Gladio Pty Ltd v Buckworth

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

1. THE COURT: By amended summons filed on 24 August 2016, Gladio Pty Limited (Gladio) seeks leave to appeal from orders made by a judge of the Equity Division on 8 October 2015 (the primary judge) in proceedings brought by Gladio against Ms Virginia Buckworth (Ms Buckworth) and Ashdown Home Units Pty Limited (Ashdown). [1] An order has been made that the appeal, if leave be granted, be heard concurrently with the application for leave. On 19 October 2016 the Court refused leave and ordered Gladio to pay the costs of the application for leave.
2. These are the Court's reasons for making those orders. In determining a leave application, the Court is not required to give reasons such as would be appropriate on an appeal after a full hearing on the merits of the appeal. Reasons for determining an application for leave may be short, so long as they are appropriate, sufficient and necessary for the proper administration of justice. [2]
3. In order to put the application for leave in context, it is necessary to say something about the history of the dispute between Gladio, on the one part, and Ms Buckworth and Ashdown, on the other. The dispute arose out of an agreement made on 16 July 2013 between Ms Buckworth, as vendor, and Gladio, as purchaser, for the sale by Ms Buckworth to Gladio of shares in the capital of Ashdown (the Sale Agreement). Under the constitution of Ashdown, the holder of the shares in question is entitled to exclusive occupation of an apartment in a building in Elizabeth Bay owned by Ashdown.
4. On 26 September 2013, Gladio purported to rescind the Sale Agreement and demanded repayment of a deposit of $145,000 paid by Gladio to Ms Buckworth. The validity of the rescission was disputed by Ms Buckworth, who treated Gladio's purported rescission as a repudiation of the Sale Agreement. Ms Buckworth, in turn, purported to terminate the Sale Agreement and to forfeit the deposit. She declined to repay it to Gladio.
5. Gladio then commenced proceedings in the Equity Division against Ms Buckworth and Ashdown. By its further amended statement of claim filed on 12 May 2015, Gladio sought, amongst other relief, a declaration that the Sale Agreement was validly rescinded on 26 September 2013 and an order that Ms Buckworth pay to it the sum of $145,000. Gladio sought alternative relief under the Australian Consumer Law in Sch 2 of the Competition and Consumer Act 2010 (Cth) or the Fair Trading Act 1987 (NSW) and under the Frustrated Contracts Act 1978 (NSW). Gladio sought an order that Ms Buckworth or Ashdown pay its costs of the proceedings and an order that Ms Buckworth or Ashdown pay any costs which Gladio might be ordered to pay to the other.
6. Ms Buckworth filed a cross-claim against Gladio, in which she sought a declaration that, on 26 September 2013, she had validly and effectively terminated the Sale Agreement and a declaration that, if she is unable to resell the shares for the price provided for in the Sale Agreement, net of all costs and expenses of and incidental to resale, Gladio was liable to pay damages to her in a sum equal to the deficiency. She also sought an order that Gladio pay damages to her in the sum of $149,640.
7. On 14 July 2015, after a trial lasting some six days, the primary judge, for reasons published on that day (the Principal Reasons), concluded that Gladio had validly rescinded the Sale Agreement and was entitled to judgment against Ms Buckworth in the sum of $145,000, together with interest from the date of rescission to the date of judgment. [3] His Honour considered that there was no utility in granting the declaration sought by Gladio, since its right to the deposit would be sufficiently vindicated by the judgment in its favour for $145,000 plus interest. His Honour also concluded that Ashdown should have judgment in its favour on Gladio's claim against it and that Gladio should have judgment in its favour on Ms Buckworth's cross-claim against it. Relevantly for present purposes, his Honour reserved all questions of costs of the proceedings.
8. The primary judge stood the proceedings over to 28 July 2015 for entry of judgment and directions for argument on the question of costs. On that day, his Honour made orders on the substantive issues in accordance with the conclusions of 14 July 2015 (the Substantive Orders). His Honour also gave directions for the filing and service of submissions on costs and directed that the issue of costs be determined on the papers. Submissions on costs were made, relevantly for present purposes, by Gladio and Ms Buckworth on 24 August 2015 and in reply by each of them on 31 August 2015. Despite Gladio's request in its written submissions, his Honour declined to allow oral argument.
9. On 8 October 2015, for reasons published on that day (the Supplementary Reasons), the primary judge made orders to the effect of the following (the Costs Orders): 1. As between Gladio and Ms Buckworth: make no further order as to the costs of Gladio's claim against Ms Buckworth and Ms Buckworth's cross-claim against Gladio. 2. As between Ms Buckworth and Ashdown: order Ms Buckworth, as cross-claimant, to pay Ashdown's costs, as cross-defendant, of Ms Buckworth's cross-claim against Ashdown. 3. As between Ashdown and Gladio: order Gladio to pay the costs of its claim against Ashdown. On 21 October 2015, Gladio served notice of its intention to appeal from the Costs Orders. However, the notice of intention to appeal was not filed.
10. In the meantime, on 24 August 2015, Ms Buckworth had filed a notice of appeal to this Court from the Substantive Orders. On 2 September 2015, Ms Buckworth's appeal was listed for hearing on 19 November 2015. On 18 September 2015, Ms Buckworth filed an amended notice of appeal.
11. On 19 November 2015, this Court heard Ms Buckworth's appeal and reserved its decision. At that stage, while the notice of intention to appeal from the Costs Orders had been served, it had still not then been filed and no notice of appeal had been filed. Since no mention was made to the Court that Gladio had served a notice of intention to appeal, the Court that heard Ms Buckworth's appeal was unaware that Gladio was seeking to appeal from orders made by the primary judge in relation to costs.
12. On 6 January 2016, Gladio filed a summons seeking leave to appeal from the Costs Orders. Both Ms Buckworth and Ashdown were joined as respondents to the summons. The judges of the Court who heard Ms Buckworth's appeal were not then informed that the summons seeking leave to appeal had been filed. On 23 March 2016, for reasons published on that day, this Court ordered, by majority, that Ms Buckworth's appeal be dismissed and that she pay Gladio's costs of the appeal. [4] The judges who constituted that Court remained unaware that Gladio was seeking to challenge orders made by the primary judge in relation to costs.
13. Clearly, it was highly unfortunate that any appeal from the Costs Orders was not heard at the same time as Ms Buckworth's appeal by from the Substantive Orders. A challenge to the Costs Orders could have been brought by cross-appeal in Ms Buckworth's appeal. However, Gladio elected not to take that course. It has been suggested, in an affidavit in support of the application for leave sworn on 20 May 2016 by Mr Joshua Wyner, that Gladio did not seek to "bolt on" to Ms Buckworth's appeal its own appeal from the Costs Orders "so as not to lose the appeal hearing date of 19 November 2015".
14. In the Principal Reasons, the primary judge observed that there were three main bases upon which Gladio sought to uphold its purported rescission of the Sale Agreement, although Gladio's notice of rescission set out a greater number of grounds than those dealt with by his Honour. His Honour dealt with the grounds addressed by the rescission notice and then dealt with the further grounds on which Gladio relied.
15. The first ground was that, under cl 6.1 of the Sale Agreement, the Sale Agreement was expressed to be subject to Ashdown's written consent to the transfer of the shares to Gladio. The primary judge concluded that the approval that was given by Ashdown was relevantly, and in an onerous way, conditional and that, accordingly, it was not an approval sufficient to satisfy the requirements of cl 6.1 of the Sale Agreement. On that basis, his Honour held that Gladio was entitled to rescind the Sale Agreement.
16. A significant ground for rescission relied on by Gladio before the primary judge, although it was not a ground for rescission relied on in the notice of rescission, was that Ashdown had breached cl 10(g) of the Sale Agreement, thereby giving Gladio a right to terminate. Clause 10(g) relevantly provided that it was a condition of the Sale Agreement that the registers of members, directors and charges and all other books of Ashdown required by law to be kept by it were properly kept. His Honour concluded that there was a breach of that requirement because a resolution that his Honour inferred had been passed by the directors of Ashdown was not recorded in its minute books. His Honour concluded therefore that, were it necessary to decide this ground, Gladio was entitled to rescind or terminate the Sale Agreement for breach of cl 10(g).
17. Another ground addressed in the notice of rescission was that one of the "House Rules" relating to the apartment building was not disclosed in the Sale Agreement. However, the rule alleged not to have been disclosed was not made until after the Sale Agreement was made. The primary judge concluded that that asserted ground for rescission was not made out. Gladio also claimed to be entitled to rescind the Sale Agreement in Equity for innocent misrepresentation. His Honour concluded that there was no representation in the terms alleged in the further amended statement of claim and therefore held that the pleaded case, that rescission was justified on the basis of the alleged innocent misrepresentation, must fail. His Honour concluded, further, that a claim by Gladio that it was entitled to relief against forfeiture of the deposit, on the basis of unconscionable conduct, was not made out. His Honour also concluded that nothing in the House Rules concerning the apartment building made further performance of the Sale Agreement impossible so as to attract the operation of the Frustrated Contracts Act 1978 (NSW), as contended for by Gladio.
18. Thus, Gladio was successful only in relation to two of its contentions. The first was that the requirements of cl 6.1 were not satisfied. The second was that the requirements of cl 10(g) were not satisfied. Either was sufficient to justify the conclusion that Gladio had validly rescinded or terminated the Sale Agreement and that Gladio was, therefore, entitled to a refund of the deposit that it had paid.
19. While this Court dismissed Ms Buckworth's appeal, it concluded unanimously that the primary judge erred in concluding that the requirements of cl 6.1 of the Sale Agreement had not been satisfied. However, this Court concluded, by majority, that his Honour did not err in concluding that the requirements of cl 10(g) had not been satisfied.
20. In the Supplementary Reasons, the primary judge observed that Gladio's "primary" claim had been that it had rescinded the Sale Agreement pursuant to an express contractual entitlement to do so by reason of the failure to comply with cl 6.1. That, his Honour said, was the basis upon which he held that Gladio was entitled to succeed. Insofar as that was a basis for his Honour's decision on the question of costs, the basis was falsified by the decision of this Court. On the other hand, the secondary basis upon which his Honour would have regarded Gladio as entitled to succeed was upheld by this Court, namely, failure to satisfy cl 10(g).
21. In the Supplementary Reasons, the primary judge began by considering the powers of the Court to make orders for costs. His Honour referred to Uniform Civil Procedure Rules (UCPR), r 42.1, whereby, unless otherwise ordered, costs are to follow the event. However, his Honour then adverted to UCPR, r 42.34, which applies if, in proceedings in the Supreme Court, a plaintiff obtains a judgment against the defendant in an amount of less than $500,000 and the plaintiff would, apart from r 42.34, be entitled to an order for costs against the defendant. In such a case, under r 42.34(2), an order for costs will not ordinarily be made, unless the Supreme Court is satisfied that the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted. His Honour concluded that, in the circumstances of the case before him, the commencement and continuation of the proceedings in the Equity Division was not warranted.
22. In its draft notice of appeal filed in support of the application for leave to appeal, Gladio proposes to rely on the following grounds:

• The primary judge erred in finding that UCPR, r 42.34 had any application to the case or, alternatively, in not being satisfied that continuation of the proceedings in the Supreme Court was warranted.
• The primary judge failed to give any or any adequate consideration to Gladio's submissions in favour of an order requiring Ms Buckworth to pay Ashdown's costs directly.
• The process adopted by the primary judge of deciding the questions of costs on the papers was, in the particular circumstances of the case, inapt to achieve procedural fairness.

1. In her submissions to the primary judge, Ms Buckworth did not expressly refer to UCPR, r 42.34. Further, she proposed that she should pay 10 per cent of Gladio's costs.
2. In its written submissions to the primary judge, Gladio expressly adverted to UCPR, r 42.34 and advanced three reasons that it said justified a conclusion that commencement and continuation of the proceedings in the Supreme Court was warranted. First, it said, the Supreme Court is the exclusive venue for purchasers seeking relief from forfeiture of deposits and that declaratory relief and consequential orders for return of the deposit are the standard prayers for relief in cases involving a disputed forfeiture of a deposit. Secondly, Gladio said, rescission for innocent misrepresentation is an equitable remedy and it is doubtful whether the District Court has jurisdiction to entertain such a claim. Thirdly, Gladio contended, the duties of care alleged to be owed by Ashdown were not uncomplicated and were in some respects quite complex.
3. In her submissions in reply on the question of costs, Ms Buckworth addressed those three grounds. Thus, it is clear enough that the parties did in fact join issue on the question of the application of UCPR, r 42.34. Gladio's complaint is that, in her submissions in chief on the question of costs, Ms Buckworth did not advert to UCPR, r 42.34. In circumstances where Gladio itself raised UCPR, r 42.34 and advanced submissions as to why the commencement and continuation of the proceedings in the Supreme Court was warranted, the ground of denial of procedural fairness does not have sufficient prospects of success to justify a grant of leave to appeal.
4. While a declaration that a contract has been rescinded may be a common prayer for relief in a vendor/purchaser suit, it is by no means essential that a declaration be made. Moreover, the mere fact that Gladio sought a type of relief, being a declaration, that could only be granted by the Supreme Court does not for the purposes of r 42.34, of itself, make the commencement and continuation of the proceedings in the Supreme Court warranted. The real relief sought by Gladio was return of the deposit. Whether it was entitled to that relief depended on the proper construction of the Sale Agreement. There is no reason why the District Court could not have granted that relief. The relief claimed by Gladio on alternative causes of action was unnecessary and, in any event, failed. The ground that the primary judge erred in applying UCPR, r 42.34 or, alternatively, exercised the discretion according to a wrong principle, has insufficient prospects of success to justify a grant of leave to appeal.
5. More importantly, the circumstances outlined above make it clear that there has been no substantial injustice resulting from the orders made by the primary judge. In the result, following Ms Buckworth's appeal, Gladio failed in its primary case. Further, Gladio failed in all other issues raised by it, other than the question of cl 10(g). No submissions were advanced in support of the grounds of appeal to suggest that, if this Court re-exercised any discretion, as Gladio invited it to do, there was any real prospect that a substantial order for costs would have been made in favour of Gladio.

Endnotes

1. Gladio Pty Ltd v Buckworth (No 2) [2015] NSWSC 1462.
2. La La Land Byron Bay Pty Ltd v The Independent Liquor and Gaming Authority [2015] NSWCA 254 at [8]-[9] per curiam.
3. Gladio Pty Ltd v Buckworth [2015] NSWSC 922.
4. Buckworth v Gladio Pty Ltd [2016] NSWCA 54.
5. Gladio Pty Ltd v Buckworth [2015] NSWSC 922 at [348]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 November 2016