Permanent Custodians Limited and Anor v King and Ors [2010] NSWSC 509 (25 May 2010)

Last Updated: 26 May 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Permanent Custodians Limited and Anor v King and Ors [2010] NSWSC 509


JURISDICTION:


FILE NUMBER(S):
2006/265811

HEARING DATE(S):
6 May 2010

JUDGMENT DATE:
25 May 2010

PARTIES:
Plaintiff - Permanent Custodians Limited
First Defendant - Paul David King
Second Defendant - Charles Stuart King
Cross Claimant - Charles Stuart King
First Cross Defendant - Permanent Custodians Limited
Second Cross Defendant - Pepper Finance Corporation Ltd
Third Cross Defendant - Bill Laskaris trading as Able Finance
Fourth Cross Defendant - Dion Vertzayas, Vertzayas Lawyers Pty Ltd
Fifth Cross Defendant - Paul King


JUDGMENT OF:
Schmidt J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff - Mr R Cameron, solicitor
First Cross Claimant - Ms R Francois
Fourth Cross Defendant - Mr JC Kelly SC


SOLICITORS:
Hicksons - Plaintiff
Legal Aid NSW - First Cross Claimant
Colin Biggers & Paisley - Fourth Cross Defendant



CATCHWORDS:
PROCEDURE - judgments and orders - amending, varying and setting aside - leave sought by Fourth Cross Defendant to amend defence - question of proportionate liability - concurrent wrongdoer - whether Part 4 of the Civil Liability Act applies - proportionate liability provisions do not apply - failure to plead reliance on these provisions in defence - Part 4 of the Civil Liability Act must be pleaded by defendant - late amendment - leave refused
TORTS - negligence - apportionment of responsibility and damages
PROCEDURE - costs - departing from the general rule - conduct of parties - orders made

LEGISLATION CITED:
Contracts Review Act 1987
Civil Liability Regulation 2003
Civil Liability Regulation 2009
Civil Liability Act 2002
Civil Liability Act 2005
Civil Procedure Act 2005
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005
Workers Compensation Act 1987 (NSW)

CATEGORY:
Principal judgment

CASES CITED:
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Arian v Nguyen [2001] NSWCA 5; (2001) 33 MVR 37
Forster v Outred & Co (1982) 1 WLR 86
HSD Co Pty Ltd v Masu Financial Management Pty Ltd [2008] NSWSC 1279
HTW Valuers (Central Qld) Pty Ltd v Asonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640
Nemeth v Prynew Pty Ltd [2009] NSWSC 511
Multiplex Constructions Pty Limited v Irving [2005] NSWCA 1
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72
Permanent Custodians Limited v King and Ors [2009] NSWSC 600
Permanent Custodians Limited and Anor v King and Ors [2010] NSWSC 95
Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187
Sydney South West Area Health Service v MD [2009] NSWCA 343; [2009] NSWCA 343; (2009) 260 ALR 702
Ucak v Avante Developments [2007] NSWSC 367
Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514

TEXTS CITED:


DECISION:
1. The Fourth Cross–defendant pay Permanent Custodians Limited’s costs of its motion filed on 8 September 2009.
2. The Cross Claimant pay the Fourth Cross–defendant’s costs thrown away by reason of the case proceeding at trial on the issue of damages on the basis of the terms of Order 6 of the Terms of Settlement made by the Court on 20 February 2008 (which was subsequently rectified).
3. The Cross Claimant pay the Fourth Cross–defendant’s costs of his motion filed on 31 July 2009.



JUDGMENT:

- 26 -

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

SCHMIDT J

TUESDAY, 25 MAY 2010

2006/265811 PERMANENT CUSTODIANS LIMITED AND ANOR v KING AND ORS

JUDGMENT

1 HER HONOUR: Judgment was given in this matter in July 2009 (see Permanent Custodians Limited v King and Ors [2009] NSWSC 600.) The parties were directed to bring in short minutes and to confer on costs. In February 2010 a further judgment was given (see Permanent Custodians Limited and Anor v King and Ors [2010] NSWSC 95.) It dealt with the calculation of one aspect of damages; a motion brought by Mr King to have the July judgment re-opened; and a motion brought by the plaintiff, Permanent Custodians Pty Limited ('Permanent'), to vary consent orders which had been made in February 2009. Mr King’s motion was refused, Permanent’s motion was granted and the calculation of damages determined. The question of costs still remained to be determined.

2 The parties have now approached in relation to costs and on 24 March 2010, Mr Vertzayas filed a motion seeking leave to amend his defence. Mr Vertzayas sought to advance a claim that Mr Paul King, the fifth cross defendant, was a concurrent wrongdoer and that accordingly, his liability for Mr King’s damages should be limited to 50%, in accordance with s 35 of the Civil Liability Act 2002. At the hearing it was submitted for Mr Vertzayas that it was unnecessary to rely on the motion, because the mandatory effect of s 35 of the Civil Liability Act was, in any event, that contended for and accordingly no amendment of the defence was required. It was argued for Mr King that s 35 did not apply to Mr King’s claim, but that if it did, leave was necessary, if Mr Vertzayas was to rely on the section. Mr Vertzayas was obliged to plead his reliance on s 35 in his defence and the leave sought would be refused, given the time at which it was sought and the consequences of the granting of the leave.

Section 35 of the Civil Liability Act and Mr Vertzayas’ motion

The parties’ cases

3 It was argued for Mr Vertzayas that Mr King’s claim was an apportionable claim within the meaning of s 34(1)(a) of the Civil Liability Act and that Mr Paul King was a concurrent wrongdoer, as that term is defined in s 34(1)(b). It was also claimed that paragraph 16 of the cross claim was a claim for economic loss in an action for damages arising from a failure to take reasonable care (see Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187.)

4 The proportionate liability provisions of the Civil Liability Act commenced on 1 December 2004 and operate in respect of claims arising after 26 July 2004. (See cl 3 of the Civil Liability Regulation 2003 and Reg 5(1) of the Civil Liability Regulation 2009.) Mr Vertzayas argued that Mr King suffered no damage until after that date and accordingly, these provisions applied to his claim. The conclusions reached in the July 2009 judgment showed that Mr King had suffered no actual loss until well after 26 July 2004, that is, when repayments of the Permanent loan ceased to be made in 2005 and on the evidence of Mr King, on 20 May 2008, when consent orders were made pursuant to the deed of settlement executed on 15 February 2008. To that time Mr King had not himself paid anything under the mortgages. The payments made up to 2005 had been made by his two sons. Until the 2008 settlement Mr King had a right to have the mortgages set aside, for example under the Contracts Review Act 1987. By the settlement he gave up those rights upon terms which permitted him to reside in the property for the remainder of his life. It followed that it was the consent orders to which Mr King then agreed, which crystallised what was to that time only a potential loss.

5 Given the conclusions reached in the July judgment it further followed that it would be concluded under s 35 that there was a concurrent wrongdoer, Mr King’s son, Mr Paul King, who had duped his father into agreeing to allow his home to be used to secure the loans in question. Mr Vertzayas was found to have failed in his duty to Mr King to protect him from the risk occasioned by his son’s lies. This was a classic situation which called for apportionment and a profound injustice would follow, if there was no apportionment as s 35 of the Civil Liability Act required. That apportionment would be assessed at 50%.

6 It was accepted that s 35 of the Civil Liability Act had not been pleaded, but it was argued that such pleading was unnecessary, given the claims Mr King himself had advanced in the cross claim. The effect of s 35 was to preclude judgment being entered for more than an amount determined in accordance with s 35(1)(a). The provision was mandatory. Mr King himself had raised the issue that Mr Paul King was a concurrent wrongdoer, by the claims which he advanced against Mr Paul King and Mr Vertzayas. Mr King’s evidence had established that there was a basis for these claims. It followed that it was unnecessary for Mr Vertzayas to have raised his reliance on s 35 in his defence.

7 In the alternative, it was submitted that in the event that the view was taken that s 35 required a pleaded defence, leave to amend the defence to plead the section would now be given. There would be no prejudice by such leave being granted at this stage, given the claims advanced in the cross claim against Mr Paul King and because the relevant facts had been proven by Mr King’s own evidence.

8 Mr King’s case was that the Act did not operate in the way Mr Vertzayas submitted. Leave to amend was necessary and would be refused. Reliance on s 35 had not been raised until this point. There was no explanation for the delay in raising the section during the course of the hearing; in the more than 8 months since the principal judgment was given in July 2009; in the more than 6 months since the hearing into the calculation of the damages in 2009 and the further delay since the February 2010 judgment given on that matter. An explanation was required and the failure to give an explanation was fatal to the application (see Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at [102] and [103].)

9 The affidavit supporting Mr Vertzayas' motion was argued to incorrectly suggest that the first plain notice given that Mr Vertzayas might be ordered to pay the amount necessary to discharge the Permanent loan, was received when the July 2009 judgment was given. The 2006 cross claim made it plain that an indemnity was sought. Particulars of that claim were sought and provided in 2007. It was then made clear that the damages sought were a sum sufficient to discharge the loan. Mr Vertzayas had later been given advice on proportionate liability by his legal advisers in March and August 2008.

10 On the first day of the hearing, it was submitted for Mr Vertzayas that one possibility in the proceedings was that judgment might be obtained against him for the loan outstanding. This showed that Mr Vertzayas was on notice of the nature of the damages sought against him, namely an order which would permit the discharge of the loan. That was what was sought against Mr Vertzayas in the submissions later advanced in April 2009 and was the case which Mr Vertzayas met in his submissions in May. It followed that Mr Vertzayas had always had the opportunity to run the defence under s 35 now sought to be raised, so long after judgment had been given.

11 It was accepted that a cause of action only accrued once loss and damage was sustained, but submitted that the question of when that occurs is one of fact. In this case, the damage occurred when Mr King first entered into the loan transactions. He was then immediately liable under the loans as a co-borrower. At that time it was obvious that his home would have to be sold to meet the loans. Mr King was a pensioner and Mr Paul King’s business was failing. Mr Paul King did not have sufficient assets to discharge the loan. This was a case where entry into the transaction was the damage. It followed that the proportionate liability provisions of the Civil Liability Act did not apply to Mr King's case, given that the loans were entered before July 2004. This explained why these provisions were not earlier relied on in Mr Vertzayas' case.

12 It was also argued that in order for the defence to be relied on, it had to be properly pleaded. The proposed pleading was defective and could not be permitted. Even if s 35 of the Civil Liability Act applied, the pleaded defence was unlikely to succeed and leave to amend would thus be refused. It was the conduct of Mr Vertzayas which gave Mr Paul King the means to cause Mr King damage. Mr Vertzayas’ wrongful conduct was his failure to address his conflict of interest and to take steps to reduce the risks faced by Mr King from his son. Had the defence been raised, matters relevant to a determination of the issues raised by the provisions of the Act would have been pursued in Mr King’s case and in cross examination of Mr Vertzayas.

13 The late stage at which the leave to amend was sought militated against the leave being granted. In the circumstances the result would be irreparable unfair prejudice and further unnecessary delay the grant of leave affecting forensic decisions earlier made, including as to cross examination of Mr Vertzayas, which would necessitate further investigations and rehearing.

14 A further ground on which leave would be refused was that it would require leave to reopen the earlier judgments. Given the way in which the case had been pursued and defended, conclusions had been reached in the July 2009 judgment which would have to be disturbed, before the defence could succeed. This meant that leave to reopen would have to be sought and granted. While there was power to re-open a judgment, it was one to be exercised with great caution and not where, as here, the party who was at fault in failing to raise a defence at the appropriate time was Mr Vertzayas.

Conclusion

15 I am satisfied for the following reasons that s 35 of the Civil Liability Act does not apply to the proceedings; that even if it did, Mr Vertzayas was obliged to plead s 35 as a defence, if he wished to rely upon it; that leave to re-open the judgment would have to be obtained before the leave to amend the defence now sought could be entertained and that in the circumstances, neither leave to re-open nor to amend may be granted as a matter of justice between the parties.

Pleading

16 This is not the first occasion on which the question of the necessity to plead the proportionate liability provisions of the Civil Liability Act has arisen for consideration.

17 In Ucak v Avante Developments [2007] NSWSC 367, Hammerschlag J observed at [34] - [36]:

"34 In order for a person to be a concurrent wrongdoer he must be one whose acts or omissions caused the damage or loss that is the subject of the claim.

35 It follows in my view, that for a defendant to assert that there is a person who is a current wrongdoer the defendant must plead the necessary elements which result in the asserted conclusion. Those elements are:

a the existence of a particular person;

b the occurrence of an act or omission by that particular person; and

c a causal connection between that occurrence and the loss that is the subject of the claim.

36 What the defendant in this case has done is to assert a conclusion without the material facts upon which that conclusion depends. This is a course which is not permissible."

18 This approach accorded with that later discussed by Barrett J in Reinhold. His Honour had to consider the operation of Part 4, Proportionate Liability of the Civil Liability Act, observing at [32]:

"2 The provisions of Part 4 are compulsory. They change substantive rights, so that a plaintiff’s ability to obtain an adjudication of joint and several liability is removed where the circumstances are of the type to which the alternative regime of proportionate liability is applied. A case no doubt needs to be pleaded and proved by one or more defendants so as to engage the statutory provisions. But it will be the findings ultimately made that determine whether the statutory conditions compelling the court to adopt the proportionate approach are satisfied."

19 That approach, of requiring a defendant to plead and prove the matters which arise from the provisions of Part 4, accords with what was said by Rothman J in HSD Co Pty Ltd v Masu Financial Management Pty Ltd [2008] NSWSC 1279:

"14 The fundamental principle underpinning the promulgation of legislation permitting proportionate liability is that persons, who are one only of a number who have occasioned the same damage, should bear the damage proportionately to the number of persons who are responsible.

15 The obvious precondition to limiting liability, on the basis that others are also responsible for the damage, is to prove that those others have caused the damage and are legally responsible for it.

16 There is a complementary duty (s 35A of the Civil Liability Act, above) on the defendant, who invokes the provisions, to inform the plaintiff of relevant information on any person, who may be a concurrent wrongdoer, in default of which there are consequences in costs.

17 As seems obvious from the foregoing, the scheme extends protections that would otherwise be available by issuing a cross-claim. In order to utilise a cross-claim, a defendant must allege a cause of action by it against the cross-defendant. The proportionate liability provisions allow the defendant to allege a cause of action by the plaintiff against the concurrent wrongdoer. Such a right brings with it the correlative duty to specify, in the same way as if there were a cross-claim, the basis for proportionate liability and the basis for identifying a person as a concurrent wrongdoer.

18 It is essential, if these provisions are to operate appropriately, that any defendant be required to plead the proportionate liability defence in a manner that discloses the cause of action and damage in at least as detailed a manner as would be required of any initiating process for such a cause of action. The information should include:

(a) the identity of the concurrent wrongdoer;

(b) the basis for the cause of action – if it be contract, identify the contract; if it be tort, identifying the duty, its scope and the breach; and

(c) the damage – the aspects of causation; the alleged extent and proportion of the damages, and the causal connection with the damage said to be suffered by the plaintiff in the substantive proceedings.

In this regard, I agree, with great respect, with the view expressed by McDougall J in his paper “Proportionate Liability in Construction Litigation” (2006) 22 BCL 394 at 400; see also UCAK v Avante Developments [2007] NSWSC 367 (per Hammerschlag J) and Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 (per Middleton J)."

20 The Court of Appeal took a similar approach in Sydney South West Area Health Service v MD [2009] NSWCA 343; (2009) 260 ALR 702, albeit to a different provision of the Civil Liability Act. Both Hodgson JA and Allsop P there discussed the necessity to plead a defence under s 5O. Hodgson JA observed:

"23 In my opinion, s 5O does contemplate proof of material facts which, if established, would negative a finding of negligence which otherwise might be available; so in my opinion the material facts contemplated by s 5O should be pleaded in a defence, even if specific reference to s 5O is not mandatory. However I would say that specific reference to s 5O would be desirable.

24 Although it is not necessary and perhaps not desirable for me to express a final view on this, I should add that my tentative view would be that the same applies to s 51A of the Trade Practices Act, as suggested by French J in Western Australia v Bond Corporation Holdings Limited [1990] FCA 522; (1990) 99 ALR 125; [1991] ATPR 41-081. But for s 51A, the making of a representation with respect to any future matter without reasonable grounds would not, by reason only of those facts, necessarily be misleading or deceptive. So in my opinion, it would not be correct to say that all s 51A does is to facilitate proof.

25 For those reasons, in my opinion, the primary judge was not in error to hold that for matters specified in s 5O of the Civil Liability Act to be relied on, that section, or at least the material facts contemplated by that section, should be pleaded.”

21 Allsop P agreed with his Honour’s reasons and added additional comments, observing at [50] that s 5O must be pleaded and was not just a matter of evidence. He also observed:

"53 Thirdly, the Court of Appeal has on a number of occasions since 2001 made clear that the ambush theory of litigation is dead in this State. The same thing has been said in the Federal Court: see in particular Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; 53 NSWLR 116; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243; and Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206. As I said in White and Overland [2001] FCA 1333 at [4], which was approved in terms by the Court of Appeal in Nolan at [28] 128:

“by way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. ... [I]f, something has been said, where it is evident, or indeed suspected, that the other side is proceeding on a basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party, through his or her representative, ensure that the other side is not proceeding on a misconception or that the other side does appreciate something that has been said. Litigation is not a game. It is a costly and stressful, though necessary, evil. ... [N]o one’s interests are advance by litigation proceeding on assumptions which are seen or suspected to be false.”

54 As I also said in Baulderstone at [160]:

“it cannot be emphasised too strongly that it is the responsibility of the parties, through their legal representatives, to exercise a degree of co-operation to express the issues for trial before and during trial. Such co-operation can now be taken as an essential aspect of modern civil procedure in the running of any civil litigation including [in that case] hard fought commercial cases”."

22 In Nemeth v Prynew Pty Ltd [2009] NSWSC 511, Macready AsJ took a different view, observing after referring to what Barrett J had said in Reinhold:

"20 The first three defendants were all parties to the action at the time of the offers. The legislation is just as emphatic and directs the court to the judgment which it must give. It will be bound to do so once it has determined a party’s responsibility for the loss or damage. In my view the fact that at the time of the offer there was no pleaded defence is immaterial as the parties must have been aware of the law. The terms of the offer made it plain that it was the first and second defendant making the offer. They could not settle the proceedings for the third defendant and did not purport to do so. For all they knew the third defendant may have wished to proceed with a successful defence of the proceedings and obtain a costs’ order against the plaintiffs. The third defendant’s submission to the contrary is rejected.

21 His Honour’s comments are no doubt directed to procedural requirements to ensure that the matter is dealt with in an orderly manner at trial. His Honour’s comments at [30] support this view."

23 With respect, I find myself unable to share his Honour’s view. At [30] in Reinhold, Barrett J was discussing the way in which findings made are framed. He was not considering the necessity for a defendant to plead reliance on the proportionate liability provisions of the Act. The view that this was necessary, was one which Barrett J expressed at [32].

24 The necessity for such pleadings is underscored by a consideration of what occurred in this case. Having never raised his reliance on Part 4 of the Civil Liability Act, it is now argued for Mr Vertzayas, long after judgment was given and damages assessed, that the cross claim which was brought by Mr King itself raised Part 4, because a claim was there advanced against Mr Paul King. It followed that Mr King himself regarded Mr Paul King and Mr Vertzayas each to be a ‘concurrent wrongdoer’ as defined in s 34(2) and thus there was no necessity for Mr Vertzayas to plead his reliance on these provisions. That view of the cross claim was never revealed and is now disputed for Mr King.

25 Without alerting Mr King that reliance was to be placed on the proportionate liability provisions of the Civil Liability Act, Mr Vertzayas thus permitted a course whereby Mr King did not pursue his cross claim against Mr Paul King, only claiming after judgment was given, that Mr Paul King was a concurrent wrongdoer.

26 That had the result that Mr King was deprived of the opportunity to consider whether he should pursue Mr Paul King as a concurrent wrongdoer, given Mr Vertzayas’ reliance on Part 4. He was also deprived of the opportunity of leading evidence relevant to the issues which those provisions raised and of exploring relevant factual issues when cross examining Mr Vertzayas. That this was a necessary exercise to be undertaken when evidence was led, is apparent from what sections 34A, 35 and 36 provide:

"34A Certain concurrent wrongdoers not to have benefit of apportionment

(1) Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer) in proceedings involving an apportionable claim if:

(a) the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim, or

(b) the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim, or

(c) the civil liability of the concurrent wrongdoer was otherwise of a kind excluded from the operation of this Part by section 3B.

(2) The liability of an excluded concurrent wrongdoer is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3) The liability of any other concurrent wrongdoer who is not an excluded concurrent wrongdoer is to be determined in accordance with the provisions of this Part.

35 Proportionate liability for apportionable claims

(1) In any proceedings involving an apportionable claim:

(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss, and

(b) the court may give judgment against the defendant for not more than that amount.

(2) If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim:

(a) liability for the apportionable claim is to be determined in accordance with the provisions of this Part, and

(b) liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3) n apportioning responsibility between defendants in the proceedings:

(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributory negligent under any relevant law, and

(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.

(4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.

(5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.

36 Contribution not recoverable from defendant

A defendant against whom judgment is given under this Part as a concurrent wrongdoer in relation to an apportionable claim:

(a) cannot be required to contribute to any damages or contribution recovered from another concurrent wrongdoer in respect of the apportionable claim (whether or not the damages or contribution are recovered in the same proceedings in which judgment is given against the defendant), and

(b) cannot be required to indemnify any such wrongdoer."

27 Plainly, as was argued for Mr King, whether Mr Vertzayas had knowledge of matters which Mr Paul King was concealing from Mr King, was a relevant issue to explore, in order to determine whether s 34A applied in the circumstances. In accordance with s 35, the respective culpability of Mr Vertzayas and Mr Paul King also had to be considered, in order to determine what proportion of the damage which Mr King suffered, was damage for which Mr Vertzayas had responsibility. This had to be established by evidence. Mr Vertzayas could obviously have given evidence about such matters and would have been cross examined about them, if his reliance on s 35 had been revealed. Mr King might himself have had relevant evidence to give and evidence might have been available to be called from other people. Documents might also have shed light on such matters. Nothing of this kind was dealt with at the trial. Instead, the case proceeded on the basis of Mr King’s claim that Mr Vertzayas was entirely responsible for his loss.

28 That was plainly not the situation with which Barrett J was dealing in Reinhold. It was argued, nevertheless, for Mr Vertzayas that all that now remained was for conclusions to be reached as to what proportion of Mr King's loss Mr Paul King had liability. That submission may not be accepted. Patently Mr King would have to be given the opportunity to address the factual issues which arise, if this defence is now to be raised. Undoubtedly he would have to be given leave to call further evidence and to further cross examine Mr Vertzayas, if justice were to be achieved between these parties.

29 Given the way in which the proceedings were conducted to this point, other difficulties preclude such a course now being embarked on. Suffice it to observe at this stage that this approach to litigation is not consistent with the requirements of the Civil Procedure Act 2005 and its emphasis on the ‘the just, quick and cheap resolution of the real issues in the proceedings’ in s 56, the elimination of delay in s 59 and the proportionality of costs in s 60.

Late amendment and leave to re-open

30 I am satisfied that if Part 4 of the Civil Liability Act applied to the claim, this late amendment to the defence could not justly be permitted for two reasons.

31 The first, that it would require leave to re-open the judgment. There has been no explanation for the failure to plead reliance on Part 4 of the Civil Liability Act, other than the view that it was unnecessary to do so. Consideration was given in the February judgment to the limited circumstances in which leave to re-open may be given. Reference was there made to Multiplex Constructions Pty Limited v Irving [2005] NSWCA 1 where the Court of Appeal considered a failure to raise an argument under s 151E(3) of the of the Workers Compensation Act 1987 (NSW), which dealt with modified common law damages. It was concluded that:

"24 In the light of the approach enunciated in these authorities, I see no good reason to allow the new issue now to be raised. This is not a case where there is any suggestion of an inadvertent denial of procedural fairness (see Auto Desk Inc v Dyason [No 2] at 314). Multiplex has had a clear and full opportunity to place before this Court all the submissions that it wished to make at the appropriate time. Full and detailed oral argument took place before judgment was delivered. The omission to raise s 151E(3) earlier was due solely to the conduct of Multiplex itself. The argument now raised is simply an afterthought and a contentious one at that. In the circumstances of this case, to allow the new point to be raised would subvert the appeal process itself: see Noga v Abacha (2001) 3 All ER 513. Accordingly, I would refuse to allow Multiplex to raise the new argument based on s 151E(3)."

32 This is a similar situation. Mr Vertzayas had a proper opportunity to raise Part 4 of the Civil Liability Act at the trial. The point was not even raised in the further proceedings which led to the February 2010 judgment, even though the question of the calculation of damages was directly raised and determined in those further proceedings. Mr King's resistance to the course which Mr Vertzayas urges is not, as was argued for Mr Vertzayas, merely an unmeritorious pleading point. The new defence unarguably does more than simply reproduce the plaintiff’s own case.

33 There is no question that an order limiting an order for damages against Mr Vertzayas to 50% of the damage suffered by Mr King would conflict with conclusions reached in the July 2009 judgment. Those conclusions reflected the matters over which the parties had joined issue at the trial, Mr King’s case being that it was Mr Vertzayas who was responsible for that damage. That was the case established on the evidence. That is the case which Mr Vertzayas now seeks to challenge.

34 Undoubtedly, as was submitted for Mr Vertzayas, there is a very important purpose underpinning Part 4 of the Civil Liability Act, which may not be overlooked. There are other important principles which must also be weighed in the balance, in the situation which has presented itself here. Leave to re-open has not been sought, but clearly, this is not the kind of situation where the necessarily cautious approach which must be adopted to a re-opening application could permit such relief being granted, if the proper interests of justice are to be served.

35 The second reason for refusing leave to amend the defence is that to permit the course now sought to be pursued would necessitate a further hearing, as was accepted for Mr Vertzayas. Conclusions already reached would have to be revisited. That approach would not accord with what the Civil Liability Act contemplates, as I have discussed. Nor does it accord with the approach discussed by the High Court in Aon.

36 It follows that leave to amend Mr Vertzayas' defence at this late stage of the proceedings must be refused.

Does Part 4 of the Civil Liability Act apply?

37 To my mind these provisions do not apply to Mr King's claim. The case advanced for Mr Vertzayas was that Mr King suffered no damage until after his sons ceased repaying the loan. The damage eventually crystallised in 2009, when consent orders were made in favour of Permanent.

38 Mr King’s case was that there was good reason why Mr Vertzayas had not earlier pleaded s 35, despite having received advice about those provisions of the Civil Liability Act. That was because the provision did not apply to Mr King, who suffered damage immediately upon entering into the two loans. Thereby his home was encumbered, in circumstances where neither he nor his son had the means to repay the loan. Mr King was a pensioner. By the time of the Permanent loan, Mr Paul King’s business had gone into administration and liquidation. That the full amount of the damage did not crystallise until later, after repayments ceased, did not alter the point at which the damage which resulted from Mr Vertzayas’ negligence occurred.

39 Relevant to the determination of this issue is the High Court’s judgment in HTW Valuers (Central Qld) Pty Ltd v Asonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, which concerned an overvaluation of land on purchase. The proceedings were brought against the valuer in contract, tort and s 52 of the Trade Practices Act 1974 (Cth). The High Court took the view that loss had been suffered when the contract to purchase was entered, observing:

"[28] The plaintiff's endeavour to support the reasoning of the courts below must fail, because the first criticism of that reasoning made by the defendant is unquestionably correct and sufficient to undermine it entirely. If the plaintiff had learned the day after entering the contract to buy the Plaza, or the day after completing that contract, that the defendant's conduct had been misleading in the sense ultimately found by the trial judge, it could have started proceedings then and there. There was unchallenged evidence from Mr Dodds that on either of those dates the plaintiff was in fact worse off as a result of the defendant's breach, since the market value was less than the price. It was not necessary to wait for nearly two years to ascertain that some loss had been suffered. The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay. It could have recovered at least the difference between the price paid for, and the market value of, the Plaza. The limitation period would have begun to run. (At either of the relevant times, that is, the time when the contract was entered into or the time when it was completed, s 82(2) of the Act provided for a limitation period of three years "after the date on which the cause of action accrued".)"

40 This situation is analogous. It was not necessary to wait to see if the loan was repaid, in order to ascertain whether a loss had been suffered. That loss was Mr King's title being encumbered by a mortgage.

41 The High Court took the view in HTW Valuers that the situation there was not of the kind considered in Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, which dealt with a risk of a loss, where no actual damage results until the contingency is fulfilled and the loss becomes actual.

42 In my view this, too, is not a situation like that considered in Wardley. Mr Vertzayas had a conflict of interest which he did not deal with. He was negligent in the advice which he gave Mr King. The result was that Mr King mortgaged his house in order to provide funds for his son’s business. He was a pensioner who himself had no means to repay the mortgage. The son’s business was in difficulty when the first loan was entered and had in fact already failed when the Permanent loan was entered. The result was that from the moment that the house was mortgaged, Mr King suffered a loss. While the first loan was repaid, that only occurred as the result of the second, larger loan being entered into. Thereby Mr King's unfettered interest in his property was encumbered and became subject to a liability which eventually matured into a financial loss, for reasons entirely outside his control.

43 That situation was one dealt with in Forster v Outred & Co (1982) 1 WLR 86, where damage at the point of entry into a mortgage was recognised by the English Court of Appeal. That decision was considered to by the High Court in Wardley, where it was observed at 528-9:

"The Full Court referred, with evident approval, to the remarks of Dunn LJ in Forster v Outred & Co. In that case, it was held that actual loss, and not merely prospective loss, was suffered by the plaintiff when, on the negligent advice of the defendant solicitors, she executed a mortgage over her property to secure the debts of her son, and not at the time when the mortgagee sought to enforce the security following the bankruptcy of the son. Dunn LJ said [[1982] 1 WLR, at p 99; [1982] 2 All ER, at p 765.]:

"[I]n cases of financial or economic loss the damage crystallizes and the cause of action is complete at the date when the plaintiff, in reliance on negligent advice, acts to his detriment."

His Lordship went on to say [ibid, at p 100; p 765.] :

"In this case, as soon as she executed the mortgage the plaintiff not only became liable under its express terms but also -- and more importantly-- the value of the equity of redemption of her property was reduced. Before she executed the mortgage deed she owned the property free from encumbrances; thereafter she became the owner of a property subject to a mortgage." (Emphasis added.)

Stephenson LJ also remarked [ibid, at p 98; p 764.] that, by executing the mortgage, the plaintiff reduced the value of her interest in the property and subjected herself to a liability according to the terms of the mortgage.

The decision in Forster v Outred & Co is explicable by reference to the immediate effect of the execution of the mortgage on the value of the plaintiff's equity of redemption, an aspect of the case to which Dunn LJ attached particular importance. Jobbins is not explained quite so easily."

44 Like the situation considered in Forster, in this case Mr King suffered damage when he entered into the two mortgagers about which Mr Vertzayas advised him. These events occurred before the relevant date, with the result, in my view, that the proportionate liability provisions of the Civil Liability Act do not apply.

Costs

The parties' cases

45 The parties have resolved the orders to be made, other than as to costs. Mr Vertzayas unsuccessfully defended the proceedings brought against him. That was dealt with in the July 2009 judgment. He also later unsuccessfully resisted the motion brought by Permanent, which was dealt with in the February 2010 judgment. Mr King was unsuccessful in the motion which he brought, in which leave to re-open was sought. That, too, was dealt with in the February 2010 judgment. The usual order is that costs follow the event.

46 There was no question that the Court has the discretion to depart from the usual rule and to order that a successful party pay costs of the unsuccessful party, where there has been disentitling conduct. (See Rule 42.1 of the Uniform Civil Procedure Rules and Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72. )

47 At issue now are orders 2 and 3, proposed by Permanent and Mr King that:

"2. The Fourth Cross-Defendant pay the Cross-Claimant's costs of the proceedings.

3. The Fourth Cross-Defendant pay Permanent Custodians Limited's costs of its motion filed on 8 September 2009."

48 Mr Vertzayas argued that instead, it should be ordered that:

"The Fourth Cross Defendant pay the Cross Claimant's costs of the proceedings, excluding the costs associated with:

a. issues in relation to the Terms of Settlement made by the Court on 20 February 2008 which were subsequently rectified by order of the Court on 25 February 2010;

b. Permanent Custodian(sic) Limited's motion for rectification filed on 8 September 2009

c. the Cross Claimant's motion to re-open filed on 31 July 2009.

The Cross Claimant and Permanent Custodians Limited jointly and severally pay the Fourth Cross Defendant's costs thrown away by reason of the case proceeding at trial, on the issue of damages, on the basis of the terms of Order 6 of Terms of Settlement made by the Court on 20 February 2008 (which was subsequently rectified).

The Cross Claimant and Permanent Custodians Limited jointly and severally pay the Fourth Cross Defendant's costs of the Permanent Custodians Limited's motion filed on 8 September 2009."

49 Mr Vertzayas argued that he should have his costs of unsuccessfully defending Permanent’s motion to have the consent orders made by the Court in February 2008 varied. Mr King had neither consented to nor opposed that motion, after at one point seeking to consent to it, but withdrawing that submission, when threatened with an argument that he would thereby not be mitigating his losses, as he was obliged to do. Mr Vertzayas resisted the motion. He relied on the approach of Ipp AJA, with whom Foster AJA agreed, in Arian v Nguyen [2001] NSWCA 5; (2001) 33 MVR 37 at [38]:

"38 It is rare for a successful party who is guilty of misconduct in the litigation to be ordered to pay the unsuccessful opponent's costs where the misconduct does not lengthen the proceedings unnecessarily, cause unnecessary issues to be canvassed or otherwise cause the costs of the litigation to be increased. Indeed, the court's entitlement to depart from the usual order that costs follow the event has sometimes been said, in effect, to be subject to the qualification that the misconduct in question occasioned unnecessary litigation and expense (see Huxley v West London Extension Railway Company (1899) 14 App Cas 26 at 32-33 per Lord Halsbury LC; Ritter v Godfrey [1920] 2 KB 47 per Atkin LJ at 60). In other cases, however, this qualification has not been mentioned: see for example Donald Campbell & Co v Pollak [1927] AC 732 at 811-812; Thorne v Doug Wade Consultants Pty Ltd [1985] VicRp 48; [1985] VR 433 at 500; Jamal v Secretary, Department of Health [1988] 14 NSWLR 252 at 271-272; Re Elgindata Limited (No 2) (supra). On balance, it seems to me that while delay and increased expense brought about by improper conduct in the course of the litigation are highly relevant factors in the discretion to depart from the usual order as to costs, they are not essential to the exercise of that discretion. It would, in any event, be very unusual for misconduct of that kind not to cause unnecessary delay and expense."

50 In relation to the main proceedings, Mr Vertzayas argued that there should be departure from the usual order in relation to the costs associated with the terms of settlement between Permanent and Mr King and the order made by consent in February 2008, which was subsequently rectified by the order of 25 February 2010. In the alternative, there should be an order for costs thrown away in the principle proceedings, by reason of the case proceeding on the basis of the original consent orders. This would reflect that it was only belatedly established that the true agreement between Permanent and Mr King was not the basis on which the trial was conducted.

51 As to the costs of Permanent’s successful motion, it was argued that there should be costs consequences flowing from the failure of Mr King and Permanent to reflect their true agreement in the original consent orders. Mr Vertzayas had approached the original orders as they appeared on their face, that is that Mr King had no liability to Permanent for the costs of the proceedings. Mr Vertzayas was entitled to oppose the rectification motion, having succeeded in the principal proceedings. Rectification was only necessary because the original orders had not properly reflected the intended agreement. While the rectification motion had succeeded, it was the conduct of Permanent and Mr King which had unnecessarily lengthened the proceedings and caused Mr Vertzayas unnecessary costs.

52 This was a proper basis for the conclusion that circumstances existed warranting a departure from the usual rule. At the least, there would be no order in favour of Permanent on its motion.

53 Mr King’s position was that Mr Vertzayas’ claims would be rejected. There were no extraordinary circumstances warranting the orders sought. Mr Vertzayas should have his costs of Mr King’s unsuccessful motion, but he should bear the consequences of his unsuccessful resistance of Permanent’s motion. Mr Vertzayas well knew that Mr King believed that the agreement reached with Permanent obliged him to meet its costs. That was the basis of the case advanced from the outset. Mr Vertzayas attempted to resist the true picture being reflected in the consent orders and should face the consequences of putting Permanent to proof of its claim.

54 Nor was there any basis on which a costs thrown away order should be made in favour of Mr Vertzayas in relation to this aspect of the principle proceedings. There was no evidence that the hearing was unnecessarily lengthened by this issue or that Mr King behaved improperly or was guilty of misconduct in the case which he advanced.

55 Permanent adopted Mr King’s arguments. It was not a party to the proceedings between Mr King and Mr Vertzayas and took no part in the principal proceedings between them. Its conduct cannot have lengthened these proceedings and there was accordingly no basis for any order against it in that respect. Permanent was joined when it filed its motion to have the consent orders rectified. There had been no misconduct on its part in relation to its pursuit of its motion, which would provide a basis for any departure from the usual order.

56 The original consent orders were drafted months before the hearing of the cross claim and in good faith on the basis of mutual understandings between Mr King and Permanent. When the misunderstanding came to light as the result of the July 2009 judgment, the consent orders were redrafted to reflect the mutual intention earlier arrived at. Mr Vertzayas chose to oppose the motion and failed. He did so at the risk of a costs order being made against him. It was he who had unnecessarily prolonged the hearing which resulted in the February 2010 judgment.

Conclusion

57 I am satisfied that the order which justice demands in all of these circumstances is that Mr King must be ordered to pay the costs thrown away in the principal hearing, as the result of the reliance on the original consent orders. Mr Vertzayas was entitled to rely on those orders as he did. He succeeded in resisting part of the case brought against him by Mr King, on the basis of those orders. He was later deprived of that success because the original orders did not give effect to the true agreement which had been reached between Mr King and Permanent.

58 Mr Vertzayas’ success on that issue disappeared only as a consequence of Permanent’s successful motion. Mr Vertzayas must bear the cost consequences of choosing and failing to resist that motion. It was apparent that what Permanent then sought, reflected the case which Mr King had earlier brought against Mr Vertzayas in the proceedings. Mr Vertzayas accepted that the consequence of the rectification of the consent orders, if granted, would be that he would have to pay as damages Permanent’s costs of the proceedings, for which Mr King was liable under the mortgage, which he had earlier succeeded in resisting. While that was a proper concession, Mr Vertzayas' loss of the point was not the result of anything which he had done to deprive him of the issue on which he had succeeded at the earlier trial.

59 It was not surprising in the circumstances that Mr Vertzayas originally relied on the consent orders and later sought to resist Permanent’s motion, given the consequences of it being granted, that is depriving him of the point on which he had earlier succeeded. The result of Permanent’s success on its motion was undoubtedly that the time spent in the earlier hearing on this issue was wasted. Had the consent orders reflected the true position from the outset, the point on which Mr Vertzayas initially succeeded would not have arisen at the trial. That it did, was not Mr Vertzayas’ fault. While Mr Vertzayas ought to bear the consequences of choosing and failing to resist Permanent’s motion, the other consequences must also be dealt with, that is the loss of the point on which Mr Vertzayas had earlier succeeded, through no fault of his own, with the result that the time spent in the earlier part of the proceedings on that issue was wasted.

60 I am also satisfied that no orders in relation to the costs thrown away at the original hearing on this issue may be made against Permanent. It was not a party to the cross claim at that stage. It was Mr King’s reliance on the consent orders which had not properly reflected the true agreement which he had reached with Permanent, which resulted in unnecessary costs being incurred. It is he who must bear the consequences, as between him and Mr Vertzayas, of that situation, following upon Permanent's successful motion.

61 Mr King must also bear the cost consequences of the motion on which he failed, as he accepted. The result of these conclusions is that the orders will include the following:

1. The Fourth Cross–defendant pay Permanent Custodians Limited’s costs of its motion filed on 8 September 2009.

2. The Cross Claimant pay the Fourth Cross–defendant’s costs thrown away by reason of the case proceeding at trial on the issue of damages on the basis of the terms of Order 6 of the Terms of Settlement made by the Court on 20 February 2008 (which was subsequently rectified).

3. The Cross Claimant pay the Fourth Cross–defendant’s costs of his motion filed on 31 July 2009.

62 The parties have agreed on the calculation of damages and the other orders to be made. They should now bring in short minutes which reflect that agreement and the conclusions here reached which includes that Mr Vertzayas' motion must be dismissed.

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LAST UPDATED:
25 May 2010