Supreme Court New South Wales Medium Neutral Citation: Aquamore Credit Equity Pty Ltd v Hung; First on First Development Pty Ltd v Aquamore Credit Equity Pty Ltd (No 2) [2022] NSWSC 117 Hearing dates: On the papers Date of orders: 17 February 2022 Decision date: 17 February 2022 Jurisdiction: Common Law Before: Meagher JA Decision: In proceeding 2019/371915: (1) Judgment for the plaintiff against the first defendant and the second defendant in the amount of $10,175,367, that judgment to take effect as of 21 December 2021. In proceeding 2020/341930: (2) The Court declares that the stipulation in clause 7.1 of the Facility Agreement between Aquamore Credit Equity Pty Ltd and First on First Development Pty Ltd dated 7 December 2016 providing for the payment of interest at the Higher Rate is unenforceable as a penalty. (3) Otherwise dismiss the claims for relief made by the summons filed 2 December 2020. In proceedings 2019/371915 and 2020/341930: (4) Order that First on First Development Pty Ltd and Mr Edgar Hung and Mr Trevor Chappell pay 70% of the costs of Aquamore Credit Equity Pty Ltd and Mr Allen Hsu and Mr Zachary Chang of both proceedings assessed on the ordinary basis. Catchwords: COSTS – offer of compromise – whether period for acceptance reasonable in circumstances JUDGMENTS AND ORDERS – interest – pre-judgment interest – rate applicable JUDGMENTS AND ORDERS – interest – post-judgment interest – exercise of discretion in Civil Procedure Act 2005 (NSW) s 101 Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 36.4(3), 36.7 Civil Procedure Act 2005 (NSW), ss 100, 101 Category: Costs Parties: Aquamore Credit Equity Pty Ltd (Plaintiff, 2019/371915; First defendant, 2020/341930) Edgar Hung (First defendant, 2019/371915) Trevor Chappell (Second defendant, 2019/371915) First on First Development Pty Ltd (Plaintiff, 2020/341930) Allen Hsu (Second defendant, 2020/341930) Zachary Chang (Third defendant, 2020/341930) Representation: Counsel: B Le Plastrier and R Sud (Plaintiff, 2019/371915; Defendants, 2020/341930) F Corsaro SC (Defendants, 2019/371915; Plaintiff, 2020/341930) Solicitors: Independent Legal (Plaintiff, 2019/371915; Defendants, 2020/341930) Tzovaras Legal (Defendants, 2019/371915; Plaintiff, 2020/341930) File Number(s): 2019/371915; 2020/341930 Publication restriction: Nil judgment 1. The principal judgment in these two proceedings was delivered on 21 December 2021 (Aquamore Credit Equity Pty Ltd v Hung; First on First Development Pty Ltd v Aquamore Credit Equity Pty Ltd [2021] NSWSC 1681). However, no final orders have yet been made. There remain questions as to the amount for which judgment should be entered in favour of Aquamore against the two guarantors, Mr Hung and Mr Chappell, and as to the costs order to be made, taking into account that the First on First parties succeeded on some of the issues in the proceedings. Quantum Judgment sum including pre-judgment interest 1. Aquamore seeks a money judgment against the guarantors in the amount owing under the Facility Agreement, together with interest in accordance with the terms of that Agreement until the date of judgment. As the reasons were published on 21 December 2021, I propose to enter judgment for an amount with interest which takes effect on 21 December 2021, as provided for by Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 36.4(3). 2. In relation to the calculation of that judgment sum, there are two issues between the parties. The first is whether, as Aquamore contends, the amount on which interest up to judgment is to be calculated is $10,470,670 which, by the terms of the Deed of Amendment and Restatement, was due for repayment on 6 September 2017. In response, First on First says that the relevant calculation should start at 7 December 2016, the date of the original drawdown. Exactly what that calculation involves is not spelled out. 3. That contention has no regard to the provisions of the amending Deed. Under the new facility made available by that Deed (and its consequential amendments to the Facility Agreement), the moneys advanced on 6 June 2017 for a period of 3 months included the sum necessary to repay the initial facility and interest to 6 June 2017. The balance of the remaining amount advanced was equal to the additional establishment fee and prepaid interest (calculated at the Lower Rate) for the 3 month period of the new facility. The total amount advanced, including the prepaid interest, was $10,470,670, and that amount was to be repaid on 6 September 2017. 4. Following default in repayment on 6 September 2017, Aquamore pursued recovery, including in exercising its power of sale. In doing so it incurred expenses and ultimately received funds from the sale process. Those payments and receipts were added or subtracted from the Money Owing and were summarised in a schedule produced by Aquamore which identifies the date each amount was received or paid and the affidavit evidence establishing that fact. The defendants' written submissions take no issue with the accuracy of that schedule. 5. Aquamore claims interest calculated to the date of judgment on that unpaid amount at the Higher Rate. That rate is 5% per month accruing daily and compounding monthly. That claim is made under cl 5.2 of the Facility Agreement. Alternatively, Aquamore submits that it is entitled to interest at that rate under the "independent obligation" in cl 7.2. 6. It follows that the Court's power to award interest up to judgment under Civil Procedure Act 2005 (NSW), s 100 is not enlivened (see s 100(3)(b)). 7. Clause 5.2 is set out at J[111]. In its terms it is directed to the rate of interest to be charged during the period of the relevant advance and ending on the Termination Date. The clause also provides for the difference between "interest charged at the Higher Rate" during that period and the amount of the prepaid interest (calculated at the Lower Rate) to be added to the amount to be repaid on the Termination Date. 8. In the principal judgment I construed cl 5.2 as providing, coherently with cl 7.1, that the Lower Rate of interest applies in "any period during which there is no subsisting Event of Default" (J[115]). In doing so, cl 5.2 says nothing about the interest rate which might apply after the Termination Date, and does not produce any different outcome than would cl 7.1, assuming it did not involve a stipulation for a penalty. 9. Aquamore contends that to construe cl 5.2 as limited to the period of the advance would have the consequence that "no rate of interest is charged on the Money Owing from the Termination Date". 10. That is not so. Clause 7.1, which is set out at J[40], provides that the Borrower must pay interest on the Money Owing at the Higher Rate for the period from the date on which an Event of Default occurs until the date on which the Event of Default is remedied. Under the Facility Agreement, a failure to pay an amount that is due and owing constitutes an Event of Default (cl 11.1(b)). 11. Accordingly, First on First's failure to pay the Money Owing on 6 September 2017 constituted an Event of Default to which cl 7.1 applied. As the stipulation for the payment of interest at the Higher Rate in that clause is unenforceable as a penalty, the clause requires that interest be calculated from the Termination Date to the date of judgment at the Lower Rate. 12. Subject only to Aquamore's alternative argument concerning cl 7.2, judgment should be entered in favour of Aquamore against Mr Hung and Mr Chappell for $10,175,367 (omitting cents), that judgment to take effect on 21 December 2021. That amount includes interest accruing daily and compounding monthly at 2.50% per month on the balance of the amount outstanding from time to time from 6 September 2017. Clause 7.2 1. Clause 7.2 does not assist Aquamore to avoid the outcome that pre-judgment interest is recoverable at the Lower Rate. That clause provides: 7.2 Further interest If a liability under this agreement becomes merged in a judgment or order or exists after any winding up of the Borrower, the Borrower, as an independent obligation, must pay interest on the amount of that liability from the date that liability becomes payable both before and after the judgment, order or winding up until it is paid, at the Higher Rate. 1. In its terms cl 7.2 purports to impose an "independent obligation" on First on First to pay interest at the Higher Rate in respect of a "liability" from the date the liability "becomes payable both before and after the judgment" and until it is paid. The event which gives rise to that obligation has not yet occurred, but will occur on the entry of judgment in respect of First on First's liability to repay the moneys advanced and interest to the date of judgment. It follows that this clause does not operate to vary the interest rate to be applied up to the date of judgment. Upon the entry of judgment, the clause purports to impose an additional obligation to pay interest at the Higher Rate during the pre-judgment period as well as after judgment. 2. It is not necessary to consider further any foreshadowed claim to enforce that "independent obligation". No such contractual claim was pleaded or the subject of relief claimed in the statement of claim or in any written or oral submissions made by Aquamore to the Court. If such a contractual claim was to be made, it was required to be pleaded. Post-judgment interest 1. Under Civil Procedure Act, ss 101(1) and (2), unless the Court otherwise orders, interest is payable on so much of the judgment as is from time to time unpaid at the "prescribed rate". Currently, the prescribed rate is 6% above the Reserve Bank of Australia cash rate (UCPR, r 36.7). Section 101 does not authorise the making of an order for payment of interest on interest (s 101(6)). 2. Aquamore seeks an order that post-judgment interest be payable calculated at the Higher Rate, in other words, at the rate of 5% per month accruing daily and compounding monthly. 3. Such an order for payment of compounding interest cannot be made. Nor would I make an order for interest to be paid at that rate, having concluded that the imposition of such a rate in the Facility Agreement was unenforceable as a penalty. In the absence of evidence which might have permitted an assessment of the likely actual cost to Aquamore, or perhaps its funder, of being kept out of the judgment sum, I am not satisfied that the interests of justice require that post-judgment interest be payable other than at the prescribed rate. In so concluding I have not had any regard to cl 7.2, which has not been the subject of any claim, or debate as to its meaning and enforceability. Costs The exercise of the costs discretion (before consideration of offer of compromise) 1. There were two proceedings. The first, commenced by Aquamore, sought to recover judgment against the guarantors, and the second, commenced by First on First slightly more than a year later, raised a number of the issues already pleaded by the guarantors in their defence. First on First also made claims against the two directors of Aquamore for breaches of duty said to have been owed to it. Those claims were abandoned at the commencement of the hearing. 2. The principal claim made by First on First was for equitable compensation for alleged breaches of duty in the exercise of the power of sale. First on First maintained that the property should have been sold for $18 million and, assuming interest accruing at the Lower Rate, claimed about $5.9 million by way of equitable compensation. (That was the surplus after application of the proceeds of sale in repayment of the advance and interest.) That claim was rejected, notwithstanding that the Higher Rate of interest was held to be unenforceable as a penalty. Its rejection meant that there would always be a significant judgment entered in favour of Aquamore against the guarantors. 3. The guarantors and First on First also succeeded on the issues relating to the Deed of Amendment and Restatement and non-monetary defaults, which for the most part involved legal arguments. At all times it was apparent that, as in fact occurred, the resolution of those arguments in favour of First on First and the guarantors would not have produced a positive outcome unless there was also success on the power of sale claim. I accept Aquamore's submission that that claim required relatively more time at trial than those other matters in dispute, as well as additional cost because of the involvement of expert valuation witnesses. 4. In the result, in the proceeding it commenced Aquamore will obtain a significant judgment against the guarantors, and at the same time the proceeding brought by First on First will be dismissed. In each proceeding the outcome is overall success for Aquamore. 5. Because of the substantially common issues in each proceeding, there should be only one costs order. Whilst that order must recognise Aquamore's success, the position remains that the guarantors and First on First have been successful on discrete issues, although not issues which would have secured ultimate success where the power of sale claim was rejected. 6. Taking account of that limited success, and of the fact that the claims against the directors were abandoned at the hearing, First on First and the guarantors should pay 70% of Aquamore's costs. Aquamore's offer of compromise 1. Aquamore contends, relying on an offer of compromise made on 22 April 2021 pursuant to UCPR r 20.26, that in each proceeding First on First and the guarantors should pay its costs on the ordinary basis up to 28 April 2021, when the offer ceased to be open for acceptance, and on an indemnity basis thereafter. That offer was that in Aquamore's proceeding there be judgment for it in the amount of $1.5 million and no order as to costs, and that in the First on First proceeding there be judgment for Aquamore and no order as to costs. 2. Whether that offer was an offer conforming to the requirements of r 20.26 depends on whether the period allowed for its acceptance was "reasonable in the circumstances" (r 20.26(5)(b)). 3. For the guarantors and First on First, the significant question to be assessed was their prospects in relation to the claim for breach of duties in the exercise of the power of sale. That claim for equitable compensation was first brought in the proceeding commenced in December 2020. It had, however, been raised as a set-off defence by the guarantors in response to Aquamore's proceeding. 4. On 9 April 2021, it was ordered that the two proceedings be heard together, commencing on 4 May 2021. Directions were then made for the service of lay and expert evidence, as well as written submissions. 5. Relevantly, the position at the time the offer was made on 22 April was that First on First and the guarantors were to file their written submissions by 20 April, Aquamore was to respond by 28 April, and First on First and the guarantors were to reply by 3 May 2021. In addition, Aquamore was to file any lay or expert evidence in response to the guarantors' lay and expert evidence by 30 April 2021. 6. In circumstances where at the time the period for acceptance of Aquamore's offer closed at 11am on 28 April 2021 there were further relevant submissions and evidence to be served addressing the power of sale issue, the offer of compromise did not provide a reasonable period for its consideration and acceptance. It required First on First and the guarantors to make assessments of the strengths and weaknesses of their case without the benefit of Aquamore's submissions in response and all of its lay and expert evidence. 7. It follows that the offer of compromise did not comply with UCPR r 20.26(5). Conclusion 1. In light of the foregoing, the Court makes the following orders: In proceeding 2019/371915: 1. Judgment for the plaintiff against the first defendant and the second defendant in the amount of $10,175,367, that judgment to take effect as of 21 December 2021. In proceeding 2020/341930: 1. The Court declares that the stipulation in clause 7.1 of the Facility Agreement between Aquamore Credit Equity Pty Ltd and First on First Development Pty Ltd dated 7 December 2016 providing for the payment of interest at the Higher Rate is unenforceable as a penalty. 2. Otherwise dismiss the claims for relief made by the summons filed 2 December 2020. In proceedings 2019/371915 and 2020/341930: 1. Order that First on First Development Pty Ltd and Mr Edgar Hung and Mr Trevor Chappell pay 70% of the costs of Aquamore Credit Equity Pty Ltd and Mr Allen Hsu and Mr Zachary Chang of both proceedings assessed on the ordinary 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: 17 February 2022