Tan Republic Pty Ltd (ACN 147 290 926) v Isabella Shop Fitout & Design Pty Ltd

Judgment 1These are proceedings for damages brought by the plaintiff for breach of contract, negligence and conduct in contravention of the provisions of the Trade Practices Act 1974 (Cth), s 42 Fair Trading Act 1987 (NSW) and s 18 Australian Consumer Law (Cth). The second and third defendants, who are husband and wife, were the sole directors respectively of companies which carried on the business of shopfitting at premises in Smithfield NSW on a successive basis. 2On 19 November 2010 the plaintiff entered into a design contract agreement with a non-existent company called Bella Retail Design Pty Ltd (ACN 128689314 ABN 46602945) using false ACN and ABN numbers. By reason of this company being non-existent, I found that the plaintiff had entered into a contract with the second defendant personally. Between November 2010 and February 2011 the second defendant made a series of representations (see paragraph 12 of my judgment of 21 June 2013). On 3 February 2011, Ms Maggy Der Bedrossian, the director of the plaintiff company, signed a written contract for fitout work with the first defendant which work was negligently carried out. 3The representations made by the second defendant were so inextricably tided up with the design contract and the fitout contract that it is impossible to separate the liability of the first and second defendant. Neither the plaintiff nor the defendant made any submissions on this issue, and both approached the question of liability for the damages on an "all or nothing" basis. This was in part due to the reluctance of the defendants to acknowledge, either in pleadings or in evidence, precisely which corporate entity (or person) had entered into contracts with the plaintiff for the design and fitout of the shop premises in question. 4The evidence in relation to the third defendant was slight. As is set out in my judgment at paragraphs 152-155, I was not satisfied that the third defendant's activities went beyond playing a role in the first and second defendants' complex financial setup, in that she is the sole director and secretary of the first defendant, and accordingly I found that the plaintiff had not discharged its onus of proof in relation to any of the causes of action pleaded against her. 5The vast bulk of the time taken in these proceedings related to claims of contributory negligence by the plaintiff, in relation to the claims for negligence and breaches of the Trade Practices Act, the Fair Trading Act and the Australian Consumer Law, as well as the concurrent wrongdoer defences. 6The Defence of 29 March 2012 referred only to a "potential concurrent wrongdoer", identifying one of these as being "the Centre Management" and the other as being Mr Ishkanian, who at all relevant times has been the solicitor for the plaintiff. The defendants reserved their rights to amend and plead "further material" after discovery: "In further response to the entire Claim the defendants say that to the extent the Claim attracts the proportionate liability regime established pursuant to Part 4 of the Civil Liability Act 2002 NSW that (without admitting that the defendants are wrong-doers) a potential concurrent wrongdoer is Abraham Ishkhanian solicitor and a further potential concurrent wrongdoer is the Centre Management of Pacific Square, Maroubra. The defendants reserve the right to amend the Defence to plead further material facts as to these allegations and to give further particulars as to this issue after discovery." 7No such further pleading occurred. The proceedings were set down for hearing on these pleadings, and the hearing was then vacated. Following an amended pleading filed by the plaintiff, the defendants filed an Amended Defence on 30 January 2013. 8Whereas the previous defence had referred to "a further potential concurrent wrongdoer" as being "the Centre Management of Pacific Square, Maroubra" the new pleading now identified three corporations: (a)Clycut Pty Ltd, the lessor of the premises and registered proprietor of "Pacific Square"; (b)Alpine Hotels Pty Ltd, the lessor of the premises; and (c)Caverstock Group Pty Ltd, the project manager for the lessor. 9In addition, Mr Abraham Ishkhanian, who was identified only as "a potential concurrent wrongdoer" was the subject of a formal claim under s 35 Civil Liability Act 2002 (NSW). Both these claims were the subject of extensive particularisation. 10The requirement for parties to plead and particularise their case in a reasonably fair and precise way has been the subject of repeated warnings from the New South Wales Court of Appeal. This includes not only a full and properly particularised pleading of all causes of action (Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135) but also that the defendant should not engage in trial by ambush (Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116). 11The circumstances in which the defendants merely flagged a potential claim of this nature, and provided a fully pleaded claim, apparently without prior warning, six weeks before the trial, are relevant to the issue of indemnity costs. As to the original pleading, it must also raise questions in relation to the obligation of practitioners under s 347 Legal Profession Act 2004 (NSW). Given the small size of the sum claimed, and the circumstances in which a previous hearing date of 2 October 2012 had already been vacated, this was an inappropriate pleading for the defendants to have filed so late in the day, and in circumstances where the plaintiff could not seek fresh representation or join these additional parties without vacating the hearing date. 12The parties ask me to make costs orders in accordance with my findings in the judgment. The orders the plaintiff seeks are as follows: (a)An order that the first and second defendant pay the plaintiff's costs on an indemnity basis from 7 September 2012. (b)An order that there be no order for costs in relation to the proceedings brought by the plaintiff against the third defendant, or alternatively, a Bullock and/or Sanderson order in relation to the costs of the third defendant: Bullock v London General Omnibus Company [1907] 1 KB 264; Sanderson v Blyth Theatre Co [1903] 2 KB 533. (c)An order for costs to be payable by the defendants' former legal representatives. 13I have not dealt with the application for costs against the solicitors formerly retained by the defendants (written submissions [12]-[14]). As the defendants' written submissions correctly point out, these legal representatives have not been served with any submissions. I have reserved the rights of the plaintiff in relation to any such application. The plaintiff was in a difficult situation in relation to the identity of the solicitors appearing on this motion, as no Notice of Ceasing to Act or Notice of Change of Address for Service was filed prior to the matter being relisted, and it may be that no orders for service of these legal representatives was made by oversight. This liberty to apply includes the defendants, in the event that they have any such application. 14The defendants ask me to make the following orders: (a)An order for the first and second defendants to pay the plaintiff's costs either in full or in proportion (80% is the suggested figure); (b)Orders in relation to the costs of the third defendant, who was successful in this litigation. 15The defendants oppose the making of any indemnity costs orders, whether on the basis of the plaintiff's offer of compromise or otherwise.

The plaintiff's offer of compromise 16The first basis upon which the plaintiff seeks an order for indemnity costs is that an offer of compromise was made. 17The plaintiff's first offer of compromise was made on 29 August 2012. that offer was for $63,000 plus costs. The defendants responded on 31 August 2012 that the offer did not comply with the Rules. The offer was repeated on 7 September 2012, when the plaintiff offered to compromise these proceedings on the following basis: "1. The plaintiff offers to compromise these proceedings on the following basis: (a) Verdict and Judgement [sic] for the Plaintiff in the sum of $63,000.00. (b) That the defendants are ordered pay to [sic] the plaintiff the judgment sum within 28 days. 2. This offer is open for a period of 5 days from the date of receipts of this offer. 3. This offer of compromise is made in accordance with rule 20.26 of the Uniform Civil Procedure Rules 2005." 18As is set out in paragraph 3, the offer was open for a period of 5 days from the date of receipt of the offer. There was some angry correspondence, judging by the written submissions, but the offer was subsequently extended to 4:00pm Wednesday 19 September 2012. 19The sum which was offered is below the sum awarded against the first and second defendants, namely $69,694.82 exclusive of GST, plus interest which is mathematically agreed at $10,810.10. 20The defendants made two offers. The first appears to have been a "walk away" offer (Leichhardt Municipal Council v Green [2004] NSWCA 341). The second was an offer of $40,000 inclusive of costs, made at approximately the same time as the offer of compromise, in circumstances where, Mr Freeman tells me, and I accept, that the costs incurred by the plaintiff at that stage would have exceeded that sum. 21The parties made other attempts to settle these proceedings, which included a 15-hour long mediation on the last working day before the hearing and attending another mediation in September 2012. 22Nevertheless, the offer of compromise related to the settlement of proceedings against all three defendants. Is that sufficient for there to be an indemnity costs order? The defendants' written submissions state that "the offer as communicated has not been achieved in accordance with its terms and a special order for costs ought not be made" (written submissions, paragraph 6). 23In Allianz Australia Ltd v Sim; WorkCover Authority (NSW) v Sim; Wallaby Grip (BAE) Pty Ltd (In liq) v Sim [2012] NSWCA 68 at [179] the court noted that an offer of compromise, to be valid, must be put to all defendants, in order to "trigger the operation of the rule". Those defendants may protect their respective interests by offers between themselves (Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179). However, the fact that a plaintiff fails against one defendant out of three must be of significance. 24The offer of compromise system would not work, in relation to multiple defendants, if failure against one defendant was sufficient to invalidate the offer against those to whom the offer had been made. In the present case, there are compelling factual reasons as to why the role of Mrs Issa as a defendant should not prevent the plaintiff from recovering its costs against the first and second defendant on an indemnity basis. Those reasons, discussed more fully below, relate to the dishonesty of all defendants, including Mrs Issa, in trying to conceal the identity of the corporation dealing with the plaintiff behind a maze of corporate names, in circumstances where Mrs Issa, despite being the sole director of the first defendant, was unable to assist the court in relation to the activities of the first defendant's activities. 25Neither party, in their submissions, drew my attention to any decisions of assistance on this issue. That is not an acceptable way for important issues such as costs to be determined. It is not appropriate for judges to be left to find authority and determine issues without hearing from the parties as to those principles. 26The alternative basis upon which the costs of these proceedings may be determined is as a Calderbank offer, and the plaintiff's written submissions put this as an alternative. However, the offers in question were put to all parties, not just to one party, and this does not assist the plaintiff. Similarly, the submissions of the plaintiff that one or more of the defendants could have accepted the offer misconceives the nature of the offer process. The offer is not capable of acceptance by one or another of the defendants if it is addressed to all, for the reasons explained by the Court of Appeal in Allianz, supra. 27Applications for indemnity costs against one party where the offer was made to all defendants, including those against whom the action has failed, have been made in many cases, none of which have been referred to by the parties in their submissions. They tend to turn on their facts, and generally occur where the same lawyers represent the parties and the damage suffered results from the actions of one or more of an undetermined group. In the present case, the defendants' submissions on quantum did not differentiate between the defendants, so close was their role in the transactions leading to the loss and damage. 28One such case is In the matter of Employ (No 96) Pty Ltd (in liquidation) [2013] NSWSC 456, where a plaintiff succeeded against only one of the parties, and where recent decisions concerning the "rule of thumb" are discussed. What little appellate authority there is (for example Adrian v Romin Pty Ltd [2007] QCA 397 at [27]) suggests that this should not prevent the award of indemnity costs by those parties who have been successful. As Chesterman J noted, the defendants could, for example, have accepted the offer and worked it out between themselves how to pay it. That is particularly the case in these proceedings, involving a husband and wife and a company which the wife ran in name only for the husband. 29The second basis upon which the order for indemnity costs is resisted is that the order did not remain open for a sufficiently reasonable time. While the first offer of compromise, with its reference to costs, would have been invalid at the time, the second offer, which repeated its terms, was valid and moreover some short additional time was given for its consideration. That was sufficient time for the offer to be considered, given the advanced state of the litigation and notwithstanding the fact that the plaintiff was in the process of amending the statement of claim. 30The third basis upon which the order for indemnity costs is resisted is that the form of the claim made by the plaintiff was amended on a number of occasions, and that the pleadings was "somewhat unusual" (written submissions, paragraph 8(b)) in that it did not properly identify issues in the claim. 31This should have been a simple claim. The evidence of incompetently drawn design plans, the emails Mr Issa sent to Centre Management concerning the core holes and the evidence of the experts as to quantum was straightforward. The damages sought consisted of actual expenses incurred. The defendants never contested any division of the quantum between them. The sum of money involved was agreed between the parties at all relevant times to be around $70,000, and both counsel said as much on the first day of the hearing. 32What made these proceedings complicated was the complicated maze of corporations behind which the defendants conducted their business affairs, which meant they were not prepared to admit the identity of the persons or corporations with whom the plaintiff contracted, coupled with their attempts to apportion the blame to others, attempts made at the last minute in the amended pleading filed six weeks before the trial. Apart from a claim by the plaintiff for lost profits (which was dropped some time prior to the hearing) the plaintiff's claim was for readily ascertainable damages, and the only real question was whether she had contracted with Mr Issa and/or one of his companies in relation to each of the design and fitout contracts. 33The defendants' submissions refer (at paragraph 8(c)) to s 60 Civil Procedure Act 2005 (NSW). I agree that this is a relevant provision, but not for the reasons enunciated by the defendants. This was a simple shop design and fitout which had been negligently designed and installed. There was expert evidence as to quantum and a refreshing absence of inflated or unrealistic claims for anything other than actual expense incurred. The case should not have been conducted by the defendants in this convoluted fashion. 34I note the defendants' warning that indemnity costs should not be used as a means of penalising a party for how the case is conducted (written submissions, paragraph 9(d), but this should not prevent the court from giving due weight to the offer of compromise system being invoked by a party in proceedings which, given the amount claimed and the factual background, should have been proceedings capable of being settled. 35Taking all of the above into account, I am satisfied that an order for indemnity costs should be made. Taking into account the dispute about whether the first offer was valid (in that the offer stated it was "plus costs", a matter of controversy at the time) and the relatively short period during which it was open, I have made the order for indemnity costs run from the date of expiry of the offer, namely 19 September 2012.

The conduct of the proceedings 36The second basis upon which the plaintiff seeks an order for indemnity costs is the conduct of the proceedings by the defendants, including the claims made in the Defence and Amended Defence in relation to the concurrent wrongdoer claim and the claim against the plaintiff's solicitor, Mr Ishkanian. 37If I have erred by reason of making an order for indemnity costs against the first and second defendants on the basis of the offer of compromise, I would make a costs order on that basis against the first and second defendant by reason of their conduct of these proceedings, but only in relation to their conduct from 31 January 2012, when the amended defence of concurrent wrongdoer was filed. 38The written submissions of the defendants have been prepared by their newly appointed legal advisers, who frankly admit that they are at a disadvantage in relation to any application for costs on an indemnity basis in relation to historical matters such as the circumstances in which the first hearing date was vacated. 39The first hearing date was vacated by reason of amendments to the statement of claim, but no costs order was made against the plaintiff, apparently due to the intransigent attitude of the defendants. Costs were reserved. There was also non-compliance by the defendants with timetables, as is set out in the plaintiff's submissions, but mere non-compliance with timetables does not warrant a special costs order unless there are exceptional circumstances. 40None of the conduct referred to in the submissions of the defendants is conduct warranting a departure from the usual costs order. I appreciate that the defendants' lawyers are at a disadvantage in this regard, but the principal basis upon which costs on an indemnity basis is sought is the conduct of the trial, and in particular the inadequacies of the concurrent wrongdoer defence, this being the issue that dominated the trial. It is because the hopelessly drafted foreshadowed concurrent wrongdoer defence filed on 29 March 2012, the text of which is set out at [6] above, was replaced six weeks before the hearing that an indemnity costs order for conduct of the case is warranted. This prolix pleading not only identified the corporate entities asserted to be concurrent wrongdoers for the first time, but set out extensive factual material about which there was no prior pleading, affidavit material, expert evidence or particularisation. 41While I understand the difficulties under which the defendants' new representatives are labouring, the three documents they may be taken to have read in order to file an appeal are the judgment and their clients' defences. The defendants' written submissions at the hearing and on costs have made no attempt to explain or discuss the factual matters upon which the grossly inadequate particulars in the original defence, and the circumstances of filing the amended defence were not only filed late but never elaborated upon, being merely repeated in the defendants' written submissions in a "cut and paste" exercise. 42The obligation of a party to plead and particularise its case promptly and clearly, to make concessions where appropriate, to assist the court with appropriate submissions, and to be able to address those submissions without unseemly attacks on the opponent, should not need to be matters about which legal practitioners are reminded. Mr Freeman and his instructing solicitor remained polite and courteous throughout, which makes the defendants' legal representatives' conduct towards them difficult to understand. I appreciate that litigants can become angry and upset with each other about litigation, but hearings must be conducted fairly and courteously. Ms Der Bedrossian was a quiet and shy young woman, and the reason for the defendants' hostility towards her was impossible to understand. 43 The unsatisfactory conduct of this part of the claim is such that an order for costs of the hearing and all other costs following this amendment should be borne by the first and second defendants on an indemnity basis. 44As is noted above, the plaintiff was unsuccessful against the third defendant. I shall next set out my findings in relation to the third defendant's costs.

The third defendant's costs 45I have set out in my judgment at some length the manner in which the defendants failed to address, either in pleadings, evidence or even in submissions, the question of which company or individual contracted with the plaintiff in the design and fitout contract. This is a very clear case of "uncertainty as to who was the proper defendant" (RTA of NSW, Council of the Shire of Evans & Pioneer Road Services Pty Ltd v Palmer (No 2) [2009] NSWCA 140 at [35]). The reluctance of all defendants to make such an elementary admission as who contracted with the plaintiff, coupled with the circumstances in which the design contract was entered into by a non-existent company, meant that determination of which individuals or corporations had entered into the contracts or performed the work were matters of substantial factual uncertainty up to the stage of final submissions. 46The first contract consisted of an offer from a non-existent corporation which was orally accepted by the plaintiff's sole director, Ms Der Bedrossian. The second contract was a written document, but the name of the first defendant was spelled differently, and there were references to other corporations in important clause in the contract. The banking documents were conducted in the name of another company, the correspondence was on other letterhead again, and these differences were complicated by the reference to up to 15 other corporate or purported corporate names, business names and a family trust. 47The third defendant was the sole director and secretary of the first defendant. It was unclear until well into the trial precisely who had made the representations in relation to any contract entered into, or work performed, by the first and/or second defendants. 48In Almeida v Universal Dye Works (No 2) [2001] NSWCA 156, the defendants put in issue questions of occupation and head contractorship of an accident site. Priestley JA stated (at [13]) that this "alone would in my opinion have been sufficient" to warrant the costs orders sought by the plaintiffs. In Balesfire Pty Ltd t/as the Gutter Shop & Ors v Jamie Adams & Ors [2006] NSWCA 112, the party against whom the costs order was sought not only denied being the relevant contractor (which in fact it was) but joined other parties alleging that fault on their part had materially contributed to the injury. Mrs Issa has joined in the making of these denials and the bringing of claims of fault by other parties. 49The proposal put on behalf of the defendants seems to be a variation of the "rule of thumb" application (King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [25] - [35]. That is not appropriate in this case. Although the successful and unsuccessful defendants were jointly represented, Mrs Issa was little more than a cipher. She knew nothing of the relevant events, according to her evidence, and was responsible only for the bookwork, despite being the sole director of the first defendant. 50The question is firstly whether Mrs Issa, the third defendant, is entitled to a costs order at all and, if so, whether any costs order in her favour should be the subject of a Bullock or Sanderson order. As Beazley JA explains in Coombes v RTA (No 2) [2007] NSWCA 70 at [3], the difference between these two types of orders depends upon how payment under the order is directed to be made. If there is a Bullock order, the unsuccessful defendant is ordered to pay the plaintiff those costs the plaintiff had been ordered to pay the successful defendant. If there is a Sanderson order, the unsuccessful defendant is ordered to pay directly to the successful defendant those costs that the plaintiff is ordered to pay. A Sanderson order has been described as "the modern form of order" (Johnson's Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 572) when compared to a Bullock order (St Clair v Timtalla (No 2) [2010] QSC 480 at [31]). 51As a general principle, costs follow the event, in that a successful party is generally entitled to a costs order in his or her favour: r 42.1 Uniform Civil Procedure Rules 2005 (NSW). However, s 98(1)(b) of the Act give the court "full power to determine by whom, to whom and to what extent costs are to be paid". This is of particular relevance in proceedings where the parties have had mixed success, or where claims by or against multiple parties have been only partially successful. 52In many of the Court of Appeal decisions set out above, the defendants in question were separate entities, brought together for short periods of time, generally for work-related periods. That is not the case here. The business affairs of Mr and Mrs Issa, like the companies of which they are individually directors, are intertwined by reason of their marriage to each other, their work in the same business (albeit in different capacities) and their respective roles in the corporations which successively ran the business activities at the Smithfield premises. The defendants went to great lengths to conceal the corporate and trust structure behind the maze of companies set out in the schedule to the judgment. 53Although the evidence in relation to Mrs Issa falls short of showing that she played any role in the design, defective workmanship and representations which have been the subject of these proceedings, she is the sole director of the first defendant and should have been able to give clear evidence as to its contractual relationship (or lack thereof) with the plaintiff. Her failure to do so, in both defences filed in these proceedings, is not to her credit. 54The facts of this case mean that the third defendant's success in avoiding liability should be given little or no weight in the determination of costs issues. 55The third defendant's role in these proceedings was so peripheral that any costs attributable to her, as opposed to the costs relating to the claims against the other defendants, would be extremely modest. I have taken this into account when endeavouring to frame costs orders which will minimise the difficulties of assessment of costs. 56It is not appropriate, however, that the third defendant should have to pay the plaintiff's costs. The circumstances in which a party will be ordered to pay the opponent's costs despite complete success would have to be extreme: Arian v Nguyen (2001) 33 MVR 37. 57The circumstances in which the third defendant failed to be frank in her pleadings about the contractual liability of the first defendant, of which she was the sole director, in circumstances where her role as a director appears to have been little more than a front for her husband's business activities, not only made her joinder as a party understandable, but requires a very substantial adjustment of her entitlement as to costs. 58Taking these matters into account, I find that the third defendant should bear her own legal costs, and not be entitled to any costs order against the plaintiff. This effectively puts her in a position of being responsible for payment of her own legal costs, but means that she is not a party to any assessment of costs between the parties to this litigation. 59Accordingly the order I make in relation to the costs of the third defendant is that the plaintiff and third defendant each pay her or its costs and her application for costs is dismissed. This effectively makes a Bullock or Sanderson order unnecessary.

Orders (1)The third defendant's application for costs against the plaintiff is dismissed. (2)The plaintiff and third defendant each pay its or her costs of these proceedings. (3)The first and second defendants pay the plaintiff's costs of these proceedings on a party/party basis until 19 September 2012 and thereafter on an indemnity basis. (4)Liberty to the plaintiff and to the defendants to restore in relation to any application for costs to be paid personally by the former solicitors for the defendants.

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: 03 July 2014