SD Commercial Lawyers Pty Limited v Lecos Corporate Pty Limited & Anor [2022] NSWDC 85

District Court New South Wales

Medium Neutral Citation: SD Commercial Lawyers Pty Limited v Lecos Corporate Pty Limited & Anor [2022] NSWDC 85 Hearing dates: 24 February 2022 – 25 February 2022 Date of orders: 25 February 2022 Decision date: 25 February 2022 Jurisdiction: Civil Before: Neilson DCJ Decision: See par [48] Catchwords: CIVIL – APPEAL – COSTS ASSESSMENT – APPEAL FROM DETERMINATION OF THE COSTS REVIEW PANEL – ADDITIONAL EVIDENCE ON APPEAL – WHETHER ADEQUATE DISCLOSURE BY PLAINTIFF LAWYERS. Legislation Cited: Legal Profession Uniform Law Application Act 2014 (NSW) No 16 Legal Profession Uniform Law (NSW) No 16A of 2014 Cases Cited: Develtor Property Group Pty Limited v Newcastle City Council [2001] NSWLEC 47 Gazecki v McCabes Lawyers Pty Limited [2020] NSWCA 98; (2020) 102 NSWLR 259 Trust Co of Australia Limited v Perpetual Trustees WA Limited (No P2) (1995) 36 NSWLR 654 Texts Cited: G E Dal Pont, Law of Costs, 4th edition, 2018, LexisNexis, Butterworths Category: Principal judgment Parties: Plaintiff – SD Commercial Lawyers Pty Limited First Defendant – Lecos Corporate Pty Limited Second Defendant – Leonardo Da Costa e Costa Representation: Plaintiff – McDonald, J. Defendants – Byrne, C. File Number(s): 2021/00204018 Publication restriction: Nil

Judgment 1. HIS HONOUR: The plaintiff, SD Commercial Lawyers Pty Limited, is a law practice. It is a solicitor's practice. The defendants, Lecos Corporate Pty Limited and Leonardo Da Costa e Costa are former clients of the law practice. This appeal concerns the costs charged by the law practice to its former clients. On 9 October 2019, the defendants filed an application for assessment of the costs charged by the law practice to the defendants. That application contains a "background" which sets out the litigation and the background to that litigation, which caused the defendants to retain the plaintiff. The application contains this matter: "5. The corporate client, Lecos Corporate Pty Limited is an Australian Private Company based in/near Bondi Junction Plaza and Queens Park in New South Wales. The client was incorporated on 26 August 2015… 6. Mr Costa is the sole shareholder, director and secretary of Lecos. 7. Mr Costa holds a Bachelor of Marketing degree and 15 years' previous experience in wholesale and retail business. 8. Neither Lecos nor Mr Costa are commercial clients within the meaning of, or for the purposes of, s 170(1)(a) of LPUL. 9. In March 2016, Lecos entered into a franchise with Nestle Australia Pty Limited trading as 'Movenpick Ice Cream' (Nestle, first respondent in the proceedings) to operate an ice cream store in George Street, Sydney (Sydney CBD shop) under the Movenpick brand (the Agreement). Mr Costa is a guarantor to the Agreement dated 21 March 2016. 10. Nestle was the original franchisor, the owner of the intellectual property rights associated with the Movenpick name and brand, at the time Lecos entered the Agreement. After that time Movenpick 'changed hands' twice, to Australasian Food Group Pty Limited trading as Peters Ice Cream (Peters, second respondent), in around October 2016 and to Emerald Foods (Australia) Pty Limited (Emerald, third respondent) on or about 30 June 2017. 11. The franchisor will be referred to as Movenpick, regardless of the ultimate owner of that brand at any given time. 12. From about 2008, Movenpick granted a number of franchises to operate ice cream stores in New South Wales, Queensland and Victoria. In 2013, it came up with a new, more upmarket business model (Boutique Business Model) which included dine-in options for customers. Only four Boutique Business Models were sold, including the Sydney CBD store to Lecos. Others included a store in Adelaide, operated by Bagel & Cooper Pty Limited (Third Applicant), and one in Canberra owned by Dashiel Investments Pty Limited (Sixth Applicant). 13. Importantly, the CBD site was the last boutique sold. 14. The Sydney CBD shop was a 159 square metre site with external terrace, across from Event Cinema on George Street. Lecos operated the Sydney CBD shop for eight months from June 2016 until January 2017, when the Agreement was terminated and Lecos was removed from the premises. 15. Mr Costa estimates he lost between $1.4 million and $1.6 million in operating the Sydney CBD shop and maintained it was never profitable. 16. Lecos claims the Boutique Business Model is flawed and the revenues generated from the sale of the Movenpick branded ice creams and desserts were never capable of covering, let alone exceeding, the expenses associated in running the Sydney CBD shop. These expenses, included high rents to cover the floorspace needed for the dine-in store, labour and costs of goods sold. 17. Further, Lecos claims that Nestle was aware by 2015 that the Boutique Business Model was flawed and unprofitable, based on sales results from stores in Melbourne, opened 2013 and Adelaide, opened 2015. 18. Subsequent to Lecos being terminated, Movenpick was operating the store as a corporate store and it continues, generally, to be unprofitable. 19. Mr Costa says he was induced to buy the franchise following representations by Nestle that: (a) the Sydney CBD shop would be profitable; (b) all of Movenpick's franchises (bar one) were profitable and based on a 'tried and tested' franchise mode; (c) about 30% of revenue would be profit; (d) labour and cost of goods sold would be approximately 30% of sales; (e) the store would have a specially designed, state-of‑the-art fit‑out; and (f) Nestle would provide a high level of ongoing support and training, including marketing support. 20. Between about May 2015 and February 2016, Nestle also made representations to Mr Costa about the cost of the fit-out, including: (a) the fit-out in the Sydney CBD shop was 'fit for purpose' and the total cost was about $1 million; (b) the Lessor was contributing $300,000. Nestle was contributing $300,000 and Lecos would pay the remaining cost of about $440,000. 21. In reliance upon the representations from Nestle, Lecos entered the Agreement and commercial lease, Mr Costa signed the deed of guarantee. Between April and May 2016, Lecos paid $440,000 for the fit-out of the Sydney CBD shop as specified by Nestle and constructed by Nestle's contractor. In about March 2016 Lecos also paid a $206,250.00 bank guarantee. 22. Lecos claims the Sydney CBD shop was unprofitable from the start as the expenses exceeded revenue. The daily break even figure for the Sydney CBD shop was $5,442 and the average daily revenue while operated by Lecos was between $2,500 and $3,000. 23. Lecos reported the poor performance to Nestle between May and June 2016 and in July 2016, Nestle used its own staff to run a 'bootcamp' and help to operate the Sydney CBD shop. In this time, average daily revenue was around $3,285.71. 24. There were also problems with the fit-out at the Sydney CBD shop. Lecos says these included freezers that overheated and periodically shutdown, poor ventilation in storage areas, a defective Point of Sale system and problems with the air conditioning system. 25. Mr Costa also claims the real cost of the fit-out was between about $300,000 and $440,000, and Nestle had not contributed $300,000 as it had represented. 26. In December 2016, Lecos received a purported Notice of Breach of the Franchise and Licence agreement from Peters, which then operated the Movenpick brand, and the agreement was terminated on 19 January 2017." 1. The defendants initially retained Fong D'Emilio Lawyers Pty Limited, which commenced proceedings in the Federal Court of Australia on 17 January 2017, naming both Nestle and Peters as the respondents. 2. On 1 February 2017 the defendants retained the current plaintiff. Mr Stephen D'Emilio was a practitioner in the former legal practice and also is a principal, as I understand it, of the current plaintiff, but nothing turns on that. The two law practices were different legal entities and I am only concerned with the costs rendered by the current defendant. As I have already stated, the defendants applied on 9 October 2019, for an assessment of the costs payable by the defendants to the plaintiff. 3. On 27 July 2020, a Costs Assessor, Mr R M Hamwood, completed his assessment of the costs payable by the defendants to the plaintiff. That assessment is Exhibit D. On the same day, a certificate of determination of costs payable by the defendants to the plaintiff was issued, that is Exhibit F. On the same day, the Manager of Costs Assessment issued a certificate directing that the remuneration of the Costs Assessor, $9,405, was payable by the plaintiff. That certificate is Exhibit E. The certificate issued of the costs assessed required the payment by the defendants to the plaintiff of $213,129.97, which was the result of the deduction of the costs of the assessment, $4,265, which I understand to have been the filing fee, from the total costs assessed by the Costs Assessor, which were $217,394.97. 4. On 10 September 2020, the plaintiff applied for a review of the determination of the Costs Assessor. That application is Exhibit G. The Review Panel, comprised of Mr Mark Stefan Campbell and Mr Peter William Rosier, published reasons bearing date 1 June 2021. The Review Panel affirmed the determination of the Costs Assessor. The appropriate certificate, issued on 18 June 2021 by the Costs Assessments Manager is Exhibit J. Exhibit K is a certificate of determination of the Review Panel costs, which were ordered to be paid, which had been paid by the plaintiff in any event, antecedent to the publishing of the Review Panel's reasons. 5. The current proceedings were commenced by a summons filed on 16 July 2021, commencing an appeal and also seeking leave to appeal. The alternative name for the summons was unnecessary.