Highfield Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd (No 2)
[2012] SASC 191
•17 October 2012
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
HIGHFIELD PROPERTY INVESTMENTS PTY LTD v COMMERCIAL & RESIDENTIAL DEVELOPMENTS (SA) PTY LTD (NO 2)
[2012] SASC 191
Judgment of The Honourable Justice Blue
17 October 2012
CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS - RIGHTS AND LIABILITIES OF PRINCIPAL IN RESPECT OF CONTRACTS OF AGENT - ELECTION TO TREAT PRINCIPAL OR AGENT AS LIABLE
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
The plaintiff succeeded in an action for damages for breach of contract in the sale of land. Damages and interest were assessed at $2,420,247.93 calculated up to the judgment date.
The plaintiff claims, and the defendant denies, that it is entitled to judgment against both defendants on the basis of an alleged admission in their defence that the first defendant entered into the contract on behalf of itself and the second defendant. Alternatively, the plaintiff sought an order that the defendants disclose documents evidencing their current financial position and not be required to elect until then against which defendant to take judgment.
The plaintiff/cross-defendants claim costs on an indemnity basis.
Held:
1. The plaintiff is entitled to recover against both defendants because they admitted that they were both parties to the contract.
2. The plaintiff/cross-defendants are entitled to costs of action from filing the defence to the beginning of trial and for one day of trial, on an indemnity basis because they abandoned without explanation their original defence and it should be inferred that, properly advised, they should have realised the defence had no realistic chance of success.
3. The plaintiff/cross-defendants were only entitled to costs of the trial on a party/party basis. Their new defence at trial was not so weak that, properly advised, they should have realised that it had no realistic chance of success.
4. Judgment awarded to the plaintiff against both defendants for $2,443,195.20. Costs to be paid by the defendants on the above basis.
Trademarks Act 1995 (Cth) s 126, referred to.
Australian Trade Practices Commission v Goodman Fielder Industries Limited [1992] FCA 307; (1992) 36 FCR 517, applied.
Calder v Dobell (1871) LR 6 CP 486; Citicorp Australia Ltd v Cirillo (No 4) [2001] SASC 233; Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR at 25 ; Dr Martens Australia Pty Ltd v Barta Shoe Co of Australia Pty Ltd (1997) 75 FCR 230 ; GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] HCA 113 ; Hutten v Bulloch (1874) LR 9 QB 572; Island Records Ltd v Tring International Plc [1995] 3 All ER 444; Keighley, Maxstead & Co v Durant [1901] AC 240 ; Kendall v Hamilton (1879) 4 App Cas 504 at 544; Montgomerie v United Kingdom Mutual Association Limited [1891] 1 QB 370 ; Pascoe Ltd v Lucas (1999) 75 SASR 246 ; Sheahan v Northern Australian Land & Agency Co Ltd (No 2) (SASC, Full Court, No S5363, 18 December 1995, unreported); Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 ; Warman International Ltd v Dwyer (1995) 182 CLR 544, considered.
HIGHFIELD PROPERTY INVESTMENTS PTY LTD v COMMERCIAL & RESIDENTIAL DEVELOPMENTS (SA) PTY LTD (NO 2)
[2012] SASC 191Civil:
BLUE J:
On 24 September 2012, I delivered reasons for judgment in which I concluded that the plaintiff was entitled to judgment against one or other of the defendants for $2,420,247.93 inclusive of interest calculated to 13 August 2012 and that the first defendant’s counterclaim failed.[1]
[1] [2012] SASC 165.
On 10 and 11 October 2012, I heard argument as to the orders to be made. It was common ground that the judgment sum, inclusive of interest calculated to 11 October 2012, based on my earlier reasons for judgment, ought to be $2,443,195.20.
The following matters were in contention:
1.whether the plaintiff is entitled to judgment against both defendants on the basis of an alleged admission in their defence that the first defendant entered into the Contract on behalf of itself and the second defendant;
2.if not, whether I should make an order on the application of the plaintiff that the defendants disclose documents evidencing their financial position and that the plaintiff not be required to elect against which defendant to take judgment until after such disclosure is made;
3.whether the whole or part of the costs of action of the plaintiff and defendants by counterclaim should be paid on an indemnity, as opposed to party/party, basis.
The defendants instructed their solicitors and counsel to oppose the plaintiff’s contentions on each of these three issues, but not to put any substantive submissions at the hearing. I invited the defendants’ counsel to make submissions on the first issue for the assistance of the Court and he made submissions on the construction of paragraph 8.4 of the defence.
On 11 October 2012, I determined that the plaintiff is entitled to judgment against both defendants and that the defendants should pay part of the costs of action of the plaintiff and defendants by counterclaim on an indemnity basis and the balance on a party/party basis. I made final orders on the basis that I would subsequently give reasons for judgment.
Entitlement to judgment against both defendants
The plaintiff (“Highfield”) contends that, by paragraph 8.4 of their defence, the defendants admitted that the first defendant (“Commercial”) was acting on behalf and both itself and the second defendant (“College”) in entering into the contract executed on 7 May 2008 (“the Contract”). Highfield contends that it is entitled to judgment against both defendants on that basis.
It is common ground that, at the time the Contract was executed, it was not disclosed to Highfield that Commercial was not acting as principal or was acting as agent.
Two principal issues arise on Highfield’s contention:
1.whether, as a matter of law, both an agent and undisclosed principal can be parties to a contract where that is their intention; and
2.whether the defendants admitted by paragraph 8.4 of their defence that they were both parties to the Contract.
The undisclosed principal doctrine
Where a person is an agent for a principal and the fact of the agency is disclosed to the other party to the contract (whether or not the name of the principal is disclosed), depending on the proper construction of the contract, there may be a contract:
(a)between the other party and the principal;
(b)between the other party and the agent; or
(c)between the other party and both the principal and agent.[2]
[2] Montgomerie v United Kingdom Mutual Steamship Association Limited [1891] 1 QB 370 at 372 per Wright J; Australian Trade Practices Commission v Goodman Fielder Industries Limited [1992] FCA 307 (1992) 36 FCR 517 at 522 per Beaumont, Gummow and Einfeld JJ.
Where a person is agent for an undisclosed principal, the other party is entitled to treat the agent (as ostensible principal) or the principal (as actual principal) as the opposite party to the contract. Both parties proceeded on the basis that, where the agent is in fact acting solely as agent, the other party can sue both but must elect immediately before judgement to take judgment against one or the other but not both. I proceed on that assumption. [3]
[3] It is clearly established that judgment against the agent precludes a later action against the principal and vice versa: see for example Kendall v Hamilton (1879) 4 App Cas 504 at 514-515 per Lord Cairns; Keighley, Maxstead & Co v Durant [1901] AC 240 at 261-262 per Lloyd Lindley; Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207 per Lord Lloyd. There are authorities which indicate an election is required before judgment (see for example Calder v Dobell (1871) LR 6 CP 486 at 493 per Willes J, and 499 per Kelly CB) although it is not clear as a matter of principle that or why this follows from the principles which otherwise comprise the undisclosed principal doctrine.
Where the agency is disclosed, the identity of the parties to the contract involves the ascertainment of the objective common intention of the parties, ie the proper construction of the contract. Where the agency is undisclosed, the identity of the parties to the contract must ex hypothesis depend upon the intention of the agent and principal because only actual authority is relevant (there being no room for ostensible authority or ratification).[4]
[4] Hutten v Bulloch (1874) LR 9 QB 572; Keighley, Maxstead & Co v Durant [1901] AC 240.
It follows from the application of these principles that, if it is the intention of the agent to contract as agent on behalf of two principals, namely the agent itself as well as the undisclosed principal, then both the agent and the undisclosed principal will be liable on the contract and the other party need not elect to take a judgment against one only of them. There do not appear to be any authorities on this question, but Reynolds in Bowstead and Reynolds on Agency suggests that this is the position in the following passage:
But it is now clear that there can be cases where the agent is liable together with the undisclosed principal: and there seems no real reason why this should not be so in the case of the undisclosed principal also.[5]
[5] Reynolds, Bowstead and Reynolds on Agency 18th ed (2006) paragraph 8-115 at page 408.
I conclude that, if it was the intention of Commercial and College that both were to be parties to the Contract, then both were parties to the Contract and Highfield is not required to elect to take a judgment against one only of them.
The construction of paragraph 8.4 of the Defence
Highfield’s pleading in its statement of claim as to the identity of the parties to the Contract was as follows:
6.The Contract was executed by the first defendant on its own behalf and thus the first defendant is liable under the Contract in its own right.
7. In the alternative to paragraph 6 hereof, the Contract was executed by the first defendant pursuant to the Nomination as agent for the second defendant as undisclosed principal and accordingly the first defendant or alternatively at the election of the plaintiff the second defendant is liable for all obligations undertaken by the Purchaser under the Contract.
8. In the further alternative to paragraphs 6 and 7 hereof, the Contract was entered into by the first defendant in its own right and as agent for an undisclosed principal, namely the second defendant, on the basis that the first and second defendants were to become joint owners of the Property or tenants in common thereof and the second defendant is jointly and severally liable with the first defendant for all obligations undertaken by the Purchaser under the Contract.
By their defence, the defendants did not plead to paragraphs 6 to 8 of the statement of claim. However, paragraph 8 of the defence originally read as follows:
In material reliance upon the Representation:
8.1 the second defendant executed the Nomination;
8.2 the first defendant entered into an option agreement on 29 October 2007 with the plaintiff whereby the plaintiff granted to the first defendant or its nominee an option to purchase the property;
8.3 the first defendant exercised the Option on 28 April 2008 on its own behalf and on behalf of the second defendant; and
8.4 the first defendant executed the Contract on 7 May 2008 on its own behalf and on behalf of the second defendant.
The plaintiff contends that paragraph 8.4 means that Commercial executed the Contract on behalf of itself and College as principals. The defendants contend that paragraph 8.4 means that Commercial executed the Contract but only as agent for College.
During the trial, the six introductory words to paragraph 8 were deleted in consequence of the abandonment of the misrepresentation case. However, the sub-paragraphs of paragraph 8 remained. On its proper construction, I consider that paragraph 8.4 pleads that Commercial executed the Contract on behalf of both itself and College as principals. That is the literal meaning of the words. If it had been intended to plead merely that Commercial was executing the Contract on behalf of the second defendant, the words “on its own behalf” were unnecessary and would not have been used.
As originally pleaded, paragraph 8 was an important plank of the pleading of the misrepresentation case. Paragraph 9 went on to plead that the defendants would not have done the acts identified in paragraph 8 if the Representation had not been made and paragraph 10 pleaded that both defendants were induced by the Representation. This suggests that both defendants (as principals) changed their position by entering into the Contract in reliance upon the Representation.
Commercial originally pleaded a counterclaim against Highfield and Mr Hurley for misrepresentation. In its counterclaim, it repeated, amongst other paragraphs, paragraph 8 of the Defence. It sought, amongst other relief, damages for misleading conduct. If Commercial were acting solely as agent for College and not also as a principal in entering into the Contract, it might have been expected that it would not have sought damages for loss and damage caused by its entry into the Contract because the loss would have been that of College as sole principal.
Counsel for the defendants referred to paragraph 2A of the defence which admitted paragraph 4 of the statement of claim, which in turn pleaded that, by the Letter of Appointment and Nomination dated 26 October 2007, College authorised and nominated Commercial to enter into a contract for the purchase of the property on behalf of College. Counsel contended that the pleading and admission of the Letter of Nomination was tantamount to setting out the entirety of the document in the pleading. He referred to the wording of the Letter of Nomination as follows:
We [College] hereby authorise and nominate [Commercial] to enter into a contract for the purchase of 3 St Johns Road, Glenelg … on our behalf and undertake to ratify the purchase of the Land and to accept a transfer of the Land and fulfil the obligations of the purchaser pursuant to any contract so executed.
Counsel contended that the Letter of Nomination made it plain that College was the (sole) principal of Commercial.
Rule 98(3) of the Supreme Court Civil Rules 2006 (SA) (“the Rules”) provides that, where a claim or defence is based on a document, the effect rather than the actual words of the document should be pleaded unless there is good reason to state the actual words. Accordingly, for the purpose of construing paragraph 4 of the statement of claim and paragraph 2A of the defence, regard should be had to the effect pleaded by the plaintiff and admitted by the defendants. That effect was that College authorised and nominated Commercial to enter into a contract for the purchase of the Property on behalf of College.
The statement of claim itself does not regard paragraph 4 as dictating the identity of the other party to the contract because it proceeds by paragraphs 6, 7 and 8 (quoted above) to plead alternatively that Commercial, College or both were the opposite party or parties to the contract.
In any event, paragraph 4 on its face only pleads the conferral of authority by College upon Commercial to enter into a contract on its behalf. It is silent as to what actually transpired thereafter. Accordingly, paragraph 2A of the defence does not affect or qualify paragraph 8.4 of the defence.
Conduct of the case
Sometimes, the manner in which a case is conducted at trial can either impinge upon the identification of the issues in the action or preclude a party from maintaining a position which could otherwise be advanced based upon the pleadings. In the present case, the manner in which the case was conducted at trial does not so impinge.
Very little attention was given by the parties in their opening addresses to the question against which defendant the plaintiff would be entitled to judgment in the event it succeeded overall in the action. This was probably because the change of case by the defendants from a misrepresentation based defence to a contractual based defence dominated the opening addresses.
At the outset of the trial, issues were raised as to the precise nature and degree of the abandonment by the defendants of their misrepresentation case and its consequences. In the course of submissions, senior counsel for Highfield said:
Para 8 is going, and we are coming here relying on 8.1 and 8.3. We have a case of undisclosed principal and liability in both defendants as agent and undisclosed principal. Para 8.4 apparently is going. That is an admission.
and in response, counsel for the defendants said:
I can assist my learned friend; 8.4, 8.4 can stand. There is no attempt to withdraw the admissions.
Thereafter, nothing further was said in the opening addresses of either of the parties as to the nature or basis of the liability of Commercial and College.
In light of the exchange between counsel quoted above, the defendants could not contend that they decided not to adduce evidence on the issue of the identity of the contracting parties because they were misled by the plaintiff into believing that the plaintiff was only contending that it was entitled to judgment against one or other of the defendants but not both. During the hearing before me on this issue, the defendants did not in fact make a contention to that effect, although I have noted above that they did not instruct their solicitors or counsel to make any substantive submissions..
In the plaintiff’s written closing address, there was a paragraph which stated:
It appears common ground that if the plaintiff succeeds, the defendants are jointly and severally liable.
At the commencement of the plaintiff’s oral closing address, counsel for the defendants denied that it was common ground and submitted that the plaintiff had to make an election before judgment. However, by the time of closing addresses, the evidence in the case was closed.
My principal reasons for judgment
I said in the concluding paragraph of my principal reasons for judgment that Highfield was entitled to judgment against either Commercial or College at its election.[6]
[6] [2012] SASC 165 at [403].
By that paragraph, I was not intending to make a determination between contested positions of the parties as to whether Highfield was entitled to judgment against both defendants or only against one defendant. I simply proceeded on the assumption that this was an ordinary case of undisclosed principal in which an election would be required.
In any event, reasons for judgment have no operative effect as such: it is the making of orders (reinforced by the sealing of orders) which has operative effect. There is no principle which precludes correction or amplification of matters expressed in reasons for judgment as such (as distinct from whether a party is precluded by its conduct of the case or the stage which the case has reached from raising a particular contention).
The defendants do not contend that, by reason of the expression of my reasons for judgment as such, the plaintiff is precluded from contending that judgment should be granted against both defendants. I hold that it is not.
Conclusion
Highfield is entitled to judgment against both defendants.
Application for disclosure and deferment of election
On the assumption that Highfield were not entitled to judgment against both defendants and were required to elect to take judgment against one or the other, Highfield applies for an order that the defendants make disclosure of:
1.the latest financial statements for each defendant (including balance sheet, profit and loss statement and notes);
2.documents disclosing the identity and amount of the creditors of each defendant (whether shown in the balance sheet or not).
Highfield seeks that the time at which it be required to elect be deferred until it receives such disclosure if ordered.
The defendants oppose the orders sought by Highfield in this respect but their counsel and solicitors were not instructed by the defendants to put any substantive submissions beyond noting the defendants’ opposition.
Power to order disclosure
Highfield does not contend that the documents of which it seeks disclosure are relevant to the issues in the action and hence ought to have been disclosed by the defendants pursuant to rule 136 of the Rule. Rather, it relies upon the Court’s general powers conferred by rules 116(1) and 117(1).
Rule 116(1) provides:
The Court has power to manage litigation to the extent necessary to ensure that it is conducted –
(a) fairly; and
(b) as expeditiously and economically as is consistent with the proper administration of justice.
Rule 117(1) provides:
The Court may make any order it considers necessary for the proper conduct of a proceeding or otherwise in the interests of justice.
In Proude v Visic,[7] I held that rules 116(1) and 117(1) give the Court power to make an order for the disclosure of documents for the purpose of and ancillary to interlocutory applications where it is satisfied that such an order is necessary in the interests of justice.[8]
[7] [2012] SASC 184.
[8] [2012] SASC 184 at [20]-[23].
An application for disclosure of documents for the purpose of a plaintiff making an informed choice when electing to take judgment against the agent or the undisclosed principal raises different considerations to an application for disclosure for the purpose of and ancillary to an interlocutory application. In the latter, the Court is called upon to determine the contested interlocutory application and the documents ex hypothesis are relevant to the Court’s determination of that issue. In the former case, there is no determination for the Court to make: it is simply a matter for the plaintiff to make an election. In the former case, I consider that it would be much more difficult for the plaintiff to satisfy the Court that it is necessary in the interests of justice for a disclosure order to be made.
Interests of justice
Highfield does not cite any authorities in which an order for disclosure of documents relevant to financial position has been made before and for the purpose of a plaintiff electing to take judgment against an agent or undisclosed principal.
Highfield contends that the situation is analogous to that in which a plaintiff is entitled to either damages or an account of profits and is required to elect before judgment which remedy it will take. Such an election is required generally where a party has an entitlement in equity to a remedy of equitable compensation or an account of profits and under Commonwealth intellectual property statutes conferring such alternative remedies.[9]
[9] See for example Trademarks Act 1995 (Cth) section 126 and Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 32 per Windeyer J.
In cases where there is a separate trial on liability with a subsequent hearing to take place on remedies and the plaintiff is required to elect between alternative remedies of damages and account of profits at the time of determination of liability, it has been held that the plaintiff is entitled to disclosure of documents relevant to the quantum of damages/compensation or an account of profits so that the plaintiff can make an informed choice when electing between those alternative remedies.[10] In a case in which a plaintiff is entitled, at its election, to damages or an account of profits, documents relevant to quantum are relevant to the matters in issue in the action within the meaning of rule 136. A plaintiff therefore has an entitlement to disclosure of them and the only question is one of timing where there is a split trial (ie as a matter of case management whether the Court defers the obligation to disclose documents relevant to quantum until after determination of liability).
[10] Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Pty Ltd (1997) 75 FCR 230 at [7]-[10] per Goldberg J; GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 at [56]-[57] per Warren CJ (Chernov JA and Dodds-Streeton AJA agreeing).
That situation is quite different to one in which a plaintiff is required to elect to take judgment against an agent or undisclosed principal. There, as the plaintiff concedes in this case, documents relating to the financial position of the defendants are not relevant to any matters in issue in the action within the meaning of rule 136. The authorities dealing with election between damages and an account of profits are not therefore apposite to the present case.
It is perhaps conceivable that there might be some circumstances in which it is necessary in the interests of justice for a disclosure order of the type now sought by Highfield to be made before election by a plaintiff to take judgment against an agent or undisclosed principal. However, assuming that such circumstances could exist, they do not exist in the present case. I am not satisfied that it is necessary in the interests of justice for a disclosure order to be made.
Shortly before the commencement of the trial, Highfield served a notice to produce on the defendants seeking disclosure of their financial statements for the year ended 2009. This was because the financial position of the defendants in the period leading up to Commercial’s purported rescission of the Contract in May 2009 was relevant to an issue in the action, namely reliance and inducement as part of the defendants’ then misrepresentation case as well as the plaintiff’s unconscionability rebuttal case. As a result, the defendants produced draft financial statements for the year ended 30 June 2009, which were tendered during the trial as being relevant to the unconscionability issues.
In other proceedings, Highfield obtained the balance sheet for Commercial for the year ended 30 June 2012, which it tendered in this action on the present application.
The financial statements of College to show that, as at June 2009, College had assets recorded at approximately $2.3 million, principally composing inventory (presumably the remaining land in College Street which was sold during the following year). It had loans totalling of approximately $2.9 million. It had negative equity of approximately $550,000, being accumulated losses.
The financial statements of Commercial show that, as at 30 June 2012, it had assets recorded at approximately $200,000 (cash of about $75,000 and property, plant and equipment of about $150,000). It had liabilities of approximately $5.5 million (including loans and interest bearing liabilities of approximately $4.7 million). As at 30 June 2009, Commercial was in a marginally better financial position, but nevertheless had liabilities ten times its assets.
While Highfield does not have a more recent balance sheet for College than 2009, it is very likely, and I find on the balance of probabilities, that College has remained a single purpose company (for the proposed re-development of College Street, Glenelg) and accordingly has not acquired any significant assets or undertaken any additional new activities since 2009.
In these circumstances, Highfield does in fact have a reasonable measure of information on the basis of which to make its election. While there is no doubt that further documents and information could be obtained by Highfield so that it would be better informed, if some degree of disclosure is ordered, the question would arise in any event as to the point at which a line should be drawn. For example, Highfield might well wish to enquire into the existence of any transactions which might be voidable against a liquidator in the event that either of the defendants were placed in liquidation.
Conclusion
I declined to order the disclosure sought by Highfield. In those circumstances, I indicated to Highfield that it ought to identify the election which it would have made if it had been unsuccessful in its primary contention that it is entitled to judgment against both defendants and requested to elect. Because I have held that Highfield was entitled to judgment against both defendants in any event, this question is irrelevant and hypothetical. However, in case my decision on the first issue should be overturned on appeal, I considered that Highfield ought to indicate at this stage the election which it would have made. On that basis, and for that purpose, Highfield indicated that it would have elected to take judgment against College.
Costs
Highfield and Mr Hurley seek orders that the costs of the action and counterclaim be paid by the defendants. The defendants do not resist such an order as such, but contend that the costs should be on the party/party basis.
Highfield and Mr Hurley contend that the whole or part of the costs should be awarded on an indemnity basis on the following grounds:
1.as to costs incurred up to the commencement of trial, their costs should be received on an indemnity basis because the sole misrepresentation-based defence was abandoned on the eve of trial without explanation and it should be inferred that it was abandoned because the defendants rightly appreciated that it had no realistic chance of success;
2.they should have their costs of the trial because, properly advised, the defendants ought to have realised that their contractual-based defences had no realistic chance of success;
3.in the alternative, they ought to have their costs of the amendments made to the defence and cross action during the week before and at trial because these very late amendments disrupted their preparation for and conduct of the trial and increased time and cost incurred.
Costs prior to trial
By my rulings during the trial and my primary reasons for judgment, I concluded that the defendants were running only a misrepresentation-based case until the eve of trial and were not running a contractual-based case until virtually the beginning of the trial.[11]
[11] [2012] SASC 165 at [15]-[21] [107]-[108] and [272]-[276].
Indemnity costs may be awarded where a party, properly advised, should have realised that it had no realistic chance of success.[12] Where a party abandons its case on the eve of trial, it may be inferred that, properly advised, the party realised and ought always to have realised that it had no realistic chance of success.[13]
[12] Sheahan v Northern Australian Land & Agency Co Ltd (No 2) (SASC, Full Court, No S5363, 18 December 1995, unreported) at 6 per Olsson J (Mohr J and Nyland J agreeing); Pascoe Ltd (in Liq) v Lucas (1999) 75 SASR 246 at [320]-[324] per Lander J (Millhouse J and Duggan J agreeing).
[13] Citicorp Australia Ltd v Cirillo [2001] SASC 233 at [28] per Lander J.
Highfield contends that, properly advised, the defendants should always have realised that their misrepresentation case would fail on the issues of the existence of the alleged representation and reliance and inducement. Highfield points to my findings in my principal reasons for judgment that both parties knew of the existence of asbestos at the time of the alleged representation and hence the making of the representation would be inherently unlikely and the defendants knew of the existence of asbestos and hence they would have failed on reliance and inducement. My findings were made in the absence of evidence from either Mr Hurley or the officers of the defendants. In those circumstances, Highfield is only entitled to base limited reliance upon those findings.
Leaving aside the issue of the existence of the alleged representation (as to which Mr Rice had not previously sworn an affidavit or otherwise committed himself to evidence of the existence of the representation), the objective evidence was that the costs of removal of the asbestos in question would have been in the order of $10,000 to $15,000. Given the contractual purchase price of $3.5 million and the Urban Construct Group’s plans for the land, I consider that the defendants, properly advised, would have realised that their case on reliance and inducement had no realistic chance of success. I am therefore persuaded that it is appropriate to order the defendants to pay the costs of Highfield and Mr Hurley on an indemnity basis by reason of the maintenance of the misrepresentation case.
Costs of trial
Highfield contends that, properly advised, the defendants should also have realised that their contractual-based defences had no realistic chance of success. Highfield points to the fact that, in order to succeed on either defence, the defendants had to succeed on the issues both of incorporation of clause 11 into the Contract and breach, and in addition had to succeed on a number of successive issues in respect of each of defence 1 and defence 2.
Properly advised, the defendants would have realised that their prospects of success on the various issues upon which they had to succeed varied considerably. The defendants did indeed succeed on some issues, although they failed on several issues before those later issues arose for consideration.
While properly advised, the defendants should have realised that their overall prospects of success were weak, I cannot say that their contentions were unarguable or so hopeless that they must have realised that they had no realistic chance of success. Accordingly, I decline to order costs on an indemnity basis generally in respect of the trial.
Costs of amendments
Highfield is entitled to its costs of the amendments to the pleadings by the defendants in any event (regardless of Highfield’s success or failure in the action) pursuant to rule 263(2)(a) (unless the Court otherwise orders). The issue is whether Highfield should have those costs on an indemnity basis.
As outlined in my primary reasons for judgment, the change of case by the defendants from an exclusively misrepresentation-based case to an exclusively contractual-based case evolved over several days, beginning during the week before trial and culminating on the third day of trial. The manner and timing of that change of case caused substantial disruptions to Highfield’s preparation and conduct of the trial. In the circumstances, Highfield should have its costs of those amendments on an indemnity basis.
Appropriate order
If I were to make orders literally reflecting the above conclusions, it would cause an extremely complicated adjudication process, which would in turn increase time and costs. It is appropriate to adopt a broad axe approach to minimise those costs.
On the one hand, some of the costs incurred by Highfield before the commencement of trial were not ultimately wasted because that work was applied to the contractual issues which were ultimately raised for determination at the trial. This applies, for example, to the making of disclosure and the preparation of a tender book. On the other hand, the pre-trial costs which were not wasted would form a relatively small proportion of the total costs incurred by Highfield from receipt of the initial defence to the commencement of trial.
At trial, the time spent between approximately midday on the second and third days of trial was devoted exclusively to the defendants’ pleadings. Those costs should be paid on an indemnity basis. There were other costs incurred during the trial which I propose to order be paid only on a party/party basis but were costs thrown away by reasons of the defendants’ change of case and amendments to their pleadings. Those additional costs in a very broad sense would balance the costs incurred by Highfield before trial which were not ultimately wasted.
Accordingly, wielding a broad axe, Highfield and Mr Hurley should recover their costs of action and of the counterclaim from the date of filing of the initial defence to the commencement of trial and from noon on the second day to noon on the third day of trial on an indemnity basis. Otherwise they should recover their costs of action and of the counterclaim on a party/party basis.
Conclusion
For the above reasons, I made the following orders:
1.the plaintiff recover against the defendants on the claim the sum of $2,443,195.20 inclusive of interest;
2.the cross-action be dismissed;
3.the defendants pay to the plaintiff its costs for the period from 17 July 2009 to 10.30 am on 13 August 2012 and from 12 noon on 14 August to 12 noon on 15 August 2012 on an indemnity basis (pursuant to rule 264 5(b)) to be adjudicated if not agreed;
4.the defendants otherwise pay to the plaintiff its costs of the action on a party/party basis to be adjudicated if not agreed;
5.the first defendant (counterclaimant) pay to the first and second defendants by counterclaim their costs of the counterclaim until 10.30 am on 13 August 2012 on an indemnity basis (pursuant to rule 264 5(b)) to be adjudicated if not agreed;
6.the first defendant (counterclaimant) otherwise pay to the first defendant by counterclaim its costs of the counterclaim on a party/party basis to be adjudicated if not agreed.
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