Mal Owen Consulting Pty Limited v Ashcroft

District Court of NSW|2017-06-28|Before: Mr J

A. INTRODUCTION

Mal Owen Consulting Pty Ltd ("MO Consulting") retained a solicitor, Peter Ashcroft, to recover a debt. Mr Ashcroft negligently failed to take any steps to do so. Eventually MO Consulting retained a new solicitor and obtained judgment. Despite bankrupting the judgment debtor, a large part of the debt remained unpaid. MO Consulting sues Mr Ashcroft for the loss.

B. ISSUES

Mr Ashcroft admitted a breach of duty. The matter in dispute is what, if any, damages were caused by Mr Ashcroft's negligence. Principally this concerns the extent to which the prospects of MO Consulting recovering the debt were impeded by the delay, or conversely, concerns the prospects MO Consulting had of recovery when Mr Ashcroft was first retained compared to the time when the new solicitor was retained. It raises the following issues: 1. what is the relevant earlier date (or dates), at which the prospects of recovery of the debt are to be compared with those that eventuated; 2. what were the prospects of recovery at the earlier date or dates; 3. which, if any, of the costs incurred by MO Consulting are recoverable; and 4. what is the proper quantum of damages.

(a) BACKGROUND

In 2004 MO Consulting sold a debt collection business to NCS Corporate Services Pty Ltd ("NCS"), a company owned by Peter Bouzanis. Payment was to be by monthly instalments. Mr Bouzanis guaranteed the instalment payments. NCS was late with the payments and by mid-2006, had paid only $50,000 of the $185,000 purchase price. MO Consulting retained Mr Ashcroft to recover the outstanding amount of the purchase price. Mr Ashcroft sent two letters which produced no response.
On 30 October 2006 Mr Ashcroft served a statutory demand on NCS and also sent a draft statement of claim and a copy of the statutory demand to Mr Bouzanis. Mr Bouzanis wrote back on 1 November 2006 stating: "We refer to your facsimile of 30 October 2006. Before you institute the threatened proceedings your client needs to consider the provisions contained in special condition 11 & the Contract regarding dispute resolution. Further we advise that our client has a defence and substantial cross-claim against your client's claim for breach of contract and for misleading and deceptive conduct arising from a breach of warranties contained in the Contract, in particular those contained in special condition 1 therein, and those represented to our client before our client entered into the Contract, upon which our client relied to enter into and complete the Contract. Further your client has failed to cause an assignment of the Westpac Debts with the consent and approval of Westpac Banking Corporation to date. You client's representation and warranties related primarily to the profitability of the business, the value of the business once the business passed to our client's hands and the potential realisation by our client of the Westpac Debts. We suggest at the outset that an informal meeting be held between Mal Owen, yourself and our Mr Bouzanis in your office if you prefer so that the issues in dispute can be canvassed and if possible, a resolution of the dispute reached prior to the parties embarking on costly dispute resolution procedures or court proceedings. Our Mr Bouzanis is available to attend an informal conference on Tuesday 14 November 2006 or Friday 17 November 2006 @ 9.30am. Should your client decline our invitation, we place you on notice that our client will seriously defend the threatened proceedings."
A meeting was arranged for 14 November 2006. Mr Ashcroft filed a copy of the statement of claim on 6 November 2006. Mr Bouzanis, Mr Ashcroft and Malcolm Owen, the director of MO Consulting, attended the 14 November 2006 meeting. Mr Owen said that the following discussions occurred: "Ashcroft: 'How are we going to resolve this matter?' Bouzanis: 'As far as I'm concerned, Mal can have the business back.' Ashcroft: 'That is not acceptable - why do you suggest that?' Bouzanis: 'Because the business is not generating the income that it is supposed to and Mr Owen misrepresented its value.' Ashcroft: 'What do you mean?' Bouzanis: 'The revenue is not the 40,000 per month that it would be and the Westpac Debt is dead.' Owen: [to Ashcroft] 'Peter, there have been no misleading statements by me. This is a fabrication and I do not want to have any further dealings with Mr Bouzanis.' He said: 'Ok Mal, do you mind leaving Peter and I to have a discussion alone?'

I left the room for about 10 minutes. When I returned Mr Bouzanis had left. Mr Ashcroft repeated various threats Mr Bouzanis had made about what would happen if we sued him, I went on to say: Owen: 'Well, we will have to pursue him.' He said: 'Okay.'"

Mr Ashcroft accepted this account. Although it might be supposed that other matters were said, neither Mr Owen nor Mr Ashcroft gave evidence about them. Mr Owen could not recall other matters when asked in cross-examination, and Mr Ashcroft did not record them in his affidavit. Mr Ashcroft was not cross-examined. Evidence about the meeting, given by Mr Bouzanis in an examination hearing, was tendered. Mr Bouzanis said: "I believe we had a mediation in his solicitor's office and I made my position quite clear. At that point in time he withdrew the statutory demand he had served on National Corporate Services… "
On 15 November 2006 Mr Ashcroft wrote to Mr Bouzanis confirming that, "we are instructed to refrain from any further action until Friday 24 November 2006".
On 21 November 2006 Mr Bouzanis sent a fax foreshadowing a settlement proposal to be "submitted by no later than 1.00pm tomorrow". Details of that proposal were not in evidence. However, an offer of settlement was apparently made by Mr Bouzanis. On 1 December 2006 Mr Ashcroft wrote to Mr Bouzanis advising that "your offer is rejected" and that "We are instructed to arrange service after 7 December 2006 unless we receive a further offer that would be capable of being accepted by our client." It might be inferred that the reference to "service" was a reference to service of the filed statement of claim.
On 4 December 2006 Mr Bouzanis emailed a fax stating: "I put to your client for his consideration what I believed to be reasonable offers under the circumstances. I am not prepared to engage in a bidding war with myself. If your client is interested in resolving the matter without resorting to the Courts, I suggest he submits a counter-offer along the same lines for my consideration. You can appreciate that both parties must be willing to compromise their position if settlement is to be reached. I await your reply."
There the correspondence ended for several years. In January 2010 MO Consulting retained a new solicitor, Neville & Hourn Legal. The file was requested from Mr Ashcroft on 12 January 2010, and was sent in late February. On 4 June 2010 District Court proceedings were issued.
On 13 October 2011 NCS was placed into administration and a liquidator was appointed in November 2011. Judgment against Mr Bouzanis was obtained in the District Court proceedings on 31 August 2012, and an appeal by Mr Bouzanis was dismissed on 20 April 2013. On 26 June 2013 Mr Bouzanis was served with a bankruptcy notice and a creditor's petition was issued on 17 September 2013. Mr Bouzanis was bankrupted on 18 December 2013.
MO Consulting apparently had, but lost, the opportunity in late 2006 to take back the debt collection business, as Mr Owen gave evidence that Mr Bouzanis had offered to hand the business back. Any loss occasioned by that decision was unconnected with any breach of duty by Mr Ashcroft.

(b) THE STATUTORY DEMAND

MO Consulting submitted that but for Mr Ashcroft's negligence, MO Consulting could have relied upon the statutory demand served on 30 October 2006. This submission depended at the outset on whether the statutory demand had been withdrawn, or for other reasons could not be relied upon.
Mr Bouzanis' testimony in the examination hearing was evidence that the statutory demand had been withdrawn. No witness in these proceedings gave contrary evidence. There are no documents in evidence that refer to the continuance or withdrawal of the statutory demand.
MO Consulting submitted that because Mr Ashcroft gave no evidence about withdrawing the statutory demand, and because there were no documents to establish it, I should infer that it did not occur. As to Mr Ashcroft's lack of evidence, a similar Jones v Dunkel submission might be made by the defendant about Mr Owen's lack of evidence about the withdrawal (or instructions concerning the withdrawal) of the statutory demand.
The absence of any evidence from Mr Ashcroft on the matter cannot assist him, but it does not prove the contrary. If Mr Owen gave evidence that there was no withdrawal of the statutory demand, the absence of evidence from Mr Ashcroft may have been more significant. But Mr Owen had no recollection of the statutory demand, and it must have been a more significant matter to him as the actual creditor than it would have been to his solicitor, Mr Ashcroft. It would be unsurprising that Mr Ashcroft had no recollection of the statutory demand.
In any event, the absence of evidence from Mr Ashcroft and Mr Owen does not displace the evidence of Mr Bouzanis.
Although the absence of any written record of withdrawal of the statutory demand is curious, it also does not supply the evidence contradicting a withdrawal.
MO Consulting also relied on the circumstance that Mr Ashcroft on 15 November 2006 confirmed his instructions to take no action until 24 November 2006. This date was about the time the statutory demand would expire, perhaps even the final date for compliance with the demand if the statutory presumption for service by post was applicable. I do not regard this circumstance as helpful in inferring that the statutory demand remained on foot. The undertaking to refrain from action with no reference to the statutory demand, if anything, seems to be more consistent with the statutory demand not being on foot. The reference to arranging "service" on 7 December, necessarily referring to the filed statement of claim, also indicates a lack of reliance on the statutory demand.
Further, the surrounding circumstances provide reasons for the statutory demand being withdrawn and thus may provide some support for the conclusion that it was. Mr Bouzanis had, by this stage, or had, at the beginning of November 2006, set out plainly his reasons for challenging the debt. The reasons given by Mr Bouzanis would justify an application by him to have the statutory demand set aside had it not been withdrawn. A successful application by him on the basis of his alleged offsetting claim would have resulted in a substantial costs order against MO Consulting.
Mr Bouzanis was a solicitor like Mr Ashcroft and I would not infer that he was unaware of the significance of the statutory demand. He referred to it unprompted in the examination evidence quoted earlier. It does not seem likely that Mr Bouzanis would have allowed the expiration date on the statutory demand to have passed inadvertently. The parties were engaged in settlement discussions so one might have expected the currency of the statutory demand to be at the forefront of Mr Bouzanis' mind.
In all those circumstances, and especially because of Mr Bouzanis' uncontradicted and unchallenged evidence that the statutory demand was withdrawn, I conclude, on the balance of probabilities, that it was withdrawn.
There may, in any event, be a question about whether the statutory demand could be valid in light of the dispute resolution clause in the sale agreement, a matter referred to by Mr Bouzanis in his fax message of 1 November 2011. But as that matter was not the subject of submissions before me, I do not propose to rely upon it.

As a period of three and a half years had passed between the dates of the filing of the statement of claim by Mr Ashcroft and the commencement of proceedings by Neville & Hourn Legal on behalf of MO Consulting against Mr Bouzanis and NCS, it seems reasonable to assume that if Mr Ashcroft had not been negligent, the proceedings, including the bankruptcy proceedings, would have concluded three and a half years earlier than they did. There was evidence before me that cases in the District Court took a similar period of time to conclude if commenced in 2006 or in later years, and no party disputed the appropriateness of adopting a three and a half year period of delay, subject to the following two matters.
MO Consulting submitted that certain matters may have been different if Mr Ashcroft had acted diligently, including: 1. no cross-claim against Mr Ashcroft would have been filed by MO Consulting; and 2. Mr Bouzanis might have paid the debt voluntarily.
As to (b), there is no evidence to support the likelihood of a voluntary payment by Mr Bouzanis. He did not make a payment earlier (including in late 2006) when the debt would have been smaller (because of a lack of any accrued interest) despite the likelihood of an action in 2006 being apparent to him when he received a draft statement of claim and a statutory demand. This was at a time when, MO Consulting submits, Mr Bouzanis' financial position was much better.
Further, Mr Bouzanis had sent written reasons as to why no more payments would be made. His conduct from 2006 to the end of 2013 consistently indicates both a belief that he was not obliged to pay and an intention not to pay unless forced. In my view, there is nothing to support a conclusion that Mr Bouzanis would have paid any debt voluntarily.
As to (a) above, the cross-claim against Mr Ashcroft requires some explanation. Part of the business that was sold, perhaps a significant part (the contract apportioned almost 90% of the purchase price to it), was a group of debts known as "the Westpac Debts". Mr Bouzanis had, from 2006, alleged that the Westpac Debts had not been validly assigned to NCS, and that position was maintained in a cross-claim filed by Mr Bouzanis in the 2010 proceedings. Prompted by Mr Bouzanis' cross-claim, MO Consulting filed a cross-claim against Mr Ashcroft, in effect alleging that the Westpac Debts were assigned, but if they were not, that was due to Mr Ashcroft's default.
MO Consulting submitted that its cross-claim against Mr Ashcroft would not have been made if Mr Ashcroft had continued acting (diligently) for MO Consulting. There are a number of problems with this proposition.
First, Mr Ashcroft did not need to continue acting in order to discharge his duty. If instead he had told MO Consulting in December 2006 that he was too busy and that another solicitor should be retained, there would have been no breach by him and no damages.
In any event, it seems likely that Mr Bouzanis' cross-claim may have required Mr Ashcroft (if he was acting for MO Consulting) to withdraw from the proceedings, particularly if MO Consulting wanted to assert the alternative case. The withdrawal of Mr Ashcroft would likely have increased MO Consulting's costs of the proceedings and would not have prevented the cross-claim against Mr Ashcroft.
The submission that MO Consulting would somehow have been more confident or better informed in resisting Mr Bouzanis' claim, and thus would not have cross-claimed against Mr Ashcroft, appears to me to lack any evidentiary support. It was not disputed that copies of the deed of assignment were provided to MO Consulting well before the trial. Mr Owen gave no evidence of his beliefs at the time of the filing of the cross-claim so as to enable an inference to be drawn that the cross-claim might not have been filed in the alternative circumstances.
Accordingly, in my view, the proper inference is that the proceedings would have continued in the same manner as they ultimately did (although three and a half years earlier) if Mr Ashcroft had not breached his duty. For these reasons, I conclude, on the balance of probabilities, that had Mr Ashcroft not been negligent, the judgment would have been obtained in early 2009, that the appeal by Mr Bouzanis would have been determined in late 2009, and that Mr Bouzanis would have been made bankrupt in about June 2010.

D. PROSPECTS OF RECOVERY

MO Consulting identified three ways in which it alleged that the prospects of recovery on its action against NCS and Mr Bouzanis would have improved had the proceedings concluded three and a half years earlier: 1. A claim against third parties. 2. The assets of NCS. 3. The wealth of Mr Bouzanis.

(a) THE CLAIM AGAINST THIRD PARTIES

In 2006, about the time Mr Ashcroft was retained, Mr Bouzanis and his then wife, who I will refer to as "Mrs Bouzanis", sold a property owned by them at, and known as, Shiprock Rd. Mrs Bouzanis received $931,000 from that sale. Those funds were used to purchase another property in Mrs Bouzanis' name. Further funds were raised on a mortgage on the new property to renovate or redevelop it. Mr Bouzanis made some payments toward that mortgage. MO Consulting submitted that the trustee in bankruptcy could have recovered some portion of the sum received by Mrs Bouzanis or paid towards her mortgage sufficient to pay all or part of the amount owed to MO Consulting.
Reasoning from the three and a half year delay, Mr Bouzanis would, in the alternative circumstances, have been bankrupt in about June 2010. That would have been within a four (or possibly five) year period of the sale of Shiprock Rd and thus allowed a recovery action in respect of gifts by Mr Bouzanis to his former wife. In any event, MO Consulting relied on the later payments made by Mr Bouzanis towards the mortgage on the property purchased by Mrs Bouzanis.
MO Consulting and Mr Ashcroft accepted that the primary element that must be established is that MO Consulting must show it lost a "valuable opportunity" by reason of the delay occasioned by Mr Ashcroft's conduct (see Badenach v Calvert (2016) 257 CLR 440 at [40]-[41]; [2016] HCA 18).
Whether the possibility of an action by the trustee against Mrs Bouzanis was a valuable opportunity might be doubted.
First, the documentary evidence and evidence from Mr and Mrs Bouzanis at the examination hearing indicated that Mrs Bouzanis did not receive the whole of the surplus funds, only 60%. The other 40%, some $620,000 approximately, was used to repay debts of Mr Bouzanis.
Relations between Mr and Mrs Bouzanis had apparently deteriorated once Mrs Bouzanis became aware of Mr Bouzanis' debts in 2006. She had sought 80% of the surplus funds from the Shiprock Rd sale, but ultimately accepted 60%. As it turned out, the other 40% was not enough to discharge all of Mr Bouzanis' debts. He owed his mother $354,000 for funds she had earlier reluctantly lent him to pay a tax debt that Mr Bouzanis thought might, if it remained unpaid, lead to his bankruptcy. Mr Bouzanis' mother was prepared to lend the money only on terms that the amount would be repaid upon the sale of the Shiprock Rd property. Mr Bouzanis' interest in the sale proceeds only enabled him to pay $300,000 to his mother, and the residue of the debt to his mother was discharged by him borrowing a further $60,000 from one George Geroulis, apparently at a more favourable rate of interest than Mr Bouzanis was paying to his mother. That loan from Mr Geroulis remained owing at the date of Mr Bouzanis' actual bankruptcy in 2013.
In my view, the $931,000 paid to Mrs Bouzanis was a negotiated amount, and a genuine settlement between Mr and Mrs Bouzanis representing 60% of the surplus. It was not to any extent a gift.
Further, even if there were a basis to challenge the receipt by Mrs Bouzanis of the $931,000 as not being a proper calculation of her entitlement but that it included funds belonging to Mr Bouzanis, still it was not open to MO Consulting to pursue Mrs Bouzanis directly. MO Consulting needed the trustee in bankruptcy to take that action, and hope that some of the proceeds that might be recovered would have flowed back to MO Consulting.
In 2013 the trustee considered the same matter and concluded that the evidence in the examination hearing supplied no support for the action, and that it would not be further investigated unless the costs of the investigation and any subsequent proceedings were covered by creditors. There was no evidence or submission suggesting that MO Consulting (or any other creditor) was prepared at any time to fund investigations or proceedings by the trustee. Nor was there evidence to indicate that the attitude of the trustee in 2010 would have been any different to what it was in 2013.
An action in 2010 might not have had all the difficulties arising from the lapse of time that attached to the case in 2013. But it was not apparent that those difficulties impacted upon the trustee's decision. And the significance of any delay is lessened by the reliance that MO Consulting placed upon the later payments towards the mortgage on the new property made by Mr Bouzanis.
In this case, like in the decision of Badenach at [95]-[99], the prospect of recovering any funds or receiving a benefit depended on the decision of a third party. In Badenach, the testator was apparently favourably disposed towards the plaintiff whereas there is no suggestion that the trustee in this case was favourably disposed towards the action. In any event, the circumstance that any proceedings depended on the decision of a third party militates against a finding that there was the loss of a valuable opportunity.
The possibility of a claim for the payments made by Mr Bouzanis in respect of the mortgage on Mrs Bouzanis' property also appeared to lack any foundation. There was no evidence of the quantum of the payments, and any payments seemed to be in respect of a property where Mr Bouzanis was then living (separately from Mrs Bouzanis). It was not established that the payments were made beyond some limitation period and thus there was no basis to conclude that the prospect of recovery from Mrs Bouzanis in respect of them was somehow different in 2013 to what it was in the middle of 2010.
In all the circumstances, I regard the loss of any possible action against Mrs Bouzanis as being so weak as to not be of any value, and in any event, dependent upon a decision of the trustee, which it was not established on the balance of probabilities to be likely to be made in favour of an action.
The trustee also considered a possible claim against Mr Bouzanis' mother in respect of the $300,000 repayment of debt in 2006. But that was not a matter pressed by MO Consulting in these proceedings as a valuable lost opportunity.

(b) THE ASSETS OF NCS

MO Consulting also relied upon the assets of NCS. As indicated earlier, NCS went into administration in October 2011 and shortly thereafter went into liquidation. By that stage, the proceedings brought by Neville & Hourn Legal had been on foot for more than a year and NCS would have been burdened with the legal costs of those proceedings (although, as Mr Bouzanis was the solicitor on the record, those costs might have been less than normal). But had Mr Ashcroft not been negligent, the full costs of those proceedings would have been incurred by 2010. The financial position of NCS would have been worsened by the unpaid purchase price, the costs orders made in favour of MO Consulting, and the expense of its own costs. Inevitably, NCS' financial position would have been worse in 2010 had the proceedings against it been concluded.
MO Consulting referred to the substantial revenue of NCS, some $2,327,022 that NCS had collected from March 2005 to August 2011. The monthly breakdown of that total revenue was, more or less, fairly consistent in the months throughout the period. That revenue did not preclude an administrator being appointed two months later in October 2011, nor did that revenue preclude Mr Bouzanis from offering to hand back the business to MO Consulting in 2006.
It is true that NCS was carrying on a business in 2010, whereas it was not once the actual proceedings brought by Neville & Hourn Legal were concluded. But it would be unrealistic to ignore the impact that the legal costs and the impending result of the litigation (had that occurred earlier) would have had on the financial position and solvency of NCS in 2011.
MO Consulting relied upon the value of NCS. The valuation evidence extended only to 2008 and it was subject to a number of caveats by the valuer.
The valuation was of a fair market value involving both a willing but not anxious buyer and seller. But in this case, the only prospect of a sale seems to have been a forced sale once the proceedings were concluded. According to the purchase contract in 2004, the assets of the business were negligible, apart from the Westpac Debts, some of which were already statute-barred in 2004, which were always viewed unfavourably by Mr Bouzanis, and were of course several years older by 2010.
In my view, NCS likely had no assets in 2010 that could be realised to satisfy a judgment and would almost certainly not have had any such assets if the proceedings and the costs thereof had been finalised by that date.
The circumstances that Mr Bouzanis was willing to hand back the business tends only to confirm that it had no saleable value, even if it was possible for Mr Bouzanis to earn money through the debt collection business under the banner of NCS.

The third opportunity that was allegedly lost concerned the prospect of recovery against Mr Bouzanis personally. Mr Bouzanis' earnings were, in the years up to about 2010/11, less than $100,000 a year. At least a year before he became bankrupt, he ceased operating his business, took employment as an employed solicitor and his earnings in the 12 months before he was bankrupt were approximately $160,000, with a similar expectation for the following year. Those improved earnings did not operate to preclude his bankruptcy. In these circumstances, it is impossible to conclude that on his lower earnings in 2010, Mr Bouzanis' financial position was any better.
MO Consulting relied on lists of Mr Bouzanis' creditors in the Statement of Affairs. The greater proportion of the debts there listed appear to be relatively recent. That does not establish that he had no earlier debts. In particular, a question must arise as to whether any of the debts in 2013 or thereabouts arose because of the discharging of an earlier debt.
Mr Bouzanis' debt to MO Consulting is dated 2013 in the Statement of Affairs, but of course it really dated from about 2004 or 2005: 2013 represented the year when his final appeal was dismissed. Another listed debt was to Mr Geroulis and was dated 2006, although that was the refinancing of an earlier debt Mr Bouzanis owed to his mother. There are other substantial debts listed in respect of the years 2009, 2010 and 2011, and the listed credit card debts might be inferred to have arisen over time. I do not regard the Statement of Affairs in 2013 as evidence that Mr Bouzanis was in a better position in 2010 than in 2013.
MO Consulting also referred to other evidence of Mr Bouzanis in the examination hearing transcript. Mr Bouzanis said that he did not pay the debt because he did not believe anything was owed, but that if he believed otherwise, he could have paid the debt. Yet his debts, indicated by the settlement sheet for the Shiprock Rd property, at least raise a doubt about Mr Bouzanis' ability to pay the debt in 2006 were he so inclined. In any case, whatever was Mr Bouzanis' ability to pay the debt in 2006, it gives no real guide to his ability to pay the debt in 2010.
For all these reasons, in my view, there has been no valuable opportunity lost by MO Consulting, notwithstanding the gross negligence of Mr Ashcroft in not taking appropriate steps to recover debts for MO Consulting and in not advising MO Consulting of his inaction.
Although these findings are sufficient to dispose of the proceedings, I propose to make some comments about the question of quantum.

E. RECOVERABLE COSTS AND QUANTUM

The items of damage claimed by the plaintiff included, among other matters, the principal amount of the debt, the interest on that debt and the costs incurred in obtaining judgment on that debt assessed on a party/party basis. That those three aspects of the claim were properly components of the quantum of damages was not seriously in dispute (in the event that the plaintiff was otherwise successful). However, any award would necessarily depend upon an assessment of the prospects of recovery of those sums in the event that, contrary to my findings, there was found to be a valuable opportunity that was lost.
Two components of damages were in issue: the costs order in favour of Mr Ashcroft on the cross-claim brought by MO Consulting about the assignment of the Westpac Debts, and the costs of MO Consulting in maintaining that cross-claim. Together these items are the costs of the cross-claim.
There are problems with the recovery of these costs.
First, the costs of the cross-claim were the subject of an order of the Court in favour of Mr Ashcroft, ordering MO Consulting to pay them. The inability of a party to recover against another party, as damages, costs they have been ordered to pay that other party in other proceedings between them has been dealt with in the decision of Queanbeyan Leagues Club Ltd v Poldune Pty Ltd & Ors [2000] NSWSC 1100 and also in Avenhouse v Council of the Shire of Hornsby (1998) 44 NSWLR 1. In the latter case, at 36-37, Sheller JA stated: "Had Mr and Mrs Avenhouse obtained an order for costs in the Land and Environment Court, principle would suggest that they could not recover in the present proceedings the difference between the costs assessed and the actual costs or expenses they incurred. Principle would also suggest that if the Land and Environment Court had ordered them to pay the Council's costs, they should not be able to recover their costs as damages in the present proceedings. That would make a mockery of the Land and Environment Court costs order. I see no reason why in the Land and Environment Court it was not open to them to argue in any contest about costs, that the proceedings were necessitated as a result of the Council's conduct…Ordinarily, costs would have followed the event if Mr and Mrs Avenhouse had succeeded, but such material may have been relevant in support of a claim for costs on an indemnity basis."
His Honour then referred to Devlin LJ in Berry v British Transport Commission [1962] 1 QB 306 at 320-321, a judgment on which the plaintiff placed some reliance upon in these proceedings. Sheller JA continued (at 37): "Mr and Mrs Avenhouse having agreed that there should be no order for costs, they cannot, in my opinion, now seek to go behind that agreement by claiming the costs as damages in the present proceedings."
Thus, a party the subject of an adverse costs order in favour of the other party cannot in separate proceedings recover those costs as damages so as to effectively overturn the costs order. If the order is to be overturned, it is to be overturned by an appeal in the original proceedings. Further, matters relevant to who should pay those costs (including matters not raised in the substantive action) may be raised by a party on that costs application.
The plaintiff submits that it could not raise Mr Ashcroft's negligence in the earlier costs application. At that stage, Mr Bouzanis was not bankrupt. MO Consulting could not establish that Mr Ashcroft's conduct in delaying the proceedings had caused a loss to MO Consulting.
It may be that an order in respect of costs in the Ashcroft cross-claim could have been fashioned to delay a costs determination pending the outcome of the bankruptcy proceedings. However, I do not need to resolve this question here because, for the reasons already given, the plaintiff's action must fail. Further, if the matter of costs of the cross-claim was considered afresh, unconfined by any previous costs order, it is likely that MO Consulting would be liable for the costs. The general rule is that costs follow the event, a rule especially apposite in respect of a successful defendant. As Mr Ashcroft would be entitled to his costs of resisting the cross-claim by MO Consulting, notwithstanding his delay, those costs cannot properly be said to have been caused by his delay.
The real cause of the costs incurred by the unsuccessful action against Mr Ashcroft on the second cross-claim is the faulty decision by MO Consulting to maintain that claim. I have rejected the argument that "but for" Mr Ashcroft's negligence those costs would have been avoided, and further, the costs of an unsuccessful claim against himself was not a matter against which Mr Ashcroft was under a duty to protect. Thus, neither s 5D(1)(a) or (b) of the Civil Liability Act 2002 is satisfied in respect of this claimed component of damages (see Wallace v Kam [2013] HCA 19 at [24]-[27]). The circumstance that those proceedings resulted from the arguments advanced by Mr Bouzanis, and that MO Consulting may have been entitled to a Bullock order against Mr Bouzanis, is not to the point.
The evidence was not entirely satisfactory as to what proportion of MO Consulting's costs in the earlier proceedings should be attributed to the primary action and what proportion of those costs should be attributed to the cross-claim. The plaintiff relied upon evidence from a solicitor estimating that the costs of MO Consulting in maintaining its cross-claim might have been about half of the costs ordered to be paid to Mr Ashcroft. The discount of 50% was said to be appropriate because MO Consulting was already a party to the proceedings.
The defendant, Mr Ashcroft, relied upon a costs expert's opinion that on some of the accounts from counsel 35% of the costs were attributable to the cross-claim. This expert reasoned that therefore a figure of 35% across all of the legal costs in the proceedings - a significantly greater sum than the plaintiff submitted - was appropriately attributable to the cross-claim.
Neither approach has much to commend it.
The defendant's approach is defective because there is no evidence as to how the expert determined that any particular costs pertained to the cross-claim rather than the primary claim. The absence of reasoning on this conclusion meant that the requirements of Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 were not satisfied. The circumstance that only some of counsel's accounts were utilised is a further defect in this approach.
Nor is the plaintiff's approach satisfactory.
The costs of a cross-claim are only those costs which are incurred by reason of the cross-claim, which is "only the amount by which the costs of the proceedings have been increased by [the cross-claim]": Mahlo & Ors v Westpac Banking Corporation Ltd [1999] NSWCA 358 at [88]-[89]. Without evidence I might have speculated that perhaps an amount of 10% of the total costs of an existing party is a fair estimate of the costs of this cross-claim.
Although there is a lack of satisfactory evidence from both parties, the likelihood that the costs of the cross-claim were not a substantial part of the costs makes me inclined to adopt the lesser amount submitted by the plaintiff.

F. ORDERS

The orders of the Court, in accordance with these reasons, shall be: 1. Judgment in favour of the defendant. 2. Reserve the question of costs to a date convenient to the parties to be informed to my associate within seven days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 May 2018

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