CATCHWORDS
PRACTICE AND PROCEDURE - costs - proceeding against multiple defendants - whether deduction for issues on which applicants failed - allegations of discreditable conduct against litigants - Calderbank letters conditional on acceptance by all respondents - whether three counsel appropriate - whether daily fees appropriate - interest on costs - joint and several liability for costs - costs contribution between respondents - whether dependent on establishment of substantive liability - costs on insurance indemnity claim.
PRACTICE AND PROCEDURE - joinder - duty on practitioners as to joinder of multiple parties in substantial litigation.
Federal Court of Australia Act 1976 (Cth)
Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166
Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568
AWA Ltd v Daniels (Supreme Court of NSW, unreported, 8 October 1992)
Byrns v Davie [1991] 2 VR 568.
Cachia v Hanes (1991) 23 NSWLR 304
Calderbank v Calderbank [1975] 3 All ER 333
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225
Cretazzo v Lombardi (1975) 13 SASR 4
Cutts v Head [1984] Ch 290
Hughes v Western Australian Cricket Association (1986) ATPR
40-748
Magna Alloys & Research Pty Ltd v Coffee (No.2) [1982] VR 97
Messiter v Hutchinson (1987) 10 NSWLR 525
Mideco Manufacturing Pty Ltd v Tait [1989] VR 50
Mutual Community Limited v Lorden Holdings Pty Ltd (unreported, 28 April 1993)
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Prudential Finance Ltd v Davander Nominees Pty Ltd [1992] 1 VR
468
Qantas Airways Ltd v Dillingham Corporation (NSW Supreme Court, unreported, 14 May 1987)
Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1987) 17 FCR 211
Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97
Trade Practices Commission v Nicholas Enterprises Pty Ltd (1970) 28 ALR 201
Russell Fraser Henderson & Ors v Amadio Pty Ltd & Ors
(No. VG 260 of 1993) (No.3)
Judge: Heerey J
Date: 22 March 1996
Place: Melbourne
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY )No. VG 260 of 1993
)
GENERAL DIVISION )
B E T W E E N:
RUSSELL FRASER HENDERSON and ORS
Applicants
- and -
AMADIO PTY LTD and ORS
Respondents
JUDGE: Heerey J
DATE: 22 March 1996
PLACE: Melbourne
MINUTE OF ORDERS
The Court orders that:
1. The proceeding be adjourned to a date to be fixed.
2. The applicants bring into Court within seven days minutes of proposed orders signed by all counsel for represented parties.
3. Liberty to apply.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY )No. VG 260 of 1993
)
GENERAL DIVISION )
B E T W E E N:
RUSSELL FRASER HENDERSON and ORS
Applicants
- and -
AMADIO PTY LTD and ORS
Respondents
JUDGE: Heerey J
DATE: 22 March 1996
PLACE: Melbourne
REASONS FOR JUDGMENT
XXIX
STILL FURTHER MATTERS
In argument following the delivery of further reasons on 20 February 1996, it emerged that, apart from the question of costs, some issues remained unresolved.
1. Stamp Duty
Stamp duty amounting to $880,949 was paid on the transfer and mortgage of the Coles Myer building. Upon those instruments being declared void and Amadio returning to the register as proprietor in fee simple, the purchasers may have a right to a refund of that duty under provisions of the relevant Victorian legislation.
Amadio claims it is entitled to the amount of any refund. It seeks an order that the purchasers assign to Amadio all their rights to a refund and execute all documents and do all things reasonably necessary to enable Amadio to recover the duty. Counsel for the applicants (who of course do not include all the purchasers) did not oppose such an order. The applicants do not claim any beneficial entitlement to stamp duty refunded. Alternatively, Amadio argued that as a condition of the relief granted to them the applicants should undertake to the Court that they would assign their refund rights to Amadio.
The other respondents claimed that any stamp duty recovered by the applicants should not pass to Amadio but should be applied in reduction of the quantum of damages awarded against those other respondents.
An analysis of Gray & Winter's trust account shows that funds subscribed by investors prior to settlement were used in payment of the accountants' commissions, Nevett Ford's costs and Metzke & Allan's charge. The balance ($586,535.68) went to Amadio as pre-payment of interest. Thus the stamp duty was paid by Amadio on behalf of the purchasers and formed part of the advance secured by the mortgage.
Although, as I have said, the applicants do not oppose the order sought by Amadio, it would be inconsistent with my findings to make such an order. The Court's order, with all its inherent coercive power (applicable, moreover, to all purchasers and not just the applicants) would necessarily have as its purpose the recovery by Amadio of part of the principle secured by a mortgage which has been held to be illegal and void.
If the purchasers wish to enter into a voluntary consensual arrangement with Amadio to recover the stamp duty, thus avoiding unjust enrichment of the Victorian Treasury, that is entirely a matter for them.
If such recovery were to take place, it would not result in any reduction of the liability of the other respondents. The stamp duty forms no part of the damages adjudged to be payable by those
other respondents for the simple reason that the applicants never paid it.
2. The Bird Cameron Fund
In its capacity as manager of the Coles Myer Building Partnership, Bird Cameron holds a fund which with accrued interest to 4 January 1996 amounts to $371,827.01.
The source of the fund is rent paid in respect of the two months after 30 June 1993, including some amounts which it is now accepted were overpayments and are repayable to Coles Myer with interest. (It had at one stage appeared that there might be a balance attributable to partners' contributions, but I was subsequently told that was not the case.) Agreement has not yet been reached with Coles Myer as to the amount repayable. However, I was told that the balance in the fund after repayment is likely to be of the order of $40,000.
Since the transfer has been reversed Amadio is in my opinion entitled to rents of the building and should receive the balance of the fund after repayment of the overpaid rent and interest thereon. The applicants did not oppose the fund being dealt with in this way. No question of deduction from the damages payable by the other respondents arises.
3. Liability of Mr James Gray
Mr Gray, although only an employee of Gray & Winter, was personally involved in the misleading and deceptive conduct and negligence which affected the Turner, Dean and Henderson applicants. His position is comparable to the employees of Bird Cameron. I do not see any reasons why the relevant applicants should not have judgment against him.
4. Conditional Liability for Damages
Counsel for Richard Ellis and Nevett Ford put a number of arguments concerning the relationship between their clients' liability for damages and the amount repayable by Amadio ($1,331,665). They suggested (i) no damages should be awarded against the other respondents in respect of the $1.3 million or any part thereof - in other words the judgment for damages should be reduced by that amount; (ii) the other respondents should obtain contribution from Amadio; or (iii) their liability for damages to the extent of $1.3 million "should not crystallise in favour of the applicants as against the other respondents unless and until Amadio fails to repay that sum (or any part thereof) to the applicants".
All these proposals are inconsistent with the findings I have made. The applicants' rights against Amadio stand on a different legal footing from their right against the other respondents - albeit that to the extent of $1.3 million the amount to which the applicants are entitled is the same. All this means is that the applicants cannot recover more than the one amount. To the extent that they in fact recover from Amadio, the amount of recovery from the other respondents will be reduced (and vice
versa). But one right is not conditional on the other. Nor is contribution available, for the reasons already explained.
5. Stay Pending Appeal
The applicants oppose a stay pending any appeal but do not object to a stay for a short period to enable any respondent to make an application for a stay based on proper materials. Accordingly there will be a stay of 14 days.
XXX
COSTS
I propose to refer briefly to some of the applicable general principles established by the authorities and then deal with a number of detailed contentions put by the various parties.
It will also be necessary to advert to some aspects of the conduct of the trial. However there are some matters which need to be kept firmly in mind throughout any consideration of costs. This was a long, complex, demanding and expensive trial, one of the longest, if not the longest, since this Court was established 20 years ago. The respondents (other than Metzke & Allan) right up until judgment maintained a united front against the applicants and the Walkers and refused offers of settlement which were less beneficial to the applicants than the judgment finally obtained. With the exception of Richard Ellis in the case of some of the applicants, the applicants and the Walkers obtained against each respondent the relief they were seeking. This was a hard-fought case which the applicants and the Walkers won. Intricate examinations of detail for the purposes of costs allocation should never lose sight of that underlying truth.
1. Some Applicable Principles
The power of the Court to make orders for costs is found in s 43 of the Federal Court of Australia Act 1976 (Cth) which gives a general power to award costs and provides in sub-section (2) that
"except as provided by any other Act, the award of costs is in the discretion of the Court or judge".
The discretion to award costs is unfettered, but must be exercised judicially. Speaking of a similar discretion in the rules of the Supreme Court of South Australia, Bray CJ said in Cretazzo v Lombardi (1975) 13 SASR 4 at 11:
Time and again attempts have been made to fetter that general discretion by the imposition of judge-made rules. Time and again those fetters have been released by appellate courts. I think the guiding principle still stands as it left the House of Lords in the famous case of Donald Campbell & Co v Pollak [1927] AC 732, that the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation.
That passage has been quoted with approval in the Federal Court by Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1970) 28 ALR 201 at 206-7 and by Morling J in Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568 at 569.
Where a party, whether plaintiff or defendant, is successful but fails on some issues there is power to make a reduction to account for the costs taken up by the issue on which the ultimately successful party failed; see for example Byrns v Davie [1991] 2 VR 568. In Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48,136 Toohey J said:
1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey [1920] 2 KB 47.
2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar [1893] 1 QB 564.
3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, `issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 13 SASR 4 at 12.
There is no difficulty in stating the principles; their application to the facts of a particular case is not always easy. Also it is necessary to keep in mind the caveat by Jacobs J in Cretazzo v Lombardi at p.16. His Honour sounded what he described as "a note of cautious disapproval" of applications to apportion costs according to the success or failure of one party or the other on the various issues of fact or law which arise in the course of a trial. His Honour commented:
"But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues."
That statement of principle was approved by the Full Court of this Court in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1987) 17 FCR 211 at 222.
I would observe that the use of the word "may" by Toohey J makes it clear that he is not suggesting an encroachment on the essentially discretionary nature of a costs order, a conclusion made all the clearer by his Honour's reference to the remarks of Jacobs J in Cretazzo. In Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 169 Burchett J had to consider the case of a successful defendant who had failed in respect of some issues. His Honour said:
It does not necessarily follow that the costs orders otherwise appropriate should be affected. A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment.
In my respectful opinion the same reasoning applies to a successful plaintiff who fails on some issues. To extend Burchett J's military metaphor, the plaintiff is not to be regarded as culpable because he attacked at points of the defendant's fortifications other than the place where success came. He is not to be forced, at his peril in respect of costs, to abandon every flank attack.
It can also be said that both the law itself and the culture of adversarial litigation encourages, indeed almost compels, the raising of every possible issue which might achieve success. A litigant cannot keep a point in reserve to raise at a later time: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Many of the notable cases of modern times which have changed the law fundamentally from that learned in law school days by present members of the Bench were cases in which very competent lawyers could have advised at the outset that the claim was unlikely to succeed, or even hopeless. And as Dr Johnson explained to Boswell:
An argument which does not convince yourself, may convince the Judge to whom you urge it: and if it does convince him, why then, Sir, you are wrong, and he is right.
(Boswell's Johnson, Vol 1 at 455)
There is jurisdiction in this Court to award costs on an indemnity basis: see Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. One circumstance which may justify such an award is the imprudent refusal of an offer to compromise: Colgate-Palmolive at 233. As to the rejection of offers, Oliver LJ, with the concurrence of Fox LJ, said in Cutts v Head [1984] 1 Ch 290 at 306:
As a practical matter, a consciousness of a risk as to costs if reasonable offers are refused can only encourage settlement whilst, on the other hand, it is hard to imagine anything more calculated to encourage obstinacy and unreasonableness than the comfortable knowledge that a litigant can refuse with impunity whatever may be offered to him even if it is as much as or more than everything to which he is entitled in the action.
I respectfully adopt what was said by Byrne J in the Supreme Court of Victoria in Mutual Community Limited v Lorden Holdings Pty Ltd (unreported, 28 April 1993, at 12-13):
The policy of the Court is to encourage litigating parties to undertake genuine settlement negotiations and, for that purpose, to face up to serious offers of settlement.
The response of a litigant in receipt of an offer of settlement will always be affected by the prospect that the sum which the Court might order including party and party costs may be less advantageous than the terms of the offer. Experience, however, shows that this prospect alone is not always sufficient to compel a litigant to face up to the offer. The further prospect of a super-added costs penalty if a reasonable offer be not accepted is a salutary inducement to an offeree to undertake this often painful task.
2. Costs of the Applicants and the Walkers
(a) Suggested Reductions
The applicants' claim against Metzke & Allan was settled on the basis of the latter's payment of $300,000 towards the applicants' costs. That amount will need to be credited against orders for costs made in favour of the applicants; otherwise no further consideration is needed in respect of Metzke & Allan as far as the applicants and the Walkers are concerned. Richard Ellis need special consideration because some of the applicants succeeded against that respondent and some failed.
As to the remaining respondents, the applicants and the Walkers obtained against each one the relief they sought. The applicants and the Walkers failed on the Hudson Conway/Gray & Winter agency issue and the unconscionable conduct issue (including the allegation of sham). In relation to Nevett Ford the applicants only succeeded on the ratchet clause issue as a head of negligence and failed on the discrete claim alleging advice by Mr Wilson.
I do not think it profitable to embark on a detailed analysis of the 94 day hearing, hour by hour and witness by witness, in an attempt to allocate different periods of time to different issues. Apart from anything else, a great deal of evidence was relevant to more than one issue and more than one respondent and more than one applicant. Nevertheless, I think it is broadly true to say that in respect of the issues on which the applicants and the Walkers failed, most of the evidence was also relevant to issues on which they succeeded, or was evidence which would have been heard in any event. For example, theevidence as to what took place at the settlement was relevant tothe claim by the Morgans and was led and cross-examined beforethat claim was settled. Much of the dispute between the Morgans and Hudson Conway arose out of the quite inexplicable conduct of Hudson
Conway's solicitor in accepting at settlement a purported undertaking as to the signing of personal guarantees by the Morgans, an undertaking given by Mr Garrick Gray who on no rational basis could be seen to have been the Morgans' solicitor and who had an obvious conflict of interest with them. Also the dealings between Hudson Conway, Gray & Winter and Richard Ellis and the evidence as to the marketing of the property, while relevant to the unsuccessful unconscionable conduct claim, were also relevant to the issue of the 31 May letter and the question of the value of the property.
It is true that the Hudson Conway/Gray & Winter agency allegation meant that counsel for Hudson Conway had to face the possibility of their client being liable for any misrepresentation by Gray & Winter as marketers of the scheme. Since Hudson Conway's counsel were the first to cross-examine, of necessity they spent a great deal of time dealing with issues as to the making of representations, falsity, reliance etc. However that cannot properly be regarded as wasted time. At an early stage of the trial I gave a direction that, in the light of the multitude of respondents and the need to avoid time-wasting and repetitious cross-examination, I would, generally speaking, not permit more than one counsel to cross-examine on the same issue or topic. Thus the fact that senior and junior counsel for Hudson Conway cross-examined across the board as it were (and, if I may say so, very thoroughly and skilfully) meant it was not necessary for following counsel to cover the same ground - indeed they were prevented by my ruling from doing so. Had the Hudson Conway/Gray
& Winter agency allegation not been made the Hudson Conway cross-examination would still have been done by others.
To the extent that Hudson Conway spent time, money and effort on issues which ultimately became irrelevant for them because of the rejection of the Gray & Winter agency allegation, that is work which enured to the benefit of the other respondents and substantially lightened their load. Any unfairness to Hudson Conway can be substantially mitigated by orders as to contribution in respect of costs which will throw the burden back on the other respondents. The question of contribution will be considered subsequently.
As to Nevett Ford, it is I think a little simplistic to count up the number of allegations of negligence, which came to nine, and say that because the applicants only succeeded on one they should get only one-ninth of their costs against Nevett Ford. Probably the major issue between the applicants and Nevett Ford was the latter's contention that it owed no duty of care at all because its role was only that of a conveyancing sub-contractor to Gray & Winter. Nevett Ford failed on that issue. Comparatively little extra time was spent on the specific allegations of negligence which failed and on the Wilson issue.
A separate ground was argued by Hudson Conway for a reduction of costs, namely the seriousness of the allegations of unconscionable conduct against Hudson Conway. To the extent that the applicants' case included allegations of discreditable conduct against Hudson Conway which failed, I believe my rejection of such allegations is expressed sufficiently clearly to vindicate Hudson Conway. I do not however think in the circumstances of this case that there should be a costs consequence. The situation the applicants faced was not merely one of ruinous financial loss, but one of betrayal by supposedly reputable professional and commercial firms. As investigation revealed to the applicants matters like the criminal corrupt secret commissions received by their long-trusted accountants, the strange happenings at the settlement such as the acceptance of Mr Garrick Gray's purported undertaking, the part played by Richard Ellis in the 31 May letter, and Mr Gray's previous brushes with the law, the applicants and their advisers can perhaps be forgiven for putting sinister interpretation on events.
Counsel for the applicants in final submissions said some hard things about Hudson Conway personnel, but counsel for Hudson Conway did not exactly let the applicants off lightly. In particular he sternly criticised what he referred to as "formula" evidence. The necessary inference appeared to be that the applicants were, at best, stupid people who would swear to anything put in front of them or, at worst, people who had got their heads together and concocted an artificial story.
I must say I could never see why it would come as any surprise that Gray & Winter, who were marketing the one investment to different investor groups over the space of one or two weeks, would be described by investors as making virtually identical statements about the merits of the investment. And, ironically enough, when it suited Hudson Conway's case to rely on applicants' evidence of this kind - as for example evidence that Mr Garrick Gray said he was "putting together a partnership to buy the Coles Myer building" - there was no suggestion its reliability was diminished by reason of its according with a "formula".
I do not intend to be critical of counsel. As I have acknowledged elsewhere in these reasons, all counsel handled this difficult trial in a highly competent and professional manner. The point I wish to make in the present context is that our trial tradition encourages displays of rhetoric at times verging on the theatrical. Some very hurtful things are said by counsel to and about litigants. Counsel tend to give as good as they (or their clients) get. Certainly this was so in the present trial. The applicants were not responsible for the existence of this style of conducting litigation. To recover the large losses they suffered as a result of what I have held to be the wrongful conduct of the respondents, the applicants had no choice but to embark on litigation carried on in this way. It is not reasonable in my view that they should be penalised for this.
Finally, I also take into account in deciding against any reduction of the applicants' costs the fact that the root cause of this litigation was the Amadio mortgage. It should not be overlooked that Amadio brought a cross-claim to enforce this mortgage against mortgagors and guarantors. That cross-claim wholly failed and the primary claim of the applicants succeeded.
(b) Richard Ellis
The Ballarat applicants succeeded against Richard Ellis but the other applicants and the Walkers failed. Any costs increase by the participation of the Walkers on this issue would be minimal. As far as the unsuccessful applicants were concerned, they were all represented by the same solicitors and counsel and incurred the one set of costs. From the point of view of Richard Ellis, it opposed the one case and was partly successful but partly unsuccessful and, I might add, unsuccessful on an issue which amounted in substance to a finding of fraud. I think the simplest and fairest solution is to make no order as to costs on the claim of the applicants and the Walkers against Richard Ellis or in favour of Richard Ellis against the applicants or the Walkers.
(c) Indemnity Costs
The applicants urged a number of grounds for the award of costs on an indemnity basis. Most of these turned on the nature of the findings against the respondents, that is to say the finding of illegality involving a major public company (Hudson Conway) with access to the best legal advice, the finding that professional solicitors and accountants had engaged in misleading and deceptive conduct in circumstances where they had a vested interest in the investment, the negligence and breach of retainer by accountants and solicitors, the findings tantamount to fraud
on the part of Hudson Conway and Richard Ellis in relation to the 31 May letter and the receipt of secret commissions by the accountants. The general breadth and complexity of the case was also urged as separate ground.
I do not think any of these circumstances, either individually or collectively, are sufficient to justify an award on an indemnity basis.
In Colgate-Palmolive 46 FCR at 226-228, Sheppard J discusses the modern perception that the disparity between costs incurred and costs recovered is widening. His Honour notes some conflicting judicial views, including that of Rogers J in Qantas Airways Ltd v Dillingham Corporation (NSW Supreme Court, unreported, 14 May 1987) that there is a "yawning gap" between costs recovered by a successful party and the costs payable by the successful party to its own solicitors and that there is "a great deal to be said for the proposition that a successful party should always be fully indemnified for costs". A contrary view was expressed by Handley JA in Cachia v Hanes (1991) 23 NSWLR 304 at 318 to the effect that the limited indemnity provided "reflects a compromise between the interests of successful and unsuccessful litigants" and is "also an important spur to settlement". With respect, my personal preference is for the view expressed by Rogers J, but I agree with Handley JA that "if the existing rule is to be changed this must be done either by the High Court or by Parliament". This was also the view of Sheppard J (Colgate-Palmolive at 233). While not forgetting the fundamental rule that costs, including the question of indemnity costs, remains a matter of discretion in the individual case, the authorities cited by Sheppard J in his summary in Colgate-Palmolive at 233 suggest that the improper conduct of an unsuccessful party which will lead to an award of indemnity costs is usually related to the way the litigation is conducted, rather than the inherent badness of the conduct which gave rise to the litigation. This is not universally true; for example contempt of court usually attracts costs on an indemnity basis. Nevertheless, it seems to be rare that findings of serious misconduct such as fraud of itself gives rise to an order for costs on an indemnity basis.
As to the general breadth and complexity of the case, I think that the very fact that the law retains the party and party rule as the general principle means that it has been seen fit to confer some protection on unsuccessful litigants. As I say, the wisdom and justice of that law may be open to question, but plainly that is the law at the moment. Therefore it might be said that the more complex and expensive the case is, the more the unsuccessful party is entitled to claim that protection.
However the applicants relied on a separate basis, namely the non acceptance of offers which were more favourable to the respondents than the ultimate outcome. As already noted, this is a relevant circumstance for the possible grant of indemnity costs.
In the present case, by a letter dated 3 September 1993 and marked "Without Prejudice", the solicitors for the applicants wrote to the solicitors for each of the respondents other than Hudson Conway indicating that the applicants were prepared to contribute a total sum of $1.3 million in full and final settlement of their obligations under the mortgage and guarantee and to execute a transfer of the property. By a letter dated 17 May 1995 and marked "Without prejudice save as to costs" the solicitors for the applicants wrote to the solicitors for all respondents (including Hudson Conway) putting forward a compromise, the essence of which was that the cross-claim by Amadio against the applicants be dismissed with no order as to costs, the respondents pay to the applicants $1 million within 28 days, the respondents pay the applicants' costs on a party and party basis, Amadio release the applicants from the mortgage guarantee and partnership and the applicants transfer the property back to Amadio. The offer was expressed to be conditional upon acceptance by each of the respondents, other than the twelfth, thirteenth and fourteenth respondents (i.e. Messrs Terrey, Connell and Rutt). It was stated that the latter "shall be produced to the Court in relation to the question of costs".
The significance of these letters for the purposes of costs orders falls to be considered in the light of the Calderbank principle. In Calderbank v Calderbank [1975] 3 All ER 333 at 342 the English Court of Appeal sanctioned the taking into account for cost purposes offers of compromise expressed to be without prejudice but reserving the right to refer to the offer on the issue of costs. The significance of Calderbank is that up until then the only general remedy available to a party who wished to protect its position on costs by making a reasonable offer was the procedure for payment into court. But that procedure was only available to a defendant faced with a money claim. It was no use to a defendant against whom a claim was made for other relief such as injunction or the return of property. Nor was the procedure available to a plaintiff who wanted to put forward a figure it would accept. Parties could of course make offers of any kind expressed to be without prejudice, but such communications were privileged and thus could not be referred to in any costs argument.
What Calderbank did was to apply generally the principle underlying procedures used in specialist areas where a payment was not available. One was the use of sealed offers in Lands Tribunal proceedings. Another was the practice of offers as to apportionment between shipowners in Admiralty collision cases.
In Cutts v Head [1984] Ch 290 the English Court of Appeal held that the use of a Calderbank letter was not confined to family disputes but could not be used as a substitute for a payment into court where that was appropriate. However in Messiter v Hutchinson (1987) 10 NSWLR 525 at 528 Rogers J said:
The public policy on which the judgments in Cutts rest argues against a hard and fast exclusion of the availability of this method for disposition of disputes by compromise. The purpose of a Calderbank letter is, after all, essentially the promotion of
settlement of disputes. ... In my view, at least as a matter of principle, a Calderbank letter should be permitted to be taken into account by the Court in determining whether a special order displacing that which generally obtains of costs following the event should be made. ... In considering what weight should be given to an offer, the Court will no doubt pay regard to all relevant circumstances including the reason why no payment in was made, the security of payment available to the plaintiff and the time at which the Calderbank letter was received by the plaintiff.
In Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 Spender J expressed a preference for the flexibility expressed in Messiter; see also where Gobbo J took a similar approach. I respectfully agree.
After Smallacombe was decided a new Order 23 was introduced into the Federal Court Rules in 1994. This order provides for a regime of offers of settlement which can be made by both applicants and respondents and is not limited to money claims. Previously the only machinery in the Rules available for a party wishing to put pressure on an opponent to accept a reasonable offer was the payment into Court. As already noted, it was this very kind of limitation which gave rise to the alternative of the Calderbank letter.
Counsel for the respondents argued that O 23 now constitutes a code and excludes any reliance on Calderbank letters. I do not agree. The Calderbank letter is such a useful and flexible weapon for litigants who want to achieve reasonable settlement that in the absence of express provision to that effect I am not prepared to draw the inference that the rule-makers intended to exclude it. In any case, I do not think O 23 was apt to cover
an offer addressed to a number of respondents but conditional upon acceptance by all. Order 23 does not deal in terms with conditional offers. Its general thrust rather suggests that an offer must be capable of acceptance by the party to whom it was made. Note O 23 r 2 which provides:
(1) In any proceeding, a party may make to another party an offer to compromise any claim in the preceding terms set out in the notice of offer.
(2) If an offer to compromise the separate claims of several parties to the proceeding is in a single notice of offer, the notice of offer must specify separately the offer made to each party.
Order 23 r 10 is not applicable because it concerns two or more respondents "alleged to be jointly, or jointly and severally, liable to the applicant in respect of a debt or damages". In the present case there is not, as I have found, joint and several liability as between Amadio on the one hand and the other respondents on the other.
What then are the appropriate cost consequences for the two letters? The letter of 3 September 1993 I think should be disregarded. It was marked "without prejudice" and was therefore privileged. The letter of 17 May 1995 however on its face complied with the Calderbank requirements in that it was expressly stated that the offerer reserved the right to use it on the issue of costs.
Counsel were not able to refer me to any authority one way or the other on the question whether a Calderbank offer could bemade to a number of defendants conditional on being accepted by all.
I see no reason in principle why such an offer cannot be made, provided it is appropriate in the circumstances. The essence of the Calderbank approach is flexibility and the importance of encouraging negotiation and providing a sanction against the rejection of reasonable offers. In the present case it was reasonable for the applicants to make a conditional offer because they were making claims both for the recovery of approximately $2 million, the cancellation of a debt amounting to $22 million and a damages claim which, if the debt were not cancelled, would be of the order of $14 million (giving credit for the value of the building). It was not realistic to expect that one set of respondents would settle if the others did not.
It was said that a conditional Calderbank offer would require the Court to investigate what happened between respondents and try and find out which respondent was being recalcitrant or unreasonable. The short answer I think is that given by counsel for the applicants. A respondent who wishes to accept an applicant's offer can serve on other defendants a Calderbank letter setting out a reasonable basis for contribution and stating that he or she wishes to accept the applicant's proposal. Such a solution accords with the Admiralty practice referred to in Calderbank. If this leads to what counsel for Hudson Conway described as a "myriad of Calderbank letters flying around" and the "opening of a Pandora's box", all I can say is that, however daunting such a prospect, it seems much preferable to the trial rolling on for month after month, clocking up costs which have been estimated at something like $200 a minute.
It seems to me that the offer contained in the letter of 17 May 1995 was a reasonable offer in the circumstances. It is significantly less than the applicants have obtained by judgment, even before interest is taken into account. Moreover it should, objectively speaking, have appeared particularly attractive to the respondents other than Hudson Conway. They were facing a potential damages liability of some $14 million.
In all the circumstances I think it appropriate that the applicants recover their costs on an indemnity basis from all respondents (other than Richard Ellis and Metzke & Allan) from a date on which it was reasonable for the offer contained in the letter of 17 May 1995 to have been accepted. The letter itself does not fix a time for acceptance. Having regard to the fact that O 23 r 5 describes a minimum period of 14 days, I think I should apply a like period by analogy. Accordingly costs will be on an indemnity basis from and including 1 June 1995.
The Walkers raised the same arguments as the applicants in support of a claim for indemnity costs. They also pointed out that the respondents were much more commercially sophisticated and financially stronger, with the result that they (the Walkers) had to conduct their case "on a shoestring". Linked with this was the argument that if they only receive party/party costs they will have to face a considerable actual nett cost burden. They also argued that they kept their costs to a minimum by having only one counsel who mostly appeared without an instructing
solicitor and only on the few days that the Walkers were directly involved.
I do not think these arguments, while understandable, are sufficient to justify indemnity costs. It is commendable that the Walkers conducted their case in an economical fashion, but on whatever basis costs are taxed they can only recover for costs actually incurred. I do not think personal characteristics of litigants, that is to say lack of resources or commercial sophistication, is a relevant consideration. The Walkers also relied on offers to settle. However these were made between counsel and were not expressed to be open offers. As such they are to be regarded as without prejudice and privileged: Gowans, "The Victorian Bar, Professional Conduct, Practice and Etiquette" (Law Book Co Ltd, 1979) at 53.
(d) Three Counsel
I am satisfied that having regard to the volume of witnesses and documents involved in this case and the multiplicity of issues and parties, it was appropriate and reasonable for the applicants to retain three counsel.
(e) Daily Fees
The applicants submitted that it would be appropriate for me to direct the taxing officer to allow counsel's fees on the basis of the fixed daily fee rather than brief plus refreshers.
In Magna Alloys & Research Pty Ltd v Kevin Lindsay Coffee (No.2) [1982] VR 97 at 112 Fullagar J said:
The time honoured basis of charging counsel's fees in respect of a court hearing remains the basis of a brief fee and refreshers of two-thirds of that fee, and prima facie this is the basis upon which counsel's fees will be taxed as between party and party. There must, in my opinion, be an onus upon the party who seeks a departure on taxation from that traditional and usual basis, and the onus must be one of satisfying the taxing officer that the traditional method of fee marking could not reasonably have been followed in all the circumstances of the case.
A decade later Ashley J remarked in Prudential Finance Ltd v Davander Nominees Pty Ltd [1992] 1 VR 468 at 474:
Where a case is such as to require considerable out-of-court work during the trial, recompense for that out-of-court work has been traditionally provided by an increase in the brief fee - and hence each refresher. However, there may be cases where a daily fee on brief should properly be allowed. In 1982 Fullagar J said [in Magna] that such cases `must necessarily be exceptional', although he observed that the complexity and difficulty of litigation had in his opinion substantially increased over the preceding 30 years. As I have already said, it is my clear impression that, in the last decade, the course of litigation has become generally more complex still. It may well be that the `exceptional' case of a decade ago is now a more common phenomenon.
I would respectfully agree with the comments of Ashley J. I might add that in my experience counsel in major commercial litigation in Victoria have for at least 15 years charged fees on a daily basis rather than brief plus refresher. In fairness to successful litigants I think that reality can no longer be ignored in the taxation of costs. The present case seems to me beyond doubt one which must have involved much ongoing preparation both before and throughout the trial. I therefore direct that counsel's fees be taxed on the basis of a daily fee; the amount of such fee is of course a matter for the taxing officer.
(f) Interest on Costs
Section 52 of the Federal Court of Australia Act 1976 (Cth) provides:
(1) A judgment debt under a judgment of the Court carries interest from the date as of which the judgment is entered.
(2) Interest is payable:
(a) At such rate as is fixed by the Rules of Court; or
(b) If the Court, in a particular case, thinks that justice so requires at such lower rate as the Court determines.
Interest is also payable under this section on costs awarded to be paid by judgment. The interest runs from the date of the certificate of taxation: O 62 r 45(6). The current rate fixed by O 35 r 8 is 12 per cent per annum "unless, in a particular case, the Court determines that justice requires that a lower rate should be applicable". That rule was the subject of attention by the rule makers as recently as last year (SR 449 of 1995). No grounds were advanced as to why a lower rate should be applicable. The order will therefore be that costs bear interest at the rate of 12 per cent from the date of the certificate of taxation. That same rate will of course be applicable to the amount of the judgment debt itself, running from the date of judgment.
3. Joint and Several Liability for Costs
The applicants and the Walkers should have an order for their costs against all respondents against whom each respective applicant is entitled to judgment. The respondents respectively liable to the various applicants are correctly identified in paras 63-68 of the applicants' written submissions dated 26 February 1996. The Walkers are in the same position as the Tranters, para 67. The usual order where a plaintiff recovers judgment against more than one defendant is an order for costs against both defendants. Liability is joint and several. But as between respondents the burden of the applicants' and the Walkers' costs can and should be shared in an equitable way.
In my opinion the general discretion as to costs enables contribution as to costs to be apportioned between respondents liable to the same applicant or group of applicants, notwithstanding that there may be no right of contribution as to substantive liability between those respondents or some of them. Counsel did not argue to the contrary.
4. Costs Contribution between Respondents
Counsel for Hudson Conway argued that the prescribed interest findings have the result that the other respondents have received a windfall release from what would have been much more substantial damages. While that is undoubtedly the consequence in economic terms of the findings I have made, I do not think it a matter sufficiently connected with the conduct of the litigation to be taken into account in formulating a costs order.
Nor do I think consideration of moral blameworthiness in relation to the prescribed interest issue should be taken into account. It is true that since the decision of the New South Wales Court of Appeal in Hurst v Vestcorp in 1988 competent solicitors and
accountants, and corporations with regular access to professional advice, should have been aware that tax-driven investment schemes promoted by accountants and other professionals on a commission basis at the very least ran a severe risk of infringing the prescribed interest provisions. However, as a matter of law those provisions involve offences of strict liability. At any rate questions as to the knowledge or means of knowledge the various parties had of the law were not seen as relevant in the present case and were not agitated at trial. Therefore I do not think it would be fair to take into account in adjusting costs adverse matters which the various parties were not called on to answer during the course of the trial.
Contribution as to costs ought to broadly represent the time taken by the issues on which the respective respondents failed, although this should not be the exclusive criteria.
Turning first to Hudson Conway, its counsel put detailed submissions analysing evidence and submissions at the trial and the judgment itself. It was contended that the 31 May letter issues and prescribed interest issues each took 10 per cent of the time. I accept the former as a reasonable estimate, albeit necessarily imprecise . I do not disagree with the latter as an estimate, but I think the importance of this issue, determinative as it was of the whole trial, warrants a loading. I would therefore fix 15 per cent as an appropriate figure. Nevett Ford issues did not occupy a great deal of time. In my assessment 5 per cent is appropriate. The remainder can be apportioned
between Gray & Winter and the respective accountants. In terms of time, it is probably fair to say, as did the applicants' counsel, that the "overwhelming majority of the trial "concerned issues of negligence and false and misleading conduct.
The contribution as to costs should be applied in the following way. The costs of the applicants should be taxed. As from 1 June 1995 these costs will be on an indemnity basis. The taxing officer should identify any costs or expenses which can be attributed to individual applicants (specific costs) and deduct them. The balance should be subject to a further deduction of $300,000 to allow for the contribution of Metzke & Allan. The remainder (group costs) should be divided into 13 shares. The following applicants will recover their specific costs (if any) and their one-thirteenth share of the group costs from the appropriate respondents, who can then obtain percentage contribution from each other in accordance with the following table:
HC GW BC HMG NF
Garkat (Turner) 25 35 35 5
Gordon 25 35 35 5
Bactbuild (F Dean) 25 35 35 5
Lonihire (S Dean) 25 35 35 5
Ackina (Phelps) 15 40 40 5
Athurson 15 40 40 5
Schoeman 15 40 40 5
Haarsma 15 40 40 5
Lee 15 80 5
Green 15 80 5
Henderson 15 40 40 5
Tranter 15 40 40 5
Marican (Trengove) 15 40 40 5
The Walkers will have their costs on a party and party basis against the same respondents, and with the same rights to contribution between respondents, as the Tranters.
5. Costs on Cross-Claims
Since every respondent as to its successful right of contribution would also have claims for costs against all the other respondents, the simplest way is to make no order as to costs on such claims. Likewise the other cross-claims which failed should carry no costs.
6. Metzke & Allan
Metzke & Allan stand in a special position. They settled with the Walkers on 7 April 1995 and with the applicants on 13 June 1995. However the other respondents would not release them from their cross-claims so Metzke & Allen remained in the trial and succeeded on all the cross-claims against it.
Metzke & Allan were not originally made respondents to the proceeding. They were joined by the following parties on the following respective dates:
17 December 1993 Bird Cameron
18 February 1994 Huntley McArdle & Glass
4 March 1994 Gray & Winter
13 May 1994 Applicants
30 June 1994 Hudson Conway
5 July 1994 Richard Ellis
12 October 1994 Nevett Ford
20 October 1994 The Walkers
Metzke & Allan only cross-claimed against parties which first cross-claimed against it.
Metzke & Allan served a number of written offers both before and during the course of the trial. All of these were by letter between solicitors.
On 14 February 1995, that is 34 days before the trial commenced, Metzke & Allan offered to each other respondent, the applicants and the Walkers, to bear its own costs and discontinue its cross-claims if the cross-claims by each of the other respondents, and the claims by the applicants and the Walkers were discontinued with no order as to costs. In each case the offer was expressly stated to be not conditional on acceptance by other parties. This offer was to remain open up till at least 24 February 1995 and thereafter until withdrawn. It was expressly stated to be an open offer. This offer was not accepted; nor as far as the evidence discloses was there any counter offer.
On 17 March, three days before the commencement of the trial, Metzke & Allan advised that its offer of 14 February remained open. On 13 April Metzke & Allan advised the other respondents and the applicants that the offer of 14 February would be withdrawn by 9.00 am on 24 April.
On 15 June, and after its settlement with the applicants, Metzke & Allan wrote to the other respondents offering (i) to bear its own costs and discontinue its cross-claim against any respondent if the cross-claims made by that respondent against Metzke & Allan were discontinued with no order as to costs, an offer which could be accepted individually by any of the other respondents, alternatively, (ii) to contribute $100,000 to any ultimate settlement or judgment in favour of the applicants, the Walkers and the Morgans if all of the cross-claims against Metzke & Allan were discontinued with no order as to costs in which case it would otherwise discontinue all of its own cross-claims with no order as to costs. These offers would remain open until 5.00 pm on 20 June.
On 7 and 12 July Metzke & Allan wrote to the other respondents, the applicants and the Walkers. By these letters, in substance, Metzke & Allan offered to contribute $100,000 to a joint offer by the applicants, the Morgans, the Walkers and the other respondents to be made to Bird Cameron and the SGIO to settle the proceedings globally upon certain contributions and receipts.
On 13 July at about 10.30 am in the course of a discussion about the future conduct of the trial I made some comments as to the position of Metzke & Allan. At this stage the fact of the settlement between Metzke & Allan and the applicants had been revealed, although not the terms thereof. Nor had the earlier Metzke & Allan offers been disclosed. Since the respondents' cross-claims against Metzke & Allan for practical purposes mirrored the now settled claim of the applicants against Metzke & Allan, there seemed to me need to focus attention on the continued presence of Metzke & Allan in the trial, with all the costs that entailed.
I said:
And while we are on the question of scheduling, can I note that at the moment we have got an estimate of three days to be taken up with the Metzke & Allan case. As I understand, and I am subject to correction, the case of other respondents against Metzke & Allan is not based on any contractual claim. It is a contribution claim which simply mirrors the claim which the applicants initially brought against Metzke & Allan and which they discontinued some weeks ago. In the light of that, it seems to me that the other respondents ought to seriously consider whether they wish to persist with their cross-claim against Metzke & Allan.
I would ask them to give some consideration to that and by next Tuesday morning indicate what their intentions are. Obviously, I cannot express any final views about the matter and I do not do so, but the inference that flows from the applicants' withdrawal against Metzke & Allan is obvious enough, as what I think any objective consideration of the strength of the case against Metzke & Allan compared with that against other respondents would show.
One possibility that needs to be borne in mind is that if Metzke & Allan remain in the case as cross-respondents and the cross-claims against them fail - and I am not saying they will fail or they will succeed; I obviously cannot say that at the moment - but if they do fail, in the light of the course the trial has taken, with the applicants withdrawing as against them, then there may well be some costs consequences, such as for example, just one example, solicitor client orders. So, I ask counsel to keep those matters in mind. Thank you.
At 11.00 am on 13 July Metzke & Allan withdrew the offer to contribute $100,000. But by a letter sent subsequently on that day Metzke & Allan advised that the offer was revised, but remained only open for acceptance until 5.00 pm on Monday 17 July.
On 14 July Metzke & Allan advised other parties that Gray & Winter had refused to release them. Accordingly the alternative offer involving the contribution of $100,000 was withdrawn but the offer to settle with any other party separately on the basis of each paying its own costs remained open until 5.00 pm on 17 July.
None of the Metzke & Allan offers were accepted. All the relevant letters were marked "Without Prejudice save as to costs".
Some time after the Metzke & Allan settlement with the applicants was announced, Hudson Conway applied for an order that the terms of the settlement be disclosed. Metzke & Allan resisted such an order but I directed disclosure be made. However all this seems to me irrelevant to the qustion of the other respondents' liability for costs. Metzke & Allan in no way misrepresented their position. It was up to the other respondents to consider the Metzke & Allan offers on their merits.
All the other respondents, other than Nevett Ford and Richard Ellis (as to which, see below) should pay Metzke & Allan's costs of the whole proceedings, and on an indemnity basis after 1 March 1995, being 14 days after the date of the first offer. That offer was substantially less advantageous than the result which Metzke & Allan subsequently achieved. The subsequent history of this matter reveals to my mind a realistic approach by Metzke & Allan, who on any view had a strong case, to resolve the matter on sensible commercial terms, coupled with an unreasonable reluctance by the other respondents to face up to reality. I am not at all impressed by the argument of some respondents that it would have been "unrealistic" to accept Metzke & Allan's various offers. On the contrary, if any one respondent had accepted that offer it would not find themselves in the position it now is. It cannot be over emphasised that parties are to be encouraged to make offers of settlement and, conversely, to treat offers of settlement seriously. As between the other respondents, Metzke & Allan's costs are to be shared equally.
For reasons which I confess I do not fully understand, Metzke & Allan sought against Nevett Ford and Richard Ellis costs only on a solicitor/client, as distinct from indemnity basis. The distinction between those two measures of costs in any event seems to introduce unnecessary elements of subtle and arcane learning to an already over-complicated area of the law. But I do not think I should award Metzke & Allan more than they ask for. Accordingly their costs against Nevett Ford and Richard Ellis will be on a solicitor/client basis from the relevant date.
Before leaving Metzke & Allan I wish to say something about their joinder. In Mutual Community Byrne J cited with approval what was said by Rogers CJ Comm D in AWA Ltd v Daniels (Supreme Court of NSW, unreported, 8 October 1992) concerning what Byrne J referred to as "the heavy responsibility of lawyers advising their clients to join defendants in major commercial litigation". The passage from AWA is as follows:
I should at the outset add my voice to Cole J in State Authorities Superannuation Board v Property Estates (Qld) Pty Limited (unreported 8 February 1991) where he said:
"In my view parties should carefully consider both the legal and commercial necessity or appropriateness of joining parties before they do so. Equally they should consider the legal and commercial consequences of failing to accept a sensible offer of compromise aimed at removing a party from extensive and expensive litigation."
These remarks of an experienced commercial judge should be followed in practice with much greater attention than presently appears to be the case. It is no light matter for lawyers to advise a client to join, or retain, in the proceedings another party and thereby involve that other party, as in this case, in costs running into millions of dollars, which, in the absence of a special order will be irrecoverable by it. This approach was echoed by Mr Charles QC who said, (Tp 29) with considerable justification, that in highly complex commercial litigation there is an incentive to add as many potential contributing parties as possible. The purpose is both to spread the burden of settlement and the burden of blame. Unless parties are required to take the most rigorous approach to the assessment of whether a properly arguable claim exists, the court, and for that matter other parties, will not be protected from the wanton addition of parties on speculative basis. Those who join such parties will do so in the certain knowledge that a small proportion only of the costs will fall on them when they fail.
The history of the joinder of Metzke & Allan, coupled with the unrealistic reluctance of the other respondents to release them, makes his Honour's comments very apt, in my opinion.
7. Bird Cameron Partners and Mr Balcam
No significant initial costs were incurred by these respondents who were represented by the Bird Cameron solicitors and counsel. No order for costs will be made in respect of them.
8. Bird Cameron v SGIO
The Bird Cameron parties should have an order for costs against SGIO which would cover their costs of defending the applicants' and the Walkers' claims on an indemnity basis. This accords with their entitlement under the policy which they have established. That order should extend to any liability for costs on cross-claims.
As to Bird Cameron's cross-claim against SGIO, Bird Cameron should have its costs, but only on a party and party basis. This was simply a dispute under a policy and an ordinary commercial issue. It was quite understandable that SGIO should resist payment in the light of the corrupt secret commissions which it appeared had been received by the Bird Cameron employees. SGIO lost, and must pay the ordinary cost penalty, but it is not to be regarded as acting unreasonably in taking the stand it did.
9. Orders
There will be an order adjourning the proceeding to a date to be fixed with liberty to apply.
Within seven days the applicants are to bring in minutes of proposed orders signed by counsel for all represented parties, including the Walkers and SGIO.
I certify that this and the preceding thirty-nine (39) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.
Dated:
Associate
Appearances are as stated in the judgment of 20 February 1996
