Maio v Sacco (No. 2)

[2009] NSWSC 742

CITATION:	Maio v Sacco (No. 2) [2009] NSWSC 742
HEARING DATE(S):	12 June 2009
JUDGMENT DATE :	31 July 2009
JURISDICTION:	Equity
JUDGMENT OF:	White J
DECISION:	Refer to para 28 of judgment.
CATCHWORDS:	PROCEDURE – interest – inherent jurisdiction to award interest on claim for equitable contribution – interest as compensation for loss of value of money - costs – determination of the “event” – factors relevant to costs discretion
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW)
CASES CITED:	Maio v Sacco [2009] NSWSC 413 State Bank of New South Wales Ltd v Federal Commissioner of Taxation (1995) 62 FCR 371 Official Trustee in Bankruptcy v Ritchie (No. 2) (Supreme Court of New South Wales, 25 November 1988, unreported; BC8801284) Kalls Enterprises Pty Ltd (in liquidation) & Ors v Baloglow & Anor (No. 3) [2007] NSWCA 298 Estate of Dugac v Official Trustee in Bankruptcy (Federal Court of Australia, 6 February 1987, unreported; BC8701848) Degmam Pty Ltd (in liq) v Wright (No. 2) [1983] 2 NSWLR 354 Lahoud v Lahoud [2006] NSWSC 126
PARTIES:	John Maio v Antonio Sacco (No. 2)
FILE NUMBER(S):	SC 4995/04
COUNSEL:	Plaintiff: G Foster Defendant: P Barham
SOLICITORS:	Plaintiff: Phillip A Wilkins & Associates Defendant: Wood Marshall Williams Lawyers

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Friday, 31 July 2009

4995/04 John Maio v Antonio Sacco (No. 2)

JUDGMENT

1 HIS HONOUR: In my reasons for judgment of 21 May 2009 (Maio v Sacco [2009] NSWSC 413) I decided that on the sale of the rear lot the plaintiff is entitled to contribution from the defendant of $13,737 plus any interest which might be awarded. I stood the matter over to hear argument on questions of interest and costs. The following additional facts are relevant to those questions.

2 On 18 June 1996, the solicitors for the defendant wrote to the solicitors for the plaintiff offering that:

“ As a fair and reasonable compromise our client will accept responsibility for one half of the amount assessed by RGL Building Services. This offer will be open for seven (7) days from the date of this letter. If it is not accepted within that time we will advise our client that he should oppose any claim for contribution to the building costs incurred without his approval. ”

The defendant’s solicitors sent a copy of the quotation from RGL Building Services to which I referred in my reasons of 21 May 2009. The total amount of that quotation was $25,500 plus an extra $80 per cubic metre of rock for excavation of the stormwater detention tank if rock were encountered. I allowed $1,200 at $80 per cubic metre for the excavation of rock. The letter from the defendant’s solicitor did not expressly deal with any additional sum payable for the excavation of rock. So far as the evidence reveals, no clarification was sought of the offer.

3 In concluding that the plaintiff was entitled to contribution of $13,737, I allowed less than 50 percent of the amount quoted by Mr Lowe of RGL Building Services because I allowed no contribution for work for which the plaintiff did not do himself and for which he incurred no expense (see para [38]). However, there were additional items of expense not dealt with in the building report (referred to at paras [40] and [42]) for which contribution was allowed. There is no evidence whether the plaintiff had made a claim in respect of those items prior to June 1996. The inference that he may not have done so arises from the fact that those items were not referred to in his first affidavit served in these proceedings. They were only referred to in a later affidavit or raised through the late tender of documents at the conclusion of the hearing.

4 Correspondence from the defendant’s solicitor in 1996 and 1997 showed that the defendant was willing to pay 50 percent of reasonable costs for the work done by the plaintiff in connection with the subdivision. The defendant did not accept that the costs claimed by the plaintiff were reasonable. The defendant evidently suspected the authenticity of the invoices relied upon by the plaintiff. As early as 1996 the defendant asked to be entitled to examine the original documents. The plaintiff was willing to bring the documents to a meeting but not to release them into the possession of the defendant. Through his solicitor the defendant asked to be permitted to examine the original documents at the offices of the plaintiff’s solicitor under the plaintiff’s solicitor’s supervision if desired. That request was not acceded to. For the reasons in my earlier judgment, the defendant’s suspicions as to the authenticity of the documents relied upon by the plaintiff to substantiate his claim were justified.

5 Whilst the defendant’s offer of 18 June 2006 was not quite for the whole of the amount for which I have found the plaintiff is entitled to contribution, it was close to that sum. I infer that the defendant would have agreed to pay 50 percent of the additional costs referred to in paras [40] and [42] of my earlier reasons had such a claim then been made. I conclude that had the plaintiff confined his claim to a proper sum, the defendant would have acceded to the claim and no litigation would have been necessary. The litigation was brought about by the plaintiff’s excessive claims. It was lengthened by his dishonesty in the conduct of the litigation to which I have referred in my earlier reasons.

6 In 1997, the parties, through their solicitors, discussed the sale of the property. It was proposed that an amount be set aside in a trust account in the names of partners of their respective firms to cover the plaintiff’s claim for contribution with the moneys set aside only to be withdrawn with the written approval of the parties or an appropriate court order. That was agreed to in principle, but the parties did not agree on how much should be so set aside. The plaintiff proposed that $27,000 from the defendant’s share of the net proceeds of sale be put into a trust account pending resolution of the dispute. The defendant said that $50,000 from the proceeds of sale should be paid into the trust account. This was less than the amount which the plaintiff claimed he had incurred as expenses on the subdivision of the property. No agreement was reached and the property was not sold.

7 It was open to either party at any time to bring proceedings for the appointment of trustees for sale. The plaintiff’s claim for contribution would have then been dealt with. Because of the increase in the capital value of the property over the succeeding 13 years, neither party has been shown to have been prejudiced by the delay.

Claim for Interest

8 The plaintiff claimed interest either pursuant to s 100 of the Civil Procedure Act 2005 (NSW) or in equity’s inherent jurisdiction. Section 100 provides:

“ 100 Interest up to judgment

(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:
(a) on the whole or any part of the money, and
(b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect.
(2) In proceedings for the recovery of a debt or damages in which payment of the whole or a part of the debt or damages has been made after the proceedings commenced but before, or without, judgment being given, the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:
(a) on the whole or any part of the money paid, and
(b) for the whole or any part of the period from the time the cause of action arose until the time the money was paid.
(3) This section:
(a) does not authorise the giving of interest on any interest awarded under this section, and
(b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, and
(c) does not authorise the giving of interest in any proceedings for the recovery of money in which the amount claimed is less than such amount as may be prescribed by the uniform rules, and
(d) does not affect the damages recoverable for the dishonour of a bill of exchange.
(4) In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order.
(5) For the purposes of subsection (4), appropriate settlement sum means a sum offered in settlement of proceedings in which the amount for which judgment is given (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent. ”

9 The proceedings in which the plaintiff is entitled to an equitable accounting are proceedings for the appointment of trustees for sale. They are not proceedings for the recovery of a debt or damages within the meaning of subs 100(2). It is unnecessary to decide whether they could properly be characterised as proceedings for the recovery of money within the meaning of subs 100(1). Even if the proceedings are properly characterised as proceedings for the recovery of money, the only interest which can be awarded under subs 100(1) is interest for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. I will assume that the plaintiff’s right to an equitable accounting can be characterised as an equitable cause of action for the purposes of the section. That right did not arise when the expenditure was made or the work was done. The right only arises in a partition suit, or an application for the appointment of trustees for sale, or on a similar event which terminates the co-ownership of the land.

10 However, I accept the plaintiff’s submission that equity’s inherent jurisdiction to award interest extends to a case such as the present. There is an inherent equitable jurisdiction to award interest in a wide variety of cases where it is necessary to do justice between the parties (State Bank of New South Wales Ltd v Federal Commissioner of Taxation (1995) 62 FCR 371 at 380). The decision of Powell J (as his Honour then was) in Official Trustee in Bankruptcy v Ritchie (No. 2) (Supreme Court of New South Wales, 25 November 1988, unreported; BC8801284) is an example of an award of interest in a case such as the present.

11 The defendant did not submit that interest should not be allowed because the principal amount allowed plus interest would exceed the increase in value of the property attributable to the plaintiff’s expenditure and work. The increase in value attributable to the plaintiff’s expenditure and work substantially exceeded any amount which might be determined, whatever the rate at which interest is allowed.

12 Counsel for the defendant submitted that the rationale for awarding interest on a judgment for a money sum is that the defendant has had the use of the money and the plaintiff has been kept out of its use and should be compensated accordingly (Kalls Enterprises Pty Ltd (in liquidation) & Ors v Baloglow & Anor (No. 3) [2007] NSWCA 298 at [10]). He submitted that the defendant had not had use of the plaintiff’s money. Nor was the plaintiff deprived of his money by reason of any legal or equitable wrong committed by the defendant.

13 The reason the plaintiff did not recoup his expenditure and the value of his time is that the plaintiff did not agree to the property being sold on the terms proposed by the defendant. This would have involved the setting aside of $50,000 out of the net proceeds of sale to meet the plaintiff’s claim. The plaintiff took no steps to seek an order for the appointment of trustees for sale. The condition proposed by the defendant was reasonable and more than satisfied a claim the plaintiff could properly have brought. Notwithstanding that negotiations for the sale of the property foundered in 1997, the plaintiff did not bring proceedings in the Local Court claiming contribution until 2000. Those proceedings were struck out on 12 December 2003 for want of prosecution. The plaintiff then commenced proceedings in this court in 2004 but did not pursue them diligently. He breached numerous orders for the service of evidence such that by October 2007 the Registrar ordered that there be no further extension of the timetable for service of the plaintiff’s affidavits. Hence, counsel for the defendant submitted that the delay in the resolution of the proceedings was primarily attributable to the plaintiff.

14 There is some substance to the defendant’s submission. This is not a case in which the plaintiff should be compensated by an award of interest on the basis that the defendant has had the use of the plaintiff’s money or that by reason of the defendant’s wrong, the plaintiff has not had the use of that money. However another purpose of an award of interest is to compensate for the loss of the value of money through inflation. As Evatt J said in Estate of Dugac v Official Trustee in Bankruptcy (Federal Court of Australia, 6 February 1987, unreported; BC8701848):

“ There are sound reasons that the power to order contribution should also include the power to order interest payments upon that contribution. Money values quickly lose their value through inflation. The benefit given by a court when ordering one party to pay contribution to another would be greatly diminished if the court did not in fact maintain the true value of the actual contribution.”

15 A plaintiff who has wrongly been denied the use of his or her money by reason of the defendant’s wrong is entitled to interest not only to compensate for the loss of value of the money of which the plaintiff was deprived between the time of the wrong and the time of judgment, but also as compensation for not having the money to put to productive use. Commercial interest rates and the rates prescribed for the purposes of calculating interest to be included in judgments, or to be paid on judgments, exceed the inflation rate. So, often does the trustee rate. In the present case the plaintiff could only have obtained the use of the amount for which he is entitled as contribution by the property being sold and by missing out on his share of the increases in the market value of the property. Although at one stage the plaintiff was prepared to sell the property, he did not agree to terms stipulated by the defendant for the sale of the property which were reasonable having regard to the true value of his claim for contribution. Neither party sought the appointment of trustees for sale. Both stood to gain from the increase over time in the capital value of the property.

16 In these circumstances the appropriate exercise of the discretion to award interest is to award interest at a rate which compensates for the loss of value of money between 1996 and the date of judgment, but not to award interest either at the rates prescribed by Schedule 5 to the Uniform Civil Procedure Rules, nor at a trustee rate.

17 Between the March quarter in 1996 and the June quarter in 2009, the All Groups Consumer Price Index for Sydney increased from 119.1 to 166.3. (This information was not tendered. I take the figures from the website of the Australian Bureau of Statistics to which regard can be had pursuant to s 144(1)(b) of the Evidence Act 1995). This reflects an average annual increase of approximately 3 percent. Applying that index, the sum of $13,737 in March 1996 is worth $19,181 in June 2009.

18 To preserve the monetary value of the plaintiff’s contribution, the plaintiff should be awarded interest in the sum of $5,444 on the sum of $13,737. Another way of expressing this is that from the net proceeds of sale a sum of twice $19,181 (i.e. $38,362) should be paid to the plaintiff and the balance divided equally between the plaintiff and the defendant.

19 Because I have made this calculation in reliance on material used pursuant to s 144(1)(b) of the Evidence Act, the parties are entitled to make submissions and to refer to relevant information to ensure that neither is unfairly prejudiced by my use of that material (s 144(4)). I shall direct that the orders not be entered for 7 days, or, if either party within that period provides submissions or information to my Associate relating to the material referred to in para [17] or the calculation in paras [17] and [18], until further order.

Costs

20 Costs are in the discretion of the court (s 98, Civil Procedure Act). Costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs (Uniform Civil Procedure Rules, r 42.1). Counsel for the plaintiff submitted that he had succeeded in obtaining an order for contribution and was entitled to his costs. Counsel acknowledged that the plaintiff failed in respect of the majority of his heads of claim, but correctly submitted that the time spent during the hearing on the heads of claim other than the claim for contribution was minimal.

21 Even if it were accurate to characterise the “event” for the purposes of r 42.1 as being the plaintiff’s right to contribution, and even if no reasonable offers to settle the plaintiff’s claim had been made, I would not order the defendant to pay all the plaintiff’s costs. The plaintiff’s conduct as litigant in making an exaggerated claim and attempting to substantiate that claim by manufacturing and forging documents would warrant his being deprived of at least part of his costs. As I observed in my earlier reasons, the plaintiff’s conduct of his case must have increased the costs.

22 I do not accept that “the event” for the purposes of r 42.1 of the Uniform Civil Procedure Rules was the determination that the plaintiff was entitled to contribution out of the proceeds of sale for expenses incurred and work done in connection with the subdivision. The defendant did not dispute that the plaintiff was entitled to contribution for expenditure actually incurred, nor that he was entitled to reasonable contribution for work done. The defendant denied that the amount claimed by the plaintiff was reasonable. I substantially upheld the defendant’s submissions in relation to the quantum of the plaintiff’s claim. The plaintiff also failed on each of his other claims. In my view, the defendant should be regarded as the party who substantially succeeded in the proceedings.

23 Moreover, I concluded earlier in these reasons that had the plaintiff confined his claim to a reasonable sum there would have been no litigation.

24 For these reasons, notwithstanding that the defendant’s offer did not exceed the principal amount for which the plaintiff is entitled to contribution, I think the defendant is entitled to his costs of the proceedings.

25 Those costs were sought on the indemnity basis. Had the defendant made an offer of compromise which exceeded the plaintiff’s claim, the plaintiff’s misconduct as litigant would have justified an order for indemnity costs (Degmam Pty Ltd (in liq) v Wright (No. 2) [1983] 2 NSWLR 354). However, he did not. I decline to order costs on the indemnity basis. I will order that the plaintiff pay the defendant’s costs of the proceedings.

26 The defendant also seeks an order for interest on costs pursuant to s 101 of the Civil Procedure Act. The proceedings have been pending since 2004. There is no requirement before an order for payment of interest on costs is made that the court be satisfied that the circumstances of the case are out of the ordinary (Lahoud v Lahoud [2006] NSWSC 126 at [82]). There is no reason that the defendant should not be entitled to interest on the costs he has paid, to the extent they are recoverable on an assessment. As Campbell J (as his Honour then was) observed in Lahoud v Lahoud (at [84]), whilst an order could be made to allow interest only on such costs as the plaintiff has paid as are allowed on assessment, an order in that form might make a costs assessment itself more complex and expensive. I will adopt the course adopted in Lahoud v Lahoud for determining the amounts on which interest on costs is payable (see at [85]-[86]). As Campbell J noted in Lahoud v Lahoud, the orders should reserve the proceedings for further consideration in case the assessment of costs is delayed by the defendant such that it would not be reasonable that the plaintiff should continue to pay interest.

Orders

27 The parties were agreed as to orders to be made for the sale of the property without the appointment of trustees for sale. I will make orders accordingly. Because of the possibility of dispute in relation to the execution of the orders, I will reserve the proceedings for further consideration and grant liberty to apply.

28 For these reasons I make the following orders:

1. The plaintiff and the defendant shall forthwith do all things and sign all documents necessary to list the property at 39A Tristram Road, Beacon Hill (the “Property”) for sale and sell the property and in particular shall:

(a) place the Property with an estate agent in the area (the “Auctioneer”) for sale initially by private treaty for a period of three months and thereafter by auction at the earliest possible date and failing agreement as to the identity of such agent, with such agent as is nominated at the request of either party by the President of the Real Estate Institute of New South Wales, upon the application of either party;
(b) execute all documents requested by the Auctioneer for the sale of the Property by auction;
(c) request the Auctioneer to recommend a reserve price to be placed on the Property for the purpose of auction sale and accept such recommended reserve price;
(d) pay in equal shares to the Auctioneer any sum requested for advertising expenses in relation to the auction or any sale by private treaty;
(e) give such irrevocable instructions as are necessary to a solicitor nominated by the President of the Law Society of New South Wales for the preparation of a contract for sale of the Property (the “Contract”) and for the Contract to be made available to the real estate agent or the Auctioneer and to carry out the conveyancing of the sale of the Property and to apply the net proceeds in accordance with these orders;
(f) attend at the auction sale of the property and negotiate with the highest bidder in the event that the reserve price is not reached;
(g) accept the advice of the Auctioneer as to the acceptance of a price less than the reserve price or listed price;

(h) execute the contract for sale;

(i) cooperate in every way with the Auctioneer in relation to the auction of the Property including allowing inspection at all times requested by the Auctioneer and ensuring that the Property is in a neat and tidy condition at the time of inspection by prospective purchasers;


(j) execute all documents necessary to complete the sale.

2. In the event the Property is not sold:

(a) at an auction pursuant to these orders; or

(b) within seven days of the date of such auction by negotiation with the highest bidder at such auction,
the plaintiff and the defendant shall do all things and execute all documents necessary to cause a further auction of the Property within three months after the date of the first auction.


3. In the event that the property remains unsold after any such second auction as is referred to in the preceding order, the parties shall do all necessary acts and things to list the property for sale by private treaty, with the Auctioneer as agent, at a price to be agreed, and failing agreement, at a price nominated by the Auctioneer, and the parties shall otherwise undertake all such necessary steps as are set out in orders 1(a)-(j) hereof as though those steps related to the sale by private treaty, to effect a sale of the property by private treaty.

4. Upon the sale of the Property, the parties shall cause the proceeds of sale to be paid in the following manner and priority:

(a) in payment of adjustments relating to the sale of the property;
(b) in payment of agent’s commission and auction expenses if any due on the sale of the Property;


(c) in payment of legal costs on the sale of the Property;

(d) in payment of the sum of $38,362 to the plaintiff; and

(e) in payment of any balance then remaining equally to the plaintiff and the defendant.


5. Reserve the proceedings for further consideration and grant liberty to apply on reasonable notice.

6. Order that the plaintiff pay the defendant’s costs as assessed or agreed.

7. Order that the plaintiff pay to the defendant interest at the rates set out in Schedule 5 of the Uniform Civil Procedure Rules on the proportion (as calculated below) of each amount of costs and disbursements actually paid by the defendant from the date of payment of each such amount until such time as the plaintiff has paid to the defendant the amount due under any order made in these proceedings, or until any further order is made relating to interest on costs in these proceedings.

In this order the proportion of costs paid by the defendant on which interest is to run will be the proportion which the amount of costs and disbursements agreed to be payable or allowed on assessment pursuant to order 6 bears to the total amount of costs and disbursements the plaintiff has paid or is liable to pay to his legal advisors in connection with these proceedings.


8. Reserve further consideration of whether interest on costs should continue to run.

9. Exhibits may be returned after 28 days.

10. Grant leave to either party within seven days to make submissions or provide information in writing to my Associate (with a copy to the opposite party) relating to the material referred to in para [17] or the calculations in paras [17] and [18] of these reasons.

11. Direct that these orders not be entered for seven days. If within that period either party has made submissions pursuant to the leave granted in order 10, direct that these orders not be entered until further order.

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