J and N Katsaros v K and E Katsaros
[2010] VCC 1022
•21 July 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
(Not) Restricted
AT MELBOURNE
CIVIL DIVISION
Case No. CI-08--5346
| Jim Katsaros & Anor | Plaintiffs |
| v | |
| Konstandinos Katsaros & Anor | Defendants |
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| JUDGE: | HIS HONOUR JUDGE LACAVA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 7 May 2010 |
| DATE OF JUDGMENT: | 21 July 2010 |
| CASE MAY BE CITED AS: | J & N Katsaros v K & E Katsaros |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 1022 |
REASONS FOR JUDGMENT
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Catchwords: Costs Orders – Whether costs should be on Indemnity basis - Whether
Plaintiffs entitled to interest.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms P A Nescovcin | C Kyriacou & Associates Pty Ltd |
| For the Defendants | Mr C J Furnell | Joannidis & Associates |
| HIS HONOUR: |
1 By a Writ issued in this court on 4 December 2008 the plaintiffs sought a declaration that a partnership which they had carried on with the defendants up until 30 June 2008 be dissolved and other relief.
2 The matter proceeded to trial on 12 and 13 August 2009 and on 23 September 2009 I gave interim judgment for the Plaintiffs’ on the claim and I dismissed the defendants’ amended defence and counterclaim. In addition I made various other interim orders and declarations.
3 I declared that the partnership was dissolved on 30 June 2008 and that the defendants had together in a new partnership conducted the operation of a business as defined in the orders from 1 July 2008 onwards.
4 I also declared that two properties defined by my orders located at Lower Plenty and Thornbury respectively were each partnership property and I made orders to bring about the sale of each of those properties and the securing in trust and investing (pending final resolution of the proceeding) of the net proceeds of sale.
5 Finally, pursuant to order 50 I referred a number of questions to Ms. Jacqueline Kay Baldwin an accountant as a special referee to take all necessary accounts and make all necessary inquiries and prepare a written report to the Court stating her opinion as to a number of questions which arose from the dissolution of the partnership.
6 Ms. Baldwin provided her report on or about 16 March 2010.
7 Since the making of interim orders and receipt of Ms. Baldwin’s report the parties have between themselves agreed certain matters including a number of orders to be made by me. The two properties which I have referred to above have been sold in accordance with my interim orders and the sum of $1,181,072.82 is presently held in trust and invested by the legal firm Gray & Gray.
8 Still in dispute are questions of interest and costs of the proceeding and it is those issues which I am now called upon to decide. I heard further argument and received very helpful further written submissions from the parties on 7 May 2010.
9 Before turning to the questions which I have to now decide it is important to firstly reflect on a number of matters that I was required to decide in my interim judgment and, secondly to record other matters that have occurred between the time that I made Interim Orders and now.
10 Dealing with the first issue. Whilst conceding at trial that the partnership had been dissolved as at 30 June 2008, the defendants disputed the relief that the plaintiffs were entitled to under the provisions of the Partnership Act 1958 (“the Act”). The defendants contended that the dissolution of the partnership had been brought about by the plaintiffs’ resignation from the partnership and that in consequence there was not a general dissolution of the partnership but a technical dissolution. At paragraph 22 of my interim judgment I expressly rejected the defendants’ contention.
11 Further, the defendants contended that neither of the two properties were partnership assets but nevertheless by amended counterclaim they sought sale of the properties under the provisions of the Property Law Act 1958. At paragraph 37 of my interim judgment I expressly rejected the defendants’ contention.
12 Further, at trial there was an issue as to the value of the business. In my interim judgment at paragraph 47 and 48 I accepted the expert evidence adduced by the plaintiffs from Mr. Brian Jones who valued the business as an operating concern in the sum of $425,000. At paragraph 49 of my interim judgment I expressly rejected an argument advanced by the defendants that the value of the business was low because the then existing lease secured only a short tenure.
13 Further, in my interim judgment at paragraph 63 I rejected arguments advanced on behalf of the defendants on the question of whether or not the plaintiffs were entitled to an order for interest at the rate of 7% per annum on their share of the value of the business which I had accepted to be $212,500.00. I ordered that the plaintiffs were entitled to interest on the sum of $212,500.00 at the rate of 7% but that the plaintiffs were not entitled to an order for interest under section 46 on the value of the properties which at that stage remained unsold and in respect of which the plaintiffs continued to share in rental income and capital appreciation.
14 Secondly, and turning to the matters that have occurred between the time that I made Interim Orders and now, the parties have between themselves agreed upon a number of matters consequent upon receipt of the Special Referee’s report.
15 On 14 December 2009, the defendants paid to the plaintiffs the sum of $234,200.00 being the plaintiffs’ share of the value of the business of $212,500 and interest calculated pursuant to section 46 of the Act in accordance with paragraph 63 of my interim judgment. The plaintiffs accept that the sum of $234,200.00 is the correct sum to be paid to satisfy that part of my interim orders. The sum of $234,200.00 is paid by the defendants and is separate from any question of division between the parties of the sum of $1,181,072.82 presently held in trust and invested by the legal firm Gray & Gray.
16 When the matter was before me again on 7 May 2010 the parties provided me in writing with a document entitled “Statement of Agreed facts For The Purpose Of Final Orders”. I set out what that document provides as to orders agreed between the parties that I should in part now make. In so doing I have ignored what was provided for in the document in sub paragraph 4(a)(iii)(A)(vi) as it seems to me that on a proper reading of the document that paragraph is superfluous repeating as it does that which is provided for in 4(a)(ii).
17 The parties agree that I should make the following orders by agreement:
(a) that the “total settlement monies held in trust” in the sum of $1,181,072.82 plus any interest accrued on the trust account into which those monies are deposited (together the “net sale proceeds”), should be applied as follows: (i) first, in satisfaction of the Business Loan and the Flexiplus Loan (as defined in the Interim Orders);
(ii) second, in satisfaction of Ms Baldwin’s fees for Ms. Baldwin’s report in accordance with paragraph 15 of the Interim Orders;
(iii) third, as to the balance of the net proceeds:
(A) the plaintiffs should receive and amount equal to one half
of the balance of the net sale proceeds:(i) plus $17,796.64 being half of the amount of cash on hand and any cash probably unaccounted for in the books of account of the partnership as at 30 June 2008 (See paragraphs 12(f) and 12(g) of my Interim orders);
(ii) plus $506.00 being half of the credit of $1,012 in the cheque facility;
(iii) less 47.5% (being one half of 63% plus 16%) of the amount paid in satisfaction of the Business Loan and the Flexi Plus Loan as per Ms. Baldwin’s report and paragraph 12(i) of the Interim Orders;
(iv) less $21,112.19 as per Ms. Baldwin’s report and paragraph 12(h) of the Interim Orders;
(v) less $2,749.40 (being one half of the sum of $3,919.81 and of the sum of $1,579.00) as per Ms. Baldwin’s report and paragraph 12(h) of the Interim Orders;
(B) the Defendants should receive the residue of the balance
of the net sale proceeds.
(b) that the defendants procure the payment of the accountant’s fee of $3,919.81 and the amount owed to the Australian Taxation Office of $1,579.00 and provide written evidence of such payment to the plaintiffs; (c) upon payment of the amount referred to in sub-paragraph (a)(i) above, that each of the plaintiffs execute such documents and do such things as and when the defendants might reasonably require in order to facilitate the transfer of the business into the names of the defendants. 18 I will make those orders in accordance with the parties agreement. I now turn to the questions of interest and costs.
19 In written submissions the plaintiffs seek orders for interest calculated on what is described therein as “the balance of their claim”. I understand that to mean on that part of the claim by which the parties will recover money pursuant to the orders that have been agreed and which I have set out in paragraph 17(a) above. I do not understand the plaintiffs to be pursuing a claim for interest on the monies paid by the defendants of $234,200.00 being the value of the plaintiffs’ interest in the business ($212,500.00) plus interest calculated at 7% pursuant to section 46 of the Act.
20 The plaintiffs claim interest pursuant to section 58, alternatively section 60 of the Supreme Court Act 1986.
21 The plaintiffs submit that any amount recovered by them as “the balance of their claim” is a “debt” within section 47 of the Act and that interest is recoverable on the balance of the claim as a debt within section 58 of the Supreme Court Act 1986.
22 I do not accept the plaintiffs’ submission in this regard. In my Interim Judgment I did not accept the defendants’ submissions that what occurred here was a “technical” dissolution of the partnership. I found that the partnership was fully and finally dissolved on 30 June 2008 and that the convenience store business continued but under a new partnership comprised of the defendants. Consistent with that finding the partnership came to an end on 30 June 2008.
23 Section 47 of the Act has no application in that circumstance. Rather, the partnership is wound up, absent agreement, applying section 48 of the Act which provides as follows:
Rule for distribution of assets on final settlement of accounts 48. Rule for distribution of assets on final settlement of accounts In settling accounts between the partners after a dissolution of partnership
the following rules shall subject to any agreement be observed-
(a) losses including losses and deficiencies of capital shall be paid
first out of profits next out of capital and lastly if necessary by the partners individually in the proportion in which they were entitled to share profits;
(b) the assets of the firm including the sums (if any) contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order-
(i) in paying the debts and liabilities of the firm to persons who are not
partners therein;
(ii) in paying to each partner rateably what is due from the firm to him
for advances as distinguished from capital;
(iii) in paying to each partner rateably what is due from the firm to him
in respect of capital;
(iv) the ultimate residue (if any) shall be divided among the partners inthe proportion in which profits are divisible.
24 Section 48 of the Act in my view governs distribution of the assets of a dissolved partnership absent agreement. Section 47 preserves a retiring or outgoing partner’s interest in a partnership as a debt where there are surviving or continuing partners. As I have already found that is not the situation here. I find that the plaintiffs cannot claim interest on the balance of their claim treating it as a “debt” for the purposes of section 58 of the Supreme Court Act 1958. In my view section 58 has no application.
25 Even if I am wrong in that conclusion and section 58 has application, in my judgment there is good cause here why I should not to allow interest calculated by application of section 58. The balance of the plaintiffs’ claim could only have been determined (as it now has been) after obtaining the referee’s report from Ms. Baldwin. That is primarily because of the complicated arrangements which the parties had between themselves for repayment of various loans and the payments of various personal debts as an offset against entitlements of one or other of them from the partnership. The final balance of claim of any partner here could only have been ascertained after all of the assets of the partnership had been sold or otherwise divided between the partners and all of the partnership debts were known. It is only now after the making of final orders that the partnership will be truly finalised. Whilst all these steps have been carried out the capital sum (being the net proceeds of sale realised from the sale of the two properties) from which the balance of the plaintiffs’ claim will be paid has been invested and earning income by way of interest. That step was taken for the benefit of all of the partners. It would be a wrong exercise of discretion in my judgment to allow the plaintiffs to recover further interest over and above that which has been earned by investment at the expense of the defendants.
26 Mr. Furnell on behalf of the defendants made various submissions in writing as to why section 58 of the Supreme Court Act 1986 has no application here. Because of the conclusions I have reached as set out above it is unnecessary that I rule on those submissions.
27 The second basis upon which the plaintiffs claim entitlement to interest on the balance of their claim is pursuant to section 60 of the Supreme Court Act 1986. For that section to apply the proceeding must be one “for the recovery of debt or damages”.
28 The proceeding was commenced by writ with an attached statement of claim. The relief sought by the plaintiffs is set out at page 6 of the plaintiffs’ court book. In summary form the relief sought by the plaintiffs was a declaration as to dissolution of the partnership and consequential relief applying sections 43 and 48 of the Act. By the Interim Orders already made and by the final orders that I will make the plaintiffs will get the relief that they want, dissolution of the partnership and a taking of accounts and an order for sale and division of the proceeds. In my judgment that relief is not for recovery of a debt and nor is it an action in damages. In my view section 60 of the Supreme Court Act 1986 has no application here.
29 Again, even if I am wrong about the application of section 60, for the reasons set out above in paragraph 25 there is good cause here not to allow interest under section 60.
30 Both the plaintiffs and the defendants seek costs on an indemnity basis. The plaintiffs, correctly submit that they have been largely successful in obtaining the relief that they sought in the proceeding. The plaintiffs argue that having succeeded they are entitled to an order for their costs of the proceeding and, because they made an offer in the form of a Calderbank offer by letter from their solicitors to the defendants’ solicitors dated 15 July 2009, they should be entitled to indemnity costs from that date, the offer not having been accepted by the defendants. This argument is predicated on an argument that the plaintiffs’ offer to settle formulated in the Calderbank offer “represented a far better outcome than the defendants obtained in the proceeding” (see paragraph 15 of the plaintiffs’ submissions)
31 I have looked at the letter dated 15 July 2009 closely. I do not accept the plaintiffs’ submission that the offer contained therein “represented a far better outcome than the defendants obtained in the proceeding”. The value of the business in alternatives 1 and 2 as stated therein is over valued. Further paragraph “B” sought section 46 interest over and above that which was ultimately recovered. Alternative 4 was complicated and required agreement as to value of the properties which could never have been achieved. What was proposed in the letter did not completely finalise all issues of the partnership.
32 It follows that in my judgment the plaintiffs are not entitled to an order for indemnity costs based upon rejection by the defendants of the offer made by them on 15 July 2009.
33 In written submissions Mr. Furnell sought an order that the plaintiffs pay the defendants’ costs on an indemnity basis. I reject his application and submissions on this issue. As referred to above, whilst conceding at trial that the partnership had been dissolved as at 30 June 2008, the defendants otherwise disputed the relief that the plaintiffs were entitled to under the provisions of the Act. The defendants contended that the dissolution of the partnership had been brought about by the plaintiffs’ resignation from the partnership and that in consequence there was not a general dissolution of the partnership but a technical dissolution. At paragraph 22 of my interim judgment I expressly rejected the defendants’ contention. In arguing as the defendants’ written submission does that the defendants succeeded in the proceeding, Mr. Furnell’s submission ignores this matter which needlessly took up a considerable amount of time in the proceeding. The defendants failed on this issue.
34 Further, the defendants contended that neither of the two properties were partnership assets but nevertheless by counterclaim they sought sale of the properties under the provisions of the Property Law Act 1958. At paragraph 37 of my interim judgment I expressly rejected the defendants’ contention. In arguing as the defendants’ written submission does that the defendants’ succeeded in the proceeding Mr. Furnell’s submission ignores this matter which needlessly took up a considerable amount of time in the proceeding. By amended counterclaim the defendants sought sale of the land under the Property Law Act 1958. I dismissed the amended counterclaim. The defendants also failed on this issue.
35 Further, at trial there was an issue as to the value of the business. This was put in issue because the defendants withdrew an admission earlier made in paragraph 2 of their defence by the filing of an Amended Defence where the defendants admitted the partnership assets included the goodwill of the business “(if any)”. In my interim judgment at paragraph 47 and 48 I accepted the expert evidence adduced by the plaintiffs from Mr. Brian Jones who valued the business as an operating concern in the sum of $425,000. The defendants at trial argued that the business was valued at only $350,000.00. At paragraph 49 of my interim judgment I expressly rejected an argument advanced by the defendants that the value of the business was low because the then existing lease secured only a short tenure. I also rejected the defendants’ contentions that in arriving at his opinion Mr. Brian Jones applied incorrect methodology. In arguing, as the defendants’ written submission does, that the defendants’ succeeded in the proceeding Mr. Furnell’s submission ignores these matters. The issue of the value of the business took up a considerable amount of time in the proceeding both at trial and in correspondence. The defendants also failed on this issue.
36 Further, in my interim judgment at paragraph 63 I rejected arguments advanced on behalf of the defendants on the question of whether or not the plaintiffs were entitled to an order for interest at the rate of 7% per annum on their share of the value of the business which I had accepted to be $212,500.00. I ordered that the plaintiffs were entitled to interest on the sum of $212,500.00 at the rate of 7% but that the plaintiffs were not entitled to an order for interest under section 46 on the value of the properties which at that stage remained unsold. The defendants argued section 46 had no application at all. Again, Mr. Furnell’s submission ignores this matter which needlessly took up a considerable amount of time in the proceeding. The defendants also failed on this issue
37 On 30 June 2008 the defendants could have agreed that the partnership be dissolved, the assets be disposed of either by agreement or sale and that final accounts be taken. They did not do that. Instead they took various technical points which in my judgment were without merit forcing the plaintiffs to come to the court for relief. There are numerous examples of this which are set out in the Amended Defence and Counterclaim. In the Defendants’ Defence and Counterclaim they admitted paragraph two of the Plaintiffs’ Statement of Claim where the plaintiffs had pleaded what the assets of the partnership were. Yet by their Amended Defence and Counterclaim they withdrew the admission thereby denying that the two properties were assets of the partnership. Then having initially admitted in part paragraph 3 of the Statement of Claim the Defendants by their Amended Defence and Counterclaim withdrew the partial admission and denied the paragraph. In short by their Amended Defence and Counterclaim the defendants set up a trial which set up a number of technical points and in respect of which they were unsuccessful.
38 The plaintiffs have substantially succeeded in obtaining the relief that they sought. The defendants have failed. There is no reason why the plaintiffs ought not have an order for costs in their favour.
39 In their claim for indemnity costs the defendants relied upon a letter of offer from their solicitors to the plaintiffs’ solicitors dated 22 July 2008. It is in terms an “open offer” but not in Calderbank form. Whilst for the purposes of that letter half of the business was valued at $245,500, which sum exceeded $212,500.00, the remaining content of the letter did not in terms offer a satisfactory way of finalising all of the affairs of the partnership. It did not in terms proscribe a method of dissolving the partnership and finalising all of the accounts of it. I reject the argument that the plaintiffs acted unreasonably in not accepting the offer contained in the defendants’ letter dated 22 July 2008.
40 In my judgment the plaintiffs are entitled to an order that the defendants pay their costs of the proceeding on a party-party basis on County Court scale “D”. Such order for costs will include the full costs of transcript. The order for costs will not extend to the costs of the hearing on 7 May 2010. By these orders the plaintiffs succeeded on the argument for costs. The defendants succeeded on the arguments relating to interest. In my judgment a fair adjudication of the question of which party should pay the costs of that day would be that there be no order as to costs of that day.
41 In accordance with paragraph 4 of the document signed by counsel for each of the parties entitled “Statement of Agreed Facts For The Purposes of Final Orders” order as follows:
1. That the “total settlement monies held in trust” by the solicitors Gray & Gray in the sum of $1,181,072.82 plus any interest accrued on the trust account into which those monies are deposited (together the “net sale proceeds”), be paid out of trust by the said solicitors as follows: (i) first, in satisfaction of the Business Loan and the Flexiplus Loan (as defined in the Interim Orders);
(ii) second, in satisfaction of Ms Baldwin’s fees for Ms. Baldwin’s report in accordance with paragraph 15 of the Interim Orders;
(iii) third, as to the balance of the net proceeds:
(A) to the plaintiffs an amount equal to one half of the
balance of the net sale proceeds:(i) plus $17,796.64 being half of the amount of cash on hand and any cash probably unaccounted for in the books of account of the partnership as at 30 June 2008 (See paragraphs 12(f) and 12(g) of my Interim orders);
(ii) plus $506.00 being half of the credit of $1,012 in the cheque facility;
(iii) less 47.5% (being one half of 63% plus 16%) of the amount paid in satisfaction of the Business Loan and the Flexi Plus Loan as per Ms. Baldwin’s report and paragraph 12(i) of the Interim Orders;
(iv) less $21,112.19 as per Ms. Baldwin’s report and paragraph 12(h) of the Interim Orders;
(v) less $2,749.40 (being one half of the sum of $3,919.81 and of the sum of $1,579.00) as per Ms. Baldwin’s report and paragraph 12(h) of the Interim Orders;
(vi) less an amount equal to one half of the amount of Ms Baldwin’s fee for Ms Baldwin’s report.
(B) to the Defendants the residue of the balance of the net
sale proceeds.
2. That the defendants procure the payment of the accountant’s fee of $3,919.81 and the amount owed to the Australian Taxation Office of $1,579.00 and provide written evidence of such payment to the plaintiffs;
3. Upon payment of the amount referred to in sub-paragraph (1)(i) above to the plaintiffs, each of the plaintiffs execute such documents and do such things as and when the defendants might reasonably require in order to facilitate the transfer of the business into the names of the defendants.
4. The defendants pay the plaintiffs’ costs of and incidental to the proceeding, including reserved costs in default of agreement to be taxed by a registrar of the Court on County Court scale “D”. Such order for costs includes the full costs of transcript but does not include the plaintiffs’ costs of the hearing on 7 May 2010.
5. The order for costs includes the costs of preparation and filing of one copy of the plaintiffs’ court book at scale and any additional copies at commercial copying rates to be determined by the Registrar.
6. I certify for fee on brief at the rate of $2,500.00 per day with two refreshers and $250.00 per hour for special conferences.
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