Artcraft Pty Ltd v Dickson (No 2) - [2014] SASC 144

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ARTCRAFT PTY LTD & ANOR v DICKSON & ANOR (No 2)
[2014] SASC 144
Reasons for Ruling of The Honourable Justice Kelly
24 September 2014
PROCEDURE - COSTS
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
On 15 August 2014, judgment was delivered in this matter in favour of the plaintiffs against the first and second defendant. The plaintiffs were wholly successful as against the first defendant and successful only in part as against the second defendant. The plaintiffs now apply for costs. As against the first defendant the plaintiffs seek an order for costs on a party and party basis and on an indemnity basis from the date of a Calderbank letter. As against the second defendant, the plaintiffs apply simply for an order for costs on a party and party basis.
Held:
As against the first defendant, the plaintiffs are entitled to an award of costs on a party and party basis to the date of the commencement of the trial and on an indemnity basis from that date onwards, which costs are to be taxed or agreed. In the circumstances of this case, an award of costs on an indemnity basis from the date of the commencement of the trial is appropriate having regard to the obduracy of the first defendant and, or, the legal advice he received which has resulted in the plaintiffs incurring unnecessary costs of a trial which ought never to have been defended.
As against the second defendant, the plaintiffs are entitled to an award of two thirds of their party and party costs of the action, which costs are to be taxed or agreed.
Calderbank v Calderbank [1975] 3 All ER 333; Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31, considered.

ARTCRAFT PTY LTD & ANOR v DICKSON & ANOR (No 2)
[2014] SASC 144
CIVIL
KELLY J.

On 15 August 2014 I delivered judgment in favour of the plaintiffs against the first and second defendants.
The plaintiffs succeeded wholly in the claim against the first defendant, however, as against the second defendant, the plaintiffs succeeded only in part.
On 21 August 2014 formal judgment was entered in favour of the plaintiffs as against the first defendant for general damages in the sum of $891,166 plus exemplary damages in the amount of $50,000 plus interest in the total amount of $204,513. As against the second defendant the plaintiffs were awarded equitable compensation in the sum of $59,800 plus interest in the amount of $10,412.
On that date I heard oral submissions as to costs. At the conclusion of argument on that date each of the parties were invited to supplement those submissions with further written submissions. In due course I received further written submissions from the plaintiffs on 4 September 2014 and 5 September 2014 and the second defendant on 4 September 2014.
I shall deal first with the application made for costs as against the first defendant. The plaintiffs seek orders for costs against the first defendant on a party and party basis up to and including 11 March 2014 and, from that date, costs on a solicitor client basis. Alternatively, if the Court is not satisfied that the plaintiffs are entitled to costs on a solicitor client basis from 12 March 2014, the plaintiffs apply for an order that the first defendant pay the second plaintiff the costs on a party and party basis.
In the end the first defendant did not oppose an order made that the second plaintiff receive its costs of the proceedings on a party and party basis.
The plaintiffs’ application for costs on a solicitor client basis from 12 March 2014 was based on two letters exchanged between the parties on 11 March 2014 and 14 March 2014, the first of which was purportedly what is commonly termed a ‘Calderbank letter’.[1]
[1] That is, it was purportedly sent pursuant to the principles enunciated in Calderbank v Calderbank [1978] 3 All ER 333.
On 11 March 2014 the plaintiffs wrote to the solicitors for the first defendant offering to settle the proceedings on the basis that the first defendant pay the plaintiffs a total amount of $150,000 inclusive of interest and costs (the Calderbank offer). It is apparent from the plaintiffs’ letter that the amount of the offer was informed by the value of the equity held by the first and second defendants in the three properties that they owned. It is implicit that acceptance of the offer would have required the defendants to realise the value of those properties, and, accordingly, the defendants’ response to the Calderbank offer must be viewed in that context.
On 14 March 2014 the solicitors for the first defendant informed the plaintiffs that the first defendant’s position was that the Calderbank offer was not capable of acceptance by reason of his diminished financial position as a result of Family Court proceedings involving the first and second defendants and as a consequence of the freezing orders in respect of the first defendant’s assets made in this Court in 2012.
This Court has an absolute and unfettered discretion as to costs. The non‑acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs.[2]
[2] Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31.
In response to the plaintiffs’ primary application, the first defendant here points to the complications arising out of the Family Court proceedings taken out against him by his wife together with the freezing order made in this Court in 2012 as a proper reason for rejecting the late offer from the plaintiffs in March 2014. Notably, the plaintiffs must have been aware of the precise circumstances in which their Calderbank offer was being made because they had been joined to the Family Court proceedings and had themselves applied for the freezing order.
It is correct that as a consequence of the legal proceedings in this Court and in the Family Court the first defendant was incapable of meeting the timeframe for the stipulated offer of payment of the sum of $150,000 inclusive of costs by no later than 4.00pm on Friday 4 April 2014.
In that respect the first defendant’s submission must be accepted. In the circumstances, the Calderbank offer was somewhat disingenuous because despite its apparent reasonableness it was, for reasons well known to the plaintiffs, entirely incapable of acceptance.
Accordingly, I refuse the plaintiffs’ application for solicitor client costs from the date of the Calderbank letter, namely, 12 March 2014.
However, that is not the end of the matter. In the letter dated 14 March 2014 to the plaintiffs’ lawyers, the first defendant continued to assert that the plaintiffs’ claim was without merit and was only made for strategic purposes. It also contained the observations that the police prosecution was discontinued with costs as there was no reliable evidence on which to proceed.
Given that there was a body of evidence by then well known to the first defendant as being capable of satisfying any trier of fact either in the civil or the criminal jurisdiction that the first defendant was guilty of theft from his employer by converting his employer’s product and pocketing the proceeds, that was a remarkable assertion to be making so late in proceedings.
To my mind the first defendant’s defence was so unmeritorious that it should never have been pursued. There was no defence in the pleadings to any of the critical allegations made on the plaintiffs’ pleadings, in particular, the allegations of fraud on the employer. The documentary evidence tendered by the plaintiffs, including the first defendant’s phone records and the receipts from Ferris Metal Recyclers during the relevant period, in themselves were capable of establishing not only the identity of the person who delivered the plaintiffs’ product to Ferris Metal but also the quantity of metal delivered. Having regard to the whole of the evidence tendered by the plaintiffs there could never have been any doubt that the first defendant committed a fraud of the most egregious kind upon his employer.
In my view the defence was so unmeritorious and lacking in credibility in the face of overwhelming evidence to the contrary of which the first defendant was well aware before the trial commenced such that it is an important factor in determining whether costs on a solicitor client basis should be borne by him at least from the date of trial.
I acknowledge that it is only in exceptional circumstances that costs to a successful party are awarded other than on a party and party basis. However, in the circumstances of this case I find that either the obduracy of the first defendant or the legal advice he received, led the plaintiffs to incur unnecessary costs of a trial which so far as the first defendant is concerned should never have been allowed to proceed. In addition, the trial itself was unnecessarily prolonged because of prolix cross-examination of two of the plaintiffs’ witnesses by counsel for the first defendant on topics irrelevant to the issues to be decided and which ultimately went nowhere.
For these reasons I consider that this is a proper case in which to order that the first defendant pay costs on a solicitor client basis from the date of commencement of the trial being 7 April 2014.
The position with regard to the second defendant is more complicated.
Counsel for the second defendant submitted that until the final submissions were made it was “effectively an unknowable case”.
There are a number of factors which I have taken into account when determining whether the second defendant should pay the whole of the plaintiffs’ costs on a party and party basis.
It is true that the quantum of the case against the second defendant given the various causes of actions pleaded against her continued to evolve over time and it was not until closing submissions were filed that the actual quantum of the claim against the second defendant was able to be crystallised.
Nevertheless I cannot accept the submission that the second defendant was not aware, as were all parties, of the base material on which the quantum was to be assessed. It was contained in financial records of both defendants and was subsequently analysed and reproduced in charts tendered through the expert witness Mr Holmes.
It is also true that the tracing exercise into the assets of the second defendant was ultimately abandoned midway through trial. That concession seems to have been inevitable as the records revealed that the real estate purchased by both defendants was financed using legitimate income of both defendants. That fact was also known to the plaintiffs well before the trial.
I do not accept the second defendant’s submission that the plaintiffs did not have regard to the rules which require the plaintiffs to have given the second defendant fair notice of its claim. In my view the second defendant was always on notice of the ambit of the plaintiffs’ claim. After all, the financial records belonged to her and the first defendant. By choosing to defend the claim in the manner in which she did the second defendant left the plaintiffs with no alternative but to proceed against her for the full amount of the monies dishonestly received by the first defendant.
Taking into account all of these factors, including the fact that the plaintiffs’ were only partially successful as against the second defendant, I consider it is appropriate to order that the second defendant pay two thirds of the plaintiffs’ costs of the action on a party and party basis.
I make the following orders:
1The first defendant is to pay the plaintiffs’ costs of the action to 7 April 2014 on a party and party basis and, from 7 April 2014, on a solicitor client basis, which costs are to be taxed or agreed.
2The second defendant is to pay two thirds of the plaintiffs’ costs of the action on a party and party basis, which costs are to be taxed or agreed.