Vardas v Coshott

The Terms of the Deed

1. The parties are at issue about the construction of the release provisions of the Deed. At clause 2.1 of the Deed, "claim" was defined in the following terms: "Claim means all actions, complaints, suits, proceedings, claims and demands, including but not limited to claims for damages, compensation, equitable relief, restitution, unjust enrichments, an accounting, interest and costs, or any legal, administrative, governmental, arbitral or other proceedings or investigations regardless of whether or not the facts, matters and circumstances giving rise to those same actions, complaints, suits, proceedings, claims and demands are known or unknown to the parties as at the date of this Deed."
2. Clause 3.1 of the Deed provided that Mr Vardas was to pay the Coshotts the sum of $700,000 "inclusive of any claim for costs and interest". It is not in dispute that this sum was paid.
3. The Coshotts made four central promises in the Deed, clause 4.1: a release and indemnity in respect of claims in favour of Mr Vardas; a covenant not to sue; an acknowledgment that the Deed could be pleaded in bar to future claims; and, the entry of judgment to end the earlier proceedings. Clause 4.1 provides as follows: "4 Release and indemnity by the Coshotts 4.1 In consideration of the payment of the Settlement Sum in paragraph 3 above, each of Mr Coshott and Mrs Coshott: (a) release, indemnify and forever discharge Mr Vardas from any claim, present and future which he (she) now has or but for this deed may have had against him in respect of or in any way connected with or arising out of the matters which are the subject of this Deed, including but not limited to: (i) the subject matter of each of the claims in the ASOC; (ii) the solicitor-client relationship between Mr Coshott and/or Mrs Coshott and Mr Vardas; (iii) the Retainers; (b) agree not to take, make or bring or join or be party to any claim against Mr Vardas in respect of or in connection with the matters which are the subject of this deed; (c) acknowledge that this deed may be relied upon and enforced and pleaded as a bar to any Claim brought or made against Mr Vardas in respect of or in connection with or arising out of the matters which are the subject of this deed; and (d) agree to the entry of judgment in favour of Mr Vardas in the Proceedings and the discontinuance of the Cross Claim and to execute consent orders for filing in the Supreme Court in the form attached as Annexure A to this deed, as set in Section 5 of this deed."
4. In Deed, clause 4.3 the Coshotts acknowledged that Mr Vardas could plead the Deed in bar any "claim" as defined, they might bring against him: "4.3 The Coshotts acknowledge that: (a) notwithstanding any rule of equity or other matter to the contrary, the releases, indemnities and discharges in this deed may be relied on or enforced or pleaded by Mr Vardas as a bar to any claim which may be brought or made by or on behalf of the Coshotts against him or any servant, agent, employee or administrator of his estate, in respect of, or in connection with the matters which are the subject of this deed or which otherwise arise from Mr Vardas having advised or acted for Mr Coshott and/or Mrs Coshott; (b) Mr Vardas is entitled to enforce the provisions of this deed by legal proceedings in his own name."

The April 2016 Costs Assessment Application

1. On or about 27 April 2016, the Coshotts applied to the Manager, Costs Assessment of this Court for a costs assessment against Mr Vardas of the 2004 costs orders. They claimed an amount of $201,214.75 as due upon the assessment (assessment number 2016/128929) ("the costs assessment application"). In accordance with the Court's usual procedures, the Court's Manager, Costs Assessment referred the costs assessment application out to a costs assessor.
2. The third defendant Mr Christopher Wall ("Mr Wall") is the costs assessor to whom the costs assessment application was referred. On 11 May 2016, Mr Wall was appointed as the costs assessor by the fourth defendant, the Manager, Costs Assessment. Each of these two parties filed submitting appearances in these proceedings, save as to costs.
3. On 23 May 2016 Mr Vardas' legal representatives sent Mr Wall copies of the Deed and the 2007 Orders. These had not formed part of the Coshotts' costs assessment application. The parties' respective solicitors exchanged correspondence between themselves and with Mr Wall about whether the costs assessment could proceed in the face of the Deed.
4. Having become familiar with the dispute about the Deed, Mr Wall wrote to the parties on 1 June 2016 and again on 6 July 2016 declining to determine the question whether or not the Deed precluded further pursuit of the costs assessment. Mr Wall summarised his position in his 6 July 2016 letter to the parties, as follows: "5.1 As I read it, the deed settles the costs claims 5.2 It is thus pointless for me to assess costs; 5.3 However it is not my role to determine whether, at the time the application was lodged, Mr Coshott was not a person entitled to receive the costs ordered. It is only in their capacity as persons "entitled to receive those costs" (to use the words in section 353(1) of LPA 2004) that Coshotts could be entitled to apply to the Manager for assessment of costs; 5.4 However my role is limited to determine the fair and reasonable amount of costs by looking at whether it was reasonable to do the work concerned, and whether the work was done in a reasonable manner. My role does not extend to dealing with contracts to release liability, estoppel, or indeed to determining whether, at the time the application was lodged, the Coshotts were entitled to receive the costs. It seems to me that is an issue for the Manager, as it is being entitled to receive the costs that enables the Coshotts to apply to the Manager Costs Assessment for assessment of those costs."
5. But Mr Vardas still wanted the issue determined. So on 7 July 2016 Mr Vardas filed the Summons in these proceedings, seeking interlocutory and final relief restraining the Coshotts from proceeding further with the costs assessment application ("Summons").
6. On 28 July 2016, White J granted an interlocutory injunction staying the Costs Assessment Application and restraining the Coshotts from taking further steps in pursuit of it until the final hearing. The Registrar in Equity fixed the final hearing of the matter on Monday, 30 January 2017.

Relief Sought

1. In his Summons in these proceedings Mr Vardas seeks: 1. Declarations that there are no orders in the proceedings before Bergin J against Mr Vardas to pay the Coshotts' costs (or alternatively orders that the Coshotts are permanently restrained from taking steps to enforce any costs order or declarations that the Coshotts are estopped from seeking to recover costs); 2. Declarations that the costs assessment application is void, invalid and of no effect in law; and 3. A declaration that the Coshotts are in breach of the Deed.
2. In response, the Coshotts seek dismissal of the Summons with costs.

The Parties' Submissions

1. Mr Vardas contends that the dispute between the parties had been wholly resolved under the terms of the Deed, and that the releases and covenants not to sue on matters the subject of the broad definition of "claim" in the Deed were sufficient to resolve the proceedings in their entirety, including any subsequent incidental action by way of a costs assessment.
2. Mr Vardas submitted that the Coshott-initiated costs assessment application was one of many possible future actions that fell within the definition of "claim" in the Deed and was therefore barred under the provisions of the Deed.
3. Mr Vardas submitted that the Deed should be construed commercially. He submitted that its obvious commercial purpose was to wholly settle the earlier proceedings for a lump sum payment of $700,000 without leaving open the possibility of exposure to claims for costs assessment for up to 12 years, the limitation period for actions on judgments.
4. Mr Vardas advanced a number of alternative submissions that were each said to be sufficient for the Court to make orders in substance terminating the costs assessment process. In summary, Mr Vardas submitted the following: 1. Any entitlement of the Coshotts to the benefit of the 2004 costs orders was resolved and released in the settlement expressed in the Deed itself. 2. The terms of the 2007 Orders, which were expressed as an order that "[E]ach party bear their own costs" overtook the 2004 costs orders. 3. Even if the Coshotts had a notional entitlement to the benefit of the 2004 costs orders, they are now barred by their promises in the Deed from making any claim based on those orders, including for a costs assessment. 4. Even if the Coshotts had a notional entitlement to the benefit of the 2004 costs orders, and even if the Deed is not to be construed as barring a costs assessment (contrary to the principal submission of Mr Vardas), the costs assessment is entirely futile because the Deed bars the taking of any steps to recover any amount of costs, assessed or otherwise. 5. The costs assessment is futile, because under the Deed the Coshotts granted an indemnity to Mr Vardas in respect of any claims. 6. In making and maintaining the costs assessment application the Coshotts are in breach of the Deed, and they should not be permitted to continue the costs assessment in breach of their obligations.
5. The Coshotts put submissions in reply. They submitted that the 2007 Orders did not set aside the 2004 costs orders, which remained in effect, subject only to the terms of the Deed.
6. The Coshotts further submitted that the definition of "claim" in the Deed, clause 2.1 does not embrace the 2004 costs orders for two reasons.
7. First, the 2004 costs orders operated as a judgment of the Court, as it was a costs order, even though it was yet to be quantified.
8. Secondly, the definition of "claim" in the Deed is prospective and does not embrace standing judgments such as the 2004 costs orders. The 2004 costs orders already had the standing of a judgment between the parties, which had not been set aside either by the Deed or any consequent orders. The Coshotts contended that the costs assessment application did not fall within the meaning of the term "proceedings", outlined in the definition of "claim" in the Deed, clause 2.1, because it was based on a standing judgment which was in existence at the time the Deed was executed and was therefore now capable of enforcement.
9. The Coshotts also advanced a preliminary argument that the 2004 costs orders were an "order otherwise" for the purposes of Uniform Procedure Rules 2005 ("UCPR"), r 42.7 and the predecessor to that rule, which was in force at the time that the 2004 costs orders were made. These reasons explain below that it is not necessary to address this preliminary argument.

The Relevant Principles of Construction

1. The Deed is a well-crafted document. Despite the dispute which has broken out between the parties it is drafted in a way which should not embarrass the lawyers on either side. Sometimes different perspectives on the drafting process and the separate, but uncommunicated, subjective intentions of the parties lead to disputes such as this one. But the law resolves them by the application of objective principles of construction.
2. There are many appellate pronouncements upon how courts should construe commercial contracts. I am guided by the most recent of these, the High Court's decision in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 at [35] where the majority (French CJ, Hayne, Crennan, and Kiefel JJ) described the approach to construction of the commercial contract in the following way: "[35] Both Verve and the Sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean (McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22] per Gleeson CJ ;[2000] HCA 65; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ ; [2004] HCA 35; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ ; [2008] HCA 3; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ ; [2001] HCA 70, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 ; [1998] 1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737 [10] per Lord Bingham of Cornhill). That approach is not unfamiliar (See, for example, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504 per Lord Esher MR; Bergl (Aust) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ; [1920] HCA 41; see generally Lord Bingham of Cornhill, "A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision", (2008) 12 Edinburgh Law Review 374.). As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; [2004] HCA 52; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ, 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle(2011) 243 CLR 253 at 284 [98] per Heydon and Crennan JJ; [2011] HCA 26. See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326 and 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2906-2907 [14]; [2012] 1 All ER 1137 at 1144). Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J; [1982] HCA 24, citing Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574. See also Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; [2004] HCA 56; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ.). As Arden LJ observed in Re Golden Key Ltd ([2009] EWCA Civ 636 at [28].), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience"(Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464; [1983] HCA 38.)."
3. In his dissenting judgment Gageler J compactly expressed the same idea at [53]: "[53] Commercial parties contracting at arm's length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant."
4. This judgment does not call for any further debate about or analysis of the well-known principles of construction of commercial contracts.

Consideration

1. The issue for determination is whether the Coshotts' costs assessment brought before the costs assessor is a "claim" within the Deed, clause 2.1 and is therefore caught by the release and indemnity in clause 4.1(a) of the Deed, the covenant not to sue in clause 4.1(b) of the Deed, and the right to plead the Deed in bar in clause 4.1(c) of the Deed.
2. On its proper construction in my view the Deed is a complete defence to the Coshott's present application for a costs assessment. Under the Deed, clause 4.1 the Coshotts have released and indemnified and forever discharge Mr Vardas from "any claim, present and future, which he (she) now has or but for this deed may have against him [Mr Vardas] in respect of or in any way connected with or arising out of the matters which are the subject of this deed" [emphasis added]. One of the Deed's subject matters is the Deed, clause 4.1(a)(i), which is "the subject matter of each of the claims in the ASOC [the Amended Statement of Claim]".
3. The claims in the ASOC included as part of their subject matter, as might be expected in the ordinary course, claims for costs. That such claims were made in the ASOC is self-evident from Deed, clause 3.1, which provides that the payment to the Coshotts of the sum of $700,000 was "inclusive of any claim for costs and interest".
4. In my view the costs assessment falls within the definition of "claim" in the Deed, clause 2.1. That definition encompasses a wide variety of litigious and non-litigious events to which the ordinary English word "claim" would not ordinarily apply. The word "claim" in the Deed, clause 2.1 extends to a wide class of acts, which do not necessarily involve engaging legal machinery in a courtroom, and which may be as simple as sending correspondence between parties, and which may be as varied as investigations by government agencies or acts of government administration. An essential promise in the Deed in clause 4.1(b) is that the Coshotts agree not to set in motion or prosecute "claims" as defined: in the words of Deed, clause 4.1(b) the Coshotts are "not to take, make or bring or join or be a party to any claim against Mr Vardas" that is connected with the subject matter of the Deed.
5. It was not in contest that the costs assessment was within the expression in Deed, clause 4.1(a) "in respect of or…connected with or arising out of the matters which are the subject of this deed". For example, the 2004 costs orders, upon which the costs assessment is founded, relate to an amendment to the pleadings, which in turn resulted in the filing of the ASOC, which is the pleading expressly referred to throughout the Deed. The ASOC so filed, records the Coshotts' various claims against Mr Vardas referred to in the Deed recitals, clause 1.5.
6. The Coshotts' application for costs assessment falls within the definition of "claim" in a number of ways. First, the costs assessment comes within the ordinary meaning of the term "proceedings". It is a set of "proceedings" that claims costs. Notwithstanding that a judgment for costs had already been entered in 2004, the costs assessment is still "proceedings", because it initiates a process recognised under the UCPR and the applicable costs assessment legislation. The costs assessment enlivens that procedural machinery sufficiently that in ordinary English the assessment can be described, without more, as "proceedings".
7. Secondly, the definition of "claim" in Deed, clause 2.1 is extended to expressly include "claims for… Costs". In my view, notwithstanding that the cost assessment is predicated upon a pre-existing judgment for costs, in this case the 2004 costs orders, in ordinary English what a costs assessor does to ascertain the amount of those costs can readily be described as "proceedings…including…claims for…costs". The calculation of the money sum for the costs through the assessment process is still, in my view, a "claim for costs" and therefore falls within the definition of "claim".
8. Thirdly, the costs assessment is an administrative process conducted by the Court rather than a judicial process. But this characteristic does not take it outside the Deed's clause 2.1 extended definition of "claim": that definition includes non-judicial processes such as "any legal and administrative governmental arbitral or other proceedings or investigations". The cost assessment process, which is essentially administrative, falls within this wider inclusive definition.
9. On this analysis the cost assessment is captured within the word "claim" in the Deed, clause 2.1 and the payment by Mr Vardas of $700,000 to the Coshotts purchased the Deed, clause 4.1(a) release and indemnity for claims such as this costs assessment, the clause 4.1(b) covenant not to sue for claims such as this costs assessment, and the clause 4.1(c) acknowledgement that Mr Vardas may plead the Deed in bar to any future claims such as this costs assessment.
10. This analysis represents a complete answer to the Coshotts' claim against Mr Vardas. But the Coshotts field argument to the contrary. I do not find their arguments persuasive.
11. The Coshotts' main contrary argument has two limbs. In the first limb the Coshotts argue that at common law a costs order, such as the 2004 costs order, that is not yet quantified, nevertheless has the status of a judgment of the Court. The Coshotts seek to make good that proposition by reference to a number of authorities: see for example Rodi v Gelonesi [2016] NSWCA 348 at [36]. Mr Vardas did not put the first limb of the Coshotts argument in contest.
12. The second limb is the central issue. The second limb of the Coshotts' argument is that within the definition of "claim" in Deed, clause 2.1, the scope of the expression "all actions, complaints, suits, proceedings, claims and demands", concerns claims yet to be established and not claims which are already the subject of a standing judgment of the Court which has not been set aside by the Deed or by other consequential orders of the Court.
13. There are a number of problems with this argument. The first problem is that the Deed's definition of "claim" does not contain words of limitation, excluding standing judgments, that the Coshotts now seek to invoke.
14. Secondly, the posited limitation does not sit well with the breadth of the definition of "claim" in Deed, clause 2.1, which quite readily extends to many events that would be consequent upon a standing judgment for costs. In order for that standing judgment to be enforced the judgment creditor needs, not only to go through an assessment process to produce a certificate for a particular money sum but to recover that money sum the judgment creditor must take further steps engaging the Court's procedural machinery. All of these steps will take place after what the Coshotts' call the "standing judgment" for costs. And they are all capable of being characterised as "proceedings" that fall within the Deed's extended definition of "claim". The Deed's definition of "claim" readily extends to the taking of steps after the entry of a judgment for costs and is incompatible with the construction for which the Coshotts now contend.
15. Thirdly, many indications in the Deed are incompatible with the idea that cost assessments might be left open on either side in respect of costs judgments in the earlier proceedings. Mr Vardas agreed to pay the Coshotts $700,000, a substantial sum which was said to be "inclusive of any claim for costs and interest". By those words the parties indicated that that settlement sum was designed to capture the dollar value of all claims for costs in exchange for the $700,000. The short minutes of order which the Deed required the parties to file in Court and which recorded the agreement that "[E] each party to bear their own costs", further imported the idea that costs would be borne by the parties as they had so far fallen and that no further costs recovery would be permitted between the parties after the execution of the Deed.
16. It should be noted that the Coshotts raised a preliminary issue, which the Court now does not have to decide. The Coshotts' argument was that upon the making of the first costs order Bergin J "ordered otherwise" within the meaning of UCPR, r 42.71. The Coshotts submitted that it followed from the form of the 2007 costs order that the costs covered by the 2004 costs order never became part of the "general costs of the proceedings", which were dealt with by the 2007 orders. As a result the 2004 costs orders survived the 2007 orders. It was accepted on all sides that the legislation governing costs assessments that has operated between 2004 and 2017 provides the same basis threshold right to a costs assessment: see Legal Profession Uniform Law Application Act 2014, Part 7, s 74.
17. Without deciding the preliminary issue, the Coshotts' contentions can be accepted for the purposes of argument. The greater difficulty for the Coshotts is that even if it were to be assumed the 2004 costs orders survive the making of the 2007 orders, the execution of the Deed in 2007 prevents any further step being taken to perfect or enforce the 2004 costs orders. Thus the Coshotts' arguments on the preliminary issue need be considered no further.

Conclusions and Orders

1. In the result therefore the plaintiff is successful and the Court will make some of the declarations set out in the Summons in these proceedings.
2. The Coshotts sought various declarations to the effect that the costs assessment was "void, invalid and of no effect in law". Such declarations should not be made. The Coshotts are in breach of the provisions of the Deed. That does not necessarily void the costs assessment process.
3. But the Court will declare that the Coshotts are in breach of the Deed by commencing and maintaining the costs assessment and will restrain the Coshotts from taking any further steps in the costs assessment.
4. The parties indicated that were Mr Vardas to be successful that there may be consequential costs issues associated with these proceedings to be determined. To give the parties an opportunity to ventilate those matters these proceedings will be adjourned for the hearing of any such residual issues to 9.30am on 20 February 2017. If that date does not suit the parties then they can advance another mutually agreed date to my Associate.
5. The Court therefore declares, orders and directs as follows: 1. Declare that the first and second defendants and each of them are in breach of the Deed of Release dated 6 September 2007 between the plaintiff and the first and second defendants by initiating and maintaining the costs assessment being conducted by the third defendant ("the costs assessment"). 2. Order that the first and second defendants be permanently restrained from taking any steps to prosecute or proceed with or give effect to the costs assessment before the third defendant. 3. Order that the first and second defendants jointly and severally indemnify the plaintiff for all costs and expenses incurred by the plaintiff as a result of the costs assessment. 4. Order that the parties may make returnable before me on 20 February 2017 at 9.30am any motion for special costs orders. 5. The parties are at liberty to file submissions in advance of the Court dealing with any supplementary costs issues. 6. Grant liberty to apply in relation to the implementation of these orders. 7. The parties shall have liberty to apply up to and including 20 February 2017 to vary or refine the orders and declarations made today. 8. Direct the plaintiff to inform the third and fourth defendants of the making of these orders.

Amendments 06 February 2017 - inserted parties - third and fourth 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: 06 February 2017