Supreme Court New South Wales Medium Neutral Citation: Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd (No 2) [2020] NSWSC 317 Hearing dates: On the papers Date of orders: 30 March 2020 Decision date: 30 March 2020 Jurisdiction: Equity Before: Robb J Decision: Order the plaintiffs to pay the defendant's costs of the notice of motion filed by the plaintiffs on 12 June 2019, as amended on 20 September 2019, on the ordinary basis. Catchwords: COSTS — Party/Party — Bases of quantification — Ordinary basis Legislation Cited: Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd [2019] NSWSC 1297 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Category: Costs Parties: Naro Investments Pty Ltd (first plaintiff) Margherita Demarti (second plaintiff) Rocco Demarti (third plaintiff) Natalie Demarti (fourth plaintiff) Benjamin & Khoury Pty Ltd (defendant) Representation: Counsel: N Obrart (plaintiffs) M Castle / T Krayem (defendant) Solicitors: Harper James Law Group (plaintiffs) Benjamin & Khoury (defendant) File Number(s): 2019 / 182253 Judgment 1. The question before the Court is as to what costs order should be made in respect of a notice of motion filed by the plaintiffs on 12 June 2019, which was amended on 20 September 2019. 2. After a number of interlocutory hearings, I delivered reasons for judgment on 26 September 2019: see Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd [2019] NSWSC 1297. 3. The facts relevant to the application are somewhat complex and are set out in some detail in the reasons for judgment. I will not repeat them here. 4. It is sufficient to note that, on 5 December 2018, the parties entered into a deed described as "Deed of Agreement – Compromise of Costs" (the deed). The defendant, which is an incorporated legal practice, had earlier acted for some of the plaintiffs. The defendant claimed to be entitled to be paid costs of $547,237.90. The deed provided that the plaintiffs would pay, and the defendant would accept, $492,000, in full settlement of the defendant's costs claim. 5. The plaintiffs were represented in the negotiations that led to the execution of the deed by a competent, independent solicitor. 6. Clause 1 of the deed contained an agreement by the plaintiffs to pay the defendant $492,000 by 1 July 2019. The plaintiffs did not pay that amount on time, and as I understand it, they still have not done so. 7. The deed gave the defendant certain rights in order to secure its entitlements under the deed. It is sufficient to note that relevant plaintiffs agreed to sell certain property owned by them by a deadline, in order to allow the plaintiffs to make the agreed payment. Relevant plaintiffs executed second mortgages in favour of the defendant, which the defendant was entitled to protect by the lodgement of caveats. The defendant was also given an irrevocable power of attorney that authorised the defendant, from 2 July 2019, to sell the relevant property interests of the plaintiffs. 8. The plaintiffs commenced these proceedings by summons filed in court on 12 June 2019 in which, in substance, they sought orders that the deed, the irrevocable powers of attorney, the mortgages, and a promissory note previously signed by the plaintiffs are void. 9. The plaintiffs have filed a statement of claim in support of their summons. The statement of claim has been amended on a number of occasions. It is not necessary to state the grounds upon which the plaintiffs seek to support the claims for relief made by them. 10. By their initial notice of motion, the plaintiffs sought orders that the caveats lodged by the defendant be withdrawn, in order to enable relevant plaintiffs to refinance their existing loans secured over the properties, so that they would have a fund to pay into court the amount claimed by the defendant. The notice of motion contemplated that the defendant would have leave to lodge fresh caveats, after the new lender had registered its first mortgages over the properties. 11. The notice of motion also sought orders restraining the defendant from acting on the irrevocable powers of attorney or taking steps to register its second mortgages. 12. The application first came before me, sitting in the Duty List, on 20 June 2019. Order 5 made on that date noted the undertaking by the defendant, given to the Court, in the terms of the restraints in pars 4 and 5 of the plaintiffs' notice of motion filed on 12 June 2019, up to and including Tuesday, 2 July 2019 or further order. This undertaking related to the defendant's right to act on the irrevocable powers of sale and to register its mortgages. 13. The defendant renewed the undertaking to the Court on a number of occasions, until it was finally relieved of the undertaking. The defendant gave the undertaking in order to facilitate the Court's determination of the plaintiffs' claims in the notice of motion, and to preserve the status quo until that could be done. 14. The circumstances in which the Court dealt with the notice of motion became protracted. The plaintiffs, as mentioned above, initially sought to refinance their loans secured on the properties. They encountered difficulty, because of credit worthiness issues, which required the assistance of the defendant. The plaintiffs then wished to borrow from another funder, but ultimately changed their minds because of the high interest rate that would be charged. The plaintiffs then asserted that they had entered into a contract for the sale of a relevant property to a purchaser. The contract was to be completed within six months. There was reason to doubt whether the contract was genuine, and it would not become unconditional until the purchaser paid the deposit. The relevant plaintiffs had a right to terminate the contract if the deposit was not paid. 15. By their amended notice of motion filed on 20 September 2019, the plaintiffs abandoned their claims for orders withdrawing and substituting the caveats, because they no longer sought to refinance the mortgages on the properties. 16. The plaintiffs pursued their claims for interlocutory orders restraining the defendant from acting on the irrevocable powers of sale, taking steps to register the second mortgages, or taking any other actions on the deed, until the final determination of the proceedings or further order. 17. It was in these circumstances that the Court, after a number of hearings, delivered its reasons for judgment on 26 September 2019. 18. Relevantly, on 27 September 2019, the Court made the following orders: The Court … 3. Notes that the defendant's undertaking given on 20 June 2019 to the Court will continue until Monday, 14 October 2019, save that the defendant is permitted to seek registration of its second mortgages as permitted by the Court's judgment. 4. Orders that the defendant will be free of the undertaking recorded in order 3 if the plaintiffs do not confirm to the defendant by 4pm on Monday, 30 September 2019 that, as a condition for the continuation of the undertaking, if the purchaser under the contract of sale referred to in the Court's judgment delivered on 26 September 2019 does not provide the bank guarantee for the deposit by 10 October 2019 the plaintiffs, or so many of them as are vendors, will exercise the right contained in the contract to terminate it for non-payment of the deposit. 5. Directs the plaintiffs to serve on the defendant within 2 days of the deposit referred to in order 4 being paid, whether in cash or bank guarantee, an affidavit proving proper proof of that fact. 6. Grant leave to the defendant to serve on the purchaser under the contract for sale a subpoena returnable before Robb J at 9:30am on Monday, 14 October 2019 to produce evidence of the purchaser's capacity to complete the contract for sale. 1. At the hearing of the amended notice of motion, the defendant accepted that the evidence established that there was a serious question to be tried as to whether the deed and the rights granted in it to the defendant should be set aside. However, the defendant stressed its submission that the plaintiffs' case was a very weak one, given that they had competent, independent advice from a solicitor in entering into the deed, which had been the subject of detailed negotiations. 2. The defendant submitted that the balance of convenience favoured the Court rejecting the plaintiffs' claims for interlocutory relief. 3. The Court, in substance, accepted the defendant's submissions, but with a qualification. The Court concluded that there was no basis for restraining the defendant from registering its second mortgages, if it was able to do so. Further, it would not be appropriate to restrain the defendant from exercising its rights under the deed until the determination of the plaintiffs' proceedings. However, it remained possible that the relevant plaintiffs had entered into a valid contract for the sale of the property, and that, on completion of the contract, the plaintiffs would have sufficient funds to pay the amount claimed by the defendant into court. The Court found that the balance of convenience justified a short-term continuation of the restraint of the defendant exercising its rights under the deed, in order to give the plaintiffs one last opportunity to be able to raise the funds necessary to pay the amount claimed by the defendant into court. Hence, the Court made the orders set out above. 4. As it has happened, however, when the matter came back before the Court on 14 October 2019, the Court received an affidavit from the solicitor for the plaintiffs that indicated that the supposed purchaser under the contract for sale had not paid the deposit by 10 October 2019. 5. Among other orders, the Court made the following notation: 3. Notes that the defendant's undertaking given on 20 June 2019 which has continued until today, Monday, 14 October 2019 because of the undertaking given by the plaintiffs in Exhibit D2 will terminate at midnight 14 October 2019 leaving the defendant free to exercise the rights under the deed dated 5 December 2018. 1. The effect of this notation, in light of the earlier orders made by the Court, was that the plaintiffs ultimately failed to obtain the interlocutory relief that they sought in their notice of motion, as amended. 2. The plaintiffs did succeed in obtaining various forms of short-term interim relief, largely because of the preparedness of the defendant to volunteer the undertakings to the Court that it would not exercise its rights under the deed. 3. Both the Court and the defendants took this course because of the appearance, notwithstanding the doubts about whether the courses that the plaintiffs wish to take would be successful, that there was some chance that one of the plaintiffs' proposals would generate the funds necessary to enable the plaintiffs to pay into court the amount claimed by the defendant. In that respect, the plaintiffs enjoyed an indulgence provided by the Court, for a short-term. However, ultimately the application made by the plaintiffs was futile. 4. In these circumstances, the defendant seeks an order that the plaintiffs pay its costs of the notice of motion filed on 12 June 2019, and amended on 20 September 2019, on the indemnity basis, or alternatively the ordinary basis. The defendant also seeks an order that the costs be payable forthwith. 5. The plaintiffs responded by submitting that the costs of the interlocutory dispute should be reserved up until the final hearing, and then should follow the event of that hearing. Alternatively, the plaintiffs submitted that the costs of the interlocutory dispute should be the defendant's costs in the cause. 6. Section 98(1)(a) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the court. By par (b) of that provision, the Court has full power to determine by whom, to whom and to what extent costs are to be paid. 7. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) lays down the general rule that the Court is to order that the costs follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 8. I consider that, although the process by which the final outcome of the plaintiffs' application was reached became protracted, they failed in their application. Although their amended notice of motion was not formally dismissed, that was because the combined effect of the orders and notations made by the Court was that, by 10 October 2019, the defendant was free from any restraint in exercising its rights under the deed. 9. The plaintiffs had a degree of ephemeral success by means, primarily, of the defendant's voluntary making and continuation of its undertaking to the Court that it would not exercise its rights under the deed, but that was only for the purpose of giving time to the plaintiffs to see whether they could pay the money claimed by the defendant into court, without the defendant having to exercise its rights under the deed. 10. The defendant was, in substance, successful in its resistance to the notice of motion and nothing, in my view, makes it appear that the Court should make any order other than that the plaintiffs pay the defendant's costs of the notice of motion, as amended. 11. Although the plaintiffs' pursuit of the interlocutory relief sought in their notice of motion may have been misguided and ultimately futile, I do not find that the plaintiffs have acted unreasonably or engaged in any relevant misconduct in relation to their application. It may be that they made commercial misjudgments about the likelihood that they could bring the transactions that they were pursuing to fruition, but it was reasonable for them to try to do so, in order to generate the funds to pay the amount claimed by the defendant into court. The evidence does not establish that their aspirations were not genuine: see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11. 12. Rule 42.7 of the UCPR provides: "(2) Unless the Court orders otherwise, costs referred to in sub-rule (1) do not become payable until the conclusion of the proceedings". Sub-rule (1) covers the interlocutory costs order that will be made in this case. 13. I do not accept that the defendant has established in this case a right to have an order that the costs to be payable by the plaintiffs should be paid forthwith. I note from the Court's file that case management orders have been made that should have the effect that the parties' evidence should be completed by 3 April 2020. While it may be some time thereafter before the proceedings can be heard and determined, it has not been established to my satisfaction that the costs of the application will be so large, and the time before the Court makes final costs orders in the proceedings so long, that it will be appropriate to make a forthwith costs order: see Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432. 14. Accordingly, the Court makes the following order: order the plaintiffs to pay the defendant's costs of the notice of motion filed by the plaintiffs on 12 June 2019, as amended on 20 September 2019, 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: 01 April 2020