Brandon v Commonwealth of Australia

REASONS FOR JUDGMENT 1 On 30 January 2004 I ordered that judgment in the principal proceeding be entered for the respondent with costs: Brandon v Commonwealth of Australia [2004] FCA 20. The respondent now applies for those costs to be taxed on a special basis. The respondent's motion is in two parts. First, it seeks payment on an indemnity basis of the costs thrown away by the respondent as a result of the applicant's abandonment of claims for aggravated and exemplary damages. Secondly, it seeks the payment of costs on an indemnity basis from the time the applicant refused a Calderbank offer on the eve of trial. It is convenient to deal with the two claims separately. 2 The applicant's case is one of five proceedings commenced in this Court by former members of the HMAS Stalwart arising from a gassing incident in October 1985. Three of those claims were in my docket and two were in the docket of another judge. The three matters in my docket were to be heard together. On the eve of the time initially fixed for the trial, an application was made in each of the matters to amend the statement of claim to include claims of aggravated and exemplary damages. The price of making the applications was the loss of the original hearing dates. The three applicants with matters in my docket were each given leave to make the amendments sought: Brandon v Commonwealth of Australia [2001] FCA 264. The applicant in the present matter filed an amended statement of claim incorporating those amendments on 9 April 2001. 3 However, in the run up to the trial of this action the applicant decided not to pursue the claims for aggravated and exemplary damages, and on 21 February 2002 he was given leave to discontinue those claims. The leave was on terms that the applicant pay the respondent's costs incurred in resisting the claims, but the question of how those costs might be taxed was reserved. Subsequently, the applicant lost at trial and the respondent received an order for costs. The first question, therefore, is whether the respondent's costs incurred as a result of resisting the applicant's claims for aggravated and exemplary damages should be paid other than on a party and party basis. 4 On this issue I have been greatly assisted by the material exhibited to the affidavit made by Mr Kathner from the Australian Government Solicitor, who presently has carriage of this matter on behalf of the respondent. It shows the enormous amount of work that went into preparing the respondent's case on the question of aggravated and exemplary damages (although it looks to me as if only exemplary damages were ever seriously of concern, and it was to that issue that the case of the respondent was directed.) 5 In addition, counsel for the respondent have prepared a very useful outline of submissions on indemnity costs. They submit that the applicant had no real prospects of success in relation to the claims for exemplary damages. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401, Woodward J stated that it was appropriate to consider awarding indemnity costs, 'where the applicant, properly advised, should have known that he had no chance of success'. Applying this formula, it is undoubtedly true that the applicant, properly advised, should have known that he had no real prospects of success in relation to the aggravated damages claim. Indeed, no material was specifically directed to this head of damage. 6 In support of the proposition that the claim for exemplary damages also had no prospect of success, counsel for the respondent submit that from the beginning of 2000 when the applicant gave notice of his intention to seek leave to amend the statement of claim till the beginning of 2002 when he abandoned the claim, there occurred an elaborate fishing expedition undertaken to see whether there was any material that could be discovered to support such a claim. Counsel for the respondent have analysed, in some detail, the material relating to the incident that occurred on 22 October 1985 which forms the basis of the action. In the circumstances of this case where the respondent admitted breaching the duty of care it owed to the applicant, I had no occasion to go into those facts in great detail in the principal proceeding, and I am not presently minded, for the purposes of this motion, to make any findings of fact on those questions. However, in saying that, there is great force in the following contentions made on behalf of the respondent: that there was no system or equipment failure on board the vessel; that the operative cause of the incident was operator error; and that there was no material to indicate that the Royal Australian Navy had prior knowledge of the dangers of hydrogen sulphide gas escaping from a sullage tank on board a naval vessel. 7 Counsel for the applicant sought to cavil with the issue of the respondent's knowledge of the generation of hydrogen sulphide from sullage tanks in both his written outline of submissions and oral submissions. He took me to material which I do not think advanced the applicant's case beyond the merely speculative, as it existed at the time the question of amendment was first canvassed. Much of that material was, of course, very relevant to the separate question of breach of duty of care. I did not have the impression (and I would not put it higher than that because I am not in a position to make findings on the question) that the material could support a case opened to a court that there had been 'conscious wrongdoing in contumelious disregard of the plaintiff's rights': Gray v Motor Accident Commission (1998) 196 CLR 1 at 9. What I said about exemplary damages in the application to amend was not doubted by any of the parties. They remain the kinds of considerations that I have in mind in dealing with the prospects of success. 8 Counsel for the respondent also canvassed the novel proposition that there are powerful policy reasons why a civil court would be unlikely to award exemplary damages in circumstances where it is alleged that a person serving in the armed forces of the Commonwealth suffered injury, loss or damage as a result of the act or omission of a fellow member of the armed services. It is not necessary to deal with this submission. The material presented by the applicant did not go beyond suggesting that the applicant had anything but a speculative case on exemplary damages. 9 However, there are other considerations. As I have already said the affidavit material prepared by Mr Kathner shows the very large amount of work to which the respondent has been put in developing its case on aggravated and exemplary damages. It is, of course, entitled to its costs on that question notwithstanding that the claims have been abandoned. The only question is the basis on which those costs should be taxed. I do not have precise material before me suggesting what the difference would be in this matter between indemnity costs and party and party costs. Another matter to be borne in mind is that there were five applicants, all former crewmembers of the HMAS Stalwart, making claims for aggravated and exemplary damages against the respondent and, because the claims were made in the same terms, it is across the whole of those claims that the Commonwealth has been put to the difficulty of preparing this aspect of its case. Counsel for the respondent accepted that, broadly speaking, only one-fifth of those costs would be recoverable against the applicant. Counsel for the applicant contends that such a method of calculation is not without difficulties because two cases, those of Mundraby and Lewis, proceeded to trial (and it may be assumed that more work was involved on that question in those cases). 10 Each of the other four applicants' cases was settled following mediations conducted by a retired Supreme Court judge in January 2002. The terms on which those matters were each settled involved the abandonment of the claims to aggravated and exemplary damages. This was achieved by permitting each of those applicants to file a further amended statement of claim that omitted such claims, and, by consent, judgment being given for each of those applicants in the actions thereby constituted. No question of costs arose in relation to the abandonment of the claims. The money sums awarded by way of judgment to each of those applicants were expressed to be inclusive of costs. There is no evidence before me to suggest that in the quantification of those sums any amount was taken into account by the parties having regard to the wasted effort that had been incurred by the respondent in defending the claims for aggravated and exemplary damages, and I shall assume for present purposes that no such allowance was made. In such circumstances it would be invidious to single out this applicant for particular treatment on this issue. 11 Given that the matter proceeded to trial and a verdict was obtained in its favour on the question of liability, I understand why the respondent would wish to seek to recover its actual costs that it incurred or at least that rateable portion that it could attribute to this particular applicant. However, in the circumstances, I am of the opinion that my discretion should not be exercised to order that the respondent's costs incurred in resisting the applicant's abandoned claims for aggravated and exemplary damages be paid by the applicant on an indemnity basis. I refuse that part of the respondent's motion. On this issue there is a final point I should make. In correspondence between the solicitors for the parties leading up to the abandonment of the claims for aggravated and exemplary damages, the applicant's solicitor notes his client's concern as to the costs of maintaining the claims for aggravated and exemplary damages. That may or may not have been the reason for abandoning the claims, but in any case those matters should have been considered at the beginning of 2000 and not at such a late stage in the proceeding. While the Commonwealth is no doubt a behemoth of sorts, it is not obliged to fight with one hand behind its back in proceedings. It has the same rights as any other litigant notwithstanding it assumes for itself, quite properly, the role of a model litigant. 12 The second aspect of the present motion is the respondent's claim for the payment of costs on an indemnity basis from the time the applicant rejected a Calderbank offer made on 15 March 2002. The letter relevantly stated: '1 The Respondent is prepared to resolve this matter with the Applicant upon the following basis:

17 In support of their submissions that the rejection was imprudent or unreasonable, counsel for the respondent drew attention to the passages in my reasons for judgment in the principal proceeding that involved the rejection of the applicant's testimony. Counsel for the respondent submitted that there was no material change in circumstances between the date the Calderbank offer was made and the conclusion of the evidence at trial. I accept that submission. This was a case where, although the applicant had a so-called 'accepted disability', the existence of the alleged psychiatric injury that would entitle the applicant to a verdict in this case was very much in issue at the time the Calderbank offer was made. In addition, the material that discredited the applicant and led to his evidence being rejected had been made available by the respondent to the applicant in a way that clearly signalled the case that would be put against him. This material was also made available to doctors who had provided up-to-date medical opinion on the issues in the case. In these circumstances, it seems to me that the applicant's rejection of the Calderbank offer was imprudent. It was also unreasonable. The quantum of the offer did not represent a capitulation. 18 I am conscious that the applicant's solicitor received no response to his query about paragraph 1(c) of the Calderbank offer. However, if that had been a sticking point it would have been prudent to take it up again in the light of the quantum of the sum offered. Whatever may be the force of formulations such as 'imprudent' or 'unreasonable', the accepted view of such offers is explained in Leichhardt Municipal Council v Green [2004] NSWCA 341 and Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212. I raised with senior counsel for the respondent the point that the letter did not say in terms that indemnity costs would be sought. He contended that the letter used conventional language for such offers. I accept that. Certainly a party is not precluded from making what use they will of such a letter on the question of costs. In the circumstances, however, and having regard to the general position of defendants in employing Calderbank offers at the time this offer was made, it seems to me that the better view is that, properly advised, the applicant would have been informed that he was at risk of not recovering his costs, or having costs ordered against him if he recovered a lesser figure than the amount offered, but that he would not necessarily be advised, in circumstances where costs were ordered against him in respect of the whole of the action, that he would suffer an order for indemnity costs or that those costs be taxed on an indemnity basis. 19 Again, having regard to the damning terms in which I dealt with the applicant's evidence in the principal proceeding it is hardly surprising that the respondent would seek to make what it can of the Calderbank letter and the rejection of the offer, the acceptance of which would certainly not have represented a capitulation by the applicant. But, again, in respect of this aspect of the motion, I do not propose to order that the costs be taxed on an indemnity basis from 15 March 2002. Accordingly, I refuse the second part of the respondent's motion. 20 The motion of the respondent having been refused, the applicant applies for his costs of the motion. Counsel for the applicant points out that he has won and normally costs would follow the event. Also counsel has pointed out that the motion was brought on some considerable time after the costs order was made against his client on 30 January 2004, and that that has involved a great deal of extra work. I am conscious of that fact, and I am aware it must have been a burden for him personally and for his instructing solicitor. 21 Nonetheless, given that the basis upon which the costs would be taxed had been carefully reserved when the claims to aggravated and exemplary damages were abandoned, it was not unreasonable for the respondent to make this application. Nor in the circumstances, and I emphasise this too, do I think that, having won so comprehensively, it was ill-advised in bringing on an application relying on the non-acceptance of the Calderbank offer. I am, of course, conscious of what counsel for the applicant said about the non-acceptance of his client's evidence having had its own consequence in the award of costs for the whole action. The exercise of the unfettered discretion given in s 43 of the Federal Court Act 1976 ('the Act') requires a judicial balancing of considerations of varying weight. My mind wavered during the hearing of the motion in relation to both of its parts. Whilst I have not exercised my discretion in favour of the respondent, the applicant only won by a whisker. In all the circumstances, the just result on the question of costs in relation to the motion, again exercising my discretion under s 43 of the Act, is that there be no order as to the costs of the motion. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam.

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Judgment (14 paragraphs)

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Cases Cited (9)