Borthwick v Evening Post

(a)In Ritter v Godfrey [1920] 2 KB 47 at 60, Atkin LJ stated "principles upon which a judge is to discern whether the necessary materials exist" for the exercise of discretion as to costs as follows: "In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation; or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense; or (3) had done some wrongful act in the course of the transaction of which the plaintiff complains." Atkin LJ continued: "(2) I think, would include improper conduct in or connected with the litigation calculated to defeat or delay justice. Such conduct would also be included in (3) which, I think, further extends to cases where the facts complained of, though they do not give the plaintiff a cause of action, disclose a wrong to the public: King v Gillard [1905] 2 Ch 11, by which I understand some criminal or quasi criminal misconduct, eg a fraud or crime or preparation for a fraud or crime, or possibly some act of serious oppression. Such conduct must, however, be in the course of the transaction complained of." (b)In Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 811‑12, Viscount Cave LC adversely criticised the correctness of Atkin LJ's guiding principles but on the basis they were too restrictive: Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129 at 153 per Kaye J. As Viscount Cave LC formulated it, the discretion cannot be exercised against a successful party "except for some reason connected with the case": Donald Campbell (supra). (c)In Australia it has been accepted the general discretion of a trial judge as to costs ought not be fettered by the rules formulated by Atkin LJ: Verna Trading (supra) at 154 and see: Cretazzo v Lombardi (1975) 13 SASR 4 at 11-12 per Bray CJ. (d)The principle as to the exercise of the discretion is the same in the case of plaintiffs and defendants, but it is clear that considerations sufficient to justify a refusal of costs to a plaintiff are not necessarily sufficient in the case of a defendant, for the former initiates the litigation while the latter is brought into it against his will: Ritter v Godfrey (supra) at 52‑3 per Sterndale MR, approved in Donald Campbell (supra) at 811-12 per Viscount Cave LC. (e)More compelling circumstances are required for the exercise of discretion as a result of which a successful defendant is not only denied his costs but also compelled to pay the whole or part of the plaintiff's costs of the proceedings. This is so for the reason the proceedings are initiated by the plaintiff and the plaintiff fails to gain the relief which he sought: Verna Trading at 154. (f)In more recent English authority - Scherer v Counting Instruments Ltd [1986] 1 WLR 615 at 621 - Buckley LJ, in summarising the principles governing the making of cost orders, included the principle that: "the grounds must be connected with the case. This may extend to any matter relating to the litigation and the parties conduct in it, and also to the circumstances leading to the litigation, but no further." (g)In Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 at 271-2, Mahoney JA recognised that in respect of costs on an appeal, conduct in relation to the matter under appeal may be discreditable to an extent warranting deprivation of costs: see Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch 173 at 187-8 and Borthwick v Evening Post (1888) 37 ChD 449 at 465. With these principles in mind I turn to the submissions for the applicants as to why the discretion should be differently exercised in the present proceeding. Public wrong The first submission made for the applicants is that "in circumstances where a wrong is done to the public by way of a misleading statement and that wrong is in some way connected with the wrong done to the plaintiffs, then the court may deprive the successful defendants of their costs by reason of such a wrong done to the public". Reliance is placed on King v Gillard [1905] 2 Ch 7 and Ritter (supra). This is really an appeal to the third category of Atkin LJ's categorisation in Ritter. However, as has been seen, that formulation required that the fraud constituting the misconduct "be in the course of the transaction complained of". That was also the case in Borthwick (supra) and Jones (supra), each of which is also relied on. The applicant's submission in this respect is supported by reference to conduct said to be perpetrated by Canon on the applicants which was also perpetrated on the public at large - namely, other persons making complaints about Canon machines. It is said the circumstances surrounding the setting up of a task force referred to by Blandford is indicative of how widespread the problems with the CLC 100 had become in Australia. Furthermore there is said to be a striking similarity in consistency by claims made by other independent parties. Additionally, there is evidence the problems were not simply confined to Australia. From this the Court is urged to infer that the "wrong" done to the public is strongly connected to the "wrong" done to the applicants. On my reading of the authorities it is not enough that the first wrong be "strongly connected" to the second wrong. The question is whether the wrong done to the applicants also constituted a public wrong. It is not permissible to go outside the transaction complained of to transactions affecting other persons. The representations found to have been made were representations to the applicants in the circumstances relating to the applicants. Confining therefore the notion of public wrong to the evidence in the case brought by the applicants, it is the case that representation 19.2 (five to ten thousand copies between service calls and a major service every twenty thousand copies) and representation 25 (flawlessly crisp and clear every time) were found to be made fraudulently. In Jamal (supra) at 271-2, Mahoney JA relied on Jones and Borthwick to support reference to the disentitling effect of discreditable conduct. In Jones the relevant conduct was the character of the defence (the making of an agreement for an illegal consideration). In Borthwick the relevant conduct was the styling of an evening newspaper in the manner of morning newspaper; found to be in the nature of a trick. Mahoney JA (at 272) also relied on Parker's Practice in Equity (New South Wales), 2nd ed, (1949) at 127. The relevant disentitling instances referred to there in respect of a successful respondent are conduct justifying the appeal (Paterson v St Andrews (1881) 6 AC 833); a discreditable case (Borthwick; Jones; and Re Cooper (1882) 20 Ch D 611 at 636). In the case of a successful appellant they include failure to prove allegations of fraud (Re Baum; ex parte Cooper 10 Ch D 313). Paterson was a case where the attitude of the successful respondents before action, by failing to give the appellants complete security for their rights, brought about the litigation. In Cooper unsuccessful mortgagees, the dupes of personation of a father by a son were, as a consequence of their innocence in the matter, relieved of paying the plaintiffs' costs. In Baum an appellant successful on a point of law who had failed in proving allegations of fraud, as to which a mass of evidence was adduced, was deprived of his costs. In the present case the applicants proved fraud in two respects but failed to prove damage. They were successful in establishing a public wrong had been committed against them. The nature of that wrong in the context of the litigation is not such as to disentitle the respondents to all their costs. The question is whether it should disentitle them to part of their costs. For the respondents it is submitted that where Parliament has established a public body vested with responsibility to take action to protect the public interest, the propositions relied on to disentitle the respondents to their costs should be of less force. I do not consider that consideration, which relates to enforcement, can have that effect. The fraudulent conduct falls for consideration in the exercise of the discretion as to costs. In reasons delivered on 28 August 1996 the Court declined to award exemplary damages despite the proven frauds, because, so far as the applicants are concerned the true position was known to the applicants from at least 26 September 1988 and representations were found not to have been causative of damages. In considering the question of fraud in relation to costs no issue of punishment arises. The question is whether the frauds were productive of litigation. The fraudulent representations (19.2 and 25.1) were found to have been real and material inducements to the applicants in entering into the first agreement and the variation agreement. They caused the applicants to enter into the business using the CLC 1 copier. Although they were found not to have been relied on in relation to the pleaded purchase and lease agreements, their character was such that the applicants were well entitled to have their rights in relation to them determined by litigation. They were materially led to the litigation by their knowledge of the likelihood the Court would uphold their plea of fraud. In my opinion the frauds are compelling circumstances requiring recognition in the costs order. Canon's pre-litigation conduct For the applicants it is submitted the respondents brought the litigation upon themselves within the meaning of that expression in Sutcliffe v Smith (1886) 2 TLR 881 at 882 where Fry LJ said: "Whenever a Defendant had by his misstatements made under circumstances which imposed an obligation upon him to be truthful and careful in what he said, brought litigation on himself, and rendered the action reasonable, there would be "good cause" to deprive him of costs." That was said in a case where a defendant told a falsehood in a bankruptcy proceeding thereby bringing the litigation on himself. The argument put for the applicants is as follows: Canon was in the business of exploiting the CLC 100 for profit. It had an obligation to be truthful and careful in what it said in relation to the performance capabilities of the machine. If Canon had told the public at large of the problems it was experiencing with it, it is unlikely the public, including the applicants, would have acquired it. Canon advertised the machines' performance capabilities by way of sales manuals and videos. There was abundant evidence senior personnel within Canon were expecting litigation from dissatisfied customers in respect of the machine. Canon failed to set in place a system to properly instruct its sales persons concerning the minimum number of copies the machine would achieve between service calls. Specifically it is contended there was no standard form letter, document or memorandum stating how many copies between service calls would be minimally achieved by the CLC 1 and there was no system whereby the technical department was informed of what was contained in the sales and promotional material. In Cummings v Lewis (Wilcox J, 29 May 1992, unreported), Wilcox J accepted that in considering the matter of costs the Court is entitled to have regard to the circumstances out of which the case arose. However, he said: "...it seems to me that there must be a limitation on the weight to be put on pre-litigation conduct, lest the exception overwhelm the rule. It is almost always the case that, absent some particular conduct of the defendant, the litigation would not have arisen. That conduct often has an element of reprehensibility, even though it may not give rise to liability at law. If too much emphasis is placed upon the circumstance that the litigation would not have arisen but for an action of the defendant, few successful defendants would recover their costs. I do not say that the conduct of the defendant giving rise to the underlying dispute is irrelevant to the proper decision on costs; but I think that it ought rarely be given much weight. [I distinguish a situation where, the underlying dispute having arisen, the successful defendant has unreasonably provoked the litigation. Different considerations might apply to that type of case: see the reference by Mason CJ in Latoudis to conduct of the defendant "after the events constituting the commission of the alleged offence"." In Latoudis v Casey (1990) 170 CLR 534 at 544 and 565 the examples given were of a defendant declining to take up an opportunity to give a valid explanation or who conducts the defence in a way which prolong proceedings unnecessarily. (Cf Cummings v Lewis on appeal (supra) at 327). In relation to that portion of the conduct said to be constituted by the way Canon managed its business, I have examined Davey v Bullock (1891) 17 VLR 3 and Tela Pty Ltd v Ampol Ltd (1986) ATPR 40‑746. Each involved poor accounting and record keeping seen to be causative of litigation. This is conduct in a different category to that involving the manner in which Canon organised and managed its Departments. It was positive conduct rather than an omission in management in respect of which the Court is asked to form a view on proper management conduct. The statement by Wilcox J is, in my view, applicable to the circumstances upon which the applicants rely in relation to the pre-litigation conduct by Canon. It was conduct in the course of commerce found after trial to be legally reprehensible in some respects. The conduct falls to be controlled at law. It is not conduct which can be said to have unreasonably provoked the litigation. It was specifically found not to have been conduct entered upon with any calculated disregard for the rights of the applicants. In my opinion this pre‑litigation conduct is not such as would occasion a departure from the usual rule. Canon's conduct during the litigation (a)Mincherton Agreement The applicants next rely on the Mincherton Agreement. That agreement arose and was dealt with in the following circumstances. Mincherton was a party as the sixth applicant to the application when it was filed on 2 September 1991. The trial commenced on 7 March 1995. On 20 March 1995 during the evidence‑in‑chief of Mincherton, counsel sought to lead evidence of a representation made by one Watts to Mincherton. On objection being taken on the grounds of relevance, counsel for the applicants said he sought to lead the evidence as it disclosed matters relating to contumelious disregard relevant to the issue of exemplary damages and concerning which there had been no discovery of vital information. Counsel then produced to the Court a copy of a document headed "Instructions to Trustee" which was dated 5 March 1993 and executed by Redmond as secretary for Canon and Mincherton. The document recorded that Canon provided the sum of $225,000 to its solicitors to be invested in an interest bearing deposit with a publicly listed trading bank. The document further provided if information and documentation provided by Mincherton to Canon and actions taken by him "are the direct and predominant cause" of these proceedings being dismissed or being the subject of a settlement agreement, then the sum would be paid to him. However, if any of those events did not occur by 3 May 1993 an assessment would be made as to whether the date for achievement of those events would be extended to 3 November 1993. Counsel for the applicants referred to The Herald and Weekly Times Ltd v McGregor (1928) 41 CLR 254 and Triggell v Pheeney (1951) 82 CLR 497 to the effect that the conduct of litigation, if not bona fide, may lead to an increase in damages in a libel action. He submitted the same sort of principles were relevant in an action for exemplary damages. He then referred to Lamb v Cotogno (1987) 164 CLR 1. After outlining the basis on which he sought to lead evidence, counsel submitted the appropriate amendments to the Statement of Claim would be made in due course. Counsel for the respondents then submitted evidence of the proposed kind ought not to be led unless and until a successful application had been made to amend the applicants' pleading. He submitted that in a case where fraud is alleged and where the basis for exemplary damages is said to be fraud in substance, it was entirely inappropriate for the applicants' case to go outside the pleadings. After further submissions the Court ruled the applicants' application for adjournment be granted to enable the proposed amendments to the pleadings to be drafted. In its reasons the Court said it would not be prepared to embark upon the hearing of the evidence in the absence of amendments to the pleading. On resumption of the Court on 21 March 1995, a motion was brought for the applicants seeking leave to amend their substituted Statement of Claim by the addition of the following further allegations: "54.10In furtherance of the said fraudulent conduct and in aggravation thereof by an agreement made on 5 March 1993 between the First Respondent and the Sixth Applicant in writing, the First Respondent agreed with the Sixth Applicant, to pay him the sum of $225,000 for information and documentation to be provided by him to the First Respondent, if it would be the direct and predominant cause of: (i)this proceeding being dismissed; or (ii) of a settlement agreement, which includes the filing of a notice of discontinuance by the applicants, and the discharge and release of the Respondents from all liability to the applicants. 54.11 In furtherance of the said fraudulent conduct and in aggravation thereof in or about mid to late May 1993, Mr T Redmond, the secretary of the First Respondent spoke to the Sixth Applicant by telephone and said that he considered the said agreement was cancelled, but that if the Sixth Applicant gave a statement to the First Respondent, and totally co‑operated with it, the First Respondent would pay the Sixth Applicant the sum of $25,000.00." In support counsel for the applicants submitted that circumstances concerning the commission of a tort, including post‑tortious conduct, can in appropriate circumstances be taken into account as part of the aggravating features of the case and can be considered by a court in relation to exemplary damages and also aggravated damages if they are appropriate. The motion was supported by a solicitor's affidavit to which the document headed "Instructions to Trustee" was exhibited. Counsel again repeated the submission that post‑tortious conduct can be relevant in the assessment of exemplary damages, supporting that by reference to Warwick v Foulkes (1844) 12 M&W 507 and Lamb (supra). Other authorities were also referred to. The motion was opposed on behalf of the respondents on the basis it disclosed no basis at law for exemplary damages. He addressed the cases on which the applicants had relied. The Court's ruling followed on 21 March. In the reasons the Court said "the case for the applicants is that post‑tortious conduct including conduct relating to this litigation ought to be a matter which is relevant to the assessment of exemplary damages". Various authorities were addressed by the Court including the New Zealand decision in Davis v Russell McVeagh McKenzie Bartleet & Co [1994] 2 NZLR 175. The Court said all the conduct which was referred to in the proposed pleadings occurred approximately three years after the date on which the commission of the tort of deceit is alleged. The Court therefore concluded the alleged subsequent conduct was properly to be seen as conduct beyond that directly referable to the substance of the primary complaint in the tort of deceit. The application for amendment was therefore refused. On 22 March 1995 during the course of cross‑examination of Mincherton, counsel for the respondents led questions addressed to matters which had been the subject of the ruling. Objection was taken by counsel for the applicants but ultimately withdrawn after counsel for the respondent explained the evidence was led only in relation to Mincherton's credit. The further evidence was therefore not led in relation to any issue of exemplary damages. In the written submissions for the respondents in support of exemplary damages, reference was nevertheless made to the "Mincherton Agreement" as a basis for award of exemplary damages. The written submissions for the respondents directed attention to how the matter had been dealt with at trial. The effect of that was that, the application for amendment having been refused, there was no basis upon which the alleged post‑tortious conduct could fall for consideration in relation to exemplary damages. It therefore did not attract reference in those portions of the reasons dealing with exemplary damages.

The impact of the Mincherton Agreement on trial was only that it was unsuccessfully relied upon by the applicants in an attempt to amend their Statement of Claim during the course of trial and also unsuccessfully relied on them in support of the claim for exemplary damages. The applicants' submissions and the affidavit filed in support of the application for leave to amend were to the effect that nothing was done pursuant to the agreement. Given the very limited impact of the agreement on the trial, I do not consider it raises a discretionary consideration supportive of varying the usual practice. (b)Canon's denial of representations The applicants also rely on Canon's denial of the alleged representations which were found as a consequence of the litigation to have been made by Canon. I accept the submission for the respondents they were entitled to canvas all issues material to the decision of the case and the fact some of those issues were decided against them is not an exceptional circumstance sufficient to warrant departure from the general rule that costs are to follow the event. (c)Canon's denial of machine‑merchantability The case for the applicants then turns to the allegations the copiers were inherently faulty and experienced technological problems. To these allegations Canon made denials and adopted the position the problems experienced with the copiers were no more than routine service issues. In the course of trial and in particularly in the course of cross‑examination of witnesses called by Canon, it is said damaging concessions were made supportive of the applicant's case in this respect. It is submitted Canon ought reasonably to have made those concessions at the earliest possible time namely, in its defence and, had it done so, the trial would have been significantly shorter. To this the respondents reply the time at trial was taken not in Canon denying the faults and problems as disclosed by their records, but rather on the questions pursued by the applicants of whether the nature and extent of those problems were such as to render the copiers unmerchantable so that they ought to have been removed from the market and to warrant an award of exemplary damages. I accept this submission. In my opinion the conduct relied upon in this respect for the applicants was conduct arising in response to the way the case was brought against Canon. It is not conduct which in all the circumstances supports departure from the usual practice. Apportionment For the applicants it is submitted a significant portion of the trial was taken up with issues on which the respondents failed and the Court ought not only to deprive the respondents of their costs on those issues but also to award costs to the applicants on those issues on which the applicant succeeded by way of offset. It is then said the appropriate order is there should be no order as to costs. The submission is the number of issues on which the applicants succeeded and the number of issues on which the respondents failed are, in the circumstances peculiar to this case, so significant that this is an appropriate case for the Court not only to deprive the respondents of their costs of those issues but also to award costs in favour of the applicants on those issues on which the applicant succeeded. Addressing the issue globally, the submissions for the applicants contend the issues on which they succeeded can be summarised as follows: "1. the fraudulent representations - 19.2 and 25.1; 2. the misleading and deceptive conduct - representations 19.2, 19.7, 19.16, 19.17, 19.27 and 25.1; 3. the negligent representations - representations 19.2, 19.7, 19.27 and 25.1; 4. breach of collateral warranty - representation 19.2; 5. that the problems experienced with the CLC100 were not purely "service issues"; 6. that the CLC100 was inherently faulty and/or not free of technological problems; 7. other related issues." In support of these submissions the case for the applicants in relation to costs has analysed the time spent at trial in relation to representations 19.2 and 25.1. In the case of the former the analysis is to the effect that approximately four and a half to five days of trial time was taken for both the applicants and respondents' evidence on that representation. In the case of the latter representation the estimate is five and a half to six days. It is submitted if the respondents had not vehemently denied the making of these representations, considerable time would have been saved. Additionally, the representations were not only found to be made but were found to have been made fraudulently. In relation to the claims of misleading and deceptive conduct, for negligence and in respect of breach of collateral warranty, the submissions for the applicant are it can be safely assumed the time taken on these issues was approximately three days. Other significant issues which it is said the applicant succeeded on, and which occupied a significant amount of the Court's time, were the position adopted by Canon that the problems with the CLC100 were no more than "service issues"; Canon's denials that the CLC100 was inherently faulty and free of technological problems; and other related issues (including rebutting the allegations of operator error). In relation to the service issues it is submitted, given the significant concessions made by Canon's witnesses on the issue that the problems were not purely "service issues", Canon nevertheless persisted in contending the problems were in that category and so should be ordered to pay the applicants' costs of the issue. For the respondents it is submitted: (a)The applicants complained of forty four representations and asserted the copiers were not of merchantable quality but only four of the representations were found to be misleading or deceptive and unmerchantability was not established. (b)Twenty five of the forty four representations were said to have been made fraudulently and only two were found to have been so. (c)Each of the representations were said to have been incorporated as a contractual warranty but only three were found to be promissory and Canon was found to have acted in breach of only one of them. (d)Claims were made for trading losses, damages and exemplary damages, none of which was made out. (e)Each of the individual applicants claimed damages for loss of capital contributions and the sixth applicant claimed damages for loss of use of monies but none made out his claim. Therefore as a numerical proportion of the issues raised and as a proportion of the amount of time spent at trial, those issues on which the applicants succeeded, it is submitted, represented a very small proportion of the very large number of matters in dispute. As far as the substantive issues are concerned, the respondents submit the applicants should be seen as wholly unsuccessful. To this the applicants reply with an analysis of the initial further and continuing representations and the significance of them, emphasising the importance of representation 19.2. Later submissions develop all of these submissions further and in detail. In Cretazzo at 16, Jacobs J said: "... I would wish to sound a note of cautious disapproval of applicants, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial. ... But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues." By way of contrast in Commissioner of Australian Federal Police v Razzi and Ors (No 2) (1991) 101 ALR 425 at 430, Wilcox J said: "I recognise the importance of the general principle to which Mahoney JA referred [in Jamal's case]. But I do not think that courts should be reluctant to recognise the existence of exceptional cases. In these days of extensive court delays and high legal costs the courts should use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. If parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take." This is not a case where the prospect of unfavourable costs order would have deterred the raising or admission of an issue. The case brought against the respondents was very extensive. The respondents' response was to yield nothing and to fight the case vigorously. The result was that despite findings of significance against the respondents, they succeeded on the issues of reliance and causation. In that context this is not a case which lends itself to apportionment according to the success or failure on various issues arising in the course of a trial. The issues were not divisible from the questions of reliance and causation. The only special circumstance in this proceeding is shared by both the case brought by the applicants and the response to it by the respondents: it is the extensive scope of each of the cases. The one begat the other. That feature being shared, there is no proper basis for apportionment.

Conclusion This is not a case where no order as to costs is appropriate. The only proper basis for apportionment is with respect to the issue of public wrong. Allowing for that, I conclude the applicants should pay 80 per cent of the respondents' costs to be taxed. I certify this and the preceding 18 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson. Associate: Date: 13 December 1996 APPEARANCES Counsel for the Applicants: Mr N Moshinsky QC and Mr E J Szabo Solicitors for the Applicants: Blair Doncon & Co Counsel for the Respondents: Mr R Macaw QC and Mr D J Martino Solicitors for the Respondents: Clayton Utz Date of Hearing: 10 and 25 September 22 October and 8 and 19 November 1996 Date of Judgment: 13 December 1996