Edward Ted Lakis and Anor v Michael Victor Lardis and Anor

Second Defendant's rights to make applications to the Trustee

1. The Second Defendant initially foreshadowed an argument they sought to make regarding some form of entitlement by way of exoneration or subrogation in the event the 49% Dolls Point Property Transfer was set aside (Defendant's Additional Final Submissions dated 13 February 2017 [40]-[41]). Upon request, I invited the parties to make further submission on this issue (principal judgment [417]).
2. The Defendants no longer press this issue, accepting an order the 49% interest in the Dolls Point Property, once transferred to the First Defendant, vests in the Trustee is a direct application of s 58(1)(b) of the Bankruptcy Act 1966 (Cth) (Defendant's submissions 21 April [4]-[8]; Transcript of 5 May 2017 T1/45-T2/5).
3. All parties accepted the Second Defendant is entitled to make submissions to the Trustee, if the Second Defendant so wishes, regarding any exoneration, subrogation or other claim concerning the 49% interest (T3/25-40; T6/35-50; Trustee's submissions 4 May 2017 [12]). However, the Plaintiffs wished to make clear it would oppose such submissions on the grounds the Second Defendant had the opportunity to run the case before me (T3/15-30). The Trustee also noted such submissions are unlikely to succeed before it on the merits given the findings of this court (Trustee's submissions [12]).
4. While I note the points raised by the Plaintiffs and the Trustee, for clarity it seems to me the Second Defendant is not precluded from making her claims before the Trustee, and, if necessary before the Federal Court for review.

Costs

1. The Plaintiffs seek an order the Second Defendant pay their costs of the proceedings against the Defendants on an indemnity basis, relying on the Second Defendant's alleged misconduct in the litigation (Plaintiffs' submissions 21 April [3], [5], [10]). They also seek an order the Second Defendant pay both her and the First Defendant's costs.
2. The Defendants oppose a costs order on an indemnity basis on the grounds the Plaintiffs are not entitled to seek a costs order against the Second Defendant (Defendant's submissions 21 April [17]), and in any case the conduct of the Second Defendant does not merit an award against her of indemnity costs (Defendant's submission 28 April [16]).
3. I do not accept the Defendants' argument the Plaintiffs are not entitled to seek a costs order against the Second Defendant by reason of the Federal Court orders made by Perram J on 23 September 2016. As noted by the Plaintiffs and the Trustee, the Second Defendant was not a party to the Federal Court proceedings, with the orders, including those relating to costs, only applying to the respondent, being the First Defendant and his Trustee. The Federal Court orders therefore in my view have no impact on the Plaintiffs' entitlement to seek a costs order on an indemnity basis against the Second Defendant.
4. Nevertheless, while the Plaintiffs are not prevented by the Federal Court orders from seeking costs on an indemnity basis, I am not satisfied the circumstances of this case, in particular the Second Defendant's conduct in the proceedings, warrants such an order.
5. In deciding whether to make an order for payment of costs on an indemnity basis, the court must have regard to all the relevant circumstances of the case.
6. Lindgren J noted in NMFM Property Pty Ltd v. Citibank Ltd (No 11) (2001) 109 FCR 77 at [56]: The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised: Venture Industries at 153 per Black CJ, 158 per Cooper and Merkel JJ. In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant.
7. The Plaintiffs expressly base their claim on the Second Defendant's misconduct in the proceedings, rather than her antecedent misconduct in relation to the 49% Dolls Point Property Transfer (Plaintiffs' submissions 21 April [10]). Specifically, the Plaintiffs contend the Second Defendant deliberately gave and persisted in giving false evidence, and called witnesses whose evidence she knew to be false for the purpose of avoiding a judgment against her (Plaintiffs' submissions 21 April [3], [5]). I am not satisfied these claims can be supported.
8. I accept I rejected the Second Defendant's (and the First Defendant's) account of the 49% Dolls Point Property Transfer as truthful and accurate, describing it as contrived and self-serving (principal judgment [303], [346], [358], [380]). I also rejected the evidence of Mr Macaulay, but on the grounds of him, at best, being mistaken about his recollection (at [337]). However, I was not, and am not, prepared to go as far as to say the Second Defendant engaged in perjury, nor that she acquiesced in, agreed to, or even assisted in "calling witnesses in full knowledge that their evidence would be false for the purpose of corroborating her fraudulent defence" (Plaintiffs' submissions 21 April [5]).
9. It is well established a finding of perjury ought not to be made lightly nor based on "the single oath of another man, without any confirmatory evidence"; Smith v NSW Bar Association (1992) 176 CLR 256 per Brennan, Dawson, Toohey and Gaudron JJ at 268 citing Reg v Hook (1858), Dears & Bell 606, at p. 616 per Byles J.
10. Further, in my view it is not tenable to hold the Second Defendant responsible for the conduct of other witnesses, in the absence of any credible suggestion she was party to some decision to collectively perjure before the court. In addition, such a case theory put forward by the Plaintiffs was not ventilated in cross-examination before me.
11. As McDougall J noted in Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors [No.7] [2008] NSWSC 199 at [37]: It is frequently the case in litigation that a witness - including a party - is not believed. That is an incident of the adversary system. Party and party costs are another incident of the adversary system, and will remain so until the legislature takes a different view (see Mason P in Rosniak at 616). If indemnity costs were available as a matter of course whenever a party was disbelieved, there would be a shift de facto in the "normal" basis of assessment of costs.
12. Consistent with McDougall J's remarks, I am not satisfied my findings simply rejecting the Second Defendant's evidence on the 49% Dolls Point Property Transfer are sufficient to warrant a departure from the ordinary rule that an award for costs be made on an ordinary basis.
13. On these grounds, I am therefore satisfied the circumstances of the case do not merit costs to be awarded on an indemnity basis against the Second Defendant.
14. However, I am satisfied the Second Defendant should be ordered to pay the costs of the First Defendant. While this was not put by the Plaintiffs in written submissions, it was raised orally by both the Plaintiffs (T6/5-35) and the Trustee (T8/20-30). I agree as a matter of fairness, the Second Defendant, being the active defendant in the proceedings who has received the benefit of the section 37A transfer, ought to pay the costs arising from the First Defendant being joined in proceedings and submitting an appearance.

Stay of final orders

1. The Defendants seek a stay of any final orders made (Defendant's submissions 21 April [18]-[23]) which the Plaintiffs oppose (Plaintiffs submissions 28 April [12]). I am prepared to grant a stay of the relevant orders for a period of 28 days.
2. Payne JA recently summarised the leading principles regarding a stay application pending appeal in Port Macquarie-Hastings Council v Divera Pty Ltd [2017] NSWCA 4 at [29]-[31]. Citing Campbell JA in Woolworths Ltd v Strong (No 2) (2011) 80 NSWLR 445 at [68], his Honour noted factors ordinarily taken into account are whether the appeal raises a serious question to be tried, and if so, where the balance of convenience lies.
3. I am satisfied, based on the Draft Notice of Appeal provided by the Defendants, the appeal is arguable.
4. I am also satisfied the balance of convenience lies in favour of granting a stay. In my view, it would be unfair to obstruct, or do anything with the effect of obstructing, the Second Defendant's ability to run the appeal. This is particularly the case where the Second Defendant consents to the order requiring her to make an undertaking she refrain from disposing of any interest or creating any mortgage or charge or equitable interest in her 50% share of the Dolls Point Property (T2/15-30; Affidavit of Mrs Athena Lardis dated 21 April 2017 at [12]).
5. However, the Plaintiffs request I impose as a condition on the stay that the Defendants seek expedition in the Court of Appeal (Plaintiffs' submissions 28 April [14]). In my view, the most appropriate course is to grant a stay but only for a limited period of 28 days. It is then incumbent on the appellants to seek leave in the Court of Appeal for the continuation of a stay, and at that point expedition can be sought and determined in the Court of Appeal.
6. As submitted by the Plaintiffs, I note this stay does not stay the assessment process of costs (T5/1-10), nor for that matter, as I raised with the parties, an application for lump sum costs (T5/5-15). Any opposition the Defendants seek to raise in respect of these applications can be heard once any application is made.

Orders

1. I therefore make the following orders: 1. Declare pursuant to s.37A of the Conveyancing Act 1919 that the transfer registered on 29 January 2013 of a 49% interest in the property of folio identifier 20/18987 known as 4 Skinners Avenue, Dolls Point, New South Wales (Dolls Point Property) from the First Defendant to the Second Defendant is void. 2. Order the Defendants take all steps necessary to execute an instrument of transfer of 49% of the Dolls Point Property to the First Defendant as tenant in common and lodge such instrument of transfer for registration within 7 days of this Order. 3. Declare that upon registration of the instrument of transfer referred to in Order 2 above, the First Defendant's interest in the Dolls Point Property will vest in his trustee-in-bankruptcy, Ms Louise Thomson. 4. Order the Second Defendant be restrained from entering into any dealing with or encumbering the interest in the Dolls Point Property referred to in Order 1 other than that referred to in Order 2 above until these Orders have been complied with. 5. The parties have liberty to apply to the Court on 2 days' notice. 6. Order the Second Defendant pay the Plaintiffs' costs of the proceedings as against the First and Second Defendants. 7. Order the enforcement of the Orders above (save for Order 4) be stayed for a period of 28 days.

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