Remly v Annis-Brown

PARTIES : Remly Pty Limited v Wayne Vincent Annis-Brown trading as Lincoln Smith & Company

COUNSEL : Mr RW Tregenza for plaintiff Mr F Assaf for defendant

SOLICITORS : Holman Webb for plaintiff Lincoln Smith & Company for defendant

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2010/55270 REMLY PTY LIMITED v WAYNE VINCENT ANNIS-BROWN Trading as LINCOLN SMITH & COMPANY JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand served by the defendant on the plaintiff. The demand is dated 9 February 2010 in the sum of $98,460.53. The schedule to the demand discloses three amounts which flow from Certificates of Determination of Costs of Review. The debts are for legal costs due to the defendant's solicitor by the plaintiff company Remly Pty Limited and two of the company's directors Mr and Mrs Iacullo. 2 The relevant certificates were filed in the Supreme Court pursuant to s 378(3) and 379(6) of the Legal Profession Act 2004 and they are taken to be a judgment of the Supreme Court. There has been no appeal in respect of the determinations. Plaintiff's claim 3 The plaintiff raises an offsetting claim which is said has accrued to Mr and Mrs Iacullo who are shareholders in the plaintiff company. The offsetting claim is in respect of negligent advice in respect of a rent review in which Mr and Mrs Iacullo were involved in property which they owned. They were the landlord and during the course of the lease they sought advice as to what steps they should take to implement the rent review provisions. They allege that the advice which was given did not take account of clause 5.14 of the lease which required the parties, once they had agreed on the new rent review, to sign a document in writing. Apart from some unsubstantiated assertions of amounts the evidence suggests that the loss over the relevant period of the lease amounted to $72,600. 4 It will be appreciated that the claim for negligence against the solicitors is a claim which resides in Mr and Mrs Iacullo and not the plaintiff company, Remly Pty Limited. Under s 459H(1)(b) of the Corporations Act 2001 it is only the company who may raise an offsetting claim. Section 459H is as follows:

Determination of application where there is a dispute or offsetting claim

(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. 5 In Tatlers.com.au Pty Ltd v Davis [2007] NSWSC 835 White J held that in similar circumstances a plaintiff company could not raise such an offsetting claim. He explained the matter in detail and concluded his reasons in these terms:

[43] Hence, it was argued that if Ms Fletcher had been entitled to her debt against the defendant before proceedings were brought by the defendant against her and the plaintiff, then, as the proceedings brought by the defendant against her and the plaintiff were for a joint and several obligation, the debt owed by Ms Fletcher to the plaintiff could have been set off against the debt for which the defendant obtained judgment against both of them. It was submitted that the availability of the set-off should not depend upon the accident that judgment had already been obtained. To the contrary, so it was argued, the plaintiff should be entitled to set off against the judgment owed by it the amount owed by the defendant to Ms Fletcher where she was also jointly and severally liable on the same judgment debt as the plaintiff, in order to avoid circuity of action. Counsel submitted that if the plaintiff paid the whole of the judgment debt pursuant to the defendant's demand, it would be entitled to recover contribution from Ms Fletcher for half of the judgment debt paid, but she could recover $11,000 from the defendant. The same result is reached if the plaintiff, availing itself of the set-off available to Ms Fletcher, paid the defendant the difference between the two judgments, and if Ms Fletcher was given the benefit of the set-off on the claim for contribution. [44] However, this submission demonstrates the reason why one joint and several obligor who is sued alone cannot raise a set-off to which his or her co-obligor is entitled ( Bowyer v Pawson (1881) 6 QBD 540). The reason is that, in a suit so constituted, rights of contribution between the co-obligors cannot be resolved. To take the present case, if the plaintiff were obliged to indemnify Ms Fletcher against her liability under the judgment in favour of the defendant, it would be unjust to allow the plaintiff to rely upon the set-off available to her against the defendant. If that were permitted, she would have to look to the plaintiff, rather than to the defendant, to recover the $11,000 owed to her by the defendant. There is no equity in allowing the plaintiff to distort the true position by taking advantage of a set-off available to her ( Lord v Direct Acceptance Corporation Ltd (in liq) (1993) 32 NSWLR 362 at 369). The position would be different if the co-obligors are both joined in a suit so that a set-off available to one is actually given effect to, and rights of contribution between them can be determined. In the absence of such a suit, the plaintiff is not entitled to avail itself of the set-off available to its co-obligor ( Bowyer v Patterson ). [45] It is true that in Goodwin v Duggan , Handley and Beazley JJA said that it was possible that if the trustee had been sued alone, she could not have relied on a set-off available only to her co-trustee, rather than categorically stating that position. However, as a matter of principle and authority ( Bowyer v Pawson ), and conformably with the reasons of Powell JA in Goodwin v Duggan , in a suit so constituted, the trustee should not be entitled to raise the set-off available to her co-trustee. [46] It follows that in an action to set aside the statutory demand, to which the only parties are the plaintiff and the defendant, and in which the set-off available to Ms Fletcher cannot be given effect to, nor rights of contribution between the plaintiff and Ms Fletcher determined, the plaintiff cannot avail itself of the set-off available to Ms Fletcher. 6 In order to avoid what flowed from his Honour's reasons the plaintiff suggests that in this case there was an implied term in the retainer agreement with the solicitors which would allow this to occur. In written submissions the plaintiff submitted: "In the case of dealing with a solicitor by a husband and wife and their company it is reasonable to imply a term into a retainer that any previous claim for negligence may be offset against fees in respect of that matter." 7 In argument the plaintiff's counsel was asked to specify the term precisely. It was said that the term was "that any amounts may be set off against the solicitor for claims for professional negligence including any previous transactions". Presumably what is intended is that the term would be prefaced by the words "where a solicitor acts for a company and its directors". In submissions on this implied term question the plaintiff referred to Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 where the High Court said the following: " Implied term

The implication which the appellants seek to make is based upon the presumed or imputed intention of the parties. In that context, the remarks of the majority in the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283; 16 ALR 363 are frequently called in aid: (1) [the implication] must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. In laying down those criteria, it was recognised that there was a degree of overlap. Further, as Deane J has observed (see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 121; 55 ALR 417) the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council have been applied in this court are cases in which there was a formal contract, complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. And the test to be then applied was in a later case formulated by Deane J in these terms (see Hawkins v Clayton (1988) 164 CLR 539 at 573; 78 ALR 69): The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties." 8 In that case the minority of the Court, Gummow and McHugh JJ at 446, also added that in cases of informal contracts it was still necessary to show that the term in question would have been accepted by the contracting parties as a matter so obvious that it would go without saying. 9 As was pointed out by the majority of the Court, one must first determine the nature of the terms of the contact before one can start with the implication of the term as a result of imputed intention of the parties. 10 When one turns to the evidence in this case it is almost silent on the nature on the contract. It appears that there were five matters. The only evidence that seems to refer to a retainer is a letter from the defendant to Mr Iacullo concerning a caveat matter enclosing a copy of a cost agreement in a common form. The matter did not appear to have anything to do with the plaintiff company. In a letter dated 16 November 2009 from the solicitor addressed to the plaintiff company and Mr and Mrs Iacullo there was an attempt to incorporate that costs agreement. There is no evidence of any discussion about the retainer and the matter is simply left in a vacuum. 11 Whatever might have been the arrangements for the retainer it is plain that there is now a judgment in which the company and Mr and Mr Iacullo are liable for the amount claimed. It is clear that the company and Mr and Mrs Iacullo are jointly and severably liable for the amount of costs, it being a judgment and they being the judgment debtors. This was explained by McClellan CJ in Equity in Barclays Australia (Finance) v Mike Gaffikin Marine (1996) 21 ACSR 235 at 238 in these terms: "It is in my opinion incontestable that (subject to the rule against double satisfaction) a judgment or order for the payment of money against two persons jointly can be enforced against either or each of them individually: see eg in relation to costs orders Ex parte Bishop (1803) 8 Ves Jun 333; 32 ER 383; Sangar v Gardiner (1838) CP Cooper 262; 47 ER 497; Ryan v South Sydney Junior Rugby League Club [1975] 2 NSWLR 660; (1974) 3 ACLR 486; Thiess Watkins White Construction v Witan Nominees [1992] 2 Qd R 452; and in relation to other judgments or orders Miller v Myn n 1859 1 E1 & El 1075; 120 ER 1213; Re Low [1895] 1 QB 734; Re a Debtor [1936] 1 Ch 292; D J Colburt & Sons Pty Ltd v Ansen (1966) 85 WN (Pt 1) (NSW) 64. This does not depend on any implication that a money judgment or order against two persons is to be interpreted as joint and several, rather than as merely joint. The distinction between a joint liability of two persons and a joint and several liability of those persons has no significance in the context of a judgment or order against both those persons. Even in a contractual context, a joint (and not several) liability of two persons under a contract may be enforced against only one of them by action (subject to a discretionary power in the court, to require the party jointly liable to be added as a defendant to the action or to stay the proceedings until that party is added) (Halsbury's Laws of England, 4th ed, vol 9 paras 616 and 617, Glanville Williams Joint Obligations at pp 33-4, Supreme Court Rules Pt 8 r 5(2), King v Hoare (1844) 13 M & W 494 at 505; 153 ER 206 at 210; Re Hodgson (1886) 31 Ch D 177 at 188-9 per Bowen LJ; Norbury Natzio & Co v Griffiths [1918] 2 KB 369). Principle and authority alike support the simple proposition stated by Abbott J in Richards v Heather (1817) 1 B & Ald 29 at 35, 106 ER 11 at 13:

"By the law of England, where several persons make a joint contract, each is liable for the whole, although the contract be joint.""

12 I return to the question of whether the offsetting claim is genuine. 13 In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Palmer J usefully described a genuine offsetting claim in these terms: 18 In my opinion, a genuine offsetting claim for the purposes of CA s 459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s 459H(1) and ( 2). 14 The total absence of evidence of the circumstances of the different pieces of litigation makes it hard to see why there should be any implied term. It is abundantly plain that the claim for professional negligence solely relates to Mr and Mrs Iacullo's matter alone and had nothing to do with the company. It is hard to see why the court should imply such a term as the present one on the basis that it is necessary for the reasonable or effective operation of the contract. The contract for retainer could work equally well with the party who was given negligent advice being able sue the party who gave the negligent advice. If, as has occurred here, the negligent advice was not given to the other party why should it be able to take the benefit of that offset? 15 In my view there is no arguable basis for the suggested implied term. 16 Since the hearing of this matter I delivered judgment in Saratoga Integration Pty Ltd v Canjs Pty Ltd [2010] NSWSC 654 which dealt with the ability of a guarantor to raise set off available to the principal debtor. I gave the parties an opportunity to make any submission on the matter and have received submissions from both parties. 17 The defendant's submission argues that the decision of White J in Tatlers.com.au Pty Ltd v Davis was not plainly wrong and should be followed rather than my decision in Saratoga Integration Pty Ltd v Canjs Pty Ltd. 18 It is necessary to appreciate that in Saratoga Integration Pty Ltd v Canjs Pty Ltd there had been no judgment obtained by the lessor defendant against the lessee or the plaintiff. Thus absent the proceedings before me there was the real prospect of the hearing of a claim for rent against either the plaintiff guarantor or the lessee. In either event the question of set off could be raised provided all necessary parties were eventually joined. 19 In these proceedings, as in Tatlers.com.au Pty Ltd v Davis, the position is different. There is a judgment debt that is the basis of the statutory demand. There is thus nothing left for the final hearing of the proceedings in which the appropriate set off can be argued between the respective parties. 20 In these circumstances there is no prospect of any likely proceedings to determine the claims. 21 The plaintiff's recent submission may have mistakenly proceeded on the assumption that the Certificates have not been filed. They have been filed in the Supreme Court and there is a judgment. The plaintiff also in the submission sought leave to join Mr and Mrs Iacullo as defendants in these proceedings. That is quite inappropriate as these proceedings only have a statutory purpose and are not available to deal with questions of set off and ultimate liability. Unaccounted amount 22 The plaintiff also pointed to the documents which suggested that a sum of $13,188.14 had not been accounted for by the defendant. 23 Whether or not this occurred is difficult to tell from the documents but in any event it appears to be the subject of the Costs Certificates. In these circumstances, until the judgment is set aside it would be binding on the parties as a matter of res judicata, there not having been any appeal from that decision. 24 I dismiss the proceedings with costs.

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