Haselgrove Wines Pty Ltd v Hope - [2006] SADC 84

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HASELGROVE WINES PTY LTD v HOPE & ANOR
[2006] SADC 84
Decision of His Honour Judge Lovell
31 July 2006
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
Procedure - costs - departing from general rule - indemnity costs - payment of taxed costs forthwith.
District Court Rules 101.01(7) & 101.02, referred to.
Shanamere Pty Ltd v Litigation Support Services Pty Ltd [2006] SASC 120; Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors (No2) [2006] SASC 87, applied.

HASELGROVE WINES PTY LTD v HOPE & ANOR
[2006] SADC 84

This is an application for costs.
On Friday 7 July 2006 after hearing argument I ordered that the trial date in this matter be vacated. The matter had been listed for five days beginning on 10 July 2006.
On Monday 10 July 2006 I heard argument in relation to the question of costs.
The Plaintiff sought an order that the Defendants pay the Plaintiff’s costs thrown away by reason of the vacation of the trial date on an indemnity basis. They further sought orders that the costs be payable forthwith after taxation and that the question of whether the costs payable under the orders be made by the solicitors for the Defendants or the Defendants should be reserved.
It is necessary to set out the background leading up to the application to vacate the trial.
Proceedings were issued on 1 June 2005. In general the Plaintiff claimed damages against the Defendants for breach of a Wine Distribution Agreement entered into between the parties and another entity Genesis Liquor Distributors Pty Ltd on 11 November 2002. It was alleged that the Defendants were the guarantors of monies due by Genesis to the Plaintiff under the agreement. The Plaintiff asserted that Genesis did not meet its obligations and that Genesis repudiated the agreement by selling the business to another entity on 1 May 2003.
It is alleged that the total amount owing by the Defendants under the guarantee amounts to approximately $458,000 of which shortfall and purchases totals approximately $358,000. The balance of approximately $58,000 relates to products supplied to Genesis but not sold and not paid for. There is a claim for interest and past legal costs.
The Defendants filed a defence on 8 August 2005. The defence made various admissions but denied that Genesis repudiated the agreement. The Defendants further denied any breach of the agreement and alleged that the Plaintiff had failed to mitigate its alleged loss.
Cowell Clarke took over acting for the Defendants in the matter on 23 August 2005.
The matter came on for a status hearing before the Master on 24 August 2005 and orders were made for mutual discovery within 28 days and obtaining and serving of expert’s reports within 14 days with any responding expert report within a further six weeks. On 1 November 2005 and 18 November 2005 the Plaintiff provided lists of documents.
The matter proceeded on a further directions hearing on 2 November 2005. Time was allowed for an amended defence to be filed and the Defendants were given an extension of time in which to make discovery. Orders were made extending the time for the Plaintiff’s provision of an expert report and any responding reports. Apparently the Master indicated on that occasion that the matter should proceed to a listing conference on the next occasion.
On 19 December 2005, by letter, the Plaintiff’s solicitors politely reminded the Defendants’ solicitors that the Defendants had not complied with the orders of the Master. A further reminder was sent by letter of 28 February 2006.
On 8 March 2006 the Defendants’ solicitors failed to attend the hearing. Although there had been no responding report from the Defendants by this stage the Master allowed a further 14 days for any responding expert report to be provided. He further directed that discovery be provided by the Defendants within seven days. The Master referred the matter to a listing conference which was set for 6 April 2006. The Master also ordered copy documents and a certificate of readiness to be filed which were done on 30 March 2006.
The Plaintiff’s solicitor, by letter of 9 March 2006 informed the Defendants’ solicitors of the Master’s orders of 8 March 2006.
At the listing conference on 6 April 2006 the matter was listed for 10 July 2006 with five days set aside.
The Defendants did not file its list of documents until 5 May 2006.
On 30 June 2006 the Defendants’ solicitors wrote to the Plaintiff’s solicitors requesting in effect further and better discovery. Somewhat courageously, given the lateness of the request, they suggested that the Plaintiff’s discovery was “manifestly inadequate”. The letter indicated that there may be an application to vacate the trial date. Not surprisingly this request brought a somewhat indignant reply from the Plaintiff’s solicitors on 3 July 2006. Further documents however were discovered by way of a supplementary list dated 3 July 2006.
The Plaintiff’s documents were not inspected by the Defendants’ solicitors until 4 July 2006.
The Defendants by application dated 4 July 2006 sought urgent orders from the Master as follows:-
1.    the Plaintiff verify its list of documents filed in the action and for further discovery;
2.    the trial date of 10 July 2006 be vacated;
3.    action be set down for further directions in four weeks;
4.    the Court to make a timetable to deal with the application before Wednesday 5 July 2006;
5.    costs.
The matter came on before the Master on 5 July 2006. After hearing argument, the Master refused the Defendants’ applications. The Master, as he was bound to do, applied r 67.01(6). That rule provides:
6. No further interlocutory order should be made under this rule after the making of the order to proceed to trial unless special circumstances should be shown to exist which require such order to be made in the interests of justice.
The Master found on the material in front of him that the discretion under r 67.01(6) had not been enlivened.
In view of the impending commencement of the trial, the Master thought it appropriate to abridge the time for appeal from his decision to 2.00 pm on Friday 7 July 2006.
A Notice of Appeal was lodged within time and the matter was heard by me late on Friday 7 July 2006. The application before me was of course not governed by r 67. It was in effect an application to vacate the trial date due to the late discovery, or failure to fully discover, various documents. During the course of the argument the Plaintiff discovered a further document relating to the issue of costs of goods sold. It seems likely that there would be other documents to still be discovered.
Arguments
Mr Robertson appeared for the Defendants on the application to adjourn the matter. Whilst the Master had abridged the time to appeal his orders and a Notice of Appeal had been lodged, the matter came on before me as an application to vacate the trial date rather than the appeal from the Master.
Mr Robertson argued that there had been a failure by the Plaintiff to discover, or fully discover, three particular classes of documents. The first class related to documents to support an assumption made by the Plaintiff’s accounting expert Mr Hall, relating to the topic of “costs of goods sold”. The second class of documents were those relating to the recording of sales to persons other than Genesis. Mr Robertson indicated in relation to that category of documents that further discovery had been made some four days before in relation to this matter.
The third issue argued by Mr Robertson related to a category of documents recording the resale of returned goods. This related to the Defendants’ contention that the Plaintiff had failed to properly mitigate its loss.
Mr Robertson conceded, correctly in my view, that there really had been an unacceptable delay in the Defendants making a request for these documents. However he pointed out that the primary obligation with regard to discovery lay on the Plaintiff and that in fact the Defendants could have waited until after the trial had commenced and Mr Hall began to give evidence before pointing out the deficiencies in discovery.
Mr Duggan appeared for the Plaintiff. He conceded, correctly in my view, that there were problems with the discovery made by the Plaintiff particularly in relation to the first category of documents. However, he pointed out that no inspection of any documents had been made by the Defendants until very recently nor had there been any query in relation to the Plaintiff’s discovery until a few weeks before the trial was due to start. In essence Mr Duggan submitted that the Defendants were not ready to start the trial, they had little or no defence to the action and they were using the discovery issues as a pretext to adjourn the trial.
Whilst some of the criticisms made by Mr Duggan of the Defendants conduct have merit, the primary obligation was on the Plaintiff to ensure that its discovery was complete. The fact that the issues relating to discovery arose so late in the proceedings was extremely unfortunate. However, the Defendants in my view were entitled to insist that the Plaintiff make full and proper discovery so as to enable it to fully investigate the issues raised by Mr Robertson. Hence the trial was adjourned.
Legal Principles-Indemnity Costs.
Rule 101.02 provides that costs should follow the event unless otherwise ordered. The relevant rules of court give a reasonably wide discretion to the courts to order costs.[1]
[1] District Court Rule 101.01
Indemnity costs are not imposed for the purpose of punishment. They can only be justified by the need to indemnify or compensate the party in whose favour they are made.[2]
[2] Shanamere Pty Ltd v Litigation Support Services Pty Ltd [2006] SASC 120
The court will only order costs on a solicitor and client or indemnity basis where the justice of the case warrants such an order, or where there is some “special or unusual feature” which justifies a departure from the usual party and party costs order.
In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 the Full Court of the Federal Court stated the principles as follows:
In order to exercise the discretion to award indemnity costs judicially the following principles have been accepted by the Court as applicable:
(a)the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course;
(b)the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may some special or unusual feature in the case to justify the Court in departing from the usual course;
(c)while the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.
The circumstances in which indemnity costs will be ordered are varied and inevitably depend on the particular circumstances of each case.[3] In Colgate Palmolive Co v Cussons Pty Ltd[4] Sheppard J listed some of the circumstances in which courts have ordered solicitor and client costs. These include:
…[T]he making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud…; evidence of particular misconduct that causes loss of time to the Court and to other parties…; the fact that the proceedings were commenced or continued for some ulterior motive…or in wilful disregard of known facts or clearly established law…; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions…; an imprudent refusal of an offer to compromise… and an award of costs on an indemnity basis against a contemnor…”
[3] Shanamere Pty Ltd v Litigation Support Services Pty Ltd (Supra) at par 30
[4] (1993) 46 FCR 225 at 233 - 234
However Sheppard J went on to say that there are many other categories of cases where it may be justified:
Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
Arguments
In support of his application for indemnity costs Mr Duggan pointed to the “delinquency and neglect” of the Defendants in their approach to the matter generally. Mr Duggan pointed to the lack of preparation for hearing by the Defendants, which he argued, when coupled with the late application for discovery provided a sufficient basis to depart from the usual course of ordering party/party costs only. Mr Duggan went as far to suggest that the Defendants were using the discovery issue as a “pretext” to have the matter adjourned as they were simply not ready to proceed to trial.
Mr Duggan pointed to the breach of various pre-trial orders made by the Master for the Defendants to make discovery and file its amended defence. They were late to make discovery despite requests from the Plaintiff’s solicitors. He pointed to the Certificate of Readiness and the fact that the Defendants in April 2006 had consented to the matter being listed, the suggestion being that the Defendants agreed to the proposition that the matter was ready for trial.
Mr Robertson for the Defendants conceded that he could not resist an order for costs thrown away as a result of the vacation of the trial date; however he resisted that such an order should be on a solicitor/client basis or an indemnity basis. Mr Robertson argued, in effect, that the Plaintiff was in default when it came to the question of discovery and that factor alone would preclude an order for indemnity costs. He pointed out that although there had been delay by the Defendants and they could be criticised for not raising some of these issues earlier, the primary responsibility to ensure that discovery was made fully and properly remained on the Plaintiff. The Defendants, at the time of the application to vacate the trial date were not in breach of any court order.
Conclusions
Whilst there are grounds for criticising the conduct of the Defendants generally in this matter I agree with Mr Robertson that the primary responsibility for making full and proper discovery rests with the Plaintiff. Parties to litigation are under an obligation to make proper discovery and failure to do so is regarded seriously by the courts.
As Waddell J stated in Southern Cross Exploration NL & Ors v Fire & All Risk Insurance Co Ltd & Ors[5]:
There can be no argument that in some cases proper and full discovery of documents is a step in pre-trial procedure which is essential to achieving a just result between the parties at the trial. The importance of discovery is implicit in the emphasis which has been placed upon the obligations of the solicitors for the parties in various decisions of the courts.
[5] (1985) 2 NSWLR 340 at 356
In this matter the Plaintiff was not asked to consider the adequacy of its discovery until shortly before trial. It is likely that if it had been asked to do so earlier these issues would have been resolved quickly. Hence the concession by the Defendants that they should pay costs thrown away. Once the Defendants isolated the areas where they say the discovery was deficient the Plaintiff and its solicitors have quickly and appropriately attended to remedy any alleged deficiency. However, when exercising the discretion in relation to ordering indemnity costs, I have to consider all the circumstances of the matter. The Plaintiff always had the obligation to prove the assumptions made by the expert Mr Hall; the issue of the classes of documents underpinning the assumptions was always likely to arise at some stage of the proceedings.
I do not accept the submission that the Defendants were simply using the issue of discovery as a pretext to adjourn the matter. Indeed the pursuit by the Defendants of the issue of discovery has had the effect of the discovery of other documents by the Plaintiff.
In exercising my discretion in the matter there is in my view no special or unusual feature of the matter, which would justify a departure from the usual case; nor does the justice of the case warrant an order for costs other than party/party costs. I refuse the application for indemnity costs.
Legal Principles-Costs to be paid forthwith
Rule 101.01 provides:
7. An order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded or further order.
The scope of the rule was recently considered by Debelle J in the matter of Alstom Power Ltd v Yokogawa Australia Pty Ltd & Ors (No 2)[6]. His Honour considered and discussed the authorities relevant to O 62 r 3(3) of the Federal Court Rules which is in the same terms a r 101.01(7).
[6] [2006] SASC 87
Policy considerations underlying the rule include:
1.    discouraging interlocutory applications;
2.    avoiding the inconvenience and possible oppression involved in a series of taxations where there are successive interlocutory applications; and
3.    the fact that it is usually inappropriate to require the unsuccessful party to interlocutory proceedings to pay costs immediately, since that party might ultimately succeed in the substantive proceedings and set-offs can be made in light of the ultimate orders as to costs.[7]
[7] Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2) (supra) at par (7)
His Honour went on to identify various factors that could justify a departure from the general rule as follows:
1.    Where an interlocutory proceeding involving a discrete issue has been resolved. However, where the interlocutory proceedings concerns pleadings, especially pleadings in a complex action such an order will not usually be made.
2.    Where the principal proceedings are not likely to be resolved for some time so that, in the absence of an order the successful party will not enjoy the fruits of the interlocutory order for a long period.
3.    Where the interlocutory application has had the effect of removing one of several causes of action in its entirety.
4.    Where the application is an unsuccessful application for leave to appeal on an interlocutory matter of practice and procedure given the strong public policy against the proliferation of such applications.[8]
[8] Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2) (supra) at par (8)
Debelle J noted that as a general rule the court sets its face against multiple applications for costs to be taxed. His Honour also identified as a factor to be taken into account, that an order that costs be paid after an interlocutory proceeding could detrimentally affect the limited financial resources of a party to the extent that it is unable to continue to prosecute or defend the action.[9] I note that is not an issue in this case.
[9] Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2) (supra) at par (9)
His Honour also went on to consider the NSW Rules where, although the relevant rule was expressed differently, similar principles to the Federal Court were applied.
Additional matters to be considered were:
1. where there was unreasonable conduct on the part of the party against whom costs have been ordered;
2. where a considerable time remains before the proceedings will ultimately be determined.
Arguments

Mr Duggan argued that there had been unreasonable conduct by the Defendants as outlined in relation to the indemnity costs argument. He also argued that the adjournment was a discrete issue that had now been resolved.
Mr Robertson argued that the application for the adjournment was brought about by the failure of the Defendants to make full and proper discovery. Whilst he conceded that the application for further and better discovery was brought very late by the Defendants, it had in effect caused the Plaintiff to produce (and may continue to produce) further documents. Thus it could not be said that the conduct in making such an application was unreasonable. Further he pointed out that it was not likely to cause much delay in the re-listing of the matter for hearing. I note previously that there was a listing conference in April 2006 and the matter had been listed for July 2006.
Conclusion
The rules give a wide discretion to the courts in relation to the question of costs. As stated before it is extremely unfortunate that the application for further and better discovery (which turned into an application to vacate the trial date) was brought so late. However in my view it could not be said that it was brought about solely by the unreasonable conduct of the Defendants. I accept that in the ordinary course of litigation one would have expected these issues to have been isolated and argued before the matter was listed for trial; however the primary obligation is on the Plaintiff to make full and proper discovery.
In the circumstances I am not prepared to make the order sought by the Plaintiff.
Other matters
Mr Duggan also sought an order that “the question of whether costs payable under these orders be payable by the solicitors for the defendants pursuant to r 101.06(1)(a)(iii) be reserved”. I do not see the utility of such an order. By implication the order is not being sought. The Court of course can act of its own motion. I am not persuaded that I should adopt such a course in this case.
The Plaintiff can make such an application if it so chooses: the Court can then determine the matter. I decline to make the order “reserving” such a position.
I will hear the parties as to what orders are sought in light of these reasons.