The plaintiff, Alicja Polbratek, commenced these proceedings on 28 January 2016 by the filing of a Statement of Claim. The proceedings concern a contract for the sale of a property in Gascogne Street, Prestons. According to the Statement of Claim, the contract was entered into on about 6 May 2014 between the plaintiff as vendor and the second defendant, Tony Gulaboski, as purchaser. The purchase price was $560,000, which included a deposit of $56,000. It is alleged that the second defendant paid half of the deposit to the first defendant Annross Partners Pty Limited (trading as Centro Real Estate). It is further alleged that the second defendant failed to complete the contract as required by the terms of a Notice to Complete served on 8 July 2014, and that on about 12 August 2014 the plaintiff terminated the contract by service of a Notice of Termination.
The relief sought in the Statement of Claim includes a declaration that the contract has been validly terminated, and a declaration that the plaintiff is entitled to the $28,000 paid to the first defendant. Orders are sought for the first defendant to pay that sum to the plaintiff, and for the second defendant to pay the remaining half of the deposit to the plaintiff. The plaintiff also seeks other relief against the second defendant, including damages.
The first return date of the Statement of Claim was 26 February 2016. On that occasion there were appearances for the plaintiff and the first defendant, but not for the second defendant (who had not been served). Various orders were made by consent, including an order that by 4 March 2016 the first defendant pay the $28,000 (together with any interest earned on the money) into the trust account of the plaintiff's solicitor. The Court noted the undertaking of the plaintiff's solicitor not release such monies without further order of the Court or the consent of the second defendant. The proceedings against the first defendant, except in relation to costs, were dismissed.
Directions were made for the provision of written submissions on the question of costs. The plaintiff and the first defendant agreed that such question could be determined on the papers. The last of the written submissions were provided on 21 March 2016.
Alicja Polbratek v Annross Partners Pty Limited trading as Centro Real Estate [2016] NSWSC 385 | Case summary | Zoe
The plaintiff seeks an order that the first defendant pay her costs of the proceedings insofar as they concern the claim against the first defendant. The order is sought on an indemnity basis, or alternatively on the usual basis.
The first defendant seeks an order that the plaintiff pay its costs of the proceedings up to and including 26 February 2016 on the usual basis, and thereafter on an indemnity basis.
The plaintiff points to various requests made to the first defendant prior to the commencement of the proceedings for the $28,000 (and any interest) to be paid into the plaintiff's solicitor's trust account pending the outcome of foreshadowed proceedings against the second defendant. The plaintiff submitted that the failure of the first defendant to accede to those requests necessitated its joinder to the proceedings, that the plaintiff (by virtue of the orders made on 26 February 2016) was wholly successful against the first defendant, and that costs should follow the event. The plaintiff rests her claim for indemnity costs on certain conduct of the first defendant said to amount to relevant delinquency - namely, seeking an acknowledgment from the plaintiff that commission of $11,200 was due to it, in return for releasing the balance of the money it held.
The first defendant submitted that it held the money as a stakeholder, and that it did not have instructions from the second defendant (or solicitors for the second defendant) that would authorise disbursement of the funds held. The first defendant submitted that in those circumstances it was necessary for the plaintiff to commence proceedings joining both the first and second defendants. Reference was made to Part 10 of the Residential Conveyancing Protocol (entered into by the Law Society of New South Wales and the Real Estate Institute of New South Wales), which provides:
10.1 The vendor's solicitor and the vendor's agent acknowledge that in the event that the deposit is held by the vendor's agent, the agent holds the deposit as stakeholder on behalf of both the vendor and purchaser and that the agent is not permitted to account for the deposit to one of the parties without the written authority of the other party or court order.
10.2 If the purchaser fails to complete the contract and the vendor becomes entitled to the deposit, the solicitor and agent will mutually cooperate to obtain a written authority from the purchaser or the purchaser's solicitor to account for the deposit.
10.3 If the agent and solicitor are unable to obtain the necessary authority to account for the deposit from the purchaser or the purchaser's solicitor, the solicitor will advise the vendor of the possible need to obtain an order from a Court of competent jurisdiction.
The first defendant submitted that it was always willing to release the funds to a court or if instructed by both parties. The first defendant thus disputed that the plaintiff should be regarded as having wholly succeeded against it. It was rather a situation where the first defendant (once the necessary proceedings had been commenced) brought its role in the proceedings to a close at the earliest opportunity. Finally, the first defendant pointed to a letter its solicitor wrote to the plaintiff's solicitor on 26 February 2016 in which an offer was made that the costs issue be resolved on the basis that each party pay its own costs.
In her submission in reply, the plaintiff reiterated that the first defendant could have agreed to pay the funds into the plaintiff's solicitor's trust account pending an order of the court authorising release of the funds to the plaintiff, and hence avoided the need for the first defendant to be joined to the proceedings. It was submitted that this could have been done without offending the Residential Conveyancing Protocol or any other obligations of the first defendant "as trustee". It was further put that the first defendant had been agreeable to such a course on the basis that it receive commission out of the funds.
The first page of the contract for sale is annexed to an affidavit that has been filed, but the full terms of the contract are not before the Court. It appears that the 2005 edition of the standard Law Society/Real Estate Institute form was employed. Clause 2.1 of the standard form provides that the purchaser must pay the deposit to the depositholder as stakeholder. Depositholder is defined to mean the vendor's agent. The vendor's agent described on the first page of the contract is the first defendant. Given that the plaintiff does not take issue with the first defendant's submission that it held the funds as stakeholder, and does not raise any particular provisions of the contract, I think it is safe to proceed on the assumption that the first defendant held the funds as a stakeholder pursuant to clause 2.1 of the standard form contract.
On that basis, the funds were held by the first defendant on behalf of both parties to the contract pending performance of the contract (see Grant v O'Leary (1955) 93 CLR 587 at 592). The funds were not held for the plaintiff only. At least until the identity of the party entitled to the funds became known, the first defendant was not obliged, upon receipt of an instruction from the plaintiff, to pay the funds to the plaintiff or as the plaintiff directed. Moreover, neither the plaintiff nor the second defendant had a proprietary interest in the funds (see Hastingwood Property Limited v Saunders Bearman Anselm [1991] Ch 114 at 123, cited with approval in Commissioner of Taxation v Reliance Carpet Co Pty Limited [2008] HCA 22 at fn 10; (2008) 236 CLR 342 at fn 19). They each had merely a personal right of action to recover from the stakeholder that rests upon whether circumstances entitling the party to the money had arisen.
If a stakeholder considered that circumstances had arisen whereby one or other of the parties was entitled to the funds, the stakeholder could pay the funds to that party. However, the stakeholder would do so at its own risk that he or she may turn out to be wrong.
In this case the first defendant maintained that in the absence of authority from the second defendant it was not prepared to accede to the plaintiff's requests concerning payment of the funds, and that it would be necessary for the plaintiff to commence proceedings to obtain an order. The first defendant's conduct in this respect was not in my view unreasonable. It was consistent with the Residential Conveyancing Protocol. The first defendant was aware that the plaintiff had purported to terminate the contract for sale by notice dated 12 August 2014, and the second defendant was thereafter unable to be contacted. Nevertheless, the first defendant was not in a position to know all the facts, or to be sure that the second defendant had no rights in relation to the deposit.
In such circumstances, where the plaintiff's entitlement to receive or direct the deposit was not clearly established, the first defendant had the right to refuse such instructions from the plaintiff (pending consent from the second defendant or an order of the Court).
Moreover, in circumstances where there was no suggestion that the first defendant was likely to be sued by both the plaintiff and the second defendant, the first defendant was probably not in a position to make an application for interpleader under Uniform Civil Procedure Rules r 43.2(1).
After proceedings were commenced by the plaintiff seeking orders to vindicate its termination of the contract and its entitlement to the deposit, the defendant readily agreed to an interim regime whereby the funds would be paid into an account to be held and not released without further order of the Court or the consent of the second defendant. As a result, the first defendant's role in the proceedings was essentially concluded on 26 February 2016 (the first return date), leaving the central dispute between the plaintiff and second defendant to be determined in due course. The first defendant's conduct in this respect was entirely reasonable.
I have not overlooked the allegation of delinquency in relation to the first defendant's asserted willingness to release the deposit to the plaintiff's solicitor upon receipt of an acknowledgment concerning commission. It seems to me, however, that whilst the conduct of which the plaintiff complains is questionable, it had no real impact upon the need for the proceedings to be commenced, or upon the costs of the proceedings.
The plaintiff has succeeded in obtaining orders securing the funds pending further order of the Court or the consent of the second defendant. The proceedings against the first defendant were otherwise dismissed. In my view, the plaintiff should not be regarded as being in the usual position of a successful party having won the event in relation the first defendant stakeholder.
I consider that in all the circumstances the appropriate order for the costs of the proceedings as between the plaintiff and the first defendant is that the plaintiff pay the first defendant's costs (including its costs of this application).
I decline to order that the costs after 26 February 2016 be paid on the indemnity basis. The offer contained in the letter from the first defendant's solicitor to the plaintiff's solicitor was not expressed to be a Calderbank offer, and was not an Offer of Compromise under the Uniform Civil Procedure Rules. The plaintiff's application for costs was unsuccessful, but by no means was it unarguable.
The Court orders that the plaintiff pay the first defendant's costs of the proceedings on the usual basis.
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Decision last updated: 18 July 2016
Parties
Applicant/Plaintiff:
Alicja Polbratek
Respondent/Defendant:
Annross Partners Pty Limited trading as Centro Real Estate