McInnes v Rheem Australia Pty Limited

1. [1]

   BELL P: I agree with the judgment of Gleeson JA.

2. [2]

   GLEESON JA: The applicant, Ms Nicole McInnes, seeks leave to appeal from a costs order made by Parker J in proceedings brought by Rheem Australia Pty Ltd (Rheem) against Mr Paul McInnes and his wife, Ms McInnes, in which Rheem made personal and proprietary claims against them arising from Mr McInnes defrauding Rheem of approximately $2.1 million over a period of eleven years, from September 2007 to October 2018. Mr McInnes and Ms McInnes separated in 2007 but continued to reside at a property jointly owned by them at Menai.

3. [3]

   The main issues in the proceedings were whether Mr McInnes had defrauded Rheem, whether the proceeds of the fraud could be traced into jointly or individually owned assets and bank accounts of Mr McInnes and Ms McInnes, including the Menai property, and the extent of proprietary and personal relief available to Rheem against each of them. Ms McInnes, who was joined as a defendant in March 2019, denied knowledge of the alleged fraud and did not make any relevant admissions in her defence in response to Rheem’s claims.

4. [4]

   In September 2019, Ms McInnes commenced proceedings against Mr McInnes in the Family Court of Australia claiming a property division under the Family Law Act 1975 (Cth) (the FLA proceedings) and sought an injunction in the Family Court to restrain Rheem from pursuing relief in the Supreme Court proceedings with respect to the Menai property. Ultimately, the FLA proceedings were transferred by consent to the Supreme Court and the two proceedings were listed for hearing together. However, as a result of a late amendment by Ms McInnes in the FLA proceedings, the hearing of the FLA proceedings was deferred until after the hearing of the Supreme Court proceedings.

5. [5]

   In his principal judgment delivered on 30 September 2020, the primary judge found that Mr McInnes had fraudulently obtained monies from Rheem in the amount of $2,098,608, and that Rheem was entitled to personal and proprietary relief against Mr McInnes: Rheem Australia Pty Ltd v McInnes [2020] NSWSC 1313 (the principal judgment).

6. [6]

   With respect to the claims against Ms McInnes, the primary judge concluded:

   1. (1)

      Rheem’s claim for payments on the mortgage of the Menai property of $290,000, substantially succeeded; Rheem was entitled to judgment against Ms McInnes (jointly with Mr McInnes) in the amount of $237,480.00;

   2. (2)

      Rheem’s claim for expenditure on building works at the Menai property in the amount of $153,850 failed;

   3. (3)

      Rheem’s claim in respect of $405,000 transferred by Mr McInnes from a joint account to Ms McInnes’ account at the end of December 2018 (of which an amount of $392,897 had been paid into Court by Ms McInnes shortly after she was joined as a defendant) substantially succeeded; and subject to an issue of election, Rheem was entitled to judgment in the amount of $286,215;

   4. (4)

      the remaining monies in Court are the proceeds of dispositions by Mr McInnes in favour of Ms McInnes which contravened the Conveyancing Act 1919 (NSW), s 37A; and

   5. (5)

      Rheem’s proprietary claim against Ms McInnes’ half share of the Menai property failed because of the defence of indefeasible title (Real Property Act 1900 (NSW), s 42), which had been pleaded by Ms McInnes shortly before the trial commenced.

7. [7]

   The primary judge also found that at the time the monies held by the Court were paid into court, Rheem was entitled to an equitable charge over Mr McInnes’ half share of the Menai property securing the amount of $286,215 and that this sum should be paid out in reduction of the joint liabilities of Mr McInnes for $2,098,608 and Ms McInnes for $286,215: see [6(1) and (3)] above.

8. [8]

   Following delivery of the principal judgment, Rheem sought an order for costs against Ms McInnes on the ordinary basis. Ms McInnes sought an order that Rheem pay her costs of the proceedings on an indemnity basis or, alternatively, on the ordinary basis, from 20 December 2019. That submission was based on an offer made by Ms McInnes’ solicitors in a Calderbank letter of that date.

9. [9]

   In his judgment delivered on 23 November 2020, the primary judge rejected Ms McInnes’ claim for a special costs order from 20 December 2019 based on the Calderbank letter, finding that Rheem’s refusal of that offer was not unreasonable and that the offer did not displace the usual rule as to the incidence of costs as between Rheem and Ms McInnes: Rheem Australia Pty Ltd v McInnes (No 2) [2020] NSWSC 1665 at [74].

10. [10]

    Having rejected the costs order sought by Ms McInnes, his Honour went on to make a costs order more favourable to Ms McInnes than the order sought by Rheem; he ordered Ms McInnes to pay Rheem’s costs of the claim against her up to 10 July 2020, and thereafter that there be no order as to costs as between Rheem and Ms McInnes.

11. [11]

    Ms McInnes requires leave to appeal to challenge the costs order: Supreme Court Act 1970 (NSW), s 101(2)(c). The hearing proceeded in this Court as a concurrent hearing of the application for leave and the appeal itself, assuming a grant of leave.

12. [12]

    For the reasons that follow, there is no arguable ground of appeal and leave to appeal should be refused.

The primary judge’s reasons on costs

1. [13]

   The primary judge succinctly summarised the history of the proceedings and referred to some of the offers exchanged between the solicitors for the parties that were relevant to the special costs order sought by Ms McInnes based on the 20 December 2019 Calderbank letter, before rejecting the costs order sought by Ms McInnes. There is no challenge to that finding.

2. [14]

   The primary judge then addressed whether the Court should depart from the usual order provided by Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1, that costs follow the event. His Honour found that there were circumstances for displacing the usual order for the period after 10 July 2020; a date shortly prior to the commencement of the trial. The dispositive reasoning in the costs judgment is:

Proposed grounds of appeal

1. [15]

   Ground 1 contends that the primary judge erred in (a) characterising the result of the proceedings as a “draw”, as distinct from a complete success for Ms McInnes, (b) concluding that Ms McInnes should pay Rheem’s costs up to 10 July 2020 on the basis that she had not, in her pleadings, admitted any of Rheem’s claims, and (c) failing to have regard to a relevant consideration, namely, whether the pleaded position was reasonable or whether there was any alternative position reasonably available to Ms McInnes at the time she filed her pleadings.

2. [16]

   Ground 2 contends, in the alternative, that if the primary judge was correct in concluding that the result of the proceedings was a draw, his Honour erred in the two respects referred to in sub-par (b) and (c) of ground 1, and in failing to conclude that there should be no order as to costs as between Rheem and Ms McInnes for the entirety of the proceedings.

3. [17]

   Assuming a grant of leave, the relief sought by Ms McInnes on appeal was that there be no order as to costs as between Rheem and Ms McInnes in the proceedings below.

Submissions

1. [18]

   Ms McInnes submitted that the primary judge made two errors. First, that in characterising the result as a “draw”, his Honour focused too narrowly on the orders made and therefore the exercise of the costs discretion wholly miscarried.

2. [19]

   Second, it was submitted that his Honour failed to consider the reasonableness of Ms McInnes’ conduct during the proceedings and who was responsible for the incurring of costs. Reference was made to the remarks of Hodgson JA in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121] that:

3. [20]

   The submission continued that the primary judge failed to have regard to a material consideration, namely, that the costs incurred by Rheem in proving the fraud claim, as a step to the relief claimed against Ms McInnes, would have been incurred in any event in proving Rheem’s claim against Mr McInnes and such costs should not be borne by Ms McInnes.

Disposition of application

1. [21]

   It has been said that the Court will be slow to grant leave in respect of an appeal restricted to a challenge to an order for costs: see, for example, Dalma Formwork (Australia) Pty Ltd v Maricic (No 3) [2008] NSWCA 29 at [39] (Basten JA). There are good reasons for that reluctance.

2. [22]

   First, since the power to award costs is discretionary, the “constrained” or “deferential” standard of appellate review of an exercise of judicial discretion adopted in House v The King applies: House v The King (1936) 55 CLR 499 at 504-505; [1936] HCA 40; Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30 at [48] (Gageler J). To establish such an error, it is not enough that an appellate court might conclude that it would have exercised the discretion differently if the discretion had been conferred on it in the first instance: Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45] (Heydon JA, Sheller JA and Studdert AJA agreeing).

3. [23]

   Second, costs fall within the category of matters of practice and procedure and hence there is the “added restraint” and “particular caution” which an appellate court should exercise in reviewing a judgment on such matters: Re the Will of F B Gilbert (Deceased) (1946) 46 SR (NSW) 318 at 323 (Jordan CJ); Wentworth v Rogers (No 3) (1986) 6 NSWLR 642 at 644 (Kirby P), 651-652 (Priestley JA, Glass JA agreeing).

4. [24]

   The criteria for the grant of leave to appeal are well-established. Here, the proposed appeal by Ms McInnes does not raise any question of principle or question of general public importance: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [33]; Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28].

5. [25]

   Nor has Ms McInnes demonstrated an injustice which is more than merely arguable.

6. [26]

   The premise of proposed ground 1 is that the primary judge misunderstood the nature of the relevant “event” for the purpose of applying UCPR, r 42.1 and should have concluded that Ms McInnes was the successful party. That misunderstands his Honour’s reasons.

7. [27]

   What his Honour described as a “draw” was not the relevant “event” for the purpose of applying UCPR, r 42.1, but the result of the various issues which had been contested at the hearing: whether the conventional rules as to tracing applied; whether the tracing claim could be made in relation to improvements to the Menai property; and whether the proprietary claim against the Menai property was defeated by indefeasibility of title.

8. [28]

   It is well-established that how the “event” should be defined for the purposes of the usual rule in UCPR r 42.1 depends upon the nature of the litigation. Generally, the “event” refers to the event of the claim and may be understood as referring to the practical result of a particular claim: Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [39], citing Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37,861-37,862 (Wardell J). See also Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15].

9. [29]

   Here, the practical result of the claims brought by Rheem is that it succeeded in two of its three personal claims against Ms McInnes. Whilst this was not for the full amount that had been sought, it was nonetheless in an amount which the primary judge described as “financially significant”. Rheem also succeeded on its proprietary claim to the monies paid into court by Ms McInnes in the form of an equitable charge over Mr McInnes’ half share of the Menai property securing an amount of $285,215, but failed on its proprietary claim in relation to improvements to the Menai property.

10. [30]

    As Rheem was the successful party overall, the assertion in ground 1 that the proceedings were a “complete success” for Ms McInnes is simply wrong. Nevertheless, insofar as Ms McInnes achieved some success in defending the claim against her, the primary judge correctly had regard to the following circumstances in applying the qualifications to the usual order as to costs:

11. [31]

    The primary judge concluded that there were circumstances for displacing the usual rule. No complaint is made in relation to that finding. Ms McInnes’ complaint is directed to the exercise of the discretion to apportion costs.

12. [32]

    In James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296, the Court observed at [36] that where the Court does exercise its discretion to apportion costs, the apportionment itself involves the exercise of a discretion, and cited the statement of Gummow, French and Hill JJ in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272:

13. [33]

    Ms McInnes made no submission before the primary judge as to how far the Court can and should deprive Rheem as the successful party of its costs, other than her submissions based on the Calderbank offer (which were rejected by the primary judge). Some of the possible approaches to apportioning costs were referred to by Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 24:

14. [34]

    Other possible approaches include making separate costs orders with respect to particular issues, where the issues can be treated as clearly distinct and severable (James v Surf Road Nominees (No 2) at [32]-[36]; Sze Tu v Lowe (No 2) at [40]-[41]), or making separate costs orders with respect to the costs of certain evidence relevant to issues on which the plaintiff was successful and also to issues on which the plaintiff failed (Roberts v Rodier [2006] NSWSC 1084 at [33] (Campbell J)).

15. [35]

    It is not necessary to say anything further on this topic. As indicated, none of these approaches were raised by Ms McInnes below.

16. [36]

    In this case, the primary judge limited the award of costs to Rheem to the period up to 10 July 2018, and apportioned the costs thereafter by making no order as to costs as between Rheem and Ms McInnes. The approach taken by the primary judge was well open to him. There is no merit in the contention that his Honour misunderstood the nature of the “event” for the purpose of applying UCPR, r 42.1.

17. [37]

    Proposed ground 2 complains that the primary judge failed to have regard to a relevant consideration, namely, the reasonableness of Ms McInnes’ conduct during the proceedings.

18. [38]

    Rheem objected to this proposed ground on the basis that it was not a matter relied upon below. That objection should be upheld.

19. [39]

    Contrary to her submissions in this Court, on a fair reading of pars [3] and [4] of her written submissions dated 30 October 2020, Ms McInnes did not advance any submissions below directed to the “reasonableness” of her conduct of the proceedings as a reason for displacing the usual rule as to costs. Nor was any submission made by Ms McInnes below that, given the reasonableness of her conduct, the appropriate costs order was that there be no order as to costs of the proceedings.

20. [40]

    There can be no House v The King type error of failing to consider a material consideration in circumstances where the matter now relied upon was not drawn to the attention of the judge exercising the discretion.

21. [41]

    As a general proposition, the notion of reasonableness may be relevant to the exercise of the costs discretion in an appropriate case. Thus a successful party may have succeeded only on a portion of his or her claim under circumstances which make it more reasonable that he or she should bear the expense of litigating the remainder than that it should fall on the losing party; the question, in such cases, is whether it is just to make the losing party pay all of the costs: Forster v Farquhar [1893] 1 QB 564 at 568-569; James v Surf Rd Nominees (No 2) at [33]-[34].

22. [42]

    There may be cases where the reasonableness of raising of an issue by the successful party is a relevant matter to take into account in deciding whether it is fair and just to order an overall successful party to pay the costs of a particular issue, as opposed to leaving the overall successful party to bear its own costs concerning that issue: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 at [100]; (2011) 288 ALR 385.

23. [43]

    In this case, the primary judge determined that it was fair and just that notwithstanding Rheem was the successful party overall, it should be deprived of a substantial part of its costs. No argument was advanced by Ms McInnes below that his Honour should have apportioned costs differently, in particular, to deprive Rheem of all of its costs of the proceedings.

24. [44]

    It is trite that a party is bound by the case he or she ran below. As the High Court said in University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481 at 483, in the context of an application to reopen a case following judgment:

25. [45]

    It would be inimical to the interests of justice to allow Ms McInnes to make an entirely new and different costs application on appeal, after having failed on a different basis before the primary judge: Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645-646; Water Board v Moustakas (1988) 180 CLR 491 at 487; [1988] HCA 12. Ms McInnes should be precluded from seeking to rely on proposed ground 2.

Order

1. [46]

   In my view, the summons seeking leave to appeal should be dismissed with costs.

2. [47]

   PAYNE JA: I agree with Gleeson JA.