ET Petroleum Holdings P/L v Clarenden P/L

Conveyancing Act 1919 (NSW) LEGISLATION CITED : Supreme Court Act 1970 (NSW)

NMFN Property Pty Limited v City Garage Limited (2000) 109 FCR 77 Mead v Watson [2005] NSWCA 133 CASES CITED : Halsey v Milton Keynes General NHS Trust (2004) 4 All ER 920 Cahill v Ekstein (5 June 1998, unreported)

ET Petroleum Holdings Pty Limited PARTIES : v Clarenden Pty Limited (No. 2)

Plaintiff: S A Wells COUNSEL : Defendant: A Radojev

Plaintiff: Conomos & Spinak Lawyers SOLICITORS : Defendant: Maatouks Law Group

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4719/04 ET PETROLEUM HOLDINGS PTY LIMITED v CLARENDEN PTY LIMITED (No. 2)

1 HIS HONOUR: The plaintiff has sought an order that the defendant pay its costs of the proceedings on an indemnity basis, that Mr Peter Maatouk also be ordered to pay the plaintiff's costs of the proceedings on an indemnity basis, and that the costs be payable forthwith. The defendant has sought an order that the plaintiff pay its costs of the proceedings. 2 In my judgment of 5 May 2005, I resolved most of the issues in the plaintiff's favour. In particular, I upheld the plaintiff's contention as to the premises which were the subject of the lease and I found that the defendant was not entitled to terminate the lease by reason of any of the breaches which I found that the plaintiff had committed. 3 As the plaintiff's counsel submitted, the plaintiff was compelled to commence the proceedings to restrain a threatened re-entry of the premises by the defendant. On the basis of my findings, the defendant was not entitled to terminate the lease by re-entry as it threatened to do. 4 However, although the plaintiff was substantially successful, it did not have entire success. In particular I found that it had breached the lease in respect of the cleaning of the toilets, the changing of the locks on the toilet doors, and the storage of Swap'N'Go gas bottles without an appropriate licence. 5 The first two of those breaches were promptly rectified after notice. I found that the defendant did not suffer any damage as a consequence of the breaches which I found had been committed. Those breaches did not warrant the defendant putting the plaintiff in the position where it was compelled to commence these proceedings. 6 Apart from the cleaning of the toilets and the changing of the locks and the toilet doors, none of the breaches alleged in the notices given under s129 of the Conveyancing Act was established. 7 In respect of the breaches which were established, the defendant's counsel relied upon clause 5.1.8 of the lease which states: "The tenant must pay to the landlord or as the landlord directs - … 5.1.8 if the tenant defaults, the landlord's reasonable legal costs relating to the default; … ".

8 The defendant's counsel also referred to clause 5.1.3 of the lease, but I do not consider that any issue arises under that clause, as there is no occasion for the defendant to spend any money to rectify the defaults which I found. Those defaults have already been remedied. 9 There was no evidence of the amount of the defendant's reasonable legal costs relating to the breaches of the lease which I found were established, and hence no evidence as to the amount of the debt which the defendant might be entitled to claim under clause 5.1.8. Nonetheless, it was submitted for the defendant that when making an order for costs pursuant to the statutory discretion conferred by s 76 of the Supreme Court Act, I should take into account the rights of the defendant under clause 5.1.8 of the lease. That necessarily requires making a broad assessment of how the defendant's entitlement under that clause should be put in the scales to be weighed against other considerations relevant to the exercise of the court's discretion in ordering costs. 10 The defendant's counsel acknowledged that if the defendant's entitlement under clause 5.1.8 of the lease is taken into account in the making of a discretionary order as to costs, the defendant would be precluded from bringing separate proceedings to recover its costs as a debt owing under that clause. That acknowledgement was rightly made. It is desirable that I proceed in the way the defendant has sought, to avoid the proliferation of proceedings. 11 In relation to the breaches concerning the cleaning of the toilets and the changing of the lock on the toilet door, the only moneys that would become payable under clause 5.1.8 would be such reasonable legal costs as would be incurred in preparing and serving notices under s129 of the Conveyancing Act in respect of those matters. However, more substantial costs were incurred in relation to the issue of Swap'N'Go gas bottles stored on the property without a licence. 12 It was submitted for the plaintiff that that issue involved no more than five to ten per cent of the time and costs in preparing for the hearing and the hearing itself. I think that is probably right. It is also to be borne in mind that the storage of those goods was also attacked by the defendant on grounds upon which the defendant did not succeed. 13 There were other minor issues on which the plaintiff failed, namely in its complaint that customers of Maatouk Tyre Shop had parked their cars on the leased premises and blocked the plaintiff's customers' access to the fuel pumps, and the complaint that the defendant had not removed steel threads from the ground in the forecourt area of the service station. Those issues consumed very little time during the hearing. 14 If regard is had only to the extent of the plaintiff's success as I have outlined it, and to the defendant's entitlement to costs under clause 5.1.8 of the lease, I consider that an appropriate order for costs would be that the defendant pay seventy-five percent of the plaintiff's costs on a party and party basis. That figure is the result of a broad assessment having regard to my estimate of the amount of time which the various issues entailed in the preparation and conduct of the hearing. It is a figure which takes into account not only that in respect of the issues upon which it failed, the plaintiff should not be entitled to recover its costs, but that it should pay the defendant's costs on those issues. 15 The question then is whether a different costs order should be made, and whether a costs order should be made in the plaintiff's favour on an indemnity basis, by reason of the matters upon which the plaintiff's counsel relied. Those matters concerned what was said to be the unreasonable conduct of the defendant and the defendant's solicitor which contributed to the dispute itself and the unreasonable conduct of the litigation. 16 The particular conduct of the defendant and Mr Peter Maatouk relied upon as the basis of an indemnity costs order was:

(a) Mr Maatouk's advising Mr Chidiak to stop cleaning the toilets in early August 2004, but relying upon the state of the toilets as a ground for claiming of forfeiture the lease in the notice of 16 August 2004;

(b) refusing to withdraw the s 129 notice prior to the commencement of the proceedings, when such breaches as did exist had been remedied well prior to the 14 day period expressed in the notices, and where the balance of the alleged breaches related to matters to which the plaintiff had previously provided its consent.

(c) refusing to attend an on-site meeting to attempt to rectify the matters in dispute unless the plaintiff agreed to pay Mr Peter Maatouk's costs at the rate of $330 per hour; and

(d) refusing to attend mediation. 17 To those particular matters, the plaintiff added a complaint that the correspondence from Mr Peter Maatouk was calculated to and tended to inflame the dispute between the parties. 18 In my view, the first two matters which upon which counsel for the plaintiff relied are not matters which can properly be taken into account in considering whether costs can be ordered on an indemnity basis. 19 In NMFN Property Pty Limited v City Garage Limited (2000) 109 FCR 77 at 92 Lindgren J said: "The ordinary rule is that an award of costs is on the party and party basis, and that it is only a special case that the discretion to depart from that rule will be properly exercised. … In my opinion, there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant . But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant." (Citation omitted).

20 This passage was referred to with approval by the Court of Appeal in Mead v Watson [2005] NSWCA 133 at [9]. 21 However the last three matters to which the plaintiff referred do relate to the defendant's conduct as a litigant. I accept that an unreasonable refusal to mediate may have adverse costs consequences. (See Halsey v Milton Keynes General NHS Trust (2004) 4 All ER 920). In this case, I do not think there were reasonable prospects that a mediation would be likely to have resolved the whole of the proceedings. However, mediation, or even an on-site negotiation, may well have narrowed the issues in dispute, and thus saved some time and costs of the hearing. But one of the fundamental issues which divided the parties and was a cause of their ongoing dispute, was what was the area leased. Though it might have been possible for the parties to have negotiated a new agreement about that matter, I think the prospects of that issue, let alone all of the issues, being resolved by negotiation or mediation, was not great. I do consider that the defendant's refusal to mediate was unreasonable. The attitude of Mr Peter Maatouk to mediation was explained by him in the course of his cross-examination: "… As far as I was concerned, there was nothing that we could discuss at an on-site meeting that could resolve the issue. If I asked them to remove banners and they refuse, what is an on-site meeting going achieve? Q. Is that your definition of resolution, that they do exactly what you say?

A. Well, if they were in breach and they did things that they did not receive consent for, I would expect them to rectify that, then we could talk about what they can or can't do."

22 The fact that I have found that most of the matters which Mr Peter Maatouk asserted were breaches of the lease by the plaintiff were not breaches, or had not been established to have been breaches, indicates that in refusing to countenance the possibility of a different view, the defendant adopted an intransigent approach to the litigation. I also consider that the correspondence from Mr Peter Maatouk was couched in terms which were calculated to inflame the dispute between the parties. This may well have been due to his personal involvement in the dispute, but that is no excuse for the correspondence. 23 Many of the assertions made by him in his correspondence were unfounded. His correspondence showed a lack of respect for the solicitors with whom he was dealing. It was unprofessional to say the least. Its tone was not in any way justified by the correspondence from Messrs Conomos & Spinak, who, in the circumstances, showed remarkable forebearance. 24 However, it is not the unprofessional tone of the correspondence which I consider to be relevant to the costs issue, but its tendency to inflame the dispute so as to minimise the prospect of a negotiated resolution. Notwithstanding those considerations, I do not consider that an indemnity costs order in favour of the plaintiff is appropriate. I do not think the plaintiff should receive its costs on an indemnity basis when it has not been wholly successful. However, the matters to which I have referred are such as to make it appropriate to order that instead of paying seventy-five percent of the plaintiff's costs, the defendant should be ordered to pay ninety percent of the plaintiff's costs on a party and party basis. 25 The next question is whether an order should be made against Mr Peter Maatouk that he pay the costs personally. The only basis upon which such an order could be made would be in the exercise of the Court's supervisory jurisdiction over its officers including solicitors (see Pt 52A r 4 subrules 2 and 5(e)). Thus it is necessary to put out of consideration such conduct by Mr Peter Maatouk as was not engaged in in his capacity as a solicitor. In substance, that limits the matters to be considered to Mr Maatouk's correspondence. 26 I have taken that correspondence into account in the way I have indicated, in forming a view as to the appropriate costs order to be made against the defendant. I do not consider that it is such as to warrant a personal costs order against Mr Maatouk. I should add that it was not suggested that the defendant would be unable to meet the costs order, or that there were grounds to apprehend that it would be unable to meet the costs order. This is therefore not a case in which a solicitor has maintained litigation on behalf of a client and thereby exposed the opposite party to the risk of incurring costs which may be irrecoverable from the solicitor's client. (Compare Cahill v Ekstein (5 June 1998, unreported.) I decline to make an order for costs in relation to Mr Peter Maatouk personally. 27 The final question on costs is whether or not an order should be made pursuant to Pt 52A r 9(3) that the costs be payable forthwith. The judgment of 5 May 2005 followed a hearing over four or five days and dealt with most of the issues between the parties. There are certain remaining issues that still need to be determined, and it may be some time before they are determined as the proceedings are no longer expedited. In those circumstances I consider that justice demands that the costs which I order to be paid, be paid forthwith after agreement or assessment and that such costs may be assessed forthwith. 28 Accordingly, I order that the defendant pay ninety percent of the plaintiff's costs of the proceedings including any reserved costs, and that such costs be payable forthwith.

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