Robson v Daley

[2009] NSWSC 633

CITATION:	Robson v Daley [2009] NSWSC 633
HEARING DATE(S):	25 June 2009
JUDGMENT OF:	Hammerschlag J
EX TEMPORE JUDGMENT DATE:	25 June 2009
DECISION:	Each party to pay their own costs
CATCHWORDS:	PROCEDURE - Costs – costs where proceedings settled – approach to be taken – whether there should be an order other than that each party pay their own costs on the grounds that one or the other acted unreasonably in bringing or resisting the proceedings respectively - held neither party had acted so unreasonably that there should be an order other than that each pay their own costs
CASES CITED:	Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 Legal & General Life of Australia Limited v A Hudson Pty Limited (1985) 1 NSWLR 314 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
PARTIES:	Malcolm Robson - Plaintiff Kelly Daley - Defendant
FILE NUMBER(S):	SC 3985/2007
COUNSEL:	J.J. Hyde [Plaintiff] M.A.J. Daley [Defendant]
SOLICITORS:	Smallwoods [Plaintiff] TK Legal [Defendant]

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

HAMMERSCHLAG J

25 JUNE 2009

3985/2007 MALCOLM ROBSON -V- KELLY DALEY

EX TEMPORE JUDGMENT

1 HIS HONOUR: These proceedings have an unfortunate history and origin. They are between the plaintiff and his daughter. They commenced by the plaintiff seeking a declaration that 548 Freemans Drive, Cooranbong, New South Wales (“the property”) (which he had transferred to the defendant) was beneficially held by her for him and on his behalf.

2 The proceedings were settled by Consent Orders made on 7 August 2008 by McDougall J, declaring that the property was held by the defendant on trust for the plaintiff beneficially and ordering her to execute documents to retransfer it to him. No order as to costs was made to the intent that each party was to pay their own.

3 At the time the proceedings were settled, the parties entered into an agreement in the following terms:

“5. That the interest of the defendant created by this agreement, over the property referred to in Declaration 1, be secured by a charge over the property, and the defendant be entitled to lodge a Caveat to evidence such charge provided that such Caveat permits registration of a mortgage by the plaintiff securing a loan over the property for an amount no greater than fifty percent of the value of the property to be agreed or determined by an independent valuer.
6. (i) The plaintiff will pay the defendant an amount representing 22.5 percent of the market value of the property at any time prior to the expiration of three years from the date of these Orders. The value will be determined by agreement between the parties, but if no agreement is reached, then it will be determined by a registered valuer, experienced in valuing properties within the locality, and who is appointed by agreement between the parties. If no agreement is reached as to the valuer, then by a valuer nominated by the President of the Australian Property Institute Inc. upon the request of either party. Such payment will be made by the Plaintiff within two months of such valuation being determined.
(ii) In the alternative, if the plaintiff does not pay the defendant in accordance with (i) above, then the property be sold within three years at a time of the plaintiff’s choice upon such terms and conditions as determined by the plaintiff, and such sale to be on an arm’s length and commercial basis. That the plaintiff will cause the defendant to be kept informed by the agent appointed by the plaintiff of the progress of such sale.
7.1 That the defendant is paid from the proceeds of sale, such proceeds will be paid and divided as follows:-
(i) Up t o the sum of $20,000.00 (*indexed to CPI if costs incurred after one year) be reimbursed to the plaintiff for any costs incurred by him to carry out work to the property prior to sale, including refurbishing the kitchen, and laying new carpets, and other work nominated by the plaintiff.
(ii) The payment of agent’s commission and legal fees.
(iii) The remaining proceeds will be divided as to 77.5 percent to the plaintiff, and 22.5 percent to the defendant.
7.2 That any borrowings secured by the plaintiff over the property will be paid from his share of the proceeds of sale.
8.1 That the plaintiff will pay any Land Tax assessed against the property.”

4 On about 13 August 2008 the defendant lodged a caveat over the property in the following terms:

“Equitable interest pursuant to orders made by the Supreme Court of NSW in matter number 3985/07 on 7 August 2008.”

5 A valuer, Mr Hadley, who (after some dispute) was accepted by both parties, valued the property, on 10 December 2008 at $400,000 GST exclusive. This amount was substantially below the amount the defendant thought the property was worth and the 22.5% of it which she was to receive under the settlement agreement fell far short of her expectations.

6 The material before me showed that she was incensed by the valuation. Her husband described it as "bullshit".

7 On 22 December 2008 the plaintiff's solicitors wrote to the defendant seeking immediate settlement and withdrawal of the caveat which, as it transpired, became an inhibition on the plaintiff making payment under the settlement agreement because he did not have funds to do so without borrowing on the security of the property, and his mortgage financier was not prepared to advance money if the caveat was on the title.

8 In the meantime the defendant went on holiday. The plaintiff took the view that he was entitled to have the settlement agreement performed, in particular wishing to pay the amount contemplated in clause 6(i) before the expiry of the two-month period therein referred to.

9 On 6 January 2009 the defendant had sent an e-mail to the valuer, Mr Hadley, setting out a series of objections to the efficacy of his valuation.

10 By motion dated 29 January 2009 the plaintiff moved to urgently enforce the settlement agreement seeking an order for specific performance of the settlement agreement, summary judgment and withdrawal of the caveat (“the enforcement action”). He also filed a statement of claim. The matter came before the Duty Judge, Grove J, on 30 January 2009.

11 The Duty Judge did not deal with the matter on 30 January 2009 and the matter was stood over to 3 February 2009.

12 The defendant filed a defence to the enforcement action. She pleaded that the valuation was not a valuation in accordance with the terms (express and implied) of the contract (that is the settlement agreement). Paragraph 13 of the defence was in the following terms:

“In breach of the said implied terms:
a) the valuation was not a proper and competent valuation
b) failed to take into account the correct zoning for the property, failed to take into account the prospect of the property being subdivided, failed to take into account the potential for development of the property as an aged care facility and failed to take into account the comparable sale of the neighbouring block of land, being number 546 Freemans Drive for the sum of $870,000 for land that was one third the size the subject land
c) failed to take into account the relevant planning laws including SEPP and clause 41 of the LEP
d) failed to take into account the special value of the property as being adjacent to aged care facilities and the probability of expansion of the same
e) failed to adequately explain why the valuation provided for the subject property was less than all the comparable sales relied upon.”

13 On 5 January 2009 the plaintiff's solicitor wrote to the defendant's solicitors in the following terms:

“I refer to my call today with your Toya Kha when I enquired whether you had received instructions from your client to settle the agreement. I confirm that you have not received instructions to provide a withdrawal of the Caveat and that you (sic) client has expressed an intention to challenge the valuation.
I confirm my client is ready willing and able to perform the agreement to pay your client 22.25% of the valuation by MJD Valuers dated the 17 December 2008.
I stress the following points:
Your client chose the valuer with whom our client agreed. Your client rejected our nominated valuer because she was not confident that our valuer would provide a reliable and detailed valuation.
My client has a loan approved to facilitate paying your client but there is a risk that the approval may be withdrawn if the funds are not utilised within a reasonable time.
The lender will not advance the funds whilst your clients (sic) Caveat remains on title. I note you provided a letter consenting the the (sic) proposed mortgage but the lender will not advance the funds unless the Caveat is withdrawn.
You clients (sic) failure to perform her obligations under the agreement noted by the Court will incur our client in (sic) unnecessary legal costs in seeking your clients (sic) performance of the agreement.
Unless you (sic) client performs her obligations within 7 days we have been instructed to seek whatever remedies that may be available including lodging a Notice of Lapsing of the Caveat.”

14 This e-mail brought a response in the form of a letter dated 13 January 2009 from the defendant's solicitors. Although the letter is lengthy, it is appropriate to set it out in full:

“We refer to previous correspondence in this matter.
We can well understand your client’s desire to settle this matter quickly before our client has had an opportunity to consider her position and obtain legal advice (the Bar essentially being on holiday until the end of January) in view of the outrageous valuation provided. Your client must be thinking he has won a lottery. At the recent mediation your client conservatively valued the property at $600,000 and we note obtained finance on the basis that the property was worth a minimum of $500,000. The valuation of $400,000 on its face is not only less than what your client conservatively considered the property to be worth but fails to mention comparable sales of which we are aware which are of considerably higher values. The subject land at less than even the lowest comparable sale referred to expressly in the report fails to take account of the fact that the neighbouring Seventh Day Adventist Nursing home may have an interest in expanding into the subject property thus giving it a further special value.
Our client thus has serious concerns about the worth of the valuation and, we are instructed, has had discussions with the valuer in relation to it. We are instructed that the valuer has conceded that the report may contain errors and that some issues have not been fully considered.
Our client wishes to consider what, if any, rights she may have in relation to it. This is not an indication that our client will not perform the agreement, she in fact remains ready, willing and able to perform it, the question is whether the Valuation provided on 17 December 2008, complies with the agreement, considering its erroneous nature, thus requiring our client to perform it on the basis of that valuation or whether the valuation is so defective as to not amount to a valuation under the Terms of settlement at all.
As we explained to you, our client was away from early December 2008 overseas, returning briefly at the end of December and is now on holidays away from Sydney until mid January. As noted the Bar is largely on holiday until the end of January and the barrister from whom our client wishes to obtain advice does not return to chambers until 27 January 2009.
The Terms of Settlement provide 2 months for your client to settle from the time of the valuation i.e. at any time up to 17 February 2009. There is thus no pressing need for your client to have any withdrawal of caveat, nor indeed for your client to have a withdrawal at any time before the matter settles, and as noted this can occur at any time up to 17 February without your client being in breach of the Terms of Settlement. Our client’s obligation to within a reasonable time provide a withdrawal of caveat needs to be determined in that regard and having regard to the fact that the valuation materilized shortly before the customary Christmas holiday period. A reasonable time would also involve allowing the parties to consider their respective legal positions in light of the valuation.
Your client’s position concerning his finance is a mater which is res inter alios acta as to our client and we would have thought he ought to have been advised not to place himself in such an invidious position, particularly as he would have had no basis for assuming when the valuer would have provided his report after being engaged, and the fact that a reasonable period for settlement would take into account the 2 month period provided for under the Terms of Settlement and the possibility that either party may wish to exercise such legal rights as they possess to challenge the valuation which could further lawfully delay any settlement.
Please be advised that should your client serve a Notice of Lapsing of the Caveat as threatened we will have no alternative but to seek to have the Caveat extended by urgent application to the Supreme Court and will seek costs and damages, which given your client is seeking this expedition to take advantage of a surprisingly fortuitous valuation and the time of the year we are instructed to seek punitive and exemplary damages.
To further allay your client’s concerns we have instructions not to enforce strictly the 2 months provided by the agreement and will provide a reasonable time for your client to settle after he has been provided with the Withdrawal of Caveat, to the extent that the delay in providing the Withdrawal of caveat is due to our client seeking advice as to the valuation.” (emphasis added)

15 The plaintiff's solicitors responded in a letter of the same date in which Mr Smallwood made some suggestions for the resolution of the impasse which had arisen.

16 He stated that he had been instructed to proceed with filing a Notice of Lapsing of Caveat, but suggested that if the defendant withdrew the caveat, the plaintiff would undertake not to draw down on the proposed mortgage an amount greater than 50% of the valuation (i.e. $200,000). He also said that the plaintiff did not ask the defendant to admit the valuation. There is no evidence to suggest any, or any positive response to that suggestion.

17 On 3 February 2009 the matter returned to Court.

18 Each party was represented by counsel. Short Minutes of Order were made by consent. They provided for the removal of the caveat to allow the plaintiff to raise the money to pay the $90,000 under the settlement agreement, and also made provision for the defendant to obtain a further or amended valuation from Mr Hadley on the basis that if the new valuation was no more than $500,000, or Mr Hadley confirmed the existing one, then the proceedings were settled on the basis that the defendant would accept $90,000 in satisfaction, and if the valuation exceeded $500,000, then the defendant was at liberty to invoke clause 6(ii) of the settlement agreement.

19 The parties are now in dispute as to the costs of the enforcement action which commenced on 30 January 2009 and concluded on 3 February 2009 with their second settlement.

20 In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 McHugh J dealt with the approach to be taken by a Court with respect to costs of proceedings which are compromised and not prosecuted to conclusion. His Honour said:

“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 a litigation.”

21 The plaintiff put that he should have an order for the costs of the enforcement action on the basis that he acted reasonably in bringing it, and the defendant acted so unreasonably in defending it that she should pay his costs even though it was settled.

22 The defendant put that in bringing the enforcement action the plaintiff acted so unreasonably that he should pay her costs. As a fall back position she put that each party should pay their own costs.

23 In my view the plaintiff acted reasonably in bringing the enforcement action.

24 A proper letter of demand was sent on 5 January 2009 which evoked a response in intemperate and inappropriate terms and which indicated, in my view, that the plaintiff would need to have recourse to law to achieve implementation of the settlement agreement on the basis of the valuation that was then in existence.

25 It follows from what I have said that the plaintiff should not have to pay the defendant's costs.

26 I should, however, not let the occasion pass without emphasising that it does not serve the interests of a party to litigation when its legal advisors engage in correspondence in exaggerated and intemperate terms, even if the position which they take on the substance of the matter might be reasonable or correct.

27 Turning then to whether the defendant should pay the plaintiff's costs, the defendant in substance had two grounds for resisting the plaintiff’s claim for immediate performance of the settlement agreement.

28 The first was that the valuation was not a valuation in accordance with the terms of the agreement. This is what was pleaded in the defence. The pleader no doubt had in mind principles of the type discussed by McHugh JA (as he then was) in Legal & General Life of Australia Limited v A Hudson Pty Limited (1985) 1 NSWLR 314. At 335 His Honour said:

“While a mistake or error on the part of a valuer is not of itself to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties.”

29 The Court was not asked to, and neither could it, now determine whether the defendant's defence would have been made out or not. On a final hearing the plaintiff may well have established that even though the valuation was affected by errors in methodology or other errors, it was nevertheless a valuation within the terms of the contract. However in my view, having regard to the fact that it was asserted that the valuer had failed to take into account the correct zoning of the property, the defence that his valuation was not in accordance with the contract was not so unreasonable to warrant visiting upon her an order that she should pay the plaintiff’s costs, even though the enforcement action was settled.

30 The second ground of defence was with respect to the plaintiff's claim for removal of the caveat.

31 In the letter of 13 January 2009 from the defendant's solicitors, it was asserted that the plaintiff’s position concerning his finance was a matter which was “res inter alios acta”. In substance this was an assertion that there was no term in the settlement agreement requiring the defendant to remove the caveat to allow the plaintiff to mortgage the property to pay the amount due under the settlement agreement.

32 Before me the defendant put that there was no term in the settlement agreement requiring her to remove the caveat.

33 Counsel for the plaintiff accepted that there was no express term but put that one was to be implied.

34 One of the requirements for the implication of a term, is that it must be necessary to give the agreement business efficacy: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347.

35 While again it is neither necessary nor appropriate for me to decide the question now, it seems at least eminently arguable that no such term was to be implied because it was not necessary to give the settlement agreement business efficacy.

36 The position in which the plaintiff found himself was that he could not pay the 22.25% of the valuation to the defendant because he did not have the money without mortgaging the property. At least arguably that does not mean that the agreement could not operate without him mortgaging the land. His inability arose as a consequence of his own impecuniosity. Also, cl 6(i) might not have operated, but cl 6(ii) would have.

37 It does not seem to me that the defendant's behaviour in resisting the enforcement action can be described as, or even approaches being, so unreasonable that the defendant should pay the plaintiff’s costs of the settled enforcement action.

38 In these circumstances it seems to me that the appropriate order is that each party should pay their own costs.

39 I have heard further argument on whether, in the light of offers that were made by the defendant to settle the costs question, the order that I have made should be varied. I do not consider that it should.

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