Ly v Dong & Ors

The Sale and Settlement of the Condell Park Property - April 2016 to February 2018

1. It is now almost two years since the Condell Park Property was auctioned. Those two years have been occupied by litigation and pre-litigation maneuvering. But only some of what has passed between the parties is relevant to the current questions of costs. Those relevant communications are briefly summarised in this section.
2. The April 2016 contract provided for a deposit of $195,100 which was paid. The front page of the contract clearly stated that the vendor would provide vacant possession to the purchaser. This was also provided for by clauses 17.1 and 17.2 of the contract. The standard requisitions on title attached to the contract specified that vacant possession was to be given on completion. Special condition 44 of the contract provided for completion of the contract within 21 days, following the date on which the vendor, or solicitor, notifies the purchaser that an occupation certificate had been obtained for the property. Special condition 43 provided that if a vendor could not obtain the occupation certificate within three months from the date of contract then either party might rescind.
3. By three months from the date of contract, 6 July 2016, it is common ground that an occupation certificate had not been obtained. But neither party to the contract had rescinded pursuant to special condition 43. A final occupation certificate was issued by letter dated 8 September 2016 which had the effect of making the contract unconditional.
4. The plaintiffs paid stamp duty on the contract on 6 July 2016 and served a notice to complete on the defendant on 1 November 2016, requiring settlement on or before 17 November 2016. But the vendor took no steps to settle the contract that day. So the plaintiffs commenced these proceedings on 24 November 2016.
5. The plaintiffs had an offer of finance in an amount of $950,000 available from the Colonial Commonwealth Bank and that offer remained in force thereafter in a form that satisfies the Court that the plaintiffs were ready, willing and able, at all material times, to settle the purchase. They had paid the deposit. The notice to complete, which was not challenged, had expired. On the face of these facts, specific performance appears to have been available to the plaintiffs.
6. But in this sale background problems emerged with the occupier, World Glass. It is not necessary to include all the communications with World Glass but just enough to give the general picture, starting before the exchange of contracts.
7. At the time of the sale of the Condell Park property there was no registered lease to World Glass on the title, nor any caveat warning of an unregistered lease. But World Glass was undoubtedly in occupation of the property.
8. There is evidence generally available to establish the following facts. The vendor's initial agent, Mr David Astey was dealing with World Glass through 2016 in order to assist it to find alternative premises after it was to vacate from the Condell Park property. The agent informed World Glass' director in about February 2016 that the property had been sold with vacant possession and there was no guarantee of any post-sale lease to World Glass. No formal claim that World Glass had a lease over the property was made until 2017. World Glass finally sought to intervene in the proceedings in 2017 in order to protect its possession of the property.
9. But some of the underlying facts are more contentious. The Ly brothers alleged that the lease that World Glass claimed over the property was a document put together after the exchange of contracts and was deployed solely for the purposes of these proceedings in an attempt to improperly frustrate the sale and prolong the proceedings.
10. This is a serious allegation. One of the great difficulties facing the Court is that the Court cannot conduct a trial of this allegation and, as will be seen, there is a counter explanation proffered by Ms Dong.
11. A director of World Glass, Mr Al-Kassam, took up initial communications with the then real estate agent Mr David Astey seeking to ascertain whether World Glass could remain in the property after sale. Mr Al-Kassam did not appear to claim World Glass had a written lease at that time. The next step occurred after contracts were exchanged, on 6 April 2016.
12. The email and text message correspondence suggests that on 12 September 2016 Ms Dong's husband sent a text message to the later agent, Mr David Falcioni, asking whether the agent could make a "3-6 months lease for glass guy?" The plaintiffs contend that the "glass guy" referred to in this text must be World Glass.
13. This was well after the exchange of contracts. The plaintiffs suggest that a lease was created after exchange to justify World Glass' continued occupation of the premises.
14. The evidence shows that after 12 September 2016 Mr Falcioni called the vendor's husband and reiterated the terms of the contract that the Ly brothers as purchasers wanted and restated that the Ly brothers were entitled to vacant possession.
15. In October 2016 Mr Al-Kassam contacted Mr Falcioni looking for other premises to rent for World Glass. Mr Falcioni obliged and suggested a number of other rental properties. The correspondence at that time does not mention any written lease of October 2016 and certainly raises the question as to why World Glass was moving, if it had a binding lease.
16. On 12 November 2016 Ms Dong's husband sent an email to the agent attaching a form of unsigned lease. The form of lease was prepared by Lawside Lawyers, the same solicitors who acted for the vendor of the sale.
17. The plaintiffs asked many questions about these facts. Why has no lawyer been called from Lawside lawyers to explain when the lease was prepared? Why did the vendor's husband advance the lease and not World Glass, which would have been seeking rely upon it?
18. The plaintiffs infer that the lease was advanced by the vendor because it could be used to the vendor's advantage. The plaintiffs submit that absent a full explanation the overwhelming inference from these matters is that the lease was prepared after the exchange of contracts to manufacture an interest in the property and form the basis to assert that the vendor could not be forced to complete the sale. Some of the communications do found an inference that the vendor's husband had decided by November 2016 that he did not want to sell. But of course, he was not the vendor; Ms Dong was.
19. After commencement of the proceedings they were fixed for hearing before Pembroke J on 25 May 2017. Leading up to that hearing the plaintiffs corresponded with lawyers for Ms Dong asking whether the property was occupied. In response, no lease to World Glass was propounded by Ms Dong.
20. World Glass did not emerge and assert an interest in the property until a few days before the hearing before Pembroke J, namely on 12 May 2017.
21. At the hearing on 25 May 2017 Pembroke J joined World Glass and the third defendant and the proceedings were adjourned and fixed for further hearing on 5 and 6 September 2017.
22. Counsel for World Glass made clear before Pembroke J that it did not wish to claim priority as against the plaintiffs and only wished to be heard on questions of relief. His Honour then understandably informed counsel for World Glass that it should start making arrangements to vacate the property.
23. There seemed to have been a minor change of heart just before the September 2017 hearing. World Glass intimated on 17 August 2017 that it might want to put on a cross-claim. World Glass was put on terms to do so by 21 August 2017 but failed to do so. It was shortly after that, on 23 August 2017 that the vendor's solicitor confirmed Ms Dong would consent to an order for specific performance.
24. On these facts the plaintiffs seek indemnity costs against both Ms Dong and World Glass.

Parties Not Proceeding - Applicable Legal Principles

1. When the matter came on for hearing on 6 September 2017 there was no contest about the orders for specific performance of the contract for the sale of the Condell Park property. Ms Dong consented to the orders and they were entered by the Court. But despite the lack of contest on the form of a declaration and the consequent order for specific performance, the parties could not agree upon the disposition of the costs of the proceedings and asked the Court to resolve them. This first requires the Court to look to the legal principles that apply in such circumstances.
2. The general principles governing when the Court may make an order for costs when the parties do not wish to proceed with an action are clear. The exercise of the Court's discretion to make an order when parties do not wish to proceed with litigation, or have consented to a grant of final relief, or have otherwise agreed on the outcome of the proceedings is informed by principles stated in two leading cases: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 ("Lai Qin") and Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201; (1993) 116 ALR 523 ("Aust-Home").
3. Hill J said in Aust-Home, at 530: "(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order … (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation … (5) Where the proceedings terminate after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted … [Footnotes omitted]".
4. McHugh J said in Lai Qin, at 3: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power 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. … Moreover, in 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. … If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. [Footnotes omitted]".
5. The parties did not take issue with these being the relevant principles. The question in this case is the application of these principles.

Should Ms Dong Pay the Ly Brothers' Costs of the Proceedings on the Indemnity Basis?

1. The plaintiffs contended that Ms Dong should pay their costs of the proceedings on either the indemnity basis or the ordinary basis on three main grounds: (1) the Ly brothers have had substantial victory for the relief they pressed since commencement of the proceedings on 24 November 2016; (2) the conduct of Ms Dong has been unreasonable because she has unduly delayed the proceedings and did not concede the relief sought until 23 August 2017; and/or (3) the alleged "lease" between Ms Dong and World Glass came into existence only after exchange of contracts and has been deployed improperly in the proceedings.
2. As to grounds (1) and (2), this is one of those cases where the plaintiffs can say they were likely to have had a substantial victory for the relief they pressed since the commencement of the proceedings on 24 November 2016. No real basis has been shown why they would not have obtained specific performance and in my view their recognition, both before Pembroke J in May 2017 and before me in September 2017 was to that effect. Moreover, there was some unreasonable conduct on Ms Dong's part. She should have declared quite early in the proceedings that the only issue in the case was one of the timing of relief because of a hardship defence related to dealing with World Glass. She failed to do that early enough and in my view that was unreasonable. A costs order should be made against her on the ordinary basis. There are some limits to that costs order which are discussed below.
3. But the Court does not conclude that the first defendant should pay the plaintiffs' costs on the grounds that Ms Dong falsely and improperly deployed a lease after exchange of contracts. The Court concludes this for several reasons. Such a serious allegation should not be tried just on the papers. Mr Zipser says, with some force for Ms Dong, that the facts are consistent with the possibility of an oral lease pre-dating the exchange of contracts, which then had to be confirmed in writing, which would neutralise any inference of improper conduct. And Ms Dong is not necessarily accountable for the conduct of her husband, who seems to have been a major actor in the conduct being questioned.
4. The Ly brothers seek an order for indemnity costs. Ms Dong resists such an order. The Court must apply the relevant principles when considering whether an indemnity costs order is available. These are set out below.
5. Unless this Court orders otherwise, costs are to follow the event: Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), 42.1. Such costs are to be assessed on the ordinary basis, unless the Court orders otherwise: UCPR, r 42.2.
6. Civil Procedure Act 2005 ("CPA"), s 98 provides: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount."
7. Authority establishes that the question to be asked is whether the circumstances justify an order for indemnity costs in the particular case: Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506; Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225. The categories of case in which indemnity costs will be awarded are not closed: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233-234 per Sheppard J.
8. There must be some special or unusual feature or circumstance in the case justifying an award of indemnity costs: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 ("Harrison") at [139]. Such a special or unusual circumstance must involve some relevant delinquency relating to the conduct of the proceedings themselves by the party as litigant: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 ("Oshlack"). Relevant delinquency does not mean moral delinquency but delinquency bearing a relevant relation to the conduct of the case. Although the categories of cases in which indemnity costs may be awarded is not closed, the nature of the cases which awards are made covers a wide variety of circumstances: pursuing hopeless cases, engaging in an abuse of process, unreasonable conduct in the proceedings, especially conduct prolonging the proceedings or maintaining a knowingly false case, or deliberate high handed aggressive or unco-operative behaviour, leading to delay or incurring needless cost, pursuing unfounded allegations of fraud and rejecting Calderbank letters and offers of compromise. The case law is well established and need not be covered in any further detail in these reasons.
9. Caution should be exercised when the conduct of any party prior to commencement of the litigation is raised to ask the Court to exercise its indemnity costs discretion: see Harrison at [136] - [139] per Giles JA; Velissaris v Fitzgerald [2008] VSCA 152 at [20] per Maxwell P and Mandie JA. Such conduct is usually irrelevant to the Court's indemnity costs consideration. But a party's conduct leading up to the litigation may be relevant if it bears upon or informs the conduct of the party in the litigation: see Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No. 3) [2010] NSWSC 1479 at [12] citing Hypec Electronics Pty Limited (in liquidation) v Mead; BL GY International & Hypec Electronics Pty Ltd (in liquidation) (2004) 61 NSWLR 169 at 179 [42], 180, [45] - [47] per Campbell J.
10. An indemnity costs order should not be made here. It is not open to the Court to infer that Ms Dong's conduct of the proceedings either involved intentional strategies to delay the proceedings or was so unreasonable as should attract an indemnity costs order. The Court is not in a position to find that Ms Dong deliberately entered into a lease with World Glass to delay and defeat the plaintiffs' claim. Such a serious allegation could only be made out upon a contested hearing. The available materials, such as they are, do not enable the drawing of a conclusion of deliberate misconduct involving the lease on Ms Dong's part.
11. Moreover, Ms Dong's overall conduct of the proceedings is consistent with a recognition in the evolving circumstances of the litigation that she had little to gain by resisting the relief sought. Such realisations sometimes come to parties only over time. But what is commendable is that when that realisation was reached, no doubt on the basis of advice from her lawyers, Ms Dong clearly signaled on 23 August 2017, about two weeks before the second trial, that she would not resist the relief sought. This early signaling of her position has its own consequences for her benefit.
12. A costs order against Ms Dong should be limited. Her signaling before hearing of her non-resistance to the orders meant that considerable pre-trial preparation on the plaintiffs' part was saved. As it turned out, the parties came to Court on 5 and 6 September 2017. But the first defendant should not have to pay for both of those days in my view. Part of the hearing time was occupied by issues concerning World Glass and the third defendant. The Court would expect the plaintiffs to have taken an economical attitude to preparation for 5 and 6 September 2017. For that reason the Court will only allow the plaintiffs costs for one of those two days, 5 September 2017.
13. The Court will make one additional comment, which may be a matter for a costs assessment. The plaintiffs should not be expected to recover any costs for the preparation of a contested specific performance action against the first defendant after 23 August 2017. The kinds of costs which would be recoverable by the Ly brothers after that date would represent preparation for only the limited remaining contests which were debated on 5 and 6 September 2017.
14. There should be another limit on the costs payable by Ms Dong to the Ly brothers. Various further delays have occurred in the settlement of the sale of the Condell Park property after 6 September 2017. To whom the burden of costs should be attributed from 6 September 2017 may have to be a matter for separate submissions, if the parties cannot agree.

Should World Glass be Jointly and Severally Liable with Ms Dong for Costs Incurred from 12 May 2017?

1. The Ly brothers submit that World Glass should be jointly and severally liable with Ms Dong for the costs they incurred from 12 May 2017. The Ly brothers contend that the conduct of World Glass has been unreasonable because: (1) World Glass has known it would have to vacate since as early as February 2016; (2) World Glass has improperly deployed the alleged "lease" in the proceedings; and (3) together with the vendor, Ms Dong, World Glass engaged in conduct to delay and frustrate the orderly dispatch and disposition of the proceedings.
2. World Glass should be jointly and severally liable with Ms Dong for the costs incurred from its involvement in the proceedings on 12 May 2017. Long before that date it knew it would have to vacate the property and had been warned of that as early as February 2016. It bears equal responsibility for the delays that occurred between May and September 2017 and in my view should also bear the costs incurred in that period.
3. But this conclusion is not reached on the basis of World Glass' improper deployment of the alleged lease or some kind of conspiracy with Ms Dong. The circumstances do not warrant an order for indemnity costs. But World Glass will be jointly and severally liable with the first defendant for the plaintiffs' costs incurred between 12 May 2017 and 5 September 2017.

Conclusion and Orders

1. For the reasons given the Court makes orders and gives directions as follows: 1. Order the first defendant to pay the plaintiffs' costs of these proceedings up to and including 5 September 2017. 2. Note that these orders do not cover any of the plaintiffs' costs incurred after 5 September 2017. 3. The second defendant is jointly and severally liable with the first defendant to the plaintiffs for the plaintiffs' costs incurred between 12 May 2017 and 5 September 2017 inclusive. 4. Adjourn the proceedings for further mention to Friday, 2 March 2018 at 9.30am.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 February 2018