Plaintiffs v Defendant

1 On 20 December 2018 reasons for judgment in this proceeding were delivered.[1] The dispute between the parties concerned the validity and enforceability of Terms of Settlement entered into between the parties on 11 December 2017 (Terms). I found that the Terms were final and binding on the parties and that they constituted a specifically performable contract. I found that it was appropriate to order specific performance of the Terms in favour of the defendant (Vicki). I required Vicki's legal representatives to prepare draft orders to give effect to the reasons and indicated that I would hear the parties on the orders to be made.

2 The parties were very slow in responding to this request. It was not until 12 February 2019 that Vicki's lawyers proposed orders to the plaintiffs' lawyers. It was not until mid-March that the parties were in a position to attend a hearing. That hearing took place on 22 March 2019. On that day the plaintiffs filed and served an affidavit and an outline of submissions. The three principal issues raised by the plaintiffs are:

(a) Whether a special costs order in favour of the plaintiffs is warranted in consequence of the rejection by the defendant of an open offer to resolve the proceeding made by the plaintiffs on 4 June 2018;

(b) Whether, as the orders proposed by Vicki provided, the first plaintiff (Snapper) should pay pre-judgement interest on moneys payable to Vicki under the Terms. These were fixed sums described in the Terms as the 'Accounting Payment';

(c) Whether the time for performance by Snapper proposed in the draft orders was too short and not in accordance with the time allowed under the Terms.

3 It is necessary to say something about the Terms and the parties. The second plaintiff (Angelo) effectively controls Snapper. Angelo and Vicki are brother and sister. Their mother, Mrs Lina Bertuna (Lina), died on 1 April 2017. Probate of her will was granted to Vicki on 17 July 2017. Under her will, Lina left the whole of her estate on trust for sale and to hold the proceeds on a separate discretionary trust called the Lina Bertuna Trust for her two children, their descendants and related entities.

4 A part of the Lina's estate (Estate) are interests in two properties jointly owned with Snapper and Vicki. The first property is 277 Melville Road, Brunswick West, Victoria (Brunswick property)[2] and the second 2 Lutana Street, Rosebud West, Victoria (Rosebud property).[3] The Brunswick property is an investment and the Rosebud property is the family beach house. Disputes arose as to the distribution of the Estate assets which led to Vicki commencing a VCAT proceeding against Snapper (VCAT proceeding).[4] In substance, the VCAT proceeding was an application for the sale of the two properties and a division of the proceeds between the coowners, including the Estate. The VCAT proceeding was brought by Vicki in her two capacities, as executor of the Estate and personally, as a coowner of each of the properties.[5]

5 The Terms were entered into consequent upon a mediation of the VCAT proceeding. At the heart of the Terms is the acquisition by Snapper from Vicki (personally and as executor of the Estate) of the balance of the Brunswick property not already owned by it, and the acquisition by Vicki from Snapper and the Estate of the interests in the Rosebud property not already owned by her. Values for each property were fixed by the Terms and, in addition, there was a fixed payments to be made by Snapper to Vicki (in both her capacities) in satisfaction of her claims for an accounting in respect of the Brunswick property (Accounting Payment). There is also a mortgage registered against the title to the Brunswick property to secure a debt for which Snapper and Angelo are solely responsible. That matter was also dealt with by the Terms, as is the distribution of the Estate, but 30 days after the settlement of the sales of the interests in the Brunswick and Rosebud properties. The Terms are quite detailed and prescriptive and are summarised in the reasons.[6]

6 The plaintiffs made an open offer to Vicki on 4 June 2018 (Offer). The Offer was open for acceptance for 14 days. It was later extended for a further 7 days. The Offer warned that 'Even if your client is successful in litigation, we are of the view that the net financial position of your client and the estate will be less favourable than the terms of this offer.'

7 The Offer is complex and is set out in a 10 page Deed of Settlement and Release (Deed) with an annexed Contract of Sale and Vendor's Statement for the sale of the Rosebud property by the parties to a company called International Assets Pty Ltd, a director of which was Stavroula Alebakis, the domestic partner of Angelo. The important terms of the Deed were:

(a) Snapper will make all payments required under the NAB mortgage on the Brunswick property, and be entitled to all rental income derived from that property, from the date of execution of the Deed;

(b) the Brunswick property be sold by public auction within 60 days of the date of execution of the Deed, with extensive provisions for:

(i) the appointment of an agreed real estate agent or one appointed by the president of the Real Estate Institute of Victoria;

(ii) a reserve price of $1,100,000;

(iii) the parties to negotiate with any bidder if the property is not sold at or above the reserve price;

(iv) the eventuality that the property is not sold at or following auction, including provision for a new reserve price to be nominated by a valuer to be agreed between the parties;

(v) the terms of any sale contract;

(vi) the conveyancing to be undertaken by a solicitor appointed by the Law Institute of Victoria in default of agreement;

(vii) the distribution of the net proceeds of the sale to the parties in accordance with their proportionate interests in the property;

(c) for Snapper to indemnify Vicki (in her personal capacity and as executor of Lina's estate) in the event of any shortfall in respect of liability under the NAB mortgage from the proceeds of sale of the Brunswick property;

(d) for Snapper and Vicki to file any business activity statements and tax returns for the year in which the Brunswick property is sold as soon as reasonably practicable after the conclusion of that tax year;

(e) for Snapper and Vicki to pay any amounts payable for GST and CGT in respect of the sale of the Brunswick property within 14 days after receipt of the notice of assessment;

(f) for the Rosebud property to be sold by the parties to International Assets Pty Ltd and/or nominee for the sum of $1 million in accordance with terms of sale set out in the Deed, and with provisions for the appointment of the conveyancing solicitor and the payment of any CGT by the parties. In the alternative, the Rosebud property was to be sold by public auction;

(g) for Snapper to pay Vicki in her own right the sum of $10,000 and to Vicki as executor of the Estate the sum of $20,000 at the same time as the settlement of the sale of the Rosebud property in satisfaction of the claims by Vicki for an accounting in respect of the Brunswick property. These are the same sums as were payable under the Terms as the Accounting Payment, without any adjustment for the elapse of time;

(h) for Angelo and Vicki to discontinue intervention order proceedings instituted by them and for Vicki to take all reasonable action to ensure that her daughter discontinues an intervention order proceeding she had commenced (presumably against Angelo).

(i) for the parties to bear their own costs of the proceeding.

8 Unless otherwise expressly provided by any Act or by the Rules, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid: s 24(1) Supreme Court Act 1986 (Vic). The discretion has been described as absolute, unconfined or unfettered, but it must be exercised judicially, upon facts connected with or leading up to the litigation.[7]

9 Although costs are in the discretion of the Court, there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs.[8] It is not a legal rule devised to control the exercise of the discretion.[9] The purpose of an award of costs is compensatory, not punitive.[10]

10 Subject to the application of the principles applicable in consequence of the rejection by the defendant of the Offer (Calderbank principles), there was rightly no dispute by the plaintiffs that the costs should follow the event.

11 In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2),[11] this Court said in relation to Calderbank offers that the critical question was whether the rejection of the offer was unreasonable in the circumstances. The weight of authority, however, strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order.[12] The correct approach is to treat the rejection of a Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs.[13] The policy rationale underlying the availability of special orders for costs where offers of compromise are rejected (being the encouragement of early offers of compromise which amount to a realistic assessment of the claimant's real claim and save the public costs) needs to be balanced against discouraging litigants from bringing their disputes to Court for a just determination.[14]

12 Deciding whether conduct is unreasonable involves matters of judgment and impression. The Court in Hazeldene held that, when considering whether the rejection of a Calderbank offer was unreasonable, a court should ordinarily have regard at least to the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed; and

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.

13 Section 58 of the Supreme Court Act 1986 (Vic) provides, so far as relevant:

(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 ....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.

(2) .....

(3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain.

14 Under this section, where a debt or sum certain is payable at a date or time certain, as is this case under the Terms, and it is recovered in a proceeding (as is this case) there is a statutory entitlement to interest from the time when the debt or sum was payable, unless good cause is shown to the contrary.[15] Notwithstanding the wording of this section (that the court must on application allow interest to the creditor) it is correct to describe the section as providing a prima facie rule that the plaintiff is entitled to interest. That entitlement may be overturned by good cause being shown 'to the contrary'.[16]

15 What constitutes good cause in any given case will depend on the particular facts and circumstances.[17] That is, if there is 'good reason according to the justice of the case for not allowing interest at all or, if interest is to be allowed, then for not allowing interest for the whole of the period.'[18] The Court has to be satisfied on the material before it that there is good reason not to apply the general rule in favour of awarding interest to the plaintiff.[19]

16 The purpose of s 58 is to provide for an award of interest to compensate a party who has been obliged to take proceedings to recover a money sum and who have in the meantime been kept out of monies which they could otherwise have used.[20]

17 By directing the Court to allow interest at a rate not exceeding the rate fixed under s 2 of the Penalty Interest Rates Act 1983 (Vic) (Rates Act) the Court is left at large and, to that extent, has a discretion in the matter. It is, of course, a discretion to be exercised judicially but, by the same token, such a discretion may not be circumscribed by attempts to define what must or must not be taken into account when the discretion falls to be exercised.[21] The reference in the section to the rate for the time being fixed under section 2 of the Rates Act does not refer to the rate fixed on the date when interest is being awarded; rather it is a reference to the rate fixed from time to time throughout the period over which interest is being allowed.[22]

18 The plaintiff's submitted that the Offer was better than the outcome constituted by specific performance of the Terms. It provided a 50% increase in the agreed value of the Rosebud property, from $485,000 to $1 million, and gave a discount against a costs order made on 20 April 2018 in respect of senior counsel's fees for the hearing on that day, calculated at $6600.

19 Counsel for the plaintiffs submitted that it was unreasonable for the defendant to reject the Offer pursuant to which:

(a) she stood to gain in her personal capacity, $330,000 for her share of the Rosebud property, compared with $160,050 under the Terms;

(b) the Estate stood to gain $340,000 for its share of the Rosebud property, compared with $164,900 under the Terms.

20 This is altogether too simplistic approach to the assessment of the Offer. It is important to recall that under the Terms the Rosebud property was to be acquired by Vicki by her purchasing the interests held by Snapper and the Estate. That property was the family beach house, as I have said. Land is unique, as I noted in the reasons.[23] The sale of the Rosebud property to a company apparently associated with Angelo, through his domestic partner, completely reverses the way in which the two properties were to be held upon performance of the Terms. Angelo was to have the Brunswick property, after making appropriate payments. Vicki was to have the Rosebud property on similar terms. The prices to be paid for the interests in those properties were fixed by the Terms, and there was no uncertainty regarding the process to be adopted to give effect to the agreements contained in the Terms.

21 The alternative offer of a sale of the Rosebud property by public auction is, similarly, such a radical deviation from that agreed in the Terms, that in my view it was not unreasonable for Vicki to reject it. This alternative, and the primary offer for a Company associated with Angelo's domestic partner to buy the property, tend to show that the reason for the Offer was not as a genuine offer to resolve the disputes in the proceeding, but to ensure that Vicki did not gain the Rosebud property.

22 By contrast, under the Deed not only did interests associated with Angelo stand to get the Rosebud property in preference to Vicki, but the terms upon which both the Brunswick property and the Rosebud property were to be sold gave rise to considerable uncertainty and risk of disagreement and delay. The terms for the sale of the Brunswick property by public auction necessitated agreements and failing agreements appointments by independent persons. It is evident from the history of this proceeding at that Angelo and Vicki are at war. Any proposed Deed that requires them to agree upon anything of any significance is likely to give rise to disputation. Moreover, both Snapper and Vicki were entitled to bid at any auction of the Brunswick property. It is hard to imagine, in the circumstances, a provision likely to give rise to greater disputation than this.

23 Counsel for Vicki also pointed to a significant difference between the indemnity provisions in the Terms and the indemnity provision in the Deed. By the Terms, Snapper acknowledged that it was solely responsible for the satisfaction of the liabilities of Snapper, Vicki and the Estate which are secured by the NAB mortgage over the Brunswick property. Snapper agreed to indemnify Vicki and the Estate in respect of any amounts required to be paid by them to NAB in respect of those liabilities. The provision in the Deed is much more limited. It provides:

Snapper will indemnify Vicki (in her personal capacity and in her capacity as Executrix of the Will and Trustee of the Estate of the deceased) in the event of any shortfall in respect of liability under the NAB mortgage from the proceeds of sale of the Brunswick Property.

24 In other words, the Deed provides only for any shortfall between the net proceeds of the sale of the Brunswick property and the liability under the NAB mortgage to be the subject of any indemnity by Snapper to Vicki and the Estate.

25 These differences go to the 'extent of the compromise offered', and show, in my view, that it was not unreasonable for Vicki, in both her capacities, not to accept that Offer. In relation to the other specific factors referred to above (at [12]):

(a) the offer was made at a mid-course in the proceeding and well before trial, and no reason for refusal of it arises out of this factor;

(b) after the time allowed for acceptance was extended and the timing in the Offer was altered, there was reasonable time allowed for acceptance. Nothing turns on this;

(c) at the date of the Offer, Vicki's prospects of success were, in my view, sufficiently good to warrant rejection of the Offer;

(d) the Offer was clearly expressed, so nothing turns on this;

(e) the Offer did not, so far as I have seen, foreshadow an application for indemnity costs in the event of the offeree rejecting it. However, the practitioners involved were all experienced and must have anticipated that the offer would be used as a Calderbank offer.

26 The orders proposed by the defendant claim interest on the net amounts payable by Angelo to Vicki (both personally and as executor of the Estate) upon the transfers of the Brunswick and Rosebud properties and the Accounting Payment. The parties are agreed that:

(a) the net amount payable by Angelo to Vicki, in her personal capacity, is the sum of $124,950; and

(b) the net amount payable by Angelo to Vicki, as executor of the Estate, is the sum of $570,000.

27 Vicki claims interest on those sums from the date provided by the Terms for payment, 9 March 2018, until the date of judgement, at the rate prescribed under the Rates Act, which happens to amount to the following sums:

(a) in respect of amount payable by Angelo to Vicki in her personal capacity, $11,331.08 for the period from 9 March 2018 until 11 February 2019, and thereafter at the rate of $34.23 per day until the date of judgement;

(b) amount payable by Angelo to Vicki as executor of the Estate, $51,690.41 for the period from 9 March 2018 until 11 February 2019 and thereafter at the rate of $156.16 per day until the date of judgement.

(a) Vicki's failure to accept the Offer amounts to good cause for not allowing interest from 24 June 2018, being the date the Offer expired;

(b) any entitlement Vicki in her capacity as executor of the Estate has to pre-judgment interest ought to be reduced by reason of the following:

(i) at its highest, the Estate was kept from monies owing to it under the Terms for a period of 30 days - from 9 March 2018 when the monies were payable to 8 April 2018, being 30 days later when distribution of the Estate was to occur; and

(ii) when distribution of the Estate occurred, 50% of the corpus of the Estate was to be distributed to a person or persons nominated by Snapper.

(c) in the event the Court determines to exercise its discretion to order that pre-judgement interest is payable, such orders should be in the following terms:

(i) interest payable to Vicki in her personal capacity, on the amount owing to her of $124,950, fixed in the sum of $3697.15 for the period from 9 March 2018 until 24 June 2018;

(ii) interest payable to Vicki as executor or of the Estate, on the amount owing to her of $570,000, fixed in the sum of $4,841.00 for the period from 9 March 2018 until 8 April 2018 (being 30 days from payment until distribution of the Estate under the Terms).

29 The first submission, that Vicki's failure to accept the Offer amounts to good cause for not allowing interest from the date the Offer expired, turns on whether or not it was not unreasonable for Vicki to refuse to accept the Offer. The considerations to which I have referred above in considering whether it was not unreasonable for Vicki to refuse to accept the Offer are equally applicable to this submission. There is therefore no good reason to stop the interest clock at 24 June 2018, as suggested.

30 The submission that the Estate was kept from the monies owing to it under the Terms for a period of only 30 days is misconceived. It is true that pursuant to the Terms the Estate was to be distributed 30 days after settlement of the transfers of the Brunswick and the Rosebud properties. Nevertheless, the Estate has been kept out of the monies payable to it under the Terms for the whole of the period from 9 March 2018 to the date of payment under the judgement. The fact that a part of the monies once paid into the Estate would be paid out to, or at the direction of, Snapper, does not alter the fact that the Estate has been kept out of the moneys due to it. The monies paid out of the Estate on its distribution are paid to the persons entitled in different capacities.

31 For these reasons, in my view, interest should be paid by Snapper on the amounts payable pursuant to the Terms for the whole of the period from 9 March 2018 to the date of payment under the judgment at the rate set out in the proposed orders and advanced by Vicki. There was no dispute that it was appropriate to allow interest at the rate prescribed under the Rates Act.

32 The last matter to be dealt with is the time for performance by Snapper of its obligations pursuant to the judgment (Settlement). Vicki proposed that Settlement take place 14 days after the date of the order. Snapper proposed Settlement be on 19 July 2019. This was said to be necessary in order to allow Snapper time within which to raise the loan finance necessary to undertake the Settlement. It was also submitted on behalf of Snapper that under the Terms the parties had a period from 11 December 2017 to 9 March 2018 within which to organise their affairs, including raising any loan finance necessary to effect the Settlement.

33 Snapper ought to have had sufficient time between the date upon which I delivered reasons for judgement (20 December 2018) and the date of the hearing concerning the appropriate orders m(22 March 2019) to organise its affairs. It apparently has not done so. However, it would not be in accordance with the Terms for the period between the date of the order and the date of Settlement to be as short as proposed by Vicki (14 days). By the same token, the period from 11 December 2017 and 9 March 2018 takes in the Christmas/New Year holiday break, within which the lawyers engaged by the parties were likely to be away and any banking arrangements would be unlikely to take place. In reality, the real period for the parties and their lawyers to effect the transactions the subject of the Terms is about two months.

34 I think it appropriate to allow eight weeks between the date of the order and the date fixed for Settlement. That is in accordance with the time allowed in the Terms and should be sufficient time to enable Snapper to organise its affairs so as to be in a position to complete the transactions the subject of the Terms.

35 There were some other minor variations sought by Snapper to the Orders proposed by Vicki. Save for making clear that Settlement is eight weeks from the date of the order, I have not accepted these proposed changes.

VITA (VICKI) LENTINI (IN HER OWN RIGHT AND AS EXECUTOR OF THE WILL AND ESTATE OF THE LATE LINA BERTUNA

VITA (VICKI) LENTINI (IN HER OWN RIGHT AND AS EXECUTOR OF THE WILL AND ESTATE OF THE LATE LINA BERTUNA

[1] Snapper Holdings Pty Ltd v Lentini [2018] VSC 800.

[2] The land more particularly described in Certificate of Title Volume 8388 Folio 761.

[3] The land more particularly described in Certificate of Title Volume 8863 Folio 728.

[5] Applicants application of orders and points of claim in the VCAT proceeding, Exhibit AAB-11 to the Bertuna affidavit.

[6] Snapper Holdings Pty Ltd v Lentini [2018] VSC 800, [13]-[14].

[7] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 537; cited with approval in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 86.

[8] Ritter v Godfrey [1920] 2 KB 47, 52; Donald Campbell and Co Ltd v Pollak [1927] AC 732, 809; Milne v Attorney-General for the State of Tasmania, [1956] HCA 48; (1956) 95 CLR 460, 477; Boz One Pty Ltd v McLennan (No 2) [2015] VSCA 145, [31], [41].

[9] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 86 [35].

[10] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 543.

[11] [2005] VSCA 298; (2005) 13 VR 435, 441-442 [23]-[26] ('Hazeldene').

[12] Aljade and MKIC v OCBC [2004] VSC 351 (Redlich J); Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [19].

[13] Hazeldene [2005] VSCA 298; (2005) 13 VR 435, [20].

[15] Victorian Workcover Authority v Esso Australia Limited (2001) 207 CLR 520, [34] (Gleeson CJ, Gummow, Hayne and Callinan JJ).

[16] Clarke v Foodland Stores Pty Ltd [1993] VicRp 81; [1993] 2 VR 382, 389 (Clarke).

[17] Ibid 394; Hosking v Ipex Software Services Pty Ltd [No 2] [2004] VSC 343, [5].

[18] Clarke [1993] VicRp 81; [1993] 2 VR 382, 388-9, 392-4.

[19] Ibid 395; Hosking v Ipex Software Services Pty Ltd [No 2] [2004] VSC 343, [5].

[20] Victorian WorkCover Authority v Esso Australia Ltd (2001) 207 CLR 520, 546.

[21] Clarke [1993] VicRp 81; [1993] 2 VR 382, 389.

[23] Snapper Holdings Pty Ltd v Lentini [2018] VSC 800, 103.