Supreme Court New South Wales Medium Neutral Citation: Barel v Segal (No 3) [2012] NSWSC 1319 Hearing dates: 24 October 2012 Decision date: 02 November 2012 Jurisdiction: Equity Division - Expedition List Before: Pembroke J Decision: See [16] and [17] Catchwords: COSTS - partition suit - analogous to dissolution of partnership - general principle as to costs Legislation Cited: Civil Procedure Act 2005 Conveyancing Act 1919 Cases Cited: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2006] FCA 1427 Hamod v State of New South Wales [2011] NSWCA 375 Kardos v Sarbutt (No 2) [2006] NSWCA 206 Kiwi Munchies v Stern [2006] NSWSC 433 Lo Surdo v Public Trustee [2005] NSWSC 1290 Maio v Sacco (No 2) [2009] NSWSC 413 McKay v McKay (Costs) [2008] NSWSC 256 Official Trustee in Bankruptcy v Ritchie (No 2) (unreported, Supreme Court of New South Wales, Powell J, 25 November 1988) Spathis v Nanos (No 2) [2008] NSWSC 470 Squire v Rogers (1979) 27 ALR 330 Texts Cited: Equity Proceedings with Precedents (New South Wales) Category: Principal judgment Parties: Elie Barel - plaintiff Phillip Segal - defendant Representation: Counsel: J Van Aalst - for the plaintiff G Waugh - for the defendant Solicitors: Coopers Lawyers - for the plaintiff Low Doherty & Stratford - for the defendant File Number(s): 2010/412807 Judgment Introduction 1This is the final round in complex proceedings in which the plaintiff sought, and eventually obtained, an order for the partition of valuable land at Dover Heights in Sydney. All that remains is the question of costs, as to which, of course, I have a broad discretion. There have been two hearings before me resulting in two judgments and one hearing before a referee resulting in a lengthy and detailed report. The plaintiff's total costs are said to be $579,972.38. 2The defendant not only opposed the plaintiff's application for partition but sought an order for the sale of the property, even though it was difficult to see why this was in his best economic interests, and notwithstanding that the plaintiff and his family had been living on the property for many years. The likely practical effect of a sale was, as the defendant well knew, that the plaintiff and his family would be forced to leave the property. 3The enmity which the defendant developed towards the plaintiff, and the financial resources that were at his disposal, contributed to him adopting an intransigent and hard-fought position in the conduct of the litigation. I have no doubt that the stance taken by the defendant, and the instructions which he gave to his legal advisors, added to the complexity of the proceedings and substantially increased their cost. 4It is true that when I expressed my exasperation to the defendant during his cross-examination, he said that, in fact, he did not oppose a strata-subdivision "only this strata-subdivision". But the reality was that, until my judgment on 21 September 2012, the defendant submitted (and pleaded) that there should be a sale of the property in preference to the strata-subdivision for which (by the date of the second hearing) Waverley Council had given in-principle approval. In the result, the defendant failed in his endeavour and the plaintiff was successful. I accept that some matters of detail relating to the precise form of strata-subdivision remain for resolution by the trustees for sale. And there is a theoretical possibility that the trustees will not obtain strata-subdivision approval from the Council. But neither of these matters justified the withholding of the relief which the plaintiff sought. Costs of Accounting 5Another significant aspect of the litigation was the necessity for there to be an accounting between the parties. This was time-consuming and intensely factually detailed. The referee bore most of the burden of this aspect of the forensic exercise. But a considerable amount remained for my final resolution. Importantly, this was a task that would have been necessary whether there were a sale or a partition of the property. 6The accounting gave rise to two major questions: (1) what were the parties' proportionate responsibilities for a substantial loan from the Commonwealth Bank of Australia, and (2) what were the parties' respective contributions to the costs of the construction and development of the land? There was never any doubt that the plaintiff had the major responsibility for the Commonwealth Bank loan or that his contributions to the construction and development costs were more substantial than those of the plaintiff. The issue which needed to be addressed and determined in response to each question was "how much?" 7I do not regard either party as having achieved substantial success at the expense of the other in relation to the accounting questions. The adversarial process may not have been the best means of achieving a cheap and expeditious resolution, but it was necessary to go through some such process to achieve a result. It is not appropriate in relation to the accounting exercise to attempt to identify which party "won" which point. Both contributed to the final outcome and each was entitled to put the submissions which were advanced on his behalf. There was no clear-cut winner and the final figures reflected that fact. 8In the result, as a matter of general principle, and absent any special considerations that it may be necessary to apply because of the nature of a partition suit, I would give the plaintiff his costs of the partition claim but order each party to pay his own costs of the accounting. However a question arises as to whether a different order is necessary because a partition suit should be regarded as analogous to proceedings for the dissolution of a partnership. Partition Suit 9The usual starting point for applications under Section 66G of the Conveyancing Act 1919 is that the costs of both parties of having trustees for sale appointed are paid out of the proceeds of sale. That point was made in Kardos v Sarbutt (No 2) [2006] NSWCA 206 and in Equity Proceedings with Precedents (New South Wales) by Neville and Ashe. In Kardos v Sarbutt, Brereton J said at [28], Basten JA and Hunt AJA agreeing: In partnership proceedings, it was once the rule that no costs would be given up to the decree directing the account, a position that was not departed from except in cases of gross misconduct [Hawkins v Parsons (1862) 8 Jur (NS) 452; Parsons v Hayward (1862) 4 De GF&J 474]. The prevailing rule nowadays is that the costs of both parties of an action for dissolution are paid out of the partnership assets, unless there is some good reason to the contrary [Hamer v Giles (1879) 11 Ch D 942], except where the action is one which in substance is to try some disputed right, in which case the unsuccessful party will be ordered to pay the costs [Hamer v Giles; Warner v Smith (1863) 9 Jur (NS) 169]. The costs of taking accounts, although disputed, are usually defrayed out of the partnership assets [Butcher v Pooler (1883) 24 Ch D 273; Newton v Taylor (1827) 19 Eq 14]. Similarly, in proceedings under Conveyancing Act, s 66G for the appointment of trustees of sale of jointly held land, the costs are usually paid out of the proceeds, the rationale being that the costs of such an application are an incident of joint ownership. (emphasis added) 10In Equity Proceedings with Precedents (New South Wales) by Neville and Ashe the learned authors say at [1020], page 72: The usual order in respect of costs is that the costs of both parties of approaching the Court for the purpose of having trustees for sale appointed be paid out of the proceeds of sale. They are costs which are partly caused by the fact that the property is in joint ownership. It is not necessarily the fault of either party if they cannot agree as to the terms of sale or generally as to the sale of jointly owned property and either party has a right, given by s 66G, to approach the Court to have trustees appointed for that purpose. However, the costs payable out of the proceeds of sale are party and party costs. (emphasis added) 11Most cases refer to sale rather than partition. However in Official Trustee in Bankruptcy v Ritchie (No 2) (unreported Supreme Court of New South Wales, 25 November 1988), Powell J referred expressly to partition suits being analogous to suits for the dissolution of partnership. He said: There remains only the question of costs. Although costs lie in the discretion of the Court, that discretion, being a judicial, and not an unfettered, one must be exercised in accordance with established principle. The principle generally to be applied in litigation inter partes is that costs, to be taxed on a party and party basis, follow the event, "the event", in my view, not being limited to the final result of the proceedings, but being apt to embrace the fact of each and every issue debated in the proceedings. To this general rule certain exceptions - as, for example, proceedings in the Equity Division involving the construction of wills; proceedings in the protective Division - have come to be recognised. Whether or not proceedings seeking orders under Section 66G of the Conveyancing Act 1919 can be regarded as having become recognised as being excepted from the general principle may be open to doubt, although my recollection is that, in the past, it was common, either, that the costs of both parties be made payable out of the proceeds of sale (see, for example Re B. Cordingley (Deceased) (1948) 48 SR 248; Re Debney (supra)), or, for there to be no order as to costs (see, for example Re Jackson (1951) 52 SR 220), in all probability because, although co-owners are not partners, applications seeking orders for sale, or partition, of jointly-owned land were thought to be analogous to suits for dissolution of partnership. (emphasis added) 12More recently this general principle was recognised in Spathis v Nanos (No 2) [2008] NSWSC 470 (Jagot AJ) and in McKay v McKay (Costs) [2008] NSWSC 256 (Brereton J). In Spathis, after taking into account the general principle and the facts of that case, in particular that the defendant had opposed the making of any orders at all under Section 66G, Jagot AJ ordered that the plaintiff's costs should come out of the proceeds of sale, with the defendant left to bear her own costs. If the parties were equal joint owners, the practical effect of the order would have been that the defendant paid 50% of the plaintiff's costs. In McKay, after taking into account the general principle and the issues litigated, Brereton J ordered that the plaintiffs pay 60% of the defendant's costs (at [9], [13] & [14]). Application to this Case 13I accept the rationale of that general principle. I think it is appropriate to apply it in the general run of cases, whether the application is for sale or partition. However, a partition case may give rise to more room for argument and more complexity than a sale case. And of course, the general rule does not inhibit the court from making a different costs order whenever the circumstances of the case justify a departure from it. This is such a case. Indeed, Spathis and McKay are examples of this. In McKay Brereton J said at [7]: In straightforward 66G applications the prima facie rule is that costs come out of the proceeds of sale, although that is not necessarily so where the matter is contested and issues of equitable entitlement fall to be decided. 14The level of the defendant's opposition to partition, including his countervailing advocacy of a sale, which continued up to and including the second hearing, was of a different order. It went further than the manifestation of those differences and disagreements that might usually be expected between co-owners. The defendant's opposition to partition was entrenched and unreasonable. He sought, in my view, to maximise the hardship to the plaintiff without regard to what was fair or pragmatic. 15Partition was the obvious outcome. It was the basis on which the plaintiff and the defendant originally embarked on the development of the land. The defendant's opposition to partition in the litigation, and his advocacy of a sale, served only to increase the plaintiff's costs and the complexity of the proceedings. But it was to no avail. The defendant ultimately failed to prevent the plaintiff having the outcome which the justice of the circumstances dictated. A more reasonable defendant in his position would have agreed to partition subject to resolution of his particular concerns about the detail of the proposed plan of strata-subdivision. Those matters were always open to resolution by trustees for partition appointed by the Court pursuant to Section 66G(5) of the Conveyancing Act. 16For those reasons, I have reached the view that, after allowing for the general principle that I explained in paragraphs [9]-[13], and taking into account the fact that each party should pay its own costs of the accounting, but having regard to my view that the defendant caused additional expense by his obstructive behaviour, a fair and reasonable global outcome is that the defendant should pay 40% of the plaintiff's costs of the proceedings. I should add that the referee formed a similar assessment of the defendant, referring to his "unco-operative and dismissive behaviour". 17In arriving at the figure of 40% I have taken into account the fact that the accounting exercise took up more time and resulted in more cost and expense than the claim for partition. That is not to say that the claim for partition was straightforward, even without the necessary accounting. It was complex, a feature to which the defendant added substantially by, among other things, his claim that there should be a sale and his claims for equality money and an occupation fee. However, a figure higher than 40% would not reflect my conclusion that each party should pay his own costs relating to the accounting. Gross & Fixed Sum Costs Order 18I have also reached the view that the plaintiff's costs should be agreed or assessed in the usual way. This is not an appropriate case for a gross or fixed sum costs order. None of the circumstances that usually make it appropriate to make a fixed sum costs order are present. Neither party is impecunious: Australian Competition and Consumer Commissioner v Dataline.net.au Pty Ltd [2006] FCA 1427 at [122]. The costs are not to be paid out of a fund: Lo Surdo v Public Trustee [2005] NSWSC 1290 at [4]. And the amount in issue is certainly not modest: Kiwi Munchies v Stern [2006] NSWSC 433. The plaintiff sought to draw support from the decision and reason in Hamod v State of New South Wales [2011] NSWCA 375. But the circumstances which rendered such an order appropriate in that case are wholly absent here. I am satisfied that a gross and fixed sum costs order is neither necessary nor appropriate in all the circumstances of the case. Interest 19After the hearing concluded, the plaintiff claimed interest pursuant to Section 100(1) of the Civil Procedure Act 2005 on the amount of $428,080.50, calculated from April 2007. The plaintiff is entitled to the amount of $428,080.50 following an equitable accounting of monetary and non-monetary contributions. However, in Maio v Sacco (No 2) [2009] NSWSC 413, White J dismissed a similar claim from a plaintiff in similar circumstances: It is unnecessary to decide whether [these proceedings] could properly be described as proceedings for the recovery of money within the meaning of s 100(1). Even if the proceedings are properly characterised as proceedings for the recovery of money, the only interest which can be awarded under s 100(1) is interest for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. I will assume that the plaintiff's right to an equitable accounting can be characterised as an equitable cause of action for the purposes of the section. That right did not arise when the expenditure was made or the work was done. The right only arises in a partition suit, or an application for the appointment of trustees for sale, or on a similar event which terminates the co-ownership of the land. 20In that case, his Honour did however recognise equity's inherent jurisdiction to award interest "where it is necessary to do justice between the parties": [10]. The plaintiff has not elucidated any reasons for why interest is necessary to do justice between the parties. Indeed, the plaintiff made no claim pursuant to this Court's inherent jurisdiction. Notwithstanding, I am not persuaded that justice requires the award of interest to this amount. This is not a case where the defendant has had the use of some money and derived a benefit from it. Indeed, this is a case where the plaintiff has himself benefited from the works and improvements he has performed. I reject the claim for the award of interest. Orders 21I make the following final orders: (1)Order, pursuant to Section 66G(1) of the Conveyancing Act 1919 that: (a)Margaret Colleen Hole of Level 7, 9 Barrack Street, Sydney and Michael Osborne of Level 14, 6 O'Connell Street, Sydney be appointed trustees of the land situated at 6 Macleay Street, North Bondi (also referred to as Dover Heights) in the State of New South Wales being the whole of the land the subject of folio identifier 152/740177. (b)the said lands be vested in such trustees, subject to any incumbrances affecting the entirety, but free from any encumbrances affecting any undivided shares, to be held by them by the trusts referred to in orders 2 and 3. (2)Contingent upon and subject to the grant of subdivision approval by Waverley Council, the trustees shall: (a)partition the said lands generally in accordance with the plan of strata subdivision to which Waverley Council has already given in-principle approval as stated in its letter to the plaintiff dated 29 May 2012; (b)convey and assure Lot 1 in the said plan of strata subdivision when partitioned to the plaintiff (subject to any encumbrances); and (c)convey and assure Lot 2 in the said plan of strata subdivision when partitioned to the defendant (subject to any encumbrances). (3)Direct the trustees, before submitting a plan of subdivision to Waverley Council, to prepare a scheme of partition in accordance with Section 66G(5) of the Conveyancing Act 1919 and in so doing consult the plaintiff and the defendant and entertain such submissions from them as the trustees see fit on the three planning matters referred to in paragraphs [17]-[21] of the Court's reasons for judgment dated 21 September 2012. (4)Adopt the report of P R Callaghan SC, referee, dated 7 March 2012: (a)except for the referee's finding at paragraph 19 of his report that "a further $150,000 was drawn down on 15 August 2005 for the benefit of the plaintiff as to $75,000 and the defendant as to $75,000"; and (b)subject to the other qualifications and findings explained in the Court's reasons for judgment dated 21 September 2012. (5)Dismiss the defendant's notice of motion to the extent that it seeks orders rejecting or varying findings in the referee's report, remitting questions for further consideration and report and deferring adoption of certain findings in the report. (6)Declare that as at 3 September 2012 of the amount owing to the Commonwealth Bank of Australia of $894,172.29 for their joint home loan (account 255477505), as between one another the plaintiff is liable to repay $761,280.29 and the defendant is liable to repay $132,892. (7)Declare that upon partition the plaintiff is entitled to receive from the defendant the sum of $428,080.50 by way of equitable accounting. (8)Order that the defendant's estate or interest in the proposed Lot 2 prior to partition and thereafter stand charged with the payment to the plaintiff of the said $428,080.50. (9)Order that at the same time the plaintiff and the defendant receive signed transfers for Lot 1 and Lot 2 respectively from the trustees to give effect to the partition: (a)the plaintiff and the defendant repay in full their joint home loan to the Commonwealth Bank of Australia (account 255477505) in the following proportions (plus any interest and costs accrued since 3 September 2012 to the date of repayment of the Home Loan (Account 255477505) (as calculated by the Commonwealth Bank of Australia) to be split between the Plaintiff and the Defendant in the same ratios as set out below): the plaintiff as to: 761,280.29 894,172.29 the defendant as to: 132,891.00 894,172.29 (b)the defendant pay the plaintiff the sum of $428,080.40, being the sum declared to be due to the plaintiff by way of equitable accounting. (10)The Plaintiff and Defendant acknowledge that nothing in these orders prejudices the rights of the Commonwealth Bank of Australia to recover the moneys outstanding under the Home Loan (Account 255477505) (for which the Plaintiff and Defendant are jointly and severally liable) should the Plaintiff and/or the Defendant fail to pay the money in accordance with order 9(a) above. (11)Order that all of the costs and expenses of the trustees in the execution of the trust referred to in order 1 including but not limited to stamp duty (other than any ad valorem duty that may be payable in respect of the partition), filing fees to be paid in respect of the registration of the proposed strata plan, and fees or contributions reasonably required by the Waverley Council, are to be met by the parties in equal shares. Reserve liberty to the parties to apply if ad valorem duty is payable. (12)Statement of claim otherwise dismissed. (13)Cross-claim otherwise dismissed. (14)Defendant to pay 40% of the plaintiff's costs. (15)Liberty to apply. 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 November 2012