Supreme Court New South Wales Medium Neutral Citation: Durcan Isin v Nur Seda Ozen as Administrator of the Estate of the late Erdinc Ozen [2015] NSWSC 968 Hearing dates: 14, 17 July 2015 Date of orders: 17 July 2015 Decision date: 17 July 2015 Jurisdiction: Equity Division Before: Kunc J Decision: Costs thrown away to be defendant's costs in the cause Catchwords: COSTS – Costs thrown away – Hearing vacated on first day on plaintiffs' application – Defendant discovered two days before hearing that first plaintiff had been bankrupt – First plaintiff had not informed her own legal advisers of her bankruptcy – Bankruptcy had potentially significant effect on first plaintiff's case Cases Cited: Samootin v Shea [2010] NSWCA 371 Category: Costs Parties: Durcan Isin (First Plaintiff) Ertunc Yasar Ozen (Second Plaintiff) Nur Seda Ozen (Defendant) Representation: Counsel: R.P.V. Carey (Plaintiffs) J. O'Connor (Defendant) Solicitors: MCK Lawyers (Plaintiffs) Pelosi & Associates (Defendant) File Number(s): 2013/38173 Publication restriction: No EX TEMPORE Judgment Summary 1. The hearing of these proceedings commenced before me on Tuesday, 14 July 2015 with an estimate of three hearing days. In circumstances which are set out below it became necessary to vacate the hearing on the afternoon of that first day on the application of the plaintiffs. 2. This judgment deals with who should pay the costs thrown away by reason of the vacation of the hearing. The plaintiffs submit that those costs should be costs in the cause. The defendant submits that the plaintiffs should pay those costs on either the indemnity or ordinary basis. Having given the plaintiffs the opportunity to file evidence on the question and heard the respective parties' submissions, the Court has come to the view that in the exercise of its discretion the just costs order is for the costs thrown away by reason of the vacation of the hearing to be the defendant's costs in the cause. The proceedings 1. It is necessary to set out briefly some of the uncontested facts in these proceedings and the relief sought by the plaintiffs. Without any disrespect intended, the Court will refer to the parties and others by their given names. 2. The proceedings concern a property at Seven Hills (the "Property"). The Property was originally owned by the first plaintiff ("Durcan") and her then husband Bayram Ozen ("Bayram"). 3. On or about 13 October 1994 Bayram became bankrupt on his own petition. A few days before, on 5 October 1994, two of Durcan and Bayram's children, being their sons the second plaintiff ("Ertunc") and Erdinc, became the registered proprietors of the Property as tenants in common in equal shares in consideration of a payment to their parents $110,000. That was the amount which Durcan and Bayram owed the ANZ Bank, which had a mortgage over the Property. 4. Erdinc died intestate on 5 March 2013. Letters of administration in relation to Erdinc's estate were granted to his wife, the defendant ("Nur") on 23 November 2013. 5. These proceedings were commenced by summons filed on 19 December 2013. 6. In accordance with pre-trial directions which I made on 29 June 2015, Durcan and Ertunc filed a statement of claim seeking this relief: 1. A declaration that the defendant holds her remainder interest as the registered proprietor of the property comprising Folio Identifier XXX, also described as Lot XXX in Deposited Plan XXX, being the land and premises at XXX, Seven Hills, New South Wales (the Property), together with the second plaintiff as tenants in common in equal shares, on trust for the first plaintiff (the Trust). 2. A declaration that the defendant is estopped from denying the existence of the Trust over the Property in favour of the first plaintiff. 3. An order that the defendant execute a Transfer under the Real Property Act 1900 in favour of the first plaintiff, transferring her interest in the Property to the first plaintiff. 1. The plaintiffs' case has three parts: 1. The plaintiffs' primary case is that by a partly express oral and partly implied agreement, Ertunc and Erdinc purchased the Property to hold on trust for the Durcan. 2. Alternatively to the trust allegation, there was an estoppel by convention between Durcan, Ertunc and Erdinc that the latter two held the Property on trust for Durcan and that the Property belonged to her. 3. Further and alternatively, as a result of steps taken in 2011 and 2012 there was a perfected gift of the Property by Ertunc and Erdinc to Durcan that was enforceable in equity. 1. By her defence filed on 13 July 2015 in accordance with the pre-trial directions, Nur denies each part of the plaintiffs' case. In relation to the plaintiffs' claim of an estoppel by convention, Nur also relies upon a special defence of unclean hands. That special defence was not particularised. The hearing begins 1. The hearing of the proceedings commenced before me at 10.00am on Tuesday, 14 July 2015. Mr R.P.V. Carey of Counsel appeared for the plaintiffs and Mr J. O'Connor of Counsel appeared for the defendant. 2. Before Mr Carey opened the plaintiffs' case Mr O'Connor sought to press an application on behalf of the defendant. Although originally apparently brought in relation to both plaintiffs, Mr O'Connor subsequently accepted that the application really only related to the proceedings insofar as they were brought by Durcan. In relation to Durcan's case the application was for those parts of the claim which asserted the trust over the Property and the estoppel by convention to be struck out. 3. The basis of Mr O'Connor's application was the very late discovery by his client that after the transfer of the Property to Ertunc and Erdinc on 5 October 1994, not only did Bayram become a bankrupt on his own petition on or about 13 October 1994, but Durcan also became a bankrupt on her own petition on the same day. It appears from an affidavit on which Mr O'Connor relied that last Friday, 10 July 2015, Registrar Hedge granted access to the parties to certain documents that had been produced to this Court by the Family Court of Australia pursuant to intercurial arrangements which stand in the place of subpoenas. On that day, by reference to certain material which he inspected, the defendant's solicitor first became aware of Durcan's bankruptcy which the solicitor was able immediately to confirm by a search on the National Personal Insolvency Index. The fact of Durcan's bankruptcy was not something which Nur's solicitor drew to Mr O'Connor's attention until later in the day on Monday, 13 July 2015 after Nur's defence had been filed. For that reason the matters raised in Mr O'Connor's application were not pleaded in the defence. 4. Mr O'Connor's argument was that if, as Durcan and Ertunc alleged, Ertunc and Erdinc held the Property on trust for Durcan, then upon her bankruptcy Durcan's equitable interest in the Property vested in the Official Trustee in Bankruptcy (the "OT"). Furthermore, he submitted that Durcan's discharge by law from her bankruptcy on 14 October 1997 did not effect a re-vesting of her alleged equitable interest in the Property which, if the plaintiffs' contention of a trust was correct, remained vested in the OT. 5. It followed, so it was submitted, that Durcan did not have standing to assert any claim in relation to her alleged equitable interest in the Property and that the proceedings brought by her relying on that interest should be dismissed. Mr O'Connor referred the Court to the decision of the Court of Appeal in Samootin v Shea [2010] NSWCA 371 ("Samootin"), which the Court accepts is clearly on point and supports Mr O'Connor's submissions. However, I should record that while in Samootin the existence of the relevant equitable interests was common ground, in this case the alleged trust is at the forefront of the parties' dispute. 6. The Court did not embark upon a formal hearing of Mr O'Connor's application. Among other things, the Court made clear that, as Mr O'Connor fairly conceded, given his application would not dispose of the entirety of the proceedings, the Court would require some persuasion as to the utility of hearing the application rather than getting on with the hearing and considering the arguments that had been raised as part of the final submissions. One consideration which I had in mind at that point was, notwithstanding the apparent force of Mr O'Connor's submissions, the issue would never arise if the plaintiffs failed in their fundamental task of establishing the trust over the Property or the estoppel by convention. 7. In any event, Mr Carey informed the Court that he had only been told of Mr O'Connor's application at the outset of the hearing, was not in a position to deal with it and would require an adjournment to take instructions. Not least because Mr Carey's instructions from Durcan had to be conveyed through a Turkish interpreter, Mr O'Connor did not seek to be heard against the plaintiffs being given an adjournment until 2.00pm. 8. When the hearing resumed at 2.00pm Mr Carey informed the Court: 1. Until Mr O'Connor had made his application both he (Mr Carey) and his instructing solicitor had been completely unaware of Durcan's bankruptcy and had not had an adequate opportunity to consider its implications for their clients' case. 2. The plaintiffs could not gainsay the proposition that, on Durcan's case, her equitable interest in the Property would, as Mr O'Connor had submitted, have vested in the OT. However, Mr Carey could not make any concession in relation to whether that interest remained vested in the OT because he was instructed that the plaintiffs wished to make inquiries about what, if anything, may have happened at the time Durcan was discharged from bankruptcy. In any event, while the vesting of Durcan's equitable interest in the Property was not something that could be contested, there was a real argument as to whether Durcan's rights to maintain the estoppel by convention would have vested in the OT. Both of the submissions in the preceding sentence seem to me to be correct. 3. Even if the defendant's submissions in relation to Durcan's case were correct, the whole of the case could still be run by Ertunc in relation to his contention that he held his interest in the Property on trust for Durcan and both plaintiffs could still run the case relying upon perfected gift enforceable in equity. 4. The plaintiffs required an opportunity to consider the impact on their case of the revelation of Durcan's bankruptcy and were also unable to deal with Nur's special defence based on clean hands because the first time they had become aware of that case was when they had received Nur's defence on the previous day. 1. Faced with these responses from Durcan and Ertunc, Mr O'Connor said that he both did not require and opposed an adjournment. He no longer pressed for the determination of his application at the outset of the proceedings but submitted it could be determined as one of the issues to be addressed at the end of the proceedings. 2. Mr Carey subsequently confirmed that, for the reasons he had articulated (see paragraph [18] above), he had instructions formally to apply for the proceedings to be adjourned. 3. The Court acceded to the adjournment application. With no disrespect to Mr O'Connor, his opposition to the suggestion of an adjournment, while thorough, was not strenuous. It was obvious to the Court that the revelation of Durcan's bankruptcy had come as a surprise to all of the lawyers involved and potentially had a significant effect on the plaintiffs' case. 4. Three other matters informed the Court's view in favour of an adjournment: 1. Having regard to the statutory requirement for the just, quick and cheap resolution of the proceedings, there was no utility in proceeding with the hearing only as to the question of the perfected gift because, as Mr Carey submitted, much of the evidence about the alleged trust and estoppel would still need to be adduced. 2. It would be unfair to the plaintiffs to press on with the entire case and deal with Mr O'Connor's submissions about the effect of Durcan's bankruptcy at the conclusion of the hearing when the plaintiffs would not have had an opportunity to investigate what may or may not have happened in relation to Durcan's equitable interest in the Property when she was discharged from bankruptcy. 3. The plaintiffs should be given an opportunity to cure the problem of standing by coming to some arrangement with the OT. At the very least the plaintiffs would have to give serious thought as to whether the OT should be joined to the proceedings. 1. The question then arose as to who should bear any costs thrown away by reason of the vacation of the hearing. Mr O'Connor submitted that his client could not be said to be at fault because the plaintiffs had never suggested that Durcan had been bankrupt. Therefore, Nur's legal advisers had no reason to investigate whether Durcan had ever been bankrupt. Nor could Nur be criticised for raising the point when her legal advisers became aware of Durcan's bankruptcy only two business days before the commencement of the hearing. Mr Carey submitted that any costs thrown away should be costs in the cause but that, in order to develop his argument, he wished to have the opportunity to prepare evidence from his clients on the question. 2. I came to the conclusion that it would not be efficient or fair to either the parties or the judge who might ultimately hear the proceedings for this costs question to be reserved. As there was time available on the days that had been fixed for the hearing, I made directions for the plaintiffs to file and serve any evidence upon which they wished to rely in relation to the costs argument. The costs argument - evidence 1. Durcan filed three affidavits in support of her submission that the costs thrown away should be costs in the cause. As I have already noted, the defendant submitted that the plaintiffs should pay the defendant's costs thrown away on either the indemnity or the ordinary basis. 2. Durcan's affidavit disclosed: 1. Durcan was born in Turkey in 1949. 2. After five years of schooling, Durcan married Bayram in Turkey when she was 16 years old. 3. She migrated to Australia in 1974 with Bayram, Ertunc and Erdinc. A third son was born in Australia. 4. Durcan speaks and reads Turkish. She understands only a few words of English but cannot read English. 5. Since coming to Australia she has had only two or three years of unskilled employment. She has otherwise been involved in domestic duties. 6. Bayram had been a bookkeeper and qualified court interpreter. Durcan followed his instructions generally and relied on him in relation to financial and business matters and signed what he told her to sign with minimal explanation. 7. She does not know how, or understand the significance of the fact that, records show that she was a director and shareholder in one of Bayram's businesses. 8. Until the first day of the present hearing she was not aware she had been bankrupt. 9. She remembers Bayram telling her in 1994 that he was bankrupt and that she signed some papers transferring the Property to Ertunc and Erdinc so the bank would not take the Property. 10. She had never dealt with anyone called an official receiver or official trustee and knew nothing about her bankruptcy. 1. Between 1997 and 2003 Durcan and Bayram were involved in family law proceedings including in relation to maintenance payments. Durcan's affidavit attaches three Family Court documents which refer to her bankruptcy: 1. An affidavit of Bayram made on 28 June 1999 which refers to both him and Durcan being made bankrupt on 13 November 1994 (this date is incorrect, an error which is significant in the present application). 2. An ex tempore judgment of Judicial Registrar Halligan in the Family Court delivered on 30 November 1999 which, presumably on the basis of Bayram's affidavit, records that both Durcan and Bayram were made bankrupt on 13 November 1994. 3. An affidavit by Durcan made on 7 August 2002 which also notes that she and Bayram were declared bankrupt on 13 November 1994 (the "2002 Affidavit"). 1. There is nothing in the 2002 Affidavit to suggest that it was translated to Durcan and her current solicitor has sworn an affidavit that his search of the Family Court files disclosed no interpreter's certificate or affidavit. Durcan's evidence was that while she gave instructions to her family law solicitor in the presence of a friend or one of her sons who could speak Turkish, she signed documents such as the 2002 Affidavit only in the presence of her family law solicitor some time after she had given the instructions. That solicitor did not speak Turkish. In the brief cross‑examination which the Court permitted on this application, Durcan adhered to her evidence on this point. 2. In addition to Durcan's own and her current solicitor's affidavit, Ertunc swore an affidavit on this application deposing that he had never known of his mother's bankruptcy, that neither she nor Bayram had ever told him about his mother's bankruptcy, and that in September 1994 it had only been Bayram who had announced to the family that he was bankrupt. The costs argument - submissions 1. Mr Carey submitted that the Court should be slow to make findings on an interlocutory application such as this about Durcan's credit. Her credit was going to be a central issue in the main proceedings. He submitted that there was sufficient evidence for the Court to conclude that Durcan never knew that she had been a bankrupt up to and including the first day of the hearing of these proceedings. He proffered what in my view was the plausible explanation that the 2002 Affidavit had been prepared by her family law solicitor with the benefit of Bayram's earlier affidavit and Judicial Registrar Halligan's decision. That argument was supported by the fact that the wrong date for the bankruptcy appeared in all three documents. Mr Carey submitted that, in those circumstances, particularly when issues of credit should abide the final hearing, the only just order was for the costs thrown away by reason of the vacation of the hearing to be costs in the cause. 2. Mr O'Connor submitted that by reference to the three documents referred to in paragraph [27] above, there was clearly a basis for the defendant's costs thrown away to be paid by both plaintiffs on the indemnity basis because the Court should conclude that it had been deliberately misled by the plaintiffs. The only available conclusion, so it was submitted, was that a decision had been taken by someone not to disclose the fact of Durcan's bankruptcy. In making that submission Mr O'Connor, entirely properly, did not seek to cavil with what the Court had been informed by Mr Carey on the first day of the hearing, namely that Mr Carey and his instructing solicitor had only then become aware of Durcan's bankruptcy. The costs argument - resolution 1. I accept Mr Carey's submission that the Court should be slow on an application of this kind to make findings of credit. Because of the unusual circumstances, I did permit limited cross-examination of Durcan to afford the defendant an opportunity to test Durcan's evidence that she had known nothing about her bankruptcy. 2. It is not necessary for me to come to a final conclusion as to Durcan's credit to dispose of this application. It is sufficient to note that her evidence supports, at least at a prima facie level, a plausible conclusion that she did not know of her bankruptcy at the time it happened and that during the course of her Family Court proceedings no one had told her about it. Taking a view against her interest on this question, it seems to me that even if she had been told about her bankruptcy at the time she made the 2002 Affidavit, there is every reason to think she may not have understood what it meant and that it would not be something she was likely to remember thirteen years later when giving instructions for these proceedings. 3. Furthermore, again without having to come to any final conclusion about her credit, what I have seen of Durcan in the witness box persuades me that Durcan is unlikely to have understood, even if she recalled something about her bankruptcy, that it was something she should tell her current lawyers. There is also no reason for her current lawyers to have thought to ask or investigate if she had ever been bankrupt when the basis of her instructions to them was apparently that the transfer of the Property to Ertunc and Erdinc was to protect the Property because of Bayram's bankruptcy. 4. Finally, the Court accepts what it has been told by Mr Carey that both he and his instructing solicitor were taken by surprise by the revelation of Durcan's bankruptcy. 5. The evidence does not support the very serious conclusion that would be necessary for Mr O'Connor to make out the submission that he made in relation to indemnity costs. Nor am I satisfied in the circumstances of this case that the just result would be for the plaintiffs to pay the defendant's costs thrown away on the ordinary basis. Because there is a plausible case that Durcan did not know of her bankruptcy and where her credit and other related matters will be explored fully at a final hearing, the just outcome is that the costs thrown away by reason of the vacation of the hearing should be the defendant's costs in the cause. 6. This is the more appropriate order rather than an order that the costs thrown away be costs in the cause. That is because, even if no one on their side knew of Durcan's bankruptcy, it is nevertheless the plaintiffs that have had to seek the adjournment. There can be no criticism of the defendant. An order that the costs thrown away be the defendant's costs in the cause will ensure that the plaintiffs do not have their costs thrown away paid irrespective of what occurs in the final proceedings, but if the defendant is ultimately vindicated she will receive her costs thrown away by reason of the adjournment. 7. The formal orders of the Court are: 1. The costs thrown away by reason of the vacation of the hearing will be the defendant's costs in the cause. 2. The proceedings are adjourned for further directions to the Registrar's list on Thursday, 13 August 2015. ********** 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: 20 July 2015