Garrick Hawkins v Tom Oates

District Court of NSW|2009-10-02

CITATION: Garrick Hawkins v Tom Oates [2009] NSWDC 258

CATCHWORDS: Agreement between parties to share in costs of litigation - Formation of Contract - Consideration of new terms in ongoing relationship - Relevance of subsequent conduct to formation of contract - Payouts made by mistake - Change of position

Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited (1988) 5BPR [97326] at 11,117-11,178 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at 176.7 Ormwave v Smith (2007) NSWCA 210 Pagnan S.p.A v Feed Products Ltd (1987) 2 Lloyds Rep 601 at 611 FAI Traders Insurance Co Limited v Savoy Plaza Pty Limited (1993) 2 VR 343 Howard Smith & Co Limited v Varawa (1907) 5 CLR 68 at 77 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSW LR 523 at 535 CASES CITED: Sullivan v Constable (1932) 48 TLR 369 at 370 Jones v Dunkel (1959) 101 CLR 298 Manly Council v Byrne and Anor (2004) NSWCA 123 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Ryledar Pty Ltd v Euphoric (2007) 69 NSW LR 603 at 645 MK & JA Roche Pty Ltd v Metro Edgley (2005) NSW CA 39 at [72] Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR at 337 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20

TEXTS CITED: Chitty on Contracts 28th ed (1999) London, Sweet & Maxwell, Vol 1 at 102 [2-027]

Garrick Hawkins (1st Plaintiff) PARTIES: Pegela Pty Limited (2nd Plaintiff) Tom Oates (1st Defendant) Paul Oates (2nd Defendant)

COUNSEL: M L Williams SC with I Griscti (1st & 2nd Plaintiffs) A W Street SC with J Hewitt (1st & 2nd Defendants)

1 These proceedings arise out of arrangements made between Garrick Hawkins ("Hawkins"), Pegela Pty Limited ("Pegela") and Scott Francis Tyne ("Tyne") on the one part and Tom Oates ("Oates") and Paul Oates ("Oates' brother") on the other, concerning the sharing of legal costs incurred in proceedings commenced in the Supreme Court of Victoria in which The National Mutual Life Association of Australasia Limited ("AXA") was the defendant.

2 AXA issued certain policies described in the evidence as "Prosperity Bond Policies". These Policies were promoted by one Dr Peter Keller in the late 1990s. At that time, Tyne and Hawkins were directors of Matrix Group Limited ("Matrix"), an investment bank based in Sydney.

3 After receiving promotional material from Keller, Tyne and Hawkins decided to invest in some of the Policies. Tyne also spoke to Oates about investing in the Policies. At the time, Oates was an associate director at Matrix. Oates in turn discussed the matter with his brother.

4 During 2000, Tyne acquired a policy from AXA which was issued to his family company ACN 074971109 Pty Limited as trustee of the Argot Unit Trust ("Argot"). Hawkins similarly acquired a Policy through Pegela, his family company. In 2000 their investments together totalled $10.5 million (round figures). For their part, Oates and his brother initially invested in Policies with a capital value of $1 million (round figures: see exhibit A11).

5 In late 2000 a dispute arose between AXA and various investors who held Prosperity Bond Policies. Broadly speaking, the dispute concerned whether or not AXA had acted lawfully under Policies in completing switches between cash and security portfolios at different times during the currency of the Policies. The dispute led to the commencement by Keller of proceedings against AXA in the Federal Court of Australia in Sydney.

6 In early 2001, aware of what Keller had done, Hawkins and Tyne discussed commencing proceedings against AXA. Tyne and Hawkins agreed that, as between the two of them and their family companies, Hawkins would take care of payment of the legal costs in any proceedings against AXA. He proposed he would do this most likely through Pegela, because it owned one of the Policies and could claim an input credit for any GST component of the legal costs. Hawkins and Tyne agreed that Tyne would reimburse Hawkins for his share of the legal costs by crediting Hawkins in the same amount against his share of expenses met by Tyne in the conduct of certain businesses in which they had a joint interest.

7 In March 2001, Tyne and Hawkins instructed Verekers Lawyers to act for them in relation to their claims against AXA (exhibit A4). At around this time, Tyne spoke to Oates about the possibility of Oates and his brother joining in the proposed proceedings against AXA. The upshot was that Oates and his brother agreed to be joined in the proceedings as plaintiffs and gave instructions to Verekers Lawyers accordingly (exhibit A1, A8 and A9). At that point, Verekers' instructions were limited to the commencement of proceedings with a view to this achieving an early negotiated settlement (A2). Verekers noted, however, that if a settlement could not be achieved the intention was to pursue the proceedings to finality.

8 As between Hawkins and Tyne on the one part and Oates and his brother on the other, arrangements were made for Oates and his brother to contribute to the costs of the litigation with AXA.

9 As it turned out, proceedings against AXA were not commenced until 2002 after Keller had settled his case in November 2001. Up until then, Verekers had a watching brief, including examining the transcripts and seeking advice from Mr Wood of counsel.

10 As the costs of the AXA proceedings were paid by Pegela and/or Hawkins (and not Tyne), Hawkins and Pegela are the plaintiffs in these proceedings. Oates and his brother are the defendants. What they dispute in these proceedings is the amount of their share, or the percentage, of the costs that they agreed to pay. Initially they claimed that their agreement about this was made with Pegela only.

11 The plaintiffs claim that under the agreement reached with the defendants the defendants would contribute 12% towards the costs of the AXA litigation.

12 The plaintiffs incurred $2,662,540.53 in costs. They admit that the defendants paid them $250,098.20. The plaintiffs say they are owed a further amount of $91,000, being the balance of 12% of the costs incurred by them in the proceedings against AXA.

13 In paragraph 5 of the Further Amended Statement of Claim ("FASOC") filed in Court on 15 September 2009, the plaintiffs allege an oral agreement with the defendants made in a conversation between Tyne, acting on behalf of the plaintiffs, and Oates, acting on behalf of the defendants, in or about March 2001. This is described as "the plaintiffs' primary case" (plaintiffs' outline of submissions para 1 dated 17 September 2009).

14 Alternatively, the plaintiffs say the agreement was either partly oral and partly written and constituted by the conduct of the parties; the written part and the conduct are said to be "evidenced by the documents in exhibit A" (para 5A of the FASOC).

15 The defendants' case is that they only ever agreed to pay one-twelfth (8.33%) of the costs. Because payments made by the defendants were sought from them and paid on the basis of a 12% calculation, the defendants therefore say they have overpaid the plaintiffs by an amount of $58,398.20. This amount is claimed in their Cross-Claim filed in Court on 16 September 2009.

16 Effectively in response, the plaintiffs allege that if there was an agreement that the defendants would contribute one-twelfth of the costs, the parties subsequently entered into either a new agreement or "amended" agreement on or about 15 October 2002 under which the defendants once again agreed to pay 12% of the costs of the litigation.

17 I turn now to consider the evidence relating to these matters.

18 Tyne's evidence in chief was that shortly after his conversation with Hawkins in March 2001 concerning the arrangements between both of them about funding the costs of the litigation, he had a discussion with Oates at the offices of Matrix as follows (exhibit B para 25): "I said:' (Hawkins) and I were talking about the (AXA) case. Seeing (Hawkins) and I are going to go ahead with it and incur legal costs anyway, if you want to tag along, we will cover your share of legal fees. We think 12% of the total costs is a fair contribution and you pay this back when you can or at latest, at the end of the litigation - win, lose or settle.'

(Oates said): 'Thanks (Tyne). I doubt (my brother) and I could have sued (AXA) on our own.'

I said:' No problem. But it's not a free lunch. We will charge interest on the outstanding balance at (Hawkins') cost of debt.'

(Oates said): Of course. That's OK. I'll tell (my brother).'"

19 Although Tyne's evidence in chief was that this discussion took place in Matrix's offices in Australia, in cross-examination he agreed this was an error because he conceded that Oates was working in the London office at the time. This meant that the conversation must have occurred over the telephone. In my assessment, Tyne was honest throughout his evidence and this is an example of an honest mistake. Tyne gave his evidence in a no nonsense way. It was responsive to questions that were put to him and his answers were given without hesitation such as in the example just mentioned. Tyne also frankly conceded that he had no "verbatim recollection" of the conversation with Oates in March 2001. As well, I was impressed with the straightforward way in which Tyne answered questions about the content of the November 2001 emails relied on by the defendants. I accept his evidence that he simply could not recall ever seeing or sending these emails before they were shown to him a few weeks before the trial.

20 Tyne denied that the agreement relied on by the plaintiffs was made on a one-twelfth or pro-rata basis. The effect of his evidence, which I accept, was that before he spoke to Oates, he and Hawkins arrived at an arbitrary figure of 12% which they regarded would be a fair contribution to ask of the defendants. Looking at it objectively, it could be said that if there were going to be four plaintiffs, then they should share the cost equally, that is, 25% each. This is why I accept Tyne's evidence that 12% was an arbitrary figure. In arriving at it, I am satisfied that Tyne and Hawkins had regard to, first, the fact that their Policies were for a much greater value in total than the defendants; secondly, they could afford to fund the litigation whereas the defendants could not do so on their own; thirdly, it was worthwhile to have the defendants contribute towards the costs. Tyne and Hawkins therefore concluded at this time that 12% was their "lowest threshold", bearing in mind they would incur further costs by adding Oates and his brother as co-plaintiffs.

21 Oates evidence in chief was that he was admitted to practise as a solicitor and was employed by Mallesons Stephen Jacques. He left them to join Matrix in 1998. Oates left Matrix in 2004. Some time thereafter, he had a falling out with Tyne and Hawkins , one of the consequences of which is the litigation in this Court.

22 In my assessment, except to the extent that his evidence was corroborated by contemporaneous documents or concessions made by Tyne, Oates' evidence was unreliable.

23 For a start, in his evidence in chief (para 54, exhibit 6), Oates merely inferred that the conversation deposed to by Tyne (para 17 above) could not have occurred because he was in London at the time. He otherwise did not deal with the matter fairly and squarely in exhibit 6.

24 When Oates went into the witness box he was at pains to make sure the Court was aware of the existence of other proceedings between him and the plaintiffs and Tyne (Day 2, T3.19). He tried to create a picture (para 7, exhibit 6) of Hawkins as a very wealthy man, a consideration not relevant to the issues in this case. Oates also asserted that Hawkins, a man much older than he is, physically threatened him. This was in 2004. At its highest, particularly since no steps were taken to report the matter to the London police, this was no more than a threat by Hawkins to bring about financial loss by commencement of legal proceedings against Oates for failing to pay his share of the costs. In my assessment, Oates gave his evidence about this not only to blacken Hawkins' name but to improve his prospects of succeeding in the litigation.

25 When asked in cross-examination about the events of March and April 2001, Oates conceded he had a number of discussions with Tyne and Hawkins in March or April 2001 about instructing Verekers in the AXA litigation. He accepted that he and his brother had given Verekers instructions that they were to be joined as co-plaintiffs. However, Oates made every effort to distance himself from the suggestion that, as a co-plaintiff, he would have to contribute to Verekers' costs (Day 2, T23-24) even though he had received a copy of their costs letter dated 30 March 2001 (A1). In my assessment, Oates' evidence about this revealed an unwarranted assumption on his part that Matrix would cover the costs, and his evidence in this respect was reinforced by his disgruntlement that Matrix had failed to pay him for what he considered to be a profit share in a transaction described in the evidence as "WA Buses". This transaction had nothing to do with the parties in these proceedings.

26 I therefore do not accept Oates' denial (Day 2, T 25.3) that he did not have any conversation with either Hawkins or Tyne along the lines that he and his brother would contribute 12% of the costs of the AXA litigation. I prefer the evidence of Tyne about this.

27 I am therefore comfortably satisfied that the plaintiffs have made out the case pleaded in paragraph 5 of the FASOC except that the contract was entered into by phone when Oates was in London and Tyne was in Sydney.

28 This is not the end of the case because the parties' relationship, so far as this contract was concerned, was an ongoing one. It is therefore necessary to look at the evidence about what occurred after March 2001 to see whether the express term of 12% was replaced. This approach is clearly permissible, as is demonstrated by what McHugh JA (Hope and Mahoney JJA concurring) said in Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited (1988) 5BPR [97326] at 11,117-11,178: "Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed ." (emhasis added).

29 This statement was accepted and referred to by Heydon JA in Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 at 176.7; see also Ormwave v Smith (2007) NSWCA 210 and Pagnan S.p.A v Feed Products Ltd (1987) 2 Lloyds Rep 601 at 611.

30 For the above purpose, I now turn to consider the evidence of the parties' subsequent conduct.

31 On 23 October 2001 Oates sent an email to his brother as follows: "Paul, had a quick chat to Scott re AXA.

Predictably they don't think much of Keller's actions and they are going ahead with suing AXA. Scott said we could be involved on a pro rata to costs basis. We may have to meet costs along the way I think.

I don't think they are suing Keller. Rather they are writing to Keller asking him to resign as manager as he has a conflict of interest etc.

Also asking for all the details as to how to run the policies etc. I think this just gets him out of the picture. Scott was going to include our policy numbers in the letter to Keller - I assume this is ookay as it doesn't affect your right (or my right) to settle - it's just a private thing between Keller and us.

Did you actually get letters from AXA with the offers? What is the final date to accept the offer?

32 Essentially, apart from Verekers keeping a watching brief on behalf of the parties, nothing much had happened between March and October 2001 because Keller's proceedings were still on foot. Once he settled them in October 2001, things changed.

33 On 1 November 2001 Verekers Lawyers wrote to Oates informing him that they had just received instructions from Tyne and Hawkins to reactivate the matter and commence proceedings as soon as possible against AXA because Keller had settled his case. Verekers asked for confirmation that Oates and his brother still wished to join in the proceedings (exhibit 7.29).

34 On 6 November 2001 Oates sent the following email to Verekers which he copied to Tyne, Hawkins and his brother: "Dear Rob

Yes Paul and I do wish to be joined in the proceedings in relation to the following 3 policies:

Policy xxxxxxx (Paul and Tom Oates) - Capital Contribution - $97,293 - To be joined in Proceedings

Policy xxxxxxx (Paul and Tom Oates) - Capital Contribution - $3,000 - To be Joined in Proceedings

Policy xxxxxxx (Paul and Tom Oates) - Capital Contribution - $500,000 - To be Joined in Proceedings

Policy xxxxxxx (Paul Oates) - $400,000 - To be Settled

Policy xxxxxxx (Tom Oates) - $7,000 - To be Settled

Accordingly the total capital value of the 3 policies (xxxxxxx, xxxxxxx, xxxxxxx) which we wish to join in the proceedings is $600,203.

Paul will confirm to you separately that he wishes to proceed on the above basis and he will drop all of our documentation into your offices over the next few days.

35 Tyne could not recall if he had read this e-mail but he must have done, given the e-mail he sent on 9 November 2001 (see para 36 below). As can be seen, as at the date of his email, Oates recorded that the total capital value of the three policies which would be relevant if he and his brother joined in the proceedings against AXA was $600,000 (round figures). He calculated the value of the two policies which he hoped would be the subject of a settlement with AXA as worth about $407,000 (round figures). This would mean that the sharing of costs, if agreed to on a pro-rata basis, would result in the defendants only contributing 1/25th towards the costs. This was unacceptable to Tyne and Hawkins.

36 On 9 November 2001 Tyne sent an email to Oates (copied to Hawkins) which made this clear: "Tom

I intend to be in town week starting 19th November. Lets get as busy as we can.

Re: Axa - I didn't realise that you and Paul were going to cash in almost half your policies. Sharing legals on this basis (you wearing 1/25th) hardly seems worth it to me. I think Garrick feels the same. If you want to stay in above the $1 million mark then let's talk. Otherwise it hardly seems worth your while to fight about a $600k policy."

37 Oates responded on the same day, 9 November 2001 to Tyne, copying his response to Hawkins as follows: "Scott

I will get going with meetings etc for the week commencing the 19th.

Can we discuss AXA? If you're saying the offer to be included in your action isn't open on the $600K basis, I will speak to Paul (who is settling $400K of his own policies), but I think he's pretty much made up his mind. Hence, we'd have to drop out."

38 On 12 November 2001 Tyne sent the following email to Oates which he also copies to Hawkins: "Tom

Re: Axa it really is up to you I suppose. If you (or you and Paul) are hell bent on suing them and are prepared to contribute at the original level, say 1/12, and are not going to cave if the going gets tough then we can talk. We estimate legals on a fully contested basis will come to around $750,000. Of course if we lose then we get to pay Axa's bill as well, so you have to consider that. Of course the idea is not to actually go to court, but the minute we reject the settlement offer there is a chance that this will happen. Let me know your thoughts.

39 Tyne agreed in cross-examination that the above e-mail "sounds sort of colloquial enough" for him to believe he wrote it (Day 2, T29.25). He also agreed it was inconsistent with his present understanding of what the agreement between the plaintiffs and the defendants was (T28.32). In this respect, to his credit, Tyne was not prepared to conjecture as to why he had moved from 12% to about 1/12th.

40 On the same day, 12 November 2001, Oates responded to Tyne, again copying his email to Hawkins: "Scott

Thanks for your email on AXA. I did mean to call you this morning, but the time difference is a little tricky at the moment, hence the email.

We'd still like to proceed against AXA, and to take you up on your kind offer to include us in your action, but only if it makes sense for you and Garrick.

The main reason we had decided to settle the $400K policy was to ensure we can fund the interest and our share of full legal costs going forward. Given the possible legals of $750,000 (and perhaps even AXA's costs), we really need to settle the $400K policy to remain in the game. I didn't run this past you as I was really only thinking in terms of the pro rata costs sharing aspect and it didn't occur to me that below a certain level, we perhaps became more of a burden than a benefit.

But we would like to stick it out, even on the 1/12 (8.3%) costs sharing basis you mentioned, but only if you're quite comfortable with us being involved in the first place and at the - $600,000 level. (Just to clarify, the $600,203 is the capital value of the policies not the settlement value, so I think the pro rata share based on the capital of your policies of $10.5m (this is only my recollection) plus the $600K would be 1/18.5 or 5.4%).

Let me know your thoughts - hopefully I'll speak to you sometime this week.

41 Later that day, 12 November 2001, Hawkins sent the following email to Oates and Tyne: "Tom

The one-twelfth basis you suggest seems OK to me. The only thing that would concern me is if we want to bat on and you want to settle. Are you happy with 2 out of 3 determining?

42 On 14 November 2001 Oates responded to Hawkins, copying in Tyne as follows: "Dear Garrick and Scott

I'm comfortable with the majority rule basis as to decisions on settling etc (as is Paul). Is that all okay with you then Scott?

43 In my assessment, insofar as Tyne had believed before he saw the November 2001 e-mails after discovery of them was given this year, that the agreement between the plaintiffs and the defendants remained at 12%, (see paragraph 5 of exhibit C), he was honestly mistaken. This is an assessment I have taken into account in accepting his evidence about the agreement in March 2001.

44 Hawkins was not called to give evidence. This being so, given the plaintiffs' concession that the authenticity of the November e-mails was not challenged, the Court infers that both Hawkins and Tyne sent and received the November 2001 emails.

45 Insofar as the Court regards Oates as an unreliable witness, the critical factor informing the Court's objective determination of the issues arising out of the events of November 2001 is the existence, content and contemporaneity of the November 2001 e-mails. Having regard to the content of those e-mails, the Court is satisfied on the balance of probabilities that between 6 November 2001 and 14 November 2001 the parties agreed to substitute "1/12th" for "12%" in the agreement the Court has found that they entered into in March 2001. At law, this amounts to a variation of the March 2001 agreement. No submission was made to the effect that such a variation was not supported by consideration. In any event it was; on the one hand the defendants promised the plaintiffs that they would "bat on" with the case or "stick it out" (to use the parties own words). Up until then, the March 2001 agreement was open ended and capable of termination by either party on reasonable notice; on the other hand, the plaintiffs promised to pay 11/12ths of the costs of the litigation with AXA instead of only 88%.

46 Accordingly, the effect of the Court's findings so far is that from March 2001 to 14 November 2001 the plaintiffs were entitled to recover from the defendants 12% of the legal costs incurred by them, that is to say, for work performed between those dates, irrespective of the billing date. Thereafter, the plaintiffs were only entitled to recover 1/12th of the costs.

47 The AXA proceedings were commenced in 2002. The Statement of Claim for those proceedings which is in evidence (exhibit 4) appears to be a draft. It bears the date "(blank) day of February 2002" on p 16. However, Verekers invoice at Tab 6 of exhibit 3 invites the conclusion that the Statement of Claim was not filed before 21 March 2002.

48 In any event, it would seem that things hotted up, so to speak, in the AXA litigation shortly after March 2002. Precisely what actually occurred in the litigation is not clear, but this is not relevant. In terms of the dispute in this Court, the evidence establishes as follows.

49 On 15 October 2002 Hawkins sent the following email to Oates and also copied it to Tyne: "Tommy,

As discussed please send $14,213.02 to CCL AUD account made up as follows -

Some time in the next week would be good please. Kind regards Garrick."

50 Oates then forwarded this email to his brother and asked him to deposit $7,000 in the account that the plaintiffs had previously identified. Oates' brother agreed to do this. As between the two of them, the amount of $14,213.02 was paid, representing 12% of the amount of $118,441.82 set out in Hawkins' email of 15 October 2002.

51 There is then a gap in the evidence. The next development was as follows.

52 On 11 November 2003 Hawkins emailed Oates and Tyne on the subject of legal fees, attaching an analysis of legal expenses. He stated in his email (exhibit A 19) that by the end of November 2003 he would have paid approximately $1 million and on that basis, he requested Oates and his brother to reimburse him in the amount of $120,000.00. This amount equated to 12% of the $1 million.

53 The next emails in evidence (A 20-21) from Hawkins to Oates between 10 December and 16 December 2003 disclose Hawkins informing Oates that the cost of the case would "now be an absolute minimum of $1.5 million" of which he had paid out about $1.3 million to that date. There also would be travel expenses of about $80,000. He asked for payment from Oates and his brother of $170,000, being 12% of $1.5 million after allowing a credit of $10,000 for travel expenses which Oates and his brother had incurred.

54 Apart from the fact that Oates informed Hawkins that he and his brother had some cash flow difficulties at that time, they did not protest about Hawkins' calculation of an amount representing 12% of the costs and simply sought details from Hawkins of the account to which the amount of $170,000 should be deposited. At the same time, Hawkins informed Oates that the case was going well and that Oates and his brother could be very confident that they would get their money back.

55 On 23 December 2003 Oates' brother gave instructions for the amount of $170,000 to be withdrawn from his account and paid to the account of Pegela which had been nominated by Hawkins (A 22A).

56 The plaintiffs rely on the e-mails I have set out above as evidence of conduct which supports their case that on or about 15 October 2002, if there was an agreement that the defendants would contribute 1/12th as opposed to 12%, that it was "amended" (which I take to mean varied at law) or the parties entered into a new agreement.

57 In my opinion, there is no sound basis for determining that there was a new agreement. First, as the Court has found, the agreement between the parties came into existence in March 2001 and it was varied in November 2001. Secondly, the e-mail from Hawkins to Oates dated 15 October 2002 dealt solely with the matter of "12%". Accordingly, the question for determination is whether the agreement between the parties was the subject of a further variation at law on 15 October 2002.

58 Insofar as the 15 October 2002 and subsequent e-mails recorded any subjective beliefs that the agreement was based on a 12% contribution, those beliefs are irrelevant: Brambles Holdings [27] at 164. Nor is post-contractual conduct admissible on the question of what a contract means: Brambles Holdings [26] at 164; see also FAI Traders Insurance Co Limited v Savoy Plaza Pty Limited (1993) 2 VR 343. However, post contractual conduct is admissible on the question of whether a contract (or in this case, a variation) was formed: Brambles Holdings [25] at 163; see also Howard Smith & Co Limited v Varawa (1907) 5 CLR 68 at 77. In Brambles Holdings [76] at 178, Heydon JA referred to the remarks of McHugh JA (Samuels JA concurring) in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSW LR 523 at 535: "… where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms."

59 Heydon JA also stated [85] at 85 that another way of putting the test is the way that Scrutton LJ put it in Sullivan v Constable (1932) 48 TLR 369 at 370: "If the (defendants) had so acted that the plaintiffs (were) reasonably entitled to believe that (the defendants) (were) assenting to the position which had been asserted by the plaintiffs the (defendants) (were) bound; see also Chitty on Contracts, 28th ed (1999) London, Sweet & Maxwell, Vol 1, at 102 [2-027]."

60 No doubt it is the plaintiffs' case that, in light of the references to 12% in the 15 October 2002 e-mail and in subsequent e-mail correspondence, together with the payments made by the defendants on that basis, a reasonable person in the plaintiffs' position would have concluded that the defendants were agreeing to an increase in their contribution from 1/12th to 12%.

61 On the other hand, the defendants' case is that any reference to 12% on 15 October 2002 and thereafter should be seen objectively as a mistake. To make good the submission, the defendants rely on Oates' evidence and, secondly, other documentation and surrounding circumstances.

62 Oates evidence (exhibit 6 para 41) was that he had forgotten about the November 2001 e-mails until he re-read them "recently". In that respect, both parties only gave discovery a few weeks before the trial (well and truly after the service of Tyne's affidavit in chief of 23 December 2008, exhibit B). Although I do not generally regard Oates as a reliable witness, I accept his evidence on this point. This is because my examination of the pleadings supports Oates' evidence. In this respect, although the defendants always denied that there was an agreement reached in March 2001 as pleaded by the plaintiffs, the precise allegation of an agreement as to 1/12th only materialised after Oates had served his affidavit and the defendants' amended defence and cross-claim was filed in Court on 16 September 2009, the third day of the trial. In other words, there was no reason for Oates to withhold this issue, unless he had forgotten about the e-mails. Moreover, there are no documents in evidence which suggest that after the commencement of the proceedings and before discovery was given that any of the witnesses were conscious of or had remembered the November 2001 e-mails.

63 There is some force in the plaintiffs' submissions that, if the 15 October 2002 e-mails and the ones which followed it are looked at in isolation, they can only support the inference that there was a concensus between the parties to replace 1/12th with 12% again.

64 This inference is displaced by another factor, which in my opinion is critical. That is Hawkins' absence from the witness box. Initially, arrangements were made for Hawkins to give his evidence by way of video link to London. That did not occur. When it was later suggested by the Court that those arrangements could be reinstated if required, the opportunity was not taken up. In other words, the plaintiffs made a tactical decision not to call Hawkins.

65 Hawkins failure to give evidence was critical for at least two reasons. First of all, in the important 15 October 2002 e-mail in which Hawkins asked Oates to send 12% of $118,441.82 to his account, he used the words "as discussed". The Court is none the wiser as to what was discussed between Hawkins and Oates. For example, Hawkins might simply have asked Oates to send him some funds on the basis that he would send an e-mail with a breakdown of how the costs were made up. On the other hand, he might have told Oates that the plaintiffs were only prepared to continue the arrangement on the basis of 12% because, perhaps, the costs were must larger than originally anticipated. But these are matters of pure speculation.

66 Secondly, in the absence of Hawkins from the witness box, the Court is entitled to draw an adverse inference against the plaintiffs that his evidence would not have assisted their case (Jones v Dunkel (1959) 101 CLR 298) on this issue. In particular, Hawkins'evidence about what was discussed between him and Oates would have cast light on whether the inference contended for by the plaintiffs should be drawn: Manly Council v Byrne and Anor (2004) NSWCA 123. In the circumstances therefore, the Court is not prepared to draw that inference.

67 It follows that, on the balance of probabilities, the plaintiffs have failed to make out their case of a variation to the agreement in October 2002 or a new agreement in October 2002.

68 As a result, the plaintiffs are not entitled to recover any more than 1/12th of the costs after 14 November 2001 on the basis determined by the Court in paragraph 46 of this judgment.

69 There is no dispute that the defendants have made payments of $250,098.20 to the plaintiffs as follows: (a) $14,213.02 on 29 October 2002

70 There is a dispute about an amount of $10,000 in expenses incurred by the defendants in connection with the case. As noted in paragraph 53 of the judgment, both parties accepted that the plaintiffs' expenses should be included in the costs. I see no reason, therefore, as to why the defendants should not be entitled to deduct the $10,000 for their expenses against the whole amount of $2,662,540.53 expended by the plaintiffs on the AXA litigation.

71 As a result of the Court's findings it will be seen that, on the face of it, there have been overpayments which the defendants are entitled to recover from the plaintiffs because the defendants were mistaken as to the correct basis of their calculation when the defendants made their payments: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353.

72 In answer to the defendants' cross-claim, the plaintiffs contended that the defendants should not be entitled to recover from the plaintiffs any amounts paid to the plaintiffs by mistake because the plaintiffs changed their position in reliance on the defendants' conduct particularised in paragraph 10 of the plaintiffs' defence to the defendants' cross-claim.

73 I reject the plaintiffs' submission. First, Tyne agreed in cross-examination that he and Hawkins would have instituted and pursued the AXA proceedings no matter what. Secondly, Tyne's evidence was that he had always understood, and therefore assumed, from the beginning, i.e. March 2001, that the defendants were required to contribute 12%. Thirdly, as Hawkins did not give evidence about his discussion with Oates on 15 October 2002 there is no evidence as to what assumption the plaintiffs adopted about their legal relationship with the defendants as a result of that discussion.

74 The plaintiffs have neither made out a case of acting to their detriment nor have they laid an evidentiary foundation which might support a plea of conventional or equitable estoppel: Ryledar Pty Ltd v Euphoric (2007) 69 NSW LR 603 at 645; MK & JA Roche Pty Ltd v Metro Edgley (2005) NSW CA 39 at [72].

75 To give effect to the Court's reasons, the parties will have to make the necessary calculations. Before they do so, it is necessary for the Court to decide some additional issues which will affect those calculations.

76 The agreement of March 2001 was made by Tyne on behalf of both plaintiffs. Whilst the evidence discloses that Pegela gained a tax advantage regarding tax import credits, I am satisfied on the evidence that payment of costs was made by both Hawkins and Pegela.

77 Insofar as the question of interest may be relevant to the parties' calculations, I am satisfied that the March 2001 agreement included the express term that the defendants would pay interest on the amount they were required to contribute (whilst it remained unpaid) at the cost of debt incurred by Hawkins from time to time on his borrowings. If the parties are unable to agree on that cost, they may well consider applying the rates applicable under the Civil Procedure Act 2005 and the Rules of Court. Otherwise the Court will have to determine the matter, an outcome which is not encouraged.

78 The defendants submitted that the defendants only ever agreed to reimburse the plaintiffs for costs reasonably incurred and reasonable in amount. Such a submission would need to find support in the cases which give rise to an implied term: Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR at 337; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20. However, this is not a case where such a term should be implied. The clear inference which the Court draws from all the evidence was the defendants agreed to contribute a share of the actual costs incurred by the plaintiffs. This was an express term of the agreement between the parties.

79 The parties agreed that the plaintiffs had paid GST in the amount of $239,282.72. The defendants submitted that this amount should be deducted from the total amount of fees and expenses paid by the plaintiffs in the sum of $2,662,540.53.

80 The defendants plead that it was an express term of their agreement with the plaintiffs that the defendants would only be liable for a share of the costs after they were netted off for GST. Although I am not satisfied that this was an express term, I am satisfied it should be implied into the agreement because Tyne's evidence was that, for record keeping purposes, Pegela became "the funder of record" (Day 2, T 35.20). He also gave further evidence at T 48.15 as follows: "Q. And at the time of the agreement relating to the proportionate share of fees you knew didn't you that if Pegela paid it would obtain a tax benefit in relation to GST correct? A. I knew Pegela was registered for GST and would claim the input tax credit or however it works.

Q. And that was something that had been discussed between you and Hawkins wasn't it? A. No I mean I couldn't claim the input tax credit so it didn't bother me if Pegela paid.

Q. So you tell his Honour that at no stage did you discuss with Hawkins anything to do with a GST tax credit in respect of Pegela is that what you tell his Honour? A. No. I was happy enough for Pegela to be the party who was invoiced on the basis that they were registered for GST.

Q. Mr Tyne did you have a discussion with Mr Hawkins about Pegela paying the GST? A. Yes I just described it.

Q. You know don't you that in your affidavit you refer to a conversation with Hawkins about GST and Pegela don't you? A. Yeah it's that one.

Q. And you know don't you that it was also communicated to Mr Oates that Pegela was going to pay because it would get a tax benefit in relation to GST correct? A. You say a tax benefit I mean Pegela was registered for GST and it presumably claimed input tax credits.

Q. As far as you're aware that was also a fact communicated to Mr Oates at the time of the agreement in relation to legal costs correct? A. Yeah I believe so."

81 Based on this evidence, together with Pegela's failure to produce relevant financial records in answer to the Notice to Produce (exhibit 13), the Court infers that Pegela took advantage of the input tax credits arising out of the GST payments. Accordingly, the amount the defendants were required to contribute must be calculated by deducting the amount of agreed GST of $239,282.72 from the agreed amount of the costs of the litigation, $2,662,540.53.

82 I propose to stand this matter over until Friday 30 October 2009 to enable the parties to consider these reasons. They should also bring in short minutes of order which reflect the Court's determination.

83 In the event that there will be any argument on costs, the solicitor for the plaintiffs should notify my associate accordingly at least 7 days before this matter is next before the Court.

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.

(1988) 14 NSW LR 523

(2007) 69 NSW LR 603

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Judgment (125 paragraphs)

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Cases Cited (8)