L Pearse & Co v Eli-Ann Nominees Pty Ltd [No 2] - [2023] WADC 94

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION:   PERTH
CITATION:   L PEARSE & CO -v- ELI-ANN NOMINEES PTY LTD [No 2] [2023] WADC 94
CORAM:   REGISTRAR JEYAMOHAN
HEARD:   14 AUGUST 2023
DELIVERED          :   17 AUGUST 2023
FILE NO/S:   CIV 3835 of 2018
BETWEEN:   L PEARSE & CO
Plaintiff
AND
ELI-ANN NOMINEES PTY LTD
Defendant (Applicant)
CNH INDUSTRIAL AUSTRALIA PTY LTD
Third Party (Respondent)

Catchwords:

Practice and procedure - Application for leave to discontinue - Costs upon discontinuance - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 23 r 2

Result:

Defendant granted leave to discontinue
Defendant to pay the third party's costs

Representation:

Counsel:

Plaintiff	:	No appearance
Defendant (Applicant)	:	Mr J T Schombee
Third Party (Respondent)	:	Mr S M Davies & Mr M A MacLennan

Solicitors:

Plaintiff	:	Not applicable
Defendant (Applicant)	:	McCabes
Third Party (Respondent)	:	Bennett & Co

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

ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd [2006] FCA 1119
Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd [2003] WASC 53 (S)
Hall v Hall (No 2) [2019] VSC 60
IBN Corporation Pty Ltd v Banjyma Aboriginal Corporation [2009] WASC 279
Kelliher v Commissioner for Main Roads [2013] WASC 437
L Pearse & Co v Eli-Ann Nominees Pty Ltd [2023] WADC 62
Lafferty v Waterton [2016] WASCA 183
McClure v The Mayor and Councillors of the City of Stirling [No 3] [2009] WASC 247; (2009) 170 LGERA 138
Miller v Evans [2010] WASC 127 (S)
One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548
Peet Ltd v Richmond [2010] VSCA 71
Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622
Rodgers v De Mol Investments Pty Ltd [No 2] [2016] WASC 151
Walter v Buckeridge [No 4] [2011] WASC 313

REGISTRAR JEYAMOHAN:

Introduction and summary

By chamber summons dated 15 November 2022 the defendant seeks the following orders (Application):[1]
1.The defendant have leave to discontinue the third party proceedings.
2.There be no order as to costs in the third party proceedings.
[1] The defendant sought leave on 30 May 2023 to amend the Application to an application for leave to discontinue the third party proceedings with no order as to costs under O 23 of the Rules of the Supreme Court 1971 (WA) (RSC). Leave to amend the Application in the terms sought was granted on 31 May 2023.
At the hearing of the Application on 8 March 2023, the defendant took issue with the admissibility of evidence sought to be relied upon by the third party in response to the Application, specifically the affidavits of Mark Alan MacLennan sworn 21 February 2023 (MacLennan Affidavit) and Colin Timothy Bignell affirmed 19 March 2021 (Bignell Affidavit) (Preliminary Issue). In my reasons for decision of the Preliminary Issue delivered 16 June 2023, I determined that it is not open to the third party to rely on the without prejudice except as to costs and Calderbank communications forming part of the MacLennan Affidavit or the Bignell Affidavit in the context of the submissions made at, par 17.6 - 17.8 of the third party's outline of submissions filed 27 February 2023, with those paragraphs being disregarded in the context of the Application.[2]
[2] L Pearse & Co v Eli-Ann Nominees Pty Ltd [2023] WADC 62.

The Application proceeded to substantive hearing on 14 August 2023.
The defendant's Application is supported by its written submissions of 10 January 2023 and 30 June 2023, and the affidavits of its solicitor, Hugh Mark O'Sullivan sworn 15 November 2022 (First O'Sullivan Affidavit) and 12 December 2022 (Second O'Sullivan Affidavit). The third party does not oppose the discontinuance of the third party proceedings but seeks an order for payment of its costs on a party and party basis. The third party relies on its written submissions of 27 February 2023 and the oral submissions of counsel.
Order 23 r 2(3) of the RSC provides that the court may order the action be discontinued upon such terms as to costs as may be just. That is, the court has a discretion.
For the reasons that follow, I am satisfied therefore that it is appropriate to order the third party proceedings be discontinued and that the defendant pay the third party's costs of the third party proceedings. I will hear from the parties as to the final orders in circumstances where the Preliminary Issue was determined in favour of the defendant.

Background

A summary of the procedural history of the proceedings is set out in my reasons for decision of the Preliminary Issue[3] and I do not repeat them here. A general overview of the proceedings is useful for the purposes of understanding the basis of the claim as between the defendant and the third party the subject of the third party proceedings.
[3] L Pearse & Co v Eli-Ann Nominees Pty Ltd.
The defendant has at all material times been an authorised dealer and repairer of the third party in respect of 'New Holland' tractors, trading under the name 'Baxter's Rural Centre' at Cunderdin in WA. The plaintiff carries on crop farming at Meckering in the same shire. Around September 2014, the plaintiff purportedly purchased a new tractor from the defendant (Tractor). The Tractor was supplied by the third party as distributor of such tractors and its purchase by the plaintiff financed by the finance arm of the third party's group, namely CNH Industrial Capital Australia Pty Ltd (CNHICA).
The plaintiff's claim had two aspects to it. First, a claim as against the defendant as vendor of the Tractor for breach of contract in respect of an alleged manufacturing defect in the C1 clutch of the Tractor's Continuous Variable Transmission. Secondly, the defect required remedial work to be undertaken by the defendant pursuant to the terms of a certain service bulletin of 11 September 2015 (Bulletin).
The defendant denied these allegations and also the ones founded in the Bulletin and pleaded in respect of the Bulletin, that on a proper reading, the Bulletin did not apply to the Tractor. It is the defendant's position that this called for evidence of the circumstances surrounding the Bulletin's drafting by the third party which is one of the reasons the third party was joined. The defendant has claimed a contractual indemnity against the third party covering the plaintiff's claim.
The proceedings as between the plaintiff and the defendant were resolved on a without admission of liability basis as of 29 November 2022 without the matter progressing to a trial. By order of the court made 29 December 2022 (Order), the following orders were made by consent in respect of those proceedings:
1.The plaintiff's claim against the defendant be dismissed.
2.All interlocutory costs orders be discharged.
3.There be no order as to costs.
Whilst the terms of the concluded outcome with the plaintiff are confidential, the fact of the outcome having occurred is known. The third party proceedings as between the defendant and the third party did not form part of that settlement.
By its Application, the defendant seeks the leave of the court to discontinue the third party proceedings with no order as to costs in the third party proceedings. The third party does not oppose the discontinuance of the third party proceedings but seeks an order for payment of its costs on a party and party basis. The third party does not seek its costs of the third party proceedings.

Legal principles

Pursuant to O 23 r 2(3) of the RSC, the court may grant leave to a plaintiff to discontinue an action on such terms as it thinks fit, including as to the costs of the action.
Where the court orders the action to be discontinued under O 23 r 2(3), it is not automatic that the plaintiff will be ordered to pay the costs of the other parties to the proceeding.[4] The rule is wide enough to enable the court to make any order for costs which is required by the justice of the case. In considering the appropriate order as to costs, relevant factors include the conduct of the parties in the matter and the reasons for the discontinuance of the proceedings.[5]
[4] IBN Corporation Pty Ltd v Banjyma Aboriginal Corporation [2009] WASC 279 [15].
[5] McClure v The Mayor and Councillors of the City of Stirling [No 3] [2009] WASC 247; (2009) 170 LGERA 138 [4].
There are a number of well-known case authorities on the principles applicable to leave to discontinue under O 23 r 2(3) of the RSC.
The applicable principles where a matter resolves without a decision on the merits were outlined by the Court of Appeal in Lafferty v Waterton.[6] As observed by the Court of Appeal in Lafferty v Waterton, the general rule as to costs is based upon the identification of the successful party by a hearing on the merits. In cases where the matter is settled without a determination on the merits the court is deprived of the factors that will usually determine how the discretion as to costs is to be exercised.[7]
[6] Lafferty v Waterton [2016] WASCA 183 [17] - [18].
[7] Lafferty v Waterton [17] - [18].
If both parties have acted reasonably in commencing and defending the proceedings and continued to act reasonably until the discontinuance of the proceedings, the proper exercise of the discretion as to costs will usually mean that the court makes no order as to costs. As was stated by McHugh J in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin, where there has been no hearing on the merits of the case:[8]
The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. …
…
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
(citations omitted)
[8] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624 - 625 (Lai Qin).
However, even if a party acts reasonably in commencing proceedings, it does not follow there should be no order for costs in the event the proceedings are discontinued. The question must be looked at from the perspective of both the plaintiff and the defendant.[9]
[9] Walter v Buckeridge[No 4] [2011] WASC 313 [13] - [14], [19].
In considering the appropriate costs order, it is necessary to consider the reason for the discontinuance of the proceedings. As was noted by Burchett J in One.Tel Ltd v Commissioner of Taxation:[10]
In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. …
[10] One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 [6].
In ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd,[11] Finn J granted leave to the plaintiff to discontinue the proceedings but ordered it to pay the defendant's costs. Finn J stated:[12]
As I foreshadowed, I am satisfied that an order for costs is appropriate. While it cannot be said that the institution of this proceeding was in any way unreasonable - it was one of a complex of legal manoeuvres in a hostile takeover bid - it was done in the full knowledge that, consequent upon the decision of Perry ACJ, Coopers would act to alter its constitution to remove Lion Nathan Australia's pre-emptive rights and exemptions unless either that decision was reversed on appeal or the holding of the necessary extraordinary general meeting could be prevented. Neither of these contingencies eventuated. From its inception this matter contained the seeds of its own futility, yet ACN was prepared to proceed and to put Coopers to its defence. In so doing ACN assumed the risk of the proceedings becoming futile. It cannot escape the consequences of that by the assertion that it nonetheless conducted itself reasonably. It gambled and it lost. It is entirely appropriate that it pay Coopers' costs occasioned by the discontinued claim including reserved costs and its costs of this motion.
[11] ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd [2006] FCA 1119.
[12] ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd [22].

Position of the parties

The defendant's position

The defendant contends it should be granted leave to discontinue the third party proceedings with no order as to costs.
The defendant relies on the First O'Sullivan Affidavit and the Second O'Sullivan Affidavit.
The claim by the plaintiff against the defendant settled for an amount.[13] The settlement as between the plaintiff and the defendant was reached after careful consideration and with regard to a number of factors including the costs of litigation, the expert evidence to be adduced, the complexity of the contractual exclusion clauses and the uncertainty of litigation.[14]
[13] First O'Sullivan Affidavit, par 4; Second O'Sullivan Affidavit, par 5.
[14] First O'Sullivan Affidavit, par 6; Second O'Sullivan Affidavit, par 12.
The defendant claimed a contractual indemnity against the third party covering the plaintiff's claim, based on the dealership documents, as reflected in par 8 of the third party statement of claim, which necessitated joining the third party.[15] Mr O'Sullivan deposed that notwithstanding protracted negotiations, no agreement has been reached with the third party regarding the costs of the third party proceedings.[16]
[15] Second O'Sullivan Affidavit, par 11.
[16] First O'Sullivan Affidavit, par 7.
It is the defendant's position that it conducted the litigation on a reasonable basis and entered into a reasonable settlement (not amounting to any capitulation) with the plaintiff in respect of a complex and long running case. The defendant provides some context of the settlement with the plaintiff at pars 16 - 23 of its outline of submissions dated 10 January 2023. It is the defendant's position that even if it won the case (against the plaintiff), it faced irrecoverable costs in the litigation and notes matters of uncertainty, the risks and costs of litigation and the prospect of an appeal. The defendant submits that it was necessary, proper and reasonable to join the third party and pursue the case against the third party until settlement with the plaintiff was reached.
The defendant submits that the court should exercise its discretion as to costs from what has been described as a 'helicopter view' of the proceedings, and without seeking to determine the (multiple) disputed issues. These issues can be summarised as follows:
1.The defendant has at all material times been an authorised dealer and repairer of the third party in respect of 'New Holland' tractors, trading under the name 'Baxter's Rural Centre' at Cunderdin in Western Australia.
2.The plaintiff carries on crop farming at Meckering in the same shire.
3.Around September 2014, the plaintiff purportedly purchased a new tractor (a New Holland Model T8 - the Tractor) from the defendant as vendor.
4.It is common cause that the Tractor was supplied by the third party as distributor of such tractors and its purchase by the plaintiff financed by the finance arm of the third party's CNH group, namely CNHICA. (The last-mentioned company was originally sued as a co-defendant by the plaintiff in the present case but that aspect of its claim was discontinued.)
5.The foundational claim by the plaintiff in this matter has two aspects to it. First, it has been alleged that the Tractor as supplied suffered from a manufacturing defect or defects in the C1 clutch of its Continuous Variable Transmission. These defects were held against the defendant as vendor of the Tractor for breach of contract. Secondly, the defects required remedial work: on the plaintiff's case, notably the removal of the check valve which formed part of the regulated-pressure control valve serial number 47624588 in the C1 clutch of the Tractor.
6.The plaintiff further alleged that as the New Holland dealer servicing the Tractor, such remedial work had to be done by the defendant, in terms of the Bulletin which the third party had purportedly sent to its dealers, including the defendant. The failure to carry out the work, so the plaintiff alleged, caused the breakdown of the tractor through severe heat damage to the clutch. (It is common cause that the breakdown occurred on 7 April 2017.) In respect of the alleged defective services rendered by the defendant, the plaintiff claimed under the consumer protection provisions of trade practices legislation.
7.The defendant denied these allegations, also the ones founded on the Bulletin, as reflected in its defence. The defendant inter alia denied receipt of the Bulletin put out by the third party. It pleaded that in any event the Bulletin, on a proper reading, did not apply to the Tractor. The defendant points to the fact that the third party has also denied applicability of the Bulletin to the operating circumstances of the Tractor but to date without explanation.
The defendant submits that the Bulletin is demonstrably an ambiguous document open to conflicting interpretations which called for evidence of the circumstances surrounding its drafting by the third party. The defendant's position is that this is one of the reasons why the third party was joined to the proceedings.
The defendant's position is that the defendant faced a claim by the plaintiff of all in all approximately a million dollars. This consisted first of a claim for economic loss in relation to crops of $449,000, arising in April 2017, on the basis of a delay in respect of the sowing of canola and barley, and through not sowing any wheat that season. This was alleged to have been caused by the breakdown of the Tractor. The plaintiff further claimed for the purchase of a replacement tractor while the T8 was repaired, and related expenses, totalling some $190,000 and which if awarded would run in all probability at 6% from April 2017 to date of judgment - say towards the end of 2023, so a substantial additional sum.
The defendant submits that the litigation has been beset with uncertainty. The defendant submits that the expert opinion evidence on the cause(s) of the breakdown by the two experts has been diametrically opposed. On the defendant's view, the expert used by the third party supported the case of the defendant but there were serious issues as to the cogency of his evidence and opinion which relied on the Tractor having been moved forward under its own power, or such attempt having been made, once it had stalled, and the role if any played by alleged low oil pressure.
The defendant further submits that there are contractual exclusion clauses in favour of the defendant contained in documents supplied by the third party and used as between the defendant and the plaintiff, such as warranties from the third party to the plaintiff as purchaser which then excluded other remedies, notably in respect of consequential or economic loss. The defendant's position is that these clauses however appear in a complex web of documents and give rise to difficult questions as to whether the plaintiff is bound by them vis‑à‑vis the defendant.

Given the above, the defendant submits that an appeal was very likely whoever won at trial, with attendant further legal costs and delays. On this basis, the defendant submits that it was necessary, proper and reasonable to join the third party to the proceedings, and to pursue the case against it until settlement with the plaintiff was reached.
A settlement was reached as between the plaintiff and the defendant on a 'without admission of liability' basis as of 29 November 2022. The defendant submits that had the matter proceeded to trial, the plaintiff's bill of costs after trial, if successful, would have included the costs associated with its use two expert witnesses, that is one on quantum and one the cause of the mechanical breakdown of the Tractor. As to overall costs scenarios facing the defendant: even if it won the case, it faced irrecoverable costs in the litigation, and the issue whether it should pay the third party's costs. The disputed issues are referred to also in order to bring home the reasonableness of settlement in the face of complexities and uncertainties. The defendant submits that settlement of litigation should be encouraged and points to case law authority in support of this general proposition.[17]
[17] Miller v Evans [2010] WASC 127 (S) [22]; Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd [2003] WASC 53 (S) [64].
The defendant submits that it conducted the litigation on a reasonable basis and entered into a reasonable settlement (not amounting to any capitulation) with the plaintiff. The defendant's position is that the settlement was reached after protracted negotiations with the solicitors of the plaintiff in what has been a complex and long running case, which was heading towards a trial of at least 10 days with its attendant costs risks. The defendant submits that it should now be granted discontinuance of the third party proceedings with no order as to costs.
On the indemnity claimed, the defendant relies on the terms of a written agreement as between the plaintiff and the third party pursuant to which the defendant was appointed as a franchisee and authorised dealer of CNHCIA to market and sell 'New Holland' tractors in a specified Prime Marketing Area (the Dealer Agreement) as pleaded at par 10 of the defendant's further amended statement of claim. Clause 8(f) of the Dealer Agreement reads in full as follows:[18]
CNHI will indemnify Dealer against all losses, costs and expenses arising directly from any judgment and/or verdict that a Product or Part has a manufacturing defect. This indemnity is conditional upon:
i)the defect not having been caused by or contributed to by Dealer;
ii)Dealer having fully complied with its obligations under clause 2.1(j) and this clause 8;
iii)Dealer notifying CNHI promptly and in any event within 7 days of becoming aware of any claim;
iv)Dealer not taking any action in relation to the claim which compromises Dealer's or CNHl's position; and
v)Dealer fully co-operating with, and taking all such steps as may reasonably be required by, CNHI in defending such claim.
[18] Dealer Agreement, Defendant's List of Documents, Documents to be Relied upon by the Defendant at the hearing on 8 March 2023, filed 10 January 2023, pages 9 - 21.
The defendant submits that as the proceedings as between the plaintiff and the defendant were resolved by way of a settlement and was not the subject of any judgment or verdict, it follows that it is no longer open to the defendant to pursue its claim against the third party. As a result, the defendant submits that the proceedings as between the defendant and the third party have been rendered otiose.

The third party's position

The third party submits that the present case falls squarely in the category where there is lacking any basis for an exercise of the court's discretion otherwise than by an award of costs in favour of the third party. That is, this is a case where the defendant, after litigating the third party claim for some time, has effectively surrendered. It is not a case where some supervening event or settlement has removed or modified the subject of the dispute such that it cannot be said that one party has won.
The third party submits that it is necessary to understand that consideration of the issue raised in the preceding paragraph does not require consideration of the question of whether, had there been a contested hearing of the third party claim, the defendant or the third party would have prevailed on the third party claim. Rather, the third party submits that the necessary inquiry is as to a different issue being an inquiry as to which category of the two types described by Burchett J in One.Tel Ltd v Commissioner of Taxation[19] the case more naturally falls. In cases that fall into the first category, the non‑surrendering party is sometimes described as the 'successful party'. That however is a reference to 'success' having regard to the course of the litigation and the circumstances that prevail as at the time of the discontinuance. That rarely requires any inquiry beyond the date of the discontinuance or as to the merits of the substantive issues between the parties.
[19] One.Tel Ltd v Commissioner of Taxation [6].
The third party submits that in the present case the relevant matters in the course of litigation and the circumstances that prevail as at the time of the discontinuance are as follows:
1.At all material times the defendant was represented by experienced solicitors and counsel and can be taken to have known the risks associated with the commencement of the third party proceedings.
2.Although the defendant contends that the joinder occurred because the plaintiff alleged the existence of a manufacturing defect and the defendant was entitled to the benefit of a contractual indemnity, in fact the plaintiff's allegation was that the Tractor was not of merchantable quality, and even that allegation was substantially unparticularised in the Substituted Statement of Claim dated 20 July 2020 (SSOC).[20]
3.It was apparent at all material times, alternatively from an early stage in the litigation, that the gravamen of the plaintiff's claim against the defendant was that the defendant failed to implement the Bulletin published in 2015 by the third party recommending that certain things be done when the tractor was serviced.[21]
4.The third party at all material times, from the inception of the litigation, maintained that it would defend the third party claim.
5.Effectively on the eve of the trial the defendant settled the plaintiff's claim for a substantial payment in a settlement that involved no contribution from the third party and to which the third party was not a party who, by means of any covenant in its favour, derived a benefit.
6.It was open and at all times remained open to the defendant on a resolution of the plaintiff's claim against it, to continue its third party claim against the third party had it wished to do so. The defendant is precluded from doing so not by the operation of any law, but merely by an obligation to the plaintiff it voluntarily assumed as part of the settlement arrangements with the plaintiff. But for the defendant voluntarily assuming that obligation, the defendant's right to pursue that claim, and the third party's entitlement to defend that claim and vindicate its defence to the third party claim would each have remained extant.
7.In settling the action in the manner it did, the defendant can be taken to have known that on any application to discontinue the third party claim, it was open, indeed likely if not inevitable, that the third party would seek its costs as a term of any grant of leave to discontinue, and may be assumed that the defendant 'priced in' this risk as a cost to the defendant of the settlement that has been effected.
[20] SSOC [34.2]; SSOC Schedule of Particulars [15].
[21] SSOC [13] - [15].
The third party's position is that a submission by the defendant that in taking the steps that it did it acted reasonably is not to the point. The third party submits that the defendant took the step of joining the third party, it continued the prosecution of the third party claim, putting the third party to its defence of that claim, knowing the risks to it in doing so, and the defendant cannot escape the consequences of that by an assertion that it nonetheless conducted itself reasonably.
The third party further submits that it should also be noted in support of and consistently with the submission made above, that the present case is not a case where the relevant parties (the defendant and the third party) have by settlement or some extra curial action, avoided the litigation in the sense described by McHugh J in Lai Qin. The third party's position is that there has been no settlement between the defendant and the third party, nor any extra curial action by the parties that brings the litigation to an end. To the contrary, this is a case where the defendant, by this application, seeks the court's leave to discontinue and to do so on certain terms.
The third party submits therefore that in all the circumstances, in the defendant's third party claim against the third party, the defendant can be taken to have surrendered to the third party's defence of the third party claim, and the third party can be taken to be the non-surrendering party, and in the relevant sense as between the defendant and the third party, the successful party.
Further, the third party submits that to the extent that an analysis that has regard to the prima facie rule has an application, the third party's submission is that in the relevant sense it was the successful party, and therefore the prima facie rule applies and costs should be ordered in the third party's favour.
The third party seeks to distinguish Lafferty from the present matter on the following basis. First, that the authority has to be understood having regard to the statements of general principle articulated above, and the statements from the courts as to the limitations on resort to alleged 'reasonableness' in this context. Secondly, and in any event, the critical point in Lafferty was that both parties had agreed to settle the appeal, but even in those circumstances, the Court of Appeal recognised that a settlement may in fact be a capitulation, and that an adverse costs order against one of the parties may be appropriate.
The third party submits that this case should properly be treated as a surrender by the defendant, such that the discretion can really only be exercised in a manner that awards the third party its costs of defending the third party claim.[22]
[22] See generally Peet Ltd v Richmond [2010] VSCA 71 [16]; Kelliher v Commissioner for Main Roads [2013] WASC 437 [28]; Hall v Hall (No 2) [2019] VSC 60 [25].

Analysis: Leave to discontinue

The defendant seeks the following orders pursuant to the Application:
1.The defendant have leave to discontinue the third party proceedings.
2.There be no order as to costs in the third party proceedings.
The defendant's application for leave to discontinue the third party proceedings is not conditional upon an order that there be no order as to costs. Rather, the defendant seeks that there be no order as to costs in the third party proceedings as an order independent to the first order sought on the question of leave to discontinue. There is no suggestion from the submissions put to the court that absent leave being granted, and in any event, that the defendant intends to proceed with the third party proceedings.
Subject to questions of injustice, the court should give leave to discontinue an action because it is not desirable that a plaintiff should be compelled to litigate against his will. In this case the third party does not oppose the third party proceedings being discontinued and I will so order.
The appropriate order under the RSC O 23 r 2(3) is that 'the action be discontinued', not that 'leave be given to discontinue the action'.

Analysis: Costs upon discontinuance

I have carefully considered the affidavit evidence and the submissions put to the court including by counsel at the hearing on 14 August 2023.
Order 23 r 2(3) of the RSC provides that the court may order the action be discontinued upon such terms as to costs as may be just. That is, the court has a discretion. The required analysis distils down to a question of whether or not I can detect that the discontinuing party in effect, 'surrendered' from the litigation, after having elected to commence proceedings against the third party. Alternatively, whether it is more of a genre of case described in the case authorities as to there arising in the litigation (as it has progressed), some supervening event of significance which has changed the landscape.
In the former scenario, there usually follows an award of costs in favour of the party who is the beneficiary of the surrender. In the latter context, there are important policy considerations which mitigate towards promoting a settlement and correlatively against a court, in effect, countenancing the waste with what has become unnecessary litigation.[23]
[23] Rodgers v De Mol Investments Pty Ltd [No 2] [2016] WASC 151.
The defendant in its written submission dated 10 January 2023 makes reference to the outcome reached with the plaintiff in 'what has been a complex and long running case, which was heading towards a trial of at least 10 days with its attendant costs risks'. The defendant submits that as the proceedings as between the plaintiff and the defendant were resolved by way of a settlement and was not the subject of any judgment or verdict, it follows that it is no longer open to the defendant to pursue its claim against the third party. As a result, the defendant submits that the proceedings as between the defendant and the third party have been rendered otiose.
Whilst I do not form a view on the merits of the claim, in adopting a 'helicopter view' of the proceedings, and without seeking to determine the (multiple) disputed issues, it is difficult to accept the defendant's submission on this point having had regard to the defendant's pleaded case. The defendant's pleaded position in respect of cl 8(f) appears at par 10 of the further amended statement of claim which reads in full as follows:
However, if found liable to the Plaintiff, Baxters claims an indemnity or contribution against CNH Industrial in respect of the Plaintiff's claim and the costs of the action, in the premises of the Plaintiff's case and on the grounds set out below in paragraph 11 and further.
(Emphasis added)
It is the third party, in the third party's amended defence to the further amended statement of claim filed 23 June 2021 that pleads to the position now advanced by the defendant by way of submission. Relevantly:
As to paragraph 10 of the TPSOC, the Third Party admits that the Defendant claims an indemnity or contribution against it in respect of the Plaintiff's claim and the costs of the action but says that on a proper construction of the Dealer Agreement:
10.1the indemnity in clause 8(f) is limited to losses costs and expenses arising directly from any judgment or verdict that any product or part (each as defined) has a manufacturing defect; and
10.2the indemnity is subject to and conditional on, inter alia:
10.2.1the defect not having been caused by or contributed to by the Defendant;
10.2.2the Defendant having fully complied with its obligation under clause 2.1(j) to render prompt and workmanlike service with respect to all products;
10.2.3the defendant not taking any action in relation to the claim which compromises its own or the Third Party's position; and
10.2.4the defendant fully co-operating with, and taking all such steps as may reasonably be required by the Third Party in defending such claim
(Emphasis added)
On a review of the defendant's presently pleaded case therefore, there remains a live question of the proper construction of cl 8(f) of the Dealer Agreement.
In addition, it is apparent, having had regard to the further amended third party statement of claim, that the claim advanced by the defendant against the third party is not limited to a claim for indemnity and contribution pursuant to the Dealer Agreement. Relevantly, the defendant also claims in negligence and pursuant to the Australian Consumer Law in respect of the matters pleaded at pars 27 and 28 of the further amended third party statement of claim. These issues have not been resolved.
It follows therefore that in the present matter, whilst the primary proceedings as between the plaintiff and the defendant have been resolved, there has been no settlement between the defendant and the third party, nor any curial action by the parties that brings the litigation to an end. It is difficult therefore to accept the defendant's position that in the present matter, the settlement reached with the plaintiff has the effect of rendering the third party proceedings otiose. Rather, it was open and at all times remained open to the defendant on a resolution of the plaintiff's claim against it, to continue its claim against the third party.
The defendant has been represented by experienced solicitors throughout the proceedings. The proceedings, on the defendant's own submission, have been complex and long running and, on the defendant's own submission, were heading towards a trial of at least 10 days with its attendant costs risks. The defendant's own submission is that the defendant faced a claim by the plaintiff of all in all approximately a million dollars and that the defendant entered into a reasonable settlement (not amounting to any capitulation) with the plaintiff for reasons known to the defendant.
The effect of that decision is to release the defendant from the continued burden of continuing the litigated proceedings involving the plaintiff as demonstrated by the orders made by the court. Whilst the terms of that settlement are not known, having had regard to the defendant's pleaded claim as against the third party, the continued prosecution of the third party proceedings is not futile in the sense referred to by McHugh J in Lai Qin. A decision by the defendant that the costs and burden of continuing the third party proceedings outweighs the likely benefits of success does not amount to futility in the relevant sense.
The question must be looked at from the perspective of the defendant as well as the third party. The third party has taken steps and incurred costs in defending the third party proceedings brought against it by the defendant. The defendant has chosen not to proceed to trial for the reasons I have set out earlier. It is not appropriate that the third party should bear their costs of defending the proceedings.
It follows therefore that in the present matter, whilst the primary proceedings as between the plaintiff and the defendant have been resolved, there has been no settlement between the defendant and the third party, nor any curial action by the parties that brings the litigation to an end.

Conclusion

This is not a case where the third party proceedings have been rendered otiose as a result of the settlement reached between the plaintiff and the defendant. In my view, neither that decision, nor the nature of proceedings as between the plaintiff and the defendant, amounts to a supervening event of the sort which has caused courts in a number of cases to order that there be no order as to costs of actions concluded without a hearing on the merits of the case in respect of the defendant's third party proceedings as against the third party. Rather, in the present matter, it remains open to the defendant to pursue its third party claim as against the third party.
As the defendant now seeks to discontinue the third party proceedings it elected to commence against the third party, this case should properly be treated as a surrender by the defendant.

Orders

I propose to make the following orders:
1.The third party proceedings be discontinued.
2.The defendant to pay the third party's costs of the third party proceedings to be taxed if not agreed.
I will hear from the parties as to the final orders in circumstances where the Preliminary Issue was determined in favour of the defendant.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
AC
Court Officer
17 AUGUST 2023