Edelman v Badower

[2010] VSC 427

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 4334 of 2006

DAVID EDELMAN	Plaintiff
v
JUSTIN WOOLF BADOWER and  Others	Defendant

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JUDGE:	MUKHTAR AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	21 June 2010
DATE OF JUDGMENT:	24 September 2010
CASE MAY BE CITED AS:	Edelman v Badower
MEDIUM NEUTRAL CITATION:	[2010] VSC 427

COSTS – Taxation of costs – Amendment to statement of claim by leave – Pleading of facts not in existence when writ was filed – Order to pay defendants’ costs thrown away – Proceedings rendered indefensible – Whether defendants’ costs before amendment recoverable under costs order – Meaning of costs “thrown away” – Meaning of costs “of and occasioned by” – Rule 63.17

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms M. Gourlay	Cyngler Kaye Levy
For the First and Second Defendants	Mr P. Bornstein	C. Tang and Associates

HIS HONOUR:

1. The question in this case concerns the meaning and ramifications of a court order requiring an party to pay costs “thrown away”, having been given leave to amend a pleading.  Such an ancillary order is routinely made in courts without the occasion to consider the precise coverage of that expression, or leaving it as a concern for the eventual assessment of costs.  A point of principle, or analysis, has arisen in this case about the meaning of costs thrown away in some unusual circumstances involving terms of settlement. 

1. There were initially four defendants but the disputants for present purposes are the plaintiff  and the first two defendants, Justin and Tai Badower.  The case involved joint ownership of land, disputes over possession and use of the land, and a claim for partition or judicial sale.  The plaintiff amended his statement of claim by leave, but he was ordered to pay the Badowers’ costs thrown away.  An amended defence was delivered and the case progressed.  They eventually settled with the plaintiff, but on terms preserving the order for costs thrown away by reason of the amendment.  The Badowers have lodged a bill of costs of $64 999 as their costs thrown away and have filed a summons for taxation of those costs.  They acknowledge, as they must, that the plaintiff’s amendments were textually not major, but contend the amendments fundamentally so altered the nature of the litigation that they really could not defend the claim for judicial sale.  They say that nearly all their legal work done before the amendment was wasted and was therefore “thrown away”. 

1. The plaintiff objects to every item on the ground that the bill is misconceived as not being drawn in accordance with the costs entitlement.  He contends the bill is an abuse of process and seeks an order that the bill be redrawn.  I was told that if the plaintiff is correct, the bill may be no more than about $3 000. 

1. There is more to this case than saying that costs thrown away mean costs wasted.  It requires an exposition of the nature of the amendment, and the elements of the case.

The facts   

1. There are two adjoining pieces of land in Hepburn Springs: 2-6 Range Road, and 4 Forest Road.  The plaintiff, David Edelman, is a practising architect and registered builder.  He owns the Range Road property which he has developed into holiday units.  The Forest Road property has four registered co‑owners each having an one‑quarter undivided share as stated on a separate title, and co‑ownership of the common property.  The Forest Road land has four holiday units owned in this way as at the commencement of the case :

(a)Unit 4A – by Mr Edelman;

(b)Unit 4B – by the Badowers (and this unit adjoins or touches Unit 4A at one point);

(c)Unit 4C – by the third defendant, Sophie Weinberg; and

(d)Unit 4D – by the fourth defendant, Zachary Teichmann (now deceased).

1. According to the affidavit evidence, all co‑owners have always enjoyed exclusive use, occupation and quiet enjoyment of their individual units.  Each owner, it is said, has financially maintained their own unit and kept it locked so that it is for their own use.  The source of problems amongst the co‑owners seems to have originated from Mr Edelman’s installation of drainage pipes from his adjoining Range Road property through the Forest Road property without the consent of his co‑owners or without obtaining an easement. 

1. Mr Edelman filed his writ on 24 January 2006 against all other co‑owners.  His statement of claim states that the third and fourth defendants were sued only because they were co‑owners and because they were necessary and proper parties.  His target, it seems, was the Badowers as owners of adjoining Unit 4B.  In essence, he alleged they did extension works to Unit 4B which were unlawful because they did not have a planning permit, or a building permit, or his consent.  He also alleged that as tenants in common they were all entitled to unity of possession; that is, every owner is entitled concurrently to possession of the whole of the land, and a co‑owner is not entitled exclusively to any one part of the land.[1]  He alleged that by performing the extensions works, the Badowers have excluded the others from possession and enjoyment of those parts of the land on which the extensions had been built.  The statement of claim also alleges that continuing disputes have arisen between the plaintiff and the Badowers.  They had complained about the plaintiff’s past works to Unit 4A; the stormwater drainage pipes from Range Road; and made a complaint to the Architects Registration Board.   

   [1]See Bradbrook and Others, Australian Real Property Law, (4^th ed) at [12.20].

1. The writ made specific claims against the Badowers, but also claimed an order for sale of the land as against all defendants. The plaintiff alleged the defendants were compellable to make partition under s 221 of the Property Law Act1958, and that a sale and distribution of proceeds under s 222 of the Act would be more beneficial. More pertinently for present purposes, the plaintiff alleged under s 223 of the Act that he was “a party interested individually or collectively to the extent of one moiety or upwards in the property”. A moiety is a dainty word meaning one half. Under s 223 an owner of one moiety can request the Court to direct a sale of the property and the Court “… shall, unless it sees good reason to the contrary, direct a sale of the property accordingly, and give all necessary or consequential directions.” This is significant because the Court’s partition power under s 221 and 222 of the Act is discretionary, as the Court has to consider whether a sale of the property and a distribution of the proceeds would be more beneficial for the parties interested. But under s 223, judicial sale will be ordered in the absence of good reason.

1. But, at the time the case commenced, the plaintiff did not have a one half share of the property. Maybe he thought “collectively” he did. On the face of it, it simply was not competent for him to seek an order for judicial sale under s 223. The allegation should have been struck out.

1. In their initial defence the Badowers simply denied the allegation that the plaintiff had one moiety.  Their case was that they should not be bound to make partition or sale because they always had exclusive use and occupation of their unit and that, amongst all of them, there was a common intention that they would each be entitled to absolute ownership of their respective unit.  They said it would be unconscionable of the plaintiff to deny that state of affairs, and to deny them a beneficial interest in the unit.  They counterclaimed for a declaration that they were the legal and, or, beneficial owners of the unit and were entitled to be registered as proprietors. 

1. In May 2006, the Badowers amended their defence by leave. On the s 223 claim, they added to their mere denial by saying that the plaintiff’s interest was less than one moiety. They also made substantial amendments elsewhere to say that: (i) their works to unit 4B were done consensually; (ii) there was a conventional basis of the relations amongst them all that they would each own their unit, and the rest of the land was to be held as tenants in common; (iii) that conventional basis was of a quality to create a proprietary estoppel; (iv) the plaintiff’s works on Unit 4A breached the unity of possession and caused loss and damage; (v) any extension works by the Badowers to Unit 4B were not exclusionary or in breach of the unity of possession because the works were done consensually; (vi) it was beneficial for Mr Badower to live in “his” unit because it was proximate to his work in Ballarat and Bendigo; (vii) permission for the plaintiff’s works on the Range Road property was falsely obtained from the local Council; (viii) the plaintiff damaged a boundary fence and did other destructive works when laying stormwater drains on the Range Road property. This was to be a set piece battle.

1. On 5 June 2007, the Court made procedural directions of the usual type requiring the preparation of a list of documents to be tendered, the preparation of a Court Book, and the exchange of outlines of evidence.  That was ahead of a directions hearing fixed for 9 October 2007 for the giving of a trial date.

1. A major event then occurred. The plaintiff bought out the fourth defendant’s interest in the land. He did that by a contract dated 29 June 2007, which was completed on 11 July 2007. That gave him a one half share interest in the land and the ability to invoke s 223. He discontinued the proceeding as against the fourth defendant, and then applied for leave to amend his statement of claim to plead the acquisition of Unit 4D.

1. A party can plead any fact which has arisen at any time whether before or after the commencement of a case.[2]  The Badowers would not consent to the proposed amendment.  This was their objection [3] :

14.By seeking to amend his Statement of Claim, the Plaintiff is in fact attempting to retrospectively rectify the defect in his claim by having purchased Teichmann’s quarter share of the property. The Plaintiff has now increased his share in the property from one-quarter to one-half, so that he can claim a “moiety” in accordance with s 223.

15.…  I and the Second Defendant say that although the amendments appear to be small and innocuous they are in fact not so.  The amendments bring about an entirely new claim on different facts and create an entirely new proceeding on a different legal basis.  I further say that this is really an attempt to “shift the goal posts” to suit the Plaintiff at this late stage of the proceedings. 

16.The Plaintiff’s purchase of Teichmann’s unit and the proposed amendments to the Statement of Claim have taken us entirely by surprise and unfairly placed us in a fundamentally different position to that of the Plaintiff’s initial Writ.

[2]See Rule 13.08

[3]See affidavit of J.W. Badower sworn 26 September 2007.

1. To be indignant about surprise in litigation is not enough to disallow an amendment. I will only add that the prospect of one co-owner buying out another cannot be said to be unforeseeable. But the opposition went further and challenged jurisdiction. The Badowers contended that the new case under s 223 could only have been made after 11 July 2007 when Edelman acquired the interest in Unit 4D. They contended that this was a new cause of action which no longer fell under the Property Law Act, but came under the later enacted Property (Co-Ownership) Act 2005. That later Act substituted new provisions and conferred exclusive jurisdiction in the Victorian Civil and Administrative Tribunal. Thus, it was said that Edelman could no longer rely on the old s 223 of the Property Law Act and therefore the amendment was futile and should not be allowed.  The written submissions also said that the amendment should only be allowed “on the terms that the costs of the application for leave to amend, and of and occasioned by, and thrown away in consequence of the amendment” should be paid by the amending party. 

1. An Associate Judge granted leave to amend.  Paragraph 2 of the Court’s order said: “The plaintiff pay the first and second defendants’ costs thrown away by reason of the amendment.”  The order did not say the plaintiff was to pay the Badowers’ costs to the date of the amendment.    

1. Thereafter, the Badowers filed an amended defence raising the change of law, and also pleading in the alternative that there was good reason why the Court should not grant judicial sale under s 223 of the Property Law Act even though the plaintiff now had a moiety.  They also kept all their pre-existing defences. 

1. Subsequently there was further discovery, directions hearings, and the usual orders for trial preparation.  A mediation by an Associate Judge occurred on 27 May 2008.  On that day written terms of settlement were made between Mr Edelman and the Badowers.  In substance, the Badowers agreed to sell him their one‑quarter interest in the property for $230 000 and Unit 4B, without chattels.  Edelman agreed to file a notice of discontinuance.  Mutual releases were given. 

1. There is a clause 9 to the terms of settlement which appears to have been added after the signing page.  It says:

Each Party shall be responsible for and shall bear their own costs of and incidental to the proceeding save and except as to:

(a)the costs to which Edelman is entitled by reason of the amendment of the Badowers’ defence and counterclaim, leave for which was granted on 31 March 2006; and

(b)paragraph 2 of the orders made 1 October 2007.

1. There was no evidence adduced, of the permissible variety (that is, facts commonly known to both parties to reveal the aim or genesis of a contractual provision) about why the parties isolated the two costs orders that way.  But they must have thought there was significance to them to mark them out as an exception to the general agreement that they would bear their own costs.  Otherwise there is something strange about settling a case on the basis of each bearing their own costs but preserving liability for costs of pleading amendments, which ordinarily would not be all that great, relatively speaking.  Whatever the reason may be, the present dispute does not require the Court to construe the intended meaning of costs thrown away according to anything within the terms of settlement.

1. The case only remained alive as against the third defendant’s executor.  The parties agreed that there should be partition and a sale, but disagreed on the reserve price and other matters.  Hansen J heard competing valuation evidence and determined the fair market value of the property. 

The costs issue

1. The plaintiff’s costs under paragraph 9(a) of the settlement were taxed by the Court on 17 June 2009 and allowed in the sum of $5 500. 

1. The Badowers filed their summons for taxation on 3 April 2009 based as I have said on a bill of costs for almost $65 000. This bill seems to cover the entirety of tasks starting with “instructions to defend” in January 2006 up to and including the amendment application in 1 October 2007, and instructions for brief. This bill concerns not just the s 223 case but the whole case up to October 2007. The bill asserts that the plaintiff’s amendments changed the “main goal posts” of the case and fundamentally altered the nature of the litigation.

1. The summons was supported three affidavits.  The first was by Paul James Cosgrave.  He was retained as Senior Counsel for the Badowers in the proceeding.  In essence, he says the plaintiff’s acquisition of two of the four undivided shares in the property had a profound effect upon his advice to the Badowers.  Before then, he considered the Badowers had good grounds for resisting the claim.  But, once the fourth defendant was bought out, Mr Cosgrave says that he “was of the view that it became virtually certain that the Court would order a sale of the property and the first and second defendants would be unsuccessful in their defence.”  He says he then recommended that they agree to a sale of their interest in the property in order to minimise future legal costs.  He says that if at the commencement of the case Edelman had a moiety interest, he would not have recommended the defence of the claim because the prospects of success were so low.  He then says all earlier work was worthless: 

…in the sense that, if the plaintiff had a moiety interest in the property there was no realistic defence available and the property (or the first and second defendants’ interest in the property) would be sold. For that reason, the earlier legal work undertaken for or on behalf of the first and second defendants before the plaintiff obtained its moiety was effectively rendered irrelevant. That work was performed on the basis that the plaintiff held only a quarter interest in the property. Until the plaintiff changed its claim after obtaining the moiety interest, I paid almost no attention to s 223 of the Property Law Act because it had no application to the facts of this case – there was no party with a moiety interest.

1. To a similar effect is an affidavit of another barrister Mr Paul Panayi (who appeared on the amendment application), and the Badowers’ solicitor, Mr Robert Pai. 

1. Thus, the Badowers submit on this application that their costs in defending the proceeding prior to the amendment were costs thrown away because they were costs wasted. Alternatively, they submit at the very least all costs incurred prior to the amendment concerning the application for sale under s 221 and s 222 were rendered nugatory and ought be paid by the plaintiff.

1. For the plaintiff, his solicitor Mr Fagenblatt swore an affidavit.  The point being made, as I see it, is that the Badowers were still running the same defences post-amendment as they were running pre-amendment, with the only change being an admission that Edelman acquired Teichmann’s interest on 11 July 2007 and the new point that the relief sought was not maintainable under the Property Law Act.  Thus, it is being said the claimed costs concerning the case to resist a sale were not really wasted, but were properly part of their costs of the continuing action.  The plaintiff accepts he must pay the Badowers’ costs thrown away by reason of having to plead to the new facts after his acquisition.  But he says he should not have to pay any more just because the Badowers decided to capitulate after his acquisition of Teichmann’s interest.  He says the Badowers are looking to recover something close to their entire costs of the proceeding up to October 2007, even though they agreed under clause 9 of the terms of settlement to bear their own costs.    

1. The issue as I see it is this: if an amendment is regarded as creating a case that becomes indefensible, does that mean the defendant’s costs up to then are all wasted and to be paid by the plaintiff as costs thrown away by reason of the amendment?

The meaning of costs “thrown away”

1. The costs consequences of an amendment to pleadings are dealt with in rule 63.17.  It says that unless the Court otherwise orders, a party who amends a pleading shall “pay the costs of and occasioned by the amendment”.  The rules of some Courts use the expression “of and incidental to”, which I think means the same thing, and is also used interchangeably in  practice here.  The Court’s amendment order in this case did not cast the costs consequences in the language of rule 63.17, but it is worth saying a little about it.

1. According to Quick on Costs [4] there are differing views whether the phrase “costs of and incidental to” really mean anything more than “costs of” because it is doubtful whether the words “of and incidental to” would allow more than what was allowed by the word “of”.  The authors say that ordinarily the costs occasioned by an amendment are such costs as would not have been included had the pleading been delivered originally in the form of the amendment.  That would include costs of work done in preparing pleadings rendered useless by the amendment.  Yet, there is support for the view that “of and occasioned by the amendment” could not include costs incurred prior to the date of the amendment order.  That is, rule 63.17 is really concerned with prospective or consequential costs.  That might be based on the thinking that an amendment is a substitution for the original pleading and therefore relates back to the commencement of the action.  To add to the controversy, I am aware that in practice not much attention is given to this, and it is not uncommon for practitioners and Judges to regard rule 63.17 as being the same thing as costs thrown away, that is looking to past costs.  

   [4]By R Quirk and D Garnsworthy, (Looseleaf Service, Thomson Law Book Co) at [1.330].

1. Despite its widespread usage, the term “costs thrown away” is not to be found in the rules.[5]  An order for costs thrown away is regarded as compensation for work already done but wasted as a result of the other party’s error or failure to comply with the procedure set by the rules: see Dal Pont, Law of Costs. [6]It is an instance of a party seeking the Court’s indulgence to accurately formulate its pleading which, in an ideal world, it should have got right in the first place.[7] 

   [5]See Williams, Civil Procedure Victoria,[I 60.20.20].

   [6]Second edition, at [1.23].

   [7]See Dal Pont, above at [14.35].

1. But what if the amendment is necessitated because of a new or supervening fact as happened in this case?  The authors of Quick on Costs say that is to be treated differently:

Where leave is given to amend a pleading, unless the amendment is required because of an allegation which could not reasonably have been anticipated, the order routinely made is that the party seeking the amendment should pay in any event the costs of the application to amend the costs thrown away by the amendment and the costs of any consequential amendments:  [cases and citations omitted] …

Where the allegation making amendment necessary could not reasonably have been anticipated, for example, because it is made necessary by events after the issue of the pleading, it may be appropriate to make the costs of the amendment costs in the cause …[8]

[8]AT [1.1280].

1. In the ordinary case a party seeking leave to amend is recognising that there are facts or matters which could have been pleaded but for which for one reason or another were not pleaded, and in order to properly present or maximise a case, need to be pleaded.  It is for that reason that a party asks for an indulgence.  The defendant is given its costs thrown away largely I think on the basis that it should not have had to file an earlier pleading in response to what becomes acknowledged as a defective or incomplete statement of claim.  It is in that sense that past costs are wasted or thrown away.  Allocations are then made in an assessment about the utility of past work in the preparation of the amended defence. 

1. Considering all the above, I come to the following conclusions.

1. First, rule 63.17 carries a connotation of being forward looking or consequential.  That rule is not in play here because it is subject to Court order, and in this case it was displaced by the specific order for costs thrown away. 

1. Secondly, the assessment of costs thrown away is an exercise that looks back.  And that is how the Badowers’ bill of costs is drawn.  A costs order is compensatory in nature; and the compensatory entitlement is to look back at the costs wasted by reason of the amendment. 

1. Thirdly, the amendment here was not attributable to some error or incompleteness in the pre-existing pleading, or non compliance with Court rules.  It was obviously an amendment to deal with new facts, namely the subsequent acquisition of an interest to give the plaintiff a moiety.

1. Fourthly, whatever the nature or effect of the plaintiff’s amendment, it is apparent the Badowers truly did maintain all their pre-existing defences, augmented with a challenge to jurisdiction. They pleaded an agreement made in 1977 “as to their relationship and the use of the land”. They pleaded that works to their unit were done consensually, and with proper permits. They pleaded the “common intention” about their owner relationship, and the conduct and encouragement that occurred on the faith of that common intention which they say created an estoppel. They pleaded facts and circumstances justifying their actions which the plaintiff alleged had breached the unity of possession. They defend the application for judicial sale on the basis that the land was unique, the plaintiff could sell his interest in accordance with the “owner relationship” created by the agreement, and there were good reasons for the Court not to order sale. In paragraph 31 of their amended defence, they defend the s 223 claim on the jurisdictional ground I have already mentioned (saying that the statement of claim does not disclose a cause of action) and no less importantly, saying that there was statutory “good reason” why the Court should not grant sale under s 223. They allege a contravention of section 52 of the Trade Practices Act. 

1. All this demonstrates that as a matter of pleading content the plaintiff’s amendment did not result in much of the pre-amendment work being wasted at all. 

1. Fifthly, I think on close analysis, the plaintiff is correct in submitting that the evidence from the lawyers that the Badowers had no defence under s 223 after the plaintiff bought Teichmann’s interest is not to the point, or it begs the question of what is legally meant by costs thrown away. In one sense the new fact that the Badowers’ lawyers came to regard as making the case indefensible meant that they had wasted their money in the sense they had lost their cause. But that is not the relevant sense. We are dealing with the administration of pleadings. The merits of the case or sustainability of a defence are something else. An amendment to a pleading leads an adversary to counter-amend which may mean that some of the adversary’s costs of composing and adm inistering the previous pleading have been wasted. In my opinion what is encompassed by the expression “costs thrown away” in this case is the past or wasted costs dealing with the previous allegation of the plaintiff’s moiety. If for any reason there were grounds for an order that the “shifting of the goal posts” (a dubious metaphor) justified the extent of costs now being sought by the Badowers then the Court would have been asked to order that their costs up to the amendment be paid. But that was not the order.

1. Sixthly, I see no grounds for the alternative submission that costs thrown away should be those attributable to the sale case. For one thing, all the other defences seem to be connected one way or another with the sale case. But the Badowers have maintained all previous defences to the sale case, and maintained their pleaded opposition on other grounds to the s 223 sale case.

1. Finally, costs orders are there to do justice in a compensatory sense. The acquisition of Teichmann’s interest was a new or supervening fact. It may be accepted that until the amendment, the Badowers and their lawyers paid not much attention to s 223. Why would they? But there is no procedural delinquency here or manipulative conduct within legal process, or power play, that leads me to think the defendants have been lead down a course productive of great expense for which the plaintiff should be liable. The acquisition of Teichmann’s interest was legitimate, although disarming. The “wrong” that has occurred here is that the plaintiff should never have pleaded he had a moiety in the first place. But that allegation was ignored. The plaintiff must pay the costs consequences of correcting that as an allegation (see paragraph 31 of the amended defence), but in my judgment it would be unfair to make him pay for the legal consequences it has had on the Badowers defence; at least that is not what costs thrown away means.

1. For those reasons I would allow the plaintiff’s objection to the bill of costs.   Subject to hearing from counsel, I would give the Badowers an opportunity to re-draw a bill in accordance with these reasons.

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