Big Kahuna Holdings Pty Ltd v Kitas (No 2) [2012] NSWSC 858 (31 July 2012)

Last Updated: 3 August 2012

Supreme Court New South Wales

Case Title:	Big Kahuna Holdings Pty Ltd v Kitas (No 2)
Medium Neutral Citation:	[2012] NSWSC 858
Hearing Date(s):	13 July 2012
Decision Date:	31 July 2012
Jurisdiction:
Before:	McCallum J
Decision:	Defendant's application to have proceedings re-opened refused; defendant's application for relief against payment of interest during period of plaintiff's delay in proceedings refused; plaintiff ordered to pay 70% of the defendant's costs up to and including the first day of the hearing and 40% of the defendant's costs from that date
Catchwords:	COURTS - Practice and procedure - judgments and orders - power to re-open exercise of discretion before orders entered - circumstances in which power should be exercised by puisne judge COSTS - follow the event - where loan agreement varied under Contracts Review Act - whether costs order should reflect proportion in which loan as varied funded by parties - decision in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 applied
Legislation Cited:	Contracts Review Act 1980 District Court Act 1973 Property (Relationships) Act 1984
Cases Cited:	Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300 Baker v Towle [2008] NSWCA 73 Bennett v Jones [1977] NSWLR 355 Big Kahuna Holdings Pty Ltd v Kitas [2012] NSWSC 615 Cook v Permanent Mortgages Pty Ltd [2007] NSWCA 219 De L v Director General, NSW Department of Community Services [No 2] [1997] HCA 14; (1997) 190 CLR 207 Falkner v Bourke (1990) 19 NSWLR 574 Geoffrey W Hill & Associates v Squash Centre (Allawah North) Pty Ltd (unreported) NSWCA 2 October 1990 Harrison's Share under a Settlement [1955] Ch 260 Metro Meat Ltd v Werlick (1993) Aust Torts Reports 81-242 New South Wales Bar Association v Smith [1991] NSWCA 215 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Perri v Flavell [No 2] NSWCA (unreported) 20 September 1995 Pittalis v Sherefettin [1986] 1 QB 868 Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
Texts Cited:
Category:	Costs
Parties:	Big Kahuna Holdings Pty Ltd (plaintiff) Joanna Kitas (defendant)
Representation
- Counsel:	Counsel: M R Gracie (plaintiff) B M Zipser (defendant)
- Solicitors:	Solicitors: Whitfield Solicitors (plaintiff) Peter Mitchell Law Practice (defendant)
File number(s):	2007/264557
Publication Restriction:	None

JUDGMENT

1. HER HONOUR: I gave judgment in these proceedings on 6 June 2012. I found that the loan agreement between the plaintiff and the defendant was unjust. In exercising my discretion to grant relief under s 7 of the Contracts Review Act 1980, I concluded that it would not be just to relieve the defendant of the principal debt of $160,000 owed by her to the plaintiff, but that the interest rate under the loan agreement should be varied to 7 per cent per annum: Big Kahuna Holdings Pty Ltd v Kitas [2012] NSWSC 615 at [146] and [147]. The interest rate provided for in the mortgage was 4 per cent per month (48 per cent per annum) with a default rate of 8 per cent per month (96 per cent per annum).

2. I directed the parties to bring in short minutes of order to reflect the terms of the judgment and indicated that I would hear the parties as to costs and as to the appropriate orders to be made as to possession of the property: at [155]. The parties have since agreed that the execution of any writ of possession should be stayed for a period of 16 weeks. This judgment determines the issue of costs and an additional issue raised by the defendant as to the period for which interest should be payable on the loan. The judgment also includes my reserved reasons for refusing an application by the defendant to have the hearing reopened.

Defendant's application to re-open the hearing

3. At the hearing as to costs on 13 July 2012 Mr Zipser, who appears for the defendant, raised an issue as to whether my discretion under s 7 of the Contracts Review Act had been properly exercised. He made an oral application to have that issue re-opened. Mr Zipser submitted that the Court had power to adopt that course in accordance with the principles stated by the High Court in Autodesk Inc v Dyason [No 2] [1993] HCA 6; (1993) 176 CLR 300 at 302-303 per Mason CJ.

4. After hearing from Mr Zipser, I indicated that I was not inclined to reopen that issue. In reaching that conclusion, I did not intend to express a view one way or the other as to the correctness of my decision. I took the view that the application invited me to determine what was in substance an appeal against my own decision. I did not consider it appropriate to reopen the decision in the circumstances. In order to preserve enough hearing time to determine the remaining issues raised by the parties, I reserved my reasons for declining to accede to Mr Zipser's application. These are those reasons.

5. As already noted, Mr Zipser relied upon the judgment of Mason CJ in Autodesk. That was a dissenting judgment. However, Mr Zipser submitted that his Honour's statement of the relevant principles has since received the approval of five judges of the High Court in De L v Director General, NSW Department of Community Services [No 2] [1997] HCA 14; (1997) 190 CLR 207 at 215.2 per Toohey, Gaudron, McHugh, Gummow and Kirby JJ.

6. The proposition for which Autodesk was cited as authority in De L was that the High Court has power to reopen its own judgments or orders if it is convinced that it has proceeded "on a misapprehension as to the facts or the law". Plainly, different considerations apply in the case of a final court of appeal. In that circumstance, the absence of any other means of redress is a consideration militating in favour of re-opening a decision where the interests of justice so require.

7. It may nonetheless be accepted that the remarks of the Chief Justice in Autodesk were not confined, in terms, to the jurisdiction of the High Court. His Honour was evidently referring to the jurisdiction of "a court". Three examples were cited of the exercise of jurisdiction "to reopen a judgment which has apparently miscarried...at least when the orders pronounced have not been perfected". Two of the examples his Honour gave concerned orders recalled by single judges.

8. The first example referred to by Mason CJ was the decision in Harrison's Share under a Settlement [1955] Ch 260. In that case, Roxburgh J had made orders (on behalf of infant, unborn and unascertained persons) approving three schemes affecting family trusts. After those orders were made but before they were entered, the House of Lords published a decision authoritatively declaring that schemes of the kind before his Honour could not properly be approved by the court. Upon learning of the decision, Roxburgh J recalled the orders of his own motion. The English Court of Appeal affirmed his decision. In doing so, the Court noted that, whilst a judge retains control over a case after pronouncing judgment until the order giving effect to the judgment is formally completed, such control "must be used in accordance with his discretion exercised judicially and not capriciously".

9. The second example was Pittalis v Sherefettin [1986] 1 QB 868, in which a judge of the Westminster County Court recalled an order refusing to extend the time for referring a rental dispute to arbitration. His Honour had "second thoughts about the case" the following day, concerned by the very great hardship the tenant would suffer if the application for an extension of time were refused: at page 878C. The English Court of Appeal held that he was not wrong to do so. Fox LJ noted that the judge, practically as soon as he gave the judgment, decided that he was wrong. Fox LJ regarded the position as one which "can properly be called exceptional": at page 879G. Dillon LJ agreed, stating "it is indeed exceptional for a judge who has pronounced an order in court to be completely satisfied, before the order has been drawn up, that the order was wrong." Neill LJ agreed: at page 888H.

10. The third example given by Mason CJ in Autodesk was the decision of New South Wales Bar Association v Smith [1991] NSWCA 215. In that case, the Court of Appeal agreed that it had jurisdiction to review and reverse its own order removing Mr Smith's name from the Roll of Barristers in circumstances where the judgment contained an acknowledged factual error. Two important considerations emerge from the decision in Smith. The first is the relevance of the status in the hierarchy of the court that is asked to reopen its decision. The fact that the High Court is a final court of appeal, and that appeals only lie to that Court from the Court of Appeal by special leave, is a factor militating in favour of reopening the decisions of those Courts if the refusal to do so would cause injustice. Those considerations do not apply to the decision of a puisne judge. Secondly, the Court in Smith emphasised that the power to reopen a decision is one to be exercised sparingly and with considerable care.

11. Mr Zipser submitted that I had apparently proceeded according to a misapprehension of the relevant law in the exercise of my discretion under s 7 of the Contracts Review Act. He relied upon the decision of the Court of Appeal in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, which was decided after the hearing of these proceedings but before I published my decision.

12. The main judgment in Tonto was given by the President. In reviewing the nature of the relief that may be granted under s 7, his Honour said (at [276]):

The relief to be given in accordance with the direction of s 7(1) permits the Court a wide choice based on its evaluation of the circumstances and of the injustice, to avoid the relevant unjustness. In circumstances such as the present, where the primary source of the unjustness is the fraud of a third party, avoidance of the unjustness calls for an evaluation of the respective positions of the parties. Relevant to that is the degree and extent to which the parties can be seen to have responsibility for what happened and the extent to which it is just that such responsibility should be reflected in the extent of remedial relief. Also of particular relevance is the capacity and context of the respective participation of the parties. The borrowers were all the subject of the kind of predation that the CRA was designed to relieve, in appropriate circumstances. The predation occurred in circumstances that were objectively facilitated by the structure and operation of the lending enterprises. I do not wish to repeat what I have already said about this, except to emphasise that it was the chosen commercial counterparty of Tonto HL which committed the fraud, and in circumstances where the objective risk of placing the functions of interview and information collection in that party's hands were evident and exacerbated by the arrangements not to speak to borrowers and by the loose attention to operational checks by the guidelines.

13. The Court determined in Tonto that one of the borrowers should not be relieved of the whole of the liability for the borrowing in question. The President said (at [280]):

In my view, an unjust consequence (both to the O'Donnells and the lender) would be avoided by relieving them of three quarters of the financial consequences of the loan agreement. To do more would be unjust to the lender.

14. Mr Zipser submitted that, in exercising my discretion under s 7 in the manner stated in my reasons published on 6 June 2012, I may have misapprehended the requirement stated in the underlined sentence of the first extract set out above to focus not only on the conduct of the borrower but also on that of the lender in determining the extent to which each party had responsibility for what happened, and in reflecting that apportionment in the extent of remedial relief granted. Mr Zipser submitted that my reasons for decision "suggest an emphasis on the borrower's conduct and not on the lender's".

15. In making the application, Mr Zipser explained that he was endeavouring to solve issues "as cheaply as possible to both parties". He is to be commended for thinking laterally to that end. Counsel's duty to facilitate the just, quick and cheap resolution of the real issues in a dispute are now enshrined in s 56 of the Civil Procedure Act 2005. However, I do not think the statutory endorsement of those objectives should encourage a single judge of this court to assume appellate jurisdiction over herself. In my view, any dilution of the strictures against revisiting an order after it has been pronounced, particularly by a puisne judge, would ultimately be inimical to the overriding purpose stated in s 56 of the Civil Procedure Act.

16. For those reasons, I declined the application.

Period for which interest should run on the debt

17. The relief claimed by the defendant included a claim to have the interest payable on any remaining debt suspended for a period of alleged delay in the proceedings caused by the plaintiff. The determination of that issue was expressly deferred during the hearing: T214-215.

18. The defendant relied upon the decision of Olsson J in the Full Court of the Supreme Court of South Australia in Metro Meat Limited v Werlick (1993) Aust Torts Reports 81-242. That was a claim for damages for personal injury. The decision evidently stands as authority in the State of South Australia that, in so far as a plaintiff is dilatory in pursuing his remedy, a proper exercise of judicial discretion will normally demand that interest be disallowed for any periods of inexplicable delay.

19. Mr Zipser acknowledged that, in the present case, the plaintiff's entitlement to interest arises under a contract. However, he submitted that, in circumstances where the court has power to alter the terms of the contract (and has exercised that power), the court may apply similar principles to those stated in Metro Meat in the exercise of its discretion under s 7 of the Contracts Review Act.

20. Mr Gracie, who appeared for the plaintiff, submitted that the plaintiff should not be punished as to the recovery of interest. He submitted that, whilst delay on the part of a plaintiff may sound in an order to pay any costs generated or wasted by the delay, a line of authority in this jurisdiction stands against the proposition that the plaintiff should be punished by being deprived of interest for that period.

21. Mr Gracie relied upon the decision of the Court of Appeal in Bennett v Jones [1977] 2 NSWLR 355. That was a claim for damages for personal injury. Moffitt P said at 371C:

In the result, it appears to me to be appropriate usually to allow, without much question, interest for a period under present conditions for some two or three years, in respect of what normally will be a relatively minor part of the verdict, i.e. past losses and detriments. Unless it can be seen that there is likely to have been some relevant detriment to the defendant, it will be irrelevant that the plaintiff has not proceeded with complete promptness, or that he, or his solicitor, has not properly and fully complied with all court procedures. Such cases, of which the present is an example, are to be distinguished from cases of deliberate delaying tactics of a plaintiff or defendant, where it appears there is likely to be financial detriment to the other party. In these cases the conduct of the parties is relevant, because of its detriment to the opposing party. Delay of the plaintiff in this context is of particular significance where the delay is in commencing proceedings. Delay thereafter will normally be of less significance, because the defendant has some opportunity to prevent delay once proceeding are instituted.

22. Mr Gracie noted that the same approach has been taken consistently in this jurisdiction: see Falkner v Bourke (1990) 19 NSWLR 574 at 576 per Priestley JA (relating to interest under the District Court Act 1973); Geoffrey W Hill & Associates v Squash Centre (Allawah North) Pty Ltd (unreported) NSWCA 2 October 1990; Perri v Flavell [No 2] NSWCA (unreported) 20 September 1995 and Port Stephens Shire Council v Tellamist Pty Ltd [2004] NSWCA 353 at [306]- [311] per Santow JA (in dissent; Giles and Ipp JJA not deciding).

23. On the strength of those authorities, it would appear that the weight of authority in this State is against punishing a plaintiff by suspending the obligation to pay interest during a period of a plaintiff's delay. In my view, that is a fortiori the position where the obligation to pay the interest is founded on contract. A contractual obligation to pay interest on a debt should not be viewed as being suspended or at large by reason of the bringing of a cross claim under the Contracts Review Act. Accordingly, I do not think I should deprive the plaintiff of interest on the loan on account of any delay on its part.

Costs

24. The parties accepted that costs should follow the event but were in dispute as to what that meant in the present context. Mr Gracie submitted that the plaintiff had been successful and should have its costs. I do not think that submission can be accepted in light of the defendant's success on the cross claim.

25. Mr Zipser submitted that the defendant should have most of her costs. He relied on the decision of the Court of Appeal in Baker v Towle [2008] NSWCA 73. That case was concerned with the adjustment of interests in the property of parties to a de facto relationship pursuant to s 20 of the Property (Relationships) Act 1984. Basten JA drew a distinction between such cases and cases in which costs are apportioned on the basis of an assessment of success or failure on specific issues: at [84]. His Honour said:

However, in a case involving adjustment of interests in assets, it may be thought that justice is best done by an apportionment of costs depending upon the plaintiff's degree of success. The trial judge was not in error in adopting that approach in the present case, and the approach may properly be applied in relation to the appeal.

26. Mr Zipser also relied upon decisions of the Court of Appeal in which costs have been apportioned following a successful cross claim under the Contracts Review Act. In Cook v Permanent Mortgages Pty Ltd [2007] NSWCA 219 at [22] to [24] per Giles JA; Beazley JA and Hoeben J (as his Honour then was) agreeing. Giles JA said:

22In my opinion this was not a sound exercise of the judge's discretion. As I have said, there was in the end no real dispute that the respondent was entitled to an order for possession. The real dispute was over the relief claimed by the appellants. The hearing lasted five days, and was all but exclusively devoted to that dispute. The issues were whether the Code applied to the loan transaction, whether the contract of loan was unjust and what relief should be granted. The respondent failed on all of these issues. There may have been some uncertainty in the precise relief claimed by the appellants, but in substance the appellants were successful. The respondent would be entitled to costs reflecting the commencement of the proceedings claiming possession and the relatively formal steps to prove its entitlement to possession, but otherwise the costs should, in my view, have gone to the appellants.

23The respondents submitted that nonetheless it was a matter for the judge's discretion, and it was insufficient that this Court would have exercised the discretion differently. Where I consider the judge erred is in failing to take account of the appellant's success in obtaining significant relief. It may have been by way of a relatively small reduction in principal and a greater reduction of the interest payable, but it was relief which the respondent had resisted on all of the issues of the application of the Code, injustice and the grant of relief. The judge's reasons indicate, in my respectful opinion, such misapprehension of this that I think he failed to take into account a material consideration. His exercise of discretion can thereby properly be displaced.

27. The Court made a small allowance for the relatively formal steps required for the plaintiff to prove its entitlement to possession, ordering the plaintiff to pay 90% of the defendant's costs as agreed or assessed.

28. In Tonto, the President said at [300]:

I have made the appellant responsible for three quarters of the costs of the proceedings and the appeal because I do not think that the costs order can be separated from the relief of the injustice contemplated by s 7(1) of the Contracts Review Act. The variation to the loan agreement leading the O'Donnells to fund 25% of the loan achieves justice in my view to both the lender and the O'Donnells. The costs order should reflect that proportion.

29. I accept, as submitted by Mr Zipser, that the defendant was successful at each of the three stages involved in an application under the Contracts Review Act (explained in Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [106] to [109]). The defendant did not obtain all the relief she sought. The Court was asked to reduce the principal debt from $160,000 to $4,113 and that was declined. However, the plaintiff came to court seeking interest on that sum at the rate of 96 per cent per annum.

30. The position is complicated by the fact that the plaintiff made a concession as to interest at the outset of the proceedings. As already noted, the interest rate provided for in the mortgage was 4 per cent per month (48 per cent per annum) with a default rate of 8 per cent per month (96 per cent per annum). The plaintiff made an open offer at the outset of the hearing to accept payment of the principal amount together with unpaid interest calculated at the rate of 2 per cent per month (24 per cent per annum) plus payment of the plaintiff's costs as agreed or assessed. The Court was subsequently informed that the offer should be regarded by the Court as a concession by Big Kahuna as to the maximum interest claimed in the proceedings.

31. It may nonetheless be accepted, as submitted by Mr Zipser, that the reduction of the interest rate to 7 per cent per annum represents an apportionment of the burden of the loan in favour of the defendant. Applying the penalty rate of interest claimed by the plaintiff, the claim (including principal) was in the order of $928,000. At 2 per cent per month (according to the open offer) it was reduced to approximately $352,000 plus costs. The formal concession as to interest came after the hearing. The amount in which judgment is to be entered according to my reasons is about $218,000 (see affidavit of Mr Whitfield sworn 3 July 2012 at paragraph 4).

32. Separately, Mr Zipser submitted that the manner in which I exercised my discretion under s 7 of the Contracts Review Act was "generous to the plaintiff" and that I should not "compound the generosity by adjusting the costs order to mirror that generosity". The submissions relied upon in support of that contention were the same submissions as were relied upon in support of the application to reopen the exercise of my discretion on the grounds of the principles stated in Autodesk (considered above). I do not think it would be appropriate to determine costs on the premise that the principal judgment entails error.

33. In my view, however, it is appropriate to adopt the approach explained by the President in Tonto set out above. In doing so, I have had regard to the plaintiff's entitlement to a small allowance for the proof of its claim. I have also had regard to the plaintiff's open offer referred to above.

34. On that basis, in my view a just result is to order the plaintiff to pay 70% of the defendant's costs up to and including the first day of the hearing and 40% of the defendant's costs from that date, such costs to be as agreed or assessed.

35. I direct the plaintiff to bring in short minutes of order reflecting these reasons.

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