Brooklyn Lane Pty Ltd v MIC Australia Pty Ltd (No 2)

[2001] VSC 49

SUPREME COURT OF VICTORIA

COMMON LAW DIVISION

Not Restricted

No. 4623 of 1999

BROOKLYN LANE PTY LTD (ACN 007 361 113) (trading as Sturgess Real Estate)	Plaintiff
V
MIC AUSTRALIA PTY LTD (ACN 058 890 047)	Defendant

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JUDGE:	Balmford, J.
WHERE HELD:	Melbourne
DATE OF HEARING:	21 February 2001
DATE OF JUDGMENT:	5 March 2001
CASE MAY BE CITED AS:	Brooklyn Lane Pty Ltd v MIC Australia Pty Ltd (No 2)
MEDIA NEUTRAL CITATION:	[2001] VSC 49

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Selimi	James Karavias & Co
For the Defendant	Mr Beck-Goday	Tress Cocks & Maddox

HER HONOUR:

1. Judgment was delivered in this matter on 21 February 2001, when I indicated that the claim of the plaintiff would be dismissed and invited submissions from counsel as to costs.   Mr Beck-Goday, for the successful defendant, submitted that the defendant should have its costs and that they should be taxed on an indemnity basis.   He put forward three bases for that submission, which was opposed by Mr Selimi, for the plaintiff.

1. The three bases for the claim were:

(a)On 10 November 2000 the defendant served an offer of compromise in the sum of $5000;

(b)Shortly before the commencement of the hearing, Part B of the claim, being for $61,000 in respect of “business interruption loss”, was abandoned;  and

(c)The plaintiff made minimal submissions in respect of Part A of the claim being for $91,000 in respect of reinstatement and replacement value of contents.

The effect of items (b) and (c) was that the claim effectively pursued for the plaintiff was for an amount of $128,000 in respect of accounts receivable in accordance with Part C of the claim.

1. As 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.   The circumstances in which a court might be moved to award costs on the solicitor and client scale should be described as “special” if only to set them apart from the usual basis upon which costs are awarded:  see per Callaway J.A Spencer v Dowling [[1997] 2 VR 127].

1. In Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 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 Judge.

1. Sheppard J set out at 254 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.

1. At 255 Sheppard J cited 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, who qualified 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 (No 2) (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.

1. Before summarising some of the circumstances which previous cases had indicated might warrant the exercise of the discretion, His Honour noted at 257 that:

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 (at 8) in Tetijo [Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court of Australia, decided on 3 May 1991)]:  “the categories in which the discretion may be exercised are not closed”.

1. He proceeded to list some of the circumstances which have been thought to warrant the exercise of the discretion, including:

evidence of particular misconduct that causes loss of time to the court and to other parties  .  .  .  ;the fact that the proceedings were 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.

He concluded:

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.

It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order.   The costs are always in the discretion of the trial judge.

1. The approach of Sheppard J in Colgate Palmolive was adopted by the Full Court of the Federal Court in Re Wilcox;  Ex parte Venture Industries Pty Ltdand Others (1996) 141 ALR 727; by Hansen J in Yarutzoloto Bank v Jordan Manor Pty Ltd (unreported, decided on 28 April 1997) and by Chernov J in UTSA Pty Ltd v Ultra Tune Australia Pty Ltd (unreported, decided on 20 May 1998).

1. In Spencer v Dowling [1997] 2 VR 127, Callaway JA at 164 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.

1. Rogers CJ Comm D in Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103 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 (unreported, 30 January 1990) at 107:

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.

1. It is clear that the same principles are applicable to the exercise of the discretion to award indemnity costs as to the exercise of the discretion to award solicitor and client costs per se, and it is not necessary to distinguish between the two in consideration of the relevant authorities.   The issue remains in the discretion of the judge.

1. As to ground (a) of the submission of Mr Beck-Goday, there are circumstances provided for in Order 26 of the Supreme Court (General Civil Procedure) Rules 1996 in which the service of an offer of compromise may result in a liability to pay costs on a solicitor-client basis, but they are not the circumstances of this case.

1. Having considered the submissions under grounds (b) and (c) in the context  of all the circumstances of this case, and in the light of the authorities to which I have referred, I have come to the conclusion that neither of those grounds justifies the making of the order which is sought by Mr Beck-Goday.

1. Accordingly there will be the usual order that the plaintiff pay the costs of the defendant, to be taxed on a party and party basis.

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