Neo Modular Pty Ltd v Enderby Apartments Investment Pty Ltd [No 2]
[2020] WASC 375
•16 OCTOBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NEO MODULAR PTY LTD -v- ENDERBY APARTMENTS INVESTMENT PTY LTD [No 2] [2020] WASC 375
CORAM: REGISTRAR WHITBY
HEARD: ON THE PAPERS
DELIVERED : 16 OCTOBER 2020
PUBLISHED : 16 OCTOBER 2020
FILE NO/S: CIV 1238 of 2020
BETWEEN: NEO MODULAR PTY LTD
Plaintiff
AND
ENDERBY APARTMENTS INVESTMENT PTY LTD
Defendant
Catchwords:
Order 66 r 1(1) Rules of the Supreme Court 1971 (WA) - Indemnity costs application - Whether conduct of defendant unreasonable or improper - Whether defendant's application for security for costs was hopeless - Positive case flow management principles
Legislation:
Rules of the Supreme Court 1971 (WA), O 1 r 4B, O 1 r 4B(1), O 1 r 4B(2), O 25 r 5, O 66 r 1(1)
Result:
Plaintiff's application for indemnity costs dismissed
Defendant pay the plaintiff's costs of the security for costs application to be taxed if not agreed
Category: B
Representation:
Counsel:
| Plaintiff | : | No appearance |
| Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Bennett + Co |
| Defendant | : | Murfett Legal |
Case(s) referred to in decision(s):
Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S)
Neo Modular Pty Ltd v Enderby Apartments Investment Pty Ltd [2020] WASC 304
Oshlack v Richmond River Council (1998) 193 CLR 72
Yara Australia Pty Ltd v Oswal [2012] WASCA 264
REGISTRAR WHITBY:
On 24 August 2020, I published my reasons in Neo Modular Pty Ltd v Enderby Apartments Investment Pty Ltd [2020] WASC 304 (reasons).
In the reasons, I indicated that I would dismiss the defendant's application for security for costs pursuant to O 25 r 5 Rules of the Supreme Court 1971 (WA) (RSC) (security for costs application).
The plaintiff seeks its costs of the security for costs application on an indemnity basis, alternatively to be assessed if not agreed and payable forthwith (indemnity costs application).
The defendant opposes the indemnity costs application.
Plaintiff's submissions
The plaintiff relies upon its outline of submissions dated 21 September 2020 in support of the indemnity costs application.
The plaintiff submits that an order for indemnity costs is appropriate because the defendant's conduct in making the security for costs application was unreasonable.
The plaintiff relies upon the following paragraphs of the reasons in support of its contention that the defendant acted unreasonably:
[25] In my view, the March Security Orders are to be construed in accordance with the position that is proffered by the plaintiff. A reasonable person, in this case a reasonable solicitor, would have understood the terms of the March Security Orders to mean that the defendant would have to apply for security for costs afresh after the determination of the summary judgment application, rather than just make an application as to the amount of a further tranche of security. I accept that a reasonable solicitor would have consented to the March Security Orders in order to prevent an interlocutory argument as to security for costs at that stage of the proceedings. The plaintiff's construction is further supported by the fact that that the terms of consent orders initially proposed by the solicitors for the defendant, which expressly provided for an application for further tranches of security, were not accepted by the solicitors for the plaintiff. The consent orders reflected in the March Security Orders does not refer to further tranches of security.
…
[48] In my view the terms of the deed of settlement, which provide that either the plaintiff or the defendant 'must' commence proceedings in order to determine to whom the receiver is to pay the proceeds of sale of the Property (and in the absence of either party bringing a claim the receiver may commence interpleader proceedings) persuades me that the defendant is in fact equally a plaintiff in these proceedings.
The plaintiff submits that, in circumstances where there was a finding that a reasonable solicitor would have understood the March Security Orders to have the meaning attributed to them in the reasons, the fact that the defendant's solicitors did not interpret the March Security orders in that way means that they acted unreasonably.
Further, given the terms of the deed of the settlement and the involvement of Mr Morgan, as the defendant's solicitor, in the negotiations leading up to the execution of the deed of the settlement,[1] it can be inferred that the defendant made the security for costs application for an ulterior purpose, that being to unnecessarily protract the proceedings.
[1] The conduct of Mr Morgan relied upon by the plaintiff is detailed in pars 9 to 16 of the plaintiff's Outline of Submissions.
Defendant's Submissions
The defendant relies upon its outline of submissions dated 28 September 2020 in opposition to the indemnity costs application.
The defendant submits that an indemnity costs order is inappropriate because:
(a)the finding, at par 25 of the reasons, as to what a reasonable solicitor would have understood the terms of the March Security Orders to mean, does not amount to a finding that the defendant's interpretation of the March Security Orders was unreasonable, or that seeking a further tranche of security for costs was unreasonable; and
(b)the defendant's conduct in pursuing the security for costs application was not for an ulterior purpose, and in any event, there is no evidence to support such a contention.
Usual costs orders
Order 66 r 1(1) RSC provides that the costs of, and incidental to all proceedings shall be in the discretion of the court, but the court will generally order that the successful party to an action or matter recover its costs.
The plaintiff was successful in opposing the security for costs application. There is no dispute between the parties that costs should follow the event and that the defendant should pay the plaintiff's costs of the action.
The issue between the parties is whether those costs should be paid on an indemnity basis.
Indemnity Costs
An indemnity costs order is only made in exceptional circumstances. In Yara Australia Pty Ltd v Oswal [2012] WASCA 264 [33] Murphy JA (McLure P agreeing) said:
There must be some special or unusual feature of the case to warrant an award of indemnity costs: Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225, 233. The categories of cases in which an indemnity costs order may be made are not closed: Colgate-Palmolive Co v Cussons (233). In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397, 401, Woodward J said that indemnity costs were appropriate where the action 'has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success'. As Pullin J observed in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [25], an order for indemnity costs may be seen as a 'mark of disapproval on the part of the court about the improper or unreasonable conduct of litigation'. It is sufficient to enliven the discretion to award indemnity costs that, for whatever reasons, a party persists in what should on a proper consideration seem to be a hopeless case: Quancorp Pty Ltd v MacDonald [1999] WASCA 101 [6].
In Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S), Pullin J stated:
In this case, the plaintiff submits that there was unreasonable conduct in the running of the defendant's case.
Even if there has been such conduct, an indemnity costs order will not be made if the costs would be covered by an order for party and party costs … or by a special costs order.
… however, there is still a place for indemnity costs orders. It will be appropriate in cases where there has been improper or unreasonable conduct on the part of a party or his legal advisors. An order for an indemnity costs order is a mark of disapproval on the part of the court about the improper or unreasonable conduct of litigation, even though there should not be much difference in the costs recovered under such an order compared with recovery under a properly formulated special costs order. If the conditions warrant an indemnity costs order, it is likely that the Judge making the order will be more inclined to allow an increase in the hourly rates or an increase in the limits. An order detailing those increases should, in my opinion, be made even where indemnity costs orders are made.
In Oshlack v Richmond River Council (1998) 193 CLR 72, in finding that 'misconduct' by one party may be sanctioned by an indemnity costs order, McHugh J observed:
'Misconduct' in this context means misconduct relating to the litigation… or the circumstances leading up to the litigation… Thus the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively ignites the litigation…; unnecessarily protracts the proceedings…; succeeds on a point not argued before a lower court…; prosecutes the matter solely for the purpose of increasing the costs recoverable…; or obtains relief which the unsuccessful party had already offered in settlement of the dispute…
Determination
The overarching consideration, in making an order for indemnity costs, is whether there was conduct on the part of the defendant that was unreasonable or improper.
In my view, the defendant's conduct in making the security for costs application falls considerably short of being considered improper or unreasonable. There is no evidence before me to support the contention that the defendant made the security for costs application for an ulterior purpose.
Further, I do not consider that the security for costs application was hopeless. It turned on the application of an exercise of the court's discretion. It does not follow from a finding that a reasonable solicitor would have understood the March Security Orders to have a certain meaning, that an alternate interpretation by the defendant was unreasonable.
These are not circumstances where the court should give a mark of disapproval of the plaintiff's conduct.
The defendant ought pay the plaintiff's costs of the security for costs application on a party party basis, to be taxed if not agreed.
Costs of the Indemnity Costs Application
The defendant seeks its costs of the indemnity costs application on an indemnity basis. The defendant relies upon the following correspondence from the solicitors for the defendant to the solicitors for the plaintiff:
The defendant reiterates its consent to the application for security for costs being dismissed on the basis that the defendant pay the plaintiff's costs in any event, or alternatively (if such costs are now agreed) that the defendant pay forthwith the plaintiff's costs as so agreed and fixed.
Grounds put forward in your abovementioned letter do not warrant an indemnity costs order. There are no matters in the reasons for decision or otherwise that would provide any basis to suggest that the Defendant persisted with an application that was hopeless, particularly as to whether each party should provide security to the other for their own claim/counterclaim.
Accordingly, if the plaintiff makes application for such an indemnity costs order and fails in that application, with the Court instead determining that such costs are payable on a party/party basis, then on any question as to costs of that determination, the defendant reserves the right to use this letter in support of orders being made that the plaintiff pay the defendant's costs of and ancillary to that determination, to be paid on a full indemnity basis.[2]
[2] Letter dated 8 September 2020 referenced in the Defendant's Outline of Submissions dated 28 September 2020.
The principles that apply to the security for costs application also apply to the indemnity costs application. The issue to be determined is whether the plaintiff's conduct in making the indemnity costs application was improper or unreasonable.
I do not consider that the plaintiff's conduct in making the indemnity costs application was improper or unreasonable – the fact that the defendant put the plaintiff on notice that if unsuccessful on the indemnity costs application an indemnity costs order would be sought, does not preclude the plaintiff from making an application which, although it may not be successful, is not considered to be hopeless, improper and/or unreasonable.
The court must facilitate a system of positive case flow management, the objects of which include promoting the just determination of litigation, disposing efficiently of the business of the court, maximising the efficient use of available judicial resources and ensuring the procedures applicable, and the costs of those procedures, are proportionate to the value, importance and complexity of the subject matter in dispute: O 1 r 4B(1) RSC. The RSC are to be applied and the procedures of the Court are to be conducted in a manner that promotes and achieves these objects: O 1 r 4B(2) RSC.
In promoting the objects of O 1 r 4B RSC and in order to avoid potential recurring applications for costs of costs applications, I consider that it is appropriate that each party bear their own costs of the indemnity costs application.
Orders
I make the following order:
1.The defendant pay the plaintiff's costs of the defendant's application for security for costs dated 10 June 2020 to be taxed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TG
Court Officer16 OCTOBER 2020
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