Townsend v Collova
[2005] WASC 4 (S)
•15 JANUARY 2005
TOWNSEND & ORS -v- COLLOVA & ORS [2005] WASC 4 (S)
| Link to Appeal : | [2007] WASCA 40 |
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 4 (S) | |
| Case No: | CIV:1880/2001 | 2-8 APRIL, 19 AUGUST 2004, 22 & 28 FEBRUARY 2005 | |
| Coram: | LE MIERE J | 15/01/05 | |
| 18/03/05 | |||
| 21 | Judgment Part: | 1 of 1 | |
| Result: | The plaintiffs' motion in relation to costs is successful in part The defendants' motion for indemnity costs or alternatively for a special order as to costs fails | ||
| B | |||
| PDF Version |
| Parties: | ELLEN DALE TOWNSEND CAROLINE ADRIANA MORRIS RUBYLEA HOLDINGS PTY LTD (ACN 092 223 268) CARLO COLLOVA ROUSSETY & CO (WA) PTY LTD (ACN 056 022 130) STANLEY JOHN PILKADARIS |
Catchwords: | Costs Expert evidence Order 66 r 1(3) Rules of the Supreme Court Defendants introduced an issue upon which they failed Successful party generally entitled to costs Whether plaintiff to bear costs of issue introduced by defendant Costs Notice to admit facts Order 66 r 3(2) Rules of the Supreme Court Failure to admit facts set out in notice Whether party failing to admit facts subsequently proven is required to meet the costs Use of costs orders as incentive to narrow issues Costs Indemnity costs Order 24A Rules of the Supreme Court Principles of indemnity costs Calderbank letter Whether Calderbank letter creates a presumption Defendants' offers of compromise Costs Special order as to costs Order 66 r 12(1) Rules of the Supreme Court Unusual complexity of case Other good and sufficient reason Whether sufficient unusual complexity to justify making of special order as to costs Whether amount of work done constitutes other good and sufficient reason |
Legislation: | Rules of the Supreme Court (WA), O 24A, O 24A r 10(1), O 24A r 10(2), O 30 r 2, O 66 r 1(3), O 66 r 3(2), O 66 r 12(1) |
Case References: | Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd [2003] WASC 53(S) Commissioner of Australian Federal Police v Razzi (No 2) (1991) 30 FCR 64 Cretazzo v Lombardi (1975) 13 SASR 4 Dobb v Hacket (1993) 10 WAR 532 Duvall v Godfrey Virtue & Co (a firm) [2001] WASCA 163 Esther Investments Pty Ltd v Markalinga Pty Ltd (1992) 8 WAR 400 Jones v Bradley (No 2) [2003] NSWCA 258 MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 Multicon Engineering Pty Ltd v Federal Airports Corp (1996) 138 ALR 425 Nolan v Nolan [2003] VSC 136 Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 76 LGRA 381 Collins v Westralian Sands Ltd (1993) 9 WAR 56 Flotilla Nominees Pty Ltd v Western Austrian Land Authority (2003) 27 WAR 403 Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212 Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 McConnell v Nationwide News Pty Ltd, unreported; SCt of WA; Library No 920670; 10 December 1992 McLean v Kerville, unreported; FCt SCt of WA; Library No 6455; 1 October 1986 Mutual Community Ltd v Lorden Holdings Pty Ltd, unreported; SCt of Vic; 10561/1990; 28 April 1993 Radonich v Radonich [2000] WASC 163 Stambulich v Ekamper (1999) WASC 101 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 Unioil International Pty Ltd v Deloitte Touche Tohmatsu (a firm) (1997) 18 WAR 190 Wayella Nominees Pty Ltd v Cowden Ltd [2003] WASC 210(S) Westgold Resources N/L v St George Bank Ltd, unreported; SCt of WA; Library No 980717; 9 December 1998 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
DECISION : 18 MARCH 2005 FILE NO/S : CIV 1880 of 2001 BETWEEN : ELLEN DALE TOWNSEND
- First Plaintiff
CAROLINE ADRIANA MORRIS
Second Plaintiff
RUBYLEA HOLDINGS PTY LTD (ACN 092 223 268)
Third Plaintiff
AND
CARLO COLLOVA
First Defendant
ROUSSETY & CO (WA) PTY LTD (ACN 056 022 130)
Second Defendant
STANLEY JOHN PILKADARIS
Third Defendant
(Page 2)
Catchwords:
Costs - Expert evidence - Order 66 r 1(3) Rules of the Supreme Court - Defendants introduced an issue upon which they failed - Successful party generally entitled to costs - Whether plaintiff to bear costs of issue introduced by defendant
Costs - Notice to admit facts - Order 66 r 3(2) Rules of the Supreme Court - Failure to admit facts set out in notice - Whether party failing to admit facts subsequently proven is required to meet the costs - Use of costs orders as incentive to narrow issues
Costs - Indemnity costs - Order 24A Rules of the Supreme Court - Principles of indemnity costs - Calderbank letter - Whether Calderbank letter creates a presumption - Defendants' offers of compromise
Costs - Special order as to costs - Order 66 r 12(1) Rules of the Supreme Court - Unusual complexity of case - Other good and sufficient reason - Whether sufficient unusual complexity to justify making of special order as to costs - Whether amount of work done constitutes other good and sufficient reason
Legislation:
Rules of the Supreme Court (WA), O 24A, O 24A r 10(1), O 24A r 10(2), O 30 r 2, O 66 r 1(3), O 66 r 3(2), O 66 r 12(1)
Result:
The plaintiffs' motion in relation to costs is successful in part
The defendants' motion for indemnity costs or alternatively for a special order as to costs fails
(Page 3)
Category: B
Representation:
Counsel:
First Plaintiff : Mr A Metaxas
Second Plaintiff : Mr A Metaxas
Third Plaintiff : Mr A Metaxas
First Defendant : No appearance
Second Defendant : Ms A M I Schoombee
Third Defendant : Ms A M I Schoombee
Solicitors:
First Plaintiff : Arthur Metaxas & Co
Second Plaintiff : Arthur Metaxas & Co
Third Plaintiff : Arthur Metaxas & Co
First Defendant : No appearance
Second Defendant : Allens Arthur Robinson
Third Defendant : Allens Arthur Robinson
Case(s) referred to in judgment(s):
Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd [2003] WASC 53(S)
Commissioner of Australian Federal Police v Razzi (No 2) (1991) 30 FCR 64
Cretazzo v Lombardi (1975) 13 SASR 4
Dobb v Hacket (1993) 10 WAR 532
Duvall v Godfrey Virtue & Co (a firm) [2001] WASCA 163
Esther Investments Pty Ltd v Markalinga Pty Ltd (1992) 8 WAR 400
Jones v Bradley (No 2) [2003] NSWCA 258
MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236
Multicon Engineering Pty Ltd v Federal Airports Corp (1996) 138 ALR 425
Nolan v Nolan [2003] VSC 136
(Page 4)
Case(s) also cited:
Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 76 LGRA 381
Collins v Westralian Sands Ltd (1993) 9 WAR 56
Flotilla Nominees Pty Ltd v Western Austrian Land Authority (2003) 27 WAR 403
Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212
Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748
McConnell v Nationwide News Pty Ltd, unreported; SCt of WA; Library No 920670; 10 December 1992
McLean v Kerville, unreported; FCt SCt of WA; Library No 6455; 1 October 1986
Mutual Community Ltd v Lorden Holdings Pty Ltd, unreported; SCt of Vic; 10561/1990; 28 April 1993
Radonich v Radonich [2000] WASC 163
Stambulich v Ekamper (1999) WASC 101
Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213
Unioil International Pty Ltd v Deloitte Touche Tohmatsu (a firm) (1997) 18 WAR 190
Wayella Nominees Pty Ltd v Cowden Ltd [2003] WASC 210(S)
Westgold Resources N/L v St George Bank Ltd, unreported; SCt of WA; Library No 980717; 9 December 1998
(Page 5)
1 LE MIERE J: The Court has before it a notice of motion from the plaintiffs and a notice of motion from the defendants in which each party seeks orders in relation to the costs of the action.
2 On 14 January 2005 I delivered judgment in this matter. I found that each of the causes of action pleaded by the plaintiffs failed. On 14 January 2005 I pronounced judgment in favour of the defendants and ordered that the plaintiffs pay the costs of the second and third defendants to be taxed. The judgment has not been entered or acted upon.
The notices of motion
3 On 18 February 2005 the plaintiffs and the defendants each filed a notice of motion. The defendants moved for orders that:
"1. Order 2 of the judgment delivered 14 January 2004 be vacated and be replaced with an order that the costs of the action payable by the plaintiffs to the second and third defendants be taxed on an indemnity basis as and from 9 April 2002; such costs to include all costs except in so far as they are of an unreasonable amount or have been unreasonably incurred.
2. Alternatively that in addition to Order 2 of the judgment, a special costs order be made in favour of the second and third defendants that the scale rates and time limits in items 3, 7, 16 and 19 in the Supreme Court Scale be disregarded upon taxation."
4 In their notice of motion the plaintiffs sought an order that the judgment be amended to provide that the costs payable by the plaintiffs to the second and third defendants include no allowance for qualifying fees or witness fees for Russell Morgan. Subsequently, the plaintiffs moved to amend their notice of motion to seek, in addition to the order that the costs payable by the plaintiffs include no allowance for qualifying fees or witness fees for Russell Morgan, the following orders:
"2. the order for costs in favour of the second and third defendants be recalled;
3. the second and third defendants pay the plaintiffs' costs of proving the facts in paragraphs:
(Page 6)
- 1, 2, 3, 4, 5, 6, 9.2, 9.4, 9.6, 13, 16.1, 16.2, 16.5, 16.6, 19, 20, 21, 23, 26, 27, 28, 29, 35, 37, 49.7, 49.8, 49.9 and 49.10
- of the plaintiffs' notice to admit facts dated 5 September 2002.
- 4. The plaintiffs pay the second and third defendants one quarter of their costs of the action to be taxed."
Power and discretion
5 A Judge has power to alter an order pronounced by him until it is drawn up, passed and entered. In this case, the judgment has not been entered. Whether the court should exercise the power to alter the orders made depends on the circumstances. In this case, the defendants moved for judgment, and the plaintiffs made no submissions in opposition, without having read the reasons for judgment. After reading the reasons for judgment the plaintiffs learned that the court had, in effect, rejected the evidence of the defendants' expert accountant, Mr Morgan, and had made findings of fact in favour of the plaintiffs that had been the subject of a notice to admit facts and not admitted by the defendants. Those are sufficient reasons for the court to reconsider its orders in relation to costs where, as here, the judgment has not been entered and the parties have not acted in reliance upon it. I will consider the orders as to costs sought by the plaintiffs on their merits. The defendants are not prejudiced by the amendments to the plaintiffs' notice of motion and did not oppose the amendments. Accordingly, I will consider the plaintiffs' amended notice of motion.
6 The defendants have raised no cogent explanation why on 14 January 2005 the defendants did not move for the costs orders now sought. The bases for the defendants' motion that the costs payable by the plaintiffs be taxed on an indemnity basis are two Calderbank letters. The basis for the alternative order sought, a special costs order, is the unusual complexity of the case, or that the limits in the costs scale do not adequately compensate the defendants for the work done by the defendants' solicitors. The solicitor with the conduct of the matter on behalf of the defendants deposed that she did not have the opportunity to read the reasons for decision before the judgment was entered. None of the reasons now advanced for the orders sought by the defendants are affected by the reasons for decision. Nevertheless, in circumstances where the court is to reconsider, at the instigation of the plaintiffs, the orders as to costs and
(Page 7)
- where the order has not been acted upon, I consider that the defendants' motions should be considered on their merits.
7 It is convenient to consider the plaintiffs' notice of motion first.
The plaintiffs' notice of motion
The evidence of Russell Morgan
8 In return for the money they invested, the plaintiffs received, in effect, an interest in the master franchise company and the first outlet, the North Perth shop. In July 2001 the plaintiffs effectively disposed of their interests in the franchise outlet to Quantum Assets Pty Ltd for $1. In addition, Quantum Assets agreed to indemnify the company holding the outlet in respect of any liability under the lease of the premises. The plaintiffs pleaded that the business had no value and that no value could be salvaged by the removal of the plant and equipment from the premises, that Poppies Corporation was at all material times insolvent and that the funds paid by the plaintiffs were lost. The defendants denied those allegations and pleaded that the North Perth business had a realisable value of approximately $85,000 and that the plant and equipment of the North Perth business itself had an in situ value of approximately $60,251.
9 The defendants led evidence from Russell Morgan, a chartered accountant. The purpose of Mr Morgan's evidence was to establish that the North Perth business had a realisable value of approximately $85,000 and that the plant and equipment of the business had an in situ value of approximately $60,251 or at least some value greater than that for which the plaintiffs disposed of the business. I did not accept the opinions of Mr Morgan. I found that the plaintiffs disposed of the business for a reasonable consideration and hence rejected the propositions put forward by the defendants.
10 Order 66 r 1(3) provides:
"Where a party though generally successful in an action has, by the introduction of some issues or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues."
11 The plaintiffs submit that the evidence of Mr Morgan went to the realisable value of the North Perth business, and the plant and equipment of the business, and that the defendants failed on those issues, hence the
(Page 8)
- defendants should not have the costs incurred in relation to that issue and in particular any qualifying fees and witness fee payable to Mr Morgan.
12 The defendants submit that they did not introduce an issue by leading the expert evidence of Mr Morgan. They submit that this evidence was merely responsive to the plaintiffs' expert evidence provided by Mr Buckley that the business only had a value of $1.
13 In my view the defendants introduced an issue on which they failed. For the purposes of O 66 r 1(3), an issue does not mean a precise issue in the technical pleading sense but includes any disputed question of fact. An issue is introduced where a defendant denies a fact asserted by the plaintiff and leads evidence to support the defendants' contention in relation to that fact.
14 A party will not get costs merely because of his or her success on particular issues: Cretazzo v Lombardi (1975) 13 SASR 4 at 12, 16.
15 The costs of this action were increased by the defendants' decision to contest the plaintiffs' contention that at the time they disposed of the business, the business, including plant and equipment, had no greater value than the value of the indemnity in respect of any liability, past and future, under the lease of the premises. If the defendants had accepted that the business had no greater value then the costs of both parties would have been reduced. The affect of their decision to contest the issue upon which they failed increased the plaintiffs' costs as well as their own.
16 I recognise the importance of the general rule that a successful party is entitled to his or her costs and a successful party should not be deprived of his or her costs merely because he or she has failed on some issue. However, in this case the costs of the issue on which the defendants failed are likely to be substantial. The defendants' costs of that issue will include a qualifying fee and a witness fee for a professional witness, a chartered accountant. Similarly, the defendants contesting the issue on which they failed has increased the qualifying and witness fee payable by the plaintiffs to their professional witness, Mr Buckley. In these days of high legal costs the courts should use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. If parties come to realise that where they unsuccessfully raise a discrete issue they will not necessarily recover the whole of their costs, even though they are successful in the action, they are likely better to consider whether the raising of that issue is a justifiable course to take: Commissioner of Australian Federal Police v Razzi (No 2) (1991) 30
(Page 9)
- FCR 64 per Wilcox J at 69. I will order that the costs payable by the plaintiffs to the second and third defendants include no allowance for qualifying fees or witness fees for Russell Morgan.
Notice to admit facts
17 The plaintiffs served on the defendants a notice to admit facts dated 5 September 2002. The second and third defendants responded with a notice dated 27 September 2002. The second and third defendants admitted some of the facts set out in the plaintiffs' notice but did not admit the majority of the facts set out in the plaintiffs' notice.
18 Order 66 r 3(2) provides that if a party on whom a notice to admit facts is served under O 30 r 2, refuses or neglects to admit the facts, the costs of proving the facts shall be paid by him, unless the court otherwise orders. That is, unless an order to the contrary is made, the plaintiffs are automatically entitled to a costs benefit by the operation of the rule and will establish their entitlement at the taxation by the production of the relevant notice and reference to the transcript and reasons for judgment. On one view it is not necessary or desirable for the court to make any order in relation to this matter, unless the effect of the order is to deprive the plaintiffs of their costs in relation to the proving of the facts in the notice to admit facts that were not admitted by the defendants. However, in my view it is desirable that the court should make an order in relation to the matters arising from the notice to admit facts so as to render the taxation of costs simpler and more certain.
19 The plaintiffs contend that the defendants did not admit the facts set out in pars 1 to 6 of the notice to admit facts and that the plaintiffs proved those facts at trial. The defendants admit those matters but submit that it is not reasonable to expect the defendants to admit those facts where they concerned information exclusively within the knowledge of the plaintiffs and the first defendant. In any event, the defendants submit, the costs incurred in proving these facts were minimal.
20 Under O 66 r 3(2), if a party proves facts of which he sought admission by a notice and the disputing party did not admit the facts, the disputing party must pay the costs of proof of those facts unless a contrary order is made. The question raised in the present application, then, is whether the plaintiffs should be deprived of those costs. In general, the incidence of party and party costs in litigation does not depend on whether a matter was within a party's knowledge, it depends upon success. Order 30 r 2 and O 66 r 3(2) are intended to encourage parties, including those who expect to be ultimately successful, to consider realistically
(Page 10)
- whether they will put the other party to the cost of proving each and every fact. In the absence of some special factor, the disputing party runs the risk that, if the party giving the notice to admit succeeds, a costs burden must be accepted. The use of costs orders as an incentive to narrow the issues, to shorten trials and to save costs is a part of litigation in this Court. In my opinion the primary question that a party in receipt of a notice to admit a fact must address is whether the notice-giver will prove that fact. In the circumstances of this case I see no reason to deprive the plaintiffs of their costs in relation to the facts set out in pars 1 to 6 of the plaintiffs' notice to admit facts.
21 Paragraph 9 of the plaintiffs' notice to admit facts asserted that on 27 April 2000, at his office, the third defendant verbally represented to the first and second plaintiffs, in effect, the matters set out in subpars 9.1 to 9.6. Subparagraph 9.2 is that the first defendant was a good businessman and trustworthy. The defendants did not admit that fact. In my reasons for judgment I found that the third defendant represented to the plaintiffs that the first defendant was trustworthy but not that he was a good businessman. The plaintiffs submit that the defendants should have admitted that the third defendant represented that the first defendant was trustworthy. The onus is on the party giving a notice to admit facts to draft the asserted facts with precision. The fact asserted in the notice was a representation that the first defendant was a good businessman and trustworthy. The representation that the first defendant was a good businessman is an important part of the representation contended for in the notice to admit facts. The finding that the third defendant represented that the first defendant was trustworthy but not that he represented that the first defendant was a good businessman, means that the plaintiffs did not prove the asserted fact.
22 Subparagraph 9.4 of the notice to admit asserts that the third defendant verbally represented to the first and second defendants, in effect, that the first defendant had done a lot of research over the past four to five years which the third defendant had seen. The plaintiffs did not prove that fact. By subpar 9.6 of their notice the plaintiffs asserted that the third defendant verbally represented to the first and second plaintiffs, in effect, that if the finance broker the plaintiffs were about to consult could not organise the finance they required then the third defendant would be able to assist them. The plaintiffs did not prove that fact. I found that the third defendant met with the plaintiffs, and made relevant representations to them, after the plaintiffs had seen the finance broker, not before.
(Page 11)
23 The defendants admit that the facts asserted in pars 19, 20 and 23 of the plaintiffs' notice were not admitted by the defendants and were proved by the plaintiffs. The plaintiffs should have the costs of proving those facts.
24 The fact asserted in par 26 of the plaintiffs' notice is that WA Home Loans requested that the first plaintiff provide, in support of her loan application, a projected profit and loss statement to 30 June 2001 for the pizza shop business. I found that WA Home Loans requested the third defendant to confirm the estimated income of the pizza shop and its purchase price. The plaintiffs did not prove the fact asserted in the notice.
25 The defendants admit that the facts asserted in pars 27, 28, 35 and 37 of the plaintiffs' notice were not admitted by the defendants and were proved by the plaintiffs. The plaintiffs should have the costs of proving those facts.
26 Subparagraph 49.7 of the plaintiffs' notice asserted that the third defendant knew on 27 April 2000, that in the period before the expiration of the loans to CRJ Assets Pty Ltd, the first defendant had been informed by prospective lenders that the North Perth property was worth about $380,000. The plaintiffs did not prove that fact.
27 The facts asserted in subpars 49.8 and 49.9 of the plaintiffs' notice are established by the exhibits. The plaintiff should have the costs of proving those facts.
28 Subparagraph 49.10 of the plaintiffs' notice asserted that CRJ Assets Pty Ltd would be a critical supplier of stock for sale in the Poppies franchise stores. The plaintiffs proved that fact. The plaintiffs should have the costs of proving that fact.
29 The plaintiffs did not press their motion in relation to the remaining paragraphs of their notice to admit facts.
30 I find that the plaintiffs should have the costs of proving the facts asserted in pars 1 to 6, 19, 20, 21, 23, 27, 28, 35, 37, 39.8, 49.9 and 49.10 of the plaintiffs' notice to admit facts.
The defendants' notice of motion
Defendants' application for indemnity costs
31 The bases for the defendants' motion for indemnity costs are two Calderbank letters. By the first letter, dated 8 March 2002, the
(Page 12)
- defendants' solicitors wrote to the plaintiffs' solicitors inviting the plaintiffs to discontinue their action on the basis that the parties bear their own costs. The letter stated that if the matter went to trial and the plaintiffs failed to establish their claim then the defendants would rely on the letter in support of an application for indemnity costs incurred from 9 April 2002. The plaintiffs' solicitors responded stating that the plaintiffs would be proceeding with their claim. By the second letter, a facsimile dated 16 December 2003, the defendants' solicitors wrote to the plaintiffs' solicitors offering to settle the matter by payment to the plaintiffs of $30,000 inclusive of costs. The defendants' solicitors stated that if the plaintiffs took the matter to trial the defendants would rely on the letter in support of an application for costs incurred from 16 December 2003.
Principles concerning award of indemnity costs
32 Offers of compromise are provided for under O 24A. The learned author of Seaman, "Civil Procedure Western Australia" says at [24A.0.1], that the policy of this order, in the interests of good judicial administration, is to encourage a party to whom a fair and reasonable offer of compromise has been made to accept the offer and bring the proceedings to an end, so freeing the court from time and resources taken by proceedings which are prolonged unnecessarily. Among the objects of the order are the encouragement of the saving of public and private costs and the avoidance of the inherent risks and delays of litigation by promoting early and realistic offers of compromise.
33 Either a plaintiff or a defendant may make an offer of compromise. Where an offer is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment no less favourable to him than the terms of the offer, then, unless the court otherwise orders, the plaintiff shall be entitled to an order against the defendant for his costs taxed on an indemnity basis in addition to his costs incurred before that date, taxed on a party and party basis. Where an offer is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains judgment on the claim to which the offer relates not more favourable to him than the terms of the offer, then, unless the court otherwise orders, the plaintiff shall be entitled to an order against the defendant for his costs in respect of the claim up to and including the day the offer was made, taxed on a party and party basis, and the defendant shall be entitled to an order against the plaintiff for his costs in respect of the claim thereafter, taxed on a party and party basis.
(Page 13)
34 Order 24A does not provide for the situation when a defendant makes an offer of compromise and the plaintiff wholly fails. Further, O 24A does not expressly make provision for an offer of compromise on the basis of an overall settlement "inclusive of costs". The learned author of "Civil Procedure Western Australia" says at [24A.0.5B]:
"It is suggested that an offer of compromise upon the basis of an overall settlement 'inclusive of costs' can be made in reliance on the terms of this order but that its efficacy will depend upon the court exercising its discretion under r 10(1)."
35 In Nolan v Nolan [2003] VSC 136 at [47] Dodds-Streeton J took a contrary view of the corresponding rule in the Supreme Court Rules of Victoria.
36 Without prejudice offers of compromise which are not made under O 24A may still affect the court's discretion as to costs: Dobb v Hacket (1993) 10 WAR 532 at 541; Duvall v Godfrey Virtue & Co (a firm) [2001] WASCA 163 at [7].
37 In my opinion, the offers made by the defendants in each of their letters could not have been made under O 24A because the first offer provided that each party bear their own costs and the second offer was "inclusive of costs". Order 24A r 10(2) provides that if a notice of offer contains a term which purports to negative or limit the operation of par (1), that is that the plaintiff may tax his costs, that term shall be of no effect for any purpose under the order. The possibility that the court might "otherwise order", as provided for in O 24A r 10(1) does not overcome the express terms of O 24A r 10(2).
38 Each of the defendants' letters was in the form of a Calderbank letter and is admissible in evidence on the issue of costs. The plaintiffs in this case have been unsuccessful. The defendants' offers were more favourable to the plaintiff than the outcome of the action.
39 The defendants submit that there are two lines of authority regarding the effect of Calderbank offers. The first approach is that there is a prima facie presumption that the offeree should pay the costs of the other party on an indemnity basis from the date of the making of the offer where the offeree refused the offer and achieved a result less favourable to it than the offer. The second approach is that there is no prima facie presumption, but that the question whether the offeree should pay the other parties' costs on an indemnity basis after the date of the Calderbank offer depends on all the relevant circumstances of the case. In support of
(Page 14)
- those propositions the defendants cite Multicon Engineering Pty Ltd v Federal Airports Corp (1996) 138 ALR 425 at 448; Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd [2003] WASC 53(S); MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236; Jones v Bradley (No 2) [2003] NSWCA 258 and Nolan v Nolan (supra).
40 In Alpine Holdings Pty Ltd v Warwick Entertainment Centre Pty Ltd (supra) Roberts-Smith J said at [72] - [74], referring to what Rolfe J said in Multicon Engineering Pty Ltd v Federal Airports Corp (supra) at 447 - 448:
"[72] His Honour finally concluded (451) that:
'In my opinion the proper approach to take to an Offer of Compromise, whether made under the Rules or pursuant to aCalderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness ... is demonstrated, prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged.' (Emphasis added).
[73] Although what his Honour there said must necessarily have been obiter insofar as it relates to a Calderbank letter, I respectfully agree with it. The logic that there should be a prima facie presumption that indemnity costs should be awarded unless the opposing party can show otherwise, for the reasons given by his Honour, is compelling. The conclusion retains the essential discretion of the court to make a different order depending upon the circumstances of the particular case. The approach is consistent with, and does not detract from, the discretion given by s 37 of the Supreme Court Act 1935 (WA) and O 66 of the WA Rules. It also gives effect to the requirements of the proper administration of justice.
(Page 15)
- [74] In my view the approach adopted by Rolfe J in the passage quoted at [72] above appropriately encapsulates the principles which should be applied to an offer of compromise made by way of a Calderbank letter."
- Alpine Holdings and Multicon Engineering were both cases where the plaintiff was successful and sought an indemnity costs order against the defendant. In such cases an order that the defendant paid costs on an indemnity basis is consistent with the terms of O 24A. Order 24A provides for a defendant to pay costs on an indemnity basis where an offer is made by a plaintiff and not accepted by the defendant and the plaintiff obtained judgment no less favourable to him than the terms of the offer. However, O 24A makes no provision for a plaintiff to pay indemnity costs to a defendant in circumstances where a plaintiff has rejected an offer from a defendant that is more favourable to the plaintiff than the outcome of the action.
41 In Nolan v Nolan (supra), Dodds-Streeton J considered the situation of a plaintiff offeree who was unsuccessful at trial. Dodds-Streeton J said at [72] and following:
"[72] Order 26 of the Supreme Court Rules does not provide for payment of indemnity costs by an unsuccessful plaintiff. I questioned whether the omission reflected an unstated policy that plaintiffs should not be subjected to a costs penalty on the same basis as defendants in this context, but my own researches and those of counsel did not reveal the existence of such a policy.
[73] I note the Court of Appeal's recent statement that an indemnity basis should not be elevated to the usual basis for a costs order and that bona fides plaintiffs should in general not be penalised for pursuing their claims. The Court of Appeal's caveat against an overly-rigid reliance on precedent in the exercise of this discretionary power is also clear.
[74] If Calderbank letters offering settlement on the basis that each party bear its own costs without any further particularity than that contained in the pleadings were served early in a proceeding, and routinely given full effect, indemnity costs could, by a de facto process, displace party-party as the usual basis of a costs order.
(Page 16)
- [75] In the light of the Court of Appeal's recent reaffirmation that the problems associated with the growing gap between party and party costs and costs actually payable to a party's solicitor should not lead to a departure from the usual party and party basis for costs, and its caveat that reference to other decisions should not constrict the discretionary nature of an award of costs, it may be that a Calderbank offer, taken in isolation, should not create any predisposition to award indemnity costs, although it should be a factor in favour of such an order. This may ultimately be a matter of semantics, with variations in expression obscuring a fundamentally similar judicial approach."
42 I consider that a Calderbank letter is but one factor relevant to the exercise of the discretion to award costs in favour of a successful defendant. A Calderbank offer is a significant factor in favour of indemnity costs but does not require an order for indemnity costs as a matter of routine.
The defendants' first offer of compromise
43 The defendants made their first offer of compromise by letter of 8 March 2002. That was relatively early in the action, about eight months after the service of the writ. The letter invited the plaintiffs to discontinue their claims against the defendants for the reasons set out in the letter. The letter referred to the weaknesses in the plaintiffs' case regarding causation and reliance and stated: "We consider that to walk away from this dispute is a fair and reasonable outcome".
44 Generally speaking, the defendants' solicitor's predictions in their letter were borne out. The plaintiffs' action failed on the issue of reliance. Where a defendant puts with sufficient particularity to the plaintiff the reasons why the action must fail, yet the plaintiff does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs. However, in this case it was not clear or obvious that the plaintiffs' action would fail. The view could reasonably and prudently be taken by the plaintiffs that what the defendants were putting in their letter would not ultimately prevail, in view of their case on the issue of reliance. Furthermore, the element of compromise was modest. At most, the plaintiffs stood to benefit by not having to pay party and party costs incurred by the defendants to that time if the plaintiffs' action should ultimately fail. In these circumstances the plaintiffs were entitled to
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- pursue their claim without running the risk of an order for indemnity costs.
The defendants' second offer of compromise
45 The defendants' solicitors made their second offer of compromise in their facsimile letter of 16 December 2003. The defendants' solicitors stated that the plaintiffs were unlikely to succeed in their action for the reasons that were set out. Again, generally speaking, the defendants' predictions in their letter were borne out. The defendants made an offer of $30,000 inclusive of costs. The letter stated that if the plaintiffs proceeded to take the matter to trial, the defendants would rely on their letter "in support of an application for the costs incurred from 16 December 2003 onwards, according to the principles in Calderbank". The defendants did not expressly warn the plaintiffs that they would seek indemnity costs if the plaintiffs failed to obtain a judgment more favourable to them than the defendants' offer of compromise. Again, although the element of compromise was not negligible, it was relatively modest given the quantum of the plaintiffs' claim and the costs that must have been incurred by the plaintiffs by that time. I conclude that, in the circumstances, the plaintiffs were entitled to pursue their claim without running the risk of an order for indemnity costs. Although, at that stage, it must have been clear that the plaintiffs' case faced very significant hurdles, it could not fairly be said that the plaintiffs' claim was hopeless. The considerations advanced by the defendants were not so obviously correct that the plaintiffs behaved imprudently or unreasonably in not accepting the small element of compromise present in the defendants' offer.
46 Furthermore, the plaintiffs succeeded in establishing that the second defendant had engaged in misleading or deceptive conduct and that the third defendant was knowingly concerned in that conduct. A significant amount of time at trial was occupied with matters on which the plaintiffs succeeded. In all the circumstances, I consider that the plaintiff should pay the defendants' costs of the action on a party and party basis.
Special order as to costs
47 Alternatively, the defendants' move for a special costs order to be made in favour of the defendants that the scale rates and time limits in Items 3, 7, 16 and 19 in the Supreme Court scale be disregarded upon taxation.
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48 Order 66 r 12(1) of the Rules provides that where the court is of opinion that a special order as to costs should be made by reason of the unusual complexity or importance of the case, or for any other good or sufficient reason, the court may order that any particular allowances in a relevant scale be raised or a limit removed.
49 The defendants submit first that a special costs order should be made by reason of the unusual complexity of the case.
50 There were a number of factual and legal issues at trial. I do not consider that the issues relating to quantum of damages should be taken into account in considering whether the action was one of unusual complexity because the defendants wholly failed on that issue and I have determined to order that the defendants should not have the costs of that issue. That matter aside, the factual issues were not unusually complex for an action in this Court.
51 There were a number of legal issues involved in the action. Each of them needed to be addressed. Some of them are not without difficulty. However, that does not of itself mean that the action is one of unusual complexity. To justify the making of a special costs order the legal issues must be of sufficiently unusual complexity that the relevant scale items are insufficient. It is a matter of degree and judgment. I am not satisfied that the action is of sufficient unusual complexity to warrant the making of a special order as to costs.
52 The second ground on which the defendants seek a special order as to costs is that the amount of work done by the defendants' solicitors justifies such an order. The amount of work done of itself may constitute a good and sufficient reason for the making of a special costs order. It is a matter for the trial Judge to determine as a matter of judgment whether, on the face of it, the amount of work done appears to have been reasonably done so as to constitute good and sufficient reason for making the order: Esther Investments Pty Ltd v Markalinga Pty Ltd (1992) 8 WAR 400 per Malcolm CJ at 402.
53 In support of their motion the defendants relied upon an affidavit of Miriam Patricia Morgan-Hobbs, sworn 18 February 2005, and an affidavit of a law graduate, Brigg Raymond Baxter, sworn 25 February 2005. In the course of argument I ordered that pars 3 to 7 of Mr Baxter's affidavit be struck out on the grounds that par 3 is hearsay and pars 4 to 7 are secondary evidence of documents not produced and hearsay of the truth of the matters stated in the documents.
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54 In opposition to the defendants' motion the plaintiffs relied upon an affidavit of Arthur Metaxas sworn 22 February 2005. The defendants objected to pars 3 to 6 of that affidavit. Mr Metaxas is a legal practitioner in this State. He has practised primarily in commercial litigation since about 1985 in Western Australia. In par 3 of his affidavit he stated that in his recent experience, that is over the past five years, he has found that taxed costs on a party and party basis are sufficient to recompense his clients for all of their costs in Supreme Court trials. In pars 4 to 6 Mr Metaxas referred to three actions heard in this Court. Mr Metaxas gave details of those actions in support of his assertion in par 3 of his affidavit. The defendants object to pars 3 to 6 of Mr Metaxas' affidavit on the grounds that they contain inadmissible opinion evidence.
55 The defendants submit that a solicitor is entitled to give evidence as to good practice but not of the solicitor's opinion whether some act done by a legal practitioner was done negligently. The defendants submit that, by analogy, a solicitor is not entitled to give evidence of his own experience of the costs of proceedings.
56 It is necessary to look at pars 4 to 6 of Mr Metaxas' affidavit in a little more detail. In each paragraph Mr Metaxas refers to a Supreme Court action in which he was the solicitor for a party. He refers to the length of the trial, who appeared as counsel, who his client's witnesses were, and his client's actual costs and taxed or agreed costs. In my view those paragraphs are irrelevant. The question raised by the defendants is whether the amount of work involved in the preparation of this case provides good and sufficient reason to increase the allowance provided by a legal costs determination. Whether the relevant scale or costs determination was adequate in other cases is not relevant to that issue. Paragraph 3 of Mr Metaxas' affidavit is irrelevant for the same reason. Whether taxed costs on a party and party basis have been sufficient to recompense Mr Metaxas' clients for all of their costs in Supreme Court trials over the past five years is not relevant to whether the amount of work involved in the preparation of the plaintiffs' case provides good and sufficient reason to increase the allowance provided by a legal costs determination. I order that pars 3 to 6 of Mr Metaxas' affidavit be struck out.
57 The defendants sought to establish that the amount of work done justified the making of a special costs order by the affidavit sworn by Mr Baxter, a law graduate employed by the defendants' solicitors who had worked on the matter. As I have said I struck out the relevant paragraphs of the affidavit on the ground that they were secondary evidence of a
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- document or documents that were not produced. In any event, the law graduate's inadmissible evidence went no further than stating that the defendants' solicitor's time records recorded that a certain amount of time had been spent drafting the defence, giving discovery and getting the case up for trial. That is inadequate. It fails to state why so much time was spent on each of those items and provides no basis for a finding that the work done appears to have been reasonably done so as to constitute a good and sufficient reason for making the order. Having regard to the evidence led at trial, including the documentary evidence, the pleadings and argument, I am not satisfied that the defendants have discharged the burden on them of proving that the amount of work done was reasonably done and constitutes a good and sufficient reason for making a special costs order.
58 There is a further and independent reason why I would not in any event make a special costs order. The defendants did not succeed on all the issues at trial. The plaintiffs succeeded on a substantial number of issues. In those circumstances, I would not in any event make a special costs order in favour of the defendants.
Transcript
59 The defendants seek an order that they have the costs of obtaining a transcript. In my view, obtaining a transcript was reasonably necessary for the proper conduct of the action by the defendants' counsel and solicitors. I will order that the defendants are entitled to the costs of obtaining a copy of the transcript.
Conclusion
60 I will discharge the order I made on 14 January 2004 that the plaintiffs pay to the second and third defendants the costs of the action to be taxed. I will order that the costs payable by the plaintiffs to the second and third defendants include no allowance for qualifying fees or witness fees for Russell Morgan.
61 I have determined that the plaintiffs are entitled to the costs of proving the facts in the specified paragraphs of the plaintiffs' notice to admit facts to which I have referred. The plaintiffs submitted that in lieu of making an order that the second and third defendants pay the plaintiffs' costs of proving those facts, or making no order and leaving the matter for the Taxing Master, I should make an order that the plaintiffs pay the second and third defendants one quarter of their costs of their action to be taxed. That is, the costs payable by the second and third defendants to the
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- plaintiffs in respect of the facts specified in the notice to admit facts should be set off against the costs payable by the plaintiffs to the defendants and, applying a broad-brush approach, I should make one order for costs in favour of the defendants.
62 Order 66 r 3(2) provides that, in effect, that the plaintiffs should have the costs of proving the specified facts unless the court otherwise orders. The question of costs is subject to the discretion of the court. In my view, the practical and just outcome is to order that the plaintiffs pay the second and third defendants three quarters of their costs of the action to be taxed and the plaintiffs are not to have the costs of proving the specified facts in the notice to admit facts. Such an order will obviate the necessity for the parties and the Taxing Master to try and identify the costs of proving each of the specified facts. Such an order will reflect the overall result of the action, having regard to the plaintiffs' success in proving the facts in the notice to admit facts not admitted by the defendants.
63 Accordingly, I will make orders to the following effect:
Order 2 of the orders made on 14 January 2004 is set aside and in lieu thereof it is ordered that:
(a) subject to par (b), the plaintiffs pay the second and third defendants three quarters of their costs of the action to be taxed;
(b) the costs payable by the plaintiffs to the second and third defendants are to include no allowance for qualifying fees or witness fees for Russell Morgan;
(c) the plaintiffs are not to recover the costs of proving the facts in the notice to admit facts not admitted by the second and third defendants and proved by the plaintiffs.
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