KFS Financial Services Pty Ltd v Abdul Mostamandi

This costs judgment arises out of a contractual dispute over a rental and lease agreement between KFS Financial Services Pty Ltd, the plaintiff, and Abdul Mostamandi and Shaima Mostamandi, the first and second defendants respectively.

Proceedings in the Local Court were heard and determined broadly in favour of the defendants with Magistrate Bradd delivering three judgments on 18 May 2015, 4 December 2015, and 24 May 2016.

By amended summons filed in this Court on 1 June 2016, the plaintiff sought leave to appeal the decisions of the Local Court.

The matter was heard before me on 15 November 2016: KFS Financial Services Pty Ltd v Mostamandi [2016] NSWSC 1797. I made the following orders on 14 December 2016:

On 24 January 2017, the plaintiff sought to have the matter listed in order that the Court might determine two further matters, being the commencement date for s 100 Civil Procedure Act 2005 (NSW) interest, and further orders as to costs relevant to the Local Court proceedings. The latter orders are sought on the basis that the plaintiff served an Offer of Compromise upon the defendant’s prior to the conclusion of the litigation in the Local Court, an offer which was rejected by the defendants prior.

The additional matters are to be determined on the papers and, to that end, the Court made the following orders I set down the following timetable:

Whilst the plaintiff has filed evidence and submissions, the defendants, who live interstate and who are now unrepresented, have not.

The plaintiff, having been successful in this Court on appeal, submits that the commencement date on the s 100 interest attached to the debt should be 1 August 2013, that being the first monthly instalment which was missed under the two agreements by the defendants.

Section 100(1) of the Civil Procedure Act 2005 (NSW) relevantly outlines the basis upon which the Court can include interest on the recovery of debt:

The plaintiff’s amended statement of claim was filed on 9 July 2013 as an originating process to sue the defendants for the breaches of the lease and rental agreements. The plaintiff states that for both agreements, the defendants’ last monthly instalments were made in July 2013. The plaintiff therefore submits that interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) should be calculated from 1 August 2013. The plaintiff calculates this amount to be $16,607.40 using the netlaw calculator.

It is reasonable to calculate interest from 1 August 2013, and I propose to make an order noting that as the commencement date for s 100 interest.

The plaintiff has informed the Court by way of written submissions in these proceedings that the defendants were served by email on 3 March 2014 an Offer of Compromise, which offered to settle the proceedings for $75,000, inclusive of interest and exclusive of costs. Noting that the proceedings in the Local Court began on 23 April 2014, it is accepted that the offer was made in accordance with the Uniform Civil Procedure Rules 2005 (“UCPR”) r 20.26. From the evidence before the Court by way of the affidavit of the plaintiff’s solicitor, Mr David Simons, sworn on 28 February 2017, the Offer of Compromise was not accepted by the defendants.

Rule 42.14 of the UCPR relevantly provides:

The orders of this Court on 14 December 2017 were in favour of the plaintiff and a sum of $78,393.60, together with interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW), was awarded. The s 100 interest being calculated at approximately $16, 607.40, the debt owed to the plaintiff amounts to $95,001.00., that being a judgment which is no less favourable to the plaintiff than the terms of the offer.

The Court’s power to award costs on an indemnity basis is found in the combination of s 98(1)(c) of the CPA and r 42.5 of the UCPR. Section 98 provides:

Whilst the Court has an absolute discretion, the decision to award costs on an indemnity basis should be exercised cautiously (Leichhardt Municipal Council v Green [2004] NSWCA 341; Ng v Chong [2005] NSWSC 385 at [13]) and with careful reasoning (Degmam Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354).

A well accepted benefit of the Court’s ability to award indemnity costs is that it facilitates the just, quick and cheap resolution of matters, promoting, as it is intended to, the settlement of matters outside of the courts, that bringing a significant benefit to the administration of justice

It is accepted that the plaintiff has attempted to settle the matter by way of an offer of compromise, a compromise rejected by the defendants. The rejection of Offers of Compromise and Calderbank letters is the most common basis upon which parties to proceedings seek indemnity costs orders: Nair-Smith v Perisher Blue Pty Ltd (No 3) [2013] NSWSC 176. However, the Court retains a discretionary power under r 45.14(2) to order otherwise than on an indemnity basis in favour of the plaintiff.

The plaintiff is in a position where it is entitled to a special costs order as the successful offeror: Hillier v Sheather (1995) 36 NSWLR 414. It is for the offeree, the defendants in this case, to establish why the plaintiff should be denied its prima facie entitlement to costs: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 at [33]. There is a high threshold requiring there be exceptional circumstances to justify the Court ordering otherwise for a person who has refused an offer of compromise: Nominal Defendant v Hawkins [2011] NSWCA 93 at [49] - [50].

The defendants have not responded in any way to the plainitff’s application, and have not advanced any circumstance, exceptional or otherwise, such that the Court should not order costs on an indemnity basis in accordance with the discretionary power under UCPR r 45.14.

In the absence of any evidence militating against the order sought, I propose to make the orders sought by the plaintiff. The plaintiff’s costs will be paid on an indemnity basis from the relevant date: Jones v Dapto Leagues Club Ltd (No 2) [2008] NSWCA 111. The relevant date is, in accordance with r 45.14, one day after the offer was made, 4 March 2013.

I propose to order the defendants to pay two-thirds of the plaintiff’s costs of the proceedings in the Local Court on a party/party basis as agreed or assessed until 3 March 2013, and thereafter, on an indemnity basis.