Alpine Shire Council v MHSC Transportation Services Pty Ltd (No 2)
[2002] VSC 58
•18 March 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
VALUATION, COMPENSATION & PLANNING LIST
No. 5903 of 2001
| ALPINE SHIRE COUNCIL | Applicant (Rating Authority) |
| V | |
| MHSC TRANSPORTATION SERVICES PTY LTD | Respondent (Objector) |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 March 2002 | |
DATE OF JUDGMENT: | 18 March 2002 | |
CASE MAY BE CITED AS: | Alpine Shire Council v MHSC Transportation Services Pty Ltd (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 58 | |
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COSTS – Offer of compromise – Whether the court should award costs on a solicitor-client or indemnity basis – The distinction between the two basis of costs – The costs of obtaining accounting advice not called to give evidence – The costs of obtaining a second valuation.
Supreme Court Act 1986 – section 24(1)
Valuation of Land Act 1960 – section 26(2)
Supreme Court (General Civil Procedure) Rules 1996 – Rules 63.30, 63.30.1
Alpine Shire Council v MHSC Transportation Services Pty Ltd (unreported, 25 February 2002)
Ballato v Co-operative Bulk Handling Ltd (unreported, 30 January 1990)
Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Crisp v Kent (SC (NSW)(CA), unreported, 27 September 1993)
Esso Exploration & Production Australia Inc v Shire of Morwell [1986] VR 289
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers – Western Australian Branch (1993) 46 IR 301
Messiter v Hutchinson (1987) 10 NSWLR 525
Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721
Spencer v Dowling [1997] 2 VR 127
Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103
Vicgrain Assets Pty Ltd v Hindmarsh Shire Council (No. 2) (1999) 107 LGERA 110
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APPEARANCES: | Counsel | Solicitors |
| For the Rating Authority | Mr CJ Delany | McSwineys |
| For the Objector | Mr JH Gobbo QC | Minter Ellison |
Introduction
HER HONOUR:
On 26 February 2002 I published my reasons (“the earlier reasons”) for deciding in this appeal that the valuation by the rating authority of the capital improved value of the Mount Hotham airport should be confirmed, the parties having earlier agreed that the valuation by the rating authority of the site value of the airport should be reduced. The present reasons should be read in conjunction with the earlier reasons.
At a further hearing on 1 March 2002, devoted principally to issues concerning costs, counsel indicated that they had agreed that as a consequence of my findings on the substantive issue there should be orders to the following effect:
1.That the appeal in relation to site value be allowed.
2.That the site value be reduced from $816,000 to $320,000.
3.That the capital improved value of $12,638,000 be confirmed.
4.That the rating authority pay the objector’s costs of the issue relating to the determination of site value up to and including 15 November 2001 on a party-party basis.
Mr Delany, for the rating authority, made application for further orders as to costs to the following effect:
5.That the objector pay the rating authority’s costs of and incidental to the proceeding excluding the costs of the rating authority on the issue of site value but including:
(a)the reasonable costs incurred in the obtaining by the rating authority of expert accounting advice from Ernst & Young Accountants;
(b)all reserved costs; and
(c)the costs of the proceeding before the Victorian Civil and Administrative Tribunal (“VCAT”).
6.That those costs be paid on an indemnity basis.
In response, Mr Gobbo submitted:
¨that the costs of the rating authority (other than on the issue of site value) should be paid on a party-party basis until 2 November 2001;
¨that from that date the costs of the rating authority should be paid on a solicitor-client basis rather than an indemnity basis;
¨that the Court should make no order as to the costs of obtaining advice from Ernst & Young; and
¨that the objector should not bear the whole costs of the evidence of Mr Brown.
Section 24(1) of the Supreme Court Act 1986 provides:
(1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
Costs in this Court are otherwise governed by the provisions of Chapter 63 of the Supreme Court (General Civil Procedure ) Rules 1996 (“the Rules”).
However, as Kaye and O’Bryan JJ, with whom Tadgell J agreed, found in Esso Exploration & Production Australia Inc v Shire of Morwell[1], the power of the Court in relation to matters of costs on an appeal against an assessment of a valuation of land by a rating authority is governed by the relevant provisions of the Valuation of Land Act 1960 (“the Act”). At the time of the decision in Esso those provisions appeared in section 43(3) and (4) of the Act. After some amendment they now appear in section 26(2) of the Act, which since 1 July 1998 has read:
(2) The Court may in its discretion by order award the costs of an appeal under this Division—
(a)to the party in whose favour the appeal is determined; or
(b)if the appeal was lodged in respect of the matter under section 22(1), but was not proceeded with by the objector, to the rating authority.
[1][1986] VR 289 at 297
At 298 of Esso their Honours said:
By the terms of section 43(3) the Court is not denied discretion in relation to costs. The sub-section invests the Court with discretion to award costs to the parties in whose favour the appeal is determined. Thus the discretion, if exercised by the Court, may only be exercised in favour of the successful party. By sub-section (4) the costs so awarded by the Court are in its discretion, meaning that the amount or items of costs awarded are within the Court’s discretion.
And at 301:
It follows from examination of the several provisions and comparisons to which we have referred that, in our opinion, upon the hearing of an appeal, the Court has discretion as to costs, but that discretion may be exercised only in favour of the successful party.
In Vicgrain Assets Pty Ltd v Hindmarsh Shire Council (No. 2) [2], after considering those provisions, I expressed myself as satisfied that the effect of section 26(2) of the Act, as of the former section 43(3) and (4), is that the Court has the same discretion as to costs as it would have in making an order under section 24 of the Supreme Court Act 1986 and Order 63 of the Rules, fettered only by the limitation that the discretion may be exercised only in favour of the parties referred to in paragraphs (a) and (b) of section 26(2). Paragraph (b) is not relevant to this proceeding.
[2](1999) 107 LGERA 110 at 112
The appeal was brought against the assessment by the rating authority of the site value, net annual value and capital improved value of the airport. Net annual value being ascertained as a percentage of capital improved value, the proceeding in effect involved only two appeals, against the assessment respectively of site value and capital improved value. The appeal as to site value was determined in favour of the objector (“the ratepayer”), in that the amount of the site value was reduced, and the appeal as to capital improved value was determined in favour of the rating authority (“the Shire”), in that the amount of the capital improved value was confirmed. Thus it is appropriate that, pursuant to section 23(2), the costs be awarded, in respect of each issue, to the party in whose favour the appeal on that issue was determined. The proposed orders 4 and 5 have been prepared on that basis.
The date of commencement of solicitor-client or indemnity costs
Leaving to one side at this stage the distinction between solicitor-client and indemnity costs, it is convenient to quote again from Vicgrain (No. 2), where I set out some passages from authorities which seemed to me to sum up the considerations relevant to the discretion to award costs on other than a party-party basis. At [6] to [10] I said:
6. As to that discretion, Winneke P said in Bass Coast Shire Council v King [1997] 2 VR 5 at 29:
Although as a general rule, the court will order costs to be taxed and paid on a party and party basis (see rule 63.31 of the Rules of Civil Procedure) it none the less is invested with the discretion to order costs to be taxed and paid on a solicitor and client basis (see rule 63.32 of the Rules). That discretion is not limited to the particular circumstances described in the rule: see per Batt J Regal Life Insurance Ltd v Pacific Financial Resources Pty Ltd (unreported, 16 November 1994). The discretion to award costs on a solicitor and client basis is, thus, an unlimited one although it must be exercised judicially and not unreasonably.
7. In Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 Sheppard J in the Federal Court considered at some length the authorities as to the principles relating to the award of indemnity costs. Section 43(2) of the Federal Court of Australia Act 1976 provides that, in that court:
(2) Except as provided by any other Act, the award of costs is in the discretion of the Court or a Judge.
8. Sheppard J set out (at 230) the following passage from the judgment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-1:
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. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.
9. At 231 Sheppard J cited the comment of Gummow J in Council of the Municipality of Botany v Secretary Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412 at 415, after referring to what Woodward J had said in Fountain Selected Meats to the effect that the discretion was not so circumscribed that an order might be made only against an ethically or morally delinquent party. And he cited the similar view of French J expressed in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers - Western Australian Branch (1993) 46 IR 301 at 303 as follows:
Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.
10. He referred at 231 and 232 to the judgment of Davies J in Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court of Australia, decided on 5 March 1993) characterising a number of cases where an order had been made for indemnity costs as falling “within the category of litigation instituted or prolonged to an extent which ought to have been unnecessary”.
Mr Delany expressly stated at the outset of his submissions that there was no suggestion here of any collateral purpose or fraud.
He submitted on two grounds that the Court should exercise its discretion to award costs (other than those costs related to the issue of site value) on other than a party-party basis. First, to adapt the terms used by Woodward J in the passage cited from Fountain Select Meats, the ratepayer, properly advised, as it was, should have known that it had no chance of success; or in the words of French J in J-Corp, the ratepayer had persisted in what should on proper consideration have been seen to be a hopeless case.
As to his second ground, Mr Delany referred to the listing by Sheppard J in Colgate Palmolive at 233-4 of a number of circumstances which have been thought to warrant the exercise of the discretion, one of which His Honour described as “the imprudent refusal of an offer to compromise”, citing in support, by way of example, Messiter v Hutchinson[3] ; Maitland Hospital v Fisher (No 2)[4] and Crisp v Kent [5].
[3](1987) 10 NSWLR 525
[4](1992) 27 NSWLR 721
[5](SC(NSW)(CA) unreported, decided on 27 September 1993
In support of his first submission Mr Delany pointed out that from October 2000 the ratepayer had available to it the memorandum of Ms Smith (“Exhibit K”) which is described in [36] of the earlier reasons. That document, prepared by one of the senior officers of the ratepayer, assigned to the airport a value of $10.8 to $15.5 million on the basis of what the auditors found to be accurate calculations and correct and reasonable figures and assumptions (see [63] of the earlier reasons). Further, he submitted that the ratepayer had failed to consider the relationship between cost and value; a consideration of that relationship in the light of the matters examined at [84] and [85] of the earlier reasons would have shown the ratepayer that it had no prospect of success.
In reply Mr Gobbo submitted that as the case had been uplifted, by consent, from VCAT on the basis that it was a case of unusual difficulty, it could not realistically be said that it should have been perceived from the outset to be a hopeless case. The history of the matter, as appearing from the affidavit of Mr McSwiney and the exhibits thereto, indicated that the parties attempted to resolve the matter over many months. By the time when a formal offer of compromise was received on 2 November 2001 it could be seen, with the wisdom of hindsight, that the ratepayer should have accepted that offer, and he conceded, consistently with Mr Delany’s second ground, that from that date costs should be payable on other than a party-party basis. But it was not until that time, he submitted, that the ratepayer could be said to be sufficiently well informed to make a reasonable assessment of the Shire valuations in order to determine whether it had a chance of success.
He submitted that the ratepayer was not limited to relying on the two figures as to the capital improved value which were submitted by its valuers. Had it reduced the Council’s figure below Mr Male’s original figure, it could have been said that the appeal had been determined in its favour, and it would prima facie have been entitled to its costs, the amount of which was substantial. Much of what was done on behalf of the ratepayer by its legal advisers was directed to reducing the Shire’s best case, which was an entirely reasonable course for an objecting ratepayer.
Had the efforts of the ratepayer been directed solely to the establishment of the valuations of its own valuers, I would, I consider, have been constrained to accept the submission of Mr Delany. The facts on which [84] and [85] of the earlier reasons were based were known to the ratepayer at all relevant times, and once it had sought proper advice, as it did, the relevant principles of law would also have been known to it. From October 2000 it had the assessment of value contained in Exhibit K. However, noting the submission set out in the preceding paragraph, I find it appropriate that the matter as commenced by the ratepayer was continued until 2 November, and accordingly there will be an order that the costs of the Shire to that date be paid on a party-party basis.
Solicitor-client or indemnity costs from 2 November 2001
The next issue is whether the costs of the Shire from 2 November 2001 (other than those costs related to the issue of site value) are to be paid on an indemnity basis, as claimed by Mr Delany, or a solicitor-client basis, as submitted by Mr Gobbo.
In Spencer v Dowling [6] , Callaway JA considered the use of the expressions “solicitor and client costs” and “indemnity costs” which appear sometimes to be used indiscriminately in the cases. His Honour said:
Solicitor and client costs are themselves of different kinds. . . . Sometimes they are taken to afford less than a complete indemnity, but on other occasions their purpose is to do what the court can to ensure that a party is not out of pocket. . . . It was for that reason that Woodward J., in Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. (1988) 81 ALR 397 at 401-2, decided that costs should be paid on a solicitor and client basis but adopted the language of indemnity in the actual order he made to provide greater certainty.
[6][1997] 2 VR 127 at 164
Rogers CJ Comm D in Singleton v Macquarie Broadcasting Holdings Ltd[7] was dealing with an objection to a bill of costs, an order for indemnity costs having already been made. His Honour considered at some length the reasons for and scope of orders for indemnity costs and said at 105:
As I endeavoured to explain in Qantas Airways Ltd v Dillingham Corporation (Rogers J, 14 May 1987, unreported) it became necessary to make orders for indemnity costs because of the ever widening gap that had opened up between the costs payable by a successful party to his, or her, own solicitors and the amount recoverable on a party and party taxation. It seemed to me wholly inappropriate that a party, forced to take legal proceedings, entirely through the wrongful and inappropriate conduct of the other party, be left badly out of pocket at the successful conclusion of the proceedings, simply by reason of an inappropriate method of taxation of costs.
His Honour adopted the following words of Nicholson J of the Supreme Court of Western Australia in Ballato v Co-operative Bulk Handling Ltd [8]:
In my opinion the words “on an indemnity basis” have a settled meaning in relation to costs. They mean that all costs incurred will be allowed except any which have been unreasonably incurred or are of an unreasonable amount and in applying these exceptions the receiving party will be given the benefit of any doubt.
[7](1991) 24 NSWLR 103
[8](unreported, 30 January 1990) at 107
Rules 63.30 and 63.30.1 of the Rules read:
63.30Solicitor and client basis
On a taxation on a solicitor and client basis all costs reasonably incurred and of reasonable amount shall be allowed.
63.30.1Indemnity basis
(1)Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.
(2)Any doubt which the Taxing Master may have 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.
The distinction is, as counsel agreed, essentially a matter of onus. Having considered the matter, I do not find that the circumstances of the present case justify the extra severity of an order for indemnity costs, and there will accordingly be an order that the costs of the Shire from 2 November 2001 be borne by the ratepayer on a solicitor-client basis.
The costs of obtaining advice from Ernst & Young
The firm of Ernst & Young were retained on 27 November 2001 to give advice to assist the legal advisers of the Shire in relation to the accounting evidence obtained by the ratepayer. Two representatives of that firm were employed on an after hours basis and over the weekend, and their costs were considerable. They were, in the event, not called to give evidence. Mr Delany referred to Rule 63.28 of the Rules, providing that costs may be taxed on “such other basis as the Court may direct” and submitted that it would be of assistance to the Taxing Master if there were a direction from the trial judge, who had some understanding about the way the case went and as to the necessity of incurring those costs, that the reasonable costs of obtaining the advice from Ernst & Young be met by the ratepayer. While I appreciate the difficulty faced by the Shire in this regard, it seems to me that this is an issue best left to the Taxing Master in the usual way, and I propose to make no order on this point.
The costs of the evidence of Mr Brown
Mr Gobbo referred to the circumstances that the Shire chose to obtain a second valuation from Mr Brown, that this caused the ratepayer to incur the extra costs of obtaining accounting advice, and that some 25 percent of the time in the case was spent on matters relating to the evidence of Mr Brown, which was, in the end, not accepted by the Court. In his submission, it was appropriate that the costs be adjusted by a direction to the Taxing Master to disallow a certain percentage of the Shire’s costs relevant to the evidence of Mr Brown, or by a finding that those costs should be paid on a party-party rather than a solicitor-client basis.
Mr Delany submitted that it was reasonable for the Council to retain a second valuer, and that Mr Brown’s evidence had been reasonable in itself and had been of some assistance to the Court. I accept that submission, and there will be no specific order as to the costs of the evidence of Mr Brown.
Conclusion
For the reasons given, there will be the following orders:
1.That the appeal in relation to site value be allowed.
2.That the site value be reduced from $816,000 to $320,000.
3.That the capital improved value of $12,638,000 be confirmed.
4.That the rating authority pay the objector’s costs of the issue relating to the determination of site value up to and including 15 November 2001 on a party-party basis.
5.That the objector pay the rating authority’s costs of and incidental to the proceeding excluding the costs of the rating authority on the issue of site value but including:
(a)all reserved costs; and
(b)the costs of the proceeding before the Victorian Civil and Administrative Tribunal.
6.That those costs be paid on a party-party basis up to and including 1 November 2001 and thereafter on a solicitor-client basis.
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