Vella v Nergl Developments Pty Ltd & Ors [2021] NSWSC 648 | Case summary

Supreme Court of NSW|2021-05-11|Before: Slattery J

Judgment

This is the Court's second judgment in these proceedings. The Court gave its first judgment on 13 October 2020: Vella v Nergl Developments Pty Ltd & Ors [2020] NSWSC 1405.
In the first judgment, the Court found the plaintiff, Mrs Vicki Vella, had been substantially but not wholly successful in her claim against the first defendant, Nergl Developments Pty Ltd ("Nergl") and the fourth defendant, Kindelon Pty Ltd ("Kindelon"). This judgment should be read with the Court's first judgment. Events, matter and persons are referred to in both judgments in the same way.
This judgment deals with the question of costs. After ordering written submissions at the directions hearings on 19 February and 15 March 2021, the Court heard oral argument on costs issues on 11 May 2021. On that occasion, Mr Sexton SC appeared with Mr Neggo of counsel for the plaintiff, instructed by Macpherson and Kelley. Mr Miller SC appeared for the first and fourth defendants, instructed by Minter Ellison.
Two costs issues remain. The first issue is whether costs should follow the event and a costs order should be made in favour of Mrs Vella for all her costs of the proceedings, or whether Mrs Vella should only recover part of her costs.
The second issue is whether a costs order should be made against Kindelon. Kindelon filed a submitting appearance "save as to costs" in these proceedings on 30 October 2019, shortly before the hearing.
On 9 November 2020, a Notice of Intention to Appeal against the first judgment was filed by Nergl and Kindelon, and orders were made staying the orders and declarations 1 and 6 made with the Court's first judgment. That appeal is set down for a one day hearing on 17 June 2021. The parties invited the Court to determine these costs issues before the hearing of the appeal.

Should Nergl Pay All of Mrs Vella's Costs?

The first issue is whether Nergl should pay all of Mrs Vella's costs or only part of them. On the first issue, Mrs Vella contends that Nergl should pay all her costs. Nergl contends it should only pay 50% of her costs.
The Court has a broad discretion to determine "by whom, to whom and to what extent costs are paid", subject to the rules of the Court: Civil Procedure Act 2005 ("CPA"), s 98(1)(b). Uniform Civil Procedure Rule ("UCPR"), r 42.1 provides that "subject to this Part, if the Court makes any order as to costs, the Court is to order that the costs follow the event, unless it appears that some other order should be made as to the whole or any part of the costs". The "event" is generally taken to be the practical outcome of the proceedings: Traderight (NSW) Pty Ltd v Bank of Queensland Limited [2014] NSWSC 733 per Ball J at [18].
The practical outcome of the proceedings, as outlined in the Court's earlier judgment at [198], is that Mrs Vella was "substantially but not wholly successful". Mrs Vella submits that she was in substance a "successful" party, and that costs should follow the event and that she should have all her costs of the proceedings at least against Nergl from 12 December 2018; that being the date the Heads of Agreement was executed.
Mrs Vella contends she was successful at trial on the disputed issue of the greatest significance, being the width of the right of carriageway benefiting Kindelon as the registered proprietor of the dominant tenement. That contention was put concisely in her written submissions as follows: "6. By her Amended Summons filed on 10 May 2019, the Plaintiff sought relief to the effect that, upon her giving Kindelon a document in registrable form providing for a specified easement, Nergl pay her $100,000 and withdraw its caveats on her land. There was no argument before Slattery J concerning either the payment of $100,000 or the withdrawal of the caveats. The argument concerned what form of easement had to be provided, specifically: a. whether the right of carriageway was to be 16m or 21.6m; and b. whether the easement was to confer temporary rights outside the boundaries of the right of carriageway for the purposes of construction; and c. the configuration of the right of carriageway at the southern end, in order to accommodate a roundabout. 7. These issues were of descending significance. By far the most important disputed issue was the width of the right of carriageway (which is permanent). Second was whether the easement was to confer temporary construction rights outside the right of carriageway. The "roundabout issue" was a distant third. 8. The Plaintiff succeeded unequivocally on the first and second issues. As to the roundabout issue, the Court's orders reflect a "middle-ground" between the two experts, but it is a "middle-ground" based upon the 16m right of carriageway for which Ms Vella contended and so reflects her success in practical terms."
In reply, Nergl contended this was not the main issue in dispute at trial. It submitted that the threshold legal issue was Mrs Vella's claim for specific performance of the Heads. Nergl contends the scope of the easement only became a substantial issue "because of Mrs Vella's failure on the key threshold legal issue."
Nergl further contended that Mrs Vella was unsuccessful on issue (4) in the first judgment, "Accommodating a Roundabout at Bradley Street in the Easement". It submitted that on issue (4) Mrs Vella's "ultimate position was that the "additional area" for the roundabout was nil". Nergl submitted that Mrs Vella had framed her Further Amended Summons dated 29 October 2019 and her case at hearing, so that declaratory orders would never be made about this "roundabout issue". And Nergl submits Mrs Vella did not define what she said was the "additional area" that should be allowed for the roundabout, making it difficult for Nergl to know and meet the case against it.
In reply, Mrs Vella contested that issue (4) had been approached this way and cited the principle that the Court does not normally attempt to differentiate between issues on which a successful party was successful and those on which it failed. She submitted on this as follows: "Where there are multiple issues in a case the court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or severable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 373 per Beazley, McColl and Basten JJA at [6]."
Mrs Vella submitted that "[t]he "roundabout issue" was neither dominant nor severable". She submitted that "[i]t was a minor part of the broader dispute regarding the scope of the easement, upon which [Mrs Vella] was "substantially" successful".
The Court will make an order for costs in Mrs Vella's favour against Nergl for 80% of her costs. Of the four issues determined in the first judgment, Mrs Vella was wholly successful on issues (2) and (3), issues that predominantly occupied the Court's hearing time both in submissions and in evidence. Nergl could not say it was successful on issue (4) concerning the roundabout. Mrs Vella was in a practical sense successful on that issue, because the Court rejected the form of roundabout for which Nergl was contending. To the extent the Court ordered some adjustments to the easement at its southern end at Bradley Street, being a splay about half the extent of that identified in Exhibit D, that order was ancillary to the Court's rejection of Nergl's claim for a wider easement based on the GTA Consultants drawing. The Court would not vary an order for costs against Nergl based upon the outcome of issues (2), (3) and (4).
But Nergl had some success on issue (1) and the related relief sought on its Cross-Claim. Nergl successfully contended that a further deed needed to be prepared and executed to perform the Heads, in contrast to Mrs Vella's position that the caveats could just be removed from her property and ancillary orders made upon their removal under Real Property Act 1900, s 74MA. That was a severable issue and one on which Nergl had a measure of success. To take into account the degree of Nergl's success on that issue, and the time it occupied in the proceedings, it would be appropriate to reduce Mrs Vella's overall costs recovery by 20%.
The parties also disputed from when any costs order would operate. Mrs Vella contended that it should date back to the date of the Heads on 12 December 2018, so she could recover all costs incurred by her since then. In contrast, Nergl submits that any cost order should only operate from 10 May 2019, the date that the plaintiff's Amended Summons was filed.
The Court does not accept either of these submissions. Some of Mrs Vella's costs since 12 December 2018 may not relate to the preparation of these proceedings. And it was necessary for Mrs Vella to commence proceedings in order to achieve the relief on which she has been successful. She should not be limited to recovery of costs after the filing of her Amended Summons.
The appropriate order for cost in Mrs Vella's favour should be framed as an order for the "costs of these proceedings". These reasons make clear, in accordance with accepted authority, that this will include costs incurred in the preparation for the litigation as well as in the litigation, provided that the pre-litigation expenses to be recovered are expenses that were necessary or proper for the attainment of justice or for defending the rights of any party: State of Victoria v Sportsbet Pty Ltd (No. 2) [2012] FCAFC 174, per Emmett, Kenny and Middleton JJ at [15].

Should a Costs Order be made against Kindelon?

The second costs issue is whether the Court should make a costs order against Kindelon. Mrs Vella argues that an order should be made making Nergl and Kindelon jointly and severally liable for the costs of these proceedings.
Kindelon filed a submitting appearance on 30 October 2019. The hearing commenced on 18 November 2019. There is no issue that a costs order can be made against Kindelon in respect of costs incurred by Mrs Vella in the proceedings before that date. In her submissions, Mrs Vella contends that Kindelon's filing a submitting appearance does not grant it immunity from an adverse costs order. She contends that Kisimul Holdings Pty Ltd v Clear Position Pty Ltd (No 2) [2014] NSWCA 317 ("Kisimul") at [14] is an example of an adverse costs order being made despite a submitting appearance.
Relevant applicable legal principles may be shortly stated. Defendants to proceedings who intend to take an active part in the proceedings may file a submitting appearance in accordance with UCPR, r 6.11 which provides as follows: "6.11 Defendant may submit to judgment by notice of appearance (1) A defendant who intends to take no active part in proceedings may include in the defendant's notice of appearance a statement to the effect that the defendant submits to the making of all orders sought and the giving or entry of judgment in respect of all claims made, to which may be added the words ", save as to costs". (2) Except by leave of the court, a defendant who has filed a notice of appearance containing a statement referred to in subrule (1) may not file a defence or affidavit or take any other step in the proceedings."
The usual effect of filing a submitting appearance is that the filing party will not be ordered to pay costs: see for example, Highland v Labragg (No 3) [2006] NSWSC 871 at [19] - [23]. But a party that files a submitting appearance may be ordered to pay costs if the submitting party in fact takes an active role in the proceedings, beyond procedural matters: Sahab Holdings Pty Ltd v Registrar-General and Anor (2009) 75 NSWLR 629; [2009] NSWSC 1143 ("Sahab") at [82].
The Court finds Nergl and Kindelon's submissions the more persuasive. These reasons now set out Mrs Vella's submissions and then evaluate the replies to those submissions by Nergl and Kindelon.
Relying upon uncontentious facts, Mrs Vella contends that Kindelon and Nergl have throughout the proceedings represented the same closely aligned interests. They have the same directors. Kindelon owns all but one of the 4,200 shares in Nergl. The other share is owned by one of the directors. Kindelon is the registered proprietor of Lot 103, the dominant tenement of the Easement created by the Heads. Mrs Vella elaborated on her submission in writing, as follows: "Kindelon and Nergl have the same controlling minds. They have the same solicitors. It is not possible to divorce Kindelon's strategic approach to the litigation from Nergl's. Nergl's role in the case was as a stalking horse for the entity with the real interest in the outcome, Kindelon. Regardless of the outcome of the case, Nergl would always have to pay the Plaintiff $100,000 and remove its caveats on her land. Nergl had little or no legitimate interest in the outcome of the easement dispute. Positioning Nergl as the cross-claimant and Kindelon as a cross-defendant was a transparent attempt to shelter Kindelon from the costs risks of the litigation, while preserving its ability to take advantage of any litigious success."
Mrs Vella submits that Kindelon was actively involved in the early conduct of the dispute between the parties in these proceedings. She submits that Kindelon's active involvement in the matter is demonstrated by its participation in the 2018 mediation and by its status as a party to the December 2018 Heads made at that mediation. She also submits that counsel for Nergl also declared on occasions in the hearing that they acted for Kindelon.
Mrs Vella further submits that Kindelon had an interest in the outcome of the proceedings which was propounded in the Cross-Summons. On 11 October 2019, Nergl served a proposed Cross-Summons, which claimed a right of carriageway benefiting Kindelon.
Some of Nergl and Kindelon's arguments in reply were more persuasive than others.
Nergl and Kindelon argue that when Kindelon filed a submitting appearance on 30 October 2019, Mrs Vella did not seek to oppose that course. That is true but it is not clear that an opposing party such as Mrs Vella would have had a proper basis to oppose the filing of a submitting appearance in October 2019.
Nergl and Kindelon argue that in substance Mrs Vella is retrospectively seeking security for costs. Mrs Vella's submission in reply is persuasive, that the making of costs orders at this stage is not an application for security for costs. The present dispute concerns which of the defendants should bear responsibility for the costs already incurred in the litigation.
Mrs Vella submits that Nergl has little or no legitimate interest in the outcome of the easement dispute and is really a "man of straw" company acting as a "stalking horse" for Kindelon. She relies upon Knight v FP Special Assets Limited (1992) 174 CLR 178; (1992) 107 ALR 585; [1992] HCA 28 ("Knight") as providing a basis for costs orders against Kindelon. In Knight, Mason CJ and Deane J stated the following principles (at 192): "...we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party…That category of case consists of circumstances where the party to the litigation is an insolvent person or man or straw, where the non-party…has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made."
Mrs Vella's main contention is that Knight can be applied analogously in this situation, arguing that by filing a submitting appearance and taking the benefit of Nergl's action in the proceedings, Kindelon is taking on the role of the third-party actor in Knight, who should be made liable for the costs of the proceedings.
It can be accepted without further analysis that some test such as that applied in Knight would by analogy enable a costs order to be made against a party who is actively controlling proceedings despite that party having filed a submitting appearance. The principles stated in Sahab are consistent with such an approach. But Sahab only requires that the party filing the submitting appearance "take an active role in the proceedings beyond procedural matters" in order to lose that party's costs immunity, without the need to prove insolvency.
But the difficulty for Mrs Vella's contention is that although it can be readily established that Kindelon has an interest in the subject of the litigation and will benefit from Nergl's conduct of the proceedings, it is necessary for Mrs Vella to establish more than that in order for a costs order now to be made against Kindelon. To use the words of Knight (and like those in Sahab), she must establish that Kindelon "has played an active part in the conduct of the litigation". If the further requirements of Knight are to be applied, she must also establish that Nergl is "an insolvent person or man of straw". In the Court's view Mrs Vella has not established either of these elements.
Mrs Vella has established that Kindelon has an interest in the subject of this litigation and is likely to benefit from Nergl's conduct of these proceedings. This can readily be illustrated. Kindelon is the registered proprietor of 103 and the registered proprietor of parts of Lots 104 and 105 still in Kindelon's name. The definition of "Easement" in the Heads includes a right of carriageway benefiting Lot 103. And the Heads, clause 5 allows for the extension of the benefit of the easement to properties to the north of Lot 103 benefited by the planning consent, as the owner for the time being of Lot 103 may decide. Those lands to the North include the remaining parts of Lot 104 and Lot 105 in Kindelon's name. The grant of relief on Nergl's Cross-Summons would benefit Kindelon. The Cross-Summons seeks execution of a deed of settlement and release to which Kindelon would be a party, as it was a party to the Heads.
But merely proving Kindelon benefits from the conduct of the proceedings does not bring Kindelon within the Knight principle. Mrs Vella has difficulty in showing that Kindelon has played an active part in the conduct of the litigation. And she has difficulty in showing that Nergl is an insolvent person or a man of straw.
Mrs Vella identifies several matters to base her argument that Kindelon has played an active part in the conduct of litigation. Taken either individually or together they are not persuasive in indicating that conclusion. They are discussed below.
Mrs Vella commenced these proceedings on 12 October 2018. On 10 May 2019 she filed an Amended Summons joining Kindelon as the fourth defendant. On 15 May 2019 Minter Ellison, also the solicitors for Nergl, accepted service of the Amended Summons on behalf of Kindelon. On 11 October 2019 Minter Ellison emailed Macpherson Kelley forwarding a proposed cross-summons to be brought by Nergl, similar to the Cross-Summons which was later filed. On 18 October 2019 Minter Ellison wrote on behalf of both Nergl and Kindelon advancing a deed for execution of the kind for which relief is sought in the Cross-Summons. On 30 October 2019 Kindelon filed its submitting appearance shortly before the trial commenced. The other matter Mrs Vella relies upon are the fact that senior and junior counsel for Nergl made some incidental statements in opening submissions referring to Kindelon as their "client".
These matters do not establish that Kindelon has played an active part in the conduct of this litigation. Using the same solicitors as Nergl is not a basis to infer that Kindelon is conducting the litigation. The correspondence issued by Minter Ellison before the filing of the Cross-Summons is consistent with that firm advancing Nergl and Kindelon's interest in having the Heads performed. Such correspondence is not to be solely explained as conducting this litigation. As the developer of this site and a party to the Heads, Nergl has a legitimate interest in advancing the Cross-Summons on its own. And counsel's occasional references during the proceedings to Kindelon being a "client" are more remarkable because of how few there are, rather than how many there are. They are not a basis to infer that Kindelon is conducting the litigation.
Missing from Mrs Vella's case in this respect is any clear evidence that Kindelon has been actively giving instructions to advance the litigation, engaging in correspondence that is unequivocally for the litigation, or funding the litigation. Kindelon's representation at the mediation leading to the Heads is too early to indicate the conduct of this litigation. Mrs Vella has not shown that Kindelon has played an active part in the conduct of this litigation.
Nor, if it be required, can Mrs Vella show that Nergl is an insolvent person or a man of straw. ASIC searches show that Nergl does not have the common characteristics of a phantom corporate entity. It has existed since November 1988 and has had a registered office at Minter Ellison and its predecessors ever since then. A recent credit report done at a fairly high level of abstraction reports its credit score credit risk category is "C2", which is "acceptable" meaning the entity "has adequate aptitude to meet credit commitments" although unfavourable economic conditions "will likely impair the capacity or willingness to meet financial commitments". Nergl has provided $165,000 in security as security for costs to conduct the appeal of these proceedings. No evidence of Nergl suffering financial distress emerges here.
Nergl also points to contract for sale in 2001 in which it had contracted to acquire Lots 104 and 105 from Kindelon to show that it is not a mere stalking horse for Kindelon. Mrs Vella says that there are obstacles to this contract being enforced, not least of which is that part of Lots 104 and 105 have been sold to Vinegar Hill, and other parts subdivided in a manner inconsistent with completion of this 2001 contract for sale which has not been completed for almost 20 years. Despite that, Nergl's evidence is that it wants to proceed to complete the parts of this contract that can be completed and which has not been rescinded. Nergl also says it wants to purchase Lot 103 from Kindelon. The Court cannot decide on an application such as this what is likely to happen with these various matters. But on the evidence available, Nergl and Kindelon have a shared economic interest in these lands. It cannot be inferred that Nergl is insolvent or a man of straw.
Finally, Mrs Vella relies upon the statements made in the Court of Appeal in Kisimul (at [19]) as follows: "…[T]he filing of a submitting appearance by a party occupying a true adversarial position in a commercial dispute and concerned with nothing but its own economic welfare cannot be allowed to operate as some form of insulation from the costs consequences of requiring [a] claim to proceed to curial determination rather than cooperating in a consensual resolution of it."
Mrs Vella says these statements apply to Kindelon.
But Kisimul dealt with a different situation. This statement in Kisimul was not made in the context of one party using a submitting appearance whilst conducting litigation through another active party as is alleged here. In Kisimul, a party had conducted litigation successfully at trial and had filed a submitting appearance as the respondent to the appeal to avoid an adverse costs order in the event the appeal was successful. The statement in Kisimul has no application here.

Conclusion and Orders

Mrs Vella has been successful on the costs issues against Nergl but unsuccessful against Kindelon. This raises the question of what costs orders should now be made in relation to this costs contest.
Both these defendants were jointly represented by the same solicitors and counsel and both defendants are related parties. It is not uncommon in such a situation for the Court to make a costs order structured so that the successful defendant should recover a proportionate share of the "common" costs referable to the claim pressed against each defendant. This approach can be convenient for the "ordinary case" but is not to be automatically applied in every case: King Network Group Pty Ltd v Club of the Club's Pty Ltd (No 2) [2009] NSWCA 204, at [25] - [35]), (per Young JA, Hodgson and Campbell JJA agreeing) ("King Network Group").
This application is apt for the application of this approach. The Court does not here treat the statements in King Network Group as a rule to be followed but rather as a guiding insight as there is a close, indeed a controlling, relationship between Nergl and Kindelon. And the Court is mindful of minimising inconvenience to the parties in the later assessment of costs. Attempting to separate out the respective legal costs incurred by Nergl and by Kindelon in relation to the costs dispute is likely to be a time-consuming exercise during a cost assessment.
Slightly more time was spent on the issue on which Mrs Vella was unsuccessful. Therefore it is appropriate for the Court to order Mrs Vella to pay 60% of the common costs of Nergl and Kindelon in relation to the determination of issues about the costs of these proceedings. This will require a separate costs order to be made in respect of the costs of the costs issues.
For these reasons the Court will make the following orders: 1. Order that the first and fourth defendants jointly and severally pay 80% of the plaintiff's costs of these proceedings up to 30 October 2019; 2. Order that the first defendant pay 80% of the plaintiff's costs of these proceedings after 30 October 2019, excluding the costs of determining the costs of these proceedings ("the costs issues"); and 3. Order that the plaintiff pay 60% of the common costs of the first and fourth defendants of the costs issues.

Amendments 09 June 2021 - [24] - line 3 - "Kindelon" instead of "Kindalon" [34] - line 8 - "s" added to "Court's" [38] - line 9 - "Cross-Summons" capitalised 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: 09 June 2021

Vella v Nergl Developments Pty Ltd & Ors

At a glance

Court

Decision date

Before

Source

Judgment (5 paragraphs)

Parties

Cases Cited (13)

Cited By (4)