_Fick v Groves

Supreme Court of Queensland|2010-05-28|Before: Applegarth J

[1] On 30 March 2010 I gave judgment for the defendants and, subject to further submissions on costs and security for costs, ordered that the plaintiffs pay the defendants' costs of the proceeding, including reserved costs, to be assessed.[1] The parties have since filed written submissions. The defendants seek an order that the costs awarded to them be assessed on an indemnity basis. The defendants' submissions state that the application is founded on the following four bases:

"The first is the institution of proceedings without any proper foundation.

The second is the subsequent maintenance of the proceedings in the face of overwhelming and uncontradicted evidence demonstrating the absence of any substantive foundation for the allegations made in the proceedings.

The third, which in the circumstances of these proceedings to some extent overlaps with the first and second, is the failure to conduct proceedings so as to facilitate the just and expeditions (sic) resolution of the real issues at a minimum of expense in breach of UCPR r.5.

The fourth is the rejection of reasonable offers of compromise."

The plaintiffs submit that the costs should be assessed on a standard basis. They further submit that if the costs assessed on that basis are not agreed within 14 days of the date of my order, they should be assessed by certain nominated cost assessors, with each party bearing 50 per cent of the assessor's fees.

[2] The plaintiffs also seek an order that upon giving certain undertakings not to further mortgage, charge, sell or otherwise encumber or deal with certain real property, which I will simply describe as Bonny Downs, other than for the purposes of satisfying the costs order in this matter and any existing encumbrances, the order of Douglas J dated 24 December 2009 be revoked. The defendants oppose this and seek a continuation of the consent order which was made by Douglas J, which was in the nature of a consent injunction by way of security for costs.

[3] In Thiess Pty Ltd v FLSMIDTH Minerals Pty Ltd (No. 2),[2] McMurdo J cited the leading authorities on the circumstances in which an order for indemnity costs may be justified. Some authorities require unreasonable conduct on the part of a litigant. Chesterman J in Todrell Pty Ltd v Finch (No. 2)[3] preferred a criterion of "something irresponsible about the conduct of the losing party which exposed its opponent to costs which should, in fairness, be ordered on the indemnity basis". As McMurdo J observed in Thiess Pty Ltd,[4] whether the criterion is that of unreasonableness or irresponsibility, there must be something about the facts and circumstances beyond the demerit of a party's case, as reflected in the outcome, before such an order is warranted.[5]

[4] The judgment of Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd[6] is frequently cited in this context. It is authority for the proposition that the circumstances which may be considered to warrant the exercise of the discretion to award costs on an indemnity basis include:

the fact that proceedings were commenced or continued in wilful disregard of known facts;

the making of allegations which ought never to have been made;

the undue prolongation of a case by groundless contentions;

evidence of particular misconduct that causes loss of time to the Court and to other parties;

any imprudent refusal of an offer to compromise.

The commencement and continuation of proceedings without any proper foundation

[5] The proceeding was commenced on 30 June 2005 on the basis of representations that differ substantially to those relied upon at trial. For example, the original pleading included representations about the type and productive capacity of avocado trees on Bonny Downs and the commercial productivity of certain varieties of avocado trees. The fact that the plaintiffs eventually desisted from many of these allegations may suggest that they were unfounded. For example, the comprehensive statement of Kate Groves that was provided to the plaintiffs in December 2005 addressed the history of avocado production, the suitability of varieties and their commerciality. However, I am not in a position to confidently reach the conclusion that these and other discontinued parts of the plaintiffs' case were initiated without any proper foundation.

[6] Moreover, the plaintiffs should not be penalised for eventually confining their case by abandoning unmeritorious aspects of their claim. As a general rule, parties should be encouraged to abandon factual and legal contentions that they come to realise have poor prospects of success. They should not be placed in peril of an award of indemnity costs against them on the basis that abandoning such contentions indicates that the claim was always known to be hopeless. Absent direct evidence that the plaintiffs always knew that an abandoned part of their case was hopeless, and absent a reliable foundation upon which to infer such knowledge, I am not prepared to find that the plaintiffs knew at the time they commenced the proceedings that the parts of the claim that they abandoned, such as the issues concerning avocado varieties, were hopeless.

[7] The frequent amendment of the plaintiffs' claim, including the abandonment of parts of their claim, has other implications for costs, since it required the defendants to expend considerable personal time and legal costs preparing for issues that were abandoned. I shall later address these issues concerning the plaintiffs' conduct of the litigation.

[8] The plaintiffs re-pleaded to make certain facsimiled documents the centrepiece of their case on representations, whereas no reference was made to these documents in their original pleading. This late shift in focus is apt to give the impression that the original claim was contrived when it asserted reliance upon representations that the plaintiffs knew had been subsequently qualified by the revised estimates in the facsimiled documents. However, I am not prepared to find that the original pleading was based upon facts that were known to be untrue in this regard.

[9] Of greater significance for the purpose of indemnity costs is the plaintiffs' persistence in a case about the number of productive macadamia trees on

Bonny Downs at the time of sale, being a case that the plaintiffs knew did not accord with the facts. Their claim that the farm was worth far less than they paid for it was at odds with a valuation prepared by Mr Clarkson in June 2005.

Mr Clarkson's valuation was based upon Mr Fick's instructions that there were 4,500 "effective macadamia trees". Mr Clarkson's assumption that there were 4,500 commercially viable macadamia trees was consistent with his own observations.[7] It is not as if Mr Vimpany's later report persuaded Mr Fick that he was wrong in his own count of the number of effective macadamia trees that were on the property in May 2004. Mr Fick acknowledged under cross-examination that the assertion in the amended pleading about the number of productive trees was based solely on Mr Vimpany's assessment, and that both in June 2005 and

May 2008 he had a different view, namely that there were roughly 4,500 trees that looked to be good trees.

[10] I conclude that the plaintiffs made and persisted in a claim about the number of productive macadamia trees that were on Bonny Downs, contrary to the known facts.

[11] As to macadamia nut production, in early 2005 the plaintiffs may have suspected that the estimated production of macadamia nuts on Bonny Downs in 2004 and earlier years had been overstated by the defendants. Certain mistaken information supplied by Ms Horton about tonnages on Bonny Downs was apt to arouse suspicion. The defendants' assurances and their offer to the plaintiffs to inspect the defendants' documents in order to verify matters may not have been enough to convince the plaintiffs that they had not been misled. Acceptance of the defendants' offer to inspect documents prior to any litigation and an objective analysis of them probably would have persuaded the plaintiffs that the defendants' figures were reasonably reliable for the reasons given in my judgment. The decline in macadamia nut production in 2005, compared to the represented 2004 figures, may have convinced Mr Fick that he had been misled about past production. However, a more objective view is that the decline was due to his failure to maintain the orchard and to harvest it in accordance with the standards achieved by the defendants.[8]

[12] I am reluctant to find that the plaintiffs commenced their claim in respect of macadamia nut production without any foundation. However, this aspect of the claim was largely speculative and based on suspicion. It was commenced without the plaintiffs availing themselves of the opportunity to inspect the defendants' records, and in the hope that their claim would be supported by the defendants' disclosure.

[13] The history of disclosure in the proceedings comes with its complexities. However, by October 2005 the defendants had made disclosure of documents relating to their past combined production, including batch reports, receival reports and associated transport documents for macadamia production for the years 2000 - 2005.

[14] A comprehensive account of the defendants' case, with voluminous supporting documents, in the form of Kate Groves' statement was provided by the defendants to the plaintiffs on 22 December 2005. Although Kate Groves was not qualified as an independent expert in macadamia or avocado production, her statement was in the nature of a report, and was the repository of substantial information and analysis. That analysis broadly reflected the conclusions that I reached.

[15] Proper analysis by the plaintiffs in late 2005 and early 2006 of the defendants' documents and of Kate Groves' statement, and inquiries of non-parties, including Ms Horton and Mr Hartnett, would have served to establish that the representations made by the defendants concerning macadamia nut production were reliable. For example, the plaintiffs were easily able to reach the conclusion that the bins that were mechanically harvested by Mr Hartnett had an average weight in excess of 200 kilograms NIS. They were in a position to reconstruct the quantity of NIS harvested by him by reference to his timesheets.

[16] Rather than face reality, the plaintiffs resorted to speculative theories, unsupported by evidence, including the contention that the defendants had sourced NIS from places other than Bonny Downs and The Nut Farm.

[17] I conclude that the plaintiffs persisted in a practically hopeless case in relation to macadamia nut production on Bonny Downs and that proper analysis of the evidence by early 2006 would have led them to conclude that their claim was practically hopeless.

[18] An additional and important aspect of the plaintiffs' persistence in claims that they knew to be unmeritorious is their persistence in a claim for substantial economic loss of an order that brought the matter within the jurisdiction of this Court. The plaintiffs did so whilst not disclosing Mr Clarkson's valuation of June 2005. It was not disclosed until the defendants fortuitously discovered a receipt for it in documents disclosed in the plaintiffs' third list of documents, and it was produced on 5 December 2008.[9] The Clarkson valuation broadly accords with my findings in relation to the value of Bonny Downs and the plant and equipment that was sold with it.

[19] The plaintiffs point to the fact that Mr Fuller arrived at a different valuation, but

Mr Fuller's valuation was based upon specific instructions about the number of productive trees, being a figure which Mr Fick knew to be unreliable, even though it was sourced from Mr Vimpany's report. The circumstances in which

Mr Clarkson's valuation was not disclosed when it should have been were not adequately addressed by the plaintiffs. I am not prepared to simply accept the assertion that it was not disclosed due to the fault of a former solicitor. Mr Fick knew that the number of productive macadamia trees on the property accorded with that contained in Mr Clarkson's valuation and vastly exceeded the number that

Mr Fuller was asked to assume. In the end result, the plaintiffs persisted with a claim for loss and damage that they knew was grossly overstated.

[20] Overall, the plaintiffs persisted in presenting a case about the number of productive trees and therefore the value of Bonny Downs that they knew did not accord with the facts. Mr Vimpany's contentious definition of what constituted a productive tree and therefore the number of productive trees on Bonny Downs does not alter the fact that Mr Fick at all material times knew that in May 2004 there were approximately 4,500 productive trees and that, therefore, Bonny Downs had a value of approximately the amount reported by Mr Clarkson. Despite this, the plaintiffs persisted in an unfounded claim for substantial damages.

[21] They also persisted with a claim for trading losses which was ill-conceived, doubtful in point of law and suspect in its quantification. It was eventually abandoned.

[22] I conclude that the proceeding was commenced on a largely speculative basis, although I am not prepared to say that it was commenced by the plaintiffs knowing that it was unfounded. The quantum of the plaintiffs' claim was grossly and knowingly exaggerated. The claim was persisted in after the plaintiffs received discovered documents and a comprehensive report which detailed the defendants' case in a thorough way, supported by documents and analysis. By early 2006, if not earlier, the plaintiffs should have realised that their claim had no real prospects of success. Yet they persisted in it and did not disclose Mr Clarkson's valuation which tended to show that their "loss" at the time of the transaction was substantially less than $50,000. The plaintiffs persisted in expensive Supreme Court litigation in respect of an ill-founded claim which, if successful, would have resulted in an award of damages within the jurisdiction of the Magistrates Court.

[23] I conclude that after early 2006 the plaintiffs persisted in a claim for substantial damages in circumstances in which their claims to having been misled lacked a proper foundation in fact and the quantum of their claim was known to be grossly exaggerated. I add for completeness that they persisted in a claim under the

Fair Trading Act without any proper legal basis for such a claim.

Undue prolongation of the case and breach of the obligations contained in UCPR 5

[24] The plaintiffs were delinquent in their conduct of the litigation. They were responsible for excessive delay and unnecessary prolongation of the proceedings. These matters were canvassed at length in the affidavits of Mr Banks that were filed in support of interlocutory orders and in his latest affidavit sworn 23 April 2010. The defendants do not respond in answering affidavits. However, I have regard to their submissions in relation to disclosure and the admission of documents.

[25] I am satisfied on the basis of Mr Banks' affidavits and having considered the parties' submissions that the plaintiffs did not attempt to comply with the rules relating to the engagement of experts, delayed and unnecessarily prolonged the proceedings, necessitated numerous interlocutory applications to be brought by the defendants and failed to provide timely disclosure including disclosure of the valuation report of Mr Clarkson. Their undue prolongation of the case constituted a contravention of their implied undertaking to the Court and to the defendants to proceed in an expeditious way.[10] An appropriate sanction for their failure to proceed in an expeditious way is an order for indemnity costs.

[26] The defendants incurred substantial costs in interlocutory proceedings that were necessitated by the plaintiffs' failure to comply with their implied undertaking to the Court and to the defendants, and by the need to obtain Court supervision in circumstances in which the plaintiffs were to blame for delays and complications in the proceedings. These included applications in 2008 which led to orders being made by Daubney J for the plaintiffs to file and serve amended pleadings. The plaintiffs' prolongation of the proceedings and their default in complying with rules in relation to pleadings generated costs that the defendants should not be required to bear. The defendants incurred the substantial financial costs of engaging legal representatives to bring interlocutory applications and to consider the plaintiffs' deficient and changing pleadings. The plaintiffs' delay was apt to cause personal distress to the defendants as well as uncertainty about the issues to be tried and the date of any trial.

[27] I conclude that the manner in which the plaintiffs conducted their case justifies an award of indemnity costs.

[28] On 16 August 2005 the defendants delivered a formal offer to settle, which would have allowed the plaintiffs to discontinue without paying the defendants' costs. The letter containing this offer also advised the plaintiffs that when the plaintiffs failed at trial, the defendants would seek an award of indemnity costs. The offer was made after the delivery of the defence and after the defendants had incurred substantial legal costs.

[29] On 22 December 2005 the defendants made a further formal offer for the plaintiffs to discontinue on the basis that the plaintiffs pay the defendants the sum of $32,000 on account of their costs. The defendants' costs on a standard basis were in this order, and the defendants contend that their 22 December 2005 offer represented a substantial benefit to the plaintiffs who were at risk of indemnity costs.

[30] The third offer was made on 11 September 2006, being an offer to settle on terms that the plaintiffs would discontinue their action and pay the defendants' standard costs up to and including 5 September 2006, less the sum of $10.

[31] The making of an offer to settle which offers a substantial benefit to a plaintiff who ultimately fails at trial does not necessarily entitle the defendant making the offer to indemnity costs. In some cases offers of compromise are made in circumstances in which the plaintiff is not in a position to properly assess the strength of the defendant's case. I follow the principles applied in this regard by the Chief Justice in Joelco Pty Ltd v Balance Securities Limited,[11] by A Lyons J in

Palmer & Anor v Finnigan[12] and by Dodds-Streeton J in Nolan v Nolan (No. 2)[13] who stated:

"I consider that a Calderbank letter is but one factor relevant to the discretionary determination of costs. A Calderbank offer is a significant factor in favour of indemnity costs but does not dictate them or require an order for indemnity costs as a matter of routine. The reasonableness of the offeree in rejecting a Calderbank offer is one important factor in determining the weight to be attributed to it. The degree of specificity of reasoning expressed in the letter, the stage at which the letter is received and the content of and response to the offer may all be relevant to the reasonableness."

[32] I respectfully adopt what was said by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian Work Cover Authority (No. 2)[14] that a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree's rejecting it.

The unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs.[15]

[33] In retrospect, the offer to settle of 16 August 2005 provided the plaintiffs with a substantial benefit. However, I decline to conclude that it was unreasonable for the plaintiffs to allow the offer to lapse. Although the plaintiffs' proceedings were speculative and a prudent course would have been to not commence them without proper analysis and investigation, the proceedings were in their infancy. However, the second offer coincided with the provision of the report of Kate Groves and by then the defendants had obtained substantial disclosure. It would have been prudent for the plaintiffs to have accepted the second offer. Their failure to accept that offer does not, in itself, persuade me to award indemnity costs from the date the offer lapsed, 21 days after it was served.

[34] By September 2006 the plaintiffs had had nine months to independently verify the matters set out in Kate Groves' statement. Well before September 2006 they should have realised that their claim was practically hopeless. They knew that its quantum was vastly exaggerated. The offer to settle on the basis of paying the defendants' costs assessed on a standard basis (less the sum of $10) had the benefit of removing an exposure to indemnity costs. The plaintiffs had been placed on notice in

June 2005 that the defendants would be seeking indemnity costs.

[35] I do not accept the plaintiffs' submission that there was no explanation as to the rationale of the offers nor any notification of significant defects in the plaintiffs' case. That notification was effectively given in the statement of Kate Groves in December 2005.

[36] If the only basis for a claim for indemnity costs was the imprudent refusal of a reasonable offer of compromise then I would have awarded indemnity costs after

25 September 2006, being the date upon which the third offer expired.

[37] The defendants have established a number of grounds for an award of indemnity costs. The plaintiffs persisted in proceedings without a proper foundation. This includes persisting in claims in respect of the number of productive macadamia trees and the value of Bonny Downs which were contrary to the facts known to

Mr Fick. They persisted in claims in relation to the macadamia production on Bonny Downs that were contradicted by documents and analysis. The plaintiffs unreasonably prolonged the proceedings and their failure to conduct them in accordance with the Court's rules and the plaintiffs' implied undertaking to the Court and to the defendants justifies an award of indemnity costs. Finally, the plaintiffs failed to accept a reasonable offer of compromise in September 2006.

[38] The plaintiffs persisted with a practically hopeless case and their case included claims that they knew were contrary to the facts. They failed to disclose an important valuation which, if disclosed, would have revealed their claim for substantial damages to be flawed. Rather than discontinue the proceedings in early 2006 after receiving a comprehensive and documented analysis of the defendants' case, the plaintiffs persisted with an inflated and flawed case. Their persistence in that case, and the manner in which they conducted it, generated substantial costs for the defendants in respect of which the defendants should receive a proper indemnity.

[39] In all the circumstances, I consider that the defendants should be awarded indemnity costs for the costs they incurred after 30 June 2006.

"The plaintiffs pay the defendants' costs of and incidental to the proceeding, including reserved costs, to be assessed:

(a) on a standard basis up to and including 30 June 2006;

The parties are at liberty to agree a process for the assessment and to agree upon a particular costs assessor. However, failing such agreement the costs will be assessed in accordance with the Rules.

[41] In May 2009 the defendants became aware that the plaintiffs had advertised

Bonny Downs for sale. This was the only real property owned by the plaintiffs in Australia. On 1 June 2009 the defendants brought an application seeking summary judgment and security for costs. Consent orders that effectively provided security for costs were made on 1 July 2009. They restrained the plaintiffs from dealing in any way with Bonny Downs until further order. On 17 July 2009 White J made consent orders that, in effect, restrained the plaintiffs from selling, disposing of, mortgaging, charging or otherwise encumbering or dealing with Bonny Downs without giving the defendants 14 days clear notice. This was subject to a proviso that the plaintiffs could mortgage, charge or otherwise encumber Bonny Downs to a financial institution up to an amount of $250,000. On 24 December 2009

Douglas J, by consent, ordered a further restraint in similar terms until judgment had been delivered in this proceeding, earlier order or agreement in writing between the parties. The defendants consented to mortgages that total $310,000 in respect of $250,000 owed to an individual for the purpose of legal costs and a further $60,000 owed to the plaintiffs' current solicitors for legal costs. Upon giving judgment in this matter on 30 March 2010 I varied the order of Douglas J so as to continue the restraint until further order.

[42] The plaintiffs seek revocation of the existing orders made by way of security for the defendants' costs and undertake not to further mortgage, charge, sell or otherwise encumber or deal with the real properly which I describe as Bonny Downs "other than for the purposes of satisfying a costs order in favour of the defendants in this matter and any existing encumbrances." The plaintiffs submit that they will be required to deal with, sell, dispose, mortgage or charge or otherwise encumber Bonny Downs should the costs order be in a substantial sum. They note that in the ordinary course of litigation the defendants would not have a caveatable interest as against Bonny Downs nor would the plaintiffs' consent to a caveat being placed over Bonny Downs, as an undertaking would suffice.

[43] I did not make provision for further submissions in response to the plaintiffs' submissions concerning security for costs. However, in a letter dated 12 May 2010 the defendants' solicitors shortly submit that there is no rational basis or practical purpose for the substitution of the undertaking for the injunction. They submit that the plaintiffs would obtain no further benefit if they comply with the undertaking and that the caveat does not impede the plaintiffs dealing with the property within the terms of the injunction. They submit that its removal would leave them completely exposed.

[44] I am not persuaded of the need to revoke, or the appropriateness of revoking, the existing orders by way of security for costs. If the defendants had pressed their application for security for costs or obtained a freezing order in mid-2009 in anticipation of costs orders being made in their favour, then the plaintiffs may have been required to pay an amount into Court by way of security for costs or been subject to restraints in similar terms to those to which they consented.

[45] If the plaintiffs are required to deal with, sell, dispose, mortgage or charge or otherwise encumber Bonny Downs in order to meet the costs order that I have made then there is scope to do so pursuant to the existing order by reaching agreement in writing with the defendants. Failing that, they can seek a variation of the existing order which was expressly made until further order. The former course may facilitate an arrangement whereby the proceeds of sale or any sum raised by way of further encumbrance is paid to the defendants' solicitors or otherwise secured in respect of their costs.

[46] I decline to revoke the order made by Douglas J on 24 December 2009, as varied by me on 30 March 2010. That order by way of security for the defendants' costs continues until:

(b) agreement in writing between the plaintiffs and the defendants.

The existing order makes provision for liberty to apply.

[1] Fick v Groves [2010] QSC 89.

[5] See also Anderson v AON Risk Services Australia Ltd [2004] QSC 180 at [2].

[7] Fick v Groves (supra) at [93] and [222].

[9] Affidavit of GJ Banks paras 80-84 and Exhibits GJB 14-16 (Court document 80).

[15] Ibid at [28]; see, for example Paroz v Paroz [2010] QSC 157 at [62].

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (95 paragraphs)

Parties

Cases Cited (2)