Smits & Ors v Roach & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50099/99 SMITS & ANOR v ROACH & ORS JUDGMENT 1 HIS HONOUR: The defendants seek costs on an indemnity basis. The plaintiffs submit that no order as to costs should be made. 2 The defendants found their submission on four matters. Firstly, it is submitted that the agreement which was reflected in the Ten Point Plan made in September 1999 should have been honoured by the plaintiffs. The failure to honour that agreement, it is submitted, is relevantly unreasonable conduct having regard to the fact that the plaintiffs have wholly failed in the proceedings. 3 Secondly, the defendants have tendered evidence of two offers which they made to settle the proceedings. The first offer was made by letter dated 19 September 2000 which was marked "Without Prejudice Save As To Costs". The offer made was that the proceedings "be settled on the basis that a proof of debt by your firm in the amount of $375,000 will be admitted in the winding up of the third and fourth defendants in the event that they are successful in the Freehills proceedings." Various consequential orders were contemplated in the letter. The letter concluded with the following statement: "The first and second defendants are concerned to save all of the parties costs and inconvenience (if possible). If this offer is rejected and judgment is obtained against our clients at a sum equal to or lower than the sum, then we will rely upon this letter in support of an application that any costs incurred by our clients after the date of this facsimile be payable by you on an indemnity basis." 4 Thirdly, an offer was made by the defendants' senior counsel to the plaintiffs' senior counsel when the former provided the latter with a written offer of settlement on 30 October 2001. The offer was embodied in a carefully drawn document, the effect of which is that the plaintiffs would have been entitled to the assessed amount of their costs recovered in respect of the Freehills litigation. The offer was made without prejudice save as to costs. It was made on 30 October 2001 and there being no response was withdrawn on 2 November 2001. 5 Fourthly, it is submitted that the manner in which the plaintiffs conducted the proceedings was so unreasonable that costs should be ordered on an indemnity basis. The defendants submit that the extraordinary length of the affidavit of Leslie and his production of sixty-five volumes of documents is evidence of the unreasonable manner by which the proceedings have been prosecuted. It is submitted that the plaintiffs' conduct of the proceedings required the defendants to respond to a great deal of material which was irrelevant to the proceedings and deal with issues which ultimately, if the proceedings had been reasonably conducted, would not have been necessary. In relation to the conduct of the proceedings, the defendants also point to the fact that the plaintiffs originally made an allegation of conspiracy to defraud which was later withdrawn but then resurrected and only finally withdrawn on the fourth day of the trial. 6 The plaintiffs submit that there should be no orders as to costs. It is submitted that the proceedings were "a forensic draw", the plaintiffs having failed on their summons and the defendants having failed on their cross-claim. It is submitted that as the defendants originally denied the September 1999 agreement but this denial was later withdrawn, this change of position should be reflected in the costs order. 7 In response to the fourth matter raised by the defendants, it is submitted that, because the plaintiffs brought a claim based upon a quantum meriut, it was necessary to prepare and tender a significant volume of evidence to prove the work which was done by the plaintiffs. 8 It is further submitted by the plaintiffs that the consequence of the amendments to the Legal Profession Act and the capacity for a solicitor to recover costs, is an issue which is both complex and uncertain and accordingly, it could not be suggested that the proceedings were unreasonable and that their maintenance was without any prospect of success. It is also submitted that I should have regard to the fact that by reason of my decision, the plaintiffs will not recover any monies for work which they have undertaken on behalf of the defendants in the Freehills litigation. Accordingly, it is submitted it would be unfair to allow the defendants to recover any costs particularly on an indemnity basis. 9 With respect to the offers made by the defendants, it is submitted that the first offer was uncertain as it did not include a firm agreement from the liquidator. It is submitted in relation to the second offer that because it provided for recovery only in circumstances where the Freehills litigation was successful, this was a more adverse position than the plaintiffs could otherwise achieve and have in fact, been able to achieve. Emphasis is placed on the fact that a modest recovery has already occurred in relation to a taxed bill in this Court. 10 The principles in relation to the determination of costs in commercial proceedings in this Court are well understood. They were comprehensively discussed by Rolfe J in Multicon Engineering Pty Limited v Federal Airports Corporation (unreported 20 May 1996 NSWSC Rolfe J) where consideration was given to the appropriate application of s 76 of the Supreme Court Act and the provision made by the rules for the making of orders for costs. 11 Rolfe J considered a number of decisions and expressed the view that: "Whether it is correct to say that there is a general policy or whether it is, perhaps, with respect, more correct to say that normally a Calderbank letter generally will be given effect according to its terms, and thus fulfil the functions of an Offer of Compromise, does not seem to me to differ in substance. However, all these authorities support the view, which in my opinion is correct, that when an Offer of Compromise is made in either of the forms to which I have referred, in circumstances where there can be no doubt that if the offeree does not accept it the making of the offer will be called in aid of an application for an award of indemnity costs if the offer is not bettered and, provided the offer reflects a compromise, the Court commences its consideration of the application from the position that such an order should be made unless the offeree can persuade the Court that it should not be. However, as I have said on several occasions the ultimate decision will depend on a consideration of the particular facts and circumstances in each case." 12 Later his Honour said: "Thus there is a strong and consistent body of authority in this Court favouring the predisposition towards an order for indemnity costs if an offer of settlement has been made, rejected and not bettered in the litigation. It provides, at least, the prima facie position and, thereafter, one considers all the facts of the case to decide whether, in the proper exercise of discretion, that prima facie view should prevail." 13 His Honour also considered the question of the uncertainty of litigation. Rejecting Federal Court authority, which arguably provided otherwise, his Honour expressed the view that because of the uncertainty of litigation, settlement was to be encouraged in all cases. Accordingly, if a reasonable offer was made, but rejected, the onus lay upon the party rejecting the offer to establish in some way the reasonableness of the course it took. His Honour said: "In my opinion that cannot be done by saying that litigation is uncertain and it was entitled, rather than accept the offer, to have the uncertainties, whether legal or factual, resolved by judicial decision. That, of course, is an entitlement any litigant has; but what must be; understood is that if that litigant has received an offer, which it does not ultimately better, its desire for judicial determination should, generally speaking, be made subject to its paying the other party's costs on an indemnity basis from the date the offer is made. It is the very uncertainty of the legal and factual issues propounded for decision, which make settlement an appropriate course, a matter much stressed in suggesting that settlement be considered. If there is no uncertainty, if that can ever be so, there is no reason to settle. It also seems to me that the more difficult and complicated the legal and factual issues the greater must the uncertainty, accordingly, the greater must be the incentive to settle on a commercial basis. The greater the uncertainty the more that is being risked and the more the prospect of further litigation by way of appeals." 14 In the resolution of the present matter I do not consider the agreement in September 1999 to justify an order for indemnity costs. Although I have found a binding agreement with the Roach companies it did not extend to Mr Roach. Accordingly, the maintenance of proceedings which had by that time been commenced against Mr Roach, was not affected by the agreement. 15 However, the offer made by the letter of 19 September 2000 is of an entirely different character. That offer reflected a real compromise by the defendants who offered to agree that a proof of debt would be admitted in the amount of $375,000. The practical consequence was that, if the Freehills proceedings were successful it would be likely that Smits Leslie could recover this sum. It must be remembered that the basis upon which they accepted the retainer was always contingent upon success in the Freehills proceedings. The fact that the offer was contingent was of little consequence. Furthermore, by September 2000 the defendants were reasonably entitled to the view that the plaintiffs could not recover against them and accordingly, the agreement which was offered represented a significant commercial concession by the defendants. 16 I found that the plaintiffs' claim fails and accordingly they have not bettered the offer which was made. In my opinion, the failure to accept that offer was relevantly unreasonable and accordingly, the defendants are entitled to an order for costs on an indemnity basis from that date. 17 It must be remembered that when senior counsel for the plaintiffs opened the proceedings, he effectively disavowed all claims except a claim in the sum of $500,000 or for remuneration for costs on a quantum meriut basis. Having regard to the fact that that was the claim an offer to admit the plaintiffs' to an amount of $375,000 in the winding up reflected a sensible if not generous compromise by the defendants. 18 The plaintiffs submit that before an offer may attract an order for indemnity costs it is necessary that it be clear. See AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1988) 13 NSWLR 486. Furthermore, it is submitted that the offeree must be made aware that the offer will be relied upon in the event of its rejection in an application for costs. 19 I see no relevant uncertainty about the offer made in September 2000 and it is plain on its face, that it would be tendered and relied upon in any costs application. Accordingly, I reject this submission of the plaintiffs. 20 Finally, I should indicate that I do not accept that because the matter was complex and the likely outcome with respect to the modern law of champerty uncertain, this was a basis for rejecting the defendants' offer. I accept that the correct approach to this aspect of the matter is that adopted by Rolfe J in Multicon Engineering. Indeed the uncertainties are a reason why the commercially realistic offer which was made should have been accepted. 21 For these reasons, I am satisfied that as the defendants have succeeded in resisting the plaintiffs' claim an order for costs in their favour should be made. That order should be on an indemnity basis for costs after 19 September 2000. 22 The defendants' cross claim occupied only a small portion of the hearing time and was not a significant matter in submissions. The defendants submit that as the plaintiffs are solicitors, an order for costs in their favour would not be appropriate and draw attention to the decision of the High Court in Cachia v Hanes & Anor (1994) 179 CLR 403 where doubts were expressed about a solicitor's entitlement to a costs order. In my opinion, notwithstanding those remarks, I am bound by the decision of the Court of Appeal in Atlas Corp Pty Ltd v Kalyk [2001] NSWCA 10 and accordingly, must follow Guss v Veenhuizen (No 2) (1976) 136 CLR 147. However, as the plaintiffs have succeeding in resisting the cross-claim they are entitled to an order for costs in respect of it. That order should be on a party and party basis. 23 The appropriate orders in relation to matters of costs are: 1. Order the plaintiffs' to pay the defendants' costs of the summons up to 19 September 2000 on a party and party basis. 2. Those costs, after 19 September 2000, on an indemnity basis. 3. Order the defendants' to pay the plaintiffs' costs of the cross-claim on a party and party basis. **********

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