First Plaintiff v First Defendant

2 The plaintiffs now seek costs on an indemnity basis against the first defendant, Ms Veena Chandyoke ('the defendant'), and submit that any costs payable by the defendant should be borne by the defendant's solicitor, Mr Peter Gauld. The defendant seeks an order that Mr Gauld pay the costs of both the plaintiffs and the defendant.

3 The plaintiffs, Ms Amritaa Sekhon and Mr Aman Sekhon, are wife and husband. The defendant is the mother of Ms Sekhon. Mr Gauld was acting as the defendant's solicitor in relation to several disputes arising between the defendant and the plaintiffs, including the application for the removal of the caveat to which I have referred.

4 The factual background to the lodgement of the caveat and its removal is set out in my judgment of 2 March 2018. In short, I found that there was no merit to the lodgement or continuation of the caveat. I considered Mr Gauld to be dilatory in certain respects, particularly in his responses to correspondence from the solicitors for the plaintiffs. Prior to the originating motion being filed, there had been extensive interchanges of communication between MCK Legal, solicitors for the plaintiffs, and Peter Gauld & Co, solicitors for the defendant. By letter to Mr Gauld on 16 November 2017, the plaintiffs requested that the defendant provide a withdrawal of caveat by 23 November 2017. Notice was given that in the event that the withdrawal was not forthcoming, proceedings would be commenced for same. On 23 November 2017, Mr Gauld advised that he would seek his client's instructions and requested that no further action be taken.

5 On 4 December 2017 and again on 7 January 2017, Ms Carmelli of MCK Legal emailed Mr Gauld. Mr Gauld informed her, '[w]e're now seeking advice from Charles Shaw of counsel.' Ms Carmelli replied on that day, advising of the prospect of a withdrawal application in the following terms:

We put your client on notice in the event your client refuses to provide withdrawals of caveats that she will be held responsible for all the additional costs associated with any delays in the settlement of these properties, together with any costs incurred by reason of making an application to the court in respect to the caveats. Should you fail to respond to this email by 4 pm on Thursday 11 January, we will assume your client will not provide her consent and we will proceed to make an application to the court without further notice.

There was no response by close of business on 11 January 2018.

6 On 15 January, Mr Gauld replied that he had received instructions that withdrawal of the caveat would be provided on the basis that an unspecified outstanding amount owed to his client be paid upon settlement of the properties. That same day MCK Legal advised that no funds were owing, and that there would be no surplus funds at any event.

7 On 9 February, Mr Gauld advised that he could lodge an electronic withdrawal if his client was satisfied there was 'no equity from the sale of the Kensington property'. On 9 February, Ms Carmelli provided a statement of adjustments and details of a sum owing to Westpac ($358 317). The letter concluded, '[t]ime is of the essence. Please respond asap'.

8 On 16 February, Ms Carmelli sent an email to Mr Gauld attaching a letter that stated, 'we request by 4.00pm on Monday 19 February 2018 your client provide evidence of a lodged Withdrawal of Caveat AH648818Y'. I shall refer to this request as 'the demand'.

9 Ms Carmelli telephoned Mr Gauld on 19 February in respect of the demand. He stated he would obtain instructions from his client relating to the withdrawal of the caveat issue. He stated that he would be out of the office for a few days and could not accept service on behalf of his client for that time. Mr Gauld subsequently refused to accept service on behalf of the defendant, which I am told and accept was on the basis of instructions from the defendant.

10 During this time, Mr Gauld was also exchanging emails with the defendant. On 9 February 2018, Mr Gauld advised her that he was concerned about the validity of the caveat and that she should provide some proof of equity in the land subject to the caveat. On 13 February, Mr Gauld warned the defendant that if she were unsuccessful in defending an application for removal of the caveat, she may be liable to pay costs.

11 On 16 February, Mr Gauld emailed the defendant, attaching the plaintiffs' demand that the caveat be removed by 19 February. He wrote, inter alia:

You caveats do not take priority over the mortgages.

You will see that again they are threatening the issue of proceedings if we don't provide a response by this coming Monday.

Please let me know what you want to do.

12 Between the time of that email and shortly after the expiry of the plaintiffs' demand, Mr Gauld, the defendant and the defendant's son (who was assisting the defendant in the proceeding) exchanged 17 further emails. On 19 February at 4.01pm, the defendant wrote an email to Mr Gauld stating, 'I would like to go ahead with this'. At 4.14pm, she wrote:

Yes we can make them an offer of settlement. To remove the Caveat from my Property and release the $40,000+ (that would be the Intertest [sic] added to the actual Amount[1]

13 On 19 February at 4.28pm, Mr Gauld wrote the following email to Ms Carmelli:

I have instructions to withdraw the caveat from both properties on the basis that the funds that are held in a joint bank account (or other facility) representing the funds released from the sale of the first property affected by the caveat, be released unconditionally to my client.

I understand that these funds were in an amount of approximately $40,0000 [sic] when they were first invested, but will be a greater sum now with accrued interest.

14 On 27 February, the plaintiffs filed an Originating Motion in this Court. On 6 April 2018, the defendant filed a Notice of Waiver and Intention to Take Part in the Proceeding. By reason of the defendant's waiver of legal professional privilege, Mr Gauld was able to file an affidavit and present submissions.

15 The plaintiffs submitted that, as the successful party on the application for removal of the caveat, there was no reason they should not be awarded their costs.

16 Ms Worsfield, who appeared for the plaintiffs, submitted that costs should be awarded against the defendant on an indemnity basis. Ms Worsfield said that, prior to filing the originating motion, the defendant was advised that any application for removal of the caveat would be successful. In particular, the defendant was advised:

(a) by Mr Charles Shaw of counsel on 18 March 2011 and 14 March 2012 that the defendant did not appear to have a caveatable interest; and

(b) by Mr Gauld on 29 August 2017, 16, 20 and 25 January 2018, and 13 and 18 February 2018 that there were issues with the caveat, including that there was significant doubt about the defendant's caveatable interest and her right to the impugned funds.

17 The plaintiffs further submitted that any costs payable by the defendant ought be borne by Mr Gauld. Ms Worsfield said Mr Gauld at no time advised the defendant unconditionally to withdraw the caveat, despite having no evidence that supported its maintenance, and receiving advice from Mr Shaw and Mr Nicholas Jones of counsel to the contrary. Despite the defendant having no caveatable interest in the property:

(a) on 12 January 2018, Mr Gauld suggested the defendant offer to provide a withdrawal of the caveat on the basis that any surplus proceeds be placed into trust pending resolution of the dispute;

(b) on 20 January 2018, Mr Gauld emailed the defendant, stating 'I don't think you want me to do anything at the moment and we will see what happens'.

(c) On 19 February 2018, Mr Gauld made a settlement offer requiring payment to the defendant of the $40 000 held in trust following the sale of land.[2]

18 Additionally, it was submitted that Mr Gauld did not accept service of any proceedings issued in the application for removal of the caveat, and acknowledged that he did not press the defendant for instructions to accept service.

19 The plaintiffs submitted Mr Gauld breached ss 24 and 25 of the Civil Procedure Act 2010 (Vic) ('the Act') by increasing costs and delaying service of proceedings. They also submitted Mr Gauld breached s 23 of the Act by using the caveat as a 'bargaining chip' in the dispute between the plaintiffs and the defendant.

20 The defendant made an application that Mr Gauld:

(a) pay the plaintiffs' costs of and incidental to the proceeding; or alternatively

(b) pay all or any costs the defendant may otherwise be ordered to pay the plaintiffs in this proceeding; and

(c) pay the defendant's costs of and incidental to the proceeding; and

(d) compensate the defendant for any financial loss suffered by her that was materially consequential of his contravention of one or more overarching obligations.

21 The defendant conceded that there was no proper basis on which she could have defended the application for removal of the caveat.

22 The defendant submitted Mr Gauld showed gross neglect, default and/or negligence in failing to advise her to remove the caveat. Mr Simpson, on behalf of the defendant, boldly submitted that Mr Gauld blindly followed his client's instructions to offer settlement set out in paragraph 17(c) above, without any independent assessment of the merits of the settlement. It was submitted that Mr Gauld should have recommended that the defendant remove the caveat by 4.00pm on 19 February 2018, as demanded by the plaintiffs. The defendant submitted the offer made by Mr Gauld to the plaintiffs on 19 February 2018 was doomed to fail, as it was outside the expiry time provided by the plaintiffs, and made demands over $40 000 to which the defendant had no caveatable interest. The defendant further submitted Mr Gauld failed to warn her of the likely legal costs of an application for removal of the caveat, and that she would be liable to pay the plaintiffs' costs if unsuccessful in defending it.

23 The defendant submitted Mr Gauld was in breach of his ethical duties under Part 2 of the Legal Profession Uniform General Rules 2015 (Vic) by following the defendant's instructions, without question, which were not proper and competent. The defendant further submitted Mr Gauld breached the following sections of the Act:

(a) Section 19 by causing, permitting and/or facilitating the defendant to reject the plaintiffs' demand that she withdraw the caveat;

(b) Section 21 by engaging in conduct which was misleading or deceptive, or that was likely to mislead or deceive by causing, permitting and/or facilitating the defendant to make the offer of settlement without any forensic assessment;

(c) Sections 22 and 23 by failing or neglecting to use reasonable endeavours to resolve the dispute between the plaintiffs and the defendant in relation to the removal of the caveat and the demand that it be withdrawn;

(d) Section 24 by failing or neglecting to use reasonable endeavours to ensure legal and other costs incurred by the defendant in connection with this proceeding were reasonable and proportionate to its complexity; and

(e) Section 25(a) by failing or neglecting to use reasonable endeavours to act promptly in connection with attempting to resolve the dispute before the expiry of the demand.

24 Mr Gauld submitted that the correspondence between he and the defendant evinced his concern about the validity of the caveat, and that he encouraged her to seek advice from counsel on the issue. Mr Juebner, counsel for Mr Gauld, identified numerous emails between Mr Gauld and the defendant. He quoted Mr Gauld's advice about the validity of the caveat, including:

I am concerned about your underlying rights to the funds in dispute ... I think the safest course for you is to immediately obtain an opinion from a barrister (I recommend Charles Shaw) about the legal basis for the caveats.[3]

...

I continue to be concerned about the caveats, as previously expressed ...[4]

...

I still believe, based on the information we have at the moment, that on balance the caveats probably have no basis. ... You may wish to "call their bluff" and rely on the fact that the whole thing is a fraud, but this has some risk involved ...[5]

25 Mr Gauld submitted he further warned the defendant that, should the plaintiffs commence legal action, she would likely be liable to pay their legal costs. Mr Gauld wrote, inter alia:

[W]e can expect the proceedings will be served upon you relatively shortly, and if we later come to the conclusion that there is no basis for the caveats, we will have to settle the legal proceedings and this will undoubtedly involve you paying Amritaa's costs of the proceeding.[6]

...

... [Y]ou may be vulnerable to legal costs should legal proceedings be instituted.[7]

...

As I have warned, if proceedings are issued and we then decide that we cannot maintain the caveats, you may well be responsible for the costs incurred at the time that withdrawals of the caveats are provided. It is likely to be a Supreme Court action and costs will escalate quickly.[8]

26 Mr Gauld submitted he could not remove the caveat without instructions.

27 Mr Gauld further submitted there was no evidence that he assisted the defendant in evading service. He submitted he attempted to facilitate service by seeking instructions to accept service from the defendant. The defendant did not provide these instructions, and Mr Gauld did not press for the instructions as he was without funding.

28 Mr Gauld made the following early, open offers to resolve the application:

(a) An offer to the plaintiffs on 23 March 2018 open for five days that Mr Gauld pay the plaintiffs' costs of the proceeding fixed in the sum of $7500 within two business days;

(b) An offer to the plaintiffs and the defendant on 14 May 2018 open for five days that the application for costs against Mr Gauld be dismissed and the plaintiffs and defendant pay Mr Gauld's costs of the application fixed in the sum of $6000 with a stay of 30 days.

29 There are two bases on which a non-party costs order can be made:

(a) Pursuant to r 63.23 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), which confers power on the Court to make a 'wasted costs' order against a solicitor for a party to litigation; and

(b) Section 29 of the Act for breaching an overarching obligation.

30 A legal practitioner engaged by a client for a civil proceeding must comply with the overarching obligations, and the overarching obligations override any duty to the client.[9]

31 In Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd,[10] John Dixon J expressed the power of the court in relation to r 63.23 in the following terms:

[W]here a solicitor ... for a party has caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition, the court may order that costs as between solicitor and client be disallowed or that the practitioner repay to the client the whole or part of any money paid on account of costs. The court may also order that the practitioner pay to his or her client all or any of the costs which the client has been ordered to pay to any party, or that the practitioner pay all or any of the costs payable by any party other than the client.[11]

32 An order under r 63.23, or a 'wasted costs' order, does not require a finding that the practitioner is personally guilty of serious professional misconduct.[12] It is founded on a breach by the practitioner or his or her duty to the court.[13] It is not necessary to establish dishonesty, criminal conduct or personal obliquy.[14] Misconduct, default or serious or gross negligence is sufficient.[15]

33 To order costs against a non-party under either s 29 of the Act or r 63.23 is a departure from the general rule that only parties to a proceeding may be subject to costs orders.[16] It is 'prima facie unjust' to make a non-party costs order,[17] and such an order should be approached with caution, and made only in clear cases.[18] It should only be made where a solicitor's conduct is 'plainly unjustifiable'.[19] This sets a high bar. It is insufficient to show that a solicitor has acted for a party who pursues a claim that is plainly doomed to fail.[20] Similarly, it is not inappropriate for a solicitor to proceed with an action or defence when instructed by a client to do so, if the solicitor has properly advised the client that the action or defence is weak.[21]

34 The Court has a broad, unfettered discretion in awarding costs pursuant to s 24 of the Supreme Court Act 1986 (Vic).[22] Though unfettered, the discretion must be exercised judicially,[23] and in civil matters costs taxed at a standard basis ordinarily follow the event.[24] By applying for costs on an indemnity basis an applicant party[25] seeks that the Court depart from its usual course.[26] It must demonstrate the existence of special[27] or unusual[28] circumstances to warrant such departure.

35 Categories of circumstances capable of enlivening the discretion are easily derived from the case law, however these categories are not closed.[29] Every application will turn upon its own facts, and merely meeting or failing to meet an established category ought not be determinative. It is nevertheless helpful to consider examples of special circumstances, insofar as they are referrable to the facts of the present case.

36 In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors,[30] Woodard J considered that it may be appropriate to award indemnity costs where an action has been continued in circumstances in which a party, properly advised, should have known that it had no chance of success.[31] In Re J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers & Anor,[32] French J was of the view that 'it is sufficient ... to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen as a hopeless case.'[33]

37 The standard of 'proper consideration' was examined in Macedon Ranges Shire Council v Thompson & Ors,[34] where the Court of Appeal held:

Where a litigant did not recognise that its case was without merit a court may be disinclined to make a special costs order. The Court must measure the litigant's conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made, and the legal advice which the litigant ought reasonably to have obtained.[35]

38 The following further categories are set out in Ugly Tribe Company Pty Ltd v Marios Sikola & Ors:[36]

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud;

(ii) The making of an irrelevant allegation of fraud;

(iii) Conduct which causes loss of time to the Court and to other parties;

(iv) The commencement or continuity of proceedings for an ulterior motive;

(v) Conduct which amounts to a contempt of court;

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly have avoided, the trial.[37]

Plaintiffs' application for indemnity costs against the defendant

39 I have found that there was no merit in the original lodgement of the caveat and none in the defendant's refusal to withdraw it. The defendant was made aware on numerous occasions that she probably had no caveatable interest over the property. Specifically, Mr Charles Shaw of counsel advised her of this as long as seven years ago, and again six years ago. More recently, Mr Gauld advised her that there was significant doubt about her caveatable interest on 29 August 2017; 16, 20 and 25 January 2018, and 13 and 18 February 2018. I think it is highly likely that the defendant knew she had no realistic prospect of defending the caveat, but nonetheless refused to instruct Mr Gauld to remove it. I consider her conduct throughout this litigation, as I have set out, to be obstructive and sharp. To the extent that she relied on her son for assistance and advice, her reliance was sadly misplaced.

40 In my view, there are special or unusual circumstances such as to justify a departure from the usual 'standard costs' course. I consider that the defendant persisted with a near hopeless case for the collateral purpose of recovering funds she believed were stolen from her, but which she knew or ought to have known were unrelated to the caveated property. I shall order that the defendant pay the plaintiffs' costs of the originating motion on an indemnity basis.

Plaintiffs' application for costs against Mr Gauld

41 The plaintiffs submit that any costs payable by the defendant should be borne by Mr Gauld. I have set out in paragraphs 29ff of these reasons the principles that apply to this aspect of the plaintiffs' applications. As I have said, it is not necessary for the plaintiffs to establish dishonesty, obliquy or similar - misconduct, default or serious or gross negligence is sufficient. Whilst I consider Mr Gauld's conduct at times to be dilatory, in my view he did not engage in misconduct, default, or serious or gross negligence. The fact is that Mr Gauld acted for a very difficult client, who not only obstructed the fair hearing of the caveat withdrawal application at seemingly every turn, but also apparently authorised her equally obstructive son to do so as well. Mr Gauld on several occasions wrote to the defendant expressing his concerns regarding the validity of the caveat and warning her of the consequences of unsuccessfully defending the removal application. True it is that his advice could have been expressed more forcefully, however the overall flavour of it was clear enough - 'it is very likely that you will lose'. Further, I doubt that the defendant would have followed Mr Gauld's advice, no matter how forcefully it was expressed. The principles that apply to this type of application, whether made pursuant to r 63.23 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), or s 29 of the Act (or both) make it abundantly clear that a non-party costs order is prima facie unjust, requires caution and should only be made in a clear case. In my view, this is not such a case. I shall not make any order in respect of Mr Gauld.

42 I have set out the various applications for costs made by the unsuccessful defendant at paragraph 20 of these reasons. They are without any merit. They perpetuate the contemptuous disregard the defendant has demonstrated for this litigation throughout its sorry course.

43 I shall order that the defendant pay the plaintiffs' costs of the originating motion on an indemnity basis. I shall reserve the question of costs of this application.

[1] The caveat referred to is not the subject of these proceedings.

[2] This land was not subject to the caveat.

[3] Exhibit PG-35 to the Affidavit of Peter Gauld dated May 2018.

[4] Exhibit PG-45 to the Affidavit of Peter Gauld dated May 2018.

[5] Exhibit PG-50 to the Affidavit of Peter Gauld dated May 2018.

[6] Exhibit PG-35 to the Affidavit of Peter Gauld dated May 2018.

[7] Exhibit PG-45 to the Affidavit of Peter Gauld dated May 2018.

[8] Exhibit PG-50 to the Affidavit of Peter Gauld dated May 2018.

[9] Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd [2014] VSC 567 [160].

[10] [2014] VSC 567.

[12] Ridehalgh v Horsefield [1994] Ch 205, 277; cited in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400 [51]; see also Chambeyron Pty Ltd (No 2) [2017] VSC 410 [180].

[16] Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd [2014] VSC 567 [249].

[18] Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400 [57]; Caritativo v Minister for Immigration & Multicultural Affairs (No 2) [2002] FCA 735 [7] (French J).

[19] Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400 [57], [96].

[22] Lombardo v Bahnan (No 2) [2014] VSC 438 [3].

[23] Trade Practices Commission v Nicholas Enterprises (1979) 28 ALR 201, 207.

[24] Oshlack v Richmond River Council [1998] HCA 11; (1988) 193 CLR 72.

[26] Ugly Tribe Company Pty Ltd v Marios Sikola & Ors [2001] VSC 189 [7].

[27] Macedon Ranges Shire Council v Thompson & Ors [2009] VSCA 209 [13].

[28] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors [1988] FCA 202; (1988) 81 ALR 397, 400 (adopting Preston v Preston [1982] 1 All ER 41).

[29] Colgate Palmolive v Cussons [1993] FCA 536; (1993) 46 FCR 225, 233 (Sheppard J); citing Tetijo Holdings Pty Ltd v Keeprite Australia [1991] FCA 225 (French J).

[30] [1988] FCA 202; (1988) 81 ALR 397.

[32] [1993] FCA 42.

[34] [2009] VSCA 209.

[36] [2001] VSC 189.