Procedure - Supreme Court procedure - Tasmania - Practice under Rules of Court - Parties - Costs ought follow the event.

Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (No 3) [2003] TASSC 132; (2003) 12 Tas R 325; Sorell Council v State of Tasmania (No 2) [2004] TASSC 101; Adamson v The Pharmacy Board of Tasmania (No 4) [2004] TASSC 112, followed.

Real Property - Strata and related titles and property - Body Corporate - Powers, duties and liabilities - Property.

The Proprietors Strata Plan 31731 [2003] NSWCA 7, considered.

Procedure - Costs - General rule - Costs follow the event - Co-defendants - General principles - "Bullock" or "Sanderson" order - Relevant principles - Application by analogy.

Thorne v Doug Wade Consultants Pty Ltd [1985] VicRp 48; [1985] VR 433; Sanderson v Blyth Theatre Co [1903] 2 KB 533; Johnsons Tyne Foundry Pty Ltd v Maffra Corporation [1948] HCA 46; (1948) 77 CLR 544; Fennell v Supervision and Engineering Services Holdings Pty Ltd (1988) 47 SASR 6, referred to.

First and Second Plaintiffs: N O'Bryan SC and A Walker

First and Second Plaintiffs: Dobson Mitchell & Allport

Judgment Number: [2007] TASSC 48

STRATA CORPORATION NO 117066, THE GASWORKS, 2 MACQUARIE STREET, HOBART, EQUITY AUSTRALIA CORPORATION PTY LTD (ACN 009 590 416) v NINE ELEVEN TASMANIA PTY LTD (ACN 059 661 442) (NO 2)

1 The defendant succeeded in resisting an application that it was required to restore or reinstate premises leased from the first plaintiff to the state and condition as at the date of the commencement of that lease (Strata Corporation No 117066, The Gasworks, 2 Macquarie Street, Hobart v Nine Eleven Tasmania Pty Ltd [2006] TASSC 94) at par27 as:

"The claims of the plaintiffs are not upheld. The defendant is entitled to the remedies sought in its counterclaim. The Court will declare that the defendant is not required to restore or reinstate the premises to the condition they were in at 1 October 1998 until the end of the term or the expiration of any further term, whichever is later, of the respective leases."

It is entitled to declarations in accordance with its counterclaim made in those proceedings. The terms of its entitlement were stated in the reasons for judgment.

2 The parties have been unable to agree the precise terms of any declaration because of complexities which arise from the terms of settlement of concurrent Federal Court proceedings and the terms of the lease which provide for assignment and extension. In the reasons for judgment, I stated at par28:

"It is likely that any declaration ought extend to the assignee. But this declaration ought not govern other separate issues which might involve the validity, on other grounds or challenge for other reasons, of assignment or entitlement to any further term. For that reason the Court will hear counsel with respect to the wording of the formal declarations and/or orders."

3 The defendant sought orders in the following terms:

"1 A declaration that the defendant, or its assignee, is not required to restore or reinstate the premises the subject of the Third Lots Lease or the Third Common Property Lease to the condition they were in at 15 May 1998 until the end of the Term or the expiration of any further Term, whichever is later, of the respective Leases.

2 A declaration that the plaintiffs are in default of the Terms of Settlement dated 3 December 2004 and the Third Common Property Lease by refusing to consent to an assignment of the Third Common Property Lease and the Third Lots Lease on the ground that the defendant is under an immediate obligation to reinstate the above premises."

4 The proposed orders were opposed since the leases had not yet ended and that other preconditions for consent to assignment have not, as of the date of these orders, been satisfied. In relation to the second proposed declaration, the plaintiffs correctly point out that there can be no default until the expiration of the lease and that "it would be contrary to the commercial arrangements between the parties to postpone the reinstatement obligation indefinitely in favour of any assignee". There is merit in the position advanced by the plaintiffs, and during the course of the hearing the defendant indicated that it did not seek to press for the second declaration.

5 The objection to the terms of the first declaration can be met with the addition of a conditional clause relating to compliance with the terms of settlement and the third common property lease.

6 The defendant seeks an order for costs in terms which protect it from any levy imposed by the body corporate. The plaintiffs contend that the defendant succeeded only on part of its defence and counterclaim and had not conceded significant matters or issues until trial, a course which had significantly increased the costs of preparation and as a consequence the appropriate order ought be that the parties pay their owns costs or, at least, the defendant be entitled only to a portion of its costs. The defendant was successful on the primary question raised by the proceedings. The plaintiffs had sought retraction and argued for a particular interpretation of the contract. They were unsuccessful. It would be impossible for me to make an assessment of any proportionate order dependant upon the amount of work required for different matters raised by the pleadings, but conceded or agreed for trial. My knowledge is limited to what I observed at trial. I observed competent counsel conducting a complex case effectively and commendably. Their respective cases were fully and properly put and argued with an appreciable savings in the costs of trial. The issues were clearly defined and formulated. Appropriate concessions were made which enabled the parties and Court to more quickly deal with the central contentions of the parties. The hearing was not prolonged by separable or secondary issues upon which the defendant was unsuccessful, or its contentions futile. The majority of the hearing time concerned the construction of cl 6.2 of the Third Lots Lease and cl 6.3 of the Third Common Property Lease.

7 Costs ought follow the event. Matters which affect my exercise of discretion are:

(1) The plaintiffs commenced proceedings seeking declarations requiring restoration and reinstatement which, in turn, affected substantial alterations to the property and involved the expenditure of significant sums of money, breaches of the terms of a lease and concerning the requirement or otherwise for any consent to assignment. The plaintiffs did not succeed in obtaining any of their desired declarations.

(2) The defendant was entitled on its pleadings to avail itself of defences open or permitted by law (Blank v Footman, Pretty, & Co (1888) 39 Ch D 678).

(3) The defendant conceded at trial that its claim based on unilateral mistake could not succeed.

(4) The defendant did not pursue its counterclaim that the date of rectification was 2 October and acknowledged that any claim for rectification could not have succeeded if the interpretation of the relevant terms of the lease favoured the plaintiffs.

(6) There was no dominant or severable issue argued at the hearing, (rather than initially raised on the pleadings) which was decided adverse to the defendant. The case as argued at trial was not one which enabled the Court to differentiate between those issues on which the defendant succeeded and those on which it might have failed had it chosen to pursue at trial.

(7) There ought be cogent reasons for departing from the ordinary principle that costs ought follow the event (Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (No 3) [2003] TASSC 132; (2003) 12 Tas R 325; Sorell Council v State of Tasmania (No 2) [2004] TASSC 101; Adamson v The Pharmacy Board of Tasmania (No 4) [2004] TASSC 112). They have not been established.

8 "Strata" is the body corporate and "Equity" is the registered owner of the 14 flats which, together with common property, comprise all of the land of the site and which include flats 1 to 7, 9, and common property leased to the defendant. Robert Hosken was, and remains at all material times, a director of both Strata and Equity. He was directly involved both as director and nominee in the leasing of the land to the defendant. James Bleasall was at all times the controlling director of the defendant and guarantor for it in respect of liabilities incurred with respect to the leasehold. Equity was the real or effective plaintiff in these proceedings and would be entitled to any commercial benefit which might have been obtained through a successful action against Nine Eleven.

9 On the hearing of the costs application, the defendant's general manager provided an affidavit which included:

2 Pursuant to clause 4.3 of Memorandum of Lease No C601890 dated 2 November 2004 (CB 15) and made between Equity Australia Corporation Pty Ltd (ACN 009 590 416) ('Equity Australia') as lessor and Nine Eleven as lessee, Nine Eleven is required to pay to Strata Corporation No 117066 The Gasworks, 2 Macquarie Street, Hobart ('Stratacorp') the body corporate levy (which includes legal costs incurred, and payable by Stratacorp) in respect of lots 1 to 7 inclusive and 9 on strata plan 117066, which represents 1705 units of a total of 3172 units (that is, 53.75%) (CB 2) of the body corporate levies payable in respect of all lots on strata plan 117066. Accordingly, if an order is made that Equity Australia and Stratacorp pay Nine Eleven's costs of these proceedings, Nine Eleven, by virtue of payment of the body corporate levy, will ultimately have to pay 53.75% of:

(b) the costs Stratacorp will have to pay to Nine Eleven.

4 I also had telephone conversations with Mr Hosken on 12 January 2003 and 26 February 2003 about our then current disputes which conversations included statements from Mr Hosken that Stratacorp would charge the legal costs of Stratacorp to Nine Eleven.

6 In the circumstances I respectfully request this Honourable Court to make special orders so that none of the costs of these proceedings can be levied against Nine Eleven as outgoings."

10 Annexed to the affidavit was a letter dated 14 January 2003 from "The owners of the Gasworks Body Corporate Stratum Title Plan No 117066", addressed to the defendant and signed by Mr Hosken on behalf of the owner. The letter relevantly stated:

"We advise that effective from the 1st January, 2003, it will be necessary to increase the Body Corporate Levies at Gasworks Village, (Stratum Plan 117066), due to the following factors:

...

3 All accummulated [sic] capital expenditure sinking fund has been used to pay for essential repairs throughout the year 2002.

4 Additional repair work required this year in accordance with Heritage preservation requirements.

6 Legal costs already incurred for advice to the Body Corporate, and possible future legal costs in this regard."

11 The terms of the Third Lots Lease between the defendant and Equity requires the defendant to pay to Equity all levies payable by Equity to Strata. It is clear that Strata will levy, directly or indirectly, the defendant for the costs of these proceedings.

12 The Supreme Court Civil Procedure Act 1932, s12, provides:

"(1) Subject to the provisions of this Act and the Rules of Court, and to the express provisions of any special statute which is not expressly or impliedly repealed by this Act, the Court and every judge thereof, whether sitting in court or in chambers, shall have jurisdiction to award costs in all causes and matters whatsoever (including proceedings for, or on, or in connection with an order of review under the Judicial Review Act 2000 or a writ of habeas corpus and causes and matters dismissed for want of jurisdiction) instituted in the Court or brought before the Court or a judge thereof by or against any party or person, including the Attorney-General and any body politic.

(2) Subject as provided in subsection (1) the costs of all proceedings whatsoever in the Court, including the administration of estates and trusts, shall be in the discretion of the Court or judge, and the Court or judge shall have full power and authority to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid.

(3) The Court or any judge thereof may award costs as between solicitor and client in any case in which such costs may be awarded by the Court or a judge thereof at the commencement of this Act."

"(1) The costs of the proceeding in the Court or before a judge are to be in the discretion of the Court or judge.

(2) Subrule (1) does not affect the entitlement of an executor or administrator, or a trustee or mortgagee, who has reasonably instituted, carried on or resisted any proceeding, to costs out of a particular estate or fund."

14 Whilst those provisions afford a wide discretion, the exercise of that discretion must accord with principle (Sorell Council v State of Tasmania (No 2); Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (No 3) (supra)). Here the position is analogous to circumstances where either a "Sanderson" or "Bullock" order is made against a defendant (Johnsons Tyne Foundry Pty Ltd v Maffra Corporation [1948] HCA 46; (1948) 77 CLR 544; Sanderson v Blyth Theatre Co [1903] 2 KB 533). The difference between the two forms of order is that a "Sanderson" order requires an unsuccessful defendant to pay costs direct to the successful defendant, while a "Bullock" order permits a plaintiff to recover from the unsuccessful defendant the costs required to be paid to the successful defendant (Thorne v Doug Wade Consultants Pty Ltd [1985] VicRp 48; [1985] VR 433). In a sense, the latter form of order is equivalent to an indemnity order (Fennell v Supervision and Engineering Services Holdings Pty Ltd (1988) 47 SASR 6). The making of an order against the plaintiffs would operate as a "joint and several" order, and, whilst it might be possible for the defendant here to elect to enforce its order only against Equity (Michel v Bullen (1818) 6 Price 87; Sangar v Gardiner [1838] EngR 774; (1838) CP Cooper 262; see generally unreported cases of the Federal Court of Australia cited in Law of Costs, Dal Pont, 2003, 11.2 n 6), it might operate to the disadvantage of the defendant. Strata might still impose a levy which would be used to pay or significantly contribute to the payment of the defendant's costs.

15 The Court does not have any detailed material relevant to the income or assets of either plaintiff which would require it to consider solvency or capacity to pay (Bankamerica Finance Ltd v Nock [1988] AC 1002; Brown v Heathcote County Council (No 2) [1982] 2 NZLR 618). But the defendant is entitled to the practical benefit of any costs order. It may have been necessary for Equity to require Strata to join as a plaintiff and the position of Hosken as a director of both entities made that a ready option. But the real issue of contest was between Equity and the defendant and little, if any, additional work or expense was entailed by means of the joining of Strata as a plaintiff. An order that Strata pay its own costs would render the defendant liable for more than one half of those costs. An order that Strata pay the defendant's costs either jointly and severally with Equity, or by a percentage assessment, would likewise expose the defendant to a costs liability. An order of indemnity might be problematic. Given the special circumstances of the contractual relationship between Strata and the defendant, it is appropriate that the real protagonist, Equity, be ordered to pay the defendant's costs and those of the first and unsuccessful plaintiff. The position is akin to that of a successful defendant entitled to recover from a plaintiff both his or her own costs and those of a third party that the defendant has been ordered to pay (Mifsud v ICT Pty Ltd [1997] TASSC 115; (1997) 7 Tas R 148). Here the defendant might be exposed to the requirement to pay at least one half of the costs of an unsuccessful plaintiff because of the levy imposed by the body corporate. In cases involving "third party costs", the order may be either that the plaintiff indemnifies the defendant for those costs (Johnson v Ribbins [1977] 1 All ER 806; Swisstex Finance Pty Ltd v Lamb [1993] 2 Qd R 463; see unreported cases cited in Law of Costs, Dal Pont (supra) 10.32 n 141), or that the plaintiff pay those costs direct to the third party. In this case the costs order ought be in favour of the first plaintiff by the second plaintiff. That outcome is consistent with the outcome achieved by the New South Wales Court of Appeal in That case involved issues of rectification, common property and an attempt by the body corporate to re-agitate a matter previously decided by the Strata Titles Board and its previous agreement to the contrary. The successful appellant, whose property was subject to the strata title, had sought alternate costs orders, namely:

"An order pursuant to s 229(2) of the Strata Schemes Management Act [1996] that any costs payable by the respondent ... must be paid from contributions levied in relation to lots other than lot 32."

"An order that any costs of the respondent incurred in these proceedings (including the appeal) not be payable in any part by the appellant."

16 The Court considered the application of the Strata Schemes Management Act 1996, ss78(2), 229(3) and 230(1), which provides for proportionate levies and the position of a party who succeeds against the body corporate and made the costs order sought. However, it added at par83:

"The body corporate opposed the grant to Mr Symes of leave to amend his Notice of Appeal, but the arguments advanced relate only to the new declaration sought. Those arguments said nothing about the proposed costs orders, and these are sufficiently covered by the costs order requested in the Notice of Appeal, or are so close to it as to justify the Court in making the orders without the need for amendment. So far as it is unclear that the proceedings in the Equity Division are not proceedings under Chapter 5 of the Strata Schemes Management Act 1996, a source of power to make the second proposed order is s 76(1)(b) of the Supreme Court Act 1970, which gives the court 'full power to determine by whom and to what extent costs are to be paid'. It would be unjust if Mr Symes had to assist in the payment of the costs of the body corporate through levies based on unit entitlement, or had to suffer indirectly as a result of the existing assets of the body corporate being diminished for that purpose."

"6 Any costs payable by the respondent under Order 5 above are to be paid from contributions levied in relation to lots other than lot 32 in shares proportional to the unit entitlements of the respective lots other than lot 32.

7 Any costs of the respondent incurred in these proceedings (including this appeal) are not payable in any part by the appellant."

18 Here no party sought to argue the application or otherwise of the Strata Titles Act 1998. The Model by-laws provided for in the Strata Titles Act, SchI, require, through r8, that:

(a) administer, manage and control the common property reasonably and for the benefit of the owners and occupiers of the lots.

19 There is no provision in the Strata Titles Act equivalent to the NSW Strata Titles Act, s230(1). Thus there is no protection afforded by statute for the circumstances raised by the defendant in these proceedings.

20 The equivalent provisions permitting the levying of contributions are:

"81 ¾ Functions of body corporate

(1) A body corporate established for a strata scheme has the following functions:

(b) to control, manage and improve the common property;

(c) to maintain the common property in good condition and keep it in good and serviceable repair;

(e) to carry out other functions for the benefit of the owners.

(2) ...

(3) A body corporate established for a community scheme has the functions and duties assigned to it by the constituent documents of the body corporate that form part of the registered scheme.

(4) A body corporate may establish and operate a business situated on the common property or, with the owner's consent, on a lot if ¾

(ii) is related to use and enjoyment of the lots and common property by owners or occupiers of lots; and

(iv) does not prevent the reasonable use and enjoyment of the site by the owners or occupiers of lots; and

(5) ...

82 ¾ Fund for meeting financial obligations

(1) A body corporate must maintain a fund for the purpose of meeting its financial obligations under this Act.

(2) All income must be paid into the fund and all expenditure must be made from the fund.

(3) If the body corporate thinks fit, the fund may be subdivided into separate parts, one related to recurrent expenditure and the other related to capital expenditure.

(4) The fund must be maintained at a level sufficient to meet reasonably foreseeable expenditure to be incurred by the body corporate.

83 ¾ Contributions

(1) The body corporate may from time to time levy contributions in respect of the lots for the purposes of raising an amount that the body corporate decides to be necessary to meet anticipated expenditure or for any other purpose as agreed by an ordinary resolution.

(2) The contributions are ¾

(a) in the case of a strata scheme, to be proportionate to the unit entitlements of the various lots; and

(b) in the case of a community scheme, to be levied on a basis fixed in the management statement registered under this Act.

(3) A contribution falls due for payment on a date fixed by the body corporate and notified by written notice of the amount due given by the body corporate to the owners.

(4) The owner of the lot as at the due date for payment is liable for the contribution and any person who later becomes an owner before the contribution is paid becomes jointly and severally liable for payment.

(4A) If a contribution for which an owner or other person is liable under subsection (4) is not paid, the owner or other person is taken to have failed to comply with a requirement of this Act while the contribution remains unpaid.

(5) The body corporate must, on application by an owner or a person having an interest in a lot, certify ¾

(a) the amount of any contribution payable by the owner; and

(b) the due date for payment of the contribution; and

(c) any amount by way of unpaid contribution that remains outstanding; and

(d) the amount of any other liability to the body corporate that remains outstanding from the owner; and

(e) information in relation to any funds of the body corporate administered by it; and

(f) information on any legal action to which the body corporate is a party; and

(g) any other matters that the body corporate considers relevant.

(6) A certificate under subsection (5) is, in favour of a person dealing with the owner, conclusive evidence of the matters certified."

21 The Act, s83(5)(f), has direct relevance here. The terms of the lease would permit the order to pass on its liability to the defendant within the terms of the lease. It is a matter relevant to the making and terms of the costs order.

22 Strata was certainly entitled to obtain legal advice, independent of that provided to Equity, to determine whether it was in its interest to join in the proceedings or whether it could be required to so join. That advice and its associated costs would be payable through a levy and ought not be the subject of the order.

23 The order here is made pursuant to the Supreme Court Civil Procedure Act and the Supreme Court Rules, and is limited to the costs incurred as and from the date of the commencement of the proceedings.

Orders:

(1) A declaration that the defendant [or its assignee] is not required to restore or reinstate the premises the subject of the Third Lots Lease or the Third Common Property Lease to the condition they were in at 15 May 1998 until the end of the Term or the expiration of any further Term, whichever is later, of the respective Leases.

(3) The plaintiffs pay the defendant's party-party costs of the claim and the counterclaim to be taxed.

(4) The second plaintiff pay all of the first plaintiff's own costs on a full indemnity basis and the costs the first plaintiff is ordered to pay to the defendant pursuant to order 3.