[1931] HCA 53
Degiorgio v Dunn (No 2) 62 NSWLR 284
[2005] NSWSC 3
Di Carlo v Dubios and Ors [2002] QCA 225
Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52
[2005] NSWCA 153
Newell
Muriniti v De Costi (2018) 97 NSWLR 398
Source
Original judgment source is linked above.
Catchwords
[1931] HCA 53
Degiorgio v Dunn (No 2) 62 NSWLR 284[2005] NSWSC 3
Di Carlo v Dubios and Ors [2002] QCA 225
Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52[2005] NSWCA 153
NewellMuriniti v De Costi (2018) 97 NSWLR 398
Judgment (22 paragraphs)
[1]
The application of VPD and Mr Edwards
VPD and Mr Edwards, the first and third cross defendant, made an application for a special costs order in the same way by Notice of Motion dated 29 May 2020. The following orders were sought:
Consequent upon the decision of this Court delivered on 15 May 2020:
(a) [RMP and Dr Beckwith] pay the costs of the First Cross-Defendant and the Third Cross-Defendant, on an indemnity basis;
(b) Alternatively:
(i) That [RMP and Dr Beckwith] pay the costs of the First Cross-Defendant and the Third Cross-Defendant from the commencement of the proceedings to the 17th August 2017 (the date that the First Cross-Defendant and the Third Cross-Defendant delivered their Defence to the Cross-Claimants); and
(ii) That on and from 17 August 2017, the Cross-Claimants pay the costs of the First Cross-Defendant and the Third Cross-Defendant on an indemnity basis
Further, alternatively, that on and from the 17th August 2017 (the date that the First Cross-Defendant and the Third Cross-Defendant delivered their Defence to the Cross-Claimants), the Solicitors of the Cross-Claimants, namely Messrs Gorval Lynch, pay the costs of the First Cross-Defendant and the Third Cross-Defendant on an indemnity basis - pursuant to s. 99 of the Civil Procedure Act 2005 (NSW) and/or pursuant to the principles enunciated in the decision of White Industries (Qld) Pty Ltd v Flower & Hart (1990) 156 ALR 169.
Further, alternatively, that on and from the 17th August 2017 (the date that the First Cross-Defendant and the Third Cross-Defendant delivered their Defence to the Cross-Claimants), the Solicitors of the Cross-Claimants, namely Messrs Gorval Lynch, indemnify the First Cross-Defendant and the Third Cross-Defendant for all and any costs payable by the Cross-Claimants pursuant to s. 99(2)(c) of the Civil Procedure Act 2005 (NSW).
Such further or other orders as this Honourable Court deems fit.
[2]
Lemoto v Able Technical
On 29 May 2020, by way of email, Ms L Chan, counsel for BHD, through my associate, drew my attention to the following passage from Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153 ("Lemoto") at [148]:
It is fundamental that the power to order costs against a non-party be exercised judicially: Knight v FP Special Assets Ltd (at 192). Exercising the power judicially means that the proceedings in which a [s 99] order is considered must take place in court and, save in exceptional circumstances such as deliberate non-attendance, in the presence of the person likely to be affected by any order made. They should be determined by the delivery of a judgment which adequately exposes the reasons for the outcome: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247.
In light of the observations of McColl JA above and given the nature of the orders sought by BHD, VPD and Messrs Edwards and Altenburg against the legal practice and its principals I directed the parties to appear before me for a directions hearing on 10 June 2020 with the intention of listing the matter for hearing rather than dealing with the application in chambers on the papers. I listed the matter for hearing on 10 July 2020.
Having given prior notice in accordance with r 7.29 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), on 10 June 2020 Mr Gorval filed a ceasing to act notice for RMP and Dr Beckwith. Dr Beckwith, who had been given notice of both, chose not to appear at either the directions hearing or the hearing of 10 July 2020; nor did anyone else appear purporting to represent Dr Beckwith or RMP. The notice included invitations being sent to Dr Beckwith to access the virtual hearing on MS Teams. The invitations were expressly declined.
[3]
Procedural issue
BHD filed an Amended Notice of Motion on 3 July 2020 seeking to amend order 2 in the following way:
Pursuant to s 98 and 99 of the Civil Procedure Act 2005 (NSW) and s 62 clause 5(1) of Schedule 2 of the Legal Profession Uniform Law Application Act 2014 (Schedule 2), the Court orders [the solicitors] to pay the costs of the Applicant/Sixth Cross Defendant in these proceedings on an indemnity basis.
That is Ms Chan wished to add another basis for the order sought by reference to the provisions of the Legal Profession Uniform Law Application Act 2014 (NSW) ("Uniform Law").
Ms Chan submitted that the amendment merely reflected what was already in BHD's written submissions and that it was by mere inadvertence that the original Notice of Motion did not correspond with all of the statutory grounds advanced in the written submissions.
Mr Fernon attached an Amended Notice of Motion to his written submissions filed on 6 July 2020 seeking to add the following wording to orders (3) and (4):
and/or Section 62 and Clause 5(1)(a) of Schedule 2 of the Legal Profession Uniform Law Application Act 2014.
VPD and Mr Edwards filed an Amended Notice of Motion on 7 July 2020 seeking to add the following wording to orders (2) and (3):
and further or alternatively Section 62 and Clause 5(1)(a) of Schedule 2 of the Legal Profession Uniform Law Application Act 2014.
I record that although Mr Lloyd of counsel submitted that his client was disadvantaged by such late amendments, I granted each of the moving parties leave to rely upon an amended notice of motion adding reliance upon s 62 Uniform Law. No specific substantive or forensic prejudice was pointed to. Accordingly, I will deal with each of the orders sought as outlined in the parties amended Notice of Motion.
[4]
Another procedural issue
While my judgment was reserved, on 30 November 2020, the Court received a letter from a person appointed trustee in bankruptcy for Dr Beckwith informing the Court that a bankruptcy order had been made against him on 25 August 2020. For that reason, I convened a directions hearing on 10 December 2020 to ascertain the position of the parties regarding the effect of s 58(3) Bankruptcy Act 1966 (Cth) on the application against Dr Beckwith.
Mr Fernon (now of senior counsel) was able to inform me that his solicitors' inquiries established that Dr Beckwith's bankruptcy was made on his debtor's petition and that there was no suggestion from the company register that RMP's legal status was in doubt. After discussion counsel agreed to confer to attempt to reach a consensus position. Mr Lloyd (now also of senior counsel) indicated that Dr Beckwith's bankruptcy could not affect the solicitors' position and he was anxious for the matter to be determined soon.
I allowed a few days for the parties to attempt to reach consensus. By email dated 15 December 2020, writing on behalf of counsel for all moving parties, Mr Fernon advised me that so far as each motion sought relief against Dr Beckwith that part of the application was withdrawn. I assume that this is because of the stay contained in s 58(3) Bankruptcy Act: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56 at [67].
Any references to the position of Dr Beckwith, as opposed to RMP, in these reasons should be read as providing context only as relevant to the extant claims.
[5]
BHD's argument
Indemnity costs are sought against RMP on two bases. First on 21 August 2018, BHD served an "offer of compromise" offering to settle for a verdict in favour of BHD with no order as to costs. Ms Chan "conceded" that the offer did not comply with Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") because it was not open for 28 days given the proximity of the commencement of the hearing on 27 August 2018: but compare with UCPR 20.26(7)(b). However, Ms Chan submits that the offer should be given effect as a Calderbank v Calderbank offer enlivening a discretion to order that BHD's costs are payable on an indemnity basis. Secondly, and in the alternative, Ms Chan argues that indemnity costs are warranted because the proceedings were brought and maintained by a party having "no reasonable prospects of success". See for example Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359. Ms Chan referred to my findings at [96] - [98] and [299] - [312] of my judgment.
Ms Chan submitted that the solicitors should pay BHD's costs on an indemnity basis. Relying on the principles expounded in Lemoto (at [107]-[112]), Ms Chan submitted that it was "improper" for the solicitors to bring and maintain its claim against BHD because it was an unarguable and futile case (s 99(1) Civil Procedure Act). She argued that on the facts available to the solicitors, any reasonable lawyer would have concluded that there was no arguable case against BHD. She submitted that on the pleadings it was impossible to understand the basis on which the claim was made against BHD. Counsel submitted that the inadequacy of the claim was further demonstrated by the numerous requests for particulars made by BHD which were not satisfactorily answered and the lack of detailed submissions advanced at the hearing to support the claim against BHD. Ms Chan argued that initially the claim against BHD had been brought under the Australian Consumer Law ("ACL") and that it was not until she had drawn to Mr Moore's attention that a claim against BHD had to be brought under the ASIC Act that the claim was belatedly amended. Ms Chan also submitted that damage was of the gist of the claim whether brought under the ACL or ASIC Act and that the claim against BHD was incapable of sounding in other than purely nominal damages.
Ms Chan also argued that I should draw an adverse inference from the failure of the solicitors to adduce evidence of the advice given by Mr Moore supporting the claim as framed to infer that the claim against BHD was futile. It was said I should infer that counsel's advice would not advance the solicitors' case and I should more readily infer that the case against BHD was brought without reasonable prospects of success.
Moreover, counsel submitted that the result itself demonstrated the baselessness of the claim.
[6]
Mr Altenburg's argument
Mr Fernon submitted that an indemnity costs order should be made against RMP and Dr Beckwith for the whole of the claim because after receiving legal advice they should have known that the claim against Mr Altenberg had no prospect of success. In the alternative, Mr Fernon submitted that pursuant to UCPR r 42.15A I should make an indemnity costs order against RMP and Dr Beckwith from 27 October 2017, the date on which an offer of compromise complying with the rules was made to RMP and Dr Beckwith. The offer was for judgment in favour of Mr Altenburg with no order as to costs. The offer was neither accepted nor otherwise responded to. In the event the offer was more favourable to RMP than the judgment.
In relation to the solicitors Mr Fernon submitted that an indemnity costs order should be made against them because the case against Mr Altenburg had no real prospects of success. With respect to the Fuji representations, Mr Fernon submitted that Dr Beckwith's evidence provided no reasonable basis for advancing this claim as the evidence of Mr Dimond and Mr Henderson demonstrated that it was Mr Dimond and Mr Henderson who made the relevant decisions about the systems and practices RMP would adopt. It was on Mr Henderson's advice that the "VPD/Fuji" quote was the best option and not that Fuji would be supplying the services that RMP entered into the Subscriber Agreement.
He argued by reference to my judgment at [296] and [297] that the solicitors had failed to advance a case on the loss and damage occasioned by the alleged misleading and deceptive conduct and that the experts qualified to give evidence by the solicitors had not been briefed to answer the ultimate question at the hearing, whether the software would perform to the standard required. Mr Fernon argued that the solicitors could not shield behind the advice of Mr Moore because as solicitors their duties were independent of counsel's and that in any event when provided with the opportunity to put Mr Moore's advice before the court they failed to do so.
Mr Fernon submitted that the inadequacy of the conduct of the claim by the solicitors is evidenced by their failure to provide the documents identified in the cross-claim until 1 September 2017 despite written requests and the request for further and better particulars on 4 September 2017 and 29 September 2017 which remained unanswered until 24 October 2017.
Mr Fernon argued that in the event that I found part only of Dr Beckwith's and RMP's claim to be hopeless I could make an order for a proportion of the costs of the proceedings be paid by the solicitors.
[7]
VPD's and Mr Edwards's argument
Mr Morris QC, who appeared with Mr Erskine of Counsel for VPD and Mr Edwards, argued that the costs payable by the unsuccessful cross-claimants ought to be payable on the indemnity basis. He relied upon what he described as "the maintenance of an utterly untenable cross-claim and the conduct of the trial, which was itself entirely unreasonable" (Written Submissions [8]). He referred to many of the factual findings made in my final judgment to make good this argument. He also relied upon three letters exhibited with his instructing solicitor's affidavit (Affidavit, Anthony Thomas Delaney, 29 May 2020). Those letters were dated 10 July 2017; 31 July 2017 and 18 September 2017, pointing out the serious shortcomings of RMP's case, the relevant principles informing the exercise of the discretion to award indemnity costs and the risk to the solicitors that such an order may be sought against them. For this reason, he submitted that the solicitors were aware of the misconceived and untenable nature of the claim and ought to be held accountable for the unnecessary incurring of costs.
Mr Morris submitted that the solicitors should pay VPD's and Mr Edwards's costs on an indemnity basis. He advanced similar submissions to Mr Fernon, arguing that the solicitors had no basis for establishing that the representation about the suitability of the software was misleading. He noted that the expert they had qualified was unable to answer this question. He further argued that the solicitors failed to ground in the evidence a claim in loss and damage, a crucial element of a claim brought under the ACL.
Like Mr Fernon, Mr Morris argued that the solicitors were unable to rely on the advice of Mr Moore to exonerate them from a claim for costs on an indemnity basis as the solicitors were required to satisfy themselves of the viability of the claim. In any event, he argued that an adverse inference should be drawn that the advice of counsel was not favourable to RMP and Dr Beckwith's claim in circumstances where privilege had been waived (as it had been) and the solicitors had failed to adduce evidence of counsel's advice.
[8]
The solicitors' argument
Mr Lloyd, who appeared for the solicitors, argued that there is evidence that there was an arguable case to be made against the other parties. To this end he provided me with a comprehensive table setting the elements of the cause of action, the provable facts in relation to that cause of action and my findings on each element.
In relation to the Fuji representation Mr Lloyd submitted that this evidence was discernible from Dr Beckwith's affidavit. Mr Lloyd submitted in accordance with Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 at 298; Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26 at [34]; Lemoto at [92] that it was not improper for a solicitor to accept the client's version of events and that the process of discerning the weight to be given to the evidence falls to the process of the administration of justice, not the solicitor. He further submitted that the reliance on Dr Beckwith's first affidavit to substantiate the claim was not without some merit given the lengthy affidavit's filed in reply and the time taken by all counsel at the hearing to examine witnesses and test the accuracy and reliability of the competing claims. Ultimately, Mr Lloyd submitted that the three core aspects of RMP's case on misleading and deceptive conduct, the element of reliance and resulting loss would have been made good if Dr Beckwith's affidavit evidence, including his second affidavit, had been accepted.
Mr Lloyd argued by reference to my judgment at [307] that the representation that BHD was the financial arm of VPD had been made good. Mr Lloyd submitted that with respect to the vicarious liability argument there was an arguable case as it hinged on the matters, facts and circumstances relied on to found the principal claim. On the argument as to the adequacy of the pleadings and response to the request for particulars, Mr Lloyd submitted that these matters should have been appropriately ventilated under UCPR prior to the hearing and should not be stockpiled for use as ammunition on the question of costs
In relation to damages Mr Lloyd reminded me that it was not just damages but declaratory relief which was sought. He further submitted that the question is whether there is a reasonably arguable claim that can sound in damages, even nominal damages. He emphasised that the thrust of the case on damages was in effect a claim for an indemnity for the amount due to the plaintiff, Canon Finance, under the Rental Payment Agreement even if I had been unpersuaded by that approach for the reasons expressed at [292]-[298].
Mr Lloyd also argued that the solicitors briefed experienced counsel and, I should infer, acted in accordance with his advice so far as their instructions permitted. Mr Moore represented RMP and Dr Beckwith from early in the proceedings and for the whole of the trial before me. Mr Moore was admitted as a barrister in 1977 and, notably, had published a book entitled "Deceptive Trade Practices". Mr Lloyd submitted that a conclusion can be drawn that as the parties have not sought an order for costs against Mr Moore that he and by extension the solicitor's acted with a proper purpose.
I interpolate that at the hearing Mr Lloyd advanced submissions in relation to the procedure to be adopted where the trial court had concluded that the claim or defence had no reasonable prospects of success. No such explicit finding had been made here. He submitted that in this case there would be a need for a rehearing which I would not engage in. These procedural matters relate to the availability of the presumption under cl 6 Uniform Law. All moving parties assured me that they were not relying on cl 6 presumption and there is no need to consider this submission further.
In relation to the Jones v Dunkel inference advanced by each party Mr Lloyd argued that such an inference is incapable of being drawn given the late amendments to include Sch 2 by the parties. He submitted that whereas cl 6 Sch 2 provides the court with the power to order the disclosure of otherwise confidential documents in response to an order for indemnity costs against a solicitor, s 99 Civil Procedure Act does not. Mr Lloyd further submitted that no adverse inference could be drawn about the failure to adduce Mr Moore's advice given that privilege was waived so close to the costs hearing and the parties all had the same opportunity, such as it was, to obtain the material for themselves. The moving parties had not sought to avail themselves of that opportunity but preferred to rely on an asserted inference only.
Mr Lloyd argued that all costs orders are discretionary and that in deciding whether to make such an order I should consider the conduct of Mr Morris's client in the whole sorry Exhibit XD1 saga ([183]-[197]), even if any entitlement to the wasted costs were eschewed, as Mr Morris had made clear. Mr Lloyd also argued that it was significant to the success of Dr Beckwith and RMP's claim that I did not allow amendments to the cross claim at the commencement of the hearing permitting Mr Moore to run his preferred case: Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 3) [2018] NSWSC 1378; Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 4) [2018] NSWSC 1379.
[9]
Statutory framework
Section 98 Civil Procedure Act 2005 (NSW) is in the following terms:
Courts powers as to costs
(1) Subject to rules of court and to this or any other Act -
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.
(2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court.
(3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings.
(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to -
(a) costs up to, or from, a specified stage of the proceedings, or
(b) a specified proportion of the assessed costs, or
(c) a specified gross sum instead of assessed costs, or
(d) such proportion of the assessed costs as does not exceed a specified amount.
[10]
Case law on costs on the indemnity basis
The principles informing the exercise of the Court's discretion to depart from the general rule applicable in adversary litigation, that the successful party is entitled to an order for costs on the usual party and party basis, to award costs on the indemnity basis were not seriously in question in this case. For this reason it is unnecessary to multiply references to the many authorities which have expounded the relevant considerations. Counsel were generally agreed that the relevant principles were still to be found in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (Woodward J) and Colgate-Palmolive Company & Another v Cussons Pty Ltd (1993) 46 FCR 225 at 232 - 234 (Shepherd J). I accept Mr Morris's submission that the principles to be derived from these cases and the decision of the Court of Appeal in Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 are admirably summarised by White J (as her Honour then was)(with whom Williams JA and Wilson J agreed) in Di Carlo v Dubios and Ors [2002] QCA 225 at [36] - [38], which I now set out:
[36] As Sheppard J noted in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, there is perceived a growing divergence between what taxing officers consider necessary or proper and the refusal of barristers, solicitors and professional witnesses to accept that guide for their fees and charges. But that does not mean that it is open to an individual judge to award costs having regard to his or her own view as to the adequacy of party and party costs so fixed, see Davies J's comments to that effect in Ragata Developments Pty Ltd v Westpac Banking Corp (unreported Federal Court 5 March 1993) quoted in Colgate-Palmolive at 231-2.
[37] There are numerous authorities which discuss the circumstances in which a court will be justified in making an order for indemnity costs. Two are regularly cited - Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, a decision of Woodward J, and Colgate-Palmolive. From his review of the cases Sheppard J was able to derive a number of principles or guidelines. At p232-p34 his Honour recognised that the categories in which the discretion may be exercised are not closed. Woodward J at 637 in Fountain said that there needs to be some special or unusual feature in the case to justify a court departing from the ordinary practice. Sheppard J instanced the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; misconduct that causes loss of time to the court and the other parties; the fact that the proceedings were commenced at or continued for some ulterior motive; or in wilful disregard of known facts; or clearly established law; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; the imprudent refusal of an offer to compromise; and costs against a contemnor.
[38] The New South Wales Court of Appeal in Rosniac v Government Insurance Office (1997) 41 NSWLR 608 noted at 616 that the discretion to depart from the usual party and party basis for costs is not confined to the situation "of what Gummow J described as the "ethically or morally delinquent party" in Botany Municipal Council v Secretary, Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412 at 415. Their Honours observed however, that:
"...the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. Any shift to a general or common rule that indemnity costs should be the order of the day is a matter for the legislature or the rule maker."
It is, I think, also worth bearing in mind Shepherd J's conclusion expressed in his sixth principle formulated in Colgate-Palmolive at 234:
It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.
[11]
Decision on BHD's application against RMP
It will be recalled that BHD seeks an order for indemnity costs against RMP on two bases. First that RMP's case against BHD was, effectively, hopeless. In this regard it might fall into that category summarised by White J in the Queensland Court of Appeal of advancing a case in "wilful disregard of known facts". And secondly, and in the alternative by seeking to treat the offer of compromise as a Calderbank v Calderbank offer.
The decision should be made against the background provided by the general principles I have referred to including that the norm is that costs are awarded to the successful party on the usual party and party basis, or, as it is now put, on the ordinary basis. There needs to be, as White J expressed it, "some special or unusual feature in the case to justify a court departing from the ordinary practice". As I have said, bringing a case in wilful disregard of known facts is one such circumstance recognised by the cases and another is "the imprudent refusal of an offer to compromise". Bringing a case in wilful disregard of known facts may, perhaps, be equated with the "without reasonable cause" requirement in S99(1)(b), or "without reasonable prospects of success" in Sch 2 of Uniform law.
For completeness I will set out a number of the primary findings of fact that I made in my judgment at [12] - [86]. In general terms, RMP repudiated the contract for the supply of IT goods and services because it found itself unable to comfortably afford the monthly outgoings. Dr Beckwith did not appreciate that he had entered into a commercial loan agreement structured as a commercial lease over the equipment and that the effect of bringing the arrangements to an end was that RMP would be liable to repay the full amount. He did not appreciate that BHD had entered into the loan arrangements effectively as the agent for Canon Finance, as principal. When the reality of these matters were drawn to his attention in February 2016 he formed the conviction that he had been "had", my word. And this is made clear from the evidence I have summarised from his email correspondence at [72] to [77]. His position is summarised in his affidavit of 19 October 2017 at [111] which I have set out at [77]. Although I rejected his evidence about these matters, I did not regard him as a dishonest witness. Rather he was genuinely mistaken about matters which would have been clear to him if he had paid proper attention to his own business interests. One factor he relied upon was his belief that it had not been disclosed to him that the financial obligations under the contract would be owed to Canon Finance. There can be no doubt on the findings I made that Dr Beckwith convinced himself that he had been severely misled by each of BHD, Mr Altenburg, Mr Edwards and VPD.
Focusing on facts relevant to BHD's claim for indemnity costs, I did express difficulty in understanding RMP's case (see my judgment at [299]). As I understood the case made against BHD, it turned upon what was said to be a misleading representation that BHD was the financial arm of VPD and that it was vicariously liable on the basis of the principals discussed in Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Limited (1931) 46 CLR 41; [1931] HCA 53. I found that the "financial arm" representation was made but the second and more significant limb of the claim failed because there was no wrongful conduct of others to be attributed to BHD, and the conditions for a case of vicarious liability in any event had not been otherwise satisfied. In particular, I was not satisfied it had been proved that BHD was a principal of VPD in relation to the contract for the provision of the IT equipment and services, notwithstanding that it was BHD which was the party the Rental Payment Agreement and not VPD.
I am not satisfied that the difficulty counsel had in articulating his client's claim against BHD, and the consideration that the claim failed, of themselves demonstrate that there was a "wilful disregard of known facts" in maintaining the claim against BHD. The claim was obviously one of some difficulty involving a degree of complexity, but RMP's claim essentially failed because it failed to satisfy me on the balance of probabilities that its version of the contestable facts should be accepted. That the case was never strong, does not establish that it was hopeless, or so weak that no commercial litigant acting in its own interests would institute and maintain it. Had RMP's version been accepted, as Mr Lloyd argued, the result would have been different. I reject this limb of the argument for indemnity costs.
I turn then to the second ground which relates to the informal offer of compromise served on 21 August 2018. I interpolate I am not convinced that Ms Chan's concession was well made given UCPR 20.26(7)(b). This part of the argument is capable of falling into Shepherd J's category of "an imprudent refusal of an offer to compromise", always accepting that the categories of case which may attract the exercise of the discretion invoked by BHD are not closed. It is well recognised, especially in commercial litigation, that a "walk away" offer may be one of considerable value. This may be particularly so in what seems to have been very cost intensive litigation. The adoption of the form of an offer of compromise under the rules, even if the offer was non-compliant in a material way, would convey to the recipient that the offer was seriously made with a view to having costs consequences if rejected. It would be implicit to the recipient that the offer was made with a view to laying a foundation for an application for indemnity costs if the offer was refused.
While I have not been persuaded that the claim against BHD viewed prospectively had no reasonable prospect of success, a prudent litigator would not have regarded it as strong. Indeed, by the time the offer was made, its weakness would have been palpable. When it was made RMP had already settled with Canon Finance and the latter's entitlements against RMP were founded on the assignment from BHD to Canon Finance of its chose in action in the Rental Payment Agreement. Avoidance of the Rental Payment Agreement, to which BHD was a party, was no longer an essential factual ingredient in RMP's prospect of success against the other parties for an indemnity for RMP's liability to Canon Finance. I am satisfied given all the circumstances that it was "imprudent" for RMP to reject BHD's offer. If it is necessary to so find, this is a sufficiently special or unusual feature of the case to justify displacement of the norm that the successful party is entitled to costs on the ordinary basis. I am satisfied that it is appropriate in the exercise of my discretion to order that BHD's costs that I have awarded against RMP be assessed on the usual basis to 21 August 2018 and thereafter on the indemnity basis.
[12]
Decision on Mr Altenberg's application against RMP for indemnity costs
I remind myself that there are two bases to this application too. First, RMP should have known that its claim had no real prospects of success. And, secondly the costs consequences of RMP's failure to accept the offer of compromise of 27 October 2017 by operation of r 42.15A UCPR.
That RMP's claim was comprehensively lost does not of itself establish that it had no prospects of success. With the exception of the representation that the IT equipment and services were to be provided by Fuji/Xerox, I found that each of the core representations contended for by RMP were made by VPD and Mr Edwards but not by Mr Altenberg ([260] - [262]). There was no separate claim that Mr Altenberg was a person "involved" in the contravention of s 18 of Sch 2 (the Australian Consumer Law), Competition and Consumer Act 2010 (Cth) ("the ACL").
Although the Fuji representation was rejected by me, because of the state of knowledge of Mr Henderson and Mr Dimond, I was also satisfied that Dr Beckwith had been left with the strong and genuine belief that the IT equipment and services were to be supplied by Fuji/Xerox. He knew that the original approach was made to Fuji/Xerox, he probably appreciated that Mr Altenberg worked for that company, and that the goods and services were to be provided by a multinational company like Fuji/Xerox was doubtless capable of being a consideration material to the entry into the contract. Dr Beckwith was the controlling mind of RMP and although he relied upon Mr Henderson and Mr Dimond and signed off on the agreement on their assessment of the proposal, the final decision was his, even if Mr Dimond was authorised to sign the Subscriber Agreements on behalf of RMP. Mr Dimond's authority was directly derived from Dr Beckwith. Had Dr Beckwith's evidence been accepted, the outcome of the case in relation to this particular representation may well have been very different.
I am not satisfied that Mr Altenberg has demonstrated that RMP's case against him had no real prospect of success. Even were it otherwise, I may have had reservations about whether an order for indemnity costs on this count was appropriate given Mr Altenberg's obfuscation when he was asked about his role in the proposal by Mr Henderson, in the presence of Dr Beckwith at the September Meeting.
On the other hand, I am satisfied that Mr Altenberg has obtained a judgment on the claim which is no less favourable to him than the terms of the offer within the meaning of UCPR 42.15A. I am not of the view that Mr Altenberg's obfuscation is a matter which should lead me to order otherwise than in accordance with the provisions of the rule. I will order RMP to pay Mr Altenberg's costs on the ordinary basis up to 27 October 2017 and on the indemnity basis thereafter.
[13]
Decision on VPD's and Mr Edwards's applications
RMP's case against VPD and Mr Edwards was built upon four representations said to have been made. The core representations were summarised at [89] and [252] of my judgment they are: the IT equipment, software and services would address RMP's current IT inefficiencies; the equipment software and services would address certain scanning issues RMP was experiencing; and the equipment, software and services would be quicker and more efficient. The fourth representation is the Fuji representation which I dealt with at [241] - [251]. I accepted that the three core representations had been made, but the Fuji representation had not. In relation to the Fuji representation, I repeat that I accepted that Dr Beckwith genuinely believed that that representation had been made and on the basis of it had the expectation that that company or a related company, VPD, was the supplier. That part of the case was lost because I accepted evidence other than Dr Beckwith's evidence.
I did not accept that the evidence established that the representations were misleading or deceptive. I found that the representations were material and to that extent were relied upon by RMP in entering into the various agreements, but I found that the factual cause of the claimed loss was RMP's repudiation of the contracts for financial reasons. I was not satisfied that RMP had proved its loss even though it obviously had attracted a legal liability to Canon Finance, for the simple reason that I was persuaded that had it not entered into the contracts for the supply of VPD's goods and services it would have entered into a similar contract with another supplier at about the same time and in the same price bracket.
All of these findings really depended upon my preference for evidence other than that of Dr Beckwith on most issues. Had I accepted his evidence in preference to the evidence of other witnesses, the outcome may well have been different. Had I accepted Dr Beckwith's evidence in preference to the evidence of the other witnesses and contemporaneous documents even the Fuji representation may have got up.
For these reasons it cannot be said, in my judgment, that RMP's claim against VPD and Mr Edwards had no reasonable prospect of success. Doubtless by the time the final hearing commenced before me, viewed from the standpoint of the cross-defendants, there was a considerable, indeed formidable, body of evidence generated by the usual pre-trial procedures, in the possession of all parties, against RMP's case. By then, RMP's case certainly could not have been described as strong. Viewed objectively it might best have been assessed as weak, but it is wrong to say it was complete untenable. It was not unreasonable for RMP to maintain it.
In coming to this conclusion, I have borne in mind that, originally, when the cross-claim was commenced, Mr Henderson and Mr Dimond were joined as cross-defendants. Although Mr Henderson was called in RMP's case, given that he had left RMP's employ at the end of 2016 when the contract remained on foot, he was not really in RMP's camp. I infer that RMP's lawyers did not have access to him until after the resolution of the case against him.
I acknowledge that I did not accede to Mr Moore's application to amend the cross-claim to run the case he preferred to present which was that the Rental Payment Agreement was the actual contract, the Subscriber Agreements were mere quotes, and the actual contract did not provide for other than the supply of necessary hardware. However, this does not seem to me to be relevant to the issue I now have to determine. In my judgment I found it necessary to address aspects of that matter and I am not of the view that the preferred case had any real prospect of success because the Subscriber Agreements were contracts for supply binding VPD to provide all of the equipment, software and services necessary to set up and run the cloud based IT system offered.
VPD and Mr Edwards have not established the condition relied upon to enliven the consideration of an indemnity costs order in their favour. I might also say that as Mr Lloyd argued the unsatisfactory evidence initially lead on behalf of VPD and Mr Edwards on the "full SQL licence" issue (see [175] - [240]) is a matter highly relevant to the question of whether these parties were otherwise appropriate beneficiaries of an indemnity costs order. As I have said, Mr Morris has made clear that VPD and Mr Edwards would not pursue the costs wasted on the ventilation of that issue by reference to the false document, Exhibit XD1. Mr Morris conceded it "was in fact not a genuine document" (501.50 - 502.1T) although initially proffered by VPD's principal witness as such. A disavowal to any entitlement to the costs wasted on that false issue does not exhaust the demands of justice raised by it. I would have thought, had it been necessary to address it, that the promulgation of that issue by VPD amounted to what might be referred to as disentitling conduct. It would seem to me that only a worthy litigant without forensic fault is entitled to the benefit of an indemnity costs order when it would otherwise be appropriate. I wish to make it completely clear that I do not include either Mr Morris, Mr Erskine or their instructing solicitor in this criticism. Their conduct was in every way beyond reproach. They were, as it were, the victims of their instructions in this regard.
I will not make an indemnity costs order against RMP in favour of VPD and Mr Edwards.
[14]
Statutory provisions concerning solicitors' liability for costs
Section 99 Civil Procedure Act is expressed as follows:
Liability of legal practitioner for unnecessary costs
(1) This section applies if it appears to the court that costs have been incurred -
(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or
(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.
(2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following -
(a) it may, by order, disallow the whole or any part of the costs in the proceedings -
(i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or
(ii) in the case of a solicitor, as between the solicitor and the client,
(b) it may, by order, direct the legal practitioner -
(i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or
(ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,
(c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party.
(3) Before making such an order, the court may refer the matter to a costs assessor (within the meaning of Part 7 of the Legal Profession Uniform Law Application Act 2014) for inquiry and report.
(4) The court may direct that notice of any proceedings or order under this section with respect to a legal practitioner be given -
(a) in the case of a barrister, to the instructing solicitor or client, or both, as the court may direct, or
(b) in the case of a solicitor, to the client.
(5) The court may give ancillary directions to give full effect to an order under this section, including directions to a legal practitioner to provide a bill of costs in assessable form -
(a) to the court, or
(b) to a party to the proceedings, or
(c) in the case of a barrister, to the instructing solicitor or client, or both, or
(d) in the case of a solicitor, to the client.
(6) A party's legal practitioner is not entitled to demand, recover or accept -
(a) in the case of a barrister, from the instructing solicitor or client, or
(b) in the case of a solicitor, from the client,
any part of the amount for which the legal practitioner is directed by the court to indemnify any party pursuant to an order referred to in subsection (2) (c).
(7) In this section, client includes former client.
Section 62 Uniform Law is expressed as follows:
Costs in civil claims - no reasonable prospects of success
Schedule 2 contains provisions relating to costs in civil claims where there are no reasonable prospects of success.
Under cl 2(1) Sch 2 Uniform Law a law practice must not provide legal services on a claim or a defence unless a legal practitioner reasonably believes on the basis of provable facts and a reasonably arguable view of the law that it has reasonable prospects of success.
By cl 2(5) legal services that are provided in contravention of cl 2 amount to the provision of legal services without reasonable prospects of success. And by cl 4(1) the provision of legal services without reasonable prospects of success is capable of constituting unsatisfactory professional conduct or professional misconduct.
Clause 5 and 6 are important and I will set them out in full:
5 Costs order against law practice acting without reasonable prospects of success
(1) If it appears to a court in which proceedings are taken on a claim for damages that a law practice has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the practice or of a legal practitioner associate of the practice responsible for providing the services -
(a) an order directing the practice or associate to repay to the party to whom the services were provided the whole or any part of the costs that the party has been ordered to pay to any other party,
(b) an order directing the practice or associate to indemnify any party other than the party to whom the services were provided against the whole or any part of the costs payable by the party indemnified.
(2) The Supreme Court may on the application of any party to proceedings on a claim for damages make any order that the court in which proceedings on the claim are taken could make under this clause.
(3) An application for an order under this clause cannot be made after a final determination has been made under Part 7 by a costs assessor of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken.
(4) A law practice or legal practitioner associate of the practice is not entitled to demand, recover or accept from a client any part of the amount for which the practice or associate is directed to indemnify a party pursuant to an order under this clause.
6 Onus of showing facts provided reasonable prospects of success
(1) If the court (the trial court) hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Schedule that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.
(2) If the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Schedule that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.
(3) A presumption arising under this clause is rebuttable and a person seeking to rebut it bears the onus of establishing that at the time legal services were provided there were provable facts (as provided by clause 2 (Law practice not to act unless there are reasonable prospects of success)) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success.
(4) A law practice or legal practitioner associate of the practice may, for the purpose of establishing that at the time legal services were provided there were provable facts (as provided by clause 2 (Law practice not to act unless there are reasonable prospects of success)) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success, produce information or a document despite any duty of confidentiality in respect of a communication between the law practice or a legal practitioner associate of the practice and a client, but only if -
(a) the client is the client to whom the legal services were provided or consents to its disclosure, or
(b) the court is satisfied that it is necessary for the law practice or associate to do so in order to rebut a presumption arising under this clause.
[15]
Case law on solicitors' liability for costs
In Lemoto McColl JA dealt with the construction and meaning of Part 11, Div 5C Legal Profession Act 2004 (NSW). The provisions of that Act are substantially replicated by Sch 2 Legal Profession Uniform Application Act. I will set out the relevant findings of her Honour below at [92] - [142]:
[92] The new Div 5C should be construed against the background of the following principles which can be gleaned from the English and Australian authorities which have considered the power to order legal practitioners to pay the costs of proceedings in which they have represented parties:
(a) The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised "with care and discretion and only in clear cases";
(b) A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or defence which is plainly doomed to fail;
(c) the legal practitioner is not "the judge of the credibility of the witnesses or of the validity of the arguments; the legal practitioner is not "the ultimate judge, and if he reasonably decides to believe his client, criticism cannot be directed to him;
(d) A judge considering making a wasted costs order arising out of an advocate's conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, a legal practitioner's conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order;
(e) A legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it;
(f) Where a legal practitioner's ability to rebut the complaint is hampered by the duty of confidentiality to the client he or she should be given the benefit of the doubt; in such circumstances "[t]he court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so";
(g) The procedure to be followed in determining applications for wasted costs must be fair and "as simple and summary as fairness permits …[h]earings should be measured in hours, and not in days or weeks… Judges … must be astute to control what threatens to become a new and costly form of satellite litigation.
[127] Turning to the construction of Div 5C, it is apparent that the question whether legal services have been provided "without reasonable prospects of success" turns, in the first instance, on the legal practitioner's "reasonable" belief as to the "provable facts" and his or her view of the law: s 198J(1). Section 198J(2) explains the circumstances in which a fact will be regarded as "provable", again turning on the question of the legal practitioner's "reasonable" belief that the material then available provides a proper basis for alleging that fact. There is no express requirement that this material be admissible. However, s 198J imposes a continuing obligation. There may be a stage in a claim for damages where the fact a legal practitioner could not then reasonably believe that the evidence available would be admissible to enable the claim to be proved or defended, may lead to a prima facie case of a contravention of s 198J.
…
[132] … The test, whether a claim or a defence was "so lacking in merit or substance as to be not fairly arguable", must be applied, however, in the context of the constituent components of s 198J. In that context the question becomes whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant that the prospects of recovering damages or defeating a claim or obtaining a reduction in the damages claimed were "fairly arguable". These are matters which about which reasonable minds might differ. The question will be whether the solicitor or barrister's belief that they had material which objectively justified proceeding with the claim or the defence "unquestionably fell outside the range of views which could reasonably be entertained".
[133] Although it might be assumed that the question whether a s 198M order should be made will ordinarily arise where a litigant has been unsuccessful, it needs to be emphasised that the mere fact litigation is resolved adversely to a party does not mean costs should, in consequence, be ordered against the legal adviser, whether he or she be a solicitor or a barrister.
…
[138] When considering whether to make a s 198M order the court should, in my view, consider the nature of the contravention of Div 5C which has been established, the possibly serious implications of making the costs order and determine whether it is just, in all the circumstances, that a repayment and/or indemnity order should be made and whether it should be as to the whole or part of the costs.
…
[142] … the purpose of Div 5C is plainly to deter the legal practitioner at the peril of a personal costs order, and possibly disciplinary proceedings, from representing a client whose prospects in pursuing or resisting a claim for damages he or she has formed the view have no reasonable prospects of success. There is no entitlement to legal representation in such cases. It is a matter for the client to determine whether to pursue the claim or defence without such services.
(Citations omitted).
I note that McColl JA emphasised that the decision to make such a costs order is discretionary: at [130].
In Newell; Muriniti v De Costi (2018) 97 NSWLR 398; [2018] NSWCA 49 ("Newell") Beazley P said the following at [57] - [60]:
[57] The purpose of s 348(1)(b) was to impose a costs sanction on a law practice or practitioner who provided legal services in respect of a proceeding which ought not to have been brought because it did not have reasonable prospects of success. The phrase "reasonable prospects of success" is not defined in the Legal Profession Act, although s 345 provides some guidance as to its meaning. It is not a high or inflexible bar as Barrett J (as his Honour then was) explained in Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284; [2005] NSWSC 3 (his Honour's judgment was in respect of the former s 198M(1) of the Legal Profession Act 1987 (NSW), the terms of which were substantially the same as the present s 348). As Barrett J observed in that case, at [28]:
"[28] … 'without reasonable prospects of success'… equates its meaning with 'so lacking in merit or substance as to be not fairly arguable'. The concept is one that falls appreciably short of 'likely to succeed'."
…
[60] The position may not be as straightforward where the claim is brought against more than one party. If the claim against all parties had no prospect of success and the parties were separately represented, then, again, subject to the court determining that part only of the costs that were incurred in defending the claim were to be indemnified, each party would be entitled to be indemnified for the costs of defending the claim.
On the construction of s 99 Beazley P said:
[71] … There is thus a causation requirement in the section. It is not sufficient that there be conduct which falls within any of the three matters with which the section deals. Such conduct must have caused costs to have been incurred that would not otherwise have been incurred but for that conduct.
In relation to s 99 Beazley P said at [76] that "[t]he jurisdiction is to be exercised with care and only in a clear case".
[16]
Decision on BHD's claim against the solicitors
It will be recalled that BHD seeks an order for indemnity costs against the solicitors on two bases. First, it invokes s 99 Civil Procedure Act to argue that the whole of its costs has been incurred by, relevantly, the serious incompetence of the solicitors, or they have been incurred improperly in circumstances for which the solicitors are responsible. The conditions imposed by s 99(1)(a) and (b) are relied upon in the alternative and for essentially the same reasons. Secondly, cl 5 of Sch 2 of the Uniform Law is invoked on the ground that the whole of the claim against BHD had no reasonable prospects of success.
[17]
Section 99 Civil Procedure Act
It needs to be borne in mind that the expressions "serious incompetence" or "improper" connote a high degree of departure from the standard of competence, on the one hand, or ethical propriety in the conduct of litigation, on the other. Although Ms Chan employed the word "improper" in her submissions I rather took the emphasis to be on the question of competence.
I accept there is some force in Ms Chan's argument that the lack of coherent articulation of the case against BHD and the erroneous invocation of the ACL as opposed to the ASIC Act legitimately raise a question of competence. However, I am not satisfied that these matters establish incompetence to the high degree required to constitute serious incompetence. With some difficulty, one was able to grasp the case that RMP sought to make against BHD. Moreover, although the mistake as to the applicable legislation suggests a lack of expertise, in substance, the claim was brought and maintained as one by a consumer claiming damages against a finance provider for misleading or deceptive conduct.
I have also taken into account that the solicitors involved, in the overall scheme of things, are generally relatively junior, compared to Mr Moore, and appropriately briefed counsel who held himself out as having expertise in this field. I infer that they sought and followed his advice in furtherance of RMP's instructions. I would not infer from the failure of the solicitors to produce any written advice from Mr Moore or a file note of oral advice that the disclosure of his advice would not assist them to resist BHD's claim of serious incompetence. Although one may assume that usually in comparatively complex litigation, counsel's written advice would be obtained, the expectation one has in that regard does not of itself lay an adequate foundation for drawing such an inference. It could not be said that solicitors invariably require counsel's written advice. Although file notes are usually and prudently made of oral advice again the practice is not invariable. Moreover, on the evidence, Dr Beckwith did not always seek or take legal advice in his commercial dealings. I am not persuaded that the evidence lays a foundation from which I can be comfortably satisfied that there are extant documents recording Mr Moore's advice or that it is more likely than not that Dr Beckwith would have instructed the solicitors to follow it had it been given. No call for any document was made even though the evidence established that privilege had expressly been waived.
I accept that solicitors have equal professional standing to barristers. The formal qualifications for practice in either role are effectively the same, leaving aside the additional requirement of satisfactorily undertaking the Bar Practice Course before the Council of the New South Wales Bar Association will issue a practising certificate. However, one needs to have regard to the practical reality that solicitors will often brief a particular barrister because he or she possesses expertise in an area of practice superior to that of the solicitor. The briefing policy of most solicitors is one of "horses for courses". Given Mr Moore's long experience at the Bar and his apparent expertise in this area, I am satisfied that the solicitors, quite reasonably, would have followed his advice in so far as their instructions permitted them to do so. This last matter is of some importance because as Beazley P said in Newell (at [228]) before an order can be made it is necessary for BHD to demonstrate in respect of Mr Gorval, Mr Lynch and the legal practice the specific conduct of each of them individually which is said to constitute the relevant serious incompetence to ground an order that one or other or all of them pay BHD's costs. In my judgment that has not been done.
I am not satisfied that BHD has established its case for a costs order under s 99 Civil Procedure Act.
[18]
Uniform Law
I turn then to the questions of whether the solicitors acted on RMP's claim against BHD without a reasonable belief based on provable facts and a reasonably arguable view of the law that it had reasonable prospects of success.
I have already found for the purpose of determining BHD's claim for indemnity costs from RMP that despite its palpable weakness, the claim is not one which, viewed prospectively, had no reasonable prospect of success. The test at each level of inquiry is substantially the same. My findings in this regard, as I have analysed them above, to my mind exclude the operation of cl 6 of Sch 2 of the Uniform Law. That is, I did not find in substance that the facts established by the evidence did not form a basis for a reasonable belief that the claim brought by RMP against BHD had reasonable prospects of success. Rather, I rejected the contestable facts upon which the claim was based by my preference for other evidence. Accordingly the presumption created by cl 6(1), as all counsel accepted, does not arise and the onus lies upon BHD to show that the facts proved that the claim had no reasonable prospects of success.
As Lemoto and Newell show the approach to what constitutes "without reasonable prospects of success" in the statutory context is that articulated by Barrett J (as his Honour then was) in Degiorgio v Dunn (No 2) 62 NSWLR 284; [2005] NSWSC 3 ("Degiorgio") at [28]. His Honour observed:
…"without reasonable prospects of success"… equates its meaning with "so lacking in merit or substance as to be not fairly arguable". The concept is one that falls appreciably short of "likely to succeed".
One cannot infer from the consideration that the claim was lost, even comprehensively lost, that it had no reasonable prospects of success. A claim which is unlikely to succeed may yet be "fairly arguable". Employing the care and restraint that the authorities require of me, I am not satisfied that this is "a clear case" of a claim without reasonable prospects of success. I am not persuaded on the balance of probabilities that BHD has established its claim for costs to be paid by the solicitors and its application in that regard must be dismissed.
[19]
Decision on Mr Altenburg's claim against the solicitors
Applying the Degiorgio test to Mr Altenberg's application for costs against the solicitors, making the same finding in relation to the inapplicability of the cl 6(1) presumption, and declining to draw an adverse inference against the solicitors for the reasons already given in relation to BHD's claim, I am not satisfied for the reasons expressed at [54] above that Mr Altenberg has demonstrated on the balance of probabilities that the solicitors brought RMP's claim without reasonable prospects of success, or without reasonable cause, as the case may be. Exercising the same care and restraint, I am not satisfied that this is a clear case of a solicitor having brought a claim that had no reasonable prospects of success in the statutory sense whether under s 99 Civil Procedure Act or Sch 2 Uniform law. That the Fuji representation was pressed but diffidently by Mr Moore at the conclusion of the trial does not alter my analysis in this regard. Mr Altenberg's application for an order that the solicitor pay his costs must be refused.
[20]
Decision on VPD's and Mr Edwards claim for costs against the solicitors
Like Mr Altenberg, VPD and Mr Edwards rely upon s 99 Civil Procedure Act, and upon the provisions of the Uniform Law, in the alternative. As I have observed there is no real difference in substance between the statutory formulations which both equate to "not fairly arguable". So far as they claimed indemnity costs against RMP, I have already found for the reasons given at [57]-[64] that VPD and Mr Edwards have not established that the claim against them was brought and maintained without reasonable prospects of success. In substance, as I have observed already in relation to the other moving parties, this finding determines the outcome of the statutory inquiry relevant to the question of whether the solicitors should be ordered to pay VPD's and Mr Edwards's costs.
Adopting the same reasoning, applying the appropriate care and restraint, and declining to draw an inference that counsel's advice would not help the solicitor's case for the reasons already given, I am not satisfied that RMP's claim was "so lacking in merit or substance as to be not fairly arguable". Given that the statutory requirement that a legal practitioner must reasonably belief that provable facts and a reasonably arguable view of the law justify bringing the claim, connotes an objective test, I am satisfied that the claim was "fairly arguable" as explained by Barrett J.
In these circumstances, the claim for the costs against the solicitors must be dismissed.
[21]
Orders
My orders are:
1. Pursuant to Order 4 of the orders pronounced by me on 15 May 2020 in Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 7) ("the previous orders"), order the first cross-claimant to pay the costs of the second cross-defendant on the ordinary basis up to and including 27 October 2017 and on the indemnity basis thereafter;
2. Pursuant to Order 4 of the previous orders, order the first cross-claimant to pay the costs of the sixth cross-defendant on the usual basis up to and including 21 August 2018 and thereafter on the indemnity basis;
3. Pursuant to Order 4 of the previous orders, refuse the application of the first and third cross-defendants for an order for costs against the first cross-claimant on the indemnity basis;
4. Dismiss the claim of each of the first, second, third and sixth cross-defendants for an order that the third, fourth and fifth respondents ("the solicitors") pay their costs of the proceedings;
5. The first, second, third and sixth cross-defendants to pay the solicitors' costs of their application for a personal costs order against the solicitors;
6. Note that the applications brought by the first, second, third and sixth cross-defendants against the second cross-claimant are stayed by force of section 58(3) Bankruptcy Act 1966 (Cth).
[22]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 22 December 2020
Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359
Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 3) [2018] NSWSC 1378
Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 4) [2018] NSWSC 1379
Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 7) [2020] NSWSC 554
Colgate-Palmolive Company & Another v Cussons Pty Ltd (1993) 46 FCR 225
Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Limited (1931) 46 CLR 41; [1931] HCA 53
Degiorgio v Dunn (No 2) 62 NSWLR 284; [2005] NSWSC 3
Di Carlo v Dubios and Ors [2002] QCA 225
Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52; [2007] HCA 56
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300; [2005] NSWCA 153
Newell; Muriniti v De Costi (2018) 97 NSWLR 398; [2018] NSWCA 49
Rosniak v Government Insurance Office (1997) 41 NSWLR 608
Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289
Texts Cited: Not applicable
Category: Costs
Parties: Reliance Medical Practice Pty Ltd trading as ATF Reliance Medical Practice Trust (First Cross-Claimant and First Respondent)
Rodney John Beckwith (Second Cross-Claimant and Second Respondent)
Voice Print & Data Australia Pty Ltd (First Cross-Defendant)
Christian Altenburg (Second Cross-Defendant)
Grant Edwards (Third Cross-Defendant)
BHD Leasing Pty Ltd (Sixth Cross-Defendant)
Gorval Lynch Pty Ltd (Third Respondent)
Serge Gorval (Fourth Respondent)
Matthew Lynch (Fifth Respondent)
Representation: Counsel:
D Lloyd (Third, Fourth and Fifth Respondent)
A J H Morris QC with I Erskine (First and Third Cross-Defendants)
A F Fernon (Second Cross-Defendant)
L W Chan (Sixth Cross-Defendant)
Judgment
HIS HONOUR: On 15 May 2020 I handed down my principal judgment, Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 7) [2020] NSWSC 554. I should say that this judgment assumes familiarity with that judgment and where possible I will not extensively repeat the findings that I made there. Unless otherwise stated all references to my judgment, will be to Canon Finance (No 7).
In that judgment I made the following findings in respect to the claim against VPD and Messrs Altenburg and Edwards:
1. VPD's LiveOffice WAN was intended to include the full SQL software licence and the SQL software was installed on the server dedicated to RMP's use in VPD's data centre;
2. No representation had been made by VPD or its representatives that it was Fuji Xerox ("Fuji representation"), despite Dr Beckwith's firm belief that those representing VPD acted for Fuji;
3. Even if the Fuji representation was made it was not the reason that Dr Beckwith repudiated the contract with VPD;
4. VPD made the following representations to RMP:
1. The equipment software and services to be provided by VPD would address RMP's current IT system's inefficiencies;
2. VPD's products and services would address the concerns and shortfalls of RMP's IT and printing systems; and
3. The VPD product (and by implication services) would be quicker and more efficient than the current system which relied on a physical server in the office; and
1. There was no evidence put forward at the trial that demonstrated that the representations above were misleading or deceptive.
2. I made contingent findings in relation to causation and loss.
In relation to the case against BHD I found that:
1. There was no evidence that anyone on behalf of BHD had any awareness of anything that was said by Mr Edwards or Mr Altenberg when they were pitching VPD's goods and services to RMP, nor did they authorise VPD or its representatives to speak on their behalf;
2. BHD did make the representation that it was the financial arm of VPD;
3. This representation was not in contravention of s 12DA Australian Securities and Investment Commission Act 2001 (Cth) ("ASIC Act") because at all times the arrangement had been held out as a commercial lease securing a commercial loan; and
4. RMP's case against BHD was one of vicarious liability for the misleading and deceptive conduct alleged against VPD and Messrs Altenberg and Edwards and that on this basis as the claim against VPD and Messrs Altenburg and Edwards failed so to must the claim against BHD, leaving aside technical issues relating to agency.
For completeness I should record that Mr Moore of counsel, who appeared for RMP and Dr Beckwith, at the hearing of the principal proceedings sought to advance the argument that the failure to include the provision of the LiveOffice WAN system in the Rental Payment Agreement amounted to misleading and deceptive conduct, given the oral representations that had been made about the provision of this service. In Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 3) [2018] NSWSC 1378, I held that it was not open on the pleadings for the cross-claimants to advance this argument. The issue was also the subject of my ruling in Canon Finance Australia Limited v Reliance Medical Practice Pty Ltd & Ors (No 4) [2018] NSWSC 1379, where Mr Moore, who represented RMP and Dr Beckwith sought leave to amend the cross-claim to add additional averments to run this case. I refused leave to amend the cross-claim to advance this case. Notwithstanding my rulings some of the evidence led and submissions made by Mr Moore focused on this argument and, inevitably, I was required to explain more fully in my judgment my view about why it did not run.