Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126 | Case summary

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."

The enclosure with that letter was a document typed on the letterhead of Castletons addressed "To whom it may concern" stating that the financial statements of Castle Constructions Pty Limited concerning the Cammeray project showed sales in a particular amount, costs in a particular amount, and a profit of $351,682.36. The substance of that letter was less than half a page. A breakdown of figures for costs of the project, occupying around one-third of a page, was also enclosed. 48 On 24 June 2002 after Joseph's solicitors had requested documentation relating to the Cammeray profit, Victor's solicitors wrote back saying: "… should your client wish to have the figures audited, then could he please nominate an auditor who can contact Messrs Castletons, chartered accountants, and make arrangements to commence such audit." 49 Joseph's solicitors replied on 28 June 2002 saying: "Your proposal for an audit contradicts your section 106 proceeding. Clearly, some sort of audit has already occurred, and we request the documentation relied upon so our client can make his own assessment." 50 On 15 October 2002 Victor's solicitors wrote to Joseph's solicitors saying: "We advise that our client has instructed us to seek that the Institute of Chartered Accountants appoint an auditor to audit the figures in relation to the Cammeray project. Our client will meet the costs of such audit. Should the results of that audit indicate that the said sum of $570,000 does not represent 50% of the profit, then we are instructed to immediately seek repayment of the difference between the sum so audited and the sum paid given that the said difference will have been had and received by your client to the benefit of our client irrespective of the outcome of proceedings in the Industrial Commission and/or the Supreme Court of New South Wales. We will serve a copy of the audit report in due course." 51 Joseph's solicitors replied on 25 October 2002 saying: "Your clients' decision to initiate an audit in relation to the Cammeray project is inconsistent with their section 106 claim in the Industrial Relations Commission, and their defence in the Supreme Court. Indeed it infers that your clients are maintaining proceedings in the Industrial Relations Commission, and a defence in the Supreme Court (jointly referred to as "the proceedings") with the knowledge that there are no real prospects of success … Finally, we have previously asked your clients to provide copies of the documentation relied upon for the preparation of the financial statements of Castletons dated 14 May 2002. Access has been denied to date. In light of your letter of 15 October 2002 we ask you to obtain further instructions. There is no reason why access should be denied." 52 Victor's solicitors replied on 1 November 2002, saying: "In relation to the letter relating to the audit we advise that our client has always extended the offer of access to documentation, however at the offices of his accountant, Messrs Castletons, where the documents are located. We apologise if our letter dated 15 October 2002 did not make our client's position clear. Our client's position is that, whichever client be successful in the current proceedings, whether in the Industrial Relations Commission or in the Supreme Court of New South Wales, our client is at least entitled to any difference between the sum of $570,000 and the amount independently audited should it be less." 53 Joseph's solicitors wrote on 2 December 2002 seeking an appointment to view the documentation relied on by Castletons in preparing the financial statement dated 14 May 2002. To that, Victor's solicitors replied on 6 December 2002 saying: "We have attempted to explain to you that conducting an audit of the profit on Cammeray is in no way inconsistent nor does it conflict with the pleadings and affidavits in the Industrial Relations Commission of New South Wales and the Supreme Court of New South Wales. If your client succeeds, then he will obtain specific performance in an agreement that entitles him half of the profit on Cammeray (as ordered). If not, and depending upon the nature of any outcome in favour of our client then your client may be in a position whereby he has to account to our client for what he has received. Our client has requested the President of the Institute of Chartered Accountants to nominate three qualified auditors and, subject to their quotation as to costs, one nominee will be appointed to complete an audit. We can take the matter no further as set out above." 54 This was, as subsequent events confirmed, in substance a retraction of the offer for Joseph's solicitors to inspect the documentation relating to Castletons' calculations. That led to Joseph's solicitors serving subpoenas on Victor's solicitors, and Victor's two companies, seeking to obtain the documentation which underlay that calculation. Victor's solicitors foreshadowed that they would seek to set aside those subpoenas. Joseph's solicitors sought to argue for the validity of the subpoenas, writing to Victor's solicitors on 18 December 2002, saying: "Paragraph 1 of the Terms of Settlement provides for an election by either party for an audit and, if the profit is more or less than the said profit calculation then there may be an adjustment of the profit calculation accordingly. Your client is presently, as we understand from your correspondence, conducting an audit purportedly in accordance with the Terms of Settlement. The result of that audit may impact on any decision of the Court. While we do not concede that this audit is in accordance with the terms of Settlement, the documents sought on subpoena are clearly relevant to that audit." 55 On Christmas Eve in 2002 Joseph's solicitors wrote to Victor's solicitors again, asking for advice "by return facsimile" of the name of the auditor who was, as they understood it, in the process of preparing an audit, and his contact details. 56 Joseph's solicitors repeated that request on 17 February 2003. 57 To that, Victor's solicitors replied on 20 February 2003, saying, rather tersely, "As you are aware, our client is contesting the Terms of Settlement in the Industrial Relations Commission of New South Wales, either on the basis of having them voided or varied. On the contrary, your client is presently seeking specific performance. We are not aware of any election pursuant to paragraph 1 of the Terms of Settlement by either party." 58 This letter shows that, at least by 20 February 2003, Victor's solicitors were aware that, if Victor had sought to exercise the right to obtain an audit under the Terms of Settlement, that action would involve the exercise of a right which was inconsistent with Victor's assertion that the Terms of Settlement had been entirely rescinded, and could amount to an election by Victor to regard the Terms of Settlement as still on foot. 59 All this correspondence occurred at a time when there was no issue on the pleadings relating to any alleged audit. Indeed, in April 2003 Victor succeeded in having a subpoena aimed at eliciting financial documentation set aside, on the ground that an audit had not taken place. 60 On 13 May 2003 Victor's solicitors wrote to Joseph's solicitors, saying: "The audit report is submitted to assist your client in understanding the consequences of this audit result. If the results of the said audit are confirmed on any further audit conducted in the future at the election of any party as a result of any court order or agreement between the parties as varied or confirmed by the court, then our client will require that the sum of $570,000 be accounted for in his favour." 61 I read this as saying that Victor's solicitors regarded the audit not as one which was carried out in accordance with the Terms of Settlement, but as a trial run, which gave an indication of the sort of result which Victor would obtain if he were to fail in asserting that the Terms of Settlement had been brought to an end, and were then to initiate the audit process. 62 Even so, it would have been apparent from the time of Victor's affidavit of 18 June 2004, referred to in the Particulars to paragraph 13 of the Amended Notice of Cross-Claim, that a claim that Mr Baker had effectively conducted an audit had been made. 63 Through the course of correspondence which I have been outlining relating to the audit, to and including 2003, Victor's solicitor was Mr Callanan. By the time of the filing of the Amended Notice of Cross-Claim in October 2004 Victor had instructed a different firm of solicitors. 64 On 16 May 2005 - ie the day before the final hearing before Palmer J was due to commence - Mr Weber SC for Victor's interests, informed Joseph's Senior Counsel that the issue arising under paragraphs 12-14 inclusive and orders 7 and 8 of the Amended Notice of Cross-Claim would not be pursued. Mr Weber so informed his Honour in the course of opening the case on 17 May 2005. 65 Joseph's solicitors wrote to Victor's solicitors on 17 May 2005, saying: "… our clients have spent significant time and incurred substantial costs in responding to that part of your clients' cross claim which are now wasted as a result of your amendment. Only hearing time is saved by way of the abandonment. We reserve our clients' right to seek appropriate costs thrown away on this issue." 66 Now, Joseph seeks an order for indemnity costs in relation to the claim to recover $570,000 "by reason of an "audit" which they secretly procured, without the knowledge or participation of the plaintiffs." 67 In my view, the issue propounded in the Amended Notice of Cross-Claim, that Mr Baker's "audit" entitled Victor to be repaid the $570,000, was always a hopeless issue. The preconditions for there being a valid audit under the Terms of Settlement were that the parties attempt to agree on the identity of an auditor, and only in default of agreement turn to the President of the Institute to nominate an auditor. Here, there was no attempt to agree on the identity of an auditor. Further, the election which the Terms required had not been made. As Mr Callanan well realised, if such an election had been made it may well have had seriously detrimental effects on Victor's principal contention, that the Terms of Settlement had been validly rescinded. 68 However, I do not regard the claim that Mr Baker's "audit" provided a basis for ordering Joseph's interests to repay the $570,000 as having been made until Victor's affidavit of 18 June 2004. 69 The appropriate order is that the plaintiffs have the costs of the issue propounded in paragraphs 12, 13 and 14 of the Amended Notice of Cross-Claim which were incurred in the period commencing 18 June 2004 on an indemnity basis. Any costs relating to exploration of any alleged audit prior to 18 June 2004 will be subject to assessment on the ordinary costs basis. Indemnity Costs of Extensive Interlocutory Procedures? 70 Mr Epstein's third fall-back position was that there should be an order for indemnity costs in relation to interlocutory proceedings which were extensive and, he submits, given that the case boiled down to a comparatively simple word against word contest, unnecessary. 71 There was some awkwardness in the way that this was put. Mr Epstein SC's submissions recognised that it was not feasible to undertake any comprehensive examination of the circumstances which generated the interlocutory procedures about which he complained. However, he focused upon one category of interlocutory procedures, concerning some documents which the defendant believed were missing. 72 After discovery had been given, Victor had doubts about whether Joseph had given full discovery. In particular, Joseph had not produced any diary which related to the period when the Terms of Settlement were being negotiated in February 2001. Joseph's account was that he had only purchased and maintained a diary relating to the 2001 year in March 2001, and that that diary had been produced on discovery so far as was relevant. Victor's belief was that Joseph was a regular and extensive diarist, and that there must be in existence, or have been in existence, a diary entry which would confirm that Victor's account of the "private agreement" was correct. He caused extensive subpoenas to be issued, seeking to flush out what he understood to be the missing diary. One of them was a subpoena directed to Joseph's company, to produce accounting records which would show whether Joseph had purchased a 2001 diary any earlier than March 2001. 73 As things turned out, those subpoenas did not produce any documents of significance, but inevitable costs were incurred in responding to them. 74 I do not accept that the issuing of such subpoenas involves the kind of abuse of process which should be met by an order for indemnity costs. Whenever a litigious contest involves word against word, a trial lawyer's preparation for cross-examination involves thinking through what documents would exist if his or her client's version of the facts were correct, and seeking to obtain those documents. Every experienced litigator knows that where there is a word against word contest, and if (as usually happens) one party does not admit under cross-examination that his version is wrong, the Court will decide the issue taking into account the probabilities. Those probabilities are evaluated on the basis of evidence of surrounding circumstances, and contemporaneous documents can provide cogent evidence of the surrounding circumstances. If Victor's subpoenas had produced a 2001 diary which Joseph had not produced on discovery, the entire course of the case may well have been different. I am not satisfied that there was any abuse of process involved in the issuing of those subpoenas. There is no other satisfactory basis for making an order for indemnity costs concerning any interlocutory procedures. Indemnity Costs because of Section 54A Conveyancing Act 1919? 75 Mr Epstein SC submitted, without great elaboration, that Victor's claim was one which was bound to be defeated by section 54A Conveyancing Act 1919. An argument to that effect was put to Palmer J, but his Honour did not need to deal with it, given the conclusion he had come to concerning the facts. 76 I do not accept that the submission is correct. Insofar as Victor's claim was put as a claim of fraudulent misrepresentation, or on the basis of misleading and deceptive conduct justifying a remedy under the Trade Practices Act 1974 (Cth), section 54A did not impinge on it. Section 54A is concerned with the circumstances in which contracts for the sale or other disposition of land or any interest in land may be enforced, and that section simply has nothing to say concerning an allegation that a contract has been rescinded by reason of a verbal misrepresentation, or concerning an allegation that relief under the Trade Practices Act 1974 (Cth) should be available because of a misrepresentation. Insofar as Victor's claim was that the "private agreement" amounted to a collateral contract, section 54A would not provide a defence. An oral contract, which is collateral to a contract for the sale or other disposition of an interest in land, is not caught by section 54A: Angell v Duke (1875) LR 10 QB 174; Boston v Boston [1904] 1 KB 124 at 127; Powercell Pty Ltd v Cuzeno Pty Ltd [2003] NSWSC 600; (2003) 11 BPR 21,385 at [116], 21,413, [119]-[121], 21,414-21,415; Voumard, The Sale of Land, 5th edition, para [2110]. Of course, if Victor was right in saying that the "private agreement" was made, and as a matter of correct analysis that "private agreement" was part of a single agreement of which the Terms of Settlement constituted the other part, section 54A might have had some scope to operate (it is not necessary for me to decide). What matters for present purposes is that that is not the type of case which Victor was seeking to make. 77 I am not persuaded that section 54A Conveyancing Act 1919 provides any reason for making an indemnity costs order. PART B - INTEREST ON COSTS 78 Section 101 Civil Procedure Act 2005 provides: "(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs. (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the court may order." 79 The plaintiffs seek, under those subsections, an order that they be paid interest on such amounts as they have paid for costs and disbursements from time to time, from the date of making each such payment, at the rates prescribed under Schedule 5 of the Uniform Civil Procedure Rules. 80 The evidence in support of that application is quite parsimonious. The plaintiffs provide no evidence of having actually made payments to their lawyers from time to time on account of costs and disbursements, and no evidence of any special arrangements between themselves and their lawyers which might bear upon the exercise of the discretion to award interest on costs. 81 Mr Gyles submits that this lack of evidence means that there is an insufficient evidentiary foundation for the making of the order. I do not agree. The various proceedings which were determined by Palmer J are ones which, now, were commenced over five years ago. The plaintiffs have been represented by various firms of solicitors, and various counsel, in that time. There has been extensive preparation, including by making interlocutory applications to the Court. The litigation is commercial litigation, a species of litigation concerning which there is no regular practice of lawyers accepting work on a speculative basis. In my view it is more likely than not that the plaintiffs have had to pay some amounts of costs and disbursements as the litigation has progressed. Further, even if I were wrong in drawing this inference, the form of order which the plaintiffs seek is one which makes interest on a particular amount of costs run only from the date when an actual payment of that amount is made. If an order in that form were to be made, it would contain its own safeguard against the plaintiffs being able to recover interest concerning amounts of costs and disbursements which they had not actually paid. 82 In my view it is appropriate to make an order for the payment of interest on costs. There is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [10] per Barr J; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [23]-[25] per Einstein J; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10] per Grove J; Davies v Ku-ring-Gai Municipal Council [2003] NSWSC 1010 at [7] per Austin J. 83 To the extent to which the plaintiffs have been out of pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out of pocket in that way: Hughes Bros v The Trustees of the Roman Catholic Church [1999] NSWSC 1051 at [60]; Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [12]; Woods v Woods [2001] NSWSC 1108 at [29]; Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [17]; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10]; Optus Networks Pty Ltd & Ors v Leighton Contractors Pty Limited & Ors [2005] NSWSC 156 at [9]; Roads and Traffic Authority v Cremona (No 3) [2005] NSWCA 13 at [34]. Given the length of time the proceedings have been on foot and the extensive preparation, the amount by which the plaintiffs have been out of pocket could be large. It is relevant that the plaintiffs, and the defendants, each conduct businesses and so the amounts which the plaintiffs have had to pay to finance the litigation is likely to be money which otherwise could have been put to a productive use. Conversely, the defendants, by not being required to pay costs until some time in the future when the costs are agreed or assessed, are likely to have been able to retain, for their own productive use, the amount of those costs. 84 The form of the order for interest on costs has occasioned me some concern. As the plaintiffs have succeeded in obtaining an order for indemnity costs in relation to only one issue in the proceedings, it is possible that there will be some costs and disbursements which the plaintiff has paid from time to time as the litigation progressed, but which are not allowed on assessment. It might sometimes be possible to cast an order in the form of allowing interest only on such costs as the plaintiff has paid as are allowed on assessment - but such an order would require the assessor to conduct what would amount to a separate assessment in relation to each payment that the plaintiffs had made. While the making of such a series of costs assessments would be within the scope of section 353 Legal Profession Act 2004, adopting such a procedure has the potential for making the costs assessment itself more complex and expensive. Further, it sometimes happens in the course of litigation - and the evidence does not tell me whether it has happened in the course of this litigation - that a litigant makes payments to his lawyers from time to time of lump sums on account of costs, without purporting to allocate those payments to particular memoranda of fees or items of work performed. If that had happened in the present case, one could not tell whether the whole or any part of such a payment had been allowed on assessment. 85 In all the circumstances, the appropriate way of calculating interest on costs is to ascertain the total of the amounts which the plaintiffs have paid and are liable to pay for costs and disbursements, ascertain the total amount of costs and disbursements allowed on assessment, calculate the percentage which the total amount allowed on assessment bears to the total costs and disbursements which the plaintiffs have paid or are liable to pay, and allow the plaintiffs interest on that percentage of each payment which they have made from time to time on account of costs and disbursements. 86 I recognise that that method of proceeding contains within it the possibility that the plaintiffs might have paid for some items of work which the assessor discounts considerably or totally. If the plaintiffs had paid such an amount comparatively early in the course of the litigation, and interest was allowed on the percentage of that amount which seems to me to be appropriate, then the plaintiffs would be somewhat overpaid interest, by comparison to the amount that the plaintiffs would receive if individual assessments of each payment made were carried out. Conversely, if the plaintiffs paid for such an item of work comparatively late in the course of the litigation, the method of proceeding which I am proposing to adopt could result in the plaintiffs being underpaid interest, by comparison to the amount that the plaintiffs would receive if individual assessments of each payment made were carried out. However, it seems to me that those possibilities are ones which fall within the ambit of the degree of approximation and estimation which is frequently involved in assessing compensation. I do not regard them as a reason for not following that method. 87 I see no reason for ordering interest to accrue at any rate other than the rate set out in Schedule 5 of the Rules. 88 When judgment is given for a sum of money which is ascertained, it is usual for post-judgment interest to run on that sum of money until such time as the judgment has been paid. An order for payment of interest on costs operates somewhat differently, in that the amount of the costs is not quantified at the time of making of the order. Further, a measure of co-operation is needed to quantify that order for costs. If it were to happen that Joseph's interests were to delay in obtaining an assessment of costs, the result could be that Victor was obliged to pay interest, at the comparatively high rates of Schedule 5, during the period that Joseph was delaying. There is no basis in the evidence for concluding that it is likely that Joseph will delay assessment of the costs, but I do not think it right that Victor should be at risk of having to continue to pay interest if Joseph were to delay assessment of the costs, either deliberately, or through some unplanned happening like illness. I will deal with that possibility by making an order that the interest on costs runs until the payment of the costs is made, or further order, and reserving further consideration of the question of whether interest on the costs should continue to run. Costs of this Application 89 The plaintiffs have had some measure of success on this application, but by no means total success. Only the aspect of their claim for indemnity costs has succeeded. The issue relating to the awarding of interest on costs took up a comparatively small proportion of the evidence, the written submissions, and the hearing time relating to this application. In the course of the hearing I sought submissions from counsel about what their submissions on costs would be if various contingencies eventuated. However, the precise outcome that I have now arrived at was not one of the contingencies concerning which I sought submissions. 90 In accordance with what I understand to be a consensus between the parties, I shall make an order for costs, appreciating that I have not heard the parties on the precise issue which is involved, and reserving liberty to either of them to argue that a different outcome concerning the costs of the application should be arrived at. The Transferred Proceedings 91 Through what I assume to be a slip in the Short Minutes of Order which were presented to Palmer J for consideration after he had dealt with the substance of the claim, no provision was made to dispose of the various proceedings between the parties to this litigation which were transferred into this Court. On the assumption that this omission was indeed a slip, I shall make orders which dispose of those proceedings, and deal with the costs incurred in them. If that assumption is mistaken, I will give the parties the opportunity to make any further submissions they might wish concerning those transferred proceedings, before the orders are entered. Orders

Joseph Lahoud & Anor v Victor Lahoud & Ors

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