Supreme Court New South Wales Medium Neutral Citation: Sergi v Sergi (No 2) [2019] NSWSC 1221 Hearing dates: On the papers Date of orders: 16 September 2019 Decision date: 16 September 2019 Jurisdiction: Equity Before: Darke J Decision: Order that each party pay its own costs of the Notice of Motion filed on 2 April 2019. Catchwords: COSTS – interlocutory application resolved without a determination on the merits – where plaintiffs filed a Notice of Motion seeking summary judgment against defendants – where hearing of application adjourned – where parties agreed that Notice of Motion should be dismissed following leave being granted for the filing of an Amended Defence and Amended Cross-Claim – whether either party acted unreasonably in prosecuting or defending summary judgment motion – whether specific cost order should be made for defendants' non-compliance with Court order – Order made that each party pay its own costs Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Conveyancing Act 1919 (NSW), s 66G Uniform Civil Procedure Rules 2005 (NSW), rr 13.1, 42.10 Cases Cited: CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53 Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 ElecNet (Aust) Pty Ltd v Commissioner of Taxation (2016) 259 CLR 73; [2016] HCA 51 Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411 Long Leys Company Pty Limited v Silkdale Pty Limited (1991) 5 BPR 97,374 Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Renton v Kelly [2018] NSWSC 1377 Sergi v Sergi [2019] NSWSC 865 Tuitupou v Davies [2019] NSWSC 160 Category: Costs Parties: Umberto Sergi (First Plaintiff) Cleopine Pty Ltd (Second Plaintiff) Rosario Sergi (First Defendant) Georgio Sergi (Second Defendant) Posamusa Pty Ltd (Third Defendant) Antonio Sergi (Fourth Defendant) Maria Sergi (Fifth Defendant) Salvatore Papasidero (Sixth Defendant) Adalina Papasidero (Seventh Defendant) Sergi Bros Pty Ltd (Eighth Defendant) Sercon Developments Pty Ltd (Ninth Defendant) Ross Sergi Pty Ltd (Tenth Defendant) Representation: Counsel: Mr A M Gruzman (Plaintiffs) Mr D Barlin (First to Third and Eighth to Tenth Defendants) Solicitors: Warren and Warren (Plaintiffs) ESY Lawyers Pty Ltd (First to Third and Eighth to Tenth Defendants) File Number(s): 2018/388798 Publication restriction: None Judgment 1. This judgment addresses the question of costs of the plaintiffs' Notice of Motion filed on 2 April 2019. By that motion, the plaintiffs sought summary judgment, including against the first to third and eighth to tenth defendants, for the appointment of trustees for sale under s 66G of the Conveyancing Act 1919 (NSW) of various parcels of land in New South Wales. For ease of reference, and consistent with the Court's judgment delivered on 11 July 2019 (Sergi v Sergi [2019] NSWSC 865 – "the Earlier Judgment"), I will refer to these defendants collectively as the "active defendants". 2. The plaintiffs' summary judgment application was listed for hearing on 17 May 2019 but the Court did not proceed to hear it that day as the active defendants foreshadowed that they would seek to amend their existing Defence and Cross-Claim to raise new allegations of the existence of various partnerships affecting the various properties. The matter was adjourned so that the active defendants could put their pleadings in order. The parties then engaged in a further dispute over whether the active defendants should be granted leave to amend their pleadings. On 11 July 2019, for reasons set out in the Earlier Judgment, the Court granted leave to the active defendants to file an Amended Defence and Amended Cross-Claim. 3. On 16 August 2019, the parties agreed that following the reasons of the Court in the Earlier Judgment, it was appropriate for the Court to dismiss the plaintiffs' summary judgment motion. The parties, however, disagreed on the appropriate orders as to the costs of the motion. The Court subsequently made directions for the parties to serve and provide written submissions addressing the issue of costs with the matter to be determined on the papers. The Court has since received and read those submissions. 4. The relevant procedural history of the proceedings and the summary judgment motion is set out in the Earlier Judgment at [1]-[8]. This judgment assumes familiarity with the Earlier Judgment and it is not necessary to repeat any of the procedural history here. 5. In his written submissions, counsel for the plaintiffs sought an order that the plaintiffs' costs of the motion be paid on the ordinary basis, at the very least up to the date of filing, or alternatively that those costs be the plaintiffs' costs in the cause. Counsel's submissions were developed in a number of ways. Firstly, counsel identified the general discretionary power of the Court to award costs under s 98 of the Civil Procedure Act 2005 (NSW). Counsel then referred to r 42.10 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") which provides that in the event a party fails to comply with a requirement of the rules or of any judgment or order of the Court, the Court may order the party to pay such of the other parties' costs as are occasioned by the failure. Referring to this rule, counsel submitted that the active defendants failed to file their Defence and any Cross-Claim by 22 March 2019 in compliance with the Court's orders of 1 February 2019 requiring the defendants' to file such documents. It was submitted that the active defendants' failure to file such documents by 22 March 2019 enlivened the Court's power to award costs in relation to the summary judgment motion. Counsel noted that the summary judgment motion and the affidavit in support were prepared and ready for filing, with leave granted by the Court to file the same on 29 March 2019. It was submitted that the motion was appropriate in the circumstances. 6. Secondly, counsel accepted that since the application did not proceed to a determination on the merits, the proper exercise of the Court's discretion will ordinarily be to make no order as to costs unless it can be shown that one party has acted unreasonably in bringing or defending the application (referring to Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624–5). It was put that until leave was granted to the active defendants to file the Amended Defence and Amended Cross-Claim on 11 July 2019, the active defendants' Defence was vague and insubstantial with no real merit. I understood this submission to be to the effect that if the application had proceeded to a hearing on the merits, the plaintiffs would almost certainly have succeeded. 7. For their part, the active defendants sought an order that their costs of the motion be paid on an indemnity basis or, in the alternative, on the ordinary basis. In his written submissions, counsel for the active defendants suggested that there was no basis to displace the presumption that costs should follow the event, but nonetheless seemed to accept that that the application did not proceed to a determination of the merits. Several reasons were advanced as to why the plaintiffs acted unreasonably in filing and pressing the summary judgment application. Firstly, counsel submitted that the plaintiffs did not provide any prior warning to the active defendants of their intention to seek leave to file the motion. Upon learning that leave had been granted by the Court, counsel noted that the plaintiffs were informed of the reason for the delay on the part of the active defendants in filing their Defence and Cross-Claim. Counsel submits that the plaintiffs made a forensic decision to press their application in order to bring the proceedings to a premature conclusion without the determination of the real issues in dispute. 8. Counsel referred to other circumstances which were said to support the inference of a deliberate decision by the plaintiffs to pursue the motion for tactical reasons. Counsel referred to letters dated 4 and 10 April and 14 May 2019 sent by the solicitor for the active defendants requesting the plaintiffs to withdraw the motion, which requests were not acceded to. The active defendants also point out that the plaintiffs served a proposed amended Statement of Claim on 15 May 2019 but chose not to seek leave of the Court to file it. The active defendants also submitted that the Court was entitled to infer that the plaintiffs' failure to file a Defence to the active defendants' Cross-Claim was designed to delay the making of any admissions as to the existence of the partnerships said to affect the various properties. 9. It was further submitted that the plaintiffs' affidavit in support of the motion (the affidavit of Umberto Sergi sworn on 28 March 2019) did not comply with the requirement in UCPR r 13.1(1)(b) that there be evidence from the plaintiffs (or some other responsible person) that in their belief the active defendants have no defence to the plaintiffs' claim. 10. It was submitted that the Statement of Claim and the motion sought relief in respect of properties that were not in co-ownership (namely, two of the Edensor Park properties which are registered in the name of the eighth defendant but allegedly held on trust for the first plaintiff and first and second defendants) such that there was no basis for any order under s 66G of the Conveyancing Act. Counsel contended that the active defendants incurred significant legal costs and expenses associated with defending the summary judgment motion insofar as these properties were concerned. 11. Counsel submitted that the plaintiffs acted inconsistently with the assertion that the active defendants had no defence by seeking particulars of the Defence and the Cross-Claim and issuing a Notice to Produce based on matters raised in those pleadings. 12. Counsel submitted that the onus was on the plaintiffs to satisfy the Court that there was no real question to be tried, and no evidence was adduced by the plaintiffs to satisfy the onus. 13. Counsel submitted, consistently with the principles in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (supra) at 624–5, that were the summary judgment to proceed to a determination on the merits, the active defendants were almost certain to succeed in resisting the plaintiffs' application. 14. I note that the active defendants submitted that if the Court was not minded to make an order for indemnity costs in respect of the plaintiffs' motion, then the Court should make an order that the plaintiffs pay the active defendants' costs of the motion on the ordinary basis, except for the costs associated with the Edensor Park properties which should in any event be paid on an indemnity basis. Determination 1. Both parties correctly accept that the plaintiffs' motion did not proceed to a determination on the merits. Accordingly, the proper exercise of the Court's discretion will ordinarily be that there be no order as to costs unless it can be shown that one party has acted so unreasonably in bringing or defending the application that the other party should have its costs (see Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (supra) at 624–5; see also Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [25]-[30]). The use of the word "so" as prefacing the word "unreasonably" indicates a level of unreasonableness which is established by the circumstances in which the costs were incurred (see Renton v Kelly [2018] NSWSC 1377 at [56]; Tuitupou v Davies [2019] NSWSC 160 at [48]; see also Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5]). 2. There was nothing unreasonable in the plaintiffs filing and bringing the summary judgment application. At the time leave was sought to file the motion on 29 March 2019, the active defendants were in default of the Court's orders to file their Defence and Cross-Claim. Given these circumstances, the plaintiffs did not act unreasonably in seeking orders that would have the effect of summarily bringing the proceedings or at least a large part of the proceedings to a close. The plaintiffs' decision to file the motion may be seen as tactical but it was a decision they were entitled to make in the circumstances. They were not, contrary to the active defendants' submissions, obliged to inform the active defendants in advance of their intention to seek orders for summary judgment. 3. Nor do I think it was unreasonable for the plaintiffs to continue prosecuting the application up until 17 May 2019. The plaintiffs adduced sufficient evidence of co-ownership such as to be in a position to obtain orders for the appointment of trustees for sale for most of the properties in dispute. Other than in relation to the Edensor Park properties and some of the Port Macquarie properties, neither the Defence nor Cross-Claim disclosed a discrete basis for resisting an order for the appointment of trustees for sale. The plaintiffs were entitled to proceed on the basis that the partnership dispute was limited to the Edensor Park and Port Macquarie properties identified in the pleadings. I do not think it was unreasonable for the plaintiffs to refuse to accede to the demands contained in the letters dated 4 and 10 April and 14 May 2019 sent by the active defendants' solicitor. The content of those letters are plainly referable to the Defence and Cross-Claim as then formulated and refer, in large measure, to the claims of partnerships affecting only the Edensor Park and Port Macquarie properties. Nor do I think the Court is in a position to speculate on the reasons for why the plaintiffs ultimately decided against the filing of the amended Statement of Claim that was served on the active defendants on around 15 May 2019. 4. The plaintiffs apparently indicated to the active defendants by letter dated 10 May 2019 (and was clearly stated in the plaintiffs' written submissions filed on 14 May 2019) that they did not press their summary judgment application with respect to the Edensor Park properties. In those circumstances, and contrary to the active defendants' invitation, it is not now appropriate to conduct a hypothetical trial as to whether the Court would or could have made an order under s 66G of the Conveyancing Act in respect of those properties (see Nichols v NFS Agribusiness Pty Ltd (supra) at [25]-[30]). However, I do not think it was fundamentally untenable to seek orders for the appointment of trustees for sale of those properties in the first place. The properties may have been registered in the sole name of the eighth defendant, but if the plaintiffs were correct that the Edensor Park properties were held on trust for the unit holders (which included the first plaintiff) then it is conceivable that orders could be made for the appointment of trustees for sale on the basis that the first plaintiff was a beneficial co-owner. Of course such a conclusion would ultimately turn on the construction of the trust instrument to ascertain the precise nature of the interests of the unit holders (see CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; [2005] HCA 53 at [10], [15]; ElecNet (Aust) Pty Ltd v Commissioner of Taxation (2016) 259 CLR 73; [2016] HCA 51 at [48]-[49]). 5. By 10 May 2019 when the plaintiffs signalled their intention to abandon the summary judgment application in respect of the Edensor Park properties, the active defendants had already filed their evidence in opposition to the summary judgment motion (the affidavit of George Sergi sworn and filed on 3 May 2019). That affidavit went to some lengths to detail the nature of the alleged partnerships affecting the Edensor Park and Port Macquarie properties. It may be accepted that the active defendants incurred some costs that were wasted as a result of the plaintiffs' subsequently abandoning that particular aspect of the summary judgment motion. But that affidavit did not simply address the Edensor Park and Port Macquarie properties; it detailed activities in relation to alleged partnerships affecting the other properties, much of which was arguably outside the parameters of the partnerships pleaded in the Defence and Cross-Claim as formulated at the time. Nevertheless, the active defendants saw it as necessary to adduce evidence of partnerships affecting the properties other than those in Edensor Park and Port Macquarie in opposition to the plaintiffs' application. In those circumstances, I am not satisfied that the costs incurred in preparing that affidavit in respect of the Edensor Park properties ought to be visited upon the plaintiffs. Neither am I satisfied that it would be appropriate to make a specific order in respect of any other costs associated with the Edensor Park properties. It is well established that courts do not readily make costs orders directed to discrete issues. The relatively complex financial relations that evidently exist between the parties to these proceedings suggests that it would not be desirable to make orders of that kind here, especially in the context of a motion that did not proceed to final determination. 6. I also reject the active defendants' submissions with respect to the affidavit of Umberto Sergi sworn 28 March 2019. Contrary to those submissions, UCPR r 13.1(1)(b) does not require evidence from the plaintiffs (or another responsible party) as to whether there is in fact any filed defence to the plaintiffs' claim. Instead, it requires evidence of the belief of the plaintiffs (or another responsible party) that the active defendants do not have any defence to the plaintiffs' claim. The fact that the plaintiffs sought particulars and issued a Notice to Produce in reliance upon the Defence is beside the point. The active defendants' assertion that there is no evidence in Umberto Sergi's affidavit as to his belief that there is no defence is in any event incorrect. That belief is stated in paragraph 30 of the affidavit. Even if the affidavit did not comply with UCPR r 13.1(1)(b), this would not necessarily be fatal in circumstances where the summary judgment application is actively defended (see Long Leys Company Pty Limited v Silkdale Pty Limited (1991) 5 BPR 97,374 at 5). 7. The Court is not satisfied that either party acted unreasonably up to 17 May 2019 when the summary judgment motion was listed for hearing. 8. I accept that up to that time the plaintiffs were in a strong position to obtain much of the relief sought in their summary judgment motion. At least one or both of the plaintiffs were co-owners of the various properties with one or more of the active defendants. It is well established that once co-ownership of property is established, the Court's discretion to refuse relief is limited (see Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411 at [36]-[43]). As noted above, the Defence and Cross-Claim did not identify any particular basis upon which the active defendants resisted the appointment of trustees over the properties (with the exception of the Edensor Park properties and the Port Macquarie properties). But circumstances changed on 17 May 2019. It became clear to the Court that the pleadings between the parties had not crystallised all relevant issues in dispute, and it was not considered appropriate to proceed to hear the summary judgment application. From that point onwards, as noted above, the focus of the dispute moved on to the state of the pleadings, ultimately leading the Court to grant leave to the active defendants to file their Amended Defence and Amended Cross-Claim. These circumstances demonstrate that this is not one of those cases where it can be seen with confidence that one party was almost certain to succeed had the matter proceeded to a hearing on the merits. 9. It remains for the Court to deal with the plaintiffs' submissions concerning the failure of the active defendants to comply with the Court's orders of 1 February 2019 requiring the defendants' to file the Defence and any Cross-Claim by 22 March 2019. I am prepared to accept that the plaintiffs filed the summary judgment motion in part due to the active defendants' failure to file their pleadings by 22 March 2019. I also accept that the plaintiffs incurred costs in preparing the motion, including the costs associated with preparing the affidavit of Umberto Sergi sworn 28 March 2019. However, the quantum of these costs is not particularly great, having regard to the overall propensity of the parties to this hard fought litigation to incur significant costs, and the costs were incurred in circumstances where the motion was filed (after leave was obtained) without prior warning to the active defendants who were in fact (at the time the leave was sought) about to file their Defence and Cross-Claim. In these circumstances, I am not prepared to make a specific award in respect of the plaintiffs' costs up to and including the filing of the motion. 10. In my opinion, having considered the overall circumstances of the matter, the appropriate exercise of the Court's discretion as to costs is to order that each party pay its own costs of the plaintiffs' Notice of Motion filed on 2 April 2019. ********** 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: 16 September 2019