Castaway Avenue Pty Ltd v CSC1957 Investments Pty Ltd (No 2)
[2022] VSC 629
•21 October 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 00761
| CASTAWAY AVENUE PTY LTD (ACN 636 822 412) | Plaintiff/First Defendant by counterclaim |
| v | |
| CSC1957 INVESTMENTS PTY LTD (ACN 600 333 542) | Defendant/Plaintiff by counterclaim |
| ALEXANNDAR GULABOVSKI | Second Defendant by counterclaim |
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JUDGE: | Gorton J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 October 2022 |
DATE OF RULING: | 21 October 2022 |
CASE MAY BE CITED AS: | Castaway Avenue Pty Ltd v CSC1957 Investments Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 629 |
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PRACTICE AND PROCEDURE – Costs – Calderbank offer – Whether offer more favourable where specific performance claimed – Where not unreasonable to decline offer – Whether plaintiff’s conduct warrants indemnity costs order for costs of freezing order application – Plaintiff’s conduct does not warrant a punitive costs order – Plaintiff to pay defendant’s costs of claim on standard basis – Where defendant not wholly successful in counterclaim – Plaintiff to pay defendant’s costs of counterclaim except for non-common costs of discrete issues where defendant unsuccessful.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/First Defendant by counterclaim and | Mr J A Ribbands | Melbourne Legal Chambers |
| For the Defendant/Plaintiff by counterclaim | Mr I H Percy | Stenta Legal |
| Second Defendant by counterclaim | Mr J A Ribbands | Melbourne Legal Chambers |
HIS HONOUR:
A. Introduction
On 14 February 2020, Castaway Avenue Pty Ltd, the plaintiff, brought a proceeding against CSC1957 Investments Pty Ltd, the defendant, in which it sought an order for specific performance of a contract of sale of real estate in Fitzroy and associated declaratory relief including a declaration that it had a caveatable interest in that property. The contract of sale provided for payment of a sum of $2.4 million at settlement on 23 December 2019, and an additional sum of approximately $1 million 12 months later on 23 December 2020. Castaway Avenue also claimed damages.
CSC1957 Investments, as well as defending the claim against it, counterclaimed for orders compelling Castaway Avenue to remove the caveat that it had lodged over the property and to pay CSC1957 Investments the sum of $100,000, which was the amount identified in the contract of sale as the deposit. By an amendment made on 5 May 2022, CSC1957 Investments added Alexanndar Gulabovski as a defendant to the counterclaim, and also added:
(a) a claim for a declaration that the contract of sale had been validly terminated;
(b) a claim for a declaration that Mr Gulabovski had engaged in misleading and deceptive conduct;
(c) a claim for damages against both Castaway Avenue and Mr Gulabovski; and
(d) a claim for $3.3 million from Castaway Avenue, being the balance of the purchase price under the contract.
On 7 May 2020, a judge of this court made an ex parte freezing order that prevented CSC1957 Investments from dealing with the property or extending the level of indebtedness secured by a mortgage over the property. On 14 May 2020, following an inter partes hearing, the order was continued. Some minor changes were made to the order on 18 June 2020. The costs of the application for that order were reserved. As a condition of obtaining that order, Castaway Avenue undertook, among other things, to submit to such order (if any) as the court may consider to be just for the payment of compensation to any person affected by the operation of the order.
The trial of the proceeding took place over three days in August 2022. CSC1957 Investments abandoned its claim for the balance of the purchase price at the commencement of the hearing, but maintained its claim to the $100,000 deposit.
On 15 September 2022, I delivered reasons for judgment in which I concluded that:
(a) the contract of sale had been validly terminated by CSC1957 Investments. Accordingly, I indicated that I proposed to make a declaration that the contract of sale is not binding on the parties and to make orders dismissing Castaway Avenue’s applications for specific performance and associated declaratory relief and for damages, and to make orders for the removal of Castaway Avenue’s caveat;
(b) CSC1957 Investments was not entitled to the $100,000 deposit and accordingly indicated that I would dismiss its application for an order that that sum be paid; and
(c) Mr Gulabovski had engaged in misleading and deceptive conduct but that CSC1957 Investments had not established that it had suffered loss by reason of that conduct, and accordingly that I would dismiss CSC1957 Investments’ application for damages against him.
On 10 October 2022, I heard the parties on what orders should be made.
CSC1957 Investments:
(a) sought an order that Castaway Avenue’s claims be dismissed;
(b) sought a declaration that the contract of sale is not binding on it;
(c) sought orders for the removal of the caveat;
(d) accepted that its counterclaim should otherwise be dismissed;
(e) sought an order discharging the freezing order and an order that Castaway Avenue pay its costs of the application for the freezing order on an indemnity basis; and
(f) sought an order that Castaway Avenue pay its costs of the claim, and that both Castaway Avenue and Mr Gulabovski pay its costs of the counterclaim, on the standard basis up to and including 26 April 2022 and thereafter on an indemnity basis.
Castaway Avenue and Mr Gulabovski (who were represented by the same counsel and solicitors):
(a) accepted that an order ought to be made dismissing Castaway Avenue’s claim;
(b) accepted that Castaway Avenue ought to be ordered to pay CSC1957 Investments’ costs of defending the claims made against it but that those costs should be only on the standard basis;
(c) sought an order that CSC1957 Investments’ counterclaim be dismissed;
(d) contended that CSC1957 Investments ought to be ordered to pay Castaway Avenue’s and Mr Gulabovski’s costs of defending the counterclaim; and
(e) contended that the freezing order ought not to be discharged or the caveat removed until the hearing and determination of any appeal. They proposed that a mechanism be adopted whereby if an appeal is not commenced within six weeks, then orders be made providing for the discharge of the freezing order and the removal of the caveat. Associated with that, they proposed that the sum of $100,000 remain in their solicitors’ trust account pending any appeal.
After hearing argument, on 10 October 2022 I declared that the contract of sale had been terminated and was of no ongoing effect, discharged the freezing orders, and ordered Castaway Avenue to remove its caveat. I provided that the orders in relation to the freezing order and caveat would not take effect until 4:00pm on Friday, 28 October 2022. I advised the parties that I would reserve on the applications for costs. These are the reasons for making the orders I did, and my reasons for the costs orders I propose to make.
B. The freezing order, the caveat and the proposed appeal
CSC1957 Investments is indebted to the Commonwealth Bank of Australia in the sum of $2.64 million and that indebtedness is secured by a mortgage over the property. CSC1957 Investments is in default of its obligations under the loan and wishes to sell the property. It has no other method of remedying its default under the loan. CSC1957 Investments is concerned that unless it sells the property, the bank will do so and that will likely cause it to be sold for a lesser price than if it was sold by CSC1957 Investments itself. Further, CSC1957 Investments is concerned that the value of the property will decline as interest rates rise.
My decision should take legal effect until such time as it is shown to have been wrong. If Castaway Avenue wants to have the status quo maintained pending an appeal, then it ought to seek to obtain the orders necessary to achieve this from the Court of Appeal. The prospects of success in any appeal are better judged by the Court of Appeal than by me. The Court of Appeal would also, then, be in a position to make whatever orders it thought appropriate in relation to the provision of security for the costs of the appeal or otherwise to protect CSC1957 Investments from suffering loss in the event that the appeal were to fail. Similarly, it was suggested that orders could be made requiring that the $100,000 that was in trust at the time of argument remain in trust pending the appeal. In circumstances where no appeal has as yet been filed, I consider that any application for an order of that type, or any offer to submit to an order of that type, should be made to the Court of Appeal.
Given that there had already been a delay between the publishing of my reasons and the making of the orders, allowing an additional 15 workdays was, in my view, sufficient time to allow Castaway Avenue time to commence any appeal and to make an application to the Court of Appeal for interim relief.
CShould Castaway Avenue pay the costs of its unsuccessful claims on the standard or an indemnity basis?
C.1. CSC1957 Investments’ offer
As noted above, the contract of sale provided for the sale of the property for $3.4 million, but on terms whereby approximately $1 million of that sum was not to be paid until a year after settlement. In the proceeding, Castaway Avenue sought an order for specific performance that would have allowed it to defer approximately $1 million of the purchase price until 12 months after settlement (that is, until some time in 2023). CSC1957 Investments contended that if an order for specific performance was to be made, then, because the times by which the payments were to have been made were now all in the past, any order ought to require Castaway Avenue to pay the full purchase price at settlement.
On 26 April 2022, CSC1957 Investments offered to settle the proceeding by agreeing to sell the property to Castaway Avenue for $3.3 million. It was a requirement of the offer that all of the $3.3 million would be paid at settlement. The practical effect of this was that the difference of $100,000 between this amount and the contracted purchase price, in substance the deposit, was to be available to Castaway Avenue to apply ‘as a contribution towards’ its legal costs. CSC1957 Investments contended that the offer represented a better result for Castaway Avenue than it received at trial and was made at a time when Castaway Avenue was in a position to assess its merits, and that it was unreasonable for Castaway Avenue to have rejected this offer. It sought an order that Castaway Avenue should pay CSC1957 Investments’ costs as from the date of this offer on the indemnity basis. CSC1957 Investments relied on the principles set out in cases such as Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2)[1] and Calderbank v Calderbank.[2] I should note that CSC1957 Investments had made other offers, but it was from the date of this offer that it sought costs on the indemnity basis.
[1](2005) 13 VR 435.
[2][1976] Fam 93.
Because I concluded that Castaway Avenue was not entitled to an order for specific performance, I did not have to decide, and I did not decide, whether, if Castaway Avenue had succeeded in its claim, the order for specific performance would have required payment of the full purchase price at settlement, or whether it would have allowed for a 12-month deferred payment of approximately $1 million.
Neither party referred me to any cases where courts have considered the implications on costs of an offer made to sell a property in the course of a proceeding for specific performance of a contract of sale, let alone where the offer made was on similar but not identical terms to the contract the subject of the proceeding.
It is relevant that the offer was to sell the property for $100,000 less than the price in the contract of sale. As noted above, this was said to be a ‘contribution’ to Castaway Avenue’s legal costs. Given that Castaway Avenue failed in its claim for specific performance, the offer to pay something towards its legal costs is significant.
There is, however, a significant difference between a contract that defers the payment of approximately $1 million for 12 months or almost a third of the purchase price of a property, and a contract that does not. Mr Gulabovski explained in his evidence that the 12-month delay was important because he (that is, Castaway Avenue) needed ‘to show repayments for a 12-month period in order to be able to present that to a bank and refinance it’. The evidence established that Castaway Avenue had the ability to raise $2.5 million dollars, but it did not establish that it had the ability to raise more than that. Accordingly, it is not, in the circumstances under consideration, easy to compare the purchase of the property for $3.3 million payable on settlement, which may not even have been achievable for Castaway Avenue, with a failure to obtain the order for specific performance.
For this reason, I am not satisfied that the failure by Castaway Avenue to accept the offer warrants departure from the ordinary rule as to costs.[3] I am not satisfied, in all the circumstances, that it was unreasonable in the necessary sense for Castaway Avenue to decline CSC1957 Investments’ offer to settle on terms that required the full purchase price to be paid at settlement. It might have been different if I had determined that even if Castaway Avenue had succeeded in establishing an entitlement to specific performance any order would have required it to pay the full purchase price of $3.4 million at settlement, but I did not determine that. Or it might have been different if the evidence had established that Castaway Avenue, if offered the choice, would have preferred to have an order requiring it to purchase the property for $3.4 million payable at settlement than not to have any order in its favour, but this was not explored.
[3]Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435, 441 [20], [23] (Warren CJ, Maxwell P and Harper AJA).
C.2. Castaway Avenue’s conduct and the applications for the freezing order
CSC1957 Investments was critical of Castaway Avenue’s conduct in the way it brought its claim. CSC1957 Investments’ criticisms focused particularly on what it said was misleading behaviour by Castaway Avenue when it applied for the freezing orders but was, as I understood it, not limited to that aspect. CSC1957 Investments contended that Castaway Avenue had breached its obligation to disclose relevant considerations to the Court, had misled it and the Court and had failed to comply with its obligations under the Civil Procedure Act 2010.[4]
[4]See, eg, Savcor Pty Ltd v Catholic Protection International APS (2005) 12 VR 639, 647 [24] (Ormiston J); Re Castlerea Carpenters Pty Ltd (2019) 59 VR 515, 538–42 [70]-[86] (Lansdowne AsJ).
The gravamen of CSC1957 Investments’ argument was that Castaway Avenue had falsely asserted that the deposit had been paid when no deposit had in fact been paid, that it had withheld the final two pages of the letters of offer that contained the terms upon which Castaway Avenue had obtained finance for the purchase, and that it had indicated that its undertaking as to damages would be of value when it would likely not be. I accept that the failure to discover documents promptly the timely discovery of which would have shortened or possibly avoided the trial is a matter to which I can have regard in deciding what is the appropriate costs order to make.[5]
[5]Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399, [14] (Croft J).
Castaway Avenue accepted that it would have to pay CSC1957 Investments its costs of the application for the freezing order as part of the costs of the proceeding. However, it said that those costs, along with the other costs it was ordered to pay, should be on the standard basis.
C.2.1 The deposit
The issue of the deposit is not straightforward. The contract of sale required Castaway Avenue to pay $100,000 into its solicitors’ trust account. Castaway Avenue’s solicitors asserted, when applying for the freezing orders and thereafter, that Castaway Avenue had paid the deposit and that they held it in their trust account. CSC1957 Investments contended to me that events have shown that both statements were false. It later emerged that the money was in fact not paid by Castaway Avenue, but was paid by one of its lenders. The lender paid $500,000 into Castaway Avenue’s solicitors’ trust account, and the money stayed in the trust account in the name of that lender, rather than in the name of Castaway Avenue. It was this fact, along with the fact that the money was paid into the trust account approximately a week later than it was required to be paid, that formed the basis of CSC1957 Investments’ argument that it was entitled to avoid the contract also because Castaway Advance had failed to pay the deposit as required.
The applications for the freezing orders were made at a time when Castaway Avenue was on notice that CSC1957 Investments was ‘suspicious’ that the deposit had not been paid. Clearly enough, CSC1957 Investments could not itself know the precise arrangement, and was dependent on Castaway Avenue informing it of the precise arrangement.
I am not persuaded that Castaway Avenue (or its solicitors) deliberately misled the Court such that I ought to impose what would amount to a punitive costs order. The assertions made by Castaway Avenue’s solicitors that the deposit had been paid were not clear fabrications, but were one plausible interpretation of events. Moneys in excess of the deposit amount were paid into their trust account prior to settlement. It is difficult to see why those moneys would have been paid into trust in advance of settlement if not for the purpose, among other things, of satisfying the obligation to pay a deposit. Castaway Avenue’s solicitors had committed themselves, by their communications, to those moneys being deposit moneys for the purpose of the contract, whosoever’s name they were in. Further, there was no reason for which they should have known of CSC1957 Investments’ expectation that the deposit moneys would not be borrowed moneys. Indeed, the contract of sale and deed anticipated that moneys could be raised in excess of the purchase price. Nor were they on particular notice that CSC1957 Investments intended to argue that the receipt of moneys from the lender was not the payment of a deposit by the purchaser, or that the fact that the funds were held in the lender’s name and not in the purchaser’s name meant that they could not be a deposit.[6]
[6]The issue was complicated in this way because the parties agreed, specifically, that the deposit was to be paid to the purchaser’s solicitors’ trust account, rather than to the vendor’s solicitors’ trust account or to some other stakeholder.
Probably, with hindsight and in light of the arguments that were developed, Castaway Avenue’s solicitors should have revealed the full circumstances surrounding the receipt by them of the moneys that they termed the deposit at the time the applications for the freezing orders were being made. That would have allowed CSC1957 Investments to argue that the freezing orders ought not to be made because of this additional arguable defence. For what it is worth, I doubt that the addition of this argument would have led to a different result, as the balance of convenience would have been the same. But, more significantly, I am not satisfied that Castaway Avenue (or its solicitors) deliberately misled the Court, that the early production of the deposit documents would have avoided or substantially shortened the trial, or that their conduct justifies ordering that they pay costs on the indemnity basis.
C.2.2 The letters of offer
CSC1957 Investments was also critical of Castaway Avenue for not disclosing to the Court when it applied for the freezing orders, or to it prior to discovery, the full letters of offer. Upon review of the material provided in support of Castaway Avenue’s application for the freezing orders it appears to me that it did disclose the full Rothman letter of offer but only disclosed the first two pages of the Southage letter of offer. As my reasons for judgment demonstrate, the first two pages of the Southage letter of offer set out the interest rate that was to apply to that proposed loan, but not the full terms and conditions of that loan.
In my view, this failure is no reason to order Castaway Avenue to pay costs other than on the standard basis. There was nothing clearly detrimental to Castaway Avenue’s case in the missing pages that, it may be concluded, was deliberately withheld. The point upon which CSC1957 Investments ultimately succeeded was that, when the documents were looked at in their entirety, they did not amount to proof of the relevant interest rates. But this argument was not made more difficult by reason of and failure to provide, at an early stage, the balance of the Southage letter of offer. I am not satisfied that the early production of this document would have avoided or shortened the trial or impacted the making of the freezing order. It was also open to CSC1957 Investments to raise its concerns about the completeness of the Southage letter of offer at the inter partes hearing. The discrepancies between the two letters of offer provided in support of the freezing order application could have been raised by CSC1957 Investments at that stage.
C.2.3. The undertaking as to damages
Castaway Avenue gave an undertaking as to damages in the usual form when it applied for the freezing order. The freezing order was initially made ex parte, but was then made following an inter partes application. Any problems with the value of the undertaking as to damages were as apparent then as they are now, and CSC1957 Investments was able to raise that issue with the Court when it opposed the making of the freezing orders. I see no reason for which I ought to use, now, any doubt about the value of the undertaking as to damages, and Castaway Avenue’s assertion then made that there was no reason to doubt its value, in order to make a different costs order from that which I would otherwise make.
C.2.4. Conclusions on conduct
Notwithstanding the observations above, it is somewhat surprising that Castaway Avenue, or its solicitors, did not provide the full copy of the Southage letter of offer, or information as to the full circumstances of the payment of the deposit, promptly and at the time that it sought the freezing orders. No proper explanations were made, and nothing was put on oath as to why they did not. If there was a simple explanation for the omission I could have been provided with it. However, even despite those matters, as noted above, I am not satisfied that the conduct was such as to elevate the obligation to pay costs on the standard basis to an obligation to pay costs on the indemnity basis.
C.3. Conclusion on costs of Castaway Avenue’s unsuccessful claims
For the above reasons, I will make no special order in relation to the costs of the applications for the freezing order. Those costs will be paid by Castaway Avenue to CSC1957 Investments as part of the costs of the proceeding in accordance with the costs order that applies to the proceeding generally. I propose to make an order that Castaway Avenue pay CSC1957 Investments’ costs of defending the claim to be taxed in default of agreement on the standard basis.
D. The costs of CSC1957 Investments’ counterclaim against Castaway Avenue
In my opinion, it was appropriate for CSC1957 Investments to counterclaim for declaratory relief in relation to the contract of sale and for an order in relation to the caveat. I reject Castaway Avenue’s contention that, in substance, the counterclaim in so far as it sought those orders served no useful purpose. CSC1957 Investments has succeeded in its counterclaim in the sense that it persuaded me to make those orders. Accordingly, the starting position is that Castaway Avenue should pay CSC1957 Investments’ costs of the counterclaim.
However, CSC1957 Investments also brought a claim against Castaway Avenue for forfeiture of the deposit of $100,000, in which claim it failed, and a claim for damages, which claim it did not substantively pursue at trial. Oftentimes, if a party succeeds in one aspect of its claim, an order will be made in its favour without the need to allow for the fact that other parts of its claim failed.[7] However, where the issues are sufficiently discrete, it is possible that discrete additional costs may have been incurred by the other party in responding to or dealing with that issue on which the first party failed. In those cases, it can be appropriate to allow for the fact that the otherwise unsuccessful party enjoyed some success in the litigation.
[7]Chen v Chan [2009] VSCA 233, [10] (Maxwell P, Redlich JA and Forrest AJA).
I consider that the CSC1957 Investments’ claim to forfeiture of the deposit and its other claims for monetary relief were sufficiently discrete, conceptually, from its defence to Castaway Avenue’s claims against it and from the other claims in its counterclaim for fairness to require that some allowance be made for them.
One option available to me would be to make an apportionment. However, neither party invited me to do so, or provided material that would allow me sensibly to do so. It may well be that CSC1957 Investments did not incur any significant costs in prosecuting the claims upon which it failed that it would not have incurred in prosecuting the claims upon which it succeeded, and it may well be that Castaway Avenue did not incur any significant costs in defending those claims beyond the costs that it would have incurred in prosecuting its own claims and in defending the other aspects of CSC1957 Investments’ counterclaim. This is, in my view, the situation with the time taken with the hearing, as I am satisfied that the trial would not have been appreciably shorter even if CSC1957 Investments did not seek monetary relief. However, it may be that Castaway Avenue is able to identify some discrete category of cost that it incurred solely as a result of CSC1957 Investments’ claims against it for forfeiture of the deposit and for damages. If so, then CSC1957 Investments should pay those costs.
For the avoidance of doubt, to the extent that any costs related to the argument that CSC1957 Investments was entitled to terminate the contract of sale (rather than claim damages) on the basis that the deposit had not been paid in accordance with the contract of sale, those costs would be recoverable by CSC1957 Investments in the ordinary way as part of the costs of its counterclaim and of defending Castaway Avenue’s claim. I did not decide whether this argument was good, because it was not necessary for me to do so. There is no basis for treating the costs associated with this issue as costs of an issue on which CSC1957 Investments failed.
E.Mr Gulabovski’s costs
Mr Gulabovski was the owner and director of Castaway Avenue and, as was noted above, was represented by the same solicitors and counsel that represented Castaway Avenue.
CSC1957 Investments added Mr Gulabovski as a defendant to the counterclaim for the purpose of seeking monetary relief against him. He did not otherwise have to be a party. CSC1957 Investments did not establish a right to damages from Mr Gulabovski. In these circumstances, I do not consider that Mr Gulabovski should be ordered to pay CSC1957 Investments’ costs.
Mr Gulabovski sought his costs of defending the counterclaim. The counterclaim as pleaded sought a declaration that he had engaged in misleading and deceptive conduct. Although CSC1957 Investments did not succeed in its claim for monetary relief, it did succeed in establishing that Mr Gulabovski had engaged in misleading and deceptive conduct. However, once it became clear that this conduct did not cause loss, and so monetary relief would not be awarded, CSC1957 Investments did not pursue the application for declaratory relief. Nonetheless, Mr Gulabovski disputed that he had engaged in misleading and deceptive conduct, and I found against him on that issue. In these circumstances, I consider it appropriate that there be no order as to Mr Gulabovski’s costs.
F.Disposition
For the above reasons, I propose to order that:
(a) Castaway Avenue pay CSC1957 Investments’ costs of Castaway Avenue’s claim, including any reserved costs, to be taxed in default of agreement on the standard basis.
(b) Castaway Avenue pay CSC1957 Investments’ costs of CSC1957 Investments’ counterclaim, including any reserved costs, to be taxed in default of agreement on the standard basis, with such costs not to include any non-common costs, if any, that were incurred by CSC1957 Investments solely in relation to its claims in the counterclaim to monetary relief that would not otherwise have been incurred in defending Castaway Avenue’s claims or in pursuing the other aspects of CSC1957 Investments’ counterclaim.
(c) CSC1957 Investments pay Castaway Avenue’s non-common costs, if any, that were incurred by Castaway Avenue solely in relation to CSC1957 Investments’ claims in the counterclaim to monetary relief that would not otherwise have been incurred by Castaway Avenue in pursuing Castaway Avenue’s claims or in defending the other aspects of CSC1957 Investments’ counterclaim.
(d) There be no order as to Mr Gulabovski’s costs.
For the avoidance of doubt, nothing in these reasons is intended to preclude CSC1957 Investments, should it wish to do so, from seeking to enforce Castaway Avenue’s undertaking as to damages in respect of the freezing order, or to limit the parties in any arguments that they may wish to make in the event that CSC1957 Investments seeks to do so.
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