[2018] NSWCA 84
One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548
[2000] FCA 270
Re Minister for Immigration and Ethnic Affairs
Source
Original judgment source is linked above.
Catchwords
[2018] NSWCA 84
One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548[2000] FCA 270
Re Minister for Immigration and Ethnic Affairs
Judgment (2 paragraphs)
[1]
Judgment
This judgment deals with the costs of the proceedings which were, in all other respects, brought to an end by orders made by the Court on 10 December 2021 (as varied on 13 December 2021).
The proceedings concerned the validity and enforceability of a Put and Call Option Deed ("the Deed") dated 26 June 2019, that was entered into by Mrs Giuseppa Arena as vendor and John Anthony Arena Pty Ltd ("JAA") as purchaser. The Deed relates to a property owned by Mrs Arena on Lane Cove Road, North Ryde ("the house property"). Mrs Arena is the elderly mother of six children, including Dr John Arena who, together with his wife, controls JAA. Mrs Arena is a director and the sole shareholder of Franpina Developments Pty Ltd ("Franpina"). Franpina is the owner of various properties adjacent or in close proximity to the house property the subject of the Deed.
By a Statement of Claim filed on 23 December 2020, Franpina claimed relief in respect of the Deed, including a declaration that it is void and unenforceable, and an order that it be set aside. Eight defendants were named, being JAA, Mrs Arena and her six children.
Franpina is not a party to the Deed. However, it attacked its validity and enforceability on various grounds, including that it constituted a breach of a binding agreement or joint venture between Franpina and the family members concerning the redevelopment of the properties owned by Franpina and the house property owned by Mrs Arena. It was further alleged, inter alia, that the Deed was not freely or voluntarily entered into by Mrs Arena; that by procuring the Deed JAA and/or Dr Arena acted to obtain an unconscionable advantage; and that it would be unconscionable and a fraud upon Franpina and the other parties to the agreement or joint venture for the Deed to be relied upon or enforced by JAA or Mrs Arena.
The children, save for Dr Arena, filed submitting appearances.
JAA and Dr Arena filed a Defence on 12 March 2021 which denied the claims made by Franpina.
On 27 April 2021, Mrs Arena, by her tutor, filed a Defence which contained admissions in respect of most of the allegations made in the Statement of Claim. Mrs Arena, by her tutor, also filed the First Cross-Claim against JAA and Dr Arena seeking orders that the Deed be set aside pursuant to the Contracts Review Act 1980 (NSW) and at general law. The Cross-Claim incorporated and repeated most of the allegations made in the Statement of Claim. On 15 June 2021, JAA and Dr Arena filed a Defence to the Cross-Claim which denied the claims made by Mrs Arena.
By that time, directions had been made for the service of evidence. Amongst the evidence served by Franpina was an affidavit of Mr George Arena of 20 July 2021. JAA and Dr Arena served an affidavit of Dr Arena of 5 October 2021. The latter affidavit included the following in relation to the Deed (referred to in the affidavit as "the Option"):
52. In these proceedings Franpina challenges the validity of the Option.
53. I have taken advice and I do not seek to support the validity of the Option granted under the document executed by my mother and dated 28 June 2019 [sic] because there may be doubt about my mother's capacity at the time that she executed the Option.
On 14 October 2021, the Court made certain orders by consent in relation to an application by Dr Arena to file a Second Cross-Claim. An order was also made requiring JAA and Dr Arena to confirm their position as to the relief sought in the Statement of Claim and the First Cross-Claim by 22 October 2021.
The proceedings, including the application to file a Second Cross-Claim, came before the Court on 19 November 2021. On that occasion, it became apparent that there was a good prospect that the parties would be able to reach an agreement on the terms of orders that would provide for the setting aside of the Deed, and the bringing to an end of the proceedings on the Statement of Claim and the First Cross-Claim. The matter was stood over to 10 December 2021.
On that occasion, the Court made an order in the following terms:
ORDER that without admission on the part of any party the Put and Call Option Deed dated 26 June 2019 between the First Defendant John Anthony Arena Pty Ltd ACN 002 618 662 and the Third Defendant Giuseppa Arena in respect of the property known as 366 Lane Cover Road, North Ryde in the State of New South Wales be set aside.
The Court further ordered that, subject to the reservation of all questions of costs, the Statement of Claim and the First Cross-Claim be otherwise dismissed. It should be noted that the application to file a Second Cross-Claim was itself dismissed, with costs. Orders were also made in respect of the determination of the question of costs. Those orders were varied in minor respects on 13 December 2021.
The question of costs is, thus, the only remaining matter for determination. The Court has received written submissions from Franpina (dated 23 December 2021), Mrs Arena (dated 17 January 2021) and JAA/Dr Arena (dated 23 December 2021, and 18 January 2022 in reply). Each party referred in their submissions to the pleadings and parts of the affidavits filed in the proceedings (including affidavits of Brit Ibanez, solicitor, of 9 December 2021 and 22 December 2021). Franpina's submissions included a request for a brief oral hearing, but I consider that the matter may be appropriately determined on the papers.
Both Franpina and Mrs Arena seek orders that their costs of the proceedings be paid by JAA and Dr Arena. JAA and Dr Arena submit that the appropriate order is no order for costs of the proceedings, subject to the costs order made against them on 10 December 2021 which they accept would remain in force.
Franpina submitted that a costs order against JAA and Dr Arena is warranted because of their surrender or capitulation at a late stage in the proceedings, and their unreasonable conduct in denying the primary relief sought. The order is claimed on an indemnity basis or, alternatively, on the ordinary basis.
It was submitted that, despite the order made on 14 October 2021, those defendants did not articulate their position in relation to the relief sought against them until the hearing on 19 November 2021. It was further submitted that the orders subsequently made on 10 December 2021 amounted to a clear surrender or capitulation to the relief sought in the Statement of Claim, and delivered a substantial victory to the plaintiff along with a substantial loss to those defendants. It was submitted that it was not a case where the plaintiff no longer wished to proceed, or a case where a supervening event removed the subject of the dispute. Rather, it was submitted, it was a case of a surrender occurring "at a late hour in the proceedings", and the successful party ought not be deprived of its costs in those circumstances.
Franpina submitted that the conduct of JAA and Dr Arena was unreasonable in circumstances where, prior to the commencement of the proceedings, they asserted that a view had been formed by Dr Arena as a medical practitioner at the time the Deed was entered into that Mrs Arena had the relevant capacity, yet after defending the proceedings for a time decided not to support the validity of the Deed because there may be doubt about Mrs Arena's capacity when she executed the Deed. It was put that had the advice which brought about the change in position been obtained earlier, the proceedings would not have been necessary. Franpina also submitted that JAA and Dr Arena had unnecessarily prolonged the proceedings by failing to comply with various procedural directions and by the seeking of leave to file a Second Cross-Claim.
Mrs Arena submitted that there was no compromise of the proceedings but rather a surrender or capitulation. It was submitted that the surrender or abandonment of the opposition to the relief sought was a decision solely made by JAA and Dr Arena, and was not the product of settlement discussions. It was submitted that the relief obtained sufficiently achieved the purpose of both Franpina and Mrs Arena in bringing the proceedings in respect of the Deed, namely, the setting aside of the Deed. It was further submitted that JAA and Dr Arena have acted unreasonably in circumstances where the reasons for their change in position have never been adequately explained. Mrs Arena also seeks the costs order on an indemnity basis or, alternatively, on the ordinary basis.
JAA and Dr Arena resist any further order for costs against them. It is clear from their submissions that they accept that the consent order (made without admission) setting the Deed aside put to an end, at a practical level, the central controversy raised in the proceedings by Franpina and by Mrs Arena on her Cross-Claim. It was pointed out, however, that the Statement of Claim advanced a complicated and indeed questionable case involving an alleged agreement or joint venture and the existence of fiduciary obligations, as well as claims, based on the immediate circumstances in which the Deed was entered into, that included allegations of unconscionability and fraud. It was submitted that it was reasonable to defend the proceedings, and that the consent order ought be regarded as a settlement, being a genuine compromise on the part of all parties. It was submitted that Franpina (which it was noted is not a party to the Deed) did not establish the existence of any agreement or equity in its favour as alleged, and neither did Mrs Arena to the extent that such claims were mirrored in her Cross-Claim. It was noted that beyond the consent order, both the Statement of Claim and the First Cross-Claim were otherwise dismissed. It was submitted that there was thus no surrender or capitulation as suggested by Franpina and Mrs Arena. It was further submitted that the doubt about Mrs Arena's capacity was a proper basis upon which to resolve the matter by agreeing to the setting aside of the Deed.
Where proceedings have been determined without a hearing on the merits it is commonly appropriate for the Court to make no award of costs. As stated by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624, the Court in those circumstances is necessarily deprived of the factor that usually determines whether or how it will make a costs order. Where there has been no trial there is generally no "event", although in unusual cases it may be possible to say that one party has been successful and the other unsuccessful (see Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [2] per Basten JA).
In Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302, Davies AJA (with whom Mason P and Meagher JA agreed) stated at [5]:
When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs.
His Honour then referred to One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 where Burchett J said (at 553; [6]):
In my opinion, it important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.
In Shellharbour City Council v Minister for Local Government [2017] NSWCA 256 the Court of Appeal said at [6]-[7]:
6. …The appellant described the Minister's abandonment of the proposed amalgamation as "a complete capitulation." It contended that if the appeal had proceeded it would "almost certainly" have succeeded. That was because the appeal which was listed for hearing on the same days, brought by Ku-ring-gai Council on identical grounds, was upheld. Further, it submitted that the Minister had been unreasonable in her conduct of the proceedings.
7. It should be accepted that both these characterisations, if made good, may provide a basis for awarding costs against a party who has capitulated, as was recognised by Burchett J in One Tel Ltd v Commissioner of Taxation, in a passage cited with approval by Davies AJA (Mason P and Meagher JA agreeing) in Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack. If the appellant made good its claim that, without addressing the merits, this Court could be satisfied that it would have succeeded in any event, it would also be appropriate to set aside the costs order made in the Land and Environment Court and allow the appellant its costs of the trial.
In FCA US LLC v Mahindra Automotive Australia Pty Ltd [2021] FCA 1091 Halley J stated at [35]:
Second, where the Court is satisfied that one party has effectively surrendered or capitulated it may also make a costs order in favour of the other party notwithstanding that there has been no determination of the merits of the proceedings. The following principles emerge from the authorities with respect to surrender or capitulation:
(a) either an applicant or respondent might be found to have effectively surrendered or capitulated;
(b) it is necessary to have regard to the conduct of the parties not to determine whether a party has acted in a manner that can objectively be characterised as unreasonable, but rather to determine whether by their respective conduct one party has, in substance, capitulated or surrendered to the other party: see generally Chapman v Luminis Pty Ltd [2003] FCAFC 162 (Chapman) at [5]-[8] (Beaumont, Sundberg and Hely JJ); Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34 at [19]- [20] (Tate, McLeish and Hargrave JJA); cf Diamond Ace Super Fund Pty Ltd v Rodapa Development Pty Ltd [2020] FCA 1582 (Diamond Ace) at [65]-[68] (Griffiths J);
(c) it is necessary to distinguish between cases in which a party seeking to discontinue proceedings can be said to have effectively surrendered or capitulated and cases in which a supervening event renders the proceedings futile or moot: Diamond Ace at [59] (Griffiths J) citing Travaglini v Raccuia [2012] FCA 620 at [13] (McKerracher J); and Chapman at [7], citing ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 (ONE.TEL) at [6] (Burchett J);
(d) an assessment of the degree to which the outcome achieves the relief sought is a threshold issue of significant weight in determining whether a party has effectively surrendered or capitulated. A party does not have to achieve complete success in order to establish that the other party effectively surrendered or capitulated. It is enough to demonstrate that the outcome secured sufficiently achieves the party's purpose in bringing the proceedings: Diamond Ace at [67]; Balanggarra Aboriginal Corporation v State of Western Australia [2018] FCA 1538 (Balanggarra) at [50] (Barker J); Stephens v Sena, in the matter of Vtara Solar Pty Ltd [2020] FCA 1179 at [30] (Stewart J);
(e) generally it is not the function of the Court to make a prediction as to the outcome of a hypothetical case in assessing the degree of success or failure achieved by a party in proceedings in which there has been no determination of the merits: Elevate Brandpartners Ltd v Hammond (No 4) [2020] FCA 421 (Elevate Brandpartners (No 4)) at [20] (Stewart J); Clark v ING Life Limited [2007] FCA 1960 at [16] (Rares J); Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited (2010) 265 ALR 112; [2010] FCAFC 16 at [118]- [119] (Jacobson, Siopis and Foster JJ); Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700 at 6 (Lee, Tamberlin and R D Nicholson JJ); and
(f) in some cases it is relevant to have regard to the likelihood of success, but only insofar as it is possible to identify a likely "clear winner": ONE.TEL at [7]; and Balanggarra at [71]-[73].
Franpina and Mrs Arena each contend that the present case involves a capitulation on the part of JAA and Dr Arena that warrants, in accordance with the principles described above, the making of a costs order against them. For the following reasons, I accept those contentions.
The consent order setting the Deed aside resolved, in a manner favourable to both Franpina and Mrs Arena, the fundamental issue in the proceedings, namely, whether the Deed was valid and enforceable. The order effectively provided the primary relief sought on both the Statement of Claim and the First Cross-Claim, even if both of those pleadings also claimed other forms of relief, including alternative claims for equitable compensation. In terms of relief sought in the proceedings, both Franpina and Mrs Arena achieved what is tantamount to complete success. At least, the outcome that was secured sufficiently achieved their respective purposes in bringing the proceedings.
I am not satisfied that it was unreasonable for JAA and Dr Arena to defend the claims made against them. The Court is, of course, not in a position to assess the merits of the claims, and it would be inappropriate to do so for the purpose of determining costs. However, the conduct of JAA and Dr Arena in deciding not to seek to uphold the Deed, and in consenting to the order setting it aside, seems to me to amount, in substance, to a capitulation or surrender to the claims made against them. It is not a case where the decision can be seen to be the product of some supervening event that might remove any need to continue to uphold the Deed.
Neither is it a case where the consent order ought to be regarded as reflecting a genuine compromise of the claims made. Leaving aside the circumstance that the consent order appears to be the result of the change of position signalled by JAA and Dr Arena in October 2021, rather than the outcome of settlement negotiations, it does not embody any substantial compromise on the part of Franpina or Mrs Arena. By the order, they achieved their central purpose of precluding the enforcement of the Deed. It is true that the termination of the proceedings on the basis of the consent order, with the Statement of Claim and the First Cross-Claim being otherwise dismissed, means that none of the various claims were established by a judicial determination on the merits. For example, there was no determination of whether the alleged binding agreement existed. The consent order does not itself give rise to issue estoppels that might have arisen had the matter proceeded to a final determination on the merits. However, the relief claimed was directed to a challenge to the validity and enforceability of the Deed, not the general enforcement of other agreements or obligations, even if breaches of such agreements or obligations were alleged to invalidate the Deed.
In my opinion, the making of the consent order in this case, following the change of position of JAA and Dr Arena, demonstrated a capitulation by them to the claims for relief brought by Franpina and Mrs Arena. I think it is a case where parties have, after litigating for some time, effectively surrendered. I consider that in these circumstances Franpina and Mrs Arena should be considered to have had substantial victories over JAA and Dr Arena. Accordingly, Franpina and Mrs Arena may be regarded as successful parties, and JAA and Dr Arena as unsuccessful parties, for the purpose of determining costs.
It is my opinion that in these circumstances it is appropriate to exercise the Court's discretion as to costs by ordering that JAA and Dr Arena pay Franpina's and Mrs Arena's costs of the proceedings.
The costs will be payable on the ordinary basis, not an indemnity basis. As I have said, I do not accept that it was unreasonable of JAA and Dr Arena to defend the proceedings. It is true that had their change of position occurred earlier, some or even all of the costs of the proceedings could have been avoided. However, I do not think that the belated (and not fully explained) change of position warrants an award of indemnity costs. In the context of properly contestable proceedings between family members, the capitulation that allowed the proceedings to be brought to an end by consent does not strike me as relevantly delinquent conduct.
The Court will order that JAA and Dr Arena pay Franpina's costs of the proceedings, and Mrs Arena's costs of the proceedings.
[2]
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Decision last updated: 04 February 2022