FEDERAL COURT OF AUSTRALIA

COSTS - applicant successful in contract claim against company but unsuccessful in Trade Practices Act and Fair Trading Act claims against company, two directors and company’s agent - whether costs should follow the event - whether a Sanderson or Bullock order is appropriate - conduct of personal respondents and their relationship to the respondent company - relevant considerations - personal respondents to pay their own costs

Sanderson v Blythe Theatre Co [1903] 2 KB 533, considered

Bullock v London General Omnibus Company (1907) 1 KB 264, considered

Oshlack v Richmond River Council (High Court, McHugh J, unreported, 25.2.98), applied

Hughes v Western Australian Cricket AssociationInc (1986) ATPR 40-748

Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Co Ltd (1987) 78 ALR 368,

referred

Gould v Vaggelas (1984) 56 ALR 31, applied

WHITE PROPERTY DEVELOPMENTS LTD v RICHMOND GROWTH PTY LTD AND ORS

NG 445 of 1995

MADGWICK J

SYDNEY

23 MARCH 1998

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1.         Judgment be entered for the applicant against the first respondent.

2.         Judgment be entered for the second, third and fourth respondent against the applicant.

3.         The first respondent pay the applicant the sum of two hundred and fifty thousand dollars ($250,000.00).

4.         The first respondent pay the applicant interest on the judgment in the sum of eighty four thousand two hundred and seventy four dollars ($84,274.00).

5.         Subject to order 7, the first respondent is to pay the applicant’s costs.

6.         Subject to order 7, there be no order for costs as between the applicant and the second, third and fourth respondents.

7.         The applicant is to pay, on an indemnity basis, the costs of each respondent in respect of:

            (a)        the hearing on 20 and 21 November 1996 to adduce further evidence on behalf of the applicant; and

            (b)        the applications on 22 and 27 November 1996 to adduce further evidence on behalf of the applicant.

REASONS FOR JUDGMENT

HIS HONOUR: 

Background

The applicant, White Property Developments Ltd (“White Property”):

(a)        sued the first1st respondent, Richmond Growth Pty Ltd (“Richmond Growth”) in contract and for misleading and/or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth).  For reasons expressed in my judgment delivered on 28 January 1998, White Property ;

(b)        succeeded on that contract claim but failed on the Trade Practices Act claim, and also;

(c)        failed as against each of the second, respondent, MrO’Brien (“O’Brien), the third respondent, MrPaull (“Paull”) and the fourth respondents, MrBennett (“Bennett”) on claims under the Trade Practices Act and the Fair Trading Act 1987 (NSW)).  The question at issue is the costs order to be made.

White Property argues that:

(a)        no order for costs ought be made against White Propertyin favour of any of the personal respondents; or

(b)        Richmond Growth should pay the costs of the personal respondents (see Sanderson v Blythe Theatre Co [1903] 2 KB 533); or

(c)        Richmond Growth should indemnify White Property for any costs order made against it (see Bullockv London General Omnibus Company (1907) 1 KB 264).

Legal Principles

Costs in this Court are discretionary:  s 43 Federal Court of Australia Act 1976 (Cth).  The discretion is to be exercised judicially, that is, “in accordance with established principle and factors directly connected with the litigation”:  Oshlack v Richmond River Council (High Court of Australia, unreported, 25 February 1998, per McHugh J).  The normal rule in ordinary civil litigation is, of course, that absent any special circumstances, costs follow the event: Hughes v Western Australian Cricket Association (1986) ATPR 40-748 per Toohey J at 48,136,approved in Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Co Ltd (1987) 78 ALR 368 at 418.  In Oshlack, McHugh J said:

“The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion.  In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Lord Devlin formulated the relevant principle as follows:

‘No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct’.

‘Misconduct’ in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation.  Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party has already offered in settlement of the dispute.”

Inter-relationship of respondents

Mr Bennett was Richmond Growth’s real estate agent, its highly influential counsellor and, at times, acted as if the holder of a power of attorney from it.  Messrs O’Brien and Paull held, between them, controlling interests as shareholders in Richmond Growth and were the directors most active on its behalf in the dealings with White Property.

Conduct of Messrs O’Brien, Paull and Bennett

Counsel for White Property sought to rely on my findings of fact in the case regarding the conduct of the personal respondents,to demonstrate thatan exception should be made to the general rule that costs follow the event.

The conduct of Richmond Growth, relied upon by White Property and as to which it succeeded in the action, was constituted by acts or omissions of the personal respondents alone or with other directors of Richmond Growth.  A good deal of such conduct by each personal respondent was deceptive and/or misleading within the meaning of those terms in the Trade Practices Act and the Fair Trading Act, for example:

·      from December 1994 to February 1995, each of them pretended that Richmond Growth was not dealing with Woolworths’ agent and would not do so when Richmond Growth was so doing;

·      Mr Bennett engaged in deliberately deceptive behaviour on 10th March 1995 and (inferentially) Messrs O’Brien and Paull acquiesced in it; and

·      each of them connived at the charade of receiving White Property’s offer on 13th and 14th March 1995 when theyhad no intention of giving it serious consideration.

Mr Bennett’s conduct was the most marked in these matters, but each personal respondent acted in a way inconsistent with generally acceptable commercial conduct.

;

(d)        in any event should pay costs thrown away by unsuccessful applications, in substance to be allowed to put on evidence out of time.

The question at issue is the costs orders to be made.  The question in relation to (d) is whether indemnity costs should be provided.

Inter-relationship of respondents

Mr Bennett was Richmond Growth’s real estate agent, its highly influential counsellor and, at times, was akin to the holder of a power of attorney from it.  Messrs O’Brien and Paull held, between them, controlling interests as shareholders in Richmond Growth and were the directors most active on its behalf in the dealings with and of concern to White Property.

A complex and developing transaction

The relationship between Richmond Growth and White Property was neither simple nor static.  It developed over several months.  Its legal analysis was not a simple matter.  Nor was the analysis of rights and obligations between White Property and the various respondents.

Conduct of Messrs O’Brien, Paull and Bennett

The conduct of Richmond Growth relied upon by White Property and as to which it succeeded was constituted by acts or omissions of the personal respondents alone or with other directors of Richmond Growth.  It was insignificant to measure the conduct of the personal respondents which constituted the offending conduct of Richmond Growth.

A good deal of such conduct by each personal respondent was deceptive and/or misleading within the meaning of those terms in the Trade Practices ct (and the Fair Trading Act).  It was also unreasonable and some of it, for example:

·      (a)   pretending, from December 1994 to February 1995 that Richmond Growth was not dealing with Woolworths’ agent and would not do so;

·      (b)   Mr Bennett’s behaviour of 10th March 1995 and the (inferential) acquiescence in it by Messrs O’Brien and Paull; and

·      (c)   the charade of receiving White Property’s offer on 13th and 14th March 1995,

was dishonest.

Mr Bennett’s conduct was, in these respects, quite the most marked but each acted in a way inconsistent with generally acceptable commercial conduct.

Effect of conduct on White Property

White Property failed on the Trade Practices Act and Fair Trading Act claims ounts on the issue of reliance.  It is true that, on analysis, White Property failed on their own case on this issue.   However, in my opinion, overall, the overall conduct of each of the respondents was such as to invite White Property’s recourse to those Acts for alternative causes of action against them by White Property.    Although White Property only succeeded against Richmond Growth as to the breach of contract claim, it was not unreasonable that each of the personal respondents was made a party to the proceedings or that Richmond Growth was also sued on the statutory counts.

Offer by Messrs O’Brien and Paull

Four days before the hearing, Messrs O’Brien and Paull offered to settle White Property’s claims against them and Richmond Growth for $60,000 plus $40,000 costs.  In the context, this offer was both late and small.

Conclusion

I am satisfied that a costs order departing from the usual is appropriate because of the conduct of the personal respondents. The relevant conduct of Richmond Growth was initiatedand directed by the personal respondents.  Richmond Growth’s misconduct was reprehensible and unlawful in ways giving rise to a cause of action against it as well as in ways which did not so give rise.  The personal respondents procured Richmond Growth to behave in the way that it did.  Their own conduct was similarly unlawful and/orreprehensible.  It was misconduct of a kind apt to disentitle them from the usual costs order. 

I do not overlook that White Property failed on its own case, on the issue of reliance, as against the personal respondents and that, in that sense, White Property “never had a case” against any of them.  But each certainly invited action against him by his misconduct and, as indicated, there was, in the circumstances of this case, nothing unreasonable about testing whether such conduct might give rise to a cause of action.

The offer of Messrs O’Brien and Paull, given its size and timing, carries little weight as a factor affecting the Court’s discretion.

The appropriate orders

The question then becomes whether the personal respondents should pay their own costs, or whether the case could be met by a Sanderson or Bullock order.  The test was expressed by Gibbs CJ in Gould v Vaggelas (1984) 56 ALR 31 at 41-2, where his Honour said:

“Inmyrespectfulopinionthetrue position was clearly stated by Blackburn CJinSteppkevNational Capital Development Commission (1978) 21 ACTR 23,atpp 30-31, when he said that ‘there is a condition for the making ofa Bullock order, in addition to the question whether thesuingofthe successful defendant was reasonable, namely that the conduct ofthe unsuccessful defendant has been such astomakeitfairtoimpose some liabilityonitforthecostsofthesuccessfuldefendant.’”(emphasis added)

The conduct of the company was solely influenced by, indeed consisted of, the conduct of the personal respondents.  There was no default by Richmond Growth which was not brought about by one or more of the personal respondents.  There was no separate conduct attributable to Richmond Growth which would make it fair that those costs be imposed upon Richmond Growth. 

An added but less important practical consideration is this.  Richmond Growth was formed solely for the purpose of aggregating and dealing with the shareholders’ land with a view to making a one-time profit from its development.  That purpose having been fulfilled, Richmond Growth may or may not now be financially viable.  If thereare any funds left in Richmond Growth, then it is presumably the shareholders in it (who include persons other than Messrs O’Brien, Paull and Bennett) who would bear the costs of the personal respondents if a Sanderson or Bullock order were made.  That would, in the circumstances of this case, hardly be fair.

If, on the other hand, Richmond Growth is not now viable, the effect of a Sanderson or Bullock order would be either to have White Property alone pay the costs brought about by the personal respondents’ misconduct or to reduce the prospects of White Property being paid any significant part of its own costs (including those of the personal respondents) by Richmond Growth.

In my opinion, it is appropriate that each of the personal respondents should pay his own costs.

Legal principles

Costs in this Court are discretionary:  s 43 Federal Court Act.  The normal rule is, of course, that costs follow the event.  However, special circumstances may justify some other order:  Hughes v WA Cricket Association Inc (Toohey J) (1986) ATPR 40-748, p 48, 136, approved in Queensland Wine Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987)78 ALR 407 at 418.

Result

Costs attributable to White Property

[As you’d expect on the results of the case but Bennett, O’Brien and Paull to pay their own costs.]

The matter was accurately summarised in the submissions of the second and third respondents on costs.  I repeat the salient portions of them:

The proceedings were heard on 18, 19, 20, 21, 22, 25, 26, 27, 28, 29 November 1996 and on 17, 19 and 20 December 1996.

On 18 November 1996, the Applicant referred to the inadequacy of its case on damages and foreshadowed an application to file additional evidence of damages.  This application was made on 20 November 1996.  Judgment was delivered on 21 November 1996 to the effect that the Applicant could rely on the further affidavits it wished to file in its claim for “project management” fees but it could not rely on such material in relation to its claim for “lost opportunity” to make a profit from the sale of the land had it purchased such land or from future project management fees.  The Applicant was entitled to rely on evidence it had previously filed in respect of these issues.  Costs were subsequently reserved.  The proceedings were adjourned at 3.18pm on 20 November 1996.

The proceedings were adjourned at 2.25pm on 21 November 1996 to commence at 1pm on 22 November 1996.  The purpose of the adjournment was to enable the Applicant to supplement its material on damages in the manner allowed by the judgment on 21 November 1996.  The Applicant was directed to supply the documentary material and any statements being the evidence to be adduced by the Applicant in support of any aspect of its claim for damages by 10am on 22 November 1996.

The Second and Third Respondents made an application for indemnity costs for the 20 and 21 November 1996 which was deferred for later consideration by the Court.

The Applicant made applicationfor adjournmentwhen the proceedings resumed at 1pm on 22 November 1996 which was refused.  No order for costs was made.

On 22 November 1996 the Applicant made application to file further evidence from Mr Morcom which was subject to objection.  No order for costs were made in respect of the objections.

On 27 November 1996 the Applicant made application in relation to the evidence of Mr David Walkerwhich, after argument, was the subject of a judgment delivered at in effect rejecting much of Mr Walker’s proposed evidence.  No orders relating to the costs of the application were made.

The Second and Third Respondents contend for the following costs orders:

(1)       Indemnity costs in respect of the hearing on 20 and 21 November 1996 which determined the Applicant’s right to adduce further evidence on a limited issue on which the Applicant failed against each of the Second and Third Respondents.

(2)       Indemnity costs in respect of the applications to adduce further evidence from Mr Morcom and Mr Walker which were decided against the Applicant and on which issues such evidence was directed, the Applicant failed entirely against each of the Second and Third Respondents.

The relevant costs were either thrown away or incurred in circumstances of egregious unreadiness on the part of White Property.  White Property should pay such costs and on an indemnity basis.

Final Orders

Accordingly, I make the following orders:

1.         Judgment be entered for the applicant against the first respondent.

2.         Judgment be entered for the second, third and fourth respondent against the applicant.

3.         The first respondent pay the applicant the sum of two hundred and fifty thousand dollars ($250,000.00).

4.         The first respondent pay the applicant interest on the judgment in the sum of eighty four thousand two hundred and seventy four dollars ($84,274.00).

5.         Subject to order 7, the first respondent is to pay the applicant’s costs.

6.         Subject to order 7, there be no order for costs as between the applicant and the second, third and fourth respondents.

7.         The applicant is to pay, on an indemnity basis, the costs of each respondent in respect of:

            (a)        the hearing on 20 and 21 November 1996of the application to adduce further evidence on behalf of the applicant, and

            (b)        the applications on 22 and 27 November 1996 to adduce further evidence on behalf of the applicant.

I certify that this and the preceding sevenfifty one (751) pages are a true copy of the Reasons for Judgment of the Honourable Justice Madgwick.

Associate:        

Date:                28 January 1998

Appearances

Counsel for the Applicant:                                  R Burbidge QC

Solicitor for the Applicant:                                  Mallesons Stephen Jacques

Counsel for the 1st Respondent:                         G Underwood

Solicitors for the 1st Respondent:                       Gibsons

Counsel for the 2nd & 3rd Respondents:            W Nicholas QC

Solicitors for the 2nd & 3rd Respondents:          Ebsworth & Ebsworth

Counsel for the 4th Respondent:                         P McClellan QC

Solicitors for the 1st Respondent:                       Murray Stewart & Fogarty

Dates of hearing:                                                18-29 November 1996

                                                                         17, 19 & 20 December 1996

Date of judgment:                                               23 March 1998