Baulderstone Hornibrook Engineering P/L v Dare Sutton Clarke P/L and Ors No. Scciv-96-1872

BAULDERSTONE HORNIBROOK ENGINEERING PTY LTD
v DARE SUTTON CLARKE PTY LTD and ORS
[2002] SASC 342
Civil

PERRY J. By a notice filed on 24 November 2000, the defendant, Dare Sutton Clarke Pty Ltd (“Dare Sutton”), discontinued the third party proceedings which it had brought against the second third party, IB Consulting Engineering (“IB Consulting”).
By an application filed on 26 November 2001, IB Consulting sought an order that the costs payable by Dare Sutton following the discontinuance of the proceedings against it be payable “on a full indemnity basis”.
There was some delay in bringing the application on for hearing, but following the filing of affidavits on both sides, and some other preliminaries, the application was argued on 23 July 2002.
Dare Sutton resisted the application, although it conceded that it was liable to pay party and party costs.
Background
Originally the proceedings were instituted by South Australian Cricket Association Incorporated (“SACA”) against Baulderstone Hornibrook Engineering Pty Ltd (“Baulderstone”) as defendant. In the proceedings SACA claimed, inter alia, a declaration that it was entitled to terminate a contract which it had entered into with Baulderstone for the design and construction by Baulderstone of four retractable lighting towers erected at Adelaide Oval. The claim was based upon the assertion that in breach of contract Baulderstone failed to design and install the towers so that they could be safely raised and lowered.
Baulderstone joined Dare Sutton as a third party to the proceedings. In essence, the claim against Dare Sutton was based on the allegation that it had failed to exercise due care in designing the towers.
Subsequently, the proceedings were settled as between SACA and Baulderstone. The terms of settlement were undisclosed, except that it was explained that SACA assigned any rights it may have had against Dare Sutton to Baulderstone.
As SACA thereafter had no further interest in the proceedings, I ordered that Baulderstone be substituted as plaintiff and Dare Sutton as defendant.
In December 1997, I gave leave to Dare Sutton to join three third parties, namely Structural Mechanics Pty Ltd (“Structural Mechanics”), IB Consulting and Chris Olak and Associates (“Chris Olak”). They were duly joined, and on 23 December 1997, separate third party notices as against each of the three third parties were filed.
Put shortly, the basis of the claim against IB Consulting was that it had been engaged as a consultant by Dare Sutton, with particular reference to the mechanical and gear design, and was negligent in its performance of the consultancy.
From the time at which it was served with the proceedings, IB Consulting complained both to the solicitors for Dare Sutton, and on various directions hearings which I conducted, to the court, that it should never have been joined and that there was no possible basis upon which liability on its part to Dare Sutton could be established.
Despite those protestations, Dare Sutton maintained the third party proceedings and IB Consulting filed a defence. There was an exchange of expert reports. Indeed, a very considerable volume of expert reports was exchanged between all of the parties in an effort to explain why the towers failed.
This was one of those cases where the technical questions were extremely complex. Furthermore, nobody involved with the work accepted responsibility for the problems which had arisen with the towers, and blamed others.
During 1999, Baulderstone proposed that the parties attempt to mediate a settlement. At first, IB Consulting expressed its agreement in principle to mediation, subject to certain conditions. Later, on the occasion of directions hearings before me when I was invited to make an order referring the matter to mediation, IB Consulting opposed the making of any such order and indicated that it would not take part in any mediation.
I ruled that I had the power to order IB Consulting to participate in a mediation, notwithstanding its opposition to that course. I so ordered.
On 31 July 2000, the parties, including IB Consulting, attended a mediation conducted by Sir Lawrence Street. Following the mediation, the parties to the proceedings, with the exception of IB Consulting, settled the proceedings on terms which were not disclosed to the parties other than those participating in the settlement.
In the result, IB Consulting is unable to identify the basis of settlement, except to emphasise that it was not a party to the settlement; that it has not made any payment towards any settlement; and that it has consistently maintained that the case against it was hopeless from the outset.
It appears that IB Consulting’s actual legal fees, including disbursements, up to the date of the notice of discontinuance exceed $461,000. Bills have been rendered which are said to justify that amount.
On the hearing of the application, Mr Roder of counsel for IB Consulting explained that insofar as his client claimed costs on a “full indemnity basis”, this was to be understood to mean that the costs be assessed at the amount of the total of the bills, that is, something in excess of $461,000, subject to the taxing master taxing off any amounts which he or she might consider to have been unreasonably incurred.
There is no material before the Court which would enable me to assess the likely quantum of party and party costs, but I proceed on the assumption that they are likely to tax at an amount considerably less than the amount of the “indemnity” costs sought by IB Consulting.
I do not pause to refer further to the various facts deposed to in the affidavits filed in connection with the application except as to one matter.
In an affidavit filed on 5 July 2002, Mr Hurren, solicitor, a member of the firm of solicitors which represents IB Consulting, deposed to a conversation which he alleged had taken place between him and Ms Croser of the firm of Rowell Forrest & Co, then acting as solicitors for Dare Sutton. This took place shortly after service of the third party proceedings on IB Consulting, namely on 23 January 1998.
He asserts in the affidavit that the conversation was in the following terms:
“Hurren:‘Benesh [a principal in IB Consulting] is shocked that Dare would have been prepared to join him when he clearly is not in it.’
Croser:‘The decision to join third parties was not taken lightly, but we really felt it was necessary to do this to protect ourselves. It is just a stopgap mechanism. We don’t want to get anyone offside.’
Hurren:‘You have certainly got our client offside. If it is just a stopgap mechanism, then it is going to be an extremely expensive stopgap mechanism for your client because, if the matter has to be conducted at the level which I predict, then our legal fees will be huge and there will not be a situation later on of your client being able to just discontinue and expect us to bear our own costs.’”
In an answering affidavit filed on 22 July 2002, Ms Croser admits that there was a telephone discussion between her and Mr Hurren on 23 January 2002. She sets out her file note of the conversation. This does not contain any reference to “stopgap mechanism” or to “stopgap”, although she notes in a somewhat cryptic fashion “joinder incorrect ... think cheeky joining us .... legal fees enormous - don’t think they would walk away bear own costs”.
Ms Croser summarises what she can recall of the conversation and comments on the account given by Mr Hurren in the following two paragraphs in her affidavit:
“8.To the best of my recollection, the effect of the discussion noted in this passage was:
8.1 Statements by Mr Hurren that the joinder was incorrect and that his client was affronted and upset to have been joined; and
8.2 A statement or statements by Mr Hurren that his client’s costs of defending the proceedings would be enormous and his client would not walk away and bear its own costs.
9.I cannot now recall the detail of my responses to what Mr Hurren said. However, I think it most unlikely that during that conversation I used the words ‘stop gap mechanism’ or words to that effect in relation to the third party proceedings issued by DSC against IBC. I think that it is likely that I said to Mr Hurren that the third party proceedings were not issued lightly. The position taken by DSC in the proceedings was that it had a defence against the plaintiff’s claim but that if it was to be found liable then the third parties should also be held responsible.”
Neither Mr Hurren nor Ms Croser gave evidence. The application proceeded simply on the basis of the affidavits. In those circumstances, I am unable to make a finding as to whether or not Ms Croser used the words “stop gap mechanism” or words to that effect. Even if she did, I am not sure what the words in context should be taken to mean.
Furthermore, without conducting a very extensive hearing and perusing a very considerable volume of expert reports, I am unable to make a finding that, objectively speaking, the claim advanced in the third party proceedings against IB Consulting was entirely without merit. Indeed, Mr Roder did not attempt to advance the application on the basis that he was able to prove that that was so, at least by reference to evidence as to the cause of the failure of the towers and his client’s involvement.
Rather, he advanced the application on the basis, as he put it in his written outline of argument:
“The inference to be drawn from the discontinuance is that the defendant realised that its claim against IB Consulting was, as IB had always maintained, hopeless.”
Legal Principles
The question of discontinuance and withdrawal of proceedings is dealt with by SCR r 52.
SCR r 52.03 provides:
“52.03Unless the Court otherwise orders or the parties consent, the party discontinuing or withdrawing shall pay the costs up until the date of delivery of the notice, of the party against whom the claim or defence was discontinued or withdrawn. No further order shall be required to enable the party against whom the claim or defence was discontinued to tax his costs.”[1]
[1] The word “further” in the expression “further order” would seem to be otiose, as the entitlement to costs is created by the rule rather than by any order.
It is common ground between the parties that the ordinary operation of that rule is to entitle the party against whom the claim was discontinued to party and party, rather than solicitor and client, or indemnity costs.
Indeed, that conclusion would follow from the terms of SCR r 101.07(6) which reads in part:
“In any rule or order, unless the contrary meaning is indicated by the context or other factors:
(a).........
(b)costs, or a like expression, means costs as between party and party;
(c).........”
However, I would not read SCR r 52.03 as excluding the general discretion of the court as to costs, which undoubtedly includes a discretion to award costs on an indemnity basis or some other basis other than party and party, if the circumstances of the case warrant the making of some other order.[2] That costs on discontinuance may be awarded on an indemnity basis was recognised by Lander J in his judgment in Kilpatrick Green Pty Ltd v Kockums Industries Pty Ltd.[3]
[2] See SCR r 101.01.
[3] [1998] SASC S6611 (unreported) 3 April 1998.
Factors relevant to the exercise of the discretion to award costs on an indemnity basis were discussed in the judgment of Sheppard J in Colgate-Palmolive Co and Anor v Cussons Pty Ltd.[4] Sheppard J put the matter in this way:
“4.......... The tests have been variously put. The Court of Appeal in Andrews v Barnes[5] said the court had a general and discretionary power to award costs as between solicitor and client ‘as and when the justice of the case might so require’. Woodward J in Fountain Selected Meats[6] appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston[7] namely, there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said[8] in Tetijo: ‘the categories in which the discretion may be exercised are not closed’. Davies J expressed[9] similar views in Ragata.
5.Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes;[10] evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp[11]); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson;[12] Maitland Hospital v Fisher (No 2);[13] Crisp v Kent[14] and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records[15]). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”
[4] (1993) 118 ALR 248 at 257.
[5] 39 Ch D at 141.
[6]    Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.
[7] [1982] 1 All ER at 58.
[8]    Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd, Federal Court of Australia, 3 May 1991 (unreported).
[9]    Ragata Developments Pty Ltd v Westpac Banking Corporation, Federal Court of Australia, 5 March 1993 (unreported).
[10] (1989) 92 ALR 131.
[11]    J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, Western Australian Branch, Federal Court of Australia, 19 February 1993 (unreported).
[12]    Messiter v Hutchison (1997) 10 NSWLR 525.
[13] (1992) 27 NSWLR 721, 724.
[14]    Supreme Court of New South Wales, Court of Appeal, 27 September 1993 (unreported).
[15]    EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.
I accept that it is within the scope of the discretion to award costs on an indemnity basis if the proceedings had no reasonable prospect of success, and if this was or should have been apparent to the party issuing them.[16]
[16] Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359.
In support of his argument that the inference may properly be drawn from the very fact of discontinuance of the proceedings that Dare Sutton realised that its claim against IB Consulting was hopeless, Mr Roder cited Huntsman Chemical Co Australia Ltd v International Pools Australia Ltd.[17]
[17] (1995) 36 NSWLR 242.
That case concerned the late abandonment of an appeal. In the course of his judgment, Mahoney JA observed:[18]
“In my view the action of the appellants in abandoning the appeal indicates they had no faith in the possibility of its success and, therefore, it was not an appeal which should have been brought or, having been brought, prosecuted after reasonable time for consideration. To that extent, although it was not fought out to the end, it constituted a form of abuse of process of the Court. This, in the particular circumstances of the case, warrants, in my view, an order in favour of International that its costs of the appeal be paid on an indemnity basis.”
[18] Ibid 272.
With respect to that dictum, I have no difficulty in accepting that in certain circumstances the discontinuance of proceedings may warrant the inference being drawn which the court was prepared to draw in that case.
But that will not always be so. The act of discontinuance must always be considered in the context of other relevant circumstances.
In this case, while it is true that IB Consulting maintained from the outset that it was not involved, protestations by parties sued to that effect are not uncommon. But the court would be accepting a “boot straps” argument if it regarded the repeated assertions of that kind as necessarily strengthening the case for the award of indemnity costs.
It is not without significance that although at an early stage after it had been joined IB Consulting indicated that it was considering an application to strike out the proceedings against it, no such application was ever brought.
Looking at the matter broadly, Dare Sutton was confronted with a situation in which none of the consultants which it had engaged to assist with the design and specification of the towers would own up to any responsibility for their failure to operate safely.
For the purpose of determining the present application, I have perused again the third party statement of claim against IB Consulting. I have done so against the background of my knowledge of the matter generally, gained over innumerable directions hearings which were spread over a long period of time. The nature of the claim against IB Consulting is not such as to suggest to me that the claim was patently and unarguably bad.
Furthermore, I am unable to find that it has been established, as Mr Roder suggested in the course of his argument, that by the issue of the third party proceedings against IB Consulting, Dare Sutton was simply trying to cast a net as widely as it could in order to obtain contribution from as many parties as possible.
In all the circumstances, I do not consider that this is a case in which it would be appropriate to grant the application.
The application for an order for indemnity costs is dismissed.
I will hear the parties as to the costs of the application.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE
[1]    The word “further” in the expression “further order” would seem to be otiose, as the entitlement to costs is created by the rule rather than by any order.
[1]    See SCR r 101.01.
[1]    [1998] SASC S6611 (unreported) 3 April 1998.
[1] (1993) 118 ALR 248 at 257.
[1] 39 Ch D at 141.
[1]    Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.
[1] [1982] 1 All ER at 58.
[1]    Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd, Federal Court of Australia, 3 May 1991 (unreported).
[1]   Ragata Developments Pty Ltd v Westpac Banking Corporation, Federal Court of Australia, 5 March 1993 (unreported).
[1] (1989) 92 ALR 131.
[1]    J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, Western Australian Branch, Federal Court of Australia, 19 February 1993 (unreported).
[1]    Messiter v Hutchison (1997) 10 NSWLR 525.
[1] (1992) 27 NSWLR 721, 724.
[1]    Supreme Court of New South Wales, Court of Appeal, 27 September 1993 (unreported).
[1]    EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.
[1]    Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359.
[1] (1995) 36 NSWLR 242.
[1]    Ibid 272.

[2002] SASC 342

23 October 2002