Sckaff v Sckaff

Richard's offers

1. On 9 March 2019, Richard's solicitors wrote to George's solicitors and, with reference to the assessed value of the renovations performed at the Property being $200,000, made the following offer: "In all the circumstances, and adopting a commercial approach, we are instructed that our client would, on a commercial basis, be prepared to settle all claims in the proceedings by paying the sum of $200,000, payable when your clients give to our client vacant possession in good order of the property at [the Property], which must occur within 3 months after the date of this letter."
2. The letter noted that the offer was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and that, if the offer was not accepted and Richard obtained a judgment at least as favourable as the offer contained in the letter, Richard intended to make an application for indemnity costs relying on the letter. The offer was open until 5:00pm on 9 May 2019.
3. It will be noted that Richard did not achieve a better result than was offered in that letter.
4. On 14 June 2023, Richard's solicitors again wrote to George's solicitors. The letter contended that George's claim could only succeed in relation to his renovations and noted that, by reference to various authorities, a charge in George's favour should be in the quantum of the increase in capital value. They then said that expert valuation reports from 2018 and 2019 agreed that the improvements effected by George increased the capital value of the property by $200,000 and valued the Property between $1,550,000 to $1,650,000. The letter offered to settle the proceedings with 25% of the net proceedings of sale of the Property to be paid to George, with the sale being facilitated by Richard, and with each side bearing their own costs. The offer remained open until 9:30am the following Monday, being 19 June 2023.
5. On 16 June 2023, the parties received a report from their joint valuation expert, valuing the Property at $2,200,000.

The parties' submissions as to costs of the trial

1. Richard submitted that he should have his costs of the proceedings below. The "event", for the purposes of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1, was George's failure to prove his primary claim that he beneficially owned the Property. Further, Richard submitted that the 14 June 2023 letter entitled him to costs on an indemnity basis. Richard maintained that the offer was a genuine compromise, made at a time when most of the evidence had been served, and George had acted unreasonably in refusing it. The offer was to be tested as at the time the offer was made and not with the benefit of hindsight: C&V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd (No 2) [2023] NSWCA 240 at [30].
2. Richard submitted that the offer of 14 June 2023 was clear and unambiguous and the letter explained why the offer was more favourable to George than the joint valuation evidence. The assertion made in the letter, that the objective evidence supported the proposition that Richard paid the deposit and mortgage repayments of the Property, was said to have been borne out by the findings of this Court.
3. Further, Richard maintained that it was unreasonable for George not to accept the offer of 14 June 2023. At the time that offer was made, George was in receipt of the documentary evidence showing Richard's payments towards the mortgage repayments of the Property, George was aware that he and Anne had made no contributions to the purchase of or repayment of the loan to purchase the Property and were aware that there was no documentary evidence to support their contention that the Property was bought for George by his parents. George was aware of the difficulties in displacing the position that Richard held beneficial title to the Property commensurate with his legal title. It was said that acceptance of the offer of 14 June 2023 would have likely resulted in George receiving up to $550,000, which George should have been aware was significantly larger than the agreed capital value of the improvements at $250,000.
4. For his part, George submitted that he should receive his costs of the trial. He submitted that Richard had never made a "plus costs offer" and his admissions never admitted any entitlement of George to any relief. Although Richard capitulated on the point in closing submissions, that did not involve any concession that Richard should grant a charge or pay interest or costs on the value of the increased capital. In short, George submitted that he had obtained relief in circumstances where it was necessary to bring these proceedings in order to obtain that relief.
5. George contended that the offers of 9 March 2019 and 14 June 2023 did not justify a departure from the ordinary position. Neither identified itself as a Calderbank offer, neither was made exclusive of costs pursuant to UCPR, r 20.26, or was stated to be on a "plus costs" basis, or was made in terms sufficiently clear to be capable of assessment such that it could be said that George was unreasonable not to accept it.
6. George then submitted that it could not be said that he should have brought his claim in the District Court because the equitable charge sought was not within the Court's jurisdiction: s 134(1) of the District Court Act 1973 (NSW). In any event, the primary claim involved an equitable estoppel claim, with ancillary relief, for which the District Court had no jurisdiction. The result was that it was not unreasonable for George to bring the entire proceeding in the Supreme Court.
7. In reply, Richard submitted that it was wrong to say that the concession as to the claim for improvements was first made at the end of the trial, and instead it had been accepted in the earlier offers and in opening submissions in the court below, while he reiterated that George had sought full beneficial ownership of the Property, not equitable compensation. He submitted that the absence of notice that an offer will be relied on for a special costs order was not determinative, citing Horseshoe Pastoral Company Pty Ltd v Murray Smith (Trading as South Coast Tile & Slate Company) (Court of Appeal, 7 November 1995, unreported) and Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212 at [29]. Further, Richard submitted that the offer stated that he would not be seeking a costs order if the offer was accepted, therefore, it could be inferred that the offer might be relied on for costs purposes. George also had competent legal representation and the Court should infer that they would be aware of the risk of a special costs order.
8. Richard submitted that the central question was whether it was unreasonable for George not to accept Richard's offer of 14 June 2023. Richard emphasised that he had offered to pay George 25% of the value of the Property when it was open to argue that George was entitled to nothing, having lived in the Property rent-free for a significant period. In any event, 25% of the value of the Property equated to $550,000, which significantly exceeded the amount of $250,000 as the likely quantum of any award of equitable compensation. Further, the basis of the offer was that neither party would apply for their costs, and George should have known that those costs were likely to be significant.

Consideration

1. Richard's first offer, made in March 2019, is not relevant because George achieved a more favourable result.
2. We do not think it was unreasonable for George to reject Richard's offer of 14 June 2023. It was made on the Wednesday before trial, and was open for acceptance until 9.30am on the Monday before the trial commenced. It was made at a time before all the relevant evidence was served. It was not expressed to be a Calderbank offer. It entitled George to 25% of the net proceeds of sale, but obliged George to vacate possession within 60 days. Acceptance of the offer would have had important practical consequences which Richard's submissions overlook.
3. We acknowledge that 25% of the net proceeds of sale might easily exceed the $250,000 which George has obtained. However, the relevant comparison is not, contrary to Richard's submission, merely between the equitable compensation ordered and the likely fraction of the net proceeds of sale in the offer.
4. Acceptance of the offer would entail the certainty that George would be out of possession, and left with a claim upon 25% of an undetermined amount. That undetermined amount would only become available to him at an undetermined time in the future. The history between these two brothers suggests the likelihood as to disputation concerning the readying of the house for sale, the timing of any auction or selling campaign, and the setting of a price. Assuming the Property were sold, there could also be disputes over the costs of sale which would be subtracted in order to obtain a net amount. In the meantime, George would have had to leave his home for many years, on relatively short notice, and find funds for alternative accommodation for such time until 25% of the net proceeds was determined and paid.
5. Especially having regard to the particular circumstances of this family, we are unpersuaded that it was unreasonable for George not to accept that offer.
6. We turn to the exercise of the discretion as to costs at first instance. We do not accept George's submission that he should obtain his costs at first instance. Although the result of the appeal is that he enjoyed some success, his principal claim was for full beneficial title to the Property, and in that respect he has failed.
7. Nor do we accept Richard's primary submission. Richard's actions to evict George caused George to commence proceedings, as a result of which he obtained a substantial benefit, albeit significantly less than the relief which he sought. Many plaintiffs go to court and achieve orders in their favour which are much less than what they seek.
8. For that reason, the timing of and extent to which Richard acknowledged an obligation to pay equitable compensation for the value of improvements effected by George is significant. We do not accept George's submission that Richard's concession as to compensation was made only at the conclusion of the trial. His opening submissions, dated 14 June 2023, nominated an amount of $200,000, but added "or the current market value of the capital improvements effected by the Plaintiffs". By closing submissions, that had increased to $250,000.
9. There was thus an in-principle acceptance of compensation to be paid, in an amount influenced by the evidence at trial, reflecting the extent to which George ultimately succeeded, in proceedings made necessary for him to bring by reason of Richard's conduct in taking steps to evict him. Applying a broad-brush approach as is customary in this area, we think the appropriate order is that there be no order as to costs, with the intent that the parties bear their own costs of the proceedings at first instance.

Costs of the appeal

1. The parties agree that Richard should have his costs of the appeal. However, Richard sought an order for indemnity costs. That submission was based upon the offer made shortly before trial.
2. Richard stated, correctly, that UCPR, r 51.49 entitles this Court when exercising the costs discretion for costs of an appeal to have regard to offers of compromise and Calderbank correspondence in the court below. However, his submissions made no reference to the authorities collected in Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194 at [54]-[57], the upshot of which is as was stated in Bathurst Regional Council as Trustee for the Bathurst City Council Crown Reserves Reserve Trust v Thompson (No 2) [2012] NSWCA 420 at [16]: "While it is true that r 51.49 permits the Court of Appeal to have regard to any offer of compromise made in the court below, the usual position is that appeal costs should primarily be determined by the issues in and the outcome of the appeal proceedings themselves: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [37] ff. As the appellant submitted, that was also the approach followed in Uniting Church in Australia Property Trust (NSW) v Takacs (No 2)."
3. No basis has been made out to depart from the ordinary position. In any event, for the reasons already given, the pre-trial offer does not warrant a special costs order.
4. The result is that the respondents should pay the appellants' costs of the appeal on the ordinary basis.

Stay and set-off and interest

1. Richard also seeks an order that his obligation to pay $250,000 be stayed pending the assessment of his costs, on the basis that (as was put in his solicitor's letter of 23 August 2024): "On any view, your clients' costs liability to our clients will exceed our clients' liability to pay equitable compensation ($250,000) by some margin. If the appellants are required to immediately pay the respondents the sum of $250,000, there is a real risk they will be unable to recover this amount as part of enforcing your clients' costs liability in circumstances where the respondents will be unlikely to satisfy any relevant costs order."
2. Richard's solicitor's letter states that the appellants' costs to date are "approximately": 1. $340,548.54 at first instance, comprising "legal fees" of $115,466.56, counsel fees of $148,022.26 and other disbursements of $77,059.72, and 2. $214,760.82 on appeal, comprising legal fees of $26,450, counsel fees of $177,727.25 and other disbursements of $10,583.57.
3. In light of our conclusion regarding the costs of the trial, the premise on which costs would exceed Richard's liability "by some margin" falls away. Without any costs of the trial, the premise of Richard's submission that there needs to be some stay of his obligation to pay $250,000 rests on his costs of the appeal exceeding $250,000.
4. The letter from Richard's solicitor included a table which makes it clear that "legal fees" were exclusively fees charged by Richard's solicitor. The disbursements in this Court were the filing fee ($3,942) and the cost of the appeal books ($6,641.57). A further document that was annexed to the solicitor's letter indicated that, in this Court, senior counsel (who had not appeared at trial) charged $88,563.75. Junior counsel (who had appeared at trial) charged $82,112.50. In our view, those costs bear no relationship to such costs as are recoverable on assessment.
5. The principal work involved in a one day appeal in this Court would be the preparation of the notice of appeal, written submissions in chief and reply, a chronology and preparation for hearing. Regard may be had to the Guideline published by the Costs Assessment Rules Committee on 24 October 2023 (which is available on this Court's website) which indicated that in cases where it is fair and reasonable to have briefed senior counsel, a daily rate should be in the range between $6,000 and $10,000, and for junior counsel in the range between $2,400 and $5,600 (in all cases, exclusive of GST). We are unpersuaded that anything like $177,727.25 for counsel's fees would be recoverable on assessment as the costs of the appeal. On the basis of the material available to this Court, we consider that it would be very substantially less than that.
6. The above is sufficient reason to reject Richard's application for a stay based on an entitlement to costs. We shall not pause to comment upon the difficulties in establishing a basis for any legal or equitable set-off, given that Richard has merely a favourable costs order which has not been quantified; cf. Boensch v Bingham [2024] NSWCA 116 at [56]-[57] and the authorities there cited. Nor shall we pause to address the inconsistency between (a) proffering when the appeal was heard, as a term of obtaining relief, the payment of $250,000 without qualification and (b) orders having been made on the basis of that offer, and later seeking to undermine the benefit of that term by a regime whereby the payment is stayed and offset against a future liability to pay costs. The sense of the offer, at least as this Court understood it when it was made, was that George who was forced to find new accommodation would receive, at the time he needed it, money reflective of the value he had added to the Property which was available to be spent on his new accommodation.
7. George sought interest on the $250,000, at the pre-judgment interest rates, from 14 June 2023 to 15 December 2023, and at the post-judgment rate from 15 December 2023. Richard opposed this.
8. For his part, Richard sought elaborate orders for interest on his costs, based on post-judgment rates from the time amounts were paid. Richard submitted that it would be just and equitable to order interest on any costs in accordance with the following formula: "In respect to orders 3 and 4 above, the respondents are to pay the appellants interest at the prescribed rate as defined in s 101(5) of the Civil Procedure Act 2005 on costs and disbursements paid by them to their legal advisers on the Allowed percentage (as defined below) of each amount of costs and disbursements actually paid by them, from the date of payment of each such amount of costs and disbursements until such time as the respondents have paid the costs due to the appellants under any order made in these proceedings. For the purpose of this order: X - equals the total amount of costs and disbursements which the appellants have paid or are liable to pay to their legal advisers in connection with these proceedings. Y - equals the total amount of costs and disbursements allowed on assessment to the appellants in connection with these proceedings. The Allowed Percentage equals ((y/x ) x 100)%."
9. Neither side's submissions need be elaborated in detail. George is entitled to a benefit reflecting the value his improvements have effected to the Property. However, while he remains in possession, he is enjoying the benefit of those improvements. We accept Richard's submission that there should be no entitlement to interest.
10. Concerning costs, the only costs capable of engaging an entitlement to interest are the costs of the appeal. As is apparent from what we have already said, something has gone awry with those costs. If (and there is no evidence of this) they have been paid in advance, it is a matter of a relatively small number of months, noting that the notice of appeal was filed on 13 March 2024 and the appeal was determined less than a month ago. We are not minded to make any orders as to interest on costs.

Orders

1. The final question is as to the costs of the application for further orders. To some extent Richard has been unsuccessful overall having regard to the orders he sought. We think that he should pay 50% of George's costs of the application after this Court's principal judgment was delivered.
2. For those reasons, the Court's orders are: 1. Declare that the appellants are entitled to possession of the property at [No 6] (the Property). 2. Order that within 90 days, the respondents give to the appellants vacant possession of the Property in good order and condition. 3 Order that there be no order as to the costs of the proceedings at first instance, with the intention that the parties bear their own costs. 4. Order that, subject to order 5 below, the respondents pay the appellants' costs of the appeal. 5. Order that the appellants pay 50% of the respondents' costs of the application for further orders including costs after the Court's principal judgment was delivered.

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