Melbourne Property Group Investments (Mpgi) Pty Ltd as trustee for the Mpgi Trust v Knight 43 Martin Street Pty Ltd (No 2)
[2022] VSC 195
•7 April 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST – GARDE J
S ECI 2020 01360
| MELBOURNE PROPERTY GROUP INVESTMENTS (MPGI) PTY LTD (ACN 612 456 818) as trustee for the MPGI TRUST | Plaintiff/ Defendant by counterclaim |
| v | |
| KNIGHT 43 MARTIN STREET PTY LTD (ACN 612 790 351) (and others according to the Schedule attached) | Defendants/ Plaintiffs by counterclaim |
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 04396
S ECI 2021 04919
| KNIGHT 43 MARTIN STREET PTY LTD (ACN 612 790 315) as trustee for the KNIGHT 43 MARTIN STREET TRUST | Plaintiff |
| v | |
| MELBOURNE PROPERTY GROUP INVESTMENTS (MPGI) PTY LTD (ACN 612 456 818) as trustee for the MPGI TRUST (and another according to the Schedule attached) | Defendants |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16–19, 23–24 August 2021, 25 January 2022 |
DATE OF JUDGMENT: | 7 April 2022 |
CASE MAY BE CITED AS: | Melbourne Property Group Investments (MPGI) Pty Ltd as trustee for the MPGI Trust v Knight 43 Martin Street Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 195 |
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COSTS – General principles – Pragmatic or aggregate approach – Statutory interest – Supreme Court Act 1986 (Vic) s 60(1).
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S ECI 2020 01360
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/ Defendant by counterclaim | Mr C Brown with Ms A Tresise | Colin Biggers & Paisley |
| For the Defendants/ Plaintiffs by counterclaim | Mr M Peckham with Mr V Murano | Mills Oakley |
S ECI 2020 04396
S ECI 2021 04919
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Peckham with Mr V Murano | Mills Oakley |
| For the First Defendant | Mr C Brown with Ms A Tresise | Colin Biggers & Paisley |
| No appearance for the Second Defendant |
HIS HONOUR:
Introduction
In these reasons,[1] expressions defined in my judgment handed down on 16 February 2022 have the same meaning.[2] On that day, I made orders in proceeding S ECI 2020 01360 (‘main proceeding’) for rectification of the variation deed, and entered judgment for MPGI against Knight 43 and Mr Kavallero for damages in the amount of $2,118,822. The proceeding was dismissed as against Knight Homes, the third defendant. The counterclaim was also dismissed. I reserved for future decision the amount to be paid by way of statutory interest on the judgment and the costs of the proceeding.
[1]These reasons are revised from an oral judgment delivered on 7 April 2022.
[2]Melbourne Property Group Investments (MPGI) Pty Ltd as trustee for the MPGI Trust v Knight 43 Martin Street Pty Ltd [2022] VSC 41.
The outstanding issues are the award of interest under s 60(1) of the Supreme Court Act 1986 (Vic) and the costs orders to be made.
There are also two related proceedings for the removal of caveats where cost orders are sought by the parties. Firstly, there is proceeding S ECI 2020 04396 between Knight 43 and MPGI (‘Foote Street caveat proceeding’), where Knight 43’s costs, but not those of MPGI, were made costs in the cause in the main proceeding by a consent order made by Keogh J on 1 December 2020. Secondly, there is proceeding S ECI 2021 04919 (‘Martin Street caveat proceeding’), where an order was made in favour of Knight 43 for the removal of a caveat and costs were reserved.
Procedure
On 16 February 2022, I gave directions that MPGI was to file and serve any affidavits and submissions as to statutory interest and costs by 2 March 2022, and that the defendants were to file and serve any affidavits and submissions by 16 March 2022. MPGI was to file and serve any affidavits and submissions in reply by 23 March 2022.
MPGI filed its written submissions on 3 March 2022, together with an affidavit of Simon Francis deposed 2 March 2022. It also filed reply submissions on costs on 23 March 2022.
Knight 43 and Knight Homes filed written submissions on costs and interest on 15 March 2022, and an affidavit of Darren James with its exhibits on 22 March 2022.
The written submissions informed the Court that Philip Newman had been appointed as controlling trustee under the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’) for Mr Kavallero, and that Mills Oakley, who had previously acted for Mr Kavallero, had no instructions from Mr Newman to continue to act for Mr Kavallero.
In a further affidavit filed on 24 March 2022, Mr James, a partner of Mills Oakley, deposed that Mr Newman had been appointed as Mr Kavallero’s controlling trustee under s 188 of the Bankruptcy Act on 10 March 2022, and that Mills Oakley’s engagement to act for Mr Kavallero was terminated on 24 March 2022. Mr James sought leave to file and serve a notice that his firm had ceased to act for Mr Kavallero in accordance with r 20.03(3) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
On 25 March 2022, I ordered that, subject to the addition of the email addresses of Mr Kavallero and Mr Newman to the notice, Mills Oakley have leave to file and serve a notice that they had ceased to act for Mr Kavallero. Mills Oakley filed a notice of ceasing to act with the requisite information on 28 March 2022.
Subsequently, the Court asked Mr Newman and Mr Kavallero whether they wished to be heard on the questions of interest and costs. Mr Newman responded by a letter dated 28 March 2022, acknowledging receipt of email correspondence from the Court and advising that he did not intend to appear and would abide by an order made by the Court. Mr Kavallero responded by email dated 4 April 2022, confirming that he would not be appearing.
As a result, the Court is assisted in determining the amount of statutory interest to be ordered, and the question of costs, by the written submissions and affidavits filed by MPGI and by Knight 43 and Knight Homes.
Statutory interest
I turn first to the award of statutory interest. In his affidavit filed 3 March 2022, Mr Francis calculates the amount of interest to which MPGI is entitled under s 60(1) of the Supreme Court Act 1986 (Vic), at the currently prevailing penalty interest rate of 10% per annum, as the amount of $430,290.80. The claim for statutory interest, and the amount of statutory interest, is not contested by any of the defendants.
I accept that Mr Francis’s calculations are correct and properly calculate the statutory interest due to MPGI. I will order that Knight 43 and Mr Kavallero pay statutory interest to MPGI fixed at $430,290.80.
Costs
Relevant principles
The Court has a broad discretionary power to make orders as to costs.[3] The Court’s discretion is unfettered, but is exercised judicially upon facts connected with the litigation and not by reference to irrelevant or extraneous considerations.[4] Although costs are in the discretion of the Court, the ordinary rule is that in the absence of sound reasons to the contrary a successful litigant should receive his or her costs.[5] The purpose of an order for costs is to compensate the successful party and not to punish the unsuccessful party.[6]
[3]Supreme Court Act 1986 (Vic) s 24(1); Civil Procedure Act 2010 (Vic) s 65C; Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 63.
[4]Latoudis v Casey (1990) 170 CLR 534, 557 (Dawson J) (‘Latoudis’); Oshlack v Richmond River Council (1998) 193 CLR 72, 86 (Gaudron and Gummow JJ) (‘Oshlack’).
[5]Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460, 477 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ).
[6]Latoudis (n 4), 562–3 (Toohey J), 567 (McHugh J).
The principle that a party successful in litigation is entitled to an award of costs is grounded in reasons of fairness and policy. If the litigation had not been brought or defended by the unsuccessful party, the successful party would not have incurred the costs which it did.[7]
[7]Oshlack (n 4), 97 (McHugh J).
Where there are a multiplicity of issues and mixed success has been enjoyed by the parties, the Court may take a pragmatic approach to costs, taking into consideration the success or lack of success of the parties on an issue basis. Such an approach will primarily be a matter of impression and evaluation.[8] The Court also has the power to set the division of costs to reflect to an appropriate degree the success of the parties on the relevant issues, but also to reflect, at the end of the day, that the plaintiff was successful.
[8]Nom de Plume Nominees Pty Ltd v Fingal Developments Pty Ltd (No 2) [2016] VSCA 233, [13], citing Chen v Chan (No 2) [2009] VSCA 233, [10].
MPGI’s submissions
MPGI contended that, as the successful party, it should have the costs of the main proceeding, including the costs of the counterclaim, as well as the costs of the two caveat proceedings. It said that there should be no order for costs as between MPGI and Knight Homes. MPGI’s main submissions were:
(a)As the successful party it should recover its costs even if it has not succeeded on all heads of claim.[9]
(b)MPGI was successful on nearly all of its claims against Knight 43 and Mr Kavallero, and in respect of the counterclaim.
(c)The two trial issues on which MPGI was unsuccessful related to the existence of a side agreement and whether a lease is an encumbrance. They were minor and inconsequential and did not affect the relief ultimately awarded to MPGI.
(d)The costs of the main proceeding were predominantly due to the need to respond to the numerous defences raised by Knight 43 and Mr Kavallero.
(e)Many of these defences lacked a legal or factual basis.
(f)Knight 43 and Mr Kavallero’s counterclaims were unsuccessful.
(g)The Court found that some aspects of Mr Kavallero’s oral evidence were extraordinary and defied logic and common sense, or were inherently implausible or impossible and had the hallmarks of reconstruction.
(h)The Court concluded that Mr Pelchen had been cooperative throughout the parties’ dealings and that he had a clear recollection of the events and discussions that took place during the project.
[9]Relying on Chen v Chan (No 2) [2009] VSCA 233, [10].
As to the costs of its unsuccessful claims against Knight Homes, MPGI submitted that an aggregate approach should be applied by the Court. MPGI noted that:
(a)Mr Kavallero was the controlling mind of Knight Homes.
(b)Knight Homes had a minor role in the allegations and the main proceeding generally.
(c)Knight Homes did not run any separate defence to the main proceeding, but merely latched onto the defences raised by the other defendants.
(d)Knight Homes was represented by the same counsel and solicitors as Knight 43 and Mr Kavallero.
(e)It was not appropriate for the parties to spend time or money taxing the costs of Knight Homes.
(f)An aggregate approach would best achieve justice between the parties.
As to the caveat proceedings, MPGI submitted that:
(a)The proceedings were issued as a direct result of Knight 43 entering into contracts for the sale of the Foote Street and Martin Street apartments without the consent of MPGI.
(b)MPGI nonetheless cooperated and removed its caveat over the Foote Street apartment on the condition that Knight 43 pay MPGI $250,000 on settlement and the remainder in reduction of the Equity-One facility, and on the condition that the Equity-One facility would not be increased beyond the amount to which it was reduced at settlement.
(c)The agreement reached was subsequently disregarded by Knight 43.
(d)The Martin Street apartment was sold without the consent of MPGI, despite numerous attempts by MPGI to reach a consent position with Knight 43.
(e)Knight 43 sold the Martin Street apartment, and only informed MPGI of the sale after the fact.
(f)The effect of filing the Martin Street caveat proceeding was to make MPGI aware that Knight 43’s indebtedness to Equity-One had increased over the amount previously agreed.
(g)The caveat proceedings should be seen in the wider context of the main proceeding. Knight 43 had effectively asked the Court to give effect to the sale of the apartments in circumstances ultimately held to be in breach of the variation deed.
Submissions by Knight 43 and Knight Homes
Knight 43 and Knight Homes acknowledged that Knight 43 and Mr Kavallero should pay MPGI’s costs of the main proceeding on the standard basis, including the costs of the counterclaim, subject to the following:
(a)The recoverable costs should be reduced by the costs relating to MPGI’s claim against Knight 43 and Knight Homes in relation to variations to the building contract.
(b)MPGI should pay 10% of the defendants’ joint costs to Knight Homes.
(c)MPGI should pay costs to Knight Homes and Knight 43 insofar as they relate to the building contract claim on the standard basis.
(d)MPGI should pay Knight 43’s costs of the caveat proceedings on the standard basis.
As to the costs of the caveat proceedings, Knight 43 submitted that:
(a)While the costs of the Foote Street caveat proceeding are costs in the cause in the main proceeding, they ought nonetheless be awarded to Knight 43.
(b)The costs of the Martin Street caveat proceeding should also be awarded to Knight 43.
(c)The fact that Knight 43 did not succeed in the main proceeding is not a reason to deprive it of the costs of the caveat proceedings.
(d)There was no finding that clause 4.5(c) of the variation deed gave rise to a caveatable interest, other than as chargee, or that it was capable of specific performance.
Decision
As the successful party, it is plain that MPGI should have the costs of the main proceeding, including the costs of the counterclaim. This is not contested by Knight 43. MPGI was successful as to most of the claims that it made, and it was entirely successful on the counterclaim.
I accept MPGI’s submission that the award of costs should be approached in a pragmatic or aggregate way, and that this will best achieve justice between the parties. I also agree that it is inappropriate for the parties to spend time and money taxing costs for individual claims made in the proceedings, or taxing the costs incurred by Knight Homes (which is a company owned and controlled by Mr Kavallero).
While Knight Homes was successful in defending the claims brought against it, I find that it had a minor role in the main proceeding and was represented by the same legal team as Knight 43 and Mr Kavallero. I also accept that there is little to suggest that Knight Homes incurred costs additional to those incurred by Knight 43 and Mr Kavallero. I conclude, as to Knight Homes, that while some allowance should be made in the final costs order, the allowance should be small.
The defendants suggested that MPGI should pay Knight Homes 10% of the defendants’ overall costs. MPGI strongly objected to this on the basis that the figure was arbitrary and that there was no evidence that Knight Homes actually spent any money in responding to MPGI’s claims.
In my view, it is appropriate to make some allowance in the final costs order for the position of Knight Homes, but not to make a costs order in its favour given its ownership and control by Mr Kavallero. The caveat removal proceedings are inextricably linked to the main proceeding, and took place as a consequence of Knight 43’s sale of the apartments for under $4.5 million, despite its covenant in clause 4.5(c) of the variation deed not to do so without obtaining MPGI’s prior written consent.
The sale of the apartments conferred on third parties legally enforceable contractual rights against Knight 43, and assisted Knight 43 and Mr Kavallero to reduce the financial pressures of the Equity-One facility. They acted without regard to their obligations to MPGI under the variation deed. In my view, the caveat proceedings should be treated as part of the litigation of the principal disputes between the parties, and not as separate proceedings in their own right.
By a consent order made on 1 December 2020, the parties agreed to discontinue the Foote Street caveat proceeding on the basis that Knight 43’s costs of and incidental to the proceeding were costs in the cause in the main proceeding. No like order was made for MPGI’s costs. As a result, no costs order can be made in favour of MPGI in relation to the Foote Street caveat proceeding as it has been discontinued by consent. I would not contemplate a costs order in favour of Knight 43 in the Foote Street caveat proceeding for the reasons which follow.
The judgment in the main proceeding deals with the sale of the apartments at considerable length, finding that Knight 43 acted wrongly and in breach of clause 4.5(c) of the variation deed when it sold the apartments in the way that it did. It is in the interests of justice that the costs order, to the extent possible, reflects the fact that Knight 43 was acting in breach of contract when it sold the apartments and that MPGI was well within its rights to object to the breach by Knight 43.
It is also relevant that the caveat over the Foote Street apartment was withdrawn on the basis of a payment by Knight 43 to MPGI from the sale proceeds and an undertaking not to further encumber the Martin Street apartment, which undertaking was subsequently dishonoured. By the time that the Martin Street apartment was sold, Knight 43 was in serious and continuing default of the Equity-One facility and at imminent risk of foreclosure. There was no alternative other than for the sale of the Martin Street apartment to proceed.
As only Knight 43’s costs of the Foote Street caveat proceeding have been made costs in the cause in the main proceeding as a result of an agreement between the parties, it is not open to me to award costs in favour of MPGI. However, it is fair and just that MPGI have the costs of the Martin Street caveat proceeding. It was successful overall, and the Martin Street apartment sale was in breach of its contractual rights.
Scale of costs
No party sought to be awarded costs on an indemnity costs. In my view, the costs orders to be made should be taxed at the standard rate.
Conclusion
Doing my best to weigh up the relevant factors and the matters raised by the parties in their submissions, and adopting a pragmatic or aggregate approach, I conclude that MPGI should be awarded 90% of its costs of the main proceeding, including the counterclaim, and the Martin Street caveat proceeding. This order will permit MPGI to bring in a bill of costs relating to the main proceeding and the Martin Street caveat proceeding and to avoid the need for separate or conflicting taxations.
Orders
Orders will be made for the payment by Knight 43 and Mr Kavallero to MPGI of statutory interest in the amount of $430,290.80, and for MPGI’s costs of the main proceeding, including the counterclaim and including the Martin Street caveat proceeding, to be taxed on the standard basis and when taxed paid as to 90% by Knight 43 and Mr Kavallero. I will make other consequential orders in the main proceeding and the Martin Street caveat proceeding. There is no need for any further order in the Foote Street caveat proceeding.
SCHEDULE OF PARTIES
S ECI 2020 01360
| MELBOURNE PROPERTY GROUP INVESTMENTS (MPGI) PTY LTD (ACN 612 456 818) as trustee for the MPGI TRUST | Plaintiff/ Defendant by counterclaim |
| - and - | |
| KNIGHT 43 MARTIN STREET PTY LTD (ACN 612 790 351) | First Defendant/ First Plaintiff by counterclaim |
| KAVALLERO, RONEN | Second Defendant/ Second Plaintiff by counterclaim |
| KNIGHT HOMES PTY LTD (ACN 121 402 480) | Third Defendant |
S ECI 2020 04396
| KNIGHT 43 MARTIN STREET PTY LTD (ACN 612 790 315) as trustee for the KNIGHT 43 MARTIN STREET TRUST | Plaintiff |
| - and - | |
| MELBOURNE PROPERTY GROUP INVESTMENTS (MPGI) PTY LTD (ACN 612 456 818) as trustee for the MPGI TRUST | First Defendant |
| REGISTRAR OF TITLES | Second Defendant |
S ECI 2021 04919
| KNIGHT 43 MARTIN STREET PTY LTD (ACN 612 790 315) as trustee for the KNIGHT 43 MARTIN STREET TRUST | Plaintiff |
| - and - | |
| MELBOURNE PROPERTY GROUP INVESTMENTS (MPGI) PTY LTD (ACN 612 456 818) as trustee for the MPGI TRUST | First Defendant |
| REGISTRAR OF TITLES | Second Defendant |
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