Opie v Collum (No 2) No. Scgrg-99-826 Judgment No. S500

[1999] SASC 500

OPIE V COLLUM (No. 2)
[1999] SASC 500

1 MARTIN J.  This is an application for costs on a solicitor and client basis ("indemnity costs") and for an order against a non-party.
2 The defendant and her husband Mr David Cheney, are constructing a residence on land immediately adjoining the plaintiffs' residence.  A dispute arose concerning aspects of that construction, including a wall built along the common boundary between the properties of the parties.  The plaintiffs issued proceedings based in contract seeking certain injunctions.  On 13 September 1999 I delivered judgment in favour of the plaintiffs in respect of some of their claims.  The plaintiffs now seek an order that the defendant pay their costs of the action on an indemnity basis.  They also seek the same order against the defendant's husband.
3 At the centre of the dispute were the terms of a contract between the parties and, in particular, the identity of the plans referred to in special conditions of the contract.  I found in favour of the plaintiffs.  That finding involved preferring the evidence of the plaintiffs to that of Mr Cheney concerning events and discussions prior to the formation of the contract.  I found that Mr Cheney engaged in misleading conduct and that he well knew that the plans identified by the plaintiffs as the "coloured plans" were the subject of the contract rather than the "development plans" which Mr Cheney maintained in evidence were the subject of the contract.
4 I found that the defendant authorised Mr Cheney to act on her behalf in all the dealings and negotiations with the plaintiffs leading to the formation of the contract and that she was bound by his conduct in that regard.  However, I also found that the defendant was a witness of truth.  I was satisfied that she was not aware that Mr Cheney had engaged in misleading conduct and that she was under a misapprehension as to which plans were the subject of the contract.  Ms Collum believed the development plans were the subject of the contract.
5 It is beyond dispute that some special or unusual feature must exist before an order for indemnity costs is justified. It is unnecessary for me to examine all of the circumstances in which it has been held that such orders are appropriate. One of the examples was identified by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Ors (1988) 81 ALR 397 at 401:
"I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success.  In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.  Such cases are, fortunately, rare.  But when they occur, the court will need to consider how it should exercise its unfettered discretion."
6 In Colgate-Palmolive Company and Anor v Cussons Pty Ltd (1993) 46 FCR 225, Sheppard J discussed the relevant principles and the examples of circumstances in which the discretion to award indemnity costs has been exercised. His Honour said (p 233):
"4.  In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis.  The circumstances of the case must be such as to warrant the Court in departing from the usual course.  That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England.  The tests have been variously put.  The Court of Appeal in Andrew v Barnes (supra) at 141 said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require".  Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston (supra) at 637;  namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice.  Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule.  But as French J said (at p 8) in Tetijo, "The categories in which the discretion may be exercised are not closed".  Davies J expressed (at p 6) similar views in Ragata (supra).

1. Notwithstanding the fact that that is so, 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 irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

2. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order.  The costs are always in the discretion of the trial judge.  Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice."
   7 If Mr Cheney had been the defendant, I would have acceded to an application for indemnity costs against him.  He was well aware that the special conditions of the contract referred to the coloured plans and not to the development plans, but he gave evidence to the contrary.  Properly advised, Mr Cheney would have known that he had no chance of success on that critical issue.  I acknowledge that even if the plaintiffs made out their case concerning the identity of the plans that were the subject of the special conditions of the contract, genuine issues remained to be tried as to whether there was a breach of the contract and, if so, whether the discretionary equitable remedies sought should be granted.  In my opinion, however, the entire trial was affected by the dispute as to the terms of the contract, which dispute could have been avoided if Mr Cheney had acknowledged the accuracy of the plaintiffs' case on that issue.  If the terms of the contract had been acknowledged, a vastly different trial would have ensued.  The question remains, however, whether the defendant should be required to pay indemnity costs when, ignoring the knowledge possessed by Mr Cheney, the defendant's conduct in respect of the trial would not justify an award of indemnity costs. 
   8 In essence, counsel for the plaintiffs argued that notwithstanding the defendant's lack of knowledge of the conduct of Mr Cheney, concepts of fairness dictated that she should be held liable for indemnity costs by virtue of the conduct of her husband who was also her joint venturer.  He submitted it did not matter that the plaintiffs were unable to prove that Mr Cheney actually controlled the trial or gave instructions for the conduct of the defence.  He said joint venturers should not be able to insulate and isolate themselves from the full consequences of their joint endeavour.  It would be unfair for the plaintiffs to be required to bear the costs because of the way the defendant and Mr Cheney had structured their affairs and ownership of the property.
   9 The defendant had a real interest in the construction and the court proceedings independently of the interest possessed by her husband.  On the facts as the defendant understood them to be, she had a defence to the major aspects of the plaintiffs' claims.  The defendant took responsibility for the conduct of the proceedings and the risks associated with those proceedings.  She was present throughout the trial and there is no evidence to suggest that she was not in control of the conduct of the defence.  There is no evidence to suggest that Mr Cheney was "the real party" or that he had any form of control or influence over the conduct of the defence.  Although it is apparent that the building contract between the defendant and Mr Cheney's company is not truly at arms' length, nothing is known of the financial arrangements between the defendant and Mr Cheney.
   10 The remedy is discretionary and the burden falls upon the plaintiffs to make out a compelling case for an indemnity order against the defendant.  In all the circumstances I am not satisfied that the plaintiffs have made out that case.  The application for indemnity costs against the defendant is refused.
   11 As to the application for an order for costs against Mr Cheney, the plaintiff submitted that he was "an effective litigant in the action standing behind the defendant".  The plaintiffs pointed to the following factors:
   (i)  Mr Cheney and the defendant are husband and wife.
   (ii) Although the original property comprised of the house property now owned by the plaintiffs and the adjoining tennis court on which the construction is occurring were purchased and held in the name of the defendant, the purchase of the property and the subsequent project involving the sale to the plaintiffs and the construction of the dwelling on the tennis court represent "the realisation of Mr Cheney's ambition and vision and he is the driving force behind it".
   (iii) Mr Cheney conducted the negotiations for the sale of the property to the plaintiffs.
   (iv) Mr Cheney is in control of the building works.
   (v)  At the outset of the trial, in the context of the usual order for witnesses, counsel for the defendant requested that the court treat Mr Cheney "as, effectively, a de facto defendant" in the action.  Counsel pointed out that all of the matters in issue involved Mr Cheney.
   (vi) In evidence Mr Cheney acknowledged that he was building his dream home which he also intended to use for demonstration purposes in connection with his business of building genuine reproduction homes.
   12 Although the written submissions of the defendant concerning costs included nine paragraphs opposing the application for an order against Mr Cheney, counsel for the defendant said he was not representing Mr Cheney on the application. However, relying upon the decision of the High Court in Knight and Anor v FP Special Assets Ltd and Ors (1992) 174 CLR 178, counsel submitted that the application must fail because costs could only be awarded against a non-party when it was established that the party to the litigation was a nominal party and an insolvent person or a person of straw. In my opinion, Knight's case does not stand for that proposition. The passage in the judgment of Mason CJ and Deane CJ at p 193 upon which counsel relied merely provides an example of the category of case in which an order for costs should be made against a non-party. Their Honours were not endeavouring to formulate a principle applicable to all circumstances or to pose a threshold test in the manner suggested by counsel.
   13 The application was adjourned to enable counsel to appear for Mr Cheney.  Senior counsel appeared and submitted that the plaintiff had failed to establish that Mr Cheney had a sufficiently close connection with the proceedings to justify the exercise of the discretionary power to award costs against him.  Counsel emphasised the absence of any evidence to establish that Mr Cheney was "the real party" or "the effective litigant" or that the defendant was unable to pay the costs of the proceedings.  It was submitted that when the numerous authorities are examined, almost inevitably the non-parties against whom orders have been made were persons in control of the conduct of the action. 
   14 As mentioned, the evidence does not suggest that the defendant was a nominal party or that Mr Cheney was the real party.  Although he had a vital interest in the results, I am unable to find that he was "an effective litigant in the action".  The mere fact that he is the husband of the defendant and had control of the dealings with the plaintiff and the building works does not establish that he exercised any control or influence over the conduct of the defence approach to the proceedings in this Court.  He was a central witness, but that fact does not establish that he was "an effective litigant".
   15 Although many of the authorities in which orders have been made against non-parties were concerned with situations where the non-party was in control of the proceedings, the authorities do not suggest that it is a condition precedent to the ordering of costs against a non-party that such a person be "the real party" or have control over the conduct of the proceedings.  It is clearly an important factor supporting the case for an order if it is found to exist, but in my opinion the failure to establish that type of connection does not necessarily mean that the plaintiffs' application must fail. 
   16 Consideration was given to the circumstances in which an order against a non-party is appropriate in Vestris and Anor v Cashman and Anor (1998) 72 SASR 449. The following passage from the judgment of Justice Lander, with whom Doyle CJ agreed, is of particular assistance in the circumstances of the current application (pp 467 and 468):
   "The circumstances in which it is just to order costs against a person who was not a party to the litigation will be both rare and exceptional: see Aiden Shipping Ltd v Interbulk Ltd (at 980) per Lord Goff of Chieveley. If the order for costs which is sought against a non-party is in lieu of, in substitution for or complementary to an order for costs against a party, the circumstances for making such an order will not arise unless there is some connection or association between the party to the litigation and the non-party against whom the order for costs is sought. The connection must be of a kind that makes it just to make an order for costs in that the connection must be material to the question of costs: see Bischof v Adams [1992] 2 VR 198 at 205.
   Whilst the circumstances to make an order for costs against a non-party will be both rare and exceptional such an order can be made without the moving party having to demonstrate any improper conduct of any kind on the part of the non-party.  An order for costs against a non-party is not dependant upon any improper conduct on the part of any party.  Of course in some cases improper conduct on the part of the non-party will be a relevant factor in the exercise of the discretion.
   Whether it is just to make such an order involves the exercise of a discretion on the part of the trial judge: see Symphony Group plc v Hodgson [1994] QB 179 at 193. The discretion to make an order for costs against non-parties "must be exercised judicially and in accordance with general legal principles pertaining to the law of costs": see Knight v FP Special Assets Ltd (at 192) per Mason CJ and Deane J.
   It is not desirable to lay down any rules which would fetter the exercise of a trial judge to make such an order but some guidance as to the exercise of the discretion can be obtained from the decided cases.
   In exercising the discretion regard would be had to whether the non-party could have been joined as a party earlier in the proceedings and thereby obtained the protection of the rules of court;  whether the non-party has had any warning that an application for costs against that party would be made;  whether, in those circumstances, the non-party could have applied to be joined in the proceedings and thereby had the capacity to influence the proceedings or the non-party could have protected itself by making an offer in accordance with the rules;  whether if a warning had been given the non-party could have terminated the proceedings by discontinuance, negotiation, payment or otherwise;  whether the party who would otherwise be usually liable for costs can meet an order for costs and if relevant the reason why that party cannot meet an order for costs;  whether it was apparent at any earlier stage in the proceedings, and if so when, that the party could not meet costs;  whether the moving party should have sought an order for security for costs;  the relationship, if any, between the non-party and the party who would usually be liable for costs;  whether the non-party has caused the proceedings;  whether the non-party has funded the proceedings;  whether the non-party stood to benefit by the litigation and if so how;  whether the non-party had a direct or indirect financial interest in the litigation;  and whether there has been any improper conduct on the part of the non-party.
   None of the matters will necessarily be decisive.  Indeed the presence of one or more of those matters does not inexorably lead to the conclusion that an order for costs should be made against a non-party.  In Bischof v Adams the mere fact that a person may benefit from the litigation was not enough.
   An order will be made against a non-party only if the justice of the case requires that an order be made."
   17 In Symphony Group PLC v Hodgson [1994] QB 179, the Court of Appeal set out various considerations for the guidance of judges at first instance upon applications seeking orders for costs against non-parties. In the leading judgment, Balcombe LJ said (pp 192-194):
   "In my judgment the following are material considerations to be taken into account, although I do not suggest that there may not be others which are relevant. 
   (1) An order for the payment of costs by a non-party will always be exceptional: see per Lord Goff in Aiden Shipping Co. Ltd. V. Interbulk Ltd. [1986] A.C. 965, 980F. The judge should treat any application for such an order with considerable caution.
   (2) It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer (Calderbank v. Calderbank [1976] Fam. 93); and the knowledge of what the issues are before giving evidence.
   (3)  Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him.  At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord. 15, r. 6(2)(b)(i) or (ii).
        Principles (2) and (3) require no further justification on my part;  they are an obvious application of the basic principles of natural justice.
   (4) An application for payment of costs by a non-party should normally be determined by the trial judge: see Bahai v. Rashidian [1985] 1 W.L.R. 1337.
   (5) The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party constitutes neither bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v. Rashidian [1985] 1 W.L.R. 1337, 1342H, 1346F.
   (6) The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v. F. Hewthorn & Co Ltd. [1943] K.B. 587; Cross on Evidence, 7th ed. (1990) pp. 100-101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v. Spiro [1938] 1 K.B, 176, 192, cited with approval by this court in Bahai v Rashidian [1985] 1 W.L.R. 1337 1343D, 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule.
   (7) Again, the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v. Durnford Ford [1992] Q.B. 483, 487. In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle.
   (8) The fact that an employee, or even a director or the managing director, of a company gives evidence in an action does not normally mean that the company is taking part in that action, in so far as that is an allegation relied upon by the party who applies for an order for costs against a non-party company: see Gleeson v J. Wippell & Co. Ltd. [1977] 1 W.L.R. 510, 513.
   (9) The judge should be alert to the possibility that an application against a non-party is motivated by resentment of an inability to obtain an effective order for costs against a legally aided litigant. The courts are well aware of the financial difficulties faced by parties who are facing legally aided litigants at first instance, where the opportunity of a claim against the Legal Aid Board under section 18 of the Legal Aid Act 1988 is very limited. Nevertheless the Civil Legal Aid (General) Regulations 1989 (S.I. 1989 No. 339/89), and in particular regulations 67, 69 and 70, lay down conditions designed to ensure that there is no abuse of legal aid by a legally assisted person and these are designed to protect the other party to the litigation as well as the Legal Aid Fund. The court will be very reluctant to infer that solicitors to a legally aided party have failed to discharge their duties under the regulations - see Orchard v. South Eastern Electricity Board [1987] Q.B. 565 - and in my judgment this principle extends to a reluctance to infer that any maintenance by a non-party has occurred."
   18 Balcombe LJ observed that an order for payment of costs by a non-party is always exceptional, but is "even more exceptional" where the applicant had a cause of action against the non-party and could have joined that person as a party in the original proceedings. Pursuant to the provisions of the Misrepresentation Act, 1972 the plaintiffs had a cause of action against Mr Cheney based on the misrepresentations. His Lordship also referred to whether the applicant warned the non-party at the earliest opportunity of the possibility that the applicant might seek to apply for costs against the non-party. The issue of a warning was also mentioned by Lander J in Vestris v Cashman. At the outset of the proceedings when counsel for the defendant sought an order exempting Mr Cheney from the order for witnesses, counsel referred to Mr Cheney as a "de facto defendant". Counsel for the plaintiffs opposed that course. He pointed out that Mr Cheney was not a party and that if he wanted the benefits of being a party there were "certain consequences which follow". He added:
   "As things stand on the pleadings, he's no more than, if you like, the emissary of Ms Collum, her appointed agent to negotiate a sale, and we see no good reason why he should be present, but if my learned friend puts it on the basis that he's a de facto party, there will be certain implications for that, including as to cost orders."
   19 In response, counsel for the defendant said:
   "A de facto party is not liable for costs, but if there is an order to be made, so be it, at the end of the day, that matter will be argued.  The basis upon which I am putting it now is simply that all your Honour has seen from the pleadings, all of the evidence and all of the matters alleged, involve him."
   20 The exchange occurred at the outset of the trial and in the context of counsel for the defendant seeking not only that Mr Cheney be exempted from the order, but also an indication from the Court that it would not entertain an adverse comment from counsel for the plaintiffs based on Mr Cheney's presence during the course of the evidence.  In those circumstances, in my opinion the remarks of counsel for the plaintiffs in response could not be properly construed as a general warning to Mr Cheney that if the plaintiffs succeeded in their action they would or might seek an order for costs against him. 
   21 Another factor which counts against the making of an order is the absence of any evidence or suggestion that the defendant will be unable to meet an order for costs.
   22 To be weighed against those matters is the obvious connection between the defendant and Mr Cheney as joint venturers in the construction of the residence and the benefit that Mr Cheney stood to gain from the litigation.  In addition, the inappropriate conduct of Mr Cheney was the primary factor that brought about the circumstances in which the plaintiffs were required to resort to proceedings in order to protect their rights. 
   23 The order is only to be made if the justice of the case requires that it be made.  The issue is finely balanced.  Bearing in mind the burden resting upon the plaintiff to make out a case for this exceptional order, and after careful consideration of all the competing factors, in my opinion the plaintiff has failed to make out the case for an order against Mr Cheney.
   24 The defendant made a cross application for costs and suggested that the plaintiffs' costs should be reduced because the plaintiffs did not succeed with respect to all of their claims.  The cross application for costs on the counterclaim cannot succeed.  The counterclaim alleged that the defendants were entitled to damages because the plaintiffs, by instituting the proceedings, were in breach of clause 5 of the special conditions of the contract.  The defendant maintains that, to the extent that the plaintiffs sought a number of remedies which were not granted, the counterclaim is made out.  That issue has not been litigated and the defendant's action pursuant to the counterclaim has been adjourned for further consideration together with the issue of damages to which the plaintiffs are entitled.   In those circumstances the question of costs on the counterclaim must await the result of that further consideration.
   25 As to the claim for abatement of costs, the defendant submitted that the trial was lengthened because of amendments to the statement of claim during the trial to seek remedies in respect of a number of aspects of the construction which were not granted.  I acceded to an application by the plaintiffs to amend the statement of claim to seek the additional remedies, but ordered that the plaintiffs bear any costs thrown away by reason of their failure to plead those matters at the outset.
   26 To the extent that costs were incurred with respect to particulars of claim upon which the plaintiffs did not succeed, the defendant is entitled to an award of costs in her favour.  The plaintiffs failed with respect to the following:
   (i)  the claim for an order that the defendant specifically perform her obligations under the contract and construct the proposed development in accordance with the coloured plans.
   (ii) the claim for an order that after certain amendments to the work already carried out, the plaintiff thereafter construct the proposed development in accordance with the coloured plans.
   (iii) the claim for an injunction restraining the defendant from building the proposed development other than in conformity with the coloured plans.
   (iv) the claim to restrict the height of the western section of the development to 7.3 metres.
   (v)  claims in respect of the following:
   ò    windows in the southern wall of the western upper floor.
   ò    south-eastern corner.
   ò    box windows
   ò    balcony
   ò    electrical meter box
   ò    windows in the southern wall of eastern upper storey.
   27 In addition to those matters, the plaintiffs sought to restrict the overall height of the eastern two-storey section of the development to 9.6 metres.  They did not succeed in obtaining such a restriction, but they did succeed in restricting the height to 11.75 metres.  I accepted the evidence of Mr Hillan that the defendant had intended to construct that portion of the premises to a height exceeding 11.75 metres.  In those circumstances, for the purposes of costs the plaintiffs succeeded on that issue.
   28 The evidence relating to those issues upon which the plaintiffs did not succeed accounted for only a small percentage of the time occupied by the trial.  One course is to leave determination of the abatement of costs by reason of the plaintiffs' failure to succeed on those issues to a taxing Master.  It was suggested by the defendant, however, that I should take a broad axe approach to the issue and assess the appropriate deduction of the award of costs in favour of the plaintiffs.  In this way costs of taxation and possible antagonism associated with taxation would be avoided.  Counsel for the defendant suggested a reduction of one third.  The plaintiffs suggested that any reduction should be minimal, but did not oppose in principle an assessment by me of an appropriate reduction.
   29 In the particular circumstances of this matter, I am of the view that there are considerable advantages to my acceding to the submission that I should assess the reduction as a percentage of the plaintiffs' costs.  I do not agree with the contention by the plaintiffs that the time involved on unsuccessful matters was so minimal that no allowance should be made.  However, I do not agree that the reduction of one third is appropriate.  I bear in mind that this order will subsume the order in favour of the defendant to which I have referred.  In all the circumstances I have determined that a reduction of five per cent is appropriate.
   30 I order that the defendant pay to the plaintiffs 95 per cent of the plaintiffs' costs of the action assessed on a party and party basis.

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