New South Wales Supreme Court CITATION : Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd [2008] NSWSC 1347 HEARING DATE(S) : 15 December 2008 JUDGMENT DATE : 19 December 2008 JURISDICTION : Equity - Commercial List JUDGMENT OF : Bergin J CATCHWORDS : [COSTS] - trial on liability - first defendant found liable - trial on quantum yet to occur - whether costs order should be made prior to finalisation of all issues in proceedings - [COSTS/STAY/INTEREST] - whether successful second defendant's conduct unreasonable - whether costs orders should be made - whether interest on costs - [EVIDENCE] - voir dire - whether plaintiff entitled to call evidence of communication during mediation - whether defendant's conduct amounted to "consent" within the meaning of s 30(5)(a) of the Civil Procedure Act 2005 - whether "privilege" waived - whether without prejudice status of communication lost - [MEDIATION] - need for mediators' compliance with rule 20.7 of the Uniform Civil Procedure Rules 2005 - [REFORM] - whether rule should be amended Civil Procedure Act 2005 LEGISLATION CITED : Corporations Act 2001 (Cth) Evidence Act 1995 Uniform Civil Procedure Rules 2005 Azzi v Volvo Car Australia Pty Ltd (Costs) [2007] NSWSC 375 Benecke v National Australia Bank (1993) 35 NSWLR 110 Commonwealth Bank of Australia v McConnell (Rolfe J, Supreme Court of New South Wales, 24 July 1997, unreported, BC9705442) CASES CITED : Farm Debt Mediation Act 1994 Fiduciary Ltd & Anor v Morningstar Research Pty Limited (2002) 55 NSWLR 1 Garratt's Ltd v Thanga Thangathurai [2002] NSWSC 39 Horrobin v Australia & New Zealand Banking Group Ltd (Court of Appeal, 6 June 1997, unreported, BC9702258) Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Limited [2008] NSWSC 1003 Sharjade Pty Ltd (Plaintiff) PARTIES : RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd (First Defendant) The Commonwealth of Australia (Second Defendant) FILE NUMBER(S) : SC 50024 of 2006 CRC Newlinds SC (Plaintiff) COUNSEL : N Owens (First Defendant) M Speakman SC/D Moujalli (Second Defendant) Piper Alderman (Plaintiff) SOLICITORS : Gadens Lawyers (First Defendant) Blake Dawson (Second Defendant) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 19 DECEMBER 2008 50024/06 SHARJADE PTY LIMITED v RAAF (LANDINGS) EX-SERVICEMEN CHARITABLE FUND PTY LIMITED & ANOR JUDGMENT 1 These are competing costs applications in respect of orders made on 16 October 2008 consequent upon my judgment of 8 October 2008: Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Limited [2008] NSWSC 1003 (the Judgment). 2 The plaintiff sued the first defendant for breach of contract and conspiracy. After a trial on liability only, the plaintiff succeeded in respect of the breach of contract claim but the conspiracy claim was dismissed. The plaintiff's claims against the second defendant for inducement of breach of contract and conspiracy were both dismissed. Although there is a timetable in place between the plaintiff and the first defendant for the preparation of the evidence on quantum, the trial date is yet to be fixed because the plaintiff is seeking leave to appeal against the dismissal of its claims against the second defendant and the first defendant is also seeking leave to appeal against the finding that it is liable to the plaintiff for breach of contract. 3 The costs applications were heard on 15 December 2008 when Mr CRC Newlinds SC appeared for the plaintiff, Mr N Owens, of counsel, appeared for the first defendant and Mr M Speakman SC leading Mr D Moujalli, of counsel, appeared for the second defendant. Costs Against the First Defendant 4 The first defendant made application for an order that the plaintiff pay the first defendant's costs of the plaintiff's unsuccessful application to amend its pleading as outlined in pars [153]-[161] of the Judgment. It also sought orders that the plaintiff pay its costs in respect of the conspiracy claim that was dismissed and that any costs order in relation to the contract case should await the outcome of the hearing on quantum. 5 The plaintiff submitted that it is appropriate to order that the first defendant pay the costs of the trial on liability forthwith, notwithstanding the hearing on quantum is yet to occur. It was submitted that such an order is justified because the questions of liability and quantum are wholly separate and discrete. It was also submitted that the first defendant had acted unreasonably in terminating the Heads of Agreement with the plaintiff. In support of its submission that the first defendant should pay the plaintiff's costs of the liability trial forthwith, the plaintiff relied upon the finding that the first defendant's change in attitude towards the plaintiff and Mr Akbarian was probably caused by the search for a better profit arrangement: par [134] of the Judgment. The plaintiff also relied upon Barrett J's analysis of the factors to be taken into account in considering whether the Court should depart from the normal rule that costs are payable at the conclusion of the proceedings: Fiduciary Ltd & Anor v Morningstar Research Pty Limited (2002) 55 NSWLR 1 at 4-5, pars [10]– [13]. 6 In respect of the first factor, that of the issue of liability being wholly separate and discrete, Barrett J referred to the judgment of Priestley JA in Horrobin v Australia & New Zealand Banking Group Ltd (Court of Appeal, 6 June 1997, unreported, BC9702258) at 9 where his Honour said: None of the cases is on all fours with the present one; indeed, a reading of them emphasises the need for cases to be considered by reference to their own particular facts. Nevertheless, those relied on by counsel for H and S show there is a tendency for costs orders to be made payable forthwith and without waiting for the conclusion of further proceedings when the proceedings in respect of which the costs orders have been made are regarded as sufficiently self contained and detached or detachable from proceedings yet to be heard, whether between the same or associated parties, as to make it seem just for an actual payment to be made in the meantime. 7 I am not satisfied that the question of liability in this case is sufficiently self-contained and detached or detachable from the balance of the proceedings to be heard on quantum. The plaintiff will have to prove that it is entitled to damages and, as Mr Owens submitted, if the plaintiff is unable to prove that it is entitled to damages then it would not be consistent with the dictates of justice that the costs of the liability trial be paid forthwith. I agree with that submission. As to the second matter raised by the plaintiff in relation to the alleged unreasonable conduct of the defendant, that is a matter that may be taken into account after the quantum hearing. 8 I am satisfied that the fairest and most appropriate way to deal with the questions of costs as between the plaintiff and first defendant is to await the outcome of the quantum hearing. Release of Security for Costs 9 The plaintiff made an application for release of the security for costs that was provided by way of bank guarantee. 10 This application exposed a problem in the Australian Securities & Investments Commission (ASIC) "Current Extract" in respect of the plaintiff (the ASIC Search). The ASIC Search lists the "Current Members" as "Arash and Arezu Pty Limited" as the beneficial owner of two ordinary class shares. Arash and Arezu Pty Limited was deregistered on 8 January 2006. The "Reason" for the deregistration is recorded as "Section 601AB". That section of the Corporations Act 2001 (Cth) provides as follows: 601AB Deregistration – ASIC initiated (1) ASIC may decide to deregister a company if: (a) the response to a return of particulars given to the company is at least 6 months late; and (b) the company has not lodged any other documents under this Act in the last 18 months; and (c) ASIC has no reason to believe that the company is carrying on business. 11 Section 601AD(2) of the Corporations Act provides as follows: (2) On deregistration, all the company's property (other than any property held on trust) vests in ASIC. If company property is vested in a liquidator (other than any company property vested in a liquidator on trust) immediately before deregistration, that property vests in ASIC. This subsection extends to property situated outside this jurisdiction. 12 "Property" is defined in s 9 of the Corporations Act as "any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action". I have ordered the parties' solicitors to notify ASIC of what appeared to be an error in the ASIC search as it related to the plaintiff. 13 As I have said earlier the fairest and most appropriate way to deal with the question of costs as between the plaintiff and the first defendant is to await the outcome of the quantum hearing. It seems to me to be inappropriate to release the security at this stage of the proceedings, particularly having regard to the fact that there is no proper evidence before the Court of any need in the plaintiff to have the security released and also having regard to the exposure of the matter outlined above. 14 I am not satisfied that I should make an order for the release of the security in advance of the hearing on quantum and the finalisation of the orders in relation to costs. Costs of the Second Defendant 15 The plaintiff failed in both its claims against the second defendant. The second defendant seeks an order that the plaintiff pay its costs on a party/party basis up to 21 July 2008 and thereafter on an indemnity basis. The claim for indemnity costs is a little complex because there is a question whether the Calderbank offer was made during a "mediation session" within the meaning of that term in s 30 of the Civil Procedure Act 2005. 16 The plaintiff seeks an order that there be no order as to costs as between it and the second defendant because of the second defendant's wrongful termination of the Option Agreement. It was held that the second defendant was not entitled to demand the provision of a bank guarantee or the payment of interest from the first defendant without having entered into a Contract for the Sale of Land or at least proffered the contract to the first defendant for execution: par [112] of the Judgment. 17 The plaintiff claimed that the second defendant was an essential party to the proceedings by reason of the claim the plaintiff made that the second defendant was not entitled to make those demands on the first defendant and/or terminate the Option Agreement. It would have been possible for the plaintiff simply to sue the first defendant for breach of contract without joining the second defendant as a party. The question of whether the second defendant was entitled to make the demands it did was a question of construction of the Option Agreement and the facts in respect of whether a contract had been proffered by the second defendant to the first defendant. The witnesses that the first defendant would have relied upon in this regard would no doubt have been some of the officers of the second defendant but I am not satisfied that it was an essential party to proceedings for the claim of breach of contract against the first defendant. 18 It is necessary then to turn to the question of whether the second defendant should have its costs following the event of its success in defeating the plaintiff's claims of inducement of breach of contract and conspiracy. It was submitted that the second defendant's conduct triggered the first defendant's conduct in terminating the Heads of Agreement between the plaintiff and the first defendant. However the real question is whether there are circumstances which would persuade me to depart from the usual order of costs following the event. Although it was held that the second defendant's demands on the first defendant were not justified, I am not satisfied that this was conduct that disentitles the second defendant from recovering its costs of successfully defending the plaintiff's claims against it. I am not satisfied that there are any circumstances which would justify a departure from the usual order of costs following the event. The next question is whether I should award indemnity costs from 21 July 2008. Mediation 19 At the conclusion of the ninth day of hearing of the proceedings on 17 July 2008 I made an order referring the matter to mediation "such mediation to occur on 18 July 2008". It is common ground between the parties that the mediation took place on 18 July 2008; that the parties left the meeting with the mediator at approximately 5.00 pm on 18 July 2008; that the mediator did not say at the conclusion of that meeting that the mediation was at an end or had been concluded; and that the mediator did not notify the Court pursuant to Rule 20.7 of the Uniform Civil Procedure Rules 2005. That Rule provides: 20.7 Notification of conclusion of mediation Within 7 days after the conclusion of the mediation, the mediator must advise the court of the fact that the mediation has been concluded. 20 It is apparent from an analysis of matters at least in the Commercial List and Technology and Construction List that, in the main, mediators outside the court annexed mediation system have not been complying with this Rule. In the vast majority of cases this has been of no practical consequence. However, this case exemplifies the difficulties that can occur in the absence of such compliance. 21 There are good policy reasons for Rule 20.7. It is necessary to have certainty of the timeframe in which the "mediation session" occurred whilst keeping confidential the communications between the parties and the mediator. Unfortunately compliance with the Rule may not achieve that certainty if it is not otherwise clear when the "mediation session" commenced. The policy of having the mediator advise the Court of the time of the conclusion of the "mediation" was also to accommodate confidentiality agreements in respect of the mediation and s 30(4) of the Civil Procedure Act 2005 which renders inadmissible anything said at a mediation and/or documents prepared for the purposes of, in the course of, or as a result of a mediation session. 22 When parties attend unsuccessful mediations whilst the trial of a matter is proceeding and then continue with the trial, the inference (irresistible perhaps) is that the mediation has been concluded. Even so, it is important that mediators still comply with the Rule so that there is evidence of that fact. The issues that have been highlighted by this application lead me to the conclusion that it may be prudent to amend Rule 20.7 to require the mediator to notify the Court of the time and date on which the "mediation session" commenced and concluded. 23 In this case the second defendant claims that it provided a Calderbank offer by email (the email) to the plaintiff at 6.37 pm on 18 July 2008, one hour and 37 minutes after the parties left the meeting with the mediator. The question of the admissibility of the email and evidence surrounding the way in which that email was prepared and provided to the plaintiff was heard on the voir dire and I reserved my judgment as to whether to admit the evidence on the application for costs. 24 Mr Speakman submitted that his client was entitled to proffer the email as a stand alone offer, quite separate from the mediation process, without having to prove that the offer was made outside the timeframe of the mediation. Andrew Keith Carter, a partner of the firm Blake Dawson, solicitors for the second defendant, made an affirmation dated 14 November 2008 in which he gave evidence that "after the conclusion of the mediation" the second defendant made an offer to settle the proceedings which was communicated to the plaintiff by the email. Mr Newlinds tendered a Mediation Agreement and a Confidentiality Agreement. Although both are undated it is common ground that they were executed on 18 July 2008. The Mediation Agreement included the following: 2. Confidentiality The Mediator and the parties and all persons brought within the mediation by either party shall each sign and observe the Confidentiality Agreement in the accompanying form and in particular there shall not be introduced as evidence or relied on in any arbitral or judicial proceedings or otherwise disclosed - (a) exchanges whether oral or documentary passing between any of the parties and the Mediator or between any two or more of the parties within the mediation, (b) views expressed or suggestions or proposals made within the mediation by the Mediator or by any party in respect of a possible settlement of the dispute, (c) admissions made within the mediation by any party, (d) the fact that any party has indicated within the mediation willingness to accept any proposal for the settlement made by the Mediator or by any party, (e) documents brought into existence for the purpose of a mediation such as position papers or notes made within the mediation by the Mediator or by any party. Every aspect of every communication within the mediation including communications within (a) to (e) above shall be without prejudice. This clause in no way fetters the legitimate use in enforcement proceedings or otherwise of any written and signed settlement agreement reached in or as a result of this mediation. Any constraints on disclosure included in such settlement agreement will have effect in accordance with their terms. 25 The Confidentiality Agreement included the following: …I agree with each of the above parties and with the Mediator that I will unless otherwise compelled by law preserve total confidentiality in relation to all communications and the course of proceedings within the mediation that may come to my knowledge passing between any of the parties and the Mediator or between any two or more of the parties within the mediation. 26 Section 30 of the Civil Procedure Act 2005 provides relevantly: 30. Privilege (1) In this section, mediation session includes any steps taken in the course of making arrangements for the session or in the course of the follow-up of a session. … (4) Subject to section 29(2): (a) evidence of anything said or of any admission made in a mediation session is not admissible in any proceedings before any court or other body, and (b) a document prepared for the purposes of, or in the course of, or as a result of, a mediation session, or any copy of such a document, is not admissible in evidence in any proceedings before any court or other body. 27 Section 29(2) of the Civil Procedure Act 2005 is not relevant to the present circumstances. 28 There is no definition of the term "the follow-up of a session" as used in s 30(1) of the Civil Procedure Act. It is a rather loose term and where the Court does not know, as a fact, the time and date on which the mediation was "concluded" because Rule 20.7 has not been complied with, it is very difficult to know whether communications were part of a follow-up of a mediation session. The amendment suggested above, in particular the need to notify the Court in respect of the "mediation session" would cure this problem as well. 29 I allowed Mr Newlinds to call evidence from Mr Akbarian on the voir dire in relation to the communication with Mr Carter in respect of the email. This evidence was given notwithstanding objection to it by Mr Speakman SC. The objection that was made was that the plaintiff was precluded from giving evidence by reason of s 189(7) of the Evidence Act. That section deals with the voir dire. Section 189(7) is in the following rather opaque terms: (7) In the application of Chapter 3 to a hearing to determine a preliminary question, the facts in issue are taken to include the facts to which the hearing relates. 30 Mr Speakman submitted that Mr Newlinds was precluded from calling evidence from Mr Akbarian by reason of s 131 of the Civil Procedure Act which provides relevantly: 131 Exclusion of evidence of settlement negotiations (1) Evidence is not to be adduced of: (a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or (b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute. 31 However s 131(2)(h) excludes the operation of s 131(1) in relation to a communication or document that is relevant to determining liability for costs. It seems to me that s 30 of the Civil Procedure Act is a complete prohibition in clear and unambiguous terms. I am of the view that s 131(1) is not applicable in this instance and s 131(2)(h) does not apply to attempts to settle a dispute in a mediation session: Azzi v Volvo Car Australia Pty Ltd (Costs) [2007] NSWSC 375. 32 Section 30 of the Civil Procedure Act appears under the heading "Privilege". The communications referred to in similar provisions to s 30 of the Civil Procedure Act (that is, in s 15(1) of the Farm Debt Mediation Act 1994) have been described as having the status of "without prejudice" communications: Commonwealth Bank of Australia v McConnell (Rolfe J, Supreme Court of New South Wales, 24 July 1997, unreported, BC9705442 at 27). When the second defendant asserted that the email containing the Calderbank offer was created after the conclusion of and independently of the mediation session it opened up the questions of: (1) whether the mediation session had concluded at the time the document was provided to the plaintiff; and (2) whether the document was independent from the mediation session and was not "as a result of" the mediation session. 33 Although the Court of Appeal was considering a question of legal professional privilege (prior to the introduction of the Evidence Act 1995) in Benecke v National Australia Bank (1993) 35 NSWLR 110 the observations made by Gleeson CJ at 111 seem to me to be analogous to the present situation: The rule that prevents an unauthorised disclosure of confidential communications between a client and a legal adviser, when such communications are for the purpose of obtaining legal advice, or for use in existing or anticipated litigation, constitutes a restriction upon the capacity of courts to ascertain the truth in certain circumstances. That restriction, however, is regarded as acceptable on the ground that it promotes the public interest, and assists the administration of justice, by facilitating the representation of clients by legal advisers. It does this by encouraging uninhibited communication. Thus, in cases where the rule operates, one aspect of the public interest is preferred against another (discovering the truth). 34 The restriction on admissibility of communications at a mediation are regarded as acceptable on the ground that such restriction promotes the public interest and assists the administration of justice by facilitating uninhibited communication and the increased prospect of settlements. 35 The Chief Justice continued at 111-112: It would be inconsistent with the reason for the existence of the privilege to permit it to operate in the manner for which the appellant contends. But for her own actions, the privilege would have enabled the appellant to insist that nobody should be able to give evidence that the confidential communications between the appellant and her senior counsel about the settlement of the first proceedings, without the consent of the appellant. However, it did not enable the appellant to make public her version of those communications and, at the same time, to enforce silence on the part of others who disagreed with that version. The law permits the search for the truth in legal proceedings to yield, in certain circumstances, to the public interest in preserving the secrecy of communications between lawyer and client. In the present case ,however, the appellant herself lifted the veil of secrecy by giving her version of the communications. Thereafter, there was no reason in principle why the pursuit of the truth should not take its course, or why the court should be inhibited in seeking to ascertain the true facts concerning those communications. 36 Similarly Clarke JA said at 116: The appellant, in making her assertions that her lawyers compromised the proceedings without her consent, opened up the question of the authority of the lawyers to act as they did and thereby waived her privilege. I take this to be clear as a matter of legal principle on grounds of basic fairness. 37 I am satisfied that once the second defendant made these assertions it waived any privilege that attached to the communications in respect of that letter, or put more aptly, it impliedly consented to the disclosure of the communication in respect of the letter: s 30(5)(a) of the Civil Procedure Act 2005; see also Garratt's Ltd v Thangathurai [2002] NSWSC 39. It would have been unfair to preclude the plaintiff from calling evidence to test the second defendant's assertions. The evidence was allowed on the voir dire. 38 The evidence that was given by Mr Akbarian, which was unchallenged, was that the email was a document that he had asked the second defendant prior to 5.00 pm on 18 July 2008 to put in writing because he wanted to see the details and take some legal advice. 39 In all the circumstances I am satisfied that I should reject the email sent to the plaintiff at 6.37 pm on 18 July 2008 on the basis that it was a document that was prepared in the course of and/or "as a result of" a mediation session. 40 Even if that be wrong and the document is admissible on this application, I am satisfied that it was not unreasonable for the plaintiff to reject it. The plaintiff sought an extension of time within which the offer was open to seek legal advice, which was rejected by the second defendant. The plaintiff was given only three business hours to respond to the offer at a time when Mr Akbarian was representing the plaintiff in circumstances that were no doubt very pressing. 41 The second defendant's application for indemnity costs will be rejected. Stay 42 The plaintiff submitted that the circumstances of this case justify a stay of the enforcement of the order for costs payable to the second defendant. It was submitted that unless a stay is granted the proceedings would probably be stultified. Mr Newlinds, with his usual candour, indicated that this submission should be understood to mean only that the proceedings could not proceed with legal representation of the plaintiff. In other words, it would be most likely that Mr Akbarian would once again seek to represent the plaintiff even if the payment of the costs to the second defendant left the plaintiff in a position where it was not able to afford to retain legal representatives. 43 Mr Speakman submitted that there is no evidence of Mr Akbarian's financial position. It was submitted he may well be in a position to provide funding for the plaintiff to continue with the preparation for and hearing of the quantum aspect of the proceedings. He submitted that the lack of evidence means that there should be no stay of the enforcement of the order for costs. Having regard to the lack of any evidence in relation to any true detriment to the plaintiff it is inappropriate to stay the enforcement of the costs order. 44 However I am of the view that I should stay the enforcement of the costs order for a period whilst the plaintiff notifies ASIC of the error in the ASIC Extract and provides it with a copy of my judgment of 8 October 2008 and the consequential orders made on 16 October 2008 together with a copy of this judgment. As this matter only came up during the course of the argument I intend to provide a short time within which any party may make application in respect of that matter. Interest 45 The second defendant submitted that it is entitled to interest on costs according to the formula contained in paragraph 14(b) of Mr Carter's affirmation of 14 November 2008. There was nothing put forward by the plaintiff that persuades me not to exercise my discretion in this regard. Accordingly there will be an order for interest on costs pursuant to this formula. Orders 46 The question of the costs between the plaintiff and the first defendant will await the outcome of the quantum hearing. 47 The plaintiff's application for release of the security for costs is dismissed. 48 The plaintiff is to pay the second defendant's costs of the proceedings on a party/party basis together with interest on those costs pursuant to the formula contained in paragraph 14(b) of Mr Carter's affirmation of 14 November 2008. The enforcement of that costs order is stayed up to and including 19 February 2009. 49 I list the matter for directions on 20 February 2009. I grant liberty to restore on 1 day's notice ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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