Rice v National Australia Bank Ltd
[2006] VSC 466
•4 December 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6013 of 2001
| DAVID WILLIAM FREDERICK RICE | Plaintiff |
| v | |
| NATIONAL AUSTRALIA BANK LIMITED | Defendant |
| and | |
| CHRISTOPHER JOHN MOONEY | Third Party |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 13-16, 20 & 21 NOVEMBER 2006 | |
DATE OF JUDGMENT: | 4 DECEMBER 2006 | |
CASE MAY BE CITED AS: | RICE v NATIONAL AUSTRALIA BANK LTD | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 466 | |
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COSTS – Claim for conversion by plaintiff against defendant – Plaintiff and third party former business partners – Allegation that partnership cheques were paid into an account in the name of the third party only - Discontinuance by the plaintiff on fifth day of trial – Limited evidence before the Court – No adjudication on the merits – Whether plaintiff should pay the costs of the defendant and indemnify the defendant for the costs of the third party proceeding – Whether defendant should pay the costs of the third party – Whether third party should pay the costs of the proceeding - Effect of production of undiscovered documents by the third party during trial.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Wilson | Harry Singer & Associates |
| For the Defendant | Ms K. Knights | Dibbs Abbott Stillman |
| For the Third Party | Mr D. Klempfner | Monahan + Rowell |
HIS HONOUR:
On 20 November 2006, the fifth day of a trial that was set down on an estimate of 3 to 4 days, the plaintiff (Mr David Rice) announced that he wished to discontinue his claim against the defendant (the National Australia Bank). He had previously made an open offer to withdraw on the basis that neither he nor the defendant would seek an order for costs.
The plaintiff's offer was accepted by the defendant; but only on condition that the third party (Mr Christopher Mooney, with whom Mr Rice was once in partnership) release the Bank from the third party proceedings without any order for costs. This, too, was an open offer. The third party declined to accept. The plaintiff nevertheless persisted with his application to discontinue; an application which I granted.
The plaintiff's discontinuance meant of course that the substantive claim fell away. And, once it had gone, the defendant had no choice but to seek leave to discontinue the third party proceedings. The Bank made application accordingly. That application, too, was granted. But because the several offers failed to result in a final agreement, the question of costs remains in dispute. It is that question which is now before me.
The argument about costs occupied rather more than a day. Despite the able submissions put by each counsel, the outcome was less than wholly satisfactory. This was necessarily so. A fully considered decision about the disposition of costs cannot be reached in the absence of a fully considered evaluation of the merits of the cases for the several parties. But here this was not possible, because only a fraction of the evidence had been called before the plaintiff discontinued. And there had been no cross-examination of anyone.
Given that a fully considered evaluation of the merits is not possible, one approach might be simply to decide that there should be no orders as to costs. Such an approach has the attraction that it has a superficial patina of fairness: each of the parties to this litigation has managed its relations with one or both of the other parties in a way that is open to criticism; and in those circumstances justice of some kind might be said to be served if each party were required to bear its own costs. Another attraction is that it is a solution, albeit not the most favoured solution, which both Mr Rice and the Bank are prepared to support. And, as Hill J put it in Australian Securities Commission v Aust-Home Investments Ltd,[1] it will rarely be appropriate where there has been no trial on the merits for a court to endeavour to allocate the burden of costs according to those merits.
[1](1993) 44 FCR 194 at 201.
That burden must nevertheless be allocated somehow; and that somehow will not be on a whim, or on mere guesswork. While a discretion exists, it must be exercised judicially. I must therefore decide the present applications by reference only to relevant considerations. One of these is that I must do the best I can with whatever evidence is properly available. If, on the balance of probabilities, that evidence - when properly viewed against the applicable law - points to one conclusion rather than another, then it is that conclusion to which I must come.
The applicable law begins with s.24 of the Supreme Court Act 1986. It is there that the general rule is to be found: namely, that the costs of and incidental to all matters in the Court are, unless otherwise expressly provided in legislation or in the Rules of the Supreme Court, in the discretion of the Court.
The Rules do in fact make express provision for the disposition of costs on discontinuance. Rule 63.15 provides, in effect, that - unless the Court otherwise orders -a party who discontinues shall pay the costs of the party to whom the discontinuance relates; and those costs are (subject, again, to an order to the contrary) to cover the course of the proceeding up to the time of discontinuance. Thus the general rule as stated in s.24 gives way to that expressed in r.63.15. The discontinuing party will, in all cases except those in which the discretion of the Court is exercised otherwise, pay the costs of those to whom the discontinuance relates.
The plaintiff submits that, in the particular circumstances of this case, he should not pay those costs. More specifically, the plaintiff’s application is that the costs of the proceeding be borne by the third party, Mr Christopher Mooney. If that application does not find favour, the plaintiff seeks, in the alternative, orders the effect of which is that each party bear its own costs.
The foundation for the plaintiff’s submissions on costs is that the trial reached the point it did, and then came to a halt, because the third party failed in its obligation to discover relevant documents. This is an argument that can only hold good if the documents, when discovered, were seen to contain admissible evidence of which the plaintiff - through no failure of his own - was unaware and which, if admitted, would put him in a position of such vulnerability that discontinuance was the appropriate option.
Mr Mooney was, as he himself accepts, the plaintiff’s partner in a thermographic imaging business known as “Thermographic Imaging Services”. It was his job to keep the accounting records. As a partner, his relationship with Mr Rice was that of a fiduciary. As the partner in charge of the accounts, it was his duty not only to maintain the accounts in accordance with good accounting practice, but also to administer the financial affairs of the partnership consistently with the respective financial interests of the partners, and (in the absence of any agreement as between the partners to the contrary) to provide his partner with the information necessary to keep Mr Rice fully informed about the financial position of the business, including the position as between the business and each partner.
So far as the evidence before me goes (and, as I have said, it is incomplete) there was nothing in the partnership agreement which excluded the duties referred to above; the last of which, on the evidence available to me, Mr Mooney failed adequately to discharge. Not only that but, following his joinder as a third party, he failed in the third party proceedings to comply with his obligations to discover relevant documents.
After the trial began, and after three affidavits of discovery - none of which complied fully with the rules - had been filed by him, Mr Mooney produced the (previously undiscovered) partnership cash book, and a bundle of primary accounting documents. All of them were relevant. They came into existence at a time when Mr Mooney had a fiduciary duty to Mr Rice, his then partner. They contained information that Mr Mooney was, as his partner, required to make available to Mr Rice. It was information in the absence of which Mr Rice could not make an informed decision about such important matters as the quantum of damages to which, should he succeed on liability, he would be entitled.
On the other hand, Mr Rice always bore the onus of making good his allegation that the Bank converted his property, and that he suffered consequential loss. That property was in the form of cheques drawn in favour of the partnership. Mr Rice contends that the Bank converted the cheques in question by paying them into an account in Mr Mooney’s own name. The proof of conversion, followed by the quantification of any resultant loss, were essential elements in Mr Rice’s claim. Insufficient attention was paid to them in the preparation of the case for trial. I mention particularly in this context a failure to appreciate the importance of, first, proving (in a case alleging the conversion of cheques) that the cheques in question were not negotiable; and, secondly, countering any credible evidence that Mr Rice approved the practice of paying the cheques into an account in the name of Mr Mooney.
It may be that Mr Rice and his advisers placed undue confidence in the strength of his case against the Bank. That case was that, in the knowledge that Mr Mooney was involved as a partner in the business of Thermographic Imaging Services, the Bank allowed him to pay into an account in his own name cheques made payable to the firm. Banks should be very careful before they participate in conduct of this kind. The evidence before me pointed to the conclusion that the Bank failed to be as careful as it should have been. The seeds of an action in conversion were therefore sown.
It is at this point that Mr Rice appears, in his attitude to his likely success in this litigation, to have rested upon his laurels. He claimed the full amount of each cheque. Yet it seems that he cannot prove that each cheque was crossed. Not only that, but he was only one of two partners. At best, he was entitled as between himself and Mr Mooney to one half of the net proceeds of each cheque, after payment of partnership expenses. More particularly, there is very powerful evidence already before me that, in the earlier conduct of his relations with the Bank and with Mr Mooney, he either acquiesced in the conduct of both the Bank and his partner, or at the least failed adequately to have regard to his own interests. Here is a very significant weakness in his case.
Take, by way of illustration, one aspect of the history of National Australia Bank account No. 66 065 6734. That account was, according to Mr Rice, to be the partnership account. It was opened by Mr Mooney, on 6 February 1996. This was a week before the registration on 13 February of the business name “Thermographic Imaging Services”. It is Mr Rice’s case that, as the partnership account, it ought to have been given the latter name. But it was instead designated by the Bank as the “Christopher John Mooney business cheque account”. A book of cheque forms was issued to Mr Mooney by the Bank. His name was printed on each form as “Chris Mooney” (and for this reason I shall refer to the account by that name). For the following two years and more, all cheques drawn on the account were drawn on these forms. Mr Rice knew that that was so.
He maintains that Mr Mooney originally told him that the account name as shown on the cheques was printed on them by mistake. But time passed, and the name on the cheques remained the same. It must have become obvious to Mr Rice that, if the claim of a “mistake” was made, it was false. It must have become equally obvious that partnership monies were passing through the “Chris Mooney” account. Yet Mr Rice himself made ineffectual, if any, steps to bring to the notice of the Bank what he claims to be a fundamental wrong.
Indeed, on the evidence available to me, his behaviour points to the inference that he did not care – and certainly that he did not regard any “wrong” as fundamental. He accepted for himself the personal benefit of cheques drawn and signed by Mr Mooney on the “Chris Mooney” account. He even drew some himself, to his own (personal) benefit, and then had Mr Mooney sign them. Such behaviour is inconsistent with the proposition that, unknown to Mr Rice, Mr Mooney was - to the exclusion of Mr Rice - operating a personal account using partnership monies. It is, however, consistent with the conclusion that, however the account was named, it was – and Mr Rice knew it was – being operated as the partnership account in at least general accordance with the partnership arrangements.
Thus Mr Rice allowed Mr Mooney to bank partnership cheques into the “Chris Mooney” account. These were all those cheques (which, unsurprisingly, were made payable to “Thermographic Imaging Services”) that were drawn to discharge the debts owed to the partnership by those for whom Mr Rice, on behalf of the partnership, performed work in the field. Because they were generated in payment for his work, Mr Rice must have been involved with the raising of the relevant invoices. He must therefore have known at least roughly how much money he was generating for the partnership, what was the value of the invoices raised by Mr Mooney, and how much money Mr Mooney was receiving into the “Chris Mooney” account on the partnership’s behalf. He must have known that Mr Mooney was paying partnership debts from the proceeds, and was using the same “Chris Mooney” account for that purpose. Yet he stood by and allowed this to happen. By his own inaction (or, at best, ineffectual and unsustained action) he thereby demonstrated that this situation did not bother him; or, if he was bothered, that he was not at this time bothered enough to do anything effective about it.
One reason why the circumstances might not have caused Mr Rice alarm is the very fact that Mr Mooney was meeting, from the funds in the “Chris Mooney” account, at least some partnership expenses. Indeed, there has been no suggestion, either in the evidence or by way of submission, that Mr Mooney failed to ensure that all partnership debts were paid as they fell due. And they were paid, as Mr Rice must have known, from the “Chris Mooney” account. He also paid from that account at least some individual, personal expenses of each of the two partners. This being so, it should have been clear to Mr Rice and his legal advisers that in some, perhaps all, respects the “Chris Mooney” account, even if incorrectly and inappropriately named, was being administered not only as the partnership account, but also in accordance with the partnership arrangements. And to the extent, if any, that (putting aside its inappropriate name) the account was not being administered in accordance with the partnership arrangements, the burden was squarely on Mr Rice to prove such non-compliance.
In the end, Mr Rice could recover no more than his proportion of so much of the monies paid out of the account as had been wrongly expended by Mr Mooney for the latter’s personal benefit. No matter how clear the case against the Bank in conversion, any damages that could be awarded to Mr Rice would necessarily have excluded sums paid on behalf of the partnership and sums paid on behalf of Mr Rice.[2] The pursuit of the unquantified balance (if any) wrongly paid to Mr Mooney may well have lacked commercial viability, because it may well have cost more in legal fees and expenses than would be recovered on judgment - even allowing that costs might have been awarded (on a party/party basis only) to the successful plaintiff. It is to be remembered in this context that this litigation was primarily based upon a claim in conversion, not upon the breach of a partnership agreement.
[2]Indeed, every piece of credible evidence that the account was operated as intended not only reduced the quantum of Mr Rice’s claim, but also weakened the cause of action itself.
The proof of unwarranted expenditure by Mr Mooney on himself would necessarily be assisted by the production of primary accounting documents such as receipts and invoices that demonstrated inappropriate management by Mr Mooney of the “Chris Mooney” account. As I noted above, this evidence may go to liability. But of course those primary documents would principally be relevant on the question of the quantum of Mr Rice’s claim, should he succeed on liability.
The plaintiff nevertheless decided to proceed to trial without those primary documents, although he must have known that they were once in Mr Mooney’s possession, even if they were no longer. He blames Mr Mooney for not producing them until after the trial began. And it is true that, had proper discovery been made in the third party proceedings – there is of course no right in a plaintiff simply by reason of his status as such to obtain discovery from a third party - Mr Rice could doubtless have obtained inspection of these documents (or so many as had been discovered and were available) and thereafter made appropriate forensic decisions. On the other hand, it was his decision to proceed without first taking such steps as would ensure that all available and relevant documentation had been considered. It is in this context pertinent to note that, on 4 April this year, Master Kings ordered (among other things) that a court book be prepared on or before 30 October. It was to contain a copy of each proposed exhibit. The Master also ordered that, on or before 6 November, the parties exchange a statement of the evidence to be given in chief by each witness to be called by that party. These orders ought to have caused each party to consider carefully the evidence that that party would require if its case were to succeed. And, to the extent that gaps in the plaintiff’s evidence were to be filled (as Mr Rice and his advisers anticipated) by evidence from the third party, insisting upon obedience to the order for witness statements was the obvious means to ensure that end. Yet the orders of 4 April appear to have been ignored by all. Had the plaintiff obeyed them, and had he insisted on their being obeyed by the Bank and Mr Mooney, his present predicament would probably have been avoided.
In short, the late production of documents was not the reason why Mr Rice sought to discontinue; it was the realisation that he was chasing a chimera. If the documents in question were helpful to his case, they would constitute an incentive to continue with its pursuit. Were they unhelpful, he could only claim costs on discontinuance if he could show (a) that he had attempted to take before trial those steps open to him to ascertain what documents there were, and what they contained; and (b) that he had been thwarted in these endeavours by the third party. But he cannot show that, because he cannot demonstrate that he took all steps open to him to ascertain what documents were held by Mr Mooney.
For these reasons, it seems to me that what r.63.15 declares to be the usual position should prevail. Mr Rice, as the party discontinuing, must pay the party/party costs of the Bank, it being the party to which the discontinuance relates.
The Bank has discontinued against Mr Mooney. He seeks his costs against it. He relies in part, on r.63.15; and he submits that the Bank, as the party which has discontinued the third party proceedings, should in accordance with the rule pay his costs - he being the party to whom the Bank’s discontinuance relates. He also relies, in part, on a letter which was written on 7 September 2006 to the then solicitors for the Bank. By that letter, Mr Mooney offered to bear his costs of the third party proceedings if the Bank itself withdrew.
The Bank did not accept. It explains its failure to do so by pointing to the fact that, when the letter was received, the principal proceeding was very much alive; and the Bank would be exposed were the third party proceedings to come to an end while the action brought by Mr Rice against the Bank remained on foot.
The Bank’s point about its continuing exposure is a valid one – up to a point. But the solution to that problem was to settle the principal proceeding. At the least, the attempt ought to have been made. The Bank’s attempt was ineffectual. In particular, Mr Rice was not told of the Mooney offer of 7 September.
It is in these circumstances that Mr Mooney seeks costs against the Bank. They should, according to the submissions put on Mr Mooney’s behalf, be assessed on a party/party basis until 7 September, and thereafter on an indemnity basis.
I do not think that a party who has disobeyed orders to provide witness statements and failed to make proper discovery is in the other circumstances of this case entitled to indemnity costs. Mr Mooney had a fiduciary duty to Mr Rice to account to him for the financial affairs and management of the partnership. On the evidence available to me, he failed to fulfil this duty. Had he not so failed, the Bank might not have been sued, and the third party proceedings might not have been initiated. For the reasons I have given, the failure is not one that entitles Mr Rice to his costs. It does, however, disentitle Mr Mooney from indemnity costs, despite the letter of 7 September.
In my opinion, the costs of the third party proceedings should follow the event, so that the defendant should pay the third party’s costs even though it acted reasonably in joining the third party and even though the third party succeeded because the defendant succeeded against the plaintiff. This, however, is one of those cases in which an order in the nature of a Bullock order should be made in favour of the defendant against the plaintiff. I will therefore order that the costs of the third party should be paid by the defendant on a party/party basis. Those costs should form part of the costs that the defendant is entitled to recover from the plaintiff.
Those costs should also include the defendant’s costs of prosecuting the third party claim. It was in my opinion reasonable for the Bank to join Mr Mooney. It cannot recover those costs against him. It ought in those circumstances to be able to recover them from the plaintiff, who initiated this litigation upon an unsupportable basis.
For these reasons I will order that the plaintiff pay, as between party and party, the defendant’s costs of the claim. The defendant must pay, on the same basis, the third party’s costs of the third party proceedings. The defendant’s costs of those proceedings, including the costs which the defendant must by these orders pay to the third party, must be paid as between party and party by the plaintiff.
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