Supreme Court New South Wales Medium Neutral Citation: Lewis v Martinez as representative of the partners t/as HWL Ebsworth Lawyers (No. 2) [2022] NSWSC 133 Hearing dates: 12 November 2021 Date of orders: 21 February 2022 Decision date: 21 February 2022 Jurisdiction: Equity Before: Slattery J Decision: Order that the costs of the plaintiff's motion dated 24 February 2021 shall be each party's costs in the proceedings. The plaintiff is ordered to pay the costs thrown away by the filing of the Amended Statement of Claim. Catchwords: COSTS – contest early in proceedings about pleadings and the joinder of parties – plaintiff brings proceedings by Statement of Claim against former co-partners in a partnership of lawyers – plaintiff joins a single defendant and not all the partners and by motion seeks orders to nominate that defendant as a representative of the other partners – Court declines to make the representative orders sought on the motion and requires the plaintiff to file an Amended Statement of Claim joining all partners as defendants – defendant raises other issues with respect to the sufficiency of the pleading in the proposed Amended Statement of Claim – short separate later hearing in respect of the pleading issues – what costs order should be made in the circumstances. Texts Cited: Baltic Shipping Company v Dillon "Mikhail Lermontov" (1991) 22 NSWLR 1; (1991) ASC 56-039 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; [1988] FCA 364 Harrison v Schipp [2001] NSWCA 13 Lewis v Martinez as representative of the partners t/as HWL Ebsworth Lawyers [2021] NSWSC 1303 Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 Category: Costs Parties: Plaintiff: Gregory William Francis Lewis Defendant: Juan Martinez as representative of the partners t/as HWL Ebsworth Lawyers Representation: Counsel: Plaintiff: F.M. Douglas QC, J.K. Carter, J.B. Douglas Defendant: M.R. Elliot SC, Mr K. Petch Solicitors: Plaintiff: Bridges Lawyers Defendant: Gilchrist Connell File Number(s): 2021/00038379 Publication restriction: No Judgment 1. This is the Court's second judgment in these proceedings brought by the plaintiff, a former Capital Partner of HWL Ebsworth Lawyers, against his former partners in that firm. In the Court's first judgment, given on 21 October 2021, the Court determined the relief sought by the plaintiff on an Amended Notice of Motion filed on 14 October 2021 ("the Motion"): Lewis v Martinez as representative of the partners t/as HWL Ebsworth Lawyers [2021] NSWSC 1303. 2. This judgment should be read with the Court's first judgment. Events, matters and persons are referred to in both judgments in the same way. 3. In the Court's first judgment the Court declined to make an order for Mr Martinez to represent all the partners of the firm. Mr Lewis was required to file his Amended Statement of Claim joining all the Capital Partners of the firm as defendants. But Mr Martinez had also taken issue with aspects of the pleading in the proposed Amended Statement of Claim. The Court dealt with those pleading issues in a separate hearing on 12 November 2021. 4. The submissions made at the 12 November 2021 pleadings hearing substantially reduced the issues between the parties in relation to the form of the Amended Statement of Claim. On some matters an explanation of the pleading was sufficient to lay the issue to rest. On other matters the exchange of written submissions and inquiries from the Court meant that Mr Martinez no longer pressed some objections to the proposed Amended Statement of Claim. And on yet other matters Mr Lewis offered to clarify the form of the proposed pleading. The helpful written and oral submissions on both sides before and at the pleadings hearing meant the Court did not have to give a further pleadings judgment. A satisfactory Amended Statement of Claim was filed on 11 January 2022. 5. The parties' costs contest covers the representative order against Mr Martinez and the pleading objections preceding the filing of the Amended Statement of Claim. These matters became somewhat intertwined during the parties' written submissions on costs. The Court indicated at the pleadings hearing that it would deal with the question of costs in chambers. The parties were directed to file a first round of written submissions on 15 November 2021 and a second round on 19 November 2021. A short summary of those written submissions and the factual background assists in isolating the costs issues for determination. The Parties' Submissions 1. Mr Martinez's Submissions. Mr Martinez submits in relation to the representative order that he was successful in opposing the orders sought in Mr Lewis' Motion, with the Court declining to make the representative order sought. He submits that costs should follow the event and Mr Lewis should be ordered to pay the defendant's costs of the Motion. 2. Mr Martinez further seeks orders that any costs awarded in his favour be assessed on the indemnity or solicitor/client basis, so that Mr Martinez is fully compensated for all costs he has incurred. Mr Martinez supports his claim for indemnity costs on the basis that he and the other Capital Partners of HWL Ebsworth Lawyers have sought to deal with the representative issues raised on the Motion in an open co-operative and pragmatic way but that Mr Lewis was unreceptive and pressed on regardless, putting Mr Martinez to costs that he should not have had to incur. Mr Martinez cites as examples of his practical approach an offer of the Capital Partners to use the same solicitor as was then retained by Mr Martinez, Gilchrist Connell, to act for and to accept service for all the Capital Partners, and for the Capital Partners clearly to identify themselves so as to make it easier for them to be added as defendants. But Mr Martinez submits that his practical approach did not prevent the plaintiff, Mr Lewis, from pursuing an interlocutory contest that was otherwise fully avoidable. 3. On the pleading issues Mr Martinez submits that the outcome of the pleadings hearing was also favourable to him. He submits that the plaintiff abandoned serious allegations made in the pleadings and that the Court accepted other points raised by him. He submits that it would be open for him to seek a further costs order in relation to this aspect of the Motion, but he indicated he was content to proceed on the basis that the costs in relation to the pleading dispute would be sufficiently covered by the usual order for costs thrown away upon the making of the amendment. 4. Mr Lewis's Submissions. Mr Lewis responds to Mr Martinez's submissions by pointing out that in a letter dated 10 June 2021 Mr Lewis proposed that consent orders be made for the filing of an Amended Statement of Claim to be served on a common lawyer for all the proposed defendants named individually. Mr Lewis says that his solicitors, Bridges Lawyers, offered this to Mr Martinez's solicitors, Gilchrist Connell, by letter on that date by stating "Your clients offered to accept service of an Amended Statement of Claim on behalf of all the Capital Partners meets our client's concerns". That had indeed been offered by Gilchrist Connell on 8 June 2021. 5. But Mr Lewis submits that Gilchrist Connell in a subsequent letter dated 16 June 2021 stated that the Bridges Lawyers letter of 10 June 2021 was a "capitulation" and an acknowledgement that the Motion should never have been brought. Mr Martinez offered to accept withdrawal of the Motion on condition that his costs associated with that Motion were paid and that deficiencies in the proposed Amended Statement of Claim be dealt with before it was filed. 6. Mr Lewis submits that Gilchrist Connell's claim of "deficiencies" in the proposed Amended Statement of Claim included an alleged deficiency that the pleading was irregular because it did not purport to sue him in his capacity as the trustee of the Martinez Practice Trust. But Mr Lewis submits that in the first judgment the Court rejected some of those claimed deficiencies, for example, finding that Mr Martinez was the proper defendant in the proceedings in his personal capacity: first judgment at [50] - [51]. 7. Mr Lewis submits that when proceedings were first issued in February 2021, he did not have high hopes of co-operation between himself and Mr Martinez. For example, Mr Martinez refused to accept service electronically and was served personally. Mr Lewis submits that Mr Martinez did not make any early offer before he filed the Motion, of cooperatively suggesting that if all the Capital Partners were to be served that could be done through one address, such as through Gilchrist Connell. He says that the first indication that the Capital Partners of the firm would co-operate in relation to the early service of documents upon them, was the Gilchrist Connell letter of 8 June 2021, specifying that a single lawyer would accept service. 8. Mr Lewis also submits it was Mr Martinez's insistence upon an erroneous legal position about deficiencies in the Amended Statement of Claim and not Mr Lewis' desire for a representative order at all costs, which resulted in the Motion ultimately being contested. Mr Lewis submits that if Mr Martinez had willingly accepted service of the Amended Statement of Claim in the manner that Mr Lewis had proposed then the issue would have resolved and the contest avoided. For that reason, Mr Lewis submits that Mr Martinez should pay Mr Lewis' costs of the Motion. 9. On the pleading issues, Mr Lewis submits that he obtained the leave to amend that he was seeking, naming the Capital Partners as defendants without having to plead their capacity as trustees. Moreover, Mr Lewis points out that none of the objections to the proposed pleading which were raised by Mr Martinez related to any proposed amendment. Rather, he submits, they related to allegations in the original pleading that the plaintiff had included as of right upon its original filing. Mr Lewis submits that Mr Martinez was really pursuing an application to strike out the existing pleading upon which he was substantially unsuccessful, and that Mr Lewis should therefore be awarded his costs in relation to all pleading aspects. 10. Mr Martinez's Submissions in Reply. Mr Martinez says in reply to these submissions that Mr Lewis's substantive application for the making of a representative order was wholly unsuccessful. And Mr Martinez points out that prior to the Motion being first brought on 24 February 2021 that his letter of 19 February 2021 pointed out that Gilchrist Connell acted not only for Mr Martinez but for the Capital Partners of the firm and that it was clearly "implicit" in that 19 February 2021 letter that the solicitors would accept service of the Amended pleading on behalf of the Capital Partners and that Bridges Lawyers did not seek clarification as to whether Gilchrist Connell would accept service. Consideration 1. The representative order issues and the pleading issues on the Motion cannot readily be separated. This makes assessing one or other party's success on the Motion difficult. 2. In correspondence prior to 8 June 2021 Bridges Lawyers had raised concerns about the need to serve each of the numerous Capital Partners and their respective Nominated Persons under the deed. In response to these concerns Gilchrist Connell's letter of 8 June 2021 indicated for the first time that they were "instructed to accept service of the Amended Statement of Claim on behalf of each Capital Partner by their Nominated Person". Mr Martinez's submission that Mr Lewis could expect that the Capital Partners would give instructions to accept service in the future was clearly "implicit" in the Gilchrist Connell, 19 February 2021 letter, is not persuasive. The tone of the correspondence between the parties before the hearing of the Motion would not have given either party the confidence to expect future cooperation from the other. 3. Extensive correspondence took place between Bridges Lawyers and Gilchrist Connell between 19 February 2021, just before the Motion was filed on 24 February 2021, and 16 June 2021 when final positions were drawn. That correspondence was as follows: Gilchrist Connell to Bridges Lawyers 19 February 2021; Bridges Lawyers to Gilchrist Connell 22 February 2021; Gilchrist Connell to Bridges Lawyers 23 February 2021; Gilchrist Connell to Bridges Lawyers 2 June 2021; Bridges Lawyers to Gilchrist Connell 3 June 2021; Gilchrist Connell to Bridges Lawyers 8 June 2021; Bridges Lawyers to Gilchrist Connell 10 June 2021; and Gilchrist Connell to Bridges Lawyers 16 June 2021. Some features of that correspondence have been mentioned and do not need to be detailed further here. 4. But one aspect of the correspondence is of greater relevance. The correspondence from Gilcrest Connell before the Motion and for a long time thereafter insisted on correcting various deficiencies in the pleadings, few of which the Court has found to be deficiencies. Finally, on 8 June 2021 Gilchrist Connell indicated that to avoid Mr Lewis' concerns having to serve a great number of Capital Partners of the firm that Gilchrist Connell would accept service of the Amended Statement of Claim. Although this letter does not expressly mention the deficiencies in the proposed pleading, a fair reading of the course of correspondence shows that Gilchrist Connell's criticisms of those deficiencies were not abandoned and indeed were maintained in submissions before the Court. 5. The contest about the representative order and the pleadings issues were so thoroughly mixed in this case that separate costs orders should not be made, on each of these two parts of the Motion, even though the representative orders were the subject of a judgment followed by a separate argument about the pleading issues. The Court will make a single order as to costs on the Motion but will make the usual order suggested by Mr Martinez for the recovery of any costs thrown away because of the pleading amendment. 6. Any costs order to be made in this matter should recognise several prominent factors. Mr Martinez was successful on the issue of the representative order but in the pre-hearing correspondence Gilchrist Connell were not allowing the representative order to be finalised by consent separately from the pleading issues. And to the extent that Mr Martinez came up with what he claims was an "open, co-operative and pragmatic" response to the claim for a representative order, that response really only clearly emerged in June 2021 shortly before the Court was to hear the motion and in circumstances where the pleading points were not being abandoned. 7. And Mr Martinez quite rightly decided not to pursue some of his pleading points that were critical of the proposed Amended Statement of Claim after comments from the Court during oral submissions on 12 November 2021. The transcript of the hearing on 12 November 2021 reveals this clearly enough, without the Court having to detail it again in these reasons. And Mr Lewis offered to make some slight, but not particularly significant, changes to the pleading in response to issues raised by Mr Martinez. And yet other pleading issues were resolved by discussion and clarification during the oral submissions on the pleadings, indicating that better communication between the parties would probably have led to the pleading being filed more cooperatively. 8. This mixture of results does not point to a decisive costs outcome on the plaintiff's Motion. The prehearing position that Mr Martinez took on the issue of representative orders was vindicated at the hearing of the motion. But Mr Lewis took a not dissimilar position on the issue of representative orders before the hearing of the motion which Mr Martinez would not accept, without requiring Mr Lewis to accept a position on the issue of the pleadings, on which Mr Martinez was not successful. 9. Both parties chose to conduct this litigation very robustly on both sides. Their pre-trial correspondence maintained the complete correctness of the stances that they took on all these procedural issues. This somewhat diminished the ordinary opportunities for compromise and clouds any assessment of each party's success. Yet each party, if ultimately successful, should be able to recover the cost of this dispute. In these circumstances the appropriate order is that each party's costs of the Motion will be that party's costs in the proceedings. But Mr Lewis accepts, as he should, that the ordinary costs order will flow from his pleading amendments and he will bear the costs thrown away by the filing of the Amended Statement of Claim. 10. Finally, there is no basis for making the indemnity costs order Mr Martinez seeks against Mr Lewis. Given the mixture of issues and the nature of the correspondence between these parties, this is not a case that attracts any of the principles for the making of indemnity costs orders. There is no obviously delinquent or unreasonable conduct on the part of Mr Lewis: see Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11; and Baltic Shipping Company v Dillon "Mikhail Lermontov" (1991) 22 NSWLR 1; (1991) ASC 56-039; Harrison v Schipp [2001] NSWCA 13 at 138; and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; [1988] FCA 364. Mr Martinez's application for indemnity costs fails. 11. For these reasons the Court will make the following costs orders on the Motion: 1. Order that the costs of the plaintiff's Amended Notice of Motion filed on 14 October 2021 shall be each party's costs in the proceedings, but those costs will exclude the costs encompassed by order (2); 2. The plaintiff is ordered to pay the defendants' costs thrown away by the filing of the Amended Statement of Claim on 11 January 2022. ********** Amendments 21 February 2022 - "Gilchrest" to "Gilchrist" [19] third line, "Martinez's" to "Lewis'" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 February 2022