Compaq Computer Australia Pty Ltd v Merry, Howard

[1996] FCA 448

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION  No NG 520 of 1994

BETWEEN:

COMPAQ COMPUTER AUSTRALIA PTY LIMITED

Applicant

-and-

HOWARD MERRY
  First Respondent
  DAVID PAYES
  Second Respondent
  COLIN BUNNETT
  Third Respondent
  MICHAEL SHARP
  Fourth Respondent
  ROBERT BASSAT
  Fifth Respondent
  ALAN JEFFREY KRASS
  Sixth Respondent
  IAN HORMAN
  Seventh Respondent
  GREG THOMSON
  Eighth Respondent

Coram:    Olney J

Place:    Melbourne

Date:     3 June 1996

REASONS FOR JUDGMENT
This proceeding was commenced on 17 August 1994 in the New South Wales Registry of the Court.   It was later transferred to the Victoria Registry.   There have been numerous interlocutory proceedings along the way mainly involving applications on the part of the applicant to amend its statement of claim.   At this stage defences have yet to be filed although an extensive process of discovery has already been undertaken.   Various orders for costs in favour of the respondents have been made and it is in relation to those orders that the two groups of respondents (ie the respondents
other than the fifth respondent for whom Mr Glick appears and the fifth respondent for whom Mr Dreyfus appears) have moved the Court for orders first that the respondents be entitled to now tax the costs awarded to date and that some of those costs be taxed on an indemnity basis.   There is also another matter before the Court which I will deal with later.

Order 62 r 3(3) of the Federal Court Rules provides:

3(3)An order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded or further order.

This provision was inserted in the Rules by Statutory Rules No 102 of 1990 and came into effect on 4 June 1990.

There is very little judicial authority concerning the manner in which the discretion conferred by O 62 r 3(3) should be exercised and in such circumstances it is always a matter of some concern that the only reported authority on the question is a decision of oneself.   However, having had the opportunity to consider the context of the subrule, I am of the same opinion now as I was in 1992 when I said in Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd 36 FCR 297 at 312:

...The rule does not suggest any particular criteria by which the court should be guided in approaching such an application, and accordingly I take the view that the discretion should be exercised in favour of a party who establishes that the demands of justice require that there be a departure from what appears to be the general practice envisaged by the rule, namely, that an order for costs of an interlocutory proceeding shall not entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded.

The applicants' case for an order under r 3(3) is that they have already become entitled to the payment of substantial costs whatever the outcome of the proceeding, and this by reason of the manner in
which the respondents' case has been conducted thus far.   It is said that the justice of the case demands that the respondents should have to pay now rather than later.   Except that the amount of costs involved is likely to be quite substantial, the applicants have not sought to distinguish this case from any other case.   On the other hand, the respondents counter by asserting that they are likely, if not certain, to finish up with an order for costs against the applicants and that it would be unjust, given the uncertain financial standing of Zedback, to require the respondents to pay their liability now and possibly, at the end of the day, be left with an unsatisfied order for costs in their own favour.

In the facts of the case in Thunderdome I declined to order the immediate taxation of costs but I am satisfied that the general thrust of the reasoning remains sound.   This conclusion is consistent with a decision of the Full Court (Lockhart, Lindgren and Tamberlin JJ) in Allstate Life Insurance Co v ANZ Bank (unreported NG 381 of 1994;  17 August 1995).

It is entirely unsatisfactory that an applicant should occupy something like 20 months to get its statement of claim in order.   It is clear that the applicant's case had not been properly researched before proceedings were instituted and that all available means of evidence gathering had not been availed of in anticipation of the proceeding.   It is true that not all of the delay can be held against the applicant but it is equally true that little, if any, can be held against the respondents.   I do not think that it is ever a fruitful exercise to try to apportion responsibility when proceedings founder but it is appropriate in a case such as this to observe that the respondents have been involved in this proceeding from the outset, that the proceeding has a long way to go before it can come to trial and that the respondents along the way have had to foot the bill for various interlocutory proceedings for which the Court has from time to time considered they are entitled to recover their costs.

In this case, the time which has been occupied thus far in the proceeding, the further time which is likely to be involved before the matter is resolved and the multiplicity of costs orders made in favour of the respondents are factors which indicate to me that justice demands that the general rule which is evidenced by O 62 r 3(3) should be departed from and that the respondents be entitled to tax and be paid all costs awarded in their favour in interlocutory proceedings already determined.

The occasions for awarding costs on the basis of a full indemnity or on the basis of costs as between solicitor and client ought to be rare and this is particularly so in respect of interlocutory procedures in a proceeding which is some considerable distance from being ready for trial.   In Elliott v Seymour (Federal Court VG 411/93;  18 March 1994) Foster J adopted the same approach in a case where there had been numerous applications which were more than "mere interlocutory skirmishes".   A party who alleged that the interlocutory proceedings brought against him were an abuse of the processes of the Court sought costs on an indemnity basis but Foster J, having observed that the matters in issue had not been finally determined, was of the view that it would not be appropriate to do so in relation to the interlocutory proceedings.
In Colgate-Palmolive Company Limited v Cussons Pty Limited 46 FCR 225, on an application by a successful respondent that it be entitled to costs on an indemnity basis Sheppard J set out at 232-5 the principles or guidelines which he had distilled out of various authorities to which he had made reference. Amongst the classes of cases in which the circumstances have been thought to warrant the exercise of the discretion to award costs on an indemnity basis he mentions the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud and the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions. All of these categories are relied upon particularly by the fifth respondent. However his Honour concluded his analysis of the cases at 234 with the statement:

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.   Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.

In my opinion except in the clearest cases of abuse of process or oppression the Court ought to be slow to award costs on an indemnity basis in relation to interlocutory proceedings.   In many cases only the ultimate trial judge will be in a position to make a considered judgment as to the proper exercise of the discretion to award costs and to determine the basis on which same are to be assessed and to fetter that discretion by the making of the type of order now sought may in many cases not
produce a just result.

For these reasons the costs to which reference is made earlier in these reasons should be taxed on a party and party basis.  There should be no order for costs on the respondents' motions.

The remaining matter for consideration is an application by the fifth respondent to strike out the amended statement of claim insofar as it affects the fifth respondent.   The strike out application was first made by motion filed on 22 September 1995 but it was not proceeded with whilst other matters relating to the statement of claim were under consideration by the Court.

On 26 March 1996 I granted the applicant leave to further amend the statement of claim.   The circumstances in which that application came before the Court are set out in the reasons published on 26 March 1996 and it is not necessary to repeat here what has previously been said.   It is sufficient to say that the proposed amendments were unsuccessfully opposed by both groups of respondents except as to one aspect of the proposed amendment for which I refused leave to amend.   In the concluding paragraph of my reasons I said:

The respondents have emphasised that their opposition to the present motion should not be regarded as an abandonment of other motions which presently stand adjourned whereby they seek orders striking out the statement of claim.   In view of the leave to amend which the applicant has now obtained the respondents will have leave to amend their pending strike out motions so as to refer to the statement of claim as further amended pursuant to this decision.

Following the orders made on 26 March 1996 the applicant filed a further amended statement of claim which was consistent with the leave granted to it and on 7 May 1996 the fifth respondent filed the strike motion.   The group of respondents for whom Mr Glick appeared did not take similar action and at the hearing on 9 May 1996 counsel indicated that his clients were now prepared to plead to the statement of claim.

The fifth respondent proceeded to advance a case in support of his motion of 7 May 1996.   I do not propose to canvass the arguments put by counsel as they were the same arguments as were put at the previous hearing in opposition to the application for leave to amend.   That application was dealt with on its merits and if the fifth respondent is dissatisfied with the outcome, as apparently he is, his remedy is to seek leave to appeal.

The order made on 26 March 1996 giving the respondents leave to amend their existing strike out applications was made out of an abundance of caution and in response to the express assertions made by the respondents' counsel that they had not abandoned the earlier motions seeking to strike out the statement of claim.   Conceivably the respondents may have wished to raise issues which had not been raised on the application for leave to amend and I was anxious that they not be denied a legitimate opportunity to raise any such issues.   But as it happened no issues which were not encompassed by the opposition to the application for leave to amend have been raised.   The fifth respondent's motion of 7 May 1996 will be dismissed with costs.

At the hearing of the motion counsel appearing for the applicant said that he would want to be heard on the question of costs in relation to the strike out motion and indicated that the question of full indemnity costs may be a live issue so far as his client is concerned.   Although I am prepared to hear the parties on this question, consistent with what has been said earlier in these reasons, I would be reluctant to make an order for indemnity costs on this type of application.

I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

Associate:

Dated:

Heard:    9 May 1996

Place:    Melbourne

Judgment: 3 June 1966

Appearances:

Mr B. Jopling (instructed by Ebsworth & Ebsworth) appeared for the applicants.

Ms L. Glick (instructed by Abbott Stillman & Wilson) appeared for the respondents other than the fifth respondents.

Mr M. Dreyfus (instructed by N. Bassat) appeared for the fifth respondent.