Sabah Yazgi v Permanent Custodians Limited

Civil Procedure Act 2005 (NSW) ss 56, 98 Contracts Review Act 1980 (NSW) LEGISLATION CITED: Conveyancing Act 1919 (NSW) s 66G Real Property Act 1900 (NSW) s 57 Uniform Civil Procedure Rules 2005 (NSW) rr 20.26, 42.1

PARTIES: Sabah Yazgi (Appellant) Permanent Custodians (Respondent)

COUNSEL: PM Lane; E Elbourne (Appellant) RG Forster SC; BJ Burke (Respondent)

SOLICITORS: La Rosa Izzo & Co (Appellant) Hicksons (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): SC 11886/2004

LOWER COURT DATE OF DECISION: 30 March 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Permanent Custodians v Yazgi & Anor [2007] NSWSC 279

• 9 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40232/07

BEAZLEY JA IPP JA TOBIAS JA

2 October 2007 Sabah Yazgi v Permanent Custodians Limited (No 2) Judgment 1 THE COURT: The Court gave judgment in this matter on 12 September 2007, in which it allowed the appeal and set aside the orders made by Harrison AsJ at first instance. The Court made a number of declarations, including, relevantly, the following: "3. Declare that in respect of the interest of Sabah Yazgi in the land described in Folio Identifier C/338681 and located at 5 Myall Street, Punchbowl, New South Wales 2196, the total amount secured by registered Mortgage AA438750J is nil;

4. Declare that Sabah Yazgi is entitled to a discharge of that mortgage insofar as it affects her interest in the land described in Folio Identifier C/338681 and located at 5 Myall Street, Punchbowl, New South Wales 2196" 2 The Court also ordered (Order 5) that Permanent Custodians Limited (Permanent Custodians) execute a discharge of mortgage insofar as it affected the interests of Sabah Yazgi in the property. In addition, the Court declared that Permanent Custodians was entitled to an order pursuant to s 66G of the Conveyancing Act 1919 (NSW) (the Conveyancing Act) and ordered that the matter be remitted to the associate judge for the appointment of trustees for sale. 3 Harrison AsJ had reserved the costs of the trial. Upon the application of Permanent Custodians, this Court also reserved the costs at first instance, to enable Permanent Custodians to make an application in respect of those costs, notwithstanding Sabah Yazgi's success on the appeal. Both parties have now provided written submissions to the Court in respect of the application for costs and in addition Permanent Custodians has filed an affidavit of Roderick Stewart Cameron, sworn 18 September 2007, in support of the application. 4 Permanent Custodians' primary submission was that as the trial judge reserved the costs of the trial, and as the matter has been remitted to her Honour for the finalisation of the matter, the question of costs should also be remitted. Alternatively, Permanent Custodians submitted that if this Court is of the view that it should determine the question of costs at trial, then an order for costs ought to be made in its favour. 5 Permanent Custodians' application for costs was based on two premises. First, it was submitted that it had made offers of compromise prior to the commencement of the hearing, either under the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR), r 20.26, or as a Calderbank offer, and that having regard to the orders made on the appeal, the result of the hearing was "no less favourable" than the offers that had been made. Secondly, it was submitted that Sabah Yazgi had not succeeded on any of the defences that she had raised at trial, nor had she succeeded on the matters raised on her Further Amended Cross-Claim. In those circumstances, it was submitted that in the exercise of the Court's discretion, Sabah Yazgi should pay Permanent Custodians' costs of trial.

Offers of settlement 6 The first offer of settlement was made under cover of a letter dated 15 November 2006. The trial was scheduled to commence on 4 December 2006. The offer was in the following terms: "(i) ORDER that the Mr and Mrs Yazgi [sic] give [Permanent Custodians] possession of the Property;

(ii) JUDGMENT against Mr Yazgi in the sum of $355,000.00 plus interest, fees and charges;

(iii) DECLARATION that the judgment against Mr Yazgi is secured against Mr Yazgi's one half interest in the Property;

(iv) JUDGMENT against Mrs Yazgi in the sum of $50,000.00;

(v) DECLARATION that the judgment against Mrs Yazgi is secured against Mr Yazgi's one half interest in the Property;

(vi) ORDER that William Hamilton and Pino Fiorentino, or some other fit and proper persons be appointed as trustees for the sale of the Property under section 66G of the Conveyancing Act 1919 (NSW);

(vii) ORDER that the net proceeds of the sale of the Property be distributed as follows: a. half thereof less the judgment sum of $50,000.00 to Mrs Yazgi; and b. the balance thereof to [Permanent Custodians]." 7 The offer was specified to remain open until 24 November 2006 and was stated to have been made in accordance with UCPR r 20.26. 8 The second offer was made at about 12 noon on 5 December 2006, in a discussion between the respective solicitors for the parties. It appears that in that discussion, Permanent Custodians' solicitor intimated that the offer contained in the letter of 15 November 2006 was still open. Following a discussion between the solicitors, Permanent Custodians' solicitor stated that Permanent Custodians would waive any claim against Sabah Yazgi for its costs. However, Sabah Yazgi's solicitor informed Permanent Custodians' solicitor that because of Legal Aid requirements, they could not settle without a contribution towards Sabah Yazgi's costs, which he considered to be in the order of $100,000. There was a further comment about some interlocutory costs and then, a short time thereafter, Sabah Yazgi's solicitor informed Permanent Custodians' solicitor that the offer was rejected. 9 Permanent Custodians contends that the offer contained in the letter of 15 November 2006 satisfies the requirements of UCPR r 20.26 or, alternatively, constituted a Calderbank offer and that Permanent Custodians had ultimately obtained a result more favourable than that contained in its offer made to Sabah Yazgi. 10 The Court is of the opinion that the offer of compromise satisfied the requirements of UCPR r 20.26. Regardless of whether that is so or whether the letter should properly be construed as a Calderbank offer, Permanent Custodians' submission should be rejected. The result of the proceedings was not more favourable than the offer. There was a fundamental difference in the orders made by this Court and the offer made. In particular, this Court did not make an order for possession. Further, this Court found that there was no legal obligation on Sabah Yazgi to make any payment in respect of the mortgage, but noted that there had been an agreement between the parties that the amount of $54,562.15 plus interest would be deducted from Sabah Yazgi's share of the proceeds of sale. 11 Permanent Custodians had proposed an order that there be judgment in the sum of $50,000 against Sabah Yazgi and a declaration that that judgment was secured against her interest in the property: see [6] above. Although the amount of $50,000 that Permanent Custodians was prepared to accept by way of a judgment against Sabah Yazgi was less than the sum of $54,562.15 plus interest that she was prepared to pay by way of agreement (and without any legal obligation to do so), an agreement to pay an amount is both conceptually and juridically different from a judgment in a lesser sum. Because Permanent Custodians failed in its application for an order for possession, there is no legal barrier to Sabah Yazgi staying in the property until it is sold as a consequence of the orders made by the Court. The right to possession is a significant right of monetary value. Further, under the Court's orders there is no monetary judgment sum against her. This is also of practical importance, as her personal and real property cannot be made the subject of enforcement proceedings and she is not liable to bankruptcy. Finally, there is no sum secured against her interest in the property. 12 Accordingly, Permanent Custodians' application for costs of the trial based upon the offers made is rejected.

Should Permanent Custodians have an order for costs? 13 It is preferable that this Court determine the question of costs at trial. This Court is fully apprised of the issues as they were conducted at first instance, as well as the issues on the appeal. The Court is in a better position to assess what the appropriate order for costs ought to have been at trial having regard to the manner in which the issues were resolved on the appeal. If the matter is remitted to her Honour, there is the possibility that one or other of the parties will pursue further appellate processes. Given that this Court is already apprised of all the issues, that course should not be made available to the parties. This Court is under a statutory injunction to attend to the just, quick and cheap resolution of the real issues in the proceedings: the Civil Procedure Act 2005 (NSW) (the Civil Procedure Act) s 56. The unnecessary facilitation of further appellate processes would offend this mandate. 14 Permanent Custodians was the moving party at trial, seeking orders for possession of the land; for the payment of moneys, either under the loan contract, or otherwise under the mortgage; and, alternatively, an order for the appointment of trustees for sale pursuant to s 66G of the Conveyancing Act, with an order that the net proceeds of sale be distributed equally between Sabah Yazgi and Permanent Custodians, save for the payment of the sum of $54,562.15 plus interest out of Sabah Yazgi's share. 15 By way of Defence and Cross-Claim, Sabah Yazgi: challenged the validity of the service of the notice under the Real Property Act 1900 (NSW) s 57; alleged that the loan contract and the mortgage were the result of the fraud of her former husband and a commission agent retained by Permanent Custodians; alleged that the mortgage was void; and alternatively alleged that the mortgage and loan contract were unjust within the meaning of the Contracts Review Act 1980 (NSW) (the Contracts Review Act). In respect of the claim under the Contracts Review Act, Sabah Yazgi sought a declaration that the mortgage and loan contract were void; that they not be enforced against her or that they be terminated; a declaration that she was entitled to a charge over the property so as to extinguish any rights and entitlements thereto by her former husband; and an order that she be recorded in the Register as the sole proprietor of the property. 16 Permanent Custodians contends that almost the whole of the trial was taken up by these issues; that Sabah Yazgi has succeeded on none of them; and that she succeeded on the appeal on the basis that the mortgage should not be enforced against her as it did not secure anything as against her interest in the property; and that that was an argument not raised at trial. 17 The central factual issue at trial was whether the loan contract and the mortgage document had been forged. Nearly all issues, including the relief sought under the Contracts Review Act but for the allegation that the s 57 notice was not validly served, necessarily fell to be determined depending upon the factual answer to that question. Indeed, Permanent Custodians resisted Sabah Yazgi's claim under the Contracts Review Act on the basis that that Act had no application because Sabah Yazgi was not a party to any "contract", since, on the hypothesis that she did not sign the document, there was in fact, no contract. 18 There was one factual issue upon which Sabah Yazgi did not succeed, namely, that the commission agent who brokered the loan contract was also involved in the fraud practised upon Permanent Custodians by her husband in forging her signature. However, there were circumstances relating to the loan contract, and in particular the fact that the commission agent received one half of the loan moneys as his commission, that underpinned that claim. In the Court's opinion, it was not unreasonable for such a claim to be made, in the sense that there was a basis for it, notwithstanding that in the end result it was not successful. 19 Permanent Custodians also alleged in support of its application for costs that Sabah Yazgi had opposed Permanent Custodians' attempt to seek relief under s 66G of the Conveyancing Act. 20 The claim for the appointment of trustees under s 66G was first made in Permanent Custodians' Amended Statement of Claim on the first day of the hearing (although this claim had been signalled earlier in facsimile communication between the parties). That claim was made in the alternative to Permanent Custodians' primary claim for an order for possession. On the appeal, even though Permanent Custodians conceded that the mortgage and loan documentation had been forged, it maintained its claim for possession, as its central argument was that on the proper construction of the mortgage, Yasin Yazgi's indebtedness under the mortgage was secured over the whole of the property. 21 Counsel for Sabah Yazgi contends that, contrary to Permanent Custodians' submission, Sabah Yazgi made an express concession as to the appropriateness of an order under s 66G. She points to the submissions made at trial and in particular, to para 37 of Sabah Yazgi's submissions in reply, in which Sabah Yazgi conceded that she was liable for the benefit accruing from her half share of the refinancing of the Commonwealth Bank Loan, which was paid out from the moneys obtained under the loan contract. Whilst this concession did not expressly refer to Permanent Custodians' claim for relief under s 66G, it is apparent that the only circumstance in which that concession was appropriate was in relation to a claim for the appointment of trustees. 22 In the Court's opinion, given the circumstances in which the claim under s 66G was made, namely as a subsidiary, alternate claim to Permanent Custodians' principal claim for possession, the fact that Permanent Custodians has ultimately been held entitled to relief under s 66G is not sufficient to entitle it to costs in whole or in part of the trial. Permanent Custodians' entitlement to relief under s 66G was always available and in fact was the effective means by which it could enforce its claim against Yasin Yazgi, having regard to Yasin Yazgi's indebtedness under the loan contract and the indefeasibility that attached to his interest in the property by virtue of the registered mortgage. Sabah Yazgi did not resist any relief sought by Permanent Custodians as against Yasin Yazgi. Her position was that she was not similarly affected and she has been successful in so contending. 23 Permanent Custodians further contended that the issue upon which Sabah Yazgi succeeded on the appeal was not argued at the trial and submits, somewhat inconsistently, that it was an issue that took very little time at the trial. However, the essential relief obtained by Sabah Yazgi on the appeal was a declaration that she was entitled to a discharge of the mortgage insofar as the mortgage affected her interest in the property and a consequential order that Permanent Custodians execute a discharge of the mortgage insofar as it affected Sabah Yazgi's interest in the property. A submission to this effect was made in Sabah Yazgi's written submissions at trial dated 5 December 2006.

What costs order should be made? 24 There is no doubt that on the appeal, the arguments advanced were more sharply focused than at trial. This is not unusual and was particularly so in this case, given that at trial, Sabah Yazgi was faced with having to prove that her signature was forged. As the effect of the orders made on the appeal was that Sabah Yazgi was entitled to relief on her Further Amended Cross-Claim and Permanent Custodians was not entitled to the principal relief it sought on its claim, Sabah Yazgi is entitled to her costs, unless it appears that some other order should be made as to the whole or any part of the costs: Civil Procedure Act s 98; UCPR r 42.1. In the case where there are multiple issues litigated, the court may, in the exercise of its discretion, order that a successful party have part only of its costs. However, it does not necessarily follow that that is the appropriate order. The commencing position is that costs follow the event so that a successful party is entitled to costs. It may be appropriate to order that a successful party be deprived of costs or a portion of the costs if the matters upon which that party is unsuccessful took up a significant part of the trial, either by way of evidence or argument. This proposition is well established and does not require any discussion of the caselaw, which is conveniently contained in the annotations to r 42.1 in Ritchie's Uniform Civil Procedure (NSW): paras 42.1.5; 42.1.10; 42.1.15. 25 In this case, although there were multiple issues, none of the claims made were inappropriately brought; there was no evidence, and it was not apparent from the reasons of the associate judge that Sabah Yazgi had in any way unnecessarily protracted the trial; and the matter that occupied most of the time taken in giving evidence related to the question of the forgery, which, as is indicated above, was the fulcrum around which the entitlements of both Sabah Yazgi and Permanent Custodians revolved. 26 In those circumstances, Sabah Yazgi should be entitled to the costs at first instance. Insofar as there will be costs incurred on the s 66G application, those costs will be dealt with in accordance with the usual practice in that regard. 27 Accordingly, the Orders of the Court in relation to the costs of trial are as follows:

1. Permanent Custodians is to pay Sabah Yazgi's costs of the trial (including the costs on the Cross-Claim);

2. Permanent Custodians is to pay the costs of this application for costs of the trial. **********

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