Red Arrow Holdings atf the Brentnall Family Trust v Diza Pty Ltd atf the Diza Trust

Cases Cited: Eva Joy Ambrus v Lee Ellen Buchanan (No 2) [2023] NSWSC 5

Texts Cited: Nil

Category: Costs

Parties: Red Arrow Holdings atf the Brentnall Family Trust (Plaintiff)
Diza Pty Ltd atf the Diza Trust (First Defendant)
Kapala Investments Pty Ltd (Second Defendant)

Representation: Counsel:
Mark Gunning (Plaintiff)
Craig Leggat SC (First Defendant)
Solicitors:
MistryFallahi Lawyers and Business Advisors (Plaintiff)
Antunes Lawyers (First Defendant)

File Number(s): 2025/00132832

Publication restriction: Nil

JUDGMENT

1. By summons filed 7 April 2025, the plaintiff sought an order pursuant to s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale of a property at Flinders Street, Surry Hills, NSW (the Property).

2. The ownership of the Property is held as tenants in common in the following shares:

(a) the plaintiff owns 25%; (b) the first defendant owns 25%; and (c) the second defendant owns 50%.

3. A director of the first defendant, Ms Dene Gambotto (Ms Gambotto), is the sister of the director of the plaintiff, Mr Marshall Brentnall (Mr Brentnall). The second defendant is a company jointly owned and controlled by Ms Gambotto and Mr Brentnall. This ownership structure arose out of giving effect to the will of Ms Gambotto’s and Mr Brentnall’s father.

4. On 20 June 2025, the proceedings were listed before me for directions in the Real Property List. The parties advised me that they were close to reaching agreement as to the orders for the appointment of trustees for sale and requested that I resolve certain disputes between them. A brief argument then took place on the afternoon of 20 June 2025, the outcome of which was that I made final orders, in large part by consent, providing for the appointment of trustees for sale of the Property.

5. The parties were, however, unable to agree as to who should pay the costs of the proceedings.

6. Each party has provided written submissions in chief and in reply and the parties have jointly requested that I determine the issue of costs on the papers. This judgment concerns the issue of costs.

Overview of the competing positions

7. The plaintiff contends that the appropriate costs order is that its costs of the proceedings should be paid out of the proceeds of sale, prior to the distribution of the net proceeds of sale in accordance with their legal interests in the Property, and that the first defendant should bear its own costs of the proceedings. Further, the plaintiff contends that the first defendant should pay the costs of and associated with the argument before me on 20 June 2025.

8. The defendant contends that the appropriate costs order is the usual costs order in s 66G proceedings, namely that the costs of all parties come out of the proceeds.

9. There was no suggestion that any costs order should be made in relation to the second defendant. In any event, it appears that they played no role at all in the proceedings.

10. In relation to the plaintiff’s submission that its costs should be paid out of the proceeds prior to their distribution, the plaintiff contended that this was one of those cases where the Court should conclude that the first defendant had engaged in unreasonable conduct prior to the commencement of the proceedings such that the Court should make the costs order sought.

11. The matters relied upon by the plaintiff as constituting unreasonable conduct by the first defendant are set out in detail in the written submissions filed by the plaintiff and need not be repeated in full. They include:

(a) despite the efforts of the plaintiff to market the Property for sale and to liaise with agents for that purpose, the plaintiff and first defendant were unable to reach agreement; (b) by early February 2025, those standing behind the first defendant had disengaged from any genuine attempt to market the Property for sale and had adopted the position that they were prepared to leave the Property dormant or empty until such time that someone offered them an amount that everybody was happy with; (c) the offers made by the first defendant to buy out the plaintiff were for an amount that was significantly less than the value of the Property as assessed by a valuer in late 2024.

12. In relation to the costs of the argument on 20 June 2025, it was contended that the plaintiff had been largely successful, and the first defendant largely unsuccessful, in the matters argued on that day.

13. The first defendant contended that there was no reason to depart from the general costs position in s 66G proceedings and in any event, it had not engaged in unreasonable conduct. In relation to the costs of 20 June 2025, there was no clear winner.

Determination

14. There was no dispute between the parties as to the relevant principles on costs in matters such as the present. Those principles are neatly encapsulated by Williams J in Eva Joy Ambrus v Lee Ellen Buchanan (No 2) [2023] NSWSC 5 at [4]-[6] which provide as follows:

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

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

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

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

15. I am not satisfied that there is a basis in the present case for departing from the usual order that the costs of the parties be paid out of the proceeds of sale. I am not satisfied that it has been demonstrated that the first defendant behaved unreasonably, such that the costs order contended for by the plaintiff should be made.

16. It is clear that there is no obligation on a party to negotiate the dissolution of the co-ownership relationship without the need for the commencement of proceedings under s 66G. In any event, I do not regard the offers made by either party prior to the commencement of the proceedings as demonstrating, relevantly, any unreasonableness. It is difficult, if not impossible, for the Court to assess the reasonableness of positions taken against limited valuation evidence. It also seems clear in the present case that the Property was in need of some repair.

17. As regards what occurred on 20 June 2025, I do not regard it as accurate to contend that the first defendant was the unsuccessful party on that occasion. As set out above, the parties indicated when the matter was listed for directions on the morning of 20 June 2025 that they were close to agreeing terms and simply requested that I determine a few issues that remained outstanding between them. I did that. The position ultimately reached was not one that was clearly advocated by one party but involved an element of compromise. The hearing was, in any event, quite brief. The position adopted by the first defendant on the outstanding issues was not so unreasonable as to warrant a costs order against it.

18. In my view, the appropriate costs order is that the parties’ costs of the proceedings, as assessed or agreed are to be paid from the proceeds of sale of the Property. I so order.

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