Samadi v WKA Legal Pty Ltd

The issues in the Local Court and this Court

1. The proceedings in the Local Court involved a claim by the Solicitor against the Clients and Studio 54 for outstanding invoices for legal services alleged to have been performed. The defences raised to the Solicitor's claim in the Local Court (set out in the Principal Judgment at [3]) were as follows: 1. The proceedings were not maintainable since the Solicitor had failed to comply with the Legal Profession Act 2004 (NSW) (the 2004 Act) and the costs had not been assessed; 2. Several of the claims made in the invoices were statute-barred as the claims were founded in contract and proceedings were commenced more than six years after the cause of action accrued: s 14 of the Limitation Act 1969 (NSW); 3. The claim was not made out in respect of certain invoices because the amounts were not yet due and payable under operative conditional agreements; 4. The invoices issued to Studio 54 were not due and payable as there was no costs agreement between the Solicitor and Studio 54 and the amount of costs had not yet been assessed.
2. In the Local Court, the Clients were not permitted to argue (1); the Solicitor was successful with respect to (2) and (3) and Studio 54 was successful with respect to (4). In this Court, the Clients sought to make out a new version of (1), which I refused to allow them to press; and the Clients won on (2). Point (3) did not arise in this Court as the Clients did not challenge the factual findings made by the Court below that there were no operative conditional agreements. There was no challenge to (4) in this Court by the Solicitor but I upheld the Clients' argument that the order made by the Court below, that there be no order as to the costs of the Solicitor's claim against Studio 54, involved a miscarriage of the magistrate's discretion.
3. The effect of the Principal Judgment was to reduce the amount of the judgment in favour of the Solicitor in the Local Court from $38,826 (plus pre-judgment interest from 27 August 2015 to the date of judgment on 14 September 2017) to $21,428.50 (on the same basis).

Evidence of offers made to resolve the proceedings

1. The evidence established that the following offers were made in the Local Court to resolve the proceedings: 1. On 13 October 2016 the Clients made an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 WLR 586, which was open for 14 days, to resolve the proceedings on the basis that they would pay $20,000 in full and final settlement of the Solicitor's claim within 7 days of acceptance of the offer; and that the proceedings would be discontinued with no order as to costs. 2. On 15 December 2016, the Solicitor made an Offer of Compromise which was expressed to be in accordance with Part 20 Division 4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to accept $23,200 from the Clients provided that the Clients paid the Solicitor's costs and executed a deed of release. The offer was expressed to be open until 19 December 2016.
2. The evidence established that the following offers were made to resolve the proceedings in this Court: 1. On 24 May 2018 the Solicitor offered to accept $14,436.20 plus contractual interest and pre-judgment interest on the following basis: 1. that the Clients would pay in respect of the Local Court proceedings, 90% of his costs on the ordinary basis up to 15 December 2016 and 90% of his costs on an indemnity basis thereafter; and that the Solicitor would pay 10% of Studio 54's costs on the ordinary basis; and 2. that the Clients would pay in respect of the proceedings in this Court, 85% of 90% of the Solicitor's costs; and that Studio 54 would pay 85% of 10% of the Solicitor's costs on the ordinary basis. 1. On 18 July 2018 the Solicitor offered to accept $3,225.75 plus contractual interest and pre-judgment interest on the following basis: 1. that, in the Local Court proceedings, the Solicitor's claim against Studio 54 would be dismissed; the Clients would pay the Solicitor's costs on the ordinary basis to 15 December 2016 and on an indemnity basis thereafter; and that there be no order as to the costs of Studio 54; and 2. that the Clients and Studio 54 would pay the Solicitor's costs of the proceedings in the Supreme Court on the ordinary basis.

Consideration

1. None of the offers set out above was accepted. The result of the proceedings did not place any party in a better position than had it, or they, accepted the any offer made by the other party. The amounts offered were either too low or too high or, in the case of the Solicitor's offers to settle the proceedings in this Court, encumbered by highly unreasonable costs orders, such as to make their rejection not only reasonable but inevitable. Because the hearing in the Local Court took several separate days, I infer that the costs are worth significantly more than the judgment sum.

The parties' submissions

1. Ms Castle, who appeared on behalf of the Clients and Studio 54 submitted that it was appropriate, in the present case, to have regard to Local Court of New South Wales, Practice Note No Civ 1 (the Practice Note), which makes provision for case management of civil proceedings in the Local Court. It relevantly provides for maximum costs orders: "Part G - Maximum costs orders in the general division 36.1 This section applies to all proceedings (regardless of when the proceedings commenced) where the amount of the claim is $20,000 or less and includes: 36.2 Unless the court otherwise orders, the following orders are taken to have been made when the defence is filed in the proceedings: - if the plaintiff is successful and the claim is for an amount between $10,000 and $20,000, then the maximum costs that can be awarded to the plaintiff is 25% of the amount awarded by the court plus any amount that might be allowed in relation to costs incurred up to the filing of the first defence in the proceedings. . . . 36.3 A party may file and serve a notice of motion and supporting affidavit seeking to vary the maximum costs order at any time up until two weeks prior to the first review date. . . . 36.10 The maximum costs order referred to in paragraph 35.2 does not include the costs of any notice of motion, which will be separately determined by the court at the time of the hearing of the notice of motion."
2. Ms Castle accepted that cl 36.1 of the Practice Note did not, in terms, apply to the Solicitor's claim in the Local Court, which was in an amount of $42,386.85, which comprised the total sum of the invoices of $32,267.15 together with pre-judgment interest. However, she submitted that the "true" claim, being the amount claimed less the statute-barred invoices was, at the time of filing the statement of claim, less than $20,000, including contractual interest to 26 August 2015, being the date of filing the statement of claim and that therefore I should apply the limitations on recovery of cost in the Practice Note. She contended that the discretion as to costs in s 98 of the Civil Procedure Act 2005 (NSW) was unfettered (although it had to be exercised judicially). Ms Castle submitted it was not in the interests of justice that the costs of litigation exceed the amount in issue, particularly where the claim was a small one within the jurisdictional limit of the Local Court.
3. Mr Galvin, who appeared for the Solicitor, contended that the Practice Note had no relevance as the claim made by the Solicitor was almost double $20,000. He submitted that it was open to the Solicitor to view the email of 3 September 2009 (reproduced at [70] of the Principal Judgment) as an acknowledgement of debt and that, had the Local Court accepted that construction, the claim would have been allowed in full. Mr Galvin submitted the Solicitor had been largely, but not wholly, successful. He contended that there was no reason why costs in the Local Court ought not follow the event. He also submitted that, as Studio 54 had been represented by the same solicitors and counsel in the Local Court as had represented the Clients, any additional costs associated with Studio 54 would be immaterial in the context of the total costs. He argued that this circumstance meant that it would be appropriate that there be no order as to Studio 54's costs of the Local Court proceedings.

Consideration

1. The evident purpose of the Practice Note is to limit the costs recoverable in relation to small claims so as to ensure that they are not disproportionate to the amount in issue. I apprehend that the costs associated with the proceedings in the Local Court (and in this Court) are grossly disproportionate to the amount in issue. However, I do not regard it as being in the interests of justice to construe the Practice Note as if it applied to the present case since it does not apply in terms. In circumstances where the draftsperson made a distinction between the "claim" and the "amount awarded", it would create unfairness to plaintiffs to construe "claim" to mean "maintainable" or "successful" claim since this would tend to elide the distinction between the two. It is therefore necessary to exercise the discretion as to costs in accordance with general principles.
2. I have reviewed the evidence in the Local Court and the transcript. Point (1) above, which the Magistrate did not permit the Clients to argue, took up very little time. There were only two witnesses, Mr Keay and Mr Samadi. The evidence in chief was almost exclusively given by affidavit. The cross-examination of Mr Keay by counsel for the Clients and Studio 54 took a relatively short time on 19 December 2016. The cross-examination of Mr Samadi was conducted over two days. It commenced on 19 December 2016 and took almost the whole of the second day, 30 March 2017. Part of the cross-examination concerned whether Mr Samadi had received the invoices. Counsel addressed the Court on the third day, 26 May 2017. At the conclusion of the third day, the matter was set down for judgment on 26 July 2017.
3. I do not regard the hearing in the Local Court as having been conducted efficiently by the Solicitor. The matters in issue largely depended on documents, which were incontrovertible. Mr Keay had documentary evidence of having sent the invoices on which his claim was founded to the Clients on particular dates. There was, thus, no need to extract admissions from Mr Samadi that he had received the invoices. His inability to recall receipt could be explained by the absence of correspondence between 2011 and the filing of the statement of claim in the Local Court on 26 August 2015. The alleged conditional costs agreements depended on the construction of correspondence which was annexed to affidavits. The lengthy cross-examination was not conducive to the efficient conduct of the proceedings.
4. In addition, the email of 3 September 2009 could not reasonably be construed as an acknowledgement of debt.
5. Further, although the Solicitor was partly successful in the proceedings in the Local Court, he was unsuccessful (taking into account the result of the appeal from the Local Court judgment) concerning a major issue in the proceedings. In these circumstances I consider the appropriate order in the Local Court proceedings to be that the Client pay 50% of the Solicitor's costs. I do not see any reason to depart from the general rule in UCPR, r 42.1 that costs ought follow the event in respect of the Solicitor's claim against Studio 54.

The parties' submissions

1. In respect of the proceedings in this Court, Ms Castle submitted that there was no reason to depart from the general rule that costs ought follow the event. As the Clients and Studio 54 succeeded in this Court, she submitted that the Solicitor ought be ordered to pay their costs of the proceedings.
2. Mr Galvin submitted that there was good reason to depart from the general rule that costs follow the event in the present case as the Clients abandoned several of their grounds at the hearing after the appeal papers had been prepared and written submissions had been filed. He contended that the way in which the appeal books had been prepared increased the time required to comprehend how the proceedings had been conducted in the Court below.

Consideration

1. The claim brought by the Clients and Studio 54 in this Court was defined by the summons filed on 16 November 2017. The grounds set out in the summons are reproduced in the Principal Judgment at [10]. The Clients were successful on ground 1; they abandoned grounds 2-5 at the hearing; and Studio 54 was successful on grounds 6-10. The grounds which were abandoned at the hearing raised an error of law which I did not permit to be argued as it had not been run at trial. None of these grounds raised any question about the alleged conditional costs agreements since they related to s 317 of the Legal Profession Act 2004 (NSW). Section 317 has no application to s 323, which is concerned with conditional costs agreements. Grounds 2-5 took up very little time at the hearing on 25 July 2018 and did not appear to have been addressed to any substantial extent, if at all, in the written submissions.
2. As the hearing of the appeal and the leave application was completed within a single day, I do not regard it as appropriate to carve up the time spent on the grounds which the Clients abandoned, particularly as the time spent on those grounds was relatively short.
3. It is also of relevance to the costs discretion in this Court that the Solicitor opposed the extension of time for the application for leave to appeal and the appeal on grounds which were, for the reasons which are apparent from [72]-[74] of the Principal Judgment, wholly unmeritorious.
4. There is force in Mr Galvin's submission that the way in which the material before the Court below was arranged was not conducive to an efficient appreciation of what had occurred in the Court below. In a case such as the present there is much to be said for the arrangement of exhibits, transcript and reasons for decision as provided for in appeals to the Court of Appeal. Nonetheless, all the material was provided by way of annexures or exhibits to affidavits read in this Court, as contemplated by UCPR, r 50.14. While there was some duplication of material in the affidavit of Mr Vishney sworn 17 April 2018, which was already exhibited to Ms Keating's affidavit, this is a matter which I regard as within the purview of the costs assessor, rather than a matter which should sound in a different order for costs.
5. I am not persuaded that there is any reason to depart from the usual order in the proceedings in this Court that costs ought follow the event.
6. I note for completeness that I raised the question whether the present case was one in which it would be appropriate for costs to be specified in a gross sum pursuant to s 98(4) of the Civil Procedure Act. Ms Castle indicated that the Clients and Studio 54 would agree to the specification of a gross sum for costs. Mr Galvin indicated that he was instructed to oppose that course. In the circumstances, I decided to allow the matter to be assessed in the usual course by a costs assessor.
7. I also note Ms Castle raised the issue of the so-called Chorley exception (named after London Scottish Benefit Society v Chorley (1884) 13 QBD 872) to preserve the Clients' and Studio 54's right to raise an objection on assessment. It was common ground that this was a matter which could be addressed by the costs assessor.

Orders

1. For the reasons set out above, I make the following orders: In proceedings 2015/25029 in the Local Court of New South Wales: 1. Order the first and second defendants to pay 50% of the plaintiff's costs of the proceedings. 2. Order the plaintiff to pay the third defendant's costs of the proceedings. In proceedings 2017/347095 in the Supreme Court of New South Wales: 1. Order the defendant to pay the plaintiffs' 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: 09 August 2018