Blecher v Zou [2024] NSWSC 224 | Case summary

Supreme Court of NSW|2024-02-22|Before: Pike J

JUDGMENT

On 8 February 2024, I delivered judgment in these proceedings: see Blecher v Zou [2024] NSWSC 70 (Principal Judgment). These reasons assume familiarity with the Principal Judgment, and I continue the defined terms used in the Principal Judgment.
The primary relief ordered was: 1. The Court declares that of the funds held in escrow by Laing & Simmons Double Bay in respect of the sale of 26 Myuna Road, Dover Heights on or about 10 August 2022, the Plaintiff is entitled to $99,692 and the Defendants are entitled to $308. 2. The Court orders the parties to notify Laing & Simmons Double Bay to release the funds in accordance with the declaration set out at Paragraph 1 above. 3. The Court orders the Defendants to pay to the Plaintiff pre-judgment interest in the sum of $9,553.94.
It was not in dispute at the hearing before me that the proceedings concerned entitlements to the sum of $100,000 held in a trust account and that, in reality, the maximum amount in dispute was $45,291.46 (see [5] of the Principal Judgment). The ultimate outcome was that the plaintiff was entitled to $99,692 (plus interest) and the defendants entitled to $308.
At [102] of the Principal Judgment, I indicated that I proposed to give the parties an opportunity to be heard briefly in writing on the question of costs and would otherwise deal with the issue on the papers. This included whether any costs should be allowed having regard to UCPR r 42.34.
These reasons deal with the question of costs.
Pursuant to orders made in the Principal Judgment, the plaintiff relied on submissions as to costs dated 15 February 2024 and an affidavit of Derek Errol Ziman dated 7 February 2024 (Ziman Affidavit). That affidavit set out the relevant correspondence and communications in relation to attempted settlement of the proceedings and annexed certain offers. The defendants relied on submissions filed 22 February 2024.

Overview of the Competing Positions

As I understand the submissions advanced by the plaintiff, the principal submission was that the defendants should be ordered to pay the plaintiff's costs of the proceedings, including on the indemnity basis from 25 August 2023, being the date on which the defendants rejected the plaintiff's offer dated 16 August 2023 for the defendants to receive $5,000 from the $100,000 held in escrow and for each party to bear their own costs. The plaintiff's primary position was that UCPR r 43.34 was not engaged. The fallback propounded by the plaintiff was that if UCPR r 43.34 was engaged, the Court should order the defendants to pay the plaintiff's costs of the proceedings with a broad-brush discount of about 15%.
The defendants contended, as I understand their written submissions, that the plaintiff did not satisfy the threshold test in UCPR r 43.34 and thus a costs order should not be made in the present case in favour of the plaintiff. An alternative was advanced that if the Court was satisfied that commencement in the Supreme Court was warranted within the meaning of UCPR r 43.34, in the circumstances of this case, costs should be awarded to the plaintiff on an ordinary basis, but a cap should be set at 50% of those costs.

Relevant Principles

The relevant principles in relation to costs are not in dispute. Section 98 of the Civil Procedure Act 2005 (NSW) provides that, subject to the rules of Court, costs are within the discretion of the Court. UCPR r 42.1 provides that if the Court makes any order as to costs "the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs." This rule is subject to other rules in Part 42, and relevantly UCPR r 42.34, which provides: Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if - (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that - (a) for proceedings that could have been commenced in the District Court - the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted, or (b) for proceedings under Part 2 of Chapter 7 of the Industrial Relations Act 1996 - the commencement and continuation of the proceedings in the Supreme Court, rather than the Local Court, was warranted.

Decision

I accept that the plaintiff has been successful in the proceedings and that prima facie, the defendants should be ordered to pay the plaintiff's costs of the proceedings.
I am not satisfied that those costs should be ordered to be paid on an indemnity basis on and from 25 August 2023. I do not regard the defendants' rejection of the offer made by the plaintiff on 16 August 2023 as unreasonable. The offer was made shortly after the defendants had served the affidavit of the first defendant dated 7 August 2023. Included in the exhibit to that affidavit was a report of Mr Chunsheng Hou of AH Roofing Services dated 28 June 2023. No expert evidence in response to the report by Mr Hou had been served by the plaintiff at this time. The expert report from Mr Scott of Best Building Solutions was not served until sometime after the offer. Further, some of the evidence which I accepted from Mr Scott in the Principal Judgment was evidence given at the hearing in February this year as to what, in Mr Scott's opinion, was still causing leakage at the Property. In these circumstances, it was not unreasonable for the defendants to reject the offer.
The next issue is whether UCPR r 42.34 is engaged. It is clear that the monetary amount in issue in the proceedings was well within the jurisdiction of either the District Court or the Local Court. This was not disputed. Rather, as I understand the plaintiff's position it is that there was doubt as to the jurisdiction of the District Court to grant the declaratory relief that was sought in the proceedings. Reference was made to the Civil Trials Bench Book at [5-3020].
I accept that there is some uncertainty as to the ability of the District Court to order declaratory relief. Of more concern in the present case is whether any declaration was necessary at all: see, for example, Bushby v Dixon Holmes du Pont Pty Ltd (2010) 78 NSWLR 111 at [21]. The dispute in the present case was essentially between the plaintiff and defendants as to whether the defects identified in the August Agreement had been fixed. I query whether any declaratory relief was ever necessary as opposed to simply the Court determining where the respective merits lie in relation to the August Agreement and then ordering the parties to jointly notify the stakeholder as to how the monies held in escrow are to be paid. The proceedings, in my view, could likely have been commenced in a lower court.
Such a conclusion does not mean that there should be no costs order, as UCPR r 42.34 only sets out a prima facie position and not an inflexible rule. In my view, however, it is not appropriate that no costs order be made. McCallum J in Wong v Maroubra Automotive Refinishers Pty Ltd [2015] NSWSC 364 said at [17] on the facts of the case that "it would be an unfair outcome if the defendants, having effectively lost the proceedings, were not visited with any costs of the action." The present case is the same. The defendants have effectively lost. Further, it is apparent from the material included in the Ziman Affidavit that, regrettably, the defendants never properly engaged in settlement discussions in the proceedings. Also, as I pointed out at [90] of the Principal Judgment, the defendants have refused to allow TomKat to return to the Property to replace the internal downpipe in the garage, despite TomKat having offered to complete this work free of charge and having already been paid by the plaintiff to do that work.
In my view, despite the fact that the proceedings should likely have been commenced in a lower court, the defendants, having lost the proceedings, should bear some costs. The appropriate outcome is the fallback put forward by the plaintiff, namely that the defendants should be ordered to pay 85% of the plaintiff's costs of the proceedings. Whilst I accept that this percentage reduction is somewhat arbitrary, it nonetheless brings about what, in my view, is an appropriate outcome.
The order of the Court is that the defendants are to pay 85% of the plaintiff's costs of the proceedings, as assessed or agreed.

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Blecher v Zou

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