Supreme Court New South Wales Medium Neutral Citation: George Zoltan Ajkay v Hickey & Co Pty Limited [2011] NSWSC 822 Hearing dates: 26 July 2011 Decision date: 05 August 2011 Jurisdiction: Equity Division Before: Pembroke J Decision: See paragraph [30] Catchwords: DECLARATIONS - nature of - absence of hearing on merits - when declaration may be made by consent COSTS - whether payable in absence of hearing on merits - distinction between capitulation and compromise SEPARATE QUESTION - whether separate question an "event" from which costs may follow - success in totality of proceedings not required - Civil Procedure Act 2005 (NSW) Section 98 COSTS - payable forthwith - when departure from rule justified - identifiable and discrete issue - "just, quick and cheap" resolution of the real issues - courts obligation to identify separate issues to expedite resolution - Civil Procedure Act 2005 (NSW) Section 56 - Uniform Civil Procedure Rules Rule 42.7 Legislation Cited: Civil Procedure Act 2005 (NSW) Legal Profession Act 2004 (NSW) Sales Tax Assessment Act 1992 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Blair v Curran (1939) 62 CLR 464 BMI v Federated Clerks Union of Australia (1983) 51 ALR 401 Fiduciary Limited v Morningstar Research Pty Limited (2002) 55 NSWLR 1 Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 47 Floruit Holdings Pty Ltd v Sebastian - Builders & Developers Pty Ltd [2009] NSWCA 411 Integral Home Loans Pty Ltd & Anor v Interstar Wholesale Finance Pty Ltd & Anor [2006] NSWSC 1464 Loiero (aka Lero) v Adel Sportswear Pty Limited (No 2) [2010] NSWSC 1208 Myer Queenstown Garden Plaza Pty Ltd v Port Adelaide City Corporation (1975) 33 LGRA 70 One.Tel Limited v Deputy Commissioner of Taxation (2000) 101 FCR 548 Re The Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 Category: Procedural and other rulings Parties: George Zoltan Ajkay - plaintiff Hickey & Co Pty Limited - defendant Representation: Counsel: A J McInerney - for the plaintiff J J Young - for the defendant Solicitors: M J Fitzgerald - for the plaintiff Harris & Company - for the defendant File Number(s): 2011/63259 Judgment 1This application raises several important questions of principle. Those questions are (1) the nature and consequences of consent declarations, (2) whether a costs order should be made where the separate question does not resolve the entire proceedings, (3) whether a costs order on a separate question should be made where there has been no hearing on the merits and the separate question has been resolved by consent and (4) whether, if a costs order is made on the separate question, the costs should be ordered to be paid forthwith. The Facts 2The proceedings have their origin in earlier proceedings (2010/34504) which were commenced in February 2010. The plaintiff in those proceedings was Hickey & Co Pty Ltd (Hickey), which is the defendant in these proceedings. Hickey made claims against Metallising Australia Pty Ltd. The response in part to that claim was that a non-party, Mr Ajkay, was the true owner of a tool die known as the 412 Die. 3In the earlier proceedings, Mr Ajkay made several attempts to be joined to assert his proprietary rights but nothing was resolved. Eventually in February 2011, he commenced these separate proceedings. His primary claim for relief is for a declaration that he is and was the true owner of the 412 Die. If he had been content with that, these proceedings would have generated less disputation. But he also claimed that there had been unlawful interference for which he sought an account of profits and damages. In addition, he sought an order that he was a person who ought to have been joined in the first proceedings. 4On 4 March 2011, I ordered that the issue of ownership of the 412 Die in prayer 1 of the summons be determined separately and that the hearing of that issue be expedited. On 25 March, I listed the separate question for hearing before me. The parties estimated that a three day hearing would be required. 5Prior to the hearing date, the parties informed me that they had reached a resolution. They proposed that there be a "declaration without admissions" as to ownership of the 412 Die. I responded that the law did not recognise such a thing and that I would not accept a qualified declaration. In the result at the hearing Mr Ajkay sought the following orders: The Court: (1)Declares that Mr George Ajkay (Mr Ajkay) is the true owner of the #412 Handle-Flower Design plastic coffin handle (412 Die). (2)Orders Hickey & Co Pty Limited (Hickey & Co) to return the 412 Die to Mr Ajkay within 7 days. (3)Directs that Mr Ajkay's application for costs (including an order that the costs be assessed and payable forthwith) be listed for hearing before the Expedition Judge on 22 July 2011, in respect of: (a)Mr Ajkay's notice of motion filed on 23 December 2010 in Equity Division Proceedings 2010/34504; (b)Mr Ajkay's amended notice of motion filed on 24 February 2011 in Equity Division Proceedings 2010/34504; (c)Mr Ajkay's notice of motion (seeking expedition) filed on 1 March 2011 in Equity Division Proceedings 2010/34504; (d)(d)Mr Ajkay's costs of inspection of the tooling die on 11 March 2011; (e)(e)Prayer 1 of the Summons filed on 25 February 2011 in Equity Division Proceedings 2011/63259. (4)Directs that Equity Division Proceedings 2010/34504 and Equity Division Proceedings 2011/63259 be removed from the Expedition List. (5)Vacates the hearing of the separate question in Equity Division Proceedings 2010/34504 and Equity Division Proceedings 2011/63259 fixed for hearing on 26, 28 and 29 July 2011. 6Hickey consented to the first proposed order but opposed orders 2 and 3. no issue was raised by orders 4 and 5. No affidavits were read, but both parties relied on very careful, albeit lengthy, written submissions. I will deal with each of the questions of principle as follows. Consent Declarations 7Consent declarations without a hearing on the merits are a rarity. Courts will frequently not entertain them. I am only prepared to do so in this case because I have formed the view that it is clearly appropriate and justified. That is because I have already gained some familiarity with the issues through the process of case management in the Expedition List; I am confident in the good sense and sound judgment of both counsel who requested that I make the declaration; and I am satisfied that there are no possible competing property rights to the die other than those of the parties before me. 8It is perhaps stating the obvious to say that the making of a declaration is a judicial act determining and pronouncing a legal right: Williams v Powell [1894] 1 WN 141. It follows that a declaration that is not based on the court's review of the evidence but on the admissions of the parties may not always be satisfactory or prudent. As an order of the court, a declaration binds the parties to the proceedings before it. But the impact of a declaration may not be confined to the parties. Where the declaration "will have effects on the community ... that extend far beyond the interests of the original plaintiff and defendant" ( Myer Queenstown Garden Plaza Pty Ltd v Port Adelaide City Corporation (1975) 33 LGRA 70 at 82), a declaration made based merely on the consent of the parties to the proceedings is inappropriate. 9If the declaration sought is confined to the private rights between the parties such as (to use the example proffered by Keely and Beaumont JJ in BMI v Federated Clerks Union of Australia (1983) 51 ALR 401 at 413 - 414) the respective rights of the parties under a contract - it may be appropriate to make a declaration by consent. However, where there is a risk that a declaration will have a wider effect than the respective rights of those parties, it must be based on evidence considered by the court. 10Declarations as to proprietary rights present additional problems. This case involves a contest over a proprietary right as between Mr Ajkay and Hickey. Although prima facie a proprietary right, unlike a contractual right, is enforceable against the world, a declaration as to a proprietary right will not be effective against a stranger to the proceedings. It can only operate between the parties to the declaration: Blair v Curran (1939) 62 CLR 464 at 531-532 (Dixon J). 11As a matter of legal theory therefore, the declaration sought in this case will not prevent a third party from claiming ownership of the 412 Die and from bringing proceedings seeking a declaration to support their claim to ownership. However, there is no realistic prospect of this occurring and I do not foresee any possible future contest relating to the question of ownership. I am therefore content to make the declaration which both parties seek. Costs - No Hearing on Merits 12The next question is whether a costs order should be made at all, given that the declaration is being made by consent and there has been no hearing on the merits. Naturally there will often be cases where the parties have reached a resolution without a hearing on the merits where it is inappropriate to make a costs order. A genuine compromise is an example of such a case. The court will never know what commercial or other considerations motivated the parties and where the merits might in truth have resided. There are frequent examples of such a case. 13The general principle was stated in the decision of McHugh J in Re The Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624: A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. 14McHugh J did however recognise that the general principle was not inviolable (at 624): In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. 15The decision of Gzell J in Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 47 is an illustration of the general principle. The question was whether a plaintiff who discontinued proceedings when satisfactory undertakings were given by the defendant should have its costs. The giving of the undertakings was said to be sufficient to constitute an event from which costs should follow, even in the absence of a full hearing on the merits. Understandably, Gzell J rejected this contention. It was not possible to know the commercial or legal reasons for the giving of the undertakings. 16This case is however in a different category. The defendant has wholly conceded, without qualification, the plaintiff's proprietary claim to ownership of specified personal property. It had not always done so. Indeed, three hearing days were set aside because until recently it resisted the plaintiff's claim to ownership of the 412 Die. Its concession amounts to an effective capitulation on the issue that was ordered to be determined separately. 17The distinction between a capitulation and a compromise is well recognised and was explained by Burchett J in One.Tel Limited v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553. The applicant had resisted production under notices to produce purportedly issued under Section 108 of the Sales Tax Assessment Act 1992 (Cth). It alleged that the notices had not been issued with proper authorisation. The respondent resisted this argument at first but then conceded that no instrument of authorisation could be produced. The applicant sought its costs as a result of the respondent's effective surrender. Burchett J explained that: In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. 18In awarding costs to the applicant, Burchett J noted at [7] that there was a clear winner although the victory was achieved without a hearing, but not by a settlement in the ordinary sense, and certainly not by extra-curial means. 19In this case, the plaintiff commenced proceedings to assert his ownership of a chattel, among other things. The defendant resisted this claim to the point that a separate question regarding ownership was set down for hearing. Months after the hearing was set down, the defendant has recognised the plaintiff's ownership. There was no giving of undertakings or other supervening event. There was no compromise as to the plaintiff's title or evidence that the defendant's consent to the declaration was based on commercial compromise. The plaintiff's success on this point is attributable solely to an effective surrender - analogous to the circumstances explained by Burchett J in One.Tel (supra). 20The plaintiff has been vindicated. Although there has been no hearing on the merits, the plaintiff should have his costs of the separate question. Costs of Separate Questions 21The next question raises an important question of policy on which the Court of Appeal has already expressed a clear view. The question is whether there should be a costs order on the separate question at all or whether I should wait until final resolution of the proceedings. Sometimes the determination of a separate question will resolve the whole proceedings. Sometimes it will only resolve part of the litigation, leaving much for further hearing. Even if the separate question only resolves part of the litigation, the issue will have been identified because of its perceived legal or practical significance to the parties. As a matter of policy, my view is that unless there are compelling reasons to the contrary, orders for the costs of a separate question should be made at the time of the separate hearing and should not await the conclusion of the proceedings. 22Section 98 of the Civil Procedure Act makes it clear that the Court has the power to make an order for costs at any stage of the proceedings. And the general rule is that "costs follow the event". The determination of a separate question is an "event": Loiero (aka Lero) v Adel Sportswear Pty Limited (No. 2) [2010] NSWSC 1208 (Ball J). It matters not that the balance of the proceedings may produce a different outcome. A party that succeeds on an issue that is sufficiently significant to justify an order for separate determination, should usually have its costs of that issue - whether or not it resolves the whole proceedings: Floruit Holdings Pty Ltd v Sebastian - Builders & Developers Pty Ltd [2009] NSWCA 411 (Bergin CJ in Eq), (Allsop P and Young JA agreeing). Costs Payable Forthwith 23The final question is whether the plaintiff should have an order that his costs be paid forthwith. This is a departure from the usual order that reserved costs and costs arising from interlocutory applications are not payable until the conclusion of the proceedings: UCPR rule 42.7(2). That rule provides: (1)Unless the court orders otherwise, the costs of any application or other step in any proceedings, including: (a)costs that are reserved, and (b)costs in respect of any such application or step in respect of which no order as to costs is made are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2)Unless the court orders otherwise, costs referred to in sub-rule (1) do not become payable until the conclusion of the proceedings. 24The plaintiff relies upon the decision of Barrett J in Fiduciary Limited v Morningstar Research Pty Limited (2002) 55 NSWLR 1 which contains a summary of the factors that a court will consider when determining whether or not costs should be payable forthwith. 25One of the defendant's contentions was that "The evidence relied upon by Mr Ajkay on the question of ownership of the Die substantially overlaps with the evidence of, and is relevant to, determination of Prayers 2, 5, 6, and 7 of the Summons ..." It was said that this would mean the task of a costs assessor in quantifying costs that are confined to the alleged discrete issue would be impossible. In the defendant's view, any attempt by a costs assessor to assess costs confined to the issue would also be unduly prejudicial to it. 26I reject this submission. If there is an assessment, it will take place in accordance with Section 346 of the Legal Profession Act 2004 (NSW). This provision requires cost assessors to take into account what work was reasonable to be done, whether that work was carried out reasonably and what is a fair and reasonable amount to pay for that work. In making this determination, subsection (2) allows the assessor to have regard to a multiplicity of factors including the skill of the practitioner, the complexity, novelty or difficulty of the matter, the quality of the work produced, the time in which the work was required to be done and the outcome of the matter. Further, costs assessors are required to give parties an opportunity to make submissions on the assessment and have due regard to those submissions: Legal Profession Act 2004 (NSW) s 359. 27Any reasonably experienced cost assessor would be able to determine the extent to which the overlapping work was reasonable or required for determination of the separate question. Further, the opportunity to make submissions to costs assessors means that the defendants will be able to raise their concerns in the course of the assessment. 28Additionally, there are sound policy reasons for making costs orders payable prior to the conclusion of proceedings - particular where the orders arise in the context of the determination of a separate question. The overriding purpose of the Civil Procedure Act 2005 (NSW) and the UCPR is clear from Section 56: to facilitate the "just, quick and cheap" resolution of the real issues in the proceedings. This is the purpose that the Court is required to have in mind whenever it exercises its power under the Act or the Rules to make a procedural ruling. As Brereton J noted in Integral Home Loans Pty Ltd & Anor v Interstar Wholesale Finance Pty Ltd & Anor [2006] NSWSC 1464 at [6], the overriding purpose of the Act now imposes an obligation on the Court to take an interventionist approach to identifying and determining important issues separately where doing so will result in the expeditious resolution of proceedings. 29I am satisfied that the separate issue in respect of which costs are sought is a clearly identifiable and discrete element of the proceedings and that a departure from the usual rule is justified: Fiduciary Limited v Morningstar Research (supra). Furthermore the purposes of the Civil Procedure Act 2005 (NSW) and the corresponding obligation on the Court warrant an order in this case that the plaintiff's costs of the separate question be payable forthwith. The same reasons that make it appropriate to make a costs order on the separate question, rather than wait until the conclusion of the proceedings, also make it appropriate that those costs be paid forthwith. The successful party on the separate question should not have to wait until the uncertain and possibly far-off conclusion to the overall proceedings. Orders 30Finally, the plaintiff seeks orders for the discrete costs components that I have set out in paragraph [5] above. I do not think that level of dissection is appropriate. I will however make the following orders: (1)The defendant should pay the costs of an incidental to the resolution of the plaintiff's claim for ownership of the die described in prayer 1 of the summons filed on 25 February 2011, including but not being limited to: (a)the costs of the interlocutory applications in proceedings 2010/34504 referable to the plaintiff's claim to ownership of the 412 die; (b)the costs of inspection of the 412 die; (c)the costs of the expedition application. (2)The costs should be payable forthwith. (3)The proceedings should be removed from the Expedition List. (4)I stand over the balance of the proceedings before the Registrar in Equity on 12 August 2011. ********** 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: 05 August 2011