Segal v Commonwealth Bank of Australia

Court of Appeal (NSW)|2016-03-21|Before: Ward JA, Ms J, Campbell J

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

WARD JA: Before me in the referrals list on 21 March 2016 was a notice of motion filed on 7 March 2016 by the second respondent, Mr Barel, seeking among other things an order for the dismissal of the proceedings "with prejudice" under r 13.6 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). That application was made on the basis that the appellant, Dr Segal, had failed to show cause why the appeal should not be dismissed in view of his failure to comply on at least three occasions with directions of the court. Mr Barel also sought, consequent upon the making of any such order, costs of the proceedings on an indemnity basis from the date of the filing by Dr Segal of his notice of intention to appeal on 25 June 2015 or, alternatively, costs on the ordinary basis from 25 June 2015 to 10 October 2015 (the date on which an offer of compromise had been served by Mr Barel) and costs thereafter on the indemnity basis.

Background

The dispute underlying the present proceedings, as can be gleaned from the judgment the subject of Dr Segal's appeal (Commonwealth Bank of Australia v Segal (No 2) [2015] NSWSC 656), concerns a property in North Bondi that was security for a line of credit facility with the first respondent, the Commonwealth Bank of Australia (the Bank).
Two sets of proceedings were commenced in the Supreme Court of New South Wales in relation to the property. The Bank commenced possession proceedings in the Common Law Division to obtain possession of the property, in which proceedings Dr Segal brought a cross-claim against the Bank. Separate proceedings were commenced by the Bank in the Equity Division, in which proceedings orders for the judicial sale of the property were sought and obtained by the Bank. In due course, the property was sold by the Court-appointed trustees for sale and the indebtedness to the Bank was discharged. There was a surplus of some $150,000, which was held by the Bank in trust on account of its costs of defending the cross-claim made against it by Dr Segal, which costs it claimed were recoverable by it as part of the costs of enforcing its security and recouping the debt due to it.
After the sale of the property, Campbell J heard, and determined in the Bank's favour, the cross-claim brought against the Bank by Dr Segal. Mr Barel had initially been joined as a party to the possession proceedings but those proceedings were discontinued against him after the sale of the property and the discharge of the indebtedness under the facility. Nevertheless, at the hearing of the cross-claim, Mr Barel successfully made an application to be re-joined to the Common Law Division proceedings. It appears that this was for the purpose of Mr Barel seeking to protect his half share of the surplus proceeds of sale.
As noted, the Bank was successful in defending the cross-claim. The primary judge ordered Dr Segal to pay the Bank's costs of and incidental to the cross-claim forthwith, on the ordinary basis after they had been agreed or assessed. Dr Segal was also ordered to indemnify Mr Barel against the costs of the Bank against Dr Segal to the extent that those costs were levied on the funds retained by the Bank to the detriment of Mr Barel's contingent one-half share in those funds. Mr Barel was ordered to pay his own costs of his successful application to be re-joined as a party to the cross-claim.
A notice of intention to appeal from Campbell J's decision was filed on 25 June 2015. Mr Gary Doherty was named in that document as the legal representative of Dr Segal. The notice was served under cover of a letter on Mr Doherty's firm's letterhead.
A notice of appeal was filed on 28 August 2015. There was no indication that it had been settled by Mr Doherty, who at that time still remained on the record as the appellant's solicitor, and it had no signature of any legal practitioner. The grounds of appeal related to complaints as to: the asserted failure of the primary judge not to draw certain adverse inferences ([38]); findings made by his Honour as to the contract that was in existence ([37]); failure to make certain findings as to the ownership of the funds in the relevant account ([58]); the re-joining of the second cross-defendant to the cross-claim; and the fact that Dr Segal was not allowed further time to produce "additional forensic evidence".
The matter was listed before the registrar for directions on 28 October 2015. There was no appearance for Dr Segal. The registrar caused a show cause notice to be issued on that date.
Another solicitor, Mr Neil Pragnell, subsequently deposed (in an affidavit sworn 17 November 2015 apparently for use at the show cause hearing in support of an application for an extension of time to comply with the timetable in the proceedings) that he had received instructions from Dr Segal concerning the matter on 27 October 2015, i.e., the day before the first directions hearing, but that he had not been instructed as to the 28 October directions hearing. He also deposed that he had "only now" had the opportunity to read the judgment of Campbell J in the Common Law Division proceedings. No explanation for that delay was proffered.
On 18 November 2015, when the matter was first listed for a show cause hearing, Mr Roulstone of Counsel appeared for Dr Segal. The registrar made directions for the filing of the red appeal book by 18 December 2015 and for the filing of the appellant's submissions by 1 February 2016. Dr Segal was ordered to pay the respondents' costs of that directions hearing. The matter was stood over to 3 February 2016. Meanwhile, on 12 January 2016, Mr Doherty had filed a notice of ceasing to act.
On 3 February 2016, the matter was again before the registrar for directions. On this occasion Ms Arulrajah of Counsel appeared for Dr Segal. There had been no compliance with the orders for filing of the red book or the appellant's submissions. The registrar made an order for a second time for the matter to be listed for a show cause hearing (this time on 7 March 2016 before Beazley P); and orders for the appellant's submissions to be filed by 2 March 2016; and, if the submissions were not filed, for the solicitor on the record to file and serve an affidavit as to the reasons for the submissions not being filed. There was, by then, no solicitor on the record, since despite the receipt of instructions no notice of appearance had been filed by Mr Pragnell. On 17 February 2016, Mr Pragnell still having filed no notice of appearance, proceeded to file a notice of ceasing to act.
Therefore, the position, as at 7 March 2016 (the date of the second listing for a show cause hearing), when the matter came back before the registrar, was that there was no longer a solicitor on the record and Dr Segal had been in default since December 2015 in compliance with orders made by the Court. Ms Arulrajah attended the court on that occasion. The registrar made orders that the matter again be listed for a show cause hearing (this time on 21 March 2016); for the filing of the appellant's submissions by 14 March 2016; and, if the submissions were not filed by then, for the filing of an affidavit by Dr Segal as to the reasons why the appeal should not be dismissed. Dr Segal was ordered to pay the respondents' costs of that directions hearing. (According to Mr Barel's affidavit of 15 March 2016, the registrar had on that occasion ruled that there was no appearance for Dr Segal as there was no solicitor on the record and Ms Arulrajah at one stage in the directions hearing had said that she had no direct brief.)
On 14 March 2016, Dr Segal finally filed his submissions on the appeal. From their content, it is not unreasonable to infer that they were drafted without the benefit of input from legal practitioners. No red appeal book was filed.
Meanwhile, according to correspondence from the Bank's solicitors, by 9 February 2016 only $16,174.92 of the surplus from the sale proceeds remained and costs in relation to the appeal proceedings totalled $3,933.82, together with work undertaken but not yet billed which was not expected to exceed $1,000. It was anticipated that, should the appeal proceed to hearing, the balance of the funds would be unlikely to be sufficient to meet the Bank's costs, in which case the Bank's solicitor advised it would not be in a position to refund in favour of Mr Barel any balance of the surplus sale proceeds .
When the matter came before me on 21 March 2016, Dr Segal appeared for himself. He sought an adjournment of the hearing of Mr Barel's notice of motion, which he said had not been served at the correct address for service (though it had clearly come to his attention in advance of the directions hearing and there was a dispute as to what in fact was his address for service in light of the filing of what was noted in the respective notices of ceasing to act).
After reviewing some of the material in the court file and hearing brief oral submissions, I stood the matter over to 7 April 2016 for the hearing of Mr Barel's notice of motion and made directions requiring Dr Segal to attend to various steps in order to remedy his non-compliance with court directions to date, and to file an affidavit explaining any further default in compliance. I also ordered Dr Segal to pay the respondents' costs.
There was no compliance by Dr Segal with the directions I made on 21 March 2016, nor did he attend in court on 7 April 2016 to explain that non-compliance. Instead, when the matter came back before me on 7 April 2016, Mr Cornish of Counsel attended on behalf of Dr Segal and sought leave to file in court a notice of discontinuance of the appeal. There was no opposition by either of the respondents to the discontinuance of the proceedings and accordingly I gave leave for the filing in court of the notice of discontinuance. Mr Barel pursued his application for indemnity costs. Mr Cornish informed the Court that there was no opposition by his client to an order for costs in accordance with r 42.19 UCPR but that his instructions were no further than that.
Mr Cornish informed me on that occasion that he was instructed by solicitors retained by Dr Segal on another matter in which Dr Segal was involved and that his instructions were "limited to an appearance here directly instructed by Mr Segal to appear for him to file this notice of discontinuance". From that, I understand Mr Cornish to have been appearing on a direct access brief. (There have been no solicitors on the record for Dr Segal in these proceedings since 12 January 2016 when the solicitor then on the record, Mr Gary Doherty, filed a notice of ceasing to act.)
I ordered that Dr Segal pay the costs of the first respondent (the Bank) on the ordinary basis, reserved the question as to the costs of Mr Barel, and made directions for the filing of short written submissions on that issue, indicating that I would determine that application on the papers. Submissions were filed on behalf of Mr Barel on 11 April 2016 as directed. Submissions in reply were filed on behalf of Dr Segal on 13 April 2016, again as directed.

Application for indemnity costs

Mr Barel seeks indemnity costs on two bases: first, that the conduct of the appeal by Dr Segal has been so unreasonable that an indemnity costs order should be made pursuant to s 98(1)(c) of the Civil Procedure Act 2005 (NSW); and, second, that both an offer of compromise and a Calderbank letter (i.e., an offer invoking the principles articulated in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586) were served on 10 October 2015 (providing for the withdrawal, abandonment or discontinuance of the proceedings with costs on the ordinary basis as assessed or agreed); that these offers were not accepted by Dr Segal; and that the ultimate result (i.e., the discontinuance of the proceedings) is no less favourable to Dr Segal than if he had accepted the offer.
Dr Segal, on the other hand, submits that a costs order that he pay the balance of Mr Barel's costs of the proceedings on the ordinary basis will satisfy the requirements of justice in the circumstances. As already noted, Dr Segal does not oppose such an order.

Consideration

I deal with each of the bases put forward by Mr Barel in turn.

Submissions

Mr Barel argues that the conduct of the appeal was vexatious for three reasons. First, he notes that there was sustained non-compliance with procedural directions, occasioning the respondents additional costs and inconvenience. Second, he argues that the notice of appeal and accompanying submissions were defective and lacking in substance, and that the abandonment of the appeal (after several appearances and without explanation) supports an inference that Dr Segal did not seriously intend to prosecute any appeal and therefore it is an abuse of process. Third, he argues that he has been prejudiced in that the surplus sale funds have been eroded and he must now undergo further cost and delay in enforcing the indemnity to which he is entitled in accordance with the orders made by the primary judge in respect of his share of the surplus. It is submitted that Dr Segal's conduct of the appeal was plainly contrary to his duty as a litigant to further the overriding purpose mandated by sub-ss 56(1) and (3) of the Civil Procedure Act.
In response, Dr Segal does not dispute (and nor could he) that there were several defaults by him in complying with the procedural orders of the court but he argues that these have been substantially addressed by the costs orders made on 18 November 2015, 7 and 21 March 2016, and he notes that Mr Barel is entitled to an indemnity from Dr Segal "in respect of the costs incurred by the first respondent [the Bank] in the Proceedings". Pausing here, as I read the primary judge's orders, the indemnity in respect of the Bank's costs of the proceedings relates only to such part of Mr Barel's share of the surplus as might be applied by the Bank in satisfaction of the costs order made against Dr Segal in its favour. This does not extend to an indemnity in respect of Dr Segal's share (if any were to remain) of the surplus proceedings.
It is submitted by Dr Segal that the (admitted) sequence of procedural defaults does not amount to exceptional circumstances affecting the proceedings as a whole and that there is no other aspect of Dr Segal's conduct that would warrant an exceptional costs order.
Dr Segal argues that, in circumstances where the notice of appeal was prepared by himself (not by a legal advisor), the obvious flaws in its formulation should not lead the court to infer that he lacked an intention to prosecute the appeal or that it necessarily lacked substance and was doomed to fail, such that he ought to have known that the appeal had no chance of success and it ought not to have been pursued. It is further submitted that the court should not conduct an hypothetical exercise in determining the merits of the discontinued appeal proceedings of the kind disapproved in Re Minister for Immigration & Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622. Finally, it is submitted that there is no basis for any inference to be drawn of an ulterior purpose for the litigation occasioning an abuse of process.

Determination

In Ex parte Lai Qin, McHugh J said (at 624-625): In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action). (my emphasis) … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. …(footnotes omitted)
In Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307, Emmett JA noted (at [53]) that mere abandonment of a claim may not, of itself, be sufficient to warrant an order for indemnity costs but that ([57]) abandonment without explanation, in combination with other factors, may justify an order for indemnity costs. By way of example, his Honour referred to the situation where an action is commenced or continued in circumstances where the moving party, properly advised, ought to have known that there were no prospects of success. In Ghougassian itself, Emmett JA considered that the complete abandonment at the last moment without any explanation confirmed an inference arising from the attitude of the moving party to the conduct of the proceedings that they had no legitimate object ([54]).
The present case (subject to the effect, if any, of the settlement offers made by Mr Barel) is in my opinion one where the court should not entertain a consideration of the merits of the dispute for the purpose of determining costs after a discontinuance of the proceedings. The notice of appeal is certainly poorly drafted (perhaps not surprisingly given that it seems to have been done without the benefit of legal advice) and the appellant's submissions as filed would not lead one readily to conclude that there were reasonable prospects of a successful appeal. However, I cannot conclude solely from this that when Dr Segal commenced the proceedings he ought, properly advised, to have known that there were no prospects of success. Moreover, the sudden abandonment (without explanation) of the proceedings might equally be attributable to a realisation that it was unlikely to be worth the costs of pursuing them, or that Dr Segal could not prosecute the appeal with the requisite expedition without legal assistance. As to any intention on Dr Segal's part to cause Mr Barel to incur unnecessary costs, another factor that may not be irrelevant in this context is that it was apparently Mr Barel's desire (for understandable reasons and for a legitimate purpose no doubt) to seek to be re-joined to the proceedings; and hence which would have resulted in him being a necessary party to the appeal proceedings.
I am not persuaded that the conduct of the proceedings to date, albeit marked by ongoing delays and a seemingly cavalier attitude by Dr Segal towards compliance with the various directions made in the proceedings, demonstrates that the proceedings themselves were vexatious or an abuse of process. In written submissions, Mr Barel points to Dr Segal's familiarity with litigation, in effect to suggest that he is not an unsophisticated user of the court processes. Nevertheless, for a significant period of the time from February to April 2016, it appears that Dr Segal was without legal advice and I cannot exclude the possibility that this may explain at least in part his defaults in compliance with the rules and directions of the court.
Mr Barel has also in submissions pointed to observations that were critical of Dr Segal made by Pembroke J in the Equity Division proceedings and to the clearly a history of dispute between him and Dr Segal. However, dealing with the matter on the material that is before me, I cannot conclude that Dr Segal's conduct of the appeal proceedings to the time of their discontinuance constitutes an intentional abuse of the processes of the Court. Nor can I conclude that the abrupt discontinuance of the appeal proceedings means that they were not genuinely commenced.
The prejudice to which Mr Barel points as a result of Dr Segal's conduct is, apart from the additional cost and inconvenience of preparation for what would otherwise have been unnecessary court attendances, largely if not wholly referrable to the fact of commencement of the appeal proceedings in the first place. The anticipated cost of enforcing the costs indemnity ordered by Campbell J in relation to the surplus sales proceeds is, for example, a cost that Mr Barel might have been required to incur even without the additional and unnecessary court appearances occasioned by Dr Segal's default in compliance with Court timetables. That emerges from the response by his then solicitors to Mr Barel's solicitors' initial demand on the indemnity.
With one qualification, therefore I would not award indemnity costs of the proceedings on the first basis put forward by Mr Barel. That qualification is that it appears that Dr Segal did not have the courtesy to notify the respondents in advance of the 7 April 2016 directions hearing of his intention to discontinue the proceedings. When the matter was mentioned before me on 7 April 2016, there was no demur from Mr Cornish to the complaint by the second respondent that little notice had been given of the late discontinuance. Such a conclusion can be drawn from the fact that Mr Barel went to the expense of preparing, and serving, a detailed affidavit on 4 April 2006 in advance of the listed hearing of his notice of motion. That course would hardly have been taken had Dr Segal notified the respondents by then of his intention to discontinue. No reason has been proffered for that late notice. It may be that it was a last minute decision. Nevertheless, in the circumstances, it seems to me appropriate that Mr Barel should have his costs both of preparing the 4 April 2016 affidavit and of the appearance before me on 7 April 2016 on an indemnity basis.

Submissions

As to the second basis on which indemnity costs are sought, r 20.26 applies to offers of compromise made after 7 June 2013. It provides, relevantly, that: 20.26 (2) An offer under this rule: … (c) must not include an amount for costs and must not be expressed to be inclusive of costs; … (3) An offer under this rule may propose: (a) a judgment in favour of the defendant: (i) with no order as to costs, or (ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or (b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or (c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.
In the present case, the offer of compromise did not "include an amount for costs" but it did in terms make provision for costs. Made expressly pursuant to r 20.26 UCPR, it provided that "The Appellant shall Withdraw/Discontinue/ Abandon his Appeal with costs agreed or assessed" (my emphasis).
The separate Calderbank offer contained an invitation for Dr Segal to withdraw, discontinue or abandon the appeal, and stated that if the appeal was ceased on the time and date there set out Mr Barel would only seek costs as agreed or assessed to that point in time.
For Mr Barel it is submitted that the offer of compromise complies with the requirements of r 20.26 UCPR in that it does not include an amount for costs nor does it suggest that it is inclusive of costs; rather it is said that it simply proposes a discontinuance with the usual consequences of such a discontinuance. At least to that extent, however, the offer of compromise does purport to foreclose the operation of the costs discretion in circumstances other than those set out expressly in r 20.26(3).
It is submitted that the offer was a genuine compromise in circumstances where the appeal as formulated had limited prospect of success, such that there was a serious likelihood that it would ultimately be dismissed, and it is said that the costs awarded to the respondents would have been significant.
It is further submitted that the non-acceptance of the Calderbank offer was unreasonable in exposing all of the parties to additional costs that would have been avoided had the offer been accepted in October 2015.
For Dr Segal, it is submitted that the offer of compromise did not comply with the relevant rules because it makes provision for costs and the costs arrangement does not fall within the exceptional offers that may be made pursuant to the rules.
Dr Segal argues that both the offer of compromise and the Calderbank offer demanded total capitulation on terms effectively that Dr Segal pay Mr Barel's costs on an ordinary basis and therefore that the only possible compromise that entailed must have been based on an assumption that Mr Barel would be entitled to indemnity costs. Hence it is submitted that there is not a genuine element of compromise and the offers do not afford an appropriate basis for an indemnity costs order.

Determination

Whether or not an offer "with costs agreed or assessed" falls outside the rules need not be determined since, even apart from the formal requirements for a valid offer of compromise, it is clear that such an offer (as also must a Calderbank offer) must involve "a real and genuine element of compromise" (Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706; Leichhardt Municipal Council v Green [2004] NSWCA 341). Absent this, the offer may be seen as not a genuine offer of compromise (The Uniting Church v Takacs (No 2) [2008] NSWCA 172 at [30]-[33] and Bennette v Cohen (No 2) [2009] NSWCA 162 at [40]-[41]).
It has been said that where an offer is in substance a demand for payment of the full amount claimed, or a formal offer "designed simply to trigger the entitlement to indemnity costs", or requires dismissal of the claim, then the necessary element of compromise may be lacking (see Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at [355]; Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at [368]; Shorten v David Hurst Constructions Pty Ltd [2008] NSWSC 609 at [6]; Bennette v Cohen (No 2) at [40]-[41]).
Furthermore, I note that in Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 Basten JA, there referring to the previous version of the rule (at [22]), said that: … The fact that a party which failed to accept an offer incurs costs in pursuing litigation to a result which is less favourable to it than the offer, is not a factor which is material to determining whether the offer itself was a genuine offer of compromise for the purposes of r 20.26.
In relation to a Calderbank offer, the onus is on the party making a Calderbank offer to satisfy the court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). The party seeking to rely on the offer must establish both that it represents a genuine compromise of the dispute and that it was unreasonable for the offeree to reject it.
In the present case I do not consider that either the offer of compromise or the Calderbank offer included a genuine element of compromise. Both required capitulation and an acceptance by Dr Segal of the ordinary cost consequences that would follow discontinuance of proceedings in the absence of any agreement as to costs between the parties. For that reason I am not persuaded that the failure to accept the offer of compromise triggers the special costs consequences under the rules, nor am I persuaded that it was unreasonable for Dr Segal at the early stage of the appeal proceedings in which the Calderbank offer was made to reject the offer.

Conclusion

For the above reasons I make the orders I have earlier indicated. As Mr Barel has had some success on his application for indemnity costs and the bringing of the application was undoubtedly prompted by Dr Segal's unsatisfactory history of compliance with court directions to date it is appropriate that the costs orders include the filing of the costs submissions.

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: 29 April 2016

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