620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 3)
[2006] VSC 492
•14 December 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6614 of 2006
| 620 COLLINS STREET PTY LTD | Plaintiff |
| v | |
| ABIGROUP CONTRACTORS PTY LTD (No. 3) | Defendant |
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JUDGE: | OSBORN J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 31 AUGUST, 1 SEPTEMBER 2006 | |
DATE OF JUDGMENT: | 14 DECEMBER 2006 | |
CASE MAY BE CITED AS: | 620 COLLINS STREET PTY LTD v ABIGROUP CONTRACTORS PTY LTD (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 492 | |
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Commercial arbitration – indemnity costs – offer of compromise –arbitrators power to grant indemnity costs – r.63.30 of the Supreme Court (General Civil Procedure Rules) 2005 – s.22(1), s.34(1), s.34(6) Commercial Arbitration Act 1984 (Vic) – Supreme Court(Miscellaneous Civil Proceedings Rules) 1998 r.9.09-9.16, 26.08-26.12.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B. Martin QC with Mr F.J. Tiernan | DLA Phillips Fox |
| For the Defendant | Mr P.W. Almond QC with Mr M.G. Roberts and Ms P. Neskovcin | Deacons |
HIS HONOUR:
The background to this matter is set out in my reasons in proceeding No. 9671 of 2006.
By a final award of 5 May 2006 the Arbitrator awarded the defendant costs in part on an indemnity basis.
Rule 63.30.1 of chapter I of the Rules of Court provides that on a taxation on an indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred. Any doubt as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable.
This rule reflects a concept elaborated by authority.[1]
[1]National Australia Bank v Petit Brown (No 2) [1999] VSC 395; Cook v Pasminco Ltd (No 2) (2000) 107 FCR 44; 179 ALR 462.
In contrast rule 63.30 provides that on a taxation on a solicitor client basis all costs reasonably incurred and of reasonable amount shall be allowed. The party does not have to establish that the costs were necessary or proper as it does pursuant to rule 63.29 which applies to the party and party basis of taxation. Nevertheless it does not have the benefit of the onus provided for in an order for indemnity costs.
The purpose of an order for indemnity costs is to do what the Court can to ensure that the party is not out of pocket.[2] In EMI Records Ltd v Ian Cameron Wallace Ltd[3] Megarry VC said that a taxation of costs on this basis gives to the litigant:
"… complete indemnity, shorn only of anything that is seen to be unreasonable. The litigant does not have to establish that the costs were necessary or proper, or that the costs were of a reasonable amount and reasonably incurred. Provided they are costs of and incidental to the proceeding, he is entitled to recover them, subject only to the qualification that they are liable to be reduced in respect of anything that the Taxing Master considers to fall within the headings 'unreasonable amount' or 'unreasonably incurred'. In a word, the difference is between including only the reasonable and including everything except the unreasonable."
[2]Spencer v Dowling (1997) 2 VR 127 at 164.
[3][1983] 1 Ch 59 at 71.
The plaintiff seeks leave to appeal against the Arbitrator's order for costs pursuant to s.38 of the Commercial Arbitration Act 1984 ("the Act") on two grounds:
(1) That the Arbitrator had no power to award indemnity costs;
(2)That the costs awarded should be set aside in whole by reason of errors of law and misconduct of the arbitration, forming the subject of proceedings Nos. 9671 and 9672 of 2006.
The principles governing leave to appeal are set out in my judgment in the related proceedings No. 9672 of 2005 [No. 2].
Section 34(1) of the Act provides:
"34. Costs
(1)Unless a contrary intention is expressed in the arbitration agreement, the costs of the arbitration (including the fees and expenses of the arbitrator or umpire) shall be in the discretion of the arbitrator or umpire, who may—
(a)direct to and by whom and in what manner the whole or any part of those costs shall be paid;
(b)assess or settle the amount of costs to be so paid or any part of those costs; and
(c)award costs to be taxed or settled as between party and party or as between solicitor and client." (My emphasis)
It is not suggested a relevant contrary intention appears from the arbitration agreement in the present case.
There do not appear to be any Victorian authorities dealing with the question as to whether absent agreement to that effect an arbitrator has power to award costs on an indemnity basis. In South Australia Superannuation Fund Investment Trust v Leighton Contractors, [4] the South Australian Full Court held that there was no power under the South Australian equivalent of the s.34 to award costs on an indemnity basis. Matheson J with whom Bollen and Millhouse JJ said:[5]
"In my opinion, the wording of s.34(1) is clear as to the scope of the order that can be made, namely either costs as between party party or as between solicitor and client … If Parliament had intended an arbitrator to have wider powers, it surely would not have been as specific as it has been."
[4](1996) 66 SASR 509
[5]at 512.
Matheson J further rejected the proposition that s.22(1) of the Act amplified the Arbitrator's power to award costs and enabled an award of indemnity costs. Section 22(1) provides:
"22. Arbitrator to decide according to law or fairness
(1)Unless otherwise agreed in writing by the parties to the arbitration agreement, any question that arises for determination in the course of proceedings under the agreement shall be determined according to law."
Matheson J observed:[6]
"That section certainly does not authorise an arbitrator to make an order for example, which the Supreme Court can make on a question of costs (or interest). The CAA contains sections expressly dealing with costs (and interest). In my opinion, the words 'according to law' mean according to the principles of the common law."
[6]ibid.
The plaintiff submits that this decision was correct and should be followed in this case.
The Arbitrator summarised his reasoning in sub-paragraph 62(a)-(f) of the final award.[7] I shall deal with each of the arguments in turn.
[7] "62. Distilling what has been said above:
(a)In the light of Pirrotta, it appears that the SASFIT case is probably no longer authority in South Australia that an arbitrator has no jurisdiction to award indemnity costs. This is so as in South Australia there is no effective difference between indemnity costs and solicitor and client costs.
(b)In New South Wales, the York Bros case is authority for an arbitrator having the power under the provisions of s.34(6) to award indemnity costs where offers of compromise are made in accordance with the rules of court.
(c)From the NSWCA judgment in Doran Constructions, it is reasonable to infer that an arbitrator can award indemnity costs.
(d)In my view, the reference in Jacobs' commentary to an arbitrator having the power to make an order for costs on an indemnity basis by virtue of s.22(1) is a broader but arguable alternative approach to the reasons of Cole J in York Bros. Section 22(1) sits comfortably with the approach taken by his Honour.
(e)No Victorian authority which is in conflict with the judgments in York Bros and Doran Constructions was put to me.
(f)It appears that, in Victoria, a costs award on an indemnity basis would, in some cases, probably result in a higher recovery of costs than those awarded on a solicitor and client basis."
The Superannuation Fund Case
The Arbitrator doubted that the principles stated in the Superannuation Fund case remain good law in South Australia, in light of the subsequent decision of Pirrotta v Citibank.[8] In that case Debelle J dealt with the principles relating generally to awards of costs on an indemnity or solicitor client basis, but in my view nothing said by him casts doubt on the correctness of the decision in the Superannuation Fund case.
[8](1998) 72 SASR 259.
The Arbitrator further referred to the unreported decision of Cole J in York Bros (Trading) Pty Ltd v Five Star Cruises Pty Ltd.[9] In York Bros Cole J held that the effect of s.34(6) of the Commercial Arbitration Act (NSW)[10] was to incorporate rules of court, which in turn provided that in certain circumstances costs were to be paid on an indemnity basis following an offer of compromise.
[9]New South Wales Supreme Court, 4 December 1992.
[10]Being in the same terms as the Victorian provision
Section 34(6) of the Act provides:
"Where in accordance with rules of court an offer of compromise has been made in relation to a claim to which an arbitration agreement applies, the arbitrator or umpire shall, in exercising the discretion as to costs conferred on the arbitrator or umpire by sub-section (1), take into account both the fact that the offer was made and the terms of the offer."
Cole J stated:
"The rules of court referred to in sub-s 6 include Pt 52 rule 17 which deals with offer of compromise. It is clear from Pt 52 rule 17 that where an offer of compromise is made and where it is made by a plaintiff and not accepted by the defendant and the plaintiff obtains an order or judgment on the claim to which the offer relates no less favourably to him than the terms of the offer, then unless the Court otherwise orders the plaintiff shall, subject to r 24, be entitled to an order against the defendant for his costs in respect of the claim from the day on which the offer was made, taxed on an indemnity basis.
The effect of the introduction of s 34 sub-s 6 of the Commercial Arbitration Act 1984 is to incorporate that power as a power which the Arbitrator now has."
The defendant submits the Superannuation Fund case must be understood in the context of the relevant South Australian rules of court at the time it was decided. Such rules did not provide for indemnity costs in consequence of a failure to properly respond to an offer of compromise. As the plaintiff points out, however, the Court was not considering an offer of compromise situation in the Superannuation Fund case and its decision did not turn on this distinction.
The plaintiff submits:
(1) that the facts in the York Bros case are distinguishable; and
(2)that York Bros was wrongly decided and s.34 sub-s 6 informs but does not enlarge the discretion to award costs granted by s.34(1).
The Rules of Court
In Victoria chapter II of the Rules of Court specifically provides for the making of offers of compromise in the course of commercial arbitrations.
Rule 9.09 to 9.16 provide what is in effect a complete code as follows:
"9.09 Offer of compromise
A party to an arbitration may serve on any other party an offer of compromise of a claim the subject of the arbitration on the terms specified in the offer.
9.10 Form of offer
An offer of compromise shall be in writing and contain a statement to the effect that is served for the purpose of section 34 of the Act.
9.11 Time for making, accepting, payment under etc. offer
(1)An offer of compromise may be served at any time before the determination of all questions of liability and the relief to be granted in respect of the claim to which the offer relates.
(2) A party may serve more than one offer of compromise.
(3)An offer of compromise may be expressed to be limited as to the time the offer is open to be accepted after service on the party to whom it is made, but the time expressed shall not be less than 14 days after such service.
(4)A party on whom an offer of compromise is served shall within three days after service serve a written acknowledgment of service on the party serving the offer.
(5)A party on whom an offer of compromise is served may accept the offer by serving notice of acceptance in writing on the party who made the offer before—
(a)the expiration of the time specified in accordance with paragraph (3) or, if no time is specified, the expiration of 14 days after service of the offer; or
(b)the determination of all questions of liability and the relief to be granted in respect of the claim to which the offer relates—
whichever event is the sooner.
(6)An offer of compromise shall not be withdrawn during the time it is open to be accepted, unless the Court otherwise orders.
(7)An offer of compromise is open to be accepted within the period referred to in paragraph (5) notwithstanding that during that period the party on whom the offer is served makes an offer of compromise, to the party who served the offer of compromise, whether or not the offer made by the party served is made in accordance with this Order.
(8)An offer of compromise providing for payment of a sum of money to a plaintiff shall, unless it otherwise provides, be taken to be an offer providing for payment of that sum within 14 days after acceptance of the offer.
(9)An application to the Court under paragraph (6) for leave to withdraw an offer shall be made by originating motion in Form 5C of Chapter I.
9.12 Effect of offer
An offer of compromise made in accordance with this Order shall be taken to be an offer of compromise made without prejudice, unless the offer otherwise provides.
9.13 Disclosure of offer
(1)No statement of the fact that an offer of compromise has been made shall be contained in any pleading, affidavit or other document in the arbitration.
(2)Where an offer of compromise has not been accepted, no communication with respect to the offer shall be made to the arbitrator or umpire until after the determination of all questions of liability and the relief to be granted in respect of the claim to which the offer relates.
(3)Paragraphs (1) and (2) shall not apply where an offer of compromise provides that the offer is not made without prejudice.
9.14 Failure to comply with accepted offer
(1)Where a party to an accepted offer of compromise fails to comply with the terms of the offer, then, unless for special cause the Court shall otherwise order, the other party shall be entitled, as he may elect, to—
(a) judgment in the terms of the accepted offer; or
(b)where the party in default is claimant, an order that the arbitration be forever stayed, and where the party in default is respondent to the claim, an order declaring the compromise constituted by the acceptance of the offer to be of no effect and that the claimant be at liberty to proceed with the arbitration.
(2)An application for judgment or an order under paragraph (1) shall be made to the Court by originating motion.
9.15 Costs where offer not accepted
In any exercise of discretion as to costs the arbitrator or umpire shall consider whether the party serving an offer of compromise was at all material times willing and able to carry out his or her part of what was proposed in the offer.
9.16 Hearing on costs
In arbitration proceedings the arbitrator shall not make a final award with respect to costs until the parties have had an opportunity to be heard on the question of the costs of the arbitration."
It can be seen that rule 9.15 postulates a further factor to be taken into account beyond those stipulated in s.34(6) of the Act.
Rule 9.15 is to be distinguished from the provisions of rule 26.08 of chapter I of the Rules of Court which provides for the costs consequences of failure to accept an offer of compromise in a proceeding at first instance in this Court.
"26.08 Costs consequences of failure to accept
(1)This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.
(2)Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled—
(a)if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim taxed on an indemnity basis;
(b)in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis and for the plaintiff's costs thereafter taxed on an indemnity basis.
...
(5)Where a plaintiff obtains judgment for the recovery of a debt or damages and—
(a)the amount for which the Court pronounces judgment includes an amount for interest or damages in the nature of interest; or
(b)by or under any Act the Court awards the plaintiff interest or damages in the nature of interest in respect of the judgment amount—
for the purpose of determining the consequences as to costs referred to in paragraphs (2) and (3) the Court shall disregard so much of the amount recovered by or awarded to the plaintiff for interest or damages in the nature of interest as relates to the period after the day the offer of compromise was served.
…
(7)Paragraphs (2) and (3) shall not apply unless the Court is satisfied by the party serving the offer of compromise that that party was at all material times willing and able to carry out the party's part of what was proposed in the offer.
(8)Where the plaintiff obtains judgment for the recovery of a debt or damages, and the amount of the debt or the damages was not in dispute, but only the question of liability, paragraph (2) shall not apply unless the Court is satisfied that the plaintiff's offer was of a genuine compromise."
It can be seen the terms of sub-rules (2) and (7) differ from rule 9.15 of the chapter II Rules with respect to the same subject matter in the context of civil proceedings in the first instance and commercial arbitrations in the second.
Rule 26.12 of chapter I further provides for offers to compromise on appeal. It provides with respect to appeals to the Court of Appeal:
"(3) Where on an appeal—
(a)a party has made an offer in writing to the other party (whether or not expressed to be without prejudice) to compromise the appeal on the terms specified in the offer;
(b)the offer was open to be accepted for a reasonable time, but was not accepted; and
(c)the party making the offer obtains an order on the appeal no less favourable to that party than the terms of the offer—
the Court of Appeal shall take those matters, and also the stage of the appeal at which the offer was made, into account in determining what order for costs to make in respect of the appeal or in respect of the appeal and the proceeding more generally.
(4)The Court of Appeal, in exercising its discretion as to costs in accordance with paragraph (3), may order that the party on whom the offer to compromise the appeal was served pay the costs of the party who made the offer, taxed on a basis other than a party and party basis, from the commencement of the appeal, from the day the offer was served or from any other time that the Court thinks fit."
In my view when the Rules are viewed as a whole it is apparent:
(a)that chapter II makes discrete provision for offers of compromise in commercial arbitrations;
(b)no rule as to indemnity costs is specified by such provisions;
(c)no power to grant costs on an indemnity basis is expressed or implied by such provisions.
Further, there can be no implication that the rules contained in rule 26.08 of chapter I apply when:
(a)rules 9.05-9.16 of chapter II create a separate code with respect to offers of compromise in commercial arbitrations;
(b)rule 9.15 of chapter II conveys a discretion by reference to criteria different from that set out in rule 26.08(2), (7) and (8) of chapter I.
It is submitted on behalf of the defendant that rule 26.08 should still be given effect so far as practicable with respect to commercial arbitrations by reason of rule 1.07 of chapter II of the Rules of Court:
"1.07Except so far as is otherwise provided by these Rules or any Act, Chapter I of the Rules of the Supreme Court for the time being in force and the general practice of the Court apply so far as practicable in relation to a proceeding to which these Rules apply."
In my view rule 1.07 relates to proceedings in the Court. The object of chapter II is stated as follows:
"1.02The object of these Rules is to remake with amendments the rules which establish procedures for certain miscellaneous civil proceedings in the Court."
Rule 1.06 further provides:
"1.06These Rules apply to any proceeding in the Court with respect to which provision is made by these Rules, whether the proceeding was commenced before, on or after the day on which they come into operation."
Order 9 of chapter II contains the Commercial Arbitration Rules and applies:
“(a)to any arbitration in respect of which the Court has jurisdiction under the Act; and
(b)to any proceeding in the Court under the Act.”[11]
[11]Supreme Court (Miscellaneous Civil Proceeding) Rules 1998 r.9.02.
The relevant rules relating to offers of compromise apply to any arbitration under the Act but not to proceedings in the Court under the Act.
Doran Constructions
The Arbitrator further referred to the judgment of the New South Wales Court of Appeal in Doran Constructions Pty Ltd v Beresford Aluminium Pty Ltd[12]. In my view the findings of the Court of Appeal make clear that an arbitrator may award all costs claimed, but in so doing it seems to me he would not be awarding costs to be taxed. He would simply be ascertaining the quantum of appropriate costs. No inference can be drawn that such costs exceeded costs payable on a party party or solicitor client basis in the Doran Constructions case.
[12](2002) 54 NSWLR 416.
Ipp AJA expressly stated:
"In fact, there is nothing in the final award that indicates that the arbitrator awarded indemnity costs. It may be unusual to award all the costs claimed. But, in theory, the costs submitted might all properly fall under the rubric of party and party costs. Whether the costs were indeed 'fair and reasonable' is a question of fact. No question of law arises."[13]
[13]at 430; [97].
The Arbitrator further referred to commentary upon the authorities referred to above. But such commentary does not alter my conclusions. In particular I do not accept that s.22(1) of the Act can be construed as amplifying the express power given with respect to costs by s.34(1). This is not to say that the phrase "according to law" is necessarily to be limited to the meaning of "according to the principles of common law" as stated in the Superannuation Fund case. It is rather to recognise that the specific power to make an order for a taxation of costs (absent further agreement between the parties) is granted by reference to two express alternatives only.
In my opinion the correct view is the Arbitrator's powers were, in the absence of further agreement, limited to those that expressly conveyed by s.34(1). I am satisfied that the final award discloses a manifest error of law and accordingly leave should be granted to appeal it. It follows that ground 1 of the plaintiff's challenge is made out. Insofar as the plaintiff has succeeded on a limited basis with respect to the matters agitated in the other proceedings referred to in the second ground of challenge, I will give the parties a further opportunity to address me as to the appropriate course now to be followed with respect to the issue of costs before the Arbitrator.
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