Plaintiffs v First Defendant

No appearance by the Second Defendant, Registrar of Titles

1 On 13 March 2015 the Court published reasons for judgment in this proceeding (the 'principal reasons').[1] These reasons for judgment concern damages and costs. They assume familiarity with the principal reasons and adopt the same terminology.

2 In the principal reasons, the Court answered all questions posed for determination in the negative, and refused to grant any of the specific relief sought by the plaintiffs in their originating motion. The Court determined, however, that the plaintiffs had established a breach of the Lease by Mr Stephan and an entitlement to damages in respect of that breach. In order to further the overarching purpose in the Civil Procedure Act 2010, particularly to contain the costs of this unfortunate dispute, the Court directed that issues of damages and costs be determined on written submissions without further appearance by the parties.

What amount of damages should be awarded to the plaintiffs?

3 The plaintiffs contend that they have suffered three categories of loss by reason of Mr Stephan's breach of the Lease.

4 First, the first plaintiff, Mr Braham, claims the costs awarded against him by the Magistrates' Court, in the sum of $223.30. I am satisfied that this adverse costs order was caused by Mr Stephan's breach of the Lease, and will include $223.30 in the plaintiffs' damages award.

5 Second, the plaintiffs claim their legal costs arising from Mr Stephan's breach of the Lease which pre-date the commencement of the proceeding and, as such, do not form part of their costs of the proceeding. The claimed costs fall into three categories:

(1) $1,631.20 in respect of the costs of their previous solicitors. These costs relate to the period commencing in November 2011, when the Building Notice was issued by the Council, and ending in March 2013, while the Council was still considering the Bushy Miles report. From the brief information given in the previous solicitors' accounts, and by reference to Mrs Braham's affidavit, it is apparent that these solicitors provided advice to the plaintiffs, and corresponded with the Council, Mr Stephan and his previous solicitors, concerning the Building Notice and the Building Order issued by the Council in July 2012. During this period, I am satisfied that the plaintiffs and their previous solicitors were endeavouring to deal with the Building Notice and Building Order in a non-litigious fashion. All of the costs incurred were caused by Mr Stephan's breach of the Lease. Accordingly, I will allow the sum of $1,631.20 as part of the plaintiffs' damages award.

(2) $1,925 in respect of counsel's fees for advice and an initial conference with the plaintiffs. These fees were charged in respect of an advice provided in late August 2014 and an initial conference in mid-September 2014. Taking the evidence as a whole, I infer that these costs were incurred in respect of the plaintiffs' endeavours to terminate the Lease and the Option, so as to achieve removal of Mr Stephan's caveats and allow them to deal with the Land for their stated commercial purposes. This inference is supported by the fact that, as early as 6 October 2014, the plaintiffs' present solicitors were charging them for work involving reviewing cases concerning relief against forfeiture, corresponding with counsel and speaking with Mr Braham 'regarding first impressions of options'. I infer that those 'options' related to termination or forfeiture of the Lease to enable the caveats to be removed and allow the plaintiffs to pursue their commercial objective. They failed in respect of those issues and should not have their costs of them as part of their damages.

(3) $4,985 in respect of costs charged by the plaintiffs' present solicitors. The plaintiffs contend that these costs were 'in connection with the breach of the Lease (as distinct from the proceeding)'. There is no evidence to support that contention and, for the reasons appearing above in rejecting the claim for counsel's fees, I infer that these fees related to the plaintiffs' 'options' to forfeit or terminate the Lease so as to remove the caveats. I note that, as early as 22 October 2014, the plaintiffs' current solicitors were charging them for reviewing the law applicable to s 146 notices, repudiation and related matters.

6 The plaintiffs endeavour to support their claim for legal costs on the basis that clause 5.4 of the Lease states that the Lessee (Mr Stephan):

is liable for and indemnifies the Lessor ... against all ... costs and expenses that the Lessor ... suffers or incurs or is or becomes liable for ... in respect of ... any damage to Property (including the Land) ... where [the] ... loss or expense is caused by or contributed to [by] ... any breach of this Lease by the Lessee ... (or) the use or misuse of the Land by the Lessee.

7 The plaintiffs contend that their legal costs were caused by 'damage' to the Land. I do not accept that is a proper interpretation of clause 5.4 of the Lease. The erection of the shed without a permit did not damage the Land.

8 Third, the first plaintiff, Mr Braham, claims damages for distress and loss of reputation associated with his prosecution in the Magistrates' Court. The plaintiffs contend that Mr Braham has 'had the burden and stigma of a finding of guilt recorded against his name, which should sound in damages to some extent'. They rely upon statements by members of the High Court in Baltic Shipping Company v Dillon.[2] However, as affirmed by the High Court in that case, damages for distress caused by breach of contract are not generally available. Baltic Shipping concerned an action brought by a shipwrecked cruise ship passenger seeking damages from the shipowner under heads of loss including disappointment and distress. The High Court upheld an award of damages by the trial judge under those heads of loss, but held that such damages will only be awarded in circumstances where the disappointment and distress 'proceed from physical inconvenience caused by the breach', where the object of the contract is 'to provide enjoyment, relaxation or freedom from molestation', or where there is a promise to provide pleasure, enjoyment or personal protection.[3]

9 The plaintiffs also sought to rely on the decision of the Full Federal Court in Walker v Citigroup Global Markets Australia Pty Limited (formerly known as Salomon Smith Barney Australia Securities Pty Limited), in which the applicant was awarded $100,000 in damages for damage to his reputation, career prospects and personal life.[4] However, the damages award under those heads related to the applicant's misleading and deceptive conduct claim. Notably, the contractual damages awarded to the applicant involved no consideration of similar heads of loss. In my opinion, the decision in Walker does not assist the plaintiffs.

10 This is not a case where the Lease promised the plaintiffs pleasure, enjoyment or personal protection, and there is no question of physical injury or physical inconvenience.

11 I do not accept that damages for distress are available for the breach of the Lease in this case. However, if such damages were available, I would refuse to order them. No conviction was recorded against Mr Braham and he received one of the lowest possible sentencing outcomes, being ordered to pay a small amount of legal costs which he will recover as damages. Moreover, with good legal advice at the time, the plaintiffs could have avoided any prosecution by themselves taking action under s 250 of the Building Act 1993, as referred to in the principal reasons. Finally, the suggested basis for an award of damages for distress, that Mr Braham will hereafter be required to disclose his plea of guilty in relation to applications for overseas travel (such as for a foreign visa), employment, finance or insurance is, in my opinion, fanciful. Given that no conviction was recorded against him, it is unlikely he will disclose his guilty plea in such applications. If disclosed, there is no reasonable likelihood that it would affect Mr Braham's ability to travel or make applications of the kind suggested.

12 I refuse to make any order for damages for distress.

13 There is first a question of the quantum of the plaintiffs' costs of and incidental to the hearing which was adjourned on 13 February 2015, to allow Mr Stephan time to obtain legal advice and file affidavit material and submissions. The Court ordered Mr Stephan to pay those costs. The plaintiffs claim that their legal costs of and incidental to the hearing on 13 February 2015 total $8,085 in solicitors' fees and $3,500 in counsel's fees - a total of $11,585. I do not accept that this is so. The only costs which should be payable are those for the attendance of counsel and one solicitor on that day. Most of the solicitors' costs which have been claimed relate to the preparation of evidence and submissions. Those costs are properly characterised as costs of the proceeding. They were not thrown away but were used for the purposes of the trial held on 10 March 2015.

14 The parties have joined in the request that I should fix any costs ordered, so as to avoid the costs of taxation. That is consistent with the overarching purpose in the Civil Procedure Act 2010 and s 65C(2)(c) of that Act. Doing the best I can on the available evidence, I assess the plaintiffs' costs of and incidental to the wasted hearing on 13 February 2015 at $5,000 - $3,500 for counsel and $1,500 for an instructing solicitor for appearing at Court and related attendances.

15 I turn to consider who should pay the costs of the proceeding, other than those specifically related to the hearing on 13 February 2015.

16 The plaintiffs acknowledge that they have achieved only minimal success, having failed to obtain the specific relief which they sought in their originating motion. In these circumstances, they submit that each party should be ordered to bear their own costs of and incidental to the proceeding. This submission is based on five grounds:

(1) Mr Stephan committed a sustained breach of the Lease over several years;

(2) Mr Stephan refused to remedy the breach until the very end of the Council's patience, despite having been asked by both the Council and the plaintiffs to demolish the shed on more than one occasion;

(3) Mr Stephan's breach of the Lease caused Mr Braham to be prosecuted;

(4) the plaintiffs were partially successful, as they have established an entitlement to damages; and

(5) there is recent authority in the Court of Appeal in this State which suggests that the parties should bear their own costs in circumstances where a plaintiff fails to obtain the relief it seeks on the claim, but succeeds in establishing a breach of the law by the defendant at trial.

17 I do not accept the plaintiffs' submissions. In my opinion, the plaintiffs should pay a substantial proportion of Mr Stephan's costs of the proceeding, as the plaintiffs have wholly failed to obtain the relief which they sought and have been granted an indulgence to claim damages after the completion of the hearing and the publication of reasons for judgment. As to the plaintiffs' specific contentions:

(1) I accept that a breach of the Lease was established. To the extent that it was necessary for the plaintiffs to establish Mr Stephan's breach of the Lease, those costs will be allowed in their favour.

(2) I accept that Mr Stephan, primarily through his son Robert, persisted in a misguided belief that the shed did not require a permit - thus extending the dispute with Council for a lengthy period.

(3) I accept that Mr Braham was prosecuted. However, he has recovered damages in respect of that prosecution.

(4) Having regard to the issues at stake, the plaintiffs' success in the proceeding was minimal. The plaintiffs were seeking to deprive Mr Stephan of a valuable interest in real estate on grounds which have been rejected by the Court.

(5) The recent Court of Appeal decision in Falkingham v Peninsula Kingswood Country Golf Club does not assist the plaintiffs.[5] That case bears no resemblance to the facts of this case, and each case concerning costs must, of course, depend upon its own facts. In Falkingham, a significant amount of time was occupied, at both trial and on appeal, by an oppression issue. In this case, the central issue for determination was whether the Lease had been repudiated or the plaintiffs were entitled to terminate it for breach of an intermediate or innominate term. It was those issues which caused the complexity in the case and preoccupied the parties both in their written submissions and at trial.

18 In Chen v Chan,[6] the Court of Appeal summarised the principles to be applied concerning the exercise of the Court's discretion where a plaintiff is only partly successful, as follows:

(1) The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.

(2) The Rules of Court permit significant flexibility in determining questions of costs. In particular, the Court is entitled to examine the realities of the case and will attempt to do 'substantial justice' as between the parties on matters of costs.

(3) Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.

(4) A Court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.

(5) Where a Court determines to make an order apportioning costs, then it does so primarily as 'a matter of impression and evaluation,' rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter ... [7]

19 In this case, the plaintiffs' success was marginal. They did not even claim damages in their originating motion. The whole purpose of the proceeding was to obtain unencumbered ownership of the northern portion of the Land for no consideration - it ought not to have occupied any time in this Court.

20 Further, Mr Stephan endeavoured to avoid the costs of a trial by a reasonable Calderbank offer, albeit one which was made at a late stage. By email sent 4 March 2015, Mr Stephan offered to settle the proceeding on the basis that it was dismissed with no order as to costs. Given the outcome of the proceeding, the small amount of damages awarded and the amount of costs incurred by the parties in connection with the trial, that was a reasonable offer. The offer was, however, made on a Wednesday, and a long weekend intervened before the trial on Tuesday 10 March. Having regard to the time at which the offer was served, I am not satisfied that it should form the basis of any award of indemnity costs.

21 In my opinion, substantial justice between the parties requires that the plaintiffs pay 70 per cent of Mr Stephan's costs of the proceeding. Although Mr Stephan won the substantial issues in dispute, some allowance must be made for the costs incurred by the plaintiffs in proving the breach of the Lease and related submissions. The percentage reduction in the costs recovery by Mr Stephan reflects this part of the proceeding, in respect of which the plaintiffs succeeded.

22 It is in the interests of justice that the Court fix the costs which Mr Stephan is entitled to recover. This will avoid the parties undertaking a costly taxation process if they cannot agree. It will also bring finality to this unfortunate dispute.

23 Mr Stephan has been charged the following costs in connection with the proceeding:

(1) $5,500 including GST as a fixed fee for taking instructions, drawing three affidavits, drafting submissions and preparing the Calderbank offer. These fees appear reasonable, as Mr Stephan's solicitor has deposed that he would otherwise have charged $8,800 if there was no fixed fee agreement for these costs.

(2) $4,875 including GST in respect of all subsequent work until the conclusion of the proceeding. This amount is unparticularised, which makes the Court's task in fixing costs more difficult, and thus requires some moderation.

(3) $5,550 including GST for counsel's fees in respect of preparation and trial. These fees include the preparation of further written submissions. They appear reasonable in the circumstances.

(4) $740 as the estimated fees of counsel attending to hear judgment and prepare the written submissions concerning costs and damages. These fees also appear reasonable.

24 In summary, Mr Stephan's costs total $16,665, as follows:

25 As I have said, given the lack of detail in respect of the solicitors' fees, especially after the Calderbank offer was made, there is a need for some moderation. Doing the best I can, and given the parties' joint request that costs issues be fixed to avoid unnecessary costs of taxation in a matter involving moderate costs, I will fix the total amount of Mr Stephan's costs at $15,000. Accordingly, I fix the costs payable by the plaintiffs to Mr Stephan at 70 per cent of that amount, namely $10,500.

26 For the above reasons, the plaintiffs are entitled to recover damages from Mr Stephan in the sum of $1,854.50 and $5,000 in respect of the costs of the wasted hearing on 13 February 2015; a total of $6,854.50. On the other hand, the plaintiffs must pay 70 per cent of Mr Stephan's costs of the proceeding, which I fix at $10,500.

27 When the amounts awarded in favour of the plaintiffs are set-off against Mr Stephan's costs, there will be a net amount of $3,645.50 owing by the plaintiffs to Mr Stephan.

(1) The first defendant pay the plaintiff the sum of $6,854.50, comprising $1,854.50 for damages and $5,000 for the costs ordered by the Honourable Justice Hargrave on 13 February 2015.

(3) The plaintiffs pay the first defendant's costs, fixed in the sum of $10,500.

(4) The amount which the first defendant is ordered to pay under paragraph (1) of these orders be set-off against his costs entitlement under paragraph (3) of these orders, with the result that the plaintiffs shall pay the first defendant the sum of $3,645.50.

[1] Braham v Stephan & Anor [2015] VSC 87.

[2] [1993] HCA 4; (1993) 176 CLR 344 ('Baltic Shipping').

[3] Ibid 365 (Mason CJ), 405 (McHugh J); see also 381-2 (Deane and Dawson JJ).

[4] [2006] FCAFC 101.

[5] [2015] VSCA 30 ('Falkingham').

[6] [2009] VSCA 233.