Fingal Pastoral Pty Ltd v Page Seager Lawyers (No 2) - [2020] TASSC 40

[2020] TASSC 40

CITATION: Fingal Pastoral Pty Ltd v Page Seager Lawyers (No 2) [2020] TASSC 40

PARTIES:  FINGAL PASTORAL PTY LTD
  v
  PAGE SEAGER LAWYERS (A FIRM)

FILE NO:  922/2014
DELIVERED ON:  6 August 2020
DELIVERED AT:  Launceston
HEARING DATE:  By written submissions
JUDGMENT OF:  Pearce J

CATCHWORDS:

Procedure – Civil proceedings in State and Territory courts – Costs – Depriving successful party of costs – Conduct of party or proceeding – Generally – Failure to admit facts in a notice to admit certified as reasonable.

Supreme Court Rules 2000 (Tas), r 401.
Aust Dig Procedure [1542]

Procedure – Civil proceedings in State and Territory courts – Costs – Offers of compromise, payments into court and settlements – Offer of compromise or offer to settle or consent to judgment pursuant to rules – Generally – Tasmanian rules of no application to wholly successful defendant.

Supreme Court Rules 2000 (Tas), r 280.
Aust Dig Procedure [1581]

Procedure – Civil proceedings in State and Territory courts – Costs – Offers of compromise, payments into court and settlements – Informal offers and Calderbank letters – Unreasonable refusal of offer – Application by successful defendant for indemnity costs from refusal of offer – Refusal of offer not unreasonable at time of refusal.

Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31, 252 CLR 331, referred to.
Miwa Pty Ltd v Siantan Properties Pty Ltd(No 2) [2011] NSWCA 344, applied.
Aust Dig Procedure [1591]

REPRESENTATION:

Counsel:
             Plaintiff:  M G Roberts SC and K A Loxley
             Defendant:  S B McElwaine SC
Solicitors:
             Plaintiff:  Shields Heritage
             Defendant:  Shaun McElwaine + Associates

Judgment Number: [2020] TASSC 40
Number of paragraphs: 60

Serial No 40/2020
File No 922/2014

FINGAL PASTORAL PTY LTD (ACN 009 478 817)
v PAGE SEAGER LAWYERS (A FIRM) (ABN 37 078 672 294) (NO 2)

REASONS FOR JUDGMENT PEARCE J

6 August 2020

This is a decision about the costs of an unsuccessful action. In the action the plaintiff claimed damages from the defendant, a firm of solicitors, for breach of contract, negligence and misleading or deceptive conduct in the provision of legal advice. On 19 December 2019 I found that the plaintiff's action against the defendant failed: Fingal Pastoral Pty Ltd v Page Seager Lawyers [2019] TASSC 48. I dismissed the action and ordered that there be judgment for the defendant. These reasons should be read with my earlier reasons.
In the ordinary course, a successful party in litigation is entitled to an order that the unsuccessful party pay its costs of the action on a party and party basis. In this case both parties contend that I should depart from the usual order and make a costs order more favourable to that party:
· the defendant applies for a special order that the plaintiff pay solicitor and client costs, or alternatively indemnity costs, from 30 May 2018 when it filed and served an offer of compromise accompanied by a Calderbank offer. It also seeks an order that the defendant's costs be determined in a fixed amount;
· the plaintiff does not oppose an order that it pay a percentage of the defendant's costs. However it contends that all of the defendant's costs should be determined on a party and party basis, and either that it should only be required to pay 80% of those costs or, in the alternative, the defendant should be required to meet the costs incurred by the plaintiff in connection with some specified issues and matters.

The defendant's application

The power to award costs is a discretionary power. In this jurisdiction it derives from the Supreme Court Civil Procedure Act 1932 (the SCCP Act), s 12, and the Supreme Court Rules 2000 (the SCR), r 57. The SCCP Act, s 12(3), also provides for the award of costs "as between solicitor and client in any case in which such costs may be awarded by the Court or a judge thereof at the commencement of this Act." The discretion to award costs must be exercised judicially. The most important principle by reference to which the discretion is to be exercised is that the successful party is generally entitled to his or her costs by way of indemnity, or at least partial indemnity, against the expense of litigation that should not, in justice, have been visited upon that party: Northern Territory v Sangare [2019] HCA 25, 265 CLR 164 at [24]-[25] citing Latoudis v Casey (1990) 170 CLR 534 at 541-542, and at 558-559 and Oshlack v Richmond River Council (1998) 193 CLR 72 at 96 [65], 121 [134].
In Cretazzo v Lombardi (1975) 13 SASR 4, Bray CJ said at 11:
"I think the guiding principle still stands as it left the House of Lords in the famous case of Donald Campbell & Co v Pollack [1927] AC 732, that the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation."
The aim of awarding costs as between the parties to litigation is not punitive, but to compensate to at least some extent the successful party for the legal costs incurred by reason of the proceedings: Latoudis v Casey at 543, 562-563, 567; Oshlack v Richmond River Council at 75 [1], 89 [44], 97 [67], 102 [80], 103-104 [82], 121 [134]. The party and party basis of costs allows recovery of all costs, charges and expenses as were necessary or proper for the attainment of justice or for maintaining or defending the rights of any party, but not costs that were not so necessary or proper or that were incurred through over-caution, negligence or mistake: SCR, r 859. It is the strictest form of assessment: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] 1 Ch 59 at 63 per Megarry V-C. It enables recovery of costs in accordance with the scales of costs provided for in the SCR.
The amount a party must pay to its own solicitor for costs usually exceeds, sometimes by a considerable sum, the amount that the party is entitled to recover under an award of party and party costs. An award for costs on a solicitor and client basis enables recovery of the sum payable on taxation of a solicitor's bill to his or her own client for contentious work. It allows recovery of all costs "except in so far as they are of an unreasonable amount or have been unreasonably incurred": Re Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 187. A further basis for taxation of costs referred to by Megarry V-C in EMI Records is the indemnity basis. The SCR contain no express mention of such a basis, and as Megarry V-C said "there seems to be no clear statement of what such a basis means". His Honour noted, however, that the courts have been making such orders for "many years" and they have often been "more or less equated with orders for costs as between solicitor and own client". In these reasons I will, for convenience, use the term indemnity costs as a convenient reference to both solicitor client costs and indemnity costs, recognising that the terms may have different meanings.

The basis of the defendant's special order application

In the action, the advice in question concerned forestry rights agreements entered into by the plaintiff with Gunns Plantations Pty Ltd and Wesley Vale Engineering Pty Ltd in 2009 to establish forestry plantations on the plaintiff's property, "Malahide", at Fingal. The plaintiff contended that it retained the defendant to give advice about the possible legal and commercial risks to the plaintiff in the event that one or both of the forestry companies became insolvent. The plaintiff claimed that the advice given by the defendant on that issue breached the terms of the retainer, and was negligent and misleading, and, but for the advice, the plaintiff would not have entered into the agreements. It claimed damages exceeding $7m.
On 30 May 2018 the solicitor for the defendant delivered a letter to the solicitor for the plaintiff. The letter enclosed an offer of compromise dated 29 May 2018, expressed to have been filed and served pursuant to the SCR, Pt 9. It offered to compromise all of the plaintiff's claims in the action by a payment of $350,000 for damages and a further payment of $150,000 for costs. According to its terms, the offer was open to be accepted by the plaintiff for 14 days from service. The letter enclosing the offer of compromise was also expressed to be "Calderbank correspondence" which "may attract the usual costs consequences" in the event that the offer of compromise was not accepted. The letter was long and detailed. It set out the defendant's assessment of many issues which arose in the action. Two contentions of particular relevance were advanced. The first, in broad terms, was that the defendant was engaged to review draft contract documentation, and not to advise about the commercial risks of the proposed agreements. The second contention was that the plaintiff would not establish that the impugned advice caused the plaintiff to enter into the agreements. The letter concluded with an assertion that the "plaintiff's claim will fail", but that that the offer of compromise recognised the risk still faced by the defendant. It continued:
"Something further needs to be said about the costs offer. I am in no doubt that the plaintiff has incurred legal costs and disbursements that exceed a sum of $150,000 to date. The sum that is offered reflects the damages offer. What appears to have occurred in this case is that a lot of time has been spent by lawyers, and a lot of time has been spent in gathering expert evidence, in pursuit of a claim calculated in a sum which pays no regard to the matters that I refer to in this correspondence. Accordingly, if the order of compromise is accepted it should follow that the plaintiff must accept a significant reduction in its entitlement to costs."
The offer of compromise was not accepted. By letter dated 13 June 2018, the solicitors for the plaintiff advised:
"Dealing first with the terms of the offer of the compromise, the offer as framed is incapable of attracting the costs consequences to which your letter refers because, while is acknowledges the obligation to pay costs, it then offers an amount in respect of costs that is entirely inadequate having regard to the stage of the proceeding and the size and complexity of the litigation."
Although, the plaintiff's solicitors stated in the response letter that they did not propose to address each of the points made in the letter of 30 May 2018, some issues were in fact addressed, including the terms of the retainer, causation and proportionate liability. The reply concluded that the plaintiff remained "confident in its prospects … and there is nothing in your letter of 30 May 2018 which affects that view."

The offer of compromise

Offers of compromise are provided for by the SCR, Pt 9. An offer may be made by a plaintiff, r 280(4), and by a defendant r 280(3). The purpose of the provisions is to facilitate the proper compromise of litigation by putting a party at risk of an adverse costs order if that party proceeds with litigation without accepting an offer which would have produced a more favourable result than the result ultimately achieved: Spaulding v Eirth (No 2) [2017] TASFC 2. The rule encourages a party who has received an offer of compromise to give serious thought to the risks inherent in the litigation, including potential costs liability. The provisions create a presumptive entitlement to costs where the conditions for their operation are met: Partridge v Hobart City Council (No 2) [2011] TASSC 35 at [37]. Relevantly, an offer of compromise made by a defendant may offer to a plaintiff a nominated sum clear of costs: r 280(3)(a). By rr 280(4A) and 281(c), an offer of compromise is also to include an offer to pay either the whole or a stated proportion of a party's costs on a scale which is specified or to be determined by the court, costs in a specified sum, or no costs. A party who wishes to accept an offer of compromise to pay a nominated sum clear of costs, but not the costs term of the offer, may accept the nominated sum but apply to the court for determination of the entitlement to costs: r 284(3).
The costs consequences of a failure to accept an offer of compromise are the subject of r 289. The rule provides for only two circumstances. The first is a situation in which a plaintiff makes an offer which is not accepted, and obtains judgment in terms no less favourable than the terms of the offer. In such a case then, unless otherwise ordered, the plaintiff is entitled to an order for costs on a solicitor client basis: r 289(1). The entitlement under the rule is not confined to solicitor client costs from the date of the offer: Partridge v Hobart City Council (No 2) [2013] TASFC 1, 22 Tas R 77 at [9] per Blow J (as he then was), with whom Crawford CJ and Wood J concurred.
Secondly, the rule provides for a situation in which a defendant makes an offer of compromise, the plaintiff does not accept an offer, but obtains judgment in terms no more favourable: r 289(2). As I interpret the rule, it applies where a plaintiff recovers a sum, but less than the sum offered. Consequently, the subrule does not assist the defendant in this case. It is not contended by the plaintiff that the form of the defendant's offer did not comply with the terms of the SCR or that the defendant could not carry out the terms of the offer. However the terms of r 289(2) do not cover a scenario in which a defendant makes an offer which is not accepted, but the plaintiff's action is wholly unsuccessful. The subrule presupposes that the plaintiff is entitled to an order for costs until the date of service of the offer. In that circumstance, unless otherwise ordered, the rule operates to deprive the plaintiff from the award of costs to which a successful party would ordinarily be entitled. It provides that, unless otherwise ordered, the plaintiff is entitled to party and party costs to the date of the offer, but the defendant is entitled to an order for costs against the plaintiff after service of the offer on a party and party basis. An order which might be made if a court "otherwise orders" is to award costs on an indemnity basis.
A plaintiff whose action wholly fails will ordinarily be required to pay the defendant's party and party costs in any event. It follows that the defendant's application for a special order as to costs, as far as it relies on the operation of r 289, cannot succeed.

The Calderbank offer

In Calderbank v Calderbank [1976] Fam 93, Cairns LJ took into account a husband's refusal of an offer to settle in a matrimonial case in deciding, when the case was decided on a basis less favourable to the husband, to order that the husband pay the wife's costs of the action after refusal of the offer. The case is authority for the broader proposition that a court may take into account without prejudice settlement offers as relevant to the exercise of the costs discretion.
This is not a case in which the defendant chose to make an offer in the form of a Calderbank letter rather than by way of an offer of compromise. It did both. It did not seek advantage by adopting one course or the other. For that reason it may be distinguished from the circumstance described by Blow CJ in Copping Refuse Disposal Site Joint Authority v Southern Beaches Conservation Society Inc[1]. Moreover, as just explained, it was not open to the defendant in this action to make an offer of compromise which, by force of r 289, operated at all if the plaintiff's action failed, still less to support an application for solicitor client costs. No question arises of the defendant being in any better or worse position than if the plaintiff had been successful in recovering an amount less than the terms of the offer.
[1] [2016] TASSC 5, 24 Tas R 166. Although, with respect to his Honour, I confess to some difficulty in understanding how the party making the offer in that case could have, in light of the terms of r 289(2), made an offer of compromise which operated to support a defendant's application for indemnity costs on the plaintiff filing a notice of discontinuance.
The plaintiff submits that the effect of Copping Refuse Disposal is to achieve parity between the principles governing offers rejected under the rules of court and those applying generally to Calderbank offers. The submission must be rejected as contrary to principle and authority. There is no rule of court which applies to a wholly unsuccessful plaintiff. I do not think it can properly be said that the drafter of r 289 intended, by drafting the rule in its present terms, to constrain the discretion of a court so that it may never award indemnity costs to a defendant against a wholly unsuccessful plaintiff.
For those reasons, a Calderbank letter was the only means available to the defendant of raising the offer as a matter relevant to the exercise of a discretion to award indemnity costs in the event that the plaintiff's action failed. The limitation on the operation of r 289(2) does not preclude the potential significance of the offer as part of the Calderbank correspondence. Rejection of an offer, including when accompanied by Calderbank correspondence, is a matter to be taken into account as relevant to the exercise of the court's costs discretion in determining whether to order costs in the defendant's favour on a basis other than party and party costs.
Both parties made lengthy submissions about the principles to be applied when considering whether the failure to accept a Calderbank offer justifies a special costs order. However, the principles are well established. A special order for solicitor and client costs or indemnity costs can properly be awarded in appropriate cases where "there is some special or unusual feature in the case to justify the court exercising its discretion in that way": Preston v Preston [1982] 1 All ER 41 at 58. Those words were taken up by Black CJ in Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, in which his Honour, at 152, stated the principles applicable to a claim for indemnity costs in these terms:
"... it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless, the Court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising the discretion in that way."
A circumstance relevant to an award of indemnity costs is refusal of an offer to compromise. In Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31, 252 CLR 331 at [4], the High Court considered an application for indemnity costs in relation to both the appeal to that Court and the appeal below to the Court of Appeal of the Supreme Court of Victoria. At [4] the plurality stated:
"The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs. The respondent submits that its rejection of the offer was not unreasonable. If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation."
Numerous decisions of Australian intermediate courts of appeal have determined the critical question in the exercise of the discretion to award indemnity costs against a party who has rejected a Calderbank offer is whether the rejection was unreasonable in the circumstances which applied at the time of the refusal: Crossman v Sheahan (No 2) [2016] NSWCA 351; Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112; Erskine as liquidator of North Shore Property Developments Pty Ltd (in liq) v 72-74 Gordon Crescent Lane Cove Pty Ltd (No 2) [2019] FCAFC 73; Ford Motor Company of Australia Limited v Lo Presti [2009] WASCA 115, 41 WAR 1; Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; 54 WAR 388; Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd [2011] QCA 312 at [105]. In Hamod v State of New South Wales [2002] FCAFC 97, 188 ALR 659, Gray J, with whom Carr and Goldberg JJ agreed, stated at [20]:
"Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs."

In Miwa Pty Ltd v Siantan Properties Pty Ltd(No 2) [2011] NSWCA 344, Basten JA, with whom McColl JA agreed, stated at [8]:
"The expansion of formal rules providing for offers of compromise has not diminished the willingness of the courts to act upon informal offers, rather the contrary. However, there is no presumption that an offeree who does not accept an offer and does not obtain a judgment more favourable than the offer will necessarily pay indemnity costs from the date of the offer: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19] (Santow JA, Stein AJA agreeing); Jones v Bradley (No 2) [2003] NSWCA 258 at [6]- [9]; Ambulance Service of New South Wales v Worley (No 2) [2006] NSWCA 236; 67 NSWLR 719 at [18]. The approach frequently adopted in this jurisdiction has been to ask two questions, namely whether -
(a) there was a genuine offer of compromise, and
(b) it was unreasonable for the offeree not to accept it."
The adoption of some higher standard of unreasonableness contended for by the plaintiff is not supported by principle, or the authorities to which I have referred, and would operate as a fetter on the discretion to award indemnity costs. Nor do the authorities support the differential approach to offers made by plaintiffs and defendants contended for by the plaintiff: see for example Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268. Many of the authorities to which I have referred adopt and apply the decision of the Supreme Court of Victoria, Court of Appeal, in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority [No 2] [2005] VSCA 298, 13 VR 435, 441 [20], [23]. In that case, the court listed the following considerations as ordinarily relevant to the question whether rejection of an offer of settlement was unreasonable:
(a)the stage of the proceeding at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree's prospects of success, assessed at the date of the offer;
(e)the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for an indemnity costs [order] in the event of the offeree's rejecting it.

Was it unreasonable for the plaintiff to reject the offer?

It is for the defendant to persuade the Court to exercise its discretion to make the order sought. The plaintiff submits that it was not unreasonable for it to reject the offer. The plaintiff does not contend however that the offer was not expressed in clear terms or that the time limit of 14 days for acceptance left it with insufficient time to properly consider the offer and thus made refusal reasonable.
The action was commenced in 2014. The plaintiff engaged senior counsel. By 30 May 2018, when the offer was delivered, the pleadings were largely settled, there had been extensive discovery and most witness statements had been delivered. On 5 April 2018 the parties and their legal advisors attended a mediation conducted by a very senior retired judge. The mediation did not succeed. By the time of the offer a relatively clear delineation was apparent between the issues of liability and damages. The damages claim was large and complex. Quantification of the claim depended on proof of the facts concerning the plaintiff's farming business which founded the assumptions on which the claim was calculated. Experts were engaged to advise and give evidence: accountants about the claim calculation method, as well as agronomists, farming consultants and foresters. Proofs of evidence from expert witnesses engaged by the plaintiff led the defendant to engage its own experts to assess and offer opinions about the damages claim and the assumptions which underpinned it. It was a very expensive exercise for both parties. According to the material submitted by the plaintiff in support of its position on this application, it had by 30 June 2018 incurred costs approaching $1.6m.
The same complexity did not attend the evidence relevant to the liability case. One notable aspect of the case was that almost all of the correspondence and communications which formed the retainer and the advice was written. The principal witness for the plaintiff directly bearing on liability was Richard Talbot, the plaintiff's managing director. All of the communications between Mr Talbot and Mr Shelley, the solicitor who gave the impugned advice, were in writing in the form of emails. Mr Talbot's evidence was relevant to the question of what he, viewed subjectively on behalf of the plaintiff, sought advice about, and what he took from the advice. Proofs of his proposed evidence were prepared and delivered. The plaintiff had also signalled its intention to rely on advice from two other directors, John Lord and Simon Foster, and had delivered proofs of the evidence proposed to be led from those witnesses.
I accept the defendant's submission that, by the time of the offer, the plaintiff was in a good position to assess the strengths and weaknesses of its case on each of the causes of action on which it relied. The circumstances upon which the assessment was based did not change until Mr Talbot's evidence was heard and tested. The prediction in the defendant's Calderbank letter that, for the reasons it advanced, the plaintiff's claim may fail, proved to be correct. The plaintiff's assessment of the strength of its claim was erroneous.
It may be assumed that the plaintiff would have achieved a more favourable outcome had it accepted the offer. The plaintiff argues that the offer did not involve any real compromise of a claim of around $7m, and that the offer was in substance one calling for capitulation. In my view, even though the offer amounted to payment of a very small percentage of its claim and the costs it had by then incurred, it was nevertheless a genuine offer of compromise. If the plaintiff had accepted the offer it would have obtained payment of a not insubstantial sum together with a further sum for costs or, assuming the defendant did not withdraw from its offer of compromise under the rules, the alternative right to a claim for costs under the SCR, r 284(3). It should not be overlooked that acceptance of the offer would also have carried the advantage, from the plaintiff's point of view, of avoiding the possibility of a very substantial liability to the defendant for costs in the event that the action failed, and left the defendant to meet its own costs to that time. The possible failure of the claim was squarely raised by the Calderbank letter.
The Calderbank letter and the offer of compromise to which the letter referred did not expressly foreshadow an application for indemnity costs in the event of rejection. The letter only foreshadowed the "usual costs consequences" if rejected. What was meant by that phrase was not made clear. It may have meant a possible liability for costs, either on a party and party or indemnity basis in the event that the plaintiff recovered a sum less than the amount of the offer. At the time of the offer, the defendant had pleaded and was actively arguing issues of apportionment between concurrent wrongdoers and contributory negligence. Application of those principles in a way favourable to the defendant left open the possibility of successful recovery, but of a small sum. However, the plaintiff's claim was always put on the basis that its claim was "all or nothing." In my view, a competently advised party faced with such an offer should reasonably be regarded as having been put on notice that, if its claim failed, a claim for costs on a basis more favourable to the defendant than party and party costs may be made from the time of the rejection.
I think that an important factor in the application is the question of how the plaintiff's refusal of the offer is to be assessed in light of its prospects of success, taking into account the extent of the compromise required. Care is to be taken to consider the issues at the time of the refusal without the benefit of hindsight. So viewed, I am not persuaded that the refusal should be regarded as unreasonable. The claim was a difficult one. As already noted, the offer was a genuine one, but it nevertheless required a very substantial compromise. The issues of retainer, duty, breach, reliance and causation on which the plaintiff ultimately failed, were all raised in detail in the Calderbank letter. I do not accept the defendant's submission that the relatively brief way in which the plaintiff responded to the letter indicates that it did fail to give adequate consideration to the points made in the offer or was dismissive. I have little doubt that the points had been made and considered before. The plaintiff simply took a different view about them. That view was, at that time of the offer, not entirely without justification. Some aspects of the case were attended by uncertainty. The advice given by the solicitor was far from perfect. It carried flaws which were explained in the judgment in the action. The credibility and reliability of Mr Talbot's evidence was an important aspect of the plaintiff's case. As commonly occurs, the difficulties with it were only fully revealed at trial. His evidence did not make out the pleaded case.
Balancing all of the circumstances, I am not persuaded that the refusal of the Calderbank offer was unreasonable. The application for a special costs order on that basis is not made out.

Mr Talbot's credibility

The defendant advances an alternative basis for a special costs order in its favour. It contends that the conduct of Mr Talbot in the action and at trial justifies a special order. I am not so persuaded. Adverse findings were made about the credibility and reliability of important parts of Mr Talbot's evidence. As unsatisfactory as Mr Talbot's evidence, in some respects, was, it did not prolong the trial, or carry the quality of delinquency, abuse of process, ulterior purpose, unreasonableness or wilful disregard of known facts sufficient to justify an expression of disapproval in the conduct of the litigation by a special costs order.

The plaintiff's application: departure from the general rule

The plaintiff seeks an order which reduces the defendant's entitlement to costs by reason of its conduct of aspects of the litigation. It seeks, in the alternative, either an order which deprives the defendant of a percentage of its costs, or an order that the defendant pay the plaintiff's costs incurred in addressing a number of specified issues.
Because the power to order costs is discretionary, the general rule that the successful party should have an order for costs may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome: Northern Territory v Sangare (above) at [25]. Although a matter for discretion, a court will more readily deprive a party of its own costs than make the more onerous order that a successful party should pay the costs of the unsuccessful party. Strong or exceptional reasons are usually required to justify an order to pay costs rather than to merely deprive the successful party of its costs, especially when the defendant is the successful party.
One reason that a court may depart from the general rule is to take into account success or failure on particular issues during a hearing, especially if they are costly, dominant and separable. A successful party who has failed on certain issues either of fact or law 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: State of Tasmania v Effingham Pty Ltd (No 2) [2006] TASSC 32. However it is often the case that successful parties fail on particular issues along the way. An unsuccessful party cannot expect the favourable exercise of a costs discretion just because of success on some issues: Cretazzo at 16 and J D M Investments Pty Ltd v Toddern Pty Ltd [2000] NSWSC 432 per Hamilton J at [4]. These principles were applied by Underwood J (as he then was) in Burnie Port Corporation Pty Ltdv Bank of Western Australia Limited [2003] TASSC 132, 12 Tas R 325.
However the plaintiff, as the unsuccessful party, does not ask the Court for a favourable exercise of a costs discretion because it succeeded on some issues. The plaintiff's submission is, rather, based on what it claims is the manner in which the defendant conducted the litigation. It asserts that the defendant, in the course of the litigation, unreasonably put it to unnecessary cost. In short, that it "took every point." If a party unreasonably pursues, or persists with, points which have no merit, such conduct will constitute a consideration relevant to the ordering of costs, even in circumstances where that party is generally successful: Oshlack (above) per Kirby J at [134].
The following observations may at once be made. The defendant was drawn unwillingly into this litigation, in which the plaintiff ultimately failed. The great majority of the time spent and expense incurred in preparation for trial, and the time taken at trial, concerned the damages claim. All of the evidence concerning that part of the claim was within the control of the plaintiff. The defendant was faced with considering a very large volume of evidentiary material. Defendants to actions involving large and complex commercial claims are not uncommonly required to investigate, and obtain evidence and expert advice about, issues and contentions not ultimately advanced at trial. Sometimes the advice and evidence will lead to a proper concession or compromise. The plaintiff is nevertheless correct to submit that the Court has a legitimate expectation that litigation will be conducted with due efficiency and a preparedness to focus on the 'real issues'. Minimisation of delay and expense is essential to the just resolution of proceedings, as is avoidance of unduly technical and costly disputes about non-essential issues: Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46, 250 CLR 303. The degree to which, if at all, such considerations should result in an adverse cost consequence is a matter for discretion depending on the circumstances.
The approach I will adopt to the contentions put by the plaintiff is that the eventual costs orders should reflect a just and fair outcome, without isolating and weighing individual issues with minute precision.
The first issue raised by the plaintiff concerns an aspect of its particularised damages claim. The claim included a component based on "estimated grazing cash flows foregone". The defendant requested forensic examination of the claim from an accounting expert. The expert witness reported that he was unable to reconcile the claim based on evidence from the plaintiff's agricultural consultant and the plaintiff's accounts. The plaintiff now claims that it was "left with no choice" than to, at considerable cost, adduce evidence in reply, when the accounts which enabled the forensic examination had already been made available. It contends that if the expert had been directed to those accounts he would have concluded earlier that there was no legitimate question about the claim. I am not persuaded however that the defendant should be made the subject of an adverse costs order on that basis. Sometimes, even if the assumption behind the plaintiff's submission is correct, the significance of evidentiary material may emerge only as evidence is prepared. No element of bad faith or misconduct is asserted. Without descending into the forensic detail, it is not immediately apparent to me why, if the answer was so readily apparent on the accounts already made available to the defendant, substantial further cost should have been necessary.
Secondly, the plaintiff contends that it was put to additional costs by belatedly raising the defence of a failure to mitigate and then not pressing the defence at trial. Towards the end of 2017 the defendant's pleadings were amended to include a detailed allegation of a failure to mitigate. The defendant contends that the plea arose as a result of expert advice relevant to correctness or otherwise of the plaintiff's assumptions about the value of the harvested timber in 2025. The question arose whether the plaintiff's decision to grow the trees to maturity, rather than remove them, was reasonable. The plaintiff contends that it was therefore required to prepare detailed evidence to rebut the plea. Relevant evidence was adduced in witness statements and then led from Mr Talbot and other witnesses at trial. The defendant did not then eschew reliance on the plea until its final address. Again it is not necessary to descend to forensic detail. I am not satisfied that the defendant's conduct was, in light of the overall conduct of the litigation, such as to warrant an adverse costs order. I am not persuaded that, at the time it was raised, the plea was so lacking in merit as to warrant a costs sanction. I do not think it was unreasonable to raise the plea and test the evidence. It did not prolong the trial to any significant extent. I think it unlikely that even if the point had been unsuccessfully persisted with, it would have resulted in an adverse costs order, especially one requiring the defendant to pay the plaintiff's costs of the issue. The defendant should not be in any worse position by not pressing the argument at all in its final address.
The third matter raised by the plaintiff concerns an interlocutory application filed 12 December 2016 by which the defendant applied for orders:
·     compelling the production of letters of instruction and supporting documents provided by the plaintiff or its solicitors to the plaintiff's expert witnesses;
·     pursuant to the Supreme Court Rules 2000, r 388, requiring the plaintiff to file and serve an affidavit stating whether specified documents or classes of documents are or have been in the possession, custody or power of the plaintiff; and
·     permitting several subpoenas directed to the plaintiff's witnesses and advisors to be made returnable in the near future, notwithstanding that the action is yet to be set down for trial.
The orders were sought in the context of an application by the plaintiff for a timetable for delivery of the defendant's proofs of evidence and an order referring the action to mediation. The various applications were determined by Holt AsJ who published reasons: Fingal Pastoral Pty Ltd v Page Seager Lawyers (A Firm) [2017] TASSC 24. His Honour dismissed the application for production of documents, found that further discovery was not presently necessary and adjourned that part of the application, allowed the application for early return of subpoenas in part and permitted the issue of two of the proposed subpoenas. His Honour gave directions about delivery of proofs of evidence and referred the action to mediation. Holt AsJ ordered that any applications as to the costs of the interlocutory applications he determined were to be set down for hearing before him. However the plaintiff now asks that I determine those costs as part of these reasons. The defendant contends that, if the plaintiff wishes the costs of those applications, then the order of Holt AsJ to relist the applications before him should be engaged. I think that there is merit in the plaintiff's contention.
Holt AsJ refused the defendant's application for production of undiscovered documents. The defendant's application pursuant to r 388 was adjourned on the basis that further discovery was not necessary at that stage of the proceedings. The defendant's application for early return of subpoenas was partially successful, but to a limited extent. The plaintiff's application for referral of the action to mediation was not opposed, although Holt AsJ agreed with the defendant that the timetable for delivery of proof of evidence should not be imposed. There is considerable benefit in terms of finality and cost saving if I were to determine the issue of the costs of those applications now, and I will do so. My reading of the decision of Holt AsJ is that the plaintiff's position in respect to the various interlocutory applications was substantially vindicated. In my view, it should recover half of its own costs and should not be required to meet the defendant's costs of those applications.

The fourth issue raised by the plaintiff is related to the issue just addressed. Prior to trial, subpoenas were served on Mr Martin Rees and KPMG. Mr Rees was the plaintiff's principal accounting and business valuation expert. He was responsible for fixing upon the discounted cash flow model used for determination of the plaintiff's damages claim and the calculations based on the model. His evidence was fundamentally important to the plaintiff's case on damages. He was, however, a former partner of the Launceston office of KPMG, the accounting firm which had for many years been accountants for the plaintiff. Mr Rees had a pre-existing professional relationship with the plaintiff. Prior to trial, counsel for the defendant foreshadowed a challenge to the independence of his opinion. Based on the relationship between Mr Rees and the plaintiff, such a challenge would ordinarily be reasonable and expected. As events occurred, no challenge to Mr Rees' independence eventuated. The defendant submits that this was because, when cross-examined, Mr Rees demonstrated his independence by making concessions when necessary. I do not think it is as simple as that. By the time of the trial it was obvious from the reports which emerged from a series of conferences between experts that there was a considerable level of unanimity between both camps about the claim calculations. Any remaining differences were matters of methodology and genuine opinion. There was no reason at all to question Mr Rees' opinion on the basis that it was somehow improperly affected by his relationship with the plaintiff. I accept that the plaintiff was put to cost in dealing with the subpoenas. I agree with the plaintiff's contention that by that stage of the action issue of the subpoenas was unreasonable and unnecessary, and the costs incurred by the plaintiff as a result of compliance should be reflected in the costs orders. Persistence with subpoenas directed to Mr Rees' impartiality at that stage of the proceedings was unnecessarily adversarial.
A further matter raised by the plaintiff concerns the costs of an expert engaged by the defendant. In its preparation for trial the defendant engaged and sought advice and opinion from Mr Barry Hamilton of the firm BR & SS (Tas) Pty Ltd. A report was obtained from Mr Hamilton. However the report was not filed and Mr Hamilton was not called as a witness.
At trial the defendant argued that the plaintiff's pleadings were defective in that the issue of whether the plantation trees were "not, in fact, a valuable asset in the liquidation of the Gunns companies". The submission prompted an application to amend which was refused on the basis that, if granted, it would result in a lengthy adjournment "to investigate and obtain evidence including from the liquidator about the liquidation process". The defendant claims that Mr Hamilton's report "informed" the submissions that led to that ruling.
The plaintiff contends that the cost of obtaining Mr Hamilton's report was not necessary for the action. I do not agree. In my view, questions which arose from the process of the liquidation of the forestry companies were relevant to the issues arising on the pleadings, both as to damages and liability, including those advanced at trial. It was reasonable for the defendant to investigate and obtain evidence and expert advice about such matters. It is not to the point that Mr Hamilton was not ultimately called as a witness. The defendant should not be deprived of those costs.

The notice to admit

One contention made by the plaintiff justifies separate attention. On 14 May 2018 the plaintiff served a notice to admit on the defendant. The notice required the defendant to admit, for the purposes of the proceeding, the truth of certain factual assumptions relied on by Mr Rees in his assessment of the plaintiff's loss.
Such notices are provided for by the SCR, r 401, headed "Notice to admit facts", which provides:
"(1) At any time before the filing of a certificate of readiness or joint letter of readiness or the making of an order under rule 416 , a party to a proceeding by notice may call on any other party to admit, for the purposes of the proceeding, any fact specified in the notice.
(2) If a party to whom a notice is given fails to admit any fact specified within 14 days of receiving the notice, or within any further period allowed by the Court or a judge, the costs of proving that fact are to be paid by that party, regardless of the result of the proceeding, unless at the trial or hearing the Court or a judge certifies that the failure to admit was reasonable or otherwise orders.
(3) An admission under this rule is made only for the purpose of the particular proceeding, and is not to be used against the party on any other occasion or in favour of any person other than the party giving the notice.
(4) The Court or a judge may at any time allow any party to amend or withdraw any admission made on any terms as are just."
The rule is contained in Div 2 of Pt 13 of the Rules. Part 13 deals with discovery and interrogatories and Pt 2 provides for admissions and production of documents. The purpose of r 401 and the other rules in Pt 2 is to facilitate the proper administration of justice by narrowing the issues in dispute between the parties so as to shorten trials and save costs: Meadow Gem Pty Ltd v ANZ Executors & Trustees (Unreported, VSC, 11 June 1996) 4-5 (Byrne J); Tipperary Developments Pty Ltd v Western Australia [2009] WASCA 126, 38 WAR 488 at [292]. The effect of the rule is that the party who fails to admit the fact the subject of the notice must pay the costs of proving those facts subject to the exercise of the judicial discretion to order otherwise. Proper exercise of the discretion requires the court to consider whether there is reason to displace the prima facie position created by the rule: Tipperary Developments at [292].
In this case I am satisfied that I should certify, in accordance with r 401(2), that the failure to admit facts in the notice was reasonable. Some brief explanation of the way in which the claim was put is required. Under the forestry agreements, 1718.6 hectares of the plaintiff's land allocated to hardwood plantation and trees were planted. Most of that land was ex-grazing land although some had been native forest land. Following liquidation of the forestry companies, the plaintiff reinstated 382.3 hectares of the plantation area to grazing. It did so by, in 2015, clearing that part of the plantation, a year later establishing and harvesting a break crop, and in the following year re-establishing pasture and replacing fences. The cost and difficulty of that process led the plaintiff to decide to grow out the remainder of the plantation to maturity. It was expected that the trees would be ready for harvest in 2025, following which it was intended to re-establish pasture. The process required harvesting the mature trees, removing the stumps, planting break crops, wheat and brassica, over one or two seasons, and then planting pasture and re-stocking. As has already been explained in these reasons, the plaintiff's claim, at about the time the notice to admit was delivered, was particularised as exceeding $6m. That sum represented the difference, as well as can be predicted and adjusted in accordance with the discounted cash flow model to give a net present value, between the position the plaintiff will be in at the end of the process just described, and the position it would have been in had the agreements not been entered into.
The notice to admit contained 30 paragraphs, many of which contained numerous sub-paragraphs. The facts which were the subject matter of the notice were the assumptions used in the damages calculation including:
·     the area of the plantation land;
·     the plaintiff's historical cash flows and interest rates;
·     the future cash flow from grazing the plaintiff would have earned on the plantation land;
·     the future return the plaintiff would have obtained from the native plantation;
·     livestock numbers, stocking rates, proportionate dry stocking equivalents;
·     costs, yields and prices for break crops on land returned to pasture;
·     amounts paid under the forestry rights agreements until 2013;
·     land clearing costs incurred, and return from the land returned to pasture;
·     past and future plantation management costs including fixed costs and overheads;
·     break crop costs and returns;
·     future costs of break crops;
·     past and future pasture re-establishment costs;
·     livestock de-stocking.
The facts assumed in Mr Rees' calculations were derived from information obtained from the plaintiff and from the opinions of the experts it engaged. By the time of the notice, the evidence was voluminous and comprehensive.
The defendant responded to the notice on 10 August 2018. The response is a detailed one. Some of the facts which were the subject of the notice were admitted and some were substantially admitted. However some facts were not admitted. Rule 401(2) refers to the costs of "proving" the facts specified in the notice. However, I will assume for the purpose of this ruling that the application of the rule, that is the costs of proving facts, extends to the costs of obtaining and adducing evidence at trial for the purpose of proving the facts not admitted. As events occurred, because the plaintiff's action failed on liability and it was not strictly necessary to assess damages, the unadmitted facts were not "proved" in the strict sense. In the normal course it is prudent for a trial judge to, as far as is necessary, make findings about damages. In this case, as was explained in the reasons for judgment, as the trial proceeded most of the controversy about the assessment of damages evaporated, including the unadmitted facts which had been the subject of the notice. Most relevant facts were agreed either as a result of joint expert conferences prior to trial or in the course of concurrent expert evidence during the trial, and only limited factual findings were necessary.
The question of whether the failure to admit facts in the notice was reasonable should be judged at the time of the failure to admit. It is obvious from the terms of the response that the defendant and its advisors did not simply ignore the notice. The defendant gave serious consideration, including by reference to its expert advice, to whether the facts should be admitted. Many admissions of fact were made. Considerable time and effort was devoted to determination of what facts were to be admitted and which were not. To my mind, the common characteristic of many of the "facts" the defendant failed to admit was that the specified fact was a conclusion formed as a result of the application of judgment and opinion, sometimes based on other contentious facts. Whether the relevant "facts" were true was, at the time, susceptible to reasonable differences of judgment and opinion. I accept the defendant's submission that, at the time of the notice to admit, it remained reasonable for the defendant to carefully investigate the basis upon which the damages claim was framed. I am satisfied, in all of the circumstances, that the failure to admit the facts, and to put the plaintiff to proof of them, was reasonable in all of the circumstances. I certify accordingly.
Using a much broader brush, I do not think that it would be a fair representation of the overall justice of the case to conclude that it was not unreasonable for the plaintiff to reject the offer of compromise, but that it was not reasonable for the defendant to fail to admit the unadmitted facts in the notice.

Result and foreshadowed ruling

Subject to the question of how costs are to be determined, the result of the foregoing is that I would order that:
(i)the defendant is to pay its own costs and half of the plaintiff's party and party costs of the plaintiff's interlocutory application filed 14 November 2016 and the defendant's interlocutory application filed 12 December 2016;
(ii)the defendant is to pay the plaintiff's party and party costs incurred by reason of compliance with the subpoenas served by the defendant on Martin Rees and KPMG prior to and during the trial of the action;
(iii)subject to pars (i) and (ii), the plaintiff is to pay the defendant's costs of the action on a party and party basis.
In light of those conclusions I would also order that each party pay its own costs of the costs applications to date.

The application for a fixed costs order

The defendant contends that I should make a fixed costs order. When agreeing to make this ruling on the basis of the written submissions, I indicated that I would not make such an order without first giving both parties a further opportunity to be heard. What I am about to state is not to be taken as an indication, one way or the other, of whether I would make such an order. However, my preliminary view is that there is obvious merit in determining costs in a way which avoids what would, in this case, be a protracted and expensive process of preparation of a bill in taxable form and a formal taxation. The time, trouble, expense and aggravation of a formal taxation of costs should be avoided if that can be fairly achieved. It may be that agreement is possible in light of these reasons. There seems to me to be considerable mutual benefit to the parties in either agreement of the amount of the costs or, in the absence of agreement, an alternative means of determining the costs.
I will allow the opportunity for agreement. In the absence of agreement I will hear further from the parties as to what order should be made.