Isotomic Pty Ltd v Adelaide International Raceway Pty Ltd (No 2) - [2007] SASC 230

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ISOTOMIC PTY LTD & ANOR v ADELAIDE INTERNATIONAL RACEWAY PTY LTD (No 2)
[2007] SASC 230
Judgment of The Honourable Justice Anderson
28 June 2007
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
PROCEDURE - COSTS - JURISDICTION - PERSONS NOT PARTIES TO PROCEEDINGS
Previous application by plaintiffs for specific performance of a contract dismissed - judgment for the defendant on 30 March 2007 - entitlement of defendant to costs - whether defendant entitled to costs on an indemnity basis against either or both of the unsuccessful plaintiffs - whether costs order should be made against non-parties associated with the plaintiff company - whether any reduction from defendant's costs entitlement should be made on account of matters not decided in defendant's favour.
Held: No reduction from costs entitlement of defendant in respect of either claim or counterclaim - order for indemnity costs against second plaintiff from date of issue of proceedings - order for indemnity costs against first plaintiff and non-parties from date of joinder of second plaintiff.
Supreme Court Act 1935 (SA) s 40(1), referred to.
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, applied.
Isotomic Pty Ltd & Anor v Adelaide International Raceway Pty Ltd [2007] SASC 111; Walton v McBride (1995) 36 NSWLR 440, considered.

ISOTOMIC PTY LTD & ANOR v ADELAIDE INTERNATIONAL RACEWAY PTY LTD (No 2)
[2007] SASC 230
Civil
ANDERSON J.
Introduction

On 30 March 2007 I gave judgment for the defendant in this matter. I dismissed an application by the plaintiffs who were seeking, amongst other things, specific performance of a contract dated 18 October 2002 for the purchase of a raceway. The defendant seeks its costs of the action.
Since the date of judgment, the plaintiffs and defendant have narrowed the issues in dispute arising out of the defendant’s application for costs. On 18 May 2007 I heard detailed submissions regarding the appropriate order for costs. I have also had the advantage of extensive written outlines from both parties.
Prior to hearing argument on the issues, on 26 April 2007, I made the following consent orders:
1.The plaintiffs, (subject to the qualification in paragraph 2 hereof in relation to the second plaintiff George Nowak), Biagi Russo, David Michael Georgiou, Davide Cavuoto and Cavuoto Enterprises Pty Ltd pay the defendant’s costs, inclusive of reserved costs.
2.The second named plaintiff, George Nowak, pay the defendant’s costs, inclusive of costs reserved, on and from the date of his joinder to the action on 13 September 2005.
3.The defendant’s costs be awarded by way of a lump sum to be assessed by the trial judge.
4.The plaintiffs and the non parties file and serve their submissions regarding costs and any affidavit accompanying the submissions by close of business on Friday 4 May 2007.
5.The defendant file and serve any responding affidavits and any reply to the submissions of the plaintiffs and the non parties by close of business on Friday 11 May 2007.
6.The matter be adjourned for argument to Friday 18 May 2007 at 9:15am with the morning set aside.
7.The orders for costs made in paras 1 and 2 do not include the costs issues still in dispute as outlined by Mr Blight and recorded in the transcript.
8.Cost of today’s attendance to be reserved.
9.Liberty to apply.
As a result of these consent orders, not all of the issues as to costs are still in issue. On 18 May 2007, the first order was further amended to include the name “Judith Anne Georgiou” as part of the order. The plaintiffs agree that they are liable for costs and that the named non-parties have also agreed that they are liable for costs.
Nevertheless there are still three outstanding issues, which are yet to be decided.
They are:
1.Is the defendant entitled to all of its costs of the action and the counterclaim?
2.Is the defendant entitled to an award of indemnity costs? If so, against which parties and non-parties and from what date?
3.The date from which the order for costs against the second named plaintiff George Nowak should run.
The defendant seeks an order that the plaintiffs, together with the non-parties Biagi Russo, David Michael Georgiou, Davide Cavuoto, Cavuoto Enterprises Pty Ltd and Judith Anne Georgiou pay the costs of the action and counterclaim, inclusive of costs reserved, on an indemnity basis. The defendant also asserts that costs should be awarded by way of lump sum. The plaintiffs agree the latter.
The non-parties against whom a potential costs order may be awarded were at the relevant times either the directors or shareholders of Isotomic Pty Ltd. Isotomic Pty Ltd does not have any assets and has a paid up capital of two dollars. Mr Nowak does not have any assets either. The defendant submits that the non-parties have controlled and funded the litigation and would have taken the benefit from the action had the plaintiffs succeeded, and on that basis should be liable for any costs order.
The plaintiffs assert that any amount awarded to the defendant should be reduced on both the claim and counterclaim and that any amount awarded should be on a party/party basis at least until 13 October 2005 when the defence and counterclaim were amended specifically to plead the “fraudulent concoctions” and also the date on which the plaintiffs were warned that an application for indemnity costs would be pursued.
Matters in dispute
(i) Plaintiffs seek a reduction of the costs of the claim
There is no dispute that the defendant is entitled to an award of costs. The plaintiffs lost the case on various grounds that are set out in the reasons. (See Isotomic Pty Ltd & Anor v Adelaide International Raceway Pty Ltd [2007] SASC 111.) The reasons speak for themselves. The defendant was successful, effectively, on all issues argued by it in relation to the contract. However, the plaintiffs maintain that any costs awarded against them should be reduced to reflect those issues upon which they say the defendant was unsuccessful in its defence. They also seek a reduction because the counterclaim was not pursued. It was not necessary for me in my reasons to go into the matters raised in the counterclaim because of the findings that I made in relation to the contract, but the plaintiffs submit that they are entitled to some reduction for that aspect. They seek to reduce the defendant’s costs entitlement by 5 per cent on the claim and 15 per cent on the counterclaim.
Those issues relevant to a reduction in costs in relation to the claim, and as outlined by the plaintiffs, are first, that Mr Nowak was not within time to exercise his cooling off rights, and secondly, that Mr Nowak did not act in strict compliance with the terms of clause 6.1 of the contract. As I have indicated, the plaintiffs have accepted that it would only be a reduction of the order of 5 per cent if I were to accede to their submissions.
The issues relating to cooling-off rights and the clause relating to finance were part of the defendant’s argument as to why the plaintiffs should not be granted specific performance of the contract. Although they did not succeed on those relatively isolated aspects relating to the enforcement of the contract, the defendant succeeded in demonstrating that for a variety of reasons there was no contract to enforce and that in any event this was not a case in which the court should grant specific performance.
In my view, it would be unrealistic to reduce costs because a small part of an overall argument was unsuccessful. It would unnecessarily and unfairly penalise the successful defendant. I will not therefore make a reduction in respect of the plaintiffs’ claim.
(ii) Plaintiffs seek a reduction of the costs of the counterclaim
As I have already indicated, the plaintiffs do not concede that they are liable for the totality of the defendant’s costs of the counterclaim. This is because certain matters were not pursued by the defendants, including allegations of fraud, the question of the termination of the contract, damages for loss of profits regarding the use of the land, misleading and deceptive conduct claims, damages for deceit and exemplary damages and a claim for restitution. The plaintiffs submit that there should be a reduction of 15 per cent in relation to any order made as to the costs of the counterclaim. The main argument seems to relate to work done in relation to the defendant’s claim for lost profits for the use of the land. The defendant did not proceed with that argument at trial and the plaintiffs submit that they are entitled to some recompense for work done and thrown away as a result of the defendant’s decision not to pursue the argument.
The defendant’s response to both the suggested reduction for the claim and the counterclaim is that they were required to defend the claim brought by the plaintiffs which they describe as unmeritorious and that, as a result, they were entitled to raise all issues by way of defence which could be used in answer to the claim made by the plaintiffs.
Although it was not necessary for me to decide the issues on the counterclaim, the defendant submits that findings would have been made in their favour on many of the same issues on which they succeeded in defeating the plaintiffs’ claim. I agree with the defendant in relation to this aspect.
The fact that the matters were not pursued during the trial, because they were not considered necessary, is not to the point. It is necessary to look at the overall picture which faced the defendant and look at its response to see whether it was reasonable. In my opinion, the response, by way of the matters that were raised in the counterclaim, was reasonable, and accordingly I would not order any reduction in relation to the costs of the counterclaim.
Costs order against Mr Nowak
The defendant seeks costs against Mr Nowak from the commencement of the proceedings. The reason submitted by the defendant for such an order is that Mr Nowak was instrumental, and in fact was solely instrumental, in giving instructions on behalf of Isotomic to issue the proceedings prior to his joinder.
Mr Nowak was a director of Isotomic at the time the contract was entered into and the action was brought as a result of his instructions. From the time of instructing his solicitors, he maintained a keen interest in pursuing the proceedings, and in my view it would be quite artificial not to involve Mr Nowak in costs orders from the inception of the proceedings. Accordingly, I find Mr Nowak liable for costs from the time the proceedings were commenced.
Indemnity costs
The next question to be decided is whether any costs orders in favour of the defendant should be awarded on an indemnity basis and if so, from what date.
By virtue of s 40(1) of the Supreme Court Act1935 (SA), the court has a wide and unfettered discretion in relation to costs generally, and this includes a power to award costs on an indemnity basis. The plaintiffs correctly point out that there must be some special or unusual feature to justify an award of indemnity costs instead of the usual award of costs on a party-party basis. (See Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225.)
It is true that many of the issues argued by the plaintiffs as part of their case, such as issues of formation and termination of the contract, were reasonably pursued. The defendant submits, however, that the criterion of a special or unusual feature is satisfied in these circumstances by virtue of the finding made in relation to the true identity of the purchaser and the lack of clean hands on the part of the second plaintiff, George Nowak. Mr Frayne, counsel for the defendant, submitted that it would be an injustice to artificially quarantine matters from on or after 13 October 2005.
The plaintiffs acknowledge and accept a liability to pay indemnity costs but submit that their liability should only commence from 13 October 2005, the date on which the pleadings were amended to include allegations regarding a letter and a minute, both dated 17 October 2002. It was at this time that the defendant put the plaintiffs on notice that they would be seeking indemnity costs.
The plaintiffs’ case was dependent upon two documents, each dated 17 October 2002. I found each of these documents to be backdated to enable Mr Nowak to assert that the benefit of the contract was at all times for the company Isotomic Pty Ltd. This had a number of implications that I have dealt with more fully in my reasons (Isotomic Pty Ltd & Anor v Adelaide International Raceway Pty Ltd [2007] SASC 111). In a nutshell, my findings indicated a devious and dishonest attempt by Mr Nowak to use the documents for an ulterior purpose. (See Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232.)
Importantly, the truthfulness of the allegations made by the plaintiff as to the correct identity of the purchaser was esoteric in nature. Only Mr Nowak knew who was the intended undisclosed principal. The defendant submits that in light of the documents on the public register, the plaintiffs’ claim was inherently untenable. Neither plaintiff had any genuine ground of claim as both plaintiffs’ claims depended on the October documents. Moreover, the defendant submits that the first plaintiff should have withdrawn the proceedings in light of the unchallenged documents discovered by the plaintiffs and later tendered at trial.
It is well established that the court is entitled to order indemnity costs if satisfied that it ought to mark its disapproval of inappropriate conduct on the part of the respondent to the costs order. This may be because either improper motive or conduct on the part of a party has imposed an undue burden on the other party, such as by prolonging the trial. (See Walton v McBride (1995) 36 NSWLR 440 at 451.) In my opinion this is such a case and there should be an order for an award of indemnity costs.
As I have indicated, the plaintiffs contend that the relevant date from which to award indemnity costs should be from 13 October 2005 because this is the date on which the defendant’s defence and counterclaim were specifically amended to plead that the 17 October 2002 documents were “fraudulent concoctions”, in addition to other matters relating to the identity of the purchaser and allegations of unclean hands. It is also the date from which the plaintiffs were warned that an application for indemnity costs may be pursued if the defendant were successful.
It seems to me that this is not realistic when the whole series of actions to which I have previously referred in my judgment are considered. It was Isotomic that issued the proceedings claiming the benefit of a contract because of the concocted minute and letter. It is my opinion that an order for indemnity costs should be awarded against the second plaintiff, Mr Nowak, from the commencement of the action. From the date of joinder of Mr Nowak, namely 13 September 2005, it is my opinion that there should be an order of indemnity costs awarded against both the first and second plaintiff. The first plaintiff should pay costs, from the commencement of this action up to 13 September 2005 on a party and party basis.
Insofar as the non-parties are concerned, I have set out earlier in these reasons the argument advanced by the defendant as to why indemnity costs are appropriate. I agree with that argument. It is my view that the non-parties should also be liable for indemnity costs from the date on which Mr Nowak was added as a plaintiff in the action on the application of Isotomic. The non-parties did fund the litigation through their involvement in Isotomic and I can see no valid reason why those non-parties should not be in the same position as Isotomic itself. Moreover, they were on notice as to the defendant’s intention to seek an order for non-party costs.
Formal orders
1.The plaintiff George Nowak pay the defendant’s costs of the action and counterclaim, inclusive of costs reserved, on an indemnity basis.
2.The plaintiff Isotomic Pty Ltd, ACN 099495217, Biagi Russo, David Michael Georgiou, Davide Cavuoto, Cavuoto Enterprises Pty Ltd ACN 051524924 and Judith Anne Georgiou pay the defendant’s costs of the action and counterclaim, inclusive of costs reserved, on a party/party basis up to 13 September 2005, and from 13 September 2005 on an indemnity basis.
3.The defendant’s costs be awarded by way of lump sum.