Thomas v Southcorp Australia Pty Ltd (No 2)
[2004] VSC 50
•27 February 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
LONG CASES LIST
No. 4774 of 2000
| BARRY RAYMOND THOMAS And VALERIE ROSE THOMAS | Plaintiffs |
| V | |
| SOUTHCORP AUSTRALIA PTY LTD (ACN 004 213 665) And SOUTHCORP MANUFACTURING PTY LTD (ACN 004 253 605) | Defendants |
| No. 6144 of 2002 | |
| VALERIE ROSE THOMAS | Plaintiff |
| V | |
| SOUTHCORP AUSTRALIA PTY LTD (ACN 004 213 665) And SOUTHCORP MANUFACTURING PTY LTD (ACN 004 253 605) | Defendants |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 February 2004 | |
DATE OF JUDGMENT: | 27 February 2004 | |
CASE MAY BE CITED AS: | Thomas v Southcorp (No 2) | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 50 | |
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Compensation – Negligence – Defective goods causing loss – whether defect in heater caused house fire – Trade Practices Act 1974, ss 74B, 74D, 75AF, 75AG and 82 – finalisation of orders after judgment handed down.
Costs – whether indemnity costs appropriate – whether costs in related proceedings be set off - Supreme Court (General Civil Procedure) Rules 1996, rules 63.55 and 63.30.1
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs in No 4774 of 2000 | Mr F Saccardo | Ligeti Partners |
| For the Plaintiff in No 6144 of 2002 | Mr F Saccardo | Henry Carus & Associates |
| For the Defendants | Ms M Loughnan | Phillips Fox |
HER HONOUR:
Introduction
My reasons for judgment in these two matters (“the earlier reasons”) were delivered on 16 February 2004, when I invited submissions as to the details of the orders to be made and as to costs. Pending the making of those submissions, the judgment has not been authenticated. Those submissions have now been made. These reasons should be read with the earlier reasons.
The formal orders
I deal first with the submissions as to the orders to be made in No 4774 of 2000 (“the property claim”). In that matter, the plaintiffs in their statement of claim sought relief under sections 74B, 74D, 75AF, 75AG and 82 of the Trade Practices Act 1974 (“the Act”).
As I said at [73] of the earlier reasons:
Mr Saccardo submitted that I should find liability in the defendants, in that the heater had a defect, in terms of the definition in section 75AC of the Act, in that its safety was not such as persons generally were entitled to expect, and that the fire occurred because of that defect. That being so, he submitted, the defendants were liable to compensate the plaintiffs under section 75AF for the loss which they have suffered because of the defect as a result of the destruction of or damage to their goods, being goods of the kind described in section 75AF(c); and are liable to compensate the plaintiffs under section 75AG for the loss which they have suffered because of the defect as a result of the destruction of or damage to the house. Mr Lewis [senior counsel for the defendants] made no submission in relation to sections 75AC, 75AF or 75AG.
At [76] of the earlier reasons I said:
The finding that I have made as the cause of the fire leads me to conclude that the safety of the heater was not such as persons generally are entitled to expect; and thus that there was a defect, as defined, in the heater. In my view, persons generally – “the public at large”, to adopt the words of Emmett J [1] – are entitled to expect that a gas heater will not operate in the way in which I have found the heater did operate, so as to cause a significantly destructive fire.
At [78] of the earlier reasons I made findings in accordance with the submissions of Mr Saccardo set out in [3] above. In considering my decision, I did not consider the operation of either section 74B or section 74D of the Act.
[1]In ACCC v Glendale Chemical Products Pty Ltd (1998) APTR 41-632 at 40,970
Sections 74B and 74D read as set out below, so far as relevant:
74B Actions in respect of unsuitable goods
(1)Where:
(a)a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;
(b)a person . . . supplies the goods . . . to a consumer;
(c)the goods are acquired by the consumer for a particular purpose that was, expressly or by implication, made known to the corporation, either directly, or through the person from whom the consumer acquired the goods . . .
(d)the goods are not reasonably fit for that purpose . . . ; and
(e)the consumer . . . suffers loss or damage by reason that the goods are not reasonably fit for that purpose;
the corporation is liable to compensate the consumer . . . for the loss or damage and the consumer . . . may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.
(2)Subsection (1) does not apply:
(a)if the goods are not reasonably fit for the purpose referred to in that subsection by reason of:
(i)an act or default of any person (not being the corporation or a servant or agent of the corporation); or
(ii)a cause independent of human control;
occurring after the goods have left the control of the corporation; or
(b)where the circumstances show that the consumer did not rely, or that it was unreasonable for the consumer to rely, on the skill or judgment of the corporation.
74D Actions in respect of goods of unmerchantable quality
(1)Where:
(a)a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;
(b)a person . . . supplies the goods . . . to a consumer;
(c)the goods are not of merchantable quality; and
(d)the consumer . . . suffers loss or damage by reason that the goods are not of merchantable quality;
the corporation is liable to compensate the consumer . . . for the loss or damage and the consumer . . . may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.
(2)Subsection (1) does not apply:
(a)if the goods are not of merchantable quality by reason of:
(i)an act or default of any person (not being the corporation or a servant or agent of the corporation); or
(ii)a cause independent of human control;
occurring after the goods have left the control of the corporation; or
.. .
(3)Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to:
(a)any description applied to the goods by the corporation;
(b)the price received by the corporation for the goods (if relevant); and
(c)all the other relevant circumstances.
In the further and better particulars of loss and damage delivered by the plaintiffs on 25 September 2001, the claim with regard to the contents of the house is expressed to include not only goods of the kind described in section 75AF(c), that is “goods of a kind ordinarily acquired for personal, domestic or household use”, but also $64,300 in respect of “tools”, and $67,930 in respect of “trade electrical components”. It is not in issue that Mr Thomas, the firstnamed plaintiff, is an electrical contractor and conducts his business from his home; and that tools and electrical components related to that business were in the house at the time of the fire. [2] Nor is it in issue that compensation for the loss of those items is not available under section 75AF.
[2]I am not, of course, concerned with the quantification of the claimed loss, it having been agreed that the loss be assessed by a Master pursuant to Order 51: see [78] of the earlier reasons.
At the present hearing, Mr Saccardo, for the plaintiffs, submitted that the findings in [76] of the earlier reasons would support a finding under section 74B of the Act that the heater was not reasonably fit for the purpose for which it was supplied and a finding that the defendants were in breach of section 74D of the Act in that the heater was not of merchantable quality. Ms Loughnan, for the defendants, made no submission in reply on that point, and did not suggest that any of the requirements of those provisions were not met.
I note the view of Branson J, expressed in Medtel Pty Ltd v Courtney[3] that the requirement of “merchantable quality” is to be defined by reference to what it is objectively reasonable to expect at the time of supply to the consumer. The time of supply was some two years before the fire; but there is no suggestion that the process which I found to have caused the fire [4] was related to any change from the condition of the heater at the time when it was supplied.
[3](2003) 198 ALR 630 at [64]
[4]see [72] and [32] to [34] of the earlier reasons
Having considered the matter, I accept the submission of Mr Saccardo.
Mr Saccardo submitted that if I did accept that submission, it would be appropriate to add to the orders set out in the earlier reasons in respect of the property claim, orders in the following terms:
1.That the defendants compensate the plaintiffs:
(c)under section 82 of that Act in respect of the claim made under the headings “tools” and “trade electrical components” in the plaintiffs’ further and better particulars of loss and damage dated 25 September 2001 by reason of the breach by the defendants of the provisions of section 74B and section 74D of the Act.
5.That there be liberty to apply.
He relied on the decisions of the Court of Appeal in Fletcher Construction Australia Ltd v Lines Macfarlane & Marshall Pty Ltd[5] and of the New South Wales Court of Appeal in Smith v ANZ Banking Group Ltd [6] In Fletcher Construction Chernov JA, with whom Charles and Vincent JJA agreed, said:
The extent to which judges of a superior court may properly alter reasons for judgment subsequent to their being given may depend not only on whether the changes are sought to be made before or after judgment has been entered, but also on the nature and extent of the alterations. A litigant is entitled to a decision that is based on reasons that have led the judge to that conclusion. It would obviously impede the proper administration of justice and work unfairness to the parties if the judge could, at a later time, give different reasons for the decision which were crafted after judgment had been pronounced. Thus, the courts limit the rights of a judge to change the reasons, but they do so consistently with the practical requirements of justice. In the case of a superior court of record, judgment is not relevantly finalised until it is entered in the records of the court. Hence, until that occurs, the judge can recall the order and the reasons and make a different order and give different reasons.
[5](2001) 4 VR 28 at [49]
[6]unreported, decided on 21 November 1996: at 11
Ms Loughnan, for the defendants, submitted that the power to alter an order and reasons prior to the entry of judgment was one which should only be exercised where there was a clear error of fact apparent in the reasons (as was the case in Smith v ANZ). That was not the case here. Given that the Court had adopted the submissions put on behalf of the plaintiffs, the plaintiffs should not be entitled to change their submissions at this stage. “The plaintiffs,” she said, ”having led Her Honour down a certain path of reasoning are bound by the result.”
However, the Court is not bound to act only upon the submissions of counsel. I did, as I have said, adopt the submissions of Mr Saccardo described in [3] above. Nevertheless, in the statement of claim, relief was sought under sections 74B and 74D; and the losses sought to be compensated were clearly set out in the further and better particulars of loss and damage. It was an oversight on my part not to consider the operation of those sections, in the light of certain later submissions of Mr Saccardo, and of the contents of the statement of claim and the further and better particulars. In asking for submissions as to the form of the orders I was in effect giving counsel the opportunity of bringing to my attention any matter which I had overlooked in the formulation of the draft orders contained in my reasons. Both counsel have taken that opportunity (Ms Loughnan in respect of certain minor matters which it is not necessary to particularise). The matter in issue is not whether Mr Saccardo is to be given the opportunity to make further submissions, but whether I am to alter my draft orders on the basis of those further submissions.
Having considered the matter, I am satisfied that the substantive orders attached to these reasons, incorporating as they do the changes submitted by both counsel, correctly reflect the findings of the Court and are in accordance with the requirements of justice.
Costs
Ms Loughnan submitted that in No 6144 of 2002 (“the personal injury claim”) her clients should receive indemnity costs.
It is well established that there is a power to award costs on other than a party and party basis, which power is wholly in the discretion of the Court, but that the discretion must be exercised judicially and not unreasonably. Winneke P said in Bass Coast Shire Council v King[7]:
Although, as a general rule, the court will order costs to be taxed and paid on a party and party basis (see r. 63.31 of the Rules of Civil Procedure) it none the less is invested with the discretion to order costs to be taxed and paid on a solicitor and client basis (see r. 63.32 of the Rules). That discretion is not limited to the particular circumstances described in the rule: see per Batt J. Regal Life Insurance Ltd. v. Pacific Financial Resources Pty. Ltd. (unreported, 16 November 1994). The discretion to award costs on a solicitor and client basis is, thus, an unlimited one although it must be exercised judicially and not unreasonably. The circumstances in which a court might be moved to award costs on the solicitor and client scale should be described as “special” if only to set them apart from the usual basis upon which costs are awarded: see per Callaway J.A. Spencer v. Dowling ([1997] 2 VR 127]).
[7][1997] 2 VR 5 at 29.
In Spencer v Dowling, Callaway JA[8] considered the use of the expressions “solicitor and client costs” and “indemnity costs” which appear sometimes to be used indiscriminately in the cases. His Honour said:
Solicitor and client costs are themselves of different kinds. . . . Sometimes they are taken to afford less than a complete indemnity, but on other occasions their purpose is to do what the court can to ensure that a party is not out of pocket. . . . It was for that reason that Woodward J., in Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. (1988) 81 ALR 397 at 401-2, decided that costs should be paid on a solicitor and client basis but adopted the language of indemnity in the actual order he made to provide greater certainty.
[8]at 164.
It is clear that the same principles are applicable to the exercise of the discretion to award indemnity costs as to the exercise of the discretion to award solicitor and client costs per se, and it is not necessary to distinguish between the two in consideration of the relevant authorities. The issue remains in the discretion of the judge.
Rogers CJ Comm D said in Singleton v Macquarie Broadcasting Holdings Ltd [9]:
As I endeavoured to explain in Qantas Airways Ltd v Dillingham Corporation (Rogers J, 14 May 1987, unreported) it became necessary to make orders for indemnity costs because of the ever widening gap that had opened up between the costs payable by a successful party to his, or her, own solicitors and the amount recoverable on a party and party taxation. It seemed to me wholly inappropriate that a party, forced to take legal proceedings, entirely through the wrongful and inappropriate conduct of the other party, be left badly out of pocket at the successful conclusion of the proceedings, simply by reason of an inappropriate method of taxation of costs.
[9](1991) 24 NSWLR 103 at 105.
Rule 63.30.1 of the Supreme Court (General Civil Procedure) Rules 1996 provides:
63.30.1Indemnity basis
(1)Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.
(2)Any doubt which the Taxing Master may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable.
In Colgate Palmolive Co v Cussons Pty Ltd[10] Sheppard J considered at some length the authorities as to the principles relating to the award of indemnity costs. At 254 His Honour set out the following passage from the judgment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[11]:
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.
[10](1993) 46 FCR 225 at 229 ff
[11](1988) 81 ALR 397 at 400-1.
However, Sheppard J [12] cited the comment of Gummow J in Council of the Municipality of Botany v Secretary Department of the Arts, Sport, the Environment, Tourism and Territories[13], after referring to what Woodward J had said in Fountain Selected Meats. His Honour expressed the view that the discretion was not so circumscribed that an order might be made only against an ethically or morally delinquent party. And he cited the similar view of French J expressed in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers - Western Australian Branch [14] in the following terms:
Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. 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.
[12]at 255
[13](1992) 34 FCR 412 at 415.
[14](1993) 46 IR 301 at 303
Sheppard J continued at 257:
Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Teitjo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court of Australia, decided on 3 May 1991): “the categories in which the discretion may be exercised are not closed”. Davies J expressed (at p 6) similar views in Ragata (supra).
His Honour went on to enumerate a number of circumstances which have been thought to warrant the exercise of the discretion, including:
the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
evidence of particular misconduct that causes loss of time to the Court and to other parties;
the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law;
the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; and
an imprudent refusal of an offer to compromise.
More recently, Harper J in Ugly Tribe Pty Ltd v Sikola[15] referred to the following passage from the judgment of Winneke P in Spencer v Dowling at 147:
[15][2001] VSC 189 at [8] to [12].
There can be no doubt that, in litigation in superior courts, the usual measure of costs awarded is costs on a party/party basis. There is, likewise, no doubt that a court does have the power to award costs on a higher measure if the circumstances require it. This practice in the superior courts is, in my experience, universal although it is well recognised that there is occurring an ever increasing gap between party/party costs and those actually incurred. In the case of Bass Shire Council v. King (unreported, 15 August 1994), Nathan J. expressed at 1 the practice in what are, in my view, appropriate terms:
It is undoubtedly a principle of law that costs follow the event on a party and party basis, but that the courts are free to depart from that principle if confronted with circumstances where the conduct of one or other of the parties … would warrant the ordering of costs on an indemnity basis. There must be special circumstances which lift the case out of the ordinary.
This practice has continued to apply notwithstanding expressions of view by individual judges that it is capable, in today’s circumstances, of working injustice: see, for example, per Rogers J. (as he then was) in Qantas Airways Ltd. v. Dillingham Corp. (unreported, N.S.W. Supreme Court, 14 May 1987). The practice is designed to reflect a compromise between the interests of successful and unsuccessful litigants. As Handley J.A. observed in Cachia v. Hanes (1991) 23 N.S.W.L.R. 304 at 318 the practice is also adopted to provide an “important spur to settlement”. Sheppard J. in Colgate-Palmolive Co. v. Cussons Pty. Ltd. (1993) 46 F.C.R. 225 at 233 restated the practice and pointed out:
This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation … or a decision of an intermediate court of appeal or of the High Court would be required to alter it.
Commenting on that passage, Harper J went on to say:
11.The compromise about which Winneke P spoke is perhaps justifiable on the basis that potential litigants must not be unnecessarily discouraged from bringing their disputes to the courts. After all success can seldom be guaranteed, if only because – where the facts are in dispute, as they generally are – it is seldom possible to predict with certainty what findings of fact will be made. In these circumstances, an honest plaintiff or defendant might be discouraged from bringing or defending a claim were an adverse result to be followed by an order that the losing party indemnify, or go close to providing an indemnity to, the successful party against the latter’s costs.
12.The position changes where a litigant acts dishonestly in the litigation, or where the rights and privileges of a litigant are flouted or abused. Then, the rationale for refusing to order that the losing party indemnify an opposite party against that party’s costs is less compelling. Indeed, costs are more frequently if not invariably awarded on an indemnity or like basis (such as that of solicitor/client) where findings of dishonesty or serious misconduct have been made against the party ordered to pay.
In support of her submission that her clients should receive indemnity costs, Ms Loughnan produced a copy of a letter from her instructing solicitors to the plaintiff’s solicitors written on 28 April 2003 containing an offer by the defendants “to bear [their] own costs on a drop hands basis in these proceedings as against a release in the usual form”. The offer was expressed to be made without prejudice save as to costs. It did not state that it would be relied on in support of a claim for indemnity costs. It appears that no response was made to that offer. She also referred to letters written before that offer was made in which it was stated that the personal injury claim was bound to fail, on the ground that the writ did not disclose a cause of action and was an abuse of process. That point was not made in the course of the careful submissions of the defendants at the hearing on the question of liability for non-physical injury; and it was not the ground on which the plaintiff failed.
Ms Loughnan relied on the passage from the judgment of Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation [16] which was adopted by Gillard J of this Court in MT Associates Pty Ltd v Aqua-Max Pty Ltd[17] (No 3) where His Honour said that in his opinion:
The evidence of a Calderbank letter, the rejection of the offer contained therein and the failure to obtain a result better than the offer, places the offeror in the position that a court should approach an application by that party for indemnity costs with a predisposition to holding that it is entitled to indemnity costs.
[16](1996) 138 ALR 425 at 440
[17][2000] VSC 163
Gillard J went on to emphasise the importance, in the public interest, of courts encouraging litigants to make offers to compromise litigation, and I would, with respect, agree. Nevertheless, in the present case, I consider that the rejection of the offer does not entitle the defendants to indemnity costs. An offer was made to settle the personal injury claim for $40,000 plus costs. The value of the items claimed in the further and better particulars of property damage totalled more than $500,000. Clearly the personal injury claim was relatively small in the context of the property claim. A settlement of the personal injury claim at the stage when the offer was made might have been seen as having implications for the issue of liability which was common to both claims. The effect of the failure to accept the offer must be seen in that context. And considering the issue in the wider context of the authorities to which I have referred, I do not see, in the conduct of the personal injury claim, any ground, in terms of the authorities, to exercise my discretion to order payment of indemnity costs.
Ms Loughnan then submitted that the costs taxed in favour of the defendants in the personal injury claim be set off pursuant to Rule 63.55 against the costs taxed against the defendants in the property claim. This would avoid the loss to her clients which would be incurred if Mrs Thomas, the plaintiff in the personal injury claim, chose not to pay the costs awarded against her.
However, the parties are not identical in each proceeding and were represented by different solicitors. Mrs Thomas is the sole plaintiff in the personal injury claim, and she and her husband are the plaintiffs in the property claim. In these circumstances, a set-off is not appropriate.
Mr Saccardo proposed that the order for payment by the plaintiff of the defendants’ costs of the personal injury claim, which he did not seek to oppose, should be expressed to apply only to those of the defendants’ costs which are non-common to the costs in the property claim. He emphasised that, while the personal injury claim was significant in itself, far more time and far more resources, were directed to the question of the causation of the fire, which was common to both proceedings, than to the personal injury claim alone. Even the evidence of Mrs Thomas herself was relevant to the question of causation; she would still have been a necessary witness even without the personal injury claim.
Ms Loughnan submitted that it would be appropriate to split the costs fifty-fifty between the two proceedings. However, that would, as Mr Saccardo submitted, have the effect that the successful plaintiffs in the property claim, which was generally recognised as being the main proceeding, would recover only fifty per cent of their costs. I accept the submission of Mr Saccardo as to the form of the order for payment of the defendants’ costs.
For the reasons given, there will be the following orders:
In proceeding No 4774 of 2000
1.There will be judgment for the plaintiffs.
2.That the defendants compensate the plaintiffs:
(a)under section 75AF of the Trade Practices Act 1974 for the loss which the plaintiffs have suffered because of the defect in the heater as a result of the destruction of or damage to their goods, being goods of the kind described in section 75AF(c), as a result of the fire at 26 Hedge End Road Mitcham on 2 May 1997;
(b)under section 75AG of that Act for the loss which the plaintiffs have suffered because of the defect as a result of the destruction of or damage to the house situate at 26 Hedge End Road Mitcham as a result of the fire on 2 May 1997; and
(c)under section 82 of that Act in respect of the claim made under the headings “Tools” and “Trade Electrical Components” in the plaintiffs’ Further and Better Particulars of Loss and Damage dated 25 September 2001 by reason of the breach by the defendants of the provisions of sections 74B and 74D of the Act.
3.That the compensation payable by the defendants to the plaintiffs under paragraphs 2(a), (b) and (c) together with the damages to which the plaintiffs are entitled by way of interest be assessed by a Master pursuant to Order 51.
4That the plaintiffs’ costs of the proceeding be taxed and when taxed paid by the defendants.
5.That there be liberty to apply.
In proceeding No 6144 of 2002
1.That the proceeding be dismissed.
2.That the defendants’ costs in the proceeding which are non-common to the costs in proceeding No 4774 of 2000 be taxed and when taxed paid by the plaintiff.
In both proceedings
That the plaintiffs’ costs thrown away as a result of the adjournment in respect of 13 October 2003 be paid by the defendants on a party-party basis.
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