Supreme Court New South Wales Medium Neutral Citation: Despot v Registrar General of NSW (No 3) [2016] NSWSC 1142 Hearing dates: 9 August 2016 Decision date: 18 August 2016 Before: Ball J Decision: 1. The plaintiff pay the third, fourth and seventh defendants' costs of and incidental to the notice of motion filed on 6 May 2014 by the plaintiff; 2. The third and seventh defendants pay the plaintiff's costs of and incidental to the notice of motion filed on 30 June 2014 by the third and seventh defendants; 3. The plaintiff pay the fourth defendant's costs of and incidental to the notice of motion filed on 1 July 2014 by the fourth defendant; 4. The third, fourth and seventh defendants pay to The Owners – Strata Plan 4542 all outstanding strata levies in respect of Lots 7, 24 and 25 in Strata Plan 4542 in relation to the period from 1 January 2009 to date together with any interest owing in respect of those levies; 5. The notice of motion filed by the plaintiff on 26 September 2012 seeking an order that Local Court Proceedings No 2012/218104 be transferred to the Supreme Court be dismissed; 6. The third, fourth and seventh defendants pay the plaintiff's costs of and incidental to the notices of motion filed on 26 September 2012 by the plaintiff. Catchwords: COSTS – whether Court at first instance has power to make a costs order in proceedings which have been the subject of an appeal Cases Cited: Boland v Dillon; Cush v Dillon [2015] NSWCA 183 Forge & Ors v Australian Securities & Investments Commission [No 2] [2007] NSWCA 42; (2007) 69 NSWLR 575 Despot v Registrar General of NSW [2014] NSWSC 1002 Despot v Registrar General of NSW; Dlakic trading as Johnston Vaughn Solicitors v Despot [2014] NSWSC 1303 Despot v Registrar General of New South Wales [2016] NSWCA 5 Category: Costs Parties: Ranko Despot (Plaintiff) Stelli Pty Ltd (Third Defendant) Westpac Banking Corporation (Fourth Defendant) Joyce Azzi (Seventh Defendant) Representation: Counsel: J Hewitt (Plaintiff) A Leopold SC (Fourth Defendant) Solicitors: Pamela J Enright (Plaintiff) Kheir & Associates (Third and Seventh Defendants) Henry Davis York (Fourth Defendant) File Number(s): 2009/298869 Publication restriction: Nil Judgment Background 1. This judgment concerns the costs of five notices of motion that first came before the court on 7 July 2014 and the final disposition of two of those motions. 2. Three of the motions (the specific performance motions) concern an order made in these proceedings by Macready AsJ on 15 April 2011 that, upon payment by the third defendant, Stelli Pty Ltd (Stelli), to the plaintiff, Mr Despot, or as he may direct, of the sum of $91,086.00, Mr Despot specifically perform a contract for the sale by him to Stelli of a strata unit that he owned in Double Bay. The contract had been entered into by the second defendant, Mr Maalouf, without Mr Despot's knowledge pursuant to a general power of attorney that Mr Despot had granted to Mr Maalouf. 3. The first of the three motions, which was filed by Mr Despot on 6 May 2014, sought a declaration, notwithstanding the order for specific performance, that Mr Despot had validly terminated the contract of sale following Stelli's failure to pay the balance of the purchase price of $91,086.00. 4. The second of the three motions, which was filed on 1 July 2014 by the fourth defendant, Westpac, which had lent Stelli part of the purchase price of the unit, sought an order that an interlocutory injunction granted by Barrett J on 15 August 2008 restraining the Registrar-General, who is the first defendant, from registering the transfer of the unit be dissolved. 5. The third motion (the setoff motion), which was filed on 30 June 2014 by Stelli and the seventh defendant, Mrs Azzi, the sole director and shareholder of Stelli who guaranteed Stelli's obligations under the sale agreement, sought an order to operate retrospectively that Stelli be entitled to set off the costs orders in its favour in these proceedings against the balance of the purchase price said to be owing by it. If the order had been made retrospectively that would have removed the ground of termination on which Mr Despot relied. Stelli and Mrs Azzi also sought orders that Stelli's obligation to pay Mr Despot the sum of $91,086.00 (plus interest) be stayed until Stelli's costs had been assessed. 6. I heard the specific performance motions commencing on 7 July 2014. In a judgment I delivered on 28 July 2014 (Despot v Registrar General of NSW [2014] NSWSC 1002) I dismissed the three motions. An appeal from the orders I made was dismissed by the Court of Appeal on 3 February 2016 (Despot v Registrar General of New South Wales [2016] NSWCA 5). 7. During the course of the hearing before me, Westpac gave an undertaking to the court that if the court concluded that a set off was not available, then it would pay into court or as the court directed the outstanding balance of the purchase price owing to Mr Despot together with interest. On 1 September 2014, pursuant to that undertaking, Westpac paid into court an amount of $150,887.86 on behalf of Stelli. There was then a competition for those funds between Mr Despot and a third party who had obtained judgment against Mr Despot. On 18 September 2014, Stevenson J made an order that the funds in court be paid to Mr Despot forthwith: Despot v Registrar General of NSW; Dlakic trading as Johnston Vaughn Solicitors v Despot [2014] NSWSC 1303. 8. The last two motions (the strata fee motions) concern strata fees. Following commencement of court proceedings by Mr Despot against the Registrar-General, Mr Maalouf, Stelli, Mrs Azzi and Westpac, among others, to restrain the Registrar-General from registering any dealings and to restrain Mr Maalouf acting pursuant to the power of attorney, Mr Despot agreed to vacate the property. In accordance with that agreement, which was reflected in interlocutory orders made by Barrett J on 15 August 2008, a real estate agent was appointed as managing and letting agent. The orders made by Barrett J included an order that the real estate agent pay the net rent to Westpac after deducting expenses including strata fees. Pursuant to the orders, Westpac was initially to credit the net payments to Stelli's mortgage payment liabilities. In the event that Mr Despot was ultimately successful in having the transfer set aside, Westpac was required to credit Mr Despot with the rent that it had received. 9. The real estate agent failed to deduct unit levies from the rent. As a consequence, the Owners Corporation in respect of the unit commenced proceedings in the Local Court to recover strata fees from Mr Despot as registered proprietor of the unit during the period from when he gave up possession of the unit to when the transfer to Stelli was registered. In one motion, filed on 26 September 2012, Mr Despot sought to transfer those proceedings to this court. In another, filed on the same day, Mr Despot sought an order that Stelli, Mrs Azzi and Westpac reimburse him for the strata fees for which it was said he was liable and interest on that amount. Those two motions were stood over on 7 July 2014 to a date to be fixed. They have not been heard. The parties' contentions 1. Westpac claims its costs of the specific performance motions and sought an order that its costs of the second of those motions (dealing with the interlocutory order of Barrett J) be paid on an indemnity basis. 2. There was no appearance by Stelli or Mrs Azzi, although Mr Leopold SC, who appeared for Westpac, indicated that he mentioned the matter on behalf of Mr Williams, counsel for Stelli and Mrs Azzi, who wished to indicate to the court that Stelli and Mrs Azzi supported Westpac's submissions and that he did not have anything to say against the proposition that Stelli and Mrs Azzi should bear the costs of the setoff motion. 3. Mr Despot contends that Stelli and Mrs Azzi should pay his costs of the setoff motion but that otherwise there should be no order for costs in relation to the specific performance motions. 4. In relation to the strata fee motions, there was no opposition to the court making an order requiring Westpac, Stelli and Mrs Azzi to pay the outstanding strata fees. Westpac is in the process of selling the unit. Settlement is expected this month. Westpac says that it will deduct the strata fees owing to the Owners Corporation from the settlement proceeds and pay the amount owed to the Owners Corporation. In those circumstances, it submits that no order should be made for the costs of those two motions. 5. Mr Despot, on the other hand, claims that he is entitled to the costs of the two motions. Disposition 1. No reason is advanced for why Stelli and Mrs Azzi should not be liable for Mr Despot's costs of the setoff motion. Mr Despot was successful in relation to that motion. He should have his costs of it. 2. It would not be practical to separate the costs of the other two specific performance motions. Consequently, it would not be practical to make an order for indemnity costs in relation to one of the motions and not the other. Although the motion concerned with Barrett J's judgment was dismissed, that was only because I concluded that the interlocutory orders made by Barrett J had already been dissolved by the final orders made by Macready AsJ. The motion was only necessary because of Mr Despot's contention that that was not the effect of the final orders. The parties ultimately accepted that, in those circumstances, the costs of the two motions should be treated together. 3. Mr Hewitt, who appeared for Mr Despot, advanced four reasons for why there should be no order for costs in relation to the two motions. First, the question of costs is now governed by the decision of the Court of Appeal. It is not open to this court to deal with costs. Second, Mr Despot was partially successful because, as a result of his motion, Stelli ultimately paid the $91,086.00 together with interest from money advanced by Westpac. Third, Stelli, Mrs Azzi and Westpac succeeded in the Court of Appeal on an issue that was only raised by an amendment that was made on the second day of the hearing of the motions and was not a ground relied on by the court at first instance. Fourth, Stelli, Mrs Azzi and Westpac are precluded by their delay from obtaining costs. That delay has caused Mr Despot prejudice because he needs leave to appeal against any costs order now. 4. I do not accept any of these submissions. 5. In support of his first reason, Mr Hewitt relied on the following statement of principle in Forge & Ors v Australian Securities & Investments Commission [No 2] [2007] NSWCA 42; (2007) 69 NSWLR 575 at [3]: Although the High Court dismissed the appeal from the judgment of this Court, the operative decision is now that of the High Court which has replaced the decision of this Court for all purposes. The orders of the High Court are now the source of any res judicata estoppels … 1. That statement of principle was referred to by Bergin CJ in Eq in Boland v Dillon; Cush v Dillon [2015] NSWCA 183 in relation to an application to prevent the respondent from enforcing costs orders made by the Court of Appeal in 2010 which had been the subject of an unsuccessful appeal to the High Court. Although her Honour ultimately decided the issue on different grounds, she said this (at [79]): In any event once the applicants sought that different order in the High Court they put in issue the 2010 Costs Orders of this Court. The High Court dismissed the applicants' appeals with costs. Thus the High Court affirmed this Court's judgment including the 2010 Costs Orders. Although it was not the subject of evidence it appears that the orders entered by the High Court did not expressly include the 2010 Costs Orders as the orders of the High Court. If in place of this Court's judgment in the 2010 Appeal including the 2010 Costs Orders the operative decision is now a judgment of the High Court, these applications must be dismissed. 1. In the present case, Mr Despot on appeal sought, among other orders, an order that Westpac, Stelli and Mrs Azzi pay his costs of the hearing at first instance. Since the Court of Appeal dismissed the appeal it did not make an order in those terms. However, in Mr Hewitt's submission, its judgment now governs the question of costs. I do not accept that submission. There were no orders for costs of the motions at first instance. That was a matter that was specifically reserved. Moreover, there was no order for costs by the Court of Appeal in relation to the hearing at first instance. Consequently, there is no operative order in relation to the costs of the hearing at first instance. The fact that the Court of Appeal was asked to make an order for costs of the hearing at first instance and declined to do so cannot itself be regarded as a decision governing those costs. Rather, the question of those costs remains unresolved. The position was different in Boland. In that case, there was a costs order in the court below. The fact that the High Court did not disturb that order must be taken as a decision of that court concerning those costs. That decision then became the decision on that subject-matter for all purposes. 2. In my opinion, it is not correct to characterise the payment to Mr Despot of the $91,086.00 together with interest as a partial success. The question of success or otherwise must be determined by reference to the orders that Mr Despot sought. Mr Despot did not seek an order that he be paid the $91,086.00. Such an order was inconsistent with the relief that Mr Despot did seek. His claim was that because the $91,086.00 had not been paid, he was entitled to rescind the contract. Moreover, such an order was unnecessary because the Court of Appeal had already made an order on 20 September 2013 that there by judgment for Mr Despot against Stelli for that amount. It was open to Mr Despot to enforce that judgment. He did not need a further order from the court to do so. 3. As to Mr Hewitt's third argument, the defendants did not fail in the Court of Appeal on the other points that they raised. They succeeded on them at first instance. They were successful both at first instance and in the Court of Appeal. The point on which the defendants did succeed in the Court of Appeal was not clearly separable from the other points in the case. It depended on the same factual substratum. In those circumstances, I cannot see why they should not be entitled to the whole of their costs of both motions. 4. As to delay, I do not accept that the defendants have been guilty of unexplained delay. It is apparent that they chose to wait for the outcome in the Court of Appeal before expending further costs on the motions. If Mr Despot had been successful on appeal, any costs incurred in the relation to the question of costs at first instance would have been wasted. Given that, it was not unreasonable for the defendants to wait for the determination of the appeal before seeking their costs of the two motions. 5. At the time that I delivered judgment I said the following about costs (at [84]): If the parties can agree on the orders that should be made in relation to costs of the motions filed on 6 May 2014 and 30 June 2014 and 1 July 2014, I will make those orders in chambers. If not, I will hear submissions on the question of costs at a time to be fixed with my Associate. If Mr Despot was concerned that he would suffer prejudice if the question of costs was not dealt with before his appeal was heard, it was open to him to approach my Associate to fix a time for the hearing of the argument in relation to costs. He did not do so. Any prejudice he suffers is of his own making, not because of any delay by Westpac or Stelli. 1. It follows that Mr Despot should pay Westpac's, Stelli's and Mrs Azzi's costs of the two motions. 2. That leaves the strata levy motions. 3. It is not disputed that there should be an order substantially in the terms sought by Mr Despot in relation to the payment of strata levy fees. If that order is made, and the fees are paid, it appears to be accepted that it is not necessary to make an order transferring the Local Court proceedings to this court. However, Westpac contends that it should not be liable for the costs of either motion because it was an innocent party in relation to the dispute about strata fees. It did not know that the order made by Barrett J that the strata fees be deducted from the rent had not been complied with. In its outline of submissions prepared for the hearing of the five motions it continued to maintain that it did not know how the amounts paid to it were made up. It did not oppose the transfer of the proceedings. It contended that it was Stelli's responsibility to pay the strata fees but it also submitted that it was happy to undertake to pay any outstanding strata fees out of the proceeds of sale. In circumstances where it was an innocent party and where it indicated that it was willing to pay the strata fees out of the proceeds of sale, it submitted that it should not have to bear the costs of the motions. 4. I do not accept Westpac's submission. 5. Westpac was a party to the proceedings in which Barrett J's orders were made and was bound by those orders. Those orders were not complied with. Westpac was a beneficiary of that non-compliance in the sense that it received a repayment of interest or principal from amounts that should have been retained by the agent. The strata levy motions were filed on 26 September 2012. It was open to Westpac at that time to investigate the extent of the overpayment, repay the amount overpaid and debit Stelli's account accordingly – or, at least, put proposals to that effect to Stelli. If it had done so, the motions would have been unnecessary. Instead, Westpac did not do that and Mr Despot incurred some costs in connection with the motions. Westpac accepts that orders in terms of the substantive motion should be made. In those circumstances, I cannot see why Westpac could not be liable for Mr Despot's costs of the motions. For similar reasons, Stelli and Mrs Azzi should also be liable for those costs. Orders 1. The court makes the following orders: 1. The plaintiff pay the third, fourth and seventh defendants' costs of and incidental to the notice of motion filed on 6 May 2014 by the plaintiff; 2. The third and seventh defendants pay the plaintiff's costs of and incidental to the notice of motion filed on 30 June 2014 by the third and seventh defendants; 3. The plaintiff pay the fourth defendant's costs of and incidental to the notice of motion filed on 1 July 2014 by the fourth defendant; 4. The third, fourth and seventh defendants pay to The Owners – Strata Plan 4542 all outstanding strata levies in respect of Lots 7, 24 and 25 in Strata Plan 4542 in relation to the period from 1 January 2009 to date together with any interest owing in respect of those levies; 5. The notice of motion filed by the plaintiff on 26 September 2012 seeking an order that Local Court Proceedings No 2012/218104 be transferred to the Supreme Court be dismissed; 6. The third, fourth and seventh defendants pay the plaintiff's costs of and incidental to the notices of motion filed on 26 September 2012 by the plaintiff. ********** 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: 18 August 2016