Thomas v SMP

Supreme Court of NSW|2010-10-06|Before: Pembroke J

Introduction 1 On 22 September 2010 I delivered judgment in this proceeding, in which the plaintiffs were successful against the fourth defendant. I stated that if the parties wished me to do so, I would hear submissions on interest and costs. Certain other issues have also now been raised. The final paragraph of my judgment foreshadowed provisional orders as follows: Subject to those matters, I propose to make orders that the fourth defendant pay equitable compensation to Mr Thomas and Mr Sullivan in the amounts specified in paragraph [76]. Interest at the rates prescribed under the Uniform Civil Procedure Act (NSW), 2005, compounding, should be calculated from the date of each payment. The claims against Mrs Willett and Mr David King should be dismissed. The fourth defendant should pay the costs of the plaintiffs and of the third and fifth defendants. The plaintiffs should bring in short minutes of order to reflect these reasons. Attention should be given to the position of the defendants `who did not appear. The exhibits may be returned. Costs 2 I will deal first with the costs issues. The court has full power to determine by whom, to whom and to what extent the costs of proceedings are to be paid: s 98(1)(b) of the Civil Procedure Act 2005. In this proceeding, there were 25 hearing days and a number of directions hearings over which I presided. I am therefore uniquely placed to resolve the discretionary questions of responsibility and extent in relation to costs, which are given to the trial judge. The discretion is of course to be guided by reference to accepted and well-recognised principles.

Mr Willett's Financial Position 3 Before turning to the separate positions of the third, fourth and fifth defendants, I should address one general matter. In my principal judgment I adverted provisionally, and subject to hearing submissions, to the "possibility" that Mr Willett may not himself own substantial assets and that it was his general practice to ensure that his wife was the owner of real estate which they both enjoyed. The evidence about this was insufficient to make a finding at the time. In any event, it was not the subject of forensic inquiry and was not an issue for determination. 4 At this further hearing on costs, no cogent evidence was adduced for the purpose of demonstrating that the possibility to which I adverted was the reality. No defendant - but especially Mrs Willett who was obviously in a position to do - chose to put any evidence of unfairness before me in relation to the effect of a Sanderson order. No evidence of Mr Willett's inability to meet the likely judgment, or his current financial position, whether in connection with real estate or other assets and investments, was adduced. No evidence was led as a basis for concluding that a Sanderson order, as distinct from a Bullock order, would result in unfairness to the successful defendants. It can be inferred safely that Mrs Willett, and those advising her, did not consider it desirable to open up the financial position of Mr Willett. I therefore proceed on the basis that the considerations relevant to Sanderson orders, where the unsuccessful defendant is or is likely to be insolvent, do not apply. 5 In any event, the possibility of Mr Willett's insolvency is far from obvious. It would, I think, be unsafe and unwise for me to assume it, especially given his financial sophistication and the predilection for sharp practice which was evident from my findings in the principal judgment. Mrs Willett's submission in fact went so far as to contend that there would be a denial of natural justice if I proceeded on the basis of Mr Willett's possible insolvency without giving her an opportunity to adduce evidence. That opportunity was available but was not grasped. 6 The persons in a position to prove Mr Willett's financial position, and who arguably stood to benefit on the cost issues from a finding that he was or would become insolvent, chose not to attempt to prove what at least Mrs Willett could so readily have done. It will be clear from my principal judgment that my assessment of Mr Willett's integrity and honesty causes me to doubt any submission made on his behalf affecting his financial interests, except where the facts contended for are clearly supported by the evidence and the probabilities.

Mrs Willett 7 Although it was not necessary for me to say so in the principal judgment, the same applies to Mrs Willett, to whose position I will shortly turn. I should add that even if I am wrong, I take the view, for the reasons that follow, that in the circumstances of this case it is more appropriate that any risk in relation to the recovery of costs be borne by Mrs Willett rather than the plaintiffs. 8 Mr and Mrs Willett shared their lives and properties together. I have no doubt that Mrs Willett was fully aware of her husband's investments and business transactions. I also have no doubt that if it is correct that the properties which they enjoy are in Mrs Willett's name, that was the result of a considered decision made by both of them in consultation with each other. I also have no doubt that the monies to purchase family property assets and other investments came from Mr Willett and not from Mrs Willett's earnings from Qantas, whatever they may have been. 9 I formed an adverse view of Mrs Willett. She succeeded in spite of her evidence and the submissions on her behalf. I dismissed the claim against her largely because I could not feel an actual persuasion concerning the representations attributed to her. This was a function of the lengthy period of time since the events in question. The fact that the proceedings had been commenced as long ago as 2003 added to the natural fallibility of the plaintiffs' evidence, the tendency towards reconstruction and the likelihood of unreliability. I also formed the view that, on the balance of probabilities, the conduct attributed to Mrs Willett was not in trade or commerce. 10 Other than a reference to the circumstances in which she came to give her evidence and its overall unpersuasive effect, it was not necessary to say any more about her evidence in the principal judgment than I set out in paragraph [9] of that judgment. However, her submissions in opposition to the proposed Sanderson order now make it appropriate to do so. 11 I did not accept a great deal of Mrs Willett's evidence. Her numerous denials of any knowledge of the circumstances of Mr Thomas and Mr Sullivan were implausible. Her evidence as a whole was unhelpful, unreliable and sometimes, I thought, untruthful. As I said, she succeeded in spite of her evidence. She was in fact closely involved with her husband and knew much more than she was prepared to concede about the affairs of SMP, her husband's promotion of himself as its savior and financial adviser, and his constant extraction of monies from Mr Thomas and, to a lesser extent, Mr Sullivan, to prop up SMP. 12 As I said, the fact that I was not able to be satisfied that the plaintiffs' case was proved against Mrs Willett made it unnecessary for me to make any detailed findings in the principal judgment concerning her conduct or the truthfulness of her evidence. Despite the obvious position of advantage which her husband exercised over Mr Thomas and Mr Sullivan, Mrs Willett's sole concern at the time of the events in question was to advance her own financial interests and those of her husband. Similarly, at the time of the hearing, her sole concern was to protect those financial interests by giving whatever evidence she perceived to be advantageous to her case. 13 Overall, the evidence revealed that Mrs Willett was closely and actively involved in many of the steps and conversations along the way - between the establishment of SSDI in 1988 and the payment of monies to and for the benefit of SMP in 2000 and 2001. She was present at many conversations, supported her husband and encouraged Mr Thomas and Mr Sullivan to make their monies available to Mr Willett or SMP. Procedurally, it hardly seemed necessary that she be separately represented. I queried the need for her separate representation at the first directions hearing over which I presided. Her transparent legal strategy was to attempt to distance herself from her husband. 14 In fact, Mrs Willett's separate representation did not assist me. It included submissions that were not justified by the evidence, cross-examination that was unhelpful and applications that were inappropriate. They included, among others, an application that Mrs Thomas, who provided essential physical assistance to her husband, not be permitted to sit alongside him in his wheelchair while he was giving evidence. Additionally, I informed all defendants prior to the commencement of the hearing that I would not countenance duplication or oppression in the cross-examination of the plaintiffs' witnesses. I expected the legal representatives of the third and fifth defendants to exercise judgment in relation to the time during which they needed to be present in court. This was in fact done, but to a more limited extent than was appropriate, particularly in the case of Mr King's counsel.

Reasonableness of Claim 15 I am quite satisfied that it was reasonable for the plaintiffs to bring the claim against Mrs Willett. I am also satisfied that Mr Willett's conduct made it reasonable for them to do so. As I said in the principal judgment, he was the root cause of the predicament in which Mr Thomas and Mr Sullivan found themselves. Although I ultimately concluded that I could not feel an actual persuasion about the misrepresentations alleged against Mrs Willett, or that her conduct was in trade or commerce, she was inextricably bound up in most of her husband's conduct. The claim against her was substantially connected with the claims against her husband. If it had not been for her husband's conduct, the claims against her would not have been made. There was so much common conduct that she would necessarily have been a witness even if she were not joined as a defendant. I am satisfied that Mr Willett's conduct makes it fair to impose liability on him for the costs of Mrs Willett: Gould v Vaggelas (1985) 157 CLR 215 at 229-230. The relevant considerations explained in Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [16] are established.

16 Furthermore, for the reasons I have explained, there is no proven factual basis for inferring that the effect of a Sanderson order will be to deprive Mrs Willett of her costs. On the facts of this case, the only result will be that Mr Willett will bear the responsibility for, and be required to pay, his wife's costs. That seems to me to be a just outcome, having regard to the width of my discretion and the factors that I have explained. In addition, I should add that I have no doubt that the decision that Mrs Willett be separately represented was a considered decision taken by both Mr & Mrs Willett in an attempt to safeguard their shared property and financial interests. It was not, in my view, necessary. As events turned out, it hindered the efficient conduct of the hearing. 17 Finally, Mrs Willett made a claim for her costs to be paid by the plaintiffs on an indemnity basis. The facts and the evidence do not support such a claim. It would represent an unreasonable outcome. The fact of earlier complaints on her behalf before a registrar or an associate justice about the plaintiffs' pleading do not warrant such an order. The claims against her were not unreasonable. This was never a case where it could be said that the claims against Mrs Willett were untenable and were doomed to fail, especially without hearing the evidence of the protagonists.

Mr King 18 On the other hand, having heard the submissions on behalf of Mr Willett and Mr King, I am satisfied, having regard to the principles that guide the exercise of my discretion, that it would be inappropriate to make an order that Mr Willett pay Mr King's costs. There was no sufficient connection between the claims against Mr Willett and the claims against Mr King which would justify such an order. Furthermore, as I said in the principal judgment, the claims against Mr King always faced difficulties that should have been apparent. 19 This leads me, however, to a related issue. The solicitors for Mr King sent Calderbank letters to the plaintiffs' solicitors on 20 April 2007 and 24 October 2009. Mr King has obtained a better result than would have been the case if the offers contained in those letters were accepted. He is therefore prima facie entitled to indemnity costs. However, I do not think that Mr King should be allowed all of his costs - on any basis. The case against him was discrete and narrowly confined. His legal representatives recognised both its limited scope and the economy with which it could be rebutted. They were able to do so with minimal cross-examination, minimal evidence and minimal submissions. Taken alone, the case against Mr King should have been very short. Many days, even weeks, went by without Mr King's counsel saying anything. In my view, it was not necessary for Mr King's counsel to be present in court for the length of time that he was. It was unnecessary for the legitimate protection of the interests of Mr King. The costs of doing so represent an unfair, unreasonable and inappropriate burden on the plaintiffs. Nothing in the presentation of the plaintiffs' case justified the attendance in court by Mr King's counsel on the many days when nothing was reasonably required of him. There was a significant disproportion between the issues litigated and the time spent in court in relation to the case against Mr King. 20 Given the result and the Calderbank letters, the costs of the claim against Mr King should follow the event and, subject to what follows, Mr King should receive those costs on an indemnity basis. I propose, however, to exercise my discretion to limit and control the extent of those indemnity costs. The costs of junior counsel who represented Mr King should be limited to 10 hearing days. I regard that as a generous allowance. Taken alone, the case against Mr King could have been heard and determined within one to three days. I have allowed a further seven hearing days simply because of the unavoidable overlap caused by the balance of the case against the other defendants. I regard counsel's costs for any more than 10 days hearing as having been unnecessarily incurred. Save for that qualification, the plaintiffs should pay Mr King's costs as agreed or assessed on an indemnity basis from 20 April 2007.

Compound Interest 21 I will hear further submissions on compound interest, including the rate at which it should apply having regard to Practice Note 16. Equity courts have regularly awarded compound interest when justice demanded. That has frequently included cases involving monies misappropriated or wrongly applied by a fiduciary. Simple interest rarely reflects accurately the extent of a plaintiff's loss and almost always under-compensates a plaintiff for the true loss that has been suffered. The disdain of the common law for compound interest is an historical relic that does not represent modern commercial practice: Hungerfords v Walker (1988) 171 CLR 125 at 148-150. See also Westdeutsche Landesbanke v Islington [1996] AC 669. I infer that if it had not been for Mr Willett's unfortunate intervention, Mr Thomas would have received prudent and reasonable advice in relation to the substantial monies he had available for investment. In the ordinary course of events, the income from that investment or investments would have compounded. Mr Sullivan would not, among other things, have borrowed the $500,000, on which his interest obligation also compounded.

Outstanding Amounts 22 There were three outstanding amounts claimed by the plaintiffs which have been the subject of further submissions: (a) The payment by Mr Thomas of $1,306,588 to discharge the NAB overdraft should be included in the amount of the judgment. I referred to the overdraft in paragraphs 53(a) and (f) of the principal judgment. There was no dispute that Mr Thomas paid that sum. In the circumstances it is covered by my findings and it is recoverable; (b) Mr Thomas also made a claim in respect of the proceeds of sale of the Marlo Road properties. The evidence of this was set out in paragraphs 239 to 244 of Mr Thomas' principal affidavit. I accept that evidence but it did not resolve all aspects of this claim satisfactorily. However, it seemed apparent to me that not less than $547,000, which I found had been paid by Mr Thomas towards the purchase price, had been lost by him. That is because it was paid at Mr Willett's direction to SMP or its creditors. The sum of $547,000 should be included in the judgment. Counsel for Mr Willett did not wish to be heard in opposition to this sum. I am not prepared to accept the plaintiffs' claim for $685,000 for this head of damage; (c) I accept the submissions of the fourth defendant set out in paragraphs 26-29 of its written submissions dated 5 October 2010 in relation to the $500,000 loan by Mr Sullivan. The evidence did not go far enough to identify the real loss suffered by Mr Sullivan as a result of that loan. There was no evidence from which I could infer that the capital amount of that loan, as distinct from some of the interest, had been paid in reduction of the loan by SMP or SSDI. There was not even evidence as to whether the loan was an interest only, or principal and interest loan. Nor in fact was there evidence from Mr Sullivan that he actually repaid the loan. This is a case where the prima facie entitlement to damages has been established but a further inquiry is called for in order to establish the quantification of that claim. I will refer to an associate justice an inquiry as to damages arising out of Mr Sullivan's $500,000 loan. That should be carried out consistently with the principles and findings in the principal judgment and should include compound interest. Costs of Mr Sullivan's Affidavit 23 On 26 July 2010 I rejected the whole of the affidavit of Mr Sullivan sworn 15 December 2009. The reasons I gave at the time justify a special costs order. I will order the plaintiffs to pay the cost of the third, fourth and fifth defendants thrown away by the rejection of that affidavit. I add for the benefit of an assessor, if agreement is not otherwise reached, that a great deal of that affidavit constituted factual groundwork that was always necessary to be addressed during the hearing. The form and prolixity of the affidavit led to its rejection, but the content was substantially in play in the proceedings. I do not regard the costs thrown away as constituting a substantial amount.

Stay 24 Counsel for Mr Willett foreshadowed an application for a stay of the judgment against the fourth defendant when final orders were made and entered. I will make final orders today in relation to part of the claim and I will treat a stay application as having been made, at least on a preliminary basis. I made clear during argument that in my absence an application for a stay should be made to the Duty Judge, if so advised. I added briefly, but now repeat, that as this is a money judgment, the well established principles that guide the grant of a stay do not obviously suggest that a stay is appropriate. That is certainly so in the absence of evidence of the inability of the successful plaintiffs to repay the judgment sum. Given that consideration, as well as the nature of the judgment and the nature of the findings against Mr Willett, I would not be disposed personally to grant a stay, absent other evidence. 25 There seems frequently to be a misapprehension that unsuccessful defendants are entitled almost as of right to further time pending an appeal to consider whatever defensive actions they may be advised to protect their assets. The long established general rule is that the judgment below should be presumed to be correct. What follows is that it should usually be enforced. Unless it is apparent that there exist in this case any recognised exceptions to that general rule so as to justify the grant of a stay, my view is that the interests of justice favour the enforcement of the judgment against Mr Willett sooner rather than later. Only then will the commercial consequences and practical realities of the judgment become apparent. Delay in enforcement, just as much as delay in resolution of disputes, is antithetical to the efficient administration of justice. Security for Costs 26 Finally, at some stage in the past Mr Kalyk obtained an order for security for costs in the sum of $250,000 on behalf of his client, the fifth defendant, against the plaintiffs. I do not know what evidence he relied upon for that application. However, I have no reason to think, having heard the evidence during the main hearing, that that application, if made afresh, would be granted. I can see no reasonable basis for an award of security for costs in favour of the fifth defendant notwithstanding that at an earlier stage it was thought appropriate to make that order. No other defendant appears to have sought or obtained security for costs. The plaintiffs now seek the release of their security. Mr Kalyk seeks some form of stay in relation to the existing order for security for costs. Having regard to the findings I have made, it seems inappropriate for me to make the order he requests - whatever it may be. It seems to me to be far more appropriate that the security for costs that the plaintiffs have provided, now be released. The plaintiffs should have returned to them the sum of $250,000 which they have provided by way of security. 27 I do not think that there is any reasonable justification for not releasing the security. The fifth defendant's costs are to be paid by the fourth defendant, not the plaintiffs. Additionally, as I have already observed, I do not regard the costs thrown away by the rejection of Mr Sullivan's affidavit as substantial. Further, I do not regard the evidence that was before me during the hearing as rendering it reasonable that the fifth defendant have security for any of her costs.

Orders 28 For those reasons, I make the following orders: (1) I order that the fourth defendant pay to Mr Thomas $3,326,588. (2) I order that the fourth defendant pay to Mr Sullivan $214,373. (3) I note that I will make orders in relation to the quantification of compound interest on the sums of $3,326,588 and $214,373 on 4 November 2010. (4) I order that there be referred to an Associate Justice an enquiry as to the damages suffered by Mr Sullivan in relation to his loan of $500,000 and the amount of equitable compensation, including compound interest, which should be ordered as a consequence thereof. (5) I order the fourth defendant to pay the costs of the plaintiffs and of the fifth defendant. (6) I order the plaintiffs to pay the costs of the third, fourth and fifth defendants thrown away by the rejection of Mr Sullivan's affidavit sworn 15 December 2009. (7) I order the plaintiffs to pay the costs of the third defendant on an indemnity basis from 20 April 2007 save that the costs of counsel representing the third defendant should be limited to 10 hearing days. (8) I note that the order that the fourth defendant pay the costs of the fifth defendant is subject to the overriding effect of my order that the plaintiffs pay the costs of the third, fourth and fifth defendants thrown away by the rejection of Mr Sullivan's affidavit. (9) I order that the security in the sum of $250,000 be released to the plaintiffs. (10) I order that these orders be entered forthwith. (11) I stand the proceedings over to 4 November 2010 for the determination of the following issues: (a) the plaintiffs' claims against the first and second defendants, who did not appear; (b) the plaintiffs' claim in relation to the two shares in SSDI held by Mr Willett; (c) final orders in relation to compound interest. (12) I make the following directions in connection with the further hearing on 4 November: (a) the plaintiffs should deliver to my Associate any further submissions on which they rely by Friday, 29 October 2010; (b) the defendants should deliver to my Associate any further submissions on which they rely by Tuesday, 2 November 2010.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Thomas v SMP (International) No 5 [2010] NSWSC 1263

Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 CASES CITED : Gould v Vaggelas (1985) 157 CLR 215 Hungerfords v Walker (1988) 171 CLR 125 Westdeutsche Landesbanke v Islington [1996] AC 669

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