APX Projects Pty Limited v The Owners - Strata Plan No. 64025 - [2015] NSWSC 1572 - NSWSC 2015 case summary

Supreme Court of NSW|2015-10-19|Before: Slattery J

Judgment

The second defendant, Mr White has successfully defended the plaintiff's attempt to sue him in the name of the Owners Corporation, of which he is the Treasurer: APX Projects Pty Ltd v The Owners - Strata Plan No. 64025 [2015] NSWSC 1250. Now Mr White seeks his costs of the proceedings on an indemnity basis. For the reasons below, his application fails.
This is the Court's second judgment in these proceedings. Events, matters and things are referred to in this judgment in the same way as they are in the Court's principal judgment.
The plaintiff, APX, accepts by its counsel Dr Greinke that it should pay Mr White's costs of the proceedings on the ordinary basis, pursuant to Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.2. But Mr Parsons, representing Mr White, contends for the assessment of his costs on the indemnity basis for two principal reasons. First, he submits Mr White's solicitors' 10 July 2014 letter responding to APX's statement of claim sets out the "more obvious deficiencies in the pleading", makes what is claimed to be an offer of settlement and warns APX the letter will be used in an application for indemnity costs. Secondly, he submits that APX had originally alleged that Mr White had dishonestly misapplied the Owners Corporation's funds for his own benefit, but had withdrawn that allegation by amending its pleading on the morning of the hearing. As an additional point, Mr Parsons relies on the Court's finding that APX ought to have brought its claim before an NCAT Adjudicator rather than before the Court.

The late change in pleadings

APX sought leave to amend its pleadings at the commencement of the hearing. The Court granted that leave and APX filed an amended statement of claim.
Paragraphs 20 to 26 of both the statement of claim and the amended statement of claim allege that Mr White wrongly used sinking fund contributions to pay for legal fees and disbursements. Paragraph 27 of each version of the statement of claim pleads that Mr White as Treasurer of the Owners Corporation owed fiduciary duties to the Corporation and to APX in relation to the sinking fund and administrative fund. But the amended statement of claim removed, inter alia, the following pleadings with respect to Mr White, which are demarcated in struck out text below: "Breaches of duty 27. As Treasurer of the Owners Corporation and otherwise by reason of the matters pleaded above, Keith White owed duties akin to a trustee to the Owners Corporation and to APX to preserve the administrative fund and the sinking fund of the Owners Corporation as if such funds were held in trust for the purposes prescribed by the Act and for the benefit of the lot owners including APX. 28. As Treasurer of the Owners Corporation and otherwise by reason of the matters pleaded above, Keith White owed fiduciary duties: 28.1 not to use his position to obtain a benefit for himself or any other person at the expense of the Owners Corporation or the lot owners; and 28.2 not to prefer his own interests or the interests of any other person over the interests of the Owners Corporation and the lot owners including APX. 29. In the Proceedings Keith White: 29.1 instructed JS Mueller & Co in respect of the defence and cross-claim of the Owners Corporation as the first defendant and as a cross-claimant; 29.2 was the representative of certain lot owners in Strata Plan 64025 as the second defendant and conducted their defence and cross-claim; and 29.3 was in his own right the third defendant and a cross-claimant. 30. Accordingly Keith White, in respect of the appropriation of administrative fund monies and sinking fund monies for the purposes for the Proceeding, was in a position of conflict as between the Owners Corporation, the interests of the lot owners he represented in the Proceedings, the interests of APX and other lot owners not represented in the Proceedings and his own interests. 31. In the above premises the conduct of Keith White pleaded herein: 31.1 was not authorised by the Owners Corporation or by the Act; 31.2 was in breach of his duties pleaded at paragraph 12; 31.3 was negligent in breach of his duty of care pleaded at paragraph 12; 31.4 was in breach of trust or breach of duties akin to a trustee to the Owners Corporation and/or APX pleaded at paragraph 27; and/or 31.5 was in breach of his fiduciary duties to the Owners Corporation and/or APX pleaded at paragraph 28. 32. By reason of the conduct of Keith White pleaded herein, the Owners Corporation has suffered loss and damage, namely the monies wrongfully appropriated from the sinking fund pleaded herein. 33. Further or alternatively, by reason of the conduct of Keith White pleaded herein, APX has suffered loss and damage or is likely to suffer loss and damage, in that APX will be liable to levies by the Owners Corporation for sinking fund contributions to replace the monies wrongfully appropriated."
Mr White submits that the statement of claim pleaded against him allegations of dishonesty, or at least recklessness, in relation to Mr White's utilisation of funds as Treasurer for his own personal benefit. He claims that APX must have advanced those pleadings in wilful disregard of known facts, and in doing so made allegations of fraud knowing them to be false. Mr White submits that both may warrant the exercise of the discretion to order indemnity costs against a plaintiff: see, for example, the cases Sheppard J cites in his fifth principle as to indemnity costs outlined in Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 ("Colgate Palmolive") at 256-7. Mr White claims that the purpose of APX's last minute amendment was to avoid those potential cost consequences.
In SH Lock & Co (A/asia) Ltd v Rudders Ltd (1932) 49 WN (NSW) 65 at 66 Halse Rogers J referred to the principle upon which a late amendment to pleadings to remove allegations of dishonesty may justify an order that the amending party pay the costs which the other party spent fruitlessly responding to that allegation: "The costs of proceedings rendered nugatory by the amendment must be paid by the party in whose favour the amendment is made. But his liability is confined to the costs necessarily occasioned or the expense of proceedings necessarily rendered fruitless by the amendment. For when an amendment is allowed during the course of a cause 'on payment of costs' it means the costs really and substantially occasioned by the amendment. And in taxing such costs therefore the Master will allow the proper costs of all such proceedings as have been rendered useless by reason of the amendment."
Mr White characterises the paragraphs of the pleading that APX removed as allegations of dishonesty. Mr Greinke for APX contended that no such allegation was explicitly pleaded and particularised, as the UCPR requires: UCPR, r 15.3. Instead, APX submits that the heart of the allegation was what is said to be a conflict of interest in Mr White instructing and paying solicitors in proceedings in relation to both the Owners Corporation's defence, as well as his own defence as co-defendant.
Ultimately, however, it is not necessary to decide whether or not the effect of the amendment of the pleadings was to remove an allegation of dishonesty, or something less than that, against Mr White.
That is because Mr White has not sought to identify the particular additional legal costs he claims he has incurred in dealing with the withdrawn allegations, which costs he would not have incurred in responding to APX's final pleadings. Mr White contended that the allegations required his legal representatives to spend a significant amount of time recalling, exploring and analysing events in order to ascertain his own legal position. But he could not offer any realistic basis upon which the Court could assess the cost of any additional work that the withdrawn allegations necessitated, which would not have been equally necessary for responding to the pleadings that remained in the amended statement of claim. This is not a case where a plaintiff's late amendments substantially change the nature of the case the defendant must meet, thus rendering the defendant's earlier efforts in responding to the original case nugatory.
Mr White has not shown that he has been put at any disadvantage by APX's late amendment. An order of indemnity costs to compensate Mr White for such disadvantage is not necessary. The principles governing the award of costs on that basis by Sheppard J in Colgate Palmolive at 256-7 are apposite, as is the following passage in the judgment of Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at [44]: "It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." (citations omitted) APX's late amendment does not provide a basis that costs be assessed on an indemnity basis.

Failure to resolve the dispute using the Management Act's mechanisms

Paragraph 61 of the principal judgment contains the following comment regarding the appropriate forum for the prosecution of these proceedings: "This dispute could and should in my view have been sent to the Adjudicator. The Adjudicator has power under Management Act, s 207 to make orders which would take "effect as the resolution of the owners corporation". The Adjudicator's powers under the Management Act are sufficiently wide in my view to have the effect of a resolution that would determine a levy to recoup monies for the sinking fund under a combination of Management Act, ss 71(3) and 76(1). APX has not given a clear explanation as to why this simple procedure has not been followed."
Mr Parsons referred to that comment in his oral submissions while pressing for indemnity costs. The submission is linked to Management Act, s 226(2), which requires a court to make a costs order against a plaintiff who unjustifiably brings proceedings in the court to enforce general law rights where the Management Act adequately provides for the enforcement of those rights: "226 Other rights and remedies not affected by this Act (1) Nothing in this Act derogates from any rights or remedies that an owner, mortgagee or chargee of a lot or an owners corporation or covenant chargee may have in relation to any lot or the common property apart from this Act. (2) In any proceedings to enforce a right or remedy referred to in subsection (1), the court in which the proceedings are taken must order the plaintiff to pay the defendant's costs if the court is of the opinion that, having regard to the subject-matter of the proceedings, the taking of the proceedings was not justified because this Act or Part 4 of the Community Land Management Act 1989 makes adequate provision for the enforcement of those rights or remedies. (3) The defendant's costs are to be as determined by the court."
The purpose of that section is to discourage through potential cost sanctions the pursuit of general law rights or remedies outside the procedures of the Management Act: Meriton Apartments Pty Limited v The Owners Strata Plan No. 72381 [2015] NSWSC 202 at [431]. Once a court finds that proceedings before it have been commenced unjustifiably because the proceedings could have been brought adequately using a Management Act mechanism, the court has no discretion as to who must pay costs; it must order costs against the plaintiff as a consequence of bringing the proceedings in the wrong forum. That is so regardless of whether the plaintiff is successful in the proceedings, reversing the general rule that costs follow the event: UCPR, r 42.1.
But Management Act, s 226(2) does not itself provide an independent basis to justify ordering indemnity costs against APX. Where the subsection applies, it requires that the plaintiff pay the defendant's costs but does not specify the basis upon which those costs must be assessed. Some special circumstance is still required for costs to be assessed on an indemnity basis. The assessment of costs ordinarily on the party and party basis is entrenched in Australia, and before that has been settled practice for centuries in England: Colgate Palmolive at 256. Section 226(2) does not contain any language to displace that ordinary practice relating to the assessment of costs. Section 226(2) of the Management Act does not provide any support to Mr White's application for indemnity costs.

Conclusion

There is no reason to depart from the usual order that costs should be assessed on the ordinary basis. Mr White's motion is dismissed, and the parties are to pay costs on the ordinary basis, except for the costs of this motion which Mr White is to pay APX on the ordinary basis.

Amendments 23 October 2015 - [6] - typographical error with numbering [8] - "sae" to "same" 23 October 2015 - representation- cover sheet 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: 23 October 2015

Strata Schemes Management Act 1996(NSW)

APX Projects Pty Limited v The Owners - Strata Plan No. 64025

At a glance

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Judgment (6 paragraphs)

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Legislation Cited (1)

Cases Cited (8)