Farrow Mortgage Services Pty Ltd & Ors v Clayton Utz)

[1996] QSC 137

IN THE SUPREME COURT

OF QUEENSLAND

No. 1721 of 1993

Brisbane

Before the Hon Justice White

[Farrow Mortgage Services Pty Ltd & Ors v. Clayton Utz)]

BETWEEN:

FARROW MORTGAGE SERVICES PTY LTD (in liquidation)
  (A.C.N. 006 125 757)
  PYRAMID BUILDING SOCIETY (in liquidation)
  GEELONG BUILDING SOCIETY (in liquidation)
  COUNTRYWIDE BUILDING SOCIETY (in liquidation)

Plaintiffs

AND:

CLAYTON UTZ (a firm)
  Defendant

REASONS FOR JUDGMENT - WHITE J

Delivered 18/03/1996

CATCHWORDS:     Costs

Submissions in writing

Solicitors:Corrs Chambers Westgarth for the plaintiffs

Mallesons Stephen Jaques for the defendant

Clayton Utz for Jefflane Pty Ltd

IN THE SUPREME COURT

OF QUEENSLAND

No. 1721 of 1993

Brisbane

[Farrow Mortgage Services Pty Ltd & Ors v. Clayton Utz)]

BETWEEN:

FARROW MORTGAGE SERVICES PTY LTD (in liquidation)
  (A.C.N. 006 125 757)
  PYRAMID BUILDING SOCIETY (in liquidation)
  GEELONG BUILDING SOCIETY (in liquidation)
  COUNTRYWIDE BUILDING SOCIETY (in liquidation)

Plaintiffs

AND:

CLAYTON UTZ (a firm)
  Defendant

REASONS FOR JUDGMENT - WHITE J

Delivered 18/03/1996

Farrow sought an injunction to restrain the defendant firm from continuing to perform its retainer as solicitors for its client Jefflane and certain of Jefflane's guarantors.  Farrow was unsuccessful in obtaining an injunction although undertakings were required from persons in or associated with the Firm.  Submissions as to how the costs ought to be borne were received from the parties and from Jefflane which was not a party to the action.
           The Firm seeks its costs from Farrow on the ground that it is the successful party to the litigation.  Farrow submits that it was successful on so many issues that were raised in the action, even if ultimately it was not successful in obtaining the relief sought, that the Firm ought to pay its costs and further submits that a substantial portion of those costs ought to be paid on a solicitor and client basis.  Jefflane seeks its costs from Farrow although not a party to the action.
           Order 91 rule 1 of the Rules confers on the court a general discretion to award costs in all proceedings before the court, Knight v. FP Special Assets Ltd (1992) 174 C.L.R. 178. The discretion to award costs was described in Donald Campbell & Co v. Pollak [1927] AC 732 as absolute and unfettered but which must be exercised judicially not arbitrarily or capriciously and which may not be exercised on grounds unconnected with the litigation. Toohey J in Hughes v. Western Australian Cricket Association (Inc) & Ors (1986) ATPR 40-748 summarised the effect of Australian and English decisions concerning the principles and practice to be applied in respect of orders for costs at p. 48, 136:

"1.       Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order.  Ritter v. Godfrey (1920) 2 K.B. 47.

2.       Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.  Forster v. Farquhar (1893) 1 Q.B. 564.

3.       A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them.  In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law.  Cretazzo v. Lombardi (1975) 13 S.A.S.R. 4 at p. 12."

That summary of principle has regularly been referred to in subsequent cases, e.g. Queensland Wire Industries Pty Ltd v. Broken Hill Pty Co Ltd (1987) 17 FCR 211; Inn Leisure Industries Pty Ltd v. DF McCloy Pty Ltd (1991) 28 FCR 172; and Cummings v. Lewis (1993) 41 FCR 559.
           Whilst accepting the principle derived from Cretazzo v. Lombardi, supra, that a successful party may be ordered to pay the costs of the opposite party in respect of issues on which it has wholly failed, courts have regularly referred to the comment of Jacobs J in that case at p. 16 where his Honour sounded

"a note of cautious disapproval of applications ... to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial".

His Honour went on to observe,

"But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law.  The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case.  There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of issues, and no two cases are alike.  I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues."

There is a generally accepted view that if costs are to be apportioned based on success with respect to issues it would be unsatisfactory to leave the fixing of costs of those issues to the taxing officer.  It is recognised that it would impose both a great burden on that officer and add substantially to the costs of an action.  Accordingly where it is thought that a successful plaintiff should not have the whole of its costs the orders have tended to be framed in percentage terms, Inn Leisure Industries, and Cummings.
           It is unnecessary to canvass the issues which were litigated in the action again as they are set out fully in the reasons for judgment.  The issues for consideration and decision in the action as identified in the reasons were

•Did the Firm receive confidential information from Farrow in the course of its retainer such as might be relevant to Jefflane's action against Farrow;

•The scope of the obligation owed by the Firm to Farrow;

•The question of the clearance and its extent by Farrow to the Firm;

•The isolation of the confidential information within the Firm and the undertakings offered;

•How ought the discretion as to the injunction be exercised bearing in mind questions of delay on the part of Farrow and the adverse effect upon Jefflane and the guarantors.

The first four matters were effectively resolved in favour of Farrow.  It was with respect to the discretionary factors involved in the granting of the injunction that Farrow was unsuccessful.  This was based on knowledge of the conflict of interest by Farrow strictly from as early as mid-1991 but certainly from November 1992 by Mr Edge and Farrow's failure to issue the writ seeking injunctive relief until November 1993 in the certain knowledge that the Firm had continued to act throughout for Jefflane.  A factor in the exercise of the discretion not to enjoin the Firm from acting for Jefflane was the proper conduct of Jefflane through its officers in respect of the issue of conflict weighed against the delay of Farrow.
           The hearing of the action occupied four days.  Evidence in chief was given by way of affidavit some of which were of considerable length.  Numbers of the deponents were required for cross-examination.  The court hearing time was devoted largely to the question of the clearance and the question of delay by Farrow although considerable reading time was devoted to the issue of confidential information.  Solicitors in the relevant sections of the Firm were cross-examined with respect to working practices which were put in place to avoid the inadvertent or deliberate exchange of impugned confidential information.
           Since the unsuccessful party has sought its costs and since that is a departure from the usual practice it is convenient to deal with Farrow's submissions as to why it should have those costs.  Farrow submits that it was successful on four out of five major issues and a considerable amount of court time was occupied with the determination of certain issues which it ought not to have been necessary to litigate in the light of prior correspondence.  Approximately a month prior to the hearing Farrow's solicitors supplied the Firm with a copy of the decision in Farrow Mortgage Services Pty Ltd v. Mendall Properties and indicated that as a consequence of that decision conflict was clearly made out.  The solicitors asked if the hearing of the action could then be restricted to the question of the clearance.  The Firm's solicitors declined to limit the hearing in that way.  Farrow submits that a greater part of the court time was spent on matters in which Farrow was successful and for those reasons not only ought it to have all of its costs but in view of the request to limit the matters for hearing, it ought to have its costs on a solicitor and own client basis in respect of those matters not relating to the question of the clearance or delay.
           The Firm in it submissions points to the fact that it did not dispute that it had received confidential information from Farrow and had conceded as much in Mr Harley's letter to Farrow of 3 February 1993.  The Firm submits, correctly in my view, that it was necessary to canvass the nature and the extent of the confidential information at the hearing of the action since the nature of that confidential information would necessarily have a bearing upon whether or not an injunction would issue.  There was, apparently, some difficulty associated with access to various files upon which Mr Harley's group within the Firm had worked and there was some difficulty in recalling particulars of certain confidential information.  However, in view of the admission in February 1993 and the decision in Mendall Properties it ought not to have been necessary to have such an extensive and detailed examination of the issue of confidentiality by Farrow.
           The Firm points to the offer of undertakings made by Mr Harley in his letter of 3 February 1993 to which there was no response either then or after a further letter on 17 June 1993.  There was no particular reason why Farrow ought to have accepted undertakings in lieu of an injunction which was clearly its object and, had it applied promptly, it may well have achieved its object.  The undertakings offered by the Firm to Farrow differed very little from those proposed by the court.
           Farrow has submitted that considerable court time was taken up by the issue of the clearance.  The Firm, on the other hand submits that a great deal of time was taken in exploring whether the conversation actually occurred and that there was no finding that it had not but rather the findings went to its extent.  I think it cannot be approached in that fashion.  The question of the clearance and all the surrounding circumstances pertaining to it needed to be canvassed in order to appreciate the lack of frankness on the part of Mr Harley in respect of that matter with Farrow.
           At the conclusion of my reasons I made some preliminary proposals with respect to the costs of this matter and suggested that subject to submissions as to costs it may not be inappropriate to order that the Firm pay Farrow something in the vicinity of 50% of its taxed costs.  There is no doubt that in making that proposal I was unduly influenced by my perceptions of Mr Harley's conduct in this matter.  Had he conducted himself in respect of his obligations to Farrow and, indeed, to the Firm's other client, Jefflane, as I found that he ought, then this situation would never have arisen.  However a review of the authorities suggests that in making that proposal I moved away from the basic principles which apply as to costs.
           In Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 the trial judge ordered, inter alia, that the successful petitioners in oppression proceedings pay three-quarters of the costs of one of the unsuccessful respondent majority shareholders. The hearing lasted 43 days and the petitioners failed in three of the four major issues identified by the trial judge. The Court of Appeal allowed the appeal by the petitioners and ordered that they be entitled to one half of their taxed costs. Nourse L.J. with whose reasons Stocker and Beldam L.J.J. agreed said at p. 1214

"The general rule [as to costs] does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or part of his costs ... Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party's costs."

The latter proposition is recognised in the English RSC Ord. 62 r.10.  Of that Nourse L.J. observed that it implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party's costs.  Although those observations mirror the English rules, nonetheless, the principle is, in essence, recognised in observations by Bray C.J. in Cretazzo v. Lombardi, supra, at p. 12 and Cooper J. in Cummings v. Lewis, supra, at p. 603.  In T.P.C.V. Nicholas Enterprises Pty Ltd (No 3), (1979) 42 FLR 213 Fisher J considered that the discretion to award costs in whole or in part to an unsuccessful party should be exercised only in "the most exceptional circumstances". Anderson J. in Permanent Building Society v. Wheeler (No 2) (1992) 10 WAR 569 was of a similar view at p. 574. In Gupta v. Klito unreported decision of the Court of Appeal of 7 November 1989, referred to in Elgindata at pp. 1215 and 1217 Mustill LJ described such an order as an "extreme sanction."  I have come to the conclusion that the matters raised by Farrow are not "exceptional circumstances" such as to cause the successful defendant to pay any part of the costs of the unsuccessful plaintiffs.  There was no unreasonable pursuit of issues by the defendant.  It follows that there is no need to consider the question of solicitor and own client costs.  Nonetheless I do not think that justice will be served by requiring Farrow to pay the whole of the Firm's costs of and incidental to the action.
           In Hughes v. Western Australian Cricket Association, supra, where the plaintiff succeeded on only a very few causes of action but ultimately achieved the result desired Toohey J ordered that he was entitled to 75% of his costs.  This was the same proportion that French J ordered in Inn Leisure Industries Pty Ltd v. DF McCloy Pty Ltd (No 2), supra, where an applicant succeeded but only on one ground out of four.  In Cummings v. Lewis, supra, the successful respondents received a half and three quarters of their costs respectively because they had unreasonably prolonged the trial by denying that certain statements had been made when, as was found, they knew that the statements had been made.
           There appears to have been more expenditure than was necessary on the issue of confidential information.  There could have been something akin to agreed facts on this matter.  On all but the issue of delay the Firm was unsuccessful.  Whilst recognising that a fractional or percentage figure has an air of arbitrariness about it I would propose that Farrow pay two-thirds of the Firm's costs of and incidental to the action.
Jefflane's Costs
           Jefflane was not a party to the action.  It was very clearly a person interested in the outcome of the application however it took the view that it was inappropriate that it be a party in view of confidential material which would need to be laid before the court.  Jefflane appeared on the first morning of the hearing to indicate through counsel that it wished to make submissions in respect of this matter but otherwise not to be involved in the action.  There was no opposition to that course by counsel for Farrow, again, I think, a clear recognition of the inherent difficulty of appearing as party in this matter in which in other circumstances it would be a proper party.
           Order 91 rule 1 of the Rules has been held to be sufficiently expansive to enable a court to make an order for costs against a person, whether that person is formally a party to the proceedings or not Knight v. FP Special Assets Ltd, supra. Mason CJ and Deane J at p. 185 and Dawson J at p. 203 considered the rule wide enough to encompass an order for costs in favour of a non-party, although those observations were made in passing. Mason CJ and Deane J noted that s.1 of the Judicature Act of 1876 defines "party" to "include every person served with notice of or attending any proceeding although not named on the Record".  If Order 91 rule 1 is wide enough to permit orders against a non-party there seems no basis for arguing that it may not permit orders in favour of a non-party against a party.
           The true contest is between Farrow and Jefflane.  Farrow has advanced no substantive reasons why it should not pay Jefflane's costs merely observing that it made a limited appearance confined to a brief appearance on the first day and for the purpose of making submissions on the last day.  The Firm indicated in February 1993 that it would continue to act for Jefflane and in its submissions as to costs it states that in its conduct of the litigation it was mindful of the prejudice to Jefflane of the orders sought by Farrow.  No considerations which would call for an apportionment of Jefflane's costs arise.  Farrow has not submitted that there could be no justification for Jefflane being separately represented and, by virtue of the issue of confidentiality, it was not appropriate that there should be joint representation.  Nonetheless when the Firm was represented by  senior and junior counsel and could be expected to deal fully with matters of principle, the need for Jefflane to be represented by senior counsel and a very able senior junior is not apparent.  The important matters for Jefflane to place before the court were its own conduct at the commencement of the retainer concerning the Police Barracks/Farrow matter and the prejudice which it might suffer if the injunction issued.  These are matters which the taxing officer might take into account.  Accordingly Farrow should pay Jefflane's costs.
           The formal orders are:

•the plaintiffs pay two-thirds of the defendant's costs of and incidental to the action to be taxed;

•the plaintiffs pay Jefflane's costs of and incidental to its participation in these proceedings to be taxed.