Ludon Investments No 7 Pty Ltd v Barton

[2009] NSWSC 1179

CITATION:	Ludon Investments No 7 Pty Ltd v Barton [2009] NSWSC 1179
HEARING DATE(S):	2 November 2009
JUDGMENT DATE :	6 November 2009
JUDGMENT OF:	Hoeben J
DECISION:	I grant leave to Ludon under the Uniform Civil Procedure Rule 12.1(1)(b) to file in Court a notice of discontinuance in respect of these proceedings. I order Ludon to pay Barton’s costs of this appeal as agreed or assessed up to and including 18 September 2009. I order Ludon to pay Barton’s costs of the appeal and of this application from 19 September 2009 on an indemnity basis.
CATCHWORDS:	COSTS - Appeal from decision of Local Court upholding challenge to retainer of solicitors - leave granted to plaintiff to file Notice of Discontinuance - authorisation of retainer of solicitors obtained between decision in Local Court and hearing of appeal - consideration of operation of UCPR 42.19 - appeal having no prospect of success - authorisation of appointment of solicitors should have been obtained before hearing in Local Court.
LEGISLATION CITED:	Corporations Act 2001 Uniform Civil Procedure Rules
CATEGORY:	Consequential orders
CASES CITED:	Apollo Shower Screens Pty Ltd v Building & Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561 Australiawide Airlines Limited v Aspirion Pty Limited [2006] NSWCA 365 Bitannia Pty Limited v Parkline Constructions Pty Limited [2009] NSWCA 32 Calderbank v Calderbank [1975] 3 All ER 333 Fordyce v Fordham [2006] NSWCA 274 Prodromos Anastasi Foukkare v Angreb Pty Limited [2006] NSWCA 335 Hawksford v Hawksford [2005] NSWSC 463
PARTIES:	Ludon Investments No 7 Pty Ltd - Plaintiff Bruce Robert Barton trading as McLean Charge Partners - Defendant
FILE NUMBER(S):	SC 13691/2009
COUNSEL:	Mr MJ Heath - Plaintiff Mr AJ Bowen - Defendant
SOLICITORS:	SE Doyle & Associates - Plaintiff Bay Legal - Defendant
LOWER COURT JURISDICTION:	Local Court
LOWER COURT JUDICIAL OFFICER :	Fleming LCM

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HOEBEN J

Friday 6 November 2009

13691/09 - LUDON INVESTMENTS No 7 PTY LTD v Bruce Robert BARTON T/as McLEAN CHARGE PARTNERS

JUDGMENT

1 HIS HONOUR:

Nature of proceedings
The plaintiff (Ludon) seeks leave to discontinue these proceedings pursuant to UCPR 12.1 and 42.19. There is no objection to the discontinuance of the proceedings, save as to the issue of costs.

2 Pursuant to UCPR 42.19 Ludon seeks a variation of the usual costs order, namely that there be no order as to costs, i.e. that each party pay his or its own costs. The defendant (Barton) seeks his costs.

Factual background

3 Proceedings were brought by Barton against Ludon in the Local Court. Barton alleged that he had performed accounting work for Ludon and sought his fees from it. Those proceedings were defended. On the face of the pleadings, SE Doyle & Associates were the solicitors on the record for Ludon and Bay Legal for Barton.

4 In the course of correspondence between Bay Legal and SE Doyle & Associates, Bay Legal advised that when the matter came on for hearing in the Local Court, Barton would challenge the retainer of SE Doyle & Associates to appear on behalf of Ludon.

5 The matter came on for hearing before her Honour Fleming LCM on 25 June 2009. Two motions were before her Honour: the motion by Barton to challenge the retainer of SE Doyle & Associates and a motion by Ludon to have its defence reinstated (Ludon’s defence had been struck out due to its failure to appear on a previous occasion). It was agreed that the retainer motion should be heard first.

6 On the hearing of the retainer motion, Barton relied upon correspondence passing between his solicitors and SE Doyle & Associates and on a company search. Mr Mitchell, a solicitor with Bay Legal, gave evidence and was cross-examined. Barton then closed his case on the retainer motion.

7 No submissions were made by SE Doyle & Associates as to whether or not Barton had discharged his onus on the retainer issue. They called Mr Lawman, a solicitor with that firm, and he gave evidence and was cross-examined. A letter from SE Doyle & Associates to Michael Doyle, dated 29 April 2009, was tendered. At the end of cross-examination SE Doyle & Associates closed their case and submissions were made.

8 Her Honour delivered an ex tempore judgment. Her Honour found in favour of Barton, i.e. she was not satisfied that Ludon had retained SE Doyle & Associates to act as its solicitors in the Local Court proceedings.

9 What the evidence and correspondence before her Honour revealed was that the two directors of Ludon were Sharon Doyle and Michael Doyle. Michael Doyle was the uncle of Sharon Doyle. There had been a falling out between them which had been resolved by a deed which had been entered into between them and other parties. The deed apparently resolved a number of disputes within the Doyle family. Barton as the accountant for Ludon was aware that there were some disputes between Michael Doyle and Sharon Doyle. Sharon Doyle, as well as being a director of Ludon, was also the principal of the firm of solicitors SE Doyle & Associates. Mr Lawman, who gave evidence on behalf of SE Doyle & Associates, was her husband.

10 The letter from SE Doyle & Associates to Michael Doyle of 29 April 2009 referred to the Local Court litigation and the fact that Sharon Doyle wished to defend the proceedings brought by Barton. It noted that Michael Doyle did not wish to do so. It made reference to the deed of settlement and the fact that any legal liabilities incurred as a result of this litigation would be borne by another company, 308 Industries Pty Limited.

11 The letter concluded as follows:

“Based upon all of this I will continue to assume that whilst you find the litigation distasteful you acknowledge Sharon’s right to have the matter heard and determined by the court.
In the event that I have misstated your position as I have understood it for the past 12 months, please have Mr McGirr contact me in writing as soon as possible.”

(Mr McGirr was Michael Doyle’s solicitor). Michael Doyle did not respond to that letter.

12 By letter dated 24 April 2009 Bay Legal made a request of SE Doyle & Associates in the following terms:

“Please confirm the following:
1. That you hold authority to act on behalf of the defendant and if so, the basis of such authority.
Further we request the following documents:
2. Your retainer with the defendant;
3. Written authorisation from the defendant authorising you to act on its behalf;
4. Minutes of the meeting of the defendant resolving that SE Doyle & Associates acts on its behalf in these proceedings.”

13 The response from SE Doyle & Associates (letter 28 April 2009) did not answer any of those matters but suggested that a motion to challenge the retainer should be brought by Barton and advised that in the hearing of any such application they would require Michael Doyle to attend for cross-examination. By letter of the same date, Bay Legal complained that SE Doyle & Associates had not responded to the issues raised in their letter of 24 April 2009.

14 By letter dated 8 May 2009 SE Doyle & Associates relevantly responded:

“I confirm my advice to you that no resolution has been passed by the directors of Ludon in relation to the retainer of this firm.
As discussed it is my view that for my client to succeed in relation to the proposed application, all that need be established is that there has been an “informal consensus of the members of the type that can sometimes amount to a decision by a corporation.””

15 The letter went on to refer to the deed of settlement and in particular referred to the split up of the “Doyle group of companies” and an indemnity clause within the deed. There was an assertion:

“It is my view that whilst there is no resolution passed by the directors of the defendant there is, as a result of the execution of the deed certainly more than “an informal consensus of the members of the type that can sometimes amount to a decision by a corporation” particularly in the light of the fact that this particular litigation has been on foot for some time and no objection to this firm’s retainer has been taken by Mr Doyle.”

Neither at the hearing nor in correspondence was a copy of the deed of settlement or any part of it provided to Bay Legal or the Court.

16 In her judgment her Honour restated the test enunciated by Campbell J in Hawksford v Hawksford [2005] NSWSC 463 which in turn referred to certain observations of Hunt J in Apollo Shower Screens Pty Ltd v Building & Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561. In my opinion her Honour correctly stated the test for determining retainer issues and proceeded to apply it to the facts before her. She was satisfied that the refusal on the part of SE Doyle & Associates to provide any evidence of a retainer, either informal or otherwise, together with the inconsistent and somewhat oblique references to a deed which was never placed before her in evidence, discharged Barton’s onus to establish that there was a real issue as to the retainer by Ludon of SE Doyle & Associates as its solicitors.

17 That being so, her Honour found that an evidentiary onus moved to SE Doyle & Associates to adduce evidence to establish their retainer by Ludon either directly or by way of “an informal consensus of the members”. Her Honour reviewed that evidence and concluded that the evidentiary onus carried by SE Doyle & Associates had not been discharged. In particular her Honour referred to the fact that there was no evidence before her from either of the two directors on this issue. The only evidence was of a hearsay kind from the solicitors. Her Honour therefore found in favour of Barton on his motion.

Proceedings in this Court

18 By summons filed on 23 July 2009 Ludon appealed against the decision of Fleming LCM. The sole ground of appeal was that “her Honour erred in law in that she misapplied the onus of proof borne by the defendant (the plaintiff below) in challenging the retainer by the plaintiff (the defendant below) of its solicitor”.

19 On 14 September 2009 Ludon filed its submissions on the appeal. It accepted that its appeal was limited to error in point of law. The submissions were consistent with the ground of appeal and were restricted to her Honour’s characterisation of the onus of proof and her application of it.

20 By letter dated 18 September 2009 Barton’s solicitors wrote to SE Doyle & Associates in the following terms:

“Without Prejudice save as to costs …
We refer to previous correspondence and note you have now completed service of your evidence and submissions regarding the appeal of the decision of Fleming LCM on 25 June 2009.
After carefully considering your submissions, it is apparent to us that you have not demonstrated any error on the part of Fleming LCM. Moreover the submissions do not fully recite the facts relied upon by her Honour in making her decision, as is evidence from the transcript, and we note the submissions are not referenced to the transcript or evidence. In other instances the submissions rely on matters of “fact” that were not the subject of evidence before Fleming LCM, for example the reference to the deed at 22(a). In light of these and other matters we are of the view the appeal is destined to fail.
You will be aware our client will shortly be obliged to put on submissions in reply, which will involve significant additional expense, as will the hearing of the appeal.
In the circumstances our client has instructed us to offer that you withdraw the appeal and pay our client’s costs of the appeal to date as agreed or assessed. This offer will remain open until 12pm 23 September 2009 at which time it will be withdrawn without further notice to you. The offer is also made in accordance with the authority in Calderbank v Calderbank [1975] 3 All ER 333.
In the event you do not accept the above offer and our client successfully defends your appeal, we will rely upon this letter to support an application for indemnity costs from you.
We look forward to your response.”

21 No response was received from SE Doyle & Associates. On 25 September 2009 Barton filed his written submissions.

22 On 26 October 2009 SE Doyle & Associates sent the following letter to Barton’s Solicitors:

“… I am now in possession of a duly executed resolution of the board of Ludon No 7 Pty Limited resolving that company appoint this firm or such other firm as Sharon Doyle in her ultimate discretion may choose to defend the abovementioned proceedings.
The resolution was passed on 23 October 2009.
The passage of the resolution of course makes the appeal otiose in terms of its utility even if the Court upheld the appeal and found that the decision was in error.
Accordingly, we are instructed that our client will withdraw the appeal on the basis that there be no order as to costs consistently with the principles set forth in the line of cases decided since Minister for Immigration and Ethnic Affairs; Ex part Lai Qin (1997) 186 CLR 622.
If your client opposes this course, our client will discontinue the appeal in any event and limit the argument to one of costs only, relying upon the terms of this letter in aid of its argument that each party pay their own costs.
Please indicate your position by 4pm on Tuesday, 27 October 2009 as our client intends to advise the Court of this development so that the Court’s resources are reallocated.”

23 When the matter came before the Court on 2 November 2009 Ludon sought leave to file a notice of discontinuance and sought to rely upon an affidavit of Mr Lawman, sworn 30 October 2009. Although parts of that affidavit were objected to, Ludon was allowed to rely upon the whole of its contents.

24 The affidavit deposed to a conversation between Mr Lawman and Michael Doyle of 29 June 2009. The effect of that conversation was that Michael Doyle refused to become involved in the matter. He said that he had refused to sign a document on behalf of Barton and he was not prepared to sign anything on behalf of Ludon. In particular, he refused to sign a minute appointing SE Doyle & Associates as Ludon’s solicitors. He also advised that he was going overseas and would not be returning until the end of October.

25 On 20 October 2009 SE Doyle & Associates sent a letter to Michael Doyle which amongst other things referred to the deed of settlement. Mr Michael Doyle was requested to sign an authority for SE Doyle & Associates to act on behalf of Ludon. The letter pointed out that should he refuse to do so, proceedings would be commenced in Ludon’s name for the right to retain its own solicitor and the cost of that application would be claimed against him personally. On 22 October 2009 Mr M Doyle’s solicitors responded to that letter agreeing to sign the authority subject to certain conditions. By letter of the same date, SE Doyle & Associates required his signature on the authority without conditions. On that same day the signature was forthcoming and annexed to the affidavit was a signed authority appointing SE Doyle & Associates as Ludon’s solicitors.

Consideration

26 The relevant sections of the UCPR are as follows:

“12.1(1) The plaintiff in any proceedings may, by filing a notice of discontinuance, discontinue the proceedings, either as to all claims for relief or as to all claims for relief so far as they concern a particular defendant:
(a) with the consent of each other active party in the proceedings, or

(b) with the leave of the Court.

…
42.19(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant’s costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.”

27 The effect of those rules and their relationship has now been clarified in a series of Court of Appeal decisions (Fordyce v Fordham [2006] NSWCA 274; Prodromos Anastasi Foukkare v Angreb Pty Limited [2006] NSWCA 335, Australiawide Airlines Limited v Aspirion Pty Limited [2006] NSWCA 365 and Bitannia Pty Limited v Parkline Constructions Pty Limited [2009] NSWCA 32. Even though Australiawide Airlines related to rule 42.20(1), the approach in each sub-rule is similar, i.e. unless the Court exercises its discretion to otherwise order, the plaintiff must pay the defendant’s costs.

28 The nature of the test has been conveniently stated by Bryson JA and Basten JA in Australiawide Airlines as follows:

“48 This passage from Lai Qin is not readily applicable to decision under r 42.20(1). UCPR r 42.20 is not entirely consistent with McHugh J's observation that the proper exercise of the costs discretion will usually mean that the Court will make no order as to costs. Justice McHugh's observations were directed to the discretionary power in O 71 r 39 of the High Court Rules (Cth), set out in Lai Qin at 623, which was discretionary overall, whereas in contrast r 42.20(1) creates a starting point by requiring “… the plaintiff must pay the defendant's costs of the proceedings …” unless that outcome is displaced by a discretionary decision. It should in my opinion no longer be said that if the moving party, or if both parties have acted reasonably in commencing and defending proceedings the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceedings; observance of the starting point under r 42.20 will make this outcome less usual than it earlier was.
…
53 Rule 42.20(1) would be overstated if described as creating a presumption about the disposition of costs. It goes no further than to state the first point of consideration; there is no presumption which must be outweighed; what the rule says is what the order for costs is to be unless there is a discretionary decision to order otherwise. At the discretionary stage the matters to be considered are little altered: cf Fordyce v Fordham [2006] NSWCA 274 at [87] (McColl JA):
[87] Once it is recognised, however, that the costs discretion conferred by UCPR 42.19 and 42.20 is unconfined, the matters referred to in the Lai Qin line of authority are plainly pertinent, although, again, not necessarily determinative.”
…
65 In order to avoid the statutory order, it was necessary for the plaintiff to show more than justification, in the sense that it commenced proceedings in the exercise of a statutory right available to it. It would have needed to show some additional factor, such as that conduct of the defendant led it to the reasonable belief that litigation would be necessary to enforce its right to payment in a timely fashion or that winding up the defendant was an appropriate means of obtaining payment. As Bryson JA has shown, by detailed reference to the facts before the Court, Aspirion was unable to demonstrate any such basis for the Court to otherwise order.” (Basten JA)

29 Ludon submitted that the obtaining of the necessary authority from Michael Doyle on 22 October 2009 rendered the need for the appeal otiose. It submitted that it had moved to obtain that authority as soon as the proceedings in the Local Court were completed and that the only reason for a delay was Mr Doyle’s initial recalcitrance and his presence overseas.

30 It submitted that since neither party wished to proceed with the litigation, the Court should be ready to facilitate the conclusion of the proceedings by making an appropriate costs order. The appropriate order in this case should be that each party pay his or its own costs because there had been no trial on the merits. It submitted that the authorities made it clear that where there had been no trial on the merits, it would be rare for the Court considering the costs application to determine for itself the case on the merits. This was particularly so where a trial on the merits would involve complex factual matters where credit could be in issue. It submitted that what the Court needed to determine was whether the party seeking to discontinue had acted reasonably in commencing the proceedings and whether the other side had acted reasonably in defending them.

31 Ludon submitted that if those principles were properly applied, there should be an order that each party pay his or its own costs. It submitted that the Court should not embark upon a hearing of the appeal on its merits, since the Court had not received full submissions on that question. It submitted that Ludon had acted reasonably, both in obtaining the authority from Mr Doyle and in bringing the appeal within time following the decision in the Local Court. In the circumstances, it submitted that it had no alternative but to bring the appeal since it was not possible to obtain an authorization from Mr Doyle before he departed for overseas.

32 Ludon’s submissions should be rejected. The obtaining of an authority from Mr Doyle was not a supervening event which rendered the appeal otiose. It was a step which should have been taken before the Local Court retainer application was allowed to proceed. As was clearly appreciated by Ludon and SE Doyle & Associates after the Local Court proceedings, sections 236 and 237 of the Corporations Act 2001 provided the method for obtaining the cooperation of a recalcitrant director or if that cooperation was not forthcoming, an avenue whereby appropriate representation for Ludon could be obtained. The tone and content of the correspondence from SE Doyle & Associates leading up to Mr Doyle providing an authorization for them to act on behalf of Ludon was precisely that which should have preceded the motion in the Local Court.

33 I appreciate that in discontinuance cases such as this, where a contest on the merits has not taken place, it is usually not appropriate for the Court considering costs to base its decision on the merits of the claim. The circumstances of this case, however, are different.

34 This was an appeal from a decision of the Local Court in point of law only. There were no credit or factual issues which would arise which had not already been decided in the Local Court. The issue was a discrete and relatively simple one. Had her Honour correctly articulated the onus to be discharged by each side in a challenge to retainer case and if she had correctly articulated the test, did she properly apply it?

35 In my opinion her Honour did correctly state the test. Insofar as its application was concerned, the only issue of law to arise was whether the evidence before her Honour was capable of satisfying the test. Put another way, the legal issue thrown up by that question was a “no evidence” point. If there were evidence capable of establishing the negative onus borne by Barton then her Honour’s finding on that issue was unassailable on appeal in point of law to this Court.

36 If Ludon’s appeal failed on that issue, then it could not be seriously argued that any positive evidence had been put forward in response by SE Doyle & Associates to establish any form of retainer. In any event that issue was not raised in the appeal.

37 On my analysis of the transcript and her Honour’s reasons, the appeal had no prospects of success. There was clearly evidence before her Honour which justified her Honour’s finding. It follows that Ludon was not justified in bringing it.

38 As indicated above, it should have been obvious to Ludon and SE Doyle & Associates when the issue of retainer was raised in correspondence that no proper retainer existed and that this situation needed to be remedied. The time to remedy the situation was before the motion in relation to the retainer came on for hearing in the Local Court, not after those proceedings had been lost.

39 For those reasons, I am not satisfied that any proper basis has been established by Ludon for why it should not pay the costs of the appeal. Apart from anything else, the effect of its notice of discontinuance is to provide Barton with a successful outcome. He has in effect succeeded on the appeal. In the application of UCPR 42.19(2) nothing has been put on behalf of Ludon which would take the matter beyond the starting point specified by that rule, i.e. that it should pay Barton’s costs. All the discretionary considerations, to which I have referred, favour that outcome.

40 Accordingly, absent other considerations I would have ordered that Ludon pay Barton’s costs of the appeal generally and of this application.

41 It was submitted on behalf of Barton that in relation to the appeal and this application the costs order should be made personally against SE Doyle & Associates. The basis for that submission was that in the cases where a solicitor’s retainer has been successfully challenged, the solicitor has to pay the costs personally.

42 That may well be so in such cases. This is not such a case. It is an appeal from a decision of the Local Court in point of law. Specifically, no challenge to SE Doyle & Associate’s retainer by Ludon has been made in these proceedings. Accordingly, I decline to make such an order.

43 Relying upon the letter to SE Doyle & Associates of 18 September 2009 Barton submitted that its entitlement to costs should not be as agreed or assessed but should be on an indemnity basis. It submitted that its offer was a reasonable one in the circumstances, it complied with the formalities required of a Calderbank offer and a reasonable time for compliance was allowed. He emphasised that a proper analysis of the position at the time of the letter should have led Ludon and its legal advisers to conclude that the appeal had no chance of success.

44 In response Ludon submitted that there was no real element of compromise in that letter. What it was seeking was complete capitulation and because of that, it was unreasonable.

45 Although the letter did require Ludon to, in real terms, give up its appeal it did offer some benefits. The costs of preparation, i.e. the preparation of written submissions would have been saved. As matters have turned out, the filing of the notice of discontinuance has operated as a complete capitulation. Significant additional costs, however, have now been incurred which would have been saved had the offer of 18 September 2009 from Barton been accepted.

46 As previously indicated, a proper analysis of its position should have led Ludon and its solicitors to conclude that its appeal had no reasonable prospects of success. In those circumstances, it was unreasonable of Ludon to continue with the appeal in the face of the offer of 18 September 2009. It follows that Barton has established his entitlement to have his costs paid on an indemnity basis.

Orders

47 The orders which I make are as follows:

(1) I grant leave to Ludon under the Uniform Civil Procedure Rule 12.1(1)(b) to file in Court a notice of discontinuance in respect of these proceedings.

(2) I order Ludon to pay Barton’s costs of this appeal as agreed or assessed up to and including 18 September 2009.

(3) I order Ludon to pay Barton’s costs of the appeal and of this application from 19 September 2009 on an indemnity basis.

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