Quest Rose Hill Pty Ltd v The Owners Strata Plan No 64025

1. [1]

   The primary issue for determination in these proceedings is whether the referee report of Mr Robert Zikmann should be adopted by this Court in full or subject to a proposed qualification.

2. [2]

   Orders are also sought as to costs in relation to: (1) the proceedings before the referee; (2) notices of motions filed on 30 October 2014 and 3 November 2014 with respect to adoption of the referee report, including the costs of this hearing; and (3) a notice of motion filed by the plaintiff on 30 October 2014 and amended on 26 August 2015 seeking further orders relating to orders for specific performance.

Background Facts

1. [3]

   On 24 April 2013, I made orders that certain questions be referred for expert determination, including the following question:

2. [4]

   On the same day, I made orders for the specific performance of certain leases which were to be guaranteed by Mr Paul Constantinou.

3. [5]

   On 14 October 2014, Mr Zikmann, a Court-appointed expert, provided his determination (the Report) to the referred questions, answering the above question as follows:

4. [6]

   In Appendix B to the Report, Mr Zikmann provided a breakdown of that figure under the heading “Determined Administration Fund Budgets for 2010/2011”.

5. [7]

   On 30 October 2014, the plaintiff filed a notice of motion seeking an order that the Report be adopted subject to one qualification, namely that the Court should determine that the answer to the above question should be nil.

6. [8]

   On the same day, the plaintiff also filed a notice of motion seeking an order that Mr Spencer Bailey be substituted as the new guarantor of the leases which are the subject of the orders for specific performance made on 24 April 2013 and orders varying the terms of the leases. It appears from the correspondence between the parties that there had been a dispute as to whether the plaintiff was permitted to substitute the guarantor and whether sufficient information was provided to establish that Mr Bailey had the financial capacity to meet the obligations of the guarantor.

7. [9]

   On 3 November 2014, the second defendant filed a notice of motion seeking an order that the Report be adopted without qualification.

8. [10]

   On 9 December 2014, further questions were referred for determination by Mr Zikmann regarding whether he took the “Surplus/Deficit Report” of 30 June 2010 (Surplus/Deficit Report) into consideration in his Report and whether, if he did not do so, taking the Surplus/Deficit Report into consideration would have caused him to give a different answer to the question above. The Surplus/Deficit Report shows a budgeted income of $193,963.00 with an actual income of $0.00, and a budgeted expenditure of $15,000.00 with an actual expenditure of $11,129.41.

9. [11]

   Mr Zikmann’s response (the Supplementary Report) was that he did not take the Surplus/Deficit Report into consideration. He emphasised that his instructions were as follows:

10. [12]

    He stated that he was “not asked to determine” separately whether the total for each of the 58 line items taken together “was “reasonable in all the circumstances, given the existence of any particular document in evidence (such as that annexed to the Notice of Annual General Meeting dated 2 November 2010)”.

11. [13]

    Mr Zikmann indicated that in addition, he did not give the Surplus/Deficit Report “detailed consideration or weight” because the evidence that was provided to him was “voluminous” and, as the parties were legally represented he “expected that any party wanting me to give particular consideration to any particular document in evidence would have drawn my attention to it, and would have made submissions with respect to its claimed relevance”. He stated that no explanation as to the possible relevance of the Surplus/Deficit Report under the tab titled “Notice of 2010 Annual General Meeting” was provided.

12. [14]

    Mr Zikmann further stated that in any event, consideration of the Surplus/Deficit Report would not have caused him to give a different answer because it “is a two page document containing various figures and no explanatory notes” and “appears to make no reference to any of the costs which were paid by the Plaintiff during the period in question”.

13. [15]

    On 3 March 2015, the parties attended a mediation in relation to their dispute with respect to the leases. The second defendant in its written submissions before the event asserted that a conditional settlement was reached at that mediation, however when pressed, Counsel for the second defendant accepted that there was no evidence as to any such settlement.

14. [16]

    On 14 September 2015, the second defendant indicated that it was no longer contesting the substitution of Mr Bailey as guarantor and therefore the only remaining issue with respect to the leases would be the costs of the motion.

Referee report

1. [17]

   The plaintiff submits that Mr Zikmann erred by failing properly to consider the Surplus/Deficit Report which showed that as at 30 June 2010, the Owners Corporation had a “surplus” of $182,833.59 (being the difference between the outstanding levies of $193,963 and actual expenditure of $11,129.41). It argues that the “outstanding levies struck in 2009 ($193,963) vastly exceeded the reasonable budget for 2010/2011 as determined by the referee ($77,850)” and that “when setting contribution levies for the administration fund for 2010/2011, a reasonable owners corporation would have regard not only to the reasonable expenditure for the next financial period, but also any surplus carried forward from the previous financial period, including outstanding levies”. The crux of the plaintiff’s argument is that the referee “confused the concepts of a reasonable budget with a reasonable levy”.

2. [18]

   The plaintiff further argues that the Surplus/Deficit Report was part of an Agreed Bundle of Documents tendered for the purposes of the original Report and that it did not require explanatory notes as its content was “clear”.

3. [19]

   The plaintiff also submits that the Surplus/Deficit Report was “the subject of submissions by the parties”. However, it appears that the plaintiff is here referring to submissions made in respect of the further questions. Those submissions reveal an apparent concession on the part of the plaintiff that the parties had not “given consideration to, or … made any submissions, in respect of [the Surplus/Deficit Report]” in relation to the initial questions referred to Mr Zikmann.

4. [20]

   The second defendant submits that the Report should be accepted without qualification. It submits that the plaintiff’s criticisms are “unwarranted” because the Surplus/Deficit report does not evidence any “surplus” money and in fact there was no money available to the Owners Corporation. The second defendant argues that the “actual or expected expenses of the Owners Corporation cannot be met by unpaid levies from a previous year” and emphasises Mr Zikmann’s remark in the Supplementary Report to the effect that he would agree with the second defendant’s submission that:

5. [21]

   The second defendant further argues that the plaintiff failed to make submissions with respect to the Surplus/Deficit Report to Mr Zikmann. It submits that s 56 of the Civil Procedure Act 2005 (NSW) should be given “central significance” in determining whether to adopt the Report in its entirety or subject to the plaintiff’s proposed qualification: New Price Retail Services Pty Ltd v David Hanna [2014] NSWSC 553 at [53], [55].

6. [22]

   The principles to be applied by the Court in exercising the discretion conferred by r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to adopt, vary or reject in whole or part the report of a referee were summarised by McDougall J in Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [7] and have been approved by this Court on numerous occasions: see e.g. Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; 89 NSWLR 633; 310 ALR 113 at [24]; The Owners - Strata Plan 64415 v Vero Insurance Ltd [2014] NSWSC 1500 at [14]; The Owners - Strata Plan No 68372 v Allianz Australia Insurance Limited [2014] NSWSC 180 at [8]; The Owners of Strata Plan 76888 v Walker Group Constructions Pty Ltd [2016] NSWSC 541 at [9]. Those principles are as follows:

7. [23]

   I am of the view that Mr Zikmann did not fall into any relevant “error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding” with respect to the Surplus/Deficit Report.

8. [24]

   Section 75 of the Strata Management Act 1996 (NSW) requires an owners corporation at each general meeting to estimate how much money it will need to credit to its administrative and sinking funds for actual and expected expenditure. Section 75(3) provides:

9. [25]

   Mr Zikmann acknowledged that provision in his Report and indicated in his Supplementary Report that he would have considered the “actual cash reserves” of the owners corporation at the time of setting the relevant levies but that that was “not ventilated” before him. The S/DR indicates a budgeted income of $193,963.00, none of which is recorded as having actually been received. It does not appear to be in contest that the levies were unpaid and were in dispute. Therefore, the owners corporation did not have a “surplus” of $182,833.59 available to it as at 30 June 2010. In my view, Mr Zikmann was entitled to take the view, and correctly did, that what was relevant was the actual cash reserves and not the unpaid disputed levies.

10. [26]

    In any event, I am of the view that the plaintiff failed sufficiently to draw Mr Zikmann’s attention to the purported significance of the S/DR in its submissions with respect to the original questions posed to the referee.

11. [27]

    In P Ward Civil Engineering v Civil & Civic [2003] NSWSC 603, McClellan J indicated at [27] that the same principles apply before a referee as would apply if the matter had proceeded in court with respect to a failure to raise an issue that it is later sought to rely upon.

12. [28]

    In Coulton v Holcombe (1986) 162 CLR 1 at 11, the plurality of the High Court emphasised that the “interests of expedition, finality and justice” dictates that a party must be “bound by the conduct of their case at trial”.

13. [29]

    Similarly, in Water Board v Moustakas (1994) 180 CLR 491, the plurality of the High Court stated at 498 that “the opportunity to assert the new case at another trial should only be granted where the interests of justice require it and such a course can be taken without prejudice to the defendant”. The Court also noted that “the imprecision of the relevant particular cannot be the means of attributing to the plaintiff a case which he did not make”.

14. [30]

    In the present case, the plaintiff does not appear to dispute that it had the opportunity to direct Mr Zikmann’s attention to the purported relevance of the Surplus/Deficity Report. As noted by Mr Zikmann and seemingly by the plaintiff’s own admission (T1), the plaintiff failed to do so in its submissions with respect to the original questions.

15. [31]

    For these reasons, I am of the view that the Report should be adopted without the qualification proposed by the plaintiff.

Costs of proceedings before the referee

1. [32]

   The plaintiff submits that the lot owners represented by the second defendant should pay the costs of the proceedings as the plaintiff “was substantially successful” in the sense that the plaintiff contended that reasonable budgets were $40,010 and $47,565 for 2009-2010 and 2010-2011 respectively, which is closer to the figures in Mr Zikmann’s report than the sums of $193,963 and $273,680 that the second defendant contended were reasonable. In the alternative, the plaintiff contends that the lot owners should pay 80% of the plaintiff’s costs “representing the degree of the plaintiff’s success before the referee”.

2. [33]

   The second defendant submits that “each party had a measure of success and of failure before the Referee” and should pay its own costs.

3. [34]

   Section 98(1) of the Civil Procedure Act 2005 (NSW) provides:

4. [35]

   The general rule is that costs follow the event: UCPR r 42.1; Oshlack v Richmond River Council (1998) 193 CLR 72.

5. [36]

   The relevant principles as to the award of costs where there are multiple issues in the proceedings and neither party is wholly successful were summarised by the Court of Appeal in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]:

6. [37]

   In my view, the outcome of the proceedings before the referee is best described as “mixed”. It would not be appropriate to attempt to mathematically dissect the “degree” to which each party has been successful on each of the 58 line items or as to the overall appropriate sum.

7. [38]

   In any event, as submitted by the second defendant, any greater “degree” of success achieved by the plaintiff should be offset against its failed “attempt to re-agitate a further question, having not agitated it at all in the first reference hearing” (T25).

8. [39]

   Accordingly, in my opinion, each party should pay its own costs.

Costs of notices of motion in respect of referee report

1. [40]

   Both parties submitted that costs should follow the event with respect to whether the Report should be accepted in full or subject to the plaintiff’s proposed qualification.

2. [41]

   The second defendant, however, also submitted that if the plaintiff were successful, a distinction should be drawn between the costs of the application to adopt the report which “would have been required in any event” and the “costs of the qualification”.

3. [42]

   The plaintiff failed on its motion for the adoption of the Report with the proposed qualification. The second defendant succeeded on its motion for the unqualified adoption of the Report. In my view, in these circumstances the plaintiff should pay the costs of both motions.

Costs of notice of motion filed 30 October 2014 and amended 26 August 2015

1. [43]

   The plaintiff submits that on 14 September 2015, it “received an email, out of the blue, saying that the issues in relation to the leases are no longer pressed” (T19). It submits that because the lot owners represented by the second defendant “surrendered” and agreed to execute the leases in the form required by the plaintiff, the lot owners should pay the plaintiff’s costs of and incidental to the notice of motion (as amended) incurred to 14 September 2015. The plaintiff relies on the remarks of Burchett J in ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548 at 553:

2. [44]

   The second defendant denies that it “surrendered” and submits that instead each party should pay its own costs in accordance with the remarks of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622. In that case, McHugh J stated at 624-5:

3. [45]

   I am of the view that there was a genuine controversy between the parties as to whether the plaintiff was entitled to substitute Mr Bailey as the guarantor.

4. [46]

   The affidavits of Mr Bailey dated 6 November 2014 and 10 December 2014 indicate that the plaintiff was preparing to satisfy the court, if necessary, that Mr Bailey in fact had the financial resources to satisfy the guarantee obligations.

5. [47]

   The parties then mediated in March 2015, after which it is unclear precisely what transpired between the parties. What can reasonably be inferred I consider is that parties simply put matters on hold.

6. [48]

   The second defendant indicated it was no longer contesting the motion save as to costs on 14 September 2015, not long after the amended notice of motion was filed on 26 August 2015. On one view, the relative proximity between those dates indicates that the second defendant did not “surrender” as suggested by the plaintiff but rather the circumstances surrounding that event somehow prompted the second defendant to agree to execute the leases.

7. [49]

   Accordingly I am not satisfied that I can be confident that the plaintiff was “almost certain to have succeeded” if the motion had proceeded or that the second defendant “surrendered”. Nor am I satisfied that the second defendant acted unreasonably in contesting the motion. In such circumstances, in accordance with McHugh J’s remarks in Lai Qin, in my view each party should pay its own costs.