Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey and the persons listed in Schedule A to this Statement of Claim trading as at all material times Sparke Helmore

Whether an order for costs ought be made

1. In support of their application, the defendants relied in part a letter dated 3 July 2020 from the defendants' solicitors to the plaintiff's solicitors in which they said, of present relevance: "… 2. The plaintiff's claim demonstrates that, at the very best, the plaintiff has a damages claim in contract or tort for an amount significantly less than $500,000 even if it is accepted (which is denied) that any of the amounts claimed by the plaintiff were recoverable. 3 In those circumstances, there was no need and the plaintiff should not have elected to pursue proceedings in the Common Law Division of the Supreme Court of New South Wales. Moreover, at the time that election was made, there does not appear to have been any reasonable basis for the plaintiff to have concluded that the proceedings would involve issues or damages which would attract the jurisdiction of the Supreme Court of New South Wales. 4. These are proceedings to which r 42.34 of the Uniform Civil Procedure Rules 2005 (NSW) applies. If (contrary to the position of our clients) the plaintiff is successful in any aspect of its claim, then our client will rely upon r 42.34 and the matters outlined above to argue that the plaintiff ought not to be entitled to any order for costs in these proceedings. …"
2. Thus, the defendants notified the plaintiff of their contention that the proceedings could (and should) have been brought in the District Court and also that, if the damages were less than $500,000, they would seek that there be no order as to costs.
3. Mr Weinberger, who appeared for the plaintiff, submitted that the plaintiff was justified in commencing and continuing the proceedings in this Court as there was a "real possibility that the plaintiff would be awarded no less than $500,000 … instead of the sum of $285,598.40 (after a deduction of 30% for contributory negligence)." As Mr Weinberger pointed out, absent the finding of contributory negligence, the judgment sum would have been $371,277.92. He submitted that the claim for damages of the costs of the Equity Division proceedings amounted to $75,000 and that, although the claim was rejected, it was arguable. Mr Weinberger sought to increase the figure of $75,000 by reference to interest on costs which he argued would be recoverable by reason of s 101(4) of the Civil Procedure Act 2005 (NSW). I accept the defendants' submission that s 101(4) of the Civil Procedure Act applies only to interest on costs which have been ordered, as distinct from costs which, as in the present case, form part of a damages claim.
4. Mr Weinberger also argued that the interest claim, if accepted, would have resulted in a judgment sum which would have significantly exceeded $500,000 and "[i]n all likelihood", would have exceeded $750,000.
5. UCPR, r 42.34 applies as the plaintiff has obtained judgment in an amount less than $500,000 ($285,598.40) and it would, apart from the rule, be entitled to an order for costs against the defendant pursuant to UCPR, r 42.1, which provides that the general rule is that costs follow the event. The effect of UCPR, r 42.34(2)(a) is that the plaintiff must satisfy this Court that, for proceedings that could have been commenced in the District Court, the commencement and continuation in this Court was warranted, before an order for costs in its favour will be made.
6. The statement of claim was filed on 2 July 2019. It could have been filed in the District Court since the plaintiff claims a money sum by way of damages for breach of contract or the tort of negligence. The heads of damage particularised in paragraph 47 of the statement of claim were: "(a) For each of Lot 52 and Lot 50: (i) the difference between the price for each apartment set out in the Contracts and the selling price for which each of Lots 52 and 50 has been resold, together with interest to settlement and interest on loss , estimated to be in the amount of $953,061.86; (ii) marketing costs incurred in relation to the resale of each of Lots 52 and 50, in the current estimated amount of $7,200.00; (iii) agents' fees incurred in relation to the resale of each of Lots 52 and 50, in the current estimated amount of $30,500.00; (iv) expenses incurred through the continuing ownership of each of Lots 52 and 50, in the current estimated amount of $4,500.00; (v) legal costs in respect of each of the Contracts, in the current estimated amount of $5,400.00; (vi) interest accrued on the deposit paid under each of the Contracts following rescission; (vii) interest that the Developer would have derived on surplus funds accruing from the proceeds of sale of the apartments. (b) Legal costs of the Proceedings paid to the Purchasers; in the current estimated amount of $31,192.00. (c) The Developer's legal costs incurred in the Proceedings; (d) Interest and charges payable on loan facilities entered into in order to finance the Shoal Project. (f) Full particulars of the Developer's loss and damage will be provided by way of an expert report on quantum of damages to be filed in these proceedings in due course prior to the trial."
7. By the time the statement of claim was filed, each of Lots 50 and 52 had been resold at a price less than the contract price to the original purchasers. The total of the differential (based on the subsequent contract price for Lot 52 and the agreed value for Lot 50) was $327,500, which was well within the District Court's jurisdictional limit of $750,000: s 4 of the District Court Act 1973 (NSW). The inflated figure in particular (a)(i) did not reflect the evidence and ought not be taken as forming a basis for commencing proceedings in this Court. No evidence was adduced as to the matters particularised in (a)(ii), (iii), (iv) and (v). Particular (a)(vi) was not recoverable, having regard to cl 35.1(e)(i) of the contract for sale of each lot. Paragraph (a)(vii) was not borne out by the evidence which, though unsatisfactory, tended to show that the developer was in debit at material times and therefore would not have earned interest on "surplus funds". The remaining particulars were either insufficient to bring the amount claimed over the jurisdictional limit of the District Court or were unquantified.
8. Thus, the plaintiff "could" have commenced the proceedings in the District Court under s 44 of the District Court Act. Had the amount claimed exceeded the jurisdictional limit of the District Court, the plaintiff would have been required to abandon any amount in excess of the jurisdictional limit of the District Court, unless it had obtained the defendant's consent to unlimited jurisdiction under s 51 of the District Court Act or if the defendant had not objected (in which case the jurisdictional limit is an amount equivalent to 150% of the jurisdictional limit of the District Court at the time the action commenced: s 51(4) District Court Act). Parties are entitled to have this Court determine proceedings where the amount claimed falls outside the jurisdictional limit of the District Court. There is no obligation on a defendant either to consent to unlimited jurisdiction or to refrain from objecting.
9. The measure of damages in tort and contract are relevantly the same when the alleged breach of contract is the giving of negligent advice since the contractual promise is to provide advice non-negligently: see generally Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 13 (Mason, Wilson, Dawson JJ); [1986] HCA 3. On the basis of the particulars of damage and what was known to the developer and the plaintiff (as assignee of the developer's causes of action against the defendants) at the time of the commencement of the proceedings, I am not satisfied, on the ground of quantum, that the commencement of the proceedings in this Court was warranted.
10. However, on occasions, commencement of proceedings in this Court is warranted because of their complexity or novelty. I do not consider that the present proceedings fell into such a category. The ambit of the obligations of solicitors to their clients is a subject matter well known to the District Court and in respect of which that Court has considerable experience. While it may be the case, as Mr Weinberger submitted, that the costs of running proceedings in this Court are no higher than running proceedings in the District Court, the purposes of UCPR, r 42.34 do not depend on the costs in this Court being higher. Rather, the evident purpose of UCPR, r 42.34, is to impose a disincentive on a party from commencing proceedings in this Court where the jurisdiction of the District Court is sufficient.
11. Nor am I satisfied that the continuation of the proceedings in this Court was warranted. I do not consider that anything material occurred to change the quantum of damages between the date on which the statement of claim was filed and the date of the principal judgment. I do not accept that a realistic assessment of the plaintiff's damages put the claim beyond the jurisdictional limit of the District Court of $750,000. Further, I regard it as material that, on 3 July 2020 (see the letter extracted above), the defendants put the plaintiff on notice that they would rely on UCPR, r 42.34. The plaintiff could have protected its position on costs by applying to this Court for an order transferring the proceedings to the District Court pursuant to s 146(1)(a) of the Civil Procedure Act. This would also have protected its position on quantum, having regard to s 149 of the Civil Procedure Act and s 44(1)(e) of the District Court Act.
12. It follows from the findings set out above that the effect of UCPR, r 42.34 in the present case is that an order for costs may be made, but will not ordinarily be made. Generally speaking, the party who has "succeeded" is entitled to an order for costs: UCPR, r 42.1. The plaintiff is such a party. Had the plaintiff commenced the proceedings in the District Court, then, all other things being equal, it would have been entitled to an order for costs in its favour in accordance with the general rule. However, I am not satisfied in the circumstances of the present case and having regard to UCPR, r 42.34, that it is appropriate to make an order for costs.

Whether the security for costs ought be released

1. The plaintiff submitted that as the defendants were not seeking costs, the security ought be released forthwith. It submitted that the orders for security made do not extend to providing security in the event of a successful appeal by the defendants.
2. In response, the defendants submitted that the following orders for costs had been made in their favour and had neither been agreed, assessed nor paid: 1. order made on 16 January 2020 by Registrar Jones in respect of the costs of the defendants' notice of motion filed on 25 October 2019; 2. order made on 26 November 2020 by Registrar Jones in respect of the costs of the defendants' notice of motion filed on 22 October 2020; and 3. orders which I made on 30 September 2021 in respect of the costs of the defendants' notices of motion filed 22 December 2020 and 31 August 2021.
3. I am satisfied that the defendants ought have recourse to the security for costs to satisfy the costs orders referred to in (1), (2) and (3) above. As these orders for costs have not yet been quantified or paid, it would be premature to order that the security for costs be released. Further, I am informed by the defendants in their written submissions that there is an agreed stay of the judgment orders to permit the parties to consider whether to challenge my orders on appeal. If a notice of appeal is filed by either party, the question of release of security can appropriately be determined by the Court of Appeal.

Orders

1. For the reasons given above, I make the following orders and notation: 1. Note that, as an application for a different order was made within the time provided for in order (4) made on 19 November 2021, the order for costs in order (3) made on 19 November 2021 does not come into effect; 2. Order that there be no order as to the costs of the proceedings. 3. Note that order (2) does not affect costs orders already made in the proceedings. 4. Refuse the plaintiff's application for release of the amount paid by way of security for costs.

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