HSH Australia Pty Ltd v Bayliss

[2019] NSWSC 641

Supreme Court

New South Wales

Medium Neutral Citation:	HSH Australia Pty Ltd v Bayliss [2019] NSWSC 641
Hearing dates:	13 and 22 February, 8 April 2019
Date of orders:	03 June 2019
Decision date:	03 June 2019
Jurisdiction:	Equity
Before:	Robb J
Decision:	As to the costs of these proceedings, the Court makes no order, with the intent that the parties shall bear their own costs.
Catchwords:	COSTS — Party/Party — Whether costs should be awarded when the Court has made consent orders which have the effect that the parties have settled the proceedings — Costs order in such circumstances only to be made based on the unreasonableness of a party’s conduct, where that judgment is manifest by reference to known circumstances not in dispute — Insufficient evidence to establish capitulation by the defendant in the circumstances
Cases Cited:	Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622
Category:	Costs
Parties:	HSH Australia Pty Ltd (Plaintiff/Cross-Defendant) Catharina Leonarda Agnes Bayliss (Defendant/Cross-Claimant)
Representation:	Counsel: M Pesman SC/C Alexander (Plaintiff/Cross-Defendant) B Lloyd (Defendant/Cross-Claimant)   Solicitors: Bamford Lawyers (Plaintiff/Cross-Defendant) Cardiff Law (Defendant/Cross-Claimant)
File Number(s):	2014/86538

Judgment

1. These reasons are primarily concerned with an application by the plaintiff, HSH Australia Pty Ltd, for an order that the defendant, Catharina Leonarda Agnes Bayliss, pay its costs of these proceedings.

2. A subsidiary question is whether, for the purpose of dealing with the costs issue, the Court should make an order sought by the plaintiff in its notice of motion filed on 20 February 2019, granting leave to the plaintiff to rely upon the affidavit evidence of its solicitor, John Gerard Bamford, sworn 20 December 2018 and exhibit JGB-1 to that affidavit on the question of costs.

3. The plaintiff's application for an order that the defendant pay its costs followed the making by the Court of consent orders on 21 February 2018 that had the effect that the parties settled the proceedings. I will refer to the terms of the settlement in more detail below.

4. As Basten JA explained in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 (Nichols v NFS), at [2]: "Where the parties resolve their differences, except as to the costs already incurred in litigation, they should usually expect that the court will not award costs…" The present application, in my view, is a clear manifestation of the truth of the observations then made by Basten JA:

[3] In unusual cases, it may be possible to identify success which is manifest on the face of the record. However, to manufacture a dispute in order to resolve that question is to disregard the statutory obligation imposed on the parties, their legal representatives and the court to conduct civil proceedings so as to facilitate the just, quick and cheap resolution of the “real issues in the proceedings”: Civil Procedure Act, s 56(1). As explained in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46 at [57] (French CJ, Kiefel, Bell, Gageler and Keane JJ):

“That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided.”

The Court further stated (Expense Reduction at [59]):

“It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the [Civil Procedure Act]. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved.”

[4] Although these remarks were made with respect to an error in the production of a document subject to client legal privilege, they apply equally to satellite proceedings directed only to determining responsibility for costs.

…

5. The parties accepted that the principle to be applied by the Court is that which was accepted by the Court of Appeal in Nichols v NFS, and many other cases. It will be sufficient to note the following extract from the decision of McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624, which was set out with approval by Payne JA (with whom Meagher JA agreed, and with whom Basten JA stated he did not disagree) at [25]:

…

“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant’s taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.” (footnotes omitted)

…

6. As stated in its written submissions dated 21 December 2018 at par 2, the plaintiff's argument was in summary:

2.   Costs ought be awarded to the plaintiff for two reasons:

(a)   The terms of the compromise agreed between the parties gave the plaintiff substantially what it always sought in the proceedings and, practically speaking, amounted to a surrender by the defendant of the main issue in the case; and

(b)   The defendant acted unreasonably in seeking development approvals in a manner that was not consistent with her obligations to the plaintiff and left the plaintiff with no reasonable alternative but to commence litigation.

7. As a preliminary matter, I should deal first with the plaintiff's application to rely upon the affidavit of Mr Bamford dated 20 December 2018 and the exhibit to that affidavit.

8. The issue arose because the defendant objected to the plaintiff being allowed to rely upon the affidavit on the question of costs. The affidavit was brief, at five pages, but the exhibit contained 341 pages.

9. The defendant, in essence, based her objection on the propositions stated by Basten JA in Nichols v NFS, at [8], as follows:

Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.

10. After preliminary argument, I ruled that, to formalise the issue, if the plaintiff wished to rely upon Mr Bamford's affidavit and exhibit, it should file a notice of motion seeking leave to do so, and I would fix a hearing to enable the issue to be dealt with properly. Following the filing of the notice of motion on 20 February 2019, a hearing took place on 8 April 2019. That hearing also dealt with the costs issue, in respect of which the Court had received written submissions from the plaintiff dated 21 December 2018 and from the defendant dated 25 January 2019.

11. During the course of the hearing, I formed the view that the Court should try to circumvent what appeared to be the increasing complexity of the attempt to finally dispose of these proceedings, and I reserved judgment on both the issue of costs and the application for leave to rely upon the affidavit. I also directed the defendant to serve any affidavit she was advised to make in response to Mr Bamford's affidavit within 21 days. That was a somewhat unusual course to take, but I made those orders in order to simplify the process, and to enable the Court to decide all outstanding matters in the one judgment.

12. The defendant had objected to the Court relying upon Mr Bamford's affidavit and exhibit in part on the principle stated by Basten JA that I have set out above, but also in part because the defendant believed that Mr Bamford's evidence concerning what had happened during the course of the proceedings was incomplete.

13. As it has happened, the defendant has filed an affidavit of her solicitor, Mr Peter Russell Cardiff, sworn on 29 April 2019, together with exhibit PRC-1. Mr Cardiff's affidavit amplifies and explains aspects of Mr Bamford's affidavit.

14. It is not necessary in this case for the Court to consider in any detail the principles that govern the circumstances in which the Court will receive evidence on a costs dispute, or the nature of the evidence that may be received. In the extract from his judgment set out above, Basten JA observed that the Court should only make an order based upon the unreasonable conduct of a party "where that judgment is manifest by reference to known circumstances, not in dispute between the parties". It may be that the question of what evidence is receivable should depend upon the facts of each case, and be a matter for the discretion of the Court. It may be imagined that there will be cases where there are circumstances known to the parties, as to which there can be no dispute, which have not been brought to the attention of the Court in the course of the particular proceedings. There may be cases where there are incontrovertible facts relevant to the reasonableness of the conduct of the parties that are not relevant to the issues in the proceedings, and therefore are not known to the Court, but are obvious to the parties.

15. In the present case, I have had regard to the affidavits of both Mr Bamford and Mr Cardiff, but only for the limited purpose that those affidavits together provided a convenient source of information concerning the nature of the dispute between the parties and the course of the proceedings. The proceedings relate to a lease dated 23 April 2010, and the proceedings were commenced by statement of claim filed on 21 March 2014. The proceedings have come before the Court on about 30 separate occasions. Much time has passed, and, without the aid of the affidavits, it would have been a burdensome and time-consuming exercise for the Court to revive an adequate recollection of relevant events.

16. I have not relied upon the affidavits to form any judgment about the reasonableness of either party in relation to the events giving rise to the proceedings, the reasonableness of the parties in commencing and defending the proceedings, or the reasonableness of the parties in respect of any individual steps taken in the proceedings. While the evidence in the affidavits may have been relevant to those matters, the affidavits are incomplete for the purpose of determining issues of reasonableness, and the matters dealt with in the affidavits do not permit the making of a "judgment [that] is manifest by reference to known circumstances, not in dispute between the parties". In this case, the issue of the reasonableness of the conduct of the parties, in-so-far as it may be relevant to the costs order that should be made, is a collateral question that could not properly be determined on the content of the two affidavits alone.

17. Further, I have decided that, for the reasons which follow, the only order that the Court can make in respect of costs is no order, with the intent that each party will bear their own costs of the proceedings.

18. It is appropriate to start by explaining in outline the relevant background.

19. For some time before the execution of the lease, a preschool business had been operated on part of the land owned by the defendant at 26 Joshua Street, Murwillumbah NSW, Folio Identifier 22/1080322. The plaintiff acquired that business from the prior owner. It wanted to secure its title to the business by obtaining a lease from the defendant.

20. On 23 April 2010, the parties executed a lease for a period of five years with three options of five years each. The property was described in the following way:

Folio Identifier 22/1080322 Part being Preschool at 26 Joshua Street, Murwillumbah including the area from the preschool fence to the Paddock fence and including the double garage

21. The Land, as defined in clause 1, meant "the land described in Item 4 of the Schedule".

22. Item 4 of the Schedule was in the following terms:

4.   Land   Part Lot 22 in DP 1080322 on Folio 22/1080322

Parish of Murwillumbah County of Rous

Refer attached plan

23. A plan was attached to the lease, which was subsequently and aptly described in the proceedings as a mud map, which apparently identifies the boundaries of the preschool as part of the whole property.

24. The parties contemplated that the lease would be registered, but, when it was submitted for registration, the Department of Lands issued a requisition on 17 May 2010, which had the effect that the lease would not be registered unless a plan was submitted to define the lease site. The plan was required to comply with certain identified technicalities, and the requisition stated: "…If it is not possible to satisfy these requirements, a full plan of survey must be lodged as a deposited plan…"

25. It is not necessary to go into the detail, but the defendant decided that she should have the whole of 26 Joshua Street, Murwillumbah surveyed for the purpose of formally subdividing it into two lots, one of which would be the subject of the lease. Apparently, the plan of subdivision did not conform to the mud map, but reduced the area available for the preschool. It is said that the Council approved the plan of subdivision. The plaintiff apparently initially was unaware of the action taken by the defendant, and did not consent to it.

26. The plaintiff continued to operate the preschool, and the terms of the unregistered lease were complied with by the parties in various respects, including that the defendant required the plaintiff to contribute to outgoings.

27. As mentioned, the plaintiff filed its statement of claim on 21 March 2014. The orders sought by the plaintiff included the following:

1.   A declaration that the Lease as defined in paragraph 5 of the Pleading below is on foot and is to continue to operate in accordance with its terms and conditions.

2.   An order that the Defendant take such steps as are required to procure the registration of the Lease with the priority determined at the time of the registration of Caveat No AF786340.

28. The plaintiff also sought damages.

29. In par 8.2 of her defence, the defendant pleaded that the Lease was incapable of registration because, among other reasons, "…the document purports to have the effect of a subdivision of land within the meaning of that term as used in s 4B of the Environmental Planning & Assessment Act (NSW) 1979…” The defendant added that a subdivision of the land would require the approval of the Council and that no such approval could be obtained. The defendant annexed the plan of subdivision that had been approved by the Council on 14 December 2011.

30. It is not necessary to mention the terms of the defendant's cross claim, or the amended and further amended statements of claim that were filed by the plaintiff.

31. On 19 June 2015, the Council issued a notice to the defendant refusing a development application. As I understand the evidence, the defendant had lodged a subdivision application that was, relevantly, consistent with the mud map annexed to the lease. Although the issue was never determined, the plaintiff claimed that the subdivision application was refused because of a change in the planning law sometime after the first subdivision application lodged by the defendant had been approved.

32. The proceedings were set down for hearing before me commencing on 1 July 2015.

33. At the hearing, counsel for the plaintiff advised the Court of the significance of the recent rejection of the application for approval of the subdivision made by the Council.

34. For present purposes, the relevant circumstance is that the objective of the plaintiff's case necessarily changed. The plaintiff stated that it was its position that the defendant could have obtained approval of a subdivision that was consistent with the mud map annexed to the Lease, but it had in effect breached an implied term of the lease by obtaining approval of an inconsistent subdivision, and then lost the opportunity to comply with its obligation because of the change in the planning laws.

35. Counsel for the plaintiff acknowledged (at T7.7-7.13) the need for the demised premises under the lease to be a lot in a registered subdivision before the lease could be registered:

I think it is common ground that the legal representatives to the parties, and I can say this because neither of them are currently representatives for the parties, both [seemed] to be under a misapprehension as to the effect of the documents that they prepared and failed to realise that a lease of a lot by itself created a subdivision to which development approval was required from the council and there is discussion in the correspondence.

36. These developments led to the possibility that the plaintiff would have to seek equitable relief, in the nature of declarations and injunctions against the defendant, which fell short of establishing a proprietary leasehold interest in the premises.

37. The case may also have metamorphosed into one that required the parties to contest a claim for damages, which would have been a forensically difficult exercise, particularly as the evidence had not been directed to that subject.

38. Ultimately, the plaintiff applied for the proceedings to be adjourned (at T30), and, after some discussion between the parties, the Court, by consent, vacated the balance of the hearing, and made orders that included the following:

1.   The matter be adjourned.

2.   The plaintiff to make such applications as may be necessary to Tweed Shire Council to obtain a development consent for a 2 lot subdivision in accordance with the lease plan, being the plan attached to the lease document.

3.   The applications referred to in order 2 are to be made at the plaintiff's cost within 60 days and thereafter prosecuted with all due expedition.

4.   The defendant will promptly grant all necessary consents to give effect to order 2 above.

…

39. Although the Court was not required to determine the issue, apparently the parties consented to this course because of information available to them that caused them to believe that the dispute could be resolved by the plaintiff making an application for the approval of a plan of subdivision that would create a lot as nearly as possible to the premises depicted in the mud map.

40. Thereafter, the proceedings came before the Court on about 18 occasions, in most cases before me. I lent the Court's assistance to the process on the basis that, albeit belatedly and at some cost, there was an opportunity for the parties to cooperate to secure the commercial outcome originally contemplated at the time they executed the lease. This would avoid the very real risk of the destruction of the value of the preschool business. It would also obviate the need for the parties to engage in the difficult and expensive exercise of fighting about damages.

41. It is sufficient to note that there were many delays that arose out of the steps necessary to prepare the plan of subdivision, to obtain the approval of the Council, and then to comply with the conditions of approval, which I understand required some significant works.

42. Allegations were made frequently by the parties that the other was not effectively and in good faith complying with the obligations that flowed out of the consent orders made by the Court on 1 July 2015.

43. Apparently, the Council amended the development consent that it had earlier granted on 11 July 2016, and, on 8 August 2016, the Court made further substantive orders by consent of the parties, that included an order that the defendant, at her cost, forthwith engage named surveyors to make an application for a construction certificate to undertake the work relating to the subdivision as required by the amended consent. The defendant was then required to prosecute the application with all due expedition. The plaintiff consented to the use of plans prepared for the purpose of securing the amended consent. The orders required the defendant, following the grant of a construction certificate, to commence the necessary building, engineering or construction work. In various ways, the plaintiff and the defendant were required to cooperate.

44. It is plain that the parties would have incurred significant costs in performing all of the steps required by the terms of the various consent orders that were made by the Court. The Court is not privy to all of the communications between the solicitors for the parties, but there were indications from time to time, when the proceedings came before the Court for mention, that there was some acrimony between the parties. As I recall it, on a number of occasions, the plaintiff, in particular, wished to file affidavit evidence of some substance in order to substantiate some point that the plaintiff wished to agitate. On occasions, the Court refused to entertain disputes between the parties, and required them to get on with the steps that they had already consented to being ordered to take.

45. This all culminated in final consent orders made by the Court on 21 February 2018, by which the proceedings were effectively determined, except as to costs.

46. The primary orders made were as follows:

1.   Note that:

(a)   The parties have executed the New Lease, with a commencement date of 23 April 2015 and that it is to be held by the defendant's solicitor pending completion of the required works and the subdivision for registration of the New Lease, and further noting that the plaintiff has in fact paid rent as at 23 April 2015 in the sum of $93,579.48 per annum, and is currently paying $99,278.49.

(b)   That [sic] the area to be leased is that determined by the plan of subdivision to be registered pursuant to Amended Consent DA 10/0666 dated 11/07/16 for that part of folio identifier 22/1080322 that includes the area on which the pre-school building is located (Leased Area).

…

47. Apparently, the parties had been able to compromise disputes between them concerning the amount of rent that should be paid by the plaintiff, given that the plaintiff had purported to exercise one of the options to renew the lease during the course of the dispute, and the original lease contained rent review terms. The consent orders noted complicated arrangements concerning the liability of the plaintiff for outgoings.

48. By order 2, the defendant was required, at her cost, to do all things necessary to register the new lease, including by completing the subdivision works in accordance with the construction certificate, obtaining a subdivision certificate, registering the subdivision plan, obtaining the consent of the registered mortgagee, and lodging the new lease for registration.

49. Order 3 required the plaintiff to cooperate with the defendant in various ways at the plaintiff's cost.

50. Order 4 noted that the plaintiff authorised the defendant to insert into the new lease the details of the deposited plan and lot number, the new amount of rent upon completion of the rent review, the folio identifier of the leased area, and certain other matters.

51. The new lease referred to was a document provided by the parties to the Court and admitted into evidence as exhibit A. As I understand it, this document provided for a lease for five years commencing on 23 April 2015, which was the date contemplated by the original lease for the commencement of the first renewal period following the exercise by the plaintiff of the first option for renewal. The new lease provided for two further options of five years, so it was consistent with the original lease. The terms of the new lease appear to be materially the same as the original lease.

52. It is in these circumstances that the plaintiff seeks an order that the defendant pay the whole of its costs of the proceedings, for the reasons summarised in par 6 above and expanded in its written submissions.

53. It may be accepted that the new lease will give the plaintiff substantially what it sought to obtain by instituting these proceedings.

54. However, I reject the submission that the events that I have outlined above amount in a practical way to the defendant having surrendered in the face of the plaintiff's claim.

55. The proper characterisation of the defendant's conduct is that she has, at what appears to be considerable expense to herself, cooperated with the plaintiff, in difficult circumstances, to achieve an honourable outcome that gives effect to the substance of the original lease agreement between the parties.

56. The vice that is at the heart of the parties' travails is the apparent failure by the solicitors who acted for them in respect of the original lease, neither of which was a present solicitor for the parties, to appreciate the conveyancing issues that apparently arose out of the attempt by the defendant to lease to the plaintiff, for the period provided for in the lease, an area less than a whole lot in a registered subdivision. That problem was equally the responsibility of both of the parties. It appears to have been the primary, or at least the initial, cause of all of the delay and cost suffered by the parties.

57. The Court has not been asked to rule on the legal questions involved, but, as I have explained above, it was the plaintiff who, at the hearing, acknowledged that the relief it sought could not be given by the Court, which led to the plaintiff seeking to adjourn the hearing.

58. Not only has the Court not been required to make any determination of fault in respect of the original conveyancing problem, but the issue of whether the defendant had breached any implied term, by obtaining a development consent that was inconsistent with the mud map annexed to the lease, and then lost the opportunity to remedy her default by reason of a change in the planning laws, was not only not an issue raised by the pleadings, but has not been considered by the Court at all.

59. Neither has the Court been asked to make any determination of the question whether the defendant may have been liable to pay damages to the plaintiff, and if so what the amount of those damages would have been.

60. Consequently, the second argument put by the plaintiff, that the defendant acted unreasonably in seeking development approvals in a manner that was not consistent with her obligation to the plaintiff, must be rejected.

61. The present is a case where the parties have resolved their differences. They did not, however, do so in a single settlement reflected in one set of orders that constituted a compromise of their claims. Rather, realising the reality of the original conveyancing defect, they mutually cooperated to save their commercial bargain, and thereby avoid the forensic risks involved in carrying on a fight over damages.

62. This is an exceptional case whereby, for the whole of the period from 1 July 2015 to 21 February 2018, the parties have been engaged in an ongoing process of trying to achieve a compromise of these proceedings. They apparently have succeeded, but at considerable cost to themselves. As I have said, the principal cause of those costs has been the original inadequate attention to the need to ensure that the demised premises were a lot in a registered subdivision. Although it may well be that considerable legal costs have been incurred since 1 July 2015, it appeared to me, from my continuing involvement in the case management of these proceedings, that at least a substantial part of the costs related to disputes that arose out of the need for the parties to take all of the steps, primarily concerning the need to get Council approval and to implement all requirements necessary before a plan of subdivision could be registered, to enable a lease finally to be granted. It would probably be a difficult and expensive exercise to now work out which costs were solely related to the original proceedings, and which costs have been incurred because of all of the steps necessary to enable a lease to be granted and registered.

63. In all of these circumstances, the present must be one of the clearest of cases where it is not possible to say that one party has been successful and the other unsuccessful. The final orders by the Court do not establish capitulation by the defendant, and, to use the terminology of Basten JA, the plaintiff’s entitlement to the costs judgment that the plaintiff has sought is clearly not manifest by reference to known circumstances not in dispute between the parties.

64. The order that I will therefore make is:

As to the costs of these proceedings, the Court makes no order, with the intent that the parties shall bear their own costs.

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Decision last updated: 05 June 2019