Saitannis v Katsolos (No 2)

I published the primary judgment in these proceedings on 27 October 2022 following a hearing that took place in the period 5 to 9 September 2022: Saitannis v Katsolos [2022] NSWSC 1468 (“J”).

These reasons deal with the final orders to be made in the proceedings, including the order as to costs.

As will be explained below, the primary judgment did not finally determine the issue of liability or the appropriate orders to be made. That was because both parties had not succeeded in establishing the relatively extreme positions that they adopted in the proceedings, and it had become apparent to me during the course of the hearing that the just outcome that was supported by the evidence was one that had not explicitly been sought by either party. As I will explain, at the end of the primary judgment I invited the parties to confer to see whether they could agree to final orders that would be most convenient to both sides.

In conformity with the approach adopted by the parties and in the primary judgment, and without meaning any disrespect, I will refer to the parties by their given names.

In accordance with directions that I made on 1 December 2022, Irene delivered submissions and draft short minutes of order on 7 December 2022. Helen and Louis replied by their submissions and draft short minutes of order on 16 December 2022. Irene delivered a reply dated 19 December 2022. In accordance with an order made on 1 December 2022, the determination of the outstanding issues has proceeded on the papers.

A comparison between the short minutes of order proposed by the parties shows that the principal outstanding issue is as to the costs of the proceedings. I will deal with that issue before I consider the other residual issues.

Helen and Louis’ position is that, as they will be successful plaintiffs, the Court should make an order that Irene pay their costs of the proceedings on the ordinary basis. Irene's position is that the just order is that there be no order as to costs with the intention that all parties bear their own costs of the proceedings.

It will be appropriate to start by recording the primary orders to be made which are now agreed by both parties, and which are:

The primary contest in the proceedings was one that will lead to the making of order 1. As to order 2, Helen and Louis indicated at the beginning of the hearing that they only disputed the quantum of the debt that they owed to Irene by a relatively minor amount. The contest between the parties concerning this small debt was in relative terms trivial, and not of a significance that it should have a real bearing on the appropriate costs order.

These reasons will assume that the reader has knowledge of the reasoning in the primary judgment, and I will only provide an explanation of those reasons where necessary for an understanding of these reasons.

Helen and Louis claimed the following relief in their statement of claim:

If the Court had found that Helen and Louis were entitled to the relief in prayers 1 and 2, then the consequence would have been that they would be declared to be the beneficial owners of the Georges Hall property, and an order would have been made that Irene transfer that property to them.

Not only will the Court not grant the primary relief sought by Helen and Louis, but, as will be explained below, as the hearing progressed, it became apparent to me that it was unlikely that it would be appropriate for the Court to grant the primary relief sought by Helen and Louis. I engaged in discussion with senior counsel for those parties, and, as will be seen, the nature of Helen and Louis' claim changed in response.

It has now been agreed between the parties that the Court will make an order that Irene pay Helen and Louis equitable compensation of $800,000. That order will fall within prayer 3 of the relief claimed in the statement of claim. That creates the appearance that Helen and Louis have succeeded in the proceedings, as indeed they have. However, for the reasons that follow, I consider that it is an over-simplistic approach for the Court to treat Helen and Louis as the winners and Irene as the loser.

The Court has an absolute discretion as to the costs order that should be made in the proceedings, although the discretion is one that must be exercised judicially: see s 98(1) of the Civil Procedure Act 2005 (NSW).

Generally, the Court makes costs orders on the basis of Uniform Civil Procedure Rules 2005 (NSW) r 42.1, which provides:

The application of this rule depends upon the identification of the so-called 'event', and is always subject to contrary order to meet the justice of the particular case.

Helen and Louis submitted that the relevant event is their success in the proceedings in obtaining an order that Irene pay them equitable compensation of $800,000.

Helen and Louis relied upon a number of authorities in support of this submission. In Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, McHugh J (dissenting in the result) said (footnotes omitted):

In Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373, the Court of Appeal said at [6]:

In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425, Macfarlan JA said (Meagher and Barrett JJA agreeing):

Helen and Louis relied upon the proposition that a party that is considered to be the losing party bears the burden of establishing a proper basis for any departure from the usual rule: Waterman v Gerling Australia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111 at [10].

I accept that these statements of principle are applicable in the present case, and the issue is how those principles should be applied.

It is necessary to explain relevant aspects of the history of the proceedings and the primary judgment.

As I have noted above, the primary claim made by Helen and Louis was that they were entitled to an absolute beneficial interest in the Georges Hall property, and that an order should be made that the property be transferred to them. It is true that in prayer 3 Helen and Louis made an alternative claim for equitable compensation, but that claim was described in their written opening submissions dated 31 August 2022 in the following terms:

This claim appears to be more relevant to prayer 4 of the statement of claim than prayer 3. In any event, Helen and Louis did not in any substantial way propound a claim for equitable compensation as an alternative to their primary claim until the very end of the hearing. The case was conducted as if the alternative claim in prayer 3 of the statement of claim was a pro forma alternative to the primary relief.

The parties agreed during the course of the proceedings that the Georges Hall property had a current value of $1,600,000. Had Helen and Louis succeeded on their primary claim, the value of that success would have been $1,600,000. As it has happened, they will be awarded equitable compensation of $800,000. That is why Helen and Louis say that they have succeeded in the proceedings and the event should be treated as being that success. There is, however, another way of thinking of the outcome. That is that the parties in substance achieved a draw, as Helen and Louis sought an outcome worth $1,600,000, and Irene resisted any order being made in their favour, but ultimately the result was an outcome precisely in the middle of the range sought by the parties.

It is significant that, as I observed at J [80]: "In the present case, the parties remained in their chosen trenches throughout the hearing, and did not address in any meaningful way the reasons why what I have found to be the real arrangement between the plaintiffs and Irene was never implemented." The parties prosecuted their respective cases at the extremes of the positions that were available until the very end of the hearing.

The success of the primary case propounded by Helen and Louis depended upon the Court finding that Irene had agreed to make an immediate absolute gift of the Georges Hall property to Irene and Louis in return for the payment of $100,000 to her other daughter, Anastasia. The property was Irene's only home and it had an agreed value at the time of $500,000. The alleged gift involved an aged, impecunious pensioner giving away her only home at a substantial undervalue in circumstances where Irene would have disinherited her other two daughters.

During the course of the hearing, it appeared to me that the conversations that Helen and Louis relied upon to establish their case against Irene might better be understood as involving Irene promising to leave the Georges Hall property to Helen and Louis in her will, rather than that she intended to make an immediate absolute gift: see J [58].

Furthermore, during the course of her evidence in cross-examination, Helen unexpectedly gave evidence of an additional aspect of her discussions with Irene that had not hitherto been disclosed in the evidence. That was that Irene would allow Helen and Louis and their children to move into the Georges Hall property on the basis that the granny flat attached to the property would be renovated, and Irene could live in the granny flat and be cared for by Helen and Louis indefinitely. This new aspect of the alleged agreement was capable of changing the complexion of the case significantly: see J [85]-[90]. As I ultimately said in the primary judgment at J [99]:

During the course of the hearing, I discussed these matters with counsel for the parties, so that the parties would have some understanding of the Court's developing thoughts about significant issues for the purpose of their providing their responses as they may have thought appropriate.

The initial response of Helen and Louis was to ask for leave to file an amended statement of claim (MFI 5). Ultimately, leave was not given to file the amended pleading, because, as I understand it, the thrust of Helen's and Louis's claim changed. The draft amended statement of claim was marked for identification on 9 September 2022, the last day of the hearing, during the course of the address of senior counsel for the plaintiffs (Tcpt, 9 September 2022, p 252(25)).

Helen and Louis sought to introduce the following new prayers for relief in their proposed amended statement of claim:

The proposed new prayer 2A was an apparent response to the possibility that the Court would find that Irene only promised to leave the Georges Hall property to Helen and Louis in her will, rather than that she would make an immediate absolute gift of the property to them.

At the stage Helen and Louis sought to amend their statement of claim, they were still primarily attempting to secure beneficial ownership of the Georges Hall property, albeit that the possible delay in achieving that outcome necessitated the additional claim for relief in proposed prayer 2A(a).

In Helen and Louis' written closing submissions dated 9 September 2022, and provided to the Court and Irene on the last day of the hearing, they sought in par 100, as an alternative to their primary relief, an award of equitable compensation of $800,000. The basis of that claim was explained in pars 96 to 99 as being comprised of an increase in the value of the property attributable to their renovations, the cost of the renovations, the cost of the loss of opportunity of retaining the Macquarie Fields Property, and the $100,000 that they had paid to Anastasia.

That, to my understanding, was the first time that Helen and Louis formulated this particular alternative claim for equitable compensation.

I am satisfied that this change in position was a response to the observations that had been made by the Court as to the possible effect of the evidence concerning the terms of the agreement, including Irene being cared for indefinitely in the granny flat when that aspect of the agreement had not been performed.

All of this led to me including the following observations at the end of the primary judgment at J [111]-[113]:

These observations reflected a possible outcome in the proceedings whereby Helen and Louis established that they had an enforceable right to be left the Georges Hall property in Irene's will, but no enforceable right to possession of the property pending the death of Irene. From Irene's perspective, the outcome may have been that she would become entitled to immediate possession of the property, but would be obliged to leave it to Helen and Louis in her will, so that her freedom to dispose of the property during her lifetime would have been constrained. I considered that that possibility was an outcome that may not be convenient to any of the parties, and that a more suitable remedy might be that Irene be obliged immediately to pay equitable compensation of $800,000 to Helen and Louis.

It was in these circumstances that the parties agreed that the final orders to be made by the Court should include orders 1 and 2 that I have set out above. Those orders will not be made on the basis of a final determination of right by the Court, but will be agreed orders to reflect the preferences of the parties constrained by the indications given by the Court concerning the range of possible outcomes that may be available on the evidence.

In these circumstances, I am satisfied that it will not be just to determine the cost of the proceedings on the basis that the event is the success of Helen and Louis in obtaining a judgment for equitable compensation of $800,000, when the primary relief that they sought was beneficial title to a property worth $1,600,000. This is not a case where the plaintiffs have made a claim for $1,600,000 composed, from the outset, of a number of sub-claims, where plaintiffs have succeeded on some of those claims and failed on others. This is a matter where the plaintiffs singularly pursued a claim for absolute title to a property worth $1,600,000, but that claim would have failed, as prosecuted. The plaintiffs' position changed during the course of the hearing in response to the evidence and observations made by the Court, and evolved into an alternative claim for equitable compensation of $800,000 at what was virtually the last minute. That alternative claim had not in any real sense been foreshadowed or prosecuted. The probable outcome of the proceedings, in the absence of agreement between the parties, was a declaration that Irene was obliged to leave the Georges Hall property to Helen and Louis in her will, but otherwise that she would be entitled to possession of the property during her lifetime. The parties have responded to that possibility sensibly, and agreed upon primary final orders that the Court probably would not have been able to make in the absence of the agreement.

The result is that the proper way to view the 'event' is that each side has achieved an equality of outcome, so that the parties should be required to bear their own costs of the proceedings.

I will now deal with the other matters in dispute between the parties concerning the terms of the final orders.

First, Irene seeks an order that in addition to repayment of the debt owed to her of $24,000, Helen and Louis should be ordered to pay $5,510 interest under s 100 of the Civil Procedure Act from 1 January 2018. Irene made a loan of $25,000 to Helen and Louis on 15 December 2017, and the Court found that $1,000 had been repaid. Irene sought interest in prayer H of her cross claim.

Helen and Louis resist the Court making an order that they pay interest primarily because the loan was part of a family agreement that did not include any express term that interest be paid, and was implicitly inconsistent with interest being payable. As it is not proposed that Irene be ordered to pay any interest on the equitable compensation of $800,000, the fair outcome in the circumstances of this case is that no interest be paid on the $24,000 debt.

The second dispute between the parties concerns an aspect of the process for the sale of the Georges Hall property, which will be necessary in order to provide funds to Irene to pay the equitable compensation of $800,000 to Helen and Louis. The dispute is as to when Helen and Louis should vacate the property to enable completion of the sale to take place.

Irene's position is that Helen and Louis should vacate the property within 14 days of the exchange of contracts for the sale of the property. Helen and Louis' position is that vacation of the property should be required "on or before the date for completion of the sale". If the contract for sale contains the usual terms for completion, then completion will take place 42 days after the date of the contract. The parties propose that the arrangement for Helen and Louis to vacate the property will be an agreement between the parties and not an order of the Court. Consequently, if the Court does not require that the property be vacated before the date fixed for completion, Irene will face the risk that a delay in providing vacant possession will jeopardise the completion of the contract, and the only remedy to Irene will lay in breach of contract. That consideration supports a term requiring that Helen and Louis provide vacant possession before completion of the contract, although a requirement to vacate the property 7 days before the proposed date for completion, rather than 14 days after the date of the contract would appear sufficient.

There is no evidence that Helen and Louis propose to apply the $800,000 as part of the purchase price of a new home for themselves and their children, or that there will be any substantial inconvenience if they are required to give vacant possession a short time before the proposed date for completion.

In the circumstances, a fair result will be for Helen and Louis to vacate the property seven days before the proposed date for completion. I note their submission that they should not be required to vacate the property before 31 March 2023. Given the date when these reasons will be published, it is improbable that any contract for the sale of the Georges Hall property will be ready for completion before that date.

The final difference between the parties concerns whether, as submitted by Irene, the parties should share equally in payment of the agent's commission and costs of sale, including marketing and legal expenses, or whether, as submitted by Helen and Louis, those costs should simply be paid out of the proceeds of sale of the property, with the effect that Irene will bear all of those costs.

I am satisfied that those costs should be borne equally by the parties, consistently with the result in the case that, putting aside the small issue of the repayment of the loan, the parties have achieved equality in the degree of their success with the result that they should each be ordered to pay their own costs of the proceedings.

In these circumstances, the orders of the Court are as follows: