Metsikas v Quirk

(NSW) Uniform Civil Procedure Rules r 42.19 LEGISLATION CITED : (NSW) Bankruptcy Act 1924, s 63 (CTH) Bankruptcy Act 1966, s 116(2)

Australiawide Airlines Limited v Aspirion Pty Ltd [2006] NSWCA 365 Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Cox v Journeaux (No 2) (1935) 52 CLR 713 David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353 CASES CITED : Faulkner v Bluett (1981) 52 FLR 115 Gould v Day [2002] NSWSC 492 Lipkin Gorman (a firm) v Karpnale Limited; [1991] 2 AC 548 Strang v Owens (1925) 42 WN (NSW) 183 Wilson v United Counties Bank Ltd [1920] AC 102

Stella Metsikas (plaintiff) PARTIES : Wayne John Quirk (first defendant) Anna Quirk (second defendant)

COUNSEL : Mr G Curtin (for Kathmath Lawyers) Mr R Newell (defendants)

SOLICITORS : Kalmath Lawyers (plaintiff) L C Muriniti & Associates (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

09/287884 Stella Metsikas v Wayne John Quirk JUDGMENT (ex tempore) 1 HIS HONOUR: Between January 2002 and January 2006, the plaintiff Stella Metsikas was defrauded by one Melissa Marie Quirk, the daughter of the defendants Anna Quirk and Wayne John Quirk, of a sum in excess of $400,000, in respect of which she was later convicted of various offences, including of obtaining benefit by deception in the court of New South Wales. Of that $400,000, it is not in dispute that at least $50,000 was remitted by Melissa Quirk to her parents the defendants, and that they received that sum as volunteers; but there was a dispute as to whether the sum had been applied to improvements to real property (as was suggested by Melissa Quirk in evidence given by her in the sentencing proceedings), or otherwise expended (as suggested by the defendants). 2 On 4 January 2006, Ms Metsikas became bankrupt on her own petition, from which she was discharged by operation of law on 5 January 2009. In proceedings brought by Ms Metsikas in the Federal Magistrates Court seeking leave to bring proceedings against Melissa Quirk - whom it was proposed to add as a defendant in the present proceedings - such leave was refused by the Federal Magistrate, essentially on the grounds that any cause of action which Ms Metsikas had for a constructive trust over the property of Melissa Quirk, or for compensation for unjust enrichment, had vested in Ms Metsikas' trustee in bankruptcy, who has not been prepared to assign any such cause of action.

3 The present proceedings were commenced by Ms Metsikas seeking an order extending the operation of a caveat, or alternatively leave to lodge a fresh caveat, claiming an interest in the Quirks' real estate and declarations and orders in the nature of a tracing remedy in respect of the $50,000 said to be traceable into their hands. Before me is a notice of motion by which Ms Metsikas now seeks leave to discontinue the proceedings. The Quirks do not oppose the application for leave to discontinue, but there is a dispute as to how the costs of the proceedings should be borne.

4 The ordinary consequence of a party seeking leave or obtaining leave to discontinue proceedings is that that party must pay the defendant's costs of the proceedings: Uniform Civil Procedure Rules, r 42.19, which applies to proceedings that are discontinued by the plaintiff either by consent or pursuant to the leave of the court, provides that unless the court orders otherwise, the plaintiff must pay such of the defendant's costs as at the date on which the notice of discontinuance was filed had been incurred by the defendant in relation to each claim in respect of which the proceedings are discontinued. While it is clear that the court retains a discretion to otherwise order, it is apparent from that rule that the ordinary position is that a discontinuing plaintiff must pay the defendant's costs. The effect of the rules is that if some other order is to be made, the discontinuing party will have to show some proper justification for a different costs consequence [see Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32; Australiawide Airlines Limited v Aspirion Pty Ltd [2006] NSWCA 365]. Some circumstances in which it has been held appropriate to depart from the prima facie position include where the plaintiff has already achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant, or where the proceedings have been rendered futile by circumstances beyond the plaintiff's control.

5 In the present case, a number of bases have been advanced as warranting a departure from the ordinary consequence of a discontinuance. The first is that it is said that there were reasonable grounds for instituting the proceedings. That needs to be examined in two different respects. I am inclined to agree that, apart from the question of standing, insofar as Ms Metsikas advanced a claim for a tracing remedy against the Quirks, there were reasonable grounds for institution of the proceedings. As I have said, it is common ground that Ms Metsikas was defrauded by Melissa Quirk of at least the $50,000 in question, that that $50,000 was paid to the Quirks, and that they received it as volunteers. Although it was suggested that it was not established and could not be established that they had notice of the fraud at the time of receipt, that is irrelevant where receipt is as a volunteer. So far as tracing in equity is concerned, if there is a transfer or payment of property to a volunteer who takes without notice and there is no question of mixing, the transferee holds the property on behalf of the true owner, whose equitable rights subsist against the transferee [see Strang v Owens (1925) 42 WN (NSW) 183].

6 Although, to attract a tracing remedy in equity, property must remain in existence to which the remedy can attach, even if the property no longer exists a tracing remedy is available at common law for moneys had and received against a third party recipient of funds paid by the plaintiff to the second party in circumstances which would give the plaintiff a claim against the second party, so long as the third party is not a bona fide purchaser for value without notice [see Lipkin Gorman (a firm) v Karpnale Limited [1991] 2 AC 548, in particular the judgment of Lord Goff (at 572) where it was held that an innocent recipient of stolen money who had not given consideration was obliged to a pay an equivalent sum to the true owner, on the basis that the recipient had been unjustly enriched and the true owner could trace its property into the hands of the recipient, and then recover the money in personam as moneys had and received]. The defence of change of position is available only to those recipients who act in good faith, in the sense of having an actual belief in the security of the receipt [see Lipkin Gorman v Karpnale, 579-580]. Moreover, mere expenditure does not constitute a relevant change of position, nor does expenditure on ordinary living expenses, although expenditure solely in reliance on the security of the receipt from which the defendant no longer retains any benefit, does qualify [see David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353, 385]. 7 It may be that the Quirks could have established a defence of change of position, but it is far from clear that that defence would necessarily have prevailed. It cannot be said that in that respect the proceedings were hopeless or doomed to failure. That said, the mere fact that proceedings are properly and reasonably brought is insufficient reason for depriving an otherwise ultimately successful defendant of its costs. Many proceedings are properly brought and prosecuted to judgment, but fail; in such cases the ordinary result is that the unsuccessful plaintiff must pay the successful defendant's costs. The circumstance that - at least in the respect to which I have so far referred - the proceedings were reasonably brought - does not lead to the conclusion that upon discontinuance any result should follow other than the plaintiff should pay the defendant's costs.

8 That conclusion is reinforced in the present case by the circumstance that for another reason, namely that of standing, it can be said that these proceedings were hopeless and doomed to failure from the outset. Any cause of action which Ms Metsikas had against the Quirks of the type in question had accrued to her by January 2006. By the time the fraud had been completed and the money paid to the Quirks, on 4 January 2006 Ms Metsikas had become a bankrupt. Subject to certain exceptions specified in the (CTH) Bankruptcy Act 1966, s 116(2), all her property vested in her trustee in bankruptcy. 9 It has been suggested that the cause of action on which she sues in these proceedings fell within the exception referred to in s 116(2)(g), which is in the following terms: (2) Subsection (1) does not extend to the following: ...

(g) any right of the bankrupt to recover damages or compensation: (i) for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or (ii) in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person; 10 It was argued on behalf of Ms Metsikas that this exception extended not only to claims for personal injury, but also to damages or compensation for "wrong done to the bankrupt", and that the claim in these proceedings was a claim for damages or compensation in respect of "wrong done to the bankrupt". However, authority makes clear that in the phrase "personal injury or wrong done to the bankrupt ...", the word "personal" covers both "injury" and "wrong". A similar expression was used in (NSW) Bankruptcy Act 1924, s 63, which provided that a bankrupt may continue in his own name and for his own benefit an action commenced by him previous to his bankruptcy for a personal injury or wrong done to himself. In Cox v Journeaux (No 2) (1935) 52 CLR 713, Dixon J said at (721) that the test was whether the damages or part of them: "are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property" [Wilson v United Counties Bank Ltd [1920] AC 102, 111, 128 - 133]. More recently in Gould v Day [2002] NSWSC 492, Studdert J referred to the provisions of s 116(2)(g) and the discussion of them in Faulkner v Bluett (1981) 52 FLR 115, where Lockhart J had said: Although rights of action generally pass to the trustee of a bankrupt's estate, exceptions have been created by decisions of the courts, including the following: a right of action for slander, Ex parte Vine; Re Wilson (1878) 8 Ch D 364; for seduction of a servant, Howard v Crowther (1841) 8 M & W 601; 151 ER 1179; for trespass to land or goods in the plaintiff's actual possession, at least where the only substantial damage is for the annoyance and personal inconvenience to him, Clarke v Calvet (1819) 8 Taunt 742; 129 ER 573 and Rose v Buckett [1901] 2 KB 449; for breach after bankruptcy of a contract for personal service made before bankruptcy, Bailey v Thurston & Co Ltd [1903] 1 KB 137; for personal injuries arising out of certain breaches of contract such as a contract of marriage, Drake v Beckham (1843) 11 M & W 315; 152 ER 823. 11 Lockhart J was able to characterise the cause of action in that case as one "directly related to the plaintiffs' property or her estate", and therefore not one that answered the description of a "right to recover damages or compensation for personal injury or wrong". In the present case, it is patent that the claim in question is one in respect of the plaintiff's property: she was defrauded of money, and she sued to recover money. The claim has nothing to do with any personal injury or wrong and everything to do with a wrong to her property.

12 In those circumstances, in my view it was manifest that that claim vested in her trustee in bankruptcy, and plain that she did not have standing herself to sue on it. For that reason, her claim was hopeless, unless she could procure an assignment from the trustee in bankruptcy. It may be that these proceedings were commenced in the hope that such an assignment would be procured; but if that were so, they were commenced by taking a risk that that assignment might not be procured, and that is a risk for which the plaintiff must bear the consequences.

13 One other matter however has been urged as taking the matter outside the ordinary, namely, that regardless of the plaintiff's standing, the fact is that the defendants have been enriched by $50,000 at least of the plaintiff's money. I do not think it really provides answers to that to point out that the defendants themselves have incurred significant losses having chosen to fund their daughter's defence rather than to repay the plaintiff. This particular consideration has weighed heavily on my mind. In short, the defendants are $50,000 better off than they otherwise would have been, assuming that as parents they would responsibly and very decently have funded their daughter's defence in any event. They were under no obligation to do so, but that they chose to do so does not seem to me to be something that should count against the plaintiff. On the other hand it at least remains theoretically possible that the trustee in bankruptcy may bring a claim against the defendants to recover the sums in question. If that happens, then the defendants will be exposed also to the costs of that litigation. In those circumstances, it seems to me that their receipt of the $50,000 is not a sufficient ground to justify departing from the ordinary costs consequences of discontinuance.

14 It was also argued that a number of interlocutory applications, including one for summary dismissal and one for production of documents, were brought unnecessarily prematurely while the outcome of the proceedings in the Federal Magistrates Court was awaited. But it seems to me that the motion for summary dismissal can be regarded as having practically resulted in the plaintiffs' application for leave to discontinue. The defendants were not obliged to sit on their hands and await the outcome of the Federal Magistrates Court proceedings. 15 It follows, in my view, that insufficient grounds are established for departing from the ordinary costs consequence of the plaintiff's decision to discontinue. The plaintiff should pay the defendants' costs. 16 The defendants ask that those costs be assessed on the indemnity basis. Because I have concluded that the proceedings were hopeless from the outset having regard to the problem with the standing, I would ordinarily have made that order; but I think a relevant background factor is the defendants' receipt of $50,000 of the plaintiff's money. An indemnity costs order, being discretionary, requires one to avert to all the relevant circumstances. I do not think that in this case, justice between the parties in question requires in those circumstances an indemnity costs order.

17 I grant leave to the plaintiff to discontinue the proceedings. I order that the plaintiff pay the defendants' costs of the proceedings.

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