Perpetual Trustee Company Limited v El-Bayeh (No. 2) [2011] NSWSC 1049 (9 September 2011)

Last Updated: 16 September 2011

Supreme Court New South Wales

Case Title:	Perpetual Trustee Company Limited v El-Bayeh (No. 2)
Medium Neutral Citation:	[2011] NSWSC 1049
Hearing Date(s):	25 March 2011 and on written submissions
Decision Date:	09 September 2011
Jurisdiction:
Before:	McCallum J
Decision:	Judgment for Perpetual against David El -Bayeh for $181,982.87 plus interest at the loan agreement rates from 1 September 2006 to 17 February 2010; David El-Bayeh to pay that amount within 28 days of its quantification as agreed or determined by the Court; Perpetual to pay half of David El-Bayeh's costs of that claim, such costs to be assessed on the ordinary basis; Perpetual's claim against CTC dismissed; Perpetual to pay CTC's costs of that claim, such costs to be assessed on the ordinary basis; Perpetual's claim against Mr Saadie dismissed with no order as to costs; Judgment for Perpetual against Youssef El-Bayeh in the amount of $298,017.13 plus interest from 11 October 2004 to the date of judgment pursuant to section 100 of the Civil Procedure Act 2005; Youssef El-Bayeh to pay Perpetual's costs of that claim (including the costs it has been ordered to pay to David El-Bayeh), Perpetual's costs against Youssef El-Bayeh to be assessed on an indemnity basis; Judgment for David El-Bayeh against Youssef El-Bayeh on the first cross-claim for $113,465.19; David El-Bayeh have leave to discontinue the second cross claim against CTC with no order as to costs; third cross claim brought by Youssef El-Bayeh against David El-Bayeh dismissed; Youssef El-Bayeh to pay David El-Bayeh's costs of the first and third cross claims, the costs on the first cross-claim to be assessed on an indemnity basis.
Catchwords:	MORTGAGES - forged mortgage - security for amount payable by way of restitution - whether mortgagee entitled to an order for possession based on failure to pay before order for restitution made COSTS - general rule that costs follow the event - multiple issues - plaintiff successful in obtaining order for restitution - defendant otherwise successful - indemnity costs - Calderbank letters INTEREST - amount ordered by way of restitution - appropriate rate of interest - whether payable for period before defendant aware of plaintiff's payment under mistake - whether payable for period after plaintiff's failure to accept Calderbank offer
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
Cases Cited:	Calderbank v Calderbank (1976) Fam 93 Degmam Pty Ltd (in Liq) v Wright (No. 2) (1983) 2 NSWLR 354 Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306 Noon v Bondi Beach Astra Retirement Village Pty Ltd (No. 2) [2010] NSWCA 285 Perpetual Trustee Company Limited v El-Baheh [2010] NSWSC 1487 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323
Texts Cited:
Category:	Consequential orders
Parties:	Perpetual Trustee Company Limited (Plaintiff) David El-Bayeh (First defendant) CTC Group Pty Ltd (Second Defendant) Michael Saadie (Third Defendant) Youssef El-Bayeh (Fourth Defendant)
Representation
- Counsel:	Counsel J. Simpkins SC (Plaintiff) R. McKeand SC / A. Stenhouse (First Defendant) G. M. Gregg (Second Defendant) C. W. Robinson (Fourth Defendant)
- Solicitors:	Solicitors Gadens Lawyers (Plaintiff) Parramatta City Legal (First Defendant) Gilchrist Connell (Second Defendant) Cambridge Law (Fourth Defendant)
File number(s):	2006/266040
Publication Restriction:	None

Judgment

1. These proceedings were heard by me last year and decided on 21 December 2010: see Perpetual Trustee Company Limited v El-Bayeh [2010] NSWSC 1487. The proceedings are brought by Perpetual Trustee Company Limited to enforce a loan agreement and a mortgage allegedly given as security for the loan. The registered proprietor of the mortgaged property is the first defendant, Mr David El-Bayeh. He has contended from the outset that the transaction documents are forgeries created or arranged by his brother, Youssef El-Bayeh (the fourth defendant).

2. The amount of the loan was $480,000. Of that sum, $181,982.87 was applied to discharge an earlier mortgage over the property given to Westpac Bank. The balance was paid into a Westpac account opened in David El-Bayeh's name but not used by him. David El-Bayeh contends that the Westpac mortgage was also a forgery.

3. In the principal judgment, I found in favour of David El-Bayeh on the forgery issues. I found that both the Perpetual mortgage and the Westpac mortgage had been forged and that those transactions were entered into without his knowledge, authority or consent (at [130] and [143] respectively). Although it was not possible to determine precisely how the forgeries had been created, I found that Youssef El-Bayeh participated in the Perpetual forgeries (at [163]).

4. I found, however, that David El-Bayeh had been enriched by the payment of $181,982.87 made by Perpetual to discharge the Westpac mortgage, unjustly to the detriment of Perpetual, and that the Perpetual mortgage, being a registered mortgage, secures that sum notwithstanding the fact that it is forged (at [144] to [156]).

5. After the fraud allegations were pleaded by David El-Bayeh, Perpetual joined as defendants the mortgage originator, CTC Group Pty Limited and its principal, Mr Saadie (the second and third defendants respectively). I found that the claims against those parties should be dismissed (at [173]).

6. In light of my findings as to the mortgage, I concluded my judgment as follows [at 179]:

In light of my conclusion that the Perpetual mortgage is forged, it should not stand on the Register. However, it should only be discharged subject to some appropriate protection of Perpetual's entitlement to receive the sum of $181,982.87 from David El-Bayeh. Whether that should be achieved by David El-Bayeh paying that sum immediately or granting a fresh mortgage or charge over the land to secure that sum is an issue to which the parties may wish to give consideration. Accordingly, it is appropriate that I simply direct the parties to bring in short minutes of order in accordance with these reasons, failing agreement as to which I will list the proceeding for further hearing as to the form of orders I should make.

7. In directing the parties to bring in short minutes of order in accordance with my reasons, I omitted to nominate a period of time within which that should occur. By late March 2011, the parties having made no further contact with the Court, I re-listed the proceedings to inquire as to their progress in that respect. It transpired that there were several substantial disputes as to the orders that should be made to give effect to the judgment. The parties made further submissions orally and in writing directed to those issues. This judgment determines those disputes. I should record my regret as to my delay in turning to resolve those remaining disputes following the close of written submissions after the hearing.

Claim by Perpetual against David El-Bayeh

8. Notwithstanding the remarks I made at the conclusion of the principal judgment, David El-Bayeh does not seek the discharge of the forged Perpetual mortgage. The submissions of the parties as to the orders that should now be made proceeded on the premise that the forged mortgage could appropriately be enforced as security for any sum David El-Bayeh is ordered to pay by way of restitution for the payment by Perpetual of $181,982.87 to discharge the Westpac mortgage. It was submitted on behalf of David El-Bayeh (at T18.25) that it would be a waste of money to require Perpetual to bring separate proceedings for possession based upon any failure to pay the amount now to be ordered on that account. In my view, that is a sensible approach. The only further issue addressed by the parties in that respect was whether Perpetual is presently entitled to an order for possession based on a so-called failure to pay the relevant sum.

9. The orders now sought by Perpetual are set out in a document headed "Draft Order" provided to the Court when the proceedings were re-listed. As against David El-Bayeh, Perpetual seeks the following orders:

1. Judgment for the plaintiff, as against the first defendant, for possession of the whole of [the security property].

2. Leave to issue a writ for possession for the property.

3. Judgment for the plaintiff against the first defendant for $181,982.87 plus interest from 11 October 2004 to the date of judgment pursuant to section 100 of the Civil Procedure Act 2005 (NSW) (Secured Debt).

4. A declaration that [the mortgage] over the property secures the Secured Debt.

5. The plaintiff and first defendant to each bear their own costs.

10. Mr Simpkins of senior counsel, who appeared for Perpetual, explained as to order 5 that Perpetual's primary position is that, having been successful in obtaining relief against David El-Bayeh, Perpetual should have an order for costs against him. Proposed order 5 (that Perpetual and David El-Bayeh each bear their own costs) was put as an alternative, fall-back position, acknowledging that the Court may consider that David El-Bayeh's success in respect of the forgery allegations should be recognised in the costs orders.

11. David El-Bayeh's position in respect of the orders sought by Perpetual was:

(a) he disputed Perpetual's present entitlement to judgment for possession and leave to issue a writ (orders 1 and 2);

(b) he disputed Perpetual's entitlement to interest as claimed in order 3;

(c) he disputed Perpetual's entitlement to an order for costs and submitted that Perpetual should pay his costs on an indemnity basis from the date of one or other Calderbank offers made by him to Perpetual.

12. Seeking not to cavil with the principal judgment, David El-Bayeh did not dispute that the mortgage secures any amount he is ordered to pay by way of restitution for the amount of $181,982.87 paid by Perpetual to discharge the Westpac mortgage. I do not think a declaration to that effect is necessary, as sought in order 4.

Judgment for possession

13. Mr McKeand of senior counsel, who appeared for David El-Bayeh, submitted that there should not be an order for possession in circumstances where there has been no breach of the mortgage. He noted, in accordance with my findings in the principal judgment, that there is a bare mortgage on the title and no money owing that is secured by that mortgage until the Court makes an order in respect of Perpetual's claim for restitution.

14. In my view, there is force in those submissions. I do not see how there could be default under the mortgage based on the failure to pay an amount that has not yet been ordered by the Court and as to the quantification of which there is a dispute. The appropriate course is to order payment of a fixed sum within a specified period. As conceded on behalf of David El-Bayeh, Perpetual should have leave to move the Court for judgment for possession in the event that David El-Bayeh fails to make that payment within the time allowed by the order of the Court.

Interest

15. The amount of $181,982.87 by which I held that David El-Bayeh had been unjustly enriched was paid by Perpetual on 11 October 2004. As already noted, those funds were applied to discharge an earlier mortgage over the property given to Westpac.

16. The relief sought by Perpetual in the amended statement of claim did not include an order for payment of restitution in that sum. Perpetual sought judgment for the whole amount of $480,000 advanced pursuant to the (forged) loan agreement. However, having regard to the way in which the case was conducted, I rejected David El-Bayeh's contention that Perpetual was not entitled to seek an order for payment of an amount by way of restitution (at [151] of the principal judgment).

17. Perpetual now claims interest on that amount from the date of its mistaken payment on 11 October 2004 to the date of judgment. As to the rate of interest claimed, Perpetual notes that the interest rate prescribed in the loan agreement does not apply to the amount it paid, since that agreement was forged and does not bind David El-Bayeh. In those circumstances, Perpetual submits that it is entitled to interest under section 100(1) of the Civil Procedure Act 2005. That section provides:

(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:

(a) on the whole or any part of the money, and

(b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect.

18. Mr McKeand submitted that no interest should be included in the amount ordered to be paid by David El-Bayeh to Perpetual. He noted, first, that David El-Bayeh was innocent of the forgeries and the fraud and was unaware of them until some time in 2006. Secondly, he submitted that Perpetual must bear some responsibility for the fraud, all aspects of which were committed within its business operations and those of its agent, the mortgage originator CTC Group Pty Limited (the second defendant). Mr McKeand submitted that the forgeries and the fraud were preventable by Perpetual, as demonstrated by the disparity of signatures attributed to David El-Bayeh. In that respective, Mr McKeand relied upon [50], [124], [126] and [141] to [142] of the principal judgment. He also reminded me of evidence in the proceedings to the effect that anomalies in the signatures were in fact identified in a post-loan audit by Resimac (Perpetual's agent).

19. Finally, Mr McKeand noted that David El-Bayeh had made no use of the money knowing that it was money to which he was not entitled. In those circumstances, he submitted that fairness and justice would dictate that no interest should be charged against the liability and that, if Perpetual is entitled to compensation for its loss of the sum of $480,000 advanced against the forged mortgage, it should look to Youssef El-Bayeh for an award of interest on its judgment against him.

20. In the alternative, Mr McKeand submitted that, if Perpetual is entitled to interest, it should be calculated at the lower rate provided for in the loan agreement, notwithstanding the fact that the agreement is a nullity and does not bind his client. Mr McKeand submitted that the rates applicable in accordance with the loan agreement reflect the appropriate measure of compensation to Perpetual, since they reveal the interest rate Perpetual was prepared to negotiate with people wishing to borrow money during the relevant period.

21. In response to those submissions, Perpetual relied upon the simple fact that the payment it made discharged an obligation secured by the Westpac mortgage. It was thus an obligation that David El-Bayeh would otherwise have been subjected to in order to obtain the discharge of that mortgage. Perpetual contends, further, that it is not even entitled to judgment in the full amount of $480,000 against Youssef El-Bayeh (since part of the funds were applied to discharge the mortgage) but that, even if that were not the case, it would nonetheless be appropriate to award interest on the benefit received by David El-Bayeh, subject only to the fact that there could be no double recovery.

22. I should note a separate submission put by Mr McKeand that there should be no award of interest beyond certain dates by reason of the application of section 100(4) and (5) of the Civil Procedure Act . Mr McKeand relied in that respect upon settlement offers made by David El-Bayeh on 4 November 2009 and 17 February 2010 and his offer made on 28 February 2011 to pay the amount awarded against him in the principal judgment.

23. Subject to the need to consider the discrete issue of the settlement offers, in my view Perpetual is entitled to some interest on the amount paid to discharge the Westpac mortgage. A plaintiff who obtains an award for the payment of money is generally entitled to an award of interest to ensure that he is properly compensated for the loss suffered.

24. In the principal judgment, I found that the signatures attributed to David El-Bayeh on the Westpac transaction documents were forged and that David El-Bayeh had no knowledge of the Westpac loan (at [130]). I held, however, that on its proper construction the Westpac mortgage nonetheless secured the sum of $181,982.87 paid by Perpetual to discharge that mortgage (at [155 to156]). It was on the strength of those findings that I held that David El-Bayeh should, in conscience, be ordered to pay that amount to Perpetual. I see no reason why Perpetual should be left to look to the fraudster for compensation for the interest it has lost on an advance that benefited David El-Bayeh (in that it removed a charge on his land).

25. However, I am not satisfied that Perpetual is entitled to interest at the rates or for the period claimed. As to the rate, I think there is force in Mr McKeand's submission that the interest rate in the loan agreement, although not contractually binding, stands as proof of the interest the amount paid by mistake might have earned.

26. As to the period for which interest should be awarded, I do not think there should be any award for the period during which David El-Bayeh was ignorant of the fraud. During that period, discovery (if not prevention) of the fraud was within the control of Perpetual and beyond the knowledge or control of David El-Bayeh. He had received a benefit, but did not know it, and thus had no ability to make restitution for it during that period.

27. I am fortified in reaching that conclusion by the judgment of Allsop P in Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 at [162] to [164]; Campbell JA and Handley AJA agreeing at [179] and [180] respectively. In that case, the President said (albeit in a slightly different context) that the time when an obligation arose in equity touching the conscience of a volunteer who had received misappropriated funds was the date on which she "received notice of the claim or when she otherwise became aware that she had property paid for with the misappropriated funds" (at [164]).

28. On that analysis it follows, in my view, that, subject to the issue of the settlement offers, Perpetual is entitled to interest at the rate under the Perpetual loan agreement from 1 September 2006, which is about the time when David El-Bayeh became aware of the fraud (see [65] of the principal judgment).

29. Mr McKeand submitted that I would reach the same conclusion by a different path, since 1 September 2006 was the date on which the Perpetual loan fell into default, meaning that Perpetual was receiving due interest until that date. Perpetual disputed that contention. In light of my conclusion stated above, it is not necessary to determine that issue.

Settlement offers

30. On 30 October 2009, Perpetual's solicitor wrote to David El-Bayeh's solicitor to inform him that they had received a "without prejudice" settlement offer from CTC (that offer is considered separately below). The letter stated that Perpetual would only consider a global offer of settlement including David El-Bayeh and Youssef El-Bayeh. To that end, the letter invited David El-Bayeh to make an offer of settlement.

31. In response to the letter, by letter dated 4 November 2009, David El-Bayeh offered to settle the proceedings on terms, first, that he pay the sum of $185,000 to Perpetual in discharge of the mortgage and, secondly, that Perpetual and Youssef El-Bayeh pay his costs. On 17 February 2010, David El-Bayeh advanced a further offer to settle the proceedings on the same terms except that he increased the amount offered to $250,000.

32. David El-Bayeh relies on those offers in support of the contention that, in accordance with section 100(4) of the Civil Procedure Act , no interest should be awarded on the amount of $181,982.87 after the date of one or other of those offers. The settlement offers are also relied upon in support of a claim that Perpetual should pay David El-Bayeh's costs of the proceedings on an indemnity basis. That contention is considered separately below.

33. As submitted by Mr McKeand, section 100 is a little tricky. Section 100(1) governs " proceedings for the recovery of money (including any debt or damages or the value of any goods)". However, section 100(4) and (5) (which deal with the impact of settlement offers on awards of interest) in terms govern only proceedings for damages. Those sections provide:

(4) In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order.

(5) For the purposes of subsection (4), "appropriate settlement sum" means a sum offered in settlement of proceedings in which the amount for which judgment is given (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent.

34. Mr McKeand submitted (with some ingenuity) that section 100(4) nonetheless applies to these proceedings because damages were claimed, not against his client but against others. He noted that the Civil Procedure Act distinguishes (including in section 3 of the Act) between "claims" and "proceedings" so that, although there was no claim for damages against his client, the proceedings are properly characterised as "proceedings for damages" within the meaning of section 100(4).

35. Mr McKeand submitted on that analysis that I was not bound or even entitled to focus on the fact that there was no claim for damages against David El-Bayeh. It was enough that the proceedings were for damages. With great respect to Mr McKeand, I think that is a strained reading of the section. The reference to the offer of "an appropriate settlement sum" should be read, in my view, as a reference to an offer in respect of the damages the subject of the proceedings. Accordingly, on a strict reading of the section, David El-Bayeh's offers may not fall within the terms of section 100(4).

36. On the other hand, it is difficult to think of any reason in principle why similar considerations might not be taken into account in proceedings for the recovery of money by way of restitution. It may be noted that section 100(1) confers a broad discretion in respect of the award of interest and expressly contemplates that interest may be awarded for part only of the period from the time the cause of action arises until the time the judgment takes effect. In my view, having regard to the public interest in promoting the settlement of legal proceedings, it is plainly open to the Court to take settlement offers into account in exercising the discretion to include interest in the amount for which judgment is given for a claim other than for damages, even if section 100(4) does not apply in terms.

37. A calculation of interest on the amount of $181,982.87 based on the interest rates under Perpetual's loan agreement was provided to the Court but I do not think it was accepted as accurate by Perpetual. According to that calculation, the interest to which Perpetual would be entitled up to the date of the first settlement offer is $44,617.91. It follows that the first offer was plainly short of the mark. The second settlement offer, however, was not. Interest accrued up to that time (based on the loan agreement rates) was $48,304.72. The amount offered was $250,000, about $20,000 more than the amount for which judgment will be given including interest accrued up to and including the date of the offer.

38. It was submitted on behalf of Perpetual that the Court must have regard to the fact that it was a term of the offer that Perpetual (and Youssef El-Bayeh) pay David El-Bayeh's costs. Perpetual submitted that, in the absence of any quantification of those costs, it has not been established that the offer exceeded the amount for which judgment will be given. I am not persuaded that I should reject Mr McKeand's submission on that account.

39. Section 100(4) directs attention to the need to consider the offer inclusive of interest up to the date of the offer but makes no reference to costs. It may be concluded that the section speaks only to the adequacy of the quantum of damages offered (shorn of the complexities of costs). The section may thus be seen as a soft encouragement to accept adequate offers by the relatively mild sanction of depriving a recalcitrant offeree of the time value of his money from the point when he could have had it. More draconian consequences are visited upon a party who unreasonably refuses to accept an offer that comprehends the position as to costs.

40. The second offer substantially exceeded the amount to which Perpetual is entitled on its restitutionary claim (including interest). If there was a risk that the benefit of the offer might be eroded by the term as to costs, quantification of the costs could have been sought or further correspondence otherwise entered into. In my view, the second offer was an appropriate offer at that point and its acceptance would have obviated further loss of interest on the part of Perpetual. Even if section 100(4) does not apply in terms to Perpetual's claim, I think that is a significant consideration in deciding upon the period for which interest should be allowed.

41. For those reasons, I have concluded that the appropriate order is that there be judgment for the plaintiff against the first defendant for $181,982.87 plus interest at the plaintiff's loan agreement rates from 1 September 2006 to 17 February 2010. On the calculations provided by David El-Bayeh, that gives an amount of $230,287.59. Unless Perpetual wishes to be heard as to that calculation, I propose that judgment be entered in that sum.

Costs

42. My conclusion as to that issue is based upon considerations relating to the purpose of the power to include interest in a judgment sum and the specific provisions of the Civil Procedure Act relating to that power. Different considerations apply to the question of costs. I am not persuaded that Perpetual should be ordered to pay David El-Bayeh's costs on an indemnity basis on the strength of its failure to accept either offer made by him.

43. By reason of their inclusion of a claim for costs, the offers made by David El-Bayeh were not operative as offers of compromise under the Uniform Civil Procedure Rules . Accordingly, the offers could only found a special costs order on the basis of the principles relating to Calderbank letters (from Calderbank v Calderbank (1976) Fam 93).

44. As noted in Perpetual's written submissions, the correct approach to determining the effect of a Calderbank offer was stated by Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37], where his Honour said:

The Council was also entitled to orders that the Third Party Defendants pay its costs unless the court otherwise ordered: Pt39 r1A. The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank (1976) Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Lt v Kenny & Good PtyLtd (1996) 70 FLR 235.

[emphasis added]

45. Perpetual also referred to the decision of the Court of Appeal in Noon v Bondi Beach Astra Retirement Village Pty Ltd (No. 2) [2010] NSWCA 285 at [11] per Giles, McFarlan and Young JJA, where it was noted that the reasonableness of a decision not to accept a settlement offer is not to be determined with hindsight. The strength or otherwise of the claim should be considered prospectively as at the time of the offer.

46. Those principles recognise that the public interest in promoting the settlement of legal disputes is not blind to the complexity of predicting the likely outcome of legal proceedings. That is an important consideration in a case such as the present. Forged mortgage cases frequently generate claims against multiple defendants and multiple cross claims as between defendants and against the lender. Disturbingly, such claims often involve allegation and counter allegation of forgery among members of the same family.

47. The complexities of the competing claims in the present case were considerable. David El-Bayeh (and CTC in its separate claim for indemnity costs) placed considerable emphasis on the obvious anomalies in the appearance of various signatures attributed to David El-Bayeh but that was by no means the whole picture. As is made clear in the principal judgment, the trial raised substantial issues of credit and had the additional complexity of the absence of a critical witness (the person who processed the loan application on behalf of CTC).

48. Further, it was effectively acknowledged on behalf of David El-Bayeh that, as to the amount paid to discharge the Westpac mortgage, there could be little contest as to his having received the benefit of that amount. In those circumstances, I do not think it could be said to have been unreasonable of Perpetual not to accept the first offer, which was to pay approximately that amount but on terms that would inevitably erode the benefit of the payment (by reason of the claim for payment of David El-Bayeh's costs by Perpetual).

49. The offer made on 17 February 2010 went further, but still included the term that Perpetual (and Youssef El-Bayeh) should pay David El-Bayeh's costs. It is not possible for the Court to judge whether Perpetual has ended up "worse off" than if the offer had been accepted. Further, as stated by Giles JA in SMEC , even if it has, that does not in itself warrant departure from the position reached by reference to the ordinary rule that costs should follow the event.

50. For the reasons already stated, I do not think the failure to accept either offer was unreasonable, prospectively assessed. As noted on behalf of Perpetual, it was faced with a contest as between David El-Bayeh and Youssef El-Bayeh as to the alleged fraud and was in no position to know how that contest would be resolved. I accept, as submitted on behalf of Perpetual, that it was entitled to take the view that the outcome of the fraud allegations would be critically dependent upon the credit of each defendant as a witness.

51. In all the circumstances, I am not persuaded that the plaintiff's failure to accept the second offer warrants a departure from the determination of costs by reference to the usual rule.

52. However, I do not accept Perpetual's characterisation of the outcome of the proceedings for the purpose of the application of that rule. Mr Simpkins submitted that, being entitled to an order for payment of the sum of $181,982.87, Perpetual won. I was reminded in that context of the Court's reluctance to apportion costs according to the parties' success on individual issues (the relevant principles are summarised in detail in the decision of Ward J in McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306, extracted at length in Perpetual's written submissions).

53. However, as submitted by Mr McKeand, the principal contest at the hearing was the forgery issue. By far the most time of the hearing was spent on that issue. There was almost no contest as to Mr El-Bayeh's obligation to give restitution for the sum paid to discharge the Westpac mortgage. In my view, in succeeding on the fraud allegation, David El-Bayeh enjoyed a substantial measure of success in the proceedings. I have concluded that the appropriate order is that Perpetual should pay half of David El-Baheh's costs of the proceedings. For the reasons already indicated, those costs should be assessed on the ordinary basis.

Claim against CTC

54. The orders sought by Perpetual in respect of its unsuccessful claim against CTC are:

(1) that the plaintiff's claim against the second defendant be dismissed;

(2) that the plaintiff pay the second defendant's costs from the date of withdrawal of the second cross claim.

55. The reference to the second cross claim is David El-Bayeh's cross-claim against CTC, which he indicated at the outset of the hearing was not pursued. Its significance so far as Perpetual is concerned is that it was David El-Bayeh who first joined CTC in the proceedings. It was only after that cross-claim was filed that Perpetual brought its own claim against CTC.

56. CTC seeks an order that the plaintiff pay its costs "on a party/party basis" up to and including 18 November 2009 and on an indemnity basis thereafter.

57. The basis for that application is a Calderbank offer made on 21 October 2009 offering to settle the plaintiff's claims against CTC and Mr Saadie in the sum of $30,000 inclusive of costs.

58. As already noted, I held in the principal judgment that Perpetual's claim against CTC must be dismissed (at [173]). For the reasons already explained, however, it does not follow, from that fact in itself, that it was unreasonable of Perpetual to reject the offer.

59. In addition to the matters summarised above, Perpetual relies on the following considerations which presented themselves at the time the offer was made. If David El-Bayeh had been defrauded by Youssef El-Bayeh, it followed that he could not have been present and had his signature witnessed by the person who dealt with the loan application within CTC, Mr Naaman. As already noted, Mr Naaman was not called to give evidence. CTC had put on no direct evidence as to what steps Mr Naaman had taken to satisfy himself that he was dealing with David El-Bayeh. Mr Naaman had given a description of David El-Bayeh which is difficult to reconcile with his passport photograph used for the purpose of the 100 point check.

60. CTC submitted that, at the time the offer was made, Perpetual was equipped with sufficient knowledge to make an informed decision regarding that offer. In my view, considered prospectively and fairly (excluding knowledge of the findings I have in fact made), it would have been an extremely difficult prediction to make at the time the offer was received. I recorded in my judgment (at [172]) that the proposition that a mortgage originator could defeat a claim based on a forged mortgage without calling evidence from the person who put forward the transaction was surprising. I do not think Perpetual's failure to predict that result at the time the Calderbank offer was made could fairly be characterised as unreasonable so as to warrant the imposition of indemnity costs.

61. Separately, it is necessary to address the fact that the orders sought by Perpetual contemplate payment of CTC's costs only from the date on which David El-Bayeh withdrew his claim against CTC.

62. As noted at [8] of the principal judgment, it was indicated at the outset of the hearing that the second cross-claim was "not pursued". However, orders finally disposing of the cross claim were not sought at that time.

63. Perpetual submitted that, since CTC was brought into the proceedings at the suit of David El-Bayeh (and only joined as a defendant at the suit of Perpetual after that point), Perpetual should only bear the costs of its claim against CTC from the point of abandonment of the second cross claim by David El-Bayeh. I disagree. Whilst the quantum of any such costs is a matter for assessment, in my view it follows from the dismissal of Perpetual's claim against CTC that CTC is entitled to its costs of that claim from the time it was brought.

Claim against Mr Saadie

64. Perpetual seeks an order that its claim against the third defendant, Mr Saadie, be dismissed with no order as to costs. No different order was sought on behalf of Mr Saadie, who was unrepresented and did not participate in the hearing except as a witness. In my view, the order sought by Perpetual is appropriate.

Claims against Youssef El-Bayeh

65. Youssef El-Bayeh's solicitor filed a notice of ceasing to act on 25 March 2011 and he did not appear at the further hearing in respect of the orders that should be made by the Court. Perpetual seeks the following orders against Youssef El-Bayeh:

Judgment for the plaintiff against the fourth defendant in the amount of $298,017.13 plus interest from 11 October 2004 to the date of judgment pursuant to section 100 of the Civil Procedure Act 2005 (NSW).

That the fourth defendant pay the plaintiff's costs on an indemnity basis (including any costs it may be ordered to pay to any other party).

66. As to the inclusion in the order of any costs Perpetual may be ordered to pay to any other party, Perpetual relied upon the principles relating to Bullock orders summarised in the judgment of the Court of Appeal in Council of the City of Liverpool v Turano (No 2) [2009] NSWCA 176 at [14] to [16]. In light of my finding that Youssef El-Bayeh participated in the forgeries in the Perpetual transaction documents, I accept that it is appropriate in accordance with those principles to order him to pay the costs that Perpetual has been ordered to pay to David El-Bayeh.

67. I am not persuaded, however, that Youssef El-Bayeh should be visited with the costs of Perpetual's unsuccessful claim against CTC, which was dismissed for want of evidence.

First cross claim

68. The first cross claim was David El-Bayeh's cross claim against Youssef El-Bayeh. David El-Bayeh seeks an order for judgment on that claim for the difference between $181,982.87 and $68,517.68 (see [175] of the principal judgment). I am satisfied that it is appropriate to make an order in those terms.

69. David El-Bayeh further seeks an order that Youssef El-Bayeh pay his costs on an indemnity basis. In support of that claim, Mr McKeand relied upon a decision of Degmam Pty Ltd (in Liq) v Wright (No. 2) (1983) 2 NSWLR 354. I am satisfied that it is appropriate to make that order.

Second cross claim

70. The second cross claim was David El-Bayeh's cross claim against CTC, which was abandoned at the outset of the hearing. At the hearing in respect of the orders that should be made, I was informed that the claim was settled on terms providing that each party pay its own costs. However, as already noted, at the time the claim was abandoned, leave to discontinue the claim was not sought. Mr Simpkins submitted that leave is required and should be granted only on terms requiring David El-Bayeh to contribute equally to the costs incurred by CTC up to the point of time when his cross claim against CTC was abandoned on the first day of the trial.

71. It was acknowledged that an order in those terms would effectively interfere with the settlement between David El-Bayeh and CTC. I do not think that is the appropriate course. Plainly, CTC is only entitled (as against Perpetual) to such costs as it incurred as a result of the claim against it at the suit of Perpetual, as distinct from the costs it incurred in defending the cross claim brought by David El-Bayeh. That is a matter for assessment. In my view, David El-Bayeh should have leave to discontinue the second cross claim with no order as to costs so as to give effect to the settlement between those parties.

Third cross claim

72. The third cross claim was Youssef El-Bayeh's claim against David El-Bayeh. It was common ground that the proper orders in respect of that cross claim should be that the cross claim be dismissed and that the cross claimant pay the cross defendant's costs of the cross claim.

Orders

1. Judgment for Perpetual against David El-Bayeh for $181,982.87 plus interest at the loan agreement rates from 1 September 2006 to 17 February 2010.

2. That David El-Bayeh pay that amount within 28 days of its quantification as agreed or determined by the Court.

3. That Perpetual pay half of David El-Bayeh's costs of that claim, such costs to be assessed on the ordinary basis.

4. That Perpetual's claim against CTC be dismissed.

5. That Perpetual pay CTC's costs of that claim, such costs to be assessed on the ordinary basis.

6. That Perpetual's claim against Mr Saadie be dismissed with no order as to costs.

7. Judgment for Perpetual against Youssef El-Bayeh in the amount of $298,017.13 plus interest from 11 October 2004 to the date of judgment pursuant to section 100 of the Civil Procedure Act 2005.

8. 8. That Youssef El-Bayeh pay Perpetual's costs of that claim (including the costs it has been ordered to pay to David El-Bayeh), Perpetual's costs against Youssef El-Bayeh to be assessed on an indemnity basis.

9. Judgment for David El-Bayeh against Youssef El-Bayeh on the first cross-claim for $113,465.19.

10. That David El-Bayeh have leave to discontinue the second cross claim against CTC with no order as to costs.

11. That the third cross claim brought by Youssef El-Bayeh against David El-Bayeh be dismissed.

12. That Youssef El-Bayeh pay David El-Bayeh's costs of the first and third cross claims, the costs on the first cross-claim to be assessed on an indemnity basis.

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