Revised from transcript and annotated; issued 12 April 2022
The proceedings before the Court are for the purpose of making orders to give effect to the judgment which I delivered on 14 March 2022: Milevski v Paltos [2022] NSWSC 261. For the purpose of this judgment, I shall refer to that judgement as "J1".
In my March decision, I concluded that Mr Milevski was entitled to judgment against Mr Paltos in the principal sum of $339,184. This sum was the amount due, on my findings, on account of the partners' capital account balances as at the date of dissolution of the partnership, together with the value of partnership assets transferred to, and partnership liabilities discharged by, the partners following the dissolution.
Mr Milevski seeks interest at the rates prescribed in s 100 of the Civil Procedure Act 2005 (NSW). He claims interest not on the full amount of the judgment to which I have found he is entitled, but on that part of the judgment, being $266,847, which represents the amount due to him on capital account.
The interest on this figure has been calculated as $79,647. There is no dispute about that calculation. Counsel for Mr Paltos, however, contends that the judgment in Mr Milevski's favour should not carry any interest. Counsel has taken two points.
Counsel's first submission is that the proceedings are not properly characterised as proceedings "for the recovery of money", so as to enliven the Court's power to award interest in s 100 of the Civil Procedure Act 2005 (NSW). Instead, counsel submits that the proceedings were proceedings for the winding up of the partnership. Counsel relies on the decision of the Court of Appeal in Ausintel Investments Australia Pty Ltd v Lam (1990) 19 NSWLR 637, where - in an action for the winding up of the appellant company - the petitioning creditor's debt was paid, but the Court nonetheless declined to order the payment of interest on that debt.
Secondly, counsel referred the Court to the history of the proceedings, and referred me in particular to orders made by Sackar J on 21 April 2016. Those orders provided that the partnership be wound up and that the Receivers be directed to realise its assets and liabilities. Counsel submitted that the proceedings before me should be seen as proceedings in the nature of advice to the Receivers about how the assets and liabilities of the partnership and, in particular, the goodwill of the partnership should be valued.
Milevski v Paltos [2022] NSWSC 437 | Case summary | Zoe
Counsel also observed that the delay in determining the accounting issues which were the subject of my judgment could not all be attributed to Mr Paltos. In particular, the proceedings were delayed as a result of the illness and subsequent death of an expert previously retained by Mr Milevski.
In my view, the decision in Ausintel does not apply in the present case. Those proceedings, as I have already stated, were proceedings for the winding up of a company. That is a statutory procedure resulting only in an order appointing a liquidator. The actual process of winding up the company's business and determining the state of its debts is done separately. It is true that these proceedings were instituted to wind up the partnership, and the Court made orders for that purpose, but the Court also ordered that the partnership's accounts be taken. It would have been contemplated that any dispute about the accounts would have been dealt with in these proceedings, as has, in fact, happened.
The accounting process, by its nature, results (as it has here) in a judgment for a single sum of money. That sum represents the balance due on account and is payable by one partner to the other. In my view, these are thus proceedings for the recovery of money in the relevant sense and the judgment which has resulted should carry interest under s 100. I interpolate that it was not suggested that some other rate of interest was applicable.
Dealing with counsel's second point, it might well be the case that Mr Paltos is not entirely responsible for the length of time that it has taken to complete the account. But the purpose of an award of interest under s 100 is not to punish an unsuccessful party where that party has dragged out the process. [1] It is, instead, to recognise that the result of the case shows that, in retrospect, the sum of money to which the successful party has been found to be entitled has been "fructifying in the wrong pocket." [2] I see no reason why, in the present case, statutory interest should not be awarded. Accordingly, the judgment in favour of Mr Milevski against Mr Paltos will include the $79,647 which has been calculated.
I also found, in my March judgment, that Mr Milevski was entitled to be indemnified against his liability under the judgment obtained by Westpac in separate District Court proceedings. The form of that order has been agreed. As I noted at J1 [215], it may be necessary for further orders of a mechanical nature to be made to discharge the liability.
Next, it emerged in the course of the hearing that there were various unsatisfied partnership liabilities. The quantum of those liabilities, and the respective shares which the parties would be obliged to pay towards their discharge, had been agreed upon by the parties. There was, nonetheless, a practical problem because - as the liabilities remained unsatisfied - it was not possible precisely to determine how much would ultimately need to be paid. When it became clear that there were questions about whether Mr Paltos would be able to satisfy his obligations, I determined that I should not order the partners to put the Receivers in funds for the purpose of satisfying the creditors: J1 at [219].
Initially, both parties proposed that my judgment should nevertheless include a declaration reflecting the agreement which had been reached about the unsatisfied liabilities. But on reflection neither party pressed for such a declaration. Indeed, part of the problem with that course of action would have been that - as the creditors were not parties to these proceedings - the Court could not determine, in any binding way, the quantum of the partners' liabilities, nor whether such liabilities even exist.
Accordingly, there is no need for any other order to deal with the unpaid partnership liabilities owed to creditors. That will simply be a matter of negotiation between Mr Milevski, Mr Paltos and those creditors.
The next issue concerns the costs of the proceedings inter partes. Counsel for Mr Milevski contended that Mr Paltos should be ordered to pay Mr Milevski's costs of the proceedings.
In fact, an order for costs was made on 21 April 2016 by Sackar J, whereby his Honour ordered that the costs of both parties be paid out of the assets of the partnership. Counsel for Mr Milevski submitted that this order did not cover the costs which have subsequently been incurred. In counsel's submission, Mr Milevski has been substantially successful in the subsequent proceedings, and the costs of those subsequent proceedings should follow the event as between him and Mr Paltos.
Counsel for Mr Paltos opposed this order. She first took the point that the order made by Sackar J covered all of the costs of the proceedings. It was implicit in her submission, as I understood it, that it would not be open to the Court, having already dealt with the costs, to make some further costs order.
Counsel also submitted that, even if it were open for the Court to make a costs order, it should not do so. Counsel referred again to the nature of the proceedings. In counsel's submission, the accounting process was one for the benefit of both parties and should not be seen as an adversarial dispute. Counsel noted that the proceedings had been begun by Mr Milevski when Mr Paltos was convalescing from his strokes. Mr Paltos had resisted the imposition on the parties of the costs of appointing receivers. It would not be right to impose on Mr Paltos the further burden of Mr Milevski's costs of the accounting exercise.
I was not referred to any authority on the interpretation of Sackar J's order, but - as a matter of first principles - it seems to me that the order can only cover the costs up to the date on which it was made. Liability for costs is always under the control of the Court and depends upon the circumstances in which those costs have been incurred. It would not be right to interpret an earlier order as limiting the exercise of the Court's discretion with respect to later costs.
It is, therefore, open to the Court to make a costs order in favour of Mr Milevski for costs incurred after 21 April 2016. As to whether the Court should make such an order, I feel the force of the submissions made by counsel for Mr Paltos. Both parties had discharged partnership liabilities out of their own moneys. These amounts had to be verified and their net effect calculated. And a similar accounting exercise was undertaken for the unpaid partnership liabilities, although it did not ultimately result in those liabilities being discharged.
But, in the end, this part of the process seems to me to have been a minor part of the parties' dispute. The major issue in the account was the valuation of the goodwill. Initially both parties sought to deal with this through the Receivers. But as it turned out, there was an adversarial contest in which the Receivers did not take sides. The value contended for by Mr Paltos was approximately $700,000 and this figure made the difference between whether it was Mr Paltos who owed Mr Milevski money or vice versa. Mr Milevski was, in the end, wholly successful on the issue and the judgment which he has obtained in his favour reflects that success. In my view, the usual order for costs should follow on that issue. [3]
With the benefit of hindsight, it is unfortunate that the process was so protracted, but that is an ordinary incident of litigation. It should not deprive Mr Milevski, as the successful party, of his entitlement to costs after succeeding on a contested claim. It is also relevant that the delay in part resulted from the order in which Mr Paltos chose to present his claims against Mr Milevski, and his claims against his former solicitors, Bartier Perry (see J1 [63]-[67]).
I think that it is also relevant that, although there was ultimately no contest about the order, these proceedings were a vehicle for Mr Milevski's claim for indemnification against the Westpac judgment. On that matter, too, Mr Milevski succeeded. That success was substantial.
Accordingly, I propose to make a costs order in favour of Mr Milevski. That order will cover the whole of the proceedings, with a carve-out for any costs solely relating to other accounting and receivership issues. The intent of this order is that there will be no order as to costs which relate to general accounting and receivership issues independent of the issues on which Mr Milevski succeeded.
I have in mind, in particular, that the hearing of the proceedings was adjourned on several occasions over the first couple of days for negotiations between the parties and the Receivers about the state of the account. There may need to be some deduction for the time associated with those negotiations. Some of the pre-trial steps which involved the preparation of lists of partnership assets and liabilities may also be covered by the exclusion.
I now come to the remaining steps in the proceedings. As I noted at J1 [219], it will be necessary for the Receivers to account to the parties and to the Court for the moneys which they collected in the course of their administration. That process will require, among other things, the Receivers justifying any expenditure which they have incurred.
I was informed that the Receivers have not drawn all of the costs which they have incurred from the moneys which remain in the administration. It seems that there may ultimately be a shortfall. If there is, the Receivers will be entitled (subject, of course, to demonstrating that their costs are proper) to judgment for the amount of the shortfall from the partners. In the circumstances, it seems to me that I should leave the Receivers' costs of the proceedings to be dealt with as part of their accounting process. The only order at this stage would be to reserve the Receivers' costs of the proceedings.
Finally, there is the Receivers' notice of motion. It is agreed as a result of my decision that the Receivers are entitled to judgment for unpaid remuneration in the sum of $79,123.
In the course of the argument before me, it appeared that there might be a debate about the costs of the notice of motion inter partes. On the one hand, it was Mr Paltos who opposed the Receivers' remuneration claim. On the other hand, the opposition seems to have been to some extent successful, as it resulted in the claim being reduced. I think that the more convenient course of action, rather than trying to deal with this now, is to reserve the costs of the notice of motion, with a view to dealing with it at the same time as the Receivers' general costs of the proceedings.
The orders of the Court in the main proceedings are:
1. Order that judgment be entered in favour of the plaintiff against the defendant for the sum of $339,184 plus interest of $79,647 (being interest pursuant to s 100 of the Civil Procedure Act on the sum of $266,847 from 21 April 2016 to 14 March 2022).
2. Order that the defendant indemnify the plaintiff against all liability in respect of the judgment obtained by Westpac Banking Corporation in District Court proceedings 2017/206504.
3. Grant liberty to apply on 7 days' notice with respect to order (2).
4. Order that the defendant pay the plaintiff's costs of the proceedings from 21 April 2016 to date on the ordinary basis as assessed or agreed, save for costs solely referable to accounting and receivership issues other than:
1. the intangible value of the assets transferred by the Receivers to the plaintiff following dissolution of the partnership; and
2. the plaintiff's entitlement to be indemnified under the judgment obtained by Westpac, and referred to in order (2).
1. Reserve the Receivers' costs of the proceedings.
The orders of the Court in the notice of motion proceedings are:
1. Order that judgment be entered in favour of John Maxwell Morgan and Geoffrey Robert Davis as receivers of the Partnership (Receivers), jointly and severally against the plaintiff and defendant, in the sum of $79,123, on account of unpaid remuneration up to 21 January 2022, without prejudice to the rights of the former partners to claim indemnity in accordance with their respective share in the Partnership.
2. Reserve the costs of the motion, to be dealt with as part of the Receivers' costs of the proceedings.
[2]
Endnotes
Cf Bennett v Jones [1977] 2 NSWLR 355, 369-70 (Moffitt P, Samuels JA agreeing).
Newton v Grand Junction Railway Co (1846) 16 M & W 139; 153 ER 1133, 1134 (Alderson B arguendo).
Cf Uniform Civil Procedure Rules 2005 (NSW) r 42.1.
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Decision last updated: 12 April 2022