Montague Mining Pty Limited v Gore & Ors

WILCOX J: 1 By a notice of motion dated 29 November 2000 and filed on 5 December 2000 the first respondents, members of the legal firm known as "Clayton Utz", seek a costs order against a non-party to the principal proceeding, Justice Corporation Pty Ltd ("Justice Corporation").

The background facts 2 On 16 July 1997 Montague Mining Pty Limited ("Montague") instituted a proceeding against the members of Clayton Utz, as first respondents, and Spinifex Gold NL ("Spinifex"), as second respondent. Damages were sought. 3 Shortly after the proceeding commenced, the solicitors for Clayton Utz requested that Montague provide security for their clients' costs. That request was refused and application was made for an order for security for costs. The application was opposed on the basis that, by reason of the respondents' conduct, Montague was without assets and would be unable to comply with any order that might be made. 4 On 5 December 1997 I ordered that Montague give to Clayton Utz security for costs in the form of a personal guarantee by Paul Williams, the company's sole shareholder and director. A deed of guarantee was subsequently executed. 5 In early 1998 an agreement was reached between Montague and Spinifex, with the result that Spinifex was dismissed from the proceeding by consent. No agreement was reached between Montague and Clayton Utz. 6 At a subsequent directions hearing, it was decided the question of Clayton Utz's liability should be determined separately, and in advance of, determination of the extent of Montague's damages. According, I conducted a hearing on the issue of liability on 24 and 25 August 1998. On 23 October 1998 I handed down reasons for judgment in which I held Clayton Utz had been negligent in respect of the legal services they rendered to Montague. 7 On 21 April 1999 Montague entered into an agreement with Justice Corporation relating to Montague's proceeding against Clayton Utz. The agreement was called a "Litigation Agreement". It contained recitals, the first two of which were: "A. The Claimant owns the Claim. B. The Claimant has agreed to sell to Justice Corporation part of the Claim Proceeds and Justice Corporation has agreed to pay necessary litigation costs in relation to the Claim, on the terms set out in this contract." 8 Montague was identified in the agreement as the "Claimant". The term "Claim" was defined as the right to bring the proceeding against Clayton Utz. The term "Claim Proceeds" was defined as: "… any final relief in the form of: (a) any property, money or other valuable benefit transferable or payable to the Claimant as a result of any Court order; and (b) any property, money or other valuable benefit transferable or payable to the Claimant under any Settlement Agreement, but does not include the Claim, the Claimant's costs Order or Security for Costs." 9 Clause 2.1(a) of the agreement required Justice Corporation to "pay the Claimant's Costs, Security for Costs and Defendant's Costs in accordance with this contract". All three terms were defined in cl 1.1. The term "Defendant's Costs" was defined as meaning: "all costs arising from professional work including disbursements, as reasonably agreed by the Claimant or as assessed, which a Court has ordered are payable by the Claimant, but does not include any Counterclaim Damages." 10 Clause 2.2 excluded other obligations by Justice Corporation. Clause 2.3 prescribed some conditions, which have apparently been satisfied, and cl 2.4 set out a payments procedure. 11 Clause 3 related to the "Sale Property", a term defined to mean the "Agreed Portion" and certain costs payments. The "Agreed Portion" was defined to mean "the percentage of each separable part of the Claim Proceeds stated in Item 4 of Schedule 1." That item referred to 8%. Clause 3.1 provided that the "Sale Property will be assigned to Justice Corporation as and when it comes into existence". Montague agreed "it will receive the Sale Property in trust for Justice Corporation". By cl 3.2 ownership was to pass to Justice Corporation when the Sale Property came into existence. 12 Clause 4.1 stated: "The Claimant must use its best endeavours to ensure that the Claim is litigated honestly, diligently and with due care and skill." 13 Clause 4.2 was stated to be a paramount clause prevailing over any inconsistent provision of the contract. That clause contained a number of provisions designed to ensure that Montague retained control of the litigation. By cl 4.5 Montague was given "an absolute discretion regarding settlement of the Claim independent of Justice Corporation". However, Montague was to ensure any settlement agreement allowed disclosure of its terms to Justice Corporation. 14 Clause 7 dealt with default and termination. 15 Montague's solicitors supplied a copy of the agreement to Clayton Utz's solicitors. Clayton Utz's solicitors requested that Justice Corporation provide security for their clients' costs. This request was refused. Clayton Utz's solicitors then made an application for an order for security for costs. I heard the application on 23 August 1999. I refused to make an order for security, primarily because Montague had already established Clayton Utz's negligence. I said at the time I was not satisfied there is a high degree of probability that Montague would be unable to prove damage. 16 On 5 November 1999, after a hearing during October, I gave judgment in favour of Montague against Clayton Utz in the sum of $561,460. I ordered Clayton Utz to pay Montague's costs. 17 My decision provoked two motions. Montague applied to amend the judgment amount to $621,765, on the basis that I had made an incorrect assumption about its ability to sell certain shares at a particular time. Clayton Utz made an application to set aside the costs order, on the basis that the amount of the judgment was less valuable than an offer made by Clayton Utz, on 14 August 1998, to settle the claim for $600,000 plus costs. That offer was rejected on 20 August 1998, four days before commencement of the liability hearing. 18 I heard the two motions together. On 22 December 1999 I varied my previous orders, first, by substituting for the previous judgment sum the figure of $616,200; and, second, by limiting the costs order to costs incurred up to and including 20 August 1998. The effect of that variation was to deprive Montague of a significant proportion of the costs it incurred in relation to the issue of liability and all its costs in respect of the trial on damages. 19 Clayton Utz appealed against my assessment of damages. Montague cross-appealed, contending the damages were inadequate. The Full Court was persuaded that Montague suffered only nominal damage as a result of Clayton Utz's negligence. The Full Court substituted judgment in the sum of $20 and ordered that Montague pay Clayton Utz's costs as from 20 August 1998, including the costs of the appeal and cross-appeal. 20 After the decision of the Full Court was given, Clayton Utz's solicitors called on Justice Corporation to pay the costs the Full Court ordered should be paid by Montague. The basis of their demand was the covenant contained in cl 2.1 of the Litigation Agreement: see para 9 above. 21 Justice Corporation responded to this request by providing a copy of a second agreement between Montague and Justice Corporation, called a "Loan Agreement". This agreement was dated 15 May 2000, a date only three days before the commencement of the appeal hearing. The Loan Agreement recited the agreement of the parties that the Litigation Agreement was "void ab initio and of no effect". It also recited that, "[a]s a result of the Litigation Agreement being voluntarily made void, the Borrower [Montague] and Justice Corporation have agreed that Justice Corporation has lent the Borrower money, sufficient to prosecute the Claimed Litigation under this Loan Agreement." The agreement required Montague to repay that money, with interest at 10% per annum, within seven days of the end of the litigation; but Montague's liability was not to exceed the amount of any judgment or settlement of Montague's claim against Clayton Utz. 22 Justice Corporation had not previously disclosed to Clayton Utz the existence of the Loan Agreement, or its agreement with Montague that the Litigation Agreement was void ab initio. Not surprisingly, the solicitors for Clayton Utz were unimpressed with that situation. They renewed their request that Justice Corporation pay their costs. The request was refused. On 5 December 2000, the present notice of motion (dated 29 November 2000) was filed.