Ashwood v Ashwood

Supreme Court of NSW|2022-09-28|Before: Parker J

Judgment

On 26 September last year, I began hearing an expedited trial of some of the claims in these proceedings. Those expedited claims centred on a rural property at Lambs Valley near Maitland which is owned by the defendants. Both the defendants and the first plaintiff were living there (in separate buildings). The first and second plaintiffs claimed an entitlement to ownership of, or to an indefinite leasehold interest in, the property. This was resisted by the defendants who cross-claimed for possession.
In the end, the expedited hearing never properly got under way. The plaintiffs accepted that although they might be entitled to some interest in the property by way of equitable charge, they could not justify a claim for full ownership or an indefinite leasehold interest.
The plaintiffs also accepted that they needed to reinstate, and join as an additional plaintiff, a deregistered company. They sought an adjournment for this purpose. They accepted that they would have to give up possession of the property but there was a debate about the timing and associated undertakings. There was also a debate about costs.
On 28 September I heard argument on these questions. I ruled against the plaintiffs on the terms of the possession order. I also ruled that the plaintiffs would have to pay the costs of the abortive hearing and the costs of the cross-claim. I undertook to give formal reasons in due course. I made orders giving effect to my rulings on 30 September.
The defendants/cross-claimants now seek, pursuant to leave reserved under my order of 30 September, the payment of lump sums on account of the costs awarded against the plaintiff/cross-defendants. I have made orders of this type in a number of cases, including Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401, Rhino Rack Australia Pty Ltd v Hub Computing Services Pty Ltd [2021] NSWSC 231 and Salmon v Albarran (No 3) [2021] NSWSC 1200.
In this judgment I give my reasons for the rulings I made on 28 September last year. I also give my decision on the application for lump sums on account, which has been presented to the Court "on the papers".

Background and procedural history

The proceedings involve litigation between members of a family. For convenience, and without disrespect, I will refer to the parties by their given names.
The defendants and cross-claimants, Terrence John Ashwood ("Terry") and Lesley May Ashwood ("Lesley") are husband and wife. Both are retired. Terry was a successful businessman who at various times operated at least three McDonald's franchises and several other restaurant businesses.
The first plaintiff, Sheridyn Ashwood ("Sheridyn"), who is also the first cross-defendant, is the daughter of Terry and Lesley. Since late 2018 she has been in a domestic relationship with Brian James Knodler ("Brian"). Together they are the parents of a baby girl who was born in May 2021.
Sheridyn was born in 1978. She is Terry and Lesley's only child. Her relationship with her parents, and with Terry in particular, has had its rough patches, with walkouts and periods of estrangement. Unfortunately, they are now in bitter dispute.
Sheridyn grew up with her parents on a property at Galston and became involved with horses at an early age. As a teenager she began competing in equestrian events. Although she ceased to compete at an elite level in early adulthood, it seems that she continued to own horses and retained a love for working with them.
After Sheridyn left school in 1994, she worked at various McDonald's franchises and later as a manager at another restaurant. In 2002 the family moved to Picketts Valley on the Central Coast where Terry, having sold his McDonald's franchises, had decided to establish a restaurant under an Italian-themed franchise named "La Porchetta".
The new venture was funded by Terry and Lesley. According to Sheridyn, Terry set her up as its "owner" (through a company and trust structure) and manager of the venture, so as to support her and allow her to continue to look after her horses for the rest of her life. After a falling out, Sheridyn left the business in 2005. It was then managed by Terry and managers retained by him until it closed in 2015.
The Lambs Valley property was purchased by Terry and Lesley in May 2014. At the time, Sheridyn was living at Beaudesert in Queensland with her horses. Terry and Lesley were also living in Queensland at a rural property at Guanaba, part of the hinterland of the Gold Coast.
At the time Terry and Lesley bought the Lambs Valley property, there was a single residence on it, referred to in the evidence as the homestead. Sheridyn moved into the homestead. Over the following two years, extensive renovations, directed by Sheridyn and funded largely by Terry and Lesley, took place on the property. This involved the construction of equestrian training facilities and a residential cottage.
Sheridyn used the property to conduct a business offering equestrian training services. She also agisted horses and, at least in later years, had other livestock on the property as well. These business operations were carried out through a company named Ashwood Park Equestrian Pty Limited. The company has been referred to by the parties as "APE1" for reasons which will become apparent in a moment. Its activities were undertaken as trustee for a discretionary trust named the Ashwood Park Equestrian Trust ("the Trust").
APE1 was incorporated, and the Trust was established, in June 2014. Sheridyn was the owner of all the shares in APE1. The beneficiaries of the Trust were Sheridyn and members of her family.
The improvements made to the property were recorded, along with the other assets of the business, as assets in the balance sheet of APE1 as trustee for the Trust. The loan from Terry and Lesley to fund the improvements was recorded as a liability. It seems that the loan was not formally documented.
According to Sheridyn, all of these arrangements, including the incorporation of APE1 and the establishment of the Trust, were carried out by accountants retained by Terry and under direction from him. She says she has no experience in accounting and was unaware of the details. Only later, in 2017, did Sheridyn appoint new accountants in place of the accountants retained by Terry. She says she only became aware of the existence of the Trust in 2019.
About six months after their purchase of the Lambs Valley property, Terry and Lesley sold the Guanaba property and returned to New South Wales. Initially, they appear to have lived mainly on a cruiser which they owned and was berthed at a marina. After the construction of the cottage on the property they began spending some time there. Eventually, they moved into the homestead and Sheridyn relocated (on her account, unwillingly) to the cottage. According to Terry and Lesley, this was in 2017.
It seems that Terry and Lesley do not get on with Brian. After he and Sheridyn began their relationship in late 2018, relations between Terry and Sheridyn deteriorated. In March 2020, Sheridyn agreed at Terry's request to pay rent of $400 per week for the property.
Meanwhile, in October 2019, APE1 had been deregistered because of a failure to lodge the necessary returns with the Australian Securities and Investments Commission. According to Sheridyn, she was unaware of this as she had left it to Terry (how this fitted in with the appointment of new accountants was unclear). In April 2020, there was incorporated (presumably by Sheridyn's accountants) a replacement company of the same name ("APE2").
Both Sheridyn and her accountants appear to have treated APE2 as a continuation of APE1; assets recorded in APE1's balance sheet were carried forward to APE2's balance sheet. APE2 continued to employ those who had been employed by APE1. APE2 was treated as the continuing trustee of the Trust, although it seems that no formal step was taken to appoint it as APE1's successor.
Meanwhile, Sheridyn's relationship with her parents deteriorated further. On 11 March 2021, Terry and Lesley gave Sheridyn formal notice that they intended to sell the property and that she needed to vacate. Sheridyn retained a solicitor, Mr Marc Ryckmans, of Somerset Ryckmans.
On 7 May 2021, Mr Ryckmans wrote to Terry on Sheridyn's behalf claiming a one-third ownership interest by proprietary estoppel or promissory estoppel. Alternatively, Sheridyn claimed an unspecified share of the property by way of equitable charge.
On 8 June 2021, Mr Ryckmans lodged a caveat over the property on Sheridyn's behalf. The interest claimed in the caveat was: "equitable charge pursuant to a constructive or resulting trust".
Sheridyn and Brian continued to occupy the property. The relationship between them and Sheridyn's parents had by this time broken down completely. On 5 July, Terry obtained an interim apprehended violence order against Sheridyn as a result of an incident at the property.
Following further correspondence and the service of a lapsing notice, these proceedings were commenced by Summons in August 2021. The plaintiffs in the Summons were named as Sheridyn and APE2. The defendants were named as Terry and Lesley.
So far as the prayers for relief concerned the Lambs Valley property, they fell into two parts. First, the plaintiffs claimed that Terry and Lesley held the Lambs Valley property on constructive trust for themselves and for Sheridyn as joint tenants in one-third shares, or in such other proportions as the Court might declare. Second, the plaintiffs claimed an entitlement to a leasehold interest in the Lambs Valley property. This was a lease in favour of Sheridyn and APE2 for Sheridyn's lifetime at a rent of $400 per week, provided that Sheridyn and APE2 paid the outgoings on the property. On termination, APE2 was to be entitled to remove "its tenants' fixtures".
The Summons also included claims arising out of prior dealings between Sheridyn, Terry and Lesley, and their associated companies concerning the La Porchetta restaurant. All of the relevant assets had been disposed of. Therefore, the relief was purely monetary. It is not necessary to go into the details of these claims, to which I will refer as the "restaurant accounting claims", in any more detail for the purposes of this judgment.
In view of the lapsing notice, the Summons also sought by way of interlocutory relief to have the caveat extended until the hearing. On 30 September, an order was made that the caveat be extended until further order. On 24 November, consent cross-undertakings were given by the parties to provide an interim regime for Sheridyn and Brian to continue to live on the property pending the hearing.
These orders were made on the assumption that the proceedings would be expedited. An expedition order was made on 3 December. Two days beforehand, Terry and Lesley had formally given Sheridyn, Brian, and APE2 notice to quit the property.
The plaintiffs' Statement of Claim was filed on 31 January last year. Consistently with the case foreshadowed by Mr Ryckmans in his letter the previous May, the plaintiffs' pleaded claims were principally based on proprietary estoppel and promissory estoppel. It was alleged that at the time the Lambs Valley property was purchased and Sheridyn moved there, Terry and Lesley had told her that it was to be a "forever home" for herself and for the location of an equestrian business. It was also alleged that, starting in 2018, specific representations or offers had been made under which Sheridyn was to have a one-third ownership of the property.
In response, the defendants' legal representatives contended that these claims, even if successful, would not entitle Sheridyn (or APE2) to full ownership of the property. The defendants moved, or foreshadowed that they would move, for the caveat extension to be discharged.
This eventually resulted in a debate before Sackar J as Expedition Judge, which was resolved by further orders. The plaintiffs' legal representatives made it clear that Sheridyn claimed an entitlement to the entire property. It had also emerged that three corporate parties needed to be reinstated and joined for the purposes of resolving the restaurant accounting claims. One of these was a former company of Sheridyn's called Gibsons at Gosford Pty Limited ("Gibsons"). The other two were companies formerly controlled by Terry.
His Honour made orders reinstating the three companies, joining Gibsons as an additional plaintiff, and joining the other two companies as additional defendants. His Honour also granted the plaintiffs leave to amend their Statement of Claim. The Amended Statement of Claim, filed in May, expressly claimed a constructive trust for Sheridyn over "the fee simple estate or alternatively such other estate and interest" in the Lambs Valley property "to which she has an equity entitled", and an order for conveyance.
In early June, a formal cross-claim for possession was filed on behalf of Terry and Lesley. It named Sheridyn and APE2 as the cross-defendants. Brian was not named as a cross-defendant but an order for possession was claimed against him under Uniform Civil Procedure Rules 2005 (NSW) r 6.8(1)(b). On behalf of Sheridyn and APE2, a defence was foreshadowed to the cross-claim which was to mirror their claims to ownership of, or a leasehold interest in, the property.
In these circumstances, the matter came before me to fix an expedited hearing date. I did this on 10 June. As I have mentioned, the restaurant accounting claims were monetary claims only and had no justification for expedition. They would have substantially lengthened the hearing. I decided to expedite only those claims that affected ownership and possession of the Lambs Valley property. I did this by granting an expedited hearing of the cross-claim to possession of the property. The intent was that, through the foreshadowed defence to the cross-claim, this would necessarily decide the claims made by Sheridyn and APE2 to a freehold or leasehold interest in the property.
In the month before the hearing, Terry and Lesley had negotiated terms for the sale of the property. By arrangement with the proposed purchaser, both parties signed the terms of counterpart contracts, but did not exchange them. The terms of the proposed contract allowed for some time to complete the litigation, but the deadline was 31 January of this year.

Orders for possession and costs of abortive hearing

Shortly before the hearing was due to begin on 26 September, the parties filed written submissions in accordance with the Court's directions. Those submissions exposed issues about the maintainability of the plaintiffs' claims for a fee simple or leasehold interest in the property. Those questions were debated during the parties' openings on 26 September.
It was put to counsel for the plaintiffs that Sheridyn's claim based on the alleged promise of a one-third interest in the Lambs Valley, even if successful, would only lead to an application for partition of the property under the Conveyancing Act 1919 (NSW) s 66G, and consequently to its sale. Furthermore, the improvements, which represented the major alleged detriment in the proprietary estoppel claim, had been channelled through APE1. Any claim for an interest based on that alleged detriment had to be prosecuted through that company.
After some debate, counsel for the plaintiffs accepted that, to the extent that Sheridyn's claim was based on the alleged promise by Terry and Lesley, realistically she could at best obtain a one-third share of the property. Although Sheridyn did claim to have made some personal financial and non-financial contributions to the property, most of the contributions had been made by APE1 and it would be necessary to reinstate that company to pursue a claim based on them. For this purpose, the plaintiffs needed an adjournment.
The upshot was an adjournment to 27 September, followed by an adjournment to 28 September, while the parties negotiated a set of orders to reflect these concessions. The resulting draft orders (prepared on behalf of the defendants) were presented to me for consideration on 28 September.
It was common ground that possession of the Lambs Valley property would need to be given up. In return, Terry and Lesley undertook that upon sale of the property a sum of money would be set aside to secure any successful proprietary claim that the plaintiffs (or APE1) might make. Additional undertakings would be given by the parties to facilitate sale of the property. Brian was formally joined as a cross-defendant because he was a party to some of these undertakings.
It was also common ground that the proceedings would be removed from the Expedition List and would continue in the General List for the purpose of determining the plaintiffs' claims with respect to the Lambs Valley property along with the restaurant accounting claims. The proceedings were to be adjourned to give the plaintiffs time to have APE1 reinstated and to amend the Statement of Claim to include a claim by that company.
The first area of dispute concerned the form of orders for possession. The defendants' orders provided for the vacation of the Lambs Valley property within a fixed period, nominated as sixty days. Counsel for the plaintiffs resisted the requirement to vacate within a fixed period. Counsel contended that vacating the property would impose a significant expense on the plaintiffs and would probably make their business unviable. Counsel submitted that possession should be given up only just before the settlement of any sale. Counsel also sought directions which would require Terry and Lesley to disclose the identity of the purchaser. The purpose of this was to allow Sheridyn and Brian to negotiate with the proposed purchaser, with a view to being able to stay in occupation, if possible, after the sale had been settled.
I did not accept these submissions. The plaintiffs had effectively conceded that they had no claim for final relief which would justify remaining in possession of the property: see Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 216 (Gleeson CJ). Once that concession had been made, there was no question of balancing convenience between two parties each claiming to have an arguable basis for possession. Terry and Lesley were entitled to possession immediately, and any delay in possession could only be justified to the extent required by practical necessity. Furthermore, on the evidence there were allegations that Sheridyn and Brian had interfered with visitors to the property, including a real estate agent.
Although it was not possible to make a final decision as to what had happened, the evidence did show quite clearly that relations between the parties were poisonous. There was a complete lack of trust between them. In the circumstances, I thought that the Court could not reasonably override Terry and Lesley's right to keep their dealings with the prospective purchaser to themselves.
The second area of dispute concerned costs. The defendants sought orders for costs of the abortive hearing, as well as an order for costs on the cross-claim. As I had made an order for possession, the cross-claim proceedings had come to an end. Clearly, the defendants had succeeded on the cross-claim and were entitled to an order for costs in their favour (limited to the additional costs purely referable to the cross-claim). I did not understand this to be in dispute. But counsel for the plaintiffs resisted an order for the costs of the abortive hearing.
In support of the application for an order that the plaintiffs pay the costs of the abortive hearing, counsel for the defendants referred to the history of the proceedings. Counsel pointed out that the plaintiffs had framed their claim so as to allege that they were entitled to a freehold or leasehold interest in the whole of the Lambs valley property. When challenged, they had doubled down on that claim. Now they were abandoning it. Counsel submitted that the claim had never had any substance. It had been a colourable one designed for tactical advantage.
Counsel for the plaintiffs took a diametrically opposed view. Counsel submitted that the result of the hearing had been to "clarify" the plaintiffs' position. Thus, counsel argued, the costs should be seen as equivalent to the costs of an interlocutory hearing. Counsel vehemently denied that the plaintiffs had knowingly brought an unsustainable claim. Counsel also suggested that the making of a costs order was likely to place the plaintiffs in an impossible financial position, especially when they were facing the costs of vacating the property. This might interfere with their ability to pursue the proceedings.
I do not criticise the conduct of the plaintiffs, or their legal representatives, at the hearing. Having concluded that the claim to a freehold or leasehold interest over the property was not sustainable, they took the responsible course of abandoning it. Once that decision was taken, counsel's submissions on the form of the orders were constructive and temperate.
But this was not an answer to the defendants' application. The purpose of a costs order is to compensate the successful party, not to punish the unsuccessful party. Nor was it necessary to go into the practical effect on the plaintiffs of having to meet a costs order. That would not arise until the Court was asked to make an order for immediate payment, which was not being decided at that stage.
It was clear from the events as I have described them that the expedited hearing was occasioned by the plaintiffs' claim to be entitled to remain in possession until the determination of their proceedings. That claim failed. There was no real analogy with a routine interlocutory hearing. In my view, it was clearly appropriate to award the costs of the abortive hearing to the defendants.

Evidence

The defendants' application for lump sums to be paid on account of the plaintiffs' liability under both costs orders was supported by an affidavit from Ms Nava Mostajabi. She is a lawyer employed by the solicitors for the defendants, Woods & Day.
In her affidavit, Ms Mostajabi made an estimate of the defendants' costs thrown away by reason of adjournment. This estimate was based on the costs of the three days of hearing from 26-28 September, together with part of the preparation time in the preceding week, being two days. Ms Mostajabi estimated Woods & Day's fees for this period as $46,000, with $50,000 for the fees of senior counsel and $25,000 for junior counsel. Assuming a recovery of 60 percent of the solicitors' fees and 85 percent of counsels' fees on assessment, Ms Mostajabi calculated the recoverable costs as $91,497 (all figures are exclusive of GST).
Ms Mostajabi also made an estimate of costs for the cross-claim. It included drafting the cross-claim and advising on it. The figure was $9,000.
Mr Ryckmans filed an affidavit in response to Ms Mostajabi's affidavit. He stated that in an earlier assessment, the charge-out rates used by Woods & Day had been, in his view, too high. Having regard to the way in which the assessment was presented, it was not possible to assess the reasonableness of the solicitors' costs claimed. He said that "doing the best I can" he would reduce the amount claimed by 25 percent to take account of this, resulting in a figure of $35,000. He also said the counsel's fees were too high and gave figures of $30,000 for senior counsel and $18,000 for junior counsel, representing three days for each.
Discounting the solicitors' fees by 30 percent and the counsels' fees by 10 percent yielded a figure of $67,700. Mr Ryckmans made no comment on Ms Mostajabi's estimate of costs referable to the cross-claim of $9,000.
On the question of whether lump sum payments should be ordered, the plaintiffs relied on an affidavit from Sheridyn made on 7 December last year. Annexed to the affidavit were financial statements (undated and unsigned) for the Trust for 2019-2020 and 2020-2021, and Sheridyn's tax returns for the same period.
The Trust's financial statements for 2020-2021 showed income of $400,000, with expenses of $630,000 and thus a net loss of $230,000. Total assets were shown as $1.14 million which included horse stock of $120,000, a "market value increment" for livestock of $360,000, and road, earthworks and buildings (as depreciated) of $540,000. Liabilities were $1.91 million, including a loan from Terry and Lesley of $920,000 and an amount owing to Sheridyn as beneficiary of $790,000. The total balance was thus negative net assets of $770,000.
Sheridyn's tax returns showed income of $7,000 for 2019-2020 and $58,000 for 2020-2021. The increase in income was due to a salary received by Sheridyn as managing director from a company named Knodwood Pty Limited. From its name the company appears to be a joint venture between Sheridyn and Brian, but in fact Sheridyn is its sole shareholder and director.
In her affidavit, Sheridyn stated that she had no assets of any value which could be sold to meet the costs order. She stated that she, Brian, and their daughter had moved out of the Lambs Valley property but acknowledged that the horses and livestock had not been removed. She estimated significant expenditure to move them ($50,000). She stated that the litigation was imposing "substantial strain" on the Trust and herself. She asserted that bankruptcy would result in the proceedings being stultified.
This produced an affidavit in response from Terry, which was made on 21 December. Terry's affidavit recorded that Sheridyn and Brian had moved out and removed their white goods and personal effects on 2 December. The horses were removed on 18 December and the cattle on 20 December. Terry stated that the property had been left in a "deplorable" condition which would cost $20,000 to fix.
Terry also observed that the horses had been removed using a large trailer owned by Sheridyn or APE2, and the livestock had been removed using a prime mover driven by Brian. Both of these vehicles were apparently valuable. Terry also queried Sheridyn's estimate of the removal costs.
Sheridyn replied by affidavit made 23 January this year. She identified two substantial pieces of trucking equipment. One was a 2016 model horse trailer, purchased second hand in the name of APE2 in 2021. The purchase cost was $345,000. The trailer was subject to finance (the loan in fact appears in the balance sheet of the Trust in the 2021 financial year). Sheridyn stated that $127,000 was still owing and that the forced sale of the trailer would be unlikely to exceed that amount.
The other vehicle was a 2018 model Kenwood prime mover. It had been purchased for $484,000 in July 2019 through Knodwood. This purchase was done with 100 percent finance. Again, according to Sheridyn there was a substantial amount still outstanding ($247,000). She said that the vehicle represented "Brian's livelihood".
Sheridyn stated that after vacating the Lambs Valley property, she and Brian, together with their baby, moved in with Brian's mother. Plant and equipment which they had removed was in storage. The horses and livestock were on agistment. She was hoping to relocate to northern New South Wales.
Sheridyn provided a breakdown of costs, together with supporting invoices for moving out of Lambs Valley and associated expenses. This totalled to $181,000. Of this, $15,000 represented charges by Knodwood and $17,000 represented charges which had not yet been paid. Sheridyn also referred to quotes for moving to northern New South Wales which totalled $50,000. This included $20,000 in quoted expenses for Knodwood.
Sheridyn stated that being forced to move out had deprived her of $140,000 in lost income as well as $20,000 in wage expenses. She stated that she held $10,000, and Brian less than $7,000, in cash.
Sheridyn responded to Terry's allegations that the property had been left in a deplorable state by stating it had been thoroughly cleaned. The fencing needed repair but this was a result of floods over the previous two years. She acknowledged that the removal operations had resulted in damage to two gates and the external wall of a shed but stated that she had made satisfactory arrangements to fix this. She had purchased and left replacement gates. The shed damage had been caused by a contractor. Sheridyn stated that she would have arranged for the contractor to make this good, but Terry had refused her access. She had therefore sent him the contact details of the contractor.

Submissions

Counsel for the defendants contended that both costs orders had in substance arisen out of the plaintiffs' failed claim to a proprietary interest over the whole of the Lamb's Valley property and the plaintiffs' inability to proceed with their claim based on the improvements paid for by APE1. The reinstatement of the other companies had been raised in April, five months before the abortive hearing. There was no explanation offered for the plaintiffs' failure to seek reinstatement of APE1 then.
Counsel submitted that the abortive hearing had substantially delayed resolution of a case which should have focused solely on monetary claims by the plaintiffs. The resolution of those claims still remained a long way off (especially as previously abandoned claims had been re-introduced in the latest version of the Statement of Claim). Counsel submitted that the Court should order payments on account in the full amounts estimated by Ms Mostajabi.
Counsel for the plaintiffs resisted the application, at least as it applied to the costs of the abortive hearing. Counsel's argument involved three main points.
First, counsel submitted (and this was common ground) that an order for payment on account should not be made unless there was a proper case for an order that the costs in question be assessable and payable forthwith. In counsel's submission, there was not. The decision was effectively interlocutory. Counsel characterised it as an "early skirmish in a litigious contest". There was no justification for departure from the usual rule that such costs should be assessed and payable at the end of the proceeding.
Counsel also presented a related argument that no costs had been thrown away of any substance anyway. In counsel's submission, the hearing had been fixed to deal only with the claim for possession on the cross-claim. That claim had been dealt with. Therefore, as I understood the argument, there were no costs thrown away in the principal proceedings.
Counsel submitted that the joinder of the other companies in April 2022 had no relevance. Counsel also pointed out that the defendants could readily have raised at that time the question of whether APE1 needed to be reinstated but did not do so. Counsel submitted that there had been no adjournment for want of necessary parties. Even if there had been, both sides bore shared responsibility for that.
Counsel's second main contention was based on hardship. Counsel submitted that if the order sought was made the plaintiffs would be unable to meet it and Sheridyn would face bankruptcy. This was said to be the defendants' real purpose in bringing the application. The suggestion was that the making of the order would result in the stultification of the plaintiffs' claims.
By contrast, counsel submitted, there was no comparable hardship to the defendants. They remained in possession of improvements made by the plaintiffs at a cost of more than $700,000. Counsel submitted that this effectively gave them ample security for the costs awarded against the plaintiffs.
Counsel also reminded me of the overriding need to ensure that any order made would conduce to the just outcome of the proceedings. Counsel noted that constructive trust cases have generally been characterised as involving commercial or family claims. Although there is some overlap between these categories, the present case, counsel submitted, was predominately a family dispute and that bore on the justice of making the order sought.
Counsel's third point was that the Court should not encourage a form of "satellite litigation". Counsel pointed out that the present application had involved several rounds of evidence and written submission from both sides. Counsel also referred to the practical difficulties of assessing quantum. Counsel referred to Mr Ryckmans' statement that he was unable to assess the costs. Counsel asked rhetorically how it was that a party facing such an order could sensibly quantify the costs.

Costs payable forthwith

As already mentioned, it was common ground that an order for payment of lump sum on account of costs should not be made unless the circumstances would justify an order for payment, with the costs to be assessed forthwith. This reflects my practice in making an order for payment on account as an alternative to immediate assessment and payment of interlocutory costs.
The relevant rule (UCPR r 42.7) provides: Interlocutory applications and reserved costs (1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including - (a) costs that are reserved, and (b) costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
In his well-known judgment in Fiduciary v Morningstar (2002) 55 NSWLR 1, Barrett J identified (at [11]-[13]) several circumstances which have been seen as justifying the making of an order for the immediate payment of interlocutory costs. I will refer to three of them. First, where the interlocutory application which is the subject of the costs order deals with some discrete aspect of the proceedings. Second, where the completion of the proceedings is still some time away. Third, where the party ordered to pay costs has behaved unreasonably.
In one sense, the costs orders on the cross-claim, at least, are final. Nevertheless, the parties proceeded on the basis that UCPR r 42.7 applies. I think that assumption is correct, given that the defendants remain party to continuing proceedings. An order in favour of a party who is not a party to continuing proceedings (such as a cross-defendant who is not a party to the principal claim) may give rise to different considerations. Indeed, the rule may not apply to such a party at all.
As to the question of whether the costs orders resulted from a discrete application, counsel for the plaintiffs referred me to Cameron v Ofria [2007] NSWCA 37. A barrister was sued in the District Court for a tax debt. The barrister cross-claimed against a former client, alleging that the client was liable for unpaid fees in a matter in which the barrister had acted. The client cross-claimed for professional negligence and misleading and deceptive conduct.
Phegan DCJ struck out the barrister's cross-claim, presumably on the ground that it had nothing to do with the tax proceedings against the barrister. It was accepted that the barrister would be entitled to bring the claim by way of a fresh action. But Phegan DCJ ordered that the fresh action should not be set down for trial until the barrister had first paid the costs of the former client in the abortive cross-claim proceedings.
The barrister did not challenge the striking out of the Statement of Claim but appealed against the requirement that the costs be paid before the fresh action was fixed for hearing. The appeal succeeded. Ipp JA, who gave the leading judgment, held that Phelan DCJ's discretion had miscarried. Re-exercising the discretion, Ipp JA said that the application was "simply an ordinary interlocutory application in the general course of the proceedings". There was "nothing out of the ordinary in the issue before the court" (at [12]). His Honour therefore considered that the issue was not a discrete one in the relevant sense.
Clearly a significant feature of the decision in Cameron was that the strike-out in that case was purely procedural: it only affected the way in which the barrister was going to bring the claim. In the present case, I have made final orders on the cross-claim. The issue of entitlement to possession has been resolved.
As already noted, counsel's argument was focussed, not on the costs of the cross-claim, but on the costs thrown away in the principal proceedings. But even so, I do not think it is sound. As I have already explained, the order for separate hearing covered not only the claim by Terry and Lesley, as cross-claimants, for possession. It necessarily involved any defence to those claims. Thus, the hearing necessarily determined, adversely to the plaintiffs, the question in the principal proceedings whether they had any interest in the property sufficient to entitle them to resist the claim for possession. This is illustrated by the order made in the main proceedings that the caveat be removed.
Nor do I accept counsel's argument that lack of parties was not a significant factor. Certainly, the three parties who were joined under the order of 22 April were not relevant parties to the expedited hearing. But it was the plaintiffs' recognition of the need to join APE1, and their application for an adjournment to allow them to join APE1, which made the vacation of the expedited hearing necessary. Otherwise, I could simply have proceeded and dealt with the case on the basis of the claims, if any, by Sheridyn and APE2.
For these reasons, I consider that the costs order represents the consequence of the determination of an issue which was discrete in the relevant sense. Specifically, it represents the disposal of claims by Sheridyn and APE2 to an interest in the Lambs Valley property entitling them to possession.
As to the time which will be needed to finish the case, what emerged from the abortive hearing was a need to reconsider the plaintiffs' claims in a fundamental way. This involved the joinder as APE1 as a separate party and the filing of a new version of the Statement of Claim.
I am not inclined to accept the assertion by counsel for the plaintiff that this will make "minimal" difference to the preparation of the hearing. Even if much of the existing evidence can be used, it is likely to require supplementation or at least reconsideration from the perspective of a new party. In any event, the removal of the proceedings from the Expedition List and their transfer back to the General List will inevitably delay the allocation of a hearing date. A final hearing is inevitably some time away and seems unlikely before 2024.
These conclusions so far, in my view, would be enough to justify the conclusion that the costs of the abortive hearing should be paid forthwith. It is therefore not necessary to go further and consider the reasonableness or otherwise of the plaintiffs' conduct. In passing, I note that the scope of the term "unreasonable" in this context is not fully defined. It seems to me, however, that conduct may be "unreasonable" without necessarily being an abuse of process or having involved misconduct of a party or that party's lawyers.
I should also say in passing that I do not accept, as counsel for the plaintiff suggested, that the need to join APE1 was in some way the responsibility of the defendants as well as the plaintiffs. It was the plaintiffs' responsibility to propound their case and to ensure that all necessary parties were joined in time. A hole in the plaintiffs' case, even a gaping hole, is not something the defendants were obliged to bring the plaintiffs' attention prior to the trial.

Hardship

In Rafferty v Time 2000 West Pty Limited (No 3) [2009] FCA 727 at [20] Besanko J identified three purposes served by the general rule that interlocutory cost orders are not payable until the end of the proceedings. What his Honour said has been picked up in later authorities: Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd (No 2) [2010] FCA 1347 at [8]; In the matter of Elsmore Resources Ltd [2014] NSWSC 1390 at [4]; see also Hargood v OHTL Public Company Ltd (No 2) [2015] NSWSC 511 at [7]-[8].
The first point made by Besanko J is that the general rule avoids multiple taxations. Secondly, it avoids what his Honour describes as "the apparent unfairness which may arise where, at any early stage of a proceeding, a party who is ultimately successful is required to pay costs to a party who is ultimately unsuccessful". The third purpose served by the rule, as identified by his Honour, is that it "prevents interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties".
The use of interlocutory costs to wear down a party can occur in more than one direction. In Royal Australian Naval Reserve Rifle Club Inc v New South Wales Rifle Association Inc [2010] NSWSC 351, Biscoe AJ considered (at [29]) that a factor in favour of making an order for immediate payment was that the successful party had been forced to incur interlocutory costs which might prejudice its further conduct of the proceedings. But clearly Besanko J had in mind the possibility of a plaintiff's claim being stultified by an order for immediate payment of interlocutory costs and that is the way it has been understood in subsequent cases.
One advantage which I see in the making of an order for payment of a lump sum on account of an interlocutory costs order is that it avoids the cost, distraction and potential waste in conducting an assessment of the interlocutory costs: see Salmon v Albarran (No 3) at [22]. The first consideration identified by Besanko J is therefore of little significance in the present case. Furthermore, the second consideration seems to me to be of little weight in the context of an interlocutory costs order, as in the present case, arising out of the determination of a discrete aspect of the proceedings.
In Cameron, one of the errors identified by Ipp JA in the decision of Phegan DCJ was that his Honour declined to receive evidence from the barrister about the financial effect of the imposition of the cost condition on the fixing of the hearing for trial: see at [7]-[8]. The question of stultification is at least potentially relevant to an application of the present type.
But the question of stultification is only one potentially relevant factor. It must be borne in mind that as a general rule costs are awarded to compensate the successful party; the focus of the court's attention should be on the successful party (here the defendants) rather than on the unsuccessful party: Ohn v Walton (1995) 36 NSWLR 77 at 79. The present application should not be seen as a balancing exercise based on some sort of comparison between the financial position of Sheridyn on the one hand and that of Terry and Lesley on the other.
Stultification is sometimes raised in opposition to an order for security for costs. In that context it is seen as arising once the prime facie conditions for the making of an order for security are satisfied and may persuade the court ultimately to refuse the order. As a result, the onus of demonstrating that the proceedings will be stultified lies on the respondent. It must be demonstrated that not only the respondent but also those who stand behind the respondent or stand to benefit from the litigation are without means: Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 4. In my view, to the extent that the alleged stultification is relevant in the present case, it should be analysed in the same way.
Initially, I was impressed by counsel's contention that Terry and Lesley effectively have security for the claims against them, in the form of the improvements to the property. There appears to be a clear claim based on Muschinski v Dodds (1985) 160 CLR 583 which would result in the retrieval of the costs of making those improvements. According to the accounts before me, which on the evidence were approved by Terry as well as by Sheridyn, the value of that claim would be over $500,000 at the very least.
But on reflection I think counsel's argument overlooks the legal relationships between the parties. Any order which I make with respect to the costs thrown away would be made against Sheridyn and APE2, who were the relevant plaintiffs at the time. Similarly, the order for payment of the cross-claim would be made against Sheridyn and APE2 as the relevant cross-defendants (I would not make such an order against Brian because he was only joined as a cross-defendant on the day that the final orders, including the costs orders, were made). None of these orders would affect APE1, which is the proper plaintiff in a claim based on the improvements.
To the extent that the question of stultification is relevant to any remaining claim that Sheridyn has, or is indirectly relevant to the claim by APE1, it needs to be remembered that strictly speaking the making of an order, even if followed by Sheridyn's bankruptcy because of an inability to meet it, will not necessarily result in the stultification of any proceedings at all. If the claim is a sufficiently substantial one, Sheridyn's trustee in bankruptcy may be able to obtain litigation funding or assign the claim to someone else who can bring it. It is also relevant that the net assets of the Trust are negative, and the major creditors, who funded the purchase of the property, were Terry and Lesley.
The evidence in the present case shows that Sheridyn is in a dire financial position. But this raises unanswered questions. How has the litigation been funded to this point? How will it be funded to completion? It seems to me that it is incumbent on the plaintiffs to answer these questions. There is no point in refusing to make an order on the grounds of stultification if the proceedings are going to collapse due to lack of funding anyway: see Longjing Pty Ltd v Perpetual Nominees Ltd [2017] NSWSC 1690 at [56].
Counsel's appeal for a just outcome is justified so far as it goes. But justice must take account of the effects on both parties. It is not to be equated with an unlimited right for Sheridyn to bring whatever claims she chooses and then to avoid responsibility for the costs inflicted as a result of claims that fail.
The Court cannot be blind to the way in which the claim to possession of the property was deployed and pursued in the present case. Clearly Sheridyn and her legal advisors perceived a tactical advantage in asserting such a claim. Now that the claim has been put to the test and has proved insubstantial, I see no injustice in requiring Sheridyn to pay the costs occasioned to the defendants, even if that may ultimately create financial obstacles to her pursuit of her other claims in the proceedings.

Satellite litigation

I accept that it is undesirable to promote satellite litigation. But the submissions made by counsel for the plaintiffs go too far. Counsel argued that "applications for assessment/quantification of costs, even on a 'provisional basis', can never be dealt with on a 'just and cheap' basis halfway through". If that were correct, the discretion under the Rules could never be exercised.
It is also an exaggeration to say there is no effective means of challenging a lump sum costs estimate. Usually, the paying party's solicitors will be able to comment based on their knowledge of the course of the proceedings and their experience in other litigation as Mr Ryckmans has done in this case.
In my view, the answer to counsel's complaint about not being able to go into the facts on an application such as this is s 60 of the Civil Procedure Act 2005 (NSW), which provides: In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute.
In the present case, as appears below, the difference between the parties is about $25,000. That figure justifies a very summary approach to the issue. In these circumstances, practical difficulties with precise determination of the defendants' recoverable costs should not dissuade the Court from making an order at all.

Quantum

As noted, Mr Ryckmans did not comment on the $9000 estimate for the costs referable to the cross-claim. After allowing for GST, and rounding, I fix the amount to be paid at $10,000. On the costs of the abortive hearing, the difference is between Mr Ryckmans' figure of $67,750 and Ms Mostajabi's of $91,497.
As counsel for the defendants pointed out, Mr Ryckmans appears to have made a mistake in his analysis. His per-day rates for counsel were $10,000 for senior counsel and $6,000 for junior counsel, which in junior counsel's case actually exceeds the $5,000 used by Ms Mostajabi (which was the figure junior counsel actually charged). The difference between Mr Ryckmans and Ms Mostajabi on counsel's fees appears to be that Mr Ryckmans used only three days in his estimate rather than the three days hearing plus two days of hearing preparation used by Ms Mostajabi. The point was raised in the defendants' initial written submissions and there was no further response, either evidentiary or by way of submission, from the plaintiffs.
As I have said, it is obvious that at least some of the preparation costs for the proceedings will prove to be wasted. The parties are agreed on the three days of hearing and Ms Mostajabi's estimate for the two days is unchallenged. On the other hand, I think it is appropriate to make some reduction to Ms Mostajabi's figure to reflect Mr Ryckmans' point about the charge-out rates used by Woods & Day. In the exercise of my judgment, I fix the amount to be paid, inclusive of GST, as $90,000.

Costs of application

The defendants have been substantially successful in the application. I see no reason why costs should not follow the event. Any application for a different order may be made in accordance with the Rules.

Orders

The orders I made on 30 September 2022 in the principal proceedings were: 1. Plaintiffs pay the defendants costs thrown away by reasons of the adjournment. 2. Leave to apply for a lump-sum to be paid on account of the costs order.
The orders I made on 30 September 2022 on the cross-claim were: 1. An order pursuant to UCPR r. 6.24 that Brian James Knodler be joined as Third Cross-defendant to the cross-claim. 2. An order pursuant to section 74MA(2) of the Real Property Act 1900 (NSW) that the First Cross defendant withdraw caveat AR349016 on or before Tuesday 3 October 2022. 3. An order that the Cross-defendants not lodge any further caveat on the title of 974 Luskintyre Road, Lambs Valley ("the Property") and that the First Cross-defendant procure that Ashwood Park Equestrian Pty Ltd ACN 169924903 (APE1) upon its re-registration not lodge any further caveat on the title of the Property. 4. Judgment for the Cross-claimants for possession of the Property. 5. Leave pursuant to UCPR r. 39.1 to issue a writ of possession for the Property, stayed until 29 November 2022. 6. An order that the Cross-defendants vacate the Property, including the removal of all horses, cattle, furniture, vehicles, other possessions and rubbish belonging to them, on or before 29 November 2022. 7. An order that the Cross-defendants be restrained from removing any fixtures and any other property of the defendants. 8. An order that the Cross-defendants: a. not harass, molest or interfere with potential buyers, real estate agents, contractors or other invitees of the cross-claimants; b. keep at least 30 metres away from potential buyers and real estate agents; c. not be present at the cottage or flat/staff quarters during any inspection and procure that no member of their staff, or the staff of APE1 upon its re-registration, be present at the cottage or flat/staff quarters during any inspection; d. not lock the flat, the stables, the kitchen area or the tack room during the period of any inspection; e. keep all parts of the property occupied or used by the plaintiffs maintained at all times, and in a clean and presentable state during the period of any inspection; f. take all reasonable steps to prevent cattle from roaming beyond their enclosures; g. take all reasonable steps to ensure their staff, customers and invitees comply with the orders in (a) - (e) above. 9. The Court notes the continuation of the undertakings by the Cross-claimants and the First and Second Cross-defendants made by agreement on 24 November 2021, which shall remain in place until the Cross defendants vacate the Property. 10. The Court notes the undertakings of the Cross-claimants that: i. If possible, the Cross-claimants will provide at least twenty-four hours' prior notice of any proposed inspection of the Property. Such notice is to be provided by email and text message to the solicitor for the Cross-defendants. Such notice be deemed to have been received by the Cross-defendants. Where a same-day inspection is sought to be undertaken by a prospective purchaser, the Cross-claimants will give a minimum of three hours' prior notice, such notice to be provided by email and text message to the solicitor for the Cross-defendants. Such notice be deemed to have been received by the Cross defendants. ii. upon the sale of the Property the defendants pay, from such proceeds, the sum of $2 million into the trust account of Woods and Day Solicitors. This money or part thereof, subject to undertaking (iii) below, shall only be used to pay the purchase price and stamp duty of a new residential property, to be registered in the names of the Cross-claimants alone, including for the payment of the deposit for such a purchase. Any remaining balance after the purchase of such property, subject to undertaking (iii) below, would be returnable to the Cross-claimants upon completion of such a purchase of residential property; iii. the Cross-claimants will not purchase a new residential property which has a sale price of less than an amount of $1.7 million (excluding stamp duty); iv. upon registration of the transfer of the new residential property the Cross-claimants shall (a) deliver the certificate of title to the property to Woods & Day Solicitors to be held by them pending final determination (through judgment or settlement) of the claim in Supreme Court proceedings no. 2021/00233848; and (b) not encumber or otherwise deal with such property pending such final determination, which, for the purpose of clarity, does not extend to and include any appeal. v. The Cross-claimants will not accompany any prospective buyers and/or agents in any inspection of the cottage or flat/staff quarters areas of the Property. 11. The Cross-claimants have liberty to make an application pursuant to the First Cross-defendant's undertaking as to damages within 3 months of the completion of sale of the property. 12. The First and Second Cross-defendants to pay the Cross-claimants' costs on the cross-claim, to the extent solely attributable to the cross-claim. 13. Leave to apply for a lump-sum to be paid on account of the costs order. 14. The parties are granted Liberty to apply on 24 hours' notice up until completion of the sale of the Property.
The orders I now make on the application by the first and second defendants/cross-claimants are: 1. Order that the first and second cross-defendants pay the sum of $10,000 on account of their liability under the order for costs made in the cross-claim proceedings on 30 September 2022. 2. Order that the first and second plaintiffs pay the sum of $90,000 on account of their liability under the costs order made in the principal proceedings on 30 September 2022. 3. Order that the first and second plaintiffs/cross-defendants pay the costs of the application.

Amendments 15 March 2023 - Title change 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: 15 March 2023

Conveyancing Act 1919(NSW)s 66G, and

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