Supreme Court New South Wales Medium Neutral Citation: Peng v Hua Cheng International Holdings Group Pty Ltd [2018] NSWSC 726 Hearing dates: On the papers Date of orders: 21 May 2018 Decision date: 21 May 2018 Jurisdiction: Equity Before: Darke J Decision: Leave granted to plaintiffs to discontinue proceedings on the basis that there be no order as to costs. Catchwords: COSTS – discontinuance – proceedings futile due to supervening event – whether sufficient grounds to depart from default position on costs contained in Uniform Civil Procedure Rules 2005 (NSW), r 42.19 Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), r 42.19 Cases Cited: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 Foukkare v Angreb Pty Ltd [2006] NSWCA 335 Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Category: Costs Parties: Chao Peng (First Plaintiff) Sihong Wang (Second Plaintiff) Hua Cheng International Holdings Group Pty Ltd (First Defendant) Christine He (Second Defendant) Representation: Counsel: Mr B Burke (Second Defendant) Solicitors: David Hand Solicitor (Plaintiffs) Ashhurst Australia (First Defendant) Argus Lawyers (Second Defendant) File Number(s): 2016/107675 Publication restriction: None Judgment 1. The Court was informed on 4 May 2018 that the plaintiffs did not wish to continue the proceedings, having come to the conclusion that they had become futile. However, there was disagreement between the plaintiffs and the second defendant concerning the appropriate order for costs consequent upon a discontinuance of the proceedings. Directions were made for the provision of written submissions on the question, with a view to it being determined on the papers. 2. The Court has now received written submissions from the plaintiffs' solicitor and from counsel for the second defendant. No submissions have been received from the first defendant. In short, the plaintiffs submit that it would be appropriate for the Court to make no order as to costs, whereas the second defendant submits that the Court should order the plaintiffs to pay her costs up to the date of the discontinuance. In that regard, the second defendant relies upon Uniform Civil Procedure Rules 2005 (NSW) r 42.19 which relevantly provides: (1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1. (2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued. 1. The plaintiffs submit that UCPR r 42.19 does not apply because there is a common acceptance by all parties that the proceedings should be finalised with all parties preserving their rights. In my opinion UCPR r 42.19 applies because the contemplated termination of the proceedings is by way of a discontinuance, as provided for in UCPR r 12.1. However, I have come to the view that there are sufficient grounds in the present case to warrant a departure from the ordinary or default position as laid down in UCPR r 42.19 (see Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [78] and [84]; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54] and [64]-[65]). I consider that it is appropriate to exercise the Court's discretionary power concerning costs by ordering that there be no order as to the costs of the plaintiffs' proceedings, to the intent that each party to those proceedings bears its own costs. 2. The proceedings were commenced by the first plaintiff against the first defendant by a Summons filed on 7 April 2016. An Amended Summons, which joined the second plaintiff and the second defendant, was filed on 2 September 2016. The proceedings essentially concern claims for specific performance of contracts to purchase real property "off the plan" from the first defendant. The first plaintiff entered into a contract to purchase what may be described as Unit 605. The second plaintiff entered into a contract to purchase what may be described as Unit 603. The first defendant subsequently entered into a contract to sell Unit 603 to the second defendant. 3. In 2016 the first defendant purported to rescind the contracts it had with the plaintiffs, but the plaintiffs disputed the validity of the rescissions. 4. The land the subject of the contracts was and remains subject to a registered first mortgage in favour of Super Vision Resources Ltd. 5. The first defendant fell into financial difficulties. Receivers and managers were appointed to the property of the first defendant by the mortgagee on 22 June 2017. The first defendant went into creditors' voluntary liquidation on 21 July 2017. 6. The mortgage debt remains unpaid. The liquidator considers that it is highly unlikely that the secured property available will be sufficient to enable repayment in full. The mortgagee, for its part, is unwilling to provide discharges of mortgage to facilitate completion of the contracts the first defendant entered into with the plaintiffs and the second defendant. The mortgagee considers that the prices under those contracts are significantly below market value. It is this position which gives rise to the futility of the proceedings as claimed by the plaintiffs. 7. As pointed out by the second defendant, where UCPR r 42.19 applies, there is an onus on the discontinuing party to show reasons why costs should not be dealt with in accordance with the rule (see Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [65]). Here, the plaintiffs submitted (relying upon Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-5) that they did not act unreasonably in instituting the proceedings, and the that the futility of the proceedings renders it appropriate that there be no order as to costs. The second defendant submitted, correctly, that showing that it was reasonable to commence the proceedings (a matter which was not conceded by the second defendant) does not necessarily warrant a departure from the order as laid down in the rule (see Australiawide Airlines Ltd v Aspirion Pty Ltd (supra) at [48] and [64]). A sound positive ground or good reason, or some additional factor, needs to be shown (see Australiawide Airlines Ltd v Aspirion Pty Ltd (supra) at [54] and [65]). 8. I am satisfied that it was reasonable for the proceedings to be commenced against both the first defendant, and later the second defendant, in order to vindicate the rights claimed under the plaintiffs' contracts to purchase. Further, the continuation of the proceedings has been rendered apparently futile due to the financial position that has since emerged in relation to the first defendant and its mortgagee. That supervening event is a matter outside the control of the plaintiffs (and the second defendant) and is one that might fairly be regarded as unexpected. 9. The second defendant suggested that the employment relationship that formerly existed between the first plaintiff (the husband of the second plaintiff) and the first defendant means that the plaintiffs should be taken to have much better knowledge than the second defendant concerning the financial position of the first defendant, including the mortgage. However, even if that is so, I am unable to accept that the plaintiffs should be taken to have appreciated a likelihood of financial problems of the type that later emerged. 10. In my opinion the circumstances referred to above, when considered together, amount to sufficient grounds to warrant a departure from the default position set out in UCPR r 42.19. The proceedings were commenced reasonably by the plaintiffs, but became futile due to an unexpected supervening event that cannot be attributed to any conduct of the plaintiffs. I consider that it is appropriate to grant leave to the plaintiffs to discontinue the proceedings against the defendants on the basis that there be no order as to costs, to the intent that each party bears its own costs. The Court will direct that the plaintiffs file a Notice of Discontinuance within 7 days. ********** 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: 21 May 2018