JNN Investments Pty Ltd v Francis (No 2)

1. [1]

   I delivered my reasons for judgment in this matter on 12 August 2022: JNN Investments Pty Ltd v Francis [2022] NSWSC 1063. I directed that the parties confer and bring in short minutes which would deal (inter alia) with the question of interest on the amount that I held was owing to the plaintiff.

Interest

1. [2]

   When the matter was relisted for the purpose of making final orders, it became apparent that the parties had a different view about the date that interest should commence to run. The plaintiff submitted that interest ran from the date each of the items of expenditure was paid for by the plaintiff. The defendant submitted that interest commenced to run from the date of the entry into the mortgage on 25 May 2018.

2. [3]

   The defendant’s submission relied on cl 3 of Annexure “A” to the mortgage and cl 10 of the Partnership Agreement.

3. [4]

   Clause 10 of the Partnership Agreement provided:

4. [5]

   Mr Cassimatis of counsel for the defendant relied on the words “at…times to be determined by a majority of the Partners.” He submitted that the time was determined by the entry into the mortgage.

5. [6]

   In my opinion, that approach does not take account of cl 5 of Memorandum Q860000 incorporated into the mortgage which provides:

6. [7]

   Nor does it take into account the course of dealings between the parties. The Principal Sum referred to in cl 1 of Annexure “A” to the mortgage was derived from a type of balance sheet that was marked Annexure “B” to the mortgage. Thereafter, the parties worked on the basis of a spreadsheet with the additional amounts expended being added together with interest on a running basis. The spreadsheet most frequently referred to during the course of the proceedings was one forwarded by Mr Newton of the plaintiff to the defendant on 15 November 2019. Except for one or two items to which attention was drawn during cross-examination, the figures in that spreadsheet were not disputed by the defendant. That spreadsheet includes interest on the expenditure on a running basis.

7. [8]

   However, even putting aside that course of dealing between the parties, if the mortgage was, as the defendant asserts, a compliance with cl 10 of the Partnership Agreement, the terms of the memorandum incorporated into that mortgage makes clear that the parties agreed that the costs and expenses “shall from the time of payment or expenditure thereof…carry interest at such higher rate as may be shown in the schedule to the mortgage”. Clause 3 of Annexure “A” identified that interest at 5% per annum.

8. [9]

   Accordingly, the plaintiff’s submission as to the date at which interest should commence to run should be accepted. Mr Cassimatis accepted that, if the plaintiff’s submission was accepted, the amount of interest of $40,258.52 was the correct figure to 7 September 2022, when orders were made.

Costs

1. [10]

   The parties accepted that, whatever order was made for the payment of costs to the plaintiff, those costs should be paid on an indemnity basis. That was principally because of the provision of cl 5 of the memorandum which identified that the mortgagor was to pay “all costs and expenses, including costs as between solicitor and client”.

2. [11]

   The defendant submitted that the appropriate costs order was that each party should bear its and his own costs on the basis that, as Mr Cassimatis put it, “on a rough mathematical analysis… both parties were 50% victorious in the arguments that they ran”. In my opinion, that considerably overstates the success of the defendant. The defendant was successful only in establishing that expenses which he had incurred on behalf of the partnership were entitled to be offset against the claim made by the plaintiff. The defendant was unsuccessful in having included in that sum the equipment leasing costs. The defendant was also unsuccessful on the two bases upon which he argued that the plaintiff was not entitled to make the demand, that is, unless and until a claim was made by the Australian Taxation Office, and not before 31 March 2023. The defendant was also unsuccessful in arguing that demand made for a higher sum than was owing was an invalid demand.

3. [12]

   In my opinion, no basis is shown for declining to make a costs order on the basis that each party should bear its and his own costs. The only consideration is whether there should be reduction in the costs payable to the plaintiff by reason of the defendant’s success on the issue of being able to offset the expenses he incurred.

4. [13]

   The principles concerning apportionment of costs are set out in a number of authorities including Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]-[25]; Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [10]-[12]; Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [16]-[20]; and Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [40]-[42]. They do not need to be repeated here except to note that where there is a mixed outcome in proceedings the matter ultimately depends on matters of impression and evaluation: Bostik at [38], Sze Tu v Lowe (No 2) at [40] and Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 (approved in Sydney Ferries v Morton (No 2) at [10]).

5. [14]

   Mr Altan of counsel for the plaintiff submitted that different considerations apply in claims by mortgagees for breach of obligations under the mortgage. He submitted that whether or not there is an express provision in the mortgage for the mortgagee to recover all of its costs, such a right exists even when the mortgage does not contain such a clause. He submitted, moreover, that even where the mortgagee has been unsuccessful on one or more issue, that should not deprive the mortgagee of its costs.

6. [15]

   In Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 Hodgson JA (with whom Handley and Stein JJA agreed) said:

7. [16]

   In JKAM Investments Pty Ltd v Damien (No 2) [2022] NSWSC 763 Slattery J said:

8. [17]

   It was submitted that there was some inconsistency between what was said in Overton and what was said in JKAM Investments. I do not agree. Overton does not state any absolute rule entitling a mortgagee to its costs regardless of the claim made where the claim in unsuccessful.

9. [18]

   In Overton, Hodgson JA at [62] appears to exempt from the right of a mortgagee to recover costs for the pursuit of amounts which the mortgage on its true construction does not include. In a similar way, Fisher & Lightwood’s Law of Mortgage (Lexis Nexis, 3rd Australian Edition 2014) says at [40.13]:

10. [19]

    Moreover, r 42.25 of the Uniform Civil Procedure Rules 2005 (NSW) provides:

11. [20]

    The defendant raised the issue of the offset of expenses incurred by him from the outset of the trial in his opening written submissions. That was why the Referee was asked to calculate those expenses in addition to those claimed by JNN.

12. [21]

    In the light of my findings at [55] to [58] of the principal judgment, JNN should not have pursued its claim that the defendant was not entitled to set-off against what was owing to JNN the amounts Mr Francis had expended. As those findings make clear, JNN’s basis of calculating what was owing to it always accepted the offset. That was how the “Principal Sum” referred to in the mortgage was calculated. Mr Newton acknowledged a number of times in his evidence that the arrangement was that the parties were to make equal contributions. In all of those circumstances it was not reasonable for JNN to adopt the approach it took to the defendant’s expenses.

13. [22]

    The matter was significant in terms of what was found to be owing to JNN by the defendant. It was not, as the plaintiff says in its submissions a “small offset”. I do not consider that the fact that each party was ordered to pay 50% of the Referee’s costs is a relevant consideration. In those circumstances the defendant should pay 80% of the plaintiff’s costs on an indemnity basis.