On 30 July 2024, I delivered judgment in these proceedings: Singh v Singh [2024] NSWSC 932 (Principal Judgment). These reasons assume familiarity with and maintain the same defined terms as used in the Principal Judgment.
In the Principal Judgment, I determined that the Partnership should be wound up and that a receiver should be appointed to sell the Property and any Partnership Assets. I directed the parties to confer to seek to agree orders for the winding up of the Partnership and to seek to agree an appropriate order as to costs.
The parties agreed orders in relation to the winding up of the Partnership and I made those orders on 13 August 2024. They were not able to agree an order as to costs. Accordingly, these reasons determine the appropriate costs order.
[2]
Brief chronology relevant to costs
To determine the issue of costs, a brief overview of the proceedings, the correspondence between the parties, and the offers made by each party relevant to costs is necessary.
The Partnership Deed was entered into between all 10 partners in about April 2007. Tensions existed in the Partnership since its inception and gradually worsened over time, ultimately resulting in a complete breakdown of relationships.
The first offer was by letter dated 17 April 2013 from the former solicitors of the plaintiffs to the defendants and sought an agreement between the partners to terminate the Partnership and sell the Property either by private treaty, or failing this, by auction. The offer also noted that, failing an agreement, the plaintiffs would commence proceedings to seek an order that the Property be sold.
A series of unsuccessful negotiations occurred from this period up to 14 August 2019, when the former solicitors for the plaintiffs sent a letter to the solicitors for the defendants proposing a "round table conference" and warned of their intention to commence proceedings to seek an order for the sale of the Property. The letter also noted an offer that had been made by the plaintiffs for the purchase of the Property for $1.5 million on a "walk in walk out basis". This correspondence was unanswered, and the former solicitors for the plaintiffs sent follow up correspondence, by letter dated 13 December 2019.
On 13 January 2020, the solicitors for the defendants ceased acting for the defendants.
On 10 February 2020, having received no response to their earlier correspondence, the former solicitors for the plaintiffs wrote directly to the defendants, inviting a counteroffer and reiterating their intention to commence proceedings.
On 12 February 2020, Mr Harvey Atwal (also known as Mr Harvinder Singh), the defendants' son, sent an email to the former solicitors for the plaintiffs, indicating that the defendants were "happy to carry out a professional valuation of the property", and once a professional valuation was obtained, "to proceed in accordance with the partnership agreement". Mr Atwal noted that the defendants were not interested "in selling their share of the property" and were "happy to purchase the shares of" the plaintiffs.
On 15 April 2020, the former solicitors for the plaintiffs made another offer to the defendants which expired on 1 May 2020. No response was received from the defendants. On 20 May 2020, the former solicitors for the plaintiffs noted the unanswered offer and repeated the warning of commencing proceedings.
In April 2021, the plaintiffs engaged their current solicitors to act for them in the matter.
On 16 July 2021, the solicitors for the plaintiffs made another offer for one of the partners to purchase the Property for $1.6 million, and failing an agreement between the partners, the plaintiffs would commence proceedings seeking the appointment of a trustee.
The defendants, via their solicitors, replied to this correspondence on 28 July 2021, noting that an offer was made by the defendants in late 2020 to purchase the Property for $1.6 million. The solicitors for the defendants advised that a valuation of the Property should be undertaken so that the defendants could properly consider their position.
On 11 October 2022, the proceedings were commenced by way of Summons, seeking, as primary relief, an order that the Partnership be dissolved under s 35 of the Partnership Act.
On 22 November 2022, the defendants filed a Cross Summons, which sought a buyout order for the defendants to purchase the Property and Partnership Assets for $1.5 million.
On 23 February 2023, a Calderbank offer was made by the plaintiffs in accordance with the principles outlined in Calderbank v Calderbank [1975] 3 All ER 333. The offer was in the following terms:
1. Judgment being entered for the plaintiffs in accordance with the relief sought in the Summons; and
2. The defendants to pay the plaintiffs $28,000 in respect of the costs of the proceedings, representing approximately two thirds of the plaintiffs' total legal costs incurred to that date.
The offer noted that the Property was owned by all of the partners in the Partnership, and that, if the plaintiffs were successful in seeking the relief sought in the Summons, the Court would appoint a receiver to wind up the Partnership pursuant to the Partnership Act and any relevant terms of the Partnership Agreement.
The offer was not accepted by the defendants.
Court annexed mediation, which took place on 26 September 2023 was unsuccessful, and on 25 October 2023, the plaintiffs amended their Summons to seek, as primary relief, a buyout order, such that the first and second plaintiffs would purchase the Property for $2 million.
On 27 February 2024, the solicitors for the defendants made a Calderbank offer to the first and second plaintiffs, in which the defendants accepted the plaintiffs' offer to purchase the Property dated 13 February 2024, which was not in evidence before me, on several conditions. These conditions included certain adjustments in favour of the defendants in relation to mortgage repayments, blueberry plants and a shed on the Property.
This offer was responded to on 14 June 2024 by the solicitors for the plaintiffs, with a further Calderbank offer, which sought to negotiate some of the conditions in the defendants' offer of 27 February 2024, including that the balance of the sale proceeds was to be divided equally between the parties.
On 25 June 2024, Mr Atwal, now representing his parents in the proceedings, wrote to the solicitors for the plaintiffs indicating that a third party offer to purchase the Property for $2.1 million had been made on a "walk in walk out basis" and suggesting that the parties accept that offer. There was no response to the offer by the plaintiffs.
On 23 July 2024, Mr Atwal approached the Court to adjourn the hearing commencing on 29 July 2024.
On 25 July 2024, I heard the parties on the application to vacate the hearing. I determined that the application should be dismissed and that the defendants were to pay the plaintiffs' costs of the application.
At the commencement of the hearing, the defendants, through Mr Atwal, to whom I gave leave to represent the defendants, indicated that they no longer pressed the relief sought in their Cross Summons and did not oppose the alternative relief sought by the plaintiffs in their Summons, that is, the appointment of a receiver to wind up the Partnership. Therefore, the only substantive issue argued by the plaintiffs at the hearing was whether a buyout order should be made, allowing the first and second plaintiffs to purchase the Property for $2 million. In the Principal Judgment, I declined to grant this relief.
[3]
Overview of the positions of the parties on costs
The plaintiffs seek the following orders:
1. Subject to order (3) below, the defendants to pay the plaintiffs' costs of the proceedings on an indemnity basis.
2. In the alternative to order (1), the defendants to pay the plaintiffs' costs of the proceedings on an ordinary basis to 23 February 2023, and on an indemnity basis thereafter.
3. The plaintiffs to pay the defendants' costs of the relief sought in prayers 3A-3C of the Amended Summons on an ordinary basis.
4. The defendants to pay the plaintiffs' costs of the Cross Summons filed 22 November 2022.
The plaintiffs contend that the result of the hearing was that the plaintiffs succeeded on the alternative relief sought in the Amended Summons, being the relief sought in the original Summons.
The plaintiffs also contend that, by reason of the defendants' abandonment of the Cross Summons at the final hearing, this amounted to a capitulation, against a backdrop of continued opposition to the relief for some 20 months since the commencement of the proceedings. As such, the defendants' opposition to the relief sought by the plaintiffs in the Summons was manifestly unreasonable and supports an order for indemnity costs, citing Shellharbour City Council v Minister for Local Government [2017] NSWCA 256 at [6]-[7] per Basten and Macfarlan JJA and Sackville AJA.
The plaintiffs accepted that they were unsuccessful in seeking the primary relief sought in the Amended Summons, but that the Calderbank offer of 23 February 2023 was made prior to the amendment of the Summons, and concerned the relief which was ultimately awarded at the hearing. Further, the plaintiffs contended that the relief concerning the buyout order was a "clearly dominant or separable issue" and proposed that the defendants have their costs on this issue on an ordinary basis.
The defendants seek the following orders:
1. There be no order as to costs and that each party bears its own costs of the proceedings.
2. Such further or other orders deemed fit.
The defendants, through solicitors who have now been re-engaged, contended that the plaintiffs have had a complete disregard to any offers made by the defendants and have simply proceeded to continue incurring significant legal costs.
[4]
Relevant legal principles as to costs
The relevant legal principles as to costs were not in dispute.
The starting point is s 98 of the Civil Procedure Act 2005 (NSW), which provides that costs orders are within the broad discretion of the Court.
At [74] of the Primary Judgment, I referred to the decision of Young CJ in Eq in Cavasinni v Cavasinni [2007] NSWSC 619 at [58]ff, where his Honour summarised the applicable principles in relation to costs associated with the winding up of a partnership.
More recently in Pirrottina v Pirrottina (No 2) [2024] NSWSC 1053 (Pirrottina v Pirrottina (No 2)) at [52], Rees J considered these principles and quoted the decision of Hamilton J in Curac v Morey-Hype [2006] NSWSC 1171, in which his Honour stated at [5]:
[5]…that the rule is "to pay the costs of an action for dissolution out of the partnership assets unless there is good reason to the contrary". The basis for this as illustrated by Jessel MR in Hamer v Giles (1879) 11 ChD 942 is that these costs should be treated as part of the "necessary administration" of the partnership. If, of course, some substantive dispute between the parties is also determined in the winding up proceedings, then the situation changes and there is a reversion to the ordinary rules as to costs…
The ordinary rules as to costs are well understood and need not be repeated: Joudo v Joudo (No 2) [2024] NSWSC 469 at [12]-[15].
[5]
Determination
Given the history of the matter as set out above, it is appropriate to depart from the usual order in partnership cases. The breakdown and the lack of agreement as to a buyout order meant that the Partnership had to be wound up. This was the essence of the relief sought in the original Summons. This should have been consented to by the defendants, as it ultimately was at the commencement of the hearing.
However, the plaintiffs then amended the Summons to seek a buyout order. The plaintiffs did not succeed on this issue at hearing, and as such, it is appropriate that an order be made that the plaintiffs should pay the costs of the defendants on this issue and not otherwise have their costs of that issue. Given that the defendants were represented at the hearing by their son, it is not clear whether there will be any substantive costs incurred by the defendants, but an order should be made nonetheless.
I have determined that, for the reasons set out above, and particularly the failure of the defendants to agree to orders dissolving the Partnership which would have obviated the need for proceedings, the appropriate order as to costs is that the defendants should pay the plaintiffs' costs of the proceedings to date including the costs of the Cross Summons, save for the costs of the claim for a buyout order set out in prayers 3A to 3E of the Amended Summons, including the costs of the hearing on 29 July 2024 which should be paid by the plaintiffs. The costs of the winding up of the Partnership should otherwise be paid out of the Partnership Assets.
The orders contended for by the defendants are not appropriate. It is not correct to contend that the plaintiffs had complete disregard to any of the offers made by the defendants and simply proceeded to continue incurring significant legal costs. The history shows that there was a good deal of attempted negotiation between the parties in an attempt to resolve the matter. One further difficulty for the defendants is that offers made by them appeared to be predicated on the basis that they were entitled to a greater than equal share of the Partnership Assets or were otherwise entitled to buy the other partners out. Neither proposition is correct.
I also do not accept that the relief in the Cross Summons was not pursued by the defendants due to recent developments with third parties. The relief sought by the defendants was for the defendants to buyout the other partners for $1.5 million. It was quickly trumped by the buyout order sought by the first and second plaintiffs seeking a buyout order for $2 million. Absent an increase in the defendants' offer - which never came - that relief was never going to succeed. It is appropriate in these circumstances that the defendants' pay the costs of the proceedings, including the Cross Summons, save for the costs of the claim for a buyout order set out in prayers 3A to 3E of the Amended Summons.
Contrary to the position contended by the plaintiffs, an order for indemnity costs is not appropriate in the circumstances of the present case. The conduct of the defendants generally in "negotiating" with the plaintiffs is not such as to warrant an order for indemnity costs as opposed to departing from the usual rule in partnership dissolution proceedings and ordering that costs be paid on the ordinary basis.
Insofar as the plaintiffs seek an order that indemnity costs be paid from 23 February 2023, I do not regard the rejection of the relevant offer - which is dated 21 February 2023 - to be unreasonable in the relevant sense as entitling an award of indemnity costs. It is clear that rejection of the offer does not give rise to any presumption that costs should be paid by the offeree on an indemnity basis. Whilst the offer included the substantive relief ultimately ordered in the proceedings, it also required the defendants to make a substantial contribution to the plaintiffs' costs. It is difficult to assess on the material available what element of compromise was in fact being offered by the plaintiffs in this regard.
In all of the circumstances, the appropriate order is that the costs payable by the defendants be payable on the ordinary basis.
The orders of the Court are:
1. Subject to order 2, the defendants to pay the plaintiffs' costs of the proceedings to date including the costs of the Cross Summons.
2. The plaintiffs to pay the defendants' costs of the plaintiffs' claim for a buyout order as set out in prayers 3A to 3E of the Amended Summons, which include the costs of the hearing on 29 July 2024.
3. The costs of the winding up of the partnership otherwise be paid out of the assets of the partnership.
[6]
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Decision last updated: 10 October 2024