Maher v Millennium Markets [2004] VSC 195

8. The plaintiffs seek firstly an order for interest upon the damages recovered by them by the fourth defendant. Such damages total $150,000 and comprise the disgorgement of a series of payments received by the fourth defendant from the second defendant ("the Herszberg fee").

11. The plaintiffs seek damages pursuant to s.58 of the Supreme Court Act 1986 which relevantly provides:

"58(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made. ... (3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain."

15. It is accepted by the fourth defendant that the amounts in issue constitute "sums certain" but it is disputed that the plaintiffs fall within the description of "creditors".

18. In Farrow Finance Company Ltd (In Liq) v Farrow Properties Pty Ltd (In Liq) & Ors[1] Hansen J held that the decision of directors of the plaintiff to make a loan to the defendant was a breach of their fiduciary duty to the plaintiff company. Further, the defendant was held to have knowingly received such loan as a consequence of this breach of duty. The Court held that the plaintiff was entitled to recover the loan amount together with interest allowed from the date of its first demand at the statutory rate under s.58(1) of the Supreme Court Act. At [193] Hansen J characterised the claim as one for debt in the following terms:

"The present suit, in which liability is founded on principles in equity, is not for damages as at common law. Indeed equity did not entertain a claim for damages per se. In Ex parte Adamson (1878) 8 Ch.D. 807, in which a partnership debt had been incurred by fraud and which concerned the defrauded creditor's right to prove in bankruptcy, James and Baggallay LJJ, said at 819 that :

'The suit [in the Court of Chancery] was always for an equitable debt or liability in the nature of debt. It was a suit for the restitution of the actual money or thing, or value of the thing, of which the cheated party had been cheated.'

See too, although in a different context, namely the meaning of the word 'debt' in the Theft Act 1968, the statement of Lord Reid in Director of Public Prosecutions v Turner [1973] 3 All E.R. 124 at 126 that:

'Debt normally has one or other of two meanings: it can mean an obligation to pay money or it can mean a sum of money owed.'

So here, what is required by way of compensation to restore the plaintiff's loss is the amount of the loan, together with interest. In my view the amount of the loan is 'a debt or sum certain' within the meaning of s.58(1) of the Act and it is, or will by order of the type sought by the plaintiff, be recovered in the proceeding."

26. I respectfully agree with this analysis but as Hansen J noted at [196] it was not contended before the Court the plaintiff was not a creditor.

29. This question was addressed in somewhat different circumstances by the Court of Appeal in Dimos v Willetts[2] subsequent to the decision in Farrow. In Dimos a solicitor lent money to a husband and wife secured by an unregistered mortgage and an unregistrable charge over land comprised in two separate titles. Caveats were lodged in respect of the securities but only on one of the titles. Subsequently another solicitor, Willetts, lent money to the couple secured by a mortgage registered against both titles. When Willetts came to sell the mortgaged property pursuant to his power of sale Dimos asserted his interest. He claimed not to have received notice of the proposed registration of the Willetts mortgage and that his caveats had not lapsed. Willetts brought proceedings for removal of the caveats. The caveats were removed pursuant to an interim agreement to permit settlement of the sale and $20,000 of the sale proceeds was held by Willetts in trust by court order, pending the outcome of the priority dispute. Smith J held that the caveats had lapsed and Willetts was entitled to the $20,000 held in trust.

32. The Court of Appeal held Willetts was not entitled to an award of interest under s.58 of the Supreme Court Act because although the $20,000 was "recovered" by him, he was not a "creditor" of Dimos.

35. Tadgell JA traced the history of the legislation at [6] to [9] and stated at [10]:

"It follows, I consider, from the language of s.58, understood in the light of its history and according to the reason of the thing, that interest is awardable under the section, as it always was under its predecessors, in favour of a party who recovers in a proceeding, against that party's debtor, a debt or sum certain. Leaving aside again the cases specifically identified, an award of interest runs "from the time when demand of payment was made"; and I think that naturally refers to a demand of payment made by a creditor in that capacity upon a debtor in that capacity. I am further of opinion that s.58(1) contemplates that a debt or sum certain is recovered from a debtor of the creditor who recovers it. That, I consider, was not this case."

"It is a curious feature of the case that nowhere, so far as I can see from the material, has there been an actual claim made by either of Messrs Willetts or Dimos against the other - whether by court process or pleading or otherwise - for payment of the $20,000 that was the subject of the order made by Gobbo J. on 7 August, 1991. Perhaps it was assumed that such a claim was notionally made and that, having regard to the nature of the order, the $20,000 held pursuant to it would necessarily go as part of the spoils of the litigation. That may be the way the trial judge saw it, for early in his reasons he referred to an assertion by Mr Willetts of priority of his registered interest 'to support his claim to the $20,000 held in trust'; and his Honour said of Mr Dimos that he 'claims payment of the amount of $20,000 held in trust by' Mr Willetts. His Honour ultimately expressed the conclusion that 'the claim of Mr Willets against Mr Dimos for the sum of $20,000 should succeed'."

43. Tadgell JA further held that the money in issue was held by Willetts pursuant to the order of the Court and Willetts was "in effect a stakeholder with an obligation to preserve the money pending further order of the Court."[3] As such Willetts could not be characterised as a creditor.

46. Batt JA identified the critical question as whether Willetts was "the creditor"[4]. At [107] to [108] he stated:

"I accept that the word 'creditor' is flexible in its meaning and varies according to its context. However, the cases show that in the ordinary acceptation of the term a beneficiary is not a creditor of his or her trustee: Ex parte Taylor; In re Goldsmid (1886) 18 Q.B.D. 295 at 301 per Lindley LJ and 302 per Lopes LJ and Burns & Geroff v. Leda Holdings Pty. Ltd. [1988] 1 Qd R 214 at 229-233[5]. Gibb v. Lombank Scotland Ltd. was, if I may say so, an unsurprising decision in which no unduly wide or generous meaning was attributed to the word 'creditor'. The missives for the sale of a company had included the following provision, 'The company will be in the following form ... with no creditors outstanding.' It was admitted by the seller that certain accountants' fees and minor sums for agents' commission as well as an intimated claim followed by an action in court for £4,400 for alleged fraudulent preferences obtained by the selling company on the sequestration of a particular motor trading firm were outstanding. The seller maintained, however, that 'creditors' meant those who had liquid claims for debt. It was held by Lord Cameron in the Outer House that the purchasers were entitled to found upon the admitted outstanding claims in seeking reduction of the contract of sale on the ground of breach of the clause stipulating 'no creditors outstanding'. Counsel for Mr Willetts contended that the word 'creditor' should be given a broad meaning in the context of s.58 and was simply a shorthand method for denoting a successful plaintiff or someone who recovers a sum certain.[6] If that be so, one may ask why the word 'plaintiff' or 'claimant' was not used instead of the somewhat more specific word 'creditor'. The use of the word 'plaintiff' in the passage cited from Clarke v. Foodland Stores Pty. Ltd. did not, and could not, mean that every plaintiff was within s.58(1): the court was of course speaking in general terms, without reference to the present point. Further, if there is a creditor there must, it seems incontrovertible, be a debtor[7]. On one view, supported by the source of the moneys in question, the debtors were Mr and Mrs Konstantellos, the holding of the money on trust simply being a temporary mechanism while the rival claims to the proceeds of sale of the mortgaged property were determined. If one concentrates, however, on the trust mechanism employed, the person liable to make payment to Mr Willetts was the trustee of the fund, namely, Mr Willetts himself. But it was against Mr Dimos that his Honour made the award of interest. If the moneys had been held by a third party, could that person, it may be asked rhetorically, have been ordered to pay interest? If not, on what basis could Mr Dimos in that case have been so ordered? Again, a person entitled to a debt or sum certain is able to sue the person liable to pay the debt or sum certain, the debtor or obligor. But Mr Willetts could not and did not sue Mr Dimos for the sum, which he already held. To the foregoing must be added the fact that ordinarily at the very least a beneficiary is not a creditor of his trustee. No case was cited, and I have found none, applying 'creditor' to the present facts. It is true that the expression 'the creditor' must here have a meaning apt to 'sum certain' as well as to 'debt', but the whole context of the section points to amounts which defendants are liable to pay (and, as I will shortly show, liable from at least the commencement of the proceeding)."

50. It can be seen that the judgments were concerned with a situation which was markedly different on the facts from the situation which I must consider. I am inclined to the view that because the plaintiffs were entitled to recover the instalments of the Herszberg fee received by the fourth defendant immediately upon their receipt, that the plaintiffs are properly characterised as creditors.

53. Nevertheless, it is unnecessary to decide this question because the plaintiffs face a more fundamental problem. The sums certain were not "payable by virtue of some written instrument and at a date or time certain." In these circumstances s.58(1) provides that interest will be payable from the time when demand of payment was made.

56. There is no evidence before the Court that demand for payment was made prior to the commencement of proceedings.

59. The relevant principle was stated by Hayne J in Them Advertising (Vic) Pty Ltd (In Liq) v Horwath & Horwath[8]. In that case the Court held that payments made to the defendant were void against the liquidator of the plaintiffs. The question arose as to what interest should be allowed on the payments. Hayne J stated:

"By s.58 of the Supreme Court Act 1986 the court is bound, unless good cause is shown to the contrary, to allow interest to a creditor from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made. Subsection (3) of s.58 provides that 'a debt or sum payable or a date or time is to be taken to be certain if it has become certain'. The sum recovered in the present proceeding is not in my view a sum that was payable 'by virtue of some written instrument and at a date or time certain'. Even if it is accepted that when a liquidator elects to avoid a preference, the title of the liquidator accrues as at the commencement of the winding-up, (as to which see Re Carter and Kenderdine's Contract [1897] 1 Ch 776; Maurice Drycleaners Pty Ltd v National Australia Bank, supra, 8 ACLC at 799), I do not consider that the sum recovered is of the kind described in the first alternative given in s.58(1) of the Supreme Court Act."[9]

63. Accordingly, interest is to be awarded from the date of the commencement of proceedings pursuant to s.60 of the Supreme Court Act. A relevant sum has been agreed in the sum of $42,290.

67. The plaintiffs seeks an order that the fourth defendant pay its costs. The fourth defendant submits that it should not have to pay the whole of the plaintiffs' costs but that the Court should exercise its power pursuant to Order 63.04 and make an order for costs "in relation to a particular question in a particular part of the proceedings."[10]

70. The fourth defendant submits the plaintiffs succeeded against the fourth defendant on the discrete issue of breach of fiduciary duty with respect to the Herszberg fee only. The plaintiffs failed:

(a) against the fourth defendant with respect to the claim for lack of due skill and care in the performance of his retainer; and

(b) against the purchaser defendants with respect to the claims of knowing participation in the breach of fiduciary duty, and for the setting aside of the sale of the Bourke Street apartment and in the alternative for damages.

76. In my view the plaintiffs have failed on a series of issues which were both significant in the seriousness of the allegations raised and in the time involved in hearing them. I have referred to the seriousness of the allegations in issue because the plaintiffs failed as to a series of allegations constituted not only by alleged acts of negligence but said to amount to breaches of fiduciary duty on the part of the fourth defendant. Further, it was alleged the purchaser defendants acted dishonestly, unconscionably and fraudulently. It would be quite inappropriate for the plaintiffs to recover from the fourth defendant the costs of unsuccessful allegations of this character. Moreover a substantial body of evidence and by far the greater part of argument in the case related only to issues on which the plaintiffs have failed.

79. It can, however, be said that it was reasonable for the plaintiffs to make a broad based attack on the credit of the fourth defendant for the purposes of the claim on which they succeeded. Thus it was not unreasonable to go beyond matters relating to the Herszberg fee in cross-examination of the fourth defendant.

82. In my view, having regard to these matters, the plaintiffs should recover 35 percent of their costs.

86. A further complication arises with respect to a claim not pursued by the plaintiffs at the hearing. This claim alleged loss due to an inability to purchase and operate a quarry and related transport operations. At the commencement of the trial on 15 March 2003 counsel for the plaintiff indicated that the "quarry" claim would not be proceeded with and was discontinued.

89. By letter dated 3 October 2003 the solicitors for the fourth defendant had set out in detail the reasons why the claim then made in paragraph 27 of the statement of claim was so misconceived that it should not be proceeded with.

92. In my view the fourth defendant is entitled to the costs of discontinuance of the quarry claim and is entitled to such costs on a solicitor own client basis from 3 October 2003. The matters referred to in the letter of 3 October 2003 are so compelling that the offer contained in it to forego costs to that date relating to the quarry claim should have been accepted.

The Purchaser Defendants' Claim for Interest and Costs

96. Interest on the counterclaim will be awarded in the sum of $264, being interest at the rate of 5.5% on $10,260 for 171 days.

99. The purchaser defendants also seek orders that the plaintiffs pay the costs of the proceeding and of the first defendant's counterclaim including all reserved costs on an indemnity basis. The plaintiffs contend firstly, that any order for costs in favour of the purchaser defendants should be made against the first and fourth defendants only. I reject this contention. The plaintiffs claimed jointly for the disgorgement of the Herszberg fee by the fourth defendant and further against the purchaser defendants jointly for knowing participation in the fourth defendant's breach of fiduciary duties in respect thereof.

102. The purchaser defendants seek their costs on an indemnity basis in reliance upon the following matters:

(a) By letter dated 30 January 2001 the purchaser defendants offered to honour the option comprised in the 16 March 1999 deed and sell the Bourke Street apartment to the plaintiffs for $210,000.

(b) On 6 November 2003 the solicitors for the purchaser defendants made an offer by way of `Calderbank letter' whereby agreement was offered to orders:

* for dismissal of the claim against the purchaser defendants with no order as to costs;

* for judgment for the first defendant for possession of the apartment;

* for removal of the caveat over the apartment property; and

* for dismissal of the counterclaim with no order as to costs.

(c) This offer was in effect repeated on 6 February 2004.

(d) The plaintiffs amended their reply and defence to counterclaim on 23 February 2004 to express the alleged fraud against the purchaser defendants, which allegation has failed.

108. In my view, although the offer of 30 January 2001 was with hindsight an entirely reasonable one, it does not follow that the plaintiffs' failure to take advantage of it was so unreasonable in the light of circumstances as they were then understood by them as to justify an order for costs on other than a party and party basis.

111. Further, the first `Calderbank letter' of compromise did not contain any analysis of the issues other than the assertion that:

"The fourth defendant is the person against whom the plaintiffs seek to maintain their core allegations of fact. The claims against the first, second and third defendants are, we respectfully suggest, without proper foundation in law or on the facts. The Offer is made in a genuine effort to bring the proceedings between our respective clients to an end without incurring further expense, time and effort, that will be the inevitable outcome should the Offer not be accepted."

115. In my view the failure to accept the offer does not in itself warrant the award of costs of a higher than usual basis.

118. Likewise the second `Calderbank letter' did not of itself render continuation with the claim against the purchaser defendants unreasonable.

121. It may be said that the amendment of the plaintiffs' pleading to express the alleged fraud shortly thereafter was misconceived, but having regard to the position adopted by the fourth defendant (including the witness statements put forward on his behalf) I am not satisfied that the making of and persistence in allegations of dishonesty against the purchaser defendants by the plaintiffs was so unreasonable as to warrant an award of costs on a higher than party/party basis.

124. In forming this view I have had regard to the principles summarised by Dodds-Streeton J after a careful survey of the authorities in Nolan v Nolan (No. 2)[11]:

"I note the Court of Appeal's recent statement that an indemnity basis should not be elevated to the usual basis for a costs order and that bona fide plaintiffs should in general not be penalised for pursuing their claims. The Court of Appeal's caveat against an overly-rigid reliance on precedent in the exercise of this discretionary power is also clear. If Calderbank letters offering settlement on the basis that each party bear its own costs without any further particularity than that contained in the pleadings were served early in a proceeding, and routinely given full effect, indemnity costs could, by a de facto process, displace party-party as the usual basis of a costs order. In the light of the Court of Appeal's recent reaffirmation that the problems associated with the growing gap between party and party costs and costs actually payable to a party's solicitor should not lead to a departure from the usual party and party basis for costs, and its caveat that reference to other decisions should not constrict the discretionary nature of an award of costs, it may be that a Calderbank offer, taken in isolation, should not create any predisposition to award indemnity costs, although it should be a factor in favour of such an order. This may ultimately be a matter of semantics, with variations in expression obscuring a fundamentally similar judicial approach. Conclusion I consider that a Calderbank letter is but one factor relevant to the discretionary determination of costs. A Calderbank offer is a significant factor in favour of indemnity costs but does not dictate them or require an order for indemnity costs as a matter of routine. The reasonableness of the offeree in rejecting a Calderbank offer is one important factor in determining the weight to be attributed to it. The degree of specificity of reasoning expressed in the letter, the stage at which the letter is received, and the content of and response to the offer, may all be relevant to reasonableness."

128. I respectfully agree with the above analysis.

132. The purchaser defendants also seek orders with respect to the removal of the caveat on the title to the Bourke Street apartment and to possession of such apartment. I propose to make these orders in the form refined in argument before me.

136. The plaintiffs seek a stay of the order for possession of 60 days. In my view the appropriate stay with respect to each of the orders is 28 days (as was in effect agreed save for this component of the orders).

139. The first plaintiff has now continued in possession of the apartment for a considerable period of time without any entitlement so to do. The apartment has been used by the plaintiffs as security for commercial purposes and was subject to agreement as a component of a commercial settlement which was of substantial benefit to each of the plaintiffs including the first plaintiff.

142. The amount of damages payable for continuing wrongful possession of the apartment was agreed between the first plaintiff and the first defendant. The fact that the first plaintiff has paid rates with respect to the apartment does not warrant an extended stay.

145. It has been agreed that the order for possession should be expressed to relate to the first and second plaintiffs.

149. I should also record that as I indicated when application was made to me, I am not prepared to order that the damages relating to the Herszberg fee be paid into court pending application by the purchaser defendants pursuant to r.71.13 of the Rules of the Supreme Court. There is, in my view, no proper material before the Court justifying such an order.

152. In the circumstances I order (subject to any desirable further clarification which counsel may wish to raise):

(1) There be judgment for the plaintiff against the fourth defendant in the sum of $150,000 together with $42,290 interest.

(2) The plaintiffs pay the fourth defendants' costs with respect to the discontinued claim in respect of economic loss suffered due to an inability to purchase and operate a quarry and related transport operations. Such costs be paid on a solicitor own client basis from 3 October 2003.

(3) The plaintiffs' costs of the proceeding otherwise be taxed and when taxed the fourth defendant pay 35 percent of such costs to the plaintiffs.

(4) The claim made by the plaintiffs against the first, second and third defendants be dismissed.

(5) The fourth plaintiff be ordered pursuant to s.90(3) of the Transfer of Land Act 1958 to remove caveat No. X637785E ("the caveat") lodged in the Office of Titles in relation to the whole of the property contained in Certificate of Title volume 9537 folio 517, volume 9537 folio 544 and volume 9537 folio 545 and known as Unit 20 and accessory Units 47 and 48, 50 Bourke Street, Melbourne ("the property").

(6) The Registrar of Titles be directed to amend the Register by cancelling the caveat or by otherwise doing any act or making any recordings necessary pursuant to s.103(1) of the Transfer of Land Act 1958 to effect the removal of such caveat.

(7) The first defendant recover possession of the property from the first and second plaintiffs.

(8) The first plaintiff pay damages to the first defendant in the sum of $10,260 and thereafter in the sum of $60 per day to the date of delivery by the first and second plaintiffs of possession of the property.

(9) The first plaintiff pay interest of $264 to the first defendant.

(10) The plaintiffs pay the first, second and third defendants' costs of the proceeding and the costs of the first defendant's counterclaim including all reserved costs.

(11) Direct that the first, second and third defendants serve a copy of this order when authenticated on the Registrar of Titles.

(12) Liberty be reserved to the first defendant and to the Registrar of Titles to apply in respect of orders (5) and (6).

(13) Execution of the above orders be stayed for 28 days.

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[2] [2000] VSCA 154; (2000) 2 VR 170

[5] where the cases are discussed and a possible exception recognised where the trustee has defaulted by misappropriating trust moneys. The proposition in the text appears also in Halsbury's Laws of Australia, vol.27, Trusts, para.430-65, and none of the exceptions there stated is applicable.

[6] I have considered whether "creditor" might mean "judgment creditor", but the division in which s.58 occurs is dealing with the position immediately before judgment is authenticated in contrast to Div 7 (s.101). Moreover, Mr Dimos is not, as would seem to be necessary in the context of judgments, a judgment debtor in respect of the $20,000.

[7] For this the use of the word "debt" is not significant.

[8] (1994) 12 ACSR 617

[10] cf Byrns and another v Davie and others [1991] VicRp 93; [1991] 2 VR 568

[11] [2003] VSC 136 at [73]