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[2009] NSWSC 951
Supreme Court of NSW
2009-09-11
Hammerschlag J, Bergin J
Original judgment source is linked above.
BACKGROUND 1 The principal proceedings were disposed of on 3 July 2009: Maurice Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 617 ("the principal judgment"). 2 The trial of the action was heard over 11 days between 1 and 18 June 2009. All of the plaintiff's claims were dismissed. There is no contest that the plaintiff must pay the defendants' costs. The defendants, however, seek an order for costs on the indemnity basis. They also seek an order that interest be payable on any costs awarded. 3 Terms defined in the principal judgment have the same meaning here. 4 The principal proceedings started on 18 November 2005 when the plaintiff sued the Company for damages for breach and repudiation of the building contract. No claim was then made against the defendants. 5 On 18 August 2006 Bergin J made orders which restricted the Company and Herberton from dealing with the units which had been constructed on the property. The plaintiff had foreshadowed joining Herberton and the other defendants to the proceedings. 6 On 22 August 2006 solicitors for Herberton wrote to the plaintiff's solicitors putting the following offer of settlement to the plaintiff: "1. Tarabay agrees to the dismissal of the Notice of Motion dated 4 August 2006 served on our client joining our client to the proceedings; 2. Tarabay undertakes not to commence any further proceedings against Herberton Enterprises arising out of the purchase by Herberton Enterprises of the units from Fifty Property Investments or raise any issue in relation to, or of and incidental to, the property development the subject of the pleadings in the Equity Division Commercial List proceedings 55095 of 2005; 3. Tarabay confers on Herberton Enterprises a full and final release from any claim Tarabay asserts against it as set out in the Notice of Motion or at all; and 4. Each party bear their own costs." 7 On 24 August 2006 the Company was placed under voluntary administration and on 21 September 2006 it went into liquidation. 8 On 22 September 2006 the plaintiff obtained leave to file an amended summons, which it filed on 6 October 2006. The plaintiff discontinued against the Company and sued the defendants. 9 On 5 September 2008 Bergin J fixed the matter for hearing to commence on 1 June 2009 with an anticipated duration of four weeks. On 22 May 2009 the hearing date was confirmed. 10 On 15 April 2009, that is about six weeks before the hearing, solicitors then acting for all of the defendants wrote to the plaintiff's then solicitor. Although the letter is lengthy it is appropriate to set it out in full: "We refer to the above proceedings. 1. Quantum of your client's claim 1.1 As you are aware, our client deny they are liable to your client as pleaded by prayer 9 of the relief claimed in your client's Further Amended Summons. Even if your client can establish the quantum of his claim, there are two reasons why there can be no remedy available to your client. (1) Your client's claim discloses no cause of action. (2) No loss was suffered by your client even if a cause of action can be established. 2. Failure to disclose a reasonable cause of action/oppressive pleadings 2.1 As set out in our letter of 4 May 2007, your client's Amended Summons does not disclose any reasonable cause of action against the defendants and/or is oppressive as follows. (1) On 2 December 2005, Mr Tarabay initiated proceedings against Fifty Property Investments Pty Limited ( Fifty ) to recover a debt being a variation claim alleged to have arisen from a building contract. (2) On 21 September 2006, Fifty went into liquidation with the consequence that under section 471B of the Corporations Act , Mr Tarabay could not proceed against Fifty without the leave of the Court. (3) This type of case is one in which a Court in the Corporations List would not have granted leave to proceed. Rather, in the usual course, Mr Tarabay would have been left to the usual remedy of an unsecured creditor of an insolvent company in liquidation, namely, the lodging of a proof of debt. (4) Had Mr Tarabay proceeded in the usual course, Mr Tarabay would have received a dividend in the winding up, sharing pro rata with other creditors like any other unsecured creditor. (5) Instead, Mr Tarabay applied to amend the proceedings to remove Fifty as a defendant and substitute the present defendants. (6) For Mr Tarabay to succeed in his current claim, he must prove that: (a) Fifty was indebted to him for the alleged variations; and (b) the present defendants are liable to Mr Tarabay, either directly under section 51AA of the Trade Practices Act 1974 ( section 51AA ) or, on an ancillary basis under section 75 of the Trade Practices Act 1974 ( section 75 ). (7) Section 51AA(1) provides: A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (8) If Mr Tarabay is to succeed against the present defendants, Mr Tarabay must establish that the conduct of the primary contravener involved unconscionable conduct under the unwritten law of a State or Territory. (9) A proper pleading of a claim under section 51AA requires the pleading of facts capable of establishing that the principal contravener's conduct constituted unconscionable conduct under section 51AA. (10) Your client's competing argument set out in your letter of 20 August 2007 notwithstanding, our clients maintain that in order for conduct to be actionable as unconscionable under the written law, a party to a transaction must be under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and the other party must exploit that special disability in a manner that is regarded as unconscionable: Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and Louth v Diprose (1992) 175 CLR 621. (11) On that basis, the Amended Summons does not plead any facts capable of making out a claim for unconscionable conduct under the unwritten law of a State of (sic) Territory, for example, undue influence or duress. (12) Furthermore, there are no facts pleaded which are capable of establishing that Mr Taraby was, vis- à -vis any of the defendants, in a position of special disadvantage. 2.2 On 5 September 2008 your client sought and obtained leave to further amend his summons in these proceedings ( Further Amended Summons ), 2.3 Those amendments fail to address any of the issues outlined in our letter of 4 May 2007 or the points raised above. 2.4 In the Further Amended Summons, your client alleges that Maria Bechara knowingly and intentionally procured and induced Fifty to breach the contract. 2.5 The pleaded facts in your client's Further Amended Summons do not invoke the doctrine of inducing breach of contract. 3. No loss caused by alleged misconduct 3.1 In paragraphs 137 to 197 of Maria Bechara's statement dated 28 April 2008, the financial position of Fifty has been tabled. 3.2 Had Maria Bechara not engaged in that conduct alleged, your client still would have been an ordinary unsecured creditor of Fifty, in the position it is in today. 3.3 Your client has suffered no loss, even if his pleading is accepted by the Court. 4. Settlement of proceedings 4.1 Our clients have considered their position in this proceeding including the likely costs if the matter continues to hearing. 4.2 To resolve this dispute on a without admissions and on a purely commercial basis our clients have instructed us to put a settlement proposal to your client on the terms set out in the enclosed offer of comprise. 4.3 As set out in the offer of compromise, this offer remains open for a period of 28 days from the date of this letter. Please acknowledge receipt of this offer by return letter and let us know in due course your client's response to our clients' proposal." 11 The offer of compromise ("the offer of compromise") referred to was in the following terms: "1. The defendants offer to compromise the plaintiff's action in the following manner: (1) By paying the plaintiff the sum of $8,500 plus $1,500 for the plaintiff's costs. 2. This offer is open for a period of 28 days. 3. The time for payment or doing any other act or thing specified in paragraph 1 is 28 from the date of acceptance of this offer." THE LAW Indemnity costs generally 12 Sections 98(1) and (2) of the Civil Procedure Act 2005 (NSW) provide as follows: (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. 13 Rule 42.1 of the Uniform Civil Procedure Rules 2005 ("UCPR") provides as follows: Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 14 UCPR r 42.2 provides as follows: Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis. 15 The normal rule and practice is that the successful party obtains an award for the payment of its costs on the party and party basis. However, the Court has a wide discretion to order costs on the indemnity basis. 16 Every case must be considered on its own facts and the discretion exercised accordingly. 17 Some well-known (and perhaps overlapping) considerations relevant to the exercise of the discretion affirmatively, include where: a the unsuccessful party has maintained proceedings that it should have known had no real prospects of success; b the unsuccessful party persists in what should on proper consideration be seen to be a hopeless case; c the outcome for the unsuccessful party is no better than a prior settlement offer by the other party; d the unsuccessful party's non-acceptance of a settlement offer was imprudent or unreasonable; and e there was undue prolongation of a case by groundless contentions. See for example: Oshlack v Richmond River Council (1998) 193 CLR 72; Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors [No. 7] [2008] NSWSC 199; Colgate-Palmolive & Anor v Cussons Pty Ltd (1993) 46 FCR 225 ; J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) [No 2] (1993) 46 IR 301. Offers of Compromise under the Rules 18 UCPR r 20.26 (1) and (2) provide as follows: (1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms. (2) An offer must be exclusive of costs, except where it states that it is a verdict for the defendant and that the parties are to bear their own costs. 19 UCPR r 42.13 provides as follows: This Division applies to proceedings in respect of which an offer of compromise (the offer concerned ) is made under rule 20.26 with respect to a plaintiff's claim (the claim concerned ). 20 UCPR r 42.15A provides as follows: (1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant, or more favourable to the defendant, than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
Interest on costs 21 Sections 101 (4) and (5) of the Civil Procedure Act 2005 (NSW) provide as follows: (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. THIS APPLICATION
22 On this application Mr J Glissan QC appeared for the defendants and Mr N Connolly, solicitor, appeared for the plaintiff. 23 Each party provided written argument in advance of the application. Brief supplementary written submissions were received after oral argument with respect to costs on "the third claim" referred to below.
CONSIDERATION 24 Initially the defendants' primary submission was that: a the offer of compromise was made pursuant to and in accordance with UCPR r 20.26 and was therefore an "offer concerned" under UCPR r 42.13 and r 42.15A; b the defendants had obtained judgment more favourable to them than the terms of the offer; and c unless the Court otherwise ordered, they were by UCPR r 42.15A(2), entitled to indemnity costs from the day after the offer was made. 25 Initially the defendants put secondary submissions that: a the offer of compromise should be regarded as a Calderbank letter, the non-acceptance of which was unreasonable; and b Herberton and its directors were entitled to have their costs assessed on an indemnity basis from the earlier date of 22 August 2006 because the letter of that date was a Calderbank letter and its non-acceptance was unreasonable. 26 The plaintiff's written submissions conceded that the offer of compromise complied with the requirements of the Rules but put that the Court should otherwise order, as contemplated by UCPR r 42.15A, because it did not involve a real element of compromise. The plaintiff submitted further that the offer of compromise should not be treated as a Calderbank letter because it was "clearly one made pursuant to the rules and the court retains a discretion in respect of costs following offers of compromise pursuant to the rules".
27 The defendants' submission that the offer of compromise complied with the Rules was unsustainable. The offer of compromise did not meet the requirements of UCPR r 20.26. That Rule relevantly requires an offer to be exclusive of costs, whereas the offer of compromise made specific provision for the payment of an amount for costs. The offer of compromise was therefore not an "offer concerned" within the meaning of UCPR r 42.13 and UCPR r 42.15A. Ultimately the submission was not pressed. 28 Concomitantly, the plaintiff's concession that the offer complied with the Rules was incorrectly made, and it was withdrawn. 29 The discretion to award indemnity costs in this case is accordingly not regulated by UCPR r 42.15A. 30 Ultimately the defendants' primary submission was that they should get indemnity costs from 15 April 2009 because: a from that date the plaintiff should have known that he was maintaining proceedings that had no real prospects of success or would, on proper consideration, have been seen to be hopeless; and b rejection of the offer of compromise was imprudent and unreasonable.
31 The discrete submission that Herberton, Licha and Cameel should get indemnity costs from 22 August 2006 because the rejection of the offer made on that date was unreasonable, was maintained. 32 The plaintiff put that: a neither the 22 August 2006 letter nor the offer of compromise involved a real and genuine element of compromise; b the plaintiff's case (except "the second claim" referred to below) was reasonably arguable; and c rejection of the offers was not unreasonable. 33 An offer of compromise, whether under the UCPR or at general law, needs to involve a real and genuine element of compromise before its non acceptance can have the effect of warranting an award of indemnity costs: Leichhardt Municipal Council v Green [2004] NSWCA 341. 34 I will deal with the 22 August 2006 offer first. In my view it was an offer with no real element of compromise in it, but was designed merely to trigger costs sanctions: Leichhardt Municipal Council v Green at [23]. The letter was really an offer to induce the plaintiff to abandon his claim. The extent of any compromise was limited to the defendants bearing their own costs, which could not be viewed as containing any real element of compromise. Accordingly, I intend to disregard the 22 August 2006 offer in exercising my discretion. 35 I take a similar view of the offer of compromise, viewed simply as an offer. In the context of a dispute where the plaintiff was claiming damages well in excess of $1 M, and the evidence at the trial established that the plaintiff is owed over $1.3 M by the Company, the offer of compromise did not reflect any real element of compromise. The total amount offered would have been but a trivial fraction of the plaintiff's costs. 36 If the claim for indemnity costs were based solely on the proposition that the plaintiff fared worse than what was offered, I do not consider that the refusal of the offer would warrant indemnity costs.
The first claim 37 The plaintiff's first claim was one for damages against Cameel, Licha and Maria on the basis that the Company's denial that the building contract was with the plaintiff was conduct which was unconscionable in contravention of s 51AA of the Trade Practices Act 1974 (Cth) ("the Act"), and that they participated in it ("the first claim"). 38 That a case which fails was difficult, tenuous or novel will not suffice to warrant an award of indemnity costs. 39 The case must be so lacking in merit that on proper consideration it will be seen to be without any real prospect of success or hopeless. In my view the first claim was such a case. 40 Rudimentary analysis of the first claim required identification of: a conduct which was unconscionable within the meaning of the unwritten law as referred to in s 51AA of the Act; and b loss or damage which was suffered by that conduct. 41 For the reasons which follow, in my view, no reasonable analysis of what the plaintiff was contending could have resulted in a satisfactory identification of either, let alone both of these elements or could have resulted in the conclusion that either, let alone both could be established. Correspondingly, reasonable analysis would have revealed it to be inevitable that the plaintiff, properly advised, had to fail. 42 The first requirement, in the way that the plaintiff put his case, was for him to identify the assumption from which the Company sought to depart. This was articulated as the assumption that the plaintiff had the building contract with the Company. 43 But the plaintiff's basic premise was that he had the contract with the Company. This was carried through to his claim against Maria for interference with contractual relations. This very premise entailed the destruction of the assumption which he had to establish. 44 If the building contract was an assumed (rather than an actual one - albeit that no party put that it was assumed) the conduct complained of was no more than an impermissible attempt to depart from that assumption. Precluding the Company from departing from the assumption would have no greater effect than to leave the plaintiff with an assumed contract. 45 As articulated, the plaintiff's unconscionable conduct case involved the manifest irresolvable contradiction that the estoppel contended for would have precluded the behaviour (ie departing from the assumption) which was being asserted to be the actionable unconscionable conduct under the Act. 46 It seems to me that no reasonable analysis of what the plaintiff was putting could have resulted in the conclusion that the plaintiff had any real prospect of establishing actionable unconscionable conduct. 47 The plaintiff's case was clearly in contract, yet the plaintiff desisted from bringing that case, no doubt because the other party to the contract was insolvent. 48 Turning to loss or damage, it is difficult to see how any reasonable analysis could have yielded the conclusion that there was any, let alone sufficient, causal connection between the unconscionable conduct alleged and the loss claimed, which was articulated as the amount which the Company failed to pay the plaintiff for work which he had done under the building contract.
49 The 15 April 2009 letter made a number of points, some of which (such as paragraph (10)) were wrong, but it made clear that no cause of action was disclosed and that no loss was suffered even if a cause of action was disclosed.
50 From then, if not earlier, the plaintiff, in maintaining the first claim was maintaining proceedings that he should have known had no real prospects of success and which would on proper consideration have been revealed to be hopeless. 51 Apart from the submission based on the 22 August 2006 letter, the defendants did not put that indemnity costs should be awarded from any earlier date. 52 Indemnity costs in respect of the first claim from 15 April 2009 are in my view warranted.
The second claim 53 The second claim brought by the plaintiffs ("the second claim") was for damages against each of the defendants on the basis that they had in 2006 knowingly participated in further unconscionable conduct of the Company by procuring it to persist in the denial of any contract with the plaintiff, and then engaging in a concerted plan to have the Company sell 21 units to Herberton at an undervalue, with a view to putting it beyond the Company's ability to pay the plaintiff monies owed to him under the building contract. 54 During the hearing of the principal proceedings, despite his best efforts, senior counsel for the plaintiff was unable to articulate the second claim so as to reveal that it had any prospect of success and he properly abandoned it. 55 The second claim incorporated the first claim but had a number of its own additional insuperable hurdles including (but not limited to) that: a there was no cognisable way in which it could be said that Herberton, Giselle and Dianne were involved in any contravention by the Company of s 51AA of the Act with respect to the denial of the building contract with the plaintiff; b the sale of the 21 units to Herberton did not involve any dealings between the plaintiff and the Company or any of the defendants in the course of which the Company or any of the defendants may have engaged in any unconscionable dealing with the plaintiff; and c both under the first claim and the second claim the plaintiff was claiming as damages the amount which the Company did not pay under the building contract. If those damages had been suffered by the conduct the subject of the first claim, they could not have been suffered by the conduct the subject of the second claim. By the time of the latter conduct the damages had on the plaintiff's own case already been suffered by him.
56 Mr Connolly did not put anything which might have suggested how the second claim might have been arguable or proffer any analysis which might have led to the conclusion that it was. 57 In my view indemnity costs in respect of the second claim are warranted. 58 Given that the second claim incorporated the first claim entirely, the costs associated with it include the costs of the first claim. An order for indemnity costs on the second claim would thus bring with it the costs of the first claim even if the latter were not separately considered. 59 The result of the plaintiff's approach was to put the defendants to the expense (including the undoubtedly significant expense of expert testimony) of defending a case which took two weeks to try and which was bound to fail. 60 This is, in my view, relevant delinquency to justify an award of indemnity costs: see Ingot Capital Investment v Macquarie Equity Capital Markets at [65].
The third claim 61 The third claim was in tort for damages against Maria for unlawfully intentionally interfering with the contractual relations between the plaintiff and the Company by inducing the Company to breach the building contract by denying that the plaintiff was a party to it. 62 This was always a difficult claim given that the Company acted on the advice of counsel and there was no evidence that Maria gave any advice separate from that of counsel with respect to the breach. 63 As the principal judgment records, it was put that Maria was recklessly indifferent or wilfully blind to the truth that the plaintiff was the builder under the building contract especially having regard to the fact that counsel had not been briefed with the Deed. 64 A claim against a solicitor (albeit one in the position of Maria advising her family interests) that he or she has intentionally interfered with contractual relations between a third party and the client, by inducing the client to breach the contract is a serious matter. On one view of things it is an allegation of misconduct. 65 It is a matter for concern that, as the principal judgment also records, although it was put that Maria was recklessly indifferent or wilfully blind to the truth that the plaintiff was the builder under the building contract especially having regard to the fact that counsel had not been briefed with the Deed, there was no cross examination about her state of mind with respect to the Deed at the time she briefed Mr Zikmann, at the time he gave his advice or at the time at which his advice was acted upon. There was no cross examination about why the Deed was not briefed. 66 The third claim had other difficulties which are dealt with in the principal judgment. 67 Nevertheless, and despite considerable reservations, I have concluded that although it was tenuous, the third claim was not one which on proper consideration before trial would have been revealed to have been hopeless and bound to fail. 68 I accordingly do not propose to order that indemnity costs be payable with respect to it.
69 The purpose of s 101(4) of the Civil Procedure Act 2005 (NSW) is to compensate the successful party for their prior payment of costs and disbursements in the conduct of the proceedings. 70 These proceedings have been on foot since 18 November 2005. The costs incurred by the defendants have undoubtedly been substantial. 71 A large part of the costs incurred were in connection with claims that did not have any real prospects of success. 72 There is no good reason why the defendants should not have interest on their costs from the date or dates on which they were paid (and every good reason why they should), and the plaintiff did not proffer any good reason why they should not be compensated. 73 Accordingly, I propose to order that interest is to be paid on the amount payable under the order for the payment of costs which I will make from the dates on which the costs concerned were paid. CONCLUSION 74 During the morning of the hearing of the costs application the defendants sought an adjournment to further prepare their submissions which was granted on the basis of their agreement to pay the plaintiff's costs of the morning. 75 The orders of the Court will be:
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.
Maurice Tarabay
Fifty Property Investments Pty Ltd
CITATION : Maurice Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 951
Maurice Tarabay v Fifty Property Investments Pty Ltd [2009] NSWSC 617 Oshlack v Richmond River Council (1998) 193 CLR 72 CASES CITED : Ingot Capital Investment & Ors v Macquarie Equity Capital Markets & Ors [No. 7] [2008] NSWSC 199 Colgate-Palmolive & Anor v Cussons Pty Ltd (1993) 46 FCR 225 J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) [No 2] (1993) 46 IR 301 Leichhardt Municipal Council v Green [2004] NSWCA 341
(1998) 193 CLR 72
(1993) 46 FCR 225
(1993) 46 IR 301
(1983) 151 CLR 447
(1992) 175 CLR 621