242 CLR 421
Kardos v Sarbutt (No 2) [2006] NSWCA 206
Kirk v Industrial Court of New South Wales [2010] HCA 1
Source
Original judgment source is linked above.
Catchwords
242 CLR 421
Kardos v Sarbutt (No 2) [2006] NSWCA 206
Kirk v Industrial Court of New South Wales [2010] HCA 1
Judgment (3 paragraphs)
[1]
Solicitors:
Arnold Bloch Leibler - for the plaintiff
Hicksons Lawyers - for the first defendant
Ashurst Australia Lawyers - for the second defendant
File Number(s): 2015/129833
[2]
Judgment
On 1 September 2015 I gave reasons dealing with the principal disputes between three brothers over some jointly owned property that they had inherited from their mother (see [2015] NSWSC 1347).
That judgment was given ex tempore. However the question as to who should pay the costs was complicated. I reserved my decision, accepted supplementary submissions in writing and these reasons now deal with that question which was called 'Item (C)' in the previous judgment.
The combatants are three brothers. Their attitudes to costs differ. The plaintiff says that he was successful in the proceedings and he got what he proposed and accordingly he should get his costs on the general principle that he or she wins gets costs, he or she loses pays costs. I will deal with that argument on a more technical basis shortly. The first defendant adopts the submissions of the second defendant that the 'usual order' in these cases should be made, that is, the costs of all parties are borne out of the proceeds of sale. The second defendant makes that submission or alternatively that there should be no order as to costs.
A complicating factor is that although the summons in these proceedings was issued on 1 May 2015, there had been negotiations between the brothers from 7 April 2010 and more constantly from 11 June 2011. On 11 June 2011, the plaintiff's solicitors wrote to the first defendant, copying it to the second defendant, proposing a sale of the co-owned properties. There was no answer to that letter or to the follow-up letter of 24 June. During 2011 the plaintiff's solicitors generated a considerable number of suggestions, to most of which the first defendant gave no answer. His counsel said that he was a person who was based in Hong Kong and was frequently away. The same things happened during 2012. In 2013 there was less correspondence, but whilst the first defendant tended to reply, he usually opposed the plaintiff's suggestion and put up a counter-proposal. During 2014, much the same happened.
When the summons was issued on 1 May 2015 the matter was brought to a head and there was considerable agreement on most issues and on 1 September, that is four months later, I disposed of the remaining contentions. I think it is fair to say that had the summons been issued in 2011, something similar would have happened. Accordingly, there is a great problem with the costs between 2011 and the issue of the summons. The plaintiff says that these costs are part of the costs of the proceedings. The defendants disagree. The costs are considerable. It would seem that the plaintiff's solicitor is going to charge something like $126,000 for costs during this period.
It is impossible to work out whether, that is as the defendants say, a grossly inflated set of costs or whether a costs assessor would allow them. The details as to what work was actually done which was given before me, hardly seems to justify any such bill but I probably have not been given the full details. Nor should I have been given the full details as the question as to the quantum of costs is in the jurisdiction of the costs assessor rather than the judge.
Before coming to the basic propositions, I should deal with a submission that was made by Mr Blackburn-Hart SC for the plaintiff. That is the submission that is based on a dictum of Lindsay J in Botros v Frank [2013] NSWSC 712, a dictum of which White J approved in Thomson v Sweeney [2013] NSWSC 1383 [10] that:
The statement as to what is a 'usual order' in applications under s66G of the Conveyancing Act is nothing more than a rule of practice that is required in every case to yield to consideration the facts of the particular case.
With respect I cannot follow that dictum. The usual order is as Brereton J said in the Court of Appeal in Kardos v Sarbutt (No 2) [2006] NSWCA 206 [28]:
The common order that is made in disputes where property is the subject of a joint venture or joint proprietorship whether that be partnership, de facto relations split up or jointly owned property. The rationale is that the cost of setting up the enterprise or co-ownership is to be paid equally (or in accordance with the shares nominated in the relevant agreement) and so should the costs of dissolution.
See also Barel v Segal (No 3) [2012] NSWSC 1319 at [9] - [12].
Of course that principle yields in partnership cases and probably in de facto relationships cases to whether there has been a fault by a party or misconduct by a party which has caused the venture to fail. In such a case, that misconduct often means that the person who is guilty of it has to pay the costs of the dissolution because without that misconduct, the dissolution would not have occurred. That point cannot have anything to do with the s66G application because there is no misconduct involved in the dissolution. It is just the exercise of a statutory right to put an end to co-ownership.
The alleged misconduct on the part of the defendants, particularly the first defendant, is in failing to negotiate; failing to answer a large number of communications made by the plaintiff's solicitors over a period of four years; and prevaricating by deliberately putting up suggestions contrary to the plaintiff which he knew would not be accepted. Accepting for the moment that I share the plaintiff's view of the classification of the first defendant's conduct, it would still not amount to misconduct in the same sense as is used in partnership cases.
The co-owners have no obligation to negotiate their dissolution. As Mr Walton SC for the second defendant submitted, not only is there no duty to negotiate, even if there were, there is no breach of the duty involved in failing to reach an agreement.
Accordingly, my consideration of the costs falls into two divisions:
1. the costs on and after 1 May 2015, plus preliminary costs; and
2. costs before that period.
As Mr Blackburn-Hart SC put on a number of occasions that one must start by referring to the provisions of the Civil Procedure Act, 2005. He started at Section 98. With respect, one has got to start at Section 3, the definition section which 'costs' is defined as 'in relation to proceedings, means costs payable in or in relation to the proceedings and includes fees, disbursements, expenses and remuneration'. A key question is just what is meant by costs in relation to the proceedings.
One then goes to Section 98. Section 98.1 provides:
Subject to rules of court and to this or any other act:
(a) costs are in the discretion of the court …
One then goes to Part 42.1 of the Uniform Civil Procedure Rules, 2005 which provides:
Subject to this Part, 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.
I might be forgiven for thinking that sometimes the submissions of counsel in this case got to the stage of saying that there was a dichotomy between Part 42 Rule 1 and what has been described as the usual rule in s66G cases. There is no conflict at all. The usual rule applies, but in most s66G cases, there is no fault and so the event may well be something which the plaintiff has an absolute right to make and if the defendant accepts this, there is no reason why costs should follow the event and the normal rule should apply. As to defendants are entitled when sued under s66G to obtain legal advice as to their situation, there is no reason why their costs of obtaining the legal advice and appearing before the court, should not also come out of the proceeds of sale. If a particular defence is mounted and that fails, then that is a case which may well be best left within the principles set out in Part 42.1.
In the instant case, despite four years of toing and froing, when the summons was issued and the matters came to court, the only content that was left was who should be the trustee and how should the costs be borne. Accordingly, to my mind, prima facie, the usual rule applies. So far as the parties' costs are concerned, if a cost assessor considers that the costs incurred by any particular party were unreasonable, he or she will disallow them. The proper costs of each party will be paid out of the proceeds of sale and that is my determination on the costs as from 1 May or appropriate earlier date.
I say 'appropriate earlier date' because it is quite clear that a person's costs of proceedings do not commence at the time when the summons is issued. In a typical motor car collision case, a person will go to his or her solicitor; give the solicitor a retainer and instructions to act; the solicitor will take statements, obtain a police report and probably write to the defendant's insurer before issuing initiating process. It is quite clear that those costs will become costs in the action: see eg Re Gibson's Settlement Trusts [1981] Ch 179 at 187 where Megarry VC said:
Neither the fact that at the time the costs were incurred no writ or originating summons had been issued, nor the fact that the immediate object in incurring the costs was to ascertain the prospective litigant's chances of success, will per se suffice to exclude the costs from being regarded as part of the costs of the litigation that ensues. Of course, if there is no litigation there are no costs of litigation. But if the dispute ripens into litigation, the question then arises how far the ambit of the costs is effected by the shape that the litigation takes.
In his third edition of Law of Costs, Professor Dal Pont (Lexisnexis, Butterworth, 2013) at paragraphs 17.4 said:
Drawing the line between what is, and what is not, in allowable in respect of pre-proceeding costs is not capable of precise determination simply by statements of principle; the matter remains based in the discretion of the taxing officer on the particular facts of each case.
He cites Perpetual Executors & Trustees Association of Australia Ltd v Colonial Mutual Fire Insurance Company Ltd (1903) 29 VLR 427 at 432 per Holroyd J.
The basal question is whether the costs that were incurred before the proceedings were commenced could be said to be costs incidental to the proceedings within the meaning of Section 3 of the Civil Procedure Act. The matter was considered by the Court of Appeal in McIntyre v Perkes (1988) 15 NSWLR 417 at 426 and in England recently in Tasleen v Beverley [2014] 1 WLR 3567.
More concerning as to the costs of pre-trial negotiations are two decisions of the High Court: Kirk v Industrial Court of New South Wales [2010] HCA 1; 239 CLR 531 and Edwards v Santos Ltd [2011] HCA 8; 242 CLR 421. In the former case, the Supreme Court of New South Wales had granted prohibition against the Industrial Court and there was then an appeal from that decision to the High Court of Australia. The High Court of Australia held that the costs in the Industrial Court could not be included in an order for costs made by the New South Wales Court of Appeal in its original jurisdiction. However, in the Edwards v Santos case, the court did make such an order. Hayne J dissented on the basis that the case was governed by Kirk. Heyden J however said that he considered that the court had overlooked Section 98 of the Civil Procedure Act in Kirk. Edwards v Santos also was a claim for a prerogative writ made directly to the High Court and it succeeded and an order was made against the Federal Court that had found against the claimants. However the court considered that it had jurisdiction to order that the costs not only in the High Court, but also in the Federal Court, were properly part of the orders for costs that the defendant should pay.
Although I followed Kirk recently in TF v Department of Family & Community Services [2015] NSWSC 694, I was not then referred to the Santos case and it seems to me reading both the plurality and Heyden J that Section 98 of the Civil Procedure Act, 2005 and the court's duty under Section 63 of the Supreme Court Act, 1970 to 'as far as possible determine all matters in controversy between the parties … completely and finally', together with Section 23 of the Supreme Court Act giving this court full jurisdiction, that there is power to make an order that pre-judgment costs, that is, costs that would be incurred prior to the time when under the Gibson's Settlement Trust principle, costs would normally be considered to be part of the costs of the proceedings notwithstanding that the writ had not been issued.
The next question is whether the costs should be paid disproportionately by the defendants and the plaintiff because of the first defendant's continual failure to negotiate. If the defendant's attitude had been after the filing of the summons, then he would have run foul of Section 56 of the Civil Procedure Act because ss(3) of that section provides:
A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court.
However before the proceedings commence, the relevant person is not within the description 'a party to civil proceedings' and that section does not apply. Accordingly, we are in the area that Mr Walton described as an area where there was no duty on the defendants to co-operate and the plaintiff's remedy was, once he could see that negotiations were getting nowhere, simply to have issued a summons which he could have done in 2011 and avoided a large amount of unnecessary costs.
Should therefore no order be made with respect to those costs, or should they fall under the same order as the balance of the proceedings, that is, that the costs of all parties come out of the proceeds of sale? The plaintiff protests that that means that one third of the costs will be borne by himself, but surely that is a better solution than for the plaintiff to pay his own costs for those four years on the basis that the defendants have not breached any duty and the remedy was in the plaintiff's own camp in filing proceedings which step he never took.
It seems to me that although this is a very special case, the requirements of justice require that all proper costs in this pre-litigation period, also be treated in the same way as the proper costs of the proceedings. This does not mean that the plaintiff will receive all the costs of the four year period in question. The costs assessor will have to consider and doubtless his or her consideration will be governed by what objections are made to the plaintiff's proposal as to costs, as to what costs were reasonably incurred and at what stage a reasonable solicitor in the position of the plaintiff would have advised the plaintiff to issue proceedings and a reasonable plaintiff would have accepted that advice.
Accordingly, the proper order for costs which I make is that the costs of all parties be paid out of the proceeds of sale on the ordinary basis. Those costs are only to be reasonable costs but are to include the costs of the parties on and from 10 June 2011.
I will now stand the matter over for short minutes to be brought in on a day convenient to counsel next week.
[3]
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Decision last updated: 18 September 2015