Zelmanovich v Vakhgelt (No 2)
[2017] VCC 686
•2 June 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-13-00684
| MIKHAIL ZELMANOVICH | Plaintiff |
| v | |
| MIKHAIL VAKHGELT and POLINA KONDRATUYK | First Defendant Second Defendant |
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JUDGE: | LEWITAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 March 2017 | |
DATE OF RULING: | 2 June 2017 | |
CASE MAY BE CITED AS: | Zelmanovich v Vakhgelt (No 2) | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 686 | |
REASONS FOR RULING
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Subject: Discretion of the Court to award costs
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Williams QC with Mr S Woolley | Boris Pogoriller |
| For Alan Sheppet & Associates | Mr K Mihaly | Alan Sheppet & Associates |
HER HONOUR:
1 The present application for costs follows the publication of my reasons for judgment in relation to an application by Alan Sheppet & Associates (the firm) seeking a declaration that it has a solicitor’s lien over funds held by it on trust being the balance of the proceeds of the sale of Lot 1, 20 Belmont Avenue Glen Iris Victoria.[1] I gave counsel an opportunity to be heard on the question of costs and the terms of the order.
[1]Alan Sheppet & Associates v Zelmanovich and Vakhgelt [2016] VCC 1969.
2 Aside from a dispute in relation to the payment of costs, both sides agree that orders should be made in the following terms:
A. The first defendant has sold Lot 1, 20 Belmont Avenue, Glen Iris, in the State of Victoria (property);
B. The property was sold consequential on a joint venture between the plaintiff and the first defendant.
C. Orders have already been made in this proceeding as to the numerous consequences of that joint venture, generally.
D. Alan Sheppet & Associates holds the remaining proceeds of the sale of the property (in the sum of $213,334.12 as at 31 January 20167 in a controlled money account (fund) pursuant to Order 19 of His Honour Judge Lacava, dated 4 July 2014 (the Orders).
E. Pursuant to the Orders, Alan Sheppet & Associates filed an application on summons dated 8 July 2014 for payment from the Fund (First Summons). The plaintiff filed an application on summons dated 22 August 2016 for payment from the Fund (Second Summons).
THE COURT ORDERS AND DECLARES THAT:
1. Alan Sheppet and Associates has a lien over the Fund and may withhold possession of the Fund until such time as it is paid:
a. $35,358.99; and
b. interest in the sum of $4,603.65 plus further interest between 17 March 2017 and the date of payment, calculated at the rate that is equal to the Cash Rate Target as at the relevant date, increased by 2 percentage points;
c. the costs order made in favour of Alan Sheppet and Associates in Order 3.
2. Alan Sheppet and Associates is directed to disburse the Fund as follows:
a. to itself, as to the amounts referred to in Order 1;
b. to, or as directed by the plaintiff, as to the remainder.
3 In relation to costs, Alan Sheppet & Associates (the firm) seeks an order that the plaintiff pay the firm’s costs of the first summons, including reserved costs on a party and party basis prior to 5 October 2014 and on a standard basis thereafter.
4 The plaintiff seeks an order that the firm pay the plaintiff’s costs of his Summons dated 22 August 2016 on a standard basis to be taxed in default of agreement and that there be no order for costs in respect of the firm’s costs of the first summons.
General costs principles
5 The jurisdiction of the Court as to costs is conferred by s78A of the County Court Act 1958, in the following terms:
78A(1)The costs of and incidental to all proceedings are in the discretion of the Court and the Court may determine by whom and to what extent the costs are to be paid.
6 Notwithstanding that costs are discretionary, the usual rule is an award of costs to the successful party on a standard basis.[2]
[2]Sunland Waterfront (BVI) Ltd v Prudential Investments Pty Ltd (No 3) [2012] VSC 399, [12].
7 Even where a party is partially successful, then it will receive the costs of the whole of the proceeding. In Pricom v Sgarioto[3] Eames J held:
As a general rule costs should follow the event, and a successful party should obtain all the costs of the action even although it failed to establish some of the alternative heads of its claim. However, in the exercise of its discretion the court may decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim, or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim. (citations omitted).
[3] (Unreported, Supreme Court of Victoria, Eames J, 24 April 1995), 9.
8 This passage was approved by the Court of Appeal in Investec Bank (Australia) Limited v Glodale Pty Ltd.[4] In Chen & Ors v Chan & Ors[5] the Court of Appeal summarised the principles relevant to the question of costs as follows:
[4] [2009] VSCA 113, [4]
[5] [2009] VSCA 233, [10].
(1) The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.
(2) The Rules of Court permit significant flexibility in determining questions of costs. In particular, the Court is entitled to examine the realities of the case and will attempt to do ‘substantial justice’ as between the parties on matters of costs.
(3) Where there is a multiplicity of issues and mixed success has been enjoyed by the parties, a Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issue basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.
(4) A Court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.
(5) Where a Court determines to make an order apportioning costs, then it does so primarily as ‘a matter of impression and evaluation,’ rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter. (citations omitted).
9 The firm was successful in relation to:
(a) the existence of a lien over the Fund that entitled it to restrain dealings with the Fund in the absence of payment of its fees.
(b) two claims for fees forming the basis of the lien, namely:
(i) the conveyancing fees, which were contested until the second day of the hearing at which time they were admitted in principle but quantam was still in issue; and
(ii) the Victorian Managed Insurance Authority (VMIA) insurance fees, which were at all times contested.
The plaintiff’s submissions
10 Mr Williams submitted that the defendant had taken more than his share out of the joint venture entered into between the plaintiff and the defendant. The plaintiff submitted that the moneys in the firm’s trust account (the funds) were held on trust for the plaintiff. That amounted to the plaintiff establishing that it was therefore the beneficial owner of the fund subject to any lien. The plaintiff established over opposition that it is the beneficial owner of the fund. Mr Williams submitted that the mere resisting of the firm’s summons would not have resulted in an order that the balance be paid out to the plaintiff.
11 Mr Williams submitted that the firm asserted two liens; a particular lien and a general lien. The firm did not establish the general lien. Mr Williams submitted that it had been a classic case of one successful outcome and one unsuccessful outcome. Mr Williams submitted that the general lien attached to a greater sum of money than the particular lien. Mr Williams submitted that the particular lien attached to $30,000 out of the sum of $98,000 which was the total sought by the firm. Mr Williams submitted that in pure money terms the applicant succeeded as to about one third of the amount in respect of which it sought to assert a lien and failed in respect of about two thirds of that sum.
12 Mr Williams submitted that the plaintiff has had greater success in resisting the firm’s application than the firm has had in pressing its claims. Mr Williams submitted that there was the discrete head of claim, namely the general lien on which it failed and there was the claim for substantial sums of money on which the firm failed. Mr Williams submitted that no order for costs in favour of the applicant in relation to the first summons would not be an unfair outcome.
13 In the alternative Mr Williams submitted that if the Court were of the view that the firm should have some costs of the first summons, and that the plaintiff should have the costs of the second summons (on which it had been entirely successful), a better overall outcome might be to make no order as to the costs of both summonses, and let them all lie where they fall.
14 However the plaintiff was not entirely successful in its claim that it was the beneficial owner of the funds. As stated in paragraph 89 of the judgment:
… the firm’s claim for insurance fees ranks ahead of the plaintiff’s claim to the balance of the funds held by the firm because the amount owed to the firm for insurance fees is an expense incurred by the Joint Venture and a liability to be discharged before the plaintiff is entitled to a surplus. The amount owed to the plaintiff is payable only after the amount owed to the firm for insurance fees has been deducted.
The firm’s submissions
15 Mr Mikhaly submitted that the proper characterisation of the issues raised by the first and second summons is that the plaintiff’s application was about the leftovers. The plaintiff was already a party to the firm’s application, they had conducted a full hearing before me that was almost ready to close, and had put forward full submissions about why the firm had no claim on the fund. The plaintiff then indicated its intention to apply for payment of the proceeds of sale of the property. As that was not an application that was before the Court, the Court gave the plaintiff leave to issue a summons.
16 Mr Mihaly’s submitted that the plaintiff’s application the subject of the second summons was not really an application against the firm because those matters were in dispute in the firm’s summons. The issue about what happened to any money to which the firm was not entitled, was a dispute between the plaintiff and the defendant. It was a dispute in which the trustee declined to appear and agreed to abide by the orders of the Court. In that dispute the firm said “Not my business, I make no submission whatsoever”. Mr Mihaly submitted that all the matters that were in issue between the plaintiff and the firm were ventilated in the firm’s application.
17 I accept Mr Mihaly’s submission that in the absence of its application in July 2014, the firm would have been compelled to comply with the Court’s Order to pay the fund to the Deputy Commissioner of Taxation. On 30 June 2014 His Honour Judge Lacava made an order that the moneys held in trust by the firm be paid directly to the Deputy Commissioner of Taxation forthwith (Judge Lacava’s order). The plaintiff was represented by counsel at that hearing. The plaintiff had an opportunity to argue against the making of Judge Lacava’s order at that hearing. The firm was not present at the hearing before Judge Lacava on 30 June 2014. Notice of Judge Lacava’s Order was given to the firm. The firm then made urgent application to prevent the effect of Judge Lacava’s order. That application came back before Judge Lacava later that day. The order stopping Judge Lacava’s Order was not made until 4 July 2014. The fund as a readily accessible source of money would have been defeated but for the action of the firm.
18 In relation to Mr Williams’ alternative submission that the costs should lie where they fall, Mr Mihaly submitted that this would be inappropriate. The costs of the firm involves over two years of applications, the obtaining of an injunction, the hearing of the summons and many arguments between solicitors. The costs incurred by the firm in the first summons are significant. The costs of the plaintiff in bringing its additional application, excluding those that have already been dealt with by court order, are very small.
Costs of the first summons
19 As I have previously mentioned, the general rule as stated in Chen & Ors v Chan & Ors[6] is that costs should follow the event and that the successful party should recover its costs even where it has not succeeded on all heads of claim.
[6] [2009] VSCA 233, [10(1)].
20 The firm was successful in its application that it had a lien over the funds held by it in trust and that it was entitled to the payment of $35,358.99 together with interest. A substantial amount of costs were incurred because this application involved many adjournments and appearances while waiting for the plaintiff and the defendant to deal with the primary proceeding. Those costs were incurred because it was agreed between the parties that the firm’s summons would be heard at the end of the primary proceeding.
21 The firm’s application was necessary to preserve the fund. The firm has had success in relation to its entitlement, and the orders which are not in dispute provide the firm with first call on the fund.
22 However the firm did not achieve a total success. It failed in relation to three of the items of fees it alleged were subject to a general lien. Having considered the submissions made by counsel and taking into account the time devoted to the unsuccessful claims made by the firm in the first summons, I have formed the view that the firm should have a percentage of its costs. I think it appropriate that the plaintiff pay 70 per cent of the firm’s costs of the first summons.
23 I do not accept Mr Williams’ alternative submission that costs should lie where they fall.
Costs of the second summons
24 The second summons was issued on 22 August 2016, more than two years after the first summons was issued and after the final hearing of the first summons had commenced, which necessitated an adjournment. On 23 May 2016 I made an order that the plaintiff pay the firm’s costs thrown away by reason of the adjournment and the firm’s costs of perusing the plaintiff’s summons and any supporting material. Accordingly, the only costs of the plaintiff’s application that remain to be considered are the costs of the appearance at the return of its application on 5 October 2016. However, those costs were already due to be incurred by reason of the return of the first summons. There would appear to be no additional costs of the second summons that had not already been the subject of a costs order.
25 I reject the plaintiff’s submission that the plaintiff should receive his costs of the second summons. The plaintiff predominantly succeeded in relation to matters that were not in dispute. To the extent that the plaintiff succeeded in relation to some of the issues that were in dispute, these issues were part of the issues raised by the first summons. Taking into account the circumstances of this case and the issues raised in each of the first and second summons, I have decided to exercise my discretion to make no order as to the costs of the second summons.
26 I propose to make the orders outlined in the above paragraph 2. I also propose to make the following orders:
3. The plaintiff pay 70% of Alan Sheppet and Associates’ costs of the First Summons, including reserved costs:
a. on a party and party basis prior to 5 October 2014; and
b. on a standard basis thereafter,
to be taxed in default of agreement.
4. There be no order for costs of the Second Summons.
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