Ceko v Ceko (No 2)

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
CEKO v CEKO & ANOR (No 2)
[2023] SASC 130
Judgment of the Honourable Chief Justice Kourakis
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INTEREST ON COSTS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS - GENERALLY
On 7 June 2023, primary judgment Ceko v Ceko & Anor [2023] SASC 91 was delivered in favour of the applicant, Luke Ceko, against the respondents, Michael Ceko and Cosette Ceko in. Final judgment entry was reserved to give the parties an opportunity to make submissions on pre-judgment interests and costs.
The applicant seeks an order for:
1.      Pre-judgment interest as follows:
a.      $26,529.67 on the judgment debt;
b.      Pre-judgment interest $11,463.70 on the amount ordered for equitable compensation.

2.      Costs of the action as follows:
a.      On an indemnity basis.
b.      Alternatively, on a standard basis for the period until 14 days following the service of a filed offer on 8 November 2021; or, on an indemnity basis for the period of 14 days following service of the filed offer.

Held:
1. Pre-judgment interest on the debt claim is awarded to the applicant in the sum of $26,529.67.
2.Pre-judgment interest on the equitable compensation is awarded to the applicant in the sum of $9,170.96.

3. The respondents are to pay the applicant's legal costs on an indemnity basis.
Roberts v Roberts [2021] SASC 91; Stewart v Atco Controls Pty Ltd (in liquidation) (No 2) (2014) 252 CLR 331, considered.

CEKO v CEKO & ANOR (No 2)
[2023] SASC 130
Civil

KOURAKIS CJ: On 7 June 2023, I delivered judgment in favour of the applicant, Luke Ceko (Luke) against the respondents, Michael Ceko and Cosette Ceko (Michael and Cosette), his parents (the primary judgment). I ordered that Michael and Cosette pay Luke equitable compensation in the sum of $85,480.07, secured by an equitable lien over a holiday home in Morgan (the Morgan property) which was built on Michael’s and Cosette’s land but funded by a loan, in effect, taken out by Luke. I also entered judgment on Luke’s claim for money lent to his parents in the sum of $126,662.27.
I reserved the entry of final judgment to give the parties an opportunity to make submissions on pre-judgment interests and costs.
Michael and Cosette do not oppose an award of $26,529.67 for pre-judgment interest on the debt claim. I will award pre-judgment interest in that amount.
Michael and Cosette oppose the making of any award for pre-judgment interest on the award of equitable compensation. They contend that the calculation of the award of equitable compensation in the primary judgment was ‘moulded’ to fully compensate Luke for the loss of his investment in the Morgan property to the date of judgment and that any award of pre‑judgment interests would, therefore, overcompensate him. The findings on which they rely are:
·Luke would not have had the opportunity to invest in real property as early as 2015 if he had not invested in the building of the holiday house on the Morgan property because he did not have a sufficient deposit;
·that the award of equitable compensation reflected Luke’s proportionate share of the capital appreciation of $250,000 of the Morgan property between 2015 and 2020, having regard to the parties’ respective contributions of the land and finance;
·the loan taken out by Luke was repaid from the proceeds of sale of Michael and Cosette’s Athelstone home on 14 September 2020 on which date Luke was paid $39,519.93;
·Luke should not share in the capital appreciation of the Morgan property after 14 September 2020 because it would overcompensate him to allow him to benefit from the increase in property value of the Morgan property after the CBA loan was repaid;
·The just and conscionable satisfaction of the equity arising from the expectation encouraged by Luke’s parents is to make an order for equitable compensation, in effect treating Luke as if he held a joint equitable interest in the Morgan property with his parents from 2015 which he then assigned to them at its market value when the CBA loans were paid out. After deducting the net proceeds from the sale of the Athelstone home received by Luke ($39,519.93), I will make an order for equitable compensation in the sum of $85,480.07.
Michael and Cosette’s submissions fail to address the fact that Luke was denied the use of equitable compensation for what was, in effect, the assignment of his interest from October 2020. Conversely, Michael and Cosette benefitted from the retention of his interest in the Morgan property, including its capital appreciation, but without paying for it in full.[1]
[1] Part payment only was made when Michael received $39,519.93 on settlement of the Athelstone property.
Accordingly, the failure to make an award of pre-judgment interest would leave Luke out of pocket and allow his parents a windfall.
Luke accepts that the trustee rate of interest of four per cent is an appropriate rate of interest in this case, and would submit to an award of $9,170.96.
Alternatively, Luke contends that an estimate might be made of the capital appreciation in real property in which he might have invested in January 2021. At four per cent that yields a sum of $8,309.13 and at five per cent the sum of $10,386.41 to the date of judgment. I also take into account that Luke might have invested in an income yielding asset other than real property.
I award pre-judgment interest on the equitable compensation in the sum of $9,170.96.
Michael and Cosette accept that they must pay Luke’s costs but oppose an order that they pay his costs on an indemnity basis.
Luke was not represented at trial: the costs are probably limited to advice given before action and in the course of litigation.
Luke contends that costs should be ordered on an indemnity basis by reason of pre-action offers to compromise his claim for considerably less than the judgment sum he will now recover.
An informal offer was first made in letter form by email through Luke’s agent on 12 July 2019.
The first proposal in the letter was an interim position calculated to allow the sale of Michael and Cosette’s home at Athelstone with the proceeds paid into an interest bearing account until Luke’s claims were determined by judgment or final agreement between the parties.
The terms of the offer (referred to in the letter as an alternative offer) made in full and final settlement of Luke’s claims were:
·Michael and Cosette pay Luke the total all inclusive sum of $160,000 in full and final satisfaction of Luke’s claims within 90 days of the date of the letter or upon settlement of the sale of the Athelstone or Morgan properties, whichever first occurred.
·The compromise was conditional on Luke’s release from the CBA mortgage and CBA loan in exchange for which Luke would relinquish any interest he might have in the Athelstone property.
·The above stated terms were to be recorded in a Deed for Settlement and Release containing mutual releases and a provision for confidentiality.
·The offer was open for 21 days.
By email dated 1 November 2019 Luke, through his agent, offered a compromise of the action as follows:
·That the Ceko’s would pay all arears on the bank loan and recommence making 80 per cent of the loan repayments.
·Luke would continue to make 20 per cent of the loan repayments until the Athelstone property was sold.
·The Athelstone property was to be sold at a purchase price that will achieve net sale price proceeds of no less than $160,000, which sum is to be paid to Luke and any balance to his parents.
·Luke would withdraw the caveat lodged on the Morgan property on payment of $160,000.00.
·The terms would be recorded in a mutually agreed Deed of Settlement and Release to be drafted by the solicitor instructed by Michael and Cosette.
·In accordance with a term to be included in the Deed, Luke would withdraw the caveat on the Athelstone property and cooperate in its sale on the execution of the Deed.
·Luke and his parents would bear their own costs.
Michael and Cosette (the Ceko’s) contend that:
a.That the offer of 12 July 2019 would not have been legally binding if it were accepted because it was conditional on the recording of the terms in a Deed.
I reject that submission. On a proper construction of the offer, the terms were those as to the compromise of Luke’s claims with an additional term that the compromise would be recorded in a Deed. The Deed was to record no more than the terms stipulated in the offer. The precise terms of the mutual release and provision for confidentiality could be ascertained with sufficient certainty by the implication in the offer itself, that the compromise would be final and there would be no recourse to either party. The provision as to confidentiality, again in context of the offer, was limited to a preclusion of the parties disclosing the terms of the offer to any other person. The terms of the clause were subject to an implied requirement that they be reasonable and limited to what was necessary to keep the consideration on both sides confidential.
b.The letter of 12 July 2019 did not stipulate the steps by which the release from the loans was to be obtained.
I reject that contention too. It was not necessary to set out the steps to be taken or any timetable for them. The offer was conditional on achieving a result, namely Luke’s release. There is no suggestion that it was not possible to achieve that result. Nor can there be any objection to the time stipulated for the result to be achieved.
c.The words ‘all inclusive’ do not adequately deal with the question of costs.
I also reject that submission. It is not necessary to make a separate provision as to costs or to specify that ‘all-inclusive’ includes costs. The term all-inclusive in the context of the offer meant that Luke would compromise the action on the payment of $160,000 in full and final satisfaction of his claims. It meant that no further sum was payable to Luke in order for Luke to be bound by the obligation to relinquish any interest he had in the Morgan property or the Athelstone residence.
d. It is not possible to identify any offer which the offer of settlement described on page 9 was set to be alternative to.
I reject that submission. Strictly, it is unnecessary to identify any other offer because the offer is described as an alternative and was therefore open to be accepted without more. Moreover, Michael and Cosette did not request that the offer be identified. In any event, it is plain on the face of the letter of 12 July 2019 that the offer of final compromise was an alternative to the interim position pending resolution of the substantive dispute by agreement or a judgment of the Court. The offer described as an alternative under the heading Offer of Settlement was an offer made in full and final satisfaction of Luke’s claims.
The terms of the offer in the email of 1 November 2019 effectively repeated the first compromise proposed in July 2019. There could be no confusion as to what was intended. The express reference to removal of the caveat and facilitating the sale of the properties in the offer of 1 November 2019 would necessarily have been implied by the duty of mutual co-operation in order to give effect to the proposal.
In Roberts v Roberts (No 2),[2] Blue J summarised the principles relating to the award of indemnity costs based on an informal Calderbank offer as follows:
[2] Roberts v Roberts [2021] SASC 91 at [21].
It is well established that, in exercising the discretion whether to make a different costs order due to refusal of a ‘Calderbank offer’ more favourable to the offeree that the resultant judgment, the factors taken into account include:
1.the reasonableness of the offer and of its rejection;
2.the stage of the proceeding when the offer is made;
3.the time allowed to consider to the offer;
4.the extent of the compromise in the offer;
5.the prospects of success at the time of the offer;
6.the clarity of the terms of the offer; and
7.whether the offer foreshadowed that indemnity costs would be sought if the offeree rejected it.
(Footnotes omitted)
The offer was a very reasonable one and its rejection was plainly unreasonable. On the basis of my findings in the primary judgment Michael and Cosette must, especially at that earlier time, have been very well aware that it underestimated the extent of the advances made to them. They also well knew that they had induced Luke to forego an investment in other real property so that they might realise their hope to build a new home on their Morgan property by promising him an interest in the Morgan property itself. They rejected Luke’s offer hoping to deny him the product of his interest in the Morgan property and leave him with no more than the loan repayments he had made.
Having regard to their later disingenuous denials, I find that Michael and Cosette rejected the offer in the hope that Luke would not be able to attribute many of the withdrawals they made to them. The late discovery of copies of their statements of their bank accounts into which they frequently deposited the money they had withdrawn was calculated to conceal the extent of their withdrawals. Luke’s careful cross-examination of his parents exposed the degree of their withdrawals, and to some extent the purposes for which they were using, the money, and the manifest falsity of many of their claims.
I place little weight on the circumstances that the offer was early and that Luke’s claim was filed 19 months after the offer was made. The offer was a generous one. The extent of the money lent to the Ceko’s, which was advanced by Luke giving his parents free access to his account, only became fully evident after the discovery of their bank statements. The extent of their indiscriminate use of Luke’s bank account, and the purposes on which they had expended the money he thereby advanced them, was well known to them at that earlier time which was much closer to the period in which the withdrawals were made.
The issues arising on Luke’s claims, particularly as to the extent of the loan, were simple enough and were issues that Michael and Cosette could have had no difficulty understanding.
The compromise offered was favourable to Michael and Cosette. A more informed assessment by Luke would have revealed that his prospects of success were even greater than those stated in the letter. An honest assessment of the prospects by the Ceko’s would have inexorably driven them to a accept the offer.
Even though there was no express reference to indemnity costs it is implicit in the reservation of the right to produce the letter on the question of costs that that was what Luke’s advisors had in mind. Moreover, the Ceko’s were represented at that time.
Applying the decision of the High Court in Stewart v Atco Controls Pty Ltd (in liquidation) (No 2)[3] the Ceko’s have not pointed to any reason for not accepting the offer other than their hope that Luke might not prove his case.
[3] Stewart v Atco Controls Pty Ltd (in liquidation) (No 2) (2014) 252 CLR 331 at [4] (Crennan, Kiefel, Bell, Gageler and Keane JJ).
I order that Michael and Cosette pay Luke’s legal costs on an indemnity basis.

[2023] SASC 130

8 September 2023