Xia v Yu

[2018] NSWSC 1725

Supreme Court

New South Wales

Medium Neutral Citation:	Xia v Yu [2018] NSWSC 1725
Hearing dates:	On the papers
Date of orders:	12 November 2018
Decision date:	12 November 2018
Jurisdiction:	Equity
Before:	Darke J
Decision:	Order that the first defendant pay the plaintiff’s costs on an indemnity basis up to 20 October 2017, and that the parties bear their own costs of the proceedings thereafter.
Catchwords:	COSTS – proceedings resolved without a determination on the merits – plaintiff required to commence the proceedings to protect her rights under an agreement with first defendant – first defendant acted unreasonably – indemnity costs ordered
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 98 Duties Act 1997 (NSW), s 50
Category:	Costs
Parties:	Tao Xia (Plaintiff) Qing Yu (First Defendant) SH Homebush Peninsula Pty Ltd (Second Defendant)
Representation:	Solicitors: Marsdens Law Group (Plaintiff) Juris Cor Legal (First Defendant)
File Number(s):	2017/283092
Publication restriction:	None

Judgment

Introduction

1. These proceedings were commenced by Summons on 18 September 2017. The plaintiff, Ms Tao Xia, sought orders that the first defendant, Mr Qing Yu, do all things necessary to give effect to a Heads of Agreement dated 17 July 2017, by which other proceedings commenced in this Court were settled.

2. The dispute between the parties has now resolved, save for the question of costs and a dispute over the payment of $21,000. The Court made directions for the parties to provide evidence and written submissions on these issues, and noted that they would be dealt with on the papers. (A Cross Claim in the proceedings has already been disposed of, by orders made on 18 May 2018 and 20 July 2018.)

Summary of Relevant Facts

3. On 22 June 2015 Mr Yu entered into an agreement with the second defendant, SH Homebush Peninsula Pty Ltd (“SH Homebush”), to purchase an off the plan unit known as Lot 299 in a development in Wentworth Point called “Taiga”. On 10 July 2015 Mr Yu entered into an agreement with SH Homebush to purchase Lot 85 in the same development. The date for completion of those contracts was later fixed for 19 September 2017.

4. On 4 August 2016 Ms Xia commenced proceedings in this Court against Mr Yu (proceedings no. 2016/234648) (“2016 proceedings”). In the 2016 proceedings Ms Xia claimed that Mr Yu held his interest in Lots 85 and 299 on trust for her in a proportion reflecting her contribution to the acquisitions, said to be $136,500.

5. On 17 July 2017, following a mediation, Ms Xia and Mr Yu entered into an agreement titled “Heads of Agreement” in settlement of the 2016 proceedings. The Heads of Agreement was relevantly in the following terms:

…

Yu shall assign the choses in action he has to acquire [Lots 85 and 299] to Xia upon Xia complying with her obligations under this Agreement, or by 14 August 2017, whichever is earlier.

Xia will pay the settlement sum of $4,000 (“the Settlement Sum”) to the New South Wales Office of State Revenue in discharge of part of the stamp duty owing by Yu with respect to his acquisition of the Taiga Properties on or before receipt of a transfer to her from Yu of the Taiga Properties or by 14 August 2017, whichever is later.

Yu will provide to Xia evidence of all stamp duty currently payable by him with respect to his acquisition of the Taiga Properties and proof of any payment by him of any related stamp duty to the New South Wales Office of Statement [sic] Revenue before payment of the Settlement Sum or 14 August 2017, whichever is earlier.

The parties will consent to filing of orders disposing of the Proceedings on the basis that:

A declaration that Yu holds his interest (if any) in the Properties on trust for Xia and the Court notes that he irrevocably assigns any chose in action he may have with respect to them to Xia;

The Statement of Claim and Cross-Claim be dismissed;

All previous costs orders be vacated;

Each party to pay the party’s own costs in the Proceedings.

Save for enforcement of the terms of this Agreement, each party releases the other from all claims, demands and causes of action arising out of or in relation to each of the matters in recital A and the Proceedings.

…

Xia will take all reasonable steps to obtain an exemption for all stamp duty payable by Yu and to the extent that she obtains any such exemption, Yu will pay an amount equivalent to the amount of the exemption to Xia on account of her legal costs in the amount of $21,000 in the Proceedings within 28 days of the exemption being granted.

Each party shall cooperate and take all reasonable steps and give all necessary instructions to ensure that their respective obligations under this Agreement are complied with.

…

…

6. On 25 July 2017, in the 2016 proceedings, the Court entered judgment by consent, noting that Mr Yu held his interest in Lots 85 and 299 on an express bare trust for Ms Xia.

7. Ms Xia made attempts to put the Heads of Agreement into effect in August 2017. It appears that the mechanism she had in mind to achieve this, so as to minimise liability for stamp duty, was for Mr Yu to enter into deeds of rescission with SH Homebush, and for fresh contracts for the sale of Lots 85 and 299 to be entered into between Ms Xia and SH Homebush. Mr Yu would then give a direction to SH Homebush to apply the deposits to the new contracts.

8. On 22 August 2017 Mr Yu’s solicitors indicated by email to Ms Xia’s solicitors that Mr Yu consented “to the reassignment of the deposit moneys paid under the two contracts for sale”.

9. On about 24 August 2017 Ms Xia’s solicitors were informed by the solicitors for SH Homebush that Mr Yu had sold his interests under the original contracts for the sale of Lots 85 and 299 to third parties. Ms Xia’s solicitors attempted to confirm this with the solicitors for Mr Yu, who refused to give an answer to the question.

10. On 6 September 2017 Ms Xia demanded that Mr Yu confirm that he would execute deeds of rescission for the contracts for sale of Lots 85 and 299.

11. It appears that on 7 September 2017 Ms Xia’s solicitors again requested information regarding whether Mr Yu had sold his interests in Lots 85 and 299 to third parties. Mr Yu’s solicitors refused to confirm or deny whether this had occurred.

12. On 8 September 2017 Mr Yu made an offer to Ms Xia in the following terms:

Our client sign a Deed of Rescission for both properties;

Provide an Irrevocable Direction for the deposits of the two properties to be paid as deposits in favour of your client’s contracts for the two properties; and

Secure $21,000 in our trust accounts for your client’s legal fees payable within 7 days of the exchange of a Deed of Release and Settlement,

in full and final settlement of all claims between the parties. The parties to enter into a Deed of Release and Settlement on those terms releasing our client from all claims simultaneously on the performance of (1) to (3) inclusive.

13. In the email containing the offer, Mr Yu’s solicitors indicated to Ms Xia’s solicitors that the date for completion of the contracts of sale in respect of Lots 85 and 299 between Mr Yu and SH Homebush had been extended to 3 October 2017.

14. The 8 September 2017 offer was rejected by Ms Xia on 14 September 2017, and a counter-offer was made in the following terms:

Your client will sign a Deed of Rescission (to be prepared by Marsdens [the solicitors for Ms Xia]) for both properties and will procure the signature of the vendor as soon as practicable;

Your client will provide an irrevocable direction (to be prepared by Marsdens) for the deposits of the two properties to be paid as deposits in favour of our client’s contracts for the two properties;

Your client will pay $21,000 into your trust account (with a receipt to be provided prior to settlement), and will provide an irrevocable direction (to be prepared by Marsdens) to pay it into Marsdens’ trust account upon execution of a deed of settlement;

Your client will indemnify our client for any penalties she may incur for delayed settlement on the properties, with settlement to occur within six weeks of the date of the execution of a deed of settlement and release;

The above terms will be documented in a suitably worded deed of settlement and release to be prepared by Marsdens, with execution to occur within five (5) days of acceptance of the above.

15. The offer was rejected by Mr Yu on 15 September 2017, but his solicitors indicated that he would be willing to agree to the proposal if point (4) was withdrawn. In this email, Mr Yu’s solicitors indicated that they had made an error when they had earlier stated that settlement for the contracts in respect of both Lots 85 and 299 had been extended to 3 October 2017. Instead, only the completion date for the contract in respect of Lot 85 had been extended. The completion date for the contract in respect of Lot 299 remained 19 September 2017.

16. It appears that on 15 September 2017 the solicitors for Ms Xia again requested information regarding whether Mr Yu had sold his interests in Lots 85 and 299 to third parties. Again, Mr Yu’s solicitors refused to confirm or deny whether this had occurred.

17. In the meantime, deeds of rescission and fresh contracts for the sale of Lots 85 and 299 to Ms Xia had been prepared by the solicitors for SH Homebush. On 15 September 2017 Ms Xia demanded that Mr Yu, by 10am on 18 September 2017, execute the deeds of rescission, provide an irrevocable direction to SH Homebush that the deposits paid under the original contracts be applied to the new contracts, and pay into Mr Yu’s solicitor’s trust account $21,000, to be released to Ms Xia in accordance with clause 8 of the Heads of Agreement.

18. Those demands were not met by Mr Yu.

19. On 18 September 2017, the day before the contract for Lot 299 between Mr Yu and SH Homebush was due to complete, Ms Xia commenced these proceedings in the Duty List, seeking an urgent injunction to restrain Mr Yu and SH Homebush from completing the sale of Lot 299. On that day Mr Yu provided an undertaking to the Court that he would not complete the sale before the next directions hearing on 22 September 2017.

20. On 22 September 2017 Mr Yu was restrained from disposing of his interests in Lots 85 and 299 until further order. Mr Yu was also directed to notify Ms Xia of the identity of any parties with whom he claimed to have agreed to sell either Lot 85 or Lot 299.

21. On 25 September 2017 Mr Yu’s solicitors informed Ms Xia’s solicitors that on 4 October 2016 Mr Yu entered into an agreement to sell his interest in Lot 85 to certain third parties, and on 22 January 2017 he entered into an agreement to sell his interest in Lot 299 to another set of third parties.

22. On 20 October 2017 Ms Xia, Mr Yu and SH Homebush entered into a tripartite deed of rescission. On the same day Ms Xia entered into contracts for the sale of Lots 85 and 299 with SH Homebush. Those contracts have now settled.

23. It had been agreed between Ms Xia and Mr Yu, by email on 19 October 2017, that following the execution of the tripartite agreement SH Homebush’s costs would be borne equally by Ms Xia and Mr Yu, and would become costs in the cause after the proceedings were discontinued against SH Homebush. The proceedings were discontinued against SH Homebush, with no order as to costs, on 23 October 2017.

24. On 14 November 2017 Ms Xia’s solicitors sent a letter to Mr Yu’s solicitors containing an offer of settlement, expressed as a Calderbank offer. The offer was as follows:

7.   Your client pay to our client the sum of $74,514.00 (Amount), being comprised of:

$21,000.00 payable under the Heads of Agreement;

$23,514.00 in respect of SH Homebush’s costs; and

$30,000.00 in respect of her costs of the Proceedings.

8.   Judgment be entered in the Proceedings on the following terms:

The First Defendant to pay the Plaintiff the sum of $74,514.00 within fourteen (14) days.

The proceedings be dismissed with no order as to costs.

9.   Your client agrees to pay the Amount to our client in priority to the payments to be made to Jeremey Wong, Geok Kheng Tan, Joohnwan Shin and Jea Lim Jeong.

10. Our client will remove the Caveats upon the entry of Judgment in the terms set out at [7] above.

25. The offer was not accepted by Mr Yu.

Costs

26. Ms Xia’s position is that Mr Yu should pay her costs and SH Homebush’s costs on an indemnity basis. Ms Xia submits that Mr Yu acted unreasonably by entering into the Heads of Agreement in July 2017 without disclosing that he had by that time sold his interests in Lots 85 and 299 to third parties. Ms Xia submits further that the proceedings could have been avoided entirely if Mr Yu had complied with her demands, and that Mr Yu unreasonably refused the Calderbank offer contained in the letter of 14 November 2017.

27. Mr Yu’s position is that there should be no order as to costs. He submits that Ms Xia has not achieved an outcome any better than the offer he made to her on 8 September 2017, which was rejected; that there is no event for costs to follow in circumstances where the proceedings have been disposed of without a hearing on the merits; and that he did not unreasonably refuse Ms Xia’s offer of 14 November 2017 because it included the payment of $21,000, a liability which had not yet accrued. Mr Yu also submitted that, in any event, SH Homebush’s costs should be borne equally between Ms Xia and him, because its involvement would in any case have been necessary in performing the terms of the Heads of Agreement.

28. In my opinion, the appropriate order to make, in the exercise of the Court’s discretion under s 98 of the Civil Procedure Act 2005 (NSW), is that Mr Yu pay Ms Xia’s costs up to 20 October 2017, when the tripartite deed of rescission was entered into and the substantive dispute was resolved. It seems to me that what made these proceedings necessary was Mr Yu’s failure to comply with clause 2 of the Heads of Agreement, which obliged him to assign his interest in Lots 85 and 299 to Ms Xia by 14 August 2017. This situation was likely brought about by Mr Yu’s on-sale of his interests in Lots 85 and 299 to third parties.

29. I do not think that it was unreasonable for Ms Xia to refuse Mr Yu’s offer of 8 September 2017. The offer came only a little over a week before completion of the contract for Lot 299 was due to take place, and approximately two weeks before completion of the contract for Lot 85 was due to take place. In my opinion, it was reasonable of her to insist on indemnification against any penalty for late completion so long as completion took place within six weeks of the date of execution of a deed of settlement.

30. Further, the costs order against Mr Yu should be made on an indemnity basis. Mr Yu’s conduct in failing to confirm or deny the existence of the on-sale agreements, perform his obligations under the Heads of Agreement, or offer an undertaking not to complete the sale of either Lot 85 or Lot 299, at any time prior to proceedings being commenced, was unreasonable because it left Ms Xia with effectively no choice but to commence proceedings to protect her rights under the Heads of Agreement. The proceedings would likely have been avoided if Mr Yu had provided Ms Xia with information about the third party purchasers and either performed his obligations under the Heads of Agreement or offered an undertaking not to complete the contracts for sale of Lots 85 and 299.

The $21,000 Payment

31. Ms Xia submits that Mr Yu should pay her $21,000 pursuant to clause 8 of the Heads of Agreement, because Mr Yu is now exempt from stamp duty following rescission of the contracts between him and SH Homebush. This is said to follow from the fact that Mr Yu has not provided any proof that stamp duty is payable or has been paid, as he was required to do under clause 4.

32. Mr Yu submits that he is not obliged to pay Ms Xia $21,000 pursuant to clause 8 because, under s 50 of the Duties Act 1997 (NSW), stamp duty remains payable on the rescinded contracts between him and SH Homebush until the Chief Commissioner of Revenue is satisfied that the contracts have been cancelled. Mr Yu submits that the appropriate course is to simply make no order in relation to the $21,000 payment, so that the parties can obtain a private ruling from the Office of State Revenue. In his submissions, Mr Yu indicates that he is prepared to pay $21,000 to Ms Xia in accordance with clause 8.

33. In my opinion, on the proper construction of clause 8 of the Heads of Agreement, the grant of an exemption for Mr Yu’s liability to pay stamp duty is a condition precedent to the obligation to make the payment of $21,000 to Ms Xia. As no such exemption has been obtained, the obligation to pay the $21,000 has not yet arisen. I do not accept that in the absence of Mr Yu providing evidence that stamp duty is payable pursuant to clause 4, no stamp duty is payable. Clause 4 imposes a separate obligation on Mr Yu to provide evidence as to certain matters regarding stamp duty. It does not give rise to the obligation to pay $21,000 under clause 8.

Conclusion

34. For the above reasons, the Court will order that Mr Yu pays Ms Xia’s costs on an indemnity basis up until 20 October 2017, after which time the parties are to bear their own costs. As SH Homebush’s costs were agreed to be costs in the cause, the Court will also order that for the purposes of the above order, Ms Xia’s costs include any costs of SH Homebush she has paid.

35. The Court will not make any order regarding the payment of $21,000. However, in circumstances where it is appropriate to bring the proceedings to an end by an order for dismissal, the Court will note that the dismissal does not prevent Ms Xia from later seeking to enforce clause 8 of the Heads of Agreement dated 17 July 2017.

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Decision last updated: 12 November 2018