17 His Honour acknowledged that the situation was created in the first place by the deceased and the opponent. More correctly the situation was created by the opponent depositing her money in the deceased's account without his knowledge and hence his authority. No reason was advanced by the opponent for doing this. Obviously the opponent wished to earn interest on her money. She did not disclose this income for income tax purposes. Since the account was not in her name presumably her evasion of income tax passed without notice. The problems in administering the deceased's estate in terms of whether the money in the account belonged to the estate and in terms of the failure to disclose the interest earned to the Commissioner of Taxation were entirely of the opponent's making.
18 It was also obvious from the concession made in February 2002 that once tax advice was received the proceedings, as to the ownership of the term deposit account funds, would be resolved in favour of the opponent. Even so, applications which failed continued to be filed and, fruitlessly, the opponent resisted adjournments to allow the taxation matter to be clarified. All this was unreasonable, unnecessary and no doubt costly.
19 In the event Barrett J ordered that the costs of the opponent, assessed on the party/party basis, should be paid by the claimants. His Honour said:
"6 Beyond that, the principle that costs follow the event would say that the costs of the plaintiff should be paid by the second defendants, they being the real parties to a dispute which was eventually resolved in the plaintiff's favour. The plaintiff presses for an order for costs against the second defendants or their solicitors. The possibility of an order against the solicitors is raised because, it is said, there was never any substance in the defence and, in particular, the second defendants' actions in delaying matters to have the tax position (and, in particular, their own lack of tax exposure) clarified by assessment or ruling was unnecessary. That, to my mind, puts things too high. I do not regard the solicitors' conduct as warranting any such course.
7 The second defendants resist an order for costs. They do so essentially on the basis that actions of the deceased and the plaintiff combined to obscure the true position as to the ownership of the funds and that it was necessary for them to take steps to ensure that they were not left with an exposure to tax liability. There is some substance in the second defendants' contentions but the fact remains that the taxation concerns were satisfactorily resolved by the plaintiff herself, once the second defendants had flagged the issue of their possible tax exposure."
20 The claimants seek leave to appeal out of time from Barrett J's decision against them on costs. For the reasons that Giles JA has given, an extension of time to make this application should, in my opinion, be granted.
21 A successful party in proceedings has a reasonable expectation of obtaining an order for the payment of its costs by the other party; Pt 52A, rule 11 of the Supreme Court Rules; Donald Campbell & Co v Pollak [1927] AC 732 at 811-2. The discretion to refuse to make the order should not be exercised against the successful party except for a reason directly connected with the conduct of the proceedings; Latoudis v Casey (1990) 170 CLR 534 at 566. The awarding of costs is a discretionary matter and an appeal court will not intervene unless error is demonstrated; House v The King (1936) 55 CLR 499 at 505. It is important to note that in considering whether, what might be described as the normal rule, should apply, it is the conduct of the successful party and not the conduct or motives of the unsuccessful party, which is relevant to the exercise of the costs discretion; Oshlack v Richmond River Council (1998) 193 CLR 72 at 102. The following matters are material to the question of costs:
· The opponent had, during the period from 10 January 1997 to 4 August 2000, paid $165,700 of her own money into a term deposit account not in her own name but in that of the deceased. During that period the account had earned interest which, although the opponent claimed the fund was hers, she had not disclosed for income tax purposes. This unexplained and unauthorised conduct with its income tax consequences created the problems which the proceedings were instituted to solve.
· Because the opponent deposited these monies into the term deposit account in the name of the deceased and the payments had been made without his knowledge, it was not unreasonable for the claimants to believe that the funds were part of his estate with an obvious consequence in terms of the failure to disclose the interest earned to the Commissioner of Taxation.
· To resolve the consequences of the opponent depositing her own money in an account in the deceased's name and failing to disclose the interest payments to the Commissioner of Taxation, the claimants played a facilitating role in sorting out the Australian estate of the deceased in the proceedings.
· The opponent began the proceedings against the administrator in February 2001 and joined the claimants as defendants in December 2001. By February 2002, it had been made plain that the claimants sought no more than that they or the estate should be protected from having to pay default income tax consequent upon the opponent's failure to make returns on a fund which belonged to the opponent.
· Despite this, in March 2002 the opponent resisted the necessary material being placed before the Commissioner of Taxation to consider the question of taxation liability and, unavailingly, sought summary judgment and security for costs. It was only as a result of the claimants' insistence that material be placed before the Commissioner and the appropriate private ruling obtained. Even so, the opponent, again unavailingly, sought to force the proceedings on in April when the ruling of the Commissioner was still awaited.
22 In my opinion, and with due respect, Barrett J did not give any or sufficient attention or weight to the conduct of the successful opponent. The opponent by placing her own money into a term deposit account in her father's name, by not returning the interest earned for income tax purposes and by refusing, initially, to assist in sorting out the resultant problem, herself brought about the need for the proceedings to be instituted and generated the complexity and prolongation of those proceedings and the consequent increase in the costs of the proceedings. His Honour's error enables the Court to review the costs order made. In my opinion, the costs order resulted in manifest injustice to the claimants; compare New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 at 12E.
23 The problem of a potential tax liability being wrongly and unjustly thrust upon the claimants, the need for the opponent to bring proceedings and the complexity and expense of those proceedings were of the opponent's making, principally by her failure, in due time, to disclose to the Commissioner of Taxation the interest earned on the term deposit account in the deceased's name, but also by her subsequent attempts to frustrate the claimants' obtaining a ruling. That being the case, the order awarding the costs of the proceedings to the opponent should be set aside and in lieu thereof the opponent ordered to pay the claimants' costs of the proceedings.
24 I would propose the following orders:
1. Extend the time for filing the application for leave to appeal up to and including the date of filing of the summons for leave to appeal;
2. Leave to appeal granted;
3. Appeal upheld;
4. Set aside the order for costs made by Barrett J on 27 September 2002 and in lieu thereof order the opponent to pay the claimants' costs of the proceedings;
5. The opponent to pay the claimants' costs of the application for leave to appeal and the appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified.
25 GILES JA: The claimants were the second defendants in proceedings in the Equity Division. The opponent was the plaintiff in the proceedings. Orders disposing of the proceedings were made on 27 September 2002. They included an order that the claimants pay the costs of the opponent of and incidental to the proceedings. The claimants wish to appeal against that order, and seek an extension of the time within which they can apply for leave to appeal and leave to appeal. There has been a full hearing as if on appeal, so that if the extension of time and leave to appeal be obtained the appeal can be determined without a further hearing.
26 During a visit to Australia in 1987 Mr Agatino Giunti, a resident of Italy, opened a deposit account with the Commonwealth Bank in Sydney into which he paid some money to be used for the care of his elderly mother, then residing in Australia. The opponent, who was Mr Giunti's sister and also resided in Australia, was authorised to operate on the account.
27 The mother died in about 1995. Mr Giunti died in January 2000. The claimants had not been aware of the account, but became aware of it. On the surface the money then in the account was to go to the claimants, children of Mr Giunti residing in Italy, he having died intestate. In order that the money could be dealt with it was necessary that letters of administration be obtained in this State, and on 13 February 2001 a grant of letters of administration was obtained by Mr Pompeo Egisto, a Sydney solicitor, as attorney for the claimants.
28 On 22 February 2001 the opponent commenced the proceedings in the Equity Division, claiming that the money in the account was hers and seeking interlocutory restraint upon Mr Egisto dealing with the money. Mr Egisto was the sole defendant. The opponent's case was that, unknown to Mr Giunti and the claimants, she had deposited money of her own into the account over many years, including after the death of Mr Giunti, and that she was entitled to all the money in the account.
29 Mr Egisto immediately filed a submitting appearance and purported to interplead, and declined actively to participate in the proceedings. The claimants protested that he was not protecting their interests, but he still declined actively to participate. On the claimants' application, on 20 June 2001 an order was made that they be joined as the second defendants.
30 Pleadings had been ordered, and also on 20 June 2001 the opponent filed a statement of claim, still with Mr Egisto as the sole defendant. The claimants were not immediately joined as the second defendants, and it seems for a time took steps to be substituted as administrators. In August 2001 they provided the opponent with a draft defence, subject to their substitution, in which they denied the opponent's claim. In the result there was no substitution, and the claimants were joined as second defendants by an amended statement of claim filed on 5 December 2001. They filed a defence to the amended statement of claim on 19 February 2002, in which they continued to deny the opponent's entitlement to the money in the account.
31 However, on 22 February 2002 the claimants' counsel stated at a directions hearing that they made no claim to the money in the account, and on 1 March 2002 the claimants filed a cross-claim in which, although repeating by incorporation the contents of their defence, they claimed a declaration that the money in the account was held in trust for the opponent "but subject to the due payment in full of any claim or claims made or to be made upon it" by the Australian Taxation Office. Other relief was claimed to the effect that Mr Egisto could not pay the money to the opponent until any claims of the Australian Taxation Office had been ascertained and met and the claimants had been released by the Australian Taxation Office from any personal liability in relation to the money. The claimants sought that the costs of the notice of motion be costs in the cause.
32 The cross-claim was filed without leave, and also on 1 March 2002 the claimants filed a notice of motion in which they sought leave to file the cross-claim against the opponent, together with leave to send to the Australian Taxation Office the pleadings and affidavits and to deal with that Office to ascertain what taxation liability, if any, would be asserted in relation to the money in the account. The opponent opposed the notice of motion, which was heard on 6 March 2002. The claimants asserted exposure to indemnifying Mr Egisto if a tax liability on his part were raised and it exceeded the amount of money held in the account or he had paid the money to the opponent. The opponent replied that the claimants could have no obligation to indemnify Mr Egisto if the money in the account was not theirs, and that the tax liability in relation to her money was none of their business.
33 For reasons which he gave, the judge considered that the claimants' concerns were "not so devoid of merit that [the claimants] should be deprived of the opportunity they seek to see the matters of concern to them appropriately tested and ventilated in the course of these proceedings", observing that as the account holder Mr Giunti would at first sight have had any tax liability "thus enlivening the concerns of … [the claimants]". His Honour allowed the cross-claim to be filed, and made orders permitting the communication with the Australian Taxation Office. A notice of motion filed by the opponent claiming summary judgment was also before the judge on 6 March 2002, which he consequentially dismissed.
34 Before the judge as well was a notice of motion filed by the opponent seeking security for costs from the claimants, as to which the judge said -
"On the plaintiff's application for security for costs against the second defendants, I say that I really regard the second defendants as playing a facilitating role in sorting out the Australian estate of their deceased father. It is desirable that they continue, unimpeded, in that role and although they are resident in another country, it is not necessary nor appropriate that they be required to give security for costs. This is not one of the rare cases in which security should be ordered against the defendant. The application for security for costs is therefore also dismissed."
35 His Honour ordered that the costs of "the two interlocutory applications by way of notice of motion" be costs in the cause. Presumably he meant all three notices of motion.
36 The proceedings were set down for hearing on 23 and 24 April 2002. By a notice of motion filed on 23 April 2002 the claimants sought that the hearing be vacated because the position of the Australian Taxation Office had not been ascertained. The opponent opposed that course. For reasons which he gave, the judge acceded to it. He ordered that the costs of that day be costs in the cause.
37 On 30 April 2002 the opponent filed a defence to the cross-claim in which she said that, having conceded her entitlement to the money, the claimants had no standing to seek the relief in the cross-claim.
38 The proceedings came before the judge on 14 August 2002. There was evidence that the claimants had sent the pleadings and affidavits to the Australian Taxation Office on 12 March 2002, that the opponent had herself made disclosure to that office by applying for a Private Binding Ruling on 8 April 2002, and that ultimately the opponent had been assessed for additional tax. In his reasons delivered on 27 September 2002 the judge noted that the taxation position "has been clarified by rulings and assessments received by [the opponent] following by submission by her to the Australian Taxation Office of relevant facts and matters", and that the opponent had been required to pay tax for past periods on income on the money in the bank account, plus interest. The judge said that "[t]he possibility of some claim by the Commissioner of Taxation upon the estate which might have rebounded upon [the claimants] was thereby laid to rest".
39 Without dissent, his Honour made orders that the opponent was entitled to the money in the account and that the money should be paid to her by Mr Egisto. The reasons were otherwise concerned with costs.
40 The judge said as to Mr Egisto's costs -
"5 The administrator entered a submitting appearance except as to costs and, despite suggestions by the plaintiff to the contrary, I do not think that the administrator resiled from that position by becoming an active party to the dispute. The administrator should be awarded costs on the indemnity basis, particularly in light of his essentially custodial and passive role. In the ordinary course, those costs would come out of the residue of the estate but this, of course, is not the ordinary course because it has emerged that the deceased was in essence a bare trustee for the plaintiff. Since all the funds will pass to the plaintiff (who was the beneficial owner all along) and it is she who has ultimately benefited from the role taken by the administrator, his costs, assessed on the indemnity basis, should be paid by the plaintiff and the convenient course, in the circumstances, is to order that those costs be paid out of the funds in his hands."
41 As to costs as between the opponent and the claimants, the judge continued -
6. Beyond that, the principle that costs follow the event would say that the costs of the plaintiff should be paid by the second defendants, they being the real parties to a dispute which was eventually resolved in the plaintiff's favour. The plaintiff presses for an order for costs against the second defendants or their solicitors. The possibility of an order against the solicitors is raised because, it is said, there was never any substance in the defence and, in particular, the second defendants' actions in delaying matters to have the tax position (and, in particular, their own lack of tax exposure) clarified by assessment or ruling was unnecessary. That, to my mind, puts things too high. I do not regard the solicitors' conduct as warranting any such course.
7. The second defendants resist an order for costs. They do so essentially on the basis that actions of the deceased and the plaintiff combined to obscure the true position as to the ownership of the funds and that it was necessary for them to take steps to ensure that they were not left with an exposure to tax liability. There is some substance in the second defendants' contentions but the fact remains that the taxation concerns were satisfactorily resolved by the plaintiff herself, once the second defendants had flagged the issue of their possible tax exposure.
8. In all the circumstances, I consider the appropriate outcome to be that the costs of the plaintiff, assessed on the party and party basis, should be paid by the second defendants."