Freilich v Wharton (No 2)

[2013] VSC 624

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2012 1730

MARK ISAAC FREILICH	Plaintiff
v
MICHAEL JOHN WHARTON & OTHERS	Defendants

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JUDGE:	BELL J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	2, 3, 4, 7 OCTOBER 2013
DATE OF JUDGMENT:	14 NOVEMBER 2013
CASE MAY BE CITED AS:	FREILICH v WHARTON (No 2)
MEDIUM NEUTRAL CITATION:	[2013] VSC 624

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COSTS – application for modification of restrictive covenant – plaintiff unsuccessful –whether costs should be ordered against plaintiff in favour of defendants – whether costs should be ordered against plaintiff on an indemnity basis – Calderbank letters of defendants – whether plaintiff acted unreasonably in rejecting offers.

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APPEARANCES:	Counsel	Solicitors
For the plaintiff	Mr S Morris QC with Mr D Lloyd	Aitken Partners
For the defendants	Mr S Horgan SC with Mr B Murphy	Best Hooper

HIS HONOUR:

1. Having dismissed the plaintiff’s application for modification of a restrictive covenant,[1] I have received written submissions from the parties in relation to the question of costs.  The defendants submit that the plaintiff should pay their costs and on an indemnity basis.  The plaintiffs submit that there should be no order as to costs.

   [1]Freilich v Wharton [2013] VSC 533 (22 October 2013).

Costs against the plaintiff

1. The plaintiff submits that there should be no order for costs against him because John Allen (who was not a defendant) and not the defendants is liable to pay the legal costs of the defendants in the proceeding.

1. It is clearly established that the existence of a retainer will be presumed between the solicitors on the record and the parties whom they represent in legal proceedings.  A party seeking to challenge that presumption has the onus of showing otherwise.[2]  It is also clearly established that a successful party may recover costs against an unsuccessful party even though a third party has agreed to indemnify the successful party in respect of costs.[3]  For the unsuccessful party to defeat the usual entitlement of the successful party to costs, the unsuccessful party must show that there was a bargain whereby the successful party would not be liable for costs under any circumstances.[4]

   [2]Halliday v High Performance Personnel Pty Ltd (1993) 113 ALR 637, 639 (Mason CJ); Shaw v Yarranova Pty Ltd [2011] VSCA 55 (3 March 2011) [24] (Redlich and Mandie JJA) (’Shaw’).

   [3]Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495, 504 (Atkin LJ) (‘Adams’); Shaw [2011] VSCA 55 (3 March 2011) [22] (Redlich and Mandie JJA).

   [4]Adams [1921] 1 KB 495, 500 (Bankes LJ); Shaw [2011] VSCA 55 (3 March 2011) [22] (Redlich and Mandie JJA).

1. In the present case, the evidence does not establish that there was no retainer between the defendants and their solicitors or the existence of a bargain that they were not to be liable for legal costs under any circumstances.  In respect of the proceeding, there is a fee agreement (called a ‘Disclosure Statement’) which names the client as ‘John Allen & Others C/- John Allen’ and which is signed by Mr Allen.  I reject the submission of the plaintiff that the terms of this agreement show that the solicitors did not have a retainer with the defendants.  The probability is that Mr Allen signed the agreement as the agent of the defendants.  Furthermore, the evidence of those defendants who gave evidence does not establish that the defendants did not have a retainer with the solicitors.  Some of them deposed that they did not agree to pay legal fees or did not expect to pay legal fees.  This is consistent with Mr Allen having indemnified their fees but it is not proof that the defendants had not retained the solicitors.  Finally, there is a total absence of evidence that the defendants would not be liable for legal costs under any circumstances.  That proposition was not even put to any of the defendants who gave evidence.

1. On the whole of the evidence, there was at least an informal understanding between Mr Allen and some or all of the defendants that he would indemnify them for their legal costs of the proceeding.  There was a formal agreement between Mr Allen and the defendants’ solicitors that he (along with the defendants) would be liable for legal costs.  The probable expectation of Mr Allen, some of the defendants and the solicitors was that the solicitors would look to Mr Allen in the first instance for payment of the costs.  In that respect, his position may be equated with that of an insurer.  As in that kind of case, the existence of the indemnity and Mr Allen’s formal (but not exclusive) agreement to pay does not of itself establish that the defendants are not bound by a retainer with their solicitors or that they would not be liable for costs under any circumstances.   

1. Accordingly, there should be an order for legal costs in favour of the defendants against the plaintiff.

Costs on an indemnity basis

1. The defendants seeks an order for costs on an indemnity basis and rely upon a Calderbank letter of their solicitors dated 24 July 2012 in which they offered to compromised the proceeding on the basis that the plaintiff would discontinue the proceeding and each party would bear their own costs.  The plaintiff’s solicitors dismissed the offer using high-handed language saying (among other things) that it was ‘an exercise in gamesmanship which, frankly, is a waste of everyone’s time’.

1. The principles applicable to the consideration of a Calderbank offer were stated in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority [No 2].[5]  The critical question is whether ‘the rejection of the offer was unreasonable in the circumstances’.[6]  In that regard, it is ordinarily appropriate to take into account the following matters:

   [5](2005) 13 VR 435 (Warren CJ, Maxwell P and Harper AJA).

   [6]Ibid 441 [23].

(a)       the stage of the proceeding at which the offer was received;

(b)       the time allowed to the offeree to consider the offer;

(c)       the extent of the compromise offered;

(d)      the offeree’s prospects of success, assessed as at the date of the offer;

(e)       the clarity with which the terms of the offer were expressed;

(f)       whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree’s rejecting it.[7]

[7]Ibid 442 [25].

1. The Calderback offer dated 24 July 2012 was made at an early stage in the proceeding and before the defendants had filed in this court their material in opposition.  The plaintiff did have the extensive material which had been filed with the responsible authority by objectors in opposition to his application for a planning permit.  I do not think that the planning material can be treated as if it had been filed in this proceeding by the defendants.  At that stage, the plaintiff’s prospects of success were not so obviously poor that that it was unreasonable for him to reject the offer, despite the language used.  I therefore decline to make an order for indemnity costs on the basis of this letter.

1. The defendants also relied on the offer in a letter of their solicitors dated 29 August 2013 to compromise the proceeding on the basis that the plaintiff would discontinue the proceeding within 7 days, agree to an order for payment of the defendant’s costs fixed at $55,000 and bear his own costs.  That offer was made in response to an offer which the plaintiff made in a letter of his solicitors dated 28 August 2013 that the proceeding be compromised on the basis that his application would be withdrawn with each party bearing their own costs.  The plaintiff rejected the defendants’ offer.

1. I reject the submission of the plaintiff that the letter of 29 August 2013 was not a Calderbank letter.  It plainly was.  That is clear from the terms of the letter, the context in which it was written and the fact that it was marked ‘WITHOUT PREJUDICE, SAVE AS TO COSTS’.

1. This offer was made at a late stage in the proceeding when the plaintiff was in a good position to make a realistic assessment of his prospects of success.  In my view, he should have appreciated by then that his prospects of success were poor, yet he decided to press on regardless.  The defendants’ offer was very reasonable and it was unreasonable for the plaintiff to reject it. 

1. Accordingly, the order for costs against the plaintiff in favour of the defendants will be that the plaintiff pay the defendants costs on a party-party basis up to and including 29 August 2013 and on an indemnity basis thereafter.

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