KFS Financial Services Pty Ltd v Abdul Mostamandi

Supreme Court of NSW|2017-04-27|Before: Wilson J

Judgment

This costs judgment arises out of a contractual dispute over a rental and lease agreement between KFS Financial Services Pty Ltd, the plaintiff, and Abdul Mostamandi and Shaima Mostamandi, the first and second defendants respectively.
Proceedings in the Local Court were heard and determined broadly in favour of the defendants with Magistrate Bradd delivering three judgments on 18 May 2015, 4 December 2015, and 24 May 2016.
By amended summons filed in this Court on 1 June 2016, the plaintiff sought leave to appeal the decisions of the Local Court.
The matter was heard before me on 15 November 2016: KFS Financial Services Pty Ltd v Mostamandi [2016] NSWSC 1797. I made the following orders on 14 December 2016: 1. The appeal is upheld in part. 2. Grounds 5, 8, 9 - 10, 16 and 23 - 24 are upheld. Grounds 1 - 4, 6 - 7, 11 - 13, 14 - 15, 17 - 22, and 25 are dismissed. 3. The judgments of the Local Court of 18 May 2015, 4 December 2015, and 24 May 2016 are set aside. 4. Judgment in favour of the plaintiff in the sum of $78,393.60, together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 5. The defendants are to pay two-thirds of the plaintiff's costs of the Local Court proceedings as agreed or assessed on a party/party basis. 6. Costs of these proceedings in favour of the plaintiff.
On 24 January 2017, the plaintiff sought to have the matter listed in order that the Court might determine two further matters, being the commencement date for s 100 Civil Procedure Act 2005 (NSW) interest, and further orders as to costs relevant to the Local Court proceedings. The latter orders are sought on the basis that the plaintiff served an Offer of Compromise upon the defendant's prior to the conclusion of the litigation in the Local Court, an offer which was rejected by the defendants prior.
The additional matters are to be determined on the papers and, to that end, the Court made the following orders I set down the following timetable: • 13/03/2017 - Plaintiff to file and serve evidence and any submissions upon which they rely; • 27/03/2017 - Defendants to file and serve any evidence and submissions in reply; and • 10/04/2017 - Plaintiff to file and serve any evidence and submissions in reply.

The commencement date for interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW)

The plaintiff, having been successful in this Court on appeal, submits that the commencement date on the s 100 interest attached to the debt should be 1 August 2013, that being the first monthly instalment which was missed under the two agreements by the defendants.
Section 100(1) of the Civil Procedure Act 2005 (NSW) relevantly outlines the basis upon which the Court can include interest on the recovery of debt: "100 Interest up to judgment (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect."
The plaintiff's amended statement of claim was filed on 9 July 2013 as an originating process to sue the defendants for the breaches of the lease and rental agreements. The plaintiff states that for both agreements, the defendants' last monthly instalments were made in July 2013. The plaintiff therefore submits that interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) should be calculated from 1 August 2013. The plaintiff calculates this amount to be $16,607.40 using the netlaw calculator.
It is reasonable to calculate interest from 1 August 2013, and I propose to make an order noting that as the commencement date for s 100 interest.

Costs

The plaintiff has informed the Court by way of written submissions in these proceedings that the defendants were served by email on 3 March 2014 an Offer of Compromise, which offered to settle the proceedings for $75,000, inclusive of interest and exclusive of costs. Noting that the proceedings in the Local Court began on 23 April 2014, it is accepted that the offer was made in accordance with the Uniform Civil Procedure Rules 2005 ("UCPR") r 20.26. From the evidence before the Court by way of the affidavit of the plaintiff's solicitor, Mr David Simons, sworn on 28 February 2017, the Offer of Compromise was not accepted by the defendants.
Rule 42.14 of the UCPR relevantly provides: "42.14 Where offer not accepted and judgment no less favourable to plaintiff (1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim: (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
The orders of this Court on 14 December 2017 were in favour of the plaintiff and a sum of $78,393.60, together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW), was awarded. The s 100 interest being calculated at approximately $16, 607.40, the debt owed to the plaintiff amounts to $95,001.00., that being a judgment which is no less favourable to the plaintiff than the terms of the offer.
The Court's power to award costs on an indemnity basis is found in the combination of s 98(1)(c) of the CPA and r 42.5 of the UCPR. Section 98 provides: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." "42.5 Indemnity costs If the court determines that costs are to be paid on an indemnity basis: (a) in the case of costs payable out of property held or controlled by a person who is a party to the proceedings: (i) in the capacity of trustee, executor, administrator or legal representative of a deceased estate, or (ii) in any other fiduciary capacity, all costs (other than those that have been incurred in breach of the person's duty in that capacity) are to be allowed, and (b) in any other case, all costs (other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount) are to be allowed."
Whilst the Court has an absolute discretion, the decision to award costs on an indemnity basis should be exercised cautiously (Leichhardt Municipal Council v Green [2004] NSWCA 341; Ng v Chong [2005] NSWSC 385 at [13]) and with careful reasoning (Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354).
A well accepted benefit of the Court's ability to award indemnity costs is that it facilitates the just, quick and cheap resolution of matters, promoting, as it is intended to, the settlement of matters outside of the courts, that bringing a significant benefit to the administration of justice
It is accepted that the plaintiff has attempted to settle the matter by way of an offer of compromise, a compromise rejected by the defendants. The rejection of Offers of Compromise and Calderbank letters is the most common basis upon which parties to proceedings seek indemnity costs orders: Nair-Smith v Perisher Blue Pty Ltd (No 3) [2013] NSWSC 176. However, the Court retains a discretionary power under r 45.14(2) to order otherwise than on an indemnity basis in favour of the plaintiff.
The plaintiff is in a position where it is entitled to a special costs order as the successful offeror: Hillier v Sheather (1995) 36 NSWLR 414. It is for the offeree, the defendants in this case, to establish why the plaintiff should be denied its prima facie entitlement to costs: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [33]. There is a high threshold requiring there be exceptional circumstances to justify the Court ordering otherwise for a person who has refused an offer of compromise: Nominal Defendant v Hawkins [2011] NSWCA 93 at [49] - [50].
The defendants have not responded in any way to the plainitff's application, and have not advanced any circumstance, exceptional or otherwise, such that the Court should not order costs on an indemnity basis in accordance with the discretionary power under UCPR r 45.14.
In the absence of any evidence militating against the order sought, I propose to make the orders sought by the plaintiff. The plaintiff's costs will be paid on an indemnity basis from the relevant date: Jones v Dapto Leagues Club Ltd (No 2) [2008] NSWCA 111. The relevant date is, in accordance with r 45.14, one day after the offer was made, 4 March 2013.
I propose to order the defendants to pay two-thirds of the plaintiff's costs of the proceedings in the Local Court on a party/party basis as agreed or assessed until 3 March 2013, and thereafter, on an indemnity basis.

ORDERS 1. Order 4 of 14 December 2016 is varied to add, at the end of the order as made, the words "with interest to be calculated from 1 August 2013". 2. Order 5 of 14 December 2016 is varied to add, at the end of the order as made, the words "and on an indemnity basis from 4 March 2013".

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: 27 April 2017

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