This judgment is concerned with two disputed matters as to costs and consequential orders.
The substantive aspect of the proceedings was a family dispute over a property. I will refer to the parties by their given names, for convenience and without disrespect. The plaintiff ("Antoinette") and the first defendant ("Orlene") are sisters. The second defendant ("David") is Orlene's son. Orlene and David were the registered proprietors of the property, and Antoinette claimed an equitable interest in it.
I delivered my primary judgment in November 2021: Woods v McKinlay (No 2) [2021] NSWSC 1510. Antoinette succeeded in her claim for the imposition of a constructive trust over the property. In that judgment, I also set out my views on the form of account to occur under the constructive trust. But this was subject to further submissions.
In the event, the parties proceeded to undertake an informal accounting process themselves. This resulted in the sale of the property, and some funds being distributed between the parties pursuant to consent orders. A dispute arose as to one accounting issue. I resolved that issue in a further judgment, which I delivered on 9 May of this year: Woods v McKinlay (No 3) [2023] NSWSC 489.
I had understood that determination of the issue the subject of my 9 May judgment would allow the parties to formulate orders finally quantifying the amounts due to the parties under the constructive trust. I fixed the proceedings for further hearing on 12 May and directed the parties to confer on the form of orders to be made to give effect to my decision (and to deal with costs, if possible): J3 [19].
The parties largely agreed on quantum, subject to two accounting matters. They also sought to have the issue of costs dealt with on the papers. On 12 May, I heard argument on the two accounting matters and gave my rulings orally. I also raised with the parties some other changes to their proposed orders, including the need to include a declaration formally recording that the property had been held by Orlene and David on constructive trust, and the terms of that trust. The parties indicated that they would confer and then submit an agreed minute of order finalising the constructive trust claim and providing a timetable for written argument on costs.
Unfortunately, the minute of order finalising the constructive trust claim did not eventuate. The parties later indicated that they were still in dispute on quantum: there was one remaining accounting issue (as will be seen, this was one of the issues which had been debated, and, I thought, decided, on 12 May). They indicated that they would deal with the matter in their written submissions on costs. That, and a question about costs, are the two issues which remain for determination.
This judgment assumes familiarity with my November 2021 and May judgments, paragraphs of which I will refer to as "J2" and "J3", respectively. A chronology of key events can be found at J2 [17]-[59].
[2]
Accounting for tax liabilities
The first issue is a very confined one. The parties agree that a sum of $20,000 is to be withheld from the proceeds of sale on account of potential tax liabilities. They disagree as to who should bear this amount.
The issue needs to be understood in light of some observations that I made in my 2021 judgment. In the section where I expressed my views on the form of account (subject to further submissions), I observed (at [285]-[286]):
Since Antoinette consented to a structure whereby her payments were treated as rent for tax purposes, Orlene and David should also be allowed credit for the tax liability incurred by them, to the extent that Antoinette's payments exceeded the interest, and other expenditure, such as land tax, incurred by Orlene and David. Of course, Orlene and David's tax returns are not a proper basis for determining this tax credit. The returns falsely included deductions for payments made by Antoinette. They also included all of the interest charged by Wizard on the loan rather than limiting the interest to the financed component of the loan.
Orlene and David are not themselves seeking equitable relief, so the imposition of a condition that they amend their tax returns may not be directly available: cf Nelson v Nelson (1995) 184 CLR 538. But I think I can effectively achieve the same result by imposing that requirement as a condition of allowing Orlene and David the credits to which I have referred.
The positions on 12 May were as follows. Orlene and David sought to have the $20,000 be withheld equally from the parties' shares of the balance of the sale proceeds, to be paid out of a solicitor's trust account. Antoinette sought to have the $20,000 be withheld solely from Orlene and David's share of the balance of the sale proceeds. I found in favour of Orlene and David.
The parties' positions at present are as follows. Orlene and David now seek to have the $20,000 withheld solely from the sum to be paid out of the sale proceeds representing Antoinette's indexed capital contribution. Antoinette seeks to have the $20,000 withheld equally from the parties' shares of the balance of the sale proceeds. That is, Antoinette, in effect, adopts Orlene and David's position from 12 May, which I had accepted. Orlene and David have taken a different position.
Counsel for Antoinette has not complained about Orlene and David's change in course, nor complained that it departs from my conclusion on 12 May. I would add that Orlene and David's current position is not contradictory to my 12 May conclusion - their current position was simply not debated, and therefore not ruled upon. In these circumstances, I proceed to determine the present debate on its merits.
Orlene and David's revised position was explained as an effort to give effect to my observations at [285]-[286] of my 2021 judgment (quoted above) - that any tax payable by them should be treated as a credit when determining the Antoinette's contributions. This would be consistent with the approach taken to interest paid by the defendants on the mortgage (see J2 [284]).
Counsel for Antoinette submitted that there was no proper basis to withhold the amount from the indexed contribution, and that the amount should be withheld from the funds remaining after the indexed contribution had been paid.
In reply, counsel for Orlene and David submitted that the figure included in Antoinette's proposed final orders as her indexed capital contribution was taken from a spreadsheet which was handed up in Court in December. At that hearing, counsel submitted, the Court made it clear that Orlene and David were to lodge amended tax returns in accordance with [286] of my 2021 judgment, before final orders were made. Counsel submitted that, having done so, Orlene and David were entitled to have any tax payable based on the amended returns credited against Antoinette's indexed capital contribution.
In my view, Orlene and David's position is consistent with what I had envisaged in my 2021 judgment. The credit was to be against Antoinette's capital contribution, not her share of the proceeds of sale generally. The order sought by Orlene and David in their revised minute of order should be made.
[3]
Costs
The costs dispute is confined to the costs of the cross-claim. The parties agree that Orlene and David are otherwise (and subject to any earlier costs orders) to pay Antoinette's costs of the proceedings, as agreed or assessed.
Orlene and David seek the costs of their cross-claim, on the basis that it became otiose upon Antoinette amending her Statement of Claim. The original statement of claim had been filed in August 2019. The cross-claim was filed in December 2019. By it, Orlene and David sought the following relief:
1 An order that the cross-claimants are entitled to vacant possession of the whole of the land comprised in folio identifier 608/36743 and known as 33 Evans Road, Telopea in the State of New South Wales ("Land").
2 Order that the cross-claimants are entitled to issue a writ of possession in respect of the Land on or after 1 April 2020 (or such other date as the Court determines).
3 An order that Caveat No. AN821760 over the Land lodged by the cross-defendant be removed from the title to the Land forthwith.
4 Order that the cross-defendant pay to the cross-claimants damages or mesne profits of $580.00 per week or part thereof, being the current estimated market rent for the Land, in respect of any period of occupation by her (or her family) of the Land after the date of the issue of the writ of possession until such time as vacant possession is delivered to the cross-claimants.
5 Order that the cross-defendant pay the cross-claimants' costs.
6 Such further or other orders as the Court considers fit.
The amendment, in July 2021, was prompted by a discussion that I had with counsel about the nature of the claims, while hearing an adjournment application in the week before the trial began. By that amendment, Antoinette no longer pursued an entitlement to the entire property, by way of equitable estoppel, and no longer resisted its sale (J2 [8], [12]). Antoinette's amended claim was that the property was subject to a joint endeavour constructive trust, of the kind in Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137 (J2 [12]). She sought orders for the sale of the property, with the parties to be repaid their contributions to the capital cost, and the remainder to be divided between them (J2 [13]).
In short, counsel for Orlene and David submitted that Antoinette's amendments involved a shift in her position, that rendered the cross-claim nugatory. Counsel submitted that this shift was from opposing the sale of the property, to seeking such. Counsel pointed to evidence of Orlene and David having sought the sale of the property prior to the commencement of the proceedings. Counsel relied on Antoinette's failure to consent to a sale, and her having sought, in her original Statement of Claim, the rectification of the land titles register to reflect her ownership of the property. Counsel further submitted that the cross-claim had sought vacant possession of the property, in order to sell it. The amendment of the Statement of Claim to seek a sale, it was submitted, rendered this otiose.
Counsel for Antoinette contested the evidence of Orlene and David's attempts to sell the property prior to the proceedings having been commenced. Counsel submitted that the evidence relied on was not of a request to sell by consent and was a passing comment in correspondence. Further, counsel submitted, it was not clear why Antoinette would have consented to a sale at that time, when Orlene and David did not acknowledge her interest in the property.
Counsel for Antoinette also submitted that the order for sale sought in the Amended Statement of Claim was consequent upon, and subject to, the following claimed declaration:
… the plaintiff is entitled to and claims a declaration that the defendants hold the property upon trust for the plaintiff and the defendants in equal shares upon trust to repay to each of them their respective contributions, and as to the residue in equal shares between the plaintiff and the defendants
Counsel pointed to the fact that this declaration was opposed in the Defence to the Amended Statement of Claim. Therefore, counsel submitted that Orlene and David's position was to oppose the relief and entitlement sought by Antoinette, as also expressed in their cross-claim. In these circumstances, counsel submitted there had been no meaningful abandonment of any aspect of Antoinette's claim.
Counsel for Antoinette submitted that an exceptional order as to the costs of the cross-claim was not justified where: Antoinette's position as pleaded in the Statement of Claim and Amended Statement of Claim was not untenable or otherwise unreasonable; and Orlene and David were unsuccessful on the position they took, and the relief they sought, in their Defence, Amended Defence and cross-claim.
In reply, counsel for Orlene and David contested the submission that there had not been a meaningful abandonment of any aspect of the plaintiff's claim. Counsel extracted the following passage from my 2021 judgment at [11]-[12] (emphasis in submissions):
In the week before the trial was to begin, an application was made on Antoinette's behalf for an adjournment, which I refused: see Woods v McKinlay [2021] NSWSC 831. Following delivery of my judgment on that application, there was a discussion between myself and counsel about the nature of Antoinette's claims in the proceedings.
As a result of that discussion, Antoinette's claim was amended. She no longer sought the whole of the property and no longer resisted its sale. Rather, the claim made on her behalf was that the property was subject to a joint endeavour constructive trust…
Counsel submitted that this amendment directly led to the cross-claim being otiose, and that this was the basis on which costs were sought.
I agree with counsel for Orlene and David that the nature of Antoinette's claim shifted in a significant way. She no longer claimed an entitlement to the entire property, and did not oppose a sale per se. This no doubt led to costs having been thrown away. Indeed, I made an order in July 2021 that the plaintiff pay those costs. That order is worth emphasising in circumstances where counsel for Orlene and David has primarily relied on the fact that the cross-claim was rendered otiose by the amendment.
I think it is also important to highlight that an order that Antoinette pay Orlene and David's costs of the cross-claim would include only those costs solely referable to the cross-claim (see Medway Oil & Storage Co Ltd v Continental Contractors Ltd [1929] AC 88, as discussed in Southern Oil Refining Pty Ltd v Hydrodec Australia Pty Ltd (No 2) [2021] NSWSC 336 at [30]-[39]; see also Makaritis v Makaritis (No 3) [2023] NSWSC 409 at [91]). The cross-claim in the present case overlapped extensively with the claim. In those circumstances, the costs order sought is likely to be fairly insignificant in value, relative to the general costs of the proceedings.
Nonetheless, I think it is correct to characterise the cross-claim as having become otiose because of the amendment. Orlene and David were the registered proprietors. Once the primary claim had been amended, such that an entire interest was not being pursued, the cross-claim for vacant possession could not be resisted, and a sale had to occur. Orlene and David were also entitled to payment of an occupation fee fixed by reference to market rent (see J2 [290]). In those circumstances, the cross-claim, was on the whole successful. Antoinette should be ordered to pay Orlene and David's costs of it.
[4]
Orders
Orlene and David have succeeded on the present application. Accordingly, Antoinette should be ordered to pay their costs of this application.
There are some aspects of the constructive trust declaration which I wish to discuss with the parties. Additionally, it is possible that there may have been changes in quantum in the interim.
Accordingly, I will list the matter for the purpose of making orders, in consultation with the parties, to reflect this judgment.
The order of the Court is:
1. The proceedings are listed for final argument at 9:30am on Friday 28 July 2023, or such other date and time as may be arranged with my associate.
[5]
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Decision last updated: 25 July 2023