Equitable Charge Awarded for Misappropriated Funds in NSW Supreme Court Case

The court awarded an equitable charge over certain assets to compensate for misappropriated funds, including interest, in accordance with equitable tracing principles. The case involved a defendant who used misappropriated funds to purchase assets, and the court determined that the equitable charge should include interest on the traceable amount.

Supreme Court New South Wales

Medium Neutral Citation: [COMPANY] v [NAME] (No 2) [2020] NSWSC 1665 Hearing dates: 26 October, 5 November 2020 Date of orders: 6, 23 November 2020 Decision date: 23 November 2020 Jurisdiction: Equity Before: Parker J Decision: See [83]-[84] Catchwords: EQUITY – tracing – mixed funds used to acquire property – equitable charge – charge includes interest on traceable amount COSTS – party/party – [NAME] offer – whether rejection unreasonable – plaintiff against separately represented defendants – form of costs order Legislation Cited: Conveyancing Act 1919 (NSW), ss 37A, 66G Family Law Act 1975 (Cth) Cases Cited: ATCO Controls Pty Ltd v Stewart [2013] VSCA 132 [COMPANY] v [NAME] [2003] NSWSC 1072 Dimos v Willetts (2000) 2 VR 170 [NAME] v [NAME] [2001] 1 AC 102 Gray v Haig (1885) 20 Beav 219; 52 ER 587 Heperu Pty Ltd v Belle (2009) 76 NSWLR 230 Newton v The Grand Junction Railway Company (1864) 16 M & W 139; 153 ER 1133 [NAME] v [NAME] (No 2) [2018] NSWSC 441 Scott v Scott (1963) 109 CLR 649 Re Diplock [1948] Ch 465 Category: Costs Parties: [COMPANY] (Plaintiff) [NAME] (First Defendant) [NAME] ([NAME] Defendant) Representation: Counsel: [redacted] [NAME] ([NAME] Defendant)

In person: [NAME] (First Defendant)

Solicitors: [redacted] [NAME] ([NAME] Defendant) File Number(s): 2019/18467 Publication restriction: Nil

Judgment 1. On 30 September I delivered my principal judgment in these proceedings: Rheem Australia Pty Limited v McInnes [2020] NSWSC 1313. This further judgment assumes familiarity with my principal judgment, paragraphs of which are referred to as "J". The same abbreviations used in the principal judgment are used in this judgment.

2. On delivery of my principal judgment I ordered that [NAME] bring in short minutes of order giving effect to my conclusions. Following further argument on 26 October and 5 November, I made orders for final relief on 6 November. This judgment sets out the reasons for those orders and gives reasons for the costs orders which I will now make.

Final relief 1. I found that [NAME] was entitled to judgment against [NAME] in the amount $2,098,608 fraudulently misappropriated by him: J [127]. [NAME] calculated the statutory interest down to entry of judgment as $937,984. 2. [NAME] did not dispute the quantum of [NAME]'s calculation. He did complain about the length of time that the proceedings took to come to hearing.

3. Pre-judgment interest is awarded to reflect the fact that the money in question has been "fructifying in the wrong pocket": Newton v The Grand Junction Railway Company (1864) 16 M & W 139 at 141; 153 ER 1133 at 1134. Rarely if ever would the delay of the conduct of the proceedings result in the plaintiff not receiving interest at statutory rates. Most of the interest which has been calculated covers the period during which [NAME] concealed the fraud from [NAME]. I see no reason to think that there is anything about [NAME]'s conduct which would warrant it being deprived of interest thereafter.

4. I found that [NAME] was entitled to judgment against [NAME] (jointly with [NAME]) in the sum of $237,480, representing the share of a mortgage repayment on the [NAME] which could be traced to monies misappropriated by [NAME] from [NAME]: J [184]. This entitlement arose under the restitutionary cause of action recognised in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230: J [135]. 5. [NAME] claimed pre-judgment interest at statutory rates from May 2010, the date on which the mortgage repayment was actually made. But the gravamen of the cause of action recognised in [NAME] is retention of the financial benefit received by a volunteer after the volunteer becomes aware that the monies in question had been stolen from the plaintiff: [redacted]

6. Eventually the parties agreed that pre-judgment interest should run from 18 March 2019, the date on which [NAME] joined [NAME] as a defendant in the proceedings. Calculated from that date, the interest on the judgment against [NAME] amounted to $19,182.

7. I found that [NAME] was entitled to an equitable charge over assets belonging to [NAME], to the extent that those assets were purchased, or mortgage liabilities on those assets were discharged, with monies that could be traced to the funds misappropriated from [NAME]. The assets in question were: the two investment properties at [NAME] in Queensland (J [80]-[84]); the cabin at Wisemans Ferry (J [87]); and [NAME]' half share of the [NAME] (J [230]).

8. For the purposes of final relief, [NAME] did not try to augment the traceable amounts I identified in my judgment with interest earned on the relevant bank accounts: see J [185]. Nor did [NAME] seek to trace into the regular mortgage repayments on the [NAME] and [COMPANY] (see J [76]-[86]), or to trace through the PPS account after untainted monies were paid into it on 4 September 2017 (see J [109]). 9. [NAME] did seek, as foreshadowed at J [199], was to have the equitable charge secure not only the traceable amounts but also pre-judgment interest on those amounts. This was resisted by [NAME].

10. In addressing the issue I will deal first with the [COMPANY] and the Wisemans Ferry cabin.

11. In each case the traceable monies were paid towards the purchase price of the asset in question. The asset was acquired by [NAME] with a mixture of his own monies and monies misappropriated from [NAME]. [NAME] could have taken a proportionate interest in the property by way of constructive trust, or a charge: [NAME] (1963) 109 CLR 649 at 661-662; [NAME] v [NAME] [2001] 1 AC 102 at 130-132. In each case [NAME] elected to take a charge.

12. Where the plaintiff takes a proportionate ownership interest by way of constructive trust, the plaintiff will benefit from any increase in the asset's value since it was acquired. If the value of the asset has declined, the plaintiff can avoid or reduce the loss by taking a charge instead. The election may be made after the trial, with hindsight. The plaintiff thus has things both ways. But equity's attitude is that the defendant, who chose to use the plaintiff's money in acquiring the asset in question, cannot complain: as a wrongdoer "everything is presumed against him": Gray v Haig (1885) 20 Beav 219 at 226; 52 ER 587 at 590.

13. Against this background, it seems to me that if the plaintiff elects to take a charge, the amount secured by the charge should include interest on the traceable amount used in the purchase of the asset in question. Otherwise the proprietary relief given by the court would be incomplete. It would not reflect the full economic value, at the date of the trial, of the monies belonging to the plaintiff which the defendant used in the purchase.

14. In the present case [NAME] hid the misappropriations, and the subsequent use of the misappropriated monies to purchase of assets, from [NAME]. I think it is particularly important in such circumstances that [NAME], as the defrauded party, should receive proprietary relief of full economic value. If the asset values have not increased in line with interest rates, the result will be to reduce the equity [NAME] has in those assets attributable to his own monetary contributions. But, again, as a wrongdoer [NAME] cannot complain.

15. In principle it is arguable that the interest secured by the charge should continue after judgment at the applicable statutory post-judgment interest rate. But this was not asked for and I say no more about it.

16. The equitable charge over the [NAME] represents a proprietary remedy granted by way of subrogation, rather than by direct tracing: see J [230]-[241]. But for present purposes I think that makes no difference. The purpose of awarding a charge is the same in both cases.

17. In a true case of subrogation, the relevant interest rate would be that applicable to the mortgage debt which was discharged. But subrogation in the present case bears only a "very attenuated" relationship with subrogation in the strict sense (Bryson J in [COMPANY] v [NAME] [2003] NSWSC 1072, quoted at J [237]), and equity's remedies are said to be at their most flexible in subrogation cases of this type: ATCO Controls Pty Ltd v Stewart [2013] VSCA 132 at [234]-[235].

18. The loan was in fact paid off more than ten years ago, and I think it would be meaningless to insist on the interest under the charge being calculated by reference to the rates charged on such loans (if that could still be ascertained; the loan product may no longer be available from the bank). The inclusion of interest at statutory rates appropriately reflects the compensatory purpose of awarding a charge.

19. Counsel for [NAME] submitted that interest under the charge on the [NAME] should run only from 18 March 2019. Counsel pointed out that the principal liability is a joint one and that the interest against [NAME] runs only from that date: see J [266].

20. This submission overlooks the fact that the charge is against [NAME]' share only. [NAME]'s entitlement against [NAME] is based on his appropriation of the monies, not receipt as an innocent volunteer. As against [NAME]' share, it is proper that interest runs from the date on which the appropriation was made, which is the date on which the payment was made to the mortgagor. 21. [NAME]'s interest calculations were not otherwise disputed. The result is that [NAME] was entitled to charges over the following assets of [NAME] in the following amounts: Traceable amount [ADDRESS] property $35,400 $12,107 $47,417 Apple Circuit property $62,990 $17,256 $80,246 Wisemans Ferry cabin $90,000 $17,522 $107,522 [NAME] $237,480 $160,860 $398,340 Property Total $425,870 $633,525

1. Finally, I made findings about the payments totalling $405,000 from [NAME] to [NAME] in December 2018, the residue of which (being $392,897) was paid into Court by [NAME] in March 2019. I found both that the payments by [NAME] were dispositions to defraud creditors caught by the Conveyancing Act 1919 (NSW), s 37A (J [259]), and that they included traceable proceeds of the monies misappropriated from [NAME] in the sum of $286,215 (J [219]). I also found, subject to the question of election discussed below, that [NAME] was entitled to judgment against [NAME] in the sum of $286,215 on the restitutionary basis recognised in [NAME] (J [220]).

2. There was no dispute that [NAME] had a proprietary entitlement to the traceable amount of $286,215. I will return to this below. But there was some debate about what orders the Court should make under s 37A with respect to the balance.

3. The effect of s 37A is that a disposition with intent to defraud creditors is void. The ordinary result is that the property reverts to the disponor where it can be pursued by the disponor's creditors. But counsel for [NAME] sought, as foreshadowed at J [261], a "make-available" order of the type I made in [NAME] v [NAME] (No 2) [2018] NSWSC 441. That case also concerned a disposition of property made by a husband, separated but not formally divorced, in favour of his estranged wife. The property concerned was the former matrimonial home. I found that the transfer was caught by s 37A. Rather than ordering the wife to transfer the property back to the husband, my make-available order required her to apply the property directly to the creditors in discharge of the husband's debts.

4. In [NAME] v [NAME] the value of the property comfortably exceeded the amount owed to the husband's creditors. After they were paid out, therefore, the order would entitle the wife to retain the balance rather than return it to the husband. This reflected the fact that as between the husband and the wife, the transfer had been a gift. There was no reason to undo the gift beyond what was required to satisfy the husband's creditors. But the present case is different. [NAME]' liability to [NAME] greatly exceeds the amount received by [NAME].

5. Furthermore, in [NAME] v [NAME] the husband no longer lived in Australia and therefore no question of bankruptcy would have arisen even if the debt had exceeded the value of the property. In the present case, [NAME] says that he lacks sufficient assets to meet [NAME]'s judgment against him, and bankruptcy is thus a real possibility. A make-available order (which contains provisions for the identification of creditors: see [NAME] v [NAME] at [27]) might cut across, or duplicate, bankruptcy administration.

6.

For these reasons, I decided not to make a make-available order against [NAME]. Ordinarily, an order for restitution of the money from [NAME] to [NAME] would have followed. But as the monies were paid into Court it was better to make a declaration recognising [NAME]' ownership. No order was sought for [NAME] to pay interest to [NAME] by way of additional restitution.

7. At J [263] I had noted a question about whether the grant of this relief under s 37A would require [NAME] to elect against taking judgment against [NAME] by way of restitution. The gravamen of the [NAME] cause of action is retention by a volunteer of monies stolen from the plaintiff. The effect of s 37A relief which I granted was to reverse the transfer of ownership of the $405,000. In the eye of the law, [NAME] therefore never received title to the monies. It seemed to me that [NAME] was not entitled both to obtain relief on the basis that [NAME] must return the monies to [NAME] and at the same time to obtain restitution from her on the basis of retention of those monies.

8. Ultimately I did not understand counsel for [NAME] to contest this reasoning. Counsel for [NAME] elected to take relief under s 37A.

Accordingly, there was no additional judgment in favour of [NAME] against [NAME].

9. As with the other property into which [NAME]'s money could be traced, it was accepted that [NAME] should receive an equitable charge. I have already explained why I considered that the amount covered by the charge should include interest. As a result of the s 37A relief, that charge was a charge over an asset belonging to [NAME]. This meant that interest should run from the date [NAME] made the payments to [NAME]. [NAME] calculated the figure at $26,525 which was not disputed.

Costs 1. For the purpose of dealing with the costs issue which arise, it is necessary to recount some of the details about the claims and issues in the proceedings as they developed, and refer to some of the offers exchanged between the solicitors for the parties.

2. As noted at J [23], the proceedings were commenced by [NAME] on 18 January 2019. At that stage [NAME] was the sole defendant. The initiating summons claimed a declaration that the $2.1 million misappropriated by [NAME] was held on trust for [NAME]. It sought, among other things, orders that [NAME] account for those monies (with interest). In particular orders were sought that [NAME] hand over any property acquired, directly or indirectly, with the monies. 3. [NAME] retained [NAME] ("[NAME]") to act for him. On 1 February 2019 [NAME] sent a [NAME] letter to [NAME]'s solicitors, [NAME] ("[NAME]"). The letter noted interest on the $2.1 million claimed by [NAME] then amounted to approximately $800,000. It canvassed [NAME]' financial position, arguing that recovery through bankruptcy would be limited, uncertain and expensive. In particular, it stated that [NAME] intended to bring family law proceedings against [NAME].

4. The letter proposed a settlement under which [NAME] would sell the [COMPANY] and the equity (after the secured lenders were paid out) would be paid over to [NAME]. [NAME] would also pay the sum of $350,000 in cash. The parties would also enter into a deed of release which would include confidentiality and non-disparagement clauses. 5. [NAME]'s response came on 11 February. It was uncompromising. In the course of the letter [NAME] said: Your letter is predicated on the erroneous assumption that [NAME] is a willing participant in a commercial dispute and its decisions in relation to the proceedings are governed solely by a cost benefit or commercial analysis. … To be clear, [NAME] is the victim of a longstanding fraud perpetrated by your client. [NAME] held your client in a position of fidelity and trust. Your client deliberately and dishonestly misappropriated [NAME]'s assets for his own use and benefit. … [NAME] will not entertain any "settlement" that involves the payment of anything less than full compensation including interest over a 10 year period and costs on an indemnity basis. Further, [NAME] will not agree to any arrangement under which it is subject to contractual restrictions relating to confidentiality or non-disparagement, particularly in relation to conduct that is egregious and both civilly and criminally unlawful. [NAME] intends to pursue the litigation until judgment. … 1. Over the following months, [NAME] joined [NAME] as the [NAME] defendant and obtained payment into Court of the $393,000 she had received from [NAME]. [NAME] also pleaded and amended its claim, no doubt relying on financial documents obtained through court processes.

2. The amended claim included claims for the whole of the $393,000 [NAME] had paid into Court, and for the balance of the [NAME]' joint account (see J [61]), being about $81,000. It also made claims for charges in specific amounts over other specified assets. These were: the [NAME]; the [COMPANY]; the Wisemans Ferry cabin; and the power boat (see J [89]-[90]). The amounts claimed were: [NAME] $453,134 Cabin $124,[ADDRESS] $49,900 Apple Circuit $189,490 Boat $153,971 Total $971,097

1. [NAME]' defence declined to plead to [NAME]'s allegations of misappropriation on the grounds that to do so might prejudice [NAME]' defence of criminal proceedings. [NAME] made no admissions that [NAME] had any entitlement to any of the relief claimed. 2. [NAME]' defence denied knowledge of the alleged misappropriations. She too made no admissions that [NAME] was entitled to any of the relief claimed.

3. On 8 July 2019, there was a mediation in the proceedings. It was unsuccessful. Following its failure, [NAME] wrote to [NAME] and [NAME]' solicitors, Yeldham Price O'Brien Lusk ("[NAME]"), indicating that [NAME] was open to resolving the proceedings.

4. This resulted in a further [NAME] letter from [NAME], sent on 11 July. Under the offer [NAME] would make over to [NAME] the [COMPANY] (subject to the registered mortgages on those properties); the Wisemans Ferry cabin; and the boat. If [NAME] preferred, he would sell the [COMPANY] and pay the net proceeds over to [NAME]. [NAME] would also "consent" to the $393,000 [NAME] had paid into Court, together with accrued interest, being released to [NAME]. Again, the offer required entry into a formal deed of release which would include confidentiality and non-disparagement clauses. 5. [NAME] noted in passing that the monies in the joint account had been exhausted by payments for living expenses and legal fees (which were permissible under the freezing orders). This does not appear to have been disputed.

6. The offer also contained no interest in the [NAME]. [NAME] argued that, of the sums paid towards the [NAME] which were the subject of [NAME]'s proprietary claim, only a maximum of $142,417 (representing monies which passed through the Power Saver account: see J [141]) could give rise to a proprietary entitlement. In particular, they argued, citing Re Diplock [1948] Ch 465 (see J [202]), that the building expenditure (J [91]) did not give rise to any proprietary interest in the property. 7. [NAME] also argued that [NAME] would have trouble enforcing any proprietary claim, once established. On division of the assets in the family law proceedings, [NAME] would be claiming at least fifty per cent and up to seventy per cent of the value of the [NAME]. As a minority holder in the property [NAME] would not be able to obtain an order for sale (presumably referring to an application under the Conveyancing Act, s 66G). Any security interest [NAME] might obtain could not be exercised while the Family Law proceedings were pending, and they were likely to be protracted. 8. [NAME] stated that, if [NAME] accepted the offer, it would be better off. In addition to the monies in Court, [NAME] would receive $776,763 (presumably the value of the equity in the [COMPANY], the cabin and the boat) immediately. This was to be compared with a maximum amount of $660,380 recoverable under [NAME]'s proprietary claims. 9. [NAME] did not accept the offer and the proceedings continued. On 16 [NAME] commenced her foreshadowed proceedings under the Family Law Act ("FLA proceedings") in the Family Court. The property division she claimed in her originating application was that she should receive the [NAME] (unencumbered) and [NAME] should retain the [COMPANY], the cabin and the boat. He was also to receive the monies in court (subject to [NAME]'s claim). On 11 November a response was filed for [NAME] consenting to the division claimed.

10. The effective opposition to [NAME]' FLA claims came from [NAME]. As noted at J [11], [NAME] applied to the Family Court for orders restraining [NAME] from pursuing its claim in these proceedings to the [NAME]. On 12 December the application was refused and the Family Court intimated that the FLA proceedings would be transferred to this Court.

11. The final relevant offer was made by [NAME] by letter dated 20 December 2019. The offer involved the making of specified consent orders. Those proposed orders contained two declarations. The first would give [NAME] ownership of the $393,000 held in Court together with accrued interest, which was to be paid out forthwith. The other declaration would give [NAME] a charge over the [NAME] in the sum of $300,000. If that amount was not paid by 30 June 2000 [NAME] consented to [NAME] applying for an order for judicial sale of the property. There was to be no order as to costs.

12. The offer also provided for the notation of an agreement that [NAME] would not oppose an order in the FLA proceedings giving [NAME], upon satisfaction of the charge, ownership of the [NAME]. The offer was subject to "the parties" entering into "documentation satisfactory to all parties" "including, but not limited to" a "settlement deed". 13. [NAME] did not accept the offer. The FLA proceedings were transferred to this Court and fixed for hearing alongside these proceedings. On 10 July 2020, shortly before the trial was to begin, [NAME] notified amendments to her FLA application. Instead of leaving the monies in Court to [NAME] claimed for herself any monies not subject to [NAME]'s charge. I infer that this amendment was prompted by the realisation that, on conventional tracing principles, [NAME] would only be able to establish a proprietary entitlement to some of the monies in court (as counsel for [NAME] argued in his submissions, and I accepted: see J [256]-[258]).

14. The proprietary relief obtained by [NAME] is less extensive than that which had been claimed. It is also less extensive than was sought in a [NAME] offer made by [NAME] in November 2019. Counsel for [NAME] did not rely on that offer. Costs were sought on an ordinary basis only. 15. [NAME] sought an order that [NAME] pay its costs of the proceedings. [NAME] opposed this claim. He argued that the proceeding were unnecessary because [NAME] could, and should, have accepted the offers which were made to it by [NAME]. [NAME] also referred to the financial hardship, including probable bankruptcy, that would result from the proceedings. He referred to hardship not only for himself but also for [NAME] and their children.

16. Costs are not awarded as a form of punishment but in order to compensate the successful party for the expense to which it has been put. Rarely, if ever, could financial hardship for the unsuccessful party be a reason not to award costs. In the present case, on my findings, the proceedings resulted from the fraudulent conduct of [NAME]. He cannot legitimately complain about the financial consequences of the claim against him. 17. [NAME] has obtained judgment against [NAME] in the sum of more than $3 million. It has obtained charges over his property securing more than $630,000. This was less than the charges claimed but on any view [NAME] has enjoyed substantial success in the proceedings. Costs must follow the event unless there is some good reason to the contrary.

18. It is sufficient to consider [NAME]'s [NAME] letter, which was more favourable to [NAME] than the first. The proprietary claims made by [NAME], the assets offered in the [NAME] letter, and the charges ultimately obtained by [NAME] are shown in the following table: Claim Offer Judgment [NAME] $453,134 - $237,480 $398,340 [COMPANY], cabin and boat $517,963 $776,763 $188,390 $235,185 Monies in Court $392,897 $392,897 $286,215 $312,740 Totals $1,363,994 $1,169,660 $712,085 $946,265

1. It will be recalled that [NAME]' offer was to "consent" to the release of the monies in Court. This reflects the fact that in law, as between [NAME] and [NAME], those monies belonged to her. Strictly speaking, it may be that they should not form part of the comparison for present purposes. Even so, on the figures in the table [NAME] was substantially less successful on its proprietary claim than the offer allowed (although there is no evidence to support the valuation of $776,763 in the letter for the assets offered).

2. But acceptance of the offer would have required [NAME] to give up the judgment and to agree to a confidential settlement with non-disparagement obligations. These terms were not defined and strictly speaking the "offer" was therefore not capable of acceptance. There is, however, a more fundamental problem.

3. For the purposes of offers under the Rules, the comparison is between the judgment offered and the judgment obtained. On the face of it, the same should be so for a [NAME] offer. I am not sure it would be proper to deprive a successful plaintiff of costs on the basis of an offer less than the amount of the judgment ultimately obtained, on the ground that the amount offered is more than the plaintiff is ultimately likely to recover. If that is permissible at all, it seems to me that it could only be justified where it is indisputably clear that the plaintiff was being uncommercial and unreasonable in rejecting the offer.

4. In the present case it was, in my view, reasonable for [NAME] to pursue the proceedings for the purpose of obtaining judgment against [NAME], irrespective of whether anything could be collected under it. Nor could [NAME] reasonably be required to accept a confidential settlement with non-disparagement obligations. [NAME] has a legitimate commercial interest in making an example, publicly, of those who defraud it.

5. In any event, in the present case it is far from clear that [NAME]'s rejection of the offer and pursuit of judgment was uncommercial. Although the result of the proceedings leaves [NAME] with more equity than his offer did, [NAME] appears likely to be [NAME]' major creditor. Whether or not bankruptcy ensues [NAME] is likely to be the major beneficiary of any equity [NAME] has retained. Contrary to the suggestions made in [NAME]'s letter, it is far from clear that the equity in [NAME]' share of the [NAME] will necessarily go to [NAME].

6.

For these reasons, [NAME] did not act unreasonably in failing to accept the offer. There will be an order for costs in favour of [NAME] against [NAME]. 7. [NAME] likewise sought an order for costs against [NAME] on the ordinary basis. But counsel for [NAME] contended to the contrary. Counsel submitted that [NAME] should be ordered to pay [NAME]' costs of the proceedings, on an indemnity basis or alternatively on the ordinary basis, from 20 December 2019. (This was the date of [NAME]'s offer, even though the offer was open for acceptance for one month, but it will not be necessary to go into that particular detail.)

8. It will be recalled that, as against [NAME] obtained: 1. judgment (jointly with [NAME]) in the sum of $256,662; and 2. payment of the sum of $312,740 out of the money in Court, with the balance reverting to the ownership of [NAME].

1. Counsel relied first on the letter of offer. Counsel submitted that the letter offered [NAME] more than it actually obtained as against [NAME]. Counsel also pointed out that [NAME] succeeded in defeating [NAME]'s claim based on wider-than-conventional tracing rules (J [146]-[149]). She also succeeded on her indefeasibility defence to the proprietary claim against her share of the [NAME] (J [224]-[229]). She and [NAME] also succeeded in defeating [NAME]'s proprietary claim based on the building expenditure (J [201]-[207]).

2. Counsel pointed that in his submissions he did not argue against tracing on the conventional basis which I adopted, or against the restitutionary basis on which [NAME] obtained its judgment. Counsel characterised the result of the proceedings as a complete victory for [NAME].

3. I will deal first with the December 2019 [NAME] letter. Counsel's argument presented the letter as an offer by the [NAME] defendant alone. This is consistent at first sight with the terms of the letter. It did not purport to deal with the claims against [NAME]. But on examination problems arise.

4. The first problem is that the letter was subject to entry into formal documentation, the terms of which were not specified. On no view was the letter in a form which was capable of immediate acceptance. Furthermore, [NAME] would have had to join in the offer so as to provide the security offered over the [NAME], which was jointly owned. It would not have been possible for [NAME] to accept the offer and simply go on with its claims against [NAME]. In my view, the "offer" was ineffective for costs purposes for that reason alone.

5. Turning to the substance of the offer, while it is true that [NAME] offered [NAME] the whole of the monies in [NAME] only received payment of part of them, [NAME] does not as a result of my judgment get to keep the balance. Instead the ownership of those monies will be transferred back to [NAME] where they will be available to meet [NAME]'s claim as an unsecured creditor.

6. More importantly still, under the terms of the offer, [NAME] would have had to give up any recovery from the [NAME] beyond the $300,000 offered. This reflected [NAME]' litigation strategy. Her objective was clearly to obtain as much equity in the [NAME] as she could through the FLA proceedings (with the apparent co-operation of [NAME]). It served her purposes in these proceedings for the [NAME] to be left unencumbered, or with as little encumbrance as possible. Indeed, now that [NAME]'s proprietary claim against the boat has failed, [NAME] has amended her claim in the FLA proceedings to include the boat as well.

7. The objective is perfectly understandable but the orders made in this litigation have not attained it. [NAME] has defeated [NAME]'s proprietary claim against her share of the property, but she has suffered a judgment against her which, if satisfied out of the charge over [NAME]' share of the property, will result in a contribution claim back against her for half. Furthermore, [NAME]'s judgment against [NAME] which will allow it as creditor to resist [NAME]' claim to obtain the rest of the property from [NAME]. Whether that claim will eventually succeed is very much an open question.

8. Finally, for reasons I will give in a moment, at the time the offer was made [NAME] was entitled to a costs order in its favour. This was not reflected in the offer, which would have required [NAME] to give up that entitlement (seemingly, as against both [NAME] and [NAME]).

9. I am not satisfied that [NAME]'s refusal of the offer was unreasonable. I do not think the offer displaces the usual rule as to the incidence of costs as between [NAME] and [NAME].

10. Counsel for [NAME] did not seek any order against [NAME] with respect to the period prior to 20 December 2019. This is not surprising. The relief obtained by [NAME] against [NAME] was less than that which had been sought but it was financially significant. 11. [NAME] in her defence did not admit any of [NAME]'s claims. The indefeasibility defence was only raised in June 2020, shortly before the hearing. [NAME]' pleaded position right up to the hearing was that she did not admit that [NAME] was entitled to a charge for any particular amount over the [NAME] (or any of the other assets). This reflected her overall litigation strategy.

12. But it is correct, as counsel for [NAME] pointed out, that [NAME] failed on all of the points of substance raised in [NAME]' submissions at the trial. Having said that, although counsel for [NAME] did not affirmatively argue against the relief ultimately granted, he did not volunteer any submission to any particular orders either.

13. Once the hearing began, and the FLA proceedings dropped away, I think the result may be fairly characterised as a draw. In my view the appropriate order is that [NAME] should pay [NAME]'s costs up until her written submissions were served on 10 July. Thereafter there should be no order as to costs as between [NAME] and [NAME].

14. Initially counsel for [NAME] sought an order that [NAME] pay [NAME]'s whole costs of the proceedings. In response, counsel for [NAME] pointed out that she was not joined as a party until after the proceedings were begun. Counsel for [NAME] responded by restricting the claim for costs to the period after 18 March 2019, the date of [NAME]' joinder. But there may have been costs after that date which were referable solely to the claim against [NAME].

15. Where a plaintiff sues more than two defendants, fails against one and succeeds against the other, an order for costs in favour of the plaintiff against the unsuccessful defendant means, unless there is some specification to the contrary, that the defendant must pay the plaintiff's costs of the claim against that defendant: [redacted]

16. Quantifying the costs in this way may create some complication in practice. It will be necessary to divide the costs into three categories: 1. costs solely referable to the claim against [NAME]; 2. costs solely referable to the claim against [NAME]; and 3. costs common to both claims. [NAME] will be liable for the costs in category (1), [NAME] will be liable for the costs in category (2), and they will both be jointly and severally liable for the costs in category (3).

1. Category (3) is likely to be the largest. Separating out and quantifying the costs in categories (1) and (2) may not make a great deal of difference. But there is a real possibility that [NAME] will become bankrupt. [NAME] is entitled to insist on not being liable for any costs solely referable to the claim against him. Whether the parties find it necessary to proceed all the way to assessment of each category remains to be seen.

Orders 1. The final orders made on 6 November were:

1. Judgment for the plaintiff against the first defendant, on account of the monies obtained from the plaintiff by the first defendant by fraud, in the principal sum of $2,098,608, together with pre-judgment interest of $937,984, totalling $3,036,592.

2. Judgment for the plaintiff against the [NAME] defendant (jointly with the first defendant), on account of the $290,000 repayment made on the [NAME] mortgage on 17 May 2010, in the principal sum of $237,480, together with pre-judgment interest of $19,182, totalling $256,662.

3. Declare that the plaintiff is entitled to an equitable charge over the following properties: 1. the first defendant's undivided one-half share in the property at [ADDRESS], [NAME], NSW (being the land comprising Lot 68 in Deposited Plan 879724) ([NAME]), to secure payment of the principal sum of $237,480, together with pre-judgment interest of $160,860, totalling $398,340 owed to the plaintiff by the first defendant (of which an amount of $256,662 is owed jointly by the first defendant and the [NAME] defendant pursuant to Order 2 above); 2. the property at [ADDRESS], [NAME], QLD (being the land comprising Lot 66 in Survey Plan 249241, Title Reference 50961745) ([ADDRESS]), to secure payment of the principal sum of $35,400, together with pre-judgment interest of $12,107, totalling $47,417 owed to the plaintiff by the first defendant; 3. the property at 2 Apple Circuit / [ADDRESS], [NAME], QLD (being the land comprising Lot 1 in Survey Plan 278271, Title Reference 51006868) (Apple Circuit Property), to secure payment of the principal sum of $62,990, together with pre-judgment interest of $17,256, totalling $80,246 owed to the plaintiff by the first defendant; 4. the moveable cabin in the name of the first defendant at the [NAME] at Wiseman's Ferry, NSW (Cabin), to secure payment of the principal sum of $90,000, together with pre-judgment interest of $17,522, totalling $107,522 owed to the plaintiff by the first defendant.

1. Declare that the disposition of amounts of money totalling $405,000 by the first defendant to the [NAME] defendant in December 2018 is void pursuant to s 37A of the Conveyancing Act 1919 (NSW).

2. In respect of the sum of $392,897 that was paid into Court by the [NAME] defendant, being the balance of the amounts of money totalling $405,000 by the first defendant to the [NAME] defendant in December 2018 (Monies in Court):

1. Declare that the first defendant is the owner of the Monies in Court, together with any interest earned thereon;

2. Declare that the plaintiff is entitled to an equitable charge over the Monies in Court, together with the interest earned thereon, to secure payment of the principal sum of $286,215, together with pre-judgment interest of $26,525, totalling $312,740 owed to the plaintiff by the first defendant;

3. Order that the sum of $312,740 be paid out of Court to the plaintiff forthwith; and 4. Order that the balance of the Monies in Court remain in Court until further order, and that any further orders in respect of those monies are to be made in the Family Law proceedings between the first defendant and the [NAME] defendant.

1. The orders the Court now makes on costs are:

1. Order that the first defendant pay the plaintiff's costs of its claim against him.

2. Order that the [NAME] defendant pay the plaintiff's costs of the claim against her up to 10 July 2020, and thereafter that there be no order as to costs as between the plaintiff and the [NAME] defendant.

**********

Amendments 02 March 2021 - amend [80] to add "of the claim against that defendant" 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: 02 March 2021