Coleman v Hart-Hughes (No 2)

[2017] NSWSC 902

Supreme Court

New South Wales

Medium Neutral Citation:	Coleman v Hart-Hughes (No 2) [2017] NSWSC 902
Hearing dates:	On the papers
Date of orders:	06 July 2017
Decision date:	06 July 2017
Jurisdiction:	Equity
Before:	Darke J
Decision:	First defendant ordered to pay plaintiff’s costs of the proceedings between them, with such costs to be secured by the plaintiff’s charge. No orders as to costs of the proceedings between the plaintiff and the second and third defendants.
Catchwords:	COSTS – multiple defendants – where plaintiff obtained declaration of equitable charge over first defendant’s land – where other defendants had registered mortgages over land – where unsuccessful attempts to settle proceedings between parties – appropriate for first defendant to pay plaintiff’s costs as between those parties – appropriate for those costs to be secured by plaintiff’s equitable charge – no order for costs as between plaintiff and second and third defendants
Legislation Cited:	Evidence Act 1995 (NSW), s 131(2)(h) Uniform Civil Procedure Rules 2005 (NSW), r 42.25
Cases Cited:	Aged Care Services Ltd v Macedonian Aged Care & Accommodation Ltd [2012] NSWSC 641 Coleman v Hart-Hughes [2017] NSWSC 656 Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 Waco Kwikform Ltd v Jabbour (2010) 16 BPR 30,727; [2010] NSWSC 1379
Category:	Costs
Parties:	James Robert Coleman (Plaintiff) Gai Hart-Hughes (First Defendant) First Mortgage Managed Investments Pty Ltd (Second Defendant) First Mortgage Investments Pty Ltd (Third Defendant) VMC Consulting Pty Ltd (Fourth Defendant)
Representation:	Counsel: Mr A Ogborne (Plaintiff) In person (First Defendant) Mr R Lewin (solicitor) (Second and Third Defendants)   Solicitors: Bruce and Stewart Lawyers (Plaintiff) Gadens Lawyers (Second and Third Defendants)
File Number(s):	2016/122345
Publication restriction:	None

Judgment

Introduction

1. Judgment was delivered in this matter on 26 May 2017 (see Coleman v Hart-Hughes [2017] NSWSC 656). The Court granted declaratory relief to the plaintiff to the effect that by Deed entered into on 4 July 2012, the first defendant granted an equitable charge in favour of the plaintiff over certain land at Bangalow, and that the charge secures repayment of an amount in excess of $880,000. The Court declined the plaintiff’s claim for an injunction to restrain the first defendant from registering any plan of sub-division of the land without first obtaining the plaintiff’s consent.

2. The question of costs remains for determination. This controversy involves not only the plaintiff and the first defendant, but also the second and third defendants who are the holders of registered mortgages over the land.

3. The plaintiff seeks orders for costs against both the first defendant and the second defendant. The first defendant resists that order, and says that she should not have to pay any, or at least some parts of, the plaintiff’s costs. The second and third defendants seek an order that the plaintiff pay their costs of the proceedings from 28 April 2016.

4. Before dealing with the arguments advanced by the parties, it is convenient to set out a summary of the salient facts. The communications from the plaintiff and the second and third defendants were made by the respective solicitors acting for them. The communications from the first defendant were made by her personally. She has not been represented by any solicitor in the proceedings.

Summary of salient facts

5. When the proceedings were commenced in April 2016 the only defendants were the first and second defendants. The third and fourth defendants were not added as parties until November 2016. The fourth defendant did not play an active role in the proceedings.

6. The proceedings were prompted by the service by the second defendant (a mortgagee in possession of the land) of a lapsing notice in respect of a caveat the plaintiff had lodged on the title. The existence of the caveat prevented the registration of a plan of sub-division. The proceedings were commenced on 21 April 2016. On 27 April 2016 an order was made by consent extending the operation of the caveat. An order was also made that there be no order as to costs. Further, the Court noted that the second defendant was excused from further attendance.

7. The matter thereafter proceeded in respect of the final relief sought by the plaintiff. The relief was essentially directed against the first defendant. No orders were sought which were expressed to bind the second defendant.

8. The plaintiff made an attempt to obtain the first and second defendant’s consent to the making of orders which reflected that which was sought in the Summons, and which provided that there be no order as to costs. The first defendant seemed content with the proposed orders except for the reference in the declaration to an affidavit sworn by a solicitor for the plaintiff. The first defendant considered that the affidavit was incorrect insofar as it referred to a particular plan of sub-division being annexed to the Deed of 4 July 2012. The plaintiff agreed to delete the reference to the affidavit. The second defendant stated that it was concerned that the form of declaration sought by the plaintiff might have the effect of disturbing the priority enjoyed by the second defendant as the first mortgagee. In particular, the second defendant stated that the declaration referred to a charge on the terms set out in the Deed of 4 July 2012 (to which the second defendant was not a party), and those terms included cl 49 which apparently gave priority, to at least some extent, to the plaintiff. The second defendant also expressed a concern that the form of injunction arguably operated to restrain the second defendant from lodging plans of sub-division. The plaintiff agreed to make certain changes to the proposed orders. The plaintiff stated that the declaration would have “no effect on priorities regarding registered encumbrances”, and that the injunction (as altered) was “strictly limited to the first defendant”.

9. It seems that the second defendant’s concerns were not allayed, although the second defendant indicated that it might be prepared to consent to the orders if a suitable notation was included to the effect that nothing in the orders would operate to disturb the second defendant’s priority. The plaintiff invited the second defendant to provide a form of notation that would be acceptable to it.

10. Despite this apparent measure of consensus (achieved by 26 May 2016), agreement on the form of orders was not achieved. The second defendant did not provide a form of notation until early October 2016. In the meantime, the plaintiff commenced to prepare the matter for hearing. The second defendant’s solicitors prepared a deed of settlement, but this was never submitted to the other parties.

11. The notation submitted by the second defendant in early October 2016 provided that no orders sought by the plaintiff or made in the proceedings were intended to or would affect the rights or interests of the second defendant or any registered mortgagee over the property. The notation further provided for the second defendant to be excused from appearing in the proceedings on the basis that no order would be sought or made which affects the rights or interests of the second defendant.

12. This was not acceptable to the plaintiff. The plaintiff sought the second defendant’s consent to its form of consent orders, now amended so that the defendants would be ordered to pay the plaintiff’s costs of the proceedings. In response, the second defendant repeated its concern about the form of declaration (this time referring to cl 34 of the Deed which provided for revenue from the project to be applied to “budgeted costs” prior to the discharge of encumbrances), and opposed any order for costs against it. The second defendant stated that it neither consented to nor opposed any orders as between the plaintiff and the first defendant provided an adequate notation was made by the Court that any such order did not affect its (or the second mortgagee’s) interests under the registered mortgages.

13. On 2 November 2016 the plaintiff stated, again, that it did not seek priority over either of the registered mortgagees, and would consent to the inclusion of a notation, to be drawn by the second defendant, to the effect that the orders do not disturb the priority of the mortgagees. The plaintiff did not, however, resile from the orders it sought (including as to costs). By letter dated 3 November 2016, the second defendant maintained that there was no basis for a costs order against it, particularly as the second defendant had consented to an order for the extension of the operation of the plaintiff’s caveat on the basis that there be no order as to costs. In addition, a revised form of notation, acceptable to the registered mortgagees, was submitted to the plaintiff.

14. On 6 December 2016 the second and third defendants’ solicitor sent a letter to the first defendant which contained the following:

For the avoidance of doubt, we confirm our clients’ position is that our clients will neither consent to nor oppose orders being made in the Proceedings which recognise a charge over the Property in favour of the Caveator, provided any such orders make clear that the charge in no way affects our clients’ rights and interests with respect to the Property pursuant to the first and second registered mortgages.

In the event you agree that the Caveator has a valid charge over the Property, we would suggest that you liaise with the Caveator’s solicitors, with a view to agreeing a proposed form of order which recognises the Caveator’s charge over the Property, for our clients’ consideration.

15. On 21 February 2017 the first defendant sent an email to the plaintiff’s solicitor in the following terms:

To date I have been unable to enter into any agreement in relation to this matter due to the mortgagee in possession situation, whereby I am precluded from entering any contract in relation to the subject land.

However, as you will see from the attached correspondence, I am now permitted to make an arrangement with the Plaintiff and accordingly, I attach my Without Prejudice offer of settlement in the hope that this matter can be brought to an end.

16. The offer made by the first defendant suggested that the Deed of 4 July 2012 be set aside and that a new “basic” agreement be formulated along certain lines. On 2 March 2017 the plaintiff indicated to the first defendant that proposed terms would be formulated and provided as soon as possible. On 5 April 2017 a draft Deed of Agreement was submitted by the plaintiff’s solicitors to the first defendant. The agreement was rejected by the first defendant for various reasons which are not necessary to recite.

17. In correspondence which followed on 24 April 2017 a suggestion was made by the plaintiff that a mediation be held involving all parties to the proceedings, the costs of which would be borne by the parties proportionately. The first defendant stated that she had no money. No mediation was arranged.

18. On 4 May 2017 the second defendant sought a response from the plaintiff to its letter of 3 November 2016. A revised form of notation was submitted, which provided for the second and third defendants to neither consent to nor oppose the orders sought by the plaintiff (other than as to costs) on the basis that such orders did not affect the interests of the second and third defendants under their mortgages.

19. The plaintiff responded, stating that it was always open to the defendants to take the proper course of filing submitting appearances save as to costs. The plaintiff also took issue with the “form and substance” of the proposed notation. The plaintiff advanced a revised form of consent orders designed to place the second and third defendants in a position equivalent to them having filed submitting appearances save as to costs.

20. Following some further negotiations, a form of consent orders was agreed as between the plaintiff and the second and third defendants on or about 12 May 2017. On 11 May 2017 the plaintiff had served written submissions which indicated that the plaintiff would not be seeking a declaration to the effect that he had a charge on the terms set out in the Deed.

21. The substantive dispute between the plaintiff and the first defendant remained unresolved. The matter proceeded to the hearing which had been set down for 17 May 2017.

Submissions

22. Directions were made by the Court to facilitate the question of costs being dealt with on the papers. The plaintiff and each of the first, second and third defendants have served and provided written submissions on costs in accordance with those directions. I have read and considered the written submissions. The main points raised are summarised below.

23. As against the first defendant, the plaintiff submitted that he succeeded, over the opposition of the first defendant, in obtaining a declaration (to the effect of that sought in the Amended Summons) that the land stands charged to secure repayment of monies payable to the plaintiff under the Deed of 4 July 2012. It was submitted that whilst the plaintiff did not obtain the injunction sought, the plaintiff achieved success in practical terms, and costs should follow the event. The plaintiff further submitted that an order should be made that the costs are secured by the charge, as the costs were incurred for the purpose of protecting his position as a secured creditor (see Aged Care Services Ltd v Macedonian Aged Care & Accommodation Ltd [2012] NSWSC 641 at [9]-[10]).

24. The first defendant submitted that any costs awarded against her would result in her bankruptcy. She submitted that (at least prior to 6 December 2016) she had no “contractual capacity” to settle the matter. The first defendant submitted that the plaintiff should not receive costs because cll 31 and 32 of the Deed provided for disputes to be submitted to mediation, and this was not done. It was put that if a mediation involving all parties was held (even as late as April 2017), the hearing would have been rendered unnecessary. The first defendant further submitted that the plaintiff should not have the costs of proving that a particular plan of sub-division was annexed to the Deed at the time of its execution, given that the parties had agreed upon a new plan by late April 2016. The first defendant submitted that the plaintiff should not have the costs of the extensive communications between the plaintiff and the second defendant to which the first defendant was not privy, or the costs of preparation of the draft Deed of Agreement in March 2017 which was, and should have been known to be, a wasted effort.

25. As against the second defendant, the plaintiff submitted that the second defendant should pay his costs (or a substantial portion of them) because the second defendant triggered the proceedings by serving a lapsing notice in respect of the plaintiff’s caveat, and its conduct was the effective cause of the parties’ failure to reach a final settlement after the operation of the caveat had been extended. The plaintiff submitted that in circumstances where the plaintiff had made it clear that he did not seek to disturb the second defendant’s priority, the second defendant’s conduct in relation to the matter was not undertaken in its capacity as a mortgagee, and was not reasonable. The plaintiff also complained that aspects of the second defendant’s conduct in relation to the lapsing of the caveat were unreasonable. Accordingly, it was submitted that an order should be made under Uniform Civil Procedure Rules 2005 (NSW) r 42.25 preventing the second defendant from paying any costs out of the mortgaged property (see Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at [60]-[62]). A similar order is sought against the third defendant who, it is said, acted unreasonably in seeking to be excused, on certain terms, from appearing, rather than taking the appropriate course of filing a submitting appearance save as to costs.

26. The second and third defendants submit that the second defendant acted reasonably in serving the lapsing notice. It was further submitted that the consent orders made on 27 April 2016 provided for there to be no order as to costs in relation to the caveat extension application, so only costs from 28 April 2016 remain for consideration. In that regard, it was submitted that the requirement for the second defendant (and later the third defendant) to have an on-going active involvement arose from the form of the declaration sought by the plaintiff, in particular the reference to a charge on the terms set out in the Deed of 4 July 2012, which form was not acceptable to the mortgagees. It was further submitted that no agreement was reached as to a form of notation which would overcome the difficulty, and it was not until the plaintiff served his submissions on 11 May 2017 that it became known that the plaintiff was not seeking a declaration that he had a charge on the terms set out in the Deed, thereby removing the problem with the form of the declaration. On this basis, the second and third defendants submitted that the plaintiff should pay their costs from 28 April 2016.

27. I note that the second defendant objected to the admission of certain parts of an affidavit sworn by the plaintiff’s solicitor, on the ground that those parts contained without prejudice communications. However, in my view those communications are admissible pursuant to s 131(2)(h) of the Evidence Act 1995 (NSW).

Determination

A: As between the plaintiff and the first defendant

28. Notwithstanding the failure of the plaintiff to obtain the injunction sought, I accept the plaintiff’s submission that in practical terms the plaintiff has achieved success in the proceedings. The existence of the claimed charge was the principal issue. In my view the plaintiff ought be regarded as having won “the event”.

29. I do not think that any departure from the usual order that costs follow the event is called for. The first defendant’s state of impecuniosity does not provide a good reason to refrain from making a costs order against her if otherwise appropriate. Further, any lack of “contractual capacity” to settle the matter was no longer present by early December 2016. It was then open to the first defendant to agree that she had, by the Deed of 4 July 2012, granted a charge over the land in favour of the plaintiff. No concession to that effect was forthcoming. At the hearing the first defendant contended that the Deed was not valid and enforceable.

30. That circumstance also undermines the first defendant’s contention that no costs should be awarded against her because the plaintiff should have submitted the dispute to mediation, or should have subsequently agreed to a mediation. It is not at all clear that mediation would have resulted in a settlement. Moreover, the proceedings needed to be commenced by the plaintiff in this Court to prevent the lapsing of his caveat. It is generally incumbent upon a caveator in that situation to claim final relief to vindicate the interest claimed in the caveat: see Waco Kwikform Ltd v Jabbour (2010) 16 BPR 30,727; [2010] NSWSC 1379 at [60]-[62].

31. The first defendant complains that the plaintiff should not have his costs of particular issues, or of elements involved in particular issues. In that regard, I see no good reason why the plaintiff should be deprived of costs in relation to the attempt made in March 2017 to reach a settlement of the proceedings. Neither should the plaintiff be deprived of costs in relation to the issue of quantification of the amount for which the land currently stands charged. This was a further submission made by the first defendant in her written submissions for the hearing. It was open to the first defendant to make concessions on that subject but none were made. Another submission made by the first defendant in her written submissions for the hearing was that the plaintiff should not have costs because of the delay to the development caused by his failure to promptly agree to the new plan of sub-division in early 2016. It was not shown that the plaintiff was in breach of the Deed in that respect (see the earlier judgment at [50]). In any case, I do not think that any such breach would afford a good reason to deprive the plaintiff of his costs in seeking to establish his interest as an equitable chargee.

28. I have not overlooked the fact that the plaintiff failed to obtain the injunction he sought. Nonetheless, I agree with the plaintiff’s submission that that issue was subsidiary to the issue concerning the existence of the charge, and not clearly separable from it. As noted in the earlier judgment at [54], the existence of the charge supports the maintenance of a caveat over the land, and the caveat itself provides some protection against a wrongful attempt to register a varied plan of sub-division.

29. I should make clear, however, that I consider that the plaintiff is not entitled to recover from the first defendant the costs of the communications between the plaintiff and the second and third defendants. The costs of the proceedings as between the plaintiff and the second and third defendants (in relation to the caveat, and the form of orders) should not be visited upon the first defendant.

30. The Court will order that the plaintiff’s costs of the proceedings as between it and the first defendant as from 28 April 2016 be paid by the first defendant. In my opinion those costs can properly be regarded as costs incurred in protecting the plaintiff’s security. Accordingly, the Court will also order that those costs are secured by the charge the subject of the declaration made by the Court on 26 May 2017.

B: As between the plaintiff and the second and third defendants

35. It is correct that the service by the second defendant of the lapsing notice triggered the proceedings. However, I do not accept that the second defendant acted unreasonably in serving the lapsing notice. The circumstances in which that occurred are referred to in the earlier judgment (at [20]-[22]). In any event, the caveat extension application was resolved by consent on 27 April 2016 on the basis that there would be no order as to costs. I agree with the submission of the second defendant that only costs incurred from that time remain to be determined.

36. After 27 April 2016 the matter proceeded in respect of the final relief sought by the plaintiff. The relief was not in its terms directed against the second defendant. Nonetheless, the second defendant raised legitimate concerns as to the form of the relief sought, particularly the declaration. The declaration was to the effect that the charge was on the terms set out in the Deed, and those terms at least purported to intrude upon the priority of the second defendant. The second defendant was not a party to the Deed, but it remained a party to the proceedings, and was cautious not to agree to orders that could possibly affect its rights. The plaintiff asserted that the declaration would have no effect on the second defendant’s position of priority, and the second defendant indicated that an appropriate notation might overcome the problem. A resolution of the issue was seemingly at hand, but unfortunately was not grasped. It is unfortunate that the second defendant did not act quickly to supply a suitable form of notation. However, I am unable to accept that the second defendant effectively caused the parties to fail to reach a final settlement, or that the second defendant caused the opportunity to reach a final settlement to be lost. Having regard to the first defendant’s opposition to the plaintiff’s claim that he had a charge over the land, which opposition persisted throughout the final hearing, it cannot be concluded that the conduct of the second defendant caused a settlement, or the opportunity for a settlement, to be lost. Even if the plaintiff and the second defendant had come to terms at an early stage in the proceedings, the plaintiff would still have needed to obtain the agreement of the first defendant to enable the proceedings to be brought to an end. In the light of later events, particularly the inability of the plaintiff and the first defendant to settle, even after the second defendant told the first defendant that she was at liberty to do so, the prospect of such an agreement cannot be considered a likely one.

37. Neither do I accept that the second defendant acted unreasonably. The second defendant’s delay in supplying a suitable form of notation must be seen in the context of proceedings where the central controversy was between the plaintiff and the first defendant. The second defendant’s involvement can fairly be described as peripheral. Further, if any delay on the part of the second defendant was causing difficulties for the plaintiff, it remained open to the plaintiff to try to resolve the problem in another way, for example by re-casting the form of declaration so that it did not define the charge by reference to the terms set out in the Deed. Further, I do not think that the second defendant, or the third defendant, acted unreasonably in attempting to reach an agreement with the plaintiff that involved them being excused from attendance, rather than simply filing a submitting appearance save as to costs. That course would not overcome any difficulties that might arise from the form of any orders that were eventually made. I therefore do not propose to make the orders sought by the plaintiff under Uniform Civil Procedure Rules 2005 (NSW) r 42.25.

38. It seems to me that a solution to the impasse between the plaintiff and the second defendant could have been achieved much earlier with goodwill and determined action on the part of both parties. The fact that this did not occur cannot be blamed on one party to the exclusion of the other. Aspects of the conduct of each can be criticised. Mention has already been made of the second defendant’s delay in submitting a form of notation. The plaintiff’s persistence with a problematic form of declaration, coupled with the promotion from November 2016 of orders that included orders for costs against the defendants, could equally be seen as holding up a resolution of the problem. Both sides must share the responsibility for the time it took for the issues between them to be settled. In the meantime, in the absence of agreement with the first defendant, the plaintiff continued to prepare the matter for hearing.

39. In these circumstances, I have come to the conclusion that there should be no order as to costs of the proceedings as between the plaintiff and the second and third defendants as from 28 April 2016, to the intent that each of those parties’ costs be borne by that party. This order is not intended to affect the question whether any costs incurred by the second or third defendants are recoverable under the terms of the mortgages. I express no views on that question.

40. For the above reasons, the Court will order:

1. That the first defendant pay the plaintiff’s costs of the proceedings between the plaintiff and the first defendant as from 28 April 2016.

2. That such costs are secured by the charge the subject of the declaration made by the Court on 26 May 2017.

3. That there be no order as to the costs of the proceedings between the plaintiff and the second defendant as from 28 April 2016.

4. That there be no order as to the costs of the proceedings between the plaintiff and the third defendant.

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Decision last updated: 06 July 2017