Mannix v Loumbos Pty Ltd

COUNSEL : A.M. Colefax for the appellants. N/A for the respondent. SOLICITORS : Blake Dawson Waldron for the appellants. Eakin McCaffery Cox for the respondent. CATCHWORDS : Appeal in respect of order for costs - In breach of retainer - Rent review clause. CASES CITED: Oshlack v Richmond River Council (1998) 193 CLR 72 DECISION : See para 20.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL No. 040422/99 PRIESTLEY JA FITZGERALD JA FOSTER AJA

MONDAY, 28 FEBRUARY 2000 JOHN JOSEPH MANNIX & 1 ORS v LOUMBOS PTY LIMITED JUDGMENT 1 FOSTER AJA: This is an application for leave to appeal brought by the claimants John Joseph Mannix and Pamela Enright against the opponents Loumbos Pty Ltd, ("the company"), in respect of an order for costs made by McLachlan ADCJ on 14 May 1999 in proceedings in the District Court of New South Wales Civil jurisdiction. In those proceedings the claimants, who are solicitors, were the successful defendants. The company, the plaintiff in the proceedings, had asserted that they were in breach of their retainer with it and had been guilty of negligence in relation to their acting for it in respect of a lease of premises to be occupied by it. The gist of the claim, as set out in his Honour's careful judgment, was: "They failed to advise the solicitors for the lessor that the plaintiff would not agree to the rent review clauses being maintained in the lease. They failed to advise the plaintiff and obtain the plaintiff's instructions in relation to the rent review clause and represented to the plaintiffs the lease to be executed contained terms that complied with the plaintiff's instructions in relation to the rent review clause."

2 It was an essential component of the complaint that the plaintiff's instructions to the solicitors were that it would not enter into any lease unless the rent review clause was one restricted in its terms to increases limited to the maximum of the Consumer Price Index. The lease into which it entered provided for a 21 per cent increase in rent every two years. It was the company's case that it was not prepared to agree to such a term and only did so because of the negligence of the claimants. 3 It was the claimant's case that the company, through its directors, Mr and Mrs Loumbos had been made fully aware that the lessor was adamant that it would not enter into the lease unless it contained the 21 per cent increase clause and that the company, through Mr Loumbos, had finally agreed to a clause to that effect being included in the lease. 4 The term indeed had been the subject of intense negotiations of which the company had been kept fully informed. 5 The judge's decision involved determinations as to the content of conversations occurring on 14 and 15 June 1990, some eight years before the time of trial. The witnesses for the company were the directors, Mr and Mrs Loumbos, whilst each of the solicitors were witnesses as to the course of relevant events. The lease was executed on 15 June 1990 in the solicitor's office. It appears that Miss Enright had been performing the work for the company but was not present when the lease was actually signed. Mr Mannix was present but could give evidence only as to his usual practice when attending at the execution of such a document by a client. No file note was made of this attendance with the result that the court had to rely upon the memories of witnesses. 6 The learned judge accepted the evidence of Mrs Loumbos to the effect that the lease was not read over and explained by Mr Mannix in Miss Enright's absence. In particular no reference was made to the rent review clause, which had been the subject of discussion the day before between Mr Loumbos and Miss Enright, in circumstances to which I shall shortly make reference. 7 The learned judge made the following observations: "I must say that in the circumstances where Mr Loumbos had maintained until at least the previous day his opposition to such a rent review clause that was contained within this lease, one would have thought that specific instructions would have been obtained from Mr Loumbos in relation to that clause and that clause specifically read to him and his consent to it diarised or noted. This did not occur and the fact that this has not occurred suggests a lack of diligence by the defendants."

8 The case hinged, however, on a conversation the previous day between Miss Enright and Miss Loumbos relating to the rent clause. She had had a conversation with the solicitor for the lessor relating to the clause, in which it was indicated the lessor would not budge from the requirement that the clause provide for the 21 per cent increase rather than one based upon th maximum CPI. She had made a file note, exhibit 7, which the judge accepted as corroborative of her having had such a conversation and of her thereafter, by telephone, advising Mr Loumbos that the lessor would not accept a clause based on CPI or market rental increases. 9 Mr Loumbos had indicated that in the circumstances he had no choice but to accept the lessor's clause. The file note was cryptic. It was in essence an aide-memoire rather than a fully diary note but the effect of it was, nevertheless, quite clear. 10 The judge, despite denials by Mr Loumbos, accepted that the conversation took place. In some respects including Mr Loumbos' demeanour, he had difficulty in accepting Mr Loumbos' evidence. In fact he said that he did not find him a convincing witness. He gave close consideration to the file note, exhibit 7 and said of it: "I am confident in accepting Ms Enright's evidence and accept that she told Mr Loumbos that the lessor would not change the rent review clause and he, on behalf of the plaintiff company accepted that fact and agreed to the terms of the lease in their executed form. I accept that Miss Enright's failure to properly record this change of instruction and take Mr Loumbos to that clause the following day was conduct well short of that expected of a legal practitioner." 11 Thus he found for the defendants but was critical of their handling of the matter in relation to the extent and contents of the file note, exhibit 7 and the conduct involved in their attendance upon the clients in relation to the execution of the lease the following day. He considered these matters in relation to the question of costs. He made the following observations. He observed that he had "disquiet, great disquiet as the conduct of the defendants." He said that: "If I accepted that Mr Loumbos has deliberately maintained these proceedings knowing that he had been advised as I have found, I would have no hesitation in ordering the plaintiff to pay the defendant's costs. I am not so convinced and when one looks at the conduct of the defendants and the evidence which I accept that when they signed the lease, it was not explained to them. The rent review clause which had been in dispute until the previous day was not read to them. No attempt was made by the defendants to properly bring their mind to the wordings of the lease.

Additionally the failure to properly reflect the changed instructions by way of having those signed or properly diarised, which would be readily identifiable to the new solicitors for the plaintiff when they obtained the file, lead me to the view that the appropriate order for costs was that each party bear their own costs of the action." 12 That cost order is of course the subject of this application. It was made in the exercise of a discretion. The claimants must demonstrate that the discretion miscarried because of some breach of principle in its exercise. Although the discretion is a wide one, it must be exercised judicially. It is usual for a successful party to be awarded costs unless disentitled because of some misconduct on its part in relation to the litigation. 13 In Oshlack v Richmond River Council 1998 193 CLR 72 McHugh J at 9798 having indicated that:- "Subject to certain limited exceptions a successful party in litigation is entitled to an award of costs in its favour" stated the position as follows: "The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Papphos Wine Industries Ltd (105), Devlin J formulated the relevant principle as follows: "No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct." "Misconduct" in this context means misconduct relating to the litigation (106), or the circumstances leading up to the litigation (107). Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation (108); unnecessarily protracts the proceedings (109); succeeds on a point not argued before a lower court (110); prosecutes the matter solely for the purpose of increasing the costs recoverable (111); or obtains relief which the unsuccessful party had already offered in settlement of the dispute (112)." 14 His Honour was in dissent in that case but I do not understand there to have been any disagreement in the court as to this statement of general principle. 15 Was there then any conduct established which could qualify as relevantly disentitling in the present case? Was the criticised conduct of the claimants capable of negativing entitlement to an order for costs? As has been seen, the criticisms were two in number: firstly a failure to make a full and extensive file note of the telephone conversation on 14 June and secondly failure to focus on and explain the rent review clause when attending at the signature of the lease the following day. Could either of these matters amount to lax conduct effectively inviting the litigation, within the meaning of the quotation that I have made from the judgment of McHugh J. 16 As regards the first, the thrust of his Honour's criticism as I apprehended is that a fuller diary note when discovered might well have induced the opponent's new solicitors to advise the opponent that it would be unwise to bring the action. I am not satisfied that the cryptic nature of the diary note could establish misconduct of this kind in relation to this litigation. 17 There was no reading of it in my view which could suggest that it in any way favoured the opponent's case, that no discussion of the lessor's attitude to the rent clause had taken place. It could not have "fuelled" Mr Loumbos' desire to litigate, a phrase used in the recorded discussion between bench and bar. 18 As to the failure to discuss the rental clause at the execution of the lease, although this was perhaps regrettable, it had in my view no demonstrable effect upon the opponent's decision to go ahead with the case. The matter had been discussed the day before in circumstances where, as his Honour found, the Loumbos' understood the position and gave instructions to accept the lessor's terms. Failure to advert to the matter the following day could not, in my view, amount in the circumstances to disentitling misconduct on the part of the solicitors. 19 With great respect, I consider that the discretion exercised by the learned trial judge miscarried on this occasion. 20 The cost order should be set aside. Accordingly I would propose that leave to appeal be granted, the appeal be upheld with costs and there be substituted for the order made below an order that the plaintiff pay the defendant's costs of an incidental to the proceedings. 21 PRIESTLEY JA: I agree. 22 FITZGERALD JA: I agree. 23 PRIESTLEY JA: The Court makes the orders as proposed by Justice Foster.

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