Jeffrey v Seeley International Pty Ltd
[2012] VCC 1045
•13 August 2012
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted |
AT MELBOURNE
CIVIL DIVISION
Case No. CI-11-01615
| JEFFREY & ANOR | Plaintiffs |
| v | |
| SEELEY INTERNATIONAL PTY LTD | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 July 2012 | |
DATE OF JUDGMENT: | 13 August 2012 | |
CASE MAY BE CITED AS: | Jeffrey v Seeley International Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1045 | |
REASONS FOR JUDGMENT
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Catchwords: Costs - Plaintiff wholly successful on causes of action but failed on some factual issues - Application for costs on party/party and full indemnity bases plus penalty interest – Offer of compromise – Plaintiff successful on arguments materially different from those raised at time of offer - Rule 26.08 presumption displaced.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr Kelly SC with Mr Clements | Ligetti Partners |
| For the Defendant | Mr Hopkins | Norton Rose Australia |
HIS HONOUR:
Background
1 On 25 May 2012 I published Reasons in this proceeding in which I determined the matter in favour of the plaintiffs and against the defendant for the agreed quantum of $308,000. I made that determination based on the common law negligence and Part VA of the Trade Practices Act 1974 of the Commonwealth. The matter came back before me on 30 July to consider the appropriate orders to give effect to my determination.
2 Counsel for the plaintiffs, Mr Kelly SC with Mr Clements, submitted that I should make orders for judgment in favour of the plaintiffs in the agreed sum of $308,000 plus statutory interest of which they calculated to 30 July 2012 in the sum of $229,504.31. They sought orders that the defendant pay the plaintiffs’ costs on a party/party basis taxed in accordance with County Court Scale D until 24 September 2009 and on a full indemnity basis on and from 25 September 2009.
3 They also asked that I provide certificates in relation to those costs for the fees of senior and junior counsel as to various matters, including the settling of Minutes of proposed orders for the costs of transcript and the reasonable costs of preparation, filing and service of plaintiffs’ court book.
4 My reasons for determination of the substantive matter appear at [2012] VCC 1043. As to the general facts of the proceeding, my findings and my reasons for determination, I incorporate those by reference for the purposes of this determination.
Plaintiffs’ contentions
5 Mr Kelly and Mr Clements said that the orders for penalty interest were based on s50 of the County Court Act 1958 applying s60(1) of the Supreme Court Act 1986 to proceedings in this Court. That sub-section provided that interest in accordance with the rates under the Penalty Interest Rates Act 1983 should be awarded “in any proceeding for the recovery of…damages” “unless good cause is shown to the contrary”. They referred to Clarke v Foodline Stores Pty Ltd [1993] 2 VR 382; Foxeden Pty Ltd v IOOF Building Society Ltd (No.3) [2006] VSC 207 at [5]. They said the interest should be calculated from the date of the commencement of the proceeding and the burden lay on the defendant to show a good cause to the contrary. They referred to Hartley Poynton Ltd v Lai (2005) 11 VR 568 at [107] and the Judgment of Gillard J in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No.3) [2003] VSC 244 at [61] as to the rationale for the award of interest. They contended that no good cause had been shown to the contrary and therefore the interest sought should be awarded.
6 As to the uplift of scale of costs from 25 September 2009 onwards, they referred to an offer of compromise served by the plaintiffs on the defendant on 24 September 2009 in accordance with Order 26 of the Court Rules. By that notice the plaintiffs offered to compromise their claim for $300,000. The effect of the offer, if accepted, would have been to exclude any liability for statutory interest, compromise the proceeding for $300,000, and entitle the plaintiffs to their costs on the appropriate party/party scale (Scale B). They said that the quantum claimed at that stage was $347,000 and the offer therefore represented a significant discount from the face value of the claim and statutory interest as at 24 September 2009 would have amounted to $137,953. With that offer not accepted by the defendant, they said that Order 26, Rule 26.08(2) of the Court Rules meant that the plaintiffs were entitled to an award of their costs on a full indemnity basis “unless the court otherwise orders”. They said the presumption of entitlement to those costs was not easily displaced. They referred to Simonovski v Bendigo Bank Limited (No.2) [2003] VSC 139 at [17]. They said that the complexity of the case was not a sufficient reason to do other than allow the presumption established by the rule to operate. They referred to Polyzos v Newton [1965] VR 681. Accordingly, they said the defendant could not displace the presumption that the costs order proposed should be made, “the offer of compromise was served more than two years before the trial, it was in clear terms, it represented a very significant compromise of the plaintiffs’ claim, and it should have been accepted by the defendant”. They said the various certificates sought with respect to counsel’s fees were appropriate. After the decision on these costs issues was reserved, Mr Kelly and Mr Clements submitted references to the decision in Charles Blackman v Peter Gant[No 2] [2010] VSC 246 where his Honour distinguished the significantly different consequences between a mere calderbank letter on the one hand and an offer under Order 26 which has not been accepted and in relation to which Rule 26.08(2) operates “unless the court otherwise orders”.
Defendant’s contentions
7 Mr Hopkins, on behalf of the defendant, said that the plaintiffs “ran a series of arguments that were always doomed to fail, thereby wasting a huge amount of time and money in a case that was, in reality, of comparatively narrow focus. The plaintiff should pay the defendant’s costs of the issues they ran and lost”.
8 In any event, he said there should be no question of an award on an indemnity basis in favour of the plaintiffs based on an offer of compromise served on 24 September 2009. This was because:
(i) the case advanced by the plaintiffs as at 24 September 2009 was highly likely to fail (and did fail);
(ii) the plaintiffs had not articulated the case on which they succeeded (which was first put forward on the eighth day of the trial);
(iii) the evidence of both plaintiffs was – based upon their instructions to their experts – that the air cooler had been working properly at all relevant times and the defendant could not reasonably have anticipated that the court would reject this evidence; and
(iv) the case was a highly complex technical case with experts disagreeing on many contentious issues and relying primarily on a very poor photographic record due to the loss of critical evidence.
9 He said that a successful party “may be deprived of the costs of particular issues in respect on which it failed and may be ordered to pay the costs of the other party on those issues”. Such an issue need not be a precise issue in a technical pleading sense but may be any disputed issue of fact in law. He referred to Hughes v Western Australian Cricket Association Incorporated (1986) ATPR 40-7 and 8; Queensland Wire Industries Pty Ltd v BHP Co Limited (1987) 17 FCR 211, 222; Cummings v Lewis (1993) 41 FCR 449, 603, Ruddock v Vadarlis (No.2) (2001) 115 FCR 229. Following reservation of my decision and in accordance with leave reserved, Mr Hopkins drew my attention to further authorities, namely, Elite Protective Personnel Pty Ltd v Salmon No 2 [2007] NSWCA 373, Sol Theo and the Trustees of the S Theo Family Trust v The Official Trustee in Bankruptcy [1995] FCA 1683 and Environment East Gippsland Inc v VicForests [2010] VSC 416. They also referred to the decision of Fisher J in The Federal Court of Australia and Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201.
10 He submitted it would be appropriate to make a single order for costs fixing the proportion of the party’s costs to be paid by the other party – in effect netting off cross-entitlements to costs and thereby avoiding the complication of such cross-orders. He referred to Byrns v Davie [1991] 2 VR 568.
11 As to the offer of compromise, he said the court had a broad discretion which was to be exercised having regard to all the circumstances of the case. He referred to Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368. It was appropriate here, he said, to consider the complexity of the case and also whether the plaintiffs succeeded on the case they advanced at the time the offer was made or on some other basis. He referred to Chapman v Wickham Ryan Pty Ltd [2000] FCA 536 [25] per Matthews J, who said:
“It would require strong grounds in circumstances such as this [a complex piece of litigation involving expert testimony determinative of the major issues in the case] to conclude that a party was unreasonable in seeking to pursue its claim”.
12 He also referred to Australia & New Zealand Banking Group Ltd v PA Wright & Sons Pty Ltd [1999] NSWSC 656 [3] per Hunter J. He said where a plaintiff makes an offer which is not accepted and succeeds at trial on the evidence and case existing at the time of the offer, it may be appropriate to award indemnity costs.
13 It was different, however, he submitted, where the plaintiff succeeded on different evidence or with a distinctly different case. He referred to Fowdh v Fowdh [1993] NSWCA 100 where indemnity costs were not awarded because, according to Mahoney AP, it was “the medical evidence which emerged at the trial and not what had appeared in the medical reports previously served, which had determined the matter”. He also referred to Jovanovski v Billbergia Pty Ltd (No.2) [2010] NSWSC 617 where he said Davies J did not award indemnity costs despite an offer of compromise not being accepted because “the case was won by the defendant on the issue of causation in a way that was not articulated until well after the expiry of the offer of compromise”. He also referred to Roads & Traffic Authority (NSW) v Refrigerated Roadways Pty Ltd (No.2) [2009] NSWCA 336 [18]–[19] and [21]. He also referred to the Civil Procedure Act 2010.
14 According to Mr Hopkins, the plaintiffs ran a number of points that were “always doomed to fail”. These were, he said:
“(a)an argument, apparently based on Dr Hart’s examination of certain design documents, the design and development of the ES model was defective;
(b)an argument, based upon the evidence of Messrs McSharer and Truscott that there serial heat and flame problems with the ES components;
(c)an argument, based again on the evidence of Dr Hart, that the design changed the control box of EZH model meant that the design of the ES model was defective.”
15 Mr Hopkins said that a significant part of the very long hearing “was taken up (and wasted) on these issues”.
16 The provisions of the Civil Procedure Act 2010 should have led the plaintiffs, he said, to “jettison” these arguments. Numerous witnesses had to be called, including the use of video links to Perth, and lengthy submissions were required.
17 The defendant succeeded on these arguments and the plaintiff should pay those costs. The appropriate order therefore, he submitted, when one “netted off” costs entitlements, would be that there be no costs at all. “There should be no advantage to the plaintiffs (and no penalty to the defendant) for the failed forensic decisions made by the plaintiffs.”
18 The rejection of the offer of compromise by the defendant should be judged, according to Mr Hopkins, based on the situation confronting the defendant on 24 September 2009. At that stage, expert reports had been served from Mr Robert Barnes to the effect that a mechanical failure of bearings in the air cooler had caused the fire. He said “however, these reports demonstrated that an entirely unprofessional investigation had been untaken by Mr Barnes”. Also served were three reports by Mr Ian Moore in which Mr Moore rejected the conclusions of Mr Barnes and suggested that a metal strip found by Mr Barnes was causative of the fire. One of Mr Moore’s previous employers had lost the allegedly crucial metal strip.
19 There was also a report from Dr Hart. According to Mr Hopkins, “Dr Hart had expressly stated that he disagreed with Mr Moore’s opinion that the damage to the steel strip was arc damage and therefore electrical in origin. He also stated that the unavailability of the path ‘makes a definitive assessment impossible’.” Whilst Dr Hart had advanced five possible causal scenarios before attributing the fire which damaged the plaintiffs’ house to the defendant’s air cooler, those theories “meant that it was impossible for the air cooler to have operated normally (if at all) on 21 January 2003.”
20 Dr Hart had said that if the motor capacitor had caused the fire then when turned on at 8am on the day of the fire, there would have been audible straining/groaning, which had not been reported. The instructions to the experts, Mr Moore and Dr Hart, was that the air cooler was operating normally on that morning. There was a poor photographic record of the fire and the defendant held reports of Mr Henry Kutek and Professor Baghurst rejecting the plaintiffs’ theory. Therefore, as at 24 September, a trial would, according to Mr Hopkins, necessarily have led to a decision in favour of the defendant. He continued “it was not until 2011, when Professor Baghurst dissected an ICAR capacitor, that the likely source of the steel strip was identified. Even then, Professor Baghurst, the only expert called in respect of capacitors, could not concede on (sic) how the damage to the steel strip could have been electrical.”
21 The theory which was ultimately accepted in my Reasons was characterised by Mr Hopkins as the “dancing arc theory”. He said it was not articulated by the plaintiffs’ expert until postulated on day eight of the trial by Dr Hart. (Without canvassing this so-called “dancing arc” theory in detail, it is the one which I have accepted in my Reasons for Judgment.)
22 Mr Hopkins continued, stating that the defendant was never going to challenge the plaintiffs’ evidence that the air conditioner had operated normally “on the morning of the fire”. It was not unreasonable for the defendant to assume that the evidence to that effect would be accepted and all of the plaintiffs’ theories would be rejected. He said:
“The defendant did not anticipate that the court would reject the unchallenged evidence of the plaintiffs that the air cooler had operated normally. It is respectfully submitted that this was not an unreasonable assumption, even though the court ultimately took a different view”.
23 Therefore it was not unreasonable for the defendant to reject the offer of compromise. He said the complexity of the case was obvious and “even within the plaintiffs’ case the experts disagreed with each other and the expert whose evidence was finally accepted changed his mind in the witness box on a number of fundamental issues”. The defendant had therefore acted prudently and it made modest counter offers which were, in the circumstances, reasonable. Therefore, there should be no question of any indemnity costs order based on the offer of compromise.
24 Mr Hopkins concluded, similarly, as the case upon which the plaintiffs ultimately succeeded was not advanced until the trial, the defendant was not afforded the opportunity to consider the offer of compromise with all facts and arguments available to it. In those circumstances, the defendant submits that it is not appropriate to order interest upon the judgment sum at the penalty interest rate, or at all.
Conclusions
Interest
25 In my view, no good cause has been shown as to why interest should not be awarded in accordance with the statutory provisions relied upon by the plaintiffs. The defendant’s resistance to the award of interest was not elaborated upon in oral argument. The opposition to it in written submissions was as quoted above and is perfunctory.
26 The interest sought by the plaintiffs should be awarded.
Defendant’s success on particular issues
27 The general rule as to the award of costs in common law proceedings is that costs follow the event. The authorities relied on by the defendant demonstrate that part of the “event” which the costs must follow is constituted by the defendant’s success on particular issues. Nevertheless, one must not lose sight of the overriding “event” which this costs order must follow, namely, success for the plaintiffs in both of the causes of action upon which they relied, namely, the action in the common law of negligence and the action under Part VA of the Trade Practices Act.
28 I accept that the authorities relied on by the defendant’s counsel and quoted above establish that the defendant’s success on particular issues may render it appropriate that in substance the defendant be given the benefit of the costs on those issues and that the appropriate role generally of giving effect to this principle is to “net off” the entitlement to costs which the plaintiffs’ victory gives them against any entitlement which the defendant’s issue on particular issues might give it.
29 Nevertheless, it is not an absolute principle that a defendant should automatically be awarded costs on any issues on which the defendant happens to succeed. For instance in Hughes v Western Australian Cricket Association Incorporated, Toohey J sitting as a Judge of the Federal Court of Australia, referred with approval to the cautionary remarks of Jacobs J of the Supreme Court of South Australia in Cretazzo v Lombardi (1975) 13 SASR 4, 12. His Honour said:
“But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case.
There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.”
30 In Hughes’ case itself Toohey J awarded Mr Hughes 75 per cent of his costs even though, according to his Honour, he failed on more causes of action than he succeeded on. The fundamental point, as far as his Honour was concerned, was that Mr Hughes had succeeded in his primary aim to challenge the operation of a particular rule of the cricket council insofar as it operated to preclude him from playing cricket by reason of his participation in South African tours.
31 Vadarlis’ case was a case of some complexity arising out of the litigation relative to the motor vessel, Tampa, and the public interest litigation brought relative to the Commonwealth’s dealing with the asylum seekers on that vessel. The case raised particularly difficult issues arising out of so-called public interest litigation, the provision of counsel pro bono, etc. It is quite distant from the case before me. In Cummings’ case Wilcox J awarded a successful defendant 75 per cent of its costs as a reflection of failure on some issues.
32 The additional authorities referred to by Mr Hopkins are to similar effect and are illustrative of the undoubted principles established by the authorities to which he referred at the hearing. It is axiomatic however, that each case turns on its own particular circumstances.
33 Turning again to the case before me, the overriding factor is that the plaintiffs have succeeded on both their causes of action.
34 Due to the circumstances described therein in parts of my Judgment, the proper causal interpretation of the fire was difficult indeed. It was not unreasonable, in my view, for the plaintiffs to seek to prosecute all of the causal arguments on which they relied at trial.
35 Their criticisms of the design of the Seeley unit as to various features, other than a choice of motor capacitor, proved unsuccessful. These claims were, however, pressed in circumstances where significant portions of the fire relative to the development of the designer views could not be located. Substantial additional documents were produced during the running of the trial but ultimately they did not shed light on the issues. The material showed that there were certain design issues relative to the unit which caused a risk of fire and the material that was made available did not demonstrate a paper record of the resolution of these issues.
36 Mr Hopkins stressed that, to the extent that Dr Hart had raised this issue and did not assert that the material available to him proved the existence, or rather the persistence, of the design problems leading to the risk of fire for the unit. Rather, he said only that the material available to him did not conclusively show that those issues had been resolved.
37 With the issue of discovery constituting a penumbra of uncertainty right up to the middle of the trial, there remained the possibility that a “smoking gun” by way of a document might emerge. It was not unreasonable, in the circumstances, for the plaintiffs to press this issue until it was clear that no such document would emerge. This necessarily entailed them pursuing the issue, in effect, to the end.
38 The knowledge as to what caused the fire continued to evolve throughout the process. It was only at a fairly late stage, as recorded in my Reasons, that Professor Baghurst established that the motor capacitor used in the unit might have contained a steel strip – perhaps the steel strip replaced by Mr Moore.
39 The plaintiffs were, in many respects, groping in the dark. Their difficulties were, to some extent, caused by sheer misfortune, such as the creation of an inadequate photographic record. The CFA investigator, for instance, took no photographs, being of the belief that the volunteer brigade had taken a full photographic record which turned out not to be true. The consultants engaged by the plaintiffs lost the vital evidence but these consultants were independent contractors and not servants. The plaintiffs were not therefore responsible for any negligence on the consultants’ part, if the consultants could, in the circumstances, be said to have been negligent.
40 The plaintiffs in the circumstances of this case are in a difficult situation due to matters largely beyond their control. Proof of causation relative to the fire at their house has proven particularly difficult. In my view, they did what they had to do to make good success on the two causes of action on which they rely. They should be entitled to their costs for the whole of the proceeding on the appropriate party/party scale.
Indemnity costs?
41 The events that have occurred including the defendant’s failure to accept the plaintiffs’ offer under Order 26 create a presumption in favour of the award of costs on a full indemnity basis after the offer was made. I accept that the result which the plaintiffs have obtained in bringing the matter through to trial is more favourable than the one on which they offered to compromise.
42 The effect of Rule 26.08 is to create a presumption in favour of the order for indemnity costs which the plaintiffs seek and this presumption flowing from the Rules is more compelling than any considerations flowing from non-acceptance of a mere Calderbank offer.
43 Nevertheless, in my view the case which the plaintiffs ultimately carried home to victory was a materially different one from the one which the defendant faced at the time that the Order 26 offer was made. I would not necessarily accept the characterisation of the successful case put by Mr Hopkins. To call it the “dancing arc theory” seems something of a trivialisation. Moreover, I do not believe it is fair to say that I rejected evidence of the plaintiffs that the cooler was operating normally on the morning of the fire. The plaintiffs were not qualified as experts to offer an opinion as to what was or was not the normal operation of the cooler. They said that when switched on there was a noise of a “kick” or a “click” and that apparatus seemed to operate. The inference which the defendant’s experts drew from this is that the cooler was operating normally which would necessarily exclude the possibility that there had been a rupture of the motor capacitor the previous night. The occurrence of that rupture overnight was one of the findings that I had made.
44 What I accepted was evidence from Dr Hart, that in the circumstances of a failure by the cooler in short circuit, the short circuit could create sufficient motor activity to give the appearance that the motor was in fact operating or had “kicked on”. This finding was based on supplementary evidence introduced by Dr Hart “in the running”, including production by him of one of his student’s text books from the 1970s. This was a view of the facts which did not align with what any expert was saying at the time the Order 26 offer was made. That being the case, in accordance with Fowdh v Fowdh [1993] NSWCA 100 and the other cases referred to at [13] above, it is appropriate for the Court not to grant indemnity costs where the more favourable result is obtained based on a materially different case from the one which was being propounded at the time the offer was made.
Summary
45 The plaintiffs should have the orders for interest which they seek, together with 100 per cent of their costs on the appropriate scale, “Scale D”, initially and thereafter the Court’s Common Scale as between party and party but not on a full indemnity basis. The Certificates which have been sought by Mr Kelly and Mr Clements should be granted.
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