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[2003] FCA 1276
Federal Court of Australia
2003-11-11
Selway J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 The issue for decision is the appropriate order(s) for costs in relation to the proceedings between Knispel Fruit Juices Pty Ltd ('Fruit Juices'), Nippy's Waikerie Producers Pty Ltd ('Packing') and Messrs Peter and Theo Constas ('the Constas brothers') in which I delivered judgment on 13 August 2003 in Dowdel v Knispel Fruit Juices Pty Ltd [2003] FCA 851. For the reasons given below I order that each of the Constas brothers jointly (on the one hand) and American Home Assurance Company, AMP General Insurance Ltd and CGU Insurance Ltd, jointly (on the other hand) shall each pay 50 per cent of the costs of Fruit Juices in relation to the damages issue. Otherwise the Constas brothers are jointly liable to pay the other costs of Fruit Juices. I also order that the Constas brothers jointly pay the costs of Packing. It is agreed that the relevant costs do not include any of the costs of Fruit Juices or Packing related to the cross-claims by Fruit Juices against the Citrus Board or by Packing against American Home Assurance Company, AMP General Insurance Ltd and CGU Insurance Ltd. The relevant costs are to be taxed in the absence of agreement. 2 The case concerned losses and damage caused by fruit juice sold by Fruit Juices which was affected by salmonella bacteria. The judgment concerned claims by Fruit Juices to recover from Packing or alternatively from the Constas brothers the amount of any liability that Fruit Juices might have to the applicants together with the amount of the financial losses suffered by Fruit Juices itself. Packing cross-claimed against the Constas brothers in relation to any liability that might be found against it. The effect of the judgment is that Fruit Juices succeeded against Packing for breach of contract and Packing likewise succeeded against the Constas brothers for breach of contract. 3 Fruit Juices did not succeed against the Constas brothers in relation to the alternative claims in negligence or breach of statutory duty. Some of the evidence called by Fruit Juices was not accepted. 4 The question of what orders should be made in relation to costs was reserved. That question now arises for consideration. With some qualifications, Fruit Juices seeks an order that Packing should pay Fruit Juices' costs in relation to the claims that were the subject of the judgment and Packing asks for an order that the Constas brothers pay the costs of Packing and the amount of costs for which Packing is liable to Fruit Juices. 5 Costs are at the discretion of the Court: s 43 of the Federal Court of Australia Act 1976 (Cth). The discretion must be exercised judicially. The legal principles applicable to the exercise of that discretion are clear enough. They were usefully summarised by Toohey J in Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748. I do not need to repeat them. I also note the oft repeated warning by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16 against the apportionment of costs on an issue by issue basis. 6 Ordinarily costs follow the event. On the face of it Fruit Juices has been successful and is entitled to its costs. Are there any special circumstances that would justify the exercise of my discretion to make any other order? 7 The Constas brothers point to three such circumstances. First, they say that Fruit Juices were only successful in contract, not in negligence or breach of statutory duty and that it should not have its costs in relation to those causes of action. As to that, it is sufficient to say that the claims in negligence and breach of statutory duty were alternative claims in relation to the same damage upon which Fruit Juices ultimately succeeded in contract, and that in my view it was not unreasonable for those alternative claims to be pursued. This was not a case where the alternative claims involved discrete and separate heads of damage. 8 The second circumstance put forward by the Constas brothers relates to the evidence of damages. Both parties at trial called expert witnesses who gave evidence of modelling exercises that they had undertaken. I was critical of this evidence: 'Both sides criticised the experts of the other for being 'partisan'. That was unfair. Their evidence formed part of the legal case for the respective sides. It was partisan in the same manner that submissions are partisan. The "experts" were acting as advocates: see Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, 737-739. In my view it would have made no difference to either party's position if the reports of these experts had formed part of their submissions. (Although if they had then I doubt that counsel would have been prepared to make some of the claims and assumptions that were made by the experts). But even if they did, this procedure would have saved a very large amount of time and, I suspect, considerable costs. The ultimate result would have been the same. Neither party has objected to the evidence given by the experts of the other. Consequently I have heard the purported evidence and have considered it as evidence. I have identified the problems with it as evidence. As evidence it is not helpful.' The submissions of the Constas brothers on this issue have considerable weight. On balance I have reached the conclusion that it is not appropriate to reduce the entitlement of Fruit Juices to its costs on this basis. The fact remains that evidence of this nature has been commonly called in this State and elsewhere for many years apparently without criticism by the courts or the parties. It was not objected to in this case. And, in my view, the material could properly have been put before the court as a submission or part of a submission. In this regard I note that my ultimate assessment of damages, whilst lower than that suggested by the witnesses called by Fruit Juices, was nevertheless higher than that suggested by the witnesses called by the Constas brothers or in submissions made on their behalf. In my view it was not unreasonable for Fruit Juices to call this evidence in this case. Obviously, having now expressed my views on the use that might be made of this evidence, I might take a different view of the reasonableness of then calling such evidence in some future case. 9 Finally the Constas brothers point to the circumstance that I did not rely upon two witnesses called by Fruit Juices. I described them as 'not impressive', but remarked that their evidence may not have been of much use anyway. Mr White QC, for Fruit Juices, has suggested that this may be harsh and that their evidence was useful at least by way of providing a background as to the operation of what was described as the 'route trade', even if it was not particularly reliable as to particular details. This may be correct. In any event Fruit Juices did succeed in establishing that it was entitled to damages for the 'structural effects' of the damage to the route trade. This was the issue upon which these witnesses were called. In the overall context of the trial this evidence was not significant, notwithstanding that those on the Constas brothers' team had obviously taken some care in preparing to cross-examine these witnesses. 10 In my view there is no reason in this case why Fruit Juices should not have its costs. 11 It is another question as to who those costs should be against. Fruit Juices seeks that the order be made against Packing and that Packing be indemnified for those costs by the Constas brothers. The assumption made by Fruit Juices in making that submission is that Packing is entitled to be indemnified by the Constas brothers in relation to any order for costs made against Packing, including an order to pay the costs of Fruit Juices. This does not necessarily follow. The formal orders of the Court as to the liability for damages record that Packing is entitled to be indemnified in relation to that liability. This is because of the chain of contracts from the Constas brothers to Packing and ultimately to Fruit Juices. Liability for breach of contract flowed from one to the other down that chain. But costs are discretionary. They can reflect the actuality of the contest that was conducted: see, for example, Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127 at 138; Thorpe Nominees Pty Ltd v Henderson & Lahey [1988] 2 Qd R 216. This is particularly so in a case, such as this one, fought between what were, in effect, multiple respondents. If, for example, Packing had joined with the Constas brothers in actively disputing its liability to Fruit Juices then it would have been at least possible, and maybe likely, that an order would have been made that Packing and the Constas brothers were jointly liable for the costs of Fruit Juices. Packing may still have been able to obtain an order against the Constas brothers in relation to its own costs of establishing its entitlement to an indemnity from them, but would not necessarily be entitled to any indemnity for the costs ordered against it. This merely reflects the obvious fact that orders for costs should reflect the success of the parties in the actual conduct of the trial. 12 In this case, the reality was that the contest was largely between Fruit Juices and the Constas brothers. Packing had a role and an interest to protect, but it did not take a position adverse to that of Fruit Juices. If anything, Packing was in the Fruit Juices' 'camp'. As I noted in my judgment: 'It is clear enough that Nippy's Fruit Juices and Packing were not at 'arm's length'. They had related shareholdings, directorships and objectives. They had mutual dealings, including, for example, joint insurance. They shared the same accountants and the same lawyers. It is not surprising, for example, that when Nippy's Fruit Juices suffered the losses it has claimed as a result of the outbreak the two companies should initially have had the same advisers in relation to the claim made by Nippy's Fruit Juices against their joint insurer. It is also not surprising that as matters progressed it became clear that the two companies needed separate advice. What may be surprising is that both companies apparently were involved in discussions as to how these claims should proceed even after Nippy's Fruit Juices and its insurers had apparently made the decision that Nippy's Fruit Juices would claim against Packing for breach of contract. It may also be surprising that the solicitors for both Nippy's Fruit Juices and Packing should ultimately continue as to act as solicitor for Packing. This may have resulted in some interesting questions in relation to legal professional privilege, although ultimately no claims for privilege in this context were pursued. The Constas brothers drew attention to these issues as evidence that the companies were not at 'arm's length'. And, in the course of the hearing, Packing, although nominally a cross-respondent, was for most practical purposes in the 'Nippy's' camp, although, of course, any admissions it made (such as in relation to the existence of a contract between Nippy's Fruit Juices and Packing) could not prejudice the interests of the Constas brothers.' This is not a criticism of Packing or of its legal representatives. It is the reality of the case that was conducted before me. But in these circumstances I cannot see any reason to make an order that Packing pay the costs of Fruit Juices. The appropriate parties to pay those costs are not Packing, but those who, in the legal proceedings took a position which was adverse to the interests of Fruit Juices. Subject to one qualification, that was the Constas brothers.
13 That qualification relates to the position of the insurers of both Fruit Juices and Packing. Packing cross-claimed against those insurers alleging that they were liable to indemnify it pursuant to the policies of insurance. For most of the trial the insurers - American Home Assurance Company, AMP General Insurance Ltd and CGU Insurance Ltd (together 'the insurers'), were the 4th, 5th and 6th cross-respondents respectively. The insurers did not take an active position in relation to liability issues. However, for most of the trial the insurers took an active role, and probably took the primary role, in testing, questioning and disputing the extent and amount of the damages claimed by Fruit Juices for loss of profits. Mr Harms, who appeared for the insurers at the trial, was competent and effective in pursuing these issues. It was clear that in taking this role the insurers had an understanding with the Constas brothers that the Constas brothers would concentrate on some aspects of the damages claim and the insurers would concentrate on other aspects. It would not be fair to describe the Constas brothers and the insurers as presenting a unified position, but it was certainly a co-ordinated one. 14 On or about 19 June 2003, the insurers settled with Packing and (apparently) Fruit Juices. This was following the 31st day of the trial. The terms of that settlement have not been revealed to me. The insurers informed me that they would produce the settlement agreement if I so ordered. The Constas brothers requested that I do so. In the absence of any clear evidence of its relevance I declined to make any order that it be produced. On the other hand, it is only reasonable to assume that the agreement at least has the effect that Packing, Fruit Juices and the insurers are no longer acting at 'arms length', whatever may have been the position when the trial commenced. I return to the significance of this below. 15 Following upon that settlement consent orders were made on 25 June 2003, dismissing the cross-claim by Packing and the insurers with no order for costs. The Constas brothers did not object to those orders. However, they were not a party to the settlement. 16 Following the settlement the Constas brothers had no choice but to also deal with the damages issue in the trial. The result, in terms of the overall trial, was that some of the damages issues were initially handled by the insurers, but finally handled by the Constas brothers. 17 Formally the insurers are no longer parties. Nevertheless, the Constas brothers say that the insurers should also share in the responsibility for that proportion of the costs of Fruit Juices that relate to the damages issue. Although it is unusual the Court does have jurisdiction to order costs against non-parties: Knight v F.P. Special Assets Ltd (1992) 174 CLR 178. This is particularly so where, as here, the order is made against a non-party in relation to the role it actively played in the proceedings whilst it was a party. 18 In light of the submissions made by the Constas brothers the costs application was adjourned to give the insurers an opportunity to put submissions. The insurers, with the support of Fruit Juices and Packing, argued that: (a) If the insurers had not taken the active role in pursuing the question of damages then the Constas brothers would have had to do so. The insurers did not increase the costs that otherwise would have been incurred. This may be accepted. But it is not an answer. The same would be true in most cases with multiple respondents. The question is not whether the position of the insurers was unreasonable, or whether the Constas brothers would have had to pursue the same issue if the insurers had not, but whether the insurers, having taken an active role in disputing the claims made by Fruit Juices, should bear some responsibility for some of the costs of Fruit Juices. (b) The insurers were, in effect, protecting Packing's position and should not be subject to any orders that Packing would not be subject to. There are at least two problems with this argument. First, the insurers and Packing do not, or at least did not, have the same interests. They were each separate parties in these proceedings. Second, the argument assumes that Packing would be indemnified by the Constas brothers in relation to any order for costs that might be made against Packing. As already discussed, that assumption is in error. 19 Having regard to the conduct of the parties at the trial in my view the fair and reasonable result is that the Constas brothers and Packing should each be liable for the costs of Fruit Juices that directly relate to the damages issue. The costs in relation to that issue would include, but would not be limited to, the major proportion of the costs of and related to the evidence of the witnesses Ms Knispel, of Mr Hughes, of Messrs Rocca and Mesecke, of Mr McPharlin and of Dr Beaton. It would also include the major proportion of the costs relating to the cross-examination on behalf of Fruit Juices of Ms Orr and Mr Dawes. 20 In the ordinary course an order for costs would be joint and several: Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 210. One of the reasons for this practice is for the greater protection of the successful party in the event that one or other of the respondents is unable to meet its share of the obligation to pay costs: see R Quick, Quick on Costs, Lawbook Co, Sydney, 2001, vol 2at 4.3390. Notwithstanding the usual practice, in my view it is inappropriate in this case to make an order jointly against both the insurers and the Constas brothers in the absence of any knowledge of the details of the settlement agreement between Fruit Juices, Packing and the insurers. Plainly enough the insurers may not be at arms length from Fruit Juices. Indeed, Mr Harms, who appeared for the insurers, made some submissions which supported the submissions of Fruit Juices as to whether Fruit Juices should have its costs in relation to the expert witnesses. These submissions were not in the interest of the insurers, assuming their interests were separate and distinct from those of Fruit Juices. This supports what I would assume in any event - that, following their settlement, Fruit Juices and the insurers are not now at arms length, whatever the position may have been when the trial commenced. On that assumption the need to protect Fruit Juices against the possible inability of the insurers to pay is much reduced. On the other hand, the Constas brothers do need some protection against the possibility that Fruit Juices and the insurers will act in concert. In these circumstances it is appropriate in this case not to follow the usual practice and instead to order that each of the insurers and the Constas brothers be liable for a specified proportion of the costs of Fruit Juices in relation to the damages issue. 21 Although the insurers probably had the primary role in relation to the damages issue for most of the trial the Constas brothers took over this responsibility following the settlement between Fruit Juices, Packing and the insurers. In any event, the role of the insurers in relation to the damages issues appeared to be the result of a co-ordinated approach with the Constas brothers. In the circumstances I think that the insurers (as a group) and the Constas brothers (as a group) should each be liable for 50 per cent of the costs of Fruit Juices in relation to the damages issue. 22 The Constas brothers also argued that there should be a gross sum award of damages and that for this purpose I should order Fruit Juices to provide some broad figures to the Court of what its costs might be and, in particular, what amount of the total costs reflects charges made by 'forensic accountants'. Fruit Juices did not provide those figures. In my view it was inappropriate for me undertake a quasi-taxation and I declined to make any order in relation to the production of those costs. On the other hand, the Constas brothers have a concern that Mr McPharlin, or other 'forensic' accountants, may have played a more significant role in the preparation of the case presented by Fruit Juices than might ordinarily be expected of expert witnesses. That concern is understandable given the apparent reticence of Fruit Juices to disclose to me any indication of the extent of the fees and charges in relation to 'forensic accountants'. Of course, these are ultimately matters for the taxation officer. For whatever comfort it may be to the Constas brothers I simply note that the entitlement for fees for witnesses and others are governed by Sch 2 of the Federal Court Rules. That sets maximum amounts allowable for witness fees in a taxation of costs. It also requires that disbursements be reasonable. In my view charges by accountants ('forensic' or otherwise) at rates significantly higher than would be allowable for lawyers under that Schedule would require scrutiny and justification. Further, in my view if an accountant is effectively part of the legal team then the costs of that accountant, like the costs of secretaries and other administrative support, may need to be considered and treated as part of the scale costs allowable for lawyers. The party-party scale for legal costs cannot be turned into an indemnity scale simply by having accountants doing the work that would otherwise be done by lawyers and then charging for the accountants' work as a disbursement. These comments should not be understood as suggesting that Fruit Juices would seek any costs or disbursements in this case on other than an appropriate basis. 23 Finally, there is the question of Packing's costs. I have already mentioned the role that Packing played in the trial. The Constas brothers argue that the insurers should bear a proportion of Packing's costs on the basis that, if the insurers had settled with Packing earlier, Packing may not have required the same extent of representation that it did have. I am not satisfied that this is correct. I do not think that Packing would have had any less representation even if the insurer had initially accepted liability under the insurance policy and been subrogated to Packing's interests. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway.
Counsel for the Respondent / Cross-Claimant: RC White QC with KG Nicholson Solicitor for the Respondent / Cross-Claimant: Thomson Playford
Counsel for the First Cross-Respondent: ST Lane Solicitor for the First Cross-Respondent: O'Loughlins
Counsel for the Second and Third Cross-Respondent: TR Anderson QC with R Soulio Solicitor for the Second and Third Cross-Respondent: Minter Ellison
Counsel for the Second Cross-Respondent: BJ Powell QC Solicitor for the Second and Cross-Respondent: Patsouris & Associates
Counsel for the Third Cross-Respondent: IC Roberston Solicitor for the Third Cross-Respondent: O'Briens
NON-PARTIES Counsel for the Fourth, Fifth and Sixth Cross-Respondents: RA Harms Solicitor for the Fourth, Fifth and Sixth Cross-Respondents: Phillips Fox
Date of Judgment: 11 November 2003
Dowdell
Knispel Fruit Juices Pty Ltd