Bird v Cannington

Solicitors: Wilson & Co Lawyers (Plaintiff) Middletons (First defendant) Hills Solicitors (Third parties) File Number(s): SC 2005/262269

Judgment 1On 5 June 2012, I handed down judgment in the main proceedings and published my reasons: see Bird v Bird (No 4) [2012] NSWSC 646. On 27 June 2012, I made costs orders in the main proceedings: see Bird v Bird (No 5) [2012] NSWSC 734. These reasons deal with the issue of costs of proceedings SC 262269 of 2005 (previously SC 5751 of 2005) ("the Preliminary Discovery Proceedings"), which issue was first ventilated by the plaintiff in the submissions on costs in connection with the main proceedings but which I specifically excluded from consideration due to the need to have the material relied on by the plaintiff identified. A bundle of documents was prepared (it is now Exhibit A on this application and all page references hereafter are to this exhibit) and written submissions were provided by Mr Drummond on behalf of Deborah Michelle Bird, Mr Grieve and Mr Condon on behalf of Warrick Lindsay Bird and Rodney David Bird, and Ms Champion on behalf of Herbert James Cannington. I shall use the same nomenclature as I used in the reasons for judgment published in the main proceedings. 2In the main proceedings, Deborah claimed against her brothers Warrick and Rodney, both in their own right and as executors of the estate of her late father Percy. In relation to the claim against her brothers, also joined as a defendant was Mr Cannington, who was also an executor of Percy's will. 3The main proceedings were commenced by summons and statement of claim in November 2005 but these were not served on the defendants until August 2007. 4On the same day that the plaintiff filed in this Court her summons and statement of claim in the main proceedings, she filed a summons for preliminary discovery. Joined as defendants to the Preliminary Discovery Proceedings were Mr Cannington, Mr Alan Arnold, a solicitor for whom Mr Cannington was working until 2004, and Westpac Banking Corporation. 5The summons for the Preliminary Discovery Proceedings sought a variety of documents from the defendants. No affidavit in support was filed by or on behalf of the plaintiff in connection with the summons. 6In the Preliminary Discovery Proceedings, Mr Cannington served an affidavit dated 14 December 2005 in which he explained that he had retired from practice as a solicitor in his own right (when he had acted for Percy) and he had had destroyed all of the files held by him due to their age: see p 76. He said he had handed over his probate file to the solicitors acting for Warrick and Rodney in November 2004. He said that therefore he had no documents of the description sought. The accuracy of his affidavit was not then (nor is it now) challenged. 7On 19 March 2007, the plaintiff's solicitors filed two notices of discontinuance in the Preliminary Discovery Proceedings. As between Deborah, Mr Cannington and Mr Arnold, the orders made were: "(1) The plaintiff discontinues the proceedings as against the first and second defendants. (2) There be no order as to costs." 8As between Deborah and Westpac Banking Corporation, the following orders were made: "(1) Plaintiff discontinues the proceedings as against the third defendant. (2) Plaintiff to pay the third defendant's costs as agreed or assessed." 9By notice of motion filed 27 June 2012, Deborah seeks: (1)to have the orders as to costs made by consent set aside; (2)an order that Mr Cannington and or Warrick and Rodney pay her costs of the Preliminary Discovery Proceedings. 10The notice of motion is brought in the Preliminary Discovery Proceedings and not within the main proceedings, as was the case when the issue was first raised: see pars 44 - 45C of the plaintiff's amended submissions on the issue of costs dated 15 June 2012 but received on 18 June 2012. 11Deborah's application is based primarily on the Uniform Civil Procedure Rules 2005 ("the Rules"), r 36.15, which is in the following terms: "(1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent." and she relies only on the "against good faith" category. For orders against Warrick and Rodney, Deborah relies on s 98 of the Civil Procedure Act 2005. 12The plaintiff's claim that the costs order should be set aside as against good faith has the following elements as I discern them: (1)Deborah had, through her lawyers, sought information from Mr Cannington about the sale of property owned by Percy and the use of the powers of attorney; (2)Mr Cannington had given incorrect answers concerning these matters - asserting, contrary to the fact, that powers of attorney had not been given by Percy and that there had been no sales of Percy's property in the two years preceding Percy's death: see letter of Arnold Lawyers dated 9 November 2004 at p 15; (3)Warrick and Rodney's solicitors had encouraged Mr Cannington to put obstacles in the path of Deborah's quest to gain knowledge of what had transpired: see letters of Hills Solicitors dated 11, 16 and 24 November 2004 at pp 16 - 17, 19 and 34; (4)Mr Cannington knew that he had given the cheques representing the net proceeds of sale for each of the four properties to Mona (see par 7(c) of his affidavit sworn 16 February 2012 in the main proceedings); he knew that he had acted for Percy on the sales with Mona using the powers of attorney drafted by him; and (5)because Mr Cannington had not told Deborah's solicitors that he had given the cheques to Mona at any time before February 2012 and indeed had only told Deborah in 2008 that he was involved in the sales, the plaintiff's solicitors had to commence the Preliminary Discovery Proceedings with a view to obtaining information about where the proceeds of the cheques had been deposited. Whilst it is accepted that Mr Cannington's statements that no power of attorney had been given and that there had been no sale of Percy's real estate in the two years prior to Percy's death were known by the plaintiff's solicitors to be incorrect at the time they were made (see letter of Hewitts Commercial Lawyers dated 17 November 2004 at p 22), it is contended that Mr Cannington did not reveal his knowledge of what had occurred in November 1993 and 1994 when asked in 2004. 13Mr Drummond also claimed that the Court had an inherent power to set aside a judgment entered by consent by reference to the principles laid down by the High Court in Harvey v Phillips (1956) 95 CLR 235 at 243 to 244 and asserted that the consent order could also be set aside on the grounds of unilateral mistake. 14Ms Champion made a number of points concerning the application, including a submission that the appropriate mode of seeking to set aside orders made on the basis of an absence of good faith is by separate proceedings, not by notice of motion in the proceedings in which the orders were made: see Teoh v Hunters Hill Council (No 5) [2012] NSWCA 75 at [13]. 15Mr Grieve made a number of points concerning the attempt to have his clients pay the costs of the Preliminary Discovery Proceedings, including pointing to the fact that the orders were made almost six years ago and that had an application been made in a timely fashion, there would have been no power to order costs against his client. In Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd; Jeffery & Katauskas Pty Ltd v Rickard Constructions Pty Ltd (subject to Deed of Company Arrangement) [2009] HCA 43; (2009) 239 CLR 75 it was held that the Rules diminished the power given to Courts under s 98 of the Civil Procedure Act to award costs against third parties. The relevant limitation was removed shortly after the High Court's decision. 16Ms Champion also pointed out that Mr Drummond's submissions assert that Mr Cannington deliberately provided false information to Deborah's instructing solicitors and that he deliberately failed to provide Deborah with information that he had and which it was his duty as an executor to provide: see particularly par 25 of the plaintiff's further amended submissions on the issue of costs dated 26 June 2012. As Ms Champion points out, the submissions raise a matter of seriousness which requires adequate proof if such a finding is sought. Considering that not only did Mr Drummond in cross examining Mr Cannington in the main proceedings not put to him that his failure to provide correct answers and his failure to supply information to Deborah's solicitors was deliberate but even submitted that there was no reason to doubt Mr Cannington's honesty, I expressed concern about the fairness of Mr Drummond putting the submissions that he now puts. Mr Drummond responded by saying that he had not needed to cross examine Mr Cannington on these matters because it was not an issue in the main proceedings. Whilst it is true that the costs of the Preliminary Discovery Proceedings were not in issue, the conduct of the executors was very much in issue and the only basis on which it can be said that Mr Cannington had an obligation to tell Deborah anything was as executor and the letters in question were in evidence in the main proceedings. This links to another point made by both Mr Grieve and Ms Champion, namely that the present claim is in effect an attempt to assert against the executors a breach of duties as executors and obtain as damages the costs of the Preliminary Discovery Proceedings. That claim, they submit, was so closely tied to the issues in the main proceedings that it was unreasonable for the plaintiff not to have included that claim in those proceedings so that Deborah is precluded by the operation of the principles in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 (see also Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; (2010) 75 NSWLR 245 and CG Maloney Pty Ltd v Noon [2011] NSWCA 397) from bringing the present claim. 17For reasons, which I shall explain shortly, I do not think it is necessary to venture into the territory of Port of Melbourne Authority v Anshun Pty Ltd or to consider whether the plaintiff's application should have been brought by fresh proceedings. 18Given the desirability that there should be finality in litigation, the circumstances in which judgment and orders can be set aside are very limited. Judgment and orders obtained "against good faith" is one such basis, although there may have been some blurring of the distinction between judgments obtained irregularly and judgments obtained against good faith: see Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110, explained in Shirriff v Nominal Defendant [1999] NSWCA 152 and Kendall v Carnegie [2006] NSWCA 302; (2006) 68 NSWLR 193 at [52]. There are a number of examples of conduct "against good faith" given in LexisNexis, Ritchie's Uniform Civil Procedure NSW, Vol 1 (at Service 67) [36.15.17] - for example a transfer to defraud creditors (see Silvera v Savic [1999] NSWSC 83; (1999) 46 NSWLR 124), and the signing of a default judgment contrary to the terms of a contract between the parties (see Cash v Wells (1830) 1 B & Ad 374; (1830) 109 ER 826). 19Mr Drummond referred to Bryson JA's judgment (with whom Hodgson and McColl JJA agreed) in Kendall v Carnegie and his Honour's statement that the term "against good faith" is not susceptible of exhaustive definition. What Mr Drummond did not set out was the clear endorsement by the Court of Appeal in that case of what had been said in Coles v Burke (1987) 10 NSWLR 429 at 437 per Kirby P, with whom Samuels and McHugh JJA concurred: "The genus which is involved in the phrase "irregularly, illegally or against good faith" appears to me to be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermines the authority of that judgment warranting the exceptional course for which r 12A provides." See also Shirriff v Nominal Defendant at [21] and Kendall v Carnegie at [52]. 20The reference to r 12A in Bryson JA's judgment in Kendall v Carnegie is to a Supreme Court rule in relevantly similar terms to r 36.15 of the Rules. 21The plaintiff must, to succeed on the basis of r 36.15, here establish that Mr Cannington has procured the orders for costs in the consent orders by misconduct or dishonourable conduct undermining (here) the consent obtained. The plaintiff's case suffers from these difficulties: (1)There is no evidence as to how the costs orders were procured by Mr Cannington. (2)There is no evidence from the plaintiff or her solicitors as to why the plaintiff proposed or agreed to the orders which were made, or how they came about. (3)Under the rules relating to discontinuance (see r 12.1) and costs (r 42.19), without an order of the Court or an agreement inter partes to the contrary, the plaintiff would have been required to pay the defendants' costs of the proceedings. The defendants did consent to an order that each party pay his or her own costs. (4)There was a considerable delay between the affidavit of Mr Cannington dated 14 December 2005 and the termination of the proceedings in March 2007 and there is no evidence that, at the time of discontinuance, Mr Cannington knew or ought to have known what the plaintiff or her solicitors had learnt or not learnt concerning the fate of the proceeds of sale. Rule 5.2(2) provides: "The Court may make either or both of the following orders against the other person: (a) an order that the other person attend the court to be examined as to the identity or whereabouts of the person concerned, (b) an order that the other person must give discovery to the applicant of all documents that are or have been in the other person's possession and that relate to the identity or whereabouts of the person concerned." The plaintiff did not seek to obtain any order pursuant to subrule (b) and that is consistent with the plaintiff or her advisers not regarding it as necessary, for reasons known to them, to further investigate the matter with Mr Cannington. 22Even accepting an obligation on Mr Cannington as executor to inform Deborah as to what he had done with the cheques constituting the sale proceeds, given the matters to which I have referred, the premise does not lead to the conclusion that by withholding that information he was procuring the resolution of the costs for preliminary discovery by misconduct or dishonourable conduct. Although I do not base my conclusion on this, the failure to put to Mr Cannington during cross examination in the main proceedings that his failure to advise Deborah was deliberate and dishonest would provide another ground for why that conclusion should not be reached. 23Insofar as Mr Drummond's submissions relied upon the inherent power of the Court to set aside a judgment entered by consent, the passage relied on is found in Harvey v Phillips at pp 243 to 244: "The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact or where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. The rule appears rather from positive statements of the grounds that suffice (cf Halsbury's Laws of England Vol 26 2nd Edition pp 84 to 85); but there is a dictum of Lindley LJ which is distinct enough '... nor have I the slightest doubt that a consent order can be impeached, not only on the ground of fraud but upon any grounds which validate the agreement expressed in a more formal way than usual ... To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not. Of course if that agreement cannot be invalidated the consent order is good' Huddersfield Banking Co Limited v Henry Lister & Son Limited (1895) 2 Ch 273 at p 280." 24In Harvey v Phillips although terms of settlement had been signed and handed up, judgment was not in fact signed or entered and this is noted at p 242 of the judgment. In Singh v Ginelle Pty Ltd [2010] NSWCA 310 at [36] the New South Wales Court of Appeal treated Harvey v Phillips as authority for the circumstances in which consent orders can be set aside. In Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) (2009) 78 NSWLR 190 at 192, however, the Court said at [6]: "There is no support in the decided cases for holding that perfected orders can be set aside for innocent misrepresentation." In Land Enviro Corp Pty Limited v HTT Huntley Heritage Pty Limited [2012] NSWSC 382 at [255], Stevenson J accepted the proposition that what had been said at [6] of Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) must have been a reference to judgment or orders entered after a contested hearing: see also Connectland Pty Ltd v Cardno Forbes Rigby Pty Ltd [2011] NSWCA 391 at [5]. 25Little if anything was said about this issue in the defendants' submissions and I will proceed on the basis that Singh v Ginelle Pty Ltd requires consideration to be given to the factors identified in the passage in Harvey v Phillips even where consent orders have been entered. 26The representation made by Mr Cannington that he had not acted on the sale of Percy's property in the two years before Percy's death was inaccurate because he had acted on the sale of one of the four properties within that period and the representation that no power of attorney had been utilised was also incorrect. As I have noted, the plaintiff's solicitors knew that their representations were incorrect at the time they were made. What was not disclosed by Mr Cannington was that he had handed the four cheques to Mona in 1993 and 1994. Assuming he had an obligation to disclose that fact to Deborah, he did not do so until he filed his evidence in the main proceedings. There is nothing in the evidence led on behalf of the plaintiff that establishes any linkage between the orders made by consent on the discontinuance (or the agreement to those orders) and the alleged non-disclosure or misrepresentation by silence. Much of what I have said in - (4) applies here as well. Nor was any pertinent "mistake" in connection with the discontinuance for the purposes of the "unilateral mistake" argument the subject of evidence or identification. Deborah's solicitor did state that he would have issued a subpoena to Mona rather than using preliminary discovery proceedings had he known that Mr Cannington had given cheques to Mona (see par 10 of Mr Nolan's affidavit affirmed 26 June 2012), but he did not give any evidence about the discontinuance more than a year later and nor did the plaintiff. 27There is undoubtedly jurisdiction in the Court to order a third party to pay the costs of a party (see s 98 of the Civil Procedure Act and Knight v FP Special Assets Ltd (1992) 174 CLR 178), although it has been said that "exceptional" circumstances are required to justify such an order: see FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [214] per Basten JA, with whom Beazley and Giles JJA concurred, and see May v Christodoulou [2011] NSWCA 75 at [93] per Sackville AJA, with whom Macfarlan JA agreed. To order a non-party to pay costs when there has been no hearing on the merits, a discontinuance filed and costs resolved on the basis that each party pay his or her own costs, would be even more remarkable and require an investigation of the type that the courts normally do not regard as appropriate: see Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 per McHugh JA. Even assuming that such an order could be made (which I doubt), there is no evidence here that Warrick and Rodney even knew of the Preliminary Discovery Proceedings, let alone the discontinuance and the agreement reached in respect of costs. Conclusion 28I am not satisfied on the evidence before me that the agreement that the plaintiff and the first defendant (and the second defendant) in the Preliminary Discovery Proceedings each pay their own costs was procured by Mr Cannington against good faith, by misrepresentation, non-disclosure or unilateral mistake and I accordingly dismiss the application to set it aside and hence decline to make any fresh order for costs contrary to what has been entered. There is no basis for an order under s 98 of the Civil Procedure Act against Warrick and Rodney. Costs of this Application 29The plaintiff, having failed on this application, must pay the defendants' costs. An application for indemnity costs of this application was made by the defendants and whilst the application has been rejected, no proper basis for an order for indemnity costs has been articulated and the plaintiff should therefore pay the costs of this application on the usual basis.