Federal Court of Australia

Watson v Kriticos (Costs of Summary Judgment Application) [2021] FCA 917

ORDERS

THE COURT ORDERS THAT:

1.    Order 6 of the orders made 24 March 2021 be vacated and in lieu thereof it be ordered that:

(a)    Rule 40.13 of the Federal Court Rules 2011 (Cth) be dispensed with;

(b)    The First Respondent pay the Applicant’s costs of the interlocutory application dated 7 July 2020 on an indemnity basis in accordance with Orders 1(c)-(e);

(c)    Those costs be assessed on a lump sum basis, such lump sum to be reduced by 10% following the assessment;

(d)    The matter be referred to a Registrar to fix the sum resulting from Order 1(c).

(e)    The First Respondent pay the sum fixed in accordance with Order 1(d) forthwith.

2.    The First Respondent pay the Applicant’s costs of the interlocutory application filed 1 July 2021 as taxed, assessed or agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRAM J:

1    By an interlocutory application filed 1 July 2021 the Applicant seeks a lump sum costs order in the sum of $62,392.93 being its costs in defending the application by the First Respondent for summary judgment on certain claims for relief in the Further Amended Originating Application (‘FAOA’) and the striking out of certain paragraphs of the second further amended statement of claim (‘2FASOC’): Watson v Kriticos (Summary Judgment) [2021] FCA 261 (‘Summary Judgment Reasons’). At that time the First Respondent was ordered to pay the Applicant’s costs of the interlocutory application. Alternatively, the Applicant seeks an order that r 40.13 of the Federal Court Rules 2011 (Cth) (‘FCR’) be dispensed with to enable him to apply for a taxation of his costs. The Applicant says that the figure of $62,392.93 reflects a calculation of his costs on an indemnity basis and that his costs, if assessed on a party–party basis, are $40,555.40.

Indemnity Costs Application

2    The basis of the indemnity costs application is that the application for summary judgment was manifestly misconceived since it involved dredging through a large quantity of plainly disputable material. The Applicant says that his solicitors pointed this out to the First Respondent’s solicitors prior to the filing of the First Respondent’s application.

3    The First Respondent accepts that the Court described his application as misconceived and misguided: Summary Judgment Reasons at [32]-[33]. However, he says that costs should not be awarded on an indemnity basis because:

(a)    the First Respondent was partially successful insofar as he succeeded in having a number of paragraphs of the statement of claim struck out with leave to re-plead;

(b)    the First Respondent identifies what he says are continuing problems with the pleading, the current version of which is the Third Further Amended Statement of Claim (‘3FASOC’); and

(c)    the Court should not accept that the application was brought for an improper purpose.

4    Argument (b) has no relevance to the present application. If the First Respondent wishes to bring a fresh application in relation to those paragraphs of the 3FASOC which he considers to be defective, that is his right (of course, I make no comment on the wisdom or prospects of any such application). It is not however logically connected to what the costs consequences of his conduct of the previous application should be.

5    Argument (c) is responsive to an allegation made in the Applicant’s written submissions that the First Respondent’s application was brought with the purpose of litigating by attrition. I do not think it necessary to resolve this debate.

6    As to (a), I accept that the First Respondent was partially successful in relation to his strike out application. Consequently, in my view it is just to treat the summary judgment application separately from the strike out application.

Summary judgment application

7    The following discussion assumes a familiarity with the Summary Judgment Reasons. The First Respondent sought summary judgment on:

(a)    the allegation that the First Respondent agreed to give the Applicant a 12.5% ownership interest in the patents or patent applications;

(b)    the allegation that the patents and patent applications were impressed with a trust in the Applicant’s favour (and a parallel allegation that the First Respondent owed the Applicant a fiduciary duty);

(c)    the estoppel case; and

(d)    the misrepresentation case.

8    I canvassed the issues arising from (a) and (b) in the Summary Judgment Reasons at [19]-[36]. Having set out a number of paragraphs of the First Respondent’s written submissions so that they could speak for themselves I concluded at [37]:

And so it goes on. I will not set out any further extracts from the balance of the 17 pages dealing with this issue. It suffices to say that it is apparent that the submissions misconceive the nature of a summary judgment application. The question of what was said in the telephone call between the Applicant and the First Respondent and what this meant in light of their previous communications (and maybe even their subsequent communications – I need not decide), is a matter which will depend on a close reading of the material, the testimony of both the Applicant and the First Respondent and their respective cross-examinations. The idea that such an issue could be determined on an application for summary judgment is facile.

9    That discussion had begun with the observation at [33] that the First Respondent’s submissions ‘may engender a suspicion that the submissions may not have quite grasped the nature of an application for summary judgment. This suspicion is not diminished by what then follows’.

10    The word ‘facile’ should be noted.

11    I canvassed the issues arising from (c) and (d) at [38]-[48] and pointed out that the Applicant accepted that part of his misrepresentation case did not arise because the First Respondent admitted the existence of the agreement. This was obvious from the form of the pleadings. I rejected this aspect of the summary judgment application because it was moot. Put another way, it is a waste of time to be considering whether to dismiss a case which is not being advanced.

12    In relation to the representations alleged to have been made on 9 and 10 December 2014, I concluded that this was factually tied to the 12.5% interest issue. As such this aspect of the summary judgment application was doomed for the same reason as the argument in (a). I noted at [48]:

Thus, the second contention bespeaks in microcosm the larger problem affecting the present application: it serves only to point up the existence of a genuine dispute about and upon the evidence which has been or may yet be led, and in this way forecloses any conclusion that there is no question to be tried or that the relevant portions of the FAOA and 2FASOC enjoy no reasonable prospects of success or disclose no reasonable cause of action. I note for completeness that this conclusion disposes also of the First Respondent’s ancillary argument that the claim in respect of the Whitewater Representation should be dismissed or struck out because, according to the First Respondent, that representation had a reasonable basis: (RS [212]; Amended Defence [163]). This too is an issue not appropriately dealt with in the context of the present application.

13    For completeness, it might be noted that at [49]-[53] under the heading ‘Related but pointless arguments’ I collected some aspects of the First Respondent’s written submissions which appeared not to be connected to anything at all. At [26] I noted that the First Respondent’s summary judgment application had resulted in the parties putting on over a thousand pages of evidence.

14    In my view, the application for summary judgment was misconceived and should not have been brought. Correspondingly, the written submissions advanced in support of it were prolix, conceptually disordered, undisciplined and betrayed an ignorance of basic civil procedure. It was a waste of the Applicant’s time and money. It was also a waste of the Court’s time.

15    An indemnity costs order may be available in a variety of circumstances. These include where a party knowingly makes irrelevant or false allegations of fraud, commences or carries on proceedings which are hopeless or motivated by some ulterior purpose, agitates groundless contentions or acts in wilful disregard of known facts or clearly established law, or imprudently refuses an offer to compromise: Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 801; 46 FCR 225 at 233-234 per Sheppard J. In my view this extends to the bringing of a manifestly misconceived summary judgment application: see eg New Resource Holdings Pty Ltd v Lunt (No 4) [2009] WASC 29 at [9] per Templeman J. The Applicant should have his costs of the summary judgment application on an indemnity basis.

Strike out application

16    The same points as those made on the summary judgment application were also made on the strike out application. This is because the First Respondent sought, in the alternative to summary judgment on the relevant claims for relief in the FAOA, the strike out of paragraphs of the 2FASOC which advanced those claims for relief. For the reasons I have just given the Applicant is, in principle, entitled to indemnity costs in relation to that aspect of the application.

17    Apart from that misadventure, the First Respondent also sought to strike out;

(e)    the allegation that there was an implied term in the agreement that the First Respondent was required to file and maintain the patents and patent applications where it was not unreasonably onerous to do so; and

(f)    the pleading of loss and damage.

18    The attack in (e) was based on the proposition that the implied term was part of the forbidden fruit of the Applicant’s breach of fiduciary duty. At [56] I observed that this was misconceived since there was no such allegation made in the First Respondent’s cross-claim and that even if there were, vindication of the argument would require summary judgment on the cross-claim which was not what the First Respondent was seeking. I also rejected the argument that the term was not ‘necessary’ because an inquiry into that was caught up in the general debate about the terms of the agreement.

19    I did accept, however, that the pleading of loss and damage by the Applicant should be struck out. Assuming that the Applicant is correct when he submits that particulars had been provided beforehand which in substance fixed the problem, I do not think that this detracts from the fact that the First Respondent did succeed on the point. The paragraphs were struck out.

20    I accept that an indemnity costs order is justified in relation to the implied term argument which was necessarily caught up in the same factual debate to which the summary judgment application was related with the additional problem that the poisoned-fruit argument was procedurally incoherent.

21    On the other hand, the debate about loss and damage upon which the First Respondent succeeded was not an altogether trivial success and cannot be discounted on such a basis. The situation therefore is that the strike out application was largely unsuccessful in a way which would justify the imposition of an indemnity costs order but successful in one aspect which was not trivial.

Indemnity or party-party?

22    I have concluded that the most just way of resolving this issue is to conclude that the Applicant should have his costs of the interlocutory application on the indemnity basis he claims but that there should be a modest reduction of 10% to reflect the fact that the First Respondent did succeed on the loss and damage issue.

Lump Sum and Payable Forthwith?

23    The ordinary rule is that costs cannot be taxed or assessed until the determination of the proceeding: FCR r 40.13. Relevant matters include the possibility that costs orders made in favour of one party in the course of a proceeding may be set off against costs orders made in favour of the other and the desirability of avoiding multiple taxations: Capic v Ford Motor Company of Australia Limited (Costs Forthwith) [2019] FCA 1065 (‘Capic’) at [17]. The ordinary rule may be departed from where a party has engaged in unreasonable behaviour which has caused the other party to incur additional expenditure which would have not have been incurred if the other party had acted with competence and diligence: Capic at [18]. It is also relevant to take into account the length of time between when the costs order is made and when the costs might finally be taxed, ie, how long the matter will take to get to trial and judgment. On the other hand, a costs payable forthwith order is not to be seen as akin to an indemnity costs order.

24    The set-off issue is relevant here because the First Respondent has a costs order against the Applicant dated 3 December 2019. This was for costs thrown away by reason of the Applicant’s amendment of his originating application and statement of claim. Also relevant so it seems to me is the fact the Applicant appears to be of limited financial means so that if the First Respondent is ultimately successful he may have little opportunity to recover costs from him. The Applicant submitted that this was irrelevant but I do not accept that submission. The fact that the First Respondent might be able to seek security for costs on that basis does not mean that it is irrelevant to the question of whether a lump sum costs order should be made. On the other hand, the First Respondent’s submission cuts both ways – the impecuniosity of the Applicant may suggest that he should be compensated at this stage so as to avoid the interlocutory application operating as an unjust and unnecessary depletion of his resources.

25    I accept the Applicant’s submission that it will be some time before the proceedings are finally determined although I do not think this case is especially out of the ordinary in that regard.

26    The First Respondent submitted that the work done on the summary judgment application has not been wasted because it would have needed to have been incurred in preparing for the trial. To my mind this certainly underscores how misconceived the summary judgment application was. That observation is not, however, an answer to the argument although it lessens its attractiveness. I accept that as a result of the summary judgment application both parties have now raked over the documentary evidence in some detail. They are yet to wrestle with how the documentation relates to the oral testimony which will eventually need to be given. Nevertheless, I accept that the preparations for the summary judgment application have advanced the parties’ preparations in ways which are material.

27    There are therefore discretionary matters pulling in both directions each of which I take into account. To my mind the predominating factor is the profound waste and delay which the First Respondent’s application has caused to the orderly conduct of the proceedings and the depth of the misconception upon which it rested. The costs will be payable forthwith.

Assessment

28    The Applicant sought to have me assess the costs although this was explicitly not provided for in the orders made on 6 July 2021. I will make an order that the costs are to be determined on a lump sum basis. I will refer the matter to a Registrar to determine the appropriate lump sum in accordance with a procedure to be formulated by that Registrar.

Associate:

Dated:    5 August 2021