Supreme Court of Tasmania|2003-12-05|Before: Underwood J

Burnie Port Corporation Pty Ltd v Bank of Western Australia Limited & Anor [2003] TASSC 132 (5 December 2003)

v Bank of Western Australia Limited & Anor [2003] TASSC 132

Procedure - Costs - General rule - Costs follow the event - Costs of issues - Exercise of the discretion - What is the main event - Undesirable to award costs on separate issues unless good reason to do so.

Cretazzo v Lombardi (1975) 13 SASR 4; J D M Investments Pty Ltd v Toddern Pty Ltd [2000] NSWSC 432, followed.

Procedure - Costs - Departing from the general rule - Ordinary for costs on an indemnity basis - Conduct of the litigation - Order made only in exceptional circumstances.

Colgate-Palmolive Company & Anor v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others [1988] FCA 202; (1988) 81 ALR 397, followed.

First Defendant: R J Forster SC and I E Davidson

Second Defendant: D J Porter QC and M E O'Farrell

Judgment Number: [2003] TASSC 132

BURNIE PORT CORPORATION PTY LTD (ACN 078 720 279)

v BANK OF WESTERN AUSTRALIA LIMITED (ACN 050 494 454)

1 On 30 June 1993, the plaintiff entered into an agreement ("the rental plan") with the first defendant ("the bank"). The rental plan provided that the plaintiff would lease a large crane from the bank from 30 June 1993 until 31 January 2004. The crane was in the course of construction at the time the agreement was made. It was anticipated that construction would be complete and the crane installed on the plaintiff's wharf by 31 January 1994. The rental payable over the ten year period varied, but was in the order of $800,700 every six months. Clause 22 of the rental plan provided for a renewal of the agreement. The meaning of this clause was obscure. At the end, or early termination of the rental plan, possession of the crane reverted to the bank. The plaintiff had no option to purchase it.

2 The rental plan came into existence as a result of negotiations by the second defendant ("Rentworks"). It had a separate agreement with the bank. That agreement provided that in the case of an operating lease, of which the rental plan was an example, the bank "must upon request by [Rentworks] sell the [crane] to [Rentworks] on an 'as is where is' basis for $1 ..." at the end of the term of the lease.

3 The plaintiff's concern was that on 31 January 2004 it will have paid the bank by way of rental, the total cost of constructing and installing the crane, plus interest at commercial rates, but subject to any rights it might have pursuant to the renewal clause, will be compelled to hand the crane back to the bank even though it will still be worth over $1m. Upon the happening of that event, the likelihood is that Rentworks will be able to acquire this valuable asset for only $1.

4 I was told from the bar table by way of explanation that prior to the commencement of the action, the parties had been discussing the price that Rentworks wanted the plaintiff to pay to buy the crane on the expiration of the rental plan. Failure to agree a price led to the plaintiff commencing proceedings against the bank on 25 March 2002. By its statement of claim, the plaintiff claimed that it did not have the statutory power to enter into the rental plan and consequently it was void. By the statement of claim, par20, the plaintiff sought the following orders:

"(a) restitution to it of the moneys paid by [the plaintiff] and it [sic] pursuant to the agreement together with interest;

(b) the making of an appropriate allowance in favour of the defendant to compensate it for the rate of return which it ought to have received upon the moneys expended by it in respect of the agreement;

(c) the acquisition by the plaintiff of the crane with or without the requirement to make a payment for it to the defendant."

5 In the event of it being found that the rental plan was not void, the plaintiff's statement of claim further sought declarations with respect to the proper meaning of the renewal clause in the rental plan, contending that it was entitled to renew the rental plan in perpetuity and that the rental payable during any renewed period was $0. The defendant joined issue.

6 As is apparent from the foregoing brief recital of the facts, the bank's principal commercial interest in the litigation was to ensure that in the event of the rental plan being declared void, it would not be deprived of the money it had paid to buy the crane from the manufacturer, plus interest on the unpaid capital from time to time over the life of the agreement.

7 Obviously, Rentworks had a real interest in this litigation, but there was no relevant contractual relationship between it and the plaintiff and the latter neither sought, nor needed to seek, any relief against Rentworks. However, Rentworks made a successful interlocutory application to be joined as a defendant in the action between the plaintiff and the defendant (Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd [2002] TASSC 66).

8 The trial of the action started on 29 April 2003 and continued for the next three days. On the second day of the trial, senior counsel for the plaintiff abandoned the plaintiff's claim for the return of any money from the bank, and said that the plaintiff accepted that it was equitable that the bank should retain all payments made under the rental plan and receive those payments that were due in the future. The following day, the plaintiff was given leave to amend its statement of claim to reflect that state of affairs. The plaintiff maintained its claim that the rental plan was void for want of its authority to enter into it. The orders that the plaintiff originally sought were abandoned and in lieu thereof declarations were sought to the effect that the rental plan was void, that the title to the crane was vested in the plaintiff, or alternatively, if title was vested in the bank, the latter be required to transfer that title to the plaintiff. The plaintiff also maintained its arguments with respect to the proper meaning of the renewal rental clause.

9 Reasons for judgment were handed down on 22 August 2003 (Burnie Port Corporation Pty Ltd v Bank of Western Australia Limited & Anor [2003] TASSC 73). It was held that the agreement was not void and the claim for a declaration to that effect was dismissed. The plaintiff's claim for declarations with respect to the transfer of title in the crane only arose if it was found that the rental plan was void. With respect to the renewal clause, the reasons made it clear that upon its proper construction it only conferred an option to renew for one period. With respect to the rental payable during such renewed period, the situation was a little more complicated, and it was necessary to hear counsel further with respect to the precise terms of a declaration. However, for present purposes it suffices to say that it was held to be $0.

10 There remained for final determination the terms of the declaratory relief with respect to the renewal clause and costs. These matters were argued on 6 November. The terms of the declaration were settled within a very short time, viz:

"It is declared that the effect of clause 22 of the agreement between the plaintiff and the first defendant dated 30 June 1993 is that in the event of the plaintiff electing to extend the term for a period of one year or being assumed to have so elected, and not being in breach of a provision of the agreement, no rent is payable by the plaintiff for that one year period."

11 Argument about costs occupied the balance of the day. That argument encompassed the costs of the application to join Rentworks in the action, as those costs were reserved to the trial judge by the learned Chief Justice who determined that application. Mr Forster SC, senior counsel for the bank, submitted that the appropriate order was that the plaintiff pay the bank's costs of the action and those reserved, taxed on an indemnity or solicitor/client basis.

12 Mr Porter QC, senior counsel for Rentworks, submitted that the appropriate order in the case of his client was that the plaintiff pay Rentworks' costs of the action and those reserved, taxed on a party and party basis.

13 For the plaintiff, Mr McElwaine submitted that the plaintiff should pay only 80 per cent of the bank's costs, including those reserved, taxed on a party and party basis. With respect to Rentworks, his submission was that the order should be that it pay 40 per cent of the plaintiff's costs, including reserved costs, taxed on a party and party basis.

14 As it is accepted by the plaintiff that it should pay at least 80 per cent of the bank's costs, it is convenient to deal first with Mr Forster's submission that his client's costs should be taxed on a solicitor/client basis or an indemnity basis. The distinction between costs taxed on a solicitor/client basis and costs taxed on an indemnity basis is a little difficult to detect. The Supreme Court Civil Procedure Act 1932, s12, confers jurisdiction on a judge to award costs with "full power and authority to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid". Section 12(3) provides:

"(3) The Court or any judge thereof may award costs as between solicitor and client in any case in which such costs may be awarded by the Court or a judge thereof at the commencement of this Act."

15 The Supreme Court Rules 2000 do not prescribe the basis upon which either solicitor/client costs or indemnity costs should be taxed, although r837(9) acknowledges that nothing in the Division of the Supreme Court Rules that is headed "Costs" derogates from the power of the Court or a judge to make such orders as to costs as are just in the circumstances of the case.

16 In the absence of any rule or statutory provision governing the matter, it appears to me that the use of the expression "taxed on a solicitor/client basis", or "taxed upon an indemnity basis" in an order, requires the taxing officer to interpret the meaning of the order, cf Giles v Randall [1915] 1 KB 290. Mr McElwaine submitted that taxation of costs on an indemnity basis means that all costs shall be allowed except insofar as they are of an unreasonable amount or may have been unreasonably incurred. To support that proposition, he referred to the Rules of Court (Vic), r63.30, but, unlike the Tasmanian Rules, the Victorian and other State Rules define the different bases upon which costs are to be taxed. It seems to me that, having regard to the provisions of the Supreme Court Civil Procedure Act, s12(3), the appropriate source for the meaning of an order that costs shall be allowed on a solicitor/client basis is the practice prior to the introduction of the Supreme Court Civil Procedure Act. For a useful discussion on the matter, I refer to National Mutual Life Association of Australasia Ltd v Chris Poulson Insurance Agencies Pty Ltd (No 6) 113/1998.

17 Indemnity costs are a fairly new invention, and absent a rule defining the meaning of the expression "taxed upon an indemnity basis", the taxing officer is dependent upon the terms of the order to define the extent of the indemnity. See, eg, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others [1988] FCA 202; (1988) 81 ALR 397; Re Bond Corporation Holdings Ltd (1990) 1 ACSR 350. It may be noted that the power of this Court to order that costs be allowed on an indemnity basis was upheld in National Mutual Life Association of Australasia Ltd (supra). Upon this application the distinction between indemnity costs and solicitor/client costs was not argued, except in passing, and having regard to the view I have formed of the bank's application to have costs taxed on either basis, it is unnecessary to pursue this rather murky issue any further and, I might add, unwise to do so without the benefit of full submissions from counsel.

18 Mr Forster accepted that the plaintiff's principal argument that the rental plan was void had substance, but submitted that costs should be recovered on a solicitor/client or indemnity basis because:

(1) the plaintiff was guilty of misconduct by pursuing its claim against the bank when its real dispute was with the second defendant; and

(2) not abandoning its claim against the bank for the return of money until the second day of the trial.

19 Although the judicial discretion to make a costs order is not fettered by statute, it must be exercised judicially in accordance with established principle. In Hughes v Western Australian Cricket Association (Inc) and Others [1986] FCA 382; (1986) ATPR 40-748, Toohey J said, at 48,136:

"The discretion must of course be exercised judicially. There are decisions, both of Australian and English courts, that throw light on the way in which the discretion is to be exercised. I shall not refer to those decisions in any detail; I shall simply set out in a summary way what I understand to be their effect.

1 Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 KB 47.

2 Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar (1893) 1 QB 564.

3 A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 13 SASR 4 at 12."

20 In addition, it is well settled that costs may be ordered to be taxed on a solicitor/client or indemnity basis. In Fountain Selected Meats (Sales) Pty Ltd (supra), Woodward J said at 400 - 401:

"'Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases where there is some special or unusual feature in the case to justify the court exercising its discretion in that way" (Preston v Preston (1982) 1 All ER 41 at 58). It is sometimes said that such costs can be awarded where charges of fraud have been made and not sustained; but in all the cases I have considered, there has been some further factor which has influenced the exercise of the court's discretion - for example, the allegations of fraud have been made knowing them to be false, or they have been irrelevant to the issues between the parties: see Andrews v Barnes (1888) 39 Ch D 6 LR Ch App 133; Forester v Read (1870) 6 LR Ch App 40; Christie v Christie (1873) 8 LR Ch App 499; Degmam Pty Ltd (in Liq) v Wright (No 2) (1983) 2 NSWLR 354.

'Another case cited in argument was Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40; (1984) VR 483 where (at 502) Tadgell J allowed solicitor and client costs because he found the pursuit of the action to have been "a high-handed presumption".'

No doubt the expression 'high-handed presumption' was appropriate in the case Tadgell J had to decide, and he needed to go no further; but in order to establish a convenient principle in such cases it is necessary to be a little more prosaic. I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion."

21 Of course, the foregoing is not to be read as limiting the circumstances in which solicitor/client or indemnity costs will be ordered, but it indicates that there needs to be some very special circumstance before such an order will be made. A detailed insight into the principles applicable to making a solicitor/client costs order with an historical introduction is provided by Shephard J in Colgate-Palmolive Company & Anor v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225. Many cases are referred to and discussed by his Honour. The judgment concludes with a succinct expression of six principles, the last three of which are apposite and I respectfully adopt (233 - 234):

"In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v Barnes (39 Ch D at 141) said the Court had a general and discretionary power to award costs as between solicitor and client 'as and when the justice of the case might so require.' Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston ((1982) 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo, 'The categories in which the discretion may be exercised are not closed'. Davies J expressed (at 6) similar views in Ragata.

Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg _Messiter v Hutchinso_n (1987) 10 NSWLR 525, Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice."

22 In my view, there is no substance to the first submission of Mr Forster in support of the bank's claimed entitlement to an order for costs taxed on a solicitor/client or indemnity basis. In order to pursue its argument that the rental plan was void, the plaintiff had to bring its action against the bank. The plaintiff and the bank were the only parties to the agreement. As I have said, there was no contractual relationship between the plaintiff and Rentworks, and although Rentworks had an interest in the property which was the subject of the litigation between the plaintiff and the bank, the plaintiff was not obliged to join Rentworks to the proceedings, although no doubt, sooner or later it would have become a party to them.

23 As to Mr Forster's second submission, I do not see the plaintiff's abandonment of a monetary claim against the bank on the second day of the trial as a circumstance which justifies a departure from the ordinary rule. The plaintiff's original claim for a return of the rentals paid pursuant to the rental plan was coupled with an acknowledgement that an "appropriate allowance" must be made "in favour of the [bank] to compensate it for the rate of return which it ought to have received on the moneys expended by it". The plaintiff's claim for a return of money paid after making such an appropriate allowance was a perfectly proper consequential claim in the event of it being declared that the rental plan was void. No one suggested to the contrary. Nor was it suggested that the claim was made frivolously, or that, to the knowledge of the plaintiff, it was without substance. The claim was not made with some ulterior motive in mind and then abandoned. The abandonment was an acknowledgment by the plaintiff that in the event of the agreement being declared void and an order made that the monies paid under it be returned to the plaintiff, equity would step in and measure the allowance to which the plaintiff had always acknowledged the bank was entitled, in a sum equal to the rentals provided for by the rental plan. Further, I am unpersuaded that the bank wasted costs in meeting the claim for the return of rentals paid. True, it briefed a firm of accountants, but that was to support an argument that the rental plan was really an operating lease and therefore one which the plaintiff had power to enter into. Mr Forster very fairly conceded that the bank would have defended the claim even if the only claim had been for a declaration that the rental plan was void. However, he submitted that in that event, "the first defendant may have taken a less active role in defending the claim". He was not able to specify what activities were undertaken that might not have been undertaken had the plaintiff's claim been confined to a declaration of invalidity, other than to suggest that his client might have decided to engage less senior counsel.

24 In the circumstances of the case, the plaintiff's late abandonment of its claim for money back on the second day of the trial does not entitle the bank to an order for costs taxed on any basis other than party and party. During the course of argument, I was handed a bundle of pre-trial correspondence between the parties. Also read into evidence was an affidavit to which some of the the correspondence was annexed. I was pressed with arguments about the admissibility of some of this material. However, there is nothing in any of the correspondence to add or detract from the views that I have already expressed.

25 Mr McElwaine submitted that the litigation always had three aspects to it, viz:

* what rent is payable during any period of renewal?

Mr McElwaine accepted that the plaintiff lost on the first two points, but submitted that it won the third. Mr McElwaine submitted that had it been held that the rental payable during a renewed period of 12 months had to be calculated on the same basis as the rentals during the term were calculated, as was contended by Rentworks, the rent payable during the renewed period would have been in the order of $1.8m. It was Mr McElwaine's submission that the plaintiff's success on that point was significant and accordingly the bank was only entitled to 80 per cent (or thereabouts) of its costs and Rentworks was only entitled to recover 40 per cent (or thereabouts) of its costs.

26 In approaching this issue, I am mindful of the following passage taken from the judgment of Cretazzo v Lombardi (1975) 13 SASR 4 at 16:

"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."

27 In J D M Investments Pty Ltd v Toddern Pty Ltd [2000] NSWSC 432, Hamilton J at par4 adopted the following passage from Ritchie's Supreme Court Procedure [52A.11.2]:

"The general approach taken by the courts in these situations is that it will ordinarily be appropriate to award the costs of proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed - unless a particular issue or group of issues is clearly dominant or separable: Waters v P C Henderson (Aust) Pty Ltd (CA(NSW), 6 July 1994, unreported) (which approved the proposition stated in this note) ...".

28 I appreciate that in this case the issue of the true meaning of the renewal clause was separate from the issue of the validity of the rental plan and only arose in the event of a finding that the rental plan was not void for want of the plaintiff's power to enter into it. However, by far the major issue in this litigation, or the "main event" as Mr Porter submitted, was the validity of the rental plan. Had the plaintiff succeeded on this issue, it would have acquired title to the crane without making any payments in excess of those provided for by the rental plan and it would have defeated Rentworks' option to purchase the crane. Further, in practical terms, had the plaintiff been successful on the second issue of whether the renewal clause gave the plaintiff a right of renewal in perpetuity, it would have achieved virtually the same result as it would have achieved had it been successful on the validity issue. The third issue, the quantum of the rental payments during any period of renewal, whilst substantial in monetary terms, in the whole scheme of this litigation was a minor issue in comparison with the other two issues and indeed, occupied relatively little time in argument.

29 In all these circumstances it seems to me that this is a case in which the issues do not call for separate costs orders and the ordinary exercise of the discretion should apply.

30 There will be an order that the plaintiff pay the bank's costs and Rentworks' costs of the action, including the costs reserved upon the application to join Rentworks as a defendant, taxed on a party and party basis.

Burnie Port Corporation Pty Ltd v Bank of Western Australia Limited & Anor [2003] TASSC 132

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Burnie Port Corporation Pty Ltd v Bank of Western Australia Limited & Anor [2003] TASSC 132 (5 December 2003)

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