Federal Court of Australia

Richards v Han (Costs) [2023] FCA 211

ORDERS

THE COURT ORDERS THAT:

1.    Judgment for the applicant in the sum of $338,500 plus interest in the sum of $60,747.85.

2.    The respondents are to pay 50% of the applicant’s costs of the proceedings, as agreed or taxed.

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

REASONS FOR JUDGMENT

HALLEY J:

introduction

1    On 19 December 2022, I made orders for the parties in these proceedings and in ACD 89 of 2019 (Shareholder proceedings) to provide draft orders, including as to costs, to give effect to the reasons for judgment that I published on that date: see Richards v Han [2022] FCA 1539. I also made orders on that date that in the absence of an agreed position, the matter would be determined on the papers, unless a party requested an oral hearing.

2    The parties agreed that in these proceedings judgment should be entered for the applicant against the respondents in the sum of $338,500 plus pre-judgment interest in the sum of $60,747.85 but the parties could not reach agreement on costs. The parties filed competing submissions on costs and affidavits in support of their respective positions. The applicant relied on an affidavit from his solicitor, Mr Ian Meagher, and the respondents relied on an affidavit from their solicitor, Mr John Hill. Both affidavits were sworn on 23 December 2022.

3    I also made orders on 23 December 2022 for the parties to file and serve any additional evidence and written submissions on costs by 13 January 2023.

4    The parties have now filed reply submissions on costs and the applicant has also filed a further affidavit from Mr Meagher sworn on 13 January 2023.

5    The applicant seeks an order that the respondents pay his costs of the proceedings, as agreed or taxed, on a party and party basis.

6    The respondents seek orders that subject to existing costs orders, the applicant pay the respondents’ costs:

(a)    up to 11 am on 13 October 2021 on a party and party basis; and

(b)    in the period after 11 am on 13 October 2021 on an indemnity basis;

          and in the alternative,

(c)     up to 11 am on 25 June 2022 on a party and party basis; and

(d)    in the period after 11 am on 25 June 2022 on an indemnity basis.

7    I have concluded for the following reasons that no orders should be made for indemnity costs and the respondents should pay 50% of the applicant’s costs of the proceedings.

Relevant principles

8    The Court has a broad discretionary power to award costs pursuant to s 43(2) of the Federal Court of Australia Act 1976 (Cth). The discretion must be exercised judicially, not arbitrarily or capriciously, having regard to the relevant principles and the justice of the case in all the circumstances and cannot be exercised on grounds unconnected with the litigation: Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14] (Kenny, Murphy and Beach JJ) citing Trade Practices Commission v Nicholas Enterprises Pty Ltd and Others (No 3) (1979) 42 FLR 213; [1979] FCA 143 at 219 (Fisher J); see also InterPharma Pty Ltd v Hospira, Inc (No 4) [2018] FCA 45 at [8] (Kenny J).

9    In the ordinary course, in the absence of special circumstances justifying some other order, the general rule is that costs will be awarded to the successful party, that is, costs will follow the event: Summers at [14] citing Ritter v Godfrey [1920] 2 KB 47 at 52-53 (Lord Sterndale MR) and 54 (Atkin LJ); Gladstone Park Shopping Centre Pty Ltd v Ross Wills and Others (1984) 6 FCR 496 at 505 (Davies J); Ruddock and Others v Vadarlis and Others (No 2) (2001) 115 FCR 229; [2001] FCA 1865 at [11] (Black CJ and French J).

10    In order to justify the making of a special costs order it is necessary to establish that there has been conduct worthy of criticism and it has resulted in greater expense to the innocent party: Clifton v Kerry J Investment Pty Ltd (t/as Clenergy) (No 2) (2020) 277 FCR 382; [2020] FCAFC 112 at [31] (Besanko, Markovic and Banks-Smith JJ).

11    Rule 25.14(1) of the Federal Court Rules 2011 (Cth) provides:

If an offer for compromise is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

12    In Australian Skills Quality Authority v Western Institute of Technology Pty Ltd [2017] FCAFC 183, the Full Court (Tracey, Griffiths and Charlesworth JJ) stated at [22]:

In dealing with the former O 23 r 11 of the Federal Court Rules 1979 (Cth), which was the forerunner of the present r 25.14, the Full Court (Stone, Edmonds and Jagot JJ) in IFTC Broking Services Ltd v Cmr of Taxation (2010) 268 ALR 1; [2010] FCAFC 31 considered O 23 r 11(6) which provided for offers made by a respondent and not accepted by an applicant. This rule was in substantially the same terms as r 25.14(3) save that the latter deals with offers by an applicant. Their Honour’s summarised the relevant case law at 4–5 [9]:

It may be accepted that the prima facie position established by O 23 r 11(6) can be departed from. So much is clear from the statement of exception in the rule which the appellants seek to invoke (unless the court otherwise orders). The cases say more than this, however. The cases establish that:

(1)    If O 23 r 11(6) is engaged it is for the applicant to satisfy the Court that the prima facie position established by that rule should be departed from: Futuretronics at [12].

(2)    Unlike a case in which a Calderbank offer (named after the decision in Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93) is made, the fact that an unsuccessful litigant acted reasonably in rejecting an offer of compromise “is not of itself a sufficient reason to displace the operation of the rule”: Futuretronics at [11].

(3)    It is true that doubts have been expressed about a need to show “compelling and exceptional circumstances” to justify otherwise ordering: see Port Kembla Coal Terminal at [17]. Nevertheless, properly understood, the rule creates a presumption in favour of indemnity costs which the unsuccessful party must rebut. A court may depart from the presumptive position but only “for proper reasons which, in general, only arise in an exceptional case”: Port Kembla Coal Terminal at [17] cited with approval in Futuretronics at [10].

(4)    The requirement for “proper reasons” for any departure from the prima facie position of indemnity costs reflects the purpose of the rule. As explained by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581F-582E (Morgan) the rule is intended to encourage the compromise of litigation (such compromise being in both the private and the public interest) and to oblige parties “to give serious thought to the risk involved in non-acceptance” on the basis that “litigation is inescapably chancy”: Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725. For these reasons “the ordinary provision is expected to apply in the ordinary case” (referring to New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102–3.

13    The operation of r 25.14 of the Rules is not subject to any “unless the Court otherwise orders” qualification but the Court retains a residual discretion if special circumstances can be established to make an order that is inconsistent with the Rules pursuant to r 1.35: Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [23], [27] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ); Australian Skills Quality Authority at [23] (Tracey, Griffiths and Charlesworth JJ).

Consideration

Indemnity costs

14    It is convenient to address first, the claim made by the respondents for indemnity costs.

15    On 18 December 2020, Thawley J made orders dismissing a summary judgment application made by the applicant in both these proceedings and the Shareholder proceedings, and ordered the applicant to pay the costs of the respondents on a party and party basis up to and including 1 September 2020 and thereafter on an indemnity basis (December 2020 costs order).

16    On 11 October 2021, the respondents made an offer of compromise to the applicant in the these proceedings in an amount of $450,000, inclusive of costs, payable in three instalments of $110,000 by 20 December 2021, 20 February 2022 and 20 May 2022, respectively, and a final instalment of $120,000 by 10 July 2022 (October 2011 offer). The October 2011 offer was stated to be open for acceptance for 28 days.

17    On 8 April 2022, Thawley J made orders in both these proceedings and the Shareholder proceedings dismissing an interlocutory application filed by the respondents on 4 April 2022 seeking to rely on an affidavit of an expert witness, Mr Dean Dransfield, affirmed on 22 February 2022 and ordered that the respondents pay the applicant’s costs (April 2022 costs order).

18    On 23 June 2022, the respondents made a further offer of compromise to the applicant in these proceedings in an amount of $520,000 payable on or before 31 January 2023, inclusive of costs in a fixed sum of $60,000 and on the basis that the parties waive any entitlement that they might have to earlier costs orders, including for reserved costs (June 2022 offer).

19    The June 2022 offer included a term that the applicant must remove the caveat that he had placed on the second respondent’s Lindeman Island property within 2 days of the earlier of the applicant’s receipt of the settlement sum and the receipt by the applicant of a notice from the respondents that it was necessary for the caveat to be removed to facilitate a sale of the property in which case the settlement sum would be paid from the sale proceeds.

20    The June 2022 offer was stated to be open for acceptance until 5pm on 30 June 2022.

21    The hearing of these proceedings, which were heard together with the Shareholder proceedings, commenced on 4 July 2022 and concluded on 15 July 2022.

22    The respondents submit that the failure of the applicant to accept the October 2011 offer and in the alternative, the June 2022 offer, entitle them to an award of indemnity costs pursuant to r 25.14 of the Rules and on Calderbank principles: see Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93.

23    I have concluded that indemnity costs orders should not be made in favour of the respondents.

24    First, any comparison of the difference between the $450,000 (inclusive of costs) figure in the October 2011 offer and the judgment sum of $338,500 (exclusive of costs) needs to take into account the costs that the applicant could have expected to receive on a party and party basis, allow for the receipt of both pre and post judgment interest, and make appropriate allowances for the delays in the receipt of the settlement sum because of the proposed instalment payment schedule. I am not satisfied that when these matters are taken into account that the respondents have established that the judgment obtained by the applicant in these proceedings was less favourable than the terms of the October 2011 offer.

25    Second, in order to compare the $520,000 amount, the subject of the June 2022 offer, with the judgment sum of $338,500 it is necessary to take into account that (a) the allowance of $60,000 for party and party costs of the applicant was not an agreed figure, (b) the need to make allowances for pre and post judgment interest, (c) the seven month delay in the receipt of the settlement sum, and (d) the implications of the waiver of all previous costs orders, in particular the December 2020 and April 2022 costs orders. Any consideration of those costs orders are further complicated not only by the absence of any determination of the amount of these costs but also because the applications the subject of those costs orders were made in both these proceedings and the Shareholder proceedings. Equally, any estimate of the likely party and party costs that the applicant might have expected to recover in the proceedings is inherently speculative given the absence of any determination of the amount of those costs and the difficulties that would arise in any such determination because these proceedings and the Shareholder proceedings were case managed and heard together.

26    In addition, it would be necessary to include an assessment of the significance of the withdrawal of caveat stipulations in the June 2022 offer that may have led to a position that the caveat had to be withdrawn prior to the receipt of the settlement sum.

27    I am not satisfied that when all these matters are taken into account that the respondents have established that the judgment obtained by the applicant in these proceedings was less favourable than the terms of the June 2022 offer.

28    Third, given the matters that I have identified above, it is not necessary to consider whether in all the circumstances I should exercise the discretionary power in r 1.35 of the Rules to make an order inconsistent with r 25.14 of the Rules.

29    Fourth, in assessing the reasonableness of offers made on Calderbank principles it is necessary to adopt a less rigid and more impressionistic approach and a key question is whether the rejection of the offer was “unreasonable” when viewed in the context of the circumstances that existed at the time that the offer was rejected. Nevertheless, I am not satisfied that an indemnity costs order should be made against the applicant by reason of his rejection of either the October 2011 offer or the June 2012 offer. The applicant had advanced a quantum meruit claim and was ultimately successful in obtaining a significant judgment on that basis that vindicated his claims that he was entitled to compensation for the work that he had done with respect to the Lindeman Island development. It is against that finding that it is necessary to assess the matters relied upon by the respondents in support of their application for indemnity costs, including the applicant’s abandonment of causes of action, reliance on expert evidence that provided “limited assistance” and extensive affidavit evidence that required “careful scrutiny”.

30    Moreover, the applicant’s ultimate reliance on the evidence of Mr Nyholt’s salary to make good his quantum meruit claim, given that the applicant had succeeded Mr Nyholt as the project manager of the Lindeman Island development, could not come as a surprise to the respondents. The following claim was notified by the applicant to the respondents in his letter of demand dated 3 October 2019:

19.    In accordance with the breach, I claim the remuneration at the same rate as the previous manager Mr Paul Nyholt from my appointment date (22 July 2017) until the last day of my appointment (4 December 2019). When I commenced the Management Duties and Tasks referred to above on 22 July 2017, Mr Paul Nyholt was receiving a total remuneration of $400,000 per annum plus car, plus office expenses, plus phone, plus travel for managing Lindeman Island.

Party and party costs

31    I turn now to the conflicting submissions of the parties on the award of costs on a party and party basis.

32    I have concluded that the manner in which the applicant conducted the case justifies a departure from the usual rule that a successful party is entitled to a costs order in its favour. I am satisfied, for the following reasons, that in order to do justice between the parties it is necessary to apply a 50% reduction to the costs that the applicant would otherwise have been entitled as the successful party.

33    First, the applicant abandoned on the fifth day of the hearing his extensive claims with respect to the provision of legal services, breach of contract and under the Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth) (Principal Claims). I am satisfied that the abandonment of the Principal Claims resulted in a material and significant amount of wasted work on the part of the respondents, notwithstanding that some of the facts relevant to these causes of action were also relevant, at least contextually, to a determination of the quantum meruit claim.

34    Second, the applicant ultimately only succeeded on his alternative quantum meruit claim and only on the basis of the evidence of Mr Nyholt’s remuneration. The quantum meruit claim had originally been advanced on the basis of the calculations undertaken by the applicant’s expert, Mr Sykes in his report. That report was served on the respondents on or about 23 February 2021. It was not until 15 June 2022, that the applicant made clear, in his written submissions in chief, that he sought to rely on an “alternative method of calculation” for his quantum meruit claim based on Mr Nyholt’s remuneration. The claim was not particularised and that basis for quantification had not been pleaded. Further, it was only on the last day of the hearing, on 15 July 2022, that the applicant tendered Mr Nyholt’s employment or contractor records that the applicant had obtained in answer to a notice to produce that he called upon on the first day of the hearing on 4 July 2022.

35    Third, a discount of greater than 50% for an award of costs in favour of the applicant or any award of costs in favour of the respondent was, in my view, not justified. Given the abandonment of the Principal Claims, the Court has not made findings with respect to the merits of those claims that might support the drawing of inferences or concluding that the allegations should never have been made or that the allegations were groundless. The abandonment of the Principal Claims provides strong support for a finding that costs have been unnecessarily incurred. It does not carry with it any necessary implication that the claims lacked any merit and should not have been advanced.

36    Nor do I accept, contrary to the respondents’ submissions, that the applicant’s conduct of these proceedings:

is particularly concerning in circumstances where the applicant is himself “a barrister and law lecturer” (Judgment [56]) and ought to be expected to conduct his own proceedings expeditiously and with due regard to the overriding purpose.

37    The applicant did not profess to have any experience in commercial litigation and he was at all times represented by experienced counsel and solicitors.

38    Moreover, there was a significant overlap in the underlying factual evidence underpinning the alternative bases on which the quantum meruit claim was advanced and to a lesser extent, the contextual evidence relevant to the Principal Claims. It was not the case that the ultimate successful reliance on evidence of Mr Nyholt’s remuneration resulted in all the evidence advanced in support of the applicant’s claims in these proceedings becoming irrelevant. In that context, it is important to bear in mind that the successful quantum meruit claim arose in relation to the central subject matter of the proceedings, namely the work undertaken by the applicant for the respondents in connection with their Lindeman Island development and the basis upon which he was entitled to remuneration or compensation for that work.

Disposition

39    Orders are to be made providing for judgment for the applicant in the sum of $338,500 plus interest in the sum of $60,747.85 and for the respondents to pay 50% of the applicant’s costs of the proceedings, as agreed or taxed.

Associate:

Dated:    13 March 2023