Lerama Pty Ltd v Wortho Pty Ltd

PARTIES : Lerama Pty Limited (P) Wortho Pty Limited (D)

COUNSEL : L Gor (P) J F Kildea (D)

SOLICITORS : Thomson Playford (P) Thompson Norrie (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1999/08 LERAMA PTY LIMITED v WORTHO PTY LIMITED JUDGMENT 1 HIS HONOUR: This case concerns whether the Court ought allow the enforcement of an agreement that was come to in settlement of proceedings for the creation of an easement under s 88K of the Conveyancing Act 1919 ("the CA"). The provision of the CA most relevant to these proceedings is s 88K(5): "(5) The costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary". 2 The plaintiff and the defendant in this case negotiated over some period for the settlement of the proceedings. In the early part of the negotiations the proposals that passed to and fro contained provisions for the grant of an easement and separate provisions for the payment of compensation and of costs. It was clear in those early drafts that the costs would be payable immediately or within some short time of the making of the orders incorporating the agreement. 3 That provision could not be said for to have flowed into the final agreement, because there was a substantial break in the negotiations when the plaintiff threatened to discontinue the proceedings. The draft notice of discontinuance that it put forward, not surprisingly, contained a provision for the payment of the defendant's costs by the plaintiff, which one would expect to be there, both under s 88K(5) and under the discontinuance rules. 4 Negotiations then resumed and further draft consent orders were put forward by the defendant's solicitor which contained the following provision as to both compensation and costs: "(4) On delivery to the plaintiff of the executed plan of easements and s 88B Instrument as set out in Order 3 above, the plaintiff shall pay to the defendant compensation some of $17,500 together with the sum of $19,300 being the agreed costs and disbursements (including expert engineering witness fees) of the defendant incurred up to and including 24 July 2008 pursuant to s 88K(4) of the Conveyancing Act 1919 as amended."

In order 5 separate provision was made for the defendant's subsequent costs of the proceedings. Although these costs were to be paid promptly, one would not think that they would be great in the circumstances contemplated by the proposed agreement. 5 The plaintiff accepted these orders. They were made by consent on 13 August 2008 and entered on that day. The defendant's solicitor has sworn an affidavit in which he deposed: "In redrafting the Consent Orders on or about 8 August 2008 I inadvertently failed to turn my attention to the following circumstances:

(a) that development of the land benefited by the easement might not proceed in the foreseeable future;

(b) the provision for payment of costs at the time of the settlement of the formal grant of easement, overlooked that such settlement might not occur;

(c) there would then be no obligation on the part of the grantee to pay the agreed costs until that settlement did occur;

(d) the grantee might dispose of the property benefited by the easement without undertaking the works." 6 His word has not been challenged and there is no reason why I should not accept that he cast the draft consent orders in the form he did as a result of the mistake he deposed to. One aspect of the mistake was that the payment of the bulk of the defendant's costs of the proceedings would be paid late. However, in my view, much more serious is the consequence that the defendant's costs of the proceedings to date might never be paid, since it was quite open to the plaintiff, for any number of reasons, not to proceed with the acquisition of the easement, in which case the date for the payment of the costs would never arrive. I should add at once that the evidence suggests that the plaintiff is proceeding with the proposal to put the easement in place, but that does not alter the correctness of what I have just said. 7 The plaintiff's solicitor in his affidavit does not advert to whether or not he perceived or contemplated that there was a mistake that had been made by the defendant's solicitor in the drafting of the orders. He does depose: "On or about 11 or 12 August 2008, I telephoned Brian Wilson. In our discussion I recall that Brian Wilson said words to the following effect:

'I am pleased that there is no date for commencement of the construction works and the granting of the easement. The fact that the fees and compensation are to be paid after the construction work is finished is also a big consideration in deciding to agree to the draft orders. I am happy with those orders. Please proceed.'"

It is apparent from this that the plaintiff's solicitor was aware that his client perceived the postponement of the time for payment of costs as an advantage, so that the solicitor's attention was drawn to the particular provision. Beyond that the solicitor, perhaps coyly, does not divulge his thoughts concerning the form of the provision. 8 Various authorities have been cited to me. Some of them deal with the question of the requirement for the establishment of unilateral mistake as the basis for the setting aside of a contract. This doctrine was the subject of exposition by the High Court in Taylor v Johnson (1983) 151 CLR 422. It can have operation in the area of contracts to settle legal proceedings, as is demonstrated in the judgment of Barrett J in Mohamed v Farah [2004] NSWSC 482. 9 However, I do not think that that is the principle that is relevant in this case. The principle that I believe to be relevant here is that stated by Finlay J in Lewis v Combell Constructions Pty Limited (1989) 18 NSWLR 528. His Honour there stated at 538: "What I perceive to be the relevant principle in the category of cases into which this matter falls is that in an appropriate case, especially before judgment is made, the overriding interests of justice and the court's concern over its own procedure may mean that the court will not enforce a contract. Of course, contracts made during the court's process to settle, if they are bona fide and not affected by any error, will normally be enforced. But I repeat my previous observation that whenever parties agree to a compromise of litigation they do so subject to the procedures of the court which include the possibility that the court may consider it unjust to enforce the terms of settlement or that it is in the interests of justice that the matter proceed to trial.

In my view the overriding principle with which the court is here concerned is the interests of justice in all the circumstances."

The facts of that case were that, during negotiations for settlement of a personal injuries case, the plaintiff's solicitor without explanation substituted as the monetary amount of the settlement $127,000 for $227,000. The findings that were made concerning this by Finlay J at 535 were as follows: "(4) That the defendant's solicitors have not been shown to have been aware that the figure of $127,000 was a mistake although they did contemplate that it may have been a mistake.

(5) That a reasonable solicitor in the position of the solicitors for the defendant, with knowledge of the same facts, would have considered the figure of '$127,000' was likely to have been a mistake and in consequence would have drawn that matter to the attention of the solicitors for the plaintiff." 10 In my view the correct test in this case is, in terms of what Finlay J found in Lewis v Combell, whether a reasonable solicitor in the position of the solicitor receiving the offer, with knowledge of the same facts, would have considered that the provision for deferment or possible non payment of the costs was likely to have been a mistake and in consequence would have drawn that matter to the attention of the opposing solicitor. 11 That the principle in Lewis v Combell is in fact embedded in the law was recently acknowledged by the Court of Appeal in Bartlett v Coomber [2008] NSWCA 100. In that case, Mason P said at 28: "The exceptional power to decline enforcement by court order of a compromise agreement made by lawyers acting with ostensible authority was not in dispute. It is unnecessary to explore its outer limits. The overriding principle is that the court is concerned with the interests of justice and cannot allow its processes to become an instrument of injustice or abuse (see generally Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528; Mohamed v Farah [2004] NSWSC 482)."

Bryson AJA said at 88: "The third is the power of the Court to decline to make orders giving effect to a compromise where it is unjust to enforce the compromise or it is in the interests of justice that the matter proceed to trial. This power is associated with and illustrated by Harvey v Phillips (1956) 95 CLR 235 and Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528. Exercise of this power is often associated with the existence or the manner of exercise of the authority of counsel in making a compromise; there is no such question here. The Trial Judge considered this power and did not act on it. Although this power is mentioned in written submissions on behalf of the appellant, oral submissions do not rely on it. I do not think that it is involved in the appeal. The facts of this case could not be seen as presenting an enormity of the kind which leads the Court to act."

The word "enormity" used by Bryson AJA has perhaps an element of hyperbole, but it emphasises that for the mistake to be operative it must be a serious one. 12 That there is an inherent jurisdiction to set aside a judgment even if entered was confirmed by the Court of Appeal in Newmont Yandal Operations Pty Limited v The J Aron Corporation & The Goldman Sachs Group Inc [2007] NSWCA 195. 13 In my view, this is a case closer to the borderline than Lewis v Combell. The unexplained "error" is not as graphic as the reduction of damages from $227,000 to $127,000 in that case. However, the plaintiff's solicitor did receive a fresh form of proposed consent orders which, unlike any of the previous proposals discussed between the solicitors, did not provide for the immediate or prompt payment of the bulk of the defendant's costs, but put the date of payment into the indefinite future and, worse, as I have said, made it possible that those costs would never be paid. This was against a background where, previously in negotiations between the parties, the immediate or prompt payment of those costs had been contemplated. What is more, an important part of the background is that s 88K(5) of the CA stipulates that generally the defendant in s 88K proceedings must have its costs paid by the plaintiff. 14 Against that background, it seems to me that for a proposal to be put forward whereby the payment of those costs was not only inevitably delayed, but possibly negatived, would have caused a reasonable solicitor in the position of the plaintiff's solicitor to consider that the proposal concerning those costs was likely to have been a mistake, and therefore to have been under an obligation to draw that matter to the attention of the opposing solicitor by enquiring whether that was intentional or the consequence of a mistake. 15 In those circumstances, it seems to me that the jurisdiction to set the agreement aside under the principle enunciated by Finlay J is enlivened. The matter is in a borderline area. I have been reminded by Mr Gor, of counsel for the plaintiff, that the requirements of justice to be taken into account must contemplate justice to the plaintiff as well as to the defendant. Despite this, I have come to the conclusion that the dictates of justice in this case require that orders 4 and 5 of the orders of 13 August 2008 ought be set aside in whole or in part. 16 I have been urged by Mr Kildea, of counsel for the defendant, that the next step that I should take is the making of replacement orders containing a more rational provision as to the payment of costs. Although I do not doubt that Newmont Yandal confirms that there is an inherent jurisdiction in the Court to vary, as well as to set aside, orders, I do not think that that is appropriate in this case. The effect of taking the step that Mr Kildea proposes would not be to alter an order that erroneously states a term of an agreement which the parties had come to to correspond with the real agreement. In the end, the parties did not come to an agreement that provided for the immediate payment of costs and, indeed, the evidence is that the plaintiff, in coming to the agreement he did, was motivated in part at least by the delay in the payment of costs. It is not for the Court to formulate what it regards would have been a rational agreement between the parties and impose it on them. That would be the effect of acting in the way that Mr Kildea has proposed. …oOo…

[Discussion as to costs] 17 In these reasons for judgment on the motion in this case, whilst the orders finally to be made have not been formulated, I have indicated that in my view the defendant should succeed upon its motion to the extent that it is entitled to have the orders the subject of its notice of motion set aside or at least varied. It is true, however, that it will not get the whole of the relief it seeks, because I have indicated that I should not substitute the alternative orders which it desires to see in place for the orders to be set aside or varied. 18 Without at the moment proceeding to determine the final form of orders, I am asked against this background to determine the costs of this motion, upon which the parties cannot agree. There are two competing principles that have been laid before me. One is the old indulgence principle. That is, that a party who seeks an indulgence, for example, to set aside a judgment which has been entered up by default, must pay for the motion to have it set aside, even though it succeeds and succeeds against the opposition of the other party. The other is that, overall, the ordinary principle ought apply that the successful party in an application is entitled to its costs, despite the motion being in effect for an indulgence; if it were proper for the indulgence to be granted, the other side could have conceded that. This is reinforced by the suggestion that the reason for the defendant's success on the motion is that I have assessed that the plaintiff's solicitor ought as a reasonable solicitor have concluded that it was possible there was a mistake in the document that was put to him. The indulgence principle has been a little in decline in recent years. However, it does still exist, and, as is the case upon the motion itself, the case is in a borderline area and the decision is a close one. 19 However, I take the view that the entire situation was caused by a mistake by the defendant's solicitor, which he has properly and frankly conceded. The plaintiff has been put to the costs of the motion by reason of that mistake. Despite its resistance to the relief sought, I am of the view that in the circumstances the defendant ought pay the plaintiff's costs of the motion.

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