Bluth v Boyded Industries Pty Ltd (No 2)

1. [1]

   THE COURT: On 4 April 2024, the Court made the following orders:

   1. (1)

      Allow the appeal.

   2. (2)

      Set aside orders 1 and 2 made on 11 August 2023 and, in lieu thereof, dismiss the amended statement of claim with costs.

   3. (3)

      Dismiss the cross-appeal.

   4. (4)

      Order the respondent/cross-appellant to pay the appellant/cross-respondent’s costs of the appeal and of the cross-appeal.

2. [2]

   The appellants (“HWLE”) now seek a variation of the Court’s orders by way of an order that the costs ordered to be paid in (2) above be payable on the ordinary basis up to 16 August 2022 and on the indemnity basis thereafter, and that the costs ordered to be paid in (4) above be paid on the indemnity basis. Those orders are opposed by the respondent (“Boyded”).

3. [3]

   These reasons assume a familiarity with the judgments of the trial judge and of this Court on appeal.

Background

1. [4]

   On 16 August 2022, HWLE made an offer of compromise in accordance with UCPR 20.26 in the following relevant terms:

2. [5]

   On 6 July 2023, HWLE made a further offer of compromise in accordance with UCPR 20.26 in the following relevant terms:

3. [6]

   Neither offer was accepted.

A threshold issue

1. [7]

   Since that letter was sent, and in the context of the current contest, Boyded has raised the preliminary question of whether HWLE’s application to vary the original costs orders has been made within the time prescribed by the rules. It is convenient to deal with that issue before proceeding further.

2. [8]

   UCPR 36.16 provides relevantly as follows:

3. [9]

   The following matters should be noted.

4. [10]

   On 11 April 2024, HWLE’s solicitors wrote to Boyded’s solicitors stating their intention to seek a variation of the Court’s costs orders made on 4 April 2024 and to approach the Court jointly for that purpose. On 16 April 2024, Boyded’s solicitors replied that they were seeking instructions and anticipated being in a position to respond the next day. On 17 April 2024, Boyded’s solicitors responded to HWLE’s letter, stating that Boyded did not agree to the parties approaching this Court jointly as to costs. On 26 April 2024, HWLE’s solicitors wrote to Boyded’s solicitors, indicating that they would take steps to file an application seeking to vary the Court’s costs orders. HWLE’s solicitors subsequently contacted Harrison CJ at CL’s Associate by email noting HWLE’s intention to seek a variation and enquiring whether a notice of motion would be required.

5. [11]

   On 29 April 2024, Boyded’s solicitors wrote to HWLE’s solicitors, referring to HWLE’s solicitors’ email of 26 April 2024 to his Honour’s Associate, indicating that the time for seeking to vary the Court’s costs orders had expired before that correspondence had been sent. Boyded’s solicitors also invited HWLE’s solicitors to withdraw their request to vary the Court’s costs orders.

6. [12]

   Also on 29 April 2024, his Honour’s Associate wrote to the parties advising that a notice of motion would not be necessary and inviting the parties to agree upon a timetable for the exchange of submissions so that the issue might be determined on the papers.

7. [13]

   Boyded now draws attention to the fact that, even if HWLE’s letter of 26 April 2024 is treated as the relevant “motion” to vary the costs orders, it was the first communication to the Court about that, and it was some 22 days after the orders in question had been made.

Boyded’s submissions – threshold issue

1. [14]

   On the question of whether or not the Court has the power to dispense with the 14-day time limit in UCPR 36.16(3A), Boyded offered the following submissions.

2. [15]

   The Court's power to dispense with this time bar was considered by Basten JA in Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462; [2008] NSWCA 133, a case concerning an application to vary costs orders following a successful appeal. The Court concluded that it had "no power" to entertain the application.

3. [16]

   His Honour said at [15], "[t]he clear purpose of [UCPR 36.16] is to allow a window of 14 days after entry of judgment, in courts where entry takes place automatically and largely contemporaneously with the delivery of judgment" for a party to apply to set aside or vary the judgment or order in question. Further, also at [15], "[t]he removal of the power to extend the 14-day period makes it sufficiently clear that the intention is that the period is not variable, but reflects the need for judgments and orders to be final and certain as to their operation". Moreover, at [16], "[i]t is not open to this Court to arrogate to itself some inherent power, absent statutory authority, which is denied by the judgments of the High Court.”

4. [17]

   This Court's decision in Coastwide Fabrication and Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291, is to similar effect. In that case, McDougall J examined Meredith and descriqbed Basten JA's reasoning as "fatal to Coastwide's application". According to Boyded, HWLE's application suffers from the same infirmity: it was not made within 14 days of entry of the orders made on 4 April 2024. UCPR 36.16(3A) refers expressly to the need to file a "notice of motion", short of the Court "of its own motion" setting aside or varying a judgment or order within 14 days of entry (UCPR 36.16(3B)). Even if the requirement for a formal motion can in effect be dispensed with, in circumstances where HWLE contacted the Court eight days after the expiration of the 14-day time period, it cannot be suggested (nor does it appear to be) that HWLE approached the Court within time. Nor can it be suggested that the inter partes correspondence on 11 April 2024 meant that HWLE's later application was made within time. As stated by Allsop P in Kable v State of New South Wales (No 2) [2012] NSWCA 361 at [2]:

5. [18]

   Boyded submitted that HWLE makes no reference to UCPR 36.16, nor has it questioned the correctness or applicability of Meredith or Coastwide or pointed to some residual discretion to vary the Court's orders outside the 14-day time period. Furthermore, UCPR 36.16(3C) precludes the operation of UCPR 1.12 which might have allowed the Court to extend the time to seek a variation. Finally, at no point during the hearing did HWLE inform the Court that, depending on the outcome of the appeal, HWLE would wish to be heard as to the costs orders made by the trial judge.

HWLE’s submissions – threshold issue

1. [19]

   HWLE provided a lengthy response to Boyded’s submissions on the threshold issue. In summary, HWLE submitted that:

   1. (1)

      HWLE’s application invokes UCPR 36.16(3) or (4) or involves the making of a supplemental order for the purpose of dealing with working out orders (2) and (4);

   2. (2)

      alternatively, the application invokes UCPR 36.16(3A), the relevant time period for which, by operation of s 14 of the Civil Procedure Act and HWLE’s formal notice of its application to Boyded within 14 days of the judgment, has been satisfied; or

   3. (3)

      in the further alternative, the application invokes s 98(3) of the Civil Procedure Act as it does not involve impugning an operative or substantive part of the judgment.

2. [20]

   It is not necessary to summarise the detailed argument advanced in support of the first or third submissions as the second submission is dispositive of the threshold issue for the reasons given below.

3. [21]

   HWLE’s second submission is that the informal application notified by HWLE to Boyded within 14 days of judgment satisfies UCPR 36.16(3A).

4. [22]

   HWLE accepts that no application or statement of intention to make an application was made to the Court within 14 days following the judgment. The question is whether notice of a proposed application given to the respondent, but not to the Court, within 14 days is adequate “notice” for the purposes of UCPR 36.16(3A), where s 14 of the Civil Procedure Act operates otherwise to dispense with the requirement in UCPR 18.2(1) for the filing of a notice of motion.

5. [23]

   The terms of the letter sent by the Associate to Harrison CJ at CL on 29 April 2024 should be noted:

6. [24]

   HWLE took the position that, accepting that it is important to put the Court on notice of a proposed application by filing a notice of motion, another important purpose is to give notice to the proposed respondent that an application is to be made. In the present case, that notice was given seven days after judgment. The Court was approached 15 days later.

7. [25]

   Section 14 of the Civil Procedure Act operates to dispense with a requirement imposed by the rules if the Court is satisfied that it is appropriate to do so in the particular circumstances of the case.

Consideration

1. [26]

   Section 14 of the Civil Procedure Act provides as follows:

2. [27]

   UCPR 18.2(1) is in these terms:

3. [28]

   HWLE has argued that it is appropriate in the circumstances of this case to dispense with the UCPR 36.16(3A) requirement to file and serve a notice of motion upon the basis that informal notice was in any event given to Boyded by solicitor’s letter within 14 days, even if a notice of motion was not and that Boyded suffered no procedural or other prejudice or disadvantage as a result. Moreover, the giving of notice to the Court by the filing of a formal application is either a presently irrelevant or neutral consideration. The burden of this submission is, in effect, that any different approach would amount to a triumph of form over substance in circumstances where nothing, such as some actual prejudice to Boyded, has been identified clearly suggesting that a departure from the literal terms of the notice requirement should not be permitted.

4. [29]

   HWLE has acknowledged that there does not appear to be any authority directly on point, in which the informal notice of an application to vary a costs order has only been given to the other party but not also to the Court. However, in our view, this should not amount to a fundamental difficulty when the underlying purpose of the requirement in UCPR 18.2(1) for the filing of a notice of motion is to give written notice to the party who is to be affected by the relief sought.

5. [30]

   The issue is whether the 11 April 2024 letter can or should be characterised as an “application” to vary the costs order or simply notice of an intention to make such an application. In Aukuso v Tahan (No 2) [2018] NSWCA 302, Simpson AJA (Macfarlan JA agreeing) considered at [44]-[49] that there is no rigid distinction between an “application” and “notice of intention to make an application”:

6. [31]

   The decision of Meagher JA to which her Honour referred appears at [5] of the judgment:

7. [32]

   In the present case, the relevant terms of the 11 April 2024 letter should be noted in full:

8. [33]

   It is evident from the terms of that letter that it contained all of the information that Boyded could have expected would be contained in a formal notice of motion filed in court. This Court’s orders were made on 4 April 2024. The letter asked for a response within 12 days of that date. The response to that letter was sent at 2:41pm on 16 April 2024 but did not express or convey any attitude to the request. Instead, the letter merely said this:

9. [34]

   The response foreshadowed in that letter is reproduced below at [39].

10. [35]

    Neither in that letter nor in Boyded’s submissions filed in opposition to HWLE’s contentions is there any express or implied reference to some prejudice or other specified disadvantage that Boyded might sustain if the formalities concerning the filing and service of a notice of motion within 14 days of 4 April 2024 were not followed. In our view, the 11 April 2024 letter gives sufficient, if not in fact complete, notice of the relief that HWLE seeks. It follows that it is appropriate in the circumstances of this case that this Court dispense with the requirement in UCPR 18.2(1) for the filing of a notice of motion in respect of HWLE’s application under UCPR 36.16(3A) to vary the costs orders made on 4 April 2024.

Special costs order

1. [36]

   HWLE’s letters dated 16 August 2022 and 6 July 2023 contained detailed arguments in support of the professed reasonableness of the offers of compromise to which they respectively refer. Having regard to the basis upon which HWLE’s appeal was allowed, relating to Boyded’s inability at trial to establish loss by reason of the financial positions of Mr Fayad and the companies in the Dyldam Group, it is sufficient for present purposes to record only the following extracts from these letters.

2. [37]

   The 16 August 2022 letter contained the following:

3. [38]

   The 6 July 2023 letter was shorter but included the following assertions to a similar effect:

4. [39]

   Although Boyded did not engage with HWLE’s contentions in these letters at the time, it did so more recently in response to the present application by way of its solicitors’ letter to HWLE's solicitors dated 17 April 2024 as follows:

HWLE’s submissions

1. [40]

   UCPR 42.15A is in these terms:

2. [41]

   HWLE submitted that by operation of that rule it is entitled to an order against Boyded for its costs in respect of the claim on the ordinary basis up to 16 August 2022 and on an indemnity basis thereafter. In support of that submission it relied upon the following authorities which it is convenient to record.

3. [42]

   The principles that apply to the exercise of the discretion to “order otherwise” are stated by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581-582:

4. [43]

   In Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248 at [20]-[21]:

5. [44]

   Boyded bears the onus of demonstrating why the court should not order otherwise: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109. HWLE submitted that it is “just and fair” that the rule be applied having regard to the circumstances in which the August 2022 offer was not accepted more than 12 months into the proceedings and four days after a mediation. The legal and factual arguments set out in the letter enclosing that offer were ultimately accepted by the Court on appeal. In the alternative, for cognate reasons, HWLE claims indemnity costs from 6 July 2023 in accordance with the terms of the further offer of compromise made on that date.

Boyded’s submissions

1. [45]

   Boyded submitted that it was not unreasonable to refuse either of the offers.

2. [46]

   First, in respect of the August 2022 offer, HWLE had, critically, not admitted the issue of breach by August 2022, and the mediation which had just taken place occurred in circumstances in which breach was and would be in issue at the final hearing. Also in issue was whether Mr Turner would have taken competent advice and not caused a caveat to be lodged. Further, HWLE had served (but did not eventually read) the lay affidavits of HWLE partners, Mr Bluth (affirmed 16 February 2022), and Mr Webeck (sworn 22 February 2022), apparently going to breach. Boyded accepts that most of Mr Turner’s 19 November 2021 affidavit was necessary to establish Boyded’s case on causation and damages, as well as breach, but the same cannot be said for his second affidavit dated 14 October 2022, which largely responded to the affidavits of Mr Bluth and Mr Webeck on breach. Moreover, the financial position of the Gateway entities and Mr Fayad that emerged at trial was not known until well after August 2022, when administrators were appointed to those entities and they were placed into liquidation in April and May 2023.

3. [47]

   Secondly, in respect of the July 2023 offer, while HWLE later bettered their original offer, the way in which HWLE conducted the litigation is evidence enough to discharge Boyded’s burden of proving that a costs order other than indemnity costs should be made. For example, breach was only admitted by HWLE days before the trial and reliance was only abandoned as an issue at or very shortly before trial. In addition, HWLE served but did not tender the expert report of Ashley McPhee (forensic accountant) going to the ability of the Gateway companies and Mr Fayad to pay the $3.5 million at relevant times: HWLE challenged Boyded’s case on valuation up to the second day of trial but ultimately backed down and did not call their expert, and only after a lengthy cross-examination of the expert called by Boyded. Boyded wasted substantial costs as a result. Finally, HWLE were not successful on all issues at trial or on appeal.

4. [48]

   Neither the August 2022 offer nor the July 2023 offer was specifically refreshed between the trial and the appeal.

Disposition

1. [49]

   The inspiration for the offers of compromise was in each case the uncertain financial position of the Gateway entities and Mr Fayad. If the contract had not been rescinded by the vendor, it was those entities to whom Boyded would have had to look for its money. HWLE were at pains to emphasize that Boyded’s prospects of establishing that their negligence had caused Boyded to sustain a loss of $3.5M, or any loss at all, was directly related to the financial viability of the entities who would have been responsible for paying it. HWLE’s emphasis upon these matters was vindicated by the outcome in this Court.

2. [50]

   It is evident from publicity at the time Boyded entered into the agreement for the sale of land that the companies and Mr Fayad were encountering financial problems. It is timely to repeat what HWLE wrote in support of the first offer:

3. [51]

   HWLE did not assert that they had not been negligent as something supporting the force of their offers. In that context, Boyded’s concern that HWLE’s late admission of breach of duty ought somehow to inform the reasonableness of the offers is completely beside the point. Proof that an alleged or admitted breach of duty has caused loss in professional negligence litigation is a commonly reoccurring issue in such cases warranting close consideration by plaintiffs. HWLE drew attention to this issue and supported their concerns by a fairly comprehensive reference to factors that were on one view notorious at the time but which Boyded were equally capable of investigating. It is to be observed that Boyded’s solicitors did not suggest in correspondence that HWLE’s contentions, that the financial standing of the entities who would have been responsible to pay Boyded if the contract had not been rescinded, were questionable or uncertain or unreliable. Indeed, as the 6 July 2023 letter pointed out, the “Gateway Two companies” had recently “collapsed” prior to the hearing before Chen J.

4. [52]

   Nor does “the way in which HWLE conducted the litigation” assist an assessment of whether Boyded has discharged the burden of proving that an indemnity costs order should not be made. The fact that HWLE only admitted breach of duty days before the trial, or that reliance was only abandoned as an issue at or very shortly beforehand, were forensic decisions that HWLE were entitled to make in the course of adversary litigation. Neither of these decisions detracted from the force of the offers and were in any event made after, and in the case of the first offer, well after, the offers had expired. HWLE conducted, and were entitled to conduct, the litigation in those circumstances upon the (correct) assumption that the proceedings would not resolve.

5. [53]

   Finally, Boyded’s submission, that the parties incurred significant, unnecessary costs on issues that HWLE ultimately admitted shortly before the trial, and that this Court would consider that those costs were attributable to HWLE’s unreasonable conduct and order otherwise, entirely overlooks the fact that acceptance of either of the offers of compromise would have meant that no such costs would have been incurred at all. In that sense, Boyded is the author of the outcome about which it complains.

6. [54]

   It is accepted that the offers were not renewed between the trial and the appeal. In Moore v Woodforth (No 2) [2003] NSWCA 46 at [15] the Court observed:

7. [55]

   The Court in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [40]-[43] said this:

8. [56]

   In Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344, Basten JA said this at [21]-[22]:

9. [57]

   In Bathurst Regional Council v Thompson (No 2) [2012] NSWCA 420, Hoeben JA said this at [16]:

10. [58]

    Having regard to these observations, and in particular to the passages quoted above from Regency Media, we see no basis to vary order (4) made in this Court on 4 April 2024.

11. [59]

    In the present case, HWLE obtained a judgment on Boyded’s claim following the appeal to this Court that was no less favourable to HWLE than the terms of the offers. Boyded has not established that this Court should order otherwise. Accordingly, the Court makes the following orders:

    1. (1)

       Dispense with the requirement in Uniform Civil Procedure Rules 2005 (NSW), r 18.2(1) for the filing of a notice of motion by the appellant / cross-respondent (HWLE) in respect of its application under r 36.16(3A) to vary the costs orders made on 4 April 2024.

    2. (2)

       In relation to the proceedings below, order that order (2) made in this Court on 4 April 2024 be varied so that the costs ordered to be paid be payable on the ordinary basis up to 16 August 2022 and on the indemnity basis thereafter.

    3. (3)

       Order that the costs of this application be costs in the appeal.