Lambrou v Lambrou (No 2)
[2018] VSC 244
•16 May 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 00661
| CHRISTOS LAMBROU (who sues as representative of the Estate of Despina Lambrou, deceased) | Plaintiff |
| v | |
| EMMANUEL GEORGE LAMBROU | First Defendant |
| MELISSA JOANNE LAMBROU | Second Defendant |
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JUDGE: | Lansdowne AsJ |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 19 April 2018 |
DATE OF JUDGMENT: | 16 May 2018 |
CASE MAY BE CITED AS: | Lambrou v Lambrou (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 244 |
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PRACTICE AND PROCEDURE – Summary judgment sought by plaintiff on part of her claim, being for breach of fiduciary duty - Defence found to have no real prospect of success – Strike out of counterclaim - Whether discretion against grant of summary judgment should be exercised pursuant to Civil Procedure Act 2010 (Vic) s 64 – Whether compound interest should be awarded in the Court’s equitable jurisdiction or interest under Supreme Court Act 1986 (Vic) s 60 – Whether judgment should be stayed.
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| APPEARANCES | Counsel | Solicitors |
| For the Plaintiff | Mr J Smith | Macpherson & Kelley |
| For the First and Second Defendants | Dr J Glover | Melbourne Legal Group Pty Ltd |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Matters raised in the Principal Reasons......................................................................................... 2
Discretion....................................................................................................................................... 2
Form of relief................................................................................................................................. 4
Parties’ submissions........................................................................................................................... 4
Plaintiff........................................................................................................................................... 4
Defendants..................................................................................................................................... 7
Discussion............................................................................................................................................ 8
Counterclaim................................................................................................................................. 8
Discretion..................................................................................................................................... 10
Intermingling of issues..................................................................................................... 10
Counterclaim and amendment to pleadings................................................................. 11
Other matters relied upon by the defendants............................................................... 11
Form of relief............................................................................................................................... 12
Interest................................................................................................................................. 13
Costs……........................................................................................................................... 18
Stay………................................................................................................................................... 18
Conclusion......................................................................................................................................... 19
HER HONOUR:
Introduction
These reasons concern a summary judgment application brought by the late Despina Lambrou (Mrs Lambrou) before her death through her then administrator against her oldest son, Emmanuel Lambrou and his wife, Melissa Lambrou. The claim as a whole seeks relief relating to a number of financial transactions undertaken by the first defendant in respect of the property of the plaintiff, but in the summary judgment application she sought judgment on a summary basis in respect of part only of her claim. The plaintiff sought summary judgment against the first defendant for breach of fiduciary duty in the sum of $552,000 on the basis that he conceded that he had used that amount of the sale proceeds of his mother’s home for his own purposes at a time when he was her administrator.
After the hearing of the summary judgment application and before its determination, Mrs Lambrou sadly died. She has now been replaced as plaintiff by her younger son, Christos, as the administrator of her intestate estate.
I gave reasons for the substantive determination of the summary judgment application which were published on 29 March 2018 (Principal Reasons).[1] In the Principal Reasons I held that the defendants have no real prospect of success in establishing a defence to the claim the subject of the summary judgment application, but I noted that counsel had not put to me explicit submissions in relation to the exercise of the discretion and I also expressed some reservations as to the form of relief that the plaintiff proposed in the event that summary judgment was given. Indeed, I expressed the view that:[2]
… subject to further submission, my preliminary view is that the proper approach is to give summary judgment on the breach of fiduciary obligation in respect of the sale proceeds, because it is warranted and will remove one issue from trial, but by way of declaration only, for an amount to be determined at trial. …
[1]Lambrou v Lambrou [2018] VSC 141 (Principal Reasons).
[2]Principal Reasons, [73].
Having now heard from the parties on the question of discretion pursuant to s 64 of the Civil Procedure Act 2010 (Vic) (CPA), and also in relation to the form of relief, I have departed from that preliminary view. I now consider that summary judgment should be given and orders made for the payment of equitable compensation in the form sought by the plaintiff. However, I do not accept the submission of the plaintiff that interest should be ordered on a compounding basis. I will order simple interest only. As the proposed form of order supplied to me by counsel for the plaintiff had not calculated interest on this basis, I will require that now to be done and orders to be prepared accordingly.
Matters raised in the Principal Reasons
Discretion
Section 64 of the CPA provides as follows:
64Court may allow a matter to proceed to trial
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a)it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
The section confers a discretion on a court to refuse summary judgment, notwithstanding that the court is satisfied that the preconditions for its grant have been established. There is authority for the proposition that the Court should turn its mind to whether or not the discretion should be exercised in every application for summary judgment.[3]
[3]Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd and anor (2011) 35 VR 1; [2011] VSC 222, [18(4)], per Dixon J.
In the Principal Reasons I expressed the view that the exercise of the discretion was a live question for a number of reasons. The first was that summary judgment was sought for only part of the claim, and I noted some potential intermingling of issues between that claim and the remaining claims by the plaintiff, which it is conceded must be determined at trial. The remaining claims concerns two matters: the subdivision of Mrs Lambrou’s land in 2013 into two lots, and the transfer of one of those lots, Lot 2, to the defendants for no consideration; and withdrawals from Mrs Lambrou’s pension account by the first defendant.
I thought it possible that evidence as to Mrs Lambrou’s cognitive ability at the time of the subdivision and transfer of Lot 2 to the defendants may also be relevant to the first defendant’s claim that his mother owed him a debt in the sum of $887,000 and had acknowledged that debt on a number of occasions.[4] He relied on a written acknowledgement of that claimed debt in a document he called the Family Agreement, and asserted that there had also been subsequent oral acknowledgements, in defence of the breach of fiduciary duty claim.
[4]Principal Reasons, [69].
Further, I noted that the defendants rely on the Family Agreement not only in defence of the breach of fiduciary duty claim related to the sale proceeds of the plaintiff’s home, but also in defence of the claims relating to the earlier subdivision and transfer of Lot 2 to them.[5]
[5]Principal Reasons, [70].
A second matter I raised in relation to the exercise of the discretion turned on the fact that for the purposes of the summary judgment application the plaintiff accepted, as she must, the authenticity of the Family Agreement but reserved her right to challenge its authenticity at trial. I queried if this introduced an inappropriate artificiality into the determination of the proceeding.[6]
[6]Principal Reasons, [71].
The third consideration I raised related to the fact that the final amount found due to the plaintiff cannot be known until determination of all issues at trial. I noted that while it was not a real difficulty that the final sum may be greater than the amount sought on the summary judgment claim, the final sum may also be less.[7] This was on the assumption that the defendants would seek to bring a counterclaim for the claimed debt owed to the first defendant by his late mother. At the time the summary judgment claim was argued and determined no such counterclaim had been filed, although the defendants had relied in their pleading and evidence on the claimed debt. I held that it did not amount to a defence with any real prospect of success to the breach of fiduciary duty claim, but was not required to determine its prospects as a debt claim.
[7]Principal Reasons, [63] and [72].
The final consideration was that it seemed likely that substantial amendment to the pleadings may be sought, and indeed necessary, before trial.[8]
[8]Principal Reasons, [72].
Form of relief
The plaintiff sought summary judgment in the sum of $552,000 with interest. The concern I expressed as to this form of relief related to the possibility that the final sum found due to the plaintiff could be less, as set out above.[9]
[9]Principal Reasons, [61]-[66].
Parties’ submissions
Plaintiff
Counsel for the plaintiff in his written submissions submits that on analysis the issues that have been determined in the summary judgment claim are easily separated from the remaining issues in the plaintiff’s claim, and so there is not the concern that I expressed in relation to intermingling of issues.
The summary judgment claim is in relation to that part of the withdrawal by the first defendant as administrator of the balance proceeds of sale of his mother’s home that he concedes he used for his own benefit. There is a further sum of $292,408 that he agrees he also withdrew.[10] The plaintiff submits that determination at trial as to whether or not this sum is also owed to the plaintiff will turn solely on whether those funds were used for Mrs Lambrou’s benefit, or not. This is also, the plaintiff submits, the only issue in relation to withdrawals from Mrs Lambrou’s pension account.
[10]Amended Defence to Amended Statement of Claim, dated 20 July 2017, [26].
In relation to the subdivision of Mrs Lambrou’s land and transfer of Lot 2 for no valuable consideration to the defendants, the plaintiffs submit that the issues will be as follows (I have slightly reorganised the list as prepared by counsel and added commentary):
(i) whether the first defendant was bound by fiduciary duties to his mother at that time (at the time of the subdivision and transfer he had not yet been appointed her administrator by the Guardianship and Administration Board);
(ii) if so, whether the transfer was permitted by the Family Agreement (which I take to be an issue directed to the scope of those fiduciary duties);
(iii) if not, whether the transfer breached those duties;
(iv) whether Mrs Lambrou gave informed consent to the transfer; and
(v) whether the transfer was a gift.
In the alternative, by way of an unconscionable conduct claim:
(i) whether Mrs Lambrou suffered from special disabilities in relation to the defendants;
(ii) whether the defendants were aware of those special disabilities;
(iii) whether the defendants took advantage of them;
(iv) whether such conduct was unconscionable; and
(v) whether there was informed consent.
In relation to the second defendant:
(i) whether she is liable under Barnes v Addy.
It can be seen that the plaintiff does not adopt the concern I expressed that evidence as to Mrs Lambrou’s cognitive abilities may also be relevant to the defendants’ reliance on an alleged debt owed to the first defendant by Mrs Lambrou. This is no doubt because in the plaintiff’s submission, any claim for debt is a distinct and independent action, and not a reason to withhold summary judgment on the currently pleaded claims.
In relation to the concern I expressed that the sum found ultimately due to the plaintiff may be less than the amount for which summary judgment is sought, the plaintiff submits that that is conditional on two matters:
· the first defendant commencing and succeeding upon a counterclaim for debt; and
· the Court making an order offsetting the amount found due to the first defendant against the amount found due to the plaintiff on this summary judgment application.
The plaintiff submits that there is no compelling reason to wait and see if these two preconditions are fulfilled, and indeed compelling reason not to. That compelling reason, in the submission of the plaintiff, is the ‘egregious circumstances of the case’ being that ‘(t)he duty breached is the most fundamental and profound known to the civil law’ and Mrs Lambrou, and her estate, have been held out her funds for a substantial period.[11]
[11]Plaintiff’s Supplementary Submissions dated 18 April 2018, [8(g)].
The plaintiff also seeks that the Court exercise its inherent equitable jurisdiction to award interest (as opposed to statutory interest pursuant to s 60 of the Supreme Court Act 1986 (Vic)) and submits that that interest should be calculated on a compound basis due to the misconduct of the first defendant.
The plaintiff seeks orders that the first defendant pay the plaintiff the sum of
$552,000 by way of equitable compensation, with interest on a compound basis at 5%.
Defendants
The first defendant filed a counterclaim dated 18 April 2018 which was expressed to be ‘Pursuant to the judgement (sic) of Landsdowne (sic) AsJ dated 29 March 2018 [2018] VSC 141’ (Counterclaim). The Counterclaim seeks the sum of $335,000, which is the difference between the amount stipulated in the Family Agreement, $887,000, and $552,000, and repayment of certain other sums claimed to have been expended by the first defendant on behalf of his mother and her funeral. The document that in the summary judgment application was called the Family Agreement is here described as ‘the Acknowledgment’ or ‘the Gift’ and the claim for $335,000 is said to arise from it. The plaintiff submitted that the counterclaim was defective on pleading grounds. I will return to that issue in the next section of these reasons.
In his written submissions, counsel for the defendants submits that the Court should exercise the s 64 discretion against the grant of summary judgment by reason of both paragraphs of the section. In relation to paragraph (a), the defendants submit that it is not in the interests of justice to give summary judgment because the claim relating to the proceeds of Lot 1 is ‘inextricably mixed’ with the claim relating to the subdivision and transfer of Lot 2. The defendants also submit that it would not be appropriate to give summary judgment because of the family context in which the events occurred, and ‘(t)he family story must be told. Justice must be done to both brothers. There is a danger that justice will not be done to Emmanuel if he is unable to put his side of the story’.[12]
[12]Defendant’s Submissions dated 19 April 2018, [3(b)].
Counsel also put other written submissions in relation to paragraph (a) of s 64 that appear to contest the findings made in the Principal Reasons,[13] or make assertions without any evidentiary foundation.[14] I disregard those submissions.
[13]Ibid, the first two sentences of [3(a)] and [3(c)].
[14]Ibid, the balance of [3(a)] and the second sentence of [3(b)].
The defendants also submit that the Court should exercise the discretion against the grant of summary judgment by reason of paragraph (b) of s 64. They submit that only a full hearing on the merits is appropriate for two reasons. The first reason is because matters asserted in the counterclaim also arise in relation to the fiduciary duties claim the subject of the summary judgment application. The second reason is that the plaintiff and the first defendant are the only two people with an interest in the estate of Mrs Lambrou and should each be able to give evidence on all matters relating to what the defendants’ characterise as ‘this inheritance dispute’.
In the event the Court is minded to grant summary judgment, the defendants seek a stay of execution on that judgment until the determination of the remaining issues at trial. They do not adduce any evidence in support of a stay.
In oral submissions, the defendants opposed the claim for compound interest at 5% and proposed that simple interest be awarded on the statutory basis, notwithstanding that this could be at a substantially higher rate than 5%.
Discussion
Counterclaim
I accept the submissions of the plaintiff that the Counterclaim is entirely defective as a pleading. I will strike it out as a consequence. I set out some of the defects below, but this list should not be taken as exhaustive. It is for the first defendant or defendants to plead a proper counterclaim- not for the plaintiff or the Court to tell him how to do so.
The principal defect, as properly identified by the plaintiff, is that the Counterclaim appears to assert that the Family Agreement, in so far as it is called the Acknowledgement in the Counterclaim, itself grounds a cause of action for recovery of a loan, rather than being merely evidence of an underlying obligation, which must be pleaded as an obligation to ground an action for recovery. This misconception is apparent from paragraphs [4]-[7] and [13]. Counsel for the defendants did not dispute this as a proposition of law, but submitted that the use of the word ‘owed’ in [2] was sufficient pleading of the underlying obligation. I do not accept that proposition. If there is said to be an obligation to repay one or more loans, those loans and their terms should be fully pleaded. The Family Agreement is alternatively pleaded as a gift (the Gift). Counsel for the defendants also does not dispute that an unpaid gift does not give rise to a cause of action. The purported cause of action pleaded in [3] and [14] falls away as a consequence.
The only other purported cause of action revealed by the Counterclaim is that which commences at [6], being a representation said to have been made apparently in or at the same time as the Family Agreement. As counsel for the plaintiff correctly identifies, this cause of action would require at least pleas of reliance and detriment to establish the estoppel sought to be pleaded by [7]. Counsel for the defendants also accepts this defect.
The amount sought by the Counterclaim by way of the Acknowledgement or the Gift is calculated as the difference between the amount in the Family Agreement, $887,000, and the amount the first defendant pleads that he withdrew in partial satisfaction, $552,000. As I note below, the particulars of the date of withdrawal and bank account in [8] are inconsistent with the evidence. But in any event, if the first defendant seeks to set off what I have found to be a breach of fiduciary duty by a counterclaim for the amount he says is owed to him for repayment of one or more loans, then one would have thought that he would seek the whole of the repayment due to him, not part of it.
There are other defects with the Counterclaim, including the failure to particularise [9] and [11], and the failure to plead how loans said in the Family Agreement to have been made to both Mr and Mrs Lambrou became her obligation solely.
Discretion
Intermingling of issues
On reflection and consideration of the submissions, I have come to the view that there is no intermingling of issues between those considered in this application for summary judgment and those remaining for trial such that the defendants would be prejudiced by the entry of summary judgment against them on part of the plaintiff’s claim. I reach this conclusion for the following reasons.
First, any intermingling relates only to the first defendant’s claim that his mother owed him $887,000, as acknowledged by her in the Family Agreement and subsequently orally. It is true to say that the defendants rely on this claim by way of defence to both the main limbs of the plaintiff’s claims i.e. the subdivision and transfer and the proceeds of sale claims, and I have considered the Family Agreement and made findings in relation to it in relation to the proceeds of sale claim. Superficially it could appear that to enter judgment on that basis may constrain the trial judge in relation to the other respects in which the defendants wish to rely on the Family Agreement, both in defence to the plaintiff’s claims and as evidence in a counterclaim. On analysis, however, I do not consider my findings would do so. This is because I considered the Family Agreement in this application on the basis that it was authentic (which is not conceded for trial) and for a limited purpose only, being whether, assuming it to be authentic and reflect an underlying debt, it limited the scope of the first defendant’s fiduciary obligations as administrator. I held that it did not.
The issues at trial in relation to the Family Agreement will be entirely different. They will include: whether the defendants can prove any debt, including by way of the Family Agreement; whether any such debt remained enforceable; whether the Family Agreement is an authentic document; whether any fiduciary obligation that the first defendant owed his mother prior to becoming her administrator was limited in scope by the Family Agreement or the debt; and the extent to which the Family
Agreement or debt provided consideration for the transfer of Lot 2 to the defendants.
In the Principal Reasons I noted that evidence as to Mrs Lambrou’s cognitive decline may be relevant to the first defendant’s claim that she had orally acknowledged a debt owed to him. This may be so, if he gives evidence at trial of any such acknowledgements, but again this relates to the claim of an underlying debt, not to issues determined by me in this application.
Counterclaim and amendment to pleadings
As noted above, I will strike out the counterclaim that the first defendant has filed. An extant properly pleaded and potentially viable counterclaim is thus not a justification for either withholding judgment or a stay if judgment is given. It remains a possibility that the first defendant will file an appropriate counterclaim, but I am not encouraged by the conduct of his litigation to date in that regard. In particular, the defendants have not as yet sought to bring their pleaded defence into line with the evidence in this application, which I noted was required in the Principal Reasons. They, through their legal advisors, have been to date unable or unwilling to comply with this most basic of procedural requirements. Given this history, I do not consider there is any justification for exercising the discretion against the grant of summary judgment because of the prospect that at some point in the future they may put their procedural house in order and plead an appropriate counterclaim.
Other matters relied upon by the defendants
The first defendant has submitted that he should not be shut out from putting his side of the story at trial. I do not accept that the giving of summary judgment will have that effect.
The first defendant had the opportunity to put on his best case on evidence and submissions in relation to the issues in the summary judgment application, and it must be assumed, as he is represented by solicitor and counsel, that he has done so. As noted above, the issues for trial are different and he is not constrained by any finding in the summary judgment determination in relation to them. If anything, the summary judgment application proceeded on a basis more favourable to him than will the trial, because it was assumed that the Family Agreement was an authentic document acknowledging a debt owed to him. My finding is that even on that basis it did not limit the scope of his duty as administrator to his mother.
The first defendant also seeks to characterise the dispute between now his brother and him as an ‘inheritance dispute’. I do not consider that characterisation to be correct. It is true that it is only he and his brother who have a claim on the intestate estate of his mother, and that if none of the transactions in relation to his mother’s property that are the subject of this proceeding had occurred, prima facie they would be entitled equally. The transactions that are the subject of this claim are not about inheritance, however, they are in the simplest terms about whether the first defendant and his wife took advantage of his mother while she was alive resulting in their own financial gain. In other words, did their actions unlawfully deplete what would otherwise have constituted Mrs Lambrou’s estate? These issues must be determined before the quantum of Mrs Lambrou’s estate can be determined, and the estate fully administered.
Form of relief
My concern in relation to an order that the first defendant pay the plaintiff a fixed sum arose from the possibility that the amount found eventually due to the plaintiff may be less than that sum. I accept the submission of the plaintiff that that possibility depends on the bringing and successful prosecution of a counterclaim. Given the deficiencies of the counterclaim dated 18 April 2018, which have led to it being struck out, and the failure to date of the defendants to get their procedural house in order as detailed above, I no longer consider that the possibility of a successful counterclaim in an offsetting amount is sufficient to justify refusal of an order for payment.
The first defendant’s evidence is that he considered he was entitled to repayment of a debt, and had been held out of that money for a long time. Assuming that to be true, it was nevertheless a stark breach of his duty as administrator to take the amount he did without any independent sanction by the Guardianship and Administration Board. I accept the plaintiff’s submission that such a stark breach of duty should be met by an order for payment.
The first defendant has not put any submission to the effect that he may not be able to recover the sum ordered to be paid if ultimately he is successful. In any event, the sum will be paid to the plaintiff in a trust capacity, as administrator of their mother’s estate. The capacity in which the funds will be received, and the fact that the first defendant is a beneficiary in that estate, offer protection against any risk that the funds could not be recovered.
Interest
The plaintiff seeks equitable compensation from the first defendant in the sum of $552,000 and compound interest on that sum at 5%. Counsel for the plaintiff has not specified the date from which interest should run, but consistently with the authority on which he relies, Ash v Ash (No 2),[15] I infer that he seeks compound interest from the date the first defendant first appropriated funds from the sale proceeds of his mother’s home in breach of his fiduciary duty to her.
[15][2017] VSC 569, per McMillan J at [116]-[117].
The first defendant resists the claim for compound interest, and contends that only simple interest should be awarded, pursuant to s 60 of the Supreme Court Act 1986. He does not resist a claim for interest pursuant to that section.
Section 60 relevantly provides:
Interest in proceedings for debt or damages
(1)The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.
(2)Nothing in this section—
(a)authorises the granting of interest on interest;
…
(f)limits the operation of any enactment or rule of law which, apart from this section, provides for the award of interest.
The current rate fixed under s 2 of the Penalty Interest Rates Act 1983 (Vic) is 10%.
The application of s 60 would accordingly require:
· Simple interest;
· From the commencement of the proceeding; and
· At a rate not exceeding 10%.
Neither party provided a calculation as to the figure that would flow from their respective positions on interest. Counsel for the plaintiff posited only two positions- compound interest at 5% pursuant to the Court’s equitable jurisdiction or interest pursuant to s 60 at the penalty interest rate. He did not propose an amalgam- such as simple interest but pursuant to the Court’s equitable jurisdiction, which is the approach taken by Kyrou J (as he then was) in Talacko v Talacko (Talacko).[16] Nor did counsel for the first defendant propose any rate of interest payable pursuant to s 60 other than the rate under the Penalty Interest Rates Act, which as noted is substantially higher than 5%. In the absence of any suggested other rate, it would be appropriate to impose that rate. When it was put to counsel that reliance on s 60 at this rate may in fact result in a larger sum than compound interest at 5% he did not depart from his submission that only simple interest pursuant to s 60 should be awarded. In any event, I consider it correct that which approach to interest should be followed is to be determined by principle rather than the figure which would result.
[16][2009] VSC 579.
In Ash v Ash (No 2), McMillan J drew on the summary of the principles governing the
award of equitable interest by Macaulay J in Kirk v PRP Accounting Solutions Pty Ltd (Kirk)[17] which in turn his Honour had drawn from the decision of Kyrou J in Talacko. Those principles identify that an award of compound interest should ordinarily only be considered where the defaulting fiduciary is being compelled to disgorge a gain, and that there must be evidence of an actual gain or an evidentiary foundation on which such gain may be assumed.
[17][2015] VSC 173.
In Talacko the Court awarded interest from the date of the defendant’s default, and at the rate prescribed by the Penalty Interest Rates Act but declined to award compound interest. His Honour rejected the claim for compound interest, notwithstanding aggravating features in the defendant’s conduct, because there was no evidence that the defendant had made any actual gain from his failure to return certain properties to the plaintiffs, or an evidentiary foundation to assume such gain. In particular, there was no evidence that the defendant had carried on any business other than managing the properties which were the subject of the award for compensation. By his reference to authority, Kyrou J contrasted this situation with the use of unlawfully appropriated funds in a commercial enterprise.
In Ash v Ash(No 2) and Kirk, the Court did award compound interest. In Ash v Ash (No 2) the defaulting fiduciary, who was the plaintiff’s daughter, utilised her father’s funds in commercial enterprises operated by her and her husband. Although there was no specific evidence as to gain that they had thereby made, and, indeed, the commercial enterprises ultimately failed, McMillan J held that compound interest was appropriate because ‘the first and second defendants were attempting to maximise investment gains’.[18] Her Honour also noted that the plaintiff could presumably have earned compound interest if his funds had been reinvested in the term deposit in which they were previously held. In making that observation, her Honour may have been adopting the approach taken by Macaulay J in Kirk.
[18][2017] VSC 569, [113].
In Kirk, Macaulay J awarded compound interest as part of a judgment in default of defence. Amongst the facts pleaded in the statement of claim, which were taken to be proved due to the failure to file a defence, was that the defaulting fiduciary and the company of which he was a director and secretary to which he transferred the funds had each made a gain. There was, however, no evidence as to actual gain. His Honour awarded compound interest at 5% compounded annually. He noted that the form and rate took into account the wilful and dishonest conduct of the plaintiff’s attorney and his breach of fiduciary duty, and lower rates of bank interest after the global financial crisis. In relation to gain, he noted (citations omitted):
Further, unlike in in Talacko, whilst there is no evidence before me as to the actual gain made by the defendants, there is an evidentiary basis from which a gain may be inferred, in that the moneys were paid into PBP’s bank accounts. I infer that as the money was paid into the bank accounts of PBP, that Mr Wortman and PBP were making the most beneficial use of the funds by earning compound interest, and conversely that had Mr Wortman and PBP not deprived Mrs Kirk and Talpa from their money, that they would have made the most beneficial use of it open to them.[19]
[19][2015] VSC 173, [42].
In this case there is no evidence that the first defendant used the funds for any commercial enterprise. In fact there is no evidence as to how he used the funds at all, the only information being his admission in the Amended Defence that it was for ‘private or domestic purposes’.[20] The affidavit in support of the summons exhibits the bank accounts utilised for the deposit of the sale proceeds, but the various withdrawals are merely noted as ‘withdrawals’ i.e. it is not even clear if the funds were transferred to another bank account.
[20]Amended Defence to Amended Statement of Claim, [26].
The affidavit in support also exhibits the affidavit sworn 10 October 2016 by the first defendant on which he relied in the Tribunal. That affidavit exhibits a table which the first defendant described as ‘a spreadsheet showing the expenditure from my mother’s account’, in a context in which he asserted an entitlement pursuant to the Family Agreement to the whole of the balance sale proceeds after payment of the bond to her aged care facility.[21] If the withdrawals from the NAB accounts 77-198-0844 and 24-493-1581 that Emmanuel notes in the spreadsheet as being ‘Family loan repayment’ or ‘Withdraw- Family loan’ in the period 4 August 2015 to 30 August 2016 are added together they total not $552,000 but $695,361.28. The largest withdrawal that Emanuel describes as being for ‘Family loan repayment’ or ‘Withdraw- Family loan’ occurred on 16 June 2016 when according to his spreadsheet he withdrew $400,000 from the term deposit account 1581. Withdrawal of this amount is also shown in the bank statements for that account.
[21]Exhibit IT-7 to the affidavit of Ian Turner sworn 5 July 2016, [64].
It is difficult to know what, if any conclusions, can be drawn from this. The judgment sought by the plaintiff is for the amount admitted in the Admitted Defence, not any greater amount. The Counterclaim seeks to plead that the sum of $552,000 was withdrawn in June 2015 from a different account that on the evidence was not even established until July 2015. As I will strike out that document, and it is so plainly unreliable, I will not place any reliance on this aspect of it. Neither the spreadsheet nor the bank statements were the subject of any argument at either hearing before me, and I do not consider it appropriate to seek to make any finding in the absence of such argument, other than that the facts here are distinguishable from those in Ash v Ash (No 2) and Kirk. There is no evidence or admission here that the funds unlawfully obtained were used for investment or in a corporate structure or that they resulted in any gain once in the hands of the fiduciary. Nor do I consider that there is any matter from which any such gain can be assumed. In these circumstances, I do not consider that there is a basis to depart from simple interest.
As noted earlier, if compound interest at 5% was refused, the plaintiff posited interest pursuant to s 60 as the appropriate alternative. Accordingly, that is the approach that I will take. As the first defendant did not seek any interest rate other than the penalty interest rate, that is the rate I will impose.
I will order simple interest pursuant to s 60 of the Supreme Court Act 1986 from the commencement of the proceeding, which was 24 February 2017, at the applicable penalty interest rate, being 10%.
Costs
The plaintiff seeks as against the first defendant the costs of the application for summary judgment and one third of the costs of the proceeding. The first defendant does not resist that order, and I consider it appropriate.
Stay
The first defendant seeks that if judgment is entered, it be stayed until the conclusion of the whole proceeding, because it is uncertain what the final judgment sum will be, and because the balance of the plaintiff’s claims are yet to be determined. He relies on Reading Entertainment Australia Pty Ltd v Burstone Victoria Pty Ltd (No 2) (Reading Entertainment)[22] in support of those grounds for a stay. The first defendant also submits that there is no pressing need shown for the estate to receive payment now, as opposed to the situation when Mrs Lambrou was still alive and could be said to require funds for her care. The plaintiff opposes a stay.
[22][2005] VSC 137.
Ordinarily a successful party to litigation is entitled to the fruits of that victory. There must be good reason for the grant of a stay to postpone that entitlement. If a viable counterclaim was in existence which exceeded or equalled the amount by which I have found the first defendant breached his fiduciary duty to his mother then there may have been justification for a stay. As I have set out, that was not the case at the hearing and is not the case now.
Further, while no pressing personal need is shown for payment to be made to the estate, I accept the plaintiff’s submission that the plaintiff as administrator is required to get in the assets in a timely way. On the evidence currently before me, I consider that to be sufficient in relation to this application for a stay.
I also accept the plaintiff’s submission that the facts in Reading Entertainment are distinguishable. In that case Whelan J (as he then was) granted a stay on a judgment requiring payment because there were remaining issues to be determined between the parties which made the final amounts due uncertain. However, in that case the balance of the issues between the parties were to be determined quickly, and indeed his Honour was about to resume their trial within 5 weeks of the grant of the stay. Given that this proceeding is at a relatively early stage in procedural terms that is not the case here. Indeed, time should properly be given to the defendants to make a further attempt to amend their pleading, and enlarge it by a counterclaim if so advised, and that will add further time to trial.
An alternative basis for a stay or a payment arrangement may arise if the requirement to pay the sum found to be due would impose undue hardship on the defendants. Counsel for the defendants initially submitted that an order for payment would ‘financially cripple’ the defendants.[23] He conceded at the hearing that there is no evidence to support this submission, and accordingly I disregard it. If an application for a stay or extended payment is to be made on that basis, an application and evidence to support it is required.
[23]Submissions of the Defendants 19 April 2018, [3(b)].
For these reasons I refuse the application for a stay made in the written submissions.
Conclusion
The plaintiff has provided a draft of the orders to be made. They include orders for the future conduct of the proceeding, about which the first defendant had no comment. I will make orders in that form, save that an order striking out the Counterclaim is to be added and the proposed order in relation to interest be redrawn to reflect these reasons and be expressed in a fixed sum to avoid uncertainty. The proposed timetable for the future conduct of the proceeding should also be appropriately adjusted.
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