There is an outstanding question of costs in these proceedings, which primarily concerned an application by the plaintiff under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale of a property he co-owns with the defendant.
On 4 May 2017 orders were made for the appointment of trustees for sale after the Court delivered its judgment in Capolingua v Da Silva (No 2) [2017] NSWSC 527. In an earlier judgment (Capolingua v Da Silva [2016] NSWSC 1212) the Court declined to appoint trustees, instead adjourning the proceedings so as to enable certain contractual pre-conditions to a sale of the property to be fulfilled. The Court held that an obligation of the plaintiff (as the party seeking sale) under a Deed between the parties, to conscientiously and diligently market his interest in the property for a period of one year, had not yet been satisfied. In its second judgment, the Court held that the obligation had by that time been satisfied, and it was appropriate to proceed to appoint trustees for sale.
The proceedings also involved a claim for rectification of the Deed, and a cross-claim brought by the defendant against the plaintiff. The rectification claim was resolved by consent at a relatively early stage in the proceedings. The cross-claim originally sought the appointment of trustees for partition instead of sale, and damages for various alleged breaches of the Deed. The partition claim was later deleted, as was the damages claim save for the allegation that the plaintiff was in breach by bringing his s 66G application. Ultimately, that aspect of the cross-claim was not pressed either, and the cross-claim was dismissed.
The parties agreed that the question of costs could be determined on the papers. Written submissions have been received from both parties in accordance with directions made to that end.
In brief, the plaintiff submits that he was the successful party and that costs should follow the event, so the defendant should pay his costs of the proceedings including his costs of the cross-claim. The defendant submits that, save for the costs of the first hearing, the usual order in s 66G cases should apply so that the costs of both parties should be paid from the proceeds of sale. In relation to the costs of the first hearing, the defendant submits that she was successful so the plaintiff should pay her costs.
Both sides cited McKay v McKay [2008] NSWSC 256 at [7] for the proposition that, at least in straightforward s 66G applications, the usual or prima facie rule is that the costs of the parties come out of the proceeds of sale. The underlying rationale of that rule is that the costs are regarded as an incident of joint ownership (see Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]). Both sides accepted that the rule may be displaced in the circumstances of particular cases. In essence, each party submitted that the rule should be displaced in a manner favourable to it, to fairly reflect the degree to which it achieved success in the proceedings.
The plaintiff pointed to his ultimate success in having trustees for sale appointed, and emphasised that this success was achieved over the long standing opposition of the defendant, which persisted throughout. The plaintiff submitted that it was reasonable to commence the proceedings when he did, in view of the lengthy history of disputation between the parties and the need to have the Deed rectified.
The defendant submitted that her opposition to the application should not disentitle her from having her costs paid out of the proceeds of sale. The defendant then pointed to her success at the first hearing in resisting the appointment of trustees for sale, and submitted that the plaintiff should pay her costs of that hearing. She submitted that it was not necessary for the plaintiff to have approached the Court at that stage.
In my opinion it was not inappropriate for the plaintiff to commence the proceedings when he did, having regard to the dispute between the co-owners which had been continuing since at least the beginning of 2011, and the need in that context to rectify cl 3.8 of the Deed. That clause contains the "formula" whereby the amount paid to an outgoing co-owner, or the amounts to be distributed to the co-owners following a sale by trustees, is calculated. Nonetheless, the plaintiff pressed for the appointment of trustees at a time when the marketing process envisaged by cl 5 of the Deed had not been completed. The plaintiff was not successful in his application at that stage.
However, the extent of the defendant's success at that stage should not be overstated. The defendant's challenge to the quality of the plaintiff's marketing campaign to that point was rejected, as was her claim that the plaintiff was acting vindictively. The proceedings were adjourned, rather than dismissed as sought by the defendant.
It is relevant to note that even after the plaintiff's interest in the property had been marketed for a year, without success, the defendant continued to resist the appointment of trustees for sale. Her challenges to the quality of the marketing campaign were again rejected. It seems that even if the plaintiff had waited until the marketing had continued for a year before seeking the appointment of trustees, the defendant would have opposed the application and challenged the quality of the entire marketing campaign. In these circumstances, whilst the conduct of the application, involving two separate hearings (in August 2016 and April 2017), is likely to have caused some additional costs to be incurred, the extent of additional costs is unlikely to be of great magnitude.
The central issue in the s 66G application concerned the plaintiff's compliance with his marketing obligations under the Deed. Otherwise, there was no cogent reason to withhold or delay the appointment of trustees. The plaintiff was ultimately successful on that central issue. As noted earlier, the defendant's cross-claim was dismissed. The plaintiff would have incurred some costs, but not substantial costs in relation to that cross-claim.
It seems to me, taking into account the nature of the proceedings (including the usual or prima facie rule referred to earlier), the conduct of the proceedings, and the extent to which the parties were successful and unsuccessful, that it would not be appropriate for the costs of both parties to be paid out of the proceeds of sale. I note that the respective interests of the parties and the "formula" to be applied in distributing the proceeds of sale means that the plaintiff is to receive at least two thirds of the proceeds.
In my opinion, the appropriate order to be made pursuant to s 98 of the Civil Procedure Act 2005 (NSW) is that only the plaintiff's costs of the proceedings (including the cross-claim) be paid out of the proceeds of sale. The defendant should be left to bear her own costs. That order means, in practical terms, that the defendant will bear something approaching one third of the plaintiff's costs in addition to her own costs.
That seems to me to be fair in all the circumstances of this case. It was necessary for the plaintiff to demonstrate that he had complied with the contractual pre-conditions to a sale of the property. He was ultimately successful in that regard, but not at the initial hearing. Some costs would undoubtedly been wasted as a result of the plaintiff seeking the appointment of trustees at a time when he could not have satisfied those pre-conditions. The defendant chose to resist the appointment of trustees at all stages and was unsuccessful, except to the limited extent that the orders were made in May 2017 rather than August 2016. The defendant also failed on her cross-claim. I do not think that the plaintiff (or the proceeds of sale) should have to bear any of the defendant's costs.
The Court will therefore order that Order 6 made on 4 May 2017 be varied so that it reads:
An order that the Trustees distribute the sale proceeds in the following manner:
a. pay to Westpac Banking Corporation such amount as may be required to discharge the registered mortgage being AD 777642T (the Mortgage); then
b. deduct and pay the costs of the sale of the Property, including fees and disbursements, from the proceeds of sale of the Property; then
c. payment of the plaintiff's costs of the proceedings (including the cross-claim) as assessed or agreed; then
d. distribute the balance of the proceeds of sale so as to give effect to the value of each party's interest in the Property in the manner prescribed by clauses 5.2 and 3.8 of the Deed, as rectified, less the amount representing each party's outstanding loan paid by the Trustees to discharge the Mortgage.
The Court will also vary Order 7 made on 4 May 2017 to delete the reference to "order 6(c)" and insert instead "order 6(d)"
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Decision last updated: 29 May 2017