Mavridis v Solagna & Ors (No 2) No. DCCIV-96-1050 Judgment No. D90

MAVRIDIS v SOLAGNA & ORS (No. 2)
[1999] SADC 90

Judge Robertson
Civil

The Plaintiffs claim pre-judgment interest on the Judgment sum pursuant to Section 39 of the District Court Act 1991. The Judgment sum consists of two components. The first is the sum of $25,995 damages representing the purchase price of $25,000 paid for the business of the White Rooster and $995 settlement costs. These amounts were paid by the Plaintiffs at settlement which took place on 27 February 1995. The second component of $6987.70 represents a sum equal to the amount of damages which the Plaintiffs are required to pay to the First Defendants on the Counterclaim resulting from the Plaintiffs’ breach of the Lease. I explained the reason for including this amount in the Plaintiffs award of damages in my Reasons for Judgment. It is clear that the Plaintiffs are entitled to interest on the Judgment sum. However, the two components require separate treatment in determining the amount of interest to be paid.
With respect to the first component of $25,995, in my opinion, interest should be calculated from 27 February 1995, being the date of settlement. The Plaintiffs have been wrongfully kept out of their money since that time. However, in calculating the amount of interest, in my view, it is necessary to take into account that the Plaintiffs were receiving proceeds from the conduct of the business White Rooster from that date until they vacated the premises on 25 September 1995. Counsel for the Plaintiffs provided me with Schedules containing various calculations of interest. In making those calculations the Plaintiffs have adopted the interest rates in the Third Schedule to the District Court Rules as they varied during the period from 27 February 1995 to the date of Judgment. In my view the relevant interest rates in the Third Schedule as varied from time to time are the appropriate rates. Taking into account the matters I have referred to there will be a sum of $8,000 by way of interest on the first component of the Judgment sum.
With respect to the second component of the Judgment sum it is necessary to calculate it as if it was the First Defendants’ damages. This is so because justice demands that interest on this component should be the same amount of interest as that payable to the First Defendants for damages on the counterclaim. In my opinion, the commencing date for the purpose of calculating the interest on this component of the Judgment sum is the date the Plaintiffs vacated the premises, namely 25 September 1995. By this time most of the losses suffered by the First Defendants as a result of the Plaintiffs breach of the Lease had been incurred. The rates of interest should be those contained in the Third Schedule, as varied, relevant to the period from 25 September 1995 to the date of Judgment. Although some small portion of the damages related to the period after 25 September 1995 this is counterbalanced by the fact that some of the losses were incurred prior to that date. In my opinion there should be interest amounting to $1400 awarded for the second component of the Judgment sum.
I therefore order that in addition to the Judgment sum, that the Defendant Lui Solagna pay to the Plaintiffs interest amounting to $9,400.
It was submitted by Mr Sallis, Counsel for Lui Solagna, that the Second Defendant, Mr Milburn, should indemnify Lui Solagna for the amount of interest he is obliged to pay to the Plaintiffs. In the Contribution proceedings brought by the Defendant Lui Solagna against the Second Defendant I have ordered that the Second Defendant indemnify and pay to Lui Solagna the amount of $32,937.70 which Lui Solagna is required to pay to the Plaintiffs pursuant to the Judgment. In the Contribution proceedings brought by Lui Solagna against the Second Defendant he sought a full indemnity from any liability he incurred to the Plaintiffs. Section 39 of the District Court Act 1991 provides that a party in whose favour a monetary judgment has been given is to have included in the judgment an award of interest in accordance with the Section. It follows, in my view, that Lui Solagna is entitled to be indemnified by the Second Defendant for the interest he is required to pay to the Plaintiffs in addition to the damages he is obliged to pay. Accordingly, I order that the Second Defendant indemnify and pay to the Defendant Lui Solagna the amount of $9400 which Lui Solagna is required to pay to the Plaintiffs by way of interest.
With respect to pre-judgment interest to be paid on the sum of $6,987.70 damages which the Plaintiffs are required to pay to the First Defendants on the Counterclaim I order payment of the sum of $1,400 for the reasons I have earlier outlined. This sum is to be paid by the Plaintiffs to the First Defendants.
I now turn to the question of costs in this action. Before considering that question it is appropriate to summarise the results of the various proceedings. The Plaintiffs have obtained judgment against Lui Solagna, one of the First Defendants for the amount of $32,937.70. The Second Defendant, Mr Milburn, has been successful in defending the Plaintiffs claim against him. The Third and Fourth Defendants, Mr Karafotias and Karafotias Conveyancing, have also been successful in that the Plaintiffs’ respective claims against them have been dismissed. The three First Defendants (“the Solagna Family”) have obtained judgment on their Counterclaim against the Plaintiffs for the sum of $6,987.70. The Defendant, Lui Solagna has obtained judgment on the Contribution Notice issued against the Second Defendant, Mr Milburn. The effect of that judgment, is that Mr Milburn is to fully indemnify the Defendant, Lui Solagna, with respect to the Judgment sum he is required to pay to the Plaintiffs. Finally, the remainder of the Contribution Notices have been dismissed.
Section 42 of the District Court Act 1991 and Rule 101 of the District Court Rules provide that the Court has a discretion in awarding costs in an action. That discretion is unfettered although it must be exercised judicially, not arbitrarily or capriciously (Cretazzo v Lombardi (1975) 13 SASR 4 at 11).
There is nothing to suggest that the general rule that a successful party should be awarded costs should not apply here. If that principle is applied then in the first instance the Defendant, Lui Solagna, should bear the Plaintiffs costs of the action. The Plaintiffs should bear the costs of the successful Third and Fourth Defendants. The Plaintiffs should also bear the costs of the Solagna Family on the Counterclaim. I pause here to mention that the Second Defendant, Mr Milburn, does not seek from the Plaintiffs the costs of his successful defence of the Plaintiffs’ claim. Finally, if the general rule is applied then the Second Defendant, Mr Milburn, should bear the costs of the Defendant, Lui Solagna with respect to the Contribution proceedings brought against him by Lui Solagna.
In my opinion, it would also be appropriate for there to be a Bullock order requiring the defendant Lui Solagna to indemnify the Plaintiffs for the costs they are required to pay to the Third and Fourth Defendants. Lui Solagna disputed the Plaintiffs’ claim on the basis that the contract entered into for the purchase of the business of the White Rooster was not a contract for the sale of a small business within the meaning of the Land Agents Brokers and Valuers Act, 1973, (“the Act”) and accordingly he was not required to provide a Vendors’ Statement pursuant to the Act. It was the Plaintiffs’ case that they entered into a contract for the sale of a small business. The Plaintiffs had retained the Fourth Defendant, Karafotias Conveyancing, through its director, the Third Defendant, Mr Karafotias to act for them in their purchase of the business of the White Rooster. In my view, it was entirely reasonable for the Plaintiffs to join the Third and Fourth Defendants in the litigation. The Plaintiffs asserted that if they did not enter into a contract for the sale of a small business then the Third and Fourth Defendants were negligent in not ensuring that the contract they entered into was for the sale of a small business within the meaning of the Act. In my opinion, the joining of the Third and Fourth Defendants in the action became necessary as a result of the assertion by Lui Solagna that the contract was not the sale of a small business and he was therefore not obligated to provide a Vendors’ Statement. In those circumstances, the conduct of Lui Solagna was such as to make it fair that liability be imposed upon him to bear the costs of the Third and Fourth Defendants (Fennell v Supervision and Engineering Services Holding Pty Ltd (1988) 47 SASR 6 at pp 7-8; Gould v Vaggelas (1983-1985) 157 CLR 215 at 229-230 and 246-247).
All which I have said so far was not the subject of serious dispute by any of the parties. Mr Dart, Counsel for the Plaintiffs, faintly argued that the Plaintiffs should not be required to bear the costs of the Third and Fourth Defendants. I reject that argument. However, Mr Sallis submitted that the Second Defendant, Mr Milburn should ultimately bear the costs of all the parties in the action. Whilst he did not dispute that Lui Solagna should bear the costs of the Plaintiffs and the Third and Fourth Defendants (through a Bullock order) he submitted that those costs and the costs Lui Solagna incurred in defending the Plaintiffs’ action should be borne by Mr Milburn, in addition to the costs Mr Milburn is obliged to pay Lui Solagna on the Contribution proceedings. It was also Mr Darts’ submission that the Second Defendant, Mr Milburn should also ultimately bear the costs which the Plaintiffs are liable to meet on the Counterclaim of the Solagna Family. Mr Sallis submitted, that a Sanderson order or orders were the most practical way of giving effect to any decision that the Second Defendant bear all the costs of the action. Mr Di Fazio, Counsel for the Second Defendant, opposed this application. It is this issue which requires resolution.
In considering this issue, for reasons I will explain shortly, the costs with respect to the Counterclaim should be considered separately from the remaining costs. In determining the question of whether the Second Defendant should ultimately bear all the costs (other than the costs on the Counterclaim), it seems to me that there are a number of factors relevant to the exercise of the discretion. The first is that the effect of the Judgment on the Contribution Notice is that the Second Defendant, Mr Milburn, bears liability for all the damages resulting from the Plaintiffs purchase of the business of the White Rooster from Lui Solagna. As I have already mentioned those damages comprise not only the Plaintiffs loss of the purchase price and expenses but also the damages the Plaintiffs are required to pay to the Solagna Family as a result of their breach of the Lease. Secondly, it was the wrongful act of Mr Milburn, being the negligent advice he gave to Lui Solagna, which led to those damages. I found that Lui Solagna relied entirely on the advice of Mr Milburn regarding the marketing and sale of the White Rooster. It was his advice to structure the written agreement dated 16 February 1995 in the form of a sale of plant and equipment. It was his advice in so doing that Lui Solagna was not selling a small business within the meaning of the Act. It was his advice that a Vendors’ Statement was not required to be served upon the Plaintiffs.
A further relevant factor is that in the proceedings the Second Defendant, Mr Milburn, asserted that the written agreement dated 16 February 1995 represented the agreement between the parties and that it was not a contract for the sale of a small business within the meaning of the Act. He also asserted, that as a result, Lui Solagna was not required to serve a Vendors’ Statement and thus the Plaintiffs were not entitled to any damages for failure to serve such a Statement. In other words, it was the Second Defendant’s first line of defence in the Contribution proceedings that he was not liable to Lui Solagna because the Plaintiffs were not entitled to any damages from Lui Solagna. Expressed another way, he relied upon and sought to obtain the benefit of the defence advanced by Lui Solagna in the proceedings.
In my opinion, the correct approach to the question as to whether the Second Defendant should ultimately bear the costs is from the position of the Second Defendant as a “third party” pursuant to the Contribution Notice proceedings brought by Lui Solagna. Mr Sallis submitted that such liability for costs should be made in the form of a Sanderson order or orders. That would require a consideration of the issue from the position of Mr Milburn as a defendant and not as a “third party”. I do not consider that the circumstances here lend themselves to the making of a Sanderson order. A Sanderson order requires an unsuccessful defendant to pay the costs of a successful defendant directly. Here the Second Defendant is a successful defendant in the sense that the Plaintiffs’ claim against him was dismissed. Furthermore, Lui Solagna is an unsuccessful defendant in that the Plaintiffs obtained Judgment against him. However, with regard to the Contribution Notice proceedings Lui Solagna was the successful party and the Second Defendant was the unsuccessful party.
In my view, although I am approaching the issue from the position that the Second Defendant is an unsuccessful “third party”, some guidance in the exercise of the discretion can be obtained by the reasoning that is often behind the making of a Bullock order. That reasoning commences with the position that it is the unsuccessful defendant who caused the litigation by his wrongful act and by disputing liability for it. Accordingly, it is just that the unsuccessful defendant should be liable for the costs reasonably incurred by the plaintiff. Furthermore, the conduct of the unsuccessful defendant is often also taken into account in determining whether it would be fair to impose liability for the costs of the successful defendant on the unsuccessful defendant instead of the plaintiff (see: Gouldsupra at page 229). In Fennell King CJ (at page 8) felt that included in the “conduct” which could be taken into account in the exercise of the discretion was the commission of the wrongful act which led to the litigation.
Here, as I mentioned earlier, it was the Second Defendant’s wrongful act which has led to the litigation. The Second Defendant is also an unsuccessful party in that as a result of the Contribution proceedings he is the party liable to meet all the Plaintiffs damages. Whilst the Defendant Lui Solagna was also an unsuccessful party, he was successful through the Contribution proceedings in making the Second Defendant the party ultimately liable for the damages suffered by the Plaintiffs. Further, although the Second Defendant did not directly cause the litigation by disputing the Plaintiffs claim in the sense expressed in Fennell, his advice to Lui Solagna was the basis upon which Lui Solagna disputed the Plaintiffs’ claim.
I also mentioned earlier that, in my opinion, a relevant factor in considering the exercise of the discretion is that the Second Defendant sought to obtain the benefit of Lui Solagna’s defence to the Plaintiffs’ claim. It was his first line of defence to avoid any liability arriving at his doorstep. Despite the benefit which the Second Defendant sought to obtain through Lui Solagna’s defence he asserts that Lui Solagna should bear the Plaintiffs costs, the costs of the Third and Fourth Defendants and his own costs in defending the Plaintiffs’ action. This seems to be unjust particularly when it is seen in the light that it is the Second Defendant who is ultimately liable to meet the Plaintiffs’ damages not Lui Solagna. In my view, the injustice is further heightened when viewed against the background that the litigation arose as a result of the Second Defendant’s advice, which Lui Solagna relied upon, and that Lui Solagna defended the Plaintiffs’ claim on the basis of that advice.
In my opinion, for the reasons I have expressed, justice dictates that the Second Defendant should ultimately bear the Plaintiffs’ costs and the Third and Fourth Defendants’ costs which Lui Solagna is liable to meet. It also dictates that the Second Defendant should bear the costs of Lui Solagna in defending the Plaintiffs’ claim.
I now turn to consider whether in the exercise of the discretion the Second Defendant should ultimately bear the costs the Plaintiffs are required to pay to the Solagna Family, the First Defendants, arising from the Counterclaim. These costs need to be considered separately as they are not costs which Lui Solagna is liable to meet. As I stated earlier, the damages awarded on the Counterclaim arose as a result of the Plaintiffs vacating the premises of the White Rooster on 25 September 1995 and as a result they breached the terms of the Lease. In my Reasons for Judgment I found that the Plaintiffs would not have purchased the White Rooster business if they had received a Vendors’ Statement from Lui Solagna containing the relevant financial information of the business. It is to state the obvious to say that there would not have been any Lease between the Plaintiffs and the First Defendants in those circumstances. In my opinion, it is clear that the wrongful act of the Second Defendant in giving Lui Solagna the negligent advice is the root cause which has led to the Plaintiffs incurring a liability for damages to the Solagna Family. As I mentioned those damages compose part of the damages which the Second Defendant is ultimately liable to pay as a result of his liability in the Contribution proceedings. In those circumstances, in my view, it would be unjust for the Plaintiffs to be required to meet the costs of the First Defendants on the Counterclaim. Justice requires that the Second Defendant ultimately bear the First Defendants’ costs on the Counterclaim.
Finally, I should mention that all costs required to be paid in this action are to be on a party and party basis. None of the parties suggested otherwise.

I therefore make the following cost orders:-
1. . That the Defendant, Lui Solagna pay the Plaintiffs costs.
2. . That the Plaintiffs pay the costs of the Third and Fourth Defendants.
3. . That the Defendant Lui Solagna pay to the Plaintiffs the costs they are required to pay to the Third and Fourth Defendants.
4. . That the Plaintiffs pay to the First Defendants their costs on the Counterclaim.
5. . That the Second Defendant pay to Lui Solagna his costs of the Contribution proceedings issued by the First Defendants against the Second Defendant.
6. . That the Second Defendant pay to the First Defendants the costs of defending the action taken by the Plaintiffs.
7. . That the Second Defendant pay to the Defendant Lui Solagna the costs that Lui Solagna is required to pay to the Plaintiffs which costs include the costs of the Third and Fourth Defendants.
8. . That the Second Defendant pay to the Plaintiffs the costs the Plaintiffs are required to pay to the First Defendant on the Counterclaim.
9. . That there be no order as to costs with respect to the Second Defendant’s defence of the Plaintiffs’ claim.
10. That there be no order as to costs with respect to any other Contribution Notice proceedings.

[1999] SADC 90

9 July 1999