Amaya v Estate Property Holdings Pty Ltd Firmstone v Estate Property... [2010] NSWSC 879 | Case summary

JUDGMENT 1 HIS HONOUR: There is an outstanding question in each of these proceedings in relation to the costs payable to the second defendant, Lumley General Insurance Limited ("Lumley"). Lumley seeks its costs on the indemnity basis in the above two proceedings after 22 April 2008 on the basis of offers of that date. 2 Through its agent Lumley issued a bond for the deposit payable under each contract of sale in dispute. Under each bond Lumley undertook to the vendor to pay to the vendor within four business days of demand any sum demanded up to the "Guaranteed Amount". The Guaranteed Amount was the amount of the deposit under each contract. It was a term of each bond that it would expire if the contract for sale were terminated or rescinded, resulting in the purchaser being entitled to a refund of the deposit, before Lumley paid the Guaranteed Amount to the vendor, Estate Property Holdings Pty Limited. 3 Lumley paid the amount of each bond to the vendor on 6 July 2007. This was after Mr and Mrs Amaya purported to rescind the contract for the vendor's repudiation, but before Mr Firmstone purported to do so. 4 Lumley commenced proceedings in the Local Court against Mr and Mrs Amaya and Mr and Mrs Firmstone to recover the amounts paid under the bonds. Those proceedings were later transferred to the Supreme Court. In the Supreme Court, Lumley also cross-claimed against the vendor. It alleged that if the plaintiffs in the Amaya action or the Firmstone action were successful, then the vendor held the sums paid to it by Lumley on trust for it, or alternatively was liable to make restitution or to pay damages. It sought interest. 5 On 22 April 2008, the solicitors for Lumley, Turks Legal, wrote to the solicitors for Mr and Mrs Amaya and Mr and Mrs Firmstone setting out a proposal which, if accepted, would result in Lumley's withdrawing from the two proceedings. The proposal was as follows: " 1. In the event that the Court makes a declaration in the terms of either or all of the declarations sought in orders 1, 2, 3 or 4 [of the statement of claim] , the First Defendant agrees to refund the bond amount plus interest from date of payment of the bond to the First Defendant, to the Second Defendant. 2. In the event that the Court makes a declaration in the terms of either or all of the declarations sought in orders 1, 2, 3 or 4 are not made by the Court [sic] the Plaintiff agrees to pay to the Second Defendant a. The Bond amount b. Interest from the date of payment c. Legal costs incurred by the second defendant in relation to the Local Court Proceedings previously bought by the Second Defendant as against the Plaintiff on an indemnity basis. 3. That there be no orders as to costs against the Second Defendant, in relation to the Supreme Court Proceedings. 4. The Second Defendant bears its own costs in respect of these proceedings in the Supreme Court. " 6 In each proceeding the relief sought in the statement of claim referred to in paras 1 and 2 of the proposal were declarations that the contracts for sale had been validly terminated or rescinded by the plaintiffs, a declaration that Lumley was not entitled to pay the vendor the amounts guaranteed under the deposit bond and declarations that the plaintiffs were not indebted to Lumley in respect of the moneys paid out by it to the vendor pursuant to the deposit bonds. 7 Turks Legal supported their proposal with the following statement: " As you are aware the case law in respect of deposit bonds clearly states that a bond issuer must pay on demand without regards [sic] to the underlying contract. In support of this we rely on the decision of Reliance Developments (NSW) Pty Ltd v Lumley General Insurance Limited [2008] NSWSC 172 and also note the case of Lumley General Insurance Limited v Hogan [2006] Victorian County Court Judgment 20 February 2006. Detmold v Oldtex Pty Ltd [2005] NSWSC 802 at 36 [sic] [scil. [2005] NSWSC 1197 at [86]] and where it is determined that in the event that it is ultimately held that the recision [sic] of the contract by the purchaser was valid then the Vendor is required to repay the bond issuer any monies received and interest. However I note in this case it was still up to the purchaser to take steps to prove the invalidity of the underlying contract relied on by the Vendor. " 8 Separate offers were put in each proceeding. (There was no equivalent offer in the third proceeding concerning Messrs Sarkar and Islam.) Each offer was put on the basis that it be accepted by all parties to the proceedings. It was not capable of being accepted by one party to the proceedings only. The offer was expressed to be open only until 12 noon on 24 April 2008. The offer was made on 22 April 2008. The proceedings had been commenced on 11 December 2007. The hearing date was not imminent. Prima facie this was not a reasonable period for the offer to remain open, but no point about that was taken by counsel for the plaintiffs or the first defendant. 9 It was not until about 11 December 2009 that the parties reached an agreement in relation to the position of the Lumley. That agreement covered all three proceedings. It was in the following terms: " 1. In the event the Plaintiffs are not successful in their respective claims against the First Defendant, the Plaintiff will consent to judgment being entered against them respectively, namely: Proceeding Amount (a) Lumley v Firmstone & Firmstone (Plaint no. 3543 of 2008): $52,900 (b) Lumley v Amaya & Amaya (Plaint no. 3581 of 2008): $44,900 (c) Lumley v Sarkar & Islam (Plaint no. 3422 of 2008): $52,900 2. In the event one or all of the Plaintiffs are successful in their respective claims against the First Defendant, the Plaintiff will authorise and direct the First Defendant to pay to the Second Defendant the amount paid out under each Deposit Bond, namely: Proceeding Amount (a) Firmstone & Firmstone (Plaint no. 5949 of 2007): $52,900 (b) Amaya & Amaya (Plaint no. 5945 of 2007): $44,900 (c) Sarkar & Islam (Plaint no.2781 of 2008): $52,900 3. Such authority and direction referred to in paragraph 2 to be an irrevocable authority and direction to be received by the solicitor for the Second Defendant by 4.00pm, Friday, 11 December 2009. 4. Payment of the amounts referred to in paragraph 2 by the First Defendant to be made to the Second Defendant within 28 days of delivery of judgment by the Court. 5. The Cross Claim between the Second Defendant and the First Defendant to remain on foot pending payment of the amount referred to in paragraph 2. The Second Defendant to have liberty to apply on 5 days notice should the First Defendant fail to pay any amount referred to in paragraph 2. 6. Interest and costs (in all matters) to be argued before the Court on a date to be fixed following judgment. The intent of the proposed agreement is that the Second Defendant be paid the amount it paid out under each Deposit Bond to the First Defendant notwithstanding what determination the court makes as to the validity of the contracts. In other words, if the Court holds that the First Defendant validly terminated the contract/s for sale, the Plaintiffs are to pay the Second Defendant in accordance with paragraph 1 above. If the Court holds that the First Defendant invalidly terminated the contract/s for sale, the First Defendant is to pay the Second Defendant in accordance with paragraphs 2, 3 and 4 above. " 10 The relevant differences between the proposal of 22 April 2008 and the agreement of 11 December 2009 was that there was no agreement on interest and costs in the later agreement, whereas the proposal of 22 April 2008 provided that the party that was to refund the bond should also pay interest, and Lumley agreed to bear its own costs. 11 Mr Elliott for the first defendant submitted that there was a further difference, namely that under the agreement ultimately reached, if the plaintiffs were successful, the first defendant was to pay Lumley the amount paid to it under the deposit bond on the authority and direction of the relevant plaintiff. The first defendant's position in the litigation was that it denied that it was liable to refund the deposit bond to Lumley if it were found that the purchasers, or any of them, had validly rescinded their contract. The first defendant contended that in that event its obligation would have been to refund the amount of the deposit to the successful plaintiff, not to Lumley. At least in the case of the Amaya contract, where the plaintiff's purported rescission pre-dated the demand on Lumley, so that if the rescission had been effective the bond would have expired before payment, that argument is inconsistent with authority (Detmold v Oldtex Pty Ltd [2005] NSWSC 1197 at [86]). But it is unnecessary to pursue that question. Had the proposal of 22 April 2008 been accepted by the plaintiffs and the first defendant, the first defendant would have had the authority of the plaintiffs to refund the bond amount plus interest to Lumley, if it were found that the plaintiffs had validly rescinded their contracts. This was the position ultimately agreed on. It was eminently sensible. 12 There could be no reasonable argument that whoever was obliged to repay Lumley would not have had to pay interest. No such argument was advanced on the making of the final orders 13 In my view both the plaintiffs and the first defendant ought to have accepted the proposal of Lumley of 22 April 2008, and their failure to do so was unreasonable. It is true that the agreement of both the first defendant and Mr and Mrs Amaya, or both the first defendant and Mr Firmstone, was required. If the plaintiffs or the first defendant had been minded to accept the offer, then to protect themselves against adverse costs consequences from not accepting the offer, they ought to have advised their willingness to agree to it if the consent of the other party was obtained. None did so. Their failure to accept the proposal ought to sound in costs. 14 Orders have already been made for the plaintiffs to pay Lumley's costs of the proceedings against them and to indemnify Lumley in respect of the costs payable by Lumley to the first defendant in respect of the cross-claim brought by Lumley against the first defendant. In my view, the additional costs incurred by Lumley due to the failure of the plaintiffs and the first defendant to accept its proposal of 22 April 2008 ought to be paid by the plaintiffs on the indemnity basis. 15 The more difficult question is whether costs should be ordered against the first defendant, which was the successful party. There is power to do so pursuant to s 98 of the Civil Procedure Act 2005 (NSW). Pursuant to r 42.1 of the Uniform Civil Procedure Rules, costs follow the event unless it appears to the court that some other orders should be made as to the whole or any part of the costs. 16 For the reasons I have given, I consider that a different order should be made in respect of any additional costs incurred by Lumley as a result of the plaintiffs and the first defendant not accepting Lumley's proposal of 22 April 2008. As both the plaintiffs and the first defendant are equally at fault in allowing a situation where Lumley incurred such additional costs, I see no reason to differentiate between them in relation to the form of order to be made in favour of Lumley. 17 For these reasons, in the Amaya proceedings, being proceeding nos. 258059 of 2007 and 301255 of 2007, I make the following further order:

Amaya v Estate Property Holdings Pty Ltd Firmstone v Estate Property Holdings Pty Ltd

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