Perpetual Trustee Company Limited v Alexander Kotevski [No 2]
[2011] NSWSC 1694
•04 November 2011
Supreme Court
New South Wales
Medium Neutral Citation: Perpetual Trustee Company Limited v Alexander Kotevski [No 2] [2011] NSWSC 1694 Hearing dates: 29 April 2010 & 10 June 2010 Decision date: 04 November 2011 Jurisdiction: Common Law Before: Hidden J Decision: 1. Plaintiff's application to amend order 3 granted.
2. Defendant's application to amend order 3 refused.
3. Defendant's application that plaintiff pay his costs of the fourth cross-claim refused.
4. No order as to costs of fourth cross-claim.
5. Plaintiff to pay costs of second cross-claim on ordinary basis.
Catchwords: PROCEEDINGS FOR POSSESSION OF LAND - consequential orders after judgment Legislation Cited: Contracts Review Act 1980
Trade Practices Act 1974
Fair Trading Act 1987
Uniform Civil Procedure Rules 2005
Civil Procedure Act 2005
ASIC Act 2001Cases Cited: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Maguire v Makaronis (1996 - 97) 188 CLR 449
Elkofairi v Permanent Trustee Company Ltd [2002] NSWCA 413
Furber v Stacey and Anor [2005] NSWCA 242
Lombard Insurance Co. (Australia) Ltd v Pastro (1994) 175 LSJS 448
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688, 201 ALR 55
Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176
Custody for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194Texts Cited: Equity Doctrines and Remedies, (4th Edition) Category: Consequential orders Parties: Perpetual Trustee Company Limited (plaintiff)
Alexander Kotevski (defendant)
Milanex Pty Ltd & Milan Vlasic (cross-defendants)Representation: S Docker (plaintiff)
K Connor SC/M Avenell (defendant)
DS Weinberger (cross-defendants)
Kemp Strang Lawyers (plaintiff)
SBA Lawyers (defendant)
McCabe Terrill Lawyers (cross-defendants)
File Number(s): 2007/264319
Judgment
In these proceedings the plaintiff, Perpetual Trustee Company Limited ("Perpetual") sued the defendant, Alexander Kotevski, for recovery of a substantial amount due under a loan and for possession of a property the subject of a mortgage to secure that loan. The case was heard by Patten AJ in late 2009, and his Honour gave judgment on 16 November 2009. His Honour's commission as an acting judge expired on the same day. He noted that some aspects of the matter, including the costs orders, may require further argument, and for that reason he gave the parties liberty to apply to be exercised by approaching the associate to the Chief Judge at Common Law. Following directions given by the Chief Judge, the proceedings are before me for finalisation.
The proceedings
It is necessary to sketch briefly the nature of the proceedings and their outcome. Perpetual's claim was based upon a loan of an amount in excess of $200,000, purportedly made to Mr Kotevski in January 2006, and secured by a mortgage over his home unit at Kogarah. At that time Mr Kotevski was 74 years old, his only income was a pension and his only asset was the unit.
Patten AJ found that the loan was the result of the manipulation of Mr Kotevski by a younger acquaintance, Mr Marko Micic. It was Micic, not Mr Kotevski, who benefited from the loan. Micic was not a party to the proceedings and was not called to give evidence in them. His Honour granted Mr Kotevski relief under the Contracts Review Act, declaring the loan contract and the mortgage void.
The process of obtaining the loan began with an application, apparently on Mr Kotevski's behalf, by a mortgage broker, Milanex Pty Ltd ("Milanex"). The director of that company was Mr Milan Vlasic. The application was forwarded to a mortgage originator, Good Home Loans Pty Ltd ("GHL"). That company assessed it and passed it on to Calibre Financial Services Pty Ltd ("Calibre"), which was the trust manager of the trust from which funds for the loan were to be sourced. It was Calibre which determined that the loan should be approved and recommended it to Perpetual, which was the trustee of that trust and which advanced the funds. Mr Kotevski was purportedly provided advice about the loan and mortgage documents by a solicitor, Mr Kevin Lo, to whom he was introduced by Mr Micic.
It is unnecessary to outline the procedural steps in the proceedings, including various amendments to the pleadings. It is sufficient to say that Mr Kotevski filed a defence and a cross-claim in which, among other things, relief was sought under the Contracts Review Act. This was the first cross-claim. There were three further cross-claims. The second cross-claim was brought by Perpetual against Milanex. Among other things, it alleged misleading or deceptive conduct on the part of Milanex and sought relief under the Trade Practices Act and the Fair Trading Act. The third cross-claim, brought by Mr Kotevski against Mr Lo for professional negligence, was settled at the beginning of the hearing.
The fourth cross-claim was brought by Mr Kotevski against Milanex and its director, Mr Vlasic. Among other things, it claimed relief similar to that sought by Perpetual in the second cross-claim. Having found that Mr Kotevski was entitled to relief under the Contracts Review Act, his Honour found it unnecessary to determine this cross-claim and dismissed it, with no order as to costs. It will be necessary to examine the second and fourth cross-claims later.
His Honour also dismissed the second cross-claim, brought by Perpetual against Milanex. He found that Milanex had made representations which amounted to misleading or deceptive conduct but was not satisfied that Perpetual had acted in reliance upon those representations. He ordered Perpetual to pay the costs of that cross-claim. The disposition of this cross-claim has been the subject of an appeal by Perpetual, in which judgment is currently reserved.
In the principal proceedings by Perpetual against Mr Kotevski, his Honour gave judgment for Mr Kotevski and ordered Perpetual to pay his costs. Having declared the loan contract and mortgage void, pursuant to s 7 of the Contracts Review Act, he made certain consequential declarations and an order to give effect to that finding. One of those declarations will require examination in the proceedings before me. It will also be necessary to revisit the costs of the second and fourth cross-claims. As the issues were refined in argument, there are now three matters which I must determine.
The declaration (order 3)
As I have said, the third cross-claim in which, put shortly, Mr Kotevski sought damages for professional negligence against Mr Lo, the solicitor, was settled. By consent, his Honour gave verdict and judgment to Mr Kotevski for $105,000 and ordered Mr Lo to pay Mr Kotevski's costs of that cross-claim.
Having declared the loan contract and mortgage void, his Honour made a declaration "that Mr Kotevski holds in trust for Perpetual the verdict payable to him by Mr Lo, less any costs as between solicitor and client properly payable by Mr Kotevski in respect of his cross-claim against Mr Lo." This was the third order his Honour made, and has been referred to by the parties as "order 3." There had been some repayments under the loan, presumably by Mr Micic, and His Honour also declared that Perpetual was entitled to retain that money. He ordered Perpetual to execute a discharge of the mortgage and deliver it to Mr Kotevski.
Clearly, these declarations and that order were made to put Mr Kotevski back, as far as possible, into the position he would have been in had the loan contract not been made. However, Perpetual submits that order 3 does not do justice between the parties because it provides Mr Kotevski with an unexpected windfall. Pursuant to the settlement of the third cross-claim, he is entitled to recover his costs (on a party and party basis) of the cross-claim from Mr Lo, while the declaration by its terms entitles him to deduct those same costs (on a solicitor and client basis) from the amount of the judgment against Mr Lo which he holds on trust for Perpetual. Moreover, the declaration does not impose an obligation on Mr Kotevski to have regard to Perpetual's interests in seeking to recover his costs against Mr Lo.
Exercising its liberty to apply, Perpetual seeks amendments to order 3. They are in the alternative but would achieve the same result. The effect of the first alternative would be to impose on Mr Kotevski an obligation to account to Perpetual for the proceeds of his costs order against Mr Lo, and to consider Perpetual's interests in recovering those costs. The effect of the second alternative is that Perpetual would have to allow to Mr Kotevski only the difference between his party and party costs and his solicitor and client costs of the third cross-claim.
In the event, Mr Kotevski accepted that that was the intended import of the declaration and, to that extent, did not object to it being reformulated. However, when the matter came on for hearing before me, there was filed on his behalf a motion which sought to approach this issue in a different way. In the meantime, in compliance with the trust created by the declaration, Mr Kotevski had paid to Perpetual $81,014.25. In effect, the motion sought an order that Perpetual pay Mr Kotevski the difference between the costs recoverable by him and the solicitor-client costs payable by him in the proceedings generally. It also sought an order that the amount which he had paid to Perpetual be subject to a charge to secure Perpetual's compliance with that order.
To that end, he sought that order 3 be amended in these terms:
"(A) I declare that Mr Kotevski held in trust for Perpetual the verdict and judgment and costs paid to him by Mr Lo, less (a) any costs as between solicitor and client properly payable by Mr Kotevski in respect of the proceedings and not recovered by Mr Kotevski from Perpetual and (b) any costs Mr Kotevski is required to pay Milanex or Mr Vlasic.
(B)I declare that Perpetual holds on trust for Mr Kotevski the $81,014.25 paid by Mr Kotevski to Perpetual on about 18 February 2010 for payment of (a) any costs as between solicitor and client properly payable by Mr Kotevski in respect of the proceedings and not recovered by Mr Kotevski from Perpetual and (b) any costs Mr Kotevski is required to pay Milanex or Mr Vlasic."
This matter was dealt with primarily in written submissions after the hearing of the matter. Counsel for Mr Kotevski, Mr O'Connor and Ms Avenell, noted that Patten AJ found that the justice of the case required an order declaring the loan contract void, adding that that contract "should never have been made": [286]. His Honour declared the contract and mortgage void, under s 7(1)(b) of the Contracts Review Act. That declaration had effect from the time when the contract was made: subs (2).
Counsel likened the exercise of that jurisdiction to the rescission of a contract. Reference was made to Meagher, Gummow and Lehane's Equity Doctrines and Remedies, (4th Edition) at p 857 ff. The learned authors described five uses of the term "rescission". The fifth use of the term is said to be "dictated by statute." Reference is made to a number of provisions, including s 7 of the Contracts Review Act, which "prescribe remedies which have about them the flavour of rescission but do not use that expression to describe the function of the legislation." The learned authors add, "In each case it will be necessary to analyse the statute to ascertain which (if any) of the incidents of the various categories of 'rescission' have been imported into it" (at p 859).
Counsel submitted that s 7 has "some correspondence" with the third and fourth categories referred to. The third refers to "matters which affect the contract in its formation and render it voidable at law by the party aggrieved", such as contracts voidable for fraudulent misrepresentation or duress (pp 858 - 9). The fourth category "describes the setting aside of dispositions and transactions (not limited to contracts) which in the eyes of equity are improperly procured by innocent but material misrepresentation, equitable fraud, undue influence, breach of fiduciary duty or other unconscionable conduct ..." (p 859).
In each of those categories, it was submitted, there is some factor vitiating the contract in its creation, so that it is avoided ab initio. The consequence of such a rescission was stated by Dixon J (as he then was) in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, at 447:
"When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made."
Counsel submitted that in the present case Mr Kotevski should be returned, as far as possible, to the position he occupied prior to his entry into the loan. They noted that Patten AJ rejected a submission by counsel for Perpetual that the fourth cross-claim, between Mr Kotevski and Milanex and Mr Vlasic, should be determined, so that Perpetual's rights might be subrogated to those of Mr Kotevski if he obtained judgment in that cross-claim. However, having found that the contract and mortgage should be set aside, his Honour did not consider it appropriate to pursue what he described as the "hypothetical question" raised by that cross-claim. He added, "Mr Kotevski will in the result suffer no loss": [303].
Counsel noted that his Honour went some way to ensuring that Mr Kotevski suffered no loss. He allowed him to deduct his solicitor-client costs from the judgment amount obtained from Mr Lo and, even though he dismissed the fourth cross-claim, he did not order Mr Kotevski to pay the costs of Milanex and Mr Vlasic of that cross-claim. They added, however, that his Honour did not make provision for Mr Kotevski's own costs of the fourth cross-claim, nor for the difference between his solicitor-client costs and the costs he would recover from Perpetual on the claims between him and Perpetual.
Alternatively, it was submitted that, as the loan was declared to be void from the time it was entered into, Mr Kotevski stood in the position of trustee for Perpetual of any profit or benefit he obtained by reason of the loan and the mortgage. Before commencing proceedings against Mr Lo, Milanex and Mr Vlasic, Mr Kotevski had a claim to choses in action against each of them. The chose in action against Mr Lo crystallized into a money judgment but, in the event, those against Milanex and Mr Vlasic did not.
Nevertheless, the fourth cross-claim had reasonable prospects of success and was prosecuted with the prospect that a money judgment would be obtained. In those circumstances, the argument continued, Mr Kotevski was obliged to account to Perpetual for any balance after he had been put in the position of suffering no loss through his costs of the fourth cross-claim and unrecovered costs against Perpetual. Some authority was cited for this submission, to which I need not refer.
The question arises whether it is appropriate to deal with Mr Kotevski's motion. His counsel acknowledged that the amendments to order 3 sought are beyond the scope of the exercise of liberty to apply. It was also acknowledged that the orders of Patten AJ had been entered on the day judgment was delivered. However, it was sought to rely upon UCPR r 36.15, which empowers the court to set aside a judgment or order if, among other things, it was entered irregularly. Alternatively, it was sought to invoke s 98(3) of the Civil Procedure Act, by which the court can make costs orders after the conclusion of the proceedings.
As to r 36.15, counsel accepted that the order would have been entered irregularly only if Patten AJ did not intend to make final orders when he delivered judgment but only to indicate the orders which he proposed. His grant of liberty to apply, it was said, conveys that his orders were not meant to be final. However, I am persuaded by the submissions of counsel for Perpetual, Mr Docker, that his Honour clearly intended to make final orders. In particular, order 3 was made as a consequence of the relief granted to Mr Kotevski on the first cross-claim, declaring the loan contract to be void. His Honour made limited provision for further argument about some aspects of the matter by the grant of liberty to apply, but that does not mean that his orders were not final.
Mr Docker dealt with the question of s 98(3) of the Civil Procedure Act, also persuasively, in a section of his written submissions under the apt sub-heading "Costs are Costs." In short, what Mr Kotevski seeks by the proposed amendments of order 3, although relating to costs, is not a costs order. His Honour's declaration was part of the substantive relief granted to Mr Kotevski under the Contracts Review Act. It was an order "just in the circumstances for or with respect to any consequential or related matter," within the meaning of cl 1 of Sch 1 to the Act. His Honour's statement, referred to above, that Mr Kotevski would "in the result suffer no loss" was a reference to his being relieved from his obligations under the loan contract and mortgage in circumstances where he was found not to have received any benefit from the loan. It was not a reference to the costs of the proceedings.
His Honour dealt with costs separately from the substantive issues, as he should have done. Generally, substantive issues are determined first and costs issues later. Costs implications are not considered in determining substantive relief. As Mr Docker pointed out, courts have a wide discretion in the exercise of their jurisdiction to award costs, and any award is followed by an assessment to determine its quantum in the light of what is reasonable. On the other hand, the determination of substantive issues depends on the law applicable to those issues and, insofar as a discretion may be exercised, it is different from and, generally, narrower than the costs discretion.
Accordingly, I am satisfied that Mr Kotevski's motion does not invoke this court's power under s 98(3). That is sufficient to dispose of the motion. However, there is also force in Mr Docker's argument that the amendments to order 3 sought seek consequential relief only from Mr Kotevski's perspective, which is not the proper approach. The passage from McDonald v Dennys Lascelles Ltd quoted above refers to the restoration of "the parties", not just one of them, to the position occupied before the contract was made. Maguire v Makaronis (1996 - 97) 188 CLR 449 concerned two clients who gave a mortgage to a solicitor who breached his fiduciary duty to them. In the joint judgment at 475, it was said of them that "their equity was to have the whole transaction rescinded and, so far as possible, the parties remitted to their original position." That decision was applied by the Court of Appeal in a case dealing with the Contracts Review Act, Elkofairi v Permanent Trustee Company Ltd [2002] NSWCA 413, at [80] ff.
Similarly, I accept Mr Docker's response to the alternative argument that Mr Kotevski stood in the position of trustee for Perpetual. It is sufficient to say that Mr Kotevski's choses in action against Mr Lo, Milanex and Mr Vlasic were not trust property and any action taken by Mr Kotevski to prosecute them was not taken in the execution of a trust. The trust was created by order 3 when it was made upon delivery of the judgment. The trust did not arise automatically from the loan contract being held void. It was created pursuant to the court's powers under Sch 1 of the Contracts Review Act. It is artificial to suggest that Mr Kotevski was acting as trustee for Perpetual throughout the proceedings by reason of an order made at the conclusion of them.
It follows from these reasons that there is no basis upon which to declare that Perpetual holds the sum of roughly $81,000 paid by Mr Kotevski on trust for him for the purposes which he claims.
The orders sought by Mr Kotevski in relation to order 3 are contained in notices of motion filed in court on 29 April and 10 June 2010. Those motions are dismissed. The alternative orders for amendment of order 3 sought by Perpetual are to be found in paragraphs 1 and 2 of its motion of 5 January 2010. I shall consult the parties about which of those orders should be made.
Costs of fourth cross-claim
The fourth cross-claim was that brought by Mr Kotevski against Milanex and Mr Vlasic. As I have said, that cross-claim was dismissed with no order as to costs. Mr Kotevski seeks an order that Perpetual pay his costs of that cross-claim, as well as any costs of Milanex and Mr Vlasic he might be ordered to pay. Milanex and Mr Vlasic seeks their costs of that cross-claim.
Of course, Perpetual was not a party to the fourth cross-claim. However, Mr Kotevski contends that Perpetual should pay the costs of that cross-claim upon the basis considered by the Court of Appeal in Furber v Stacey and Anor [2005] NSWCA 242. In that case Hodgson JA noted, at [30] - [31], that the "prima facie principle to be applied in relation to cross-claims, as in relation to other matters, is that costs follow the event." However, his Honour added that "this principle is subject to the ability of the Court ... to make such orders as it appears to the Court should be made, as the justice of the case may require."
At [31], his Honour considered the judgment of King CJ in Lombard Insurance Co. (Australia) Ltd v Pastro (1994) 175 LSJS 448. King CJ considered the situation where it was "reasonable, even necessary," for a defendant to join a third party where the plaintiff's case, "if established, would be the foundation of a successful claim against the third party." The Chief Justice continued:
"If in the circumstances postulated, the plaintiff fails to sustain its allegations, in consequence of which the third party claim is dismissed with costs, the defendant has incurred the costs of the third party claim by reason of the unfounded allegations of the plaintiff. It seems to be fair and just, in those circumstances, that the plaintiff should be required to indemnify the defendant in respect of those costs.
I think that a guiding principle for the exercise of the discretion in such cases may be formulated as follows. Where the nature of the plaintiff's claim, or allegations in support thereof, render it reasonable, having regard to the purposes of third party procedure, to bring in the third party, and the third party claim is unsuccessful solely by reason of the failure of the plaintiff to sustain its claim or the relevant allegations, the defendant should ordinarily recover from the plaintiff the costs of the third party claim including those which the defendant is ordered to pay to the third party. The emphasis is on the word "ordinarily". The discretion is unfettered and a variety of factors may properly enter into the exercise of it."
At [32], Hodgson JA adopted the qualifications to the "guiding principle" of King CJ suggested by Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688, 201 ALR 55, at [73] - [75]. Among other things, Finn J said (omitting references to authority):
"[73] A common consideration in the cases is whether it was "reasonable" or "appropriate" for a respondent to make the third party claim ... . The care that needs to be taken with this is that, while the making of the third party claim may have been justifiable, it may nonetheless be quite inappropriate to pass on the costs of a successful third party to the original applicant. ... A common instance of where the third party costs will not be passed on is where the third party claim raised "private issues" and the third party was not necessarily joined because of the applicant's claim ... .
[74] A distinct consideration has been whether the applicant's claim was the catalyst for the third party claim. ... The caution to be sounded with this consideration is that causation alone without regard to the nature of the cross-claim itself seems hardly sufficient to justify a pass on order.
[75] The third, and perhaps the most significant, consideration is the relationship of the nature of the original application to that of the cross-claim being brought. This nexus has been expressed in various ways: for example, does the nature of an applicant's claim, or do allegations in support of it render it reasonable for the respondent to make in turn the cross-claim that it does ... or does the third party claim raise issues private to the parties to it ... ."
Einstein J agreed with Hodgson JA, adding at [115]:
"I would however emphasize that whilst the reasonableness of the joinder of the third party may be a necessary pre-condition to the plaintiff being ordered to pay the costs of the third party claim, reasonableness is not to be regarded as a sufficient pre-condition to justify the making of such an order. The matter sounds in what is fair and just between the parties by reference to their conduct in connection with the litigation."
Mr Kotevski's case, which Patten AJ accepted, was that the loan documentation supplied to Milanex contained false information inserted by Mr Micic, and that the signatures on it purporting to be those of Mr Kotevski were forged. The documentation falsely asserted that Mr Kotevski was a builder, earning $75,000 per annum, and the loan was for investment purposes. This was the information forwarded to GHL and passed on to Calibre, and which was the basis of the loan agreement with Perpetual. It was Mr Kotevski's case, again accepted by his Honour, that the principal of Milanex, Mr Vlasic, failed to take adequate steps to verify the authenticity of the loan application and the information in it.
These allegations were made in the first cross-claim, by Mr Kotevski against Perpetual. They were put in issue by Perpetual in its defence to that cross-claim. They were also the foundation of the second cross-claim, by Perpetual against Milanex. By that cross-claim, if the allegations were established, Perpetual sought damages for misleading and deceptive conduct under the Trade Practices Act and the ASIC Act. By the fourth cross-claim, brought against Milanex and Mr Vlasic, Mr Kotevski claimed damages on the same statutory bases, and also on the basis of breach of duty of care and of a fiduciary duty.
In written submissions for Mr Kotevski, developed orally, Mr O'Connor and Ms Avenell noted that by its pleadings Perpetual not only put Mr Kotevski's allegations about Milanex in issue but also, in response to his claim that the contract was unjust, asserted that he had made the representations in the loan application. Perpetual claimed that it had relied on information said to have been supplied by Mr Kotevski, together with representations said to have been made by Milanex in its conduct of the matter.
In those circumstances, relying on the principles considered in Furber v Stacey, it was submitted that it was reasonable for Mr Kotevski to bring the fourth cross-claim. It was also submitted that that cross-claim did not raise "private issues" between Mr Kotevski and Milanex. While the cross-claim included certain allegations of misleading and deceptive conduct by Milanex in addition to those made by Perpetual, and while it was amended to include a claim for breaches of duty, these matters were interconnected with the claims involving Perpetual.
For Perpetual, Mr Docker submitted that the principles considered in Furber v Stacey do not apply in this case. He argued that the fourth cross-claim did not arise out of allegations made by Perpetual against Mr Kotevski. Rather, Perpetual's claim was based simply upon the fact that Mr Kotevski had signed the loan agreement and the mortgage, the mortgage had been registered, the funds had been advanced and there had been default in repayment. The allegations on which the fourth cross-claim were based were first made by Mr Kotevski in his defence to the amended statement of claim and the first cross-claim.
Accordingly, Mr Docker argued, the issues raised by the fourth cross-claim played no part in the case Perpetual brought against Mr Kotevski. Moreover, the claim that Milanex and Mr Vlasic were in breach of a duty of care and a fiduciary duty amounted to "private issues" in the relevant sense.
Put shortly, Mr Docker's position was that filing the fourth cross-claim was Mr Kotevski's "own strategic decision". It was based on events which involved mainly Milanex and himself, raising allegations which he had already made in the first cross-claim. Simply because Perpetual sought to contest these allegations by defending the first cross-claim and bringing the second cross-claim, it could not be said that the fourth cross-claim arose from Perpetual's claim in the proceedings.
As I have said, Milanex and Mr Vlasic also seek their costs of the fourth cross-claim, even though his Honour had made no order as to costs. Their position was that their costs could be recoverable either from Mr Kotevski or from Perpetual. Their counsel, Mr Weinberger, favoured an order against Perpetual, supporting Mr Kotevski's position. However, his approach was that I should make a Bullock or a Sanderson order. For that purpose, he characterised Mr Kotevski as the plaintiff, his clients as the successful defendants and Perpetual as the unsuccessful defendant. Counsel for Mr Kotevski adopted this approach as an alternative to their submission based on Furber v Stacey.
Bullock and Sanderson orders were considered in Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176. The court set out the factors governing them, by reference to authority, at [16]:
"In Stevedoring Industry Finance Committee v Gibson [[2000] NSWCA 179] Mason P (Stein JA and Heydon JA agreeing) (at [128]), adopted the considerations stated by Asche CJ in Lackersteen v Jones [(1988) 93 FLR 442 at 449] to be relevant to the exercise of the court's discretion in making such an order. Those considerations were:
'1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant.
2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other.
3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion.
4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful.'"
I have not found these matters easy to resolve. Furber v Stacey was very different from the present case. It was a defamation case in which the defendant had joined a third party on the basis that it was a joint tortfeasor. The necessity to do so clearly arose from the nature of the plaintiff's claim. That claim having failed, the cross-claim against the third party did not need to be pursued and was dismissed. It was in those circumstances that the question whether the plaintiff should bear the costs of the defendant and the third party arose.
That distinction from the present case is not decisive. The submission of counsel for Mr Kotevski was that Perpetual's pleading against Milanex, both in its defence to the first cross-claim and in its second cross-claim, was the catalyst for his instituting the fourth cross-claim. In the event, that cross-claim did not need to be decided and was dismissed because Perpetual failed in its claim against him. Thus, it was argued, the situation in the present case was relevantly similar to that in Furber v Stacey.
For the purpose of the discretion examined in Furber v Stacey and for a Bullock or Sanderson order, it can be said that Mr Kotevski's joinder of Milanex and Mr Vlasic was reasonable. Clearly, there was also a nexus or substantial connection between his cross-claim and that of Perpetual. On the other hand, as Mr Docker pointed out, his cross-claim raised issues additional to those in Perpetual's which could fairly be described as "private issues." I was informed from the bar table that these issues occupied a significant amount of court time, including an interlocutory application before the trial.
Moreover, I think that there is force in Mr Docker's argument that the fourth cross-claim was Mr Kotevski's strategic decision, and was not attributable to Perpetual's conduct in such a way as to invoke the discretion to order it to pay the costs of a cross-claim to which it was not a party. Having regard to all the circumstances, I am not persuaded that Perpetual should pay Mr Kotevski's costs of the fourth cross-claim.
That brings me, then, to the order for costs sought by Milanex and Mr Vlasic. As I have said, Patten J made no order as to costs of the fourth cross-claim, and by that I take his Honour to have meant that each party to that cross-claim should pay his or its own costs. While I accept that I have the power to revisit that order, I am not persuaded that I should do so.
Of course, costs normally follow the event and, on the face of it, his clients were entitled to their costs. However, one can readily see why his Honour might have exercised his discretion to order otherwise. The cross-claim was not dismissed on its merits, but because it was unnecessary to decide it. It raised substantially the same issues as those in the second cross-claim, in which Milanex was successful and secured an order for costs against Perpetual. In those circumstances, it is my respectful view that his Honour's decision that there be no order for costs was just and I would not disturb it.
I should add that Mr Weinberger sought costs against Mr Kotevski on an indemnity basis from a certain date, having made an offer to settle the fourth cross-claim under Pt 20 of the Rules and by way of a Calderbank letter. I would not in any event have allowed costs on that basis, particularly as the cross-claim had reasonable prospects of success and was not dismissed on its merits. In other respects the considerations are the same as those arising from Milanex's offers at the same time and in identical terms to Perpetual in respect of the second cross-claim. To that I now turn.
Costs of second cross-claim
Finally, Milanex seeks an order that part of its costs of the second cross-claim, awarded against Perpetual, be paid on an indemnity basis. On 3 September 2009 Milanex served on Perpetual an offer of compromise, pursuant to UCPR r 20.26. The offer was for payment of $25,000 and 25% of Perpetual's costs of the cross-claim. On 11 September 2009, Milanex conveyed the same offer to Perpetual by a Calderbank letter. Neither offer was accepted. Milanex seeks its costs on an indemnity basis from 3 or 11 September 2009.
The first letter does not comply with r 20.26 because the offer is not exclusive of costs, as required by subs (2) of that rule. That being so, the refusal of the offer does not have the cost consequences set out in r 42.15: Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, at [24]. However, the Calderbank offer remains to be considered.
Of course, whether such an offer justifies an indemnity costs order is a matter in the discretion of the court, which must be exercised in the light of all the circumstances of the case. An indemnity costs order will not be made unless the rejection of the offer was unreasonable: Salvation Army Property Trust v Becker (supra) at [7].
The offer of compromise under the Rules, made on 3 September, was expressed to be open until 11 September. The offer in the Calderbank letter, made on 11 September, was expressed to be open until 10am on 14 September. 14 September was the first day of the trial before Patten AJ. The offer of compromise, while not complying with the Rules, might be treated as amounting to a Calderbank offer: Salvation Property Trust v Becker at [26] - [28]. However that may be, Perpetual was on notice of the offer on 3 September, eleven days before the commencement of the trial. There is some force in Mr Docker's complaint that, for a matter on such a scale, the offer was late in the day and open for a very limited period. He also noted that, given the amount of money involved, the figure offered was very low.
Mr Docker relied particularly on Perpetual's perspective of the case at the time the offer was made. It had advanced the loan on the basis of standard loan contract and mortgage documents which Mr Kotevski had undoubtedly signed, and which contained his acknowledgement of having obtained the advice of a solicitor before doing so. He had received a cheque for the proceeds of the loan, which had been banked into his account. The allegations he made in his defence and cross-claim were about matters of which Perpetual could have no direct knowledge. The outcome would depend upon his credibility, which was yet to be tested. The same was true of witnesses from Milanex, including Mr Vlasic, and the solicitor, Mr Lo.
In the event, his Honour found that Milanex had engaged in the misleading or deceptive conduct alleged. As I have said, he dismissed the cross-claim only because he did not find that there was "reliance in any relevant sense" upon those representations. He referred, in particular, to evidence that Ms Jane Pogson, an officer of GHL, knew of Mr Kotevski's age and knew, or ought to have known, that he was a pensioner, and should have made further enquiries about the matter. As I understand it, it is this finding of lack of reliance that was the subject of the appeal, the contention being that the inference of reliance should readily have been drawn from the finding of the misleading or deceptive conduct.
Mr Weinberger, on the other hand, argued that his Honour's finding was the result of a deficiency in Perpetual's own case. As he put it in oral submissions, "they lost on their own evidence." I understand that submission, but there is something of the wisdom of hindsight about it. As matters stood before the trial, I think it was reasonable for Perpetual to reject the offer, particularly for such a low figure. Certainly, having regard to all the circumstances, I am not persuaded that it was unreasonable to do so.
Accordingly, I reject Milanex's claim for part of its costs on an indemnity basis. The whole of the costs of the second cross-claim will be on the ordinary basis.
It will be necessary to hear the parties on the costs of the proceedings before me. I am also mindful of the time which has elapsed between the argument of this matter and my delivery of judgment. If there is any outstanding matter which I have not dealt with, the parties have liberty to apply.
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Decision last updated: 23 May 2013
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