FEDERAL COURT OF AUSTRALIA

Yates v Boland & Ors [2000] FCA 1895

PRACTICE AND PROCEDURE – Costs – order by trial judge that non-party pay indemnity costs – whether discretion miscarried – whether error of principle – whether failure to take into account material consideration – whether outcome unreasonable and unjust – whether indemnity costs order supported by evidence.

Knight v F P Special Assets Limited  (1992) 174 CLR 178, applied.

Vestris v Cashman (1998) 72 SASR 449, considered.

House v The King(1936) 55 CLR 499, applied.

Symphony Group Plc v Hodgson [1994] QB 179, considered.

Re Wilcox; ex parte Venture Industries Pty Ltd (1996) 141 ALR 727, cited.

Colgate – Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225, cited.

IAN FRANCIS YATES v JOHN BOLAND, THEODORE SIMOS AND JOHN WEBSTER

NG 717 OF 1997

O’LOUGHLIN, NORTH & WEINBERG JJ

21 DECEMBER 2000

MELBOURNE (VIA VIDEOLINK TO SYDNEY)

THE COURT ORDERS THAT:

1.                  The appeal is dismissed.

2.                  The appellant is to pay the respondents’ costs of the appeal.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

THE COURT:

1                     This is an appeal against a judgment given by Branson J on 14 August 1997 (Yates Property Corporation Pty Limited v John Boland & Ors (No. 2) (1997) 147 ALR 685).  Her Honour ordered that the appellant, Ian Francis Yates, was jointly and severally liable with Yates Property Corporation Pty Ltd (YPC) to pay the costs of the respondents, John Boland, Theodore Simos, and John Webster, of the proceedings which had concluded before her Honour.

Background

2                     The issue raised in this appeal comes at the end of very extensive litigation undertaken by YPC.  For the purposes of this appeal it is sufficient to describe the litigation broadly.  YPC purchased land in the Darling Harbour area with a view to developing a retail market there.  In 1985 the land was acquired by the Darling Harbour Authority and YPC became entitled to compensation by reason of the acquisition of land for public purposes under the Public Works Act 1912 (NSW).

3                     YPC engaged Abbott Tout Russell Kennedy as solicitors for the purposes of conducting the compensation claim before the Land and Environment Court of New South Wales.  Mr Boland, the first respondent, is sued in his capacity as representative of Abbott Tout Russell Kennedy.  The second respondent, Theodore Simos, was senior counsel engaged by YPC to conduct the case before the Land and Environment Court, and John Webster, the third respondent, was junior counsel in the case.

4                     The hearing before the Land and Environment Court lasted eight weeks and concluded with a determination that the value of the land was $22,334,500.00.  YPC appealed to the Court of Appeal of New South Wales and the Darling Harbour Authority cross-appealed.  The Court of Appeal found that the Land and Environment Court had erred and remitted the matter for further hearing to that Court.  After the consideration of further evidence the Land and Environment Court fixed the compensation for the resumption of the land in the sum of $22,551,944.00.  YPC again appealed to the Court of Appeal and this appeal was compromised by the Darling Harbour Authority agreeing to pay YPC an additional $1.25 million. 

5                     Following the settlement of the proceedings in the Land and Environment Court, YPC commenced proceedings in the Federal Court against the respondents, its legal advisers.  It asserted that it had suffered financial loss because the respondents had failed to adequately present the “special value” aspect of the claim for compensation and the failure amounted to a breach of professional duty by each of the respondents.  On 5 June 1997 Branson J dismissed the application against all respondents.

6                     In a separate decision given on the 14 August 1997 her Honour ordered YPC to pay the respondents’ costs of the action on an indemnity basis as from 22 March 1996.  Mr Yates was jointly and severally liable with YPC to meet those costs.  The orders provided as follows:

“1.       The applicant pay:

(a)               the taxed costs, including reserved costs (if any), of each of the respondents up to and including 22 March 1996; and

(b)               the costs, including reserved costs, of each of the respondents thereafter in a sum to be ascertained on the basis that such sum is to comprise all costs except so far as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, each respondent will be completely indemnified by the applicant for his costs.

2.         Ian Francis Yates be jointly and severally liable with the applicant to meet the costs ordered to be paid by the applicant by par 1 of this order.

3.         No respondent is entitled to take steps to recover his costs pursuant to par 1 of this order from Ian Francis Yates until the expiration of forty two clear days from the date when his costs are taxed or agreed.

7                     YPC then appealed to the Full Court against the decisions of Branson J, including the decision concerning costs. Orders for security for the costs of the appeal were made against YPC and Mr Yates in favour of each of the respondents by Davies J. No security for costs was provided in respect of the second respondent and, on 13 February 1998, Davies J ordered that the appeal relating to the second respondent be dismissed (see Yates Property Corporation Pty Ltd and Anor v John Boland and Ors [1998] 163 FCA (13 February 1998) (Davies J)).Mr Yates instituted his own separate appeal against her Honour’s decision requiring him to pay the respondents’ costs.  On 5 August 1998 the Full Court allowed the appeals and set aside the orders made by Branson J including the orders made in respect of costs on 14 August 1997.

8                     The first and third respondents then sought and obtained special leave to appeal to the High Court of Australia.  The High Court dealt separately with the substance of the case which had been the subject of the orders made by Branson J on 5 June 1997, and the question of costs which had been the subject of the orders made by Branson J on 14 August 1997.  In relation to the former the High Court allowed the appeals and set aside the orders of the Full Court.  In relation to the costs order made by Branson J on 14 August 1997 against Mr Yates, the High Court made the following order on 9 December 1999:

“Remit to the Full Court for further consideration the appeal of Ian Francis Yates against the orders as to costs made against him by Branson J on 14 August 1997.”

9                     These reasons deal with the remitted appeal against the orders made against Mr Yates by Branson J on 14 August 1997.  The reasons are divided into two parts – the first addresses the issue of the award of costs against a non-party, and the second addresses the issue of the award of costs on an indemnity basis.

THe order for Costs against a non-party

Reasons of the primary judge

10                  In considering the question of making an order against Mr Yates, a non-party, Branson J referred to the following passage from Knight v FP Special Assets Limited (1992) 174 CLR 178 at 192-3 where Mason CJ and Deane J said:

“For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party …That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation.  Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”

11                  Her Honour considered that this passage, although strictly obiter, was an appropriate guide to the exercise of discretion in the present case.  We agree.

12                  Her Honour first reviewed the evidence concerning the financial position of YPC and concluded at 695 that:

“… the applicant may be regarded as lacking the means to make payment within a reasonable time of any substantial orders for costs which might be made against it.  That is, I am prepared to approach this application on the basis that the applicant is to be regarded as a ‘man of straw’ as Mason CJ and Deane J used that expression in Knight’s Case.”

13                  Her Honour then addressed the question whether Mr Yates had played an active part in the conduct of the litigation.  She said at 695:

“It is not in dispute that Mr Yates has played an active part in the conduct of this litigation.  As I found in my reasons for judgment, except during a period when the applicant was in official liquidation, Mr Yates has been in effective control of the applicant since its incorporation in 1975.  Mr Yates is one of only two directors of the applicant.  He holds the only A class share issued by the applicant which, while it is held by him, gives him the right to exercise at any general meeting of the applicant votes equal to three quarters of the total votes which could be exercised by all shareholders.  His affidavit evidence on this costs application makes it clear that it was he who gave all significant instructions on behalf of YPC concerning this proceeding.  The records of the Australian Securities Commission show that Mr Yates and Jillinda Pty Ltd, the trustee of the Ian Yates Family Trust, are the only shareholders of the applicant and that they hold their shares beneficially.  I concluded that Mr Yates had a real and personal interest in the subject of this litigation.”

14                  Her Honour then addressed the question of the interests of justice as follows:

“Subject to consideration of a matter to which I turn below, the above factors suggest that it would be contrary to the interests of justice for Mr Yates to be able to be shielded by the applicant from any liability for the respondents’ costs of the proceeding.

The matter to which I refer is the failure of the respondents, or any of them, to apply for security for costs in the proceeding.  In my view, such failure is a matter which, along with other matters, may appropriately be taken into account on an application of this kind.  Where a company which is apparently without means to pay an order for costs in favour of a respondent initiates litigation, the appropriate course will ordinarily be for such respondent to seek an order for security for costs (see Knight’s Case per Dawson J at 204).  Those who stand behind the company may then make a decision, ordinarily at an early stage, as to whether to make the financial commitment necessary to allow the litigation to proceed.

The evidence before me discloses that the respondents did from time to time during the course of the proceeding give consideration to applying for an order or orders for security for costs.  In doing so they had regard to the annual returns of the applicant filed with the Australian Securities Commission.  Such returns showed the applicant to have significant shareholders’ equity.  The solicitors for the first respondent on two occasions sought from the solicitors for the applicant more detailed financial information concerning the applicant than was disclosed by the Australian Securities Commission returns.  Such information was not provided to them.  In the circumstances I do not consider that it was unreasonable for the respondents not to have made application for an order or orders for security for costs.”

CONSIDERATION

15                  All parties to the appeal accepted that this appeal was governed by the well known principles enunciated in House v The King (1936) 55 CLR 499 at 504-5 as follows:

“The manner in which an appeal against an exercise of discretion should be determined is governed by established principles.  It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course.  It must appear that some error has been made in exercising the discretion.  If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.  It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.  In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.”

16                  The appellant relied upon three arguments to show that the order against Mr Yates as a non-party was attended by error.  He submitted that her Honour erred in principle, that she mistook the facts, and that the result was plainly unreasonable and unjust.  Finally the appellant contended that if the order against Mr Yates was properly made, it should not have been made on an indemnity basis.  Each of these arguments will be considered in turn. 

Error of principle

17                  The appellant contended that the discretion to award costs was not unfettered.  The wide discretion must be exercised judicially and in accordance with the general legal principles pertaining to the law of costs: Knight per Mason CJ and Deane J at 192.  The appellant submitted that as a matter of principle a litigant intending to claim costs from a non-party is bound to give timely notice of that intention to the non-party.  He relied upon the following statement of Olsson J (with whom Doyle CJ agreed) in Vestris v Cashman (1998) 72 SASR 449 at 458: 

“… common fairness dictates that a defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security, or alternatively, at least by letter advising of the defendant’s intention, place the non-party on notice of that risk, so that the non-party will not, in effect, be lulled into a false sense of security and ambushed, when it is too late for it to reflect as contemplated in Yates Property Corporation Pty Ltd v Boland.”

18                  The genesis of the need to give warning of an intention to claim costs against a non-party can be traced to another case relied upon by the respondent, namely, Symphony Group Plc v Hodgson [1994]QB 179. 

19                  In that case the plaintiff made and sold kitchen units.  The defendant was an estimating supervisor employed by the plaintiff.  The defendant’s contract of employment contained restrictive covenants which provided that he could not work for certain companies engaged in the business of making and/or selling kitchen furniture for one year after the termination of his employment.  One of those companies was Halvanto Kitchens Ltd (Halvanto).  In breach of the restrictive covenants the defendant accepted an offer of employment from Halvanto.  The plaintiff obtained interlocutory injunctions against the defendant until the trial of the action.  After obtaining the interlocutory injunctions the plaintiff’s solicitors wrote to Halvanto’s solicitors threatening to issue proceedings for damages for inducing the defendant to breach his contract of employment with the plaintiff.

20                  Balcombe LJ (with whom Staughton and Waite LJJ agreed) regarded it as important that:

“At no time has Symphony [the plaintiff] sought to join Halvanto as a defendant to the action against Mr. Hodgson [the defendant], nor to initiate separate proceedings against a Halvanto.  At no time before the hearing of the action against Mr. Hodgson did Symphony tell Halvanto that it might seek to make Halvanto liable for payment of the costs of that action.” [at 186]

21                  At trial permanent injunctions were granted against the defendant.  The trial judge severely criticised Halvanto and its managing director, finding that they knew that the offer of employment was in breach of the defendant’s contract of employment, and that the managing director had given misleading evidence at the trial on the issue.

22                  After giving Halvanto an opportunity to be heard, the trial judge dismissed, inter alia, a preliminary point raised by Halvanto that there was no case to answer.  Halvanto filed a notice of appeal asserting that the circumstances of the case did not permit an order for costs to be made against Halvanto.  The central argument relied upon by Halvanto was that the plaintiff could have joined Halvanto as a party to the action, and, having failed to do so, thereby depriving Halvanto of the opportunity of winning such an action, could not succeed on an application for an order for costs against Halvanto.  Balcombe LJ said at 192-3:

“In my judgment the following are material considerations to be taken into account, although I do not suggest that there may not be others which are relevant.

(1)       An order for the payment of costs by a non-party will always be exceptional: see per Lord Goff in Aiden Shipping Co. Ltd. v. Interbulk Ltd. [1986] A.C. 965,980F.  The judge should treat any application for such an order with considerable caution.

(2)       It will be even more exceptional for an order for the payment of action against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings.  Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer (Calderbank v. Calderbank [1976] Fam. 93); and the knowledge of what the issues are before giving evidence.

(3)       Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him.  At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord. 15, r. 6(2)(b)(i) or (ii).

Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice.”

23                  It can be seen that his Lordship referred to these matters variously as “material considerations” and “principles”. 

24                 The passage from his Lordship’s decision was immediately preceded by a reference to what Lloyd LJ said in Taylor v Pace Developments Ltd. [1991]B.C.C. 406, 408 as follows:

“There is only one immutable rule in relation to costs, and that is that there are no immutable rules.”

25                  The significance of the failure to warn Halvanto was that it deprived Halvanto of the ability to seek to become a party to the proceedings.  This emerges from the following passage from the judgment of Balcombe LJ at 194-5 as follows:

“… it would be unjust to Halvanto to allow these issues to be raised no in this summary procedure where Halvanto has been deprived of any legal right to control the action, e.g. by an offer of settlement or payment into court, and of all the procedural protection to which it would have been entitled if the claim had been brought against it by action in the normal and proper way.

(3)               It is not suggested by Symphony that it ever warned Halvanto of the possibility that it might seek to make Halvanto liable for the costs of its action against Mr. Hodgson before 6 July 1992 when the judge delivered his judgment in the action.  The result is that Halvanto was neither made a party to the action by Symphony, nor did it have the opportunity to protect itself by applying to be made a party.  When Mr. Bramley gave his evidence he did so in ignorance of what lay in store for Halvanto, and with the benefit of hindsight it now appears that a least some part of his cross-examination – e.g. that directed to the position of Messrs. Walker Morris and their acting for Mr. Hodgson – was with a view to this application being made.  In my judgment Mr. Gibbons was justified in comparing the procedure here of evidence (Mr. Bramley) first, and pleadings (the schedule to Symphony’s summons of 14 July 1992) later, to what the Queen said at the trial of the Knave in Alice’s Adventures in Wonderland: “’No, no!’ said the Queen.  ‘Sentence first – verdict afterwards.’” – even thought Mr. Gibbons wrongly attributed this quotation to the King.”

In agreeing with the judgment of Balcombe LJ Staughton LJ at 196 emphasised the importance of the same central consideration.

26                  The other case upon which the appellant placed particular reliance was Vestris v Cashman (1998) 72 SASR 449.  In that case the Full Court of the Supreme Court of South Australia (Doyle CJ, Olsson and Lander JJ) dismissed an appeal against a judgment of the District Court which had refused to order costs against non-parties to a proceeding.  In the proceeding the plaintiff company sued the vendor of a paint sales business claiming that there had been misrepresentation as to the takings of the business.  The plaintiff was the trustee of a trust whose beneficiaries included Mr and Mrs Cashman.  They were also shareholders in the plaintiff company.  They stood to gain from any award of damages arising out of the proceedings.  It was found that, at the time when the proceedings were commenced, the defendant, Vestris, should have know that the plaintiff company was insolvent and unlikely to be able to pay the costs of the proceedings.  At the conclusion of the proceedings Vestris applied for an order for costs against Mr and Mrs Cashman.

27                  The principal reason for the refusal of the application was that Vestris had been on notice of the plaintiff company’s impecuniosity at an early stage, had ample opportunity to make an interlocutory application for security for costs and failed to do so.

28                  Olsson and Lander JJ wrote separate judgments.  Doyle CJ agreed with both judgments.  All of the judgments held that the District Court did not have jurisdiction to make an order for costs against a non-party.  Then by way of obiter each of the judgments held that there had been no error in the exercise of discretion in refusing the order for costs against Mr and Mrs Cashman. 

29                  Olsson J set out a number of what he described as “broad propositions” which had been established by the authorities concerning the exercise of the discretion to award costs against a non-party.  One of those propositions was: 

“A failure on the part of the successful litigant to make a timely application for security for costs is a relevant consideration, where it appears unlikely that a corporate litigant will be unable to pay any costs awarded against it.  The availability of an order for security for costs at an earlier stage of the litigation will, in any situation, be a strong argument for refusing to exercise a discretion to order costs against a non-party:  see Knight v FP Special Assets Ltd per Mason CJ and Deane J.”

30                  This was the “dominant consideration” in the view of the trial judge.  Olsson J referred to the decision of Branson J in the present case as explaining the rationale for this conclusion namely:

“Those who stand behind the Company may then make a decision, ordinarily at an early stage, as to whether to make the financial commitment necessary to allow the litigation to proceed.”  ((1997) 147 ALR 685 at 695)

31                  In rejecting the arguments that the discretion had miscarried Olsson J said at 459:

“Orders as to costs are typically the product of discretionary decisions, particularly as they reflect the assessment of the trial judge arrived at against the background of the trial and his full appreciation of all relevant features of the conduct of the relevant parties.”

32                  Lander J said at 468:

“It is not desirable to lay down any rules which would fetter the exercise of a trial judge to make such an order but some guidance as to the exercise of the discretion can be obtained from the decided cases.

In exercising the discretion regard would be had to whether the non-party could have been joined as a party earlier in the proceedings and thereby obtained the protection of the rules of court; whether the non-party has had any warning that an application for costs against that party would be made;  whether, in those circumstances, the non-party could have applied to be joined in the proceedings and thereby had the capacity  to influence the proceedings or the non-party could have protected itself by making an offer in accordance with the rules; whether if a warning had been given the non-party could have terminated the proceedings by discontinuance, negotiation, payment or otherwise; whether the party who would otherwise be usually liable for costs can meet an order for costs and if relevant the reason why that party cannot meet an order for costs; whether it was apparent at any earlier stage in the proceedings, and if so when, that the party could not meet costs; whether the moving party should have sought an order for security for costs; the relationship, if any, between the non-party and the party who would usually be liable for costs; whether the non-party has caused the proceedings; whether the non-party has funded the proceedings; whether the non-party had a direct or indirect financial interest in the litigation; and whether there has been any improper conduct on the part of the non-party.

None of the matters will necessarily be decisive.  Indeed the presence of one or more of those matters does not inexorably lead to the conclusion that an order for costs should be made against a non-party.  In Bischof v Adams the mere fact that a person may benefit from the litigation was not enough.

An order will be made against a non-party only if the justice of the case requires that an order be made.

…

A failure to make an application for security for costs cannot be decisive.  At the very best a failure to make an application for security for costs is a factor which may be taken into account in determining whether it would later be just to make an order that a non-party to the proceedings pay the costs of a successful party.

…

Another factor which may and usually would be taken into account is whether the non-party against whom the application for costs is made has been given any warning at any time during the proceedings that such an application might be made in the event that the party now applying is successful.”

33                  In House a distinction is drawn between an error of principle and other errors, such as the failure to take into account a material consideration.  For the purpose of this distinction a principle is a rule which governs all cases of a particular type under consideration.  Thus, the relevant principles governing the exercise of discretion to award costs against non-party are set out in the passage from the judgment of Mason CJ and Deane J in Knight extracted in par 10 of these reasons.  Her Honour referred to that passage and addressed each principle in turn.  That is to say, she considered whether the company was insolvent, whether the appellant played an active role in the litigation, whether the appellant had an interest in the subject of the litigation and whether the interests of justice required the order to be made.  In our view her Honour made no error in identifying the relevant principles. 

34                  The necessity, if it existed, of warning the appellant was not a principle for the purpose of the test formulated in House.  The discussion concerning Symphony and Vestris in pars 18 to 32 of these reasons shows that the question of warning has been treated as a material consideration in certain circumstances.  Whether such a requirement arises in a particular case depends on the facts and circumstances of the individual case.  The necessity to warn a non-party of an intention to claim costs is not a principle applicable in every case in which costs are sought against a non-party.  Rather it may be a material consideration depending on the situation disclosed in the case under consideration.

Failure to take into account a material consideration

35                  The appellant submitted that, even if there was no principle requiring a warning to be given to a non-party sought to be made liable for costs, nonetheless, in this case the failure to warn the appellant was a material consideration.  Her Honour, it was said, failed to have regard to that consideration and her discretion thereby miscarried.

36                  In both Symphony and Vestris the failure to warn the non-party of an intention to claim costs was a material consideration and decisive against the application for non-party costs.

37                  In Symphony the failure to warn Halvanto was held to be material because had Halvanto been warned it could have applied to become a party to the action.  It was a direct participant in the facts examined in the proceedings between the plaintiff and Hodgson.  Had it been a party to those proceedings it could have contested the issues litigated.

38                  In Vestris the failure to warn was decisive because Vestris knew from the commencement of proceedings that the company was insolvent and that Mr and Mrs Cashman stood behind the company.  Had Mr and Mrs Cashman been warned of the intention to claim costs against them, they would have had the opportunity to influence the litigation so as to minimise costs. 

39                  In the present case her Honour found that the respondents did not know of the parlous state of YPC’s finances until after the end of the trial.  This finding is the subject of a separate challenge in this appeal.  Later in these reasons we explain why we uphold her Honour’s decision on this question.  It follows from her finding that the respondents were not in a position to warn the appellant during the trial.  Thus, the failure to give a warning which was a material consideration in Symphony and Vestris was not a material consideration in this case.  It was not necessary in the circumstances of this case for her Honour to address that question. 

40                  In view of these conclusions it is not necessary to consider the further argument that the appellant was bound by the way in which he defended the costs application, and is therefore not now entitled to rely on the failure of the respondents to provide an early warning of their intention to claim non-party costs against him.

Error of fact

41                  It will be recalled that her Honour found that it was not unreasonable for the respondents not to have made an application for orders for security for costs.  In reaching this conclusion her Honour gave consideration to the material available to the respondents when they formed the intention not to make such an application.  She considered the contents of the annual returns of YPC filed with the Australian Securities Commission (as it then was), and the failure of YPC to provide financial information to the respondents when requested. 

42                  The appellant contended that her Honour mistook the facts in that it was not open to conclude from the annual returns that an application for security for costs would probably fail. 

43                  It is necessary to set out the evidence which was before her Honour on the application for costs against Mr Yates concerning the action taken by the respondents concerning the question of security for costs.

44                  The first directions hearing in the application brought by the appellant against the respondents was held on 4 March 1993.  The trial commenced on 3 March 1997. 

45                  Mr Francis Lawson, a partner in Corrs Chambers Westgarth, the solicitors for the second respondent, swore an affidavit for the purposes of the costs application which stated:

“On 3 occasions that I can recall, between April 1993 and February 1997, I made inquiries to satisfy myself as to whether the Applicant had reasonable prospects of being able to satisfy a costs order made against it in favour of the Second Respondent.  The first occasion was in April 1993.  The second occasion was during the course of the interlocutory stages of the proceedings and the third was shortly prior to the hearing commencing.  I formed the view, on each occasion, that, on paper, the Applicant appeared to be a company of substance and that a security application was likely to fail.”

46                  On 10 May 1993 there was a conference held between the solicitors for all the respondents.  A file note recorded what was said in relation to the question of security for costs.  It stated:

“DH [see * p 14] enquired as to whether the Second and Third Respondents had given consideration to this issue.  GC [see ** p 14] and FL [see *** p 14] said that, whilst the issue was on the agenda, they had not given it active consideration.  DH said that we ought to seek to collect the information upon which to base such an application and the starting point for this was a detailed search of ASC records.  FL said that, if an application for security were to be made, it should be a co-ordinated exercise on behalf of all Respondents and should not be mounted in a half-hearted way but should be presented as full scale production.  It was agreed this issue would be revisited in the future.”

[*DH:  David Hill from Minter Ellison, solicitors for the first respondents]

[**GC: Geoff Canellan from Moray & Agnew, solicitors for the third respondent]

[***FL: Frank Lawson from Corrs Chambers Westgarth, solicitors for the second respondent]

47                  On 20 March 1995 the solicitors for the second respondent wrote to the solicitors for the appellant as follows:

“We have concern as to whether, given the substantial revision which must now be undertaken in respect of the new pleading by each of the three defendants, your client is able to meet any costs order that may be made against it in the future.

Would you please obtain your client’s instructions in relation to providing us with copies of balance sheets and profit and loss accounts and any tax returns for the last two financial years in order that we may make an assessment as to the security of those costs.”

48                  The solicitors for the appellant replied by a letter dated 28 March 1995 which included the following:

“In addition to the first three paragraphs of your letter failing to excuse the extreme delay in raising a security for costs issued until now, no basis is disclosed for the concern expressed in the fourth paragraph.  We will thus respectfully refrain from seeking the instructions to which you refer in the fifth paragraph.”

49                  The remaining relevant action of the solicitors for the second respondent occurred on 20 January 1997 when Ms Michelle Carr (MMC) , another partner of Corrs Chambers Westgarth, had a conversation with Mr Robert Gorczyca (RG), the solicitor acting for the appellant as follows:

“MMC:                       ‘Robert, who is Peter Baker?’

RG:                             ‘He is a personal friend of Ian Yates.’

MMC:                         ‘Is he holding his hand?’

RG:                             ‘He has a relevant financial interest.  He is funding the litigation.  In fact, he has paid all of the bills.’”

50                  We now return to the relevant actions of the solicitors for the first respondent.  On 11 August 1995 Ms Eugenia Martinez, a solicitor with Minter Ellison, sent an internal memorandum to Mr David Hill enclosing a copy of the 1994 annual return of YPC.  She stated in the memorandum:

“It looks as though the company has sufficient assets for a security for costs application being sure to fail.”

51                  The 1994 annual return showed current assets of $9,825,783.00.  It showed the same figure for total assets and $8,263,632.00 as current liabilities.  As a result it showed share holders’ equity of $1,562,151.00.  It also showed an operating profit of $187,610.00.  The annual return was signed by the appellant and included a declaration by him as follows:

“… that there are reasonable grounds to believe that the company will be able to pay its debts when they fall due (strike out this point if unable to form this opinion).”

52                  On 10 October 1995 Minter Ellison wrote to the solicitors for the appellant as follows:

“We have obtained a copy of your client’s 1994 annual return filed with ASC.  It contains only the barest outline of a balance sheet in it, and it is possible that the shareholder’s equity in the company as at 30 June 1994 may not be sufficient to cover an order that the applicant pay all the costs of all of the respondents if such an order were made.  This is necessarily uncertain at this stage of the proceedings as it is difficult to predict prior to all evidence being filed how long a hearing might take.

Would you please provide us with a detailed balance sheet of Yates Property Corporation Pty Ltd as at 30 June 1995.  If that is not yet available would you at least please provide us with the latest available balance sheet from management accounts (as distinct from the final settled accounts).

We point out that we expect to be instructed to apply for security for costs if at any stage of the proceedings it appears that either the expected costs of the respondents increase or the financial position of the company decreases to a point where it would not be able to satisfy a costs order.

We will review the question of security for costs once all the evidence is on and we have a better idea of how long the hearing will run.”

There was apparently no reply to this letter. 

53                  On 19 August 1996 Minter Ellison again wrote to the solicitors for the appellant.  The letter stated:

“We have obtained a copy of your client’s 1995 annual return filed with ASC.  As was the case with your client’s 1994 return, it only contains the barest outline of a balance sheet and in our view, the shareholders’ equity in the company as at 30 June 1995 may not be sufficient to cover an order that the applicant pay the costs of each of the respondents if such an order is made at the end of the hearing.  Now that a hearing date has been set for March next year, this is a great concern to each respondent particularly as the hearing has been listed for six weeks and could well run longer.

In our letter dated 10 October 1995, we pointed out that we expected to be instructed to apply for security for costs if at any stage of the proceedings it appeared that either the expected costs of the respondents increased or the financial position of the company decreased to a point where it would not be able to satisfy a costs order.  Now that all the evidence is on and we have a hearing date it is clear that substantial costs (even more than first anticipated) will be incurred by each respondent and there is a real possibility that the company may not be in a financial position to satisfy any costs order made against it.

We therefore request that you provide us immediately with a detailed balance sheet of Yates Property Corporation Pty Limited as at 30 June 1995.  We put you on notice that if we do not receive this detailed balance sheet within seven days, we will be forced to bring the security for costs application without further notice and we will rely on this letter if there is any need to argue the question of costs.”

54                  A copy of this letter was sent by Minter Ellison to Moray and Agnew, the solicitors for the third respondent.  Again, there was apparently no response to this letter. 

55                  Although the 1995 annual return was not reproduced for the purposes of the appeal it was accepted by Mr Sheahan SC who appeared with Mr Raphael for the appellant that the 1995 annual return showed total assets of $2,155,117.00, total liabilities of $53,551.00 and share holders equity of $2,101,566.00 and an operating profit of $539,415.00.

56                  On the appeal the appellant contended that this evidence was inconsistent with her Honour’s conclusion that it was not unreasonable for the respondents to have desisted from bringing an application for security for costs.  The appellant accepted that, in order to succeed on the appeal, he had to persuade this Court that such a conclusion was not open on the evidence.  The appellant submitted that her Honour failed to consider the position of each of the respondents separately, or to consider the reasonableness of the actions of each of the respondents at particular times between the commencement of proceedings and the bringing of the application for non-party costs.

57                  In relation to the first respondent, the appellant contended that nothing had been done about bringing an application for security for costs between the conference between respondents on 10 May 1993 and August 1995.  Then, after this long delay, both the letters of 10 August 1995 and 19 August 1996 from Minter Ellison to the appellant’s solicitor expressed grave doubt about the usefulness of the information in the 1994 and 1995 annual returns respectively.  These doubts, taken together with the failure of the solicitors for the appellant to respond with further information, it was contended, lead to the conclusion that the only reasonable course for the solicitors for the first respondent was to make further inquiries about the financial position of the company.

58                  In relation to the second respondent, the appellant contended, again, that it was unreasonable in all the circumstances for the second respondent to have failed to conduct further inquiries about the financial position of YPC.  It was not sufficient for Mr Lawson to swear that the paper position of YPC revealed a company of substance.  Further, the letter of 20 March 1995 from the solicitors for the second respondent demonstrated a concern with the financial position of the company which should have led to further inquiries.  This was particularly so given the dismissive response of the appellant’s solicitors contained in the letter of 28 March 1995.  At the very latest the conversation between Ms Carr and Mr Gorczyca which occurred on 20 January 1997 should have caused the respondents to commence an application for security for costs.

59                  In relation to the third respondent, the appellant contended that there was no evidence that he had considered whether to bring an application for security for costs apart from the initial attendance at the conference of solicitors for the respondents held on 10 May 1993. 

60                  It will be recalled that in concluding that it was not unreasonable for the respondents not to have made an application for an order for security for costs her Honour relied on evidence that the respondents did, from time to time, give consideration to applying for an order for security for costs, that in doing so they had regard to the annual returns of the company, that such returns showed the company to have significant shareholders’ equity and that the solicitors for the first respondent twice sought from the solicitors for the appellant more detailed financial information than disclosed in the annual returns and such information was not provided to them.

61                  There was evidence of each of the facts referred to by her Honour.  For instance, the 1994 annual return showed shareholders’ equity of about $1.5 million and the 1995 return showed shareholders’ equity of about $2.1 million.  It was open to her Honour to infer from the evidence that all the respondents were possessed of the same information.  While there was no direct evidence of the third respondent giving consideration to making an application for security for costs after the initial May 1993 meeting, there was evidence that a copy of the letter of 19 August 1996 from the solicitors for the first respondent to the solicitors for the appellant was sent to the solicitors for the third respondent.  Her Honour did consider the individual situations of each respondent.  For instance, she relied upon the failure of the solicitors for the appellant to reply to the solicitors for the first respondent on two occasions.

62                  In assessing whether certain conduct was reasonable or not judicial minds may differ.  The task of this appeal court is not to substitute its view of the merits of the application for the view of the primary judge, but rather to determine, as was accepted by the appellant, whether the conclusion arrived at by the primary judge was open to her.  In our view the conclusion reached by Branson J was clearly open to her on the evidence before her.

Unreasonable and unjust outcome

63                  The appellant submitted that the making of the order for costs against him was unreasonable and unjust because:

·        YPC was not a straw applicant – it was not a $2 company.

·        The appellant caused YPC to bring the claim against the respondents on the advice of competent lawyers. 

·        YPC’s claim was accepted by a unanimous Full Court.

·        The appellant’s connection with YPC was always evident to the respondents.

·        The appellant was entitled to have earlier notice of the claim for costs so that he could consider whether to pursue the litigation in the light of the known risk.

64                  We agree with the respondents’ submission that the appellant’s reference to an unreasonable and unjust outcome is misconceived.  As the extract from House v The King set out in par 15 of these reasons shows, this ground is available where the basis for the exercise of the discretion is not disclosed but the outcome itself bespeaks a miscarriage of the discretion.  That situation is not the present case.  Her Honour set out the basis upon which she determined to make the orders against the appellant.  Earlier in these reasons we held that the basis upon which her Honour acted was in accordance with the correct principles applicable to awarding costs against a non-party, and the conclusion at which she arrived was open on the facts of the case.  We agree with the respondents’ argument that the appellant’s contentions amount to an invitation to this Court to reconsider the merits of the application made to her Honour.  Indeed, the first and last dot points in the previous paragraph seek to revisit matters dealt with by her Honour in applying the principles enunciated in Knight.

The indemnity basis of the costs order

Reasons of the primary judge

65                  After determining that the Court had jurisdiction to order costs on an indemnity basis her Honour referred to the decision of Re Wilcox; ex parte Venture Industries Pty Ltd (1996) 141 ALR 727 in which the Full Court confirmed that the discretion to depart from the ordinary rule in favour of party and party costs is not to be exercised unless the justice of the particular case so requires or some special or unusual feature arises. 

66                  Her Honour then referred to the decision of Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 and she summarised the circumstances in which his Honour had indicated that an order for indemnity costs might be appropriate.  As distilled by her Honour those circumstances were as follows:

(a)        the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)        particular misconduct that causes loss of time to the Court and to other parties;

(c)        the commencement or continuation of proceedings for some ulterior motive, or in wilful disregard of known facts or clearly established law;

(d)        the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions;

(e)        an imprudent refusal of an offer to compromise; and

(f)                 proceedings involving a contemnor.

67                  Her Honour also relied on Colgate-Palmolive for the proposition that the categories of case in which costs might be ordered on an indemnity basis are not closed, and costs are always in the discretion of the Court.

68                  In approaching the question by reference to the guidelines established in Colgate-Palmolive and Re Wilcox, her Honour identified the appropriate principles.

69                  Her Honour then turned to the contention put by the respondents that the proceeding was commenced and continued in disregard of established legal principle, and that, properly advised as to the law, the applicant should not have brought and persisted in the claims.

70                  The claims ultimately brought against the second and third respondents were for negligence and breach of s 52 of Trade Practices Act 1974 (Cth) or s 42 of the Fair Trading Act 1987 (NSW).  Her Honour referred to these claims and to the defences raised by the second and third respondents.  She concluded that the defence of the immunity as counsel raised considerable legal difficulty for the company in the negligence claim.  Further, she noted that the breaches of statute were based on the same factual allegations, and consequently the costs of the two causes of action would have been interwoven.  In the end, her Honour concluded that the case against the second and third respondents should not be seen as hopeless but rather as a case involving “considerable legal difficulty and enjoying limited authoritative support”.  It followed that the case against the first respondent could also not fairly be categorised as hopeless as a matter of law.

71                  Next her Honour dealt with the respondent’s argument that costs on an indemnity basis were appropriate because the evidence called on behalf of YPC failed to address the central issue in the proceeding, namely, whether the proceeding in the Land and Environment Court was negligently conducted in that reliance was placed only on certain valuation evidence.  The expert called by YPC did not expressly address the issue whether competent legal representatives could have held the view that it was appropriate to place reliance on that particular valuation evidence. 

72                  Her Honour said at 691:

“Particularly having regard to the acknowledged complexity of valuation law, this lacuna in the evidence apparently available to be called by the applicant is striking. As was pointed out by the High Court in Rogers v Whitaker (1992) 175 CLR 479 at 487:

‘In Australia, it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill.’

Although, as the decision of the High Court in Rogers v Whitaker illustrates, that standard is not to be determined ‘solely or even primarily by reference to the practice followed or supported by a responsible body of opinion in the relevant profession or trade’ (at CLR 487), such evidence has always been regarded as an appropriate starting point for the courts. Its importance is the greater, and may be decisive, where issues of professional skill and judgment concerning complex matters are concerned (Rogers v Whitaker at CLR 489). The present case involved such issues.

The professional judgment of the second respondent was crucial to the way in which the resumption claim before the Land and Environment Court was presented. The basis on which that judgment was made was explained in considerable detail by the second respondent in his affidavit sworn on 21 December 1995 and filed on 22 December 1995. If the views of the second

respondent as to the law and as to the appropriateness of the valuation evidence of Messrs Parkinson, Woodley and Egan were views which it was reasonably open to a senior counsel to hold at the time of the resumption proceeding, it would follow that complaint could not sensibly be made about a junior counsel or solicitors holding and acting on the same views. Yet it would

appear that the only expert whose evidence was relied on by the applicant was not asked to consider or express an opinion on whether such views were views which it was reasonably open to a senior counsel, or indeed a junior counsel or solicitor, to hold at the relevant time.

In my view the applicant ought not to have persisted with the proceeding without, within a reasonable time of the service of Mr Simos' affidavit sworn on 21 December 1995, seeking and obtaining expert evidence that it was not reasonably open to Mr Simos at the time of the resumption proceeding to hold the views recounted in Mr Simos' affidavit.  That reasonable time may, in my view, be considered to have expired three months after the date on which Mr Simos’ affidavit was served.”

73                  The final factor considered by her Honour also concerned the evidence called on behalf of YPC.  Her Honour observed that the substance of YPC’s case was that it incurred wasted costs before the Land and Environment Court by pursuing a case which did not include the “head start” element of special value of the land in question to YPC.  Her Honour said at 692:

“Crucial to the applicant's claim to have suffered ‘head start’ damages was that it was, as it pleaded in para 42 of its further amended statement of claim, in a position as at the date of resumption immediately to start building markets on the subject land. In para 25 of the further amended statement of claim, the applicant pleaded that in August 1983 financing for its markets proposal was confirmed in a letter of acceptance received by the applicant from a nominated banker. Mr Yates gave affidavit evidence in support of this plea. The evidence called at trial showed both the plea and Mr Yates' affidavit evidence in this regard to be false, and that Mr Yates either knew or ought to have known that it was false. Moreover, no challenge was mounted by the applicant to the evidence given by a solicitor who was acting for the applicant as at the resumption date that, at about that time, the title to the subject land was ‘cluttered with caveats and there was a great deal of negotiating with all the parties involved’. In my view the applicant persisted with a claim that it was in a position as at the date of resumption immediately to commence building on the subject land when the evidence that was, or ought to have been, available to it established to the contrary.

As to the claim for special value based upon the proposed unit trust, again the evidence failed to support crucial allegations set out in the further amended statement of claim. Again it was apparent, in my view, that Mr Yates knew or ought to have known that such allegations were false.  ( Underlining added)

74                  Her Honour concluded at 693 as follows:

“The fact that the applicant persisted with the proceeding without apparent regard to significant deficiencies in the evidence available to be called to establish its case is sufficient, in my view, to enliven the discretion of the Court to make orders for costs on a basis other than a party and party basis.”

argument on appeal

75                  The appellant submitted that there was some inconsistency in finding that YPC was unreasonable in pursuing the litigation when a full bench of the Federal Court had upheld its claims (see Yates Property Corporation v Boland (1998) 85 FCR 84).

76                  As to her Honour’s finding that YPC failed to call expert evidence that the respondents were negligent in failing to advance the “head start” basis for valuation, the appellant relied upon the following view expressed by the Full Court at 110-11:

Although no point was taken in this Court that the expert witnesses should not have been called we wish to express our own view on the undesirability of leading this type of evidence in a claim for negligence against a legal practitioner. In Midland Bank at 402 Oliver J said:

‘I must say that I doubt the value, or even the admissibility, of this sort of evidence, which seems to becoming customary in cases of this type [sic]. The extent of the legal duty in any given situation must, I think, be a question of law for the Court. Clearly, if there is some practice in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the Court; whilst evidence of the witnesses' view of what, as a matter of law, the solicitor's duty was in the particular circumstances of the case is, I should have thought, inadmissible, for that is the very question which it is the Court's function to decide.’

See also Permanent Trustee Australia Ltd v Boulton (1994) 33 NSWLR 735; Ergopex Pty Ltd v Meerkin & Apel (1996) V Con R 66, 542 at 66,555-66,556.

It may be, as was suggested during the course of argument, that evidence of the type that was led in this case is now admissible under s 80 of the Evidence Act 1955 (Cth) by which opinion evidence is not inadmissible only because it is about a fact in issue or an ultimate issue. We do not express any opinion on whether the evidence would be admissible under that section. But what we wish to point out is that we regard such evidence of little assistance for the reasons expressed by Oliver J. We think that a court is well placed to determine the liability in negligence of a legal practitioner without the aid of such evidence where questions of particular practices do not arise. Moreover, a court runs a real risk of falling into error when it places principal reliance on the expert testimony of witnesses instead of forming its own view of the applicable principles of law, the duties owed by barristers and solicitors and the appropriate standards in accordance with which those duties must be performed. As we have said, no point about the evidence was taken in this case. Indeed, no party was in a position to make any complaint for the reason that each side tendered and relied upon the expert testimony of senior counsel. But we would wish to discourage the leading of such evidence in future cases. It has a tendency to distract the court from a proper adjudication of the issues that fall for determination in a negligence action. If by reason of s 80 of the Evidence Act such evidence is tendered then the only appropriate use to which the evidence should be put is to confirm the views of the court on a particular issue rather than to inform those views.”

77                  As to her Honour’s finding that Mr Yates gave false evidence the appellant drew attention to the fact that her Honour’s finding was in the alternative.  Her Honour found that Mr Yates either knew or ought to have known that the evidence was false.  It was submitted that the latter description was apposite to describe evidence given negligently.  Mere giving of evidence without sufficient care, it was contended, is not a proper basis for visiting the applicant with indemnity costs. 

78                  Furthermore, the applicant contended that the evidence found to have been false related only to damages and not whether there was a cause of action at all.

Consideration

79                  The respondents answered with a series of cogent arguments.  For instance, they contended that it was not open in this case to rely upon the decision of the Full Court as an endorsement of the arguability of YPC’s case because the High Court allowed the appeal in terms which displayed a fundamental rejection of the approach of the Full Court.  The respondents also drew attention to the fact that the orders of the High Court restored the order for costs on an indemnity basis against YPC, and there were no reasons in principle to distinguish between YPC and Mr Yates as to the basis upon which costs should be paid.  Then the respondents contended that it was implicit in the High Court’s reasoning that it rejected the view of the Full Court that expert evidence concerning the reasonableness of the conduct of the respondents should not have been relied upon.  On the question of the falsity of the evidence of Mr Yates, the respondents contended that this evidence did not simply go to damages but lay at the heart of the factual basis of the claim.  Further, the conclusion reached by her Honour was not simply that Mr Yates had failed to take reasonable care in giving his evidence, but that he either deliberately lied to the Court or else was recklessly indifferent to the giving of truthful evidence.

80                  Much of the argument on this aspect of the appeal amounted to revisiting the merits of the decision to award costs against Mr Yates on an indemnity basis.  There was little attempt by the appellant to bring the arguments within the requirements of House v The King. 

81                  For instance, whether the evidence given by Mr Yates is seen to relate to both liability and damages or only damages may bear upon the way in which the discretion will be exercised by the primary judge in the particular case.  Minds may differ as to the proper way of characterising the evidence.  However the evidence of Mr Yates is characterised, there was no error of principle or other relevant error in her Honour’s consideration of this factor. 

82                  The High Court recently in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47 (31 August 2000) helpfully explained in the majority judgment (Gleeson CJ, Gaudron and Hayne JJ) the nature of a discretionary decision in par 26 as follows:

“‘Discretion’ is a notion that ‘signifies a number of different legal concepts’. In general terms, it refers to a decision-making process in which ‘no one [consideration] and no combination of [considerations] is necessarily determinative of the result.’  Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made.  The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject-matter and object of the legislation which confers the discretion.  On the other hand, it may be quite narrow where, for example, the decision-maker is required to make a particular decision if he or she forms a particular opinion or value judgment.”  (Footnotes omitted.)

83                  Similarly, there was no reviewable error in the selection or assessment of the factors relied upon by her Honour.  If, in considering the exercise of her Honour’s discretion, one is entitled to take into account the views of appeal benches, which is doubtful, the decision of the High Court strongly endorsed her Honour’s approach over that of the Full Court.

84                  Further, in our view it was open to her Honour to place reliance upon the failure of YPC to call expert evidence to answer the affidavit of Mr Simos.  The view expressed by the Full Court about such evidence was obiter.  Even though the Court regarded the calling of such evidence as undesirable it did not exclude a proper role for such evidence.  Thus, even on the view expressed by the Full Court, it was open to her Honour to rely upon the absence of this material as a factor in the exercise of her discretion.  Her Honour saw a particular purpose in such evidence in cases involving complex specialist legal knowledge such as valuation.  Doubtless, it is in such cases that, even in the limited circumstances described by the Full Court, such evidence would be properly admitted. 

85                  Finally, on the question of the giving of false evidence by Mr Yates, the language used by her Honour goes beyond the finding that the evidence was given negligently.  It is a finding that the evidence was deliberately false or, at least, recklessly false.  On this basis there can be no doubt that her Honour was correct in regarding that matter as relevant to the exercise of her discretion.

conclusion

86                  As a result the appeal is dismissed with costs.

Associate:

Dated:              21 December 2000