Foundas v Arambatzis

Supreme Court of NSW|2023-12-22|Before: Rees J

92 ALR 131 Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 14 Category: Costs Parties: Cassini Foundas (Plaintiff) Peter Arambatzis (First Defendant) Representation: Counsel: Mr D Barlin with Ms T Harris-Roxas (First Defendant)

Solicitors: Plaintiff in person Cutri & Associates (First Defendant) File Number(s): 2021/297960

Facts

The history of these proceedings is described in my primary judgment: Foundas v Arambatzis (No 3) at [76]-[81]. In short, the sister sought to set aside judgment and orders made in earlier proceedings brought in 2018 by the brother under rule 36.15(1) of the Uniform Civil Procedure Rules 2005 (NSW) as having been entered irregularly, illegally or against good faith, or obtained by fraud.
In the earlier proceedings, the Court appointed the second and third defendants, Sean Wengel and Robert Whitton (the Trustees), to sell a property in Magee Street, Ashcroft and distribute the proceeds equally between the sister and brother. Judgment was also entered against the sister for the brother's share of the proceeds of sale of a property in Stanwell Crescent, Ashcroft. The sister contended that, when judgment and orders were made on 15 October 2018, a Deed of Acknowledgment was in existence which had been executed by herself and the brother in 2013, in which the brother disclaimed any interest in the properties.
In my primary judgment, I found that there has been a fraud, but it was not by the brother. The Deed of Acknowledgment was a forgery. By these means, the sister delayed her eviction from the Magee Street property for almost three years.
These proceedings were commenced in October 2021. On 1 February 2022, Darke J referred this matter to mediation. The sister was then represented by pro bono counsel. The matter was not resolved at mediation. The brother sought to inspect the original Deed of Acknowledgement and much time was wasted thereafter by requests from the brother's solicitors for production of the original deed, and the sister's evasion of such requests: Foundas v Arambatzis (No 3) at [79]-[80].
In February 2023, the brother served an expert report of forensic document examiner, Melanie Holt, who expressed the view that the deed was a forgery. Not long after this, the sister's pro bono solicitor ceased to act. I infer that the solicitor ceased to act as they considered it appropriate in accordance with the professional rules which govern their conduct, for example, where the solicitor's advice is not being followed: Foundas v Arambatzis (No 2) [2023] NSWSC 1329 at [22].
Undeterred, in the month leading up to trial, the sister alleged, in numerous emails sent to court staff, that the Court file had been tampered with and called for an investigation. For example, on 4 September 2023, the sister emailed the Associate to Henry J, who was then listed to hear the matter, advising that the Deed of Acknowledgement on the Court file "was an ORIGINAL I had been Ordered by Justice Brereton to be handed to the Court for further evaluation. It is now missing from [the] file. … Someone has taken and with intent sabotaged the file. … This is very unfair and demonstrates how low some people … will go to succeed. I cannot have a fair and unbiased trial if there is nothing in the file for the Judge to see on my behalf."
The truth of the matter was that, notwithstanding repeated requests and an order of Brereton JA, on 1 March 2021, that the sister send the original deed to the Court, she did not do so. Indeed, Ms Holt concluded that there was no original deed. The sister brazenly blamed the absence of the original document on, variously, the brother's legal representatives, the forensic examiner and the Court Registry.
The sister continued to seek to prove the authenticity of the deed to the bitter end. Notwithstanding a guillotine order made by the Registrar, the sister served two affidavits on Friday afternoon, 3 November 2023, when the hearing began on Monday, 6 November 2023. One affidavit by the sister annexed a statutory declaration from the person who signed the deed as a witness, Ms Cox. The sister omitted to tell Ms Cox that the authenticity of the deed was in question. Ms Cox readily acceded to Ms Holt's conclusions, "I can only agree that they look like my signature and that's it, that's all I was saying that yeah, that's my signature." The second affidavit by the sister sought to align her earlier affidavit with Ms Cox's statutory declaration.
The hearing occupied four days. As Ms Foundas was self-represented, this was difficult for all concerned. In addition to the hearing, the sister brought a number of interlocutory applications, which necessitated a number of pre-trial hearings. Further, the sister sent some 50 emails to my staff. I expect that the brother's legal representatives received many more.

Submissions

The brother seeks payment of his costs on an indemnity basis, where the deed on which the sister sought to set aside judgment and orders of this Court was a forgery, created to delay her eviction from the Magee Street property: McGettigan v Coulter (No 2) [2021] NSWSC1356 at [15]-[16] (per Slattery J). As a consequence of the forged document, the brother has been put to great expense in defending these proceedings, including retaining a forensic document examiner. The sister did not send the original document to the Court but continually submitted that she had, in circumstances where she would have been well aware that what she had sent to the Court was a copy.
The brother sought a gross sum in accordance with the principles summarised in McGettigan at [23]-[27]. The brother held very real concerns that the sister would not have the means to satisfy a costs order, where she had previously satisfied the criteria for pro bono referrals on a number of occasions and previously stated to the Court that she was experiencing general hardship and is on a pension. The brother is also of very limited financial means and resides in public housing. He is concerned at the further costs that would be incurred in any costs assessment process, given his ability to pay any such costs is limited and the plaintiff's ability to satisfy any costs order is in doubt. The sister has not paid any of the costs orders made against her in previous, related proceedings. The brother's legal costs are $216,611.89. The discount applied in McGettigan was 5%. The brother suggested a larger discount here of 10%, resulting in a figure of $196,550.41.
The sister submitted that, where there was no evidence that the brother had actually paid the invoices rendered by his legal team, and where the brother did not have the financial means to do so, the Court had no power to order that she pays his costs of the proceedings, whether on an ordinary basis, an indemnity basis, or at all.

Liability for costs

Whether an indemnity costs order may by made where the applicant has not paid its legal costs was considered in In the matter of Ryals Hotel Pty Ltd [2021] NSWSC 42. As Black J summarised the position, the indemnity principle permits recovery of costs by a successful party which is liable to pay them, but it is not necessary that the costs have already been paid, or even that an invoice has been rendered: at [6], citing Mourik v Von Marburg [2016] VSC 601 at [20]; Shaw v Yarranova Pty Ltd [2011] VSCA 55 at [9]; Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [126]; Maineri v Cirillo (2014) 47 VR 127; [2014] VSCA 227 at [43]. The indemnity principle does not prevent recovery of costs although the relevant bills are unpaid: Ryals Hotel at [7]. The obligation to pay is sufficient.
Although the sister did not raise this, I cannot fail to notice that Mr Cutri's costs agreement is undated and his affidavit is silent as to when the brother signed the document. I infer that Mr Cutri did not enter into a costs agreement with the brother at the outset, but at some later time. A solicitor is obliged to give a costs disclosure "as soon as practicable after instructions are initially given in a matter": section 174(1), Legal Profession Uniform Law 2014 (NSW) (LPUL). The consequence of failure to comply with that provision is that "the client or an associated third party payer is not required to pay the legal costs until they have been assessed": section 178(1)(b). This does not affect, however, the brother's liability to pay Mr Cutri's costs. As James J explained in Salvatore Blanda v Kemp Strang Lawyers Pty Ltd [2006] NSWSC 48, the consequences of failure to comply with costs disclosure requirements are limited to the consequences expressly stated in the legislation. At [56]: It is noteworthy that [the legislation] did not, according to its terms, destroy a solicitor's entitlement to costs …. The section merely provided that, if there had been a non-compliance with [costs disclosure requirements], a client did not have to pay the costs unless they had been assessed and a solicitor could not avail himself of the particular remedy of maintaining proceedings, that is court proceedings, for the recovery of the costs, unless the costs had been assessed.
Here, the brother asks the Court to assess his legal costs under section 98(4)(c) of the Civil Procedure Act 2005 (NSW). Whether I accede to that request, or whether the costs are assessed in the usual way, his liability to pay Mr Cutri's costs remains. I am satisfied that the brother has led sufficient evidence to establish that he is liable to pay the costs of his solicitor and counsel.

Indemnity costs

Indemnity costs orders may be warranted where a party has been put to the unnecessary expense of meeting unmeritorious claims that are based on deliberate falsehoods and falsified records: Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358; Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [106]-[113] (per Basten JA, with whom Giles JA and Young CJ in Eq agreed); Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd (2006) 196 FLR 419; [2006] QSC 7 at [13]-[16]; Thors v Weekes (1989) 92 ALR 131 at 151-152; Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 230-234; Huang v Wei (No 3) [2022] NSWSC 662 at [17]; Fang v Sun (No 2) [2014] NSWSC 1194 at [17]-[23]; RinRim Pty Ltd v Deutsche Bank AG (Costs) [2016] NSWSC 1510 at [3]-[17] (upheld in RinRim Pty Ltd v Deutsche Bank AG [2017] NSWCA 169). The focus is the impact the delinquency has on the litigation, rather than the wrongdoing itself, bearing in mind the object of an award of costs is compensatory rather than punitive: In the matter of Pacific Springs Pty Ltd [2021] NSWSC 66 at [42].
The whole premise of the Summons filed by the sister on 20 October 2021, further detailed in a Statement of Claim filed on 15 August 2022, was that the judgment and orders made in the earlier proceedings had been obtained by the brother notwithstanding that he had executed the Deed of Acknowledgement. The sister affirmed an affidavit verifying the Statement of Claim, stating that she believed the allegations of fact in the Statement of Claim were true. To the contrary, the foundation of the sister's claims was a forged document. Whether the sister forged the document, or was assisted by another, was not necessary to decide in my principal judgment. There can be no doubt, however, that the sister was aware of that fact when commencing these proceedings and advancing false allegations against the brother.
Of course, an indemnity costs is not directed to further punish a fraudster. But the fact that the document proffered by the sister was found to a forgery forms a prism through which her actions in bringing these proceedings may be viewed. The sister could not have held any genuine belief in the truth of the allegations advanced. But, having brought the case, the brother was put to the cost of dealing with the substantive matters raised in it, including retaining a forensic document examiner.
To make matters worse, the sister maintained the lie throughout her cross-examination, which was necessarily lengthy. The sister gave evasive and non-responsive evidence in cross-examination. Overall, I consider that the Summons, the Statement of Claim and the evidence marshalled by the sister in support of her allegations was directed towards misleading the Court. The sister's allegations led to the brother incurring costs, which he could ill afford. As Gilmour J observed in Barrett Property Group Ltd v Metricon Homes Pty Ltd (No 2) [2007] FCA 1823 at [16]: … It is not a case involving witnesses who gave evidence believing it to be true but as to which they were mistaken. It is not a case where judgment depended essentially upon the inherent probabilities of one version of events against another but not involving questions of credit. … This matter involved a concerted effort … to present a false [claim] which has led to the [defendant] incurring very considerable costs over a long period in meeting and overcoming that [claim]. …
The sister maintained a fabricated claim. I consider her conduct amounts to relevant delinquency or exceptional circumstances warranting an indemnity costs order. The sister was aware of the truth. She, or someone closely associated with her, committed the fraud.

Gross sum order

Section 98(4)(c) of the Civil Procedure Act provides: Courts powers as to costs In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: … (c) a specified gross sum instead of assessed costs …
As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]: The power … of [section 98(4)] is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment …
It is a relevant consideration "whether the financial capacity of the party liable to pay costs is such that the additional burden of taxation will import a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs": Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228.
The sister has received pro bono legal assistance in relation to this dispute and has submitted to the Court that she is impecunious and on a pension: see Foundas v Arambatzis (No 2) [2023] NSWSC 1329 at [18].
The sister has failed to pay costs orders made against her in the earlier proceedings and Court of Appeal proceedings. In the earlier proceedings, Darke J made an order on 6 September 2019 that the sister pay the brother's costs of her motion to set aside default judgment filed on 24 April 2019. On 24 March 2020, the Court of Appeal ordered the sister to pay the brother's costs of the appeal: Foundas v Arambatzis [2020] NSWCA 47 (Bell P, Basten and White JJA). On 1 July 2022, the Court of Appeal dismissed the sister's summons and notice of motion with costs: Foundas v Arambatzis (No 5) [2022] NSWCA 113. Mr Cutri said these costs orders had not been paid by the sister.
I note also the sister's closing submissions following the trial, "they will come after me to get money. Sorry but, that isn't happening": at [95].
I consider it appropriate in these circumstances to make an order under section 98(4)(c) of the Civil Procedure Act, given the sister's professed impecuniosity, her failure to pay previous costs and the fact that the sister is "unlikely to co-operate in any further court processes and meet any liability for costs in an efficient and appropriate way": Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 at [17] per Kenny J. The brother should not be put the further expense of having his costs assessed in the usual way, where those expenses may be throwing good money after bad.
As to what the amount of the specified gross sum ought be, in Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles at [9]: ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at [16]; iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, per Giles JA at [22] …; iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at [22]; v. the gross sum "can only be fixed broadly having regard to the information before the Court": Beach Petroleum at 124; [In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates".] vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120; vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No 2) (1995) 57 FCR 119, put the matter as follows, at [16]: "On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the cost estimates submitted to the Court: Leary v Leary at 265 …"
His Honour's summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]: … the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred … the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability…
And at [820] (citations omitted): The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment.
Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987at [11]: Implicit in this principle is that the gross sum bear a reasonable relationship to the actual costs of the party making the application, and to the costs that that party might reasonably be expected to recover on assessment. That means, among other things, that there must be a reasonable evidentiary basis for the order the court makes. That evidentiary basis is normally provided by the costs applicant in the form of an affidavit setting out the actual costs incurred and how they were calculated. Often, the evidence also includes evidence of the amount that is likely to be recovered on assessment.
Mr Cutri has set out in some detail the significant work which he has undertaken in this matter, which is further detailed in his tax invoice dated 14 December 2023. The tax invoices rendered by Mr Barlin and Ms Harris-Roxas also set out in detail the tasks which they have undertaken. In addition, Mr Cutri's firm has paid a number of disbursements, including court fees, transcript, Ms Holt's fee and for the preparation of Court Books. Although court books are ordinarily prepared by the plaintiff, the first defendant undertook this task at my request, where the sister was self-represented and voiced difficulty in attending to this task. Mr Cutri's fees are (a very modest) total of $67,171.50. Mr Barlin's fees total $58,875.21. Ms Harris-Roxas' fees total $74,568.09. With disbursements, total fees are $216,611.89. The brother's legal costs are, with respect, remarkably low given what they have likely had to deal with. Whilst the brother's suggested that these costs should be discounted by 10%, there does not appear to have been any particular reason for suggesting this discount, noting that it is larger than that applied in McGettigan. I have discounted the actual costs slightly.

Orders

For these reasons, I make the following orders and directions: 1. Vacate Order 2 made on 6 December 2023. 2. Order pursuant to section 98(1)(c) of the Civil Procedure Act 2005 (NSW) that the plaintiff pay the first defendant's costs of the proceedings on an indemnity basis. 3. Order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the first defendant is entitled to a specified gross sum in the amount of $210,000 in respect of his costs of these proceedings.

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: 22 December 2023

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