On 24 November 2023, I delivered the principal judgment in this matter: The Owners - Strata Plan No 80877 v Lannock Capital 2 Pty Ltd [2023] NSWSC 1401 (The Owners SP 80877 v Lannock). I adopt all defined terms in the principal judgment.
The principal judgment concerned an application by the plaintiff owners corporation (OC) for an order to terminate the strata scheme, otherwise known as "Mascot Towers", pursuant to s 136 Strata Schemes Development Act 2015 (NSW). I refused to terminate the strata scheme and the proceedings were dismissed.
On the basis that my conclusion was wrong, I provided reasons as to the appropriate framework for orders for any termination, without descending into determining the specific directions to any liquidator of the OC. I made findings to deal with the controversy between Lannock, an unsecured creditor, and the registered mortgagees of the various lot owners, should a termination have been ordered.
The parties have not agreed on the appropriate costs orders to be made in light of the principal judgment. Many months after the judgment and into May 2024, the parties provided detailed submissions as to costs.
This judgment assumes familiarity with the principal judgment. However, below is a brief outline of the parties' positions:
1. The OC brought the application in circumstances where Mascot Towers had become substantially uninhabitable, and the cost of rectification was considered so large that the owners sought to terminate the scheme, instead of pursuing any rectification of the building.
2. Lannock had entered two loan facilities with the OC to fund rectification works inter alia. At the time the principal judgment was delivered, a total of $15,703,719.53 was payable to Lannock in relation to both facilities. Lannock's loan facilities were unsecured. Lannock resisted the termination order. In the alternative, Lannock submitted that it's loan facilities should be repaid from the sale proceeds of the scheme's assets in priority to individual lot owners' interests. This would have the effect that Lannock would gain priority over any registered mortgagees of the individual lot owners.
3. The second defendant, Anthony Stevens, an individual lot owner (Lot Owner), and the fourth defendant, Another Bucket of Worms Pty Ltd, a registered lessee of two lots in the strata plan (Lessee), did not actively resist the termination orders. Instead, those defendants elected to be joined on the basis they sought to be heard on the form of orders to be made, should a termination be ordered. Specifically, the Lot Owner sought particular directions to the liquidator appointed on any termination, and the Lessee sought directions protecting its interest pursuant to its registered lease.
4. The third, fifth, sixth, seventh, eighth and ninth defendants are all banking institutions and the registered mortgagees of approximately 110 units in the strata scheme (Mortgagee Defendants). These defendants did not resist the termination orders. Instead, these defendants submitted that, should a termination order be made, any secured interest over individual lots should be preserved and given priority from the sale proceeds fund, with Lannock paid from any residuary and/or by lot owners. The proceedings against the seventh defendant were discontinued by consent prior to the hearing.
The OC and Lannock agree that the OC ought be ordered to pay Lannock's costs of the proceedings on the ordinary basis.
Other than that, the parties are in dispute as to the appropriate costs orders. By way of summary:
1. The OC submits that the Lot Owner and Lessee ought pay their own costs. Those defendants seek an order that the OC pay their costs.
2. The Mortgagee Defendants seek orders that Lannock pay their costs. Lannock submits that there ought be no order as to costs between them.
For the reasons that follow, I consider that:
1. The OC ought not be liable for the Lot Owner and Lessee's costs and there ought be no order as to costs between them.
2. Lannock ought pay the Mortgagee Defendants' costs.
I deal with each dispute below.
I note that there was no dispute about the general principles applicable to the determination of costs. The effect of r 42.1 Uniform Civil Procedure Rules 2005 (NSW) is that the Court must exercise the discretion as to costs conferred on it by s 98 Civil Procedure Act 2005 (NSW) by ordering that costs "follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs".
[2]
Lot Owner - second defendant
The Lot Owner seeks orders that:
1. The OC pay his costs on the ordinary basis; and
2. Any costs payable by the OC to him not be levied from him.
The OC resist those orders on the bases that:
1. The Lot Owner was a voluntary "intervener" and therefore ought to bear his own costs;
2. It was unnecessary for the Lot Owner to be separately represented, particularly because of the OC's change of position in relation to a particular order originally sought. Before August 2022, the OC sought an order that a liquidator appointed for the termination process be entitled to accept a 2021 purchase offer without conducting a further expression of interest campaign. In August 2022, the OC no longer pressed for that order. The OC submits thereafter, the Lot Owner's agitation of the manner of sale was not required.
The Lot Owner submits that his involvement in the proceedings was appropriate, because the OC led evidence concerning previous offers to purchase the whole building and did not propose that any appointed liquidator to carry out an expression of interest process to obtain the best sale price.
The Lot Owner's concern was put as follows:
1. The OC continued to rely on evidence "from which it could be inferred that its position [was] that the [earlier offer] ought to be accepted";
2. The OC could seek to amend the Summons at trial to re-agitate for the previously abandoned order;
3. The OC changed their position as to whether lot owners would be liable for outstanding debts of the OC upon any termination.
As recorded in The Owners SP 80877 v Lannock at [25], the Lot Owner supported:
… a termination order being made, but makes submissions on the appropriate form of direction to a liquidator appointed to sell the OC's assets, which differs from the OC's proposed directions.
See also The Owners SP 80877 v Lannock at [131]-[139].
I do not accept the Lot Owner's submissions as to why he ought to have the costs orders he seeks.
First, I do not accept that because the OC originally proposed that lot owners would not be liable for outstanding debts on any termination, but during the hearing resiled from that proposition, which was wrong in law, the Lot Owner ought have his costs. The Lot Owner did not provide any submissions on that point at the hearing.
Secondly, while I accept that the Lot Owner was not relevantly an "intervener", and was entitled by reason of the legislation to be a party to the proceedings, I do not accept that his involvement necessarily means that his costs ought be borne by the other lot owners.
I do not accept that the Lot Owner can be described as having been successful in obtaining orders alternative to those sought by the OC, so as to mean that he was "successful" and the OC was "unsuccessful".
The Lot Owner and OC were unsuccessful in obtaining a termination order. Therefore, I do not consider there is any principled reason why the Lot Owner ought be in a better position to other lot owners, who through the OC also sought a termination order.
There ought be no order as to costs between the OC and the Lot Owner.
[3]
Lessee - fourth defendant
The Lessee exercised the legislative entitlement to be joined as a defendant to the proceedings. It seeks its costs from the OC, whereas the OC seeks an order that each party pay their own costs.
The OC's opening submissions did indicate that it resisted the Lessee having "the same estate and interest in land that it had immediately prior to the making of the termination order" upon the making of a termination order. The reason given was that "such an interest would unnecessarily burden the land in any sale process and may negatively affect the sale price." However, this submission was not developed, including whether what was resisted was only "the same estate and interest", or also any equivalent interest.
On the first day of the hearing, counsel for the Lessee indicated that the position as between the OC and Lessee had changed since the written submissions were completed. However, the Court was informed that Lannock sought to be heard on the agreed position between the OC and the Lessee.
In closing submissions, the OC indicated that "[l]ooking at the position of the fourth defendant there is now a degree of agreement between the plaintiff, the first defendant and the fourth defendant that Another Bucket of Worms ought to be granted an order which goes as far as it can to replace the current rights and obligations of its lease." Therefore, it appears that Lannock had been provided with proposed orders and Lannock, the OC and the Lessee had "a degree of agreement" about them. However, at no time were any agreed orders provided to the Court.
In The Owners SP 80877 v Lannock it is noted at [26]:
Another Bucket of Worms Pty Ltd is the fourth defendant and is the registered lessee of lots 135 and 137 in the Strata Plan. If a termination order is made, it seeks directions protecting its interests pursuant to its registered lease. The parties informed the Court that there was an agreement on the form of the appropriate directions in relation to the fourth defendant, should a termination order be made. Mr Robertson, senior counsel for the fourth defendant, indicated that those consent orders would be forwarded to the Court. However, nothing has been received.
The transcript demonstrates the reference in that paragraph to "parties" was a reference to the OC, the Lessee and Lannock.
Further, at [89]:
It is unnecessary to formulate the precise orders that ought to be made, should a termination order have been made, including because the parties sought to be heard further on the precise form of appropriate orders and the agreed orders concerning the fourth defendant were not provided to the Court.
There is no evidence before the Court as to why the Lessee's promised consent orders were not provided to the Court.
At [97] it is recorded:
As noted above, the Court was informed that all parties have reached a consensus as to the appropriate directions concerning the fourth defendant, should a termination order be made. The Court was informed that those agreed orders were designed to ensure that the fourth defendant's rights as a lessee are preserved after any termination order, but provide the liquidator the ability to seek a variation of those rights, should they be necessary to the process of sale. Such type of directions would be appropriate, if a termination order was made.
The OC submits that because it agreed on appropriate orders with the Lessee, should a termination order be made, there is no principled reason to make a costs order against either party, relying on eg Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624. The Lessee submits that the OC capitulated and therefore ought to bear its costs.
While the OC and Lessee parties informed the Court that a resolution on the form of orders had been reached by all the parties, the agreed orders have never been known to the Court, for example, as to whether the OC completely capitulated, as suggested in the Lessee's submissions. While the Lessee did not provide any transcript reference to support its submission, counsel for the OC, Ms Castle, did submit on the first day of the hearing during opening submissions that:
In relation to the fourth defendant, the plaintiff takes the view that the proper application of s 138 combined with the power to make directions under s 136 is to provide the lessee with a replacement order for the leasehold interests that are divested by s 138. In this case it is possible to replace like with very much like, given that the space which currently constitutes lots 135 and 137 will continue to exist, and that the fourth defendant continues to trade from those premises despite the evacuation order for the residential units, and the evidence from Mr Hill is that they have continued to trade almost without interruption.
Therefore, while orally Ms Castle made that submission of "like for very much like", which might be seen as different to the OC's opening position of resisting the "same estate and interest in the land", the promise of consent orders by the Lessee came afterwards, and as noted, were never provided to the Court. Further, the Court was not asked to adjudicate on whether those particular agreed orders were appropriate and whether they would be made if a termination order was made.
In those circumstances, while I do not accept that it was inappropriate for the Lessee to seek to become a defendant and appear, it does not follow that it is entitled to its costs in circumstances where it cannot be said that it was "successful". Instead, during opening submissions, counsel for the Lessee indicated that the position as between it and the OC was "one of common ground". Counsel was silent as to how this "common ground" was achieved. Further, as at that point in time Lannock had not agreed to any form of proposed order, because the proposed orders had not been provided to Lannock. In opening, the Lessee understood Lannock's concern to be one of the Court's power. Therefore, it appears that the Lessee also sought to be heard in relation to any opposition from any defendant during the hearing, and did not continue to appear because of the OC alone. I note the Lessee does not seek a costs order against Lannock.
I consider the appropriate order is that the OC and Lessee bear their own costs of the proceedings.
In light of that conclusion, it is unnecessary to consider the Lessee's application for a gross sum costs order.
The Mortgagee Defendants all seek an order that Lannock pay their costs. Lannock resists such orders on several bases, all of which I reject. I deal with each substantive matter below.
First, Lannock submits that the Mortgagee Defendants were not relevantly "successful", because the judgment resolving the dispute between them was obiter, and it was not practically relevant in light of the refusal to make a termination order.
To support the submission that obiter in a judgment does not support a costs order, Lannock relies on one paragraph of a six-paragraph decision of Black CJ, Jacobsen and Perram JJ in Polo/Lauren Company LP v Ziliani Holdings Pty Ltd (No 2) [2009] FCAFC 5 at [5]:
… as a matter of formality, the design/copyright overlap was not determined either by the trial judge or by us. All of the remarks which were made both at first instance and on appeal on this issue were obiter dicta. No orders were made as a result of those conclusions. In that circumstance, we do not think that the premise upon which the present application rests is sound for there was no "success" on the second issue.
That case has not been cited elsewhere for the proposition asserted by Lannock. That may be because that the comment was specific to the particular facts involved. It is trite that the Court can exercise its broad discretion and make costs orders to reflect success or failure on individual issues, despite the ultimate outcome: see eg Kumaran v Employsure Pty Ltd (No 2) [2022] NSWCA 247 at [12]-[14] (Gleeson, Leeming and Kirk JJA).
Here, the factual situation is completely different to the Full Federal Court decision. Here, there were not merely "remarks" in the principal judgment, but rather a determination of the issues raised by the parties, should the refusal to make a termination order be found to be erroneous. A significant amount of the hearing time was taken up with the debate between Lannock and the Mortgagee Defendants on their priority issue.
Secondly, I accept that, had the OC advocated in favour of Lannock, then it might have been exposed to a costs order in favour of the Mortgagee Defendants. However, before and during the hearing, the primary protagonist for its own priority in relation to any sale proceeds was Lannock. It was Lannock who first raised the issue of priority with the OC, which led to the OC adding that issue to its summons, at a time when Lannock was the only defendant. The OC did not maintain a position in favour of Lannock at the hearing and instead left that contest to Lannock and the Mortgagee Defendants.
Thirdly, while I accept that certain matters agitated by particular Mortgagee Defendants were rejected, see for example The Owners SP 80877 v Lannock at [95], I do not accept that this is an appropriate case to order costs on an argument by argument basis, where overall, the Mortgagee Defendants were successful in relation to Lannock.
Finally, I do not accept that, because the OC was unsuccessful in obtaining a termination order, that it is responsible for all of the costs of the proceedings and the Court ought not differentiate between the determination of the termination order and the issue of priority.
[5]
Conclusion
For the reasons above, the appropriate costs orders are:
1. Plaintiff pay the First Defendant's cost of the proceedings on the ordinary basis, as agreed or assessed.
2. First Defendant pay the Third, Fifth, Sixth, Eighth and Ninth Defendants' costs of the proceedings on the ordinary basis, as agreed or assessed.
3. As between the Plaintiff and each of the Second and Fourth Defendants, no order as to costs, so that each party is to pay their own costs.
[6]
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Decision last updated: 22 May 2024