Ragata Developments Pty Ltd v Westpac Banking Corporation

[1993] FCA 115

Re: RAGATA DEVELOPMENTS PTY LIMITED
And: WESTPAC BANKING CORPORATION AND STANLEY THOMPSON VALUERS PTY LIMITED
Nos. G255 and G654 of 1991
FED No. 115
Number of pages - 9
Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J.(1)

CATCHWORDS

Costs - application for award of costs on an indemnity basis - principles underlying taxation of costs - review of circumstances justifying a special order as to costs - no necessary implication from abandonment of issues that allegations were frivolous or unjustified or that costs incurred were unnecessary.

Federal Court of Australia Act 1976 (Cth) - s.43

Supreme Court Rules (NSW) Pt. 52, r.17(4), r.28A

Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Pty Ltd (1988) 81 ALR 397

Australian Federation of Consumer Organisations Inc v. Tobacco Institute of Aust Ltd (1991) 100 ALR 568

HEARING

SYDNEY, 5 February 1993

#DATE 5:3:1993

Counsel for Applicant: J.F. Warburton

Solicitor for Applicant: Sly and Weigall

Counsel for Respondent: J.W. Stevenson

Solicitor for Respondent: Henry Davis York

Solicitor for Cross-Respondent: Mr A. Leong of

Colin Biggers Paisley

ORDER

The Court orders that:

In Proceedings G255 of 1991:-

1. The Applicant pay the costs of the Respondent of the claim and of the second cross-claim.

2. The Respondent pay the costs of the First Cross-Respondent but that the costs recovered by the Respondent from the Applicant are to include those costs payable to the First Cross-Respondent.

In Proceedings G654 of 1991:-

The Applicant pay the costs of the Respondent of the claim.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DAVIES J. In these motions, Mr J.W. Stevenson, counsel for Westpac Banking Corporation ("Westpac") and Mr A. Leong, solicitor for Stanley Thompson Valuers Pty Limited ("STV") seek a special order for costs pursuant to the leave reserved in the judgment handed down on 14 December 1992, dismissing the claims brought by Ragata Developments Pty Limited ("Ragata") against those companies.

1. Mr Stevenson and Mr Leong seek costs on an indemnity basis, that is on the basis described by Woodward J. in Fountain Selected Meats (Sales) Pty Limited v. International Produce Merchants Pty Limited (1988) 81 ALR 397 at 401, where his Honour ordered that an applicant pay the costs of the second respondent incurred after a certain date:-
   

"to include all costs except insofar as they are of an

unreasonable amount or have been unreasonably incurred,

so that, subject to the above exceptions, the second

respondent be completely indemnified by the applicant for his costs."

1. In Singleton v. Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103 at 108, Rogers C.J. Comm D said that this was the basis of taxation provided by Pt 52, r.28A of the Rules of the Supreme Court of New South Wales. His Honour described the basis in some detail, and discussed the application of the rule to the circumstance where there has been an agreement between the solicitor and the client with respect to the quantum or basis of the solicitor's remuneration. It is not necessary for me to discuss the issues which concerned his Honour.

2. I do not understand Mr Stevenson and Mr Leong to seek costs on a solicitor and client basis which, unlike the indemnity basis, is substantially a party/party taxation on a more generous basis; see Giles v. Randall (1915) 1 KB 295. An order for taxation on a solicitor/client basis will, as between parties to the litigation, add little if anything to party/party taxation; see Legal Costs (NSW) N162.15.

3. Having regard to the decisions of Woodward J. in Fountain Selected Meats (Sales) Pty Limited v. International Produce Merchants Pty Limited and of Morling J. in Australian Federation of Consumer Organisations Inc v. Tobacco Institute of Australia Limited (1991) 100 ALR 568, I am content to accept that s.43 of the Federal Court of Australia Act 1976 confers power upon the Court to award costs on an indemnity basis and that Order 62 Rule 12 of the Federal Court Rules does not provide otherwise.

4. The general principle which forms the basis of taxation of costs is set out in Order 62 Rule 19 of the Federal Court Rules which provides:-
   

"On every taxation the taxing officer shall allow all such costs charges and expenses as appear to him to have been

necessary or proper for the attainment of justice or for

maintaining or defending the rights of a party, but, except as against the party who incurred them, costs shall not be allowed which appear to the taxing officer to have been

incurred or increased -

(a) through over-caution, negligence or misconduct;

(b) by payment of special fees to counsel or special charges or expenses to witnesses or other persons; or

(c) by other unusual expenses."

This principle has, of course, been established for a very long time, see Daniell's Chancery Practice 8th Ed., p 1087. The quantum allowable in respect of solicitors' work is that prescribed by the scale which, in the case of this Court, is set out in the second schedule to the Federal Court Rules.

1. That being a settled practice of the Court and the amounts for specific items being prescribed by the Rules of Court, it is not open to an individual Judge to award costs having regard to his own view as to the adequacy of party/party costs so fixed. An award of costs on an indemnity basis may be made only in a special case, where the circumstances justify departure from the ordinary principle. The circumstances must be such as to justify an award indemnifying the successful party in respect of all of the costs incurred, save only as to those costs which are unreasonable in amount.

2. The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose. See Simpson v. Malherbe (1865) 4 Giff. 707; Packer v. Meagher (1984) 3 NSWLR 486, Daniell's Chancery Practice, 8th Ed. 1086-7; Fountain Selected Meats (Sales) Pty Limited v. International Produce Merchants Pty Limited at 401. In the last mentioned case, Woodward J. at 401 also mentioned the circumstance where an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, as where, for example, there was wilful disregard of the known facts or the clearly established law. See also Australian Guarantee Corporation Limited v. De Jager (1984) 4 VR 483 and Blackburn v. State of New South Wales (Hunt J., 9 August 1991, unreported) which is referred to in Hurstville Municipal Council v. Connor (1991) 24 NSWLR 724 at 733.

3. In Degmam Pty Limited (In Liq.) v. Wright (No. 2) (1983) 2 NSWLR 354, Holland J. awarded costs on an indemnity basis where the unsuccessful defendant had 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 causing the other parties to incur costs far beyond what they could reasonably have expected to incur in litigation of the genuine issues. See also Andrews v. Barnes (1888) 39 ChD 133; Forester v. Read (1870) 6 LR Ch App 40; Christie v. Christie (1873) 8 LR Ch App 499. Costs on an indemnity basis have also been awarded where there has been a breach of an undertaking given to the Court, or some other contempt of court. See Hoffman-LaRoche and Co., AG v. Sieczko (1968) RPC 460; Faith Panton Property Plan Ltd v. Hodgetts (1981) 1 WLR 927; Chanel Ltd v. 3 Pears Wholesale Cash and Carry Co. (1979) FSR 393. In the Supreme Court of New South Wales, orders for costs on an indemnity basis are commonly made following an imprudent refusal of an offer of compromise; see Part 52 r.17(4) of the Rules of the Supreme Court; Messiter v. Hutchinson (1987) 10 NSWLR 525; Hurstville Municipal Council v. Connor at 733-4.

4. The above circumstances all fall within the category of litigation instituted or prolonged to an extent which ought to have been unnecessary. But that is not the only type of case in which indemnity costs may be awarded. In Baltic Shipping Co. v. Dillon; "Mikhail Lermontov" (1991) 22 NSWLR 1 and in Australian Federation of Consumer Organisations v. Tobacco Institute of Australia Ltd, special orders of costs were made where the case was understood to be a test case, or to have a wider effect than merely inter parties, in which circumstance additional and special work and responsibilities would have been undertaken.

5. It is clear that the categories for the award of indemnity costs are not rigid. Each case must be considered on its own particular facts, having regard to the general principle that the usual award of party/party costs to the successful party should be made unless there are special circumstances to justify the making of a different order.

6. The circumstances of the present cases are described in my reasons for judgment of 14 December 1992. Ragata, a building and development company, brought proceedings against Westpac, its financier, and STV, which had provided a valuation of the property to be developed. This valuation included a projected value of land and buildings should Ragata carry out the development which it proposed. After Ragata had completed the proposed development, it found that the development was not worth the value which STV had projected, or indeed the funds which the Westpac had lent.

7. When the matter came on for hearing, senior counsel for Ragata, Mr F.M. Douglas QC, indicated that he did not propose to adduce evidence challenging the valuation which STV had made. Thus, the evidence on this issue which STV and Ragata had obtained became unnecessary. Moreover, counsel for Ragata did not read the whole of the affidavits of Messrs C.R. Bright and M.J. Phillips, the two directors of Ragata who gave evidence on its behalf. Accordingly, the factual issues raised in many paragraphs were not further litigated.

8. Furthermore, after Messrs Bright and Phillips and the witnesses for Westpac and STV had been cross-examined on their affidavits, Mr Douglas, in his final address on the two cases, chose to limit the issues to one which depended for its validity upon a matter raised in the affidavit of the principal witness for STV, a Mr Rainer. Mr Douglas thus impliedly accepted the general version of events given by Mr Burton, the principal witness for Westpac, though the issue finally relied upon did not depend upon differences as between Mr Bright and Mr Phillips on the one hand and Mr Burton on the other. Had it been necessary for me to decide between the evidence of Messrs Bright and Phillips and that of Mr Burton, I would have found in favour of Mr Burton's evidence, for I thought it was reliable whereas significant elements in the evidence of Messrs Bright and Phillips were unreliable.

9. Mr Stevenson and Mr Leong have contended that allegations were made which ought never to have been made and which greatly increased the costs of the litigation. It seems to me, however, that this is not a case where allegations were made frivolously or where costs were incurred unnecessarily. It seems to me that the issues raised in the pleadings and the oral evidence were issues of the type to be expected in proceedings brought by a building developer against its financier and a valuer. All three parties had played a part in what was an unfortunate development project, initiated at a time when real estate values began to fall. In the result, the projected value of the development was not reached. In view of the final value of the development, Westpac's loan appeared overly generous and STV's projection was not reached. Ragata suffered financial loss and Messrs Bright and Phillips, its guarantors, lost a great deal of money.

10. In my opinion, it was not unreasonable or imprudent for the applicants to obtain expert opinion as to the value of the land at the time of its acquisition and initially to rely upon that opinion, insofar as it appeared to support a contention that STV had been negligent. Nor is it surprising that Messrs Bright and Phillips, relying upon their recollections, should give versions of their conversations with Mr Burton which subsequently seemed improbable. That is a day to day occurrence in the courts.

11. I cannot draw from the slimming down of the case as it proceeded, any inference that there were allegations which ought never to have been made, or that the case was unduly prolonged by groundless contentions. It seems to me that the very opposite occurred. It is the task of lawyers to define for their clients the matters which ought to be put to a court and the matters which ought not to be put. It is the duty and function of lawyers to advise their clients on these aspects. Such advice must be given as the case progresses, as more becomes known of the facts and as the lawyers come to understand the ensuing ramifications. It is not a task that can be undertaken once and for all before the proceedings are instituted, before discovery of documents has been had, or before the affidavits of the opposing parties have been received and studied. So, in the present case, the applicants' case, under the guidance of senior and junior counsel and solicitor, was refined.

12. I see no aspect of this process whereby the case was unduly prolonged. Indeed, the hearing was quick, requiring less than the time allocated for it. The case, as put by counsel for Ragata, was put efficiently with a considerable saving of costs for all concerned. It was better that counsel for the applicant should abandon certain issues before the evidence commenced and should limit the final address to the one narrow issue than that all of the myriad differences between the parties and their witnesses should be litigated to the full.

13. I do not take counsel's abandonment of an issue as a concession that that issue was one which, in the first instance, was unreasonably or improperly raised. I cannot infer that Ragata was entirely unjustified in bringing the present case, or that the issues, as originally raised, were issues which Ragata was never justified in litigating.

14. In my opinion, the proper order is an order on the usual basis, namely that the costs be costs on a party/party basis. Accordingly, in Proceeding G 255 of 1991, the order will be that the applicant pay the costs of the respondent of the claim and of the second cross-claim. The respondent, Westpac, should pay STV's costs of the first cross-claim brought against STV, but the costs recoverable by it from the applicant will include those costs of the cross-claim, which was properly brought having regard to the nature of the applicant's claim. In G654 of 1991, the order will be that the applicant pay the costs of the respondent.