Plaintiff v Defendants

2 On 30 November 2004 the plaintiff, Blue Cross Properties (Toorak) Pty Ltd ("Blue Cross"), issued this proceeding seeking damages for allegedly defective work in the construction of a nursing home by the defendant, Mackie & Staff Pty Ltd ("Mackie"), in 1997 and 1998. The writ was not served on Mackie until 4 November 2005. In June and July 2006 Mackie was given leave to serve a third party notice on the first third party, Ardex Australia Pty Ltd ("Ardex"); the second third party, Elite Tiling Group Pty Ltd ("Elite"); and the third third party, Lumley General Insurance Limited ("Lumley"). Blue Cross was then given leave to join Ardex and Elite as defendants, reserving to those additional defendants the right to plead and rely on any limitation defence and any other defence arising out of the time at which they were joined as defendants. Blue Cross and Mackie both alleged that Ardex had supplied a defective product (Superflex) for the 46 bathrooms and/or that Elite had negligently applied the Superflex. Mackie's claim against Lumley was that it was entitled to indemnity from Lumley against Blue Cross's claim under an insurance policy effected by Mackie with Lumley.

3 On 25 August 2006 the Court ordered, in part, that the parties file and serve any expert report upon which they intended to rely on or before 18 December 2006 and that a mediation take place on or before 26 January 2007. On 4 December 2006 it was ordered by consent that the time for the mediation be extended to 20 February 2007. This extension had been arranged by the plaintiff's solicitors by letters to the other parties dated 9 November 2006. The solicitors for Elite had responded by a letter dated 15 November 2006 in which they stated that their client agreed to the appointment of the mediator and to the mediation being held on 20 February 2007. By letters dated 12 December 2006 the plaintiff's solicitors confirmed the arrangements for the mediation. By a letter dated 16 January 2007 the plaintiff's solicitors wrote to the other parties pointing out that no expert reports had been served by them and advising that they required service of any expert reports within a reasonable time so that a response could be obtained from Blue Cross' expert. Its report had previously been provided to the other parties.

4 Between 5.30 and 6.00 p.m. on 19 February 2007, Mackie's solicitors served two expert reports on the plaintiff's solicitors. One report was dated 19 February 2007 and the other 4 March 2006! At the mediation held on the following day there was no attendance by the solicitors for, or any representatives of, Elite. The mediation was conducted in their absence.

5 Much of this information was set out in a letter from the plaintiff's solicitors to my associate dated 21 February 2007, which was copied to the solicitors for the other parties. The letter stated that the plaintiff sought orders that Mackie and/or Elite and/or their respective solicitors be ordered to pay the plaintiff's costs of and incidental to the mediation. Although the practice in the Building Cases List meant that Blue Cross was not required to issue a summons seeking its foreshadowed orders, rather surprisingly no affidavit was filed setting out the factual basis relied on by Blue Cross.

6 By another letter to my associate, dated 1 March 2007, which was copied to the solicitors for the other parties, the solicitors for Lumley advised that it was intending to apply for an order that Elite or its solicitors pay Lumley's costs of and incidental to the mediation.

7 Affidavits by the solicitor for Mackie, the solicitor for Lumley and the solicitor for Elite were sworn on 14, 15 and 16 March 2007 respectively. The short service of the last of these affidavits meant that other parties had not been able to respond to some of the matters mentioned in that affidavit, so I had no regard to them. What was revealed, however, by the affidavit by Elite's solicitor was that the solicitor had been instructed in late July 2006 by Elite's sole director and secretary that the claim related to services apparently provided by Elite in 1998 prior to the director being employed by Elite, that the solicitor was instructed to file an appearance on behalf of Elite pending further instructions regarding a defence, that the solicitor had sent the response on 15 November 2006 "in order to preserve Elite's position" and that he had received no instructions to file a defence. It was further revealed that on 5 February 2007 Elite's solicitors had received a letter from Mackie's solicitors stating that as no defence had been filed on behalf of Elite, they would object to Elite participating in the mediation.

8 The affidavit by Mackie's solicitor revealed that he had contacted Blue Cross' solicitors on 15 February 2007 advising that there was little point in proceeding with the mediation because, as a result of receiving Ardex's expert report on the previous day, Mackie now intended to join the plaintiff's architect and building surveyor as parties in the proceeding, and that Blue Cross' solicitors had refused to agree to any adjournment.

9 Further, the solicitor for Mackie deposed as follows:

1. Neither the third defendant nor its solicitors, Logie-Smith Lanyon were in attendance at the time the mediation was due to commence on 20 February 2007. The mediator, prior to commencing the mediation, assembled all the legal representatives of the parties (including the legal representatives of the plaintiffs) to discuss whether or not the mediation could or should proceed. After a short discussion, and with the unanimous agreement of all present, the mediator then telephoned Logie-Smith Lanyon to ascertain if their client would be represented at the mediation. The mediator then reported to the meeting that no one would be attending the mediation on behalf of the third defendant. All parties then discussed the absence of the third defendant and its solicitors and the possibility that other parties would have to be joined to the proceeding but agreed that it was possible to settle the proceeding notwithstanding the absence of the third defendant and its solicitors and the possibility that other parties would have to be joined to the proceeding and also agreed to proceed with the mediation notwithstanding the absence of the third defendant and its solicitors and the possibility that other parties would have to be joined to the proceeding.
2. The mediation then commenced at approximately 10.30 a.m. and continued until approximately 2.30 p.m.

Obviously, nothing could be said about what actually happened in the mediation itself or why it was not successful.[1]

10 In these circumstances, Blue Cross applied for the costs orders foreshadowed in the letter dated 21 February 2007; Ardex sought an order for costs against Elite, alternatively Elite's solicitors; Lumley sought an order for costs against Elite, alternatively Elite's solicitors; and Mackie opposed any order for costs against it. But Mackie also sought, in the event that Blue Cross recovered its costs from Elite, an order that its costs also be paid by that party. Elite opposed all of the applications for the costs against it or its solicitors. Both Blue Cross or Ardex sought to rely on the affidavits filed by the other parties in the absence of any material filed on their behalf.

11 Mr Guidolin of counsel, who appeared on behalf of Blue Cross, correctly submitted that Elite had breached the orders made by the Court by not attending the mediation and that Mackie had also done so by not serving its expert reports until late on the day before the mediation. (Ardex was also in breach of the Court orders by not serving its expert report until 14 February 2007.) Accordingly, Mr Guidolin submitted that as the costs incurred by his client in respect of the mediation had been wasted they should be paid by Elite, alternatively Mackie.

12 Mr Davis of counsel, who appeared on behalf of Ardex, supported Mr Guidolin's submissions in respect of Elite. In addition, Mr Davis made two important related points. First, he submitted that the parties who attended the mediation and decided to continue with it rather than adjourning it should not be penalised on the question of costs. Secondly, he submitted that I should infer that the chances of a successful outcome of the mediation were lessened by the absence of one of the parties. It would be sending the wrong message, Mr Davis submitted, not to make Elite pay the costs thrown away, on the basis that the parties who had attended the mediation had continued with it rather than adjourning it. That would only encourage parties to abort a mediation in similar circumstances in order to strengthen the argument that the costs had indeed been thrown away.

13 Ms Mathews, the solicitor representing Lumley, adopted Mr Davis' submissions.

14 Mr Bingham of counsel, who appeared on behalf of Mackie, submitted that the evidence in his instructing solicitor's affidavit about what happened prior to the mediation and what was discussed and agreed about continuing with the mediation rather than adjourning it and the fact that it then lasted for four hours demonstrated that the costs were not wasted. Accordingly, his primary position was that it was not appropriate for any costs to be awarded against any party.

15 Mr McKenzie-McHarg, the solicitor representing Elite, acknowledged that he had been remiss in not advising the other parties at an appropriate time that he would not be attending the mediation because he did not have any instructions that would have enabled him to contribute in any meaningful way. He submitted, however, that it had been open to Blue Cross or Mackie to enter judgment in default of defence, which was an indication of his client's attitude to the litigation. He also submitted that he had made his client's position very clear when telephoned by the mediator on the morning of the mediation. He therefore submitted that in the circumstances it could not be said that the other parties' costs of attending the mediation had been thrown away.

16 Parties are required to comply with orders of the Court. It is not a matter of choice whether or not the steps set out in an interlocutory order are observed. If an order cannot be complied with for some good reason then application should be made to the Court for variation of the order. At the very least, the consent of the other parties to the variation, such as an extension of time, should first be sought. Here, Elite's solicitors did not advise the other parties that it would not be filing any expert report or that they would not be attending the mediation. If solicitors cannot obtain instructions or funding from the client then they are entitled to file a notice that they have ceased to act.[2] But whilst they remain the solicitors on the record they are, in my opinion, required to comply with the orders of the Court even if they have no funding. Thus, Elite's solicitor should have attended the mediation, given that he had not applied for any exemption from attendance and had not even advised the other parties that he would not be attending. On the contrary, he had participated in making the arrangements for the mediation.

17 It is not correct, however, in my opinion, in the rather unusual circumstances of this case to categorise the costs of the mediation as wasted or thrown away. The mediation proceeded and it lasted for four hours. As the evidence before me made clear, the parties present at the mediation proceeded with it in the knowledge that neither a representative of Elite nor its solicitor would be attending. That fact combined with the absence of any defence by Elite must have given the other parties a pretty clear indication of Elite's attitude to the litigation. Moreover, the parties present at the mediation proceeded with it in the knowledge that Mackie was now intending to join two extra parties as a result of the (late) service of Ardex's expert report. For all I know it may have been this development rather than the absence of Elite which prevented the dispute being settled at the mediation. I therefore considered it inappropriate to order that the costs of Blue Cross, Ardex, Lumley or Mackie of the mediation be paid by Elite, or Mackie, or their respective solicitors, even though the latter parties had breached the Court's orders in respect of the mediation.

18 As the parties obtained directions about the joinder of third parties and other matters at the hearing on 16 March 2007 I ordered that the costs of that day, except for the costs of the third defendant, Elite, be reserved. In all the circumstances, it seemed to me not unreasonable that Elite should bear its own costs of the argument about the costs of the mediation.

[1] Section 24A of the Supreme Court Act 1986.

[2] Supreme Court (General Civil Procedure) Rules 2005, r.20.03.