Morris Finance Pty Ltd v Commonwealth Bank of Australia (Costs)
[2017] VSC 348
•19 June 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 05576
| MORRIS FINANCE LTD (ACN 083 630 139) | Plaintiff |
| v | |
| COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) (and others according to the schedule attached) | First Defendant |
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JUDGE: | DERHAM AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 April 2017 and subsequent written submissions |
DATE OF JUDGMENT: | 19 June 2017 |
CASE MAY BE CITED AS: | Morris Finance Pty Ltd v Commonwealth Bank of Australia and Ors (Costs) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 348 |
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COSTS – Application for payment out of funds in court – Competing equitable interests in the proceeds of the sale of land – General rule that successful litigant should receive their costs – Costs wasted by plaintiff – Calderbank offer – Whether rejecting offer was unreasonable in the circumstances – Whether circumstances warrant a costs order.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Yam, solicitor, by written submission | SLF Lawyers |
| No appearance for the First Defendant | ||
| No appearance for the Second Defendant | ||
| For the Third Defendant | Mr A Harris, solicitor, by written submission | Harris Carlson Lawyers |
| For the Fourth Defendant | Ms Courtney Craig, by written submission | Morgan Conley Solicitors Pty Ltd |
HIS HONOUR:
These reasons concern the costs of a trial in which the plaintiff (‘Morris’) and the fourth defendant (‘GoGetta’) sought payment out of Funds in Court of monies due to them by Susan Alameddine, secured by charges over a property at 136 Lisbon Road, Fairfield East, New South Wales (‘Property’). The proceeds of the sale of that Property had been paid into this Court by the first mortgagee, the Commonwealth Bank of Australia (‘CBA’).
I delivered reasons for judgment on 18 May 2017.[1] I found that Morris had the prior equity in the proceeds of the sale of the Property and had established its judgement debt of $78,389.72 plus interest to 29 April 2016 in the sum of $17,646.55 and legal costs of $66,098.46. I concluded, however, that the legal costs of Morris should be reduced by $13,000.00 because Morris had changed the basis upon which it made its claim at the last minute and approximately 25 per cent of its professional legal costs ought not to have been incurred and should not be recovered.
[1]Morris Finance Pty Ltd v Commonwealth Bank of Australia & Ors [2017] VSC 260.
I indicated that I would allow short written submissions as to the appropriate order, including the interest on the Morris judgement debt since 29 April 2016 and the costs of the proceeding. Morris and GoGetta have made written submissions as has the third defendant, who is the official trustee in bankruptcy of the bankrupt estate of Ms Alameddine (‘Trustee’).
Applicable Law
The starting point is the Court’s general power as to costs. Unless otherwise expressly provided by any Act or by the Rules,[2] the costs of and incidental to all matters in the Supreme Court are in the Court’s discretion and the Court has full power to determine by whom and to what extent the costs are to be paid.[3]
[2]Supreme Court (General Civil Procedure) Rules 2015.
[3]Supreme Court Act 1986 (Vic) s 24(1).
The discretion regarding costs has been described as absolute, unconfined or unfettered, although that discretion must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation.[4]In the exercise of the discretion, practices or guidelines have been developed.[5] These practices or guidelines are not legal rules that confine the exercise of the discretion.[6]
[4]See for example Latoudis v Casey (1990) 170 CLR 534, 537; cited with approval in Oshlack v Richmond River Council (1998) 193 CLR 72, 86 (‘Oshlack’).
[5]Oshlack, 86.
[6]Norbis v Norbis (1986) 161 CLR 513, 537; Oshlack, 86.
Although costs are in the discretion of the Court, there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary, a successful litigant should receive his or her costs.[7] It is not, however, a legal rule devised to control the exercise of the discretion.[8] The defendant conceded that the general rule applied in this case so that it was appropriate that the defendant be ordered to pay the plaintiffs’ costs, but only on a standard basis.
Calderbank offer
[7]Ritter v Godfrey [1920] 2 KB 47, 52; Donald Campbell and Co Ltd v Pollak [1927] AC 732, 809; Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460, 477.
[8]Oshlack, 86 [35].
In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[9] the Victorian Court of Appeal said in relation to Calderbank offers that the critical question was whether the rejection of the offer was unreasonable in the circumstances. Deciding whether conduct is unreasonable involves matters of judgment and impression. The Court in Hazeldene held that, when considering whether the rejection of a Calderbank offer was unreasonable, a court should ordinarily have regard at least to the following matters:
[9](2005) 13 VR 435, 441–442 [23]–[26]; Settlement Group Pty Ltd v Purcell Partners (a Firm) (no 2) [2014] VSCA 68 [5].
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.
Submissions
Morris submitted that the orders should be as follows:
(a) the following sum be paid from Common Fund No. 1 and debited to Account No. 79413:
(i) to the plaintiff the sum of $164,801.00;
(ii) to the fourth defendant an amount equal to the balance of the Account-
but subject to the retention of a sum sufficient to cover any taxation liability;
(b) upon payment:
(i) to the plaintiff of the sum of $164,801.00;
(ii) to the fourth defendant an amount equal to the balance of Account No. 79413-
there also be paid to the fourth defendant from Common Fund No. 1 and debited to Account No. 10, an amount equivalent to interest accrued on the balance of the Account from 1 June 2016 at the rate last fixed in respect of Common Fund No. 1; and
(c) the fourth defendant pay the costs of the plaintiff of the proceeding to be taxed on an indemnity basis from 15 February 2016.
The calculation of the sum of $164,801.00 to be paid to the plaintiff is comprised of:
(a) the amount that I found proven to be due to Morris in respect of its judgement debt, interest and adjusted costs in the sum of $149,134.73; and
(b) interest at the rate of $16.11 per day from 30 April 2016 to 1 June 2017, in the sum of $6,564.87, plus a further sum for legal costs of $9,101.40. These legal costs were made up of the sum of:
(iii) $8,177.40 in respect of the legal costs incurred by Morris from May 2016, as set out in the affidavit of Christopher Yam sworn 2 June 2017;[10] and
(iv) $924.00 for the costs to be incurred of and incidental to the payment of the funds out of Court and the finalisation of the matter, including submissions in relation to the final orders to be made.
[10]Paragraph 4 and exhibit B.
Morris relied on the principles applicable to the award of costs referred to above and in particular the settled practice, or general rule, that in the absence of good reason to the contrary, a successful litigant should receive their costs. In addition, the basis upon which Morris submitted that GoGetta should pay the plaintiff’s costs of the proceeding taxed on an indemnity basis from 15 February 2016 was that on that date, Morris made an offer to GoGetta to settle the proceeding, such offer being said to be in the form of a Calderbank offer. The offer was open for acceptance by 5pm on 17 February 2016. It was not accepted.
GoGetta agreed that pursuant to the reasons for judgment Morris was entitled to the sum of $149,134.73 together with interest calculated from 30 April 2016 to 1 June 2017 at the daily rate of $16.11, making a total for interest of $6,564.87. GoGetta submits, however, that it is entitled to an award for costs against the plaintiff because it has been compelled to incur costs unnecessarily as a consequence of the behaviour of the plaintiff, in particular the change of position of the plaintiff at the last minute to base the calculation of its claim upon a judgment in the Local Court of NSW rather than upon the lease provisions which gave rise to that judgment.
GoGetta also submits that Morris was not wholly successful in its claim whereas GoGetta has been successful both in its claim to an interest in the Fund as well as in its application to dismiss the claim made by the second defendant (‘Uyanik’) and in relation to the claim of the Trustee. GoGetta thus submitted that indemnity costs should be awarded in its favour against Morris, Uyanik and the Trustee in such proportion as the Court considers appropriate. In this regard, it relied on prior submissions it made in relation to the conduct of all of those parties which showed that they had given rise to a wastage of costs.[11]
[11]Revised outline of submissions of GoGetta dated 21 April 2016 and supplementary written submissions of GoGetta dated 3 May 2016.
GoGetta also resists any order for costs based upon the Calderbank letter because it is not an offer made in accordance with the principles in Calderbank v Calderbank.[12] One of the matters identified as being particularly relevant to whether the principles in the Calderbank decision were applicable was that the second and third defendants were still participating in the proceeding at the time of the offer and had not consented to any distribution of the funds in accordance with the offer, so that it was not capable of ending the proceeding.
[12][1975] All ER 333.
It was also submitted by GoGetta that the calculation of the monies due to Morris as set out in the reasons for judgment[13] already included provision for the costs incurred by Morris up to the time of the trial. These costs were the actual costs Morris proved it had incurred. To add an order for costs against GoGetta would be duplicating the costs and unjustly enriching Morris.
[13][2017] VSC 260 [54].
The Trustee also made submissions in response to GoGetta’s submissions that Morris, Uyanik and the Trustee should pay GoGetta’s costs in a proportion considered appropriate by the Court. The Trustee submitted that it ought not be the subject of any order for costs in favour of GoGetta for the following reasons:
(a) it was a party to the proceeding because it had lodged a caveat to protect its legal entitlement to any surplus proceeds from the sale of the Property after payment of creditors with established prior security interests;
(b) save for filing a notice of appearance and attending the mediation, the Trustee did not otherwise file any material or appear at any hearing;
(c) it was required to attend the mediation by order of the Court and thus any costs caused to be wasted by the other parties by the attendance of the Trustee was not brought about by it;
(d) it was right for the Trustee to attend the mediation for the additional reason that there may have been surplus funds available having regard to the legal and factual issues that had been agitated at that time. Subsequent to the mediation, Uyanik’s claim was dismissed and much of the criticism made by GoGetta of the claim made by Morris was overcome by the altered basis upon which it calculated its claim (based upon the New South Wales Local Court judgment); and
(e) ultimately, the Trustee did not participate beyond the mediation and informed the Court by letter dated 22 April 2016 that it was content to be bound by the judgment of the Court and sought to be excused from participating in the proceeding further, save that in the event that any order for costs were sought against it, it would desire to make submissions in opposition to such an order.
Analysis
It is common ground that in accordance with the reasons for judgment, Morris is entitled to the sum of $149,134.73 plus interest from 30 April 2016 to 1 June 2017 in the sum of $6,564.87, making a total of $155,699.60. The dispute arises between Morris and GoGetta in relation to the costs incurred by Morris since the trial, and whether Morris should recover them or whether GoGetta should have its costs of the proceeding against Morris. There are also disputes regarding the effect of the Calderbank letter and whether there should be costs ordered in favour of GoGetta against Uyanik and the Trustee.
I agree with the submissions of GoGetta, that to award costs to Morris, in the form submitted by it, would give rise to duplication and the unjust enrichment of Morris. That is because I have allowed for Morris’ costs up to April 2016 in the total amount of $149,134.73 that I have determined Morris is entitled to (out of the Fund as at 29 April 2016). It would therefore be wrong to award Morris costs against GoGetta in respect of work performed up to the end of April 2016.
The central question is, therefore, whether Morris is entitled to claim the legal costs it incurred after the trial, or whether the circumstances warrant an order for costs in favour of GoGetta.
Morris has had success in establishing the priority of its claim to the Fund to the extent of its judgement debt interest and adjusted costs. Similarly, GoGetta has successfully applied to strike out the claim made by Uyanik, success which benefits both Morris and GoGetta, and has successfully proved its claim to such part of the Fund as remains after Morris is paid.
It is also true that GoGetta has incurred costs, particularly in the analysis of the calculation of Morris’ claim prior to its change of position, which it has incurred because of the conduct of Morris. These costs are the equivalent in point of principle to the costs that I have subtracted from Morris’ claim which gives rise to the adjusted costs allowed to it.
Much of the post-trial costs incurred by Morris relate to the late filed affidavit of Leuhman and the written submissions filed, as ordered, after the conclusion of the trial. Despite admitting that affidavit in the interests of the due administration of justice, it was filed initially without leave and came as a surprise to GoGetta and the Court. This is not conduct that should be rewarded. It is also relevant that the trial was unable to continue after the lunch adjournment on 26 April 2016 because of the unavailability of the solicitor advocate for Morris. That was the essential reason why written submissions were ordered to be filed and served. There is no reason why Morris should receive costs incurred partly through its own solicitor’s conduct, nor should GoGetta be burdened by them.
These considerations lead me to the conclusion that it is not appropriate to award any post-trial costs to Morris, either out of the Fund or against GoGetta.
Despite GoGetta’s s success in establishing its entitlement to the balance of the Fund, it has failed in its prime submissions that would have had the effect of defeating the claim of Morris and thus advancing its own claim in preference. Further, because refusing Morris’s post-trial costs will increase the balance of the Fund available to GoGetta, and GoGetta will receive the whole of the balance of the Fund, GoGetta will receive a greater amount out of the Fund. For these reasons, it is not appropriate to award costs in favour of GoGetta against Morris.
It is thus strictly unnecessary to deal with the supposed Calderbank letter. However, I will deal briefly with the parties’ submissions. I refer above to the considerations that need to be taken into account in assessing whether a Calderbank letter should give rise to an order for indemnity costs in favour of the party making the offer. In this case, the Calderbank letter given by Morris on 15 February 2016 expressed the basis upon which it was entitled to succeed in accordance with the basis then exposed in the affidavits in support of its claim. As I set out in the reasons for judgment, that basis changed, and changed at the last minute after the conclusion of the trial, when Morris made submissions (as ordered) supported by a late affidavit that changed the basis upon which the calculation of its claim was made.
The change in the basis upon which Morris has succeeded, has the consequence that the analysis of the legal position set out in the Calderbank letter is different from the analysis giving rise to Morris’ success. Moreover, the letter allowed only two working days for consideration and did not clearly set out that an application for indemnity costs would be made in the event that the offer was rejected. In addition, the second and third defendants were still participating in the proceeding at the time of the offer and had not consented to any distribution of the funds in accordance with the offer, so that it was not capable of ending the proceeding. In these circumstances, I am not persuaded that GoGetta unreasonably rejected the offer.
In relation to the Trustee, the submissions it makes, as referred to above, are a complete answer to the application by GoGetta for an order for costs against it. There is no proper basis for the contention by GoGetta that the Trustee should pay any of GoGetta’s costs.
Accordingly, the orders of the Court will be:
(a) the following sum be paid from Common Fund No. 1 and debited to Account No. 79413:
(v) to the plaintiff the sum of $155,699.60;
(vi) to the fourth defendant an amount equal to the balance of the Account but subject to the retention of a sum sufficient to cover any taxation liability;
(b) Upon payment of sums equivalent to the balance of the said Account, in accordance with paragraph (a), there also be paid to the fourth defendant from Common Fund No. 1 and debited to Account No 10, an amount equivalent to interest accrued on the balance of account No. 79413 from 1 June 2017 at the rate last fixed in respect of Common Fund No. 1.
(c) otherwise, there is no order as to the costs of the plaintiff, the third defendant or the fourth defendant.
SCHEDULE OF PARTIES
S CI 2015 05576 BETWEEN: MORRIS FINANCE LTD (ACN 083 630 139) Plaintiff - v - COMMONWEALTH BANK OF AUSTRALIA
(ACN 123 123 124)
First Defendant - and - ERHAN UYANIK Second Defendant - and - OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE BANKRUPT ESTATE OF SUSAN ALAMEDDINE Third Defendant - and - GOGETTA EQUIPMENT FUNDING PRY LTD
(ACN 124 102 647)
Fourth Defendant
1
5
0