Abu-Mahmoud v Consolidated Lawyers Pty Ltd (No.2)

[2015] NSWSC 833

Supreme Court

New South Wales

Medium Neutral Citation:	Abu-Mahmoud v Consolidated Lawyers Pty Ltd (No.2) [2015] NSWSC 833
Hearing dates:	19 June 2015
Date of orders:	26 June 2015
Decision date:	26 June 2015
Before:	Garling J
Decision:	(1)Order the defendants to pay the plaintiff’s costs of the proceedings on the ordinary basis. (2)Notices of Motion otherwise dismissed. (3)Each party to pay their own costs of the Notices of Motion.
Catchwords:	COSTS – indemnity costs – where offer of compromise made by plaintiff – where offer not accepted and judgment no less favourable to plaintiff – whether Court should “otherwise order” – whether reasonable opportunity for defendants to consider plaintiff’s case during period which offer was open – principal expert report served by plaintiff after time for acceptance of offer had expired – appropriate to “otherwise order” – no order for indemnity costs – order for costs on ordinary basis – COSTS – where partial success of defendant – whether reduction in costs to reflect defendant’s partial success – no reduction in costs
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
Cases Cited:	Abu-Mahmoud v Consolidated Lawyers Pty Ltd [2015] NSWSC 547 Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 Caine v Lumley General Insurance Ltd (No. 2) [2008] NSWCA 109 Cunneen v Independent Commission Against Corruption [2015] NSWCA 46 Hillier v Sheather (1995) 36 NSWLR 414 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No.2) [2014] NSWCA 425 Nominal Defendant v Hawkins [2011] NSWCA 93 South Eastern Sydney Area Health Service v King [2006] NSWCA 2
Texts Cited:	Not Applicable
Category:	Procedural and other rulings
Parties:	Mohamed Abu-Mahmoud (P) Consolidated Lawyers Pty Ltd (D1) Abdul Salem Kassem t/as S K Lawyers (D2) Christopher Shaw (D3) Ann Bowen (D4) John Gerathy (D5)
Representation:	Counsel: P Doyle-Gray (P) D Lloyd (D1-5) Solicitors: Atkinson Vinden (P) Meridian Lawyers (D1-5)
File Number(s):	2010/417411
Publication restriction:	Not Applicable

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Judgment

1. On 18 May 2015, I delivered judgment in the principal proceedings. For the reasons which I then expressed, I ordered that there be judgment for the plaintiff. I directed the parties to bring in short minutes of order, including seeking any orders for costs: Abu-Mahmoud v Consolidated Lawyers Pty Ltd [2015] NSWSC 547.

2. On 19 June 2015, I made a series of orders by consent, consequent upon the judgment delivered on 18 May 2015. Relevantly, those orders included:

“1.   Judgment for the plaintiff against the defendants for $2,335,593.18.

2.   The defendants indemnify the plaintiff for his liability to pay the costs of St George Bank Ltd in proceedings bearing plaint numbered 50105/2009.”

Present Notices of Motion

3. On 1 June 2015, the plaintiff served a Notice of Motion in which he sought the following orders:

“1.   The defendants to pay the plaintiff’s costs of the proceedings:

(a)   assessed on the ordinary basis up to and including 3 October 2013, and

(b)   assessed on an indemnity basis on and from 4 October 2013.”

4. On 15 June 2015, the defendants served a Notice of Motion in which they sought the following orders:

“The defendants pay one third of the plaintiff’s costs of the proceedings on the ordinary basis.”

5. This judgment deals with these two Notices of Motion.

Evidence

6. The evidence discloses that on 3 October 2013, the solicitors for the plaintiff served on the solicitors for the defendants, an Offer of Compromise pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (“UCPR”), in the following terms:

“1.   The claim, or part of the claim, to which this offer relates is:

(a)   The entire claim in these proceedings brought by the plaintiff.

2.   The proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment are:

1. Judgment in favour of the plaintiff against the defendants for $2.1 million.” (sic)

7. The offer was open for 28 days. It expired in the first week of November 2013.

8. Mr Partridge, the solicitor for the defendants, filed an affidavit sworn on 15 June 2015. In that affidavit, Mr Partridge called attention to a series of directions given by the Court prior to trial.

9. In particular, Mr Partridge noted the following chronology of directions:

(a)   On 18 July 2013, the matter was listed for a five day hearing commencing on 9 December 2013;

(b)   On 14 August 2013, at a directions hearing, orders were made permitting the defendants to file all further affidavits by 13 September 2013, and requiring the plaintiff to file all affidavits in reply on or before 4 October 2013;

(c)   On 3 October 2013, the plaintiff served the Offer of Compromise to which I have earlier made reference;

(d)   On 4 October 2013, the matter was relisted for directions. Directions which were made included extending the time for the defendants to serve a further affidavit of Mr Salem Kassem, and for the plaintiff to serve any affidavit evidence in reply;

(e)   On 25 November 2013, the matter was listed for directions, and the Court made a series of orders to ensure that the proceedings were ready for an efficient trial.

10. Mr Partridge notes that on 3 December 2013, which was less than a week before the commencement of the hearing, the plaintiff served a supplementary report by Mr Stephen Martin, dated 3 December 2013. Mr Martin is an expert solicitor who had prepared an earlier report on 26 July 2012, which had been served promptly. Mr Partridge asserts that Mr Martin’s second report dealt with a pleaded breach, which had not been covered by his earlier report, for the first time.

11. On 9 December 2013, in the course of the hearing, the plaintiff sought to rely upon the report of Mr Martin. Objection was taken to paragraph 3(i) of that report on the grounds that it was not reply evidence, and had not been served in accordance with the timetable for evidence in chief. I allowed that paragraph of the report, and granted the defendants leave to adduce any expert evidence in reply.

12. On 14 February 2014, the defendants served a report in reply of the expert retained by them, Mr Geoffrey Bartels, dated 13 February 2014.

Costs - Power

13. Section 98(1) of the Civil Procedure Act 2005 bestows an ample power with respect to ordering costs. It provides, relevantly:

“98   Courts Powers as to costs

(1)   Subject to rules of court and to this or any other Act:

(a) costs are in the discretion of the court, and

(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and

(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis”

14. It is necessary to consider a number of rules in the UCPR which deal with the question of costs. Rule 42.1 of the UCPR, provides as follows:

“Subject to this Part, if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.”

15. Rule 42.2 of the UCPR provides that unless the Court otherwise orders, the costs ordered to be paid, are to be assessed on the ordinary basis.

16. There are a series of rules which specifically deal with offers of compromise. Rule 42.14 of the UCPR deals with circumstances where an offer of compromise is not accepted and a plaintiff obtains a judgment which is no less favourable than the offer of compromise. It is in the following form:

“42.14 Where offer not accepted and judgment no less favourable to plaintiff

(1)   This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.

(2)   Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim:

(a)   assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and

(b)   assessed on an indemnity basis:

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) …

17. It can be seen by reference to the UCPR, that the Court should make the orders sought in the plaintiff’s Notice of Motion, unless persuaded by the defendants that it should “otherwise order”.

18. So far as the defendants’ Notice of Motion is concerned, which raises a question of partial success, that is to say, success on some, but not all, of the issues litigated, the Court needs to be persuaded that “some other order should be made” within the meaning of r 42.1.

19. It is necessary to examine the authorities which relate to these two issues.

Indemnity Costs – Legal Principles

20. In circumstances where a proper offer of compromise has been made, not accepted, and the plaintiff has obtained a judgment no less favourable than the terms of the offer, as is here the case, then authorities provide that there is a clear onus on the defendant, to persuade the Court to “otherwise order”.

21. In South Eastern Sydney Area Health Service v King [2006] NSWCA 2, at [83] per Hunt AJA (Mason P and McColl JA agreeing), the following appears:

“The onus is on the defendant to persuade the Court that indemnity costs should not be ordered. He must demonstrate the basis on which an order should be made denying the plaintiff’s entitlement to indemnity costs. He must establish that he had given serious thought to the risk involved in non-acceptance of the Offer, and that he had assessed the plaintiff’s case properly and in the context of the rule, and the achievement of its purpose – to encourage the proper compromise of litigation, in the private interests of the litigants, and in the public interest of the prompt and economical disposal of litigation. Generally, exceptional circumstances are required to justify such an order denying the plaintiff’s entitlement.”

22. In Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109, McColl JA cited, with approval, this passage from King. In that case, her Honour found that there had been no attempt to explain why the offer was rejected in circumstances where the offer “cried out for serious consideration”. Her Honour noted, at [36]:

“The respondent’s failure to accept the offers, and its failure to explain why it did so, means that notionally the real cause and occasion of the litigation was the attitude it displayed in rejecting the offers.”

23. Regard must be had to Hillier v Sheather (1995) 36 NSWLR 414, at 423, where Kirby P said:

“Approached in the foregoing way, I can see no proper reason to ‘otherwise order’ in this case. Nothing has been placed before the Court to suggest that there was any particular reason which made prediction of the outcome more than usually difficult, or to render the refusal of the offer(s) of compromise more reasonable than subsequent events would tend to deny.”

24. In 2011, the Court of Appeal revisited this issue. In Nominal Defendant v Hawkins [2011] NSWCA 93, Hodgson JA, Beazley JA and Sackville AJA agreeing, noted that the primary judge had accepted a submission from the defendant that at the time it refused the plaintiff’s offer, “… it did not know and could not have known of important evidence in this case”. He noted that the defendant submitted to the primary judge, and the primary judge accepted, that the defendant could not reasonably have anticipated the plaintiff’s success on that basis, and accordingly, acted reasonably in refusing the offer.

25. Hodgson JA went on to note that he accepted that, with respect to the exercise of the Court’s power to “otherwise order”, under r 42.14(2) of the UCPR, that:

“… It is not enough to justify ordering otherwise for a person who refused an offer of compromise to show that he/she acted reasonably in doing so. Generally, exceptional circumstances are required.”

26. His Honour went on to hold that he did not think that the decision of the primary judge displayed such error of principle as would be sufficient to justify appellate intervention. It is not in doubt that a significant change in a plaintiff’s case after the offer of compromise is made, and the trial, may be a sufficient circumstances to justify the Court otherwise ordering. That approach was followed in King, and by the primary judge in Hawkins. This last approach was not said to display any error of principle.

Indemnity Costs – Discernment

27. The defendants submit that whilst they accept that the Offer of Compromise was a valid one in accordance with the UCPR and that it was open for an adequate time, and that the plaintiff has obtained a judgment no less favourable than the Offer, they point to two features which they submit are a basis for denying an order for indemnity costs.

28. The first is that the Offer was made at a time shortly after the filing of a Further Amended Statement of Claim, highlighting a breach of duty of care with respect to the restructure of the plaintiffs affairs, upon which the plaintiff ultimately succeeded and that it was made before the plaintiff had served any expert evidence in support of that first breach of duty. The defendants note that the Offer also expired before the evidence was served. As well, the defendants note that the Offer was made and expired before the defendants had any opportunity to obtain responsive expert evidence. They obtained responsive evidence in February 2014.

29. Accordingly, it is submitted by the defendants that they were not in a position to properly consider the merits of the plaintiff’s case on the first breach of duty during the period for which the Offer was open.

30. In addition, by way of a second basis for the Court to “otherwise order”, the defendants submit that the plaintiff in fact failed on a significant variety of other issues in the proceedings, and that that is a matter which the Court could, and should, take into account in considering whether to “order otherwise”.

31. There is little doubt that the expert opinion of Mr Martin contained in his report of December 2013, was an expert opinion properly to be regarded as a part of the evidence in chief to be relied upon by the plaintiff. It was an important feature of the plaintiff’s case against the defendants that not only would a solicitor acting reasonably have foreseen the relevant risks, but that the failure to advise the plaintiff of those relevant risks would constitute a breach of duty. It is surprising that an expert opinion about this fundamental aspect of the plaintiff’s case was not obtained earlier, and served earlier.

32. Given that the expert opinion of Mr Martin, which was central to the plaintiff’s case, was not served until after the Offer of Compromise expired, I am satisfied that the defendants did not have a reasonable opportunity to consider the strength of the case being made against them by the plaintiff.

33. True it is that there was a factual contest as to whether or not Mr Salem Kassem had given the requisite advice, as claimed by Mr Abu-Mahmoud. This was a factual issue which was resolved in the judgment.

34. In my view, in accordance with the principles to which I have earlier referred, the late service of the principal expert report, which was not served until after the time for acceptance of the Offer had expired, is a circumstance which I would regard as exceptional.

35. In my view, it is appropriate for the Court to otherwise order. I would not order the defendants to pay the plaintiff’s costs on an indemnity basis as and from 3 October 2013.

Multiple Issues – Legal Principles

36. In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304, the Court of Appeal set out concisely the principles relevant to the exercise of the Court’s discretion with respect to costs where a question about success and failure on a number of issues arises. At [38] the Court (Beazley, Ipp and Basten JJA) said:

“38 The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this Court in Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows:

●   Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).

●   In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.

●   If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27].

●   Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).

●   A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].

●   Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at 272.

These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No 2) [2009] NSWCA 279.”

37. Recently in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425, Macfarlan JA (with whom Meagher and Barrett JJA agreed) said at [26]-[27] the following:

“The effect of UCPR r 42.1 is that the Court must exercise the discretion as to costs conferred on it by s 98 of the Civil Procedure Act by ordering that costs ‘follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs’.

Consistent with this rule, it has long been accepted that a plaintiff who obtains judgment at trial for a monetary sum will ordinarily be entitled to an order that the defendant pay his or her costs, notwithstanding that the plaintiff might not have recovered the whole of the amount he or she claimed. The circumstances of particular cases may warrant departure from this approach. In particular, where the defendant succeeded on a clearly dominant or separable issue, some variation may be warranted. In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38], this Court provided the following summary of presently relevant principles …”

38. Most recently, the Court of Appeal reaffirmed these applicable principles: Cunneen v Independent Commission Against Corruption [2015] NSWCA 46 at [14], per Ward JA (Bathurst CJ and Basten JA agreeing).

39. Applying these principles, I am not satisfied that a reduction in the costs ordered to be paid by the defendants to reflect any success by the defendants on any of the issues is sufficiently severable to justify the order of the kind which the defendants seek.

40. On the contrary, it was necessary to examine all of the facts, including those referrable to the caveat, and the exchanges about the caveat including advice said to have been given, or not given, by Mr Kassem to Mr Abu-Mahmoud, to deal with the defendants’ submission, upon which they were ultimately unsuccessful, that even if there had been a breach of duty, which was denied, that breach did not cause the plaintiff’s loss.

41. In the circumstances, I am not satisfied that it is appropriate to reduce the costs as contended for by the defendants.

42. In summary, both Motions will be dismissed. In my view, the proper order is to be made is that the defendants should pay the plaintiff’s costs on the ordinary basis.

Orders

43. I make the following orders:

1. Order the defendants to pay the plaintiff’s costs of the proceedings on the ordinary basis.

2. Notices of Motion otherwise dismissed.

3. Each party to pay their own costs of the Notices of Motion.

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Decision last updated: 30 June 2015