Sande v Medsara Pty Limited

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

4098/03 Joseph Sande and Diana Sande (first plaintiffs), Andrew Terides (second plaintiff), Esther El-Hage (third plaintiff), Tony Dbais (fourth plaintiff), Shane Hugh Mills (fifth plaintiff), and James Moreland and Sara Wendy Moreland (sixth plaintiffs) v Medsara Pty Limited

JUDGMENT 1 His Honour: In this matter, I published reasons for judgment on 11 March 2004, when I directed the bringing in of short minutes of orders to reflect those reasons. Upon the short minutes being brought in, counsel for the plaintiffs sought an order for costs against the defendant on the indemnity basis. I heard argument on that question, and reserved my decision in respect of it, which I now deliver. 2 In the reasons delivered on 11 March 2004, the Court found that the plaintiffs were entitled to rectification of six sets of put and call options with annexed contracts for the sale of suburban houses and land. The circumstances are detailed in my judgment with which these reasons should be read, and I shall do no more now than refer to some aspects of the matter. What is important for present purposes is that the ground of rectification which I held to be proved was unilateral mistake of which unconscientious advantage was taken by the defendant, knowing that a mistake - indeed a serious blunder - had been made by the plaintiffs' then solicitor in respect of two vital contractual terms. The crucial issue in the case was whether the defendant, by its executive director Mr Raad, was aware of the mistakes and deliberately chose to complete the exchange of counterparts without saying anything about them and in such a manner as to minimise the chances of discovery of the mistakes upon exchange. As Mr Raad was personally involved in the consideration of the forms of option and contract that were submitted to the defendant, and in the giving of instructions about exchange, in particular in the acceptance on behalf of the defendant of one small disadvantage inherent in the errors in order to gain much greater advantages, and had also been personally involved in the oral negotiations that preceded the drafting of the contractual documents, it was a feature of this case that my findings on the essential facts inevitably involved the proposition that the defendant at all times knew its defence was based on a falsehood. Mr Raad knew when he received the documents, and of course continued to know afterwards, that those documents contained serious errors by comparison with the express oral agreement he personally had made with the vendors' agent, Mr Davis. Yet the rectification proceedings were vigorously contested and, at the hearing, the credit of Mr Davis was attacked at length, but tangentially, in an attempt to persuade the Court to reject his evidence. The time taken at the hearing on issues the true facts about which were known to Mr Raad, and in respect of which it was convincingly proved that his evidence was false, was a very considerable proportion of the time the parties were before the Court. 3 There was also an issue in respect of an alteration of one of the documents to conform with corresponding entries made by mistake in the other documents. I held that alteration was made either by or on the instructions of Mr Raad, who is a solicitor. For present purposes, the most telling aspect of this issue is that, in denying Mr Raad's involvement, the defendant called false evidence from a Mr Kerz, an employed solicitor, about what occurred in relation to the altered document, evidence the falsity of which must have been known to Mr Raad because it centred upon a concocted version of communications between him and Mr Kerz. 4 I take as my starting point the principle that the ordinary rule, where the Court orders the costs of one party to litigation to be paid by another, is to make such an order on a party and party basis. It is necessary to find some special or unusual feature which justifies the Court in departing from the ordinary practice, because the justice of the case so requires, before a discretion will be enlivened in the Court to make an order on some other basis, such as an order for indemnity costs. Nor will an order for indemnity costs automatically follow in every such case: what will follow is that the Court will have a discretion to make such an order. However, it has also been held that the categories of cases in which the discretion may be exercised are not closed. Many authorities support these propositions, and I cite only: Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, a decision of Sheppard J; Ragata Developments Pty Ltd v Westpac Banking Corp (1993) BC 9304555, a decision of Davies J; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, a decision of Woodward J; Degmam Pty Ltd (In Liq.) v Wright (No.2) (unreported, Holland J, 11 October 1983); Harrison v Schipp [2001] NSWCA 13; Re Smith; Ex parte Rundle (No. 2) (1991) 6 WAR 299; Oshlack v Richmond River Council (1998) 193 CLR 72 at 89, per Gaudron and Gummow JJ. 5 In Oshlack v Richmond River Council at 89, Gaudron and Gummow JJ said: "It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." In making this statement, their Honours cite as authorities a group of cases including Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 at 502. There Tadgell J said: "Upon the facts as I have found them the pursuit of the action was in my opinion a high-handed presumption. In the end, it was conceded for A.G.C. that Mrs. De Jager's signature was a forgery. Having pursued the action with the knowledge of French's conduct that it had, and failed, A.G.C. allowed itself a luxury. The Court ought to do what it can to ensure that Mrs. De Jager is not out of pocket over it." In order to understand his Honour's comments, it is necessary to refer to the findings he had made in the earlier portions of his judgment. The case was not, as the case before me is, a rectification suit. But it was a case in which a mortgage purporting to bear the signature of Mrs De Jager, which was in fact a forgery, was submitted to AGC in support of a loan it was proposing to make to two business men one of whom was her husband. Although AGC was not aware at the time that the signature in question was a forgery, his Honour held on the evidence that it was aware, through a relevant officer, that her signature had not been properly attested; the purported attestation had been inserted subsequently by Mr French who had not seen her sign the document. It was substantially because AGC pursued an action to enforce the mortgage against Mrs De Jager in those circumstances that Tadgell J made the comments I have quoted from his judgment, which are to be found in the passage Gaudron and Gummow JJ relied upon in Oshlack, and ordered AGC to pay her costs as between solicitor and client. 6 In my opinion, the principle upon which Tadgell J proceeded is equally applicable here. If, to use the expression adopted by Gaudron and Gummow JJ, there was "some relevant delinquency" on the part of AGC in seeking to enforce in a Court proceeding a mortgage the purported attestation of which it knew to be bad, equally, it seems to me, there was "some relevant delinquency" on the part of the defendant here in seeking to maintain contracts it knew it had secured through serious error on the part of the other parties' solicitor of which it had been astute to take advantage. Particularly was that so when it knew the crucial evidence on which the case would turn was true, but called false evidence to deny it and made a collateral attack on the credit of the relevant witness in an attempt to induce the Court to reject his evidence. 7 I am conscious that an order for indemnity costs should not be based on no more than the conduct - in a case of this kind, the unconscionable conduct - which is the foundation of the plaintiffs' entitlement to relief. The remedy for that conduct is the substantive relief granted by the Court, and normally granted with an order for party and party costs: Harrison v Schipp at [136]. The conduct on which Tadgell J relied, and the analogous conduct in the present case to which I have referred, is conduct in the litigation in which the unsuccessful party insisted upon the enforceability of documents known to be fatally defective, thereby compelling the other party to incur costs in demonstrating the truth. Tadgell J described such conduct as "high-handed". I would prefer to describe the exhibition of it in the present case as "impudent", but it clearly involves what Gaudron and Gummow JJ described as "some relevant delinquency" and Malcolm CJ (with whom Pidgeon and Rowland JJ agreed) in Re Smith; Ex parte Rundle at 301 described as "deserving of criticism". Cf Degmam Pty Ltd (In Liq) v Wright where Holland J said of a party: "It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant." Holland J granted a special costs order. Similarly in Packer v Meagher (1984) 3 NSWLR 486, Hunt J made a special order on the basis that the proceedings were founded on an improper motive so as to be an abuse of process. Each of the last three cases I have cited was also cited by Graudron and Gummow JJ in Oshlack v Richmond River Council at 89. 8 In the present case, the plaintiffs did not simply bring their proceeding. They notified the defendant of their discovery of the mistakes and they sought consensual rectification. That was rejected out of hand, and on the findings of fact that I have already made it was so rejected in the knowledge that the truth was the defendant had unconscientiously taken advantage of the mistakes the plaintiffs were seeking to remedy. From the beginning, the defence was necessarily based on the assertion of what was known to be false, that there had been no mistake deliberately exploited by the defendant. 9 In my opinion, it is proper to make an order that the defendant pay the plaintiffs' costs of the proceeding upon the indemnity basis, and it is so ordered.

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