Katelis v Adalia Pty Ltd (No. 2)
[2006] VSC 557
•10 December 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL AND EQUITY DIVISION |
No. 7121 of 1998
| DIMITRIOUS KATELIS and LEMONIA | Plaintiffs |
| KATELIS | |
| v | |
| ADALIA PTY LTD (ACN 050 237 888) | |
| JOHN MATSAKAS and ANNA MATSAKAS | Defendants |
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| JUDGE: | NETTLE, J |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 20 November and 10 December 2002 |
| DATE OF JUDGMENT: | 10 December 2002 |
| CASE MAY BE CITED AS: | KATELIS v ADALIA PTY LTD (No. 2) |
| MEDIUM NEUTRAL CITATION: | [2006] VSC 557 |
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COSTS – offers of settlement without prejudice except as to costs – offers not reasonable in all the circumstances.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J. P. Brett | Rudstein Kron Lawyers |
| For the Defendants | Mr R. E. Cook | A. Agrotis & Associates |
| HIS HONOUR: |
On 20 November 2002 I published reasons for judgment in the first part of these proceedings, in which I concluded:
• First, that the Matsakas’ did not have authority to sell the Clayton property at
$290,000 as they had;• Secondly, that it was not demonstrated that the Katelis’ had suffered any loss by
reason of the sale; and• Thirdly, that the Matsakas’ were entitled to judgment on their counterclaim in the
sum of $42,840.18, calculated as follows:
National Australia Bank payments:
$12,645.36 $12,636.42
Ray White: nil Talk Finance: nil Kyriacou & Kyriacou:
$2,000.00 $5,000.00
John Mingos: $1,119.00 Shatin & Bernstein: nil A. Agrotis: $2,919.40 Rennick & Gaynor: $5,800.00 Theo Petropoulos: nil Australian Securities Commission: $720.00 Total: $42,840.18
In subsequent submissions as to the orders which should be made it has been pointed out to me that the computation does not allow for the $10,173.06 which was recovered on sale of the Clayton property or the $650.00 conceded in the course of argument not to be recoverable.
In the result the amount for which the Matsakas’ are entitled to judgment on their counterclaim must be reduced to $27,663.12, calculated as follows:
National Australia Bank payments:
$12,645.36 $12,636.42
Ray White: nil Talk Finance: nil Kyriacou & Kyriacou: nil John Mingos: nil Shatin & Bernstein: $3,765.00 A. Agrotis: $2,919.40 Rennick & Gaynor: $5,800.00 Theo Petropoulos: nil Australian Securities Commission: $720.00 Sub Total: $38,486.18 Less: Amount received on sale of Clayton property $10,173.06
: Amount conceded[1] $650.00
[1] This amount was conceded in final submissions.
Total: $27,663.12
In what follows, I set out my reasons as to remainder of the orders that I propose to make. Expressions used below have the same meanings as in my earlier reasons for judgment.
Declaration of trust
The plaintiffs and the defendants both seek a declaration as to the precise terms on which Adalia Pty Ltd holds the Ormond property on trust for the Katelis’. The difference between the parties is as to the amount of indebtedness which the Katelis’ must discharge under the Deed before becoming entitled to take over control of the property.
The Katelis’ contend that upon its proper construction, and in the events which have occurred, the Deed provides only that the Katelis’ must repay amounts borrowed by Adalia Pty Ltd upon mortgage to buy the Clayton and Ormond properties, and any other amount paid by Adalia Pty Ltd to secure the purchase of the properties, and interest thereon.
The Matsakas’ contend that the Deed requires payment not only of amounts borrowed by Adalia Pty Ltd to buy the properties but also of any amount lent or paid by the Matsakas’ or their companies to or for the benefit of the Katelis’ in connection with the properties, including amounts lent or paid by the Matsakas’ before the properties were purchased by Adalia Pty Ltd.
In my opinion the Katelis’ are correct that the Deed refers only to amounts borrowed or otherwise provided by Adalia Pty Ltd to secure the purchase of the properties. A number of considerations compel me to that view.
To begin with the Matsakas’ are not party to the Deed. It is made between Adalia Pty Ltd and the Katelis’ alone and, with one insignificant exception, makes no mention of anything done or to be done by the Matsakas’ or any of their companies. Secondly, it refers to and plainly is directed to the purchase by Adalia Pty Ltd of the properties from the mortgagees, Piccol Credit Co-Operative and Lewis (see Recital C) and to the moneys necessary to be borrowed by Adalia Pty Ltd to achieve that purchase (see Recitals D (a), (b), (c) and (f). It does not provide for or refer to any other purchase. Thirdly, there is not to be found in it anything which in terms or by implication suggests that it was intended to apply in some fashion to any other financial assistance provided by the Matsakas’.
Such a result may at first seem odd and hence as unlikely to have been intended. For after all, by the time the Deed came to be executed, the Matsakas’ had already outlaid substantial sums of money in attempting to assist the Katelis’ to purchase the properties, and the idea of Adalia Pty Ltd purchasing the property was in effect an extension of those arrangements. Before the idea of using Adalia Pty Ltd was conceived, Mr Matsakas provided the whole of the National Australia Bank loan (which was used to fund the deposit under the failed first contract of sale) and provided substantial sums in cash to Kyriacou & Kyriacou. Adalia Pty Ltd in effect simply took over the role of financier which had been held by Mr Matsakas. In those circumstances one might have thought that the Deed would be directed to the repayment of those amounts as much as any to be channelled through Adalia Pty Ltd.
The answer, however, seems to me to lie in the evidence that when the deed was drawn up, the intention was that there would be sufficient in the amounts to be borrowed by Adalia Pty Ltd not only to pay the purchase price to the mortgagors, but also to repay the National Bank loan and other amounts advanced by Mr Matsakas. As matters turned out, that was not the case and indeed, even more money had to be found simply to complete the purchase. But those subsequent developments are not in my view, a basis to ignore the plain meaning of the terms of the deed. The parties had chosen the terms of the Deed before those developments occurred, even though those developments may have occurred before the Deed was executed. This is not a case of mistake and rectification. It is a question of construction by reference to the circumstances which existed at the time the Deed was drawn.
According to the terms of the Deed which the parties adopted, the parties’ intention was that the Deed extend only to payments made by Adalia Pty Ltd and in my view that is its effect. I consider that any declaration as to the true effect of the Deed should be along those lines.
Amounts secured by the Deed
It follows from the view which I take of the effect of the Deed that a number of the amounts which I have held to be recoverable under the Counterclaim are not secured by the Deed. Of course that does not detract from the ability of the Matsakas’ to recover them as unsecured obligations, including I suppose by way of Warrant of Seizure and Sale. And it may be too that there is some other remedy which has not been considered in these proceedings. Nothing which I say in these reasons is intended to foreclose the possibility of proprietary relief, if available, otherwise than pursuant to the terms of the Deed.
But as far as the Deed is concerned, I accept the Katelis’ submission that out of the amounts which I have held to be recoverable under the Counterclaim, only the following are within the debt secured by the Deed:
• A. Agrotis $2,919.40 • Rengay Nominees Pty Ltd $5,800.00 • A S C $720.00 $9,439.40
As to the remainder, the Ray White, Talk Finance and John Mingos obligations were paid by Narcan Pty Ltd in connexion with the first failed sale and are not the subject of the Deed; the Kyriacou & Kyriacou payments were made by cash by Mr Matsakas and were not paid by or on behalf of Adalia Pty Ltd (although I as I have said, at one time there was an expectation that Adalia Pty Ltd would obtain sufficient on mortgage to repay them); the Shatin & Bernstein obligation was incurred in connection with the investigation of the defalcation of Kyriacou & Kyriacou and was outside the ambit of the Deed; and the payments to National Australia Bank were made in discharge of the obligation incurred by Mr Matsakas and not by or on behalf of Adalia Pty Ltd.
Mr Cook has submitted that I ought be satisfied that the $7,000 which was paid to Talk Finance was in effect recovered by Mrs Kyriacou and then applied towards the purchase price of the property and, on that basis, that it should be regarded as moneys falling within the ambit of the expression "or moneys advanced to Dimitrios Katelis and Lemonia Katelis required to complete the purchase" in clause D(a) of the Deed. But the evidence upon which he relies in support of that submission is limited to a passage of cross-examination which appears at pp.237 and 238 of the transcript, beginning at p.237 line 30 as follows:
Question: "So quite possibly that $7,000 could have been used as part of the moneys that were needed to achieve this settlement as far as you know?" Answer: "I don't know."
In my view, that is not a sufficient basis to conclude on the balance of probabilities that the $7,000 initially advanced to Talk Finance finished up forming part of "the moneys advanced to Dimitrios Katelis and Lemonia Katelis required to complete the purchase of the properties."
I do not, however, accept the Katelis’ submission that the amounts secured by the Deed are to be taken as further reduced by the $10,173.06 recovered out of the sale of the Clayton property or by the $650.00 over-claimed. The $10,173.06 went to the repayment of Mr Matsakas, not to the repayment of the obligations secured by the Deed, and whatever rights the Katelis’ may have against Adalia Pty Ltd for allowing that to occur, they are not the subject of this proceeding and I express no view upon them. The same applies to the $650.00.
Plainly, the Deed secures the repayment of all amounts due or payable to St George Bank which are secured by the mortgage over the Ormond property, in addition to those parts of the Counterclaim as I have identified.
Costs
In the course of argument on the question of costs I have had had tendered to me an affidavit sworn by Magda Kron on 27 November 2002 to which are exhibited a number of letters passing between the parties, without prejudice except as to costs. It is unnecessary that I refer to all of the letters but appropriate that I make reference to three of them.
The first is a letter of 22 April 2002 from the plaintiffs' solicitors to the defendants' solicitors, in which the plaintiffs offered to settle the proceeding on the basis that the plaintiffs would pay to the defendants a sum of $50,000 and outstanding costs orders and the defendants' taxed costs of the counterclaim to that point, on condition that the defendants pay to the plaintiffs the plaintiffs' taxed costs of the claim. The offer was rejected.
The second letter to which I need refer is one dated 11 October 2002, but apparently sent on 16 October 2002 by the defendants' solicitors to the plaintiffs' solicitors, in which the defendants offered to settle the proceeding on the basis that they be paid the sum of $30,000 and interest on that sum from 30 September 1998 and the costs, that is to say, their costs of the proceeding on what is described as the top County Court civil scale, but without any provision being made for payment of the plaintiffs' costs of the proceeding. That offer was rejected.
The third letter to which I need to refer is an offer of settlement made by the plaintiffs' solicitors to the defendants' solicitors on 17 October 2002 wherein the plaintiffs offered to settle the proceeding on the basis that they would pay to the defendants the sum of $30,000 inclusive of interest, the defendants' existing costs orders and the defendants' costs of the counterclaim to that point, but on condition that the defendants pay to the plaintiffs the plaintiffs' costs of the claim to that point.
It has been submitted by Mr Brett on behalf of the plaintiffs that having regard to the considerations essayed in Cutts v Head[2] and recently revisited by Gillard J in MT Associates Pty Ltd v Aqua-Max Pty Ltd[3] as to the operation of Calderbank letters, the plaintiffs are entitled to an indemnity costs order in respect of the costs of the claim. I reject that submission.
[2] [1984] 1 Ch 290
[3] [2000] VSC 163; affirmed on appeal at [2001] 3 VR 473
When I look to the offer of 22 April 2002, I can see that the offer of $50,000 exceeds the sum of $42,740.17 principal and interest for which I propose to allow judgment on the counterclaim, but it makes no allowance for debts which I held to be due but statutorily barred in an amount of $22,314.
At the time at which the offer of 22 April 2002 was made, there was no suggestion by the plaintiffs that the debts were statute barred. On the contrary, it was not until the first day of trial that application was made to amend the defence to counterclaim to plead the statute; albeit that notice of intention to amend or at least to apply to amend was given a week or two before the trial began.
If one adds to the amount for which I propose to allow judgment on the counterclaim, the amount of the statute barred debts of $22,314, the total comes to $65,054.17, even without allowing for any interest on the statute barred debts. In those circumstances it seems to me that the offer which was made was well and truly short of what should be regarded at the time as having been recoverable, and therefore it was appropriate for the defendants to reject it.
When I look to the second offer which was made by the plaintiffs, being the last to which I referred above, (namely, the offer of $30,000 on 16 October 2001), it is plain that it falls short even of the amount for which I propose to allow judgment with interest after reduction for the statute barred debts. According to ordinary principles, it is irrelevant for the purposes of assessing who should bear the costs.
When I look to the offer made by the defendants on 16 October 2001, which was that the defendants be paid the sum of $30,000 and interest on it and their costs of both the claim and the counterclaim, I conclude that although the amount which was offered may be regarded as reasonable when considered against the judgment which was ultimately recovered, both before and after deduction of the statute barred debts, the fact that the offer makes no provision for the plaintiffs' costs of the claim to that point means that it is not appropriate to allow the defendants' costs on the basis that the offer should have been accepted. Accordingly, I put to one side the without prejudice correspondence which has been presented to me as in the end not bearing upon the questions of costs.
I turn to the issues which I consider to be determinative of the orders for costs which should be made.
On the claim, it seems to me that the Katelis' have had some success, inasmuch as they have established that the Ormond property is held upon trust for them, whereas up to the beginning of the trial and for some short time thereafter the Matsakas' contention, at least according to their pleadings and what was announced to the Court, was that the Ormond property had already vested in Adalia Pty Ltd beneficially.
But the Katelis' seem to me also to have failed to a considerable extent on their claim, because they sought a transfer of the Ormond property to them and also orders that they be indemnified in respect of the mortgage obligations secured upon the Ormond property, and damages in respect of the sale of the Clayton property and they failed in that altogether.
I also take into account, as bearing upon the assessment of the degree of success with which the Katelis' have met, that on the first day of trial the Matsakas' made an open offer to procure the transfer of the Ormond property to the Katelis' upon satisfaction of the St George Bank mortgage obligations and payment of the amount of the counterclaim which then stood at $67,000 plus interest and costs.
It has been urged on behalf of the plaintiffs by Mr Brett in able and helpful submissions that there are a number of discretionary considerations which I ought bear in mind in deciding what proportion of their costs the plaintiffs ought be held entitled to recover.
Mr Brett has referred to the conduct of the defendants' case during the course of the trial including multiple applications for amendments to pleadings and changes of position; to the defendants' recalcitrance to admit anything, even for example that the plaintiffs had paid most, if not all of the mortgage obligations; to the defendants' unwillingness to admit facts in response to a notice to admit, served long before the trial, as to the lack of authority with which the defendants proceeded in selling the Clayton property; and to the delinquency of the defendants in respect of their discovery obligations, which resulted in the need for large numbers of documents to be produced to the Court upon subpoena, with consequent disruption to the smooth conduct of the trial (when plainly the documents were or should have been available to the defendants when sought).
Each of these matters is a relevant consideration. It is difficult to think that the trial may not have gone a good deal more smoothly and quickly if there had been a greater willingness on the part of the Matsakas' at the outset to admit matters which plainly they knew to be correct and to be more co-operative in the provision of documents which were sought by the plaintiffs and later tendered into evidence.
On the other hand, it appears to me that a significant part of the refusal of the defendants to make admissions and the difficulties which arose with respect to production of documents, related to the issue of whether the plaintiffs were entitled to recover damages for what was contended to be the unauthorised sale of the Clayton property, and as I have adjudged already, the plaintiffs failed in that part of their claim.
Whilst the allocation of costs is one of considerable imprecision, and in this case necessarily the result of nothing more than a broad brush approach, balancing so far as I am able the competing considerations to which I have referred I conclude that it is appropriate that the Katelis' should have an order for half of the costs of their claim to be taxed on Supreme Court scale, as between party and party.
In terms of the costs of the counterclaim it seems to me that the Matsakas' have also met with mixed success. At the outset they sought some $67,000 and they finished up with an entitlement to judgment for a little more than $27,000. But it needs be remembered that were it not for the very late amendment by the Katelis' to invoke the Limitation of Actions Act, the Matsakas' would have succeeded in obtaining judgment for approximately $50,000, even before allowing for interest, and that with interest the amount which they would have been held entitled to recover would have substantially exceeded the amount of $60,000. In those circumstances I think that the Matsakas' should be regarded as having achieved substantial success upon their monetary claim.
As originally formulated, the Matsakas' counterclaim also sought declarations that Adalia Pty Ltd was beneficially entitled to the Ormond property, but in my view those claims should be seen as essentially responsive to the Matsakas' claim that the property as held upon trust for them for all time, provided they continued to meet the mortgage obligations secured upon the property.
All things considered, I am of the opinion that the Matsakas' should have an order for all of their costs of the counterclaim to be taxed on Supreme Court scale as between party and party.
There was some suggestion that their costs should be taxed upon “the appropriate County Court scale”. But I think that idea to be misconceived. They were brought here to this Court as defendants to a claim and in the circumstances they could not have done otherwise than institute their counterclaim as part of the proceeding.
Proposed orders.
(1) Declare that the firstnamed Defendant, Adalia Pty Ltd holds the land described in Certificate of Title Volume 5110 Folio 862 (“the Land”) on trust for the Plaintiffs, Dimitrios and Lemonia Katelis (“the Katelis”), in accordance with the Deed made 18 November 1991 between Adalia Pty Ltd and the Katelis’ and that, in the events which have occurred since the Deed was entered into: (a) the expression “their obligations” in Clause D(e) of the Deed (hereinafter referred to as “Their Obligations”) means:
(i) an obligation to pay all principal, interest and other sums due to St George Bank under or pursuant to Registered Mortgage No T639722R; and (ii) an obligation to pay the sum of $9,439.40 to Adalia Pty Ltd, as part the counterclaim for judgment on which it is provided below; (b) Clause D(e) of the Deed has the effect that, in the event that the Katelis’ fail to pay or satisfy Their Obligations after reasonable notice of demand for payment has been given, Adalia Pty Ltd shall thenceforth become and be beneficially entitled to the Land and the Katelis’ shall no longer have any right title or interest in or in respect of the Land;
(c) Clause D(f) of the Deed has the effect that the Katelis’ shall have the right to discharge Their Obligations at any time upon reasonable notice before notice of demand for payment has been given;
(d) Clause D(g) of the Deed has the effect that, upon payment in full by the Katelis’ of Their Obligations and the discharge of the mortgage and the release of any and all collateral securities held by St George Bank as security for the debt the subject of the mortgage, Adalia Pty Ltd shall procure the resignation of its directors and the appointment of the Katelis’ or their nominees as directors of Adalia Pty Ltd in their place.
(2) Order that the Plaintiffs’ claim is otherwise dismissed. (3)
Upon the Defendants’ counterclaim, there be judgment for the Defendants in the sum of $27,663.12 together with a further sum of interest of $15,077.05 calculated in accordance with the Penalty Interest Rates Act 1983.
(4) Order that the Defendants’ counterclaim is otherwise dismissed. (5)
Further order that the Defendants pay to the Plaintiff’s one half of the Plaintiffs’ costs of the Plaintiffs’ claim and that the Plaintiffs pay the whole of the Defendants’ costs of the counterclaim, both such sets of costs to be taxed as between party and party, and the one to be set off against the other.
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