Supreme Court New South Wales Medium Neutral Citation: J Family Motel Group Pty Ltd v Baset Super Pty Ltd (No 2) [2024] NSWSC 1401 Hearing dates: On the papers; last submissions 25 October 2024. Date of orders: 6 November 2024 Decision date: 06 November 2024 Jurisdiction: Equity - Expedition List Before: Rees J Decision: Costs orders made. Catchwords: COSTS – dispute between landlord and tenant involving a contested valuation – landlord leveraged discrete issue to end settlement regime in Deed and Contract for sale of land and lease – whether tenant entitled to indemnity costs – no relevant delinquency in the conduct of the proceedings – whether costs should be apportioned, principles at [18]-[19] – landlord succeeded on the discrete issue but tenant otherwise succeeded – costs apportioned based on parties' relative success. Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Uniform Civil Procedure Rules 2005 (NSW), r 42.5 Cases Cited: In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 Latoudis v Casey (1990) 170 CLR 534 McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306 Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 86 ACSR 119; [2011] NSWCA 256 Category: Costs Parties: J Family Motel Group Pty Ltd (Plaintiff) Baset Super Pty Ltd (Defendant) Representation: Counsel: M Green SC / LR James (Plaintiff) A Ogborne (Defendant) Solicitors: Proctor Phair Lawyers (Plaintiff) Wordsworth Lawyers (Defendant) File Number(s): 2024/226231 JUDGMENT 1. HER HONOUR: This judgment concerns costs. The proceedings concerned the working out of a dispute between the landlord and tenant of a Tamworth motel, initially resolved by the parties executing a Deed and a Contract for the sale and purchase of land (the Contract), by which the tenant purchased the motel for a price to be determined by the average of two valuations. 2. Both parties cavilled with the two valuations. On 9 February 2024, the landlord's solicitor wrote to the valuer put forward by the tenant, John Sanidas, advising that his report "does not appear to have been prepared in accordance with the written instruction to you … We are now seeking [counsel's] opinion and advice regarding your obligations as expert valuer … Our client does not accept your rational[e] or your finding … We will provide our client's further instructions (together with detail of action to be taken) within 28 days". 3. On 16 February 2024, the tenant's solicitor wrote to the valuer put forward by the landlord, Scott Robertson, advising that his client was of the opinion that his valuation did not reflect the proper market price, where the chosen comparables were not in Tamworth but from "much wealthier towns". The same day, however, the tenant's solicitor advised the landlord's solicitor, "Notwithstanding the glaring inconsistencies in the valuation of Robertson our client is prepared to accept the average of the 2 valuations plus the Costs as the purchase price for the contract in order to move forward and complete the transaction without further delay and avoid the substantial legal costs to be incurred by both sides involved in challenging the valuation". There was no reply. 4. On 25 March 2024, the tenant's solicitor emailed the landlord's solicitor again, noting that the purchase price for the Contract was now $3.325 million – being the average of the two valuations – and settlement was due on 8 August 2024. There was no reply. On 3 May 2024, the tenant's solicitor advised that the tenant had nominated a related company as purchaser. The tenant's solicitor had created a PEXA workspace for settlement and invited the landlord's firm to join the workspace. There was no reply. 5. On 20 May 2024, the tenant's solicitor spoke to the landlord's solicitor and emailed to "confirm your advice that your client is looking into this matter and will come back to us today or tomorrow." The tenant's solicitor also noted that the valuations had been received more than three months ago and the landlord had not responded to follow-up emails of 16 February 2024, 25 March 2024 or 3 May 2024. If the landlord was considering refusing to complete the sale of the motel, then the tenant's solicitor had instructions to seek orders for specific performance. 6. On 24 May 2024, the landlord issued a Notice of Termination of the motel lease (the Lease) on the basis that the Lease had expired on 30 June 2022. It was said that the tenant had remained in occupation on a monthly tenancy, which could be terminated on one month's written notice, which was now given. The monthly tenancy was terminated from the end of 30 June 2024. The landlord's solicitor also sent a without prejudice letter – later repeated on an open basis – contending that the Contract had been frustrated. The landlord sought orders for possession. 7. On 11 June 2024, the tenant's solicitor replied, suggesting that there was no legal basis for the landlord to claim that the Contract had been frustrated. The tenant complained that, contrary to the landlord's email of 9 February 2024 advising that further instructions would be notified in 28 days, no such instructions were conveyed. Nor had the landlord responded to the tenant's efforts to progress the matter to completion. The purported termination of the Lease was rejected on the basis that the Lease was an integral part of the Deed and would continue until completion of the Contract. The landlord's conduct was said to be without any lawful basis and, unless the landlord confirmed by 13 June 2024 that it was prepared to complete the Contract, then the tenant would file a Summons seeking orders for specific performance, together with an order for indemnity costs. The landlord maintained its stance. 8. On 19 June 2024, the tenant commenced these proceedings, seeking an order that the landlord specifically perform its obligations under the Contract, together with a declaration that the Notice of Termination was void. An interim injunction was also sought, restraining the landlord from dealing with the property. The landlord's solicitors immediately sought details in respect of the plaintiff's assets and liabilities, indicating that an application for security for costs was in view. 9. On 1 July 2024, Pike J granted an interim injunction restraining the landlord from dealing with the property or acting on the purported termination of the Lease. The tenant and its director provided the usual undertakings as to damages. The director provided $250,000 as security for the undertakings. 10. On 17 July 2024, the landlord filed a Cross-Summons, seeking an order for possession and judgment for unpaid rent and outgoings. Relevantly, the landlord sought an increased rent provided for by the Deed, albeit the Deed provided that this rent was not payable until completion of the Contract. 11. In the result, Mr Sanidas' valuation did not comply with the requirements in the Deed. As such, the tenant was not presently entitled to specific performance of the Contract, but nor had the Contract been frustrated. The settlement regime prescribed by the Deed remained on foot. Subject to obtaining a valuation from Mr Sanidas which did comply with the requirements of the Deed, the tenant remained entitled to purchase the motel at a price to be determined by the average of the two valuations. Further, the landlord was not presently entitled to unpaid rent and outgoings. Submissions 1. The tenant submitted that it had succeeded save for whether Mr Sanidas' report was binding. Further, that matter should have been resolved between the parties without recourse to litigation. The landlord took issue with the report, and on 9 February, promised to provide "further instructions (together with detail of action to be taken) within 28 days". However, no notice was given that the landlord would seek to resile from the Contract until 24 May 2024, when the landlord asserted deficiencies with the report of Mr Sanidas and asserted that the Contract had been frustrated and purported to terminate the Lease. The tenant was forced to commence proceedings. In the circumstances, the landlord should pay the costs of the proceedings on an indemnity, or otherwise on the ordinary basis. The tenant submitted that, to the extent that the landlord enjoyed success, it was not appropriate to apportion the costs of the proceedings given the relatively limited nature of such success and the lack of separability to the overall issues for determination: McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306 at [8]-[25]. 2. The landlord submitted that it succeeded on its primary claim that Mr Sanidas' valuation was not binding, which resulted in the tenant failing on its primary claim for specific performance. The landlord failed on its consequential claims that, as a result of Mr Sanidas' valuation not being binding, the Contract had been frustrated and the landlord had been entitled to terminate the Lease for unpaid rent, with the corollary that the tenant was entitled to a declaration that the Notice of Termination given by the landlord was void. That is, the landlord succeeded and the tenant failed on the primary issues, while the tenant succeeded and the landlord failed on consequential issues. The costs incurred by the parties on the valuation issues said to substantially exceed the costs incurred on the other issues. (There was no evidence in respect of the costs incurred by the parties in respect of particular issues.) 3. The landlord submitted that the time and resources expended by the landlord in succeeding on the valuation issues (and, as a result, on the tenant's claim for specific performance) considerably outweighed those expended by the tenant in succeeding on the frustration, termination and rent issues. The landlord should be reimbursed for the greater costs it had incurred by an order the tenant pay 25% of the landlord's costs of the proceedings: Latoudis v Casey (1990) 170 CLR 534 at 567 per McHugh J. Consideration 1. In so far as the tenant seeks the costs of the proceedings on an indemnity basis, the relevant principles are summarised by Black J in In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8]: "Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute." 1. I accept that the landlord was uncommunicative for four months after the valuations were to hand and, it would appear, took some time to obtain counsel's advice and to decide the way forward. I also accept that the landlord's issue of a Notice of Termination came without warning. But I do not consider that this conduct was delinquent in the relevant sense; such delinquency is to be determined by reference to the landlord's conduct of these proceedings, not the conduct the subject of the substantive dispute. Nor do I accept that the landlord should pay costs on an indemnity basis as it should have resolved the matter without recourse to litigation. It could equally be said that the tenant should have accepted that Mr Sanidas' valuation did not meet the requirements of the Deed rather than contest that matter in Court. I am not satisfied that the circumstances warrant an indemnity costs order. 2. As to the second issue raised by the parties, the Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. For example, a plaintiff may obtain judgment in their favour but the defendant may have succeeded on issues that occupied the bulk of the time taken by the proceedings. The successful plaintiff may not only be deprived of the costs of those issues but may be ordered as well to pay the defendant's costs in respect of such issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]-[36] (per Beazley, Tobias and McColl JJA). 3. As the Court of Appeal observed in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]: "Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The 'event' may be characterised in more than one way. Generally the 'event' refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22." 1. Similarly, apportionment of costs between issues has been described as "very much a matter of discretion, [where] mathematical precision is illusory": Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 86 ACSR 119; [2011] NSWCA 256 (per Campbell JA, with whom Macfarlan and Young JJA agreed) at [84]. 2. By the Summons and Cross-Summons, the proceedings involved several discrete issues. 3. First, was the tenant entitled to specific performance of the Contract? This turned on the following sub-issues: 1. was Mr Sanidas' valuation binding on the parties by reason of either: 1. non-compliance with the requirements in the Deed; or 2. want of reasons; and 1. if not, was the Contract frustrated? 1. The tenant failed to establish that Mr Sanidas' valuation complied with the Deed. The tenant succeeded in establishing that Mr Sanidas gave sufficient reasons, albeit it did not matter where the valuation was not binding in any event. The fact that Mr Sanidas' valuation was not binding had the consequence, however, that the tenant was not then entitled to specific performance of the Contract. The tenant succeeded on the issue of frustration. 2. Second, was the Notice of Termination void? The tenant succeeded on this issue. It followed that the landlord's application for orders for possession failed. 3. Third, was the landlord then entitled to judgment for unpaid rent, outgoings and the like? The tenant succeeded on this issue, in particular, as the increased rent provided for by the Deed was not payable until completion of the Contract. The landlord was otherwise only entitled to the lower rent payable under the Lease. Further, the Deed amounted to a variation of the Lease such that the landlord was not entitled to terminate any tenancy at will outside the regime prescribed by the Deed. 4. I do not agree with the plaintiff's submission that these issues cannot be separated or that costs cannot be apportioned. Nor do I agree that the landlord's success could fairly be described as "limited". Rather, the issue of whether Mr Sanidas' valuation was binding was significant and occupied more of the hearing and my primary judgment than other issues. 5. Looked at on a broad brush basis, the landlord succeeded on a significant issue but failed overall. Further, rather than the landlord simply contesting the binding nature of Mr Sanidas' valuation in these proceedings, the landlord sought to 'leverage' that issue in an effort to bring the settlement regime prescribed by the Deed and Contract to an end, as well as the Lease. This was unsuccessful. The costs order should reflect the substance of the matters and the reality of the contest: Sydney Markets Credit Services Co-operative Ltd v Taylor (No 3) [2015] NSWSC 1236 at [32] (Slattery J). As a matter of impression, I consider that it is appropriate in all of the circumstances that the landlord pay 50% of the tenant's costs of the proceedings on the ordinary basis. 6. For these reasons I make the following orders: 1. Order the defendant to pay 50% of the costs of the proceedings advanced by the Summons and Cross-Summons on the ordinary basis. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 November 2024