Real Estate Property Management Pty Ltd & Ors v WaterCorp Investments Pty Ltd

Course of the litigation

The summary which follows is taken from the primary judge's reasons for judgment of 15 December 2017. The reasons are lengthy. They were delivered promptly after a long trial. The primary judge noted that the proceedings were: "Heard in Sydney: on 31 July to 18 August; 11 to 20, and 27, 28 and 29 September and 16, 17 and 20 November 2017. Until Tuesday, 15 August 2017 there were multiple other parties and claims present. The hearing of WaterCorp's claim effectively started on that day (Tuesday 15 August 2017), having been delayed by the hearing of the other matters to which this claim had been joined for the purposes of the hearing."
In December 2013 or January 2014 North Shore Real Estate Pty Ltd ("North Shore Real Estate") sold a real estate business which it operated under a franchise from LJ Hooker Limited to REPMS. The shareholders and directors of REPMS were Mr and Mrs Pettit. By a separate contract it sold its rent roll to Starley Lodge Pty Ltd ("Starley Lodge"). At the time Starley Lodge was a company "associated" with Mr and Mrs Pettit and was the trustee of a trust called the Lindfield Property Management Unit Trust of which they were the unit holders. The Pettits decided to sell the business and the rent roll to WaterCorp. The first agreement was for the sale of the real estate business by REPMS to WaterCorp. The second agreement was for the sale of the rent roll. The vendor under that agreement was not Starley Lodge, but Starley Investments Pty Ltd ("Starley Investments"). Both agreements were made on 20 November 2014. Mr Pettit was the sole director and shareholder of Starley Investments. On 18 December 2014 it became the trustee of the Lindfield Property Management Trust. WaterCorp acquired the shares in Starley Lodge.
On 7 November 2014, that is, before the Contract for Sale and the Rent Roll Contract were entered into, North Shore Real Estate sued REPMS in the Local Court claiming a debt of $45,000. That proceeding was later transferred to the District Court. REPMS filed cross-claims against a number of other parties. On 23 March 2015 Starley Investments filed proceedings against North Shore Real Estate in the District Court.
On 3 August 2015 REPMS filed a claim in the Local Court against WaterCorp in respect of an agreement called the "Carlyle Road Conjunction Agreement". The Conjunction Agreement was an agreement in relation to the splitting of sales commission on the sale of a Carlyle Road property.
On 29 February 2016 WaterCorp instituted proceedings in the District Court against REPMS. The primary judge said that "WaterCorp's claim started as a responsive claim. It was filed in response to the claim brought against WaterCorp by REPMS in the Local Court ...".
On 30 March 2016 REPMS filed a cross-claim against WaterCorp in the District Court. On 24 April 2016 it discontinued its Local Court proceeding. The cross-claim in the District Court was amended to raise the matters originally raised in the Local Court. All of REPMS' claims in the cross-claim were ultimately rejected, including the claim in respect of the Carlyle Road Conjunction Agreement which was the catalyst for WaterCorp's commencing its proceedings against REPMS in the District Court. In her costs judgment (p 8) the primary judge said that "REPMS' cross-claim had instigated the proceedings between these parties."
In her costs judgment (pp 8-9) the primary judge recorded that on the application of REPMS the proceedings brought by WaterCorp were joined with the proceedings instituted by North Shore Real Estate against REPMS and with proceedings brought by Starley Investments against North Shore Real Estate. A District Court judge decided that the various proceedings should be heard together and that the evidence in one would be the evidence in the other. The primary judge accepted the submission for WaterCorp (Costs Judgment, p 11) that the result of the joinder was that "WaterCorp spent approximately nine days of hearing sitting through matters that largely did not concern it ... [but] were largely spent dealing with matters relating to the 2014 and 2015 proceedings". Proceedings between REPMS and Starley Investments and North Shore Real Estate (and between at least one other cross-defendant on REPMS' cross-claim) were settled on 15 August 2017. At this time the legal representatives for WaterCorp withdrew. The proceedings continued after 15 August 2017. WaterCorp was represented by its director, Ms Smith. The hearing continued for a further 17 hearing days.
The primary judge accepted the submission of counsel for WaterCorp that as a result of REPMS' successful application for the joinder of the various proceedings, WaterCorp incurred costs, time and stress of approximately two weeks of hearing of proceedings that largely did not concern it, but which involved an enormous amount of documentary material that created difficulties for Ms Smith in her conduct of the remainder of the hearing (Costs Judgment, p 11). Her Honour rejected REPMS' submission that the costs in issue did not affect, and were not affected by, the North Shore Proceedings.
The applicants contend that WaterCorp sued the defendants upon three separate causes of action, being 11 alleged breaches of the Contract for the Sale of the business, 12 alleged breaches of the Rent Roll Contract and 11 counts of misleading and deceptive conduct inducing entry into the two contracts. In the result WaterCorp failed on all of its claims under the Sale Contract, obtained judgment on only one of its claims under the Rent Roll Contract, namely a claim for retention moneys held by REPMS' solicitors (being a claim which the applicants allege was never pleaded) and failed on its misleading conduct claims.
The applicants submit that the only question for determination on the "retention moneys issue" was whether a calculation required by cl 4.2 of the Rent Roll Contract had been provided at all or within time and there was no dispute as to the potentially recoverable amount. They submitted that the hearing time occupied by the issue was minor.
In her principal judgment the primary judge dealt with the retention of moneys issue on which WaterCorp succeeded over 12 pages of the judgment. First, the primary judge concluded that the claim was pleaded. It was pleaded by para 32(e) that alleged that "in breach of the Rent Roll Contract, the second defendant ... (e) failed to adjust the purchase price payable by the plaintiff so as to equal the value of the rent roll." The pleading point appears to be that the statement of claim did not identify the clause of the Rent Roll Contract allegedly breached. The primary judge dealt with this issue and also held that in any event the claim was a live issue in the proceedings (Judgment p 52).
The Rent Roll Contract provided in substance that the purchase price for the rent roll was to be adjusted at completion. The value of the rent roll was deemed to be 3.5 times the "annual commission." Ten per cent of the adjusted purchase price ($53,122.35) was to be retained by the vendor's solicitor, pending further adjustment at the conclusion of the Retention Period. Clause 4.2 provided that within seven days after the end of the retention period the purchaser was to supply to the vendor a calculation of the value of the Rent Roll and any shortfall was to be paid to the purchaser (cl 4.3). The primary judge over some pages of her judgment referred to admissions made by Mr Pettit and other evidence that established that the value of the rent roll at the end of the Retention Period was such as that the whole of the retention amount was payable. It appears from pp 54 and 55 of the judgment that the question for determination was not merely, as the applicants would have it, "whether the calculation required by cl 4.2 of the Rent Roll Contract had been provided at all or within time." It appears from the judgment that other arguments both of construction of the contract and of fact were raised and dealt with.
In the costs judgment (Costs Judgment 12) the primary judge said: "... the issues raised by WaterCorp were interwoven and rested on the same or interrelated factual matrix. Quantification of the loss claimed varied according to the way in which the facts were configured. That did not lead to forensic complexity or relevant expert or accounting opinion; and none of the differing quantifications posed a clearly dominant or separable issue. There were effectively two outlying issues: REPMS' title to sell the business (in the business sale agreement) and the cross-claim. All other issues revolved around the common factual matrix and the value of the rent roll, albeit that loss was configured differently depending upon how the claim was framed."
The primary judge noted that WaterCorp's claim that REPMS did not have title to sell the business was raised in para 8 of WaterCorp's amended statement of claim and that "it matched REPMS' defence to the claim by North Shore Real Estate Pty Ltd, which fired the opening volley in the series of claims that ultimately were heard together. REPMS' (amended) defence to the claim by North Shore Real Estate Pty Ltd particularised, albeit from a different perspective, the point WaterCorp raised in its claim as to REPMS' lack of title to the business." (Costs judgment p 12) In other words, WaterCorp failed on the issue that REPMS did not have title to sell the business to it, being an issue REPMS had itself raised in its defence to North Shore Real Estate's claim.
It is substantially true that the applicants succeeded on all but one of the issues raised by WaterCorp's claim. (The qualification is that the primary judge found that all defendants were liable on the retention of moneys claim.) The applicants did not succeed on all of the sub-issues. Thus all of the claims for misrepresentation failed because either the pleading of the representation was insufficiently precise (failure to disclose legal proceedings, rather than failure to disclose disputes) (Judgment p 87), or because there was no evidence of reliance or change of position or loss. Within the determination of those issues there were sub-issues as to whether Mr Pettit had misrepresented matters to Ms Smith. The primary judge found that some misrepresentations had been made.
The applicants say that the costs orders occasion them a serious injustice going beyond that which is merely fairly arguable. The costs that the applicants are liable to pay would be substantially confined to the time before which WaterCorp's lawyers' ceased to act. Nonetheless, they are substantial. The costs the applicants claim in respect of the 30 days of hearing would be even more substantial.
If leave were granted it would be necessary on appeal for the applicants to establish that the primary judge made an error of the kind identified in House v The King (1936) 55 CLR 499 at 505. The applicants contend that the primary judge erred by failing to recognise that the retention moneys issue was discrete from and dominated by the other issues in the case, and that the outcome is unreasonable or plainly unjust.
The primary judge did address the question of whether the retention moneys issue was discrete. She concluded that it was not. Her Honour found (Judgment p 12) that all issues other than REPMS' title to sell the business and its cross-claim "revolved around the common factual matrix and the value of the rent roll, albeit that loss was configured differently depending upon how the claim was framed." A challenge to that finding would require detailed consideration of the course of the trial. Due recognition would have to be given to the primary judge's advantage in making the assessment.
Even if this Court were satisfied that the primary judge erred in not finding that the issues upon which the applicants succeeded at trial were separable or dominant, it does not follow that a substantively different costs order would necessarily be made. The primary judge found (Judgment p 21) that: "Even if issues in the plaintiff's claim might be refined to the point that some might be said to be 'clearly dominant or separable', which I do not find, this is not a case in which it is appropriate to apportion costs between such issues. On the contrary I am of the view that so to do would ... significant unfairness in all the circumstances."
At least part of the reasons for that conclusion were her Honour's finding (Judgment pp 19-20) that "nearly half the hearing time was addressed to matters in which WaterCorp played no role at all and that after 16 August 2017 the bulk of the time in the hearing was focused on the issue of the rent roll properties in which WaterCorp was successful" (p 20). Her Honour cited with apparent approval submissions for WaterCorp that the first nine hearing days not only revolved around matters that did not particularly concern WaterCorp but progressed more slowly than they should have done for reasons that were to the applicants' account. A number of days were spent defending objections to affidavit evidence, which objections were largely upheld. Counsel also submitted that the hearing was lengthened by evasive evidence given by Mr Pettit. The primary judge made adverse credit findings against Mr Pettit.
It is well established that unless a particular issue or group of issues is clearly dominant or separable it would ordinarily be appropriate to award the costs of the successful party without attempting to differentiate between issues on which it was successful and those on which it was not (Waters v PC Henderson (Australia) Pty Ltd [1994] NSWSC 338; (1994) 254 ALR 328 at 330-331; Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 at [38]), it is not a corollary of that principle that a different costs order will be made if the party against whom judgment is given was successful on issues that were clearly dominant or separable. The matter remains one for discretionary assessment. In this case one of the reasons of the primary judge's decision to award costs to WaterCorp was that WaterCorp's costs were incurred overwhelmingly up to and during the hearing of the proceedings up to 15 August 2017 (at which point its lawyers withdrew), whereas WaterCorp's involvement to that point in the proceedings which overwhelmingly concerned North Shore Real Estate was the result of the applicants' successful application that the proceedings be heard together. Without in any way impugning the order for joinder of the proceedings, there is no reason the primary judge could not have taken into account the fact, as her Honour found, that the hearing time up to 15 August 2017 was addressed to matters in which WaterCorp played no role at all, and that it should receive its costs in respect of that involvement.
There is no rule that a party who is successful on issues which are dominant or separable should have its costs of those issues. That is not an infrequent result and may lead to a costs order that reflects a notional set-off. But sometimes the appropriate order is to not give the successful party its costs of the issues on which it failed, without requiring it to pay the costs of the opposite party of those issues. These are matters for discretionary assessment. I am unpersuaded that the applicants have a more than arguable claim that on appeal the primary judge's exercise of discretion would be set aside.
The respondents correctly submit that the evident purpose of s 127(2)(b) of the District Court Act is to discourage appellate review of discretionary costs decisions (Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561; [2016] NSWCA 370 at [199]). One reason for this is that it is not in the public interest, nor in the parties' interests, for costs to be incurred on appeal in arguments about costs (Waters v PC Henderson (Australia) Pty Ltd at 330). Another and related reason is that the trial judge is far better placed than an appellate court to decide the kinds of issues about costs such as those which arise in the present case.
The applicants submitted that the primary judge failed to take into account that WaterCorp had pursued claims that obviously had no merit and were doomed to fail.
The primary judge cited authority that: "If a party unreasonably pursues or persists with points which have no merit, such conduct will constitute a consideration relevant to the ordering of costs, even in circumstances where that party is generally successful: Oshlack v Richmond River Council (1988) 193 CLR 72 at 122" (McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306 at [19].
The primary judge accepted the applicants' submission that in the way in which WaterCorp had presented its case its primary claims for damages were bound to fail because it had not adduced evidence of any loss. But her Honour said (Costs Judgment p 17) that: "In the strange circumstances of this case, the 'big ticket' items pleaded ... were largely irrelevant throughout the hearing and in case preparation. REPMS made the point in the submission that: 13 This is, moreover, a proceeding in which much of WaterCorp's case could not succeed, for want of proof of relevant loss; for example, with the exception noted by the Court, the 'fundamental flow in the plaintiff's claim' lay in the 'absence of causally related loss' [Judgment page 41]. In other instances, WaterCorp's complaints involved allegations which were found to have 'fallen away' or to have lacked 'relevant expert opinion' [e.g. Judgment p.48], to have involved suspicion founding 'nothing but speculation' [e.g. Judgment p.48] or to have demonstrated no required reliance or causal nexus, The short way home on many of the issues was to note the overlaying factual matrix and the absence of expert evidence by any party as to that part of the claim quantified by reference to purchase price per se, in which respect quantification was necessarily a matter for experts - who were not retained by any party. ... Although those items were to the fore of the mind of WaterCorp's director, they occupied no significant forensic time, and put REPMS to no time or forensic trouble, as manifested by the election not to waste powder or shot on procuring expert evidence. ... Putting aside the complex background to this litigation and whether there were relevantly severable claims or issues (which I find there was not), the only additional costs incurred by the failed claims was occasioned by repeated cross-examination and submissions on the same point, viz that there was no relevant evidence."
The primary judge took into account in exercising her discretion as to the costs order that WaterCorp had propounded claims that had no real prospects of success because of the absence of evidence as to loss. Her Honour nonetheless decided that this should not deprive WaterCorp of its costs, at least partly, because REPMS went to no time or forensic trouble in dealing with the claims. It did not seek to procure expert evidence. It rejected the claims by making the simple point that there was no relevant evidence to support them (Costs Judgment p 17.10-18.2). In other words, the primary judge (who had the advantage of conducting the trial) did not consider that there was a material increase in costs as WaterCorp had not adduced evidence. Her Honour said: "Putting aside the complex background to this litigation and whether there were relevantly severable claims or issues (which I find there was not), the only additional costs incurred by the failed claims was occasioned by repeated cross-examination and submissions on the same point, viz that there was no relevant evidence." [Cited at [31] above.]
The correctness of that assessment would require a detailed analysis of the trial. There is not a more than arguable basis that the primary judge erred.
The third basis upon which the applicants contended that a House v The King error was demonstrated was that the primary judge failed to apply what was said by Hodgson JA and Basten JA in Griffith v Australian Broadcasting Corporation (No. 2).
The primary judge quoted the relevant passages from Griffith v Australian Broadcasting Corporation (No. 2) upon which the applicants relied. Hodgson JA there said: "[19] Further, in my opinion, the underlying principles concerning costs identified in Commonwealth v Gretton [2008] NSWCA 117 at [121] and Ohn v Walton (1995) 36 NSWLR 77 at 79 (referred to in Turkmani at [13]) suggest that the application of these principles may not be exactly the same for successful defendants as for successful plaintiffs. In the former case, the defendant has been caused to incur costs in defending a claim which the decision in the case has wholly rejected, and has thus determined should not have brought about the incurring of any costs at all. In those circumstances, it may be considered appropriate that the defendant have costs associated with reasonable defences, even if they ultimately proved to be unsuccessful and severable. In the latter case, the plaintiff has chosen to bring the whole proceedings and thereby to incur costs and cause costs to be incurred which otherwise would not have been incurred; and in those circumstances, it may be seen more readily as appropriate that the plaintiff be liable for the costs of unsuccessful severable claims or issues, even if it was reasonable to include those claims or issues."
Basten JA said: "[38] In Australian Conversation Foundation v Forestry Commission (1988) 81 ALR 166, at 169, Burchett J, referring to Hughes v Western Australian Cricket Assn Inc (1986) ATPR 48-134 at 48,136-7, stated: 'In that judgment Toohey J cited the warning of Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16 against the too ready assumption that a party who has substantially failed may nevertheless recoup something in respect of costs by virtue of his success on a particular issue. Undoubtedly, in some cases he may; but in others he may not. In the case before him, Toohey J proceeded on the basis that, though there should be some allowance against the successful party in respect of issues on which he failed he "succeeded substantially in what he set out to achieve through his application". … A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably he may suffer in costs. Ultimately, the question is one of discretion and judgment.' [39] Even were it otherwise, caution should be taken in allowing an unsuccessful plaintiff to resist payment of costs in respect of particular independent defences which are unsuccessful or need not be addressed. There may be reasons why the court should properly deal with more than one sufficient defence - see Kuru v New South Wales [2008] HCA 26; 236 CLR 1 at [12] - but the need to make some adjustment to costs orders on account of defences unnecessary for the defendant's success should not become a reason for extending the scope of a judgment."
Neither Hodgson JA nor Basten JA suggested that there was any rule or principle that a primary judge was required to apply in the exercise of the costs discretion.
The primary judge expressly referred to these statements and took them into account in her determination quoted at [40] above. I am not persuaded that the applicants have more than an arguable claim of reviewable error.
It is unnecessary in these reasons for me to express an opinion upon the point raised in Griffith (No. 2). In HP Mercantile Pty Ltd v Dierickx & Ors (No. 2) [2012] NSWSC 1430 I said that the tentativeness with which the proposition was stated by Hodgson JA meant that a single judge was not bound to treat his Honour's statement as a considered dictum because it did not state a definite principle. I said: "[20] The distinction between the position of plaintiffs and defendants is, with respect, elusive. Hodgson JA's reasoning is that a successful defendant can say that he should never have been sued, and therefore the plaintiff should pay the costs of reasonable, but unsuccessful, defences, even if they are severable or dominant. But it is not clear why a successful plaintiff who fails on particular severable issues that were nonetheless reasonably raised could not equally say that his claim should have been satisfied without recourse to litigation, that is, should never have been defended, and he should not have been put in the position of having to raise separate issues on which he did not succeed. None of the authorities cited in Griffith expressly supports the distinction drawn by Hodgson JA in the paragraphs quoted above. In Commonwealth v Gretton [2008] NSWCA 117, Hodgson JA said (at [121]): In my opinion, underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. Costs follow the event generally because, if a plaintiff wins, the incurring of costs was the defendant's responsibility because the plaintiff was caused to incur costs by the defendant's failure otherwise to accord to the plaintiff that to which the plaintiff was entitled; while if a defendant wins, the defendant was caused to incur costs in resisting a claim for something to which the plaintiff was not entitled: cf Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. Departures from the general rule that costs follow the event are broadly based on a similar approach. This does not suggest that there should be a different approach for plaintiffs and defendants."
This issue was not argued on the application for leave to appeal. It is sufficient to say that if the distinction made by Hodgson JA is accepted to be correct, as the primary judge did, it does not follow that it is more than arguable that the primary judge erred in the exercise of her discretion.
For these reasons I would refuse the applicants' application for leave to appeal. I propose the following orders: 1. To the extent necessary, extend the time for filing of the application for leave to appeal to the date of the filing of the summons seeking leave to appeal. 2. Order that the summons seeking leave to appeal be dismissed with costs.
BASTEN JA: I agree.

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