Silver Star Fashions Pty Ltd v Dal Broi (No 2)

[2018] NSWSC 1697

Supreme Court

New South Wales

Medium Neutral Citation:	Silver Star Fashions Pty Ltd v Dal Broi (No 2) [2018] NSWSC 1697
Hearing dates:	On the papers
Date of orders:	08 November 2018
Decision date:	08 November 2018
Jurisdiction:	Equity
Before:	Darke J
Decision:	Costs order varied to provide that plaintiff pay some of first to tenth defendants’ costs on an indemnity basis.
Catchwords:	COSTS – departing from general rule – first to tenth defendants’ application for indemnity costs based on Calderbank offer – offer not accepted by plaintiff – proceedings brought in name of plaintiff and conducted by third party – third party is effectively the plaintiff – offer provided for payments to be made to third party – plaintiff unsuccessful – plaintiff in position to make reasonable assessment of its prospects at time offer was made – plaintiff unreasonably rejected Calderbank offer COSTS – departing from general rule – plaintiff’s application to limit the costs of eleventh and twelfth defendants to the proportion of costs incurred by each of the first to tenth defendants – the eleventh and twelfth defendants represented by solicitors and counsel separate from those representing the first to tenth defendants – plaintiff submitted that retaining separate legal representation was unreasonable where all defendants had same interests and s 66ZL(8) of the Conveyancing Act 1919 (NSW) made the plaintiff prima facie liable for the defendants’ costs – eleventh and twelfth defendants did not act unreasonably in retaining separate legal representation in the absence of any objection raised by the plaintiff
Legislation Cited:	Conveyancing Act 1919 (NSW), s 66ZL Uniform Civil Procedure Rules 2005 (NSW), rr 36.15, 36.16
Cases Cited:	Deputy Cmr of Taxation v Meredith (No 2) [2008] NSWCA 133 DGF Property Holdings Pty Ltd v Di Federico; DGF Property Holdings Pty Ltd v Butros (No 2) [2018] NSWSC 1137 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Silver Star Fashions v Dal Broi [2018] NSWSC 1445
Category:	Costs
Parties:	Silver Star Fashions Pty Ltd (Plaintiff) Aaron Luke Dal Broi (First Defendant) Amanda Ye May Chin (Second Defendant) Matthew Robert Carnachan (Third Defendant) Ashely Cliff Wong (Fourth Defendant) Jordan Curtis Zubani (Fifth Defendant) Courtney Zubani (Sixth Defendant) Junmei Gu (Seventh Defendant) Mitchell James Jordan (Eighth Defendant) Sonja Bijou Keith (Ninth Defendant) David Robert Grayhurst (Tenth Defendant) Hugh Linton Selleck (Eleventh Defendant) Thomas Edward Christensen (Twelfth Defendant)
Representation:	Counsel: Mr G A Sirtes SC with Ms A Avery-Williams (Plaintiff) Mr P S Braham SC with Mr D Neggo (First to Tenth Defendants) Mr J P Redmond (Eleventh and Twelfth Defendants)   Solicitors: Boskovitz & Associates (Plaintiff) Deutsch Miller (First to Tenth Defendants) CW Legal (Eleventh and Twelfth Defendants)
File Number(s):	2017/141862
Publication restriction:	None

Judgment

1. These proceedings concerned an application by the plaintiff under s 66ZL(6) of the Conveyancing Act 1919 (NSW) for permission to rescind under a “sunset clause” nine off the plan contracts it entered into as vendor in 2014. On 26 September 2018 the Court dismissed the Statement of Claim and ordered the plaintiff to pay the defendants’ costs of the proceedings (see Silver Star Fashions v Dal Broi [2018] NSWSC 1445 (“the Principal Judgment”) at [196]).

2. On 10 October 2018 the first to tenth defendants filed a Notice of Motion seeking to vary the costs order. The first to tenth defendants seek an order that the plaintiff pay the first to tenth defendants’ costs of the proceedings on the ordinary basis up to and including 22 March 2018, on which day a Calderbank offer was made, and on an indemnity basis from 23 March 2018 onwards.

3. On 11 October 2018 the plaintiff filed a Notice of Motion seeking to vary the costs order. The plaintiff seeks an order that the costs it is ordered to pay the eleventh and twelfth defendants be limited to “the proportion of costs of each of the first to tenth defendants”.

4. The Court made directions for written submissions, with a view to the question of costs being determined on the papers. As no party has indicated that a further oral hearing is necessary, the Court will proceed to deal with costs on the papers.

First to Tenth Defendants’ Application

5. Pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 36.16(3A), if an application is made to vary a judgment or order within 14 days after it is entered, the Court may determine the matter, and if appropriate may set aside or vary the judgment or order as if it had not been entered. The present application was filed within 14 days of the entry of the orders on 26 September 2018, so the Court’s power is enlivened.

6. The prima facie position on costs in relation to applications made under s 66ZL(6) is contained in s 66ZL(8), which is in the following terms:

The vendor is liable to pay the costs of a purchaser in relation to the proceedings for an order under this section unless the vendor satisfies the Court that the purchaser unreasonably withheld consent to the rescission of the off the plan contract under the sunset clause.

7. The first to tenth defendants submitted that indemnity costs should be awarded in their favour from 23 March 2018 because the plaintiff unreasonably failed to accept a Calderbank offer which contained a genuine offer of compromise (see Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8]).

8. The Calderbank offer made on 22 March 2018 was relevantly in the following terms:

SSF [the plaintiff] and OZD agree to pay the First to Tenth Defendants’ costs of the Proceedings as agreed or assessed on the ordinary basis. The Proceedings as against the First to Tenth Defendants are dismissed by consent with an order that the Plaintiff pay the First to Tenth Defendants’ costs;

The parties agree to proceed with completion of the Contracts within 14 days of exchange of the Deed of Settlement or the issuing of occupation certificates (whichever is the later) (Completion Date);

SSF [the plaintiff] and OZD each agree to no longer pursue a rescission of the First to Tenth Defendants contracts;

In consideration for OZD agreeing to no longer pursue a rescission of the First to Tenth Defendants’ Contracts via SSF [the plaintiff] (in effect, to waive its rights under the PDA [Project Delivery Agreement]), our clients will (separate to and independently of the Contracts and the purchase prices payable to SSF [the plaintiff] thereunder) agree to pay settlement sums to OZD that that [sic] are in monetary terms calculated to the equivalent to 15% of the uplift in the value of their respective units based on a comparison between the purchase price of each unit and the units’ value as at the Sunset Date (as determined by your clients’ expert). That is:

Aaron Dal Broi will pay OZD a settlement sum of $26,250 (ie [$900,000 - $725,000 = $175,000] x 0.15);

Amanda Chin will pay OZD a settlement sum of $22,500 (ie [$925,000 - $775,000 = $150,000] x 0.15);

Matthew Carnachan will pay OZD a settlement sum of $27,900 (ie [$1,085,000 - $899,000 = $186,000] x 0.15);

Ashley Wong will pay OZD a settlement sum of $30,000 (ie [$1,010,000 - $810,000 = $200,000] x 0.15);

Jordan Zubani and Courtney Zubani will jointly pay OZD a settlement sum of $24,750 (ie [$850,000 - $685,000 = $165,000] x 0.15);

Junmei Gu will pay OZD a settlement sum of $26,250 (ie [$1,100,000 - $925,000 = $175,000] x 0.15);

Mitchell Jordan and Sonia Keith will jointly pay OZD a settlement sum of $41,400 (ie [$1,135,000 - $859,000 = $276,000] x 0.15);

David Grayhurst will pay OZD a settlement sum of $26,250 (ie [$950,000 - $775,000 = $175,000] x 0.15).

(collectively, the Settlement Sums).

The Settlement Sums will be payable at the same time that your clients discharge in full their liability to pay the First to Tenth Defendants’ costs under this settlement.

Our clients will agree to the terms of settlement being confidential.

9. “OZD” is a reference to OZD Pty Ltd, which completed the development the subject of the proceedings pursuant to a Project Delivery Agreement with the plaintiff (see the Principal Judgment at [11]).

10. The first to tenth defendants submit that the plaintiff’s rejection of the Calderbank offer was unreasonable because at the time the offer was made the proceedings had been on foot for almost a year, with evidence filed and served by December 2017, meaning that the plaintiff was in a position to reasonably assess its position; the offer was clearly expressed and capable of acceptance; the plaintiff was given 14 days to consider the offer; the monetary sum offered was substantial; and the plaintiff had poor prospects of success at the time the offer was made.

11. The plaintiff submits that it did not unreasonably reject the Calderbank offer because it did not represent a more favourable outcome for the plaintiff than it achieved at trial, as the monetary payment offered was to OZD only; the offer was rolled up and was not capable of being accepted in relation to some purchasers but not others; and even if the plaintiff accepted the offer, it would still be left fighting the same case against the eleventh and twelfth defendants.

12. The plaintiff submitted further that, at the time the offer was made, s 66ZL had not been the subject of any comprehensive judgment, with the result that the plaintiff was not in a position to accurately assess its prospects of success. Finally, the plaintiff submitted that, as a matter of statutory construction, s 66ZL(8) only allows a defendant to recover costs on the ordinary basis. If s 66ZL(8) is not read in this way, the plaintiff submitted, the fairness of the Calderbank process would be subverted because it would allow a defendant to take advantage of the process but not a plaintiff, which would likely have to pay the defendants’ costs in any event.

13. The plaintiff did not contend that the Calderbank offer was not a genuine offer of compromise.

14. In my opinion, it was unreasonable of the plaintiff to reject the Calderbank offer made on 22 March 2018.

15. First, at the time the offer was made the plaintiff was in a position to assess its prospects of success with a reasonable degree of accuracy. The parties’ pleadings and evidence had been filed by December 2017, well before the plaintiff’s Calderbank offer was made. I do not think the uncertainty of the principles to be applied in s 66ZL disputes means that the plaintiff was deprived of the opportunity to make a realistic assessment of its own case. At the least, it was in a position to know that it had caused substantial delay to the construction of the development, and was also aware of the substantial increases in value that had occurred in relation to the units the subject of the contracts. It ought to have been appreciated from the terms of the statute that these factors were likely to weigh strongly against the plaintiff’s case.

16. Secondly, the fact that the offer of payment was made to OZD rather than to the plaintiff is of little moment in the circumstances of this case. While the distinction between the interests of the plaintiff and OZD played an important role in the Principal Judgment (see at [192]-[193]), it is less important on the question of costs. The principles applicable to costs disputes such as this one are largely concerned with the reasonableness of the conduct of litigants. In effect, the litigant bringing the proceedings was OZD. It was accepted that the proceedings were conducted by OZD in the plaintiff’s name (see Principal Judgment at [11]). OZD was making all the relevant decisions for the plaintiff in the litigation. OZD would have been the entity to benefit if the plaintiff had succeeded. OZD failed to accept an offer that was more favourable to it, as the effective plaintiff, than the outcome achieved at trial.

17. Thirdly, while the offer was rolled up in the sense that it was not able to be accepted in relation to individual defendants, the defendants were in very similar positions by virtue of the fact they had purchased units in the same development and had contracts on foot with the plaintiff in substantially the same terms. It should have been apparent to the plaintiff that success or failure for one purchaser would likely have meant success or failure for all of them.

18. Fourthly, I do not think the plaintiff’s failure to accept the compromise is rendered reasonable by the fact that other defendants would have remained in the proceedings following such a compromise. It may well have been that a compromise with the eleventh and twelfth defendants would have been achieved in that situation. In any case, it would not be fair to deprive the first to tenth defendants of some of their costs simply because the plaintiff had not reached a compromise with the eleventh and twelfth defendants.

19. Finally, I am unable to accept the construction of s 66ZL(8) advanced by the plaintiff. There is nothing in the language of the section to indicate that the legislature intended a departure from the ordinary principles relating to costs beyond the stated position as to the identity of the party generally liable for costs. That is to say, the provision does not affect the principles concerning the basis of assessment of costs awarded. It seems to me that the plaintiff is attempting to read into the section a limitation which is not apparent from its language. Further, I do not agree that the fairness of the Calderbank process is “subverted” by my reading of s 66ZL(8). It is open to a plaintiff to make a Calderbank offer in a s 66ZL dispute, and such an offer could ground an application for indemnity costs in the event that the defendant was found to be liable for the plaintiff’s costs by reason of an unreasonable refusal to consent to rescission.

20. For these reasons, the Court will vary the costs order made on 26 September 2018, and order that the plaintiff pay the first to tenth defendants’ costs on an ordinary basis until 22 March 2018 and on an indemnity basis from 23 March 2018 onwards.

The Plaintiff’s Application

21. The plaintiff’s application arises from what it says was the unreasonable conduct of the eleventh and twelfth defendants in retaining legal representation separate to that of the first to tenth defendants.

22. The plaintiff accepts that it cannot rely on UCPR r 36.16(3A) because its application was filed more than 14 days after the entry of the orders (see UCPR r 36.16(3C)). The plaintiff seeks instead to rely on UCPR r 36.15(1), which gives the Court power to set aside a judgment or order if it was given or entered irregularly, illegally or against good faith, or on UCPR r 36.16(2)(b), which gives the Court power to set aside or vary a judgment or order already entered if it has been given or made in the absence of a party.

23. The plaintiff submits that, although its solicitor was present when judgment was given in the proceedings, the question of costs had not been the subject of argument, and so the order as to costs given on 26 September 2018 was made in the absence of the parties. This is said to enliven the Court’s power in UCPR r 36.16(2)(b), and to constitute an irregularity for the purposes of UCPR r 36.15.

24. In relation to the substance of the application, the plaintiff submits that there was no justifiable reason for the eleventh and twelfth defendants to be separately represented in circumstances where the first to tenth defendants were represented by the same solicitors and counsel and were in substantially the same position as the eleventh and twelfth defendants. The unreasonableness of such an arrangement was said to be clear from the minimal role played by counsel for the eleventh and twelfth defendants at the trial, who largely adopted the submissions of counsel for the first to tenth defendants.

25. The plaintiff relies on the decision of Emmett AJA in DGF Property Holdings Pty Ltd v Di Federico; DGF Property Holdings Pty Ltd v Butros (No 2) [2018] NSWSC 1137, in which his Honour ordered that a separately represented defendant to an application brought under s 66ZL(6) was to have her costs limited to the proportion of costs payable by each of the other defendants, from the date on which the issue of separate representation was raised at a directions hearing. At [18] of that decision, his Honour said:

True it is that each of the Purchasers would, in ordinary circumstances, be entitled to have his or her own legal representation. However, the restrictions of the exercise of contractual rights imposed by s 66ZL require that a different approach be taken. The legislation would apply in circumstances where multiple claims have to be considered, as in the present case. Where there are multiple purchasers in similar or identical interests, it may well be unreasonable for there to be separate representation in relation to each claim for permission to rescind made by one vendor in relation to the same subdivision or strata plan. To the extent that there was a conflict, clearly separate representation could be required. However, as I have said, that proposition has not been advanced in the present case.

26. The eleventh and twelfth defendants submitted that there is nothing in s 66ZL(8) which requires a defendant to join in the same legal representation as other defendants. They submitted that they were entitled to retain the lawyers of their choosing, with fee arrangements they found suitable, and that the plaintiff should have raised the point as early as possible in the proceedings if it thought that the eleventh and twelfth defendants’ legal representation was unreasonable.

27. In the absence of any statutory authority, it is not open to the Court to vary orders that have been made and entered (Deputy Cmr of Taxation v Meredith (No 2) [2008] NSWCA 133 at [15]-[16]). I do not think that UCPR r 36.16(2)(b) is satisfied. It is clear that the order for costs was made when all parties were present on 26 September 2018. It is perhaps arguable that the costs order was entered irregularly within the meaning of UCPR r 36.15(1) because the parties had not fully presented their arguments as to costs at the hearing in circumstances where an impression may have been created by the Court that the issue would be dealt with later. Nevertheless, it is not necessary to determine that question, because even if the Court’s power to vary the order has been enlivened, I would not exercise the power, as I do not think that sufficient cause to do so has been shown.

28. In particular, I do not accept that it would be appropriate for the costs of the eleventh and twelfth defendants payable by the plaintiff to be limited to the proportion of costs incurred by each of the first to tenth defendants. Prima facie, the eleventh and twelfth defendants were entitled to retain the legal representation of their own choosing. A failure to join in the legal representation of other defendants in the same or substantially the same interests may have been unreasonable if the point had been squarely raised with the eleventh and twelfth defendants, including by warning them that a limitation on their costs would be sought, yet they continued with separate representation without good reason. That does not appear to be the case here. I do not think the retaining of separate legal representation should be regarded as unreasonable in the absence of specific (and well founded) opposition to that course.

29. This view is supported by the reasoning of Emmett AJA in DGF Property Holdings Pty Ltd v Di Federico; DGF Property Holdings Pty Ltd v Butros (supra), as his Honour limited the separately represented defendant’s costs in that case from the day on which the issue of separate representation was raised in Court (see [12] and [20]).

30. For the above reasons, the plaintiff’s Notice of Motion filed on 11 October 2018 will be dismissed. The plaintiff will be ordered to pay the eleventh and twelfth defendants’ costs of the motion.

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Decision last updated: 08 November 2018