Financial Ombudsman Services Ltd v Utopia Financial Services Pty Ltd
[2016] WASC 55 (S)
•3 MAY 2016
FINANCIAL OMBUDSMAN SERVICES LTD -v- UTOPIA FINANCIAL SERVICES PTY LTD [2016] WASC 55 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 55 (S) | |
| Case No: | CIV:1312/2013 | ON THE PAPERS | |
| Coram: | LE MIERE J | 3/05/16 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Defendant to pay costs of plaintiff in relation to orders of 18 February 2014 on indemnity basis | ||
| B | |||
| PDF Version |
| Parties: | FINANCIAL OMBUDSMAN SERVICES LTD UTOPIA FINANCIAL SERVICES PTY LTD SHELLEY CRADDOCK |
Catchwords: | Costs Indemnity or party and party Principles applicable to award of indemnity costs Indemnity costs awarded Turns on own facts |
Legislation: | Income Tax and Assessment Act 1936 (Cth) Superannuation Industry (Supervision) Act 1993 (Cth) |
Case References: | Financial Ombudsman Services Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55 Jones v Jones [2009] VSC 292 Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S) |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
UTOPIA FINANCIAL SERVICES PTY LTD
First Defendant
SHELLEY CRADDOCK
Second Defendant
Catchwords:
Costs - Indemnity or party and party - Principles applicable to award of indemnity costs - Indemnity costs awarded - Turns on own facts
Legislation:
Income Tax and Assessment Act 1936 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
Result:
Defendant to pay costs of plaintiff in relation to orders of 18 February 2014 on indemnity basis
Category: B
Representation:
Counsel:
Plaintiff : No appearance
First Defendant : No appearance
Second Defendant : No appearance
Solicitors:
Plaintiff : Arslan Lawyers
First Defendant : Coulson Legal
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Financial Ombudsman Services Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55
Jones v Jones [2009] VSC 292
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S)
- LE MIERE J:
Judgment for specific performance
1 The plaintiff, FOS, sought an order for specific performance of its contract with the first defendant, Utopia, requiring Utopia to pay compensation to the second defendant, Dr Craddock, or her account in her nominated superannuation fund in accordance with determinations made by FOS. FOS is a company that provides an external dispute resolution service for the financial services industry and made the determinations to resolve complaints against Utopia by Dr Craddock. Utopia resisted an order for specific performance on a number of grounds. After trial I found that FOS was entitled to an order that Utopia specifically perform its contract with FOS by paying to Dr Craddock the compensation directed to be paid by the determinations: Financial Ombudsman Services Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55. On 24 February 2016 I made orders that Utopia specifically perform its contract with FOS by paying compensation to Dr Craddock or the account in her nominated superannuation fund and ordered Utopia to pay FOS's costs including reserved costs on a party-party basis save for the costs ordered to be paid by Utopia to FOS in par 3 of the orders I made on 18 February 2014. I ordered the question of whether the 18 February 2014 costs should be paid on a party-party or indemnity basis be determined on the papers. I have decided that Utopia should pay those costs on an indemnity basis for the following reasons.
18 February 2014 costs
2 On 18 February 2014 I made orders by consent. I ordered that Utopia's Third Amended Defence and Counterclaim be struck out with leave to replead. I made the following relevant orders in relation to costs:
3. The First Defendant pay the plaintiff's costs of the Strike Out Application and the plaintiff's costs thrown away in relation to the First, Second, Third and Fourth Amended Defences and Counterclaims to be taxed if not agreed.
4. The basis on which the costs in Order 3 are to be paid, whether on an indemnity basis or a party-party basis are reserved.
3 The events leading to those orders is set out in the chronology of events at par 6 of the affidavit sworn on 4 March 2016 by April Arslan, the solicitor for FOS. I will not unnecessarily lengthen these reasons by repeating that chronology beyond the following observations. Utopia filed its defence on 4 April 2013. FOS requested particulars of Utopia's defence and complained that parts of the defence were liable to be struck out as defective. Over the following months Utopia provided some particulars of defence requested by FOS but other requests remained unanswered or were refused on the basis that it was not a proper request. Utopia filed an amended defence and counterclaim and FOS filed a reply and defence to counterclaim. FOS requested particulars of Utopia's amended defence and counterclaim. Utopia said that instead of providing the requested particulars it would amend its pleadings. During 2013 Utopia amended its pleadings and foreshadowed amendments. There was delay in dealing with Utopia's amended pleadings and FOS's objections to them because of the unavailability of Utopia's solicitors and counsel.
4 On 27 October 2013 Utopia filed its Third Amended Defence and Counterclaim. On 7 November 2013 I made directions for the hearing of an application by FOS to strike out the Third Amended Defence and Counterclaim on 17 November 2013. On 9 December 2013 Utopia's solicitors requested that FOS agree to adjourn the strike out hearing to enable Utopia to retain senior counsel. The strike out application was adjourned to 4 February 2014 so that Utopia could retain senior counsel. On 4 February 2014 Utopia's solicitors sought a further adjournment. Utopia's solicitors said that Mr Peter Quinlan SC advised to replead the defence and counterclaim in its entirety. Utopia's solicitors advised that 'upon review of the pleadings the Third Amended Defence and Counterclaim do not in fact accurately reflect our client's position in the matter'. On 18 February 2014 the 18 February 2014 costs orders were made by consent. A Substituted Defence and Counterclaim were filed and served on 2 April 2014.
Affidavit filed by Utopia
5 On 24 February 2016 I made orders that FOS file and serve written submissions by 4.00 pm on 4 March 2016 and Utopia file and serve responsive submissions by 4.00 pm on 16 March 2016. I did not give directions for the filing of affidavits. Notwithstanding that, FOS's solicitors filed the affidavit of Ms Arslan to which I have referred. In their terms the orders I made on 24 February 2016 did not give FOS leave to file any affidavit. However, FOS's solicitors may well have regarded, although incorrectly, the affidavit of Ms Arslan to form part of its submissions. Ms Arslan's affidavit summarises relevant communications between the solicitors for Utopia and the solicitors for FOS and the procedural steps taken by the parties in the course of this action. In its written submissions Utopia notes that Ms Arslan's affidavit was filed without leave but Utopia does not suggest that any of the matters stated in Ms Arslan's affidavit are not correct. In the circumstances I will give retrospective leave for FOS to file the affidavit of Ms Arslan.
Legal principles
6 Relevant principles applicable to an award of indemnity costs in cases other than arbitrations are summarised in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S) referred to by Utopia in its written submissions. Those principles include:
1. An indemnity costs order is an exceptional order, and there must be some special or unusual feature of a matter to justify the making of such an order, such as some element of improper, or at least, unreasonable, conduct by a party or the party's legal advisers.
2. It is sufficient to enliven the discretion to award indemnity costs if a party persists in what should on proper consideration be seen to be a hopeless case: J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301.
3. The categories in which the discretion may be exercised are not closed.
4. There is a need to balance competing principles in assessing the making of a potential award of indemnity costs, as outlined in Quancorp Pty Ltd & Anor v MacDonald & Ors [1999] WASCA 101 ('Quancorp'). When referring to the competing principles, Quancorp provides that it is 'inappropriate that a case be too readily characterised as "hopeless" so as to justify an award of indemnity costs to the successful party': at [7].
5. An indemnity costs order may be appropriate in situations, which are shown to involve some element of improper, or at least unreasonable, conduct by a party or the party's legal advisers, and an indemnity costs order will constitute an appropriate sanction marking the disapproval of improper or unreasonable conduct.
6. The mere fact that a party advances an argument which a court considers unmeritorious will not usually be sufficient to provide a foundation for an indemnity costs order: Swansdale at [12].
Grounds for indemnity costs order
7 FOS advances two grounds for making an indemnity costs order. First, Utopia's conduct was unreasonable and productive of delay and additional cost. Secondly, Utopia pleaded and persisted in hopeless defences. FOS submits that Utopia's conduct, as disclosed in the chronology of events contained in Ms Arslan's affidavit demonstrates a reckless, if not wilful, failure to comply with court ordered or agreed deadlines for the filing of pleadings or submissions or apparent unavailability to appear at directions or hearing dates, such that the proceeding did not meaningfully progress for almost one year. I agree. Utopia's conduct was unreasonable. Parties are obliged to conduct litigation so as to avoid delay and the unnecessary incurring of costs. Utopia's conduct required FOS to expend time and costs as well as the time of the court to deal with challenges to its pleading. In the end, Utopia repleaded its case and stated:
The Third Amended Defence and Counterclaim does not in fact accurately reflect our client's position in the matter.
- The pleading should not have been filed and served and at the first opportunity when it was challenged it should have been withdrawn and repleaded. Instead, a lengthy and protracted expenditure of time and legal costs was incurred by FOS. That is a reason for an indemnity costs order.
8 Secondly, parts of the Third Amended Defence and Counterclaim were untenable and should not have been pleaded. The pleading alleged that Utopia was not obliged to implement the Determinations as this would constitute 'involvement' for the purposes of s 194 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and would 'thereby expose Utopia to liability or potential liability pursuant to the SIS Act'. The alleged contravention of SIS Act s 109 was the sale by Benchtop Productions to Dr Craddock in 2010 of units in the SHF Property Trust at undervalue. To be involved in such a contravention requires the person's conduct to either preceed or be contemporaneous with the principal contravention. Any payment of compensation or taking of an assignment of the units by Utopia pursuant to the Determinations would occur years after the alleged contravening conduct. Utopia's compliance with the Determinations could not constitute involvement with the contravention. The Third Amended Defence and Counterclaim further alleged that compliance with the Determinations would require Utopia to make payments which would facilitate the avoidance of tax and therefore, the directions made in the Determinations are void for illegality. A contract entered into in order to avoid tax contrary to pt IVA of the Income Tax and Assessment Act 1936 (Cth) is not void for illegality: Jones v Jones [2009] VSC 292 [67] - [72]. Those defences were withdrawn by Utopia. In effect, Utopia accepted that they were untenable.
9 Utopia persisted with its defences after it had been warned that they were untenable.
Conclusion
10 FOS's costs ordered to be paid by Utopia by par 3 of the orders made on 18 February 2014 should be paid on an indemnity basis. That is, the first defendant should pay all the costs of the strike out application incurred by the plaintiff and the plaintiff's costs thrown away in relation to the First, Second, Third and Fourth Amended Defences and Counterclaims except insofar as they are of an unreasonable amount or have been unreasonably incurred, so that subject to those exceptions the plaintiff is completely indemnified by the first defendant for those costs.
0