Defrancesca v Ruby Loans Pty Ltd (No 2) - [2020] SADC 131

District Court of South Australia
(Civil)
DEFRANCESCA v RUBY LOANS PTY LTD & ANOR (No 2)
[2020] SADC 131
Reasons of His Honour Judge Beazley (ex tempore)
4 September 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS
PROCEDURE - FINAL ORDERS
PROCEDURE - COSTS - DEPRIVING PARTY OF COSTS WHERE SUCCESSFUL ON ONE ISSUE ONLY
PROCEDURE - COSTS - OFFER OF COMPROMISE OR OFFER TO CONSENT TO JUDGMENT PURSUANT TO RULES OF COURT
The plaintiff claimed relief against the defendants for alleged professional negligence and/or a breach of fiduciary duty as finance brokers. The defendants denied liability to the plaintiff. The plaintiff had claimed that her purported signature to the relevant loan documents was forged by her then partner and joint borrower. The plaintiff's various claims, against the defendant save for one payment of $6,500 against the sixth defendant only were all dismissed. The plaintiff sought judgment in the sum of $10,075 inclusive of costs against the sixth defendant only. On 16 June 2017, the defendants, by a Calderbank letter offered to compromise her claims for the sum of $15,000. On 12 October 2017, the defendants filed a formal offer pursuant to the Rules of Court to settle the plaintiff's claims. The plaintiff declined to accept the respective offers. The defendants sought an order for costs.
District Court Act 1991 s 42; District Court Civil Rules 2014 ss 187, 188F(5), 263(2); Enforcement of Judgments Act 1991 s 17, referred to.
Defrancesca v Ruby Loans Pty Ltd & Anor [2020] SADC 106; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; Forlyle Pty Ltd v Tiver [2007] SASC 464; Cretazzo v Lombardi (1975) 13 SASR 4; Sloan v Service Stream Limited (No 2) [2020] SADC 120; Basbuild Pty Ltd v Hall [2014] SASC 44; Tincknell v Duthy Homes Pty Ltd (No 2) [2020] SASCFC 47; Macks v Viscariello (No 2) [2018] SASCFC 106; Calderbank v Calderbank [1975] 3 All ER 333; Settlement Wine Co Pty Ltd v National & General Insurance (No 2) (1994) 175 LSJS 287, considered.

DEFRANCESCA v RUBY LOANS PTY LTD & ANOR (No 2)
[2020] SADC 131
Introduction

On 13 August 2020, I published my reasons for decision in the principal proceedings,[1] which involved a claim for alleged professional negligence and/or breach of fiduciary duty brought by the plaintiff against the defendants as finance brokers, in respect of the subject loan agreement, in the sum of $130,000, brokered by them in late July 2009.
[1] Defrancesca v Ruby Loans Pty Ltd & Anor [2020] SADC 106.
I reserved three issues when publishing those reasons, which, issues were respectively:
·Whether the seventh defendant, Rikki Loffler was liable to repay the plaintiff the sum of $3,300, which sum had been paid to him ostensibly as fees for brokering the subject loan. At issue was whether the payment made to him as an undisclosed loan made by him to the plaintiff’s partner Eustice.
·Whether the sixth defendant, Ruby Loans Pty Ltd was liable to repay the plaintiff the sum of $6,500 which was paid to it, without any entitlement, notwithstanding amendments to a disbursement authority
·The costs of action in consequence of the dismissal of the plaintiff's other claims against the defendants.
In the reasons for decision in the principal proceedings I set out in detail the history of the action. In written submissions, the defendants had sought orders that the reserved questions in respect of the respective sums of $3,300 and $6,500 be determined in their favour, and that the plaintiff pay to the defendants their respective costs of action on an indemnity basis.
·The issue of the $3,300 payment to the seventh defendant
This issue was identified in the reasons for decision as whether the sum of $3,300 paid to the seventh defendant from the proceeds of the subject loan, was incorrectly described in the draft disbursement authority as "fees" rendered by the seventh defendant instead of the alleged repayment of a "loan" owing to him by Eustice.
As it transpired, the plaintiff did not plead any claim against the seventh defendant for misrepresentation. Significantly, there was no evidence led at the trial as to whether the sum of $3,300 was in fact a loan as opposed to fees owing to the seventh defendant for his services on the loan application the subject of the principal claim. The defendants had raised the question of such a loan in their opening. They submitted that the “suggestion” of a loan rather than “fees” was an error by them.
Very properly, counsel for the plaintiff did not press the claim on the basis of a misrepresentation. If the sum of $3,300 was for fees, then no question of unreasonableness arises. Ms Clark properly noted that the $3,300 “fee” was similar to that charged by the seventh defendant in respect of other similar loans brokered by him, including the “Stones” loan agreement, referred to in the reasons for judgment.
Conclusion
I accept that the sum of $3,300 was in fact for fees rendered by the seventh defendant, and not as repayment of a “loan”. I accept that the reference to a “loan” arose by a typographical error in the defendant's written opening. Accordingly, I find this issue in favour of the seventh defendant.
·The issue of the $6,500 payment to the sixth defendant
Mr Loffler, as director of the sixth defendant, was examined at length about the receipt by Ruby Loans Pty Ltd of the sum of $6,500 from the proceeds of the subject loan. There was no doubt, on the evidence, that Mr Loffler had prepared a draft disbursement notice which identified the sum of $3,300, to which I have just referred as "fees", and various other sums.
He had made no mention of the subject sum of $6,500. There was also no doubt that Eustice had directed the solicitors acting on the settlement of the subject loan, to pay the $6,500 additionally to the sixth defendant. He provided to the solicitors the amended Disbursement Authority, apparently signed by the plaintiff and himself authorising that payment.
While I accept that the amended Disbursement Authority would in the ordinary course of events be sufficient to satisfy the sixth defendants entitlement to receive that sum, the circumstances in respect of this payment are different. The defendants were acting for the plaintiff as her broker. They appointed the solicitors to undertake the payments out from the loan funds, in their place as brokers.
This sum was not in fact for fees. It was not some bonus for the successful brokering of the subject loan.
Mr Loffler was unable to explain why it was that the sixth defendant had been paid the sum of $6,500. In my opinion, even allowing for the long delay since the receipt by the sixth defendant of that sum, there was no basis for the payment, and the sixth defendant had no entitlement to retain it. At its highest the sixth defendant held that sum on trust for Eustice and the plaintiff. In light of the fact that it was the plaintiff who had borrowed the funds on security of her assets alone, the plaintiff was entitled to the return of the sum of $6,500.
While the specific claim for $6,500 was not pleaded by the plaintiff, in my opinion, the question of professional negligence and/or a breach of fiduciary duty in respect of the obtaining of the subject loan, and the disbursement of the proceeds was pleaded. The trial was conducted on that basis. Indeed, the defendant's counsel very properly submitted in final addresses that the defendant "may well be liable if he was entrusted to withholding moneys".[2]
[2] TP 415.
In my opinion, there was an unexplained receipt by the sixth defendant of the sum of $6,500 from the proceeds of the subject loan. On the facts of this case the amended disbursement authority was signed by both Eustice and the plaintiff. That simply enabled the solicitors to make the payments out of their trust account.
There was and could have been no entitlement for its receipt by the sixth defendants, save for the purpose of it being held by the sixth defendant on trust for the plaintiff, as I have explained. She did not authorise the sixth defendant to pay it out to itself. I do not need to consider the question of the onus of proof referred to by the High Court in respect of trust property held by the sixth defendant. See the dicta of Gageler J in Ancient Order of Forresters in Victoria Friendly Society v Lifeplan Australia Friendly Society Ltd,[3] at [67]-[91], and in particular the "shifting onus of proof" to justify the receipt of a benefit.
[3] [2018] HCA 43.
The plaintiff is entitled, in my opinion, to its repayment and interest thereon. I have satisfied myself that the claim of $3,750 as interest on the sum of $6,500 is reasonable notwithstanding the long delay in this matter.
Conclusion
I conclude that the plaintiff is entitled to judgment in the sum of $10,075, inclusive of interest, in respect of this issue of the $6,500 against the sixth defendant alone.
The Costs
The principles upon which a Court should act in resolving disputes as to costs are not in doubt.
Pursuant to s 42 of the District Court Act 1991, costs are in the discretion of the Court. That discretion is unfettered but must be exercised judicially.
The plaintiff’s claim for costs against the sixth defendant
As a general rule, costs ought to follow the event.
I have found that the plaintiff's principal claims were without merit, and were therefore dismissed. I have, however, awarded damages of $10,075 inclusive of interest against the sixth defendant, alone, on that one relatively minor matter, addressed by me already.
In Forlyle Pty Ltd v Tiver,[4] Debelle J concluded that where a party was partially successful the "general rule is that the party has a reasonable expectation of obtaining an order for costs unless some reason connected with the case warrants a different order". In Cretazzo v Lombardi,[5] Bray CJ said, "The general discretion is absolute and unfettered except that it must be exercised judicially, not arbitrarily or capriciously, and it cannot be exercised on grounds unconnected with the litigation".
[4] [2007] SASC 464.
[5] (1975) 13 SASR 4.
However, in my opinion the proper exercise of the discretion must be seen in the light of Rules 188F(5) and 263(2) of the Rules of Court.[6]
[6] See Basbuild Pty Ltd v Hall [2014] SASC 44; Tincknell v Duthy Homes Pty Ltd (No 2) [2020] SASCFC 47; Macks v Viscariello (No 2) [2018] SASCFC 106.
In Sloan v Service Stream Limited (No 2),[7] at 25-28; the Court noted that:
In the exercise of the Court’s discretion as to costs, it has been recognised that an otherwise successful party may, nevertheless, have been unsuccessful with respect to various issues (or ‘events’) as advanced within the claim (or defence) and that in such circumstances, it is appropriate for the Court to treat those distinct issues as distinct events when exercising its discretion as to costs.
In Ruddock v Vadarlis (No 2), Black CJ and French J held that:
…a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other parties’ costs of them. In this sense “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or law.
In Lesses v Maras (No 3), the Full Court observed that in dealing with cases where a party had ‘mixed success’:
…a court may in appropriate circumstances reduce the costs ordered in favour of the overall successful party, and further may order that party to pay the opponent’s costs, in respect of such issues. When the court considers that the discretion should be so exercised, it will usually make an order for payment of a proportion of one party’s costs by the other party reflecting a broad axe assessment, even when it considers that the successful party should pay the opponent’s costs in respect of such issues.
In Macks v Viscariello (No 2), the Full Court adopted the dicta in Lesses v Maras (No 3),[8] and stated:
Factors to be considered when assessing costs on separate issues include determining whether the issues were separate and distinct, the importance of the issues (including whether they had merit), and the time taken at trial in litigating those issues.
[7] [2020] SADC 120.
[8] [2017] SASCFC 154 at [82].
In the subject case, the plaintiff had succeeded only against the sixth defendant on a minor matter. Pursuant to District Court Rule 263(2), where an action, as here, is founded on a claim for damages or other monetary sum, general costs will not be awarded in favour of the plaintiff, unless the amount awarded exceeds $60,000.
In the subject case, the plaintiff has received an award of $10,075, inclusive of interest against the sixth defendant only. I repeat that this award related to one minor matter. The plaintiff failed in her claim for the principal relief, that she had sought.
There is no basis for any discretionary order for costs against the sixth defendant.
In my opinion, the plaintiff is not entitled to any costs against either defendant.
Defendants claim for costs against the plaintiff
I turn to the costs sought by the defendant against the plaintiff.
As to the defendants, pursuant to District Court Rule 188F(5):
Where a complying offer is made by a defendant and not accepted by a plaintiff and the plaintiff obtains judgment in respect of the claim to which the offer relates less favourable to the plaintiff, then the terms of the offer - the costs incurred in the action up to 14 days after service of the formal offer are unaffected by the making of the formal offer and the defendant is entitled to an order against the plaintiff for the defendant's costs of action … on a party/party basis.
On 16 June 2017, the defendants, by a Calderbank letter,[9] offered to compromise the plaintiff's claims for the sum of $15,000.
[9] See Calderbank v Calderbank [1975] 3 All ER 333.
On 12 October 2017, they filed a Rule of Courts Offer under the then District Court Rule 187, in the sum of $40,000.[10]
[10] See Basbuild Pty Ltd v Hall [2014] SASC 44.
The defendants submitted that it was unreasonable for the plaintiff to reject that filed offer. They submitted that the Court ought to order that the plaintiff receive no order as to costs; and that the defendants ought to receive indemnity costs under the then District Court Rule 187 from 26 October 2017; or alternatively party/party costs as and from 26 October 2017.
I repeat that in my opinion, there is no basis for the award of any costs to the plaintiff. As to the defendants I do not accept that the Calderbank Offer of $15,000 ought to be the basis of any order. However, the final offer of $40,000 on 12 October 2017 was plainly a complying order, within the meaning of the Rules, and it was unreasonable for the plaintiff not to accept it.
The defendants sought an order that execution of the judgment in the sum of $10,075 awarded to the plaintiff be stayed until the taxation or agreement as to the costs awarded to the defendants. The plaintiff sought liberty to apply as to the continuation of such a stay.
I accordingly order that the plaintiff pay to the defendants, the costs of the action as and from 27 October 2017, on a party/party basis pursuant to Rule 188F(5) of the Rules of Court. Both defendants conducted the proceedings as one, and accordingly, one set of costs is to be allowed on a taxation.
The defendants sought an order that execution of the judgment in the sum of $10,075 awarded to the plaintiff be stayed until the taxation or agreement as to the costs awarded to the defendants. The plaintiff sought liberty to apply as to the continuation of such a stay.
The defendants intimated that they would seek an order in due course that the plaintiff’s judgment in the sum of $10,075 be set off as against the costs awarded in favour of them.
Counsel for the plaintiff did not have instructions on the point but properly conceded that the defendants costs would exceed the quantum of the plaintiff’s judgment. I explained that the Court did have power to make an order for a set off,[11] however I would refer that question of a set off to be determined by a Master if required. I do indicate that subject to any argument to the contrary such an order ought to be made in the circumstances. In the interim, I make an order staying the execution of the plaintiff’s judgment in the sum of $10,075 with liberty to either party to apply.[12]
[11] Settlement Wine Co Pty Ltd v National & General Insurance Co (No 2) (1994) 175 LSJS 287.
[12] Enforcements of Judgment 1991 s 17.
Formal Orders
The formal orders of the Court are:
1That judgment be entered for the plaintiff against the sixth defendant Ruby Loans Pty Ltd in the sum of $10,075 inclusive of interest.
2That there be an order staying execution upon the judgment detailed in paragraph 1 hereof, in that sum of $10,075 obtained by the plaintiff until further order, to await the taxation of costs awarded in this order.
3That in all other respects the respective claims by the plaintiff against the sixth and seventh defendants be dismissed.
4That no costs are awarded to the plaintiff against the sixth or seventh defendants having regard to Rule 188F(5) of the Rules of Court.
5That the plaintiff pay to the sixth and seventh defendant their costs of action (being assessed as one set of costs only) on a party/party basis as and from 26 October 2017, to be taxed, if not agreed.
6Liberty to either party to apply as to the order in paragraph 2 hereof on short notice to the other parties.