Supreme Court New South Wales Medium Neutral Citation: Royal Guardian Mortgage Management Pty Limited v Nguyen (No 2) [2014] NSWSC 1327 Hearing dates: On the papers Decision date: 26 September 2014 Jurisdiction: Common Law Before: Adams J Decision: (i) In respect of its action the plaintiff to pay the defendants the costs of and incidental to the proceeding, from 24 March 2011 (including as to the question of costs) on an indemnity basis. (ii) In respect of the cross action the plaintiff to pay the defendants' costs of and incidental to the proceedings, from 26 July 2012 (including as to the question of costs) on an indemnity basis. Catchwords: COSTS - indemnity costs ordered - where Calderbank offer made - where statement of claim and defence to cross claim had no honest basis Legislation Cited: Evidence Act 2005 (NSW), s 140(2) Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.1, 42.7(1) Cases Cited: Leichardt Municipal Council v Green [2004] NSWCA 341 Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 Leichardt Municipal Council v Green [2004] NSWCA 341 Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 607 Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 769 Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 874 Royal Guardian Mortgage Management Pty Ltd v Nguyen [2013] NSWSC 636 Category: Costs Parties: Royal Guardian Mortgage Management Pty Ltd (Plaintiff/ Cross Defendant) Beth Ngoc Nguyen (First Defendant/ First Cross Claimant) Ian Stolyar (Second Defendant/ Second Cross Claimant) Representation: Counsel: M W Young SC (Plaintiff/ Cross Defendant) B Kaplan (Defendants/ Cross Claimants) Solicitors: Bransgroves Lawyers (Plaintiff/ Cross Defendant) Gibert & Tobin (Defendants/ Cross Claimants File Number(s): 2010/105936 Judgment Introduction 1On 28 May 2014 I made the following orders - In respect of the action by Royal Guardian Mortgage Management against the defendants, judgment for the defendants. In respect of the amended cross-claim, judgment for the cross-claimants as follows - (i) Ms Nguyen: $1,092,947 plus interest; (ii) Mr Stolyar: $545,767 plus interest. The parties are to calculate interest. I give leave to approach on three days' notice in the event they are unable to agree. I will determine costs following further submissions. (The interest issue has been resolved by consent.) 2(For ease of reading, the parties are referred to as plaintiff and defendants in respect of both the action and cross-action.) It is undisputed that, the defendants having been entirely successful both in respect of the plaintiff's action and their cross action, the Court should order the plaintiff to pay the defendants' costs of and incidental to both proceedings in accordance with the general rule in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). It is also agreed that this order would not vary the costs orders made in respect of the defendants' applications for security for costs (Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 769; Royal Guardian Mortgage Management Pty Ltd v Nguyen [2013] NSWSC 636), the defendants' application for an extension of time in which to bring a cross claim against the plaintiff (Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 607); and the plaintiffs' application for an order for partial discharge from its implied undertaking in respect of certain documents produced to the Court by third parties under subpoena (Royal Guardian Mortgage Management Pty Ltd v Nguyen [2012] NSWSC 874). However, the plaintiff unsuccessfully moved to set aside two subpoenas, in respect of which I reserved on the question of costs. Under r 42.7(1) of the UCPR these costs are to be dealt with in the general way as the general costs of the proceedings. The ultimate costs orders are intended to cover this outstanding matter. 3The issue between the parties concerns the defendants' claim for indemnity costs in respect of both the action and the cross action. These claims are based on offers for settlement made on 24 March 2011, 25 July 2012 and 27 November 2012 in respect of the action and 25 July 2012 and 27 November 2012 in respect of the cross action. The plaintiff concedes that the 27 November 2012 offer was made pursuant to r 20.26 of the UCPR and that the defendants had substantially bettered their position on the cross claim and are in no less favourable position on the action compared to the offer. In the circumstances, the plaintiff does not seek to submit that indemnity costs should not be made from 28 November 2012. The dispute, therefore, that remains concerns the plaintiff's claim for indemnity costs at earlier dates. The relevant findings 4So far as the plaintiff's action was concerned it sued for the repayment of commissions paid to Dibelle, an entity connected (to use a neutral term) with the defendants. Those commissions were paid by the funders (through the plaintiff) in respect of loans processed by the defendants whilst they were employed by the plaintiff. The plaintiff's case, in brief, was that the borrowers were its clients and it should have obtained the whole of the commission paid by the funders for the processing so that the amounts paid to the defendants had, as it were, been dishonestly deflected by them to Dibelle. For their part, the defendants contended that the plaintiff was aware of their connection with Dibelle from the outset and had consented to the arrangement pursuant to which the commission was paid. Of crucial importance was the evidence given by Mr Tomazin (the managing director of the plaintiff and in every relevant sense, the mind of the company) that he was never told of the connection between the defendants and Dibelle and had never agreed to the arrangement under which Dibelle's commission was paid by the funders. The contradictory cases focused on two accreditation agreements said by the defendants to have been signed by Mr Tomazin on the plaintiff's behalf (though they had been lost) of which Mr Tomazin denied all knowledge. 5The defendants' cross action sought payment of bonuses as provided in the relevant employment agreements which, it was alleged by them, had not been paid. It was agreed that payments of similar (if not identical) amounts had been made over the relevant period. The plaintiff claimed that these payments were the bonuses which were due, whilst the defendants claimed they were, rather, payments made pursuant to a management agreement, the existence of which the plaintiff (through Mr Tomazin) denied. Ms Nguyen also sued for non-payment of profits she claimed to be payable under her employment contracts. 6I found, in substance, that Mr Tomazin's denials of the existence of the accreditation agreements were untrue to his knowledge, and that he knew and had consented to the arrangements by which the commission was paid to Dibelle. It followed that the commissions paid by the plaintiff were not extracted in breach of the defendants' contracts of employment but were properly paid by the funders to them rather than the plaintiff. It follows therefore, that the statement of claim did not have an honest basis and that the plaintiff (through Mr Tomazin) knew this to be the case. 7So far as the cross action was concerned, however, although I found that there was indeed a management agreement pursuant to which the payments, said by the plaintiff to be the defendants' bonuses, were made and that I preferred the evidence of the defendants as to this, it was not necessary for me to conclude that Mr Tomazin's evidence in this respect was dishonest and I did not do so. Nevertheless, since the crucial finding was that the management agreement existed and that Mr Tomazin had executed it, in the absence of a reasonable possibility that his evidence of denial might be a failure of recollection or confusion or some such explanation, it followed that this evidence was dishonest. I am satisfied that this is the case having regard to the seriousness of the conclusion and the caution that must attend the making of such a finding (cf s 140(2) of the Evidence Act 1995 (NSW)). It is patent from the account of the evidence in my primary judgment that a failure of recollection is not, as a matter of reality, an available explanation for Mr Tomazin's evidence. Accordingly, there was no proper basis for defending the cross claim in respect of bonuses. So far as non-payment of Ms Nguyen's entitlement to profits is concerned, the plaintiff's case relied on her having been in breach of her contract of employment for the conduct which was alleged against her in respect of the statement of claim. It follows that the plaintiff's defence against this aspect of Ms Nguyen's cross claim also had no honest basis. Should indemnity costs be ordered? 8In Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 Gaudron and Gummow JJ said (at [44], omitting references) - "It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis... or on an indemnity basis... The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." In Leichardt Municipal Council v Green [2004] NSWCA 341, Santow JA (with whom the other judges agreed) stated at [57] that "[indemnity] costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs" (citing the passage from Oshlack, set out above). His Honour gave as an example the peremptory dismissal of an offer of compromise without it having been given any bona fide consideration. The fabrication of a claim is far more serious a delinquency. 9So far as the plaintiff's action is concerned, it seems to me that the defendant must be entitled to indemnity costs on the basis of my findings concerning the crucial facts in the case. The necessary conclusion is that those proceedings were commenced, the plaintiff knowing full well that it had agreed to the arrangement, the non-existence of which was fundamental to its claim. I note, however, that the defendants seek costs only from 24 March 2011, the date of the initial Calderbank offer to settle the proceedings. That offer was that the proceedings be dismissed with the plaintiff to pay the defendants the costs of the proceedings. As I understand it, the compromise was that, in the circumstances, the defendants were seeking only the party/party costs of the proceedings as distinct from indemnity costs. By 24 March 2011 the defence had been filed and served. It is submitted on the plaintiff's behalf that the offer was the worst result the plaintiff could suffer in relation to its claim and no quid pro quo was offered in exchange, in short that it reflected no compromise. However, this is not correct since the essentially fabricated nature of the claim exposed it to a risk that indemnity costs would be ordered against it (as it knew or ought to have known). For the same reason, the plaintiff did not act reasonably in rejecting the offer. 10In light of the findings to which I have referred the defendants are prima facie entitled to indemnity costs from the commencement of the action. However, since indemnity costs are only sought, essentially on the basis that the offer of settlement of 24 March 2011 was rejected, indemnity costs are ordered from that date. 11Against the possibility that I am wrong about the offer of 24 March 2011, I should deal with the offer of 25 July 2012. This was a Calderbank offer also proposing that the plaintiff pay the defendants the sum of $500,000, with both claim and cross claim to be discontinued, each party to pay its own costs and all existing costs orders (which were, as I have mentioned, in favour of the plaintiff) were to be vacated. 12The letter stated - "2. Our clients make their offer on the basis that your clients claim is bound to fail having regard to at least the following matters: (a) Mr Tomazin clearly had knowledge of and consented to our clients' involvement with Dibelle and any position to the contrary lacks any credibility; (b) RGMM has not suffered any loss so there can be no basis for arguing a breach of any duties nor a claim for a monetary award; (c) Your clients admit our clients were employed by RGMM pursuant to written agreements; (i) which contained mechanisms for the payment, by RGMM to our clients, of profits and bonuses; and (ii) pursuant to which our clients have made demands which have not been met. Our clients are entitled are entitled to in excess of $4 million under these arrangements. 3. Further, your client's wrongful prosecution of this case has resulted in our clients incurring significant legal expense in defending the proceedings to date." 13The plaintiff submits that the offer "was not seemingly attractive ... [as] it involved a substantial net payment of money to the defendants ..., the cross claim was at that time unsupported by any evidence" and there was "nothing in the ... statements that are contained in the letter ... that would carry much weight in the mind of a reasonable reader or move a reasonable reader to accept the offer". The relevant "reader" was Mr Tomazin who, as I found, clearly did have knowledge of and consented to the defendants' involvement with Dibelle and that the bonuses were not paid to them, having been made under a management agreement to which the plaintiff was a party and which Mr Tomazin had executed. The basis for the offer was sufficiently set out. The mere fact, as it were, that whether the defendants could make good their claims depended on their credibility being preferred to that of Mr Tomazin did not, to my mind, render refusal of the offer reasonable, since he was fully aware of all the relevant facts and was bound to tell the truth if he were a witness, which was inevitable. 14This disposes also of the question of indemnity of costs of and incidental to the cross action. The plaintiff's defence case relied on the fabrication that the payments were bonuses and not made under the management agreement. It did not have a defence and should not have put the defendants to proof. Accordingly, if I am wrong about the offer of March 2011 (in respect of the action), indemnity costs of and incidental to both action and cross action should be paid from 25 July 2012. Orders: (i)In respect of its action the plaintiff to pay the defendants the costs of and incidental to the proceeding, from 24 March 2011 (including as to the question of costs) on an indemnity basis. (ii)In respect of the cross action the plaintiff to pay the defendants' costs of and incidental to the proceedings, from 26 July 2012 (including as to the question of costs) on an indemnity basis. ********** 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. Decision last updated: 29 September 2014