Blake v Leondiou (No 2) - [2012] SASC 131

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BLAKE v LEONDIOU & ANOR (NO 2)
[2012] SASC 131
Judgment of The Honourable Justice Blue
27 July 2012
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - NATURE OF PROCEEDINGS
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PAYMENT INTO COURT, AND OFFERS TO SETTLE OR CONSENT TO JUDGMENT
The plaintiff and the first defendant agreed to purchase a house collectively to let out as a rooming house. They each contributed funds towards the purchase price. A dispute arose between the parties and the plaintiff commenced proceedings seeking a declaration that she had an 80% beneficial interest in the property.
The parties reached agreement that a consent judgment be entered in favour of the plaintiff for a principal amount of $98,235 but the parties did not resolve issues of interest and costs. Interest was awarded to the plaintiff in the sum of $21,846. Each party sought an order for costs in their favour on the basis of the alleged misconduct of the other.
Held:
1. When an action is compromised, the Court will often decline to award costs of the action unless there are particular grounds why one party should bear the costs of the action.
2. The plaintiff was successful in obtaining relief but it was by consent and different relief to that which she had been seeking.
3. Both parties were guilty of unreasonable conduct at various times in the action.
4. In all the circumstances, the parties should bear their own costs of the action and all previous costs orders should be vacated.
Supreme Court Civil Rules 2006 rr 187, 188, 263(1), 264(5)(c), referred to.
Boscaini Investments v Corporation of Kensington and Norwood [1999] SASC 327 ; Gribbles Pathology Pty Ltd v Health Insurance Commission [1997] FCA 1414; (1997) 80 FCR 284; ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548; Wood v Herd [2001] SASC 217, applied.
Tobin v Tobin and Myers (1977) 75 LSJS 9, discussed.
Advance Resources Services Pty Ltd v Charlton [2008] SASC 118; (2008) 100 SASR 388; Copping v ANZ McCaughan Ltd [1995] SASC 5420; (1995) 63 SASR 523; Forlyle Pty Ltd v Tiver [2007] SASC 464; (2007) 252 LSJS 387; Hansen Yuncken (SA) Pty Ltd v Russell (1992) 168 LSLJ 99, considered.

BLAKE v LEONDIOU & ANOR (NO 2)
[2012] SASC 131
Civil:

Justice Blue: In this action, the plaintiff Ms Blake sued the first defendant Mr Leondiou and the second defendant (“the Company”) in connection with the purchase and operation of a house property at Mile End.
On the first day of trial, the parties agreed on the principal relief (judgment for the plaintiff for $98,235), leaving issues of interest and costs to be determined by me as trial Judge.
I heard evidence and submissions concerning interest, and awarded interest to the plaintiff in the sum of $21,846.[1]
[1] [2012] SASC 121.
These reasons for judgment address the costs issues.
The Plaintiff seeks an order that the defendants pay her general costs of action.[2] The defendants seek an order that the plaintiff pay their general costs of action. Both parties invited me to award costs by way of a single lump sum[3] and for this purpose to wield a broad axe on the basis that it would avoid the time, cost and complexity of potentially multiple adjudications of costs orders. I agreed that this was appropriate in this case.
[2] Subject to past costs orders awarding specific costs in favour of one or other of the parties. Those orders were made on 22 July 2008 and 16 July 2010 in favour of the defendants and on 23 August 2011 and 22 September 2011 in favour of the plaintiff. See further below.
[3] Supreme Court Civil Rules 2006 rule 264 (5)(c).
Introduction
Whenever parties settle an action resolving all issues other than costs, there are difficulties in the Court being asked to award costs. The Court will generally not try the whole action to determine the issue of costs.[4] The most common outcome is that each party bears its own costs, unless there is an obvious basis on which to award costs in favour of one party.[5] However, costs are always in the discretion of the Court and that discretion is not fettered by any rules.[6]
[4]    Tobin v Tobin and Myers (1977) 75 LSJS 9 at 12 per Sangster J.
[5]    Gribbles Pathology Pty Ltd v Health Insurance Commission [1997] FCA 414; (1997) 80 FCR 284 at 287 per Finkelstein J; Boscaini Investments v Corporation of Kensington and Norwood [1999] SASC 327 at [19]-[22] per Debelle J.
[6]    Advance Resources Services Pty Ltd v Charlton [2008] SASC 118; (2008) 100 SASR 388 at [8]-[13] per Doyle CJ and [52]-[56] per Bleby J.
Background facts
There was a substantial degree of common ground on the pleadings as they stood at the commencement of trial. In addition, two volumes of documents prepared for the purposes of trial were tendered on the costs argument.
I make findings of fact based on matters of common ground and the tendered documents. I do not make findings concerning matters which were in contention and could only have been resolved if the matter had proceeded to trial.
In December 2007, Ms Blake and Mr Leondiou agreed to purchase collectively the property for $470,000 to operate as a rooming house. It was agreed that 80 per cent of the purchase price ($376,000) be borrowed on first mortgage security to be organised by Mr Leondiou in his capacity as a finance broker. It was agreed that the balance of the purchase price ($94,000) together with incidental costs (stamp duty and fees) would be shared between Ms Blake and Mr Leondiou. It was agreed that Ms Blake would contribute approximately $94,000 and Mr Leondiou the balance of approximately $24,000. It was agreed that the beneficial ownership of the property (whether directly or via the share holding in a corporate vehicle) would be shared between Ms Blake and Mr Leondiou, but it was in dispute in the action what those shares were agreed, or transpired, to be.
In January 2008, it was agreed that the parties would use a company to be incorporated as their vehicle to purchase and operate the property. Mr Leondiou incorporated the Company for this purpose.
Settlement of the purchase took place on 22 February 2008. The total cost of the property together with incidental costs, conveyancing fees and finance fees was $503,596. The mortgage financier lent $383,868. Ms Blake contributed $94,239. Mr Leondiou contributed $25,499.
Mr Leondiou was sole director and shareholder of the Company. He gave a personal guarantee to the mortgage financier of the Company’s liability.
During the two weeks following settlement, Mr Leondiou and Ms Blake in succession undertook work for the purpose of improving the property and each expended monies on the purchase of furniture and fittings. Over that period, there was a major falling out between the parties, culminating in Mr Leondiou assuming sole control of the property and its operation as a rooming house. In March 2008, Mr Leondiou wrote to Ms Blake characterising her contribution to the property as a loan and foreshadowing an intention to return the loan to her.
Correspondence ensued between Mr Leondiou’s solicitors and Ms Blake. Mr Leondiou’s solicitors characterised the arrangement between the parties as a loan by Ms Blake to the Company. They foreshadowed an intention by the Company to repay the loan which they said was $104,240. They foreshadowed that repayment would need to be subject to an appropriate document and foreshadowed sending a draft document to Ms Blake. Ms Blake foreshadowed a willingness to accept the proposed payment of $104,240. However, no settlement document was forwarded to Ms Blake and neither party irrevocably committed themselves to resolution of the matter on the basis of a repayment of Ms Blake’s investment. In the course of that correspondence, Mr Leondiou’s solicitors requested receipts for expenses incurred by Ms Blake on furniture and improvements but they were not supplied.
In the meantime, on 28 March 2008 Ms Blake lodged a caveat over the property claiming a beneficial interest in it, on 10 April 2008 the Company lodged an application to remove the caveat and on 6 May 2008 it was removed.
In the meantime also, on 4 April 2008 Mr Leondiou engaged Elders Real Estate to sell the property for $560,000 or such other price as he may specify in writing.
On 4 June 2008, Ms Blake instituted this action against Mr Leondiou and the Company claiming a beneficial interest in the property by reason of the agreement between the parties and her contribution towards its acquisition. Ms Blake was self represented until October 2010. Ms Blake implicitly claimed an 80 per cent interest in the property (and/or the shares in the Company).
On 4 July 2008, the Company filed and served a Notice of Payment into Court. The Company paid into Court $94,239. The Notice said that the payment was made “with a denial of liability” and said that “this sum is sufficient to satisfy the amounts with sworn exhibits to the plaintiff’s claim in this action”.
On 22 July 2008, a Master pointed out to the Company’s solicitor that the Supreme Court Civil Rules 2006 provide for offers but not payments into Court by themselves,[7] and the Notice of Payment into Court did not constitute an offer. No subsequent offer was filed.
[7] Rule 187 provides for filed “offers of settlement.” Sub-rule 187(5) permits a payment into Court but only accompanying an offer of settlement.
On 2 December 2008, the defendants filed a defence. The defence admitted some formal matters and some correspondence between the parties, but implicitly denied that Ms Blake had any interest in the property or was entitled to any relief.
On 27 February 2009, Ms Blake filed a list of documents. The list included 19 receipts for purchases. An order was subsequently made for mutual inspection on 23 March 2009. Presumably, the defendants’ solicitors inspected the receipts on that occasion.
On 5 June 2009, the defendants filed an Amended Defence. The Amended Defence admitted that the parties entered into an agreement in December 2007. It admitted some of the terms of the agreement pleaded by Ms Blake and pleaded other terms. It referred to a winding up of the joint venture agreement, but did not admit and therefore implicitly denied that Ms Blake had any beneficial interest in the property.
In October 2010, Ms Blake engaged solicitors to act for her in the action (who continued to act until February 2012, when she resumed representing herself). At about the same time, the defendants changed solicitors.
On 16 February 2011, Ms Blake amended her Statement of Claim. On 27 April 2011, the defendants amended their Defence. They for the first time admitted that Ms Blake had a beneficial interest in the property. They denied that it was agreed that Ms Blake would have, or that Ms Blake was otherwise entitled to, an 80 per cent beneficial interest in the property. They pleaded that the respective beneficial interests of Ms Blake and Mr Leondiou reflected their respective contributions, that Mr Leondiou contributed the monies borrowed from the mortgage financier and that accordingly the beneficial interests were approximately 80 per cent Mr Leondiou and 20 per cent Ms Blake. They pleaded that Ms Blake repudiated the December 2007 agreement in February/March 2008 and that they accepted the repudiation and terminated the agreement.
Between February and April 2011, Mr Leondiou obtained two appraisals from land agents and a valuation report from a valuer. The appraisals gave market estimates of $490,000 to $510,000 or $515,000. The valuation report valued the property at $515,000. These appraisals and valuations suggested that the property had not been subject to a substantial capital gain since its acquisition three years earlier in February 2008 (taking into account stamp duty and incidental costs of acquisition).
The Company prepared financial statements. Those financial statements disclosed that it made a loss (after interest and other expenses) during each of the financial years ended June 2008 to June 2012 inclusive.
Costs follow the event?
When an action has proceeded to trial and judgment, while the Court retains a discretion, the Court frequently awards costs on the basis that “costs follow the event”.[8]
[8] See generally Copping v ANZ McCaughan Ltd [1995] SASC 5420; (1995) 63 SASR 523 at 527-528 per King CJ (Mohr J and Nyland J agreeing); Advance Resources Services Pty Ltd v Charlton (2008) 100 SASR 388 at [8]-[13] per Doyle CJ and [52]-[56] per Bleby J. See also Supreme Court Civil Rules 2006 rule 263(1).
In the present case, the matter did not proceed to trial, other than on the issue of interest. Ms Blake was successful on the issue of interest. Ms Blake was also successful in obtaining a judgment (by consent) for a principal amount of $98,235. In these circumstances, Ms Blake maintains that prima facie she should be awarded the general costs of the action.
In exercising my discretion, I take into account the fact that the defendants consented to judgment in favour of the plaintiff, and the plaintiff was successful at trial on the issue of interest. However, as the action was resolved largely by consent, and on a basis different to Ms Blake’s claim, these factors do not have the same weight as they would if there had been a trial of all issues in the action.
Offers of settlement
The defendants seek an order that Ms Blake pay their general costs of action on the basis of offers of settlement made by them which Ms Blake did not accept.
Pre-action
In relation to the period before the institution of the action and before the Notice of Payment into Court dated 4 July 2008, the defendants did not make an offer capable of acceptance which was capable of resolving the matter. The defendants foreshadowed making such an offer, but did not inform Ms Blake that the monies proposed to be paid to her were actually available (in reality they became available on 30 May 2008 but this was not communicated to Ms Blake before 4 July 2008) and more importantly did not set out the terms of the agreement proposed to resolve the matter. The defendants foreshadowed sending a document setting out such terms to Ms Blake, but did not do so. For these reasons, I do not consider that the communications passing between the parties before 4 July 2008 should result in an order for costs in favour of the defendants or to deprive Ms Blake of her costs (if she were otherwise entitled to them).
Payment into Court
The Notice of Payment into Court did not comprise an offer capable of acceptance so as to dispose of the action. It may have been intended to constitute an offer, but it did not in fact set out terms of an offer. In addition, while not far short of the $98,235 for which judgment was ultimately awarded (by consent), the amount of the payment into Court fell short of that amount. For both of these reasons, the provisions of rules 187 and 188 are not attracted. For similar reasons, the existence of the Notice of Payment into Court is not in itself a reason for me to exercise my general discretion to award costs in favour of the defendants.
Subsequent communications concerning settlement
After the Notice of Payment into Court, the defendants’ solicitors wrote letters to Ms Blake expressing a willingness to resolve the matter, either on the basis of a sale and division of the proceeds of the property or on the basis that one or other of the parties bought out the other. This correspondence was at the level of principle rather than constituting an offer capable of acceptance which would resolve the action. The defendants did not subsequently file an offer to settle pursuant to rule 187, either after the Master pointed out to them in July 2008 the difficulties with the Notice of Payment into Court or after they presumably inspected Ms Blake’s receipts in March 2009. There is no reason why the defendants could not have protected their position on costs by filing an offer to pay, say, $100,000.
In all of the circumstances, I do not consider that the existence of this correspondence entitles the defendants to an order that Ms Blake pay their costs of action.
Conduct of the parties
In general,[9] and in particular where an action has been has been settled on all issues except costs, [10] the Court can have regard to conduct in the action of one or the other of the parties which is regarded as unreasonable.
[9] See Hansen Yuncken (SA) Pty Ltd v Russell (1992) 168 LSJS 99 at 104 per Debelle J; Forlyle Pty Ltd v Tiver [2007] SASC 464; (2007) 252 LSJS 387 at [29]-[30] per Debelle J (Sulan J and Vanstone J agreeing).
[10] Wood v Herd [2001] SASC 217 at [7]-[8] per Williams J; ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 at [7]-[8] per Burchett J.
Each party in this matter contends that the conduct of the other was unreasonable and that this ought to form the basis of an adverse costs order against the other party.
Conduct of the defendants
On the basis of their concession since April 2011 that Ms Blake has a beneficial interest in the property, the defendants acted wrongly in March-April 2008 in characterising Ms Blake’s investment as a loan and in unilaterally placing the property on the market for sale with Elders Real Estate. On the same basis, the defendants wrongly denied in their pleadings before April 2011 that Ms Blake had a beneficial interest in the property.
I consider that this conduct was unreasonable and would disentitle the defendants to an order that the plaintiff pay their costs of action (if they were otherwise entitled to such an order) in respect of the period up to April 2011.
Since April 2011, the defendants have conceded that Ms Blake has a beneficial interest in the property, but have disputed the proportion claimed by her. Ms Blake’s primary claim was based on an alleged term of the December agreement that her proportionate share would be 80 per cent, but I am in no position to make any finding concerning this aspect of the agreement between the parties. Ms Blake’s alternative basis of this claim was that the parties had in fact contributed towards the purchase price of the property in a ratio of approximately 80 per cent/20 per cent in Ms Blake’s favour. Since April 2011, Mr Leondiou has maintained that the amount lent by the mortgage financier ought to be counted for this purpose as a contribution by him, giving a ratio in his favour of approximately 80 per cent/20 per cent. While that issue need not now be determined due to the settlement of the action, I consider that the defendants’ position to this extreme extent was untenable. The principal security for the mortgage was the property itself and Ms Blake contributed approximately 80 per cent of the “equity” in the property. Mr Leondiou did grant a personal guarantee to the mortgage financier and the value of that personal guarantee should be reflected in the proportionate interests of the parties in the property, but it would not approach the full amount of the mortgage loan.
Conduct of the plaintiff
The defendants contend that Ms Blake acted unreasonably in not resolving the matter either before or after the institution of the action in mid 2008 on the basis that Mr Leondiou repay to her the amount which she had invested in the property which was ultimately compromised in the sum of $98,235.
On the one hand, the defendants did not make to Ms Blake an offer capable of acceptance so as to settle all matters in issue between them. On the other hand, it was or should have been apparent to Ms Blake that Mr Leondiou was prepared to pay her out and would have been prepared to pay an amount in excess of the figure of $94,239.

Weighing matters overall, I do not consider that Ms Blake acted unreasonably in the early days of the action in not offering to settle her claim on the basis of being paid out the monies which she had invested in the property. At that point, the defendants were wrongly denying that she had any beneficial interest in the property at all and she was not acting unreasonably in pursuing her claim (ultimately conceded) that she did have such a beneficial interest.
On the other hand, by not later than April 2011, the position had changed. The defendants were now conceding that Ms Blake had a beneficial interest in the property (albeit disputing her proportionate share). Appraisals had been obtained from two land agents and a formal valuation from a valuer which assessed the value of the property at not more than $515,000. The rooming house business had been carried on for approximately three years, including two full financial years and had resulted in a significant loss after interest and other costs incurred to gain the rental income. It was apparent that no significant capital gain had been achieved to date in respect to the property and that it was producing a loss on a revenue basis. At not later than that point, Ms Blake could have offered to resolve the action on the basis of a return of the funds invested in the property, which would probably have produced a better return to her than retaining her equity interest in the property. Ultimately, in July 2012, Ms Blake apparently recognised this situation, and decided to resolve the matter on this basis. Such a resolution could have been achieved at least over a year earlier.
Combined conduct
Each of the defendants and the plaintiff have acted unreasonably at various times in this action. Having regard to the unreasonable conduct of each of them, it is not appropriate that either party be ordered to pay the costs of action of the other party due to that unreasonable conduct.
Overall assessment
Determining an appropriate order as to costs involves exercising my discretion weighing all of the matters addressed above. In summary, the parties have resolved the principal issues in the action and that renders it difficult for the Court to determine an appropriate order as to costs. The plaintiff has been “successful” in obtaining judgment for a money sum, but that success is the result of a compromise and consent judgment rather than a determination by the Court of the merits of the action.
The plaintiff has been successful on the issue of interest which was the residual issue (apart from costs) required to be determined at trial. On the other hand, over the course of the matter, the defendants have shown a general willingness to resolve the matter. The plaintiff has not made any open offers to resolve the matter, although I am not aware what offers may have been made which are subject to settlement privilege. The plaintiff could have settled the matter on the basis on which it was resolved at least a year earlier, if not longer.
The conduct of each of the parties in the action has been unreasonable at various times. Weighing up all of the circumstances, it is not appropriate to make an order that one party pay the costs incurred by the other party. It is appropriate that each party bear their own costs of action.
Specific costs orders
Specific costs orders were made in favour of the defendants on 22 July 2008 on the plaintiff’s application for an interlocutory injunction and on 16 July 2010 on the plaintiff’s application for better disclosure of documents.
On the other hand, specific costs orders were made in favour of the plaintiff (plaintiff’s costs in the cause) on 23 August 2011 on the defendants’ application for security for the costs and on 22 September 2011 on the defendants’ application for payment out of the monies which had been paid into Court. If costs were to be dealt with in a piecemeal fashion, it would be appropriate that the plaintiff be awarded the costs in respect of those two applications by the defendants. Those costs awarded in favour of the plaintiff would be likely to offset approximately the costs awarded in favour of the defendants referred to in the previous paragraph.
However, both parties invited me to make a lump sum costs order in respect of the entire costs of the action, rather than making an order which would involve the time and cost of proceeding to multiple adjudications of costs.
In all of the circumstances, it is appropriate that I vacate all previous costs orders and order that the parties bear their own costs of the action.