Westpac Banking Corporation v Mahabat

1. [1]

   This judgment concerns the costs in respect of proceedings which have otherwise been settled amongst the parties. The background is as follows.

Background

1. [2]

   In about November 2003 Rouhallah Kargarian (the Third Defendant) lent $600,000 to Badi Mahabat (the First Defendant) and Mahabat Mahabat (the Second Defendant) to assist in the purchase of a property at 103 Kensington Park Road, Schofields. The agreement was said to be that Mahabat and Badi would repay Mr Kargarian the $600,000 plus interest on the sale of the property.

2. [3]

   At various times Mahabat and Badi worked in Mr Kargarian’s business. On 8 June 2007 Badi borrowed $562,500 from St George Bank. The loan was guaranteed by Mahabat and Mr Kargarian who signed guarantees on 22 June 2007. On 26 November 2007 the loan from St George Bank to Badi was increased to $750,000. The Schofields property was given as security for the whole loan.

3. [4]

   Badi defaulted on the loan from St George in about October 2012. After Badi failed to comply with demands served upon him, and after Mahabat and Mr Kargarian failed to comply with demands served upon them, Westpac (which by that stage had taken over St George Bank) commenced proceedings claiming possession of the Schofields land and the debt owed.

4. [5]

   On 30 September 2015 Westpac obtained default judgment against Badi for $1,013,111.10 and on 17 October 2013 it obtained default judgment against Mahabat for $942,468.17.

5. [6]

   In the meantime a defence had been filed by Mr Kargarian on 28 August 2013 and a cross-claim had been filed by Mahabat on 8 October 2013 naming Badi as the First Cross-Defendant and Mr Kargarian as the Second Cross-Defendant. The cross-claim sought declarations that the Cross-Defendants were liable to indemnify Mahabat for any liability he had to Westpac, alternatively contribution from them towards that liability.

6. [7]

   On 31 March 2014 Mr Kargarian filed a cross-claim against (relevantly) Mahabat and Badi.

7. [8]

   Mr Kargarian’s defence to the claim by Westpac was amended on 5 March 2014. In that defence he denied knowing anything about the loans or the guarantee until receipt of a letter on 7 September 2011 from HWL Ebsworth who were acting for St George Bank.

8. [9]

   On 3 December 2014 Mr Kargarian paid $975,000 to Westpac and in return took an assignment of the debt and a transfer of the mortgage. On 25 February 2015 Mr Kargarian entered into an agreement with a company called Prosper Property Group Pty Ltd whereby that company paid Mr Kargarian one dollar and in return Mr Kargarian assigned the debt he had obtained from Westpac and transferred the mortgage to Prosper.

Mr Kargarian’s Cross-Claim

1. [10]

   The arrangement with Westpac led Mr Kargarian to file a Further Amended Second Cross-Claim (hereafter called “the Cross-Claim”) against Mahabat and Badi on 4 March 2015. It is necessary, because of the issues raised in the costs argument to set out parts of the relief sought and the pleading in this Further Amended Second Cross-Claim:

2. [11]

   On 26 March 2015 Mahabat filed a defence to the Further Amended Second Cross-Claim. In answer to paragraphs 12 and 14 he did not plead on the basis that the paragraphs contained no allegations against him. In answer to paragraphs 13 and 15 he said that the cross-claimant acquired the rights of the Bank in the judgment of 30 September 2013 (that must have been an error because the judgment against Mahabat was 17 October 2013) but went on to say that Mr Kargarian suffered no loss from acquiring those rights.

3. [12]

   In answer to paragraphs 16 to 22 the essence of Mahabat’s defence contained in paragraphs 15 to 24 of his defence was that the loan he obtained from Mr Kargarian was $110,000.00, that the loan Badi obtained was $490,000 but that the loan of $600,000 was made to them as tenants in common in those shares. Further, the defence asserted that no money was yet due and payable to Mr Kargarian because the agreement was that it was repayable on the sale of the property.

4. [13]

   On 7 April 2015 solicitors acting for Mahabat served a Notice to Admit Facts on the solicitors for Mr Kargarian. The first three facts were these:

5. [14]

   On 21 April 2015 solicitors acting for Mr Kargarian filed a notice disputing paragraphs 1, 2 and 3 of the Notice to Admit Facts.

6. [15]

   On 1 May 2015 Badi filed a defence to the Cross-Claim. To paragraph 12 he pleaded that Mr Kargarian had not suffered any loss. He did not admit paragraph 13. He denied paragraphs 14 and 15 and reiterated that Mr Kargarian had not suffered any loss.

7. [16]

   In answer to paragraph 16 he denied the agreement alleged. He denied paragraph 17, admitted paragraph 18, did not admit paragraphs 19-21 and denied paragraph 22.

8. [17]

   The proceedings on the cross-claim by Mahabat and the Cross-Claim by Mr Kargarian were listed for hearing on 17 and 18 February 2016. On the day I gave leave to the parties to approach the Listing Manager for a hearing date (22 May 2015) I was informed by Mahabat’s then counsel about the assignment from Mr Kargarian to Prosper. The point of the matter being mentioned was that the Cross-Claim claimed relief on behalf of Mr Kargarian when he had assigned the debt and mortgage to Prosper. The solicitor for Mr Kargarian said that he would consider that aspect of the matter to see if a further amendment to the Cross-Claim was needed.

9. [18]

   No application was subsequently made to amend the Cross-Claim. However, Mr Kargarian’s solicitors filed an Notice of Motion and supporting affidavit on behalf of Prosper seeking that Prosper be substituted for Westpac as the judgment creditor in the two judgments. Those orders seem to have been made.

10. [19]

    In the written submissions forwarded on behalf of Mr Kargarian on 15 February 2016 it was acknowledged that the current pleading did not accurately reflect the assignment by Mr Kargarian to Prosper. For that purpose a proposed Second Further Amended Second Cross-Claim was attached to the submissions, such Cross-Claim pleading that further assignment.

The settlement

1. [20]

   At the outset of the hearing on 17 February 2016 I was informed that the proceedings had settled with the exception of the matter of costs. The parties agreed to seven orders contained in Short Minutes of Order as follows:

2. [21]

   I was informed that the one change to those orders was that the rate of 7% in paragraph 7 was reduced to 6%.

The submissions

1. [22]

   Mr Kargarian submitted that he should have his costs of the whole proceedings against Badi and of the cross-claims against Mahabat. He submitted that the agreed orders showed that he had been entirely successful in the proceedings. He submitted that as against Badi he should have his costs of the whole proceedings because it was Badi’s failure to repay the loan he had obtained from the Bank that drew Mr Kargarian as guarantor into the proceedings.

2. [23]

   Mahabat submitted that Mr Kargarian and Prosper Property Group should pay the costs of Mahabat and Badi thrown away by reason of the amendments contained in agreed orders 1 and 2. Those orders concern the further amendment to the Cross-Claim to join Prosper as a cross-claimant. Mahabat submitted that he should have the costs of the Cross-Claim from Mr Kargarian. Mahabat submitted also that he should be entitled to have his costs on Mr Kargarian’s Cross-Claim paid on an indemnity basis from the date of the Notice to Admit Facts up to the present time. This was because the proposed Second Further Amended Second Cross-Claim contained an admission in paragraph 3 that Mr Kargarian guaranteed the indebtedness of Badi to St George Bank whereas that fact had been denied in answer to the Notice to Admit Facts.

3. [24]

   Part 42.8 of the Uniform Civil Procedure Rules 2005 (NSW) provides:

4. [25]

   Badi submitted that he should have his costs of the Cross-Claim from Mr Kargarian because until the proposed present amendment to the Second Cross-Claim Mr Kargarian was liable to fail at least from the time that he assigned his interest to Prosper. Further, Badi submitted that it was not necessary to bring court proceedings in relation to the assignment of the mortgage because as a matter of law the mortgagee had the entitlement that is now reflected in paragraphs 3 and 4 of the Short Minutes of Order. As far as the claim for $600,000 is concerned, what was sought was a judgment for a money sum for that amount. Yet the agreement was, as was acknowledged by Mr Kargarian, that the money was not payable until the land was sold, and the sale has not yet been completed. Accordingly, had the case run, Mr Kargarian would have failed in respect of both matters.

5. [26]

   Mr Kargarian submitted in response to the claim for indemnity costs in relation to the Notice to Admit Facts that the costs concerned relate to the proving of the disputed facts. In that regard all evidence except one affidavit of Mr Kargarian had been served prior to the service of the Notice to Admit Facts. In response to the submissions concerning the $600,000 Mr Kargarian pointed out that there was no admission of the loan of the $600,000 but in fact a denial of it in Badi’s case and an acceptance only by Mahabat of being liable for $110,000.

Determination

1. [27]

   In my opinion the following matters are clearly established:

   1. (1)

      The loan of $600,000 was not due for repayment until the land had been sold, and that has not yet happened;

   2. (2)

      It follows from (1) that the claim for a money judgment of $600,000 in the Cross-Claim was misconceived and doomed to fail;

   3. (3)

      From 25 February 2015 when Mr Kargarian assigned his interest in the Westpac debt and mortgage to Prosper he had no further claim in respect of those matters;

   4. (4)

      It follows from (3) that the claims by Mr Kargarian for declarations and orders relating to the $975,000 paid by him to Westpac were misconceived and doomed to fail.

2. [28]

   Three relevant principles associated with costs should be noted:

3. [29]

   The matters referred to at [27(1) and (2)] above are not determinative in relation to costs. Whilst the relief sought in the Cross-Claim was for a judgment for $600,000 the affidavit evidence of Mr Kargarian was consistently to the effect that the money was lent to be repaid only on the sale of the land (Affidavit of Rouhollah Kargarian sworn 11 February 2014 paragraphs 106, 112 and Annexures “C” and “F”. Further, paragraph 17 of the Cross-Claim correctly pleaded the agreement.

4. [30]

   The error in prayer 7 of the relief claimed in the Cross-Claim must eventually have come to the attention of those acting for Mr Kargarian because in the proposed Second Further Amended Cross-Claim it was corrected in prayers 6 and 9.

5. [31]

   If application had been made to amend prayer 7 of the Cross-Claim at the outset of the hearing I have little doubt but that the amendment would have been allowed. There would have been little or no prejudice to Mahabat who had agreed in any event in his Defence to the Cross-Claim that he had borrowed part of the $600,000 and had said in paragraph 50 of his affidavit sworn 12 June 2014 that the money was to be repaid on the sale of the land. There would have been little or no prejudice to Badi who had at all times denied the agreement for the loan in any event.

6. [32]

   Had Badi acknowledged the $600,000 loan, as he has now done by agreeing to the settlement orders, but resisted payment until the property was sold, Mr Kargarian would not have been entitled to a costs order against him in respect of that part of the claim. He chose to resist any aspect of the claim about that loan. He ought to pay Mr Kargarian’s costs of that part of the claim.

7. [33]

   Mahabat is in no better position. His defence and evidence insisted that he only had liability for some portion of the loan. He now agrees that on the sale of the property the whole $600,000 is payable by him and Badi. Any division of that sum is a matter between him and Badi only. In the first instance Mr Kargarian can enforce the total amount against whomever he wishes. Accordingly, Mahabat should pay Mr Kargarian’s costs of that part of the claim.

8. [34]

   The position with regard to the matters in [27(3) and (4)] above is otherwise. From the time Mr Kargarian assigned the debt and mortgage to Prosper and gave the notice required by s 12 of the Conveyancing Act 1919 (NSW) he could not maintain that part of the proceedings dealing with the payment of the Westpac debt. Despite the Notice of Motion substituting Prosper as the judgment creditor and despite the assignment to Prosper being raised at the Directions Hearing on 22 May 2015, the Cross-Claim proceeded to a hearing with Mr Kargarian claiming the right to the declarations and orders arising out of his payment to Westpac of the $975,000.

9. [35]

   Although a few days before the hearing Mr Kargarian had given notice that he wished to amend to regularise the claim arising from the assignment to Prosper, it is by no means certain that such an amendment would have been allowed, at least without an adjournment if sought, and at least without the payment by Mr Kargarian of Mahabat’s and Badi’s legal costs probably from 25 February 2015 when the assignment was effected. I reject the submission of Mr Kargarian that costs thrown away by such an amendment would be minimal. On this issue, costs expended by Mahabat and Badi from 25 February 2015 were largely wasted because they were defending a claim by Mr Kargarian which was doomed to fail.

10. [36]

    It is doubtful that the evidence in Mr Mitry’s affidavit sworn 12 March 2015 in support of the Motion to substitute Prosper as the judgment creditor and the evidence in Mr Kargarian’s affidavit sworn 26 May 2015 would have been regarded as sufficient to prove the assignment or to amend the Cross-Claim. Hence, there may have been the need for an adjournment of the hearing.

11. [37]

    I accept that all of the evidence dealing with the background to, and the making of, the loans was complete before the payment by Mr Kargarian to Westpac. That evidence would still have had some relevance to the proceedings if Prosper was substituted as Cross-Claimant. Furthermore, Mr Kargarian undoubtedly incurred costs from the claim Westpac made against him as guarantor because Badi did not pay the debt he owed to Westpac.

12. [38]

    As far as the refusal to admit paragraphs 1 to 3 in the Notice to Admit facts is concerned, no explanation has been put forward to justify the denial and the subsequent admission. Mr Kargarian’s position in his affidavit evidence was that he had not signed the guarantees even in the face of witnesses to the signing. Maintaining the denial was odd in that Mr Kargarian voluntarily paid out the debt to Westpac at a time when he was still denying having signed the guarantees. Nevertheless, there is no reason why the Court should order otherwise under r 42.8(2).

13. [39]

    I accept the submission on behalf of Mr Kargarian that for r 42.8 purposes the costs of proving the facts or the preparation for the purpose of proving the facts are likely to be minimal. All of the evidence on both sides about the signing of the documents pre-dated the service of the Notice to Admit Facts.

14. [40]

    Whilst Badi is correct to submit that by paying out the mortgage Mr Kargarian acquired the rights of Westpac as a matter of law, it was, as it transpired, necessary for him to institute the proceedings on the Cross-Claim on that issue. I have already noted Badi’s pleading in relation to this issue ([15] above). The essential matters in paragraphs 12 to 15 of the Cross-Claim were either not admitted or denied by him.

15. [41]

    I consider that the proper approach to the various entitlements of the parties to costs is to be found in what was said by the Full Court of the Supreme Court of Queensland in Thiess v TCN Channel Nine Pty Ltd (No 5) [1994] 1 Qd R 156 at 209:

16. [42]

    When all of these matters are balanced I consider the appropriate order is that Badi should pay 50% of Mr Kargarian’s costs of the proceedings and Mahabat should pay 25% of Mr Kargarian’s costs of the proceedings but to the intent that Mr Kargarian should receive no more than 50% in total from Badi and Mahabat.

Conclusion

1. [43]

   Accordingly, I make the following orders: