Legal Minds Pty Ltd t/as Legal Minds v Ebsworth (No 2)

On 20 October 2022, I ordered judgment in favour of Marion Ebsworth (the defendant) on the claim for legal fees brought against her by Legal Minds Pty Ltd t/as Legal Minds (the plaintiff): Legal Minds Pty Ltd t/as Legal Minds v Ebsworth [2022] NSWSC 1420. I also ordered that the plaintiff pay the defendant’s costs of the proceedings. However, I made provision for an application for a different costs order to be made. This judgment assumes familiarity with the principal judgment.

The defendant has since applied for an order on a different basis, arising from a Calderbank (after Calderbank v Calderbank [1975] 3 All ER 333) offer to the plaintiff dated 26 June 2022 or, in the alternative, a subsequent Calderbank offer dated 4 August 2022. Ms King, who appeared for the defendant, accepted that the letters did not conform to the requirements of Uniform Civil Procedure Rules 2005 (NSW), r 20.26. However, Mr Eardley, who appeared for the plaintiff, accepted that each of the offers qualified as Calderbank offers, since Ms Stone, the defendant’s solicitor had indicated as much in the text of the letter.

The offers, aside from their dates, were relevantly identical. Each was expressed to be open for a period of 28 days from the date of the letter. In each, the defendant offered to pay the plaintiff the sum of $47,183.80 plus costs in return for the removal of the charge over the defendant’s property in full and final settlement of the proceedings. Neither offer was accepted.

The defendant also sought an order that the costs order be made against Christopher Serow, a solicitor who practises through the plaintiff. Mr Serow is the sole director and shareholder of Serow & Associates Pty Ltd, which, in turn, is the sole shareholder of the plaintiff, of which Mr Serow is the sole director. Ultimately, this application was resolved by Mr Serow giving an undertaking to the defendant and the Court to pay the defendant’s costs of the proceedings as agreed or assessed to the extent to which they have not been paid by the plaintiff. This undertaking has been noted and will be placed on the Court file.

Mr Eardley also made written submissions to the effect that, as Ms Stone and Ms King were described in correspondence and in Court as having acted pro bono, the defendant could not recover her costs from the plaintiff since she had not incurred any. Ms King informed me that it was common ground that there were costs agreements between herself and the defendant and Ms Stone and the defendant which provided that they were to be paid from costs generated by a costs order in favour of the defendant. Ultimately, Mr Eardley accepted that the consideration of the nature and effect of those agreements was a matter for the costs assessor: see Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [38] (Santow JA, Hislop J agreeing). It was common ground, in these circumstances, that I did not need to address Mr Eardley’s written submissions on that matter.

Costs are in the discretion of the Court: s 98(1) of the Civil Procedure Act 2005 (NSW). It was common ground that the only question to be determined was whether the plaintiff’s rejection of the defendant’s respective offers was unreasonable and that the defendant bore the onus on this question.

Mr Eardley submitted that it was not unreasonable for the plaintiff to refuse the defendant’s offer of 26 June 2022 because at the time of the offer the defendant had not served her evidence. Further, he submitted that a further amended defence was filed on 9 June 2022 and served on 16 June 2022; the affidavits of Ms Stone and of the defendant were served on 6 July 2022. A further affidavit of the defendant was filed on 27 July 2022. He also relied on the circumstance that a second further amended defence was filed in the course of the hearing on 10 October 2022, which made express reference to the Contracts Review Act 1980 (NSW). Mr Eardley submitted that, in these circumstances, it could not be unreasonable for the plaintiff to refuse either Calderbank offers.

The plaintiff sued the defendant for legal costs said to be outstanding and sought an order for possession of the defendant’s home. The defendant was wholly successful in defeating the plaintiff’s claim, principally on the basis that the plaintiff (through Mr Serow) had acted in breach of the fiduciary duty owed to her as her solicitor.

Prior to the commencement of the proceedings, the plaintiff, under cover of a letter dated 1 June 2021, had served a demand on the defendant pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) and s 111(2)(b) of the Conveyancing Act 1919 (NSW), claiming payment of these allegedly outstanding fees.

By letter in response dated 16 August 2021, Ms Stone wrote to Mr Serow, setting out the various reasons why the amount claimed was not payable. It is not necessary to set this letter out in full. It is sufficient to extract the more salient passages, as set out below:

While this letter did not purport to be a Calderbank letter and was not sought to be relied on as such, it did serve to put the plaintiff on notice of the various matters which were eventually raised by the defendant in defence of the plaintiff’s claim. Further, it was prescient because it substantially anticipated the various bases on which I refused the plaintiff’s claim and ordered judgment for the defendant. Although the defendant’s defence was amended during the hearing on 10 October 2022 to add a defence pursuant to the Contracts Review Act, the plaintiff had been on notice since 16 August 2021 that it would be relied upon. Thus, when the Calderbank offers were made in June and August 2022 respectively, the plaintiff was in a position to appreciate that they involved a substantial measure of compromise on the part of the defendant. If the matters set out in the letter of 16 August 2021 were made out, the plaintiff would not be able to recover any part of the amount claimed. Each offer, if accepted, would have entitled the plaintiff a sum of $47,183.80 plus the costs of the proceedings to date. This would have provided the plaintiff with a significantly better result than in fact ensued. Each offer contained a significant element of compromise.

In addition to the matters referred to in Ms Stone’s letter of 16 August 2021, the plaintiff can be taken to have been aware of the underlying facts which led to the claim being unsuccessful. The plaintiff, through Mr Serow, must have known that, as a solicitor, it owed the defendant fiduciary duties; that there was a conflict between the defendant and her sister which meant that he could not act for both unless the defendant had obtained independent legal advice; that the defendant’s costs agreement with him was improvident from her point of view; and that the defendant’s circumstances were such that she would qualify for relief under the Contracts Review Act in respect of her costs agreement with him and any charge that had been validly given by her because these agreements were, in their nature, unjust. The plaintiff did not need to wait for the defendant’s affidavit evidence to learn of these matters because Mr Serow knew full well of her circumstances.

When all these circumstances are considered, I am persuaded that it was unreasonable for the plaintiff not to accept the Calderbank offer of 26 June 2022. It was common ground that the order for indemnity costs ought run from the date the Calderbank offer expired, being 28 days after 26 June 2022.

For the following reasons, I make the following orders: