Refaat v Barry (Ruling No. 2)

[2014] VCC 761

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted
Suitable for Publication

AT MELBOURNE

CIVIL DIVISION

Case No. CI-12-02108

SAMEH REFAAT	Plaintiff
v
MICHAEL BARRY	Defendant

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JUDGE:	HIS HONOUR JUDGE MACNAMARA
WHERE HELD:	Melbourne
DATE OF HEARING:	10 April 2014
DATE OF JUDGMENT:	10 April 2014
CASE MAY BE CITED AS:	Refaat v Barry (Ruling No. 2)
MEDIUM NEUTRAL CITATION	[2014] VCC 761

REASONS FOR JUDGMENT

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	In Person
For the Defendant	Mr J. Wilkinson	Brendan Hardiman & Associates

HIS HONOUR:

1       In this proceeding, which was heard over a large number of days in February of this year, I published a reserved decision on 11 March 2014.  The reasons which I published required calculations to be made relative to the amounts which I determined should be paid on the defendant’s counterclaim.  I heard argument this morning as to those matters.

2       The two classes of monies awarded were: the first group, relative to a personal loan or loans made by the defendant counterclaimant to the plaintiff; the second, a claim for reimbursement of monies by the counterclaiming defendant under a Partnership Agreement between him and the plaintiff.

3       Mr Wilkinson, counsel for the counterclaiming defendant, Mr Barry, has handed me calculations of the amount of interest which he submits should be included in the judgment which will be entered.

4       Dr Refaat, the plaintiff, and defendant to the counterclaim, however, has submitted that the approach underlying these calculations is inappropriate for a variety of reasons.  In any event, it seems to me that there are grounds for debate as to the premises on which the calculations made on behalf of the counterclaiming defendant are based. 

5       The first question I have to resolve relates to how interest is to be awarded relative to the personal loan.  I found that the personal loan was linked to the interest rate which the defendant, Mr Barry, was obliged to pay on his overdraft account to his bank, the Westpac Banking Corporation.  I have been provided with material relative to that account and the facility letter states that, “Interest will be calculated on the daily balance and charged monthly”.

6       Mr Wilkinson submits that the relevant rate, as disclosed by the material from Westpac, should be employed and that this interest should be compounded daily.  He submitted that the passage which I quoted from the facility letter in the preceding paragraph supported his submission. 

7       Mr Wilkinson said that the material which was exhibited to Mr Barry’s affidavit of 25 March included all of the material that Mr Barry was able to obtain from the bank as to calculation of interest relative to his overdraft account. 

8       To my mind, the words from the facility letter upon which reliance are placed, mean that there is to be daily calculation of the interest obligation of Mr Barry to the bank, and that he is to be charged that interest monthly.

9       During one of his submissions, Mr Wilkinson, I am sure inadvertently, misquoted the facility letter by referring to interest being “added” monthly. If the facility letter had said that, I might have been persuaded that that entailed a compounding.  But, of course, the compounding would have been monthly, not daily.

10      Generally, interest is calculated daily.  When interest is awarded on a judgment under the Supreme Court Act 1986, the interest is applied for every day that the judgment is outstanding. If some part of the judgment is repaid on the second of the month, then the calculation for the interest which is owing on the judgment as from the third of the month is on the lower figure. That is what a calculation of interest on a daily basis means. In itself, it does not import any compounding.

11      In the circumstances, I am not satisfied on the evidence before me that Mr Barry’s overdraft account required that there be a daily compounding of interest.  Not being satisfied of that, I do not believe, for the purposes of this determination, that I should award interest on a daily compounding basis.

12      The next matter that arises is as to an amount of $5,000, which the evidence disclosed was agreed to be paid by Dr Refaat relative to what is described as the “second personal loan”. 

13      I have been taken to the passages in the transcript on this subject anew, by Mr Wilkinson this morning, and I accept that there was a provision as to the payment of $5,000 by Dr Refaat relative to the second personal loan.

14      Dr Refaat does not deny this, but he says that the $5,000 was payable in consideration of an early payout under what is described as the Machine Buyout Agreement.  His contention at trial was that the effect of this arrangement was to roll the loan and the Machine Buyout Agreement together.  In my determination, I considered and rejected his contention in that respect.

15      Parity of reasoning and the fact that that was the determination I have made in my principal judgment, indicates that I should reject his contention that the $5,000 was somehow linked to the Machine Buyout Agreement.  I accept that it was paid as some sort of commitment or procurement fee for the $25,000 loan.  Mr Wilkinson submits that, in the circumstances, it should be capitalised. 

16      Accepting that Dr Refaat did agree to pay the $5,000, characterising it as a fee does not make it part of the principal sum and it should not attract interest.  Therefore, whilst the $5,000 should be included in the amount awarded relative to that personal loan, it should not be regarded as part of the principal sum so as to attract interest.  At least, before the entry of judgment.

17      The next issue I have to consider is what interest should be awarded relative to an amount which I have found Mr Barry to be entitled to as a reimbursement to him under his partnership with Dr Refaat.

18      Mr Wilkinson’s calculations applied the Westpac overdraft rate to this principal sum.  Given that there is no connection, apart from the identity of parties, between the Partnership Agreement and the personal loan agreement (and they were made at different times), there is really no basis for making that link at all.  The only entitlement which Mr Barry will have to interest on that amount, in the absence of some express arrangement in the Partnership Agreement, which did not seem to include any such special agreement, would be under the Supreme Court Act.

19 Section 58 of the Supreme Court Act provides for the award of interest at the rate stipulated under the Penalty Interest Rates Act 1983 from the date on which the relevant amount became payable. In my view, prima facie, Mr Barry is entitled to interest at that rate and on that basis. I should observe that this is principal interest, not compound interest.

20      Dr Refaat submitted that to make such an award would be inappropriate for a number of reasons.  First, he identified the statute which lays down the rates in the Penalty Interest Rates Act, as requiring that there be something out of the ordinary, something, to make reference to the title of the statute itself, which merited a penalty.

21      He submitted, correctly, that the court has a discretion to award interest at a lower rate.  He submitted that that would be appropriate here.  He denied that he had behaved in any way unreasonably.

22      In my view, interest should be awarded at the full rate laid down by the Penalty Interest Rates Act. Section 58 of the Supreme Court Act specifically so provides.  The rationale for it is that there should be an obligation to pay interest at not a usurious rate but a solid rate, to provide debtors with an incentive to pay their debts.  It is in the public interest that debtors pay their debts, rather than they delay paying them until ordered to do so by a court.  The scarce resources of the legal system are conserved if debtors pay without being sued.  That is the rationale for the Supreme Court Act laying down a relatively high interest rate rather than a low or nominal one as payable in these circumstances.

23      In closing, Dr Refaat made a general observation which I took to pertain to all of the interest entitlements which Mr Barry is claiming here.  Why, he asked rhetorically, should Mr Barry be entitled to interest at a rate more favourable to him than the rate which he could have earned had he put the money in a bank?

24      As to the personal loans, the reason is that, because of the findings I have made, Dr Refaat agreed to pay that interest.  As to the partnership amount, I have already given the rationale for there to be a payment of this sort. 

25      Dr Refaat said that he did not delay matters, that his money was tied up in a machine.  What that means is that, on the findings I have made, he was prepared to use Mr Barry’s money to provide working capital for his business.  Once one views it in that light, the award of interest does not seem unjust.  So, I direct the parties to make calculations and recalculations of the interest component of this judgment on counterclaim in accordance with the findings and directions that I have just given.

[The parties made further submissions.]

26      I published my reasons in this matter on 11 March 2014.  The decision was reserved and followed an 11 day hearing.  I now have before me an application for costs made by the defendant, Mr Barry, whose counterclaim has been substantially, though not entirely, successful.  The claim which was made against Mr Barry was dismissed.  The general rule in the court is that costs follow the event.  Clearly, the event is a victory to Mr Barry and, on any view, Mr Barry is entitled to his costs on a party/party basis.

27      Mr Wilkinson, Mr Barry’s counsel, submits that the costs should be awarded on an uplifted full indemnity basis from 11am on 5 February 2014, which was the first day of the trial.

28      Before the matter came on for hearing, there were a number of compromise proposals made by the parties without prejudice except as to costs.  Some of them entailed the realisation of a stonecutting machine, which was at the centre of the dispute between the parties.  Ultimately, those early offers, some of which do not seem to have been all that unreasonable, are difficult to compare with the outcome which has resulted from my determination. The determination I have made does not entail the sale of the stonecutting machine.  Indeed, neither the plaintiff nor the counterclaiming defendant sought orders in that respect.

29      It appears, subject to final calculations of interest, that Mr Barry will be entitled to judgment for an amount of approximately $80,000.  I have been shown a number of calculations, all of which (for one reason or another) seem to me to be wide of the mark, on the basis that they entailed compounding which I am not persuaded was appropriate.  In addition, that they entailed contractual rates of interest relative to one part of the claim which did not apply to another in lieu of the rate under the Penalty Interest Rates Act, which I have determined should apply here.

30      Mr Barry relies on two, without prejudice save as to costs, offers made on 3 February 2014, that is, on the Monday of the week in which the trial commenced on Wednesday.  One of them was an Offer of Compromise under Order 26 of the Rules of the court, offering to compromise the matter on the basis, presumably of the dismissal of the plaintiff’s claim, with the payment of $80,000 to the counterclaiming defendant plus costs.

31      There was a Calderbank offer expressed to be without prejudice save as to costs for an amount of $100,000 “all in”.

32      Mr Wilkinson, who represents Mr Barry (and represented him at the time those offers were made), accepted the proposition that in the result those turned out to be very well-weighted offers, though what underlay them was, I suspect, somewhat different from the basis on which I ultimately made my determination.

33      Mr Wilkinson has referred me to Rule 26.08 of the Rules of Court, which provides:

(1)      This Rule applies to an offer of compromise which has not been accepted at the time of verdict of judgment;

(2)      Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the court otherwise orders, the plaintiff shall be entitled –

…

(b)      in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff’s costs in respect of the claim before 11.00 am on the second business day after the offer was served, taxed on a party and party basis and for the plaintiff’s costs thereafter taxed on an indemnity basis.

34      This is the order which Mr Wilkinson submits I should make.

35      Dr Refaat has referred me to a decision of the English High Court in the matter of Fiona Trust & Holding Corporate, where the court held that an order for the payment of costs was, in the normal case, to be made on a party/party basis and something outside the norm was required before an order on the uplifted full indemnity scale would be made.  I respectfully accept Dr Refaat’s submission.  The ordinary rule is that costs follow the event and that those costs are to be taxed on the usual party/party scale.  Some special consideration is required to justify an uplifting of the scales.

36      Mr Wilkinson’s submission is that the special matter “taking the thing outside the norm” is to be found in the Offer of Compromise, which I have described, and the Calderbank letter, neither of which was accepted by Dr Refaat.  In addition, the fact that there was some disruption to the progress of the hearing with it being stood down for at least half a day after day four to enable Dr Refaat to place material before the Registrar to obtain a waiver of daily hearing fees.  The hearing fee had been paid on the first day but not thereafter.

37      Mr Wilkinson has observed that definitions elsewhere in the Rules show that where Rule 26.08 refers to a plaintiff, that expression includes a counterclaiming defendant, as Mr Barry is. 

38      What, then, is the appropriate outcome? 

39      It is difficult to apply Order 26 directly because the precise outcome of this case as to the award of liquidated sums still hangs in the balance, with some final calculations to be made.  I am satisfied, however, from what I have heard so far, that the offer which was made, both in the form of a formal Offer of Compromise under Order 26 of the Rules, and a Calderbank letter (the one for $80,000 plus costs and the other for $100,000 “all in”), represented a very fair compromise in light of the findings that I have ultimately made and a compromise which should have been accepted by Dr Refaat in the circumstances.

40      It was unreasonable for him not to have accepted that offer put in the two different forms, and the result has been a very lengthy trial extending over 11 days.

41      In those circumstances, whilst I cannot be clear, in the absence of final calculations on the amount of indebtedness to be awarded, that the strict terms of Rule 26.08 have operated and can operate here, the more general principles which are embodied in the famous decision of the English Court of Appeal in Calderbank v Calderbank, and later decisions such as Cutts v Head & Ors of our own Supreme Court and Court of Appeal justify the award of costs on a full indemnity basis based on a finding that an Offer of Compromise is without prejudice save as to costs has been unreasonably rejected.  On that basis, I make the order in the form sought by Mr Wilkinson.

[The parties make further submissions.]

42      In this proceeding, I determined the matter in favour of the counterclaimant and ordered that the plaintiff pay the counterclaimant defendant an amount of approximately $80,000.  In the circumstances, I awarded costs of the proceeding generally to the counterclaiming defendant with the costs to be on a full indemnity basis from 11am on the first day of trial, for reasons which I have already given.

43      In those circumstances, Mr Wilkinson, on behalf of the defendant, has submitted that I should decline to grant a stay of the judgment which I have pronounced, as Dr Refaat requests me to do.  Dr Refaat has said that unless he is granted a stay, the appeal, which he desires to take from my determination, will be nugatory or abortive.  He says that he is very short of money.  He will be required to represent himself. If he is confronted with the obligation to pay the judgment plus costs, he will likely declare himself bankrupt.  He apprehends that he will have suffered irreversible damage as a result and, presumably, he is doubtful that the Trustee in Bankruptcy would contemplate proceeding with an appeal.

44      Dr Refaat conceded that he owns a residential property but says that it is substantially mortgaged.  The evidence showed that he has operations in his native Egypt, but Dr Refaat says that those operations have closed. 

45      Mr Wilkinson has referred me to a number of authorities, including the decision of Cellante v G Kallis Industries Pty Ltd & Ors [1991] 2 VR 653, a decision of the Full Court consisting of Young CJ and Brooking J, where Young CJ stated at pages 656-657 that a stay will generally not be granted unless there is a real risk that the appeal would prove abortive or nugatory. His Honour refers to a number of well-known authorities as establishing that proposition.

46      Mr Wilkinson noted a more recent re-affirmation of the principle in the Court of Appeal by Buchanan and Eames JJA, in the matter of Water v National Australia Bank Ltd [2004] VSC 184, where the court said that a trial judge had properly declined to grant leave in accordance with the principles so stated.

47      Dr Refaat has referred me to a number of authorities, including a decision of the New South Wales Court of Appeal in Kalifair Pty Ltd & Ors v Digi-Tech (Australia) Limited & Ors [2002] 55 NSWLR 737; [2002] NSWCA 383, where the court said at paragraph 15, that the special circumstances required for the grant of a stay would be satisfied, “If the appeal would be rendered abortive or nugatory unless a stay is granted”.

48      He referred to other authorities which establish the same proposition.

49      He took me next to a judgment of Campbell JA of the New South Wales Court of Appeal in Woolworths Limited v Strong No.2 [2011] NSWCA 72 at paragraph 68, where his Honour said that a stay may be granted in circumstances where it appeared that the defendant would be unable to repay the money without difficulty or delay if the appeal were to succeed.

50      Mr Wilkinson said that in contrast to one such case where a difficulty did arise, Mr Barry had paid most of his outstanding legal costs and there was no reason to think that the judgment, if paid, would be swallowed up by Mr Barry’s legal adviser in legal costs claimed, rendering it impossible to recover should the appeal succeed.

51      Dr Refaat has said that he believes he has strong grounds for appeal.  Needless to say, I am not well-placed to judge the correctness of that contention or not, since it is my determination that is being called in question.  However, for the purposes of my determination on the stay application, I will assume that there are good arguable grounds for appeal.

52      I observed that in the course of the trial, Dr Refaat claimed to be unable to fund the daily hearing fees required to be paid by the court.  He made representations to the Registrar of the court.  The Registrar waived his obligation to pay those daily hearing fees.

53      In all those circumstances, it seems to me that the contention by Dr Refaat that, were he to be required to pay this judgment and costs “on the nail” now, he could be forced into bankruptcy, is not without plausibility.

54      Once one accepts that as a possibility, one can readily appreciate that if Dr Refaat is required to pay now, he may suffer irreversible damage in being forced into bankruptcy.  What we know of insolvency administrations, indicates that it would be doubtful, to say the least, that a bankruptcy trustee or litigation funder would be interested in these circumstances in prosecuting an appeal from my judgment.

55      I believe that the circumstances which are said to be sufficient to justify the grant of a stay, namely, the risk that the appeal which is proposed would be rendered abortive or nugatory, are made out and that, therefore, the judgment should be stayed until the hearing and determination of the appeal or further order.

56      I note the words “or further order”.  These are important words because it is one thing to say that an appeal will be brought.  It is another thing to actually bring the appeal and to prosecute it diligently.  Dr Refaat should be aware that it would be open to Mr Barry, if the appeal is not brought and properly prosecuted, to seek a further order dissolving the stay.  Therefore, the stay would be maintained in force only if it appeared that the appeal was being properly prosecuted.  It would not be maintained if it seems that the appeal was merely brought as a delaying factor.