New Island Developments Pty Ltd v New Island Investments One Pty Ltd (No 2)

[2024] NSWSC 454

Supreme Court

New South Wales

Medium Neutral Citation:

New Island Developments Pty Ltd v New Island Investments One Pty Ltd (No 2) [2024] NSWSC 454

Hearing dates:

On the papers

Date of orders:

26 April 2024

Decision date:

26 April 2024

Jurisdiction:

Equity

Before:

Rees J

Decision:

Costs orders made in respect of claim and cross claim.

Catchwords:

COSTS – plaintiffs’ claim resolved by consent – whether Lai Qin order should be made – principles at [18]-[20] – defendants did not capitulate but proceeded to agitate key issue by cross claim – plaintiffs entitled to portion of their costs in respect of that issue, on which they ultimately succeeded.

OFFER OF COMPROMISE – whether offer complied with r 20.26(2)(c) or was “inclusive of costs”, principles at [31] – exception in r 20.26(3)(a)(ii) applied – indemnity costs ordered.

Legislation Cited:

Conveyancing Act 1919 (NSW), s 66G

Uniform Civil Procedure Rules 2005 (NSW), rr 20.26(2)(c), 20.26(3)(a)(ii), 42.14(1)

Cases Cited:

Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302

Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208

New Island Developments Pty Ltd v New Island Investment One Pty Ltd [2024] NSWSC 226

New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100

Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84

One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548

Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6

Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40

Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311

Category:

Costs

Parties:

New Island Investment One Pty Ltd (First Cross-Claimant)
Ava Liu (Second Cross-Claimant)
New Island Kildare Pty Ltd (Third Cross-Claimant)
Maison Global Property Pty Ltd (Fourth Cross-Claimant)
MG Investment One Pty Ltd (Fifth Cross-Claimant)
New Island Developments Pty Ltd (First Cross-Defendant)
New Island Apartments Pty Ltd (Second Cross-Defendant)
Youxin Fu (Third Cross-Defendant)

Representation:

Counsel:
L Gor (First to Fourth Cross-Claimants)
D Pritchard SC / N Bailey (Cross-Defendants)

Solicitors:
HWL Ebsworth (First to Fourth Cross-Claimants)
Bartier Perry (Cross-Defendants)

File Number(s):

2020/359402

JUDGMENT

1. HER HONOUR: I gave judgment in this matter on 12 March 2024, dismissing the cross-claim with costs: New Island Developments Pty Ltd v New Island Investment One Pty Ltd [2024] NSWSC 226. The costs of the primary proceedings, advanced by a Summons and Amended Summons, had been earlier reserved.

2. This judgment concerns what costs order, if any, should be made in respect of the primary proceedings and whether an indemnity costs order should be made in respect of the cross-claim following non-acceptance of an offer of compromise. This judgment assumes familiarity with my earlier judgment; the same defined terms are used.

Procedural history

3. The parties were engaged in litigation in the Commercial List of this Court in relation to various property developments. In short, Mr Fu claimed that Ms Liu had acquired a development site in Meadowbank using some $9 million of misappropriated funds. Mr Fu lodged caveats on the property, claiming a beneficial interest under a constructive or resulting trust. The proceedings were resolved by a Settlement Agreement in December 2019. Under the agreement, the Meadowbank property would be sold by Ms Liu and the proceeds divided between Mr Fu (roughly 75%) and Ms Liu (roughly 25%), after allowing for “statutory duties” paid and rent received by Ms Liu until the property was sold.

4. Performance of the Settlement Agreement encountered difficulties from the outset, not assisted by the onset of the COVID-19 pandemic and an accompanying ban on public auctions. The parties took different views of their obligations under the Settlement Agreement, in particular, the obligation to agree on the terms on which the property would be sold.

5. As I noted in my earlier judgment, the petty lack of co-operation between the parties grew tiresome. In the initial stages, it was Ms Liu who was less than helpful: New Island at [50]. By November 2020, Mr Fu appears to have ‘dug in’, jostling for position to buy the Meadowbank property himself. The proposed selling agency agreement was then in its fourth draft, Ms Liu having largely addressed the deficiencies of earlier drafts.

6. Mr Fu commenced these proceedings by Summons in December 2020, after Ms Liu served lapsing notices in respect of the caveats earlier lodged by Mr Fu. Mr Fu sought Ms Liu’s consent to the lodgement of further caveats pending sale of the property, but consent was not forthcoming. On 22 December 2020, the matter came before the Duty Judge. Orders were made by consent and without admission, extending the caveats and injuncting Ms Liu from entering into a contract for sale of the Meadowbank property. Further, Ms Liu was to provide Mr Fu with details of any offer to purchase the property.

7. Correspondence ensued between the parties to progress an upcoming auction of the Meadowbank land. By 10 February 2021, the parties had agreed on the way forward. Ward CJ in Eq made orders by consent and without admission, varying the interim injunctions such that Ms Liu was permitted to enter into a contract of sale following the auction to the highest bidder at or above the reserve price.

8. On 1 March 2021, Mr Fu exchanged contracts to buy the Meadowbank land for $9 million. The auction was cancelled. Correspondence ensued between the parties in respect of statutory duties paid, rent received and the amount to be paid on settlement. On 23 March 2021, Mr Fu’s solicitor set out the remaining matters to be resolved, noting “If the outstanding issues can be resolved without controversy, the assistance of the Court to determine the distribution of the net proceeds of sale should not be required.” Mr Fu’s solicitors followed up these remaining matters on 31 March 2021, 1 April 2021 and 6 April 2021, when a reply was received. Ultimately, as the parties could not agree on how the proceeds of sale would be paid out, arrangements were made to pay the moneys into Court. The sale was completed on 14 April 2021.

9. On 18 May 2021, Mr Fu filed an Amended Summons, seeking declaratory relief in respect of how the net proceeds of sale should be paid out of Court. In response, Ms Liu’s solicitors advised that they considered that Mr Fu had breached the Settlement Agreement, causing loss and damage. On 12 August 2021, Ms Liu filed a notice of motion seeking leave to file a cross-claim.

10. The parties corresponded further in respect of the apportionment of the net proceeds of sale. By September 2021, agreement was finally reached. On 24 September 2021, Ward CJ in Eq made orders accordingly, for the distribution of the sale proceeds to Mr Fu and Ms Liu. In addition, her Honour granted leave to Ms Liu to file a cross-claim. The parties were to bear their own costs of their respective motions (neither party seeks to disturb this order). The costs of the proceedings to date on the Summons and Amended Summons were otherwise reserved. No order was made dismissing the Amended Summons, although both parties agree that such an order should now be made.

11. That is, as at 24 September 2021, the primary proceedings had been resolved by consent and without admission – and also by events which rendered the relief sought otiose – with the only remaining issue being whether a costs order should be made and, if so, the terms of such an order. By then, Ms Liu had incurred legal costs and expenses of some $240,000. Presumably, Mr Fu’s costs were not dissimilar. As such, the remaining issue to be resolved in the primary proceedings was not inconsequential and, until resolved, exposed both sides to the risk of an adverse costs order.

12. On 1 October 2021, Ms Liu filed a cross-claim, seeking declaratory relief that the Settlement Agreement imposed an obligation on Mr Fu to agree terms for the sale of the Meadowbank land, being confined to the agency agreement but not the terms of any contract for sale, together with a declaration that Mr Fu had unnecessarily withheld consent and was in breach of the Settlement Agreement, for which damages were sought.

13. A defence to the cross-claim was filed in December 2021, of which particulars were sought and provided. On 5 August 2022, Ms Liu affirmed a third affidavit, supplementing her first and second affidavits affirmed in respect of the primary claim but relied on at trial in respect of the cross-claim. Mr Fu’s solicitor, David Creais, made an affidavit in reply to Ms Liu’s earlier affidavits, which was also relied on at the hearing of the cross-claim.

The offer

14. On 30 August 2022, Mr Fu’s solicitor sent a Calderbank letter, which enclosed an offer of compromise and set out why it was said that the cross-claim would fail. Notwithstanding that the primary claim had been resolved by consent, Mr Fu’s solicitor contended that Mr Fu would nonetheless be entitled to costs, applying the principles in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Quin (1997) 186 CLR 622; [1997] HCA 6. The enclosed offer of compromise was in the following terms:

“The plaintiffs offer to compromise the whole of these proceedings on the following terms:

1.   In respect of the amended summons filed on 18 May 2021:

(a)   the amended summons is dismissed; and

(b)   the defendants are to pay the plaintiffs’ costs on the summons and amended summons of $20,000.

2.   In respect of the cross-claim filed on 1 October 2021:

(a)   the cross-claim is dismissed; and

(b)   the cross-defendants are to pay the cross-claimants’ costs of the cross-claim of $20,000.”

15. By then, Mr Fu had incurred $229,116.48 in costs, while Ms Liu had incurred costs of $317,609.22. The offer was not accepted.

16. In the months which followed, the parties progressively obtained expert reports as to the value of the Meadowbank land, had it been sold at auction at a point in time when Ms Liu contended the property would have been sold but for Mr Fu’s breach of the Settlement Agreement. The hearing took place in February 2024. The cross-claim was unsuccessful. Ms Liu’s proffered construction of the Settlement Agreement was not accepted. Nor, in the alternative, was causation or loss established.

Reserved costs

17. Ms Liu submitted that the appropriate order is that each side should bear their own costs of the Summons and Amended Summons, as there has been no decision on the merits and none of the steps taken by Ms Liu to meet that claim could be said to be unreasonable. Mr Fu sought an order that the costs of the Summons and Amended Summons be paid by Ms Liu (excluding costs relating to the motions referred to in orders made on 24 September 2021: see [10]), where Ms Liu was said to have effectively capitulated by the consent orders that were ultimately made.

18. In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624–625, McHugh J stated:

“When there has been no hearing on the merits … 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 … 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. …

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. …

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.”

19. In One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548, Burchett J also observed at [6]:

“… it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.”

20. One.Tel was followed in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302, where Davies AJA (Mason P and Meagher JA agreeing) noted that a judge may award costs where the matter does not proceed to judgment “generally … because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other should suffer a detriment in costs”: at [5]. See likewise Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 at [26] to [30] (per Payne JA, Basten and Meagher JJA agreeing).

21. By prayer 1 of the Summons, Mr Fu sought a declaration that the caveators had a beneficial interest in the Meadowbank property pursuant to a constructive or resulting trust consequent on their contribution to the purchase price of the land. By prayer 2, Mr Fu sought, in the alternative, a declaration that the caveators had a charge or lien over the property consequent on their contribution to its purchase. Neither prayer for relief was finally determined, where the parties had earlier agreed in the Settlement Agreement to divide the proceeds of sale of the Meadowbank land in accordance with the parties’ respective contributions (adjusted for statutory duties and rent) and the parties ultimately agreed in September 2021, after the sale of the property in March 2021, what those figures would be.

22. By prayer 3 of the Summons, Mr Fu sought a declaration that, on the true construction of the Settlement Agreement, the Meadowbank property was only to be sold on terms to be agreed between the parties, including terms regarding the terms and conditions of the contract for sale and the reserve price. This prayer was not ultimately determined – at least, not as advanced by the Summons – but was effectively determined via the cross-claim, where Ms Liu sought declarations that, on the proper construction of the Settlement Agreement, Mr Fu was only required to agree to the agency agreement but not the terms of any contract of sale. Those arguments were determined in favour of Mr Fu in my earlier judgment. Obviously enough, if Mr Fu had pressed prayer 3 of the Summons, he would have succeeded. In the events which have unfolded in this particular case, the Court is not required to try a hypothetical action between the parties in order to form a view as to whether costs should be awarded on this issue, as I have determined the issue in prayer 3 on a final basis.

23. By prayer 4 of the Summons, Mr Fu sought an order that a trustee for sale of the Meadowbank property be appointed under s 66G of the Conveyancing Act 1919 (NSW). It was not necessary to determine this matter as the parties proceeded to sell the property at auction, as envisaged by the Settlement Agreement.

24. On 18 May 2021, Mr Fu filed the Amended Summons, seeking declaratory relief that, on the true construction of the Settlement Agreement and on the facts which had occurred, the proceeds of sale of the Meadowbank property should be distributed in a particular way, with payment paid out to Mr Fu and Ms Liu in $6,437,919.28 and $2,498,670.51 respectively after payment of commission, tax, expenses and taking into account rent and statutory duties.

25. The earlier prayers – seeking declarations in respect of a beneficial interest in the land, declarations as to the proper construction of the Settlement Agreement and orders for judicial sale – were deleted. Presumably, this was because it was unnecessary to decide these matters where Mr Fu’s caveats had been withdrawn to permit completion of the sale of the Meadowbank land (to him). In addition, it was no longer necessary to ascertain the precise ambit of Mr Fu’s obligations to agree on the terms of sale, where the property had since been sold. Nor was it necessary to make orders for judicial sale.

26. Ultimately, it was also unnecessary for the Court to finally determine the prayers for relief in the Amended Summons where the parties ultimately agreed, in September 2021, the precise amounts for distribution of the proceed of sale.

27. As to the reasonableness of the parties’ conduct, I repeat what I have said at [5]. Co-operation between the parties does not appear to have improved after these proceedings commenced. Nor do I think it can be said that Ms Liu effectively capitulated to Mr Fu by the various consent orders that were subsequently made in these proceedings. The parties had earlier agreed what should be done to resolve their dispute, being via the regime set out in the Settlement Agreement. In parallel with these proceedings, the parties eventually completed the steps set out in that document.

28. Nor did Ms Liu capitulate in respect of the proper construction of the Settlement Agreement; that issue continued to be contested by the cross-claim. Whilst Ms Liu’s construction was not ultimately accepted by the Court, it was certainly arguable, where the operative clause was susceptible of more than one plausible meaning: New Island at [40]. By and large, Mr Fu’s primary claim became otiose as the Meadowbank property was sold, and the disbursement of the proceeds of sale eventually agreed. As such, I do not consider that Lai Qin supports the making of a costs order in respect of the primary claim in this case.

29. That said, a significant portion of the costs incurred by Mr Fu in the prosecution of the primary claim – being prayer 3 of the Summons and the Amended Summons – concerned the proper construction of the Settlement Agreement. The issue of construction raised in prayer 3 of the Summons remained at issue on the cross-claim. In these circumstances, I consider that it is appropriate that Mr Fu be entitled to a portion of his costs of the primary claim, where he ultimately succeeded on that issue at trial. As the Court of Appeal observed in Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]:

“Section 98 of the Civil Procedure Act2005 (NSW) confers on the Court a wide discretion with respect to costs. Under rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The “event” may be characterised in more than one way. Generally the "event" refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22.”

30. Here, overall, I consider it appropriate that 40% of Mr Fu’s costs of the primary claim be paid by Ms Liu. The costs incurred by Mr Fu in respect of the issue raised in prayer 3 of the Summons prepared the groundwork to defend the same issue as raised on the cross-claim. Mr Fu was ultimately successful on that issue.

Indemnity costs

31. The next question is whether an order for indemnity costs should be made following non-acceptance of the offer of compromise or, alternatively, the Calderbank offer. An initial question arose as to whether the offer of compromise complied with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW), where Ms Liu submitted that the offer fell foul of r 20.26(2)(c).

32. Rule 20.26(2)(c) provides that an offer of compromise “must not include an amount for costs and must not be expressed to be inclusive of costs”. However, r 20.26(3)(a)(ii) further provides that an offer under the rule may propose a judgment in favour of the defendant and “despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff’s costs”.

33. An offer “inclusive of costs” is one in which a “figure is proposed under which the plaintiff will receive that figure and will also pay its costs out of that figure”: Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [72] (Emmett JA). In Jojeni Investments Pty Ltd v Mosman Municipal Council (No 2) [2015] NSWCA 208, the Court explained the scope of the prohibition in r 20.26(2)(c) at [11]:

“… the purpose of the rule is clear. It is directed to the mischief of a monetary offer in a lump sum which does not differentiate between a plaintiff’s claim (which will regularly have been the subject of pleadings, particulars and evidence) and the plaintiff’s costs (as to which the other party will have no basis for making an informed decision to compromise). Further, an offer expressed to be inclusive of costs is not capable of ready comparison with a judgment obtained by the party in the event that the offer is not accepted and the matter proceeds to a final hearing. For example, to take a case where a plaintiff is seeking a money judgment, is an offer that a defendant pay $400,000 inclusive of costs “no less favourable“ than a judgment in the plaintiff’s favour in the amount of $300,000 and an order that the defendant pay the plaintiff’s costs? The prohibition in r 20.26(2)(c) avoids the difficulty that it may not be possible to determine whether the default position of indemnity cost applies until the costs have been assessed.”

34. The offer of compromise in the present matter is not expressed to be inclusive of costs. The offer clearly differentiates between what is offered in respect of the claim and what is offered in respect of the costs of that claim. Although the offer does contain an “amount for costs” – in respect of each of the primary claim and the cross-claim – this is permitted by r 20.26(3)(a)(ii). The offer closely follows the form of proposal described in 20.26(3)(a)(ii) and complies with the rules.

35. I reject Ms Liu’s submission that the offer of compromise was not expressed to operate by reference to the Summons, which by 30 August 2022 had been rendered otiose by the Amended Summons. Mr Fu offered to compromise “the whole of these proceedings” and proceeded to identify the offer in respect of the primary claim and then the cross-claim. In paragraph 1(b) of the offer of compromise, it was proposed that Ms Liu pay Mr Fu’s costs “on the summons and amended summons of $20,000”. In any event, I would not expect an offeror to list each iteration of the pleadings by which their claim was advanced, in order to capture the costs incurred during the currency of each pleading. Fairly read, Mr Fu was making an offer to resolve both the primary claim and the cross-claim from inception until the date of the offer.

36. The next question is whether Mr Fu has obtained an order or judgment “no less favourable” than the terms of the offer: r 42.14(1). That is certainly the case in respect of the cross-claim, where the cross-claim was dismissed with costs. That is, rather than Mr Fu paying Ms Liu’s costs in the amount of $20,000, as offered, Ms Liu is obliged as a consequence of my earlier judgment to pay Mr Fu’s costs of the cross-claim on a party and party basis.

37. That is also the case in respect of Mr Fu’s costs of the primary claim. The parties agree that it is appropriate that the Amended Summons be dismissed. By this judgment, Ms Liu is now obliged to pay 40% of Mr Fu’s costs of the primary claim. Where Mr Fu’s costs at the date of the offer were some $230,000, albeit on a solicitor and client basis, 40% of those costs on a party and party basis would certainly exceed $20,000. As such, Mr Fu has obtained a result “no less favourable” than the terms of the offer of compromise.

38. In this event, an order for indemnity costs follows, unless the Court orders otherwise: New South Wales Insurance Ministerial Corp v Reeve (1993) 42 NSWLR 100 at 102 (per Gleeson CJ, Clarke and Cripps JJA agreeing); Morgan v Johnson (1998) 44 NSWLR 578 at 581-82 (per Mason P, Sheller and Powell JA agreeing). Ms Liu did not suggest that the Court should order otherwise. In these circumstances, it is not necessary to consider whether an indemnity costs order should flow from non-acceptance of the Calderbank offer.

Orders

39. For these reasons, I make the following orders:

1. By consent, dismiss the Amended Summons filed on 18 May 2021.

2. Subject to Order 6 made by Ward CJ in Eq on 24 September 2021, order the defendants to pay 40% of the plaintiffs’ costs of the Summons and Amended Summons.

3. Vary Order 1 made on 12 March 2024 such that the cross-claimants are to pay the cross-defendants’ costs of the First Cross-Claim on the ordinary basis up to and including 30 August 2022 and on an indemnity basis thereafter.

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Decision last updated: 26 April 2024