I published my reasons for judgment in this matter on 12 February 2016.
I invited the parties to bring in short minutes of order to reflect the conclusions that I reached in my judgment.
On 17 February 2016 I made the following orders in the proceedings:
The Court
1. Declares that the first defendant, in his capacity as administrator of the estate of the late Lyall Telfer, is indebted to the plaintiff pursuant to the deed dated 26 July 2010 between the plaintiff and the late Lyall Telfer (the Deed) in the amount of $475,947.33 as at 12 December 2012.
2. Declares that the first defendant, in his capacity as administrator of the estate of the late Lyall Telfer, is liable to pay to the plaintiff compensation for the failure of the estate of the late Lyall Telfer to pay the debt of $475,947.33 referred to in order 1 on 12 December 2012, in the amount of $103,800.
3. Orders the first defendant, in his capacity as administrator of the estate of the late Lyall Telfer, to pay to the plaintiff the sum of $579,747.33 (the Debt).
4. Orders that the execution by the plaintiff of order 3 be stayed pending further order of the court (with the intent that there will be no execution on the order if the plaintiff receives the amount of $579,747.33 referred to in order 3 upon compliance by the parties with the following orders).
5. Declares that the Deed created a charge over the property situated at 39 Hammers Road, Northmead in the State of New South Wales, being the whole of the land described in folio 9/20060 (the Property), to secure payment to the plaintiff of the sum of $579,747.33 payable by the first defendant, in his capacity as administrator of the estate of the late Lyall Telfer, referred to in order 3 (the Charge).
6. Declares that the second defendant is entitled to the specific performance by the first defendant, in his capacity as the administrator of the late Lyall Telfer, of the contract dated 31 March 2011 for the sale of the Property by the late Lyall Telfer to the second defendant (the Contract).
7. Declares that the charge created by the Deed in favour of the plaintiff over the Property is entitled to priority over the estate in the Property created by the Contract in favour of the second defendant.
8. Orders that the first defendant, in his capacity as administrator of the late Lyall Telfer specifically perform the Contract in favour of the second defendant within 60 days of the making of these orders, or such other time as the court may by order specify.
9. Orders the plaintiff to attend upon the settlement of the Contract in accordance with order 8 (provided that the plaintiff is given reasonable notice of the time and place of settlement) and if the second defendant pays to the plaintiff the sum of $579,747.33 referred to in order 3, the plaintiff shall accept that payment in full discharge of the Debt and the Charge, and deliver to the second defendant the certificate of title to the Property and a withdrawal of caveat No AF 681929 in registrable form.
10. Grants leave to the parties to apply on 3 days' notice to the associate to Robb J for the making of any orders and directions necessary to facilitate the implementation of these orders.
11. Grants leave to the plaintiff, if the plaintiff does not receive payment of the sum of $579,747.33 on the settlement of the Contract as contemplated by these orders, to apply on 3 days' notice to the associate to Robb J for the purpose of the making of orders necessary to enforce the Charge.
12. Directs the parties to inform the associate to Robb J, within 7 days of the payment of the amount of the Debt to the plaintiff and the settlement of the Contract as contemplated by these orders, that those events have happened, for the purpose of the court making appropriate orders for the final determination of these proceedings.
13. Reserves the costs of the proceedings for the purpose of the court determining the proper orders for costs that should be made in accordance with the written submissions that the parties have already been directed to submit to the court.
I am now dealing with the issue of costs raised by order 13 made on 17 February 2016.
For completeness I mention that, on 18 April 2016, I made orders varying the orders made on 17 February 2016, to accommodate a number of practical issues that are not material to the issue of costs. It is not necessary that I describe the effect of the variations made.
In essence, the position of the plaintiff, Mrs Telfer, is that the court should order the second defendant, Mr Mark Telfer, to pay her costs on the ordinary basis up to 18 March 2015 and on the indemnity basis thereafter. Alternatively, Mrs Telfer submits that Mark Telfer should be ordered to pay her costs on the ordinary basis for the whole of the proceedings.
Mrs Telfer's claim for indemnity costs from 18 March 2015 is based upon an offer of compromise made by her on that date under rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).
Mark Telfer's submission is that Mrs Telfer should be ordered to pay his costs of the proceedings on the ordinary basis.
Both Mrs Telfer and Mark Telfer delivered submissions on costs to the court dated 22 February 2016. Subsequently, Mark Telfer delivered undated submissions in response to Mrs Telfer's claim for indemnity costs from 18 March 2015. Mrs Telfer responded to these submissions by written submissions that are, strangely, also dated 22 February 2016.
In these reasons I will assume knowledge of my reasons for judgment published on 12 February 2016.
It will assist an understanding of these reasons if I describe in outline the issues that were in contest in the proceedings, as otherwise the significance of the orders that I have set out above relating to the orders for costs that should be made will not be apparent.
In essence, the dispute concerns the property at 39 Hammers Road, Northmead, in this State (the Northmead Property). The Northmead Property was owned by Mrs Telfer's husband, Mr Lyall Telfer, before his death. Mark Telfer is Lyall's son, and Mrs Telfer's stepson.
Mrs Telfer's primary claim in the proceedings was that she was entitled to a charge over the Northmead Property created by a deed, dated 26 July 2010, between her and her husband, to secure a loan that Mrs Telfer made to Lyall (the Deed). By her statement of claim, which was filed on 17 December 2014, Mrs Telfer sought judgment for $485,361.35. The only defendant was Mr Kenneth John Fairfax, who is the administrator of Lyall Telfer with the will annexed.
On 31 March 2011, Lyall Telfer entered into a contract with Mark Telfer to sell the Northmead Property to him (the Contract). It is not necessary to go into details, but one of the terms of the Deed required Lyall Telfer to sell the Northmead Property within 12 months, in order to repay his debt to Mrs Telfer.
Not only did Mrs Telfer seek relief to enforce her charge, she sought consequential relief, including an order for possession and an order for judicial sale. If that relief were granted to her by the court, it would effectively destroy Mark Telfer's rights under the Contract. Consequently, Mark Telfer, on his own application, was joined as a second defendant.
On 19 February 2015, Mark Telfer filed a cross claim against Mrs Telfer and Mr Fairfax in which he sought specific performance of the Contract, and an order that Mrs Telfer, who held the certificate of title, do what was then necessary to facilitate the completion of the Contract.
Mr Fairfax filed a submitting appearance. That was a sensible course for him to take, in order to avoid incurring unnecessary costs. Furthermore, the Northmead Property was the only substantial asset in Lyall Telfer's estate, and if both of Mrs Telfer and Mark Telfer succeeded in establishing their claims, there would be no assets of the estate to fund Mr Fairfax's costs of contesting the proceedings. In effect, Mr Fairfax left it to Mrs Telfer and Mark Telfer to contest all issues between themselves, as they were the real parties that had an interest in those issues. That gave rise to the risk, however, that important details concerning how the court might be able to give effect to any orders that it made may not have been resolved, because Mr Fairfax did not take an active role in the proceedings. As it happens, however, Mr Fairfax has been helpful, which made it possible for the court to make final orders, save that the only remaining issue is what, if anything, should be done to meet Mr Fairfax's fees, costs and expenses. That is not an issue that need be considered now.
The stance taken by each of Mrs Telfer and Mark Telfer in the proceedings is relevant to the proper determination of the competing claims for costs.
As appears from the orders set out above, Mrs Telfer succeeded in establishing her right to an equitable charge over the Northmead Property. The position Mark Telfer adopted in defence of her claim was, first, that while he accepted that Mrs Telfer had a valid equitable charge, he submitted that on the proper construction of the Deed, Mrs Telfer only had a charge over the proceeds of sale of the Northmead Property on completion of the Contract. If that claim had succeeded, then Mrs Telfer's recovery would have been limited to the proceeds of sale. Mark Telfer would not have had to pay more than the price under the Contract to obtain a transfer of the Northmead Property. Mark Telfer's claim failed, and the court declared that Mrs Telfer was entitled to an equitable charge over the Northmead Property itself. In the event, that had the result that, as Mark Telfer wished to complete the Contract, he had to pay an amount somewhat greater than the balance of the purchase price under the Contract, in order to get a clear title to the property.
Secondly, Mark Telfer defended Mrs Telfer's claim by arguing that she had been repaid some $128,000 by Lyall Telfer before his death. He also argued that, on the proper construction of the Deed, the amount of principal secured by Mrs Telfer's charge was limited to an amount of $337,500 (being the amount of a number of debts owed by Lyall Telfer that were repaid on his behalf by Mrs Telfer), and not the whole of the $400,000 that the Deed required Mrs Telfer to make available for her husband's purposes. These defences also failed. The court held that Mrs Telfer's charge secured the whole of the amount $400,000 plus damages, calculated on the basis of the equivalent of interest at the court rate.
Lest it appear that the consequence was that Mrs Telfer wholly succeeded in the proceedings, I should explain why she did not.
Mrs Telfer persisted with her claim that she was entitled to an order for possession of the Northmead Property, and an order for judicial sale, to give effect to her equitable charge. As I have said, if those orders had been made by the court, they would have had the practical effect of destroying Mark Telfer's rights under the Contract. Mrs Telfer continued with this claim, even though she did not assert any claim that the Contract was invalid, or that the circumstances did not justify the court making an order for specific performance of the Contract. This approach of Mrs Telfer's appears to have ignored legal reality. As there was no challenge to the Contract, Mark Telfer had a beneficial entitlement to the Northmead Property that was based upon his entitlement to specific performance. As that entitlement was not challenged, there was no question of the court's making any orders that destroyed Mark Telfer's interest in the Northmead Property. The true issue was one of priorities as between competing and valid equitable interests in the Northmead Property. It is a matter for some speculation why Mrs Telfer took the course that she did. The most likely answer is that she did so because she was entitled to the Northmead Property under her husband's will, so that, if the Contract was rendered ineffective, she would gain the benefit of the substantial current equity in the Northmead Property, after the equitable charge in her favour has been discharged.
In the event, the Court made orders that might lead to Mrs Telfer gaining possession and being entitled to a judicial sale of the Northmead Property, but that was only in the event that Mark Telfer did not elect to pay to Mr Fairfax the amount necessary for him to pay the debt owed to Mrs Telfer, so that Mr Fairfax could get possession to the certificate of title, and then complete the Contract. Unsurprisingly, Mark Telfer elected to pay the amount necessary to enable Mr Fairfax to complete the Contract. There was never a real likelihood that Mrs Telfer would gain possession of the Northmead Property, or be able to sell it under an order for judicial sale.
There was another issue that appears to have influenced the course of the proceedings. The Contract contained a term (clause 42.1) that required Mark Telfer to pay $1,300 each month, if completion of the Contract took place more than 13 weeks after the date of the Contract. Mark Telfer accepted his obligation to make these payments. In addition, the Contract contained a term (Clause 18) that contemplated that the purchaser may be given possession by the vendor before completion. In fact, Mark Telfer went into possession of the Northmead Property about a week after the death of Lyall Telfer. The evidence was not clear as to the circumstances in which Mark Telfer was given possession, but the suggestion was that he was allowed to take possession of the Northmead Property by Lyall's brother, Neil Telfer, who was nominated as Lyall's executor. As such, Mrs Telfer was effectively ejected. Ultimately, probate was not granted to Neil Telfer. Letters of administration were issued in favour of Mr Fairfax. Consequently, Mark Telfer was not validly given possession of the Northmead Property by the vendor. That gave rise to the possibility that Mark Telfer might be liable to pay an occupation fee.
Mark Telfer declined, until the hearing of these proceedings, to pay any occupation fee. There was considerable correspondence over the years between Mr Fairfax, Mrs Telfer and Mark Telfer, the latter through their solicitors. Mr Fairfax and Mrs Telfer took the stance that an occupation fee was payable. That stance was rejected by Mark Telfer.
Mrs Telfer had a practical interest in this issue being resolved in favour of Mr Fairfax, because then the amount payable by Mark Telfer under the Contract would be increased by the amount of the aggregate occupation fee. Mr Fairfax would be entitled, on completion of the Contract, to an amount more than the balance of the purchase price. That would give Mr Fairfax more funds to repay the debt owed by the estate to Mrs Telfer under the Deed. That was important, because the debt had been outstanding for a number of years, and Mrs Telfer was entitled to compensation in the nature of interest.
However, it was Mr Fairfax and not Mrs Telfer who had the legal right to claim Mark Telfer was required to pay an occupation fee required by the Contract. The issue of whether an occupation fee was payable by Mark Telfer did not arise on Mrs Telfer's claim against Mr Fairfax, to which Mark Telfer was joined as a defendant. The issue only arose on Mark Telfer's cross claim against Mr Fairfax seeking an order that the Contract be specifically performed. It was Mr Fairfax who had the right to claim that an occupation fee must be paid as a condition of any specific performance being granted.
As I have said, Mr Fairfax simply submitted to the order of the Court, and he did not actively seek to enforce a claim against Mark Telfer's obligation that he should pay an occupation fee. This may have led to a lacuna in the case, were it not for the fact that in final submissions, Mark Telfer accepted in principle that the amount that should be paid to Mr Fairfax on completion of the Contract should include an amount agreed with Mr Fairfax as an the aggregate occupation fee. As will be seen however, it was not necessary for the court to make any order against Mark Telfer that he pay any sum that included an occupation fee.
It will be convenient to begin the consideration of what costs order should be made in respect of Mrs Telfer's claim by referring to the submissions made by Mark Telfer, as to why Mrs Telfer should be ordered to pay his costs.
Mark Telfer's submissions focused on the individual claims for relief in Mrs Telfer's statement of claim. In respect of order 1, which was a claim for a debt; order 2, which was a claim for a declaration that Mrs Telfer had a charge over the Northmead Property; and order 7, in respect of which Mrs Telfer was entitled to a substantial amount as compensation in the nature of interest. Mark Telfer's contention may be found in the following observation concerning the claim for order 1: "… she obtained judgment against [Mr Fairfax] for less … and not of course against Mark, so this is irrelevant to costs between her and Mark".
Put simply, Mark Telfer contended that, as Mrs Telfer made a claim for a debt, secured by a charge, plus compensation for non-payment, against Mr Fairfax representing Lyall Telfer's estate, her success on that claim is irrelevant to her entitlement for an order for costs against Mark Telfer.
Plainly, that submission ignores the fact that Mark Telfer was made a second defendant to Mrs Telfer's claim, on his own motion. Mark Telfer's defence to the statement of claim put Mrs Telfer to proof that she advanced to Lyall Telfer the sum of $400,000; that he did not make any repayments to her; that Mr Fairfax, as administrator of Lyall Telfer's estate, owed approximately $485,361.35 to Mrs Telfer, plus interest from 7 December 2012; or that Mrs Telfer was an equitable charge holder: see pars 5, 7, 12 and 14 of Mark Telfer's defence respectively.
It is clear that the case was conducted on the basis that Mark Telfer was the contradictor in relation to these claims by Mrs Telfer. He substantially failed in his defence, and Mrs Telfer is entitled to her costs in relation to the issues of the existence and effect of the equitable charge, and the debt owed by the estate of Lyall Telfer secured by the charge, including the amount of compensation, in the nature of interest, that was also secured by the charge.
Mark Telfer correctly submitted that Mrs Telfer failed in her claims for order 3, being an order for possession; order 4, being an order that Mark Telfer give vacant possession; and order 5, being an order for judicial sale. I will refer further to the appropriate costs order concerning these issues below.
The next question is whether Mrs Telfer is entitled to an order that any of her costs be paid on the indemnity basis.
Mrs Telfer relied upon a letter dated 18 March 2015, which her solicitors had written to the solicitors for Mark Telfer. The letter is expressed to be "without prejudice save as to costs".
It refers to Mark Telfer's affidavit sworn 24 December 2014, and a statement made in that affidavit that Mark Telfer was prepared to complete the purchase of the Northmead Property. It observed that Mark Telfer was prepared to pay the $1,300 per month under clause 42.1 in respect of the delay in completion.
On that basis, the letter contained a calculation to the effect that, as at 18 March 2015, the bare minimum that Mark Telfer would be required to pay on completion was $532,954.84. That amount comprised the contract price of $500,000, less $25,000 deposit, plus $1,300 per month from 1 July 2011 to 18 March 2015.
The letter then discussed the reasons why Mark Telfer was likely to be ordered to pay an occupation fee, and a reasonably persuasive argument to that effect was put forward. It did not suggest what the amount of the occupation fee might be, but the letter ended with the following offer:
15. Our client, however, will agree to remove the caveat from the title to the property in exchange for the payment, to her, of $550,000 upon settlement of the property. This amount is only marginally higher than the bare minimum your client would be required to pay (by his own admission) and a substantial cost and time saving to litigating the balance of these proceedings.
The letter enclosed an offer of compromise, in the following terms:
OFFER OF COMPROMISE
The plaintiff offers to compromise these proceedings on the following basis:
1. In exchange for the payment to her on settlement of the sale of the property, the subject of these proceedings, the sum of $550,000, the plaintiff will remove her caveat from the title to the property and otherwise do all things necessary to allow the sale to complete.
This offer is open for a period of 28 days from the date of receipt of this offer.
This offer of compromise is made in accordance with r 20.26 of the Uniform Civil Procedure Rules (NSW) 2005.
The basis of these offers was an assessment made on behalf of Mrs Telfer as to what Mark Telfer would be required to pay on completion of the Contract. The offers were not based on an assessment of the amount of the debt that the estate of Lyall Telfer was obliged to pay to Mrs Telfer, in order to get a discharge of her charge, and control of the certificate of title. I do not suggest that the basis upon which the amount offered was calculated is a critical factor to the validity of the offers. The real issue is the amount of the offer, and from a practical point of view, Mark Telfer was only required to pay the amount payable under the Contract; the estate of Lyall Telfer did not have any other substantial assets; so that it was sensible for Mrs Telfer to focus on the amount that Mark Telfer would have to pay in order to complete the Contract.
However, when it comes to considering whether the offers were genuine offers of compromise, it will be necessary to consider Mrs Telfer's prospects of succeeding on her claim against Mr Fairfax, rather than Mr Fairfax's claim against Mark Telfer.
There is no evidence that the offers were sent to Mr Fairfax, or that he was invited to agree to the proposed compromise. The proceedings could not be compromised in the way contemplated by the offers, without Mr Fairfax's agreement.
The fact that Mrs Telfer based her offers on an assessment of the amount that Mark Telfer would have to pay on completion of the Contract lead, however, to an additional problem.
I did not make any finding in the principal judgment as to the amount that the Contract required Mark Telfer to pay on completion. Based upon an unproved proposed settlement sheet handed up in submissions, I observed in the principal judgment that the amount payable would have been $537,508.06, if the assumptions made in the settlement sheet were correct: see par 147. This amount included an allowance of $65,000 for an occupation fee. I did not make any finding, because there was no basis upon which to make it. In any event, that did not matter, because it was clear that the amount payable on completion under the Contract was less than the amount of the debt owed to Mrs Telfer that was secured by the charge. Consequently, if Mark Telfer wished to complete the Contract and obtain a good title, he would be obliged to pay the amount owed to Mrs Telfer, so that Mrs Telfer would be obliged to hand over the certificate of title to enable completion to take place.
I found that the estate of Lyall Telfer was obliged to pay Mrs Telfer a debt of $475,947.33, as at 12 December 2012, plus compensation, calculated on the basis of court interest rates, of $103,800, on the assumption that payment would be made on completion of the Contract 60 days after the orders were made: see orders 1 and 2. The total amount was $579,747.33.
That amount is $29,747.30 more than the settlement amount in the offers made by Mrs Telfer.
As I explained at pars 104 to 118 of the principal judgment, Mrs Telfer did not have the right to receive interest under the Deed, and her claim was for compensation for breach of the Deed. I used the rate of interest stipulated in s 100 of the Civil Procedure Act 2005 (NSW) as a proxy for the loss suffered by Mrs Telfer. I accept the calculations made in Mark Telfer's submissions that, as at 18 March 2015, the total amount of the debt and compensation owed by Lyall Telfer's estate to Mrs Telfer was $547,988.33, when the compensation only includes interest calculated up to that date. For consistency with the reasoning in the principal judgment, if a period of, say, 60 days was allowed to complete the Contract, the total would be about $552,735.23.
These amounts are either an insignificant amount less than, or an insignificant amount more than, the amount of $550,000 that Mrs Telfer offered to accept to compromise the proceedings.
The effect of UCPR r 42.16 is that the court must disregard the portion of the compensation finally awarded to Mrs Telfer that falls within the description "damages in the nature of interest, as relates to the period after the day on which the offer was made". The application of that rule will strictly have the effect that the amount that Mrs Telfer offered to accept to compromise her claim was more favourable to Mrs Telfer than the amount payable under the judgment (after applying r 42.16), albeit only by an insignificant amount.
In these circumstances, the offers that Mrs Telfer made on 18 March 2015, whether viewed as a Calderbank offer or an offer of compromise, did not involve any real element of compromise on Mrs Telfer's part. In effect, she offered to compromise on the basis that Mark Telfer capitulated. The offers will therefore not be effective to justify an award of indemnity costs against Mark Telfer: see Leichhardt Municipal Council v Green [2004] NSWCA 341 at [37] to [40], and the other authorities discussed in Ritchie's Uniform Civil Procedure NSW at [42.13.13].
Accordingly, Mrs Telfer is not entitled to an order for indemnity costs in respect of any part of her claim.
It is then necessary to consider the appropriate costs order that should be made in respect of Mark Telfer's cross claim.
For the reasons that I have discussed above, when considering the issues that were required to be decided in the principal judgment, there was a real contest between Mrs Telfer and Mark Telfer concerning the relief sought in the cross claim. That was so, even though Mrs Telfer did not ultimately submit that the Contract was invalid, or that there was any reason why specific performance should not be ordered in favour of Mark Telfer. Mrs Telfer pursued her claims for relief as sought in orders 3 to 5 of her statement of claim. Mrs Telfer sought to destroy Mark Telfer's interest in the Northmead Property by having the property sold under a judicial order for sale.
Mrs Telfer failed on that claim, and should be ordered to pay Mark Telfer's costs on the ordinary basis.
It will not be appropriate for the court to order Mark Telfer to pay Mrs Telfer's costs of the claim made in the statement of claim, and Mrs Telfer to pay Mark Telfer's costs of the cross claim. The reason is that the claims in the statement of claim for orders 3 to 5 in substance belong with the issues raised by the cross claim. There will be confusion if the costs orders are framed in terms of the claims made in the two pleadings.
The more appropriate course is that Mark Telfer be ordered to pay Mrs Telfer's costs of the claims made in the statement of claim other than in orders 3 to 5, and that Mrs Telfer be ordered to pay Mark Telfer's costs of the claims made in those three orders plus the cross claim.
I will not make any order concerning Mr Fairfax's costs at this stage, as that is a matter that is presently the subject of directions that have recently been made by the court, and remains outstanding.
Accordingly, the orders of the court will be:
1. Order the second defendant to pay the costs of the plaintiff on the ordinary basis in respect of the claims made in the statement of claim, except for orders 3 to 5 set out in the statement of the relief claimed.
2. Order the plaintiff/first cross defendant to pay costs of the second defendant/cross claimant on the ordinary basis in respect of the claims made in the cross claim, and the claims made in the statement of claim in orders 3 to 5 set out in the statement of relief claimed.
[2]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 07 June 2016