Poraviappan v Alderuccio Solicitors
[2016] VSC 417
•22 July 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S CI 2016 00543
| KUHAN ARUNASALAM PORAVIAPPAN | Plaintiff |
| v | |
| ALDERUCCIO SOLICITORS | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 22 July 2016 |
CASE MAY BE CITED AS: | Poraviappan v Alderuccio Solicitors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 417 |
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PRACTICE AND PROCEDURE — Costs of the proceeding — Costs of interpleader summons — Where interpleader application dismissed by consent — McPherson, Thom & Co v Coombie Pastoral Co Pty Ltd [1929] VLR 295 — Supreme Court (General Civil Procedure) Rules 2015, Order 12.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | — | Clayton Utz |
| For the Defendant | — | Alderuccio Solicitors |
HER HONOUR:
Introduction
On 13 May 2016 the following orders, inter alia, were agreed between the parties:
(a) the defendant’s interpleader summons filed 22 April 2016 (‘the interpleader application’) be dismissed;
(b) the plaintiff’s summons filed 12 May 2016 (‘the summary judgment application’) be dismissed;
(c) the defendant pay to the plaintiff the sum of $350,000 of the total sum of $400,000, which the plaintiff caused to be transferred to the defendant firm’s trust account on or about 2 February 2016, within 7 days; and
(d) the remaining $50,000 that the plaintiff had caused to be transferred to the defendant firm’s trust account remain in the trust account pending the determination of the costs of the interpleader summons and the proceeding generally.
As the parties were unable to agree on the costs of the interpleader application and the proceeding generally, directions were made for the parties to file written submissions regarding those costs.
The plaintiff seeks that his costs of the interpleader application and the proceeding generally be paid by the defendant, with further written submissions to be made as to the basis upon which the costs are to be taxed, in the absence of agreement. The defendant seeks that its costs of the interpleader application be paid by the plaintiff on an indemnity basis.
For the following reasons, I have determined that the plaintiff’s costs of the interpleader application and the proceeding be paid by the defendant and there be no orders as to the defendant’s costs.
Background
On 3 July 2015, Cirach Development Pty Ltd (‘Cirach Development’) entered into a contract of sale to purchase a property in Point Cook, Victoria (‘the property’) from Aero Developments Pty Ltd (‘the vendor’), with the intention of developing the property (‘the project’). The plaintiff agreed to become a private investor in the project. It is unnecessary to go into the detail of the arrangement between the plaintiff and Cirach Development other than to note the matters now set out below.
The plaintiff contributed a significant amount of money towards the acquisition of the property. Completion of the contract of sale was due to occur on 14 January 2016. Cirach Development did not pay the balance of the purchase price by that date, and the vendor issued a notice of rescission. The effect of the notice of rescission was that if Cirach Development failed to comply with its terms by 29 January 2016, it would automatically become a notice of termination.
On 28 January 2016, the sole director of Cirach Development, Mr Paul Chiodo, informed the plaintiff and the defendant, amongst others, via email that he had secured an extension of settlement under the contract, on the following conditions:
(a) that settlement would occur on 15 February 2016;
(b) an additional $900,000 would be paid to the vendor on settlement; and
(c) a further deposit and interest totalling $1.2 million would be paid on 29 January 2016.
In his email, Mr Chiodo stated that ‘[a]ll monies need to be placed into Bruno’s account to make this happen’. Bruno is Mr Bruno Alderuccio, the principal of the defendant firm.
In response, the plaintiff agreed to contribute to the vendor’s offer by arranging for the $1.2 million comprising the further deposit and interest. This payment was intended to be comprised of a transfer of $800,000 from an account which is otherwise irrelevant to this determination, and, importantly, a loan of $400,000 (‘the funds’) obtained by the plaintiff pursuant to a formal loan agreement. This agreement was guaranteed by a Mr Jude Allen (‘Mr Allen’), pursuant to a personal guarantee.
On 2 February 2016, the funds were transferred to the defendant’s trust account. A number of emails were exchanged between the plaintiff and Mr Alderuccio regarding this transfer, the relevant details of which are as follows:
(a) at 11:23 the plaintiff emailed Mr Alderuccio stating ‘kindly find enclosed confirmation of A$400,000 transferred to your nominated Trust Account’;
(b) Mr Alderuccio responded asking, relevantly ‘Please confirm that these funds are to be credited to Cirach Development p/L?’. Mr Alderuccio then sent a further email asking ‘Can you please confirm per below that funds are to be receipted to Cirach Development p/l. Is the sender GBR or yourself?’;
(c) the plaintiff responded:
Since I have signed a loan agreement for the additional $400,000, you can state that the funds are from me.
I think it would be best to credit these funds to me: Kuhan Arunasalam Poraviappan.
(d) Mr Alderuccio responded the following day as follows:
I confirm per your email the funds of $400,000 are from Madison Marcus Law Firm Pty Ltd on your behalf and therefore will be receipted to:
Cirach Development P/L trust account received from Kuhan Arunasalam Poraviappan.
Ultimately, the extended settlement conditions were not satisfied, and on 3 February 2016 the vendor issued a notice to Cirach Development requiring the removal of their caveat from the property.
On 4 February 2016, the plaintiff wrote to the defendant seeking the immediate return of the funds. This request was reiterated the following day in a letter from the plaintiff’s solicitors, which stated that the funds had been transferred to the defendant’s trust account by or on behalf of the plaintiff, and were not to ‘be dealt with in any way and must be returned in full forthwith’. Separate demands were also made in respect of other amounts contributed to the project by the plaintiff that are not relevant to the present proceeding.
On the same day, following a conversation between the defendant and the plaintiff’s solicitors, a further email from the plaintiff’s solicitors reiterating the plaintiff’s position was sent stating:
I have spoken to my client and re-confirmed my instructions, which are that the sum of $400,000 that was transferred to your solicitor’s trust account has come from my client, personally, and not RE Tanah Pty Ltd, Cirach Developments Pty Ltd or Mr Chiodo. In those circumstances you are holding those monies on trust for my client…Whatever your previous instructions were in relation to those funds has been countermanded by these instructions.
Again, on 5 February 2016 the solicitors for the plaintiff wrote to the defendant, stating relevantly:
We are instructed that today, Mr Chiodo telephoned our client and said words to the effect that, as a result of our client treating the sale contract for the Point Cook property at an end, our client has ’removed all the oxygen from the deal’ and left Mr Chiodo with ‘no choice’ but to use the sum $400,000 which is currently in your solicitor’s trust account ‘as a bargaining tool’.
…
These circumstances give rise to the inference that Mr Chiodo has instructed you to withhold the funds from our client.
…
Mr Chiodo is not entitled to those funds nor is he entitled to instruct you to withhold those funds from our client, either in his personal capacity or as a director of RE Tanah Pty Ltd and Cirach Developments Pty Ltd.
…
If you do not provide that immediate undertaking [to return the funds], our client will take such action as it deems necessary which may include (but not be limited to) commencing legal proceedings against you and your firm.
On 9 February 2016, the defendant responded to these requests by noting that:
… the funds have been credited to our clients file being Cirach Development Pty Ltd. It is noted that they were received from your client under an arrangement with our client.
It is clear from the emails and discussion between our clients and our office the funds were remitted by your client to Cirach Development Pty Ltd and they were only deposited to our Trust Account as a matter of convenience...The use of the funds as between your client and our client for a proposed purchase of a property at Point Cook, Victoria, is a matter between the parties.
It is clear from the trail of emails that the beneficiary is “Cirach Development P/L”.
In response, the solicitors for the plaintiff wrote to the defendant referring to the email in which the plaintiff had expressly stated that the funds were to be held on the plaintiff’s account, and in the circumstances outlined in detail ‘it is unarguably the case that the funds do not belong to Cirach Development.’
On 8 February 2016, Mr Chiodo instructed Mr Alderuccio that the funds were committed to the renegotiation of the purchase of the property, and were to be retained on behalf of Cirach Development.
On 9 February 2016, Cirach Development terminated the defendant’s retainer in respect of the property, and requested the defendant transfer the funds to the trust account of their new solicitors, Mills Oakley.
On 10 February 2016, the defendant wrote to Mills Oakley indicating that the funds would only be transferred upon receipt of a signed direction to that effect. The signed direction was received on 15 February 2016.
On 12 February 2016, the solicitors for the plaintiff again wrote to the defendant to the effect that:
(a) Mr Chiodo had informed the plaintiff that he intends to instruct Mills Oakley, and direct the defendant to transfer the funds to the Mills Oakley trust account;
(b) the plaintiff directs the defendant not to transfer the funds as requested by Mr Chiodo; and
(c) if an undertaking that those instructions will be acted upon by noon on 15 February 2016 were not provided, it was likely that the plaintiff would issue proceedings against the defendant in respect of the funds.
The defendant responded on 16 February 2016, stating amongst other things:
Your client did not object to this. Your client was concerned to ensure that the receipt recorded the funds came from him and not any other person or entity.
…
It is abundantly clear in the emails from your client and telephone discussions that the funds were remitted for Cirach Development P/L for the purpose of enabling negotiations with the vendor to obtain an extension to settlement (“the purpose”).
In telephone discussion on 29 January with my client your client understood the funds were to be utilized for the purpose and if a satisfactory arrangement was not entered into with the Vendor that the funds would be partly utilized to obtain Counsel’s legal advice to be sought by Cirach and including the costs of any legal action commenced or defended relating to the purchase of the property.
On 16 February 2016, the plaintiff issued proceedings seeking, inter alia, the return and an account of the funds.
On 4 April 2016, Mr Chiodo wrote to the defendant reiterating his instructions regarding the funds, and indicated that Mr Allen was a potential additional claimant to the funds.
On 22 April 2016, the defendant filed the interpleader application, supported by an affidavit sworn by Mr Alderuccio, seeking the following relief:
(a) orders that the funds be paid into court to abide the determination of the respective claims of any claimants to the funds; and
(b) such other orders required to dispose of the respective claims including the costs of the defendant on an indemnity basis.
On the same day, Mr Allen wrote to Mr Chiodo advising that he was simply a guarantor for the loan of the funds, had no claim over the funds, and would not make any such claim in the proceedings between the plaintiff and the defendant.
On 6 May 2016, the solicitors for the plaintiff wrote to Mills Oakley outlining the plaintiff’s position regarding the funds and seeking confirmation as to whether Cirach Development would be appearing at the hearing of the interpleader application.
On 9 May 2016, Mills Oakley informed the plaintiff’s solicitors it no longer acted for Cirach Development, and they would need to contact Mr Chiodo directly. Upon contacting Mr Chiodo, the plaintiff’s solicitors were informed that:
(a) Cirach Development was not presently legally represented and all correspondence was to be sent directly to Mr Chiodo; and
(b) Mr Chiodo was unsure if solicitors would be appointed for the hearing of the interpleader hearing as Cirach Development did not have funds to pay for solicitors’ fees.
The plaintiff’s solicitors subsequently sent Mr Chiodo the letter outlining the plaintiff’s position, as previously sent to Mills Oakley.
On 12 May 2016, the plaintiff filed a summons for summary judgment seeking, inter alia:
(a) payment of the funds to the plaintiff with interest; and
(b) an order that the requirement in r 22.03(4) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) that the summons and affidavit in support of the application for summary judgment be served not less than 14 days before the date of hearing given in the summons be dispensed with.
Submissions
Both parties accept that the general rule as to the costs of an interpleader summons is as stated by Lowe J in McPherson, Thom & Co v Coombie Pastoral Co Pty Ltd:
The rule to be deduced from these cases in regard to costs is that where the applicant on an interpleader summons has come promptly to the Court when faced with conflicting claims, and has been guilty of no conduct which has increased costs, prima facie he should have a complete indemnity, so far as the fund will permit, for his costs; that is to say, he is prima facie entitled in such circumstances to his costs as between solicitor and client. In most cases of interpleader, however, the proceedings on the part of the applicant are of the simplest nature, and his costs should not require to be taxed in order that he should have a full indemnity. In such cases—and these I think will be the general rule—the Judge on the hearing will fix the costs of the applicant at an amount which will give that indemnity.[1]
[1]McPherson, Thom & Co v Coombie Pastoral Co Pty Ltd [1929] VLR 295, 301 (‘McPherson’).
However, the parties differ as to the applicability of the general rule stated in McPherson.
Defendant’s submissions
The defendant submits that it was entitled to the costs of the interpleader application on an indemnity basis if it established that it had acted promptly in coming to court, and had not committed any disentitling conduct. It contends these criteria are satisfied for the following reasons:
(a) the defendant had a real foundation for fearing that there was an adverse claim to the funds in respect of which proceedings may have been issued;
(b) it is not determinative that Cirach Development did not appear at the hearing of the interpleader application;
(c) it was necessary for the defendant to interplead; and
(d) it is not disentitled to the costs of the application on the basis that it acted for itself.[2]
[2]Citing Guss v Veenhuizen (No 2) (1976) 136 CLR 47; Cashman & Partners v Secretary, Department of Human Services and Health (1995) 61 FCR 301.
The defendant also takes issue with the plaintiff’s prayer for the costs of the proceeding generally, contending that the summary judgment application was misconceived for a number of reasons.
Plaintiff’s submissions
The plaintiff submits that the defendant should pay the plaintiff’s costs of the interpleader summons, and of the proceeding generally.[3] While accepting the general position as to costs of an interpleader summons as set out in McPherson, the plaintiff submits that the defendant has no such entitlement for the following reasons:
[3]Plaintiff’s Submissions as to Costs, 20 May 2016, [2].
(a) the application lacked a proper foundation, as the defendant failed to establish that there was a claimant, apart from the plaintiff, with a ‘cogent or arguable basis for a legal claim to the Funds’;
(b) the defendant failed to establish that there was a ‘real foundation for the asserted expectation that the firm would be sued adversely by someone other than the plaintiff’;
(c) the defendant colluded, as that term is used in r 12.10(1) of the Rules, with Cirach Development, disentitling it from relief under that rule;
(d) this conduct forced the plaintiff to commence the proceedings in respect of the funds to protect his position; and
(e) the defendant’s intention to transfer the funds to Cirach Development forced the plaintiff to commence the proceedings.
The plaintiff submits that the interpleader application was unnecessary as the defendant could have offered to put the funds in a separate account while the plaintiff and Cirach Development resolved their dispute. Instead, the defendant’s conduct required the plaintiff to incur expense to both initiate the proceeding and answer the interpleader application.
The plaintiff succeeded in the proceeding and there is no basis for departing from the usual rule as to costs.
Consideration of the interpleader application
Order 12 of the Rules governs the interpleader procedure, relevantly as follows:
12.02 Stakeholder's interpleader
(1) Where—
(a)a person is under a liability (otherwise than as a sheriff) in respect of a debt or other personal property; and
(b)the person is sued or expects to be sued in any court for or in respect of the debt or property by two or more persons making adverse claims to or in respect of the debt or property—
the Court may, on application by that person, grant relief by way of interpleader.
…
12.10 Neutrality of applicant
(1)Where a stakeholder applies for relief by way of interpleader, the Court may dismiss the application or give judgment against the applicant unless the Court is satisfied that the applicant—
(a)claims no interest in the property in dispute except for charges or costs; and
(b) does not collude with any claimant.
As with the general rule as to the costs of an interpleader summons as set out in McPherson, the Court’s general powers and discretions as to costs were not in dispute between the parties. It was also accepted that the defendant claimed no interest in the funds, except for its costs. Accordingly, what falls to be considered is:
(a) the defendant’s entitlement to relief under r 12.02; and
(b) any conduct of the defendant disentitling such relief.
The defendant’s entitlement to relief
The question requiring consideration is whether the defendant expected to be sued in any court for or in respect of the funds by two or more persons making adverse claims to or in respect of the funds.
To be entitled to the discretionary relief of interpleader, there must be a ‘real foundation for the expectation of a rival claim’ and ‘a real foundation for the expectation that they would be sued.’[4] In Sun Insurance Office v Galinsky, it was said that:
One of the cases in which a discretion would properly be exercised by refusing to make an interpleader order would be where he came to the conclusion that neither of the suggested claimants had any claim whatever. The same would be true if one of the parties had no sort of claim. The claim put forward might be an absurd one.[5]
[4]Watson v Royal Park (Caterers) Ltd [1961] 1 WLR 727, 734 (Edmund Davies J) (citations omitted).
[5]Sun Insurance Office v Galinsky [1914] 2 KB 545, 552 (Vaughan Williams LJ).
This statement was referred to with approval by Byrne J in BHP Petroleum Pty Ltd v Jovista Pty Ltd as follows:
Nevertheless, the requirement that there be a competing claim carries with it the requirement that there be some substance to this claim. It would be an abuse of the court process to grant relief where the court formed the view that the competing claim was an absurd one or one without substance, in the sense that it had no possible prospect of success.[6]
[6]BHP Petroleum Pty Ltd v Jovista Pty Ltd (t/as SDR Constructions) (Unreported, Supreme Court of Victoria, Byrne J, 2 June 1995).
Accordingly, consideration must be given as to whether there was a real foundation for:
(a) a competing, arguable claim established by the defendant; and
(b) an expectation that the defendant may have been sued in respect of that claim.
The alleged ‘claim’ by Mr Allen
The defendant’s evidence in support of its contention that Mr Allen was a potential claimant to the funds was the email that Mr Alderuccio received from Mr Chiodo referred to at [16] above. Aside from this statement, any concern as to a claim by Mr Allen could have easily been assuaged by simple enquiry. In any event, any misapprehension that the defendant had as to Mr Allen’s claim on the funds was cured, at the very latest, upon receipt of the affidavit of the plaintiff sworn 11 May 2016, which exhibits the email that Mr Chiodo received from Mr Allen.
There is no arguable basis upon which the defendant could have considered that Mr Allen could be a claimant to the funds, at the very latest from 11 May 2016. There is no evidence whatsoever of a real or proper basis for an expectation that Mr Allen may sue the defendant in respect of the funds at any stage.
The claim by Cirach Development
In his affidavit sworn 21 April 2016, Mr Alderuccio deposes:
My instructions at that time were to receive the Funds to the credit of the First Claimant’s trust ledger, which I confirmed by email to the Plaintiff on 3 February 2016 at 3.29 pm. The Plaintiff subsequently acknowledged on 3 February 2016 at 4.24 pm that my client was Mr Chiodo and the First Claimant, which was consistent with my instructions to receipt the funds into my client’s trust ledger.
The correspondence already set out in these reasons establishes that his statement is not supported by the evidence and that his instructions were to the opposite effect. The defendant simply failed to receipt the funds in accordance with the plaintiff’s clear and unambiguous instructions. In light of these instructions having been given, it is understandable that the plaintiff considered that it should be unnecessary to restate this. It is an undeniable fact that Cirach Development was a client of the defendant but that fact cannot support the proposition now put forward by the defendant.
The plaintiff was very clear in stating the purpose for which the funds were transferred to the defendant, that is:
(a) to commit to a requirement of the vendor’s offer of 28 January 2016 by paying the extra deposit and penalties totalling approximately $1.2 million; and
(b) this amount would be made up of a payment of $800,000 from a separate account and $400,000 which the plaintiff would arrange to be transferred to the defendant’s trust account.
The plaintiff also expressly stated that the funds were from him, and were to be credited to him, not Cirach Development, and he explained that this was because it was he who entered into a loan agreement for this amount.
Although placed in the Cirach Development trust account, the defendant confirmed that the funds were received from the plaintiff.
Once the offer was not complied with, the purpose for which the funds were to be used no longer existed. No evidence has been provided by the defendant to justify its belief that the funds were to be used for the acquisition of the property more generally. The defendant’s reliance on an email from Mr Chiodo on 8 February 2016 purporting to give instructions regarding the fund cannot stand in light of the express instructions provided by the plaintiff, and the plaintiff’s numerous demands for return of the funds prior to that date. As the funds were received on the plaintiff’s behalf, only the plaintiff could give directions as to the transfer of the funds.[7] As the plaintiff observed, this should have been recognised by the defendant.
[7]See s 138 of the Legal Profession Uniform Law (Vic).
No evidence has been provided that the defendant had a real foundation for an expectation that Cirach Development may sue them for or with respect to the funds. The evidence provided goes no further than a mere assertion by Mr Chiodo of some entitlement to the funds as a negotiating tool for the Point Cook project.
Collusion
For the reasons given above, it is unnecessary to consider the plaintiff’s argument regarding collusion under r 12.10(1)(b) of the Rules. Having said that, it should be noted that collusion for the purposes of the Rules ‘does not necessarily entail anything morally wrong’,[8] and conduct such as providing an indemnity to a claimant may amount to collusion. The intention of the rule is to ensure that ‘the stake-holder who claimed the benefit of the Act should be in a real position of impartiality between the parties.’[9] I would be hesitant to make a positive finding of collusion without clear evidence that an applicant and a claimant were ‘playing the same game.’[10]
[8] Murietta v The South American Etc Company Ltd (1893) 62 LJQB 396, 398 (Charles J).
[9]Ibid 397 (Wills J).
[10]Ibid.
Conclusion on the interpleader application
The interpleader application was unnecessary and should not have been brought by the defendant. The conclusion stated by Swift J in Allnut v Mills is apt:
… there was no justification for his refusal to pay … the plaintiff. He had no defence to the action, and no right to start interpleader proceedings. It was not right to make the plaintiff pay the defendant’s costs…when he (the defendant) was keeping back money which belonged to the plaintiff.[11]
[11]Allnut v Mills (1925) 42 TLR 68, 69.
Accordingly, I will make orders that the defendant pay the plaintiff’s costs of the interpleader application and there be no order as to the defendant’s costs of the interpleader application.
Consideration and conclusion on the costs of the proceeding generally
The plaintiff has been successful in the proceeding. This is the case notwithstanding the dismissal of his summary judgment application, which became unnecessary following the consent orders for the return of the funds. In my view, the summary judgment application was proper and, as the plaintiff submits, the plaintiff was successful in obtaining judgment. None of the matters raised by the defendant should alter the usual position as to costs.
Accordingly, I will make orders order that the defendant pay the plaintiff’s costs of the proceeding and there be no order as to the defendant’s costs of the proceeding.
Further directions
The parties are to prepare minutes of orders reflecting these findings, including an order for the payment of the sum of $50,000 to the plaintiff.
In the absence of agreement between the parties, the parties are to file written submissions in relation to the basis on which the costs are to be taxed on or before 29 July 2016.
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