FEDERAL COURT OF AUSTRALIA Auss Metals Pty Ltd v Express Mobile Services Australia Pty Ltd [2015] FCA 745 Citation: Auss Metals Pty Ltd v Express Mobile Services Australia Pty Ltd [2015] FCA 745 Parties: AUSS METALS PTY LTD (ACN 141 165 899) AND OTHERS NAMED IN THE SCHEDULE v EXPRESS MOBILE SERVICES AUSTRALIA PTY LTD (ACN 159 658 107) AND OTHERS NAMED IN THE SCHEDULE; P & C DAL SANTO INVESTMENTS PTY LTD (ACN 075 945 863) AND OTHERS NAMED IN THE SCHEDULE; AUSS METALS PTY LTD (ACN 141 165 899) AND OTHERS NAMED IN THE SCHEDULE File number: VID 396 of 2014 Judge: PAGONE J Date of judgment: 22 July 2015 Catchwords: COSTS – legal practitioner – whether respondents entitled to costs order against applicant's solicitors – alleged failure to take steps to resolve dispute before starting proceedings – failure to file genuine steps statement – effect of mutual releases in settlement agreement – construction of terms of settlement agreement – reasonable person in position of parties – whether settlement agreement precluded respondents from claiming costs against applicants' solicitors – construction to give effect to finality of proceedings. Legislation: Civil Dispute Resolution Act 2011 (Cth) s 9 Federal Court of Australia Act 1976 (Cth) ss 37N, 43 Cases cited: D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 Modra v State of Victoria [2012] FCA 240 Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 G E Del Pont, Law of Agency (3rd ed, 2014) Date of hearing: 14 July 2015 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 11 Counsel for the Applicants: The applicants did not appear Counsel for the Respondents: Mr A Rodbard-Bean with Mr B Mason Solicitor for the Respondents: McInnes Wilson Lawyers Counsel for the Respondents to the Interlocutory Application filed 22 May 2015 Mr D Christie Solicitor for the Respondents to the Interlocutory Application filed 22 May 2015 DLA Piper Australia IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 396 of 2014 BETWEEN: AUSS METALS PTY LTD (ACN 141 165 899) AND OTHERS NAMED IN THE SCHEDULE Applicant P & C DAL SANTO INVESTMENTS PTY LTD (ACN 075 945 863) AND OTHERS NAMED IN THE SCHEDULE Cross-Claimant AND: EXPRESS MOBILE SERVICES AUSTRALIA PTY LTD (ACN 159 658 107) AND OTHERS NAMED IN THE SCHEDULE Respondent AUSS METALS PTY LTD (ACN 141 165 899) AND OTHERS NAMED IN THE SCHEDULE Cross-Respondent JUDGE: PAGONE J DATE: 22 JULY 2015 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The respondents in this proceeding, other than the sixth respondent ("the respondents" unless otherwise indicated), apply to have their costs paid by the applicants' solicitors, Glenn Duker and PCL Lawyers Pty Ltd ("the applicants' solicitors"). The claim for costs is a claim that the applicants' solicitors failed to perform their duties under the Civil Dispute Resolution Act 2011 (Cth) and the Federal Court of Australia Act 1976 (Cth). The proceeding between the applicants and all of the respondents was settled by the former's acceptance of offers of compromise, and on 25 May 2015 orders were made disposing of the proceeding in accordance with the settlement which had been reached. Before those orders were made, but after the parties had settled the proceeding between them, the respondents applied in the proceeding for their costs against the applicants' solicitors. 2 The respondents' application for costs against the applicants' solicitors came on for hearing on 14 July 2015 on an estimate of 2 days. The applicants did not appear at the hearing and were not parties to it. Indeed, the applicants had expressly agreed by their settlement with the respondents "not to participate any further" in the proceeding. The applicants' solicitors, however, had been made parties to the application against them that they pay the respondents' costs, and at the hearing appeared through counsel. Orders had been made at a directions hearing on 25 May 2015 for the hearing of the application for costs which included a direction that required the applicants' solicitors to file and serve any application they might make by 5 June 2015. No application was made or filed by them. The orders also provided for the filing of material by the applicants' solicitors by 24 June 2015, for the filing of material by the respondents in reply by 3 July 2015, and for the filing of written submissions by the parties by 8 July 2015. Materials and submissions in the respondents' application against the applicants' solicitors were filed by the parties, including detailed written submissions dealing with all issues expected to arise at the hearing on 14 July 2015. 3 Counsel for the applicants' solicitors made a no case submission at the conclusion of the case against. The basis of the no case submission was, essentially, that the claim for costs against the applicants' solicitors could not succeed on the materials because any claim for costs by any of the respondents had been compromised by the terms by which the proceeding had been settled. That submission was put in two ways which, however, had a common basis, first that the contract which had been entered into by the terms of settlement between the parties had compromised any claim for costs, and secondly that the terms of the release given by the parties in the settlement expressly extended to any claim for costs. Both ways in which the argument was made depended upon whether the respondents' claim to costs had been lost by their settlement with the applicants. An alternative submission was made that, in any event, the evidence which had been relied upon by the respondents in their claim for costs against the applicants' solicitors did not establish any breach of obligation and, further, that any breach was not shown to have been the cause of any loss. Two other arguments were put in support of the no case submission which, in the event, need not be considered. 4 An aspect of the respondents' complaint against the applicants' solicitors was that the proceeding should not have been commenced as it had. The applicants' proceeding against all of the respondents has arisen from complaints they had made in the context of a franchise arrangement which had included provision for disputes to be resolved by mediation and agreement. The pleading had been settled by Mr L Magowan of counsel and was served upon the then respondents around 1 August 2014. A constant complaint made by the respondents from the commencement of the proceeding was that the proceedings ought not to have been commenced without first undertaking the process of dispute resolution contemplated by the franchise agreements between the parties. The proceeding had also been commenced without the applicants' solicitors having complied with the obligation imposed upon the parties, and also upon their legal advisers, to file a statement in Court of having taken genuine steps to try to resolve the issues in dispute between the parties before the commencement of the proceeding. Statements which were filed after the proceedings had been commenced, and which the applicants' solicitors had filed to satisfy that requirement, were inadequate. 5 The evidence filed by the respondents in their application for costs against the applicants' solicitors is sufficient to establish a case for the applicants' solicitors to answer. The respondents' material, if left unanswered, establish, at least, that the applicants' solicitors wrongly commenced proceedings on behalf of their clients contrary to the terms of the franchise agreements to which their clients were bound, that they had not taken steps before instituting the proceedings to assist their clients to resolve their disputes with the respondents, and that they had neither filed a genuine steps statement nor assisted their clients to do so. It follows that some of the respondents' costs had been caused by the failures by the applicants' solicitors to discharge their duties. A finding of wrongful, or unacceptable, conduct on the part of the applicants' solicitors, however, does not necessarily mean that the respondents are entitled to their costs against the applicants' solicitors. It is plain that the Court has jurisdiction to award costs in proceedings before the Court: Federal Court of Australia Act 1976 (Cth), s 43. It can also be accepted for present purposes that the Court may award costs in a proceeding against the lawyers acting for a party where they have been in breach of the duties imposed by the Civil Dispute Resolution Act 2011 (Cth) or Part VB of the Federal Court of Australia Act 1976 (Cth): Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282; Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977, [11]-[12]; Modra v State of Victoria [2012] FCA 240. In the present case, however, any entitlement to costs by a party against the solicitors of an opposing party (as distinct from any jurisdiction in the Court to make any other order against legal practitioners) is affected by the terms of the settlement reached between the parties. 6 There had been several offers to compromise the proceedings made by the parties at various times. On 23 April 2015 the solicitors for the respondents sent to the applicants' solicitors a revised offer of compromise by letter after conversations between Ms Alicia Hill (acting for the respondents) and Mr Duker. That offer was accepted on the same day by email sent at 12.04pm by Mr Duker to Ms Hill. The letter which contained the terms of the offer read as follows: Dear Mr Duker EXPRESS MOBILE SERVICES AUSTRALIA PTY LTD & ORS -ATS- AUSS METALS PTY LTD & ORS FEDERAL COURT OF AUSTRALIA PROCEEDINGS NO. VID 396/14 (PROCEEDINGS) We refer to our clients' without prejudice offer made on 22 April 2015 and to your telephone conversations with our Alicia Hill on the evening of 22 April 2015 and earlier today. 1. REVISED OFFER OF COMPROMISE The First Respondent, Express Mobile Services Australia Pty Ltd, Second Respondent, Peter Scutts, the Third Respondent, Reece Arcon, the Fourth Respondent, the Fifth Respondent, the Seventh Respondent and the Eighth Respondent (our clients) are prepared to resolve the Proceedings with your clients, namely the First, Second, Fourth, Sixth, Seventh, Eighth, Tenth and Eleventh Applicants (your clients), without admission, on the following terms: (a) for the purpose of resolving the dispute, our clients' [sic] are willing to pay to your clients' solicitor's trust account $21,000.00, (which we note is an increased amount from our clients' Offers of Compromise made in good faith to try and resolve this matter); (b) our clients' agreeing not to enforce the costs orders they currently have against your clients and waving [sic] their rights to the established $70,000-$90,000 your clients would otherwise have to pay pro rata to our clients. (c) the settlement amount would be paid within 21 days of the date of written acceptance of this offer being received by our office; (d) if this offer not be accepted by 12pm, 23 April 2015, then the costs of the Directions Hearing listed for 23 April 2015 (which we estimate will cost around $12,000) will be deducted from any further amounts offered by our clients; (e) mutual releases of all claims by our clients and your clients against each other (including the directors, officers, agents or employees of any of them) including: (i) those claims set out in the Proceedings (claim and cross claim, meaning our clients would waive the $61,340 sought against your clients); (ii) our clients specifically not seeking to enforce against your clients the cost orders made by Pagone J on: (A) 25 March 2015; (B) 13 Apri1 2015; and (C) 15 April 2015; (f) each of your clients' [sic] withdraws any complaints they made to any regulatory or other body against any of our clients and provides a copy of such withdrawal to our firm within 5 days of date of execution of the settlement agreement; (g) your clients' [sic] agree not to participate any further in the Proceedings or in any future litigation by any party against our clients or voluntarily cooperate in provision of information to any party in litigation against our clients or disparage any of our clients from the date of acceptance of this offer; (h) the terms of any negotiations and the settlement agreement itself will remain confidential between your clients and our clients, any such breach of confidentiality will be able to be actioned by the non-breaching party; (i) any breach of the settlement agreement and enforcement of the terms of the settlement agreement will see the cost[s] of the non-breaching party paid in full to the non-breaching party by the breaching party; (j) each of your clients comply with clauses 15.1(a), 15.1(d), 15.1(e), 15.1(f), and 15.1(g) regarding consequences of termination contained in the respective franchise agreements or the similar clause numbered provisions in their respective franchise agreements. This will include your clients making available for collection by our clients or their representatives all equipment in their possession; (k) consent orders dismissing the proceeding with no order as to cost being filed in the Federal Court Registry within 5 business days of the payment of the settlement amount by our clients to your clients' solicitor's trust account. This offer will remain open until 12pm 23 April 2015 for acceptance. Acceptance of this offer is to be made in writing to our office. This offer is provided on the basis of the inclusion of Mr Orr if he does not wish to accept this offer please advise us and we will seek our clients' further instructions. We await your clients' response. Yours faithfully McInnes Wilson Lawyers The terms of the offer have been set out in full for completeness, but the critical parts are those which identify the subject matter of the compromise and the extent of people covered by the compromise. Further offers of compromise were made by letter on 6 May 2015 in respect of claims brought by the third, fifth and ninth applicants, who were not the subject of the offer of compromise made and accepted on 23 April 2015. The offers of compromise made on 6 May 2015 were accepted on 8 May 2015. The terms of the offers of compromise made on 6 May 2015 were relevantly the same as those of the offer of compromise made and accepted on 23 April 2015, apart from modifications to the amounts payable and removal of the clause referring to the directions hearing on 23 April 2015. The subject matter of the settlement between the parties was "all claims" which each had against the other. That is clear from paragraph 1(e). Those covered by the releases extended also to the "agents" of any of the parties to the dispute. That is also made clear by paragraph 1(e). That claims for costs were contemplated by the offer and by its acceptance may be seen in part by the breadth of the word "all claims" and in part by the specific reference to costs in paragraph 1(e)(ii). In that regard it is significant that the costs compromised by those terms were those to which the respondents had become entitled by existing court orders (in contrast to costs to which the parties might subsequently become, but were not yet, entitled). 7 The respondents contended that the settlement reached should not be construed as extending to claims for costs which they might have against the solicitors for the applicants. In that regard it was submitted that a reasonable person in the position of the parties would not regard themselves as waiving any entitlement to seek a costs order against the opposing parties' lawyer. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 the High Court said in a joint judgment at [40] (omitting footnotes): This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. In my view a reasonable person would understand the terms of the agreement as extending to any claims which any party might have to its costs. It might not include other sanction which the Court might impose if persuaded that a practitioner had breached a duty in the conduct of a case, or in the performance of legal practice, but a reasonable person would see the agreement reached, by the terms of the offer, and of its acceptance, as including any entitlement of any party to seek costs incurred in the proceeding. What the parties had agreed to do was to dispose of all claims and disputes against each other and extended their resolution of the dispute to the claims any party had to the agent of the other party. 8 Amongst the reasons advanced for the opposite conclusion was that there had been no specific reference in the offer of compromise to the claims which the respondents might have had for their costs to be paid by the solicitors of the opposing party. The absence of a specific reference to a claim for costs against a practitioner, however, points against the construction urged for the respondents. It would have been easy to have included an express reservation into the offer so as to exclude from the settlement a claim for costs against the applicants' solicitors from the otherwise broad generality of the claims to be compromised. There is nothing in the offer to support an inference that the absence of a specific reservation of a claim by the respondents for their costs against the applicants' solicitors was to be excluded from the generality of the claims offered to be compromised. The better and more natural reading of the terms of the bargain reached between the parties was that each was giving up all claims of any kind which they had and that this extended to each other's agents. That necessarily included the costs incurred by the respondents and any claims they might have for them against the applicants' solicitors. Counsel for the respondents accepted that the respondents by the settlement were releasing any claim for their costs from the applicants themselves. The respondents accepted, in other words, that the settlement compromised their claim for costs as against the parties and there is nothing in the terms of the agreement to qualify the compromise of their entitlement to claim those same costs from any other person. In that context it was said that the absence of an express reservation of a claim for costs against the parties' solicitors was to be explained by the need to ensure that the offer of compromise could be considered by the party to whom it was addressed without the complication of a potential conflict of interest between lawyer and client which would have arisen by an offer to compromise the proceeding upon the basis that his or her lawyer might become liable for the costs which the other party might otherwise have sought against that party. The suggestion that an absence of an express reservation of a claim for costs against the lawyers was to be explained by the need to avoid a conflict of interest is, in my view, a powerful reason against the proposition for which it was advanced. In other words, the need to ensure that an offer could be considered, and advised upon, free from a potential conflict of interest is a reason why the offer should be construed as having been made without an unstated exception. The conclusion that the potential claim for costs by the respondents against the applicants' solicitors was included in the settlement reached between the parties is also to be inferred, if it were necessary to rely upon inference, from the intention of the parties to the agreement that the applicants should not themselves become liable to the respondents' costs. That intention could be defeated if the terms of the retainer between the applicants and their solicitors would entitle the latter to recover any costs awarded against them from their clients. 9 It was also submitted that the applicants' solicitors were not encompassed by the extent of those covered by the release and that the word "agents" should not be construed to include the applicants' solicitors. Despite the submission to the contrary, however, it is clear that the applicants' solicitors were relevantly acting as their clients agents: G E Del Pont, Law of Agency (3rd ed, 2014) 27-8 [1.39]. The terms of settlement were drawn so as to extend the benefit of the settlement beyond the parties themselves. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Deane J said at 147: In the context of such a contractual promise, the requisite intention should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention. A fortiori, equity's requirement of an intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee. In this case the express provision in the mutual releases that claims extended to "directors, officers, agents or employees" of any of the parties reveals an intention that the releases be for the benefit of, and capable of being relied upon, by third parties to the agreement. The inclusion of "agents" in that group of third parties, in the context of a release of claims including costs, included the applicants' solicitors. That is consistent with the objective of the settlement of the proceedings by an offer of compromise. It was said in D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1, 17 at [34]: A central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances. That tenet finds reflection in the restriction upon the reopening of final orders after entry and in the rules concerning the bringing of an action to set aside a final judgment on the ground that it was procured by fraud. The tenet also finds reflection in the doctrines of res judicata and issue estoppel. Those doctrines prevent a party to a proceeding raising, in a new proceeding against a party to the original proceeding, a cause of action or issue that was finally decided in the original proceeding. It is a tenet that underpins the extension of principles of preclusion to some circumstances where the issues raised in the later proceeding could have been raised in an earlier proceeding. The construction of this offer of compromise, as accepted, gives effect to that tenet by bringing an end to the claims against the parties which might otherwise have been brought against their agents. 10 It is unnecessary for me to consider the alternative basis upon which the applicants' solicitors made the no case submission, namely, that the material did not disclose a breach or that any breach was not shown to have caused the incurrence of the costs. However, it may be desirable to say something about that because of the potential impact on the costs of this application. The no case submission was one which could have been the subject of an application by the applicants' solicitors before the hearing on 14 July 2015 pursuant to the order that contemplated the making of applications by the applicants' solicitors by 5 June 2015. Such an application, had it been made, could, if successful, have avoided the need for the parties to prepare for a hearing based upon whether the applicants' solicitors were in breach of their obligations and, if so, whether their breaches caused the respondents' loss. It may have been a reasonable forensic decision for the applicants' solicitors to have proceeded in the way chosen, but it does not follow that the success of the applicants' solicitors in the no case submission should result in them having an order for the costs on all issues in the respondents' application. In my view the material relied upon by the respondents are sufficient to raise a case of a breach and also of breach which caused the loss to the respondents by the costs they incurred. In my view the conduct of the proceeding for the applicants by Mr Duker and PCL Lawyers fell well short of the obligations imposed upon them as practitioners under s 37N of the Federal Court of Australia Act 1976 (Cth) and s 9 of the Civil Dispute Resolution Act 2011 (Cth). The failure to file a genuine steps statement at the commencement of the proceeding is but one example of that breach. It may be inappropriate for me to set out the further facts which lead me to conclude both that the material showed a case of breach as well as a causative link between the breach and the loss claimed, because those facts would be stated without the benefit of the answering material which Mr Duker has filed but has not yet tendered. It might be helpful for the parties to note, however, that the outcome of the no case submission might not warrant an award of costs in favour of the parties succeeding in that application and that, in the circumstances, it might be appropriate for the parties to bear their own costs. 11 There will be orders dismissing the respondents' application against the applicants' solicitors with no orders for costs unless the parties need to be heard further upon the latter. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone. Associate: Dated: 22 July 2015 Schedule APPLICANTS Second applicant Stuart Alford Third applicant Robert James Orr Fourth applicant Paul Osborne Fifth applicant Michael Palmer Sixth applicant Rose Pontinelli Seventh applicant Tony Salviato Eighth applicant Paul Smith Ninth applicant Zoe Hosford Tenth applicant Giuseppe 'Joe' Carrubba Eleventh applicant Kenneth Mitchell Twelfth applicant Jayson Soeterboek RESPONDENTS Second respondent Peter Robert Scutts Third respondent Reece Matthew Arcon Fourth respondent Statemaster WA Pty Ltd [ACN 162 463 238] Fifth respondent Switched On Promotions Pty Ltd [ACN 120 322 385] Sixth respondent C C Services Pty Ltd [ACN 161 158 596] Seventh respondent Sidoo Enterprises Pty Ltd [ACN 164 518 272] Eighth respondent P & C Dal Santo Investments Pty Ltd [ACN 120 322 385] CROSS CLAIMANTS Second cross claimant Statemaster WA Pty Ltd [ACN 162 463 238] Third cross claimant Switched On Promotions Pty Ltd [ACN 120 322 385] Fourth cross claimant C C Services Pty Ltd [ACN 161 158 596] Fifth cross claimant Sidoo Enterprises Pty Ltd [ACN 164 518 272] Sixth cross claimant Get It Expressed [ABN 73 163 430 537] CROSS RESPONDENTS Second cross respondent Stuart Alford Third cross respondent Robert James Orr Fourth cross respondent Paul Osborne Fifth cross respondent Michael Palmer Sixth cross respondent Rose Pontinelli Seventh cross respondent Tony Salviato Eighth cross respondent Zoe Hosford Ninth cross respondent Giuseppe 'Joe' Carrubba Tenth cross respondent Paul Smith Eleventh cross respondent Jayson Soeterboek RESPONDENTS TO THE INTERLOCUTORY APPLICATION FILED 22 MAY 2015 First Respondent PCL Lawyers Second Respondent Glenn Duker