Schwartz Family Co Pty Ltd v Capitol Carpets Pty Ltd

[2019] NSWSC 238

Supreme Court

New South Wales

Medium Neutral Citation:	Schwartz Family Co Pty Ltd v Capitol Carpets Pty Ltd [2019] NSWSC 238
Hearing dates:	15 February 2019
Date of orders:	08 March 2019
Decision date:	08 March 2019
Jurisdiction:	Common Law
Before:	Wright J
Decision:	(1) A declaration that the amount of costs to which the defendant, Capitol Carpets Pty Ltd, is entitled under both: (a) the orders relating to the costs of the appeal to the Supreme Court and costs of the Local Court proceedings made by McCallum J in proceeding number 2015/351848 on 16 December 2016; and (b) the order concerning the costs of the application for leave to appeal made by the Court of Appeal in proceeding number 2016/383377 on 8 September 2017, is $97,500, as agreed between the defendant and the plaintiff, Schwartz Family Co Pty Ltd.  (2) An order that the parties have liberty to apply.
Catchwords:	CONTRACTS – mistake – agreement as to amount of costs to be paid under orders for costs “as agreed or assessed” – where party in whose favour costs were awarded was under a mistake as to the total amount of costs incurred – agreed amount of costs paid “in full and final settlement” – whether common mistake or unilateral mistake – no unconscionable conduct and no sharp practice – no other basis for equitable intervention – agreement not liable to be set aside – relief not refused on discretionary grounds
Cases Cited:	Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 Barnes v Addy (1874) LR 9 Ch App 244 Bartlett v Coomber & Anor [2008] NSWCA 100 Blackley Investments Pty Ltd v Burnie City Council (No 2) (2011) 21 Tas R 98; [2011] TASFC 6 Eroc Pty Ltd v Amalg Resources NL [2003] QSC 074 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91 Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555 Lerama Pty Ltd v Wortho Pty Ltd [2008] NSWSC 1307 Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79 Mohamed v Farah [2004] NSWSC 482 Rees v Rees [2016] VSC 452 Solle v Butcher [1950] 1 KB 671 Svanosio v McNamara (1956) 96 CLR 186; [1956] HCA 55 Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5 Tutt v Doyle (1997) 42 NSWLR 10 Westpork Pty Ltd v Bio-Organics Pty Ltd [2018] WASC 291
Texts Cited:	On Equity (Young P, Croft C and Smith M, 2009, Lawbook Co)
Category:	Principal judgment
Parties:	Schwartz Family Co Pty Ltd (Plaintiff) Capitol Carpets Pty Ltd (Defendant)
Representation:	Counsel: Mr J Sleight with Mr C Mulvey (Plaintiff) Ms J Granger (Defendant)   Solicitors: Neville Hourn & Borg Legal (Plaintiff) Somerville Legal (Defendant)
File Number(s):	2018/227491

Judgment

1. By an amended summons filed on 21 November 2018 the plaintiff, Schwartz Family Co Pty Ltd (Schwartz), seeks:

1. a declaration that it has agreed the costs of the defendant, Capitol Carpets Pty Ltd (Capitol), in respect of costs orders in certain proceedings, at $97,500; or, in the alternative, a declaration that there has been an accord and satisfaction in respect of Capitol’s entitlement to costs under those orders;

2. an injunction to restrain Capitol from making or prosecuting an application for an assessment of the costs under those orders;

3. costs.

2. Capitol opposed the making of those orders on the basis that any contract in relation to the amount of the costs was vitiated by mistake, either unilateral or common, or on the basis that the court should not lend its aid to enforcing any such contract in the circumstances.

3. For the reasons set out below, I have decided that a declaration should be made concerning the agreement reached as to costs.

Background

The costs orders

4. At the end of litigation that commenced in the Local Court, and involved an appeal from the Local Court’s judgment to the Supreme Court and an unsuccessful application for leave to appeal in the Court of Appeal, Schwartz was ordered to pay Capitol’s costs by the following orders:

1. the order of the Court of Appeal of 8 September 2017 in proceedings 2016/383377 that “[Schwartz] pay [Capitol’s] costs as agreed or assessed”;

2. the orders of the Supreme Court of 16 December 2016 in proceedings 2015/351848 that Schwartz pay:

1. “[Capitol’s] costs of the appeal [from the Local Court to the Supreme Court]”; and

2. “[Capitol’s] costs of the Local Court Proceedings No 2014/202498.”

5. It was not in dispute that the costs that Schwartz was required to pay were the costs of those proceedings as agreed or, in the absence of agreement, as assessed.

The parties’ legal representation during the litigation

6. Between 12 September 2013 and 18 March 2016, Capitol retained Chamos Legal Pty Ltd (Chamos Legal) to act on its behalf in relation to a dispute between Schwartz and Capitol concerning defective carpet installation. The dispute was initially the subject of:

1. Local Court proceedings (2014/202498) brought by Schwartz against Capitol; and

2. Capitol’s appeal against the Local Court judgment in the Supreme Court (2015/351848).

7. In these proceedings, Chamos Legal briefed Mr Southwick as counsel for Capitol.

8. Chamos Legal provided to Mr Doherty, the director of Capitol, estimates of costs of $45,000-$65,000 (excluding GST) for the Local Court proceedings and $12,000-$18,000 (excluding GST) for the Supreme Court proceedings. On the evidence, it is not clear when these estimates were given or whether they included counsel’s fees and expert witness expenses. The amount of costs actually incurred in these proceedings by Capitol, including counsel’s fees and expert witness expenses, exceeded the estimates.

9. In the Local Court, Schwartz was successful and obtained judgment for $53,000 against Capitol.

10. Capitol appealed to the Supreme Court against that judgment. That appeal was heard on 17 March 2016 and judgment was given on 14 December 2016. Capitol was successful on this appeal and the judgment of the Local Court was set aside and the Supreme Court made the costs order set out above.

11. In late 2016, Schwartz applied to the Court of Appeal for leave to appeal against the Supreme Court’s decision.

12. Mr Doherty was engaged in what he described as an “ongoing dispute about costs” with Chamos Legal up until March 2017.

13. From March 2017, Capitol retained Somerville Legal Pty Ltd (Somerville Legal) to act on its behalf in the Court of Appeal proceedings (2016/383377). Somerville Legal briefed counsel in those proceedings.

14. Throughout the course of the litigation, Schwartz was represented by Neville Hourn and Borg Legal (NHB), also known formerly as Neville and Hourn Legal, and by counsel.

15. On 8 September 2017, the Court of Appeal refused Schwartz’s application for leave to appeal and made the other costs order referred to above. This brought the substantive part of the litigation to an end.

Capitol’s understanding of its legal costs

16. Evidence was given by Ms Tran, the solicitor from Somerville Legal with carriage of Capitol’s matter, and Mr Doherty, the director of Capitol. Neither of them was required for cross examination. While I accept their evidence as a genuine attempt truthfully to recount what occurred and their thought processes at the relevant times, some aspects are difficult to understand. These difficulties are referred to below.

17. On 8 September 2017, Ms Tran provided a copy of the Court of Appeal’s judgement by email to Mr Doherty. In that email, she also asked him to provide her with all his “invoices from the Local Court and Supreme Court matters”.

18. By an email of 15 September 2017, Mr Doherty informed Ms Tran that he was having problems trying to reconcile the invoices from Chamos Legal with deposits into the relevant business account but he hoped to have that matter sorted out during the following weekend.

19. On 22 September 2017, Ms Tran met with Mr Doherty to discuss recovering Capitol’s costs from Schwartz and to start resolving Capitol’s costs disputes with Chamos Legal. On this occasion, Mr Doherty provided to Ms Tran:

1. eight invoices to Capitol from Chamos Legal in respect of the Local Court proceedings, totalling $64,713.94 (being for “professional fees” “plus incurred expenses”);

2. two invoices to Capitol from Chamos Legal in respect of the Supreme Court appeal, totalling $30,734.38 (once again being for “professional fees” “plus incurred expenses”);

3. two Chamos Legal “statements”, headed “Re: Dispute with Schwartz Family Co. Pty Ltd /Mercure Hotel”: one “As At: 22/12/2016” covering the period from 31 October 2013 to 5 April 2016; and another “As At: 17/01/2017” covering the period from 31 October 2013 to 17 January 2017. The latter, more complete statement contained debit items described as “Costs + Disbursements” or “Costs” or “Disbursements”, corresponding to the 10 invoices from Chamos Legal referred to above, totalling $95,447.72, and credit items described as payments totalling $83,460.02. Mr Doherty’s evidence (at par 27 of his affidavit) was that Chamos Legal agreed to write off the balance of $11,987.70;

4. a letter from Chamos Legal to Capitol dated 17 January 2017, headed in part “RE: dispute with Schwartz Family Co. Pty Ltd/Mercure Hotel”, which contained what was described as a “Trust Statement of Matter No. 288”, being a schedule of “Debit Payments”, “Credit Receipts” and “Balance” for the period from 12 September 2013 to 17 January 2017. This indicated that $135,898.50 had been both credited to and debited from Chamos Legal’s trust account in relation to Capitol’s proceedings against Schwartz. The amounts credited included $12,595.04 from NHB, being part repayment of the Local Court judgment debt, $30,000, which was a refund of the amount paid by Capitol into court as security for costs in the Supreme Court proceedings, and $334.21 being interest on that latter amount. The “Debit” entries totalling $135,898.50 included only payments of Chamos Legal’s invoices or counsel’s invoices. The letter explained as follows:

“In accordance with the requirements of the Legal Profession Act and Regulations (Trust Money and Trust Accounts) we submit particulars of monies received into, paid out of, and held in our trust account on your behalf”;

5. two tax invoices dated 18 February 2016 and 22 March 2016, from Mr Southwick for counsel’s fees relating to the Supreme Court appeal, of $9,900 and $9,000, respectively;

6. two documents headed “Mark Southwick Matter Financial Details as at 16/12/2016”, one in respect of the Local Court proceedings and one in respect of the Supreme Court appeal. The document relating to the Local Court proceedings contained entries that totalled $46,425 for Mr Southwick’s invoices and indicated that these had been paid by Chamos Legal. The entries in the document relating to the Supreme Court appeal totalled $21,825 for Mr Southwick’s invoices and, as at 16 December 2016, $13,086.33 was recorded as remaining outstanding.

20. These documents establish that, for the Local Court proceedings and the Supreme Court appeal:

1. Chamos Legal’s invoiced amounts totalled $95,448.32;

2. Counsel’s invoiced amounts totalled $68,250.00.

21. Mr Doherty says that, at this time, he believed the total amount that he had paid to Chamos Legal was $109,056.52. Mr Doherty’s evidence was that this figure did not, however, take into account other sums paid by Capitol and refunded or paid directly to Chamos Legal, namely:

1. the $30,000 originally paid into court as security for costs of the Supreme Court appeal;

2. the $334.21 interest earned on the money paid into court; and

3. the $12,595.04 being part of the Local Court judgment debt repaid by Schwartz.

22. Mr Doherty also noted that his figure of $109,056 did not take into account $9,450 paid to the expert or $11,987.70 that Chamos Legal wrote off (referred to above).

23. Mr Doherty said, at par 24 of his affidavit, that as he only had two invoices from Blackstone Chambers, which were Mr Southwick’s chambers, he assumed that the barrister’s fees were included in the Chamos Legal invoices. Although Mr Doherty was not cross examined on this evidence or at all, it is difficult to understand why he made that assumption. Prior to the meeting, he apparently took time to consider the material he gave to Ms Tran. None of the Chamos Legal invoices referred to or included any amounts for counsel’s fees. Further, it can be inferred from his evidence that Mr Doherty had read the material sufficiently to identify that there were “only … two invoices” from Mr Southwick and he knew that these did not account for all of the amounts charged by Mr Southwick. In any event, the two documents headed “Mark Southwick Matter Financial Details as at 16/12/2016”, which Mr Doherty brought to the meeting, made that clear.

24. At the meeting on 22 September 2017, Ms Tran added up the Chamos Legal invoices to be $95,448.32, which was arithmetically correct, and informed Mr Doherty of those costs.

25. Ms Tran’s evidence, at par 5(c) of her second affidavit was that then, “by mistake”, she:

“did not add the invoices appearing on Blackstone Chambers’ ledgers because Mr Doherty only had a copy of two of them, and adding them provided me with a total of about $172,445.32 which on its face appeared to be incorrect for two reasons. Firstly, it did not appear correct that Local Court and Supreme Court proceedings would cost that much. Secondly, that amount far exceeded what Mr Doherty instructed me he had paid to Chamos Legal.”

26. In order to have arrived at a total of $172,445.32, Ms Tran must have thought that counsel’s fees as recorded in the “ledgers” amounted to something close to $77,000 ($172,445.32 less $95,448.32, the total of the Chamos Legal invoices). (A review of the ledgers referred to establishes that counsel’s fees actually totalled $68,250. The remaining approximately $9,000 may reflect an approximation of the amount of the expert expenses Mr Doherty said had been paid.) It is not clear whether Mr Doherty informed Ms Tran at that time that Chamos Legal had written off $11,987.70 from the amounts it invoiced. If so, it could have been calculated that, if counsel’s fees and the other expenses were included in Chamos Legal’s invoices, those solicitors would have received only approximately $6,000, after the write off, for their professional services in relation to Capitol’s dispute with Schwartz which were provided before and in the course of the Local Court and of the Supreme Court proceedings.

27. Ms Tran also informed Mr Doherty at the meeting that Somerville Legal’s costs were $25,539.44 in total. This figure did include counsel’s fees, in accordance with Somerville Legal’s usual practice.

28. It is arithmetically correct that Capitol’s solicitors’ invoiced fees and expenses totalled $120,987.76, comprising:

1. $95,448.32 (not including counsel’s fees and expert expenses) for the Local Court proceedings and the Supreme Court appeal invoiced by Chamos Legal; and

2. $25,539.44 (including counsel’s fees) for the leave application in the Court of Appeal invoiced by Somerville Legal.

29. Mr Doherty’s evidence was then that “[p]roceeding on this basis, I instructed Ms Tran to make an offer of $108,888.98 representing what I understood to be a 10% compromise of my total legal costs.” From the percentage referred to, “this basis” appears to be that Capitol’s costs totalled $120,987.76.

30. Although it is somewhat difficult to understand how Mr Doherty and Ms Tran formed the views that they did, given the information available to them, I accept that they did form those views. This is because they acted upon them in negotiating and reaching agreement with Schwartz, and because doing so was contrary to Capitol’s interests in that Capitol claimed less than it might have been entitled to claim.

The solicitors negotiate a resolution

31. On 3 October 2017, Somerville Legal sent a letter by email to Ms Murtanovski of NHB, who apparently had carriage of the proceedings up to that point. After referring to the relevant costs orders, the letter continued:

“In the course of each of these proceedings, our client has incurred costs in the amount of $120,987.76. We enclose invoices for your reference.

In an attempt to amicably resolve this, without the need for going to cost assessment, we are instructed that our client will accept the amount of $108,888.98. The offer is made as a true compromise and is made pursuant to the principles enunciated in Calderbank v Calderbank [1976] Fam 93.

This offer will remain open for acceptance until close of business 10 October 2017. Should your client accept our client’s offer, this amount will be required to be paid within 14 days of this letter.

Should your client not accept this offer, we are instructed to commence the cost assessment process without further notice.”

32. Accompanying that letter were the tax invoices from Chamos Legal and Somerville Legal.

33. Ms Murtanovski forwarded the email, to which the letter of 3 October 2017 was attached, to representatives of Schwartz. Mr Hourn, another lawyer director of NHB, was copied in on that email. It appears that Mr Hourn was responsible for dealing with Schwartz in relation to the costs issue.

34. Mr Hourn gave evidence that at that time he did not undertake a review of the enclosed invoices nor did he discuss their contents with the representatives of Schwartz.

35. Mr Hourn was cross examined on this and other matters. He had been a solicitor for approximately 20 years and was the lead litigation solicitor for his firm for over 10 years. I accept Mr Hourn’s evidence that he did not review the invoices attached to Somerville Legal’s letter at that time. He explained that if review is required in this sort of case, his practice is to engage expert assessors to go through the bills. I also accept that Mr Hourn did not think or suspect that, nor would it have been obvious to a reasonable solicitor that:

1. the costs of $120,987.76 said to have been incurred were low for this kind of matter; or

2. counsel’s fees were not included in that amount.

36. I find support for these conclusions from a number of matters in addition to Mr Hourn’s evidence. Ms Tran’s evidence was that she thought that a total of about $172,445.32 for the Local Court proceedings and the Supreme Court appeal was incorrect, on the basis that it seemed too high. She implicitly accepted that $120,987.76 was not so low that it was obviously an error or that it obviously did not include counsel’s fees. In addition, Schwartz’s solicitors invoiced Schwartz $143,636.06 for fees and expenses (including counsel’s fees) for the Local Court proceedings and the Supreme Court appeal. This figure is not an order of magnitude different from either the $120,987.76 which was originally claimed on Capitol’s behalf or $198,687.76, being Capitol’s costs including counsel’s fees and expert expenses of $77,700.

37. Taking into account these matters and the circumstances of the proceedings, including the fact that the amount originally recovered in the Local Court proceedings was only $53,000, I am satisfied that the representation in Somerville Legal’s letter that “[i]n the course of each of these proceedings, our client has incurred costs in the amount of $120,987.76” was not so wrong as to bespeak an obvious mistake.

38. Mr Hourn was also asked questions about his experience as to what proportion of solicitor client costs are typically recovered when costs are assessed. His evidence was confused. When asked what the range of recovery would be, the following evidence was given:

“A. Well, I, people say 60 to 70 per cent but I always think it lands at about 20 to 25, to be honest.

Q. So you are telling the Court that in your experience parties recover 20 to 25 per cent of their legal costs when they are successful?

A. Total costs, yes. Because you've got to take into account the disbursements. So the bill might be 100,000, for instance, the solicitor's costs might be 60, so you might 60 to 70 per cent of that and 100 per cent of disbursements, experts, etc.

Q. So you appreciate if you get 60 to 70 per cent of solicitor's costs and 100 per cent of disbursement costs that you would get in total more than 20 to 25 per cent?

A. Sometimes - no, no, of the total bill. Still the same over the total bill.

Q. Just so I am clear, you are telling the Court that you were likely to recover 60 to 70 per cent of solicitor costs, 100 per cent of counsel's costs but that overall the recovery would be 20 to 25 per cent. Is that what you are telling the court?

A. Yes.”

39. The evidence appears not to make sense. I believe that what occurred was that, in the stressful situation of giving evidence, Mr Hourn confused the percentage recoverable with the percentage that was irrecoverable. His example of a bill for $100,000 indicates that the irrecoverable, as opposed to recoverable, percentage would be in the order of 20-25%. In other regards, I accept Mr Hourn’s evidence.

40. Finally, it should be noted that Ms Granger of counsel, who appeared for Capitol, expressly disavowed that Mr Hourn engaged in any sharp practice in relation to the negotiation of the agreement concerning costs.

41. On 9 October 2017, Mr Hourn sent an email to the Schwartz representatives, copied to Ms Murtanovski, as follows:

“I suggest you make an offer of 75% of their costs being $90,740.82 to resolve the costs issue.

It is a disappointing result considering you were successful at first instance and the delay in obtaining the judgment, however I believe you should seek to commercially resolve the costs issue asap.”

42. On 17 October 2017, NHB sent by email to Somerville Legal a letter, which referred to Somerville Legal’s letter of 3 October 2017 and noted that they had indicated their client had incurred costs in the amount of $120,987.76. NHB’s letter continued:

“In an attempt to commercially resolve this, without the need for going to cost assessment, we are instructed that our client will pay the amount of $90,740.82 in full and final settlement of all costs, payable in 7 days, this represents 75% of your client’s incurred fees which in our view is a reasonable settlement offer.”

43. On 18 October 2017, Somerville Legal responded to NHB. After referring to the letter of 17 October 2017, Somerville Legal said:

“On assessment, it is unlikely that our client’s disbursements will be assessed to 75%. It is more likely that they will receive 100% of their disbursements. On that basis, your offer is rejected.

In an attempt to amicably resolve this, without the need for going to cost assessment, we are instructed that our client will accept $100,000 in full and final settlement of all costs.

….”

44. On 24 October 2017, by email, NHB made a counter offer of “$95,000 in full and final settlement”.

45. Ms Tran referred the email to Capitol and provided advice concerning Capitol’s costs. In her email of 24 October 2017, after referring to NHB’s email, she said:

“[Schwartz] have made a counter-offer to pay $95,000.00 for your costs.

I remind you that your total costs for the Local Court, Supreme Court and Court of Appeal proceedings were $120,987.76. Of this, your costs were $96,812.68 and your disbursements (including barristers fees) were $24,175.08. At costs assessment, your costs would usually be read down to about 75% being $72,609.51 and you would get close to 100% of your disbursements.

On this basis, I estimate that you would get about $96,784.59 on assessment. In practice, it may be a little more or a little less.

Moving forward, you may either except their offer to pay $95,000.00 in settlement of your costs, or we can make a counter offer to accept $97,500.00.

Please let me know how you would like to proceed.”

46. There was no cross examination on this topic or any other aspect of Ms Tran’s evidence. I have difficulty understanding how the figures in this email were calculated. In order to be able to separate “costs” (solicitors’ professional fees), from “disbursements (including barristers’ fees)”, a detailed review of the invoices from Chamos Legal and Somerville Legal would have to be undertaken. If this was done, it would have revealed to Somerville Legal that Mr Southwick’s fees and the expert’s expenses were not included in the Chamos Legal invoices. Once aware of this, Somerville Legal could have corrected the amount of costs it was claiming before any agreement was reached. The evidence did not reveal how the figures in Ms Tran’s email were calculated and why she did not, at this point, realise what the correct position was.

47. On 27 October 2017, Somerville Legal emailed NHB in the following terms:

“We refer to your email of 24 October 2017 and reject your offer therein.

We are instructed to make an offer to accept $97,500.00 in full and final settlement of our client’s costs.

This offer is open for acceptance until close of business 3 November 2017, with the amount to be paid within 14 days of this email.”

48. The deadline of 3 November 2017 passed without the offer being accepted.

49. On 6 November 2017, NHB sent an email to Somerville Legal in the following terms:

“Please be advised we are instructed to accept your clients offer.”

50. On the same day, approximately 10 minutes after the NHB email was sent, Somerville Legal responded by email in the following terms:

“In accordance with our email of 27 October 2017, we require payment to be made by 10 November 2017. Please make payment into our trust account as follows [details of the trust account and the relevant reference were provided]”.

51. Even if the purported acceptance by NHB was in effect a further offer, because that “acceptance” was outside the timeframe for acceptance in Somerville Legal’s email of 27 October 2017, that further offer was implicitly accepted by Somerville Legal’s response requiring payment by 10 November 2017.

52. On 10 November 2017, Somerville Legal received in its trust account $97,500 from Schwartz.

53. Subject to any issues relating to mistake, there was a binding contract entered into between Schwartz and Capitol that Schwartz would pay $97,500 in full and final settlement of Capitol’s entitlement to costs under the relevant orders. That contract was fully performed when Schwartz paid the specified sum in accordance with Somerville Legal’s directions.

Further costs sought

54. On 15 January 2018, NHB received by email a letter from Somerville Legal in the following terms:

“We refer to our agreement on 6 November 2017 to accept $97,500.00 in full and final settlement of our clients costs (“the Agreement”).

Due to our client being involved in an ongoing dispute with his former solicitors, Chamos Legal, which remains unresolved, we have never received a full copy of our client’s file from Chamos Legal. Accordingly, it has been unknown to us the amount of work that has been involved in preparing for the Local Court proceedings and the Supreme Court appeal.

We have discovered that while counsel in the Local Court and Supreme Court proceedings, Mark Southwick, with whom you are familiar, has invoiced Chamos Legal for acting in the proceedings, Chamos Legal did not invoice our client for those costs. Despite this, our client has still paid for Mr Southwick’s costs by paying Chamos Legal those costs without having been invoiced.

Consequently, the sum total in the amount of $120,987.76 provided to you in our letter of 3 October 2017 was incorrect. When we were compiling our client’s costs, and when we began negotiating our client’s costs, we inadvertently omitted $77,700.00 worth of our client’s costs. In fact, our client has actually incurred costs in the total amount of $198,687.76 in the course of these proceedings. We enclose the omitted invoices for your reference.

We refer to our email of 3 October 2017. Upon reviewing the attachments to that email, it is clear that our client’s counsel and expert fees were excluded. As you have been involved in these proceedings since their initiation in the Local Court and knew that our client had engaged a barrister and an expert in the earlier proceedings, it is reasonable to assume that you ought to have known that these invoices were missing and that your client was obtaining a significant benefit from this mistake.

Without having been involved in any of the earlier proceedings, we had no reason to suspect that our client’s former solicitor’s costs in the order of $95,448.32 were uncharacteristically low, and were in fact missing counsel’s costs, particularly where our costs (including both junior and senior counsel’s fees) amounted to $25,539.44.

…

We trust that it will not be in dispute that the figure of $120,987.76 (which both parties relied on as a starting point for negotiating settlement of our client’s costs) did not include our client’s counsel fees and expert’s fees by mistake, and that this mistake undermines the validity of the Agreement.

The parties should have begun negotiating at a figure of $198,687.76. As these omitted costs are disbursements, we remind you that our client is entitled to almost 100% of these costs.

In the light of the circumstances, we are instructed that our client will accept $66,000 in full and final settlement of its counsel’s fees and expert’s fees from the Local Court and Supreme Court proceedings in this matter. We note that this sum is significantly less than your client would have had to pay on assessment and if the matter of costs been negotiated without the operation of the mistake from the outset.

If this offer is not accepted, we hold instructions to initiate proceedings and seek a declaration that the agreement is void ab initio, or alternatively, to seek relief in equity.

… ”

55. It can be noted that the sum of $77,700 referred to in that letter corresponds approximately with the amount that Ms Tran must have added to the total of the Chamos Legal invoices, $95,448.32, to arrive at a total of $172,445.32, on 22 September 2017, as referred to in par 5(c) of her second affidavit. It thus appears that Ms Tran had the relevant information concerning counsel’s fees and the expert’s expenses at the time of her meeting with Mr Doherty on 22 September 2017. However, because she thought the figure of $172,445.32 was incorrect, for the reasons she explained (which have been quoted above), she did not proceed to negotiate a settlement of Capitol’s cost entitlement on that basis.

56. On 26 February 2018, NHB received a further letter from Somerville Legal, extending the deadline for acceptance of the offer of $66,000, from 22 January to 2 March 2018.

57. On 5 March 2018, NHB emailed Somerville Legal, rejecting the offer and noting that there was “clearly no ‘Common or Unilateral mistake.’” The email continued:

“As you are no doubt aware, offers were put by both parties and counteroffers made and finally a settlement sum accepted ‘in full and final’ settlement.

The final settlement was made in good faith relying on the offer made by your client and accepted by our client? [sic]

…”

58. On 4 July 2018, Somerville Legal wrote a letter to NHB, enclosing “by way of service, an application for assessment of party/party costs in respect of the costs order in favour of our client.”

59. The form application enclosed with the letter noted, at pars 3 and 4:

“3. The amount of costs in dispute is the costs of the following services totalling the sum of $232,024.82.

4. The sum of $97,500.00 has been paid.”

The present application

60. By an amended summons filed on 21 November 2018, Schwartz seeks the following relief:

“1 A declaration that pursuant to the orders of this court in proceeding number 2015/351848 on the 16th December 2016 and in proceeding number 2016/383377 on the 8 September 2017 and, the plaintiff has agreed the defendant’s costs at $97,500.

2 In the alternative to 1, declaration there has been an accord and satisfaction of the defendant’s entitlement to costs pursuant to the order of this court made in [those proceedings on those dates].

3 An order that defendant be enjoined from making or prosecuting an application for assessment of the costs pursuant to order of this court [in those proceedings on those dates].

4 Costs.”

61. Capitol opposed the granting of such relief on the basis that it had been “labouring under a fundamental mistake” in negotiating the settlement offer. While Capitol did not dispute that there was a concluded agreement between the parties, its submission was that the agreement had been entered into under a fundamental mistake and should be set aside or not enforced.

62. Despite contending that the agreement should be set aside, Capitol did not file any cross summons seeking such relief. In these circumstances, the Court permitted Capitol to provide to the Court and to Schwartz, after the conclusion of the oral hearing, a proposed form of cross summons together with short written submissions as to whether it should be granted leave to file a cross summons, should it become necessary to consider such a step. Schwartz was permitted to file short written submissions in reply.

The issues for determination

63. It was not in dispute that there was a concluded agreement between the parties or that Schwartz had performed its side of the bargain by paying $97,500 in accordance with the agreement. The agreement was fully executed and nothing more remains to be performed under it.

64. The only issues for determination are, in effect, the contentions raised by Capitol. These were articulated in written and oral submissions and can be distilled into the following:

1. Was the agreement affected by unilateral mistake and liable to be set aside in the circumstances?

2. Was the agreement affected by common mistake and thus liable to be set aside?

3. Should declaratory relief be refused on the discretionary basis that to grant such relief would be inconsistent with the interests of justice?

Unilateral mistake

65. The relevant unilateral mistake identified by Capitol was that it, through its director or solicitors or both, was labouring under the belief that it had incurred costs of only $120,987.76; whereas, in fact, its costs totalled $198,687.76, when counsel’s fees and experts’ expenses of $77,700 were included.

66. Capitol contended, in substance, that it was entitled in equity to an order rescinding or setting aside the agreement because:

1. Capitol had entered into the agreement under that mistake; and

2. Schwartz, through its solicitors, was aware that circumstances existed which indicated that Capitol was entering into the agreement under that mistake; and

3. it would be unconscionable if Schwartz were allowed to enforce or rely upon the agreement entered into in the circumstances.

67. The applicable principle, stated broadly, is that where there is an operative unilateral mistake, the contract generally exists at law, but is voidable in equity if one party knew of the other’s mistake, and took unconscientious advantage of the mistake in entering the contract: On Equity (Young P, Croft C and Smith M, 2009, Lawbook Co) at 342, citing principally Taylor v Johnson (1983) 151 CLR 422 at 432; [1983] HCA 5.

68. In Taylor v Johnson, the High Court said (at 432-3):

“The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or the subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of the mistake or misapprehension.”

69. As the introductory words to the passage quoted indicate, the High Court’s statement should not be taken to be exhaustive as to the circumstances in which the conduct of the non-mistaken party may entitle the mistaken party to relief: Tutt v Doyle (1997) 42 NSWLR 10 at 14; Blackley Investments Pty Ltd v Burnie City Council (No 2) (2011) 21 Tas R 98 at [10]; [2011] TASFC 6.

70. The real question involved in such cases is whether it is unconscionable for one party knowingly to take advantage of another party’s mistake: Tutt v Doyle at 12 and 14.

71. Applying these principles, I reject Capitol’s contention that it is entitled to an order rescinding or setting aside the agreement on the basis of unilateral mistake for a number of reasons.

72. First, the mistake under which Capitol laboured was not a mistake of the type that would attract the intervention of equity to rescind the agreement.

73. The High Court, in the passage from Taylor v Johnson quoted above, described the relevant type of mistake as “a serious mistake about [the agreement’s] contents in relation to a fundamental term”. In that case, the mistake was that the grantor of an option believed that the price in question was $15,000 per acre (for two lots of approximately 5 acres each), whereas the contract actually provided that the price was $15,000 in total. This was clearly a serious mistake about the contents of the contract in relation to the price to be paid.

74. Blow J (with whom Evans and Wood JJ in the Full Court of the Supreme Court of Tasmania agreed) observed in Blackley Investments Pty Ltd at [13] as follows:

“13 The reported cases as to the availability of rescission for unilateral mistake all appear to relate to essential or fundamental aspects of the contracts in question. Garrard v Frankel (1862) 30 Beav 445, 54 ER 961 concerned a substantial mistake by a lessor as to the annual rent for a property. Harris v Pepperell (1867) LR 5 Eq 1 concerned a mistake as to what land was included in a conveyance. Torrance v Bolton (1872) LR 8 Ch App 118 related to a mistaken belief that a contract was for the purchase of a freehold interest in land, not an equity of redemption. Bloomer v Spittle (1872) LR 13 Eq 427 concerned a mistaken belief by a purchaser that a conveyance of land to him did not provide for a reservation of minerals to the vendor. Paget v Marshall (1884) 28 Ch D 255 concerned a mistake as to whether the first floor of a particular building was included in a lease. Tutt v Doyle (1997) 42 NSWLR 10 concerned a transfer to two purchasers of more land than they contracted to purchase. There do not appear to be any reported cases in which rescission was ordered because of a mistake as to the terms of a contract falling outside the description used in Taylor v Johnson, namely ‘a serious mistake about its contents in relation to a fundamental term’.”

75. In the present case, there was no mistake as to the identity of the contracting parties or as to the terms of the agreement reached between them. Schwartz was to pay $97,500 to Capitol. It was to be paid by 10 November 2017 into Somerville Legal’s trust account. The payment of that amount was to be in full and final settlement of Capitol’s entitlement to costs under the relevant costs orders against Schwartz. The mistake as to the amount of solicitor/client costs that Capitol might be entitled to claim on assessment did not relate to any term of the agreement or its content or legal effect. Capitol’s mistake only concerned the basis upon which it negotiated the agreement not the terms of the agreement. I do not accept that such a mistake amounts to “a serious mistake about [the agreement’s] contents in relation to a fundamental term” as described in Taylor v Johnson.

76. Secondly, equity will generally only intervene to order the rescission of a contract for unilateral mistake, if the non-mistaken party knew or was aware that circumstances existed which indicated that the mistaken party was entering the contract under the mistake.

77. Ms Granger submitted that Mr Hourn had “knowledge of circumstances which would indicate … to an honest and reasonable person” that Capitol was mistaken and this was sufficient to establish Schwartz’s knowledge of the mistake in the present case. In this, she was relying on the fourth of the well-known categories of knowledge identified in Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 at 575-576, 582. The High Court held in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [174]-[176]; [2007] HCA 22 that knowledge falling within the fourth category is sufficient “knowledge” for the purposes of the second limb of the rule in Barnes v Addy, (1874) LR 9 Ch App 244 at 251-2. It has also been accepted that the fourth category of knowledge may be sufficient to found relief in equity in cases of unilateral mistake in Eroc Pty Ltd v Amalg Resources NL [2003] QSC 074 at [50]-[57]. Consequently, for the purpose of considering this submission, I accept that knowledge within the fourth Baden category is sufficient for the purposes of determining whether a non-mistaken party has knowledge of the mistaken party’s mistake so as to provide a foundation for equity’s intervention by way of rescission.

75. Capitol submitted that the relevant circumstances, of which Mr Hourn was aware and which would have indicated to an honest and reasonable person that Capitol was mistaken as to the amount of costs incurred, were: that costs of approximately $120,000 were low for a matter of this type; that each of the invoices issued by Chamos Legal did not include counsel's fees; that it was obvious on a review of the invoices that counsel's fees were not included; and that NHB had been involved as solicitors for the defendant throughout the proceedings and knew that Capitol had briefed counsel to appear at each stage.

76. The difficulty for Capitol in this regard is that the evidence does not support the conclusion that Mr Hourn was aware of those circumstances, apart from possibly in relation to the involvement of counsel for Capitol at every stage. Mr Hourn did not review the invoices attached to Somerville Legal’s letter of 3 October 2017 at that time. Mr Hourn was not aware that a substantial portion of counsel’s fees was not included in the amount referred to in the letter. He took at face value the claim that costs of $120,987.76 had been incurred and there was nothing unreasonable or dishonest in doing so. I accept it did not appear to him that such an amount was low for such a matter. Nor did the evidence before me establish that such an amount was in fact low in the circumstances or would have indicated that there must have been some mistake on the part the of Somerville Legal or Capitol.

77. In these circumstances, Capitol has not established that Schwartz, through Mr Hourn, had knowledge of circumstances which would indicate to an honest and reasonable person that Capitol was mistaken as to the actual amount of costs incurred. Nor has it been otherwise established that Schwartz had knowledge of Capitol’s mistake.

78. Thirdly, it does not appear to me that Mr Hourn or Schwartz acted unconscionably in the circumstances so as to justify equity’s intervention. Neither Mr Hourn nor Schwartz took any steps to create the mistaken belief. They did not actively encourage Capitol in any mistaken belief. They did not knowingly take advantage of the mistake by entering into the agreement quickly before Capitol realised. Indeed, it can be noted that NHB let Somerville Legal’s offer to settle for $97,500 lapse by not accepting within the stipulated time. Capitol conceded that Mr Hourn did not engage in any sharp practice.

79. It has been held that recognising that there is a mistake and merely remaining silent and entering into the agreement can be sufficient to justify rescission on the ground of unconscionability in cases of unilateral mistake: Westpork Pty Ltd v Bio-Organics Pty Ltd [2018] WASC 291 at [116]. Nonetheless, this is not what happened in this case. Neither Schwartz nor Mr Hourn recognised that there was a mistake.

80. No unconscientiousness on the part of Schwartz, through Mr Hourn or otherwise, in entering into the agreement has been established. It is not unconscionable for Schwartz now to seek to rely on the agreement and its performance of its obligation under the agreement to prevent Capitol from seeking to recover additional costs through the costs assessment process.

81. For all of these reasons, I reject the contention that the agreement should be rescinded or set aside on the basis of unilateral mistake.

Common Mistake

Parties’ submissions

85. In the alternative to unilateral mistake, Capitol submitted that the agreement should be set aside on the ground of common mistake. The common mistake as to the subject matter of the contract was said to be that each party understood that Capitol would recover approximately 80% of its costs incurred in return for each party avoiding the need to have the costs assessed, whereas, under the agreement as entered into, Capitol would in fact recover a lesser percentage of its costs. The percentage recovery was said to be fundamental and to go to the root of the agreement.

86. Capitol relied upon the statement of Denning LJ in Solle v Butcher [1950] 1 KB 671 at 693:

“A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.”

87. It was said that “fault”, as referred to in Solle v Butcher, does not include carelessness: Rees v Rees [2016] VSC 452 at [43]. It was also submitted in effect that the High Court had endorsed Solle v Butcher in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79 (McRae) and Svanosio v McNamara (1956) 96 CLR 186; [1956] HCA 55 (Svanosio). Capitol referred to what was said in Svanosio at 196:

“‘Mistake’ might, of course, afford a ground on which equity would refuse specific performance of a contract, and there may be cases of ‘mistake’ in which it would be so inequitable that a party should be held to his contract that equity would set it aside. No rule can be laid down a priori as to such cases : see an article by Professor R. A. Blackburn in Res Judicatae (1955), vol. 7, p. 43. But we would agree with Professor Shatwell that it is difficult to conceive any circumstances in which equity could properly give relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract.” (footnotes omitted)

88. Capitol summarised its submission on common mistake at par 31 of its written submissions of 14 February 2018 as follows:

“In short therefore, a court may set aside a contract affected by common mistake where (a) the mistake is a fundamental common mistake, that is that it goes to the root of the contract and (b) the party first affected by the mistake had a reasonable basis for making it. A number of cases refer also to a requirement of unconscionability or inequity. In the circumstances of the present case, seeking to strictly enforce a settlement deed and deprive [Capitol] of the benefit of the Court’s cost order in its favour in circumstances where the mistake arose from the carelessness of [Capitol’s] solicitor, is an inequity sufficient to enliven the Court’s jurisdiction in relation to the common mistake.”

89. In relation to proposition (b), Capitol relied upon the decision in Rees v Rees [2016] VSC 452 (Rees) at [76] to [78] and [104]. There it was held that although relief would be declined where the mistake consisted of a belief that is entertained without any reasonable ground, as was suggested in McRae, if the mistake was reasonably made, relief might be granted.

90. Schwartz contended that the passage from Solle v Butcher relied upon by Capitol did not represent the law in Australia. In any event, there was no common mistake as to the terms and effect of the agreement. Any mistake was a unilateral mistake as to the commercial circumstances giving rise to the agreement; it was not fundamental, and the defendant was at fault in being so mistaken. It was submitted that the agreement was a binding contract and it could not be set aside on any equitable basis on the ground of common mistake. In the absence of any unconscionable conduct, sharp practice or deliberately staying silent, despite knowing of or reasonably suspecting a mistake on the part of Schwartz, there was no basis for setting the agreement aside.

Common Mistake consideration

91. It can be accepted that the law in relation to common mistake is in an unclear, if not quite unsatisfactory, state. It has recently been reviewed at some length in two useful first instance judgments: Westpork Pty Ltd v Bio-Organics Pty Ltd [2018] WASC 291 at [107]-[119]; Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555 (Hawcroft) at [31]-[69] and note also the comments in Rees at [98]. Hawcroft was appealed but the Court of Appeal allowed the appeal on bases that did not relate to common mistake: Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91 at [60], [159]; and there was no adverse comment on the portion of the judgment at first instance dealing with common mistake: at [160]-[163].

92. In the light of the English Court of Appeal’s decision in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 (Great Peace Shipping) and the Queensland Court of Appeal’s decision in Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 (Australia Estates), there may be some doubt whether there exists any equitable jurisdiction to set aside a contract for common mistake.

Common mistake under relevant High Court authority

93. Capitol’s submission that the agreement is liable to be set aside in equity on the basis of common mistake rests on the existence of “a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental”, to use the words of Denning LJ.

94. It is helpful to examine first whether, even accepting Capitol’s submission, the present case involves any relevant common mistake. Having dealt with that matter, it will be appropriate to consider the principles that can be derived from relevant High Court authorities concerning setting aside a contract for common mistake.

95. Young AJ explained the concept of common mistake in the following terms in Hawcroft at [14]:

“’Common mistake’ is a term used in contract law to denote the situation where both parties make a mistake when entering into their contract and they make the same mistake. The usual cases are cases of res sua (where a party contracts to buy something which he or she already owns) and res extincta (where a party contracts to buy something that does not exist though he or she thinks it does). However it also extends to some fundamental misconceptions which go to the root of the contract. The term is distinguished from mutual mistake where both parties make a mistake but make different mistakes and unilateral mistake where a person makes a mistake and the other party to the contract knows that he or she has made that mistake yet proceed with the contract.”

96. Young AJ’s two primary examples of common mistake, agreeing to buy something that the purchaser already owns and agreeing to buy something that does not exist, do not apply in the present case. In this case, Capitol relies on there being “some fundamental misconceptions [shared by both Capitol and Schwartz] which go to the root of the contract”.

97. In my view, there was neither a fundamental misconception that went to the root of the contract, nor was there one that was common to, or shared by, both Capitol and Schwartz.

98. There was no misconception by either party about the agreement, or its terms or their legal effect. There was no misconception about the subject matter of the agreement namely the payment of an amount of money in full and final settlement of Capitol’s claims in relation to the costs to which it was entitled. It was not a term of the agreement that Capitol was to recover approximately 80% of its costs. The percentage recovery was not fundamental to the existence, subject matter or performance of the agreement.

99. The recovery of approximately 80% of the costs incurred by Capitol was nothing more than the expectation as to the financial result if the agreement was performed in accordance with its terms. That expectation was wrong. But, this misguided expectation in relation to the result of performance of the agreement was not one that went to the root of the agreement itself or was fundamental to the agreement or its terms.

100. Further, if it is accepted that Ms Tran and Mr Doherty positively believed that Capitol’s solicitor/client costs (including counsel’s fees and expert expenses) totalled $120,987.76, rather than assuming that was the case without checking it, it might be correct to say that Capitol’s misconception was that it would receive about 80% of its actual solicitor/client costs when the agreement was performed. Schwartz, however, did not labour under the same misapprehension. Schwartz’s expectation was that, if the agreement was performed, Capitol would recover approximately 80% of what it had claimed were its costs in the letter of 3 October 2017. Schwartz was not under any misapprehension in this regard. Consequently, it would not be correct to conclude that there was a misapprehension shared by both Capitol and Schwartz.

101. In these circumstances, even if there is a principle that in cases of common mistake equity may intervene to set aside a contract, it is not engaged as there was no fundamental misconception that went to the root of the contract nor was there a relevant misconception that was shared by both parties.

102. However, even if, contrary to conclusion reached above, there were a shared misapprehension that was fundamental to the agreement, it would not follow that Capitol would be entitled to rescission of the contract.

103. The application of Lord Denning’s statement of principle concerning common mistake in Solle v Butcher, upon which Capitol relies, must be considered having regard to what the High Court has said and not said. Neither in McRae nor in Svanosio did the High Court endorse the principle relied upon by Capitol.

104. In particular, in Svanosio, Dixon CJ and Fullagar J said at 195-6:

“This Court in McRae v. Commonwealth Disposals Commission adopted with respect a passage in the judgment of Denning L.J. [not the passage relied upon by Capitol] (while saying nothing as to the actual decision) in Solle v. Butcher. To quote now from that judgment at somewhat greater length, his Lordship said:—‘ . . . once a contract has been made, this is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake. A fortiori, if the other party did not know of the mistake, but shared it’.

…

‘Mistake’ might, of course, afford a ground on which equity would refuse specific performance of a contract, and there may be cases of ‘mistake’ in which it would be so inequitable that a party should be held to his contract that equity would set it aside. No rule can be laid down a priori as to such cases: see an article by Professor R. A. Blackburn in Res Judicatae (1955), vol. 7, p. 43. But we would agree with Professor Shatwell that it is difficult to conceive any circumstances in which equity could properly give relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract.” (emphasis added) (footnotes omitted)

105. McRae and Svanosio establish that a person, who is in a position to know the true facts yet mistakenly believes that a certain state of affairs exists and induces the other party to share that belief, cannot treat the contract as void: Hawcroft at [49]. This is presumably why Capitol did not contend that the agreement in the present case was void.

106. McRae and Svanosio also establish that, while there is a role for equity to relieve in cases of mistake, absent equitable fraud or misrepresentation on the part of the party seeking to uphold the contract, equity will rarely grant rescission for common mistake: Hawcroft at [52] and [65]-[66] and see also Rees at [99].

107. “[F]raud” in this context is to be understood as referring to fraud in the broad equitable sense including unconscionable conduct: Hawcroft at [67].

108. As in Hawcroft, so in the present case, both parties were represented by solicitors, neither party sought to take advantage of the other, and neither party could be considered vulnerable. As explained above, neither Mr Hourn nor Schwartz was aware that Capitol would not recover about 80% of its solicitor/client costs (including counsel’s fees and expert expenses) if the agreement was performed in accordance with its terms. There was no unconscionable conduct on Schwartz’s part in entering into the agreement.

109. In addition, for the reasons already given in relation to unilateral mistake, there was nothing in the conduct or circumstances of Schwartz or Mr Hourn that would render it inequitable or unconscionable for Schwartz to rely on the agreement to prevent Capitol from seeking to recover further costs through the assessment process.

110. Finally, Dixon CJ and Fullagar J observed in Svanosio that, while there may be cases of mistake in which it would be so inequitable that a party should be held to its contract that equity would set it aside, no rule can be laid down a priori as to such cases. The evidence in the present case does not establish that there are any other circumstances which make it so inequitable for Capitol to be held to agreement that it should be set aside.

111. Capitol appeared to submit that, if there was a common mistake, then the fact that the party first affected by the mistake, in this case Capitol, had a reasonable basis for making it, would be sufficient to justify equity’s intervention: see par 31 of Capitol’s written submissions quoted above. This does not, in my view, correctly identify any proper basis for equity to intervene. While it might be a necessary condition for equity to intervene that the mistake of the party seeking relief is reasonable, as opposed to one which arose out of the fault of that party, it is not a sufficient condition for equitable relief.

112. In Rees, it was held that, because the solicitor in that case had made a mistake by relying on an inventory of property, and it was reasonable to so rely, the mistaken party would not be disentitled to relief because the mistaken party had been careless. Rees did not decide that making a “reasonable mistake” entitled a party to equitable relief in the absence of unconscionable conduct in relation to, or unconscientious reliance on, the contract by the other party.

113. Even if Capitol did make a “reasonable mistake” in the present case, such a mistake did not involve Schwartz at all. In the absence of Schwartz having knowledge of the mistake, suspecting such a mistake or having knowledge of circumstances that would indicate to a reasonable solicitor that such a mistake had been made, it is difficult to perceive how Capitol’s mistake could provide any adequate basis for equity to intervene to prevent Schwartz from exercising or enforcing its legal rights. I can find nothing in Schwartz’s conduct, or that of Mr Hourn, which would justify equity’s intervention to set aside the agreement in accordance with what was said in Svanosio quoted above.

114. Further and in any event, I do not accept that Capitol’s mistake, whether that of its solicitor or Mr Doherty, was “reasonable” in the relevant sense. The mistake occurred because no one acting for Capitol competently reviewed the invoices from Chamos Legal in order to check whether counsel’s fees or expert expenses were included. This was so notwithstanding that Ms Tran and Mr Doherty appear to have been aware, prior to the agreement being entered into, that there was an issue in this regard, and notwithstanding that Ms Tran apparently carried out an exercise of separating solicitors’ professional fees from disbursements (including counsel’s fees) prior to the finalisation of the negotiations. The situation is unlike that in Rees where it was reasonable for the solicitor to rely on an apparently reliable inventory of property.

115. For these reasons, I reject the contention that Capitol is entitled to have the agreement set aside on the basis of common mistake, to the extent that this relief is available in equity in accordance with the principles enunciated by the High Court.

Common mistake under Great Peace Shipping and Australia Estates

116. In case it should be accepted that Great Peace Shipping and Australia Estates represent the law that should be applied in this matter, I also address the applicable principle that can be derived from those cases. A convenient summary can be found in the reasons of Atkinson J (Jerrard JA agreeing, McMurdo P not deciding) in Australia Estates at [48]:

“[48] In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, the Court of Appeal, in a judgment of conspicuous clarity, examined the common law of mistake and the equitable doctrine of rescission for mistake. The court held that the following elements must be present if common mistake is to avoid a contract at common law:

“(i) there must be a common assumption as to the existence of a state of affairs;

(ii) there must be no warranty by either party that that state of affairs exists;

(iii) the non-existence of the state of affairs must not be attributable to the fault of either party;

(iv) the non-existence of the state of affairs must render performance of the contract impossible;

(v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.”

117. Atkinson J went on to say, at [64]:

“In my view, the correct question to be posed on this appeal is whether the agreement is void at common law for common mistake. The test that should be applied is that found in the five elements set out in Great Peace Shipping v Tsavliris. … There is no equitable jurisdiction to set aside, on the ground of common mistake, an agreement, which is valid and enforceable at common law.”

118. If Great Peace Shipping and Australia Estates are applied, and even if, contrary to what is said above, there was a relevant common mistake shared by Capitol and Schwartz, then Capitol must still fail in its claim that the agreement should be set aside on the ground of common mistake. The fourth element identified in Great Peace Shipping, namely “the non-existence of the state of affairs must render performance of the contract impossible”, is not satisfied in the present case. The agreement could be and has been performed. In accordance with those decisions, there is no equitable jurisdiction to set aside, on the ground of common mistake, an agreement, which is valid and enforceable at common law.

Conclusion on common mistake

119. For all of these reasons, Capitol is not entitled to have the agreement rescinded on the ground of common mistake.

Discretionary refusal of relief

120. Capitol’s final contention was that declaratory relief or other relief in favour of Schwartz be refused on the discretionary basis that to grant such relief would be inconsistent with the interests of justice. Capitol drew attention to a number of cases where the Court has refused to make orders to give effect to a settlement or other agreement where it would be unjust to do so: Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528 (Lewis) at 538; Mohamed v Farah [2004] NSWSC 482 at [67]; Lerama Pty Ltd v Wortho Pty Ltd [2008] NSWSC 1307 (Lerama) at [10].

121. Those cases concerned whether the Court would give effect to agreements to settle proceedings or aspects of proceedings that were affected by mistake by making final orders rather than allowing the matters to proceed to trial. They did not deal with the situation of an agreement to pay a certain amount in full and final settlement of costs, which were payable under orders that required a party to pay costs as agreed or assessed, where that agreement has been fully performed and does not require any step to be taken by the Court to give effect to it.

122. The power being exercised in the cases relied upon by Capitol has been described by the Court of Appeal in Bartlett v Coomber& Anor [2008] NSWCA 100 at [28] in the following terms:

“The exceptional power to decline enforcement by court order of a compromise agreement made by lawyers acting with ostensible authority was not in dispute. It is unnecessary to explore its outer limits. The overriding principle is that the court is concerned with the interests of justice and cannot allow its processes to become an instrument of injustice or abuse (see generally Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528; Mohamed v Farah [2004] NSWSC 482).”

123. The present case is not one where the Court is being asked to exercise its exceptional power to decline enforcement of a compromise agreement that is to be effected by orders of the Court. In the present case, the agreement has been fully performed.

124. In addition, the factual situations in Lewis and Lerama are quite different from the present case. In Lewis, Finlay J made the following findings at 534-535:

“(1) That the solicitor for the plaintiff, having made an oral offer of $227,000, intended to enter the same figure of $227,000 on the offer of compromise and mistakenly entered the figure of $127,000.

(2) That after the written offer of compromise had been given to [the solicitor for the defendant], he was told by the solicitor for the plaintiff that the plaintiff’s offer of settlement made that day was withdrawn. At that time both solicitors had in mind the said offer of $227,000.

(3) That [the defendant’s solicitor] reported… That the plaintiff had offered $227,000 but had withdrawn that offer after it had been rejected. Subsequently there was observed on the defendant’s file the written offer of compromise containing the figure $127,000 which the defendant’s solicitors thereafter purported to accept by notice of acceptance.

(4) That the defendant’s solicitors have not been shown to have been aware that the figure of $127,000 was a mistake although they did contemplate that it may have been a mistake.

(5) That a reasonable solicitor in a position of the solicitors for the defendant, with knowledge of the same facts, would have considered the figure of ‘$127,000’ was likely to have been a mistake and in consequence would have drawn that matter to the attention of the solicitors for the plaintiff.”

125. When dealing with offers of compromise under the procedural rules of the Court, the principle applied by Finlay J, at 538, was that:

“whenever parties agree to a compromise of litigation they do so subject to the procedures of the court which include the possibility that the court may consider it unjust to enforce the terms of settlement or that it is in the interests of justice that the matter proceed to trial.”

126. In Lerama, Hamilton J was dealing with the question of whether certain costs orders, which were part of proposed consent orders, should be made. His Honour, at [10] and [15], adopted the principle applied in Lewis. The factual situation in Lerama was that a reasonable solicitor in the position of the plaintiff’s solicitor would have been caused to consider that the proposal concerning costs was likely to have been a mistake, and therefore would have been under an obligation to draw that matter to the attention of the opposing solicitor by enquiring whether that was intentional or the consequence of a mistake. Although considering that the “matter [was] in a borderline area”, Hamilton J decided to set aside the costs orders, at [15].

127. Capitol and Schwartz were not dealing with offers of compromise under the Uniform Civil Procedure Rules or proposed consent orders which the parties were asking the Court to make. Nor did Mr Hourn or anyone else on behalf of Schwartz contemplate that the offers to resolve the question of costs proposed by Somerville Legal may have been based on a mistake. Further, in my view, a reasonable solicitor in the position of Schwartz’s solicitors, with knowledge of the same facts, would not have considered that the offers made by Somerville Legal were the result of a mistake as to the amount of costs which Capitol was entitled to recover. The present case is quite different from the situation in Lewis and is far away from the borderline area in Lerama.

128. In these circumstances, I do not accept that declaratory relief should be refused on the bases submitted by Capitol.

Conclusion and orders

129. There was a binding contract between Capitol and Schwartz that was fully performed when Schwartz paid $97,500 into Somerville Legal’s trust account. Capitol has not established any ground upon which equity would rescind or set aside that agreement. In these circumstances, there is no need to consider any proposed cross summons which Capitol might seek to file.

130. Capitol did not make any submissions concerning the form of the orders that should be made if Schwartz was successful.

131. It appears to me that the agreement between the parties and the payment of the specified sum in accordance with the agreement did two things:

1. the agreement has established, as between the parties, the amount of costs which Capitol was entitled to recover under the costs orders made by the Supreme Court in proceeding number 2015/351848 on 16 December 2016 and by the Court of Appeal in proceeding number 2016/383377 on 8 September 2017;

2. the payment in accordance with the agreement and the receipt of the agreed sum discharged Capitol’s entitlement to recover costs under those orders.

132. In these circumstances and given the dispute that has arisen between the parties, it is appropriate to declare that the parties have agreed that $97,500 is the amount of costs to which Capitol is entitled under both:

1. the orders relating to the costs of the appeal to the Supreme Court and costs of the Local Court proceedings made by McCallum J in proceeding number 2015/351848 on 16 December 2016; and

2. the order concerning the costs of the application for leave to appeal made by the Court of Appeal in proceeding number 2016/383377 on 8 September 2017.

133. As it was not in dispute that this amount of $97,500 has been paid, it follows that Capitol has no further entitlement to recover costs from Schwartz under those orders.

134. In short, Capitol’s entitlement to costs was quantified by agreement, as permitted under those orders, and has been discharged by payment.

135. It appears to me that it is not necessary at this stage to grant injunctive relief as sought by Schwartz in prayer 3 of the prayers for relief. There are no outstanding costs that Capitol can seek to recover by way of an assessment and, as a result, it is unlikely that any further steps would be taken to pursue an assessment. In case, however, some difficulty or dispute arises in this regard, I propose to grant liberty to the parties to apply so that any such difficulty or dispute can be addressed.

136. Accordingly, the Court:

1. Declares that the amount of costs to which the defendant, Capitol Carpets Pty Ltd, is entitled under both:

1. the orders relating to the costs of the appeal to the Supreme Court and costs of the Local Court proceedings made by McCallum J in proceeding number 2015/351848 on 16 December 2016; and

2. the order concerning the costs of the application for leave to appeal made by the Court of Appeal in proceeding number 2016/383377 on 8 September 2017,

is $97,500, as agreed between the defendant and the plaintiff, Schwartz Family Co Pty Ltd.

2. Orders that the parties have liberty to apply.

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Decision last updated: 08 March 2019