New South Wales Supreme Court CITATION : Harvie v. Stevens; Stevens v. Harvie [2005] NSWSC 343 HEARING DATE(S) : 6 April, 2005 JUDGMENT DATE : 6 April 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Declaration as sought in Summons; indemnity costs order made. CATCHWORDS : CONTRACT - CONSTRUCTION - INDEMNITY COSTS ORDER - No question of principle. 6197/04: Gillian April Harvie - Plaintiff Gary John Stevens - Defendant PARTIES : 1917/05: Gary John Stevens - Plaintiff Gillian April Harvie - Defendant FILE NUMBER(S) : SC 6197/04; 1917/05 J.M. White - Stevens COUNSEL : K.G. Odgers - Harvie Garry Pickering - Stevens SOLICITORS : Maurice Marshan - Harvie LOWER COURT JURISDICTION : Ex tempore 1 The Defendant in proceedings 1917 of 2005 ("Ms Harvie") was the registered proprietor of a property known as Unit 6, 62 Greenknowe Avenue, Elizabeth Bay. On 25 August 2004, Ms Harvie entered into a contract to sell the unit. On 9 September 2004 the Plaintiff in proceedings 1917 of 2005 ("Mr Stevens") lodged a caveat on the title to the property preventing completion of the sale. On 19 October 2004, Ms Harvie received a Notice to Complete from the purchaser of the property. Her solicitor requested Mr Stevens to withdraw the caveat. Mr Stevens, through his solicitor, declined. On 18 November 2004 Ms Harvie commenced proceedings numbered 6197 of 2004 in this Court for an order that Mr Stevens withdraw the caveat. 2 The matter came before me on 26 November 2004. After hearing argument, I delivered a judgment to which reference should be made. Very briefly, the position as revealed by the evidence was as follows. Although the subject property was registered in the name of Ms Harvie, Mr Stevens alleged that the whole of the money which had been used to provide the purchase price for the unit had been paid by him and that he had paid the mortgage instalments. He said that the unit was held on a trust for himself absolutely. Ms Harvie said that there had been an agreement between herself and Mr Stevens as to how the unit should be held. Mr Stevens and Ms Harvie had formerly been married but were then divorced and they had a child of the marriage. Ms Harvie said that the unit was bought pursuant to an agreement with Mr Stevens that he would provide the money for the purchase, but the unit would be held in Ms Harvie's name upon trust for their child. 3 There was no disagreement between the parties that the unit should be sold. Their disagreement related only to the beneficial ownership of the proceeds of sale. In those circumstances, I considered that the balance of convenience favoured the removal of the caveat: the parties could then fight at leisure, as it were, over who was entitled to the proceeds. This solution was, in fact, proffered by Ms Harvie who had in her Summons sought an order that the proceeds of sale be deposited into her solicitor's trust account pending resolution of the dispute as to their ownership. 4 I indicated at the conclusion of my judgment that I would order removal of the caveat if Ms Harvie proffered an undertaking in the terms of paragraph 2 of her Summons. That undertaking was given through Counsel. It was an undertaking to the Court. That condition having been met, I ordered the caveat to be removed. The terms of the orders made on 26 November are as follows. "1. The orders made earlier today by Palmer J are vacated and the following orders substituted. 2. Upon the Plaintiff's [Ms Harvie] undertaking to act in accordance with the terms of paragraph 2 of the Summons filed 18.11.04, order that the Defendant [Mr Stevens] withdraw forthwith caveat no. AA939604C affecting the land in Folio Identifier 42/SP64756. 3. The Defendant [Mr Stevens] is to file any Cross Claim seeking relief in relation to the claimed interest in the subject land by 4pm on 03.12.04. 4. The Defendant [Mr Stevens] will have the costs of today, 26.11.04, up until 1:00pm. 5. Apart from Order 4 above, costs are reserved." It will be noted that paragraphs 4 and 5 of those orders deal specifically with the question of costs. 5 The proceedings were stood over to the Registrar's List on 6 December 2004. On that day the Registrar made further directions as to the conduct of the proceedings and stood them over to 21 February 2005. 6 On 17 December 2004, Mr Stevens through his solicitor, Mr Marshan, sent a letter to Ms Harvie 's solicitor, Mr Pickering, containing an offer of settlement in the following terms: "1. My client [Mr Stevens] will allow your client [Ms Harvie] to retain the sum of $25,000 from the nett proceeds of sale of the subject property (which should be in your trust account). 2. The balance of such funds (representing the nett proceeds of sale after agent's commission and your legal costs on the conveyance) will be paid to my client forthwith. 3. The Supreme Court proceedings will be discontinued. 4. Each party to pay their own costs. 4.1 Any costs order in my client's favour will be waived. 5. Each party will release the other from any further claims, suits, rights, causes and actions flowing from the subject dispute or the ownership of such property. 6. This offer will remain open for acceptance, in writing addressed to me, until 5.00pm on Monday, 20 December 2004 and it will then be withdrawn ." 7 On 20 December 2004, Mr Pickering sent a letter to Mr Marshan purporting to accept the offer. However, it very quickly became apparent that there was a dispute between the parties as to the entitlement of Ms Harvie or, more correctly, her solicitor Mr Pickering, to deduct from the proceeds of sale not only the costs of the conveyance, but the costs which had been incurred by Ms Harvie in bringing proceedings 6197 of 2004 for the removal of the caveat. 8 Mr Pickering took the view, apparently, that the words in paragraph 2 of the offer of settlement which he had received on 17 December, namely, "your legal costs on the conveyance", included legal costs incurred by Ms Harvie in the conduct of proceedings 6197 of 2004. Mr Marshan took the view that the words "legal costs on the conveyance" meant "legal costs on the conveyance", in other words, the costs of the conveyancing transaction and not the costs of the litigation. 9 It is that difference in construction which now brings the parties back to Court. I will deal separately, as I have indicated earlier today, with Mr Pickering's actions in making dispositions from the fund which he held in his trust account, without applying to the Court in accordance with the Plaintiff's undertaking. 10 To come back to the question in dispute, Mr Stevens commenced proceedings by Summons filed on 14 March 2005 seeking a declaration that a contract had come into existence for settlement of proceedings 6197/04 by acceptance of the terms set out in his solicitor's letter of 17 December 2004. It appears at one stage that there may have been a dispute between the parties as to whether the offer of settlement made in Mr Marshan's letter had indeed been accepted by Mr Pickering's response of 20 December. However, it now seems that both parties are agreed that there was indeed an acceptance in terms of that offer and that the terms of the offer were transformed by that acceptance into a binding contract. The question before the Court now is purely one as to the proper construction of that contract. 11 The issue is whether the terms of that contract entitle Ms Harvie' solicitor to deduct from the proceeds of sale an amount equal to the costs which she has incurred in proceedings 6197 of 2004. Mr Odgers, who appears for Ms Harvie, says that the words "legal costs on the conveyance" mean, in effect, costs of and incidental to the conveyance and the dispute surrounding it. He says that it was necessary for Ms Harvie to commence proceedings 6197 of 2004 in order to remove a caveat from the title which prevented completion of the conveyance; therefore, the costs of those proceedings, he says, are "costs of the conveyance". 12 I cannot accept that submission. There are a number of reasons, the first of which is that I think the words of paragraph 2 of the letter of offer are unmistakably clear. The structure of the contract and its construction is to be understood in the context of the facts as they were known to both parties at the time. The facts were that Mr Stevens was claiming to be beneficially entitled to the whole of the proceeds of sale. He did not contest that there should be a sale but he said that the whole of the net proceeds of sale were his and should be paid to him. That was the case that he sought to make in proceedings 6197/04. The settlement contract stated that Mr Stevens would "allow Ms Harvie to retain $25,000 from the net proceeds of sale of the property" which were to be held in Mr Pickering's trust account. Paragraph 2 dealt with the payment of the balance of proceeds of sale and I think that the words "legal costs on the conveyance" are unmistakably clear as referring to the costs of the conveyance, that is, the costs that would normally be paid by a vendor of the property to the solicitor acting for that vendor on the conveyance. This is made clear, in my opinion, by the following provisions of the settlement contract. 13 There is reference in paragraph 3 to the Supreme Court proceedings being discontinued and in paragraph 4 to each party paying their own costs of those proceedings. The structure of the agreement is that Mr Stevens, although claiming entitlement to 100% of the proceeds of sale, is prepared to allow Ms Harvie to retain $25,000 out of the proceeds; the rest, after the payment of the necessary incidentals to the sale, is to be paid to him, each party bearing its own costs of the litigation between them. 14 The construction put upon the contract by Mr Pickering means that Mr Stevens, in allowing $11,000 or so to come out of the proceeds of sale in payment of Miss Harvie's costs of the proceedings, is, in effect, paying out of his own money that sum in relation to her costs. I do not think that that construction can reasonably be put upon the terms of the settlement contract, viewed in their context. 15 I am therefore of the opinion that the words in paragraph 2 of the settlement contract "your legal costs on the conveyance" refer only to the normal conveyancing costs payable by a vendor to the vendor's solicitor acting on the conveyance and do not include Miss Harvie's costs of proceedings 6197 of 2004. 16 Therefore there will be a declaration in terms of paragraphs 2 and 3 of the Summons filed by Mr Stevens. I think it follows that there should be an order in terms of paragraph 4 of the Summons. 17 Mr Stevens seeks the costs of proceedings 1917 of 2005 on an indemnity basis. Mr White, who appears for Mr Stevens, says that the construction which was put upon the settlement contract by the debt was so manifestly unreasonable as to warrant the disapprobation of the Court by the visitation of an indemnity costs order. Mr Odgers says that the construction advanced by Ms Harvie was at least arguable and that no such indemnity costs order should be made. 18 I have no doubt that the construction put upon paragraph 2 of the settlement contract by Ms Harvie was quite unjustified and quite unreasonable. I do not feel much doubt at all that anyone knowing the context of the contract and the circumstances which brought it about – as Mr Pickering certainly did – could have doubted for a moment that paragraph 4 of the settlement contract was intended to deal fully and explicitly with the question of who should bear the costs of proceedings 6197/04. It seems to me that Ms Harvie, properly advised, should never have occasioned the need for the commencement of these proceedings. In accordance with ample authority, I think this case is an appropriate case for an order as to indemnity costs against Ms Harvie, and I so order. – oOo – 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.