Bates, Michael John t/as Riot Wetsuits v Omareef Pty Ltd t/as Quiksilver Wetsuits (No 4)

[1997] FCA 1201

FEDERAL COURT OF AUSTRALIA

COSTS - Indemnity costs - Discussion of applicable principles - Offer of compromise - Pursuit of allegations which really ought not to have been made - Rejection of offer - Whether rejection was imprudent

Federal Court of Australia Act 1976 (Cth) s 23

Federal Court Rules, O 23

Colgate Palmolive v Cussons (1993) 46 FCR 225, applied.

MICHAEL JOHN BATES T/AS RIOT WETSUITS v. OMAREEF PTY LIMITED T/AS QUIKSILVER WETSUITS & ORS (No. 4)
NG 230 OF 1994

EMMETT J
SYDNEY
28 OCTOBER

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 230 of 1994

BETWEEN:	MICHAEL JOHN BATES T/AS RIOT WETSUITS Applicant
AND:	OMAREEF PTY LIMITED (ACN 004 010 806) T/AS QUIKSILVER WETSUITS Respondent
QUIKSILVER GARMENTS PTY LIMITED (ACN 005 575 548) Second Respondent
JOHN ERIC HOWITT Third Respondent
BRUCE ERNEST RAYMOND Fourth Respondent
THOMAS VICTOR CARROLL Fifth Respondent
RODERICK ANTHONY BROOKS Sixth Respondent
ALISTAIR (ALSO KNOWN AS ZOC) ZORICA Seventh Respondent
BRUCE ANDREW EDWARDS Eighth Respondent
JUDGE:	EMMETT J
DATE OF ORDER:	28 OCTOBER 1997
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. There be judgment in the Applicant’s application against the First Respondent in the sum of $10,213.87.

1. The First Respondent pay to the Applicant the said sum of $10,213.87.

1. The Application otherwise be dismissed.

1. The Cross-Claim be dismissed.

1. In addition to costs orders already made and without interfering with any of those orders, the Applicant pay the following costs of the Respondents of the proceedings, namely:

(a)the costs incurred by the Respondents in reading, considering and providing instructions in relation to, and responding to affidavits filed by the Applicant but not read at the hearing, such costs to be paid on a party/party basis;

(b)the costs of the return of subpoenas, directions hearings and other interlocutory hearings held on 21 February 1996, 6 March 1996, 12 June 1996, 25 September 1996, 25 October 1996 and 6 November 1996, all having been held prior to 12 November 1996, such costs to be paid on a party/party basis; and

(c)the Respondents’ costs generally (including all reserved costs and interlocutory costs not yet determined) incurred on and after 12 November 1996 on a solicitor/client basis.

1. Otherwise, there be no order as to the costs of the proceedings.

1. There be no order as to the costs of the Cross-Claim.

1. The Respondents be permitted to set-off the Applicant’s liability to pay its costs pursuant to orders made this day and made on prior occasions (namely, on 18 July 1994, 30 September 1994, 25 November 1994, 24 March 1995, 27 March 1996 and 10 April 1996) against their liability to the Applicant pursuant to the orders set out in paragraphs 1 and 2 hereof.

1. Execution on the judgment and order in paragraphs 1 and 2 hereof be stayed until the provision of a Certificate of Taxation of the costs ordered in favour of the Respondents (whether ordered this day or previously).

1. The exhibits be returned upon the expiration of the time limited for the filing of a Notice of Appeal unless a Notice of Appeal is filed within time by one or other of the parties.

1. All documents produced on subpoena or in answer to Notices to Produce not admitted into evidence be returned to the producing party.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 230 of 1994

BETWEEN:	MICHAEL JOHN BATES T/AS RIOT WETSUITS Applicant
AND:	OMAREEF PTY LIMITED (ACN 004 010 806) T/AS QUIKSILVER WETSUITS Respondent
QUIKSILVER GARMENTS PTY LIMITED (ACN 005 575 548) Second Respondent
JOHN ERIC HOWITT Third Respondent
BRUCE ERNEST RAYMOND Fourth Respondent
THOMAS VICTOR CARROLL Fifth Respondent
RODERICK ANTHONY BROOKS Sixth Respondent
ALISTAIR (ALSO KNOWN AS ZOC) ZORICA Seventh Respondent
BRUCE ANDREW EDWARDS Eighth Respondent
JUDGE:	EMMETT J
DATE:	28 OCTOBER 1997
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT (No. 4)

HIS HONOUR: On 16 October I delivered reasons for judgment in which I indicated that I proposed to enter judgment in favour of the applicant, Mr Bates, in the sum of $6,200, together with interest, under section 51A of the Federal Court of Australia Act 1976 (Cth). However, I deferred making any orders including, specifically, orders as to costs, until I had heard the parties on that question.

The respondents have now sought orders for costs against Mr Bates. Prima facie, of course, costs ought to follow the event.  However, in my reasons for judgment I indicated that it would not be appropriate for an order for costs to be made in favour of Mr Bates in the light of the determinations which I had made. I formed that provisional view because Mr Bates has been wholly unsuccessful against all respondents other than Omareef and against Omareef he has recovered an almost infinitesimal fraction of what he was claiming. Although I indicated that I would enter judgment in the sum of $6,200 plus interest, the claim which had been made was for a sum in excess of $1 million and on one view, in excess of $4 million. That claim was based on the assertion of a contract which I rejected.  In relation to that issue Mr Bates was wholly unsuccessful. In addition, there were other causes of action in respect of which Mr Bates was wholly unsuccessful.

There is now before me evidence which indicates that offers were made to Mr Bates prior to and during the course of the trial which were rejected. They form the foundation for the respondents’ application for costs not only on the ordinary party and party basis but on an indemnity basis in respect of costs incurred after the offers were made. In addition, the respondents seek orders in relation to the costs of two aspects of the preparation for the trial incurred before the offers were made. Some costs orders have already been made and I do not propose to interfere with those.

In Colgate Palmolive v Cussons (1993) 46 FCR 225, Sheppard J distilled some principles or guidelines concerning the making of special orders for costs. His Honour noted that the ordinary rule is that where the court orders the costs of one party to litigation to be paid by another the order is for payment of those costs on a party/party basis. However, the court has the general discretionary power to award costs as between solicitor and client as and when the justice of the case might so require. Courts dealing with the problem of costs have resolved the particular cases before them by dealing with the circumstances of those cases and by finding the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. The categories in which the discretion may be exercised are not closed.

However, Sheppard J endeavoured to state some of the circumstances in which courts have thought the exercise of the discretion was warranted.  For example, Sheppard J cites instances of the making of allegations of fraud knowing them to be false; evidence of particular misconduct that causes loss of time to the court and to other parties;  the fact that the proceedings are commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law;  the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions. Finally, his Honour refers to the imprudent refusal of an offer to compromise.

The matter which seems to me to justify the making of a special order is to be found in an offer which was made to Mr Bates on 1 November 1996.  Before dealing with the detail of that offer I should record that a further offer was made by the respondents in accordance with Order 23 of the Federal Court Rules on 27 June 1997.  In addition, in the course of the trial a third offer was made on 26 August 1997.  Each of the offers was different but I do not consider that it is necessary to go into the detail of the second and third offers. 

Counsel for Mr Bates relied upon the subsequent offers as in some way justifying the refusal of the first offer.  In so far as the respondents rely on the failure to accept the first offer as being an imprudent refusal it seems to me that the fact of subsequent offers is irrelevant.  The conduct which must be considered is the conduct of the parties at the time when the offer was rejected in the light of the ultimate result in the proceedings. The fact that a subsequent offer might have been made and that the subsequent offers might have been greater than the earlier offer does not, in the absence of anything further, bear on the question of whether or not the first rejection was reasonable or imprudent. 

As I said in my earlier reasons, Mr Bates made a number of claims said to arise out of the relationship between Omareef and himself. He made allegations of contravention of section 52 of the Trade Practices Act 1974 (Cth), some of which were abandoned during the course of the trial and which ought to have been abandoned well before then. He also made claims based on alleged unconscionable conduct, estoppel, conspiracy to injure and wrongfully inducing breach of contract. Certain of those claims carry with them some allegation of personal turpitude against the respondents. There was no evidence before me to justify the claims and not inconsiderable time was devoted to the admission of evidence relating to those claims. I consider that the terms of the offer of 1 November rendered the pursuit of those claims unreasonable.

The offer of 1 November 1996 was to pay to Mr Bates the sum of $100,000 within five days of acceptance of the offer.  There was a term that the parties execute mutual releases and indemnities in relation to all matters arising from or connected to the relationship between Mr Bates and the respondents and that the terms of settlement were to remain confidential.  I found in my reasons for judgment that Omareef had repudiated the oral contract which it had made with Mr Bates.  I also said that I found the conduct of Omareef in doing so somewhat extraordinary.  It may be that it was the manner of termination of the contract which led Mr Bates to pursue the proceedings in the way which he did.  Nevertheless, when the offer was made it was not rejected or met with a counter offer;  it was simply ignored.

One can feel some degree of sympathy for the way in which Mr Bates was treated at that stage.  If Mr Bates was truly concerned to vindicate his reputation having regard to the circumstances of the termination, it would have been open to him, having received a very generous offer, to respond by saying that he would be prepared to accept that sum of money provided that there was, for example,  some public announcement in relation to the matter of which he was complaining.  However, I do not consider that a desire for vindication constituted a justification for the pursuit of the claims which were made in the statement of claim in the light of and in the face of the offer of 1 November.  More significantly, the letter of 1 November contained somewhat unusually a reasoned argument as to why Mr Bates' claim was doomed to failure.  A detailed description of what were said to be the deficiencies in Mr Bates' case was contained in the letter.

It is significant that in very many respects the letter accurately predicted the outcome of the trial and the findings which I made.  The letter dealt with a number of significant issues.  The first was the date of the making of the contract;  the second was the complaint concerning short supply of raw materials;  the third was the expert report on alleged damage based on the draft agreement produced by Corrs.  In each of those matters the reasons advanced as to why Mr Bates was likely to fail were very much the reasons which I expressed in reaching the same conclusion.

The letter also contained a section dealing with likely costs of the trial.  It did say that the offer described in the letter was not open to negotiation but went on to say as follows:

We are writing to you at this point because our numerous attempts to progress settlement discussions with you, your client's previous solicitors, your client's Counsel and with your client directly have failed to produce any sensible response and because the evidence and pleadings are clearly closed.  None of the deficiencies explained in this letter is new.  They have been repeatedly raised. Given the upcoming summer season and the business commitments of our clients, there will be no opportunity for what your client has described as a “door of the Court” settlement [sic] 

We are mindful that your client has instructed, sought advice from or sought to retain seven different firms of solicitors in relation to this matter.  You appear to have been approached in relation to this matter in January 1992.  We have explained the concerns outlined above to La Fontaine, Solicitors, Blake Dawson Waldron and yourselves.  We have explained them to Mr Freeman.  To date no response has been conveyed which in any way strengthens your client's case.  Further we are aware from discussions with your client (whilst he was unrepresented) that at least one firm indicated he should attempt to settle these proceedings for his legal costs. 

The letter then went on to indicate the cross-claim which Omareef intended to pursue in the event it was unsuccessful in that claim.  Notwithstanding the terms of that letter, there was no response. 

The formal offer in accordance with Order 23 contained no condition requiring confidentiality. However, it was suggested that there may be some ambiguity as to whether the formal offer was intended as a compromise of the cross-claim.  I consider that on a fair reading of it, it was an offer of compromise of all of the proceedings including the cross claim.  If the condition of confidentiality in the first offer had been a concern to Mr Bates, the formal offer would have been the opportunity for him to bring the proceedings to an end.  Nevertheless it was also ignored.

I consider that, in the circumstances, as they must have been known to Mr Bates in November 1996, the offer of compromise was an eminently reasonable one.  I have found in my earlier reasons that there simply was no discussion about a contract for 3½ years.  Unless there been such a discussion, it would have been impossible for Mr Bates to recover damages in the sums which he claimed.  Once that is accepted it ought therefore to have been patently obvious to Mr Bates that he would not recover damages anywhere near the sum that was being offered.  In the circumstances, the failure to accept that offer coupled with the prosecution of the other claims against all of the respondents was imprudent.  Accordingly, it is appropriate that I order Mr Bates to pay the respondent's costs incurred on and after 12 November 1996, including all reserved costs and interlocutory costs not yet determined, on a solicitor/client basis.

The first question of costs incurred before the offer of 1 November 1996 concerns costs incurred by the respondents in reading, considering, providing instructions in relation to and responding to affidavits filed by Mr Bates but not read at the hearing.  Some sixty-one affidavits were filed on behalf of Mr Bates although only twelve were read. Of those twelve, substantial parts were rejected as inadmissible.

On 20 March 1997 an exchange concerning the affidavits took place between Lindgren J and Mr Bates who at that stage was appearing in person.  His Honour said that it was very difficult to give a ruling that affidavits will not be read in advance of the commencement of the hearing. He said that if when the hearing begins it is found that there is a lot of material which has just been a waste of affidavits he would order Mr Bates to pay the respondents’ costs on an indemnity basis.  His Honour told Mr Bates that what he will have to be sure of is that he has not encumbered the file with a lot of affidavits that are not relevant to the issues. His Honour said that he would rigorously apply the rules against Mr Bates if he has done that.  His Honour pointed out that the court did not want to hear, unless they are relevant to an issue, about complaints that have been made to politicians or letters written to newspapers.  He said that the court wants to get straight to the issue posed by the pleadings and that the court wants to have only affidavits that are relevant to the issues.  If time is wasted there would be a penalty.  Mr Bates said he understood that.

It has become apparent that a substantial part if not virtually all of the affidavits filed by Mr Bates were in fact prepared by him.  Whether they were prepared with the benefit of legal advice is not totally clear.  Nevertheless, it was not until the trial began that Mr Bates indicated that he would not rely on substantial numbers of the affidavits. Many of the affidavits to which I referred were filed before November 1996 and Lindgren J’s warning, of course, was not given until March 1997 after the date from which I have indicated I consider indemnity costs are appropriate. 

However, on 14 February 1997 Mr Rod Freeman, counsel then appearing for Mr Bates, indicated that many of the affidavits had been drafted by Mr Bates and that Mr Freeman realised that they did not assist in any way. He said that he was acting on his client's instructions in so far as he declined to indicate that the affidavits would not be relied upon. Considerable work would have been done in relation to those affidavits by the respondents prior to November 1996.  Having regard to the comment made by Mr Freeman and to the fact the affidavits were not read, I consider that it is appropriate that the costs of reading, considering, providing instructions in relation to those affidavits and responding to them prior to 12 November 1996 be borne by Mr Bates, not on the indemnity basis as sought by the respondents but on a party/party basis.

Next, a claim is made in respect of the costs of a number of days on which directions hearings took place being directions hearings which in the event were wasted by reason of the conduct of Mr Bates.  For example, there were two occasions when subpoenas were to be returned when the matter was not ready to proceed. There were several directions which arose out of what turned out to be an erroneous estimate of the time.  The proceedings were listed for hearing in March of this year.  It became apparent, however, that the estimate of time was erroneous and it was necessary to vacate that hearing and another directions hearing was necessary in order to fix the case for hearing later on in the year.  At that stage there were defaults in the compliance with directions and several other directions hearings were necessary in order to get the matter ready for hearing by reason of default by Mr Bates in complying with directions of the court.

All of those hearing days were unnecessary and the costs involved were thrown away.  However, I am not satisfied that any special order should be made in relation to the costs of those days as sought by the respondents.  I have dealt with the question of costs after the expiration of the compromise offer which was made on 1 November 1996.  I propose to order Mr Bates to pay the costs of the respondents on the ordinary basis of the return of subpoenas, directions hearings and other interlocutory hearings held on 21 February 1996, 6 March 1996, 12 June 1996, 25 September 1996, 25 October 1996 and 6 November 1996.  All of those hearings took place prior to 12 November 1996, being the date on which the offer of 1 November 1996 expired.  All were unnecessary or should have been unnecessary.

That then leaves the question of the costs of the cross-claim in so far as they are not covered by the order that I have just made. I should deal with those specifically.  In essence the cross-claim involved the question of delay in production of wetsuits.  The principal issue in relation to that, as Mr Bates conducted the case, was the alleged shortages in supply of raw materials.  That was also an issue in the principal claim and was specifically pleaded in the statement of claim. In that regard I found that Mr Bates failed to show that the shortages which may have occurred had any direct bearing on the rate of production.

The cross-claim failed really because of the inability of Omareef to demonstrate that it suffered any damage which was directly attributable to any shortfall in production.  I consider that the costs of the cross-claim were minimal. In so far as any costs can be separately attributed to the cross-claim they would normally be borne by Omareef. However, the costs as I would understand it would be very small in relation to the conduct of the case generally and it would be difficult for a taxing officer to identify such separate costs. Further, I have not ordered Mr Bates to pay all of the costs incurred before the offer of 1 November 1996 of the issues on which he was unsuccessful. It is appropriate that there be no order at all as to the costs of the cross-claim.

It is apparent that the orders for costs will exceed the amount of any verdict to which Mr Bates would be entitled.  In the circumstances it would be appropriate to stay execution on the judgment until costs have been taxed and to order that the respondents be entitled to set off against that verdict any entitlement that might arise following the taxation of costs.  I propose to order that exhibits be returned after the expiration of the time limited for filing of the notice of appeal unless notice of appeal is filed by either party.  Any documents produced on subpoena or in answer to those produced be returned to the producing party if the document is not otherwise in evidence.

I should record in this published version of my reasons for making orders as to costs that, in the course of delivering reasons orally, I initially demonstrated a misapprehension as to the sequence of events.  Mr Foster, senior counsel for the respondents, quite properly, drew my attention to that misapprehension, notwithstanding that it was contrary to his interest to do so. I then changed the order which I initially intended to make. The above represent my reasons for making the orders which I have now made. 

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett

Associate:

Dated:            28 October 1997

Counsel for the Applicant:	M. B. Duncan
Solicitor for the Applicant:	Burt & Allen
Counsel for the Respondents:	L. G. Foster SC P.R. Whitford
Solicitor for the Respondents:	Corrs Chambers Westgarth
Date of Hearing:	28 October 1997
Date of Judgment:	28 October 1997