Konstandellos v Harplex Pty Ltd (No 2)
[2018] VSC 702
•6 December 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 06596
| NIKOLAOS KONSTANDELLOS AND OTHERS (according to the attached schedule) | Plaintiffs |
| v | |
| HARPLEX PTY LTD (ACN 188 350 074) | First Defendant |
| KELLY & CHAPMAN (a firm) | Second Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 August 2018 |
DATE OF JUDGMENT: | 6 December 2018 |
CASE MAY BE CITED AS: | Konstandellos & ors v Harplex Pty Ltd & anor (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 702 |
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COSTS – Application by the plaintiffs for orders that a successful defendant not receive its costs of the proceeding, and that the successful defendant pay the costs of another successful defendant for which the plaintiffs are liable to pay – Whether there is any good reason or special circumstances to warrant a departure from the usual order for costs – Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129, applied – Loizou v Derrimut Enterprise Pty Ltd (No 2) [2004] VSC 548; Khodr v G4 Custodial Services Pty Ltd [2016] VSC 800, referred to – Not established conduct of successful defendant caused the plaintiffs to issue the proceeding against the other successful defendant – Conduct relied upon had no relevance to claim brought against successful defendant from whom costs claimed – No allegation by the plaintiffs against the defendant regarding any unnecessary litigation or expense – Application dismissed
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APPEARANCES: | Counsel | Solicitors |
| For the First to Third Plaintiffs | Mr L Warren | Russell Kennedy |
| No appearance for the First Defendant | ||
| For the Second Defendant | Ms L Hannon | Obst Legal |
HER HONOUR:
On 26 April 2017, I made orders and delivered reasons in this proceeding, following a trial in November 2016.[1] Among other things, I gave judgment in favour of the second defendant (‘Kelly & Chapman’) against the first to third plaintiffs (‘plaintiffs’).
[1][2017] VSC 183. Judgment was ordered in favour of the plaintiffs against the first defendant (later reversed on appeal) and in favour of the second defendant against the plaintiffs.
This ruling concerns the application of the plaintiffs seeking that they should not be required to pay Kelly & Chapman’s costs of the proceeding, despite Kelly & Chapman being the successful defendant. Further, the plaintiffs say that Kelly & Chapman ought to pay the first defendant’s costs of the proceedings, which, on 3 August 2018, I ordered to be paid by the plaintiffs, subject to the outcome of this application.
Kelly & Chapman says that there is no good reason to depart from the usual order for costs, which would entitle it, as a successful defendant, to a costs order in its favour. Kelly & Chapman did not, however, press for an order for its costs incurred prior to 24 July 2015. The significance of that date will become apparent later in these reasons.
This proceeding, and the underlying dispute, has had a long and complicated history. The factual background to the dispute and the resolution of the issues in dispute is referred to at length in my reasons of 26 April 2017 (‘2017 reasons’), and will not be traversed in any detail here. The relevant chronology for present purpose is as follows:
(a) in December 2012, the first defendant (‘Harplex’) obtained judgment against the plaintiffs in a proceeding issued in 2012 (‘recovery proceeding’) in relation to loans made to them and secured against two properties in Clarinda, in south east Melbourne. A warrant for possession of the properties was issued on 9 January 2013;
(b) between March and July of 2013 the plaintiffs, and from June 2013, Kelly & Chapman on their behalf, engaged in negotiations with the solicitors for Harplex concerning the outstanding debt and the warrant for possession;
(c) on 26 June 2013, an agreement was reached between the plaintiffs and Harplex (‘June 2013 agreement’). The proper construction of the June 2013 agreement was the subject matter of the trial of this proceeding. In the 2017 reasons, I found that the construction of the June 2013 agreement was that contended for by Harplex: that is, for Harplex’s mortgages to be discharged in exchange for the payment of a sum of money, but the June 2013 agreement did not relieve the plaintiffs from repayment of the balance of the monies owed to Harplex;
(d) on 20 January 2014, Harplex applied to this Court in the recovery proceeding for a warrant of seizure and sale to recover the balance of the funds owed to it by the plaintiffs pursuant to the loans made by it to the plaintiffs. Subsequently, the plaintiffs sought an injunction to restrain the execution of the warrant. After some missteps on both sides, on 15 July 2014 the plaintiffs made an application to set aside or stay execution of a further warrant issued at the request of Harplex (‘warrant’). This application was supported by an affidavit sworn by the late Mr David Denby, the solicitor for Kelly & Chapman with conduct of the negotiations with Harplex on behalf of the plaintiffs. I shall say more about this affidavit later;
(e) following the stay of the warrant on 27 November 2014:
(i) a writ and statement of claim was filed in this proceeding by the plaintiffs on 11 December 2014;
(ii) an amended statement of claim was filed on 8 April 2015 pursuant to orders made by Mukhtar AsJ on 27 March 2015, which joined Kelly & Chapman as a defendant to the proceeding;
(iii) Kelly & Chapman filed its defence on 24 July 2015;
(iv) Harplex filed a summons on 28 July 2015, seeking that the proceeding be dismissed for non‑compliance with the orders made on 4 June 2015;
(v) on 4 August 2015 Derham AsJ made orders requiring the plaintiffs to file better particulars pursuant to orders of Mukhtar AsJ made on 4 June 2015, failing which the stay of the warrant would be discharged. He also ordered the plaintiffs to file and serve an affidavit of documents with respect to certain classes of documents;
(vi) a summons was filed by Harplex on 5 November 2015 seeking dismissal of the proceeding based on the plaintiffs’ non-compliance with orders, and seeking the discharge of the stay of the third warrant;
(vii) on 19 November 2015, I made orders for the examination of the plaintiffs pursuant to s 57 of the Civil Procedure Act 2010 (Vic), and gave Harplex leave to issue a subpoena directed at Kelly & Chapman compelling production of their file, as the plaintiffs had not sought to obtain their file, there were no orders for general discovery, and Kelly & Chapman had not participated in the proceeding, save for the filing of its defence on 24 July 2015;
(viii) Kelly & Chapman produced its file to the Court on or about 23 December 2015;
(ix)on 25 February 2016, the current solicitors for Kelly & Chapman, Obst Legal, filed a Notice of Change of Solicitor on behalf of Kelly & Chapman;
(x) on 8 March 2016, I made orders vacating the 9 March 2016 trial date, on the application of Kelly & Chapman, owing to the ill‑health of Mr Denby, and fixing the proceeding for trial on 9 May 2016;
(xi)Mr Denby died later in March 2016;
(xii) on 14 April 2016, I gave leave for Kelly & Chapman to file an amended defence, and referred the proceeding to judicial mediation. An unsuccessful mediation was held on 3 May 2016; and
(xiii) on 9 May 2016, the first day of the trial of the proceeding, the plaintiffs applied for an adjournment in order to replead their claim. This application was granted, and the plaintiffs were ordered to pay the costs thrown away by reason of the adjournment;
(xiv) the first to third plaintiffs filed a further amended statement of claim on or about 7 September 2016;
(xv) the trial was heard over three sitting days from 2 to 4 November 2016, and judgment was delivered on 26 April 2017. I held that the construction of the June 2013 agreement was that as contended for by Harplex, but that Harplex was unable to recover the outstanding debt for other reasons. The question of the parties’ costs were reserved pending further argument. By agreement, the question of costs was postponed until after the hearing and determination of Harplex’s (successful) appeal to the Court of Appeal; and
(xvi) the matter returned to me on 21 June 2018. On 3 August 2018, I made orders that the plaintiffs pay Harplex’s costs, including various enumerated reserved costs, pending the outcome of this application.
The nub of the plaintiffs’ submissions is that they ought to be excused from paying Kelly & Chapman’s costs, and that Kelly & Chapman should in effect indemnify the plaintiffs from their liability to Harplex for its costs, on the basis that the plaintiffs were induced to resist execution of the warrant, and to commence this proceeding, on the strength of Mr Denby’s affidavit sworn on 16 July 2014 (‘Denby affidavit’), which supported the plaintiffs’ contention that the June 2013 agreement amounted to a full and final settlement of the debt owing by the plaintiffs to Harplex. The written submissions filed on behalf of the plaintiffs stated as follows:
The Second Defendant should pay the costs of the First Defendant on the basis that the Plaintiffs would not have issued this proceeding against the First Defendant had it not been for the Second Defendant’s unsatisfactory conduct which led the Plaintiffs to erroneously believe that they had a meritorious claim against the First Defendant.
Prior to turning to the authorities and the submissions of the parties, it is necessary to turn to what happened in 2014 and 2015 in a little more detail. As noted above, the plaintiffs made (an ultimately successful) application to stay the execution of the warrant on 15 July 2014. The application was supported by an affidavit sworn by the first plaintiff, Mr Nikolaos Konstandellos (‘Mr Konstandellos’), on 15 July 2014, and the Denby affidavit.
In his affidavit sworn on 15 July 2014, Mr Konstandellos deposed as follows (omitting references to exhibits):[2]
[2]A substantial portion of this evidence was struck out at trial as inadmissible. For present purposes, I have reproduced the affidavit in full.
…
3.The circumstances leading up to the payment of this sum are as follows:
(a)As noted in the affidavit of Simon Tan dated 5 February 2014 in support of a warrant of seizure and sale herein –
(i) The defendants borrowed under two agreements of 19 May 2010. The first agreement was for $680,000, the second was for $185,000.
(ii) The third defendant is and was the registered proprietor of 42 Arunta Crescent, Clarinda (“Arunta Crescent”);
(iii) The fourth defendant is and was the registered proprietor of 32 Springs Road Clarinda, Victoria (“Springs Road”);
(iv) Four mortgages secured payments under the two agreements. Two mortgages were over Arunta Crescent and two were over Springs Road. The plaintiff was mortgagee in each case.
(b)In December 2012 judgment was entered against the defendants in this proceeding. At this time I wished to ensure that Springs Road and Arunta Crescent would be retained by the family members to live there. In this regard, my sister lives in one of these houses. Two of my nephews live in the other house. I commenced discussions with Simon Tan of Trumble Szanto Lawyers, solicitors for the plaintiff. I spoke to him on several occasions in early 2013 in this regard. These conversations were caused because the plaintiff had issued a warrant of possession in relation to the two houses and the Sheriffs officer had advised me to contact Mr Tan to discuss my problem.
(c)In these conversations I sought a payout figure to finalise my dealings with the plaintiff. I initially sought to refinance that property by itself. However, my discussions with Mr Tan indicated that the plaintiff required both properties to be refinanced. In those circumstances I sought to find out what a “final” payout figure would be in order for me to retain both the houses and to finalise the defendants' account with the plaintiff.
(d)By June 2013, I arranged for David Denby of Kelly & Chapman to conduct negotiations for me and arrange the settlement.
4.The properties were refinanced and the sum of $963,050 was paid to the plaintiff in full settlement of its claim against the defendants.
5.It was to my great surprise that in August 2013 approximately five weeks after the settlement had taken place, I received communication from my solicitor suggesting that “only the first mortgage loan was paid out” and that the plaintiff was seeking the sum of $169,112.63 in relation to the second mortgage loan. I was also surprised to hear an allegation that the plaintiff claimed that I owed the plaintiff a sum on another mortgage relating to a supermarket project that I believed had been resolved also.
6.In the circumstances I instructed Mr Denby to deny that I nor any of the defendants owed any sum to the plaintiff in particular the sum of $160,000, on the basis that many weeks before the sum of $963,000 was paid in full settlement of any claim against us.
The relevant extracts of the Denby affidavit (omitting references to exhibits) were as follows:
2. In June 2013 my firm received instructions from the defendants to resolve a claim brought by the plaintiff as a result of judgment being entered in this proceeding. My instructions were that there were two loan agreements entered in May 2011 between the plaintiff and the defendants, one for the sum of $680,000 and one for the sum of $85,000. The two loans were to be secured by mortgages over properties owned by the third and fourth defendants at 32 Springs Road Clayton (“the Springs Road property”), and 32 Arunta Crescent, Clarinda (“the Arunta Crescent property”).
3. Together with Georgina Diamantopoulos, my firm's Senior Conveyancer, we sought to arrange the settlement of loans from the Commonwealth Bank to pay out the indebtedness under the two agreements and to protect the two properties from the mortgagee's sales which were threatened by the plaintiff.
4. The principal difficulties I had with resolving this case were obtaining a payout figure to finalise the settlement. I understood the position to be that before Kelly & Chapman were retained to act for the defendants an approximate figure had been suggested in or about April 2013. However, interest was accruing on the loans and in order to prevent the Sheriff obtaining possession it was necessary for “holding” payments on account of interest to be made by or on behalf of the defendants or one or other of them as negotiations proceeded. Any such payments obviously reflected on the final sum to be paid by my clients.
…
6.Although by June 2013 it would appear that an agreement had been reached between the parties so that settlement of the Arunta Crescent property mortgage would take place - and the relevant mortgages be discharged - my clients were not in a position to finalise this due to problems with effecting the settlement on 24 June. By email on Tuesday 18 June Mr Tan had informed us that:
(1) Our client will accept settlement no later than 2.00 pm on Monday June 24 2013. This is on the basis of the sum of $430,000 being paid with legal costs in the sum of $1,705.
(2) If settlement has not occurred before this time on the specified date then we rescind all offers to accept payment and we will proceed with seizure and sale of both properties.
7.At this time I was informed by Georgia Diamantopoulos that settlement could not occur on 24 June. She said she had informed Simon Tan of this. Having informed Simon Tan of this I received a letter by fax from Trumble Szanto on 24 June. Following the receipt of this letter it thus became necessary to renegotiate a resolution of the dispute between my clients and the plaintiff.
8.At this time I commenced negotiations with Trumble Szanto directly and on 25 June I telephoned Mr Szanto of that firm. He informed me that if the sum of $40,000 was paid on the following day (26 June) his client would give us six weeks to arrange finance to pay out the two mortgages. He told me that as at the 19th June 2013 the total of $1,165,000 was owing in respect of both properties - on the first mortgage $900,000 and on the second mortgage $265,000. He informed me that the Sheriff was going to evict the occupants at the Arunta Crescent property on the following Thursday morning. He said that an earlier offer to pay out the two mortgages for $930,000 was no longer available.
9.In the conversation Mr Szanto informed me that his client was in Holland and he could not get final instructions as to what “the balance” would be. He said it would “definitely be more than $900,000 but it would not be the full $1,165,000”.
10.I then obtained instructions from my client to offer to pay $20,000 to obtain six weeks to obtain finance to resolve the matter. I sent an email to Mr Tan which said this:
Good evening Simon,
Following my conversations with Peter, I tried to call him at 6pm. As I don't have his email address I am sending this to you.
My client is understandably concerned about handing over $40,000 tomorrow without any certainty as to the final payout figure.
He has therefore instructed me to put the following proposition:
1.He will pay $20K tomorrow by 3pm being the usual monthly instalment;
2. Your client will agree to take no further action in relation to both properties until 10 July;
3. On 10 July your client will accept $K910 plus legal costs in full and final settlement;
4. If not settled in full by 10 July my client will not resist any enforcement proceedings.
I would be grateful if you would discuss this with Peter and revert to us as early as possible in the morning. I won't be in the office but you can communicate with Georgia, who can contact me if necessary.
…
14.Subsequently settlement was arranged for 16 July at the office of Trumble Szanto. Simon Tan sent our firm an email on 15 July confirming the subsequent settlement date, noting that previous settlement figures applied with an increase of legal costs of $300: he required $960,000 for the principal payment and $350 for legal costs. The dispute then settled on the basis of the payments which were made as are set out in the email from Georgia Diamantopoulos to Nik Konstandellos dated 16 July 2013.
…
16.In the circumstances I was surprised to receive about a month later a letter from Simon Tan suggesting that the sum of $169,112.63 was still outstanding from my clients. This was clearly contrary to the understanding I had with Mr Szanto. As noted above, I was informed by Mr Szanto in my conversations with him referred to above that although a total debt owing was in the region of $1,650,000[3] a compromise figure in full settlement of the outstanding claims by the plaintiff against the defendants would be fixed. This figure was fixed at $960,000 and included the $20,000 payment referred to above. Since that date I have not received any accounting to show how the new alleged claim is made up or calculated and whether all the proper deductions had been made from my clients' account for payments they have made.
[3]It was agreed at trial that this was an error. The correct figure was $1,150,000.
Accordingly, at the time of the application was made to stay the warrant, it appears that the plaintiffs believed that there had been a full and final settlement with Harplex, and that this belief was shared by Mr Denby.
On 2 September 2014, the solicitor for Harplex, Mr Peter Szanto, swore a detailed affidavit comprehensively rebutting the allegations made by Mr Denby and Mr Konstandellos. This affidavit formed the basis of Mr Szanto’s evidence‑in‑chief at trial, which was largely accepted. No affidavit in reply was filed on behalf of the plaintiffs before the matter returned to Mukhtar AsJ on 27 November 2014. There is no evidence as to whether the plaintiffs, or the plaintiffs’ new solicitors, spoke to Mr Denby at any time in relation to the evidence of Mr Szanto, which directly contradicted Mr Denby’s version of events. There is no record of the court file in this proceeding or in the recovery proceeding being searched by Kelly & Chapman.
On 27 November 2014, Mukhtar AsJ stayed the warrant, and directed that the plaintiffs issue a fresh proceeding, to be tried by affidavit. After a defence was filed by Harplex which was consistent with the contents of Mr Szanto’s affidavit, the plaintiffs foreshadowed their intention to join Kelly & Chapman as a defendant to the proceeding. This joinder occurred on 27 March 2015. Kelly & Chapman did not actively participate in the proceeding until February 2016. It did not attend directions hearings, or make discovery. However, on 24 July 2015, it filed a defence.
Paragraph 14 of the Amended Statement of Claim filed on 6 June 2015 pleaded the following:
By an agreement entered between the plaintiffs and the first defendant on or about 17 July 2013 the plaintiffs and the first defendant agreed that the first defendant:
(a)would not enforce the said judgment in the first Supreme Court proceeding; and
(b) would discharge the first, second, third and fourth mortgages; and
(c)would discharge the plaintiffs from any further liability under the first and second agreements;
upon the plaintiffs paying to the first defendant the sum of $963,050 (‘the settlement agreement’).
Paragraphs 23 to 27 inclusive set out the plaintiffs’ claim against Kelly & Chapman:
23.At the time the plaintiffs and the first defendant entered the agreement referred to in paragraph 14 hereof (‘the 17 July 2013 agreement’) the plaintiffs had retained the second defendant to act as their solicitor.
PARTICULARS
The retainer was initially in writing and was constituted by a document or documents being the typical form of retainer created by the second defendant to record and formalise the retainer which document/s cannot now be located or produced by the plaintiffs but copies of which are presumed to be in the possession of the second defendant and which it is intended will be identified upon discovery being provided by the second defendant in due course.
In or about early July 2013 it was varied orally in conversation between the first plaintiff on behalf of the plaintiffs and Mr Denby on behalf of the second defendant the substance of the conversations being that the plaintiffs instructed the second defendant to effect the settlement agreement on the terms referred to in paragraph 14 hereof and Mr Denby agreed to that variation.
24.The first defendant by its defence herein denies the 17 July 2013 agreement was entered between the plaintiffs and the first defendant and maintains that the plaintiffs are indebted to it in the sums it has claimed against them. In the event of this Honourable Court deciding that no agreement was entered between the plaintiffs and the first defendant to the effect of the 17 July 2013 agreement, the second defendant will have acted in breach of its retainer referred to.
PARTICULARS
The second defendant was retained to agree to a final settlement figure of $960,000 plus $3,050 legal costs, but it failed to do so and will have been found to have agreed to a final settlement figure in excess of that sum.
25.Further or alternatively at all material times while acting as solicitor for the plaintiffs the second defendant was under a duty of care to act with all due skill, care and responsibility.
26.In breach of the duty of care referred to in paragraph 25 hereon in the event of this Honourable Court determining that there was no agreement of 17 July 2013 entered between the plaintiffs and the first defendant, the second defendant has acted in breach of its duty of care.
27.In the event of this Honourable Court finding that the second defendant had breached its retainer as alleged herein, and/or had acted in breach of the duty of care referred to herein, the plaintiffs will have suffered loss and damage.
PARTICULARS
The plaintiffs will be required to pay the first defendant a sum greater than $960,000 plus $3,050 legal costs.
In its defence, Kelly & Chapman responded as follows:
22.Denied. In the event that the Second Defendant has been instructed to obtain a final payout figure in respect of both agreements, the payout figure would have been the same as the amount paid together with their (sic) additional amount now claimed by the First Defendant (with appropriate adjustment for interest depending upon the repayment date). Accordingly the Plaintiffs cannot demonstrate any loss.
23.Admitted. The Second Defendant says however that its instructions were limited to arranging refinancing of the properties referred to in paragraphs 3 and 4 of the amended Statement of Claim and did not extend to arranging or negotiating a payout figure in full and final discharge of amounts owing under the agreements referred to in paragraph 2 of the Amended Statement of Claim.
24.Denied. The Second Defendant refers to matters pleaded in the previous paragraph.
25. Admitted.
26. Denied. The Second Defendant refers to matters previously pleaded.
27.Denied. The Second Defendant refers to matters previously pleaded. In any event, the Second Defendant says the Plaintiffs will be unable to demonstrate any loss or damage as previously pleaded.
As can be seen from the above, while no allegations were made against Kelly & Chapman in paragraph 22 of the Amended Statement of Claim, which set out the plaintiffs’ claim for loss and damage against Harplex, Kelly & Chapman denied that the plaintiffs had suffered any loss as a result of its dealings with Harplex, on the basis that, regardless of any instructions given to Kelly & Chapman by the plaintiffs, Harplex would not have agreed to a settlement which provided for a final discharge of all outstanding liabilities of the plaintiffs for the sum of $960,000. There is no evidence before me that, at the time of drawing its defence, Mr Denby or Kelly & Chapman had access to Mr Szanto’s affidavit, but they would have been served with Harplex’s defence, and it is apparent from Kelly & Chapman’s defence, while it was not pleaded in fulsome terms, that Kelly & Chapman had by now adopted Harplex’s version of events.
No reply was ever filed and served by the plaintiffs. Later iterations of the statement of claim to some extent recast the allegations made by the plaintiffs against Kelly & Chapman, and provided further particulars of the alleged retainer, but the thrust of the plaintiffs’ allegations against Kelly & Chapman, and Kelly & Chapman’s defence, remained substantially the same over the course of the proceeding.
As noted above, the plaintiffs seek a departure from the usual orders as to costs, on the basis that the plaintiffs would not have issued this proceeding had it not been for the evidence in the Denby affidavit. The plaintiffs submitted that, given that the negotiations with Harplex had been conducted by Mr Denby on behalf of the plaintiffs, and the plaintiffs had no direct knowledge of what transpired between Mr Szanto and Mr Denby, in the absence of the Denby affidavit, the plaintiffs would have had no proper basis to bring the proceeding against Harplex. Further, as Mukhtar AsJ had ordered that the trial of this proceeding be by way of affidavit, the plaintiffs proceeded on the basis that, if Mr Denby’s affidavit was accepted at trial, the plaintiffs would be successful in their claims against Harplex.
In their written submissions in support of their application with respect to costs, the plaintiffs submitted as follows:
At no time following Mr Denby swearing the Affidavit subsequent to the Second Defendant’s joinder, did the Second Defendant put the Plaintiffs on notice that the assertions made in the Affidavit were false.
At the highest, the Proper Basis Certificate asserted that there was a proper basis for the assertions in [23] of the defence. That paragraph only goes so far as asserting a more limited retainer, which could have been a technical defence. It contains no express retractions of anything stated in Mr Denby’s Affidavit, and it was insufficient to put the Plaintiffs on notice that the Second Defendant would assert that the assertions in Mr Denby’s Affidavit were not true or unreliable.
The minimum that was required by the Second Defendant in the circumstances was explicit notice to the Plaintiffs that they would assert at trial that the evidence contained in the Affidavit was false, or unreliable, and their reasons for so stating.
Accordingly, the plaintiffs submitted that there was a direct causal link between the contents of the Denby affidavit, and the issue of this proceeding against Harplex, such that Kelly & Chapman should not be entitled to their costs, and indeed, should be required to pay the costs payable by the plaintiffs to Harplex.
The plaintiffs submitted that the following inferences could be drawn from the Denby affidavit:
that Mr Denby was instructed to, and had authority, to negotiate a ‘full settlement’, he in fact negotiated a full settlement, and that he should have documented any ‘full settlement’.
The plaintiffs also referred to the evidence of Mr Konstandellos at trial to the effect that Mr Denby told him that he had arranged a full and final settlement.
The plaintiffs acknowledged that ‘exceptional circumstances’ are required to make an order that Kelly & Chapman pay Harplex’s costs of the proceeding, but submitted as follows:
There are exceptional circumstances in this case which justifies an order that the Second Defendant should pay the Plaintiffs’ costs of this proceeding, being the Second Defendant’s conduct in producing an unsatisfactory and misleading affidavit upon which the Plaintiffs based their claim and allowing the proceedings to continue in spite of that. This conduct was clearly inadequate and resulted in the Plaintiffs pursuing claims against the First Defendant which ultimately had no merit.
The plaintiffs submitted that I should give the sworn evidence in the Denby affidavit greater weight than the proper basis certificate accompanying Kelly & Chapman’s defence. Given that orders had been made that the trial of the proceeding proceed by affidavit, it was incumbent upon Kelly & Chapman to expressly retract that evidence, and it never did so. Given the ambiguity in the written correspondence, which was recognised at trial, and the evidence in Mr Szanto’s affidavit, the Denby affidavit was the ‘tipping point’ in the plaintiffs’ decision as to whether to proceed against Harplex.
The fact that Mr Denby passed away in March 2016 provided no excuse for Kelly & Chapman failing to retract the evidence in the Denby affidavit. The Denby affidavit was sworn nearly two years prior to that time, and the centrality of his evidence was evident from the sustained attack on that evidence at trial. The plaintiffs had no way of knowing that Mr Denby’s affidavit was incorrect.
In response to an observation made by me during the course of the hearing of the costs application, to the effect that while the Denby affidavit may have been relevant to the decision of the plaintiffs to bring their claims against Harplex, but less relevant to their decision to bring claims against Kelly & Chapman, the solicitor for the plaintiffs submitted that if I had accepted the evidence in the Denby affidavit, it would have been established that Kelly & Chapman had been negligent, because it would still be the case that the June 2013 agreement had not been properly documented, necessitating the issue of the proceeding to vindicate the plaintiffs’ position, causing the plaintiffs to incur costs which would not be recoverable from Harplex.
Finally, to the extent that it was submitted that Kelly & Chapman ought to be otherwise entitled to its costs by reason of the plaintiffs’ conduct of the proceeding, the solicitor for the plaintiffs submitted that any defaults or delays of the plaintiffs have been dealt with by costs orders made along the way, such that the plaintiffs should not be further penalised.
In response, Kelly & Chapman submitted, in summary, as follows:
(a) there are no extraordinary or exceptional circumstances which justify a departure from the usual rule as to costs. Given the state of the documentary evidence regarding the June 2013 agreement, it is an extraordinary contention that the plaintiffs would not have a proper basis to bring the proceeding in the absence of the Denby affidavit;
(b) the Denby affidavit was a ‘defensive’ affidavit in the recovery proceeding. Mr Konstandellos also swore his own affidavit as to his involvement in the settlement negotiations with Harplex;
(c) within a matter of weeks, Mr Szanto filed his affidavit, in which Mr Szanto directly contradicted the statements made by Mr Denby;
(d) there was no evidence of any communications between the plaintiffs and Mr Denby following service of Mr Szanto’s affidavit. I can infer that no communications took place, or, if they did, that the outcome of any discussions would not have assisted the plaintiffs. There was no evidence that Kelly & Chapman had any notice of this proceeding being commenced prior to being joined as a defendant to the proceeding;
(e) Kelly & Chapman submitted:
At the time the 2014 proceedings were commenced, the Plaintiffs well knew that there was a serious question of fact as to the proper construction of the agreement reached to secure the discharge of the relevant mortgages. It cannot be sensibly contended that they were ‘mislead’ into commencing the 2014 proceedings in November and December 2014. When the first defendant’s defence was filed in the 2014 proceeding on 20 January 2015, Mr Szanto’s version of events was adopted and confirmed by the first defendant.
Indeed, it is of significance that the next step taken by the Plaintiffs in the 2014 [proceeding] was not to adduce further evidence from Mr Denby by way of reply, but to join him as a further defendant to the proceeding;
(f) from 24 July 2015, when Kelly & Chapman filed its defence, the plaintiffs were left in no doubt whatsoever as to the position that would be adopted by Mr Denby and Kelly & Chapman, and that position was maintained from then on;
(g) Kelly & Chapman referred to the following statement in the 2017 reasons[4] to the effect that, while the proper basis certificate signed by Mr Denby was not determinative of the matter, the signing of the proper basis certificate suggested that:
[4]At [101].
the factual matters pleaded in the defence … had been the subject of some reflection and careful consideration;
(h) the death of Mr Denby in March 2016, before a de bene esse examination could be arranged, meant that the discrepancies between the Denby affidavit and Kelly & Chapman’s defence could not be explained;
(i) counsel for Kelly & Chapman submitted as follows:
the true position is this – the plaintiffs elected to pursue this proceeding and maintain their claims concerning the proper construction of the settlement agreement through to trial, knowing from the beginning the claims were squarely contested by Harplex. They knew from July 2015 that their former lawyer did not support that claim, and they continued, even after Mr Denby’s untimely death in March 2016, knowing that his earlier affidavit evidence could only ever be of limited evidentiary value.[5]
[5]Transcript 24, 4-13.
(j) even if there were some disentitling conduct on the part of Kelly & Chapman, the question of costs is a matter of the discretion of the Court. In the current case, the conduct of the case by the plaintiffs tells against making an adverse order for costs against Kelly & Chapman. Kelly & Chapman submitted as follows:
The Plaintiffs’ prosecution of their case through most of the interlocutory stages can be described as nothing better than shambolic, with a plethora of interlocutory defaults and an inability over many, many months to clearly articulate and particularise the claims made against both the First and Second Defendants. The Second Defendant has been dragged along through that interlocutory mire to a trial that was adjourned once on the first day, again solely through the conduct of the Plaintiffs. That dilatory conduct has been repeated in recent weeks in connection with the hearing and determination of the issue of the costs of the proceeding. …
Whilst some of those interlocutory costs issues have been dealt with, the overall conduct of the Plaintiffs in this proceeding is highly relevant to the exercise of the discretion on costs, particularly in the face of any allegation that it is the Second Defendant that has engaged in supposedly disentitling conduct. Further, it cannot seriously be contended that the Second Defendants ought to pay the costs of either the Plaintiffs or First Defendant in respect of the repeated efforts of both Defendants to secure the Plaintiffs’ compliance with both Court orders, and its obligations under the Rules and the Civil Procedure Act.
…
By contrast, the Second Defendant has conducted its defence fairly, and in difficult circumstances (by reason of the death of its principal witness). It has wholly succeeded in defending the claim against it. Those are the circumstances that strongly favour adherence to the ‘usual rule’ that costs follow the event.
The leading Victorian authority concerning the circumstances of when a successful defendant may be deprived of its costs is the decision of the Full Court of this Court in Verna Trading Pty Ltd v New India Assurance Co Ltd (‘Verna’),[6] where the Court upheld the decision of the trial judge to order that the successful defendant, an insurance company, to pay part of the costs of the plaintiff (who was its insured), on the basis that the defendant had failed to disclose the basis of its ultimately successful defence until the first day of trial. Kaye J (with whom McGarvie J agreed) adopted the formulation of Atkin LJ in Ritter v Godfrey,[7] where he stated:
In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.[8]
[6][1991] 1 VR 129.
[7][1920] 2 KB 47.
[8]Ibid, 60, referred to in Verna [1991] 1 VR 129, 152.
Kaye J held that the above factors were not an exhaustive list of matters which might be able to be taken into account in exercising its discretion with respect to costs.[9] Further, unlike in other authorities considering this issue,[10] Kaye J did not expressly form the view that there must be exceptional circumstances before a successful defendant is deprived of its costs. However, his Honour stated as follows:
More compelling circumstances are required for the exercise of discretion as a result of which a successful defendant is not only denied his costs but also compelled to pay the whole or part of the plaintiff’s costs of the proceedings. This is so for the reason that proceedings are initiated by the plaintiff and the plaintiff fails to gain the relief which he sought.[11]
[9]Ibid, 154.
[10]See, for example Knight v Clifton [1991] Ch 700, 713.
[11]Verna [1991] 1 VR 129, 154.
The reasoning of Kaye J in Verna[12] has been followed on numerous occasions in this jurisdiction.[13] In Pamamull v Abrizzi (Sales) Pty Ltd (No 3),[14] the Court of Appeal stated that:
a successful appellant will be entitled to costs unless there are good reasons, or special circumstances, to order otherwise.[15]
[12]Ibid.
[13]See Northern Health v Robert Kuipers [2015] VSCA 172; Pamamull v Albrizzi (Sales) Pty Ltd (No 3) [2011] VSCA 320; Loizou v Derrimut Enterprise Pty Ltd (No 2) [2004] VSC 548; Khodr v G4 Custodial Services Pty Ltd [2016] VSC 800; Amcor v Barnes (No 5) [2013] VSC 51; Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294; Hollyburton UK Pty Ltd v Irani [2006] VSC 403; Youssef v Victoria University of Technology (No 2) [2005] VSC 385.
[14][2011] VSCA 320.
[15]Ibid [12].
In Loizou v Derrimut Enterprise Pty Ltd (No 2) (‘Loizou’),[16] Whelan J ordered that the successful defendants be deprived of its costs owing to a number of ‘unusual features’ of the case. In particular, his Honour found that one of the defendants had, by his conduct, among other things, induced the plaintiff to bring the proceeding. His Honour referred to the reasoning of Kaye J in Verna[17], and stated that:
even more extraordinary circumstances must be found to exist before a successful defendant would be ordered to pay the plaintiff’s costs.[18]
[16][2004] VSC 548.
[17][1991] 1 VR 129.
[18]Loizou [17].
More recently, in Khodr v G4 Custodial Services Pty Ltd,[19] Keogh J referred to the following statement in Dal Pont’s Law of Costs:[20]
[19][2016] VSC 800 [25] Fn 6, 7.
[20]Lexis Nexis Butterworths, 3rd Ed, 2013.
The strength of the ‘costs follow the event’ ‘rule’ is highlighted by case authority that a judge who proceeds as if there were an open discretion on costs unhindered by the rule ‘would almost certainly be regarded as erring in law’, and acting arbitrarily rather than judicially. It is emphasised by judicial remarks branding a departure from the rule as ‘extremely rare’ and as an ‘exceptional measure’, justified only by ‘special circumstances’, ‘substantial grounds’, ‘some definite principle’ or for ‘good reason’.[21]
Further:
An order that a successful party pay the costs of an unsuccessful opponent, it has been said, ‘can rarely, if ever, be justified’. Judges have, to this end, branded the jurisdiction to make such an order as restricted to cases variously described as ‘strong and exceptional’, ‘most exceptional’, and ‘very exceptional’.[22]
[21]Ibid [8.25].
[22]Ibid [8.62].
What can be gleaned from the authorities is that, where a party seeks an order that a successful party, especially a defendant, be deprived of their costs, there must be good reason to do so, or there must be special or unusual circumstances. However, where an unsuccessful party seeks an order that the successful party pay its costs, there must be compelling reasons, or exceptional circumstances to make such an order. The latter requirement necessarily extends to an order of the nature sought by the plaintiffs in this application: that is, an order that a successful defendant indemnify them for their liability to pay the costs of another successful defendant.
I do not consider there are good reasons or special circumstances to deprive Kelly & Chapman of their entitlement to costs. It follows from that that there is no basis to make an order that Kelly & Chapman pay Harplex’s costs of the proceeding. In order to do so, I would need to make a finding that the conduct of Mr Denby, in swearing the Denby affidavit, was the primary reason why the plaintiffs sought to stay the warrant, and decided to issue this proceeding, and, that in all of the circumstances, that conduct justified the making of a special costs order. In my view, the onus rests with the plaintiffs to establish a substantial causal nexus between the swearing of the Denby affidavit and their decision to issue the proceeding against Harplex. For the reasons which follow, they have failed to persuade me that such a nexus exists.
First, there is no evidence from the plaintiffs, or at least from the first plaintiff, Mr Konstandellos, as to the reason why the plaintiffs resisted the execution of the warrant, and issued this proceeding, save for Mr Konstandellos’ evidence at trial to the effect that he instructed Mr Denby to reach a full and final settlement with Harplex, and he believed that this had been achieved. There was no evidence that the plaintiffs relied upon by the Denby affidavit in deciding to issue the proceeding, despite there being ample opportunity to adduce such evidence between the date the matter returned to me (21 June 2018) and the hearing of the plaintiffs’ application with respect to costs (15 August 2018). It would be possible to adduce such evidence without waiving privilege, as it would not be necessary for Mr Konstandellos, in deposing as to his state of mind in 2014 and early 2015, to divulge the extent to which his belief as to the strength of the plaintiffs’ claim was informed by legal advice.
Further, I reject the plaintiffs’ submission that they could not have brought the proceeding in the absence of the comfort afforded by the Denby affidavit, because they otherwise had no proper basis to bring the proceeding. The plaintiffs always had an arguable case with respect to the proper construction of the June 2013 agreement. There was sufficient doubt about the construction of the June 2013 agreement to justify the stay of the warrant, albeit on terms. Harplex never made an application for summary judgment over the two year period the proceeding was on foot, which amounted to an implicit concession that the plaintiffs’ position was at least arguable. In the 2017 reasons, I held that the terms of the written correspondence between the parties were sufficiently ambiguous to admit extrinsic evidence as an aid to construction.[23] And, while I concluded that the plaintiffs had not established to the requisite degree of satisfaction that the June 2013 agreement was in the terms contended for by them, I stated that ‘the matter is not free of doubt’.[24] Accordingly, I am not satisfied that Mr Denby’s conduct, in making the Denby affidavit, was the sole or even dominant factor in the plaintiff’s decision to issue this proceeding. It is apparent from the evidence that Mr Konstandellos believed that he had entered into a full and final settlement with Harplex, and that there was sufficient ambiguity in the documentary record regarding the exact terms of the June 2013 agreement.
[23]2017 reasons [93].
[24]2017 reasons [115].
It is noteworthy that there was no evidence as to how the plaintiffs responded to the affidavit of Mr Szanto, which, as noted above, comprehensively rebutted the allegations made in the Denby affidavit. Mr Szanto’s affidavit was sworn on 2 September 2014. The plaintiffs’ application to stay the warrant returned before the Court on 27 November 2014, nearly three months later. No affidavits were filed in reply to Mr Szanto’s affidavit, and there is no evidence that the plaintiffs or their then solicitor, Mr Hone, took instructions from Mr Denby regarding the contents of Mr Szanto’s affidavit, either before the return of the plaintiffs’ stay application, or before the issue of this proceeding on 11 December 2014.
Further, I agree that it is significant that as early as 20 February 2015, the plaintiffs signalled their intention to join Kelly & Chapman as a defendant to the proceeding. While there is no evidence before me as to what transpired between 11 December 2014 and 26 February 2015 (save that Harplex filed its defence on or about 20 January 2015, accompanied by a proper basis certificate), and their decision to join Kelly & Chapman to the proceeding could have been made out of an abundance of caution, I can infer that by the time of the foreshadowed application for joinder, the plaintiffs must have had some doubts as to whether Mr Denby would continue to adhere to the position he adopted in his affidavit.
In any event, as submitted by Kelly & Chapman, by 24 July 2015, when Kelly & Chapman filed its defence (accompanied by a proper basis certificate signed by Mr Denby) the plaintiffs could have been in no doubt that, in effect, Kelly & Chapman supported Harplex’s version of events. It is not the case, as contended for by the plaintiffs, that Kelly & Chapman’s defence merely took issue with the scope of the retainer between the plaintiffs and Kelly & Chapman. Paragraph 23 of the amended statement of claim expressly alleged that Kelly & Chapman were instructed to effect a settlement agreement in the terms contended for by the plaintiff. Kelly & Chapman admitted that it had been retained by the plaintiffs, but that its instructions were limited to refinancing the properties, and did not extend to negotiating a full and final settlement with Harplex. Further, to put the matter beyond doubt, Kelly & Chapman pleaded that the plaintiffs had not suffered any loss in their dealings with Harplex, because the any payout figure able to be obtained for a full and final settlement could only be for an amount already paid to Harplex in July 2013, plus the sum claimed by Harplex in this proceeding. In effect, Kelly & Chapman alleged that Harplex would not have settled for anything less than full payment of the outstanding debt owed by the plaintiffs.
Accordingly, from 24 July 2015, after which date the bulk of the costs incurred by all of the parties to the proceeding were incurred, the plaintiffs could not have been under any misapprehension regarding Kelly & Chapman’s (and by extension, Mr Denby’s) position. The plaintiffs still had their arguments to advance regarding the proper construction of the relevant documents, and the question of what was actually said by Mr Szanto and Mr Denby during their conversations in late June 2013 remained contestable. But it could not be said that Kelly & Chapman’s conduct induced the plaintiffs to continue to maintain their claims against Harplex.
I do not accept the plaintiffs’ submission that it was incumbent upon Kelly & Chapman to expressly retract the evidence in the Denby affidavit once it had determined to change its position. First, there is no evidence as to whether Mr Denby was aware of Mr Szanto’s affidavit of 2 September 2014, or the orders directing that the trial of this proceeding proceed by way of affidavit. Mr Szanto’s affidavit was filed in the recovery proceeding, and the orders were made in the recovery proceeding, to which Kelly & Chapman was not a party. A review of the court file in the recovery proceeding does not disclose any searches having been made by Kelly & Chapman, and there is no evidence of these matters having come to its attention in any other way.
Further, while I accept that it is at least arguable that the existence of the Denby affidavit may have given some comfort to the plaintiffs when determining to issue the proceeding against Harplex, such that the discretionary factors referred to in Verna[25] have at least arisen for consideration, the Denby affidavit was largely irrelevant to the plaintiffs’ decision to join Kelly & Chapman to the proceeding. The plaintiffs’ case against Kelly & Chapman was as follows: on the one hand, if the June 2013 agreement was in the terms contended for by Harplex, then Kelly & Chapman had breached its retainer by failing to negotiate a full and final settlement with Harplex. On the other hand, if the June 2013 agreement was in the terms contended for by the plaintiffs, Kelly & Chapman was said to have been negligent in not ensuring that the June 2013 agreement was properly documented. In order to make out those alternative claims, the plaintiffs relied upon the conversations between Mr Konstandellos, and Kelly & Chapman, the correspondence between Kelly & Chapman and Mr Szanto, and the file held by Kelly & Chapman. Save to the extent that the Denby affidavit exhibited parts of the correspondence and the file, the Denby affidavit could not be, and was not, used by the plaintiffs to pursue their case against Kelly & Chapman.
[25][1991] 1 VR 129.
Accordingly, there is no basis for ordering that Kelly & Chapman be deprived of its costs after 24 July 2015, let alone be liable for the costs that the plaintiffs are liable to pay Harplex. I am not satisfied that the Denby affidavit was the sole or predominant basis for the plaintiffs issuing this proceeding against Harplex. The plaintiffs do not contend that Kelly & Chapman have done anything to occasion any unnecessary litigation or expense. The plaintiffs did allege in the proceeding that Kelly & Chapman had breached its retainer in not negotiating a full and final settlement, or in failing to properly document the June 2013 agreement, but those issues were the subject of a trial, and the plaintiffs were unsuccessful in making out their claims against Kelly & Chapman in that regard. It is not open to the plaintiffs to revisit these matters in a costs application to contend that Kelly & Chapman somehow misconducted itself during the course of their retainer by the plaintiffs.
My conclusions in relation to Kelly & Chapman’s liability for costs by reason of the Denby affidavit means that I do not have to address Kelly & Chapman’s alternative submissions, being that the manner in which the plaintiffs conducted the proceeding disentitled them to any special order for costs. There is some merit in that submission, save to say as follows:
(a) the plaintiffs have been subject to adverse costs orders throughout the course of the proceeding, which were no doubt intended to compensate the parties in respect of specific instances of conduct; and
(b) it could not be said that all of the costs incurred by Kelly & Chapman (or for that matter Harplex) were referrable to delays and other misconduct of the plaintiffs.
Had I acceded to the plaintiffs’ submissions that Kelly & Chapman ought to be deprived of their costs of the proceeding, I accept that there may be grounds for modifying such an order to take into account the conduct of the proceeding by the plaintiffs which had not already been the subject of adverse costs orders. However, in my view, that would require some more analysis, at a fairly granular level, in order to make an assessment as to what part of Kelly & Chapman’s costs were referrable to delay and other conduct on the part of the plaintiffs for which Kelly & Chapman has not already been compensated. Given my primary findings upon this application, such an exercise is unwarranted at this stage.
Such an exercise would also be required had I acceded to the plaintiffs’ application that Kelly & Chapman pay Harplex’s costs of the proceeding. This is particularly so given that much of the period of delay took place during 2015, before Kelly & Chapman became actively involved in the proceeding. Apart from the adjournment of the trial in May 2016, which was the subject of costs orders against the plaintiffs, any delays attributable to the plaintiffs in 2016 are probably relatively minor. Further, it could not be said that the trial took an unreasonably long time to complete.
Accordingly, I would dismiss the plaintiffs’ application, and order that the plaintiffs pay Kelly & Chapman’s costs of the proceeding, including reserved costs. As a consequence, paragraph 3 of the orders made on 3 August 2018 remains in force.
SCHEDULE OF PARTIES
S CI 2014 06596 BETWEEN: NIKOLAOS KONSTANDELLOS First Plaintiff ALKIVIADIS KONSTANDELLOS Second Plaintiff LAMBRINI DOUNIAS Third Plaintiff FRANK DOUNIASFourth Plaintiff- v - HARPLEX PTY LTD (ACN 188 350 074) First Defendant KELLY & CHAPMAN (a firm) Second Defendant
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