CATCHWORDS

COSTS - Interlocutory proceeding - no final determination - contrasting party and party basis and indemnity basis where no allegation or evidence against party

Federal Court of Australia Act 1976 s 43

Federal Court Rules 1979 O 62 r 3

Trade Practices Act 1974 ss 52, 53, 75B

Fair Trading Act (NSW) 1987 ss 42, 44, 61

Yorke v Lucas [1985] 158 CLR 661

ASC v Aust-Home Investments Limited [1993] 44 FCR 194

Colgate-Palmolive Company & Anor v Cussons Pty Ltd [1993] 46 FCR 225

J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers Western Australian Branch & Anor (French J, unreported, 19 February 1993)

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

Sanchez v Smits and Leslie trading as Smits Leslie Barwick (Einfeld J, unreported, 13 April 1994)

MICHAEL PASCOE & ANOR v NATIONAL FUTRAX PTY LTD & ORS

No. G 93 OF 1995

EINFELD J

SYDNEY

21 NOVEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY)    No. G 93 of 1995

GENERAL DIVISION                 )

                   Between:      MICHAEL PASCOE

                                           First Applicant

                                 NINE TELEVISION P/L

                                 ACN 008-685-407

                                           Second Applicant

                       And:      NATIONAL FUTRAX P/L

                                           First Respondent

                                 EILEEN ROBINSON

                                           Second Respondent

                                 CARMEL MARGARET BROWN

                                           Third Respondent

                                 JAMIE PICKERING

                                           Fourth Respondent

                                 LARRY PICKERING

                                           Fifth Respondent

                                 KEVIN ROBINSON

                                           Sixth Respondent

                    REASONS FOR JUDGMENT

EINFELD J                 SYDNEY           21 NOVEMBER 1995

On 17 February 1995 the applicants presented an application and statement of claim alleging that the corporate respondent had breached sections 52, 53(c) and 53(d) of the Trade Practices Act (1974) (TPA) and the parallel sections in the Fair Trading Act (NSW) 1987 (FTA) in relation to an advertisement that had been placed in the Sydney Morning Herald on 15 February 1995.  The applicants asserted that the individual respondents had aided and abetted the corporate respondent in placing the advertisement and

were thus involved in the contravention as dealt with in section 75B of the TPA.  On February 22 1995 an order that the first respondent publish corrective advertising was made in the proceedings.  The facts of the case and reasons for judgment were published at that time and there is no reason to repeat them here.

On the same date by the separate motions of both the fourth and fifth respondents, proceedings against them were dismissed by consent.  These respondents, who were separately represented, sought orders for costs on an indemnity basis and oral submissions were heard on that matter.  These orders were opposed.  It is convenient to deal with these motions together.

The applicants had named six respondents in total.  The respondents who contested their application for corrective advertising were the first respondent (the corporation) as well as the second, third and sixth respondents.  The second and third respondents are each directors of the corporation and the sixth respondent is its general manager with sole responsibility for the day-to-day running of operations.  The fourth and fifth respondents, however, were neither directors nor officers of the company.  They filed affidavits in support of their motions stating that they had nothing to do with the corporation in a structural, administrative or legal sense, nor did they have knowledge of the relevant advertisement.  The fourth respondent had no involvement with the company and the fifth respondent's
only involvement was commercial and professional.  Neither played any part in the proceedings before the Court.

In ASC v Aust-Home Investments Limited [1993] 44 FCR 194, Justice Hill considered the issue of costs for an interlocutory proceeding that did not result in a hearing for final relief.  At 199 his Honour noted that such costs are provided for by Order 62 rule 3 of the Federal Court Rules and the Court has a discretion regarding when and how to make an award.  The principles were summarised by his Honour at 201:

     (1)  Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusions of the proceedings by making a cost order: Stratford (JT Stratford & Son Ltd v Lindley (No. 2) [1969] 1 WLR 1547) and SEQEB case (South East Queensland Electricity Board v Australian Telecommunications Commission) (unreported, Federal Court, 10 February 1989).

     (2)  It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court to determine how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford.  This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

     (3)  In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted unreasonably in defending them (SEQEB).

     (4)  ...

     (5)  Where the proceedings terminate after inter-locutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration.

     Where interlocutory relief has been granted, that fact carries no implication as to the ultimate merits of the case but does ordinarily suggest that the Court granting interlocutory relief has accepted or found that there is an arguable issue to be tried between the parties and that the balance of convenience favours the grant of that relief.

In this case not only was neither of the fourth or fifth respondents in question a director of the corporation, but no evidence was led that either had any coercive influence over the directors or managers of the company.  In the case of the fourth respondent it appears that his only connection is that his de facto wife is a beneficial shareholder of one share in the company.  Additionally, his work is not connected with the business of the company.  The fifth respondent has a commercial involvement with the firm in that he is a commercial artist who prepares brochures and video presentations, discusses marketing and promotion with the general manager, sometimes speaks to the sales staff and discusses problems, but he had nothing to do with the advertisement in question.

Because the interlocutory relief sought, corrective advertising, was granted, the issue of damages was not pressed, and no other substantive relief was sought against these two respondents.  On the face of it, there were therefore no practical reasons for joining them.  When pressed, the first applicant's counsel could not indicate how he would have proved a case of fraud or pressed a damages claim against these respondents in the event that the interlocutory relief had not been granted.  All that was said was that had the case gone to trial on a final basis, the applicants
may have been in a position to lead evidence that connected the two respondents to the offending conduct.

However, the evidence that these respondents were totally unconnected with the offending conduct remained uncontroverted.  It is certainly possible that the speed with which the case took shape had some bearing on the joining of these respondents, but it is quite easy to obtain an ASC certificate of the directors and senior officers of the company.  No analysis of the merits of the case is necessary to determine that these respondents had no involvement in the conduct impugned under the TPA and the FTA such that anything could have been gained by joining them.  Additionally, the two respondents acted reasonably in putting on their defences and did not add any time to the hearing, except of course on the issue of their dismissal from the suit and costs.  No relief was pressed or granted against them.  It is clearly an appropriate case to award costs despite the fact that the final hearing has not taken and will not take place.

These respondents asserted, however, that not only should they have their costs as successful parties, but that those costs should be allowed on an indemnity basis.  The law regarding indemnity costs has been comprehensively examined by Justice Sheppard in Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225.  The Court's jurisdiction to award costs arises from section 43 of the Federal Court of Australia Act (Cth) 1976, details of which are provided for in Order 62 of the
Federal Court Rules.  His Honour concluded at 230 that the power to award costs is not limited to a `party and party' basis:

     Notwithstanding the more specific provisions of some rules of Court, I do not consider that the power of this court to order costs to be taxed on one or other of the bases of taxation other than the party and party basis to be circumscribed in any way.  As earlier said, I consider that the provisions of s 43 and the other provisions of the Act referred to confer on the Court a wide power to select an appropriate basis of taxation upon costs which it orders are to be taxed.

His Honour then drew upon the substantial authority on the subject (see pp 230-232) and summarised the principles arising from the cases.  Of particular relevance to the situation before me are the following guidelines at 233:

     4.   In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis.  The circumstances of the case must be such as to warrant the Court in departing from the usual course.  That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England.  The tests have been variously put.  The Court of Appeal in Andrews v Barnes (supra) [(1887) 39 Ch D 133] at 141 said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require".  Woodward J in Fountain Selected Meats [Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397] appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston [[1981] 3 WLR 619] (supra) at 637; namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice.  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 p 8) in Tetijo [Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, 3 May 1991 No WAG 55 of 1988)]. "The categories
in which the discretion may be exercised are not closed".  Davies J expressed (at p 6) similar views in Ragata (supra)[Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993)].

     5.   Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp [J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers - Western Australian Branch & Anor (unreported, Federal Court, 19 February 1993)](supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2)(1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestly JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records [EMI-Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59] (supra).  Other categories of cases are to be found in the reports.  Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis.  The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

With profound respect, it may be that some of these criteria will in an appropriate case require further consideration: Sanchez v Smits and Leslie trading as Smits Leslie Barwick (Einfeld J, unreported, 13 April 1994).  But nothing can be said against the view that each case must be decided on its own facts.  The most significant fact in this case, as argued, is that there was no basis for a case against the fourth and fifth respondents.  In J-Corp French J determined that indemnity costs were the appropriate award of costs because the case against that respondent was "paper thin".  That case involved an alleged contravention of s 45D of the TPA.  The evidence indicated that the respondent was associated only to the extent that its name was displayed on a picket and had appeared in a newspaper advertisement, and that two of its authorised inspectors had participated in the picket.  The connection of the fourth and fifth respondents to the present case could be described in equally casual terms, their connection being more aptly described as coincidental rather than causative in any sense.  However, the proceedings before me were interlocutory and although I might agree that the case against the two respondents was "paper thin", not all the paper was necessarily in evidence.  At the very least the evidence of the respondents was not subjected to cross examination.  On this basis I would distinguish J-Corp.

In Fountain Selected Meats Woodward J considered a question similar in many ways to the present issue.  In that case a director of the company was joined to the proceedings on the assertion by the applicant that the director had aided and abetted the company in its breaches of sections 52 and 53 of the TPA.  When the matter came to trial the applicant led no evidence and judgment was entered for the respondents.  Woodward J considered the authorities that indemnity costs could be awarded in cases where allegations of fraud had been made but not sustained, but concluded that something more was necessary to invoke the Court's discretion.  At 401 His Honour cited, as examples of what was necessary, allegations being made despite the party knowing them to be false or irrelevant to the proceedings.  That case was finally determined on the basis that if not at the time the action had been commenced, certainly long before the matter came to trial, the applicant should have known that it would have no case against the director and should have dropped him from the proceedings.  This was due to the fact that at the time of filing the original application the law relating to "aiding and abetting" had not been clarified by the High Court. 

However, some time before that case came on for trial, Yorke v Lucas [1985] 158 CLR 661 was decided stating that "aiding and abetting" for the purposes of the Act meant knowingly involved in misleading or deceptive conduct.  Woodward J considered that one reason the proceedings against the director may not have been dropped was to bring more pressure on the company to settle the case.  He said at 401:

     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.

Woodward J nevertheless considered that to be a "borderline case" for the award of indemnity costs. 

In this case parties without connection to the impugned conduct were joined, allegations of fraud were implicit in the pleadings and no evidence against them was led.  However, Fountain and the present case differ in one very significant aspect.  Fountain began with an application being filed in August 1983 and ended with the delivery of judgment in June 1988.  The present case was commenced by application filed on 17 February 1995 in response to the advertisement of 15 February 1995, and proceedings against the fourth and fifth respondent were dismissed without objection by the applicants on 22 February, less than a week later.  The proceedings were completed, except for this judgment, by 3 March 1995. 

When considering whether a successful litigant should receive costs for the entire proceedings, or if a portion should be hived off for discrete unsuccessful claims, French J in J-Corp considered the wider implications to the community.  His Honour highlighted the pressures on the court system, the serious delays and the escalating legal costs.  At 3:

     ....the demands of the community for greater economy and efficiency in the conduct of litigation may have to be reflected in a softening of the presumption that a successful party is entitled to all its costs.  I agree with the observation of Wilcox J in Commissioner of Australian Federal Police v Razzi (1991) 101 ALR 425 at 430 where his Honour said after referring to the importance of the general principle:

         "But I do not think that courts should be reluctant to recognise the existence of exceptional cases.  In these days of extensive court delays and 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 they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take."

The circumstances of this case do not raise the issue of apportionment.  However, the principle behind the notion is applicable.  If the threat of indemnity costs can dissuade a litigant from joining parties for a spurious purpose, or engaging in frivolous or vexatious actions, it is well that it exists.  However, a balance must be struck so as not to dissuade litigants from pursuing a tenuous but material claim, or from joining parties who whilst on the surface appear remote from the proceedings are nonetheless potentially liable.

In this case it is clear that the fourth and fifth respondents were inappropriately joined by the applicants as parties.  This warrants an award of costs in their favour.  However, there is no allegation, nor any evidence, of an ulterior purpose.  The haste with which the proceedings had to be brought on and concluded, in addition to the fact that the case only reached an interlocutory stage, lead me to the conclusion that departure from the practice of awarding costs on a party and party basis is not warranted.

I allow the motions of the fourth and fifth respondents.  I order that the applicants pay the fourth and fifth respondents' party and party costs of the motions and of the proceedings.

For the applicants          Mr Ron Webb instructed by Gilbert

                            & Tobin, Solicitors

For the fourth respondent   Mr Curtis instructed by Addisons

                            Solicitors

For the fifth respondent         Mr Ian Gazell QC with Mr Matthew

                            Walton instructed by Dibbs,

                            Crowther & Osborne Solicitors

Date of hearing             22 February 1995

Date of judgment on costs   21 November 1995