Judgment was delivered in these proceedings on 11 March 2022: The Cleaning Doctor v Fonseca [2022] NSWSC 253 (the principal judgment). The two plaintiffs were wholly unsuccessful. These reasons concern:
1. the costs of the proceedings;
2. whether an interim injunction granted in 2015 and freezing orders made in 2019 should now be discharged in circumstances where the plaintiffs have filed a notice of intention to appeal; and
3. the first defendant's foreshadowed claim for compensation under the usual undertaking as to damages given by the plaintiffs in respect of interim orders made in July 2015.
These reasons assume familiarity with the principal judgment.
[2]
Costs
The defendants submit that costs should follow the event and the plaintiffs should be ordered to pay their costs. Such an order would be enforceable against the plaintiffs jointly and severally.
The plaintiffs oppose an order that they pay the defendants' costs.
The plaintiffs' primary submission is that there should be no order for costs in favour of the defendants because the defendants abandoned allegations of fraud and serious misconduct made against the plaintiffs during closing submissions in these proceedings.
Alternatively, the plaintiffs refer to issues pleaded by the defendants but abandoned in closing submissions and submit that they should not pay the defendants' costs of those issues and the defendants should pay the plaintiffs' costs of those issues. The plaintiffs estimate that the costs of those abandoned issues account for approximately 15-30% of the plaintiffs' costs of the proceedings. On the assumption that the abandoned issues also accounted for 15-30% of the defendants' costs, the plaintiffs submit that any order for costs in favour of the defendants should be limited to between 40% and 70% of the defendants' costs of the proceedings on an ordinary basis (representing a deduction of between 30% and 60%).
Further, the plaintiffs submit that, because the proceedings involved the hearing of the different claims of the first plaintiff and the second plaintiff at the same time, each plaintiff should only by liable for 50% of any costs ordered to be paid to the defendant.
I reject the plaintiffs' primary submission.
The defendants' allegations of fraud went to an unclean hands defence to, inter alia, claims by the first plaintiff (Cleaning Doctor) that the first and second defendants (Jeffrey and Orlando Fonseca) had stolen approximately $2.695 million from its bank account principally by falsely representing to the bank that they were authorised to make withdrawals from the account using cheques that the second plaintiff (Ali Itawi) had signed and delivered to Orlando Fonseca in blank save for the signature. Cleaning Doctor failed to prove those allegations.
The plaintiffs relied on parts of paragraph [8.60] in G E Dal Pont, Law of Costs (4th ed, 2018) in support of their submission that the successful defendants should be deprived of the usual costs order following the event by reason of their abandonment of the allegations constituting the unclean hands defence to the plaintiffs' unproven allegations of fraud. I find it convenient to set out the paragraph in full (omitting citations):
"An allegation of fraud is serious; even if not proven, it may be recounted in the community and through the media, and thus harm a litigant's reputation before any evidence has been offered and submitted to the scrutiny of cross-examination or rebuttal. Allegations of this kind should thus not be made lightly. From a costs perspective, this is reflected in the 'rule' that a party alleging but failing to prove fraud is deprived of costs even if successful in the action generally. This statement is arguably too broad, as a court is more likely (unless the allegation goes to the crux of the case) to deprive an ultimately successful party unable to substantiate the fraud of the costs pertaining to that issue rather than those of the entire action. The proper exercise of the costs discretion rests on the character of the allegations and the circumstances of each case. In Boyne v Non-Marine Underwriters at Lloyds, for example, Tucker J declined to fully apply the 'rule' in a case where the claim of fraud was abandoned early in the trial, ruling that the unsuccessful plaintiff should recover costs up to the moment the fraud claim was abandoned."
The defendants' allegations pleaded in support of their unclean hands defence did not go to the crux of the case. The crux of the Cleaning Doctor's case was the factual contest between Cleaning Doctor (for whom Ali Itawi was the principal witness) on the one hand and Jeffrey and Orlando Fonseca on the other hand as to the reasons why Cleaning Doctor was incorporated, the reasons why Cleaning Doctor's bank account was established in the manner that it was (with all information about the account being sent by the bank directly to addresses and facsimile numbers controlled by the defendants), whether the money deposited into the account (and typically withdrawn in cash the very next day) represented Ali Itawi's share of profits of an alleged joint venture or partnership with Orlando Fonseca (or a company associated with him), the reasons why Ali Itawi signed entire cheque books full of blank cheques and left them with Orlando Fonseca, and the scope of the authority of Jeffrey and Orlando Fonseca to withdraw money from Cleaning Doctor's account. To my observation, the unclean hands defence did not occupy any material time at trial. The unclean hands defence, and the factual allegations made in support of that defence, were not mentioned in written or oral closing submissions, save for the defendants' oral closing submissions confirming that the unclean hands defence was abandoned. Unlike Re Baum; ex parte Cooper (1878) 10 Ch D 313 (on which the plaintiffs relied), this is not a case in which "a mass of evidence was adduced" in support of those allegations that were later abandoned by the defendants.
For those reasons, I do not consider that the defendants' abandonment of their unclean hands defence in closing submissions warrants a departure from the ordinary position that costs follow the event. The event is the plaintiffs' failure to prove their claims.
I also reject the plaintiffs' alternative submission referred to at [6] above. The issues abandoned by the defendants (including but not limited to the unclean hands defence referred to above) did not take up a material amount of time at trial and were not otherwise dominant or separable from the other issues in the proceedings. The time at trial was occupied by the factual disputes concerning Cleaning Doctor's bank account referred to above, the factual dispute between Ali Itawi and Orlando Fonseca as to whether Mr Fonseca held property at Bardwell Valley on trust for Mr Itawi and whether the scope of Mr Fonseca's authority to make withdrawals from Cleaning Doctor's bank account was limited to withdrawing funds to make repayments under the mortgage on the Bardwell Valley property for the ultimate benefit of Mr Itawi. This is not the kind of case in which the Court seeks to differentiate between the issues on which the defendants succeeded and the issues that the defendants abandoned when exercising the discretion as to costs: see Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2021] NSWSC 1374 at [746]-[747] (Ward CJ in Eq, as her Honour then was) and the authorities there cited. Even if it had been appropriate to seek to differentiate, I would not have accepted the plaintiffs' bare assertion that their costs of those issues are estimated at 15-30% of their total costs. The broad range indicates the likely inaccuracy of the asserted estimate. Nor would I have made costs orders adversely affecting the defendants on the plaintiffs' assumption that their costs of the abandoned issues were likely to represent the same proportion as the plaintiffs' asserted estimate.
Finally, I accept the plaintiffs' submission that they should not be jointly and severally liable for the defendants' costs, but only to the extent that those costs were incurred in respect of either Cleaning Doctor's claims or Mr Itawi's claims and were not common to both claims: G E Dal Pont, Law of Costs (4th ed, 2018) at paragraph [11.7]. I accept the defendants' submissions that some costs are likely to have been incurred that related to both plaintiffs' claims. However, I consider that the defendants overstate the position in submitting that the proceedings involved a great deal of evidence covering both the pre-September 2009 period and the post-September 2009 period that was relevant to both plaintiffs' claims. To my observation, the proceedings involved a great deal of evidence concerning the business relationship between Ali Itawi and Orlando Fonseca in the period prior to 2003 and the transactions concerning the Bardwell Valley property in 2001 and early 2003. That evidence was principally relevant to Mr Itawi's claim, although some of the evidence concerning the business relationship and dealings between Mr Itawi and Mr Fonseca in the period prior to September 2009 was relevant context for the events that were directly relevant to Cleaning Doctor's claim. Most of the evidence relevant to Cleaning Doctor's claim concerned the business relationship and dealings between Mr Itawi and Mr Fonseca in the period leading up to the incorporation of Cleaning Doctor in September 2009 (well after 2003) and the conduct of the parties in the period after September 2009 in relation to the operation of that bank account.
The costs that were common to both plaintiffs' claims will need to be identified and quantified by agreement between the parties or by assessment in order to give effect to the orders that will be made requiring the plaintiffs to pay (jointly and severally) the defendants' costs of the proceedings that were common to both plaintiffs' claims and require each plaintiff to pay the defendants' remaining costs of defending that plaintiff's claims.
[3]
Interim injunction and freezing orders
On 17 July 2015, the Court made an order by consent (and on the plaintiffs giving the usual undertaking as to damages and further undertaking to pay into court security of $100,000 in respect of that undertaking) requiring Mr Jeffrey Fonseca (the first defendant) to pay the proceeds of sale of a property at Oatley into a controlled monies account held in the joint names of the parties' solicitors, after payment of certain amounts specified in those orders out of those sale proceeds.
Freezing orders were made by consent against all defendants on 24 May 2019, subject to certain variations on 28 May 2019 and 2 July 2019, on an interim basis pending a contested hearing of the plaintiffs' application for freezing orders. On 4 July 2019, the Court extended the freezing orders until further order. The freezing orders were made on the usual undertaking as to damages. There was a further variation of the freezing orders made on 2 August 2019 increasing the amount that the defendants could pay for legal expenses without breaching the orders.
The defendants' submissions identify a caveat lodged by Mr Itawi against the title to a property at 9 Murrumbidgee Avenue, Sylvania Waters. There is no evidence concerning this caveat, but the plaintiffs' submissions accept that, if freezing orders are to be discharged, then an order requiring Mr Itawi to withdraw that caveat should be made at the same time.
The plaintiffs submit that the controlled money orders and freezing orders referred to above should remain in place to "preserve the status quo" until the appeal period has been lapsed and no notice of appeal or notice of intention to appeal has been lodged. If and when a notice of appeal or notice of intention to appeal is lodged, the plaintiffs submit that the orders should remain in place unless and until vacated by a judge of the Court.
The plaintiffs rely on the fact that the proceedings involved an allegation that the defendants had fraudulently misappropriated some $2.695 million. The plaintiffs submit that this was the primary basis on which the freezing orders were made in 2019 and "any appeal would be without point" if those orders do not remain in place to ensure that the defendants' money and assets are not put beyond the plaintiffs' reach.
The plaintiffs filed a notice of intention to appeal on 29 March 2022. No notice of appeal has been filed as at the date of these reasons. The plaintiffs' submissions make no reference to the likely grounds of appeal (if and when a notice of appeal is filed) and do not address the question whether they have a good arguable case on appeal.
A good arguable case on appeal is the first matter that the plaintiffs must demonstrate in order to support a continuation of the controlled money order and the freezing orders. That would require the plaintiffs to at least articulate the grounds of appeal: Uniform Civil Procedure Rules 2005 (NSW), r 25.15(1)(b); Tomasetti v Brailey [2012] NSWCA 6 at [13]-[15] and [19] (Campbell JA).
Although the plaintiffs have not sought to demonstrate a good arguable case on appeal, the defendants do not oppose the continuation of the existing controlled money order and freezing orders for 28 days from the date of the principal judgment (that is, until 8 April 2022) and, if a notice of appeal is filed within that time, for a further 14 days thereafter. That 14 day period would afford time for the plaintiffs/appellants to apply to the Court of Appeal for an extension of the orders pending the determination of the appeal. I am content to make orders to that effect. For reasons explained above, I reject the plaintiffs' submission that the freezing orders should be extended merely because they have filed a notice of intention to appeal.
[4]
Compensation in accordance with the usual undertaking as to damages
The first defendant, Mr Jeffrey Fonseca, wishes to apply to the Court for compensation for losses sustained as a result of the interim injunction granted on 17 July 2015. It is common ground between the plaintiffs and the first defendant that any such application should be made by notice of motion filed and served within 8 weeks. The defendants accept that the application should be deferred if the plaintiffs file a notice of appeal in the meantime. The plaintiffs submit that the application should be deferred if they file a notice of intention appeal. This is a curious submission, given that the plaintiffs had already filed a notice of intention to appeal at the time of that submission. I prefer the defendants' position on this issue.
[5]
Orders
For the reasons above, the orders and directions of the Court are as follows:
1. Order the plaintiffs (jointly and severally) to pay the defendants' costs of the proceedings of and incidental to defending both plaintiffs' claims on the ordinary basis in such amount as may be agreed or assessed.
2. Order that the defendants' costs of and incidental to defending the first plaintiff's claims in the proceedings, to the extent that such costs are not recovered under order 1 above, are to be paid by the first plaintiff on the ordinary basis in such amount as may be agreed or assessed.
3. Order that the defendants' costs of and incidental to defending the second plaintiff's claims in the proceedings, to the extent that such costs are not recovered under order 1 above, are to be paid by the second plaintiff on the ordinary basis in such amount as may be agreed or assessed.
4. Order that the second plaintiff (Ali Itawi) withdraw caveat registered number AQ359107 (lodged against the property at 9 Murrumbidgee Avenue, Sylvania Waters, New South Wales, being folio identifier 563/236289) within 14 days.
5. Order that the plaintiffs' solicitors (McEvoy Legal Pty Ltd) do all things reasonably necessary or appropriate to permit all monies in the Controlled Monies Account to paid to the trust account of the defendants' solicitors (being the Antunes Lawyers Law Practice Trust Account). In this order, "Controlled Monies Account" means account number 2560-78163 styled "Margaret Antunes t/as Antunes Lawyers & McEvoy Legal Pty Ltd ITF Jeffrey Alexis Fonseca & The Cleaning Doctor NSW Pty Ltd CMA" held with Macquarie Bank Limited.
6. Order that the freezing orders in order 5 made on 24 May 2019, order 1 made on 28 May 2019, order 1 made on 2 July 2019 and order 1 made on 4 July 2019, as varied by order 3 made on 2 August 2019, are discharged.
7. Orders that the operation of orders 4, 5 and 6 above are stayed until and including:
1. 22 April 2022 if a notice of appeal is filed by the plaintiffs on or before 8 April 2022; or
2. midnight on 8 April 2022 if no notice of appeal is filed by the plaintiffs on or before 8 April 2022.
1. Subject to order 9 below, direct that any application by the first defendant (Jeffrey Fonseca) for orders enforcing the plaintiffs' undertaking as to damages given to the Court on 17 July 2015 be made by notice of motion filed and served by 3 June 2022.
2. Order 8 above shall not apply in the event that the plaintiffs file a notice of appeal on or before 8 April 2022.
3. Note that the money paid into Court by the plaintiffs as security for the usual undertaking as to damages given to the Court on 17 July 2015 remains in Court pending the determination of the first defendant's application referred to in order 8 above.
4. List the matter before Williams J at 9am on 10 June 2022 for directions in relation to any notice of motion filed in accordance with order 8 above.
[6]
Amendments
05 April 2022 - Paragraph [1] - deletion of the word 'on' preceding 'in these proceedings'
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Decision last updated: 05 April 2022