Citation : MARSH -v- BAXTER [2014] WASC 187 (S)

Costs - Appellant's claim against respondent dismissed at trial - Order that appellant pay respondent's costs - Respondent indemnified for costs by third party - Whether respondent entitled to order for costs - Indemnity principle - Whether stay of costs order should be lifted

Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495

Angor Pty Ltd v Ilich Motor Co Pty Ltd [1992] FCA 348; (1992) 37 FCR 65

Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2008] NSWSC 114

Backhouse v Judd [1925] SAStRp 49; [1925] SASR 395

Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403

Davies v Taylor (No 2) [1974] AC 225

Gundry v Sainsbury [1910] 1 KB 645

Halliday v High Performance Personnel Pty Ltd (in liq) [1993] HCA 13; (1993) 113 ALR 637

Harold v Smith [1860] EngR 516; (1860) 5 H & N 381 [385]; [1860] EngR 516; 157 ER 1229

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 2) [2003] VSC 212

Johnson v Santa Teresa Housing Association [1992] NTSC 29; (1992) 83 NTR 14

Marsh v Baxter [2014] WASC 187

Marsh v Baxter [2014] WASC 187 (S)

Marsh v Baxter [2015] WASCA 169

Noye v Robbins [2010] WASCA 83.

Stewart v ATCO Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307

Wilson v Richmond River Shire Council [2000] NSWSC 71

1 JUDGMENT OF THE COURT: On 28 May 2014, the primary judge dismissed an action by the appellants against the respondent for damages. The respondent sought an order for costs. On the issue of costs, the appellants applied for orders that (1) the respondent file an affidavit regarding any funding arrangements he had entered into with third parties to meet the costs of solicitors who acted for him in the action, and (2) the respondent's application for the costs of the action be stayed pending the determination of whether the respondent had any personal liability to pay his own solicitors' costs. The application was dismissed.

2 On 25 March 2015, this court allowed an appeal against the dismissal of the appellants' application. The respondent was ordered to file an affidavit deposing to information relating to any arrangements between the respondent and certain third parties as to his liability for the costs of the action and the costs orders made by the primary judge were stayed until further order.

3 The respondent filed affidavits in respect of the costs arrangements and now seeks to have the stay of the costs orders of the primary judge lifted.

4 On 3 April 2012, the first appellant brought proceedings against the respondent claiming damages for negligence, alternatively nuisance, following the intrusion onto the appellants' property of some genetically modified canola seeds from the respondent's property. The second appellant was added as a plaintiff to the action on 4 February 2014. The action went to trial shortly afterwards in February 2014, occupying 11 days.

5 On 28 May 2014, the primary judge dismissed the appellants' action: Marsh v Baxter [2014] WASC 187. Issues relating to the costs of the action were reserved.

6 The appellants subsequently applied for orders that:

(1) the respondent file an affidavit regarding his liability to pay the costs claimed by him, including information and documents relating to any funding arrangements between the respondent and, inter alia, the Pastoralists and Graziers Association of WA (PGA) and Monsanto Australia Ltd (Monsanto); and

(2) the respondent's application for costs and special costs orders be stayed pending the determination of the respondent's liability for those costs.

7 The evident purpose of the application was to determine whether the respondent's costs of defending the action had been met by the PGA or Monsanto in circumstances where the respondent had not incurred any personal liability for those costs, with the result that he was not entitled to an order for costs.

8 On 19 September 2014, the primary judge dismissed the appellants' application and ordered the appellants to pay the respondent's costs of the action in accordance with costs orders his Honour had previously made: Marsh v Baxter [2014] WASC 187 (S).

9 On 25 March 2015, this court allowed an appeal against the dismissal of the appellants' application. It made the following order:

Within 14 days the respondent do file and serve an affidavit:

(1) deposing to information regarding the respondent's liability for the costs claimed by him in the action relating to any arrangements between the respondent and the Pastoralists and Graziers Association or Monsanto or either of them; and

(2) annexing a copy of any documents regarding the respondent's liability for the costs claimed by him in the action relating to any arrangements between the respondent and the Pastoralists and Graziers Association or Monsanto or either of them.

10 The court further ordered that the costs orders made by the trial judge be stayed until further order.

11 On 7 April 2015, the respondent filed an affidavit of the respondent pursuant to the order of this court. An affidavit of his solicitor, Mr Bradley of Bradley Bayly Legal, was filed on 14 October 2015. No affidavits were filed by the appellants.

12 On 3 September 2015, this court (by a majority) dismissed an appeal by the appellants against the decision of the primary judge to dismiss their action for damages: Marsh v Baxter [2015] WASCA 169.

13 In the meantime, on 2 September 2015, the respondent had applied for the stay of the primary judge's costs orders to be lifted. The appellants resisted that application on the ground that the respondent was not entitled to an order for costs as his costs had been paid by Monsanto.

14 On 3 September 2015, this court ordered that the application to lift the stay be determined on the papers and made orders for the filing of affidavits and submissions by the parties.

15 The relevant facts, as appear from the respondent's affidavits, are as follows.

16 On 28 December 2010, the respondent received a letter from the first appellant's then solicitor informing him that the first appellant intended to take legal action against him in connection with genetically modified canola seed which had been carried from his property onto the first appellant's property. In January 2011, the respondent instructed Mr Bradley of Bradley Bayly Legal to act on his behalf in respect of the foreshadowed claim. Bradley Bayly Legal thereafter acted for the respondent.

17 In early 2011, representatives of the PGA informed the respondent that the PGA intended to establish a fighting fund to assist him to meet his legal costs of defending the action.

18 In June 2011, an insurance company with which the respondent held a policy of insurance offered to indemnify the respondent for his costs of the action, on certain terms. On 21 June 2011, the respondent accepted the offer. In light of the insurer's indemnity, the respondent and Mr Bradley agreed that a costs agreement that Bradley Bayly Legal had previously sent to the respondent would no longer be required.

19 Shortly afterwards, on the respondent's instructions, Mr Bradley informed the PGA that the respondent was not seeking any payment towards his legal costs, and no payment was ever made by the PGA in respect of the respondent's legal costs.

20 The insurer subsequently formed the view that the respondent's policy of insurance did not respond to the claim. In consideration of the respondent releasing the insurer from any liability under the policy in respect of the claim, the insurer agreed to indemnify the respondent for his costs up to 19 July 2013 (except for the costs of an application for an injunction that had been brought by the appellants and dismissed with costs by the primary judge) and to pay to the respondent the sum of $150,000 based on his solicitor's estimate of the maximum amount for which the respondent would be liable by way of damages if the claim succeeded. The agreement was the subject of an undated deed of settlement, a copy of which was attached to Mr Bradley's affidavit.

21 In the meantime, after the hearing of the application for an injunction, Monsanto agreed to pay the counsel fees that the respondent had incurred in relation to that application.

22 Subsequently, the respondent and Monsanto entered into a deed of indemnity (the indemnity deed), dated 1 December 2013, by which Monsanto agreed, in effect, that it would:

(1) indemnify the respondent in full in respect of his legal costs of the action from 20 July 2013;

(2) indemnify the respondent in full in respect of any liability he may have to pay the first appellant's costs of the action; and

(3) indemnify the respondent to a maximum amount of $150,000 in respect of any damages payable by the respondent, after payment by the respondent of the first $150,000 toward the damages.

The indemnity expressly did not apply in respect of any appeal.

23 The indemnity deed provided that the respondent's lawyers (who are identified in the indemnity deed as Bradley Bayly Legal) would invoice Monsanto's lawyers for any payments that fell within the terms of the indemnity. Monsanto would then arrange for the payment of any such amount, direct to the respondent's solicitors. It was a term of the indemnity deed that it was not necessary for the respondent personally to incur an expense or make any payment before enforcing any right to claim under the indemnity.

24 By the indemnity deed, Monsanto agreed that it would not have any control over the conduct of the respondent's defence and that the conduct of the defence in accordance with any assistance or recommendation provided by Monsanto was at all times subject to the absolute and final discretion of the respondent and his legal advisors.

25 Monsanto has paid the respondent's legal costs and disbursements (including counsel fees) of the action from 20 July 2013 direct to, or through, the respondent's solicitors.

26 In their written submissions filed on 11 September 2015, the appellants contended that the affidavits filed by the respondent did not comply with the order of 25 March 2015. The appellants submitted that the respondent should have produced copies of any correspondence with Monsanto concerning the arrangements as to payment that resulted in the indemnity deed; file notes of any conversations concerning the arrangements agreed with Monsanto and the respondent; and copies of invoices and correspondence passing between Monsanto and the respondent's solicitors concerning the fees to be paid, who was liable to pay them and the payment of those fees. It was submitted that it was most unlikely the indemnity deed was prepared and payment made by Monsanto without documents of that kind being brought into existence.

27 The appellants argued that what was absent from the respondent's affidavits was information concerning the arrangements that were put in place concerning the respondent's liability, if any, to make payment to his solicitors. The appellants submitted that there should be orders for better compliance with the order of this court of 25 March 2015.

28 We do not accept that the respondent has failed to comply with the court's order. The order was not one for general discovery. The respondent was required to depose to information regarding any arrangements between him and the PGA or Monsanto in relation to his costs of the action. The respondent, himself or by his solicitor, has deposed that an offer to assist with his legal fees was made by the PGA but rejected following the agreement of an insurer to indemnify him. He has deposed that when the insurer subsequently decided that the policy did not respond and ceased to indemnify him after 19 July 2013, Monsanto agreed to indemnify him in respect of his costs of the action from that point, on the terms set out in the indemnity deed which is in evidence. The evidence of the respondent is that his costs of the action from 20 July 2013 were paid by Monsanto in accordance with the terms of the indemnity deed. There is nothing to suggest that the arrangements described in the affidavits are deficient or incomplete in any material way, or that the further documents sought by the appellant might cast any better or different light upon the arrangements.

29 The question then is whether, on the material now before the court, the respondent had a legal liability to his solicitors for the costs of the action. If he did, he was entitled to an order for costs and the stay of the primary judge's costs orders should be lifted.

30 As we understand the respondent's written submissions, however, it is contended that the matter should be referred back to the primary judge for determination. We do not consider that to be an appropriate course. This court is in as good a position as the primary judge to determine it and to remit it to the primary judge would only be to add further costs and delay in a matter that has already generated very substantial costs and occupied a great deal of time.

31 It is necessary then to turn to the indemnity issue; that is, the principle that as costs are awarded by way of indemnification, a party who does not have a liability to their solicitors for costs cannot recover costs against an unsuccessful party to the litigation: see Harold v Smith [1860] EngR 516; (1860) 5 H & N 381 [385]; [1860] EngR 516; 157 ER 1229, 1231; Gundry v Sainsbury [1910] 1 KB 645; Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403, 410.

32 A convenient starting point is Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495. In that case, under the rules of the trade union of which he was a member the plaintiff was entitled to legal assistance. Pursuant to the rules, the union instructed its solicitors to act on behalf of the plaintiff in a claim for wrongful dismissal. The plaintiff obtained judgment in the action and an order for costs. The defendants appealed, contending the plaintiff was not entitled to an order for costs as the union had instructed the solicitors to act for him and the union was liable to the solicitors for the costs. The appeal was dismissed. In an oft-cited passage, Bankes LJ said:

When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent ... he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs. (501)

33 Adams has been followed in Australia in a number of cases: see, for instance, Backhouse v Judd [1925] SAStRp 49; [1925] SASR 395; Angor Pty Ltd v Ilich Motor Co Pty Ltd [1992] FCA 348; (1992) 37 FCR 65; Johnson v Santa Teresa Housing Association [1992] NTSC 29; (1992) 83 NTR 14; Wilson v Richmond River Shire Council [2000] NSWSC 71; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 2) [2003] VSC 212; Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2008] NSWSC 114; and Noye v Robbins [2010] WASCA 83.

34 In Backhouse v Judd, the respondent, an inspector for the Royal Society for the Prevention of Cruelty to Animals, laid a complaint against the appellant and instituted proceedings against him in the Police Court. The Society undertook to pay the respondent's legal costs. Following the appellant's conviction an issue arose as to whether the respondent was entitled to costs. It was held, applying Adams, that he was, there being no evidence 'which shews it was ever contemplated or considered that in no event should [the respondent] be liable to his solicitor.' Angas Parsons J drew the analogy of a police officer who lays a complaint and is represented by a lawyer briefed by the Crown:

In such a case, although the police officer accepts the services of such counsel, and would not contemplate that in any event he would be left to pay the costs, yet the proper inference to be drawn is that liability therefor, in the absence of a bargain to the contrary, is not to be taken to be negatived, and in every-day practice such an informant may be awarded costs if successful.

35 In Angor, French J (as his Honour then was) observed:

[T]he decision in Adams is clear authority for the proposition that the indemnity principle will permit recovery of costs by a successful party who is under a legal liability to his solicitors to pay them even though the likelihood of being called upon to do so is remote.

36 The position is no different because at the time the costs order is sought the costs of the successful party have already been paid by a third party: see Noye v Robbins [322], [323] - [331].

37 The onus of establishing that the respondent had no liability to Bradley Bayly Legal for their costs lies on the appellants. In the absence of proof of an agreement to the contrary, a solicitor who acts on instructions for a party on the record is taken to be entitled to look to that party for costs, even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation: see Davies v Taylor (No 2) [1974] AC 225, 230; Hudgson v Endrust (Aust) Pty Ltd (1986) 11 FCR 152; Halliday v High Performance Personnel Pty Ltd (in liq) [1993] HCA 13; (1993) 113 ALR 637, 639.

38 In the present case, there is no doubt that Bradley Bayly Legal was instructed by the respondent to act on his behalf and acted solely on his instructions. The respondent was therefore liable for their costs in the absence of an agreement between Monsanto and Bradley Bayly Legal, or between the respondent and Bradley Bayly Legal, that in no circumstances could Bradley Bayly Legal look to the respondent for its costs. There is nothing to suggest any such agreement and there is no reason to believe that such an agreement might have been entered into. As Lord Cross of Chelsea observed in Davies v Taylor, 234, in respect of an insurer that had indemnified its insured, such an agreement would be 'most unusual'. On the evidence, the only relevant agreement was the indemnity deed, under which Monsanto agreed with the respondent that it would indemnify him for his costs. Nothing in that agreement affected the legal liability of the respondent to his solicitors, who remained entitled to look to the respondent for the payment of their costs.

39 It is the case that the indemnity deed does not contain any provision conferring upon Monsanto a right to reimbursement from costs recovered by the respondent, but that right arises by subrogation and does not depend upon an express contractual entitlement: Stewart v ATCO Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307 [50].

40 It follows that the stay of the costs orders should be lifted.

41 The stay of the costs orders of the primary judge ordered by this court on 25 March 2015 should be discharged.