Maco Group v Johns Lyng Commercial Builders Pty Ltd (Civil Claims) [2020] VCAT 281 (6 March 2020)

VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL

CIVIL DIVISION

CIVIL CLAIMS LIST VCAT REFERENCE NO. C4998/2019

ORDER

1. The Applicant shall pay the Respondent’s costs of and ancillary to its application to stay the proceeding, dated 15 November 2019, to be assessed by the Costs Court on a standard basis under the County Court Scale.

2. The Respondent’s applications for costs to be assessed on an indemnity basis, and for costs to be paid by Mr Malik Ahmad personally, are dismissed.

REASONS

1. The Applicant claims to be entitled to $127,857.00 from the Respondent for work performed as a subcontractor. In communications to the Tribunal the Applicant has said that the withholding of this money has put it in a parlous financial position and has made it impossible to afford legal practitioners. Because the dispute is at such an early stage (and indeed the VCAT proceeding has been stayed, save for the question of costs), there is no detailed response from the Respondent although one can imply that it denies liability.

2. The Applicant’s proceeding was issued on 8 July 2019. It was stayed under the Commercial Arbitration Act 2011 on 22 November 2019: see Maco Group Pty Ltd v Johns Lyng Commercial Builders Pty Ltd [2019] VCAT 1815. I refer to some paragraphs of the Reasons for that decision below.

3. In an Application filed 12 December 2019 the Respondent applied for an order that the Applicant and/or Mr Malik Ahmad pay the Respondent’s costs of and ancillary to its application to stay the proceeding, dated 15 November 2019.

4. Costs are sought against Mr Ahmad personally as the “representative” of the Applicant in the stay application within the meaning of section 109(4) of the Victorian Civil and Administrative Tribunal Act 1998.

5. The effect of the Respondent’s successful stay application was to bring the VCAT proceeding to an end, but as is clear from the above, the Respondent does not seek its costs of the whole proceeding, but only of the stay application.

6. It is implied, though, that the Respondent’s fallback position should it not be awarded indemnity costs and/or costs against Mr Ahmad, is that it be awarded costs on a standard basis against the Applicant. It is not an all or nothing application.

7. There is no doubt that the outcome of the Respondent’s stay application was an emphatic success for the Respondent. That does not end the Applicant’s claim to $127,857.00. A helicopter view would be that it “merely” requires the Applicant to bring its claim before an arbitrator, but the Applicant’s disclosure of its parlous financial position shows that – commercially – the Applicant may be shut out from bringing its claim because of the expense that would be incurred in providing its share of funds as security for the arbitrator’s fees and expenses and, perhaps, the fees that might be charged by the nominating body to appoint the arbitrator.

8. The decision in [2019] VCAT 1815 shows that various submissions that might have been open to the Applicant in the stay application were not argued. I am satisfied that this reflected the Applicant being self-represented. The Applicant was able to engage Counsel for the costs application, who made appropriate submissions in respect of section 109 of the Victorian Civil and Administrative Tribunal Act 1998, with special emphasis on the requirement in s109(3), that the Tribunal be satisfied that it is “fair” to award costs before it can do so.

9. For the reasons set out below, I conclude that it is fair to award costs of the stay application against the Applicant on a standard basis, to be assessed on the County Court Scale. Fairness must be assessed objectively, and I consider the Applicant’s submissions on that concept to be subjective even though I appreciate the difficulty faced by small businesses in affording litigation. I reject the Respondent’s applications for indemnity costs and for costs against Mr Ahmad personally.

10. Omitting text which was not referred to by either party, sections 109(2) & (3) of the Victorian Civil and Administrative Tribunal Act 1998 say:

(2) At any time, the Tribunal may order that a party pay all or a specified part of the costs of another party in a proceeding.

(3) The Tribunal may make an order under subsection (2) only if satisfied that it is fair to do so, having regard to—

(a) whether a party has conducted the proceeding in a way that unnecessarily disadvantaged another party to the proceeding by conduct such as—

…

(v) attempting to deceive another party or the Tribunal;

(vi) vexatiously conducting the proceeding;

…

(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;

(d) the nature and complexity of the proceeding;

(e) any other matter the Tribunal considers relevant.

Section 109(3)(d)

11. Section 109(3)(d) is relevant, in that the proceeding was sufficiently complex to warrant the Respondent engaging legal practitioners. It involved a substantial sum; a contract for the performance of excavation works; calculations to determine the sum which could be claimed by the Applicant; a dispute between the parties as to what constituted the contract, including whether it contained an arbitration agreement; and at least implied allegations of misleading and deceptive conduct, unconscionable conduct, and unfair terms.

Section 109(3)(a)(v)

12. The Respondent submitted that sub-sections 109(3)(a)(v) & (vi) were satisfied because it was plain that the parties’ contract contained an arbitration agreement, and that not only did the Applicant issue the VCAT proceeding in the face of that agreement which was said to have effectively “forced” the Respondent to bring its application for a stay, but that Mr Ahmad gave evidence that he did not sign the written Subcontract Services Agreement, which in effect amounted to the Applicant making allegations of fraud by the Respondent and by its employees Messrs Pour and Edwards. Paragraphs 23 and 24 of the Reasons in [2014] VCAT 1815 were particularly relied on.

13. In response the Applicant submitted that, properly understood, paragraphs 23 and 24 of the Reasons did not record an explicit finding that the Applicant, and Mr Ahmad, had sought to deceive. They merely recorded the rejection of Mr Ahmad’s evidence. The Applicant submitted that the concept of deceit requires that a person intended to mislead, and that the Tribunal’s Reasons do not reveal a finding of that intention. To make a finding of deceit would be akin to finding that Mr Ahmad had committed perjury, which could only properly be made to a very high standard of proof.

14. I do not accept that the Respondent was forced to bring an application for a stay. The Respondent could have chosen not to enforce the arbitration agreement and, as a party to an extant VCAT proceeding, simply defended itself in that proceeding and even brought a counterclaim. The Respondent’s choice to incur the expense of engaging an arbitrator is a commercial decision. If both parties participated in a Tribunal proceeding, the existence of the arbitration agreement would not invalidate the Tribunal’s decision.

15. However, once the Respondent put the Applicant on notice that it required the dispute to be referred to arbitration under the arbitration agreement, the Applicant’s only sensible option was to concede the point. It is not as if the hearing of the stay application on 22 November 2019 was some sort of ambush. The Respondent raised the issue at the first directions hearing on 23 September 2019, and filed affidavits in support in October 2019. Exhibit JT2 to the Affidavit of James Turnbull was a letter from the respondent’s solicitors to the applicant dated 17 September 2019 calling on the Applicant to comply with the arbitration agreement, and foreshadowing the stay application if the Applicant declined.

16. The Applicant opposed the application for a stay by denying – not questioning – the existence of the arbitration agreement. As is set out in paragraphs 8 – 26 of the Reasons in [2014] VCAT 1815, Mr Ahmad filed an affidavit in which he deposed, “The Respondent is claiming my signature on the subcontract agreement which I am not aware if I ever signed”. Then in the hearing on 22 November 2019 Mr Ahmad gave evidence orally that he positively had not signed the Subcontract Services Agreement. As I said in paragraphs 23 & 24 I found Mr Ahmad’s evidence to be unedifying, evasive, unrealistic, unbelievable, and motivated by a desire to take the arbitration agreement out of contention.

17. That was greater than a mere rejection of Mr Ahmad’s evidence in favour of the evidence of other witnesses. I also stated, in paragraph 23 of the Reasons, that his evidence, if true, would imply that someone in the Respondent’s camp must have forged Mr Ahmad’s signature, that Mr Pour of the Respondent had signed a false document when inserting his signature as a witness to Mr Ahmad’s signature, and that Mr Edwards would have lied on oath in his affidavit. These were very serious findings in relation to Mr Ahmad’s evidence.

18. Objectively, the giving of that evidence was an attempt to deceive the Tribunal. The Applicant’s conduct unnecessarily disadvantaged the Respondent, by causing it to incur legal costs in bringing the stay application and by delaying resolution of the dispute by failing to take the requisite steps to appoint an arbitrator. The criterion in sub section 109(3)(a)(v) is satisfied.

Section 109(3)(a)(vi)

19. In substance the Respondent submitted that the same matters arising under sub section 109(3)(a)(v) also satisfy the criterion of vexatious conduct under sub section 109(3)(a)(vi). The Applicant submitted that the conduct could not be vexatious because it was engaged in when the Applicant was self-represented.

20. I reject the Applicant’s submission. A self-represented litigant can certainly act vexatiously. That word is somewhat emotive when used in a lay sense, but when used in a legal context is more objective. The Applicant issued the VCAT proceeding in the face of the arbitration agreement; declined the Respondent’s invitation of 17 September 2019 to comply with the arbitration agreement; opposed the Respondent’s application for a stay; and lost the application for a stay after Mr Ahmad gave contradictory evidence, in his affidavit and then orally, which was found to be unbelievable.

21. I am satisfied that the Applicant’s conduct was vexatious and that the criterion in sub section 109(3)(a)(vi) is satisfied. Again, the Applicant’s conduct unnecessarily disadvantaged the Respondent, by causing it to incur legal costs in bringing the stay application and by delaying resolution of the dispute by failing to take the requisite steps to appoint an arbitrator.

Section 109(3)(c)

22. As to subsection 109(3)(c), plainly the relative strengths of the parties’ positions in the context of the arbitration agreement and the stay application favour the Respondent.

23. In the above circumstances, I have no hesitation in finding that it is fair to order the Applicant to pay the Respondent’s costs of the stay application on a standard basis.

Indemnity costs

24. I reject, though, the Respondent’s application for costs to be assessed on an indemnity basis. It must be remembered that on the rare occasions that a Court orders costs on an indemnity basis, it does so in the context of the Courts’ practice of costs – on a standard basis – following the event. In that context, an order for the payment of indemnity costs is just a step up from the norm, in recognition of serious misconduct of the party against whom the order is made. In VCAT, section 109(1) states the starting position, or context, that each party is to bear their own costs unless an order is made to the contrary.

25. Mr Ahmad’s evidence is a serious matter. The rest of the stay application, though, is a fairly standard situation in which one party’s position in a matter succeeds.

26. The Respondent relied on Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd 81 ALR 397. A claim for misleading and deceptive conduct was pleaded by the applicant, and an individual – Mr Dellal – was joined as having aided and abetted that conduct. At the end of the proceeding Mr Dellal sought costs against the Applicant.

27. In the Federal Court of Australia, costs usually follow the event. Accordingly the issue before the Court was whether Mr Dellal should have costs awarded to him on a standard basis, or on a higher basis of solicitor and client or indemnity costs.

28. In his Judgment, Woodward J refers to Fountain’s “ill-drawn statement of claim”, the “long and tortuous course” of the litigation, and that His Honour was forced to do the best he could “with the meagre material” before him.

29. His Honour found that there had been nothing to be gained by joining Mr Dellal as a respondent because the case against him was hopeless from the outset. However, His Honour said that on the material before him he was unable to say that it was unreasonable for the applicant and its advisors to issue the proceeding and to join Mr Dellal (and other directors) at the beginning of the matter in 1983. It is difficult to reconcile those two conclusions.

30. However, in late 1985 a decision of the High Court on the liability of persons for aiding and abetting misleading conduct was delivered, and His Honour said that by early 1986 any legal practitioner practising in the field should have known that the applicant had no possibility of success against Mr Dellal. His Honour said that from that point the proceeding against Mr Dellal was vexatious: “There was no sufficient grounds to continue the case … And the applicant’s purpose in doing so, if indeed there was a purpose, can only have been to add to any pressures on the respondents generally to settle the action. The other possibility is that the case against (Mr Dellal) was pursued for no good purpose at all – due to inertia and carelessness”.

31. Even having made these robust criticisms of the applicant’s conduct of the proceeding, His Honour said that he regarded the matter as a “borderline” case. He awarded costs in Mr Dellal’s favour on a standard basis up to 31 January 1986, but effectively on an indemnity basis thereafter. As to that latter period, His Honour said:

I believe that it is appropriate to consider awarding solicitor and client or indemnity costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.

32. In citing this case, the Respondent relied on an earlier passage which might be said to be more conservative than the passage above. His Honour reviewed authorities on the awarding of solicitor and client costs, as distinct from costs on a standard basis, and said:

It is sometimes said that such costs can be awarded where charges of fraud have been made and not sustained; but in all cases I have considered, there has been some further factor which has influenced the exercise of the Court’s discretion – for example, the allegations of fraud have been made knowing them to be false, or they have been irrelevant to the issues between the parties.

33. The Respondent submitted that the Tribunal’s rejection of Mr Ahmad’s evidence in the stay application, discussed above, recognised that the Applicant had made an allegation of fraud knowing it to be false. Naturally the Applicant rejected that submission.

34. In my view, His Honour’s final conclusion of principle, that it is vexatious to continue a proceeding where the applicant, properly advised, should have known that he had no chance of success is all the Respondent needs to rely upon. It does not have to prove that Mr Ahmad knowingly made a false allegation of fraud.

35. However, Fountain Select was decided in the context of costs following the event being the default position, and the question being whether costs to be assessed on a higher basis should be awarded. In VCAT the equivalent jump is between the parties bearing their own costs, and any costs being awarded.

36. The Respondent also relied on Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189. In that case, the plaintiff was unsuccessful and it conceded that it should pay the first defendant’s costs on a standard basis. The first defendant sought costs on an indemnity basis.

37. Paragraph 5 of Harper J’s judgment shows that the plaintiff had made a rapid retreat in the litigation. It had asserted rights in a trade mark, and rights to prevent the defendants from selling goods by reference to that mark or image. It also obliquely implied that the defendants were selling goods under non-genuine trademarks. The plaintiff confronted the first defendant in his shop on 28 April 2000; issued the proceeding on 5 June 2000; and then discontinued immediately on being confronted by the first defendant’s “stern proclamation of inviolability.”

38. At paragraph 7 Harper J drew together the authorities on when a Court should depart from its usual course of awarding costs on a standard basis, in the course of which he cited Fountain Selected Meats.

39. At paragraph 11 His Honour opined that indemnity costs should not be awarded too easily, because to do so would be to unnecessarily discourage potential litigants from bringing their disputes to the Courts, given that success can seldom be guaranteed because a party cannot predict with certainty the Court’s likely conclusion on contested facts. But he went on:

The position changes where a litigant acts dishonestly in the litigation, or where the rights and privileges of a litigant are flouted or abused. Then, the rationale for refusing to order that the losing party indemnify an opposite party against that party’s costs is less compelling. Indeed, costs are more frequently if not invariably awarded on an indemnity or like basis … where findings of dishonesty or serious misconduct have been made against the party ordered to pay.

40. Harper J declined to order costs on an indemnity basis, despite finding that the plaintiff had no standing to bring proceedings based on the trademarks or in passing off. His Honour was not satisfied that the plaintiff in fact appreciated the hopelessness of its position. The plaintiff’s surprising ignorance was at least as likely the reason for the commencement of the proceeding as was the hypothesis that the plaintiff sought to gain an illegitimate advantage from doing so.

41. I do not consider that Ugly Tribe assists the Respondent. Mr Ahmad’s evidence was rejected in strong terms. However, as with Fountain Select Meats, it was decided in the context of costs usually following the event, which is not the position in VCAT, and the Court awarded standard costs being the default position. Additionally, whilst it could not be said that a self-represented litigant has a license to act recklessly, it is possible that in the absence of legal advice the Applicant and Mr Ahmad did not in fact appreciate the hopelessness of the Applicant’s position in relation to the arbitration agreement.

42. Further, as a creature of statute VCAT must exercise its powers in accordance with section 109 of the VCAT Act. How judges exercise their discretion in Court proceedings, where the discretion is not as codified, can never dictate how VCAT is to apply that section.

Costs against Mr Ahmad

43. Section 109(4) says:

If the Tribunal considers that the representative of a party, rather than the party, is responsible for conduct described in subsection 3(a) or (b), the Tribunal may order that the representative in his or her own capacity compensate another party for any costs incurred unnecessarily.

44. Section 62(3) provides that a company may be represented by a director, and so section 109(4) cannot be said to only apply to “representatives” who are legal practitioners. Whilst the Tribunal has made a few orders under this section against legal practitioners, in the case of Classic Period Homes Pty Ltd v Rattle [2007] VCAT 2209 it made an order for costs against a director of the applicant company.

45. In seeking an order against Mr Ahmad the Respondent essentially ran the same points as it did in relation to subsections 109(3)(a)(v) & (vi). However, whilst obviously Mr Ahmad gave unsatisfactory evidence, he did so as an officer of the Applicant company. The evidence related to the contract between the Applicant and the Respondent.

46. There is no evidence before the Tribunal as to whether the Applicant’s decisions to commence the proceeding in the Tribunal in the face of the arbitration agreement, and to decline the Respondent’s invitation of 17 September 2019 to withdraw the proceeding, was made solely by Mr Ahmad or after receiving legal advice.

47. In the circumstances I consider that the costs order should be limited to the Applicant and that no costs should be awarded against Mr Ahmad personally.