[2009] HCA 25
ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548
[2000] FCA 270
Oshlack v Richmond River Council (1998) 193 CLR 72
[1998] HCA 11
Re Minister for Immigration and Ethnic Affairs (Cth): ex parte Lai Qin (1997) 186 CLR 622
Source
Original judgment source is linked above.
Catchwords
[2009] HCA 25
ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548[2000] FCA 270
Oshlack v Richmond River Council (1998) 193 CLR 72[1998] HCA 11
Re Minister for Immigration and Ethnic Affairs (Cth): ex parte Lai Qin (1997) 186 CLR 622
HIS HONOUR: These proceedings were commenced by the plaintiffs on 29 March 2022. By way of their Statement of Claim (herein after "the Claim"), the plaintiffs sought possession of a property described as Townhouse 3, 15 Thornton Street, Darling Point NSW 2027 being lots 48, 57, 58 and 88 in Strata Plan 2766 and the whole of the land comprised in folio identifiers 48/SP2766, 57/SP2766, 58/SP2766, and 88/SP2766 (herein after "the property").
The plaintiffs are the registered proprietors of the property. At the time the proceedings were commenced, the defendants were in occupation of it. The plaintiffs' claim was that the defendants had no right to occupy the property and had failed to vacate it following lawful requests that they do so. The defendants did not accept the Claim and filed a Defence as well as a Cross-Claim against all three plaintiffs.
The matter was set down to be heard before me on 7 March 2023. Late on 6 March 2023, the Court was informed that the parties had reached a consent position, in that the defendants agreed that orders be made for judgment for the plaintiffs for possession of the property and for the Cross-Claim to be dismissed. The Court made those orders at the listing on 7 March 2023. The only issue that remains to be determined is the question of costs of both the Claim and the Cross-Claim.
[3]
History
The factual background underlying these proceedings was complicated and requires some explanation by the Court to give context to the dispute which arose.
[4]
Dramatis Personae
The persons involved in this litigation are all members of, or intimately connected to, the Haggerty/Brown family.
The matriarch of the family was the late Catherine Brown (also known as Catherine Haggerty), who died on 28 September 2015, and had siblings including Margaret Haggerty (the first plaintiff), Edward Haggerty, and Mary Sweeten.
The late Catherine Brown was married to the late Christopher Hylton Brown, who passed away on 19 January 2022. Catherine Brown and Christopher Brown had one child, Clare Christiane Hylton Brown.
The first defendant, Benjamin Sweeten, is the son of Mary Sweeten and therefore the nephew of the first plaintiff and Edward Haggerty, and the cousin of Clare Brown. Vavara Sellies, the second defendant, is the partner of the Benjamin Sweeten.
Patricia Hume (the second plaintiff) and Francis Johnson (the third plaintiff) were friends of Catherine Brown, executors of her will, and are the godparents of Clare.
Without intending any disrespect and for the purpose of clarity only, I shall refer to the relevant persons by their given names.
[5]
The Will of Catherine
Pursuant to Catherine's will, two trusts were created. These are described as the "House Trust" and "Clare's Trust".
[6]
House Trust
The first trust to come into operation was the House Trust. Catherine's will directed that her siblings Margaret, Edward, and Mary be appointed as trustees of the trust (the House Trustees). The House Trustees were given what was described in the will as Catherine's principal residence and such part of the remainder of her Estate that they deemed appropriate to settle a fund.
The will directed that such a fund be used to provide Christopher a right of residence in the principal residence pursuant to certain conditions. Catherine otherwise directed that once that right of residence lapsed, the fund should be distributed in accordance with the other terms of the will.
[7]
Clare's Trust
Clare's Trust was then to arise to handle the residual estate that was not exhausted by the House Trust.
The will directed that Clare be the beneficiary of the trust and any children she may have would be the residual beneficiaries. The capital and income of Clare's Trust were to be for the maintenance, benefit, and advancement in life or well-being of Clare.
Edward and the Margaret were appointed special trustees of Clare's Trust. Mary was later added as a special trustee by Deed of Appointment dated 3 September 2018.
On 2 March 2022, Mary and Edward were removed as trustees and were replaced by Patricia and Francis. This is how the three plaintiffs came to be the three special trustees of Clare's Trust.
[8]
The Family Court Proceedings
Prior to her death, Catherine had commenced proceedings in the Family Court against Christopher. Those proceedings were continued by Patricia and Francis (as Catherine's executors) after her death.
On 15 February 2017, the Family Court made consent orders the key elements of which were to the following effect:
1. That within 30 days of the orders, the property be transferred to the Trustees of the House trust.
2. That mortgage over the property be discharged by paying $436,001.79 from the Estate and any balance by Christopher.
3. The House Trustees grant to Christopher a right to occupy the property for his natural life subject to the terms and conditions in the orders.
4. Christopher will comply with directions of the House Trustees in respect of his right to occupy the property, including the payment of outgoings, and conducting maintenance and repair.
5. Christopher can notify the trustees with 28 days' notice of his intention to vacate the property.
6. Christopher be declared the owner of a different property in North Sydney, bank accounts and investments in his name, and personal chattels and furniture.
7. The executors be declared the owners of a Rolls Royce, Mercedes, Catherine's jewellery, and Catherine's superannuation.
8. The will be read in the context of these orders such that the "principal place of residence" in the will is a reference to the property.
[9]
Defendants' Occupation of the Property
The pleadings and evidence before the Court give rise to two competing versions of events about the circumstances of the defendants coming to occupy the property. Given that the matter resolved before the evidence could be tested at trial, this summary seeks to set out the positions of the parties only, without making any findings on the facts.
The parties seem to be in agreement that the property was purchased in 1992 and was the family home of Catherine, Christopher, and Clare. In 2015 when Family Court Proceedings were commenced by Catherine, Christopher moved out.
In July 2015, Catherine was diagnosed with cancer and prepared her will. Christopher moved back into the property at that time. Catherine passed away in September 2015.
By time the Family Court Proceedings were settled in 2017, the property was in disrepair. This situation continued in 2017 after Christopher was diagnosed with cancer.
On 31 December 2017, pursuant to the orders of the Family Court, the House Trustees became the registered proprietors of the property.
Christopher and Clare remained living in the property for a time. It seems that from about mid-2019, Christopher was no longer residing at the property. He is said to have first travelled to England and then subsequently went to Melbourne. In March 2020, Christopher went into hospital in Melbourne. At that stage, the partner of Clare, Lauren Bar had moved with Clare into the property.
By February 2021, the property was vacant. Benjamin and Edward attended the property to assess it and Edward reported to the other House Trustees that it was in poor condition and required some maintenance and repair to get it into a reasonable condition.
Around this time, the House Trustees formed a plan to have the property restored and then to rent it out on the executive market, noting that a weekly rental income of about $2,500 was not unrealistic for the type of property.
On 24 February 2021, the House Trustees received advice from their solicitor Murray Fahey to the effect that as life resident, Christopher was responsible for the maintenance of the property, and that this remained the case as the House Trustees had not determined that he had given up his life residency.
At this point, the parties' versions of events diverge.
[10]
Plaintiffs' Version
The plaintiffs' case, as outlined in various Affidavits that have been provided to the Court, was that sometime in 2021 Benjamin suffered some business losses and thereafter moved into the property. After moving in, Benjamin is said to have commenced works on the property. The plaintiffs' case is that that they were not aware of these works at the time.
Margaret's evidence was that her understanding was that this was a temporary measure while Benjamin was cleaning and fixing a few things for Christopher, after which Christopher would either return or the property would be rented. Margaret also said that in a subsequent discussion with Edward, she pressed for a formal agreement to be put in place with Benjamin with a clear end date.
In August 2021, the strata committee became aware that Benjamin was conducting unapproved works at the premises and issued him with a breach of law notice. On 3 January 2022, Christopher executed a will. He died on 19 January 2022. Clare's Trust then came into effect.
On 14 February 2022, a letter was received by Clare's Trustees from solicitors acting for Clare, enquiring about the property and their plans for its future occupancy. Part of the information requested was confirmation that the property was being leased for market rate with such funds providing income for the trust.
Margaret's view was that given Christopher's life tenancy was ended, the property fell into Clare's Trust and as such, the trustees should arrange for the property to be rented out to generate income for the trust pursuant to their obligations. This then set off a dispute between the trustees. Edward said that Benjamin and Varvara had done a lot of work fixing up the property and that Christopher had wanted to recognise this by way of a rent-free period which he thought was "not unreasonable". Edward said that Benjamin and Varvara were there because of an agreement and that they should not be thrown out.
By 24 February 2022, matters had come to a head. The solicitor for the trust, Mr Fahey, wrote to the trustees and confirmed that Clare did not want to move into the property, but she did want it rented out. Mr Fahey noted that this may create a conflict of interest for Mary (who was the mother of the Benjamin and also a trustee).
Mr Fahey said that the generation of income for the trust should be the trustees' primary concern. Mr Fahey also said if Benjamin and Varvara wanted to stay at the property, they should enter into a lease with terms consistent with an independent appraisal of the rental value.
On 3 March 2022, the solicitors for Clare provided a Deed removing Edward and Mary as trustees and appointing Francis and Patricia instead. On 8 March 2022, Mr Fahey wrote to Benjamin and Varvara asking them to quit the property. On 29 March 2022, these proceedings were issued.
[11]
Defendants' Version
The defendants' version of events is set out in Affidavits executed by Benjamin which are before the Court.
The defendants' case was that in about February of 2021, Christopher contacted Benjamin and asked him to check on the property after Clare had moved out. Benjamin said that he attended and saw that the property was in a terrible state with significant damage and neglect, and lots of personal items left behind. He said that when he told Christopher about this and sent him photos of the property, Christopher told him that Clare's Trust did not have the money to fix the house and make it habitable for tenants.
Benjamin says that Christopher offered for him to help repair and renovate the house in exchange for a rent-free period there. Benjamin said it was agreed that Varvara would assist, given that she was an interior architect.
The defendants say that work was commenced in July 2021 with the knowledge and approval of Edward, who was a House Trustee. The defendants also said that on 20 November 2021 they signed a lease with Christopher which reflected the terms of their arrangement. The defendants contended that all the trustees were aware of the agreement and had agreed to honour it in the event of Christopher's death.
The defendants also contended that after Christopher's death, Margaret became hostile to them and convinced Clare to removed Edward and Mary as Trustees, and began attempts to evict the defendants.
The defendants' Cross-Claim sought to recover from the plaintiffs the costs and expenses that the defendants say they incurred in renovating the property, which they had agreed to do under the inducement that they would be provided a rent-free period of residence there in return.
[12]
Eviction Attempt
At this point it is useful to say a little more about an event which is said to have taken place, and upon which each party places some reliance in the present application.
The event is alleged to have taken place on 12 May 2022. At that stage, the defendants had been served with notice to vacate the premises by the plaintiffs, and the solicitor for the plaintiffs Mr Murray Fahey attended the property with a view to carry out an eviction.
The parties' accounts of this event vary significantly. In Affidavit evidence, Mr Fahey asserted that he attended the premises and spoke to Varvara, who refused him entry to the property and refused to vacate it. She tried to close the door and Mr Fahey put his foot in the door frame to prevent it from closing. He says that he removed his foot when he saw that Varvara was holding her child.
Mr Fahey also asserted that Benjamin and the police arrived shortly thereafter, the police having been summoned by the plaintiffs to assist with the eviction. Mr Fahey deposes that an altercation took place wherein Benjamin pushed him into the garden.
Conversely, Varvara gave evidence by Affidavit that Mr Fahey had attempted to force his way into the property and injured her when he attempted to push the door open. That allegation was denied by Mr Fahey.
While ultimately there is no need for me to reach a concluded view on the facts of this event, it demonstrates the level of disputation and animosity between the parties which has bled into every issue in these proceedings.
[13]
Disputed Issues
The evidence that was obtained by the plaintiffs and the defendants during the course of the proceedings was extensive, canvassing many issues and comprising a voluminous Court Book.
Despite this, the issues requiring determination were relatively confined and can be summarised in the following way:
1. Was a lease ever granted by Christopher to Benjamin and Varvara?
2. If a lease or similar agreement did exist, did Christopher give to the defendants an interest in the property which persisted past the termination of his life estate?
3. If the answer to (2) is no, was an equitable lease or interest created between the defendants and the plaintiffs?
4. Was there any liability for the plaintiffs to pay the renovation costs of the defendants as claimed in the Cross-Claim?
Without the Court ruling on these issues, the current situation is that the plaintiffs sought possession of the property and - at length - the defendants agreed to relinquish that possession.
There is no agreement as to whether costs should be ordered, and if so, against whom. The plaintiffs seek the costs of those proceedings on the ordinary basis up until 8 February 2023 and on an indemnity basis thereafter, and the defendants resist the making of any order as to costs.
[14]
Plaintiffs' Evidence and Submissions
The plaintiffs rely on several Affidavits in support of their claim for costs. The first Affidavit was deposed by Ms Kathy Dufty, a law clerk employed by the solicitor for the plaintiffs, and was accompanied by a bundle of exhibited documents called KD2.
While the Affidavit and exhibit are lengthy, the relevant issues therein may be summarised quickly. First, the plaintiffs seek indemnity costs on the basis of a letter of offer that was sent on 8 February 2023 ("the plaintiff's offer").
The terms of the plaintiff's offer were as follows:
1. That the relief sought in prayer 1 of the Statement of Claim be granted;
2. The Cross-Claim be dismissed on the basis that there is a prohibition on the defendants seeking the same relief in separate proceedings;
3. The defendants pay 80% of the plaintiffs' costs of the Claim and the Cross-Claim on the ordinary basis as agreed or assessed; and
4. The Court notes that nothing prevents the plaintiff from commencing further proceedings in relation to a claim for mense profits and/or rent from the defendants; and nothing in the orders prevents the enforcement of existing costs orders in the proceedings.
The plaintiff's offer was open for a period of 14 days and was to expire on 22 February 2023. The trial, it should be remembered, was due to commence on 7 March 2023, a further 13 days thereafter. The plaintiff's offer also expressed that it was made pursuant to the principles in Calderbank v Calderbank [1975] All ER 333 and would be relied upon in support of any application for a special costs order.
Ms Dufty's Affidavit also canvassed the protracted nature of the proceedings and the settlement discussions that had taken place, as well as other conduct of the defendants that the plaintiffs seek to impugn, such as the defendants' failure to respond to a request for particulars of the Cross-Claim, and facts said to evidence that the defendants tried to avoid accepting service of the Statement of Claim.
The plaintiffs also rely on an Affidavit of Margaret, the first plaintiff, dated 6 March 2023 together with Exhibit MH5. Again, the Affidavit and material exhibited thereto is lengthy, but the particular issues raised which require the Court's attention are relatively limited.
First, Margaret deposed that the defendants did not serve any evidence to contradict an expert report which the plaintiffs obtained from a forensic document examiner. The report sought to impugn the authenticity of various signatures alleged to have been affixed to various documents by Christopher prior to his death, including the lease agreement with the defendants.
Secondly, Margaret stated that since quitting the property on 27 January 2023, the defendants had arranged for it to be listed as a short-term rental on the website "Air BNB", with either the defendants or people known to them frequenting the premises from time to time.
In oral submissions, Counsel for the plaintiffs submitted that they should be entitled to costs on an ordinary basis up until 8 February 2023 (the date of the plaintiffs' offer) and on an indemnity basis thereafter.
In ceding possession of the property to the plaintiffs and agreeing that the Cross-Claim be dismissed, it was submitted that the defendants had essentially capitulated in what the plaintiffs say was an obviously hopeless case. Accordingly, the plaintiffs asserted that the Court could be confident that the plaintiffs would have prevailed had the case proceeded to a contested hearing, and that the costs of the proceedings should follow.
The plaintiffs also submitted that a liability for costs should arise on the basis that the defendants had engaged in unreasonable conduct during the course of the proceedings. This was said to arise in their refusal to vacate the premises for over a year after being served with an eviction notice, and attempting to avoid service of the Claim.
The plaintiffs were critical that such behaviour took place despite the defendants from time to time having the benefit of legal representation. In further support of the contention, the plaintiffs highlighted that in their view, the defendants had failed ever to articulate a proper basis for their defence of the Claim or the grounds of their Cross-Claim, which was evident in their failure to respond to requests for particulars of those matters. All of these matters were said to demonstrate the unreasonableness of the defendants' conduct of the proceedings.
[15]
Defendants' Evidence and Submissions
On the question of costs, the defendants relied on an Affidavit of Benjamin dated 10 April 2023, and an Affidavit of Varvara dated 10 April 2023.
In his Affidavit, Benjamin asserted that the defendants had essentially been "induced" into the settlement of the main proceedings and withdrawing their Cross-Claim by the solicitor for the plaintiffs. He said that Mr Fahey, the plaintiffs' solicitor, had encouraged him to instead institute proceedings against the estate of Christopher to recoup the costs of the renovations, to bring these proceedings to an end. Benjamin deposed that he was unaware that agreeing to vacate the premises and dismiss the Cross-Claim would have potential costs consequences.
Benjamin also deposed that at a Mediation held in October 2022, a settlement was almost reached wherein the defendants would quit the property that month and discontinue the Cross-Claim, and instead seek the costs of the renovation from Christopher's estate. According to Benjamin, that settlement fell through as the defendants were not in a position to vacate the property until December 2022.
Benjamin also annexed a number of letters of offer which had been sent to the plaintiffs during the course of the proceedings. The first such letter was dated 28 October 2022 ("defendants' first letter of offer"). That letter offered that the defendants vacate the property by December 2022 and pay the plaintiffs' four weeks of rent. No mention of costs was made.
The second letter was dated 12 January 2023 ("defendants' second letter of offer"), which offered that the property be vacated within 7 days, the Claim and the Cross-Claim be dismissed, and there be no order as to costs, and all prior orders in the proceedings be discharged. The letter was expressed as a Calderbank offer and was open for 14 days.
The third and final letter of offer was dated 8 March 2023 and related to the proposed settlement of the current costs dispute. The defendants offered to resolve the costs dispute by way of a payment of $16,000 to the plaintiffs, to be made in instalments ("defendants' third letter of offer").
Varvara's Affidavit outlined conversations that she had with Benjamin about the proceedings. She said that Benjamin told her that Mr Fahey had suggested the defendants pursue Christopher's estate for the costs of the renovations, but she did not trust this advice.
In written submissions, the defendants say that they did not realise that they could be liable for costs once they agreed to the plaintiffs being granted the relief sought in the Statement of Claim, and for the Cross-Claim to be dismissed. They say that they acted in reliance on the plaintiffs' solicitor's comments to them in holding that belief. They say Mr Fahey "made it sound like" dropping the Cross-Claim would lead to the plaintiffs "dropping" the possession order (seemingly a reference to abandoning any claim for costs).
The defendants also say that in the proceedings, they made several offers on an "each bear their own costs" basis which were not accepted by the plaintiffs. Otherwise the defendants highlight the written offers that are attached to Benjamin's Affidavit.
The defendants also deny that they acted unreasonably in the following ways:
1. They submit that they were not unreasonable in failing to vacate the property, because they were entitled to stay at the property pursuant to the lease they had with the life tenant (who had by that time died).
2. They say that any failure to obtain evidence going to the allegedly forged signatures, or a failure to plead a proper defence going to the merits of the case, is not the analysis for the Court to engage in on the issue of costs dispute.
3. The defendants do not see how it could be unreasonable for them to have had legal representation at various times. No submission is made to address the allegation that despite that representation they continued to act unreasonably.
4. The defendants also say that it is irrelevant that they were aware that the plaintiff was incurring costs as the proceedings continued, as incurring costs is incidental to bringing proceedings.
On the issue of the plaintiffs' letter of offer, the defendants' submission is that the offer was not a genuine compromise because "the amount sought is likely to exceed the costs that the plaintiff would be entitled to obtain on assessment". This is despite the offer being framed as a payment of 80% of costs as agreed or assessed and is thus only capable of being interpreted as a discount on any assessed amount.
The defendants otherwise submit that they do not agree that the strength or otherwise of the plaintiffs' case is a relevant factor on costs, or that the plaintiffs could prove that they would have succeeded at trial. They say that this is particularly so when part of the plaintiffs' case relied on proving fraud in the creation of the lease, which was a matter never tested in evidence or cross examination. The defendants also made various submissions about the forensic document evidence and the evidence about the strength of the plaintiffs' claim which largely accord with their evidence adduced in the principal proceedings.
[16]
Plaintiffs' Evidence and Submissions in Reply
The plaintiffs rely on further material in response to the defendant's material on the question of costs. There is an Affidavit of Francis dated 28 April 2023 and an Affidavit of Mr Fahey dated 27 April 2023.
Those Affidavits, for the most part, relate to the eviction attempt which I have summarised at [44]-[49] above, which I will not reiterate here. Mr Fahey's Affidavit also denies that he provided any legal advice to the defendants about instituting proceedings against Christopher's estate, and otherwise addresses in greater detail the settlement discussions between the parties and the resolution of the Cross-Claim and Claim. I have had regard to those Affidavits.
In submissions in reply, the plaintiffs are critical of the defendants' assertion that they were unaware of the costs consequences of withdrawing the Cross-Claim and resolving the Claim. Reliance is placed on several contemporaneous communications which are in evidence which would indicate that the defendants were well aware that costs were a live issue between the parties. For example, in an email dated 6 March 2023, Benjamin agreed to the Court making an order for possession of the property and the withdrawal of the Cross-Claim, but expressly sought to reserve the defendants' rights in relation to any applications for costs.
The plaintiff's reply submissions otherwise canvass again the basis upon which a claim for costs is made and highlight objections to the defendants' evidence on costs, and the defendants' characterisation of the plaintiffs' claim for costs which was articulated in the defendants' submissions.
[17]
Applicable Law
The Court's power to make orders as to costs principally arises from the Civil Procedure Act 2005 (NSW). Section 98 of the Civil Procedure Act grants the Court a broad discretion to determine by whom and to what extent costs are to be paid.
The general position is that costs will follow the event, [1] in that a successful party to litigation may reasonably expect to be awarded costs from the unsuccessful party. [2] As explained in Commonwealth of Australia v Gretton [2008] NSWCA 117 (Hodgson JA) at [121]:
"…underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant's responsibility because the plaintiff was caused to incur costs by the defendant's failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled."
Where proceedings are dismissed, the prosecuting party may generally expect to pay the costs of the defending party to the extent that the costs relate to the matters that have been dismissed. [3]
When proceedings are settled without a hearing on the merits, there is no "event" from which costs may naturally flow. However, it is not unusual for a situation to arise, as it has in this case, where proceedings are settled without an agreement for costs. In that circumstance, it falls on the Court to determine the just and fair cost orders that should be imposed.
As stated by McHugh J in Re Minister for Immigration and Ethnic Affairs (Cth): ex parte Lai Qin (1997) 186 CLR 622 at 625; [1997] HCA 6:
"Ordinarily, the power [to order costs] is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action…
…[I]n some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried." (Footnotes omitted.)
As this passage makes clear, it is not the role of the Court in a situation such as this to embark on what would amount to a trial of the issues to determine only the question of costs. It is only in cases where there has clearly been unreasonable conduct, or the Court can be certain that one party would have prevailed were it not for a capitulation by the other, that the Court ought to intervene to make costs orders.
It is important to bear in mind that costs orders are compensatory and not punitive: Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25. In accordance with that principle, in Calokerinos, Executor of the Estate of the late George Sclavos v Aantcorp Pty Ltd [2023] NSWSC 148, his Honour Robb J stated at [63] that:
"There are cases in which judges have counselled against the Court being too ready to punish parties who voluntarily capitulate by imposing costs orders as a result of the parties' decision to abandon their claim or defence. As a matter of policy, it may not be in the interests of the proper administration of justice for the Court to too readily impose cost orders against parties who are prepared to terminate litigation by making realistic and practical assessments of their own prospects of success: see for example Stateland Developments Pty Ltd v Princi [2007] NSWSC 709 at [11] (Gzell J) and Bruce v Magee (t/as Armstrong Legal) [2017] NSWSC 1687 at [16] (McCallum J, as her Honour then was). However, the proper exercise of the Court's costs discretion will always require a careful analysis of the facts of the particular case. The circumstances in which a plaintiff voluntarily abandons its proceedings may be sufficient even on a summary basis to satisfy the Court that the abandonment reflects a recognition in hindsight that the plaintiff's prospects of success were not sufficient to justify the litigation, and the Court may be satisfied that the plaintiff's prospects of success were so low that the plaintiff ought not to have commenced the proceedings on the basis of the evidence that was available to it. In such a case, it may be proper for the Court to order the plaintiff to pay the defendant's costs of the proceedings."
Ultimately the proper exercise of the costs discretion requires particular attention to the facts of the case at hand, with ultimate regard to the interests of the proper administration of justice and the resolution of the real issues in dispute.
[18]
Consideration
As may be obvious from the foregoing, I may already have analysed the issues between the parties more than principle dictates. The Court, as the foregoing authorities make clear, does not conduct a mini-trial to determine which party would have succeeded or was likely to succeed. Nevertheless, it is necessary to deal with the costs of the Cross-Claim and the principal proceedings.
[19]
Costs of the Cross-Claim
I first deal with the issue of the costs arising from the defendant's Cross-Claim, which was dismissed by consent on 7 March 2023. As I have already noted, pursuant to r 42.20 of the Uniform Civil Procedure Rules 2005 (NSW) (hereinafter "UCPR"), unless the Court orders otherwise, a plaintiff must pay the defendant's costs of proceedings to the extent to which they have been dismissed. The references to "plaintiff" and "defendant" for the purpose of this section also apply to cross-claimants and cross-defendants respectively, by reason of s 22(3)(a) of the Civil Procedure Act.
The defendants' position relating to the dismissal of the Cross-Claim, expressed in their submissions, is that the plaintiffs should not be entitled to their costs because they have engaged in disentitling conduct. There is authority that if a party partakes in conduct that occasions unnecessary expense, they may lose the benefit of receiving their costs, even if such conduct does not amount to an exceptional or unusual case. [4]
The defendants' allegations of disentitling conduct appear to encompass the following matters:
1. The plaintiffs induced the defendants to discontinue the Cross-Claim in circumstances where the defendants were not aware that there would be costs consequences of doing so; and
2. The plaintiffs did not accept the defendants' first offer or the defendants' second offer, which would have resolved the issues between the parties at an earlier stage and reduced the amount of costs incurred.
In relation to the first matter, I am not satisfied that there was any deliberate inducement or misleading conduct on the part of the plaintiffs. In coming to that conclusion, I have carefully examined the contemporaneous communications between the parties about the dismissal of the Cross-Claim which are annexed to Mr Fahey's Affidavit.
I have already referred to an email sent by Benjamin on 6 March 2023 in which he consented to the making of an order for possession and the dismissal of the Cross-Claim and sought to reserve the defendants' rights in relation to any application for costs. The inescapable conclusion is that the defendants were aware at that stage that a costs application was open to the plaintiffs.
This conclusion is strengthened when one examines the context from which the email communication arose. On 3 March 2023, Benjamin had sent an email to Mr Fahey offering to consent to a dismissal of the Cross-Claim on the basis that the Claim was also dismissed with no orders as to costs. Benjamin stated:
"should the trustees continue the proceedings, then in my opinion, it would appear the only reason to do so would be to pursue a costs order which will be strenuously opposed"
Also on 3 March 2023, Mr Fahey responded and sought Benjamin's confirmation that the defendants would consent to an order for possession of the property being made, as sought in the Claim, and noted that the plaintiffs reserved their rights in respect of any claims for costs. It was this email that Benjamin responded to on 6 March 2023 leading to the communication I have referred to above.
It is clear that the defendants were well aware that the issue of costs remained unresolved, and that there would be potential costs applications arising from the Cross-Claim or the proceedings generally. I am unable to find that there was any disentitling conduct by the plaintiffs in this regard.
As to the second allegation, namely the failure of the plaintiffs to accept either the defendants' first offer or the defendants' second offer, again I am unable to find that this constituted disentitling conduct. While it is true that the acceptance of the offers would have led to the possession of the property by the plaintiffs taking place at an earlier stage, neither of the defendants' offers sought to compensate the costs incurred by the plaintiffs. Of course, UCPR r 20.26(2)(c) requires that any offer under the UCPR not include costs. Neither the first nor second defendants' letter of offer was an Offer of Compromise under the UCPR. Nor were the plaintiffs' offers.
The dismissal of the Cross-Claim was not a dismissal on the merits and does not foreclose proceedings for the claim in the future. [5] The desire of the cross-claimants/defendants to agitate a claim for the renovation was an express reservation made in the course of negotiations and correspondence.
Nevertheless, the terms of UCPR r 42.20 to which reference has already been made provide that, in the absence of an order of the Court, the dismissal of the Cross-Claim would result in a costs order in favour of the plaintiffs/cross-defendants. No adequate reasons have been given to issue such an order.
[20]
Costs of the Claim
Turning then to the issue of the costs of the proceedings generally, the authorities I have outlined make it clear that a costs order in the absence of a hearing on the merits should only be made if:
1. one of the parties has acted so unreasonably that the other party should obtain the costs of the action; or
2. although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
The plaintiffs say that either or both of these circumstances apply in the present case.
The defendants' alleged unreasonable conduct is, as I have already stated, said to encompass their failure to vacate to the property for over a year, failure to articulate any "proper" Defence to the Claim, failure to provide particulars of the Defence which was put, and failure to obtain evidence from a forensic document examiner in response to the plaintiffs' evidence.
It is true that such behaviour, if proved, is certainly below the standard the Court expects from parties to litigation, especially when regard is had to s 56 of the Civil Procedure Act, which requires parties to assist the Court in facilitating the just, quick, and cheap resolution of the real issues between the parties. However, I am not convinced that the plaintiffs have proved that the conduct was necessarily unreasonable, such that costs should follow on that basis.
Aside from drawing the Court's attention to the matters described, the plaintiffs did not make any submissions as to how it is said that the defendants' behaviour was said to be unreasonable in the particular and subjective circumstances of this case, as opposed to being merely infelicitous or imprudent. It should also be remembered that the defendants have, for the majority of the proceedings, been without the benefit legal representation and their conduct should be regarded in that context.
The second matter which the Court must then take into account is whether it is clear that the plaintiffs would have prevailed had the matter proceeded to a hearing. This is distinguishable from a situation wherein some supervening event so removes or modifies the subject of the dispute so that no issue remains between the parties except that of costs. [6]
From my consideration of the material before the Court as a whole, it seems to me that the plaintiffs' case to be tried was a compelling one. Despite the numerous array of matters which I am not able to resolve on an application such as this (such as the authenticity of various signatures of deceased persons), the plaintiffs' claim for possession has a strong foundation in some basic principles of law which are unaffected by any rulings on the evidence one way or another.
To put it simply, taken at its highest the defendants' case rested on a lease which was allegedly granted by Christopher which gave them a right to reside at the property for three years. If that lease were accepted as genuine (noting that this was disputed by the plaintiffs), its existence would not be a defence to the Claim. Christopher was a life tenant of the property. A life tenant is generally unable to create an interest which endures beyond the termination of the life estate.
There is a limited exception which arises under ss 68 and 69 of the Conveyancing and Law of Property Act 1898 (NSW). As explained in Lindsay v Murphy (1967) 90 WN (Pt 1) (NSW) 410 by Thorrington DCJ, s 68 provides that a person entitled to possession of any settled estate for a life may demise the same or any part thereof for a term not exceeding ten years by way of a deed. Pursuant to s 69, such deeds are binding upon remainder persons. However, as his Honour went on to explain, an agreement for lease would usually fail to come within the provisions of s 68, as such instruments are generally not attested as deeds.
The lease agreement put in evidence by the defendants was also not attested as a deed, and as such it follows that any right of residence granted by Christopher was extinguished upon his death at the same time as his own life interest.
The other alleged basis for the defendants' Defence was that there was agreement between the plaintiffs and the defendants which acknowledged the lease granted by Christopher and allowed for that lease to endure past Christopher's passing. As stated, the nature of that agreement was never particularised by the defendants, and I am unable to make findings in relation to it.
As recently stated by the Court of Appeal in Nadilo v Eagleton [2021] NSWCA 323, if proceedings are resolved without a final hearing but the prosecuting party achieved the outcomes that were sought in bringing the proceedings, then the success is to be evaluated by looking to the substance of the outcomes sought and obtained. [7] Meagher and Brereton JJA also held that it is not necessary to prove that a party has acted unreasonably in circumstances where that party has effectively capitulated without any element of compromise, making further prosecution of the litigation unnecessary. [8]
The decision in Nadilo v Eagleton looms large in this case. As I have already stated, the plaintiffs sought possession of the property which the defendants have now ceded to them. Significant costs have been occasioned by the plaintiffs due to the defendants taking over a year to reach that position.
However, the defendants offered possession in December 2022 and possession was obtained after December. Moreover, the defendants had maintained for a significant period that they were able to give up possession at that time, but not before that time.
It seems that the effluxion of time enabled the defendants to agree to possession. The alteration in the time was the changed circumstance that enabled consent to be reached.
At its kernel, the dispute between the parties did not involve any contest as to the plaintiff's right to possession after December 2022. The defendants maintained that the lease allegedly granted to them was, at least in part, compensation for the renovations undertaken by them.
[21]
Indemnity Costs Orders
It is, in the foregoing context, necessary for the Court to consider the plaintiffs' claim for indemnity costs from 8 February 2023, being the date of the plaintiffs' letter of offer, because the letter needs to be understood on both the issue of costs generally and the basis of their assessment.
The plaintiffs' letter of offer called on the principles enunciated in Calderbank v Calderbank [1975] All ER 333. As such, if the Court were satisfied that it was unreasonable for the defendants to reject that offer, it would be open to the Court to make an order for the defendants to pay the plaintiffs' costs on an indemnity basis from that date onwards.
The first step that the Court must determine is the plaintiffs' letter of offer was a compliant Calderbank offer. At face value, it clearly meets the basic requirements. The letter was marked "without prejudice save as to costs", was clear and precise in its terms, had a specified period of acceptance, and stated that it was made in accordance with the Calderbank principles. The letter also foreshadowed an application for special costs in the event that the offer was not accepted.
The offer was only open for acceptance for a period of 14 days, but I do not find that to be overly brief when the trial was scheduled to commence imminently. The parties had been involved in litigation for many months and the defendants were well appraised of the plaintiffs' case and its strengths, such that they were in a position to assess the reasonableness of the offer in the time that it was open.
The plaintiff's letter of offer was brief, being less than two pages in length. It did not contain any elaboration of the reasons why it was said that the offer was a reasonable one, or why it should be accepted by the defendants. However, given the defendants' familiarity with the plaintiffs' allegations and evidence, I am satisfied that further explanation of these issues in the letter would likely have amounted to no more than a futile repetition of matters that were, by that stage, well ventilated.
The contemporaneous communications between the parties to which I have already referred make it clear that as early as October 2022 the defendants were prepared to cede possession of the property to the plaintiffs from December 2022, as evidenced in the defendants' first and second letters of offer. One of the only remaining issue between the parties was the costs of the proceedings. The defendants must have appreciated that their surrender in principle to the Claim at such a late stage had caused significant costs to be incurred, with those costs increasing the longer it took for all issues to be resolved.
The compromise that was proposed in the plaintiffs' letter of offer was framed as an agreement that the defendants pay 80% of the plaintiffs' costs of the Claim and the Cross-Claim on the ordinary basis, as agreed or assessed. In oral submissions, counsel for the plaintiffs estimated that this would translate to an approximate discount of $24,000 in money terms.
It is necessary to construe the Calderbank letter (and offer) with an eye to detail. The letter proposed two conditions that were not part of the consent orders. First, it reserved the plaintiffs' rights to sue for mesne profits. Secondly, it prevented the defendants/cross-claimants from claiming in future proceedings any amount arising from the renovations undertaken.
In other words, it permitted the plaintiffs to sue for the losses incurred as a result of the defendants' occupation of the premises but disentitled the defendants from compensation for the improvements effected. These are significant conditions, which render the offer of substantially less value to the defendants than was occasioned by the consent orders. In other words, the plaintiffs are worse off from the consent orders than what was proposed in the Calderbank letter.
In light of those conditions, the defendants were not acting unreasonably in rejecting the offer. Further, the consent orders achieved no more than was proposed by the defendants in October 2022.
There are two consequences to the foregoing. While it is an issue that arises later than the discretion to award costs, I do not consider that the plaintiffs have achieved all that was proposed in their letter of 8 February 2023 and are not entitled to indemnity costs.
Secondly, in the absence of a mini-hearing dealing with the value of the renovations performed, as against the appropriate payment (if any) for rent, it is difficult, if not impossible to apportion costs justly. The Court will make no order for costs in the principal proceedings.
For the foregoing reasons, the Court makes the following further orders:
1. The cross-claimants shall pay the cross-defendants their costs of the Cross-Claim on the ordinary basis;
2. All other claims for costs are dismissed with no further order;
3. Proceedings dismissed.
[22]
Endnotes
Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [67], [134]; Northern Territory v Sangare (2019) 265 CLR 164; [2009] HCA 25 at [25].
Uniform Civil Procedure Rules 2005 (NSW), r 42.20.
G R Vaughan (Holdings) Pty Ltd v Vogt [2006] NSWCA 263 at [20]
Civil Procedure Act 2005 (NSW), s 91; Uniform Civil Procedure Rules 2005 (NSW), r 12.10; Magnus v National Bank of Scotland (1888) 57 LJ Ch 902; KBRV Resort Operations Pty Ltd v Chilcott (2001) 51 NSWLR 516; [2001] NSWCA 116.
ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553-555; [2000] FCA 270 at [6]-[8] (Burchett J).
Nadilo v Eagleton [2021] NSWCA 323 at [1], [10], [85], [89] (Meagher and Brereton JJA and Preston CJ of LEC).
Ibid at [1], [12] (Meagher and Brereton JJA).
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Decision last updated: 20 July 2023