Idacorp P/L v Freshglen P/L

[2000] QSC 136

SUPREME COURT OF QUEENSLAND

CITATION:

Idacorp P/L v Freshglen P/L [2000] QSC 136

PARTIES:

IDACORP PTY LTD (ACN 010 827 040)
(Plaintiff)
v
FRESHGLEN PTY LTD (ACN 062 571 313)
(Defendant)
IN THE MATTER OF the Property Law Act 1974
IN THE MATTER OF an application by FRESHGLEN PTY LTD (ACN 062 571 313)
IN THE MATTER OF the Land Titles Act 1994
IN THE MATTER OF a caveat lodged by IDACORP PTY LTD (ACN 010 827 040)

FILE NO/S:

No 8722 of 1998
No 7499 of 1998

DIVISION:

Trial

DELIVERED ON:

 12 May 2000

DELIVERED AT:

Brisbane

HEARING DATE:

16 March 2000

JUDGE:

Muir J

CATCHWORDS:

COSTS – DISCRETION – exercise of discretion aims to achieve what is just and fair in the circumstances – departure from general rule that costs follow event where good reason – whether costs are to be borne out of partnership assets – whether claim went beyond dispute
PARTNERSHIP – ACOUNTS – entitlement to interest payable – entitlement to moneys expended re land tax as a partnership expense.
Queensland Trustees Limited v Fawkner (1964) Qd R 153
Hamer v Giles 11 Ch D 942
Hughes vWestern Australian Cricket Association (Inc) and Ors (1986) ATPR 40-748
Puddy v Borg [1973] VR 626
Latoudis v Casey (1990) 170 CLR 557
Oshlack v Richmond River Council (1998) 193 CLR 72
Milne v Attorney-General (Tas) (1956) 95 CLR 460
Transit Australia Pty Ltd v Crawford Australia Pty Ltd [1998] 1 Qd R 690, 691
Cutts v Head [1984] Ch 290
Butcher v Pooler [1882] 24 Ch D 273
Kraft v Kupferwasser (1991) 23 NSWLR 236
England v Moore (1879) 5 VLR (E) 312
McPherson v Hunter (1871) 2 AJR 6

Supreme Court of Queensland Act 1995, s 221
Uniform Civil Procedure Rules, r 689

COUNSEL:

P.E. Hack for the plaintiff
D.R. Cooper, S.C. for the defendant

SOLICITORS:

Macrossan & Amiet for the plaintiff
Lees Marshall Warnick for the defendant

Costs of and incidental to the trial

1. On 26 February 1999 I gave reasons for judgment in this matter and invited the parties to agree on minutes of order to give effect to my reasons. The hope that the parties could agree proved to be unduly sanguine and an order was eventually made on 18 March 1999. The order included an order for the taking of an account of “the dealings and transactions” of the two partnerships which I found to exist, the Dolphin Quays partnership and the Pirates Cove partnership. Accounts were duly prepared and objections were taken by the Idacorp interests to the Pirates Cove partnership accounts and by the Freshglen interests to the Dolphin Quays partnership accounts. When I handed down reasons for judgment on the determination of those objections on 23 December 1999, I gave directions that submissions on costs be exchanged by 7 February 2000. In their written submissions the parties’ counsel both treated separately the original hearing and the later hearing on the objections to the accounts. The matter came back before me for hearing on 16 March 2000.

1. It was submitted on behalf of Idacorp that it should have the reserved costs of the hearings of 26 August and 2 October 1998. The 26 August 1998 hearing was the hearing of a summons for the appointment of trustees for sale before Williams J who ordered that the matter go to mediation. On 2 October 1998 Freshglen sought a summary trial of matters including the appointment of a receiver. That application did not succeed but led to the consolidation of proceedings and directions for interlocutory steps including points of claim and delivery of points of defence.

1. The points of claim, when delivered by Freshglen, included claims which went beyond the matters relating to the partnership dispute, namely a claim for recovery of moneys originally lent by Huisman Builders, Anthony Huisman to Mr Allen. It is submitted on behalf of Idacorp that Freshglen’s claims for moneys lent should have been separately determined in the Mackay District Court and that should not have its costs of that issue or that they should be awarded on the District Court scale. I do not accept that contention. The loans were part of the matrix of dealings between Mr Huisman and Mr Allen which needed to be considered in order to resolve the partnership issues.

1. It is submitted on behalf of Idacorp that, as a general rule, the costs of an action for dissolution and winding up of a partnership are ordered to be paid out of the partnership assets unless there are good reasons to the contrary. Queensland Trustees Limited v Fawkner (1964) Qd R 153, 156, on which Idacorp relies, is authority for that proposition. The position is different though where the action is, in essence, instituted to try some disputed right. In that case the unsuccessful litigant may be ordered to pay the costs of the action: Hamer v Giles 11 Ch D 942. Any such practice though cannot override the court’s discretion in relation to costs. That discretion, though unfettered, must be exercised judicially so as to achieve what is fair and just between the parties according to the circumstances of the particular case: Supreme Court of Queensland Act 1995 s 221; Hughes vWestern Australian Cricket Association (Inc) and Ors (1986) ATPR 40-748 and Puddy v Borg [1973] VR 626 at 628. The discretion must be exercised, not “by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation”: Latoudis v Casey (1990) 170 CLR 557, per Dawson J in a passage referred to with approval by Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72.

1. Practices or guidelines have developed in courts of general jurisdiction concerning the exercise of discretion regarding costs: Oshlack (supra) at 86, per Gaudron and Gummow  JJ. It is in this sense that there is “a general rule that a wholly successful defendant should receive his costs unless good reason is shown to the contrary”: Milne v Attorney-General (Tas) (1956) 95 CLR 460 at 477.

1. That rule or concept is enshrined in rule 689 of the Uniform Civil Procedure Rules which provides –

“(1)       Costs of a proceeding are in the discretion of the court but follow the event, unless the court considers another order is more appropriate.”

1. McHugh J, with whose reasons Brennan CJ expressed general agreement, said at 96 of Oshlack -

“By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs.”

1. At 97 His Honour went on to explain the rationale for such a principle, saying:

“The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. (Latoudis (1990) 170 CLR. 534 at 543; per Mason CJ; at 562-563, per Toohey J; at 566-567, per McHugh J; Cachia v Hanes (1994) 179 CLR. 403 at 410, per Mason CJ, Brennan, Deane, Dawson and McHugh JJ.) If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of unsuccessful litigation.”

1. Ordinarily then the costs of this action could be expected to be dealt with in the customary way unless the justice of the case requires a departure from the usual order because of “special” or “exceptional” circumstances (Oshlack at 120 and 126, per Kirby J) or because of the existence of “disentitling conduct” on the part of one of the parties (Oshlack at 98 per McHugh J).

1. On behalf of Idacorp it is submitted that honours were about equally divided, the Huisman interest succeeding on their money claim and the Allen interest succeeding in establishing that Freshglen held the Pirates Cove land as trustee for itself and Idacorp. However, the Freshglen interests place reliance on an open offer made by Freshglen’s solicitors to Idacorp’s solicitors dated 16 December 1998, acceptance of which would have placed Idacorp in a position materially better than the position it achieved at the conclusion of the litigation. The offer reserved the rights of the offer or to rely on the terms of the letter in any subsequent determination of costs. Consequently the offer can be taken into account in determining costs. Transit Australia Pty Ltd v Crawford Australia Pty Ltd [1998] 1 Qd R 690, 691 and Cutts v Head [1984] Ch 290.

1. It is true that the Idacorp interests did not fare as well in the action as they would have by accepting the Freshglen interests offer. However they were successful in one of the major disputes between the parties, namely in establishing an equal interest in the Pirates Cove land. Moreover Freshglen failed in its attempts to obtain summary judgment and to have a receiver appointed. In other less significant areas each party has had successes and failures. That assists in the conclusion that it is impractical to attempt any apportionment of costs on other than a broad basis.

1. The question of costs is further complicated by the fact that only two of the parties are members of the partnerships under consideration. The order I propose to make, in order to acknowledge the degree of success of the Freshglen interests in their money claims and the fact that they had a greater degree of success than the Idacorp interests overall, is to order that the Idacorp interest pay one-fifth of the costs to be assessed of the Freshglen interests of and incidental to the various matters heard. Having regard to the wording of the offer in relation to costs and to the range and complexity of the issues in dispute, I give little weight to the refusal of the Idacorp interests to accept it.

Costs on the hearings subsequent to February 1999

1. The Freshglen interests contended that as they had been generally successful in the determination of the objections taken by the Idacorp interests to the Pirates Cove accounts and in relation to their own objections to the Dolphin Quays accounts they should have the costs relating to those accounts.  A summary of the objections in each case and their results is as follows:

Pirates Cove - objections by the Idacorp interests

·     Inclusion of development costs of $61,236 – objection failed

·     Allowance to Freshglen of $20,264 on capital advanced – objection failed

·     Inclusion of auction costs of $1,824 – objection failed

·     Inclusion of “rates discount foregone” of $394.60 – objection succeeded

·     Adjustment on account of land tax of $1,897 – objection succeeded

Dolphin Quays - objections by the Huisman interests

·     Treatment of land tax as a partnership expense – objection succeeded

·     Accountancy charges of $6,244 – objection successful to the extent of $1,877

·     Charging of interest on the sum of $100,000 – objection succeeded

·     Claim for deposit of $10,000 and legal fees of $5,000 – objection in respect of $5,000 succeeded – objection as to the $10,000 failed

·     Claim for $48 – objection succeeded

·     $95,000 adjustment – objection succeeded

1. It appears from my later observation though that the Idacorp interests have had substantial success in resisting further claim by the Freshglen interests.

1. The learned authors of Lindley on Partnership 14^th Ed observe at 574 –

“The costs of taking the accounts, etc., directed at the hearing are, although disputed, usually defrayed out of the partnership assets, and, if necessary, by a contribution between the partners.”

Butcher v Pooler [1882] 24 Ch D 273 is relied on as authority for that proposition. That principle was stated also in Kraft v Kupferwasser (1991) 23 NSWLR 236 at 244. The learned authors of the Law of Partnership 5^th Ed at 304 expressed the view that –

“The costs of an account action between partners will generally depend upon the outcome of the accounts so that, if anything is found to be due to the plaintiff, costs will be awarded against the defendant, and, conversely, if nothing is found to be due to the plaintiff he or she will have to bear the costs.”

The same view is expressed in the 6^th Ed at 307. The two cases relied on by the learned authors to support their conclusions (England v Moore (1879) 5 VLR (E) 312 and McPherson v Hunter (1871) 2 AJR 6) provide only limited support. In England v Moore, Molesworth J said at 313 –

“The usual course is to apportion the costs as between the partners, but in this case, under all the circumstances, to meet the justice of the case, I shall order the defendants to pay the plaintiff his costs up to and inclusive of the hearing, leaving the parties to abide their own subsequent costs.”

The defendants were generally unsuccessful on the taking of the accounts.

1. In this matter the parties have shown an unwillingness to compromise and a disposition to contest any faintly contestable point. As the Freshglen interests have had a much greater measure of success on the objections than the Idacorp interests, whether measured in monetary terms or otherwise, I consider it would be unjust for both parties’ costs to be borne out of the partnership assets. I propose to order that the Idacorp interest pay half of the Freshglen interests costs of and incidental to the objections to be assessed on the standard basis. In my view that apportionment represents a just assessment of Freshglen’s overall measure of success.

Claims for interest on $70,000 and $100,000

1. Freshglen has raised a number of additional matters. The first of these is a claim for interest of 10% from 5 July 1996 to 2 August 1999 (the date of payment) on sums of $70,000 and $90,000.

1. In written submissions on costs dated 10 February 2000 Mr Hack, who appeared for the Freshglen interests, contended that –

(a)        Mr and Mrs Huisman were entitled to interest on the sum of $70,000 at the rate of 10% from 5 July 1996 to 2 August 1999;

(b)        Huisman Builders was entitled to payment of interest by Mr Allen at the same rate for the same period on the sum of $90,000.

The written submission did not particularise these two sums or explain the basis of the alleged entitlement in either case.

1. It emerged in further written submissions delivery by Mr Hack on 20 March 2000 that the reference to the sum of $90,000 was intended to be a reference to the sum of $100,000 which had been found to be a distribution to Freshglen on account of anticipated (but as then unrealised) profits.

1. It was submitted by Mr Hack that when Mr Allen prepared the Dolphin Quays partnership accounts pursuant to an order in that regard, he erroneously continued to treat the sum of $100,000 as a loan to Freshglen. This accounting treatment, it was submitted, had the consequence that no interest was shown as accruing on the sum from 24 March 1995. Whereas such interest was payable and should have been shown in the accounts.

1. It was submitted by Mr Cooper SC on behalf of the Idacorp interests that the claims for additional interest should be disallowed as –

(a)        No judgment had been given against Mr Allen for the sums claimed. Moreover, it was found in the reasons for judgment delivered on  26 February 1999 that the obligation to repay arose only if and when a profit was made in the partnership.

(b)        No effective demand for payment had been made. A purported demand by letter dated 26 July 1996 was ineffective as no profit had been made by that date.

(c)        On the trial of the action the Freshglen interests contended that the loan of $70,000 was interest free.

(d)        There was accord and satisfaction which terminated any right to interest which may otherwise have existed. The applicant’s solicitors, in a letter of 17 June 1999, stated – “If your client will not agree to this payment we shall seek interest”. The offer was open for an indefinite period. It was accepted and payment was made on or about 2 August 1999 before the offer was withdrawn. The consideration for the accord and satisfaction was “the act of paying in return for the implicit promise not to sue for interest if the payment was made”: McDermott v Black (1940) 63 CLR 161; Ballantyne v Philloff 105 CLR 279.

(e)        Acceptance of the claims would necessitate the re-opening of a settled account.

(f)        There was no jurisdiction to make further determinations on the question of interest.

1. There is no substance in the last mentioned argument. The preparation of accounts under consideration was ordered as part of the process of taking the partnership accounts. It is inconceivable that if the accounts were not properly taken it would be beyond the Court’s power to order them to be corrected as to properly record the lawful entitlements of the parties.

1. I reject the claim for interest on the sum of $100,000. On an earlier hearing Idacorp contended that Freshglen should pay interest on the sum, which I had found to be of the nature of an advance against future profits. The Freshglen interests, having succeeded in defeating that claim, responded with one of their own. That claim is also rejected. To accept it would mean conferring on Freshglen an entitlement to interest on moneys which it had, and had the benefit of, over the period for which the interest is claimed. Mr Shepherd, Freshglen’s accountant was cross-examined by Mr Cooper in relation to this claim. He could advance no technical, or even rational basis, for it.

1. I also reject the claim for interest on the sum of $70,000. It was found that this sum was a loan to Mr Allen repayable out of Mr Allen’s share of profits of the Dolphin Quays Partnership. Any Common Law Practice Act interest could only run from the date on which a partnership profit was realised and available to Mr Allen to effect repayment. I do not know how long such a profit was available to Mr Allen prior to his repayment of the sum in question on 2 August 1999. Furthermore, such interest is discretionary. No evidence was directed to and no argument was advanced in relation to this interest question in the course of the hearings in 1999.

Claim for land tax

1. In my reasons of 23 December 1999 I rejected Freshglen’s contention that neither partner could claim moneys expended on account of land tax as a partnership expense. Idacorp had claimed a sum or sums as payments of or contributions to payments of land tax. Freshglen had made no such claim and nor had it made an alternative claim for inclusion in the accounts of its land tax expenditure, should its principal contentions prove unsuccessful. I gave liberty to apply in relation to the land tax question.

1. In his written submissions Mr Hack submitted –

“16.The material before the Court prior to the December 1999 hearing showed that the Freshglen interests had paid land tax of $7,062.25 in relation to the Dolphin Quays partnership: see para. 20 of the affidavit of A.J. Huisman sworn on 25 August 1999.

17. Freshglen’s complaint is that the accounts prepared by Mr Allen do not bring this sum in account.”

1. In my reasons of 23 December 1999 I said –

“Paragraph 20 of an affidavit of Mr Huisman filed on 26 August 1999 deals with the land tax question at some length. I confess that I really do not understand the paragraph.”

1. I have re-read the paragraph and still have difficulty in understanding it. Mr Hack submits that it demonstrates “that the Freshglen interests had paid land tax of $7,062.25 in relation to Dolphin Quays partnership.” I accept that on a fair reading Mr Huisman does swear that Freshglen (or another on its behalf) made payments on account of land tax totalling $7,062.25. The paragraph is thus sufficient to establish Freshglen’s claim for present purposes.

1. Mr Cooper, for Idacorp, does not submit that no such moneys were paid on account of land tax or that there is some inaccuracy in the calculations of land tax. Mr Shepherd was not cross-examined in relation to the land tax claim when cross-examined by Mr Cooper in relation to the interest claims.

1. Mr Cooper’s submission was to the effect that Freshglen’s evidence was no better than the evidence relied on in the December 1999 hearing which had been found wanting and that Freshglen had not raised the issue of the land tax payments with Idacorp after December 1999. The principal flaw in these submissions is that the relevant paragraph of Mr Huisman’s affidavit, although inadequate to lay a foundation for the claims Freshglen was making in December 1999, does support the claims it is now making. Those claims were clearly identified to Idacorp prior to the hearings this year and Idacorp was invited to respond to them. It did not.

1. I uphold Freshglen’s claim in this regard.

1. I will hear submissions on the context of the orders necessary to give effect to these reasons.