FEDERAL COURT OF AUSTRALIA

A & D Douglas Pty Ltd ACN 008 404 180 v Lawyers Private Mortgages Pty Ltd ACN 010 556 751 [2006] FCA 692

A & D DOUGLAS PTY LTD ACN 008 404 180, GRAHAM LESLIE ANDERSEN and HILARY ANDERSEN, YVONNE ELLEN ANDREW, DAVID WILLIAM ARMSTRONG, CHERYL LYNETTE BACKWELL and PHILIP ASHLEY RYAN (as executor of the Estate of ELSIE EDITH BACKWELL), HEINRICH BAUER and SABINE BAUER, DONALD BENGSTON, WILLIAM MALCOLM BRYDEN and MARGARET ANNE BRYDEN, FIONA MARY CAMPBELL (as trustee of the F CAMPBELL SUPERANNUATION FUND), FREDRIKA JANE CARSON, ROBERT JOHN CHARLES MCINTYRE (as executor of the Estate of ALAN STANSFIELD CHENEY), JAMES DAVID CLADINGBOEL and MARIAN ELSIE CLADINGBOEL, KENNETH BARRY DUNCAN and JOAN EDITH DUNCAN (as trustees of the DUNCAN FAMILY SUPERANNUATION FUND), LYNETTE KAY HAMATY, KEITH EDWARD HOLMES (as trustee of the MELZTNER TRUST), PATRICK FYSK HOWDEN, JILLIAN ANNE HUGHES, INFOTEC M.S. PTY LTD ACN 003 954 523, JOHN FRASER KENNEDY and VIVIAN JESSICA KENNEDY, MICHAEL COLIN MELLISH, WADE RICHARD MELLISH, ERIC JAMES MITCHELL and JULIE ANNE MITCHELL (as trustees of the MITCHELL RETIREMENT FUND), RONALD JOHN MOHR and MARGARET STEWART MOHR, ALLAN JOHN MORRISON and PATRICIA JOY MORRISON (as trustees of the A & P MORRISON PENSION FUND), DELIA MURDOCH, BRIAN CHRISTIAN NIELSEN, KAREN ROSE PARKER, PETER JOHN PERRING, KEITH PRINCE, ROBERT RITORZE, NICOLA SCOTT, NARELLE VIDA SHALLARD (as trustees of the C & N SHALLARD SUPERANNUATION FUND), IAN ARCHIBALD STEWART and DOROTHY STEWART, WARREN GEORGE TROTMAN and CARMEL MYNETTA TROTMAN (as trustees of the WGCM TROTMAN SUPERANNUATION FUND), W J & A M LUKE PTY LTD ACN 000 884 266, GRAHAM ROBERT WATT and PATRICIA ANNE WATT, ANNIE CATHERINE WEBB, DIETER HOLMAN (in his own right and as executor of the Estate of MILDRED HOLMAN, ALICE JOY TANGEY (in her own right and as executor of the Estate of KEVIN HERBERT TANGEY) v LAWYERS PRIVATE MORTGAGES PTY LTD ACN 010 556 751, JONATHAN JAMES McCARTHY, BRUCE MICHAEL DURIE, PHILIP ASHLEY RYAN and IAN ALEXANDER NEIL, ST PAUL INTERNATIONAL INSURANCE COMPANY LIMITED and QBE INSURANCE (AUSTRALIA) LIMITED ACN 003 191 035

QUD 113 OF 2005

DOWSETT J

30 MAY 2006

BRISBANE

THE COURT ORDERS THAT:

1.         The first cross-respondent pay the cross-claimant’s costs of and incidental to its claim for indemnity against the first cross-respondent in connection with the claims by the seventh, twentieth and twenty-first applicants against the cross-claimant, including reserve costs.

2.         Save as provided in order 1, the cross-claimant pay the first cross-respondent’s costs of and incidental to its claim for indemnity against the first cross-respondent in connection with the issue of representations made to applicants as to the asset position of Mr Rivett and Project Results, which representations were brought about by Mr Blackadder’s fraud, including reserved costs.

3.         Save as provided in order 1, the first cross-respondent pay the cross-claimant’s costs of and incidental to its claim for indemnity against the first cross-respondent in connection with the other unsuccessful claims by the applicants against the cross-claimant, including reserved costs.

4.         As to any item of costs which cannot be attributed or apportioned according to this order, there be no order as to such item.

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

REASONS FOR JUDGMENT

1                     I am considering the question of costs as between the cross-claimant (“MDRN”) and the first cross-respondent (“St Paul”).  The applicants’ claims against MDRN arose out of its conduct of a mortgage investment business.  In my principal reasons, I have discussed, at length, the circumstances in which the claims arose.  St Paul insured MDRN against liability arising out of its practice, subject to the exclusion of liability brought about by the fraud of any employee.  Thirty-nine applicants claim to have suffered loss as a result of the conduct of MDRN.  Thirty-seven have established their claims.  Two of the applicants, Mr Wade Mellish and Mr Michael Mellish, have failed completely.  Of the thirty-seven who succeeded, thirty-six succeeded upon the basis of statements made as a result of fraudulent conduct by an employee of MDRN.  The seventh applicant, Mr Bengston, succeeded on a different basis which did not involve fraud.  As a result MDRN is entitled to indemnity from St Paul in the amount of Mr Bengston’s claim which is about $146,000, and also for MDRN’s costs of defending that claim.  MDRN is also entitled to an indemnity from St Paul in respect of costs incurred in defending the claims by the Mellishes.  Although the other thirty-six applicants all succeeded against MDRN on a ground which involved fraud, they all alleged various other mis-statements upon which they claimed to have relied to their detriment.  They failed on those issues, and MDRN is entitled to an indemnity from St Paul for its defence costs in respect of them.

2                     Thus MDRN has established its entitlement to indemnity in respect of the amount of Mr Bengston’s claim and for all of its defence costs, save to the extent that such costs related to defence of claims arising out of the relevant fraud.  

3                     In the principal proceedings against MDRN the applicants recovered damages totalling slightly less than $800,000.  Of that amount St Paul must indemnify MDRN for the amount payable to Mr Bengston, about $146,000.  That is a substantial amount in itself, and a not insignificant part of the total amount recovered.  St Paul will share that liability equally with the second cross-respondent (“QBE”), but that is not presently relevant. 

4                     There has been substantial argument as to the proper approach to costs where an applicant or plaintiff has been partially successful.  Counsel for MDRN submits that it should be treated as a successful party and should not be deprived of any part of its costs simply because it has been unsuccessful on a number of issues.  Counsel for St Paul submits that it should be treated as a successful party and therefore recover the majority of its costs. 

5                     Both MDRN and St Paul could be described as “successful” parties, but there are broader considerations which must be taken into account.  The more complex the case and the larger the amount of costs involved, the more important it is, in exercising the statutory discretion as to costs, that the court attempt to identify the respective responsibilities of the parties for incurring those costs so that liability for them can be fairly distributed.  In such a case it will rarely be appropriate to assume, as is assumed in some of the cases, that a successful applicant or plaintiff should always get his or her costs, or a substantial part of them, even if he or she has increased the costs of all parties by litigating discrete issues upon which he or she has failed.

6                     The amount of time which has been spent in argument demonstrates the difficulties which arise in formulating an appropriate order in this case.  The parties attempted to identify the amount of time spent on various issues at the trial, but those attempts have demonstrated to me the great difficulty which must inevitably attend such an exercise, particularly in a case involving cross-claims where, for much of the time, counsel for cross-respondents will be watching proceedings in connection with the principal claim.

7                     I have been unable to form a firm view as to apportionment of the time taken up in this lengthy case.  No doubt it could be done by somebody with sufficient time and patience.  It is certainly a job for the Taxing Officer and not for me.  I cannot think of any fair way of apportioning costs without a detailed examination of individual items and distribution and/or apportionment of them to the various issues.  In the end, I have drafted an order which may not be entirely attractive from the point of view of principle.  Nonetheless I hope that it will produce a result which, if not ideal, is at least substantially fair.  My approach may cause its own problems, but I hope that it will solve more problems than it causes. 

8                     I order that St Paul pay MDRN’s costs of and incidental to its claim for indemnity against St Paul in connection with the claims by the seventh, twentieth and twenty-first applicants against MDRN, including reserved costs.

9                     I order that MDRN pay St Paul’s costs of and incidental to MDRN’s claim for indemnity against St Paul in connection with the issue of representations made to applicants as to the asset positions of Mr Rivett and Project Results, which representations were brought about by Mr Blackadder’s fraud, including reserved costs.

10                  I order that St Paul pay MDRN’s costs of and incidental to its claim for indemnity against St Paul in connection with the other unsuccessful claims by the applicants against MDRN, including reserved costs.

11                  There may be items which cannot be attributed to any of those categories or cannot be sensibly divided amongst them.  There are three ways in which those items could be treated.  Firstly, they could be divided equally between the parties.  Secondly, I could make no order with respect to them.  Those two orders are really different ways of achieving the same result.  Thirdly, I might assume that such items were necessarily incurred by MDRN as the party having carriage of the cross-claim and order that it recover those costs.  However I am not sure that such an assumption would be justified.  In the circumstances, I consider that if there are items which cannot be attributed to any of those classes, or which cannot be apportioned amongst them, there should be no order as to those items.

12                  Costs of and incidental to Mr Bengston’s claim and the Mellishes’ claims should be disposed of in accordance with my specific orders rather than in accordance with the other orders relating to issues. 

13                  Mr Dunning asked that MDRN have its costs on an indemnity basis, largely because I found that some of the grounds relied upon by St Paul were unarguable.  Such a finding would normally lead me to consider making an order for indemnity costs.  However, in the present case those issues were raised by the applicants as against MDRN.  MDRN defended those claims and sought indemnity in respect of them as against St Paul.  It would be unfair to penalized St Paul for treating such issues as being “alive” as between it and MDRN, given that they were being ventilated as between the applicants and MDRN.  In those circumstances, I am not minded to make an order for costs on an indemnity basis.

Associate:

Dated:              2 June 2006