Papas v Jabba Constructions Pty Ltd

[2010] NSWSC 361

CITATION:	Papas v Jabba Constructions Pty Ltd [2010] NSWSC 361
HEARING DATE(S):	19 April 2010
JUDGMENT DATE :	19 April 2010
JURISDICTION:	Equity
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	19 April 2010
DECISION:	Order that the third cross-defendant pay the defendant/cross-claimant's costs of the proceedings against it. The costs payable by the third cross-defendant to the defendant/cross-claimant would include the costs of today's applications. The order that there be no order as to costs as between the plaintiffs and the defendant will likewise cover the costs of today.
CATCHWORDS:	COSTS – action for specific performance of contract for sale of land subject to lease – real dispute between purchaser and lessee – lessee not joined as additional defendant on originating process – vendor filed cross-summons joining purchaser and lessee – purchaser and lessee reached confidential settlement with no order as to costs – vendor submitted to court orders - COSTS – whether purchaser entitled to costs – vendor acted reasonably in not accepting purchaser’s offer of compromise – offer of compromise would not resolve issues without lessee’s agreement – no basis for awarding indemnity costs against vendor – court cannot be satisfied of purchaser’s success against vendor without full hearing on merits – operation of rule in Tasker v Small – joinder of lessee necessary for determination of all matters in dispute – no basis for awarding costs on ordinary basis against vendor – lessee would be liable for purchaser’s costs had purchaser succeeded after a trial – lessee and purchaser compromised their claims as to costs against each other - COSTS – whether vendor entitled to costs – vendor acted reasonably in filing cross-summons to bring all issues to court for determination – lessee to pay vendor’s costs of cross-summons – cost assessor to determine what costs fairly and reasonably incurred
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Supreme Court Act 1970 (NSW) Legal Profession Act 2004 (NSW)
CASES CITED:	Tasker v Small (1837) 3 My & Cr 63; 40 ER 848 ANZ Executors & Trustee Company Limited v Qintex Australia Limited (receivers and managers appointed) [1991] 2 Qd R 360 Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council (No 2) [2005] NSWSC 1048 Tribond Pty Ltd v Atinon Pty Ltd [2007] NSWSC 1079 Re The Minister for Immigration and Ethnic Affairs; Ex-Parte Lai Qin (1997) 186 CLR 622 Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 Edginton v Clark [1964] 1 QB 367 Thomas v Times Book Company Limited [1966] 1 WLR 911; 2 All ER 241 Cook v ANZ Bank (Supreme Court of New South Wales, McLelland CJ in Eq, 16 June 1995, unreported)
TEXTS CITED:	R P Meagher, J D Heydon & M J Leeming, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths P Taylor (ed), Ritchie's Uniform Civil Procedure NSW (LexisNexis Australia
PARTIES:	1st Plaintiff/3rd Cross-Claimant: Peter Papas 2nd Plaintiff/2nd Cross-Claimant: Effie Papas 3rd Cross-Defendant: Red Rooster Foods Pty Ltd Defendant/1st Cross-Claimant: Jabba Constructions Pty Ltd
FILE NUMBER(S):	SC 2010/30308
COUNSEL:	Plaintiffs: F Sinclair Defendant: H P T Bevan 3rd Cross-Defendant: I R Pike
SOLICITORS:	Plaintiffs: Ingate & Associates Defendants: Baron & Associates 3rd Cross-Defendant: n/a

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Monday, 19 April 2010

2010/30308 Peter Papas & Ors v Jabba Constructions Pty Ltd

JUDGMENT

1 WHITE J: The outstanding questions in this case concern costs.

2 The defendant is the owner of land at Bexley. The land is subject to a registered lease in favour of the third cross-defendant (“Red Rooster”). Clause 9.4 of the lease gave Red Rooster a right of first refusal if the defendant determined to sell the land. Clause 9.4(d) required the lessor (the defendant) to give a notice of sale upon receipt of any offer to purchase or upon the lessor signing a contract for sale. Clause 9.4(b) provided that the lessee had an option to purchase exercisable within 28 days after receipt from the lessor of the notice of sale. Confusingly, clause 9.4(c) provided that if the lessor offered the land for sale by public auction, the contract was to be subject to a condition precedent that it was subject to the lessee’s not exercising its right of first refusal within 14 days (not 28 days) of service on the lessee of the notice of sale referred to in clause 9.4(d).

3 On 7 December 2009 the defendant sold the land at auction. The plaintiffs were the purchasers. The contract for sale included a special condition 64. It provided that:

“ 64.1 The Purchaser acknowledges that it is aware of clause 9.4 of the registered Lease annexed to this Agreement between the Vendor as Lessor and Red Rooster Foods Pty Ltd ACN 008 754 096 as Lessee dated 13 June 2008 and bearing registered dealing number AE161289S.
64.2 The Purchaser acknowledges that the sale of the property is subject to a condition precedent that the Lessor must within 2 days of receipt or execution of a Contract for Sale (‘Contract’) by the Lessor or the Lessor’s agent, give to the Lessee a notice (‘notice of sale’) offering to sell the Land to the Lessee for the price and upon the terms and conditions contained in such offer or Contract. The notice of sale must also contain a warranty by the Vendor that the prospective purchaser is a bona fide purchaser and not related to the Lessor or the Lessor’s agent or auctioneer.
64.3 The Purchaser acknowledges the terms of the right of first refusal and in the event that the Lessee does not exercise the right of first refusal contained in clause 9 of the Lease within the time specified under clause 9.4 of the Lease, this Agreement shall be deemed to be unconditional and the Purchaser shall proceed to complete the purchase in accordance with the terms and conditions contained herein. ”

Completion was due on 11 January 2010.

4 There was a dispute as to the time at which the defendant served and Red Rooster received the notice of sale.

5 On 8 January 2010 the defendant's solicitor advised the plaintiffs’ solicitor that on 6 January 2010 the defendant had received a notice in writing from Red Rooster exercising its right of first refusal pursuant to clause 9.4 of the lease. The plaintiffs contended that Red Rooster had only had a period of 14 days and not 28 days in which to exercise its right of first refusal. They raised other issues as to the validity of the purported exercise of option by Red Rooster. The plaintiffs contended that they were entitled to purchase the property.

6 Red Rooster, through its solicitor, contended that it had validly exercised its right under clause 9.4 of the lease and was entitled to purchase the property. The vendor's position, as advised by its solicitor to the plaintiffs' solicitor, was that it was the "pig in the middle". The defendant, through its solicitor, advised the plaintiffs' solicitor that it could not sell the land to the plaintiffs unless Red Rooster withdrew its notice and consented to the sale.

7 The plaintiff lodged a caveat claiming an interest as purchaser on 7 January 2010.

8 On 18 January 2010 the defendant's solicitor served a notice of proposed lapsing of caveat. These proceedings were commenced on 3 February 2010 by the plaintiffs. The plaintiffs filed a summons which joined only the defendant, that is, the vendor, as a party to the proceeding. Presumably the plaintiffs did not join Red Rooster on the basis that they were seeking specific performance of a contract with the vendor to which Red Rooster was not a party. They proceeded on the basis that only the vendor and no other person was a proper party to the proceeding for specific performance. This is known as the rule in Tasker v Small (1837) 3 My & Cr 63; 40 ER 848. The so-called rule has been powerfully criticised in R P Meagher, J D Heydon & M J Leeming, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies, 4^th ed (2002) LexisNexis Butterworths at [20-245] and was doubted by the Full Court of the Supreme Court of Queensland in ANZ Executors & Trustee Company Limited v Qintex Australia Limited (receivers and managers appointed) [1991] 2 Qd R 360 at 364, but there is a number of decisions of quite recent date affirming the continued relevance of the so-called rule to suits for specific performance in this State (Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council (No 2) [2005] NSWSC 1048 at [35]; Tribond Pty Ltd v Atinon Pty Ltd [2007] NSWSC 1079 at [9]).

9 On 3 February 2010 the plaintiffs' solicitor wrote to the defendant's solicitor enclosing by way of service the summons. The plaintiffs' solicitor stated that:

“ Counsel has advised that there is no need for you to join the tenant to the proceedings arising from the Contract of Sale of 7 December 2009 and in relation to the caveat as lodged by my clients.
Should you do so, then my client will be seeking indemnity costs in relation to any such joinder. "

10 I see no basis for the contention raised in that letter. The real fight was between Red Rooster on the one hand, and the plaintiffs on the other hand, as to whether Red Rooster had validly exercised its right to purchase the property. Those questions could not have been decided without Red Rooster having the right to be heard. Fortunately the defendant's legal advisors did not accept the assertion in the plaintiffs' solicitor’s letter of 3 February 2010.

11 On 4 February 2010 the defendant filed an ordinary appearance and a cross-summons. The defendant named the plaintiffs and Red Rooster as cross-defendants. It sought declarations in the alternative that Red Rooster either had or had not validly exercised the option conferred by clause 9.4 of the lease and that the condition precedent in special condition 64 of the contract between the defendant and the plaintiffs either was not or was satisfied. The defendant also moved for expedition.

12 On 4 March and 22 March 2010 the plaintiffs made offers to the defendant to compromise the proceeding between the plaintiffs and the defendant on the basis that the plaintiffs pay the defendant $5,000 exclusive of costs and that the defendant consent to order 3 in the defendant's cross-claim that it be declared that Red Rooster had not validly exercised its option. The plaintiffs rely on this correspondence in claiming indemnity costs from the defendant. That offer, if accepted, would not have resolved the proceedings without Red Rooster's agreement.

13 On 31 March 2010 the defendant's solicitor advised Red Rooster's solicitor that it would not be taking an active part in the proceedings and would submit to the orders of the Court, save as to costs. On 12 April the defendant served submissions stating that it would submit to the orders of the Court, including consequential orders as to whether or not the option conferred by clause 9.4 of the lease was validly exercised by Red Rooster. It stated in its submissions that this was the effect of the alternative declarations sought in the cross-summons. It said that it did not intend to take an active part in the proceedings, but would seek orders for costs in its favour and would resist any orders for costs against it.

14 The plaintiffs and Red Rooster have agreed upon the making of declarations and orders. The Court was asked to note that the plaintiffs and Red Rooster "have agreed to settle the proceedings on the terms set out in a Confidential Deed of Release and Settlement, and have consented to the orders set out below on a without admissions basis". The Deed of Release and Settlement was not tendered.

15 The orders which the Court was asked to make by consent of the plaintiffs and Red Rooster included a declaration that Red Rooster had not validly exercised its option under clause 9.4 of the lease and an order that the plaintiffs' contract with the defendant be specifically performed. Although the defendant was not a party to the settlement between the plaintiffs and Red Rooster, it did not oppose the orders or declarations sought.

16 This morning I made the declarations and orders in accordance with the agreement reached between the plaintiffs and Red Rooster, without opposition of the defendant. It was agreed between the plaintiffs and Red Rooster that there be no order as to costs between them, and I so ordered.

17 The plaintiffs seek an order that the defendant pay their costs on the indemnity basis. The plaintiffs point out that they have succeeded in obtaining the relief they had claimed from the defendant in the summons. They say they have bettered the offers of 4 March and 22 March 2010. In support of their application that the defendant pay their costs, the plaintiffs say that the defendant did not truly act as a party interpleading would be expected to act. They say that the defendant could have interpleaded pursuant to r 43.2 of the Uniform Civil Procedure Rules, but did not do so. The plaintiffs also argue that had the matter not been settled, they would clearly have been successful.

18 The defendant resists any costs orders being made against it. It says that the plaintiffs ought to have joined Red Rooster as an additional defendant so that the real fight could be joined on the plaintiffs’ summons between the plaintiffs and Red Rooster. The defendant points out that it could not file a submitting appearance on the plaintiffs' summons as otherwise, except with leave, it could not have filed a cross-summons (see r 6.11(2) of the Uniform Civil Procedure Rules). It was because the defendant filed its cross-summons that the true issues in the proceedings could be litigated. The defendant says it took no active part in the proceedings and that if anyone were to pay the plaintiffs' costs, it should be Red Rooster and not it, although it notes that the plaintiffs and Red Rooster have compromised their position so far as concerns costs between them. I do not understand the defendant to concede that if the matter had not settled it clearly appears that the plaintiffs would have been successful.

19 The defendant argued that Red Rooster should pay its costs of the proceedings. The orders made this morning mean that Red Rooster failed in the litigation so far as can be determined. It has consented to the relief the defendant claimed against it in the cross-summons. Hence it is said costs should follow the event. Counsel submitted that so far as the defendant is concerned it does not matter that the orders made were part of a settlement, because the defendant was not a party to the settlement. The defendant submitted that if it were ordered to pay the plaintiffs' costs, it should be indemnified against that liability by Red Rooster.

20 Red Rooster argued that because the orders were made as part of a compromise and included other terms in the confidential deed between it and the plaintiffs, there should be no order as to costs as between it and the defendant. It relied upon the principles in Re The Minister for Immigration and Ethnic Affairs; Ex-Parte Lai Qin (1997) 186 CLR 622 and Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201, that where there has been no hearing on the merits, it is a rare case that a court will undertake a hypothetical trial to determine how costs of the proceedings should be borne, and that unless it appears that either party has acted unreasonably, or a judge is able to feel confident that one party would almost certainly have succeeded if the matter had been fully tried, then the proper exercise of the discretion as to costs will usually mean that there be no order as to the costs of the proceedings. Red Rooster resisted any order that it indemnify the defendant for any liability the defendant might incur to the plaintiffs. Red Rooster also argued that had the matter not been settled and had the plaintiffs succeeded, the appropriate order would be that it pay the plaintiffs' costs, but any such liability has been compromised by the terms of settlement.

21 Section 98 of the Civil Procedure Act 2005 (NSW) provides:

“ 98 Courts powers as to costs

(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
(2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. ”

22 Rules 42.1, 42.2 and 42.3 of the Uniform Civil Procedure Rules relevantly provide:

“ 42.1 General rule that costs follow the event

(cf SCR Part 52A, rule 11)

Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

42.2 General rule as to assessment of costs

(cf SCR Part 52A, rule 32; DCR Part 39A, rule 10; LCR Part 31A, rule 6)

Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis.

42.3 Powers of the court generally

(cf SCR Part 52A, rule 4 (2) and (5))

(1) Subject to rule 42.27, the court may not, in the exercise of its powers and discretions under section 98 of the Civil Procedure Act 2005, make any order for costs against a person who is not a party.
...”

23 Section 98 of the Civil Procedure Act authorises the making of orders that a plaintiff pay the costs of a cross-defendant or that a cross-defendant pay the costs of the plaintiff (Edginton v Clark [1964] 1 QB 367; Thomas v Times Book Company Limited [1966] 1 WLR 911; 2 All ER 241).

24 I deal first with the plaintiffs' claim for indemnity costs. As I indicated earlier in these reasons, had the defendant accepted the offers of the plaintiffs of 4 and 22 March 2010, the acceptance would not have resolved the issues in the proceedings. The defendant's solicitor enquired as to whether the plaintiffs' offer was made on the basis that Red Rooster would be a party to the settlement. The defendant's solicitor stated that whilst the defendant was agreeable to enter into a tripartite settlement between the plaintiffs and Red Rooster, as a matter of practicality the plaintiffs' offer could not be seriously contemplated unless either the plaintiffs reached an agreement with Red Rooster, or some indemnity was offered to the defendant in respect of the claims made by Red Rooster. That was clearly a reasonable response. The plaintiffs did not proffer any such indemnity. In the absence of Red Rooster's agreement, the plaintiffs' offer could not resolve the issues in the proceedings. That reflects the fact that the real fight was between the plaintiffs and Red Rooster even though Red Rooster had not been joined as a defendant to the plaintiffs' summons.

25 Accordingly, the defendant did not act unreasonably in not accepting the plaintiffs' offer and there is no question of indemnity costs being ordered against it.

26 The question then is whether the defendant should be ordered to pay the plaintiffs' costs on the ordinary basis on the ground that the plaintiffs have substantially succeeded against the defendant. I do not accept the plaintiffs' submission that I should determine that they would have been successful if the matter had been adjudicated. It would not be possible to make that determination without embarking on a full hearing. This the Court will not do. Given the disconformity between clause 9.4(b) and 9.4(c) of the lease and given the range of arguments as to the time at which notice of sale was given by the defendant pursuant to clause 9.4(d) and the validity of the purported exercise of option by Red Rooster, this is not a case in which I could feel confident that the plaintiffs would almost certainly have succeeded if the matter had been fully tried.

27 The defendant argued that the plaintiffs ought to have joined Red Rooster at the commencement of proceedings by joining Red Rooster as a defendant. The defendant's solicitor invited the plaintiffs' solicitor to join Red Rooster. In my view, and notwithstanding the so-called rule in Tasker v Small, Red Rooster could properly have been joined as a defendant at the suit of the plaintiffs. Its joinder was necessary for all matters in dispute to be determined. Its legal rights would be directly affected by the orders sought by the plaintiffs. As is said in the commentary at [6.24.20] to P Taylor (ed), Ritchie's Uniform Civil Procedure NSW (LexisNexis Australia, online service):

“ Consistent with the overriding purpose set out in [the Civil Procedure Act] s 56, the criterion of necessary joinder requires consideration of the proper determination of all the matters in dispute in the proceedings. ”

28 Section 56 of the Civil Procedure Act, s 63 of the Supreme Court Act 1970 (NSW), s 90 of the Civil Procedure Act and r 36.1 of the Uniform Civil Procedure Rules are all directed to endeavouring to ensure that all matters in dispute are resolved whilst avoiding a multiplicity of proceedings. In the face of the current legislative provisions I respectfully doubt that the so-called rule in Tasker v Small has continued application, although I acknowledge that there are conflicting views about this.

29 Ultimately it is not necessary to make any final judgment as to the continued application of the so-called rule in Tasker v Small. That is because Red Rooster was joined on the defendant's cross-summons. The fact that it was joined on a cross-summons does not disguise the fact that the real fight was between the plaintiffs and Red Rooster. That being so, had the plaintiffs obtained the orders made by consent after a contested hearing, the appropriate costs order under s 98 of the Civil Procedure Act would have been that Red Rooster pay the plaintiffs' costs. Any such liability has been compromised.

30 I do not consider that the fact that the defendant did not interplead is relevant to the present issues. It was not open to the defendant to make an interpleader application pursuant to r 43.2 of the Uniform Civil Procedure Rules as the property in respect of which the plaintiffs and Red Rooster made claim was not a debt or other personal property (see the definition of "disputed property" in r 43.1). That is not to say that the defendant could not have filed its own summons claiming the alternative relief which it claimed in its cross-summons. But I do not think that this affects its liability to costs.

31 In short, without a hearing on the merits, I could not be satisfied that the plaintiffs would have succeeded against the defendant. But had it done so, and given that the defendant is not taking an active part in the proceeding and the plaintiffs' claim was being contested by Red Rooster, the appropriate costs order would be that Red Rooster, rather than the defendant, pay the plaintiffs' costs. As the plaintiffs and Red Rooster have agreed that there be no order as to costs as between them, the appropriate order is that there be no order as to the plaintiffs' costs of the proceedings and no order as to the costs as between the defendant/cross-claimant and the plaintiffs/cross-defendants on the cross-summons.

32 I turn then to the defendant's claim for costs against Red Rooster. The defendant was not a party to the settlement. I do not think that the principles in Re The Minister for Immigration and Ethnic Affairs; Ex-Parte Lai Qin and Australian Securities Commission v Aust-Home Investments Limited preclude the defendant from claiming costs against Red Rooster. In its cross-summons the defendant sought costs against the plaintiffs as first and second cross-defendants or against Red Rooster s the third cross-defendant in the alternative. Given that the Court has made declarations and orders substantially in accordance with the relief claimed by the defendant against Red Rooster in its cross-summons, prima facie the defendant is entitled to its costs against Red Rooster. I see no discretionary reason not to make such an order under s 98 of the Civil Procedure Act. The defendant acted reasonably in filing the cross-summons. It was a necessary step for it to take to ensure that the real issues in the proceedings were able to be decided. It, thereafter, adopted a non-active role and submitted to the orders the Court might make. It applied for expedition as it has its own interest in a swift resolution of the issues, but in so doing it acted in the interests of all parties.

33 It was submitted for Red Rooster that if it were ordered to pay the defendant's costs, those costs should be limited to the costs of filing the cross-summons. I understood in the course of argument that it was ultimately not disputed that such costs would properly include the costs of the application for expedition. I do not think it necessary to make any particular qualification to the defendant's entitlement to costs against Red Rooster, save that the costs should be limited to the costs incurred as between the defendant on the one hand and Red Rooster on the other. I see no reason that Red Rooster should be ordered to pay the defendant's costs of the defendant's negotiations with the plaintiffs. Such costs would be dealt with by the order that there be no order as to costs as between the defendant and the plaintiffs. But so far as costs as between the defendant and Red Rooster are concerned, McLelland CJ in Eq said in Cook v ANZ Bank (Supreme Court of New South Wales, McLelland CJ in Eq, 16 June 1995, unreported):

“ There is no reason why, as a matter of practice, the costs of a submitting defendant payable by another party should be assessed on some special basis. Such costs would often be nominal in amount (cf the old practice of tendering two guineas perusal costs to a party to whose costs of appearing in Court objection was to be taken - see eg Sheil v Doneley (1901) 18 WN 160), and in any event should be adequately provided for by a conventional order for costs under the new costs regime in force as from 1 July 1994 pursuant to s208E to s208H of the Legal Profession Act 1987, which requires the assessor to assess a ‘fair and reasonable amount’ after considering ‘whether or not it was reasonable to carry out the work to which the costs relate’ and ‘what is a fair and reasonable amount of costs for the work concerned’ and permits the assessor to have regard to the matters specified in s208G. These provisions provide a sufficient degree of flexibility to accommodate a variety of different circumstances including those to be found in the present case. "

34 The same principles apply in relation to the assessment of costs under Pt 3.2 of the Legal Profession Act 2004 (NSW). It will be a matter for the costs assessor to determine what costs were fairly and reasonably incurred having regard to the position taken by the defendant in the litigation.

35 For these reasons I order that the third cross-defendant pay the defendant/cross-claimant's costs of the proceedings against it. The costs payable by the third cross-defendant to the defendant/cross-claimant would include the costs of today's applications. The order that there be no order as to costs as between the plaintiffs and the defendant will likewise cover the costs of today.

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