Shopsmart Supermarkets Pty Ltd v Perth Stocktaking Pty Ltd
[2001] WADC 259
•15 NOVEMBER 2001
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: SHOPSMART SUPERMARKETS PTY LTD -v- PERTH STOCKTAKING PTY LTD [2001] WADC 259
CORAM: YEATS DCJ
HEARD: 24 SEPTEMBER 2001
DELIVERED : 15 NOVEMBER 2001
FILE NO/S: CIV 646 of 2000
BETWEEN: SHOPSMART SUPERMARKETS PTY LTD (ACN 009 258 548)
Plaintiff
AND
PERTH STOCKTAKING PTY LTD (ACN 009 217 761)
Defendant
Catchwords:
Costs - Appeal by defendant as to costs of mediation conference - Award of costs against a party not appropriate - Costs in the cause
Legislation:
Rules of the Supreme Court, O 66 r 1(1), O 66 r 10(1)
Result:
Appeal allowed
Costs of the mediation conference to be costs in the cause
Representation:
Counsel:
Plaintiff: Ms W F Buckley
Defendant: Mr M T Spillane
Solicitors:
Plaintiff: Hammond King Touyz
Defendant: Mullins Handcock
Case(s) referred to in judgment(s):
Dobb v Hacket & Ors (1993) 10 WAR 532
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Innovative Agricultural Products Pty Ltd & Ors v Crawshaw & Ors [1996] 758 FCA 1; 13 August 1996
Jamal v Secretary, Department of Health & Anor (1988) 14 NSWLR 252
Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd, unreported; Fed Ct (NSW); 0545/98; 22 May 1998
Case(s) also cited:
Bexton Australia Pty Ltd v Kuredale Pty Ltd [2000] WADC 263
Thunderdome Racetiming & Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297
YEATS DCJ: This is the defendant's appeal from the decision of the learned Registrar Wallace on 14 June 2001 when she ordered the defendant to pay the plaintiff's wasted costs of the last three hours of a mediation conference held on 24 April 2001, such costs to be taxed and paid forthwith. The defendant seeks an order that the costs of the mediation conference be in the cause.
An appeal from a Registrar to a Judge in chambers is a complete review de novo by the Judge which is dealt with by way of an actual rehearing of the application which led to the order under the appeal. I am required to treat the matter as though it has come before me for the first time although the party appealing opens the argument (Hazart Pty Ltd v Rademaker (1993) 11 WAR 26). In this case there has been additional evidence by affidavit which I have received from both parties which will be taken into account in considering the appeal.
Background
The plaintiff commenced its action against the defendant by writ filed on 14 March 2000 alleging negligence by the defendant in carrying out a stock take in relation to the sale of a Foodland Supermarket business on 17 December 1998. What is referred to as a "mediation conference" took place on 24 April 2001 over a five hour period from 9.30 am until 2.30 pm. The learned Registrar was present for all but the last 30 minutes of the conference.
A "mediation conference" is not mentioned by that name in the District Court Rules. Instead a pre‑trial conference (O 5 r 2 District Court Rules) provides pre‑trial mediation. What was different in this case was that a special appointment was made with the learned Registrar for the pre‑trial conference. She made herself exclusively available to the parties for the mediation. She described it as a "special appointment mediation conference of half a day similar to the system which operates in the Supreme Court". Whereas two Registrars might deal with 20 or more compulsory pre‑trial conferences under O 5 r 2, for this special pre‑trial mediation conference the court allocated one Registrar for half a day.
The mediation conference was suggested by the learned Registrar on the basis of the system which operates in the Supreme Court (O 29 r 3). I understand that the Registrars select only a few actions each year for such special treatment due to limited resources in the District Court. The learned Registrar referred this matter for special mediation because of the relatively small amount of money involved, the significant problems the plaintiff was experiencing in pleading its claim, and the potential for an extraordinarily long and expensive trial given the amount in dispute. The mediation conference was entirely voluntary. The parties agreed to participate in the mediation conference. It was not ordered by the Registrar or required by the Rules.
I received affidavits from Matthew Ian Handcock, solicitor for the defendant and from Colin Touyz, solicitor for the plaintiff. Both were present during the mediation conference and each described the process of mediation. Counsel agreed that the description of events provided in the learned Registrar's judgment could be taken into account by me as part of the factual background. That does not extend to her findings or her opinions.
The mediation conference
There is no real dispute among the participants as to what occurred. The mediation conference commenced at 9.30 am and continued until 2.30 pm. Mr and Mrs Little, directors of the plaintiff, attended with counsel, instructing solicitor and their expert. Counsel for the defendant was instructed by both the insurers, CGU and by the defendant. The representative of CGU was unable to attend the mediation conference and made himself available by telephone in Sydney. Dr Schoonenveldt, a director of the defendant attended but the other director, Dr Schoonenveldt's wife, did not attend. The defendant's counsel attended with an articled clerk.
Because of his instructions the defendant's counsel always believed the defendant would be reluctant to settle. In a telephone call to the plaintiff's instructing solicitor prior to the conference he indicated that he did not expect that the matter would resolve. Early in the conference the defendant's counsel made it clear that if the matter was to settle it could not settle for more than $20,000. At the commencement of the conference the defendant's counsel also made it clear that any earlier offer of settlement made by the defendant prior to the conference was no longer "on the table". Because of the stance taken by the defendant the mediation conference involved the plaintiff "bidding against itself". Two offers to settle for an amount above $20,000 made by the plaintiff were rejected by the defendant's counsel on the basis that unless the plaintiff made an offer of $20,000 or less there was no prospect of settling. Defendant's counsel's instructions communicated to the plaintiff were that if there was an offer of $20,000 or less then he had something to work with and could take instructions.
From the plaintiff's point of view after five hours of mediation it came down to precisely the position the defendant's counsel had indicated at the outset could settle the action. The plaintiff offered to accept $20,000 plus $2,000 GST in full settlement of its claim. There is some discussion in the affidavits about GST of $2,000 but I have been assured by both counsel that GST was not really the issue because payment of GST would have allowed recovery back of that sum. The offer of $20,000 plus $2,000 GST can be taken to meet the terms set by the defendant early in the mediation conference.
When the learned Registrar left the mediation at 2.00 pm she confidently expected the matter to settle at around $20,000. That was based on indications from both parties that, subject to taking final instructions, a settlement at that level would be the outcome.
But the matter did not settle. Following the plaintiff's offer the defendant's counsel took instructions from both the insurer and from Dr Schoonenveldt. The insurer's instructions were that while he was opposed to settlement in this amount, he would not prevent it. On the other hand, Dr Schoonenveldt was extremely reluctant but gave serious consideration to accepting the plaintiff's offer. But when Dr Schoonenveldt telephoned the other director, his wife, he felt quite uneasy about settlement. Thereafter the defendant's counsel advised that 24 hours was needed to consider the plaintiff's offer. Taking account of Anzac Day it was agreed that the defendant would respond to the plaintiff's offer within 48 hours.
Two days later the defendant's counsel was otherwise engaged and arranged for the message to be given to the plaintiff that "their clients' instructions were not to make any offer of settlement at all". Therefore the outcome was that after five hours of mediation the defendant made no offer at all to settle the plaintiff's claim.
There is no suggestion in the learned Registrar's reasons that anyone involved in the mediation was disingenuous. The learned Registrar was "completely satisfied" that the defendant's counsel conducted himself in an appropriate manner. She found however, that deficient communications among interested persons on the defendant's side led to much wasted time and costs. Her recollection was that three hours of the conference was wasted and she ordered the defendant to pay the costs of those three hours to be taxed and paid forthwith.
The defendant's submissions
Counsel appearing for the defendant on the appeal was not the same counsel who appeared at the conference. On appeal counsel submitted that the normal rule is that the costs of the conference would be in the cause unless the conduct of a party were discreditable to an extent warranting his being deprived of costs (Jamal v Secretary, Department of Health & Anor (1988) 14 NSWLR 252 at 271). Counsel for the defendant submitted that the defendant's counsel at the conference had acted properly and not disingenuously and there was no discreditable conduct warranting the award of costs to the plaintiff.
The defendant also referred to Innovative Agricultural Products Pty Ltd & Ors v Crawshaw & Ors [1996] 758 FCA 1; 13 August 1996, per Lee J at 5:
"I consider that unless there are unusual circumstances which require such an order, for example circumstances to which O 62 r 36 of the Federal Court Rules apply, no order should be made that the costs of any party incurred in the conduct of mediation proceedings are to be included in the costs of the litigation. Mediation is a consensual proceeding in which the parties are encouraged to resolve or compromise their differences without subjecting themselves to the risks and the costs of a trial. It is in the public interest that parties be encouraged to undertake mediation proceedings without being concerned that additional party and party costs will be incurred if they do so."
The "unusual circumstances" referred to by Lee J in O 62 r 36 of the Federal Court Rules relate to "improper, unreasonable or negligent behaviour" during a mediation conference. The defendant submitted that nothing of that character could be suggested on the part of the defendant or his counsel in this case.
The defendant submitted that mediation is such a vital tool for courts in resolving disputes that costs should not generally be awarded against parties. The defendant submitted it is in the public interest that parties participate in mediation and for that reason the bar for the imposition of any costs penalties should be set quite high. Parties should not be penalised in attempting to settle matters. The defendant submitted that costs orders such as this for mediation would work against public policy. In considering costs the public interest in encouraging reasonable and timely settlements should guide the judicial discretion.
The defendant submitted that it did not waste the plaintiff's time; quite the contrary. It made clear at the outset that an offer to settle for $20,000 or less would be needed before the defendant's counsel had anything to work with. The plaintiff spent five hours before making the offer that formed the starting point for negotiations so far as the defendant was concerned. The plaintiff's offer was not made until after the Registrar left at 2.00 pm. The defendant submitted that settlement was close but Dr Schoonenveldt was always reluctant to settle and after consultation with the insurer and with his wife he was uneasy; after leaving the mediation conference he went cold. The defendant submitted they were within a hair's breadth of settlement but once the mediation conference ended without settlement the defendant went cold.
The defendant's case is that it engaged in the mediation conference in good faith for five hours, that it was very close to settlement when the conference ended, but then it went cold.
The defendant relied on the evidence of what went on during the mediation conference as evidence that it was genuinely trying to reach a settlement. The defendant relied on and agreed with Mr Handcock's impression that after five hours the parties considered that settlement was achievable at around $20,000. The defendant submitted that this is evidence of a genuine mediation by all parties. When the offer came from the plaintiff the defendant made contact with the insurer and Dr Schoonenveldt contacted his fellow director. The defendant submitted all of this behaviour is consistent with a genuine attempt to resolve the matter.
Plaintiff's submissions
The plaintiff submitted that this case is about waste – waste of the Court's time and waste of the plaintiff's time. The plaintiff complained of the process for which it suggested the defendant bears responsibility – that the defendant held out a possibility of settlement at a figure they suggested and that the parties worked for five hours towards that figure only to have Dr Schoonenveldt change his mind. The plaintiff submitted it was that change of mind that caused the waste of the settlement negotiations.
The plaintiff complained that the defendant's words and behaviour by attending what was a purely voluntary mediation conference and, then, by indicating that unless the plaintiff made an offer of $20,000 or less there was no prospect of settling, encouraged the plaintiff to remain and continue the mediation for five hours only to have the defendant resile from that position. The plaintiff contends that once the defendant made a commitment by coming to the mediation conference and being present while his counsel put out a ball park figure he could not resile from that figure without being at risk of costs.
The plaintiff submitted that the crux of the matter was the defendant's telephone call 48 hours after the mediation conference and the fact that the defendant was not prepared to make any offer at all. The plaintiff submitted that if this was their position there was no reason to keep everyone there mediating for five hours. The plaintiff accepted the first two hours of mediation but considered that the defendant, by its conduct had, wasted three hours of the mediation conference and should pay the defendant's costs for those wasted hours.
The plaintiff contended that a case such as this involving pure waste justifies an order for the payment of costs forthwith.
The plaintiff submitted that the costs order against the defendant is needed to "punish" the defendant for the waste that arose from the defendant changing its position to one of making no offer of settlement when the defendant had prolonged the mediation conference on its own terms ostensibly to seek settlement. These unusual circumstances, the plaintiff submitted, justify an order for payment by the defendant of the plaintiff's wasted costs and those costs should be paid forthwith.
Decision
There is no tradition in the District Court such as followed in the Federal Court for parties (except in unusual circumstances) to bear their own costs of mediation. In the District Court the costs of pre‑trial conferences required as part of case management are generally allowed as costs in the cause and included in the final bill of costs as part of the costs of the litigation. In the Supreme Court each party's costs of and incidental to a mediation are parties' costs in the cause unless it is ordered otherwise or the parties agree (O 29 r 3(ba) Supreme Court Rules). The sub‑rule, however, allows a party to apply for those costs "if they have been unnecessarily incurred due to the conduct of the other party". I have not been referred to any cases where this has occurred nor does the database of Supreme Court decisions contain any authorities directly on point. In Dobb v Hacket& Ors (1993) 10 WAR 532, Murray J at 540 discussed the need for courts to encourage reasonable and timely settlements.
"The court should preserve in the minds of litigants, the conscious consideration that their behaviour may place them at risk as to costs if they refuse reasonable offers of settlement. The court should be careful not to foster the proposition that obstinacy and unreasonableness will not be punished by orders as to costs. Such considerations foster the public interest in the desirability, not only from the point of view of the particular litigants in the case in question, but from the point of view of litigants generally, of the court so behaving as to encourage the achievement of reasonable and timely settlements."
Murray J was of course speaking generally about unreasonableness and those remarks do not create any sort of precedent or rule to be applied when considering the questions of costs of the mediation conference. I accept what was said by Lee J in the Innovative Agricultural Products case at p 5 that:
"… mediation is a consensual proceeding in which the parties are encouraged to resolve or compromise their differences without subjecting themselves to the risks and the costs of a trial. It is in the public interest that parties be encouraged to undertake mediation proceedings without being concerned that additional party and party costs will be incurred if they do so.
While the parties' costs of the mediation conference will increase the costs of litigation when the case does not settle, nonetheless those costs are a small price to pay when compared with the potential costs savings that are realised when a matter settles without trial. It is clearly in the interests of justice to encourage the settlement of disputes without the costs of trial. I accept that parties should be encouraged to undertake mediation without being concerned about the risk of incurring further costs. The costs of the mediation conference are in the discretion of the court (O 66 r 1(1), Rules of the Supreme Court) and would normally be costs in the cause unless the conduct of a party has resulted in costs being unnecessarily or unreasonably incurred (O 66 4 1(2)). In Jamal's case Mahoney J spoke of a costs order being made against a successful party in circumstances where that party's "conduct in relation to the matter … may be discreditable to an extent warranting his being deprived of costs". That discussion is of course on the general question of costs after the matter has been determined. Different matters of public policy in my view need to be taken into account when considering the costs of a mediation conference.
First of all, I do not believe that a party should be deterred from participating in mediation by the threat of a costs order if the matter does not settle. Mediation is too important to the interests of justice for there to be impediments or costs concerns for those who choose to participate. That is not to say that a costs order against a party would never be appropriate. But I believe the bar should be set very high. If a party failed to participate in good faith such that it was obviously disingenuous then a costs order could be considered against that party. I am satisfied nothing of that nature occurred in this case. I accept the evidence which shows that the defendant participated in good faith throughout the mediation conference.
A second factor of considerable importance is that a threat of the costs order should not ever be a factor in pressuring a party to settle. I believe that would be contrary to the very purpose of court connected mediation programmes. Mediation has been defined by the National Alternative Dispute Resolution Adversely Council as: "a process in which the parties to a dispute, with the assistance of a neutral third party (the mediator), identify the dispute's issues, develop options, consider alternatives and endeavour to reach an agreement."
Court connected mediation programmes do not in any way supplant the core function of courts in administering justice in accordance with law. They are vital to assisting in this process but they do not replace it. In a recent publication of the Australian Institute of Judicial Administration "Quality in Court Connected Mediation Programmes" (2001), Professor Hilary Astor suggested a number of appropriate objectives of mediation including:
•Reduce delay, clear lists, reduce the backlog of court/tribunal.
•Assist in management of cases.
•Reduce cost (to parties, court, government, taxpayer).
•Are appropriate to the needs of the case/parties.
•Are responsive to personal as well as business needs.
•Produce fair, equitable outcomes in all the circumstances.
•Achieve party satisfaction.
•Produce enduring agreements.
The consensual nature of mediation is fundamental to the achievement of its potential to reduce delay, clear lists, reduce costs and produce fair and equitable outcomes. To impose a costs order when a party fails to settle after mediation is contrary to the consensual nature of mediation. Courts should always be reluctant to make such orders and should never make them except in clear cases.
In this case if I were to accept the plaintiff's submissions I would be tending to lend support to the proposition that the defendant was bound to settle for $20,000 plus $2,000 GST when the defendant had never made that offer. It is important to remember the position a defendant finds itself in. The defendant did not initiate these proceedings. It has been brought unwillingly to court by the plaintiff. It may nonetheless see merit in exploring settlement for commercial reasons to save time and costs. In this case the evidence shows that the defendant did negotiate in good faith and came very close to reaching a settlement. But it did not quite get there. I do not believe the defendant should be penalised with a costs order in such circumstances. As I have said before, it is in the interests of justice for parties to attempt to settle difficult cases through mediation. If the case does not settle it is not appropriate to penalise a party with a costs order.
The plaintiff blames the defendant for wasting time by continuing the mediation conference when it ultimately made no offer at all. There is no doubt that this is what ultimately did occur but it can also be said that the defendant properly put its position early in the mediation and it was not until after the Registrar left that the plaintiff finally made an offer that gave the defendant something to work with. When instructions were taken the defendant ultimately went cold and did not make an offer. I do not accept the suggestion that the defendant resiled from its position. Its position was never one of making that offer; its position was that if such an offer were made instructions would be taken. Neither do I accept the suggestion that it was the defendant who wasted everyone's time. The defendant came very close to settling. In the event the case did not settle but I do not accept that the defendant should be penalised for that. The defendant should not have had costs ordered against it.
The payment of costs forthwith
Order 66 r 10(1) of the Supreme Court Rules allows the court to order that costs be paid forthwith but special circumstances must be shown before the court will make such an order. In Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd, unreported; Fed Ct (NSW); 0545/98; 22 May 1998, Branson J said:
"… the demands of justice may well require a departure from the ordinary rule that costs are to be paid after the completion of proceedings, where a party has been required to incur significant costs over and above those which it would have incurred had the opposing party acted in the handling of the proceeding with competence and diligence."
In that case the applicants filed and served five different statements of claim over a period of nine months and the respondent was forced to brief counsel and move to strike out what proved to be unsatisfactory pleadings which were withdrawn. The court in that case considered the costs borne by the respondent to be, in reality, costs thrown away that a party should not be expected to bear until the conclusion of proceedings.
In this case there is nothing to show any failure by the defendant to act with competence or diligence. The mediation was conducted in good faith. The hours were not wasted. The hours were spent mediating and nearly succeeded in settling the matter. The interests of justice would not demand any payment of costs by the defendants forthwith. Quite the opposite is the case. It is in the interests of justice that the costs of the mediation should be costs in the cause.
For these reasons the appeal is allowed, the order of the Registrar that the defendant pay the plaintiff's costs of the final three hours of the mediation to be taxed and paid forthwith be quashed, and substituted with an order that the costs of the mediation conference be costs in the cause.
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