JL Holdings Pty Ltd v State of Queensland

[1998] FCA 1032

FEDERAL COURT OF AUSTRALIA

COSTS – whether Court can make a reduction to account for costs taken up on an issue on which a successful party has failed – whether to award indemnity costs due to conduct of insubstantial claims - impact upon costs of an offer to compromise – whether the conduct of the party to whom offer made is plainly unreasonable – application for orders for costs against non-party in circumstances where security for costs  previously ordered 

Trade Practices Act 1974 (Cth) s 45D

Land Act 1962 (Q) ss 343-345

Hughes v Western Australian Cricket Association Inc (1986) ATPR 48-134 Appl
Queenland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211 Appl
Australian Conservation Foundation & Ors v Forestry Commission & Ors (1988) 81 ALR 166 Appl

Henderson & Ors v Amadio Pty Ltd & Ors (No 3) (Heerey J, Federal Court of Australia, 22 March 1996, unreported) Appl
Fasold v Roberts (No 2) (Sackville, Federal Court of Australia, 11 September 1997, unreported) Appl
MGICA (1992) Ltd v Kenny & Goode Pty Ltd (No 4) (1996) 70 FCR 236 Appl
Colgate-Palmolive Company & Anor v Cussons Pty Limited (1993) 46 FCR 225 Refd
Knight v FP Special Assets (1992) 174 CLR 178 Appl

JL Holdings Pty Ltd v State of Queensland and Southbank Corporation
SG 1 of 1994

Kiefel J
Brisbane
25 August 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	SG 1 of 1994

BETWEEN:

J L HOLDINGS PTY LTD
APPLICANT

AND:

STATE OF QUEENSLAND
FIRST RESPONDENT

SOUTHBANK CORPORATION
SECOND RESPONDENT

JUDGE:

KIEFEL J

DATE OF ORDER:

25 AUGUST 1998

WHERE MADE:

BRISBANE

THE COURT ORDERS THAT:

1. The applicant pay the first respondent’s costs of the proceedings including reserved costs, save for twenty per cent of the costs on the hearing and twenty per cent of costs of preparation of witnesses and that it pay costs on an indemnity basis of the first respondent’s preparation on the claims of civil conspiracy, breach of copyright and of s 45D Trade Practices Act,  and defamation and, on the claim of fraud, fifteen days of hearing.

2. The applicant pay the second respondent’s costs of the proceedings on an indemnity basis.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	SG 1 of 1994

BETWEEN:

J L HOLDINGS PTY LTD
APPLICANT

AND:

STATE OF QUEENSLAND
FIRST RESPONDENT

SOUTHBANK CORPORATION
SECOND RESPONDENT

JUDGE:	KIEFEL J
DATE:	25 AUGUST 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT - COSTS

The State of Queensland (which I shall refer to as “the respondent”), was successful in its defence of claims brought by JL Holdings Pty Ltd (“JLH”) against it.  It now seeks orders for costs which include an order for indemnity costs and an order that Mr Godfrey Mantle, a non-party, also be ordered to pay its costs.  JLH, for its part, submits that the respondent ought to be limited in the costs it recovers on some issues.  It is convenient in the first place to deal with that contention.

Limitation on Respondent’s order for costs
A successful party will ordinarily recover costs.  As part of the discretion exercised, however, the Court may make a reduction in the costs to be recovered to account for costs taken up on an issue on which that party has failed:  Hughes v Western Australian Cricket Association Inc (1986) ATPR 48-134 at 48,136-7 (applied Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211, 222). Caution has however been suggested in approaching such an application, on the basis that a respondent ought not to be forced to abandon every defence which that party is not sure of maintaining: Australian Conservation Foundation & Ors v Forestry Commission and Ors (1988) 81 ALR 166, 169 (applied in Henderson & Ors v Amadio Pty Ltd & Ors (No 3) (Heerey J, Federal Court of Australia, 22 March 1996, unreported).  At the same time, as Burchett J went on to point out, if that party multiplies issues unreasonably there may be a penalty in costs.  As with most issues relating to costs, the question is usually one of reasonableness in the conduct of proceedings, mindful of the benefit of hindsight, particularly where complex litigation is involved, and mindful also of the position in which a party is placed when it is brought to court.  Nevertheless, if there is not apparent some reasonable basis for a substantial, but unsuccessful, defence or counter attack, there would seem to be no reason in principle why the costs of maintaining that stand ought not to be borne by that party. 

The topics raised by JLH as relevant to the question whether a full order for costs ought to be made in favour of the respondent can be summarised as follows:

1. The respondent’s approach to the issue of construction costs of the development;

2. The approach otherwise to the evidence adduced from the quantity surveyors;

3. The contention it advanced that, even if JLH was found to have been entitled to a lease of the lands in question, it could not have proceeded with the development because other approvals or permits would not have been forthcoming;  and

4. The failure of the respondent to admit a number of facts and its conduct in leaving in contention many facts which were later proved. 

As to the last point, it does not seem to me to be possible to apportion responsibility against the respondent, to any substantial degree, for the lengthening of the trial by the approach it took.  The proceedings were, in every sense, adversarial.  Putting to one side, for the moment, the number of claims put forward by JLH, a matter which I shall deal with separately, and the unmeritorious attacks mounted by the respondent, by the time the matter came to hearing it was apparent that the parties were, for the most part, unwilling or unable to shorten any aspect of the hearing.  There is however some force in JLH’s argument that the respondent itself added to the length and complexity of the evidence on the issue of the costs of construction and fitout of the development proposed.

There would not be many cases where detailed evidence from experts such as quantity surveyors as to costs ought to be necessary.  In most cases, where building and fitout costs remain in issue, the areas of dispute between them can be reduced to a minimum, if not resolved.  In the end result there ought only to be a few issues of substance between them and this would usually be because of some fundamental difference in approach.  In this case both quantity surveyors were experienced and there is no reason to doubt that the issues could have been limited.  Indeed that was attempted.  The reason why the quantity surveyors’ evidence was unable to be managed within reasonable limits was because the quantity surveyors had not been instructed to cost the same project and because an alternative case, which challenged their estimates regardless of the project they were costing, was not sufficiently prepared.

The firstmentioned difficulty arose because there were no final plans, bills of quantity or a “tender” in the proper sense.  In these circumstances the quantity surveyors for JLH obtained the necessary detail from JLH’s project architect and proceeded to cost the intended project by reference to that additional information and the project budget.  The respondent’s approach however was to apply itself not to meet that case, but to cost the project on a basis which assumed JLH would be held to a contract to build what had been promised in the “tender documents” which had been lodged with the Brisbane City Council.  As became apparent from its own quantity surveyor’s report, however, those documents did not contain sufficient information.  In the result he was required to hypothesize about details of the construction and fitout. 

I do not think it could, in fairness, be said that the issue raised by the respondent was inarguable.  In the defence of its action it had a right to raise an issue as to what it considered JLH to have been contractually obliged to deliver, even if it were unsuccessful in that.  That decision may however have been influenced by the fact that the overblown descriptions in the “tender documents” were bound to make any construction according to it very expensive and render it unlikely that it could have been brought in within budget.  This tends to be confirmed by the approach then taken by the respondent’s quantity surveyor, to make higher allowances for unknown items or quantities. 

Another aspect of the quantity surveyors’ evidence which took up considerable time, both in their preparation of schedules and in evidence, was the attacks made upon their estimates, regardless of the nature of the project.  The respondent played the substantial part in this process but, in the end result, little was derived from it which enabled any useful submissions.  It was left to attempt to cast doubt generally on JLH’s quantity surveyor’s report and by reference to an attack on his credibility.  The attempt to mount this alternative attack gave the impression of being ill-prepared and this seemed to me to account for much of the time lost.  A difficulty however is in an assessment of how much time was taken up with this, when the evidence of the quantity surveyors itself was taken in parts and this attack was bound up in the problem created by the experts having costed different projects.

There were, no doubt, measures which could have been undertaken to clarify what was being costed and this was not attempted.  However, the problem arose from the nature of JLH’s case and it could also have taken some steps when the problem became apparent.  It would not then be reasonable to limit the respondent’s costs on the issue as to what project was to be estimated.

The situation with respect to the alternative approach by the respondent, to challenge JLH’s quantity surveyors costings regardless of the project involved, is in a different category.  There were choices to be made, which depended upon how the case had been prepared.  Any substantial attack needed to be formulated in consultation with the respondent’s own quantity surveyor.  The manner in which it was sought to delve into the issue made clear that this had not occurred.  In these circumstances, I consider it is appropriate to deny the respondent the costs wasted upon such an exercise.  An estimate of the time taken is somewhat difficult.  I refer to this again below.

The only other area in which it is arguable that the respondent unnecessarily added to the length of the trial was in its contention that the approvals and licences, which the project needed to be operational, would not have been forthcoming.  This accounted for a substantial number of witnesses, dealing with the topics of the fauna park permits, those for the ferry terminal and wharf facilities and boat ramp, and liquor licences, in addition to the central approval.  It is to be distinguished from the issue of viability.  The respondent’s conduct was unreasonable in pursuing this course because it was largely contradictory of the facts as existed, which showed that the relevant decision-makers had been satisfied that requirements associated with the grant of permits had been met.  What the respondent then sought to do was to maintain that it was, nevertheless, unlikely that they would have been forthcoming because where it was able to withhold final approval, it would have, which is to say regardless of any proper recommendation.  I have not found it necessary to deal with the aspect of good faith in each instance.  It suffices for present purposes to observe that this aspect of the defence was not only technical, it was in many respects contrary to facts known to the respondent.  Taking the two areas in which costs are to be limited into account, I would estimate that a reduction of twenty per cent of the costs would not be unreasonable.

Indemnity Costs

The case against JLH for indemnity costs is brought on three bases:  generally by reason of its conduct of so many insubstantial claims;  specifically because of its claim of fraud against the respondent;  and lastly because it refused an offer to settle. 

The making of an offer to compromise is not itself conclusive of the question whether costs should be awarded on a basis other than that which is usual, costs as between party and party.  It is but one factor to be taken into account in the exercise of the Court’s discretion:  Fasold v Roberts (No 2) (Sackville J, Federal Court of Australia, 11 September 1997, unreported).  In making such an order it ought usually to be shown that the conduct of the party to whom the offer was addressed was plainly unreasonable:  MGICA (1992) Ltd v Kenny & Goode Pty Ltd (No 4) (1996) 70 FCR 236.

The offer to settle was made by the respondent by letter of 20 December 1996.  Preparation for trial was likely to have been reasonably advanced by that time, as the trial was listed to commence on 18 February 1997.  It was to the effect that the claims be withdrawn and that the parties bear their own costs, save for the sum of $150,000 of the total amount JLH had been ordered to secure, which was to be paid to the respondent.  There was also to be a public withdrawal or dismissal.  Putting to one side the number of claims made by Mr Mantle, that which was based largely upon a construction of the Land Act could not be said to have been completely without merit, even if there were a number of further hurdles, including the issue of damages, which JLH needed to be taken into account before it could conclude that it had any prospects of success.  In these circumstances, and taking into account the time at which the offer was made, it could not in my view be said that JLH’s rejection was wholly unreasonable.  It was, by that time and having regard to the substantive costs it had incurred, committed to a hearing.  That leaves, however, questions as to whether the proceedings needed to involve all the claims that were made by JLH, which rendered them more complex and expensive, and the reason why JLH did so.

I have already remarked upon the number of claims brought by JLH in a case which, essentially, involved a question of construction of ss 343-345 Land Act 1962 (Q).  Indeed that question might have been determined in a relatively short time some time ago had JLH narrowed its claims and, in particular, not pursued its claim in fraud.  JLH’s conduct of this litigation has been characterised by an apparent determination to pursue each of the claims originally brought and an unwillingness to critically analyse some of those identified at an early point as having some difficulties in the path of their success.  Where a large number of claims are brought, many of which appear to have little prospect of success or offer little by way of remedy to the party pursuing them, courts will be alert to the prospect that their importance lies in some perceived tactical advantage in adding them to the core proceedings, at least if it is asumed that they are pursued on the advice of experienced practitioners.  An obvious inference open in such circumstances would appear to be that there will be pressure exerted by expanding proceedings in scope so that it will either test the resources of the respondent or otherwise assist in persuading it to a “commercial” settlement, which in this context I mean to refer to a sum which has to be paid in order to avoid a larger payment by way of costs in resisting a claim.  I do not think it could be said here that the first inference is reasonably open.  The respondent’s resources would have always been greater.  It is not, on the information available to me, possible to draw the second inference.  It would involve surmise and that would not be appropriate.

It was submitted for JLH that it ought to be understood that its approach to the bringing of so many claims merely reflects the usual concern of a party, and its legal advisers, that all claims be put forward lest they be later debarred from pursuing them.  I accept that this may account for some claims brought by parties.  I do not accept that it provides an excuse for pursuing a number of claims which lacked merit.  Where that possibility arises it seems to me that some other explanation is called for.

I do not propose to analyse each additional, and alternative, claim brought.  There were some which did have substantial impact on discovery and evidence, such as that concerning the agency of the Council, but it is difficult to disentangle them from other issues or to identify, with any measure of accuracy, the effect they had on costs.  The respondent, in any event, does not seek costs by such an approach.  The claims to which it refers are said to be those where it is clear that they should not have been brought: Colgate-Palmolive Company & Anor v Cussons Pty Limited (1993) 46 FCR 225, 233.

The claims in copyright and defamation in my view were without merit.  They provide clear examples of JLH’s persistence with claims for reasons never satisfactorily gone into.  There was no examination of the witnesses necessary to the claim in defamation and the brief submissions made concerning it, and how JLH could recover, were telling.  The only view I was able to form concerning the reason for the copyright claim, given the numerous discussions about it, was that JLH was not concerned to properly consider it until Day 12 of the trial.  Concerns had been expressed about its potential in mid-1995.

Neither the claim based on civil conspiracy nor that for breach of s 45D Trade Practices Act 1974 (Cth) were pursued after Day 34 of the trial. JLH sought to rely upon the failure of the respondents to have successfully struck out the claim under s 45D as proof that it was not groundless. It was in my view always deficient without further amendments, and they were never sought. No step was taken by JLH which conveyed that it was serious about the claim. In any event it is not suggested that that claim involved substantial costs in preparation. That with respect to civil conspiracy, however, did. That claim also involved the second respondent against which corporation proceedings were discontinued in the course of the trial.

The most serious claim in this category was undoubtedly that brought in fraud.  I have earlier expressed doubt as to how this plea could have been considered any more than speculative, on the basis of the documents discovered.  The case against JLH now for indemnity costs however is one which has regard to JLH’s persistence of the matter through the hearing, despite inquiries of its counsel as to what was necessary to be established and despite the evidence of the respondent’s witnesses at an early point, which on any view, failed to disclose the conspiracy which JLH and its legal advisers thought might be behind decisions made and formed the focus of its case.  No proper explanation for the plea has ever been forthcoming, despite the need for it having been flagged.  The respondent estimates that some 15 days were taken up with this issue.  That appears to me a reasonable estimate since it was this claim, more than any other, which extended the number of witnesses called by the respondent.

In all these circumstances I consider JLH ought to pay indemnity costs with respect to the respondent’s preparation of each of the claims of civil conspiracy, s 45D, copyright and defamation and 15 days of hearing in connexion with the claim in fraud.

Non-party Costs
The respondent seeks an order for costs against Mr Mantle personally.  There is no doubt of his connexion with the litigation and that he would have derived benefit from it.  He has made no secret of this and has himself provided security for costs.  It was not suggested that the Court lacked power to make such an order.

It was submitted for Mr Mantle that such an order should not be made in circumstances where security for costs had been previously ordered and where the non-party who has joined in providing it is thereby led to believe that no further demand will be made of him.  As a question of fact I do not think the latter part of the submission can be accepted. 

Applications for orders for costs against non-parties ought not be necessary where applications have already been made for security for those costs, as McHugh J observed in Knight v FP Special Assets (1992) 174 CLR 178, 217-8. Orders made reflect what the Court considers to be adequate in the circumstances. It seems to me that what is now sought, by way of this order, is an increase to the security previously ordered, on the basis that it was not sufficient. The trial was conducted largely within the parameters put forward when security for costs was determined and I do not consider it appropriate, in effect, to revisit it.

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel

Associate:

Dated:             25 August 1998

Counsel for the Applicant:	Mr T Gray QC and Mr T Matthews
Solicitor for the Applicant:	Minter Ellison
Counsel for the First and Second Respondents:	Mr R Hanson QC, Mr J McKenna and Mr R Derrington
Solicitor for the First and Second Respondents:	Crown Law
Date of Hearing:	18 February 1997 to 27 June 1997 inclusive, 6 March 1998, 4 June 1998
Date of Judgment:	25 August 1998