Ng v Kollias
[2018] VCC 143
•28 February 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Suitable for Publication |
Case No. CI-16-02794
| PETER LEE TONG NG | Plaintiff |
| V | |
| KERRY JOY KOLLIAS | Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 and 2 November 2017 | |
DATE OF JUDGMENT: | 28 February 2018 | |
CASE MAY BE CITED AS: | Ng v Kollias | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 143 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT
Catchwords: CONTRACT – construction of indemnity clause in a contract of sale of business of a legal practice – whether the vendor should indemnify the purchaser for claims made relating to acts or omissions of the business prior to settlement.
Cases Cited: Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28
Bofinger and Another v Kingsway Group Ltd [2009] HCA 44
Nicholson & Ors v Knaggs & Ors [2009] VSC 64
West Wakes Price & Co v Ching [1956] 3 All ER 821
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Magowan | Nicholas O’Donohue & Co |
| For the Defendant | Mr N Kaskani | Lander & Rogers |
HER HONOUR:
Introduction
1 The plaintiff (“Mr Ng”) claims the sum of $238,486.18 from the defendant (“Mrs Kollias”). The issue for determination is whether Mrs Kollias is obliged to indemnify Mr Ng for the sum claimed under an indemnity clause contained in a contract of sale of business of a legal practice.
2 I find Mr Ng is not entitled to recover any monies from Mrs Kollias for the following reasons.
Background
3 Mrs Kollias’ late husband, Mr Brian Kollias, was a legal practitioner. He was a partner of a firm known as Hunt McCullough Kollias & Co located at 210 Main Street, Mornington (“the former practice”).
4 Following the death of Mr Kollias on 26 January 2007, the former practice was managed by his daughter, Elizabeth Kollias (“Ms Kollias”), a qualified legal practitioner.
5 Mr Ng had been looking to buy a legal practice in Melbourne after practising in Singapore for several years. He negotiated the terms of the sale of the former practice with Ms Kollias. Mrs Kollias sold the former practice to Mr Ng in June 2007. Mrs Kollias is not legally qualified and sold the business in her capacity as Executrix of her late husband’s estate. Probate of Mr Kollias’ estate was granted in or about late 2007 and his entire estate was distributed the following year.[1]
[1]Court Book (“CB”) 472
6 A Contract of Sale of Business dated 18 June 2007[2] (“the Contract of Sale”) was entered into by the parties for the sale of the business trading as Hunt McCullough Kollias & Co.
[2]CB 34-52
7 The price paid for the business was $170,000. Mr Ng was nominated as purchaser and/or nominee. Mr Ng subsequently nominated HMK Legal Pty Ltd as nominee, being a company owned and controlled by him. HMK Legal Pty Ltd was registered as a company on 5 July 2007. The company became the registered business owner of the business name “Hunt McCullough Kollias & Co” on 16 July 2007.
8 Mr Ng gave evidence he inserted the wording of a special condition in the Contract of Sale relating to a vendor’s warranty. This clause provides as follows:
“7.VENDOR’S WARRANTY
7.1 The vendor warrants that she is not aware of any complaints or claims against the firm or the solicitors employed by the business save for the two that have been disclosed to the purchaser.
7.2 The vendor shall indemnify the purchaser in respect of any claims that may be made against the purchaser for acts or omissions of the business prior to the settlement.”
9 Settlement of the Contract of Sale occurred on 16 July 2007 and the business was transferred to HMK Legal Pty Ltd as nominee (trading as Hunt McCullough Kollias & Co) (“the new practice”). Ms Kollias continued to work in the new practice as an employee on a part time basis up until she left on 11 August 2010.
10 The former practice acted for the Estate of Elsbeth Jean Dyke. Ms Dyke died on 25 May 2004 aged 84 years. She left a sizeable estate including some 50 acres of farm land in Mount Martha. Mr Kollias had acted for Ms Dyke on various occasions in the past and the former practice had drafted her wills. The former practice was retained by the executors of Ms Dyke’s estate to assist in the granting of probate.[3] Mr Kollias was one of the named executors. Probate was granted on 11 October 2004.
[3]CB 442 – 447, Affidavit of Robert Lawrence Allen sworn 21 September 2010 at para 3
11 Revocation of the grant of probate made in respect of Ms Dyke’s last will dated 12 January 2001 was sought by Julie Anne Nicholson (a niece of the deceased) and others, on the basis of a lack of testamentary capacity, undue influence, and lack of knowledge and approval of the contents of the will. The former practice defended the probate proceedings on behalf of six residuary beneficiaries of the estate, which included Robert and Sandra Allen (“the Allens”) and two other couples, the Knaggs and the Smiths.
12 Mr Ng was instructed to act by the clients and the new practice continued to defend the probate proceedings. Before the trial commenced, the new practice entered into an updated costs agreements with the clients. The litigation was protracted and resulted in a contested hearing lasting 34 days before Vickery J with 38 witnesses called. His Honour gave judgment on 27 February 2009.[4] Vickery J determined that Ms Dyke’s last will should be set aside. An earlier will made in 1999 was also set aside in part due to undue influence by Mr Knaggs.
[4]Nicholson & Ors v Knaggs & Ors [2009] VSC 64
13 In early 2009, the residuary beneficiaries engaged new lawyers as a result of a conflict becoming evident between the clients in the probate proceedings. The Allens retained Wisewould Mahony (“Wisewoulds”) to act on their behalf.
14 On 16 November 2009, the Allens filed a summons for taxation of costs for various tax invoices issued by Hunt McCullough Kollias & Co between 6 April 2005 and 21 January 2009. The period covered fees rendered by both the former and new practices. The summons for taxation listed a number of the invoices, including an invoice in respect of commission claimed of $150,100 dated 26 July 2005 (“the commission invoice”).
15 A key matter in dispute about the fees charged was the rendering of the commission invoice by the former practice.[5] The commission invoice related to commission charged on the sale of “Sefton Grange” at 131 Craigie Road, Mount Martha, a substantial property held by the estate (“the property”). There is a notation on the commission invoice that it relates to “Commission pursuant to our Agreement”. The total of the professional costs and GST set out in the commission invoice is $150,100. The commission invoice was paid.
[5]CB 32
16 Ms Kollias gave evidence that her father had been involved in the sale of the property in his capacity as executor. He had been concerned that an initial sale price of $12,000,000 proposed by the real estate agents involved in the sale was insufficient. Following his intervention, the property subsequently sold for $15,100,000. The amount of the commission invoice represents 1% of the sale price achieved. The commission invoice refers to “an agreement”. Ms Kollias had a recollection of a four hour meeting with the executors of the estate and they reached the decision about the commission payment. She also recalled a letter being sent to the clients about the agreement, which accords with other documents in evidence.[6] No written agreement was produced to the court. The clients’ position, as evidenced by letters sent later by new lawyers engaged on their behalf, was that the former practice was not entitled to charge this amount. It did not appear to be a charge by way of an executor’s commission. There was no evidence that any application had been made to the Supreme Court for approval of such a payment by way of executor’s commission. On its face, the amount charged was a commission on the sale of the property which the former practice may not have been entitled to charge if, for example, there was a breach of fiduciary duty. Mr Ng’s counsel described the commission claim as being suspicious. It is not necessary for me to determine in this proceeding whether the former practice was lawfully entitled to charge this commission. The matter was also left open by Vickery J in his judgment.[7]
[6]CB 169
[7]Nicholson & Ors v Knaggs & Ors [2009] VSC 64 at [346]
17 Mr Ng and the new practice objected to the taxation of costs sought in respect of fees claimed prior to 16 July 2007, on the basis the practice had been transferred after that date.
18 On 1 February 2010, Wisewoulds wrote to Mr Ng making an offer to resolve the taxation review. They proposed an arrangement in respect of the payment of an invoice dated 5 May 2009 and release of funds held in trust to be distributed to the Allens and the Smiths. The invoice of 5 May 2009 was in the sum of $59,000 and related to work carried out between 23 January 2009 and 5 May 2009. Wisewoulds proposed this invoice be reduced to $39,000 and be deducted from funds held in trust of $150,000 and the balance be remitted to the clients. They advised that Smiths’ solicitors were agreeable to this proposal. If that were acceptable, the clients would discontinue the taxation review save in respect to the commission invoice. Wisewoulds noted:
“You will appreciate the reason why our clients regard the July 2005 tax invoice somewhat differently to the other tax invoices.
We are happy to discuss with you the means by which this aspect of the matter might also be resolved although we do not believe it is a matter which can be dealt with conveniently with the resolution of other matters.
The foregoing is conditional on the file being delivered (without the stripping of the file) without delay.”[8]
[8] CB 126
19 Mr Ng said in his evidence dealing with the letter of 1 February 2010 that the Allens did have a particular issue with the commission invoice “which for some obscure reason they kept thinking I had to pay them that amount.”[9]
[9] Transcript (“T”) 65
20 In a further letter dated 17 March 2010, Wisewoulds again referred to the commission invoice. The firm noted the invoice did not contain any detail as to the professional costs which were charged. Further, if the invoice related to the taking of commission, it was taken without an application to the court being made. In either circumstance, Wisewoulds requested the sum be repaid to the firm’s trust account without delay.
21 The matter did not resolve. Wisewoulds wrote to the Legal Service Board dated 16 April 2010 complaining about some of the invoices not meeting the requirements for a lump sum bill and querying the legitimacy of the commission invoice. The Legal Services Commissioner dismissed the complaint summarily on 6 July 2010 given the pending proceeding in the Supreme Court relating to the costs issue. The Commissioner noted it was up to the Court to decide the question of what costs the practitioner was entitled to charge.
22 In his affidavit in the taxation proceeding sworn on 30 July 2010, Mr Ng contended the new practice was not a proper defendant in respect of the taxation of costs. In paragraph 15, he deposed that his company, HMK legal Pty Ltd was not liable for invoices prior to 16 July 2007 because:
(a)such documents predated the incorporation of HMK Legal Pty Ltd;
(b)HMK Legal Pty Ltd was not the law practice that produced or sent such documents;
(c)HMK Legal Pty Ltd was not the law practice that did the work that is the subject of those tax invoices or bills; and
(d)HMK Legal Pty Ltd did not ever receive any monies in relation to such tax invoices or lump sum bills.
23 Mr Ng notified the Legal Practitioners Liability Committee of the circumstances of a claim relating to the commission invoice by letter dated 11 August 2010. The Committee replied on 19 August 2010 denying cover for the repayment of $150,100. The reason for this was that the dispute was one over costs for professional services which were excluded under the relevant policy.
24 On 4 August 2010, orders were made by the Supreme Court amending the summons for taxation permitting the Allens to seek a review of:
·$606,195.97 of costs relating to the pre-settlement period of 6 April 2005 to 16 July 2007;
·$1,612,838.90 of costs relating to the post-settlement period after 16 July 2007 to 18 May 2010.
25 By letter dated 23 August 2010, Mr Ng made an offer to Wisewoulds to resolve the costs dispute in respect of fees rendered by the new practice. Mr Ng noted their clients were not entitled to seek a costs review for costs prior to 17 July 2007 as the clients were represented by a different legal entity to HMK Legal Pty Ltd. The offer made was in respect of all tax invoices issued by HMK Legal Pty Ltd for the period between 17 July 2007 and 6 May 2009. The deal proposed was that the Smiths and the Allens would consent to the sum of $58,464.29 held in trust be paid as part of the entitlement to solicitor client costs and the balance of $50,000 held in trust be refunded to the Knaggs, the Smiths and the Allens. Various other conditions were proposed including the Allens withdrawing the amended summons for costs review and the former clients undertaking not to make any further challenge regarding the fees rendered by HMK Legal Pty Ltd. In return, the new practice would agree to forgo any claims it may have in respect of any further costs payable.
26 The settlement proposal expressly stated it was not intended to cover any tax invoices for the period prior to 17 July 2007. The letter continued:
“Should your clients wish to persist with their claims in respect of those Tax Invoices against HMK Legal Pty Ltd in respect of Tax Invoices prior to 17 July 2007 we are confident that they will not succeed in any such claim.”
27 In his evidence, Mr Ng said that the letter of 23 August 2010 drew a line in the sand to say that he would take $58,000 for costs due to HMK Legal Pty Ltd and anything before 17 July 2007 was not a dispute with him.[10] The offer put by Mr Ng was not accepted by the clients.
[10]T70
28 On 8 September 2010, Mr Ng wrote to Mrs Kollias informing her of the claim made in respect of costs by the former clients. Mr Ng attached various documents including a copy of Wisewoulds’ letter dated 17 March 2010. Mr Ng said the clients’ focus was on a refund of the $150,000 paid under the commission invoice and that a recent mediation was unsuccessful with a further mediation listed on 22 September 2010. Mr Ng noted a number of tax invoices sought to be taxed were issued between 2005 and 16 July 2007. Mr Ng called upon Mrs Kollias to indemnify the plaintiff pursuant to clause 7.2 of the Contract of Sale for costs arising from this claim and invited her to contribute to the costs of resisting the claim.
29 Lander & Rogers (“Landers”) replied on behalf of Mrs Kollias in a letter dated 20 September 2010 advising their client declined to participate in any mediation.
30 The matter was subsequently referred to the Costs Court for determination. Wood AsJ provided reasons in relation to “preliminary questions” on 5 November 2010.[11] The court had been asked to determine eight preliminary questions relevant to these proceedings and the following decisions were made by Wood AsJ:
(i)At paragraphs 4 to 18 inclusive – Preliminary Question A: Whether HMK Legal Pty Ltd, currently trading as Hunt McCullough Kollias & Co, the proper defendant in any application by the plaintiffs (Mr and Mrs Allen) for review of bills issued to them prior to July 2007? Answer: No.
(ii)At paragraphs 38 to 39 – Preliminary Question C: Whether the acquisition by HMK Legal Pty Ltd on or about 16 July 2007 precludes an assessment of any bills rendered by the defendant prior to 18 June 2007? Answer: Yes.
(iii)At paragraphs 19 to 37 (inclusive) – Preliminary Question B(ii): Is the defendant HMK Legal Pty Ltd precluded or estopped by its conduct from taking any point as to the identity of the defendant named in the summons? Answer: No.
[11]CB 215-226
31 The effect of the decision of Wood AsJ was that the clients were not able to pursue the taxation of costs in respect of bills rendered by the former owner of the business. His Honour noted that if the plaintiffs wished to pursue a review of any bills prior to July 2007, the plaintiffs would need to issue fresh proceedings. Consequently, any bills dated prior to July 2007 had to be taxed separately and were no longer the subject of the dispute before Wood AsJ. His Honour ordered the matter be referred to mediation to be conducted on or before 7 December 2010.
32 Mr Ng’s solicitors, Nicholas O’Donohue & Co wrote to Lander & Rogers on 17 November 2010 advising of the costs decision made by the Supreme Court. They noted the finding that the plaintiff’s company was not the proper defendant for a review of bills issued to the Allens prior to 16 July 2007. Mr Ng’s solicitors requested a contribution under the indemnity clause for a portion of the legal fees incurred in defending the application by the Allens. Landers replied on 26 November 2010 asking for details of the amount of the additional costs incurred in responding to the claims relating to invoices prior to 16 July 2007 over and above the costs relating to invoices after 16 July 2007.
33 On 3 December 2010, Nicholas O’Donohue & Co replied to Landers stating that the bulk of the costs were incurred largely in relation to matters pre-16 July 2007 but accepted that some of the work done related to invoices after that date. The firm advised that their client was willing to have a discussion about what would be an appropriate form of contribution.
34 On 10 December 2010, Mr Ng attended a mediation with, amongst others, Mr and Mrs Allen, at which time the parties agreed to settle the matters arising from the costs summonses. Mr Ng agreed to pay $158,000 to settle the claims by Mr and Mrs Allen. In his evidence on 1 November 2017, he said the reasons for settling the dispute included:
(i)the Allens were bringing more and more issues under review and the dispute was beginning to snowball and get out of hand;
(ii) the advice from his counsel that it was in his interests to settle and move on;
(iii)the amount of pressure on the firm had resulted in a loss of $200,000 for the financial year ending 2010/2011;
(iv)if he did not act commercially about the dispute, his business was going to fail; and
(v)his understanding that notwithstanding the decision of Wood AsJ, the clients were not going to let go the $150,000 dispute. He said, “I either had to resolve that by offering them something for it, or it was not going to go away”.[12]
[12]T79-80
35 The terms of settlement between the Allens and Mr Ng were adduced into evidence without objection.[13] The recitals record that the parties wished to settle the dispute, the subject of the proceeding. The proceeding is defined as the taxation proceeding commenced in the Supreme Court by the Allens. By this stage, the effect of the orders made by Wood AsJ was that only the invoices issued after 16 July 2007 were the subject matter of the taxation proceeding. The Smiths and the Knaggs are parties to the Terms although they were not parties to the taxation proceeding. It is further stated in the recitals that the parties “wish to resolve all issues concerning costs paid and payable to the defendant.” The terms are signed by Mr D Williams SC of counsel for the defendant. Mr Williams acted for HMK Legal Pty Ltd trading as Hunt McCullough Kollias & Co in the taxation proceeding. The name of the defendant in the heading of the Terms reflects the name of the defendant named in the original taxation summons, namely, Hunt McCullough Kollias & Co (A Firm).
[13]CB 257-259
36 The payment of $158,000 was effected by Mr Ng releasing the sum of $108,000 that he held in his trust account and by paying the sum of $50,000, split between the three sets of residuary beneficiaries. A general release was given by the parties in respect of anything arising relating to the allegations made in the taxation proceeding. There is no express reference to the commission invoice in the Terms.
37 Landers wrote on 2 February 2011 stating their client was willing to pay a contribution of $10,000 towards the plaintiff’s legal fees. The offer was subject to a release being given to their client for any further obligation pursuant to clause 7.2 in relation to the costs claims made by the Allens. This offer was not accepted. The parties engaged in further correspondence but were unable to resolve their differences.
38 On 7 June 2011, Nevett Ford, acting on behalf of the Allens and the Smiths made claims upon Mrs and Ms Kollias for-
(i) damages representing a proportion of the legal costs spent on the conduct of the probate proceedings, referable specifically to the revocation of the 2011 will which the former practice had drafted (“Costs Claim”); and
(ii) a refund of the sum of $150,000 plus interest, being referable to the amount claimed in the commission invoice which the lawyers asserted Mr Kollias had no right to charge.[14] (“Property Deduction Claim”)
[14]CB 498 – letter dated 7 June 2010 but it was agreed the date should read 7 June 2011
39 In August 2011, Mrs and Ms Kollias entered into a Deed of Settlement and Release, whereby they agreed to pay $25,000 to the six residuary beneficiaries.[15] The payment was expressed to be made in full and final settlement of the Costs Claim and the Property Deduction Claim. Paragraph G of the recitals referred specifically to the deduction of $150,000 from the proceeds of sale of Ms Dyke’s property. The former clients released Mrs and Ms Kollias in respect of both Claims and also matters relating to the legal costs charged by Hunt McCullough Kollias & Co to the deceased’s estate prior to July 2007 and the deceased’s estate generally.
[15]CB 500–506
40 In his amended statement of claim, Mr Ng claims the sum of $238,486.18. This sum comprises the settlement sum paid to the former clients of $158,000 and the balance represents a number of costs and disbursements totalling $80,486.18. The invoices claimed relate to various fees incurred in the taxation proceeding by counsel, costs consultants, mediators, Nicholas O’Donohue & Co and legal costs incurred by the new practice assessed by the Law Institute of Victoria.[16]
[16]The particulars to para 13 of the Amended Statement of Claim list the invoices incurred by the plaintiff
Plaintiff’s contentions
41 The plaintiff argues the term “any claim” contained in clause 7.2 of the Contract of Sale should be construed as having a broad meaning and does not equate to a valid claim or cause of action. Reliance was made upon the decision in West Wakes Price & Co v Ching[17] per Devlin J at 829 as to the meaning of “claim”:
“I think that the primary meaning of the word ‘claim’ – whether used in a popular sense or in a strict legal sense – is such as to attach to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based. In the Oxford Dictionary ‘claim’ is defined as first, ‘A demand for something as due; an assertion of a right to something’; secondly ‘Right of claiming; right or title (to something or to have, be or do something, also on, upon the person etc that the thing is claimed from)’.”
[17][1956] 3 All ER 821
42 The plaintiff asserts that the claims made by the Allens in respect of the taxation summonses were claims made against Mr Ng as he alone was served as purchaser for acts and omissions of the former practice. This is confirmed by the fact that the invoices sought to be challenged contained invoices issued by the former practice and the former practice was named as the defendant to the application. The named respondent was described as a firm where it is beyond argument that the new practice was never conducted as a partnership and could not be named as a firm.
43 Notwithstanding the decision of Wood AsJ, Mr Ng continued to face claims for acts and omissions of the business prior to settlement. It was said that the evidence of Mr Ng and the documentary evidence, in particular, the letter of 1 February 2010 reveals the true concern of the former clients was the commission invoice and that they were looking to Mr Ng to resolve that issue. The concern about the commission invoice was also reflected in the correspondence from the former clients, including a complaint to the Legal Services Commissioner. The plaintiff noted the Knaggs and the Smiths were not party to the taxation proceedings brought by the Allens and therefore were not bound by the judgment. They were participants at the mediation and entered into the terms of settlement. Although the plaintiff submits they were not bound by the judgment, it is self-evident that had they proceeded to issue a summons for taxation for fees prior to July 2007, then the same outcome would have occurred; namely, an order to the effect that the invoices prior to settlement of the sale of business were not the responsibility of the new practice.
44 The plaintiff also submits the terms of settlement do, in fact, contain a release in relation to the cost disputes concerning the partnership, being the former practice.[18] The short answer to this point is that the former practice was not a party to the deed. The new practice did not have any authority to enter into the Terms on behalf of the former practice and could not bind the former practice to any settlement reached. To the extent that the plaintiff relies upon the name of defendant in the Terms, this was simply the name used in the title of the original summons for taxation. The mere use of the name in the heading does not establish that the former practice was a party to the Terms. By the time the settlement was reached, the clients were prevented from pursuing any claims relating to invoices before July 2007 as a consequence of the decision of Wood AsJ. The release given by the clients was provided to the new practice only, it being the party to the Terms of Settlement.
[18]CB 258, Clause 2
45 The plaintiff contends the indemnity clause is sufficiently wide on its face to include a claim for costs and that there is no ambiguity. In relation to the defendant’s alternative argument that the costs now claimed should not be allowed, the plaintiff noted that this had not been pleaded, and had it been pleaded, estoppel would have been alleged in a reply on the basis that Mr Ng would have settled on different terms. The basis for this argument was that Mrs Kollias had not denied liability and said she would make a contribution.[19] In my view, the correspondence passing between the parties’ solicitors does not support the contentions now made by counsel for the plaintiff. I reject this submission by the plaintiff as it is not factually made out.
[19]T201
46 It is obvious the plaintiff has the onus of proof to show that the indemnity clause is sufficiently broad to encompass costs. The defendant argues, as a matter of construction, the clause does not extend to the costs now claimed. The plaintiff was on notice that the defendant challenged its claim for costs. Paragraphs 9 and 14 of the Defence in particular make that clear. In my view, the fact that the defendant argued the indemnity clause did not extend to the costs claimed was a matter squarely in issue on the pleadings such that the plaintiff cannot be said to have been taken by surprise.
47 The plaintiff submitted an adverse inference ought to be drawn because Mrs Kollias did not give evidence. The basis for this submission appears to be that Mrs Kollias having been on notice of various matters declined to attend the mediation with the clients and that she did not specially deny the indemnity did not cover Mr Ng’s costs.[20] In oral address, the plaintiff’s counsel argued she could have given evidence about the commission invoice and whether she took into account the settlement with Mr Ng when she later settled the clients’ dispute with herself and her daughter. Mrs Kollias was not a lawyer. It is unknown what knowledge she may have had about the commission invoice. Her views as to whether it was legally enforceable would be of no assistance to the Court. Further, the terms of the later settlement can have no relevance to the basis upon which Mr Ng chose to settle his dispute. The only issue is whether in settling his dispute that gave rise to a claim which fell within the indemnity clause. The terms of the settlement reached with Mrs and Ms Kollias at a later date can have no bearing upon that issue. The suggestion seems to be that Mrs Kollias got off lightly in terms of the monetary amount paid compared with Mr Ng. This is entirely speculative and the lesser sum could be readily explainable for a whole host of reasons, not least that Mr Kollias’ estate had already been distributed. Further, in a case which falls to be determined upon the construction of a contractual clause, Mrs Kollias’ views about the efficacy of the indemnity clause is not probative and would be inadmissible in any event. Consequently, I am not prepared to draw any adverse inference about the fact that Mrs Kollias was not called as a witness.
[20]Plaintiff’s written submissions at [13] to [15]
The defendant’s contentions
48 The defendant submits the clause requires the following:
(a)a claim of any subject matter; i.e any claim as made against the plaintiff;
(b)the plaintiff must have suffered loss or harm; and
(c)the loss or harm must be due to acts or omissions of the former legal practice prior to 16 July 2007.
The defendant argues that the payment of $158,000 did not arise in respect of any acts or omissions of the former practice. The obligation to pay the amount arose following a mediation between the plaintiff and the Allens, the Smiths and the Knaggs. The agreement to pay the sum was contained in a Deed of Settlement.[21]
[21]CB 257
49 Between 10 February 2010 and December 2010, the Allens’ taxation proceeding had continued before the Supreme Court for a further nine months following an offer to settle on 10 February 2010.[22] During that further nine months, the parties prepared affidavits of evidence and submissions. They attended an unsuccessful mediation in June 2010, and they appeared at a hearing before Wood AsJ. The defendant says that it can be inferred the Allens incurred substantial legal costs between February and December 2010.
[22]CB 126
50 The defendant notes that she was not a party to the Deed, nor was her daughter. The Deed did not bind the Allens or the other clients in relation to either the defendant or her daughter. This became apparent when, in June 2011, the Allens made a demand of the defendant in respect of invoices issued prior to 16 July 2007.[23] The defendant and Elizabeth Kollias then entered into a separate Deed of Settlement with the Allens in August 2011 for a payment of $25,000.[24] Contrary to what the plaintiff submits, the defendant says the value of the settlement reached was not relevant to the terms on which the plaintiff settled his claim against the Allens. It is self-evident that the plaintiff did not have any authority to bind Brian Kollias or Elizabeth Kollias to the Deed which Mr Ng negotiated.
[23]CB 496
[24]CB 500
51 From November 2009, the plaintiff had a dispute with the Allens about more than $686,000 of the costs charged by the new practice. By June 2010, this dispute rose to more than $1.6 million. On 5 November 2010, one month before the plaintiff settled with the Allens, the Supreme Court determined that the plaintiff was not liable in respect of invoices issued by the new legal practice for work done prior to 16 July 2007. This is confirmed in the orders made by the Court which refer only to the invoices issued by the plaintiff after 16 July 2007.[25] After 5 November 2010, the Allens’ proceeding ceased relating to any acts or omissions by the former legal practice prior to 16 July 2007. When the plaintiff offered to pay the settlement sum in December 2010, he was settling only the exposure that he had, being the fees after 16 July 2007. This was, in effect, a compromise of the dispute which involved $1.6 million of legal fees issued by the new legal practice after 16 July 2007. The defendant says the effect of this is that the plaintiff’s desire to settle on the basis of his own commercial reasons was not something which was caused or resulted from any act or omission of the former legal practice. Consequently, the defendant says it relies on the following points:
[25]CB 226A and 226B
(a)the settlement sum paid by the plaintiff settled a claim made by the Allens in respect of the plaintiff’s acts after 16 July 2007;
(b)the settlement sum did not in fact settle any claim made by the Allens in respect of any acts which occurred prior to 16 July 2007;
(c)the settlement sum could not in law settle any claims made by the Allens in respect of any acts which occurred prior to 16 July 2007 because the Allens would need to issue fresh proceedings against the defendant and others;
(d)the Supreme Court decision of Wood AsJ put the plaintiff and Allens on notice from 5 November 2010 that the plaintiff was not liable for the pre-July 2007 invoices; and
(e)the settlement sum was not covered by the indemnity under Special Condition 7.2.
52 The defendant also made submissions concerning the quantum of costs claimed in addition to the settlement sum. The first point made was that the words “any claims” did not expressly refer to costs incurred by the plaintiff in respect of such claims. The defendant relied upon the principles governing the interpretation of an indemnity clause contained in two High Court authorities; namely, Andar Transport Pty Ltd v Brambles Ltd,[26] and Bofinger and Another v Kingsway Group Ltd.[27] In Bofinger, the High Court stated at [53]:
[26][2004] HCA 28 per Gleeson, McHugh, Gummow, Hayne and Heydon JJ at [17] and [23]
[27][2009] HCA 44
“The settled principle in Australia governing the interpretation of contracts of guarantee and indemnity has been stated by this court in authorities the most recent of which is found in the joint reasons in Andar Transport Pty Ltd v Brambles Ltd. The principle is that a doubt as to the construction of a provision in such a contract should be resolved in favour of the surety or indemnifier.”
The High Court continued at [53]:
“…the doubt may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application.”
53 The defendant noted it would have been open for Mr Ng to have sought to include in Special Condition 7.2 words to the effect that costs were included in respect of any claim. In the absence of a specific reference to costs incurred, the defendant submitted there was an ambiguity as to whether that clause did cover costs. Given the fact that the clause contained no reference to costs, the defendant submitted the construction required that any ambiguity be resolved in favour of the indemnifier – in this case, the defendant.
54 The other point the defendant made was that a number of the costs were incurred in any event by the plaintiff in defending the Allens’ proceedings from the outset. The amended summons issued by the Allens sought an assessment of more than $1.6 million in legal fees charged by the plaintiff. The defendant said the costs which the plaintiff claims in defending the Allens’ proceedings would have been incurred irrespective of the fact that the Allens’ proceeding also claimed approximately $600,000 in costs which predated 16 July 2007. The defendant also argued that, to the extent that it might be suggested there could be some split in defending the work before and after 16 July 2007 in respect of the costs charged, the plaintiff did not provide any evidence of the split, if any, between the costs which he had incurred. The invoices on their face did not distinguish work done which related to before and after 16 July 2007. The defendant argued the onus then rests on the plaintiff to establish the quantum of costs referable to the operation of the indemnity clause and had failed to do so.
55 An alternative argument in respect of costs was that it was clear a number of the invoices related to work done after 16 July 2007; in particular, work concerning invoices dated 19 August 2008 and 24 September 2008. Mr Ng conceded on 2 November 2017 in his evidence that these invoices had nothing to do with the former practice – they were work performed by him. Similarly, in respect of the invoice of 26 July 2010, work was claimed in respect of lien proceedings which were unrelated to anything to do with the proceeding against the Allens. Consequently these invoices should be disallowed from any assessment of costs that may be recoverable. Further costs were said to be not recoverable because they were costs incurred after the decision made by Wood AsJ and these were the invoices at CB 272, 265, 275, 273, and 274.
56 There were further invoices for $10,866.90 and $24,607.90 respectively which were for work done by the new legal practice between 16 November 2009 to 4 December 2012. These fees concerned a period after the decision of Wood AsJ and the mediation on 10 December 2010 when the plaintiff had settled with the Allens. Consequently, these costs were not sums which could fall within the scope of the indemnity.
57 Finally, there was an issue about GST. The plaintiff agreed in his evidence that he was registered for GST and would have claimed the input tax credits, and therefore to the extent of any GST paid on the invoices, the plaintiff is not entitled to recover those and those amounts should be excised from the plaintiff’s claim.
58 Mr Ng agreed he had been able to claim GST input credits and it was conceded that any claims to damages should be net of GST.[28]
[28]T215
59 The defendant also submitted an adverse inference should be made because the plaintiff did not call Mr and Mrs Allen. Under the Jones v Dunkel principle,[29] it is said that the unexplained failure by a party to call a witness in that party’s camp may give rise to an inference that their uncalled evidence would not have assisted the party’s case. Mr Ng gave evidence that the clients were pressuring him to settle the commission invoice. The earlier correspondence from Wisewoulds specifically raises this issue. It was no doubt a cause for concern as evidenced by the fact the issue was later pursued by the clients against Mrs Kollias and her daughter. The Allens were under subpoena but were not called by the plaintiff. Counsel for the plaintiff said a decision was made that their evidence was not necessary for this proceeding.[30] I am inclined to agree with that view in a case which essentially resolves upon the interpretation of the indemnity clause and Mr Ng’s professed reasons for settling, their evidence would not have assisted. Therefore, I do not consider an adverse inference should be made because the Allens were not called to give evidence.
[29]See Cross on Evidence, LexisNexis Butterworths at [1215]
[30]T224
Analysis
60 Mr Ng accepted he was not under any legal liability in respect of the invoices rendered prior to his purchase of the business. This is confirmed in the particulars to paragraph 12 of the Statement of Claim which states “the plaintiff effectively paid the $158,000 to resolve the Allens’ concerns with the commission invoice and the invoices prior to 16 July 2007, notwithstanding these issues not being his technical liability, it being by this stage uncommercial to maintain a continued defence of the Allens’ proceeding”. (Emphasis added)
61 The fact that Mr Ng regarded the liability of the new practice as being entirely separate from the former practice was borne out by the materials filed in the taxation proceeding before Wood AsJ, including Mr Ng’s affidavit of 30 July 2010, written submissions and in correspondence sent by Mr Ng. Further, his counsel conceded at trial that the commission invoice was technically not Mr Ng’s problem as a matter of law.[31]
[31]T194
62 Pursuant to the Contract of Sale, the plaintiff and/or the new practice did not assume responsibility for the liabilities of the former firm. Had the Allens sought to recover the amount of the commission invoice rendered in 2005 on the basis of some alleged breach on the part of the former practice, the defendant to such an action could only have been the partners of the former practice. The decision of Wood AsJ made it clear that if the clients wished to have a review of fees charged before 16 July 2007, which included the commission invoice, these matters had to be the subject of a fresh proceeding. Therefore, although Mr Ng’s evidence was that he was endeavouring to settle claims, which included claims about the commission invoice and the earlier fees, the fact was that he had no legal liability in respect of those sums.
63 Even assuming the commission invoice was the primary motivation for settling with the former clients, it does not follow that the plaintiff was then automatically entitled to seek indemnity from the vendor of the former practice. In my view, the claim had to be one which Mr Ng was under an obligation to pay and not simply a claim in the sense that a mere demand was made. Although the indemnity clause refers to a “claim”, it is axiomatic that the claim has to be one for which the purchaser has an exposure or some obligation to pay before it is entitled to seek recovery from the vendor. In other words, the claim must have some legitimate basis which would warrant the purchaser accepting the claim. Here, the purchaser, Mr Ng, did not have any exposure or obligation at all in respect of the earlier fees, including the commission invoice. Mr Ng stated repeatedly the commission invoice was not his problem prior to the settlement. If he did settle the fees dispute because of this commission invoice then he did so knowing full well it was not his responsibility. In those circumstances, I do not consider he is entitled to call upon the indemnity in respect of a claim for which he acknowledged he had no liability to pay. It would be unreasonable to expect the vendor to indemnify the purchaser for a claim which the purchaser was under no obligation to meet simply because a demand was allegedly made by a third party.
64 Furthermore, I am not satisfied the claim relating to the commission invoice was the driving force for settlement. By that stage, there had been a dispute about the fees rendered by the new practice which totalled $1.6 million. The deal struck was to release the funds held in trust and pay the clients a further $50,000. There is no written evidence to suggest this sum of money was in any way referable to either the commission invoice or other invoices which predated 16 July 2007. The terms of settlement do not refer to these invoices but instead refer in Recital C to settling costs paid and payable to the defendant, namely, the new practice. It must be inferred that in settling the matter, Mr Ng was taking into account the costs claims for which he or his company would be liable; namely, the invoices rendered after he acquired the legal practice. Even if it were accepted that the commission invoice was a factor in the settlement, it was but one of the invoices in dispute, both pre and post settlement of the purchase, such that the entire sum of $158,000 could not be referable solely to the commission invoice. For all these reasons, I am not satisfied the settlement sum is recoverable from the defendant under the indemnity clause.
65 As for the construction point, I am prepared to assume the term “claim” is sufficiently broad enough to extend to legal costs incurred associated with a claim. But I find that the costs claimed are not recoverable in any event. I accept the submissions put by the defendant that the amounts claimed for legal costs are costs which were incurred in any event to defend the taxation proceedings. The claim made upon the indemnity was made for the legal costs incurred by Mr Ng in defending and mediating the taxation proceeding. The costs which he expended were spent successfully arguing that the earlier costs could not be the responsibility of the new practice. Thus any costs he incurred assisted his case in restricting his liability which benefited the new practice as opposed to the former practice.
66 If I am wrong on this point, then there is simply no basis upon which it can be determined that some of the costs claimed are referable to work done in respect of fees claimed prior to 16 July and some thereafter. Although difficulties of assessment is not a barrier to recovery as the plaintiff pointed out, there must still be some evidence before the court to enable it to carry out a calculation. The plaintiff suggested in final addresses that an 80/20 split could be appropriate but this is merely speculative. There is simply no way of determining on the face of the invoices relied upon by the plaintiff, what work if any, can be attributed to work done relating fees pre-July 2007. This aspect of the plaintiff’s claim has not been proved. As the defendant also pointed out in its submissions, a number of the invoices claimed either referred to other work, such as the lien dispute or were clearly for work done relating to fees post July 2007, being the invoices referred to in paragraphs 55 and 56 above. I accept the submissions of the defendant on this point as being correct.
Conclusion
67 In the circumstances, I do not consider Mr Ng’s settlement with the Allens gave rise to a claim pursuant to which the indemnity under clause 7.2 of the Contract of Sale applied. The mere fact of making a “claim” did not, as the plaintiff would have it, mean the indemnity clause automatically came into effect. The nature of the claim has to be analysed to determine whether the plaintiff had some obligation or liability to pay the claim, which I have found he did not.
68 Additionally, I am not satisfied Mr Ng settled with the clients and paid the sum of $158,000 primarily because of the claim made in respect of the commission invoice and invoices predating 16 July 2007. I consider he entered into the settlement for sound commercial reasons to resolve the ongoing claims in respect of the quantum of the fees rendered by HMK Legal Pty Ltd post the acquisition of the legal practice.
69 The costs claimed in defending the taxation proceeding of $80,486.18 are not recoverable under the indemnity clause. I find these are costs which the plaintiff would have incurred in any event. Additionally, there was simply no evidence before the court which could establish a breakup of the fees claimed for any work referable to invoices pre-July 2007, such that an apportionment could be made assuming the plaintiff could recover such costs.
70 Accordingly, the plaintiff’s claim must be dismissed. Subject to hearing from the parties, I propose ordering the plaintiff pay the defendant’s costs of and incidental to the proceeding, including any reserved costs, on the standard basis to be taxed in default of agreement.
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Certificate
I certify that these 24 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 28 February 2018.
Dated: 28 February 2018
Stephen Cremean
Associate to Her Honour Judge A Ryan
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