitor wrote to Denning's solicitor: "We have not received payment from your client company of the assessed costs of $294,877.84 as yet [this figure included court costs]. Can you please follow up your client to promptly pay that amount before the statutory demand falls due. Otherwise my client will have no choice but to take legal action against Mr Sekers personally to recover the assessed costs from him."
On 14 December 2017, Denning's solicitors wrote to XR's solicitors making two new points. First, in answer to XR's creditor's statutory demand, the letter asserted that there was a genuine dispute in relation to that demand because Denning "is presently intending to seek a review of that determination in the District Court". Second, the letter set out the basis of what was described as "an off-setting claim" for damages arising from XR's allegedly wrongful refusal to withdraw the Caveat. Those damages were said to include "the additional capital required to finance the development, holding costs and loss of rental income in excess of $500,000". This was the first time that Denning had asserted that it had a claim against XR arising from the failure to withdraw the Caveat as an answer to XR's right to payment of the Revised Costs Judgment.
On 15 December 2017, XR's solicitors wrote to Denning's solicitors that XR was withdrawing its creditor's statutory demand. This was done because of Denning's indication that it was proposing to seek a further review of the costs payable pursuant to the Costs Order.
On 11 January 2018, XR's solicitors wrote to Denning's solicitors: "The time has now well expired for the filing of any appeal from the above-mentioned decision [referring to the registration of the certificate of determination in the District Court] and none has been served upon us. Notably our client's statutory demand issued on 24 November 2017 was only withdrawn when your client advised that it would file an appeal. Accordingly, if the judgment debt of $294,877.84 is not paid by your client within 7 days from today's date, then out client will commence immediate enforcement action. If the judgement debt is paid within that timeframe, then our client will waive its claim for interest under s 101 of the Civil Procedure Act 2005 (NSW)."
On 29 January 2018, XR filed a notice of motion seeking a writ for the levy of property against Denning's property to enforce the Revised Costs Judgment.
On 2 February 2018, XR's solicitor wrote to Denning's solicitor, referring to the Undertaking: "We are instructed to take action to enforce that undertaking so as to enter judgment against Mr Sekers if your client does not pay the Judgment sum of $294,877.84 entered in the District Court on 22 November 2017 (following registration of the Review Panel's Certificate of Determination) within 7 days. … We look forward to prompt payment of the Judgment sum and a response to this email by 2.00pm on Monday, 5 February 2018."
On 14 February 2018, XR commenced these proceedings by summons returnable on 1 March 2018 to enforce the Undertaking.
On 1 March 2018, the proceedings were adjourned by consent to 14 March 2018 to enable Mr Sekers' solicitors to obtain instructions from their client.
On 14 March 2018, directions were made which included that Mr Sekers was to serve his affidavit evidence by 4 April 2018. He failed to do so. Presumably in response to that failure, XR filed a notice of motion for summary judgment which was returnable with the proceedings for directions on 18 April 2018.
On 18 April 2018, the proceedings were stood over to a callover on 8 May 2018 before Parker J sitting as the applications list judge. By this stage, Mr Sekers had still not given the slightest indication of his defence, whether in correspondence or by filing affidavit evidence.
On 8 May 2018, Mr Doyle appeared for XR and Ms Lee appeared for Denning (in related proceedings) and for Mr Sekers (in these proceedings). Without being in any way critical of Ms Lee, it appears from the transcript on that occasion that her role was somewhat limited, namely being to obtain a hearing date for XR's notice of motion for summary judgment. Mr Doyle indicated that he was ready to proceed and that there was no reason why both the motion and the substantive proceedings could not be heard together. There then followed this exchange between Parker J and Ms Lee: "HIS HONOUR: Ms Lee, I appreciate this isn't your matter but what is the defence in these proceedings? LEE: Your Honour, I am not briefed in this matter and I wouldn't want to bind my client by outlining the defence from my understanding at this point. Your Honour, perhaps it is best that the matter is simply listed for the notice of motion to be heard in its entirety and for today's issues to be agitated. HIS HONOUR: I appreciate why you say that, but it does seem to me in the idea that this matter is ready to final hearing and it might as well be heard on a final basis. LEE: This morning? HIS HONOUR: I don't know that I can hear it this morning. You're not in a position to proceed are you? LEE: Not this morning, your Honour, no. … DOYLE: There may be some utility - I'm happy to provide the Court and my friend with our submissions today. If some direction in advance of 27 July for any submission in reply so that it's going to shorten the matter if I know what I've got to answer. HIS HONOUR: Please file it on Justice Link. What I will do is that because of the uncertainty with this date, I'm going to give you a date in the callover list between now and then where I will expect the defendant to tell me what the defence is and having regard to that whether the two hour period is appropriate. DOYLE: That's suitable. HIS HONOUR: Ms Lee, you'll get the submissions. I would expect the defence to be able to say what it is the defence is and what the issues really are. LEE: Yes, your Honour."
His Honour then made the usual order for hearing and listed the proceedings for hearing on 27 July 2018 in the applications list with a callover on 22 May 2018.
By the time of the callover on 22 May 2018, Mr Sekers had still not communicated his defence to XR. Ms Lee again appeared in related proceedings for Denning and in these proceedings for Mr Sekers. Ms Lee informed his Honour that no defence had been filed but that it might be that the parties would be able to resolve the matter. Mr Doyle informed his Honour that whatever had been proposed would not be agreed to. The following exchange then took place: "HIS HONOUR: Well, that has been heard by Ms Lee. I just wanted to know what the defence is. Do you want me to press her about that? DOYLE: I would like to know that. That was the purpose of today. LEE: Your Honour I apologise. Again I am not briefed in the main matter and I understand this is the difficulty that we had on the last occasion that I appeared. Your Honour, my instructions are that there are - it may be possible that this matter is resolved prior to the hearing and as a result that position may have led to the position that there is no defence filed at this point. HIS HONOUR: Ms Lee, the matter was put in today not just to hear about the defence - LEE: Yes. HIS HONOUR: - that was important but also so that I can be sure that the estimate that has been given is appropriate as to times. If this matter runs is the time that has been allocated appropriate? LEE: Yes, your Honour. HIS HONOUR: So it will definitely be finished within the time that has been given is appropriate as to times. If this matter runs is the time that has been allocated appropriate? LEE: Yes, your Honour. HIS HONOUR: So it will definitely be finished within the time that has been allocated? LEE: Yes your Honour."
His Honour confirmed the hearing before me on 27 July 2018.
Thereafter, Mr Sekers made no attempt to file further affidavit evidence in these proceedings or to give any indication what his defence to them might be.
On 10 July 2018, Blueshore and Denning (as first and second plaintiffs respectively) commenced the Compensation Proceedings by a summons claiming relief which includes: "1. A declaration that the defendant wrongfully and without reasonable cause refused or failed to withdraw caveat no AK532908, lodged in respect of the property shown in folio identifier 1/88622, after being requested to withdraw it, so as to be liable to pay to the plaintiff [sic] compensation for pecuniary loss attributable to that refusal or failure pursuant to section 74P of the Real Property Act 1900. 2. An order that the defendant pay the plaintiff [sic] compensation, in a sum to be determined by the Court."
Section 74P of the Real Property Act 1900 (NSW) (the "RPA") provides: "74P COMPENSATION PAYABLE IN CERTAIN CASES (1) Any person who, without reasonable cause: (a) lodges a caveat with the Registrar-General under a provision of this Part, (b) procures the lapsing of such a caveat, or (c) being the caveator, refuses or fails to withdraw such a caveat after being requested to do so, is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss. (2) Compensation referred to in subsection (1) is recoverable in proceedings taken in a court of competent jurisdiction by the person who claims to have sustained the pecuniary loss. (3) A person who is a caveator is not entitled to bring proceedings under subsection (1) (b) if that person, having had an opportunity to do so, has failed to take all reasonable steps to prevent the caveat from lapsing."
The nature of Blueshore's and Denning's claim in the Compensation Proceedings is set out in an affidavit of Mr Sekers sworn on 10 July 2018 in support of the summons in those proceedings. Both the summons and Mr Sekers' affidavit were tendered in evidence by Mr Sekers before me in support of his application to be released from the Undertaking. His affidavit provides this summary of Blueshore's and Denning's claim: "61. The removal of the Caveat on 24 May 2017 delayed Blueshore's ability to register the mortgage and VPA on title further delaying the commencement of construction by 111 days. … 63. At the completion of the development project, the properties are expected to yield circa $949,000 in gross rental per annum. The delay in starting the development by 111 days has generated a loss of $288,600. ... 64. The increased interest cost of an 18 month project from the original BLO to the current BLO equates to 0.535% of $12.25m which equates to $98,306.25 of additional interest being incurred due to not being able to execute the original BLO. 65. The holding costs of the land at 158 Botany Road and 156 Wyndham Street, Alexandria totals approximately $120,951.56 per annum equating to additional holding costs due to the delay of $36,782.53. … 66. On 15 November 2017, I received an email from Matt Crews of Capital Bluestone requesting an additional $20,000 per month due to the delays of the project. … The delay of 111 days equates to 3.7 months and thus an additional cost of circa $74,000 plus GST."
As I will explain further below, there is some significance for the disposition of the present proceedings that while the prayers for relief refer to "the plaintiff", both Blueshore and Denning are plaintiffs in the Compensation Proceedings.
When the matter came on for hearing before me on 27 July 2018, XR had prepared a Court Book and a full outline of submissions. XR's submissions had already been provided to Mr Sekers at or shortly after the hearing before Parker J on 8 May 2017. However, notwithstanding the fact that the usual order for hearing had been made, Mr Sekers had filed neither an outline of submissions nor any evidence.
The relief sought at the hearing before me was set out in an Amended Summons which was filed without opposition and included: "1. A declaration that by Order 4 made by Pembroke J in Supreme Court NSW proceedings no. 2017/159025, the Defendant is bound by his undertaking to this Court to guarantee payment of the amount determined to be payable by Denning Real Estate Pty Ltd ("Denning") to the Plaintiff as a result of the review of cost assessment no. 2016/358969 in relation to the costs order made against Denning by Young AJ on 5 May 2016 in Supreme Court Equity Division proceedings no. 2015/259773. 2. A declaration that the Defendant is obliged to pay to the Plaintiff the sum of $294,602.84 found by the Review Panel to be payable by Denning to the Plaintiff in respect of the costs order made by Young AJ on 5 May 2016 in Supreme Court of NSW proceedings no. 2015/259773. 2A. An order that the Defendant pay the Plaintiff any part of the sum of $294,602.84 described in prayer 2 remaining unpaid by Denning. 3. Damages to compensate the Plaintiff for costs it has incurred arising from failure and/or delay of the Defendant to promptly discharge that undertaking when called upon by the Plaintiff. 4. Interest. 5. Costs."
The claim for compensation in prayer 3 was abandoned by XR in the course of final submissions.

An adjournment application

As I have already recorded, the hearing before me began with neither the Court nor XR knowing what answer Mr Sekers would make to XR's claim. It soon emerged that, but for Mr Sekers' desire to pay the money into Court rather than to XR, he had no defence. So much was quite properly accepted by Ms Lee. Furthermore, Ms Lee accepted during the hearing that the result for which Mr Sekers contended could only be brought about by him being released from the Undertaking and replacing it with a new one. Ms Lee pressed that application, including tendering some evidence, and (as I have already recorded in paragraph [10] above) Mr Doyle said that he did not require an adjournment to deal with it. Mr Doyle submitted that, with the delays caused by the earlier non-compliances by Mr Sekers with the Court's directions, the matter should be heard there and then, notwithstanding the Court having offered the possibility of an adjournment of a business day or two.
The tables were then turned. Mr Lee indicated that she had only been recently instructed to appear on the hearing. She indicated that she might require an adjournment to prepare written submissions in support of her application and to meet whatever was going to be said by Mr Doyle. I declined to deal with her application at that point and left it open for her to renew it after she and the Court had heard Mr Doyle's submissions as to why Mr Sekers' application to be released from the Undertaking should not be granted.
At the conclusion of Mr Doyle's submissions, Ms Lee applied for the indulgence of preparing written submissions (and, at least as I understood it, possibly further evidence) to meet the matters raised by Mr Doyle. I declined that application because by that time I had formed the view that there were two fundamental impediments to the Court releasing Mr Sekers from the Undertaking that would not be cured by granting the adjournment sought by Ms Lee. I informed Ms Lee what the two impediments were.
First, the facts made it clear that at the time he gave the Undertaking, Mr Sekers knew that Denning had a potential claim against XR in relation to the alleged delay in withdrawing the Caveat. Notwithstanding that knowledge, there was no suggestion that at the time the Undertaking was negotiated Mr Sekers had made any attempt to qualify his obligation by reference to any set- off that might be available to Denning against XR. The fact that the Compensation Proceedings had only lately been commenced did not make the claim "new" for the purposes of the Court's consideration of whether Mr Sekers should be released from the Undertaking.
Second, I could not see how the Court could accede to what was, in effect, an application by Mr Sekers to obtain security for judgment for the benefit of Denning in relation to its claim in the Compensation Proceedings against XR.
No criticism can be made of Ms Lee's approach to the matter. It was not her fault that she had been briefed late to appear on the hearing. It was Mr Sekers who had consistently failed to comply with the Court's directions, file evidence and indicate what his defence might be. No explanation was offered for that conduct. It would have been entirely contrary to the overriding purpose set out in of s 56 of the Civil Procedure Act 2005 (NSW) (the "CPA") to have granted Mr Sekers the indulgence of a further adjournment, given his approach to these proceedings through the entirety of their history. For the reasons set out in paragraph [65] and [66] above, I could see no benefit to Mr Sekers and only further delay for XR. Rather, I afforded Ms Lee the opportunity to take instructions about what she might submit in response to matters I had raised with her. Those responses are recorded in my consideration of the parties' submissions.

The parties' submissions

As appears from paragraph [63] above, although Mr Sekers bore the onus to satisfy the Court that he should be relieved from the Undertaking, it was convenient for XR's opposition to Mr Sekers' application to be argued first.
Mr Doyle drew to the Court's attention the decision of Cohen J in Baker v Beckett (Supreme Court (NSW), 26 May 1998, unrep) in which his Honour dealt with an application to vary undertakings, among other things, to pay money in a particular way. The Court accepts Mr Doyle's submission that Cohen J's statement of principle is applicable to the present case. I respectfully adopt and apply what his Honour said (at 8-9): "The next claim is that the undertakings should be varied, or more accurately that they should be discharged and different undertakings given in their place. These would be in much the same form, but would specifically permit payment from the bank account of moneys sufficient to pay the costs of Benalto. An undertaking given to the Court has the equivalent force of an injunction granted by that Court. An undertaking, accepted by the other party, is the equivalent of a consent order. It cannot be varied in the strict sense but if the party which has given it seeks its discharge and the substitution of a fresh undertaking then that application must be supported by evidence. Where a consent order or undertaking has been made or given until further order of the Court, there is a right to apply for discharge or modification, but only if there are good grounds for doing so. "Even in interlocutory matters a party cannot fight over again a battle which has already been fought unless there has been some significant change of circumstances, or the party has become aware of facts which he could not reasonably have known, or found out, in time for the first encounter. The fact that he capitulated at the first encounter cannot improve a party's position". Chanel Ltd v FW Woolworth & Co Ltd [1981] 1 All ER 745 at 751. The High Court has considered whether a Court has power, otherwise than in the case of mistake at the time of the giving of an undertaking, to release a party from that undertaking without consent. It decided that a Court has such a power in the same way as an interlocutory injunction until further order may be varied. It was said that a Court must remain in control of its interlocutory orders and a further order will be appropriate, amongst other matters, if new facts come into existence or are discovered which render its enforcement unjust. There must be evidence of those new facts. Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 178. Other reasons for varying or discharging a consent order or undertaking include mistake and fraud."
Mr Doyle's submissions may be summarised into four points: 1. At the time of giving the Undertaking, Mr Sekers was aware of the delays caused by the withdrawal of the Caveat. He knew that there was the possibility of redress for Denning from XR for those delays. In any event, the fact of the alleged delay was not something that arose after the giving of the Undertaking. 2. There were no new facts that had arisen since the giving of the Undertaking that could be said either to have surprised Mr Sekers or disadvantaged him so as to render the enforcement of the Undertaking unjust. 3. Denning and Mr Sekers had, at every turn, sought to delay payment of the debt arising from the Costs Order. That conduct had been particularly acute in the way Mr Sekers had approached the present proceedings, especially in his failure to comply with the Court's orders and to disclose any defence. It was only at the hearing of the proceedings that Mr Sekers finally acknowledged that, but for an attempt to be relieved from the Undertaking, he had no defence to an order that he comply with the Undertaking. All of these matters taken together constituted a powerful discretionary factor against allowing Mr Sekers to be released from the Undertaking. 4. To the extent that Mr Sekers could take advantage of any set-off that was available to Denning against XR's claim this could only be in equity. While there was a general factual connection tracing back to the encroachment dispute, it could not be said that there was a sufficiently close connection between Denning's obligation to satisfy the Costs Order and any liability which XR may have to Denning under s 74P of the RPA. Therefore, no equitable set-off was available.
For her part, Ms Lee submitted on behalf of Mr Sekers that the commencement of the Compensation Proceedings, when coupled with the now quantifiable claim for compensation under s 74P of the RPA, constituted sufficiently exceptional and new circumstances that rendered enforcement of the Undertaking unjust. Furthermore, she submitted that any injustice was compounded by the fact that XR was a $2.00 company and Mr Shien had no recorded assets, such that there was no certainty that any money paid by Mr Sekers to XR would remain available to satisfy Denning's claim against XR under s 74P of the RPA.

Resolution

The Court declined Mr Sekers' application to be relieved from the Undertaking essentially for the reasons advanced on behalf of XR. Applying the criteria identified by Cohen J in Baker v Beckett (see paragraph [69] above), the Court was not satisfied that Mr Sekers had demonstrated a significant change of circumstances, or that he had become aware of facts which he could not reasonably have known, or found out, at the time of giving the Undertaking, that now rendered it unjust for him to be required to comply with the Undertaking. There are seven reasons for this conclusion.
First, it is necessary to start with the language of the Undertaking itself, which I reproduce here again for convenience: "Daniel Sekers gives a personal undertaking to the Court that he will pay the sum of $294,602.84 into Court no later than close of business 30 July 2018 being payment by Denning Real Estate Pty Ltd ACN 002 876 539 of the amount that Denning Real Estate Pty Ltd was found to be liable for in respect of the costs order made by Young AJ on or about 5 May 2016 in Supreme Court Proceedings 2015/00259773. …"
As a matter of construction, both in its own terms and especially when taken in the context of the resolution of the proceedings before Pembroke J, the meaning of the Undertaking is clear and unqualified. It was not suggested for Mr Sekers that an implication could be made to the effect that the obligation to guarantee was qualified by the amount of any offsetting claim that might be available to Denning against XR. No such implication could sensibly have been contended for. By the Undertaking, Mr Sekers guaranteed payment of the amount of costs for which Denning would be found liable "come what may". Given that is clearly the proper construction of the Undertaking, Mr Sekers bore a significant burden of persuasion to satisfy the Court that it should now intervene to leave XR in a position materially less advantageous than that for which it had bargained and obtained by the making of the consent orders by Pembroke J on 14 August 2017.
Second, it is clear from Mr Sekers' own letter of 16 March 2017 to XR's solicitor (see paragraph [26] above) that at the time he gave the Undertaking Mr Sekers was well aware of the circumstances which are now relied upon by Denning (and Blueshore) in the Compensation Proceedings, even if the precise quantification of those claims was yet to come. The Caveat was withdrawn on 25 May 2017. The Undertaking was given on 14 August 2017. He was legally represented at that time. For all intents and purposes Mr Sekers was the developer of the Site through Denning and Blueshore. I have no doubt that at the time he gave the Undertaking he was well aware that, at least as far as he was concerned, Denning had incurred increased costs by reason of XR's failure to withdraw the Caveat. While there is no evidence that he ever did so, it would nevertheless have been open to Mr Sekers at the time he was negotiating the terms of the Undertaking to seek to have his liability limited to the extent that XR might owe compensation to Denning arising from the alleged delay.
In accepting the submission that the circumstances underlying any claim for compensation must have been known to Mr Sekers at the time of giving the Undertaking, I have not overlooked the submission Ms Lee made at least in relation to increased interest as between the earlier BLO and that which was ultimately executed. Ms Lee's point was that the final BLO was not executed until 19 October 2017 (see paragraph 64 of Mr Sekers' affidavit set out in paragraph [57] above). Therefore, it was submitted that the fact of a claim for additional interest was not known to Mr Sekers at the time he gave the Undertaking.
While factually correct, there are two reasons why this submission is of no assistance to Mr Sekers. First, the possibility of future rental lost to Denning and increased holding costs payable by Denning as a result of the alleged delay must have been known to Mr Sekers at the time he gave the Undertaking. As is apparent from paragraphs 63 and 65 of his affidavit set out in paragraph [57] above, those claims form the larger part of the amount claimed in the Compensation Proceedings. Second, the claim in relation to interest under the BLO is a claim by Blueshore (as is the claim set out in paragraph 66 of Mr Sekers' affidavit set out in paragraph [57] above). While Blueshore has standing as "any person who sustains pecuniary loss" under s 74P, as a separate legal entity it is a stranger to the present dispute between Mr Sekers (and inferentially Denning) and XR.
The third reason for refusing Mr Sekers' application is that the quantification of Denning's claim under s 74P and the commencement of the Compensation Proceedings do not constitute new facts or a significant change of circumstances sufficient to engage the Court's discretion to release Mr Sekers from the Undertaking. Neither of these things, nor the fact that XR may ultimately be found liable to Denning, makes it unjust for Mr Sekers to honour the Undertaking. In most (but not all) cases a relevant change of circumstances sufficient to engage the discretion would be something not attributable to the person who has given the Undertaking. In this case, it is Mr Sekers who has initiated the Compensation Proceedings as the controlling mind of Denning. It would be completely unrealistic for the Court to ignore that connection between them.
Fourth, while in and of itself not dispositive, the fact that it is just over two years since the Costs Order was made means that XR should not be deprived of the final fruits of that order without very good reason. In making this observation, I have not overlooked the fact that some of the delay has been caused by Denning exercising appeal rights which it was perfectly entitled to do. However, the chronology which I have set out above (particularly commencing from paragraph [41] and following) demonstrates that from the time of the review decision and through the course of these proceedings, Mr Sekers and Denning have deliberately sought to delay paying XR.
Fifth, and related to the previous point, is the fact that the Undertaking was given in support of, and to ensure, the satisfaction of an order of this Court, namely the Costs Order. As such, there is an additional public interest in ensuring that the Court's orders, including as to costs, are not only enforced, but are seen to be enforced and not interfered with without good reason. Such good reason will include where subsequent events, unknown at the time the order was made, have made enforcement of the order unjust. This is not such a case.
Sixth, looking at the position as between Mr Sekers and Denning, on the one hand, and XR, on the other, Mr Doyle urged that this was not a case where any liability which XR had to Denning impeached Denning/Mr Sekers' liability to XR. I accept Mr Doyle's submission that, in the context of the enforcement proceedings, no issue of a set-off under s 21 of the CPA arises. However, I do not think it is necessary for me to express a final view as to whether or not there would be an equitable set-off available to Denning and Mr Sekers in answer to XR's entitlement under the Costs Order.
Mr Doyle relied on the decision of Ward J (as her Honour then was) in Lahoud v Lahoud [2012] NSWSC 284: "87 With respect to the second line of reasoning, the proposition that the fact that the sum of money to be set-off against is undetermined does not affect the availability of set-off can be tested with reference to the Court's equitable jurisdiction, which often overlaps with the Court's inherent jurisdiction in cases concerning set-off of costs orders. 88 In Meagher Gummow and Lehane's Equity: Doctrines and Remedies (4th ed, 2002), the learned authors state succinctly at [37-045] that equitable set-off can be pleaded in reply to an unliquidated claim, citing I C F Spry "Equitable Set-Offs" (1969) 43 ALJ 265 and S B Granat "The Doctrine of Equitable Set-off" (1965) 5 MULR 76. Further, they note that equitable set-off is available in reply to an unliquidated claim is logically consistent with the position that an unliquidated claim can found a plea for set-off. At [37-045], the authors state that: At common law a claim could not ground a plea for set-off unless it was liquidated (see, for example, Fong v Chilli (1967) 11 FLR 495), but in equity it seems tolerably clear that a claim for an unliquidated amount would suffice. Lord Cawdor v Lewis (1835) 1 Y & C Ex 427; 160 ER 174 is one example of that. Piggot v Williams (1821) 6 Madd 95; 56 ER 1027 is another. There is Victorian authority to the contrary effect, that is, that no equitable claim can ground a plea of set-off unless it is be liquidated: it is Sholl J's decision in Bayview Quarries Pty Ltd v Castley Development Pty Ltd[1963] VR 445. However, this case must be regarded as erroneous as his Honour did not cite relevant Chancery authorities, and relied entirely on authorities dealing with common law set-off. Equally misleading, if it is meant to apply to equitable set-offs, is the dictum of Dixon J in McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 62; [1936] ALR 324 at 328: My opinion is that a liquidated cross-demand cannot be pleaded as an answer in whole or in party to a cause of action sounding in [unliquidated] damages or vice versa. This dictum was condemned by Woodward J in D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10. 89 Although Sivritas and Klein were discussed above in considering the court's inherent jurisdiction, they were also both expressed as cases applying principles of equitable set-off. 90 The classic case expounding the doctrine of equitable set-off is Rawson v Samuel (1841) Cr & Ph 161, where the Lord Chancellor held that there would not be set-off between a claim for damages and a claim for an account between the parties, on the basis that: We speak familiarly of equitable set-off, as distinguished from the set-off at law; but it will be found that this equitable set-off exists in cases where the party seeking the benefit of it can shew some equitable ground on being protected against his adversary's demand. The mere existence of cross-demands is not sufficient; Whyte v O'Brien [(1824) 1 Sim & St 551l 57 ER 218]; although it is difficult to any other ground for the order in William v Davies [(1829) 2 Sm 461; 57 ER 860], as reported. In the present case, there are not even cross-demands, as it cannot be assumed that the balance of the account will be found to be in favour of the Defendants at law. Is there, then, any equity in preventing a party who has recovered damages at law from receiving them, because he may be found to be indebted, upon the balance of an unsettled account, to the party against whom the damages have been recovered? 91 This case generally stands for the requirement (for an equitable set-off) to establish that the set-off impeaches the title of the party entitled to the claim which founds the set-off, to be essentially bound up with or to go to the root of that party's entitlement (Re Just Juice Corp Pty Ltd; Jones v Commonwealth (1992) 37 FCR 445)."
Questions of equitable set-off do not always present an obvious answer. It is sufficient for present purposes that I express the conclusion that, in my opinion, the case for an equitable set-off is very weak. True enough, there is a superficial factual similarity between the claims in that they arise from the fact that the protagonists' pieces of land were next to each other. However, XR's entitlement is pursuant to its successful assertion of a statutory right and a consequential order for costs in its favour. All of that occurred before the Caveat, which is the source of the rights asserted in the Compensation Proceedings, was ever filed. The parties' respective rights do not arise out of the same transaction and in my view it is a very tenuous argument to suggest that they are so essentially bound up with each other that XR's claim is impeached so as to give rise to an equitable set-off.
Another way of reaching the same conclusion is to look at the problem through the lens of the right of a guarantor to rely on cross-claims and defences available to the principal as against the creditor. As is made clear in J O'Donovan and J Phillips, Modern Contract of Guarantee (3rd ed, Looseleaf, Thomson Lawbook Co) at [11.550], it does not always follow that the guarantor is entitled to assert such rights against the creditor. In particular, the learned authors point out that "the guarantor's right to invoke any right of set-off or counterclaim available to the principal debtor may also be excluded by the Court's interpretation of the contract in its factual matrix". In this case, as I have set out in paragraph [74] above, when the Undertaking is construed (for this hypothetical analysis as part of the contract between the parties which led to the consent orders), the Court is clearly of the view that the Undertaking does not permit Mr Sekers to claim the benefit of any offsetting claim that might be available to Denning against XR.
Seventh, the practical effect of acceding to Mr Sekers' application and accepting the revised form of undertaking which he offered (see paragraph [9] above), would be to give Denning security for any judgment which it might obtain against XR in the Compensation Proceedings. Ms Lee sought to justify that outcome by reference to evidence which she had tendered to demonstrate that XR was a $2.00 company, that it had apparently sold such property as it had once owned (there was no evidence whether it did or did not have non-property assets) and that Mr Shien had been a director of numerous $2.00 companies, some of which had been deregistered. On behalf of XR, Mr Doyle submitted that there was far too little evidence to warrant the conclusion that XR might be impecunious. He submitted that the natural inference was that XR had sold its real property because it was a property development company that had now sold the development which had been its raison d'etre. In relation to Mr Shien, it was submitted that while several of the companies of which he had been a director and shareholder had indeed been deregistered, not one of the 25 companies about which there was evidence had been wound up in insolvency.
The Court accepts Mr Doyle's submission that the evidence falls far short of justifying a conclusion as serious as there being some risk of insolvency on the part of XR. Furthermore, in the ordinary course a plaintiff is not entitled to security against the possibility of a judgment against the defendant. In practical terms, the one exception to this is when the Court makes an asset preservation order. Again, the evidence concerning XR's financial circumstances, such as it was, could not possibly have justified the making of an asset preservation order against XR if Denning had asked for one.
XR has a clear right to receive the benefit of the Costs Order whether by payment from Denning or by Mr Sekers satisfying the Undertaking. For the Court to accept Mr Sekers' proposed alternative undertaking would be to work a serious injustice to XR by depriving it of its rights under the Costs Order and conferring on Denning a benefit (in the nature of security for a potential future judgment in the Compensation Proceedings) to which on no view of the law is Denning entitled.

Interest

Consequent upon the creditor's statutory demand a further demand was made on Denning on 5 December 2017 (see the letter quoted in paragraph [40] above). Denning did not (and has not) paid. The same letter put Mr Sekers on notice that he would be called on to satisfy the Undertaking if Denning did not pay.
Mr Doyle submitted that it was appropriate that the Court should order interest on the amount which Mr Sekers owes pursuant to the Undertaking. XR had been kept out of funds to which it was entitled. In the exercise of the Court's discretion to enforce the Undertaking, I accepted that interest should be awarded.
Mr Doyle submitted that because, in effect, what was being enforced was payment of a judgment (being the Revised Costs Judgment which itself gave effect to the Costs Order), by analogy the Court should apply the Court's post- judgment interest rate pursuant to s 101 of the CPA. That analogy seemed to me to be apt.
Insofar as the date from which interest should run was concerned, there were two reasons why the Court ordered interest to run from that date which was 28 days after demand had been made on Denning with notice to Mr Sekers on 5 December 2017. First, again by analogy with the enforcement of a judgment, interest does not normally run on a judgment if it is paid within 28 days. Second, given that the Undertaking did not specify when it had to be performed, in accordance with ordinary principles I took the view that, on its proper construction, the Undertaking required performance within a reasonable time of performance being required. The letter of 5 December 2017 put Mr Sekers on notice that performance of the Undertaking would be enforced if Denning did not pay. I was satisfied that 28 days from 5 December 2017 was a reasonable time given Mr Sekers, as Denning's controlling mind, would have known by then that Denning had not paid and that he was expected to comply with the Undertaking.

Costs

Ms Lee accepted that, given the outcome, XR should have an order for its costs against her client on the ordinary basis.
Mr Doyle submitted that his client should have its costs on the indemnity basis. He supported that argument with two submissions.
First, he drew attention to the decision of the Court of Appeal in McIntyre v Perkes (1988) 15 NSWLR 417. In that case, the Court of Appeal reviewed a number of decisions dealing with contempt which demonstrated that costs on a solicitor and client basis were often awarded to the private prosecutor in contempt proceedings. At least in some circumstances, costs payable on a solicitor and client basis can be even more advantageous than an order for indemnity costs. However, Mr Doyle also accepted that the Court of Appeal's decision was to the effect that costs, even in contempt matters, remained in the discretion of the Court.
Second, it was submitted that Mr Sekers' and Denning's delays generally since the Costs Order was made and, more particularly, Mr Sekers' conduct in relation to the present proceedings warranted an order for indemnity costs in accordance with the principles which usually applied to such orders.
Costs are in the discretion of the Court. In the ordinary course, costs follow the event. There can be no doubt that XR was entitled to its costs of these proceedings on the ordinary basis. Insofar as indemnity costs are concerned, the Court was satisfied that there were at least two distinct juridical bases on which such an order should be made.
The first basis is the Court's inherent jurisdiction in relation to undertakings given to it. As I have already observed, the question of enforcing an undertaking given to the Court is quintessentially a matter for the Court. There is a clear public policy in favour of such undertakings being enforced. In that context the imposition of an order for indemnity costs is not punitive. It is important that persons giving undertakings to the Court should understand that it is a serious thing to give such an undertaking and that serious consequences can follow where, without good reason, there has been a failure to honour that undertaking. Similarly, given the broader public interest in enforcing the performance of undertakings to the Court, those who are required to approach the Court to bring about that result should be able to do so in the expectation that, if they are successful and there is no factor pointing otherwise, they will not be left out of pocket in relation to costs.
Second - and quite apart from the fact that these were proceedings to enforce the Undertaking - I accept Mr Doyle's submission that the ordinary principles applying to the making of an indemnity costs order are relevant in this case. Mr Sekers' conduct of his defence in these proceedings has been attended by unexplained and, I am satisfied, deliberate delays, in combination with a position of passive resistance which he knew or ought to have known was unmeritorious from the moment these proceedings were commenced. He breached the Court's interlocutory orders and only conceded that he had no defence when the matter came on for hearing. All of those circumstances in and of themselves compelled the conclusion that Mr Sekers should pay XR's costs on the indemnity basis.

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: 31 July 2018

XR Property Developments Pty Ltd v Sekers

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