Cetinkaya v Unal (No 2)
[2018] VCC 1392
•7 September 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-08-05385
| RECEP CETINKAYA | First Plaintiff |
| and | |
| BAHAR CETINKAYA | Second Plaintiff |
| v | |
| METIN UNAL | First Defendant |
| and | |
| REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 July 2018 | |
DATE OF RULING: | 7 September 2018 | |
CASE MAY BE CITED AS: | Cetinkaya v Unal (No 2) | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1392 | |
REASONS FOR RULING
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PRACTICE AND PROCEDURE – COSTS – CALDERBANK OFFER – Application for indemnity costs – Whether allegation of fraud persisted with without reasonable grounds – Whether special circumstances to justify departure from usual basis.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | No appearance | |
For the first defendant | Mr R Moore | Tony Hargreaves & Partners |
CONTENTS
Background
Calderbank Offer
Allegation of fraud persisted with unreasonably?
Conclusion
HER HONOUR:
Background
These reasons deal with an indemnity costs application made by Mr Unal against Mr and Mrs Cetinkaya.
I delivered reasons for judgment on 24 April 2018, indicating that I would dismiss the Cetinkayas’ claims and give judgment for Mr Unal: see Cetinkaya v Unal [2018] VCC 480 (the principal reasons). These costs reasons follow from the principal reasons, and should be read in conjunction with them.
These reasons were delayed as an application was made by Mr Unal seeking costs against the solicitors and counsel who had acted for the Cetinkayas in the course of the proceeding. That application has now been resolved by consent.
Mr Unal seeks to have the Cetinkayas pay his costs of the proceeding, including the costs of the counterclaim and any reserved costs, on a standard basis from 11 December 2008 to 13 April 2009 and on an indemnity basis from 14 April 2009 (when a Calderbank offer was sent). Alternatively, if the Court considers that Mr Unal is entitled to indemnity costs from a later date, he seeks indemnity costs from that date.
The Cetinkayas were not represented at the time of the costs hearing on 30 July 2018. They did not appear at the costs hearing. I am satisfied that they were served with the summons, supporting affidavit and orders made by me on 13 July 2018 adjourning the summons to 30 July 2018.
Whilst they were still legally represented, written submissions relating to costs were filed on their behalf by their then counsel, Mr Sowden. I have considered these submissions.
I will not make an order for indemnity costs as I am not satisfied that there is a reason to depart from the usual order as to costs on a standard basis.
Mr Unal seeks indemnity costs on two different bases:
·As a result of a Calderbank offer dated 14 April 2009 by which the Cetinkayas were invited to discontinue the proceeding, on the basis of the parties bearing their own costs. He says the Cetinkayas unreasonably rejected this offer.
·Because he says the allegation of fraud against Mr Unal was made and persisted with without reasonable grounds.
Calderbank Offer
I reject the claim for indemnity costs based on the letter of 14 April 2009 because it was not unreasonable for the Cetinkayas to reject that offer. It was a ‘walk away’ offer open for 14 days, sent at a very early stage of the proceeding and before discovery had been given by the parties.
In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] 13 VR 435, the Victorian Court of Appeal set out the principles to be considered in the use of Calderbank offers. It said that orders for special costs should only be made in special circumstances.
The Court noted (at [21] and [22]) the competing policy considerations of providing an incentive to settle but not discouraging litigants from bringing their disputes to the Court.
The Court found (at [23]) that the competing considerations:
can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. [citation omitted]
As made clear in Hazeldene, determining whether an offer was unreasonably rejected involves matters of judgment and impression. Matters I need to consider in the exercise of my discretion include the stage of the proceeding at which the offer was received, the time allowed to consider the offer, the extent of the compromise offered, Mr Unal’s prospects of success (assessed as at the date of the offer), the clarity of the terms of the offer, and whether the offer foreshadowed an application for indemnity costs in the event of it being rejected.
The 14 April 2009 letter relied on by Mr Unal states:
… the matters the subject of this proceeding occurred over 12 years ago. It has taken Mr Metin Unal considerable time and effort to review and retrieve his records and gather evidence relevant to the claims now made by the Cetinkayas.
As is evident from our open letter of today's date, Mr Unal's primary position is that the Cetinkayas' claim is statute barred. Even if it were not, we cannot see how the Cetinkayas' claim can succeed. As detailed in our client's Further and Better Particulars of Defence and Counterclaim, the Cetinkayas entered into a Contract of Sale on or about 1 August 1996, The Contract is in writing and signed by the Cetinkayas.
Pursuant to the Contract, Mr Unal as Trustee for the BR Trust, paid the sum of $131,000.00 to complete the purchase. Most of that sum went to discharge the existing ANZ Bank mortgage. The Plaintiffs entered into a lease in about August 1996 with Mr Unal in his capacity as the Trustee of the BR Trust and paid rent to our client pursuant to the lease. Mr Unal provided receipts to the Cetinkayas for payment of the rent which clearly evidence the relationship of landlord and tenant.
In respect of the preparation and execution of the Contract of Sale, the Transfer of Land, the Lease and the Agreement referred to in the particulars sub-joined to paragraph 14.3 of Mr Unal's Defence, the Cetinkayas were represented by solicitors acting on their behalf.
It is apparent, based upon this documentation and objective evidence, that the Plaintiffs’ claim that they were the victim of a fraudulent transfer of their property undertaken without their knowledge is both false and entirely unsupported by the weight of evidence.
… Mr Unal is presently willing to bear his own costs provided by 4:00pm on 30 April 2009 the Cetinkayas discontinue this proceeding and release Mr Unal from all further claims arising out of the subject matter of this proceeding. There will be considerable expense to the parties in undertaking further investigations to identify additional information, documentation and witnesses. This offer is put to the Cetinkayas in order to avoid the further cost and inconvenience that shall be incurred in undertaking these enquiries including the cost associated with the preparation of this matter for hearing.
In the event that this offer is not accepted and the Cetinkayas ultimately obtain an order no more favourable than this proposal, we intend to produce this letter to the Court on the question of costs and seek an order that the Cetinkayas pay Mr Unal's costs on a full indemnity basis from the date of this letter in accordance with the principles enunciated in Calderbank -v- Calderbank [1975] 3 ALL ER 333… This offer is open to be accepted until 4:00pm on 30 April 2009 after which time it shall lapse.
…
Furthermore, upon applying for an order for indemnity costs, our client shall also rely upon the principles enunciated by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Product Merchants Pty Ltd and Ors (1988) 81 ALR 397 at 401 on the basis that the Plaintiffs have permitted the continuation of this proceeding in circumstances where they should have known, if properly advised, that the proceeding had no chance of success.
…
The relevant time for assessing whether a Calderbank offer was reasonable (and its refusal unreasonable) is when the offer was made, not with the benefit of hindsight.
Proceedings had only been issued four months before the Calderbank offer was sent.
A statement of claim and defence had been filed. Further and better particulars of the defence were given 12 days earlier. Neither party had filed an affidavit of documents. A week after the Calderbank offer was sent, Mr Unal filed an affidavit of documents.
The offer was a ‘walk away’ offer: Mr Unal said he would bear his own costs to date if the Cetinkayas bore their own. There is no evidence of what Mr Unal’s costs were at that time, but they would not have appeared extensive to the Cetinkayas in assessing the offer, given the early stage of the proceeding. The letter did not specify how much money had been spent by Mr Unal at that time, and did not give the Cetinkayas an opportunity to consider their risk in that regard. It was all but an offer to capitulate.
In a similar context, Robson J stated in Lord Buddha Pty Ltd v Harpur (No 2) [2011] VSC 568 at [82]:
I find that the Calderbank offer made by Forvale to Mr Harpur is not reasonable. It is perhaps unnecessary to state, therefore, that I find that it was not unreasonable for Mr Harpur to reject it. The offer came at a very early stage of the proceedings, before mediation had taken place, and gave Mr Harpur very little time to respond. It was, in effect, not a compromise, but rather an offer to walk away from proceedings at a time at which the nature of those proceedings were still being explored. For these reasons, I find that Mr Harpur should pay Forvale’s costs on a party/party basis.
For like reasons, it was not unreasonable for the Cetinkayas to reject the offer.
Allegation of fraud persisted with unreasonably?
A Calderbank offer is just one of the factors to be taken into account as part of the Court’s discretion as to costs: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 per Sheppard J. Mr Unal also seeks costs on the basis that the allegation of fraud was persisted with without reasonable grounds.
Mr Unal submitted in written submissions:
The Court has a wide discretion to make a special costs order and reference is made to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435 [25].
Fraud is an extremely serious allegation to make, particularly against someone who acts in a professional capacity of an accountant like Mr Unal. It should only be alleged where there is a proper basis, on the known facts and law. It is submitted that the offer in the Calderbank letter should have been accepted by the Cetinkayas, that their rejection was unreasonable and an order for indemnity costs should be made.
In oral submissions, Counsel for Mr Unal confirmed that Mr Unal was also seeking costs arising from the fraud allegation being made without reasonable grounds, regardless of the submission that the Calderbank offer should have been accepted.
In Ugly Tribe Co Pty Ltd v Sikola & Ors [2001] VSC 189 at [7] Harper J said that:
In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v. Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v. Towney (No. 2). These include:
(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. (1988) 81 A.L.R. 397.
(ii) The making of an irrelevant allegation of fraud: Thors v. Weekes (1989) 92 A.L.R. 131.
(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty. Ltd. v. Keeprite Australia Pty. Ltd. (unreported, Federal Court, French, J., 3 May 1991).
(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty. Ltd. v. Westpac Banking Corporation (unreported, Federal Court, Davies, J., 5 March 1993).
(v) Conduct which amounts to a contempt of court: EMI Records Ltd. v. Ian Cameron Wallace Ltd. [1983] Ch. 59.
(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp. Pty. Ltd. v. Australian Builders Labourers Federation Union of Workers (W.A.) Branch (No. 2) (1993) 46 I.R. 301.
(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v. Petit-Breuilh (No. 2) (unreported, [1990] VSC 395, 18 October 1999).
[citations omitted]
In Vink v Tuckwell (No 3) [2008] VSC 316, Robson J said at [94] that:
In my opinion, making allegations of fraud without reasonable grounds is tantamount to making the allegations with little or no regard as to whether the allegations are true or false.
Mr Unal submits that there was reckless indifference by the Cetinkayas as to whether the allegation of fraud they made was true or false, and this, of itself, provides a basis for indemnity costs from 14 April 2009 or a later date.
So far as a relevant later date is concerned, Mr Unal points to a letter he sent dated 23 May 2017.
He says that by it, the Cetinkayas were again put on notice that the claim in fraud was unsupported by the weight of the evidence and should be withdrawn. The letter states:
We confirm the trial of this proceeding is listed to commence in the County Court of Victoria at Melbourne on 8 August 2017.
We enclose a copy of our Calderbank Offer served on Law 554 on 14 April 2009. Our client's Calderbank Offer was not accepted.
Since making the enclosed Calderbank Offer, it is apparent that the plaintiff's case has been immeasurably weakened following service of their two expert reports.
First, the plaintiffs' valuer now effectively agrees with the defendant's valuation in relation to the value of 75 Colebrook Street, Brunswick in both August 1996 and December 1996. The plaintiffs’ valuation is $131,000.00 whilst the defendant's valuation is $130,000.00. This means that when Mr Unal purchased the property for $131,000.00 it was not sold at an undervalue. It was sold at market value.
Secondly, the plaintiffs' have suffered no loss. In order to discharge the plaintiffs' mortgage our client was required to pay the ANZ Bank over $140,000.00. The bank was in fact owned $146,658.95. Consequently, there was no equity left for the plaintiffs as a result of the mortgagee sale.
The defendant has made this point time and time again (see currently at paragraph 24C of the Amended Defence and Counterclaim). The plaintiffs' response has always been that the property was worth much more than what was owed to the bank. Nevertheless, the plaintiffs have never had any evidence to support this assertion. Now, as a consequence of the filing and service of their expert evidence, the plaintiffs have finally accepted our client's position that the property was worth what Mr Unal paid for it.
Thirdly, the plaintiffs' handwriting expert, John Ganas does not conclude that the signature of Mrs Cetinkaya on the Contract of Sale or the Transfer of land is not hers.
His evidence does not support an allegation of forgery. On the other hand, our client's expert, Trevor Joyce, has concluded that the specimen Bahar Cetinkaya signatures on the 1992 mortgage (S5) and the 2001 letter to Citylink (S13) are consistent with the Bahar signatures on the Contract of Sale and the Transfer of Land. The witness to Mrs Cetinkaya's signature on the Transfer of Land will be called to give evidence at trial.
Bearing in mind the approach taken by the court to the standard of proof with respect to allegations of fraud, the court will not find that Mrs Cetinkaya's signature was forged. The plaintiffs do not allege Mr Unal forged Mrs Cetinkaya's signature or that he knew her signature was forged. The plaintiffs will not be able to establish the requisite fraud by Mr Unal to overturn the indefeasibility of title.
In the circumstances, we maintain the plaintiffs' claim that they were victims of a fraudulent transfer of their property undertaken without their knowledge is both false and entirely unsupported by the weight of evidence.
Finally, the plaintiffs' claim is, in any event, statute barred.
For the reasons detailed above, the claim against Mr Unal is without any proper basis. It ought to be withdrawn immediately and our costs paid before the considerable expense of a trial is incurred.
We put you and your clients on notice in our letter of 14 April 2009 that if our client's Calderbank Offer was not accepted, we intended to produce that letter to the Court on the question of costs and to seek an order that the Cetinkaya's pay Mr Unal's costs on a full indemnify basis. We further put your firm on notice that in the event the Court grants an application for indemnity costs, our client would reserve his rights to seek an order for such costs to be paid by your firm in their capacity as legal practitioners on the record for the plaintiffs should it be established that this proceeding was commenced and continued in circumstances where the Cetinkayas should have been advised that the proceeding had no chance of success.
We advise that it remains our client's position to pursue costs on this basis, and reliance will now also be placed on the provisions of the Civil Procedure Act 2010, in particular, s.18, s.28 and s.29 of the Act.
Our client reserved the right to produce this letter and our Calderbank letter of 14 April 2009 on the question of costs.
Mr Unal argues that there were no reasonable grounds for persisting with the allegation of fraud against Mr Unal. He submits that this is demonstrated by:
(a) the discovery by Mr Unal of documents, prepared by Mr Milder, which were inconsistent with the allegations of fraud;
(b) correspondence between the trustee in the Cetinkayas’ bankruptcy and Mr Milder, and in the possession of the Cetinkayas, wherein Mr Milder explains that he was acting for the Cetinkayas as their solicitor in the sale of Colebrook Street;
(c) the failure by the Cetinkayas to interview Mr Milder and obtain from him his evidence, thereby acting in reckless disregard to known facts;
(d) the acceptance by the Court that Mr Milder was the Cetinkayas solicitor in June 1996 and acted for them, on instructions, with respect to the sale of Colebrook Street;
(e) the fact that it was never put to Mr Milder that his evidence was untruthful; nor was it ever put to Mr Milder that he was a party to the alleged fraud;
(f) the allegations of the fraudulent conduct sought to be relied on by the Cetinkayas were never put squarely to Mr Unal;
(g) no explanation was sought to be given by the Cetinkayas why Mr Unal would embark on the elaborate fraud alleged;
(h) there was no challenge to the evidence that the Cetinkayas’ executed the transfer of land in the presence of Ms Farrell;
(i) the ever shifting instructions of the Cetinkayas.
Many of the matters which Mr Unal relies on arise from tactical decisions made by Counsel for the Cetinkayas as to how to conduct a – particularly difficult on both facts and law – trial. This included issues of what was put to Mr Milder or Mr Unal and Ms Farrell. It included the decision of whether to interview Mr Milder and what to make of correspondence where he alleged he acted for them.
As noted in the principal reasons at [155], there were unsatisfactory elements to some of the evidence given by and for Mr Unal. Some of the documents relied on by him led to questions from the Counsel for the Cetinkayas as to their veracity and when they were created. This included the lease documents discovered by Mr Unal which were in draft and included terms that appeared irrelevant.
The Cetinkayas maintained that they had never met Mr Milder, and had never seen the two invoices which were discovered by Mr Unal. The invoices were from Mr Milder to the Cetinkayas. They were, however, sent to Mr Unal. These invoices did not total $10,000 which was the amount Mr Unal maintained had been paid by the Cetinkayas in legal costs.
The trust deed for the BR Trust, which would have shown who the beneficiaries were when it was created, could not be found, and the draft document Mr Unal discovered, purporting to show who the beneficiaries of the trust were was not in a usual form. Given the questions raised about some of these pertinent documents, I do not accept that the discovery of them was inconsistent with the allegation of fraud.
The Cetinkayas case depended in large part on their credibility, their witnesses and the findings the Court made about these. Their case involved establishing oral representations by Mr Unal. The fact that the Cetinkayas did not satisfy the Court of their case, on the balance of probabilities, after a 14 day trial, should not be conflated with an argument that they wilfully disregarded known facts, in the course of preparing or running the trial, or that they alleged fraud without any reasonable basis. The trial involved complex questions of fact and law, including many factual matters that Mr Unal alleged, which the Cetinkayas were entitled to test at trial.
Conclusion
I will order costs of the proceeding, including claim and counterclaim, be paid by the Cetinkayas on the standard basis.
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Certificate
I certify that these 10 pages are a true copy of the reasons for ruling of her Honour Judge Marks, delivered on 7 September 2018.
Dated: 7 September 2018
Samantha Marinic
Associate to Her Honour Judge Marks
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