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File Number(s): 2023/33949
2023/143366

Publication restriction: N/A

JUDGMENT

1. Judgment was delivered in these proceedings on 23 July 2025: Penya v Penya [2025] NSWSC 805. These reasons concern the costs of the proceedings. Familiarity with the principal judgment is assumed. As in the principal judgment, I generally refer to the parties by their first names to avoid confusion arising from their common surnames. No disrespect is intended.

2. Mr Paul Penya, the successful plaintiff in the s 66G proceedings, refers to my summary of the principles applicable to the exercise of the costs discretion in such proceedings in Eva Joy Ambrus v Lee Ellen Buchanan (No. 2) [2023] NSWSC 5 at [4]-[6]:

“4 The Court has a discretion under s 98 of the Civil Procedure Act 2005 (NSW) to make an order for costs determining by whom, to whom and to what extent costs are to be paid. In proceedings under s 66G of the Conveyancing Act, that discretion is usually exercised by ordering that the parties’ costs to be paid out of the proceeds of sale of the land, the rationale being that the costs of the proceedings are an incident of joint ownership: Kardos v Sarbutt (No. 2) [2006] NSWCA 206 at [28] (Brereton J (as his Honour then was), Basten JA and Hunt AJA agreeing); Chow v Chow (No 2) (2015) 18 BPR 35,385; [2015] NSWSC 1348 at [7]-[8] (Young AJA); Chetwynd v Rose [2021] NSWCA 193 at [120] (White JA, Meagher and Leeming JJA agreeing).

5 The usual rule generally extends to the costs of an unsuccessful defendant who has properly advanced substantial arguments in support of an estoppel or contractual or fiduciary obligation which may have afforded a good reason to decline to appoint trustees for sale, although the arguments ultimately failed: Stone v Stone (2014) 17 BPR 33,443; [2014] NSWSC 1655 at [51]-[52] (Darke J); Norris v Norris [2021] NSWSC 1676 at [25]-[26] (Robb J).

6 However, unreasonable conduct on the part of a party that results in costs being incurred unnecessarily may warrant a departure from the usual rule. As Darke J explained in Stibbard-Leaver v Leaver [2021] NSWSC 65 at [5]:

‘I observe at this point that in litigation of this type under s 66G of the Conveyancing Act, it is usual to order that the costs of the proceedings be paid out of the proceeds of sale. The rationale for this approach is that the costs of such an application are an incident of joint ownership (see Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]). It remains the case of course that unreasonable conduct by a party may be a basis to conclude that some other order is appropriate in a s 66G case. Lewin v Lewin [2019] NSWSC 380 is an example. In that case, it was held that certain unreasonable conduct led to an unnecessary incurring of costs. However, as I noted in that case (at [41]), a co-owner is ordinarily under no obligation to seek to avoid a need to bring a s 66G application (see also Chow v Chow (No 2) [2015] NSWSC 1348 at [12] where it was stated by Young AJA that co-owners have no obligation to negotiate their dissolution).’”

3. Paul submits that the Court should order that the whole of his costs be paid out of the proceeds of sale of the Eastlakes property, that the costs of the unsuccessful first defendant, Ms Therese Penya, incurred up to and including 13 April 2023 should be paid out of those sale proceeds, and that Therese should pay her own costs from and including 14 April 2023. Paul submits that Therese acted in a dishonest, disreputable and unreasonable manner by departing on 14 April 2023 from the position which Paul had understood to have been agreed between them, that they would consent to the sale of the property on certain terms. That agreement was made in circumstances where Paula-Marie had not yet foreshadowed her claim to a beneficial interest in the Eastlakes property. As recorded in the principal judgment at [141]-[145], those consent orders were not made after it became clear that Ms Paula-Marie Penya intended to commence the trust proceedings claiming that Paul and Therese held the Eastlakes property on constructive trust for her. Paula-Marie commenced those proceedings on 4 May 2023.

4. I consider that Therese’s departure from her agreement with Paul in those circumstances was pragmatic. If Paul and Therese were held in the trust proceedings to hold the Eastlakes property on constructive trust for Paula-Marie, they would have breached that trust by selling the property. If they had taken steps to proceed with a sale before the trust proceedings were determined, Paula-Marie may have sought and obtained an interim injunction restraining them from doing so. The changed circumstances required Paul and Therese to grapple with those issues, irrespective of what they thought about the merits of Paula-Marie’s claims. I reject Paul’s submission that Therese’s conduct was dishonest, disreputable and unreasonable.

5. I accept Therese’s submission that the whole of her legal costs of the s 66G proceedings should be paid from the net sale proceeds of the Eastlakes property. The same position applies to Paul’s legal costs, in accordance with the principles to which I have referred above. I note that Therese is unlikely to have incurred significant costs in the s 66G proceedings given that she offered no opposition to the orders sought by Paul in those proceedings if Paula-Marie’s claims in the trust proceedings were not successful, and that Therese filed a submitting appearance in the trust proceedings on 2 June 2023. Therese’s only active role in the trust proceedings was as a witness in Paula-Marie’s case.

6. Paula-Marie was joined as the second defendant to the s 66G proceedings on the first day of the hearing for the purpose of ensuring that she was bound by any order made in those proceedings. Paula-Marie has not sought any order in respect of her costs of those proceedings.

7. For those reasons, there will be an order that all of Paul’s and Therese’s costs of the s 66G proceedings, as agreed or assessed, be paid out of the net proceeds of sale of the Eastlakes property before any of those net proceeds are paid to Paul and Therese. There will be no order in respect of Paula-Marie’s costs, with the intention that she will bear her own costs of the s 66G proceedings.

8. Paula-Marie, as the unsuccessful plaintiff in the trust proceedings, accepts that she should be ordered to pay Paul’s costs of those proceedings on the ordinary basis. Paul seeks an order that Paula-Marie pay his costs on the indemnity basis. Therese seeks no order as to costs, and submits that no costs order should be made against her on account of her submitting appearance. Neither Paul nor Paula-Marie seeks any costs order against Therese.

9. Paul submits that Paula-Marie should be ordered to pay his costs on an indemnity basis because her claims in the trust proceedings had no reasonable prospects of success: Litigation Fund WCX Pty Ltd v Mitchell (No. 4) [2025] NSWCA 106 at [5] (Mitchelmore, McHugh and Ball JJA); Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [106]-[113] (Basten JA, Young CJ in Eq agreeing).

10. Paula-Marie failed to prove any of the alleged representations on which each of her claims in the trust proceedings was founded: see principal judgment at [158]-[191], [200] and [211]. Paul submits that Paula-Marie should have known that establishing those representations was a fundamental element of her claims, and that Paula-Marie’s failure to prove the representations, together with the fact that her evidence would not have established reliance and detriment if it had been necessary to consider those issues, “indicates that the proceedings were misconceived and that an order for indemnity costs is warranted”.

11. Paul incorrectly submits that Paula-Marie did not adduce evidence of detriment. As Paula-Marie submits, she did in fact adduce evidence of matters that she relied on as detriment. As explained in the principal judgment at [192] and [194], I would have held that those matters, viewed in the context of other relevant matters, did not constitute detriment in the sense relevant to her proprietary estoppel claim.

12. I reject Paul’s submission that the matters referred to above demonstrate that Paula-Marie’s proprietary estoppel claim was “doomed to fail” or that the proceedings were “misconceived” and had no reasonable prospects of success. Whether or not the alleged representations were made was a disputed question of fact at trial. Paula-Marie’s failure to discharge her onus of proving that they were made was the result of my weighing the competing evidence of the witnesses and considering that evidence in the context of relevant contemporaneous documents and undisputed objective facts. I consider that Paula-Marie, considering the whole of the evidence served by the parties and properly advised, should have known prior to the commencement of the trial that her claim was not a strong one. However, I do not consider that the claim should have been seen when the proceedings were commenced or at any time prior to the trial to have been misconceived or not reasonably arguable. As Paula-Marie submits, mere weakness of an arguable case is not sufficient to warrant the exercise of the discretion or order indemnity costs.

13. I reject Paul’s further submission that Paula-Marie’s failure to bring the proceedings at an earlier point in time was destructive of the factual matrix on which her claims were founded and suggests that the proceedings were misconceived when they were later commenced.

14. I note Paul’s final submission in support of his application for indemnity costs that, having regard to Therese’s initial response to the s 66G proceedings (requesting Paul to defer the first directions hearing while Paula-Marie applied for a loan to purchase Paul’s interest in the property) and Therese’s subsequent agreement to the sale of the property followed by her change of position referred to at [3] and [4] above, the Court should infer that the trust proceedings “were attempts to either improperly wrest Paul’s interest in the Eastlakes property from him, or coerce him to abandon the s 66G application”. As Paula-Marie submits, that is a serious allegation of abuse of process which was not put to Paula-Marie in cross-examination during the hearing. It would be unfair to Paula-Marie to draw the inference for which Paul now contends, even if the Court were otherwise minded to do so. The submission ought not to have been made, and I reject it.

15. The orders of the Court in proceeding no. 2023/33949 (the s 66G proceedings) are:

16. Order that the costs of the plaintiff and the costs of the first defendant, in each case on the ordinary basis and in such amount as may be agreed or assessed, be paid from the proceeds of sale of the Property referred to in order 1 made on 23 July 2025 after the payments referred to in order 3(a), (b) and (c) made on that date, but before the payment referred to in order 3(d) made on that date.

17. Order that order 3 made on 23 July 2025 is varied so that the payments to be made pursuant to order 1 above are made after the payments referred to in order 3(a), (b) and (c) but before the payment referred to in order 3(d) made on 23 July 2025.

18. No order as to the costs of the second defendant, with the intention that she pay her own costs.

19. The orders of the Court in proceeding no. 2023/143366 (the trust proceedings) are:

20. Order that the plaintiff is to pay the first defendant’s costs of the proceedings on the ordinary basis as agreed or assessed.

21. Make no order in relation to the second defendant’s costs of the proceedings with the intention that she pay her own costs.

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