Ken Tugrul v Tarrants Financial Consultants Pty Ltd (No.5)
[2014] NSWSC 437
•11 April 2014
Supreme Court
New South Wales
Medium Neutral Citation: Ken Tugrul v Tarrants Financial Consultants Pty Limited ACN 086 674 179 [No 5] [2014] NSWSC 437 Hearing dates: 9 April 2014 Decision date: 11 April 2014 Jurisdiction: Equity Division Before: Kunc J Decision: Third Defendant to pay First to Fourth Plaintiffs' costs on the indemnity basis and Fifth Plaintiffs' costs on the ordinary basis
Catchwords: COSTS - Whether to be paid on ordinary or indemnity basis - Whether to be assessed and payable forthwith - No issues of principle
PRACTICE AND PROCEDURE - Obligation of legal practitioners to attempt to resolve interlocutory matters before invoking Court's processes - Civil Procedure Act 2005 (NSW), s 56Legislation Cited: Civil Procedure Act 2005 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706
Andrews v Caltex Oil (Aust) Pty Ltd [1982] FCA 42; (1982) 40 ALR 305; (1982) 60 FLR 261
Calderbank v Calderbank [1976] Fam Law 93; [1975] 3 All ER 333; [1975] 3 WLR 586
Expense Reduction and Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 303 ALR 199; (2013) 88 ALJR 76
Hearne v Street [2008] HCA 36; (2008) 235 CLR 125
Ken Tugrul v Tarrants Financial Consultants Pty Ltd (In liquidation) ACN 086 674 179 [No 1] [2013] NSWSC 1561
Ken Tugrul v Tarrants Financial Consultants Pty Limited ACN 086 674 179 [No 4] [2014] NSWSC 291
Leichhardt Municipal Council v Green [2004] NSWCA 341Category: Costs Parties: Ken Tugrul, Kellie Tugrul, Daniel Tugrul, Nassrin Tugrul and K Bricks Pty Limited ACN 097 871 148 (Plaintiffs)
Tarrants Financial Consultants Pty Limited ACN 086 674 179 (First Defendant)
Mervyn Ross Tarrant (Second Defendant)
Stefanie Seco (Third Defendant)
Dual Australia Limited as agent for Lumley General Insurance Limited ABN 24 000 035 279 and Dual Australia Limited as agent for Wesfarmers General Insurance Limited ABN 24 000 035 279 (Fourth Defendants)Representation: Counsel:
A.C. Harding (Plaintiffs)
A.S. Martin SC (Third Defendant)
Solicitors:
RMB Lawyers (Plaintiffs)
Christopher Nicholls & Associates (Third Defendant)
File Number(s): 2009/291166 Publication restriction: No
Judgment
Summary
On 20 March 2014 I dismissed the Amended Notice of Motion filed by the Third Defendant ("Ms Seco") for security for costs (Ken Tugrul v Tarrants Financial Consultants Pty Limited ACN 086 674 179 [No 4] [2014] NSWSC 291 ("Tugrul No 4")). Terms defined in that judgment have the same meaning in this judgment.
On 9 April 2014 I heard argument as to costs. Ms Seco does not oppose an order that she should pay the Plaintiffs' costs of her Amended Notice of Motion. However, the Plaintiffs seek a special costs order that Ms Seco pay their costs of the Amended Notice of Motion on the indemnity basis and that such costs be payable forthwith.
The first part of the application invites the Court to order otherwise pursuant to UCPR 42 r 42.2 which provides:
...
Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis.
The second part of the application invites the Court to order otherwise pursuant to UCPR Part 42 r 42.7(2), the whole of which rule provides:
...
(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including:
(a) costs that are reserved, and
(b) costs in respect of any such application or step in respect of which no order as to costs is made,
are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.
(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
It is also necessary to deal with the Plaintiffs in two groups. The first comprises the First to Fourth Plaintiffs, who are all natural persons. The second group comprises K Bricks.
At the conclusion of the argument on 9 April 2014 I made these orders:
1. Upon the undertaking of the plaintiff's solicitor to file in the Registry the original of the affidavit of Nazley Aisha Khan dated 28 March 2014 the Court grants leave to the plaintiff to file the copy of that affidavit in Court.
2 The third defendant is to pay the first to fourth plaintiffs' costs of the third defendant's amended notice of motion filed 23 July 2013 on the indemnity basis.
3. The third defendant is to pay the fifth plaintiff's costs of the third defendant's amended notice of motion filed 23 July 2013.
4. The notice to produce issued by the plaintiff to the fourth defendant is stood over to 25 June 2014.
5. Confirm that the proceedings are fixed for further directions before the Chief Judge on 25 June 2014.
These are the reasons for those orders.
Procedural history
Prior to filing the motion for security for costs, Ms Seco's solicitor did not correspond with the Plaintiffs' solicitors concerning the Plaintiffs' ability to meet any order for costs made against them.
On 17 July 2014 Ms Seco filed her Notice of Motion seeking security for costs against all Plaintiffs, supported by an affidavit of her solicitor, Mr Nicholls.
On 23 July 2013 Bergin CJ in Eq granted leave to Ms Seco to file in court an Amended Notice of Motion, which was stood over to the Registrar for the allocation of a hearing date.
On 25 July 2013 Ms Seco served the first of what was to become fourteen subpoenas and notices to produce (the last being served on 9 December 2013) in a quest to obtain financial information relating to the Plaintiffs.
On 26 July 2013 the Plaintiffs' solicitors wrote to Ms Seco's solicitor. While not expressly referred to, the parties accepted that the letter sought to invoke the principles in Calderbank v Calderbank [1976] Fam Law 93; [1975] 3 All ER 333; [1975] 3 WLR 586 (the "Calderbank letter"):
We refer to your client's Amended Notice of Motion filed in Court on 23 July 2013 in which your client seeks, inter alia, that the plaintiffs (collectively) give security for the third defendant's costs.
The orders are said to be sought pursuant to s. 1335(1) of the Corporations Act 2001 (Cth) and/or r. 42.21(1)(d) or (e) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
Neither s. 1335(1) of the Corporations Act nor r. 42.21(1 )(d) of the UCPR empower the Court to require a natural person to give security for costs. Rule 42.21(1 )(e) only permits security for costs against a natural person in circumstances where that person "is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so".
None of the four natural person plaintiffs in these proceedings is suing for the benefit of another; nor is there reason, even if that were not the case, to believe that any of the natural person plaintiffs will be unable to pay the costs of the third defendant if ordered to do so.
Therefore it seems inevitable that the motion insofar as it seeks security for costs against Ken Tugrul, Kellie Tugrul, Daniel Tugrul and Nassrin Tugrul will fail in limine.
Insofar as the Notice of Motion seeks orders for security for costs against the sole corporate plaintiff, K Bricks Pty Limited (K Bricks), that application too is misconceived, for at least the following reasons:
First, it is a threshold requirement that your client establish that there is reason to believe that K Bricks will be unable to pay the costs of the third defendant if ordered to do so (see s. 1335(1) of the Corporations Act and r. 42.21(1)(d) of the UCPR; Southern Cross Exploration NL v Fire & All Risks Insurance Co. Limited (1985) 1 NSWLR 114 at 116; Beach Petroleum NL v Johnson (1992) 10 ACLC 525 at 527. We are instructed that K Bricks is a viable, solvent, going concern. The onus is on your client to prove otherwise. If there is evidence to suggest that K Bricks will be unable to meet any costs order, we invite you to draw our attention to that evidence.
Second, even if grounds otherwise existed for ordering security against K Bricks, it is only one of five plaintiffs (the other four being natural persons) and the interests of the co-plaintiffs are common. The causes of action are identical. The usual rule is that where there are multiple plaintiffs, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any: McConnell v Johnston [1801] 1 East 431; [1801] 102 ER 167; Sykes v Sykes (1869) 4 LR CP 645 at 648, 650; D'Hormusgee & Co and Isaacs & Co v Grey (1882) 10 QB 13; Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd R 523; Maples v Hughes [2002] NSWSC 617.
Finally, there is the matter of delay. These proceedings have been on foot now for over three and a half years, yet your client only seeks security for costs now. This is a powerful discretionary reason for refusing security even if it might otherwise have been ordered: Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 at 309; Loreva Pty Ltd v CEFA Associated Agencies Pty Limited (1982) 7 ACLR 164 at 165.
For the above reasons we consider that your client's application for security for costs will fail.
Should your client persist in seeking security for costs against the plaintiffs or any of them, the plaintiffs if successful will seek their costs of the motion on an indemnity basis.
If, prior to 5pm on 2 August 2013 you advise us that the third defendant will discontinue her application for security for costs, then the plaintiffs would be prepared to consent to orders in the following terms:
1. Prayers 1 and 2 of the third defendant's amended notice of motion be dismissed.
2. No order as to costs in respect of prayers 1 and 2 of the third defendant's notice of motion (with the intent that each party bear their own costs).
This letter is made on an open, non-confidential basis, and our clients reserve the right to tender it in evidence.
There was no reply to the Calderbank letter. The Plaintiffs' solicitors followed up with a further letter on 1 August 2013.
On 6 August 2013 Ms Seco's solicitor responded to the Calderbank letter:
We do not accept your assertion that it seems inevitable that our client's Notice of Motion filed on 17 July 2013 and as amended on 23 July 21013, insofar as it seeks security for costs against the individual Plaintiffs, will fail at the outset.
Security for costs will he ordered against the individual Plaintiffs on the following grounds.
First, an order for security should be made pursuant to UCPR r 42.21(1)(e) on the basis that the individual Plaintiffs are not suing for their own benefit, but for the benefit of an entity called TDK Pty Ltd or an entity other than the Plaintiffs and that there is reason to believe that the individual Plaintiffs will be unable to pay the costs of the Third Defendant if ordered to do so.
Secondly, an order for security for costs should be made against the individual Plaintiffs pursuant to the inherent or implied jurisdiction of the Court on the basis that it is unfair that the Third Defendant being sued by impecunious Plaintiffs should be in a position of having to incur substantial costs and being at the risk of liability for the Plaintiffs' costs, and yet have no real chance of recovering costs even if the action is unsuccessful when there is a non-party, who will not only benefit from the proceedings but also has no risk of liability for costs, is either unwilling or unable to provide security.
We also do not accept your assertion that the Notice of Motion, insofar as it seeks an order for security against the corporate Plaintiff, is misconceived. You rely upon three reasons to support your assertion.
First, we do not accept your assertion on instructions that the corporate Plaintiff is a "viable, solvent, going concern". Even if this were the case, this cannot be a basis for opposing an order for security under s.1335(1) of the Corporations Act 2001 (Cth) or UCPR r 42.21(1)(d). For a company to be a viable, solvent and going concern does not mean that it will be able to pay the costs of the Third Defendant if ordered to do so. At the hearing of the Motion our client will establish that there is reason to believe that the corporate Plaintiff will be unable to pay the costs of our client if ordered to do so.
Secondly, we do not accept your statement that the causes of action by the individual Plaintiffs and the corporate Plaintiff as against our client are identical.
Each Plaintiff sues on different causes of action. Each Plaintiff has to prove separate representations were made by the Third Defendant, their reliance upon each of those separate representations and their own damages. It is quite conceivable that the corporate Plaintiffs could ultimately fail and the other individual Plaintiffs ultimately succeed. Accordingly, not only are the causes of action not interlocked, but there is a substantial possibility of a different outcome for the corporate Plaintiff and the individual Plaintiffs. Thirdly, we do not accept your assertion that the matter of delay would justify the Court refusing to order security in this case.
Any delay has been caused solely by the Plaintiffs' failure to properly plead its case. There have been multiple previous versions of the Plaintiffs' statement of claim. The current version amounts in effect to another complete reworking of the entire claim by the Plaintiffs against the Third Defendant. The proceedings in substance have not progressed from the time the Plaintiffs first filed the statement of claim in these proceedings on 29 October 2009.
Further, the first occasion upon which our client became aware that an entity called TDK Pty Ltd or any entity other than the Plaintiffs was funding the Plaintiffs' costs of the proceedings was when she read the affidavit of Nazley Aisha Khan sworn 18 June 2013. Until that time our client had no basis of knowing that the legal costs of the Plaintiffs in these proceedings were being funded by a non-party.
Nevertheless, we confirm that the Third Defendant presses the entirety of the orders contained in her Amended Notice of Motion dated 23 July 2013. As such, we also confirm that the Third Defendant declines the proposed consent orders outlined by you on page 2 of your letter dated 26 July 2013.
On 9 August 2013 Ms Seco's security for costs motion was listed before me on 15 October 2013 with other motions in the matter.
On 15 October 2013 Ms Seco's counsel foreshadowed (for the first time) that an expert accountant's report would be relied on in support of her application. I made orders for any further evidence and for submissions to be filed and served by 6 November 2013. The relevant parts of Ms Seco's motion were stood over to 29 November 2013 before me for hearing.
On 14 November 2013 Ms Seco (for the first time) briefed an accounting expert, Mr Fargher, with materials for him to prepare an expert's report. His report, which was tendered in evidence, was dated 15 November 2013.
On 28 November 2013 Ms Seco served (three weeks after it was due) her outline of submissions in support of her application for security for costs. Those submissions informed the other parties and the Court (for the first time) that the application for security was no longer to be pressed against the natural plaintiffs, but that it was pressed for the full amount of security against K Bricks.
On 29 November 2013 the hearing of Ms Seco's application was stood over to 4 December 2013.
The hearing proper of Ms Seco's application commenced on 4 December 2013.
The legal principles
The parties accepted that the legal principles both as to indemnity costs and a costs payable forthwith order were as set out in the Plaintiffs' submissions on this application, which I gratefully adopt:
3. The court is given the power to award costs on an indemnity basis: s 98(1)(c). The indemnity basis means the basis set out in r 42.5.
4. There is no fixed rule or rationale as to when the discretion might be exercised (Harrison v Schipp [2001] NSWCA 13 at [139]) except that it requires a "sufficient or unusual feature" (Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234), or some "relevant delinquency": Oshlack v Richmond River Council (1998) 193 CLR 72. Relevant delinquency does not mean moral delinquency or some ethical shortcoming, but delinquency bearing a relevant relation to the conduct of the case: White ACT (in liq) v G B White [2004] NSWSC 303 at [11], cited in Ingot Capital Investment v Macquarie Equity Capital Markets (No 7) [2008] NSWSC 199 at [24].
5. Two categories of case in which indemnity costs are commonly awarded are:
(a) where it appears that an action (or application) has been commenced or continued in circumstances where the moving party, properly advised, should have known that it had no chance of success: see Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [4] and the authorities there cited;
(b) where there is an unreasonable rejection of an [sic] Calderbank offer where the final result is less favourable to the offeree. In such a case, the jurisdiction to award indemnity costs is enlivened, although it does not create a prima facie right to such an order; rather, the question is whether the rejection of the offer was unreasonable: Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197 at [9] and the authorities there cited. The court must give proper weight to Calderbank offers, and encourage settlement, particularly in cases involving modest claims: Ofria v Cameron (No 2) [2008] NSWCA 242 at [24].
6. A formal warning of an intention to claim indemnity costs will make the awarding of indemnity costs more likely: Huntsman Chemical Co Aust Pty Ltd v International Pools Aust Pty Ltd (1995) 36 NSWLR 242.
...
45. The Court, in its discretion, may order that interlocutory costs be payable forthwith: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [171]-[173].
46. Three well known categories of cases in which the discretion has been exercised are:
(a) where the decision relates to the determination of a discrete or self-contained question: Richards v Kadian (No 2) at [6]-[7]; Megna v Marshall [2005] NSWSC 1326 at [26]. Examples include an unsuccessful application for summary judgment (Perpetual Trustee Co v McAndrew [2008] NSWSC 790); an application for discovery or a Mareva injunction (McNamara Business and Property Law v Kasmeridis (No 3) [2006] SASC 262); and an unsuccessful application to administer interrogatories (Megna v Marshall at [26]);
(b) where there is likely to be a delay in the conclusion of the proceedings: All Services Australia Pty Ltd v Telstra Corporation Ltd (2000) 171 ALR 330.
(c) where the costs were incurred by unreasonable or unnecessary conduct. "Costs forthwith orders" may be made where a party has engaged in unreasonable conduct: Bevillesta Pty Ltd v D Tannous No 2 Pty Ltd [2010] NSWCA 277 at [37]-[39].
Indemnity costs - the First to Fourth Plaintiffs
The Plaintiffs submitted that there were three reasons why indemnity costs should be ordered in favour of the First to Fourth Plaintiffs.
First, it was said that the application was commenced and continued in circumstances where Ms Seco, properly advised, should have known that she had no chance of success against the natural plaintiffs. This was for two reasons. First, Ms Seco never made inquiries before commencing her application and, once it was commenced, never had any evidence to suggest that the natural plaintiffs would be unable to meet an adverse costs order in her favour. Second, even if Ms Seco had such evidence, there was never any basis on which Ms Seco could have overcome the principle which now has regulatory form in UCPR Part 42 r 42.21(1B) that "if the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity".
In relation to the second point set out in the previous paragraph, the Plaintiffs also engaged with the reasons advanced by Ms Seco in her solicitors' 6 August 2013 reply to the Calderbank letter. Insofar as she sought to rely on UCPR Part 42 r 21(1)(e) to the effect that the natural plaintiffs were not suing for their own benefit, but for the benefit of a third party called TDK Pty Ltd, the Plaintiffs submitted that there was no evidence to support that conclusion. They contended that Ms Seco was quite unable to demonstrate that the natural plaintiffs were anything but a puppet or mere shadow for TDK Pty Ltd (to adopt the language of Lockhart J in Andrews v Caltex Oil (Aust) Pty Ltd [1982] FCA 42; (1982) 40 ALR 305; (1982) 60 FLR 261). It was further submitted that the second basis proffered by Ms Seco in her letter, invoking the inherent or implied jurisdiction of the Court, took the matter no further than the contention that the natural plaintiffs were not suing for their own benefit.
The Plaintiffs' second reason for an indemnity costs order in favour of the natural plaintiffs was that Ms Seco had abandoned her application in relation to them without prior notice at the last possible moment before the hearing. No reasons were given for the change of position and the plaintiffs had prepared for the application, including written submissions, upon the assumption that the application was maintained against all parties.
Third, the Plaintiffs submitted that Ms Seco's rejection of the offer set out in the Calderbank letter (insofar as it related to the natural plaintiffs) was unreasonable. The Calderbank offer identified why the application against the natural plaintiffs would fail and presented a genuine compromise in proposing a dismissal of the application with no order as to costs. That offer was more favourable to Ms Seco than her current position, in which she accepts she is liable to pay the Plaintiffs' costs.
Ms Seco's response to these arguments may be summarised as follows.
First, she submitted that she had led evidence obtained from notices to produce to the natural plaintiffs of their income tax assessments, which established that they were in receipt of modest incomes. Furthermore, it was said that the natural plaintiffs had failed to produce to the Court any documents relating to their asset or liability position, on the basis of which the Court would more readily infer that such information would not have assisted them.
Second, it was submitted that her application was not based "merely" on the impecuniosity evidenced by the material referred to in the preceding paragraph. The trigger for the application had been Ms Seco becoming aware that a non-party, TDK Pty Ltd, had paid two invoices from the Plaintiffs' solicitors in respect of the proceedings. It was submitted that the obvious inference from that fact was that the natural plaintiffs were suing for the benefit of TDK Pty Ltd.
Third, it was submitted that the Plaintiffs' reliance on Ms Seco's late abandonment of her application against them without prior notice was no different in substance from the first ground relied upon by the Plaintiffs and did not constitute a special or unusual feature of the case justifying an indemnity costs order. Furthermore, it was said that if the Court were to order indemnity costs, this would discourage responsible advocacy which, in this case, was evidenced by the proper, but late, abandonment of her application against the natural plaintiffs.
Fourth, Ms Seco contended that the Calderbank letter did not involve "a real and genuine element of compromise" (see Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; (2006) 67 NSWLR 706). An offer which was dismissal of Ms Seco's application on the basis that she bear her own costs demonstrated that the offer lacked the requisite element of compromise. In support of this last proposition, Ms Seco relied upon Leichhardt Municipal Council v Green [2004] NSWCA 341 at [31]-[37].
Applying the principles set out in paragraph [21] above, the Court in general accepts the submissions put on behalf of the natural plaintiffs. They are entitled to an order for indemnity costs because Ms Seco, properly advised, should have understood her application against the natural plaintiffs was hopeless and her rejection of the offer contained in the Calderbank letter was unreasonable.
This is a case where Ms Seco, properly advised, should have known that her application against the natural plaintiffs had no chance of success. Whether the material which Ms Seco gathered after filing her motion was sufficient even to establish the impecuniosity of the natural plaintiffs is beside the point. Assuming, for the sake of argument, that it did, the real question was whether Ms Seco ever had any proper basis to overcome the principle now enshrined in UCPR Part 42 r 42.21(1B).
The law generally sets its face against the making of security for costs orders against natural persons, no matter how impecunious. The exceptions are clear. I do not accept Ms Seco's submission that the natural inference from the fact that TDK Pty Ltd had paid some of the Plaintiffs' legal bills was that the natural plaintiffs were suing for the benefit of TDK Pty Ltd. That conclusion does not follow: Andrews v Caltex Oil (Aust) Pty Ltd [1982] FCA 42; (1982) 40 ALR 305 at 309; 60 FLR 261.
In the course of argument, Senior Counsel for Ms Seco accepted that there were a number of possible inferences, but pressed the contention that the most obvious one was that which had been identified on her behalf. That submission is not correct. In the absence of further information, which Ms Seco did not have before she commenced her application and never obtained during the course of that application, it was misconceived to suggest that the mere fact of payment by TDK Pty Ltd could satisfy the Court that the natural plaintiffs were suing for the benefit of TDK Pty Ltd.
Ms Seco's next answer, that the Plaintiffs' second reason (the application was withdrawn late and without prior notice) does not of itself provide a reason to order indemnity costs, is correct. However, her contention that an indemnity costs order would discourage or penalise responsible advocacy is not. Responsible advocacy is required, inter alia, by sub-sections 56(3) and (4) of the Civil Procedure Act 2005 (NSW) (the "CP Act"), provisions to which I shall return in the final section of this judgment. The abandonment of hopeless points is a necessary prophylactic to staunch the flow of useless costs and (albeit not always successfully) to minimise the prospects of an indemnity costs order that is far more likely to follow if the Court's time is taken up with what is obviously an untenable application.
Next, the Calderbank letter did represent a real and genuine compromise. While it may not always be the case, where the Plaintiffs (especially the natural plaintiffs) had good reasons to believe they would succeed, the only point they had to "give away" was the costs to which they would be entitled if successful. Contrary to Ms Seco's submission, the judgment of Santow JA (Stein JA agreeing) in Leichhardt Municipal Council v Green [2004] NSWCA 341 at [36] accepted "that no error of legal principle exists in holding that a "walk-away" offer can in a particular case be a "genuine offer of compromise"" (emphasis added).
Insofar as Ms Seco's rejection of the Calderbank letter is concerned, it was unreasonable of her not to accept the offer insofar as it related to the natural plaintiffs. In reaching this conclusion I have not overlooked that the offer in the Calderbank letter did not, in terms, differentiate between the Plaintiffs. However, while in most cases it is the rejection of an offer outright that the Court considers, that is only the most common example of what the fundamental question must be: was the offeree's response to the offer unreasonable?
In this case Ms Seco, properly advised, should have understood that she had no case for an order for security against the natural plaintiffs. In that situation it was unreasonable for her not to make a counter offer to "walk-away" from that part of the claim.
Given that the Calderbank letter was sent only three days after the Amended Notice of Motion was filed, I find on the balance of probabilities that the natural plaintiffs would have agreed to "walk-away" in relation to the application against them. There are two reasons for this. First, while the terms of the offer did not differentiate between the Plaintiffs, the Calderbank letter clearly distinguished between the natural plaintiffs and K Bricks in the arguments it raised to demonstrate what it contended was the hopelessness of Ms Seco's application. Ms Seco and her advisers clearly understood that different considerations applied between the natural plaintiffs and K Bricks. Second, in the absence of already having incurred significant costs, there would be no reason for the natural plaintiffs to have rejected a "walk-away" counter offer made in relation to them.
Indemnity costs - K Bricks
The Plaintiffs submitted that there were three reasons why indemnity costs should be ordered in favour of K Bricks.
First, the Plaintiffs submitted that, having made no inquiries of K Bricks, Ms Seco should have known her application had no chance of success either at the time it was made or thereafter. This position was compounded by the fact that Mr Fargher was not instructed until four months after the application for security was brought.
Second, Ms Seco never had any evidence as to the costs she would incur solely referable to the case brought by K Bricks. That deficiency was all the more serious because it was persisted in after the issue was clearly raised in argument on the first day of the hearing (the relevant exchange is recorded in Tugrul [No 4] at [34]).
Third, the Plaintiff's submitted that Ms Seco's rejection of the offer made in the Calderbank letter was unreasonable.
Ms Seco took issue with each of these arguments.
First, she said that the fact there was evidence that TDK Pty Ltd had paid some of the Plaintiffs' legal fees was "reason to believe" that they would be unable to meet a costs order. Mr Fargher's expert evidence, when it was obtained, also supported that conclusion.
Second, it was always clear Ms Seco would be incurring legal costs. The issue was quantification. Mr Nicholls did give evidence about the costs Ms Seco was likely to incur in defending K Bricks' claim. The fact that Mr Nicholls' evidence was ultimately found by the Court to be misdirected did not justify an order for indemnity costs.
Third, it was again submitted that the offer in the Calderbank letter did not represent a genuine compromise and Ms Seco's rejection of it was not unreasonable.
For most of the reasons given by Ms Seco, K Bricks is not entitled to an order for indemnity costs against her.
In this case, the failure of Ms Seco's solicitor to make any inquiries of the Plaintiffs before filing her application does not provide a reason for indemnity costs to be ordered. In other cases, it might. It was certainly a departure from what the Court considers to be proper practice (as to which see paragraphs [62] and following below). However, Ms Seco's knowledge of TDK Pty Ltd's role was just sufficient to warrant the application being brought. Furthermore, Mr Fargher's evidence on its face supported Ms Seco's argument. The Plaintiffs have failed to demonstrate that, properly advised, Ms Seco should have known that her application against K Bricks would not succeed.
Next, Counsel for K Bricks accepted that its argument about Mr Nicholls' evidence, if it was good at all, could only apply from the point at which Ms Seco abandoned her application against the natural plaintiffs. Until then, Mr Nicholls' evidence could in no way be said to have been misdirected because it addressed the costs she would incur in meeting the claim brought against her by all of the Plaintiffs.
Even after that point, the issue is not as black and white as the Plaintiffs contend. On the approach advocated by Ms Seco, there was evidence from Mr Nicholls, both before and after he specifically addressed Ms Seco's costs of the case brought by K Bricks, that supported the submissions being made. The fact that the Court ultimately took a different view of the correctness of the approach advocated by Ms Seco, and therefore the utility of the evidence advanced in support of it, is not a basis upon which to order indemnity costs. It could not be said that the way in which Ms Seco sought to deal with her evidence after she had abandoned the application against the natural plaintiffs was clearly hopeless or unarguable.
The Court has already rejected Ms Seco's argument that the offer in the Calderbank letter was not a genuine compromise (see paragraph [37] above). However, insofar as K Bricks is concerned, its rejection of that offer was reasonable, essentially for the reasons set out in the reply to the Calderbank letter of 6 August 2013 (see paragraph [14] above). Those reasons were, in summary: even a "viable, solvent, going concern" might be unable to meet a costs order (depending on its size); the causes of action against Ms Seco, while to some extent overlapping, were not identical as between the natural plaintiffs and K Bricks; and, there had been no relevant delay in Ms Seco bringing the application.
Costs forthwith - all plaintiffs
The Plaintiffs submitted that all three indicia warranting the Court ordering otherwise so that costs would be assessed and paid forthwith were satisfied (see paragraph [21] above):
(1) Ms Seco's application for security was a discrete or self-contained issue;
(2) There was likely to be a delay in the conclusion of the proceedings; and
(3) The costs were incurred because of Ms Seco's unreasonable or unnecessary conduct.
Ms Seco accepted that the first two items identified in the preceding paragraph were satisfied. She took strong issue with the third, repeating the arguments which had been advanced to resist the Plaintiffs' application for indemnity costs.
In addition, Ms Seco called in aid my reasons in Ken Tugrul v Tarrants Financial Consultants Pty Ltd (In liquidation) ACN 086 674 179 [No 1] [2013] NSWSC 1561 ("Tugrul No 1"), in which I had rejected an application which she and the other defendants had made for a costs forthwith order against the Plaintiffs after I had given the Plaintiffs leave to amend their pleadings:
49. Another matter which I need to take into account is the general requirement for the discretion under rule 42.7 to be exercised having regard to the overriding purpose of s56(2) of the CP Act. In the circumstances of this case, I give that consideration paramount weight for this reason. In my view, putting the parties in a position where what might be termed a satellite dispute will be generated if an order for the assessment and payment of costs forthwith is made will be contrary to the overriding purpose. What will facilitate that purpose is not the opening up of a second front in relation to the assessment of what could be a very large amount of costs covering a very long period of time, but rather managing these proceedings in a way that will focus the minds and efforts of the parties on actually getting on with the case as ultimately pleaded by the plaintiffs.
Had I been dealing with this application as between only the natural plaintiffs and Ms Seco I would have made a costs forthwith order for the reasons advanced by the Plaintiffs (see paragraph [54] above). Consistently with my conclusion on indemnity costs (see paragraph [32] above), Ms Seco's conduct in maintaining the application against the natural plaintiffs was unreasonable. In expressing this conclusion I am mindful that the three indicia or categories identified in the authorities are not a statutory formula. Satisfaction of any one or more of them will not, in and of itself, automatically result in the Court ordering otherwise. They are no more or less than guides to the principled exercise of a discretion that must be applied to the unique circumstances of each case.
However, insofar as the Plaintiffs' application relates to K Bricks, consistently with my conclusion on indemnity costs (see paragraph [49] above), I am not satisfied that Ms Seco's conduct in pressing her application for security was unreasonable. Furthermore, there are three reasons why, even though two of the indicia for the Court to order otherwise are admittedly satisfied, such an order should not be made in favour of any of the Plaintiffs.
First, were I to make an order otherwise in relation to the natural plaintiffs but not K Bricks, the same events would have to be revisited later in assessing K Bricks' costs of Ms Seco's application. Ms Seco would find herself having to make two sets of objections at two different times in relation to costs about the same activities. Not only is such a duplication contrary to the overriding purpose under s 56 of the CP Act, but both assessments would involve a highly artificial exercise when all of the Plaintiffs were represented by the same lawyers.
Second, I accept Ms Seco's submission that a costs forthwith order could give rise to injustice in the following way. Ms Seco already has costs orders in her favour against the Plaintiffs, but which she cannot assess and enforce until the end of the proceedings. Whatever the ultimate outcome of the litigation, some set off between costs orders is already inevitable. If the Plaintiffs were permitted to assess their costs of Ms Seco's application now and, therefore, be able to convert them into a judgment upon filing the certificate of assessment in the registry, she would be unable to resist (whether in whole or in part) the enforcement of that judgment by raising a set off in reliance on the costs orders already made in her favour.
Finally, while the circumstances giving rise to the exercise of the discretion on this application are not identical to those which applied in Tugrul No 1, I accept that the paramount weight I gave to the overriding purpose under s 56 of the CP Act in Tugrul No 1 applies equally here for the same reason I gave in that judgment.
Interlocutory issues and the overriding purpose
As noted in paragraph [8] above, Ms Seco filed her application for security without any prior correspondence with the Plaintiffs' lawyers. Mr Nicholls was cross-examined about this. His evidence was unclear as to whether it was his usual practice first to write to the other side in such matters, but he did not do so in this case. His only explanation was that Ms Seco asked for the application to be filed when she found out about TDK Pty Ltd paying some of the Plaintiffs' legal bills.
There was no reason for the peremptory filing of Ms Seco's application. To have done so was a departure from proper practice. That conduct, and the fact that this is my fifth (and, hopefully, final) judgment in the management and disposition of interlocutory applications in these proceedings over several months, calls for reflection on how parties and their lawyers should approach interlocutory matters in the course of proceedings in this Court. I should also record that one party to these proceedings has informed the Court that the financial burden of the interlocutory hearings thus far has meant that he can no longer afford legal representation.
Having regard to s 56 of the CP Act, parties to proceedings in this Court and their lawyers are required to engage in prompt, courteous and genuine cooperation (including the provision of reasonably required information or explanations) with the firm intention of resolving interlocutory issues, as far as possible, without involving the processes of the Court. If complete resolution is not possible, then the parties' conduct should at least ensure that only those issues that are really in dispute are submitted for adjudication. "Unduly technical and costly disputes about non-essential issues are clearly to be avoided": Expense Reduction and Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 303 ALR 199; (2013) 88 ALJR 76 ("Expense Reduction") at [57] per the Court. The approach I have identified should be followed in all cases except where there is a real basis for the urgent filing of a motion.
Section 56 of the CP Act provides:
(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.
(3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court.
(4) Each of the following persons must not, by their conduct, cause a party to civil proceedings to be put in breach of a duty identified in subsection (3):
(a) any solicitor or barrister representing the party in the proceedings,
(b) any person with a relevant interest in the proceedings commenced by the party.
(5) The court may take into account any failure to comply with subsection (3) or (4) in exercising a discretion with respect to costs.
(6) For the purposes of this section, a person has a "relevant interest" in civil proceedings if the person:
(a) provides financial assistance or other assistance to any party to the proceedings, and
(b) exercises any direct or indirect control, or any influence, over the conduct of the proceedings or the conduct of a party in respect of the proceedings.
Also relevant is s 59 of the CP Act, which applies with equal force to the parties and the Court:
In any proceedings, the practice and procedure of the court should be implemented with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination beyond that reasonably required for the interlocutory activities necessary for the fair and just determination of the issues in dispute between the parties and the preparation of the case for trial.
Section 56 of the CP Act was considered by the High Court in Expense Reduction. These observations by the Court are especially pertinent (emphases added and citations omitted):
Solicitors' responsibilities
64. The question for a party to civil proceedings and its legal representatives is not just whether there is any real benefit to be gained from creating a dispute about whether a mistake in the course of discovery should be corrected. The CPA imposes a positive duty upon a party and its legal representatives to facilitate the CPA's purposes. Requiring a court to rule upon waiver and the grant of injunctive relief in circumstances such as the present could not be regarded as consistent with that duty.
65. The position of solicitors who are in receipt of privileged documents has another dimension. Rule 31 of the Australian Solicitors' Conduct Rules, which were adopted by the Law Council of Australia, deals with the duty of a solicitor to return material, which is known or reasonably suspected to be confidential, where a solicitor is aware that its disclosure was inadvertent. It involves notifying the other solicitor of the disclosures and returning that material. The rule has been adopted in Queensland and South Australia and the Law Society of New South Wales presently proposes to adopt it.
66. Such a rule should not be necessary. In the not too distant past it was understood that acting in this way obviates unnecessary and costly interlocutory applications. It permits a prompt return to the status quo and thereby avoids complications which may arise in the making of orders for the rectification of the mistake and the return of documents.
67. This approach is important in a number of respects. One effect is that it promotes conduct which will assist the court to facilitate the overriding purposes of the CPA. It is an example of professional, ethical obligations of legal practitioners supporting the objectives of the proper administration of justice.
How do these dicta and the requirements of ss 56 and 59 of the CP Act translate into practice when interlocutory issues arise, including such matters as amendments, strike outs, discovery and security for costs? Assuming compliance by the practitioner with the relevant professional conduct rules, nine points may be made by way of general, practical guidance. Nevertheless, the variety of circumstances confronted in practice means that what follows cannot be exhaustive.
First, it must be emphasised that s 56 of the CP Act and its related provisions are not just pious exhortations to be acknowledged and then ignored. They have real consequences for the clients and lawyers in this Court and are to be applied rigorously in the conduct of all litigation, great or small.
Second, solicitors and barristers are members of a profession. It is of the essence of a profession that relations between its members are characterised by civility, trust and mutual respect. The Court sees far too much correspondence between lawyers that bears none of those qualities. They must never be abandoned at the behest of clients or in the misguided belief that that is what successful representation of a client requires.
Third, many interlocutory issues can be solved or at least better understood by a simple telephone call. It has been suggested that some lawyers no longer speak to their opponents on the telephone for fear of being "verballed" in an affidavit. If that is true, then it is a retrograde development which the CP Act gives legislative authority to the profession to reverse.
Fourth, if one party requires information or an explanation from another, then the request should be reasonable and focused. A clear justification for the request should be given.
Fifth, faced with a reasonable request, the recipient should not automatically respond with an unthinking denial of legal entitlement to the information. The obligation to facilitate the overriding purpose will sometimes require information or an explanation to be given to which the party may not be "legally" entitled. Furthermore, if it is information which would be required to be produced in response to a subpoena or notice to produce then it is contrary to the s 56 obligations of a party and that party's lawyers to resist providing it unless and until the Court's process is invoked. If there is concern for the confidence of such material then an undertaking of the kind considered in Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 (which would apply if the information were provided under compulsion) should be sought and given.
Sixth, the filing of a motion should be regarded as a last resort. It will inevitably add to costs, and delay the progress of the matter to hearing.
Seventh, no motion should be filed without the putative respondent being given final, written notice of the relief to be sought, the reason for it and a reasonable opportunity to respond. The Court sees far too many examples of deadlines of a day or less being set in correspondence. My own view, as a rule of thumb, is that three clear business days is reasonable to allow for a response on any matter of substance. If the recipient requires more time to obtain instructions, then they should send a prompt request with an explanation to that effect and an indication of when a proper reply will be provided. In relation to challenges to pleadings it was once the practice for opposing counsel to confer before a strike out motion was filed. To the extent that practice has been lost, it should resurrected.
Eighth, once a motion is filed, the parties are obliged to ensure that only the real or essential issues are litigated. This calls for discrimination in both the preparation of evidence and argument. As to the former, real thought must be given to the precise evidence required. The practice of exhibiting "everything" or "the file" to provide an evidentiary cornucopia from which only a few morsels are ultimately selected to be referred to in argument is completely unacceptable. Where it becomes apparent that an application or argument is unsustainable, it should be abandoned, and that abandonment notified to the other parties, at the earliest opportunity.
Ninth, where delay or unnecessary expense has been caused by conduct which is contrary to the obligations of parties and their lawyers under s 56 and its related provisions, parties and lawyers should not be in any doubt that in appropriate cases the Court will exercise its power in relation to costs (see s 56(5) of the CP Act) to provide some measure of justice in response to such conduct.
Decision last updated: 11 April 2014
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