FEDERAL COURT OF AUSTRALIA

Dowdell v Knispel Fruit Juices Pty Ltd (trading as “Nippy’s”) ACN 007 841 492 [2007] FCA 650

JOANNE DOWDELL v KNISPEL FRUIT JUICES PTY LTD (TRADING AS "NIPPY'S") ACN 007 841 492, NIPPY'S WAIKERIE PRODUCERS PTY LTD ACN 006 038 195, PETER CONSTAS, THEO CONSTAS, AMERICAN HOME ASSURANCE ACN 007 483 267, AMP GENERAL INSURANCE LIMITED ACN 008 405 632, CGU INSURANCE LIMITED ACN 004 478 371, CITRUS BOARD OF SOUTH AUSTRALIA AND QBE HOLDINGS (AUSTRALIA) LIMITED ACN 000 157 899

SAD 20 OF 1999

LANDER J

8 MAY 2007

ADELAIDE

THE COURT ORDERS THAT:

1.         The First Cross-Respondent pay to the Cross-Claimant the sum of $1,816,152.55 by way of final assessment of the damages to which the Cross-Claimant is entitled to receive from the First Cross-Respondent pursuant to Declaration 1.2 made by Selway J on 13 August 2003.

2.         The First Cross-Respondent pay to the Cross-Claimant interest on the sum of $1,816,152.55 in the amount of $23,322.72 pursuant to Declaration 1.6 made by Selway J on 13 August 2003.

3.         The First Cross-Respondent pay to the Cross-Claimant the sum of $500,000 by way of final assessment of the damages to which the Cross-Claimant is entitled to receive from the First Cross-Respondent pursuant to Declaration 1.4 made by Selway J on 13 August 2003.

4.         The First Cross-Respondent pay to the Cross-Claimant interest on the sum of $500,000 in the amount of $120,000 pursuant to Declaration 1.6 made by Selway J on 13 August 2003.

5.         The Second and Third Cross-Respondents pay to the First Cross-Respondent the sum of $2,459,475.27 by way of final assessment of the damages and interest to which the First Cross-Respondent is entitled to receive from the Second and Third Cross-Respondents pursuant to Declaration 2 made by Selway J on 13 August 2003.

6.         The Second and Third Cross-Respondents pay the Cross-Claimant’s costs and disbursements of the proceedings for which judgment was given in Dowdell v Knispell Fruit Juices Pty Ltd [2003] FCA 851 in the amount of $1,212,500.

7.         The question of the costs of and incidental to the Cross-Claimant’s further amended notice of motion filed herein on 23 March 2006 be adjourned to a date to be fixed.

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

REASONS FOR JUDGMENT

1                     The trial of this proceeding was heard by Selway J.

2                     This proceeding was commenced on 11 March 1999 as a representative proceeding pursuant to s 33C of the Federal Court of Australia Act 1976 (Cth).  The claimant represented 481 members in the group.  A Settlement Scheme which provided a structured regime for settling the group members’ claims was approved by the Court on 22 March 2001.  The proceeding arose out of an outbreak of food poisoning amongst members of the public after drinking a product manufactured and sold by the first respondent and cross-claimant, Knispel Fruit Juices Pty Ltd (‘Nippy’s’).

3                     A cross-claim was brought by Nippy’s against Peter Constas and Theo Constas (the second and third cross-respondents).  The first cross-respondent, Nippy’s Waikerie Producers Pty Ltd (‘Packing’), subsequently also brought a cross-claim against the second and third cross-respondents.

4                     The trial of these cross-claims was heard by Selway J over some 35 sitting days between 5 December 2002 and 27 June 2003.  On 13 August 2003 Selway J delivered judgment in Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851 and on the same day made the following declarations and orders:

‘1.        The First Cross-Claimant is entitled to recover from the First Cross-Respondent damages, as assessed by the Court, in respect of the breaches by the First Cross-Respondent of contracts for the supply of oranges by the First Cross-Respondent to the First Cross-Claimant in the period December 1998 to March 1999 inclusive as follows:

1.1       All moneys paid by the First Cross-Claimant as at the date of judgment in order to resolve personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a in the total amount of $1,274,677.86.

1.2       All further moneys paid by the First Cross-Claimant on or after the date of judgment in order to resolve (whether by way of reasonable compromise or in accordance with the terms of the judgment of any Court) all personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a.

1.3       Costs incurred by the First Cross-Claimant in managing the salmonella outbreak the subject of these proceedings in the amount of $489,801.38.

1.4       Reasonable costs and disbursements incurred by the First Cross-Claimant in defending and settling all personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a.

1.5       Loss of profits suffered by the First Cross-Claimant as a result of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a in the amount of $990,906.

1.6       Interest on the foregoing at the rate of 6 per cent per annum to date of judgment in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth).

2.         The First Cross-Respondent is entitled to recover from the Second and Third Cross-Respondents damages, as assessed by the Court, so as to provide the First Cross-Respondent with a complete indemnity in respect of the liability of the First Cross-Respondent to the First Cross-Claimant referred to in par 1 of these Declarations.

AND THE COURT ORDERS THAT:

3.         There be judgment for the First Cross-Claimant against the First Cross-Respondent for damages to be assessed so as to give effect to the declarations contained in pars 1 and 2 of this judgment.

4.         The First Cross-Respondent pay to the First Cross-Claimant the amount of $3,182,009.24 (which sum includes interest of $426,624 to date of judgment) on account of damages to be assessed.

5.         The final assessment of the damages to which the First Cross-Claimant is entitled from the First Cross-Respondent do stand adjourned.

6.         There be judgment for the First Cross-Respondent against the Second and Third Cross-Respondents for damages to be assessed so as to give effect to the declarations contained in paras 1 and 2 of this judgment.

7.         The Second and Third Cross-Respondents pay to the First Cross-Respondent the amount of $3,182,009.24 on account of damages to be assessed.

8.         The final assessment of the amount which the First Cross-Respondent is entitled to recover from the Second and Third Cross-Respondents do stand adjourned.

9.         In the event that the parties are unable to agree the quantum of the costs and disbursements referred to in par 1.4 hereof, the Registrar to inquire into and report, first on an interim basis, and in due course on a final basis, on the amount of reasonable costs and disbursements incurred by the First Cross-Claimant in defending and settling all personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a.

10.       The First Cross-Claimant’s claim against the Second and Third Cross-Respondents is dismissed.

11.       The question of costs be adjourned to a date to be advised for further submissions.

12.       Pursuant to O 52 R 15(1)(a)(iii) of the Federal Court Rules, the time within which a notice of appeal must be filed in relation to this judgment or any part of it be extended to 21 days from the date that judgment is delivered on the question of costs.

13.       Each of the parties have liberty to apply on short but reasonable notice.’

5                     It is to be noted that Nippy’s obtained a judgment against Packing.  Packing obtained a judgment by way of indemnity from the second and third cross-respondents in respect of Packing’s liability by way of judgment to Nippy’s.

6                     On 11 November 2003 his Honour made further orders in relation to costs:

‘1.        Save only for the costs the subject of order 2, Peter Constas and Theo Constas shall pay the costs of the respondent Knispel Fruit Juices Pty Ltd in the proceedings for which judgment was given in Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851.  Such costs are inclusive of such future costs in relation to the cross-respondents (or any of them) as may reasonably be incurred by Knispel Fruit Juices Pty Ltd in relation to the assessment of damages pursuant to par 6 of the order made on 13 August 2003.

2.         In relation to the issue of the extent of any damages suffered by the respondent:

(a)           Peter Constas and Theo Constas shall pay to the respondent Knispel Fruit Juices Pty Ltd 50 per cent of the costs of the respondent; and

(b)           American Home Assurance Company, AMP General Insurance Ltd and CGU Insurance Ltd shall pay to the respondent Knispel Fruit Juices Pty Ltd 50 per cent of the costs of the respondent.

3.         Peter Constas and Theo Constas shall pay the costs of the first cross-respondent Nippy’s Waikerie Producers Pty Ltd in the proceedings for which judgment was given in Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851.

4.         In each instance the costs ordered to be paid do not include any costs incurred by any party in relation to the claim by Knispel Fruit Juices Pty Ltd against the Citrus Marketing Board or the claims by Nippy’s Waikerie Producers Pty Ltd against American Home Assurance Company, AMP General Insurance Ltd and CGU Insurance Ltd.

5.         Costs to be taxed in the absence of agreement.

6.         The parties be at liberty to apply upon reasonable notice.’

7                     Although Nippy’s judgment was against Packing, Selway J ordered the second and third cross-respondents to pay Nippy’s costs.  However, that order is subject to the qualification in paragraph 2 of Selway J’s orders.  In respect of the costs on the issue of damages the second and third cross-respondents are liable to pay only 50% of Nippy’s costs.

8                     On 12 July 2005 Nippy’s issued a notice of motion seeking the following order:

‘1.        That the costs payable jointly and severally by the Second and Third Cross-Respondents (Peter Constas and Theo Constas) pursuant to the order of Justice Selway made on 11 November 2003 be assessed as a gross sum by the Court pursuant to O62, r3(1) and r4(2) of the Federal Court Rules.’

That application related to the order for costs given in Nippy’s favour against the second and third cross-respondents.

9                     The notice of motion was accompanied by an affidavit which exhibited written submissions of a costs expert, Mr Cogan.  He was of the opinion that costs payable by the second and third cross-respondents amounted to $1,852,523.61.

10                  On 28 November 2005 Nippy’s amended the notice of motion to include a further application:

‘2         That the costs incurred by the respondent/cross-claimant in defending and settling the personal injury claims during the period ending 30 September 2004 and payable jointly and severally by the second and third cross-respondents pursuant to the orders of Justice Selway made on 13 August 2003 be referred to the Registrar for assessment in accordance with these orders.’

That further application related to the costs incurred by Nippy’s in settling the personal injury claims.  Whilst the application speaks of costs, the costs referred to are, in fact, a measure of Nippy’s damages.

11                  On 23 March 2006 Nippy’s filed a further amended notice of motion which sought, in addition to the previous paragraph 1, the following orders:

‘2.        That in lieu of Order 9 made by Justice Selway on 13 August 2003 the costs incurred by the Respondent/Cross-Claimant in defending and settling the personal injury claims during the period ending 30 September 2004 and payable jointly and severally by the Second and Third Cross-Respondents pursuant to the orders of Justice Selway made on 13 August 2003 be assessed by a Justice of this Court by way of damages.

3.         That pursuant to Order 34B Rule 2 Registrar Christie or some other Registrar of this Honourable Court suitably knowledgeable and experienced as to the taxation of legal costs according to the Federal Court scales be appointed as an expert assistant to assist the Court in making the assessments identified in paragraphs 1 and 2 above.

4.         In the alternative to paragraph 3, that, pursuant to Order 34 Rule 2, Registrar Christie or some other Registrar of this Honourable Court suitably knowledgeable and experienced as to the taxation of legal costs according to the Federal Court scales be appointed by the Court as an expert to enquire into and prepare an expert report estimating on a lump sum basis the legal costs and disbursements incurred by the Respondent/Cross-Claimant and falling within paragraphs 1 and 2 above.’

12                  Since the issue of the first notice of motion dated 12 July 2005, the matter has been before the Court on a number of occasions.  Nippy’s has supplemented the evidence in support of the notice of motion several times.

13                  In the end, the parties agreed a number of matters and submitted draft orders for my consideration.  The draft orders were in the following form:

‘1.        The First Cross-Respondent pay to the Cross-Claimant the sum of $1,816,152.55 by way of final assessment of the damages to which the Cross-Claimant is entitled to receive from the First Cross-Respondent pursuant to Declaration 1.2 made by Selway J on 13 August 2003.

2.         The First Cross-Respondent pay to the Cross-Claimant interest on the sum of $1,816,152.55 in the amount of $23,322.72 pursuant to Declaration 1.6 made by Selway J on 13 August 2003.

3.         The First Cross-Respondent pay to the Cross-Claimant the sum of [to be completed] by way of final assessment of the damages to which the Cross-Claimant is entitled to receive from the First Cross-Respondent pursuant to Declaration 1.4 made by Selway J on 13 August 2003.

4.         The First Cross-Respondent pay to the Cross-Claimant interest on the sum of [to be completed with the total of the amount in order 3] in the amount of [to be completed] pursuant to Declaration 1.6 made by Selway J on 13 August 2003.

5.         The Second and Third Cross-Respondents pay to the First Cross-Respondent the sum of [to be completed with the total of the amounts in orders 1 to 4] by way of final assessment of the damages and interest to which the First Cross-Respondent is entitled to receive from the Second and Third Cross-Respondents pursuant to Declaration 2 made by Selway J on 13 August 2003.

6.         The Second and Third Cross-Respondents pay the Cross-Claimants costs and disbursements of the proceedings for which judgment was given in Dowdell v Knispell Fruit Juices Pty Ltd [2003] FCA 851 in the amount of [to be completed].

7.         The question of the costs of and incidental to the Cross-Claimant’s further amended notice of motion filed herein on 23 March 2006 be adjourned to [a date to be fixed].’

Order 1

14                  The sum of $1,816,152.55 represents the further sums paid by Nippy’s to settle further personal injury claims after the date of the judgment pronounced by Selway J on 13 August 2003.  That sum is in addition to the sum of $3,182,009.24 (which sum included interest) awarded to Nippy’s on account of the damages paid to 13 August 2003.

Order 2

15                  The sum of $23,322.72 represents the interest payable by the first cross-respondent on the judgment in Order 1 at the rate of 6% in accordance with the declaration made by Selway J on 13 August 2003.

Order 3

16                  The parties have not agreed the sum which ought to be the subject of Order 3.

17                  In declaration 1.4 Selway J ordered Packing to pay Nippy’s costs and disbursements in defending and settling the personal injury claims.  The sum to be fixed in Order 3 should represent the costs incurred by Nippy’s in settling the individual claims which constituted the representative proceeding.

18                  The evidence to support that figure was contained in an exhibit to an affidavit of Michelle Morris and confirmed by a report of Mr Cogan.  The parties have left it to me to determine the appropriate figure.

Order 4

19                  That figure has not been agreed because it, of course, depends upon the amount allowed in Order 3.  The parties have left it to me to determine the amount of the interest which should be calculated at the rate of 6% as ordered by Selway J in declaration 1.6 on 13 August 2003.

20                  The parties have agreed the methodology which ought to be employed in calculating that amount.  The interest is to be calculated using the rate of 6% over the whole period between 9 March 1999 and the date of this judgment reduced by 50% to reflect an assumption that the costs incurred by Nippy’s accrued incrementally from $0 to the amount actually awarded over the period from 9 March 1999 to the date of this judgment.  That is an appropriate method of calculation of interest.

Order 5

21                  This order reflects the order made by Selway J that Packing have a complete indemnity from the second and third cross-respondents in respect of the damages in paragraphs 1 and 3 of the draft orders and the interest in paragraphs 2 and 4, except that the order directs the second and third cross-respondents to pay the sum to Nippy’s whereas in fact the order made by Selway J was for the second and third cross-respondents to indemnify Packing.

Order 6

22                  This order reflects the order made by Selway J on 11 November 2003 in ordering the second and third cross-respondents to pay Nippy’s costs of action.  The quantum of the case has not been agreed and the parties have left it to me to assess that amount.

23                  It follows, therefore, that my task is to assess the appropriate costs incurred by Nippy’s in settling the personal injury claims which will form the assessment of damages in Order 3.  I must also assess Nippy’s costs of action for the purpose of Order 6.

24                  The task which is given me is unenviable.  I was not the trial judge.  I have little or no knowledge about the issues before the trial judge.  I do not have any appreciation of the witnesses who were called.  I do not have any appreciation of the way in which the trial unfolded.  Nor do I have any feel for what was required by way of effort by the solicitors to settle and compromise the personal injury claims.  I have no feel for what expert evidence was required in settling the claims or at trial.  I suppose it would be said that a taxing officer is not present at the trial but must tax the costs by reference to the documents.  That is right but there are two answers to that proposition.  First, I am not asked to tax the costs but fix a lump sum.  Secondly, I have none of the skills or experience of a taxing officer.  Nevertheless, I have been asked by both parties to identify the amount of costs and damages which Nippy’s has incurred and I must do what I can.

25                  In support of the claim for damages and the assessment of costs, Nippy’s read five affidavits from three of the solicitors employed by Nippy’s solicitors.  In particular, Nippy’s tendered affidavits sworn by Michelle Morris who exhibited to her first affidavit, sworn on 8 July 2005, all of the supporting documents which are said to evidence Nippy’s costs.  There are thousands of papers in that exhibit.

26                  Nippy’s also tendered two reports of Mr Cogan, the first relating to that part of Nippy’s claim for damages as a result of its costs in settling claims and the second relating to the costs incurred in the action.

27                  Nippy’s also tendered a summary of Nippy’s costs, including those costs relating to damages, which was exhibited to Ms Morris’ affidavit and which was later twice updated.

28                  The costs incurred in settling the personal injury claim are said to be $501,153.38.  The costs incurred on the issues of liability in the trial are said to be $1,386,294.44.  The costs incurred in relation to the claim for damages in the litigation are said to be $780,510,65.

29                  I set out the summary for completeness:

30                  Mr Cogan was called to give evidence.  There is no need to set out his expertise which was accepted by all parties.

31                  In relation to the costs claimed by way of damages, Mr Cogan assessed the amount of professional fees at $503,559.74 as against the amount of $434,430.70 claimed by Nippy’s solicitors.  He said that the counsel fees appeared appropriate.  The medical reports represented the amount medical practitioners charge for medical reports.  However, Mr Cogan did not attempt to assess the reasonableness of their charges.

32                  Mr Cogan said that ordinarily, when assessing costs on a taxation amount, the costs claimed are reduced by an amount to reflect party and party costs.  However, in this case, he did not make such an assessment because this was a claim for damages rather than costs and Nippy’s was entitled to an indemnity in relation to their losses.

33                  I am satisfied by Mr Cogan’s evidence that the amount claimed is reasonable.  I would allow the sum of $500,000 by way of damages under this head.

34                  I calculate the interest to be $120,000, being simple interest at 6% on $500,000 over half the period since 9 March 1999.

35                  As I have said, Mr Cogan also supplied a report in relation to the costs of action.  At the time he supplied his report the amount claimed for costs in respect of liability was $1,156,994.20 and the amount of costs in relation to damages at trial was claimed at $689,755.65.

36                  Subsequently, Nippy’s solicitors noticed an arithmetical error and a further affidavit of Michelle Morris sworn on 3 August 2006 was read.  A further summary of losses was exhibited to that affidavit.  The amount claimed for counsel fees in relation to the liability costs increased from $167,995 to $397,295, and the amount of counsel fees in relation to the quantum of the claims increased from $112,950 to $203,705.  The amounts actually claimed are set out above.

37                  His assessment of the costs showed the costs to be reasonable.  Mr Cogan said that he would reduce the amount claimed by the solicitors by 25% to 30% to reflect party and party costs.  I accept his evidence in that regard.  It may be disadvantageous to Nippy’s but I prefer to be cautious about the assessment of the costs.  I intend to reduce the whole of the claimed costs by 30% including the amount claimed by way of disbursements and, in particular, experts’ reports.  As I say, that may be disadvantageous to Nippy’s but I am concerned to be fair to the second and third cross-respondents.

38                  I also intend to round down the figures.  In those circumstances, I allow a sum of $950,000 in respect of the costs incurred in determination of liability.  I assess the costs in relation to quantum at $525,000, only half of which is payable by the second and third respondents, being $262,500.  The total of the costs therefore to be awarded is $1,212,500.

39                  I therefore make the following orders:

1.         The First Cross-Respondent pay to the Cross-Claimant the sum of $1,816,152.55 by way of final assessment of the damages to which the Cross-Claimant is entitled to receive from the First Cross-Respondent pursuant to Declaration 1.2 made by Selway J on 13 August 2003.

2.         The First Cross-Respondent pay to the Cross-Claimant interest on the sum of $1,816,152.55 in the amount of $23,322.72 pursuant to Declaration 1.6 made by Selway J on 13 August 2003.

3.         The First Cross-Respondent pay to the Cross-Claimant the sum of $500,000 by way of final assessment of the damages to which the Cross-Claimant is entitled to receive from the First Cross-Respondent pursuant to Declaration 1.4 made by Selway J on 13 August 2003.

4.         The First Cross-Respondent pay to the Cross-Claimant interest on the sum of $500,000 in the amount of $120,000 pursuant to Declaration 1.6 made by Selway J on 13 August 2003.

5.         The Second and Third Cross-Respondents pay to the First Cross-Respondent the sum of $2,459,475.27 by way of final assessment of the damages and interest to which the First Cross-Respondent is entitled to receive from the Second and Third Cross-Respondents pursuant to Declaration 2 made by Selway J on 13 August 2003.

6.         The Second and Third Cross-Respondents pay the Cross-Claimant’s costs and disbursements of the proceedings for which judgment was given in Dowdell v Knispell Fruit Juices Pty Ltd [2003] FCA 851 in the amount of $1,212,500.

7.         The question of the costs of and incidental to the Cross-Claimant’s further amended notice of motion filed herein on 23 March 2006 be adjourned to a date to be fixed.

Associate:

Dated:         8 May 2007