3606/01 JOSEPH LAHOUD & ANOR v VICTOR LAHOUD & ORS
JUDGMENT
1 HIS HONOUR: Joseph Lahoud and Victor Lahoud are brothers. Without intending any disrespect, I shall refer to each of them by his first name.
2 Victor is a developer of real estate, while Joseph is an architect. They worked together on various projects over a period of years. In 1999 Joseph and a company which he controlled began proceedings in the Industrial Relations Commission of New South Wales against Victor and two companies which Victor controlled, seeking to be paid more than he had already been paid for the work he had done over the years.
3 Those proceedings were compromised. The parties signed Terms of Settlement on 6 February 2001, in accordance with which the Commission dismissed the 1999 proceedings with no order as to costs.
4 Joseph and his company began proceedings in this Court against Victor and his two companies seeking, in substance, specific performance of those Terms of Settlement. By the time those proceedings came on for hearing, Victor and his companies had filed a cross-claim. In the form that cross-claim took by the end of the hearing, it contended that the agreement contained in the Terms of Settlement was no longer on foot, because it had been induced by a misrepresentation which Joseph made on 5 February 2001. Alternatively, it contended that there was a contract, collateral to the contract contained in the Terms of Settlement, which ought be specifically performed. Other claims were that Joseph was estopped from enforcing the Terms of Settlement by reason of the misrepresentation he was said to have made, and that Victor should receive damages under the Trade Practices Act 1974 (Cth) by reason of the alleged misrepresentation.
5 Palmer J heard that claim and cross-claim, over seven hearing days, commencing on 17 May 2005. His Honour delivered a judgment on 30 May 2005, which upheld the claim of the plaintiffs, and dismissed the cross-claim: Lahoud & Anor v Lahoud & Ors [2005] NSWSC 509.
6 Because of the absence of Palmer J on long leave, certain applications relating to the costs of those proceedings have been argued before me. One of them is a claim by Joseph and his company that the Court should make an order for indemnity costs either of the proceedings as a whole, or alternatively of three particular issues which arose in the proceedings. The other is a claim by the plaintiffs for an order for interest on costs.
7 The defendants accept that, as they lost the proceedings, it is appropriate that an order for costs of the proceedings should be made against them. However, they oppose that order being an order for indemnity costs in any respect, and oppose the claim for interest on costs.
The Terms of Settlement
8 One project on which the brothers had worked together was a development at Cammeray. Another was the development of a home unit block at Northbridge. In broad terms, the Terms of Settlement provided for the brothers to share equally the net profit of the Cammeray development, and for Joseph to receive the proceeds of sale of two particular units in the Northbridge project. The Terms required Victor's interests to pay Joseph's interests, virtually immediately, the sum of $570,000. That sum was the best calculation that Victor could make at the time of half the profit of the Cammeray development. Either of them could have the figures relating to the Cammeray project audited, and if the audit showed that Victor's assessment of the profit was wrong, there would be a payment made by one to the other, so as to result in the profit shown by that audit being shared equally. Concerning the two units at Northbridge, a regime was agreed on stating who would do what to enable the sale of the units to be carried through. There was also provisions for the parties to enter into formal releases.
PART A - THE INDEMNITY COSTS APPLICATIONS
Indemnity Costs of the Entire Proceedings?
9 Victor contended, at the hearing before Palmer J, that the Terms of Settlement were entered into because Joseph represented to him, on 5 February 2001, that Joseph would hand over to Victor a watch, which had belonged to their deceased father, and which was then in Joseph's possession, and would share equally with Victor in the care of their disabled brother Riad. Joseph's alleged agreement to hand over the watch and share in the care of Riad was also the alleged collateral contract. Victor alleged that the representation had been made, and the collateral contract arrived at, in conversations between the two brothers, when no one else was present.
10 Palmer J was not satisfied that Victor had discharged the onus of proving that there was a private agreement of that kind. His Honour's conclusion was based both upon how he regarded the credit of the two brothers, and the inherent probabilities of the story which each told.
11 It is open to a court to make an order for indemnity costs when the justice of the case requires. While the making of such an order is a discretionary matter to be decided by reference to the facts of a particular case, and the categories in which such a discretion might be exercised are not closed, a useful catalogue of circumstances where, in the past, courts have thought it appropriate to make an order for indemnity costs appears in the judgment of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-4:
"… I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152); evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo ) ; the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata ) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (1993) 46 IR 301); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata ); an imprudent refusal of an offer to compromise: eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records [1983] Ch 59). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis."
12 The plaintiffs contend that a sufficient reason for making an order for indemnity costs in the present case is that Victor made allegations of fraud knowing them to be false.
13 The two topics which Victor alleged were the subject of the private agreement were referred to in the version of the cross-claim which was current at the time of the trial as "the Representations". The pleading alleged:
"At the time of making the Representations, JL [Joseph Lahoud]:
a) had no intention of carrying out or complying with the subject matter of the Representations and knew them to be false; or
b) made them recklessly and without regard for whether they were true or false."
14 Though Mr Gyles, for the defendants, submitted that such an allegation is not necessarily one of fraud, I do not accept that submission. The allegation of "fraud" which can trigger an order for indemnity costs is not necessarily an allegation that the tort of deceit has been committed. To allege that A represented to B that A would behave in a particular way in the future, and that at the time of so representing A had no intention of acting in the way he represented he would act, and where the subject matter of the representation is (as was the case here) one of importance to B, seems to me to involve an allegation of dishonest conduct which merits the unattractive name of "fraud".
15 Mr Epstein SC, for the plaintiffs, submits that Victor must have realised that his allegations were untrue, and hence that the present case fits into one of the recognised categories where an award of indemnity costs can be appropriate.
16 I do not accept that, at the time Victor made these allegations, he must have realised that they were false.
17 As I earlier said, the fundamental reason why Palmer J decided the case in the plaintiffs' favour is that the defendants did not discharge the onus of proof. On his Honour's findings, it is not as though the subject matter of the alleged "private agreement" was a complete concoction on Victor's part - his Honour made express findings, at para [129] and [130] of his judgment, that he was satisfied that the topics of the watch, and the care of Riad, were raised in the course of the private discussions between the brothers on 5 February 2001. As well, his Honour found, at [116] that
"… a great deal of Victor's evidence in the case has been coloured by an overwhelming resentment that his efforts on behalf of the whole family have been met with indifference and ingratitude, particularly by Joseph. Whether he is justified in feeling this way is not for me to decide. It is pertinent to his ability to give his evidence carefully and accurately, however, that he feels very strongly that he has been wronged by all of his siblings."
18 It is a common enough experience for a party to litigation, by the time he gives evidence, to be quite convinced in his own mind that his evidence is correct, even though it is evidence which the Court ultimately does not accept. There was no contemporaneous written record, or even note, of the content of the private discussions between the brothers.
19 Further, his Honour found, at [123] that Mr Callanan, the solicitor for Victor and his companies at the time the Terms of Settlement were negotiated, "became passionately committed to his clients' cause", to such an extent that his own recollection was unreliable. If a litigant is influenced by "overwhelming resentment", and is being advised by a solicitor "passionately committed to his clients' cause", there is a double difficulty in the way of the litigant having an accurate recollection of the facts.
20 Thus, his Honour has not found that when Victor made his allegations, which I have set out above, he was making them knowing that they were false. Neither am I persuaded by any of the evidence which was before me, that those allegations were knowingly false. Just as the serious nature of the allegations which I have set out at para [13] above would have required particular caution on the part of the Court in finding that the allegations were made out, so the allegation which Joseph makes in support of his indemnity costs application is one which requires particular caution before the Court can find that Joseph's allegation is made out. I am not so persuaded.
21 Another basis upon which Mr Epstein SC submits that indemnity costs should be awarded is that it is common to award indemnity costs of an application brought to enforce a court's order by contempt proceedings: Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 at 358. Analogously, Mr Epstein submits, here Joseph has been compelled to bring court proceedings to obtain the benefit of the terms upon which litigation has already been settled and disposed of.
22 I do not accept that the analogy applies. While there is no doubt that there is an important public interest in parties settling their disputes if they can, and in the Courts upholding those settlements when arrived at, a contract to settle litigation is a type of contract which, like any other contract, can be vitiated if it is the product of a misrepresentation. When a court makes an order, that order is one which is to be obeyed unless and until the court itself sets the order aside. By contrast, if a party to litigation enters a contract to settle the litigation and later justifiably rescinds that contract by reason of a misrepresentation, to the extent to which the terms of settlement have not been carried through by being embodied in a court order, the rescission can be effective.
23 The plaintiffs also point out that the proceedings were complex ones, and that, shortly before the trial, the defendants abandoned some of the grounds upon which they resisted the plaintiffs' case. The complexity of the litigation is not, in my view, a reason for making an award of indemnity costs. In this Court litigation is often complex. The abandonment of certain issues is more appropriately dealt with, in my view, by reference to a claim for indemnity costs in relation to the particular issues which were abandoned, rather than by an award of indemnity costs in relation to the entirety of the proceedings.
24 For these reasons, I am not of the view that it would be appropriate in the present case to depart from the usual practice of awarding non-indemnity costs to the successful party in proceedings, so far as the entirety of the proceedings is concerned.
Indemnity Costs From Abandonment of the Section 106 Claim?
25 To deal with this contention, some of the procedural history of the matter needs to be gone into.
26 On 2 May 2001 Joseph filed a Notice of Motion in the 1999 proceedings in the Industrial Relations Commission, notwithstanding that those proceedings had already been dismissed pursuant to the Terms of Settlement on 6 February 2001. That Notice of Motion sought, in broad terms, a declaration that the Terms of Settlement are binding, and orders in the nature of specific performance concerning the Terms. That Notice of Motion came to be allocated a hearing date of 8 November 2001.
27 On 5 July 2001 Victor filed a Notice of Motion in the 1999 Industrial Relations Commission proceedings, seeking, in broad terms, an order that any agreement made on 5 and 6 February 2001 had been repudiated, and an order that Joseph and his company repay the sum of $570,000 which they had received pursuant to, (but not in total performance of) the Terms of Settlement. That Notice of Motion also came to be allocated a date for hearing of 8 November 2001.
28 On 26 July 2001 the present proceedings in this Court, which had been commenced shortly before, as proceedings to extend a caveat, came before Palmer J. On that day the caveat was extended by consent, but there was extensive argument about whether this Court had jurisdiction to require the transfer to it (as Joseph was by then seeking) of what remained of the 1999 proceedings in the Commission. It appears from the transcript on that occasion that by that time Joseph's legal advisers had formed the view that it was inappropriate to continue to seek to enforce the Terms of Settlement in the Commission. Palmer J (before whom the matter came as Duty Judge) directed the filing of written submissions on the topic of transfer of the proceedings, and stood the matter over generally to be argued on a date to be fixed. The question of transfer of the remnants of the 1999 Commission proceedings to this Court did not re-emerge until March 2004.
29 On 5 November 2001 Victor and his companies filed a fresh summons in the Commission against Joseph and his company ("the 2001 IRC proceedings"), seeking an order under section 106 Industrial Relations Act 1996 declaring void ab initio the Terms of Settlement, and an order for payment to them of the amount of $570,000 plus interest.
30 On 22 November 2001 Joseph and his company filed a Notice of Motion in the 2001 IRC proceedings, alleging that the Commission did not have jurisdiction to deal with those proceedings under section 106, and alleging that an estoppel arose from the Terms of Settlement arrived at in the 1999 proceedings.
31 On 9 August 2002 Glynn J gave a judgment which, in substance, accepted those contentions of Joseph, and struck out the 2001 IRC proceedings: Victor Lahoud & Ors v Joseph Lahoud & Anor [2002] NSWIRComm 182.
32 Victor's interests appealed against that decision. On 19 June 2003 the Full Bench of the Commission allowed that appeal: Victor Lahoud v Joseph Lahoud [2003] NSWIRComm 179. Written submission which Mr Trew QC made to Glynn J contended that the Commission had jurisdiction to set aside Terms of Settlement in circumstances where those terms were related to a contract whereby work was done in an industry: David Jones Ltd v Cukeric (1997) 78 IR 430. He submitted that, even if the Terms of Settlement were not themselves a contract or arrangement whereby work is performed in an industry, it was sufficient that they were a part of a contract or arrangement whereby work was performed in an industry: Cash Converters Pty Ltd v Yildiz (1999) 94 IR 474. In any event, he submitted, Victor's interests proposed to lead evidence to the effect that the Terms of Settlement themselves required work to be done in an industry, in that solicitors and agents were to be instructed concerning the sale of the home units at the Northbridge development, and the parties had various obligations which they were required to perform in connection with those proposed sales. On the appeal the written submission of Mr Buchanan QC made similar points.
33 The reasons of the Commission for allowing the appeal included that Victor and his companies wanted to put on evidence, and it was inappropriate to strike the proceedings out without giving them that opportunity.
34 After argument in March 2004, on 5 April 2004 Nicholas J ordered the transfer of the two Notices of Motion which had been filed in the 1999 IRC proceedings, and of the 2001 IRC proceedings to this Court. By that time, Federal Court proceedings had been begun by Victor's interests alleging (amongst other things) that the Terms of Settlement were procured by misleading and deceptive conduct on Joseph's part. By that time, all the parties were in favour of the various IRC proceedings being transferred to this Court, and the Federal Court proceedings also being transferred here. When the Federal Court proceedings were eventually transferred here, the Statement of Claim in those proceedings stood as the Cross-Claim in the present proceedings. The 2001 IRC proceedings became proceedings 6132 of 2005 in this Court. The 1999 IRC proceedings became proceedings 6079 of 2005 in this Court. The Federal Court proceedings became proceedings 2530 of 2004.
35 On 14 February 2005 these proceedings came before Palmer J for directions. Mr Gyles, for Victor's interests, told his Honour that his side was anxious about the large volume of affidavit material which had been filed, which went, at least to some extent, to the circumstances in which Victor and Joseph had worked together. His Honour expressed the view that, as things seemed to him at the time, it was a case which would turn on credit, and that if Victor's version of the facts was correct he would obtain the remedy he wanted without needing to rely upon section 106.
36 On 9 March 2005 the solicitors for the defendants wrote to the solicitors for the plaintiffs saying that they intended to discontinue their claim under section 106. While there was some argument about whether discontinuance, rather than dismissal, was the appropriate way of dealing with it, Victor's claim under section 106 was not thereafter pressed.
37 The plaintiffs submit that a very large volume of affidavit material was prepared for the purpose of the section 106 claim, and that the defendants' abandonment of it is a significant admission that it was always a hopeless claim.
38 In my view, abandonment of a claim is not sufficient, in itself, to warrant an order for indemnity costs. In Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 Rolfe AJA would have made an award of indemnity costs when an appeal was withdrawn on the morning of the hearing and without notice or explanation. His Honour's reasons for reaching that conclusion, at 270-273, included taking into account that what was involved was an appeal (so that the evidentiary basis of the case did not change from the time the appeal was filed), that there had been no change in relevant legal principles since the filing of the appeal, and that the appellant had not filed any evidence to explain why it abandoned the appeal. The majority, Kirby P and Mahoney JA did not order indemnity costs, notwithstanding the abandonment of the appeal. If there is any common theme in their Honours' judgments, it is that a relevant factor was that there was no evidence of what communication there had been between the solicitors for the appellant and the solicitors for the respondent before the abandonment. But the fact that neither Kirby P nor Mahoney JA ordered indemnity costs demonstrates that abandonment of a claim is not sufficient ground in itself to justify the amount of indemnity costs.
39 In the present case, the evidence filed in the section 106 case does not appear to have been complete until Joseph swore an affidavit on 6 September 2004.
40 I have no doubt that the Court can order indemnity costs concerning an issue which was hopeless. It can do so whether or not a party abandons that issue in circumstances where the abandonment amounts to an admission that the issue was hopeless. In the present case, however, I am not prepared to conclude that Victor's section 106 claim was hopeless. Glynn J's summary dismissal of the claim had been overturned by the Full Bench of the Commission. The law concerning the extent of the jurisdiction of the Commission under section 106 is at present labile - on 22 April 2005 the High Court granted special leave to appeal from the decisions of the New South Wales Court of Appeal in Solution 6 Holdings Ltd v Industrial Relations Commission of NSW (2004) 60 NSWLR 558, QSR Limited v Industrial Relations Commission of NSW (2004) 208 ALR 368 and Old UGC Inc v Industrial Relations Commission of NSW (2004) 60 NSWLR 620. Those appeals were argued on 8 and 9 November 2005, and judgment on them is still reserved. In February and March of 2005 it was known that those applications for special leave to appeal would be made, and known that there was a difference of view between the Court of Appeal and the Industrial Relations Commission about the extent of the jurisdiction of the Commission under section 106.
41 Accepting, as I must unless and until the High Court says anything different, that the principles laid down by the Court of Appeal in Solution 6 Holdings Ltd v Industrial Relations Commission of NSW (2004) 60 NSWLR 558 are correct, section 106 can be invoked if the contract itself "directly envisages" performance of work, and the contract has a "recognisable impact on the conditions of that employment" and "work" (per Spigelman CJ at [55], 575. In the present case, it seems arguable that the matters relied on by Mr Trew QC, referred to a para [32] above, meet that test.
42 Further, Victor gave evidence, in the application before me, to the following effect:
"I deny that the Defendants did not believe there were genuine or reasonable grounds for commencing the proceedings under S. 106 of the Industrial Relations Act ("the IRC Proceedings"). The Defendants were represented by solicitors and Junior and Senior Counsel in each of the relevant sets of proceedings, in this Court and the Industrial Relations Commission ("the IRC") and I believed at all times that all claims brought by the Defendants were bona fide and for a proper purpose namely, to protect or pursue the rights of the Defendants in the dispute with the Plaintiffs.
Shortly prior to the commencement of the hearing of these proceedings, the Defendants made a decision not to pursue the IRC Proceedings. The decision not to pursue the IRC Proceedings was based upon the following:
(a) If the IRC Proceedings were continued, it would have been necessary for all of the evidence filed in Joseph's original IRC proceedings to be read, including a large quantity of expert evidence going to many years of commercial arrangements and which would have caused the length of the hearing to have been greatly increased. …
(b) During directions hearings before Palmer J on 14 February and/or 3 March 2005, to the best of my recollection, his Honour made comments to the effect that the dispute between the parties was primarily a factual one as to whether the evidence of the Plaintiffs or the Defendants was preferred and that if the evidence of the Defendants was preferred, it would be likely to succeed in the Equity proceedings in this Court without the need to resort to the IRC Proceedings and that because of the complicated jurisdictional issues in the Supreme Court having to deal with the IRC Proceedings, that serious consideration should be given as to whether it was necessary that the IRC Proceedings be continued; and
(c) that in the circumstances, the above was the course favoured by the Court and would significantly facilitate the limiting of issues and the efficient hearing of the proceedings."
43 I take that evidence into account in concluding that this is not a case where the making of the section 106 claim involved the kind of abuse of process which justifies an award of indemnity costs. Rather, the abandonment of the section 106 claim seems to me to have been an exercise in responsible advocacy.
Indemnity Costs From Withdrawal of the Audit Claim?
44 The precise term of the Terms of Settlement which related to the payment of $570,000 by Victor's interests to Joseph's interests, and the possible adjustment of that sum following an audit, was as follows:
"The Second Respondent is to pay to the First Applicant, by bank cheque no later than 6 pm Tuesday, 6 February 2001, the sum of $570,000.00. The Respondents have provided written details of the profit calculation for the Cammeray Project, which is Annexure "A" hereto, and verily believe that those details are accurate. Either party may elect to have the figures audited by an accountant to be agreed or, in default of agreement, as nominated by the President of the Institute of Chartered Accountants. If on audit, the audited profit exceeds the said profit calculation, the First Applicant is to be paid one half of the difference by the Respondents. If the audit profit is less than the said profit calculation, the First Applicant will pay the Respondents one half of the difference. The reasonable costs of the audit are to be paid by the Respondents in the event the audited profit figure exceeds the said profit calculation and by the First Applicant in the event the audited profit is the same or less than the said profit calculation."
45 By an Amended Notice of Cross-Claim filed on 12 October 2004 Victor's interests made a new claim in the alternative to claims they had previously made:
"12. Further and alternatively, if the Settlement Agreement is not set aside:
(a) it was a term of the Settlement Agreement that the Second Defendant was to pay to the First Plaintiff by no later than 6.00 pm, Tuesday, 6 February 2001 the sum of $570,000.00, such figure being referable to 50% of the estimated profit calculation for the Cammeray Project;
(b) either party could elect to have the profit calculation audited and if, on audit, the audited profit exceeded the profit calculation (being the sum of $1,140,000.00), the Defendants were required to pay to the Fist Plaintiff one-half of the difference;
(c) if the audited profit was less than the said profit calculation, the First Plaintiff was to pay the Defendants one-half of the difference.
PARTICULARS
Paragraph 1 of the Settlement Agreement
13. On or about 18 March 2003, an audit of the Cammeray Project was carried out at the request of the Defendants, and such audit revealed that the Cammeray Project returned a net loss of $16,829.32.
PARTICULARS
Audit dated 18 March 2003 from Mr Alan Baker of Baker Taylor Pty Ltd, a copy of which is at Tab 47 to the Exhibit "VL1" to the Affidavit of Victor Lahoud, sworn 18 June 2004.
14. By reason of the matters set out in paragraph 13 above, the Cross Claimants are entitled to be repaid the sum of $570,000.00, and the Cross Defendants have failed and/or refused to repay the Cross Claimants the said sum."
46 That claim followed on from a confused course of correspondence between the solicitors on the topic of an alleged audit.
47 As early as 22 May 2002 Victor's solicitors had written to Joseph's solicitors, adverting to the Terms of Settlement, and continuing:
"The sum $570,000 was paid by Victor to Joseph subject to any audit at the option of either of them and the terms of settlement provided for an adjustment in the event that the calculation upon which the amount of the sum was determined proved to be inaccurate.
The accuracy of the calculations will be an issue in the proceedings in the event that your client does not immediately account to our client for the sum of $394,158.82. So that your clients may understand the extent of that issue we enclose a copy of a letter from Castletons, our clients' accountants dated 14 May, 2002.
We will be pleased to receive a cheque for the said sum of $394,158.82 in favour of Castle Constructions Pty Ltd by return."