Solicitors:
Masterton Homes (Plaintiff)
Keystone Lawyers (Defendants)
File Number(s): 2015/370147
[2]
Judgment
HIS HONOUR: This is an application by the plaintiff, Masterton Homes Pty Limited, for orders under s 99 of the Civil Procedure Act 2005 (NSW) against the first respondent, Mr Lou Stojanovski and the second respondent, Keystone Lawyers Pty Ltd that they be ordered to pay the costs and disbursements incurred by Masterton Homes in these proceedings.
Gross sum costs orders were also sought and I have been told that the parties have agreed upon an appropriate quantum of costs if Masterton Homes succeeds in its application against Mr Stojanovski and Keystone Lawyers Pty Ltd. Mr Stojanovski is the sole director of Keystone Lawyers Pty Ltd and he carries on his profession under the name "Keystone Lawyers".
The defendants to the proceedings are a Mr and Mrs Grabic.
The proceedings against them have been discontinued by leave, on their giving certain undertakings to Masterton Homes. The proceedings were discontinued on the basis that there be no order as to costs as between Masterton Homes and Mr and Mrs Grabic.
The application arises from an e-mail written by a solicitor employed by Keystone Lawyers, a Mr Tony Burke, on 9 December 2015. It was the writing of that e-mail that prompted Masterton Homes to commence the proceedings against Mr and Mrs Grabic.
Section 99 of the Civil Procedure Act provides:
"99 Liability of legal practitioner for unnecessary costs
(cf Act No 52 1970, section 76C; SCR Part 52A, rules 43 and 43A)
(1) This section applies if it appears to the court that costs have been incurred:
(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or
(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.
(2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following:
…
(c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party."
The issues are, first, whether Mr Burke's conduct was serious neglect, serious incompetence or serious misconduct within the meaning of s 99(1)(a).
Secondly, whether to fall within s 99 the impugned conduct of the legal practitioner must be engaged in in the conduct of the litigation in question, rather than its being conduct that provides the factual basis for the commencement of litigation.
Thirdly, whether Masterton Homes' costs of the litigation have been incurred "by" the solicitor's impugned conduct and, fourthly, relevant discretionary considerations.
The background to the application is as follows.
On 8 April 2015 Mr and Mrs Grabic commenced proceedings in the District Court against Masterton Homes.
They sought damages of a little under $170,000 in respect of alleged defective building work to their house.
They pleaded that they purchased their residential house in Fletcher in September 2003.
They pleaded that the house had been designed and constructed by Masterton Homes and that the works had been carried out by Masterton Homes in about the years 1999 to 2000.
They alleged a duty of care owed to them as a subsequent purchaser of the house.
They alleged that in about December 2012 they observed deflection in the plasterboard ceiling above the kitchen area of the house and they allege that a consulting engineer's report dated 14 October 2014 had identified various defects in relation to the design and construction of the roof. They allege that the roof had serious defects as detailed in the consulting engineer's report and required extensive rectification.
The damages claimed were for the costs of the rectification to the roof.
On 8 July 2015 lawyers acting for Masterton Homes, Lee & Lyons, wrote to Mr Burke at Keystone Lawyers on a 'without prejudice basis save as to costs'. Lee & Lyons noted the nature of the Grabics' claim and said:
"Having regard to the application of sections 109ZI and 109ZK of the Environmental Planning and Assessment Act 1979 supported by The Owners Strata Plan 56963 v Australand [2011] NSWSC 710, we consider your client's claim is statute barred and has no reasonable prospects of success.
Accordingly, we invite your clients to enter into consent orders for the dismissal of the Statement of Claim on the basis of a verdict and judgment for our client against your clients with each party to pay their own costs of the proceedings."
Section 109ZK of the Environmental Planning and Assessment Act 1979 (NSW) relevantly provides:
"109ZK Limitation on time when building action or subdivision action may be brought
(1) Despite any Act or law to the contrary, a building action may not be brought in relation to any building work:
(a) more than 10 years after the date on which the relevant final occupation certificate is issued, or
(b) in a case where no final occupation certificate is issued, more than 10 years after:
(i) the last date on which the building work was inspected by a certifying authority, or
(ii) if no such inspection has been conducted, the date on which that part of the building in relation to which the building work was carried out is first occupied or used."
"Building action" is defined in s 109ZI as meaning:
"An action ... for loss or damage arising out of or concerning defective building work.",
and "building work" is defined as follows:
"building work includes the design, inspection and issuing of a Part 4A certificate or complying development certificate in respect of building work."
In The Owners Strata Plan 56963 v Australand [2011] NSWSC 710 McDougall J said (at [16]) that:
"... building work means any physical activity involved in the erection of a building and includes the design of that building, and the other matters referred to in the extended definition in s 109ZI."
His Honour said at [18]:
"The purpose of s 109ZK was to provide a 'drop dead' date after which actions might not be brought if they fell within the definition of 'building action'. In other words, it seems to me, s 109ZK(1) looked forward, and not backwards. I thus do not think that it is appropriate to regard it as retrospective legislation. To the extent that any rights had accrued as at 1 July 1998, those rights continue to be enforceable. All that s 109ZK(1) did was impose a time limit for the enforcement of those rights."
Mr and Mrs Grabic accepted Lee & Lyons' offer on 7 October 2015.
Judgment was entered by consent in the District Court in favour of Masterton Homes and against Mr and Mrs Grabic with the parties to pay their own costs.
The full terms of the consent judgment were:
"1. Verdict and judgment for the defendant against the first and second plaintiffs.
2. Each party to pay their [sic] own costs of the proceeding.
3. Terms not to be disclosed."
On 9 December 2015 Mr Burke sent the following e-mail which is the basis of the present application. The e-mail was sent to Ms Michelina La Tella who is the in-house solicitor for Masterton Homes.
Mr Burke wrote:
"We refer to the above matter and our brief discussion on this day.
As we are both aware, legal proceedings have been dismissed leaving our client with a defective roof that must be repaired.
We have been instructed to notify Masterton Homes directly that in the absence of a legal remedy, our client has decided to resort to a media campaign.
The title of the campaign will be 'Should your roof last longer than 10 years?'.
We are instructed that our client intends to engage all available media resources (TV, Radio, Newspaper, Facebook, Twitter, YouTube…...) as a means of communicating to the wider public the situation they are left in. The roof is to be replaced in the coming months and video footage and photos of the defective roof work will be made available.
Furthermore, our client intends to submit to Fair Trading that a consumer warning being listed for all Masterton Homes in relation to the possibility of defective roofs.
Finally, our client will pursue a course of action to promote changes to the current legislation to remove the 10 year time bar encountered in their case. This will undoubtedly be a drawn out process, with the Masterton built home remaining at the forefront of submissions
We are instructed that our client will consider refraining from the abovementioned actions by way of Deed of Settlement & Release if Masterton are willing to provide compensation to cover rectification and legal costs incurred.
As discussed, the writer is available to meet directly with you if Masterton are willing to engage in the proposed settlement.
We await your response."
Ms La Tella responded to this e-mail promptly. She said amongst other things:
"This letter is to be read as being addressed to your clients, Zoran and Louise Grabic and yourselves as their legal advisors who appear to have promulgated and acceded to instructions designed to cause economic duress and/or cause damage to Masterson's reputation and business.
I confirm that the proceedings to which you have made reference were proceedings commenced by your clients in the Sydney District Court on 8 April 2015 in respect of which a Consent Judgment was entered by the Court on 1 October 2015.
In Light of the terms of the Consent Judgment we consider the matters set out in your email as a threat to obtain consent to an act of injurious falsehood to cause economic loss and/or defame the business of Masterton and its reputation. If your clients proceed with the threatened course of action outlined in your email Masterton will suffer economic loss and damage.
Further, the matters set out in your email are a breach of your professional, moral and ethical obligations as a legal practitioner of the Supreme Court of New South Wales. These are, in our view, very serious matters casting doubt on your integrity as a solicitor and the expectations of the acceptable conduct of a legal practitioner.
In light of the seriousness of the matters set out in your email we require your express written irrevocable undertaking that you and your clients will not action any of the matters averred to in your email of 9 December 2015 or otherwise cause damage or attempt to cause damage to Masterton or any of its employees or agents. Such undertaking is to be on terms acceptable to Masterton.
Should you not agree to provide this written irrevocable undertaking by 4 pm on Friday, 11 December 2015 we will seek injunctive relief from the Supreme Court of New South Wales Sydney on a forthwith basis. Should this become necessary we advise that we will also be seeking appropriate Costs Orders against your clients."
On the same day Keystone Lawyers asked Ms La Tella to identify the terms of the consent judgment on which she relied, to identify the falsehood that she alleged would constitute an act of injurious falsehood, and to identify the basis on which it was said that the solicitor had acted in breach of his professional, moral and ethical obligations.
There was no substantive response to that request save that in response to Keystone Lawyers' request that Miss La Tella identify the falsehood to which she referred to when referring to "an act of injurious falsehood", Masterton Homes simply said that:
"If your clients proceed with the 'threatened media campaign' this will result in economic loss and damage to Masterton's business and reputation."
On 17 December 2015 Masterton Homes filed a summons in court. An order for short service was made bringing the matter back before the Duty Judge on 18 December.
By its summons, Masterton Homes sought, amongst other things, an order restraining Mr and Mrs Grabic from publishing any statement, including, but not limited to, photos, video footage or advertisement by way of any media resource that described Masterton Homes' work as defective or possibly defective, or which roof work is defective or possibly defective, or that described its building practice as warranting changes in current legislation, or otherwise suggested that the defendants had any claim against the plaintiffs in respect of defective or potentially defective works, or to engage in any media campaign by way of unfavourable comment, or made any representations whatsoever nature concerning Masterton Homes' business operations.
The summons and supporting affidavit was served on Keystone Lawyers who advised they did not have instructions to accept service of the proceedings. The matter came before Bergin CJ in Eq on 18 December 2015. The matter was stood down in the list and her Honour directed that the plaintiff's solicitor ring Mr Stojinovski and ask him what he intended to do about the case and to advise him that the matter was before her Honour at 2 o'clock and he should either be present or indicate to the Court what was the attitude to the application. Mr Stojinovski repeated his earlier advice to Ms La Tella that he did not hold instructions for Mr And Mrs Grabic in relation to the matter and he requested that the plaintiff direct communications to them directly. He sent an email at 1:22pm on that day to Ms La Tella stating:
"As discussed and as per our email of yesterday we do not hold any instructions in this matter. We emailed the summons to Mr And Mrs Grabic yesterday and have not had any contact from them in response. Please inform the Court we request that any further communication relating to these proceedings be forwarded direct to Mr And Mrs Grabic."
There was thus no appearance for Mr And Mrs Grabic that afternoon. Bergin CJ in Eq dealt with the plaintiff's application for interlocutory injunctive relief and ordered that on the plaintiff giving the usual undertaking as to damages the defendants be restrained up to 19 February 2016 from publishing any statement including but not limited to photographs, video footage advertisement or by way of any other media resource which described the plaintiff's work as defective or possibly defective the plaintiff's building practice as warranting changes in the current legislation or otherwise suggesting that the defendants have a claim against the plaintiff in respect of defective or potentially defective works on the property at Fletcher.
In her Honour's reasons she said:
"However, the media campaign that was planned or at least heralded in Mr Burke's email of 9 December 2015, seems to suggest that the very same things were to be the subject of publication, notwithstanding that the defendants had agreed (without prejudice of course) to the entry of judgment in the District Court.
What Mr Burke's email seeks to do, on one view of it, is to exact a reprisal against Masterton Homes because Masterton Homes was successful in the District Court (see Clarkson v Mandarin Club Limited (1998) 90 FCR 354). Another characterisation of it is that, through their lawyer, they have managed to threaten an exposure in public in a manner that is undefined, so far as the alleged defects are concerned, but clearly one that is a very large campaign indeed.
If it is the case that the roof is defective and the defects were not known of until 2014, and they could not have been ascertained or identified prior to that time, then the defendants could have proceeded to propound their case in the District Court, notwithstanding the statutory bar. They were, of course, advised by lawyers at the time and decided that judgment should be entered for Masterton Homes by Consent Judgment. To now resort to a threat of public pillorying of the plaintiff to extract from it an agreement to pay for the rectification of the roof may amount to exacting the reprisal to which I have referred. I am satisfied that there is a serious issue to be tried in respect of that matter.
The plaintiff also seeks to file and serve a Statement of Claim in which it seeks to propound a claim of publication of injurious falsehood. I intend to make orders for the filing and service of the Statement of Claim. I am also satisfied that there is a serious issue to be tried in respect of that aspect of the plaintiff's proposed claim.
I should say that it is very important for this Court not to restrain freedom of speech. However, the circumstances of this case lead me to the conclusion that the balance of convenience favours the making of some order to prevent publication of the proposed detail of that publication and the proposed method of that publication, without giving to the plaintiff 14 days' written notice of the content of any proposed publication and the medium by which such publication is proposed. I intend to impose that restraint until the matter is returnable before the Court in due course in the new term, with liberty for the defendants to apply should they wish."
Her Honour directed that Mr Burke of Keystone Lawyers appear in court on 4 February, that being the date to which the proceeding was stood over. On 4 February 2016, Bergin CJ in Eq expressed concern that the threat contained in the email of 9 December 2015 should have been made, "in the circumstances" with the imprimatur of the lawyer. However, the matter was not taken further at that stage. The plaintiff had indicated its intention to seek costs orders against the solicitors.
Mr Stojinovski was later instructed to act for Mr And Mrs Grabic in relation to the settling of the terms of undertakings that Masterton Homes sought as a basis for settlement to the proceeding and to settle the terms of the notice of discontinuance that was proposed.
On or about 2 February 2016 Mr And Mrs Grabic executed undertakings, called irrevocable undertakings, by which they agreed to refrain from publishing any statement including but not limited to photographs, video footage, advertisement or by way of media resource which described any work of Masterton Homes or any Masterton group company work as defective or possibly defective or that Masterton Homes building practice warranted changes in current legislation or otherwise suggesting that they might have a claim against Masterton Homes or any Masterton Group Company in respect of defective or potentially defective work on the Fletcher property. The proceedings were discontinued a short time later.
It is well settled that the power to make costs orders against legal practitioners in s 99 of the Civil Procedure Act like the inherent supervisory jurisdiction of the Courts over legal practitioners is a power to be exercised sparingly, having regard to the public interest that lawyers not be deterred from pursuing their clients' interests by fear of incurring a personal liability to their client's opponents, and also to discourage argument about costs lest the remedy be more damaging than the disease (Ridehalgh v Horsefield [1994] Ch 205 at 266; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 at [91]).
But the first question is whether the jurisdiction can be engaged on the present facts. As can be seen above, the primary basis upon which Bergin CJ in Eq considered that there was a serious question to be tried warranting the grant of an interlocutory injunction was that the threat of a media campaign and of lobbying the Department of Fair Trading might have been a reprisal against the outcome of the proceedings in the District Court that was adverse to Mr and Mrs Grabic. To embark upon such a campaign as a reprisal would be a contempt of court (Clarkson v Mandarin Club Ltd (1998) 90 FCR 354).
But on the present application it is not suggested that Mr Stojinovski or Mr Bourke were motivated by a desire to exact a reprisal. Nor was it suggested that they were acting to assist Mr and Mrs Grabic to exact reprisal on Masterton Homes.
What then was the serious misconduct relied upon for the purposes of s 99(1)(a)? Counsel for Masterton Homes identified it as the threat of the Grabics' committing the tort of injurious falsehood. The letter from Ms La Tella of 10 December 2015 had also identified the threatened media campaign as a threat to defame the business of Masterton and its reputation. It was not suggested on this hearing that Masterton Homes could have a cause of action in defamation having regard to s 9 of the Defamation Act 2005 (NSW). And in relation to the claim that Keystone Lawyers were lending their aid to a threatened tort of injurious falsehood, one comes back to the unanswered question raised by Keystone Lawyers as to what was the alleged falsehood. It might or might not be the case that the Grabics' house contains serious defects that are attributable to faulty design or construction by Masterton Homes requiring the replacement of the roof after about 12 years. That was the Grabics' contention. There is no evidence on this application to demonstrate that that contention was false. It is an essential element of the tort of injurious falsehood that the defendant publish a statement which is false. (See generally Palmer Bruyn & Parker Pty Ltd v Parsons [2001] HCA 69; (2001) 208 CLR 388.)
Malice is also an essential element of the cause of action. The email of 9 December threatens a media campaign which could be anticipated to be adverse to Masterton Homes and damaging of its reputation. It also appears that the threat was made to seek to induce Masterton Homes to provide compensation to recover the costs of rectifying the alleged defects and legal costs that had been incurred in the District Court proceedings. But those facts do not by themselves suggest a threatened commission of a tort of injurious falsehood. Nor, contrary to the suggestion of Masterton Homes in Ms La Tella's letter of 10 December 2015, was there anything in the terms of the consent judgment entered in the District Court which either expressly or by implication prevented Mr And Mrs Grabic from continuing to make complaints about the quality of the design and construction work on their house.
Nor would there be any basis for alleging that the Grabics' proposed or threatened to commit a civil tort of conspiracy, either to commit an unlawful act with the intention of harming Masterton Homes' trade or business, or with the predominant object of so harming the plaintiff. Indeed to the contrary, the concluding part of the email suggests that the dominant object of the Grabic's was to obtain compensation to which they claimed a moral entitlement, but for which they have no legal redress because of the expiry of the limitation period.
Could it then be said to be serious misconduct of the solicitor to lend his assistance to his clients in their endeavour to obtain compensation for which they had no legal entitlement, but for which, if their version of the facts is correct, they could plausibly claim a moral entitlement. I was not referred to any authority, or indeed any principle, that would suggest an affirmative answer to that question.
The jurisdiction under s 99 is to be exercised sparingly and only in clear cases. For reasons I have given this is not such a clear case.
Moreover, Mr Stojinovski claims that it was upon his firm's insistence that the email was written so as to put Masterton Homes on notice of the actions proposed by the Grabics and that had such notice not been given, the first time Masterton Homes might have become aware of such action was by watching television or becoming aware of a media campaign on social media, including, but not limited to photos, video footage or advertisement by way of any media resource that described Masterton Homes' work as defective, or possibly defective, or its roof work is defective or possibly defective, or that described its building practice as warranting changes in current legislation or otherwise suggested that the defendants had any claim against the plaintiffs in respect of defective or potentially defective works or to engage in any media campaign by way of unfavourable comment or made any representations whatsoever nature concerning Masterton Homes business operations.
Mr Stojinovski said that the notice provided to Masterton Homes was not intended as a threat, but to give it prior notice of the Grabic's intentions. There is nothing to indicate that that was not part of Mr Stojinovski's or Mr Burke's thinking. Mr Stojinovski was not cross examined. That is a further reason for not concluding that any element of s 99(1)(a) is made out.
Section 99(1)(b) does not apply in the present case. The costs incurred were incurred by Masterton Homes and it cannot say that they were incurred improperly or without reasonable cause. Its case is that the proceeding in which the costs were incurred was properly brought and that the costs incurred were reasonably incurred. Its complaint is that the proceeding itself was brought about by the alleged serious misconduct of a legal practitioner.
Having regard to my conclusion that the allegation of serious misconduct is not made out, it is unnecessary to address the question which would otherwise have arisen, whether it is enough to trigger s 99 that the conduct of the solicitor is part of the facts which arise to the litigation rather than being conduct engaged in in the course of the litigation.
Counsel were not able to refer me to any case in which the section has been applied in the former circumstance. In Provident Capital Limited v Anderson (No 3) [2013] NSWSC 705, s 99 was found to be engaged where a solicitor engaged in serious misconduct by arming his client with a letter asserting that orders of this court were void and were deemed never to have been entered into and was reckless as to whether those statements were true or not. That letter was sent in the context of an ongoing proceeding, but prompted a fresh application. It was in respect of that fresh application that costs orders were made against the solicitor pursuant to s 99(2)(c) of the Civil Procedure Act. That might provide some support for the plaintiff's contention, but in the circumstances I think it is not appropriate to take the matter further.
There are also discretionary considerations that would warrant a refusal of the application. The first is that it may well be that the conduct by Keystone Lawyers about which Masterton Homes complains has saved it costs. If the letter had not been sent and the Grabics had simply proceeded with their plans, then any subsequent litigation brought by Masterton Homes could be expected to have been substantially more expensive than the costs incurred in the present proceedings.
There is also a concern as to whether the application against the solicitor is a back door way of seeking to recover costs that are not sought against the Grabics. Masterton Homes settled its claim against the Grabics by obtaining undertakings from them, but on terms that do not require the Grabics to pay costs.
Masterton Homes says that it only sought costs against Keystone Lawyers because it regards Keystone Lawyers as being the party responsible for making the threat and triggering the litigation. In other words, as I understand the submission, it says that Keystone Lawyers was the prime mover of the suggested media campaign and not the Grabics. There, is, however, no evidence to support that contention.
For these reasons I conclude that the plaintiff's application should be dismissed.
[Counsel addressed.]
The respondents' costs of the application have been agreed.
I order that the plaintiff pay the respondents' costs of the notice of motion of 26 February 2016 in the agreed sum of $6,500 inclusive of GST.
I refuse the application for a stay of that order.
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: 04 July 2016