Maxwell Richard Rhys and Co Pty Ltd v Downes
[2015] VCC 289
•13 March 2015
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL LIST
Case No. CI-10-05607
| MAXWELL RICHARD RHYS & CO PTY LTD | Plaintiff |
| v. | |
| JOHN DESMOND DOWNES & ANOR | Defendants |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 March 2015 | |
DATE OF JUDGMENT: | 13 March 2015 | |
CASE MAY BE CITED AS: | Maxwell Richard Rhys & Co Pty Ltd v. Downes & Anor | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 289 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and procedure – Security for costs application made shortly prior to trial – Delay – Writ issued in 2010 – Substantial costs incurred – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Lapirow | Davies Moloney |
| For the Defendants | Mr D. Carlile | Pasha Legal |
HIS HONOUR:
1The trial of the proceeding was fixed to commence on 10 March 2015. The defendants sought orders:
a.for a stay until the plaintiff paid the defendants’ costs of their successful appeal;
b.for security for the defendants’ costs of the trial; and
c.for the adjournment of the trial.
2On 11 March 2015, I dismissed the first two applications and refixed the trial to commence on 15 June 2015. I now provide reasons for my decision.
Notice of the applications
3The first application was foreshadowed to the plaintiff’s solicitors in an email dated 28 November 2014 from Isakow Lawyers (the defendants’ lawyers on the appeal). They stated that “although we do not currently act” for the defendants, “we will have them apply to the County Court to stay the proceeding”.
4Further notice was given in a letter from Isakow Lawyers on 22 January 2015, of their intention to “recommend to our former clients that rehearing in the County Court be stayed pending payment of the outstanding costs order and in addition to seek appropriate security of their costs”.
5The defendants consulted their present lawyers, Pasha Legal, on about 6 February 2015. On 16 February, the lawyers sought an urgent hearing before the duty judge to seek “a stay of the current proceedings and a further sum of monies to be paid to the court as security for our costs”.
6Pasha Legal responded on 5 March 2015 to an email from the Court’s Commercial Division Coordinator dated 3 March requesting the parties to advise “whether this matter is proceeding”. In their response, the defendants’ lawyers advised that they “are not in a position to commence the trial next week”. No previous notice had been given to the plaintiff’s solicitors of this fact.
Hearing before Judge Cosgrave on 19 February 2015
7Mr Loganathan of Pasha Legal, in an affidavit filed in the application, stated that “It is my belief that His Honour [Judge Cosgrave] had [on 19 February 2015] adjourned my application for a stay of the proceeding and for security of costs to be heard on 10 March 2015 with the common understanding that the trial listed for 10 March 2015 be vacated to allow the plaintiff to seek further and better particulars of the defendant’s amended defence to be filed on 26 February 2015”.
8This was not the belief of the plaintiff’s solicitor, Mr Moloney. There was dispute between the solicitors as to what Judge Cosgrave had said on 19 February 2015, apart from the matters recorded in the orders made that day.
9On 19 February 2015, Judge Cosgrave made orders adjourning the defendants’ applications for a stay and security for costs to 10 March 2015 and made orders for the filing of affidavit material; on 2 March by the plaintiff, and on 6 March by the defendants.
10The learned judge noted under “other matters”, as follows:
“The court notes that on 26 September 2014 an order was made by consent for the defendants to file an amended defence. They did not comply with that order. The plaintiff seeks the amended defence so that, at trial, the defendants can be held to their pleaded case. The court today indicated to the defendants that if they again fail to file an emended defence, then subject to the discretion of the trial judge, they may be precluded from seeking to amend their defence and may be bound by the existing pleading”.
11In my view, it is clear Judge Cosgrave had not intended that his orders should in any way affect the listing of the proceeding for trial on 10 March, or curtail the exercise of the trial judge’s powers in relation to the trial and the defendants’ applications. Further, the order in relation to the filing of an amended defence ensured that the basis upon which the trial was to proceed, would be clarified by the defendants giving to the plaintiff prior notice of the final version of their defence.
Hearing on Friday 6 March 2015
12When it became apparent that the commencement of the trial might be affected by matters other than the defendants’ applications adjourned by Judge Cosgrave, the parties were requested to attend for a directions hearing on 6 March 2015 before the nominated trial judge.
13At that hearing, it was clear that the defendants had only filed an affidavit of Mr Isakow in support of the first application for a stay and that no further material had been filed in support of the security for costs application or the foreshadowed application for an adjournment of the trial. The plaintiff had filed no material in accordance with Judge Cosgrave’s direction. Defendants’ counsel, Mr Carlile, indicated that further affidavit material would be filed by 4pm that afternoon, as Judge Cosgrave had directed.
14Orders were made in an effort to ensure that adequate material would be filed in support of the defendants’ applications addressing all the issues likely to be raised. It was made clear that the trial date was confirmed and the parties should be ready to proceed with the trial, if the defendant failed in its applications. Mr Lapirow indicated that he was the plaintiff’s trial counsel. Mr Carlile did not inform the court that he was not briefed for the trial and only upon the hearing of the defendants’ applications.
Conduct of the hearing of the application on 10 March 2015
15The defendants served three further affidavits before the hearing on 10 March 2015. One affidavit affirmed by the first defendant was served at about 4.30pm on 6 March. The other two affidavits were prepared on 8 March and affirmed on 9 March. They were not served until 10 March, shortly before the case was called on. No attempt was made to serve the affidavits by email on 9 March or to foreshadow on 6 March, or later, that further affidavit material would be later served.
16The defendants did have Mr Isakov in attendance on 10 March, in case he was needed for cross-examination. On 10 and 11 March further oral evidence, both in chief and by way of cross examination, was received from Mr Isakow, Mr Loganathan of Pasha Legal and from the plaintiff’s solicitor, Mr Moloney. The receipt of evidence in this way was inefficient but was permitted because of the serious consequences to the parties arising from the applications and the difficulty of reaching a just determination without a proper examination of all issues.
Non-payment of the defendants’ costs of the appeal
17The Court of Appeal, on 29 August 2014, allowed the defendants’ appeal against the orders made by His Honour Judge Macnamara on 5 February 2014 following an earlier trial of the proceeding. The plaintiff (respondent) was ordered to pay the defendants’ (appellants’) costs of the appeal. Later, the parties exchanged offers of compromise in relation to the costs. The defendants accepted the plaintiff’s offer to pay $50,000. This was formalised in an order of the Costs Court dated 4 December 2014.
18On 26 November 2014, the plaintiff’s solicitors wrote to Isakow Lawyers as follows:
“We advise that our client is a company in liquidation and its main asset is the recovery of the debt owed by the Appellants.
We advise that we will assist as best as we are able in the recovery of this costs order from the Appeals Cost Fund, or in the alternate setting any further costs order off the debt owed by your client if one is found to be owed”.
19The Court of Appeal had granted a certificate to the plaintiff in respect of the costs order against it, pursuant to section 4 of the Appeal Costs Act 1998 (Vic). At the request of Isakow Lawyers, the plaintiff’s solicitors wrote to the Appeal Costs Board enclosing the relevant court orders and the defendants’ itemised bill of costs and asked to be advised of “any further requirements” of the Board’s “process”.
20On about 21 January 2015, Mr Isakow spoke with the secretary to the Board, Mr Moffatt, who apparently informed him that “the Board will not pay to [the plaintiff’s solicitors] any money it is entitled to pursuant to the certificate…until it first pays [the defendants’ former solicitors] the amount of $50,000”.
21Mr Moffat apparently informed Mr Isakow of his clients’ right to make application pursuant to section 6 of the Act if the respondent had “refused” or had a “lack of means” to make the payment. Mr Isakow submitted a section 6 application to the Board on 5 February 2015. It appears that the Board will not consider this application until its next meeting in May 2015.
22Mr Isakow said in oral evidence that Mr Moffat had told him that the “prospects” of succeeding in the application were “not all that good”, that it was a “difficult task”, that he “should not be surprised” if the defendants were “knocked back on the first go” and that they “may be asked questions by the Board”.
23In an affidavit affirmed by the first defendant on 8 March 2015, an attempt was made to link the failure by the defendants to receive payment of the appeal costs to the defendants’ inability to prepare for the trial. Mr Downes stated in paragraph 5 of the affidavit, “I required the funds awarded by the court to continue instructing my solicitors to prepare for the County Court retrial, which was anticipated to cost in excess of $60,000 by my solicitors”.
24It was clear during the hearing that the defendants’ former solicitor, Mr Isakow, was essentially pursuing recovery of the $50,000 for his firm. He had incurred substantial costs in running the appeal which were billed at over $80,000, including an indebtedness of $30,720 for counsel’s fees. In the circumstances, it was very unlikely that any of the $50,000 would be available to fund the defendants’ costs of the retrial.
25Defendants’ counsel, Mr Carlile, disavowed Mr Downes’ statement in the affidavit, which he said was a “mistake”. Mr Carlile said that the position was that Mr Isakow “required the payment of the appeal costs before he would continue to act” and if the $50,000 had been paid, Mr Isakow “probably would have continued to act”.
26Mr Isakow later gave oral evidence that, “Had the appeal costs been paid by the end of January 2015, I would have been more willing to act for them, but as I was not paid, I was not willing to act”.
27I do not accept it is likely that if the $50,000 had been paid, Mr Isakow would have “continued to act” for the defendants in the County Court proceeding. After the hearing of the appeal, Mr Isakow did not act for the defendants in the County Court proceeding except for the period between 15 September 2014, when he wrote to the plaintiff’s solicitors seeking consent orders in relation to the retrial and 24 September 2014, when in a further communication he noted that he no longer acted for the defendants and that the plaintiff’s solicitors should communicate directly with them.
28Apart from pursuing the recovery of legal costs, Mr Isakow suggested in an email to the defendants dated 30 January 2015 that “although we no longer act for you, we will recommend that in light of their client’s flagrant breach/ non-compliance with the Court of Appeal order made 29 August 2014, you may apply to the County Court for a stay application and security of your legal costs of the retrial in March 2015. You should consider urgently making such an application which the County Court will in all likelihood grant you including the costs of the application. In other words, until Rhys pays to this firm $50,000 and pays into court an amount (say a further $60,000) on account of costs to be incurred by you in the further retrial, the case does not proceed”.
29The email enclosed various documents and concluded, “We would prefer to hear from either Bernard [the second defendant] or your current lawyers to confirm whether you will avail yourself of the opportunities outlined above”.
30It is unclear to whom Mr Isakow was referring to as the defendants’ “current lawyers”. Between a date in about September 2014 and 11 December 2014, although not formally on the court record, Mr Sarraf of Starnet Legal had acted as the defendants’ solicitors in the County Court proceeding. However, Mr Isakow said in evidence that he had not communicated with Mr Sarraf at any time between September 2014 and February 2015.
31Mr Sarraf appeared for the defendants at a directions hearing on 26 September 2014 at which the proceeding was fixed for trial on 10 March 2015 and the defendants were given leave to file and serve an amended defence by 24 October 2014. On 28 October 2014, Mr Sarraf wrote to the plaintiff’s solicitors seeking an extension of time to file the amended defence. The plaintiff’s solicitors wrote on 24 November 2014 consenting to the extension. On 11 December 2014, Mr Sarraf wrote advising that he was no longer acting for the defendants.
32On about 6 February 2015, the defendants instructed Pasha Legal. There is a link between the principals of both Starnet Legal and Pasha Legal (they are husband and wife), and between Mr Sarraf and Pasha Legal (he was a former employee and, whilst at Starnet Legal, had carried out work for Pasha Legal). It was not, however, clear on the evidence whether these associations had any relevance to the present applications.
33I consider, in the circumstances, that there is little or no connection between the recovery of the defendants’ costs of the appeal and the defendants’ ability to participate in the retrial of the proceeding. Further, the plaintiffs have in a timely manner informed Isakow Laywers of the liquidator’s difficulty in meeting the costs order from the plaintiff’s resources and by making the application seeking reimbursement from the Board.
34Mr Moloney apparently alerted Mr Isakow to the possibility of the defendants themselves making application to the Board under section 6 for a direct payment of their costs. Mr Isakow made the application soon afterwards on 5 February 2015. The grounds for such an application would appear to be present – the plaintiff is in liquidation; it has limited resources; it has indicated it would not make the payment and does not have the financial capacity to do so. There seems to be little issue that the sum of $50,000 agreed as the quantum of the defendants’ costs is not inappropriate.
35In circumstances where there was some delay in the making of the section 6 application and in making the present stay application and, taking into account the assistance offered by the plaintiff’s solicitors, I consider that it would not be appropriate to grant a stay of the proceeding until the defendants’ appeal costs are paid. Without wishing in any way to pre-empt the Board’s decision, I consider that it is likely the defendants’ costs will be paid to Isakow Lawyers once the Board is able to consider the defendants’ application for payment.
Application for security for the defendants’ costs of the retrial
36When the proceeding was commenced by Writ dated 3 December 2010, the plaintiff was not in liquidation. The plaintiff went into liquidation on 12 August 2011. Judgment in default was entered against the defendants on 9 February 2011. Application to set aside judgment was not made until 12 April 2012. His Honour Judge Ginnane set aside the judgment following reasons for decision given on 21 September 2012.
37Since that time, the action has continued as a defended proceeding. A trial date on 15 May 2013 was vacated. The trial before His Honour Judge Macnamara in January 2014 resulted in the defendants’ successful appeal. No application for security for costs has previously been made by the defendants. The plaintiff went into liquidation more than 12 months before the default judgments were set aside.
38Mr Carlile essentially relied upon three matters:
a.the plaintiff’s solicitors in their letter to Mr Isakow dated 26 November 2014 had provided “new” information;
b.the plaintiff was seeking to recover over $1million from the defendants in the proceeding, and therefore it was likely the creditors of the plaintiff would, if the action were successful and recovery were possible, obtain a substantial return;
c.in the circumstances, the plaintiff should have placed before the court evidence of the ability or willingness of the company’s creditors to provide the security for costs sought by the defendants.
39 Mr Lapirow submitted that the “complexity” of the matters pleaded in the defendants’ defence, including reliance upon alleged unconscionability and misleading and deceptive conduct had substantially increased the length of the trial. In my view, there was nothing in the defendants’ defence which would convert the action into one where the defendants became the parties seeking relief and the plaintiff was primarily adopting a “defensive” position. This was not a matter, therefore, which the plaintiff could rely upon as a discretionary basis for the court to refuse the defendants’ application.
40 There was no issue concerning the jurisdiction of the court to make an order for security on the basis of the likely inability of the plaintiff to meet any order for the defendants’ costs, if they were to be successful in defending the proceeding.
41 The primary issue for determination was whether the defendants should be denied the relief they sought because of the delay in making the application. I leave to one side the issue of the quantification of the likely costs of the defendants. The only evidence was a statement by the first defendant that he had been told by solicitors that the costs of the retrial would probably be “in excess of $60,000”. It is likely that a 5-6 day trial would be expensive and I would not determine the application simply on the basis that there was limited evidence estimating the likely costs of the trial.
42 Delay is commonly a discretionary factor in these applications. A recent statement of the relevant principles is to be found in the judgment of Newnes and Murphy JJA in the decision of the Court of Appeal of Western Australia in Christou v. Stanton Partners Australia Pty Ltd [2011] WASCA 176, at paragraphs 20 and 21.
43 In my view, these principles, when applied to the present case, must lead to a conclusion that the defendants’ application must be denied. When the judgments were set aside in October 2012, the plaintiff commenced to incur significant costs in pursuing its claim. The facts which the defendants now rely upon as to the plaintiff’s impecuniosity are likely to be little different than the relevant financial circumstances of the plaintiff at that time.
44 Ordinarily, a company in liquidation would be required to explain why its creditors (as the persons on whose behalf the litigation was brought) should not contribute to the provision of security for the defendants’ costs of defending the claim. However, the delay by the defendants in making the present application and the stage the proceeding has reached (the commencement of the retrial following a successful appeal), make it appropriate to deny the defendants’ application.
Defendants’ application for an adjournment
45 It appears that the defendants’ solicitors did little work in preparation for trial apart from receiving instructions in early February 2015 and drafting limited amendments incorporated in the Amended Defence. It must have been apparent when Mr Loganathan appeared before Judge Cosgrave that no further trial preparation would be undertaken. It seems likely that the defendants and their legal advisors have proceeded on the basis that no thought would be given to the consequences if the stay and security for costs applications were refused.
46 Putting the defendants’ “eggs in the one basket” is surprising in circumstances where the timeliness of the applications, appropriateness of the steps taken and the quality of the material filed in support of the applications were in many respects inadequate. Ordinarily, parties in these circumstances must expect to bear the consequences of the actions of their solicitors. It is likely, in the present case, however, that the defendants’ own impecuniosity was a significant factor in the approach adopted by the solicitors.
47 Mr Carlile conceded that if the defendants’ primary applications failed, any adjournment of the trial would be at his clients’ cost. It is fortunate that by that by transferring the proceeding to the Expedited List, the trial can be refixed quickly, within about 3 months.
48 In these circumstances, it is likely that any prejudice to the defendants, if the trial were not adjourned, would outweigh any prejudice to the plaintiff if the trial were adjourned with an order made in respect of the plaintiff’s costs.
49 An adjournment will also provide an opportunity for the Appeal Costs Board to determine the defendants’ section 6 application, although the determination of the application is certainly not a pre-condition to the trial proceeding. Not unimportantly, an adjournment will also provide a break following a number of essentially unproductive days of hearing. It is to be hoped that the trial commencing on 15 June 2015 will proceed expeditiously and any unresolved issues will be dealt with as they arise, and well in advance of the trial.
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Certificate
I certify that these 9 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 13 March 2015.
Dated: 13 March 2015
Olivia Bramwell
Associate to His Honour Judge Anderson
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