Jones, Griffith M & Ors v Mortgage Acceptance Nominees Ltd & Ors Jones, Griffith M & Ors v Ce Heath Casualty & General Insurance Ltd

[1996] FCA 103

IN THE FEDERAL COURT OF AUSTRALIA           )        
  )
NEW SOUTH WALES DISTRICT REGISTRY          )  No G 711 of 1991
  )
GENERAL DIVISION  )    

BETWEEN:              GRIFFITH MORGAN JONES

FREDERICK LANCE MESH
  EARLE WILFRED BAILEY
  THOMAS ALFRED INGLIS BRAYE
  JEFFREY WALL
  BRIAN DAVID THORNTON
  KEVIN IAN PERKINS
  PAUL EDWARD NEILSON
  ANTHONY MARMADUKE CARMICHAEL
  GLEN WILLIAM GREEDY
  PAUL STENBERG
  GORDON FRASER
  JOHN HOPE GIBSON
  EDWARD JAMES AIRD (JNR)
  DONALD LEVICK
  NOLA LEVICK
  JEFFREY CECIL FOSTER
  MARK THOMAS SEALES    

Applicants

AND:  MORTGAGE ACCEPTANCE NOMINEES LIMITED

RODERICK STUART McDONALD
  GREGORY ALFRED FARROW
  JARPAN MANAGEMENT SERVICES PTY LTD
  PETER DONE
  BRIAN KING
  JAMES BESTER
  AUSTRALIAN BREEDERS CO-OPERATIVE SOCIETY LTD

Respondents

No G 491 of 1994

BETWEEN:              GRIFFITH MORGAN JONES

FREDERICK LANCE MESH
  EARLE WILFRED BAILEY
  THOMAS ALFRED INGLIS BRAYE
  JEFFREY WALL
  BRIAN DAVID THORNTON
  KEVIN IAN PERKINS
  PAUL EDWARD NEILSON
  ANTHONY MARMADUKE CARMICHAEL
  GLEN WILLIAM GREEDY
  PAUL STENBERG
  GORDON FRASER
  JOHN HOPE GIBSON
  EDWARD JAMES AIRD (JNR)
  DONALD LEVICK
  NOLA LEVICK
  JEFFREY CECIL FOSTER

MARK THOMAS SEALES

Applicants

AND:  C E HEATH CASUALTY & GENERAL INSURANCE LIMITED

Respondent

- 2 -

Coram:                 Davies J.
Date:  23 February 1996
Place:                   Sydney

FINDINGS ON COSTS

In general, I consider that all proper costs of the proceedings should be treated as costs reasonably incurred in consolidated proceedings.  The two proceedings, No 711 of 1991 and No 491 of 1994 were heard together and there were interlocking claims and cross-claims.  In general, the applicants' claims against C E Heath Casualty & General Insurance Limited ("Heath") had the support of other parties, for it was in the interests of the respondents that Heath should be found liable as insurer of Beattie McDonald.

Moreover, although the applicants were unsuccessful in their claims against Mortgage Acceptance Nominees Limited ("MANL") and Heath and did not sustain all grounds alleged against all respondents, their claims were reasonably made in the interests of the litigation and were repeated in many although not in all the cross-claims filed by the respondents.  Similarly, some of the cross-claims failed insofar as they were based upon the applicants' claims.

I do not propose to direct that any particular costs were unnecessarily incurred. 

I need not deal with all the individual submissions made in this respect.  The litigation was complex, there were many parties and there were many differing causes

of action.  The trial could have proceeded in some respects more speedily than it did.  In commercial proceedings, it is essential that counsel refine the questions which they ask so as to obtain speedily the answers which they seek.  Direct rather than indirect or roundabout questions are usually the most efficient and effective.  Cross-examination for the purpose of achieving an atmosphere or for the purpose of dealing with all possible issues of fact is rarely cost-effective.  In the trial, much of the cross-examination was of the highest standard but there were nevertheless areas in which some pruning of the cross-examination would have been desirable.  However, the litigation was complex.  I would not single out any conduct at the trial as meriting a special order as to costs.  Nor would I make any special order with respect to those applications made during the trial to amend the pleadings which were unsuccessful.  The issues sought to be raised were not frivolous.  The applications should be regarded as an ordinary part of the trial in which some steps taken and claims made were successful and others were not.

Counsel for the Australian Breeders Co-operative Society Ltd ("ABCOS") submitted that the evidence as to comparable sales given on behalf of the applicants was unnecessary.  However, this evidence arose from objections by counsel for ABCOS to matters contained in the affidavits of the applicants' experts.  It was said that some statements were mere conclusions unsupported by evidence of comparable values.  Counsel for ABCOS indeed devoted a good deal of time to the issue of comparable sales notwithstanding that I gave more than one indication during the course of the trial that I did not find the evidence to be particularly helpful.  The evidence was not irrelevant but a detailed inquiry into comparability did not seem to be useful.  The time spent on the issue was unfortunate but I do not think the applicants can be blamed for this.

MANL sought costs on an indemnity basis.  I need not discuss again the principles applied with respect to the granting of indemnity or solicitor and own client costs.  They were sufficiently discussed in the decision of Sheppard J. in Colgate-Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225 and in my own decision in Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, 5 March 1993) to which his Honour referred.

Counsel for MANL first referred to clause 8.2 of the Deed of Loan which provided:-

"8.2The Borrower shall on demand pay the Lender's costs and expense including without limitation legal expenses incurred by the Lender on a solicitor and own client basis in relation to the negotiation, preparation, execution, implementation, administration and enforcement or attempted enforcement of the terms and conditions of this Deed and the Loan Securities and including any moneys expended by the Lender in rectifying any default by the Borrower hereunder or by the Borrower or the party to be charged under the Loan Securities or any of them." (emphasis added)

A term such as this was considered by Cole J. in Sandtara Pty Ltd v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82. However, what was sought in that case was a declaration as to the proper construction of a credit facility agreement. In this present proceeding, MANL has not sought the costs of the proceedings as part of the moneys due to it under its agreements with the investors. MANL already has judgment for the sums which are due to it. The present issue arises under the statutory power conferred upon the Court by s.43 of the Federal
Court Act 1976 (Cth).  Section 43(2) provides that the award of costs is in the discretion of the Court or Judge.  As was held in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, the discretion will ordinarily be exercised in accordance with the contractual entitlement, but nevertheless the discretion remains.

MANL also sought costs on other than a party/party basis by reason of a written offer of settlement which it made to the applicants on 24 March 1995.  As events have turned out, the offer is one which the applicants regret that they did not accept.  However, the offer was made in the third week of the trial and was not one which, realistically, the applicants could have accepted without the concurrence of the respondents and of Heath.  I am, of course, not aware whether that concurrence was sought or would have been forthcoming.  However, my impression at the time was that so much had been incurred by way of costs that the offer would not be likely to lead to settlement.  The making of the offer of settlement is certainly a strong factor in MANL's favour.  However, having regard to the number of parties in these proceedings and to the complexity of the claims and of the cross-claims, it seems to me not to be a sufficient factor for awarding costs other than on a party/party basis.

In my opinion, the facts of the case weigh against an order for costs as sought by MANL.  Although MANL has a contractual entitlement under cl 8.2 of the Deed of Loan to costs on a solicitor and own client basis, I am of the view that MANL's conduct in the establishment of the venture was such that the Court's discretion should be exercised to order no more than costs on a party/party basis.  Indeed, although I rejected the contention that MANL was guilty of the tort of negligence, its conduct in financing the First Trinity Park Stud Breeding Venture without giving much closer attention to the financial viability of the project than it did played a part in the establishment and failure of the venture.  MANL's preparedness to provide finance at a high rate of interest for this and other like-speculative, tax-driven syndicates was unfortunate, and a factor which, with others, contributed to the financial losses which occurred.

Counsel for the applicants sought indemnity costs on the basis that, in his submission, the costs of taking the proceedings against all respondents other than Mr McDonald were part of the damages which the applicants were entitled to recover.  Reference was made to para 323 of McGregor on Damages, 15th ed., and particularly the case of Lloyds and Scottish Finance Ltd v Modern Cars and Caravans (Kingston) Ltd (1966) 1 QB 764 in which the plaintiffs had instituted interpleader proceedings with a view to mitigating the loss. That case was concerned, however, with the costs of proceedings other than those in which the damages were sought. In the present case, we are not concerned with the recovery of damages of that nature. We are concerned with the issue as to what order as to costs should be made in exercise of the power conferred on the Court by s.43 of the Federal Court Act.  The making of an award of costs has many analogies with the making of an award of damages and factors taken into account in each can be similar, including the question whether costs were reasonably incurred with a view to recovering or minimising an applicant's loss.  But the fundamental basis on which the two awards are made is different.  Thus, in Sanderson v Blythe Theatre Company (1903) 2 KB 533 at 539, Romer LJ, when enunciating the principles lying behind the making of an order of the type now called a "Sanderson order", said:- "The costs so recovered over by the plaintiff are in no true sense damages, but are ordered to be paid by the unsuccessful defendant, on the ground that in such an action as I am considering those costs have been reasonably and properly incurred by the plaintiff as between him and the last-named defendant."

The applicants also sought indemnity costs from those respondents who have been found liable for breach of fiduciary duty.  Counsel for the applicants referred to Jacob's Law of Trusts, 5th ed. at para 2211 and to cases such as Re Dawson (1966) 2 NSWR 211. In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 560, Mason CJ, Brennan, Deane, Dawson & Gaudron JJ. made it clear that the making of a discretionary order against a fiduciary will depend upon the circumstances of the case including the powers and obligations of the fiduciary and the relationship between those powers and obligations and the subject matter of the claim. There is no prima facie rule that a person found liable for a breach of fiduciary duty will be ordered to pay costs greater than party and party costs. Indeed, in Warman International, no special order as to costs was made.

The venture did not fail merely because of the actions or inaction of a person or persons who came under a fiduciary obligation to the investors.  Other important factors were that Mr Bester and Mr Pulford, neither of whom was a fiduciary, both carried out their valuations negligently.

I would not exercise the Court's discretion so as to order indemnity costs in favour of the applicants.  They were not entirely blameless.  The venture was structured as a scheme to provide, inter alia, taxation deductions in its first two years and therefore to reduce in those two years the tax which the investors would otherwise have to pay.  Investors in tax minimisation schemes should not expect a special order as to costs in their favour when the scheme is unsuccessful, as such schemes very often are. 

The order for costs made in favour of MANL should be made against the applicants and the other investors in the proportions in which each invested in the venture.  The venture was carefully constructed to achieve the results that none of the investors was liable for the default of another.  Each of the investors therefore entered into a separate agreement with MANL.  The venture would not have proceeded had not this been a term of the arrangement.  I have already indicated my view in an associated case, Sweetman v Australian Thoroughbred Finance (Davies J., unreported, 19 June 1995) that it would be unfair to the investors not to hold MANL to this arrangement.  In my ruling in Sweetman's case, I refused to allow MANL to amend its statement of claim so as to allege that there was a partnership between the investors.  For similar reasons, I think that justice would be done if the orders as to costs made against the investors, including the applicants, were made against each of them severally in proportion to the extent of their investment in the venture. 

The costs payable by the applicants to MANL should be the subject of an order imposing liability on the respondents.  An issue is whether the order should
follow that made in Bullock v The London General Omnibus Company (1907) 1 KB 264 or that made in Sanderson v Blythe Theatre Company.  The issue is whether the order in favour of MANL should be made directly against the respondents so that they are directly liable to pay the costs which MANL is entitled to recover.  Counsel for MANL submitted that an order should be made that the respondents pay MANL's costs directly to MANL.  In my opinion, it is more appropriate to make an order such as was made by French J. in Nella  v Kingia Pty Ltd (1989) ATPR 40-952, that is to say a Bullock order. MANL is entitled to costs not merely because it has succeeded as respondent, but because it has succeeded in its cross-claims and is entitled to judgment against each of the investors individually. This is not a case where the other respondents or any one or more of them caused the applicants to join MANL by alleging MANL was at fault. At an early stage, in 1991, before the litigation commenced, the applicants took the step of repudiating their agreements with MANL.

Heath should have its costs against all applicants jointly and severally.  These costs should be the subject of a Bullock order. 

No order as to costs need be made on unsuccessful cross-claims; but the costs which the applicants, MANL and Heath incurred in relation to the proceedings should include the costs incurred in respect of cross-claims, including unsuccessful cross-claims.

The respondents other than MANL and Heath should abide their own costs of the proceedings, as also should Mr Bester. 

The last issue as to costs which I need discuss is whether I should limit the costs payable by any one or more of the respondents.  I have indicated in my reasons of 10 November 1995 the proportions of responsibility which I would attach to each of the respondents and to Mr Bester.  It seems to me that, in the present case, to make an apportionment would be to cause an injustice to the applicants, for it is likely that they will be unable to recover from all those who have been held liable.  Messrs McDonald, Farrow and King, who have been found liable in some proportion for the applicants' damages, may not be able to meet their obligations.  Had they been the sole persons against whom claims were made, I think that the trial would have been relatively brief.  The trial was lengthy principally because MANL, Mr Done and ABCOS, all of whom were represented by senior and junior counsel, were respondents.  In this circumstance, I think that the usual rule should apply and that the order as to costs should be made against the respondents jointly and severally.

Counsel should prepare short minutes accordingly.

I certify that this and the 9 preceding pages
are a true copy of the reasons for judgment herein of
the Honourable Justice Davies.

Associate:

Date:    23 February 1996

Counsel for the 1st applicant  
and the 3rd to 18th applicants:  R B S MacFarlan QC
  L S Einstein
Solicitors for the 1st applicant  
and the 3rd to 18th applicants:  Gadens Ridgeway

Counsel for the 1st respondent/cross-respondent:  D E Grieve QC
  M G Skinner

Solicitors for the 1st respondent/cross-respondent:                  R B Monteith & Co

Counsel for the 5th respondent/cross-respondent:  B C Oslington QC
  T D Castle

Solicitors for the 5th respondent/cross-respondent:                  Allen Allen & Hemsley

Counsel for the 8th respondent/cross-respondent:  S D Rares SC
  M Dicker

Solicitor for the 8th respondent/cross-respondent:                   Minter Ellison

For the 2nd & 6th respondents/cross-respondents:                   Appearing in person.      

For the 7th cross-respondent:  Appearing in person

Counsel for the 14th & 15th cross-respondents:  P Taylor SC

Solicitors for the 14th & 15th cross-respondents:  Phillips Fox

Dates of hearing:  6 - 10 March; 13-14 March 1995          
  16 - 17 March 1995
  20 - 24 March 1995
  27 - 31 March 1995
  3 - 6 April 1995
  10-11 April, 13 April 1995
  5 May; 17 May & 19 May 1995
  18 December 1995
  7 February 1996

Date of judgment:  23 February 1996