Pending Appeal : New South Wales District Court CITATION: Ferizis v Nash [2007] NSWDC 109 HEARING DATE(S): 16 May 2007 JUDGMENT DATE: 18 May 2007 JURISDICTION: Civil JUDGMENT OF: Rein SC DCJ DECISION: See [10], [21], [24] and [30]. CATCHWORDS: Claim for interest on basis of option deed - Issue of construction - Claim for indemnity costs and for former solicitor of defendants to pay plaintiff's costs - Application for a stay refused LEGISLATION CITED: Civil Procedure Act 2005, s 100 District Court Act 1973, ss 51, 128 Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 CASES CITED: Harrison v Schipp [2001] NSWCA 13 Jeans v Bruce [2004] NSWSC 758 Oshlack v Richmond River Council (1998) 193 CLR 72 Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299 Toll (FGCT) Pty Ltd (Formerly Finemores GCT Pty Ltd) v Alphafarm Pty Ltd [2004] HCATrans 13 George Ferizis (plaintiff) PARTIES: Christine Nash (first defendant) Graham Vaughan (second defendant) FILE NUMBER(S): 2804/05 Mr R Parsons (plaintiff) COUNSEL: Mr M Maxwell (first defendant) Second defendant in person SOLICITORS: Merewether & Co Solicitors (plaintiff) JUDGMENT 1 On 27 April 2007 I handed down judgment for the plaintiff in the amount of $500,000 exclusive of interest and directed the parties to bring in calculations of the interest. I published my reasons, which should be read in conjunction with these reasons, and I shall use the same abbreviations. I also stood over the question of costs at the request of the parties until 16 May 2007, and directed submissions on the issues of interest and costs. 2 On 16 May, Mr R Parsons of counsel appeared for the plaintiff, Mr M Maxwell of counsel appeared for Nash, and Mr Vaughan appeared in person. 3 Written submissions were provided by Mr Parsons and, although late, by Mr Maxwell and Mr Vaughan. Mr Vaughan, in addition to his own submissions, adopted the submissions of Mr Maxwell. 4 Mr Maxwell's submissions raised the question of a stay. Interest 5 Clauses 19 and 20 of the Option Deeds, which deal with the obligations of LNG and PED to pay interest and repay the option fee, are in the following terms: " 19. Interest on the Option Fee 19.1 The Purchaser acknowledges that the Vendor will release the Option Fee to the Borrower forthwith. 19.2 The Vendor agrees to pay the Purchaser interest on the Option Fee ("interest") calculated at the rate of twenty per centum per annum (20% p.a.) from the date of this Deed until the date on which the Purchaser exercises the Call Option. Upon the exercise of the Option the interest accrued shall be credited towards the purchase price. 20. Repayment of Option Fee 20.1 At any time after the expiration of eleven (11) months from the date of this Deed the Grantee may give the Grantor written notice that the Grantee requires the Option Fee to be repaid to the Grantee on a date which is not less than thirty (30) days after the date of such notice ("the Repayment Notice"). 20.2 On or before the date specified in the Repayment Notice the Grantor will pay or procure the payment to the Grantee of the Option Fee and the Interest up to the date of such payment ("the Repayment Amount"). 20.3 On receipt of the Repayment Amount the Grantee will relinquish and surrender all rights to the Call Option. 20.4 If the Grantee has given a repayment Notice requiring payment of the Option Fee prior to the Option Expiry Day but does not receive the Repayment Amount on or before the Business Date immediately prior to the Option Expiry Date then on and with effect from that day this Deed shall be varied so that the Option Expiry Date is extended to the date on which the Grantee receives the Repayment Amount." 6 The plaintiff seeks interest pursuant to clause 20.2 and in the alternative pursuant to s 100 of the Civil Procedure Act 2005. In submissions, Mr Parsons accepted that the claim for interest under clause 20.2 could only be on the basis of simple interest. The plaintiff's calculations of these amounts, $384,931.50 (for interest) and $174,808.20 (under s 100), are accepted as correct to 26 April 2007. 7 The defendants do not dispute that the plaintiff is entitled to interest under s 100, but do dispute the plaintiff's entitlement under clause 20, asserting ambiguity and relying on the principle in Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 that a guarantee is to be read strictly and construed in favour of the surety, approved in Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549. 8 The argument is that interest is dealt with in clause 19 and the rate specified in that clause (ie 20%) is applicable only to interest where the option is exercised. Clause 20, it is pointed out, does not specify a rate of interest and therefore interest cannot be awarded. 9 Mr Parsons responds to this by pointing to the fact that interest is defined in the first part of clause 19. It was agreed that the words "the Interest" in clause 22 should be seen as having been defined as "interest" in clause 19.2, but the defendants argue that it can only have meaning in the context of clause 19. 10 I have referred in the previous reasons to the poor drafting of the Option Deeds and this is yet another example of it, but I think, having regard to the matters referred to in the earlier reasons and adopting the approach that the Court should strive to give meaning to a contract that had been entered into by the parties and acted upon, the reference to "Interest" in clause 20 must be read as a reference to interest calculated at 20% per annum from the date of the Deed to the date the capital $500,000 was paid. No other interpretation makes sense since it is beyond doubt that interest was to be paid even if the option was not exercised and 20% was the agreed rate (see para 12 of Ferizis' first affidavit). In this case that equates to judgment entered ie 27 April, ie the agreed amount of $384,931.50. Nothing was said about jurisdiction of the Court to enter a judgment in excess of $750,000 but presumably this is because of s 51(2) and (4) of the District Court Act 1973 which allows the Court to impose judgment in excess of $750,000 where there has been no objection to jurisdiction prior to three months before the hearing for an amount up to 50% beyond the $750,000 figure. I will therefore enter judgment on the claim for interest for the plaintiff in the further amount of $384,931.50. Indemnity Costs 11 The general rule is that costs are awarded to the successful party on a party/party basis, now referred to as "the usual basis", and the successful party seeking a different order must establish that the discretion to order indemnity costs ought be exercised, a discretion which "will not be lightly exercised": per Einstein J in Jeans v Bruce [2004] NSWSC 758. 12 The plaintiff relies on Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 and the defendants rely on Harrison v Schipp [2001] NSWCA 13 per Giles JA at [132], Handley and Fitzgerald JJA concurring, and Jeans v Bruce [2004] NSWSC 758 at [37]. 13 In Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358, there is the following passage: "The next question therefore is whether there is a case made out for a special order. I think that there is. I do not wish to repeat what I had to say, in my reasons for judgment, about the merits of the defences and causes of action put forward by the defendant or the manner in which she conducted herself in the course of the litigation and in the witness box. It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant. As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues." 14 In Harrison v Schipp [2001] NSWCA 13, the Court of Appeal set aside an indemnity costs order that had been made by the trial judge because of the defendant's unconscionable conduct and breaches of fiduciary obligations which were held not to be matters that justified the making of an indemnity costs order, and drew a distinction between that situation and the situation in Degmam. It would follow that finding that the defendants had engaged in misrepresentations about their status as directors of LNG would not be matters that could be taken into account on costs. The Court also said at [137]: "… It is true that evidence of Messrs Cameron and Harrison was not accepted, indeed they were found to have given false evidence and propounded false documents. But I do not think there was delinquency approaching that considered to justify a special order as to costs in Degmam Pty Ltd Pty Ltd (in liquidation) v Wright (No 2) , or that departure from the ordinary basis on which costs should be assessed between litigants was otherwise warranted." 15 A general and helpful statement about the categories of cases in which indemnity costs orders can be made and the importance of consideration of the specific facts is found in Sheppard J's judgment in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234; 118 ALR 248 at 257: "… it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo ); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata ) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata ); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis." 16 Colgate was referred to with approval in Harrison. 17 It is clear that Sheppard J did not regard the categories of cases in which indemnity costs could be properly ordered as closed, but the examples he gave provide a useful guide to the type of considerations which would make such an order appropriate. 18 In Jeans, Einstein J made reference to a number of cases, including the judgment of Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 89, but also to the words of Malcolm CJ in Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299, in which he said orders for payment of costs on an indemnity basis are "normally made in circumstances where the conduct of a party against whom such an order has been made in connection with the litigation has been deserving of criticism". He held that the forgery conspiracy theory advanced by the defendants was altogether too far fetched and that the case was so far from being of substance and raised such serious but unfounded allegations as to warrant an indemnity costs order in so far as the plaintiff's costs of litigating were concerned. His Honour estimated that 50% of the hearing time was concerned with those issues. 19 I have found that Nash's assertions that she had no reason to give a guarantee were false (at [40]) (supported by Vaughan in his evidence) as was her assertion of ignorance about the guarantees (at [46]), and that the "acknowledgment of receipt" version of events was implausible: see [39]-[40]. Most of the hearing was spent in Mr Parson's cross examination of Vaughan, Nash and Lahood, which contrary to the submissions of Mr Vaughan, although the cross examination was very lengthy, it was entirely appropriate in my view, and was made lengthy by the evasive and unsatisfactory character of the defendants' evidence in support of a defence that was without foundation. I exclude from my considerations the finding of misrepresentation by Nash and Vaughan of their status as directors of LNG as I am required to do by virtue of Harrison v Schipp, but in my view this case is one in which an indemnity costs order is appropriate. 20 It was conceded by Mr Parsons that the construction issues could not be the subject of an indemnity costs order and there were submissions made about how long was spent on that part of the case. Mr Maxwell argued that all of the evidence led by Nash in her case (ie that of herself, Vaughan, and Lahood), would have been relevant to construction and arose because of the ambiguity of the clause and the absence of completion of the schedule. The High Court has fairly recently reaffirmed its view of the objective theory of contract in Toll (FGCT) Pty Ltd (Formerly Finemores GCT Pty Ltd) v Alphafarm Pty Ltd [2004] HCATrans 13. If the basis upon which the four signature page was signed had not been put in issue as it was, most of the time taken up in the hearing would not have been necessary. I think that the case involving construction alone would very likely have finished within one to two days. To err on the side of caution I would treat nine days of the hearing as having been brought about by reason of the other defences maintained by the defendants. 21 In my view, it is appropriate that the defendants pay 9/12 of the hearing costs on an indemnity basis and the balance of costs on the usual basis. 22 The plaintiff originally pressed for costs of the abandoned cross claim on an indemnity basis, but that was not pressed during submissions. 23 The plaintiff also sought an order that Mr Velik, the defendants' former solicitor, be ordered to pay the defendants' costs. The defendants joined in that application but accepted that the solicitor would need to be given notice of the application. 24 The basis of the application was that on the evidence of the defendants, Mr Velik had not acted with appropriate skill and care in preparation of the defendants' defence and affidavits. In my view, whatever may be the position as between Mr Velik and the defendants (and as to which I express no view), the matters advanced could not provide a proper basis for an order against him that he pay the plaintiff's costs of the proceedings on an indemnity basis – it not being suggested by anyone that he had been involved or promoted the putting before the court of evidence which he knew to be false. Stay 25 Mr Maxwell sought a stay on behalf of Nash, as did Mr Vaughan, pending an appeal. No evidence was led on that application. No cases were cited and no reference was made to the s 128 of the District Court Act 1973, which provides a basis for a stay but seems to require payment into Court if the stay is to extend until hearing of the appeal. I draw the principles to be applied from the notes to SCR 51.15.20 in Thomson's "NSW Civil Practice and Procedure" (J P Hamilton and G Lindsay) (to which reference was in a broad fashion made) that: (1) It is not necessary for an applicant for a stay to establish special or exceptional circumstances but rather that it is an appropriate case for a stay. (2) The applicant has the onus. (3) The applicant must establish that the appeal raises serious issues. (4) The applicant must establish that there is a real risk that if the stay is not granted the appellant will suffer damage or prejudice that will not be redressed by a successful appeal. (5) If the preconditions (1)-(4) are met, the Court will then consider the balance of convenience. 26 Mr Maxwell put two matters before me as relevant to the stay: (1) he said that Nash and Vaughan were impecunious; (2) he said that Mr Ferizis is a trustee, and if he received the judgment monies and disbursed them, there was a risk that the defendants, if successful on appeal, would not be able to recover money from the beneficiaries. 27 So far as the second argument is concerned it was conceded in argument that Mr Ferizis would be liable to repay any judgment should he succeed in obtaining any funds, irrespective of whether he had dispersed funds to the plaintiff or defendant, and there was no argument advanced that he would not be able to meet any order that he refund the monies received on enforcement should an appeal brought by Nash or Vaughan be successful. 28 So far as the first point is concerned, although there were statements made during the course of the hearing that suggested that neither Vaughan or Nash had much money, there was no evidence presented on this application of the present assets and liabilities of the defendants. As Mr Parsons pointed out there was evidence in the substantive hearing from Nash that she does have some interest in property. 29 I was informed on an earlier occasion of the existence of other proceedings in the Supreme Court against the defendants. Those other proceedings were apparently adjourned in February of this year and have not yet been heard. 30 In my view, in the absence of clear and credible evidence from the defendants that their appeal would be stymied by refusal of the application for a stay or the prospect that funds might be dissipated by Ferizis without the ability to recover them from him, there is no proper basis for a stay, but even assuming that the Court should accept that the defendants have limited resources to meet a judgment and that this would or could preclude them from advancing an appeal, that in my view is not sufficient to lead to the conclusion that it is appropriate to grant a stay in this case. I say that because of the following matters: (1) There is no identification by the defendants as to the basis upon which an appeal would be brought. If the factual findings I have made are to be attacked, those findings were based in large measure upon my assessment of the plaintiff, the defendants, and Lahood. Nothing has been said that suggests to me that those findings I have made were in error, although I accept of course that the defendants may wish to contest their correctness. (2) The matters I have referred to in dealing with indemnity costs coupled with the bringing of a cross claim against Ferizis which was abandoned on the second day of the hearing (the proceedings were discontinued but on terms that preclude further action) point to attempts to frustrate the recovery by the plaintiff of his legal entitlements. (3) The loan was repayable in 2004 and the hearing would have been completed in October last year had it run for only three days. A further matter which would need consideration is the question of whether the plaintiff may be deprived of some advantage in having access to such assets as are available at an early stage, as against other parties whose case against the defendants has not yet been heard. ********** 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.