NSW Trustee and Guardian v Wardy

Issue (1): The Costs of the Cross-Claim

1. In the 2020 judgment, the Court ordered (Order 6) that the NSW Trustee's costs of the Statement of Claim for judicial advice filed on 19 April 2016 and the Cross-Claim filed on 6 November 2017 be paid out of the estate on the indemnity basis. In Order (7), the Court reserved the parties' rights to bring motions for special cost orders.
2. The parties' submissions. The NSW Trustee submits that Mr Wardy should be ordered to pay its costs of the Cross-Claim (on the ordinary basis), otherwise the burden of the costs order that has been made would partly fall on Hassiba Wardy and her sons, who accepted the substitution of the George Street property for the Cleveland Street property from the first. The NSW Trustee points out that this contention had been raised in its written submissions 11 March 2020 at [16] and [17] but was not dealt with by the Court in the 2020 judgment.
3. The NSW Trustee further submits that it is an appropriate exercise of the Court's discretion as to costs for Mr Wardy to be made responsible for the NSW Trustee's costs of the Cross-Claim. The NSW Trustee contends that Mr Wardy was the protagonist, advancing a case that the George Street property was not an appropriate property to substitute for the Cleveland Street property, and that as he was wholly unsuccessful in that case, the general principle that costs should follow the event should apply: Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.1.
4. The NSW Trustee finally submits that, to the extent that the costs order that it now seeks does not amount to a full indemnity from Mr Wardy for its costs, the NSW Trustee should have an indemnity out of the estate for any costs of the Cross-Claim it does not recover from Mr Wardy. This last submission is unnecessary, because such an indemnity is already provided by Order (6) of the orders of 29 January 2020.
5. Mr Wardy contests these submissions. He contends that the costs order already made by the Court in the 2020 judgment is appropriate and that no other order for costs should now be made.
6. In summary, Mr John Wardy submits as follows. The Court identified on the NSW Trustee's application for judicial advice that the true nature of the proceedings (on the issue of a suitable substitute property) was a contest between the Wardy parties and the defendants. By the NSW Trustee propounding the same position in argument as Hassiba Wardy and her sons, she and they were protected from any costs exposure, other than as beneficiaries of the personalty residuary estate in the case of Hassiba Wardy, and as beneficiaries of a half share in the realty residuary estate in the case of Hassiba's three sons. The Court should therefore deal with the question of costs on the basis that Mr John Wardy is left in the same position as Hassiba Wardy and her three sons. This means that his liability for the costs order made by the Court on 29 January 2020 should be limited to his share in the residuary estate.
7. Consideration. The orders that the NSW Trustee seek are not inconsistent with the orders already made on 29 January 2020. Order (6) of the orders made on 29 January 2020 confirms the NSW Trustee's right of reimbursement out of the estate in respect of the costs the subject of that order, namely the costs of the judicial advice application and the costs of the Cross-Claim. The orders that the NSW Trustee seek do not vary those 29 January 2020 orders. Rather, they adjust as between the estate and Mr Wardy the ultimate burden of those orders. Moreover, paragraph [287] of the 2020 judgment and Order (7) of the orders made on 29 January 2020 expressly permit such an application. There is thus no procedural obstacle to the making of the orders now being sought by the NSW Trustee.
8. The Court will make the orders that the NSW Trustee seeks. Mr Wardy was the sole protagonist advancing a case that the George Street property was not an appropriate property to substitute for the Cleveland Street property. That contest would not have taken place and none of the costs associated with it would have been incurred by the estate but for his actions advancing that case. He failed in that contest. This is a clear case where justice is served by him bearing the costs which he caused to be incurred in pursuit of an unsuccessful argument.
9. There is no reason to avoid that outcome because the NSW Trustee supported the same position taken by Hassiba Wardy and her sons. The fact that she and they were only at limited risk as to costs, because of the position taken by the NSW Trustee, does not logically ground an inference that Mr Wardy should also be at limited risk as to costs, as he contends. In his argument, Mr Wardy implicitly invokes a non-existent principle that if one party is at a limited risk as to costs, then the other party should be as well. Rather, the position taken by the NSW Trustee strengthens the case for a costs order against Mr Wardy, as it should have given him cause to doubt he was taking a reasonable position in opposition to both the NSW Trustee and Hassiba Wardy and her sons. The ordinary rule that costs follow the event should be applied.

Issue (5): Paragraph [286] and Declaration (3) of the 2020 Judgment

1. In the 2020 judgment (at [286]), the Court considered the question of the rent earned on the Cleveland Street property up to the time of substitution of the George Street property for the Cleveland Street property. The Court made Declaration (3) with the 2020 judgment, declaring that Hassiba Wardy was entitled to the net rents and profits from the Cleveland Street property "calculated on the basis that the Cleveland Street property was able to earn net rental income of $350,000 per annum for the period between the sale of the Cleveland Street property and the appropriation of the George Street property in substitution". But the Court also concluded (at [286]) that the rental compensation to be paid to Hassiba Wardy "cannot exceed White J's finding at [36] in Wardy v Salieh; Wardy v The Estate of the late Edmond Wadih Wardy [2014] NSWSC 473" ("the 2014 judgment").
2. The findings at [36] of the 2014 judgment were: "Between 19 July 2009 and 2 April 2013, the Cleveland Street property generated a total net rental income of approximately $1,055,000. The tax paid or payable in respect of this income was approximately $415,000. The net amount to which Hassiba Wardy is entitled from the rents collected on the property after payment of tax is approximately $640,000."
3. In the 2014 judgment, the Court used the figure of $640,000 (in [36]) to assess the total net rental received for the purposes of assessing Hassiba Wardy's and her sons' family provision claims. The 2014 judgment did not attempt to fix the rental return per annum from the Cleveland Street property.
4. The Parties' Submissions. The NSW Trustee now contends that it should not be bound by the limitations imposed by White J's (as White JA then was) findings in the 2014 Wardy judgment at [286], as to apply those limitations would deny the NSW Trustee procedural fairness and produce an unfair result.
5. The NSW Trustee points out that the period that White J considered in the 2014 judgment (at [36]) between 19 July 2009 on 2 April 2013 was some 1,354 days, equating to a daily net rental of $472.67 ($640,000 divided by 1,354) and an annual net rental of $172,643 per annum ($472.67 x 365.25 days). Accordingly, the NSW Trustee submits the figures in [286] of the 2020 judgment, being $350,000 per annum for a period up until the substitution of the George Street property, would substantially exceed the amount calculated over the limited period considered in the 2014 judgment (at [36]).
6. The NSW Trustee contends that the Court is not bound by any issue estoppel arising from the findings as to the annual rental return from the Cleveland Street property expressed in the 2014 judgment. It says that the 2014 judgment merely determined a family provision claim by Hassiba Wardy, William Wardy and Sam Wardy. And in that context, the Court considered Hassiba Wardy's entitlement to receive rent from the Cleveland Street property as part of her overall assets.
7. The NSW Trustee contends that in contrast to the 2014 judgment, the question of rental compensation payable to Hassiba Wardy was not one of the matters for determination by the Court in the 2020 judgment, which related to the hearing of Mr Wardy's Cross-Claim, which raised the issue of the appropriate property to be substituted for the Cleveland Street property.
8. And the NSW Trustee further contends that in the hearing preceding the 2020 judgment the Court did not expressly indicate to the parties that it would determine the rental compensation payable to Hassiba Wardy as part of its reasoning relating to the main issue on the Cross-Claim. Even if the interim rental return on the Cleveland Street property can be classified as incidental to the main issue on the Cross-Claim, the NSW Trustee contends the Court did not flag it as a matter for consideration at the hearing, and neither party made any submission at the hearing on this issue.
9. The NSW Trustee contends that Declaration (3) of the orders and declarations made on 29 January 2020 should stand but freed from the limitation in paragraph [286] of the 2020 judgment associated with White J's findings.
10. But in the alternative, the NSW Trustee argues that if Declaration (3) were to be set aside and the issue were considered afresh, the Court need not consider itself now bound by findings made in the 2014 judgment that related to net rent that the Cleveland Street property generated at an earlier time, between 2009 and 2013. The NSW Trustee says that if the issue were considered afresh, it would submit that Hassiba Wardy's entitlement to rental compensation concerns the net rent that she would have received from the Cleveland Street property from the date of completion of the sale of the Cleveland property in 2013 until the date that the substitute property is transferred to the relevant beneficiaries (which date has not yet occurred), and calculated upon the assumption that the Cleveland Street property had not been sold (and therefore probably leading to higher rental returns in the later years). It further submits that no issue estoppel would arise because the Court is considering a different factual issue to that considered in the 2014 judgment.
11. In reply, Mr John Wardy contends that the issue of rental compensation payable to Hassiba Wardy as a result of the appropriation of Cleveland Street was a matter which was reasonably incidental to the Court's determination of whether the George Street property was a suitable substitute property for the Cleveland Street property.
12. He also contends that the Court's findings at [286], capping the amount of rental compensation, and Declaration (3) of the orders made with the 2020 judgment were not the subject of any claim for relief by the NSW Trustee on the recent appeal, and have not been set aside on appeal, and consequently the cap imposed by the Court's conclusion in [286] should stand. And he contends that if the cap in [286] is removed then he should be entitled to reopen the issue of whether the appropriate annual rental is $350,000 per annum.
13. Consideration. To hold the parties to Declaration (3) and the findings in [286] would deny both parties procedural fairness and they will be set aside, and the matter can be reargued. The Court reaches its position having been persuaded by aspects of both parties' submissions.
14. The NSW Trustee is correct that at the hearing preceding the 2020 judgment the Court did not invite submissions about the capping of the rental compensation to be paid to Hassiba Wardy and her sons in respect of the Cleveland Street property after the sale of the Cleveland Street property and before the appropriation of the George Street property in substitution for it. And the Court did not invite submissions about whether the 2014 judgment created any issue estoppels. Without having the opportunity to be heard on these issues, the NSW Trustee should not be bound by the Court's observations about capping in paragraph [286] of the 2020 judgment.
15. But Mr John Wardy is also correct that the Court did not afford him the opportunity to hear submissions about the quantification of the annual rental compensation to be used in the calculation. Mr John Wardy is entitled to put the submissions he seeks to advance about the correctness of the rental compensation figure of $350,000 per annum. He foreshadows that these submissions would include: whether the figure of $350,000 represents the net rental receivable for the property only subsequent to the renovations to the Cleveland Street property carried out by the defendants; whether the figure takes into account income tax payable by Hassiba Wardy and her sons; and, whether from the time the NSW Trustee determined that the George Street property was a suitable substitute property and Hassiba Wardy and her sons elected to accept it, that the net rental after tax on that property (the George Street property) was the proper rental compensation payable by the residuary estate. Thus, Declaration (3) should be set aside to permit Mr John Wardy to put these submissions.
16. Proceeding on the basis of Declaration (3) and on the findings at [286] in the 2020 judgment would compound what was an accidental denial of procedural fairness in the 2020 judgment. A denial of procedural fairness is enough to establish an irregularity for the purposes of UCPR, r 36.15: Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd (2008) 71 NSWLR 262; (2008) 229 FLR 267; [2008] NSWCA 38 at [85]. The Court will therefore set aside Declaration (3) made on 29 January 2020 in the exercise of its jurisdiction under UCPR, r 36.15. Setting aside Declaration (3) also means that the findings at [286] can be reargued.

Conclusion and Orders

1. Issues (3), (4) and (6) still need to be resolved. The proceedings will be adjourned to a date for further directions when the parties can declare that they are ready to put submissions for the resolution of these remaining issues. If the date nominated in these orders is not convenient to the parties, they can contact my Associate for the allocation of another date.
2. For these reasons, the Court makes the following declarations, orders and directions: 1. Order that the defendant/cross-claimant pay the plaintiff/cross-defendant's costs of the Cross-Claim filed on 6 November 2017 on the ordinary basis; 2. Set aside Declaration (3) of the declarations made on 29 January 2020; 3. Direct the parties to report to the Court by Friday, 18 February 2022 with a joint plan to finalise their evidence and submissions with a view to the Court holding a short hearing of no more than one hour shortly thereafter to deal with issues (3), (4) and (6) as described in these reasons. 4. List the proceedings before Slattery J for further argument of no more than one hour at 9am on Friday, 18 March 2022; and 5. If the date referred to in Order (4) of these orders is unsuitable, the parties are at liberty to approach the Chambers of Slattery J for another date.

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