Luo v Carbone [2019] NSWSC 830 | Case summary

Judgment (6 paragraphs)

[1]

Judgment

These proceedings concern a dispute as to whether the plaintiff validly rescinded a contract for the sale of land, under which the plaintiff was purchaser, and thereby became entitled to a refund of the deposit paid. The first defendant was the vendor of land under the contract and the second defendant was the vendor's agent. At all relevant times the plaintiff and first defendant were legally represented. The second defendant, however, was self-represented during the proceedings, although it appears the first defendant's solicitors have acted on its behalf from time to time.
In February 2019, the parties executed and exchanged a Deed of Settlement and Release. On 28 February 2019, the Court made orders in accordance with a Terms of Settlement document. By that document, the Court noted that the parties had settled the matter save as to costs which would be determined by the Court on the papers. The Court made directions for the parties to provide evidence and written submissions addressing the issue of costs within 28 days. Both the plaintiff and first defendant submitted evidence in support of their application. The first defendant's evidence was apparently sent with the consent of the second defendant.
In summary, the plaintiff submits that although the usual position with respect to proceedings which have settled is that each party bears their own costs, a departure from the usual rule is warranted in the circumstances of this case. The plaintiff seeks an order that the first defendant pay the plaintiff's costs on an indemnity basis as a result of a combination of factors. These include the failure of the first defendant to accept offers of compromise made on various dates; the unsatisfactory conduct of the first defendant in course of the proceedings; and the Deed of Settlement and Release which is in terms favourable to the plaintiff. As regards the second defendant, the plaintiff seeks an order that the second defendant pay the plaintiff's costs of the proceedings on the ordinary basis.

Summary of the salient evidence

On 20 November 2015, the plaintiff, as purchaser, and the first defendant, as vendor, entered into a standard form contract for the sale of a proposed lot in an unregistered plan of subdivision at Edmondson Park, New South Wales. According to the plaintiff's solicitor, the plaintiff's motivation for entering into the contract was to build a residential dwelling on the vacant land.
The purchase price was $454,860.00 and a $45,486.00 deposit was paid to the second defendant as stakeholder. The contract indicated that the lot would be sold as "Vacant land" and contained the usual clause (cl 17) requiring the vendor to give vacant possession of the land upon completion.
Special condition 49 relevantly provided: 49.1 The Vendor discloses and the purchaser acknowledges that the Vendor proposes to subdivide the land in accordance with the plan of subdivision, a copy of which is annexed to this Contract and marked as annexure 'A'. The completion date is the later of: a) the 42nd day after the Contract date; b) 14 days after the Vendor serves a copy of the registered plan of subdivision; and c) 14 days after the Vendor serves a copy of an occupation certificate within the meaning of the Environmental Planning and Assessment Act 1979 (NSW) (being an interim occupation certificate or a final occupation certificate) in relation to a building, or part of the building, of which the property and access to the property form part. 49.2 Completion of this Contract is subject to and conditional upon the registration of the Plan of Subdivision ('Draft Plan') and any section 88B instrument ('Draft Instrument') by the Department of Lands, Land and Property Information Division (LPI). In the event that the Draft Plan and Draft Instrument are not registered within fifteen (15) months of the contract date (sunset date), then either party may rescind this contract by notice in writing to the other party in which the provisions of clause 19 will apply. The Purchaser's right of rescission under this clause 49.2 can only be exercised within 14 days after the sunset date. If the purchaser does not exercise the Purchaser's right to rescind within such time, the Purchaser's right of rescission immediately lapses. The Purchaser has no right arising out of the failure to register the plan of subdivision by the sunset date other than rescission of this Contract in accordance with 49.2. 49.3 The Purchaser acknowledges that the Vendor: a) may make necessary amendments or alterations to the plan of subdivision in order to satisfy any requirements of LPI, any other relevant authority, the Vendor's mortgagee and/or legislation; b) may amend the Draft Plan and Draft Instrument and create further easements, including but not limited to easements for support and/or services, restrictions on the use of land, positive covenants, dedications, rights of way, leases, agreements, and arrangements, privileges, by-laws and other rights or obligations which the Vendor in the Vendor's discretion considers necessary or desirable to be created in connection with the development site, the registration of any subdivision documents, or the construction use and enjoyment of the property or any other part of the development site and the Vendor reserves the right to vary the instruments to satisfy the requirements of LPI, any other relevant authority, or legislation or to maintain consistence with any amendments made to the Plan of Subdivision… … 49.6 If any easement or restriction imposes any burden other than disclosed or referred to in the instruments or this contract which substantially adversely affects the Property, the Vendor may rescind this Contract. 49.7 If this Contract is rescinded under any of the clauses 49.4, 49.5 or 49.6, the Vendor will not be in breach of the Vendor's obligations under this Contract. … 49.9 The Purchaser must not make a claim, requisition, delay completion or terminate or, subject to clauses 49.4, and 49.6, rescind this Contract because of any mater in relation to this clause 49.
The plan of subdivision, which was registered and served on the plaintiff by the first defendant in November 2016, included a drainage easement required by the Liverpool City Council (in which area Edmondson Park is located). The easement was said to be temporary in nature but it had the effect of preventing the plaintiff from building a residential dwelling on the lot whilst the easement remained on the title.
The settlement date for the contract was 8 December 2016 but that date passed without either party completing. It appears that the major issue between the parties was the existence of the easement on the registered plan. On 16 February 2017 the plaintiff's solicitor served a Notice to Complete on the first defendant appointing a new completion date of 6 March 2017. The plaintiff's solicitor prepared and served on the first defendant a settlement adjustment sheet in anticipation of completing on that day but the date passed without completion occurring. On 12 April 2017, the plaintiff served a Notice of Termination and/or Rescission on the first defendant purporting to bring the contract to an end.
Thereafter, a dispute arose as to whether the plaintiff validly terminated or rescinded the contract, or whether by his conduct the plaintiff repudiated the contract. Presumably because of this dispute, the second defendant refused to refund the deposit to the plaintiff.
Letters were sent by the plaintiff's solicitor to the first defendant's solicitor on 18 April and 4 May 2017, prior to the commencement of proceedings. Those letters, in substance, asserted the plaintiff's claim to the deposit as a result of her valid rescission of the contract and requested the first defendant authorise the second defendant to release the deposit to the plaintiff. The letters also stated that the plaintiff had a claim for damages. The second letter indicated that the plaintiff intended to commence proceedings.
It appears that on 17 July 2017 the first defendant sent to the plaintiff a letter offering to compromise the claims of each party in exchange for the plaintiff paying to the first defendant a sum of $5,000 to be deducted from the plaintiff's deposit with the balance released to the plaintiff. This letter is not in evidence. It seems that this offer was rejected by the plaintiff on 28 July 2017.
Proceedings were commenced by Statement of Claim on 28 July 2017. The Statement of Claim was amended by the plaintiff on the same day with minor and presently immaterial alterations. The Statement of Claim sought relief on a number of bases but all grounds asserted an entitlement to a refund of the deposit from the second defendant in addition to damages as against the first defendant.
On 23 August 2017 the first defendant sent another letter to the plaintiff's solicitors offering to compromise the proceedings in exchange for the first defendant releasing the entire deposit to the plaintiff upon the exchange of a Deed of Settlement and Release, with each party bearing its own costs. The letter was expressed to be made in accordance with the principles expressed in Calderbank v Calderbank [1976] Fam 93.
The first defendant filed her Defence on 25 August 2017. By that Defence, the first defendant denied all aspects of the plaintiff's claim, including denying the validity of the Notice of Termination and/or Rescission. In addition, it relied on allegations of waiver, estoppel and acquiescence as defences to the plaintiff's claim that the first defendant failed to complete the contract following the lapse of the time outlined in the plaintiff's Notice to Complete.
On 28 August 2017 the plaintiff responded to the first defendant's offer dated 23 August 2017. The letter noted that the plaintiff had a strong claim against the first defendant and that first defendant had acted unreasonably at all times which made it necessary to commence the proceedings. It further stated, however, that in the interest of resolving the dispute, the plaintiff offered to compromise the proceedings on the basis of a declaration that the contract was validly rescinded and the deposit be refunded to the plaintiff, with each party releasing the other from any liability with respect to the contract. There was no mention of costs in the offer. The offer was expressed to be made in accordance with UCPR r 20.26 as well as the principles in Calderbank v Calderbank (supra).
On 1 September 2017, which was the first return date of the matter, the Court made directions that the plaintiff request from the first defendant particulars of its Defence and directed the first defendant to provide such particulars by 15 September 2017. The Court also directed the second defendant to file and serve a Defence by 15 September 2017. The proceedings were stood over to 22 September 2017.
On 8 September 2017, the plaintiff made a request for particulars in accordance with the Court's directions. On 13 September 2017, the first defendant's solicitor responded by email, noting that a formal response to the plaintiff's request was forthcoming. It also stated that since the previous offer of compromise (presumably the offer dated 23 August 2017) covered the return of the deposit to the plaintiff, costs were being incurred unnecessarily as a result of the plaintiff's failure to accept the earlier offer, referring to the principles expressed in Oshlack v Richmond River Council (1998) 193 CLR 72.
When the matter came back for directions on 22 September, neither the first nor second defendant appeared. At that point, the first defendant had not provided the further particulars as directed by the Court, nor had the second defendant filed or served its Defence. The Court made further directions that the first defendant provide the further particulars by 29 September and that the second defendant file a Defence by the same date. The first and second defendants were ordered to pay the costs of that appearance. The first defendant's solicitor eventually provided the particulars on 29 September.
The plaintiff's solicitor sent a response on 3 October claiming that the particulars provided were inadequate in a number of respects. It requested further and better particulars to the Defence by 6 October 2017, failing which the plaintiff would seek to strike out the Defence.
Meanwhile, the second defendant filed its Defence on 28 September 2017. The Defence was apparently served on the plaintiff by the first defendant's solicitor. It appears the Defence contained certain irregularities, most significant of which that it was not signed in accordance with Uniform Civil Procedure Rules 2005 (NSW) r 4.4. These matters were brought to the attention of the second defendant by the plaintiff's solicitor by email on 3 October 2017.
On 9 October 2017 the first defendant wrote to the plaintiff's solicitors offering to compromise the proceedings on the basis that the deposit be refunded to the plaintiff and each party release the other from any claims by a Deed of Settlement and Release, with each party to pay their own costs. The letter was expressed to be made in accordance with the principles in Calderbank v Calderbank (supra).
By 19 October 2017, the plaintiff had not received any response to its request for further and better particulars. On that day, the plaintiff's solicitor wrote to the first defendant's solicitor requesting such particulars by 23 October 2017, failing which it would seek to have the matter relisted before the Court. No response was received by the plaintiff by 23 October 2017. The matter was relisted on 3 November 2017 at the plaintiff's request.
In a separate letter on 19 October 2017, the plaintiff also addressed the first defendant's offer dated 9 October 2017. It noted that the majority of the terms of the first defendant's offer were acceptable with the exception of the terms governing costs which the plaintiff asserted ought to be paid by the first defendant because the plaintiff had, at that point, allegedly incurred unnecessary legal costs. In turn, the plaintiff made a counter-offer to the first defendant, offering to compromise the proceedings in exchange for the deposit being released to the plaintiff and the first defendant paying the plaintiff's costs of the proceedings, or the issue of costs otherwise be determined by the Court. The offer made reference to the parties executing a Deed of Settlement and Release to be drafted by the plaintiff's solicitor and that the deposit would be paid simultaneously upon exchange of the Deed.
On 2 November 2017, the first defendant's solicitor responded to the plaintiff's solicitor's letter of 19 October 2017 providing the further particulars requested. On the same day, the second defendant served a copy of its unfiled and unsealed amended Defence.
Also on 2 November 2017, the first defendant's solicitor sent an email to the plaintiff's solicitor attaching an offer of compromise (which itself was dated 1 November). That offer was expressed to made in accordance with UCPR r 20.26 and offered that judgment be entered in favour of the first and second defendant with no order as to costs. It also contained a notation that the first and second defendant release the deposit to the plaintiff within 28 days.
When the matter next came before the Court on 3 November 2017, legal representatives of the plaintiff and first defendant appeared. It is not clear if the legal representative for the first defendant also represented the second defendant. Directions were made for the filing and serving of amended Defences by each defendant. Orders were also made granting leave to the plaintiff to file a Notice of Motion seeking to strike out the defendants' Defences, although no such motion was ever filed. The question of costs of the parties' appearance was reserved.
On 14 November 2017 the plaintiff's solicitor wrote to the first defendant offering to compromise the proceedings by the first defendant releasing the deposit and each party releasing the other from any liability arising under the contract, with the issue of costs to be determined by the Court. The offer was expressed to be made in accordance with the principles in Calderbank v Calderbank (supra) and was expressed to be open for acceptance until 17 November 2017.
The first defendant responded on 29 November 2017 noting that settlement was only possible on terms that each party bear their own costs. It also proposed alternative terms of settlement, including that the proceedings be dismissed with no order as to costs and that the plaintiff and first defendant enter into a new contract for sale of the land on materially similar terms to those of the previous contract, with a completion date to be further negotiated between the parties. It seems that the plaintiff did not respond to this offer.
The second defendant's Amended Defence was filed on 29 November 2017 but, according to the plaintiff, was never formally served on the plaintiff. The plaintiff only received a copy of the Amended Defence when the plaintiff raised the issue with the Court at the subsequent directions hearing on 15 December 2017.
On that occasion, the Court made directions for the plaintiff to file and serve a Reply to the defendants' Defences by 28 January 2018 and to file and serve its evidence-in-chief by 16 February 2018. It also made orders that the defendants pay the costs of the plaintiff for the 3 November 2017 directions hearing. The matter was stood over until 23 February 2018.
According to the plaintiff, evidence-in-chief was prepared but not served on the defendants by 16 February allegedly because of logistical difficulties experienced by the plaintiff, who was at that time in China, attending an Australian Consulate to affirm her affidavit evidence.
The matter settled in-principle on around 23 February 2018. When the matter came before the Court for directions that day, it was stood over until 9 March 2018. From that point onwards, the proceedings were adjourned by consent on multiple occasions to allow for the Deed of Settlement and Release to be negotiated. However, the plaintiff (but not the first or second defendants) made Court appearances on 25 May, 27 July, 28 September, 23 November 2018 and 1 February 2019. The evidence reveals that the plaintiff sent emails to the first defendant prior to each of those dates seeking the first defendant's consent to adjourn the proceedings on each of those occasions and the first defendant failed to respond in time. The plaintiff sought and obtained an order for costs in respect of the appearance on 25 May 2018.
It appears that there were some delays on both sides in preparing the terms of the Deed of Settlement and Release which, as noted earlier, was exchanged in February 2019. The plaintiff's solicitor had some initial difficulty in obtaining instructions from the plaintiff between February and May 2018 as a result of the plaintiff being overseas. Apart from this period, there was no evidence from any party explaining the delay for the remainder of the year.
In any event, the form of Deed appears to have been finalised in late October 2018 and executed by the plaintiff in November 2018. After some further delay (of which there is no evidence to explain) it seems that the first defendant signed the Deed on 31 January 2019. An email chain between the solicitors for both parties on 31 January 2019 indicates that exchange was contemplated on the morning of 1 February 2019 prior to a directions hearing for the matter. But as noted above, the first defendant's solicitor did not appear in Court on that occasion. The matter was adjourned by consent for a further occasion on 14 February before final orders were made in accordance with the Terms of Settlement on 28 February 2019.

Disposition

Pursuant to the Civil Procedure Act s 98(1), an award of costs is within the discretion of the Court. That discretion is, of course, one that is to be exercised judicially in accordance with proper principle. As correctly recognised by the plaintiff, the proper exercise of this discretion in circumstances where proceedings have settled will often be that there be no order as to costs, but it may be otherwise if it can be shown that "one of the parties has acted so unreasonably" in bringing the proceedings or defending the proceedings up until the time of settlement that "the other party should obtain the costs of the action" (Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-5; see also Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [25]-[30]). As has been said by this Court on a number of occasions, the use of the word "so" as prefacing the word "unreasonably" indicates a level of unreasonableness which is established by the circumstances in which the costs were incurred (see Renton v Kelly [2018] NSWSC 1377 at [56]; Tuitupou v Davies [2019] NSWSC 160 at [48]; see also Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5]). This enquiry is one that must take into account the parties' conduct throughout the whole course of the proceedings (Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [67]).
Both parties relied on the offers of compromise or Calderbank offers they made. As the proceedings did not proceed to a formal hearing on the merits, these offers could not be relied upon by either party to found a claim for indemnity costs under Division 3 of Part 42 of the UCPR, nor could they fall under the well established principles governing Calderbank letters. Nevertheless, the reasonableness of a party's rejection of such an offer may be a factor which informs the Court's discretion to award costs in a particular case. This is because such conduct will be relevant to the basal enquiry described by McHugh J in Lai Qin (supra) as to whether one party has acted unreasonably in the commencement or the maintenance of the proceedings (see, for example, Transfield Services (Australia) Pty Limited v Gaha [2012] NSWSC 865 at [28]; Seng Hpa v Walker [2017] VSC 320 at [83]; Facek v Gargano [2019] VSC 31 at [15]).
The question of reasonableness needs to be considered in light of the fact that the plaintiff's claims did not proceed to a final determination, but were compromised on the terms of the Deed of Settlement and Release. Neither party can be seen to have failed to accept an offer that was substantially better for them than the outcome achieved on the settlement. It can be said that the first defendant could have acceded to the requests made by the plaintiff for the return of the deposit in April or May 2017, prior to the commencement of the proceedings. Had it done so, the proceedings might have been able to be avoided. However, it can also be said that the plaintiff could have accepted the offer of 23 August 2017, within a month of the commencement of proceedings, that would have provided an outcome similar to that ultimately achieved in the settlement, save only that acceptance of the offer would have entailed the plaintiff giving up the chance to recover any of the costs incurred to that date. It is noteworthy that the plaintiff's response of 28 August 2017 was a counter-offer in similar terms, but silent as to costs. It therefore seems that costs was the "sticking point" at that time, and it has remained so ever since.
Even though the costs would not have been substantial at that stage, neither party appears to have sought to reach a compromise on that outstanding matter. The proceedings thus continued, even though a sensible commercial resolution was plainly achievable.
In these circumstances, and taking account of the fact that the outcome embodied in the settlement is not a legal determination, and may well have been influenced by considerations of a commercial nature, it is difficult for either party to claim that the other party has acted so unreasonably that the costs of the proceedings should be visited upon it. Both party's conduct on this front may be described as unsatisfactory and I am not convinced that one party is more deserving of blame than the other (or, in the language of the enquiry in Lai Qin (supra), that one party's conduct was so unreasonable that the other party should have its costs).
This is sufficient to deal with both parties' submissions on the offers of compromise. I turn next to the plaintiff's submission that the terms of the Deed of Settlement and Release ultimately executed on 28 February 2019 reflected a capitulation by the first defendant to the plaintiff's claim. This submission was inextricably linked with the submission that the plaintiff was almost assured of success if the proceedings were to proceed to a final hearing. The terms of the Deed executed on 28 February 2019 are favourable to the plaintiff in the sense that the plaintiff received the deposit back from the second defendant. But it should not be discounted that the first defendant (and the plaintiff) received a substantial benefit in that all claims arising under the contract for sale would be released, including any potential claim for damages (which, if the plaintiff's position was correct, meant foregoing the risk of liability for loss of bargain damages which might be significant). I am not satisfied that the terms of the Deed of Settlement and Release show that the first defendant capitulated to the plaintiff's claim in the sense described in Lai Qin.
To the extent that the plaintiff's submission rests on the assurance of success at any final hearing, I am not convinced on the evidence before the Court (including from the terms of the Deed itself) that such outcome was inevitable. As noted by McHugh J in Lai Qin at 625, such cases are likely to be rare. As neither party filed their evidence-in-chief before the matter settled in-principle, it is not possible to assess the strength of either party's respective claims beyond an analysis of the relevant pleadings. Those pleadings disclose that the case largely turned on the construction of special condition 49 and whether those clauses applied in the circumstances where the local council required that the drainage easement be entered on the plan of subdivision that was registered. It is not appropriate for the Court to embark on a hypothetical trial of the action or make a prediction as to the most likely outcome in the proceedings (Lai Qin (supra) at 624-6; see also Nichols v NFS Agribusiness Pty Ltd (supra)).
Turning next to the submissions concerning the first defendant's unreasonable conduct during the proceedings, I accept that the first defendant's legal representatives have been tardy in attending to Court appearances. I focus in particular on the first defendant's conduct in the proceedings following the matter settling in-principle (that is, after 23 February 2018). The evidence clearly indicates that the plaintiff contacted the first defendant in advance of each scheduled directions hearing and received no response, requiring the plaintiff to make an appearance before the Court in absence of the first defendant. In circumstances where proceedings had settled (at least in principle), those directions proceedings were otherwise unproductive and could (or should) have been avoided were it not for the first defendant's lack of cooperation. I am also satisfied that such conduct was not isolated or irregular. I am satisfied that the first defendant's conduct during this period was unreasonable in the sense that it caused costs to be unnecessarily incurred by the plaintiff. The plaintiff was unnecessarily required to attend directions hearings on 25 May, 27 July, 28 September and 23 November 2018, and 1 February 2019. The plaintiff already has the benefit of a costs order in respect of 25 May 2018. The Court will further order that the first defendant pay the plaintiff's costs of the appearances on 27 July, 28 September and 23 November 2018, and 1 February 2019.
I am also satisfied that the first defendant's conduct in failing to respond to the plaintiff's requests for particulars was productive of delay and resulted in increased costs. However, the plaintiff already has the benefit of costs orders for the appearances on 22 September and 3 November 2017.
Insofar as the plaintiff's claim for costs concerns the second defendant, I am not satisfied that the second defendant engaged in unreasonable conduct that resulted in the plaintiff incurring unnecessary costs. It is true, as the plaintiff identifies, that there were several irregularities in the second defendant's original Defence which the plaintiff responsibly brought to the second defendant's attention. It is also true that the second defendant did not serve the Amended Defence in accordance with the rules of Court. I am also willing to accept that the plaintiff incurred some costs in bringing the defects of the Defence to the second defendant's attention. But at least in circumstances where the second defendant was not formally represented, and where the incident relating to the Amended Defence was an isolated one, I am unable to find that the second defendant's conduct was so unreasonable as to warrant a costs order against it.
This deals with the plaintiff's submissions. I now turn to the first defendant's submissions. I have already addressed the first defendant's submission with respect to the offers of compromise above.
The first defendant's next submission relied upon s 60 of the Civil Procedure Act as providing support for the view that the Court must engage in a proportionality exercise in the award of costs and that an award of costs of the proceedings in favour of the plaintiff would be disproportionate to the result ultimately achieved. It is not necessary to further consider this submission as the Court does not propose to make a general costs order in favour of the plaintiff.
I do not accept the first defendant's submission that the plaintiff had no reasonable cause of action and the proceedings were therefore maintained only for the ulterior purpose of accruing further legal costs. The plaintiff appears to have terminated the contract on various grounds including that the first defendant failed to complete in accordance with the Notice to Complete. The evidence, including in relation to the settlement negotiations, suggests that there was at least a real dispute over which party was entitled to the deposit. Moreover, while the correspondence between the parties in evidence shows that the proceedings ought to have been resolved at an early stage, the evidence falls far short of establishing some improper motive on the part of the plaintiff in continuing the proceedings until a settlement was finally achieved.

Luo v Carbone

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