Willandra 74 Pty Ltd v AKG Willandra Pty Ltd
[2024] VSC 398
•10 July 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 04684
| WILLANDRA 74 PTY LTD (ACN 640 875 056) and others according to the Schedule | Plaintiffs |
| and | |
| AKG WILLANDRA PTY LTD (ACN 640 873 785) and others according to the Schedule | Defendants |
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JUDGE: | Cosgrave J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 10 July 2024 |
CASE MAY BE CITED AS: | Willandra 74 Pty Ltd v AKG Willandra Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 398 |
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COSTS – Application for indemnity costs – Where first defendant was willing to comply with established deed – Unnecessary caveat removal proceeding – Proceeding settled – Order for standard costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms B Slocum | Madgwicks Lawyers |
| For the Defendants | Mr S Stuckey KC | Zervos Lawyers |
HIS HONOUR:
Introduction
This judgment concerns a dispute about costs. The plaintiffs claim they should be entitled to their costs of the proceeding on a standard basis. The defendants seek their costs of the proceeding on an indemnity basis.
Background
This proceeding arises from a development at 74 Willandra Drive, Epping in Victoria (‘the Willandra property’) where the plaintiffs built over 40 commercial warehouses.
The first plaintiff (‘Willandra 74’) has 4 directors: Atanas Gracievski (‘Alex’), Ile Gracievski (‘Elliott’), Kosta Gracievski (‘Kosta’) and Vincenzo Mancuso (‘Vince’). The first plaintiff is the registered proprietor of the Willandra property. It also has four shareholders: ATAG Willandra Pty Ltd where Alex is the sole director; ILEG Willandra Pty Ltd where Elliott is the sole director; Who Spic Pty Ltd where Vince is the sole director; and AKG Willandra Pty Ltd (‘AKG Willandra’) where Kosta is the sole director. Each of these companies is the trustee of a trust.
The first defendant is AKG Willandra. Kosta is the sole shareholder of this company. The second defendant, AKG Capital Investments Pty Ltd, is the trustee of the AKG Capital Investment Property Trust (‘the AKG Trust’). Kosta is the sole director and secretary of this company and a beneficiary of the trust.
Around December 2020, Willandra 74 partitioned the property so that each of the shareholders received an equal number of lots. These were referred to as the allocated lots. The remaining lots were retained to repay the balance of the debt owed by Willandra 74 in relation to the development of the Willandra property and to distribute any net proceeds equally to the shareholders.
The four shareholders agreed to contribute an equal share of the expenses incurred by Willandra 74 in relation to the project. Until about August 2022, they did so. At that time, the personal and professional relationship between Alex and Elliott on the one hand and Kosta on the other collapsed rancorously. Thereafter, AKG Willandra did not provide its share of payments and the other shareholders had to pay extra in order to cover that unpaid amount. The other shareholders contributed about $45,000 each for this purpose. They claimed to have done so on the basis that Willandra 74 would repay those extra contributions from distributions otherwise payable to AKG Willandra or the AKG Trust from the net proceeds of sale of the remaining lots.
On about 7 November 2022, AKG Willandra lodged a caveat over all the lots on the Willandra property, including the allocated lots and those which were not allocated to the AKG Trust under the partition agreement.
On 5 December 2022, Willandra 74, the trustees of the ATAG trust, the ILEG trust and the Mancuso trust[1] issued Supreme Court proceeding S ECI 2022 04975 seeking the removal of the caveat in order to permit settlement of the sale of various residual lots and lots allocated to the plaintiffs under the partition agreement.
[1]Vincenzo Mancuso is the trustee of the Mancuso trust.
On 12 December 2022, the parties settled that proceeding by executing a deed of settlement. The deed contained terms to the following effect:
(a) Each of the ATAG trust, the ILEG trust, the AKG trust and the Mancuso trust enjoyed a beneficial interest in the lots allocated to them under the partition agreement.
(b) The parties intended that each of the four trusts which held shares in Willandra 74 would receive their allocated lots under the partition agreement free from any mortgage on the basis that they would each raise one quarter of the remaining debt to be secured against the unallocated lots.
(c) AKG Willandra would withdraw the caveat at the time for performance of the partition agreement and, in respect of each remaining lot, at settlement of the relevant sale agreement, on the basis that the net sale proceeds were applied in reduction of the debt which Willandra 74 owed for the development of the Willandra property.
(d) The net proceeds of sale of the remaining unallocated lots (after the debt had been paid) would be distributed equally between the four trusts.
(e) If AKG Willandra failed to withdraw the caveat in accordance with the deed of settlement, the plaintiffs could reinstate the proceeding to obtain judgment by consent.
As part of the deed of settlement, the parties agreed to execute, and did execute, consent orders dismissing the proceeding with no order as to costs. In addition, the parties agreed to bear their own costs and expenses in relation to the negotiation and execution of the deed. While the parties to the settlement deed agreed to bear their own costs in connection with the proceeding, Willandra 74 alleged that it incurred $27,297.71 in legal fees in connection with the caveat proceeding. Alex, Elliott and Vince, or the entities associated with them, bore these costs.
Subsequent to the execution of the settlement deed:
(a) Willandra 74 refinanced its debt in the manner contemplated in the settlement deed.
(b) Each of the allocated lots was transferred to the four investment trusts without any encumbrance. Each trust had an equal number of lots.
(c) Willandra 74 sold all the remaining lots.
(d) The mortgage over the Willandra property was discharged.
By July 2023, lot 44 was the only lot on the Willandra property which had not been sold. The AKG Willandra caveat remained registered over that property.
In late July 2023, the plaintiffs’ solicitor sent AKG Willandra a letter, inter alia, asking it to remove the caveat over lot 44. Part of the reasoning involved the proposition that AKG Willandra had no caveatable interest in that land. Thereafter, there was extensive correspondence between the respective solicitors about the sale of the lot, the removal of the caveat and costs. In summary, the plaintiffs sought the removal of the caveat so that the sale of lot 44 could proceed smoothly. AKG Willandra would not remove the caveat until the day of settlement and subject to other conditions about the calculation and disposition of any surplus funds arising from the sale.
Willandra 74 executed a contract for the sale of lot 44 on 21 August 2023 and settlement was scheduled for 16 October 2023.
The plaintiffs began this proceeding on 10 October 2023 with a first return date of 16 October. The generally endorsed writ sought the removal of the caveat over lot 44 and an order that Willandra 74 was justified in distributing the sale proceeds in a particular order.
In a covering email enclosing the writ, summons and a supporting affidavit by Alex, the plaintiffs said (so far as material):
… To avoid the need to attend an urgent hearing (before 16 October 2023), we request that your client remove his caveat immediately. If settlement then occurs prior to a final hearing of this matter, we propose that the sale proceeds be held in trust pending agreement between the parties or an order of the Court.
Should your client fail to urgently remove his caveat, our clients will seek indemnity costs against your client in relation to an urgent hearing of that discrete issue.
Later that day, Lisa McNicholas, the plaintiffs’ solicitor, advised the defendants’ solicitor that the hearing was listed for 2.15pm on 16 October 2023.
The defendants responded to the email and the service of the documents on the afternoon of 13 October 2023. The defendants’ email advised that:
Our client remains committed to removing the caveat prior to settlement of Lot 44 on the basis that the settlement proceeds remain in TickBox’s trust account on an undertaking by TickBox not to release the funds pending agreement or Court order. We again request your response to the above proposal as a matter of urgency.
On the same day, AKG Willandra filed an affidavit and exhibits comprising approximately 135 pages. The affidavit addressed the question of the defendants’ costs more than the substantive legal issues arising from the proceeding.
Parties’ positions
The plaintiffs contended that the defendants’ costs claimed in respect of this proceeding could relate only to their preparation of affidavit material about pre-litigation conduct and costs incurred by them in connection with the distribution of the proceeds of sale from lot 44. The plaintiffs contend that these costs could have been avoided if the defendants had consented to the plaintiffs’ proposal made on 10 October 2023 when they served the writ and summons on the defendants. The gist of that proposal was that the caveat be removed forthwith and the proceeds of sale be held on trust pending the resolution of the dispute about the distribution of those sale proceeds. In the circumstances, the plaintiffs submitted that the defendants acted unreasonably in not responding to the proposal for three days while incurring substantial costs preparing affidavit material which was unnecessary.
The defendants submitted that the proceeding was unnecessary and caused the parties to incur needless legal costs. The defendants argued that:
·before the plaintiffs issued their writ, AKG Willandra had advised on three occasions that it would withdraw the caveat over lot 44 at settlement provided the proceeds of sale were protected;
·AKG Willandra reaffirmed that position on 13 October and 16 October 2023;
·AKG Willandra acted as it said it would and removed the caveat so that settlement of lot 44 could proceed; and
·the application was contrary to the terms of the deed of settlement and unnecessary because it was not to be heard before the time at which AKG Willandra was committed to removing the caveat.
Analysis
In my view, Willandra 74 should pay the defendants’ costs of the application. I say this for the following reasons.
The proceeding was unnecessary. The parties had already engaged in litigation in relation to the caveat which AKG Willandra lodged over the Willandra property in November 2022. The parties compromised the first proceeding in which Willandra 74 sought an order for removal of the caveat. The parties entered a deed of settlement under which AKG Willandra agreed to withdraw its caveat to facilitate performance of the partition agreement. The parties also agreed under the deed that, if there were lots not distributed under the partition agreement, Willandra 74 would sell them and distribute the net proceeds equally among the four trusts. By implication, AKG Willandra would not do anything to interfere with this process and to that extent, it would remove any caveat which might prevent such a sale.
Even if that were not so, in correspondence dated 25 July 2023, 26 July 2023, and 2 August 2023, AKG Willandra stated in effect that in relation to the sale of lot 44, it would withdraw the caveat at settlement provided the conditions in the deed of settlement were met. This appeared to mean the proceeds of sale were to be used to discharge any outstanding debt which Willandra 74 retained from the development and the balance of the proceeds was to be distributed equally between the four trusts (as set out in the deed). AKG Willandra said that the parties should try to agree upon any adjustments or reimbursements required between them before settlement of lot 44. However, AKG Willandra said that if no agreement could be reached on this issue, it would still withdraw the caveat to permit settlement provided the sale proceeds were held in a trust account upon an undertaking by the controlling trustee not to release the funds pending an agreement between the parties or a court order.
The correspondence between the parties about the distribution of sale proceeds continued. The parties could not agree upon the details of the distribution. It appears that areas of dispute included the expenses which Willandra 74 incurred and to which AKG Willandra had not contributed. Ultimately Willandra 74 issued this proceeding and when serving the court documents, suggested that to avoid the hearing scheduled for 16 October 2023, the parties agree that AKG Willandra remove its caveat over lot 44 on the basis that the sale proceeds be held in trust pending an agreement between the parties or court order. AKG Willandra withdrew its caveat to allow for settlement and the net proceeds were held in trust.
It is apparent from the correspondence that there was considerable animosity and lack of trust between the various Gracievski parties. This led to the frequent and, in my view, excessive exchange of emails. However, it remains true that the sale of lot 44 settled without any major disruptions due to AKG Willandra. AKG Willandra acted as it said it would and the proceeds of sale were safely isolated so that the dispute about the distribution of the proceeds could be subsequently resolved.
I am not persuaded that the plaintiffs needed to issue the caveat removal proceeding in order to achieve settlement of lot 44. AKG Willandra had stated its position and maintained that position until settlement without any substantive change.
From one perspective, the plaintiffs undercut their own position by issuing the writ on 10 October 2023 and then, in order to avoid the hearing which they had sought, effectively made a settlement offer to remove the caveat and safeguard the proceeds of sale. The proposal was not the same as the relief sought in the writ.
While I consider that the proceeding was not necessary, I have some sympathy for the plaintiffs’ position given the antipathy which existed between the warring parties. For that reason, I regard it as appropriate that the plaintiffs pay the defendants’ costs on a standard basis. An order for indemnity costs is not the usual order and is reserved for circumstances which are in some way exceptional. In my view, the conduct of the plaintiffs and the circumstances more generally were such that I do not think an order for indemnity costs is warranted.
Conclusion
For the reasons set out, I consider that the plaintiffs should pay the defendants’ costs of and incidental to the proceeding, such costs to be taxed on a standard basis in default of agreement.
SCHEDULE OF PARTIES
BETWEEN:
| WILLANDRA 74 PTY LTD (ACN 640 875 056) | First Plaintiff |
| ATAG CAPITAL INVESTMENTS PTY LTD (ACN 657 377 298) AS TRUSTEE OF THE ATAG INVESTMENT PROPERTY TRUST | Second Plaintiff |
| ILEG CAPITAL INVESTMENTS PTY LTD (ACN 657 347 314) AS TRUSTEE OF ILEG CAPITAL INVESTMENT PROPERTY TRUST | Third Plaintiff |
| VINCENZO MANCUSO (IN HIS CAPACITY AS TRUSTEE OF THE MANCUSO CAPITAL INVESTMENT PROPERTY TRUST) | Fourth Plaintiff |
| - and - | |
| AKG WILLANDRA PTY LTD (ACN 640 873 785) | First Defendant |
| AKG CAPITAL INVESTMENTS PTY LTD (ACN 651 845 279) AS TRUSTEE FOR AKG CAPITAL INVESTMENT PROPERTY TRUST | Second Defendant |
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