Orhan v Han (No 2)
[2020] VCC 1269
•25 August 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-18-02232
| DEVRIM ORHAN | First Plaintiff |
| And | |
| KWAI WAH FAI | Second Plaintiff |
| And | |
| LOK SHUM | Third Plaintiff |
| V | |
| SHAN HAN | First Defendant |
| And | |
| THE REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | Written submissions dated 7, 12 and 19 August 2020 | |
DATE OF JUDGMENT: | 25 August 2020 | |
CASE MAY BE CITED AS: | Orhan & Ors v Han & Anor (No 2) | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1269 | |
REASONS FOR RULING
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Subject: PRACTICE & PROCEDURE – COSTS
Catchwords: Whether costs should follow the event – apportionment on issues – Calderbank offer – interest payable on equitable compensation – stay on counterclaim
Legislation Cited: Supreme Court Act 1986; County Court Civil Procedure Rules 2018; Penalty Interest Rates Act 1983; Domestic Building Contracts Act 1995;
Cases Cited:TAC v O’Reilly (1999) 2 VR 436; Anchen v Mendes Da Costa [2005] VSC 191; BP Exploration Co Libya v Hunt (No 2) [1983] 2 AC 352; Calderbank v Calderbank [1975] All ER 333; Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65 at 33; McNab v Graham (No 2) [2018] VSCA 8; APN Funds Management Ltd v Australian Property Investments Strategic Pty Ltd (Costs) [2012] VSC 365; Chen v Chan [2009] VSCA 233; Mario Piraino v Roads Corporation [1991] 2 VR 534; Talacko v Talacko [2009] VSC 579
HER HONOUR:
1 On 29 July 2020, I delivered reasons for judgment in this matter (“the principal reasons”). I found the first and second plaintiffs were entitled to recover equitable compensation in the amounts referred to in paragraph 104 of the principal reasons. These reasons assume familiarity with the principal reasons and adopt the same terminology.
2 The parties were directed to file submissions regarding the orders to be made consequent upon the judgment, including costs and interest.
3 The plaintiffs’ counsel filed submissions together with a proposed form of order on 7 August 2020. In keeping with my initial indication in the principal reasons, the plaintiffs sought an order that their costs be paid by the first defendant. The second defendant, the Registrar of Titles played no part in the proceeding. The plaintiffs submitted there were no special circumstances that would warrant a departure from the settled practice that successful litigants should receive their costs.[1]
[1]TAC v O’Reilly (1999) 2 VR 436 at [456-7].
4 The plaintiffs sought interest on the award of equitable compensation pursuant to s58 or s60 of the Supreme Court Act 1986. In respect of s58, it was submitted the sums found to be owing to each of the first and second plaintiffs were readily able to be calculated and ought to have been paid by the first defendant.[2] In the alternative, the plaintiffs relied upon s60 on the basis that the award of equitable compensation should be treated as a debt or damages as defined in that section. The plaintiffs submitted the section was given a wide construction and included amounts recovered in equity.[3]
[2]Anchen v Mendes da Costa [2005] VSC 191 at 13.
[3]BP Exploration Co Libya v Hunt (No 2) [1983] 2 AC 352 at 373.
5 The first plaintiff, Orhan, is entitled to judgment in the sum of $152,280 plus $12,901.90 being the holding costs he has incurred since trial, being a total of $165,181.90. Orhan claims interest at the rate of 10 per cent from 23 May 2018 to 7 August 2020 which amounts to $30,378.84. The rate of interest was claimed under the Penalty Interest Rates Act 1983. This sum also includes interest on the holding costs paid since the trial.
6 The amount of interest claimed on behalf of the second plaintiff, Fai, was $59,347.57, being interest claimed at the rate of 10 per cent from 23 May 2018 to 7 August 2020 on the amount awarded of $268,738.
7 Submissions were filed by the first defendant on 12 August 2020. The submissions were extensive and ignored the direction given that any submissions should be confined to three pages. The plaintiffs were given leave to file a submission in response and a reply submission was provided dated 19 August 2020.
8 The first defendant seeks costs orders in the following terms:
(1)The first and second plaintiffs pay the first defendant’s costs on an indemnity basis from 31 October 2018 other than those costs orders already made.
(2)In the alternative, the first and second plaintiffs pay the first defendant’s costs to be taxed on the standard basis in default of agreement between 17 September 2019 and 22 November 2019 and on an indemnity basis from 22 November 2019.
(3)In the alternative to (1) and (2), the first and second plaintiffs pay 50 per cent of the first defendant’s costs to be taxed on the standard basis in default of agreement from 17 September 2019.
(4)The third plaintiff (Shum) pay one third of the first defendant’s costs:
(a)to be taxed on the standard basis in default of agreement between 17 September 2019 and 22 November 2019; and
(b)on an indemnity basis from 23 November 2019.
Costs
9 The first defendant, Han, submits the usual rule that costs follow the event should not be exercised in this case. This is put on the basis that the plaintiffs did not obtain a better result in the judgment than they were offered in settlement of the dispute on two earlier occasions, namely on 30 October 2018 and 22 November 2019.
10 It was also put that the conduct of Orhan and Fai, between 23 May 2018 and 16 September 2019, significantly prolonged the conclusion of the proceeding from 29 October 2018 to 25 November 2019. Notwithstanding the above, Shum should pay some of Han’s costs from 16 September 2019.
11 In support of the submissions that the plaintiffs did no better in the judgment, Han relies upon the circumstances which led to terms of settlement being entered into on 30 October 2018. By those terms, Orhan was to receive a payment of $172,483 and Fai a total sum of $325,564. Han alleges that she only agreed to the settlement on the basis that she had been told that an amount of $202,000 would be released to her from an account at Westpac after completion of the terms of settlement. Had that occurred, then the net amount payable by Han would have been reduced and the balance payable by her would be $296,047. The settlement did not proceed because afterwards, Han found that there was no such term deposit held. Accordingly, she sought to “terminate” the terms of settlement. As a result of that, the proceeding was reinstated and continued on.
12 Han submitted the terms were akin to a Calderbank letter which was rejected because of the supposed misrepresentation by Orhan and Fai about the amounts in the Westpac bank account. Although the terms of settlement as set out on page 3 of the outline did result in payments higher than the amount awarded in the judgment, the figures failed to take into account the agreement that there was to be $202,000 available to Han which then reduced her liability to $296,047, which is less than the judgment. The settlement did not proceed because Han “terminated” the terms of settlement, albeit on the basis that she claimed she had been misrepresented. Fai and Orhan did not seek to terminate the terms. In those circumstances, I do not consider that the aborted settlement is a proper basis for a finding that the first defendant should receive her costs from that date onwards either on a standard or indemnity basis. As noted in the principal reasons, it was never explained to the Court why the plaintiffs did not seek to enforce the terms of settlement but one can only assume that there would have then been a second hearing in respect of the negotiations concerning those terms and the calling of witnesses such as the barristers involved to determine what was said and by whom.
13 I am not persuaded that the plaintiffs would have done better in circumstances when there was no evidence before the Court concerning this alleged misrepresentation. The reason for this was that it was agreed the counterclaim, including this aspect and the building dispute would be stayed, pending the hearing and determination of the primary claim. Consequently, I am not persuaded that it has been established that Orhan and Fai would have done better pursuant to the initial terms of settlement with the result that the usual rule that costs follow the event should be displaced.
14 The next matter relied upon is a letter referred to as a Calderbank letter of 22 November 2019. The letter noted that Orhan had paid the initial 10 per cent deposit of $93,000 and that Fai had paid $104,908.24 towards the settlement. On that basis, the following offer was put:
“The plaintiffs claim that the proceeding be discontinued; our client transfers 11 per cent of the total interest in the subject property to the first plaintiff within 21 days from the acceptance of this offer; our client transfers 12.5 per cent of the total interest in the subject property to the second and third plaintiff within 21 days from the acceptance of this offer; the first and second plaintiff withdraw their respective caveats on the title of the subject property and no order as to costs.”
The letter was expressed to be subject to the principles in Calderbank v Calderbank [1975] All ER 333.
15 The principles in respect of Calderbank letters are well known and summarised conveniently by Nettle JA in Berrigan Shire Council v Ballerini (No 2).[4] His Honour said at [33]:
[4][2006] VSCA 65 at [33].
“The rejection of a Calderbank offer not later bettered by judgment does not lead automatically to an indemnity costs order in favour of the offeror. The question in each case is whether the offer was a reasonable offer of compromise, and whether the rejection of the offer was unreasonable, and the answer to that question turns in each case on all the circumstances of the case. The making of an offer and its rejection are but two albeit important circumstances to which the court will have regard in the exercise of its costs discretion. As the court explained in Hazeldene’s Chicken Farm:
The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
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;
f) whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree’s rejecting it.”
[citations omitted]
16 The principle that the rejection of a Calderbank offer does not automatically give rise to the presumption for an order for indemnity costs if the offeror receives a less favourable result was more recently confirmed by the Court of Appeal in McNab v Graham (No 2).[5] It still falls to be determined whether the rejection of the offer was unreasonable in all the circumstances.
[5][2018] VSCA 8 at [12].
17 Having regard to these principles, the first point to note is that the time allowed for the offer to be accepted was very short. It appears from the covering email accompanying the offer that it was sent to the plaintiffs’ solicitors on Friday, 22 November at 3:58pm. The offer was open to be accepted by 10:00am on Monday, 25 November 2019, being the morning of the trial. Effectively, that only gave the plaintiffs the weekend to consider the offer.
18 As can be seen from the principal reasons, the plaintiffs were alleging that Han held the property on their behalf as trustee and that she did not hold any proprietary interest in the property. The offer made by Han was that she would agree to transfer an 11 per cent share and a 12.5 per cent share in the property to Orhan and Fai respectively. It was by no means certain that Han would succeed in establishing that she did hold the beneficial legal interest in the property at the start of the trial. As can be seen from the principal reasons, the facts were complicated, the evidence given by the various parties was conflicting and the legal principles applicable were complex. Another aspect is that the offer to transfer a particular percentage can only be meaningfully considered in terms of what would the value of that percentage be? Although the property was purchased for $930,000 in October 2014, the property was subject to a redevelopment. As at November 2019, no details are provided in the Calderbank offer as to the state of the property and the progress of the redevelopment such that the plaintiffs would be able to establish what 11 per cent, for example, would represent in terms of the value of the subject property. The offer to that extent in my view is unclear because Orhan, for example, could not have known what 11 per cent would provide him in terms of a monetary sum had he accepted the offer.
19 No information was given in the letter about the level of current borrowings secured against the property, be it the Westpac loan or any loan advanced by Mr Wong. This omission raises an issue about whether the offer was expressed with sufficient clarity in circumstances where there were no details given about the value of the subject property as at that date or the level of borrowings secured against the property. I am of the view that the terms of the offer were not sufficiently clear with the result then that it cannot be said that the rejection of the offer by the plaintiffs in the circumstances was unreasonable. Accordingly, I am not prepared to find that Orhan and Han acted unreasonably in rejecting the offer such that indemnity costs should flow as is sought by Han. I also find that the time period in which the offer to be accepted was too short. For these reasons, Han is not entitled to rely upon this Calderbank offer in support of her application for indemnity costs from 22 November 2019.
Apportionment of costs
20 Han submits that each party has enjoyed some success and failure from the judgment and that an order should be made to reflect each party’s relative success and failure for the reasons of justice and fairness.
21 Under r63A.04 of the County Court Civil Procedure Rules 2018, the Court may make an order for costs in relation to a particular question or in a particular part of the proceeding. This power permits orders depriving an ultimately successful party of its costs or part of its costs or awarding an unsuccessful party some of its costs. A successful party may recover only a portion of its costs when that party has been unsuccessful in respect of certain discrete issues. But that should not be done as a matter of course. An issue does not necessarily mean a precise issue in the pleading but relates to any disputed question of fact or law.[6]
[6]APN Funds Management Ltd v Australian Property Investments Strategic Pty Ltd (Costs) [2012] VSC 365 at [11].
22 Where there has been a multiplicity of issues of mixed success a court may take an approach in making costs orders, taking into account the success or lack of success on an issues basis. Generally, the order made results in the successful party being awarded a proportion of its costs but not the full amount. A relevant consideration will be whether the issue was raised unreasonably.[7]
[7]Chen v Chan [2009] VSCA 233 at [10].
23 I am not persuaded by the matters set out in paragraph 19 of Han’s submissions that there should be any apportionment of costs as is sought. The Court did find that a constructive trust should be imposed to reflect the contributions made by Orhan and Fai to the purchase price. The reason why a proprietary remedy was not ordered was because of the caveat lodged by Mr Wong whose interest may have been affected had a proprietary remedy been ordered, which I have explained in the principal reasons. The mere fact that the plaintiffs did not obtain a proprietary remedy is not sufficient in my view to displace the usual rule about costs following the event. The plaintiffs did succeed in their action and were awarded equitable compensation, being a form of relief claimed in the alternative. Han had maintained at all times that she was entitled to retain the property and rejected any claims made by the plaintiffs. In circumstances where Han chose to defend the claims and disputed unsuccessfully the contributions made by Orhan and Fai, I am not persuaded there should be a departure from the usual rule that costs follow the event.
24 An alternative order sought is that Shum should pay one-third of Han’s costs from 16 September 2019. It was put that his joinder as a plaintiff was unnecessary and he did not obtain any relief. As can be seen from the principal reasons, there was considerable dispute about who the relevant parties to the joint venture were and claims were framed in the alternative. I am not persuaded simply because the Court found that it would be unconscionable for Han not to return the payments made by Orhan and Han that it then follows that Shum should not have been joined and further that he then should pay a third of Han’s costs from 16 September 2019 onwards. I am not persuaded on the submissions provided that there is any basis that he should be ordered to pay a third of the costs of Han as is sought. Further, to the extent that there is reliance on the Calderbank letter for the reasons already stated, I have found that it was not unreasonable for the plaintiffs to reject the Calderbank offer. Therefore, I was not satisfied a costs order should be made against the plaintiffs, including Shum, either on an indemnity or a standard basis.
25 Submissions were made regarding various reserved costs orders. These are dealt with in paragraph 25 of Han’s submissions. Rule 63A.22 provides that reserved costs are the parties’ costs in the proceeding unless the Court orders otherwise. I was not persuaded by any of the the matters addressed in paragraph 25 of the submissions that I should order otherwise.
26 Han seeks a stay on the judgment of 75 days because she has sold Unit 1 of the property for $1.3m and settlement is due to occur on 22 October 2020. Despite this, Han does not say that she will apply funds from the scheduled settlement in order to pay the judgment sums. The stay is opposed by the plaintiffs unless the first defendant was willing to give a charge which has not been forthcoming. I will grant a stay of 30 days from the date of the final orders.
Interest
27 Han disputes that the plaintiff is entitled to interest either under s58 or s60 of the Supreme Court Act 1986 on the basis the amounts awarded are sums certain under s58(1) or recovery of debt or damages under s60. Han notes the prayer for relief did not expressly claim statutory interest.
28 Interest can be awarded under s58 on an award of equitable compensation.[8] In many circumstances interest will not be payable for an award of equitable compensation until the Court assesses the compensation payable.
[8]See Civil Procedure Victoria at [670-25] and the cases referred to therein.
29 I consider the plaintiffs are entitled to an award of interest under s60 of the Supreme Court Act which has been given a broad application. The expression covers any sum of money recovered by one party from another whether at common law or in equity or under statute: BP Exploration Co Libya v Hunt (No 2) [1983] 2 AC 352 at 373. The word “damages” is not confined to compensation for wrong that is either a tort or a breach of contract: Mario Piraino v Roads Corporation [1991] 2 VR 534. Additionally, even apart from statute, equitable principles will permit the award of interest on an award of equitable compensation where the interests of justice so demand including whether money has been withheld or misappropriated by a fiduciary: Talacko v Talacko [2009] VSC 579 at [10].
30 Accordingly, I reject the submission made that the plaintiffs are not entitled to an order for interest on the amounts of equitable compensation which have been ordered to be paid by the first defendant. Further, the failure to plead the statutory interest in the prayer for relief is not fatal as the statutory entitlement to claim interest arises as a matter of law.
Counterclaim
31 For the reasons set out in the principal reasons, the counterclaim was not dealt with at the hearing. It was agreed by counsel for the parties that the counterclaim should be stayed pending the determination of the plaintiffs’ claim and the making of final orders. The substantive part of the counterclaim arises from Han’s claim against Orhan for damages arising out of his alleged breaches of a domestic building contract. The other remaining aspect is a claim for damages arising from the alleged misrepresentation regarding the terms of settlement which fell over in October 2018.
32 As mentioned in the principal reasons, the counterclaim was stayed in part because of the potential issue that the domestic building dispute was more amenable to being heard in VCAT. The other reason the domestic building dispute could not be dealt with at trial was because the first defendant had not filed and served any expert evidence in support of such a claim.
33 The plaintiffs seek a stay on the counterclaim being heard in this Court pursuant to s57 of the Domestic Building Contracts Act 1995 which provides as follows:
“57 VCAT to be chiefly responsible for resolving domestic building disputes
(1) This section applies if a person starts any action arising wholly or predominantly from a domestic building dispute in the Supreme Court, the County Court or the Magistrates' Court.
(2) The Court must stay any such action on the application of a party to the action if—
(a)the action could be heard by VCAT under this Subdivision; and
(b)the Court has not heard any oral evidence concerning the dispute itself.
(3) This section does not apply to any matter dismissed by VCAT under section 77 of the Victorian Civil and Administrative Tribunal Act 1998.
(4) If an action is stayed under this section, any party to the action may apply to VCAT for an order with respect to the dispute on which the action was based.
(5) If a person applies to VCAT under subsection (4) VCAT must notify the Court and on such notification the Court must dismiss the action.
(6) Subsection (5) does not apply if VCAT refers the matter to the Court under section 77(3) of the Victorian Civil and Administrative Tribunal Act 1998.”
34 Han claims that some of the evidence relating to the domestic building dispute between Orhan and Han has been heard. This is not an accurate description of the events that occurred during the trial. There was no oral evidence given concerning the “dispute itself”, namely, the allegedly defective works conducted by Orhan and his company, Pacific. This aspect was not dealt with at all at trial. Consequently, I will stay that part of the counterclaim which relates to the domestic building dispute pursuant to s75, so the claim can proceed in VCAT where it was commenced originally.
35 There is one aspect of the counterclaim which still remains before this Court, namely, the claim for damages arising from the alleged misrepresentation concerning the aborted settlement in October 2018. Han wishes to proceed with this part of her counterclaim.
36 For the reasons set out, I make the following orders:
(1)Judgment for the first plaintiff against the first defendant in the sum of $165,181.90 together with interest of $30,378.84.
(2)Judgment for the second plaintiff against the first defendant in the sum of $268,738 together with interest of $59,347.57.
(3)The undertaking given to the Court by the first plaintiff on 22 July 2018 is discharged.
(4)The injunctions made in the following orders are dissolved:
(a)Order of his Honour Judge Cosgrave made 28 June 2018;
(b)Order of her Honour Judge Marks made 27 July 2018;
(c)Orders of her Honour Judge Marks made 11 December 2018; and
(d)Orders of his Honour Judge Cosgrave made 25 March 2019.
(5)The first defendant pay the plaintiffs’ costs of and incidental to the proceeding, including any reserved costs, to be taxed on the standard basis in default of agreement.
(6)There be a stay on orders (1) and (2) for a period of 30 days from the date of this order.
(7)The first defendant’s claim arising from a domestic building dispute as referred to in paragraphs 5 to 21 of the first defendant’s counterclaim dated 4 October 2019, is stayed in accordance with s75 of the Domestic Building Contracts Act 1995.
(8)By 14 September 2020 at 4.00pm, the first defendant file and serve any further amended statement of counterclaim against the first and second plaintiffs.
(9)By 28 September 2020 at 4.00pm, the first and second plaintiffs file and serve an amended defence to the first defendant’s further amended statement of counterclaim.
(10)Reserve liberty to the parties to apply be email to the Commercial Division Registry ([email protected]) for further directions upon giving reasonable notice to all other parties.
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Certificate
I certify that these 13 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 25 August 2020.
Dated: 25 August 2020
Associate to Her Honour Judge A Ryan
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