Watson v Watson

The plaintiff and defendant are brothers, and they are registered as tenants in common in equal shares of a property in Boolaroo, NSW. By these proceedings, the plaintiff sought orders for the sale of the property under section 66G of the Conveyancing Act 1919 (NSW). The brothers reached an agreement as to what should be done with the property, removing the need for the Court to determine the s 66G application. The brothers did not agree about the costs of the proceedings, however. The defendant seeks an order that the parties’ costs be taken from the proceeds of an intended sale of part of the co-owned property. The plaintiff contends that such an order should be made in respect of his costs but not the defendant’s costs.

The costs dispute arises, in part, due to the unorthodox progression of this case. The plaintiff commenced proceedings by a Summons filed in the General List on 20 January 2021 at 1:05pm. The Summons listed the hearing date as 3 March 2021. However, the plaintiff filed another Summons that day at 2:56pm. The second Summons was identical to the first, except that the second Summons was filed in the Real Property List and listed the hearing date as 19 February 2021. The first Summons was served on the defendant on 25 January 2021. The second Summons was not at that time served on the defendant.

On 19 February 2021, the listing date for the second Summons, in default of an appearance by the defendant the Court made orders for the appointment of statutory trustees. When the defendant became aware of the orders made in his absence, he filed a Notice of Motion to set aside the judgment under rule 36.15 of the Uniform Civil Procedure Rules 2005 (NSW). That motion was resolved by consent, to the effect that the Court’s orders of 19 February 2021 were set aside: the appointment of the statutory trustees (referred to in the order as the Second and Third Defendants) was terminated, and the brothers were ordered to pay the trustees’ costs and disbursements.

The matter was subsequently listed for a final hearing on 10 November 2021. As noted, the brothers reached an agreement in relation to the property. The Court made orders on 8 November 2021 by consent, which contemplated the registration of a subdivision of the property and the sale of one of the subdivision lots. The orders also provided that the proceeds of the sale of the lot would be used to pay out a mortgage, meet various expenses, and pay the previously-appointed trustees’ costs.

In his submissions, the plaintiff acknowledged that the usual position for applications under section 66G is that the costs of the application are to be taken out of the proceeds of sale of the co-owned property, and so in practical terms costs are shared by the co-owners (see Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]; David Ian Mansfield, the Trustee of the Property of Thi Ngoc Hahn Son, A Bankrupt v Tia [2021] NSWSC 1080 at [13]). However, the plaintiff submitted that there are two reasons to depart from that position in respect of the defendant’s costs.

The first reason is that the plaintiff is said to have “regularly” obtained orders for the appointment of trustees for sale on 19 February 2021, and the plaintiff consented to the have those orders set aside as an “indulgence” to the defendant. The second reason is that the plaintiff succeeded, in the consent orders of 8 November 2021, in obtaining an additional payment of $9,859.60 that is said to reflect mortgage payments made by the plaintiff in respect of the property.

The defendant submitted that the plaintiff’s agreement to set aside the judgment of 19 February 2021 was not an “indulgence” to the defendant. The defendant submits that there was a serious question to be tried as to whether the judgment was entered irregularly. The defendant submitted that the appropriate order is that the costs of each party be paid out of the proceeds of sale.

There has been no determination on the merits of either the motion to set aside the judgment or the substantive proceedings. In these circumstances, the usual outcome is that there is no order as to costs: Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624-5; Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [2] and [30].

By characterising the resolution of the motion as an indulgence, the plaintiff appears to be submitting that the motion was highly unlikely to succeed. If that is correct, it could justify some costs for the plaintiff: see Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (supra) at 625. However, I would reject that submission. I express no concluded view on how the motion may have been determined, but it seems at least arguable that the judgment was entered irregularly in circumstances where the order was made on the return date of the second Summons which was prior to the return date on the Summons that had been served. In other words, it was not almost certain that the defendant would fail on his motion. I therefore would not regard the plaintiff acceding to the defendant’s motion as an “indulgence”.

As to the substantive proceedings, the fact that the plaintiff obtained an adjustment of $9,859.60 by the consent orders of 8 November 2021 is of little moment. Had the matter been heard, and the Court made similar orders, the costs of the proceedings would likely have been shared between the parties in any event. That is because the costs of an application under section 66G are generally regarded as an incident of co-ownership: Kardos v Sarbutt (No 2) (supra) at [28]. The plaintiff’s perceived success is no reason to depart from the usual position and award the plaintiff costs; more is required, such as unreasonableness on the part of the defendant: see Stibbard-Leaver v Leaver [2021] NSWSC 65 at [5].

Usually, the costs of a section 66G application are taken from the proceeds of the sale of the co-owned property. That is effectively the order the defendant seeks, except that the costs are to be taken from the sale of the proposed subdivision lot. The Court is not now making an order under section 66G, but the context of a section 66G application is relevant to the question of costs. In my opinion, the appropriate exercise of discretion in these circumstances is that each party’s costs of the proceedings be paid out of the balance of the proceeds of sale as referred to in order 5 made on 8 November 2021, prior to any distribution to them of such proceeds. Order 5 will be varied accordingly.