Supreme Court New South Wales Medium Neutral Citation: Demlakian Engineers Pty Ltd v The Owners of Strata Plan 80453 [2014] NSWSC 759 Hearing dates: 25 March 2014; 26 March 2014 Decision date: 10 June 2014 Jurisdiction: Equity Division Before: Young AJA Decision: Defendant to pay the plaintiff's costs of proceedings 2011/00310085 up to and including 1 February 2012. Plaintiffs to pay the defendant's costs of those proceedings, on the indemnity basis on and after 2 February 2012. Plaintiff to pay the defendant's costs of proceedings 2012/379744 on the indemnity basis. The judgment sum in 2011/00310085, security for costs paid by plaintiff, and costs due to the plaintiff in those proceedings to be set-off against the costs ordered against the plaintiff in proceedings 2011/00310085 and 2012/379744. Leave to apply for orders to recover any shortfall in costs owing to the defendant from plaintiff's principal solicitors granted. Catchwords: COSTS - plaintiff brought two proceedings which were heard concurrently - plaintiff brought first claim in Local Court - these proceedings were removed to the Supreme Court to be heard alongside second proceedings which alleged breach of copyright - proceedings considered separately for the purpose of costs - plaintiff succeeded in the first proceedings - whether defendant entitled to costs on the indemnity basis from the date of defendant's first offer of compromise where the offer did not specifically mention compromise of the defendant's cross-claim, was said to be 'unclear' by plaintiff, and arose prior to the commencement of the second proceedings - the second proceedings were dismissed - whether defendant entitled to costs on the indemnity basis where plaintiff said to have brought 'hopeless' claim in order to put defendant under pressure to settle first proceedings. Legislation Cited: Legal Profession Act (NSW) s 348 Civil Procedure Act 2005 (NSW) s 98, 98(1)(b) Uniform Civil Procedure Rules 2005 (NSW) r 42.15 Category: Costs Parties: Demlakian Engineers Pty Ltd (Plaintiff) The Owners (Defendant) Representation: Counsel: A. Di Francesco (Plaintiff) A. M. Gruzman (Defendant) Solicitors: Konstan Lawyers (Plaintiff) Di Lizo & Associates (Defendant) File Number(s): 2011/310085; 2012/00379744 Publication restriction: None Judgment 1This case was a dispute between a company which prepared an engineering report to be used by the defendant in a dispute that it was having with it's builder, over a block of home units and its customer. 2I gave judgment on 10 April 2014 ([2014] NSWSC 401). There were two claims and various cross-claims. The first claim was for fees allegedly owing by the defendant to the plaintiff. I have found that the proper amount still to be paid was $585.00. The second claim was a claim for breach of copyright, which I dismissed. I dismissed cross-claims alleging misleading and deceptive conduct on behalf of the plaintiff. The upshot was that when interest is taken into account, the defendant has to pay the plaintiff $819.00. 3The proceedings originally commenced in the Local Court. They were transferred to this court because of the copyright claim, which is the subject matter of the second action. 4In my earlier judgment I traced the history of the proceedings in this court, the flavour was that the copyright proceedings were brought to put pressure on the defendant to pay the plaintiff's account for furnishing the report. However, it is also clear that the principals of the plaintiff were extremely upset that its report was being used for the defendant's purposes when it had not been paid for it. 5I dismissed the copyright claim. I did this on the basis that the plaintiff's documentation was insufficient to enable it to mount the claim. However I also said that even if I had put that aside the claim would have failed under general law principles. 6Although it was said that the proceedings were consolidated, they never were actually consolidated though at the hearing I pretended they were. It does not matter for costs purposes to treat them as separate proceedings or alternatively, and preferably that they were different issues raised which should be dealt with separately when considering costs. 7As the copyright proceedings wholly failed it is difficult to see any reason why the plaintiff should not be ordered to pay the costs of those proceedings. Indeed the plaintiff does not make submissions to the contrary. However the defendant seeks that it receive its costs on an indemnity basis. The basal reason for this submission is that the issue is said to be wholly without merit, and that with the cause of the matter being removed to the Supreme Court, it was used to put pressure on the defendant on the fees claim. It was misconceived and hopeless on the documentation or even at common law. 8The only reply to this allegation seems to be that if the copyright proceedings were hopeless and an abuse of process, why did not the defendant ever reply for summary dismissal? 9I do not consider this is a good answer. There is no obligation on a party to move for summary dismissal. Whichever way one looks at it the claim could not have succeeded and it seems to me it does come within the category of a hopeless claim. 10There is a public interest in not allowing courts to be congested with hopeless claims and it is proper where there is a hopeless claim which is dismissed to order indemnity costs. Accordingly, I order that in 2012/379744 the plaintiff pay the defendant's costs on the indemnity basis including reserved costs. 11So far as 2011/310085 is concerned the plaintiff succeeded but only for $585.00. In the Supreme Court a plaintiff who receives such a small amount is not entitled to costs. 12Were it not for UCPR 42.15, it would be clear that there should not be any order for costs in respect of the fees claim. 13 Uniform Civil Procedure Rule 42.15 provides that if an offer is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no-more favourable than the terms of the offer, then unless the court otherwise orders, the plaintiff is entitled to an order for costs up to the time of the offer, but the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis from the beginning of the day following the day on which the offer was made. 14The question is whether that rule should be invoked here. 15The defendant relies on two offers of compromise. The first was a formal offer made under the Uniform Civil Procedure Rules when the matter was in the Local Court on the 1st of February 2012. The defendant offered to compromise the proceedings by paying the plaintiff $5,000.00. The effect would have been that the plaintiff also would have been entitled to costs up to that time. 16The offer expired without being accepted. 17The plaintiff says that this offer was made 10 months before the copyright proceedings were commenced so that it could have no copyright issue. I agree. It then says that the Local Court offer was made at a time when the cross-claim was on foot and yet makes no reference to the cross-claim and therefore it is defective, especially as the plaintiff was wholly successful in defending the cross-claim. 18It is true that the cross-claim was not mentioned and probably it should have been. However the only logical way of reading the offer of compromise is that it was a compromise of the whole action and that would include there being a dismissal of the cross-claim. 19The plaintiff also submits that the offer was unclear and accordingly it was reasonable to disregard it. I do not accept this. I do not consider it was unclear. However, if the plaintiff's lawyers had real difficulty in understanding it, they should have requested clarification, not just ignored the letter. 20As the 2012 offer was effective to trigger indemnity costs, there is no purpose in examining the second offer by letter of 8 February, 2013. 21I cannot see any reason why the Court should otherwise order. Accordingly, invoking the rule, the defendant must pay the plaintiff's cost of the proceedings on the Local Court scale up to 1 February 2012 and the plaintiff should pay the defendant's costs of the proceedings after that date on the indemnity basis. 22There are two other matters that I need to consider. 23The first is whether there should be some set-off. There has been a verdict for the plaintiff essentially for $819.00. The plaintiff gave security for costs in the sum of $45,000.00. It is not completely clear whether this was paid in the consolidated proceedings or in the fees proceedings but for all intents and purposes the proceedings were consolidated so that the money paid into court should be considered to be security for the whole of the defendant's costs. Those costs will be the indemnity costs for the copyright proceedings as assessed plus the costs that were previously awarded by the Local Court or this Court. There should be set off against those costs the security that was given and the $819.00. 24The other matter is whether the solicitors and/or the directors of the plaintiff should be responsible for the costs that are not covered by the security and the $819.00. 25The plaintiff's solicitors say that any such application should be made on notice of motion and they wish to give evidence. They are probably entitled to take that course; at of course their own risk as to costs. 26The probability will be that the set-off amount will be insufficient to meet the defendant's costs. If that prediction is correct then the plaintiff will pay the surplus. From time to time the plaintiff has said that it is a very successful business with a large turnover and plenty of cash. If that is so and the costs can be met there is no purpose in going any further. 27If, however, that is not so then it seems to me there is an arguable case that an order might be made against Mr Ken Demlakian and/or against Konstan to make good any shortfall. 28The Court has power under s 98(1)(b) of the Civil Procedure Act 2005 to make an order against a non-party. There are precedents which are set out in Ritchie's Uniform Civil Procedure [98.25] and [98.26] for making an order where there is a small company and a particular director takes a prominent part in mounting proceedings, particularly hopeless proceedings. There is also power to order solicitors who breach their duty to the court in sponsoring hopeless litigation to pay the costs personally. 29It seems to me that I should reserve liberty to apply to proceed against Mr Ken Demlakian and Konstan Lawyers so that the defendant can recover any deficiency in costs should the order for costs not be satisfied by the plaintiff. 30Accordingly the orders of the court are in addition to those pronounced in the earlier judgment that: (1)The defendant pay the plaintiff's costs of proceedings 2011/00310085 up to and including 1 February 2012. (2)The plaintiffs pay the defendant's costs of those proceedings on the indemnity basis on and after 2 February 2012. (3)The plaintiff pay the defendant's costs of proceedings 2012/379744 on the indemnity basis. (4)There be a set-off of the verdict in 2011/00310085 ($819.00) and the amount paid into court by way of security for costs and the amount of costs due to the plaintiff pursuant to order (1) as against the costs ordered to be paid by the plaintiff to the defendant. (5)Liberty to apply, in the event of there being a short-fall in payment of costs by the plaintiff, to the defendant to proceed by motion to recover the short-fall from Ken Demlakian pursuant to s 98 of the Uniform Civil Procedure Act 2005 or against Konstan Solicitors pursuant to s 348 of the Legal Profession Act or otherwise. ********** 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: 17 June 2014