Federal Court of Australia

Brecher v Barrack Investments Pty Limited (No 3) [2020] FCA 1331

ORDERS

THE COURT ORDERS THAT:

1.    The first to third respondents’ application for a different order as to costs be dismissed.

2.    The first to third respondents pay the applicants’ cost of the application for a different order as to costs on a party and party basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THAWLEY J:

1    On 29 June 2020, the applicants’ (Dr Brecher and Eric Brecher Pty Ltd (EBPL)) claims against the first to third respondents (Dr Rashid, Barrack Investments Pty Ltd and Delbest Pty Ltd) were dismissed, as was a cross-claim which had been brought by those respondents against the applicants: Brecher v Barrack Investments Pty Limited (No 2) [2020] FCA 911 (Brecher No 2). The applicants had also brought claims against the fourth and fifth respondents (Mr Agarwal and Acorn Lawyers Pty Ltd) which were settled between the relevant parties during the hearing. In addition to dismissing the claims on 29 June 2020, the Court made the following order:

Unless any party applies within 7 days for a different order as to costs:

(a)    the applicants pay the respondents’ costs of the application, and

(b)    the cross-claimants pay the cross-respondents’ costs of the cross-claim.

2    As permitted by that order, the first to third respondents applied for a different order as to costs, namely that the applicants pay:

(1)    the first to third respondents’ costs of the proceedings on an indemnity basis; or

(2)    alternatively, the first to third respondents’ costs of the proceedings on a party and party basis; or

(3)    alternatively, the first to third respondents’ costs of the applicants’ claims on an indemnity basis and there be no order as to the costs of the respondents’ cross-claim.

3    Orders were made for the application to be determined on the papers. Having sought an order for submissions on costs to be no longer than four pages, the respondents proceeded to file six pages of submissions with a schedule of nine pages, a total of 15 pages of submissions, on the basis that it was not possible to confine the submissions to four pages. The applicants submitted that the application should be rejected on that basis alone. I do not reject the application on that basis, but I would record that leave should have been sought in advance of filing the submissions and that the Court was not assisted by the length of the submissions. If leave had been sought, and an explanation given which was consistent with the content of the submissions, leave would have been refused and the first to third respondents would not have been exposed to unnecessary costs of the preparation of submissions on their behalf which neither complied with the Court’s orders nor assisted the Court to resolve the application.

THE APPLICATION FOR INDEMNITY COSTS

4    Mr George on behalf of the first to third respondents submitted that indemnity costs was the appropriate basis to award costs for two reasons:

(1)    First, it was submitted that it would be unreasonable for the respondents to be subjected to the expenditure of any costs.

(2)    Secondly, reliance was placed on the failure to accept a Calderbank offer made by letter dated 21 August 2019, less than three weeks before the hearing commenced.

Unreasonable to be subjected to the expenditure of any costs

5    As to the first asserted basis for an order for indemnity costs, reliance was placed on four matters:

(1)    First, it was submitted that no documents supported Dr Brecher’s case and that his case was bound to fail unless his oral evidence was accepted. It was submitted that Dr Brecher was “a hopeless witness”. It was noted that the Court had made adverse credibility findings concerning Dr Brecher in Brecher No 2.

(2)    Secondly, it was submitted that Dr Brecher “chose to manufacture his evidence based on … Facebook messages” between him and his partner.

(3)    Thirdly, it was noted that Dr Brecher did not attend Court on the sixth day of hearing and that no explanation had been provided.

(4)    Fourthly, it was submitted that the length of cross-examination was contributed to by Dr Brecher being a poor witness. In this regard, reliance was placed on the observation in Brecher No 2 at [18] that “[t]he length of cross-examination was significantly contributed to by Dr Brecher’s often extensive responses to simple questions”.

6    The first to third respondents submitted, four times, that the respondents “ought not be penalised because of [the applicants’] conduct [referred to above] and the Court ought to rebuke it” and that the “means the Court has to do so is by an indemnity costs’ [sic] order”.

7    The purpose of an order for costs is to compensate the successful party for legal costs. The purpose is not to punish an unsuccessful party or for the Court to “rebuke” a party.

8    There may exist special or unusual circumstances which warrant the making of an indemnity costs order. As was stated by the Full Court in Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5]:

In broad terms an order for indemnity costs requires that some special or unusual feature arises: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3] (Finn J). Indemnity costs are not punitive but are designed for “compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v New South Wales (2002) 188 ALR 659 at 665 (Gray J, with whom Carr and Goldberg JJ agreed). Such circumstances may include where allegations are made “which ought never to have been made”, where the case is “unduly prolonged by groundless contentions” (Ragata Developments Pty Ltd v Westpac Banking Corporation [1993] FCA 115 at [15], [17] (Davies J)), and where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 (Woodward J)) or “persists in what should on proper consideration be seen to be a hopeless case” (J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303 (French J)).

9    In my view, this is not a case which warrants an award of indemnity costs.

10    As to the first matter identified at [5] above, “[t]he parties proceeded on the basis that someone was being untruthful about what was said at the meeting [at Acorn Lawyers]; the differing accounts were unlikely to be explained by faulty recollections” – see: Brecher No 2 at [8]. After considering the parties’ evidence, the Court rejected Dr Brecher’s account of the meeting and preferred the accounts given by Dr Rashid and Mr Agarwal. The Court had other concerns with Dr Brecher’s credibility. I do not consider that the rejection of Dr Brecher’s evidence in important respects or the view taken about his credibility warrant the making of an indemnity costs order.

11    As to the second matter, I do not accept that Dr Brecher “manufactured” his evidence from Facebook messages. I am not satisfied that Dr Brecher did anything more than use those messages, being contemporaneous records of what occurred, to refresh his memory.

12    As to the third matter, it is true that Dr Brecher did not attend the sixth day of hearing. The context is that he had been extensively cross-examined the week before, ending on Friday, 13 September 2019. By the conclusion of a probing yet efficient cross-examination by counsel for the fourth and fifth respondents, Dr Brecher was particularly upset. This was understandable because, at the conclusion of this cross-examination, Dr Brecher must have realised that some of his evidence was unlikely to be accepted as correct in light of the contemporaneous documents to which he had been taken. I formed the view that Dr Brecher had genuinely believed some of the matters about which he gave evidence, but that those matters could not have been correct. On the sixth day of hearing, Monday, 16 September 2019, Senior Counsel for the applicants asked for the matter to be stood over until the next day because his instructing solicitor, Mr Welch, was not able to obtain proper or competent instructions from Dr Brecher. Senior Counsel handed to the Court an affidavit of Mr Welch and the following exchange occurred:

MR CONDON SC [counsel for the applicants]: … I’ve spoken to my learned friends about the matter in a bit more detail than is said on the affidavit. I will let your Honour read the affidavit first.

HIS HONOUR: Yes, I’ve read the affidavit.

MR CONDON: The ability of Mr Welch to say more is limited by what the Law Society has expressed to him in circumstances where he cannot obtain instructions, and by reference to his duty of confidentiality, your Honour.

13    Mr Welch’s affidavit explained that he had spoken to Dr Brecher on the Friday after his cross-examination had concluded and again over the weekend. As a result of his conversations, Mr Welch had contacted the Law Society of New South Wales Ethics Committee. Mr Welch formed the view he did not have instructions in relation to the conduct of the proceedings. He referred to r 8 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW), which provides:

8     Client instructions

8.1     A solicitor must follow a client’s lawful, proper and competent instructions.

14    Mr Welch also referred to r 9 which deals with confidentiality.

15    In response to the application, Mr George for the first to third respondents indicated, in substance, that it was appropriate to adjourn the matter. Counsel for the fourth and fifth respondents consented to the matter being stood over until the next day. The Court stood the matter over and Senior Counsel for the applicants then stated:

MR CONDON: Can I express my gratitude to my friends, your Honour?

HIS HONOUR: Yes, of course.

MR CONDON: They’ve dealt with this issue with all sensitivity. I’m greatly obliged to them, your Honour.

16    I do not infer from this sequence of events and these exchanges that Dr Brecher was deliberately or unnecessarily wasting time. I see nothing in these events to warrant making an indemnity costs order.

17    As to the fourth matter, it is true that the length of cross-examination was partly contributed to by Dr Brecher’s often lengthy responses to questions. However, there is nothing particularly unusual about that. His conduct in that regard was not intended to delay the proceedings or cause cost to the respondents. Dr Brecher was invested in his case and wanted to explain his position as one would expect. Whilst the length of cross-examination was partly contributed to by Dr Brecher’s often lengthy responses to questions, it was also substantially contributed to by forensic choices made as to the detail and topics of cross-examination. It was contributed to by repeated, but appropriate, objections being made on the basis that Dr Brecher was interrupted before he had finished responsive answers to questions which had been asked by the first to third respondents. It is not productive to go into other reasons why the cross-examination occupied a long time. It is sufficient to state that Dr Brecher’s often lengthy responses to questions is not a matter which warrants the making of an indemnity costs order.

18    The first to third respondents submitted that the cross-claim brought by them was “defensive” and that little time was consumed on the cross-claim. I reject that submission. The cross-claim was filed late in the proceedings. It made substantial claims against the applicants and, if successful, would have resulted in substantial damages being awarded against the applicants. Objectively assessed, the cross-claim would have exerted commercial pressure on the applicants. It added significantly to the issues which needed to be determined. Substantial evidence was filed to address the multiple issues raised by the cross-claim, substantial cross-examination occurred in light of those issues raised and lengthy written submissions were required to address the issues raised by the cross-claim. The cross-claim was neither “defensive” nor aptly described as consuming little time.

19    The first to third respondents submitted that the “issues raised by the cross-claim consumed a small part of the Judgment”. That submission is also not correct. Substantial parts of the factual analysis in the judgment was required because of the issues raised by the cross-claim. Of the 40 issues identified by the parties as requiring resolution approximately half of them concerned the cross-claim.

20    There is no basis for an order for indemnity costs.

Calderbank offer

21    The first to third respondents relied upon the applicants’ failure to accept a Calderbank offer made by the first to third respondents (offering payment of $300,000 to the applicants). That offer was made together with a Calderbank offer made by the fourth and fifth respondents (offering payment of $1,000,000 to the applicants). The terms of the offer were detailed and complex. The offers were made on the basis that the applicants could not accept one of the offers unless they also accepted the other offer.

22    At the time of the offers the debt to the Australia and New Zealand Banking Group Limited (ANZ) which had been guaranteed by Dr Brecher and Dr Rashid was understood by the respondents to total $2,218,873.85. The first to third respondents’ offer required that the settlement amounts totalling $1,300,000 not be released until the applicants had first:

(1)    paid $918,873.85 of the ANZ debt and agreed to direct the amount of $1,300,000 be paid to ANZ to discharge the balance of the debt;

(2)    indemnified the first to third respondents in respect of any liabilities owed to any person as a result of finance originally extended to EBPL’s radiology practice, SCXR Dapto.

23    The offer required full releases to be provided in an agreed form of Deed of Settlement which had not yet been drafted.

24    I am satisfied that it was not unreasonable for the applicants not to have accepted the first to third respondents’ offer for the following reasons:

(1)    First, because the first to third respondents’ offer was only capable of acceptance if the applicants also accepted the offer of the fourth and fifth respondents, it could not on any view be unreasonable not to accept the first to third respondents’ offer unless the fourth and fifth respondents’ offer was one which was unreasonable to reject. The first to third respondents have not shown that the offer of the fourth and fifth respondents was reasonable. That is not to say that the offer of the fourth and fifth respondents was unreasonable, but the claims made against them by the applicants were not determined by the Court because those parties reached a settlement during the proceedings.

(2)    Secondly, when the offer was made, the parties were, I infer, engaged in what must have been time consuming preparation for the imminent hearing. The applicants would have had to divert attention away from preparation for hearing to determining whether and how it could achieve the conditions required before the amount of $1,300,000 would be released. It would have been necessary for Dr Brecher to obtain legal advice, in particular as to the consequences for Dr Brecher of making the payments to ANZ as contemplated by the offers. Dr Brecher would also have had to have available an amount of $918,873.85 to pay to the ANZ. The offer was only open for seven days which would have afforded scant time to consider and implement the actions which would have been necessary to accept the offer.

(3)    Thirdly, the evidence in the proceedings suggested that Dr Brecher either disputed liability to ANZ or considered that he might have a claim against ANZ arising out of the transactions giving rise to the ANZ debt. In those circumstances, I am not satisfied that it was unreasonable to reject an offer which required the ANZ debt to be paid out.

25    For those reasons, I do not consider there is any basis for an award of indemnity costs on the basis of the failure to accept the first to third respondents’ Calderbank offer.

THE ALTERNATIVE APPLICATIONS FOR COSTS

26    As noted at [2] above, the first to third respondents applied for two alternative orders in the event the application for indemnity costs for the whole proceedings was refused:

(1)    the first alternative: the applicants pay the first to third respondents’ costs of the proceedings on a party and party basis;

(2)    the second alternative: the applicants pay the first to third respondents’ costs of the applicants’ claims on an indemnity basis and there be no order as to the costs of the respondents’ cross-claim.

27    In support of the first alternative order, the first to third respondents relied on the same four matters it relied upon in support of its application for indemnity costs, set out at [5] above. For the reasons given at [10] to [17] above, I do not consider an order should be made that the applicants pay the first to third respondents’ costs of the whole proceedings (including the cross-claim) on a party and party basis. I do not consider, having particular regard to the observations I have made at [18] and [19] above, that there is any basis for the applicants to pay the first to third respondents’ costs associated with their unsuccessful cross-claim.

28    In support of the second alternative order, the first to third respondents relied on the fact that the applicants as cross-respondents belatedly withdrew an admission that a profit and loss statement concerning the SCXR Unit Trust for the 2015 income year did not properly record the income, expenses and profitability of the SCXR Unit Trust.

29    I am not satisfied that the late withdrawal of the admission had any effect on the length or costs of the hearing or the proceedings more generally. Having regard in particular to the observations I have made at [18] and [19] above, I do not consider it appropriate that there be no order as to the costs of the first to third respondents’ cross-claim. The applicants are entitled to their costs of defending that cross-claim on a party and party basis.

CONCLUSION

30    The first to third respondents’ application is dismissed.

31    The applicants applied for their costs of the first to third respondents’ application for a different order as to costs. This application is a discrete application warranting a separate order for costs. The first to third respondents have been wholly unsuccessful and should pay the applicants’ costs of the application on a party and party basis.

Associate:

Dated:    17 September 2020

SCHEDULE OF PARTIES