JKB Holdings Pty Ltd v de la Vega

EX TEMPORE Judgment 1I handed down my reasons for judgment on 7 September 2012 in JKB Holdings Pty Ltd v de la Vega (No 4) [2012] NSWSC 1177 ("the principal judgment") but was not able then to enter judgment for a particular amount due to the need for calculations to be undertaken of interest. I directed the parties to provide their calculations to each other and to provide the Court with submissions on: (1)the calculation; (2)the issue of costs; and (3)the issue of payment of monies out of the monies paid into Court in July 2010. 2The parties provided written submissions and today I have heard oral submissions from Mr M Steele of counsel on behalf of the plaintiffs and Mr S Y Reuben of counsel on behalf of the defendants. 3The terms used in these reasons are those used in the principal judgment, which will need to be read in conjunction with these reasons. The Amount 4The plaintiff has calculated an amount of $738,792: see Annexure A to the plaintiffs' submissions on calculations ("PSCC"). The defendants calculate the amount as either: (1)$615,710.68; or (2)$614,259.72; see par 8 of the defendants' submissions on calculations, costs and other outstanding orders of 24 September 2012 ("DSCC"). The submissions are contained within Exhibit A on this application. 5The principal area of dispute in relation to the calculation arises from the difficulty that: (1)the de la Vegas advanced money ($75,100) for the Schwedes' subcontractors and then borrowed $52,000 at a high rate of interest (at a time when they had not fully repaid the First and Second Loans); and (2)Mr Schwede told the de la Vegas that the August $52,000 Loan and interest would be treated as repaid by 25 September 2007, when the amount of $54,307 was paid by Mr De La Vega for amounts owed by Mrs Schwede. 6The $75,100 cannot be treated as going towards the First, Second and Third Loans if it is to be used to repay the August $52,000 Loan and the interest on it, as I indicated in my principal judgment it should be. On the other hand, there is a period of time when the de la Vegas are in effect in credit on the August $52,000 Loan which is attracting interest. I think that the only fair way to deal with this is to treat the $75,100 and the $8000 as payments towards interest on the first three loans until the amounts were called on to offset the $52,000 loan and the interest on it. It follows that the de la Vegas should have an offset for interest on the $75,100 and the $8000 at the contractual rate of interest of 17.5 per cent for 12 months and 20 per cent thereafter until the $52,000 was paid. 7I indicated to the parties this morning also that JKB could not recover for the $8000 on the March $75,000 which it had previously allocated to the JKB loans. Further, it was accepted that the interest on the small loans should be calculated for the later period in accordance with Practice Note SC Gen 16 and not the Uniform Civil Procedure Rules 2005 ("UCPR"). When these matters were taken into account, the agreed judgment amount for JKB was $690,369, and the agreed amount for Mrs Schwede's small loans was $38,974, a total of $712,003. Costs 8The plaintiff relies on several offers made, namely: (1)an offer dated 19 May 2011 to accept $600,000; and (2)an offer dated 21 July 2011 to accept the monies paid into court less $150,000, said to be approximately $680,000. The plaintiff relies on these as offers of compromise made under the UCPR and alternatively as Calderbank offers. Offer of Compromise of 19 May 2011 9This offer contained the term: "2. The defendants are to pay the plaintiffs' costs of the proceedings as agreed or assessed." That inclusion infringed UCPR r 20.26 according to Old v McInnes and Hodgkinson [2011] NSWCA 410 ("Old v McInnes") per Meagher JA, with whom Beazley and Giles JJA concurred, and rendered the offer as one not made in accordance with UCPR (see also Frisbo Holdings Pty Ltd v Austin Australia Pty Ltd (No 2) [2010] NSWSC 298 per Hislop J). 10The question of whether the approach taken in Old v McInnes is correct in the light of other decisions of the Court of Appeal, see Vieira v O'Shea (No 2) [2012] NSWCA 121 and Dean v Stockland Property Management Pty Limited [2010] NSWCA 66 ("Dean v Stockland"), and the judgment at first instance of Garling J of Rail Corporation of New South Wales v Vero Insurance Company (No 2) [2012] NSWSC 926, was canvassed in Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079 by Davies J very recently. 11Another of the cases considered was a decision of Ward J in In the matter of Cheal Industries Pty Limited - Fitzpatrick and Cheal [2012] NSWSC 932 ("Cheal"), in which her Honour, having undertaken her own analysis of the earlier decisions, regarded herself as bound by the decision in Old v McInnes. A decision not cited to her Honour in Cheal was the Court of Appeal's decision in Vieira v O'Shea (No.2), a decision of Basten and Meagher JJA and Handley AJA, in which it was noted that the appellant had conceded that the offer made did not comply with the UCPR because it was not "exclusive of costs". It was said at [7]: "It is true that the offer was not stated to be exclusive of costs: the statement as to costs could have been understood as indicating that the offer was indeed not inclusive of costs, but was otherwise otiose as the same costs consequences followed from the application of the rules. (Somewhat opportunistically, the solicitors for the first respondent submitted that a later offer of compromise did not comply with the rules because it was not stated to be exclusive of costs and therefore should be presumed to be inclusive). The UCPR are to be construed by reference to their apparent purpose. A mere reference to costs in an offer otherwise compliant with Part 20, Division 4, will not take the offer outside the rules unless the reference operates inconsistently with the relevant costs rule: Dean v Stockland Property Management Pty Limited (No.2) [2010] NSWCA 141 (Giles JA, Handley AJA, Whealy J) at paragraphs 26 to 29. The offer, if accepted, entitled the offeror as to his costs: the offer did not seek to vary the effect of UCPR Rule 42.13A." 12That statement, it was said in Ziliotto v Dr Hakim (No.2), is quite inconsistent with the decision in Old v McInnes. Whilst that observation may be correct, the comment made in Vieira v O'Shea (No.2) is clearly obiter and Old v McInnes has not been overturned or held to be erroneous in any subsequent Court of Appeal decision. Like Ward J, in my view, I am bound by Old v McInnes. 13I would add one matter which supports the conclusion in Old v McInnes, which is the point made by Beazley JA in that case that UCPR r 42.13A provides that the Court might order otherwise. Expanding on this, if a party accepts an offer which contains as a term "the defendant to pay costs as agreed or assessed", the party loses the right to argue in accordance with the terms of UCPR r 42.13A(2)(b) that some other order should be made. To preclude that possibility would appear to be inconsistent with the UCPR. In Dean v Stockland and Vieira v O'Shea (No.2) it was said that an offer will not be outside the UCPR if it is not inconsistent with the scheme of the UCPR and it may therefore be possible to reconcile the two strands of authority - see also Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [15] and [24]. 14The plaintiff contends that the second letter of 19 May 2011 from Lawyers Qld (see tab 3 of Exhibit A) overcomes the problems to which I have referred. The defendants submit that it did not. I accept the defendants' submission. 15I doubt that a letter can cure a deficient offer of compromise but in any event this letter, whilst acknowledging that an offer must be exclusive of costs, does not seek to amend par 2 of the offer of compromise but, rather, makes an offer on costs inconsistent with that contained in the offer of compromise. The 21 July 2011 Letter 16This letter was not an offer of compromise in accordance with the UCPR, nor was it expressed to be a Calderbank letter, and it did not state that it would be relied on in an application for indemnity costs. More significantly, it was stated to be not capable of acceptance in the absence of a formal deed, and that an agreement would only be reached on the execution of, such a deed. The "offer" by its very terms therefore could not be accepted. Calderbank Offers 17The plaintiffs rely on the letters of 19 May 2011 and 21 July 2011 as alternatively Calderbank letters. I accept that the letters were genuine attempts to resolve the proceedings but neither letters were expressed to be, in terms, Calderbank letters, either on their own or in the alternative, and in view of the decisions in Old v McInnes per Meagher JA at [106] and Giles JA at [42] and Dean v Stockland at [31] - [34], they cannot be relied on as Calderbank letters. I set out what was said in Dean v Stockland, which included the following at [34]: "The intention must be made clear. It would be unfair for a party to be subject to the consequences of a Calderbank offer if it was not made clear that the offer should be treated as such. A party receiving an offer of compromise apparently made under the Rules should be entitled to decide whether or not to accept it according to the offer of compromise regime in the Rules, including deciding whether or not it is an effective offer of compromise." 18Mr Steele contended that even if the offer of compromise of 19 May 2011 was not a Calderbank letter, it, and the letter of 21 July 2011, should be treated as genuine offers to settle the case and that the defendants' failure to accept the offer was unreasonable. He referred to Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 and Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. Mr Reuben's response that if Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) and Elite Protective Personnel Pty Ltd v Salmon are cases dealing with Calderbank letters and since, on the authority of Old v McInnes, the first offer is not a Calderbank letter and since the second offer is not an offer capable of acceptance as a Calderbank letter should be, these cases are of no relevance. I accept the defendants' submission. 19Another point to be made is since the plaintiffs' claim was for $904,257 - see letter of 19 May 2011 from Lawyers Qld - and that was based on compound interest, the method of calculation of the $600,000 and its reasonableness was not made apparent. The $600,000 involved some reduction of the amount to which the plaintiff was actually entitled; that is, $690,000 less the interest due as at 19 May 2011 in comparison to the amount of interest today. There was no explanation as to how the $600,000 was arrived at or its relationship to an amount that correctly reflected the terms on which the money had been borrowed and repayment had been treated. A further problem with the offer, albeit of limited significance, was that it was only open for seven days. 20Even treating the two offers as offers that could support an order for indemnity costs, whilst, as matters have transpired, I think the defendants were unwise not to accept the offer made or to pursue an offer that appeared to be one that the plaintiffs would accept if the matter was investigated, I have some doubt as to whether it was unreasonable for the defendants not to accept the offer, given the fact that the claim of $904,000 was itself significantly inflated and the basis of the calculation of $600,000 was not provided - being the type of information which very often accompanies a Calderbank letter so that the recipient can see that it is very much in his, her or their interests to accept. Indemnity Costs 21The plaintiffs contend that the defendants should be required to pay indemnity costs because of their conduct of the proceedings. In particular, the PSCC focuses on: (1)the institution of the cross claim and the abandonment at the commencement of the hearing of a claim for lost profits as a result of the caveat; (2)the refusal of the defendants to ever agree to pay any amount to the plaintiffs even though they had previously accepted that an amount was owing on the loans when they filed their defence. The plaintiffs refer to the categories in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536 at [24]. 22Mr Steele submitted that the defendants maintained an intransigent position in relation to the debt owed by them. He said that having admitted some money was owing, what they sought to do was to withdraw it and to then plead a cross-claim that was simply a means of preventing the plaintiffs receiving money due to them. The cross claim, which included a claim of $1 M for lost profits, was abandoned on the first day of the hearing. 23Whilst I think there is some force in the plaintiffs' submissions, it needs to be borne in mind that: (1)the defendant did admit that money, in the order of $450,000 when the case opened, was owing subject to their cross claim; (2)the plaintiffs claimed an amount well in excess of the amount awarded, based as it was on a claim for compound interest, which I have held they could never have been entitled to, and not taking into account payment made by the defendants, which JKB itself had acknowledged in its own documents came off the First, Second and Third Loans; further, JKB maintained until closing oral submissions that interest ran on the whole amount lent, not just the unpaid amount; (3)the defendants had paid $791,000 into court, even after the caveat lodged by JKB and extended by the Court on 8 July had lapsed; (4)the situation in relation to the loans was quite complicated and involved, as I have said in the judgment, a degree of approbation and reprobation by both sides; and (5)Mrs Scwhede's affidavit was not read and much of Mr Schwede's affidavit was not read. 24I am not satisfied that the defendants have conducted themselves in a way which would justify an order for indemnity costs. In particular, the fact that a claim previously advanced was abandoned does not mean that it was improper or involved misconduct to have included it. Parties should not be discouraged from abandoning claims that they realise will not be possible to make good or difficult to establish for fear that it will be said that the abandonment shows that it was improper to have included it in the first place. Also, the fact that a party is not successful on a point cannot support an order for indemnity costs. There must be more and I do not think there is sufficient here: see Lahoud v Lahoud [2006] NSWSC 126 per Campbell J (as his Honour then was). 25The plaintiffs also advanced an argument based upon the mortgage that would have been entered into had Mr de la Vega kept his word. It is said that that mortgage would be likely to have included the terms of an earlier mortgage (see JMS1:18 in Exhibit 2). The Court was not called on to determine the terms of a mortgage in satisfaction of the obligation that the de la Vegas had and it is not appropriate to do so on an application for costs. I note, too, that JKB did not put a mortgage document forward to the de la Vegas until 2010 and when they did, it included a debt based on compound interest. The defendants' claim in relation to costs 26The defendants contend that the plaintiffs should not be given an order for costs covering all of their costs. The submission focuses on these matters: (1)the plaintiffs maintained a claim for compound interest until final submissions; (2)JKB maintained that all of the loans, including the Small Loans, were made by it; (3)the plaintiffs refused to give credit for the payments made by the de la Vegas that JKB had previously acknowledged as payments; and (4)Mrs Schwede's affidavit, which was extensive, was not read at trial. 27I accept that it is open to the Court to exclude from the successful parties' costs order costs relating to a specific issue but it has been said that a court should not too readily take that course (see Cretazzo v Lombardi (1975) 13 SASR 4 at p 12 per Bray CJ and p 16 per Jacobs J and James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]). Generally apportionment will not be appropriate unless at least there is a clearly dominant or separable issue or group of issues on which the successful party failed: see Elite Protective Personnel Pty Ltd v Salmon (No 2) at [6]. 28JKB abandoned the compound interest point and its interest on full amount claim, failed on the treatment of repayments but succeeded on the penalty point, the Code point and on the caveat point. It has succeeded in obtaining judgment for $673,029 on its claim and Mrs Schwede has succeeded on her claim for interest in respect of the Small Loans, that claim being an alternative to JKB's claim for the Small Loans. 29In my view the plaintiffs should not be entitled to recover the costs of preparing the affidavit of Mrs Schwede. I think the plaintiffs should not be entitled to recover the costs of a significant portion of the affidavit of Mr Schwede. I will hear from counsel on an appropriate percentage having regard to the amount of material which was excluded from Mr Schwede's affidavit. The plaintiffs should pay the defendant's costs thrown away by reason of Mrs Schwede's affidavits and the paragraphs of Mr Schwede's affidavit that were not relied on at the hearing. Those costs would be offset against the costs otherwise assessed as payable by the plaintiffs. Beyond that, however, I do not think any separation of issues or reduction based on percentages should be undertaken. Balance of monies 30The sum of $791,000 was paid into court and that amount has increased to approximately $860,000 with interest. The plaintiffs submit that the difference between the $712,003 to be paid out to the plaintiffs should be left in court pending assessment of the costs or agreement on the amount payable to the plaintiffs. The defendants have not made any application for the payment out of the money but they assert that the difference of approximately $158,000 should be paid out and that the plaintiffs should not be placed in the position of a secured creditor. 31Whilst there is evidence that the de la Vegas have no real estate assets, at present there is no evidence that they are unable to pay their lawyers without the receipt of the $158,000. If there was evidence that the de la Vegas could not both meet the amount due to the plaintiffs for costs, whatever that amount may be, and pay their own lawyers, there may be a question about who, if anyone, should have priority. There may also be a question about other creditors. 32Neither Mr Steele nor Mr Reuben were able to point to authority on the point. As I mentioned to counsel, it seemed to me that absent any concern that other creditors of the defendants might be disadvantaged, the plaintiffs should be entitled to receive costs out of the funds in court because: (1)the money was paid into court by the defendants without any limit on what the funds could be applied to; (2)Mareva orders can be obtained in support of costs and ships can be arrested in support of an award of costs, or even a prospective award of costs: see Plaus Shipping Limited v Augusta Due Srl (KwaZulu-Natal High Court, Durban, Republic of South Africa, 25 November 2011); and (3)a party who obtains a judgment or order for costs can enforce that judgment against property of the judgment debtor. 33At least if the money remains in court until assessment of costs, when the costs are known it will then be apparent whether or not there will be a surplus payable to the defendants or not. This does seem unlikely in view of the evidence that has been put on by the plaintiff as to the disbursements alone that have been incurred in this case. No point was taken as to any distinction between the position of JKB and that of Mrs Schwede in relation to these funds. In the circumstances I think that the plaintiffs' position, which is that the balance of money after payment out of the $712,003 should remain in court, is appropriate. 34So far as payment out of the $712,003 is concerned it was agreed that of that amount $450,000 in total could be allocated as between JKB and Mrs Schwede to their own account. As to the balance, which I calculate at $262,003, that is to be held in a controlled money account until the expiry of 28 days from today's date. 35The amount of the $712,003 should be paid out by the Registry to JKB and Mrs Schwede, next Wednesday 5 October 2012 or as soon thereafter as the Registry can arrange for payment.

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