Cifg (Australia) Pty Ltd v Perna (Costs)
[2020] VSC 735
•10 November 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 00917
IN THE MATTER OF AN application by CIFG (AUSTRALIA) PTY LTD (ACN 006 182 449) for an order for payment of funds out of Common Fund No 1 Account No 83978 held with the Supreme Court of Victoria’s Funds in Court Office
| CIFG (Australia) Pty Ltd (ACN 006 182 449) & Ors (according to the attached Schedule) | Plaintiffs |
| v | |
| CLAUIA DORA PERNA and MARIA GIOA BELLA GRACE & ANOR (according to the attached Schedule) | First Defendants |
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JUDGE: | Derham AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 October 2020 |
DATE OF JUDGMENT: | 10 November 2020 |
CASE MAY BE CITED AS: | CIFG (Australia) Pty Ltd v Perna (Costs) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 735 |
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COSTS — Application for payment out of funds in court by plaintiffs claiming an equitable charge on funds derived from the sale of land – Plaintiffs successful – First defendants claim to an equitable charge found to be based on a sham transaction – Plaintiffs equitable charge found to be the better equity in any event – Whether costs should follow the event – Whether indemnity costs should be ordered – Whether second defendant should bear his own costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T D Best | Desmond Lieu Lawyers |
| For the First Defendants | Mr B McNab, Solicitor | Diamonds Solicitors |
| The Second Defendant in person | Dorsia Legal |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background.................................................................................................................................... 1
Evidence and submissions............................................................................................................... 2
Applicable law.................................................................................................................................... 4
Plaintiffs’ submissions..................................................................................................................... 7
First defendants’ submissions....................................................................................................... 17
Consideration.................................................................................................................................... 19
Costs as between the plaintiffs and the first defendants....................................................... 19
Indemnity costs........................................................................................................................... 23
Conclusion......................................................................................................................................... 24
HIS HONOUR:
Introduction
On 29 September 2020 I published reasons (Primary Reasons) for a decision that the plaintiffs were entitled to be paid the whole of the amount, and any interest accrued thereon, out of the surplus funds from the sale of the property at 123 Normanby Drive, Greenvale, Victoria (Land), deposited in Common Fund No 1, Account 83978 with the Supreme Court of Victoria Funds-in-Court Office.
In these reasons, I will employ the definitions contained in the Primary Reasons. I will not repeat the fact and findings set out in the Primary Reasons unless necessary to these reasons.
Background
In the Reasons, I stated my preliminary view that the costs should follow the event, so far as the plaintiffs and first defendants were concerned. The first defendants were on notice from before the commencement of the proceeding that their claim upon the proceeds of the sale of the Land, and their failure to respond in relation to it, were causing the plaintiffs to incur costs unnecessarily.
I commented that the first defendants had fought tooth and nail to resist the claims of the plaintiffs to the Fund and to advance their own claim and that they had failed. I concluded that, subject to the making of submissions as to costs by the parties, the first defendants should pay the costs of the plaintiffs incurred in connection with this proceeding and the costs of an earlier proceeding brought by the first plaintiff (Earlier Proceeding).[1]
[1]Proceeding No S ECI 2019 05053.
In the Earlier Proceeding, the first plaintiff had sought that a firm of solicitors, Webb Korfiatis, who held the surplus funds in trust, pay them into Court. By order made on 6 December 2019 the surplus funds were ordered to be paid into Court. I noted that on the material before me, the Earlier Proceeding would have been unnecessary had the first defendants’ responded appropriately to communications from the plaintiffs’ solicitor.
I also stated that it was my preliminary view that the second defendant should bear his own costs. The second defendant was invited to attend the hearing on 11 May 2020 by Mr McNab, who represented the first defendants. I did not permit him to do so as there was an immediate conflict of interest between the first defendants and the second defendant. In the upshot, the second defendant represented himself in that hearing. After that hearing, pursuant to orders made on 21 May 2020, the second defendant engaged a solicitor and filed and served a written submission. I concluded that, subject to further submissions as to the second defendant’s costs, my preliminary view was that in relation to the few costs incurred by the second defendant, he should bear them himself. There have been no further submissions and accordingly I consider that the second defendant should bear his own costs.
On 29 September 2020 I made orders that the funds in court be paid to the plaintiffs, reserved the costs and ordered that by 13 October 2020, the parties shall file and serve an outline of submissions and any further affidavits as to the costs of the proceeding.
Evidence and submissions
The plaintiffs and the first defendants have each filed submissions and an affidavit in accordance with the order. The second defendant has not, and may be taken to accept that my preliminary view that he should bear his own costs is correct.
In the case of the plaintiffs, the affidavit filed is by Mr Lieu, who made two affidavits previously. His latest affidavit was affirmed on 13 October 2020 (third Lieu affidavit). It deals with:
(a) the costs of the Earlier proceeding, and if necessary the reinstatement of the a proceeding and the referral to me of the costs of it, if necessary; and
(b) the production of a number of emails referred to in the written submissions.
The affidavit filed by the first defendants was made by Pana Andropoulos of Andropoulos & Associates, the lawyer who drew the Perna & Grace Agreement which purported to confirm the first defendants’ charge over the Land. Ms Andropoulos gives evidence that:
(a) in 2019 she acted for the first defendants and drafted the Perna & Grace Agreement under which Mr and Mrs Pace charged their then interest in the Land to secure repayment to the first defendants of the balance outstanding of a mortgage to Bank of Melbourne secured against Heversham Grove;
(b) having read the Reasons, she is disappointed to read my finding that the Perna & Grace Agreement was a ‘sham transaction’;
(c) the submissions on behalf of the plaintiffs referred to at paragraph 94 of the Reasons, “that Mr. and Mrs. Pace promised in 2015 to grant a charge over the Land in favour of the first defendants and that the Perna & Grace Agreement was the true representation of that promise ... “ rely on the plaintiff's interpretation of clause 2 of the Agreement which should be read in the context of the recitals to the Agreement;
(d) it was never intended by the Perna & Grace Agreement to attempt or create the impression that a charge over the land existed in 2015. The intention was to create a charge over the Land and this was done when Mr. & Mrs. Pace signed the Agreement on 27 March 2019. She did not enter any caveat over the land until she had a copy of the Agreement signed by Mr. & Mrs. Pace in her possession;
(e) having reviewed the Perna & Grace Agreement, she admits that clause 2 should have been better drafted in that subparagraphs (a) to (g) (inclusive) include both ‘confirmations’ on the part of my former clients and ‘acceptances of conditions’ intended to have present effect on the part of Mr and Mrs Pace. The ‘acceptance’ by Mr. and Mrs. Pace to provide a charge in clause 2(b) was understood by the parties and intended by them to be a present acceptance, only effective upon signing. Notwithstanding her admission as to the drafting of the Agreement, she considers that this is the only interpretation open when the Agreement is construed within the framework of the recitals to the Agreement; and
(f) she believe that the first defendants are honest, but unsophisticated people and the discretions available to the Court should be exercised accordingly.
Applicable law
The applicable principles in relation to costs were not in dispute. So far as relevant to the present dispute, the principles may be stated as follows:
(a) unless otherwise expressly provided by any Act or by the Rules, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid: Supreme Court Act 1986 (Vic) (SCA) s 24(1);
(b) the discretion regarding costs has been described as absolute, unconfined or unfettered, although that discretion must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation;[2]
[2]See for example Latoudis v Casey (1990) 170 CLR 534, 537; cited with approval in Oshlack v Richmond River Council (1998) 193 CLR 72, 86 (Oshlack).
(c) in the exercise of the discretion, practices or guidelines have been developed.[3] These practices or guidelines are not legal rules that confine the exercise of the discretion;[4]
[3]Oshlack (1998) 193 CLR 72, 86.
[4]Norbis v Norbis (1986) 161 CLR 513, 537; Oshlack (1998) 193 CLR 72, 86.
(d) there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs.[5] It is not, however, a legal rule devised to control the exercise of the discretion.[6] Where the general rule applies it generally has the result that the successful party should be entitled to the whole of its costs;[7]
[5]Ritter v Godfrey [1920] 2 KB 47, 52; Donald Campbell and Co Ltd v Pollak [1927] AC 732, 809 Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460, 477.
[6]Oshlack (1998) 193 CLR 72, 86 [35].
[7]Lollis v Loulatzis (No 2) [2008] VSC 35 [26].
(e) the general rule has traditionally been described as the costs ‘following the event’, meaning that the party who wins has the costs paid by the other side. But the ‘event’ which, in accordance with the general rule, determines the disposition of costs is not limited to the ultimate fate of the litigation but may extend to the fate of each and every issue argued in the proceedings;[8]
[8]S v Minister for Youth and Community Services (1986) 10 Fam LR 849, 856referred to in Wilson v McDougall (1987) 11 NSWLR 241, 247; LexisNexis, Civil Procedure Victoria (Service 306) [63.02.85] (Civil Procedure Victoria).
(f) if each party succeeds on a discrete issue it may be entitled to the costs of that issue.[9] In this regard, r 63.04 of the Rules provides specific authority by providing that the Court may make an order for costs in relation to a particular question in or a particular part of a proceeding. This power permits orders depriving an ultimately unsuccessful party of its costs, or a part of its costs, or by awarding an unsuccessful party some part of its costs;[10]
[9]APN Funds Management Ltd v Australian Property Investment Strategic Pty Ltd (Costs) [2012] VSC 365 [11].
[10]Civil Procedure Victoria [63.04.0].
(g) not only may an ultimately successful party be deprived of costs of particular issues on which the party failed, the party may be ordered to pay the costs of the other party of those issues. For this purpose, ‘issue’ does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law.[11] The power should be exercised only where the Court, on a consideration of all the circumstances, concludes that the raising of the issue was so unreasonable that it is fair and just to make the order;[12]
[11]Hughes v Western Australian Cricket Assn (Inc) (1986) ATPR ¶40-748, 48-136 (FCA). Queensland Wire Industries Pty Ltd v BHP Co Ltd (1987) 17 FCR 211, 222; Cummings v Lewis (1993) 41 FCR 559, 603; Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 [11]; Martech International Pty Ltd v Energy World Corp Ltd (No 4) [2006] FCA 1779; Civil Procedure Victoria [63.04.0].
[12]Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81 ; FAI General Insurance Co Ltd v McSweeney (FCA, Lindgren J, No NG 312/92, 15 September 1998, unreported); Civil Procedure Victoria [63.04.0]. It is not, of course, a fixed principle: Rosniak v GIO (1997) 41 NSWLR 608.
(h) further, an overall order may be made reflecting these matters so as to obviate the need to tax two bills of costs. Where such an order is made, a party ordered to pay some proportion only of a successful party’s costs does not receive any reimbursement for its own costs except to the extent that the reduction may be seen as a set-off against its own liability;[13]
[13]Nolan v Nolan (No 2) [2004] VSCA 134 [17].
(i) where there has been no hearing on the merits in relation to a question or issue, so that no party has succeeded, either in the proceeding or in relation to the question or issue, the Court is deprived of the factor that usually determines whether or how it will make an order as to costs. If both parties have acted reasonably in commencing and defending the proceeding and their conduct continued to be reasonable until the litigation was settled or its further prosecution became futile, making no order as to costs may be the proper exercise of discretion;[14]
(j) the purpose of a costs order is to compensate the successful party for the costs incurred, and not to punish the unsuccessful party. That purpose is a guide to the exercise of the discretion;[15] and
(k) in the exercise of its discretion the Court may take into account any misconduct by the parties, including that which extends the length or increases the costs of the proceeding.[16]
[14]Re Minister for Immigration and Ethnic Affairs; Ex parte Qin (1997) 186 CLR 622, 625.
[15]Latoudis v Casey (1990) 170 CLR 534, 563 (Toohey J, Mason CJ agreeing); 567 (McHugh J); Ohn v Walton (1995) 36 NSWLR 77, 79.
[16]Forbes v Samuel [1913] 3 KB 706; Parkinson v College of Ambulance Ltd [1925] 2 KB 1; Gold v Patman and Fotheringham Ltd [1958] 2 All ER 497; Capolingua v Phylum Pty Ltd (1991) 5 WAR 137 ; Oshlack v Richmond River Council (1998) 193 CLR 72, 97 [69]; Amcor Ltd v Barnes (No 5) [2013] VSC 51; Civil Procedure Victoria, [63.02.105].
The exercise of the discretion to award costs over and above the ordinary is exceptional, being reserved for cases where the losing party has engaged in unmeritorious, or deliberate or high-minded or other improper conduct such as to warrant the Court showing its disapproval and at the same time preventing the successful party being left out-of-pocket.[17]
[17]Australian Guarantee Corp Ltd v De Jager [1984] VR 483 at 502; PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24; Fountain Selected Meats (Sales) Pty Ltd v Int Produce Merchants PtyLtd (1988) 81 ALR 397 at 401.
The most famous statement of the ‘unmeritorious’ ground for an award of costs on an indemnity basis in recent times was made by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v Int Produce Merchants Pty Ltd[18] as follows:
I believe that it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action had been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.
[18](1988) 81 ALR 397 at 401.
In Ugly Tribe Co Pty Ltd v Sikola,[19] Harper J said that circumstances in which it had been held proper to order indemnity costs, characterised as special circumstances, included the following (citations omitted):
[19][2001] VSC 189 at [7].
(a) the making of an allegation, known to be false, that the opposite party is guilty of fraud;
(b) the making of an irrelevant allegation of fraud;
(c) conduct which causes loss of time to the Court and to other parties;
(d) the commencement or continuation of proceedings for an ulterior motive;
(e) the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and
(f) 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.
Plaintiffs’ submissions
The plaintiffs submitted that they have been entirely successful in their application made by way of originating motion filed 21 February 2020 by the First Plaintiff and amended on 25 May 2020 to add the second and third plaintiffs.[20] They made submissions as set out in the following paragraphs.
[20]On 21 May 2020 the Court made orders in relation to the first plaintiff’s successful application made by way of summons pursuant to r. 9.06(b) of the Rules for CIFG Limited (a company registered in the British Virgin Islands) and CIFG (H.K.) Limited) (a company registered in Hong Kong) to be joined as additional plaintiffs. The plaintiff filed an amended application on 25 May 2020 which included these additional plaintiffs and also corrected an error in relation to the First Plaintiff’s Australian Company Number (ACN).
They were successful in opposing the arguments of the first defendants’ solicitor which were raised in an attempt to defeat the plaintiffs’ claim,[21] and in defeating the first defendants’ application made by the affidavit sworn 1 April 2020 by Claudia Dora Perna (Perna Affidavit).
[21][47] to [65] of the Reasons.
The Court accepted the plaintiffs’ submission that there was no basis for the first defendants’ claim in priority to the Funds and found that the ground for their alleged caveatable interest (being a purported equitable charge arising under the Perna & Grace Agreement) was based upon a ‘sham’ agreement.[22]
[22][12] and [100] of the Reasons.
This is not a case where it could be said that the plaintiffs enjoyed a ‘mixed bag’ of success and failure in the outcome of the matter. The plaintiffs referred to and relied upon the general principles as to the awarding of costs as stated by the Full Court of the Federal Court of Australia in Ruddock v Vadarlis (No 2)[23] that [w]ithin the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that … [o]rdinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order.
[23] (2001) 115 FCR 229, [11] per Black CJ and French J.
There are no special circumstances that warrant or justify a departure from the general rule that costs follow the event[24]. The only issue in the exercise of the Court’s discretion as to costs are the scale at which the first defendants should be jointly and severally liable to pay the plaintiffs’ costs in this proceeding and in the Earlier Proceeding.
[24]See also Spotless Group Ltd v Premier Building and Consulting Pty Ltd (Rec. Appt) [2008] VSCA 115, [37] (Redlich JA, Dodds-Streeton JA agreeing); Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 543 (Mason CJ); Ritter v Godfrey [1920] 2 KB 47 at 52 to 53.
The plaintiffs seek to recover their costs of these proceedings on an indemnity basis. The principles relevant to the making of an order for indemnity costs rather than the usual standard basis (formerly party/party basis) are well established.[25] The plaintiffs seeks the costs of preparation for and the conduct of the matter including all costs associated with their Amended Originating Motion including the costs of the Earlier Proceeding.
[25]See Spencer v Dowling [1997] 2 VR 127, 147, 163; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189; Murdaca & anor v Maisano & anor [2004] VSCA 123.
The plaintiffs sought an order that the first defendants pay indemnity costs on a joint and several basis, for a number of reasons. First, the nominated basis for the lodging of the Perna & Grace Caveat was without merit or any reasonable basis.[26] The Perna & Grace Agreement was not a valid agreement which could give rise to the first defendants having any equitable interest in the Land, and consequently the Fund. Due to the unsound nature of this non-genuine arrangement it could not be said that it was reasonable for the first defendants to have believed that they had any such interest. They knew that there was no oral agreement in 2015 to the alleged charge prior to the signing of the Perna & Grace Agreement in March 2019. There were issues in relation to the Perna & Grace Agreement that they ought to have been aware of including as to the true ownership of Heversham Grove.[27] Even if it were accepted that the first defendants believed (or were led to believe) that they had grounds to caveat the Land pursuant to the Perna & Grace Agreement and as set out in the Perna & Grace Caveat, the grounds themselves could never be substantiated. The first defendants also faced the issue of not being first in time in relation to the creation of their purported interest in the Land,[28] and the fact that they had not incurred any loss or liability for their charge.[29]
[26]Love v Kempton [2010] VSC 254 (11 June 2010) (BC201003957).
[27][72] and [96] of the Reasons.
[28][12] of the Reasons.
[29][12] and [82(f)] of the Reasons.
Second, the plaintiffs’ solicitor put the first defendants squarely on notice by letters from as early as May 2019, well before the commencement of this proceeding and the Earlier Proceeding, (see paragraphs [24] to [31] below and also paragraph [113] of the Reasons) that if they failed to remove their caveat (or otherwise withdraw their claim on the Fund) they ran the risk of incurring an order for indemnity costs. Had they released Webb Korfiatis from the undertaking and consented to an order for the payment of the monies into the Fund (as requested by the Plaintiffs’ solicitors by letter dated 23 August 2019 and referred to in paragraph [30] below) there would have been no need for the Earlier Proceedings. Had they responded appropriately by withdrawing their claim entirely there would have been no need for any proceedings.
(a) this is a case where the Court has made serious findings against the first defendants including (at paragraph 100 of the Reasons) that the Perna & Grace Agreement is ‘dishonest and a false front’ and no more than ‘an attempt to deceive the plaintiffs and the Court’;
(b) for otherwise running ‘hopeless’ points of argument. Taken as a whole the first defendants made groundless contentions and that had no reasonable prospects of success. They chose to run hopeless points and prosecuted these points with wilful disregard of known or knowable facts and the established law[30]. As such the First Defendants should bear the full consequences of their failed application;
[30]See Colgate-Palmolive Pty Ltd v Cussons (1993) 46 FCR 225 at 233-234 per Sheppard J.
(c) the filing by the first defendants of their application (by way of the Perna Affidavit) without reasonable basis and for an ulterior purpose contravenes the overarching obligation in section 18 of the Civil Procedure Act 2010 (Vic) not to ‘make any claim or make any response to a claim in a proceeding’ that is ‘frivolous’, ‘vexatious’, an ‘abuse of process’ or which ‘does not, on the factual and legal material available to the person at the time of making the claim or responding to the claim, as the case requires, have a proper basis’. Such a breach is an independent reason for an award of indemnity costs against the first defendants;
(d) the first defendants’ solicitor was reminded of his and his clients’ overarching obligations and warned by email sent at 12.07 pm on 30 July 2019 not to ‘rehash’ the same arguments that he had previously raised against the Plaintiffs for another client in the case CIFG (Australia) Pty Ltd & Ors v Mantas & Anor [2012] VCC 1797 (11 December 2012) (CIFG v Mantas). This email is exhibited to the affidavit sworn 13 October 2020 by Desmond Lieu (third Lieu affidavit). He was warned again on 8 May 2020 (see paragraph [33] below) not to raise these arguments a second time; and
(e) the case of CIFG v Mantas dealt with documents that were effectively on the same terms as the documents (Guarantees and the MTA) in this proceeding. Despite the above warnings the first defendants’ solicitor, Mr McNab, persisted in raising many of the same arguments previously raised by him in Mantas as well as some new ones, including failed submissions to the effect that the plaintiffs did not intend to be bound by the MTA because they had not executed it properly and also that the MTA dated 5 June 2015 was a new agreement which replaced the one referred to in the Guarantees. The Court rejected these arguments and found at [57] of the Reasons that the conclusion reached by the Smith J in that case is correct.
The plaintiffs referred to a number of facts relevant to their submissions. First, the first defendants former solicitors (Andropoulos & Associates) lodged a caveat over the relevant Land. The caveat was dated 28 March 2019 with dealing number AS043368G. It was lodged pursuant to an alleged ‘Charge contained in an agreement’ dated 27 March 2019 as between the first defendants and the then registered proprietors of the Land, Mr and Mrs Pace (referred to above as the Perna & Grace Agreement).[31] The Court found that the Perna & Grace Agreement was not genuine.
[31]See [10] of the Reasons.
Second, in addition to a caveat lodged by the first plaintiff on or about 4 April 2019, another party (ACN 602 353 391 Pty Ltd) (Third Caveator) had also lodged a caveat over the Land. By email dated 6 May 2019 sent at 9:36 am the plaintiffs’ solicitor advised the Third Caveator’s lawyer and the first defendants’ former solicitor, Pana Andropoulos, that his client’s interest takes priority over the other caveators’ purported interests. In relation to the first defendant’s claim, the email states that the first plaintiff ‘rejects the validity of this charge [as contained in the Perna & Grace Agreement] and is highly suspicious of its timing’. The email also notes that even assuming that any security interest arose in favour of the first defendants it was not first in time and as such could not take priority to the first plaintiff’s charge. The email concluded: ‘My client reserves its rights against each caveator for any loss that it suffers’ and also ‘I reserve my client’s rights and will seek full indemnity costs for the application [for injunctive relief to remove the caveats]’.
Third, given the fact that settlement of the sale of the Land was approaching the competing caveators came to an agreement to withdraw their caveats to allow settlement to occur. By an arrangement made between solicitors for Mr and Mrs Pace (Webb Korfiatis) in relation to their sale of the Land and the three caveators, Webb Korfiatis agreed to hold the net balance of the proceeds of sale of the Land in trust pending the resolution of the caveators’ competing claims to the surplus monies. An undertaking was given by Webb Korfiatis to this effect on or about 10 May 2019[32].
[32]See [3] to [4] of the Reasons and the affidavit sworn 21 February 2020 by Desmond Lieu (first Lieu affidavit), [17(e)].
Fourth, on 13 May 2019 the plaintiffs’ solicitor sent an email at 9:55 am advising the first defendants’ solicitor, Pana Andropoulos, that the issue of priority as to the surplus funds from the sale of the Land needed to be resolved. The email explained that the first plaintiff required the other caveators to ‘relinquish their claim immediately’ stating: ‘I have instructions to make an application for declaratory relief and reserve my client’s rights to seek indemnity costs against your respective clients’.
Fifth, the Third Caveator withdraw its caveat and conceded priority to the first plaintiff by email sent 20 May 2019. The first defendants however did not do so. By email sent at 9:26 am on 20 May 2019[33] the first plaintiff’s solicitor forwarded the email from the Third Caveator’s lawyer conceding priority to the first plaintiff and advised the first defendants’ former solicitor Pana Andropoulos that he had not heard anything as to the first defendants’ position. The email states:
I refer to my previous email of 13 May and confirm that if I do not receive your clients’ response by close of business today, my client will assume that your clients are maintaining their claim.
In that situation, my client will have no choice but to issue proceedings. Again I reserve my client’s rights to indemnity costs against your clients.
[33]See first Lieu affidavit, [19] and DL-8 and second Lieu affidavit [15] and DL-18.
Sixth, despite being told by Pana Andropoulos, by email sent on 21 May 2019 at 10:08 am, that she would advise as to the first defendants’ position by 24 May 2019, no such advice was received by the plaintiffs’ solicitor. On 27 May 2019 the plaintiffs’ solicitor emailed Pana Andropoulos at 9:40 am advising that as he had not received her clients’ position he will ‘assume that your client maintains their claim over the funds.’ He asked Pana Andropoulos to confirm she had instructions to accept service on their behalf.
Seventh, on 29 May 2019, Pana Andropoulos advised that she no longer had instructions to act for the first defendants in the matter.[34] Consequently the Plaintiffs’ solicitor wrote directly to each of the first defendants by letter dated 20 June 2019[35] and recommended that they obtain a solicitor urgently, advising them that:
our client does not consider your claim against the sale proceeds to be valid and your refusal to accept this position is requiring our client to incur legal costs. As such, our client will seek court orders that you pay all our client’s costs so these serious amounts would be payable by you in addition to your own legal expenses with the total amount likely to become very expensive.
[34]By reference to the first Lieu affidavit, [19] and the correspondence found at exhibit DL-8 which was sent during the period 20 May 2019 and 29 May 2019 between Pana Andropoulos and the plaintiffs’ solicitor. See also the second Lieu affidavit, [15] and DL-18 and paragraphs [13] to [15] of DL-2 to the first Lieu affidavit.
[35]First Lieu affidavit, [20] and exhibit DL-8 and Second Lieu Affidavit, [21] and DL-18 and DL-23.
Eighth, a further letter was sent to the first defendants by the plaintiffs’ solicitor on 23 August 2019 in which he advised of his understanding that Bruce McNab had been engaged as their solicitor,[36] but that no response had been received from him to a request for information as to the first defendants’ position.[37] The letter dated 23 August 2019 explains that ‘our client is continuing to incur loss and damage by being deprived of the funds by your continued silence’ and advises that a request will be made to Webb Korfiatis to release the funds into Court and that an application will then be made ‘to the Court to release the funds to our client’ and the Court will ‘determine who has the priority to the money’. The letter invites the first defendants to advise Webb Korfiatis to consent to the funds being paid into Court and concludes: ‘our client will be seeking costs orders against you for all legal costs incurred by our client on an indemnity basis’. A similar letter was also sent to Bruce McNab on 23 August 2019.
[36]See second Lieu affidavit, [16] and DL-19.
[37]Ibid.
Ninth, on 8 October 2019 the first plaintiff’s solicitor provided the first defendants with a copy of an unfiled statement of claim (subsequently filed in the Earlier Proceeding).[38] No response was received. The first plaintiff was compelled to commence the Earlier Proceeding. At the directions hearing for the Earlier Proceeding on 6 December 2019 orders were provided to the Court as between Webb Korfiatis and the first plaintiff such that the funds were to be paid into Court. Neither the first defendants nor their solicitor, Mr McNab, attended this hearing. They did not send any correspondence in relation to these matters. Consequently the orders dated 6 December 2019[39] were made in the Earlier Proceeding.
[38]Second Lieu affidavit, [17] and DL-20.
[39]See exhibit DL-4 to the first Lieu affidavit.
Tenth, the relevant certificate of receipt was issued by the Court to the plaintiffs’ solicitor in relation to the Fund on or about 12 December 2019.[40] The first plaintiff filed its application in this proceeding on 21 February 2020. Copies of the Originating Motion and supporting affidavit were then served on the first defendants.[41] On 4 March 2020, Mr McNab attended the first directions before Judicial Registrar Matthews on behalf of the first defendants. This was the first time the plaintiffs became aware of the first defendants’ continued claim to the Fund.[42]
[40]First Lieu affidavit, DL-1.
[41]First Lieu affidavit, [31].
[42]Second Lieu affidavit, [13] which deposes as to the last time the plaintiffs’ solicitor had contact with Mr McNab prior to the directions hearing on 4 March 2020.
Eleventh, the plaintiffs’ solicitor sent a letter dated 8 May 2020 to the first defendants’ solicitor, Mr McNab, advising him that his clients’ claim has little chance of success and ‘is misconceived and without any proper basis’. The letter referred to the case of CIFG v Mantas and again warned the first defendant’s solicitor not to raise the same arguments again. Further the letter advised that costs were being incurred by the first plaintiff by reason of the first defendants’ conduct and that they risked an order for indemnity costs for their wilful disregard to the overarching obligations under the Civil Procedure Act 2010 (Vic). A copy of this email is exhibited to the third Lieu affidavit.
In relation to the costs of the Earlier Proceeding, the plaintiffs submitted the powers of the Court in relation to the costs of a proceeding are not restricted to costs between the parties, and are wide enough to authorise the Court to order that a person not a party to the proceeding pay the costs of a party.[43] In Knight v FP Special Assets the High Court of Australia (Mason CJ and Deane J) stated at [33] to [34]:
Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party.
Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made…
For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party… That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.
[43]Knight v FP Special Assets Ltd (1992) 174 CLR 178
The plaintiffs submitted that:
(a) the first defendants had an interest in the Earlier Proceeding notwithstanding that they were not parties. They held the benefit of the undertaking given by Webb Korfiatis, the release of which was the subject of that proceeding. Further they had previously maintained an interest in the Funds in question;
(b) it is in the interests of justice that an order be made against the first defendants as non-parties in the Earlier Proceedings. The proceedings were only commenced because the first defendants failed and/or refused to:
(i) to withdraw their claim on the proceeds of sale which were held on trust for them by Webb Korfiatis;
(ii) to communicate their position to the Plaintiffs’ solicitors or Webb Korfiatis from 10 May 2019 as to their position in relation to their claim;
(iii) to consent to an arrangement whereby Webb Korfiatis would pay the monies into Court (see paragraphs [30] to [31] above);
(iv) to release Webb Korfiatis from the undertaking; and
(v) to appear at the directions hearing held in the Earlier Proceedings on 6 December 2019, despite Webb Korfiatis providing them with copies of the notice of the directions hearing and the relevant statement of claim in that proceeding, by way of email sent 28 November 2019 as detailed in affidavit sworn 3 December 2019 by Michael John Webb of Webb Korfiatis (found at exhibit DL-3 to the first Lieu affidavit). It is also noted by reference to paragraph 7 of the Perna Affidavit that it appears the First Defendants’ solicitor Bruce McNab had a telephone discussion with Michael Webb prior to the directions hearing of the Earlier Proceedings. Clearly Mr McNab was cognisant of the issues in relation to those proceedings.
(c) it is generally appropriate that the non-party should have been warned specifically in advance of the risk that an order for costs might be sought against it. In this matter the first defendants were so warned. As detailed above the plaintiffs’ solicitor wrote to the first defendants and their solicitor a number of times warning them of their liability for costs if the matter continued. Further, on 8 October 2019 the plaintiffs’ solicitor provided them with a copy of the unfiled claim (later filed in the Earlier Proceedings) as referred to earlier.
The plaintiffs concede that they are liable for any costs thrown away by reason of the Amended Originating Motion whereby CIFG Limited and C.I.F.G. (H.K.) Limited were joined as plaintiffs. The plaintiffs submitted that any such costs are minimal. The amendment was made promptly and arose due to matters raised in submissions made by the first defendants and also some useful discussion in Court at the first hearing on 11 May 2020. Further, it is noted that after raising issue as to the standing of the first plaintiff to sue without the other plaintiffs, the first defendants then unsuccessfully opposed the first plaintiff’s application to join the second and third Plaintiffs when it was made on 21 May 2020. The plaintiffs submitted that any costs thrown away by reason of the amendment to the Originating Motion can be effectively set-off against the costs in relation to the application.
First defendants’ submissions
The first defendants submitted that findings of the Court that the first defendants knowing participated in a ‘sham’ transaction is a serious and troubling matter. The solicitor who acted for them at the relevant time has sworn an affidavit concerning that aspect. It was submitted that notwithstanding the wording of the Primary Reasons, the Court should consider the matters at hand on the basis that the first defendants are “honest but unsophisticated” litigants. The argument to the effect that the Perna & Grace Agreement was a ‘sham’ transaction was not strongly pressed at trial by the plaintiffs and was based primarily on the existence of a copy of the agreement signed by Mr & Mrs Pace, but not the first defendants, in the hands of the plaintiffs’ lawyers. This issue is addressed in the affidavit of their former solicitor.
It was then submitted that the claim as originally made was brought on behalf of a non-existent entity with ACN 122 294 991. No explanation was given about this, however the first defendants, who picked up the important error, allowed an amendment without objection. Following the amendment permitting a change in the identity of the first plaintiff the trial proceeded. As a direct result of the matters brought to the attention of the Court the first plaintiff (with seeming reluctance) ultimately joined the second and third plaintiffs, a British Virgin Islands corporation and a Hong Kong corporation. Without the joinder of these additional parties it is submitted that the first plaintiff’s application was bound to fail. Accordingly, the Court has benefited from the participation of the first defendants in the proceeding. But for their participation it seems that it would have been inevitable that orders would have been made in favour of the wrong party.
The first defendants properly conceded the rights of the second defendant against them in the event that both the plaintiffs and the first defendants claims failed and as such their encouragement that he be joined as a party to the proceeding was proper and of assistance to the Court.
Having conceded the rights of the second defendant against them, the first defendants were in the unusual position of acting, in effect, as an amicus curie in that they highlighted numerous serious issues with the plaintiffs’ affidavit evidence, documents, bank accounts and lending practices. All of these matters were properly brought to the attention of the Court, and to the attention of the second defendant. The Court will recall that the plaintiffs saw the need to recall its witness Christopher Vella to the witness stand to amend the evidence he had previously given on oath.
The application in this proceeding was for payment of moneys out of a fund, in circumstances were the entitlement to the fund was disputed. There is ample authority in such cases that even an unsuccessful applicant may receive costs, or at least not have to pay the costs of opposing the claim, where the claim was reasonably arguable and his conduct during the course of the action could not be described as unmeritorious.[44]
[44]G E Dal Ponte, Law of Costs, 2nd Edition pp 295-296.
In the present case, the arguments put forward on behalf of the first defendants in challenging the plaintiffs’ entitlement were clearly reasonable (and successful to the extent that the plaintiff was required both to substitute itself and add additional parties). The concerns raised as to non-execution of documents, uncertainty as to the number of pages in the Master Trading Agreement, and the substitution of pages were all reasonable concerns and properly brought to the attention of the Court for determination.
Although the oral evidence given by Claudia Perna in the matter was unsatisfactory for the reasons outlined in the judgement, it is submitted that she should be viewed as an unsophisticated and panicked witness, whose evidence was not, in any event, central to the matters properly before the Court.
It is apparent that the plaintiffs hold security (in addition to the funds the subject to the proceeding) for the moneys claimed to be owing to them. In these circumstances, it is unnecessary for the Court to make orders against the first defendants in order, in effect, to compensate them for the trouble they have been put to with respect to their claim in this proceeding. Any costs incurred by the plaintiffs would be recoverable under the provisions of the plaintiffs’ Master Trading Agreement and any related guarantees.
Consideration
Costs as between the plaintiffs and the first defendants
The submissions and further evidence adduced by the plaintiffs confirm the correctness of my preliminary view that the costs should follow the event, so far as the plaintiffs and first defendants were concerned. The first defendants were on notice from before the commencement of the proceeding that their claim upon the proceeds of the sale of the Land, and their failure to respond in relation to it, were causing the plaintiffs to incur costs unnecessarily.
In relation to the submission that the Court has benefited from the participation of the first defendants in the proceeding (because, but for their participation, it seems that it would have been inevitable that orders would have been made in favour of the wrong party), no reason is given why these matters were not raised before the first directions hearing, or before the proceeding was commenced, even before the Earlier Proceeding was commenced.
In relation to the proposition that the claim as originally made was brought on behalf of a non-existent entity with a different ACN from the first plaintiff, this was obviously a typing or copying error, or the use of a precedent without proper attention to the detail. It was quite proper for Mr McNab to bring it to the attention of the first plaintiff and the Court, but it could have been dealt with in correspondence prior the first hearing. Mr McNab, as the lawyer for the first defendants, was under no misapprehension as to the identity of the party bringing the claim, as his participation in the County Court proceeding, in CIFG v Mantas, confirms. Mr McNab and his clients were bound by the overarching obligations in ss 16 to 26 of the Civil Procedure Act 2010 (Vic). In short, this is a point that goes nowhere.
In relation to the joinder of the second and third plaintiffs, no doubt it would be contended that the first defendants were not in possession of all the necessary evidence, in particular the MTA and the Guarantees, until the affidavits in support of the claim were filed. But lawyers representing people in the position of the first defendants should have sought to obtain the basis on which the first plaintiff initially advanced its claim without the second and third plaintiff, particularly in the circumstances that Mr McNab had run his argument before in the County Court in CIFG v Mantas, rather than appear without prior notice at the first directions hearing and proceed to fight the claim.
The only relevant aspect of the proposition that the plaintiffs have benefitted from the first defendants participation in the proceeding is because, as matters turned out, the proceeding was not properly constituted because under the Guarantee the persons entitled to the charge were all three plaintiffs together, or jointly. But the argument of the first plaintiffs which gave rise to the joinder of the second and third plaintiffs was concerned with the entitlement of the first plaintiff to recover under the MTA (the Master Trading Agreement referred to in the Primary Reasons). Ultimately, my conclusion as to that argument was against the submissions of the first defendants.
Nevertheless, the joinder of the second and third plaintiffs was critical to the ultimate issue of the right to follow the surplus proceeds from the sale of the Land into the Funds in Court. But parties in the positon of the first defendants always face the risk that where their arguments raise technical, one might say peripheral issues, capable of being overcome by amendments or the joinder of parties in the same interest, they risk losing the case unless they have arguments going to the substance of the matters for determination by the Court, that is the real issues in dispute. That is what has happened here.
In relation to the submission about the Perna & Grace Agreement being found to be not genuine and a false front, so that the plaintiffs’ submission that it was a sham transaction was accepted, the attempt to introduce the evidence of Ms Andropoulos is rather late and beside the point. The submission that it was a sham was made in the first plaintiff’s written submissions dated 30 April 2020 and filed on 1 May 2020. If it were thought admissible to have the evidence of Ms Andropoulos as to the intention behind the wording of the Agreement that attempt should have been made before the hearing on 11 May 2020 or the subsequent hearing on 21 May 2020. As it stands it offends the principles to which I referred at [54] of the Primary Reasons, namely that the subjective intention of the parties is irrelevant, and therefore inadmissible. The subjective intention of the lawyer who drew the Agreement is in no better a position.
It seems to me that the real point being made by the Andropoulos affidavit is that the wording of the Perna & Grace Agreement, which in my view clearly attempts to be the confirmation of an oral agreement reached in 2015, is not the fault of the first defendants but of their lawyer. It is too late to enter upon this matter. Moreover, assuming it to be correct, and that the Agreement was intended to operate from its date, 27 March 2019, the other reasons that I stated to reject the claim based on the Agreement remain proper grounds,[45] so that no different result could be reached.
[45]Primary Reasons [102] –[111].
The submission that the first defendants are ‘honest but unsophisticated’ is simply a diversion. They may be, but their claim has failed and, properly advised, they ought to have known it would fail, at least on the second or third bases rather than the sham transaction basis.
The next matter is the submission that the argument that the Perna & Grace Agreement was a ‘sham’ transaction was not strongly pressed at trial by the plaintiffs and was based primarily on the existence of a copy of the agreement signed by Mr & Mrs Pace, but not the first defendants, in the hands of the plaintiffs’ lawyers. It is incorrect that the argument was not strongly pressed at the trial. The substance of the submissions were made both before and after the oral hearing and were made in writing. The argument that the Agreement was a sham was prominent in the written submissions. It was not primarily based on the copy of the agreement that was not signed by the first defendants.
In relation to the first defendants’ submissions, it is not apparent to me that the plaintiffs hold other security, in addition to the funds the subject to the proceeding, for the moneys claimed to be owing to them. If they did, it would not answer the claim that is made for costs that they could resort to the other security.
As the plaintiffs pointed out, the first defendants’ solicitor was reminded of his and his clients’ overarching obligations and warned by email sent as long ago as 30 July 2019 not to ‘rehash’ the same arguments that he had previously raised against the plaintiffs for another client in the case of CIFG v Mantas. He did rehash them, and that only resulted in the addition of the second and third plaintiffs and the findings I have reached in the Primary Reasons. The forensic tactics adopted by the legal representatives of the first defendants amounted to what is called in football parlance a ‘shirt front’, an attempt to knock the plaintiffs to the ground in one hit. It ought to have been foreseen that the arguments that there was no joint and several entitlement under the MTA would likely lead to the first plaintiff seeking to add the second and third plaintiffs. Indeed it could and should have been raised before the proceeding came on for hearing so that the real issues in dispute could be appropriately dealt with. At best, the first defendants should not be required to foot the bill for the costs of joining the second and third plaintiffs to the proceeding. For the purposes of enforcing the charge found in the Guarantees, they were necessary parties. Apart from those costs there seems to me from my review of the proceeding that all other costs incurred by the plaintiffs in this proceeding should be paid by the first defendants. The presence of the second defendant did not add any perceptible costs or delay.
I also agree with the submissions of the plaintiffs that this is a case where the costs incurred by the plaintiffs in the Earlier Proceeding should be paid by the first defendants. It is their failure to respond to correspondence, as set out in the affidavits of Mr Lieu and in the plaintiffs submission, that necessitated the proceeding, Otherwise the moneys should have been paid into court in the usual way to enable the contest to begin. I do not think it necessary to re-instate that earlier proceeding in order to consider the costs of it and to order them against a non-party. The costs are sufficiently connected with this proceeding and the conduct of the first defendants are clearly responsible for the Earlier Proceeding being instituted.
Indemnity costs
I agree with the submissions made by the plaintiffs that this is a proper case for the costs to be awarded on an indemnity basis in relation to this proceeding. Properly advised the first defendants ought to have known that, quite apart from the validity of the Perna & Grace Agreement, their claim to an equitable charge over the Land and thus a claim to the Fund was subject to the prior equitable interest of the plaintiffs, if that was established, and that their charge was inchoate, because they had not incurred any loss or liability that could give them a claim on the Fund pursuant to their charge.
Thus, the only avenue available to the first defendants was to defeat the plaintiffs claim, either on the basis that the MTA did not give rise to a joint and several entitlement to recover the moneys due pursuant to it, or on the basis that without the addition of the second and third plaintiffs there could be no enforceable equitable charge on the Land. For the reasons I have given in the Primary Reasons, the entitlement of the plaintiffs under the MTA, property construed, was joint and several and the joinder of the second and third plaintiffs overcame any argument that the charge in the Guarantees was not valid and enforceable.
In relation to the costs of the Earlier Proceeding, in my view costs on the standard basis is appropriate. It was a straight forward application involving no contested issues.
Conclusion
For the foregoing reasons:
(a) The plaintiffs are entitled to the costs of this proceeding taxed on an indemnity basis, other than the costs of and incidental to the application to join the second and third plaintiffs;
(b) The first plaintiff is entitled to the costs incurred by the first plaintiff in proceeding S ECI 2019 05053, such costs to be taxed in default of agreement on the standard basis; and
(c) The second defendant should bear his own costs.
Orders will be made accordingly.
SCHEDULE OF PARTIES
| BETWEEN: | |
| CIFG (Australia) PTY LTD (ACN 006 182 449) | First Plaintiff |
| CIFG Limited (a company registered in the British Virgin Islands of Pasea Estate, Roadtown, Tortola, British Virgin Islands) | Second Plaintiff |
| C.I.F.G. (H.K.) Limited (a company registered in Hong Kong) of 503, Tower 2, Lippo Centre, 89 Queensway, Admiralty, Hong Kong) | Third Plaintiff |
| - v - | |
| CLAUDIA DORA PERNA and MARIA GIOA BELLA GRACE | First Defendants |
| PETR VRSECKY (As Trustee of the Bankrupt Estates of Pietro Giuseppe Pace and Tammy Joanna Pace) | Second Defendant |
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