Smoothy Resource Logistics Pty Ltd v Kimberley Shayne McAullay [No 2]
[2016] WADC 48
•18 APRIL 2016
SMOOTHY RESOURCE LOGISTICS PTY LTD -v- KIMBERLEY SHAYNE McAULLAY [No 2] [2016] WADC 48
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WADC 48 | |
| Case No: | CIV:1269/2015 | 1 APRIL 2016 | |
| Coram: | GETHING DCJ | 18/04/16 | |
| PERTH | |||
| 22 | Judgment Part: | 1 of 1 | |
| Result: | Costs order made | ||
| PDF Version |
| Parties: | SMOOTHY RESOURCE LOGISTICS PTY LTD KIMBERLEY SHAYNE McAULLAY KIVA TRANSPORT PTY LTD |
Catchwords: | Practice and procedure Costs Application for costs departing from usual orders Whether costs of unsuccessful party should be paid on an indemnity basis Whether costs order should be made against a successful party |
Legislation: | District Court of Western Australia Act 1969 (WA) s 64 Rules of the Supreme Court 1971 (WA) O 66 r 1 |
Case References: | Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) Brookvista Pty Ltd v Meloni [2009] WASCA 180 Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93 Carroll v Investments (WA) Pty Ltd [2012] WASC 93 (S) Cretazzo v Lombardi (1975) 13 SASR 4 Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50 Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 Frigger v Professional Services of Australia Pty Ltd [No 3] [2014] WASCA 69 Hall Chadwick Corporation Finance (WA) Pty Ltd v Axiom Properties Ltd [2002] WASC 179 HPM Pty Ltd v Fear & Ors [2002] WASCA 249 (S) Hughes v St Barbara Ltd [2011] WASCA 234 (S) Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 Mannix v Loumbos Pty Ltd [2000] NSWCA 32 McKay v Commissioner of Main Roads [No 7] [2011] WASC 223 (S) Michael v Attorney-General (WA) [2006] WASCA 123 Milne v Attorney-General for the State of Tasmania [1956] HCA 48; (1956) 95 CLR 460 Naidoo v Williamson [2008] WASCA 179 Nikolaou v Papasavas, Phillips & Co (No 2) [1989] HCA 11; (1989) 166 CLR 394 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Priolo Corporation Pty Ltd v Vantage Systems Pty Ltd [2013] WADC 158 (S) Roe v The Director General, Department of Environment and Conservation for the State of Western Australia [2011] WASCA 57 (S) Shaddick v JDV Ltd [2012] WASC 120 (S) Smoothy Resources Logistics Pty Ltd v McAullay [2016] WADC 27 State of Western Australia v Collard [2015] WASCA 86 Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) Symphony Group Plc v Hodgson [1994] QB 179 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
KIMBERLEY SHAYNE McAULLAY
First Defendant
KIVA TRANSPORT PTY LTD
Second Defendant
Catchwords:
Practice and procedure - Costs - Application for costs departing from usual orders - Whether costs of unsuccessful party should be paid on an indemnity basis - Whether costs order should be made against a successful part
Legislation:
District Court of Western Australia Act 1969 (WA) s 64
Rules of the Supreme Court 1971 (WA) O 66 r
Result:
Costs order made
Representation:
Counsel:
Plaintiff : Mr J C Yeldon
First Defendant : Mr A G Norwood
Second Defendant : Mr A G Norwood
Solicitors:
Plaintiff : Pacer Legal
First Defendant : Trinix Lawyers
Second Defendant : Trinix Lawyers
Case(s) referred to in judgment(s):
Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S)
Brookvista Pty Ltd v Meloni [2009] WASCA 180
Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93
Carroll v Investments (WA) Pty Ltd [2012] WASC 93 (S)
Cretazzo v Lombardi (1975) 13 SASR 4
Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50
Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115
Frigger v Professional Services of Australia Pty Ltd [No 3] [2014] WASCA 69
Hall Chadwick Corporation Finance (WA) Pty Ltd v Axiom Properties Ltd [2002] WASC 179
HPM Pty Ltd v Fear & Ors [2002] WASCA 249 (S)
Hughes v St Barbara Ltd [2011] WASCA 234 (S)
Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178
Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534
Mannix v Loumbos Pty Ltd [2000] NSWCA 32
McKay v Commissioner of Main Roads [No 7] [2011] WASC 223 (S)
Michael v Attorney-General (WA) [2006] WASCA 123
Milne v Attorney-General for the State of Tasmania [1956] HCA 48; (1956) 95 CLR 460
Naidoo v Williamson [2008] WASCA 179
Nikolaou v Papasavas, Phillips & Co (No 2) [1989] HCA 11; (1989) 166 CLR 394
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72
Priolo Corporation Pty Ltd v Vantage Systems Pty Ltd [2013] WADC 158 (S)
Roe v The Director General, Department of Environment and Conservation for the State of Western Australia [2011] WASCA 57 (S)
Shaddick v JDV Ltd [2012] WASC 120 (S)
Smoothy Resources Logistics Pty Ltd v McAullay [2016] WADC 27
State of Western Australia v Collard [2015] WASCA 86
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
Symphony Group Plc v Hodgson [1994] QB 179
1 GETHING DCJ: The plaintiff, Smoothy Resource Logistics Pty Ltd (SRL), was at all material times the owner of four prime mover and side tipper trailer combinations known in the heavy haulage industry as 'quads'. Between August and December 2014 SRL provided the four quads, with drivers, to cart sand between Carnarvon and Onslow. In a decision reported as Smoothy Resources Logistics Pty Ltd v McAullay [2016] WADC 27, I found that this cartage took place pursuant to a contract (Contract) with the second defendant, Kiva Transport Pty Ltd (KTPL) as trustee for the Kiva Transport Trust. I rejected SRL's primary contention that the cartage took place pursuant to a contract with the sole director of KTPL, the first defendant Kimberley Shayne McAullay. I awarded judgment against KTPL in the amount claimed, $650.460.64, plus interest of $22,133.47. I dismissed the claim against Mr McAullay personally.
2 Costs were reserved, and a timetable set for the filing of affidavits and submissions. I also made a direction for the parties to file minutes of proposed orders as to costs. Pursuant to those directions, SRL filed an affidavit sworn by Melissa Karin Adams, a solicitor employed by SRL's lawyers. No affidavit was filed on behalf of the defendants.
3 On 1 April 2016 after hearing argument, I made the following orders as to costs:
1. The defendants jointly and severally pay all the plaintiff's costs of and thrown away by reason of the amendment to the defence:
(a) by order of Schoombee DCJ on 8 February 2016; and
(b) by order of Gething DCJ on 18 February 2016,
except in so far as they are of an unreasonable nature or have been unreasonably incurred so that subject to those exceptions the plaintiff is completely indemnified for its costs.
2. The defendants jointly and severally pay the costs of and in relation to the hearing on 1 April 2016 on a party and party basis.
3. The second defendant pay all of the other costs of the plaintiff, including reserved costs, except in so far as they are of an unreasonable nature or have been unreasonably incurred so that subject to those exceptions the plaintiff is completely indemnified for its costs.
4. There be no further order as to costs as between the plaintiff and the first defendant.
5. There be liberty to apply to the trial judge in relation to whether specific costs fall within the order in paragraph 1.
4 I advised counsel that I would provide written reasons for making these orders, which are the reasons set out below.
Issues arising for determination
5 SRL filed a detailed minute of proposed orders. In effect, it sought orders that KTPL and Mr McAullay jointly and severally pay all SRL's costs of the action on an indemnity basis. It relied on both the manner in which the defendants conducted the litigation and their unreasonable rejection of Calderbank offers to justify the award of indemnity costs. SRL also submitted that an order for costs could justifiably be made against Mr McAullay on a non-party basis in relation to the costs liability otherwise falling on KTPL on the basis of his involvement with the conduct of KTPL's defence. SRL further submitted that in the event that an order for indemnity costs was not made, there should be an uplift in the applicable scale for certain identified items pursuant to Legal Profession Act 2008 (WA) (LPA)s 280.
6 The defendants conceded that there should be an order for costs against KTPL, but argued that it should be on a party and party basis. As to Mr McAullay, their submission was that SRL should pay his costs.
7 The conduct of the defendants of which SRL was most critical was in relation to the amount of tonnes which the defendants accepted that SRL carted and the counterclaim. In particular, it says that the late concessions in the defence and late abandonment of the counterclaim (which resulted in its dismissal mid trial) came about in circumstances warranting the imposition of an indemnity cost order. It is instructive to address these issues first.
8 On the material before me, six issues as to costs arose for determination:
• What costs order should be made in relation to the late amendments to the defence?
• What costs order should be made in relation to the dismissal of the counterclaim?
• Is SRL entitled to an order against KTPL for the costs of the action on an indemnity basis based on the manner in which it conducted the trial?
• Is SRL entitled to an order for costs against KTPL on an indemnity basis based on settlement offers made prior to trial?
• What costs order should be made in relation to the claim against Mr McAullay personally?
• Is SRL entitled to an uplift in the applicable scale fees?
What costs order should be made in relation to the late amendments to the defence?
9 There were two late amendments to the defence and counterclaim, those allowed by order of Schoombee DCJ on 8 February 2016 and those allowed by me by order made on 18 February 2016. As the counterclaim was brought only by KTPL, it is necessary to consider the amendments to the defence and to the counterclaim separately.
10 The usual order is that the applicant for an amendment pays the respondent's costs incurred and thrown away by reason of the amendment on a party and party basis. The effect of SRL's submission is that these costs should be paid by the defendants, jointly and severally, on an indemnity basis. As is apparent from the orders set out above [3], I agree.
11 The key issue of concern for SRL regarding the amendments to the defence is the work thrown away on the issue of the amount of tonnes of sand carried by SRL. In its statement of claim filed 12 June 2015, SRL says that it carted 22,207.75 tonnes of sand during October, November and December 2014. This position was maintained through to trial, and was ultimately found by me to have been established: Smoothy [6], [101]. In the defence filed 8 July 2015, being on behalf of Mr McAullay personally, it was admitted that SRL carted 17,131.2 tonnes of sand. KTPL was added as the second defendant pursuant to orders made on 7 April 2015. The position that SRL carted 17,131.2 tonnes of sand was maintained in the re-amended defence and counterclaim filed 13 August 2015. In the further re-amended defence and counterclaim filed pursuant to the orders made on 8 February 2016, dated 10 February 2016, this was amended to 22,012.79 tonnes (I will refer to this document as the 10 February defence and counterclaim). In the further, further re-amended defence and counterclaim filed pursuant to the orders made on 18 February 2016, dated 19 February 2016, the amount was amended to 22,173.04 tonnes (I will refer to this document as the 19 February defence and counterclaim). As I stated in Smoothy [6], it was common ground at the trial that there was one disputed load of 93.8 tonnes.
12 Ms Adams in her affidavit sets out in some detail the work done on behalf of SRL prior to 8 February 2016 to prove the delivery of 22,207.75 tonnes of sand ([35] – [46]). In particular, the work done generated four lever arch folders of prepared documents that were not used.
13 Ms Adams also annexes (MKA2) a letter dated 18 November 2015 from her firm, Pacer Legal, to the defendants' then lawyers. Pacer Legal attached to that letter copies of documents from Tremor – The Earth's Moving Company Pty Ltd (the quarry from which the sand was obtained) to the effect that 22,269 tonnes of sand were carted by SRL during the relevant period. The documents provided by Tremor comprised some 10 pages.
14 There is a clear power, and well established precedent, for the court to award costs on an indemnity basis on the ground that the manner in which the unsuccessful party conducted itself was so unreasonable that it is deserving of sanction by the court. The relevant principles are conveniently summarised by the Court of Appeal in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10]:
The principles applicable to the making of indemnity costs orders in litigation may be briefly summarised, as follows:
1. A superior court, in its inherent jurisdiction, may make an indemnity costs order (see also Supreme Court Act 1935 s 37, and Legal Profession Act 2008 s 280).
2. An indemnity costs order departs from the usual costs disposition order, whereby costs are awarded on a party/party basis: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.
3. The court's discretion as to the making of an indemnity costs order is a discretion that must be exercised judicially. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397, 400 Woodward J said:
'Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases, where "there is some special or unusual feature in the case to justify the court exercising its discretion in that way".' (emphasis added)
4. To obtain an indemnity costs order, it is not the case that the successful party needs to show a collateral purpose, or establish some species of fraud against the unsuccessful party. In J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 303 French J by reference to the observations of Woodward J in Fountain Selected Meats, said:
'It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case'.
5. Furthermore, in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Unreported, FCA, 3 May 1991) (referred to by Ipp J in Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190, 191) French J observed:
'The categories in which the discretion may be exercised are not closed.'
6. Competing principles need to be balanced in assessing the making of a potential award of indemnity costs. In Quancorp Pty Ltd v MacDonald [1999] WASCA 101 [7], Wheeler J observed:
'On the one hand, a party should not be discouraged, by the prospect of an unusual costs order, from persisting in an action where its success is not certain. Uncertainty is inherent in many areas of law, and the law changes with changing circumstances. It is inappropriate that a case be too readily characterised as 'hopeless' so as to justify an award of indemnity costs to the successful party. However, where a party has by its conduct unnecessarily increased the cost of litigation, it is appropriate that the party so acting should bear that increased cost. Persisting in a case which can only be characterised as 'hopeless' is an example of the type of conduct which may lead the court to a view that the party whose conduct gave rise to the costs should bear them in full.'
7. An indemnity costs order may be appropriate in situations which are shown to involve some element of improper, or at least unreasonable, conduct by a party or the party's legal advisers: see Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 233 (Sheppard J), referred to by Pullin J in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [9].
8. A properly crafted special costs order may obviate the need for an indemnity costs order, where components of cost scale items are allowed above the applicable scale ceiling: see Flotilla [20] - [24].
9. An indemnity costs order may not be appropriate if the claimed costs would be likely to be recovered under the standard order for party and party costs, or under a special order raising or removing a scale ceiling allowance: Flotilla [11]. In Unioil (No. 2) (193), Ipp J observed:
'However, counsel for the plaintiffs was unable to identify any costs so incurred that would not be covered by an order for party and party costs. An order for indemnity costs on this ground is therefore not warranted.'
10. Nonetheless, an indemnity costs order will constitute an appropriate sanction marking the disapproval of improper or unreasonable conduct: see Brookvista Pty Ltd v Meloni [2009] WASCA 180 [32], Flotilla [25]. In Flotilla Pullin J said [26]:
'A solicitor should not, in my view, resort to an application for an indemnity costs order merely to secure the recovery which could be achieved by a properly formulated special costs order, unless the unsuccessful party's conduct is genuinely to be impugned by the successful party.'
What costs order should be made in relation to the dismissal of the counterclaim?
16 In the re-amended defence and counterclaim filed 13 August 2015, KTPL asserted a counterclaim for loss of income suffered arising as a result of the termination of the Boral Agreements (as to which, see Smoothy [58]). KTPL alleged that the Contract contained a number of obligations specified by Boral as to the manner in which SRL was required to perform its obligations under the Contract. KTPL says that SRL breached these obligations, leading to Boral terminating its agreement with KTPL. It claimed damages for the lost profit for this work. The counterclaim remained, though was fine-tuned, in the 10 February defence and counterclaim. In this version, an alternate plea was added to the effect that, as a result of the breaches by SRL, Boral exercised its discretionary right under the Boral Agreements to allocate no further work to KTPL.
17 On the morning of the third day of the trial, counsel for KTPL advised the court he had received instructions to discontinue the counterclaim. After hearing from counsel, I made an order dismissing the counterclaim, reserving the costs.
18 The costs of and incidental to all proceedings are in the discretion of the court: District Court of Western Australia Act 1969 (WA) s 64 (DCA); Rules of the Supreme Court 1971 (WA) (RSC) O 66 r 1(1). Without 'limiting the general discretion… the Court will generally order that the successful party to any action or matter recover his costs': RSC O 66 r 1(1); DCA s 64(1). Moreover, the usual order is for the costs to be assessed on a party and party basis: Swansdale [10]. Accordingly, the costs order that would ordinarily follow from the dismissal of the counterclaim is an order that KTPL pay SRL's costs of the counterclaim to be taxed on a party and party basis.
19 SRL, in effect, sought an order for these costs to be paid on an indemnity basis as part of the costs of the action as a whole. For the purpose of analysis, it is instructive to deal with the issue of the costs of the counterclaim separately to those of the claim, which I will address in the next section.
20 The information provided by Pacer Legal in its letter dated 18 November 2015 included an email from an in house counsel at Boral stating that Boral did not terminate its contract with KTPL (Adams Affidavit, page 62).
21 In relation to the allocation of discretionary work, the 10 February defence and counterclaim contained an allegation to the effect that it was reasonable to infer that, but for the breaches by SRL, Boral would have continued to have allocated KTPL work for the balance of the contract period (to August 2015) at the same average rate as during the months of October, November and December 2014 (par 12). In order to prevent this inference from being drawn, SRL took the step of calling a witness from Boral, Ms Taylor (see generally Smoothy [50] - [59]). Ms Taylor confirmed that Boral never terminated the contract with KTPL (ts 250, 264 - 265). Her evidence was that Boral ceased giving work to KTPL because it did not have any work which it needed to contract out (ts 249 - 255). Significantly, SRL tendered through Ms Taylor an email dated 15 June 2015 from her to Mr McAullay in which she stated: '… unfortunately work is extremely quiet at the moment we currently have no work available now or for the foreseeable future' (exhibit P27). This is entirely inconsistent with the inference which KTPL invited the court to draw in par 12 of the 10 February defence and counterclaim.
22 As I have already observed, it was incumbent on the defendants' lawyers not to include an allegation in the counterclaim unless it could be supported by credible evidence: Hall Chadwick [22], [27]. The fact that the counterclaim was withdrawn prior to the commencement of the defendants' case, after Ms Taylor had given evidence, strongly suggests that there was never credible evidence to support the counterclaim. As I have mentioned, KTPL did not file any affidavit evidence on the issue of costs to provide a factual basis against the order for indemnity costs sought by SRL.
23 Applying the principles set out above ([14]), I am satisfied that it is appropriate to make an order that KTPL pay the costs of the counterclaim on an indemnity basis. On the information before me, the counterclaim was always hopeless. The fact that it was pressed until the morning of the third day of the trial unnecessarily and unreasonably increased the cost of the litigation. There was nothing in the evidence of Ms Taylor in relation to the counterclaim which was either not apparent on the face of the documentary evidence or not capable of being ascertained from Boral with a modicum of diligence by KTPL's lawyers.
Is SRL entitled to an order against KTPL for the costs of the action on an indemnity basis based on the manner in which it conducted the trial?
24 Having formed the view that KTPL should pay the costs of the counterclaim on an indemnity basis, there remains the issue of the costs of the claim. Following the event, SRL would ordinarily be entitled to the costs of the claim on a party and party basis. SRL submits that because of the manner in which KTPL conducted the trial it is entitled to all the costs of the action on an indemnity basis.
25 I have already determined that the costs thrown away by reason of the late amendment to the defence and the costs of the counterclaim are to be paid on an indemnity basis. The balance of the costs relate to the remaining issues at trial:
• Whether SRL contracted with KTPL or Mr McAullay.
• Whether SRL is entitled to be paid for the disputed load.
• Whether the payment of $30,000 should be deducted from the amounts claimed.
26 The issue then becomes whether KTPL should pay for these costs on a party and party basis or on an indemnity basis. For three reasons, I am of the view that these costs should also be paid on an indemnity basis.
27 The first reason is that the costs in relation to the evidence of Ms Taylor are properly costs in relation to the counterclaim. In submissions on costs, counsel for SRL made the point that it was not necessary in order to prove SRL's pleaded case for SRL to call Ms Taylor, an employee of Boral. Rather, Ms Taylor was called to rebut the counterclaim. I accept this submission. In order words, had the counterclaim been discontinued prior to the commencement of the trial, it would not have been necessary for SRL to have called Ms Taylor. The preparation time and time spent at trial in relation to Ms Taylor are thus properly characterised as costs of the counterclaim. For the reasons set out in the preceding part, these costs are payable on an indemnity basis.
28 The second is that the costs of proving the tonnes of sand carted (thrown away by reason of the amendment to the defence) and of the counterclaim in my view comprised the bulk of the preparation and getting up costs. From the perspective of the preparation of SRL's lawyers and counsel, the remaining issues (set out above [25]), turned on the oral evidence of Mr Smoothy and a handful of documents primarily comprising printouts of text messages. It would be a difficult and somewhat artificial exercise to attempt to tax most of the preparation costs on an indemnity basis and the balance on a party and party basis.
29 The third is that the conduct of KTPL by the late amendment to the defence and the late discontinuance of the counterclaim infected the entirety of the action, unnecessarily and unreasonably increasing the costs of the action as a whole. Moreover, KTPL's conduct distorted the context in which mediation and settlement efforts occurred. For example, the basis of the counter offer made by the defendants' lawyers by letter dated 9 February 2016 relied heavily on the counterclaim: 'we consider that our client's counterclaim will ultimately cancel out the majority of any amount your client is awarded against our client' (Adams Affidavit, page 149). Further, the significance of the legal fees being incurred by SRL in December 2015 caused it to withdraw its offer of 10 December 2015 (Adams Affidavit, page 81). From Ms Adams' affidavit, it appears that a significant aspect of those fees related to proving the number of tonnes of sand carted. The case is one which, in my view, was conducted in such an unreasonable manner that it is deserving of the sanction of the court by way of an order for indemnity costs: Swansdale [10]; Brookvista Pty Ltd v Meloni [2009] WASCA 180 [32] (Newnes JA, with whom Buss JA agreed).
30 For these reasons, I made the order on 1 April 2016 that KTPL pay all of SRL's other costs (in addition to the costs thrown away by reason of the late amendments to the defence), including reserved costs, on an indemnity basis.
Is SRL entitled to an order for costs against KTPL on an indemnity basis, based on settlement offers made prior to trial?
31 SRL asserts a second basis on which it is entitled to the costs of the action, both the claim and the counterclaim, on an indemnity basis. This is that KTPL unreasonably declined to accept offers to settle the action, offers which were expressly stated to be without prejudice save as to costs.
32 Ms Adams annexes to her affidavit two offers to settle, dated 18 November 2015 and 10 December 2015. Each is marked 'without prejudice save as to costs', and are thus Calderbank offers: Calderbank v Calderbank[1975] 3 All ER 333; [1976] Fam 93.
33 The nature of a Calderbank offer was summarised by Sleight DCJ in Priolo Corporation Pty Ltd v Vantage Systems Pty Ltd [2013] WADC 158 (S) [4]:
A Calderbank offer is an informal procedure of presenting an offer in commercial litigation. It has been well recognised that such an offer can be taken into account when a court considers whether it should exercise its discretion to award indemnity costs. The purpose of taking into account a Calderbank offer is to preserve in the minds of litigants the conscious decision that their behaviour may place them at risk as to costs if they unreasonably refuse an offer of settlement.
34 The principles in relation to the discretion to award costs on an indemnity basis where a Calderbank offer has not been accepted are well-established:
(a) the court may make an award of indemnity costs against a party who has rejected a Calderbank offer: Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 [21] - [32] (Buss JA, with whom Wheeler JA agreed); Hughes v St Barbara Ltd [2011] WASCA 234 (S) [13] (judgment of the court);
(b) the party who makes a Calderbank offer that is rejected bears the onus of satisfying the court that it should make an award of indemnity costs in its favour: Ford [21];
(c) the critical question in deciding whether to award indemnity costs against a party who has rejected a Calerbank offer is whether the rejection was unreasonable in the circumstances: Ford [16], [23];
(d) the concept of 'unreasonableness' is not qualified by words such as 'manifestly' or 'plainly' or 'so', which suggest a more stringent test: Ford [28];
(e) the mere fact that the recipient of a Calderbank offer is ultimately worse off than it would have been had the offer been accepted does not mean that its rejection was unreasonable (Ford [18]), but this 'will be a powerful factor in the exercise of the court's discretion' (Hughes [12]);
(f) all of the relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable: Ford [17];
(g) ordinarily, the regard should be had to, at least, the following facts (Ford [19]; Hughes[11], [13]):
• the stage of the proceeding at which the offer was received;
• the time allowed to the offeree to consider the offer;
• the extent of the compromise offered;
• the offeree's prospects of success, assessed at the date of the offer;
• the clarity with which the terms of the offer were expressed; and
• whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejection of it; and
(h) the context in which the court evaluates the reasonableness or unreasonableness of a party's rejection of a Calderbank offer includes the public policy of the court encouraging the early resolution, where possible, of litigious disputes: Ford[39]; McKay v Commissioner of Main Roads [No 7] [2011] WASC 223 (S) [93] - [94] (Beech J).
35 The first Calderbank offer was made by letter dated 18 November 2015, (Adams Affidavit, annexure MKA2) (First Offer). The First Offer involved the defendants paying to SRL the sum of $650,460.64 plus GST. The Settlement Sum was to be paid within 14 days of acceptance of the offer by bank cheque. The proposal was that the parties would execute a Minute of Consent Orders discontinuing the action with no order as to costs, which would be held in escrow until the settlement sum was received. It was also proposed that the parties would enter into a short Deed of Settlement and Release which would reflect these terms. The offer was expressed to be open for a period of 28 days. It was expressly marked 'without prejudice save as to costs'. It was also clear from the terms of the First Offer that if it was not accepted, SRL would seek costs from the defendants on an indemnity basis.
36 The First Offer was met by a counteroffer forwarded by email from the defendants' lawyers on 4 December 2015 (Adams Affidavit, Annexure MKA3). The offer was for 'our client' to make a total payment of $400,000. It is not clear from the terms of the email whether the reference to 'our client' is a reference to Mr McAullay or KTPL. Given the defendants' position generally, it is more likely to have been a reference to KTPL. The offer involved a payment of $100,000 within 21 days of the offer being accepted and a further 17 payments which appears would be made on a monthly basis. The offer was expressed to be open for acceptance for seven days, and was expressed to be a Calderbank offer.
37 SRL then made a second offer (Second Offer). This was made by letter dated 10 December 2015, which was sent by email to the defendants' lawyers on that date (Adams Affidavit, Annexure MKA5). The settlement sum was $650,000, of which $300,000 was to be paid within seven days of acceptance, with the balance being paid in equal monthly instalments over the following 12 months. Interest was to be payable on the balance at a rate of 8% per annum, calculated daily. A consent judgment would be executed and held in escrow. As security for the payment of the monthly payments, Mr McAullay would be required to grant a second mortgage over an identified property. Again, the parties would enter into a short Deed of Settlement and Release reflecting these terms. The offer was expressed to be open for 28 days. The offer was also expressed to be a Calderbank offer, with SRL's lawyers noting that it would seek costs from the defendants on an indemnity basis if the offer was not accepted. SRL's lawyers also confirmed that the First Offer was withdrawn.
38 The Second Offer was withdrawn by email dated 22 December 2015.
39 When compared to the judgment against it, KTPL was in a worse position than had it accepted the First Offer:
(a) the judgment amount was the same as the offered amount ($650,460.64), but under the First Offer KTPL also had to pay GST ($65,046) (no GST being payable on awards of damages);
(b) under the judgment, KTPL also had to pay interest of $22,133.47; and
(c) under the First Offer, KTPL did not have to pay costs.
40 KTPL also ended up worse off under the judgment than had it accepted the Second Offer:
(a) the judgment amount ($650,460.64) was more than the offered amount ($650,000), though no GST was payable;
(b) interest was payable on the monthly instalments, against fixed interest under the judgment of $22,133.47; and
(c) under the Second Offer, KTPL did not have to pay costs.
41 However, neither the First Offer nor the Second Offer involved any real compromise by SRL. In each case, SRL more or less offered to accept the full amount claimed. The lack of any real compromise by SRL is a significant factor suggesting that it was not unreasonable for the defendants to reject each offer.
42 Further, Mr McAullay was clearly better off from having declined to accept either of the two offers. Both the First Offer and the Second Offer were made to both defendants, being addressed to 'your clients'. It is not clear that SRL gave KTPL the opportunity to settle on the basis of payment of the amount set out in either the First Offer or the Second Offer, either as a lump sum or on terms, without Mr McAullay also incurring the same liability. As I have noted, a factor in the exercise of the discretion by the court is whether the Calderbank offer was expressed in clear terms.
43 SRL has not discharged the onus on it to establish that it is appropriate to make an order for indemnity costs on the ground that KTPL unreasonably rejected a Calderbank offer.
What costs order should be made in relation to the claim against Mr McAullay personally?
44 As I have stated, the claim against Mr McAullay personally was dismissed. The ordinary application of the discretion as to costs would result in an order that SRL pay Mr McAually's costs on a party and party basis. This is the order sought by counsel for Mr McAullay.
45 SRL seeks an order that Mr McAullay pay its costs, and that he do so on an indemnity basis. It does so on the basis of Mr McAullay's conduct as a party and as a non-party, specifically in his role as the sole director of KTPL.
Mr McAullay's conduct as a party
46 As I have noted, the costs of an action are in the discretion of the court: DCA s 64; RSC O 66 r 1(1). Aside from a default position that costs 'shall abide the event', the discretion in DCA s 64 is unconfined in the sense that it contains 'no positive indication of the considerations upon which the court is to determine by whom and to what extent costs are to be paid': Hughes [5]. The discretion must be exercised judicially, that is, in accordance with established principle and factors directly connected with the litigation, and not arbitrarily, capriciously or so as to frustrate the legislative intent : Oshlackv Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [22] (Gaudron and Gummow JJ), [65] - [66], (McHugh J, with whom Brennan CJ agreed), [134] (Kirby J); Hughes [5]; Naidoo v Williamson [2008] WASCA 179 [39] (Steytler P, with whom, Pullin JA and Murray AJA agreed); Brookvista [26]. It must be exercised so as to achieve what is fair and just between the parties according to the circumstances of the particular case: Latoudis v Casey[1990] HCA 59; (1990) 170 CLR 534, 558 (Dawson J).
47 As set out in DCA s 64 and RSC O 66 r 1, the usual position is that costs follow the event. The rationale for the usual position was explained by McHugh J in Oshlack in the following manner ([67] - [68], footnotes omitted):
The expression the 'usual order as to costs' embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.
48 This passage was endorsed in this jurisdiction in Roe v The Director General, Department of Environment and Conservation for the State of Western Australia [2011] WASCA 57 (S) [8] (Martin CJ and Murphy JA) and in State of Western Australia v Collard [2015] WASCA 86 [25] (judgment of the court) (Collard).
49 The court will only depart from the ordinary order that costs shall abide the event for 'good reason' or in 'special circumstances': Oshlack [35], [66] - 70], [134]; Milne v Attorney-General for the State of Tasmania [1956] HCA 48; (1956) 95 CLR 460, 477 (judgment of the court); Hughes [5]; Roe [12]. 'The use of the expression "special circumstances" to describe those occasions upon which it will be appropriate for a court to depart from the usual order as to costs emphasises the rare and exceptional character of those occasions': Roe [13]. It is incumbent upon SRL as the unsuccessful party to satisfy the court that there are good reasons why it should not pay Mr McAullay's costs (being the successful party): Nikolaou v Papasavas, Phillips & Co (No 2) [1989] HCA 11; (1989) 166 CLR 394, 407 (Mason CJ, Wilson, Brennan, Dawson, Toohey and Gaudron JJ); Bowen v Alsanto Nominees Pty Ltd[2011] WASCA 39 (S) [5] (judgment of the court).
50 The court may in the exercise of its discretion make no order as to the successful party's costs: Oshlack [69]; Carroll v Investments (WA) Pty Ltd [2012] WASC 93 (S) [34] (Simmonds J); Mannix v Loumbos Pty Ltd [2000] NSWCA 32 [13] (Foster AJA, with whom Priestly and Fitzgerald JJA agreed). This will usually require some sort of misconduct by the successful party: Oshlack [69]; Carroll [34]; Mannix [13]. In Oshlack McHugh J observed ([69] footnotes omitted):
'Misconduct' in this context means misconduct relating to the litigation…, or the circumstances leading up to the litigation ... Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation…; unnecessarily protracts the proceedings…; succeeds on a point not argued before a lower court…; prosecutes the matter solely for the purpose of increasing the costs recoverable…; or obtains relief which the unsuccessful party had already offered in settlement of the dispute …
51 The passage was cited with approval by the Court of Appeal in Collard [26].
52 The court may also, in the exercise of its discretion, order that the successful party pay the costs of the unsuccessful party: Michael v Attorney-General (WA) [2006] WASCA 123 [41] (judgment of the court); Cretazzo v Lombardi (1975) 13 SASR 4, 12 (Bray CJ), 16 (Jacobs J). This may occur where there is a significant issue in respect of which the successful party was unsuccessful: Michael [41]; Cretazzo (12), (16). The principles set out above [50] in relation to the exercise of the discretion to make no order as to the costs of a successful party apply with equal, if not greater, force where the order sought is for the successful party to pay the costs of the unsuccessful party.
53 In the present case, SRL has not satisfied me that an order for costs should be made against Mr McAullay, but it has satisfied me that it is appropriate that there be no orders as to costs as between SRL and Mr McAullay. This is for three reasons.
54 The first is that Mr McAullay and KTPL retained the same lawyer and conducted the defence on a joint basis. It is not apparent to me that Mr McAullay incurred any costs over and above those incurred by KTPL. Any order for costs in favour of Mr McAullay would have the practical effect of requiring SRL to pay for KTPL's costs. Given the unreasonable nature of the conduct of KTPL which I have identified above, and the unnecessary costs which it caused SRL to incur, this outcome is neither fair nor just. However whilst this justifies no order as to costs, is does not justify the imposition of a costs order against Mr McAullay personally.
55 The second is that the gravamen of SRL's concerns in relation to the conduct of the defence was the costs thrown away in proving the tonnes of sand carted. The order which I have made in relation to the amendment of the defence addresses this issue. The balance of the costs of the defence relate to the substantive issue at trial being whether the cartage contract was between SRL and KTPL or SRL and Mr McAullay (either personally or as trustee of the Kiva Transport Trust). Had the trial been fought from the outset on this issue alone, as it should have been, there would have been no basis for an order that Mr McAullay pay SRL's costs, even though he was successful on the substantive issue.
56 The third is that there is nothing arising out of the Calderbank letters which warrants the imposition of an order for indemnity costs against Mr McAullay personally. Mr McAullay's position personally is clearly better off than the position offered in the Calderbank letters.
Mr McAullay's conduct as a non-party
57 It is well established that the power in Supreme Court Act 1935 (WA) s 37 and RSC O 66(1) may be used to award costs against or in favour of a non-party: Naidoo [42]; Frigger v Professional Services of Australia Pty Ltd [No 3] [2014] WASCA 69 [59] - [60] (judgment of the court). For present purposes, I proceed on the basis that the power to award costs in DCA s 64 also allows the court to make a non-party costs order, though I do not regard the issue as settled.
58 Ordinarily, it will be unjust to make a non-party costs order: Frigger [60]; HPM Pty Ltd v Fear & Ors [2002] WASCA 249 (S) [4] (judgment of the court). Accordingly, the jurisdiction to make a non-party costs order will only be exercised in rare or exceptional cases and with considerable caution: Naidoo [42]; Frigger [60]. The category of cases in which a non-party costs order may properly be made is not closed: Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50 [71] - [93] (judgment of the court); Shaddick v JDV Ltd [2012] WASC 120 (S) [24] (Allanson J).
59 The claim for costs on a non-party basis against Mr McAullay relates to the costs thrown away by reason of the abandonment of the counterclaim, the counterclaim being brought only by KTPL. For four reasons, I am not satisfied that the present case is within the rare and exceptional class of case in which an order for non-party costs should be made.
60 The first is that the orders which I propose to make against KTPL have the effect that SRL will be paid its costs on an indemnity basis, including costs thrown away by reason of the abandonment of the counterclaim.
61 The second is that there is no evidence before me to the effect that KTPL is 'an insolvent person or a man or straw', or the corporate equivalent thereof, so as to bring the case within the class of cases identified by Mason CJ and Deane J (with whom Gaudron J agreed) in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, 192 - 193. Having said that, it is not a precondition to the exercise of power to award costs against a non-party that the unsuccessful party is impecunious: Dunghutti [87]; Shaddick [24].
62 The third reason is that, whilst I consider that Mr McAullay has caused KTPL to act unreasonably, I do not consider that Mr McAullay has abused the processes of the court or acted with contempt, factors which Dawson J in Knight considered could make it appropriate to make a non-party costs order (202). Nor do I consider that, as a director, he has caused the company to improperly defend the proceedings: Symphony Group Plc v Hodgson [1994] QB 179, 191 (Balcombe LJ, with whom Staughton and Waite LJJ agreed); HPM [5].
63 The fourth reason is that there is no other factor identified by SRL which would make it just and equitable to impose a costs order on Mr McAullay personally in addition to the costs order imposed on KTPL: Dunghutti [88].
Determination
64 For these reasons, I am of the view that the appropriate order as to the costs between SRL and Mr McAullay is an order that there be no further order as to costs as between them.
Is SRL entitled to an uplift in the applicable scale fees?
65 The findings that I have made mean that the costs for which SRL would have otherwise sought an uplift are to be paid on an indemnity basis. Accordingly, there is no need for me to make a determination as to whether it is appropriate to make a special costs order pursuant to LPA s 280(2).
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