Flinders Diamonds Ltd v Tiger International Resources Inc (No 2) - [2006] SASC 180

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
FLINDERS DIAMONDS LTD v TIGER INTERNATIONAL RESOURCES INCORPORATED & OTHERS (NO 2)
[2006] SASC 180
Judgment of The Honourable Justice Layton
21 June 2006
PROCEDURE - COSTS - AGREEMENTS AS TO COSTS
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - CO-DEFENDANTS
Successful application for contribution by first and second defendants (applicants) from third, fourth and fifth defendants (respondents) - whether an offer filed by the applicants complied with the requirements of Rule 41.01 of the Supreme Court Rules 1987 - whether applicants entitled to have their costs on a solicitor/client basis - whether, if offer did not comply, it could nonetheless form the basis of an order for costs on an indemnity basis - Held: offer filed by the applicants did not comply with Rule 41.01 because it was not capable of being accepted by any individual respondent - for the same reason the failure of the respondents to accept the offer is not sufficient to give rise to an order for costs on an indemnity basis under the Court's general discretion as to costs - applicants to have their costs on a party/party basis.
Supreme Court Rules 1987 r 41.01; Acts Interpretation Act 1915 s 26(b), referred to.
Re Willcox; Ex parte Venture Industries (No 2) (1996) 72 FCR 151; Latoudis v Casey (1990) 170 CLR 534; Casley-Smith v F S Evans & Sons Pty Ltd (No 6) (1989) 148 LSJS 483; Oshlack v Richmond River Council (1998) 193 CLR 72; Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, considered.

FLINDERS DIAMONDS LTD v TIGER INTERNATIONAL RESOURCES INCORPORATED & OTHERS (NO 2)
[2006] SASC 180

LAYTON J: This is an application brought by the first defendant Tiger International Resources Inc and the second defendant Mr Patric Barry (collectively “the applicants”) for an order that the third defendant Mr Anthony Campbell, the fourth defendant Campbell Corporation Pty Ltd and the fifth defendant Balance Tax Pty Ltd (collectively “the respondents”) pay the costs of the successful action brought by the applicants for contribution, on a solicitor and own client basis.
The brief history is that the applicants sought contribution from the respondents in respect of an amount which the former had paid pursuant to an order for costs in favour of the plaintiff, and a subsequent consent allocatur. On 11 May 2006 I gave reasons for decision in which I granted the application and indicated that each of the defendants should contribute equally to the sum of $200,000, plus interest, which had been paid by the applicants.
Following the delivery of my decision, all defendants agreed to a number of orders which should flow from my reasons for decision and those orders were as follows:
1.That each of the third, fourth and fifth defendants contribute rateably to the sum of $203,366.08 paid by the first and second defendants to the plaintiff.
2.The third defendant, Anthony John Campbell, pay to the first defendant, Tiger International Resources Inc, the sum of $19,363.32 inclusive of interest.
3.The fourth defendant, Campbell Corporation Pty Ltd, pay to Tiger International Resources Inc the sum of $19,363.32 inclusive of interest.
4.The fifth defendant, Balance Tax Pty Ltd, pay to Tiger International Resources Inc the sum of $19,363.32 inclusive of interest.
5.The third defendant, Anthony John Campbell, pay to the second defendant, Patric Barry, the sum of $25,228.49 inclusive of interest.
6.The fourth defendant, Campbell Corporation Pty Ltd, pay to Patric Barry the sum of $25,228.49 inclusive of interest.
7.The fifth defendant, Balance Tax Pty Ltd, pay to Patric Barry the sum of $25,228.49 inclusive of interest.
8.The sum of $30,000 paid by the first and second defendants into court by way of security plus interest accrued thereon be released and paid to the first and second defendants.
I reserved the question of the costs to be paid by the respondents to the applicants and that is the subject of the present application. Specifically, the issue is whether the respondents should pay the applicants’ costs on a party and party basis or on a solicitor and own client basis.
In respect to this argument there were two primary issues. First, whether an offer filed by the applicants on 24 May 2005 was an offer to which Rule 41.01 and Rule 41.04 of the Supreme Court Rules 1987 applied. Secondly, if the offer of 24 May 2005 did not amount to a r 41 offer, whether nonetheless costs should be paid by the respondents on a solicitor and client basis.
I will deal with each of the arguments under those particular headings.
Did r 41.01 and r 41.04 apply?
The rules offer of the first and second defendants was expressed in the following manner:
The first and second defendants hereby offer to accept from the third, fourth and fifth defendants jointly or severally the total amount of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) plus interest at the Supreme Court rate from the plaintiff’s taxed costs being agreed in addition to costs of this application to be agreed or taxed.
This rules offer is made pursuant to Rule 41.01 of the Supreme Court Rules and is subject to the claims of the third, fourth and fifth defendant being discontinued and released without any claim as to costs.
DATED the 24 day of May 2005.
Rule 41 is relevantly in the following terms:
Offers by plaintiff
41.01 (1)     A plaintiff may at any time up to 21 days prior to trial lodge with the Registrar and serve on all other parties a notice offering to accept a stated amount, or a judgment for a stated amount where it is necessary to enter judgment, together with his costs of action, in satisfaction of the plaintiff’s cause of action or where there are more causes of action than one, of one, some or all designated causes of action.
(2)     A plaintiff may at any time up to 21 days prior to trial lodge with the Registrar and serve on all other parties a notice offering to accept a stated percentage of liability or to accept a stated sum after giving credit to the defendant for any set-off counterclaim or cross-demand claimed by the defendant against the plaintiff, and in each case stating whether the offer requires the defendant to pay the whole or some stated proportion of the plaintiff’s costs of action and that the offer so made is in satisfaction in the first case of the plaintiff’s claim as to liability and in the second case in satisfaction of all nominated liabilities by the plaintiff and the defendant to each other.
(3)     A plaintiff may at any time up to 21 days prior to trial lodge with the Registrar and serve on all other parties a notice offering to limit the relief claimed in his statement of claim in order to bring about a settlement.
(4)     At any time up to 21 days prior to trial and before the acceptance of such an offer the plaintiff may in like manner increase, reduce or withdraw his offer.
…
Acceptance by defendant
41.02 (1)     A defendant may at any time after receipt of a notice under this Rule, and up to 7 days prior to trial, file and serve on all other parties a notice of acceptance of that offer. Where such an offer has been made with respect to several causes of action such notice shall specify the cause or causes of action to which the acceptance relates.
(2)     The Registrar may enter judgment in the proceedings in the terms of the acceptance lodged by the defendant pursuant to subrule (1).
(3)     Any party may apply to the Court in respect of any question of costs or other ancillary relief in the proceedings which needs to be determined upon the acceptance of an offer under this Rule.
…
Plaintiff bettering offer
41.04 Where a defendant has not accepted a plaintiff’s offer made pursuant to this Rule and the sum recovered or, as the case may be, the proportion of the debt or damages or the relief recovered by the plaintiff is equal to or greater than that contained in the plaintiff’s offer, the Court, unless it thinks proper to order otherwise, shall order the defendant to pay the whole of the plaintiff’s costs of action to be taxed as between solicitor and client.
Rule 41.01(1) and r 41.01(2) provide that a plaintiff may serve a notice offering to accept a “stated amount”,[1] a “stated percentage”[2] or a “stated sum”[3] after allowing for a set‑off or cross‑demand. The offers may be made at any time up to 21 days prior to trial.
[1] Rule 41.01(1).
[2] Rule 41.01(2).
[3] Rule 41.01(2).
On the facts in this case I am only concerned with r 41.01(1), as the filed offer did not purport to refer to a stated percentage but instead a figure of $100,000 was referred to. In relation to r 41.01(1) I note that there is a reference to “the plaintiff” in the singular and likewise in r 41.02 to “the defendant” in singular. In my view the usual rules of interpretation would suggest that the singular would also include the plural.[4] I therefore do not consider that a filed offer is limited to an offer made by one plaintiff to one defendant. It can refer to multiple plaintiffs and multiple defendants, particularly bearing in mind that it is common for actions to be commenced by more than one plaintiff and for more than one defendant to be a party.
[4] See s 26(b) Acts Interpretation Act 1915.
The general intent of the Rule is to encourage settlement of actions with the added incentive of a defendant being at risk of indemnity costs for the whole of the action if a reasonable offer is not accepted.
Although r 41.01(1) refers to “the plaintiff”, in my view in keeping with the general intent, the Rule would also be appropriately applicable to an applicant in a particular application who may, as in this instance, also be a defendant. In my view the Rule is broad enough to cover an application or cause of action in which there is an issue to be determined between parties so that they are effectively plaintiffs and defendants in that cause. Therefore, in this case the applicants were in effect plaintiffs for the purposes of r 41.01 and the respondents were defendants.
In relation to whether the filed offer complied with r 41.01, the respondents submitted that it did not comply and therefore that r 41.04 also did not apply.
It was argued by Mr Dart, counsel for the respondent, as follows:
·That r 41.01 requires that there be a “stated amount” which should be specified and if accepted could be entered as an administrative judgment as provided for in r 41.02(2).
·That the filed offer was not for a “stated amount” as the sum of $100,000 was expressed as being “plus interest at the Supreme Court rate from the plaintiff’s taxed costs being agreed”. This addition was confusing and would have required determination as to its meaning and quantum before any judgment could be entered pursuant to r 41.02(2)
·That the applicants’ claim for contribution against the respondents if successful, would result in several liability rather than joint liability. The fact that the amount of the offer was expressed in relation to the respondents jointly prevented it from giving rise to a judgment against each of the third, fourth and fifth defendants individually.
In response to these arguments Mr Cox, counsel for the applicants, submitted as follows:
·That r 41 was drafted so as to cover a wide variety of circumstances and should be flexibly and not narrowly interpreted.
·That the filed notice was expressed as being an offer capable of being accepted either jointly or severally.
·That the fact that the liability to make contribution was several did not prevent individual defendants agreeing between themselves any apportionment of their choice, but it did require that they collectively agree to the overall quantum of the offer.
·That if the argument put by Mr Dart was correct, then there would have to be six individual offers made, bearing in mind that there were two “plaintiffs” (the first and second defendants) and three “defendants” (the third, fourth and sixth defendants).
In considering these respective arguments there is a need to take a commonsense approach to the Rule, but at the same time have regard to its intendment and the important effect of the failure of a defendant (or defendants) to accept a complying offer which is bettered by the plaintiff(s) in a judgment, recognising that it is the whole of the costs of the action which are to be ordered on an indemnity basis and not simply the costs from the date of the filing of the notice. Bearing in mind the effect of the Rule if the offer is not accepted, the Rule itself indicates that there must be clarity in the expression of the offer. Hence the reference to a “stated amount” or “stated percentage”. Further, r 41.02(2), indicates that the offer must be capable of being specifically quantified, as it is entered and effected through the administrative action of the Registrar.
Where the claim involves the several liability of a number of defendants, any filed offer must be expressed with sufficient clarity to enable each defendant to separately make a decision as to whether to accept it as it is expressed.
In this case the filed offer appears to demonstrate two problems. The first is the meaning of the words “plus interest at the Supreme Court rate from the plaintiff’s taxed costs being agreed” and secondly, whether this addition would fall appropriately within the description of a “stated amount” in r 41.01.
As to the meaning of the additional words, notwithstanding that they are somewhat confusing, I accept the submission of Mr Cox that they are referring to the interest rate applicable at the Supreme Court rate, to be applied from the date when the applicants were liable to pay the plaintiff’s costs. Even accepting the intendment, at the very least the date from which such interest was to be computed should have been expressed. It was not possible from these words alone to be able to compute any stated amount quite apart from the fact that there was no “stated amount” set out.
There was however a third problem which is more fundamental. The filed offer did not express a stated amount which would have permitted each defendant to make a decision as to whether it would accept a judgment against it for that stated amount. This is a case in which the claim, as demonstrated by the orders made, necessarily sought several contribution from each of them. The filed offer was therefore required to be capable of being accepted by one or more of the respondents rather than requiring the respondents to accept the offer collectively, and to reach agreement between themselves as to the contribution between them.
I do not accept Mr Cox’s submission that the respondents in this case were connected as a group because the third defendant was the sole shareholder and director of the fourth and fifth defendant companies, or that it was simply a matter of those connected entities working out whether the overall amount should be agreed and how they would divide it between them as they chose. Instead, I agree with the submission of Mr Dart that the argument that the respondents should be effectively regarded as one, namely the “Campbell interests”, does not fit well with the applicants having previously argued before me that the respondents should be separately identified and not be considered in such a collective manner. Although it was in a different context, the underlying principle is the same and I upheld the applicants’ argument in the earlier decision. Further, an offer cannot assume that multiple defendants in an action for several liability all have the same argument in respect of their liability to the “plaintiffs”.
In this case there were a number of potential outcomes regarding the amount of contribution to be paid by the respondents, as I discussed in my reasons for decision. The arguments put forward by the parties included that the amount of the contribution be determined by reference to the percentage of shareholding each defendant held in the plaintiff company; by a grouping of interests such as the “Barry interests” and “the Campbell interests”; that the first defendant and second defendant be considered separately and then the Campbell interests collectively; or that contribution be determined on the basis of the degree of fault of the parties. I ultimately held that that there be equal contribution by all parties. In addition, there was an issue of whether there should be an allowance for $11,000 paid by the respondents to the plaintiff pursuant to a deed of settlement. For these reasons there is considerable force in the argument of Mr Dart that in the circumstances of this case it was necessary for the applicants in their filed offer to be specific about the amounts sought from each of the respondents. This could have been achieved by the filing of multiple notices to cover the variables of the stated amount or percentages that the applicants were prepared to accept from each defendant.
For the above reasons I consider that the notice of offer did not comply with the requirements of r 41.01. It therefore follows that it is not necessary for me to consider whether r 41.04 applied such that indemnity costs ought to apply for the whole of the action.
Should there be an order for solicitor/client costs upon the exercise of general discretion?
The alternative argument of Mr Cox was that, if r 41 did not apply, nonetheless the notice of offer was relevant to the question of whether indemnity costs ought to be ordered. He submitted that the respondents’ failure to accept that offer amounted to an unreasonable refusal and therefore indemnity costs should follow. Mr Cox submitted that the offer would provide a starting point from which to calculate indemnity costs, for example from 14 or 21 days from the date of the offer.
In response to that argument Mr Dart submitted that the failure to accept the offer had no effect, as an offer which purported to be made pursuant to r 41, but did not comply with that rule, should not operate adversely to the respondents such that if they did not accept the offer that would be regarded as unreasonable and indemnity costs would follow. It was submitted by Mr Dart that a failed Rule 41 offer which would normally work on contractual principles, should not be treated as a de facto Calderbank offer.
I do not accept the whole of the submission of Mr Dart on this point. I consider that a failed offer under r 41 could, in certain circumstances, have some part to play in the exercise of the general discretion as to costs. It would depend on the extent to which there was non‑compliance. In this case there was in my view a significant failure to comply with r 41 in a material manner, namely, the failure to identify a particular contribution sought from each of the respondents coupled with the other deficiencies I have identified. I therefore consider that the failure to accept such an offer in this case should not be regarded adversely to the respondents such as to lead to an order for indemnity costs.
As to the principles applicable to the exercise of general discretion, the starting point is that an order for costs usually follows the event. It has also been stated that the Court ought not to depart from the rule that the successful party should have its costs on a party/party basis unless the circumstances of the case warrant the Court departing from the usual course.[5] It is to be noted that the purpose of an award for costs is to compensate and not to punish.[6] It has also been stated that there must be some special and unusual features to justify an award of solicitor and client costs.[7] At the same time it has also been stated that the category of cases in which indemnity costs can be ordered are not closed.[8]
[5] Re Willcox; Ex parte Venture Industries (No 2) (1996) 72 FCR 151.
[6] Latoudis v Casey (1990) 170 CLR 534 per Mason CJ at 543, McHugh J at 567; and Oshlack v Richmond River Council (1998) 193 CLR 72 per Brennan CJ at [1] and per McHugh J at [67]. Although this principle is somewhat modified in the case of a Rule 41 offer.
[7] Casley-Smith v F S Evans & Sons Pty Ltd (No 6) (1989) 148 LSJS 483.
[8] Colgate-Palmolive Co Pty Ltd v Cussons Pty Ltd (1993) 46 FCR 225.

Instances where the Court has exercised its discretion to order indemnity costs have included matters where charges of fraud have been made out, inappropriate defences have been remorselessly pursued, evidentiary material has been falsified, and other similar examples which are set out in Civil Procedure South Australia Lunn 101.01.10(6).
In this case, although findings adverse to the respondents were made by me as set out in paragraphs 73, 74 and 120 of my reasons for decision, the arguments proffered by the respondents were not unreasonable; they were simply not accepted as I found no basis in equity for agreeing with them.
I therefore order that the third, fourth and fifth defendants jointly and severally pay the first and second defendants’ costs to be agreed or taxed on a party and party basis