Thomson v Sweeney & Ors

Judgment 1HIS HONOUR: This judgment concerns questions of costs arising from an application for the appointment of trustees for sale of land. That application was made pursuant to s 66G of the Conveyancing Act 1919. The plaintiff and the defendants are co-owners of land at Elands in New South Wales in the proportion of the plaintiff as to a 50 per cent and the defendants, as joint tenants, as to the remaining 50 per cent share. 2The plaintiff filed a summons on 27 November 2012 seeking orders for the appointment of two individuals as trustees of the land to be held by them upon the statutory trusts for sale under Div 6 of Pt 4 of the Conveyancing Act. On 4 April 2013 the defendants filed a cross-summons. Paragraph 1 of the cross-summons sought an order that the land be vested in the trustees to be held by them on a statutory trust partition or, in the alternative, that the property be vested in the trustees on a statutory trust for sale. Paragraph 3 of the cross-summons sought an order pursuant to s 66I of the Conveyancing Act that the defendants be permitted to purchase the property, whether at auction or by private treaty, without payment of a deposit; that they be permitted to set off their interest in the property against the proceeds of sale of the property; and that they be permitted to set off an amount of $29,160 from the plaintiff's share of the proceeds of sale of the property on account of improvements made by the defendants to the property. 3 On 5 July 2013 the proceedings were fixed for hearing today but the parties reached agreement on the orders to be made, save as to costs. This morning I made an order for the appointment of trustees for sale by consent. Also, by consent, I made an order pursuant to s 66I that the defendants be allowed to purchase the Elands property, whether at auction or by private treaty, without payment of a deposit and to set off their one-half interest in the Elands property against the agreed purchase price for the whole of the property instead of paying the same. 4The defendants did not press their claim for partition. Nor did they press their claim that a set-off be made from the plaintiff's share of the proceeds of sale of the property on account of improvements said to have been made by the defendants to the property, as had been sought in paragraph 3(c) of the cross-summons. 5The plaintiff contends that he has obtained the relief sought in the summons. He did not oppose the orders sought by the defendants pursuant to s 66I of the Conveyancing Act authorising them to set off their interest in the property against the proceeds of sale if they were the purchaser of the property. The defendants also abandoned their claim to deduct from the plaintiff's share of the proceeds of sale the value, or perhaps the costs, of improvements said by them to have been made to the property. Hence the plaintiff contends that he was the successful party and the costs should follow the event. He seeks an order that the defendants pay the plaintiff's costs. 6For their part, the defendants invoke what is said to be the usual position as to costs of an application for the appointment of trustees for sale, namely, that the costs of both parties be paid out of the proceeds of sale by analogy to partnership actions. This is because the costs of the application for the appointment of trustees for sale are to be regarded as an incident of joint ownership (See e.g. McKay v McKay [2008] NSWSC 256 at [7]; Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]; Spathis v Nanos (No 2) [2008] NSWSC 470 at [3]; Barel v Segal (No 3) [2012] NSWSC 1319 at [9]-[12]; and Botros v Frank [2013] NSWSC 712 at [18]-[22].) 7Alternatively, the defendants submit that there should be no order as to costs to the intent that each party bear his and her own costs of the proceedings. The defendants not only point to what has been characterised as the usual order to be made for costs of an application under s 66G of the Conveyancing Act, but they rely on principles in relation to the making of orders for costs where proceedings are resolved by consent without a contested hearing on the merits. 8Putting aside cases where a proceeding is dismissed, or a plaintiff discontinues proceedings, the usual principle applied in such cases is that explained by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625. His Honour observed that the Court cannot try a hypothetical action between the parties so as to burden the parties with the costs of a litigated action which by settlement or extra-curial action has been avoided in order to decide how the costs should be borne. His Honour said that if it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled, or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the Court will make no order as to the costs of the proceedings. 9However, this is subject to a qualification where one party, after litigating for some time, effectively surrenders to the other. As Burchett J explained in One.Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 at [6], 553-554): "6 In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. In Ex Parte Lai Qin, McHugh J was careful to state (at 624) that the principles with which he was concerned were those that "govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means". This was approved by Hodgson CJ in Eq in Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 765 at [33]. 10The decision about costs involves the exercise of the discretion conferred by s 98 of the Civil Procedure Act 2005. That section provides that costs are in the discretion of the Court and the Court has full power to determine by whom, to whom and to what extent costs are to be paid. As Lindsay J said in Botros v Frank (at [19]), the statement as to what is a "usual order" in applications under s 66G of the Conveyancing Act is nothing more than a rule of practice that is required in every case to yield to consideration of the facts of the particular case. 11There has been a long history of disputes between these parties. It is clear from the affidavits of the plaintiff and the first defendant that there is disagreement about the extent and details of those disputes. It is unnecessary to go into that detail. It is sufficient to say that both parties were keen to disentangle themselves, but they were not agreed on how that could be done. 12On 24 October 2012 the solicitor for the plaintiff, Mr John Boyd of Boyd Lawyers, wrote to the defendants. After referring to the fact that the subject properties are in co-ownership, Mr Boyd said: "Our client is a legal owner of a one-half interest in the Elands property. Since your agreement that the Elands property be listed for sale forthwith with a listing price as recommended by the selling agent with our client to receive one-half of the net proceeds of sale, please note that in the event that we do not receive notification of your agreement to the above course on or before Friday 9 November 2012, we are instructed to thereafter to [sic] commence proceedings in the Supreme Court of New South Wales for the statutory sale of the Elands property pursuant to s 66G of the Conveyancing Act 1919." 13The defendants replied to Mr Boyd on 29 October 2012. They complained by reference to earlier correspondence between them and the plaintiff about the stance and attitude taken by the plaintiff. In the course of their reply the defendants indicated that they would oppose an application as foreshadowed in Mr Boyd's letter. They foreshadowed that if such an application were made, they would present an argument for partition. Following that correspondence, the summons was filed on 27 November 2012. 14On 19 December 2012 Messrs Slater & Gordon, who act for the defendants, wrote to Mr Boyd in relation to his letter of 24 October 2012. They observed that the selling agent's listing price was not attached to Mr Boyd's letter and said that they were instructed that the only appraisal obtained, to the plaintiff's knowledge, was by a particular real estate agent, whom they identified, and with whose appraisal their clients took issue for reasons set out in their letter. They also noted that the plaintiff had also indicated that he was not prepared to obtain a further appraisal of the property. 15Slater & Gordon proposed a resolution of the proceedings on the following basis. They said: "We are now instructed to propose resolution of the proceedings on the following basis: 1. Within 14 days of acceptance of this offer, the parties agree on two real estate agents to provide an appraisal on the Property; 2. In the event that the parties cannot within 14 days agree on two agents to provide appraisals on the Property, the parties shall request that the Real Estate Institute of NSW appoint two real estate agents to prepare appraisals on the Property; 3. The parties list the Property for sale with the real estate agent that provides the highest appraisal; 4. The Property be sold by the real estate agent referred to in paragraph 3 above my auction or private treaty; 5. If the Property is to be sold by auction the parties will agree on a reserve price prior to the auction based on the real estate agent's appraisal; 6. The proceeds from the sale of the Property be shared in equal halves between our respective clients; 7. The proceedings be dismissed; 8. Each party to bear its own costs. This is an open offer to resolve the proceedings." 16Further correspondence ensued to little benefit. Ultimately on 7 February 2013 Mr Boyd confirmed that the plaintiff rejected the proposal in Slater & Gordon's letter of 19 December 2012. Thereafter, the defendants filed their cross-summons. In support of that cross-summons they served an affidavit of the first defendant dated 28 March 2013, an affidavit of a valuer, Miss Gabriel Longa, dated 27 March 2013, and an affidavit of a surveyor, a Mr Greg Crisp of 28 March 2013. The effect of the evidence of Mr Crisp was that the subject land was capable of being subdivided and it was likely that the subdivision would be approved by the Greater Taree City Council. The effect of the evidence of Ms Longa was that the land values of the two proposed lots of the subdivision could be considered to be $150,000 each. In other words, these affidavits were prepared in support of the claim in the cross-summons for an order for partition in preference to an order for sale. 17The first defendant's affidavit of 28 March 2013 contained evidence concerning the history of the purchase of the property including a statement said to have been made by an agent that the property had been listed for sale for about five years before its purchase by the parties in 2010. The first defendant then gave evidence about his and the second defendant's relationship with the plaintiff and a partnership between them, much of which would have been of only peripheral relevance, at best, to the issue that would have been raised at the hearing of the summons and cross-summons. 18The first defendant also gave evidence about the contributions that he had made to managing the improvements and maintenance of the property, including the purchase of farm machinery at the defendant's expense. The first defendant said that as a result of his efforts he had transformed a virtually uninhabitable homestead into an inhabitable building displaying 1920's craftsmanship. He then gave evidence as to the sentimental value that the property had for him and his wife and set out reasons in favour of partition. 19On 29 April 2013 the Court of Appeal gave judgment in Segal v Barel [2013] NSWCA 92. That judgment clarified the law in relation to claims for partition under s 66G and the requirements of subs (4) of s 66G whereby the Court may order partition instead of sale if satisfied that partition would be more beneficial for the co-owners "interested to the extent of upwards of a moiety in value than sale". 20The Court of Appeal said, in substance, that in making the comparison required by s 66G(4) the Court must have regard only to factors that of their nature are capable of expression in money terms, and not by reference to matters such as emotional attachment and originally shared objectives to which no money value could be attached (at [67]). 21Further affidavits were then sworn or affirmed by or for the plaintiff in response to the first defendant's affidavit. Affidavits also addressed the cost that would be incurred in obtaining subdivision approval, including the costs of putting in a road, and other costs which would be incurred in that process. After all that evidence was served and, indeed, replied to by the defendant, Slater & Gordon for the defendants advised Mr Boyd for the plaintiff on 20 August 2013 that the defendants would no longer press for order 1 in the cross-summons, that is that they would no longer press for an order for partition. Slater & Gordon stated that the reason for the defendants' change of position was that whereas previously the defendants were not in a financial position to buy out the plaintiff "recent inquiries made by our clients have resulted in a change of their financial position such that our clients are now in a position to purchase your client's interest in the property." No further particulars of that change of position have been provided. 22On 23 August 2013 Mr Boyd advised that the orders sought in paragraph 3(a) of the cross-summons was not contentious and never had been and could be made by consent in respect to both parties. Mr Boyd also stated that if order 3(b) of the cross-summons was an attempt to take advantage of the machinery provision of s 66I to allow the defendants to purchase the property from the trustees and to allow the trustees to set off or account for the defendant's one-half interest in the property instead of paying the same, then an order to that effect could also not be in dispute with such an order to apply to both parties. He advised that the order sought in paragraph 3(c) of the cross-summons was opposed. That was the order for an account in respect of the contributions the defendants were said to have made to the improvements on the property. 23On 2 September 2013 Messrs Slater & Gordon advised Mr Boyd that the defendants intended to press for order 3(c) of the cross-summons. But on the following day, on 3 September 2013, they advised that they had received instructions not to press that claim. 24In my view, the substantial costs of the proceedings would have been incurred in relation to the issues of partition and, to a lesser extent, in relation to the claim for a set-off from the plaintiff's share of the proceeds of sale of the property on account of improvements made by the defendants. Those are issues on which the plaintiff has succeeded and the defendants have failed. 25The fact that those issues were raised and that substantial evidence was put on in relation to them thereby resulting in the incurring of costs is a good reason for departing from the usual course of ordering both parties' costs of proceedings under s 66G to be paid out of the proceeds of sale of the property. It is not necessary for the plaintiff to show that the defendants acted unreasonably in the face of the Court of Appeal's decision in Segal v Barel in pursuing the claim for partition until 20 August 2013. Nor is it necessary for the plaintiff to show that the defendants could not possibly have succeeded on their claim that there be a set-off from the plaintiff's share of the proceeds of sale, of a sum to reflect the work done by the defendants that are said to have resulted in improvements to the property. 26I think that the decision of the Court of Appeal in Segal v Barel and the evidence adduced by the plaintiff of the costs entailed by a subdivision, which counsel for the defendants, I think fairly accepted, would probably have been required to be borne by the defendants if an order for partition were otherwise made, was such as to make a claim for partition a difficult one to sustain and, quite probably, an unattractive one from the defendants' perspective as well as the plaintiff's. It is also fair to say that on the basis of the evidence served by the defendants to date, which included no evidence as to the extent to which the work done by the defendants had added to the value of the property, that the defendants would have faced difficulty in sustaining their claim for the relief sought in paragraph 3(c) of the cross-summons. At one point in the course of her submissions counsel for the defendants accepted that an adjournment would have been required in relation to that claim, and I think that is a very fair assessment. Having regard to the amounts in dispute, it is unlikely that such an adjournment would have been given. 27However, I do not think it necessary to delve into the likely outcome of the proceedings. Nor do I think that appropriate. In respect of those issues, the defendants have effectively surrendered to the plaintiff and the plaintiff can be seen to be the successful party. Costs should follow the event. 28It appears that all of the costs incurred by the plaintiff from 27 March were incurred in responding to the expert evidence and to the affidavit of the defendant of 28 March 2013. None of those costs would have been incurred if the defendants had initially taken the position which they ultimately adopted and which, indeed, was implicit in Slater & Gordon's letter of 19 December 2012. However, the costs incurred prior to that time by the plaintiff were all costs of what I might call a usual s 66G application. 29In relation to the costs incurred up to 27 March 2013 I think the usual position should apply. That is to say, both parties should have the costs that they incurred out of the proceeds of sale, such costs to be assessed on the ordinary basis. However, there should be excluded from the defendant's costs to be so assessed the costs of the affidavits of 27 and 28 March 2013 which substantially went to the issues of partition and contribution to improvements. 30There is therefore to be excluded the costs from the defendants' costs payable out of the proceeds of sale the affidavits of Ms Longa and Mr Crisp. I also think that the first defendant's affidavit of 28 March 2013 falls in the same category. Only a very small part of that affidavit (which is, in any event, hearsay) appears to have any direct relevance to the issues that would properly be raised on the s 66G application if it were to be opposed. Even that evidence is only relevant, I think, to an application for partition in preference to sale. 31So far as the costs incurred after 27 March is concerned, I think the plaintiff has been wholly successful. As I have said, the only issues that were in dispute were in relation to partition and contribution to improvements, being issues which the defendants have abandoned. 32Counsel for the defendants argued that the defendants had had some success in relation to the order made under s 66I. In the cross-summons the defendants had sought an order under that section that only they be permitted to purchase the property at auction without payment of a deposit and that only they would be entitled to set off their interest in the property against the proceeds of sale. That is, in substance, the order made. That is to say the order made pursuant to s 66I allows the defendants to do those things. 33No order is required under s 66I if a co-owner merely wishes to purchase the property from the trustees for sale. (See Young, Cahill & Newton, Annotated Conveyancing and Real Property Legislation 2010-2011, para [31220.5].) I do not think the fact the plaintiff did not press for a similar order in relation to his purchasing the property without payment of a deposit and by setting off his interest against the purchase price means that there has been a real element of compromise of the proceedings. There is no indication that the plaintiff would be interested in purchasing the property or would have the means to do so. 34For these reasons the defendants should pay the plaintiff's costs of the proceedings from 27 March 2013 to 3 September 2013. The latter date was the date upon which the defendants indicated that they would not be pressing their claim in paragraph 3(c) of the cross-summons. Costs incurred after then would have been referable to the costs of the costs application. 35The costs orders will need to provide a mechanism to deal with a case if the defendants purchase the property from the trustees for sale and only have to pay half the purchase price. The mechanism has to deal with the adjustment for costs, because if the property were purchased by a third party or by the plaintiff, the costs of both the plaintiff and the defendants up to 27 March 2013, excluding certain of the costs of the defendants indicated above, would be paid out of the proceeds of sale before the trustees accounted to the parties for their respective shares of the net proceeds. 36The appropriate way of dealing with that is by adjusting the purchase price, either upwards or downwards, by half of the difference between the costs of the plaintiff payable out of the proceeds and the costs of the defendants payable out of the proceeds. In all probability the plaintiffs would have the higher costs and the adjustment would be upwards. 37For these reasons, and subject to anything the parties may have to say as to the precise form of the orders, I propose the following orders: