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.

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