Karafili v Li
[2006] VSC 174
•4 May 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 6436 of 2005
| MITCH MITAT KARAFILI | Appellant |
| v | |
| SHUN KING LI | Firstnamed Respondent |
| ANGELINA LI | Secondnamed Respondent |
| JAMIE KHENG LOONG LI | Thirdnamed Respondent |
| KARLIN ALESSANDRA LI | Fourthnamed Respondent |
| PELIN ANDRIA LI | Fifthnamed Respondent |
| SEALANE (VIC) PTY LTD | Sixthnamed Respondent |
| IREKAWA PTY LTD | Seventhnamed Respondent |
| LISKING PTY LTD | Eightnamed Respondent |
| MANISSA PTY LTD | Ninthnamed Respondent |
| RAVENHOLME PTY LTD | Tenthnamed Respondent |
| RHINAN PTY LTD | Eleventhnamed Respondent |
| TODD PTY LTD | Twelthnamed Respondent |
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JUDGE: | OSBORN J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 1 MAY 2006 | |
DATE OF JUDGMENT: | 4 MAY 2006 | |
CASE MAY BE CITED AS: | KARAFILI v LI AND ORS | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 174 | 2nd Revision: 15 September 2006 |
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Termination by Appellant of retainer for accountancy services – Appellant claims fees – Respondents counter-claim for loss resulting from termination of retainer – No right to assert lien over working papers in circumstances where incorrect amount of fees insisted upon - Whether total failure of consideration – Appeal allowed in part as incorrect party named in counterclaim.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr. L.M.F. Watts | Andma Legal Pty Ltd |
| For the Respondents | Mr. M.A. Black | Scanlan Carroll |
HIS HONOUR:
This is an appeal by the appellant Karafili against an order made upon a counterclaim in the Magistrates' Court. The appeal is brought upon questions of law pursuant to s.109 of the Magistrates Court Act 1989.
The appellant is an accountant who was retained first in 1997 by the first respondent ("Li") to prepare accounts for himself and the companies associated with Li.
The retainer was evidenced in part by copy letters from Karafili to Li of 30 November 1998 and 11 August 1999. The second letter states in part:
"I, Mitch Karafili have agreed with Mr Li and his associated companies, to perform all accounting work or accountancy related work for a period of 12 months effective as at 1 July 1999 and to continue to 31 June 2000 at the rate of $18,000 per annum or $15,000 per month.
The preparation of all income tax returns relating to the period to end 31 June 2000 are included in this agreement even if those returns are prepared after 30 June 2000. However, Out of Pocket Costs are to be paid upon presentation of invoice." (sic)
The relationship between the parties broke down and was terminated by Karafili in April 2001.
Thereafter Karafili sued Li for outstanding fees in the sum of $27,401. After the commencement of proceedings this claim was reduced to $20,899 in accordance with a reconciliation of accounts produced by Karafili. When the matter came on for hearing it was further reduced and judgment was given by Magistrate Smith on the claim in the sum of $12,146.76 plus interest plus costs in February 2004. This judgment comprised fees for services owing in respect of accounts for what were agreed to be "non-Li entities". These entities were companies in which persons other than the Li family shared an interest with Li.
Li also instituted a counterclaim against Karafili for damages sustained by him as a result of the termination of Karafili's retainer.
As a result of discussion at the hearing before Magistrate Smith in February 2004 it became apparent that the claim for damages was founded upon moneys paid by Sealane (Vic) Pty Ltd ("Sealane"), a company associated with Li which was the principal trading entity through which the Li family business was conducted. Because on the face of it Sealane was the entity (if any) which had suffered loss and damage as a result of Karafili's termination of the retainer, leave was sought and obtained by counsel for Li to add the associated family companies (including Sealane) and some family members as appellant’s to the counterclaim.
The counterclaim was heard before Magistrate McIndoe over nine days in April and May 2005. He accepted Li as a witness of candour and reliability. He also accepted evidence called on behalf of Li from the accountant whom he had retained after Karafili terminated the arrangement forming the subject of proceedings. He rejected the evidence of Karafili. He found his evidence prevaricating, evasive and utterly self-indulgent with the truth. He further found that the evidence of another accountant called to give opinion evidence on behalf of Karafili was of no assistance. In my view all these findings were open to him on the evidence contained in the transcript.
In the ultimate his Honour found for Li on the counterclaim and awarded him $40,000 in damages (being the limit of the jurisdiction) together with interest and costs.
Karafili now appeals against this decision. The appeal itself has had a somewhat sorry history, involving a sequence of reformulated notices of appeal, but in the ultimate Karafili seeks to raise eight questions of law:
(1)Was Karafili as an accountant entitled to maintain a lien over his working papers for unpaid fees and expenses incurred in respect to the respondents as clients?
(2)Was there any evidence upon which the Judge might, as a reasonable man, have concluded that Karafili (as the respondents' accountant) was not owed fees or expenses in April 2001 thus giving Karafili (as accountant) an entitlement to assert a lien over his working papers?
(3)Was there any evidence upon which the Magistrate might, as a reasonable man, have concluded that Karafili (as the respondents' accountant) was not owed moneys by the respondents when he asserted a right to a lien in April 2001?
(4)Was there any evidence upon which the Magistrate might, as a reasonable man, have concluded that Li had suffered any loss and damage for any of the causes of action pleaded in the respondents' cross-claim?
(5)(a) Was there any cause of action before the Court by which the Court could order that Li was entitled to recover loss and damage suffered by Sealane Pty Ltd in its capacity as trustee of the Dim Li Unit Trust in respect to any of the causes of action pleaded against Karafili as accountant by Sealane in the cross-claim?
(b) Did the Magistrate err in ordering Karafili to pay Li the retainer money of $18,000 paid to Karafili as an accountant by Sealane for the 1999/2000 financial year work, based on a wholesale failure of consideration?
(c) Did the Magistrate err in ordering Karafili to pay Li the retainer money of $16,500 paid to Karafili as accountant by Sealane for the 2000/2001 financial year work, based on a wholesale failure of consideration?
(6)Was there any evidence upon which the Magistrate might, as a reasonable man, have concluded on the evidence before him that there was a total failure of consideration by Karafili as accountant in respect of the financial year ending 30 June 2000.
(7)Was there any evidence upon which the Magistrate might, as a reasonable man, have concluded on the evidence before him that there was a total failure of consideration by Karafili as accountant in respect of the financial year ending 30 June 2001?
(8)Was there any evidence upon which the Magistrate might, as a reasonable man, have concluded on the evidence before him that the respondents or one or other of them had paid to Karafili as accountant $16,500 for work performed by Karafili in respect to the 2001 financial year?
Li recovered damages on two bases. First, costs incurred in respect of a new accountant who completed taxation returns and other documentation which Karafili had agreed to complete for the year ending 30 June 2001, but which Karafili had not in fact completed. Secondly, a refund of moneys paid to Karafili for services in respect of which his Honour held there was a total failure of consideration. It is apparent that the quantum of the latter claim might, at least in part, overlap with the quantum of the first claim.
The Claim for Loss and Damage
There was no dispute before his Honour that the fees claimed were paid to the new accountant. In the ultimate two matters were raised by way of defence:
(a) the loss, if any, was suffered by Sealane and not Li;
(b)the costs claimed were in part the product of a failure to pay Karafili outstanding fees. This it was said had led to the lawful retention of working documents by Karafili which in turn materially increased the costs payable to the new accountant.
The Magistrate's reasons with respect to the first point are recorded in the transcript as follows:
"I am satisfied that the overwhelming weight of the evidence indeed beyond the balance of probabilities supports the pleadings in the further amended counterclaim and I find that counterclaim proven at the suit of Mr Li. The status of the other defendants of probably not very material to what happens here on but I am inclined to accept Mr O'Connor's description of their status at proceeds [sic]. In any event it is probably not going to much matter."
I am not satisfied that the transcript is entirely accurate[1], but I am satisfied on the evidence as a whole that the learned Magistrate failed to address this issue according to law.
[1]I note reference to other matters such as “the 29th edition of the Magistrate’s Court”.
The amended counterclaim alleged that the respondents (including Sealane) engaged Karafili, to provide services for a number of entities including Sealane.
It further alleged that the respondents (including Sealane) had been required to have work which Karafili was engaged to do redone and that the respondents appointed another accountant to do such work.
It is common ground this occurred and that the amount counterclaimed as a result for further accounting services was paid by Sealane to the new accountant.
The uncontradicted quantum of such fees was $55,900. The Magistrate notionally deducted from this figure the sum of $18,000 being the first of two sums claimed in the further alternative for total failure of consideration. He then allowed this further sum as an independent alternative claim.
I am satisfied on the basis of the evidence, and as was agreed before me, that it was Sealane which made the payment of $55,900, and it follows that in respect of this claim, it was Sealane and not Li which suffered a loss.
Having said this, I am also satisfied that the proper course to adopt pursuant to s.109 of the Magistrates' Court Act, would be to substitute Sealane for Li as the successful counterclaimant others things being equal.[2]
[2]Compare with, Tuckwell v Egg Marketing Australia Pty Ltd [2004] VSC 489.
Mr Watts has submitted that other things would not be equal with respect to the potential implications of such an order for the correctness of the consequential orders made by the Magistrate in respect of interest and costs. I accept both these submissions and if Sealane is to be substituted as the successful counterclaimant the questions of interest and costs will have to be remitted for reconsideration by the learned Magistrate because of the need to reassess the course of proceedings before him.
The Lien
His Honour concluded with respect to the question of the lien as follows:
"I am satisfied that the evidence discloses that he (Karafili) was grossly negligent in the preparation of accounts and returns by both commission and omission and also that he was obstructive and wilfully obstructive in withholding material and asserting a lien where he had no right to do so. I am satisfied that there were no moneys owing when he purported to assert that right."
It is now said that his Honour was bound to conclude Karafili was entitled to withhold relevant documentation from Li pursuant to a lien.
On appeal three answers have been made to the asserted claim to a lien. I shall briefly elaborate each of them.
(a) there was no money due to Karafili;
(b)the existence of relevant documents forming the subject of the alleged lien was never proved;
(c)Karafili was not entitled to rely on any lien which he may have had because the amount claimed by him exceeded the quantum of any lien he has justified.
I am inclined to provisionally reject the first answer but I accept the second and third.
On its face the retainer agreement rendered Li jointly liable for fees payable with respect to accounts prepared for any associated entities. Magistrate Smith found that Li was so liable with respect to the “non-Li” companies forming the subject of the claim for fees comprised in Karafili's claim.
Magistrate McIndoe's finding that no money was owed to Karafili at the time of the claimed lien is on its face inconsistent with the judgment of Magistrate Smith upon the claim. No explanation is given for this apparent inconsistency.
It is, however, unnecessary to further explore the consequences of this apparent contradiction having regard to my conclusions concerning the further matters raised on behalf of Li.
Karafili gave discovery in the proceeding in a manner which founded a convincing attack upon his credit. Ultimately he retreated to a position where the only document which he maintained he had prepared but which was not provided to the new accountant was "part of some small working banking reconciliation". This document was not the subject of discovery nor was it ever produced to the Court. There was simply no satisfactory basis whatsoever for concluding that its production would have affected the new accountant's costs. Even if some lien may have existed with respect to it, the existence of such lien could not have been held to affect the quantum of the loss suffered by Sealane. In short, Karafili failed to prove the asserted lien bore in any relevant way upon the counter claim.
Further, it is clear that Karafili asserted a lien over documents (the existence of which in large part was never ultimately proved) in support of a claim for in excess of $20,000 until the hearing before Magistrate Smith. Indeed Karafili conceded in cross-examination that he had demanded $27,401 for 5 months after the termination of his retainer, as the price for the release of the documents held by him.
I accept Mr Black's submission that Karafili's conduct in this regard resulted in a loss of any right to assert the lien claimed. In White v Bini[3] Finkelstein J set out the relevant principles at paragraph 10:
"It is trite law that a lien will be lost if it is claimed for the wrong cause or the wrong amount … A lien will also be lost if a person claims it for two debts (one due and one not due) and intimates that he will not part with possession unless both debts are satisfied … In Albemarle Supply Company Limited v Hind and Company [1928] 1 KB 307, 318-319, Scrutton LJ said:
'A person claiming a lien must either claim it for a definite amount, or give the owner particulars from which he himself can calculate the amount for which the lien is due. The owner must then in the absence of express agreement tender an amount covering the lien really existing. If he does not, unless excused, he has no answer to a claim of lien. He may be excused from tendering (1) if he has no knowledge or means of knowledge of the right amount; (2) if the person claiming the lien for a wrong cause or amount makes it clear that he will not release the goods unless his full claim is satisfied, and that amount is wrongful. The fact that the claim is made for more than the right amount does not matter unless the claimant gives no particulars from which the right amount can be calculated, or makes it clear that he insists on the full amount of the right claimed'." (Citations omitted) (My emphasis).
[3][2003] FCA 669
In the present case Karafili continued to assert a right to payment in excess of $20,000 up until the date of the hearing of the claim. He claimed a lien with respect to debts the claims to which were abandoned in the Magistrates' Court. Further, such evidence as he subsequently gave with respect to the putative basis of such claims was rejected by Magistrate McIndoe as he was entitled to.
Accordingly, the respondent Sealane was entitled to judgment on the counterclaim in the sum of $40,000 (being the limit of the jurisdiction and comprising part of the loss of $55,900).
The further claims for total failure of consideration do not require further analysis having regard to the above conclusion. Nevertheless, for the sake of completeness and in deference to counsels' submissions I record:
(a)I accept Mr Watts' submission that there was evidence of some consideration for the payment of $18,000 in respect of accounts for the financial year ended 30 June 2000. Further it was not open to conclude that there was a total failure of consideration for this fee although the extent of work done was small;
(b)I accept Mr Black's submission that there was no evidence of consideration for the payment of $16,500 in respect of accounts for the financial year ended 30 June 2001;
(c)I reject Mr Watts' submission that there is no evidence of payment of the sum claimed of $16,500. Such evidence included a reconciliation statement prepared by Karafili, and answers given by him in cross-examination.
In summary the answers to questions 1, 2, and 3 do not establish a defence to the counter claim. Karafili cannot show the existence of a lien justifying any reduction in damages on the counter claim.
The answer to questions 4 and 5 is no.
The answers to questions 6,7, and 8 cannot vitiate the conclusion that Sealane is entitled to judgment for $40,000, but the answer to 6 is no, and the answer to 7 and 8 is yes.
In the circumstances and subject to further submissions from counsel as to the terms of the orders, I propose to order:
(a)that the orders of the Magistrates' Court on the counterclaim in favour of Li be set aside;
(b)that in their place judgment be entered on the counterclaim for Sealane in the sum of $40,000 together with interest and costs;
(c)that the question of the appropriate quantum of interest and costs be remitted for further hearing in accordance with law by Magistrate McIndoe or such other Magistrate as the Chief Magistrate may nominate.
I will hear counsel further as to the costs of the appeal and if necessary the question of an indemnity certificate.
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