FEDERAL COURT OF AUSTRALIA

Pacific Mirage Limited v Le Breton [2014] FCAFC 46

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondent’s costs, as agreed or taxed.

3.    The appellant not charge or levy the respondent on any account whatsoever, or otherwise seek to obtain funds from her, for the purpose of:

   a)     reimbursing the appellant for the appellant’s costs of these proceedings, or any part thereof, or otherwise contributing to meeting the appellant’s costs of the appeal; or

   b)    paying, meeting, contributing to, or discharging the appellant’s obligation to pay the respondent’s costs of and incidental to the appeal or any part thereof.

4.    To give effect to order 3, the appellant will credit the respondent as having paid all body corporate levies issued to the respondent from the date hereof until the sum of such credits is equal to the sum of the respondent’s costs of the appeal (as agreed or taxed) and so much of all of the appellant’s costs of the appeal as bears the same proportion to all of the appellant’s costs of the appeal as the respondent’s unit entitlement with respect to Villa 43 bears to the entitlements of all unit owners in the Pacific Mirage Building.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT

1    The appellant (the company) is the lessee of land at Main Beach on the Gold Coast, Queensland on which a three-storey building (called Pacific Mirage) containing 54 self-contained suites is erected.

2    The respondent (Ms Le Breton), is a shareholder in the company and, in that capacity, holds by assignment from a Mr Constantine Payne a sub-lease of a two-storey apartment in the building, identified as Villa 43 (referred to in the sub-lease as the Suite). The Suite is identified in the sub-lease by reference to certain plans. It is located in part on the third storey of the building and includes the roof level located above the living area of the Suite. Access to the roof level is obtained from an internal staircase leading from within the living area of the Suite.

3    The only issue before the primary judge was whether, under the sub-lease, the company or Ms Le Breton has responsibility for the repair and upkeep of the roof level area referable to Villa 43. The primary judge found that the company had that responsibility. It is not in dispute that the roof level area referable to Villa 43 is in need of substantial repair.

4    On 26 August 2013, the primary judge granted the following declaration and made other orders:

The Defendant has been since 11 August 1998 and is liable, at its own expense, for the ongoing maintenance, repair and upkeep of all planter boxes, garden areas, roof top and roof level areas, external balustrades, shade sails, handrails, tiles, windows, walls, surfaces and doors on or part of the external balcony and roof top gardens of the Plaintiff’s suite known as Villa 43 in the Pacific Mirage Building, Main Beach, Gold Coast, Queensland…

5    The orders included costs orders which had the effect of relieving Ms Le Breton from her contractual liability to contribute to any charge or levy that might be imposed by the company on its shareholders that would serve to reimburse the company for its costs of the proceeding below.

6    The company appeals from that judgment, including the costs orders referred to in the preceding paragraph. Ms Le Breton filed, but no longer relies on, a notice of contention seeking to support the judgment.

The sub-lease

7    The sub-lease which Ms Le Breton holds by assignment contains the following demise:

… HEREBY SUBLEASES to CONSTANTINE PAYNE of P.O. Box 41, Flemington Markets, in the State of New South Wales (hereinafter with his executors administrators and permitted assigns called “the Sub-lessee”) all that part of the Building being the suite numbered A343 and A443 and car park or car parks numbered A067 the location of which said suite and car park or car parks is more particularly shown and delineated and outlined in red on the copies of plans of survey Nos. WD 6328 and WD 6329 and of the Third, roof level and the basement level of the Building annexed hereto and marked with the letters “A”, “B” and “C” respectively set out in the Second Schedule hereto (herein collectively called “the Suite”) to be held by the Sub-lessee for a term of ninety-nine (99) years commencing on the 6th day of May 1988 and expiring on the 5th day of May 2087 unless sooner terminated as hereunder provided at an annual rental of ONE DOLLAR ($1.00) payable only upon written demand under the Seal of the Sub-lessor AND SUBJECT to the following covenants conditions and restrictions:

1.    (a)    …;

(b)     The Sub-lessor and its other tenants shall be entitled to the free and uninterrupted passage of gas, water and electricity, sewerage and other services, drainage and storm water through and along the pipes and wires which are now or may at any time hereafter be in or passing through the Suite with power to the Sub-lessor its servants, contractors, workmen and agents at all times in case of emergency and otherwise at all reasonable times of the day to enter into the Suite for the purpose of inspecting, replacing, altering in any way or dealing with the said pipes and wires and the meters hereinafter mentioned and also of painting and repairing the outside wood and ironwork and the exterior walls and roof of the Building.

8    By sub-cl 3(i), the sub-lessee covenanted with the sub-lessor:

that he will at his own expense keep the Suite and all appurtenances therein in good condition and repair and the Sub-lessor shall not be answerable or chargeable for any decoration or repairs therein or thereto except as herein specifically provided;

9    By sub-cl 3(t), the sub-lessee covenanted with the sub-lessor:

if the Suite shall include an area on the roof level of the building, then the following terms and conditions shall apply in respect of that area:

(a)     The Sub-lessee shall pay to the Sub-lessor rental of $1.00. per annum payable only upon written demand under the Seal of the Sub-lessor such rental to be payable in arrears.

(b)     The Sub-lessee shall keep the Roof Garden in a clean and tidy condition at all times and use the same for recreation purposes only but not so as to create a nuisance or disturbance to other Sub-lessees of occupiers of the building.

(c)     The Sub-lessee shall place or install on the Roof Garden only such furniture or furnishings as shall have firstly been approved by the Sub-lessor it being the intention of the Sub-lessor that all furniture used on Roof Gardens be of a similar type and design to ensure uniformity of appearance, quality and design.

(d)    The Sub-lessee shall not damage or interfere with any shrub, tree, plant, flower or other vegetation planted or placed on the Roof Garden by the Sub-lessor and shall not plant any other vegetation or make any additions, alterations or place any other structures on the Roof Garden without the prior written consent of the Sub-lessor.

(e)     The Sub-lessor and its employees and contractors shall upon giving not less than twenty-four (24) hours’ notice thereof to the Sub-lessee or the occupier for the time being of the Suite to enter upon or pass through the Suite for the purpose of obtaining access to the Roof Garden in order to maintain plant or replace any vegetation on the Roof Garden and/or for the purposes of complying with its obligations under and in respect of the Memorandum of Articles of Association of the Sub-lessor and any of the Sub-leases granted by the Sub-lessor in respect of other Suites in the building.

10    By cl 5, the sub-lessor covenanted with the sub-lessee as follows:

(a)    …;

(b)    …;

(c)    At all times during the continuance of this Sub-lease to keep the Building (other than the interior of the individual suites) and the common areas in a clean condition and in good repair having regard to their condition at the commencement of this Sub-lease;

(d)    The Sub-lessor shall keep in good repair the foundations, walls, supports, roofs, gutters, stairways, porches and all main and principal pipes for carrying water or steam through the Building together with the main drain pipes also all existing plumbing and heating apparatus and the laundry, yard and common areas and all installations for the provision of services to the Building PROVIDED THAT the Sub-lessee shall give the Sub-lessor prompt notice of any repairs to be made and the Sub-lessee shall at all reasonable times allow the representatives of the Sub-lessor to enter and inspect the Suite for the purpose of determining the necessity and character of any such repairs and of making the same and upon reasonable notice to remove such portions of the walls, floors and ceilings of the Suite as may be required for the purpose of making such repairs and all portions so removed shall be replaced as soon as reasonably may be done in as good condition as before. All such repairs, shall be at the expense of the Sub-lessor unless rendered necessary by the act, negligence or carelessness of the Sub-lessee his servants and agents, licensees or invitees in which case the expense shall be borne by the Sub-lessee;

(e)    …;

(f)    ….

The expression “the Building” is not defined other than as the building known as Pacific Mirage comprising a basement and three floors containing the 54 self-contained suites.

11    The sub-lease contains the following definitions in cl 14:

In this Sub-lease unless such interpretation shall be excluded by or be repugnant to the context;

…

(f)    “the Suite” means the premises referred to in the commencement of this Sub-lease as “the Suite” identified in the plans annexed to this Sub-lease and marked with the letters “A” and “B” respectively and shall include the internal faces of all walls erected on the boundary of the premises and the internal faces of the ceiling and floors contained within those boundaries;

…

(h)    “suite” means an individual suite in the Building and includes the internal faces of all walls erected on the boundary of any such suite and the internal faces of the ceiling and floors of any such suite and shall include any garage spaces, lockers or other areas the subject of a sub-lease of a suite; …

12    Annexure B to the sub-lease, the plan of the roof level area referable to Villa 43, contains the following handwritten notes:

NOTES:

1.    It is stipulated that the uncovered parts of the Leases on this level extend to the centre line of the ceiling above.

2.    The boundaries of each Lease as shown hereon, are the centre lines of the constructed walls, floors and ceilings.

3.    For location of the buildings in relation to the boundaries of Lease A, see plan WD 6326.

  4.    All levels are AHD, derived from PM 27132 RL 1 94.

13    Similar notes appear in Annexure A to the sub-lease, the plan of the third storey area referable to Villa 43, with the addition of the word “only” at the end of note 1. Similar notes to the notes in Annexure B appear in Annexure C to the sub-lease, the plan of the basement area showing a car park area referable to Villa 43.

14    The evidence from a surveyor, Mr Pennycuick, was as follows:

7.3     Vertical Extent of Lease Area A443

a.     Based on the lease boundary definition contained on the survey plan WD 6329 and noted in Point 7.2(a) of this report, the lower extent of Sub-Lease Area A443 is the centreline of the roof terrace floor slab.

b.     The upper limit of the Sub-Lease area is the centreline of the roof terrace ceiling. On the parts of the roof terrace which do not have a physical ceiling, the upper limit extends in height only to the ceiling above. In this case that would be the ceiling of the stairwell within the sub-lease…

c.     Part of the roof terrace is covered by a substantial pergola. The vertical extent of the sub-lease in this area is the centre of the pergola structure being a concrete ring being and steel louvers [sic] ….

It may be noted that Mr Pennycuick included the word “only” in his reproduction of Note 1 in Annexures A, B and C to the sub-lease.

The primary judge’s reasons

15    The primary judge (at [19]-[20]) identified the company’s case, as follows:

At the forefront of Pacific Mirage’s case is that the definitions of “the Suite” and “suite” in cl 14 of the sub-lease are in conflict with paras 1 and 2 of the Notes endorsed on the plans in Annexures “A” and “B” and paras 1 and 3 of the Notes endorsed on the plans in Annexure “C” … but in particular the plan that is Annexure “B”. Indeed, the submission was made that the definitions are “so in conflict with paragraphs 1 and 2 of the Notes that those definitions are repugnant to the Notes”. It follows, it was submitted, that because the definition provisions in cl 14 are expressed to apply subject to being “excluded by or … repugnant to the context”, the cl 14 definitions are therefore read subject to, or are overridden by, paras 1 and 2 of Annexures “A” and “B” and paras 1 and 3 in Annexure “C” of the Notes.

All the submissions that follow are predicated on the correctness of this fundamental submission. The difficulty for Pacific Mirage’s case is that its fundamental submission is flawed, and its consequential submissions infected with error.

16    The primary judge appears to have accepted that there is a tension between the definition of “the Suite” in clause 14(f) of the sub-lease and the description of the premises (that is, “the Suite”) in the words granting the demise. Although accepting that the boundaries of the demised premises extend to the centre lines of the constructed walls, floors and ceilings, his Honour reasoned that “the perimeter” of “the Suite” did not extend to those boundaries. The steps in his Honour’s reasoning were as follows:

    The reference in the demise to “the Suite” was not definitional but only for convenient articulation.

    These words were subsumed in the definition of “the Suite” in cl 14(f) of the sub-lease firstly by the words there used to describe the premises and, secondly, by an implied “carve out” of anything but the internal faces of the walls, floors and ceilings.

    The consequence of such an approach, giving rise to a difference between the boundaries and “the perimeter” of the premises, “is to be preferred to consequential conflict, amounting to alleged repugnance, in the interaction contended for by [the company]”.

    This construction was supported by the definition of “suite” in clause 14(h).

17    It is to be noted that the sub-lease does not refer, in terms, to “the perimeter” of the premises.

18    The primary judge concluded (at [23]):

Such a construction of what is and what is not “the Suite” for the purposes of the Sub-lease, creates a more harmonious context in which the operative provisions of the Sub-lease are to work and interact. That harmony provides for greater certainty of demarcation between what are the obligations of Pacific Mirage, on the one hand, and what are the obligations of the sub-lessee, in this case Ms Le Breton, on the other.

19    The primary judge illustrated this proposition principally by reference to clauses 5(c) and (d) of the sub-lease, covenants given by the sub-lessor, and clause 3(t) of the sub-lease, a covenant given by the sub-lessee.

20    The primary judge said that clause 5(c) made clear that it is the company’s obligation to keep the Building in a clean condition and in good repair, other than for the interior of individual suites, which is the responsibility of the sub-lessee: see clause 3(i). The primary judge said that, “consistent with that demarcation”, clause 5(d) imposes an obligation on the company, at its cost (but subject to certain exceptions), to keep the foundations, walls, supports, roofs, gutters, stairways, porches etc in good repair. The primary judge noted that clause 3(t) imposes an obligation on the sub-lessee to keep the Roof Garden (which his Honour accepted as being, in the present case, the whole floor area delineated on the plan that was Annexure B) in a clean and tidy condition at all times, but that clause 5(c) imposes the obligation on the company to keep the Roof Garden in good repair because the Roof Garden was not the “interior” of the Suite or within the sub-lessee’s obligations under clause 3(t).

The appeal – liability for maintenance/repair of roof level area referable to Villa 43

21    The company submitted that the primary judge erred in his construction of the term “the Suite” in the sub-lease. The company argued that the primary judge erred by reasoning that a distinction should be drawn between “the perimeter” of the Suite and the boundaries of the Suite. The sub-lease defined the Suite by reference to its actual boundaries. Clause 14(f) of the sub-lease similarly defined the Suite by reference to the annexed plans, which included the notes thereon. The sub-lease made no reference to “the perimeter” of the Suite. The company submitted that, contrary to the primary judge’s finding, clause 5(d) of the sub-lease did not support a demarcation between the boundaries of the Suite and its “perimeter”. Relatedly, the company also contended that the primary judge erred in failing to give proper weight to the evidence of the surveyor, Mr Pennycuick.

22    The company submitted that the reference to the internal faces of walls in the definitions was inclusionary and was therefore not in conflict with the notes on the plans. The company also submitted that the effect of the notes, in conjunction with the plans, was to render the Roof Garden part of the sub-lease and to establish the boundaries as being at the centre line of the floors, walls etc. The wording in the notes on the plans should prevail. The notes were intended to be part of the documentation which definitively described the boundaries of the demised premises.

23    The company submitted that there was nothing in the sub-lease which “specifically provided” in terms of cl 3(i) that it was to maintain the items the subject of the orders made by the primary judge.

24    For these reasons, the company contended that the primary judge erred in finding that it was liable for the ongoing maintenance, repair and upkeep of all planter boxes, garden areas, roof top and roof level areas, external balustrades, shade sails, handrails, tiles, windows, walls, surfaces and doors on or part of the external balcony and roof top gardens of the Suite.

25    Ms Le Breton, the sub-lessee, submitted that the primary judge was right to conclude that the formal boundaries of the demised premises did not resolve the issue of who bore responsibility for the repair of the Roof Garden and associated areas in light of the terms of the sub-lease. Ms Le Breton submitted that clause 5(c) did not define the obligation by reference to the boundaries of the individual suite but by reference to the “interior”. Having regard to the contractual scheme constituted by clauses 5(c) and (d), Ms Le Breton submitted that the “interior” of the suite commenced not from the boundary line but from the inside of the suite’s internal walls.

26    Ms Le Breton also submitted that the word “roof” should be given its ordinary dictionary definition and the problems which required repair were constituent elements of a roof: the roof of the building incorporated “those features which render it waterproof and accommodate its use by the suite owner.”

27    Ms Le Breton also submitted that the evidence of Mr Pennycuick, even if otherwise relevant, and the contents of the “Notes” were beside the point. The only obligation imposed on the sub-lessee to maintain any part of the premises was found in clause 3(i) and that obligation was expressly qualified by the words “except as herein specifically provided”: clause 5(d) expressly provided to the contrary, it was submitted.

28    The evidence of Mr Pennycuick was also submitted to be irrelevant to the construction of the sub-lease. It assumed, rather than proved, what the “Sub-lease area” was. It purported to determine the legal question of what delineated the “Sub-lease area”. Further, his report did not identify any basis to opine that, where there is no “physical ceiling”, the upper limit “extends in height to the ceiling above”. There was no evidence that his opinion in that regard represented an entrenched and notorious approach to the delineation of boundaries, particularly as at the date the sub-lease was executed on 6 May 1988.

29    In its submissions in reply, the company sub-lessor submitted that the use of the word “interior” in clause 5(c) did not support the argument that the sub-lessee’s obligation to repair applied to an area which was less than the area held by the sub-lessee. It was also submitted that the primary judge should have given full effect to the surveying evidence.

30    As to the word “roof”, the company submitted that the word referred to a roof in the conventional sense whereas in the present context the terms “roof garden” and “roof level” referred to a spatial area.

31    The company submitted that there was a ceiling over part of the Roof Garden: it was the lower half of the concrete slab laid on top of the enclosed internal circular stairwell leading up to the Roof Garden and according to the evidence of Mr Pennycuick that ceiling established the level at which the upper boundary of the Roof Garden was set.

32    As to the provision of the sub-lease which gave the company control over some aspects of the Roof Garden, clause 3(t), this reflected the fact that the roof gardens were exposed areas, the mismanagement of which could affect the reputation of the building as a whole.

Consideration

33    In our opinion, contrary to the company’s contention, the dispute about who is responsible for the relevant repairs is not determined simply by the meaning to be given to “the Suite”. The resolution of the dispute turns on the operative contractual provisions of the sub-lease.

34    The sub-lessee is obliged by clause 3(i) to keep the Suite and all appurtenances therein in good condition and repair.  This is an unambiguous statement of obligation respecting the Suite, the identity of which is not in doubt. 

35    By the same clause, the sub-lessor is not to be answerable or chargeable for any decoration or repairs therein or thereto “except as herein specifically provided”.

36    Clause 5(c) of the sub-lease, concerning (amongst other things) the sub-lessor’s obligation to keep the Building in good repair, should be read as so specifically providing and therefore not in conflict with clause 3(i). “Building” has its ordinary meaning and is consistent with and confirms this construction since it is not apposite to refer to structures such as those listed in clause 5(d) as the Suite.

37    Excluded from clause 5(c) is the sub-lessee’s obligation to maintain the interior of the individual suite. In our opinion it is not apposite to describe an area or space exposed to the elements, the roof level, as an interior.

38    Clause 3(t) makes additional provision for the area on the roof level where the Suite has a roof level. But those obligations and restrictions on the sub-lessee are more consistent with the sub-lessee not having an obligation to repair the roof and with the sub-lessor having that obligation.

39    Clause 5(d) concerns the sub-lessor’s obligation to keep various parts of the Building in good repair, including roofs. In our opinion, in context, the word “roofs” is apposite to describe the roof level with which this proceeding is particularly concerned. The provision imposing the obligation to keep in good repair those structures “unless rendered necessary by the act, negligence or carelessness of the Sub-lessee …” is inconsistent with the construction that the obligation to repair the roof otherwise lies on the sub-lessee.

40    We do not accept the submission that under the sub-lease the obligation to keep the roof of the building in good repair falls on the sub-lessee of a Suite where that Suite includes an area on the roof level of the building and that the obligation to keep the roof in good repair falls on the sub-lessor in respect of the roof only where the Suites in aggregate do not include an area on the roof level.

41    Since, in our opinion, the resolution of the dispute turns on the construction of the sub-lease we do not find the opinion of the surveyor, Mr Pennycuick, to be of assistance. His opinion does not appear to us to be founded in the words of the sub-lease.

42    Contrary to the reasoning of the learned primary judge, we do not draw a distinction between “the perimeter” of the Suite and the boundaries of the Suite.

43    For these reasons the appeal in relation to responsibility for the repair and upkeep of the roof level area referable to Villa 43 should be dismissed.

The appeal — costs

44    It is also necessary separately to address the question of costs of the hearing before the primary judge since the company contends, in ground 3 of its notice of appeal, as follows:

The trial judge erred in ordering that the respondent be excused from her contractual liability to contribute to any charge or levy made by the appellant which would serve to reimburse the appellant for the legal costs of the proceedings below, including for payment of the respondent’s party-party costs by the appellant where:

a.    the respondent was found to have abandoned her oppression suit against the appellant; and

b.    there was otherwise no challenge made or upheld to the contractual obligations the respondent has to the appellant to contribute under the appellant’s registered memorandum and articles of association.

45    The orders made by the primary judge in relation to costs were as follows, it being noted that the company does not challenge order 4:

4.     The Defendant to pay the costs of the Plaintiff of and incidental to these proceedings, as agreed or taxed.

5.     The Defendant not charge or levy the Plaintiff on any account whatsoever, or otherwise seek to obtain funds from her, for the purpose of:

a)     reimbursing the Defendant for the Defendant’s costs of these proceedings, or any part thereof, or otherwise contributing to meeting the Defendant’s costs of these proceedings; and

b)    paying, meeting, contributing to, or discharging the Defendant’s obligation to pay the Plaintiff’s costs of and incidental to these proceedings or any part thereof.

6.     To give effect to the order in [5] above, the Defendant will credit the Plaintiff as having paid all body corporate levies issued to the Plaintiff from the date hereof until the sum of such credits is equal to the sum of the Plaintiff’s costs of these proceedings (as agreed or taxed) and so much of all of the Defendant’s costs of these proceedings as bears the same proportion to all of the Defendant’s costs of these proceedings as the Plaintiff’s unit entitlement with respect to Villa 43 bears to the entitlements of all unit owners in the Pacific Mirage Building.

46    No separate reasons were given for these costs orders although there was a hearing before the primary judge before those orders were made.

47    The submissions of the company on this point were directed to the absence of power in the circumstances of the case.

48    The company said there was no challenge to the validity of the Articles and that under cl 3.1 Ms Le Breton must contribute to the company’s expenses by levies imposed on all shareholders. Those expenses included debts the company incurred including to its lawyers. Reference was made to cl 3.1(m) which provided that there shall be payable to the company by each member such sum as in the opinion of the directors in each Accounting Period is sufficient to provide for the member’s proportion of the estimated Outgoings of the company in that Accounting Period which Outgoings shall include but shall not be limited to management, secretarial, legal and accounting charges incurred by the company.

49    The company submitted there was no exclusion for such expenses incurred in carrying on its defence to proceedings brought by a shareholder against the company. The company submitted that orders 5 and 6 made by the primary judge were made in disregard of the contractual obligations Ms Le Breton has under cl 3.1 and had no proper basis.

50    Ms Le Breton submitted that the company’s submissions did not identify with precision why the primary judge had no basis to make orders 5 and 6. If the company’s point was put as one of jurisdiction, the plenary power conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) would be constrained if the Court did not have the power to prevent a party from exercising a contractual provision affecting the incidence of costs which undercut the exercise of its jurisdiction under s 43. If the company’s point was directed to the exercise of discretion by the primary judge then it was clear that his Honour was not bound to give effect to the Articles. The order made by the primary judge gave effect to the fundamental principle that an award of costs should indemnify the successful party for the costs that party has incurred by the litigation. Further, Ms Le Breton submitted, cl 3.1(m) did not engage the company’s liability to pay Ms Le Breton’s costs of the trial because as a matter of construction an adverse costs order does not encompass a legal “charge” incurred by the company.

51    Ms Le Breton also sought an order on the appeal that the company’s appeal be dismissed with costs, those costs being ordered on the same terms as orders 5 and 6 made by the primary judge.

52    In reply, the company submitted that the Court had no jurisdiction in a suit for the construction of a sub-lease to vary the contractual obligations arising between the parties under the Articles. The Court’s powers to award costs under s 43 did not extend to negating a contractual indemnity so arising. The situation may have been different if oppression had been pressed and proven against the company. In that event the Court could have utilised its discretionary powers under s 233 of the Corporations Act 2001 (Cth) to effect an adjustment of contractual rights between a company and its members or officers for the purpose of attaining justice in regard to the burden created by legal costs incurred by the company.

Consideration

53    In Owners Strata Plan No 50411 v Cameron North Sydney Investments Pty Ltd [2003] NSWCA 5 at [170]–[172] and in Symes v Proprietors, Strata Plan 31731 [2003] NSWCA 7 at [82]–[84] the New South Wales Court of Appeal held that s 76 of the Supreme Court Act 1970 (NSW) by necessary implication conferred power on the Supreme Court to make orders similar to those contemplated by s 229(2) of the Strata Schemes Management Act 1996 (NSW) in respect of the owners corporation’s own costs that it incurred in such proceedings so that the successful party did not bear the burden of a levy from the owners corporation in respect of its proceeding against the owners corporation.

54    In Owners Strata Plan No 50411 v Cameron North Sydney Investments Pty Ltd Heydon JA, with whom Santow JA agreed, said at [170]:

… the court has, under s 76(1)(b) of the Supreme Court Act 1970, "full power to determine by whom and to what extent costs are to be paid". It would be quite unjust if the successful plaintiff had to assist in the payment of the costs of the first claimant through levies based on unit entitlement, or had to suffer indirectly as a result of existing assets of the first claimant being diminished for that purpose. The same is true of Service Corporation International Australia Pty Ltd, the remaining lot holder. Accordingly it is appropriate to order that, in respect of the costs incurred by the first claimant in this Court, the first claimant is not to levy a contribution on the opponent or on Service Corporation International Australia Pty Ltd, nor to use any administrative fund, sinking fund or other existing assets for the purpose of meeting those costs.

Orders were proposed which included:

5. In respect of the costs of the first claimant incurred in this Court, the first claimant is not to levy a contribution on the opponent or Service Corporation International Australia Pty Ltd, nor to use any administrative fund, sinking fund or other existing assets for the purpose of meeting those costs.

55    In Symes v Proprietors, Strata Plan 31731 the New South Wales Court of Appeal took the same approach in relation to an application for an order that “… any costs of the respondent incurred in these proceedings (including the appeal) not be payable in any part by the appellant.”

56    The reasoning of the New South Wales Court of Appeal was that in the absence of s 229 of the Strata Schemes Management Act the general power in the Supreme Court Act would have authorised an order that a costs order payable by an owners corporation should not be paid from contributions levied in relation to the lot owned by the successful individual party.

57    These decisions of the New South Wales Court of Appeal were drawn to the attention of counsel for the company in the course of the hearing of the appeal.

58    In short written submissions filed with the leave of the Court after the hearing of the appeal the company submitted that the judgments of the New South Wales Court of Appeal were responsive to applications made under ss 229 and 230 of the Strata Schemes Management Act and there had never been any equivalent provision in Queensland’s strata title legislation. However the company also submitted that in Moallem v Consumer, Trader and Tenancy Tribunal [2013] NSWSC 1700 White J at [95] said that it was necessarily implicit in the two decisions of the Court of Appeal that s 76(1)(b) of the Supreme Court Act was a source of power for that Court to injunct a body corporate from imposing a levy upon a particular (successful) lot owner for contribution towards the body corporate's own legal costs.

59    The company conceded that for current purposes there was no material difference between those powers given to the Supreme Court under s 76(1)(b) of the Supreme Court Act and the power given to the Federal Court under s 43 of the Federal Court of Australia Act. However the company submitted that the power to order an injunction under s 23 of the Federal Court of Australia Act ought only to be exercised when the Court has jurisdiction and the order made by the primary judge that the company pay Ms Le Breton's costs of the proceedings “is not enough on its own to create jurisdiction to enliven the injunctive power.” The availability of injunctive power in aid of enforcement of the costs order was not doubted. However, the company submitted, the extension of the costs jurisdiction to overturn the contractual rights and obligations of not only the parties to the proceedings but all other non-party members of the company was untenable. The relevant orders served as a restraint on the company to prevent it enforcing its entitlement to levy Ms Le Breton for the legal costs of the case. This necessarily meant that it must levy all the other members of the company in a greater amount than the amount to which they were contractually bound to pay. This indirect financial imposition on all the non-party members of the company of an extra-contractual burden was contrary to the line of authority represented by Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 202 where Dawson J referred to a non-party being the effective litigant standing behind the actual party. The company submitted that its other members could not be said to be the “effective litigant”. The orders made could not be viewed as doing justice in those circumstances. The company submitted the orders appealed from caused the contractual certainty created by cl 2 of the Articles as between all 56 members and the company to be undermined. That was a significant and serious departure from the freely bargained rights and obligations agreed to by all those members when they subscribed to the Articles.

60    Ms Le Breton submitted that the decisions of the New South Wales Supreme Court were not challenged by the company and those decisions accorded with the indemnity principle which underlies the purpose of making a costs order: Oshlack v Richmond River Council (1998) 193 CLR 72 at [67]. Contrary to the company’s submissions, the Court was not being asked to grant injunctive relief. Such relief was not invoked in any of the cases in the New South Wales Supreme Court, rather, the orders were grounded on a statutory power which the company accepted was indistinguishable from the terms of s 43 of the Federal Court of Australia Act. Order 6 made by the primary judge gave expression to the plenary power conferred by s 43; it was not a manifestation of the Court’s equitable jurisdiction. In all events, the Court had jurisdiction because of s 43. The Court’s jurisdiction to make a costs order was not confined, Ms Le Breton submitted, by the terms of any contract between the parties. The issue of contractual certainty, relied on by the company, may be relevant to the exercise of the Court's discretion as to ordering costs, but the company had eschewed any such submission and had confined its appeal to the issue of jurisdiction. Once it was accepted, Ms Le Breton submitted, that the Court's jurisdiction was not confined by the terms of any contract there was no basis to complain about the correctness of the decisions of the New South Wales Court of Appeal nor was there any basis to complain that the rights of unit holders were being improperly affected. The company was to be taken to have litigated with an appreciation of the risks that might unfold having regard to the wide terms of s 43. The fact that the present outcome was foreseeable weighed heavily in the scales. The decisions of the New South Wales Court of Appeal gave effect to the indemnity principle and that should be the determining factor.

61    In our opinion the effect of the impugned costs orders made by the primary judge went to the calculation of order 4 made by the primary judge and was not a bare variation of contractual terms.

62    Further, s 233 of the Corporations Act does not derogate from the power of the Court to make an appropriate costs order even where that costs order affects the rights of a party under a contract. This is not a case where the notion is applicable “that affirmative words appointing or limiting an order or form of things may have also a negative force and forbid the doing of the thing otherwise”: Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 as considered in Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom [2006] HCA 50; (2006) 228 CLR 566. To adapt the words of Gleeson CJ in the latter case, the statutory provisions create two sources of power, by which a person in the position of the company may be exposed, by different processes, and in different circumstances, to similar practical consequences.

63    The power in s 43 is not diminished, in our opinion, by the express power given by s 233 of the Corporations Act.

64    If the proposition be put by the company that contractual relations between parties of themselves constitute a derogation from statutory power rather than a factor relevant to the exercise of the judicial discretion conferred by s 43, in our opinion that submission must fail as inverting the relationship between a statutory power and a contractual right. As to the relevance of the contract see Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 at 194.

65    We agree with the principle stated by the New South Wales Court of Appeal and in turn the same reasoning should apply to s 43 of the Federal Court of Australia Act. The impugned costs orders made by the primary judge give effect to the indemnity principle referred to in Oshlack v Richmond River Council at [67] where the High Court said (footnote omitted):

[67] The expression the “usual order as to costs” embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.

66    In our opinion the contention that the primary judge had no power to make the costs order made by him fails.

67    As to the costs of the appeal, we consider that costs orders in terms similar to those made by the primary judge should be made, in order to indemnify the successful respondent.

Orders

68    The appeal should be dismissed, with costs.

Associate:

Dated:    24 April 2014