Mitigation, GST and intersections; should defendants pay plaintiffs’ claims on a GST-inclusive or exclusive basis?

Mr Millington drove through a red light and hit a garbage truck. His insurer admitted as much.  It also accepted liability entirely. And it admitted that the garbage truck’s owner had incurred repair costs and associated losses of almost $50,000. But it baulked at paying that amount in damages.

So the garbo sued.

Millington’s insurer defended. It argued that the garbo’s claim was based on GST-inclusive amounts such as the total of the repairer’s invoice. As a business, the insurer reasoned, the garbage collector should inevitably get a GST input credit for one eleventh of such GST-inclusive totals and hence the true ultimate cost to the garbo was only ten-elevenths (i.e. the GST-exclusive amount) of the amounts that the garbo was claiming in court.

The plaintiff garbo dug in. It answered that while it was entitled to a GST input credit for the GST in the repair bill etc, it did not intend actually claiming that credit. And besides, even if it was to claim the GST input credit, why should it be out-of-pocket for the period between paying the GST-inclusive repair bills etc and the taxman’s subsequent allowance of the input credit from those bills?

The Supreme Court and the Magistrates’ Court gave different answers.

At first instance, the Magistrates’ Court ordered the defendant to pay the plaintiff the GST-inclusive total claim but it also ordered that the plaintiff subsequently refund to the defendant an amount equal to the GST content of the claim.

The defendant (or rather Mr Millington’s insurer in his name) then appealed to the Supreme Court.

The decision was handed down last month in Millington v Waste Wise Environmental Pty Ltd [2015] VSC 167.  Ironically, by the time the appeal got to the Supreme Court, the parties had actually agreed that the appeal should succeed but Croft J. applied the brakes. He observed that superior courts could not simply overturn inferior court orders by consent of the parties so he required submissions from the parties and allowed the involvement of an amicus curiae.

The appeal had three grounds.

Firstly, the Millington camp contended that the magistrate’s orders for separate payments in opposite directions offended the “once and for all” rule for damages awards. Croft J. agreed (although he noted a certain elasticity in that rule at the conclusion of a review of authorities which he characterised as tending to muddy already opaque waters).

Secondly, the appellant argued that the magistrate’s orders offended the compensatory principle (i.e. the object of an award of damages is to provide a sum of money the effect of which is to place the party who was injured in the same position they would have been in if they had not sustained the wrong for which they are being compensated). Again Croft J. agreed (although in obiter he noted the possibility that interest on a GST input might be properly claimable for the period the plaintiff was out of pocket for that amount).

Finally, the appellant argued that the magistrate was wrong when he adopted the view that the plaintiff was under a positive duty to mitigate its loss. Once more Croft J. agreed. “No such positive duty [to mitigate loss] exists,” he said. However “… the correct application of the law relating to the mitigation of loss in this instance requires that that the award of damages be reduced to the extent that [the plaintiff] has not acted reasonably in claiming the input credits to which it was entitled.”

The lessons from this case? Three occur to me:

  • The financial measure of a defendant’s liability will often vary (plus or minus approximately 10 per cent) depending on the GST status of the particular plaintiff;
  • The “duty to mitigate loss” might be a technical mis-description but that is probably of little practical significance. The broad underlying concept that plaintiffs cannot recover damages for losses they have incurred unreasonably remains alive and well; and
  • If even garbage trucks need to be careful when approaching green lights at intersections the rest of us need to be very cautious indeed.

(Thanks to my friend and colleague Sam Hopper for pointing this case out to me after noticing that one of the authorities cited in it was the matter in which we first met.)

Retail tenant wins VCAT fight but gets nil damages and an adverse costs order

VCAT’s no costs presumption is more elastic in some parts of the tribunal than in others.

In building cases, the losers commonly pay the winners’ costs. In retail tenancies disputes the losers very rarely do. But the winner paying the loser’s costs? Calderbanks and their equivalents aside, it is almost unheard of  anywhere at VCAT or beyond it.

So imagine the winner’s chagrin in the retail tenancies case of 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VCAT 596 when it won the liability stoush, produced an expert report seeking just over $3m in damages and then received nothing but an order to pay the ostensible loser’s costs.

The case is an illustration of one of the hazards of compartmentalising a single business within separate corporate vehicles.

24 Hour Fitness Pty Ltd was the tenant. A gym operated on the premises. Unremarkably, the landlord understood that the tenant owned the gym.

Back in 2013, the tenant claimed the landlord had breached a provision of the lease. VCAT agreed. The matter was eventually relisted three years later for an assessment of damages the tenant had suffered by reason of the landlord’s breach.

But in March this year, on day 1 of what was to have been a five-day hearing, the evidentiary penny dropped.

The tenant had never owned or operated the gym (or even any other business). Instead, a company associated with the tenant, ran the gym business. That associated company was a complete stranger to the lease. It occupied the premises and operated the gym entirely without the landlord’s knowledge or permission. Its business might have suffered by reason of the landlord’s non-compliance with the lease but, being a stranger to the lease, it couldn’t recover from the landlord for that breach.

And because the ostensible tenant had no direct interest in the business which claimed to have suffered the financial loss, it could not show any compensable loss referable to the landlord’s breach either.

In the costs decision published last month, Judge Jenkins took a dim view of the tenant conflating itself, its associated company and the associated company’s business for the purposes of the VCAT litigation.

Necessarily, her starting point was s. 92 of the Retail Leases Act 2003. That section proscribes costs orders in VCAT retail tenancy disputes unless a party has “conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding”. (The other exception, refusal to participate sufficiently in mediation or ADR, did not arise.)

What does “vexatious” mean? The tribunal’s answer includes a handy survey of authorities dealing with exceptional costs orders in both courts and tribunals and (at para 19) this checklist of matters to be taken into account when considering whether to order indemnity costs:

  1.  Whether a party has been forced to take legal proceedings entirely through the wrongful or inappropriate conduct of the other party;
  2. Whether an action has been commenced or continued in circumstances where the applicant, properly advised, should have known he had no chance of success;
  3. Where a party persists in what should, on proper consideration, be seen to be a hopeless case;
  4. Whether the party against whom indemnity costs are sought has made a false allegation of fraud;
  5. Particular misconduct that causes a loss of time to the Court and the parties;
  6. Commencing or continuing proceedings for an ulterior motive or in wilful disregard of known facts or clearly established law; 
  7. Making allegations which ought never to have been made or undue prolongation of a case by groundless contentions; and
  8. An imprudent refusal of an offer of compromise.

Judge Jenkins found five of the eight matters on that list present in the case before her. She ordered the tenant to pay the landlord’s costs relating to the preparation of the damages hearing dating all the way back to 2013.

The tenant did have one minor win. The landlord had asked for indemnity costs but failed. Judge Jenkins found there was insufficient evidence to justify an inference that the tenant was motivated in its claim by an ulterior motive. She held that indemnity costs were reserved “for the most exceptional circumstances” and that solicitor and client costs (which she suggested were similar if not equivalent to standard basis costs) would suffice.

The lesson? If a lease (or any other type of contract for that matter) has been breached but the resulting loss has been suffered by a stranger to that agreement, any resulting commercial litigation might not be very commercial at all.

POSTSCRIPT: The Court of Appeal subsequently upheld Judge Jenkin’s decision. See my brief blog on the appeal decision here.

County Court scales up on costs

Are you a County Court litigator charging scale? If so, congratulations; you got a pay rise this week.

Commiserations on the other hand if you a County Court litigant already rueful about rejecting a shrewd offer of compromise. Your burden just got heavier.

The County Court of Victoria has amended its cost rule, Order 63A.

For beneficiaries of scale costs (lawyers and successful litigants especially) this is good news.

There are two key changes.

The first is the axing of the County Court’s own stand-alone scale. Instead, the County Court Civil Procedure Rules now apply the Supreme Court’s scale but discounts it a uniform 20 per cent.

Take, for example, the scale allowances for a solicitor’s time. Under the former County Court scale, a solicitor’s time was allowable at $277 per hour for attending a conference and $546 per half day instructing in Court.

That same solicitor’s time under the new County Court costs regime is now worth $296 per hour (ie 80 per cent of the Supreme Court rate of $370 per hour). As is in the Supreme, costs are now claimable on an hourly basis and also in 6 minute units but the half-day rate for solicitors’ time is gone.

The second key change is the end of ‘party and party costs’. The new default measure of costs is ‘standard basis’ (which is really ‘solicitor and client’ costs by another name). (Indemnity costs remain as the juicer alternative). This change echoes the Supreme Court’s costs reforms of last year (as to which see my blog of the time here).

Some other features of the new County Court costs regime:

  • Costs of pleading amendments (whether with or without leave) are now costs in the proceeding unless the Court otherwise orders (CCR 63A.17);
  • Similarly, costs of interlocutory applications will be costs in the proceeding absent an order to the contrary (CCR 63A 20.1) (Incidentally, this rule has no direct Supreme Court equivalent);
  • Interlocutory costs orders are payable “forthwith” (CCR 63A.03(2)) but unless the Court otherwise orders those costs may not be taxed until the entire proceeding is completed (CCR 63A 20.1). (This is likely to have a glacial effect on the concept of “forthwith”).
  • The entire Order 63A continues to be ostensibly premised on the “County Court scale of costs” as if such a document exists. But it simply doesn’t. Instead CCR 1.13 gives legal force to the mirage by providing, “County Court scale of costs” means a fee, charge or amount that is 80 per cent of the applicable rate set out in Appendix A to Chapter 1 of the Rules of the Supreme Court.”
  • The new rules and costs apply from 7 October 2014 irrespective of when the proceeding involved commenced (CCR 63A.83).

(Thanks to barrister Mark Lapirow for alerting me to the new Order 63A before the ink had even dried on it.)

Is VCAT a court?

Is the Victorian Civil and Administrative Tribunal a court?

According to the Court of Appeal decision this week in Subway Systems Australia v Ireland and Ireland [2014] VSCA 142 the answer depends upon the context of the question.

The case was a bunfight about a sandwich-making franchise. The franchise documents included both retail tenancy provisions and an arbitration agreement.

Relying on the retail tenancy aspect, the franchisee commenced a claim in VCAT. But the franchisor then sought a stay relying on the arbitration agreement.

The franchisor’s stay bid failed in VCAT and again on appeal to a single judge of the Supreme Court (Croft J) but was third time lucky in the Court of Appeal.

It all turned on whether VCAT was a “court” for the purposes of s 8(1) of the Commercial Arbitration Act. That section provides;

A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

Generally VCAT should not be considered a court. Here (from para 96) is part of Kyrou AJA’s explanation:

In my opinion, VCAT could not be characterised as a court under the common law because it is not bound by the rules of evidence; it cannot enforce its own decisions; some of its members are not legally qualified; it can be required to apply a statement of government policy and it can be required to provide advisory opinions. Further, VCAT and its predecessor … were expressly established to be inexpensive, informal and speedy administrative tribunals rather than courts.

Later, Kyrou AJA observed that this common law position is reflected in the Civil Procedure Act 2010, the Interpretation of Legislation Act 1984 and the Constitution Act 1975. His dissenting judgment favoured a consistent approach. “As VCAT has generally not been regarded as a court, if Parliament had intended that it be treated as a court for the purposes of the [Commercial Arbitration] Act, it could easily have said so.”

The majority, Maxwell P and Beach JA disagreed. In separate judgments they concluded that, at least for the purposes of the Commercial Arbitration Act 2011 (Vic), VCAT is a court even if it is considered to be a tribunal (cf court) for other purposes.

In separate judgments each canvassed the policy objectives associated with the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration on which Victoria’s Commercial Arbitration Act is very closely based.

The lesson? Arbitration clauses in private agreements can trump clear statutory conferrals of jurisdiction on VCAT.

More overblown than overarching: Court of Appeal smacks solis with costs orders and disallows fees

The Victorian Court of Appeal last week thumped three large law firms for work which was not “reasonable and proportionate” within the meaning of the Civil Procedure Act 2010.

What’s more, it effectively invited other Victorian courts to do likewise more often.

The case is Yara Australia Pty Ltd v Oswal [2013] VSCA 337.

Expect to hear a lot more about it. It is the first detailed appellate consideration of the Civil Procedure Act obligations on parties and their lawyers.

Many civil litigators will find it confronting reading.

The case

In Yara, three applicants sought leave to appeal against their failure to obtain security for costs. Although they were later able to point to a wider strategic purpose, the amount of security sought between the three of them ostensibly totalled about $141,000, (relatively small beer for the Court of Appeal.)

The applicants had separate but similar interests. Between them, they were represented by solicitors Clayton Utz, Herbert Smith Freehills and K & L Gates, 3 silks and 3 junior counsel.

Their application went down after a single day’s hearing. And worse was to come for the lawyers.

After refusing the application, the Court of Appeal of its own motion invited submissions on the question of whether anyone had breached their overarching obligations under the Civil Procedure Act 2010 in the conduct of the leave to appeal application.

The resulting judgment starts with two factual questions. “First, whether there was any over- representation of a party by counsel, and second, whether the material produced on the hearing of the application for leave to appeal was unnecessary or excessive.”

The Court was ultimately persuaded that the abundance of barristers did not constitute “over-representation” but it was less forgiving about the documentation filed in support of the application.

Why? Because even excluding the notices of appeal and written cases, the application book exceeded 2700 pages and 6 lever arch folders.

In their joint judgment Redlich and Priest JJA and Macaulay AJA were scathing. They variously described parts of it as “entirely otiose”, “not directly relevant”, “excessive”, “superfluous”, “entirely unnecessary” , “repetitious” and containing “a substantial amount of duplicated material”.

The Court concluded by ordering each applicant to pay the respondents’ costs of the application.

Each applicant’s solicitor was then hit with a double whammy. First, each solicitor was ordered to indemnify its client for half of the respondent’s costs “incurred as a consequence of the excessive or unnecessary content of the application books.” Secondly, each applicant’s solicitor was “disallowed recovery from the applicant of 50% of the costs relating to the application books, and costs incidental thereto.”

Some cherries from the judgment

The Court of Appeal is clearly hoping this approach will catch on.

And judges are being invited to act on their own initiative where the parties themselves are bashful.

Here are some extracts from the judgment (citations omitted) to give you its flavour.

5       The statutory regime and the obligations that are imposed by the [Civil Procedure Act] have not previously been considered in any detail at an appellate level. As the enforcement of the overarching obligations under the Act has been so little traversed, there is presently little to guide judicial officers as to the extent of the Court’s powers and the means by which parties or their legal representatives can be penalised for any contravention. We have thus addressed some of these issues at greater length than would ordinarily be necessary when a contravention of the Act is under consideration.

….

14     Each party and their solicitor and counsel have an obligation to comply with the overarching obligation. Whether any of them have breached that overarching obligation is to be determined by an objective evaluation of their conduct having regard to the issues and the amount in dispute in the proceeding. The legal practitioners’ duty is non-delegable. The obligation will override their duty to their client where the discharge of that duty would be inconsistent with the overarching obligation. The legal practitioner will not be relieved of this overarching responsibility because of the instructions of their client.

15     Legal practitioners, whether solicitor or counsel, involved in the preparation of pleadings, affidavits or other materials that are to be used in the proceeding or who provide advice as to such matters, have individual responsibilities to comply with the overarching obligation. Both solicitor and counsel also have an overarching responsibility with respect to the extent and level of their client’s representation. Each must ensure that, having regard to the issues, the extent and level of representation proposed is reasonable and proportionate. Advice or instructions given or received by legal practitioners, and instructions given by the client, may inform but will not be determinative of the question whether, viewed objectively, there has been a breach of the obligation.

         ….

18     Section 29 of the Act provides the Court with broader and more flexible powers than under the Supreme Court (General Civil Procedure) Rules 2005 (‘the Rules’) or under its inherent jurisdiction. Rule 63.23(1) enables the Court to make orders for costs against a legal practitioner who has caused costs to be incurred improperly by a failure to act with reasonable competence and expedition. However, the primary object of r ? 63.23(1) is not punitive or disciplinary but compensatory, enabling reimbursement of a party’s costs incurred because of the default of the solicitor. The primary object of the Rule is not to punish the solicitor, but to protect the client who has suffered and to indemnify the party who has been injured. Rule 63.23(1) also protects solicitors from the negligence or incompetence of counsel.

20     The Court’s powers under s 29 of the Act include the power to sanction legal practitioners and parties for a contravention of their obligations …. Moreover, the power to sanction is not confined to cases of incompetence or improper conduct by a legal practitioner. Where there is a failure by the practitioner, whether solicitor or counsel, to use reasonable endeavours to comply with the overarching obligations, it will be no answer that the practitioner acted upon the explicit and informed instructions of the client. A sanction may be imposed where, contrary to s 13(3)(b), the legal practitioner acts on the instruction of his or her client in breach of the overarching obligations.

21     …. In our view, the enactment of s 29 together with s 28(2) imbues the Court with broad disciplinary powers that may be reflected in the costs orders that are made. The Court is given a powerful mechanism to exert greater control over the conduct of parties and their legal representatives, and thus over the process of civil litigation and the use of its own limited resources.

22     The Act does not merely reaffirm the existing inherent powers of the court but provides a powerful indication of the will of the Parliament about the values sought to be achieved by the way in which cases are managed in the courts and the balances that have to be struck….

23     It is therefore somewhat surprising that despite the length of time the Act has been in force, the scope of the sanction provisions in the Act for a failure to comply with the overarching obligations has been under-utilised.

….

25     The explanation for the under-utilisation of the provisions of the Act lies in part in a false perception that these provisions and the overarching obligations do not effect any material change to the Rules and the inherent jurisdiction of the Court…. The Act creates obligations which extend beyond those in the Rules and confers upon the courts a panoply of powers not found in the Rules.

26     The Act prescribes that parties to a civil proceeding are under a strict, positive duty to ensure that they comply with each of the overarching obligations and the court is obliged to enforce these duties. The statutory sanctions provide a valuable tool for improving case management, reducing waste and delay and enhancing the accessibility and proportionality of civil litigation. Judicial officers must actively hold the parties to account.

27     Yet as we have observed, sanctions imposed for a breach of any overarching provisions have been a rarity at first instance. When no party invites the court to determine whether there has been a breach of the Act, there may be a judicial disinclination to embark upon such an own-motion inquiry for fear that inquiry as to a potential breach may be time consuming and may require the introduction of material that was not before the court as part of the proceeding. Such fears cannot relieve judges of their responsibilities….

You can probably still hear this judgment causing a hush in mega-firms the length of Collins Street (starting with their photocopying departments).

Some thoughts before you speak

If you haven’t sat through a thousand awful lectures, submissions and presentations you probably aren’t a real lawyer.

And if you have applied the unintended lessons of all that professional experience and training you are probably a dreadful public speaker as a consequence.

I was reminded of this when I attended a presentation this week on presentation skills. It was delivered to a room full of barristers by a non-lawyer, ex-teacher and freelance speechwriter, Ben Richards of Aticus.

Lecturing barristers on public speaking should be a tough gig. Richards made it look very easy – and he did so for a compelling 90 minutes without as much as a single note or Powerpoint slide.

I took copious notes. Here is a distillation.

  1. Delivering professional presentations and writing the seminar papers which are typically meant to accompany them are very different beasts. Treat them as such. Plan your paper’s content and its delivery as separate exercises.
  2. Australians often expect oral presentations to be bland at best. It is actually not that difficult to surprise on the upside.
  3. Why should any speaker see and hear his or her very own presentation for the first time simultaneously with the audience? Do at least some practice aloud beforehand. Also, warm up the vocal cords before you actually take the microphone.
  4. The first draft is never good enough. It will always need at least some rewriting and editing.
  5. Speak to the back of the room. There will never be anybody sitting in the front row anyway. Modulate tone and speed. Use vocal variation.
  6. The law is always prosaic. Be generous with the real-world stories and problems which make the legal issues you are discussing interesting.
  7. Also, start with your conclusions – if you keep your audience waiting its concentration might well be spent by the time you get to the end (where you were probably planning to put your conclusions).
  8. The presentation and the paper should not coincide. They are separate forms of communication which should not be fused.
  9. Don’t turn up late, flustered and then open with an apology and/or a plea to the floor for assistance with the operation of the PowerPoint projector.
  10. PowerPoint can only ever be a background visual aid. It is quite useless as a handout. It can be useful for diagrammatic explanations and/or key (and short!) pieces of text. [For a quick PowerPoint refresher see my post Slide into PowerPoint – a novice’s guide]
  11. The traditional 50 or 60-minute presentation format is problematic. It is usually a much better use of everybody’s time to divide the allotted hour evenly between two speakers and a Q & A session at the end.
  12. For the Q & A session be sure to plant some Dorothy Dixer questions – commonly at these events nobody wants to ask the first question but everybody wants to ask the second question.
  13. Doing a one-off presentation is terribly inefficient – wherever possible commoditise your talk. Its (complete or modified) reuse at subsequent events will improve both its efficiency for you as the speaker (through its delivery to more than a single audience) and also its quality as you are able to polish its content and delivery with practice.
  14. Preparation is key. Many brief preparation sessions over the course of weeks will usually be much more productive than a preparation marathon on the eve of your presentation.
  15. Preparation should start with three questions:
    1. Who is your audience?
    2. What is your objective?
    3. What are your key messages?
  16. You can rarely ask your actual audience in advance what they want to hear but you can usually speak to individuals who are potential audience members and/or have attended similar presentations. What do they know? What don’t they know? What more do they want to know? Ask them!
  17. Be realistic. Large books might well have been written on your topic. You (and your audience) have limited time. Don’t pretend that you can or should attempt to cover everything.
  18. Getting the structure right means putting the right ideas in the right sequence. Maybe start by putting the ideas on post-it notes, sticking them on a window and then rearranging them into an order that makes sense to you.
  19. Test the structure of your presentation by looking at its transitions. If the transitions don’t work it’s probably because the structure doesn’t.
  20. Never give a presentation without some ‘real-world’ connections. War stories are good. In their absence hypotheticals will suffice. Humour is good. So is fear-mongering with worst-case scenarios.
  21. Your opening should persuade the ambivalent audience that it should be interested. You can’t do this unless you sound interested yourself.
  22. Planning your opening is obvious (and important). Planning your closing is less obvious but just as important. The presentation that peters out with an apologetic murmur about the lateness of the hour or an abrupt full stop followed by an unexpected “Thank you” as you sit down is finishing on a bum note indeed.
  23. Speaking notes are a parachute – not a script. If you must have notes use keywords and phrases in large (say 30 point) type. Speaking notes which comprise full written sentences are inherently unsuitable to oral presentations. Using your 20-page seminar paper as your own speaking notes is an own goal accordingly..
  24. Audiences typically take away between 2% and 9% of a presentation’s content. Overcooking your content will compound the problem. Highlight the particular gems you want your listeners to retain.
  25. The average adult’s attention span is approximately 6 to 7 minutes. Harness this rather than being defeated by it. A 60-minute presentation on a monolithic topic is frequently doomed to failure from the outset. And yet it might fly if it is effectively broken up into, say, 8 to 10 chunks of approximately 6 minutes each about particular components of that very same substantive topic.
  26. Consider contriving your own interruptions as breaks to punctuate your presentation. Ideally each resulting segment will prompt a renewed attention span from the audience. These breaks in the presentation can be disguised as, for example, brief group discussion exercises or questions from the floor on a segment-by-segment basis.
  27. Each segment of your presentation should :
    1. Contain a statement of the “learning outcome” desired (eg why should we talk about X at all?);
    2. Highlight the substance of X which needs to be conveyed; and
    3. Conclude with a reflection on X by which the point of the exercise is very briefly recapped.
  28. In the Google age presenters who simply deliver publicly available information are wasting their own and their audiences’ time. Unless you are adding your own personal analysis, experiences, war stories, criticism, humour and/or editorials you are giving your audience nothing positive to remember you by. (Indeed, you might be giving them positive reasons to forget you.)
  29. Don’t run over time. It antagonizes audiences, subsequent speakers and the catering staff. Most of all it looks chaotic.

And on that last point Richards concluded – precisely an hour and a half after he told us he was going to speak for 90 minutes.

If only it was simple as people in Richards’ league make it look.

WA court bins stat demands, orders indemnity costs and calls the cops

Some obscure judgments deserve a wider audience.

Master Sanderson of the Western Australia Supreme Court delivered one such gem in April in Rohanna Pty Ltd v Nu-Steel Homes Adelaide Pty Ltd [2013] WASC 109.

Some scene-setting first.

In Christmas week 2012 the plaintiff received two statutory demands from the defendant. The parties had never had any prior contact with each other and yet the demands totalled almost $220,000. Both stat demands were ultimately set aside by Master Sanderson. In the interim the defendant was represented in correspondence by a South Australian solicitor who did not file a formal appearance (Mr Nicholls) and in Court by a non-lawyer (Mr Pearse). Mr Nicholls had offered to settle the matter on the basis that the plaintiff pay the defendant’s costs of $25,000. He also remarked upon the need to advertise any winding up application which might follow if the plaintiff didn’t stump up that loot.

Master Sanderson was scathing. Here are some highlights from a stinging judgment.

11.   In further support of its application the plaintiff filed a second affidavit …. The purpose of this affidavit was to demonstrate the solvency of the plaintiff. A mere glance at this affidavit would be enough to convince even the economically illiterate the plaintiff was solvent. Indeed it shows the plaintiff as a massively successful commercial enterprise. But that was not enough for Mr McNamara.

 

       ….

 

17.   All of these matters can then be aggregated. First, the defendant served the statutory demands without any prior consultation with the plaintiff. If it had a genuine belief there was a debt owed it would have been reasonable to write to the plaintiff, make a claim and explain the basis of that claim. That was not done. Instead the demands were sent by post and arrived on the Thursday before Christmas. If ever there was a time when it was difficult to deal expeditiously with a demand which required action within 21 days, that was it.

 

 ….

 

20.   Fourthly, faced with clear evidence of the solvency of the plaintiff the defendant determined to press on. No reasonable party properly advised would have done so.

 

21.   Fifthly, the correspondence suggests an attempt to embarrass the plaintiff by advertising the fact of a winding up application. There was no need to refer to the advertising of a winding up application in the way Mr McNamara did. The letter strongly suggests the defendant was looking to force the plaintiff into a compromise to serve its own purposes.

 

22.  Sixthly, the defendant actually issued a winding up application. This was done prior to the application to set aside the demands being heard. It must have been clear there was a live issue as to whether the application to restrain the defendant would succeed. … Once again it looks as though the defendant was attempting to pressure the plaintiff.

 

23.   Seventhly, no appearance to the application to set aside the demands was ever lodged. Mr McNamara in his correspondence said he had been retained by the defendant. As late as 28 February 2013 he wrote to the plaintiff’s solicitors on behalf of the defendant. At no time did Mr McNamara indicate his instructions had been terminated and at no time did he give any indication he would not appear at the hearing of the matter on 7 March 2013. Perhaps the defendant was concerned if it did enter an appearance a costs order might be made against it. Or perhaps there was some other reason no appearance was entered. But it does suggest the defendant never took seriously the prospect it could successfully resist the plaintiff’s application.

 

24.   Finally, there is the offer to settle on payment of $25,000 for costs. It may be that Mr McNamara is one of South Australia’s leading corporate lawyers. If that is so, this case does not represent his finest hour. But even assuming high competence on the part of Mr McNamara there is no possible way the defendant’s costs could have amounted to $25,000. No appearance was filed, no affidavits in opposition to the application were lodged, it would appear submissions to be made on behalf of the defendant were drawn by Mr Pearse and the totality of Mr McNamara’s involvement was three or four letters. Really this demand for ‘costs’ is no such thing. It was tantamount to extortion.

 

25.   … This is a case where indemnity costs should be awarded and the only question is who should pay those costs. Mr Pearse will have 14 days from the publication of these reasons to make submissions as to why he should not pay the costs personally.

 

26.   I intend to refer these reasons to the Western Australian Police Service for such action as they deem necessary in relation to Mr Pearse. I will also refer a copy of these reasons to the authorities in South Australia who regulate the legal profession to take such action as they deem appropriate in relation to Mr McNamara.

 

Lessons from this case? Many.

But the very first that occurs to me is that the Wild West’s legal system might have been unfairly maligned by the late Robert Hughes (as recorded in my post here on his passing).