Supreme Court New South Wales Medium Neutral Citation: Jeandin v Tzovaras [2011] NSWSC 1511 Hearing dates: 01/12/2011 Decision date: 01 December 2011 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: (1) Direct entry of judgment for the Plaintiff against the Third Defendant in the amount of $1,946,130.13 including interest to 1 December 2011. (2) Declare that the Plaintiff is entitled to enforce a charge against the Fourth Defendant pursuant to section 6 of the Law Reform (Miscellaneous Provisions) Act 1946, over all insurance moneys payable in respect of the Third Defendant's liability to the Plaintiff (being the judgment referred to in order 1 above and any interest thereon, and the costs order referred to in order 6(b) below), provided that the amount secured by such charge shall not exceed $1,992,500. (3) Order that the Fourth Defendant, pursuant to the charge referred to in the declaration above, within 28 days pay to the Plaintiff the sum of $1,946,130.13 in respect of the Third Defendant's liability under the judgment referred to in order 1 above. (4) Order that the sum of $50,000 lodged by the Plaintiff as security for the Fourth Defendant's costs (together with any interest accrued) be paid out to the Plaintiff. (5) Vacate order 2 made on 4 November 2011. (6) Order that: the First and Second Defendants pay the Plaintiff's costs of the proceedings; the Third Defendant pay the Plaintiff's costs of the proceedings from 11 June 2010 (apart from any costs of the claims brought on the guarantee against the First and Second Defendants); the Fourth Defendant pay the Plaintiff's costs of the motion for joinder filed on 30 April 2010, and the Plaintiff's costs of the proceedings from 11 June 2010 up to and including 9 September 2011 (apart from any costs of the claims brought on the guarantee against the First and Second Defendants), on the ordinary basis; and the Fourth Defendant pay the Plaintiff's costs of the proceedings from 10 September 2011 (apart from any costs of the claims brought on the guarantee against the First and Second Defendants), on the indemnity basis. (7) Liberty to apply on 3 days notice. (8) Reserve to the first defendant liberty to apply on three days' notice for the discharge or variation of the freezing order made against him on 4 February 2010 as extended from time to time thereafter. (9) Stay for a period of 14 days from today's date execution of the judgment to be entered pursuant to paragraph 1 and 3 of the Short Minutes of Order. (10) Direct that the exhibits be retained for 28 days and thereafter be dealt with in accordance with the Rules. Catchwords: COSTS - insurance - contract - whether insurer required to indemnify against certain costs - whether recovery of costs would impose liability in excess of policy limit. Legislation Cited: Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Category: Procedural and other rulings Parties: Jean-Pierre Louis Paul Jeandin (Plaintiff) Ted Dorotheos Tzovaras (First Defendant) George Tzovaras (Second Defendant) Tzovaras Legal Pty Limited (ACN 092 725 829) (Deregistered) (Third Defendant) LawCover Insurance Pty Limited (ACN 095 082 509) (Fourth Defendant) Representation: Counsel: RJH Darke SC / M J Dawson (Plaintiff) P W Arblaster / M Newton (Fourth Defendant) Solicitors: Argyle Lawyers (Plaintiff) No appearance (First, Second and Third Defendants) HWL Ebsworth (Fourth Defendant) File Number(s): 2009/322343 Judgment - EX TEMPORE 1HIS HONOUR: I set out the nature of these proceedings at [1] to [4] of my reasons given on 4 November 2011 ([2011] NSWSC 1254). I will not repeat what I there said. 2I concluded that the plaintiff was entitled to judgment against the first two defendants (to whom I referred as "the brothers"), pursuant to guarantees given by them of the obligations of Country Landmark Pty Limited, in the sum of $1,500,000 plus interest. I concluded, further, that the plaintiff was entitled to judgment against the third defendant (and against the first defendant in his capacity as a solicitor) for breach of a contract of retainer. Finally, for present purposes, I concluded that the plaintiff was entitled to a charge on the indemnity policy issued by the fourth defendant (Lawcover) to the third defendant. 3There is now a dispute between the plaintiff and the only active defendant, Lawcover, as to the precise orders that should be made. 4The limit of indemnity under the Lawcover policy was $2 million, including what the policy referred to as "claimant's costs" and "defence costs". Defence costs can be put to one side, because Lawcover did not undertake the defence of the proceedings on behalf of the third defendant, the incorporated legal practice. 5Claimant's costs are defined as: "legal costs you [the third defendant] have to pay to the person making the claim against you." 6Further, there is an excess of $7,500 including claimant's costs applicable to the obligation to indemnify. As to this excess, it is now common ground that any recovery against Lawcover should be limited to $1,992,500.00. 7The first issue raised by Lawcover relates to the amount of damages in respect of which the charge that had been sought under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) should attach. In this context, it was, by the time of the hearing at least, common ground that the plaintiff had no prospects of recovery from the principal debtor, Country Landmark. I mention that because in its list response, Lawcover had raised, among other things, failure to mitigate as an issue. The particulars of that alleged failure of mitigation were that the plaintiff had not taken any steps to recover from Country Landmark. No reference was made to steps against the first and second defendants as guarantors: presumably because they were being sued on their guarantees. 8Be that as it may, in circumstances where the first and second defendants did not appear at the hearing, the hearing proceeded on the at least tacit assumption, that the first and second defendants had no capacity to meet any judgment made against them. It was never suggested, by "pleadings", particulars, written submissions, oral submissions or otherwise that any judgment recovered against the first and second defendants pursuant to their guarantees might have any value. Not having been warned of the possibility that this argument might be raised, the plaintiff did not put any evidence on as to the worth of those guarantees. 9Nonetheless, Lawcover now takes the point that the plaintiff is required to prove that it can recover nothing under those guarantees. 10It seems to me that there are a number of answers to this contention. It is not necessary to go to them all. Two will suffice. One is that the evidence admitted without objection and without limitation in the proceedings included a letter from the third defendant to the plaintiff's solicitors dated 1 September 2009. That letter was written by the first defendant in his capacity as principal of the third defendant. It included the following statement: In the interest of your client as well as those of the borrower, my brother George and myself, I propose that we resume without prejudice discussions with you and, if practicable, your client (whether in person or on a telephone conference), with a view to formulating a resolution of the current predicament. I am keen to formulate with you and your client a means by which your client may recover the full amount of its principle [sic] and accrued interest, bearing in mind that the borrower is currently insolvent and neither my brother nor I have now any means to make any contribution towards to repayment obligations of the borrower. Regrettably, in the past 12 months, my assets have progressively diminished in value and the actual and contingent liabilities have increased substantially to the point where I find myself in a very precarious financial position. 11Mr Darke of Senior Counsel, who appeared for the plaintiff, together with Mr Dawson of counsel, stated that the letter had been added to the Court Book (in Exhibit PX2, behind tab 85A, and together with the documents behind tabs 85B, 85C, 85D and other tabs) by Lawcover. Although Mr Arblaster of counsel, who appeared for Lawcover on this occasion with Mr Newton of counsel, could not recollect that, the statement by Mr Darke does accord clearly with my own recollection that the Court Book had been prepared by the plaintiff without a great deal of input from the defendants, and that at the hearing, Mr Curtin of Senior Counsel (who then appeared for Lawcover with Mr Arblaster) did add certain documents to the Court Book, including those that I have described. 12I cannot now recall why Mr Curtin did ask for the insertion of the documents to which I have referred. Presumably, they were seen to serve some legitimate forensic purpose. However, in circumstances where the documents were in evidence without limitation, and in particular where their introduction into evidence was sought by Lawcover, I see no reason why I cannot take into account, on this point, the statement made by the first defendant not just for himself but also for "my brother George" - the second defendant. Presumably, having regard to the fact that the brothers were engaged in a joint venture which had gone spectacularly wrong, the first defendant would have more than a passing acquaintance with the financial position of his brother, the second defendant. 13Thus, such evidence as there is supports the conclusion that the judgment recovered by the plaintiff against the first and second defendants pursuant to their guarantees will be worthless. 14Mr Arblaster sought to play down that letter, submitting that it was exactly the sort of letter that one would expect a guarantor to write and that it should be given no weight. I do not agree. Where the document has gone into evidence, it is to be given such weight as, on the face of things, it would bear. On the face of things, it appears to be part of a proposal put in good faith by the first defendant to seek to ensure that the plaintiff recovers as much as possible of the loss that he suffered. I see no reason why the first defendant would not make an honest statement in that context; although I do accept that one would not expect the first defendant to overstate the prospects of recovery from himself and his brother. 15Be that as it may, in circumstances where the particular point is raised unflagged and after the delivery of judgment, the only evidence available is that to which I have referred and it does not support the point. 16The other of the multiple reasons for rejecting this aspect of Lawcover's submissions is, as I have said, that the point should have been brought to the attention of the plaintiff earlier than it was. 17For those reasons I conclude that the first challenge to the orders proposed by the plaintiff fails. 18The next challenge relates to the question of costs. The plaintiff proposes that it should have orders that the first and second defendants pay its costs. That seems to be correct. It seeks orders that the third defendant pay its costs from 11 June 2010 but excluding costs of the claims brought against the first and second defendants pursuant to their guarantees. The reference to 11 June 2010 is a reference to the date when the third defendant was joined to the proceedings. With that explanation, the costs order sought against the third defendant appears to be appropriate. I note that costs payable pursuant to that order would amount to "claimant's costs" for the purposes of the Lawcover policy. 19Against Lawcover the following orders are sought: 1. Directs entry of judgment for the Plaintiff against the Third Defendant in the amount of $1,946,130.13 including interest to 1 December 2011. 2. Declares that the Plaintiff is entitled to enforce a charge against the Fourth Defendant pursuant to section 6 of the Law Reform (Miscellaneous Provisions) Act 1946, over all insurance moneys payable in respect of the Third Defendant's liability to the Plaintiff (being the judgment referred to in order 1 above and any interest thereon, and the costs order referred to in order 6(b) below), provided that the amount secured by such charge shall not exceed $1,992,500. ... 6 (c) the Fourth Defendant pay the Plaintiff's costs of the motion for joinder filed on 30 April 2010, and the Plaintiff's costs of the proceedings from 11 June 2010 up to and including 9 September 2011 (apart from any costs of the claims brought on the guarantee against the First and Second Defendants), on the ordinary basis; and (d) the Fourth Defendant pay the Plaintiff's costs of the proceedings from 10 September 2011 (apart from any costs of the claims brought on the guarantee against the First and Second Defendants), on the indemnity basis. ... 20The first of those orders costs reflects two facts. One is that Lawcover, too, was joined to the proceedings on 11 June 2010 and the costs of the motion for its joinder were ordered to be costs in the proceedings. Since the proceedings against Lawcover have succeeded, the costs of that motion fall to be assessed as part of those costs. The second fact reflected in that first order is that on 9 September 2011, the plaintiff made an offer of compromise to Lawcover. He offered to compromise his claim against it on the basis that it pay him $750,000 exclusive of costs, together with costs as agreed or assessed. Although that offer was served approximately four weeks prior to the commencement of the hearing, and the time for its acceptance expired about a week before the commencement of the hearing, it has not been suggested that the offer was served so late as to lack any utility, or in such circumstances as to deprive Lawcover, during the hurly-burly of preparation for hearing, of an adequate opportunity to consider it. That is why there is the cut-off date of 9 September 2011 stated in the first order sought against Lawcover, and why the second order is sought against Lawcover. 21Mr Arblaster submitted that to make the costs order sought against Lawcover would have the effect of outflanking the limitation of liability contained in the policy, and thus would fall foul of s 6(7) of the Law Reform (Miscellaneous Provisions) Act 1946. That subsection states that: "[n]o insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured." 22Mr Arblaster submitted that much, if not all of the costs sought against Lawcover would be "claimant's costs" within the meaning of the policy, and thus that to order costs against Lawcover in addition to the limited indemnity under the policy would fall foul of s 6(7). 23There are some problems with that submission. The first problem is that Lawcover did not indemnity the third defendant and the third defendant defended the proceedings (to the extent that it did) on its own account. The second problem is that Lawcover did defend the proceedings in its own right. As I have indicated, it filed a list response. That list response took issue with many of the crucial aspects of the case "pleaded" against the third defendant. It did so because it was always Lawcover's case that the plaintiff's claim did not arise out of or in respect of the breach of any contract of retainer. It was for that reason that, when I summarised the issues in the proceedings as between the plaintiff and Lawcover at [5] of my earlier reasons, I did so in the following terms: (1) was a contract of retainer made between Mr Jeandin and Mr Tzovaras or Tzovaras Legal, that Mr Tzovaras would act for Mr Jeandin by preparing the documents necessary to give effect to the transaction between Mr Jeandin and the company? (2) If there were a contract of retainer: (a) what was its scope? and (b) did Mr Tzovaras or Tzovaras Legal breach their contractual (implied) or common law duties of care owed to Mr Jeandin? (3) Again if there were such a contract of retainer, did Mr Tzovaras and Tzovaras Legal breach their fiduciary duty owed to Mr Jeandin? (4) If there were a contract of retainer and a breach of duty (contractual, common law or fiduciary), did any such breach cause the loss of which Mr Jeandin complains? (5) If there were such a contract of retainer and breach, and if Mr Jeandin suffered loss thereby, was that a loss that arose "from the provision of legal services" so as to come within the insuring clause (cl 4(a)) of the LawCover policy? 24It is to be observed, of course, that the issues narrowed by the time counsel came to final submissions. I recorded this at [6] and stated the effect at [7]: [6] By the time Counsel came to final submissions, it was accepted that if there were a contract of retainer, Mr Tzovaras and Tzovaras Legal had breached their contractual, common law and fiduciary duties to Mr Jeandin. The argument as to the scope of any retainer fell away (see T65.30). Further, Mr Curtin of Senior Counsel, who appeared with Mr Arblaster of Counsel for LawCover, accepted that in those circumstances, and if I were to conclude (against his client's contention) that Mr Jeandin had suffered loss as a result of any of those breaches, then the loss arose from the provision of legal services, so as to come within the insuring clause. [7] Thus, effectively, the real issues between Mr Jeandin and LawCover are retainer and causation. 25It will be seen from what I have said that Lawcover defended the proceedings on the basis that there was no contract of retainer; that if there were its scope was narrower than it would be necessary to find, to support the plaintiff's claim of breach; that there was no breach of retainer or breach of fiduciary duty; and that there was no loss sustained. The fact that the issues narrowed (appropriately) in the course of the hearing does not alter the proposition that Lawcover raised, in defence of the claim made against it, issues that could have been raised and run by the third defendant had it chosen to appear and defend the proceedings. 26In those circumstances, not to allow the plaintiff his costs of proceeding against Lawcover would in my view be unjust. The plaintiff was forced to litigate the real issues between himself and Lawcover, which were as I explained them in my earlier reasons, in order to make good his entitlement to a charge, so as to lay the foundation for recovery of the fruits of that charge. Lawcover chose to put those matters in issue. It chose to appear at the hearing by senior and junior counsel to advance its case on those issues. It would be unjust, having found that the defence fails, not to make the usual consequential order - that costs follow the event. 27Thus, it seems to me, any costs ordered to be paid against Lawcover by reason of its independent defence of the claim against it are not costs for which it is liable under the Law Reform (Miscellaneous Provisions) Act 1946. Specifically, for the purposes of s 6(7) of that Act, a liability for legal costs for defence of proceedings against Lawcover in its own right is not a liability under the Part of that Act in which s 6 appears. 28For those reasons I reject the principal challenge advanced by Lawcover to the costs order sought, against it. 29I note that there is a carve-out of costs relating to the guarantee claims in each of the orders sought against Lawcover. That carve-out is appropriate. 30Mr Arblaster raised questions as to particular items of costs, including those relating to the affidavit of a Mr Wall that, ultimately, was not read, and possible costs relating to the retainer of lawyers in New Caledonia (which is where the plaintiff lives) in connection with the proceedings. All I will say about those matters is that, in the ordinary way, they should be resolved by an assessor. Although I propose to make the costs orders sought (which therefore will include orders on the indemnity basis for some time) I wish to make it perfectly clear, for the benefit of any assessor who is called upon to assess costs in this matter, that it does not follow from the fact that an indemnity costs order was made that the plaintiff is necessarily entitled to costs of the kind to which I have referred that were the subject of Mr Arblaster's discrete challenges. 31There is one other thing to mention, which has nothing to do with the contentions between the plaintiff and Lawcover as to the form of orders that should be made, and with which I have now dealt. On 18 November 2011 (when the matter was before the court for the making of orders pursuant to the reasons delivered on 4 November 2011) the first defendant sent an email to my Associate, which I think was copied to the legal advisers of the plaintiff and Lawcover, stating that the first, second and third defendants neither consented to nor opposed the orders sought by the plaintiff. (Those orders were in substance those that I have been considering today, save that the ones that I considered today were updated, by about $5,000, in respect of interest.) However, the first defendant sought in his personal capacity an order that the interlocutory freezing order made against him on 4 February 2010 and renewed or extended thereafter, be discharged. He did so on the bases that: (1) It was originally obtained ex parte, and the defendants were never heard; although he acknowledged that it had been extended by consent from time to time; (2) because the proceedings have been decided, there is no longer any justification for the order; (3) there was evidence in the proceedings that he at least had no assets of any substance. 32The first of those reasons does not seem to me to matter. The defendants in question had ample opportunity to argue against the continuation of the orders. They chose not to do so. 33The second reason, so far from justifying the discharge of the order, seems to be the strongest possible reason for keeping it in place. The freezing order was imposed because, among other things, the plaintiff had an arguable claim against the first defendant and there was a risk of dissipation of assets. That arguable claim has been vindicated, and is about to be transmuted into a judgment of the court. There is nothing to suggest that the risk of dissipation has diminished. 34The third reason seems to me to be entirely irrelevant. If the first defendant has no assets then there is nothing to which the order can attach. If he does, there is. However, I suppose, there should be a reservation of liberty to apply to the first defendant to have the order discharged or varied should he wish to do so. 35For those reasons I direct entry of judgment and make declarations and orders in accordance with paragraphs 1-7 of the form of Short Minutes of Order, initialled by me and dated today's date. 36I reserve to the first defendant liberty to apply on three days' notice for the discharge or variation of the freezing order made against him on 4 February 2010 as extended from time to time thereafter. 37I will stay for a period of 14 days from today's date execution of the judgment to be entered pursuant to paragraph 1 and 3 of the Short Minutes of Order. 38I direct that the exhibits be retained for 28 days and thereafter be dealt with in accordance with the Rules. ********** 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: 08 December 2011