Heperu Pty Ltd & Ors v Patricia Belle [2013] NSWSC 1088 | Case summary

Formulating the present issue for decision 4The costs issues at first instance have not been determined as between Heperu and Ms Belle. So this judgment must deal with them. In the trial before Palmer J in 2007 Heperu pursued Morgan Brooks, Perpetual, Mr Cincotta and Ms Belle for recovery of moneys that Mr Cincotta fraudulently misappropriated from Heperu. Mr Cincotta went bankrupt. Heperu settled with Morgan Brooks and Perpetual. Heperu failed to establish at trial that Ms Belle: authorised Mr Cincotta's actions; was a recipient of trust property; was knowingly concerned in Mr Cincotta's misappropriation of, or dealings with the funds he stole from Heperu; or was liable as a volunteer to restore any benefits she received to Heperu - see, Heperu Pty Limited v Morgan Brooks Pty Limited & Ors (No.2) [2007] NSWSC 1438. Palmer J dismissed Heperu's case against Ms Belle. 5But Heperu appealed. Heperu failed on appeal to establish that Ms Belle was knowingly concerned in Mr Cincotta's fraud. But the Court of Appeal found that Palmer J had not fully dealt with Ms Belle's potential liability to repay Heperu as a volunteer and found that Ms Belle was potentially liable as a volunteer, if she had retained any benefit from the funds she had received: Heperu Pty Limited v Belle (2009) 76 NSWLR 230. The Court of Appeal remitted to the Equity Division question of whether Ms Belle had actually retained any benefit from the misappropriated funds. My principal judgment determined the question of the value of the retained benefit which I assessed at $86,970.01: Heperu Pty Ltd v Belle [2011] NSWSC 1151. 6The parties agreed upon an additional calculation of interest. On 20 August 2012, at the time of my second judgment, they agreed on orders for the entry of a judgment sum in Heperu's favour against Ms Belle for $89,970.01. They also agreed as an additional liability for interest pursuant to Civil Procedure Act 2005 s 100 in an amount of $59,788.90. Thus the combined judgment for principal and interest against Ms Belle was $149,758.91. 7But by consent these orders were stayed at the time of my second judgment, pending the Court's determination of the remaining issues in the proceedings: Heperu Pty Ltd & Ors v Patricia Belle [2012] NSWSC 1647. 8Two issues remain. Ms Belle submitted that the Court should determine the issue of costs as between the plaintiff and the fourth defendant, but that it should not determine the other issue of any adjustments that may be necessary upon enforcement of the judgment. But in my second judgment I decided to deal just with the questions of costs as between the plaintiff and the fourth defendant: Heperu Pty Ltd & Ors v Patricia Belle [2012] NSWSC 1647. 9Heperu seeks against Ms Belle 25% of the costs of the hearing before Palmer J. And it seeks the costs (including on an indemnity basis) of the retained benefit assessment hearing that led to my principal judgment. Ms Belle submits that she should not have to pay any costs of either hearing and that Heperu should pay her costs instead. For the reasons which follow I have concluded that as between Heperu and Ms Belle: (1) each should bear her and its own costs of the proceedings before Palmer J; but (2) that Ms Belle should pay Heperu's costs of the proceedings before me, and a proportion of those costs on an indemnity basis. 10The parties put separate arguments, first about the incidence of costs before Palmer J, and then, about the incidence of costs on the retained benefit assessment hearing before me. These reasons deal with the costs issues in this order. Costs orders after Palmer J's Decision of 20 December 2007 11Ms Belle was successful before Palmer J. His Honour determined in her favour that she was not knowingly involved in dealing with the misappropriated funds. But the Court of Appeal reversed his Honour's decision on this point and found Ms Belle liable as a volunteer to restore to Heperu any benefits she retained from the misappropriated funds. Ms Belle's costs position should now be assessed as if the result before Palmer J had been as the Court of Appeal has now found. 12But Ms Belle's loss before Palmer J was as to only part of the proceedings. The major contest before Palmer J involving Ms Belle was in another area: attempting to show Ms Belle's guilty knowledge of her former husband's dealing with the misappropriated funds. On that issue Ms Belle remains successful. She engaged counsel throughout the whole proceedings at considerable expense to herself. She puts that figure at $350,000 in legal fees. Given the length of those proceedings that would not be a surprising figure. Indeed in her submissions before me she seeks recovery of those costs against Heperu, submitting that the Court of Appeal's decision does not change the underlying reality that she succeeded on a principal contest before Palmer J and should have against Heperu her costs of that contest. 13But if the trial before Palmer J had been conducted in accordance with the reasons of the Court of Appeal Ms Belle would nevertheless have lost and a judgment would have been given against her (including interest up to that time) in the order of $100,000. With this general background Heperu's and Ms Belle's arguments as to the costs of the hearing before Palmer J must be assessed. 14The contest. Heperu asks the Court to order Ms Belle to pay 25% of its costs of the hearing before Palmer J. Heperu's contention is that this reflects the same percentage which has already been awarded by the Court of Appeal in respect of the same mix of causes of action and the same parties and with a similar result. Ms Belle rejects this conclusion, arguing that Heperu should pay all of her costs of the hearing before Palmer J on the basis that she was substantially successful at that hearing. 15I do not accept either Heperu or Ms Belle's arguments on the issue of costs before Palmer J. It is useful to analyse first why Heperu's arguments are not successful and then why Ms Belle's are not successful. In my view the appropriate result is that each party should bear its and her own costs of that hearing. 16Heperu's case - costs before Palmer J. Heperu submits that although it articulated different claims against Ms Belle the factual basis for each claim was essentially the same and was based in the account statements showing the passage of funds through her hands or for her benefit. Moreover, the plaintiff says that the claims against not only Ms Belle but all the other defendants were based upon the same set of facts and circumstances. It follows, Heperu submits: that the fourth defendant was appropriately joined to the proceedings with the other defendants to ensure all matters were determined together; and that, in light of Ms Belle's denial of any liability to account to Heperu it is appropriate that she be ordered to pay a percentage of Heperu's costs of the claim. Heperu concedes appropriately that she should not be required to pay all of its costs but fixes upon the same figure of 25% which the Court of Appeal awarded against her. Heperu says this is the appropriate outcome particularly given that Ms Belle did not concede any liability and disputed the quantum of Heperu's claims. 17Ms Belle faced a number of different claims to relief: a claim that she was the principal of the dealings in which Mr Cincotta was agent; a claim that she was a recipient of trust property; a claim that she was a knowing participant in Mr Cincotta's frauds; and liability as a volunteer, or put differently, as "a finder": Heperu Pty Ltd v Morgan Brooks Pty Ltd & Ors (No.2) [2007] NSWSC 1438 [93]-[138]. Although Ms Belle repelled all of these claims to relief before Palmer J, a mixed result was achieved as a result of the Court of Appeal's decision. 18Clear legal principles apply to the assessment of costs where such a mixed result has been achieved. These principles were fully summarised in the Court of Appeal's decision in Bostik Australia Pty Ltd v Warren Liddiard & Anor (No. 2) [2009] NSWCA 304 at [38]: The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this Court in Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows: ● 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 it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). ● In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. ● If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27]. ● Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). ● A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. ● Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at 272. These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No 2) [2009] NSWCA 279. 19The joint judgment in Bostik Australia Pty Ltd v Warren Liddiard & Anor (No. 2) [2009] NSWCA 304 has been cited with approval in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2011] NSWCA 171. 20But in my view Heperu's argument does not take proper account of the real contest before Palmer J in which Ms Belle was resisting a claim for at least $2.7 million against her, and resisting findings that she was engaged in a fraud. The size of the claims against her and the seriousness of the findings sought against her would be good reasons to engage counsel to be present throughout the hearing and to contest the whole of the Heperu's claim. Much of the contest before Palmer J was occupied with matters on which Ms Belle was ultimately successful. I do not accept Heperu's contention that these matters were not severable. Whilst it is true that the case against Ms Belle as a volunteer arose out of the same money transactions as the other claims, the super-added contests on the matters on which she was successful related to issues of her state of mind that went well beyond accounting and tracing issues. Ms Belle's argument is persuasive that she has been successful on separate issues that occupied a substantial part of the Court's time before Palmer J. 21It would not be a proper exercise of the Court's discretion to order 25% of the costs of the proceedings against her. It is easy to test the inappropriateness of such an order. By the time the proceedings came to the Court of Appeal, Perpetual and Morgan Brooks had settled with Heperu and were no longer parties. The appeal proceeded only against Ms Belle. But on the appeal Heperu re-argued all the various causes of action against her that it had pursued before Palmer J. It failed again on all of them apart from Ms Belle's liability as a volunteer. Despite the fact that there were no other defendants involved in those appeal proceedings, the Court of Appeal saw fit only to award 25% of the costs of that contest against Ms Belle. In my view, the award of such a substantial proportion (25%) of the costs of the trial before Palmer J which trial was occupied with many other defendants, and was much longer and in respect of which Ms Belle's liability as a volunteer was an even smaller part, would be a gross over-estimate. The appropriate result in my view is that each party should bear its own costs of those proceedings. 22Ms Belle's case - costs before Palmer J. Ms Belle wants all her costs of the proceedings before Palmer J. But in my view that is not an appropriate outcome either. There are two issues in play here. 23First, the Court of Appeal's reasons indicate that Ms Belle was always going to be liable as a volunteer for any benefit that she retained. But she did not concede this. Although Ms Belle was found not to have received the funds in the Perpetual and Westpac accounts, she had received the traceable benefit of the payments towards the mortgages of the property, giving rise to a claim by reference to the value of her equity in the properties from such payments: Heperu Pty Ltd v Belle (2009) 76 NSWLR 230 at [133]. At all times there was an obligation in equity upon Ms Belle touching her conscience to recognise the entitlement of Heperu to the restoration of the funds derived from her husband's misappropriations, to the extent that as a volunteer she retained the funds, or their traceable products when she had notice of the claim: Heperu Pty Limited v Belle [2009]) NSWLR CA 252 at [163]. 24The only error that Palmer J made was failing to give reasons for his conclusion that Heperu had not shown that Ms Belle as at the date of the hearing had such property in her hands. The correct course, as the Court of Appeal pointed out, was a further assessment of the kind that occurred before me. And Ms Belle is right that it was not until the time of the Court of Appeals' decision that the nature of the tracing case against her as a volunteer was really fully articulated. The Court of Appeal directed Heperu to produce written submissions setting out that case. 25But Ms Belle never conceded her liability as a volunteer. The appropriate stance at trial was for her to concede a liability to restore any benefit that she retained either by way of funds, or their traceable products, after she had notice of her husband's fraud. It would then have been up to Heperu to establish, as it ultimately did, what those retained benefits were. But her failure to make this important concession during the trial before Palmer J means that Heperu was entitled to proceed against her on matters, on some of which it was successful, and on others of which it was not. Had she made the concession identified here during the hearing before Palmer J, Heperu would only have been proceeding upon and occupying the Court's time with matters on which it was ultimately unsuccessful. In those circumstances, Ms Belle's claim for a costs order against Heperu would have been powerful. But absent such an early concession on her part I am not persuaded she should have her costs against Heperu. 26Moreover, the conclusion drawn here is consistent with authority that an order that a successful party pay the costs of an unsuccessful party is generally regarded as requiring particular justification: Ottway v Jones [1955] 1 WLR 706 at 708 and Trade Practices Commission v Nicholas Enterprises (No. 3) (1979) 28 ALR 201. In my view there are no exceptional circumstances here or no misconduct on the part of Heperu, which would justify an order that, though successful, in the ultimate result, it should bear Ms Belle's costs of these proceedings. 27Ms Belle advances a number of arguments against this conclusion, none of which I find persuasive. She points to the length of the trial before Palmer J. But I have already taken into this account. She points to her hasty involvement in the proceedings through the grant of a mareva injunction supporting a statement of claim for a substantial sum. But I have already found that her appropriate response was to concede the return of funds or benefits which she held as a volunteer, despite the suddenness of her joinder. She points out that she too was a victim of fraud. That is undoubtedly correct. But it does not affect the costs liability that she bears as between herself and Heperu. She points to the circumstance that it was the appeal judges who directed Heperu to submit a tracing document. I have already accepted there is some merit in this position but that she should still have conceded her liability as a volunteer to restore any benefits that she retained. 28And Ms Belle says she was only a party to the proceedings as a result of Heperu joining her. This is not correct. Ms Belle was not only joined as a party by Heperu. She had been joined as a cross-defendant by Perpetual. So, her incurring of costs in the proceedings is not wholly to be explained by Heperu's unsuccessful claims against her. Costs orders on the retained benefit assessment hearing 29The contest before me leading to the principal judgment on the assessment hearing raises different considerations. By the time the proceedings returned to the Equity Division for determination, Palmer J had retired from this Court and the issues were solely focused on Ms Belle's liability as a volunteer to restore to Heperu any retained benefit in accordance with the Court of Appeal's reasons. This hearing, instead before me, involved a tight one-day contest on that sole issue and was conducted on the documents. The issues for trial were well known to Ms Belle before that one day hearing. But she nevertheless chose to contest the proceedings. So Heperu's counsel and solicitors had to prepare for and conduct that hearing. She lost and has suffered a judgment against her of just under $150,000. In my view costs should follow the event in respect of that hearing before me: Uniform Civil Procedure Rules 2005 ("UCPR") r42.1. 30Ms Belle sought to enliven the discretion provided in UCPR r 42.1 that costs follow the event "unless it appears to the Court that some other order should be made as to the whole or any part of the costs". Ms Belle offered a number of arguments, as to why this discretion should be exercised in her favour. But for the reasons explained below I see no good reason why "some other order should be made". 31Heperu also sought indemnity costs in respect of the retained benefit assessment hearing. I have found its arguments for an indemnity costs order to be persuasive. This issue is dealt with after my consideration of whether or not costs should follow the event. 32Should the assessment hearing costs follow the event? Ms Belle argued that costs should not follow the event. She argued that Heperu should pay all of her costs of the hearing before Palmer J and that any current costs orders against her should be offset against the approximately $350,000 she has expended in the hearing before Palmer J. But I have already concluded in respect of the costs of the Palmer J hearing that each of Heperu and Ms Belle should bear its and her own costs. Thus there is no room for the kind of set-off that Ms Belle is here proposing. I see no other basis for ordering that costs not follow the event. 33Should Heperu have an order for indemnity costs? Heperu seeks an indemnity costs order based on four settlement offers that it made to Ms Belle prior to the assessment hearing. Heperu made three offers under the principles of Calderbank v Calderbank [1975] 3 WLR 586, on 8 March 2010, on 21 September 2010, and on 3 December 2010. Between the March and September 2010 Calderbank letters Heperu made an offer of compromise under UCPR r 20.26. 34All the Calderbank letters in substance made the same offer. This was first set out in the letter from Heperu's solicitors of 8 March 2010. That letter recorded, as was the fact, that on 12 February 2010 the Court of Appeal had made a limited costs order in favour of Heperu against Ms Belle for the costs of the appeal: the Court of Appeal ordered her to pay 25% of Heperu's costs of the appeal. The 8 March 2010 letter pointed out that Heperu's further submissions in relation to retained benefit (as directed by the Court of Appeal) claimed a range of recoveries from her of between $86,970.01 and $211,040.23; and the letter suggested, there was a likelihood of an award in Heperu's favour of one of these sums, together with an award of costs. The letter offered to discontinue all current proceedings between Heperu and Ms Belle with no order as to costs and without admissions and with entry into a deed of mutual release "to the intent that each party bear his, its or her costs of the proceedings at first instance and on appeal". 35In retrospect this was an attractive offer. It meant that no more action would be taken against Ms Belle and all her present and future liability to Heperu would be at an end. It is difficult to see why it was not accepted. It contained very little downside for Ms Belle, other than that she would give up the prospect of being able to recover any of her costs against Heperu. 36But she did not accept the 8 March 2010 offer. In my view this offer conformed with Calderbank v Calderbank (1975) 3 WLR 586 principles, and now entitles Heperu to indemnity costs. So, it is not necessary to consider the subsequent offers in any detail. But as a result of her rejection of the 8 March 2010 offer, on 8 July 2010 Heperu made an Offer of Compromise, in which it offered to accept $20,000 from Ms Belle and to have her pay its costs of the retained benefit assessment. 37Ms Belle did not accept 8 July 2010 Offer of Compromise. So Heperu made two more Calderbank offers, neither of which was accepted: one on 21 September 2010 and the other on 3 December 2010. Both of these offers reiterated the terms of the 8 March 2010 offer and gave Ms Belle a further opportunity to accept it. The December 2010 offer added an incentive to settlement, by also offering to pay Ms Belle $4,000 if the matter were concluded before the end of that year. But she did not accept either of these offers. 38Whether the 8 March 2010 offer entitles Heperu to indemnity costs on Calderbank principles may be shortly stated. To attract an indemnity costs order the offer must be a genuine offer of compromise, it must be open for a reasonable time, rejection of the offer must be unreasonable, and ultimately the awarding of indemnity costs will depend upon discretionary factors: King Network Group Pty Limited v Club of the Clubs Pty Limited (No 2) [2009] NSWCA 204 at [111], Leichhardt Municipal Council v Green [2004] NSWCA 341 at [21] - [24], Commonwealth v Gretton [2008] NSWCA 117, Re Sherborne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003. 39Heperu's solicitor's letter of 8 March 2010 was a genuine offer of compromise. It offered Ms Belle very substantial benefits: abandonment of the existing costs orders of the appeal in Heperu's favour; freedom from any future liability to Heperu to restore any retained benefit; freedom from the liability for future costs orders in relation to the hearing before Palmer J, or for the assessment hearing. The offer represented a very substantial discount upon Heperu's existing and prospective entitlements in this litigation. Including a variation of the existing costs order in the Court of Appeal might in ordinary circumstances create a complication that would prevent the Court assessing that this was a genuine offer of compromise. But because the offer simply abandons the existing costs orders in Heperu's favour in the Court of Appeal and does not substitute any other orders in Heperu's favour, no such complication arises here. 40Ms Belle's rejection of the 8 March 2010 offer was unreasonable. On 8 March 2010 there was no immediate litigation pressure on Ms Belle. She was given from 8 March until 22 March 2010 (a period of 14 days) to consider acceptance of the offer. She did not seek to have the offer extended. The offer was not so complex that it could not have been readily assessed and decided upon within that period. And as a result of the directions of the Court of Appeal by that time Heperu had served its tracing submissions, so that Ms Belle was well apprised of the nature of the retained benefit case against her. In these circumstances, Ms Belle's rejection of the offer was unreasonable. In my view, Heperu should have indemnity costs against Ms Belle from 23 March 2010, the day following the expiry of the 8 March 2010 Calderbank letter. 41Ms Belle resists this conclusion on a number of grounds. Ms Belle seeks to have the Court take into account other offers that Heperu made, which offers were contingent upon whether Heperu settled or won against Perpetual. But Heperu's other offers do not seem to be at all relevant to the present task based on the 8 March 2010 letter. 42Ms Belle again raises the issue of double compensation. But on this issue she is protected by the existing stay orders, and by stay orders that I propose to impose in respect of the costs orders made in this judgment These will all be in place pending resolution of any remaining issues in the proceedings. What Ms Belle calls "double dipping" has not yet been established, contrary to her contention that it has "been proven". But she is not precluded from arguing such issues. The 20 August 2012 Stay Orders 43Deciding these issues of Heperu-Belle costs does not wholly resolve these proceedings. One other group of issues remains. Heperu may yet seek to lift the stay on the existing judgment and enforce it, and may seek to enforce the costs orders made in this judgment. But the existing stay is quite effective to protect Ms Belle from any judgment enforcement to which Heperu is not entitled. The orders below continue that stay in respect of the order for costs in this judgment. 44Ms Belle has expressed frequent concerns in these proceedings that Heperu has been fully paid already and that any further enforcement of the judgments against her would amount to "double dipping" on its part. But the 20 August 2012 stay will enable her to obtain all the information she needs to protect herself from enforcement that would amount to double satisfaction on Heperu's part. The 20 August 2012 stay is operative "pending the Court's determination of the remaining issues in the proceedings". Heperu will not be able to enforce these judgements until the remaining issue of its potential double satisfaction through enforcement is resolved. 45Ms Belle has foreshadowed that she will contest the enforcement of this judgment and these costs orders against her, principally on the basis of her expressed concerns that Heperu has already received full satisfaction from other defendants. A number of issues of this kind may well arise during any Heperu attempt to enforce these judgments. These issues may well draw in the other defendants to the contest. For example, if Ms Belle is able successfully to establish that Morgan Brooks or Perpetual have fully paid Heperu, then those two other defendants may seek contribution from Ms Belle in respect of their overpayments to Heperu. Even looking at the matter from the present perspective, such a future contest promises to be disproportionately expensive compared with the amount in issue. 46But should these issues need to be reactivated, as I am already familiar with the facts and issues of the proceedings it is appropriate that they be referred back to me. I will grant liberty to the parties, if required, to restore the proceedings to my list for that purpose.

Heperu Pty Ltd & Ors v Patricia Belle

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