Supreme Court New South Wales Medium Neutral Citation: Jack Marzec v Waclaw Marian (Willy) Lysiak (No 2) [2015] NSWSC 1159 Hearing dates: 14 August 2015 Date of orders: 14 August 2015 Decision date: 14 August 2015 Jurisdiction: Equity Division Before: Kunc J Decision: Defendants to pay 50% of plaintiff's costs Catchwords: COSTS – Plaintiff recovers considerably less than amount sued for and less than $500,000 – Liquidated amounts all within jurisdictional limit of District Court but claim for account possibly exceeded limit – UCPR Pt 42 r 42.34 – District Court Act 1972 (NSW) ss 44(1)(c), 134(1)(h) Legislation Cited: Civil Procedure Act 2005 (NSW) District Court Act 1973 (NSW) UCPR Pt 42 r 42.34 Cases Cited: Birkbeck v Crowley (1925) 42 WN (NSW) 86 Category: Costs Parties: Jack Marzec (Plaintiff) Waclaw Marian (Willy) Lysiak (First Defendant) Julius Waclaw Lysiak (Second Defendant) Representation: Counsel: A.J. Macauley (Plaintiff) P.A. Tiernan (Second Defendant) Solicitors: Russell C Byrnes (Plaintiff) Counsel: A.J. Macauley (Plaintiff) P.A. Tiernan (Second Defendant) Solicitors: Russell C Byrnes (Plaintiff) P.A. Tiernan (Second Defendant) File Number(s): 2013/140096 Publication restriction: No EX TEMPORE JUDGMENT 1. The Court delivered judgment in these proceedings on 28 May 2015: Jack Marzec v Waclaw Marian (Willy) Lysiak (2015) NSWSC 647 (the "principal judgment"). These reasons should be read in conjunction with the principal judgment and defined terms in that judgment have the same meaning in these reasons. As at the earlier hearing, Mr A J Macauley of Counsel appeared today for Jack and Mr P Tiernan, Solicitor, appeared for Julius. There was no appearance for Willy, who had represented himself at the earlier hearing. I am nevertheless satisfied by evidence tendered this morning that Willy was aware of today's hearing. 2. At the conclusion of the principal judgment the Court invited the parties to endeavour to agree on orders that would give effect to the Court's findings. As part of that process the Court hoped that the parties would be able to agree on the outcome of any accounting between them consequent upon the Court's findings as to the existence or non-existence of the partnerships which had been alleged by Jack. 3. At least as between Jack and Julius, some measure of agreement has been reached. Mr Macauley has produced a detailed set of submissions entitled "Judgment Accounting" dating 3 August 2015. Mr Tiernan, on behalf of Julius, takes issues with only three aspects of those submissions: 1. The attribution of receipts totalling $22,781.27 to the Solar Panel Partnership. 2. An allowance in favour of Jack for expenses incurred by him in relation to the Solar Panel Partnership of $8,904.67. 3. Julius submits that either the Court should order Jack to pay Julius' costs of the proceedings or that by reference to UCPR Pt 42 r 42.34 no orders as to costs should be made in the proceedings to the intent that each party bears its own costs. The receipts totalling $22,781.27 1. In paragraph 189 of the principal judgment the Court concluded: 189. The Court accepts Jack's submissions set out in paragraphs 109 to 114 (inclusive) of Jack's Outline that a payment received by Lysiak Contracting on 8 April 2010 of $2,400 is referable to the Insulation Partnership and four other receipts by Lysiak Contracting totalling $22,781.27 are referable to the Solar Panel Partnership. While those amounts were received by Lysiak Contracting, as directors of that company Willy (in the case of the Insulation Partnership) and Willy and Julius (in relation to the Solar Panel Partnership) are liable for those respective amounts for the purposes of calculating the income of the Insulation Partnership and the Solar Panel Partnership respectively. 1. In order to understand that conclusion for the purposes of these reasons it is necessary to set out part of Jack's outline. 109. The plaintiff has conceded item 6, being the DIISR payment on 12 July 2010 (and that he must, correspondingly account for this receipt): Transcript, p 186.38-186.42. In respect of item 7 (being the DIISR payment on 4 August 2010), the plaintiff's evidence has remained that that was a payment which he obtained to allow him to undertake retraining. Indeed, noted is the second defendant's evidence that, on his calculations, both payments could not have been compensation for the insulation batts: JL Affidavit 20/6/14 at [15]. 110. In respect of item 9, these income items were put to the second defendant in cross-examination. They are set out in the table below (being Schedule B to the partnership accounting submissions): Solar Panel Business Income Deposited into Westpac Bank Account of Lysiak Contracting Pty Ltd Date Description Amount 8-Apr-10 EEHP Payment 2,400.00 27-Apr-10 Climatecare 0458 6,094.27 10-Jun-10 Installation Fee 2,002.00 15-Jun-10 Installation Fee 3,795.00 25-Jun-10 Installation Fee 10,890.00 Total 25,181.27 111. The second defendant confirmed that the payment on 8 April 2010 for $2,400 related to the installation of insulation: Transcript, p 227.01-277.27. The second defendant asserted that this job was completed using insulation purchased from Bunnings: Transcript, p 277.31. 112. However, the defendants (nor Lysiak Contracting Pty Ltd) had not done any insulation job, since commencing work with the plaintiff, which was not part of the Insulation Business (see Tab 8 of Exhibit 3P – no other EEHP payments are recorded; nor have the defendants given any evidence of any other insulation jobs they did outside the Insulation Business). It is submitted that this job belonged to the Insulation Business (and used the insulation which had been acquired from China), the income of which was deposited into Lysiak Contracting Pty Ltd. Accordingly, the defendants must account for this income, having given away property of the partnership to Lysiak Contracting Pty Ltd (and also conveyed to themselves a benefit in doing so as majority shareholders – Exhibit 10P). 113. Alternatively, the defendants are required to account equally for that income because they used property and a business connexion belonging to the partnership Insulation Business, which yielded them a benefit: 29(1) of the Partnership Act 1892 (NSW). Such action constitutes a breach of the defendants' fiduciary obligations to the plaintiff, which included not to make secret profits or not to carry on a business during the partnership in competition with that partnership: see United Dominion Corporation v Brian (1985) 157 CLR 1 at 11-13; and see also s 30 of the Partnership Act 1892. This reflects the duty of complete good faith between partners, as stated in Lowe v Pascoe (No 4) [2012] NSWSC 1493 at [20]: 'The most fundamental fiduciary duty that a partner owes to co-partners is to display complete good faith to them. In the 17th edition of Lindley & Banks on Partnership (1995) Sweet & Maxwell at 483, the learned editor quotes from the 5th edition of Lindley on Partnership in which his Lordship said: "The utmost good faith is due from every member of a partnership towards every other member; and if any dispute arise between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honour."' 114. The same submission is made in respect of the remaining receipts comprising item 9. The second defendant agreed that those payments most likely related to the installation of solar panels: see Transcript, p 278.04-279.04. The second defendant also confirmed that the jobs which gave rise to the payments came from the same source as the jobs for Get Solar Australia: Transcript, p 281.06-281.08. Accordingly, the jobs belonged to the Get Solar Australia partnership. It is no answer for the second defendant to say that the plaintiff is not entitled to any of the profits because he did not work on the job: Transcript, p 279.48-279.50. 1. In relation to the claim for $6,094.27 I gave leave this morning to Julius to reopen his case to tender an invoice which makes it clear, as Mr Macauley fairly and properly conceded, that the amount of $6,094.27 was attributable to the lifters (as to the inclusion of which in any partnership Jack failed). That amount therefore has no part to play in these proceedings. It will be necessary for Mr Macauley to rework his calculations to take account of that change. 2. Julius' challenge to the balance of the payments is that they involved payments received by Lysiak Contracting. However, that misses the point that the basis of the Court's finding was the argument that in the case of the Solar Panel Partnership between Willy, Julius and Jack, the latter two had an obligation to account to that partnership in relation to solar panel work that had been directed to Lysiak Contracting rather than the Solar Panel Partnership. That was the burden of Jack's submissions set out in paragraph 113 of Jack's Outline, which the Court accepted in the principal judgment. Accordingly, that part of Julius' challenge to Jack's proposed final accounting fails. $8,904.67 in expenses 1. This amount is challenged on the basis that, it was submitted, there was an absence of any independent evidence to support Jack's case that these were expenses he had properly incurred in relation to the Solar Panel Partnership. This challenge fails for two reasons. 2. First, the expenses are supported by bank statements. I accept Mr Macauley's submission that as such they fall outside the findings made in the principal judgment about the unreliability of, in effect, all parties' evidence in relation to cash payments or receipts. 3. Second, there was no challenge during the hearing to those particular amounts. While there was a general challenge to all of the amounts claimed by Jack, in the absence of a specific challenge to that amount at the hearing and in the absence of specific cross-examination of Jack in relation to those expenses, the figure should stand as an amount to be taken into account as an expense for the purposes of the Solar Panel Partnership. Costs 1. To understand the parties' submissions about costs it is necessary to appreciate two points. 2. First, unadjusted for the removal of the amount referred to in paragraph [6] above, Jack's ultimate recovery in these proceedings has, compared to the amount which he sought, been quite small. Taking into account pre-judgment interest Jack is entitled to a judgment against Julius for $43,821.79 and against Willy for $22,678.50. The final amounts will be slightly lower again. The statement of claim sought judgments of approximately $176,000 from Willy and $247,000 from Julius. 3. Second, each party has had a significant measure of success. Viewing this adversely to Jack this translates into a recognition that Jack failed in at least the following respects: 1. He failed completely to show that he had any interest in the solar lifter business. 2. He failed completely in relation to his claim that Julius and Willy owed him, between them, $61,000 that Jack alleged had been advanced to them in $1,000 cash payments from time to time over the life of the relationship between the parties. 3. Jack failed to demonstrate that Julius was a partner in the Insulation Partnership. 4. Jack failed to demonstrate that Willy had any liability to him (Jack) in relation to Jack's contribution of $92,669.31 for the acquisition of installation for the Installation Partnership. 1. Against that background it was submitted for Julius that one of two outcomes was the just outcome in relation to costs. 2. First, it was said that in substance Jack had failed against Julius and should therefore pay Julius' costs of the proceedings. The Court does not accept that submission. Clearly Jack has enjoyed a measure of success in these proceedings, although obviously nowhere near to the extent that he originally claimed. 3. The alternative position contended for by Julius depends on the application of UCPR pt 42 r 42.34: 42.34 Costs order not to be made in proceedings in Supreme Court unless Court satisfied proceedings in appropriate court (1) This rule applies if: (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted. 1. Julius submits that the requirements of that rule are satisfied in this case and that within the meaning of subr (2) the commencement and the continuation of these proceedings in the Supreme Court rather than the District Court was not warranted. Therefore the Court should not make any order for costs in the proceedings. 2. Julius' costs submission was met by Jack drawing attention to s 44(1)(c) of the District Court Act 1973 (NSW): 44 Actions (1) Subject to this Act, the Court has jurisdiction to hear and dispose of the following actions: … (c) any action brought to recover an amount not exceeding $20,000, which is the whole or part of the unliquidated balance of a partnership account, or the amount or part of the amount of the distributive share under an intestacy or of a legacy under a will, 1. In support of his reliance on that section Mr Macauley drew the Court's attention to the decision of the Full Court in Birkbeck v Crowley (1925) 42 WN (NSW) 86 ("Birkbeck"). That decision examined an earlier incarnation of the District Court Act, but which included the same words as the modern section, namely, "an unliquidated balance of a partnership account". Sir Philip Street CJ, with whom Gordon and Ferguson JJ agreed, said at 86-87: .. Under s.42 the jurisdiction of the Court is extended to the recovery of any demand not exceeding the sum of £400, which is the sum or part of the unliquidated balance of the partnership account. His Honour appears to have thought that the expression "unliquidated balance of the partnership account" was not intended to refer to an unascertained balance, but merely to an agreed balance which was ascertained and that it really meant nothing more than an unpaid balance. I am unable to agree. I think that that puts too narrow an interpretation upon the words, and does not give effect to the intention of the Legislature. In the District Court Practice, edited by Mr. Foster and Mr Bonthorne (4th Ed., at p.40) the authors say: "The meaning of the Statute appears to be that as soon as a partnership is at a close, and the proportionate shares can no longer vary, one partner may sue another or others in the District Court for his share, although the balance has not yet been actually struck". That, in my opinion, is a correct statement of the meaning of the words in the section. … 1. The present case is on all fours with that analysis provided that it can be said that among Jack's claims was a claim for "part of the unliquidated balance of a partnership account". Mr Tiernan submitted, on behalf Julius, that there was no such claim in the statement of claim in these proceedings. It is true to say that the statement of claim insofar as it made claims concerning the alleged partnerships sought a series of orders which were for liquidated amounts. Each of those claims and other debts claimed were in total within the $750,000 jurisdictional limit of the District Court. 2. However, paragraph 5 of the statement of claim sought: In the alternative to prayer 4, an order that the proceedings be referred to an Associate Judge to take accounts of and enquire into: i. all the dealings and transactions of the Partnership and of the Partners; ii. the assets and liabilities of the Partners; iii. the respective interest of the Partners in the assets and the obligations of the Partners as between each other. 1. That paragraph brings these proceedings within s 44(1)(c) of the District Court Act as being a claim for "the unliquidated balance of a partnership account" having regard to the interpretation of those words, binding upon me, established in Birkbeck. 2. I note in passing that, but for that section, a claim for the taking of accounts would fall within the grant of jurisdiction contained in s 134(1)(h) of the District Court Act, which provides: (1) The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court, in proceedings for: … (h) any equitable claim or demand for recovery of money or damages, whether liquidated or unliquidated (not being a claim or demand of a kind to which any other paragraph of this subsection applies), in an amount not exceeding the Court's jurisdictional limit. 1. If that section had applied then all Jack's claims would have been within the jurisdictional limit of the District Court. 2. However, it is also clear from the statement of claim that it could not reasonably have been concluded that, on any view, the amount which Jack might have been entitled to recover as part of the claim for the unliquidated balance of the partnership accounts would not exceed $20,000. There were factual complexities in this case that would make such a conclusion very difficult, particularly when the proceedings were first commenced. 3. Putting this another way, it could not be said that the commencement of these proceedings in this Court, to the extent that a taking of accounts was sought, was unreasonable or unjustified when the amounts sought were as unclear as they were, but nevertheless with the plausible possibility of exceeding $20,000, being the specific applicable jurisdictional limit in the District Court. 4. The Court is therefore satisfied that for the purposes of UCPR Pt 42 r 42.34 the commencement and continuation of the proceedings in this Court, rather than the District Court, was warranted. 5. Having disposed of the argument that UCPR Pt 42, r 42.34 prevented the making of a costs order at all, it is necessary to turn to the exercise of the Court's general discretion in relation to the awarding of costs. That must be done bearing in mind that the usual proposition is that costs follow the event. Nevertheless, the Court has a very wide discretion in relation to costs orders. The limits of that discretion are that it must be exercised judicially, that is to say for the purpose for which it was intended and upon rational grounds. 6. Mr Macauley submitted that costs should follow the event so that an order should be made against both defendants to pay Jack's costs. He nevertheless accepted that there was some room for argument that a reduction in the percentage of costs payable could be justified having regard to the parties' respective measures of success in the proceedings. 7. At this point of the argument the parties accepted that there was no point in drawing a distinction between the position of the two defendants, so that even though Willy was not present today the Court should ultimately come to the same conclusion about costs in relation to both defendants. That having been said, Mr Tiernan did in the course of his submissions suggest that his client, Julius, had enjoyed an even greater measure of success than Willy and that could be reflected in any costs order that the Court ultimately made. While that submission is open, I did not understand Mr Tiernan to be resisting the notion that it was within the proper exercise of the Court's discretion to treat both defendants in the same way. The Court does not regard the measure of success of the defendants as being so different in reasons or outcome as to warrant the defendants being treated differently when it comes to costs. 8. Mr Tiernan submitted that the Court should start with a discount of about 50%. However, he said that should only be a starting point, so that an appropriate discount could be anywhere between 75% to 90%. 9. Mr Macauley, in reply, submitted that even a 50% discount would be too great but that, perhaps, a discount in the order of 20% to 30% would be a just outcome, if the Court was minded to make any discount at all. 10. Situations such as this are ultimately best dealt with as a matter of impression. It is clear from the features referred to in paragraphs [12] and [13] above that there should be some discount. The discount needs to reflect the relatively small amounts ultimately recovered and the significant matters on which Jack failed. 11. An element of proportionality must also be considered. These proceedings took five days and generated a considerable amount of detailed, written submissions. While the proceedings did not pose questions of significant legal difficulty, many matters of hotly contested fact had to be resolved. Jack's costs are undoubtedly substantial (although there was no evidence as to their amount), but there is a case for reduction to impose some proportionality with the amounts recovered against those claimed. 12. On the other hand, Jack was, as I concluded above, entitled to commence these proceedings in this Court. There is also no doubt that he had to sue to enforce his rights given the uncompromising attitude of both Willy and Julius, to which I made reference in paragraph [25] of the principal judgment. In short, notwithstanding some limited admissions, Willy and Julius put Jack to proof. 13. While acknowledging those matters referred to in the preceding paragraphs, I also take into account that Jack was, with Willy and Julius, to a large extent the author of his own misfortune insofar as the amount of work that was required to reconstruct the financial affairs of the partnership he sought to prove. Much of that work will be reflected in the costs which Jack has incurred. As I observed in paragraph [138] of the principal judgment, there is much truth in Mr Tiernan's submission that, with no disrespect intended, what the parties to this litigation had was not a partnership but a shambles. The point of this observation is that insofar as Jack will have incurred a considerable amount of costs in reconstructing the financial state of the parties' arrangements, he is as much to blame for the poor recordkeeping as the other defendants which obviously both increased costs and impeded any prospects of the early resolution of these proceedings. 14. Taking all of these matters into account, and doing the best I can as a matter of impression, I have come to the view that there should be a discount of 50% in relation to the costs that Jack is entitled to recover from Willy and Julius. Miscellaneous 1. There were three final matters which required resolution. 2. First, in paragraph [184] of the principal judgment I drew attention to the fact that certain parts of Jack's claim were in fact for moneys which, strictly speaking, were owed to JMBS. JMBS is not a party to these proceedings. 3. At the hearing, the defendants did not take a point about the absence of JMBS as an appropriate party. That approach was justified having regard to the requirements of s 56 of the Civil Procedure Act 2005 (NSW) and the nature of the dispute between the parties, not least in circumstances where, as I found in paragraph [184] of the principal judgment, they treated their respective corporate entities as conduits for funds rather than as parties to any partnership. 4. Nevertheless, it is necessary now to make some provision to ensure that the proprieties of legal entitlement are observed. To achieve that, and without objection by Julius, Jack has proposed to give, and the Court will accept, the following undertaking to the Court: The plaintiff undertakes to the Court that the plaintiff will pay to Jack Marzec Building Services Pty Limited the first $8,029.14 (or part thereof if less is recovered) of the amount he recovers pursuant to [the money judgments in his favour]. 1. Second, in proposing final orders to give effect to the principal judgment Mr Macauley drew to my attention that the mathematical outcome of the accounting exercise left $2,808.26 owing from Julius to Willy. Mr Tiernan did not make any submission against an order being made against his client to reflect that outcome. 2. Given that what the Court is doing is a final accounting in relation to the partnership as found, the Court is satisfied that it is appropriate that an order be made reflecting the indebtedness of Julius to Willy as part of the final accounting, notwithstanding the absence of a cross-claim between them. 3. Third, Mr Tiernan submitted that rather than making an order in the usual form that the defendants pay 50% of the plaintiff's costs of the proceedings as agreed or assessed, separate costs orders should be made against each of the defendants for 25% of Jack's costs. 4. Mr Tiernan submitted that Julius and Willy were now estranged, that they had been separately represented (in the case of Willy self-represented) and that they had, to a significant extent, run different cases as to their respective positions. It was submitted that it would be unfair for Jack to be able to enforce the costs order which I will shortly make against only one of the defendants to the full amount, leaving the defendants to seek contribution between themselves. That would be the usual consequence of a costs order which visits joint and several liability on those against whom it is made. 5. Mr Macauley opposed separate costs orders. He submitted that it was inappropriate to cast what he referred to as the "bankruptcy risk" on to Jack. He submitted that Jack had had to sue both defendants and that their respective rights and liabilities arose from the same facts and circumstances. It would, he submitted, work an injustice on Jack to confine him only to being able to recover part of his costs from each of the defendants, rather than be entitled to pursue each for the full amount awarded to him. 6. The Court accepts Mr Macauley's submissions. The usual course is for defendants to be jointly and severally liable under a costs order, unless that would be an unjust outcome in the facts and circumstances of the particular case. It is possible to imagine circumstances where there were sufficiently discrete parts of a piece of litigation brought against multiple defendants so that, even where the Court was satisfied that those defendants should pay the plaintiff's costs, a rational distribution of those costs could be ordered between the defendants severally. This is not such a case. 7. Taking account of the adjustment required by paragraph [6] above, the final orders of the Court are: 1. Judgment for the plaintiff against the first defendant in the amount of $20,597.08. 2. Judgment for the plaintiff against the second defendant in the amount of $42,806.08. 3. Judgment for the first defendant against the second defendant in the amount of $2,808.26. 4. The defendants pay 50% of the plaintiff's costs of the proceedings as agreed or assessed. 5. The exhibits be returned to the parties to be held by them in accordance with paragraph 22 of the Supreme Court Practice Note SC Gen 18. The Court notes the undertaking of the plaintiff to the Court by his counsel that the plaintiff will pay to Jack Marzec Building Services Pty Ltd the first $8,029.14 (or part thereof if less is recovered) of the amount he recovers pursuant to orders 1 and 2. ********** 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: 22 October 2015