Proprietors of Development Unit Plan 04/22 v Proprietors of Unit Plan... [2019] NTSC 75 | Case summary

COSTS - CROSS-APPEAL whether Local Court in error by ordering each

Proprietors of Development Unit Plan 04/22 v Proprietors of Unit Plan... [2019] NTSC 75 | Case summary | Zoe

[44]

[1] This is an appeal from a decision of the Local Court delivered on 12 October 2017 ('the appeal') and a cross-appeal from the subsequent costs decision made on 16 May 2018 ('the cross-appeal').

[2] Before the Local Court, the parties to the appeal were in dispute about the non-payment of body corporate levies by the respondent (the defendant in the Local Court proceedings). The action in the Local Court raised some questions regarding the scope of the duties, functions and powers of a corporation under Part V, Division 2 of the Unit Titles Act 1975 (NT) ('Unit Titles Act'), in particular, whether the exercise of certain duties or powers and contributions determined fell within ss 33, 34 and 36. The matter was initially commenced in the Local Court as a claim for debt or damages.[1] On 3 May 2017 the appellant (then plaintiff) amended the Statement of Claim, principally to seek 20 declarations in respect of individual charges it claimed to have incurred or would be required to incur in the exercise of its duties.

[3] Following a hearing, the learned trial Judge published Reasons for Judgment on 12 October 2017 ('Reasons for Judgment') and made the following orders:

The Plaintiff's claim for debt and damages is dismissed;

The Plaintiff's application for declarations as per paragraphs (e), (g), (i), (k), (l), (m), (n), (o), (q), (r), (s), (t), (u), (v) and (w) is refused.[2]

The Plaintiff's application for declarations as per paragraphs (d), (f), (h), (j) and (p) is granted.[3]

[4] In short, the Local Court made declarations to the effect that the expenditure incurred by the appellant for fire equipment, fire service - contract, grease trap maintenance, insurance and body corporate management fees was in accordance with s 36 of the Unit Titles Act, but otherwise dismissed the appellant's claims including the claim for debt or damages and the majority of the claims for declaratory relief. More specifically, the appellant had sought to enforce recovery of amounts payable by notice as a debt under s 36(6) of the Unit Titles Act. The appellant was unsuccessful in its claim for debt, broadly because the Judge found the claim covered charges which were wrongly included and because the appellant did not produce sufficient evidence to establish the proper amount which should have been levied.[4] The appellant submits it relied on the Local Court's general power for remedies in damages and at equity for declaratory relief, however the pleadings specified claims that the contributions assessed were determined by the plaintiff under s 36 of the Unit Titles Act. Save for those specified above, most items were held not to be properly included as expenses under s 36 and therefore not recoverable or not appropriately the subject of declarations.[5] While the respondent was successful in its challenge to most of the levies raised, it unsuccessfully asserted there had been a conflict of interest which in turn had led to a breach of fiduciary duty on the part of the plaintiff. The respondent argued a contributing factor to the wrongful allocation of expenses was due to a suggested conflict of interest or because of the diverse positions held by Mr Christopher Foy.[6]

[5] The appellant filed a notice of appeal in the Supreme Court on 9 November 2017, which was amended on 5 June 2018. The Amended Notice of Appeal lists 18 grounds of appeal set out later in these reasons and seeks orders[7] setting aside the orders of the Local Court and in lieu of those orders to have judgment entered for the appellant, effectively in the terms sought in the Further Amended Statement of Claim filed in the Local Court on 3 May 2017.

[6] If successful on appeal, the appellant seeks orders that the respondent pay its costs of the Local Court proceedings and the appeal and that costs of the appeal be recoverable as a debt in accordance with ss 45 and/or 46 of the Unit Titles Act.

[7] At the costs hearing in the Local Court, both the plaintiff and the defendant claimed costs. The defendant submitted in the Local Court that if it was successful in its claim for costs, those costs should be paid by a third-party, the Gamble Group of Companies, relevantly Value Inn Pty Ltd and not the plaintiff. This is largely because the defendant is a member of the plaintiff and so would be paying a portion of its own costs through its membership of the plaintiff should costs be awarded against the plaintiff. Additionally, the defendant argued the Gamble Group and/or Value Inn Pty Ltd were effectively behind the proceedings, and were motivated to recover from the respondent the expenses it had incurred.[8]

[8] On 16 May 2018, the Local Court published its decision on costs,[9] making the following orders;

Each party bear their own costs of proceedings.

The defendant's claim for costs against the Gamble Group of Companies and/or Value Inn Pty Ltd is dismissed.

The costs of the defendant's application for costs against the non-party be costs in the cause.

[9] The respondent filed a cross-appeal against orders 1 and 2 of the costs decision. The grounds asserted in the cross-appeal are that the Local Court erred in law in assessing the relative success of the parties, in distinguishing Value Inn Pty Ltd from the Hostel for the purposes of s 45 of the Unit Titles Act, in failing to determine at all the claim by the defendant that Value Inn Pty Ltd should pay the plaintiff's costs and by failing to order that Value Inn Pty Ltd pay the costs of the plaintiff and the defendant.[10]

[10] The respondent as cross-appellant seeks to have the costs orders of the Local Court set aside and substituted with orders that Value Inn Pty Ltd, the second cross-respondent, pay the costs of the appellant and the respondent in the Local Court proceedings and that Value Inn Pty Ltd pay the costs of the appeal. Value Inn Pty Ltd, as second cross-respondent, filed a Notice of Contention on 3 October 2018, disputing the alternative ruling of the Judge to the effect that had the respondent been successful in its claim for costs, Value Inn Pty Ltd, although a non-party, should pay those costs. An amended Notice of Contention was filed on 5 October 2018, further particularising a number of the errors alleged on behalf of Value Inn Pty Ltd.[11]

[45]

[11] In 2004, Coorong Investments Pty Ltd registered a development plan and disclosure statement on the title of Lot 7536, 52 Mitchell Street, Darwin ('the building') and constructed a mixed development on the site. The building development plan is comprised of three building lots and common property. The building is a single structure and the building lots are numbered 7540, 7541 and 7542. Lot 7540 (the respondent) comprises of six retail units on the ground floor of the building. Lot 7541 is a hostel known as the Melaleuca Lodge and consists of the first floor above the retail area and a four-storey residential building. There are 106 units in the hostel. The hostel is leased to Value Inn Pty Ltd. Lot 7542 is a basement which was originally intended to be an underground carpark but later became a nightclub. Lot 7542 is owned by Gamble Group Pty Ltd ATF the Doug Gamble Family Trust No 2 and Brimsnuck Trust, as tenants in common. The three lots were referred to in the Local Court as 'the Retail', 'the Hostel' and 'the Basement' respectively. A development Parcel Lot 7539 was also created which consisted of all the land which was previously Lot 7536 as well as Lots 7540, 7541 and 7542. The Proprietor of the Development Parcel Lot became the Proprietors of Building Development Plan 04/022 (the appellant).[12]

[12] When the building development plan was registered, a body corporate, the appellant, was created, and at times will be referred to in these Reasons as 'the DVP', consistent with the terminology adopted by the Judge and the parties. When titles were issued to the three parts of the development, body corporates were also created for all three lots. The respondent is the body corporate for the Retail shop area ('the Retail Body Corporate'). The three body corporates are each members of the DVP for the purposes of the Unit Titles Act and are entitled to one vote and representation at the meetings of the DVP. The DVP bears responsibility for the common property shared by each of the three buildings within the development.[13] The DVP is not the owner of the development itself. Each building within the lot has their own common property and there is the shared common property of the development.

[13] The DVP has certain responsibilities under the Unit Titles Act including control, management and maintenance of the common property. The DVP owns the shared common property, principally comprising a car park area and some of the walk-ways.[14] The shared common property also includes the roof, floor slabs, walls and columns where those parts of the structure form the division between separate buildings. The DVP's duties include paying all expenses relating to that common property. The income from the DVP is derived solely from the levies paid to it by its members. Those levies are determined by the management committee of the DVP.

[14] At the appellant's Annual General Meeting ('AGM') on 24 September 2014, the appellant accepted and approved a budget for the 2014/15 financial year, being the amount that it would require by way of contributions from its members under s 36 of the Unit Titles Act. Following the AGM, the appellant issued notices of contributions to members. It sent two notices to the respondent dated 8 October 2014,[15] a notice dated 17 November 2014,[16] and a notice dated 11 February 2015.[17] The notices were each for a sum of $9,276.00, which was claimed to be the respondent's quarterly unit entitlement contribution as determined by the appellant under s 36 of the Unit Titles Act. Further notices of contribution in the same sum were issued to the respondent on 10 June 2015 and 12 August 2015.[18] At the time of the proceedings below, the respondent had not paid the contributions issued to it for the 2014/15 or 2015/16 financial years. The appellant argued before the Local Court and this Court that the DVP's budget items were all for expenses it had incurred or will reasonably be expected to incur in the performance of its duties and functions under the Unit Titles Act and in any event the respondent's contribution towards the expenses was to be assessed in the same proportion as its unit entitlement established under the Act.

[15] The respondent effectively complained that it was asked to pay a disproportionate amount of the common expense, although the principal contention was that many of the expenses claimed did not relate to common expenses at all or were not expenses incurred or reasonably expected to be incurred by the DVP. A number of irregularities in the historical processes leading to the raising of levies were noted by the Judge which will not be dealt with further in these reasons.[19] It is understood that prior to the DVP's appointment of Sterling Management Services Pty Ltd ('Sterling') in 2014, the respondent had been agitating for a breakdown in the insurance costs for the DVP. The respondent was reportedly concerned that the DVP's insurance policy had been included in the insurance policy of the Gamble Group of Companies. The policies included property, public liability and consequential loss insurance for several properties and businesses owned by the Gamble Group. The respondent had also challenged the cost of the fire management services and grease traps as not being proper expenses payable by the DVP, suggesting those costs ought to be borne solely or predominantly by the Hostel. The dispute concerning those and other expenses led to the litigation before the Local Court.

[16] The trial Judge identified that it had been agreed the notices of contribution included expenses relating to building maintenance, fire equipment, electricity, grease traps, rubbish removal, sewerage, water usage, management fees, printing and stationary and insurance.[20] It was also agreed that the notices of contribution remained unpaid and were approved by the appellant at its annual general meetings, with the defendant dissenting.[21]

[17] The trial Judge further identified that while the parties did not agree that all of the expenses were properly incurred by the appellant or included in the notices of contribution, the respondent had paid some monies to the DVP based on its own assessment or calculation of the appropriate apportionment of the proper expenses of the DVP. Her Honour characterised the principal issue being whether each of the expenses included in the calculation of body corporate levies were properly included as expenses that were reasonably incurred in the performance of the duties and functions by the appellant, or reasonably expected to be incurred. The appellant submits that by virtue of the declarations sought in the Local Court, a further issue involved the question of whether the contributions payable by members of the DVP for each expense is to be in the same proportion of the member's unit entitlement under the Unit Titles Act.

[18] Building development plans are provided for in Part IVC of the Unit Titles Act. Pursuant to s 26ZI(1), a registered proprietor of an estate in fee simple may lodge a building development plan of subdivision with the Registrar-General. The building development plan of subdivision must comply with various requirements[22] otherwise it will not be registered.[23] One such requirement is that building development plans of subdivisions are accompanied by a schedule of building lot entitlements ('schedule of entitlements') prepared in accordance with the Unit Title Regulations (NT).[24] The schedule of entitlements sets out an aggregate building lot entitlement for all lots and an entitlement for each building lot.[25] The building lot entitlement for a building lot is a whole number that represents, as nearly as practicable, the proportion that the value of the lot bears to the aggregate value of all of the lots by reference to the unimproved capital value at the date of certification.[26] Once a building development plan is registered, the schedule of entitlements cannot be altered otherwise than under Parts VIII or IVC of the Unit Titles Act.[27] While here there was a unit entitlements schedule set by the development Plan, the costs for certain services were not divided between the members of the DVP on the basis of those unit entitlements until the appointment of a body corporate manager to the DVP in 2014/2015.[28]

[19] The DVP holds the common property on trust for the members, as tenants in common, in undivided shares proportional to the building lot entitlements of their building lots, for the reasonable use and enjoyment by members.[29] Common property is defined in s 4(1) of the Unit Titles Act as 'so much of a parcel as is not within a unit'. Under s 30(2) and s 34 of the Unit Titles Act, the appellant is responsible for the control, management and administration of the common property.[30] The appellant must properly maintain and keep in a state of good repair the common property and all chattels in its possession, custody or control.[31] The appellant submits it must also maintain equipment used in respect of easements created for access to services such as water and electricity, pipes, communications cables and sewerage.[32] Such services which are related to the management and maintenance of the common property are the responsibility of the corporation and therefore in this instance, the payment for such services are properly incurred by the DVP. That is, charges which relate to the common property and maintenance of those utilities, such as pipes and cables, which exist to provide services to the common property. There was no evidence before the Local Court the DVP incurred a service liability for the provision of a number of services, the subject of its unsuccessful claims. The cost of maintenance of services which are unrelated to the common property or otherwise are unrelated to the preservation of the fabric of the premises is the obligation of the dominant tenement.[33]

[20] Under s 36 of the Unit Titles Act, the appellant says it is obliged to determine the amount it will require by way of contributions from its members in order to perform its functions, duties and powers[34] and that those contributions are to be proportionate to unit entitlements pursuant to s 36(3) of the Act.[35] The contributions must come from the members of the DVP.

[21] The appellant contends that the only qualification to the requirement that contributions are made in accordance with unit entitlements is in relation to expenditure for specified liabilities yet to be incurred by the corporation and by unanimous resolution of the corporation before the determination to require the contribution from members is made.[36] Thus, there is no warrant to import notions of any 'benefit principle' which is relevant to other statutory regimes.

[22] In support of these submissions, the appellant referred to the decision of Holland J in Jacklin v Proprietors of Strata Plan No 2795:[37]

[50]

[26] There is nothing in the Reasons for Judgment which indicates the Local Court was unaware of the nature of common property, nor the general scheme and intent of the Unit Titles Act. Further, Kearney J's description of how the Act operates is accepted here, but the problem for the appellant is that many of the claimed expenses, either did not relate to the common property or its maintenance or otherwise were not expenses which could be levied against its members in compliance with the Unit Titles Act.

[27] In the end the problem the appellant had at the hearing for many of the matters in contention was principally one of proof, including proof as to the validity of the subject levies, decisions made by various officeholders as to the DVP's expenses, whether those officeholders were authorised in certain instances to act on the DVP's behalf, and importantly, whether certain expenses had been incurred or were to be incurred. What was required to be considered was whether the expenses included in the calculation of body corporate levies were properly included as expenses reasonably incurred in the performance of the duties and functions of the appellant with respect to the 'common property' as defined by the Unit Titles Act.

[28] The respondent agrees that the legal basis for the claims relied upon by the DVP was ss 34 and 36 of the Unit Titles Act. However, it emphasises that s 36 only allows the DVP to seek contributions from its members on account of expenditure it has incurred or may reasonably expect to incur in performing its duties or functions which relate to the common property or to provide relevant services to the common property. The obligations have been described in other contexts as '[centred] on the preservation of the fabric of the premises'.[42] An examination of the relevant parts of the Unit Titles Act demonstrates that to be the case. Before the Local Court, broadly, the respondent pointed out it had paid some monies to the DVP which on its own assessment was thought to be appropriate, however argued the processes leading to the incurring of expenses was flawed. The respondent accepted the appellant may have an equitable remedy for some contribution of its expenses from the respondent, however submitted a number of the expenses claimed were not expenses that the DVP was liable for and so could not pass those expenses onto its members.

[29] The principal parts of the Unit Titles Act referred to in these proceedings are:

[83]

[30] The relevant corporation, here the DVP, is responsible for the administration, management and maintenance of the common property. Section 36 of the Unit Titles Act requires any contribution levied against members of a corporation, such as a corporation in the position of the DVP, to be accurate and a reasonable reflection of the expenses it incurred or expected to incur in fulfilling its obligations in respect of the common property. The section allows expenses to be allocated in accordance with unit entitlements which are fixed at the commencement of the development.

[31] In this development, 24 per cent was allocated to the respondent under s 36(3).[43] However, s 36(3) is not the only mechanism providing for calculation of expenses and levies. Section 36(4) provides for the circumstances of specified liability if the parties have agreed unanimously on a different proportion than under s 36(3). Further, under s 36(4A) in circumstances where the specified liability of a corporation is calculated in accordance with a formula, the apportionment between the unit holders is to be determined having regard to the formula, unless before making the determination, the corporation has unanimously resolved otherwise. Section 36(4A) was examined by the trial Judge in particular in relation to determining the liability for sewerage charges, however ultimately in that instance her Honour was unable to find a formula was proven.[44]

[32] It may be observed here, as was relevant to a number of findings in the Local Court, the trial Judge acknowledged the DVP had duties and functions with respect to the maintenance of pipes, wires, cables, ducts and other hardware and was responsible for the charges it incurred to provide those services to the common property.[45] It would be a strange result if those obligations exist even if those items provide a service elsewhere, to other units other than to the common property. In the case of a service to a particular unit, the unit holder is liable for the expense. Section 25 of the Unit Titles Act, which deems an easement in favour of the dominant tenement for the various services or utilities which traverse the common property, does not operate in a manner to impose charges on the DVP, as the DVP is responsible for the common property and the services to the common property.

[33] The appellant submitted that it is sufficient to establish an obligation on the DVP if the pipes and cables traverse the common property, even if for the purpose of providing a service elsewhere.[46] That is not the meaning or intent of s 25. It is, as the respondent submitted, an 'end user' (the dominant tenement) who has a deemed easement for the necessary pipes and other utilities over the other parts of the development. The cost of maintaining and repairing the pipes is an obligation of the dominant tenement - the end user. That cost is embedded in its accounts from the relevant provider. In any event, it cannot be assumed or accepted given the evidence and findings below, that the DVP did in fact incur service liabilities for pipes, cables and other structures materials that traversed the common property or elsewhere on the development.

[84]

[34] The grounds of appeal are as follows:[47]

That the learned Judge erred in finding that the expenditure incurred by the Appellant for sewerage is not expenditure in accordance with s 36 of the Unit Titles Act.

That the learned Judge erred in failing to find that the Respondent's contribution to future sewerage expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

That the learned Judge erred in finding that the expenditure incurred for water usage, other than that which relates to fire equipment, is:

(a) not expenditure incurred by the Appellant; and

(b) not expenditure in accordance with s 36 of the Unit Titles Act.

The learned trial judge erred in failing to find that the Respondent's contribution to future water expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding that the expenditure incurred by the Appellant for electricity is not expenditure in accordance with s 36 of the Unit Titles Act.

The learned Judge erred in failing to find that the Respondent's contribution to future electricity expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Act.

The learned Judge erred in finding it is unnecessary and refusing to declare that the Respondent's contribution to future grease trap maintenance expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding it is unnecessary and refusing to declare that the Respondent's contribution to future fire equipment and fire service - contract expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding that the expenditure incurred by the Appellant for rubbish and waste removal is not expenditure in accordance with s 36 of the Unit Titles Act.

The learned Judge erred in failing to find that the Respondent's contribution to future rubbish and waste removal expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding it is unnecessary and refusing to declare that the Respondent's contribution to future management fee expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding that there is no basis and refusing to declare that the Respondent's contribution to future insurance expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding that the expenditure incurred by the Appellant for building maintenance is not expenditure in accordance with s 36 of the Unit Titles Act.

The learned Judge erred in failing to find that the Respondent's contribution to future building maintenance expenditure incurred by the Appellant is in the same proportion as the Respondent's unit entitlement established under the Unit Titles Act.

The learned Judge erred in finding that the Appellant's claim cannot be recoverable as a debt against the Respondent.

The learned Judge erred in dismissing the Appellant's claim for damages in circumstances where the learned Judge found that:

(a) expenditure for fire equipment, fire service - contract, grease trap maintenance, insurance and management fees was incurred and levied by the Appellant in accordance with the Unit Titles Act and otherwise recoverable from the Respondent; and

(b) some electricity and water chargers are proper expenses of the Appellant under s 36 of the Unit Titles Act.

The learned Judge erred in failing to order that the Appellant's debt collection costs are recoverable from the Respondent as a debt under s 45 and/or s 46 of the Unit Titles Act.

The learned Judge erred in failing to make any order for interest in the Appellant's favour.

[126]

[66] It is also appreciated that declaratory relief is usually the preserve of superior courts exercising inherent jurisdiction. The Northern Territory Local Court is however, vested with wide jurisdiction, including the jurisdiction to grant equitable relief which may be relevant to the application of principles necessary to regulate the discretion to grant declaratory relief.

[67] Section 14(a) makes it clear the Local Court's civil jurisdiction includes any other jurisdiction conferred by another Act. There are many statutes which confer jurisdiction on the Local Court. It could not have been intended on the one hand to confer jurisdiction on the Local Court for the purposes of dispute resolution under the Unit Titles Act and on the other restrict the remedies available to the Court to properly exercise the jurisdiction granted. A clear expression of such a limitation would be expected in the Unit Titles Act or the Local Court Act. The combined operation of ss 12-15 of the Local Court Act and s 106-107 of the Unit Titles Act allows the Court to grant remedies associated with the principal cause of action.

[68] While it is concluded here the Local Court possesses jurisdiction to make the declarations sought, it is quite another matter whether the discretion should be exercised to grant the relief in a particular case. The findings in relation to sewerage, water, electricity, rubbish and waste removal and building maintenance, have been summarised above. In short, in relation to electricity, water and sewerage, it was found those expenses had not been incurred by the DVP. As a result it was obvious that no declarations as to current or future obligations should be made. In relation to rubbish removal, the finding was that the service was not provided to the common property of the DVP and in any event was an item removed from the previous budget. The building maintenance claim failed through lack of evidence. Logically there could be no declaration, current or with respect to future obligations based on those findings.

[69] In relation to the grounds alleging error for refusing to declare that future contributions are to be in accordance with the unit entitlement proportion, in light of the findings, even those findings which favoured the appellant in terms of expenses properly incurred by the DVP, there is a real issue about whether it would have been appropriate to exercise the discretion to make declarations for the future in this particular case.

[70] Broadly, the appellant relies on Angel J's summary of the principles relevant to making declarations in Re Application for a Declaration of Paternity by 'K' and re the Estate of Edward Grant Smith deceased:[91]

[139]

[84] The principal complaint is that the Local Court erred in assessing the relative success of the parties. The Local Court determined that given there was partial success by both parties, the Court was to weigh up the nature of that success and how much time was spent in the hearing on the different issues. Her Honour described the various points of success and failure in respect of both litigants.[105] Both parties were criticised for failing to produce cogent evidence to support their respective cases. While those separate items were dealt with in some detail, particularly with respect to how much court time was required for a number of issues, there was not an assessment as to the relative overall success or otherwise of each party, especially when the failure of the plaintiff's original claims are considered. This was not a case where each of the parties was successful or unsuccessful on approximately the same number of issues. The apportionment of costs must, as pointed out by the first cross-respondent be governed by fairness.[106] Fairness requires the assessment of the relative success of the parties. In the end the plaintiff succeeded on only a small proportion of its claims. While the defendant was unsuccessful in the defence of part of its case, it did not mount a counter claim and was largely successful in defeating the vast majority of elements of the plaintiff's case. The original claims by the plaintiff were for the recovery of monies as a debt due or damages for failing to pay. Those claims were not successful. Although it did not appear to make a significant addition to the court time required at hearing, nor does it appear to have provoked further significant interlocutory steps, the Further Amended Statement of Claim added a claim under s 45 of the Unit Titles Act and sought 20 declarations of which 15 were dismissed along with the original claims for debt due and damages.

[85] In Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd,[107] a case in which it could not be determined who the successful party was and the success for one party was partial, Finkelstein J said:[108]

[147]

[90] On the face of it, it may appear Gobbo J in Byrnes v Davie,[116] rejected any proposition that placed defendants in a 'wholly different position' to a plaintiff where one party has only been partially successful. Dal Pont explains his Honour's rejection of any notion of a successful defendant being in a 'wholly different position' was merely to dispel a view that the approach where successful plaintiffs fail on certain issues should differ entirely to that of successful defendants failing on certain issues.[117] In any event, without suggesting any constraint on the discretion to award costs, the weight of authority acknowledges that a defendant may be in a different position for costs purposes in circumstances of this kind.

[91] Counsel for the first cross-respondent identified that some significant issues were resolved in favour of the plaintiff, particularly with respect to insurance, fire equipment and the fire service contract and body corporate management fees. The defendant in the Local Court was criticised for not producing evidence of alternative fees that would have been appropriate in the case of its contested management fees. The dispute in relation to insurance involved a number of assertions by the defendant of breach of fiduciary duty which was not established. On the other hand, the plaintiff below was wholly unsuccessful on the original claims. The subsequent applications for declaratory relief as late as May 2017 permitted success on some claims. It is surprising that the defendant below would be responsible for costs at all prior to May 2017. In any event, by the operation of the Unit Titles Act, the cross-appellant as defendant in the Local Court would be liable for 24 per cent of the DVP's legal costs. In these particular circumstances, that too was a relevant consideration in the exercise of the costs discretion. Given there were aspects of the defence case that required the plaintiff to prove expenses that clearly had been incurred, there should be some contribution to the plaintiff's expenses. The 24 per cent would be appropriate, but no more.

[92] The order below that the plaintiff and defendant bear their own costs will be set aside.

[93] Ground 2 asserts the Local Court was in error by distinguishing Value Inn Pty Ltd from the Hostel for the purposes of s 45 of the Unit Titles Act. It is said this was in circumstances where Value Inn Pty Ltd operated the Hostel on behalf of the Hostel unit holders. Value Inn Pty Ltd was obliged by an agreement with the Hostel to meet its outgoings. The expenses paid by Value Inn Pty Ltd which were sought to be recovered through the plaintiff were expenses incurred in meeting the outgoings of the Hostel.

[94] Section 45 allows recovery by a corporation of money expended under the Unit Titles Act from particular units or a single unit when the expenses related to those particular units or single unit.

[95] While as a result of the arrangements between Value Inn Pty Ltd, the Hostel and the Hostel unit holders, the DVP may recover money from the Hostel that it expended for the Hostel unit holders, the right to recovery does not extend to Value Inn Pty Ltd. That Value Inn Pty Ltd was obligated to the Hostel to meet those expenses, does not mean they are proper expenses that may be recovered within the terms of s 45 of the Unit Titles Act. Her Honour rejected the s 45 application below because the submission that the Hostel (Proprietors of Units Plan 2004/51) was the party receiving the benefit of the litigation was not supported by the evidence. Her Honour found Value Inn Pty Ltd was the entity which would have benefited from the litigation. As Value Inn Pty Ltd is not a member of the DVP, it was held it could not be subject to an order under s 45.[118]

[96] As Value Inn Pty Ltd is not a proprietor under the Unit Titles Act, s 45 simply cannot apply. It stands in a different position to the Hostel under the Act. Further, an application under s 45 is a form of substantive relief under the Unit Titles Act. In those circumstances, no order under s 45 can be made. To underline this point, counsel for Value Inn Pty Ltd referred the Court to Re Wykeham Terrace[119] where Stamp J said:

[149]

[98] These grounds will be dealt with together as the relevant findings of the Local Court concern both grounds. Both grounds relate to non-party costs. Ground 3 claims the Local Court should have ruled that Value Inn Pty Ltd pay the plaintiff's costs. Ground 4 claims the Local Court should have ordered that Value Inn Pty Ltd pay the costs of both the plaintiff and defendant. By Notice of Contention, Value Inn Pty Ltd argues the Local Court was in error to find that had the defendant been successful in its claim for costs, Value Inn Pty Ltd ought to pay the defendant's costs. Value Inn Pty Ltd contends the following findings are in error: that Mr Foy's presence and involvement in the hearing was on behalf of Value Inn Pty Ltd; that his presence and involvement in the hearing was not because he was on the management committee of the plaintiff; that Value Inn Pty Ltd was the real party, true litigant and the main driver behind the litigation and finally that the Local Court should not have considered the defendant's membership of the DVP a relevant factor.

[99] It is an exceptional measure to award costs against a non-party. That her Honour fully appreciated this was a significant and exceptional order is clearly evident from the reasoning in the costs decision and the cautious approach taken to this issue. This was an unusual situation.

[100] A fundamental concern when considering an order of this kind is one of procedural fairness. Generally speaking an order made against a non-party, by its nature will be unjust. The hearing in the Local Court was between the plaintiff and defendant. Value Inn Pty Ltd was not a party. The defendant/cross-appellant did not apply to join Value Inn Pty Ltd. It follows that Value Inn Pty Ltd did not call evidence, challenge evidence or make submissions save as to costs when an application was made against Value Inn Pty Ltd as a non-party. It cannot alone control the plaintiff. It had the capacity however to substantially influence the litigation. What is unusual here, is that through the participation in the litigation of Mr Foy, Value Inn Pty Ltd was fully aware of the nature of the litigation. From at least the time of a mediation agreement, Mr Foy knew of a risk of an application for costs against the Gamble Group of Companies. It was clarified during the course of the costs application below that Value Inn Pty Ltd were the appropriate entity in the event of an order for costs being made against a non-party as the Gamble Group of Companies is not a legal entity.[120] At that point of clarification Mr Foy was clearly instructing counsel for Value Inn Pty Ltd. Her Honour found it was disingenuous of the Gamble Group of Companies and in particular Value Inn Pty Ltd, to argue that the first they were aware of the costs application was November 2017. It was found those entities had notification through their representative Mr Foy back at the time of the mediation.[121]

[101] Although it is not a determinative factor, it is curious that before the Local Court, the plaintiff resisted an application for third-party costs in respect of Value Inn Pty Ltd paying the plaintiff's own costs. This may tend to support the existence of some financial consequence to either or both DVP or Value Inn Pty Ltd if the latter were ordered to pay DVP's costs. Nothing can be conclusively drawn from this, however it is odd if the two entities are independent of each other.

[102] After examining the evidence, her Honour found Value Inn Pty Ltd, was the true litigant and main driver behind the litigation.[122] In my view the finding by her Honour that Value Inn Pty Ltd was the true litigant has not been shown to be in error. Her Honour had regard to multiple factors in coming to this conclusion. When discussing the submission made by the Gamble Group of Companies that it owned only a small proportion of the relevant entities (10 per cent of the units in the Hostel, a 50 per cent share in the Basement and one of six units in retail) her Honour pointed out that while the Gamble Group own 10 out of 100 units in the Hostel, all of those units were leased to Value Inn Pty Ltd, one of the Gamble Group Companies.[123] This conclusion was drawn from evidence at the substantive hearing which revealed all of the units were leased to Value Inn Pty Ltd. The evidence was that the units were leased to Value Inn Pty Ltd to operate as the Melaleuca Inn, the unit holders pay into a sinking fund and a portion of council rates. Value Inn Pty Ltd pays for all outgoings and a peppercorn rent to the body corporate for the use of the common property. The evidence did not disclose if Value Inn Pty Ltd recovered operating costs from the Unit Holders.

[103] Further, as noted in relation to the substantive appeal a number of the accounts were in the name of Value Inn Pty Ltd and Redco Investments Pty Ltd, the companies who stood to gain from the recovery of certain money from the DVP. Essentially it was found to be in the interests of those companies to recover the cost of a number of the disputed expenses from the DVP. It is clear from Mr Foy's evidence that his extensive evidence, was not as a member of the DVP representing the basement, but as a manager of the DVP, intimately involved in the decision making.[124]

[104] In as much as her Honour commented on the position of Mr Foy being involved as a representative of the Gamble Group of Companies instructing counsel for the plaintiff at the substantive hearing and then counsel for Value Inn Pty Ltd at the costs hearing, counsel for Value Inn Pty Ltd submitted on appeal that there is nothing wrong with the different roles taken by Mr Foy. It was pointed out that under s 28(4) of Unit Titles Act it is envisaged that members of the body corporate and those who control the body corporate will be the proprietors of the various building lots. Here, the members of the DVP are expected to come from the constituent parties. Value Inn Pty Ltd has one of six of the retail shops, and 10 of the 106 units of the Hostel. It is also one of two companies who owns the basement. In those circumstances, it was submitted that it is to be expected Mr Foy and others who control the DVP will from time to time represent other entities in the development. Given the operation of the Unit Titles Act, it was said her Honour was in error by placing considerable weight on Mr Foy's involvement for different parties. Counsel for Value Inn Pty Ltd submitted it is perfectly natural given the operation of the Unit Titles Act that Mr Foy 'wears two hats', as acknowledged by Mr Foy in his evidence. It was consequentially quite explicable that as he was on the management committee of the plaintiff he would participate in the substantive hearing in that capacity and given he was a manager of Value Inn Pty Ltd and received a notice that there will be a costs application, he instructed counsel on that application. This however ignores the intimate role Mr Foy played as at times an 'unofficial manager' of the DVP, however more importantly is the advantage to Value Inn Pty Ltd in having DVP commence proceedings for recovery of expenses.

[105] Counsel for Value Inn Pty Ltd referred the Court to potentially analogous circumstances concerning non-party costs dealing with a sole director and shareholder who is found to have controlled the litigant. In Rushton (QLD) v Rushton NSW, Muir J said:[125]

[153]

(a) The successful party to the proceedings was the moving party and not the defendant;

(b) The source of funds for the litigation was the non-party or its principal;

(c) The conduct of the litigation was unreasonable or improper;

(d) The non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial was a substantial interest and

(e) The unsuccessful party was insolvent or could otherwise be described as a person of straw.

[107] On behalf of Value Inn Pty Ltd, it was pointed out that most of the criteria discussed by Basten JA in FPM Constructions Pty Ltd v Council of the City of Blue Mountains does not apply as the success of the parties was mixed. Further, it was ordered that each party bear their own costs. There was no evidence Value Inn Pty Ltd was the source of the funds for the litigation. There was no finding of unreasonable or improper conduct and no finding of a breach of fiduciary duty. Value Inn Pty Ltd had a limited financial interest. Further, even without a non-party costs order, it was submitted Value Inn Pty Ltd will be paying a proportion of costs pursuant to the Unit Titles Act. The criteria collated by Basten JA in FPM Constructions Pty Ltd v Council of the City of Blue Mountains does not however represent any fetter to the discretion. It is undesirable to lay down rules that would fetter the discretion.[128] Each case will depend on its own facts and circumstances. Although the success of the parties was mixed, clearly the defendant was largely successful. The order made in the Local Court that each party bear their own costs is now quashed.

[108] In my view there should be an order for third-party costs made against Value Inn Pty Ltd. In exercising the overall discretion afresh, I would not order in precisely the same terms as posited by the Court below, nor would I order that Value Inn Pty Ltd bear the costs for both parties, as suggested by the cross-appellant. That would be to extend or expand the operation of non-party costs beyond what is anticipated in an already exceptional order.

[109] The principal authority on non-party costs is Knight v FP Special Assets Ltd ('Knight').[129] The starting point is that it would be unjust to make an order for costs against a non-party. Such an order should be made with caution and sparingly. The discretion to order non-party costs is to be exercised judicially and in accordance with the general principles pertaining to the law of costs.[130]

[110] In Knight, Mason CJ and Deane J observed:[131]

Proprietors of Development Unit Plan 04/22 v Proprietors of Unit Plan 2004/048; Proprietors of Unit Plan 2004/048 v Proprietors of Development Unit Plan 04/22 & Anor [2019] NTSC 75

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