Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd
[2016] WASC 52 (S)
•1/04/16
AUSTRALIAN MARITIME SYSTEMS LTD -v- McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD [2016] WASC 52 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 52 (S) | |
| Case No: | CIV:2724/2015 | 19 FEBRUARY 2016 & ON THE PAPERS | |
| Coram: | MITCHELL J | 1/04/16 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Costs to be paid on party-party basis | ||
| A | |||
| PDF Version |
| Parties: | AUSTRALIAN MARITIME SYSTEMS LTD McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD |
Catchwords: | Costs Application for a stay of proceedings under Commercial Arbitration Act 2012 (WA) Whether costs should be awarded on indemnity basis for proceedings brought in breach of an arbitration agreement |
Legislation: | Rules of the Supreme Court 1971 (WA), O 66 r 1 |
Case References: | A v B [No 2] [2007] EWHC 54 (Comm); [2007] 1 Lloyd's LR 358 Anderson v Bowles (1951) 84 CLR 310 Ansett v Malaysian Airline System [No 2] [2008] VSC 156 Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 Ballantyne v Boylan [2013] SASC 177 Bartlett v Director of Public Prosecutions (Cth) [2013] WASCA 223 Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1 IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303 John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 (S) Re Bond Corporation Holdings Ltd (1990) 1 WAR 465 Re Ikon Group Ltd [No 3] [2015] NSWSC 982 Saraceni v Jones [2012] WASCA 59 (S) Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046 Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755; [2002] 1 WLR 1517 Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD
Defendant
Catchwords:
Costs - Application for a stay of proceedings under Commercial Arbitration Act 2012 (WA) - Whether costs should be awarded on indemnity basis for proceedings brought in breach of an arbitration agreement
Legislation:
Rules of the Supreme Court 1971 (WA), O 66 r 1
Result:
Costs to be paid on party-party basis
Category: A
Representation:
Counsel:
Plaintiff : Mr T J Porter
Defendant : Mr S J Davis
Solicitors:
Plaintiff : DLA Piper
Defendant : Norton Rose Fulbright Australia
Case(s) referred to in judgment(s):
A v B [No 2] [2007] EWHC 54 (Comm); [2007] 1 Lloyd's LR 358
Anderson v Bowles (1951) 84 CLR 310
Ansett v Malaysian Airline System [No 2] [2008] VSC 156
Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52
Ballantyne v Boylan [2013] SASC 177
Bartlett v Director of Public Prosecutions (Cth) [2013] WASCA 223
Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1
Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1
IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72
Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 (S)
Re Bond Corporation Holdings Ltd (1990) 1 WAR 465
Re Ikon Group Ltd [No 3] [2015] NSWSC 982
Saraceni v Jones [2012] WASCA 59 (S)
Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755; [2002] 1 WLR 1517
Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1
MITCHELL J:
Summary
1 The plaintiff commenced this action in breach of an arbitration agreement between it and the defendant. On 19 February 2016, I stayed these proceedings and referred the parties to arbitration, under s 8(1) of the Commercial Arbitration Act 2012 (WA) (Act).1
2 There is no contest that the plaintiff should pay the defendant's costs of the proceedings to the time they were stayed. However, the defendant seeks an order that its costs be taxed on an indemnity basis. The plaintiff opposes that order.
3 The main contentious issue is whether, as a general rule, courts should award costs on an indemnity basis when staying proceedings commenced in breach of an arbitration agreement. For the following reasons, no such general rule applies.
4 In all the circumstances of the present case, I exercise my general costs discretion2 to award costs on a party-party basis only.
The compensatory nature of a costs order
5 The purpose of a costs order is to compensate the successful party for the costs which it has incurred. However, the compensation offered by an ordinary costs order is typically only partial.
6 In some cases the court may award costs on an indemnity basis. Applied to the circumstances of the present case, the ordinary form of an order for indemnity costs would be that:3
The plaintiff pay all the costs of the proceedings to date incurred by the defendant except insofar as they are for an unreasonable amount or have been unreasonably incurred so that, subject to those exceptions, the defendant is completely indemnified by the plaintiff for its costs.
7 Indemnity costs orders are made only where there is some special or unusual feature to the case which justifies the court exercising its judicial discretion in that way. Indemnity costs are commonly awarded where a party persists with what should, on proper consideration, be seen to be a hopeless case. Indemnity costs may also be awarded where a party unreasonably refuses to accept an offer of settlement of the proceedings. Indemnity costs may be appropriate where an agreement between the parties provides for one party to indemnify the other party in respect of all costs reasonably incurred by the other party in the proceedings. The categories in which the discretion to award indemnity costs may be exercised are not closed.4
8 Even when an indemnity costs order is made because of improper conduct of a party, the purpose remains compensatory. As Gaudron and Gummow JJ noted in Oshlack v Richmond River Council:5
It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basisor on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part. (footnotes omitted)
9 Ultimately, any award of costs reflects the court's assessment of the extent to which a party should be compensated for legal costs incurred in the proceedings, having regard to all of the circumstances of the case.
Plaintiff's conduct in the present case
10 Putting aside the consideration that these proceedings were brought in breach of an arbitration agreement, I see no basis for an indemnity costs order. While the plaintiff was ultimately unsuccessful in opposing the stay of the proceedings, its case was not hopeless. The plaintiff has acted reasonably in the conduct of the proceedings, which were subject to an early determination. There is no evidence of an unreasonable refusal to accept any offer of settlement. The defendant did not contend that the Agreement provided for the plaintiff to indemnify it for legal costs incurred in the present proceedings.6
11 Therefore, putting aside the circumstance that the proceedings were commenced in breach of an arbitration agreement, the appropriate order would be that the plaintiff pay the defendant's costs of the proceedings on a party-party basis. Such an order would lead to the taxation of costs at a level which would provide a degree of compensation to the defendant for its legal costs in these proceedings that is appropriate in all the circumstances of the case.
Should costs of proceedings commenced in breach of an arbitration agreement generally be awarded on an indemnity basis?
12 The defendant contends that the court should exercise its discretion to award costs on an indemnity basis where a stay of the proceedings establishes breach of an arbitration agreement, and it is established that the breach has caused the innocent party to reasonably incur legal costs.
13 There are two competing lines of authority as to the proper approach to costs on a successful application to stay proceedings commenced in breach of an arbitration agreement.
14 In A v B [No 2],7 Colman J advocated the following general approach:
provided that it can be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis [11].
15 That general approach was approved and applied by Martin CJ in Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd.8
16 However, the general approach was doubted by Hollingworth J in Ansett v Malaysian Airline System [No 2],9 and disapproved by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2],10 by Brereton J in Re Ikon Group Ltd [No 3]11 and by Edelman J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2].12
17 Strong views have been expressed on both sides of the argument. Martin CJ described the reasoning in A v B [No 2] as 'impeccable',13while Edelman J considered the criticisms of Hammerschlag J to be 'unanswerable'.14
18 The conflict between these single judge decisions has not been resolved by any decision binding on me, or by the decision of an intermediate appellate court which I must follow unless satisfied it is plainly wrong. A somewhat similar issue was considered by the Victorian Court of Appeal in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC.15 In that case, the court rejected the proposition that unsuccessful resistance of the enforcement of a foreign arbitral award was an appropriate category of special circumstance justifying the award of indemnity costs. However, that was a different issue from the present, which concerns proceedings commenced in breach of an arbitration agreement. It is therefore necessary for me to identify the proper approach by reference to first principles.
Resolution
19 The argument in favour of the general approach identifies two reasons why fairness ordinarily requires an award of indemnity costs in litigation commenced in breach of an arbitration agreement. First, a risk is perceived that, if costs are awarded on a party-party basis, a defendant may not be able to recover the difference between costs incurred and costs awarded in subsequent proceedings. It is seen to be unfair to deprive the defendant of compensation for that aspect of its resulting loss. Secondly, even if the difference between costs awarded and costs incurred could be recovered in subsequent proceedings, it would be unfair and inefficient to require the defendant to commence fresh proceedings to recover that aspect of its loss.16 This second aspect of the reasoning would only apply if the difference between costs incurred and costs awarded was actually recoverable in later proceedings.
20 It will not be open to the defendant to obtain an award for damages reflecting the difference (if any) between costs awarded and incurred in these proceedings. In Anderson v Bowles,17 the High Court recognised the general rule that a party cannot recover, by way of damages against the same party in later proceedings, costs not awarded in earlier proceedings.18 That rule was recognised and applied by the Full Federal Court in Gray v Sirtex Medical Ltd.19 In Gray, a different rule was applied to a damages claim against a third party to the original proceedings in which costs were incurred, so that all incurred costs were recoverable as damages.20 The defendant does not point to a potential claim against a third party to these proceedings. Different considerations might also arise where the original proceedings are commenced in a foreign jurisdiction.21 However, in the present circumstances, I am bound to apply the rule recognised in Anderson. That rule follows from the compensatory nature of a costs award, which reflects the court's assessment of the degree to which a successful party should be compensated for its legal costs in all the circumstances of the case.
21 If the defendant could recover indemnity costs as damages in subsequent proceedings, that would be a powerful consideration in favour of awarding costs on an indemnity basis in these proceedings. Such an award would avoid delay and expense in resolving questions of costs in later proceedings. Avoiding the need for such proceedings would be consistent with the case management objectives of O 1 r 4A and O 1 r 4B of the Rules.
22 However, applying Anderson,only the costs awarded by this court are recoverable in these or subsequent proceedings between the same parties. In those circumstances, there is no reason to exercise the costs discretion so as to avoid the need for subsequent proceedings to recover the difference between costs incurred and awarded in this action. Subsequent proceedings of that kind would have no proper basis.
23 That leaves the question of whether the defendant's inability to recover all of its reasonably incurred costs, unless costs are awarded on an indemnity basis, provides a reason for awarding costs on an indemnity basis. I am not satisfied that the outcome that the defendant cannot recover all of its incurred legal costs, when the law does not provide for full recovery, is unfair. That outcome is simply a consequence of the limits on the extent to which those legal costs are recoverable. The application of the ordinary principles as to costs results in an award of costs, following taxation, which reflects the court's assessment of the appropriate degree of compensation for legal costs which a party has incurred in the proceedings. It is not unfair for the party receiving costs to be confined to recovering only those costs which the court has, in the application of the ordinary principles, determined to be appropriate.
24 Commencement of the proceedings in breach of an arbitration agreement may be a relevant factor in exercising the court's discretion to award costs. However, I see no justification for a general rule that costs should be awarded on an indemnity basis where proceedings are commenced in breach of an arbitration agreement. The circumstance that legal costs have been incurred as a result of a breach of an arbitration agreement does not distinguish this case from many others in which a breach of contract causes a party to the contract to incur irrecoverable legal costs to enforce their rights.
25 These factors, which reflect Hammerschlag J's second and third criticisms, lead me to respectfully disagree with the proposition that the courts should adopt the general approach advocated in A v B [No 2] and Pipeline Services.The courts should not adopt the general approach of awarding indemnity costs where proceedings commenced in breach of an arbitration agreement are stayed.
26 In the present case, the circumstance that the proceedings were commenced in breach of an arbitration agreement is relevant but, in all the circumstances of the present case, does not justify an indemnity costs order.
Orders
27 For the reasons explained above, I am not persuaded to exercise my discretion to award costs on an indemnity basis. Having regard to all of the circumstances of this case, the appropriate order is that the plaintiff pay the defendant's costs of the proceedings up to 19 February 2016, to be taxed on a party-party basis.
28 I am not presently inclined to make any order as to costs incurred after 19 February 2016. Those costs should mostly have been incurred in connection with the defendant's unsuccessful application for indemnity costs. However, I will give the parties an opportunity to make further oral submissions on that question before making final orders.
1Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52.
2 Conferred by s 37 of the Supreme Court Act 1935 (WA) and O 61 r 1(1) of the Rules of the Supreme Court 1971 (WA) (Rules).
3Re Bond Corporation Holdings Ltd (1990) 1 WAR 465, 479.
4See Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10], adopted in Saraceni v Jones [2012] WASCA 59 (S) [7] and Bartlett v Director of Public Prosecutions (Cth) [2013] WASCA 223 [18]; Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 [16] - [32]; Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1, 69.
5Oshlack v Richmond River Council [1998] HCA 11;(1998) 193 CLR 72 [44].
6 The defendant did not suggest that these costs were incurred 'in connection with the performance of the Agreement' for the purposes of the indemnity in cl 26.1 of the Agreement.
7A v B [No 2] [2007] EWHC 54 (Comm); [2007] 1 Lloyd's LR 358.
8Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 (S).
9Ansett v Malaysian Airline System [No 2] [2008] VSC 156 [22].
10John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2][2015] NSWSC 564 [31] - [39].
11Re Ikon Group Ltd [No 3] [2015] NSWSC 982.
12Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046.
13Pipeline Services [18].
14Sino Dragon [15].
15IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303 [55] - [58], [335].
16A v B [9] - [10]; Pipeline Services [18].
17Anderson v Bowles (1951) 84 CLR 310, 323.
18 See also Ballantyne v Boylan [2013] SASC 177 [13].
19Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1 [15] - [16].
20Gray [24].
21 See Sutton, Gill and Gearing, Russell on Arbitration (24th edition) [7-057] and cases there cited, especially Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755; [2002] 1 WLR 1517.
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