Oakley Thompson & Co Pty Ltd v Maisano

2 The position that has now been reached is as follows. In Proceeding No S CI 2005 9071 (the 'main proceeding'), Bodycorp made claims against a range of defendants including Mr Maisano. Those claims were dismissed and Bodycorp was ordered to pay Mr Maisano's costs.[1] Bodycorp's appeal against that decision was dismissed.[2]

3 Oakley Thompson acted for Mr Maisano in the main proceeding and in the Costs Court proceeding seeking to tax Mr Maisano's party/party costs order against Bodycorp. The Costs Court proceeding stalled when Mr Maisano terminated Oakley Thompson's retainer. The stalling of the Costs Court proceeding caused prejudice to Oakley Thompson, which had provided legal services to Mr Maisano but remained substantially unpaid. As a result, Oakley Thompson commenced its own proceeding against Mr Maisano and Bodycorp in Proceeding No S CI 2014 5814 (the 'lien proceeding').

4 The lien proceeding concerned a number of issues and gave rise to a lengthy judgment given by Elliott J on 30 June 2015.[3] Following the delivery of a further judgment relating to costs in the lien proceeding,[4] on 24 July 2015 Elliott J made orders in both the lien proceeding and the Costs Court proceeding.

5 In the lien proceeding, Elliott J declared in his Honour's 24 July 2015 orders that Oakley Thompson had an equitable right over the costs judgment awarded in favour of Mr Maisano in the main proceeding, 'such right being security for payment to [Oakley Thompson] by [Mr Maisano] of all costs and disbursements of, and incidental to, legal services rendered by [Oakley Thompson] to [Mr Maisano] in the [main proceeding], being costs and disbursements due and remaining unpaid.'

6 The reference to the security being for 'costs and disbursements due and remaining unpaid' reflected the fact that, during the course of the lien proceeding before Elliott J, Oakley Thompson acknowledged having received at least two amounts in respect of its unpaid invoices to Mr Maisano. First, the sum of $80,000 paid in August 2014 (from sources other than Bodycorp) in partial satisfaction of Mr Maisano's liability for unpaid legal costs. Second, an amount of $56,400 paid in September 2014 from Funds in Court, which had been paid into court by Bodycorp as security for Mr Maisano's costs of the lien proceeding.

7 The 'Other Matters' section of Elliott J's 24 July 2015 orders in the lien proceeding contained undertakings concerning the ability of Oakley Thompson to prosecute the taxation in the Costs Court proceeding which had stalled.

8 Bodycorp, but not Mr Maisano, has appealed against Elliott J's decision in the lien proceeding. The appeal has been argued and the Court of Appeal has reserved its decision. I was informed from the Bar table that the deferral of the Court of Appeal's decision is related to the fact that Bodycorp commenced a separate proceeding (Proceeding No S CI 2016 2044) seeking to set aside the judgment in the main proceeding for fraud, that summary judgment was granted against Bodycorp in that proceeding, that Bodycorp has appealed the summary judgment given against it and that the Court of Appeal is due to hear a security for costs application in that appeal in March this year.

9 Also on 24 July 2015, Elliott J made orders in the Costs Court proceeding designed to give Oakley Thompson the ability to prosecute the part-heard taxation in the Costs Court. Oakley Thompson was added as a party to the Costs Court proceeding for this purpose. In making that order, Elliott J received an undertaking from Oakley Thompson in the following terms:

[Oakley Thompson] undertakes that it agrees that any amount that [Bodycorp] is ordered to pay in this proceeding is to be paid into court and that [Oakley Thompson] will not seek payment of any such amount to itself except by order of the court or with [Mr Maisano's] consent.

11 As I have said, it is clear that the undertaking was given to protect Mr Maisano's right to participate in the amount of any costs order obtained in the Costs Court in circumstances where:

(a) the proceeds of the sale of a property in which he had equity had contributed $80,000 towards the unpaid costs;

(b) a further $56,400 had been accessed from the security for costs; and

(c) it may transpire that other amounts had been paid by him.

12 Oakley Thompson prosecuted the Costs Court proceeding in accordance with Elliott J's orders. In the result, Mr Maisano's party/party costs of the main proceeding were taxed in the sum of $289,988.68. By paragraph 4 of her orders of 11 November 2015, amended by a further order of 13 November 2015, Gourlay JR ordered as follows (the 'costs judgment'):

After deducting the part-payment received by [Oakley Thompson], [Bodycorp] is to pay [Oakley Thompson] the sum of $233,588.68, pursuant to the Orders made by [Elliott J] on 24 July 2015 in [the Costs Court proceeding] and in [the lien proceeding].

13 The amount of the costs judgment includes amounts paid by Mr Maisano directly but does not include the amount paid out of Bodycorp's security for costs in the sum of $56,400.

14 Bodycorp and Mr Maisano sought to review the taxation by Gourlay JR. That review was dismissed by Wood AsJ. In the course of dismissing that review, Wood AsJ interpreted the order that Bodycorp pay Oakley Thompson the sum of $233,588.68 as requiring Bodycorp to pay that amount into court:[5]

The order of JR Gourlay says '[Bodycorp] is to pay [Oakley Thompson] the sum of ... pursuant to the Orders made by his Honour Justice Elliott on 24 July 2015 in this proceeding ...'. The order of 24 July 2015 contains the undertaking...The words 'Pursuant to that order' picks up the entire effect of that order. An order of a Judicial Registrar cannot alter the effect of the undertaking or an order of the judge. All the Judicial Registrar was doing was quantifying the amount owing. Ordering payment by [Bodycorp] 'pursuant to the order of Elliott J' is therefore subject to the wording in the undertaking that any amount [Bodycorp] is 'ordered to pay in this proceeding' (ie ordered by JR Gourlay in the Costs Court proceeding ) is to be 'paid into Court and that it will not seek payment of any such amount to itself' (ie, out of Court) 'except by order of the court or with [Mr Maisano's] consent'.

15 Since that time, Oakley Thompson has made two unsuccessful attempts to enforce Gourlay JR's order that the costs judgment be paid by Bodycorp. On 5 July 2016, Bodycorp successfully set aside a statutory demand served by Oakley Thompson under the Corporations Act 2001 (Cth). On 16 September 2016, the Court dismissed an application by Oakley Thompson for an order fixing a time by which Bodycorp was required to pay the amount of the costs judgment into court in accordance with Gourlay JR's orders.

16 Also on 16 September 2016, the Court ordered in the lien proceeding that the respective entitlements, if any, of Oakley Thompson and Mr Maisano to any moneys paid or payable by Bodycorp under the costs judgment, be referred to the Costs Court for hearing and determination. The intent of that order was to provide Mr Maisano with an opportunity to make submissions as to the total amount which he had, in fact, paid towards his legal costs in the main proceeding or which had been paid on his behalf.

17 Pursuant to that referral, Wood AsJ held on 1 December 2016 that the entitlements of Oakley Thompson and Mr Maisano to the amount of the costs judgment are $148,853.68 for Oakley Thompson and $84,735 for Mr Maisano respectively. In the course of his reasons, Wood AsJ stated as follows:

12. Several things emerge from the judgment of Elliott J.[6] At that time Oakley Thompson produced lump sum bills in compliance with the Legal Profession Act 2004 issued between 26 March 2012 and 18 September 2014 and his Honour was satisfied that these were received by Maisano.[7] The total claimed was $312,864.90 at that point. Oakley Thompson have now filed an affidavit of Julian Vagg sworn 30 November 2016 which revised the total of gross sum bills to $302,131.90.[8] This figure becomes irrelevant as Oakley Thompson have adopted a position that is significantly favourable to Maisano. They have abandoned the total of the gross sum invoices and restrict any potential liability of Maisano to the taxed figure payable by Bodycorp, ie $289,988.68.[9]

13. Maisano has not exercised his rights under the Legal Profession Act 2004 ('the Act') to challenge Oakley Thompson's bills and the time to do so expired more than a year ago.

14. Elliott J found that there had been no issues of non-compliance with disclosure obligations under the Act.[10] Non-compliance with the Act in that respect might be a basis to reduce the sum owed in a review under the auspices of the Act[11] but that did not occur and, in any event, Elliott J examined disclosure compliance and found in Oakley Thompson's favour.

15. Even assuming it was necessary to require an itemised bill to be prepared by Oakley Thompson, they would not be restricted to sums in gross sum bills as there is always the scope for the claim for costs to increase.[12] Experience has shown that this is usually the result of converting a gross sum bill into an itemised one.

16. In any event, the base figure owing between Oakley Thompson and Maisano is now the reduced figure of $289,988.68. The $80,000 figure referred to by Elliot J as having been paid by Maisano is now adjusted in his favour to $84,735.[13] Oakley Thompson has received $56,400 from Bodycorp already. This means that Oakley Thompson are only owed $148,853.68.[14]

18 The matter was then referred back to me for final orders and consideration of the undertaking.

19 It should be noted at the outset, as stated above, that the undertaking was clearly for the benefit of Mr Maisano. As can be seen, the undertaking has had the effect of preventing both Mr Maisano and Oakley Thompson from enforcing the costs judgment against Bodycorp. Oakley Thompson's attempts to enforce the costs judgment have, for the reasons given previously, failed. While the costs judgment remains affected by the undertaking, thus requiring payment into court and not to Mr Maisano and/or Oakley Thompson, a barrier to enforcement proceedings remains. That is an unintended blot on justice.

20 Subject to the issues raised by Bodycorp which are discussed below, it is, in my opinion, the duty of the court to ensure that the blot is removed in a just and efficient manner. In my opinion, subject to the arguments advanced by Bodycorp against this course, this can be best achieved by releasing Oakley Thompson from the undertaking and making orders which will have the effect of requiring Bodycorp to pay the amount of the costs judgment directly to Oakley Thompson on certain conditions.

21 For the avoidance of doubt, in my opinion, the effect of releasing the undertaking will be that the costs judgment given by Gourlay JR will no longer require payment into court, but will instead require payment to Oakley Thompson directly and will be enforceable by Oakley Thompson directly against Bodycorp as if it were the sole person entitled to the costs order of Mr Maisano in the main proceeding.

22 I turn to consider Bodycorp's contentions. Bodycorp contends that the declaration in the lien proceeding secures Oakley Thompson's solicitor/client costs entitlement against Mr Maisano; so much may be accepted. Bodycorp contends on this basis that the amount of Oakley Thompson's costs entitlement must be fixed by a solicitor/client taxation before the respective entitlements of Mr Maisano and Oakley Thompson to the party/party costs judgment can be fixed. Bodycorp contends that if this course is not followed, there is a risk that the indemnity principle underlying party/party costs orders will be offended.[15] Although the submission was not put precisely in these terms by reference to the indemnity principle, it is clear that this is the legal effect of the submission made on behalf of Bodycorp.

23 The indemnity principle prevents a successful litigant (such as Mr Maisano) from recovering more by way of party/party costs than he, she or it is liable to pay his, her or its lawyers. Bodycorp contends that it is entitled to raise the issue now, notwithstanding that the issue was not raised by it at the taxation before Gourlay JR. It contends that it may do so now because its interests might be affected if the amount owing by Mr Maisano to Oakley Thompson transpires on a taxation to be less than the amount of the costs judgment in accordance with the taxation by Gourlay JR.

24 Counsel gave the example that Bodycorp's interests might be affected because the amount payable to Mr Maisano may change if a solicitor/client taxation between him and Oakley Thompson is undertaken, as this may affect any prospective compromises which Bodycorp wishes to propose or agree to with Mr Maisano (or, indeed, Oakley Thompson) in respect of the unsatisfied costs judgment. I do not accept that Bodycorp is entitled to insist on a solicitor/client taxation as a pre-condition to this court releasing Oakley Thompson from its undertaking on terms to which I will refer.

25 First, by its reliance on the possible application of the indemnity principle, Bodycorp is seeking to agitate a point it did not take at the taxation before Gourlay JR in 2015 or on review to Wood AsJ. That is clear from Wood AsJ's reasons on review.[16] In my opinion, that alone is enough to prevent the issue being raised now. Second, the evidence before the court is, in any event, insufficient to 'raise the likelihood' that Mr Maisano's party/party costs may exceed his liability to Oakley Thompson for solicitor/client costs.[17]

26 Bodycorp endeavoured to show there was a case to be investigated as to whether Oakley Thompson's entitlement to solicitor/client costs in fact exceeded the taxed costs judgment on a party/party basis. In the end, however, counsel conceded that on the evidence before the court, which included Oakley Thompson's costs agreements, costs disclosures and invoices, it was impossible to know if the solicitor/client costs would on a taxation be greater or less than the party/party taxed costs. Bodycorp's contention is thus based on possibility, not likelihood or even real case to be investigated.

27 No endeavour was made to take the court to the detailed invoices rendered by Oakley Thompson and to identify any reductions which might be made. Nor did Bodycorp identify any disclosure or other issues under the Legal Profession Act 2004 which might lead to reductions. As noted by Wood AsJ in his 2 December 2016 reasons,[18] disclosure issues raised by Bodycorp in the lien proceeding were dealt with by Elliott J in his reasons for judgment in the lien proceeding in a manner favourable to Oakley Thompson (and against the submissions put by Bodycorp in that proceeding), and Mr Maisano is out of time to challenge Oakley Thompson's invoices. These and other issues raised by Bodycorp in seeking to challenge Oakley Thompson's entitlement to claim the amount of its unpaid fees and disbursements were decided adversely to Bodycorp.[19]

28 The highest the submission based on the indemnity principle was put by counsel for Bodycorp was that:

The costs of the Oakley Thompson's costs agreement are not so high they would automatically infer that the scale costs would be less.

29 By that submission, counsel for Bodycorp contended in effect that a combination of the relative closeness of the solicitor/client invoices and the costs judgment on a party/party basis, combined with the fact that the hourly rates charged by Oakley Thompson under the costs agreements were not at the high end, meant that it might be the case that the solicitor/client costs could possibly transpire to be less than the party/party costs under the costs judgment. That submission falls far short of establishing the requisite likelihood in accordance with Shaw v Yarranova.[20]

30 Third, as already noted in Wood AsJ's 2 December 2016 reasons, Oakley Thompson has abandoned the amount of its solicitor/client invoices which are in excess of the taxed party/party costs figure. Accordingly, fixing the proportions of the unpaid amount of the party/party costs under the costs judgment by reference to what Mr Maisano has paid effectuates the lien declared by Elliott J. This is because the amount of the solicitor/client costs is now taken to be the same as the amount of the costs judgment on a party/party basis.

31 The question remains as to the proper orders which should be made to achieve justice in the case. As I said in discussion on Friday, I intend to release Oakley Thompson from the undertaking on conditions. I will order the following conditions apply to the release of the undertaking:

(1) Any costs incurred by Oakley Thompson in relation to enforcement proceedings on the costs judgment, including costs arising from notices under the Corporations Act requiring Bodycorp to pay the amount of the costs judgment or any other execution procedures available, must be reasonable and necessarily incurred.

(2) Any amount recovered from Bodycorp pursuant to any such process be paid into the Oakley Thompson trust account on trust for itself and Mr Maisano.

(3) Any distributions from those trust moneys be applied first to Oakley Thompson's reasonable and necessary costs of recovery proceedings and then in pro rata proportions in accordance with the entitlements fixed by Wood AsJ on 1 December 2016.

32 By the third condition, it is intended that net proceeds of any recovery action be distributed ratedly according to those proportions, without any preference given to Oakley Thompson over Mr Maisano or vice versa.

33 The removal of the undertakings on these conditions does not prevent Bodycorp from compromising, should it wish, the $84,735 entitlement of Mr Maisano in accordance with the decision of Wood AsJ. Of course, to the extent such a settlement were to be achieved, Oakley Thompson could then only recover the amount remaining unpaid to it.

34 I will deal now with the costs of the referral to Wood AsJ and the costs of the argument on Friday. Subject to what counsel may say, it appears to me that all of those costs incurred by Oakley Thompson were reasonable and necessary preliminary steps to effectuate the judgment of the court that Bodycorp pay Mr Maisano's costs of and incidental to the main proceeding (and in the spirit of the reasons given by Elliott J in the lien proceeding).

35 In saying that, nothing detracts from the fact that there are already costs orders having been made in Bodycorp's favour on the two occasions when, for the reasons given, the court determined that the manner in which Oakley Thompson was proceeding was inappropriate given the continued existence of the undertaking and the prima facie evidence of insolvency of Bodycorp.

[1] Bodycorp Repairers Pty Ltd v Maisano (No 8) [2013] VSC 472.

[2] Bodycorp Repairers Pty Ltd v AAMI & Martin [2015] VSCA 73.

[3] Oakley Thompson & Co Pty Ltd v Maisano (No 2) [2015] VSC 210.

[4] Oakley Thompson & Co Pty Ltd v Maisano (No 4) [2015] VSC 354.

[5] Maisano v Bodycorp Pty Ltd (No 2) [2016] VSC 92 [39]. Emphasis added.

[6] Oakley Thompson & Co Pty Ltd v Maisano (No 2) [2015] VSC 210 (published 30 June 2015).

[8] Paragraph 9 of the affidavit of Julian Vagg sworn 30 November 2016.

[9] Paragraph 11 of the affidavit of Julian Vagg sworn 30 November 2016.

[10] Paragraphs [13] to [16], [19], [30], [33], [41], [45], [60], [92] to [95].

[14] Unpublished reasons of Wood AsJ of 2 December 2016 (citations in original). Emphasis added.

[15] See Shaw v Yarranova Pty Ltd & Anor [2011] VSCA 55 [8]-[9]; Kuek v Devflan Pty Ltd & Anor [2011] VSCA 25.

[16] Maisano v Bodycorp Pty Ltd (No 2) [2016] VSC 92.

[17] Shaw v Yarranova Pty Ltd & Anor [2011] VSCA 55 [28].

[18] Unpublished reasons of Wood AsJ of 2 December 2016, [13]-[14].

[19] Oakley Thompson & Co Pty Ltd v Maisano (No 2) [2015] VSC 210 [92]-[103].

[20] Shaw v Yarranova Pty Ltd & Anor [2011] VSCA 55.