Coates v Harbour Radio Pty Ltd & Anor

Coates v Harbour Radio Pty Ltd & Anor - [2010] NSWSC 796 - NSWSC 2010 case summary — Zoe

[11]

JUDGMENT 1 HER HONOUR: By notice of motion dated 22 February 2010 the defendants seek relief in connection with an order made and entered on 12 September 2008 obliging them to pay the plaintiff's costs consequent upon him succeeding in a defamation action that was heard and determined by Adams J on 4 April 2008 (Coates v Harbour Radio Pty Ltd & Anor [2008] NSWSC 292). The relief sought by motion includes a declaration that the indemnity principle applies to the costs order, an order permanently restraining the plaintiff from enforcing the costs order and an order that the proceedings on the costs assessment commenced in January 2010 be permanently stayed. 2 In written submissions filed in advance of the hearing Mr McClintock SC argued that the application is misconceived and should be dismissed on a number of alternate bases. 3 The first that the application is effectively an attack on a final order, in this case a final order entered by consent, and is therefore res judicata. While he accepted that a challenge to a final order may be brought by way of an appeal, or by exercise of the power granted by r 36.15 of the Uniform Civil Procedure Rules (UCPR) where it can be shown that the order was made "irregularly, illegally or against good faith" (none of which is alleged here), it was submitted that the relief sought here is a collateral challenge to a final order and should be refused. An allied submission is that to seek to challenge the order by notice of motion is inappropriate and the motion should be dismissed on that basis. Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 is cited in support of that submission. 4 It was next submitted that there is no other source of power in the Civil Procedure Act 2005 to allow me to entertain the application at this time. In particular, the power under s 67 of the Civil Procedure Act to order a stay of proceedings is not available given that the section requires that the proceedings to which the stay is referable are before the Court and, in this case, there are no proceedings over which the Court exercises jurisdiction. The proceedings in defamation concluded before Adams J in September 2008 when the costs order was made and entered and although the proceedings to enforce costs under the Legal Profession Act 2004 have commenced by the filing of an application for a costs assessment, they are not proceedings in this Court. 5 Further, it was submitted that if the defendants seek to resist enforcement of the costs order, the challenge should be mounted in the costs assessment process in accordance with the procedure now specifically provided for in Division 11 of Part 3.2 of the Legal Profession Act. It is contended that if in that process the assessor falls into error, an appeal now lies to the District Court and not this Court as was the situation under s 208M of the Act (see for example Wentworth v Rogers (2006) 66 NSWLR 474). For this reason alone, so it was submitted, the motion should be dismissed as to seek relief in this Court at this stage is to circumvent the clear intention of the Parliament that the jurisdiction hitherto exercised by this Court should now be exercised by the District Court. 6 Finally, it is submitted that even were the proceedings competently brought by notice of motion, the relief sought should be refused, since there has been no breach of the indemnity principle disentitling the plaintiff from recovering his costs as the successful litigant in the primary proceedings. 7 In his oral submissions Mr McClintock submitted that in addition to the challenges to the competence of the proceedings outlined in the written submissions, the terms of the resolution passed by the Executive of the AOC Inc pursuant to which the plaintiff was indemnified in respect of the costs of primary litigation are decisive in disposing of the notice of motion.

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8 The precise terms of the resolution passed by the Executive of the AOC are as follows: The Executive confirmed that the President is entitled to defend his reputation as a result of the positions he holds at the AOC and: IT WAS RESOLVED : (i) to ratify the payment of legal fees to date and going forward in this matter by the AOC; (ii) to confirm the policy whereby Members of the Executive are indemnified against legal fees and expenses where, with the approval of the Executive, they institute legal proceedings arising out of loss and damage suffered as a direct consequence of their membership of the Executive. The indemnification is on the basis that the Committee reimburse such legal fees and expenses as a first priority out of any award or settlement . 9 It was submitted that on a proper construction of the agreement embodied in the resolution, the terms upon which the AOC agreed to indemnify the plaintiff for his legal costs obliged him to repay the total costs from any monies he received by order of the Court, or was entitled to recover by order of the Court, including an order for costs in his favour in the event that he was successful in the defamation action. On this construction of the agreement there has been no breach of the indemnity principle since the plaintiff is entitled to enforce the costs order to meet his obligations under the funding agreement with the AOC, and the fact that the plaintiff's costs of the litigation have already been fully met by the AOC paying the plaintiff's lawyers as the litigation progressed is irrelevant. 10 Mr Dawson of counsel submitted that this construction of the resolution was not reasonably open because the term "any award or settlement" should be read restrictively limiting "any award or settlement" to any award of damages, or any settlement where damages are agreed, but exclusive of costs. He further submitted that if I am persuaded of the construction advanced by Mr McClintock then the plaintiff is only entitled to enforce the costs order to the extent of the amount of money he remains obligated to repay the AOC.

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17 On 1 October 2009 the plaintiff's notice of motion was dismissed with costs. In coming to the view that the jurisdiction under s 101(4) had not been engaged, I said at [24]-[25] that: ... I am of that view not because the governing operation of s 101(5) requiring that costs be paid by the plaintiff as a prerequisite has not been satisfied (although I have doubts as to whether that is an appropriate characterisation) but because I am not persuaded that the order sought is to compensate the plaintiff. Even were I wrong in that view I would refuse, in any event, to exercise the discretion in the plaintiff's favour. I do not regard the plaintiff's conduct in seeking the funding, or his apparent participation in securing it, as relevantly disentitling. In particular, I make no finding at all as to whether the plaintiff conducted himself in accordance with the AOC's Code of Conduct at the meeting of the Executive where the resolution was passed. In addition, I accept that the funding arrangement was pursuant to an existing policy and that it was the subject of a formally constituted resolution of the Executive who apparently saw the plaintiff's private interests in pursuing the defendants for damages as coincident with its interests in protecting the integrity of its President. I am, however, left unsettled by the way the application has been mounted and the state of the evidence led in support of it. It was, of course, entirely a matter for the plaintiff and his advisors as to whether he gave evidence as to his intentions in bringing the application. In the circumstances where he has elected not to do so, he has failed to persuade me that the discretion should be exercised in his favour. 18 The plaintiff moved to have his costs assessed on 14 January 2010 by filing an application in accordance with the procedure provided for s 354 of the Legal Profession Act. Mr Mark Hodges was appointed as the costs assessor. In correspondence dated 20 January 2010 Mr Hodges called for the costs agreement between the plaintiff and any legal practitioner who represented him in the proceedings, including any costs agreement with counsel, to enable him to determine whether the indemnity principle had been breached. It is not clear whether this was something he sought exercising the power afforded him under s 354(2) of the Act or whether the defendants, as the costs respondents, being made aware of his call for the documentation, raised the issue of the funding arrangements with him. 19 In any event, on 2 February 2010, the defendants advised Mr Hodges that before the assessment process commenced they proposed seeking declaratory relief in this Court to the effect that the indemnity principle had been breached and, since resolution of the issue would likely involve consideration of what were described as complex legal and factual issues, the appropriate forum to resolve those issues was in this Court. It was common ground that after this approach Mr Hodges decided that the assessment process should be deferred. While there is nothing to indicate that the plaintiff sought to persuade Mr Hodges that he should proceed with the assessment (or for that matter nothing to indicate whether the documentation the assessor asked for was supplied) what is clear is that the plaintiff vehemently opposed the approach the defendants proposed as reflected in correspondence tendered in the proceedings. The evidence on the motion

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20 The defendants read an affidavit of Graham Hryce, the solicitor with day-to-day carriage of the costs proceedings. Various documents were annexed to the affidavit replicating, in large measure, the documents that were before me in the proceedings brought by the plaintiff last year. A transcript of the evidence given by Mr Mercer in those proceedings was also tendered. Although, notice was given requiring Mr Hyrce to attend for cross-examination, after discussion the parties were in agreement that they would proceed on the basis that there was no challenge to my published finding at [8] of the judgment to the effect that while the defendants may not have known as a matter of fact that there was some funding arrangement between the plaintiff and the AOC before the relevant documentation was produced under notice, at the very least they must have believed that to be the case given that in June 2008 the plaintiff directed that the judgment debt and judgment interest was to be paid directly to the AOC Inc. 21 The plaintiff read the affidavit of Patrick George, the managing director of Kennedy's (Australasia) Pty Ltd and the plaintiff's solicitor in the proceedings. In the affidavit Mr George deposed, without objection, to a conversation he had with the plaintiff on 27 September 2006 in the course of preparing a client agreement for the plaintiff to execute before he assumed conduct of the proceedings then pending before Adams J. He said the plaintiff said: I would like to retain you to act for me in defamation proceedings against Alan Jones and 2GB. You will need to get the files from Simon Rofe who has been acting for me as he has decided to pull up stumps … I have an indemnity from the Australian Olympic Committee for my costs. 22 Mr George went on to say that at the time he was conscious of the possibility of a conflict between the plaintiff and the AOC over the indemnity and the need for the retainer to be made with Mr Coates personally for a number of reasons: (a) On 26 September 2006 I was appointed to act as a referee to the Supreme Court of New South Wales for enquiry and report in relation to costs incurred by a plaintiff in defamation proceedings arising out of an indemnity by the company of which he was a director: Whitlam v National Roads and Motorists' Association Limited (Supreme Court of New South Wales No. 50185 of 2004); (b) That case concerned a dispute between the director and the company over an indemnity for his legal costs; (c) Mr Coates was the plaintiff in the proceedings and would be liable for his costs as the firm's client, notwithstanding the AOC indemnity which was an arrangement made between him and the AOC. 23 On 3 October 2006 a written retainer between Kennedy's and the plaintiff was prepared which was executed by the plaintiff on 11 October 2006. The terms are unexceptional. They identify Mr George as the responsible partner in the provision of legal services in relation to the proceedings, and detail the fact that reports will be rendered monthly and fees and expenses which will also be rendered monthly (unless otherwise agreed) in accordance with an attached scale of fees. The following is also set out in the letter: Agreement By accepting the terms set out in this letter you will enter into a Client Agreement with us. This means that you will be bound by the terms and conditions set out in this document and the Standard Business Terms. You may accept by either: Signing and returning a copy of this document;

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27 In so far as concerns the plaintiff's invocation of the principal said to emerge from Spies v Commonwealth Bank of Australia, Mr Dawson submitted that although the Court of Appeal regarded it as both convenient and appropriate that where a consent order is to be set aside on the basis of fraud or deceit that a fresh action should be instituted rather than a motion in the original proceedings, the Court should not be taken to have laid down an immutable rule wherever a consent order is the subject of challenge or review. Moreover, so it was submitted, given the overriding principle provided for in ss 56 and 59 of the Civil Procedure Act, the relief sought and the means of seeking it meet the statutory objectives of facilitating the just, quick and cheap resolution of the real issues. He emphasised that at the time of the primary proceedings before Adams J the defendants were not aware of the fact that the AOC Inc had paid the plaintiff's costs of the proceedings pursuant to the funding arrangements reflected in the resolution of the Executive. He argued that they could not have been aware of the fact, or the detail of those funding arrangements, from a single line answer given in cross-examination that the AOC "were standing behind him". When that information did come to light in the proceedings brought by the plaintiff for interest on costs in May last year, Mr Dawson submitted that it was wholly inappropriate to litigate the question whether the indemnity principle had been breached in those proceedings, it being irrelevant to the issue that I was then considering, despite the fact that it was a live issue in argument over the course of the hearing. Mr Dawson submitted that the issue was "parked" at that time to be revisited at some later date and that the plaintiff could have been under no doubt as to the arguments that would be mounted by the defendants in seeking to invoke the indemnity principle and no doubt as to the evidence that would be relied upon in making good that claim.

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28 While that might be so, it has to be said that the defendants took no steps to raise the question of the indemnity principle either prior to the consent order for costs being made and entered in September 2008, (despite being on notice of the issue when the plaintiff directed that the judgment debt and interest be paid directly to the AOC Inc in June 2008), or thereafter for 12 months until August 2009, preferring, it seems, to wait and see whether the plaintiff would seek to recover his costs by filing a bill of costs as part of the assessment process. 29 Subject to the principle of res judicata to which I will presently refer, it would have been open to the defendants under s 98(4) of the Civil Procedure Act to bring an application to have the plaintiff's right to recover his costs determined in this Court in accordance with the approach that Austin J considered appropriate in Australian Beverage Distributors v The Redrock Co [2008] NSWSC 114. In that case his Honour, after finding in the defendants' favour in the primary proceedings, ordered that the plaintiff pay the defendants' costs as agreed or assessed. He did however allow the plaintiff liberty to restore the matter before him to settle the question, raised late in the proceedings, as to whether the indemnity principle had any application. Thereafter, the plaintiff filed a notice of motion seeking orders reviewing or revising the costs order 30 Although his Honour acknowledged there may be a question as to the appropriateness of the procedure employed by the plaintiff, he did not explore the issue having resolved to determine the question on what he described as "the substance of the evidence". He went on to say: In a case where the application raises a question relating to evidence given at the trial reflected in the court's findings in its principal judgment, and the assessment of costs by a costs assessor has not been commenced, my view is that the trial judge has the power to deal with the application, and ought to do so (Civil Procedure Act, 2005 (NSW), s 98(1)(b); Wentworth v Rogers (2006) 66 NSWLR 474, at 512-4 per Basten JA; cf 485-7 per Santow JA). In my view none of the "floodgates" problems adverted to by Basten JA in Wentworth v Rogers (at 514) has any application here. 31 In the present case, although in a practical sense the costs assessment process has not commenced (or if it has, it has not progressed any distance such as might otherwise justify this Court refusing to consider the application), this is because the defendants have moved unilaterally to have the costs assessor defer the assessment against the plaintiff's opposition. While there might have been at one time sound reasons for taking this approach (in the sense that it was thought evidence might need to be led orally in the process of determining whether the indemnity principle has any application), in the result that has not proved to be the case. That said, in the particular circumstances of this case and despite the largely unexplained delay in the plaintiff seeking a costs assessment, I do not consider the breadth of the power under s 98(1)(b) of the Civil Procedure Act should be read down. I am satisfied that the parties should be afforded the opportunity now to have the question of the application of the indemnity principle determined.

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33 In the case his Honour was considering Mr Coshott had unsuccessfully sought a declaration from Whealy J that he was entitled to the restitution of money paid to the Woollahra Council for its legal costs because of a breach of the indemnity principle after it had successfully brought an action in the Federal Court for garnishee orders, which resulted in final orders requiring him to pay money into Court and the subsequent payment to the Council of those monies. Quite apart from his Honour concluding that there was no breach of the indemnity principle because of an arrangement between the Council and a mutual indemnity scheme known as Premsure, on the issue of res judicata his Honour held that: The entitlement of the Council to those costs under the orders and certificates of the Federal Court is res judicata, and it is not competent for this, or any other Court, to entertain a challenge to those orders in collateral proceedings. The principle prevents any inquiry into the legal or factual correctness of those final orders. The appeal from the decision of Whealy J refusing to make the declaration sought should therefore be dismissed. 34 I am of the view that, properly construed, the terms of the costs order made by Adams J by consent in September 2008 and entered at that time are not of the same legal effect as the final orders in Coshott and are not caught by the res judicata principle. The costs order has the effect of ordering the defendants to pay such costs as are allowed on assessment on an indemnity basis from the designated date, and prior to that on a party-party basis, such that in the circumstances of this case the challenge mounted by the defendants to the effect of the order is susceptible to being considered in these proceedings. The indemnity principle 35 The uncontroversial rationale behind the operation of the indemnity principle is to ensure that the successful party to litigation is indemnified against the costs they have incurred in vindicating or upholding their legal rights. Equally as plainly, if the successful party to the litigation is not liable to meet his or her lawyers' costs, the compensatory aim of the indemnity rule has no function, since in those circumstances a costs order would serve to unjustifiably enrich the successful party. 36 Where there is an agreement between client and solicitor, pursuant to which the litigant is absolved from paying lawyer-client costs, the indemnity principle is breached. No such agreement is alleged here. What is submitted by Mr Dawson is that even if there were a retainer between the plaintiff and Mr Rofe and then Kennedy's (which is disputed), the funding agreement between the AOC and the plaintiff, embodied in the resolution set out in paragraph [8] above, effectively absolves him of having to meet the costs of the litigation because he is only obliged to pay to the AOC the monies awarded to him in the form of damages (and interest on damages) and he had paid over that money. 37 Before resolving the question of retainer and construing the terms of the resolution, to the extent that it bears emphasis, the indemnity principle has been frequently and consistently applied even where the discharge of the litigant's liability in respect of costs is remote or where, as was the case here according to the plaintiff, the AOC's payment of the plaintiff's legal costs progressively throughout the litigation reduced the prima facie liability of the plaintiff to pay that amount to his solicitors. The leading case is Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 where Bankes LJ reasoned as follows: When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent … he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs.

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42 In so far as the relationship between the plaintiff and Kennedy's is concerned Mr McClintock submitted that I would be easily satisfied that the written retainer executed on 11 October 2006 evidences a clear agreement between the plaintiff and the solicitors that he was personally liable to pay the legal costs of the litigation. This is said to be put beyond doubt by the fact that there is no collateral agreement between the AOC and Kennedy's such as might have permitted the lawyers to recover their costs from that body if they remained unpaid. 43 Mr Dawson submitted that the terms of the retainer do not have the operation contended for by the plaintiff. I was invited to come to view the retainer was prepared and executed as some form of insurance against the potential for a dispute to erupt between the plaintiff and the AOC, so as to allow Mr George to continue to act for the plaintiff, and not to ensure the plaintiff's personal liability for costs. He again sought to draw comfort from the form in which the invoices were drawn, in that they were each marked to the attention of Mr Mercer Director of Corporate Services within the AOC without any mention of the plaintiff by name, and that each of the invoices included advice to the AOC and/or Mr Mercer of their rights in relation to a costs assessment under the Legal Profession Act. Mr McClintock submitted that this might be readily and sensibly explained on the basis of administrative convenience in circumstances where it is clear beyond doubt that both Kennedy's (and Mr Rofe before them) knew that the AOC was indemnifying the plaintiff for the costs of the litigation, each being solicitors with whom the AOC had an established relationship. In any event, so he submitted, the first principles of contract law make it plain that it is simply not open to inquire into the motives behind Mr George contracting with the plaintiff when the plain terms of the agreement impose on the plaintiff a liability to pay his legal costs. 44 I am not persuaded that any of the matters to which Mr Dawson referred undermine the clear terms of the written retainer and their legal effect.

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What are the plaintiff's obligations under the funding agreement with the AOC? 45 While the language of the resolution might lack legal felicity, I am satisfied that it should be interpreted in the way contended for by Mr McClintock, namely that the AOC is entitled to be fully reimbursed from the monies the plaintiff is awarded by the Court the full amount of the costs it has paid on his behalf. He submitted that this interpretation makes sound commercial sense and no other rationale for the funding arrangements has been submitted by the defendants. He submitted, and I accept, that no violence is done to the language of "any award or settlement" to speak of the plaintiff being awarded his damages and his costs or that he was awarded his costs as the successful party (see by analogy Altorfer & Stow (A Firm) v Lindsay & Anor [2005] WASCA 73 at [59]-[62]. 46 Dyktynski v BHP Titanium Minerals PTY Ltd [2004] NSWCA 154; 60 NSWLR 203 is authority for the proposition that where a litigant is liable to his solicitor for the costs of proceedings and where the litigant is indemnified for those costs (as I have found is the case here) he or she is entitled to recover his assessed costs for the benefit of the party who has provided the indemnity. 47 Mr Dawson submitted that even were I persuaded of the construction advanced by Mr McClintock the plaintiff's entitlement to recover costs should be capped to the extent of what he remains obliged to repay to the AOC, after having paid over the monies awarded to him in damages in advance of having costs assessed, since he has no continuing liability to either Mr Rofe or Kennedy's, they having been fully paid by the AOC. Authority for that proposition is said to be mandated by application of the principle in Adams v London Improved Motor Coach Builders Ltd adopted by French J (as he then was) in Angor Pty Ltd v Ilich Motor Company Pty Ltd (1992) 37 FCR 65. That analysis, in my view, overlooks the fact that in this case what the plaintiff has done by directing the amount of $360,000 (plus interest) be paid to the AOC, is simply to have honoured that part of the agreement that obliges him to pay the AOC as a first priority from the monies that he has been paid and to which he is otherwise entitled, an obligation that continues until such time as the amount they have advanced is fully paid. I am of the view that once the balance of the funds advanced by the AOC are fully repaid from the monies he recovers on assessment, the plaintiff is entitled to retain from the costs recovered the remainder, since they represent the amount awarded as damages to compensate him for the damage to his reputation. Were it otherwise, the defendants would, by reason of an incidental arrangement between the plaintiff and a third party, be able avoid the effect of the damages component of the orders made against it in the primary litigation.

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