FEDERAL COURT OF AUSTRALIA

Yang v American International Assurance Company (Australia) Ltd (No. 2)
[2008] FCA 493

COSTS – Indemnity basis – party and party basis – consideration of principles applicable.

Federal Court of Australia Act 1976 (Cth) s 43

Federal Court Rules (Cth) O 62 r 12, O 62 r 19, Schedule 2

Amadio Pty Ltd and Another v Henderson and Others (1998) 81 FCR 149 applied

Calderbank v Calderbank [1975] 3 All ER 333 referred to

Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 applied

Degmam Pty Ltd (In liq) v Wright (No 2) (1983) 2 NSWLR 354 referred to

Donald Campbell and Company Limited v Pollak [1927] AC 732 referred to

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397 referred to

Hamod and Another v New South Wales and Another (2002) 188 ALR 659 referred to

Latoudis v Casey (1990) 170 CLR 534 referred to

Oshlack v Richmond River Council (1998) 193 CLR 72 referred to

Re Wilcox; Ex parte Venture Industries Pty Ltd and Others (No 2) (1996) 72 FCR 151 applied

Rouse v Shepherd [No 2] and Others (1994) 35 NSWLR 277 referred to

Yang v American International Assurance Company (Australia) Ltd [2008] FCA 39 cited

JUN YANG and AULIAN ENTERPRISE PTY LIMITED v AMERICAN INTERNATIONAL ASSURANCE COMPANY (AUSTRALIA) LTD

NSD 97 OF 2005

COWDROY J

16 APRIL 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  The costs of these proceedings which the Applicants were ordered to pay on 12 March 2008 be paid on a party-party basis up to 11 September 2007 and from that date the costs payable by the Applicants to the Respondent be paid on an indemnity basis.

2.                  The cost of this motion be paid by the Applicants on a party-party basis.

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

REASONS FOR JUDGMENT

COSTS

1                     On 12 March 2008 the Court ordered that the applicants’ application be dismissed and that the applicants pay the costs of the respondent (‘AIA’): see Yang v American International Assurance Company (Australia) Ltd [2008] FCA 39.

2                     AIA now seeks an order that the applicants pay AIA’s costs of the proceedings on an indemnity basis or alternatively pay the AIA’s costs of the proceedings on a whole party-party basis up to and including 15 June 2007 and thereafter on an indemnity basis.

Claim for total indemnity

3                     In the primary hearing the applicants contended that Mr Yang had not received any payment in cash from Mr Xu for the renewal of Mr Xu’s insurance policies, despite Mr Yang having issued receipts to Mr Xu recording such payment. AIA submits that the applicants knew this claim was false and that the applicants knowingly maintained the litigation raising groundless contentions based upon such false claim.

4                     The Court made factual findings that Mr Yang received cash for the renewal of Mr Xu’s policies which was evidenced by the issue of the receipts; that contrary to Mr Yang’s claim no authority was provided to him by Ms Lin of AIA to issue the receipts, and that Mr Yang had attempted to conceal the payments by providing the AIA clerk with a false reason for the attempted reinstatement of the policies of Mr Xu.

5                     AIA submits that the principles referred to by Sheppard J in Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 apply in respect of proceedings which are conducted in such manner such as to warrant an order for indemnity costs. At page 233 his Honour observed that orders for indemnity costs might be made where proceedings had been conducted:

… in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993)…

6                     AIA submits that as the Court found that Mr Yang received cash for the premiums in October 2000 the applicants were unable to formulate any basis for relief. During the primary hearing Mr Yang steadfastly refused to acknowledge the receipt of cash even though the receipts he issued recorded such fact. AIA submits that these circumstances justify the making of an indemnity cost order.

Partial indemnity

7                     Alternatively, AIA submits that it should be entitled to indemnity costs from 15 June 2007. By letter of this date AIA’s solicitors, Ebsworth and Ebsworth, made an offer of settlement which was stated to be written in accordance with the principle referred to in Calderbank v Calderbank [1975] 3 All ER 333 (‘the Calderbank letter’). The Calderbank letter attached copies of the receipts and copies of correspondence written by Mr Xu to AIA complaining that although he had paid cash to Mr Yang for the renewal of his policies his policies had been cancelled. The Calderbank letter proposed that each party pay their own costs and the proceedings be abandoned. Such offer was not accepted.

8                     The applicants oppose the orders sought. They submit that their claim was predicated upon various representations which were alleged to have been made by AIA to Mr Yang at the time of his engagement as an agent of AIA. The applicants submit that the evidence of Ms Lin disputing the grant of authority to issue the receipts was not provided until approximately September 2007 which was at a late stage of the proceedings and that the applicants’ claim was keenly fought in respect of numerous factual issues.

FINDINGS

9                     Section 43 of the Federal Court of Australia Act 1976 (Cth) (‘the Act’)empowers the Court to make orders for costs. Subsection 43(1) of the Act empowers the Court or a Judge thereof to award costs in all proceedings before the Court except those proceedings in respect of which any other Act provides that costs shall not be awarded. Subsection 43(2) of the Act provides:

Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

10                  Order 62 rule 12 of the Federal Court Rules (Cth) (‘the Rules’) makes provision for costs to be allowed in accordance with Schedule 2 of the Rules. Order 62 rule 19 of the Rules makes provision for costs allowed on taxation. The costs which are provided for in Order 62 rules 12 and 19 of the Rules are costs on a party-party basis. However s 43 of the Act allows the Court to make an order for costs on an indemnity basis.

11                  In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397 Woodwood J (at 400-401) observed that the Court had an ‘absolute and unfettered’ discretion with regard to the award of costs. In Donald Campbell and Company Limited v Pollak [1927] AC 732 Viscount Cave L.C. said at 811-812:

A successful defendant in a non-jury case has no doubt, in the absence of special circumstances, a reasonable expectation of obtaining an order for the payment of his costs by the plaintiff; but he has no right to costs unless and until the Court awards them to him, and the Court has an absolute and unfettered discretion to award or not to award them. This discretion, like any other discretion, must of course be exercised judicially, and the judge ought not to exercise it against the successful party except for some reason connected with the case.

In Latoudis v Casey (1990) 170 CLR 534 McHugh J at 569 adopted his Lordship’s observations.

12                  It has been recognised that where a party has caused another party or parties to incur unnecessary costs, an order that costs be paid on an indemnity basis may be made. In Degmam Pty Ltd (In liq) v Wright (No 2) (1983) 2 NSWLR 354, Holland J at 358 found that a party had raised false defences which were deliberately concocted to deny the other party its rights. His Honour observed that such conduct grossly prolonged the litigation, causing ‘the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues’. See also Rouse v Shepherd [No 2] and Others (1994) 35 NSWLR 277.

13                  An order for costs is compensatory not punitive: see Oshlack v Richmond River Council (1998) 193 CLR 72; see also Hamod and Another v New South Wales and Another (2002) 188 ALR 659 at 665.

14                  The applicants’ claim against AIA was based upon representations that were allegedly made to Mr Yang by AIA relating to his engagement as an agent. The issues raised relating to this aspect of the claim were of a factual nature and were separate from the question concerning the issue of the receipts.

15                  The Court found that the applicants’ claim alleging misleading and deceptive conduct by representation did not succeed. The alleged representations were substantially amplified by the applicants shortly before the hearing commenced, thereby prolonging the hearing. However, the Court does not find that the conduct of the applicants in pursuing their claims in respect of such representations involved conduct which would warrant a departure from the usual order as to costs. Accordingly, the Court does not consider that an order for indemnity costs in favour of AIA is justified in respect of the whole of the proceedings.

Consequence of the Calderbank letter of 15 June 2007

16                  The Court is prepared to accept that as at 15 June 2007 the applicants did not know that their claim had no prospects of success. The mere fact that the Calderbank letter had been sent by AIA does not automatically lead to the conclusion that AIA’s offer of settlement should have been accepted. The refusal to settle the proceedings at that time does not justify an order for indemnity costs from 15 June 2007, since at that stage the evidence of all parties had not been provided.

17                  Different considerations apply however with regard to the conduct of the applicants relating to other aspects of the hearing. The Court rejected the applicants’ claims relating to the issue of the receipts and of the receipt of cash. In making such finding the Court was presented with several alternative conflicting factual scenarios by the witnesses called for the applicants. The Court found that their testimonies were unreliable, and in respect of Mr Xu, false. The evidence given by Mr Yang, namely that he did not receive cash, conflicted with the documentary evidence relating to the payment of the premiums for the renewal of Mr Xu’s policies. Mr Yang’s evidence also conflicted with the letters of complaint written by Mr Xu.

18                  By his affidavit sworn on 16 August 2007 Mr Yang raised allegations for the first time that Ms Lin provided authority to him to issue receipts without receiving payment for the premiums. The Court is satisfied that such evidence was concocted in an attempt to explain the issue of the receipts without the receipt of the premiums. Additionally, Mr Yang claimed that the records of AIA had been falsified and that AIA’s OLAS computer system had been similarly altered to Mr Yang’s disadvantage. These allegations resulted in the necessity of AIA obtaining evidence to refute such allegations, which included expert evidence and an examination by all parties of AIA’s master computer system in Melbourne. Having done so the applicants abandoned their claims that the records of AIA were not correct.

19                  The initial hearing commenced on 27 August 2007 and continued until 11 September 2007. The hearing resumed on 3 December 2007. The Court is satisfied that the prolongation of the proceedings occurred after 11 September 2007. It was from this date that the allegations relating to issues other than the representations were heard.

20                  Evidence relating to the issue of the receipts required lengthy cross examination of Mr Yang and of witnesses called by the applicants. The evidence of the witnesses called by the applicants was rejected, mostly because it was implausible. Evidence was also required from each party to address issues which were later abandoned concerning the alleged manipulation of AIA’s records and computer system. There is no apparent reason why such issues, which only arose at a late stage of the proceedings, were raised.

21                  The allegations made by the applicants concerning the issue of the receipts were wholly inconsistent with the objective facts. The Court is satisfied that such allegations were groundless. Further, there was no factual basis to support the claim that AIA had manipulated the records. The applicants’ claims relating to the issue of the receipts and of the computer records should never have been raised (see Colgate-Palmolive v Cussons per Sheppard J at 233).

22                  Given the above facts, the Court considers that it should depart from the usual rule relating to the award of costs. It is just for AIA to receive costs on an indemnity basis in respect of the issues which the Court is satisfied were raised without any factual basis and those which were pursued falsely to the knowledge of the applicants. Since these matters largely occupied hearing time from 11 September 2007, in accordance with the principles in Re Wilcox; Ex parte Venture Industries Pty Ltd and Others (No 2) (1996) 72 FCR 151 at 156-158 and Amadio Pty Ltd and Another v Henderson and Others (1998) 81 FCR 149 at 258-259, the Court will order the applicants to pay indemnity costs to AIA from that date.

23                  Accordingly, the Court finds that the applicants should pay the costs of AIA on an indemnity basis from 11 September 2007 until the conclusion of the hearing.

Associate:

Dated: 16 April 2008