Supreme Court New South Wales Medium Neutral Citation: Michelangelo Alfredo Mascarello & Anor v Registrar-General of New South Wales [2018] NSWSC 805 Hearing dates: 25 May 2018 Decision date: 06 June 2018 Jurisdiction: Equity - Expedition List Before: Sackar J Decision: See paras [54] and [55] Catchwords: COSTS – party / party – exceptions to general rule that costs follow the event – offers of compromise or Calderbank Offers – whether a genuine offer of compromise – whether unreasonable not to accept offer – whether unreasonable to refuse offers when factual issues still in dispute Legislation Cited: Civil Procedure Act 2005 (NSW) Real Property Act 1900 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Michelangelo Alfredo Mascarello v Registrar-General of New South Wales [2018] NSWSC 284 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Texts Cited: n/a Category: Costs Parties: Registrar-General of New South Wales (first defendant) K R Lawyers and Consultants Limited (second defendant, second cross defendant) Representation: Counsel: H Altan (first defendant) A R Zahra (second defendant) Solicitors: A Booth, Office of the Registrar-General (first defendant) J Coorey, Ms D Morris, Sparke & Helmore (second defendant) File Number(s): 2015/187017 Publication restriction: n/a Judgment 1. In this matter I handed down my reasons for judgment on 8 March 2018: Michelangelo Alfredo Mascarello v Registrar-General of New South Wales [2018] NSWSC 284 (principal judgment). 2. The principal judgment arose originally out of a claim made by Mr Michelangelo Mascarello and Mrs Maria Mascarello (the Mascarellos) for compensation from the NSW Torrens Assurance Fund from the Registrar-General of NSW (RG) on 30 March 2014. The Mascarellos were the victims of fraudulent conduct by their eldest son with the assistance of unidentified imposters. The Plaintiffs settled their claim with the RG on 7 February 2018 for $3,000,050. 3. The principal judgment therefore concerned a subrogated cross-claim by the RG against K R Lawyers and Consultants Pty Limited (K R Lawyers) pursuant to sections 133(2) and (4) of the Real Property Act 1900 (NSW) (RPA). Ms Anne Kazas-Rogaris of K R Lawyers was alleged by the RG of having negligently contributed to the loss by the Mascarellos as victims of the fraud (see principal judgment at [1]-[5]). 4. I found that the RG did not make out any case of negligence against Ms Kazas-Rogaris (see principal judgment at [398]). 5. There was also an issue of whether NWC Finance (No 5) Pty Ltd (NWC) owed an amount to the RG on the basis that the obligation giving rise to the payment was void as a penalty. I found that the RG was not entitled to any amount from NWC (see principal judgment at [394]-[397]). This issue plays no part of this costs judgment. 6. K R Lawyers has sought orders that the RG pay its costs of the proceedings on the ordinary basis up until 27 March 2017 (or alternatively 23 November 2017) and on an indemnity basis thereafter. 7. This judgment concerns the costs issue as between K R Lawyers and the RG. Background facts 1. The background facts are set out in detail in the principal judgment at [6]-[42]. For the purpose of the current proceedings it is necessary to outline some aspects of the history of the case (including my findings on fact) which are as follows. 2. The Mascarellos were the registered proprietors of three properties: the Lilyfield Property, the Leichhardt Property and the Strathfield Property (principal judgment [6]). 3. Their eldest son Dennis Mascarello (Dennis) fraudulently procured multiple loans using the Mascarellos' three properties as security. This involved on one view a bizarre and at least an audacious number of steps: 1. Dennis enlisted the services of a mortgage broker Giulia Penna to assist in procuring loans for himself. In my principal judgment I found that Ms Penna was a likely culprit in this fraudulent scheme (principal judgment [9] and [283]). 2. Dennis also enlisted the services of two imposters to masquerade as the Mascarellos and attend the offices of the lawyer Ms Kazas-Rogaris on a number of occasions. The imposters would pretend to be Mr Mascarello and Mrs Mascarello and fraudulently signed documents relating to loan transactions before Ms Kazas-Rogaris (principal judgment [9]). 3. Dennis had somehow procured the original photographic and passport identification of his parents and the imposters produced these documents when signing at Ms Kazas-Rogaris' office (principal judgment [283] and [300]). The imposters no doubt were chosen because they resembled the real Mr Mascarello and Mrs Mascarello on the photographic identification and were evidently capable of producing signatures that resembled the signatures on the genuine photographic identification (principal judgment [283]). 1. On October 2011 Ms Kazas-Rogaris first met with Dennis and the imposter pretending to be Mrs Mascarello although no signatures were witnessed (principal judgment [231]). 2. On 28 November 2012 Dennis Mascarello registered a company called Mascarello Holdings Pty Ltd (Mascarello Holdings) with both his parents unknowingly listed as directors (principal judgment [9]). 3. On occasions including in December 2012, June 2013, July 2013, September 2013, October 2013 and December 2013 Ms Kazas-Rogaris met Dennis and the two imposters variously pretending to be Mr and Mrs Mascarello (principal judgment [23]-[24]). On some of these occasions forms of genuine photographic identification were provided by the imposters including drivers' licenses and passports and the imposters used their fraudulent signatures to enter into loans providing the three properties as security (principal judgment [9]). 4. As noted on 30 March 2014 the Mascarellos made a claim against the RG as victims of this fraud (principal judgment [16]). 5. On 17 August 2015 the Mascarellos filed proceedings against the RG claiming compensation under the Torrens Assurance Fund pursuant to section 129(1) of the RPA (principal judgment [35]). 6. On or about 25 June 2016 the RG cross-claimed in negligence against K R Lawyers. 7. On 4 July 2016 K R Lawyers filed a defence to this cross-claim. 8. On 25 November 2016 Ms Kazas-Rogaris swore her first and principal affidavit. In that affidavit she said that the two people she met each "resembled the photograph on the driver's licence" they provided (at [33]) but she did not depose to those people in fact being the real Mascarellos. Ms Kazas-Rogaris described the female she met as "a person of medium height and perhaps slightly larger than medium build … She appeared to be in her 60s and had dark hair which she wore tied back in a bun, although it appeared to me that her hair had been dyed" (at [24]). Ms Kazas-Rogaris described the male she met as "about 5 foot 10 or 11 and of medium build, with greyish, wavy hair, with a receding hairline, and wearing glasses" (at [31]). 9. On 8 March 2017 Ms Kazas-Rogaris attended a mediation in which she saw the real Mr and Mrs Mascarello. 10. On 27 March 2017 K R Lawyers made a Calderbank Offer of $350,000 to the RG inclusive of interest and costs and conditional upon entry into an appropriate Deed of Settlement releasing K R Lawyers and Ms Kazas-Rogaris (First Offer) (Exhibit DJM1 1-6). At paragraph 6 of this letter of offer Mr Coorey of Sparke Helmore stated "we acknowledge that if Ms Kazas-Rogaris will now give evidence to the effect that the persons she saw at the mediation either were the persons whose signatures she witnessed on various documents, or, at least, greatly resembled them". 11. On 29 March 2017 K R Lawyers sent an email to the RG imposing a time limit on the First Offer of 28 days from 29 March 2017 (Exhibit DJM1 7-8). 12. On 12 October 2017 in a Further Amended Statement of Cross Claim the RG again cross-claimed against K R Lawyers in negligence. 13. On 10 November 2017 Ms Lena Pace swore an affidavit providing corroborative evidence that the imposters who attended the offices of K R Lawyers "greatly resembled" their photographs in the identification documents provided by them (at [20]). 14. On 23 November 2017 K R Lawyers again made a Calderbank Offer of $350,000 inclusive of interest and costs to the RG (Second Offer) (Exhibit DJM1 11-19). It was in substantially the same terms to the previous First Offer of 27 March 2017. The offer was open for 21 days. 15. On 24 November 2017 Ms Kazas-Rogaris swore a second affidavit where she provided further details of the process she undertook in verifying the identity of the two imposters. She also said the real Mascarellos she met at the mediation on 8 March 2017 "strongly resemble[d]" the imposters (at 22]). She also changed somewhat her description of the Mascarellos and noted "the appearances of the female and male signatories in (respectively) paragraphs 24 and 31 of my First Affidavit were both to an extent incorrect" (at [26]). 16. On 30 November 2017 K R Lawyers filed its Defence to the Further Amended Statement of Cross Claim of the RG. 17. As noted on 7 February 2018 the Mascarellos settled their claim with the RG for $3,000,050 and played no active part in the original proceedings other than to give evidence. 18. On 9 February 2018 the RG made a Calderbank Offer to K R Lawyers of $1,100,000 inclusive of costs in full and final settlement of the cross-claim (Exhibit DJM1 27). It was open until 4:00pm of that day. 19. On 9 February 2018 the RG provided its Opening Submissions which suggested that Ms Kazas-Rogaris should have been apportioned as 50% responsible for the loss of the Mascarellos (at [32]). 20. On 12 and 13 February 2018 Ms Kazas-Rogaris swore two further affidavits providing further evidence concerning the identification process she undertook and what was said by Ms Penna in the presence of Dennis and the imposters in the offices of K R Lawyers. At hearing in the principal proceedings both Ms Kazas-Rogaris and Ms Pace were made available for cross-examination. 21. On 15 February 2018 the RG provided its Final Submissions which changed its submission on the apportionment of Ms Kazas-Rogaris' contribution to the loss of the Mascarellos to a contribution of 15-25% (at [36]). Parties' submissions K R Lawyers 1. K R Lawyers submits that the RG acted unreasonably in refusing to accept the two settlement offers made during the proceedings, the acceptance of which it is submitted would have placed the RG in a significantly more advantageous position than it now finds itself (Costs Submissions [4]). 2. K R Lawyers argues that at the time of both the First Offer and the Second Offer, each were open for reasonable periods and the RG was well acquainted with the positions of the opponents in litigation (Costs Submissions [11]). 3. K R Lawyers also rejects the idea that at the time of the making of the two offers the landscape of the litigation was shifting, specifically with respect to Ms Kazas-Rogaris' evidence on the true identity and appearance of the imposters. K R Lawyers submits that it consistently made it clear to the RG that Ms Kazas-Rogaris was unsure whether the people she met at her offices were the real Mascarellos or not. K R Lawyers argues it consistently represented to the RG that the likely finding of the Court would be that the people Ms Kazas-Rogaris met resembled the Mascarellos but were not in fact the Mascarellos (Costs Submissions in Reply [10]). K R Lawyers argues there was never any significant change in its position from the time of the offers (Costs Submissions in Reply [22]). Registrar-General 1. The written submissions of the RG were directed predominantly to the First Offer made by K R Lawyers. However, I do not take this as a concession as to costs in relation to the Second Offer and this was made clear in oral argument (T8/44-T9/15). 2. The RG submits that the First Offer left open the possibility that Ms Kazas-Rogaris would affirm that the imposters she met were in fact the real Mascarellos, and that in this sense the outcome of the possible litigation was balancing on two dramatically different forensic outcomes: that the people who attended the offices of K R Lawyers were the real Mascarellos, or were imposters (Costs Submissions [13]; T7/35-50). 3. The RG also submits that the First Offer was made at a time when further evidence which proved to be important to K R Lawyers' case had not been served (Costs Submissions [14]). 4. This meant that there were significant changes in the landscape of the issues in dispute and evidence from the time of the making of the offers and the hearing (Costs Submissions [18]). It would therefore be unfair to the RG for a costs order departing from the ordinary rule that costs follow the event (Costs Submissions [19]). Legal principles Indemnity costs 1. The Court has jurisdiction to order that costs be awarded on an indemnity basis pursuant to section 98(1)(c) of the Civil Procedure Act 2005 (NSW). 2. Costs usually follow the event unless the Court determines that some other order should be made: Uniform Civil Procedure Rules 2005 (NSW) r 42.1. Costs are to be assessed on the ordinary basis, unless the Court orders otherwise: Uniform Civil Procedure Rules 2005 (NSW) r 42.2. 3. The Court has a wide discretion in relation to an award of costs: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22] (Gaudron and Gummow JJ). 4. The principles concerning an award of indemnity costs where a final judgment is no more favourable than a previous settlement offer include a consideration of whether there was a genuine offer of compromise and whether it was unreasonable for the offeree not to accept it: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] (Basten JA). 5. In determining whether it was unreasonable for the offeree not to accept it, there are a number of relevant factors that the Court may consider (Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] (Basten JA): 1. The stage of the proceeding at which the offer was received; 2. The time allowed to the offeree to consider the offer; 3. The extent of the compromise offered; 4. The offeree's prospects of success, assessed as at the date of the offer; 5. The clarity with which the terms of the offer was expressed; and 6. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it. Consideration 1. My principal judgment involved a series of facts that were bizarre in many respects. The Mascarellos' eldest son developed an audacious plan to elicit the help of two imposters and possibly others fraudulently to use his parents' three properties as security for obtaining moneys through loans. The imposters attended on a number of occasions at the office of K R Lawyers with Dennis and provided fraudulent signatures to enter into these loan transactions. Together as I found they fooled Ms Kazas-Rogaris and no doubt others. 2. On one view leading to hearing of the principal proceedings the evidence of Ms Kazas-Rogaris was somewhat equivocal as to whether the people she met in her offices "resembled" the Mascarellos or were indeed the Mascarellos. These alternative possibilities would have led to two dramatically different forensic outcomes at the conclusion of the hearing. Therefore whilst in some respects Ms Kazas-Rogaris' evidence was a "trump card" held only by K R Lawyers, it was not unreasonable in my view for the RG to want to test her evidence. 3. Indeed the First Offer left open the possibility that Ms Kazas-Rogaris would say that the people who attended her offices were or were not the real Mascarellos. An issue in the original proceedings was also whether Ms Kazas-Rogaris should be accepted as plausible when she alleged the people who attended the offices "resembled" the photographic identification they provided or otherwise. 4. Therefore the credit of Ms Kazas-Rogaris was always in issue in the case. It was not unreasonable in my view for the RG to want to test Ms Kazas-Rogaris' credit and evidence in cross-examination. The credit of Ms Pace was also to some extent in issue in this case. It was again in my view not unreasonable for the RG to want to test Ms Pace's credit. 5. In addition, at the time of K R Lawyers making the First Offer and the Second Offer, the RG was concerned with a claim made by the Mascarellos of approximately $2,169,184.09 (subject to further calculation) (see for example Exhibit MM1 214). This claim was settled on 7 February 2018 for the substantial amount of $3,000,050. 6. Although I do not propose these proceedings are entirely analogous with Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 the RG holds an office that is different to that of a private party. That is made clear for example by the powers conferred on the RG by section 12 of the Real Property Act 1900 (NSW). The RG is an entity of the state government and its involvement in the original proceedings before this Court was pursued to recover any amount that would be payable to the Mascarellos out of the Torrens Assurance Fund. I do not consider the RG unduly lengthened proceedings and there is no suggestion it did not act as a model litigant. In my view it was not unreasonable for the RG to wish to pursue through litigation an adequate recoupment of the Torrens Assurance Fund despite the two offers. In order to do so it was not unreasonable to test the relevant evidence. 7. For some little time the Mascarellos were very much in the dark themselves as to what had happened. That is partly why I was not satisfied the RG had failed to mitigate its losses (principal judgment [365]). 8. With these considerations in mind, I am of the view that although both the First Offer and the Second Offer were genuine, made relatively early in the proceedings, turned out to be accurate and were left open for reasonable periods, it was not unreasonable for the RG to reject both offers. 9. The outcome in any litigation is almost always problematical. There is no case that cannot be lost or any defence that must succeed. However, in the circumstances of this audacious fraud and the uncertainty as to whether the people who attended the office of K R Lawyers were or were not the Mascarellos or even resembled the Mascarellos, in my view the outcome of this litigation was especially problematical. 10. I am therefore not satisfied that it was unreasonable for the RG to reject the First Offer and the Second Offer notwithstanding the outcome in the litigation. 11. I am not satisfied this is a case where indemnity costs are appropriate. 12. I would invite parties to prepare short minutes of order to reflect these reasons as soon as is practicable. ********** 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: 06 June 2018