Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd (No 2) - [2009] SASC 125

Supreme Court of South Australia
(Civil)
TASMANIAN SANDSTONE QUARRIES PTY LTD v TASMANIAN SANDSTONE PTY LTD & ORS (NO 2)
[2009] SASC 125
Judgment of The Honourable Justice White (ex tempore)
29 April 2009
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT
Following a civil trial between the plaintiff and the fourth defendant which resulted in the dismissal of the plaintiff's claim, each party sought orders as to costs.
Whether good reason exists to order indemnity costs against plaintiff - whether, as fourth defendant failed on certain of the issues it raised, it should recover a portion of its costs only.
Held: the circumstances do not warrant an order for indemnity costs - the issues on which the fourth defendant was not successful were not raised unreasonably - plaintiff not entitled to a reduction in the costs payable to the fourth defendant - No departure from usual costs order that successful party have its costs on party/party basis - plaintiff to pay fourth defendant's costs of and incidental to the action on a party/party basis.
Supreme Court Civil Rules 2006 (SA) r 264, referred to.
Pascoe Ltd (in liq) v Lucas (1999) 75 SASR 246, applied.
Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd & Ors [2009] SASC 111; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Groom v Crocker [1939] 1 KB 194; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, considered.

TASMANIAN SANDSTONE QUARRIES PTY LTD v TASMANIAN SANDSTONE PTY LTD & ORS (NO 2)
[2009] SASC 125
WHITE J (ex tempore):

TSQ, Tasmanian Sandstone Quarries Pty Ltd (TSQ), sued its former solicitor, Legalcom Pty Ltd, for damages alleging that it had been negligent in the advice which it had given in relation to the purchase by TSQ of the assets of another company, Tasmanian Sandstone Pty Ltd (TSPL).
In a judgment delivered on 24 April 2009, I dismissed TSQ’s claim.[1] I did so because I was not satisfied that Legalcom had breached, in any relevant respect, the duty of care which it owed to TSQ, whether that duty of care arose under contract or under the common law.
[1] Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd & Ors [2009] SASC 111.
Today I have heard submissions on the question of costs. Legalcom seeks an order for costs in its favour and, in addition, asserts an entitlement to be paid its costs on an indemnity basis from 21 November 2004, being the date upon which TSQ’s solicitors received a letter from Legalcom’s solicitors, to which I will refer shortly.
Legalcom submits that there is good reason, within the meaning of r 264(4) of the Supreme Court Civil Rules 2006, for the Court to depart from the usual party/party costs order.
TSQ opposes an order for costs on an indemnity basis. It also contends that it should be required to pay only 50 per cent of Legalcom’s costs assessed on a party/party basis because it claims that Legalcom pursued unreasonably at the trial three issues upon which it failed.
The general rule is that costs are awarded on a party/party basis but the Court does have a discretion, recognised in r 264, to award costs on a different basis if there is good reason to do so. However, in accordance with principle, the Court would ordinarily only find good reason to depart from the general rule if it was satisfied that some special or unusual circumstances existed warranting the departure.
In the appeal in Pascoe Ltd (in liq) v Lucas,[2] Lander J, with whom Millhouse and Duggan JJ agreed, endorsed the statement of principle by the trial judge concerning the circumstances in which a departure from the usual rule as to costs may be appropriate:
“The circumstances in which indemnity costs should be awarded have been discussed in a number of cases…It is well settled that the general rule is that a successful party should recover only party and party costs and that special or unusual circumstances are required to justify the making of a different order…In Colgate-Palmolive at 233 to 234 Sheppard J noted instances of cases which would justify departure from the general rule. The question must always be whether the particular facts and circumstances of the case in question warrant a departure from the usual rule that costs be awarded on a party and party basis. Thus, the court will not make an order that costs be paid on a solicitor and client basis merely because the losing party’s case lacked merit…A court’s discretion to award solicitor and client or indemnity costs is activated when a plaintiff has failed in an action which has been commenced or continued in circumstances where TSQ, properly advised, should have known he had not chance of success…”[3] [citations omitted]
[2] [1999] SASC 519; (1999) 75 SASR 246.
[3] Ibid at [313]; 279.
I take this statement to be an appropriate statement of the principle which I should apply in considering Legalcom’s claim for indemnity costs. Legalcom emphasises that the Court’s discretion to award solicitor and client or indemnity costs is activated when a plaintiff has failed in an action which has been commenced or continued in circumstances in which TSQ, properly advised, should have known that it had no chance of success.
Legalcom submits that in the present case TSQ should, properly advised, have known that its pleaded primary case had no prospects of success and was doomed to fail. It is on that basis that it submits that a departure from the general rule as to costs is appropriate.
In support of that submission, Legalcom refers to my finding that the primary way upon which TSQ prosecuted its claim for damages, both in the pleadings and at the trial, was misconceived.[4] That misconception arose because TSQ had not distinguished between the liability in damages of a solicitor who negligently fails to advise on the one hand, and the liability of a vendor who delivers defective goods or who in some other way breaches a warranty with respect to the delivery of goods, on the other.
[4] Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd & Ors [2009] SASC 111 at [22], [266], [275].
In addition, Legalcom says that TSQ was on notice of the misconception involved in the manner of its pleading from at least 21 November 2004. In support of this claim, it points to a letter sent by its former solicitors, Thomson Playford, dated 18 November 2004 to TSQ’s solicitors.
In that letter, Legalcom’s solicitors drew TSQ’s attention to the way in which damages against a solicitor who gives negligent advice in circumstances such as those alleged by TSQ are assessed. Legalcom’s solicitors suggested that the way in which TSQ had pleaded the damages it claimed from Legalcom should be revised in the light of those principles, and should accordingly be less than the damages which it claimed from the other defendants to the action.
It is not necessary to quote from the letter of 18 November 2004. It is sufficient to note that the letter raised the approach to the assessment of damages which in substance was the approach which I found in my reasons to be correct.
TSQ’s solicitors responded to Thomson Playford by letter dated 17 March 2005. They disagreed that the approach suggested by Legalcom’s solicitors was correct, and suggested that an alternative approach to the manner of assessment of damages was properly open to TSQ.
Legalcom next draws attention to TSQ’s pleading in the further amended statement of claim, to the effect that had it known of the true state of affairs concerning the condition of the assets it was acquiring, it would not have proceeded to settlement. It submits that given that assertion of fact, TSQ should have appreciated, in the light of the decision in The Commonwealth v Amann Aviation Pty Ltd,[5] that it was not entitled to the profits which would have been available if it had been able to acquire TSPL’s assets in an undamaged state.
[5] (1991) 174 CLR 64 at 81-2.
Legalcom emphasises that TSQ was again put on notice of the misconception involved in its claim for damages by the content of its (Legalcom’s) written opening provided to TSQ approximately one week before the commencement of the trial. In that written opening, Legalcom identified again what it described as the misconception in TSQ’s approach to damages, and provided references to relevant authority.
Finally, Legalcom refers to the fact that TSQ did not accept the formal offer to consent to judgment which it filed on 18 June 2008. It is common ground that if TSQ had accepted the offer, it would have been entitled to a consent judgment involving the payment to it of a sum of money. Legalcom submits that it ought to be concluded in the light of the events which had preceded the filing of the offer, and of the events which have happened since, that TSQ’s failure to accept its filed offer was wholly imprudent.
The effect of my judgment delivered on 24 April is that it can now be seen that TSQ pursued a claim for damages on an erroneous basis. By that I mean a basis which involved a misconception. However in my opinion, it does not follow from the fact that TSQ proceeded in that way that special or unusual circumstances exist in this case which justify a departure from the usual rule as to costs.
It is to be remembered that the immediate reason for the failure of TSQ’s claim was the finding that Legalcom had not breached the duty of care which it owed, whether that duty arose in contract or under the common law. Strictly speaking, it was not necessary for the Court to address the damages issues, but because of the potential for appeal, I proceeded to do so. That does not alter the fact that TSQ’s claim failed because Legalcom was found not to have been in breach of the duty which it owed. It has not been suggested that the breach of duty alleged against Legalcom was not reasonably arguable.
Further, although now that the judgment has been delivered the parties and the Court have the benefit of hindsight, it should be recognised that it is not uncommon in litigation for litigants to disagree about the relevant legal principle which is to be applied, or about the application of an agreed principle to the facts of the given case. Often one party is found to be right, and the other wrong. But to be wrong is not necessarily to be unreasonable.
There is nothing, in my opinion, in the circumstances of the present case to suggest that the proceedings against Legalcom were prosecuted for some ulterior motive, or because of some wilful disregard of known facts, or because of some wilful disregard of well established principle.
As I have said, it appears in this case that TSQ held the view that a particular approach to the assessment of damages could be adopted in the event that it did establish liability. That approach was not supported by authority. On my findings, TSQ was wrong in its approach. I accept that it may properly be said that TSQ could have subjected the approach which it proposed to greater scrutiny and greater analysis, and it may be that many litigants in TSQ’s position would have done so. However, the absence of a closer scrutiny or a closer analysis by TSQ (if that is the explanation), does not, in my opinion, provide an additional feature of the kind which has been recognised in the authorities as indicating that an award of costs on an indemnity basis would be appropriate.
In short, I am not satisfied that this is one of the relatively rare cases in which the Court should depart from the usual rule that costs be awarded on a party/party basis.
I turn then to TSQ’s submission that Legalcom should be entitled to only 50 per cent of its costs of the action.
TSQ relies on Legalcom’s failure on three of the issues which it advanced or contested at trial. The first was Legalcom’s submission that there had not been any contract of retainer at all between it and TSQ. The second was the claim that TSQ’s settlement of its claims against the second and third defendants had the effect of wholly precluding it from recovering damages against Legalcom (the double satisfaction issue). The third was Legalcom’s dispute that the damage to the Bridge Saw, which affected the quality of its cut, had been present at the time of settlement.
I addressed the contractual relationship between TSQ and Legalcom at [190]-[204] inclusive of the reasons published on 24 April. At [197] I expressed the view that the conduct of Mr Goldberg and Ms Smithson upon which TSQ relied as evidencing a retainer between TSQ and Legalcom, was capable of being explained wholly by reference to a pre-existing retainer between Mr Calabrese in his personal capacity and Legalcom. Despite that being so, I found that there was a contract of retainer by applying a presumption arising from the decision in Groom v Crocker[6] which has been applied by the Full Court in two other States. I took the view that I should, consistently with the decision of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[7] follow those authorities, even though I have some reservations as to whether that presumption should continue to be part of the law of Australia. In those circumstances it cannot be concluded that Legalcom acted unreasonably in putting in issue the existence of a contractual retainer between it and TSQ.
[6] [1939] 1 KB 194.
[7] [2007] HCA 22 at [135]; (2007) 230 CLR 89 at 151-2.
I did reject Legalcom’s argument that the principles of double satisfaction should lead to the failure altogether of TSQ’s claim. However, I am not prepared to find that that issue was raised unreasonably or that it protracted the trial unnecessarily. I accept that my reasons indicate that I regarded the resolution of that issue as reasonably straightforward, but I am not prepared to conclude that it was unreasonable of Legalcom to have agitated the issue.
In any event, the double satisfaction issue occupied such a small amount of time at the trial that it could be described as de minimus. It would not in any event warrant a departure from the usual order that a successful party have the whole of its costs.
The final issue was that of whether or not the damage to the Bridge Saw affecting its manner of operation had been suffered at the time of settlement. I have to say, with all respect to counsel, that I was not able entirely to follow the argument that Legalcom’s contest of that issue at trial was unreasonable. There clearly was a real issue about when the damage to the Bridge Saw had been sustained. The hypothesis put forward by Legalcom that the damage may have occurred after settlement by accidental means, could not, on any reasonable basis, be described as an unreasonable hypothesis. The fact that ultimately I did not accept the hypothesis does not mean that it was advanced unreasonably.
The net effect of these reasons is that I reject Legalcom’s claim for costs on an indemnity basis and I reject TSQ’s claim that it should have to pay only 50 per cent of Legalcom’s costs.
I direct that TSQ pay the fourth defendant’s costs of and incidental to the action on a party/party basis.
I certify that this action was an appropriate action for the engagement of senior counsel.