Supreme Court New South Wales Medium Neutral Citation: Young v Smith (No 2) [2015] NSWSC 1267 Hearing dates: 28 August 2015 Date of orders: 02 September 2015 Decision date: 02 September 2015 Before: Sackar J Decision: See [38] Catchwords: COSTS – indemnity costs – where appropriate – whether exceptional circumstances – where adverse credit findings made – where proceedings conducted on false basis Legislation Cited: Civil Procedure Act 2005 (NSW) Cases Cited: Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 Calderbank v Calderbank [1973] 3 All ER 33 Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Oshlack v Richmond River Council (1998) 193 CLR 72 The Owners – Strata Plan No 68372 v Allianz Australia Insurance Limited (No 2) [2015] NSWSC 729 Woolworths Ltd v Olson [2004] NSWSC 896 Young v Smith [2015] NSWSC 400 Young v Young [2014] NSWSC 1475 Texts Cited: N/A Category: Costs Parties: Joanne Elizabeth Young - Plaintiff Josephine Aapa Smith – First Defendant Louise Thompson as Trustee for the Estate of Leslie James Young – Second Defendant Westpac Banking Corporation Limited – Third Defendant Representation: Counsel: D Campbell SC and G Gee - Plaintiff PJ Bambagiotti – First Defendant Solicitors: Greg Walsh & Associates - Plaintiff Buckingham Lawyers – First Defendant S Psaltis – Second Defendant HWL Ebsworth Lawyers – Third Defendant File Number(s): 2014/272808 Publication restriction: N/A Judgment 1. On 10 April 2015 I delivered the primary judgment in this matter: Young v Smith [2015] NSWSC 400 (primary judgment). Terms defined in those reasons bear the same meaning in these reasons. The proceedings related to the transfer of an interest in a property in Pyrmont from Mr Young to Ms Smith. On 10 April 2015 I made findings to the effect that the transfer of the interest in the Property was void because it was undertaken by Mr Young to defraud his creditors. 2. On 5 May 2015 orders were entered giving effect to my judgment. As is described in more detail below, it became apparent following the delivery of judgment and the entry of those orders that the proceedings had been conducted on a false premise and, in fact, Ms Smith had mortgaged the Property prior to the commencement of the proceedings to fund the purchase of a hotel. 3. By notice of motion filed on 30 July 2015 the plaintiff sought that the costs of the proceedings be paid on an indemnity basis by Ms Smith and that costs be payable in a lump sum. 4. The costs sought by Mrs Young extend not only to those of the proceedings before myself, but also those before Bellew J and Rothman J, who heard the application to restrain Mr Young and Ms Smith from dealing with the Property in 2014 (see Young v Young [2014] NSWSC 1475 (the injunction judgment)). 5. At the hearing on 28 August 2015 the issue of whether costs should be paid in a lump sum was deferred. Consequently, the only remaining issue is whether Ms Smith should pay costs on an indemnity basis. Background facts 1. The facts that led up to the transfer of Mr Young's interest in the Property to Ms Smith are set out [3]-[26] of the primary judgment. The transfer of the interest in the Property from Mr Young to Ms Smith occurred on 7 August 2014. On 2 September 2014 Mr Young became bankrupt and a trustee was appointed. 2. On 29 August 2014 Bellew J made ex parte orders to restrain dealings with the Property and preventing both Mr Young and Ms Smith from dealing with any property in excess of $1000 pending further order of the Court. 3. On 4 September 2014 Rothman J ordered that the injunction restraining Ms Smith and Mr Young from dealing with the Property remain in place. 4. As was discovered after the trial, on 2 February 2015 Ms Young executed a mortgage over the Property in favour of Westpac Banking Corporation Ltd (Westpac). 5. On 10 April 2015, as described above, I delivered the primary judgment. This judgment included adverse credit findings concerning both Ms Smith and Mr Young. 6. On 12 May 2015 Westpac was joined to the proceedings and orders 4 to 8 of the orders made on 5 May 2015 (which dealt with the setting aside of the transfer and the amendment of the certificate of title) were stayed. On that date, Ms Smith undertook not to deal with the proceeds of the mortgage entered into with Westpac and not to deal with any assets into which those proceeds have been converted. 7. On 21 May 2015, at a further directions hearing, Ms Smith extended those undertakings. 8. On 19 June 2015 consent orders were entered. These orders provided that orders 3 to 8 of the orders made on 5 May 2015 be set aside and included a declaration that Ms Smith held the Property subject to Westpac's registered mortgage and subject to a one half share held on trust for the second defendant. Contentions of the parties Mrs Young's submissions 1. Mrs Young relies on the following three matters in support of the application for indemnity costs: 1. Her offer to settle the dispute between herself and Mr Young as set out in a letter dated 10 September 2014; 2. The conduct of Ms Smith of the defence of the proceedings generally; and 3. Ms Smith's conduct in mortgaging the Property in 2015 despite the injunction in place at that time. 1. The letter to Buckingham Lawyers of 10 September 2014 appears as Annexure A to an affidavit of Mr Walsh dated 2 July 2015. Mrs Young submits that this should be understood to be a letter for the attention of Ms Smith because Mr Baker of Buckingham Lawyers was her solicitor at the relevant time. The letter was written at a time when there were no proceedings before the Court involving Ms Smith (other than the Notice of Motion before Rothman J). 2. Mrs Young submits that the letter made it clear that it related to the costs of any future proceedings, given the reference made to the ordinary orders for costs that could be made if the proceedings seeking to have the transfer set aside were successful. Mrs Young says that this letter was a genuine offer designed to resolve existing and future disputes with a compromise that included waiving Mrs Young's costs. 3. Mrs Young accepts that the letter does not comply with the rules governing an offer of compromise and arguably cannot strictly be taken to fall within the bounds of Calderbank v Calderbank [1973] 3 All ER 33. However, Mrs Young relies on Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 (Dean v Stockland Property Management) at [31]: An offer that does not comply with the rules relating to the making of offers of compromise can operate and be taken into account as a Calderbank offer (for example, Jones v Bradley (No 2) [2003] NSWCA 258 at [5]; Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) at [26]-[27]). Whether it operates as a Calderbank offer depends on the intention of the offeror as revealed by the terms of the offer (Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) at [27]). 1. Mrs Young points out that the letter is marked "without prejudice" and outlines the history of proceedings, forewarning Ms Smith of future litigation arising from the recent transfer by Mr Young of his interest in the Property to Ms Smith. 2. Mrs Young submits that the cost consequences are made clear to Ms Smith in the letter, and that the compromise position of Mrs Young is made manifest by Mrs Young's agreement to bear her own costs. Mrs Young submits that, consistent with authority, the letter manifests the relevant intention concerning costs and contains the relevant element of compromise to justify an order for indemnity costs from the date of the letter. 3. Furthermore, in relation to the conduct of Ms Smith in the proceedings, it is submitted by Mrs Young that the conduct of Mr Young and Ms Smith should be regarded as indistinguishable and that it is clear they were both conducting themselves so as to advance their mutual interest in keeping the property out of reach of Mrs Young. Mrs Young's submissions make reference to the various adverse credit findings made concerning Ms Smith's evidence. It is submitted that Ms Smith, having given evidence about the importance of the Property to her as a family home, subsequently indicated her willingness to lease the property: see the affidavit of Mr Walsh sworn 2 July 2015 at [14]. 4. Mrs Young refers to [42] of Dean v Stockland Properties Management where it was said that "…costs on the indemnity basis may be ordered if it appears that proceedings have been commenced or continued in circumstances where a party should have known that there was no real prospect of success." 5. Mrs Young also refers to the decision in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-1, quoting Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 at 288, where it was said that "[c]ourts in both the United Kingdom and Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases where 'there is some special or unusual feature in the case to justify the court exercising its discretion in that way'. 6. Mrs Young submits that the findings made in the primary judgment justify an indemnity costs order and that such a finding sits comfortably within the broad discretion that applies in determining an order for costs under s 98 of the Civil Procedure Act 2005 (NSW) and the express terms in s 98(1)(a)-(c). 7. Finally, Mrs Young submits that Ms Smith mortgaging the Property is a separate factor justifying an award of indemnity costs, at least from the date upon which it became apparent she had done so in defiance of the injunction in place at the time. Mrs Young points out that Ms Smith has not provided an explanation for her behaviour. Mrs Young submits that if the Court is not otherwise satisfied that an order for indemnity costs should be made, indemnity costs from 5 May 2015 should be awarded. Ms Smith's submissions 1. Ms Smith's position in relation to indemnity costs is: 1. In respect of the principal proceedings, there should be no order of indemnity costs as an order of party/party costs is appropriate in the circumstances; and 2. In relation to the "mortgage proceedings" (being everything that occurred after the delivery of judgment relating to the mortgage over the Property), Mrs Young should have her costs paid on a party/party basis. 1. In relation to the letter of 10 September 2014, Ms Smith says that the letter does not go so far as to convey the intention to rely upon it on the question of costs in the way that underlies the paragraphs relied on in Dean v Stockland Properties Management. Ms Smith draws attention to the judgment of Ball J in The Owners – Strata Plan No 68372 v Allianz Australia Insurance Limited (No 2) [2015] NSWSC 729 at [62], which she says stands for the principle that a failure to capitulate in the face of an invitation to do so cannot have costs consequences. 2. Ms Smith says the absence of the familiar Calderbank formula is stark, and can only be assumed to have been intended. Ms Smith says the reference made to costs in the letters is vague and, as it turns out, includes costs relating to the proceedings brought against Mr Young personally. 3. In those circumstances, Ms Smith submits that the letter should not bear upon the way costs are determined. 4. Ms Smith says that the proposition underpinning Mrs Young's submissions concerning Ms Smith's conduct – namely that Ms Smith's position should be elided with that of Mr Young – should be rejected. She submits that Mr Young is not a party to the proceedings and no third party costs application has been made. Ms Smith says that, despite their personal relationship and business enterprises, the evidence discloses that Ms Smith and Mr Young had and have separate interests. Consequently, they say the focus of the inquiry should be on Ms Smith's conduct. 5. Ms Smith submits that, even where evidence is not accepted or is found to be unreliable, and even if the Court considers that evidence is not entirely truthful, indemnity costs should not necessarily be orders. Ms Smith says, quite correctly, that the purpose of indemnity costs, as with all costs orders, is to compensate and not to punish: Oshlack v Richmond River Council (1998) 193 CLR 72 at [40] and [67]. 6. It is submitted by Ms Smith that for conduct to support the award of indemnity costs it must arise in the conduct of the case itself and must be misconduct causing loss of court time or inconvenience to the court; for example, the making of groundless allegations, and disregard of clearly established legal principles. 7. Ms Smith cites Woolworths Ltd v Olson [2004] NSWSC 896 at [6] where Einstein J found: [6] In Harrison even although the evidence of the particular parties was not accepted and they were found to have given false evidence and to have propounded false documents, the Court of Appeal holding was that the type of delinquency demonstrated did not approach that considered to justify a special order as to costs in Degmam Pty Ltd (in liquidation) v Wright (No 2) (1983) 2 NSWLR 354, but was rather a suggested form of delinquency in terms of the defendant's legal wrongdoing anterior to the litigation [albeit becoming the subject of the litigation]. 1. Ms Smith submits that advancing a case that does not find favour with the Court or giving evidence that the Court does not accept is not the sort of conduct that is exceptional enough to warrant an order for indemnity costs. Ms Smith submits that, at least in her mind, there was a justiciable controversy that required the Court to receive competing evidence and evaluate that evidence. Ms Smith submits that she could not, merely by conducting her case, have engaged in conduct that would warrant an order for indemnity costs. 2. In relation to what they refer to as the "mortgage proceedings", Ms Smith says this activity occurred outside the conduct of the litigation (although acknowledges that it impacted upon the litigation). Ms Smith submits that the issues surrounding the mortgage were resolved by consent, and that Mrs Young was not a "principal player" in the mortgage proceedings. Ms Smith submits it would be inconsistent for Mrs Young to be the beneficiary of an indemnity costs order where the primary parties involved in the mortgage proceedings were given costs on the ordinary basis. Consideration 1. I do not consider that this is a situation where Ms Smith merely gave evidence that was not accepted by the Court. Ms Smith gave her evidence in the knowledge that she had used the very subject matter of the proceedings as security for a loan to purchase a new hotel, in circumstances where she must have been aware an injunction was in place. I am fortified in my view on this based upon the fact that Ms Smith has not sought to deploy any material to suggest the contrary. This conduct rises above conducting a case that did not find favour with the Court. 2. The proceedings before me were conducted on a false basis because of her failure to disclose the mortgage. That finding is different to a case where a witness is disbelieved or a case is untenable. I cannot accept Ms Smith's submission, put by her counsel at the hearing, that even if Westpac's interest had been disclosed the proceedings would have been conducted in the same way. By involving Westpac in the way she did, Ms Smith not only robbed the proceedings of utility, she put the asset the subject of the proceedings beyond the reach of Mrs Young. 3. This is a very dramatic set of circumstances. This is not a case of a witness dissembling or even being mendacious. This is surreptitious behaviour in circumstances where it must have been clear to Ms Smith the impact it would have upon the proceedings. Conclusion 1. I consider that the plaintiff is entitled to costs on an indemnity basis for both the primary and the mortgage proceedings. I invite the parties to prepare short minutes to give effect to these reasons. Because of the nature of the discretion to be exercised I am of the view that separate applications should desirably be made to Bellew J and Rothman J for the costs of the proceedings before them. ********** 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: 02 September 2015