Expectation Pty Ltd v PRD Realty Pty Ltd

REASONS FOR JUDGMENT 1 On 11 March 2003, subsequent to a very lengthy trial, I gave reasons for judgment for rejecting an application made pursuant to s 52 of the Trade Practices Act 1974 (Cth) by Expectation Pty Ltd ('Expectation'), in relation to the entering into contracts by Expectation to purchase two commercial shopping centres: one at Benowa Waters and the second, Broadway on the Mall. 2 Concerning Benowa Gardens, I concluded at par 68: 'I am satisfied that there were reasonable grounds for what are said to be the "implied representations" pleaded in the Second Amended Statement of Claim; that there was no "express representation" by Mr Cooney that "there would be an 8% growth in net income from the centre per year"; that Mr Cooney did not say that the value of the centre was at least $15 million, and the representation "the tenants of specialty shops in the centre were paying not more than an appropriate market rent" was an honest and reasonably based opinion of Mr Cooney and involved no misrepresentation.' 3 I further held that if, contrary to my finding, there had been an assurance that there would be "8% growth per year", Expectation was not misled by any such misrepresentation; and I further concluded that Expectation sustained no loss by reason of its purchase of Benowa Gardens. 4 Further, I rejected the claim made by the first and second respondents in their Amended Defence that any claim by Expectation in respect of Benowa Gardens was barred by reason of an agreement made by Mr Hammond, the third respondent, on behalf of Expectation, and Mr Langford on behalf of the first and second respondents in about March 1996. I said at par 91: 'While my initial view was that the "quid pro quo" for PRD Realty ceasing its role at Benowa Gardens was the promise that Expectation would not sue in respect of its claims against PRD Realty and Mr Douglas, I am now satisfied that there was no agreement of compromise in this case.' In rejecting the claim that there was an agreement of compromise, I said at par 93: 'My conclusion derives great support from the fact that neither PRD Realty nor Mr Langford ever raised the now-alleged release during the first three years of the litigation. In my opinion, a release from liability was never negotiated, and the parties did not have a release in mind when the agreement as to a six-month termination period was formed. The question of compromise was never mentioned until the second firm of solicitors acting for PRD Realty instigated the question of a compromise. If there had been a deal that PRD Realty would forego its full term of management in exchange for not being sued over Benowa Gardens, it is impossible to accept that the parties to the deal would have kept quiet about it for all that time, and only have recalled it at the prompting of a new set of legal advisors.' 5 I also rejected the claim of Expectation concerning Broadway on the Mall, both on the question of the making of representations and on the question of reliance and causation. 6 My reasons of 11 March 2003 concluded: 'For the above reasons, the applicant's claims against both the first and second respondents are dismissed, as is the applicant's claim for an indemnity against the third respondent. I will hear the parties as to the orders that should be made to give effect to these reasons, and on costs.' 7 I have subsequently had the benefit of extensive submissions from the applicant, the first and second respondents and from the third respondent. A supplementary submission on behalf of the first and second respondents concerning recent relevant cases on the question of costs was made on 6 October 2003. 8 For the first and second respondents, it is contended that the orders that the Court should make are: 'The applicant pay the first and second respondents' costs of and incidental to the proceeding, including reserved costs, on the basis that such costs are to include all costs except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first and second respondents will be completely indemnified by the applicant for their costs. The proceeding against the first, second and third respondents is dismissed.' 9 It was contended for the first and second respondents that costs should follow the event, and that costs should be awarded against the applicant on an indemnity basis, because the applicant brought and persisted in a claim that was based on assertions that Mr Hill knew to be false, and the Court found that Mr Hill had "manufactured evidence" in the case of matters which he knew did not happen, for the purpose of advancing the applicant's prospects of success in the litigation. Reliance was placed on the finding that Mr Hill had given an unreliable and dishonest account of alleged representations and had deliberately reconstructed events to give verisimilitude to his allegations, and had engaged in "deliberate falsehood calculated to create a climate of reliance where there was none". It was further pointed out that Expectation had refused offers of settlement of $100,000 plus costs in an offer to settle dated 16 September 1999, and an offer of settlement of $200,000 plus interest at 10% per annum from 17 January 1994, plus costs, in a letter of settlement of 19 November 1999. 10 It was submitted that the fact that the first and second respondents did not succeed on all of their points of defence, including the compromise point, did not mean that they should be deprived of any part of their costs. 11 It was submitted on behalf of the first and second respondents: 'Whilst the categories of cases in which indemnity costs will be awarded are not closed, the following situations have been recognised as enlivening the discretion to grant indemnity costs: (a) there has been misconduct or inappropriate conduct on the part of the party against whom indemnity costs are brought; (b) where a party brings or prolongs proceedings by making assertions which the party knows to be false; (c) where a party persists in what should, on proper consideration, be seen as a hopeless case; (d) where an applicant imprudently refuses a formal offer of settlement or a Calderbank offer to settle and, in the end result, the offer is not bettered by a judgment in the applicant's favour.' 12 It was additionally submitted that this was a proper case for indemnity costs for the first and second respondents, because the formal offers that were made in September and November 1999, if accepted, would have resulted in the applicant being paid a substantial amount by way of commercial compromise, together with its costs; further, the applicant having imprudently chosen to persist in, rather than compromise, a dishonest and dubious claim meant that the proper order was one for indemnity costs. 13 For the third respondent it was submitted that, since no compromise had been proved, the first and second respondent should be ordered to pay the costs of the third respondent, Mr Hammond, or alternatively those costs should be paid by the applicant. It was further submitted that Mr Hammond should receive his costs assessed on an indemnity basis, because the claim of compromise, as alleged by the first and second respondents, was one which, it was said, the Court found "impossible to accept", and because Mr Hammond made a Calderbank offer to the applicant which was passed on to the first and second respondents and which was unreasonably refused. 14 Expectation joined Mr Hammond as the third respondent to the proceedings. That joinder was a direct consequence of the first and second respondents having belatedly raised the allegation of a compromise. As my reasons for judgment noted at par 93: 'The question of compromise was never mentioned until the second firm of solicitors acting for PRD Realty instigated the question of a compromise.' 15 It was submitted by the third respondent that ultimate responsibility for the making of the compromise allegation must rest with the first and second respondents and was the sole reason for the joinder of Mr Hammond to the proceedings. It was submitted that: 'The just disposal of the proceedings requires a Sanderson costs order, namely an order made against the first and second respondents in favour of Mr Hammond.' It was submitted that the conduct justifying that order is the conduct of the first and second respondents in belatedly making and persisting with a claim which, the third respondent said, was "inherently unbelievable" and naturally resulted in the joinder of Mr Hammond. Alternatively, it was submitted that an order should be made requiring Expectation to pay Mr Hammond's costs, but with an indemnity in respect of those costs from the first and second respondents, relying on Nella v Kingia Pty Ltd (1989) 11 ATPR at 50,402 at 50,405-6. 16 The claim for Mr Hammond's costs on an indemnity basis was premised on the claim that the party persisted in what should, on proper consideration, be seen as a "hopeless" case, and that there was an imprudent refusal of a formal offer of settlement or a Calderbank offer to settle and, in the end result, the offer is not bettered by a judgment in the applicant's favour. 17 Mr Hammond had, on 3 March 2000, written to Expectation's solicitors offering to settle the claims made against him by Expectation on terms that Expectation discontinue its claims against Mr Hammond, and that both Expectation and Mr Hammond bear their own costs of and incidental to Expectation's claim against Mr Hammond. The letter concluded: 'Should your client not establish its claims against our client in the action, our client will contend that your client should pay our client's costs from the date of the expiry of this offer on an indemnity basis.' This letter was passed on to the first and second respondents. The solicitors for Expectation wrote to Expectation on 10 March 2000, saying: 'Due to the claim made by the respondents in their defence, our client is not in a position to accept your client's offer. Our client has however put the respondents on notice of the offer made by your client and his statement that he will seek his costs on an indemnity basis.' 18 For the applicant it was submitted that costs should follow the event and that Expectation, having failed in its claims with respect to Benowa Gardens and Broadway on the Mall, should be ordered to pay the costs of the first and second respondents with respect to those claims. It was submitted that there was no warrant for awarding those costs on an indemnity basis. 19 Concerning the compromise claim of the first and second respondents which was found not to have been made out, the applicant say that the first and second respondents should be ordered to pay the third respondent's costs, together with the applicant's costs relating to that issue. 20 It was submitted that it was necessary for Expectation to join Mr Hammond, having regard to the amended defence pleading the agreement of compromise, particularly having regard to the requirement in O 6 r 8 of the Federal Court Rules to "ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon". It was pointed out for Expectation that Expectation's approach to the claim of compromise was to deny that any such agreement of compromise was struck, but to guard against the contrary finding by seeking indemnity against the third respondent. That was Expectation's pleaded case and its position at trial, and it was submitted Expectation could not validly be criticised for an approach which, it was claimed, was entirely reasonable. 21 The Court's power to award costs is contained in s 43 of the Federal Court of Australia Act 1976. That section relevantly provides: '(1) Subjection to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. … (2) Except as provided by any other Act the award of costs is in the discretion of the Court or Judge.' 22 Order 62 of the Federal Court Rules makes detailed provision in relation to costs. However, that order deals only with costs on a party and party basis and not on a solicitor/client or indemnity basis. Order 23 of the Rules concerns "Offer of Compromise and Payment into Court". Weinberg J noted in Alpine Hardwood Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121('Alpine Hardwood')at par 12, that the purpose of O 23 is: '… to provide a structure which encourages the parties to make and consider fair and reasonable offers to settle proceedings. It provides a means of protecting a party's position in relation to costs in circumstances where the other party has taken an unrealistic view of the merits of its case: Smith v 600 Machinery Australia Ltd [1996] FCA 1029.' 23 Of particular relevance to this case is the provision of O 23 r 11(5) which provides: '11(5) [Costs orders where non-acceptance by applicant and applicant obtains particular judgment] If: (a) an offer is made by a respondent and not accepted by the applicant; and (b) the applicant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer; then, unless the Court otherwise orders: (c) the applicant is entitled to an order against the respondent; and (d) the respondent is entitled to an order against the applicant; for costs in respect of the claim taxed as provided in subrule (6).' 24 In this particular case the applicant did not "obtain judgment on its claim" at all. That position was the subject of comment by Weinberg J in Alpine Hardwood atpar 16: 'It is peculiar that none of the provisions of O 23 deal with the situation where an applicant has rejected an offer of compromise, and subsequently been entirely unsuccessful in establishing liability. That situation has, of course, arisen on many occasions. It has been dealt with, broadly speaking, in conformity with the principles which underlie O 23. His Honour noted that O 23 does not constitute a code so as to prevent parties from being able to rely upon the principles developed at common law in relation to what is known as "Calderbank letters": Calderbank v Calderbank (1975) 3 All ER 333. 25 The offers in this case were O 23 offers and were not Calderbank offers. As to Calderbank offers, the Full Court (Miles, Heerey and Madgwick JJ) in Black v Lipovac [1998] FCA 699discusses a number of cases, to the effect that a mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs, the offeror needing to show that the conduct of the offeree was unreasonable. 26 In my respectful view, the correct approach is to be found in the observations of Wilcox J in Coshott v Learoyd [1999] FCA 276, where his Honour observed at par 37: 'Order 23 of the Rules covers offers of compromise by any party to any other party: see rule 2. The offer made in this case complied with the formal requirements of rule 3. Rule 11 sets out provisions concerning costs. Where an applicant makes an offer which is not accepted by the respondent and the applicant obtains a judgment not less favourable than the terms of the offer, the applicant is prima facie entitled to have costs on an indemnity basis as from the date of the offer. Where a respondent makes an offer that is not accepted and the applicant obtains a judgment not more favourable than the terms of the offer, the applicant is prima facie entitled to party-party costs until the day after the offer and the respondent to party-party costs thereafter. However, rule 11 does not cover the situation that occurred in this case, where a respondent's offer is rejected and the applicant is wholly unsuccessful. Apparently the situation is similar under the equivalent rule of the New South Wales Supreme Court. The omission was pointed out, and deprecated, by Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425. Nonetheless, Rolfe J awarded the defendant costs on an indemnity basis as from the date of rejection by the plaintiff of an offer of compromise made by the defendant.' 27 As a matter of principle, the fact that the evidence of a witness is not accepted is not of itself a sufficient basis for the award of indemnity costs. As the Full Court of the Federal Court (Spender, Foster and Branson JJ) observed in McHattan v Saramoa Charters Pty Ltd [1996] FCA 891 at page 15: 'The fact that an Application fails because the Applicant is disbelieved on important elements of the Application does not generally call for the award of indemnity costs.' 28 Apart from the question of whether costs should be on an indemnity basis or on a party and party basis, there is the question in this case as to whether the issue of the agreement to compromise could call for an order other than the usual orders as to costs. In Hughes v Western Australian Cricket Association (Inc)[1986] 8 ATPR 48,134 at 48,136 Toohey J said that there are decisions that "throw light on the way in which the discretion is to be exercised" and set out a summary of the effect of certain authorities, saying: '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.' 29 I have had regard, on previous occasions, to the caveat by Jacob J in Cretazzo v Lombardi (cited above) at page 16, where his Honour sounded what he described as "a note of cautious disapproval" of applications to apportion costs according 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. His Honour commented: '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.' 30 Here, there can be no argument in my opinion that the issue of an agreement of compromise was quite a discrete question, and severable from the other issues in the principal litigation, and one which called for the joinder of Mr Hammond by the applicant. Contrary to the submissions on behalf of the first and second respondents, this issue was a significant part of the proceedings, and was the sole reason for the presence and participation of the third respondent in the trial. 31 Einstein J in a revised judgment of 20 May 2003 in Mobile Innovations Ltd v Vodaphone Pacific Ltd [2003] NSWSC 423 at par 4 of his reasons for judgment collected a number of specific cases dealing with the ordering of costs on an "issues" basis. His Honour referred to the observations of McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72, particularly at pp 96-98. 32 Notwithstanding the tendency in the cases which support apportionment as an appropriate method of dealing with costs where there has been partial success on discrete issues, the observation of Bray CJ in Cretazzo v Lombardi (supra) at page 11 is in my opinion to be borne faithfully in mind: 'Order 65, r 1 provides generally that all costs shall be in the discretion of the court or judge, subject to a proviso irrelevant for the present purpose. Time and again attempts have been made to fetter that general discretion by the imposition of judge-made rules. Time and again those fetters have been released by appellate courts. I think the guiding principle still stands as it left the House of Lords in the famous case of Donald Campbell & Co v Pollak [1927] AC 732, that the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation.' 33 In the light of all the above, I consider that a fair order as to costs is to order that the applicant pay the first and second respondents' costs of and incidental to the proceeding, including reserved costs, save and except the costs of the first and second respondents in relation to the issue of an agreement of compromise. Those costs are to be taxed on a party and party basis up until 19 September 1999, and the costs subsequent to that date on the basis that such costs are to include all costs except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the first and second respondents will be completely indemnified by the applicant for their costs. 34 While I do not think it right that the first and second respondents should have their costs on the discrete issue of the agreement to compromise (on which they were unsuccessful), I do not think it appropriate to order the first and second respondents to pay the applicant's costs on that issue. I think it appropriate to order costs on an indemnity basis, from the date of the first offer of settlement, having regard to the philosophy reflected in O 23 r 11(5). 35 As to the costs of the third respondent, I think it appropriate to make an order of a Bullock or Sanderson type in respect of Mr Hammond's costs. I order that the first and second respondents pay the third respondent's costs of and incidental to the proceeding, including reserved costs if any. Those costs are to be paid on a party and party basis. I do not think it appropriate to order those costs on an indemnity basis. 36 As Black CJ said in Re Wilcox; Ex parte Venture Industries (1996) 72 FCR 151 at 152 and 153: '… indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court exercising its discretion in that way. See John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 203 per Hill J, referring to the judgment of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. But as Hill J pointed out in John S Hayes (at 203):