Jingalong Pty Ltd v Todd & Anor

HIS HONOUR: This is an application by the first defendant, Jingalong Pty Ltd. The application is made against the plaintiff, Mr Gregory Todd, and the second defendant, Mr Brett Pernice.

The proceedings were heard by Kunc J on 25 and 28 October and 1 November 2013. His Honour helpfully summarised the nature of his proceedings and his conclusions as follows:

The settlement agreement referred to in para 6 above that was made at a mediation on 12 March 2013 provided as follows:

Mr Brett Pernice was joined as the second defendant to the proceeding on his own application. The settlement agreement provided for him to purchase Lot 1 from Jingalong for $350,000 on 13 May 2013, but he was not liable to Jingalong for the full purchase price. Mr Todd was to contribute $206,000 and Mr Pernice was to contribute $144,000. Mr Pernice paid $144,000 to his solicitor in anticipation of settlement. Mr Todd failed to pay the $206,000 he had agreed to provide. The settlement did not occur on 13 May 2013. On 14 May 2013 Jingalong served a notice to complete addressed to Mr Todd. It recited that Mr Pernice by his solicitor had confirmed that he was ready and willing to complete, but was not able to do so due to Mr Todd’s default. The notice to complete required completion by 28 May 2013 with time to be of the essence and required Mr Todd to pay $206,000 at that time and provide a withdrawal of caveat and executed consent minutes for the proceedings to be dismissed.

Mr Todd did not complete on 28 May 2013. No party took any step to terminate the agreement.

Mr Pernice filed a cross-claim (the First Cross-Claim) on 4 March 2013. In it he sought amongst other orders a declaration that Jingalong held Lot 1 on trust for him. Alternatively, he sought a declaration that Jingalong held on trust for him such amount or portion of the land as the Court might determine on account of improvements made by him by way of expenditure, labour and occupation of the land. Alternatively, he sought an order that Mr Todd pay him the sum of $280,000 being the amount of the payments he had made to Mr Todd in order to acquire Lot 1.

On 20 September 2013 Jingalong, being the first defendant, filed a cross-claim (the Second Cross-Claim). It sought a declaration that Mr Todd had breached and continued to be in breach of the Heads of Agreement (that is, the settlement agreement). It sought an order that Mr Todd pay damages for that breach and an order that it was entitled to set off damages awarded to it pursuant to its cross-claim against any relief awarded either to Mr Todd pursuant to his Amended Statement of Claim, or against any relief awarded to Mr Pernice pursuant to the first cross-claim. The basis for the second claim is obscure. Jingalong did not seek damages from Mr Pernice. It did not allege that he was in breach of the settlement agreement.

As appears from Kunc J’s summary of his conclusions at [6] (quoted at [2] above), his Honour found that the settlement agreement did not affect the parties’ rights unless and until it were performed. His Honour accepted the submission of Mr Todd and Mr Pernice that Jingalong was not entitled to an indefeasible title to the land pursuant to s 42 of the Real Property Act 1900 (NSW) because it became registered by fraud or there was a personal equity that Mr Todd could assert against it. This arose from certain statements made by Mr Cameron of Jingalong to Mr Todd in about October 2011 to the effect that a caveat lodged by Mr Todd should be lifted, but that Lot 1 would be transferred back to Mr Todd and that Mr Todd’s agreement with Mr Poulton contained an acknowledgment of Mr Todd’s right to receive Lot 1. His Honour said:

On 10 April 2014 Kunc J made orders to give effect to his reasons. The orders included a declaration that Jingalong held Lot 1 on trust for Mr Todd and consequential orders for the transfer of the Lot to him. Orders 6 and 7 provided:

The first defendant’s (Jingalong’s) cross-claim was the second cross-claim and the second defendant’s (Mr Pernice’s) cross-claim was the first cross-claim.

Jingalong appealed to the Court of Appeal. The appeal was allowed. Sackville AJA (with whom Meagher and Leeming JJA agreed) held that the primary judge was in error in concluding that the settlement agreement was an accord executory. The Court of Appeal held that the settlement agreement was an accord and satisfaction, that is, that the parties agreed to accept the promises contained in the settlement agreement in satisfaction of their causes of action against Jingalong and those causes of action were thereby immediately released. The release of those causes of action was not dependent upon performance of the settlement agreement. Sackville AJA summarised the conclusions as follows:

Sackville AJA observed (at [7]) that on the hearing of the appeal Jingalong accepted that if the settlement agreement were not binding and enforceable the appeal must be dismissed.

Sackville AJA noted (at [59]) that Jingalong had not at any stage (either in its second cross-claim or in its notice of appeal) sought an order for specific performance of the settlement agreement. Counsel appearing for Jingalong advised the Court that “to the extent required, we would submit to an order for specific performance and remain ready, willing and able to convey Lot 1 for the agreed price”. Sackville AJA noted that the position remained that Jingalong, apart from seeking orders dismissing the claims by Mr Todd and Mr Pernice, sought only declaratory relief (at [60]).

Sackville AJA noted that by its notice of appeal Jingalong sought a declaration that the settlement agreement was a legally binding contract. His Honour declined to make the declaration, applying Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; 131 CLR 286 (at [103]-[107]). His Honour concluded as follows:

The orders made by the Court of Appeal as set out in its published decision and as recorded on JusticeLink were the orders set out at [108]. At the hearing before me two issues arose from the making of those orders relevant to the present applications. First, the Court of Appeal did not set aside order 6 made by Kunc J on 10 April 2014. Order 6 was an order dismissing Jingalong’s cross-claim, that is, the Second Cross-Claim filed on 20 September 2013. But order 4 made by the Court of Appeal remitted that cross-claim to the Equity Division for further hearing. Presumably this was a mistake and the Court intended to set aside orders 1-6 and orders 8 and 9 made on 10 April 2014.

The second matter is that the Court of Appeal did not deal with the costs of the proceedings before Kunc J other than to say that those costs should be a matter for the Court in the Equity Division to determine in the light of the orders ultimately made. No order was made remitting the questions of costs for determination. In the second cross-claim Jingalong had sought an order for costs and it may be that the Court of Appeal took the view that the remission of that cross-claim, which included the application for an order for costs, for further hearing would enable the Court (once the order dismissing that cross-claim was set aside) to determine the whole of the costs of the proceedings, and not only costs in relation to the second cross-claim.

In order to regularise the position, at the conclusion of oral submissions, counsel for Jingalong undertook promptly to move the Court of Appeal for further orders under the slip rule to regularise and clarify the position.

On 31 May 2016 the Court of Appeal amended its orders of 12 February 2015 (Jingalong Pty Ltd v Todd [2016] NSWCA 131). It made orders as follows:

This amendment was made in accordance with Jingalong’s application. Curiously the orders made on 31 May 2016 did not amend the order made on 12 February 2015 that order 7 made by Kunc J be set aside, that is that Mr Pernice’s cross-claim be dismissed. Kunc J dismissed Mr Pernice’s cross-claim because the orders made against Jingalong on Mr Todd’s application made his cross-claim unnecessary. The Court of Appeal found that Mr Pernice’s claims in his cross-claim were released by the settlement agreement.

The result is that both cross-claims have to be disposed of. Mr Pernice does not press any claim for relief. Jingalong does not press any claim for relief on its cross-claim, save as to costs.

The Court of Appeal gave its principal judgment on 12 February 2015. On 19 February 2015 A L Wunderlich & Co, solicitors for Jingalong, wrote to the solicitors for Mr Todd and Mr Pernice noting that Mr Todd had not complied with the notice to complete sent on 14 May 2013 and stating that at all times since the failure to comply with the notice to complete there had been a continued unwillingness and/or inability by Mr Pernice and/or Mr Todd to tender the agreed price of $350,000 to permit the contract for the sale of Lot 1 to be settled. A L Wunderlich & Co gave notice of purported termination of the contract for the sale of Lot 1. They stated that they would approach the Registrar to have the matter relisted and on relisting the only orders that would be sought by Jingalong on its second cross-claim would be a declaration that Mr Todd was in breach of the contract and an order that all costs of the Equity Division proceedings be paid by Mr Todd and Mr Pernice, such costs to include all costs of and incidental to the amended statement of claim, the first cross-claim and the second cross-claim. They stated that “in light of the judgment of the Court of Appeal the above orders are the inevitable result of any remitting of the matter to the Equity Division”. They said that if consent to those orders was not given the letter would be relied upon in a foreshadowed application for indemnity costs on the basis that no reasonable basis existed for opposing the orders sought in light of the Court of Appeal’s judgment.

No issue has been raised in respect of the purported notice of termination. It is highly doubtful that the notice was valid. Whilst Jingalong might have been entitled to terminate the contract after time for completion had been made essential it did not do so, but instead elected to affirm the contract in its submissions before the Court of Appeal in stating that it would submit to an order for specific performance. Only one week had passed since the Court of Appeal determined that the settlement agreement was an accord and satisfaction. There was no evidence that between the time Jingalong elected to affirm the contract and the time of the purported notice of termination there had been any further repudiatory conduct that would justify termination. No fresh appointment for settlement of the contract was fixed.

However, this is by the way. No party now seeks to perform the contract. It may be taken to have been abandoned.

On 9 March 2015 the proceedings were stood over until 11 May 2015 with liberty to apply. On 12 March 2015 Mr Pernice filed an application for special leave to appeal. That application was dismissed by the High Court on 11 September 2015. Thereafter the second cross-claim was fixed before me for hearing. Mr Todd did not appear. Counsel for Jingalong said that Jingalong did not press any claim for relief pursuant to the second cross-claim, save as to costs. It sought the costs of the proceedings against both Mr Todd and Mr Pernice. Those costs were sought on the indemnity basis from 19 February 2015 pursuant to the letter from Jingalong’s solicitors of that date referred to at para [21] above.

In the course of oral submissions counsel for Jingalong accepted that the settlement agreement extended to a release of any claims in respect of costs incurred prior to the date of the agreement.

The letter from A L Wunderlich & Co of 19 February 2015 provides no basis for the making of an order for indemnity costs. Contrary to the confident assertion of that firm that the “inevitable result” of the Court of Appeal’s reasons was that a declaration would be made that Mr Todd was in breach of contract and that all of the costs of the proceedings would be ordered to be paid by Mr Todd and Mr Pernice, that result is not only not inevitable but was ultimately not sought. A reading of the Court of Appeal’s judgment and its reference to Neeta (Epping) Pty Ltd v Phillips should have made it clear that the Court would not grant the bare declaratory relief sought that was not in aid of any claim for substantive relief. The claim for costs for the whole of the proceedings was not pressed for the reason at para [25] above.

It is not obvious why the Court of Appeal considered that the costs of Mr Todd’s proceedings and Mr Pernice’s cross-claim might be affected by the orders ultimately made on Jingalong’s cross-claim. The possibilities would appear to be that Jingalong might have sought specific performance of the settlement agreement, it might have sought damages or nominal damages from Mr Todd, or it might have sought no substantive relief. Depending upon what claims were made, whether they were defended and the outcome, there could be different costs consequences on the further proceedings under the second cross-claim. But whatever the outcome, it would not affect the appropriate costs order arising from Jingalong’s ultimate success in defending the claims of Mr Todd and Mr Pernice. Nor would it affect the consequences, if any, of Kunc J’s finding of fraud and Mr Todd’s and Mr Pernice’s success on the issue of indefeasibility. Nor would it affect the force of Jingalong’s argument that the proceedings before Kunc J would have been unnecessary had the settlement agreement been performed.

In my view it would have been preferable for the second cross-claim and the argument as to costs to have been fixed for hearing before the primary judge. Those matters were remitted to the Equity Division. They could have been referred to Kunc J. However, Jingalong requested the Registrar to fix the matter before another judge. Mr Todd did not appear and Mr Pernice did not oppose that application and the Registrar acceded to it. It is appropriate therefore that I determine the remaining question of costs. One of the complications is that at the hearing before Kunc J Jingalong failed on what in my view is clearly a separate issue. It asserted an indefeasible title pursuant to s 42 of the Real Property Act. The primary judge would have been in a better position than am I to determine how its failure on that issue should be reflected in the appropriate costs orders, assuming that some adjustment were required.

Jingalong correctly submitted that the costs of the proceedings before Kunc J would not have been incurred if the settlement agreement had been completed. Mr Todd was responsible for that state of affairs. Mr Pernice was not. It is true that Mr Pernice could have completed the agreement by tendering $350,000 to acquire the land (if he had or could have raised the funds) and then sued Mr Todd. But he was not obliged to do so. Jingalong does not submit that Mr Pernice breached the settlement agreement.

In Ritter v Godfrey [1920] 2 KB 47 Atkin LJ attempted to state the conditions upon which a judge could be justified in depriving a successful defendant of his costs, namely, where the defendant (1) brought about the litigation, or (2) had done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) had done some wrongful act in the course of the transaction of which the plaintiff complains. The attempt to circumscribe the Court’s discretion as to costs was rejected by the House of Lords in Donald Campbell & Co Ltd v Pollack [1927] AC 732 where a primary judge’s discretion to deprive a successful defendant of his costs was upheld. There a director successfully defended a charge of fraud brought by a liquidator but was denied his costs because he had concealed his dealings with a third party with whom he was in partnership and had failed properly to account for the transactions, thus bringing the litigation on himself. Whilst the discretion to award or not award costs was not to be circumscribed in the way enunciated in Ritter v Godfrey, the discretion was to be exercised judicially and having regard to reasons connected with the case.

Mr Pernice relies upon the finding that Jingalong was guilty of fraud within the meaning of s 42 of the Real Property Act and but for the settlement agreement would have been required to transfer Lot 1 to Mr Todd who would then have transferred it to Mr Pernice. Although the orders of Kunc J were set aside, this was not because of any error in his Honour’s findings as to Jingalong’s liability, but because of the releases contained in the settlement agreement.

I agree with this submission. It was Jingalong’s conduct, as found by the primary judge, that was the cause of the litigation. With the advantage of Kunc J’s findings, it can be seen that Messrs Todd and Pernice should not have been put to the risks and uncertainties of litigation that are always a factor in mediations. Just as it can be said that the litigation should not have proceeded after the settlement agreement was reached, so it can be said, in the light of Kunc J’s findings, that the case should never have been defended. In my view, this is a sufficient basis to deprive Jingalong of its costs as against Mr Pernice. As I have said, it was not Mr Pernice’s fault that the settlement agreement was not completed. Having been deprived of the land by Jingalong, and then by Mr Todd’s failure to complete the settlement agreement, it would be unjust if he were liable to pay any of Jingalong’s costs.

Different considerations apply in the case of Mr Todd. I accept Jingalong’s submission that the costs incurred after the settlement agreement were wholly incurred because of Mr Todd’s failure to meet his obligations under the settlement agreement. He explained his default by saying that he was unable to raise the funds to meet his share of the money payable under the settlement agreement to Jingalong. He should not have entered into the agreement if he was not able to perform it. In my view he should pay Jingalong’s costs incurred after the date of the settlement agreement. For the reasons at para [26] above, those costs should be payable on the ordinary basis and not the indemnity basis. He should also pay Mr Pernice’s costs.

Mr Pernice did not seek costs against Jingalong otherwise than in respect of its defence of Jingalong’s costs application.

Mr Todd did not appear at the hearing on 9 March. He was not responsible for the costs incurred in connection with that hearing.

For these reasons I make the following orders: