Judgment - EX TEMPORE
Revised from transcript; issued 22 September 2020
14 September 2020
These proceedings concern two properties in regional New South Wales. One at Weston and the other at Barraba. Weston is a small town in the Hunter region. Barraba is a town in the New England region.
The properties formerly belong to the plaintiff, Margaret Ann France. In December 2015 Ms France signed two contracts (one for each property) transferring the properties to Sieve‑Storm Pty Ltd, the second defendant, for a total price of $459,000.
Sieve‑Storm is a company controlled by a Karin Elisabeth Siekaup, the first defendant. Ms Siekaup is a property investor and company director. She had previously had dealings with Ms France concerning the properties which went back to 2013 and involved Sieve-Storm managing them.
A few days after the contracts were signed Ms France executed transfers in favour of Sieve-Storm under the Real Property Act 1900 (NSW). On the same day Ms Siekaup caused Sieve‑Storm to pay out Ms France's existing mortgage over the property. The amount paid was $182,562.
Shortly afterwards solicitors acting for Ms Siekaup and Sieve‑Storm lodged the transfers for registration and they were subsequently registered. The amount paid to discharge the mortgage was the only amount paid following the execution of the contracts. As a result there is an apparent shortfall of $276,438, representing the unpaid balance of the purchase price.
Initially Ms France's primary case in these proceedings was that she had not properly understood what she was doing when she signed the contracts and the transfers (if she did in fact sign the contracts: there was an issue about that). Ms France claimed to have been exploited by Ms Siekaup and sought relief under the Contracts Review Act 1980 (NSW). She also claimed an account for rent from the properties for the period of time under which they were managed by Ms Siekaup.
One difficulty with this claim lay in the requirements for obtaining relief. Ms France sought orders re-transferring the properties. This would have required Sieve-Storm to discharge the mortgages which it had subsequently taken out on the properties. But counsel for Ms France accepted that the Court would only make an such an order if Ms France first undertook to repay the amount paid by way of discharge of her mortgage in 2015, together with interest on that amount from that date. After an adjournment counsel informed the Court that Ms France would not be in a position to submit to the imposition of that term as a condition for relief and therefore did not press the claim under the Contracts Review Act.
Counsel fell back on an alternative claim which had been pleaded in Ms France's statement of claim. This was a contractual claim for payment of the unpaid portion of the purchase price under the two contracts together with interest from the date on which payment should have been made. By the end of the hearing Ms France acknowledged that after December 2015 she received payments which should be applied against the outstanding purchase price and which totalled $64,830. This reduced her claim to $211,608 together with interest.
Ms France's abandonment of the primary basis of her claim greatly simplified the conduct of the proceedings. It became unnecessary for Ms France to give evidence and, on her case, the previous dealings between the parties became irrelevant. Ms France's case in chief simply involved tender of the contracts and various other associated documents showing bank payments and the dates of registration which were matters of record and I will now summarise.
Each of the contracts was a Law Society standard form Contract for the Sale of Land ‑ 2005 Edition. Each contract consisted of the standard form terms and conditions. There were no special conditions. The contract for the Weston property specified a purchase price of $310,000 out of which the deposit was $128,000. The contract for the Barraba land specified a purchase price of $149,000 with the deposit being the whole of that sum. Each contract on the first page provided for completion to take place within 42 days of execution of the contract.
The contracts were dated 10 December 2015. Clause 2 dealt with the deposit. It provided, in subclause 2.2, as follows:
Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential.
It was not suggested that there was any other clause which qualified the effect of cl 2.2 and counsel for the defendants did not suggest that under the terms of the contract the deposit was not payable on 10 December 2015.
Clause 16.7 required for the balance to be payable on completion. There does not appear to have been any formal completion in the present case. The transfers were executed on 18 December 2015. On the same day Sieve‑Storm paid the sum of $182,562 to discharge the existing mortgage over the property, as I have already described.
It appears that this was organised by solicitors acting for the defendants, who presumably dealt directly with Ms France's bank pursuant to some form of authority or agreement obtained from her. The transfers were registered on 9 January 2016.
Counsel for Ms France submitted that for the purposes of cl 16.7, completion should be taken as having taken place on 18 December 2015. Counsel pointed out that although 42 days were allowed for completion, it was a matter for the parties whether they wished to complete on an earlier date than that. Counsel's argument was that for practical purposes the date of completion should be seen as the date upon which the bank was paid out and the transfers were handed over. This seems to me to be correct, and there was no submission to the contrary from counsel for the defendants.
Accordingly, the obligation to pay the balance ran from 18 December. If I am wrong about this, then I cannot see that the date for completion could be any later than the date on which the transfers were actually registered, that is on 9 January.
On the face of it, therefore, Ms France has established her claim. I should add that counsel did not pursue on Ms France's behalf any claim for the rent for the period up to December 2015.
The answer put forward in the pleaded defence to Ms France's claim was to allege that: "The purchase price was to be satisfied by reference to the moneys paid to the plaintiff, or paid for her benefit". This was a reference to previous dealings between the parties.
Ms Siekaup gave evidence that she and Ms France first met in about January 2013, when they were introduced by a friend of Ms Siekaup's. According to Ms Siekaup's affidavit, which was not disputed, the following conversation took place:
Ms France: Will you assist me to manage my property at Weston as I have no funds to repair the property to the standard required to effect a sale of it and the occupants of the property have not been paying rent for some time and have damaged the property. The Council and Water Rates are over $4,000 in arrears. I want to sell the property for $225,000 and I owe $40,000 on mortgage on it.
Ms Siekaup: I can remove the occupants and manage new tenants (including evicting non-paying tenants), collect rent, pay your mortgage instalments from either rent collected or my own funds, pay outstanding rates and water rates and repair the damage to the property so that it can be sold. If I do that I will be entitled to purchase the property for $225,000 within four (4) years which would include paying out the balance of your mortgage as it would be at the time of such purchase and the reimbursement to·me of the net expenses during my period of management.
Ms France: Yes, all right. I will agree to that.
Subsequently, Ms France gave Ms Siekaup a power of attorney, and Ms Siekaup (through Sieve-Storm) used this to manage the Weston property. Later in 2013, Ms France gave Ms Siekaup a power of attorney with respect to the Barraba property, which Ms Siekaup (through Sieve-Storm) also managed.
According to Ms Siekaup, over the ensuing period up to December 2015, she caused Sieve-Storm to spend over $150,000 on the two properties. This included the payment of council and water rates, mortgage instalments, eviction costs, lawn mowing for the Barraba property and repairs for the Weston property. Those repairs alone were said to have cost $101,000.
Over the same period, Ms Siekaup acknowledged on Sieve‑Storm's behalf receipt of rental income of $61,000 from the Weston property and $12,000 from the Barraba property. Her defence continued in paragraph 79:
In answer to the whole of the amended statement of claim, the defendants say
(a) the plaintiff and the first defendant entered into a business venture with the view to profit;
(b) pursuant to the venture the first plaintiff collected rets and effected repairs and accounted for the revenue and costs;
(c) the plaintiff and first defendant came to the view that the venture could not be successfully carries on and the venture was abandoned;
(d) the plaintiff agreed to sell her properties to the second defendant; and
(e) the plaintiff received the benefit of payment set out in the schedule hereto
The cross‑claim contains substantially the same allegations, it ended with paragraphs 13 and 14 which are as follows:
13. The first claimant expended time and effort in repair and improvement of the properties that she estimates to be $40,000.
14. If the contracts are set aside the cross claimants seek damages estimated as $70,000 on account of:
(a) excess payments
(b) the value of the first cross claimants services
In his oral submissions, counsel for the defendants put their answer to Ms France's contractual claim in a number of ways. Counsel's first submission was that the parties agreed that monies already outlaid by Sieve‑Storm should be treated as payment of the deposits specified in the contracts. This assertion does appear consistent with the large deposits provided for by the contracts. But evidence of actual agreement to that effect between the parties was scant.
Ms Siekaup stated, in generalised and conclusory form, that the deposits represented an estimate of the amount due to Sieve-Storm as a result of payments it had already made. But it was not clear from her evidence whether she was referring to an actual agreement with Ms France or only to her understanding of what the contracts should have provided for.
Ms Siekaup is evidently an experienced business woman and the contracts were drawn up by her solicitor. It is not easy to see why, if it was part of the agreement between the parties that previous payments should be taken into account as contributing to the deposits, the contracts did not say so. In any event there is a legal difficulty with this line of defence.
If there was an oral agreement between Ms France and Ms Siekaup (acting for Sieve‑Storm) then its terms contradicted the terms of the written contracts. Those contracts spoke from 10 December 2015 and imposed obligations to pay the deposit from that date forward. In those circumstances an alleged oral collateral contract, even if established on the facts, would not be enforceable: see Adicho v Dankeith Homes Pty Ltd [2012] NSWCA 316 at [25]-[27]. As that case shows, such an oral agreement may also be unenforceable because of the requirements of s 54A of the Conveyancing Act 1919 (NSW) but it is not necessary to go into that for today's purposes.
There was an alternative line of defence which only emerged during the final submissions in reply by counsel for the defendants. As I understood the argument, counsel contended that Sieve‑Storm was entitled to recover its expenditure (beyond the rental payments it had received) by way of an action in restitution.
The foundation for that claim was not entirely clear. Initially it seemed that counsel was arguing for a restitutionary claim for moneys paid at Ms France's request and accepted by her: see Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635 at [45]-[55]. In fact, however, the work was done by tradesmen and other third parties, not Sieve-Storm. It may be that such a claim is properly characterised as a contractual claim for reimbursement of expenses rather than a claim for restitution: see for example Elzamatar v Bangladesh Islamic Centre of NSW In [2020] NSWSC 1161.
In any event, on Ms Siekaup's evidence, the agreement in the present case was not merely one for reimbursement of expenditure. It was part of a broader agreement involving the transfer of the Weston property. As such the agreement would be caught by s 54A.
In these circumstances I think the better understanding of counsel's contention is that Sieve‑Storm is entitled to restitution for moneys paid under a contract which is unenforceable. This I think is probably the best interpretation of paragraph 14 of the cross‑claim (the reference in that paragraph to damages should be a reference to restitution).
A claim in this form has evidentiary difficulties. The conversation between Ms Siekaup and Ms France was one concerning the Weston property. The Barraba property was not referred to at all. There is no evidence what the arrangements were between the parties pursuant to which Sieve‑Storm managed the Barraba property.
Furthermore the oral agreement concerning the Weston property spoke only in general terms of maintenance. On the evidence the works done were quite extensive and it is by no means clear to me that those works, or all of them, met the brief description in the initial conversation. There was no evidence of any specific approval or agreement being sought by Ms Siekaup for her expenditure on the Weston property over the following 18 months or so.
This presents a difficulty in determining the measure of restitution. In the absence of proof of requests to undertake specific work I think a claim for restitution would be sustainable, if at all, on the basis of "incontrovertible benefit". The High Court decision in Lumbers raises questions about whether such a claim is maintainable at all, but if it is, the measure of restitution is not the amount expended, but the amount by which that expenditure has increased the value of the land. There was no evidence before me to fix that amount.
Accordingly, I do not think that, so far as the so‑called maintenance expenditure is concerned, there is a valid restitutionary claim. I should add that I have not reviewed the expenses in detail; certainly some of the expenditure to do with the lawn mowing and legal fees for evicting the existing tenant, does not appear to be supported by invoices or other proof of expenditure. Having regard to my conclusion that the expenditure is not recoverable, except to the extent that it demonstrably increased the value of the property, I do not need to pursue this further.
I have been troubled by the fact that this leaves rates and mortgage repayments, which have apparently been paid by Sieve‑Storm. In making these payments, Sieve‑Storm was not paying third parties whom it had retained. Sieve-Storm was making payments for which Ms France was liable and which she would otherwise have had to pay.
I have considered whether I should give Sieve‑Storm an opportunity to pursue its claim, at least for these amounts. But in the end, I have decided that it would not be right to do so. That is because, when taking account of the rent, which is acknowledged as having been received, the excess from these payments would only be $20,000 to $30,000.
If I were to allow the claim to proceed, it would be necessary to consider and make precise findings on how much rent had been received, and to scrutinise the expenses. The pleading in the cross‑claim is far from clear. For that reason if I were to allow the claim to go forward I would have to give Ms France a further opportunity to meet it.
Given the relatively small amount involved, I do not consider that I should prolong the proceedings further. I am particularly influenced in that view by the fact that it has already taken a long period of time for the proceedings to come to trial. I think that a further investigation of these expenses, and determination of what, if anything, should be paid, would involve a disproportionate expenditure of time and money.
For these reasons I reject Sieve‑Storm's defence. The cross‑claim fails and will be dismissed. It will be necessary to calculate the interest on the judgment in favour of Ms France. I will make directions for Ms France to bring in a proposed minute of order in this regard.
17 September 2020
The case has returned to Court today for the making of final orders, including orders as to costs.
I heard some oral submissions on the question of costs at the end of the hearing on 14 September, and those have been supplemented by written submissions from both parties.
Ms France, as plaintiff, seeks an order for costs. Her counsel's contention is that costs should follow the event. Counsel also sought an order for indemnity costs from 30 July 2019 onwards. This was based on a formal offer of compromise made in accordance with the Rules. The sum offered was less than the amount of the judgment to which Ms France will ultimately be entitled.
Counsel for Ms France accepted, however, that I needed to consider the application of Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 42.34. That rule relevantly provides:
(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,
…
The judgment to which Ms France is entitled will be less than $500,000. The condition in sub-r (1) is, therefore, satisfied. The question is whether the ordinary rule established by sub-r (2) applies, and if so, whether it should be followed in this case.
As already noted, when the proceedings were commenced, Ms France sought relief under the Contracts Review Act (and in equity). The principal relief sought was an order rescinding or setting aside the contracts which Ms France had signed, or allegedly signed, with Sieve-Storm. Consequential relief of an accounting nature was sought. Declaratory relief was also sought.
Counsel for Ms France did not, however, contend that the fact that rescission had initially been sought of itself meant that the proceedings could not have been commenced in the District Court for the purposes of sub-r (2)(a). In this I think counsel was correct.
Ms France abandoned her claim to rescission at the trial. She did so because she was unable to comply with the conditions which counsel recognised the Court would inevitably impose, requiring repayment of the amounts paid by Sieve-Storm in discharge of Ms France's mortgage. But although this was only pointed out at trial, it should have been foreseen at the outset. In my view, subject to one qualification which I will mention in a moment, it is clear that the proceedings (as ultimately successfully pursued by Ms France) could have been commenced in the District Court, and sub-r (2)(a) is not engaged.
The qualification is that counsel for Ms France contended that at the time the proceedings were commenced, her claim would have been outside the jurisdiction of the District Court. Counsel pointed out that when the proceedings were commenced in 2018, the District Court did not have jurisdiction to entertain claims of a commercial nature: see The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 at [38]-[46]; StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd (No 2) [2020] NSWSC 636 at [20]-[23]. Counsel submitted that these proceedings would have fallen outside of the jurisdiction of the District Court for that reason.
As I explained in NTF at [44], cases excluded from the District Court's jurisdiction as it stood in 2018 were cases which would have been assigned to the Commercial Division of this Court in accordance with the assignment rules which existed in February 1998. Relevantly, Pt 14 of the Supreme Court Rules 1970 (NSW) then provided:
Assignment of business
2. (1) Subject to subrule (2), there shall be assigned to the Commercial Division proceedings in the Court:
(a) arising out of commercial transactions; or
(b) in which there is an issue that has importance in trade or commerce.
(2) Subrule (1) does not apply to any proceedings:
(a) assigned by the Act or by or in accordance with the rules or by or under any other Act to the Court of Appeal, the Equity Division, the Admiralty Division, the Family Law Division, the Protective Division, the Probate Division, the Administrative Law Division or the Criminal Division;
(b) which may be entered in the Construction List; or
(c) for defamation.
(3) In subrule (1), "issue" includes any question or issue in any proceedings, whether of fact or law or both, and whether raised by pleadings, agreement of parties or otherwise.
Counsel did not suggest that these proceedings involved an issue of importance in trade or commerce for the purpose of r 2(1)(b). But counsel did argue that these proceedings were proceedings "arising out of commercial transactions" for the purposes of r 2(1)(a). Counsel pointed out that both defendants were engaged in property development and Sieve-Storm entered into the contracts with Ms France as part of its property development activities.
Even if I were to accept that Sieve-Storm had a commercial objective in view, I do not agree that the contracts amounted to a "commercial transaction" for relevant purposes. A transaction does not become a commercial one merely because one party to it enters into it as part of that party's business. That would make virtually any contract between a consumer and a supplier of goods and services a "commercial transaction" even if on the consumer's side it involved the acquisition of goods or services for private or domestic consumption.
The relevant transaction in this case was entering into contracts for the sale of land. Before the sale took place the properties in question were being rented out by Ms France, but that does not make the sale itself a "commercial transaction" from her point of view.
The rental of property may be an investment, but it is not ordinarily treated as itself constituting a business. Thus Ms France was probably not, strictly speaking, engaged in any business at all. But it is not necessary to go that far. Ms France was not in any business of dealing with land.
In my view, entry into the contracts in question does not meet the description of a "commercial transaction" for the purposes of the assignment rules as they were in 1998. The result is that the District Court would have had jurisdiction to entertain an ordinary contractual claim for payment of the amount due under the contracts, and that was the basis on which Ms France ultimately succeeded.
Counsel for the plaintiff faintly submitted that if I reached this conclusion, the commencement of the proceedings in this Court were still "warranted" for the purpose of r 42.34(2)(a). Counsel referred, in particular, to the fact that declaratory relief was sought.
I do not accept this argument. As I have explained, the proceedings could and should have been commenced as an ordinary action on the sale contracts in the District Court. There was no need for the purposes of such an action to seek declaratory relief that would be binding on other parties.
It follows that the ordinary rule set out in r 42.34(2) applies. Counsel argued, however, that there was reason to depart from that rule. Essentially, that argument was based on the fact that in the proceedings, Ms France achieved what counsel characterised as a total and complete victory.
In his submissions, counsel for the defendants pointed out that the contractual claim by Ms France was only introduced some time after the proceedings were begun, and then only as an alternative. Furthermore, Ms France only switched her case to relying on that claim at the last possible moment. Counsel submitted that it would be unreasonable for the defendants to have to bear all of the costs associated with conducting the case on a basis which was much wider than the case ultimately presented at the hearing.
Furthermore, In one sense, Ms France's principal case was inconsistent with the case ultimately presented at trial, because she disputed that she had even signed the contracts. There is also the circumstance that the claim against the first defendant, Ms Siekaup, was in circumstances that no claim was ultimately pursued against Ms Siekaup personally. Ms France could have achieved everything that she ultimately obtained without joining Ms Siekaup as a party at all.
There is force in these submissions but they would not ordinarily result in Ms France being completely deprived of her costs. Nor do they alter the fact that even when Ms France completely recast her case at the beginning of the hearing, the defendants continued to oppose the grant of relief for reasons which I have found were not justified.
The purpose of r 42.34 is to encourage proceedings that can be brought in the District Court to be brought there rather than in this Court. But in many cases the bringing of proceedings in this Court causes no greater cost and involves no greater expenditure of judicial time than the bringing of proceedings in the District Court. Even if it does involve some additional cost or time, it will only ever be marginal.
The ordinary practice established by sub-r (2) under which the plaintiff is deprived of all costs is therefore a harsh one. But in my view the Court is not justified from departing from this practice simply because it operates harshly. There must be some circumstance which takes the case outside the general practice. The mere fact that the plaintiff succeeds cannot, in my view, be such a circumstance.
In my view, therefore, r 42.34 is engaged, and no reason has been shown for departing from the ordinary practice established by that rule.
In Averkin v Insurance Australia Limited (No 2) [2016] NSWCA 150, the Court of Appeal had to consider the effect of an offer of compromise made in District Court proceedings where it was argued that UCPR r 42.35 was engaged. That rule governs the bringing of proceedings in the District Court when they could have been brought in the Local Court and the amount recovered is less than $40,000. It is relevantly equivalent to r 42.34.
The Court stated that there is "force in the proposition" that if r 42.35 applies and the proceedings should not have been commenced and continued in the District Court then the making of a successful offer of compromise cannot displace the ordinary practice requiring there to be no order as to costs: see at [9]-[10].
Counsel for Ms France the plaintiff did not dispute the proposition, even though the Court in Averkin did not finally decide the point, Accordingly, it is not necessary for me to deal with the submissions from counsel for the defendants which argued that, having regard to the circumstances of this case, the ordinary consequence of making a successful offer of compromise should not follow. The plaintiff's application for an order for costs must be refused.
The orders of the Court are:
Order that judgment be entered for the plaintiff in the sum of $272,421.
Order that the plaintiff's claim be otherwise dismissed.
Order that the cross-claim be dismissed.
No order as to costs.
[2]
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Decision last updated: 22 September 2020