John Anthony Arena Pty Ltd v Franpina Developments Pty Ltd

Background

1. The first applicant, John Anthony Arena Pty Ltd (JAA), is a company controlled by the second applicant, Dr John Arena and his wife. Dr Arena's mother, Mrs Giuseppa Arena, is the owner of a property in North Ryde. She is also a director and the sole shareholder of the respondent, Franpina Developments Pty Ltd (Franpina).
2. On 26 June 2019 Mrs Arena, in her personal capacity, and JAA entered into a Put and Call Option Deed (the Deed), under which Mrs Arena granted JAA the option of purchasing the property in North Ryde.
3. By a statement of claim filed on 23 December 2020, Franpina challenged the Deed. It did so even though it was not a party to the Deed. The named defendants were JAA, Dr Arena, Mrs Arena, and Mrs Arena's other children. Franpina's claims for substantive relief were as follows (emphasis added): "1. A declaration that the Put and Call Option Deed dated 26 June 2019 between [JAA] and [Mrs Arena] is void and unenforceable. 2. An order that the Put and Call Option Deed be set aside. 3. In the alternative, a declaration that the interest of the [JAA] under the Put and Call Option Deed is held on trust for: (a) [Franpina]; or (b) [Franpina], [Dr Arena], and the Third to Eighth Defendants. 4. A declaration that [JAA] is estopped from relying upon and/or enforcing its interests under the Put and Call Option Deed. 5. In the further alternative, an order that [JAA] and/or [Dr Arena] pay equitable damages and/or compensation."
4. The relief sought in [1], [2] and [4] was thus to the same effect, that is, a Court finding that the Deed was ineffective. This aligned precisely with [3] of the consent orders made by the primary judge (see [13] below). The only other substantive relief sought in the statement of claim was identified at [3] and [5] but this was expressly stated to be sought in the alternative and was not therefore sought in the event, as occurred, that the Deed was found to be ineffective.
5. Franpina alleged a number of alternative bases which were said to justify the relief sought, including that there was a binding agreement relating to redevelopment of the subject property in combination with other properties owned by Franpina, or a joint venture, or a common intention, or an arrangement giving rise to a Pallant v Morgan equity, each of which precluded the parties to the Deed entering into the Deed. It was also pleaded in the statement of claim at [88] that the Deed was not a free, voluntary and independent act of Mrs Arena, nor the product of a fully informed mind, nor a transaction which Mrs Arena knowingly consented to or approved of.
6. JAA and Dr Arena put on a joint defence which denied there was any basis for relief. Notably, this defence denied the allegations relating to Mrs Arena's capacity and independence made at [88] of the statement of claim.
7. Mrs Arena, by her tutor, put on a defence substantially admitting what was alleged in the statement of claim, and filed a cross-claim against the applicants also seeking that the Deed be set aside, based upon the Contracts Review Act 1980 (NSW) and general law grounds. The cross-claim repeated many of the allegations made in the statement of claim, and similarly raised the issue of Mrs Arena's capacity to enter the Deed. JAA and Dr Arena put on a defence to the cross-claim in terms consistent with their defence to the statement of claim.
8. The children of Mrs Arena other than Dr Arena filed submitting appearances.
9. Evidence was filed and served and the matter was proceeding towards hearing when there was a change in position by the applicants. In an affidavit dated 5 October 2021 Dr Arena deposed that he had "taken advice" and did not seek to support the validity of the Deed "because there may be doubt about my mother's capacity at the time that she executed" it (judgment at [8]). It was not suggested that this volte-face occurred pursuant to settlement discussions.
10. On 10 December 2021, and by agreement of the parties, Darke J made the following orders: "1. ORDER that the Second Defendant's motion filed 25 October 2021 seeking leave to file a Second Cross-Claim be dismissed. 2. ORDER that the Second Defendant pay the Plaintiff's and Third Defendant's costs of the Second Defendant's motion filed 25 October 2021 to be assessed, if not otherwise agreed, on the ordinary basis. 3. ORDER that without admission on the part of any party the Put and Call Option Deed dated 26 June 2019 between [JAA] and [Mrs Arena] in respect of the property known as 366 Lane Cove Road, North Ryde in the State of New South Wales be set aside. 4. ORDER that subject to order 5 below the proceedings including the Statement of Claim and the First Cross-Claim be otherwise dismissed. 5. RESERVE for further consideration all questions of costs to date in the proceedings."
11. Darke J then dealt with the question of costs on the papers. His Honour found that in deciding not to seek to uphold the Deed and in consenting to the order setting it aside, the applicants capitulated on the claims made against them. He explained that, by the consent orders, Franpina and Mrs Arena "achieved their central purpose of precluding the enforcement of the Deed" (at [27]), saying that it was "a case where parties have, after litigating for some time, effectively surrendered" (at [28]). His Honour ordered that JAA and Dr Arena pay Franpina's and Mrs Arena's costs of the proceedings, in reliance on the principles explained in Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 at [5], Shellharbour City Council v Minister for Local Government [2017] NSWCA 256 at [6]-[7], and other such authorities.
12. By a summons of 4 May 2022 the applicants seek leave to appeal from that order insofar as it concerns Franpina. They do not seek to contest the order made in favour of Mrs Arena. The applicants raise three bases of challenge in their draft notice of appeal, suggesting that: 1. the primary judge erred in concluding that the consent orders involved a capitulation on their part; 2. his Honour's discretion in awarding costs miscarried because his Honour failed to take into account that the consent orders involved the dismissal of the various claims which the respondent made in seeking to justify the setting aside of the Deed, and the various forms of alternative relief which were not granted; 3. his Honour failed to give adequate reasons for rejecting the submission as to the significance of the respondent's claims being dismissed.

Determination

1. There is no right to appeal from a judgment or order as to "costs only which are in the discretion of the Court"; leave to appeal is required: Supreme Court Act 1970 (NSW), s 101(2)(c). Ordinarily, it is appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or a reasonably clear injustice going beyond something that is merely arguable: Jaycar Pty Limited v Lombardo [2011] NSWCA 284 at [46].
2. Subject to any specific provisions to the contrary, the awarding of costs in the Supreme Court is discretionary: Civil Procedure Act 2005 (NSW), s 98(1); Uniform Civil Procedure Rules r 42.1. Any challenge to such a costs order must thus seek to establish an error of the kind described in House v The King (1936) 55 CLR 499 at 505; [1936] HCA 40.
3. More generally, the Court is slow to grant leave in respect of an appeal restricted to a challenge to an order for costs, especially in a case which raises no particular issue of principle, but involves merely the application of well-established principles: Dalma Formwork (Australia) Pty Ltd v Maricic (No 3) [2008] NSWCA 29 at [39]; Hillsea Pty Ltd v Joseph [2020] NSWCA 55 at [47]. That approach reflects not only the fact that decisions on costs are discretionary, but that the issue of awarding costs arises in nearly all cases, and trial judges are generally best placed to weigh up the interests involved.
4. The applicants tendered evidence showing that the costs claimed by the respondent are well in excess of $100,000. The Court may be especially reluctant to grant leave where the costs in issue are below the $100,000 threshold as established by s 101(2)(r) of the Supreme Court Act: Hillsea Pty Ltd v Joseph at [48]. That does not mean that the fact that costs claimed are in excess of $100,000 militates in favour of a grant of leave in the absence of other factors warranting a grant.
5. In their written submissions the applicants identified no issue of principle or question of general public importance. In oral address they sought to suggest that there was a tension in the judgment of the primary judge which did raise an issue of principle. It was said that on the one hand his Honour awarded the respondent costs, but on the other he stated at [30] that "I do not accept that it was unreasonable of JAA and Dr Arena to defend the proceedings" and thus declined to award the respondent costs on an indemnity basis.
6. There is no inconsistency in the judgment and no issue of principle arises. The Court has a wide discretion in awarding costs. It has been recognised that costs may be awarded where a case has resolved without a determination on the merits on bases which include 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", to quote Davies AJA in Edwards Madigan Torzillo Briggs Pty Ltd at [5]. In such cases the Court is not obliged to award indemnity costs; that is a matter in the Court's discretion taking account of all the circumstances. Here, the primary judge found that the respondent had had a substantial victory. A party can act reasonably in choosing to take one position in litigation but still be characterised as surrendering if the party then changes position.
7. The applicants also sought to argue that the orders of the primary judge resulted in a substantial injustice to them. For the following reasons, the applicants have not established that the case involves any such injustice.
8. The applicants' main ground of challenge is their second, namely that the exercise of discretion miscarried because the primary judge failed to have regard to the dismissal of the various claims which the respondent made in seeking to justify the setting aside of the Deed, along with the various forms of alternative relief which were not granted (the claims and relief are identified at [6]-[8] above). Yet Darke J squarely dealt with the applicants' submissions on this point. In respect of the various claims which were pleaded to justify the setting aside of the Deed, his Honour explained at [27]: "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."
9. In the final sentence, his Honour comes to the view that, notwithstanding the various claims made in the statement of claim, the primary relief the respondent sought below was the setting aside of the Deed. That relief was obtained by the respondent, as his Honour explained at [25]: "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."
10. His Honour noted at [19] that the applicants themselves had accepted 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 Mrs Arena on her Cross-Claim". In their written submissions to this Court the applicants appeared to question this ascription of a concession, but it was taken directly from [4] of the applicants' written submissions filed below.
11. It was entirely reasonable for the primary judge to come to the view that the setting aside of the Deed was the primary relief sought by the respondent and the main purpose of the proceedings. The fact that the other forms of relief were sought in the alternative to an order setting aside the Deed confirms this. As described at [7] above, the respondent obtained in full the substantive relief sought by it. The settlement orders did not contain any concession in favour of JAA or Dr Arena.
12. The applicants submit that the setting aside of the Deed should be seen not as a success on the part of the respondent, but as a success on the part of Mrs Arena, whose cross-claim relied on the Contracts Review Act and the general law in seeking to set aside the Deed. They submit: "Her claim might have succeeded on the simple basis that Mrs Arena's capacity at the time that she granted the Option might be in question and Dr Arena's position was that he was not prepared to see his mother embroiled in that enquiry and agreed to set the Option aside at her behest."
13. But the respondent also sought to set aside the Deed on similar general law bases, based on allegations that the Deed was not a free, voluntary and independent act of Mrs Arena, nor the product of a fully informed mind, nor a transaction which Mrs Arena knowingly consented to or approved of. Some question of the standing of Franpina to seek this relief may well have arisen had the matter proceeded to hearing, but it did not. It was for the primary judge to have regard to all the circumstances in determining whether the applicants capitulated. No error in the exercise of his discretion is made out, let alone one which discloses a reasonably clear substantial injustice. That Franpina was assisted in obtaining relief in relation to the Deed by the existence of Mrs Arena's cross-claim does not derogate from the presently relevant consideration that by their consent to the orders the applicants agreed to Franpina obtaining the substantive relief it sought, and thus capitulated.
14. The applicants' first ground of challenge goes to the primary judge's characterisation of what occurred as a capitulation. For the reasons stated above, it was entirely open to his Honour to reach this conclusion in light of the events that occurred.
15. The third ground of challenge goes to the claimed inadequacy of the reasoning of the primary judge. As is reflected in the analysis above, there was no such inadequacy.
16. The application for leave to appeal should be dismissed with costs.

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