Supreme Court New South Wales Medium Neutral Citation: Latol Pty Limited v Robin Gersbeck (No 2) [2016] NSWSC 25 Hearing dates: 3 February 2016 Date of orders: 03 February 2016 Decision date: 03 February 2016 Jurisdiction: Common Law Before: Hamill J Decision: (1) Judgment for the plaintiff in the sum of $176,529. (2) The first defendant is to pay the plaintiff's costs assessed on the ordinary basis up to and including 31 July 2015. (3) The first defendant is to pay the plaintiff's costs assessed on the indemnity basis on and from 1 August 2015. (4) The first defendant is to pay interest on the costs in orders (2) and (3), at the rate prescribed in UCPR 36.7, from the dates of payment of those costs by the plaintiff. Catchwords: CIVIL LAW – damages and costs – appropriate rate of interest – where Court granted adjournment to the defendant on the basis that a particular interest rate would apply from that date – whether plaintiff entitled to damages for loss sustained in attempting to recover from a third party – third party the original borrower – defendant brokered the loan – whether damages too remote – need to expend legal costs to litigate foreseeable – indemnity costs – where offer of compromise rejected Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Avenhouse v Hornsby Shire Council (1998) NSWLR 1 Category: Costs Parties: Latol Pty Limited (Plaintiff) Robin Gersbeck (Defendant) Representation: Counsel: M Avenell (Plaintiff) P Fagan (Defendant) Solicitors: Surry Partners (Plaintiff) Le Page Solicitors (Defendant) File Number(s): 2013/15730 Publication restriction: Nil EX TEMPORE Judgment (REVISED) 1. On 18 November 2015 I made orders including an order that there be judgment for the plaintiff and an order that the damages under that judgment were to be reduced by 20% pursuant to s 12GF(1B) of the Australian Securities and Investments Commission Act 2001 (Cth). 2. The parties have been unable to reach agreement as to the quantum of the damages and each has filed written submissions supplemented by further oral submissions this morning and this afternoon. 3. The parties agree on some but not on other items of damages. In total, the plaintiff claims the sum of $175,519.40 while the defendant, in an updated schedule provided to me in the course of submissions this morning, says that the amount of damages should be $103,889.40. The difference between those two amounts arises as a result of a dispute between the parties as to two particular items or heads of damages. 4. In its submissions dated 14 December 2015, the plaintiff identified six items relevant to an assessment of damages. Three of those items are agreed. One was subject to a very minor dispute in the written submissions, but I am told that that dispute is capable of being resolved by the parties in the event that I make certain findings or come to certain conclusions. The final two items identified in the plaintiff's helpful written submissions are subject to significant dispute. 5. It is convenient to refer to the items identified by the plaintiff and to deal with each of them seriatim before coming to a conclusion as to the total amount of damages to be awarded to the plaintiff. 6. The first item is the principal. It is not disputed that the principal of the loan in relation to which my earlier judgment related is $130,000. 7. The second item concerns interest on that principal from 29 June 2007, which is the date that the loan moneys were advanced, until 15 June 2015. The latter date is the date upon which this matter was listed for hearing but adjourned on the application of the defendant. I will come back to this item of damages. [There was a minor dispute in relation to this item in the written submissions but the parties ultimately agreed that the damages should include the sum of $85,675.] [1] 8. The third item of damages claimed by the plaintiff is interest from 16 June 2015 until today. The parties do not agree on this item. As I have said, 16 June 2015 was the day that the case was listed to be heard but was adjourned on the defendant's application. 9. The plaintiff argues that it is entitled to interest at the rate of 8% per month throughout that period. That was the interest rate that was agreed to be paid in the original loan agreement. That agreement, which was brokered by the defendant, was between the plaintiff and a Mrs Ribbera. 10. The plaintiff relies on the decision of Harrison J when his Honour acceded to the defendant's application that the hearing date be vacated. The defendant was not ready to proceed on the date scheduled for the hearing and sought to vacate the hearing date. It appears that, in spite of having legal representation at some stage, he was not represented on that date, had not arranged legal representation but was in the process of doing so. For that reason, I suspect amongst others, he was not ready to proceed. 11. The plaintiff opposed the application to adjourn the proceedings and indicated a readiness to proceed that date. 12. Justice Harrison vacated the hearing date and ordered that the defendant pay the costs thrown away by and incidental to the adjournment. His Honour made a number of other orders, none of which are presently relevant, except for this: in order 3, his Honour said: "I order that in the event that the plaintiff is successful, that interest on any sum recovered by it should run between today and judgment at rates provided for in the loan agreement into which the plaintiff originally entered." 1. As I have said, his Honour then made other incidental orders not presently relevant. 2. The plaintiff relies on that order as an extant order of the Court and further argues that it is just and appropriate that the plaintiff recover the amount of interest in accordance with the original loan agreement in view of the conditional nature of the adjournment granted by Harrison J. 3. The defendant in written submissions submits that the course suggested is "unusual and curious" and "misconceived". The defendant submits that the order of Harrison J should not be read to mean anything "other than that which is prescribed by the Civil Procedure Act ". The defendant relies on the "privity of contract" as between the plaintiff and the borrower, Mrs Ribbera, and argues that the defendant should not and cannot be bound by the terms of that contract. Submissions were made in writing as to the limited nature of the Court's power to make "costs orders" (as written) and that "statute apart, a court lacks power to order costs and/or interest". Various authorities are cited for that proposition. 4. The submissions were supplemented by submissions this morning in relation to the propositions made in writing that the item of damages is too remote. Ultimately the defendant submits that the interest rates prescribed by the Civil Procedure Act 2005 (NSW) and/or the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) ought to apply. 5. A further argument made this morning was that the terms of Harrison J's order and conditional grant of the adjournment are unclear. It was submitted, as I understand it, that the reference to the plaintiff being successful was a reference to the plaintiff being successful in respect of this particular issue. I am unable to read his Honour's orders in that way. That would have been something entirely unnecessary to say. The plain reading, as I see it, of his Honour's orders was that a condition of the grant of the adjournment was if the plaintiff won the Court case - that is the meaning of the words "is successful" - the interest should be as per the original loan agreement. 6. I accept the plaintiff's submissions in relation to this item of damages. It is clear from the orders of Harrison J and from his Honour's reasons for making those orders that he intended that the adjournment be granted conditionally. One of the conditions, perhaps the most important and significant condition that his Honour felt appropriate to impose, was the requirement that the defendant pay interest at the rate stipulated by the original agreement in the eventuality that the plaintiff was successful. 7. As has been pointed out by the plaintiff, that order has not been vacated. However, it now falls to me to assess damages rather than simply applying an order made on an adjournment application. I have concluded that the appropriate interest rate in view of the history of the litigation is that proposed by the plaintiff and that contemplated by Harrison J in granting the adjournment on the conditions that he did. Accordingly, the dispute in relation to item 3, maintaining my adoption of the plaintiff's written submissions, is resolved in accordance with the plaintiff's argument. 8. The calculations made by counsel for the plaintiff, which I assume to be correct in the absence of any submission to the contrary, are that this item comes to a total of $78,000. That amount is calculated on the basis of $130,000 principal at 8% per month, being $10,400 per month, multiplied by seven and a half months being the period between 16 June 2015, dare I say Bloomsday, and 3 February 2016. 9. The fourth item is also subject to dispute. 10. Prior to commencing the present cause of action, the plaintiff attempted to recover from the borrower, Mrs Ribbera. In making that attempt, he incurred legal expenses. It is not in dispute that the attempt to recover from Mrs Ribbera was unsuccessful, in part at least because she became or declared herself to be, bankrupt. The plaintiff seeks damages to compensate it for those legal expenses. The plaintiff claims an amount of $17,805. I understand from the submissions that it originally claimed a higher amount based on invoices that are in evidence before me in exhibit A, commencing at around page 533. However, it has either compromised or accepted certain objections taken by the defendant relating to particular items of legal cost. There appears to be no residual dispute as to the amount claimed. Rather, the dispute is whether the plaintiff is entitled to damages under this head of damages at all. 11. The plaintiff submits that it was obliged to mitigate its loss and the obvious first person from whom it should have attempted to recover was Mrs Ribbera, that is to say the borrower. The legal costs thereby incurred was a natural consequence, it is submitted, of the false and misleading conduct which led to the plaintiff's loss. The plaintiff submitted that the defendant knew "from his years as a finance broker" that if a borrower did not repay and a lender had to enforce the loan and security, that usually involved solicitors, court proceedings with the lender suing the borrower, possession proceedings and bankruptcy proceedings. In fact, counsel for the plaintiff cross-examined the defendant in relation to that very matter in the course of the hearing on liability and the defendant acknowledged all of those things: see page 95 of the transcript from lines 6 through to 34. 12. The defendant's submission involved reliance on well-established principles and well-known authorities concerning the proper assessment of damages in contract and in tort and the contrasts between such assessment. It was submitted that the "defendant was not privy to the strategy applied by the plaintiff in the Ribbera proceedings" and had no control over those costs. It was then put that the test of remoteness is not satisfied. It was submitted: "We say that such loss is not recoverable as against the defendant for the reason that the loss so claimed is simply too remote." 1. It was put that there was a novus actus interveniens and a break in the chain of causation. The breaks in the chain of causation included (1) the acts or omissions - that is to say, neglect – on the part of the plaintiff and his lawyers; (2) the failure to put the defendant on notice of the claim against Mrs Ribbera; (3) the fact that I was unable to make a positive finding of fraud; (4) the loss in respect of the legal proceedings was not foreseeable; (5) that there is a separate judgment in respect of this sum and; (6) the fact that the plaintiff failed to make proper inquiries before advancing the loan. 2. In oral submissions this morning Mr Fagan on behalf of the defendant more clearly articulated his arguments in relation to remoteness and foreseeability. The submission is not that it was not foreseeable that the plaintiff would attempt to recover from Mrs Ribbera if she defaulted on the loan. Rather, the submission is that it was not foreseeable that any attempt to enforce the loan, including by suit, would fail. This was based upon the fact that the loan was originally secured by caveat and the removal of the caveat by the solicitors and the failure of the plaintiff to take reasonable care for its own concerns. 3. Neither party has taken me to any specific judgment on the question of when it is appropriate for a successful plaintiff to obtain damages for costs incurred in other proceedings. General statements of principles have been referred to. The matter was dealt with by the Court of Appeal in the case of Avenhouse v Hornsby Shire Council (1998) NSWLR 1. What was said by Sheller JA, I think it is fair to say, reflects the legal submissions made on behalf of the defendant and accepted by learned counsel for the plaintiff. The relevant passage commences at page 34 of the report and goes on to page 37 but the critical passage which reflects the law in this regard is at page 34 when his Honour said: "The legal costs of the first equity proceedings which Mr and Mrs Avenhouse claimed were incurred in proceedings between them and a third party, Mr Carlisle. Costs incurred in previous proceedings between the now plaintiff and some third party have been held recoverable as damages subject to the rules of remoteness." 1. His Honour then cited some authorities and went on to distinguish the circumstances which applied in that case where the costs of the earlier proceedings related to proceedings between the same parties. 2. The quote that I have just set out, it seems to me, should guide me in determining this case. So that the question becomes the question to which Mr Fagan has addressed his submissions, and that is the question of remoteness. 3. Based on the cross-examination of the defendant and the natural consequences of default [by the borrower], this head of damages does not fail the test of remoteness. It was foreseeable that the plaintiff would both attempt, and fail, to recover from the defaulting borrower. It goes without saying almost that if the borrower defaults that any attempt to recover will be fraught. 4. The questions of novus actus interveniens and breaks in the chains of causation were resolved against the defendant in the course of my primary judgment. I do not by that mean to suggest that the defendant is disentitled to raise it on the question of remoteness of damage here but the same reasoning applies. Accordingly, I propose to allow damages under this item in the sum of $17,805. 5. The fifth item is not in dispute. It is agreed in accordance with my earlier judgment that the amount of damages is to be reduced by twenty per cent. 6. The sixth item is also not in dispute. The parties agree that an amount of $72,655 must be deducted from the final sum to reflect the fact that the plaintiff successfully recovered that sum from his previous legal advisors, Clinch Neville Long, who were originally named as defendants but who settled with the plaintiff some time ago. 7. Accordingly, I will award damages based on those reasons and findings. 8. [Following an adjournment the parties provided a schedule (marked as exhibit C) setting out calculations in conformity with my reasons with the result that] damages are assessed in the sum of $176,529. There will be a judgment for the plaintiff in that sum. Costs 1. [After delivering my judgment on damages, I invited submissions on costs. The plaintiff sought three orders as to costs. First, costs assessed on the ordinary basis to 31 July 2015. Secondly, costs assessed on an indemnity basis from 1 August 2015. Thirdly, interest on the costs from the date they were paid or dates they were paid. The basis upon which indemnity costs were sought was that on 31 July 2015, the plaintiff made an offer of compromise in accordance with rule 20.26 UCPR (exhibit D) in the sum of $105,000. Had judgment been delivered and damages assessed on 31 July 2015, the amount of the judgment would have been in the vicinity of $126,000 to $127,000. Accordingly, the provision in rule 42.14 applies and costs are to be assessed on an indemnity basis from the date of the offer unless the court orders otherwise.] 2. [Mr Fagan conceded that he could not resist orders 1 and 2. Initially he sought to resist the order for interest on costs and was given time to provide a short note on that issue. However, after the hearing, my Associate received an email in the following terms: "Further to His Honour's orders at the conclusion of today's Hearing (regarding service of submissions concerning the Plaintiff's claim for interest on costs), we advise that the Defendant does not wish to provide any material in opposition to that claim."] 1. [Based on this tacit concession, I propose to make the order for interest on costs pursuant to the power in s 101(4) Civil Procedure Act 2005 (NSW). ] ORDERS 1. I make the following orders: 1. Judgment for the plaintiff in the sum of $176,529. 2. The first defendant is to pay the plaintiff's costs assessed on the ordinary basis up to and including 31 July 2015. 3. The first defendant is to pay the plaintiff's costs assessed on the indemnity basis on and from 1 August 2015. 4. The first defendant is to pay interest on the costs in orders (2) and (3), at the rate prescribed in UCPR 36.7, from the dates of payment of those costs by the plaintiff. ********** Endnote 1. The words in square brackets were added after the ex tempore judgment was delivered. Amendments 05 February 2016 - Decision date error corrected. 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: 05 February 2016