FEDERAL COURT OF AUSTRALIA
Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako (No 7) [2018] FCA 975
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Legalese Pty Ltd pay, on an indemnity basis, the applicant’s costs of and incidental to the interlocutory application filed on 24 October 2017, such costs to be assessed by a Registrar of the Court.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
CHARLESWORTH J:
1 On 30 April 2018 I dismissed an interlocutory application filed by Legalese Pty Ltd, the respondents’ former solicitors: Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako (No 6) [2018] FCA 577. These reasons should be read in conjunction with the reasons given in Poumako (No 6).
2 Mr Ambrose is the applicant in the substantive proceedings and the respondent to the interlocutory application. He applies for an order that his costs of the interlocutory application be awarded on an indemnity basis. For the reasons that follow, that application should be allowed.
3 The Court has a general discretion to award costs in civil proceedings: s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The Court may make an order in relation to costs at any stage of a proceeding and in relation to different parts of a proceeding. The discretion to award costs is to be exercised judicially: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 at [8].
4 The power to order that costs be assessed on an indemnity basis is conferred by s 43(3) of the FCA Act. Schedule 1 to the Federal Court Rules 2011 (Cth) defines “costs on an indemnity basis” as “costs as a complete indemnity against the costs incurred by the party in the proceeding”, provided that the award is not to include any amount shown to have been incurred unreasonably.
5 The discretion to make an order for costs is to be exercised for a compensatory and not a punitive purpose: Hockey v Fairfax Media Publications Pty Ltd (No 2) (2015) 237 FCR 127 at [37]. The same principle extends to the discretion to order that costs be assessed on an indemnity basis.
6 Section 43(3) of the FCA Act is to be interpreted and applied in a manner that best promotes the overarching purpose of the Court’s civil practice and procedure provisions as set out in s 37M of the FCA Act.
7 In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232, Sheppard J identified (at 233 – 234) the following circumstances where a court had exercised its discretion to award costs other than on a party and party basis:
… it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or 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) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
8 As that passage emphasises, there are no fixed categories of case warranting the exercise of the discretion to order indemnity costs. The outcome in each case must turn on the facts.
mr ambrose’s submissions
9 In summary, Mr Ambrose submits that Legalese:
(1) abused the processes of the Court by attempting to adduce into evidence a settlement deed, being a document subject to an implied undertaking owed to another court, without first making an application to be released from it;
(2) raised an unmeritorious argument, contrary to the known facts and the law, concerning the construction of the settlement deed;
(3) wrongly attempted to avoid its liability to comply with an order having the objective that Mr Ambrose be compensated for costs thrown away occasioned by an adjournment for which it was responsible; and
(4) ignored correspondence by which Mr Ambrose asserted that the settlement deed was subject to an implied undertaking and by which he put Legalese on notice of his position as to the merits of the application and foreshadowed this application for indemnity costs.
10 In the alternative to the fourth argument, Mr Ambrose submitted that the correspondence constituted an offer that had been unreasonably refused by Legalese so as to warrant an order that costs be assessed on an indemnity basis as and from the time of the refusal in accordance with r 25.14(2) of the Rules. It relevantly provides:
(2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:
(a) before 11.00 am on the second business day after the offer was served—on a party and party basis; and
(b) after the time mentioned in paragraph (a)—on an indemnity basis.
CONSIDERATION
11 In Poumako (No 6), I noted that the discretionary relief sought by Legalese had its origins in equity. I found (at [33]) that Legalese’s conduct in obtaining a copy of the settlement deed under the threat of compulsive orders of other courts, and then using the document in this action constituted an abuse of the processes of those other courts. That circumstance was, I found, sufficient to warrant the denial of relief, in the Court’s discretion, irrespective of the underlying merits of its claim.
12 These conclusions did not depend upon a finding that the settlement deed was subject to an implied undertaking owing to another court. That different question was left undecided (at [35]).
13 I would not make an award of indemnity costs by reason of any implied undertaking attaching to the deed, not least of all because Mr Ambrose has acknowledged that he would not have opposed any application Legalese might have made to be released from any undertaking, had such an application been made to a court to which the undertaking was given.
14 In response to the application for indemnity costs, Legalese sought to rely upon evidence of email communications passing between Mr Ambrose and a respondent in the substantive proceedings which, it was submitted, supported a construction of the settlement deed different to that arrived at in Poumako (No 6). In Poumako (No 6) Mr Ambrose had himself adduced parole evidence in support of the construction he advanced. As to the utility of that evidence, I said (at [47] – [49]):
47 Counsel for Mr Ambrose relied upon email communications passing between his solicitor and Mr Poumako evidencing negotiations that culminated in the deed. He submitted that the emails were admissible in order to determine the common intention of the parties to the deed as to the subject matter covered by it.
48 I accept that the email communications are admissible in evidence for that limited purpose: Codelfa at 351 – 354 (Mason J). Furthermore, I reject Mr Scragg’s submission that the admission of the emails into evidence would be contrary to cl 22 of the deed, which is to the effect that the deed is the entire agreement of the parties ‘on the subject matter’. Clause 22 invites the very question to which the email communications may be employed: what is the subject matter of the deed?
49 Although admissible in evidence, I do not consider it necessary to refer to or rely upon the emails in order to determine whether the deed was intended to extinguish any liability Mr Poumako might have owed to Mr Ambrose pursuant to the 3 April 2012 orders. The common intention of the parties on that subject may be objectively discerned from the words used in the instrument itself. As I have said, the text of the deed confirms that the parties turned their minds to the particular cost liabilities intended to be affected by their agreement and made express provision in relation to them. In consideration for the settlement sum, Mr Ambrose undertook not to pursue his rights to enforce those cost orders defined in the instrument. There was no such undertaking in relation to the 3 April 2012 orders.
15 It appears that the additional email now relied upon by Legalese is intended to support an argument that the Court’s construction of the settlement deed is affected by appealable error. Clearly it cannot and will not be received in evidence for that purpose. Legalese’s reliance on the correspondence is otherwise left unexplained. Whilst it is possible that Legalese seeks to rely on the additional email communication for a purpose relating to its subjective beliefs about the merits of its case, it has adduced no admissible evidence as to what those subjective beliefs were.
16 It is to be borne in mind that the relief sought on Legalese’s application was an order to vary or revoke a previous order of the Court. In Poumako (No 6) (at [51] – [52]) I expressed the following conclusions about the formulation of its claim:
51 There is a further reason for dismissing the interlocutory application. As mentioned earlier, the application determined by Mansfield J on 29 November 2013 was limited in its scope. The relief sought on the application then before the Court was an order varying the amount specified in the 10 May 2013 order. The application was dismissed on the ground that the challenge to the quantum of costs charged by Mr Ambrose’s solicitor was unmeritorious. To the extent that Legalese was ordered to pay Mr Ambrose’s costs of the application, the costs were to compensate Mr Ambrose’s expense in answering an unmeritorious argument concerning the assessment of his costs, being a confined dispute over an amount of $2,500.
52 Assuming Legalese was correct in its construction of the deed and the obligation of Mr Ambrose to disclose it at the hearing of the quantum application, the most that could be said is that Legalese may have withdrawn the quantum application and may perhaps have made some alternative claim for relief, perhaps for recovery of the $3,500 that had been paid at that time. An alternate course is not given clear expression in Mr Scragg’s affidavit. Although Mr Scragg alluded to having made a payment labouring under a mistake, the doctrines of mistake and restitution were not the subject of any submissions. Instead, Legalese proceeded on the assumption that non-disclosure of the deed at the time of the quantum application would, without more, be sufficient to justify the relief it now seeks. Whatever alternate relief might have been available to Legalese, it has not been shown that any variation of the 29 November 2013 orders would be necessary or appropriate in all of the circumstances.
17 In my view, the question of whether costs should be awarded on an indemnity basis should be decided having regard to these critical flaws affecting Legalese’s application, and to the wider context in which its unsuccessful application was brought.
18 The context, well known to Legalese and its principal Mr Scragg, has its genesis in defaults by Legalese resulting in an adjournment of the trial of the underlying proceedings. Orders were made by Mansfield J with the objective of compensating Mr Ambrose for costs thrown away occasioned by the adjournment. The orders were structured in terms that obliged Legalese to indemnify the respondents against the liability they owed to Mr Ambrose for those costs.
19 This is the second application made by Legalese in which it disputes its liability to pay. Legalese had earlier challenged, unsuccessfully, the quantum of the costs Mr Ambrose had claimed. On that unsuccessful application, Legalese was ordered to pay Mr Ambrose’s costs on a party and party basis.
20 The quantum of costs claimed as a result of the unnecessary adjournment was $6,000. Since that order was made, Mr Ambrose has been put to the expense of twice defending unsuccessful applications brought by a firm relating to a costs order imposing a liability personally upon the firm for its own default in legal proceedings.
21 In the unique circumstances of this case considerable weight should be placed on the circumstance that if Mr Ambrose is not indemnified in respect of his costs, then the practical benefit of the original order would be lost to him. More precisely, if an order for indemnity costs is not made, it is reasonable to infer that Mr Ambrose would have spent more than $6,000 in irrecoverable costs answering Legalese’s misconstrued challenges. That circumstance would, I find, significantly undermine the objectives of the Court’s civil practice and procedure provisions, particularly the provisions that confer a discretion (such as that exercised by Mansfield J) to make legal practitioners accountable for their defaults.
22 The letter from Mr Ambrose’s solicitors to Legalese dated 8 December 2017 put Legalese fairly on notice that should its application be successful, then an application for indemnity costs would be made. Legalese submits that the correspondence is of no legal effect and ought to be given no weight. The correspondence is not, it is submitted, an “offer” whether for the purpose of r 25.14(2) of the Rules or for the purpose of the general law pertaining to the unreasonable rejection of an offer of compromise: see generally Calderbank v Calderbank [1975] 3 All ER 333; Perry v Comcare (2006) 150 FCR 319; Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141; Eatock v Bolt (No 2) [2011] FCA 1180; (2011) 284 ALR 114.
23 It is not necessary to characterise the letter of 8 December 2017 as an offer in order to resolve the present application. Taken together with the surrounding circumstances, it is sufficient to find that the letter is one that ought reasonably to have caused Legalese to appreciate that a further unsuccessful foray in this Court would further prolong a dispute that had already caused Mr Ambrose to incur irrecoverable expense. Legalese ought to have appreciated that the overall irrecoverable costs associated with its application, together with its previous application, may exceed the quantum of costs originally ordered and so wholly undermine the purpose of the original orders made by Mansfield J more than six years ago. By his letter, Mr Ambrose fairly put Legalese on notice of the position he would take on the application and, importantly for present purposes, of his intention to make this application. In all of the circumstances, I am satisfied that the application should be allowed.
24 It is appropriate that the quantum of Mr Ambrose’s costs be assessed by a Registrar of the Court. I will so order.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth. |
Associate:
SAD 322 of 2011 | |
JANICE HEATHER POUMAKO |
