Sargeant v HE & FE Campbell Agricultural Machinery

Mr Sargeant's evidence and submissions

1. Mr Sargeant adduced evidence as follows in support of his costs application: 1. A letter from his solicitors (APJ Law) to the solicitors for the Campbell interests (Stuart Cook & Braham) dated 2 July 2015, together with an email to Mr Sargeant dated 1 July 2015 seeking his instructions to send the letter; 2. A letter from APJ Law to Clifton Legal (the solicitors for the Campbell interests in this Court) dated 16 October 2015; 3. A letter from Clifton Legal to APJ Law dated 27 October 2015.
2. In the letter dated 2 July 2015 (which was sent on instructions from Mr Sargeant obtained on 1 or 2 July 2015) APJ Law identified a possible conflict and suggested that Stuart Cook & Braham could not act for the Campbell interests (since the solicitor was present when the parties met to discuss a business interest). APJ Law also asserted that the Campbell interests had sued the wrong person since Mr Sargeant carried on business through a company, which was the correct defendant. It further alleged that at least one of the invoices covered work which had not been undertaken and that most of the invoices were in dispute. APJ Law invited the Campbell interests to discontinue the proceedings or consent to the notice of motion to set aside default judgment within 14 days. In that event APJ Law indicated that they were instructed not to seek costs, but that, if a notice of motion had to be filed, costs would be sought.
3. In the letter dated 16 October 2015 APJ Law identified the reasons why the statement of claim and default judgment "should never have proceeded". They nominated the following reasons: the named plaintiff (HE & FE Campbell Agricultural Machinery Repairs) could neither sue nor be sued as it had no legal personality; the statement of claim did not disclose a cause of action; denial of procedural fairness; and Mr Sargeant's bona fide defence. After setting out these matters Ms Burnheim, its author, continued: "We are however instructed to propose that rather than both the parties going to the expense of attending at the Supreme Court, that by consent, the parties agree that the default judgement dated 25 March 2010 be set aside, that each party bear their own costs and that our client will not raise an objection in estoppel for your clients to file a fresh Statement of Claim in the Local Court. Please advise whether your client would be agreeable to this course of action on or before Wednesday, 21 October 2015 so that Consent Orders may be prepared otherwise we will be instructed to file the Appeal."
4. In response, Clifton Legal said, in a letter dated 27 October 2015: "We refer to the above matter and in particular your letter of 15 October 2015. We are instructed that our clients will not consent to the setting aside of default judgement as proposed by you. Should your client choose to appeal the decision of the local court that ultimately is a matter for him. We make no comment in regard to your assertions that the Magistrate erred in her judgement. However, you have suggested that if your client is ultimately successful in raising a defence that the plaintiff has sued the wrong entity we would be "estopped" from then commencing proceedings against the correct defendant. We cannot understand how we would ever be prevented from suing the correct person where they have yet to be a party to proceedings. If your client is successful in any appeal the only option available to the court is to set aside the default judgement and remit the matter to the local court. Should this occur, we will address any potential deficiencies in the Statement of Claim at that time."
5. Mr O'Brien of counsel submitted on behalf of Mr Sargeant that the offer made on 2 July 2015 was relevant to the issue of costs even though it was not made in accordance with the Uniform Civil Procedure Rules 2005 (NSW) or in accordance with the principles in Calderbank v Calderbank [1975] 3 WLR 386: Jones v Bradley (No. 2) [2003] NSWCA 258 at [15] per Meagher, Beazley and Santow JJA. Mr O'Brien submitted that the prospects of Mr Sargeant's application to set aside the default judgment were overwhelming, given that the judgment in the Local Court was in favour of a non-entity; the statement of claim was embarrassing on its face; and, at all times, the evidence in the Local Court demonstrated a bona fide defence and an explanation as to delay. He contended that the Campbell interests acted unreasonably in refusing to consent both to the setting aside of the default judgment in the Local Court and to having the Magistrate's judgment set aside in this Court.
6. Mr O'Brien also submitted that it was not appropriate to make an order that differentiated between the costs associated with the preparation of the two affidavits and the balance of the costs. He relied on Oshlack v Richmond River Council (1998) 193 CLR 72 and Yazgi v Permanent Custodians Ltd (No. 2) [2007] NSWCA 306 at [25]. Further, he submitted that the forensic decision made on behalf of Mr Sargeant not to read parts of those affidavits ought not be characterised as disentitling conduct or provide a basis for a differential costs order.

The submissions of the Campbell interests

1. Mr Reynolds of counsel, who appeared on behalf of the Campbell interests, submitted that the costs that the Campbell interests ought be ordered to pay ought not include the costs associated with the affidavits of Mr Sargeant and Ms Clark referred to above since they constituted evidence which would not, except in exceptional circumstances, be admissible on appeal.
2. He also submitted that neither the letter of 2 July 2015, nor the letter of 16 October 2015 contained an element of compromise since each, in effect, required complete capitulation at a time when it was unlikely that significant costs had been incurred (in respect of the corresponding proceedings). Mr Reynolds also relied on the circumstance that neither was marked as having been sent without prejudice except as to costs.
3. Mr Reynolds submitted that Mr Sargeant must be regarded as bearing some responsibility for what has ensued and that the matter has reached this stage, at least in part, due to his delay in raising the points on which he has succeeded.
4. Mr Reynolds contended further, on the basis of B & B Enterprise (Aust) Pty Ltd v Sur Holdings Pty Ltd [2016] NSWSC 490, that the appropriate costs order for the proceedings in the Local Court is that the parties bear their own costs of the proceedings in the Local Court.

Consideration

1. It is open to me to have regard, in exercising the costs discretion, to my findings in the principal judgment: Yu v Cao [2015] NSWCA 276 at [147]. As is evident from my reasons given, the judgment in favour of the Campbell business name, HE & FE Campbell Agricultural Machinery Repairs, should never have been entered since the named plaintiff in the Local Court had no legal personality and was not entitled to sue. This was the first defect in the judgment. The second was that the statement of claim disclosed no proper basis for a cause of action. For these reasons, the judgment had to be set aside. For the reasons given in the principal judgment, the Court below erred in not setting it aside for these reasons, as well as the additional reasons identified in the principal judgment.
2. The first question is whether the Campbell interests ought be ordered to pay Mr Sargeant's costs on an indemnity basis, either in the Local Court, or in this Court.

The costs of the application in the Local Court

1. A defendant against whom a default judgment is entered is commonly obliged to meet the costs of setting aside the default judgment where the judgment has been entered by reason of the fault or inactivity of the defendant. In the present case, Mr Sargeant was dilatory in protecting his own interests and did not file a defence to the statement of claim, even when he was warned that default judgment would be entered. However, for the reasons given in the principal judgment, the statement of claim was patently defective in two respects (the name of the plaintiff and the lack of pleading of a cause of action) and ought never have resulted in judgment being entered. Once the affidavit in support of the motion to set aside the default judgment was filed, it was made even more obvious that the default judgment must be set aside. I am not satisfied that the interests of justice would be served by an order that each party bear its own costs of the Local Court proceedings. There are features in the present case which were absent in B & B Enterprise (Aust) Pty Ltd v Sur Holdings Pty Ltd. Moreover, the discretion as to costs is peculiarly dependent on a consideration of the circumstances of the particular case which makes comparisons between first instance decisions less illuminating than in other contexts.
2. In these circumstances, I consider it to be appropriate that Mr Sargeant be paid his costs of the application in the Local Court. The question is whether he is entitled to those costs on an indemnity basis. For the following reasons I am not satisfied that the costs should be other than on the ordinary basis.
3. First, although the conduct of the Campbell interests in maintaining the judgment was unreasonable, the letter dated 2 July 2015 did not warn them that costs would be sought on an indemnity basis. This is significant in that an award of indemnity costs is a significant departure from the general rule that costs on the ordinary basis ought follow the event. Although a warning that costs will be sought on a higher basis is by no means an essential precondition of the making of such an order, the omission to foreshadow an application for indemnity costs is a relevant factor.
4. The further question arises whether an order should be made against Mr and Mrs Campbell (who are the proprietors of the business name) for the costs of the application in the Local Court. They were not parties to those proceedings, since only the business name HE & FE Campbell Agricultural Machinery Repairs was named as a party. However, it is common ground that they are the persons behind the business name. Indeed, they were joined as such in the appeal and represented by Mr Reynolds.
5. When the irregularity in the naming of the plaintiff in the Local Court proceedings was put to Mr Reynolds in this Court, his response was: There is a reference firstly to their name. It is expressed as their business name. For practical purposes there has been no difficulty in any person working out who is the owner of that business name.
6. Mr Reynolds further clarified the position in the following exchange in this Court: HER HONOUR: But how do I know who the natural persons are behind it? REYNOLDS: Well, my friend has joined them as the second and third respondent to this appeal. It has been asserted that they are the people behind it by my friends and I am happy to adopt that.
7. Moreover, Mr Reynolds, in his submissions opposing a costs order in the Local Court, did not raise the issue of the persons against whom such a costs order ought be made. As the only relevant persons are Mr and Mrs Campbell, who are the second and third defendants in the proceedings before me, I consider it to be appropriate that the order for costs in the Local Court be made against them. The Local Court proceedings ought to have been brought in their names. They have had a chance to be heard.

The costs of the appeal in this Court

1. In their letter dated 16 October 2015, APJ Law proposed a practical and sensible alternative to contested litigation in this Court. Had the Campbell interests accepted the proposal, all of the costs incurred in the proceedings in this Court would have been avoided.
2. The questions that require determination are: first, whether the costs should be on the ordinary basis or on an indemnity basis; and, secondly, whether the costs order should exclude costs associated with the affidavits of Sara Clark and Mr Sargeant.
3. As to the first question, an award of indemnity costs is generally made when there is some misconduct or unreasonable conduct by the unsuccessful party, which would warrant the successful party obtaining more than the usual measure of costs. Sometimes the unreasonableness is the refusal to accept an offer which would have obviated the need for the proceedings or their continuance; on other occasions it is the conduct of the unsuccessful party per se.
4. While I am satisfied that it was unreasonable for the Campbell interests not to accede to the proposal made by Mr Sargeant in October 2015, I am not persuaded that their refusal of the proposal ought have the effect of rendering them liable to costs on an indemnity basis. Although Mr Sargeant's solicitors foreshadowed that they would seek costs of the appeal, they did not foreshadow that such costs would be sought on an indemnity basis. In these circumstances the order for costs will be on the ordinary basis.
5. I turn to the remaining question: whether the costs associated with the affidavits of Ms Clark and Mr Sargeant ought be excluded from the costs order on the basis that they were not read in support of the appeal and were not germane to the appeal.
6. Ms Clark, in her affidavit of 15 February 2016, deposed to her attempts to file Mr Sargeant's notice of motion in the Tenterfield Local Court. She also attached documents which were available to her at the hearing of the application before Stafford LCM but which were not, in the events which happened, relied upon in the Local Court. This affidavit was not ultimately read, apart from the introductory paragraphs and the transcript of the hearing in the Local Court which was annexed. Those paragraphs relating to the attempts to file the notice of motion to set aside the default judgment in the Local Court at Tenterfield were not read because Mr Reynolds, at the hearing before me, conceded that no point would be taken about the delay as a result of the circumstances in the Local Court at Tenterfield, which led to the documents being recorded as having been filed months later than they were originally sent by post. The balance of the affidavit was not read because of matters no longer pressed. In my view, although substantial parts of the affidavit were not ultimately relied upon, the costs order in Mr Sargeant's favour ought include the costs of preparing that affidavit. This Court should be slow to discourage forensic concessions that have the effect of shortening a hearing and this, in my view, would be the effect of carving out the costs associated with this affidavit.
7. Mr Sargeant's affidavit is, however, in a wholly different category. In the main, it contains evidence that would be germane to the merits of the claim for payment by the Campbell interests against Mr Sargeant and his cross-claim. Such matters could not arise for determination in this Court since its jurisdiction is confined by s 40 of the Local Court Act 2007 (NSW). I am satisfied that the costs of preparation of this affidavit (which would be allowable on a hearing on the merits in the Local Court if Mr Sargeant is successful) ought not be allowed in this Court and that a specific exception ought be made to the costs order in favour of Mr Sargeant.
8. I note that, as Stafford LCM does not appear to have made an order for costs on 14 October 2015 after she dismissed the notice of motion, there is no order for costs in the Local Court that needs to be set aside.

Orders

1. For the reasons set out above, I make the following orders: 1. Order the second and third defendants to pay Mr Sargeant's (the plaintiff in this Court, the defendant in the Local Court) costs of his application to set aside the default judgment in the Local Court. 2. Order the second and third defendants to pay the plaintiff's costs of the proceedings in this Court, such costs not to include costs associated with the preparation of the plaintiff's affidavit sworn 15 February 2016.

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: 25 May 2016