Legal Minds Pty Ltd t/as Legal Minds v Ebsworth (No 2)

[2023] NSWSC 890

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Legal Minds Pty Ltd t/as Legal Minds v Ebsworth (No 2) [2023] NSWSC 890

Hearing dates:

28 July 2023

Decision date:

31 July 2023

Jurisdiction:

Common Law

Before:

Adamson JA

Decision:

(1)   Note that, within the time specified, the defendant made an application for a different order for costs other than the one provided for in order (2) made on 20 October 2022.

(2)   Order the plaintiff to pay the defendant’s costs up to and including 24 July 2022 on the ordinary basis and thereafter on an indemnity basis.

(3)   Note the undertaking given by Christopher Serow to the Court and to the defendant on 7 March 2023, which has been placed on the Court file, to the effect that he will pay the defendant’s costs as agreed or assessed to the extent to which they have not been paid by the plaintiff.

Catchwords:

COSTS — application for indemnity costs — Calderbank offer — whether rejection of defendant’s offers was unreasonable — offers made prior to defendant serving evidence — plaintiff put on notice of matters later raised in defence prior to commencement of proceedings — plaintiff’s awareness as to defendant’s circumstances and claim potentially being unsuccessful — offers contained significant element of compromise

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98

Contracts Review Act 1980 (NSW)

Real Property Act 1900 (NSW), s 57

Conveyancing Act 1919 (NSW), s 111

Uniform Civil Procedure Rules 2005 (NSW), r 20.26

Cases Cited:

Calderbank v Calderbank [1975] 3 All ER 333

Legal Minds Pty Ltd t/as Legal Minds v Ebsworth [2022] NSWSC 1420

Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145

Category:

Costs

Parties:

Legal Minds Pty Ltd t/as Legal Minds (Plaintiff)
Marion Ebsworth (Defendant)

Representation:

Counsel:
D Eardley (Plaintiff)
I King (Defendant)

Solicitors:
Legal Minds (Plaintiff)
Lisa Stone (Defendant)

File Number(s):

2021/354483

JUDGMENT

Introduction

1. On 20 October 2022, I ordered judgment in favour of Marion Ebsworth (the defendant) on the claim for legal fees brought against her by Legal Minds Pty Ltd t/as Legal Minds (the plaintiff): Legal Minds Pty Ltd t/as Legal Minds v Ebsworth [2022] NSWSC 1420. I also ordered that the plaintiff pay the defendant’s costs of the proceedings. However, I made provision for an application for a different costs order to be made. This judgment assumes familiarity with the principal judgment.

The defendant’s application for indemnity costs

2. The defendant has since applied for an order on a different basis, arising from a Calderbank (after Calderbank v Calderbank [1975] 3 All ER 333) offer to the plaintiff dated 26 June 2022 or, in the alternative, a subsequent Calderbank offer dated 4 August 2022. Ms King, who appeared for the defendant, accepted that the letters did not conform to the requirements of Uniform Civil Procedure Rules 2005 (NSW), r 20.26. However, Mr Eardley, who appeared for the plaintiff, accepted that each of the offers qualified as Calderbank offers, since Ms Stone, the defendant’s solicitor had indicated as much in the text of the letter.

3. The offers, aside from their dates, were relevantly identical. Each was expressed to be open for a period of 28 days from the date of the letter. In each, the defendant offered to pay the plaintiff the sum of $47,183.80 plus costs in return for the removal of the charge over the defendant’s property in full and final settlement of the proceedings. Neither offer was accepted.

Other matters which do not require determination

4. The defendant also sought an order that the costs order be made against Christopher Serow, a solicitor who practises through the plaintiff. Mr Serow is the sole director and shareholder of Serow & Associates Pty Ltd, which, in turn, is the sole shareholder of the plaintiff, of which Mr Serow is the sole director. Ultimately, this application was resolved by Mr Serow giving an undertaking to the defendant and the Court to pay the defendant’s costs of the proceedings as agreed or assessed to the extent to which they have not been paid by the plaintiff. This undertaking has been noted and will be placed on the Court file.

5. Mr Eardley also made written submissions to the effect that, as Ms Stone and Ms King were described in correspondence and in Court as having acted pro bono, the defendant could not recover her costs from the plaintiff since she had not incurred any. Ms King informed me that it was common ground that there were costs agreements between herself and the defendant and Ms Stone and the defendant which provided that they were to be paid from costs generated by a costs order in favour of the defendant. Ultimately, Mr Eardley accepted that the consideration of the nature and effect of those agreements was a matter for the costs assessor: see Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [38] (Santow JA, Hislop J agreeing). It was common ground, in these circumstances, that I did not need to address Mr Eardley’s written submissions on that matter.

Consideration

6. Costs are in the discretion of the Court: s 98(1) of the Civil Procedure Act 2005 (NSW). It was common ground that the only question to be determined was whether the plaintiff’s rejection of the defendant’s respective offers was unreasonable and that the defendant bore the onus on this question.

7. Mr Eardley submitted that it was not unreasonable for the plaintiff to refuse the defendant’s offer of 26 June 2022 because at the time of the offer the defendant had not served her evidence. Further, he submitted that a further amended defence was filed on 9 June 2022 and served on 16 June 2022; the affidavits of Ms Stone and of the defendant were served on 6 July 2022. A further affidavit of the defendant was filed on 27 July 2022. He also relied on the circumstance that a second further amended defence was filed in the course of the hearing on 10 October 2022, which made express reference to the Contracts Review Act 1980 (NSW). Mr Eardley submitted that, in these circumstances, it could not be unreasonable for the plaintiff to refuse either Calderbank offers.

8. The plaintiff sued the defendant for legal costs said to be outstanding and sought an order for possession of the defendant’s home. The defendant was wholly successful in defeating the plaintiff’s claim, principally on the basis that the plaintiff (through Mr Serow) had acted in breach of the fiduciary duty owed to her as her solicitor.

9. Prior to the commencement of the proceedings, the plaintiff, under cover of a letter dated 1 June 2021, had served a demand on the defendant pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) and s 111(2)(b) of the Conveyancing Act 1919 (NSW), claiming payment of these allegedly outstanding fees.

10. By letter in response dated 16 August 2021, Ms Stone wrote to Mr Serow, setting out the various reasons why the amount claimed was not payable. It is not necessary to set this letter out in full. It is sufficient to extract the more salient passages, as set out below:

“…

Costs agreement of limited scope and questionable nature

The full history of Ms Ebsworth's relationship with your firm is still being examined but these facts are presently sufficient.

On 14 October 2015 Ms Ebsworth received and signed a costs disclosure from your firm. It referred to an ‘unconditional and irrevocable’ indemnity of our client’s sister, Ms Davies, in relation to costs and disbursements in proceedings in the Family Court (matter NCC1896/15) and separately in the Supreme Court (matter 2015/106627). Our client agreed to provide ‘security’ in the form of a ‘caveatable interest’ in her Narrawallee land.

…

Our client received no known independent legal or financial advice before agreeing to this security, nor a recommendation to seek such advice.

…

Finally, looking at your s 57(2)(b) Real Property Act notice, you claim that the costs agreement and charge covered ‘proceedings number 2019/0014626’, which was the costs assessment between your firm and Ms Davies (not Ms Ebsworth). There is no known reasonable basis for that claim. Even if there was, it would be answered by the assessor’s decision that your firm pay the costs of the assessment, given a lack of disclosure (par 118).

The related security in the form of a charge

Ms Ebsworth signed a registrable charge over her residence, in favour of your firm, on 9 November 2016. …

It is worth remembering that the costs agreement only referred to a caveatable interest. That may mean an equitable charge, enforceable by judicial order (and discretion), and, in the absence of legal advice, Ms Ebsworth may have erroneously signed a registrable charge. In other words, if she had been given advice as to whether she needed to sign the registrable charge, that advice is likely to be that she should not, for it was not a necessary adjunct to the costs agreement.

The flawed Family Court action and the ordered indemnity

…

On 28 August 2017 the Family Court gave its costs judgement ([2017] FamCA 660). Ms Davies was ordered to pay costs on the indemnity basis. Justice Rees said the proceedings ‘should never have been brought in the Family Court’ and showed ‘wilful disregard of clearly established law’ (at [121] - [122]).

The costs judgement also shows that your firm and counsel appeared for Ms Davies (as unsuccessful applicant) as well as Ms Ebsworth as sixth respondent, according to the judgment headnote.

On 9 October 2018 the Family Court conducted a hearing into whether your firm should indemnify the applicant ‘in relation to the costs ordered to be paid by her and be restrained from charging her for work done, or pursuing the payment of charges for work done’ (judgment, Family Court, 13 December 2018, par 5). Your firm was represented at the hearing by LawCover. Ms Ebsworth, as sixth respondent, had no evident or effective representation in that October hearing. She was not notified of the effect of that hearing on her costs position, which is striking, given your firm had appeared on her behalf.

In the October hearing the Court ordered your firm to ‘indemnify the applicant in relation to any and all of the costs of the proceedings’ (reasons, par 43, emphasis added). The judgment entered on 13 December 2018 is in the same terms. The indemnity included the costs of counsel as well as your firm’s costs. The reasons make clear that the applicant, Ms Davies, was not to bear the misguided approach of her representatives, nor the costs of her opponents’ representatives.

The Court referred to the applicant but not Ms Ebsworth, the sixth respondent, but it is clear that Ms Ebsworth was not to accidentally suffer the liabilities from which the applicant was then excused. The sixth respondent was represented by the same lawyers and, had LawCover or yourselves told the court of the existence of the October 2015 costs agreement, the court would surely have extended the reach of the ordered indemnity in order to protect her. The point of the judgment was for the lawyers to bear the costs, not the parties.

…

The present misleading demand for payment, and the need for accounts

The section 57(2)(b) notice says our client did not ‘discharge the debt’ sent to her in correspondence and invoices on 4 March 2020. The s 57(2)(b) is irregular because it demands money that is not payable by Ms Ebsworth.

…

It is plain that an accounting exercise must be undertaken before any amount can be confidently demanded. Whether it is payable, in light of the earlier mentioned problems with the agreement, is a subsequent question.

Conclusion

What is demanded in the notice is either partly or wholly not the subject of any agreement. In any event, our client is (or is likely to become) indemnified, like her sister, and can thus immediately act to restrain your firm from trying to recover indemnified costs.

The lack of information about the risks in the Family Court matter, one subject of the intended legal work, means the agreement was also probably unjust when it was entered, as well as misleading. Statutory causes of action thus arise pursuant to the Contracts Review Act and the Australian Consumer Law.

…

For all the above reasons please promptly withdraw the s 57(2)(b)/s 111(2)(b) notice.

The preferred outcome is for the parties to privately agree on a withdrawal of your notice and a discharge of Ms Ebsworth's property. If a small sum is in fact owing then that can also be a matter of negotiation. There is an obvious and unnecessary costs risk to your firm if our client commences proceedings. We would be pleased to speak by telephone to resolve the matter.”

11. While this letter did not purport to be a Calderbank letter and was not sought to be relied on as such, it did serve to put the plaintiff on notice of the various matters which were eventually raised by the defendant in defence of the plaintiff’s claim. Further, it was prescient because it substantially anticipated the various bases on which I refused the plaintiff’s claim and ordered judgment for the defendant. Although the defendant’s defence was amended during the hearing on 10 October 2022 to add a defence pursuant to the Contracts Review Act, the plaintiff had been on notice since 16 August 2021 that it would be relied upon. Thus, when the Calderbank offers were made in June and August 2022 respectively, the plaintiff was in a position to appreciate that they involved a substantial measure of compromise on the part of the defendant. If the matters set out in the letter of 16 August 2021 were made out, the plaintiff would not be able to recover any part of the amount claimed. Each offer, if accepted, would have entitled the plaintiff a sum of $47,183.80 plus the costs of the proceedings to date. This would have provided the plaintiff with a significantly better result than in fact ensued. Each offer contained a significant element of compromise.

12. In addition to the matters referred to in Ms Stone’s letter of 16 August 2021, the plaintiff can be taken to have been aware of the underlying facts which led to the claim being unsuccessful. The plaintiff, through Mr Serow, must have known that, as a solicitor, it owed the defendant fiduciary duties; that there was a conflict between the defendant and her sister which meant that he could not act for both unless the defendant had obtained independent legal advice; that the defendant’s costs agreement with him was improvident from her point of view; and that the defendant’s circumstances were such that she would qualify for relief under the Contracts Review Act in respect of her costs agreement with him and any charge that had been validly given by her because these agreements were, in their nature, unjust. The plaintiff did not need to wait for the defendant’s affidavit evidence to learn of these matters because Mr Serow knew full well of her circumstances.

13. When all these circumstances are considered, I am persuaded that it was unreasonable for the plaintiff not to accept the Calderbank offer of 26 June 2022. It was common ground that the order for indemnity costs ought run from the date the Calderbank offer expired, being 28 days after 26 June 2022.

Orders

14. For the following reasons, I make the following orders:

1. Note that, within the time specified, the defendant made an application for a different order for costs other than the one provided for in order (2) made on 20 October 2022.

2. Order the plaintiff to pay the defendant’s costs up to and including 24 July 2022 on the ordinary basis and thereafter on an indemnity basis.

3. Note the undertaking given by Christopher Serow to the Court and to the defendant on 7 March 2023, which has been placed on the Court file, to the effect that he will pay the defendant’s costs as agreed or assessed to the extent to which they have not been paid by the plaintiff.

**********

Amendments

31 July 2023 - "Charles" replaced by "Christopher": Coversheet - Decision; [4], [14(3)]

Decision last updated: 31 July 2023