National Australia Bank Ltd v Bozsa - [2013] WASC 337

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: NATIONAL AUSTRALIA BANK LTD -v- BOZSA [2013] WASC 337

CORAM: REGISTRAR WHITBREAD

HEARD: 6 & 26 JUNE 2013

DELIVERED : 22 AUGUST 2013

PUBLISHED : 5 SEPTEMBER 2013

FILE NO/S: CIV 2504 of 2011

BETWEEN: NATIONAL AUSTRALIA BANK LTD
Plaintiff
AND
PAUL BOZSA
ROBYN JOY BOZA
Defendants

Catchwords:

Costs - Repleading of amended defence and counterclaim - Costs thrown away - Nonexistence of pleaded document - Whether costs thrown away should be payable by solicitor - Principles to be applied - Indemnity costs - Principles to be applied - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA)

Result:

Costs thrown away are payable by defendants' solicitor on an indemnity basis

Category: B

Representation:

Counsel:

Plaintiff: Mr C S Gough
Defendants: Mr A P Rumsley & Mr P G Clifford

Solicitors:

Plaintiff: Minter Ellison
Defendants: Alan Rumsley

Case(s) referred to in judgment(s):

Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281
Cassidy v Murray (1995) 124 FLR 267
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225
Collins and Collins (1985) FLC 91‑603
Knight v FP Special Assets Ltd (1992) 174 CLR 178
Myers v Elman [1940] AC 282
Soia v Bennett [No 5] [2012] WASC 289 (S)
REGISTRAR WHITBREAD:

Facts and background

On 4 December 2011 the defendants filed a defence and counterclaim, which pleads, at par 2p:
Upon receipt of the progress claim pleaded in sub-paragraph (n) above the Defendants provided a request for drawing to the Plaintiff in respect of the invoiced amounts dated 16 December 2008.
Such request for drawing is referred to as 'the 16 December Request' in these reasons.
That paragraph remained unamended in the amended defence and counterclaim filed on 22 February 2012.
On 10 April 2012 the plaintiff filed its reply and defence to counterclaim. At par 16 the plaintiff pleads:
The plaintiff denies the allegation in paragraph 2(p) of the Defence and says further that the request for drawing provided by the first defendant and the second defendant to the plaintiff on or about 16 December 2008 did not relate to the 'lock up' invoices pleaded by the first defendant and the second defendant in paragraph 2(n) of the Defence, but instead related to a previous invoice issued by the Big Ben Homes Pty Ltd (Big Ben Homes) to the first defendant and the second defendant on or about 14 November 2008 in respect of the construction work undertaken by Big Ben Homes at the properties the subject of the plaintiff's Mortgage.
In my view this clearly put the defendants' solicitors on notice that the 16 December Request was not a document which met the description contended for in par 2p of the, by then, amended defence and counterclaim.
On or about 9 May 2013 the defendants, through their solicitor advised the plaintiff's solicitors that the 16 December Request did not exist.
As a matter of principal and pursuant to the Rules of the Supreme Court 1971 (WA), the costs thrown away by virtue of the need to amend the amended defence and counterclaim, as a consequence of the fact that the 16 December Request does not exist, are the plaintiff's.
The plaintiff seeks an order that the costs thrown away be payable by the defendants' solicitor and further seeks that such costs be payable on an indemnity basis. The questions that I have to determine are:
(i)whether any such costs should be payable by the defendants or by the defendants' solicitors;
(ii)whether any such costs should be payable on an indemnity basis.
The plaintiff agrees that it is not possible to quantify such costs at this stage of the proceeding, so the order sought is for any such costs order to be taxed if not agreed.
The defendants' solicitor's counsel contends that the amended defence and counterclaim (or any preceding pleading) does not solely rely on the 16 December Request to assert an arguable defence or counterclaim. On 26 June 2013 I gave extempore reasons as to why the minute of further amended defence and counterclaim (prepared consequent upon the 9 May 2013 directions hearing, at which the defendants' solicitor confirmed the 16 December Request did not exist, but dated 22 February 2012) could not be filed, in that it did not disclose an arguable defence or cause of action. In the course of my consideration of that minute, I had to consider both the previous amended defence and counterclaim and whether the 16 December Request was a pivotal document.
I refer to the reasons I delivered on that date and I incorporate them into this decision. In that decision I found that the 16 December Request was pivotal to the amended defence and counterclaim pleaded by the defendants and the case contended for by the defendants in that pleading cannot be sustained absent that document.
A proper construction of the amended reply and defence to counterclaim can lead to no other view than that the 16 December Request was the fundamental building block on which the amended defence and counterclaim stands, as no other cause of action can be sustained on a proper examination of the amended defence and counterclaim. The importance of the existence of the 16 December Request would have been clear to the defendants' solicitors.
In the course of earlier oral submissions on 6 June 2013, in relation to the effect of the non‑existence of the 16 December Request, I asked the defendants' solicitor about the issue:
Registrar:That 16 December document doesn't relate to lock up invoices. Are we all in agreement with that?
Mr Rumsley:     Yes.
Registrar:I'm really concerned about how we got to a pleading which is based on a document which doesn't exist.
Mr Rumsley:     On inaccurate instructions.
Registrar:But surely you checked the documents before you drafted the pleading?
Mr Rumsley:     Yes. Yes. I checked the documents and missed the point.
I find that exchange to be very relevant to my determination of the issue. It was pointed out to the defendants' solicitor that par 16 of the reply and defence to counterclaim should have clearly put the defendants' solicitor on notice that the 16 December Request did not exist and the defendants' solicitor was asked what checks he did at that time in terms of instructions, and as against documents, to be able to reconcile a major discrepancy between the parties cases. The defendants' solicitor replied:
Mr Rumsley: I accept that Registrar and I haven't got affidavit evidence in front of you that deals with that issue.
The defendants' solicitor subsequently filed affidavit evidence going to the issue. I refer to the affidavit of Alan Phillip Rumsley sworn on 21 June 2013 (the Affidavit).
I also take into account written submissions filed by counsel for the defendants' solicitor and further oral submissions made on 26 June 2013 by his counsel.
The Affidavit evidences that par 2p of the defence and counterclaim arose out of an oral statement by Mr Bozsa, somewhere around 4 ‑ 10 December 2011 (the date is unclear from the Affidavit although counsel clarified that the reference to the year should be 2011 and not 2012) that 'the request for the lock up invoices was dated 16 December 2008'. It would appear that the defendants' solicitor did not have a document before him when he drafted par 2p. (pars 9 ‑ 13 of the Affidavit).
On 14 March 2012 the plaintiff's solicitors requested a copy of the 16 December Request from the defendants' solicitor. On 30 March 2012 the defendants' solicitor forwarded a copy of the 16 December drawdown request (as provided by Mr Bozsa) to the plaintiff (pars 21 ‑ 22 of the Affidavit and the document referred to is annexed as APR2 to the Affidavit).
In my view, having read APR2, that document is not capable of sustaining the plea in par 2p of the defence and counterclaim. It is clearly the document as subsequently identified in par 16 of the reply and defence to counterclaim.
The Affidavit goes on to evidence that the defendants' solicitor wrote to Mr Bozsa on 30 March stating 'the request seems to deal with payments other than the lock-up claim. Is there anything else?' (par 23 of the Affidavit). It is clear from this that the defendants' solicitor could have been under no misapprehension, on and from that date, that the document produced by his client could be interpreted to be the 16 December Request.
The Affidavit does not disclose what, if any, discussions the defendants' solicitor had with his clients about the 16 December Request after March 2012. The Affidavit deposes to the general progress of the matter thereafter.
Given the material before me I find that the defendants' solicitor drafted par 2p of the defence and counterclaim without having sighted the document referred to therein. That pleading continued unamended into the amended defence and counterclaim. The plaintiff's solicitors' request of 14 March resulted in the defendants producing a document. That document was clearly not capable of being the 16 December Request and therefore not capable of sustaining the case as pleaded. This was a crucial document. The filing of the reply to defence and counterclaim on 10 April 2012 clearly put the existence of that document in issue between the parties.
In my view the defendants' solicitor was on notice from March 2012 that the plea in par 2p could not be sustained on the documents his clients had provided to him.
The defendants' solicitor must have known the importance of that document to his clients' case, and that it did not appear to exist, yet he did nothing to amend the pleading. I do not accept his submission that the matter could continue through mediation and general other discovery issues without any prejudice being occasioned to the progress of the action.
It is a fundamental principle of litigation that a party is entitled to know the case that it has to answer at trial. The plaintiff could not know the case that it had to answer by way of defence and counterclaim whilst that pleading continued to be premised on a document which not only had the drafting solicitor never seen but direct enquiry of his clients had not produced.
The defendants have accepted that the consequence of the non‑existence of the 16 December Request is that they have had to re‑plead their defence and counterclaim.

Applicable law

It has long been accepted that the power to order a lawyer of one party to pay costs incurred by the other party is an exception to the general rule that a person who is not a party to the proceedings cannot be ordered to pay the costs of the proceedings (see Myersv Elman [1940] AC 282 and, as to the power to order costs against a non‑party, see the decision of the High Court in Knight vFP Special Assets Ltd (1992) 174 CLR 178).
The power to make an order for costs directly and personally against a lawyer arises at common law from the inherent jurisdiction of the court over lawyers in their capacity as officers of the court and from the duty of the lawyer to conduct litigation with propriety (see Collins and Collins (1985) FLC 91‑603, 79,878).
The Full Court of the Family Court had cause in Cassidy v Murray (1995) 124 FLR 267 to set out the principles relevant, at that time, to the exercise of the jurisdiction to award costs against a lawyer under the Family Law Act 1975 (Cth). I regard what was set out in that decision as a useful guide as to the general principles I should apply in my consideration of this matter.
The Full Court in Cassidy (280) referred with approval to the decision of the Master of the Rolls, Sir Thomas Bingham, in Ridehalgh v Horsefield [1994] 3 All ER 848, 855, in holding that:
1.Pursuant to s 117(2) Family Law Act, the court has jurisdiction to make an order for costs against a solicitor or a non‑party.
2.The court should not make such an order without giving the person to be affected by the order an opportunity to be heard.
3.The court may make an order for costs against a solicitor without the necessity to establish that the solicitor has been guilty of serious professional misconduct.
4.The solicitor has a duty to the court to promote the interests of justice whilst at the same time attending to the needs of the solicitor's client.
5.A mistake or error of judgment would not justify an order for costs against a solicitor. However, misconduct, default or negligence, any of which are found by a court to be of a serious nature, may be sufficient to justify an order.
6.The jurisdiction is compensatory.
I regard points 2 ‑ 6 above as setting out the considerations that I should have in determining this matter, given that I have already set out the basis for jurisdiction above.
The defendants' solicitor was given the opportunity to be heard, both on 6 June and 26 June 2013. He filed affidavit material and was represented by counsel on the later date. Written submissions were filed on his behalf.
The defendants written submissions of 24 June 2013 submit that an order that a solicitor personally pay costs is:
(i)an order in the disciplinary jurisdiction of the court;
(ii)an order to be exercised with care and discretion, there has to be something which amounts to a serious dereliction of duty;
(iii)an order which requires some kind of professional impropriety or gross negligence;
(iv)an order which can only be made where the improper, unreasonable or negligent conduct complained of has caused a waste of costs and only to the extent of such wasted costs. Demonstration of a causal link is essential.
I have considered all of those submissions and principles in coming to my decision. I have considered all of the authorities to which the defendants solicitor's counsel referred. In particular, have considered the decision of Martin CJ, in relation to both the requirements of, and contemporary role of, pleadings, in Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281.
The court may make an order for costs against a solicitor without the necessity to establish that the solicitor has been guilty of serious professional misconduct.
I find that the conduct in this matter can be summarised as follows:
(i)the amended defence and counterclaim (and the defence and counterclaim) relied on the 16 December Request to sustain the defence and counterclaim as pleaded;
(ii)the defendants' solicitor had not sighted the 16 December Request at the time of drafting the defence and counterclaim or the amended defence and counterclaim;
(iii)The document provided to the defendants' solicitor in March 2012 in response to his request to his clients for the 16 December Request was, on its face, obviously not the 16 December Request;
(iv)enquiry of Mr Bozsa, in or about March 2012, did not produce any other document capable of being the 16 December Request;
(v)the plaintiff's reply and defence to counterclaim put the defendants' solicitor squarely on notice that no document meeting the description of the 16 December Request existed.
(vi)the defendants' solicitor allowed the pleading to remain on foot until 9 May 2013 (when the concession was made that the 16 December Request did not exist) despite the fact that, in my view, he should have known that the pleading in par 2p could not be sustained and that, in the absence of the 16 December Request having ever in fact existed, there was a serious issue as to whether the defendants had an arguable defence and counterclaim.
I find that from the time of the production of the 16 December draw down request, on or about 30 March 2012, to the defendants' solicitor, the defendants ought not be held responsible for the continued misstatement of the basis of the defence and counterclaim. I do not consider that there is a sustainable argument that inaccurate instructions formed the basis for the unsustainable pleading remaining on foot after that date. Further, given the crucial nature of the 16 December Request it seems very unusual at the least, and in my view entirely unreasonable, for a solicitor to have filed such a pleading without having viewed the actual document.
Further, and with relevance to the remarks of Martin CJ in Mowlem, the plaintiff could not know the case it had to answer at trial whilst a pleading containing a defect of this magnitude remained on foot.
If the defendants do not have an arguable defence or counterclaim then the plaintiff may be entitled to make an application for summary judgment. That may be the consequence of the non‑existence of the 16 December Request but I do not base my decision on speculation in that regard. The defendants have been given leave to re‑plead its defence and counterclaim. However, costs have clearly been expended by the plaintiff in attempting to answer a defence and counterclaim which should not, and could not, have remained on foot.
The defendants' solicitor has a duty to the court to promote the interests of justice whilst at the same time attending to the needs of his clients. I find that the defendants' solicitor's conduct in this matter goes beyond a mistake or error of judgment. There was a serious dereliction of duty. Having regard to O 66 r 5 of the Rules of theSupreme Court, and the principles applied by Commissioner Sleight in Soia v Bennett [No 5] [2012] WASC 289 (S) [61] ‑ [69], I conclude that in the circumstances the defendants' solicitor has acted unreasonably by leaving an unsustainable pleading on foot for over 12 months. This caused obvious expense to the plaintiff as set out below. I consider it is unreasonable to expect the defendants to pay the costs consequently thrown away. I consider that the defendants' solicitor was responsible for the fact that the amended defence and counterclaim remained unamended. Accordingly, I conclude that an order should be made that the defendants' solicitor pay the costs of this application. In all of the circumstances, the defendants' solicitor's conduct amounted to conduct of a sufficiently serious nature that it justifies an order for costs against the solicitor because he allowed a pleading to remain on foot where a reasonable solicitor would have been alive as to the consequences of the non‑existence of the 16 December Request and would have acted to remedy the defect.
Since the jurisdiction is compensatory in nature, the court cannot make an order unless that conduct caused loss to another. I am satisfied that costs have been expended by the plaintiff as a consequence of the defendants solicitors conduct. There is a causal link between the failure to properly deal with the non‑existence of the 16 December Request and consequential costs incurred by the plaintiffs, for example, at the most basic level, in the need to request a copy of that document. The extent of such costs will be determined at a later date.
I turn to consider whether such order should be for indemnity costs. I have considered the argument set out in the defendants' solicitors oral and written submissions on this point. I have also considered the applicable principles as set out in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 232 ‑ 234 (Sheppard J). His Honour commented that the 'settled practice' was for costs orders to be made on a party and party basis and that, in the usual course, a different order ought not to be made. It can only be made if justified by the circumstances namely 'the existence of some special or unusual feature of particular case justifying such an order'. I find that the features of the defendants' solicitors conduct, in leaving an unsustainable pleading on foot for such a protracted period when he was on express notice of the problem, are so unusual as to warrant an award of indemnity costs.

Order

The costs thrown away as a consequence of the re‑pleading of the amended defence and counterclaim are payable by the defendants' solicitor on an indemnity basis to be taxed if not agreed.