McPaul v Massignani [No 2][2023] QSC 118

SUPREME COURT OF QUEENSLAND

1. [1]
   On 11 May 2023, I delivered my reasons for allowing the application in this proceeding.^[1]  I proposed to make an order under s 38(1) of the Property Law Act 1974, appointing two named persons as trustees of the property, to be held by them on statutory trust for sale, with the proceeds (after the trustees’ costs and any costs of sale or other encumbrance on the property) to be distributed equally to Ms McPaul, on the one hand, and Mr and Mrs Massignani, on the other.
2. [2]
   I gave the parties an opportunity to consider:

   1. (a)
      the identity of the two named persons to be appointed as trustees;
   2. (b)
      whether any provision should be made in the order for the respondents to have the first right to purchase Ms McPaul’s interest, before any other form of sale is undertaken;
   3. (c)
      whether the operation of the order should be stayed for a period of time, to give effect to (b), without incurring the costs of the trustees;
   4. (d)
      any other practical matters in relation to the order; and
   5. (e)
      costs.
3. [3]
   In the event they could not agree upon those things, directions were made for the filing of submissions, and competing draft orders, with the remaining matters to be determined on the papers.
4. [4]
   The parties have been able to agree on most things.  There remain two issues to be determined:^[2]

   1. (a)
      the inclusion of a further option to purchase, following the appointment of the statutory trustees; and
   2. (b)
      costs.
5. [5]
   As to the first matter, the orders to be made provide for a temporary stay of the order for appointment of statutory trustees, whilst the parties obtain a valuation of the property and the respondents make an offer to purchase the applicant’s interest, if they wish to, within seven days of receipt of the valuation.  If such an offer is made, and not accepted by the applicant, then the temporary stay is lifted, and the statutory trustees are appointed.  In that regard, I note the parties have agreed to the appointment of Mr Mitchell, as previously proposed, and Mr Klatt, in place of the second trustee previously nominated by the applicant.  An affidavit of Mr Klatt, confirming his consent, has been filed.
6. [6]
   What is in dispute is that the respondents also contend for an additional two orders, following the appointment of the statutory trustees, as follows:

1. “9.
   In the event of a sale by private treaty, if the Trustees receive a written offer to purchase the property that the Trustees regard as acceptable, the Trustees will provide the respondents with the written offer and the right but not the obligation to purchase the property on the same terms as the written offer, save that the respondents may set off against the purchase price the value of their interest in the property (after deducting the costs of selling the property and the Trustees’ costs and expenses as provided for in any order of the Court) (Option).

1. 10.
   The Respondents have seven days to exercise the Option by notice in writing to the Trustees.”

7. [7]
   The respondents submit that these orders are sought “to avoid an unintended consequence where the property is sold to a third party at a price that the respondents may be prepared to match (in price and terms) in order to remain living in their home.  The orders to avoid such an unfortunate and unmeritorious outcome are in the form of a simple option exercisable within seven days”.
8. [8]
   The applicant submits that once the trustees are formally appointed, the respondents may still seek to purchase the applicant’s interest through a private sale or at auction (the orders do provide for this).  But “they have no entitlement under the Property Law Act to seek or bind the trustees to an option in the manner sought or at all”.
9. [9]
   I am not persuaded it is appropriate to include the additional orders proposed by the respondents.  Already, the orders provide for time for them to be able to purchase the applicant’s interest, and avoid the appointment of the statutory trustees, based on an independent valuation.  It is to be hoped all parties will act reasonably and sensibly in this process, as they will each be better off if the costs of the statutory trustees do not need to be incurred. Even if that cannot be agreed upon, and the statutory trustees are appointed, any co-owner is still able to purchase the property, either by private sale or auction.   An option of the kind proposed by the respondents will potentially hamper the sale of the property – because a prospective purchaser may be put off by such an obstacle; or may be lost in the event that the respondents consider the option and then decide not to exercise it.  The respondents really have to make the best offer they think they can, having regard to the independent valuation, and then it is a matter to be left to the market to determine.
10. [10]
    As to costs, the respondents submit the appropriate order is that the parties bear their own costs, or that there be no order for costs.  This is said to be appropriate having regard to matters including:

    1. (a)
       the court is not in a position to know what the final outcome of this dispute will be – for example, whether the applicant will “do better” than the offer that was made by the respondents, before the application was filed;
    2. (b)
       the orders now being made are quite different from those which were originally sought by the applicant in her originating application filed on 5 April 2023 (at least in so far as the payment of the amount of $168,239.42 to the applicant, and the absence of the process enabling the respondents to make an offer before the trustees are appointed, are concerned); and
    3. (c)
       the application was flawed from the outset – because it sought the appointment of only one trustee – and the applicant did not acknowledge that defect, or nominate a second trustee, until the morning of the hearing.
11. [11]
    The applicant submits the appropriate order is that she should recover her costs of the application, on the standard basis, and that these costs should be paid from the proceeds of sale of the property before any distribution between the co-owners. 
12. [12]
    The authorities referred to by the applicant – which are based on the equivalent NSW provision (s 66G of the Conveyancing Act 1919 (NSW)) – suggest that the ordinary rule in an application of this kind is that the costs (of all parties) are paid out of the proceeds of sale.  The rationale for that rule is that the costs are incidental to co-ownership.^[3]
13. [13]
    What the applicant seeks is a variation of this rule – providing only for her (standard) costs to be paid out of the proceeds of sale.  This was the outcome in Spathis v Nanos (No 2) [2008] NSWSC 470,  a case in which Jagot AJ (then of the New South Wales Supreme Court) said “the defendant did strenuously oppose any orders being made at all under s 66G on grounds which, in my reasons, I found not to be cogent or persuasive” (at [13]).  A similar argument was raised in that case, as here, in relation to earlier offers to purchase, and the difficulty of the court knowing at what price the property might ultimately be sold.  Her Honour accepted that, but said “the inescapable reality is that the plaintiff needed his interest in the property to be sold and the defendant opposed any steps that, in effect, would authorise a sale, other than to the defendant herself” (at [14]).
14. [14]
    On the other hand, in Stibbard-Leaver v Leaver [2021] NSWSC 65, the usual order was made (that is, for all parties’ costs of the application to be paid out of the proceeds of sale before distribution of the balance) following an application under s 66G for the appointment of statutory trustees for the sale of property co-owned by four siblings, which was dealt with by consent orders agreed to on the day of the hearing, but which was said to have only been necessitated by the refusal of one of the siblings to agree to a consensual sale, in the absence of the application.  In that case, Darke J said (at [5]):

“I observe at this point that in litigation of this type under s 66G of the Conveyancing Act, it is usual to order that the costs of the proceedings be paid out of the proceeds of sale. The rationale for this approach is that the costs of such an application are an incident of joint ownership (see Kardos v Sarbutt (No 2) [2006] NSWCA 206 at [28]). It remains the case of course that unreasonable conduct by a party may be a basis to conclude that some other order is appropriate in a s 66G case. Lewin v Lewin [2019] NSWSC 380 is an example. In that case, it was held that certain unreasonable conduct led to an unnecessary incurring of costs. However, as I noted in that case (at [41]), a co-owner is ordinarily under no obligation to seek to avoid a need to bring a s 66G application (see also Chow v Chow (No 2) [2015] NSWSC 1348 at [12] where it was stated by Young AJA that co-owners have no obligation to negotiate their dissolution).”

15. [15]
    Ultimately, Darke J found that the one sibling (the first defendant) had not been unreasonable in refusing to agree to a resolution of the dispute which would have avoided the need for the application; and also said that his readiness to join in a consensual resolution of the proceedings should be commended rather than punished.  His Honour was not persuaded to make the order sought by the plaintiff (that the first defendant pay the plaintiff’s costs of the proceedings on the indemnity basis).  Nor was his Honour persuaded it was appropriate to make an order that each party bear their own costs, as the first defendant submitted, observing [at 17] that:

“The bulk of the costs of the proceedings would have been incurred by the plaintiff. In my view it would not be just for the plaintiff to have to bear those costs alone. I therefore consider that the usual position in respect of costs in s 66G applications should be adopted in this case.  Accordingly, the Court will order that the costs of the proceedings of each party be paid out of the proceeds of sale before the distribution of the balance of the proceeds to the parties.”

16. [16]
    In this case, as in Spathis v Nanos, I do not consider that the earlier offer from the respondents is a sound basis to make the costs order contended for by the respondents.  That was an offer to purchase the applicant’s interest in the property for $1.1 million, which is significantly less than half of what was paid for the property.  Perhaps the market had declined to that extent (that was not a matter addressed at the hearing of the application), but it was not unreasonable for the applicant to reject such an offer, especially as she had obtained, and provided to the respondents, a market appraisal which did not suggest the property had dropped in value.^[4]
17. [17]
    And in this case, also like Spathis v Nanos, the respondents strenuously opposed the making of the order under s 38, on bases which I found were not cogent or persuasive.   They wanted to be able to purchase the applicant’s interest in the property on their terms; without the involvement of statutory trustees.
18. [18]
    It is fair to say that the application sought more than was ordered (in so far as the $168,239.42 is concerned) and there was an issue in relation to the number of trustees, resolved against the applicant’s argument.  I am also cognisant of the observations of Darke J, that co-owners are not obliged to negotiate an outcome, to avoid the need for a s 38 application being made.
19. [19]
    On balance, however, I have difficulty distinguishing this case from Spathis v Nanos (No 2).  In my view there should be some variation to the usual position – so that the applicant’s costs of the proceeding, assessed on the standard basis (or as agreed), be paid out of the proceeds of sale of the property, before the balance proceeds are distributed.  Those costs are properly to be seen as an incident of joint ownership.  That leaves the respondents’ costs to the respondents; and the applicant’s costs, to the extent they exceed what is assessed on a standard basis, to the applicant.  That is an appropriate reflection, in my view, of the success of the applicant on the application, and the failure of the respondents’ substantial opposition to the making of the order. 
20. [20]
    The orders made today are in terms of the annexure to these reasons.

SUPREME COURT OF QUEENSLAND

ORDER

Before:Chief Justice Bowskill

Date:30 May 2023

Initiating document:Originating Application filed 5 April 2023; Judgment delivered 11 May 2023

THE ORDER OF THE COURT IS THAT:

1. The Order for appointment of the Trustees in paragraph 6 of these Orders be stayed until discharged in accordance with paragraph 5 of these Orders to allow the respondents to exercise a first right to offer to purchase the applicant’s interest in the real property at 2295 Nerang Murwillumbah Road, Numinbah Valley, Queensland, more particularly described as: Lot 75 on Survey Plan 180502, Title Reference 505 63 996 (“the property”) in accordance with paragraphs 2 to 4 of these Orders. 
2. The parties agree to forthwith, jointly, engage Ms Janine Rockliff of Herron Todd White to prepare a valuation of the market value of the property, as is, and the parties will do all things necessary and sign all documents as may be necessary to facilitate the valuation, including ensuring the premises are safe to inspect, and the costs of such valuation will be borne equally by both parties.
3. Within 7 days of receipt of the valuation, the respondents may make a single offer to purchase the applicant’s interest in the property and the offer must be made and include but not be limited to the following:
   1. in the form of the standard REIQ contract edition 18;
   2. deposit of 10%;
   3. finance date (if required) 30 days;
   4. no building and pest clause;
   5. waive cooling off period;
   6. completion date no longer than 60 days; and
   7. property purchased ‘as is’.
4. If the respondents make an offer in accordance with paragraph 3 of these Orders, the applicant has within 7 days to accept such offer.
5. If the applicant does not accept the respondents’ offer in accordance with paragraph 4 of these Orders, the applicant must notify the Trustees and the respondents in writing within 1 business day, that the parties are unable to come to an agreement for the sale of the applicant’s interest in the property and provide the Trustees with the valuation referred to in paragraph 3 and the stay in paragraph 1 of these orders is discharged. 
6. Pursuant to section 38 of the Property Law Act 1974 (Qld), Mr Bryan John Mitchell and Mr Michael Karl Klatt (“the Trustees”) be appointed as Trustees for sale of the property and the property vests in the Trustees for the purposes of sale.
7. The Trustees be entitled to sell the property by such method as they deem appropriate in the circumstances, including, but not limited to, sale by public auction or by private treaty.
8. In the event of a sale by private treaty, the Trustees be entitled to determine the appropriate marketing campaign for the property, including a marketing budget for advertising, the listing price from time to time, the terms of sale, the appointment of any licensed real estate agent or agents for the sale of the property, and the terms and conditions of such appointment or nominations.
9. In the event of sale by auction, the Trustees be entitled to determine the appropriate marketing campaign for the property, including a marketing budget for advertising, the appointment of any real estate agent or agents for the sale of the property, and the terms and conditions of such appointment.
10. On sale by the Trustees in accordance with paragraphs 8 and 9 of these Orders, any of the co-owners of the property be entitled to purchase the property, on terms including, but not limited to, the following:
1. a.
   in the form of the standard REIQ contract edition 18;
1. b.
   deposit of 10%;
1. c.
   finance date (if required) 30 days;
1. d.
   no building and pest clause;
1. e.
   waive cooling off period;
1. f.
   completion date no longer than 60 days;
1. g.
   property purchased ‘as is’; and
1. h.
   that the purchaser may set off against the purchase price the value of their interest in the property (after deducting the costs of selling the property and the Trustees’ costs and expenses as provided for in any order of the Court).
11. The Trustees be entitled to, but not obliged to, obtain a valuation of the property or to obtain a market appraisal from a licensed real estate agent.
12. The Trustees be authorised to expend money on the property in preparation for its sale using the recommendations of any agent in that regard, and for its marketing or advertising, and that the amount of such expenditure be paid for by the parties in proportion to their respective interests in the property.
13. Pending sale of the property, the parties cause to be paid all outgoings on the property, including land tax, rates, and state and local authority charges, and maintain adequate fire and general insurance, at their cost in proportion to their respective interests in the property and provide evidence of the payments and certificate of currency for insurance to the Trustees as requested from time to time.
14. If the Trustees consider that any repair to the property is necessary for the purposes of sale, the Trustees may arrange for the repairs to be carried out.
15. On the sale of the property, once the Contract is unconditional, the respondents, and any other occupants, must vacate the property, removing all personal effects and chattels, within 21 days of notice from the Trustees and leave the property and its inclusions in a clean and tidy condition.
16. The Trustees be authorised pursuant to section 101 of the Trusts Act 1973 (Qld) to be remunerated for undertaking legal and other work required in the capacity as Trustee in accordance with the Supreme Court Scale as varied from time to time on the indemnity basis, with such remuneration to be assessed by an independent costs assessor at approximately two month intervals and upon completion of the sale of the property.
17. The Trustees are authorised to engage either Mitchells Solicitors or Mullins Lawyers for any legal work associated with their role as Trustees and to pay the firm’s usual professional fees for work done pursuant to the retainer.
18. Upon settlement of the sale of the property, the net proceeds of sale will be paid or held, as the case may be, by the Trustees and applied in the following order:
1. a.
   firstly, in discharge of any mortgage;
1. b.
   secondly, in payment of all selling costs, including agent’s commission and advertising costs, money expended on the property in preparation for sale and repairs and any other necessary costs of sale, including legal and accounting fees incurred as required by the Trustees;
1. c.
   thirdly, in payment of the Trustees’ costs and expenses incurred in the performance of their obligations pursuant to these Orders;
1. d.
   fourthly, the applicant’s costs of these proceedings (in accordance with order 19 below) to the applicant; and
1. e.
   finally, as to the balance net proceeds remaining, 50% to the applicant and 50% to the respondents.
19. The applicant’s costs of this proceeding, assessed on the standard basis (if not agreed) be paid in accordance with order 18(d)) above.   The parties otherwise bear their own costs of the proceeding.
20. The Trustees and the parties have liberty to apply on 7 days’ written notice to the other parties.

Signed: _____________________________________