Bonanno v Finamore

Supreme Court of NSW|2022-05-23|Before: Robb J

Solicitors: Phillip A Wilkins & Associates (Plaintiff) LegalVision (Defendants) File Number(s): 2015/228434

Judgment

Judgment in these proceedings was delivered on 1 December 2021: see Bonanno v Finamore [2021] NSWSC 1558 ("J").
The parties were required to confer and agree on short minutes of order to give effect to the reasons for judgment.
On 22 March 2022, the Court was able to make orders that disposed of most of the issues in dispute between the parties. As noted in order 9, the parties were unable to agree upon the orders that should be made in relation to two outstanding issues, namely:

whether or not the amount of $75,000 in the Agreed Facts is inclusive of the net rent payable to the plaintiff for the period from 31 March 2021; and
the order that should be made in respect of the costs of the proceedings.

On 11 April 2022, the Court made orders for the delivery of submissions and evidence on the outstanding issues. The plaintiff delivered submissions dated 28 April 2022, as did the defendants. The defendants also served an affidavit of Timothy Mak affirmed 28 April 2022. As the parties' submissions were served on the same date, the defendants made additional brief written submissions, also on 28 April 2022.

Meaning and effect of the Agreed Facts

The issue concerning the meaning and effect of the Agreed Facts arose in the following way.
One issue in the proceedings was whether the deed between the parties made on 25 February 2011 (the Deed) was valid and enforceable, and if so, what amount was payable by the defendants to the plaintiff by way of an account or damages or equitable compensation for the net profits of operating the boarding house, including all revenues and rents, less expenses and outgoings in respect of the property, from 25 February 2011 to date: see J [9 (7)-(9)].
As I explained at J [66]-[68], on the third day of the hearing the Court made orders by consent, as to what the parties called the Agreed Facts. The orders were made in accordance with s 191 of the Evidence Act 1995 (NSW), which provides: 191 Agreement as to facts (1) In this section - agreed fact means a fact that the parties to a proceeding have agreed is not, for the purposes of the proceeding, to be disputed. (2) In a proceeding - (a) evidence is not required to prove the existence of an agreed fact, and (b) evidence may not be adduced to contradict or qualify an agreed fact, unless the court gives leave. (3) Subsection (2) does not apply unless the agreed fact - (a) is stated in an agreement in writing signed by the parties or by Australian legal practitioners, legal counsel or prosecutors representing the parties and adduced in evidence in the proceeding, or (b) with the leave of the court, is stated by a party before the court with the agreement of all other parties.
The aspect of the Agreed Facts that is relevant to these reasons is stated in par 1 as follows: 1 If the Court determines that the plaintiff is entitled to a 1/3 share of the net income of the [boarding house at the property] up to the date of the hearing (or beyond), the parties agree that the amount of that share that remains unpaid is the sum of $75,000
As I noted at J [12], when discussing the relief claimed in the statement of claim: [12] It will be convenient to note at this point that, as will be explained below, during the hearing, the parties agreed that the amount payable by the defendants to Mr Bonanno under the relief summarised in [9 (4)(e) and (8)] above is $75,000, assuming Mr Bonanno establishes an entitlement to that relief. A consequence of the agreement is that Mr Bonanno no longer needs an order for an accounting as summarised in [9(7)] above. Additionally, if Mr Bonanno succeeds in proving an entitlement to be paid the $75,000, it will not be necessary for the Court to consider the alternative claim for damages or equitable compensation referred to in [9(9)] above.
Further, when I later in the reasons summarised my understanding of the issues that remained for determination as a result of amendments to the pleadings by the parties and the abandonment of various claims, I recorded my understanding of the effect of par 1 of the Agreed Facts as follows at J [73 (1)]: (1) The parties agree that, if the second agreement is valid, Mr Bonanno is entitled to an order that he be paid $75,000, being the unpaid amount of his one third share of the net rents from the operation of the boarding house.
I also note, as it is relevant to the costs issue that will be considered below, that the orders made on the third day of the hearing included the following order: 1 There be no order as to costs in relation to the expert reports of Wendy Thai and Brett Goodyear, it being the case that the parties will pay their own costs relating to those reports.
The expert reports referred to in this order were, as I understand it, reports prepared by the accounting experts for the parties that contained opinions relevant to the accounting process that would have been necessary to enable the Court to determine the amount of the net profits payable by the defendants to the plaintiff in respect of the operation of the boarding house business. Because of par 1 of the Agreed Facts, it ceased to be necessary for the Court to determine the amount payable by the defendants to the plaintiff. The expert reports were accordingly not tendered, and the experts were not cross-examined. The Court has no knowledge of the opinions expressed by the experts.
The final orders that were made by the Court on 22 March 2022 included an order 5 that the defendants pay to the plaintiff the sum of $205,000, which included $75,000 pursuant to clause 4 of the Deed, being the outstanding net profits. Order 6 was a declaration that the property stood charged with repayment of the amount payable under order 5.
The plaintiff now claims that there should be a further accounting in respect of the net profits from the operation of the boarding house. As I understand it, the plaintiff says that the $75,000 amount was a sum calculated by the plaintiff's accounting expert up to the date of her report. The plaintiff relied upon a statement made by counsel for the defendants when explaining the Agreed Facts that the $75,000 was an amount that remains unpaid (the implication being that the amount related to past profits only). The plaintiff asserted in par 14 of his submissions: "Calculation of the $75,000 as representing the amount as at the date of the hearing is in accordance with the methodology of [his accountant's] report."
It is not entirely clear whether the plaintiff claims the additional net profits from the date of his accountant's report or from the time that the Court made the order noting the Agreed Facts. As I understand it, as the defendants paid to the plaintiff the sum of $205,000 pursuant to order 5 on 8 April 2022, the plaintiff's additional claim is for the closed period to that date.
The defendants' position is that the additional claim now sought to be made by the plaintiff is unavailable because the issue is res judicata. The effect of s 191 of the Evidence Act is that the plaintiff is bound by his agreement as to the amount of the net profits payable by the defendants to the plaintiff, if the obligation to pay that amount contained in the Deed was found by the Court to be enforceable. In short, the defendants' position is that the parties agreed that the $75,000 was the appropriate all-up figure to be included in any order made in favour of the plaintiff, irrespective of when the order was made, or when all amounts finally payable by the defendants to the plaintiff under the Deed were paid.
I accept the defendants' submissions and reject the plaintiff's claim for the payment of any additional net profits over and above the agreed $75,000.
It is clear from the extracts that I have set out above from the primary judgment that I understood that the Agreed Facts had the meaning for which the defendants contend, and I accept the defendants' counsel's submission that she understood the Agreed Facts to have the same meaning.
I do not consider that there is any real room for doubt, given that par 1 of the Agreed Facts contains the words "up to the date of the hearing (or beyond)." That seems obviously to mean that the parties intended to agree that the amount payable was $75,000 whether the Court held that the net profits were payable up to the hearing or beyond that date. I consider that that reasoning is valid notwithstanding that par 1 of the Agreed Facts also refers to "the amount of that share that remains unpaid", which is capable of meaning that the agreement as to the $75,000 was limited to the accrued and unpaid amount. In reality, both accrued and future payments under the Deed were unpaid and the inclusion of the expression "(or beyond)" is only explicable on the basis that the parties agreed to the all-up amount of $75,000.
The plaintiff did not raise this claim during the hearing or before the primary judgment was delivered, and it is now simply too late for him to be allowed to make it: see Breakout Barrier Release Systems Pty Ltd v Breakout Barrier Release Systems Australasia Ltd (Costs) [2013] NSWSC 1955 at [5]-[6] (Rein J).

Costs

I now turn to the issue of what is the proper order to be made concerning the costs of the proceedings.
The plaintiff submits that the Court should make an order that the defendants pay the plaintiff's cost of the entire proceedings (apart from an earlier order already made by Darke J) as agreed or assessed.
In response, the defendant submits that the Court should order that the plaintiff pay the defendants' costs of the proceedings on the grounds that the defendants, as a matter of substance and reality, won the "event" by defeating the plaintiff's claim to enforce the transfer provisions in the Deed and that costs should follow the event. As I understand it, the defendants submit, alternatively, that the plaintiff should be ordered to pay at least 80% of their costs.
As I stated in the final paragraph of the principal judgment at J [388]: [388] It will also be necessary for the parties to address the issue of costs which may now be an exceedingly difficult and complex question given the history of these proceedings and the findings made by the Court in these reasons.
The significance of this observation may be appreciated if regard is had to my analysis of the pleadings, the revisions made to the parties' claims, and the agreement as to facts and the abandonment of defences by the defendants at J [9]-[72]. Given the extended period for which these proceedings have been on foot, and the general inefficiency of their preparation for hearing, it would be an exceedingly difficult exercise for the Court (and likely also a costs assessor) to work out, after the event, the extent to which the parties may have unreasonably increased the costs payable by the other party or parties, by the way they conducted the litigation. This is a case where the mechanical application of the standard rules for determining appropriate costs orders may have the effect of the Court unwittingly imposing unfairness on the party ordered to pay the costs of the other party or parties. Equally, it is not practicable for the Court to review its file to make any fine-grained order concerning the parties' responsibility for the costs of the proceedings.
The parties accept that the Court has a general discretion as to the costs order that should be made under s 98 of the Civil Procedure Act 2005 (NSW), restricted only to the circumstance that the Court must exercise its discretion judicially.
The parties also accept that the usual rule is that costs are to follow the event unless it appears to the Court that some other order should be made: Uniform Civil Procedure Rules 2005 (NSW) r 42.1 (UCPR).
Before I consider the application of these principles, I should record that in par 18 of their submissions the defendants note that the Court has already made five costs orders in these proceedings. The plaintiff only recognised one of those costs orders in his submissions, being the order made by Darke J on 26 November 2019.
I agree with the defendants' submission that all existing costs orders must stand, as no reason has been established for the Court to change any of those orders in its final costs order. As I have noted above, one of the orders is the order that I made on 31 March 2021 that there be no order as to the costs of the parties in relation to their expert accounting reports, it being the case that the parties will pay their own costs relating to those reports. That order has some significance to the determination of the final costs order that is appropriate. The order that the Court made that the defendants pay the plaintiff the amount that included the $75,000 was made on the basis that the plaintiff had succeeded in his claim that the Deed remained valid and effective to the extent that it obliged the defendants to pay him that amount. The plaintiff was therefore successful on that issue in the proceedings. However, in considering whether the ultimate costs order should reflect the plaintiff's success on that issue, it must be borne in mind that both parties have already agreed to bear their own costs of obtaining expert accounting evidence. It is at least likely that the experts' costs will be a substantial proportion of the costs of litigating that issue.
The plaintiff's submissions as to why the defendants should be ordered to pay his costs were based upon a review of the defendants' conduct of the proceedings and the list of issues that were fought unsuccessfully by the defendants. The plaintiff also relied upon the fact that the Court ordered the defendants to pay him $205,000, which he said was "more than merely nominal".
The defendants submitted that the relevant "event" for the purposes of UCPR r 42.1 was their success in obtaining a declaration that the terms of the Deed that gave the plaintiff an interest in the property greater than a charge were invalid. The defendants' position was that the real issue in dispute was whether the plaintiff was entitled to one third of the net sale price of the property, or whether his interest was limited to a charge which protected his entitlement to be repaid the $130,000 advance that he made to the defendants. The defendants pointed out that the evidence establishes that the defendants offered on a number of occasions before the commencement of the proceedings to repay the $130,000 to the plaintiff.
Notwithstanding those offers, the plaintiff lodged a caveat against the title to the property, based upon what was described in the primary judgment as the first agreement, and instituted proceedings to establish that he was entitled to the proprietary interest in the property that he claimed.
The defendants relied upon the decision of Ward CJ in Eq (as her Honour then was) in Sayour v Elliott (No 2) [2018] NSWSC 146 at [43], where her Honour adopted the approach taken by the Court of Appeal in England in Roache v News Group Newspapers Ltd [1992] TLR 551, which posed the common-sense question: "[w]ho, as a matter of substance and reality, [has] won?"
The defendants also relied upon the proposition that where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed, unless a particular issue or group of issues is clearly dominant or separable: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA).
It is, unfortunately, difficult to apply the general approaches to the determination of costs orders to the circumstances of the present case.
I accept to some extent the validity of the defendants' submissions that the determination of the real nature of the proprietary interest in the property to which the plaintiff is entitled was the most substantial issue in the case, but I do not accept that its significance was such that it should be treated as the only real issue. Though it may have been the most important in practical terms, the plaintiff was ultimately successful on his claim that he was entitled to be paid the agreed amount of $75,000 under the Deed. The defendants failed in their attempts to have the Deed declared entirely void. The fact that the amount ordered to be paid was ultimately agreed to be only $75,000 does not diminish the forensic significance of the case mounted by the defendants against the validity of the Deed.
Although it is true that the defendants succeeded on the most significant issue, being whether the Deed created an ownership interest or only a charge, that success was primarily based upon the application of legal principles concerning the validity of a collateral advantage granted to a mortgagee. Even though it is true that the defendants succeeded on the alternative ground that the transfer terms in the Deed were unconscionable, I consider that a substantial proportion of the forensic effort in these proceedings related to issues on which the defendants failed.
Accordingly, while I do not accept that costs should be ordered to be paid on the basis that the plaintiff was substantially the successful party, it would be unfair on the plaintiff, in my opinion, for the Court simply to treat the defendants as being substantially the successful parties. The issues on which the defendants failed should not be treated as being immaterial to the determination of the proper costs order.
On balance, the degree of success achieved by the defendants justifies an order being made by the Court that the plaintiff pay an appropriate proportion of the defendants' costs on the ordinary basis. However, there should be a substantial proportional discount.
Having regard to the fact that the plaintiff achieved a substantial measure of success, and applying a holistic approach, from my perspective as the trial judge I consider that, in the exercise of the Court's discretion, I should make an order that the plaintiff pay 60% of the defendants' costs of the proceedings on the ordinary basis.
It is not necessary that the Court make any specific order in response to the plaintiff's claim for an additional account of net profits above the agreed amount of $75,000, as the orders made on 22 March 2022 will be effective to determine the issue.
The only further order I make is as follows: 1. Without affecting the validity of any prior costs orders made by the Court in these proceedings, order the plaintiff to pay 60% of the defendants' costs of the proceedings on the ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 May 2022

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