Keet v Ward - [2011] WASCA 139

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: KEET -v- WARD [2011] WASCA 139

CORAM: PULLIN JA
BUSS JA
NEWNES JA

HEARD: 2 JUNE 2011

DELIVERED : 1 JULY 2011

FILE NO/S: CACV 93 of 2010

BETWEEN: JOHN FRANCIS DESMOND KEET
Appellant
AND
SUSAN ANNE WARD and JULIA MURIEL LAURISSON As Executors of the Estate of the late DOROTHY MURIEL LUKIN
First Respondents
SUSAN ANNE WARD and JULIA MURIEL LAURISSON As Administrators of the Incapable Estate of LOUISE LUKIN
Second Respondents
LAKE WAY STATION PTY LTD
Third Respondent
NATIONAL AUSTRALIA BANK LTD
Fourth Respondent
CLIVE STEWART BAIN
Fifth Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :MURPHY J
File No  :CIV 1566 of 2006

Catchwords:

Appeal - Application for leave to appeal against order for costs - Discretion to award costs under O 66 r 2(a) - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 66 r 1(3), O 66 r 2(a)

Result:

Leave to appeal granted
Appeal allowed

Category: B

Representation:

Counsel:

Appellant:     Mr A J Cameron
First Respondents         :     Mr B G Grubb
Second Respondents     :     Mr B G Grubb
Third Respondent          :     Mr B G Grubb
Fourth Respondent        :     No appearance
Fifth Respondent           :     No appearance

Solicitors:

Appellant:     Corser & Corser
First Respondents         :     Metaxas & Hager
Second Respondents     :     Metaxas & Hager
Third Respondent          :     Metaxas & Hager
Fourth Respondent        :     Jackson McDonald
Fifth Respondent           :     DLA Phillips Fox

Case(s) referred to in judgment(s):

Adamson v Pharmacy Board of Tasmania (No 4) [2004] TASSC 112
Australian Trade Commission v Disktravel [2002] ATPR 41‑85
Cretazzo v Lombardi (1975) 13 SASR 4
Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; (2002) 54 IPR 495
House v The King [1936] HCA 40; (1936) 55 CLR 499
Kimpura Pty Ltd v JWH Group Pty Ltd [2004] WASCA 134
Letang v Cooper [1965] 1 QB 232
Mallet v Mallet [1984] HCA 21; (1984) 156 CLR 605
Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569
Queensland Wire Industries Pty Ltd v Broken Hill Pty Ltd (1987) 17 FCR 211
R J Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2009] WASC 206(S)
Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd [1956] VLR 555
S v The State of New South Wales [No 2] [2008] NSWSC 1116
Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115
Ward v Keet [2008] WASC 33
Ward v Keet [No 2] [2009] WASC 369
Ward v Keet [No 3] [2010] WASC 71
Wigan v Edwards (1973) 1 ALR 497
Witcombe v Talbot & Olivier [No 2] [2009] WASC 173(S)

REASONS OF THE COURT: This is an application by the appellant for leave to appeal against a costs order made against him on 6 August 2010 in relation to the disposal of a preliminary issue. If leave is granted the appeal is to be decided.

Background

The first and second respondents are sisters and are daughters of the late Dorothy Muriel Lukin. They are executors of their late mother's estate and administrators of the incapable estate of their sister Louise. The third respondent is their family company. The first, second and third respondents will be referred to as 'the Lukins'.
The Lukins commenced proceedings in 2006 in the Supreme Court, alleging that the first defendant, now the appellant (Mr Keet), agreed to invest money on behalf of the Lukins. The Lukins alleged that over a period of years, Mr Keet, by his employee, misappropriated certain funds invested, and that Mr Keet was accordingly liable for the funds lost. The Lukins also sued the National Australia Bank for permitting withdrawals to be made without authority on accounts in which the investment moneys were held.
Mr Keet joined two third parties. The proceedings against the first third party came to an end in 2006 but continued against the second third party (Mr Bain) who was an auditor. Mr Keet alleged that Mr Bain should have detected the misappropriations.
In 2007 there were two mediation conferences. The Lukins alleged that at the second mediation conference on 26 July 2007, a binding agreement to settle the action was reached. When Mr Keet subsequently refused to execute a deed recording the alleged agreement, the Lukins were granted leave to amend their statement of claim to plead the terms of the alleged compromise and to seek a declaration that the proceedings had been compromised and such consequential orders as appropriate. The National Australia Bank and Mr Bain also contended that settlement had been reached at the mediation. The only party disputing it was Mr Keet.
The Lukins sought summary judgment to enforce the alleged settlement agreement. That application was dismissed but on 23 September 2008, Master Sanderson ordered that the questions which had emerged (that is, whether there was a concluded, enforceable agreement and if so, whether it was vitiated by misrepresentation as Mr Keet alleged) should be tried as preliminary issues. Costs of the Lukins' summons for summary judgment were made costs in the cause of the preliminary issues.
The trial of these preliminary issues came on for hearing before Murphy J (as his Honour then was) and in his reasons, Ward v Keet [No 2] [2009] WASC 369, his Honour held that no binding agreement was reached at the mediation conference as alleged by the Lukins, and that even if there had been a binding agreement, there was no misrepresentation which vitiated the agreement. Although his Honour found there had been a consensus about the amount of settlement, he ultimately found that no enforceable agreement was reached because essential terms had not been agreed. The reasons relevantly read:
I find that at the second mediation, the parties reached a consensus on there being a settlement sum of $650,000, with the first defendant paying $625,000, and the second defendant paying $25,000. The second third party would pay $125,000 to the first defendant. The last-mentioned sum was to be paid in settlement of the third party action against the second third party. The first defendant would then pay the equivalent sum to the plaintiffs. There was consensus that the first defendant's solicitor would prepare a settlement deed for review by the parties. There was consensus that upon execution of the deed, the first defendant would pay the plaintiff the sum of $125,000 it received from the second third party, and the second defendant would pay the plaintiff the sum of $25,000.
The parties also reached a consensus that the first defendant would have three months to pay the sum of $500,000 without interest. There was also a consensus that the first defendant could pay, at his election, the sum of $500,000 by four instalments. The first defendant would, upon execution of the deed, also sign a consent order for judgment against him in the sum of $500,000, which would be held in escrow, and that on payment in full, the judgment would be destroyed.
Accordingly, although there was consensus as to 'major matters' (cf Masters v Cameron (361)), there was no final consensus as to:
(a)when the first instalment would be paid;
(b)when the next three instalments would be paid;
(c)how the instalment arrangement would operate in relation to the first defendant's right to take three months to pay the $500,000 without incurring any interest liability [82] ‑ [84].
Having published reasons, on 9 December 2009, the transcript then records his Honour as saying:
As to costs, this doesn't bring the action to an end so I have in mind reserving costs and dealing with that at the end of the action.
An order was then made reserving costs.
The action then was put back into the CMC List.
In the CMC List on 5 March 2010, Justice Murphy made a springing order against Mr Keet in the following terms:
1.Unless by 12 March 2010, the First Defendant:
1.1makes available to the Plaintiffs, for inspection, all of his discoverable documents; and
1.2complies with paragraph 19 of the Orders of Justice Murphy dated 11 December 2009 ('Orders'),
his defence be struck out and judgment be awarded to the Plaintiffs in the amount of $590,091.75, plus interest with costs to be taxed.
2.Unless by 17 March 2010, the First Defendant complies with paragraphs 20, 21 and 22 of the Orders, his defence be struck out and judgment be awarded to the Plaintiffs in the amount of $590,091.75 plus interest with costs to be taxed.
3.The First Defendant pay the Plaintiffs' costs of today in any event.
The springing order was not complied with by 12 March 2010. On 17 March 2010, Mr Keet, by chamber summons, applied for an extension of time to comply with the springing order. This was dismissed on 9 April 2010: Ward v Keet [No 3] [2010] WASC 71. On 23 April 2010, as a result of non‑compliance with the springing order, judgment was entered for the Lukins against Mr Keet in the following terms:
1.the First Defendant's defence be struck out;
2.the First Defendant do pay to the Plaintiffs:
2.1the amount of $590,091.75;
2.2interest thereon in the amount of $246,385.81; and
3.the First Defendant do pay the Plaintiffs' costs of the action to be taxed.
The parties then agreed that the question of the costs reserved on the determination of the preliminary issues would be dealt with and decided on the papers. Submissions were filed by the Lukins on 1 June 2010 and Mr Keet filed his submissions on 28 June 2010.
The Lukins' written submissions included a submission that notwithstanding they were unsuccessful in the trial of the preliminary issues, they were wholly successful in the main action and should be awarded the reserved costs of the hearing because although his Honour found that there was no binding settlement agreement, there was a consensus between the parties. They submitted that the Lukins were unnecessarily and unreasonably put to the expense of conducting the trial of the preliminary issue by Mr Keet not otherwise agreeing to settle on the terms of the offer, which were more favourable to Mr Keet than ultimately secured by the Lukins in the judgment. Further, the Lukins referred to the 'contumelious conduct' by Mr Keet by way of his 'consistent and unexplained failure to comply with court orders' and that as a result, he should properly pay the costs of the trial of the preliminary issue.
Mr Keet submitted that the preliminary issue was in no way connected to the ultimate success of the action, so that a separate costs order in his favour was the appropriate order. Reliance was placed on Adamson v Pharmacy Board of Tasmania (No 4) [2004] TASSC 112 and S v The State of New South Wales [No 2] [2008] NSWSC 1116.
Subsequently, on 6 August 2010, his Honour made the order that Mr Keet pay half of the Lukins' taxed costs of the hearing of the preliminary issue, such costs to be taxed. His Honour gave reasons for that decision as follows:
I have before me two competing applications for costs which were reserved in relation to the hearing of the preliminary issue in these proceedings. The preliminary issue involved whether there had been a binding agreement to settle this litigation at a mediation. The preliminary issue involved two questions. One was whether, as the plaintiffs alleged, there had been a binding agreement at mediation and the second was whether, as the first defendant alleged, if there were a binding agreement, it was vitiated by misrepresentation.
The hearing of the preliminary issue occurred last year and I found that a binding agreement was not reached at the mediation. I went on to find that if I were in error in that regard and a binding agreement had been reached, then it was not one affected by misrepresentation.
Since that time the first defendant has had judgment entered against him for failing to comply with certain springing orders. Each of the plaintiffs and the first defendant now apply for the costs of the preliminary issue.
The Court has a wide discretion in relation to costs, although ordinarily they will follow the event. Also ordinarily the Court does not attempt to differentiate the issues upon which each party was successful or unsuccessful in determination of costs. However, if an issue is clearly separate or readily distinguishable from the grounds or basis of the ultimate determination of the action, it may be appropriate to make a separate costs order. See Adamson v The Pharmacy Board of Tasmania (No 4) [2004] TASSC 112 and S v State of New South Wales (No 2) [2008] NSWSC 1116.
In this case, it seems to me that whilst in a sense the preliminary issue is separate from the matters relevant to the ultimate determination of the litigation, nevertheless the mediation was an integral part of the process of the litigation and was designed to bring about a resolution of the substantive issues in the litigation.
The preliminary issue concerned the legal effect of the outcome of the mediation. In all the circumstances, and bearing in mind that the plaintiffs succeeded on one of the two aspects only of the preliminary issue, I would order that the first defendant pay 50 per cent of the plaintiffs' costs of the preliminary issue.
The appellant, Mr Keet, appeals against that order on grounds that merely allege error of law, but which were argued by the parties on the basis that they were to be understood as alleging that the order stood outside the limits of a sound discretionary judgment.
The costs of and incidental to all proceedings in the Supreme Court are in the discretion of the court or judge: s 37(1) Supreme Court Act 1935 (WA). The discretion conferred by s 37 of the Supreme Court Act is not an unfettered discretion. It is a discretion which must be exercised judicially. The legal principles which govern the review of discretionary decisions by an appellate court are well established: see House v The King [1936] HCA 40; (1936) 55 CLR 499, 504 ‑ 505; Queensland Wire Industries Pty Ltd v Broken Hill Pty Ltd (1987) 17 FCR 211, 222. In the absence of express error, an appellate court is not entitled to substitute its own decision for that which is the subject of the appeal merely because it prefers a different result or even merely because it thinks that a different result would be more just and equitable. Before it intervenes, it must be satisfied that the decision is clearly wrong: Mallet v Mallet [1984] HCA 21; (1984) 156 CLR 605, 634 (Wilson J). In the absence of an identifiable error of fact or law (and none has been identified in this case) the appellate court must be persuaded that the order stands outside the limits of a sound discretionary judgment before it intervenes: Norbis v Norbis (1986) 161 CLR 513, 520 (Mason and Deane JJ). In short, the appellate court may only intervene in a case where no express error is revealed if upon the facts the decision is 'unreasonable or plainly unjust': House v The King (505).
The Rules of the Supreme Court 1971 (WA) provide guidance about the sound exercise of the discretion. Order 66 r 1(1) Rules of the Supreme Court provides that subject to the express provisions of any statute and of the rules of court, and without limiting the generality of the discretion to make a costs order, the court will generally order that the successful party to any action or matter recovers his costs. Order 66 r 1(3) provides that, 'where a party though generally successful in an action has, by the introduction of some issue or issues on which he has failed, increased the costs the court may order such party to pay the costs of such issue or issues'. These rules reflect the general law. Notwithstanding O 66 r 1(3), courts are generally reluctant to apportion costs on the basis of success or failure on particular issues arising in the course of the trial. In Cretazzo v Lombardi (1975) 13 SASR 4, at 16, Jacobs J said:
I would wish to sound a note of cautious disapproval of applications … to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial … 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.
His Honour noted that:
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.
See also Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; (2002) 54 IPR 495 [10] (Hely J). See also Australian Trade Commission v Disktravel [2002] ATPR 41‑85.
Similar sentiments were expressed in Adamson v Pharmacy Board of Tasmania (No 4), to which his Honour referred. However, in Adamson, like in the instant case, there was a preliminary issue which was dealt with separately and on which the successful party entirely failed. In that case the successful party was ordered to pay the unsuccessful party's costs of the determination of the preliminary issue. Evans J, in making that order, said that 'the determination of the preliminary issue was unnecessary for, and in no way connected to' ultimate success in the action. Those words apply equally here.
What the Lukins did was raise not just a separate issue, but a separate cause of action. The cause of action arose after the issue of the writ. The claim made by the Lukins that there was a binding agreement could have been made the subject of a separate action. A question could have been raised about whether a cause of action accruing after a writ issues could be added by amendment to pre‑existing proceedings: see Wigan v Edwards (1973) 1 ALR 497, 508; Roberts v Gippsland Agricultural and Earth Moving Contracting Co Pty Ltd [1956] VLR 555. This question was not raised in this case. The parties were content to allow the cause of action alleging the compromise to be added to the statement of claim. The prayer for relief was amended to seek a declaration that there was such a compromise. The existence of the question is not important to the resolution of this case. What is important is that the alleged executory compromise agreement involved a new cause of action beyond the scope of the original cause of action and resting on entirely different evidence.
Finally, reference must be made to O 66 r 2 which reads:
In the absence of any special order -
(a)where the statement of claim contains more than one cause of action and the plaintiff succeeds on one or more causes of action and the defendant succeeds on another or others, costs shall be allowed to the plaintiff on the cause or causes of action on which he succeeds and to the defendant on that or those on which he succeeds, in the same manner as if separate actions had been brought;
Neither party drew this provision to his Honour's attention. Neither party referred to it in written submissions to this court. The existence of the rule was mentioned by this court during the hearing of the appeal.
There are a number of cases which discuss O 66 r 2(a). From them the following propositions may be drawn:
(a)the expression 'cause of action' in O 66 r 2(a) is a reference to a factual situation, the existence of which entitles the plaintiff to obtain a remedy: Letang v Cooper [1965] 1 QB 232, 242 (Diplock LJ); Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569, 572 (Anderson J);
(b)the rule does not provide an inflexible rule which prescribes a mandatory approach to the awarding of costs in cases where there are multiple causes of action. The opening words 'in the absence of any special order' indicate that the court retains the discretion to make a special order departing from the rule in O 66 r 2(a): Kimpura Pty Ltd v JWH Group Pty Ltd [2004] WASCA 134 [12] ‑ [15];
(c)however, where there are multiple causes of action and a party has succeeded on only one or some, the other party is prima facie entitled to costs on the others but the court will always attempt to do substantial justice in the circumstances: Permanent Building Society v Wheeler (No 2), 574 ‑ 575 (Anderson J);
(d)it may not be appropriate to make a costs order in accordance with O 66 r 2(a) where there is in substance one contest, that is, where the causes of action arise from the one course of dealings, the one transaction or the same facts: Permanent Building Society v Wheeler (No 2) (574) ‑ (575); R J Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2009] WASC 206(S); Witcombe v Talbot & Olivier [No 2] [2009] WASC 173(S) (Beech J).
Neither party drew any of these cases to Murphy J's attention.

His Honour said the mediation was an 'integral part of the process of the litigation'. It is true that mediation was part of the process but that observation did not deal with the point that the issues raised and separately determined related to a separate cause of action. The provisions of O 66 r 2(a) would, in the circumstances of this case, prima facie incline the court to make an order for costs in favour of Mr Keet in relation to his successful defence of the separate cause of action. This cause of action was not merely an alternative way of putting the claim for recoupment of the allegedly misappropriated money. It raised entirely different facts in a different course of dealing to support the remedy sought.
On the facts, which are not in dispute, it would have been open to his Honour to have considered either ordering that costs follow the event, that is Mr Keet should have his costs consequent upon the dismissal of the Lukins' cause of action alleging a compromise, or to make an order that each party pay their and his own costs because, although the Lukins had failed in making out the cause of action, Mr Keet had failed in relation to the misrepresentation defence. However, an order that Mr Keet pay costs to the Lukins was not an order which was open. Notwithstanding the submissions made by counsel for the Lukins and referred to below, the order that Mr Keet should pay one‑half of the costs of the preliminary issue was, in the language of House v The King, 'unreasonable or unjust'.
Counsel for the Lukins submitted that the order was not unreasonable because he said that it was appropriate for his Honour to look at the circumstances as they stood at the time when the order was made. Counsel pointed out that the circumstances were that the Lukins had recovered more than they were prepared to compromise for; that Mr Keet had disobeyed orders of the court and had failed in an endeavour to extend time to comply with the springing order. The answer to this submission is that the Lukins were awarded costs of the action as a result of the judgment entered in accordance with the springing order. Any conduct by Mr Keet which increased the costs of the action were covered by that order. The entirely separate cause of action involving the allegation that there was a binding concluded agreement reached at the mediation conference, stood quite apart from the disposal of the cause of action originally brought against Mr Keet. There was no Calderbank offer made by the Lukins to settle the action. Counsel for the Lukins referred to Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115 and to the observations made in that case that an applicant for leave to appeal against the costs order must satisfy a high threshold for such grant of leave. Redlich JA at [11] said:
The test to be applied is not whether the Court of Appeal would have made the same order but whether there is a ground upon which the order by his Honour could reasonably be made.
As already stated, there was no ground upon which the orders challenged could be made. It fell outside the exercise of a sound discretionary judgment. Thus, although the grant of leave on a costs issue is rare, leave to appeal should be granted, the appeal should be allowed and the orders for costs should be set aside.
It therefore falls for this court to exercise the discretion afresh. The most important fact bearing on the exercise of that discretion is that the Lukins raised a cause of action which was entirely separate from the original cause of action and rested on different facts and evidence from the action alleging misappropriation of money. The Lukins failed on the claim that there was a binding agreement to settle. Although Mr Keet failed in relation to his claim that there had been misrepresentation, that claim was an issue arising entirely within the context of the resolution of the preliminary issue and did not justify departure from the ordinary rule that costs should follow the event, the event in this case being the dismissal of the separate cause of action. The orders will be:
(1)leave to appeal granted;
(2)the appeal allowed;
(3)the orders made by Murphy J on 6 August 2010 be set aside and in lieu there be an order that:
(a)the plaintiffs pay the first defendant his costs of the hearing of the preliminary issue heard before his Honour Justice Murphy on 13 and 14 August 2009 to be taxed, and
(b)the plaintiffs pay the first defendant his costs in the plaintiffs' application by chamber summons in this action filed 4 October 2007 and as decided by Master Sanderson in Ward v Keet [2008] WASC 33.