Blog 88. Two Costs Cases

The cases in this Blog are typical of two mundane situations, respectively concerning a dispute over costs after settlement of the main proceeding and a dispute about who should pay the costs where a caveat is withdrawn before a hearing of an application under the Transfer of Land Act s. 90(3).

Rigene Pty Ltd v Rugolo (Costs Ruling No 2) [2024] VSC 187, Gray J.

The facts were –

• The first defendant caveated over a property of which the plaintiff was registered proprietor.  The caveat was based on a loan agreement containing a charging clause, the debt being allegedly over $306,000.  Desirous of selling the property the plaintiff applied for removal of the caveat under s. 90(3) of the Transfer of Land Act.  The court made a consent order removing the caveat on condition that from the proceeds of sale the amount claimed by the caveator be paid into a separate interest-bearing account, to be retained pending resolution or determination of the dispute concerning the caveator’s entitlement to that amount.  The parties could not agree on costs.
• The plaintiff subsequently commenced an application that the caveator pay its costs on an indemnity basis.  This was based on material to the effect that the plaintiff disputed the loan agreement and the caveat, and that the balance of convenience also clearly favoured its removal.
• On 8 March 2024, the plaintiff made a Calderbank offer to compromise its costs application by the caveator agreeing to pay about 55% of the plaintiff’s actual costs.  On 15 April the caveator’s submissions responding to the plaintiff’s costs application were served with a communication marked “without prejudice”.  This stated that the caveator would be seeking costs of and relating to the costs hearing, possibly on an indemnity basis, unless the plaintiff agreed to the filing of consent orders that there be no order as to costs.
• At the hearing of the plaintiff’s costs application on 17 April 2024 it submitted that the caveator had acted unreasonably in the lead up to the litigation, that the consent orders achieved its purpose in bringing the proceeding and represented a capitulation by the caveator, and that it would have clearly won if its application for removal of the caveat had been heard on the merits.  The court rejected these arguments and dismissed the plaintiff’s costs application, with oral reasons.
• After this oral ruling the caveator applied for indemnity costs of the plaintiff’s failed costs application, tendering the documents of 8 March and 15 April.

Gray J. ordered the plaintiff to pay the first defendant costs on a standard basis, holding:

1. The plaintiff’s offer was of little weight but at least showed that it was not implacably set on receiving all its costs. [12]
2. The caveator’s communication of 15 April was entitled to significant weight as, although its proposed response time was not very long, it reasonably promoted the overarching purpose stated in s. 7 of the Civil Procedure Act 2010 by offering an efficient conclusion to the proceeding, and the caveator had been vindicated by the court’s dismissal of the plaintiff’s costs application. [13]
3. However, the communication of 15 April was not a Calderbank offer because it was not expressly described as such, did not provide very long for consideration and response, and did not clearly put the plaintiff on notice that indemnity costs would be sought. [14]
4. The plaintiff would be ordered to pay the caveator’s costs, but only on a standard basis, because:
   1. Costs ordinarily followed the event.  In a proceeding with multiple issues and mixed success the court could order costs on an issues basis.  But the plaintiff’s costs application was a discrete issue in the proceeding, in respect of which the judge was required to consider the separate exercise of his costs discretion under s. 24(1) of the Supreme Court Act 1986, notwithstanding that there would be no costs order of the proceeding more generally.  The plaintiff’s failed costs application was a sufficiently distinct issue to attract the principle that costs ordinarily follow the event. [17]-[18]
   2. Rule 63.20 of the Supreme Court (General Civil Procedure) Rules, provided that, unless the Court otherwise ordered, where no order was made as to the costs of an application, such costs were the parties’ costs in the proceeding.   This outcome would be inappropriate because the plaintiff’s application postdated the consent disposition of the substantive relief sought and was itself directed to the allocation of costs. [20]-[21]
   3. The argument that the plaintiff should not be ordered to pay costs because subsequent costs applications could deter future compromises (in that it would have been better for the plaintiff not to consent but simply to run its application) was unsound: in any event the prospect of deterrence was equally and possibly even greater from the plaintiff’s own costs application.  Where parties submitted consent orders which did not deal with costs each side was at risk of a subsequent adverse costs order. [22]
   4. An order for indemnity costs would be unjustified.  Although the plaintiff’s costs application was somewhat speculative, it was neither clearly contrary to known authorities or foredoomed.  There was no decided case exactly on point.  The consent orders represented each party having a measure of success and were a compromise.  They were not a ‘capitulation’, as for example where a caveator agreed to remove a caveat by consent unaccompanied by anything of advantage such as quarantine of the amount sought by the caveator.  It was also not premature to determine this application before resolution of the proposed litigation over the monetary entitlement. [24], [27]-[29], [32], [33], [36]

[23]

In Willandra 74 Pty Ltd v AKG Willandra Pty Ltd [2024] VSC 398, Cosgrave J. ordered the plaintiff to pay the defendants’ costs on a standard basis.  Briefly:

• The first plaintiff had four directors and was the registered proprietor of a property.   Each director was also the director of a separate company, which four companies were the shareholders in the plaintiff and each the trustee of a separate trust.
• The plaintiffs developed the property.  The first plaintiff partitioned the property with the shareholders receiving equal lots (the allocated lots).  The remaining lots were retained to repay debt and to distribute any net proceeds equally to the shareholders.
• The shareholders agreed to contribute equally to the first plaintiff’s expenses of the project.  In 2022 the first defendant ceased doing so, requiring the other shareholders to meet the shortfall.
• In November 2022 the first defendant caveated over all the lots.  In December the first plaintiff and the trustees of the three trusts not associated with the first defendant issued a proceeding seeking the removal of the caveat.
• On 12 December 2022 the parties settled that proceeding.  The settlement deed included conditions in effect that:
  • the first defendant would withdraw the caveat in respect of each remaining lot, at settlement of the relevant sale agreement, on the basis that the net sale proceeds were applied in reduction of the debt which the first plaintiff owed for the development;
  • the net proceeds of sale (after the debt had been paid) would be distributed equally between the four trusts;
  • if the caveat was not withdrawn in accordance with the deed of settlement the plaintiffs could reinstate the proceeding to obtain judgment by consent.
• Pursuant to the deed of settlement the proceeding was dismissed with no order as to costs.
• Various events then occurred in performance of the settlement agreement.   By July 2023 only one lot was unsold.   Correspondence between solicitors then occurred including the caveator’s solicitors stating that the caveat over that lot would not be removed until the day of settlement of any sale of that lot and subject to other conditions about the calculation and disposition of any surplus funds.
• On 21 August 2023 the first plaintiff entered a contract to sell that lot with settlement scheduled for 16 October.  In subsequent correspondence the caveator’s solicitors proposed that the parties agree on any adjustments or reimbursements between them before settlement of this sale, but that absent agreement it would still withdraw the caveat to permit settlement provided the proceeds were held in a trust account upon an undertaking that they not be released pending agreement or court order.  Correspondence between solicitors continued, revealing disagreement about the details of the distribution.
• On 10 October the plaintiffs commenced this proceeding seeking removal of the caveat and an order approving distribution of the sale proceeds in a particular order.  In the email serving the court documents the plaintiffs’ solicitor proposed that to avoid the hearing (before 16 October) the caveator remove the caveat immediately with the sale proceeds being held in trust pending an agreement between the parties or court order.
• Later that day the plaintiffs’ solicitor advised the defendants’ solicitor that the hearing was listed for 2.15 pm on 16 October.
• On the afternoon of 13 October the defendants’ solicitor advised that the first defendant “remains committed to removing the caveat prior to settlement of Lot 44 on the basis that the settlement proceeds remain in TickBox’s trust account on an undertaking by TickBox not to release the funds pending agreement or Court order”, and requested an urgent response.  On the same day a long affidavit by the caveator was filed.
• The caveat was withdrawn to allow for settlement and the net proceeds were held in trust.
• Cosgrave J. held that the proceeding was unnecessary.  Under the settlement agreement the caveator had impliedly agreed to withdraw any caveat preventing sale and in subsequent correspondence its solicitors had stated that it would withdraw the caveat at settlement provided the conditions in the deed of settlement were met.  The caveator’s solicitors had also said that even if adjustments or reimbursements had not been agreed it would still withdraw the caveat to permit settlement provided the sale proceeds were held in trust as stated above.  This had occurred.

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 19, 2024