Koprivnjak v Koprivnjak (No 2)

1. [1]

   On 16 May 2022, I published reasons for judgment in this matter (Koprivnjak v Koprivnjak [2022] NSWSC 586), which involved a dispute between John Koprivnjak (the plaintiff) and his daughter, Natalie Koprivnjak (the defendant) in relation to ownership of a property at Shoal Bay.

2. [2]

   The plaintiff’s primary claim was that the defendant held the property on trust for him by reason of his contributions to the purchase price, and deposits of money into the defendant’s bank account, which were used by the defendant towards the mortgage and costs of maintaining the property. I found that the plaintiff’s intention was to loan and gift money to his daughter, rather than to set up a trust. Significant to this finding was documentation created by the plaintiff, including a mortgage over the property, recording a loan of $75,000 to the defendant. In short, the defendant had substantial success and the plaintiff had failed. Nevertheless, I found that the defendant is obliged to comply with the mortgage covenants and pay the plaintiff in accordance with those terms.

3. [3]

   The parties were unable to agree on the appropriate terms of final orders and brief submissions have since been filed, which are considered below.

4. [4]

   The disagreement concerns:

   1. (1)

      The calculation of interest under the mortgage covenants;

   2. (2)

      The appropriate costs order, including whether a special costs order ought to be made in favour of the defendant;

   3. (3)

      Whether a stay ought to be granted to either party;

   4. (4)

      Whether any costs order made against the plaintiff ought to be set-off from the sum the defendant was obliged to pay the plaintiff.

Judgment sum including interest

1. [5]

   There is no dispute that the plaintiff is entitled to $75,000 (the principal sum under the mortgage dated 18 November 2011), and interest at the rate of 8% per annum. However, the calculation of the interest payment is not agreed.

2. [6]

   Under the mortgage, the defendant was obliged to “pay to the [plaintiff] the principal sum … upon completion of sale of the land” and to “pay interest on the principal sum or on so much thereof as for the time being shall remain unpaid … at the rate of 8.0% per annum … with interest computed from the date of the initial advance to be made on the repayment date…”. It is not in dispute that the initial advance was on 21 October 2011.

3. [7]

   The defendant contends that interest should be paid until the date of completion of the sale of the property on 22 December 2020. The defendant places reliance on the terms of Consent Orders made by the Federal Circuit Court on 16 December 2020 (discussed further below), which required the net proceeds of sale to be held in a controlled monies account and to have been available to pay any amounts due under the mortgage to the plaintiff since that date. Calculated this way, the interest payable is $55,084.93.

4. [8]

   The defendant asserts that, in circumstances where an offer has been made for payment but rejected, interest should not accrue beyond the date that the net proceeds of sale were available for distribution. Further, the defendant says her means of paying the mortgage and interest were taken away from her by the agreement to hold the sale proceeds in a controlled monies account.

5. [9]

   I note that section 100(1) of the Civil Procedure Act 2005 (NSW) (CPA) provides a discretion concerning interest up to judgment as follows:

6. [10]

   I do not accept the defendant’s submissions. I agree with the plaintiff’s submission that the payment of interest under the mortgage is contractual, and, therefore, it did not turn on my findings in the principal judgment. If the defendant wished to pay out the mortgage, she was obliged to tender the amount due, not merely offer to compromise legal proceedings. For example, she could have paid the loaned sum plus interest into court and notified the plaintiff before he commenced proceedings. Had she done so, she could have pleaded a defence of tender in accordance with r 14.25 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). The Court could have, in exercising its discretion as to costs, considered both the fact and amount of that payment under UCPR r 42.22. Alternatively, the defendant could have sought the agreement of the plaintiff that holding the sale proceeds in a controlled monies account ended the obligation to pay interest.

7. [11]

   The plaintiff has calculated interest payable until 26 May 2022 as $63,567.12, increasing by $16.43 per day thereafter. The defendant did not question that calculation. Therefore, interest is payable until the date of this judgment, which using the additional daily figure, amounts to the sum of $63,797.14.

Costs

1. [12]

   In relation to costs, the plaintiff submits that, while he did not succeed in his primary case, he did succeed in his alternative case based on the mortgage; and, prima facie, costs follow the event of that alternative case. However, the defendant always pleaded that the mortgage was enforceable and made submissions before and during the trial that she accepted she was liable to pay $75,000 from the proceeds for sale. She did not reject the suggestion that interest was also payable. Therefore, there was no dispute on the mortgage issue, and the litigation could have been avoided, had the plaintiff elected not to agitate his primary case. The plaintiff failed on that primary case which was contentious and that justifies a costs consequence.

2. [13]

   The defendant seeks a special costs order based on one of two offers she made, which the plaintiff did not accept:

   1. (1)

      An offer dated 25 November 2019 to pay $150,000 from the net proceeds of the sale to the plaintiff. That amount exceeded the amount due under the mortgage at that time and now.

   2. (2)

      An offer dated 25 November 2021, said to be made under UCPR Part 20, Division 4, whereby the defendant offered to pay the plaintiff $249,684.29, an amount that significantly exceeded the amount due under the mortgage, including interest, at that time and now.

3. [14]

   Before these proceedings were commenced, the plaintiff and his former wife were involved in legal proceedings in the Federal Circuit Court concerning financial settlement orders under the Family Law Act 1975 (Cth) and the property separation in connection with their divorce. In 2019, the defendant was joined to those proceedings because she was the registered proprietor of the Shoal Bay property, and the plaintiff claimed it was part of the pool of assets of his former wife and him.

4. [15]

   On 27 September 2019, consent orders were made to reflect an agreement by the plaintiff, defendant, and the plaintiff’s former wife that the dispute concerning the property would be settled on the bases that:

   1. (1)

      The property would be sold; and

   2. (2)

      The proceeds of the sale would be held in a solicitor’s controlled monies account until the resolution of the dispute between the plaintiff and defendant in this Court.

5. [16]

   The defendant made the 25 November 2019 offer during the Federal Circuit Court proceedings with reference to s 117(2) of the Family Law Act 1975 (Cth). The defendant offered to pay the plaintiff $150,000 from the net proceeds of the sale, in full and final settlement of the plaintiff’s claim for an interest in the property, on the condition that each party pay their own costs. The offer was not accepted.

6. [17]

   Recently, Ward P summarised the well-known principles in relation to costs in Abdi v Abdi (No 2) [2022] NSWSC 582 at [19]-[30] (citations omitted):

7. [18]

   Significantly, her Honour continued in relation to principles concerning Calderbank offers:

8. [19]

   The plaintiff has not made any submissions about any of the factors identified by Ward P in relation to Calderbank offers. Instead, the plaintiff submits that the defendant cannot rely on the 2019 offer to support a claim for indemnity costs because the offer was made in other proceedings, and the detail of those proceedings is not before this Court.

9. [20]

   Having regard to the principles governing costs awards, it is relevant that the express terms of the 2019 offer demonstrate that the parties’ positions in the Federal Circuit Court proceedings were exactly the same as those in this Court. Further, an offer made before the commencement of proceedings can be taken into account by the Court in relation to the exercise of its discretion on the question of the costs of the proceedings: Au v Berlach (No 2) [2022] NSWSC 228 at [8] (Kunc J). An offer is not invalidated by the fact that it is made before the filing of pleadings: Ismail v NSW Land & Housing [2014] NSWSC 1434 at [12] (Button J).

10. [21]

    The fact that the offer was made in the earlier proceedings which were resolved by consent orders does not, in my view, render it irrelevant to the Court’s costs discretion in the instant case. In Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404, Gleeson CJ and Priestley JA stated (at 409-410):

11. [22]

    While in Ettingshausen the offer was made before the first trial and reliance was placed on it at a retrial limited to damages ordered after an appeal, I consider the principle stated of general relevance.

12. [23]

    The claim in the Federal Circuit Court proceedings concerned the respective entitlements of the plaintiff and defendant to the Shoal Bay property, as demonstrated by John lodging a caveat over the land to reflect his interest “by virtue of resulting trust”: Koprivnjak v Koprivnjak [2021] NSWSC 183 at [12] (Robb J). The defendant’s making of the 2019 offer was directly related to that claim and directed toward “full and final settlement of the plaintiff’s claim for an interest in the property”. Accordingly, the 2019 offer should be seen as “not a compromise of a hearing, or of one round in a bout of litigation” (Ettingshausen at 408), but rather, an offer made in respect of the claim generally. That offer was not exhausted after the consent orders were entered in the Federal Circuit Court and that Court had no jurisdiction to determine the remaining issues: Koprivnjak v Koprivnjak [2021] NSWSC 183 at [18] (Robb J).

13. [24]

    Accordingly, I do not consider there to be any difficulty in considering the terms of the 2019 offer here for the purposes of a special costs order. If the plaintiff had accepted the 2019 offer, there would have been no need for these proceedings concerning the ownership of the property.

14. [25]

    Further, my findings in the principal judgment are substantially the same as the facts and circumstances set out in the defendant’s 2019 offer. The terms of the offer were more favourable to the plaintiff than the award he will receive pursuant to this judgment because the quantification of interest in November 2019 together with the principal sum of $75,000 would have been less than $150,000, and, as a result of my judgment, the plaintiff now has an adverse costs order, which he could have avoided.

15. [26]

    In terms of the unreasonableness of the plaintiff’s rejection of the offer, the only submission made by the plaintiff is that the offer was made on the basis that “each party pays its own costs”, and, therefore, it is not possible for the Court to know whether rejection of the offer was unreasonable. I do not consider that the form of the offer would have affected the plaintiff’s ability to assess the real value of the offer, because the plaintiff should have been well able to make a reasonable estimate of his own costs: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [144] (Basten JA, with whom Beazley JA agreed).

16. [27]

    The offer adopted the formula of the terms of the mortgage covenants, namely that the loan was to be repaid upon completion of the sale of the land. Indeed, on 27 September 2019, the parties agreed to the Federal Circuit Court consent orders which required that the property would be sold at a public auction with a reserve price of $730,000 within a specified timeframe, and that all the net proceeds of sale would be held in a controlled monies account pending further agreement between the parties. As a result, the plaintiff knew that the property was to be sold and that he would receive payment in a known timeframe, and this is relevant to the question of the plaintiff’s unreasonable rejection of the offer.

17. [28]

    On balance, I consider that it was unreasonable for the plaintiff to have rejected the defendant’s 2019 offer, and it follows that the plaintiff ought to pay the defendant’s costs of these proceedings on an indemnity basis from 25 November 2019.

18. [29]

    As an alternative, the defendant submits that the plaintiff should pay the defendant’s costs on an indemnity basis due to the plaintiff’s rejection of an offer of compromise made pursuant to UCPR r 20.26 on 25 November 2021. While strictly it is not necessary for me to decide based on my reasoning above, I consider the effect of the 2021 offer below.

19. [30]

    The plaintiff submits that this offer is not an offer of compromise within the rules because it is not exclusive of costs, as required by UCPR r 20.26(2)(c). The plaintiff says that the offer embraces the plaintiff’s claim for costs as it was an offer “in full and final settlement of all the claims made by the plaintiff in the proceeding”.

20. [31]

    In reply, the defendant says that the reference in the offer to “full and final settlement of all the claims made by the plaintiff in the proceeding” is the statement required by UCPR r 20.26(2)(a). The defendant submits that “costs” are not a claim in the proceedings but rather an entitlement that may be awarded at the discretion of the Court, citing CPA ss 98(1)-(2).

21. [32]

    I accept the plaintiff’s submission on this point. An offer expressed as ‘in full and final settlement’ is properly construed as an “all in” offer, inclusive of costs: Victorian Education Foundation Ltd v AC Hall Airconditioning Contracting Pty Ltd [2013] VSCA 32 at [24]-[27] (Priest JA, with whom Neave JA agreed). Therefore, the offer was not a valid offer of compromise within the rules.

22. [33]

    However, it is possible to consider such offers as a Calderbank offer. The plaintiff argues against the validity of the offer on the basis that it is inclusive of costs and, therefore, it cannot be relied upon unless the offer is known to exceed the combined total of damages and costs of a plaintiff: Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [144] (Basten JA, with whom Beazley JA agreed).

23. [34]

    The offer was for $249,684.29. I have found that, as at the date of judgment, the sum of $138,797.14 (including interest) is payable by the defendant, which leaves an amount of $110,887.15. However, the amount of interest payable would have been less as at the date of the offer. In the absence of any evidence from the plaintiff to the contrary, I find it highly unlikely that the plaintiff’s reasonable costs for the relevant period could exceed this sum. Therefore, I consider the offer ought to be considered a valid Calderbank offer, despite being inclusive of costs.

24. [35]

    In terms of the unreasonableness of the plaintiff’s rejection of the offer, the plaintiff submits that inclusive offers make it difficult or impossible to know whether rejection of the offer was unreasonable. Following my above reasoning, that the offer was made on a costs-inclusive basis does not, in my view, mean the plaintiff was not unreasonable in rejecting the offer. The defendant was offering to repay the whole of the loan under the mortgage covenants, together with a sum of more than $110,000 towards the plaintiff’s costs, in circumstances where the hearing had not commenced, and the evidence was only lay witnesses and primarily evidence from the plaintiff.

25. [36]

    Judging the 25 November 2021 offer in the context discussed above, and without regard to the 25 November 2019 offer, I would have ordered the plaintiff pay the defendant’s costs on an indemnity basis.

Stay of Orders

1. [37]

   Separately the plaintiff and the defendant seek a stay of the orders.

2. [38]

   Blandly, the plaintiff seeks a 28 day stay of the orders merely to allow him to “consider his position”. Without some evidence or argument, there is insufficient evidence to demonstrate that this is an appropriate case to warrant exercise of the Court’s discretion to award a stay of the orders: Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 at 694-695 (Kirby P, Hope and McHugh JJA). Accordingly, the stay of orders sought by the plaintiff is refused.

3. [39]

   Meanwhile, the defendant also seeks a stay of the payment of any monies to the plaintiff pursuant to CPA s 135(2)(c) and an order that the defendant’s costs, once agreed or assessed, be paid from the plaintiff’s entitlement.

4. [40]

   The defendant submits that the stay is appropriate as the proceeding concerns the parties’ entitlements to receive the net proceeds of the sale. The defendant contends that if the plaintiff had accepted the defendant’s offers, the parties could have accessed their share of the proceeds as early as 22 December 2020 and avoided significant legal costs. It is said that the defendant is entitled to be compensated for her costs that ought not to have been incurred and she should be indemnified from the proceeds of sale.

5. [41]

   The plaintiff submits that this course of action would amount to a freezing order and opposes the stay, and also says that the defendant has no property in the monies owed to the plaintiff and no right to prevent him having access to it.

6. [42]

   In support of the defendant’s case that costs should be paid out of the plaintiff’s entitlement to the monies, she relied on Latoudis v Casey (1990) 170 CLR 534. I do not consider Latoudis to be helpful to the specific task at hand. It concerned the award of costs by a court of summary jurisdiction in criminal proceedings and general principles concerning the compensatory purpose of costs awards. Latoudis does not relate to the circumstances in the instant case, where a defendant claims an entitlement to be compensated for costs out of a sum the defendant must pay to a plaintiff.

7. [43]

   Kunc J set out the principles in relation to the Court’s discretion to make a set off order in Al Maha Pty Ltd v Coplin (2018) 19 BPR 38951; [2018] NSWSC 1623 at [60]:

8. [44]

   I do not consider that it is appropriate in this case to exercise the Court’s inherent jurisdiction to make an order to permit set off as between the judgment sum in favour of the plaintiff and the costs order in favour of the defendant.

9. [45]

   I do not consider it is in the public interest, nor in the efficient administration of justice. Further, there is no demonstrated absurdity or injustice which ought to be prevented here, and there is no evidence regarding the solvency of the parties. Any order permitting set off would only cause delay to the finalisation of these proceedings.

10. [46]

    I accept the plaintiff’s submission that the defendant has no property in the monies payable to the plaintiff from the controlled monies account. The effect of the unregistered mortgage was to create an equitable charge over the property. I do not consider it appropriate to make any determination in relation to the priority of the plaintiff to his entitlement and to restrict the plaintiff’s access to the monies. Accordingly, no order for set off is made and, therefore, no stay is granted to the defendant.

Orders

1. [47]

   The Court orders that:

   1. (1)

      The money held in the controlled monies account under the sole control of Fordham Lawyers, as required by Order 2(i) of the Orders made on 16 December 2020, be distributed to the parties in the following way as soon as practicable:

   2. (2)

      The plaintiff’s claim is otherwise dismissed.

   3. (3)

      The plaintiff pay the defendant’s costs of and incidental to these proceedings on an indemnity basis.