Citicorp Aust Ltd & Ors v Cirillo & Anor (No 4) No. Scciv-85-1481

CITICORP AUSTRALIA LTD & ORS v CIRILLO & ANOR
[2001] SASC 233
Civil

LANDER J. This is an application by the plaintiff for ‘indemnity costs’.
The circumstances giving rise to this application are a little unusual.
The plaintiff commenced these proceedings in 1985. On 3 May 1985 the plaintiff obtained an injunction against the first defendant restraining him from selling, assigning and letting, encumbering, using, damaging, disposing of or dealing in any other matter with a Poclain HC 300 Excavator Serial number 77. The price of the injunction was an undertaking by the plaintiff as to damages in the event that the first defendant suffered damages by reason of the grant of the injunction.
The injunction was continued by way of interlocutory injunction until the trial of the action. On 7 October 1991 the first defendant applied to have the matter dismissed for want of prosecution. On 2 June 1992 the first defendant was bankrupted. On 4 February 1993 the plaintiff discontinued the action. On 20 June 1995 the first defendant was discharged from bankruptcy. On 4 April 1997 the first defendant applied for an inquiry as to damages in respect of the plaintiff’s undertaking, and on 12 June 1997 Acting Judge Bohem ordered that the issue as to whether the undertaking should be enforced should be referred to trial. On 30 June 2000 Judge Burley ordered that the issues of the defendants standing and the question of ownership of the poclain be heard and determined together as preliminary points.
After that date various orders were made by Judge Burley, Olsson J and myself for the purpose of trying the issues identified by Judge Burley in his order of 30 June 2000.
The matter was listed for trial on 2 April 2001.
It was anticipated by the first defendant, and by the Court, that counsel who had been retained for some years would appear on behalf of the first defendant to prosecute the first defendant’s claim.
On the morning of trial the first defendant’s solicitor appeared for the first defendant and applied for an adjournment of the action for a period of 12 weeks. The sole ground for the application was that counsels’ retainer had been withdrawn earlier that morning and in those circumstances the first defendant was left unrepresented. The application for the adjournment was opposed. I refused that application but allowed the first defendant a short adjournment to instruct his solicitor, and then later allowed a further adjournment until that afternoon to allow the first defendant and his solicitor to obtain advice from another counsel.
When the matter resumed the first defendant, through his solicitor, renewed his application for an adjournment upon the same grounds as had supported the application that morning. I again refused the adjournment and at that point asked the first defendant’s solicitor to present the first defendant’s case. The first defendant’s solicitor said that he could not and would not adduce any evidence in support of the first defendant’s case.
An application was then made by Mr Wells QC to strike out the first defendant’s application for an inquiry as to damages in respect to the plaintiff’s undertaking. I acceded to that application and made that order. The only alternative order was to adjourn the matter which would have frustrated my order refusing an adjournment.
The first defendant has appealed from my decision striking out the first defendant’s claim for inquiry as to damages.
When I made the order striking out the defendant’s application I reserved the right to the plaintiff to apply for costs on a basis other than on a party and party basis. The usual practice is to allow a successful party costs on a party and party basis: Colgate-Palmolive Company and Another v Cussons Pty Ltd (1993) 46 FCR 225; SGIC v Lane (1997) 68 SASR 257 at 265. Clearly enough the plaintiff must have been entitled to costs on a party and party basis; r 101.02(1).
Party and party costs means only those costs which have been necessarily and reasonably incurred by the party in the conduct of the litigation: r 101.07(b)(a).
On this application the plaintiff has presented a body of evidence to support a submission that the first defendant’s case was doomed from the outset and that in those circumstances an order for costs on other than a party and party basis ought to be made.
The plaintiff’s application is in the following terms:
“1 That the first defendant pay the costs of:
1.1The first defendant’s application dated 4 April 1997 for an inquiry into damages; and
1.2This application
(a)as between solicitor and own client, as that term is defined in Rule 101.07(6)(d) of the Supreme Court Rules; or
(b)as between solicitor and client, as that term is defined in Rule 101.07(6)(c) of the Supreme Court Rules.”
Rule 101.07(6)(c) is the usual order for costs as between solicitor and client, which means all costs reasonably incurred by the party in respect of the litigation and having regard to the proper interests of the persons who will ultimately bear the burden of such costs. Costs on a solicitor and own client basis means costs as a complete indemnity against the costs incurred by the party in respect of the litigation provided that they are not to include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them: r 101.07(6)(d).
It can be seen that a successful party, entitled to costs, would be significantly advantaged by either an order for solicitor and client or solicitor and own client costs.
Whilst, usually the appropriate order is costs on a party and party basis (Colgate Palmolive v Cussons (supra)) it has been recognised that such an order is an incomplete or limited indemnity to that successful party. There is no doubt that this Court has the power to award costs to a successful party other than on a party and party basis s 40 Supreme Court Act 1935. However, in my opinion, there must be some circumstances to take the matter out of the norm before an order for solicitor and own client or solicitor and client costs is made.
Costs, and the form of the order, are always a matter of the exercise of a discretion. The discretion is unfettered except that the discretion must be exercised judicially. Where the Court is asked to make an order for costs in terms more favourable than party and party costs the Court must be satisfied that there are circumstances which would justify a departure from the norm.
The circumstances which would justify the exercise of a discretion to depart from the usual order are varied. The categories are not closed. The conduct of the party against whom the order is sought will dictate whether the norm should be departed from.
Obvious instances are where a party’s proceedings causes costs to be incurred improperly or without reasonable cause; where costs are incurred because of undue delay, neglect or other default; where fraud is improperly alleged; where proceedings are brought for a collateral or ulterior motive; where proceedings are brought in circumstances where the party must have known that there were no prospects of success; where proceedings are continued without any prospects of success; or for any other reason which justifies the Court departing from the usual rule.
It is not a reason, in my opinion, for an award of costs on a solicitor and own client basis or a solicitor and client basis, merely because the unsuccessful party’s case lacked merit. In a sense all losing cases lack merit. Often the absence of merit is not apparent to the parties until after trial and judgment.
Some cases lack merit to a greater degree than others. Again that does not, in my opinion, give rise to the departure from the usual rule, until it can be said that the case lacks merit such that it was clearly untenable or not maintainable.
A case which is clearly untenable or not maintainable is one that has been brought in wilful disregard of the known facts or, in some circumstances, in wilful disregard of the settled law. Not all cases which are brought in disregard of settled law can be said to be clearly untenable. The common law relies for its development on the ingenuity of parties and their legal practitioners. Those who would reasonably stretch the limits of the existing law should not necessarily be penalised for their efforts.
It was submitted in this case that one or other of the orders ought to be made because the first defendant brought and maintained these proceedings in circumstances where he ought to have known that the case completely lacked merit. The plaintiff took me to various documents on which it was argued that the first defendant was not the owner of the Poclain and was therefore never in a position to enforce the undertaking as to damages. The plaintiff also submitted that the withdrawal of plaintiff’s counsel on the morning of trial indicated that the plaintiff had been advised that the case completely lacked merit.
I am prepared to infer that the withdrawal of counsel came about as a result of counsel advising the first defendant that the case could not succeed. However that would not be any reason to order the first defendant to pay costs on an other than usual basis. The first defendant has been advised through these proceedings by two senior counsel and at least two junior counsel. I must assume that he was not advised prior to the morning of trial that his case was so untenable it should not be advanced. Indeed I think I would infer that prior to that point of time the first defendant had not been advised that his case was untenable.
I do not think the sudden withdrawal of the first defendant’s counsel is any indication of the first defendant’s state of knowledge of the strength of his own case.
It was submitted that an appropriate ground upon which to award solicitor and own client costs or solicitor and client costs is where a party, having pursued a claim, defence or counterclaim through to trial or almost to trial, thereupon unilaterally and without adequate explanation refuses to proceed with that claim. The plaintiff cited a number of instances where costs had been awarded on an indemnity basis or something of the kind where claims, counterclaims and appeals have been withdrawn on the doorstep of the Court. There is no doubt that in some circumstances where a party has pursued a claim, a defence or a counterclaim up to the door of the Court, and without explanation withdraws that proceeding or defence, the party may be properly ordered to pay the costs on a basis more favourable to the successful party than party and party costs. It cannot, however, be said that it is a rule that such an order will be made where a party discontinues a claim or abandons a defence immediately prior to trial.
In any event, in this case, that is not what occurred. The first defendant wished to maintain his claim for an inquiry into damages and sought an adjournment to brief other counsel to present the claim. He did not withdraw or abandon his claim. It was dismissed because I refused the adjournment for the reasons which I have already given.
I am not privy to what passed between the first defendant and his counsel on the morning immediately before the hearing before me. I am prepared to infer, and it was not suggested that I should do otherwise, that the first defendant requested counsel whom he had retained to present his case in accordance with the retainer. There was little else he could do. Why they refused to accept his instructions is not apparent to me.
I am not prepared to find that the circumstances surrounding the events on the day that the matter was listed for trial would justify a departure from the usual rule.
The first defendant took me to documents to indicate that the first defendant’s argument that he was the owner of the Poclain was sound. It was the first defendant’s contention that if I had allowed an adjournment and then allowed the presentation of the first defendant’s case the first defendant would have succeeded in these proceedings.
It would be inappropriate for me to conduct a hypothetical action between the parties to determine which of the competing submissions is right: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201. If I were to do that I would be requiring the parties to litigate the very issues which I have prevented the first defendant from advancing by striking out his application for inquiry into damages.
It seems to me that in the end result I can only allow the plaintiff’s application if I am satisfied that the first defendant has behaved so unreasonably in the action that he ought to be burdened by one or other of the costs orders sought.
I am not so satisfied.
I am not satisfied that the first defendant brought these proceedings for any collateral or improper motive. I am not satisfied that he brought these proceedings knowing that the proceedings were untenable or not maintainable. Nor am I satisfied that he continued this proceeding knowing that they were untenable or not maintainable. I am not satisfied that he delayed or otherwise abused the Court’s processes in the prosecution of these proceedings. I cannot find on the evidence before me, without having a trial, whether his claim lacked merit to the extent that it would be proper to mulct the first defendant in costs. In other words I am not satisfied on the material before me that this is a case where there ought to be a departure from the usual order as to costs.
In those circumstances I make an order that the first defendant should pay the plaintiffs’ costs on a party and party basis.

[2001] SASC 233

20 July 2001