Community Corporation 41170 Inc v Ceg Direct Securities P/L (No 3) - [2019] SADC 198

District Court of South Australia
(Civil: Application)
COMMUNITY CORPORATION 41170 INC v CEG DIRECT SECURITIES P/L (No 3)
[2019] SADC 198
Judgment of His Honour Judge Slattery (ex tempore)
9 December 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS
Following the prosecution of its claims and after delivery of judgment in the second action between these parties ([2019] SADC 197), the plaintiff seeks an order for indemnity costs on 3 bases:
i. A contractual right arising under a bylaw of the plaintiff that binds the defendant;
ii. At common law as a matter of fairness; and
iii. At common law because the defendant abandoned its case at trial and should be taken to have known that it had no prospects of successfully defending the plaintiff’s claim.
The plaintiff also seeks a lump sum assessment of costs under 6DCCR 264(5)(c).
Held:
1. The plaintiff has a contractual right to an order for indmenity costs against the defendant;
2. The plaintiff has a common law right to an order for indemnity costs against the defendant because the defendant knew or ought to have known that it had no prospect of successfully defending the plaintiff’s claim;
3. It is appropriate for the court to exercise its discretion to make a lump sum order for costs.
Community Titles Act 1996 (SA) s 3, s 114, s 142; District Court (Civil) Rules 6DCCR 264, referred to.
Fountain Selected Meats Pty Ltd v International Produce Merchants Pty Ltd. (1998) 81 ALR 397; Highfield Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd (No.2) [2012] SASC 191; Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225, discussed.

COMMUNITY CORPORATION 41170 INC v CEG DIRECT SECURITIES P/L (No 3)
[2019] SADC 198

In my judgment (No 2) in this action,[1] I delivered my reasons for my judgment on the substantive claims of the plaintiff and I have dismissed the counterclaim of the defendant. I have made an order for a judgment in favour of the plaintiff under s 114 or alternatively s 142 of the Community Titles Act in the amount of $123,590.24 and I have ordered that interest accrues at the rate of $15 per centum per annum.
[1] [2019] SADC 197.
I have received information from the plaintiff, which is not challenged by the defendant, that as at 20 November 2019 the total outstanding contributions of the defendant are $109,065, and the total interest amount is $13,673.64, in total $122,738.64. The interest incurred between 20 November 2019 and 9 December 2019 at the allowed interest rate for a period of 19 days is $851.60. From 9 December 2019, the total claim is $123,590.24. Interest on that amount is claimable at the rate of $50.79 per day in accordance with the terms of the orders that I have made.
The plaintiff has also now made an application for indemnity costs.
The plaintiff has prosecuted its claim in accordance with the court’s directions made before trial but there has been no case put by the defendant. The defendant did not cross-examine any witnesses, it did not open nor make any closing submissions and it has made no submissions at all. The defendant did not challenge any of the evidence led by the plaintiff. That this would be the case did not come known until the morning of the first day of trial and that factual situation is important in the context of the matters that I am asked to decide in relation to the application for indemnity costs.
The plaintiff puts its application for indemnity costs on three bases. The first is a contractual basis. In my judgment, I have described the requirements of the by-laws and the binding nature of those by-laws upon each of the lot holders of the corporation. As an owner, each lot holder, that is each owner, is bound by the terms of the by-laws and is required to observe their terms. The by-laws therefore have contractual force as between the owners and the corporation.
In my judgment, I distinguished the position of, for example, a shareholder of a corporation under the Corporations Act 2001 (Cth). A shareholder of a corporation would not ordinarily be a debtor of a corporation except, for example, in relation to any unpaid share capital upon subscription for partly paid shares. However, in the usual course and absent any contractual liability, a shareholder of a corporation would not be so indebted.
The position is different under the terms of the Community Titles Act, for the reasons that I have already set out in judgment No 2. The by-laws of the corporation are a contractual code which binds both the corporation and the members of the corporation who are the lot owners. Paragraphs 29.1 and 29.2 of the by-laws provide as follows:[2]
29 CORPORATION COSTS AND EXPENSES AND CONTRIBUTIONS
29.1 A Strata Lot Holder or Occupier (which expression shall extend to a mortgagee in possession) must pay on demand any amounts owing to the Corporation and such amounts will be recoverable as a debt.
29.2 The Corporation may also recover from Strata Lot Holders or Occupiers the Corporation’s costs and expenses (on a full indemnity basis) incurred in recovering debts due by the Strata Lot Holder or Occupier.
[2] Exhibit P1, vol.1, p.137 et seq.
I am satisfied that under the content and operation of this by-law there is a contractual obligation upon this defendant to pay costs to the plaintiff on an indemnity basis. The position of the defendant here is no different from a mortgagor who has contractually bound itself to a mortgagee under a mortgage to secure the provision of finance, to pay the mortgagee indemnity costs on default. I am satisfied that the term has contractual force, it is binding upon the defendant and it entitles the plaintiff here to make a claim for indemnity costs.
The second basis raised by the plaintiff is said to arise from the nature of this Community Corporation. It was put that members must fully indemnify the plaintiff for costs if they are successful, subject to any order for recoupment of costs on party/party issues made by the court. As a result, some proportion of the costs must be paid by the members after having prosecuted successfully a claim against another defaulting member. Those costs to be paid are the difference between solicitor/client and party/party costs which is well recognised.
The proposition generally was that as a matter of fairness there should not be a call from the Corporation for an indemnity under the statute from members where the capital deficiency of the corporation is caused by the default of the breaching defendant. This situation will arise because the plaintiff corporation must fund the difference between its given costs and the amount recovered as party/party costs.
The third ground which may be described as the traditional ground of any application for an order made by a court for indemnity costs, is that the defendant has deliberately and contumaciously refused to make payments that are required of it and has forced the plaintiff to commence the proceedings. It then abandoned its pleaded case at trial, it led no evidence, it did not cross-examine any witnesses and it did not in any sense participate in the trial. This is said to be wrongful conduct. I now consider each of these grounds in turn.
I have already indicated that I accept the submissions of the plaintiff in relation to the contractual basis of the claim for indemnity costs, for the reasons that I have set out above. I am satisfied that contractually the plaintiff has a right to seek indemnity costs from the defendant.
In submissions, I was also taken to the minutes of at least two meetings of the plaintiff Corporation. The first are the minutes of the meeting of 23 November 2017 which are to be found in Exhibit P1, vol.3, tab 44 at p.424. These minutes reads as follows:
Recovery of Overdue Contributions/Levies
In accordance with s 114(7) of the Community Titles Act 1996 Whittles is authorised to take all necessary action, without the need for further authority, including instructing a debt recovery company to initiate legal proceedings against owners on behalf of Community Corporation ... when they are in arrears to recover overdue contributions and levies, penalties and recovery costs incurred.
Whittles charged the debtor for the issue of a first arrears notice (30 days or more overdue). Whittles then gave instructions to the debt recovery company which charged fees. Fees charged by the third party providers will be recovered from the debtor at cost per invoice.
The second are the minutes of the meeting of September 2019 held on 25 September 2019 at the office of Whittles. I refer to Exhibit P1 vol.3 tab 55 p.520. I am satisfied that this minute reflects the content of the by-laws and reflects para.29 of the by-laws. I am of the view that the minute itself does not create any contractual liability nor does it have contractual force, however, I am satisfied that the by-law itself has that contractual force.
The second ground is what I describe as a fairness basis. It assumes that the other lot owners who have paid should have a full indemnity for their costs. They should not be called upon to shoulder any burden of costs arising because of the well-known difference between party and party costs and solicitor/client costs. However, I am satisfied that this argument rises with no higher than a fairness ground and I find no point of distinction between this case and the usual case where a party and party costs order is made. This is because there is a common law presumption enshrined in the rules in favour of party/party costs and that presumption necessarily carries with it a level of unfairness in every costs order, which is the difference between party and party costs and a full indemnity for costs. That distinction remains and is consistent with the presumption in favour of party and party costs notwithstanding that difference. I am unable to identify any particular cost discretionary power arising merely upon those facts.
The third ground is that the defendant has deliberately and contumaciously denied the claim, forced on the proceedings and taken the matter to trial. It has then abandoned its pleaded case at trial, led no evidence, cross-examined no witnesses, put no submissions in response or in support and did not in any way participate in the trial. It maintained its denial of the operation of s 3 of the Act and therefore its denial of any aspect of ownership when it knew or ought to have known that it had no prospect of success.
I refer to Fountain Selected Meats Pty Ltd v International Produce Merchants Pty Ltd.[3] In that case Woodward J said at p 400:
The discretion on costs is absolute and unfettered but must be exercised judicially. Courts in Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases where there are some special or unusual feature in the case to justify the court exercising its discretion in that way. There must be some further factor which has influenced the exercise of the court's discretion. For example, allegations of fraud have been made knowing them to be false or which have been found to be irrelevant to the issues between the parties. 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.
[3] (1998) 81 ALR 397.
In my view and having regard to the content of my judgment (No 2)[4] an inference arises that the defendant knew that it had no prospect of successfully defending the plaintiff's claim, particularly based on s 3 of the Act and that it had no prospect of success upon its setoff and counterclaim.
[4] [2019] SADC 197.
Then, on the day of trial it abandoned its pleaded defence and counterclaim without any explanation. It refused contumaciously to comply with pre-trial directions of the Court. It was only represented at trial by a finance officer who could do no more than occupy a chair and it did not challenge any aspect of the plaintiff's case or put any positive case in defence or on the counterclaim. It may be assumed that it had no realistic chance of success on its defence or on its counterclaim.
In Highfield Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd (No.2),[5] Blue J held at [59]:
Indemnity costs may be awarded where a party properly advised should have realised that it had no realistic chance of success. Where a party abandons its case on the eve of trial it may be inferred that properly advised the party realised and ought always to have realised that it had no realistic chance of success (citations omitted).
[5] [2012] SASC 191, [59].
This case is slightly different but worse for the defendant. It did not abandon its case on the eve of trial but realistically abandoned its case on the first day of trial.
In Colgate-Palmolive Co & Anor v Cussons Pty Ltd[6] at [233] the trial judge Sheppard J in considering cases where an indemnity costs order may be made such that the court departs from the usual course of party and party costs and makes a higher order for costs, said at para [5]:
Notwithstanding the fact that it 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, 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 the 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, an imprudent refusal of an offer of compromise. Other categories of case 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.
[6] (1993) 46 FCR 225.
Under 6DCCR 264(1) I may exercise my discretion as to costs and award costs on any basis that I consider appropriate. I am required to observe the general rule set out in 6DCCR 264(2) that costs are to be awarded as between party and party (that is on the basis that the party entitled to the costs will be reimbursed for the costs reasonably incurred by the party in the conduct of the litigation to an extent determined by a reference to the scale of costs in force under these rules when the costs were incurred).
In exercising my discretion as to costs I may award costs as between solicitor and client on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation to the extent that the party entitled to costs shows them to have been reasonably incurred. Alternatively, I may award costs on the basis of an indemnity (that is on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation except to the extent that the party is liable for the costs shown to have been unreasonably incurred). In the further alternative, I may award costs on any other basis that I consider appropriate. I may also award costs by way of a lump sum.
I am satisfied on the authorities that bind me and particularly having regard to the very well-known decisions in Fountain Selected Meats and the Colgate-Palmolive cases and the decision of Blue J in Highfield that at common law there are two operating features which would justify an order for indemnity costs in this matter. The first is that the defendant knew or ought to have known that it had no prospect of successfully defending the plaintiff's claim, especially based on s 3 of the Community Titles Act and it had no prospect of success upon its set-off and counterclaim.
Married to those considerations I am satisfied of the following: on the day of trial it abandoned its pleaded defence and counterclaim without any explanation; prior to trial it had contumaciously refused to comply with the pre-trial directions of the Court; it did not make any challenge to any aspect of the plaintiff's case; and it did not put any positive case in defence or on the counterclaim. For those reasons, I am satisfied that it may be assumed that it had no realistic chance of success on its defence or on its counterclaim.
In the premises, for those reasons and in those circumstances, I am satisfied that the appropriate order for costs is costs on an indemnity basis, such that the plaintiff be fully reimbursed for the costs incurred by it in the conduct of this litigation.
The plaintiff then made submissions about the quantum of its costs. It reads the fourth affidavit of Caroline Ruth Christie sworn 9 December 2019. I am satisfied that the costs that have been claimed by the plaintiff reasonably seek a reimbursement for costs incurred by the plaintiff in the conduct of litigation and that those costs have been reasonably incurred both in amount and in relation to liability. In her affidavit, Ms Christie describes the solicitor's costs incurred up until today and she describes the counsel fees that have been incurred. In light of my knowledge of the matter having been appointed trial judge almost from the time this matter came into this Court, I am satisfied of the reasonableness of both the solicitor's charges and the charges of counsel.
The question for my consideration is what is the appropriate order having regard to the operation of 6DCCR 264(5)(c) and especially whether I should make an order for lump sum costs. In the exercise of any discretion, it is not necessary that I be satisfied that any assessment of the costs would be extremely complicated in any adjudication process. I have a broad discretion to be exercised judicially, I am satisfied that having regard to the position of the plaintiff and the defendant, the adjudication process will increase time and costs and that is inappropriate for all of the reasons that I have given, particularly in light of the way in which the defendant has conducted itself in these proceedings.
I consider that it is appropriate in the exercise of my discretion to adopt a broad-axe costs approach to minimise any further costs being incurred by the plaintiff in the adjudication of costs notwithstanding that I have formed the view that it would not necessarily be an extremely complicated adjudication process. However, that is only one of the considerations that I may take into account in the exercise of my discretion. Those matters that I have taken into account include the behaviour of the defendant in these proceedings and the fact that it may be assumed that it knew that it had no realistic chance of success on its defence and on its counterclaim. In any event, there is a contractual obligation under the bylaws to pay indemnity costs and that is a further reason why a lump sum order should be made.
In those circumstances and based upon the content of the affidavit of Ms Christie, I am prepared to make a lump sum order for costs as follows:
1Solicitor's costs $115,836.60 and disbursements, $3,117.12.
2Counsel fees $80,920.99.
3In total $199,874.71.
I so order.