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Supreme Court 10 March 2006

Joseph Lahoud & Anor v Victor Lahoud & Ors

[2006] NSWSC 126

Other
PROCEDURE COSTS INDEMNITY COSTS WHEN APPROPRIATE PRACTICE INTEREST ON COSTS

Citation: Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126
Court: Supreme Court of New South Wales, Equity Division
Date: 10 March 2006
Judge(s): Campbell J

Background

Two brothers, one a developer and the other an architect, had worked together on real estate projects for a number of years. A dispute over unpaid fees led to Industrial Relations Commission proceedings, which the parties ultimately settled by signing Terms of Settlement in February 2001. Those Terms provided for an equal share of profits from one development and the proceeds of two units from another, along with an immediate payment of $570,000.

When the developer brother did not comply with the Terms, the architect brother commenced Supreme Court proceedings seeking specific performance. The developer brother filed a cross-claim alleging that the settlement had been induced by a misrepresentation made in a private conversation, and that a collateral oral contract also arose from that conversation. The alleged collateral contract concerned handing over a deceased father's watch and sharing care of a disabled sibling.

Palmer J heard the claim over seven days in May 2005, upheld the plaintiffs' case, and dismissed the cross-claim. The costs issues then came before Campbell J, sitting as a result of Palmer J's absence on long leave.

  • Whether indemnity costs should be ordered for the proceedings as a whole, or for specific issues within the proceedings
  • Whether the defendants' abandonment of a particular pleaded issue, after costs had been incurred defending it, justified an indemnity costs order on that issue
  • Whether interest on costs should be ordered, and in what form
  • Whether an oral collateral contract, connected to a contract for the sale or disposition of land, is caught by section 54A of the Conveyancing Act 1919 (the NSW equivalent of the Statute of Frauds)

Decision

Indemnity costs: the proceedings as a whole. Campbell J declined to order indemnity costs for the entire proceedings. Although Palmer J had rejected the defendants' credibility on key issues, his Honour had not found that the defendants' case was dishonestly concocted or maintained with knowledge of its falsity. A finding that a party has not discharged the onus of proof, even in a case turning on credit, does not automatically warrant indemnity costs across the board.

Indemnity costs: the abandoned issue. One pleaded issue, relating to specific performance of the alleged collateral contract, was ultimately not pressed by the defendants at trial. The defendants had raised this claim as late as June 2004. Because the plaintiffs incurred significant costs preparing to meet and defeat this issue, and the defendants abandoned it without explanation, Campbell J found it appropriate to order indemnity costs on that discrete issue from the date it was introduced (18 June 2004). The abandonment of a claim that has forced the opposing party to incur costs can, in appropriate circumstances, justify an indemnity costs order.

Interest on costs. Campbell J ordered interest on costs. The rationale is that a successful party who has paid legal costs throughout the litigation is out of pocket during the period before those costs are recovered, and ordinary costs orders do not compensate for that loss of use of money. The order was structured by reference to the proportion of costs ultimately allowed on assessment, applied to amounts actually paid by the plaintiffs, running from each date of payment.

Collateral contracts and section 54A. Campbell J examined whether an oral collateral contract connected to a land transaction must satisfy the writing requirements of section 54A of the Conveyancing Act 1919. His Honour concluded that a collateral oral contract is not caught by section 54A, even where the main contract relates to land. This is consistent with the established principle that the collateral contract doctrine exists precisely to allow an oral agreement to stand alongside a written contract, including one concerning land.

Orders Made

  • The defendants are to pay, on an indemnity basis, the plaintiffs' costs concerning the collateral contract issue (paragraphs 12, 13 and 14 and prayers 7 and 8 of the Amended Notice of Cross-Claim), for costs incurred from 18 June 2004.
  • Subject to the above, the defendants are to pay the plaintiffs' ordinary costs of the main proceedings and three related sets of proceedings.
  • The defendants are to pay interest on costs, calculated at the rates in Schedule 5 of the Uniform Civil Procedure Rules, applied to the proportion of costs actually allowed on assessment, running from the date of each payment by the plaintiffs until recovery or further order.
  • Further consideration of whether interest on costs should continue to run is reserved.
  • The plaintiffs are to pay 40% of the defendants' costs of the indemnity costs and interest on costs application (reflecting only partial success on those applications).
  • All undecided applications in the related Equity Division proceedings are dismissed.
  • Orders 2, 5 and 6 are not to be entered for 21 days.
  • Liberty is reserved for either party to apply within 14 days to vary certain orders.

Key Takeaways

  • A finding that a party failed to discharge the onus of proof, even one heavily influenced by adverse credibility findings, does not by itself justify an indemnity costs order for an entire proceeding.
  • Where a party introduces a pleaded claim that forces its opponent to incur costs in preparation, and then abandons that claim without explanation before or at trial, an indemnity costs order limited to that issue and that period may be appropriate.
  • Interest on costs is available to compensate a successful party for the loss of the use of money paid to legal advisers during litigation, and Campbell J set out a workable formula for calculating that interest by reference to the proportion of costs allowed on assessment.
  • Under established authority confirmed in this decision, an oral collateral contract is not rendered unenforceable by section 54A of the Conveyancing Act 1919 merely because the main contract to which it is collateral concerns land or an interest in land.
  • Partial success on a costs application can itself result in a costs order against the successful party, reflecting the proportion of the application on which that party did not succeed.

Legislation and Cases Referenced

Legislation:
- Conveyancing Act 1919 (NSW), s 54A
- Civil Procedure Act 2005 (NSW)
- Uniform Civil Procedure Rules 2005 (NSW), Schedule 5
- Legal Profession Act 2004 (NSW)
- Trade Practices Act 1974 (Cth)
- Industrial Relations Act 1996 (NSW)

Cases:
- Lahoud & Anor v Lahoud & Ors [2005] NSWSC 509 (the principal judgment by Palmer J)
- Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 (indemnity costs principles)
- Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242
- Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354
- Angell v Duke (1875) LR 10 QB 174
- Boston v Boston [1904] 1 KB 124
- Powercell Pty Ltd v Cuzeno Pty Ltd [2003] NSWSC 600
- Woods v Woods [2001] NSWSC 1108
- Roads and Traffic Authority v Cremona (No 3) [2005] NSWCA 13
- Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Ltd [2002] NSWSC 280
- Optus Networks Pty Ltd v Leighton Contractors Pty Limited [2005] NSWSC 156
- Hughes Bros v The Trustees of the Roman Catholic Church [1999] NSWSC 1051
- Davies v Ku-ring-Gai Municipal Council [2003] NSWSC 1010
- Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217
- Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101