Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd

Australian Development Corp Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 Barclays Australia (Finance) Ltd v GWG Leviny Pty Ltd (unreported, Supreme Court of New South Wales, Rolfe J, 10 December 1998) Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited & Ors [2006] NSWSC 583 Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 CASES CITED : HIH Insurance Limited (in liq) v Rodney Stephen Adler [2007] NSWSC 745 Hughes Bros v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC 1051 Lahoud v Lahoud [2006] NSWSC 126 Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423 Waters v PC Henderson (Aust) Pty Limited (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney JA and Priestley JA, 6 July 1994, BC 9404952)

PARTIES : Liberty Grove (Concord) Pty Ltd (Plaintiff) Mirvac Projects Pty Ltd (Defendant)

COUNSEL : Mr L Foster SC, Mr I Pike (Plaintiff) Mr M Slattery QC, Ms S Duggan (Defendant)

SOLICITORS : Deacons (Plaintiff) Corrs Chambers Westgarth (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50173/05 Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd JUDGMENT The remaining issues 1 The reserved judgment was delivered on 21 February 2008 [2008] NSWSC 113. There remains for determination the final orders which are to be made consequent upon the judgement. 2 The parties are agreed that the effect of the Court's judgment is that Liberty is entitled to $4,325,671 as its share of the profit pursuant to the Agreement. Of this sum, $2,168,837 has already been paid, leaving a further $2,156,834 yet to be paid. 3 Put shortly the following issues arise:

i. in relation to proposed Order 1, the quantum of pre-judgment interest. There are two issues: a) the start date from which interest should be awarded. [Liberty contends that it should be 7 October 2005] [Mirvac contends that it should be 4 November 2005].

b) whether Liberty is entitled to pre-judgment interest on the sum of $2,168,837 from 7 October 2005, until the date of payment 12 January 2006. [Liberty contends and Mirvac denies that it is entitled to such interest];

ii. in relation to proposed Order 2, whether Mirvac should be ordered to pay the entirety of Liberty's costs of the proceedings, or whether a differential costs order should be made. [Liberty contends that there is no basis for a differential costs order]

iii. in relation to proposed Order 3, whether Mirvac should be ordered to pay interest on Liberty's costs. [Liberty contends and Mirvac denies that such an order is appropriate] 4 Each of these matters is dealt with seriatim, the parties having been given leave to furnish written submissions and having availed themselves of that leave. Pre-judgment interest Interest on amount not yet paid 5 In my view the defendant's submissions as to the start date from which interest should be awarded are of substance. 6 As the defendants have contended:

i. 4 November 2005 was the date by which in fact payment was first demanded by the plaintiff;

ii. on 7 September 2005, the defendant wrote to the plaintiff enclosing a calculation of the plaintiff's profit share, calculated by the defendant to be $2,168,837. The penultimate paragraph of this letter invited the plaintiff to indicate whether it accepted the defendant's calculation: "Accordingly, to conclude the agreement could you kindly forward a return letter of acceptance to enable us to issue the final cheque payment to the value of $2,168,837.00." iii. as at the date of this correspondence, the defendant was proceeding on the basis that the future budgeted costs of the Development were to be accounted for in the months of August and September 2005.

iv. The Court has now found that the profit share should been calculated using the actual costs for August and September 2005;

v. upon receiving the defendant's letter of 7 September 2005, the plaintiff instructed Horwath Investment Services Pty Ltd to perform an independent calculation of the profit share. Horwath provided a letter to the defendant on 17 October 2005 setting out an alternative basis for the profit share calculation;

vi. on 28 October 2005, the plaintiff wrote to the defendant in the following terms: "The amount of $4,218,527 is due and payable to Liberty under the Agreement, calculated as shown in the letter from Horwath Investment Services Pty Limited to Rod Devries of Mirvac dated 17 October 2005. We require that payment of this amount be made before 5.00 pm Friday, 4 November 2005. … In the circumstances described above, Liberty's profit share payment on the Development is $4,218,527. As indicated above, the basis of this calculation is set out in the letter sent to you and prepared by Horwath Investment Services Pty Limited on 17 October 2005." [emphasis added].

vii. in the circumstances the contract was not breached until the expiry of the reasonable notice period given by the plaintiff in its letter of 28 October 2005, and therefore the Breach Date from which interest is payable on the principal amount is 4 November 2005 at the earliest.

viii The proposition that the date should be measured from some earlier time proceeds upon assumptions that would have been contentious issues in a case that has not been litigated by the plaintiff before the Court. That hypothetical case would appear to be that the defendant should have:

a) performed a calculation based upon actual (not budgeted) costs at an earlier time;

b) presented the resultant calculation to the plaintiff at an earlier time;

c) allowed the plaintiff to raise any queries about that earlier calculation;

d) taken some further time for a final agreed figure to be discussed and reached; and then

e) paid that final agreed figure to the plaintiff a reasonable time thereafter.

ix. as the defendants have contended, the plaintiff's present contention would require an acceptance of the proposition that steps (a)-(b) would have been done well before 7 October 2005 and the defendant's obligation to pay a final agreed figure to the plaintiff (in step 5) would have arisen by no later than 7 October 2005;

x. this case was neither been pleaded by the plaintiff nor run in the trial. If pleaded or run it would likely have been contentious and be likely to have resulted in the testing of most of its key timing assumptions;

xi. the defendant's calculation of the plaintiff's interest on the principal amount from 4 November 2005, is accepted as correct. That calculation is as follows: Liberty's profit share $4,325,671 Received to date ($2,168,837) Balance $2,156,834 Interest Calculation on Unpaid Balance Interest start date Interest finish date No of days Rate Interest 4 November 2005 31 December 2006 422 9% $224,429 1 January 2007 28 February 2008 424 10% $250,547

Total interest payable $474,976 Total judgment amount $2,631,810

Should interest be paid on the $2,168,837? 7 It is not in dispute that Mirvac paid to Liberty the sum of $2,168,837 by letter dated 12 January 2006. Liberty contends that it is entitled to interest on this amount from 7 October 2005 until the date of payment, namely 12 January 2006. 8 As I see it the proper analysis runs as follows:

i. The $2,168,837 is in no different category to the balance of the profit share which has not yet been paid.

ii. Liberty is entitled to interest on that amount from the date that it was due and owing (ie on 4 November 2005), until the date it was paid.

iii. Such an order is necessary to ensure that Liberty is properly compensated for the practical loss it has suffered.

iv. Mirvac's opposition to this order is based on the misconceived contention that Liberty did not seek orders for payment of the $2,168,837.

v. The proceedings were commenced by way of Summons and Commercial List Statement on 15 November 2005.

vi. Those proceedings sought a proper calculation of the profit share owed by Mirvac to Liberty, and payment of that amount.

vii. At this time, no payment had been made by Mirvac to Liberty on account of Liberty's profit share.

viii. Mirvac had put forward a calculation but withheld payment of the undisputed amount in an attempt to secure a full release in circumstances where it was not entitled to do so.

x. The payment made on 12 January 2006 was no more than a part-payment towards Liberty's share of the profit.

xi. Interest has always been claimed in the proceedings. Paragraph 5 of the Summons as filed on 15 November 2005 sought "further or alternative relief" . The claim for interest is made explicit in paragraph 6 of the Second Amended Summons.

xii. Properly characterised, Liberty has always claimed in these proceedings an entitlement to be paid the correct profit share under the Agreement.

xiii. The Court has found that the proper share of the profit is $4,325,671.

xiv. Interest should be payable by Mirvac to Liberty from 4 November 2005 until the dates on which the profit share has been (in the case of the $2,168,837) or will be (in relation to the balance) paid. Costs 9 The essential issue which separates the parties in terms of their respective approaches to costs involves:

i. Liberty claiming that Mirvac should pay the whole of its costs of the proceedings;

ii. Mirvac claiming that a differential costs order should be made requiring it to pay only the plaintiffs costs on those elements of the proceedings in which the plaintiff proved successful. 10 Mirvac's contention draws attention to the fact that there were four elements to the plaintiffs claim:

i. the appropriate IRR to be applied to the Agreement;

ii. the allocation of costs ($7,210,000) to the development which were allegedly transferred out of the development;

iii. the reconciliation of the costs contained in the Costs Transaction Report ($195,643,192) with the costs in the cash flow ($210,076,000);

iv. the timing and recognition of costs by the defendant. 11 Notwithstanding that the issues in respect of which the defendant succeeded had not occupied much of the courts time during the trial, Mirvac contends that they were the subject of significant pre-trial correspondence between the party's solicitors. 12 The principles concerning the making of differential costs orders include:

i. the Court's power to award costs is conferred by s.98 of the Civil Procedure Act 2005 (NSW), the requirement being that the discretion to award costs be exercised in accordance with Pt 42 r 42 of the UCPR;

ii. the effect of UCPR Pt 42 r 42.1 is that an unsuccessful party may be ordered to pay the entirety of the costs of the successful party, even though the successful party did not succeed on all issues. Special circumstances are generally required to justify some other order being made;

iii. 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 in which it failed: see Waters v PC Henderson (Aust) Pty Limited (unreported, NSW Court of Appeal, Kirby P, Mahoney JA and Priestley JA, 6 July 1994). [See, generally, HIH Insurance Limited (in liq) v Rodney Stephen Adler [2007] NSWSC 745, Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited & Ors [2006] NSWSC 583, Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423 at [4]-[7]]. 13 In pleading the issues of (a) recognition and timing of costs and (b) using costs which were allegedly costs not incurred by the development, I accept that the plaintiff was claiming a judgment amount which was more than double the amount it was ultimately awarded. So much is clear from the plaintiff's own evidence. 14 As the defendant has contended, paragraph 15 of Mr Lonergan's first report, set out his calculation of the loss to the plaintiff by reason of issues (a) and (b) above as follows: Mr Lonergan's Summary of Loss Scenario Difference in Excess Profit (1) $000 Loss to Liberty (2) $000 Fundamentally flawed approach Arbitrarily deducting adjusted cash flows from unadjusted cash flows C 2,005 401 'Nominal' rather than 'effective' IRR of 20% H 8,308 1,661 Incorrect net monthly cash flows Recognising costs earlier than when they were actually paid D 1,823 364 Using 'budgeted' costs rather than much lower 'actual' costs F 1,263 252 Using costs that were prima facie not incurred by the Development G 11,328 2,265

Note: 1 Represents the difference between what Mirvac consider to be the Excess Profits ($10.844 million) and what would have been the Excess Profit is their calculation has been corrected for that issue. 2 Liberty is entitled to 20% of the difference in the Excess Profit. 15 The defendants observe that had the plaintiff succeeded on these issues, it would have been awarded $2,629,000 [$2,265,000 arising from costs unrelated to the development added to $356,000 caused by timing and recognition of costs] more than the judgment amount. It is clear from the above table that the issue of costs alleged to not to have been incurred on the development (scenario G), yielded a greater alleged profit share to the plaintiff than any other single issue between the parties, including issue of nominal and effective IRR. 16 It seems to be common ground that these issues did not occupy much of the court's time. In fact the defendant's evidence on these issues was not challenged, other than by Mr Lonergan's written report. Notwithstanding the plaintiff's failure to produce any evidence to contradict the defendant's evidence on these issues, the plaintiff maintained its entitlement to this increased profit share arising from the issues up to and including in its final written submissions. 17 It is said that these issues occupied a significant amount of time in the pre-trial correspondence, the preparation of evidence, including expert evidence and the parties' submissions. 18 In the circumstances I accept that there should be some reduction recognized by the orders to take into account the fact that the plaintiff, although succeeding on what I regard as the essential and main issue, did not succeed on the issues described above. The nature of the proceedings make this an appropriate case for the Court weighing all matters in consideration, to reach a determination as to what the above-described reduction should be. The principled approach to the relevant discretion is to award to the plaintiff 70% of its costs of proceedings. In consequence the short minutes of order should provide accordingly. Interest on costs 19 Mirvac accepts that an order for payment of interest on costs pursuant to section 101 of the Civil Procedure Act does not require a "special" or "unusual" case but nonetheless submits that the circumstances of the case must generally go above and beyond the fact that a claimant has made one or more payments to his or her solicitor before succeeding in the litigation. 20 In my view the present proceedings warrant an award of interest on costs from the date on which the costs concerned were paid by Liberty to its solicitors until the payment of the costs by Mirvac. The principles 21 There are cannot be any serious issue is to the principles. They include the following:

i. it is not necessary for the Court to be satisfied that the circumstances of the case are out of the ordinary before interest on costs is awarded: Australian Development Corp Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 at [23] per Einstein J;

ii. the principal rationale underpinning an order for payment of interest on costs is to compensate the successful litigant for having relevantly been out-of-pocket from having arranged payment of legal costs to its legal representatives during the course of lengthy proceedings: see ADC v White (supra) at [17].

iii. the overriding principle is to provide the successful litigant with full justice and compensation for delay: Barclays Australia (Finance) Ltd v GWG Leviny Pty Ltd (unreported, Supreme Court of New South Wales, Rolfe J, 10 December 1998);

iv. to the extent to which the plaintiffs have been out-of-pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out-of-pocket in that way: Hughes Bros v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC 1051 at [60] per Foster AJ;

v. relevant matters to consider are the amount of costs paid and the length of time the claimant has been out-of-pocket before recovery: Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 at [11] per Barr J;

vi. it is also relevant where, as here, both parties conduct businesses, that the moneys which the plaintiffs have had to pay is likely to be money which otherwise could have been put to a productive use.

vii. conversely, the defendants, by not being required to pay costs until some time in the future when the costs are agreed or assessed, are likely to have been able to retain, for their own productive use, the amount of those costs: Lahoud v Lahoud [2006] NSWSC 126 at [83] per Campbell J;

viii. the true position is that the ordering of interest on costs will be appropriate (absent disentitling conduct) where the discretion is properly enlivened: here that is seen to be the case as the applicant has been relevantly out-of-pocket from having arranged to pay legal costs from time-to-time during the course of lengthy litigation in which the applicant ultimately succeeded and where the respondent may be presumed to have benefited from not having had to pay the costs at the time when they were paid to the applicant's legal representatives, hence having had the use of the money from that time: see ADC v White (supra) at [28] per Einstein J. 22 As Liberty has contended the proper analysis requires to take into account the following:

i. both Liberty and Mirvac are commercial organisations;

ii. the proceedings were commenced on 15 November 2005;

iii. since November 2005, Liberty (or in relation to 2 invoices a company associated with Liberty) has paid to Deacons and other persons involved in the conduct of the proceedings, the sum of approximately $1.23 million on account of professional costs and disbursements;

iv. those costs and disbursements were paid approximately 60 to 90 days after the relevant invoice was issued to Liberty;

v. in addition, a further $473,000 remains outstanding and could be expected to be paid within the next 60 to 90 days;

vi. assuming a relatively prompt assessment in relation to those costs, the assessment is unlikely to be completed, and payment made, until some time in late 2008/early 2009;

vii. Liberty has thus been (and will be) out-of-pocket for a substantial amount of money (in excess of $1.73 million), for a substantial period of time (up to 2½ to 3 years);

viii. unless interest is awarded on costs, Liberty will not be appropriately compensated;

x. Mirvac, being a large and successful property development company, can be presumed to have benefited from not having had to pay the costs at the time when they were paid by Liberty to Deacons, hence having had the use of that money from that time. Short minutes of order 23 The parties are to bring in short minutes of order embracing the agreed calculations of the principal amount and annexing the 'Basis for calculation of the Judgment amount' figure as well as giving effect to these reasons. The matter will be before the court for the bringing in of short minutes on Wednesday 19 March 2008 at 9.50am. ***********

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