The Owners - Strata Plan No. 13631 v McGrath

Factual background

1. The material produced on the application shows that the chronology of events after the decision of NCAT on 10 December 2015 was as follows.
2. On 23 December 2015, the Owners Corporation's solicitor wrote to Mr McGrath's solicitor explaining that NCAT did not have the power, under s 204 of the Strata Schemes Management Act 1996 (NSW), to order that the Owners Corporation pay Mr McGrath's costs after dismissing its application for a pecuniary penalty. The Owners Corporation indicated that it would seek to have the costs order quashed and requested that Mr McGrath undertake not to act on or enforce the order.
3. On 19 January 2016, Mr McGrath's solicitor responded to the Owners Corporation's letter of 23 December 2015. Mr McGrath declined to undertake not to enforce the costs order, disputing the contention that it was made without power.
4. On 4 February 2016, Mr Mueller received notice that Mr McGrath's solicitor had caused the Local Court to issue a garnishee order for debts against the banker of the Owners Corporation. On 5 February 2016, the sum of $30,238.25 (being the quantum of the costs order made against the Owners Corporation) was paid from the bank account of the Owners Corporation to Mr McGrath's solicitor.
5. On 8 March 2016, the Owners Corporation filed a summons in this Court seeking that the costs order and the order dismissing its application for a pecuniary penalty be quashed and that the matter be remitted to NCAT to be determined according to law.
6. On 12 September 2016, Mr McGrath's solicitor wrote to the solicitor for the Owners Corporation, attaching draft consent orders, proposing that the costs order be quashed and the matter be remitted to NCAT for determination according to law. Mr McGrath indicated that he considered it appropriate that there be no order as to costs in the judicial review proceedings in relation to the quashing of the costs order made by NCAT.
7. On 11 October 2016, the Owners Corporation made an offer pursuant to r 20.26 of the UCPR to settle the whole of the proceedings and, in the event that that offer was not effective as an offer under Part 20 of the UCPR, an offer on the same terms made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333.
8. On 14 October 2016, at a time when the hearing was approaching and there had been no acceptance of its offer by that time, the Owners Corporation served on Mr McGrath's solicitor a draft amended summons, a draft notice of motion seeking leave to file the amended summons, and written submissions.
9. On 17 October 2016, Mr McGrath accepted the offer made under r 20.26 of the UCPR.

Submissions on behalf of Mr McGrath

1. It was Mr McGrath's application that the Owners Corporation should pay his costs of the proceedings or, alternatively, that there be no order as to costs in relation to the quashed costs order and that the Owners Corporation instead pay his costs in relation to the remainder of the summons.
2. Ms Tronson of counsel appeared on behalf of Mr McGrath. She relied upon written submissions in which she contended that the majority of the judicial review proceedings concerned the order of NCAT dismissing the Owners Corporation's application for a pecuniary penalty order, which, by its nature, requires a finding of misconduct. The dispute as to that order is the larger part of the summons, the amended summons, and the submissions.
3. She submitted that the application that the Owners Corporation pay Mr McGrath's costs turns on the proper characterisation of the compromise of the matter. It was submitted that the offer could be categorised in two different ways. First, it could be categorised as being a judgment entirely in favour of Mr McGrath. If that be the case, Mr McGrath is entitled to his costs assessed on the ordinary basis until 11 October 2016: UCPR r 42.13A(3). The argument in support of this first characterisation is that, once Mr McGrath accepted on 12 September 2016 that the costs order must be quashed, the only part of the offer that remained in dispute was that which proposed that the balance of the summons be dismissed. The area in dispute was ultimately settled in favour of Mr McGrath.
4. The second way in which the settlement could be categorised, it was contended, was as judgment in favour of the Owners Corporation in relation to the costs order and judgment in favour of Mr McGrath in respect of the balance of the summons. Rule 20.26(2)(i) of the UCPR requires that an offer made under that rule identify "the claim or part of the claim to which [an offer] relates". Ms Tronson submitted that "the claim" for the purposes of r 20.26(2)(i) does not necessarily mean "the proceedings" as a whole; otherwise there would be no need for a requirement that the offer identify "the claim". The identification of "the claim" may refer to separate, distinct claims that could stand alone. On this second categorisation, the offer of compromise made pursuant to r 20.26 was in fact two offers, one in favour of the Owners Corporation and the other in favour of Mr McGrath. Ms Tronson conceded in oral submissions that she had no specific authority for this contention.
5. It was further submitted that each of the categorisations that Mr McGrath proposes engages r 42.13A(3). Part 42, Div 3 of the UCPR alone governs the costs consequences of an offer made under r 20.26, whether it be accepted or rejected: per Barrett JA in Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at 323 [51]. Costs essentially follow the event if the offer is characterised in such a way that r 42.13A of the UCPR applies.
6. Ms Tronson submitted that the decision of the Court of Appeal in Johnston v Johnston [2016] NSWCA 52, relied upon by the Owners Corporation, can be distinguished on the basis that the offer in that case was a "truly mixed offer", referring to the details of that offer as set out at [11] of the judgment of Ward JA.
7. It was further submitted that the appropriate order, applying r 42.13A(3) of the UCPR, would be that the Owners Corporation pay his costs assessed on the ordinary basis up to 11 October 2016. In the alternative, the Owners Corporation should pay Mr McGrath's costs in respect of the summons insofar as it did not concern costs, assessed on an ordinary basis up to 11 October 2016, but there should be no order as to costs in relation to the quashing of the costs order because Mr McGrath had already indicated he would not contend for its correctness.
8. Ms Tronson further submitted in the alternative that, if the Court considered that the offer was a mixed offer, the discretion pursuant to s 98 of the Civil Procedure Act 2005 (NSW) ("CPA") ought to be exercised in Mr McGrath's favour because the balance of the summons was the greater part of the dispute between the parties.
9. In response to the Owners Corporation's contention that Mr McGrath acted unreasonably, it was submitted that it was not unreasonable for Mr McGrath to rely on his legal right to enforce a costs order that had been made in his favour. Ms Tronson also submitted that it was not unreasonable for him to take the position, for a period of time, that the costs issue should be remitted to NCAT for determination according to law in circumstances where it was at least arguable that NCAT could have made a costs order pursuant to s 60 of the Civil and Administrative Tribunal Act 2013 (NSW) ("the CAT Act") had it found that special circumstances existed. She submitted that authorities with respect to reasonableness are more relevant to administrative decision-makers than private litigants.

Submissions on behalf of the Owners Corporation

1. Mr Knoll of counsel appeared on behalf of the Owners Corporation at the costs hearing. In written submissions in response to the costs application he contended that the appropriate costs order would be that Mr McGrath pay the Owners Corporation's costs of and incidental to these proceedings up to 12 September 2016 and that Mr McGrath be granted a certificate under the Suitors Fund Act 1951 (NSW). This submission was not addressed further at the hearing.
2. Mr Knoll submitted at the hearing that the Owners Corporation should not be ordered to bear Mr McGrath's costs. Although as a matter of principle he submitted that Mr McGrath ought to bear the Owners Corporation's costs, he proposed that there be no order as to costs.
3. Mr Knoll submitted that r 42.13A of the UCPR does not apply in the circumstances of this matter because the relevant offer was "mixed"; that is, it proposed judgment for the Owners Corporation and judgment for Mr McGrath. He relied upon what was said in this regard by Ward JA in Johnston v Johnston at [39] (extracted below at [37]). He submitted that the two orders that the Owners Corporation's summons sought to quash were not discrete and separable. He described the result of the compromise as a "draw".
4. Mr Knoll submitted that, unless a party has acted unreasonably, usually there will be no costs order where proceedings are settled in advance of the hearing: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625; [1997] HCA 6, recently followed in Arab Bank of Australia Pty Ltd v Jeitani (No 2) [2016] NSWSC 726 at [18]. He submitted, however, that this was a case in which the Court could consider it appropriate to make a costs order notwithstanding that the parties had reached agreement prior to the hearing. This is because Mr McGrath acted unreasonably in taking action to enforce the costs order in its favour by way of a garnishee order in circumstances where the Owners Corporation's solicitor had indicated that it was made without power and requested that Mr McGrath defer enforcement.
5. Mr Knoll submitted that the Court may have regard to the conduct of Mr McGrath prior to the commencement of proceedings when considering the exercise of its costs discretion: Farah v Elias [2015] NSWSC 1417 at [19]. However, he conceded that it was not Mr McGrath's refusal to defer the taking of enforcement action, but rather the orders made by NCAT, that precipitated the commencement of judicial review proceedings in this Court.
6. It was submitted that the Owners Corporation succeeded on the larger and more financially significant issue in these proceedings; that is, the costs order made by NCAT in the amount of $30,328.25. The amount at stake in relation to the remainder of the summons was $5,500, being the quantum of the pecuniary penalty order sought against Mr McGrath. The appropriate order is therefore that Mr McGrath pay the Owners Corporation's costs.
7. Mr Knoll submitted in the alternative that the Court could make a partial costs order in the Owners Corporation's favour. He relied on the decision of Foster J in El-Debel v Secretary, Department of Immigration and Border Protection (2014) 141 ALD 611; [2014] FCA 474, which concerned employment and administrative law proceedings in which the applicant obtained the relief sought by agreement. The applicant then sought leave to discontinue proceedings on the basis that the respondents pay his costs. His Honour awarded the applicant 80% of his costs in respect of the administrative law portion of the matter, finding at [29] that the applicant was justified in commencing and pursuing the proceedings.

Consideration

1. The court's power to award costs is discretionary. Section 98 of the CPA relevantly provides: "98 Court's powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
2. The discretion to award costs must be exercised judicially and is subject to the rules of the court now contained in Part 42 of the UCPR. Importantly, the court does not retain any discretion in the circumstances for which r 42.13A of the UCPR provide; that is, where the parties have settled, the offer proposes judgment entirely in favour of one party, and the offer does not make provision for costs. Rule 42.13A is as follows: "42.13A Where offer accepted and no provision for costs (1) This rule applies if the offer: (a) is accepted by the offeree, and (b) does not make provision for costs in respect of the claim. (2) If the offer proposed a judgment in favour of the Owners Corporation in respect of the claim, the Owners Corporation is entitled to an order against the defendant for the Owners Corporation 's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made. (3) If the offer proposed a judgment in favour of the defendant in respect of the claim (including a dismissal of a summons or statement of claim), the defendant is entitled to an order against the Owners Corporation for the defendant's costs in respect of the claim, assessed on the ordinary basis up to the time when the offer was made."
3. Rule 42.13A does not govern the exercise of the Court's costs discretion where the offer is "mixed": Johnston v Johnston at [39]. The critical issue in the present case is therefore whether the Owners Corporation's offer can be characterised as "mixed", in which case r 42.13A of the UCPR does not apply, or whether the most appropriate characterisation is one of those proposed by the second defendant at [18]-[19] above. If r 42.13A does not apply, then the question of the appropriate costs order is one to be exercised in accordance with the general discretion as to costs in s 98 of the CPA. It is not necessarily the case that no order as to costs will be made: Johnston v Johnston per Ward JA at [39] - [40].
4. Johnston v Johnston concerned an application for leave to appeal against a costs order made in the Equity Division of this Court. It is unnecessary to set out the facts in any detail. It is sufficient to note that the applicants had served an offer of compromise on the respondents which proposed three outcomes: that the respondents consent to the grant of probate in solemn form to the applicants, that the applicants pay a sum of money to the respondents and that the respondents' cross-claim be dismissed. The trial judge made an order pursuant to r 41.13A(3) of the UCPR that the applicants pay the costs of the respondents up to the date of the making of the offer of compromise. The applicants sought leave to appeal on the basis that the offer was properly characterised either one in their favour, in which case r 41.13A(2) would apply, or a "mixed offer".
5. Justice Ward (Leeming and Simpson JJA agreeing) observed at [37]: "It makes no sense for r 42.13A as a whole to apply in circumstances where there is a mixed offer of this kind, since if that were the case there would be opposing orders for each side to pay the other's costs. While a set-off of that kind is not necessarily unworkable, it seems hardly consistent with the objective purpose of the cost rules in relation to offers of compromise…It is unlikely to be sensible or practicable to apply the costs rules separately to the discrete aspects of the offer in circumstances where there would be costs orders going either way for the whole of the proceedings and would not doubt give rise to the real potential for further costs in working out how those orders were to apply."
6. Her Honour observed that such a construction of r 42.13A would not advance the overriding purpose in s 56 of the CPA. She then went on to state at [39]: "I consider that the better construction of r 42.13A is that where there is a "mixed offer" of the kind in the present case (ie, an offer that proposes both judgment for the plaintiff and judgment for the defendant in respect of the plaintiff's claim), the rule does not apply. That is because the rule contemplates two mutually exclusive situations. One is therefore left with the general discretion as to costs…"
7. Her Honour noted at [17] that, while the previous iteration of r 41.13A (before it was amended on 7 June 2013) preserved a discretion as to costs, r 41.13A in its current form prescribes the costs consequences of acceptance of an offer under the UCPR.
8. The fundamental difficulty with the first categorisation proposed by Mr McGrath, described at [18] above, is that the quashing of the costs order was disadvantageous to Mr McGrath. The amount of money at stake was far greater than any potential pecuniary penalty that may have been imposed on Mr McGrath should the summons have been successful and the matter remitted to NCAT. Although I accept Ms Tronson's submission that the imposition of a pecuniary penalty carries with it a finding of misconduct, the dismissal of the summons only meant that the Owners Corporation was denied the opportunity to seek a pecuniary penalty again at a hearing.
9. Nor does it seem to the point to submit, as Ms Tronson did, that the costs order was no longer in dispute once Mr McGrath conceded that it was made without power on 12 September 2016. The costs order necessarily formed part of the offer proposed by the Owners Corporation and it was not capable of being quashed without recourse to the supervisory jurisdiction of this Court. It took from 23 December 2015 until 12 September 2016 for Mr McGrath to concede that the costs order was made without power, and in the intervening period he took action to enforce it.
10. It is to be noted that there is no right of appeal from NCAT to this Court or the District Court where a decision is made not to impose a pecuniary penalty (by contrast, s 83(2) of the CAT Act confers a right of appeal on a question of law on persons on whom a pecuniary penalty has been imposed). Nor does an internal appeal lie within NCAT. Accordingly, the Owners Corporation was confined to invoking the supervisory jurisdiction of this Court under s 69 of the Supreme Court Act 1970 (NSW) in order to have the costs order quashed.
11. I do not accept that the offer is best categorised as two separate and discrete offers, one in relation to the costs order and the order in relation to the dismissal of the balance of the summons, such that two costs orders should be made. It seems to me that such a construction would be contrary to what was said by Ward JA in Johnston v Johnston at [37] and would not tend to further the overriding purpose in s 56 of the CPA nor the case management objective in s 60.
12. I am satisfied that the offer made by the Owners Corporation and accepted by Mr McGrath was mixed in the relevant sense. Both parties were partially successful. Therefore, r 41.13A does not apply for the reasons expressed by Ward JA in Johnston v Johnston, extracted at [36] - [37] above. The question that remains is whether the Court should exercise its general costs discretion in favour of the Owners Corporation or Mr McGrath, or whether it should decline to make an order as to costs.
13. In Farah v Elias, Harrison J considered the circumstances in which a court would award costs to a party where there has been no hearing on the merits. His Honour stated at [17]-[18]: "17. Unless the Court otherwise orders, costs ordinarily follow the event. Where there has been no hearing on the merits, however, there is no relevant event. Where both parties have acted reasonably in commencing and defending proceedings, a proper exercise of discretion might on one view mean that an appropriate order is that there should be no order as to costs: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 625 per McHugh as follows: 'In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the Owners Corporation had no reasonable alternative but to commence a litigation. … 18. Costs will ordinarily be awarded to a party where the Court can find that: (1) On party has acted unreasonably in prosecuting or defending the action; (2) One party was almost certain to have won had the case been tried; (3) One party has effectively surrendered to the other." 19. The Court may also have regard to the conduct of the defendant prior to the commencement of the proceedings if such conduct precipitated the litigation: Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371." [emphasis added]
14. The Owners Corporation relied upon the unreasonable conduct on the part of Mr McGrath in seeking a garnishee order when he was on notice that the costs order was made without power. The costs order was purportedly made under s 204 of the Strata Schemes Management Act. It is clear from the language of s 204 that the prerequisite for the exercise of the power to award costs under that section had not occurred in this case. When on 23 December 2015 the solicitor for the Owners Corporation drew this to the attention of Mr McGrath's solicitor, he not only insisted that there was such a power but then took action to garnishee the amount of the costs order from the Owners Corporation's bank account. That position preceded these proceedings being commenced in this Court. Despite this, I do not regard the conduct as so unreasonable that it persuades me that I should exercise my discretion to award costs to the Owners Corporation.
15. In all of the circumstances I decline to make any costs order in relation to the compromise of this matter.
16. The only remaining matter for determination is which party should pay the costs of this application. I am unable to identify any reason to depart from the general rule that costs follow the event: r 42.1 of the UCPR. In circumstances where Mr McGrath pressed for a costs order in his favour while the Owners Corporation was content with there being no order as to costs, I propose to make an order that Mr McGrath pay the Owners Corporation's costs of this application.

ORDERS

1. I make the following orders: 1. Each party is to bear its own costs of the proceedings. 2. Mr McGrath is to pay the Owners Corporation's costs of this application assessed on the ordinary basis.

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