Omaya Investments Pty Ltd v Project Lawyers

Applicable Legal Principles

1. The occasion to consider costs arises here because, partly as a result of comments that the Court made in the course of managing this matter in the Duty List, the parties reached a negotiated consensus as to the outcome, apart from engaging in limited argument about the terms of the proposed first mortgage over the Neutral Bay property. This means in substance that the parties agreed to the disposition of the main contest in the proceedings.
2. The exercise of the Court's discretion to make an order for costs when a plaintiff does not wish to proceed with proceedings, where the defendants have consented to orders, or where the parties have otherwise agreed on the outcome of proceedings is informed by principles stated in two Australian leading cases. The first is a statement of Hill J in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194, at 201; (1993) 116 ALR 523; cited in Oxford Funding Pty Ltd v Oxford Asia Pacific Investments Pty Ltd (No. 2) [2006] FCA 1542, (at [5]): "(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order … (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation … (5) Where the proceedings terminate after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted … [Footnotes omitted]".
3. The second statement is that of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 ("Lai Qin"), at 624-5; (1997) 143 ALR 1, at 3; [1997] HCA 6: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. [Footnotes omitted]"
4. Here, each party submitted that the other has conducted itself unreasonably to a degree. The client asks for its costs. The solicitors submit that each party should bear its own costs.
5. Each of the parties' submissions will be dealt with in turn. The parties' submissions accurately set out the substance and timing of the respective communications between them. It is therefore sufficient to reproduce the parties' various contentions below. But where a communication or event is referred to as part of submissions the Court accepts, the event or communication happened as alleged.
6. Alternatively, the client contends that it has succeeded in substance and would have won had the proceedings continued.

The Plaintiff's/Client's Submissions as to Costs

1. The client seeks its party/party costs of the proceedings. It contends that it should have those costs because it offered security to the solicitors in various forms over the Neutral Bay property prior to commencing the proceedings. The client says that the defendant insisted on full payment of all disbursements and otherwise refused to consider the offers of the Neutral Bay property. The client says that the solicitors should have accepted the offer of the Neutral Bay property and that that was indeed the outcome of the proceedings. The client contends that in substance it would have succeeded and the solicitors have conducted themselves unreasonably.
2. The client points out that the Court's first judgment reflects the incontestable propositions: that some urgent action to resolve the impasse was required and it was reasonable of the client to commence the proceedings; that the form of security ultimately offered by the client was a form that eliminated all argument for the purposes of speeding up the outcome of the proceedings; that the Court has not concluded adversely to the client that the security originally offered would not have been acceptable; and, finally, that the terms of the mortgage, which occupied most of the parties' time in the courtroom, were determined by the Court and resulted in the parties achieving mixed success.
3. The client also relies upon its conduct prior to commencing the proceedings. It says that it conducted itself reasonably.
4. On 8 October 2019, prior to commencing the proceedings, the client offered security over the Neutral Bay property together with a proposed tripartite deed. The solicitors did not offer a counter proposal of some other form of acceptable security over the Neutral Bay property. Instead, the solicitors, in correspondence, insisted on full payment of all disbursements, including counsel's fees and other disbursements (exceeding some $135,000). It is not contested that many of these disbursements were not due until 11 and 14 October 2019 respectively.
5. Proceedings were commenced on 9 October 2019 in the Equity Duty List. There was little time to spare from the client's point-of-view after the 8 October 2019 exchange of correspondence, because the files in the solicitors' possession were required for the hearing in the Land and Environment Court, which was recommencing on 30 October 2019.
6. In the course of opening proceedings in the Duty List on 10 October, counsel for the client offered a mortgage over the Neutral Bay property. The Court then gave a preliminary indication, as commonly occurs in the Duty List, that, subject to the defendant having an opportunity to check the value of the Neutral Bay property and provide transcript, filing and subpoena fees to be immediately paid out of funds held in the solicitors' trust account, the offered mortgage would likely be a suitable security by the Court. Not long afterwards, the plaintiff agreed to apply the funds in its trust account of some $30,000 towards the outstanding indisputable Court related expenses that had been identified. The solicitors then accepted that a first mortgage over the Neutral Bay property was likely to be acceptable security.
7. The Duty List proceedings were then stood down. At 1:30m on the same day, 10 October 2019, the client prepared a registered first mortgage in the sum of $600,000 over the Neutral Bay property. But the solicitors had not finalised their position about the proposed mortgage by the time the proceedings resumed at 2pm. The proceedings were stood over to 11 October 2019.
8. The Court encouraged the parties to prepare for the possibility of a satisfactory security arrangement being agreed between them, so that there would be little delay in the delivery of files and new briefs to counsel on Friday, 11 October 2019. With this in mind, the solicitors allowed the copying of their files by secure arrangements over the evening of 10 October 2019 and the morning of the following day.
9. On the morning of 11 October 2019, the solicitors provided a series of proposed amendments to the mortgage. The client points out: that the amendments initially sought only claimed the amount of the outstanding fees; and that it was not until the solicitors' senior counsel became engaged with the issue that the amount sought to be secured was increased to $1 million.
10. At the preliminary appearances in the proceedings on 11 October, terms were sought by the solicitors in the proposed amendments to the mortgage, including a requirement that full payment be secured under the mortgage, if the assessment or review was not completed by 12 January 2020. Most of the rest of the disputed items were the subject of the Court's determination in the first judgment.
11. The mortgage was executed the afternoon of 11 October at approximately 1.30pm on terms that had been agreed between the parties subject to the resolution of the disputed terms, the subject of the first judgment.
12. The proceedings were called back on at about 3:45pm. At that time the additional terms which had been sought by the solicitors were the subject of argument.
13. The first judgment sets out the result of the contest about the terms. The client submits that, apart from the increase in the sum of the secured amount, it characterises the remainder of the terms the following way: "the remainder of the terms which have been permitted by the judgment are largely cosmetic or matters of form - not raised prior to 11 October 2019".
14. On this basis, the client seeks costs. The client accepts that there was some measure of success achieved by both parties on the terms of the mortgage. But the client points out that, insofar as the solicitors had success, it was largely limited to the costs incurred in the argument after 3:45pm on 11 October.
15. The client submits the matter should be approached by looking at the argument over the previous two days, on 9 and 10 October 2019. The client submits that the duration and scope of argument over the course of the proceedings on those two days would have been significantly reduced had the solicitors acted promptly on the initial offer of security, not insisted on full payment of disbursements, and contemplated some alternative payment into Court at an earlier stage. Due to this delay in reacting on the solicitors' part, the client says that much of the client's own costs and the solicitors' affidavit evidence were necessary.

The Defendants'/Solicitors' Submissions as to Costs

1. The solicitors' submissions start the timetable of relevant events somewhat earlier. They deny any delay in commencing the proceedings, given the exchanges that had taken place between the parties. They point out that the client terminated its retainer on 27 September 2019. That same day, the solicitors indicated that they required payment of outstanding legal fees and disbursements prior to the release of their files. They confirmed on Monday, 30 September 2019 that they were in receipt of all outstanding invoices relating to the Land and Environment Court proceedings and that the file would be released to the new solicitors immediately after receipt of outstanding fees and disbursements, or receiving adequate security satisfying the solicitors' lien over the documents.
2. They point out that no substantive responses were received to the 27 September or 30 September 2019 communications until about the middle of 8 October 2019. At that stage, the solicitor with carriage of the matter at the solicitors' firm was on leave overseas. The solicitors point out they had warned the client that the solicitor with carriage of the matter would be away that week and had done so in writing.
3. The solicitors accept they received the offer to resolve the matter by an offer of first mortgage security on 8 October 2019 over the Neutral Bay property, with the title to that property being held on trust by the new solicitors pending a cost assessment.
4. But the solicitors submit that the title was not a property owned by the client and was not one that was familiar to the solicitors, despite the solicitors having acted on behalf of the client and it's subsidiaries for approximately 18 months. The proceedings were commenced the following day on 9 October 2019.
5. The solicitors point out that the correspondence received from the client on 8 October 2019 provided no explanation for the delay in responding to the solicitors' initial assertion of the lien on 27 September 2019. The solicitors say that the delay of some 11 days after termination of the retainer before commencing the proceedings remains unexplained.
6. The solicitors submit that the proceedings were then rapidly commenced, only 24 hours after the first communication back to them, providing them with inadequate time to consider and research the legal issues, to negotiate and to respond to the client's proposal. They point out that the tripartite deed was provided some time thereafter; that is, after commencement of the proceedings. And this had the consequence that the solicitors were not able to properly brief lawyers to consider the tripartite deed prior to the commencement of the proceedings.
7. The solicitors therefore say that the urgency of the commencement of the proceedings was entirely brought about by the client's own doing: its failure to expeditiously and efficiently negotiate or to provide adequate security and, as a result, the appropriate order is one where each party should bear its own costs.
8. Two other issues are raised by the solicitors: the inadequacy of security initially offered by the client and the final form of the mortgage. As to the first issue, the solicitors say at no point prior to the commencement of the proceedings, or in the initial stages of the proceedings, did the client provide instructions to pay disbursements that the solicitors saw as indisputable, such as filing fees, transcript fees, and fees associated with subpoenas. The solicitors submit that the client has not provided any explanation as to its inability to meet the cost of those disbursements and, for that reason, an order for each party bearing their own costs is appropriate.
9. As to the second issue, the final form of the mortgage, the solicitors agree that a mixed result was achieved in relation to the terms of the proposed mortgage, as was characterised by the Court in paragraph [25] of the first judgment, so that this outcome should not lead to a costs order in the client's favour.

Conclusions and Orders

1. In the Court's view, the solicitors' arguments are persuasive. Each party should bear their own costs and that will be the result. There are three main reasons for this.
2. The alleged delay on the client's part in commencing proceedings has been largely explained by Mr Panicker, as was identified in the client's submissions in reply. Moreover, it can be accepted that this was a very disruptive time for the client.
3. The solicitors behaved reasonably, although the solicitors' original payment claims were broad and looked uncompromising. There was some failure on the part of the client to authorise the solicitors to pay indisputable fees and disbursements of a Court related nature. But both sides reasonably saw their way to a compromise on the doorstep of the Court.
4. But most importantly here, the solicitors always needed adequate time to consider the nature of the third-party security being offered on 8 October. Both the fact that it was a third-party security, and its quality as a security, were matters that were then unexplained and clearly needed to be investigated. Any delay on the solicitors' part in responding to this offer was well warranted. They were reacting quickly but reasonably in pressured circumstances.
5. And, this is not a case where judging who would have succeeded, if there had been a contest, is very productive. The client's final offer came so close to the commencement of proceedings that even if it had succeeded, there was sparse time to consider it.
6. The Court therefore makes no order as to costs, to the intent that each party will bear its own costs of the proceedings.

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: 25 October 2019