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[2009] VSC 626
General information, not legal advice.
Supreme Court of Victoria
2009-12-24
VICKERY J
Original judgment source is linked above.
COSTS - Liability of litigation guardian for costs - Offers of Compromise - Liability of solicitor for costs - Rule 63.23(1) Supreme Court (General Civil Procedure) Rules 2005.
1 These reasons deal with the question of costs arising from the trial of the principal proceeding, and should be read in conjunction with the reasons earlier delivered.[1]
2 The plaintiff issued his writ in the proceeding on 8 May 2008.
3 The defendant Mrs Vaclav, having been found to be a person under a disability, a litigation guardian, Mr Sante Iacovelli, was appointed to defend the proceeding on her behalf pursuant to rule 15.02 of the Supreme Court (General Civil Procedure) Rules 2005, by order of the Court made 15 August 2008. Mr Iacovelli conducted the defence and the counterclaim of the proceeding thereafter in this capacity.
4 The counterclaim in the proceeding was pleaded in the defence and counterclaim filed on behalf of Mrs Vaclav dated 26 May 2008. By her counterclaim, Mrs Vaclav claimed, inter alia, an order that the contract of sale in question be set aside on the grounds that it was an unconscionable bargain, and/or was procured by undue influence. By a later amendment to her counterclaim, which was introduced in an amended defence and counterclaim dated 3 April 2009 shortly prior to the trial, she also sought this relief on the additional ground that she was not of sound mind when she entered into the contract of sale.
5 Entry into the relevant contract of sale was conceded at the trial. Upon application by the plaintiff, I determined that it would be just and convenient for then defendant to commence her case first. The trial proceeded thereafter with the defendant presenting evidence in support of her counterclaim followed by the plaintiff presenting his case in answer to the counterclaim.
6 Accordingly, the defendant's counterclaim was the central focus of the trial and the conduct of the defence, and for the purpose of considering costs in respect of the litigation guardian, I will treat Mrs Vaclav for practical purposes as the plaintiff in the proceedings, arising from her prosecution of the counterclaim.
7 If a proceeding brought by a plaintiff under a disability fails and the defendant is awarded the costs of the proceeding, the litigation guardian becomes personally liable for those costs. Nevertheless, the litigation guardian, provided he has acted properly, is entitled to be indemnified by the plaintiff for the costs.
8 Further, except in the case of gross misconduct, a litigation guardian will not be ordered to pay the costs incurred by the plaintiff, consequent upon the defence being unsuccessful.[2]
9 In the present case I am satisfied that the litigation guardian, Mr Iacovelli, has acted properly in the conduct of the proceeding on behalf of Mrs Vaclav. I find no misconduct on the part of Mr Iacovelli in the conduct of the proceeding.
10 Accordingly, although he should be ordered to pay personally such of Mr Anthony's costs for which Mrs Vaclav is liable, in respect of the period after his appointment as the litigation guardian, he is entitled to be indemnified by her in respect of those costs.
11 On 31 August 2009 a hearing on the question of costs was conducted. The plaintiff, Mr Anthony, sought indemnity costs from 23 February 2009 alternatively from 8 April 2009. The basis of each claim was:
(a) A letter dated 23 February 2009 which stated that the plaintiff would settle on the basis that "each party bear their own costs". The offer included an extra matter, it was "If the matter is to be compromised, that is each party withdraw and bear their own costs, then the contract comes to an end and we would presume that you will agree to instruct Felix Vitiello to return the deposit to our client".
(b) An offer dated 8 April 2009 served pursuant to Order 26 Supreme court (General Civil Procedure) Rules 2005. The offer stated: "The defendant agrees to refund to the plaintiff the deposit paid in the amount of $28,000, that the Defendant pays the plaintiff's costs of the proceedings on a party/party basis".
(a) On 28 February 2009 the plaintiff was prepared to walk away and bear his own costs so long as he recovered the deposit of $28,000; and
(b) On 8 May 2009 the plaintiff would walk away if he received the deposit of $28,000 and his costs.
13 The defendant, Mrs Vaclav through her lawyers accepted neither of these offers. By the orders made following the trial, Mrs Vaclav was compelled, by an order for specific performance, to proceed to settle the contract of sale with Mr Anthony and transfer her house property to him. Even though on settlement, Mrs Vaclav would be entitled to be paid the full purchase price for her home, the outcome dictated that she would lose her property and, given that generally the costs of the successful party are paid by the unsuccessful party, Mrs Vaclav would bear the costs of the trial and its preparation, an outcome which was markedly less favourable to her than either of the two offers.
14 In MT Associates Pty Ltd v Aqua-Max Pty Ltd[3] Gillard J said about offers made in the course of litigation:
Courts should encourage litigants and that means litigants on both sides of the record to make offers to compromise the litigation. The communication should be made without prejudice save as to the question of costs so that the communications can be placed before the court at the end of the trial. It is in the interests of the administration of justice that litigation should be compromised as soon as is reasonably possible. It is in the public interest to do so.
In this day and age litigation in this court is expensive. The advent of the dictating machine, the photostat machine and the costing on a six minute unit of time results in litigation being very expensive. Lawyers have an interest in the length of litigation and as professional people they should guard against the temptation of lengthy and expensive litigation. They should be encouraged to reduce costs.
In my opinion any form of offer assuming it can be adduced into evidence should be considered by the court on the question of costs and overly technical reasons given by the other party for not seriously considering an offer should be rejected.
The fact is that in litigation experienced counsel and litigation solicitors have a very good idea during the course of a trial as to what their client should receive or be expected to pay. It is not difficult in most cases to make an assessment of the risks involved and what is a fair compromise to the client. A court will always give reasonable time to the parties to consider settlement. If a proposal is put forward the litigant and his adviser receiving the proposal ignores that proposal at his peril. Some proposals will involve discussions and negotiations between the parties. But any litigant and his adviser who takes the view that the proposal or offer can be ignored on some technical ground does so at their own risk.
In days of old, points were taken justifying the refusal of an offer because of some point, but in this day and age where costs in heavy litigation are high litigants and their lawyers must consider all offers of settlement, bona fide and reasonably. By offers I include proposals, and exploratory discussions as well as offers. If the evidence is admissible on the question of costs any unreasonable conduct may result in a special order for costs.
The object of making an offer is to bring the litigation to an end and to put on notice the other side that if it refuses the offer and subsequently the offerer recovers more in the proceeding, then justice and fairness requires that a special order for costs be made.
15 As to the offer dated 8 April 2009 served pursuant to Order 26, Pagone J in Griffiths & Beerens Pty Ltd v Duggan [No 3][4] observed as to Rule 26.08:
Rule 26.08 is an important expression of the policy designed to encourage the resolution of disputes and to discourage the continuation of expenditure on disputes which fail to secure better outcomes than those offered. The policy operates through the Rule by requiring the parties, with the assistance of their legal advisers, to evaluate the likelihood of achieving an outcome which is more favourable than that offered. The Rule encourages the defendant to make an offer that will be attractive to a plaintiff seeking to secure compensation on the claim. The Rule also requires the plaintiff to make a careful evaluation of the outcome which continued litigation may achieve and to compare that with the offer
16 The consequences of an unreasonable rejection of offer of compromise were considered in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[5] the Court of Appeal[6] set out the principles applicable to a consideration of Calderbank offers. I set out below the relevant passages from the judgment:[7]
Calderbank offers and the award of indemnity costs
Calderbank letters and the consequences that flow from them have been considered by the Trial Division of this Court in a number of cases: see M T Associates Pty Ltd v Aqua-Max Pty Ltd & Anor (No.3); Clarke v ABC; Pearson v Williams; Nolan v Nolan; and Aljade & MKIC v OCBC.
One of the seminal contributions to the law on indemnity costs was the judgment of Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd. Amongst the circumstances listed by his Honour as having been thought to warrant the exercise of the discretion to award indemnity costs was -
"an imprudent refusal of an offer to compromise".
So widely has this been accepted that the proposition has been advanced that a Calderbank offer gives rise to a presumption that the party rejecting the offer should pay the offeror's costs on an indemnity basis if the offeree receives a less favourable result.
In Aljade and MKIC v OCBC, however, Redlich J rejected the notion of any such presumption, holding that the weight of authority -
"strongly points to an approach that involves no preconceptions about when the rejection of a Calderbank offer should lead to the making of a special costs order. It will do so where it is concluded that the rejection of the offer was unreasonable".
We respectfully agree with his Honour's conclusion. We note, as did his Honour, that the notion of such a presumption has been decisively rejected by the New South Wales Court of Appeal (most recently in Brymount Pty Ltd v Cummins (No.2)), by the Federal Court and by the Queensland Court of Appeal.
The correct approach, in our view, is to treat the rejection of a Calderbank offer as a matter to which the Court should have regard when considering whether to order indemnity costs. As Gyles JA stated in SMEC Testing Services Pty Ltd v Campbelltown City Council-
"In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rules as to costs ..."
In Grbavac v Hart, Hayne JA cited with approval what the New South Wales Court of Appeal had said in Maitland Hospital v Fisher (No.2) about the policy rationale underlying the availability of special orders for costs where offers of compromise are rejected. Like his Honour, we think that what was there said is equally relevant to the exercise of the costs discretion where a Calderbank offer has been made. The policy objectives were said to be:
"(1) To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its 'bottom line' will be revealed to the court;
(2) To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
(3) To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation".
At the same time, as Redlich J said in Aljade, there are other competing objectives of equal importance.
"Potential litigants should not be discouraged from bringing their disputes to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances".
The test of unreasonable rejection
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable.
Of course, deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson CJ said recently, "unreasonableness is a protean concept". But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.
Factors relevant to assessing reasonableness
The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree's prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.
[Footnotes omitted]
17 In my view the defendant ought to have accepted the first offer made pursuant to the letter dated 23 February 2009. The offer was made in good time before the trial, before the major costs of trial preparation were incurred; it allowed a reasonable time for consideration, in that no time limit for acceptance was specifically provided for; the offer was an offer to settle the entire proceeding, upon terms which were favourable to the defendant and achieved her basic objective of retaining her home; the letter of offer set out in some detail the legal and factual obstacles in the way of the defendant succeeding; the legal representatives of the defendant ought to have appreciated that, in the absence of any valuation evidence to establish that Mrs Vaclav's property had been sold at an undervalue, her prospects of success in the proceeding were significantly diminished and she was at serious risk of losing the case; and the offer was clearly expressed.
18 Although the offer did not expressly foreshadow an application for an indemnity costs in the event of the Mrs Vaclav rejecting it, the offer was clearly endorsed "WITHOUT PREJUDICE SAVE AS TO COSTS". This very clearly signalled that the letter would be used in support of an application for a special costs order if the offer expressed in it was rejected. It fell within the purview of offers carrying cost consequences referred to by Gillard J in the Aqua-Max case to which I have referred. The letter also warned that if the matter was to proceed, "very substantial costs will be incurred by both parties".
19 It follows that Mrs Vaclav's litigation guardian, Mr Iacovelli, should be ordered to pay the costs of the successful plaintiff, from the time of his appointment, and that those costs should be paid on an indemnity basis from the time that it would have been reasonable to have accepted the offer, which I find to be 14 days from 23 February 2009, namely 9 March 2009.
20 Mr Iacovelli, given that he acted with the advantage of advice provided by Mrs Vaclav's solicitor, acted properly and without any misconduct in relation to the offer, and is entitled to indemnity from Mrs Vaclav in respect of all of the costs which will be ordered against him.
21 Mr Arthur Lucas, of the firm A.I.F Lucas, acted for Mrs Vaclav in the proceeding from its inception. Mr Lucas briefed counsel, Dr John Glover from time to time to assist with interlocutory matters, preparation for trial and the conduct of the trial.
22 On 31 August 2009 a hearing on the question of costs was conducted. At the hearing, Dr Glover, who appeared for Mrs Vaclav, called oral evidence from Mr Lucas in an endeavour to demonstrate that the rejection of the written offers, in all the circumstances, was reasonable, and accordingly Mrs Vaclav and the litigation guardian should not be visited with any cost consequences arising from the offers not being accepted.
23 On that occasion, Mr Lucas gave oral evidence before me that he got clear instructions from the litigation guardian, Mr Iacovelli and Mrs Vaclav to accept the offer in the letter of 23 February 2009. Mr Lucas stated in his evidence:
Was the decision taken to accept the offer? Yes, well, my understanding, it was. My understanding was after a lengthy discussion about it, with the pros and cons. The decision was that that offer should be accepted.
24 Mr Lucas also said in his oral evidence given on 31 August 2009 that following the conference with Mr Iacovelli and Mrs Vaclav he "instructed counsel to state the instructions were to accept the proposal set out in that letter of compromise".
25 However, as events transpired, Mr Lucas failed to accept the offer which had been made, and upon the plaintiff changing solicitors some time later, on 3 April 2009, the offer of 23 February 2009 was withdrawn and replaced with the offer of 8 April 2009, which also was not accepted.
26 On 31 August 2009 I adjourned the matter to enable Mr Lucas to show cause as to why he should not pay costs arising from this proceeding personally from the date of the letter of the 23 February 2009.
27 Rule 63.23 Supreme Court (General Civil Procedure) Rules 2005 was introduced into the Rules in its present form in 2000. Accordingly, the authorities based on the former Rule which preceded it need to be read with some care. The present Rule provides:
(1) Where a solicitor for a party, whether personally or through a servant or agent, has caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition, the Court may make an order that -
(a) all or any of the costs between the solicitor and the client be disallowed or that the solicitor repay to the client the whole or part of any money paid on account of costs;
(b) the solicitor pay to the solicitor's client all or any of the costs which the client has been ordered to pay to any party;
(c) the solicitor pay all or any of the costs payable by any party other than the client.
28 The words "failure to act with reasonable competence and expedition" were substituted for the words "undue delay or negligence or by any other misconduct or default" in Rule 63.23 (1) by SR No 36 of 2000. The amendment was intended to overcome the decision of the Court of Appeal in Etna v Arif[8] to the effect that "negligence" in the Rule in its earlier form was limited to professional impropriety or the like and serious or gross, as opposed to mere, negligence. Under the present Rule, proof of a failure to act with reasonable competence and expedition will suffice.
29 The former Rule 63.23(1) read:
63.23 Costs liability of lawyer
(1) Where a solicitor for a party, whether personally or through a servant or agent, has caused costs to be incurred improperly or without reasonable cause or to be wasted by undue delay or negligence or by any other misconduct or default, the Court may make an order that - (a) all or any of the costs between the solicitor and the client be disallowed or that the solicitor repay to the client the whole or part of any money paid on account of costs; (b) the solicitor pay to his client all or any of the costs which the client has been ordered to pay to any party; (c) the solicitor pay all or any of the costs payable by any party other than the client.
[Emphasis added by underlining]
30 In the course if his reasoning in Etna v Arif, Batt JA, with whom Charles and Callaway JJA agreed, said as to Rule 63.23(1) in its earlier formulation:[9]
I consider that "negligence" in para.(1) connotes more than "mere" or "tortious" negligence: some kind of professional impropriety or "gross" negligence is required. This follows from the language of the paragraph itself, the apparent history or source of the particular words, and such authorities as there are. As regards the language of para.(1), the word "negligence" appears as one of the alternatives in the second limb (namely, that commencing "to be wasted") of the introductory "where" clause. It appears there in a context of words denoting blameworthy conduct: it is juxtaposed to the preceding "undue delay" and the succeeding "other misconduct or default" (emphasis added). That context suggests that its meaning is to be ascertained from that of its companion words or phrases. More importantly, the word "other" suggests that "undue delay" and "negligence" are to be construed as being of the same kind as "misconduct or default".
31 It is clear that the Court has jurisdiction to make an order under the Rule in its present form only where the conduct complained of has caused costs to be incurred improperly or without reasonable cause or to be wasted. Proof of the required causal link is essential.
32 The question in this case is whether Mr Lucas, by his conduct in relation to the 23 February 2009 letter of offer, caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition.
33 On 17 February 2009 there was a discussion conducted between Mr Lucas and Steven Nankin of Salinger Bown, who was then the solicitor acting for the plaintiff, Mr Anthony. The possibility of compromising the matter was discussed.
34 On the same day, 17 February 2009 Mr Lucas met with Iacovelli. Mr Lucas asked whether Mrs Vaclav would be interested in settling the matter on the basis that each party walk away and bear their own costs. Mt Iacovelli said that the defendant had given him the impression that "she wanted to give the whole matte4r away". He also said that he would discuss the matter with her.
35 On 18 February 2009 Mr Lucas had a discussion with Mrs Vaclav's counsel, Dr Glover. In that discussion, the possibility of retaining the deposit monies to help cover legal costs was raised. At that time Mrs Vaclav's legal team considered that her prospects of winning the case had improved somewhat by reason of a recent report which had been prepared by a Dr Sutcliffe, who had been retained by the plaintiff. It was considered that there was an opportunity to settle the matter on the basis that the deposit be retained by Mrs Vaclav.
36 On the same day, 18 February 2009, Mr Lucas had a lengthy conversation with Mr Iacovelli. Mr Lucas said that he obtained instructions to attempt to negotiate a settlement which resulted in at least some part of the deposit being retained to put towards Mrs Vaclav's legal costs. Mr Lucas said in his affidavit in relation to this discussion with Mr Iacovelli:
I recall Mr Iacovelli agreeing that we should attempt to negotiate a settlement which resulted in at least some part of the deposit being retained to put towards the Defendant's legal costs of the proceeding.
37 On 23 February 2009 Mr Lucas and Mr Nankin had a without prejudice conversation about the matter prior to the delivery of the letter of offer dated 23 February 2009. Mr Nankin told Mr Lucas that the plaintiff Mr Anthony was willing to walk away and bear his own costs. Mr Lucas made a file note of the discussion in which this offer was recorded. Mr Lucas also recorded his response to Mr Nankin's offer in the following terms:
I put it to Steve Nankin that the easier way would be to withdraw and concede the $25,000 as a forfeited deposit. Steve didn't like that idea, he clearly has his eyes on those funds with Felix Vetelio.
I said to Steve that if they withdraw they would have to pay our legal costs in any event and I accordingly added as an alternative that they would split dollar difference on the money held as a deposit. Allow half an hour on the attendance.
38 Accordingly, I accept that although Mr Lucas sounded out Mr Nankin on the possibility of settling on the basis that both parties withdraw and pay their own costs, with the deposit being retained by the defendant, Mr Nankin rejected the proposal. Further, the offer that the parties split the deposit between them also did not result in a concluded bargain. Accordingly, Mr Lucas, having followed his instructions as to settlement provided by Mr Iacovelli, earlier on 18 February 2009, got nowhere with his proposals.
39 Prior to receipt of letter dated 23 February 2009, which was received on 26 February 2009, there was a directions hearing on 24 February 2009. Mr Lucas stated that on 23 February 2009 he contacted Dr Glover of counsel and instructed him to again put an offer to the plaintiff's counsel that the defendant was willing to settle the matter on a walk away basis with each party bearing their own costs so long as the defendant retained the deposit. As to this, Mr Lucas said:
I do not recall receiving a telephone call from Dr Glover telling me that the defendant's offer had been rejected but I assumed that the Plaintiff had not accepted the offer because the matter was listed for trial.
40 The letter dated 23 February 2009 was not received by Mr Lucas until 26 February 2009.
41 It was submitted on behalf of Mr Lucas that the letter did not put an offer but rather referred to an offer that had been previously put. The following passage in the letter was relied upon:
Therefore, the proposal that we have put on a without prejudice basis that each party withdraw and bear their own costs is a very attractive proposal.
42 It was further submitted that the reference to "the offer we have put" was a reference to the offer put in the conversation on 23 February 2009, an offer which was not accepted by the defendant but rather was met with a counter-offer which was rejected by the plaintiff. Further, the offer which was apparently put by Dr Glover at the directions hearing on 24 February 2009, was also not accepted. Accordingly, it was said that by the time the letter of 23 February 2009 had been received by Mr Lucas on 26 February 2008, the offer had already been rejected and was no longer open for acceptance, or as Mr Lucas said in his affidavit dated 25 September 2009, "The letter dated 23 February 2009 which was received on 26 February 2009 had been overtaken by the events of 24 February 2009" (being the day of the directions hearing attended by Dr Glover).
43 I find this explanation, which Mr Lucas sought to advance both in his affidavit and through the submissions made by counsel on his behalf, unconvincing, and I do not accept it.
44 Further, I do not accept the submission made on behalf of Mr Lucas that,
by the time the letter of 23 February 2009 had been received by Lucas on 26 February 2009, the offer had already been rejected and Salinger Bown no longer acted for the plaintiff. [Emphasis by underlining added].
Salinger Bown continued to act as solicitor on the record for the plaintiff Mr Anthony until a month later, when the firm filed its notice of solicitor ceasing to act, on 27 March 2009. On the same day, Goldsmiths filed its notice of commencing to act as solicitors for the plaintiff.
45 In my opinion, the letter of 23 February 2009 contained a fresh offer which was capable of acceptance. The letter included the following passages:
We refer to the above matter and to the without prejudice telephone conversations between our Mr. Nankin and your Mr. Lucas on the 16th of February 2009 and 23rd February 2009. Firstly, as agreed, we enclose a copy of the Medico Legal Report prepared by the consulting psychogeriatrician - Dr Glenn Sutcliffe.
...
In your conversation with the writer on the 23rd of February 2009, we note your advices of the difficulty in obtaining lucid and clear instructions by your client because of the degree of dementia suffered by Mrs. Vaclav. Indeed it would appear, that her dementia is worsening and would appear to be now at a far greater degree than it was at the mediation held in October 2008, or indeed at the time relevant when there were discussions on the proposed sale by the parties 12 months ago.
...
As we maintain, that whilst no doubt Mrs Vaclav will initially obtain some sympathy from the Supreme Court Judge, at the end of the day the odds would be against her in succeeding in having her defence maintained. Therefore, the proposal that we have put on a without prejudice basis that every party withdraw and bear their own costs is a very attractive proposal.
Due to the mental condition of Mrs Vaclav, it is not her who has to consider whether this offer is reasonable or not. Rather, it is now up to the Litigation Guardian to make a decision as to whether this matter proceeds or not. If the matter is to be comprised, that is each party withdraw and bear their own costs, then the contact comes to an end and we would presume that you will agree to instruct Felix Vitiello to return the deposit to our client. If it does not come to an end then unfortunately the matter is to proceed and very substantial costs will be incurred to both parties.
46 Accordingly, it is clear that, Mr Nankin wrote his letter dated 23 February 2009 after his conversation with Mr Lucas which was conducted on the same day and specifically referred to in his letter. Thus, even if the case was that a "walk away" offer had been orally put by Mr Nankin during the discussion with Mr Lucas on 23 February, and rejected by a counter offer, the offer made by Mr Nankin was, in my opinion, made afresh by the letter of 23 February, and was thereafter capable of acceptance.
47 Furthermore, and significantly, Mr Lucas accepted the letter dated 23 February 2009 was a fresh offer which was capable of acceptance, even after the apparent rejection of the further offer apparently put by Dr Glover at the directions hearing of 24 February 2009. On 4 March 2009 Mr Lucas prepared a letter to the plaintiff's solicitors, Salinger Bown, which amongst other things, said that he was in the process of obtaining instructions from the litigation guardian concerning the plaintiff's proposal that each party withdraw and pay their own costs. The letter said:
We thank you for your letter dated 23 February 2009 and enclosed medico-legal report prepared by Dr G.J. Sutcliffe. We are currently in the process of obtaining instructions from the Litigation Guardian concerning your proposal that each party withdraw and pay their own costs.
48 This letter clearly evidenced the position taken by Mr Lucas that, as at 4 March 2009, he regarded the offer put in the letter dated 23 February 2009 as capable of being accepted.
49 This position was confirmed in an email transmitted by Mr Lucas to Mr Iacovelli on 6 March 2009, in which Mr Lucas said:
We refer to the enclosed letter we received from Salinger Bown, the plaintiff's solicitors, dated 23 February 2009, with attached psycho-geriatrician's medical report. You will note that it is proposed by Salinger Bown that each party withdraws and pays their own costs. Nevertheless, we will need instructions from you on this point.
50 Mr Lucas became aware that the plaintiff Mr Anthony was proposing to appoint Goldmiths as his solicitor in place of Salinger Bown by a letter he received from Goldsmiths dated 17 March 2009. However, Salinger Bown remained as solicitors on the record for the plaintiff Mr Anthony until 27 March 2009, when the notice of practitioner ceasing to act was filed with the Court. Order 20 of the Supreme Court (General Civil Procedure) Rules 2005 provides for the procedure for a change of solicitor. Until a notice of change of solicitor is filed and a copy served on the other parties to the proceeding, the former solicitor remains as the solicitor for the party on the record.
51 In all of the communications between Mr Lucas and Salinger Bown and Goldsmiths which took place in March 2009, there was no apparent change in the instructions given by the plaintiff to his solicitors as to the terms on which he was willing to settle the matter during that time, and the offer made by the letter from Salinger Bown dated 23 February 2009 was not withdrawn and remained open for acceptance.
52 It was not until 3 April 2009, at a directions hearing conducted on that day, that the defendant's counsel was informed by the plaintiff's counsel that the walk away offer was no longer available and that to settle the matter the defendant would have to pay the plaintiff's costs.
53 Accordingly, I find that between 26 February 2009 and at least until 27 March 2009, a period of one month, the walk away offer made in Mr Nankin's letter dated 23 February was open for acceptance by the defendant.
54 It was on 24 March 2009 that Mr Lucas met with Mr Iacovelli and Mrs Vaclav and got further instructions on the offer contained in the Salinger Bown letter dated 23 February 2009. Mr Lucas said in his affidavit dated 25 September 2009 as to the outcome of this conference with Mr Iacovelli and Mrs Vaclav:
I obtained instructions from the Defendant and Mr Iacovelli to use the next Directions scheduled for 3 April 2009 to instruct Dr John Glover to convey the Defendant's willingness to accept the Plaintiff's offer contained in the Salinger Bown letter of 23 February 2009 that each party walk away and bear their own costs on the proviso that the Defendant retain either the full or half the deposit.
55 The file note made by Mr Lucas of his conference with Mr Iacovelli and Mrs Vaclav conducted on 24 March 2009, which indicates that it occupied 60 minutes, makes no mention of the offer of the plaintiff by the letter dated 23 February 2009, or of any instructions given in relation to it. Accordingly, Mr Lucas was forced to rely on his recollection of events from his memory.
56 I do not accept the version of events stated in his affidavit as an accurate statement of the instructions given to Mr Lucas on that occasion.
57 In his oral evidence given before me on 31 August 2009, to which I have already referred, Mr Lucas said:
Was the decision taken to accept the offer? Yes, well, my understanding, it was. My understanding was after a lengthy discussion about it, with the pros and cons. The decision was that that offer should be accepted.
58 Mr Lucas also gave oral evidence on 31 August 2009 that these instructions were given by both Mr Iacovelli and Mrs Vaclav together, because, as he said: "it was important to get both parties together in a conference, to discuss the matter at some length". The only conversation about settlement which involved both Mr Iacovelli and Mrs Vaclav referred to in the affidavit of Mr Lucas sworn 25 September 2009, was the conversation which took place on 24 March 2009. I conclude that this was one and the same conversation which Mr Lucas described in his oral evidence given on 31 August 2009 to which I have referred.
59 Mr Lucas also said in his oral evidence given before me on 31 August 2009 that following the conference with Mr Iacovelli and Mrs Vaclav, which I infer was on 24 March 2009, he "instructed counsel to state the instructions were to accept the proposal set out in that letter of compromise".
60 Mr Lucas swore in his affidavit dated 25 September 2009:
Upon reviewing the transcript of the proceedings on 31 August 2009, I now realise that I was mistaken as to some matters. My recollection of matters was inaccurate as I did not have the opportunity to review my file and refresh my memory prior to giving evidence. I am satisfied that the evidence in this affidavit is true and correct to the best of my knowledge.
61 However, there was no file note made of the instructions he was given on 24 March 2009 in relation to the offer contained in the letter dated 23 February 2009. Accordingly, Mr Lucas was not able to correct his previous evidence in relation to the conference conducted on 24 March 2009, which he gave orally and with reasonable detail on 31 August 2009, by reference to any documents retained in his file
62 Having observed Mr Lucas give his oral evidence on 31 August 2009 I find that the evidence he gave about the critical conference he conducted with Mrs Vaclav and Mr Iacovelli on 24 March 2009 was a reliable account. It was not qualified by anything retained in the file maintained by him which he later had the opportunity to review. Accordingly I find that on 24 March 2009 Mr Lucas was given instructions by both Mr Iacovelli and Mrs Vaclav to accept the plaintiff's offer in the letter dated 23 February 2009 which then remained open for acceptance, as well understood by Mr Lucas.
63 The alternative version of events as stated in the affidavit of Mr Lucas which he swore 25 September 2005, is improbable, and conflicts with the oral evidence which he gave on 31 August 2009. The alternative version was that he was given instructions by his client that each party walk away and bear their own costs on the proviso that the defendant retain either the full or half the deposit. This is improbable because that offer had been previously explored on 23 February 2009 in the telephone conversation between Mr Lucas and Mr Nankin and on 24 February 2009 at the directions hearing attended by Dr Glover. On each of these occasions the offer that the defendant should retain the deposit, or part of it, met with no acceptance, and this was known to Mr Lucas. In the light of the history of the negotiations to this point commencing on 17 February 2009, restatement of previous offers, which had been not accepted on two occasions during the preceding month, was likely to have been a pointless exercise. Further, given that Mr Lucas had previously taken steps to negotiate on the basis of the defendant retaining the deposit, or part of it, he clearly had been given those instructions prior to the conference held on 24 March 2009. There was therefore no necessity to renew those same instructions.
64 Further, the instructions given to Mr Lucas by Mr Iacovelli and Mrs Vaclav on 24 March 2009, as I have found them to be, were consistent with the instructions which they had given earlier in the proceeding. A mediation was conducted on 10 October 2008. The position taken by Mr Iacovelli and Mrs Vaclav at the mediation, which was admitted into evidence without objection during the oral evidence given by Mr Lucas on 14 December 2009 during his cross examination, was: "For each party to walk away, bear their own costs with the deposit being returned to the plaintiff". However, at the mediation, the plaintiff apparently would not accept this offer. It is therefore probable that when the offer was made by the letter dated 23 February 2009, and was still available for acceptance on 24 March 2009, having exhausted the overtures to get a little more by retaining the deposit or part of it, they would have given instructions to Mr Lucas to accept the offer contained in the letter.
65 In his supplementary affidavit dated 11 December 2009, Mr Iacovelli said that in conversations with Mr Lucas on both 18 and 24 March 2009 the "Defendant's instructions to settle the case were repeatedly told to him. However, no instructions were given to Mr Lucas to defer negotiations until the Directions Hearing to be held on 3 April 2009".
66 However, in his affidavit sworn 12 September 2009, Mr Iacovelli said:
I was present in a meeting in late March 2009 with Mrs Vaclav, Mr Lucas and Mr Glover during which Mr Lucas and Mr Glover told Mrs Vaclav about an offer from the plaintiff along the lines of the 23 February 2009 offer. During the meeting Mr Lucas and Mr Glover advised Mrs Vaclav that a counter offer should be made to Salinger Brown Pty that the parties walk away, but that Mrs Vaclav keep half of the deposit. At the conclusion of the meeting, Mrs Vaclav said that she agreed to this counter offer being made.
67 I find this account of events unreliable. The notes made by Mr Lucas of the meeting record that only Mrs Vaclav and Mr Iacovelli were physically in attendance with Mr Lucas for the conference, which was noted to have occupied 60 minutes, although an attendance with "John Glover" is noted for 12 minutes. This is likely to have been an attendance by telephone. Mr Lucas in his affidavit makes no mention of Dr Glover physically attending this conference, or any advice which he may have given by telephone during the conference, nor was this the subject of the oral evidence given by Mr Lucas. Dr Glover was not called to give evidence. I find that Dr Glover did not physically attend the meeting described by Mr Iacovelli in late March 2009, and his recollection of the meeting, and what was said in the course of it, should not be accepted.
68 Even though there was ample opportunity to accept the offer reflected in the letter dated 23 February 2009, the offer was not accepted in accordance with the instructions which Mr Lucas received on 24 March 2009.
69 On 25 March 2009 Mr Lucas sent a letter to Mr Nankin of Salinger Bown, who Mr Lucas noted in his affidavit, "at that stage [they] were still the solicitors on the record for the Plaintiff". The letter sent to Mr Nankin said:
We refer to your letter of the 11 March 2009 and to our telephone conversation today.
We have been advised by Goldsmiths that they intend to act for the plaintiff nevertheless in their letter to our firm dated 17 March 2009, they state that they are not yet Solicitors on the record.
A copy of their letter to our firm and our letter in response is enclosed for your file records as your firm is still on the record as acting for the Plaintiff.
It is important that you are aware of our intended strike out application for want of receiving a Notice for Trial as ordered by the Court.
[Emphasis by underlining added]
70 Critically in sending the letter dated 25 March 2009, having received instructions from his client the day before, on 24 March 2009, Mr Lucas took no step to communicate acceptance of the offer made by the letter dated 23 February 2009 either by telephone, facsimile, email or by letter to Salinger Bown, who, as he acknowledged, remained as solicitors on the record for the plaintiff.
71 The directions hearing where communication of the acceptance by counsel was intended to occur was the directions hearing conducted on 3 April 2009. By this time, however, the moment had passed. The plaintiff had appointed his new solicitors and advice was given that the earlier offer was withdrawn.
Jurisdiction to Make an Order under Rule 63.23(1)
72 In my opinion the essential pre-requisites for making an order under Rule 63.23(1) are satisfied.
73 By his failure to act on his instructions promptly, as given to him by Mr Iacovelli and Mrs Vaclav at the conference on 24 March 2009, at a time when Mr Lucas well knew that the plaintiff was in the throes of changing his solicitor, and at a time when he also knew or ought to have known that the offer in the letter dated 23 February 2009 remained open for acceptance, he failed to act with reasonable competence and expedition in accepting the offer in accordance with his instructions. As a result, the offer was withdrawn on 3 April 2009 and the costs of the proceedings thereafter were incurred improperly or without reasonable cause. Had the matter been settled, as it ought to have been in accordance with his instructions and the wishes of his client, these costs would never have been incurred.
74 In this case there will be little practical difference between making an order under either Rule 63.23(1)(b) or (c). In the exercise of my discretion, it is preferable, given the mechanics of the orders which I propose, for an order to be made under Rule 63.23(1)(b). As to Rule 63.23(1)(a), I am not satisfied that adequate notice was given to Mr Lucas that any application would be made for an order that all or any of the costs between the solicitor and the client be disallowed or that the solicitor repay to the client the whole or part of any money paid on account of costs. Further, this is a matter which may be open to the client to pursue in a separate proceeding, if she is so advised. For these reasons, I decline to make any order under Rule 63.23(1)(a).
75 Mr Lucas ought to be subject of an order pursuant to Rule 63.23(1)(b) that he pay that part of the costs which Mr Iacovelli has been ordered to pay to the plaintiff, as and from the date when Mr Lucas ought to have accepted the offer following the receipt of his instructions on 24 March 2009, namely 25 March 2009.
76 I make this order mindful of the view which I take of the Rule, that its primary object is not punitive or disciplinary but compensatory, that is, to reimburse a party costs which that party has incurred because of the failure on the part of a solicitor to act with reasonable competence and expedition.
77 I am also mindful that lawyers should not be deterred from pursuing their clients' interests by a fear of incurring personal liability for costs to their clients' opponents. I well accept that the jurisdiction to order that a lawyer for a party to pay costs should be exercised with caution. In Re Bendeich[10] for example, Drummond J referred to the danger in the following terms:
Too ready an exposure of the lawyer for a party to personal liability for the costs of his client or of the other party is likely to inhibit the way the lawyer acts in conducting the litigation.
78 However, in the present case there are extraordinary circumstances which warrant the making of the orders which I propose.
79 I make the following orders as to costs of the proceeding:
[1] Anthony v Vaclav [2009] VSC 357.
[2] Morgan v Morgan (1865) 12 LT 199.
[3] [2000] VSC 163 [72]-[77].
[4] [2008] VSC 462 [5].
[6] Warren CJ, Maxwell P and Harper AJA.
[10] [1994] FCA 1504; (1994) 126 ALR 643 at 647 per Drummond J.
Anthony
Vaclav
(1994) 126 ALR 643