Morrison v 180 Capital Finance Pty Ltd (No 3)
[2012] VCC 1744
•9 November 2012 (revised)
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised |
Case No. CI-10-01905
| JOSEPH MORRISON | First Plaintiff |
| YANADALE SERVICES PTY LIMITED (in liquidation) | Second Plaintiff |
| LUBERN PTY LTD | Third Plaintiff |
| v | |
| 180 CAPITAL FINANCE PTY LTD | Defendant |
| and by Counterclaim | |
| 180 CAPITAL FINANCE PTY LTD | Plaintiff by Counterclaim |
| v | |
| JOSEPH MORRISON | First Defendant by Counterclaim |
| YANADALE SERVICES PTY LTD (in liquidation) | Second Defendant by Counterclaim |
| LUBERN PTY LTD | Third Defendant by Counterclaim |
| DEBRA ELLEN CASTELLANO | Fourth Defendant by Counterclaim |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 September 2012 | |
DATE OF JUDGMENT: | 9 November 2012 (revised) | |
CASE MAY BE CITED AS: | Morrison & Ors v 180 Capital Finance Pty Ltd (No 3) | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1744 | |
REASONS FOR JUDGMENT
CONTRACT- guarantee and indemnity - judgement debt - interest on judgment - costs –contractual provision for indemnity costs - discretionary considerations - interest on costs – Calderbank offer –whether unreasonable refusal
GUARANTEE- right of surety to indemnity and contribution – insolvency of one guarantor
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J D Catlin | Sofra Solicitors Pty Ltd |
| For the Defendant | Mr A W Smith | Yates Beaggi Lawyers |
| For the Fourth Defendant by Counterclaim | Mr C R Northrop | GSM Lawyers |
HIS HONOUR:
1 Following the delivery of the second judgment in this proceeding on 23 August 2012, a number of issues concerning the terms of the orders the Court should make remained in dispute. I heard further submissions about these matters on 20 September 2012.
2 Yanadale Services Pty Limited (“Yanadale”), the second plaintiff, is now in liquidation. Therefore, the Court could not proceed to make any order against it. Ultimately, 180 Capital Finance Pty Ltd (“180 Capital Finance”) did not seek any orders against it. However, the liquidator was notified of the proceeding and given an opportunity to be involved. No communication has been received from the liquidator.
3 The parties agreed on the form of the declaration that should be made to give effect to the judgment of 20 December 2011. That declaration will be contained in paragraph 1 of the order that I will make.
Amount of judgment debt
4 The next issue is the quantum of the judgment debt owing to 180 Capital Finance pursuant to its counterclaim. 180 Capital Finance seeks judgment in the sum of $93,856.45 against the first, third and fourth defendants by counterclaim.
5 Counsel for Mr Morrison and Lubern Pty Ltd (“Lubern”), which is the third plaintiff and the third defendant by counterclaim, contended that the sum should be $72,880.
6 The difference between those sums is that the figure of $72,880 does not include interest payable for the period 9 December 2010 to 20 December 2011.
7 The proceeding was originally commenced by the first plaintiff, Mr Morrison, in the Magistrates’ Court at Shepparton on 29 June 2009. On 5 May 2010, the proceeding was transferred to the County Court. The debt then sought by 180 Capital Finance Pty Ltd was $237,040.59.
8 In late September 2010, the defendant served its counterclaim.
9 On 2 December 2010, the plaintiff by counterclaim, 180 Capital Finance, sought to expand that counterclaim to include claims for possession of the mortgaged properties, orders for particular directions and the sale of the land, and costs on an indemnity basis. On 9 December 2010, the trial was adjourned because 180 Capital Finance wished to join Ms Debra Castellano as a fourth defendant to its counterclaim.
10 The trial ultimately commenced in late July 2011, but for reasons contained in the two previous judgments, was, at that time, limited to arguments about whether the interest rate was unenforceable because of unconscionable conduct by 180 Capital Finance. On 20 December 2011, I delivered judgment on those matters.
11 180 Capital Finance was responsible for the adjournment of the proceedings that would or might have otherwise been heard on 9 December 2010. Thereafter, the proceedings were further adjourned from a hearing date in March 2011 until late July 2011. It may therefore be said that the majority of the delay in having the matter heard between 9 December 2010 and July 2011 was due to the actions of 180 Capital Finance.
12 However, it is relevant to take into account that since the delivery of the judgment on 20 December 2011, 180 Capital Finance has undertaken not to add any interest owing on the amount that otherwise was due under the Loan Facility Agreement by Mr Morrison, Lubern and Ms Castellano under the guarantees and indemnities that they executed. As a result of those undertakings, it has forgone interest for a period of more then ten months. I take that factor into account in determining whether the Court should exclude interest owing to 180 Capital Finance for the period 9 December 2010 to 20 December 2011.
13 I also take into account Mr Morrison’s submission that 180 Capital Finance’s conduct has delayed the trial and increased costs. The chronology of the matter is set out in an affidavit of Ms Kristine Medson, a solicitor for the plaintiffs and is also dealt with in the affidavit of Ms Mandy Bayni, a solicitor on behalf of 180 Capital Finance.
14 Counsel for Mr Morrison pointed to the delays resulting from 180 Capital Finance’s conduct and the institution of separate proceedings in the District Court of New South Wales and a range of other matters that I take into account. However, looking at the matter broadly, I considered that the fact that 180 Capital Finance has forgone interest for a significant period of time is sufficient to give recognition to the delays that counsel for Mr Morrison and Lubern relied on. I therefore consider that the appropriate judgment sum is the higher sum, $93,856.45.
Interest
15 The next matter I must determine before I can hear any submissions about “without prejudice” offers is of the question of any interest owing on that judgment sum.
16 The draft order submitted to me by counsel for 180 Capital Finance was to the effect that the first, third and fourth defendants by counterclaim pay the plaintiff by counterclaim interest on that judgment at the rate prescribed by s101 of the Supreme Court Act 1986. That is the provision that deals with interest on judgment, and there is no reason in this case to depart from its terms. I consider that that judgment should carry interest at the rate referred to in s101 of the Supreme Court Act as and from today’s date.
Costs
17 The next issue is the question of who should pay the costs of these proceedings. I will deal with the issue of the Calderbank offer at the end of these reasons as it was raised on 9 November 2012, after the Court had heard argument about other matters concerning costs, which I will first consider.
18 180 Capital Finance seeks costs on an indemnity basis pursuant to the provisions of the Loan Facility Agreement and in particular, Clauses 11.1 and 11.2. Counsel for Mr Morrison and Lubern seek their costs from 180 Capital Finance on the basis that they had substantial success in arguing the main issue in the proceeding, namely the default interest rate.
19 Mr Morrison, in the Magistrates’ Court proceedings, sought orders that the default interest rate was void and unenforceable as an unconscionable penalty: (a) at common law and in equity; and (b) pursuant to s51AC of the Trade Practices Act 1974. The relief sought was that the interest contained in the loan agreement was null and void and of no effect. That argument at the hearing in late July 2011 was ultimately divided into two parts: one, the application of the Trade Practices Act, and secondly, the question of whether the interest rate involved a penalty that was unenforceable.
20 Mr Morrison and Lubern Pty Ltd and Yanadale Services were substantially successful, in the sense that they succeeded in an argument that the insertion and enforcement of the higher interest rate was unconscionable within the meaning of s51AB of the Trade Practices Act. They were unsuccessful in respect of their argument concerning a penalty.
21 The counterclaims were commenced in late 2010, and, as I previously stated, Ms Castellano was joined only in December 2010 to the counterclaim as the fourth defendant. Mr Morrison, and Lubern, contend that the proceedings have been considerably lengthened by the conduct of 180 Capital Finance. The outcome of the litigation has been, however, that 180 Capital Finance has obtained a judgment against Mr Morrison, Lubern and Ms Castellano. Usually, costs follow the event. However, the Court has a discretion about costs.
22 As I have previously stated, I accept that the proceedings have been delayed to some extent by the conduct of 180 Capital Finance. However, the delay caused by the division of the proceedings that occurred in July 2011, to deal first with the unconscionability defence and later with the separate unconscionability defence based on the principles in Garcia v National Australia Bank Ltd,[1] was principally because of the request of Ms Castellano.
[1](1998) 194 CLR 395
23 Normally, 180 Capital Finance, having succeeded in recovering a money sum, would be entitled to its costs of the proceedings. I see no reason for granting Mr Morrison or Lubern or Ms Castellano the costs of the proceeding. However, 180 Capital Finance acknowledged that there were certain costs that should be excluded from any costs order, and they were set out in the draft orders that it submitted. I do consider that it is a case in which the defendants to the counterclaim should pay costs to 180 Capital Finance, and I will deal separately with whether those costs should be on a party/party basis or indemnity basis. However, I consider that particular costs, in addition to those acknowledged by 180 Capital Finance, should be excluded from the order for costs.
24 In the case of Mr Morrison and Lubern Pty Ltd, I consider that they should not have to pay any costs of 180 Capital Finance for the hearings on 16 and 17 April 2012, or of the hearing in July and August 2011. I have reached that conclusion because all parties had some success in the first hearings in July and August 2011, and it is appropriate that they should bear their own costs of those hearings. So far as the hearing on 16 and 17 April 2012 is concerned, it substantially dealt with Ms Castellano’s arguments, and I do not see why Mr Morrison and Lubern should have to pay 180 Capital Finance’s costs of those proceedings. Equally, I do not see why Mr Morrison or Lubern should have to pay any costs in respect of the hearing on 23 August 2012, when I delivered judgment in respect of Ms Castellano’s Garcia defence.
25 So far as today’s costs and the costs of 20 September, when I heard argument about remaining matters, are concerned, I consider that Mr Morrison and Lubern should pay half 180 Capital Finance’s costs of those days, reflecting the fact that it has obtained a judgment, but not on all the terms that it sought.
26 So far as Ms Castellano is concerned, equally, I do not consider that she should have to pay the costs of the hearings in July and August 2011, because she took very little part in those proceedings. I consider that she should have to pay 180 Capital Finance’s costs for much of the hearings on 16 and 17 April, but not all of them, because the second day of the hearing dealt to a considerable extent with questions of costs. I consider that she should have to pay two-thirds of 180 Capital Finance’s costs of those two days. She should also have to pay the costs of 23 August 2012 when I handed down my decision in respect of her Garcia defence, and she should pay one-half of 180 Capital Finance’s costs of today and 20 September.
27 The next question is whether those costs should be paid on an indemnity basis or on a party/party basis. I will not set out the terms of Clauses 11.1 and 11.2 of the Loan Facility Agreement. However, I am persuaded that they would cover 180 Capital Finance’s costs in defending the litigation brought by Mr Morrison and the other plaintiffs and in bringing its own counterclaim against the various defendants. In that regard, I refer to the decision of the Victorian Court of Appeal in Tarkington Pty Ltd v Kingdrake Pty Ltd.[2] However, the Court does have a discretion about whether a contractual right to indemnity costs should be applied. The authorities were discussed by J Forrest J in Perpetual Trustees Australia Ltd v Schmidt (No 3),[3] where it is stated:
[2][2000] VSCA 98
[3][2010] VSC 261
“First, in relation to costs, in this court, the approach in recent decisions has been to treat the terms of the indemnity, or guarantee, as informing the manner in which an order for costs should be made, rather than it being mandated by the contractual provision. The position was set out by Vickery J in Taree Pty Ltd v Bob Jane Corporation Pty Ltd[4] stated:
‘Nevertheless, even where a contractual term for the payment of costs on a basis other than the usual party and party basis exists and is expressed in plain and unambiguous language, the Court continues to have a discretion in relation to making orders for the payment of such costs. In Kyabram, the mortgage agreement expressly stated that the mortgagee should be liable to pay costs on a solicitor/own client basis. Nevertheless, the Court held that, even where such an agreement exists, the order for costs continues to be at the discretion of the Court.’
This approach was also adopted by Whelan J in Reading Entertainment Australia v Burstone Victoria (No 2) where Whelan J ordered legal costs on an indemnity basis where the contract of indemnity referred to ‘all costs, expenses and fees calculated on a full indemnity basis, incurred by the lender in acting in or about recovery.’
The terms of the indemnity are patently relevant to determining the basis upon which the order should be made.”[5]
[4][2008] VSC 228
[5][2008] VSC 228 at [38]-[39]
28 Counsel for Mr Morrison and Lubern argued that it would be incongruous for indemnity costs to be ordered against them when the Court had found that 180 Capital Finance engaged in unconscionable conduct in respect of the default interest rate. They referred to the New South Wales decision in Kyabram Property Investments Pty Ltd v Murray[6], where it seems that the trial judge did follow that approach, although the judgment on appeal was decided on the grounds that the claim for an indemnity had not been properly pleaded, and that the language of the security clause did not cover the actions for which indemnity costs were sought.
[6][2005] NSWCA 87
29 However, the Court has a discretion about costs, and, as the authorities to which I have referred indicate, that discretion exists despite the terms of any contractual provision. Having considered the matters put by counsel, I consider a matter of particular weight, is the fact that I have decided that the higher default interest rate was unconscionable within the meaning of the Trade Practices Act. 180 Capital Finance maintained an action, in the sense of defending the claim and then bringing a counterclaim, in which it claimed a rate of interest of 96 per cent per annum, that was unconscionable. I consider that in those circumstances and subject to consideration of the Calderbank offer, which occurs below, it is appropriate to make an order for costs on a party/party basis, subject to the exclusion of the particular costs to which I have referred.
Interest on costs
30 There is then the question of interest on the costs. Section 101 of the Supreme Court Act 1958 provides a prima facie basis to the date from which interest on costs should be paid by a judgment debtor, by providing that:
“Every judgment debt carries interest at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 from the time the judgment was given or in the case of costs which are assessable by the Costs Court, from the date of the order of the Costs Court stating the result of the assessment or such other date as the Court orders.”
31 That section obviously leaves the court with a discretion to order that costs be payable from an earlier date. The authorities noted in Civil Procedure Victoria[7] indicate the circumstances in which that discretion may be exercised.
[7]Volume 2, p 7004
32 In this case, 180 Capital Finance relies on the contractual entitlement to seek costs and to seek interest on moneys that are owing. Under Clause 5.1 of the Loan Facility Agreement, the borrower must pay interest on overdue money.
33 There is in evidence a financier’s certificate issued under the provisions of the Loan Facility Agreement by Mr Woszczalski, a director of 180 Capital Finance, which states the amount of legal costs that had been incurred by 180 Capital Finance. Mr Woszczalski in an affidavit made on 12 April 2012 states:
“The amount of the Legal Costs which remain outstanding and are claimed by the Defendant/Plaintiff by counterclaim in these proceedings are $226,534.16.”
34 Subject to consideration of the Calderbank offer, the effect of the orders that I make will be that the costs, to which 180 Capital Finance is entitled, are to be assessed on a party/party basis. That is a different basis to that adopted by Mr Woszczalski. The order that I will make will exclude the costs of certain events that it is likely Mr Woszczalski has included in his assessment. In those circumstances, the difficult issue arises as to the date from which the applicable interest rate of 48 per cent per annum should run.
35 Counsel for 180 Capital Finance submitted that it has paid the legal costs charged by its solicitors and that Dobbs certificates have been provided to the defendants to counterclaim on each occasion. He submitted that the payment of those legal fees by 180 Capital Finance was the triggering event that gave rise to its entitlement to recover those costs. He also pointed to Clause 7.1(d) of the Loan Facility Agreement, which prevents the borrower from relying on any set-off. The difficulty with adopting 180 Capital Finance’s submissions is the matter to which I have previously referred ie that the costs that Mr Woszczalski has calculated include costs that I do not consider the defendants to the counterclaim should pay.
36 In those circumstances, I see no other appropriate course than to apply the terms of s101 of the Supreme Court Act and decide that interest should be payable from the date of the order of the Costs Court.
Ms Castellano’s indemnity and contribution claim
37 The next matter is the claim for contribution and indemnity made by Ms Castellano: indemnity against the principal debtor, Mr Morrison, and contribution against Mr Morrison and Lubern.
38 I am satisfied in the first instance that Ms Castellano is liable under the guarantee and indemnity for the amounts for which judgment will be given against Mr Morrison and for the costs which he is liable to pay. I am satisfied that Mr Morrison committed an act of default within the terms of the Loan Facility Agreement. I am satisfied that demands have been made against Ms Castellano and Lubern. I am satisfied the guarantors did not pay the guaranteed money, and that 180 Capital Finance is entitled to judgment against them on the guarantee and on the indemnity.
39 As a guarantor, Ms Castellano has a right of reimbursement or indemnity from the principal debtor. Where one of the co-sureties has become insolvent, as is the case with Yanadale Services, only the solvent co‑sureties are required to contribute, and their contribution is increased proportionately to meet the common debt. I do not consider that any matter put on behalf of Mr Morrison removed the entitlement of Ms Castellano to claim an indemnity and contribution in the terms sought by her counsel. I therefore propose to make orders in the terms sought.
Calderbank Offer
40 180 Capital Finance relied on a Calderbank offer of compromise dated 22 December 2010 by which it offered to each of the parties by way of counterclaim a settlement on a “without admission” basis: (i) the defendants pay 180 Capital Finance the sum of $75,000, and (ii) the defendants pay 180 Capital Finance’s costs as agreed or assessed. The letter stated “We note that our solicitor/client costs are approximately $140,000 inclusive of GST”. The offer was conditional upon the defendants to the counterclaim discontinuing their claim with no order as to costs, and payment in full being made within 14 days of acceptance and the signing of a deed of settlement. The offer remained open for 28 days. Counsel for 180 Capital Finance submitted that the amount owing as at that date, based on the reduced interest rate, was $80,000. The solicitor for Mr Morrison and Lubern in her affidavit contended that the amount was $73,605.88.
41 This offer was drawn to the Court’s attention after I had ruled on the question of the judgment debt and the method of calculating interest on that debt and after argument had occurred about 180 Capital Finance’s contractual entitlement to indemnity costs and interest on costs as well as argument about Ms Castellnao’s entitlement to contribution. My provisional conclusions about the appropriate level of costs expressed above, are subject to the effect of the Calderbank offer.
42 I apply the principles discussed by the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[8] which established that there is no presumption that the party rejecting a Calderbank offer should pay the offeror’s costs on an indemnity basis if the offeree received a less favourable result. The correct approach is to treat the rejection of a Calderbank offer as a matter, along with a number of other matters, to which the Court should have regard when considering whether to award indemnity costs.
[8](2005) 13 VR 435
43 In the case of Ms Castellano, I do not consider that it was unreasonable for her not to accept the offer, because of the stage in the proceedings in which it was made. It was very early in the litigation. She had just been joined as a party and had not yet delivered a defence.
44 In the case of each of Mr Morrison, Lubern and Ms Castellano, I also consider that it is not clear that the amount offered to settle was less than the amount due to 180 Capital Finance at that time. I take into account that 180 Capital Finance was pursuing an interest rate, the inclusion of which in the Loan Facility Agreement was unconscionable conduct in contravention of the Trade Practices Act. There is also some doubt as to exactly what order for costs was being sought in the Calderbank offer.
45 I find that it was not unreasonable for the defendants to the counterclaim not to accept the Calderbank offer.
46 For those reasons I am not persuaded that 180 Capital Finance is entitled to an indemnity costs order because the defendants to the counterclaim did not accept the Calderbank offer.
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