Chateau Constructions (Aust) Limited v Zepinic

Notices of Motion 10There are two Notices of Motion before the Court. The first of them is a motion filed on 2 July 2013 by Dr Zepinic who is described in the motion as the Cross-claimant. He seeks orders against the plaintiff who is described in the motion as the Cross-defendant. In essence, the orders sought fall into two categories. These are, first, orders for the payment of money and costs as sought in a document described as "Statement of Cross-claim" said to have been filed on 30 March 2013; and, second, an order for the withdrawal of the caveat which the plaintiff lodged in respect of the Turramurra property. 11The second motion was filed by the plaintiff on 12 July 2013. By that motion, the plaintiff invokes the liberty to apply granted on 8 April 2010 and seeks various orders, including orders for the lifting of the stay of the orders for sale of the Turramurra property, and orders making certain variations to the orders for sale, including by adding amounts of costs to the amount secured by the charge over the property. In the course of the hearing on 21 August 2013 I gave leave to the plaintiff to file in court an Amended Notice of Motion which essentially quantified the amounts of those costs.

The Plaintiff's Motion 12At the hearing on 21 August 2013, the plaintiff ("Chateau"), for whom Mr Ilkovski of counsel appeared, read affidavits sworn by Andrew Loel (a partner of Toomey Pegg Lawyers) on 29 July 2013 and 20 August 2013, and an affidavit sworn by Nicholas Malanos (a principal of Worrells Solvency and Forensic Accountants) on 24 July 2013. Mr Malanos is proposed to be the trustee who will conduct the sale. Mr Ilkovski also read paragraph 5 (including annexure "C") of an affidavit sworn by Mr Loel on 22 September 2009. Annexure "C" is a copy of the building contract entered into between the plaintiff and the defendants. 13Mr Loel's affidavit sworn on 29 July 2013 sets out a procedural history of the dispute including the numerous costs orders made in favour of Chateau against the defendants ("Dr and Mrs Zepinic"). 14The evidence establishes that: (1)on 15 April 2010 the CTTT ordered that Dr and Mrs Zepinic pay Chateau's costs of the CTTT proceedings on a party/party basis up to 13 February 2008 and on an indemnity basis thereafter; (2)on 20 November 2009 the District Court ordered that Dr and Mrs Zepinic pay Chateau's costs of the District Court proceedings; and (3)on 10 May 2010 the Court of Appeal ordered Dr and Mrs Zepinic to pay Chateau's costs of the Court of Appeal proceedings. 15Costs orders have also been made in the present proceedings to the effect that Dr and Mrs Zepinic must pay Chateau's costs of the proceedings from 9 September 2009 to 3 December 2009 on an indemnity basis, and thereafter on the ordinary basis. 16Various offers were made to Dr and Mrs Zepinic by Chateau in relation to the costs orders. However, no agreement was reached and the process of costs assessment commenced in late 2010. That process culminated in the issuing of certificates of determinations of costs in respect of the CTTT proceedings ($417,800.52), the District Court proceedings ($106,151.62), these proceedings ($154,874.59) and the Court of Appeal proceedings ($46,694.29). Certificates of determinations of costs were also issued in respect of the costs of those assessments. 17In July 2013 Chateau obtained judgments in this Court against Dr and Mrs Zepinic in respect of the costs of the various costs assessments. On 20 August 2013 Chateau obtained judgments in this Court for $417,800.52 in respect of the costs of the CTTT proceedings, $106,151.52 in respect of the costs of the District Court proceedings, and $154,874.59 in respect of the costs of these proceedings. 18In addition, on 19 April 2013 Chateau obtained a judgment in the District Court against Dr and Mrs Zepinic in the sum of $17,600 based upon a gross sum costs order made in respect of a motion seeking interest on costs, and, as noted earlier, on 5 July 2013 Chateau obtained a judgment in this Court in the sum of $26,722.12, based upon a gross sum costs order made in respect of a motion seeking interest on costs. 19During the course of the hearing, I raised with Mr Ilkovski questions as to whether all of the amounts of costs fell within the terms of Chateau's charge, and if not, how should such amounts be dealt with in the context of the orders made by Slattery J for the sale of the property. The questions arose, it seemed to me, because the terms of the charge extend only to monies that are or may become payable under the building contract. I referred, by way of example, to the observations made Barrett J in Renascent Interiors and Refurbishers v ASEL Property Group [2002] NSWSC 345 at [20]. I directed that the plaintiff file and serve written submissions on the issue, and gave Dr Zepinic an opportunity to respond to such submissions. The motion was adjourned until 10 September 2013. 20The orders for the sale of the property were made on 8 April 2010. Those orders were subsequently corrected, pursuant to Uniform Civil Procedure Rules 2005 r 36.17, on 9 June 2010. The form of the orders, as corrected, is recorded in a document which forms part of annexure F to the affidavit of Mr Loel sworn on 20 August 2013. It is not necessary to set out the terms of the orders. It is sufficient to note that in addition to an order for an extension of the caveat until further order, and a declaration that the defendants have charged the Turramurra property with due payment of $370,847.35 plus interest, it was ordered (subject to a stay until further order) that the property be sold (by Mr Malanos) in accordance with a regime which included giving the defendants the opportunity to avoid the sale by paying the trustee the $370,847.35 plus interest "together with such Further Amounts as may be ordered by the Court" before the "lifting date" (see order 6 (a)). The regime also included a provision to the effect that if the plaintiff purchased the property at auction the trustee would allow as a set off against the purchase price such part of the $370,847.35 plus interest as remains unpaid together with such Further Amounts "as may be ordered to be paid by the defendants to the plaintiff upon further application to this Court" before the "lifting date" (see order 5(c)(v)). 21The central issue for determination concerns the extent to which amounts owed by the defendants to the plaintiff fall within the ambit of the charge and, to the extent they do not, the appropriate manner for such amounts to be dealt with in the sale process previously ordered by the Court. 22The plaintiff filed further written submissions dated 30 August 2013 directed to that issue. In summary, the plaintiff contends: (1)that a further order should be made adding the costs of these proceedings to the amount of the charge on the basis that they are costs associated with protecting and enforcing the charge; and (2)that a charging order pursuant to s 126 of the Civil Procedure Act 2005 should be made in respect of the costs of the CTTT proceedings, the District Court proceedings and the costs assessments, and that these amounts be enforced as part of the sale of the property as "Further Amounts". 23In support of (1) above, the plaintiff submits that if a mortgagee (whether legal or equitable) properly incurs costs to protect or enforce the mortgage then the mortgagee is entitled to costs as of right (see National Provincial Bank of England v Games (1886) 31 Ch D 582 as to a legal mortgagee; and Cotterell v Stratton (1872) 8 Ch App 295 as to an equitable mortgagee; and generally ELG Tyler, PW Young & CE Croft, Fisher and Lightwood's Law of Mortgage, 2nd Australian ed (2005) at [40.1]). It is further submitted that the position of an equitable chargee is analogous to that of an equitable mortagee. Re Sneyd; ex parte Fewings (1883) 25 Ch D 338 is cited for the proposition that, as a general rule, such costs are added to the amount due under the mortgage and must be paid as a condition of redeeming. 24The plaintiff submits that these proceedings were commenced in order to protect an equitable interest in the Turramurra property created by the charge contained in the building contract, and the plaintiff ultimately obtained relief in the form of a declaration as to the charging of the property and orders for a judicial sale. Accordingly, so it is submitted, the costs of the proceedings may be properly characterised as costs associated with protecting and enforcing the equitable charge, and that, in the circumstances, a further order should be made adding the amount of such costs to the amount secured by the charge. 25In support of (2) above, the plaintiff invokes s 126 (1)(c) of the Civil Procedure Act 2005 which is in the following terms: (1) This section applies to the following kinds of property in relation to a judgment debtor (referred to in this Division as security interests): ... (c) any equitable interest in property. 26By s 126 (2), which is subject to the Uniform Civil Procedure Rules, a charging order operates in relation to a security interest specified in the order "to charge the security interest in favour of the judgment creditor to the extent necessary to satisfy the judgment". By s 126 (5) a charging order entitles the judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor's favour by the judgment debtor. 27The plaintiff submits that upon the making of the declaration and orders of 8 April 2010 (as corrected on 9 June 2010), the defendants are chargors and the charged property is subject to an order for sale. It is further submitted that the defendants have an "equity of redemption" in respect of the Turramurra property and, upon sale, an equity in any net surplus. 28No further submissions were provided by Dr Zepinic. Further, there was no appearance by, or on behalf of, the defendants when the hearing resumed on 10 September 2013. 29On that occasion, the plaintiff was granted leave to file a Further Amended Notice of Motion which reflected the revised approach being taken by the plaintiff, namely, seeking to add only some of its costs to the amounts secured by the charge, and otherwise seeking a charging order. The plaintiff also read further affidavits, these being affidavits sworn by Mr Loel on 4 September 2013, 9 September 2013 (concerning costs), and 10 September 2013 (concerning service at the nominated address in London of the submissions, which included the proposed amended motion, and the further affidavits). The affidavit sworn on 4 September 2013 dealt with the matters required to be addressed by Uniform Civil Procedure Rules r 39.45 in relation to the making of charging orders, and included at annexure "A" an updated spreadsheet which identifies the various amounts owing by the defendants to the plaintiff. 30The spreadsheet (together with the various calculations in support of it) indicates that the plaintiff has incurred costs in these proceedings (including interest on such costs) in the total sum of $231,561.23. That is the total of the amounts which appear at items D4, D5, D7 and D8 of the spreadsheet. The plaintiff seeks an order that such amount (plus interest from 22 August 2013 at the rate of $44.98 per day) be added to the amount of $370,847.35 plus interest which the Court previously declared to have been charged by the defendants over the Turramurra property. 31I accept, having regard to the nature of the proceedings, that the plaintiff's costs, which have been the subject of assessment, were properly incurred in the course of preserving and enforcing the equitable charge contained in the building contract. I am further satisfied that the principle, that costs of this character may be recovered by recourse to the secured property, is applicable to an equitable chargee in the position of the plaintiff (see Fisher and Lightwood's Law of Mortgage, 13th ed (2010) at paragraph 55.7; Ezekiel v Orakpo [1997] 1 WLR 340 at 346 per Millett LJ). Accordingly, I am prepared to make order 1(a) as sought in the Further Amended Notice of Motion which has the effect of adding those costs to the amount which the Court previously declared to be covered by the charge. 32The spreadsheet also identifies the various amounts of costs which are due to the plaintiff in respect of the CTTT proceedings, the District Court proceedings, and in relation to the costs assessment process. Amounts of interest on some of those costs are also identified. The plaintiff seeks a charging order pursuant to s 126 of the Civil Procedure Act in respect of all of those amounts (which total $789,282.23 as at 21 August 2013). 33However, in my view it is not appropriate, at least at this stage, to make any charging order. The Turramurra property is land under the Real Property Act 1900 and the defendants remain the registered proprietors of the property. I was informed that the property is not the subject of any registered mortgages. It has been held, in relation to s 27 of the Judgment Creditors' Remedies Act 1901, which is a predecessor of s 126 of the Civil Procedure Act, that the interest of a mortgagor of Real Property Act land is not an "equity of redemption" within the meaning of s 27 (see, for example, Quint v Robertson (1985) 3 NSWLR 398 per Young J). More recently, White J in Paul Michael Pty Ltd v Urban Traders Pty Ltd [2010] NSWSC 1246 took the same approach in relation to s 126 itself. At [70] his Honour stated, after referring to Quint v Robertson (supra) and other cases to the same effect: The defendants are the registered proprietors and therefore the legal owners of the land. As the legal owners of the land they do not also hold an equitable interest in the land. An equitable interest is something imposed on the legal title, not carved out of it. A legal owner does not hold the property on trust for himself or herself. The defendants' interest as owners of the land is not an "equitable interest in property". 34In my opinion it is not possible to conclude that the defendants presently have an equitable interest in property within the meaning of s 126 (1)(c) of the Civil Procedure Act. That is the case regardless of whether the relevant property is treated as the Turramurra property itself or the proceeds of any sale of that property. The defendants remain the legal owners of the property notwithstanding the orders made in 2010. Of course, if the legal ownership of the property vests in the trustee pursuant to the orders of the Court, the defendants might then be regarded as having an equitable interest in the property, and if the property is eventually sold in accordance with the orders of the Court the defendants would in my view have an equitable interest in the proceeds of such sale. It follows that the plaintiff might, in the future, have grounds to seek a charging order, but that time has not yet arrived. I therefore decline to make order 1(b) as sought in the Further Amended Notice of Motion. 35By orders 1(d) and 1(h) the plaintiff seeks to include "Further Amounts" for the purposes of orders 6(a) and 5(c)(v). In essence, the plaintiff seeks to have all of the costs which are owed to it (together with interest on those costs) included as Further Amounts for the purposes of those orders. The practical effect of that would be that, if the defendants wished to avoid a sale they would need to pay all such amounts in addition to the amount declared to be charged over the property (and the trustee's costs in connection with implementing the Court's orders). Further, in the event that the plaintiff entered into a contract for the purchase of the property, it would receive an allowance or set off against the purchase price for all such amounts as well as the amount declared to be charged over the property. 36It seems to me that it is appropriate to make such orders in circumstances where those amounts are undoubtedly owing to the plaintiff pursuant to judgments of this Court (and a judgment of the District Court), and there is no suggestion of any competing claimants. The plaintiff's primary remedy as an equitable chargee is judicial sale (see King Investment Solutions Pty Ltd v Hussain [2005] NSWSC 1076 at [50] - [51] and [81]). In my view, if the defendants wish to prevent such a sale occurring it is appropriate that they pay all such amounts owing to the plaintiff, particularly having regard to the fact that those amounts, whether secured by the charge or not, may be enforced by other means against the property itself. 37For similar reasons, were the judicial sale to proceed and result in the plaintiff becoming the purchaser of the property, it would be appropriate that the plaintiff have the benefit of an allowance or set off against the price for all of the amounts which are owing by the defendants and are the subject of judgments. 38Orders 1(f) and 1(g) of the Further Amended Notice of Motion seek minor variations to existing order 5 to make it clear that if the trustee incurs costs and expenses in connection with the implementation of the Court's orders, then the trustee will be able to recover such costs and expenses even though they do not fall within the notion of costs and expenses in relation to the sale of the property. I see no reason why the trustee ought not be able to recover such costs and expenses, if properly incurred, and I will therefore make orders 1(f) and 1(g) as sought. 39Order 1(c) would make a minor typographical correction to existing order 2; and order 1 (e) adds words of clarification to existing order 5(e) to make it plain that the payments to be made by the trustee (of the Amount and Further Amounts that remain unpaid), following a sale of the property to an entity other than the plaintiff, are to be made to the plaintiff. Both of those orders should be made. 40Order 2 as sought in the Further Amended Notice of Motion provides for a lifting of the stay of orders 3 - 6 which was imposed on 8 April 2010. An order to this effect should be made together with a variation of order 3 to make it clear that the "lifting date" is a date after the date of the making of the other orders. This is because the orders envisage that any Further Amounts will be the subject of orders of the Court made prior to the "lifting date". 41Leaving aside questions of costs, and interests on costs, I propose to make the following orders on the plaintiff's Further Amended Notice of Motion: Pursuant to the liberty granted by the Court on 8 April 2010, order further as follows: (1)Vary order 3 made on 8 April 2010 by deleting the words "and, the making of an order for the lifting of such stay" and inserting instead "and the date when an order lifting the stay is expressed to take effect". (2)Set aside order 2 made on 8 April 2010 and in lieu thereof make the following declaration: A declaration that the defendants have charged the Turramurra property, the address and title details for which are identified in paragraph 2 of the Further Amended Summons, with due payment to the plaintiff of: (a) $370,847.35 plus interest (at a rate equal to the rate for the time being prescribed for the purposes of s 101 of the Civil Procedure Act 2005) as ordered by the Consumer, Trader and Tenancy Tribunal on 2 February 2009 ("the Amount"); and (b) $231,561.23 plus interest from 22 August 2013 at the rate of $44.98 per day. (3)Set aside order 5 (c)(v) made on 8 April 2010 and in lieu thereof order: (v) if the plaintiff successfully bids on the Property at public auction and a contract for sale of the property is exchanged, the Trustee shall on settlement of the sale allow the plaintiff as a set off against the purchase price such of the Amount as remains unpaid by the defendants at the settlement and the following Further Amounts: (i) $749,744.28 for the plaintiff's costs of these proceedings, the Consumer, Trader and Tenancy Tribunal proceedings HB/07/03657 and HB/07/33225, and District Court of New South Wales proceedings 2009/335054 and the costs of the assessment of such costs; (ii) Interest in respect of the amount referred to in (i) to 21 August 2013 in the amount of $271,099.18; (iii) Interest at the continuing daily rate of $183.22 from 22 August 2013 in respect of the amount referred to in (i); (iv) Costs of the plaintiff's Notice of Motion filed on 12 July 2013 (as amended) and Dr Zepinic's Notice of Motion filed on 2 July 2013 in the gross sum of $60,000 together with interest on those costs; and (v) Such other amounts ordered to be paid by the first and/or second defendants to the plaintiff upon further application to the Court before: (1) the date of the settlement of the sale of the property; or (2) two months after the lifting date if order 6(a) applies; ("Further Amounts"). (4)Vary order 5(e) made on 8 April 2010 by inserting the words "to the plaintiff" after the word "pay" where first appearing. (5)Vary order 5(f) made on 8 April 2010 by inserting the words "("the Trustee's Sale Costs")" at the end of the order. (6)Vary order 5(h) made on 8 April 2010 by deleting the words "and the Trustee's costs and expenses incurred in relation to the sale of the Property" and inserting instead "and the Trustee's Sale Costs and/or costs and expenses incurred by the Trustee in connection with implementing these orders ("the Trustee's Costs of Implementing these Orders")". (7)Set aside order 6(a) made on 8 April 2010 and in lieu thereof order: (a)the Trustee must not sell the Property if on or before two months after the lifting date the defendants pay to the Trustee and the Trustee receives in clear funds: (i)the Amount and the Further Amounts ("the Payment to the Trustee"); and (ii)the Trustee's Costs of Implementing these Orders. (8)Order that the stay of orders 3, 4, 5 and 6 made by the Court on 8 April 2010 be lifted, such order to take effect on 16 September 2013. (9)Note that references in these orders to orders made on 8 April 2010 are to be read as references to the orders made on that day as corrected on 9 June 2010. 42That then leaves the questions of the costs of the motion and interest on such costs. That issue is dealt with in Mr Loel's affidavit sworn on 9 September 2013. Mr Loel has analysed the relevant tax invoices and attributed items of work to either the plaintiff's motion or to Dr Zepinic's motion. By that process, Mr Loel has calculated that, as at 10 September 2013, the plaintiff's costs of and incidental to its motion were approximately $66,000 excluding GST. Mr Loel's estimate of the plaintiff's costs of and incidental to Dr Zepinc's motion up to and including 10 September 2013 is approximately $14,000 excluding GST. 43For the reasons which follow (at paragraphs 47 to 50), Dr Zepinic's motion is to be dismissed with costs. Although I was invited to make an order for indemnity costs in respect of Dr Zepinic's motion, I have decided not to do so (see paragraph 51 below). Accordingly, it is convenient to deal with the costs of both motions together. 44The plaintiff seeks a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act. Interest on costs is also sought pursuant to s 101(4) of the Civil Procedure Act. I was referred to Hamod v State of New South Wales [2011] NSWCA 375 at [813] - [820] for a statement of relevant principles concerning the exercise of discretion to award gross sum costs. It was submitted that such an order is desirable in the present case primarily because it would avoid the expense, delay and aggravation likely to be involved in a contested costs assessment. There is some force in that submission. The history of these proceedings suggests that an agreement concerning costs is very unlikely. In addition, the history of the earlier costs assessments suggests that there is a very real prospect that any future assessments will be complicated by the fact that the defendants do not live in New South Wales. In this respect it is relevant to note that despite orders being made by this Court pursuant to Uniform Civil Procedure Rules r 4.5(1) that the defendants provide a proper address for service in New South Wales, the defendants have failed to do so. 45The making of a gross sum costs order, the amount of which can be incorporated into the orders for the sale of the property, will assist in bringing these lengthy proceedings to finality. The affidavit sworn by Mr Loel, and the supporting documents annexed to it, provides a reasonably detailed description of the nature and extent of the legal work undertaken and suggests to me that the legal costs incurred have not been excessive in the circumstances. It is, of course, appropriate that a discount be applied to the total amount of costs incurred. I suggested to Mr Ilkovski, in the course of submissions, that it may be appropriate to apply a figure of about 75% to the total costs. Mr Ilkovski did not demur from that approach. 46In all the circumstances I conclude that it would be appropriate to make an order that the plaintiff be entitled to a gross sum costs order calculated on the basis of 75% of $88,000, that sum being the approximate total amount of costs incurred by the plaintiff in respect of both motions including GST. I will also make an order pursuant to s 101(4) of the Civil Procedure Act that interest is to be paid on 75% of the costs calculated from the relevant dates of payment by the plaintiff. There does not appear to be any factor present which would suggest that such an order may not be appropriate (see Wood v Inglis [2010] NSWSC 749 at [13]).

Dr Zepinic's Motion 47As noted earlier, Dr Zepinic's motion seeks orders as sought in a document described as "Statement of Cross-claim" said to have been filed on 30 March 2013, as well as an order for the withdrawal of the caveat over the Turramurra property. The motion is supported by an affidavit sworn by Dr Zepinic on 6 June 2013. The affidavit contains, inter alia, numerous assertions of breaches by Chateau of the building contract. It is also suggested that Chateau failed to put on a defence to the Statement of Cross-claim. There are numerous other assertions, some of a scandalous nature, which do not seem to me to be relevant. In substance, the motion appears to be one for the entry of default judgment. 48However, there is no evidence, and nothing on the Court file to suggest, that the Statement of Cross-claim has been validly filed in the Court. This was a matter which was raised with Dr Zepinic during the hearing on 21 August 2013. An opportunity was given for him to bring forward material and make submissions on that issue, but the opportunity was not taken. 49The time prescribed for the filing of cross-claims has long since passed. Dr Zepinic would require the leave of the Court to file any cross-claim now. No such application has been made, and the prospects of leave being granted at this late stage must be regarded as remote. In this context, it is noteworthy that in Chateau Constructions (Aust) Ltd v Zepinic & Anor [No 6] [2010] NSWSC 538 Slattery J found that a proposed cross-claim filed by Dr and Mrs Zepinic on 17 December 2009 had not been validly filed, and declined to allow for an extension of time so as to enable the proper filing of the cross-claim. 50In these circumstances, there is no foundation upon which Dr Zepinic can seek orders in connection with the Statement of Cross-claim. Further, no basis has been shown for an order for the withdrawal of the caveat. Dr Zepnic's motion must therefore be dismissed with costs. 51I was invited to make an order for indemnity costs in respect of Dr Zepinic's motion, essentially on the basis that it was utterly without foundation. Whilst that may be so, I am prepared to assume in Dr Zepinic's favour that he genuinely wishes to raise the building contract issues in this Court, but in the absence of legal representation has chosen a procedurally inappropriate course. I note that on 30 April 2013 Dr Zepinic commenced proceedings in this Court in which he seeks to raise issues concerning the building contract. In all the circumstances, I decline to make an order for indemnity costs of Dr Zepinic's motion. 52The orders of the Court in respect of costs will be: (10)Order that the defendants pay the plaintiff's costs of the plaintiff's motion filed on 12 July 2013 and Dr Zepinic's motion filed on 2 July 2013 in the gross sum of $60,000. (11)In respect of order (10) above, order the defendants to pay the plaintiff interest on costs and disbursements at the rates prescribed in UCPR 36.7 on the Allowed Percentage of each amount of costs and disbursements actually paid by the plaintiff from the date of payment of each such amount of costs and disbursements up to and including the date that the defendants pay the plaintiff the Allowed Amount. (12)For the purposes of order (11): Allowed Amount equals $60,000 Allowed Percentage equals ((Allowed Amount / X) x 100)% X equals $80,000.

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: 16 September 2013