McLennan v Clapham (No 2)
[2019] ACTSC 100
•18 April 2019
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | McLennan v Clapham & Ors (No 2) |
Citation: | [2019] ACTSC 100 |
Hearing Date: | On the papers |
DecisionDate: | 18 April 2019 |
Before: | McWilliam AsJ |
Decision: | See [40] |
Catchwords: | COSTS – Whether defendants were really the successful party – whether Magistrates Court would have had jurisdiction to hear proceedings brought in the Supreme Court so that r 1725 of the Court Procedures Rules 2006 (ACT) applies – whether it was unreasonable for the plaintiffs to reject a Calderbank offer |
Legislation Cited: | Court Procedures Act 2004 (ACT) ss 12, 13, 14, 15 Magistrates Court Act 1930 (ACT) s 257 |
Cases Cited: | Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586 Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 70 |
Parties: | Karen Lee McLennan (First Plaintiff) Andrew David Spong (Second Plaintiff) RA Clapham, PE Green, GT Brackenreg, RW McDonald, JR Reid, J Cudmore, K Scheul, CA Murray, A Tay and A Tsirimokos t/as Meyer Vandenberg ABN 55 028 339 509 (Defendants) |
Representation: | Counsel Mr B Buckland (Plaintiffs) Mr M Karam (Defendants) |
| Solicitors J.S. O’Connor Harris & Co (Plaintiffs) McInnes Wilson Lawyers (Defendants) | |
File Number: | SC 97 of 2015 |
McWilliam AsJ
On 29 January 2019, I delivered judgment for the plaintiffs in the sum of $37,638.34 and indicated that I would hear the parties on the question of costs: McLennan v Clapham and Ors [2019] ACTSC 1 (McLennan). Knowledge of the underlying facts of the case as set out in McLennan have been assumed for the purposes of this judgment.
The parties filed competing written submissions on costs on 12 March 2019 and 11 April 2019 respectively, with the defendants filing submissions in reply on 17 April 2019. Both parties agreed that they were prepared for the Court to deal with the question of costs on the papers.
The defendants seek alternative costs orders as follows:
(a) The plaintiffs pay the defendants’ costs of the proceeding on the ordinary basis to 10am on 23 July 2018 (being the commencement of the hearing);
(b) Alternatively, the plaintiffs receive 50% of their disbursements, with costs to otherwise lie where they fall to 10am on 23 July 2018.
The defendants seek their costs of the entire proceedings because they submit they were the successful party notwithstanding that judgment was entered for the plaintiffs.
The alternative order is based on the application of r 1725 of the Court Procedures Rules 2006 (ACT) (Rules), discussed below.
On either alternative, the defendants then seek the plaintiffs to pay their costs on an indemnity basis after 10am on 23 July 2018, being the date and time that an offer of settlement expired and which the defendants say was unreasonably rejected, invoking the principles in Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586 (Calderbank).
Both of the alternatives are opposed by the plaintiffs. The plaintiffs submit that costs should follow the event (either in totality or a percentage thereof), or that the Court should order that the plaintiffs are entitled to their disbursements, but that the parties should otherwise each bear their own costs.
Applicable principles
The following principles are what I consider to be the established guiding authorities that apply to the arguments put by the parties:
(a) Costs are in the discretion of the Court: r 1721(1) of the Rules.
(b) The discretion is a very wide one, though it must be exercised judicially, in accordance with established principle and the statutory context: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 (Oshlack) at [35], [65].
(c) The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party: EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9].
The usual order
In the absence of special features warranting a different order, costs ordinarily follow the event: Oshlack at [67]; GJ v AS (No 4) [2017] ACTCA 7 at [25]-[27].
Circumstances where parties might have to bear part or all of their costs
A departure from the ordinary rule may be appropriate:
(a) Where a litigant succeeds upon only a portion the claim, and the circumstances make it reasonable to bear the expense of litigating that portion upon which the litigant failed: Hughes v Western Australian Cricket Assn (Inc) (1986) 8 ATPR 40-748 (Hughes) at 48,136.
(b) Where a successful party has propounded a substantially exaggerated claim, succeeds only to a limited extent, and the exaggeration has resulted in the incurring of additional costs: O’Neil v Williams (costs) [2007] NSWSC 51 at [5] per Brereton J as his Honour then was, cited in Summers v Repatriation Commission (No 2) [2015] FCAFC 64 (among others).
Where there is a mixed outcome in proceedings, the court may determine to apportion costs, with the question of apportionment very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36], citing Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at [272] per Gummow, French and Hill JJ.
Circumstances where a successful party might have to pay the opponent’s costs
A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may also be ordered to pay the other party’s costs of those issues. This is an exceptional circumstance and the court would need to be satisfied that had the particular issue been excluded, although the dominant issue was not clearly separable, the costs incurred would be likely to have been substantially less, perhaps because there was less at stake: Hughes per Toohey J at 48,136; Hancock v Rinehart (Costs) [2016] NSWSC 11 at [7]-[8] per Brereton J.
The court may award costs in favour of a defendant where the plaintiff has obtained only nominal damages, on the basis that in reality the successful party lost the litigation: Oshlack per McHugh J at [70].
Indemnity Costs
Indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs: Leichhardt Municipal Council v Green [2004] NSWCA 341 per Santow JA at [57]; Dunstan v Rickwood (No 2) [2007] NSWCA 266; 38 Fam LR 491, at [44].
In relation to Calderbank offers founding an order for indemnity costs, in their reply submissions, the defendants relied on Southwell v Staite (No 2) [2019] ACTSC 83 (Southwell) where I set out a summary of the guiding principles at [7]-[17]. It is unnecessary to repeat them in totality here but I will refer to specific principles when considering the issue below. The general approach to be taken is for the Court to ask whether there was a genuine offer of compromise that fulfils the requirements of a Calderbank offer and then whether it was unreasonable for the offeree not to accept such an offer.
Who was the successful party in the present case?
In the present case, judgment was entered for the plaintiffs. The defendants have misunderstood the conclusion of the judgment, which awarded more than nominal damages. The amount awarded was small when compared with the high point of the plaintiffs’ claim at $1.7 million, but it nevertheless represented the true value of the plaintiffs’ loss. It was not a nominal amount. It was fortunate for the defendants that the plaintiffs had managed to mitigate the vast majority of their loss through the timely intervention of a third party, being the ACT Government.
As I found at [156] of McLennan, the plaintiffs succeeded in establishing their claim, including their claim for damages. It follows that costs should follow the event, subject to the matters below.
Did the plaintiffs propound a substantially exaggerated claim which resulted in the incurring of additional costs?
There is no doubt that the quantum of damages claimed was exaggerated. However, once it is accepted that the plaintiffs achieved substantive success, the mere fact of a significant discrepancy between damages claimed and damages awarded does not result in the plaintiffs being deprived of their costs. The Court must consider what effect the exaggerated claim had on the conduct of the proceeding and in particular, whether the higher figures claimed resulted in the unnecessary incurrence of costs.
When one has regard to the hearing of the proceeding, the majority of the hearing time and the oral and written submissions were devoted to liability, not quantum. Although the defendants in their reply submissions listed a number of ‘areas’ on which they submitted the plaintiffs were unsuccessful, none of those items were clearly severable and in many cases took no time at all for either party to address.
However, I do accept that if the plaintiffs had taken proper account of the ACT Government buy-back of the property the subject of the dispute, the quantum claimed would have been half. The plaintiffs prepared substantial affidavit evidence supporting their claim for the costs of rebuilding the subject property, although that evidence was not the subject of affidavit evidence in response, of detailed cross-examination or of any significant attention in submissions.
While I do not consider the plaintiffs’ exaggerated claim or the overall result would warrant the plaintiff paying the defendants’ costs, I am of the view that it would be unjust for the defendants to have to pay for the plaintiffs’ costs of attempting to prove damage in respect of the rebuilding costs and associated damages after the subject property was bought by the ACT Government and resold to the plaintiffs cleared of asbestos.
That aspect of the proceedings not being clearly severable, I have had to engage in the type of non-mathematical exercise referred to in the authorities and I consider it appropriate that the defendants pay 75% of the plaintiffs’ costs. This finding is subject to the remaining two arguments raised by the defendants.
Does r 1725 apply to the proceeding?
The first is the operation of r 1725(2) of the Rules, which provides (among other things) that:
(a) if the plaintiff pursues proceedings in the Supreme Court which the Magistrates Court had jurisdiction to hear and determine, but for the amount claimed, and
(b) then only receives judgment for less than $50,000,
(c) then the plaintiff is only entitled to 50% of their disbursements, plus the amount of any Magistrates Court ‘determined fee’ (see s 12-15 of the Court Procedures Act 2004) that the plaintiff would have been entitled to recover had the proceeding been started in the Magistrates Court.
An exception is provided by r 1725(3) of the Rules:
Despite subrule (2), the court may order that the plaintiff is entitled to a different amount for the costs and disbursements (including the amount of any determined fee).
The issue for the defendants in seeking to apply this rule to the proceeding is that the plaintiffs maintained a claim for equitable compensation up until the last day of hearing, when it was abandoned. The Magistrates Court has jurisdiction to hear any ‘personal action at law’: s 257 of the Magistrates Court Act 1930 (ACT). However, that does not include claims for equitable relief: see Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 702 (Vale) at 707 per Priestley JA (with whom Meagher JA and Sheller JA agreed).
The defendants had many months in which to strike out that aspect of the claim if they considered it to be hopeless or that no reasonable cause of action had been pleaded to found the relief. They chose not to do so.
However, if I assume in the defendants’ favour that the claim for equitable compensation was hopeless and should never have been included in the statement of claim, such that the Magistrates Court would have had jurisdiction to deal with the proceeding but for the quantum claimed, I am nevertheless of the view that the Court should exercise its discretion under r 1725(3) of the Rules.
The evident purpose of r 1725 is to encourage parties to litigate their claims in the appropriate jurisdiction and to ensure that costs incurred during the litigation are proportionate to the amounts in dispute. The exception provided for by r 1725(3) allows the Court to ameliorate unjust consequences that might arise from the application of the rule.
In the present case, a substantial part of the plaintiffs’ case ($800,000) was for damages for lost income, part of which arose before the buy-back of the property and was therefore not affected by the Court’s findings in that regard. The reason that aspect of the case failed was because it was founded upon facts which were not proved when the first plaintiff gave oral evidence during the hearing: see McLennan at [111]-[112]. This is not a case where it can properly be said that the claim should have been commenced and continued in the Magistrates Court. Rather, the position is that the oral evidence simply did not ultimately come up to proof. That perhaps was a fact not anticipated when the proceedings were commenced and conducted over the course of the preceding year and a half.
Added to this is the fact that there were complex legal arguments addressed by both parties on liability, including causation and remoteness, and the expert evidence on liability and quantum was also of a degree of complexity that I consider warranted the claim being brought in the Supreme Court, notwithstanding the final result.
The defendants’ submissions in reply are to the effect that the plaintiffs did not take a reasonable approach on the law apply hindsight reasoning in light of the Court’s factual findings. I do not consider that the Court should only permit 50% of the plaintiffs’ disbursements and the specified ‘determined fee’, merely because they did not succeed on a reasonably arguable factual or legal issue which had significant consequences for the quantum of their claim.
Accordingly, even if r 1725(2) applied, I would have exercised the Court’s discretion under r 1725(3) of the Rules to make a different order.
Did the plaintiffs unreasonably reject the offer of 19 July 2018?
On 19 July 2018, the defendants offered the plaintiffs $100,000 plus costs as agreed or assessed. That was a clear and precise offer. The offer was open until 10.00am on Monday 23 July 2018, when the hearing was scheduled to commence. The terms of the offer indicated that it was made pursuant to the Calderbank principles and that the offer may be used to found an application for indemnity costs. I accept that the offer constitutes a Calderbank offer.
The plaintiffs did not accept the offer. The defendants submit that it was unreasonable to reject the offer in light of their previous correspondence setting out all the issues with the plaintiffs’ claim and in light of the result achieved.
The mere fact that a higher offer was made but not accepted does not result in an award of indemnity costs: see Southwell at [15] and the authority there-cited.
I accept that:
(a) The offer, although low, represented a genuine compromise, particularly as it was offering to pay the plaintiffs’ costs as agreed or assessed;
(b) Although the offer was only open for short duration, it was a reasonable period of time having regard to the hearing being imminent; and
(c) At the time the offer was made, the parties were in an advanced stage of preparation and the plaintiffs were on notice of the defendants’ view of their case from earlier correspondence.
Again however, the plaintiffs may not have had an unreasonable view about their claim for economic loss. It is important to remember that the Court assesses the offeree’s prospects of success not from the position of hindsight, but as at the date the offer was made (see Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) VR 435, cited in Southwell at [17]). Although the finding with regard to the evidence led to support the claim for economic loss referred to ‘guesswork’ (McLennan at [123]), a finding relied upon by the defendants in their reply submissions, I am not persuaded that position was clearly apparent as at 19 July 2018 such that the plaintiffs were unreasonable to pursue the claim at all.
Had the offer been of a significantly higher magnitude, I would have had no hesitation in finding that the plaintiffs’ non-acceptance of it was unreasonable. However, at the time the offer was made, the plaintiffs may have still reasonably considered that their claim for damages would achieve at least $100,000, taking into account the amount that was ultimately awarded and an additional component for lost wages.
Accordingly, notwithstanding that the amount achieved was less than the amount offered, I am not satisfied that the conduct of the plaintiffs in declining to accept the offer of 19 July 2018 reaches the ‘unreasonable’ threshold so as to warrant costs being paid on an indemnity basis from the date the offer expired.
Conclusion
For these reasons, the Court orders as follows:
(1) The defendants are to pay 75% of the plaintiffs’ costs.
| I certify that the preceding forty [40] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam Associate: Date: 18 April 2019 |
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