[2000] FCA 270
Oshlack v Richmond River Council (1998) 193 CLR 72[1998] HCA 11
Re Minister for Immigration and Ethnic AffairsEx parte Lai Qin (1997) 186 CLR 622[1997] HCA 6
Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311
Judgment (3 paragraphs)
[1]
Solicitors:
SBA Law (Plaintiff)
Streeterlaw (Second and Third Defendants)
File Number(s): 2016/233541
[2]
Judgment
HIS HONOUR: On 3 August 2016, Mr Khoury filed an originating process by which he sought certain relief against JCS Technologies Pty Ltd, Mr Okeil and Mrs Okeil. The natural person parties held all the shares in the corporate party, JCS. The relief sought was winding up of JCS on the just and equitable ground or under the oppression provisions or, in the alternative, an order that Mr Okeil and Mrs Okeil sell their shares in JCS to Mr Khoury.
Khoury v JCS Technologies Pty Ltd [2016] NSWSC 1575 | Case summary | Zoe
I heard the proceedings on 25 August 2016 and reserved judgment. In the course of the hearing, Mr Khoury abandoned his oppression case and the claim for an order for compulsory sale of shares. The only outcome possible was therefore winding up or continuation of the status quo following dismissal of the proceedings.
Being aware from the evidence that the parties had already made several attempts to resolve their differences, I pointed out to them, when reserving judgment, the limited outcomes that the proceedings could produce and that it was still open to them to find a resolution of their own pending delivery of judgment and the making of final orders.
Thereafter, on 31 August 2016, before any judgment had been formulated, counsel on both sides informed my Associate that the matter had been settled and that the parties did not require adjudication of the proceedings.
There followed several mentions in the course of which the terms of settlement were placed before the Court and it was explained that the parties were not wholly agreed on all relevant matters. On one such occasion, 9 September 2016, it proved possible to formulate certain consent orders to assist the working out of the settlement. The matter was then stood over to 20 October 2016 for further mention.
On the last mention date, the parties consented to the dismissal of the proceedings but with reservation of liberty to apply and directions for the filing of any motion that the plaintiff desired to agitate. The matter was then stood over to today.
At the hearing on 20 October, Mr Muddle SC tendered to the Court submissions of Mr Okeil and Mrs Okeil regarding the costs of the proceedings. The thrust of those submissions was that Mr Khoury should pay the costs of Mr Okeil and Mrs Okeil, with those costs being assessed on an indemnity basis. However, there was, on that occasion, no argument on costs and the submissions were merely included in the Court file.
In accordance with the directions of 20 October 2016, Mr Khoury filed a notice of motion on 28 October 2016 returnable today. By that motion, he sought, first, a declaration that Mr Okeil and Mrs Okeil had breached the parties' settlement agreement, secondly, damages for breach of contract and, thirdly, costs of the motion as well as "costs of previous hearings in relation to, or caused by the defendants' application for costs, all on an indemnity basis".
The case that Mr Scheelings of counsel advanced on behalf of Mr Khoury in support of the motion emerged from written submissions prepared by him and filed on 28 October 2016.
The parties' settlement of the proceedings was constituted by Mr Khoury's acceptance on 31 August 2016 of a written offer made by Mr Okeil and Mrs Okeil on 5 August 2016. That offer commenced:
"Pursuant to Uniform Civil Procedure Rules the second and third defendants make the following open offer to the plaintiff to compromise the whole of these proceedings on the following basis."
Then followed ten numbered paragraphs, of which the tenth was:
"The offer is not made in accordance with UCPR r 20.26."
The offer made no explicit reference to the fate of the proceedings, although there was in the opening words an unmistakable message that acceptance of the offer would cause the proceedings to come to an end. Mr Scheelings accepted that there was an implied term that the parties would consent to dismissal of the proceedings (as they in fact did on 20 October 2016).
Clause 7 of the offer read:
"The offer is exclusive of costs."
The foundation of Mr Khoury's notice of motion was the proposition advanced on his behalf by Mr Scheelings that, as a matter of contract, there was to be no claim by either party against the other for the costs of the proceedings and that, by tendering written submissions on 20 October 2016 seeking costs against Mr Khoury, Mr Okeil and Mrs Okeil had breached that term of the settlement agreement. That submission makes it necessary to consider the significance of the words in cl 7 of the offer.
The first point to notice is that, as its opening words show, the offer was made pursuant to the Uniform Civil Procedure Rules 2005 (NSW) but, as is made clear by cl 10, not in accordance with r 20.26. The effect of that exclusion was, clearly enough, to avoid the possible application of Div 3 of Pt 42 of the Rules as to the matter of costs. That being so, the words of cl 7 had no significance beyond their contractual significance and the notice of motion made it necessary to determine that contractual significance, bearing in mind that the context is one in which the Uniform Civil Procedure Rules are expressly mentioned in the opening words of the offer.
Mr Scheelings' submission on the motion was that cl 7 meant that each party was to bear its own costs and accepted a contractual obligation to desist from seeking any costs order. That, it seems, was the long and short of the breach of contract and damages claims advanced by the notice of motion. As mentioned, the breach was said to consist of the tendering on 20 October 2016 of the costs submissions that were placed in the court file. The damage that flowed from that alleged breach was not identified in any coherent way.
Mr Muddle submitted in relation to the motion that, given the context to which I have referred, the significance and meaning of the cl 7 words are matters influenced by the content of the Uniform Civil Procedure Rules and, in particular, the part of the Rules that refers to a characteristic of an offer of compromise being expressed to be "exclusive of costs", these being the words appearing in cl 7.
Reference was made to the decision of the Court of Appeal in Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 where the Chief Justice observed (with the concurrence of Beazley P, McColl JA and Emmett JA) at [24]:
"The use of the phrase 'exclusive of costs' suggests that what is intended is that a compliant offer will not deal with costs at all."
At [52] of the Whitney case, I said that the central characteristic of an offer that is "exclusive of costs" is that it not attempt to deal with the matter of costs at all.
The adoption by the parties in cl 7 of their contract of language to which the Court of Appeal had given such a meaning cannot but indicate that their intention, objectively ascertained, was that the contract did not deal at all with the question of costs and made no attempt to do so. There was no term, express or implied, of the kind for which Mr Scheelings contends. The claims in the notice of motion were therefore untenable and I dismissed the motion earlier today, for the reasons that I have just expressed.
After dismissing Mr Khoury's notice of motion, I proceeded to hear the parties' submissions on the costs of the proceedings as a whole. Both parties made submissions on that matter. Mr Scheelings submitted that, while dismissal of the proceedings may generally warrant an order that the plaintiff pay the defendants' costs, that expectation is displaced if dismissal does not involve surrender or abandonment by the plaintiff but, rather, recognition that some supervening event has wholly removed the plaintiff's cause of action. That formulation is taken from Bittania Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [79].
Mr Scheelings says that, in this case, there was a supervening event that wholly removed the plaintiff's cause of action, namely, the settlement. In viewing the settlement in that way, Mr Scheelings points to a passage in the judgment of Burchett J in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6], as follows:
"In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs."
I think it is correct to say that, in this case, the plaintiff did not surrender or abandon his claim. Rather, an agreement of the parties led to a situation where there was no longer any need for a determination on the merits, although, the agreement left unresolved the question of how the costs of the proceedings should be dealt with.
That being so, the starting point in relation to costs should be that described by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 at 624, namely, that the Court should not try a case that has become hypothetical and, unless there is some clear reason to prefer some other result, costs should be left to lie where they have fallen. It makes no difference, in my view, that the case has been heard and judgment reserved and that the parties have joined in asking the Court to dismiss it without determining the merits.
This case is, in that respect, similar to a recent case in the Court of Appeal of Western Australia, namely, Lafferty v Waterton [2016] WASCA 183. The Court there had heard the appeal and reserved judgment. Before judgment was delivered, the parties joined in asking the Court not to deliver judgment and to make a consent order allowing the appeal. The question of costs remained to be decided. The Court held (at [18]) that, even though the appeal had been heard, an appropriate starting point was the principle in the Lai Qin case. It then proceeded to consider whether it could be said that one party had capitulated in the face of probable defeat, or had acted so unreasonably that the other party should be awarded costs (at [18]). Being of the opinion that no such characterisation was appropriate, the Court made orders to the effect that left each party to bear its own costs (at [20]).
As I have said, I do not think that there has been a capitulation in this case. There is therefore a need to consider whether or not either party has acted unreasonably.
It was submitted on behalf of Mr Khoury that he did not in any way act unreasonably. Conversely, Mr Okeil and Mrs Okeil contend that Mr Khoury did act unreasonably, in that he did not accept the 5 August 2016 offer until six days after the completion of a final hearing on 25 August 2016, at which point the Court reserved judgment. They further say that that offer was essentially in the same terms as an offer made by them on 6 May 2016, that is, some three months before the proceedings were even commenced. The 5 August offer, it may be noted, was made on the first return of the proceedings before the Corporations Judge and was expressed to be open for 28 days. It was repealed in open court during the hearing.
I am not persuaded that the 5 August offer was essentially the same as the 6 May offer. There are similarities, but I cannot say that the commercial substance is the same. Accordingly, the real issue is whether it was unreasonable for Mr Khoury to have allowed things to continue on their course until 31 August 2016 before ultimately accepting on that day the offer which had been available to be accepted since 5 August 2016.
In my opinion, Mr Khoury did act unreasonably in that respect. He could have accepted the offer before the hearing. It is true that the landscape changed after the hearing began, but the change was brought about by Mr Khoury himself when, at the hearing, he abandoned his oppression case and his claim for relief involving compulsory sale of shares by Mr Okeil and Mrs Okeil. Whatever detriment accrued to Mr Khoury from that change was a detriment he elected to incur and, having incurred it, he chose a means of resolution that could have been chosen before Mr Okeil and Mrs Okeil had been compelled to invest the time and expense that were involved in a final hearing and the preparations for it.
Had Mr Khoury taken on, say, 24 August, the two steps he took on 25 and 31 August, that is, abandoning part of his case and accepting the offer of 5 August, Mr and Mrs Okeil would have been spared the hearing on 25 August. Mr Khoury could easily have taken that course.
Mr Khoury was the plaintiff. Mr Okeil and Mrs Okeil engaged in litigation only because Mr Khoury took them to court. Mr Khoury persisted in the proceedings against them up to and beyond the final hearing and then opted out on a basis that had been available to him since 5 August. His conduct in accepting when he did an offer that could have been accepted much earlier, so that Mr Okeil and Mrs Okeil were forced to a final hearing, which could easily have been avoided, was unreasonable conduct. It was also conduct exhibiting relevant delinquency, as referred to in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44].
My decision is, therefore, that Mr Khoury should pay on an indemnity basis the costs that Mr Okeil and Mrs Okeil would have been spared had the offer of 5 August been accepted at a time that would have relieved them of the need to prepare for and participate in the final hearing. To facilitate costs assessment, that point will be fixed at seven days before the final hearing took place on 25 August. Before that point, costs should rest where they have fallen, in accordance with the Lai Qin approach.
The order is as follows: Order that the plaintiff pay the costs of the second and third defendants referable to the period commencing on 18 August 2016 (including costs of the notice of motion filed on 28 October 2016), such costs to be assessed on an indemnity basis, and that, as to costs referable to the period before 18 August 2016, there be no order as to costs, to the intent that each party should bear that party's own costs.
I should record, in conclusion, that Mr Scheelings made a submission that Mr Okeil and Mrs Okeil should be ordered to pay Mr Khoury's costs. There is no basis for any such outcome.
[3]
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Decision last updated: 19 April 2018