The Court published its primary judgment in these proceedings on 9 February 2021: see Sapra Enterprises Pty Ltd v Cooper [2021] NSWSC 58.
The proceedings were originally commenced by statement of claim filed by the plaintiff in the District Court on 23 July 2018.
The plaintiff claimed an amount of $468,880 plus interest in respect of three loans made to the second defendant. The plaintiff also claimed the same amount from the first defendant as a guarantor of the loans. The loans were made and the guarantees were given under formal written loan agreements.
The judgment was given after a hearing that took place over seven days.
Proof of the plaintiff's claim was straightforward as it required only proof of the loan agreements and the failure by the first and second defendants to make the payments due to the plaintiff under those agreements.
All of the issues that required the substantial number of hearing days arose under the defence and the cross claim filed by the defendants. As I observed at J [11], although the first defendant represented the two defendants in person, it was clear that the defendants had some legal assistance in preparing the cross claim, as it used terminology and raised issues that would not be expected to be known to any layman.
The defendants failed entirely on all issues raised by their defence and cross claim. As I observed in a number of places in the primary judgment, many of the issues raised in the defence and the cross claim had no substance at all or were unintelligible.
The defendants did not at any time withdraw any of the claims made in the defence and the cross claim, so it was necessary for both the plaintiff and the Court to deal with all of those issues, as if they had substance.
The primary judgment made provision for the plaintiff to prepare draft short minutes of order to give effect to the Court's reasons, and gave the parties an opportunity to make submissions concerning the appropriate form of the orders to be made.
The parties were invited to make submissions on the issue of the orders to be made as to the costs of the proceedings.
On 15 February 2021, the plaintiff provided draft short minutes of order, including a calculation of the amounts that the defendants should be ordered to pay to the plaintiff, having regard to the provisions of the loan agreements for the payment of interest.
The plaintiff also asked the Court to make orders that would effectively entitle the plaintiff to receive the monies paid into court that are dealt with at J [238]-[244].
Finally, the plaintiff sought an order that the defendants pay the plaintiff's costs of the proceedings in respect of both the statement of claim and the cross claim on the indemnity basis.
The plaintiff put its claim for indemnity costs on two broad grounds. The first ground was the failure of the defendants to accept a Calderbank offer made by the plaintiff's solicitors to the defendants on 27 August 2018. The letter explained how the defendants' liability arose under the three loan agreements and how the amounts due had been calculated. The letter informed the defendants that the amount that they owed jointly and severally to the plaintiff was $529,116.39. The letter offered to settle all claims arising out of the loan agreements on the basis that the defendants would pay the plaintiff $500,000 which included legal costs and interest in full and final settlement. The offer was stated to remain open for acceptance for a period of seven days from the date of the letter.
The Calderbank offer was made before the defendants filed their defence and cross claim on 16 October 2018. At the time the offer was made, the claim would reasonably have appeared to the plaintiff to have involved claims in debt under three written loan agreements in respect of which the defendants had no apparent defence.
As the reasons in the primary judgment demonstrate, it was reasonable for the plaintiff to take that view of the defendants' prospects at the time the Calderbank offer was made. Although some of the claims made by the defendants in the defence and cross claim involved issues that were justiciable on the facts, and although all failed, as mentioned many of the issues raised should be considered to be no more than an attempt by the defendants to defer the day of reckoning.
In the circumstances, although a compromise involving the release of the defendants' obligation to pay an amount of approximately $30,000 plus the plaintiff's costs of the proceedings to the date of the offer was not great, I am satisfied that it was a genuine offer of compromise given the nature of the plaintiff's claim.
The Calderbank offer clearly informed the defendants that, if it was not accepted, and the plaintiff achieved a result more favourable than the amount of the offer, the plaintiff would apply for an order from the Court that the defendants pay 100% of the plaintiff's reasonably incurred costs from the date of the offer.
The second basis for the plaintiff's claim for indemnity costs was that the Court, in the exercise of its discretion under s 98 of the Civil Procedure Act 2005 (NSW), should make an order for indemnity costs because of the unreasonableness of the claims that constituted the defence and cross claim. The plaintiff relied upon the principles in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, and submitted that the defence and cross claim involved many arguments that should never have been made, and that the effect of which was to unduly prolong the case with groundless contentions.
The defendants served written submissions in response on 22 February 2021.
The defendants submitted that the Court should order the parties to pay their own costs of the proceedings.
Unfortunately for the defendants, the arguments that they rely upon do not successfully address the fact that the plaintiff was entirely successful in these proceedings and obtained a better result than was offered to the defendants in the Calderbank offer.
The defendants relied upon evidence that had been led at the hearing whereby they had made a number of commercial offers to the plaintiff that, if accepted, would have involved forbearance by the plaintiff in the recovery of the debts for an indefinite period and was contingent on the second defendant's business generating sufficient income to repay at least part of the debts. The plaintiff was under no obligation to accept offers of this nature and terms were never agreed to between the plaintiff and the defendants.
The defendants referred to an agreement that was called the stakeholders agreement and relied upon an alleged right for the mediation of any dispute between the parties to that agreement. That is not an issue that was investigated in these proceedings, but it is clear that, if the defendants had some entitlement to mediation, they did not enforce it. In any event, the party allegedly obliged to mediate was a shareholder in the second defendant and a different company to the plaintiff.
The defendants also made submissions, which with respect, I find obscure, concerning proceedings said to have been successfully conducted by the plaintiff in the District Court of New South Wales to recover money from the same company who the defendants assert was liable to mediate any dispute. The defendants asserted that this claim was made under clause 7(b) of a shareholders' agreement between the second defendant and its shareholders. The shareholders included the first defendant, the company referred to in par 24 above, and a third shareholder who has since been made bankrupt.
The Court has no evidence about the nature or outcome of those proceedings. In any event, the proceedings could not directly affect the plaintiff because it was not a party to the shareholders agreement. Whatever the outcome of the proceedings may be, it does not, as a legal matter, affect the plaintiff's rights in these proceedings.
The defendants also advanced financial hardship as a ground for the Court to exercise its discretion in a manner that did not impose on the defendants an obligation to pay the plaintiff's costs. At least some of the reasons for the financial hardship of the first defendant arise out of the fact that his time has been consumed to some degree in the futile defence of the plaintiff's claim.
Financial hardship on the part of the defendants is not a proper ground for denying the plaintiff the costs order to which it is entitled.
There are a number of other matters raised by the defendants' submissions that do not require a specific response.
It should be mentioned that, at J [245], I gave the defendants a final opportunity to make submissions as to why the Court should not order that the $42,381 that had been paid into court on behalf of the third defendant should be paid out to the plaintiff. I gave the defendants that opportunity because they were represented only by the first defendant and he had not made any submissions on the issue.
The plaintiff's claim was under s 37A of the Conveyancing Act 1919 (NSW), and the third defendant had been dismissed from the proceedings after the money had been paid into court on terms that the third defendant made no claim to be entitled to the money himself.
The only submission made by the defendants on this issue, in par 13 of their 22 February 2021 submissions, was to the effect that the money belonged to the first defendant, as it was loaned by the first defendant to the third defendant.
In reply to par 13, the plaintiff, in its submissions dated 26 February 2021, referred to pars 181 to 187 and Annexure E of its closing submissions dated 4 September 2020, with the detail of the plaintiff's submissions contained in Annexure E. It will be sufficient to set out a summary of those submissions, which are consistent with the evidence.
From 5 June 2017 to 12 June 2018, the first defendant was the sole director of a company, and between 5 June 2017 and 28 June 2018 the first defendant was its sole director and secretary.
On 21 October 2016, the first defendant and his then de facto partner entered into a contract to purchase a home unit near Newcastle off an unregistered plan. On 30 April 2018, the contract for sale was completed. The home unit was purchased with the assistance of a mortgage.
On completion, title to the home unit was transferred to the company of which the first defendant was the sole shareholder, director and secretary.
The plaintiff advised the defendants that it intended to issue demands under the three loan agreements by telephone in late April 2018 and by letters of demand dated 30 May 2018.
On 12 June 2018, the first defendant's de facto partner became the sole shareholder in the transferee company, and became its sole director and secretary from 28 June 2018.
The consequence of these transactions was that the funds that the first defendant contributed towards the purchase of the home unit were in practical terms given to the transferee company, and when the first defendant's shares in that company were transferred to his then de facto partner, the partner gained the benefit of the first defendant's funds. These transactions occurred for no consideration.
In practical terms, the first defendant divested himself of the funds that he invested in the home unit to his partner on 12 June 2018, very shortly after the plaintiff had made demands on the first defendant on the guarantees given by him to the plaintiff.
The plaintiff submitted that these transactions were undertaken by the first defendant with an intent to defraud the plaintiff, as one of his creditors, within the meaning of s 37A of the Conveyancing Act.
The home unit in Newcastle was sold on 17 December 2018 for $545,000. On completion of the sale, the first defendant's partner received $162,454 after the mortgage was repaid. Of this sum, $42,381 was ultimately paid into court on behalf of the partner (who was then the third defendant) on the basis that, by agreement with the plaintiff, the partner would be dismissed as a defendant and would abandon any claim to being entitled to the $42,381.
The plaintiff's submissions acknowledge that the $42,381 was paid into court on the basis that it was accepted by the third defendant that this sum represented the first defendant's original contribution to the purchase of the home unit.
The effect of these events is that, in practical terms, the transactions that the plaintiff claimed were void, by reason of the application of s 37A of the Conveyancing Act, were unwound, and the first defendant's former de facto partner, being the party with control of the funds, paid the first defendant's share of the proceeds of sale into court.
Consequently, it is now not necessary for the Court to determine the question of whether s 37A of the Conveyancing Act had the effect of avoiding any relevant transactions.
As such, the money in court is effectively recognised as being the property of the first defendant and is now available to partially meet the judgment against the first defendant that will now be made in favour of the plaintiff.
The plaintiff relied upon the principles set out by Black J in In the matter of Dyamond Developments Pty Ltd (in liquidation) [2020] NSWSC 591 at [24]-[30] (Dyamond Developments) and submitted that it need not establish a trust or a proprietary right to the funds in Court in order to obtain an order granting payment of those funds to the plaintiff under Uniform Civil Procedure Rules 2005 r 41.3.
The plaintiff submitted that, in the exercise of the Court's general discretion in respect of the release of funds paid into court, the Court must give consideration to the purpose for which those funds were paid into court. The plaintiff submitted that the purpose was to ensure that the funds were available in the event of a judgment of the Court in favour of the plaintiff. As the only claimants to the funds in court are the plaintiff and the first defendant, the plaintiff submits that it is entitled to have the money paid to it by way of execution of any judgment debt. In any event, the plaintiff submitted that the Court should not make an order that the funds in court be paid out to the first defendant, but should permit the funds to remain in court pending the plaintiff having the opportunity to levy execution on its judgment against the first defendant.
In Dyamond Developments, Black J set out an extract from the judgment of McColl JA in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 as follows (footnotes omitted):
[80] A party who pays money into court does not retain any legal or beneficial interest in the money. Rather, funds held by the court are not held as a trustee for any particular party, but as an exercise of the judicial function of the State. The money is vested in the registrar of the court and is to be disbursed in accordance with the decision of the court. Such rights as claimants to those funds may have are to the due administration of the funds in court, and a right to be heard about disposition of the funds, rather than a right of property. The parties cannot create by their success in the litigation a property right to the funds. The management of the funds remains within the power of the court, subject to any pre-existing rights.
[81] In making decisions about the payment out, or retention, of funds in court the court engages in an exercise of prudential management of the funds in order to ensure their due administration and that the processes of the court are not abused. It is relevant to have regard to the fact funds were paid into court to achieve a particular purpose.
In the present case, it does not appear that the money was paid into court on behalf of the first defendant's former partner for any purpose intended to benefit the plaintiff. The money was paid into court to avoid a freezing order being issued against the partner, who chose not to contest the plaintiff's claim under s 37A of the Conveyancing Act, and to facilitate his dismissal as a party from the proceedings.
If the plaintiff's claim had been contested but the plaintiff had succeeded, the Court would have made appropriate declarations and orders that would have had the effect of setting aside transactions so that title to the property that the first defendant had attempted to divest himself of would have been returned to him. The property that was re-vested in the first defendant would then have been available to be the subject of a writ of execution against the first defendant in order to satisfy the judgment obtained by the plaintiff, but the Court would not make an order that the property be directly vested in the plaintiff.
However, as the Court will now give judgment to the plaintiff against the first defendant, and as the proceedings have been conducted on the basis that the plaintiff seeks an order that the funds in court be paid out to it in execution of the judgment, it will be convenient for the Court to make that order. It is not consistent with the requirements of s 56 of the Civil Procedure Act 2005 (NSW) that the plaintiff be put to the trouble and expense of obtaining a writ of execution to obtain the funds that are in court. The first defendant has not applied for an order that the funds be paid out to him, and the Court would not have acceded to that application in the circumstances. I will therefore make the order sought by the plaintiff.
I note that there has been no suggestion that any other creditor of the first defendant has made a claim to the money that is in court. However, the Court's order that the money in court be paid out to the plaintiff should not give the plaintiff any preference over other creditors that it would not have enjoyed if it had been required to obtain payment of the money through the application of the Court's formal processes for the enforcement of judgments. I will qualify the orders set out below accordingly.
On the issue of the basis upon which the defendants should be ordered to pay the plaintiff's costs, I have concluded that the costs should be on the ordinary basis up to the date of the Calderbank offer and on the indemnity basis after that date. It is not appropriate for the Court to order that the costs incurred by the plaintiff before that date be paid on the indemnity basis, as the defendants were not warned of that possibility, and any unreasonableness of the defendants in the conduct of their defence occurred after that date.
I have adjusted the amount of the judgments against the defendants to add monthly interest from the date of the plaintiff's calculation of the total amount of the judgments, being 31 July 2020, to 30 April 2021. I have deducted one month's interest in respect of the $100,000 and $68,880 debts because the plaintiff's calculation as at 31 July 2020 included one month's interest for the period 1 July to 23 July 2018 and another month's interest for the period 23 July 2018 to 31 July 2018 in each case.
The orders of the Court are:
1. Judgment for the Plaintiff against the First Defendant in the sum of $1,135,664.
2. Judgment for the Plaintiff against the Second Defendant in the sum of $1,135,664.
3. The Cross Claim be dismissed.
4. Declare that the Plaintiff is entitled to receive all of the monies paid into Court by David Charles Balog, the solicitor for Robert Walter Taylor who was previously the Third Defendant in these proceedings.
5. All of the monies paid into Court by David Charles Balog be paid out to the Plaintiff.
6. Note that orders (1) and (2) are in respect of the several liabilities of the First and Second Defendants to pay to the Plaintiff the one sum being $1,135,664.
7. Note that orders (4) and (5) are made on the basis that they do not entitle the Plaintiff to any preference over the rights of any other creditors of the First Defendant by reason of the fact that the monies have been paid to the Plaintiff by reason of those orders.
8. The First and Second Defendants to pay the Plaintiff's costs of the proceedings on the ordinary basis up to 27 August 2018 and on the indemnity basis thereafter.
[3]
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Decision last updated: 30 April 2021