Renee Jean Bechara & Anor v Faye Lorraine Turner

Judgment 1When, on 23 June 2012, Fay Turner as vendor signed a contract for the sale of her residential property to Renee Bechara and Craig Hobbs as purchasers, neither party imagined that they would be litigating the purchase in the Supreme Court of New South Wales within three months. But that is what has happened. Both vendor and purchasers wanted to go through with the purchase of the property, which has now occurred. But a failed settlement on 11 September 2012 led to litigation and this judgment about the issue of costs. 2These proceedings are unfortunate in several ways. It seems to be quite evident that the lawyers on both sides did initially seek the cheapest solution for their clients to a number of conveyancing issues. But miscommunications between them, in my view, have led to this litigation and to a consequent increase in legal expense on all sides. 3The relevant events span only four months. The vendor terminated the contract by notice of termination on 11 September 2012. The purchasers brought proceedings for specific performance of the contract made on 23 June 2012. The proceedings were filed in the duty list on 24 September 2012. They were made returnable on 28 September 2012 and then again on 5 October 2012. The transaction the subject of the proceedings settled on 19 October 2012. The proceedings were listed before me today for final argument about costs. 4The parties have starkly different costs contentions. The plaintiffs no longer seek the relief originally sought by way of specific performance because the contract has now been completed. The plaintiffs seek discontinuance or dismissal of the proceedings. The plaintiffs say that the normal rule that costs would follow the event on a discontinuance should not apply here because they claim the defendant's conduct, generated this litigation. The defendant says the normal rule under Uniform Civil Procedure Rules ("UCPR"), r 42.20 should apply. Both sides concede the Court has a discretion in the matter. I will examine the applicable law shortly. 5But first some more factual background is necessary. The contract for sale was signed on 23 June 2012, on its face a relatively unremarkable contract for sale of a residential property. But during the cooling off period the plaintiffs/purchasers requested and obtained the addition of a clause to the contract, special condition 13, that "it is an essential condition of this contract that on or by settlement the vendor will at her own expense remove from the title dealing AE 444835 order of the Court". 6A dealing of that number on the title to the property had resulted from a Family Law settlement made between the vendor, Ms Turner, and her former husband: the settlement gave her former husband an equitable interest in the property in a certain sum, which was significantly less than the total value of the property. The agreement provided that when one of the couple's children reached the age of 18 years that Ms Turner should pay her husband that sum, in default of which the property could be sold. Order 3 provided for the terms of the sale. The property was being sold in June this year in accordance with the order 3 default provisions, which relevantly provided as follows:- "In default of Order 2 above the real property shall be sold and the parties are then directed, forthwith from the date of default, to do all such acts and things and sign all necessary documents to effect a sale of the real property and by way of consequential arrangement that shall be made for the purposes of effecting a sale..." 7This order on the title explains the existence of special condition 13, which was apparently inserted for the protection of the plaintiff/purchasers at settlement. But the order and special condition 13 created additional conveyancing issues which, together with some miscommunications between the parties to the transaction, caused difficulties. 8It is worthwhile to dwell for a moment on what special condition 13 arguably meant. I do not have to decide its meaning on an application such as this, which solely deals with questions of costs. It obliges the vendor "at her own expense" to remove from the title dealing AE 444835 "on or by settlement". Leaving aside the obligation for removal "by settlement" which really means in context "before settlement", the removal must take place contemporaneously with settlement. 9Mr Puleo, the solicitor for the vendor, had what on the face of it seemed to have been quite a sensible and cost-effective solution to that contractual obligation. To save his client the expense of going to the Family Court and trying to remove the order by variation of the Family Court orders before settlement, his solution, was that the settlement would take place at the offices of Land and Property Information ("the Land Titles Office"). He secured information from the Land Titles Office that the Land Titles Office would, upon lodgement of the transfer at settlement, treat the orders on the title as satisfied and permit the transfer to be registered. 10The Land Titles Office confirmed this in a letter of 17 August 2012, some 3 weeks before settlement. To secure the position even further, Mr Puleo, not unreasonably, arranged for the execution of a deed between Ms Turner and her former husband, to ensure that it was made clear to the Land Titles Office that the other party to the Family Law proceedings, Ms Turner's former husband, also consented to this process. 11The policy applied by the Land Titles Office was that an order of the Court such as this can only be removed from a folio of the register by further order of the Court or by satisfying the terms of the order. The Land Titles Office said as much in its letter of 17 August 2012: "I note that Order 3 of the Order of Court filmed (sic) with registered dealing AE444836, states that the parties are to do all such acts and things and sign all necessary documents to effect the sale of the property. In this regard I note that the orders of court would be removed upon the registration of a properly executed Transfer (form 01T)". The parties have not pursued the first of these options for good costs reasons. The Land Titles Office made clear in this letter of 17 August 2012 that the lodgement of an executed transfer would satisfy the terms of the order. 12What the letter did not expressly say is that the Land Titles Office had perhaps reached that view partly as a result of the extra documentation lodged with the Land Titles Office by Mr Puleo, namely the deed between Ms Turner and her former husband. Mr Puleo sent the letter of 17 August 2012 to the solicitor for the vendor, Mr Novakovich. He did not point out that such a deed had been lodged with the Land Titles Office. That issue was not drawn to Mr Novakovich's attention at the time in any other way. 13Whether the deed between Ms Turner and her former husband was actually necessary for the Land Titles Office to facilitate lodgement and registration of the transfer at settlement has been a matter of some debate between the parties. I do not ultimately think that is decisive in this case. 14The events that then followed were in short compass. A notice to complete was issued. The parties made an appointment for settlement of the conveyancing transaction on 11 September 2012. The incoming mortgagee for the purchasers, Ms Bechara and Mr Nobbs, attended the settlement and was present with a representative from the Commonwealth Bank of Australia. 15At settlement the bank was apparently unprepared for what at least Mr Puleo expected to happen to complete the transaction. He expected that the bank, as incoming mortgagee, would have a cheque ready for the Land Titles Office to allow the transfer to be lodged for registration immediately upon settlement to satisfy the special condition 13 obligation. But the bank was not ready to lodge the transfer immediately. Why the bank was so ill-equipped on that occasion is something of a mystery: not one I ultimately have to resolve. But it led to a failure of the settlement. 16There are two perspectives on this. Mr Puleo says he had a conversation five days before the settlement in which he told Mr Novakovich that the reason that the settlement was planned to take place at the Land Titles Office was, as these reasons have already explained, for the purposes of making sure that special condition 13 could be satisfied at the moment of settlement. 17Mr Puleo says he thought he made it clear to Mr Novakovich that that was why the settlement was taking place at that location. It follows from that conversation, which is not in issue in the proceedings, that Mr Novakovich would have understood that Mr Puleo was expecting the bank to be in a position to settle and to register the transfer then and there in conformity with Land Titles Office policy. 18But Mr Novakovich did not arrange that with the bank. And he says that that was not his responsibility in substance because of the terms of special condition 13. It is here that the communication problem, which is really the heart of the case seems to me to lie. 19I do not have to decide what special condition 13 means. But it is open to this interpretation: that once the vendor was obliged on settlement to remove the order at her own expense; and once she notified the vendor through her solicitor that she intended to arrange a settlement in the way that she did, so that the she could remove the order at that moment; it is arguable that the general law of contract which requires the co-operation of parties to achieve the contractual object was engaged. The mechanism which had been notified for satisfying special condition 13 required the co-operation of both parties, because Mr Puleo could not communicate directly with the bank. 20It seems to me to be arguable that Mr Novakovich should have more actively co-operated with Mr Puleo to ensure there was communication of Mr Puleo's intent to the bank, because Mr Puleo could not speak to the CBA. The CBA was the private banker of Ms Bechara and Mr Nobbs. On the other hand, because the bank was the private banker of and owed obligations of confidentiality to Ms Bechara and Mr Nobbs it was Mr Puleo's co-ordinate obligation to check with Mr Novakovich that the bank fully understood what was expected of it at settlement. 21Neither solicitor seems to have approached the matter by detailed communications to ensure that this mutual obligation was discharged. I do not wish to criticise either side particularly for this. It is evident in the correspondence in the conveyancing transaction to that point that both sides were attempting to save their clients money. 22But when the settlement fell over, there was a strong reaction on the side of Mr Puleo. He had received communications that the purchasers wished to exit the transaction. He served a notice of termination of the contract. This led the purchasers, who wished to complete the transaction, to commence these proceedings. All that then followed has undoubtedly caused considerable personal and financial stress and hardship to both parties. 23When the parties came before the Court on 28 September 2012 both Mr Flaherty and Mr Joseph, who have ably argued the matter before me today, presented the issues to the Court over a number of hours. 24On 28 September 2012 the Court directed the plaintiff to facilitate the holding of joint discussions between the defendant, the plaintiff, and the bank for the purposes of reaching agreement as to the method of settlement in this conveyancing transaction which will satisfy all parties: direction 8. Otherwise the parties were given the opportunity of bringing the matter on rapidly for a final hearing on 5 October 2012. 25On 5 October 2012 the matter came before the Court again in the duty list. I was informed by counsel for both sides that the discussions with the Commonwealth Bank of Australia had resulted in what appeared to be a solution for the mutually satisfactory settlement of the transaction. The Court was asked to adjourn the matter until today for any residual arguments about costs. 26In the meantime the contract settled on 19 October 2012. It did so after a conference call on 4 October 2012 between the three parties in conformity with the Court's 28 September 2012 direction 8. This resulted in the idea that settlement would take place on 19 October 2012 with the bank being informed of the clear intent of what the vendor wanted. A more senior representative of the Land Titles Office was present at the 4 October 2012 discussions, namely, the author of the letter of 17 August 2012. 27The matter did settle on 19 October 2012: cheques were exchanged, and a certificate of title handed over and accepted by the bank. But the bank did not actually lodge the transfer for registration at that moment. The bank accepted that would be done later. Apparently the increased communication that had taken place on 4 October 2012 had allowed the bank to conclude: what had not been acceptable on the 11 September 2012 was acceptable on 19 October 2012. The bank has said it will seek to register the transfer in accordance with its ordinary processes the document at a later time. 28It is with this background that the parties put their submissions. Both sides accept that the UCPR, r 42.20 provides for the result that upon the dismissal of the proceedings or the plaintiffs' discontinuance, that the plaintiffs would pay the defendant's costs. Both sides accept though, that I have a discretion to vary this result. The real argument here is about the exercise of that discretion. 29The plaintiff submits that in the exercise of the Court's discretion the defendant should pay the plaintiffs' costs. The defendant says that in the exercise of that discretion the plaintiffs should pay the defendant's costs. I have heard detailed argument from both sides. I have reached the view that this is a case where both parties should bear their own costs of the proceedings. 30The relevant law is not in dispute. In Immigration and Ethnic Affairs, Re Minister for; Ex parte Lai Qin (1997) 186 CLR 622 McHugh J set out the applicable principles. McHugh J said in Immigration and Ethnic Affairs, Re Minister for; Ex parte Lai Qin (1997) 186 CLR 622 at 624-5; ALR 1 at 3:- "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. ... Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. ... If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. [Footnotes omitted]". 31The Court can sometimes decide that one or other side would have inevitably won. But that is not this case. The Court does not engage in a hypothetical hearing. McHugh J stated that if one side behaves unreasonably, causing litigation, then it is possible for an order to be made for that party to pay the other side's costs, notwithstanding the lack of a hearing. He also said that if both parties behave reasonably that the usual result will be that each party will bear his or her own costs. 32That is the applicable principle here. Mr Joseph for the plaintiff says that this case is like Metro Hotel Sydney Pty Ltd v Kol Tov Pty Ltd [2010] NSWSC 1195. But that is not so: there is no supervening event here that put an end to the litigation. Mr Flaherty has sought to say that cases such as Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VR 469, Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 and Australian Securities and Investments Commission v Rich [2003] NSWSC 297 are directly applicable to the Court's exercise of discretion here and that the defendant should pay the plaintiffs' costs. These cases say in effect that where the defendant has either capitulated or the plaintiff has achieved substantially what the plaintiff sought on the application, after a non-contest by the defendant, that the defendant paying the plaintiff's costs is the appropriate result. 33But the odd thing about this case is that the same can be said, it seems to me, of both parties. The defendant has also achieved the result which she sought to achieve. What Mr Puleo explained to the solicitor for the purchasers on day one, has in fact been the basis for the ultimate conveyancing settlement. 34But Mr Flaherty further says, with considerable force, that, even so, the response by the solicitor for the vendor, Mr Puleo, so rapidly on 11 September 2012 to issue a notice of termination on the day of the failed settlement was what really provoked the litigation. 35But there are a number of answers to that it seems to me that make it a less powerful point. The litigation in fact was not commenced for another 13 days. I do not know exactly what happened in the meantime. But Mr Flaherty's argument only has power if it can be said in his favour: (1) that the notice of termination must have been invalid; or (2) that the situation which has now arisen is because in effect there has been a concession of invalidity in the notice. 36The fact settlement has now occurred is as much to be explained by the hypothesis that the defendant has accepted that the termination notice is invalid as it may be explained by the competing hypothesis that the plaintiffs have accepted that Mr Puleo's communications about how settlement should have occurred were always valid and have now finally been properly communicated to the bank by Mr Novokovich. 37Mr Flaherty says this is not an answer. But, in my view, it is arguable that the special condition 13 obligation in the circumstances was one of co-operation. It is also arguable the plaintiffs were in breach of that obligation at the time the notice was issued and the notice may have been justified on that basis, even though not expressly stated: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) SR (NSW) 632 at 643. 38I am of the view that all the Court can conclude in this case is that in the conduct of this litigation both sides have acted reasonably. Both sides had reasonably arguable cases, which they pursued in the litigation without any unreasonable conduct. The parties then co-operated in the Court's directions for the purposes of achieving a conveyancing settlement. 39It is for those reasons that I conclude that each party should bear their own costs of these proceedings. 40I add that this unfortunate result will probably please no-one. On the other hand, I do not think this is a case where either side should be put in the position of having to bear the legal costs of the other side. 41Accordingly, I make the following orders: 1.I dismiss the proceedings. 2.I make no order as to costs to the intent that each party will bear his or her costs of the proceedings.