Supreme Court New South Wales Medium Neutral Citation: Ramm Investments Pty Ltd v Nguyen [2017] NSWSC 1742 Hearing dates: 12 December 2017 Date of orders: 13 December 2017 Decision date: 13 December 2017 Jurisdiction: Common Law Before: Adamson J Decision: (1) Order the defendants to pay the plaintiffs' costs of the proceedings. (2) By consent, order that the proceedings be otherwise dismissed. Catchwords: COSTS – where earlier proceedings resolved by heads of agreement following mediation – where non-compliance with agreement by party – where further proceedings filed for specific performance of agreement – obligations performed by first return date – conduct of defendants unreasonable – HELD – not required to make time of the essence before suing for specific performance – defendants were on notice – obligation to use "reasonable endeavours" – failure of defendants to respond to plaintiffs' solicitors demands – costs warranted because of disparity between the reasonableness of plaintiffs' conduct and the unreasonableness of defendants' conduct Legislation Cited: Conveyancing Act 1919 (NSW), s 13 Cases Cited: Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 Texts Cited: KE Lindgren, Time in the Performance of Contracts: especially for the sale of land (2nd ed 1982, Butterworths) Category: Costs Parties: Ramm Investments Pty Ltd (ACN 001 902 370) (First Plaintiff) Ralph Mesiti, Nick Pahos and George Leros as partners in the partnership trading as Ralph's Pharmacy (Second Plaintiff) Hung Trung Nguyen (First Defendant) Khanh Ngoc Huynh (Second Defendant) Representation: Counsel: M Bennett (Plaintiff) C Freeman (Defendant) Solicitors: Coleman Grieg Lawyers (Plaintiffs) Than & Co Solicitors (Defendants) File Number(s): 2017/227283 Judgment Introduction 1. These proceedings were resolved by agreement except as to costs. The plaintiffs, for whom Mr Bennett appeared, sought an order that the defendant pay their costs. In the alternative, they sought an order that each party pay its, his or her own costs. The defendants, for whom Mr Freeman appeared, sought an order that the plaintiffs pay the defendants' costs of the proceedings. In the alternative, Mr Freeman submitted that there ought be no order that the defendants pay the plaintiffs' costs after 21 September 2017. 2. In order to address the question of costs it is necessary to summarise the background to the proceedings. Factual background 1. Ramm Investments Pty Ltd (the first plaintiff) is the registered proprietor of land known as 248 Queen Street, Campbelltown (Lot 248). Ralph Mesiti, Nick Pahos and George Leros (the second plaintiffs) operate a pharmacy business from part of the first plaintiff's property. Hung Trun Nguyen and Khanh Ngoc Huynh (the defendants) are the registered proprietors of land known as 250 Queen Street, Campbelltown (Lot 250), which is immediately adjacent to Lot 248. 2. In January 2009 there was a fire on Lot 250, as a consequence of which a concrete slab on Lot 250 was excavated. The plaintiffs alleged the excavation had the consequence that Lot 248 was affected by water which was said to flow from Lot 250 to Lot 248, causing damage to Lot 248. On 22 April 2015 the plaintiffs commenced proceedings against the defendants seeking relief in respect of the alleged damage. These proceedings were resolved at mediation on 23 February 2017 by heads of agreement, which relevantly provided: "1. The defendants will use their reasonable endeavours to commence and complete construction of a concrete slab on 250 Queen Street, Campbelltown ('250') within 4 months, and the slab will extend to the wall on 248 Queen Street, Campbelltown ('248'). … 4. The first plaintiff to remove all plastic electrical pipes and all other pipes on the wall of 248 where it adjoins 250 within 6 months. . . . 7. The defendants or their lawyer will issue a letter to the first plaintiff within 14 days confirming that: a. the defendants have called for quotes for the construction of the slab referred to at paragraph 1 above; and b. The defendants will use their reasonable endeavours to commence and complete construction of the slab within 4 months. 8. The defendants will remove the concrete slab on the right of way adjacent to the rear of Swimart and the Chinese takeaway shop, and level the concrete to the same level as the driveway, at their expense when the concrete slab referred to at paragraph 1 is constructed." 1. It was common ground that the first plaintiff's obligation under cl 4 and the defendants' obligation under cl 1 were independent obligations. 2. After signing the heads of agreement the defendants contacted their architect and project manager, Vuong Tran, and asked him to seek tenders and quotations to construct the concrete slab. However he was unable to be retained as he was ill. The defendants then retained another architect, Vinh Trang, to seek tenders and quotations for such work. 3. On 3 March 2017 the defendants received a quotation from Technique Plumbing Pty Ltd for the work for a total of $297,750 plus GST. By letter dated 3 March 2017 the defendants' solicitor wrote to the plaintiffs' solicitor and confirmed his instructions that the defendants had called for quotations to construct and lay the concrete slab. He also confirmed that the defendants would use their reasonable endeavours to complete the work within four months. 4. There is no evidence that the defendants did anything after sending that letter until they received a quotation from JLN Group Pty Ltd dated 1 June 2017 which was forwarded to Mr Tran, who may by that time have recovered. The amount of the quotation was $227,890 plus GST. 5. As far as the plaintiffs were aware, the works were not progressing since they did not observe any work being done on Lot 250. 6. On 7 June 2017 the plaintiffs' solicitors wrote to the defendants' solicitor and referred to cll 1 and 7 of the heads of agreement. They continued: "As at even date it appears to our client that no active steps have been taken to remove the rubbish on your clients property, that no active steps have been taken to level the property in readiness to construct the slab, that no active steps have been taken in relation to the levels of the said property in readiness for the said construction. Our client's position The actions and inactions of your client as detailed in the paragraph above appear to our client that your client has failed to take any active steps to complete construction as agreed. Your client's inactivities set out above show an indication of ignoring the time parameters in construction of the slab. Our client's position is that its damages will compound if said construction is not complete in accordance with the agreed Heads of Agreement. Arrangements have been made between our client and its tenants based on your client's performance of its obligations. What our client requires 1. A copy of the quotes that your client have [sic] called for pursuant to clause 7(a). 2. Construction to be completed on or before the due date, namely 23 June 2017 and to sight evidence of your client's efforts to achieve said result." 1. No response was received. The defendants received a further quotation on 8 June 2017 from Corvus Primesite Pty Ltd in an amount of $176,771.96 plus GST. However, this was not communicated to the plaintiffs. 2. On 20 June 2017 the defendants' solicitors again wrote to the plaintiffs' solicitor. They said, of present relevance: "We refer to our correspondence dated 7 June 2017. We note that since the date of that letter, we have not received any further response from you in relation to the concerns raised in that letter, and moreover, our client has not witnessed any active steps on the part of your client to comply with the Heads of Agreement made between the parties and dated 23 February 2017. We once again request from you: 1. A copy of the quotes that your clients have called for pursuant to clause 7(a) of the Heads of Agreement. 2. Confirmation that construction is completed on or before the due date of 23 June 2017. Our client reserves all its rights in relation to the above, and emphasizes that if inclement weather should continue or occur again, any flooding could cause fresh damages to our client and its tenants. We look forward to your responses." 1. The only response received to this letter was an email dated 21 June 2017 from the defendants' solicitor to the plaintiffs' solicitors which forwarded an email dated 9 June 2017 from Vuong Tran, the defendants' architect, to the defendants' solicitor which said: "Please find the quotations for the above project attached. We are negotiating with the builder at this point of time and expected [sic] to commence soon." 1. The date of 23 June 2017 provided for in cl 1 of the heads of agreement came and went without any works having been done. 2. On 4 July 2017 the plaintiffs' solicitors again wrote to the defendants' solicitor. They said, of present relevance: "We refer to previous correspondence in relation to this matter. We note that your clients have failed to: - comply with the provisions of clauses 1, 7, and 8 of the Heads of Agreement signed by all active parties on 23 February 2017 (the Agreement); or - satisfy our clients that any genuine attempt has been made by them to comply with the provisions of clauses 1, 7, and 8 of the Agreement. Accordingly our client demands that you advise when such work can reasonably be expected to be completed, having regard to the fact that as at 23 June 2017, 4 months have elapsed since the Agreement was made without any form of compliance with the abovementioned provisions of the Agreement. Further we demand that your clients advise as to the cause of their delay in complying with the provisions of the Agreement. We give your clients notice that all damage or loss of tenancy incurred by our client due to your client's non-compliance with the Agreement will be sought from them. We further advise that an application in the Supreme Court of New South Wales for relief that includes specific performance of the Agreement is being readied for filing. Accordingly, we seek your advices if you have instructions to accept service of process on your clients' behalf. This correspondence will be relied on the question of costs in any proceedings commenced due to your client's breaches of the Agreement. We would appreciate your responses to the above by mid-day Friday 7 July 2017. We await your advices." 1. As no response to the letter of 4 July 2017 was received, the plaintiffs commenced the present proceedings by filing a statement of claim on 26 July 2017. The date of filing was 19 days after 7 July 2017, being the time allowed for a response in the letter of 4 July 2017. In the statement of claim the plaintiffs alleged that the defendants had breached cl 1 of the heads of agreement. They claimed specific performance of cl 1 of the heads of agreement and, in the alternative, they sought damages. 2. By email sent on 28 July 2017 the plaintiffs' solicitors asked the defendants' solicitor whether he had instructions to accept service of the statement of claim. Eventually, on 19 September 2017, the defendants' solicitor communicated that he had those instructions. The statement of claim was served on 21 September 2017 under cover of a letter which informed the defendants' solicitor that there was a return date of 31 October 2017. 3. The filing of the statement of claim (of which the defendants' solicitor was aware) apparently produced results. On 21 September 2017 the defendants' solicitor wrote to the plaintiffs' solicitor and foreshadowed that "the works are estimated to be finished by the end of September 2017". He suggested that the proceedings ought be dismissed at the first return date (31 October 2017) with no order as to costs. The defendant's solicitor then set out the matters which he was instructed had been done by his clients commencing with the heads of agreement as follows: "1. The Heads of Agreement was signed on 28 February 2017 ("Mediation date"); 2. Very shortly after the Mediation date, Dr. Nguyen instructed an architect, Mr Vinh Trang ("Vinh") to attend to the works as his previous architect, Mr Vuong Tran ("Vuong"), who was responsible for obtaining the DA and CC for developing the site, was unable to carry out the works due to his ill health. 3. On 3 March 2017, Vinh provided our clients a quotation from TDK Concrete Works for concreting; 4. On 20 March 2017, Vinh provided our clients a quotation from Technique Plumbing Pty Ltd for plumbing works on site; 5. Dr. Nguyen authorised the works to be carried out as quoted in March 2017. However, upon preparation of preliminary works during the last week of March 2017, Vinh informed him that due to restricted access to the site and underground cablings, the quote would need to be revised with an additional fee exceeding $50,000. 6. At this time, Vuong's health was improving and he was able to obtain alternative quotes and to carry out the works. He was so instructed. 7. On 20 June 2017, your office sent a letter requesting quotes and confirmation of construction. 8. On 21 June 2017, we forwarded you an email from Vuong attaching two quotations. 9. The writer spoke to the builder this morning and he advised that the plumbing works and concrete slab should be completed by the end of this month." 1. The letter continued: "We further note that your client, the first plaintiff, has not complied with Item 4 of the Agreement notwithstanding that the time for such compliance has passed. We are instructed to request your client's strict compliance with such agreement by 29 September 2017 and in this respect time is of the essence. Our clients reserve all their rights under the agreement. We trust it will be complied with quickly so that the proceedings can ultimately be dismissed without order as to costs. In the circumstances, there is no utility in the parties spending any further moneys on this litigation. Your clients can inspect the works in early October 2017, which is well before the return date." 1. It is common ground that this was the first occasion on which the plaintiffs' obligation to comply with cl 4, and their breach of the obligation, was mentioned by the defendants. It is common ground that the works required to be done by the defendants pursuant to cl 1 of the heads of agreement were completed by 16 October 2017. 2. On 16 October 2017 the defendants' solicitor wrote to the plaintiffs' solicitors confirming that they had complied with its obligations under the heads of agreement; noting that the plaintiffs were in default of their obligations under cl 4 of the heads of agreement; and seeking a response to their letter of 21 September 2017 and confirmation of when the plaintiffs would complete the works required by cl 4. The letter concluded: "Our clients reserve their right to tender copies of this letter and the letter dated 21 September 2017 in Court on any submission of costs." 1. The plaintiffs completed those works by 27 October 2017. On that day the defendants' solicitor wrote to the plaintiffs' solicitors attaching two short minutes of order: the first provided for dismissal of the proceedings with no order as to costs; the second provided for a timetable for the further conduct of the proceedings. Also on 27 October 2017 the plaintiffs' solicitors wrote to the defendants' solicitor and rejected the first version of the short minutes and enclosed an executed version of the second suggesting that they be filed "to avoid any appearance on 31 October 2017". 2. When the matter came before the Registrar on 31 October 2017, Mr Bennett appeared for the plaintiffs and mentioned the matter on behalf of the defendants. He informed the court that the matter had been resolved and that the only outstanding issue was costs. Directions were made for evidence and submissions on that question. Consideration 1. The defendants argued that it was not appropriate that there be an order for costs in favour of the plaintiffs as there had been no hearing on the merits and, accordingly, no assumption could be made as to whether the plaintiffs would have been successful had the matter not been resolved. In particular, Mr Freeman emphasised that the defendants' obligation was only to use their best endeavours to have the work completed within four months and that, accordingly, breach ought not be assumed merely because the date passed without the works having been completed. He submitted that the effect of s 13 of the Conveyancing Act 1919 (NSW) was to require the plaintiffs to serve a notice to make time of the essence before the defendants would be in breach of their obligation under cl 1 of the heads of agreement. Mr Freeman argued that, as the plaintiffs had not served such a notice, the defendants were not in breach. 2. He submitted further that the plaintiffs were in breach of their obligation under cl 4 of the heads of agreement to remove the pipes and therefore, even if they would otherwise have been entitled to specific performance, their own breach would have disqualified them from a favourable exercise of this Court's discretion to order specific performance. 3. The defendants submitted that before the first return date they had proposed that the proceedings be dismissed with no order as to costs and that, if this was the result, they ought have their costs of the costs' argument paid by the plaintiffs. The defendants also submitted that the plaintiffs were seeking to re-litigate the original dispute which had been resolved by the heads of agreement and, accordingly, ought not have their costs of that attempt. 4. The plaintiffs submitted that the chronology demonstrated that the self-help measures they had employed to get the defendants to do the works were plainly insufficient and that, had they not had recourse to this Court, the work would not have been done as quickly as it eventually was once the statement of claim had been filed. Mr Bennett submitted that the defendants' solicitor failed to respond to the plaintiffs' solicitors for a considerable period at a time when there was no discernible progress. He emphasised that the plaintiffs were next door and could see that no work, whether preparatory or actual, was being done and were not appraised of any progress which the defendants were making behind the scenes. Mr Bennett submitted that, in that event, they were entitled to their costs of the proceedings as well as the costs of the costs' argument. 5. This case demonstrates the benefits of communication between solicitors and the harm that can be caused by silence. This is not to suggest that the solicitors themselves were at fault since solicitors are bound by their instructions and, if instructions are not forthcoming, may not be in a position to communicate to the other side. The chronology demonstrates that there was a degree of dilatoriness on the part of the defendants in communicating with the plaintiffs. The defendants were still "negotiating with the builder" in June 2017, although they were obliged to have used their best endeavours to construct the concrete slab by 23 June 2017. It was little wonder that the plaintiffs were concerned. The two letters of demand which they wrote before the contractual date (set out above) and the letter of 4 July 2017 (after the contractual date but before commencing proceedings) put the defendants on notice of their concerns. The letter which foreshadowed proceedings, dated 4 July 2017, did not receive an appropriate response until 21 September 2017. 6. I reject Mr Freeman's submission that it was necessary for the plaintiffs to make time of the essence before they could sue for specific performance. The principal purpose of such a notice is to permit the injured party to terminate a contract in circumstances where there might otherwise be doubt about whether a termination for breach would be lawful or might amount to repudiation. The effect of the plaintiffs' conduct in sending letters of demand was, although not in terms to make time essential, to ensure that they were not taken to have waived the time provision in cl 1 of the heads of agreement. In Time in the performance of contracts: especially for the sale of land (2nd ed, 1982, Butterworths), Professor Lindgren said, of present relevance at [240]: "One must distinguish three matters: the ex facie construction of time stipulations; Equity's 'weighing' of the importance really attached to them by the parties; and discretionary matters governing the award of specific performance. The first and second determined essentiality, the third determined the 'effect' to be given to those stipulations found to be non-essential." 1. While cl 1 of the heads of agreement cast the defendants' responsibility in terms of "reasonable endeavours", it does not follow that the time-frame of four months was not important, could be disregarded or that the clause would not be specifically enforced. The risk of water damage if the slab was not constructed was plainly foreseeable; delay was accordingly prejudicial to the plaintiffs; and damages were unlikely to be found to be an adequate remedy. 2. In these circumstances it was reasonable for the plaintiffs to commence proceedings since all matters within their knowledge pointed to a disinclination on the part of the defendants to construct the slab in a timely way. The plaintiffs were obviously and understandably concerned to protect their property from the damage that water could cause. I infer that they were also concerned that if they did not move to enforce their rights they might be taken to have waived insistence on compliance with the time provision in cl 1 of the heads of agreement. 3. The statement of claim relied on the defendants' obligations under the heads of agreement. It did not amount to an attempt to re-litigate that which had been resolved by the heads of agreement. To the extent to which the background to the making of the heads of agreement was alleged, it was by way of recitation of material background facts. 4. What occurred after the service of the statement of claim is consistent with the commencement of proceedings having a salutary effect on the defendants. I am satisfied that, in these circumstances, that it was reasonable, and apparently necessary, for the plaintiffs to commence the proceedings. 5. My conclusion is not altered by the fact that the plaintiffs themselves were in breach of their obligation under cl 4 of the heads of agreement. As referred to above, this obligation was entirely independent of the defendants' obligation to construct the slab. Moreover, as the plaintiffs was required only to remove pipes from the common wall the delay was not such as would cause prejudice to the defendants since the presence of the pipes did not cause any damage to the defendants' property or their enjoyment of it. The plaintiffs' obligation to remove pipes is to be distinguished from the defendants' obligation to construct the concrete slab which was regarded as necessary to prevent water damage to the plaintiffs' premises. Whether non-compliance by the plaintiffs with their obligation under cl 4 of the heads of agreement would have operated to disqualify them from specific performance of cl 1 of the heads of agreement need not be decided. However, it cannot be assumed that it would have had that effect. Their non-compliance was plainly not a matter of great moment to the defendants who mentioned it for the first time on 21 September 2017 in an apparent attempt to equate the plaintiff's breach with their own delay and thereby diminish the gravity of their own conduct. In any event, the breach was remedied well before the first return date of the proceedings on 31 October 2017. It did not excuse the defendants' apparent breach since the promises were independent. 6. I do not regard it as unreasonable for the plaintiffs not to accept the defendants' offer of 27 October 2017. The plaintiffs had incurred costs in drafting the statement of claim and commencing the proceedings as well as corresponding with the defendants' solicitor concerning service. It was not unreasonable of them to refrain from accepting an offer which would require them to forego such costs. Although the plaintiffs' solicitors chose to sign the alternative short minutes of order, this did not signify that they intended to pursue the proceedings; rather, it indicated that they wanted to avoid the further costs of appearing on 31 October 2017. As referred to above, Mr Bennett appeared on that day and informed the court that the plaintiff would not proceed on its statement of claim, save as to costs. 7. In Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 Davies AJA (Mason P and Meagher JA agreeing) said at [5]: "When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs." 1. I regard the present as an example of the last category of case referred to in the passage set out above. I am satisfied that there has been a marked difference in the reasonableness of the parties' action so that the plaintiffs should be rewarded for their reasonable actions and the defendants should suffer a detriment in costs. 2. As there is no further relief sought, it is necessary to make orders finally disposing of the proceedings. The parties agreed that the proceedings ought be dismissed. Orders 1. For the reasons set out above, I make the following orders: 1. Order the defendants to pay the plaintiffs' costs of the proceedings. 2. By consent, order that the proceedings be otherwise dismissed. ********** 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: 13 December 2017