Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd

[1991] FCA 225

Re: TETIJO HOLDINGS PTY LTD
And: KEEPRITE AUSTRALIA PTY LTD
No. WA G55 of 1988
FED No. 225
Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Costs - solicitor-client costs - protracted proceedings - discontinued shortly prior to trial - no explanation - trade practices action out of time - claims in negligence and contract weak - whether solicitor-client costs order appropriate - general principles - operation and flexibility of Federal Court Costs Scale.

Trade Practices Act 1974 s.52

Federal Court of Australia Act 1976 s.43

Federal Court Rules O.62 r.12(1)

Challenge Finance Ltd v. Accolade Pty Ltd (unrep; Fed Ct 7/2/91; French J.)

Hughes v. Western Australian Cricket Association (Inc.) (1986) ATPR 40-748

Queensland Wire Industries Pty Ltd v. Broken Hill Pty Co. Ltd (1987) 78 ALR 407

Andrews v. Barnes (1888) 39 Ch D 133

EMI Records Ltd v. Ian Cameron Wallace Ltd (1982) 2 All ER 980

Australian Transport Insurance Pty Ltd v. Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287

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

Australian Guarantee Corp Ltd v. De Jager (1984) VR 483

HEARING

PERTH

#DATE 3:5:1991

Counsel for the Applicant : Mr B. Wheatley

Solicitors for the Applicant : Corser and Corser

Counsel for the Respondent : Mr R.W. Richardson

Solicitors for the Respondent : Blake Dawson Waldron

ORDER

The applicant to pay the respondent's costs of the action including reserved costs to be taxed.

There be liberty to apply on 48 hours written notice in relation to enforcement of the Westpac Banking Corporation's guarantees dated 23 March 1989 and 19 June 1990 lodged by the applicant as security for the respondent's costs.

The respondent to pay half the applicant's costs of the motion filed 28 February 1991 to be set off against the respondent's taxed costs.

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

JUDGE1

These proceedings were instituted by the filing of an application and statement of claim on 8 April 1988. Nearly three years later, on 14 March 1991, they were discontinued by leave. At that time the matter was listed for trial for 4 days commencing on 22 April 1991. The discontinuance did not reflect any compromise and the respondent now moves for an order that:

"...the applicant do pay the respondent's costs of the action, including reserved costs, and such costs are to include all costs except in so far as they are of an unreasonable amount or have been unreasonably incurred so that, subject to the above exceptions, the respondent will be completely indemnified by the applicant for its costs and the amount of such costs be taxed."

The respondent submits that such an order should be made because the applicant's case lacked merit from the outset and the proceedings were protracted by the applicant's failure to comply with various requests and court orders in relation to the provision of particulars and discovery. The discontinuance was made very late in the day and no explanation proffered for it.

The Law

1. Section 43 of the Federal Court of Australia Act 1976 provides:
   

"43(1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded.

(2) Except as provided by any other Act, the award of costs is in the discretion of the Court of Judge."

The discretion thus conferred is not qualified by the Federal Court Rules - Hughes v. Western Australian Cricket Association (Inc.) (1986) ATPR 40-748 at 48,136; Queensland Wire Industries Pty Ltd v. Broken Hill Pty Co. Ltd (1987) 78 ALR 407 at 418.

1. Amounts recoverable under the Federal Court Rules are governed by O.62 r.12(1) which must be read in conjunction with the Second Schedule to the Rules. Order 62 r.12(1) provides:
   

"Except as otherwise ordered in all proceedings commenced on and after the date these Rules came into operation, solicitors are, subject to these Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule and higher fees shall not be allowed in any case except such as are by this Order otherwise provided for."

The Second Schedule comprises a list of the maximum fees chargeable for specific items of solicitor's work. There are, however, certain items which attract no specified maximum. Item 41 is one of these and provides:

"41. Where the case or circumstances warrant it, an allowance may be claimed under this item, in addition to any item which appears in this scale, for general care and conduct (where appropriate) including:

(a) the complexity of the matter and the difficulty and novelty of the questions raised or any of them

(b) the importance of the matter to the party and the amount involved

(c) the skill, labour, specialised knowledge and responsibility involved therein on the part of the Solicitor

(d) the number and importance of the documents prepared or perused without regard to length

(e) the time expended by the Solicitor

(f) research and consideration of questions of law and fact."

The costs which the taxing officer may allow are generally regulated by O.62 r.19 which requires that they shall "appear to him to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party". Within the prescribed maxima therefore, substantive criteria of necessity and propriety apply. In the less well defined area of general care and conduct, recovery according to these criteria is available and recognition will be given to "the time expended by the solicitor". Recoverable counsel fees are governed by considerations of what is fair and reasonable according to the circumstances. The availability of these substantive bases for recovery must be borne in mind when considering an application for indemnity costs.

1. The power to award such costs originated in the Court of Chancery and after 1873 arose under the equitable jurisdiction of the High Court of Justice - Andrews v. Barnes (1888) 39 Ch D 133 at 139 (Cotton, Fry and Lopes L.JJ.):
   

"The records of the Court of Chancery during the last century shew that in numerous cases it has exercised the right of giving costs between attorney and client, or, to use the more recent language of the cases, between solicitor and client."

Cases in which such orders had been made were referred to and included fraudulent and collusive proceedings and "numerous other cases on the ground of scandal". The Court concluded at 141:

"From this consideration of the earlier authorities we conclude that there was inherent in the Court of Chancery at the time of its abolition a general and discretionary power to award costs as between solicitor and client to a successful party, as and when the justice of the case might so require...."

1. Sitting on a review of a taxation in EMI Records Ltd v. Ian Cameron Wallace Ltd (1982) 2 All ER 980, Sir Robert Megarry VC reviewed what he described as the five main bases of taxation of costs, they being:
   

1. The party and party basis.

2. The common fund basis.

3. The trustee basis.

4. The solicitor and own client basis.

5. The indemnity basis.

The first four were specifically provided for under the Rules of the Supreme Court. The party and party basis allowed recovery of "all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed" and reflects the terms of O.62 r.19. The solicitor and own client basis relates to taxation of a solicitor's bill to his own client for contentious work. Under r.29(1) of the Supreme Court Rules this basis would allow all costs "except in so far as they are of an unreasonable amount or have been unreasonably incurred". The Federal Court Rules contains no such provision as the Court is not directly involved in the regulation of the legal profession. That is not to say, that under s.43 the Court cannot order costs be taxed on such a basis as between party and party in an appropriate case.

1. The fifth basis for taxation of costs referred to by Megarry VC is the indemnity basis. Neither the English Rules nor the Rules of the Federal Court contain any express mention of such a basis and as his Honour remarked "there seems to be no clear statement of what such a basis means". He noted, however, that the courts have been making such orders for many years and they have often been "more or less equated with orders for costs as between solicitor and own client".

2. It is not necessary for present purposes to explore the full ramifications of the indemnity order considered in that case as the respondent here seeks to exclude costs "of an unreasonable amount" or that "have been unreasonably incurred".

3. The power of this Court to make such an order was asserted by Woodward J. in Australian Transport Insurance Pty Ltd v. Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 at 288 where his Honour said:
   

"I have no doubt that I have power to make such an order. Section 43 of the Federal Court of Australia Act 1976 gives a general power to award costs and goes on to provide in sub-s.(2):

"Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge."

That discretion is "absolute and unfettered", but must be exercised judicially (Trade Practices Commission v Nicholas Enterprises (1979) 28 ALR 201 at 207). 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" (Preston v. Preston (1982) 1 All ER 41 at 58)."

And in Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Pty Ltd (1988) 81 ALR 397, his Honour referred to the judgment of Tadgell J. in Australian Guarantee Corp Ltd v. De Jager (1984) VR 483 where solicitor and client costs were allowed because the pursuit of the action was found to have been a "high-handed presumption". Woodward J. observed of this decision:

"No doubt the expression "high-handed presumption" was appropriate in the case Tadgell J. had to decide, and he needed to go no further; but in order to establish a convenient principle in such cases it is necessary to be a little more prosaic. I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity costs", whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion."

Accepting that the categories in which the discretion may be exercised are not closed and that other elements of litigious misconduct may be relevant, I respectfully accept the preceding statement of principle as an appropriate guide to the exercise of the discretion. In determining its application in this case it is necessary first to turn to the pleadings.

The Pleadings

1. The application concerns negotiations between Mr Terry Spiro on behalf of the applicant and Mr Herbert Budge on behalf of the respondent, allegedly conducted in August and September 1982 and leading to the execution of a written agreement dated 15 October 1982. Under that agreement, according to the applicant, it was appointed as the Western Australian distributor for air conditioning equipment manufactured by the respondent. The applicant alleged that it was induced to enter the agreement by certain representations made to it and that they were misleading or deceptive or likely to mislead or deceive within the meaning of s.52 of the Trade Practices Act 1974.

2. The representations pleaded were said to have been made on 13 September 1982 and were as follows:
   

(1) The respondents through Mr Herbert Budge represented expressly or impliedly that its Western Australian distributor would have the capacity to achieve annual sales of the respondent's product in Western Australia of between $538,333 and $807,500 by reason of the existence of a viable market for the respondent's product in Western Australia and further represented that the respondent had reasonable grounds for making this representation.

(2) Budge again represented and confirmed that the applicant would achieve annual sales of between $538,333 and $807,500. (para.5)

(3) Budge represented that the respondent would pay its Western Australian distributor a sum to be determined by calculated at least 7% of the annual sales achieved by the respondent's proposed Western Australian distributor. He thereby expressly or impliedly represented that the respondent would pay that percentage of the annual sales which were represented to be between $538,333 and $807,500.

The representations were said to be false or misleading and/or deceptive and/or likely to mislead or deceive in that the applicant "only achieved annual sales of $36,385.71" and at the time the representations were made the respondent did not have reasonable grounds for making them. These allegations were all denied by the amended defence. The positive case was set up that in July 1982 the respondent negotiated with the applicant for its appointment as a distributor of the respondent's products. In the course of those negotiations it disclosed information to the applicant about the sales of Carrier air conditioners in Western Australia and agreed that the applicant as its distributor would be entitled to a commission for sales of the respondent's products, which commission was specified in cl.9 of a written agreement dated 15 October 1982. It was admitted that the applicant did not achieve annual sales of between $538,333 and $807,500. From the outset also, the respondent pleaded that the action brought under the Trade Practices Act 1974 was out of time.

1. The applicant pleaded negligent misstatement on the part of the respondent by virtue of the alleged representation which plea was particularised as follows:
   

"The representation was made both by letter dated 13 September 1982 from the Respondent to the Applicant which letter enclosed further statistic information upon which statistic information the respondent allegedly based the representation and orally on 29 August 1982." (sic)

The respondent, it was said, knew or ought to have known at the time that it did not possess sufficient products in Australia to enable such sales to be achieved, that it had not achieved any sales of its products in Western Australia or sales of the represented amount and that it would not be able to achieve such sales in its first years of operation in Australia. Further, it was said, the respondent had not carried out any market study to assess the demand for its products in Australia.

1. A further alternative claim for breach of contract was pleaded, relying upon an implied term in the agreement that the respondent would not compete or prevent the applicant obtaining commissions. The breach was said to have been committed when the respondent:
   

(a) supplied its products for sale direct to retail outlets including those operated by Coles Myer Ltd and Woolworths

(WA) Ltd in the State of Western Australia;

(b) advised the applicant by a memorandum dated 19 December 1983 that the respondent had withdrawn from the Australian market with effect from 30 November 1983.

Damages were claimed, being the expenses incurred in setting up the business i.e. $18,131 and "commissions on sales as represented at the rate of 7% for the 1983/84 season and the 1984/85 season, i.e. $37,683 - $56,525 per season". The commission component seems to have assumed application of the contractual measure of damages. In the alternative, the applicant claimed "commissions on all sales by other distributors and those lost as a result of the Respondent's withdrawal from the Australian market".

1. The implied term or terms were denied. In any event the respondent contended that it did not sell its products direct to retail outlets in Western Australia and denied that its memorandum of 19 December 1983 prevented the applicant from obtaining commissions or constituted a breach of the agreement between them. It denied that it withdrew from the Australian market with effect from 30 November 1983 and contended that it was at all times ready, willing and able to perform its obligations under the agreement. And if the memorandum of 19 December 1983 was a breach of contract, then the applicant did not accept it as a repudiation and alternatively waived it by treating the agreement as on going, placing orders with the respondent up to and including 18 October 1984. It was also alleged in the defence that the agreement was terminated by mutual consent as at 21 January 1985 and alternatively July 1985. Loss and damage were also denied.
   The Merits of the Case

2. In support of his claim for solicitor/client costs, counsel for the respondent submitted that documents relied upon by the applicant in pleadings and particulars could not be construed as containing representations within the meaning of s.52 or at common law. In any event it was said that the cause of action under s.52 was clearly statute barred.

3. The applicant had filed further and better particulars of its amended statement of claim on 20 June 1989 and 14 November 1990. In the first set of particulars it elaborated upon the representations alleged in para.4A saying that the information as to anticipated annual sales was disclosed orally over the telephone in discussions between Mr Spiro and Mr Budge and in person at Sydney Airport on 29 August 1982. Budge, it was said, had informed Spiro that the respondent had decided to establish a permanent market in Western Australia and would not withdraw from it in the short term. Budge was said to have told Spiro that he was able to make the representation on the basis of knowledge gained in his former position as National Sales Manager for Carrier Airconditioning. As to the further representation pleaded in para.5A, this too was said to have been made orally over the telephone and in person at Sydney Airport on 29 August 1982.

1. The additional particulars provided on 14 November 1990 supported the implied representation pleaded in para.4A by reference to a letter from the respondent to the applicant dated 13 September 1982 signed by Mr Budge enclosing information showing the annual sales budget for Western Australia for "Carrier" brand air conditioners to be $1,615,000. The letter, it was said in the particulars, implied that a realistic sales target for the respondent's goods in Western Australia would be between one half and one third of the "Carrier" target, namely $807,500 and $538,333.

2. Counsel referred to the letter of 13 September which was exhibited to his affidavit. It was under the letterhead of KeepRite Australia Pty Ltd and marked for the attention of Mr T. Spiro. It was in the following terms:
   

"Dear Terry,

In order to bring you up to date, I am enclosing herewith copies of correspondence and information forwarded to the other state distributors. Contained herein are several items which must be for your eyes only. Some of the information has been gained from friends working for the opposition. The letter dated August 24 and the Carrier document Cash Rebate, show the advantages that we offer. If you look at the list of the six WA Carrier dealers I believe that we can set them targets of between 1/2 and 1/3 of their Carrier target. Giving them better prices to start with, and by working from dollar one and not making the attainment of the State budget a proviso, we will be seen to be more than fair. Please let me have your thoughts on this matter urgently. The letter dated August 4, is now a bit out of date and I enclose the up to date prices to dealers. These prices contain the 7 1/2 per cent new sales tax and people may either purchase including S.U.W. or excluding. I enclose two photographs of fronts. In the May 12 letter, I show that we are not being greedy and these statistics are a fact. The statistics referred to in the June 10 letter are also enclosed. Kind Regards,

Yours sincerely,

H.C.A. Budge

Managing Director"

It was submitted that the letter contained neither representations nor predictions, but at most a hoped-for objective to be achieved in an unknown market. Counsel for the applicant on the other hand said it was clear from the pleadings that the representations pleaded relied upon oral statements and were not restricted to the letter. I accept that proposition which is apparent upon inspection of the pleadings. On the other hand it is also clear that the letter is relied upon to support the implied representation in para.4A and that taken by itself it shows little prospect of doing that. I am reluctant, however, to come to the conclusion that seen in context it could not have lent some support to that contention.

1. Counsel then argued that in any event it was clear that the s.52 claim which was the front line of the applicant's case, had no prospect of succeeding and that the applicant was put on notice of that in 1988 when the defence was filed. The time limit upon actions for damages for contravention of s.52 of the Trade Practices Act 1974 arises because of the language of s.82 of the Act which provides:
   

"82(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

(2) An action under sub-s.(1) may be commenced at any time within three years after the date on which the cause of action accrued.

(3) Sub-section (1) does not apply in relation to conduct done in contravention of s.52A."

As is apparent from the terms of s.82, loss or damage is an essential element of the cause of action which does not accrue until it is suffered. Identification of the point at which a party relevantly suffers loss or damage is, as the cases show, not always an easy task. In that context it is sufficient to refer to the review of the authorities undertaken in Challenge Finance Ltd v. Accolade Pty Ltd (unrep; Fed Ct 7/2/91; French J.). On the other hand, the applicant claimed as part of its loss expenses incurred in setting up the distributorship business and on any view of the authorities, the cause of action would have accrued from the point of that outlay. The actual date of that outlay is not specified, but it must have been prior to 21 May 1984 because, according to the particulars, it was set out in the applicant's letter to the respondent of that date. And on that basis the cause of action must have accrued more than three years before the proceedings were instituted.

1. Counsel for the respondent agreed that there had been no attempt to strike the cause of action out on the basis that it was out of time and said this was because the authorities indicated that it should be pleaded by way of defence. The defeat of the cause of action based upon s.52 would not, of course, dispose of the claims in negligent mis-representation or contract. Counsel submitted that the document could not be read as containing any promise or prediction of sales figures. He relied upon the fact that the market at that stage was unknown to support that construction. In my opinion, however, it is dangerous to draw conclusions about the certain outcome of the case from a combined reference to pleadings and documentary evidence where there has been no fully argued strike out motion and the Court has not had the opportunity of hearing all of the evidence. Accepting that on the materials before me the case in negligent misrepresentation did not appear very strong, I am not in a position to say that it was hopeless and that this should have been known to a properly advised applicant.

2. In relation to the contract claim, counsel for the respondent argued that the implied term alleged simply could not be read into the distributorship agreement, a copy of which was annexed to his affidavit. The agreement did not provide for an exclusive distributorship but at the same time is not necessarily inconsistent with an implied term that Keeprite would not compete with the applicant. Clause 13 of the agreement in particular provided that the respondent would allow the applicant to use the name "Keeprite Western Australia" for the purposes of trading and otherwise as might be appropriate to market and sell the products. Counsel complained that the pleading did not disclose a basis for the implied term, but that is a point which could have been raised before now. Reference was also made to documentary evidence said to militate against the implication. In the end, however, I could not be satisfied that the plea was unmeritorious. It was defective in not disclosing the basis of the implication, but that is another question. Overall I am not prepared to conclude that the claim as pleaded was hopeless from the outset or that it attracts the criteria enunciated by Woodward J. in Re Fountain Selected Meats (supra).
   The Conduct of the Proceedings

3. Counsel for the respondent next attacked the applicant's conduct of the proceedings saying that interlocutory steps had been protracted by its failure to comply with requests for particulars and discovery and with orders of the Court. Further, it was said, there were untenable applications to amend pleadings and for leave to appeal. Discontinuance of the action was at the last minute and no explanation had been advanced for it. He submitted that it should be inferred that there had been a sudden acceptance by the applicant of the hopelessness of its case and that this was a matter which should have been apparent very shortly after the commencement of the proceedings.

4. I accept that the interlocutory processes were unduly protracted and that the applicant must bear much of the responsibility for this. However, costs orders were made in favour of the respondent where the applicant was responsible for wasted appearances. When, in an individual case, there is evidence of particular misconduct on the part of a party that causes loss of time to the Court and to other parties then an order for solicitor-client costs and/or costs to be paid forthwith may be made. In my opinion a global order of this kind is not warranted in this case.

5. For these reasons I propose to order that the applicant pay the respondent's costs to be taxed in the ordinary way.