Parissis v Etna

Supreme Court of Victoria|1998-11-12|Before: Smith J.

In this matter the plaintiffs seek an order pursuant to Rule 63.23 Supreme Court Rules that the solicitors for the defendant be ordered to pay part of the plaintiffs' costs of the proceedings.

The basis of the application was set out in a letter dated 2 November 1998 as follows:

(a) Your firm upon instructions prepared the affidavit of the defendant sworn 1 July 1998 and in particular para 5 and para 54 - 58.

(b) Your firm upon instructions prepared the affidavits of David Gall sworn 4 September 1998, Vitina Bernadette Costa sworn 4 September 1998, John Antoni Costa sworn 9 September 1998 and Mario Costa sworn 9 September 1998.

(c) All of these affidavits were tendered on behalf of the defendant as exhibits in the proceeding when it was known or ought to have been known by your firm that the conditions for re-financing imposed by St George Limited did not preclude specific performance of the contracts of sale of the relevant units at contract prices.

Further, the application will also be based upon the unnecessary expenditure of costs in respect of further affidavits of the plaintiffs and the need to return to Court in respect of the issue whether the plaintiffs were ready, willing and able to perform the contracts of sale."

I can deal shortly with the last part of the application relating to costs incurred on the issue of whether the plaintiffs were ready, willing and able to perform a contract of sale. I am satisfied that the issue was one which the defendant had instructed his legal representatives to fight from the outset of the case. In those circumstances, evidence would have been required in any event. The problem that arose was that statements by counsel for the defendant had led to the plaintiffs' representatives, and the Court for that matter, to believe that this was not an issue. Some inconvenience was caused as a result but that was not such as to warrant any unusual costs orders. The costs on that issue should in my view follow the event.

As to the first issue, it is put for the plaintiffs that the solicitors for the defendant prepared affidavits that asserted that the position of "the Bank" was that the contracts of sale which were subject of the proceedings could not be settled at contract prices but that "the Bank" would inevitably require settlement at current market value. Reference is made to paragraphs 5 and 54 to 58 of the affidavit of the defendant sworn on 1 July 1998. It is put that on that same day, 1 July 1998, the re-finance with St George Commercial Bank (St George) was settled and documents were executed including a deed of cross-collateralisation which included the clauses giving the guarantors' consent to St George settling the contracts in question. It is further submitted that the defendant's solicitors prepared the affidavit of Mr Gall sworn 4 September 1998 in which he asserted that St George would not release its securities without the consent of the guarantors. It is also put that the defendant's solicitors prepared affidavits of the guarantors Vitina Bernadette Costa, John Antoni Costa and Mario Costa sworn in September 1998. The plaintiffs submit that no explanation was forthcoming at the trial as to why the affidavits were drawn in the way they were when they were clearly in conflict with "the Bank's" documentation in two aspects. The first aspect was the assertion that "the Banks" would insist upon market value being obtained on the properties. The second was that assertion that consents from guarantors would be required. It is put that the issue as to impossibility relying on the alleged position taken by "the Banks" and that of the guarantors occupied three days of the trial. It is further submitted that the explanation in the affidavit sworn by Anthony Todaro on 5 November 1998 is inadequate.

In the affidavit of Frank Etna sworn 1 July 1998 (para 5) he referred to his earlier affidavit of 22 May 1998, and deposed that he had there said that the raising of sufficient funds could not be effected on the basis of the sale prices of the unit in question and that

"sufficient funds to refinance the project could only be procured on the basis that re-financiers could lend against the units on the basis of current market valuation."

In paragraphs 54 to 58 he deposed to the arrangements that had been reached with St George in Melbourne for re-financing the development. The paragraph set out details of the arrangements. Nowhere in the affidavit is reference made to the paragraphs in the deed of cross-collateralisation referred to in my reasons for judgment which appointed St George the agent of the defendant in the event that orders were made for specific performance of the contracts of sale to the plaintiffs. No mention is made of the fact that the deed also recorded the consent of guarantors, including the defendant, given to St George should it effect the settlement of the contracts at the contract prices. No mention is made of the fact that the guarantors, including the defendant, had agreed in the deed of cross collateralisation to indemnify St George against any claims that might be made arising out of the sale of the properties in question. It was known to the lawyers for the plaintiffs that money had been lent by St George on the basis of the contract prices not on the basis of the valuation. The lawyers for the plaintiffs, however, were not aware of the issues dealt with in the deed of cross-collateralisation to which I have referred above. They did not become aware of these issues until well into the trial even though they had subpoenaed the documents and the documents had been brought to the Court on two occasions - the first before the Practice Court and the second at the commencement of the hearing before me.

Mr Gall in his affidavit, which was drafted by the solicitors for the defendant but settled by the lawyers advising Mr Gall, stated amongst other things

"If Catani Gardens requested that a discharge be provided in respect of the sale for the price for a particular unit in the referable rescinded contract instead of substantially the market value of the subject unit I would not authorise St George to provide such discharge without the consent of each of the guarantors, as in my opinion to do so may expose St George to claims from the guarantors. "

The affidavits sworn by Mario Costa, Vitina Bernadette Costa and John Antoni Costa all deposed that if St George sought their consent as guarantor for the sale of the units for the contract prices and not the market value they would not give their consent.

In view of what was contained in the documents executed by these deponents and in view of the fact that the defendant's solicitors drafted all the affidavits, it is, on the face of it, remarkable that those affidavits were sworn with those statements in them. They formed a critical part of the defence of Mr Etna to the claim for specific performance, namely, the defence of impossibility of execution of any order for specific performance.

In response to the application Mr Todaro has sworn an affidavit that he has the care and conduct of the proceeding with Andrew Tregear of the defendant firm. I note that counsel for the plaintiff did not seek to cross examine Mr Todaro and I proceed on the basis that I should resolve this application accepting as correct the statements that are relevant that are made by Mr Todaro. He makes the following points:

(1) Neither he nor Mr Tregear, or Mr Cetrola of the defendant's solicitors who was advising on finance matters, was aware of the provisions of cl. 5.5 and 5.6 of the deed of cross collateralisation (see reasons for judgment paragraph 80) until it was raised in the trial by the plaintiffs counsel on 14 September.

(2) A large number of security documents were prepared by Molomby & Molomby on behalf of St George Bank and delivered to the defendant's solicitors on the "evening" prior to the settlement day of 1 July 1998. A letter is exhibited to the affidavit which lists some 27 documents. The defendant's solicitors were to liaise with John Cicero of Best Hooper who was acting for the guarantors for him to receive the security documents and arrange for the execution by the guarantors. What occurred was that Mr Cicero met with the guarantors at the offices of the defendant's solicitors on the morning of 1 July 1998 to enable execution to occur and for the return of the documents to Molomby and Molomby across the road.

(3) After the documents were executed they were returned to Molomby and Molomby.

(4) A copy of the deed of cross collateralisation was not retained by the defendants solicitors. It is not stated whether any other documents were retained by the defendants solicitors.

The affidavit does not state whether Mr Todaro read the documents or whether Mr Tregear or Mr Cetrola did so prior to their client executing the documents. Mr Todaro states that neither he nor Mr Tregear "were privy" to all the documents prepared but that he, Mr Todaro, "was generally aware of the nature of the securities provided". In light of his affidavit, one must infer that neither he or Mr Tregear perused the documents.

As to the affidavit sworn by Mr Gall, a rough draft was sent to him and over the next few days there were conversations between Mr Todaro and Mr Greenall a partner of Molomby and Molomby concerning whether Mr Gall was required to give evidence and what his evidence would be. Mr Greenall, after further discussion, advised that Mr Gall would be prepared to meet with senior counsel to discuss his evidence and consider settling an affidavit. A meeting was held on 2 September 1998 at the chambers of senior counsel attended by senior and junior counsel Mr Tregear, Mr Greenall, Mr Gall and Mr Todaro. The draft is not supplied although senior counsel indicated in court that his client would be prepared to do so. Mr Todaro deposes that Mr Gall and Mr Greenall accepted the first five paragraphs but did not accept the remaining paragraphs of the draft affidavit

"which dealt with issues pertaining to St George providing a discharge in respect of a particular unit for the sale price referable to the rescinded contract price rather than substantial market value of that unit. They replaced those clauses with what is contained in the second half of cl.6 of Mr Gall's sworn affidavit. There was no mention by Mr Gall or Mr Greenall of the deed of cross collateralisation or its terms."

The plaintiffs rely on order 63.23 which provides as follows:

"63.23(1) Where a solicitor for a party, whether personally or through a servant or agent, has caused costs to be incurred improperly or without reasonable cause or to be wasted by undue delay or negligence or any other misconduct or fault, the Court may make an order -

(a) ...

(b) ...

(c) the solicitor pay all or any of the costs payable by any party other

than the client."

In applying this rule I accept that the primary object is to

"Reimburse, to a party to proceedings his costs which that party has incurred because of the default of the practitioner"

and that the purpose of the jurisdiction is "compensatory rather than punitive or disciplinary" (per Goldberg J in White v. Flower & Hart [1998] FCA 806; (1998) 156 ALR 169 at 229 citing Myers v. Elman [1940] AC 282, at 289, 319). I note also that in Myers v. Elman it was suggested that the jurisdiction should only be exercised where there has been a "serious dereliction of duty " (Viscount Maugham at 292) or a failure to conduct litigation "with due propriety" (per Lord Atkin at 302). Those passages are referred to by Goldberg J in his above judgment and also is a passage from Bendeich No. 2 [1994] FCA 1504; (1994) 53 FCR 422 at 427 where it is stated that so long as the lawyers are

"not guilty of professional misconduct or gross, as opposed to mere, negligence in the way they conduct the client's case, they will not be exposed to personal liability to pay costs of their own client or of the opposing litigant."

Rule 63.23, does not in terms refer to or require the establishment of gross negligence. It is sufficient for the discretion to arise that it be demonstrated that a solicitor has caused costs to be wasted by negligence or some other misconduct or default. In the end, as I understood the submission for the plaintiffs that was the basis upon which the plaintiffs sought to found the application. On that basis, it is sufficient to establish negligence, as opposed to gross negligence to be able, then, to invite the Court to exercise the discretion to make the orders sought. It remains for the court to determine whether to make such an order but the rule is silent as to the criteria to be applied in the exercise of that residual discretion. It would seem to me that in the exercise of that discretion it would be appropriate, among other things, to consider the degree of negligence and the consequences of that negligence in determining how to exercise discretion. Further, it would seem to me that the discretion is not to be lightly exercised and one needs to guard against the effect of hindsight which may make omissions of solicitors seem far more significant than they were.

Counsel for the defendant sought to argue a particular construction of Rule 63.23 which requires that it be shown that costs have been caused to be incurred improperly or without reasonable cause by negligence. It seems to me that such a construction ignores the use of the disjunctive "or" throughout. The opening lines of rule 63.23 (1) are intended in my view to raise a series of alternatives which will enable the discretion to be invoked.

Looking at the facts before me, I do find it remarkable that the solicitors for the defendant did not peruse the security documents very closely when they came into their possession. I would have expected a solicitor acting with due care to do so. The client was in the middle of an important fight with several purchasers, having purported to rescind their contracts, and was attempting to defeat claims for specific performance of those contracts. A major issue he was relying upon was impossibility of performance based on the requirements of financiers as at 1 July 1998. An affidavit had been drawn which purported to set out in some detail the arrangements with St George. I would have expected a solicitor acting with due care to study closely the documents with a view to exhibiting them to the affidavit to demonstrate the reality of the factual allegations made - in particular, the fact that St George was demanding the right to sell the properties at market value should the need arise. If such terms had existed in the documents they would have made the case of the plaintiffs extremely difficult to win.

Further, a solicitor acting with reasonable care would want to ensure that whatever his client deposed to about the financial arrangements accorded with the documents; for, if not, his client's credibility could be severely damaged in cross-examination. I find it remarkable, therefore, that the solicitors for the defendant in the litigation apparently did not examine the documents. However busy they were, I would have expected them to examine them closely.

If the solicitor had read the documents and absorbed their contents, it would have become apparent to him that the position his client sought to maintain could not be maintained in the terms advanced in the affidavit of Mr Etna. Further, it would have been apparent that there was no point in pursuing the issue of the consent of guarantors which led to the further affidavits at a later date because the consents had already been given and the guarantors had further indemnified St George against any claims that might arise from the release of securities.

Attempting to make due allowance for the impact of hindsight it seems to me that the solicitors acting for the defendant were negligent in the way the conducted themselves for the defendant. They should have closely perused the documents for the two reasons I have advanced above. Their failure to do so meant that the case proceeded on a basis without any foundation and led to the unnecessary incurring of costs, costs that were wasted.

Before leaving the affidavit material I should note that, in my view, the affidavit filed by Mr Todaro has been less than frank. It does not condescend to detail as to the source of the instructions for Mr Etna's assertions in his affidavits and in particular the assertions in paragraphs 5 and 54 to 58 of his affidavit. It deals obliquely with the question whether Mr Todaro and Mr Tregear read the documents. It says nothing about whether Mr Cetrola read the documents, and, if he did, whether he spoke with the other solicitors about them. It does not include the draft of the affidavit submitted to Mr Gall although that issue was addressed by counsel for the defendant in the offer to make it available, an offer not taken up by the plaintiffs. I note for the record that there were provisions other than clauses 5.5 and 5.6 of the deed that were relevant, too, namely, clause 7 of the deed of cross-collateralisation and clause 5.2.1 of the guarantees. Mr Todaro did not depose that he was unaware of them but I do not take those matters into account; they were not raised by the plaintiffs.

It seems to me that the pre-conditions for the exercise of the discretion are made out.

In exercising the discretion, it is relevant to consider the argument put for the defendant's solicitors that the lawyers for the plaintiffs twice had the opportunity to examine the documents and did not do so and that if they had the issue would have surfaced at the hearing in the Practice Court or alternatively at the commencement of the present hearing. This is true, but the omission resulted from counsel for the plaintiffs assuming that Mr Etna, and his solicitors and Mr Gall were not attempting to mislead the court and that the documents were consistent with the affidavit that had been sworn. They were entitled to assume that the solicitors for the defendant had acted with reasonable care and were familiar with the terms of the documents because they would have made it their business to become familiar with them in acting for Mr Etna both in the course of the transaction themselves and for the purpose of the case. It seems to me that the negligence of the defendant's solicitors was the precipitating cause of the problem and that any failure by the lawyers acting for the plaintiffs to inspect the documents should not protect the defendant's solicitors from an order for costs.

It may also be said that the negligence was of sufficient gravity to warrant the making of an order against the solicitors. As to the consequences, I am satisfied that significant delay was caused, but not to the extent of three days of hearing. Having regard to the way in which the case was fought by the defendant in which no quarter was given and one unsuccessful ambush carried out, I accept the assertion of counsel for the defendant that the issue of impossibility would still have been fought and an attempt would have been made to raise doubts at least about the impact of the involvement of St George on the chances of having the contracts specifically performed. In the circumstances in seems to me that some time would have been spent on the issue although it would not have been as long. In my view a reasonable estimate would be that two days of the hearing were wasted. This was a significant imposition on the parties.

Having regard to the foregoing, I am satisfied that this case is an appropriate one in which to make an order against the solicitors for the defendant in favour of the plaintiff for their costs of two days of the hearing.

At a glance

Court

Decision date

Before

Source

Judgment (37 paragraphs)

Parties

Cases Cited (2)