Naomi Marble and Granite Pty Ltd v FAI General Insurance Company Ltd (No 2)

[1998] QSC 18

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane
  No.1053 of 1994

[Naomi Marble & Granite P/L v.  FAI & All Risks Management P/L]

BETWEEN:

NAOMI MARBLE & GRANITE PTY LTD
  Plaintiff
AND:

FAI GENERAL INSURANCE COMPANY LIMITED
  First Defendant
AND:

ALL RISKS MANAGEMENT PTY LTD
  Second Defendant

JUDGMENT ON COSTS - SHEPHERDSON J.

Judgment Delivered 12th March 1998

CATCHWORDS:     COSTS - 1.     Application by successful defendants against plaintiff that it pay defendants’ costs on basis of indemnity - made on two bases:-(a)  refusal of Calderbank offer

(b)misconduct of plaintiff

2.Application by successful first defendant for orders that the following non-parties to the action pay the first defendant’s costs on an indemnity basis:-

(a)Ann Hunter - managing director of plaintiff

(b)Anna Morales - Co-director of plaintiff

(c)Kenneth John Pitts

(d)Edward Morales

Many cases cited including Knight v. F.P. Special Assets Ltd 174 CLR 178

Counsel:  O’Donnell QC for both applicant defendants

Pitts appeared in person - none of other non-parties appeared.

Solicitors:  Clayton Utz for first defendant

Carter Newell for second defendant

Hearing date:               10 and 11 November 1997
  No.5874 of 1997

NAOMI MARBLE & GRANITE PTY LTD

- v -

F.A.I. GENERAL INSURANCE COMPANY LTD AND
  ALL RISKS MANAGEMENT PTY LTD

INDEX TO REASONS FOR JUDGMENT ON COSTS

Pages

1. Introduction  1-2

1. Applications by both defendants against Plaintiff for indemnity costs - two bases          2-34

1. First basis of defendants’ applications against plaintiff for indemnity costs -                   5-15

   Refusal of Calderbank offer  

1. Second basis of defendants’ applications against plaintiff for indemnity  15-34

   costs - misconduct of plaintiff  

(a)pursuing fraudulent claims against defendants and attempting  15-21

to deceive court  

(b)prolonging trial by making allegations of fact which plaintiff  21-27

knew to be false  

(c)pursuing claims against defendants which plaintiff must have  27-32

known to be hopeless  

(d)imprudent refusal of offer to settle made by each defendant  32-34

1. First defendant’s claims against non-parties for costs on indemnity basis  

(a)Jurisdiction  34-42

(b)Claim against Ann Hunter  42-45

(c)       Claim against Anna Morales  45-55

(d)       Claim against Kenneth John Pitts  55-65

(e)Claim against Edward Morales   65-69

1. Orders  70-71

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane
  No.1053 of 1994

[Naomi Marble & Granite P/L v.  FAI & All Risks Management P/L]

BETWEEN:

NAOMI MARBLE & GRANITE PTY LTD
  Plaintiff

AND:

FAI GENERAL INSURANCE COMPANY LIMITED
  First Defendant

AND:

ALL RISKS MANAGEMENT PTY LTD
  Second Defendant

JUDGMENT ON COSTS - SHEPHERDSON J.

Judgment Delivered 12th March 1998

On 4 April 1997 I handed down my reasons for judgment in this action and gave judgment for each defendant against the plaintiff.  I did not then deal with the matter of the costs of the action - this was stood over to a later date as counsel for the first defendant said that his client might well seek orders for costs against persons who were not parties to the action.  All parties agreed to the matter of costs being adjourned.

The first defendant has since sought orders that its costs of and incidental to the action including reserved costs be taxed on an indemnity or solicitor and client basis and paid by the plaintiff and four other persons.  Those four other persons are:-

(a)Anna Maria Hunter of 438 St Vincents Road, Nudgee (also known as Ann Hunter, Anne Hunter, Anna Maria Morales and Anna Maria Pitts);

(b)Edward Pedro Morales of Arthur Gorrie Correctional Centre;

(c)Kenneth John Pitts of 438 St Vincents Road, Nudgee;

(d)Anna Morales also known as Ana Morales of 88 Finnie Road, Deagon

The second defendant seeks its costs of and incidental to the action including reserved costs on an indemnity basis against the plaintiff only.

The proceedings now before me are brought on notice of motion by the first defendant  addressed to and served personally on each of the above four named persons and also by motion made orally by both defendants against the plaintiff.

Of the above four persons named in and served with the notice of motion only Kenneth John Pitts has appeared and he did so in person .  Mr Crowther of Crowther Beattie, the plaintiff’s solicitors on the record, appeared as a matter of courtesy - he had no instructions from the plaintiff in regard to the applications for costs against the plaintiff.  The plaintiff is now in liquidation.  I gave him and his firm leave to withdraw.

The applicant defendants relied on affidavit evidence from Mark William Waller a member of Clayton Utz the solicitors for the first defendant and from Craig Douglas McIver, a solicitor with Carter Newell the solicitors for the second defendant.  They also relied on other evidence some of which was in evidence during the trial as well as findings made in my reasons for judgment of 4 April 1997.

On the applications for costs Mr O’Donnell QC appeared for both defendants.

The reasons I now give should be read together with the reasons for judgment I delivered on 4 April 1997.

1. Applications against the plaintiff

   By order of this Court the plaintiff was placed in liquidation and pursuant to that order the liquidation took effect on and from 6 May 1997.  A report of the liquidators Messrs Burns and Moloney shows only one asset of which they are aware - a Falcon GL motor vehicle.

   Before I gave Mr Crowther leave to withdraw he satisfied me that the liquidators were aware of the applications for indemnity costs against the plaintiff.  I gave leave to the defendants to proceed with these applications for such costs against the plaintiff.

   The application against the plaintiff for indemnity costs is on two bases; they are:-

   (i)that a Calderbank offer to settle made by each defendant was not accepted by the plaintiff and in the end result was not bettered;

   (ii)that there was misconduct on the plaintiff’s part in the following respects:-

   (a)in pursuing the claims against the first and second defendants which claims I found to be fraudulent, the plaintiff attempted to deceive not only the first and second defendants but also this Court; 

   (b)prolonging the trial by making allegations of fact which on the findings made by me the plaintiff must have known to be false;

   (c)pursuing the claims against the first and second defendants which, given the facts as found by me and as found to have been within the knowledge of the plaintiff, must have been to the plaintiff’s knowledge, hopeless;

   (d)an imprudent refusal of the offer to settle made by each of the first and second defendants.

   On the first basis the defendants can hope to obtain indemnity costs from  and including 13 June 1996 whereas on the second basis they hope to obtain indemnity costs of the whole action.

   On the application for indemnity costs the starting point is that in the ordinary case costs follow the event and the Court will order the unsuccessful party to pay the costs of the successful party on a party and party basis.  That basis falls short of absolute indemnity.  The award of costs on an indemnity basis, that is on the basis of solicitor and client, may in the discretion of the court be awarded against an unsuccessful plaintiff.  In Halsbury’s Laws of Australia Vol.20 at para.325-9600 the authors say that costs on the solicitor and client basis may be awarded against an unsuccessful plaintiff in a number of categories which are set out in that paragraph.  Those categories include:-

2. Where a plaintiff has proceeded against a defendant with high handed presumption.

3. Where the court’s process has been used for an ulterior purpose.

4. Where some unusual or special feature in the case justifies the court so awarding costs.

5. Where allegations of fraud have been made when the plaintiff knew them to be false or irrelevant to the issues.

6. Where it appears to the court that a plaintiff properly advised should have known he or she had no chance of success.

   I have not set out all the categories from para.325-9600 - only those on which the defendants rely.

   The categories in which costs on an indemnity basis may be ordered are not closed (re Wilcox; ex parte Venture Industries Pty Ltd (1996) 141 ALR 727 at p.729 and cases there cited).

   As Hill J. said in John S Hayes & Associates Pty Ltd v. Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 203:-

   “In each case it will be necessary to look at the particular facts and circumstances to see whether an exercise of discretion to order costs on an indemnity basis is warranted.”

I therefore do not read para.325-9600 in Halsbury’s Laws of Australia as in any way circumscribing the situations in which a court may award costs on an indemnity basis.

I should at this stage say that a number of decisions which are relevant to this matter are decisions of the Federal Court of Australia concerning that court’s jurisdiction to award indemnity costs.

In re Wilcox (supra) Cooper and Merkel JJ set out the principles generally applied in the Federal Court.  Those principles included the following:-

“In order to exercise the discretion judicially the following principles have been accepted by the court as applicable:

(a)the court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the court in departing from the usual course;

(b)the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the court in departing from the usual course;

(c)while the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.”

In my view those principles are equally applicable in this Court.   The decision of Moynihan SJA in re Talk Finance and Insurance Services Pty Ltd (1994) 1 Qd.R 558 at 560 affirms this view.

I turn now to the first basis on which the defendants seek indemnity costs against the plaintiff.  That is that a Calderbank offer to settle made by each defendant was not accepted by the plaintiff and in the end result was not bettered.

a.        Refusal of Calderbank Offer

Before proceeding further I should at this stage say that Order 91 rule 1 of the rules of this Court confers on me power to award costs in this action.

By letter dated 12 June 1996 addressed to the plaintiff’s solicitors marked “Without Prejudice” and hand delivered on that day the solicitors for the first defendant said (in reference to this action):-

“Our client has instructed us to offer to settle this matter on the following conditions:-

1.There be judgment in the action for the first defendant against the plaintiff including an order that the plaintiff do pay the first defendant’s costs of and incidental to the action to be taxed;

2.The first defendant agree not to enforce any costs so ordered and the plaintiff and the first defendant agree not to enforce any other costs orders made to date;

3.The first defendant release its security over the Morales’ residence at 88 Finney (sic) Road, Deagon;

4.The plaintiff execute a deed of release, discharge and indemnity on terms satisfactory to the first defendant;

5.The terms listed in paragraphs 2,3 and 4 remain confidential to the parties except  for the purposes of giving effect to those terms.

This offer remains open for acceptance until 1.00 p.m. tomorrow 13 June 1996.

In the event that the offer is not accepted our client will continue to defend this matter to the conclusion of the trial and we reserve our client’s rights to bring this letter to the attention of the court in support of a claim for indemnity costs against the plaintiff or anyone who has instigated or supported the action.  The principal terms of this offer are not open for negotiation.”  

This offer was not accepted.  I pause to say that 12 June 1996 was the 12th day of the trial and on that day Ann Hunter the managing director of the plaintiff was being cross-examined by counsel for the second defendant.  Her cross-examination by counsel for the first defendant had  concluded on 6 June 1996.  By 12 June 1996 counsel for the second defendant had been cross-examining Ann Hunter for 5 days.  Almost all her evidence was given during the first 18 days of the trial - she returned for further cross-examination on 25 and 26th July 1996, the 33rd and 34th days of the trial.

I note that Order 26 rule 9 of the Rules of the Supreme Court does not apply to the present situation where each of the two defendants has succeeded completely against the plaintiff.  So far I have mentioned only the offer to settle made by the first defendant.

The second defendant made a written offer by letter also dated 12 June 1996, addressed to the plaintiff’s solicitors and again delivered by hand on 12 June 1996.  It too was marked “without prejudice” and, omitting formal parts, read:-

“The eleventh day of the trial has now concluded.  We maintain the second defendant’s earlier stance, that being that the plaintiff’s case against it is without merit.

On that basis alone, our client is prepared to make the following one off offer:-

1.There be judgment in the action for the second defendant against the plaintiff including an order that the plaintiff do pay the second defendant’s costs of and incidental to the action to be taxed;

2.The second defendant agree not to enforce any costs so ordered and the plaintiff and the second defendant agree not to enforce any other cost orders made to date;

3.The second defendant release its security over the Morales’ residence at 88 Finney (sic) Road, Deagon;

4.The plaintiff execute a deed of release, discharge and indemnity on terms satisfactory to the second defendant;            

5.The terms listed in paras. 2, 3 and 4 remain confidential to the parties except for the purposes of giving effect to those terms.

This offer remains open for acceptance until 1.00 p.m. Thursday 13 June 1996.

Please note that if the plaintiff does not accept the offer contained in this letter then the second defendant shall reserve its right to produce this letter in argument for costs.

Furthermore, if the plaintiff does not accept this offer, the second defendant reserves its right to seek solicitor and own client costs from the plaintiff together with costs on an indemnity basis from the plaintiff or anyone who supported or instigated the action.

Finally, do not construe this as the first of a series of offers.  If it is not accepted we are instructed to proceed with the trial of this action to its finality.

We look forward to hearing from you in response to this letter.”

This offer was rejected by the solicitors for the plaintiff.

“Calderbank” used in the term ‘Calderbank letter’ derives from Calderbank v. Calderbank (1976) Fam. 93; (1975) 3 WLR 586; (1975) 3 All E.R.333. In Cutts v.  Head (1984) Ch.290 the Court of Appeal held that an offer to settle made by letter marked “without prejudice” but subject to a clearly expressed reservation of the right to refer to it on the issue of costs is admissible for that purpose in all cases where the issue is more than a simple money claim so that a payment into court was not the appropriate way of proceeding. Cutts v.  Head extended the Calderbank letter beyond family disputes and into other divisions of the court.  Although in the Supreme Court of Queensland payment into court has been replaced by offers to settle (see Order 26) the present action was, in any event, more than a simple money claim.

Cutts v.  Head held that when the plaintiff’s offer to settle was taken into consideration on the question of costs, the right order could be to award the plaintiff all his costs from the date when his offer ought reasonably to have been accepted.  Cutts v. Head has been followed in Queensland - Johns Perry Industries Pty Ltd v.  International Rigging (Aust) Pty Ltd (1988) 2 Qd.R.556 (Ryan J) - and in New South Wales (see for example Wallace v. Baulkham Hills Smash Repairs Pty Ltd (1995) 2862 of 1995 reported in Butterworths unreported judgments, (Young J) Messiter v. Hutchinson (1987) 10 NSWLR 525 (Rogers J); Smallacombe v. Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 (Spender J). In MGICA (1992) Ltd v. Kenny & Good Pty Ltd (No 4)(1996) 140 ALR 707, Lindgren J. applied Messiter v. Hutchinson (supra) and Smallacombe v. Lockyer Investment Co. Pty Ltd (supra).

As mentioned earlier, Order 26 rule 9 does not cover the present situation where the plaintiff failed entirely.  In New South Wales the relevant court rule was similar to the Queensland Order 26 rule 9 and in Multicon Engineering Pty Ltd v. Federal Airports Corporation (1996) 138 ALR 425 Rolfe J. of the Supreme Court of New South Wales Common Law Division dealt with the relevant N.S.W. rule. His Honour considered an application by a successful defendant for indemnity costs the basis of which was that the plaintiff had refused an offer of compromise by the defendant. The case head note shows that indemnity costs were sought with respect to an action which had been brought against the defendant under s.52 of the Trade Practices Act 1974 (Commonwealth).  The proceedings were instituted on 13 March 1991 and were bitterly contested on all points.  The matter went before a referee on 7 May 1992 and the hearing lasted several hundred days.  The referee’s report was not available until 10 February 1995.  The referee’s conclusions were that the plaintiff’s claim be dismissed, that the defendant was entitled to liquidated damages on its cross-claim in the sum of $1,607,000 of which all but some $293,000 had been paid, that interest be paid on the outstanding amount and that the question of costs be reserved.  On 11 March 1996 the referee’s conclusions were adopted by the court.  The plaintiff did not dispute that it was liable to pay the defendant’s costs but put in issue the level at which they were to be paid. 

On 17 March 1993 the defendant had written to the plaintiff making an offer of settlement on terms, among others, that judgment be entered for the defendant against the plaintiff, that the defendant withdraw its cross-claim but keep liquidated damages applied to that date, that each party pay its own costs and that the defendant pay the sum of $3M by way of variation payment without any admission of liability.  The plaintiff rejected the offer.  Just prior to March 1993 key “reliance witnesses” had given evidence for the plaintiff before the referee but had failed to support the plaintiff’s case.

On 28 April 1993 the plaintiff made an offer of compromise in accordance with part 22 of the Supreme Court Rules NSW; it stated that the plaintiff agreed to compromise the claim and cross-claim in the proceedings on terms that the defendant pay the plaintiff $5M and such costs as were awarded to the plaintiff by the court.  By letter dated 30 April 1993 the defendant rejected the offer but renewed its offer of settlement as set out in the letter of 17 March 1993.  On 28 May 1993 the defendant filed a notice of offer of compromise pursuant to part 22 whereby it offered to compromise the action on the basis that the plaintiff pay the sum of $1M in settlement of the claim and cross-claim.  The offer was not accepted.  On 20 July 1995 after the referee published his report, the defendant wrote to the plaintiff with a proposal to settle on terms that a verdict be entered for the defendant, that the defendant’s cross-claim be dismissed, that the defendant retain any liquidated damages already deducted and that the plaintiff pay 60 per cent of the defendant’s actual costs.  By letter dated 14 November 1995 the plaintiff rejected the offer claiming that there were a number of errors in the referee’s report.  Rolfe J. decided that the costs of the defendant should be paid by the plaintiff on a party and party basis up to 31 March 1993 and on an indemnity basis from 1 April 1993 to 21 February 1996.  He awarded costs on the motion before him on a party and party basis.   

In quite lengthy reasons Rolfe J. reviewed a number of authorities concerning Calderbank  letters of offer of compromise and their refusal.  A number of those authorities showed that a Calderbank letter was but one factor only in the exercise of the discretion to award indemnity costs.  Rolfe J.  referred to the relevant rules and said (at p.433):-

“Each rule therefore assumes that the party making the “successful offer” ie an offer which is not bettered by the order or judgment in favour of the offeree, is entitled to have costs paid on the bases stated “unless the Court otherwise orders”, the justification for that entitlement being nothing more than the making of a “successful offer”.  Rule 5 assumes that the plaintiff will recover some order or judgment and hence provides for the plaintiff’s costs up to the making of the offer.  There is no rule which provides for a defendant having made an offer where the plaintiff fails entirely, such that the plaintiff is not entitled to any costs.  This is strange and gives rise to some of the difficulties.  However, this court has held that where a completely successful defendant has made an offer of compromise, either by a document so entitled or by a Calderbank letter, to both of which I shall refer as an offer or an offer of compromise, the same principle should be applied, viz that as from the date of the offer the plaintiff should pay the defendant’s costs on an indemnity basis, unless the court otherwise orders.  Thus the obligation is on the plaintiff to satisfy the court that such an order should not be made, the presumption being that the making of the successful order prima facie entitles the defendant to costs at that level.”

In conclusion His Honour said (at p.451):-

“In my opinion the proper approach to take to an offer of compromise whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer.  I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer which unreasonableness is demonstrated prima facie, by the ultimate result.  This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged.  The relevant rules provide that costs will be paid on the basis set out therein ‘unless the court otherwise orders’.  My understanding is that the court is required to proceed on the basis that it should make the order provided for by the Rules unless the party rejecting the offer is able to establish good reason for having done so.

It seems to me anomalous that there is no provision whereby a defendant, which is totally successful, is placed in the same position as a plaintiff, which is totally successful.  In my view the Rules should be reviewed.  The decisions of this Court have overcome the anomaly by an application of similar reasoning in the event of an offer of compromise by way of a Calderbank letter.  Cole J observed that by taking that step the defendant which is ultimately successful has done everything it can to extricate itself from expensive and extensive litigation  and it seems to me that if a defendant has done that and his prognostication of the case proves to be correct in the relevant sense it is totally unfair that it should be required to pay costs as if it had not acted in that way.  In the circumstances the relevant unreasonableness of the recipient of the offer is the failure to accept what is established to be an appropriate offer.  That is well illustrated in this case.   FAC took as it turned out a very real commercial risk in making its offer on 17 March 1993.  If that offer had been accepted MCE would have been immeasurably financially better off and conversely FAC would have been worse off.

That is the starting point from which I propose to proceed and in my opinion it is not only consistent with the thrust of the Act and Rules, the general philosophy behind the desirability of settlements and the decisions of this court, but it also removes from the arena questions to be considered in relation to indemnity costs which are really only relevant to a consideration of costs on that basis absent any offer of compromise.  In saying what I have I acknowledge the force and accept the applicability of the principle that each case must be determined by an exercise of judicial discretion having regard to the particular facts of each case.  Thus the prima facie position having been established the court must be satisfied that an order for indemnity costs is not appropriate.  As I have indicated, if that is not done there is a failure to exercise the judicial discretion.”

(the underlining is mine)

Rolfe J. by use of the presumption to which His Honour referred has placed upon the unsuccessful plaintiff the burden of, in effect, satisfying the court why an indemnity costs order should not be made in favour of the totally successful defendant.  I must say, given the absence from O.26 of any rule which covers the situation of a totally successful defendant, that in my view this Court in the exercise of its discretion is entitled to make an order, that the totally successful defendant who has earlier made a Calderbank offer be placed in the same position as or at least in no worse position than the plaintiff  referred to in O.26, r.9 sub-rule 1.  Order 26 Rule 9(1) reads:-

9.(1) Where the plaintiff makes an offer to settle which is not accepted by the defendant and the plaintiff obtains a judgment no less favourable than the offer to settle the Court shall order the defendant to pay the plaintiff’s costs fixed on a solicitor and client basis, unless the defendant shows that another order for costs is proper in the circumstances.

In my respectful view, the approach taken by Rolfe J. in using the presumption places the wholly successful defendant in a similar position - though not quite as strong a position - as the successful plaintiff to whom sub-rule 9(1) applies.

I respectfully adopt the approach taken by Rolfe J.  in respect of Calderbank offers and in so doing I recognise that in MGICA (1992) Ltd v. Kenny and Good Pty Ltd and another (No 4) (1996) 140 FLR 707 Lindgren J. declined to follow Rolfe J’s view that non-acceptance of an offer which the ultimate result established had favoured the offeree, itself, prima facie demonstrated unreasonable conduct and an entitlement to indemnity costs with the result that the offeree bore the onus of showing why indemnity costs should not be ordered.

I also note from MGICA (No 4) that Lindgren J. preferred to follow two single judge decisions of the Federal Court of Australia.  In my view MGICA is distinguishable from the present case because of the differences between Order 23 of the Federal Court Rules and Order 26 rule 9(1) and because the relevant rules of the New South Wales Supreme Court considered by Rolfe J. were similar to Order 26 rule 9 of this Court.

In the case before me, comparisons between the offers made by the defendants and the ultimate results obtained by the plaintiff when I delivered judgment shows very clearly how much better off the plaintiff  would have been had it accepted the offers.  I make these comparisons in order to determine the level of costs to which the defendants as offerors are entitled (see Padmanor Investments Ltd v. Soundcraft Electronics Ltd (1995) 4 All.  E.R. 683 at 690-2 and Multicon Engineering (supra) at p.446).   I make the following points:-

1. Each offer shows that the costs orders against the plaintiff were costs on a party and party basis only, but more importantly each defendant agreed not to enforce such costs orders and in addition not to enforce other costs orders which had been made against the plaintiff on or before 12 June 1996.  In fact on that date the first defendant had costs orders against the plaintiff as follows:-

   (a)pursuant to order of Lee J. pronounced 21/09/94 -

   taxed and allowed on 08/02/95 at -   $6,141.50

   (b)pursuant to order of White J. pronounced 02/02/95 -

   taxed and allowed on 07/04/95 at -  $2,500.00

   (c)pursuant to order of Fryberg J. made 10/04/95 -

   not taxed but bill in itemised form prepared by May 1995 -

   delivered at -   $4,291.67

   On 12 June 1996 the second defendant had a costs order against the plaintiff pursuant to order of White J. made 2/2/95

   - taxed and allowed on 18/04/95 at   $1,229.00

2. Each defendant was to release its security over the land and dwelling house at 88 Finnie Road, Deagon, registered in the names of Diego Morales and Anna Morales.  This security was limited to $79,000 being security for each defendant’s costs.  Thus the premises at 88 Finnie Road were to be freed from any encumbrance in favour of the defendants.

3. Confidentiality pursuant to condition 5 was to be ensured.

   In making these comparisons I expressly leave out of account the extent to which the plaintiff had, by Ann Hunter its principal witness, given sworn evidence in support of its case against each defendant and the fact that that evidence consisted of lies by her on matters on which I have made findings in my reasons for judgment delivered on 4  April 1997.  I shall return to these and other matters which become relevant when I consider the second basis of the defendants’ applications for indemnity costs against the plaintiff.  The second basis, if successful, will result in the plaintiff being liable for all the defendants’ costs of the action on an indemnity basis whereas the unreasonable refusals of Calderbank offers will result in a lesser order for indemnity costs.

   In summary then, on 12 June 1996 the plaintiff was presented with the above offers which, if accepted, would have brought the case to a speedy end on the terms and with the benefits for the plaintiff which I have set out above.  History records that the plaintiff refused to accept the offers and failed to obtain a result better than each offer. The consequences of those  refusals have been quite adverse for the plaintiff..

   As I have said, I respectfully adopt the approach of Rolfe J. in Multicon Engineering Pty Ltd v.  Federal Airports Corporation (supra) and particularly where His Honour said (at p.451):-

   “In my opinion the proper approach to take to an offer of compromise ... made ... pursuant to a Calderbank letter, is that there should be a prima facie presumption  in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer.”

I also respectfully adopt the following statement made by His Honour:-

“... the unreasonableness was the failure by the offeree to accept the offer, which  unreasonableness is demonstrated, prima facie, by the ultimate result.” 

The plaintiff has not attempted to rebut the presumption by showing that a costs order other than on an indemnity basis should be made .

If I should be wrong in adopting the prima facie presumption approach then, if there is no such prima facie presumption, I would nevertheless unhesitatingly conclude that in this case, because the plaintiff unreasonably refused Calderbank offers from each defendant and failed completely in the action against each defendant, it should pay each defendant’s costs on an indemnity basis on and from 13 June 1996.

Considering only the first basis of the defendants’ claim for costs against the plaintiff, the defendants should not be saddled with any costs in this lengthy trial beyond the 12th day on which day the defendants each made a generous and sensible offer to compromise.  In fact the trial (up to the conclusion of addresses) lasted 126 days.

I turn now to the second basis upon which the defendants seek indemnity costs against the plaintiff.  If this second basis is made out then the defendants will each be entitled to recover all costs on an indemnity basis and not merely from and including the 13th day of the trial.

b.Second basis of Claim for Indemnity Costs against Plaintiff  -Misconduct of Plaintiff

The defendants rely on 4 related strands of what they submit is misconduct in the plaintiff - I have already set them out but now deal with them seriatim.

1. In pursuing the claims against the first and second defendants which claims I found to be fraudulent, the plaintiff attempted to deceive not only the first and second defendants but also this Court.

   I note the following findings made by me in the reasons for judgment delivered on 4 April 1997 (“my reasons”) and on which Mr O’Donnell relies:-

   (i)In passages at pp.346 and 347 of my reasons I dealt with the topic “The plaintiffs knowledge that the quotations (Exhibits 227 and 252) did not represent the genuine opinions of the authors”.  These were quotations from Gary Hutchins (the author of Exhibit 227) and Hugh Murphy (the author of Exhibit 252) and relied on by the plaintiff to found a claim against the first defendant based on those exhibits.  I do not propose to repeat all I said on those pages but I shall quote a passage from p.347:-

   “I am well satisfied that neither of the quotations Exhibits 227 and 252 did represent the genuine opinion of Hutchins and Murphy respectively at the time each signed the quotation.  I am satisfied beyond reasonable doubt that Edward Morales knew this and knew that the quotations were excessively high and that he caused the claim to be made relying on those statements by Hutchins and Murphy in the hope that the first defendant would accept or compromise the claim based on Exhibits 227 and 252.  Thus I find the claims were fraudulently made.  Edward Morales knowledge is imputed to the plaintiff.”

   (ii)At pp.354 to 358 of my reasons I dealt with a claim by the plaintiff of a replacement cost of $118,118 for 26 pallets of damaged Spanish  terracotta roof tiles.   At page 357 I found that the plaintiff had allowed this claim to remain at the exorbitantly high figure of $118,118, that it had never sought reduction and had persisted with the claim throughout a very long trial and made it clear to me that it intended at all times, if it could, to extract $118,118 from the first defendant as the cost of replacing these tiles.  I found specifically at p.358 of my reasons that “the plaintiff deliberately exaggerated its claim in respect of the terracotta roof tiles.”  In my view the plaintiff’s conduct to which I have just referred was also an attempt to deceive this Court.

(iii)At p.358 of my reasons in dealing with a topic other than the roof tiles, I found that the plaintiff had claimed against the first defendant for items which it had never owned.  I quote part of my reasons from that page:-

“In my view the plaintiff, by claiming in respect of the above items of furniture and equipment has attempted to deceive the Court by asserting that it had bona fide acquired them from Ann Hunter’s father for $5,000.  It follows then that I should find and I do find that the plaintiff by seeking to recover in respect of these items which it knew really belonged to the creditors of the Elegant Group and Jela also sought to deceive the first defendant.  It is in my view a good example of a fraudulent claim by which I am satisfied the plaintiff intended to obtain from the first defendant monies to which it was not entitled - and it did so by deceit.

(iv)At p.359 of my reasons I dealt with the topic “Evidence of disparity between cost to the plaintiff to acquire and what it has sought to recover from the first defendant for the same items.”  I quote part of the reasons from that page:-

“Leaving to one side the last two items in Exhibit 109 namely the rosa aurora tiles and the boardroom table the total acquisition cost to the plaintiff of all the other items listed in Exhibit 109 is $39,576.34.  The total amount which the plaintiff has claimed in respect of the same items is $231,085.  In my view these figures lead to the inevitable conclusion that the plaintiff has sought to make a profit from the first defendant of the order of $191,508, a figure which is over 4½ times its capital outlay.

In this portion of my reasons I have dealt with the size of the claim in comparison with the total acquisition cost.  I am driven to the irresistible conclusion that the plaintiff clearly intended, by deceit, to obtain from the defendant a far greater sum of money than that to which it would lawfully be entitled.  To state the matter another way I find that the overestimate of the plaintiff’s loss is so excessive that I can infer and do infer that the claim has not been made honestly but was intended to defraud the first
defendant (see “General Principles of Insurance Law” [6th Ed] of Professor Hardy Ivamy at p.437) I should add that, even if I reduced the $191,508 deficiency by some $108,000 (to compensate for what may have been an initial error in calculating the replacement cost of the terracotta roof tiles) the amount of the claim is still more than double the total acquisition costs of the plaintiff of the items which I have been discussing.  Even then I consider that such a claim is so substantial that it is fraudulent.”

I should at this stage point out that the same amounts were claimed against both defendants.  I accept Mr O’Donnell’s submission that given the whole claim brought to this Court was to the plaintiff’s knowledge an untrue claim, that is a false claim, it was a claim motivated by greed and intention fraudulently to deceive the defendants and this Court.

Mr O’Donnell has helpfully referred me to a decision of the British Columbia Court of Appeal - Oasis Hotel Limited v. Zurich Insurance Co & Others (1981) 124 DLR (3d) p.455.   This case was referred to without disapproval by the High Court of Australia in Knight v.  FP Special Assets Limited (1992) 174 CLR 178 at pp.192 and 202. Oasis Hotel  is relevant also in respect of the award of costs against non-parties to an action.  The facts, taken from the Judgment of the Court delivered by Lambert J.A. were:-

“The plaintiff Oasis Hotel Limited acquired the Allison Motor Hotel in Vernon in March 1994.  The hotel was the major asset of the company.  The income from the hotel declined sharply from 1974 to 1977.  Under a contract of insurance made on March 22 1977, the defendant insurance companies agreed to insure and indemnify the plaintiff company for loss or damage from fire or explosion, to the extent of $850,000 and for loss from business interruption for an additional $100,000.

Carl Surowiec and his wife were the sole shareholders, directors and officers of the plaintiff company.  On the night of May 22, 1977 Carl Surowiec deliberately set fire to the hotel.  It was destroyed.  He was charged with arson and on the basis of the evidence led in that case he was acquitted.

The company filed a proof of loss under the insurance policy.  It was signed by Carl Surowiec.  The insurance companies declined to pay.  The company sued for damages of $950,000, pre-judgment interest and costs.  Mr Justice Mackoff found that it was clear beyond any doubt the fire was deliberately set and was accelerated by gasoline.  He found Mr Surowiec’s evidence in every aspect to be patently untrue and totally incapable of belief.  He found that the evidence as a whole led to the irresistible conclusion that Mr Surowiec deliberately set the fire.  He dismissed the action with costs.

The plaintiff company was insolvent when it commenced its action.  After the action was dismissed the defendant insurers applied to Mr Justice Mackoff for an order that the defendants’ costs, on a solicitor and client basis, be paid by Carl Surowiec.  Mr Justice Mackoff ordered that the defendant should recover their party and party costs from the plaintiff and from Carl Surowiec.  Carl Surowiec brings this appeal from that order.

Carl Surowiec created the cause of action.  He did so by an act of arson.  He attempted to defraud the defendants.  He set the process of the Supreme Court of British Columbia in motion as the instrument of his fraud.  He attempted to deceive the defendants by filing a false proof of loss.  He attempted to deceive the court by giving false evidence.  But in this appeal he says that the court has no power to award costs against him because he was not a party to the action.  The action was brought by an insolvent limited liability company.”

At pp.461-2 Lambert J.A. said:-

“I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the Court is made the instrument to perpetrate a fraud the Court cannot award the costs of the proceedings that are instigated as part of the fraud to be paid by the active mind that put the fraud into effect and directed the institution of the Court proceedings ... In my opinion where Mr Surowiec with his wife is the sole owner of all the shares in Oasis Hotel Ltd; and where Mr Surowiec conceives a scheme to defraud the insurers of Oasis Hotel Ltd; and where he puts that scheme into effect; and where he uses proceedings in the Supreme Court of British Columbia as the instrument of fraud; and where he attempts to deceive the Court; then the Supreme Court of British Columbia has power to order that Mr Surowiec pay to the insurers their party and party costs of those proceedings, notwithstanding that he is not a party to the record of those proceedings.

At p.463 Lambert J.A said:-

“My second observation is that I do not regard this case as a case about the piercing of the corporate veil.  The principles that are applicable are principles about costs in a case involving duplicity and abuse of the Court.  But I am satisfied that the order made by Mr Justice Mackoff does not violate the sanctity of the corporate personality.  This was a case of fraud.  In such cases the individual who conceives and carries out the fraud cannot shield behind a corporation that he controls.”

His Honour later pointed out that there was no cross-appeal with respect to Mr Justice Mackoff’s refusal to award the costs on a solicitor and client basis.

I accept Mr O’Donnell’s submission that in the present case the situation is much the same as in the Oasis Hotel case - the present plaintiff sought not only to deceive and defraud the first defendant but in its claim against the second defendant relied on the same fraudulent claim and that was for the same inflated loss.  The plaintiff sought to use the proceedings in this Court as the instrument to perfect its fraud.

I see no reason not to follow the approach of the British Columbia Court of Appeal taken in the Oasis Hotel case - it is a case to which I shall refer again when dealing with the claims for costs against the non-parties.  For present purposes I rely also on the attempt by the plaintiff before me to use this Court as an instrument of fraud - an attempt which included 126 days of hearing.  I find that that attempt amounted to misconduct on which the defendants may rely in support of their claim for indemnity costs against the plaintiff.

On the topic of “using this Court” Mr O’Donnell in the course of his submissions relied on  a finding made by me at p.335 of my reasons.  This finding was made in the course of my comments on the credibility of a witness named Rachel Weldon.  She was a young woman who was aged 18 or 19 in 1993 at the time she had a relationship with Edward Morales who was then 29 or 30.  The plaintiff’s counsel cross-examined Weldon in an attempt to assert bias or animosity on her part towards Ann Hunter.  He cross-examined Weldon in respect of a tape recording said to be of a telephone conversation between Edward Morales and Rachel Weldon.  During that cross-examination it was asserted that the tape recording was genuine and accurate and that what appeared in a certain transcript was an accurate transcription of what speech was heard on the tape recording. 

I found (at p.335) that neither of those matters was proven by the plaintiff and that indeed Professor Moody who had examined the tape recording and whose evidence I totally accepted had considerable doubt as to the authenticity of the tape recording. 

On p.335 I later said:-

“The plaintiff intimated in the course of the trial it would call evidence to prove the authenticity of the tape recording and transcript but did neither.  When I consider the evidence of Professor Moody and the plaintiff’s failure to attempt to prove either the tape recording or the accuracy of the transcript I conclude that Rachel Weldon was the victim of what the first defendant’s counsel called an unscrupulous attempt to denigrate her in the eyes of the court.  I conclude that attempt wholly failed.”

These matters concerning Rachel Weldon illustrated further the plaintiff’s willingness to use and actually using this Court for an unscrupulous purpose.  Again, these matters concerning Rachel Weldon and the use of this Court were matters on which the defendants are entitled to rely to support their claim for indemnity costs against the plaintiff.

1. Claim of Misconduct by the Plaintiff in prolonging the trial by making allegations  of fact which on the findings made by me the plaintiff must have known to be false.

Before turning to evidence said by Mr O’Donnell to be relevant to this particular matter I refer to a decision of Moynihan SJA on which Mr O’Donnell relies.  That was re Talk Finance and  Insurance Services Pty Ltd (1994) 1 Qd.R 558 a case which strangely enough concerned two persons involved in the present case - Edward Morales and Pedro Tejero Morales. Not only did Talk Finance involve these two persons but the general facts before Moynihan SJA formed part of the evidence in the case before me.  Talk Finance & Insurance Services Pty Ltd advanced monies to Jela Imports & Marketing Pty Ltd to finance the importation of certain material by the latter company and to otherwise provide finance for its operations.  A number of documents were prepared and executed.  One of them was a mortgage debenture which was not registered within  the specified time.  An application was made for an extension of time.  That application was met  with material sworn by Edward Morales and Pedro Tjero Morales and their solicitor.  The two Morales were directors of Jela and their material put in issue that the mortgage debenture and perhaps other of the documents had not been executed.  It was claimed that the signatures on Jela’s behalf and the signatures by the Morales in respect of the other documents were not genuine.  His Honour found the evidence established that what might be called the disputed signatures were the genuine signatures of the Morales.  Talk Finance sought an order for costs not only against the company but also against the two directors and also that the costs be ordered on an indemnity basis.  After satisfying himself that he had jurisdiction to make an order for costs against a non-party to the litigation His Honour said (at pp.559-560):-

“On the view I have taken on the matter the two persons against whom the costs order is sought put in issue the execution of the documents and the validity of their signatures in circumstances where, as I have concluded, they must be taken to have known that they were doing so falsely.  That consideration also bears on the question of whether the costs should be ordered on what is commonly described as the indemnity basis.  It is of course unusual for such an order to be made in contests between party and party but there is no doubt that it can be made if some circumstance, often described as special circumstances can be pointed to as justifying it ... As I have already dealt with the facts of the case which seem to me to found the exercise of the discretion sought by the applicants, it is perhaps unnecessary to remark that, as I have said, the Morales put in issue something which they must, on the view that I have taken of the matter, have known to be falsely put in issue and despite what might be described as a number of opportunities to rectify the position have persisted in leaving the matter in issue necessitating the matter being dealt with today.” 

His Honour therefore ordered the company and two Morales to pay the costs of the proceeding including reserved costs taxed on a solicitor and own client basis. 

Talk Finance is relevant also to the power to order costs against non-parties but it clearly is authority for the court’s power to order indemnity costs against a party which makes allegations of fact which it must have known to be false and which prolong a trial.

In addition to Talk Finance the defendants rely on a decision of Holland J. in Degmam Pty Ltd (in liq.)  v. Wright No 2 (1983) 2 NSWLR 354. Holland J. held that where an unsuccessful party has prolonged a trial, by deliberately false defences and allegations of fact, an appropriate order for costs may be that such party indemnify other parties in respect of all their costs with the exception only of costs of an unreasonable amount or unreasonably incurred.

At p.358 His Honour said:-

“I do not wish to repeat what I had to say in my reasons of judgment about the merits of the defences and causes of action put forward by the defendant or the manner in which she conducted herself in the course to the litigation and in the witness-box.  It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant.  As well as that she so conducted herself in the proceedings by multiplying allegation upon allegation and by prevaricating  in the witness-box,  as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues.”

(the underlining is mine)

In my view, the underlined portion of His Honour’s comments is equally apt to describe the conduct of Ann Hunter, the managing director of the plaintiff when giving her lengthy evidence to support the plaintiff’s case.  I do not propose to set out here all the factual assertions made by Ann Hunter on behalf of the plaintiff which in my reasons I found to be false and false to the plaintiff’s knowledge.  I agree with Mr O’Donnell’s submissions those factual assertions did take up the bulk of the trial.  The major ones were:-

(i)Ann Hunter’s assertions that she had no part in the banking transactions on 30 April and 12 May 1993 about which I made findings on pages 60 and 61 of my reasons.

(ii)Ann Hunter’s several denials on the plaintiff’s behalf that the signature on Exhibit 147 was hers.  Exhibit 147 was an application of 12 May 1993 for a $40,000 bank cheque - I made findings concerning this at pp.58 and 59 of my reasons.

(iii)An assertion by Ann Hunter that she ceased to work for the Elegant Group of Companies in mid or late March 1993 - see my findings at p.25 of my reasons.

(iv)Ann Hunter’s assertions that 3 bank cheques totalling $135,000 paid to her in April and May 1993 represented back wages and/or compensation due to her by her brother Edward Morales’ companies - see my findings at pp.65 to 68 of my reasons.

(v)Assertions that Ann Hunter had no part in assisting Edward Morales and Pedro Morales on 16 May 1993 to strip the Elegant groups offices at Waterfront Place of their furniture - see findings at p.38 of my reasons.

(vi)Ann Hunter’s assertions that the plaintiff company had purchased from Diego Morales the items of office furniture and equipment (formerly in the Elegant Groups offices) which ended up in the plaintiff’s premises some of which were the subject of the false and fraudulent insurance claim - see my findings at p.325 of my reasons.

(vii)Ann Hunter’s assertions that Edward Morales had played no part in the plaintiff company until after the break-in in November 1993 (following which break-in the claim against the first defendant was made) - see my findings at pp.218-9 of my reasons including my finding that I had no reasonable doubt that she did her best to conceal from me the extent of Edward Morales involvement in the plaintiff.

(viii)Assertions by Ann Hunter that financial benefits given to Edward Morales by the plaintiff company were nothing more than loans - see my findings at pp.84 and 91 of my reasons.

(ix)Ann Hunter asserting that she and therefore the plaintiff were unaware that Thynne & Macartney had been acting as Edward Morales’ solicitors at relevant times - see my findings at p.87 of my reasons.

(x)Ann Hunter asserting that Kenneth John Pitts had no real involvement in the plaintiff’s affairs - see my findings at p.180 et seq. of my reasons.

(xi)Ann Hunter asserting first that she alone had prepared the plaintiff’s letter of 2 November 1993 (Exhibit 18), secondly that the plaintiff had never received the  invoice dated 21 October 1993 from the insurance broker J.W. Bell & Associates (Exhibit 225) and thirdly asserting that Exhibit 18 had not been prepared by working from the document Exhibit 225.  I found these three matters were false to the plaintiff’s knowledge - in my reasons see pp.201 and 287 as to the first matter; p.287 as to the second matter and pp.288 - 9 as to the third matter.

(xii)Ann Hunter’s  assertions concerning her meeting with Darryn Shiels - the major witness of the second defendant - see my findings at pp.208 - 9 of my reasons.

(xiii)Ann Hunter’s asserting that she had disclosed to Darryn Shiels the plaintiff’s insurance dealings with UAP - see my findings at p.302 of my reasons.

(xix)Ann Hunter asserting that the answer “new venture” to question 56 of the proposal had emanated from Darryn Shiels - see my findings at p.302 of my reasons.

(xx)Ann Hunter asserting that the persons who lived at 7 Grevillea Street, Everton Hills from October 1993 to January 1994 were Ann Hunter and Kenneth John Pitts and not Edward Morales - see my findings at p.325 of my reasons.

(xxi)Ann Hunter’s false denials and claims as to lack of knowledge concerning the Talk Finance transaction and ensuing litigation concerning the fact that Edward Morales had sworn a false affidavit in an application to the court (see p.249 of my reasons).

I found that all these matters (save for (xxi)) were not only untrue assertions but were false to the knowledge of Ann Hunter (the managing director of and main witness for the plaintiff).

Overall, there can be no doubt that given findings which I have made in my reasons of 4 April 1997 as to the true state of knowledge of Ann Hunter, Kenneth John Pitts and Edward Morales and others, the plaintiff at all times knew the significance of the UAP Insurance events and knew that those events were highly significant matters to disclose to another insurance company and yet the plaintiff by Ann Hunter and Edward Morales deliberately withheld those events from Mr Shiels and from the first defendant.  I should at this stage point out that Kenneth John Pitts at all material times was the partner or fiancee or husband of Ann Hunter and that he was experienced in the insurance industry and employed by an insurance company.  I shall return to his evidence later when considering the claim for indemnity costs against him.

Nevertheless the plaintiff continued with the action - as I have already said the action occupied 126 days including addresses and it seemed to me that the plaintiff continued the action in the vain hope that it would perhaps force a settlement by prolonging the case to inordinate lengths such prolongation occurring because of a large number of factual allegations which the plaintiff by its principal witness Ann Hunter  knew to be false and must have known required great cost to investigate in a long trial.  On this aspect I refer  particularly to Ann Hunter’s allegations made early in her evidence that she had a row with her brother Edward and left her employ with his companies about mid-March 1993 and did not then again work for his companies.  It was not long after that she received 3 bank cheques totalling $135,000 which moneys were traced from the Edward Morales companies (the Elegant Group) into Ann Hunter’s bank account and were ultimately used by the plaintiff and its associated company Naomi Tiles Pty Ltd.  At this stage I mention the decision of Sheppard J. in Colgate Palmolive Co. & Another v. Cussons Pty Ltd (1993) 118 ALR 248. His Honour considered a number of authorities on this question of the award of and discretion to award indemnity costs against a party to an action and at pp.256 and 257 set out what he described as principles or guidelines which could be distilled from the authorities to which His Honour had referred. Guideline 5 relevantly read:-

“... it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion.  I instance the making of allegations of fraud knowing them to be false and the making of a irrelevant allegations of fraud;  ... the evidence of particular misconduct that causes loss of time to the court and to other parties; ... the fact that the proceedings were commenced or continued for some ulterior motive ... or in wilful disregard of known facts or clearly established law ... the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; ... an imprudent refusal of an offer to compromise.”

This decision of Sheppard J. was followed by a Full Court of the Federal Court of Australia in re Wilcox (supra).   The matters in Guideline 5 are all relevant to the four aspects of the plaintiff’s conduct on which aspects the defendants rely in seeking the indemnity costs orders against the plaintiff.  So far I have dealt with two of those aspects and I now come to the third.

1. Claim of misconduct by plaintiff in pursuing the claims against the first and second defendants which must have been, to the plaintiff’s knowledge, hopeless.

Mr O’Donnell’s submission is that when the findings which I made in my reasons are looked at, the true facts and the true state of the plaintiff’s knowledge of the facts can be seen;  that when that has been done I can consider the factual assertions which were made by or on behalf of the plaintiff and the arguments that were advanced by the plaintiff; and that, having done that, it is apparent that the plaintiff ought to have appreciated from the start that its case was hopeless.

Matters on which Mr O’Donnell relies heavily are the issue of the involvement of Edward Morales in the management of the plaintiff, the issue concerning the use of funds from the plaintiff’s bank account to pay financial benefits to and for Edward Morales; the issue of whether the plaintiff’s business was a continuation of the companies known as the Elegant Group and Jela Imports and Marketing  Pty Ltd all of which had been controlled by Edward Morales; and a claim that the plaintiff concealed Edward Morales involvement in it.

In my reasons of 4 April 1997 I resolved these issues against the plaintiff.  I found that the personal and insurance history of Edward Morales was relevant for the plaintiff to disclose to the first defendant and to the second defendant but that history was deliberately concealed by Ann Hunter and Edward Morales.  I found that Shiels especially asked whether Edward was involved in the plaintiff and was told no.  Had his involvement been disclosed his criminal conviction and his past insurance claims had to have been disclosed.  It is my view that Ann Hunter, the managing director of the plaintiff knew, at the time she gave evidence, that once reliable evidence to support Edward’s involvement and the extent of his involvement with the plaintiff including use of plaintiff’s funds before the break in in November 1993 - an involvement which she denied on oath - came before the court, the case was doomed to failure.  I accept Mr O’Donnell’s submission that Ann Hunter and Edward Morales continued the case to the end in the hope of either deceiving this Court or achieving false findings of fact.  A further alternative was that by prolonging the case with false assertions of fact the plaintiff hoped to obtain some sort of offer of settlement from the defendants.  On the aspect of hope of forcing a settlement I note that on Day 91 of the trial Mr di Carlo, counsel for the plaintiff said:-

‘We cannot even have Edward Morales in here they’ve kept him out for 20 days.’

A little later on he said:

‘I want him in court and is Your Honour refusing to allow me to have him in court to hear what Miss Weldon has to say.’

I replied :-

‘You can take up with him what Miss Weldon has to say when you have seen the transcript and go and see him what’s wrong with that?”

Mr di Carlo replied:-

‘Your Honour I want him to give some advice as to what’s being said.’

On 20 June 1996, the 18th day of the trial Mr di Carlo told me that the articled clerk instructing him “has received instructions from one Edward Morales that he doesn’t wish to waive privilege of any document.”

As p.330 of my reasons shows, on the 37th day of the trial Mr di Carlo cross-examined Rachel Weldon concerning a taped recording said to be of a telephone conversation between the witness and Edward Morales the latter having initiated and taped the telephone call and also a transcript of what was said to be the sounds recorded on that tape recording.  I now quote (from p.330).

I gave a certain ruling (see T2923-2925) and at T2930 Mr di Carlo said this:-

“It can be inferred by listening to the tape and what Your Honour has heard or by calling Edward Morales one of the parties to it that can remember the conversation.”

I said “It may be that you have got to do that in rebuttal.”

Mr di Carlo replied “It may well be Your Honour.”

The introduction by Mr di Carlo into the cross-examination of Miss Weldon of what was said by him to be the original tape recording strongly suggests that Mr di Carlo or his instructing solicitor or articled clerk had obtained the tape from Edward Morales and quite possibly the transcript as well.  On day 43 when Rachel Weldon was still being cross-examined by Mr di Carlo, he sought to tender the tape recording ‘for identification just in case my learned friends want to have it examined prior to me calling rebuttal evidence.”  On 21 October 1996 the 94th day of the trial Mr di Carlo in the course of making a submission mentioned the fact that Edward Morales was in the Arthur Gorrie Correctional Centre.  He conceded that did not prevent him giving evidence.  He went on to say:-

‘It is a question of being able to seek information from him in a timely situation and at this late stage.’

He later said:-

‘We do not obtain instructions from Edward Morales.”

The above passages from my reasons relate to Jones v. Dunkel and a dispute raised in addresses as to which party to this case should have been expected to call Edward Morales as a witness.  At p.331 I said:-

“At the end of the day I am very firmly of the view that it would have been natural for the plaintiff to have called Edward Morales.  Further, I regard Edward Morales as in the camp of the plaintiff such that it would be unrealistic for either the first or second defendants to be expected to call him as a witness.    It will be apparent from what I have so far said in these reasons that the evidence touches and concerns Edward Morales involvement in the plaintiff in so many ways.  That fact has reinforced my view that any knowledge Edward Morales has concerning matters in this case which are the subject of evidence and in which he was said to have been involved was available to the plaintiff rather than the first and second defendants.  Further, his relationship with the plaintiff and more particularly Ann Hunter and his mother the registered directors of the plaintiff was such that I would not have expected either defendant to have sought to call him.”

I am well satisfied that Edward Morales was a person who supported the plaintiff’s case  and was actively involved in the running of the plaintiff’s case in court before me although he never actually appeared in court.  I have already found that he was the power behind the plaintiff company.  On any view of his involvement I have no difficulty in being satisfied by the applicant first defendant that its case for an order for costs against Edward Morales is exceptional and indeed so exceptional that not only should he be ordered to pay the first defendants’ costs on a party and party basis but he should be ordered to pay those costs on a solicitor and client basis.  In my view the interests of justice requires the making of such order.

He, as much as Ann Hunter, if not more, was responsible for conceiving the scheme to defraud the first defendant and to base the plaintiff’s claim against the first defendant on false and fraudulent evidence; he it was as much as Ann Hunter, if not more, who caused that scheme to be put into effect and caused the plaintiff to use the proceedings in this court as the instrument of the fraud; he was responsible for the figures used by Hutchins and Murphy in their quotations relied on by the plaintiff to formulate part of its claim (see Exhibits 227 and 252 respectively which I have earlier referred to in these reasons and also pp.346-348 of my reasons of 4 April 1997); by his machinations or instructions given in the background he has attempted to have the plaintiff deceive this Court.  In those circumstances, particularly where the trial was allowed to run on for so long thereby causing the first defendant no doubt great expense in meeting entirely fraudulent and false claims, the situation is such that he must be ordered to indemnify the first defendant for its costs.

Finally.  I stress that these reasons on costs, although rather long, must be read in conjunction with the reasons I handed down on 4th April 1997.

Forms of Orders
I DO ORDER THAT:-

1. The defendants have leave of the Court to proceed against the plaintiff.

2. The plaintiff shall pay all costs of the first defendant of and incidental to the action, including reserved costs, and costs of the motion filed on 3 November 1997 except in so far as the first defendant’s costs are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first defendant will be completely indemnified by the plaintiff for its costs.

3. The plaintiff shall pay all costs of the second defendant of and incidental to the action, including reserved costs, except in so far as the second defendant’s costs are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the second defendant will be completely indemnified by the plaintiff for its costs.

4. Anna Maria Hunter (also known as Ann Hunter, Anne Hunter, Anna Maria Morales and Anna Maria Pitts) of 438 St.Vincents Road, Nudgee shall pay all costs of the first defendant of and incidental to the action, including reserved costs, and costs of the motion filed on 3 November 1997 except in so far as the first defendant’s costs are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first defendant will be completely indemnified by Anna Maria Hunter for its costs.

5. Anna Morales (also known as Ana Morales) of 88 Finnie Road, Deagon shall pay all costs of the first defendant of and incidental to the action, including reserved costs, and costs of the motion filed 3 November 1997 except in so far as the first defendant’s costs are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first defendant will be completely indemnified by Anna Morales for its costs.

6. Edward Pedro Morales of the Arthur Gorrie Correctional Centre, shall pay all costs of the first defendant of and incidental to the action, including reserved costs, and costs of the motion filed on 3 November 1997 except in so far as the first defendant’s costs are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first defendant will be completely indemnified by Edward Pedro Morales for its costs.

7. Kenneth John Pitts of 438 St.Vincents Road, Nudgee shall pay all costs of the first defendant of and incidental to the action, including reserved costs, and costs of the motion filed on 3 November 1997 except in so far as the first defendant’s costs are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first defendant will be completely indemnified by Kenneth John Pitts for its costs.

8. There be liberty to apply.