Claudia Leung in her capacity as Executrix of the Estate of the late Robert Ho v Paul Mervyn Fordyce t/as Pmf Legal Trading

The Court's final orders and a disputed settlement offer

1. The basic starting point in determining the costs of any proceedings is the orders which the Court made finally disposing of those proceedings. I heard argument both as to the form of orders to give effect to the Principal Judgment and as to costs on 22 February 2019. Apart from costs, there was only relatively minor disagreement between the parties about the orders to be made. I was able to resolve those at the end of the hearing and made final orders to give effect to the Principal Judgment (reserving judgment only on the question of costs): "1. Declaration that the Defendants made disclosure to the Plaintiffs in accordance with Division 3 of the Legal Profession Act 2004 (NSW) in relation to the Engagement Letters set out in Schedule 1 to these Orders. 2. Declaration that the Defendants did not make disclosure to the Plaintiffs in accordance with Division 3 of the Legal Profession Act 2004 in relation to the Engagement Letters set out in Schedule 2 to these Orders. 3. Order that Costs Assessments 2014 / 180275 and 2014 / 180287 (the Costs Assessments) proceed for work done under the scope of the Engagement Letters set out in Schedule 2 on the basis that there was no costs disclosure to the Plaintiffs under section 363(2)(b) of the Legal Profession Act 2004 (NSW) and no costs agreement with the Plaintiffs under section 361(1)(c) of the Legal Profession Act 2004 (NSW). 4. Order that the Costs Assessments proceed for work done under the scope of the Trading House Engagement Letter dated 7 June 2012 (for the Defendants' total claim of $661.10) and the Complaints Engagement Letter dated 28 January 2014 (for the Defendants' total claim of $3,028.85). 5. If no notice of motion claiming damages pursuant to the plaintiffs' undertaking as to damages of 1 October 2014 is filed and served by the defendants on or before 22 Mach 2019: (a) Plaintiffs' undertaking as to damages of 1 October 2014 is discharged; and (b) Order that the sum of $30,000 paid by the former First-named Plaintiff as security for the Plaintiffs' undertaking as to damages be returned to the First-named Plaintiff. 6. Proceedings are otherwise dismissed. Schedule 1 (a) Trading House Engagement Letter dated 7 June 2012 (b) Complaints Engagement Letter dated 28 January 2014 Schedule 2 (a) 31 January BBQ King Engagement Letter dated 31 January 2012 (b) BBQ King Engagement Letter dated 3 April 2012 (c) Rhodium Engagement Letter dated 27 April 2012 (d) Amended BBQ King Engagement Letter dated 4 July 2012 (e) Guardianship Engagement Letter dated 4 September 2013"
2. Another matter of significance in relation to the question of costs is a dispute between the parties about an offer of settlement which Pmf Legal says was made to Mr Ho (the "Disputed Offer"). Although Pmf Legal put into evidence several offers that had been made to Mr Ho to compromise both the costs assessment and these proceedings, the debate before me centred on the Disputed Offer. The dispute was crystallised in affidavits filed on the costs argument by Mr Fordyce and Mr Ho's solicitor, Mr Mark Webeck.
3. Mr Fordyce's evidence is (emphasis added): "6. On 8 August 2016 I attempted to commit suicide. I was conveyed to St Vincent's Hospital by ambulance where I underwent surgery and was subsequently scheduled under the Mental Health Act 2007 (NSW) and placed in the psychiatric unit at St Vincent's Hospital, Caritas House. During the course of my treatment at St Vincent's Hospital, my psychiatrist advised me in words to the following effect: "You need to take all of the stress out of your life as soon as possible." 7. I was subsequently discharged from St Vincent's Hospital on 18 August 2016. 8. The proceedings commenced against me by the plaintiffs were next listed for a directions hearing on 2 November 2016. By that time, I had resolved to cease practising as a lawyer and to leave Sydney to retire to Cairns. 9. On or about 27 or 28 October 2016 I telephoned Mr Mark Webeck, solicitor, who was then acting for the plaintiffs. I said to Mr Webeck words to the following effect: "I attempted suicide on the 8th of August. I was taken to St Vincent's Hospital by police and the NSW Ambulance Service. I spent until 18 August in St Vincent's psychiatric ward as a patient scheduled under the Mental Health Act. I can't continue with this litigation with Ho. I can't live with the stress. I will walk away from all of my unpaid costs if Mr Ho will discontinue his proceedings with each party paying their own costs." 10. Mr Webeck said words to the effect: "I will get instructions and get back to you as quickly as I can." 11. I sent an email to Mr Webeck on 28 October 2016 at 7.01am. I cannot now recall whether this email was sent before or after the telephone conversation with Mr Webeck. Exhibited to me at Tab B of Exhibit PMF-2 is a copy of my email to Mr Webeck dated 28 October 2016. Exhibited to me at Tab C of Exhibit PMF-2 is the attachment to that email, being the St Vincent's discharge Summary Referral."
4. The email of 28 October 2016 to which Mr Fordyce refers in paragraph 11 of his affidavit stated: "Dear Mr Webeck I enclose a copy of the front page of my record of attendance at St Vincents. First in the surgical ward to attend to the self inflicted wounds to the abdomen and neck. Under 24 hour suicide watch. I was immediately scheduled under the Mental Health Act on admission. I was moved to St Vincent's mental health facility, Caritas after my recovery from the surgery. In the report to my doctor from St Vincents it states: "Thank you for the ongoing care and treatment of Mr Fordyce, a 66 year old male who has BISP after significant well out (sic) thought out and planned suicide attempt to alleviate financial stress." "PSYCHIATRIC PROGRESS In terms of Mr Fordyce's mental health, he was reviewed on the ward by the consultation liaison psychiatry team. Mr Fordyce attempted suicide with a highly lethal modality due to significant financial constraints."
5. Mr Webeck's evidence in response to Mr Fordyce's affidavit is: "7. In relation to paragraph 9 of the Fordyce Affidavit, the without prejudice conversation took place on Tuesday 25 October 2016 at around 10.20am. The conversation was after I had sent Mr Fordyce an email to Mr Fordyce at 9.17am on that day. A copy of this email is at pages 26 to 27 of Exhibit MJW-1. The conversation with Mr Fordyce was in words to the following effect: Mr Fordyce: As you may know, I was in hospital recently. [Mr Fordyce then provided some detail around his attempt at suicide]. I am retiring from practice and will be handing in my practicing certificate on Friday. I would like to close down this litigation with Mr Ho and just get on with the costs assessment under the existing costs agreements. I would like to resolve the costs assessment as well. I said: I will get some instructions. Immediately after this telephone conversation, I reported by email to Mr Ho the contents of the telephone conversation. A copy of this email is at page 28 of Exhibit MJW-1. I otherwise deny that Mr Fordyce said to me words to the effect "I can't continue with this litigation with Ho. I can't live with the stress. I will walk away from all of my unpaid costs if Mr Ho will discontinue his proceedings with each party paying their own costs." 8. In relation to paragraph 10 of the Fordyce Affidavit, I said to Mr Fordyce "I will get some instructions." I was most careful not to say anything at all to Mr Fordyce. I deny that I said to Mr Fordyce that I would "get back to you as quickly as I can". Having discussed the matter with Mr Ho, Mr Ho did not want to engage in another round of settlement discussions in circumstances where the costs assessment would proceed under the disputed costs agreements. Unfortunately, Mr Ho passed away a few months later."
6. The letter which was, according to the covering email, sent at 9.17am on 25 October 2016 to which Mr Webeck refers was addressed to Mr Fordyce and said: "We refer to the above proceedings. We expect Dr Allan Watt will have completed his expert report prior to 28 October 2016. Please therefore let us know for the purposes of the directions hearing scheduled for 2 November 2016, whether you are in a position to have your available dates for the allocation of hearing dates. In that context, we would also request a direction for the parties to identify the Affidavits to be relied upon at the hearing. We look forward to your early reply."
7. Mr Webeck's email sent at 10.32am on 25 October 2016 which Mr Webeck says he sent to Mr Ho, copied to Mr Wong and Ms Leung, immediately after his conversation with Mr Fordyce stated: "Dear Robert The suspicions proved correct…Fordyce just rang to say to me "off the record": 1. When he was in hospital recently, it was by reason of his attempt to commit suicide. He described in some detail his attempt to use a blade to cut his abdomen which failed and then his throat… 2. Rose Bay police who found him immediately sent him to St Vincents where he was on suicide watch for a period of time. He attributes this matter as the reason for his suicide attempt. 3. He is retiring from his practice and I inferred, handing over his practice to Mr Dadic. He proposes to retire this Friday and 'hand in' his practicing certificate. 4. He invites a resolution of all matters and I am at liberty to pass on the above to you. Subject to other comments, would suggest that we keep to plan and serve the report of Dr Watt. As for overall settlement, we may be better to conduct negotiations through Mr Dadic. Regards Mark"
8. It was common ground that if the Court came to the view that the Disputed Offer could have an impact on the determination of costs, it would be necessary for there to be limited notices to produce between the parties for relevant parts of the solicitors' files and for there to be an additional hearing at which Mr Fordyce and Mr Webeck would be cross-examined to enable the Court to make a finding about the Disputed Offer. Because of the view I have taken about the proper disposition of costs in this matter, those steps will not be necessary.

The parties' submissions

1. Mr Ho's primary submission was straightforward. He had succeeded in obtaining the declarations that he had sought. Accordingly, costs should follow the event: UCPR Pt 42 r 42.1.
2. In making three submissions, Pmf Legal proposed a fundamentally different approach: the Court should make no order as to costs until the result of the costs assessment was known. That was the relevant event for the costs argument in these proceedings. It was submitted that, assuming the Court accepted Mr Fordyce's account of the Disputed Offer, on any view Mr Ho would have done better to have accepted that offer. In that event, Mr Ho would only have borne his own costs up to that point and would have been released from all liability to pay any of Pmf Legal's outstanding costs. Whatever the result of these proceedings might be, there was no doubt that absent acceptance of the Disputed Offer, Mr Ho would still be left with having to pay a large amount, as assessed, of the costs being sought by Pmf Legal.
3. The parties accepted that the submissions set out in the previous paragraph required the Court to consider what was "the event" for the purposes of determining costs in these proceedings. A narrow view would confine the description of the event to the outcome of the proceedings in this Court. A broader view would take into account the ultimate outcome of the costs assessment because the result in these proceeding was only a step on the way to the ultimate determination of costs by the assessor.
4. Pmf Legal's second submission was that even if a narrow view of "the event" were taken, Mr Ho had enjoyed only mixed success. Heavy reliance was placed on the fact that a great deal of evidence, including all of the computer expert evidence, was really directed to Mr Ho's case of fraud against Mr Fordyce. Pmf Legal submitted that this was a case where the issue of fraud was sufficiently discrete to enable a dissection of costs. Mr Ho had failed in the fraud allegation and it would be unjust for Pmf Legal to have to pay Mr Ho's costs in relation to that unsuccessful matter.
5. Mr Alexis SC accepted that this was not a case where such a dissection should be left up to the costs assessor to determine what costs had or had not been incurred in relation to the fraud case. He submitted that had the allegation of fraud not been pleaded against Mr Fordyce, the computer expert evidence would not have been required, senior counsel would likely not have been briefed and the case would have proceeded on the much simpler and shorter basis of Mr Ho asserting non-receipt of the Disputed Engagement Letters and Mr Fordyce giving evidence of Pmf Legal's usual practice.
6. Taking all of those matters into account, it was submitted the appropriate course was for the Court to reduce, in a broad brush way, the percentage of Mr Ho's costs for which Pmf Legal should be liable to reflect how much of the case was occupied by the fraud issue. He submitted that an appropriate reduction would be 70% with the result that Pmf Legal would only be liable for 30% of Mr Ho's costs.
7. Third, Pmf Legal sought a stay of enforcement of all interlocutory costs orders in these proceedings and the costs order in the Court of Appeal until the costs assessor had completed his assessment. These orders had all been made in 2015 and those which had been through an assessment had been assessed in the total sum of $166,593.88.
8. Pmf Legal pointed to various earlier evidence and findings that Mr Ho had insufficient funds in Australia to meet a costs order. It argued that it would be very unfair to require Pmf Legal to satisfy the existing orders for costs in favour of Mr Ho in circumstances where, on any view, Mr Ho owes Pmf Legal a significant amount of costs still to be assessed.
9. Mr Ho's submissions in reply may be summarised as follows.
10. In relation to the question of what was "the event", Mr Ho referred to this observation of Basten JA in Ziliotto v Hakim [2013] NSWCA 359 ("Ziliotto"): "20. It is well established that the reference in the rules to costs following "the event" do not have any narrow or technical meaning and may extend beyond the final judgment or order in favour of one party or another. The purpose of a trial being to quell an unresolved controversy, the "event" should be identified by reference to that which is in issue, rather than that which is not in controversy….".
11. Mr Ho submitted that the controversy which the litigation was required to quell was the basis on which the costs assessment should proceed. It was not in controversy that Pmf Legal was owed some costs by Mr Ho and that those costs had to be assessed.
12. Mr Ho also drew to attention the observation of Brereton J (as his Honour then was) in Qu v Kuang [2008] NSWSC 991: "7. … although at common law a judgment for damages to be assessed is interlocutory and the subsequent judgment quantifying those damages is regarded as the final judgment; in equity, a judgment on liability with a reference for an inquiry is regarded as a final judgment, and the decision on the subsequent inquiry is regarded as interlocutory …"
13. In such a case, Mr Ho submitted, as in the case at bar, the entitlement of the successful party to costs does not (and could not) depend on the working out of the consequential relief. In this case it was the costs assessment that was the equivalent of consequential relief. Mr Ho proffered as an example a dispute about whether party A was entitled to an account from party B in which an order for the taking of the account was made after a contested hearing. In that situation party A would be entitled to their costs of that hearing, regardless of whether any money was found to be payable by party B to party A following the account. This is what the Court did in Magafas v Carantinos [2007] NSWSC 917 at [24] and Russo v Russo No 2 [2015] NSWSC 449 at [37]-[39].
14. In the present case Mr Ho had sought findings of fact to form the basis of declaratory relief. That relief had been granted in relation to the Disputed Engagement Letters and the claim had been unsuccessfully defended on a final basis. By analogy with the cases referred to in the preceding paragraph, the working out of the final costs position in the assessment was analogous to the working out of consequential relief. The proceedings in this Court having been unsuccessfully defended on a final basis, an order for costs should be made now.
15. In relation to the contention that there should be a reduction in the amount payable by Pmf Legal because of Mr Ho's failure to establish fraud on the part of Mr Fordyce, Mr Ho relied on what was said by Hodgson CJ in Eq (as his Honour then was) in Permanent Trustee Aust Ltd v FAI General Insurance Co Ltd (Supreme Court (NSW), Hodgson CJ in Eq, 3 June 1998, unrep) (emphasis added): "Dealing first with severability, I should state right away that I am not here dealing with the situation where there are separate claims for different relief, such as two claims by a plaintiff for different relief, or a claim by a plaintiff and a cross-claim by a defendant. In those cases, it is generally fairly clear that the overall winner will get the general costs of the action, but will be liable to pay costs to the extent that they were increased by the separate claim on which he or she was unsuccessful. In this matter, we are dealing with issues which are either alternative ways of supporting the one claim, or alternative ways of defending the one claim. In those cases, I accept that the mere fact of severability will generally not be enough on its own to displace the ordinary rule that costs follow the event. Normally, it would need to be combined with some consideration relevant to reasonableness and/or some consideration relevant to the proportion which the issue lost bears to the whole case."
16. As I understood Mr Ho's submission, the fraud case was one of the alternative ways in which his case was put in support of the ultimate proposition that the Disputed Engagement Letters had never been sent. Even if the evidence in relation to fraud was severable (which Mr Ho did not accept) he submitted in reliance on the passage just quoted that there was no argument in relation to the reasonableness of maintaining the fraud case or any other feature which would warrant displacing the ordinary rule.
17. Mr Ho submitted that there was an important factual consideration that the Court should bear in mind. He accepted that the Court had found "but for the existence of the hard copy letter on the hard copy matter file I would not be satisfied that the BBQ King Letter was created on or about 3 April 2012" (Principal Judgment at [285]) with similar findings in relation to three of the other Disputed Engagement Letters. However, those hard copy letters did not come to light until 20 October 2017 (Principal Judgment at [185]), well after Mr Ho's expert evidence (the Watt Report) had been prepared and after about three and a half years of litigation. They were also produced after the statement of claim was filed on 13 October 2017 in which the fraud allegation was crystallised and less than two months before the hearing. The Watt Report was dated 1 November 2016 and Mr Carson's report was dated 20 October 2017. Given the lateness of the discovery of the hard copy letters and the long history of the proceedings, it was submitted that Mr Ho could not be criticised for the fraud case remaining an integral part of the litigation at the hearing.
18. Mr Ho resisted Pmf Legal's application for a stay of the existing costs orders (including those which had already been assessed) by seeking to demonstrate mathematically that, on any view, Pmf Legal will owe far more in costs to Mr Ho than Mr Ho will owe to Pmf Legal (even assuming what was described as the unlikely event that the costs assessor would allow 100 cents in the dollar for the amount claimed by Pmf Legal). Furthermore, the costs orders sought to be stayed related to costs that were incurred in 2015 in relation to discrete questions on which Pmf Legal had failed and there was no reason why Mr Ho should be kept out of recovering the money any longer. Any further delay would be unjust.

Resolution - what is "the event"?

1. The event is the outcome of these proceedings. While it may be acknowledged that the costs assessment and the outcome of these proceedings are linked insofar as these proceedings will determine the basis on which Pmf Legal's costs will be assessed, the costs assessment and this litigation are practically, conceptually and legally two quite different processes.
2. I also respectfully adopt Basten JA's observation in Ziliotto (see paragraph [26] above). The "event" should be determined by reference to the controversy which the proceedings resolve. In this case the controversy was the basis upon which Pmf Legal's costs were to be assessed. There was no controversy that the costs were to be assessed and that Mr Ho was liable to pay Pmf Legal's costs once assessed.
3. Even if I am wrong in the conclusions of principle expressed in the preceding two paragraphs, and assuming without deciding that the Disputed Offer was in the terms alleged by Mr Fordyce (see paragraph [11] above), it would have made no difference to the exercise of the Court's discretion in this case. This is because I do not accept that the Court can be satisfied that Mr Ho is, at the end of this litigation, in a worse position than he would have been in had he accepted the Disputed Offer.
4. There is no reason in principle why an offer of settlement cannot include matters extraneous to the litigation itself. Much litigation is conducted as part of a broader commercial context. However, parties are generally advised to confine the terms of an offer of settlement to outcomes which the Court can order in the proceedings. One of the most important reasons for this is because it usually enables the Court to work out in a relatively straightforward way whether or not the ultimate result is better or worse than the offer of settlement.
5. Once matters extraneous to the possible formal outcome of the litigation itself are introduced into the equation, that comparison can become more difficult. One critical area of uncertainty in this case arises from the fact that the Disputed Offer invites a comparison of the respective costs entitlements of the parties. However, the Disputed Offer says nothing about the 2015 costs orders (see paragraph [23] above). Furthermore, the Court cannot meaningfully compare Mr Ho's position if the Disputed Offer had been accepted versus Mr Ho's ultimate position as a result of this litigation. The Court would need to know what Mr Ho's net position will be at the end of this case (including the value as agreed or assessed of any costs order the Court makes in these proceedings) when set off against Pmf Legal's entitlement to its legal costs at the end of the assessment. In other words, the comparison is not as simple as saying that had Mr Ho accepted the Disputed Offer, he would not have had to pay any of Pmf Legal's fees whereas he will now have to pay those fees once they are assessed on the basis determined in these proceedings.

Resolution - a discount for the unsuccessful fraud case?

1. For the following reasons the Court does not accept that the evidence submitted and time taken in dealing with the fraud allegation warrants a departure from the usual order as to costs. Putting the matter in terms of the language used by Hodgson CJ in Equity (see paragraph [31] above) there was no unreasonableness in Mr Ho maintaining the fraud case at hearing. This is because, as was argued for Mr Ho (see paragraph [33] above), the die on this issue was well and truly cast by the time the hard copy letters were discovered in October 2017, less than two months before the hearing date. Given the tortured history of this matter (including the need for Anton Piller orders), the fact that the Watt Report provided a proper basis for suggesting that the Disputed Engagement Letters were not produced on or about the date they bore and taking into account Mr Fordyce's own lack of candour including before Bergin CJ in Equity (see paragraphs [109] to [115] of the Principal Judgment), it was entirely reasonable for Mr Ho to continue to maintain as one part of his case that the Disputed Engagement Letters had been fraudulently created by Mr Fordyce after the event and therefore had not been sent.
2. This last conclusion can be put in another way. Having case managed this litigation from not long before the hearing date (including ordering the filing of a statement of claim), the submission that the fraud case should not have been pressed and that the proceedings could have been run in some benign fashion by Mr Ho asserting that he had not received the Disputed Engagement Letters and Mr Fordyce giving evidence of his usual practice seems to me, with respect, completely unrealistic. That same conclusion pertains to the period after the discovery of the hard copy letters. The continued prosecution of the fraud allegation was an entirely forensically reasonable course of action, and I would go so far as to say an inevitable one. In those circumstances it would be quite unjust to deprive Mr Ho of the benefit of his undoubted victory in the litigation overall by ordering some discount in relation to reflect the costs of and incidental to the fraud case.
3. I should add for completeness that, having regard to the totality of the evidence, I do not think the late concession by Mr Ho in relation to the Trading House Letter and the Complaints Letter warrants a different conclusion. The overwhelming majority of the expert and other evidence advanced in relation to the fraud case remained relevant notwithstanding that concession.

Resolution - a stay?

1. The Court accepts Mr Ho's arguments (see paragraph [34] above) as to why a stay of the existing costs orders should not be ordered. This conclusion can be no more than interlocutory. There was no evidence before me that any of the orders sought to be stayed are about to be enforced. If at the time of any future enforcement there are particular circumstances which might make that action unjust, it will be open to Pmf Legal to make further application for a stay if so advised. For the moment, Pmf Legal has failed to satisfy the Court that there is any reason why Mr Ho should not have the benefit of the costs orders which have been made in his favour.

Conclusion

1. The orders of the Court are: 1. The defendants pay the plaintiffs' costs of the proceedings. 2. The exhibits be returned to the parties to be held by them in accordance with paragraph 28 of Supreme Court Practice Note SC Gen 18.

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: 01 March 2019