These proceedings were commenced by Summons filed on 21 September 2018. The proceedings arise out of a terms contract for the sale of a property in East Branxton, entered into between the plaintiff as purchaser and the defendants as vendor in February 2014, and a Deed of Mutual Rescission of Contract dated 30 June 2018. The Deed, which appears to have been made on about 4 July 2018, provided in cl 2 for the terms contract to be rescinded and treated as void ab initio as at 30 June 2018. Clause 3 of the Deed provided:
(a) The vendors shall repay to the purchasers the sum of $23,000 from the monies received from the purchasers in respect of the property.
(b) The vendors grant to the purchaser caveatable interest on the property to secure the payment referred to in subparagraph (a) above.
(c) The payment in subparagraph (a) above will be effected upon sale of the property or within three (3) months of the date of this deed (whichever is earlier).
As envisaged by cl 3 of the Deed, on about 4 July 2018 the plaintiff lodged a caveat against the title to the East Branxton property. The interest claimed in the caveat was an estate in fee simple, by virtue of an agreement dated 30 June 2018 between the plaintiff and the defendants. It was further stated in the caveat that the interest was "an equitable interest as the purchaser under a Deed of Rescission of contract for refund of deposit of $23,000". A lapsing notice in respect of the caveat was served on 4 September 2018.
By her Summons the plaintiff sought interlocutory relief, including an order under s 74K of the Real Property Act 1900 (NSW) extending the operation of the caveat, and final relief including declarations that the terms contract had been terminated by the Deed, and that the defendants were obliged under the Deed to pay $23,000 to the plaintiff.
The plaintiff obtained ex parte orders for short service on 24 September 2018, and the matter came back before the Court on 25 September 2018. On that occasion, no order was made for the extension of the operation of the caveat in circumstances where the defendants gave an undertaking to the Court "that the sum of $23,000 paid yesterday to their solicitors MRM Lawyers be retained in the trust account of MRM Lawyers pending further order, or agreement between the parties". It was noted that the payment by the defendants to their solicitors, and the undertaking proffered, was done on a without admissions basis. It was further noted that a contract for the sale of the property by the defendants to a third party was provisionally fixed for settlement on either 9 or 10 October 2018. The proceedings were adjourned to 26 October 2018.
The matter was re-listed on 10 October 2018 at the request of the plaintiff. The plaintiff was concerned about her position in circumstances where the caveat had been allowed to lapse and the defendants were proceeding to sell the property, yet the defendants were not prepared to acknowledge that the Deed was valid. The Court declined to entertain an application to restrain the sale to the third party, but granted leave to the plaintiff to file a Notice of Motion seeking summary judgment. A motion for summary judgment was filed on 16 October 2018, returnable on 26 October 2018.
On 26 October 2018 it was noted that the defendants by their solicitor asserted that a cheque for $23,000 had been sent by mail the day before to the plaintiff's solicitor. In the expectation that the cheque would be received, banked and cleared, directions were made for the service of written submissions on the question of costs which, in those events, would be the only issue remaining. Submissions have been received by the Court in accordance with those directions. The Court has been informed that the $23,000 has been received by the plaintiff. As foreshadowed on 26 October 2018, the Court will proceed to deal with the question of costs on the papers.
The plaintiff submits that a costs order should be made in her favour, and that the order should be made on an indemnity basis. It was submitted that whilst there has not been a determination on the merits, she has been substantially successful by virtue of the defendants' capitulation. The plaintiff submitted that it was clear under the terms of the Deed that she was entitled to be paid the sum of $23,000 and entitled to lodge a caveat. The plaintiff submitted that the proceedings were necessary due to the defendants' unreasonable conduct in serving the lapsing notice. It was noted that the defendants did not make the payment of $23,000 until the day before the hearing of the plaintiff's application for summary judgment.
The defendants submitted that there should be no order as to costs. In essence, two reasons were advanced in support of that position. These were:
1. that the plaintiff did not send any "letter before action" which would have enabled the parties to work out a regime of the type agreed on 25 September 2018; and
2. that there has been no hearing on the merits, and it may be inferred that the defendants had reasonable prospects of obtaining relief in respect of the Deed, which was said to be unworkable, but did not wish to expend further legal costs in the proceedings.
As to the first point, the fact that the plaintiff did not send a letter before action seems to me to be of little significance in circumstances where the service of the lapsing notice by the defendants was the metaphorical first shot in the conflict. It was open to the defendants to initiate dialogue with the plaintiff about the caveat and the impending sale, but instead chose to serve a notice that required the plaintiff to obtain (within 21 days) an order from the Court in order to prevent the lapsing of the caveat.
It was suggested by the defendants that cl 3 of the Deed was unworkable. This was said to be the case because cl 3 envisaged the sum of $23,000 being paid out of the money that would be paid by the purchaser on sale but settlement of the sale could not occur if the caveat remained on the title. I do not think that is a correct reading of the Deed. The word "purchasers" where it appears in cl 3(a) is in my view intended to be a reference to the plaintiff. The obligation is to repay to the plaintiff the sum of $23,000 from the monies received from the plaintiff. When the Deed was made, the plaintiff had paid about $91,650 to the defendants under the terms contract. In any event, cl 3(c) makes it clear that payment of the $23,000 may be required before the settlement of the sale. As it turned out, it appears that the obligation to pay arose on about 4 October 2018, prior to settlement of the sale. The defendants had in the meantime paid the sum to their solicitors, to be held pending further order or agreement between the parties.
It is unfortunate that neither side seems to have initiated dialogue prior to the commencement of the proceedings. However, in my view that commencement should properly be regarded as the result of the service of the lapsing notice. Moreover, I think that it was reasonable for the plaintiff to commence the proceedings to seek relief to enforce her rights under the Deed. The Deed plainly gave the plaintiff the right to lodge a caveat against the title to the property to secure the payment of $23,000. Even if the caveat inaccurately described the interest conferred (as I think it did), it is difficult to see how moving to have the caveat lapse would in practical terms improve the defendants' position.
As to the second point, I do not think it can be inferred that the defendants had reasonable prospects of obtaining relief in respect of the Deed. As I have said, the Deed was not unworkable as suggested. I would add that the mere fact that the defendants were not legally represented when the Deed was made does not mean that there was any arguable basis for them to challenge its validity. The Deed is prima facie valid, and even though only a relatively small amount of money was involved, the conduct of the defendants in taking steps to pay the $23,000 the day before the plaintiff's summary judgment application was due to be heard should in my view be regarded as a recognition of that position.
In my opinion this is a case where it can be stated with confidence that the plaintiff would have succeeded if the matter had proceeded to hearing (see Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625). The defendants have effectively capitulated in the face of the plaintiff's claim.
I consider that in these circumstances it is appropriate to exercise the Court's discretion as to costs pursuant to s 98(1) of the Civil Procedure Act 2005 (NSW) by ordering the defendants to pay the plaintiff's costs of the proceedings.
However, having regard to the fact that the plaintiff's caveat was defective by reason of the inaccurate description of the interest conferred by the Deed, and the apparent failure of the plaintiff to initiate dialogue prior to the commencement of the proceedings, I do not consider it appropriate to order that the costs be paid on an indemnity basis. Viewed in the light of those matters, the conduct of the defendants ought not be considered unreasonable so as to justify an award of indemnity costs against them.
Accordingly, the Court will order that the defendants pay the plaintiff's costs of the proceedings on the ordinary basis.
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Decision last updated: 12 November 2018