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[2017] QSC 8
General information, not legal advice.
Supreme Court of Queensland
2017-02-10
Applegarth J
Original judgment source is linked above.
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF WHOLE ACTION - GENERALLY - where the plaintiffs' claim was dismissed - where the second, third and fourth plaintiffs were joined later in the proceeding - whether an order for costs should be made against the plaintiffs on a joint and several basis
PROCEDURE - COSTS DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS - where the plaintiffs failed to accept the defendants' formal offer to settle - where the plaintiffs made allegations of dishonesty against the second defendant - whether the plaintiffs' rejection of the defendants' offer was unreasonable - whether the plaintiffs' conduct warrant costs being awarded on an indemnity basis
Uniform Civil Procedure Rules 1999 (Qld) rr 361, 681, 703
du Boulay v Worrell [2009] QCA 63, cited
J & D Rigging Pty Ltd v Agripower Australia Ltd [2014] QCA 23, cited
Chaina v Alvar Homes Pty Ltd [2008] NSWCA 353, cited
Cosgrove v Johns [2000] QCA 157, cited
Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VLR 435, cited
John S Hayes & Associates Pty Ltd v Kimberly-Clarke Australia Pty Ltd (1994) 52 FCR 201, cited
Legal Services Commissioner v Bone [2014] QCA 179, cited
Stewart v Atco Controls Pty Ltd (No 2) [2014] HCA 31; (2014) 252 CLR 331, cited
Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd [2015] QSC 322, cited
Thiess Pty Ltd v FLSMIDTH Minerals Pty Ltd (No 2) [2010] QSC 120, cited
Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213, cited
[1] On 16 December 2016 I ordered that the claim of each plaintiff be dismissed.[1] I indicated that, subject to any submission on costs, the normal rules should apply, with costs following the event of dismissal. I directed that any submissions about costs be filed and served by 27 January 2017. The plaintiffs sought an extension of time to file submissions, which was granted, and now all written submissions have been received.
[2] The defendants submit that:
- (a) an order should be made that they have their costs;
- (b) that order should be made against each of the plaintiffs; and
- (c) the costs should be paid on the indemnity basis.
[3] In support of their contention that costs should follow the event, the defendants point to the well-established principle enshrined in r 681 of the UCPR, and submit that there is no reason why the defendants should be deprived of their costs. Their success was total, their conduct of the case did not extend the trial, they resisted serious allegations including allegations of dishonesty, and they rely upon the findings that the case which the first plaintiff constructed was deeply flawed.
[4] The first plaintiff submits that he was the person in charge of his family's financial affairs and investment decisions. Additionally, he was the person who, on his own initiative, decided to commence the proceedings, and made all the decisions in relation to the conduct of the proceedings. As a result, he submits that no order for costs should be made against the other plaintiffs.
[5] Each of the second, third and fourth plaintiffs in separate, but near identical submissions, notes that the proceeding was commenced originally by the first plaintiff, with the claims of the second plaintiff, third plaintiff and fourth plaintiff being added later. They further note that their respective percentages of the total claim were relatively small. Each makes the submission that, from the perspective of the defendants, the defendants' costs of defending the first plaintiff's claim was not increased by having to defend claims made by the second, third and fourth plaintiffs on an identical basis. Each of the second, third and fourth plaintiffs submits that she should not be ordered to pay the defendants' costs, or, in the alternative, she should be ordered to pay 50 per cent of the defendants' costs incurred after the date she was joined as a plaintiff. I take these alternative submissions to mean that, if any costs orders are made against the second, third and fourth defendants, those defendants should be ordered to jointly pay 50 per cent of the costs incurred after they were joined as plaintiffs.
Should costs be ordered against all plaintiffs?
[7] The proceeding was commenced by the first plaintiff on 23 July 2014 when he claimed $432,153.35.
[8] The first, second and third plaintiffs were joined on 26 May 2015. The further amended claim filed on 26 May 2015 introduced a fresh claim for $323,840.97. According to the plaintiffs' calculations:
- 68.44 per cent ($221,621.70) of this fresh claim was made by the first plaintiff;
- 18.67 per cent ($60,463.20) of this fresh claim was made by the second plaintiff;
- 12.89 per cent ($41,756.07) of this fresh claim was made by the third plaintiff.
[9] On 26 February 2016 the fourth plaintiff became a party to the proceeding and the plaintiffs filed a further amended claim. The fourth plaintiff claimed $24,627.03 (or
7.8 per cent of the total amount claimed at the time). This claim was made on an identical basis to the "fresh claim" introduced on 26 May 2015.
[10] The inclusion of claims by the second, third and fourth plaintiffs would have increased the defendants' costs. Some costs must have been generated by their joinder, by an assessment of the quantum of each claim and by consideration of the extent to which each plaintiff may have relied upon the first plaintiff's advice and/or the pleaded representations or the absence of relevant disclosure. That said, if the second, third and fourth plaintiffs had not been joined as parties and pursued relatively small claims compared to the first plaintiff, then the matter would have proceeded to trial on the basis of the first plaintiff's original claim, and his claim for $221,621.70, in respect of the "fresh claim". The defendants still would have incurred almost all of the costs which they incurred in defending the combined claims of all of the plaintiffs. This fact should not make the second, third and fourth plaintiffs immune from an adverse costs order. They chose to join the proceeding as plaintiffs and stood to each personally benefit from the proceeding in the event of success. Therefore, they should be exposed to the risk of having to compensate the defendants against the costs of defending their unsuccessful claims.
[11] The defendants point to authority that where there are multiple plaintiffs or defendants, an order for costs ought generally to be made against all of them on a joint and several basis if they are unsuccessful. The defendants submit that such an order is particularly appropriate in this case where the second, third and fourth plaintiffs appear to have been entirely supportive of the first plaintiff's carriage of the litigation. In that regard, the defendants submit that:
"(a) Prior to the trial, the second, third and fourth plaintiffs all signed an acknowledgment, at the express direction of the Court, to the effect that (in circumstances where the litigation was being conducted on their behalf by the first plaintiff) they understood their risk of being ordered to pay costs. They proceeded to trial with their eyes wide open.
(b) During the course of the trial, the Court invited each of the second, third and fourth plaintiffs to appear personally or by telephone so that they might receive a direct explanation of this risk associated with the litigation, and ask any specific questions they may have. Only the third plaintiff availed herself of this opportunity and, when she did so, she did not seem remotely interested in withdrawing.
(c) The first plaintiff was expressly told during the trial that the case was proceeding poorly for the plaintiffs and that all of them were at risk of an adverse costs order being made against them but they nonetheless persisted." (footnotes omitted)
[12] The fact that the second, third and fourth defendants joined in a proceeding which made serious and unfounded allegations, and was seriously flawed, does not warrant the making of an order in respect of costs incurred by the defendants before the date of the joinder of that plaintiff. The defendants do not submit that this is a case in which it is appropriate to order costs against a person who was not a party to the proceeding at the time the costs were incurred. As a result, any order for costs against the second and third plaintiffs should relate to the period after 26 May 2015, and any order for costs against the fourth defendant should relate to the period after 26 February 2016.
[13] The fact that the first plaintiff was in charge of the family's financial affairs and investment decisions and, in one sense, the pursuit of this litigation was a matter which related to the financial affairs of the family, does not mean that the defendants should not look to the second, third and fourth plaintiffs to compensate them for at least part of their costs of defending the proceedings after the relevant plaintiffs were joined. The apparent reliance by the second, third and fourth plaintiffs upon the first plaintiff's advice is understandable. However, if his advice about the prospects of the proceedings was wrong, then the second, third and fourth plaintiffs should look to the first plaintiff to indemnify them in relation to any costs order made against them. The second, third and fourth plaintiffs must assume some responsibility for the defendants' costs, particularly given they were on notice of their exposure to a costs order and swore affidavits indicating that they had obtained independent advice. As the defendants note, those plaintiffs persisted in their claims, knowing of their exposure to costs and despite being told by the Court during the course of the trial of the risks associated with pursuing a case which was proceeding poorly. Even so, I do not consider that it is an appropriate exercise of my discretion in all the circumstances to make the second, third or fourth plaintiff jointly liable for all of the costs incurred in defending the proceedings after they were joined. A substantial part of the proceeding related to the first cause of action which was brought only by the first plaintiff. He was the major claimant (in terms of quantum) in respect of the "new claim" brought over the second and third causes of action. A very large part of the costs of preparing for trial and in conducting the trial would have been incurred if the first plaintiff had been the only plaintiff. The quantum of the respective claims of the second, third and fourth plaintiffs was relatively minor. In all the circumstances I consider that the appropriate orders for costs are:
[14] The defendants submit that costs should be assessed on the indemnity basis. They rely upon, among other things:
- (a) the obvious lack of merit of the plaintiffs' arguments, and the proposition that no plaintiff, if properly advised, would have pursued the causes of action pursued by the plaintiffs;
- (b) the plaintiffs were made aware of the difficulties of the case but nevertheless persisted;
- (c) the plaintiffs made unjustified allegations of dishonesty against the second defendant, and by making such serious allegations put the defendants to the additional expense of carefully preparing to rebut those serious allegations.
[15] The defendants also rely upon what is said to be an imprudent refusal to compromise during the course of the proceedings. The following offers were made by the parties on a "without prejudice save as to costs" basis:
- (a) On 11 December 2015, the defendants made a formal offer to settle pursuant to Part 5 of Chapter 9 of the UCPR in the amount of $250,000;
- (b) On 14 December 2015, the plaintiffs rejected that offer and made a counter-offer in the amount of $850,000;
- (c) On 18 December 2015:
- (1) the defendants repeated their formal offer; and
- (2) the plaintiffs rejected that offer and made a counter-offer of $650,000.
[16] The defendants, having been wholly successful, submit that the rejection of their formal offer is a matter which should be considered in deciding whether to order indemnity costs.
[17] I accept the defendants' submission that the formal offer to pay the plaintiffs $250,000:
- (a) was reasonable and was accompanied by a clear explanation as to why the plaintiffs' causes of action would fail;
- (b) was made at a stage in the proceedings whereby the plaintiffs should have understood the weaknesses of their case;
- (c) was expressed in clear and unequivocal terms;
- (d) allowed the plaintiffs a sufficient period of time to consider the offer; and
[30] A party in the first plaintiff's position, if properly advised after an analysis of the contemporaneous documents and after an objective assessment of the likelihood of the first plaintiffs' version of events being accepted, would have realised that the claim had very poor prospects of success. The fact that the first plaintiff was sincerely committed to his cause does not insulate him from an order for costs to be assessed on an indemnity basis. He chose to pursue a claim which would not have been pursued if he had been properly advised. His conduct in doing so was made all the more serious by his preparedness to make ill-founded allegations of dishonesty.
[31] The principles governing the circumstances in which costs will be ordered under r 703 on an indemnity basis are well-established. Some special or unusual feature must exist to justify departing from the ordinary practice of ordering that costs are payable on the standard basis.[10] The discretion to order costs on an indemnity basis is not confined to the situation of an "ethically or morally delinquent party".[11] Some authorities pose the question of whether there has been "unreasonable conduct". Other judges have preferred to ask whether there was "something irresponsible about the conduct of the losing party which exposed its opponent to costs which should, in fairness, be ordered on the indemnity basis".[12] Whether the criterion is one of unreasonableness or irresponsibility, there must be something about the facts and circumstances beyond the demerit of a party's case, as reflected in the outcome, before such an order is warranted.[13] I respectfully adopt the observation of Basten JA in Chaina v Alvar Homes Pty Ltd,[14] which has subsequently been cited with approval in the Queensland Court of Appeal,[15] that the standard to be applied in awarding indemnity costs ought not "be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part."
[32] The claim instigated by the first plaintiff was not simply a weak case, or even a misguided one. It was contrived, based on assertions of having not read documents which the first plaintiff clearly did and flawed on many levels. I take account of the fact that the first plaintiff is self-represented. However, that status does not quarantine a party from an order for indemnity costs in an appropriate case.
[34] I have found that it was imprudent of the second, third and fourth defendants to not join with the first plaintiff in accepting the defendants' December 2015 offers. Whilst the second, third and fourth defendants must assume some responsibility for allowing themselves to be associated, at least in joint submissions and a joint pleading, with unfounded allegations of dishonesty against the second defendant, it was the first plaintiff who made those allegations and conducted the litigation on his own behalf and on behalf of the other members of his family. I take account of the fact that during the course of the trial the second, third and fourth plaintiffs were made aware of the risks associated with the litigation and decided to persist. However, their decision at that stage to remain as plaintiffs did not generate any significant additional costs to the defendants.
[35] Ultimately, it was unreasonable for the second, third and fourth plaintiffs to not join with the first plaintiff in accepting the offers to settle which the defendants made in December 2015, or to separately negotiate with the defendants about the terms upon which their individual claims might be settled. It was also imprudent for the second, third and fourth plaintiffs to persist in claims which, if properly advised, the second, third and fourth plaintiffs would have appreciated had very poor prospects of success. Despite these unreasonable aspects of the conduct of the second, third and fourth plaintiffs in connection with the proceedings, I am not persuaded that their conduct and its consequences for the defendants are such as to warrant an order for costs to be awarded against them on an indemnity basis.
[36] The orders for costs will be:
- The first plaintiff pay the defendants' costs of and incidental to the proceeding, to be assessed on the standard basis up to and including 25 December 2015, and thereafter on the indemnity basis.
- The second plaintiff pay ten per cent of the defendants' costs of and incidental to the proceeding which were incurred on or after 26 May 2015, to be assessed on the standard basis;
- The third plaintiff pay five per cent of the defendants' costs of and incidental to the proceeding which were incurred on or after 26 May 2015, to be assessed on the standard basis;
- The fourth plaintiff pay five per cent of the defendants' costs of and incidental to the proceeding which were incurred on or after 26 February 2016, to be assessed on the standard basis.
[1] Bert v Red 5 Ltd [2016] QSC 302.
[2] Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 224.
[3] A slight reduction in the quantum of the first plaintiff's original claim.
[4] Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd [2015] QSC 322 at [11].
[5] Stewart v Atco Controls Pty Ltd (No 2) [2014] HCA 31; (2014) 252 CLR 331 at 334 [4] ("Stewart").
[6] John S Hayes & Associates Pty Ltd v Kimberly-Clarke Australia Pty Ltd (1994) 52 FCR 201 at 203; J & D Rigging Pty Ltd v Agripower Australia Ltd [2014] QCA 23 at [5] ("J & D Rigging").
[8] J & D Rigging at [5] - [6], citing Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VLR 435 at 441.
[10] Cosgrove v Johns [2000] QCA 157 at [8]- [9].
[11] Legal Services Commissioner v Bone [2014] QCA 179 at [70].
[13] Thiess Pty Ltd v FLSMIDTH Minerals Pty Ltd (No 2) [2010] QSC 120 at [4].
[15] Legal Services Commissioner v Bone [2014] QCA 179 at [67] - [70] and the authorities cited therein.
[16] du Boulay v Worrell [2009] QCA 63 at [69]- [71].
Bert & Ors
Red 5 Limited & Anor [2017] QSC 8
(1994) 52 FCR 201
(2014) 252 CLR 331
(1979) 42 FLR 213
[6] The plaintiffs resist an order that costs be ordered on the indemnity basis.
[18] I note that the offer by the defendants to pay $250,000 was an "all up" offer and did not offer to also pay costs. However, the plaintiffs do not contend that their recoverable costs associated with filing the proceeding and other outgoings were substantial. If the offer had been accepted, the plaintiffs would have netted close to $250,000 after account is taken of outgoings which would have been recovered under a costs order in their favour. Instead, by imprudently rejecting the offer, the first plaintiff exposed himself, and his family, to a substantial adverse order for costs.
[19] The plaintiffs' submissions in reply note that the offer was made to settle all the plaintiffs' causes of action, including the claim which the first plaintiff brought on his own behalf for $420,560.52[3] which was made on the basis of representations allegedly made on
15 March 2012. The offer was made before the fourth plaintiff became a party to the action and, accordingly, I accept the plaintiffs' submissions that it cannot be relied upon to seek indemnity costs against the fourth plaintiff.
[20] The plaintiffs further note that the offer was to settle not just the claims of the plaintiffs in the action but "all claims, liabilities, debts or demands which any or all of the plaintiffs have against any or all of the defendants". In theory at least, this extended to claims which have not been litigated. However, no such claims are identified.
[21] I take account of the fact that the offer required all of the first, second and third plaintiffs to either accept it or not. However, I do not regard this as unreasonable. It seems to me that if any one of those plaintiffs wished to settle his or her own claim, leaving the other plaintiffs to pursue theirs, then they might have responded to the joint offer by signalling a preparedness to do so. None of them did so.
[22] Where a wholly successful defendant has made an offer to settle under the rules and seeks an order for indemnity costs, r 361 of the UCPR does not apply, and it is appropriate to apply the general principles relating to Calderbank offers.[4] The non-acceptance of a Calderbank offer is a factor in the discretion as to costs.[5] However, the mere making of a Calderbank offer and its rejection does not justify an order for costs in favour of the offeror.[6] A critical question is whether the rejection of the offer was unreasonable in the circumstances.[7] Expressed differently, a relevant factor is whether rejection of the offer was reasonable. That will include consideration of a number of factors which have been identified in the authorities, including the extent of the compromise offered and the offeree's prospects of success, assessed as at the date of the offer.[8]
[23] The simple fact that a claimant expected or hoped to do better, based on a subjective view of the claim's prospects, is not sufficient to show that it was reasonable to reject the offer. If the test is cast in terms of whether the rejection of the offer was "not unreasonable" (or more simply expressed "reasonable") then the test would appear to require at the least that the offeree "point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation".[9]
[24] The plaintiffs' submissions on costs do not argue why it was reasonable, in the circumstances, to reject the defendants' $250,000. However, I have had regard to the correspondence exchanged between the parties in December 2015. In my view, the plaintiffs (through the first plaintiff) did not engage with the points made by the defendants' solicitors in their letter dated 11 December 2015 which explained why the plaintiffs were likely to be wholly unsuccessful in their various causes of action. The letter pointed to "some serious problems" which the defendants' solicitors advised "we do not think you can overcome". In essence, those problems were the problems which beset the plaintiffs' claims and upon which they failed at trial.
[25] In determining whether it was reasonable for an offeree to reject a Calderbank offer, care must be taken to avoid hindsight bias. The offeree's prospects of success should be assessed as at the date of the offer, conscious that the outcome of litigation is uncertain. One should not simply compare the outcome of litigation in which a claim has been dismissed and the claimant ordered to pay costs with the defendants' offer to pay a substantial amount. Viewed in hindsight, an offer by a defendant to pay a substantial amount to settle a claim may appear generous in circumstances in which the risk of the plaintiff losing a case has eventuated.
[26] In this case, I assess the reasonableness of the plaintiffs' rejection of the December 2015 offers by having regard to their prospects of success, assessed as at December 2015, and also the realistic quantum of their respective claims. I have regard to the time at which the offer was made, the pleaded defences and the reasons given to the plaintiffs in the December 2015 correspondence as to why they were very likely to be wholly unsuccessful in their various claims.
[27] The plaintiffs have not pointed to a satisfactory reason for not accepting the offer. If properly advised, or if subjecting his case to critical scrutiny, the first plaintiff would have realised the obstacles which his first cause of action presented. These need not be detailed, but include that the plaintiff was informed about the purpose of the capital raising. Rather than confront these difficulties, the first plaintiff constructed and persisted in a claim which was deeply flawed. The second and third causes of action litigated by the first plaintiff, and in which the second, third and fourth defendants joined, had poor prospects of success in the light of the previewed defences, the matters raised in the Calderbank letter and the absence of a foundation in the evidence to support the assertion that the presence of groundwater should have been disclosed.
[28] Given the poor prospects of success of each of the causes of action, including the problems which the plaintiffs confronted on causation issues, and the quantum of their claims, the defendants' offers to settle were generous in the circumstances. If accepted, the plaintiffs would have avoided the risk of adverse costs orders in the event their claims were dismissed and the plaintiffs would have received a significant amount, after accounting for any out of pocket costs in litigating their claims. It was unreasonable of them to not accept the offer.
[29] Although the second, third and fourth plaintiffs joined in the proceeding, being a proceeding in which allegations of dishonesty were made by the first plaintiff in respect of the alleged representations made to him on 15 March 2012, this should not be equated with the second, third and fourth plaintiffs personally making unfounded attacks on the honesty of the second defendant. The first plaintiff should bear primary responsibility for the making of serious and unfounded allegations of dishonesty, and persisting in them to the end of the trial.
[33] The first cause of action was deeply flawed. The second and third causes of action always had poor prospects of success. The first plaintiff was told in December 2015 why all the causes of action were likely to fail. Rather than engage with the points which had been raised against him, the first plaintiff simply reiterated his arguments. He rejected what was a reasonable offer of compromise in the circumstances. He persisted in pursuing unmeritorious claims and presumably advised or persuaded the second, third and fourth plaintiffs to maintain their common cause in connection with the second and third causes of action. In doing so the first plaintiff acted irresponsibly and exposed the defendants to costs which, in fairness, they should not have incurred. An additional and serious aspect of the first plaintiff's blameworthy conduct is making and persisting in serious and unfounded allegations of dishonesty against the second plaintiff. Taking all of the circumstances into account, I consider that it is appropriate to order that costs be assessed against the first plaintiff on the indemnity basis after 25 December 2015, being the date upon which the defendants' Calderbank offer expired.