Foxeden Pty Ltd v IOOF Building Society Limited

1 On 17 February 2006 I published my reasons for judgment on damages in each of these proceedings.[1] I had earlier, on 19 September 2003, published my reasons for judgment on liability in each proceeding.[2] The result of the two lengthy hearings and two judgments was that I concluded that in proceeding No. 2078 of 2000 ("the Foxeden proceeding") the plaintiff, Foxeden Pty Ltd ("Foxeden"), was entitled to judgment against the first, and by the time of the damages hearing the only, defendant, IOOF Building Society Limited ("IOOF") in the sum of $435,747, and that in proceeding No. 2085 of 2000 ("the Taylor proceeding") the plaintiffs, Kenneth and Janet Taylor, were entitled to judgment against IOOF in the sum of $405,100.

2 The remaining issues, which involved yet a further hearing, concerned the questions of interest and costs. Prior to the hearing, the parties had served detailed written submissions on both issues.

Interest

3 Both Foxeden and the Taylors claimed interest, pursuant to s.60(1) of the Supreme Court Act 1986, on the entire amount of damages for the whole of the period from the commencement of the respective proceeding to the date of judgment at the maximum rate for the time being fixed under s.2 of the Penalty Interest Rates Act 1983 ("the Penalty Interest Act"). The parties were agreed that if this was the proper basis for the award of interest, the correct amount of interest for Foxeden as at 30 May 2006 was $294,360 plus $131.32 per day thereafter and that for the Taylors as at the same date it was $270,252 plus $122.08 per day thereafter. However, IOOF disputed that the plaintiff(s) were entitled to interest calculated in this manner.

4 Section 60(1) of the Supreme Court Act 1986 provides that:

"The Court, on application in any proceeding for the recovery of debt or damages must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of judgment over and above the debt or damages awarded."

5 In Clarke v Foodland Stores Pty Ltd[3] the Full Court held that the expression "good cause to the contrary" in s.58(1) of the Supreme Court Act meant:

"no more and no less than good reason, according to the justice of the case, for not allowing interest at all or, if interest is to be allowed, then for not allowing interest for the whole of the period marked out by the section."[4]

The Full Court also held that because the Court was given the power to allow interest at a "rate not exceeding" the rate fixed under the Penalty Interest Act, it always had a discretion to award a lesser rate without "good cause to the contrary" being shown.[5] In Hartley Poynton Ltd v Ali[6], the Court of Appeal held that this approach applied equally to s.60(1) of the Supreme Court Act.

6 The first submission advanced by Mr Macauley SC, who appeared with Mr Gurvich on behalf of the defendants, was that Foxeden and the Taylors ought not to receive interest at the penalty rates for the whole period from the date of commencement of the respective proceeding in respect of that component of their losses suffered progressively after the issue of the writs and before judgment, and should not receive any interest at all on that component of their losses yet to be suffered. In seeking to establish "good cause to the contrary", Mr Macauley referred to and relied on s.60(3)(b) of the Supreme Court Act 1986 which provides:

"If the damages awarded by the Court or jury include or if the Court in its absolute discretion determines that the damages awarded include any amount for--

...

(b) compensation for loss or damage to be incurred or suffered after the date of the award;

...

the Court must not allow interest in respect of any amount so included or in respect of so much of the award as in its opinion represents any such damages."

7 IOOF submitted that, although the plaintiff(s) were awarded damages for a lost opportunity, in practical terms the damages assessed under that head comprised losses suffered progressively over time extending well beyond the date of judgment. It was submitted that, because damages for breach of contract were awarded once and for all, a single figure had to be awarded to compensate for all past and future losses. Further, IOOF submitted that there was no good reason why the damages awarded for such loss should not be seen to include compensation for loss or damage incurred or suffered after the issue of the proceeding and beyond the judgment date.

8 Accordingly, IOOF prepared tables showing the expected progressive receipt of the up front commissions and trail commissions by both Foxeden and the Taylors over the 12 year period between the year ending 30 June 2000 and the year ending 30 June 2012. In the case of Foxeden the resultant figure of $592,803 was discounted by 35% in accordance with my damages judgment[7] to reach a figure of $385,322. This in turn was calculated to be made up of three components:

(a) Discounted commissions earned before writ issued $113,983

(b) Discounted commissions earned after writ and

before judgment $246,103

(c) Discounted commissions earned after judgment $ 25,236

$385,322

9 In the case of the Taylors the total amount resulting from the 12 year table was $603,728 which discounted by 35%[8] led to a figure of $392,423. This also was calculated to be made up of three components:

(a) Discounted commissions earned before writ issued $115,585

(b) Discounted commissions earned after writ and before

judgment $250,816

(c) Discounted commissions earned after judgment $ 26,022

$392,423

10 IOOF submitted that in respect of the second category, namely discounted commissions earned after writ and before judgment, some interest was payable to the plaintiff(s). However, the appropriate rate to be applied, according to IOOF, was not a penalty rate but a rate which reflected the time cost of money. Relying on the evidence of Professor McMaster this was said to be 5.22% per annum. IOOF further submitted that in respect of the third category, namely discounted commissions earned after judgment, no interest at all should be allowed.

11 Mr Macauley referred me to the decision of the High Court of Australia in Ruby v Marsh[9]. This case is authority for the proposition that an award of damages made under Part III of the Wrongs Act 1958 for loss of financial support caused by wrongful death does not include any amount in respect of compensation for loss and damage to be incurred or suffered after the date of the award within the meaning of s.79A(3)(b) (now s.60(3)(b)) of the Supreme Court Act. At issue in that case was whether the fact that the calculation of damages for a dependent person took into account the expected receipt of future financial support from the deceased, meant that the consideration of interest to be payable on the damages attracted the operation of the equivalent of s.60(3)(b). In other words, did such damages include an amount for "compensation for loss or damage to be incurred or suffered after the date of the award"?

12 Mr Macauley submitted that although the majority (Barwick CJ, McTiernan J and Gibbs J) held that such an award did not include amounts for loss or damage to be incurred after the date of the award, that decision was confined to the particular nature of a Wrongs Act "widow's" claim. He submitted that neither Gibbs J nor the minority judges (Stephen J and Jacobs J) considered that the same principle should apply, for example, to an injured plaintiff who sued for loss of earning capacity where the measure of his or her damages included lost earnings after the date of the issue of the writ, and even after the verdict was given. Thus, Gibbs J said:

"It is true that it is often said that what the incapacitated plaintiff has lost is his earning capacity, a loss which is suffered when the injury occurs, but the position is stated more precisely in Graham v Baker [1961] HCA 48; (1961) 106 CLR 340 at p.347, where it was said that 'an injured plaintiff recovers not merely because his earning capacity has been diminished but because the diminution of his earning capacity is or may be productive of financial loss'. When an award includes an amount intended to compensate the plaintiff for the financial loss that is likely to be produced in the future as a result of the diminution of his earning capacity, the words of sub-section (3)(b) would appear to me to be satisfied if such amount is specified in the findings, judgment or verdict." [Emphasis added]

13 Mr Macauley further submitted that Stephen J and Jacobs J, although both minority judges, urged an approach to the construction of s.60(3)(b) that reflected a practical notion of damages, rather than a conceptual, juristic concept, by looking at the damages awarded and asking whether any part of them compensates for a particular type of loss or damage categorised by reference to a temporal factor, namely whether it was to be incurred or suffered before or after the date of the award.[10]

14 Therefore, Mr Macauley submitted that in the context of the present case, whilst it might be argued that what the plaintiff(s) had been compensated for was the loss of an opportunity, which opportunity was lost on or about 30 June 1999, the practical measure of the damages had been calculated by reference to earnings expected to be received from 1 July 1999 through to the end of 2012. In those circumstances, he argued that the Court should specify the component of the damages awarded as compensation for loss to be incurred after the date of judgment, and then not award any interest in respect of such amount.

15 I do not accept that IOOF has shown "good cause to the contrary" by virtue of the above submission. As the plaintiff(s) pointed out in their submissions, the argument advanced by IOOF appeared to overlook the fact that the damages awarded to the plaintiff(s) had been discounted to take into account not only the degree of probability that the lost chance may not have come to pass at all or in part but also "that any lost income would have been received over time and not all at once on 1 July 1999."[11] In deciding on the appropriate rate to use in discounting the lost income back to a net present value as at 1 July 1999 I accepted the evidence of the defendant's expert, Ms Murone, in preference to that of the plaintiff(s) expert, Professor McMaster, and used a figure of between 10% and 15%.[12] Therefore, it seems to me that it is not correct to regard the damages awarded to the plaintiff(s) as including any amount for "compensation for loss or damage to be incurred or suffered after the date of the award." On the contrary, as the damages have been assessed, in accordance with the general rule, as at the date of the first defendant's breach, the plaintiff(s) must be regarded as having been kept out of the whole of the discounted amounts since 1 July 1999. Accordingly, there is no reason not to award interest on the full amount from the date each proceeding was commenced.

16 Furthermore, I do not agree with IOOF's analysis of the decision in Ruby v Marsh. It seems to me that whatever may have been the view of Gibbs J, and the minority judges, Stephen J and Jacobs J, about interest on damages for loss of an injured plaintiff's earning capacity, the reasoning of the majority clearly favours the conclusion that the damages in this case, which have been discounted back to the net present value as at the date of breach, should bear interest for the whole period. I include Gibbs J in the majority on this point because his Honour clearly distinguished between damages for personal injury and damages for the lost chance to earn income. Gibbs J said that the former:

"... represent compensation for all the consequences of the injury; those consequences may include loss incurred or damage suffered in the future. For example, it may be seen that as a consequence of the injury it will be necessary to incur medical and hospital expenses after the date of the award and an amount awarded in respect of those expenses will be compensation for a loss to be incurred after the date of the award. It is further my opinion that damages for economic loss that will probably be incurred in the future as a result of the injury come within s.79A(3)(b)."[13]

"Viewed solely from the point of view of pecuniary loss, the position of a widow or child whose husband or father has been killed is analogous to that of the owner of a profitable business which has been forced to close; such an owner suffers a loss when the business ceases, and not at some later time when he might have received income from the business if it had continued to remain in existence."[14]

17 Finally, I consider that this first submission of IOOF is shown to be incorrect by a passage in the judgment of Ormiston JA, with whom Buchanan and Eames JJA agreed, in Hartley Poynton. In relation to the issue whether the rates prescribed by the Penalty Interest Act should be awarded on top of damages for loss of opportunity, his Honour said:

"... I would see no reason ordinarily to deprive a party of interest at the rates prescribed unless it was unfair to do so and in particular unless it could be shown that there was in effect double counting by awarding interest on those damages."[15]

By virtue of the discounting back to a net present value as at 1 July 1999 there is, in my opinion, no element of the unfairness or double counting referred to by Ormiston JA.

18 IOOF's second submission concerning the establishment of "good cause to the contrary" was that the plaintiff(s) ought not to receive interest for the period of time between the conclusion of the liability trial and the commencement of the damages trial (either at all or over the whole period and/or at the full rate permitted under the Penalty Interest Act) because the plaintiff(s) were wholly or at least partly responsible for the delay occasioned by the order splitting the trial into separate liability and damages hearings. An alternative justification for the same result, which was advanced by the defendant, was that the plaintiff(s) were manifestly unprepared to run their damages trial in March 2002, as shown by the fact that they were still attempting to formulate their losses in October 2004.

19 In my reasons for judgment on liability I stated:

"Regrettably, due to the exceedingly late and disjointed discovery by the defendants of a substantial number of extra documents, the late amendments to the statement of claim in both proceedings and the consequence that the hearing was clearly going to exceed its estimate of duration of 7 to 10 days, I decided at an early stage that the issues of liability and damages would have to be split."[16]

Given that this ruling came close to the end of day 6 of an estimated seven to ten day trial, following the virtual loss of four days of hearing due to the late discovery by the defendants, it is an exceedingly bold submission by IOOF that the splitting of the trial was "wholly" the responsibility of the plaintiff(s). No doubt the late amendments by the plaintiff(s) to their claims played a part in the decision to split the trials, but it is not correct for IOOF to state that "the reason for the splitting of the trial was principally due to the late amendment to the claim by the plaintiffs." The plaintiff(s)' late amendments were simply the culmination of the serious delays already caused by the defendants' failure to give proper discovery. Thus, as I have said, four days of the ten days allowed for the hearing of these two Commercial List proceedings had been lost by the time I ruled that the trial would have to be split.

20 Further, with the benefit of hindsight, it can now be seen that even without the above problems the trial of the two proceedings was never going to finish within 10 days. A more appropriate estimate would perhaps have been 10 to 12 days for each proceeding.

21 I therefore consider that the delay occasioned by the order splitting the trial into separate liability and damages hearings is no reason to deny the plaintiff(s) interest during the period in question.

22 I also reject IOOF's alternative justification. It seems to me that it is only speculation to suggest that the plaintiff(s) would not have been able to run the damages case in 2002. It is obviously correct that such a case may have been different to that eventually run by the plaintiff(s), but that does not mean, in my opinion, that I should conclude that if the trial had not been split that the plaintiff(s) would have been forced to seek an adjournment to enable them to prepare their claims for damages. There was, after all, an expert report by a forensic accountant which formed the basis of the plaintiff(s)' claims at that first hearing and they may have been quite content to proceed on that material if the trial had not been split.

23 Finally, IOOF emphasised that the plaintiff(s)' formulation and calculation of their alleged losses and damage have fluctuated wildly, both in concept and arithmetic, from the date of the issue of the writs until after the conclusion of evidence in the damages trial. A summary of the history of the changes in the way in which the plaintiff(s)' claims were put is set out in my reasons for judgment on damages.[17]

24 IOOF referred to the summary by Gillard J in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No. 3) of the three main objectives in the awarding of interest:

"First, as compensation to the judgment creditor for being out of the funds from the date of commencement of the proceeding until judgment; secondly, to deter judgment debtors from delaying proceedings and thereby having the use of the money for a longer period; and finally, to encourage defendants to make realistic assessments of their liability in a case and to take bona fide steps to compromise the claim."[18]

It was then submitted that measured by the objective of encouraging early payment, the plaintiff(s) ought not to be awarded any higher rate of interest than the rates set out above for which IOOF contended. Mr Macauley submitted that the constant changing of the plaintiff(s)' claim meant that the first defendant was deprived of a reliable particularisation of the claims for damages and of the opportunity to know what was really being claimed with a view to making an offer of settlement.

25 It was not clear to me whether this argument was put forward as a separate "good cause to the contrary" or whether it was simply advanced as a reason for exercising my discretion not to award interest at the maximum rate. However it was put, I do not agree with the submission. From the outset of each proceeding, both Foxeden and the Taylors made it clear that the principal claim for damages was for the loss of the value of the business each had prior to the defendant's breach. What followed thereafter over a period of some years was their various attempts to put forward a method of calculating that loss. Eventually it was pleaded as a number of different lost opportunities. Given the pre-existing financial relationship between the parties, it seems to me that IOOF was in a position where it could have assessed for itself what losses it considered had been suffered by the plaintiff(s) and taken the appropriate steps if it had wished to do so. That assessment was not dependent on the grossly overstated claims made by the plaintiff(s).

26 Even if I am wrong on this conclusion, it remains the position that the first defendant has had the use of the amounts of money which I have held should have been paid to the plaintiff(s) on 1 July 1999. I therefore consider that it is appropriate to award interest to the plaintiff(s) on those sums at the maximum rate from time to time under the Penalty Interest Act from the date of commencement of each proceeding until the date of judgment.

27 I therefore propose to enter judgment for the plaintiff in the Foxeden proceeding in the sum of $435,747 together with interest pursuant to statute in the sum of $295,410 and to enter judgment for the plaintiffs in the Taylor proceeding in the sum of $405,100 together with interest pursuant to statute in the sum of $271,230.

Costs

28 I turn then to the question of costs. Section 24(1) of the Supreme Court Act 1986 states that:

"Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid."

Pursuant to r.63.02 of the Supreme Court Rules, the power and discretion of the Court as to costs under s.24 is to be exercised "subject to and in accordance with" the provisions of Order 63.

29 IOOF did not dispute that, given my reasons for judgment, the plaintiff(s) would be entitled to an order that the first defendant pay their costs of each proceeding, in accordance with the ordinary rule that costs follow the event. This was, however, subject to a small number of matters where the first defendant submitted that it was entitled to a costs order in its favour. Secondly, IOOF disputed that the plaintiff(s) were entitled to their costs on any basis other than on a party and party basis. Finally, it was submitted that the second, third and fourth defendants were entitled to an order for costs in their favour as the claims against them failed at the liability judgment stage.

30 I need to look at each of those issues in turn, starting with the question of the basis on which the plaintiff(s) are to be awarded their costs. The plaintiff(s) submitted that in the circumstances of these proceedings an award of costs on a party and party basis was not appropriate and that all of their costs ought to be assessed on an indemnity basis. Alternatively, the plaintiff(s) submitted that certain of their costs ought to be the subject of an order for a percentage increase pursuant to r.63.34(3) of the Supreme Court Rules. Alternatively, the plaintiff(s) submitted that at the very least the costs of a number of specified days should be paid on an indemnity basis.

31 The circumstances in which an award of costs on an indemnity or other higher basis might be appropriate was considered by the Court of Appeal in PCRZ Investments Pty Ltd v National Gulf Holdings Ltd[19]. In that case Chernov JA said:

"The authorities which deal with this issue recognise that, although ordinarily the court will effectively order that the unsuccessful party pay the costs of the successful party on a party and party basis, it may order that the costs be paid on a solicitor and client basis where it is satisfied that there are 'special' or 'unusual' aspects of the case which bring it out of the ordinary."[20]

The authorities referred to by his Honour included Spencer v Dowling[21], Bass Coast Shire Council v King[22], MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd[23], Colgate-Palmolive Company v Cussons Pty Ltd[24] and Fountain Select Meats (Sales) Pty Ltd v International Produce Merchants Ltd[25]. Later in his judgment Chernov JA referred to the circumstances which enliven the discretion to award costs on a higher basis than party and party and continued:

"It is true that the categories of such circumstances are not closed. Nevertheless, the authorities indicate that, generally, the ordinary cost rule should only be departed from where the losing party has misconducted itself in relation to the proceeding or where the institution of the proceeding was plainly unreasonable or where the proceeding was issued for an ulterior or collateral purpose."[26]

32 Callaway and Buchanan JJA agreed with Chernov JA's judgment. In his brief judgment, Callaway JA noted the gap between the actual costs incurred by a successful party and the amount of costs recoverable under the general party and party rule and added "but that should not lead judges into readily opting for an extraordinary order." [27]

33 Mr Hayes QC, who appeared with Mr Broadfoot on behalf of the plaintiff(s), submitted that there were two aspects of the first defendant's (mis)conduct as a litigant which warranted an order for indemnity costs. First, he submitted that there was the first defendant's abject failure to give proper discovery and the consequential continuing running discovery which occurred during both the liability trial and the damages trial. This failure, Mr Hayes submitted, was responsible for significantly extending the length of both hearings and for placing the plaintiff(s) in a situation of being at a substantial forensic disadvantage in terms of the information available to them to assist in formulating the case which was ultimately proven by them.

34 Secondly, Mr Hayes submitted that the fact that the case put by the defendant and the attacks made on the truthfulness of the plaintiff(s)' witnesses were totally inconsistent with the truth and reality of the situation as revealed by the defendant's own belatedly discovered documents favoured an award of indemnity costs.

35 There is no doubt in my mind that the first defendant failed to give proper discovery before both trials and that this caused the plaintiff(s) to suffer significant disadvantages in the conduct of their cases as well as resulting in each trial taking longer than it should have. One has only to recall the 18 boxes of undiscovered documents found in the office of the defendants' solicitors on the afternoon of the first day of the liability trial as well as the number of documents relevant to liability issues still being discovered by IOOF at the end of the damages trial to conclude that the first defendant's discovery was most unsatisfactory. Nevertheless, as IOOF's counsel pointed out in their submissions the problems with discovery were in part brought about by the plaintiff(s)' constant amendments to their claims, particularly those made just before the start of the damages hearing.

36 Moreover, whilst it is true that proper discovery may well have limited or entirely removed some of the attacks made on the truthfulness of the plaintiff(s)' witnesses, it seems to me that the gist of the first defendant's case would have still remained largely the same. As I said in the liability judgment, the question was not whether it was correct to describe the plaintiff(s) as franchisees of IOOF, but what were the terms of the agreements between them.[28] This was always going to be an area of great contention between the parties and, as Mr Macauley pointed out, the plaintiff(s) failed on many of these issues.

37 To discuss in any more detail the submissions of the parties on this point would require a great deal more time and effort. I consider this unnecessary given that I am firmly of the view that in all the circumstances it would not be appropriate to order that IOOF pay the plaintiff(s)' costs of each proceeding on an indemnity basis. Despite the unsatisfactory aspects of the first defendant's conduct, this would be far too great a penalty, in my opinion.

38 The plaintiff(s)' next submission was that the Court should exercise the discretion conferred under r.63.34(3) to order an increase in the solicitors' costs in respect of the hearings and the preparation for those hearings. Sub-rule 63.34(3) provides:

"The Court may, on special grounds arising out of the nature and importance or the difficulty or urgency of the case, allow an increase not exceeding 30 per cent of the solicitor's charges allowed on the taxation of costs with respect to -

(a) the proceeding generally; or

(b) to any application, step or other matter in the proceeding."

39 In Jenkins v GJ Coles & Co Limited[29] Hayne J considered the meaning of this rule. His Honour said:

"Rule 63.34(3) is in the same form as O.65, r.9 of the English Rules current in the late nineteenth century. Apparently that rule was made in order to assimilate practice between the common law and chancery sides in Britain. In Williamson v North Staffordshire Railway Co (1886) 32 Ch D 399, Bowen LJ said, at p. 401, in the course of argument in that case: 'This is an important question, and I believe there has been a difference in practice between the Common Law and the Chancery Divisions. On the common law side it has been almost impossible to get costs on the higher scale. I remember a very complicated and difficult case in which the Duke of Norfolk was a party, which involved questions of law, and the Court refused costs on the higher scale. The rule seems to have been intended to assimilate the practice of the two Divisions.' However this may be, the words of the rule indicate that what must be shown is special grounds arising out of the nature and importance, or the difficulty or urgency of the case. Cotton LJ, at p. 402, in giving the judgment of the court in Williamson's Case, said: 'Although this case is one of importance and of extreme difficulty I do not think that there are in it special grounds arising out of the nature and importance or the difficulty or urgency of the case. I have great difficulty in understanding the meaning of the rule, and it is not necessary for us to determine its construction, but I think that in the present case, though important and difficult, there are no special grounds arising out of its importance or difficulty to justify us in giving costs on the higher scale.'

...

As I have said, I am of the view that the words of the rule require the identification of special grounds arising out of the difficulty or urgency of the case, or the nature and importance of the case."[30]

40 In The City of Warrnambool v Tabone[31] the Full Court of this Court approved the approach of Hayne J. That case concerned a successful appeal from a decision of the trial judge ordering an increase of 15% in the solicitors' costs in an infant's personal injury claim. Fullagar J held that:

"... after full consideration I do not think that either the learned judge's reasons or the argument for the respondent identify any 'special grounds' which arise out of the difficulties of the case or out of the nature or importance of the case. ...

The Rule now in question requires, in addition to difficulty and heavy burdens, a quality of 'speciality', of being something out of the ordinary, other than and in some way arising from onerousness or difficulty or urgency or character of the case in question."[32]

41 Brooking J concurred with Fullagar J. Marks J said that:

"The Rule is to apply only when the court is satisfied of the existence of a relationship between the special grounds which arise as stated and the costs of the conduct of the litigation which it is considered are not in the circumstances fairly or adequately recoupable under the scales in Appendixes A and B which govern the taxation."[33]

42 In Alucraft Pty Ltd (In Liquidation) v Grocon Limited[34] Smith J ordered a 20% increase in the solicitors' fees in respect of work done in the hearing and of work done in preparation for the hearing, both before and during the hearing. There were two grounds for the r.63.34(3) order - the complications caused to the lawyers by having to run six separate proceedings concurrently and the "abysmal" performance of Grocon in discovery which resulted in "an excessive burden" being placed on the lawyers representing the plaintiff and which "repeatedly disrupted the proceedings and caused a loss of momentum" which in turn "increased the cost of and slowed and prolonged the proceedings."[35] His Honour held that these two matters were "capable of amounting to ... special grounds arising from the difficulty or nature of the litigation."[36]

43 The plaintiff(s) submitted that Smith J's statements that "obtaining documents from Grocon was a little like extracting teeth" and that there had been "an abject failure ... properly to provide discovery"[37] would have been equally applicable to IOOF's unsatisfactory discovery in these proceedings. Certainly, on occasions during the hearings I did express somewhat similar views about the continuing discovery problem. Nevertheless, there was one significant difference between the cases and that was that in two of the six proceedings self-executing orders had been made "because of Grocon's repeated failure to reveal relevant documents."[38]

44 Although I have my doubts about whether the discovery problem alone would be sufficient to found an order under r.63.34(3), I would have been prepared to follow his Honour's approach if I had considered that such an order was appropriate to the particular circumstances of these proceedings.

45 Mr Hayes submitted that if I accepted as a general principle (based on my impression and recollection of how the proceeding was conducted) that the plaintiff(s) ought to recover more than costs on a party and party basis, but was not minded to order that the plaintiff(s) be awarded all of their costs on an indemnity basis, the fairest and most practicable approach was to follow the uplift approach taken by Smith J in Alucraft, rather than attempting to identify individual days or issues in respect of which an order for indemnity costs were appropriate. I do not agree. It seems to me that if a higher basis of costs is to be awarded, some attempt has to be made to relate the terms of the order made to the actual basis for that order. That is, to identify what costs were incurred by the plaintiff(s) as a result of some misconduct or failure by the defendant ordered to pay those costs. In my opinion, in the circumstances of these cases, to make an order as general as increasing by a certain percentage the solicitors' costs in respect of the hearings and the preparation for those hearings hardly meets that requirement. I therefore decline to make an order under r.63.34(3) of the Rules.

46 I come, therefore, to the third way in which the plaintiff(s) sought to recover some costs on a higher basis than party and party. Both sides prepared very helpful schedules itemising on a day by day basis what they said should be the result in terms of costs. Thankfully, there was some agreement so that in the end only eight days of the liability trial, three directions hearings between the trials, eight days of the damages trial and four days of preparation during the damages trial remained in issue.

47 The liability trial commenced on Tuesday 12 March 2002. As a result of the production of the 18 boxes of undiscovered documents on that afternoon virtually the whole of that week was lost. By agreement between the parties the defendants paid the plaintiff(s)' costs thrown away on 12, 13, 14, 15 and 17 March 2002. I mention this by way of background to the eight still disputed days of the liability trial.

48 As discussed with counsel during the hearing, rather than taking fractions of days here and there, I have tried to form an overall impression of what would be the appropriate outcome in terms of any orders for indemnity costs and then allocated that number of days to those days which best justify such an order even though not all of those particular days could be said to have been wasted by being taken up with the defendants' ongoing discovery issues. As far as the eight disputed days of the liability trial, I have concluded that the plaintiff(s) should be entitled to indemnity costs in respect of two of those days and the rest on a party and party basis.

49 The defendants submitted that they should be awarded the costs of Tuesday 19 March 2002 because time was spent in the morning explaining how the plaintiff(s) put their claims as to loss and consequent amendments to the amounts set out in their pleadings and the hearing was then adjourned to 2.15 p.m. to enable the defendants' counsel time to consider further supplementary witness statements served by the plaintiff(s) and the afternoon was occupied discussing the proposed amendments to the statements of claim and considering whether the trial should be split.

50 On the other hand, the plaintiff(s) submitted that they should have the costs of this day as part of the costs following the event on a party and party basis. I consider that the fair outcome is that the costs of this day be part of the plaintiff(s)' costs of each proceeding on a party and party basis. I do not consider that the matters relied on by the defendants warrant any departure from the normal rule that costs follow the event.

51 The plaintiff(s) submitted that they should be awarded the costs of the remaining seven days on an indemnity basis whereas the first defendant submitted that they should be awarded on a party and party basis. The plaintiff(s)' argument in respect of Thursday 21 March 2002, Tuesday 26 March 2002 and Wednesday 27 March 2002 was that the cross-examination of Mr Hawkesworth, Mr Taylor, Mr Wood and Mr Mainprize on those days was inconsistent with the defendants' own belatedly discovered documents and went to issues which would have been unnecessary if there had been proper discovery. I do not accept that this justifies an order for indemnity costs, particularly as the cross-examination complained of was only a small part of the three hearing days. An exception was the cross-examination of Mr Mainprize about reports to the Board which, when later produced, supported his evidence. Nevertheless, I consider that the appropriate outcome is that the costs of these three days be part of the plaintiff(s)' costs of each proceeding on a party and party basis.

52 I consider that the plaintiff(s) are entitled to an order for indemnity costs in respect of Wednesday 3 April 2002 as time was in effect wasted dealing with the subpoenas served on the company secretary of IOOF, Mr Alistair Rowan, and the company secretary of Bendigo Bank Limited, Mr David Oataway, which were returnable that day. Although it could not be said that all of this day was wasted by being spent on unnecessary discovery issues, this is one of the two days from the liability trial which I consider it is appropriate to award to the plaintiff(s) on an indemnity basis. The plaintiff(s) should never have been forced to take these additional steps in order to obtain proper discovery. Accordingly, they should not be out of pocket in respect of the costs wasted on this day.

53 I also consider that the plaintiff(s) are entitled to an order for indemnity costs in respect of Friday 5 April 2002. Only Mr Schoer gave evidence on this day. I have chosen this day as it is representative of the extra time which was required to be spent in exploring issues in cross-examination of the defendant's witnesses, which should have been put to rest by timely and full discovery.

54 Given my treatment of 5 April 2002 I do not consider it appropriate to award the plaintiff(s) indemnity costs in respect of Tuesday 9 April 2002 and Wednesday 10 April 2002, despite the unsatisfactory nature of much of the evidence of Ms Pearce and Mr Mollison. The normal party and party basis should apply.

55 The first of the so-called disputed directions hearings was not actually a directions hearing as consent orders were made on the papers, pursuant to r.59.07, on 10 February 2004. Although no order for costs was made, the plaintiff(s) submitted that costs should follow the event on a party and party basis as orders were made requiring each party to make further discovery on the issues of loss and damage by 24 March 2004. The first defendant submitted that there should be no order as to costs as discovery should have been done by the plaintiff(s) prior to the liability trial.

56 In fact, orders were made concerning the delivery by the plaintiff(s) of further and better particulars of their statements of loss and damage and the delivery by the first defendant of any statement in response to the plaintiff(s)' statements of loss and damage as well as for further discovery and inspection. Therefore, I do not accept the first defendant's argument as to why there should be no order as to costs. The real reason why that is the correct result, in my opinion, is that this was a consent order which contained no order as to costs.

57 The plaintiff(s) submitted that they should have the costs of the directions hearing on 13 September 2004 on an indemnity basis, whereas the first defendant submitted that the costs should be on a party and party basis. This directions hearing was partly concerned with notices to produce served by the plaintiff(s) on the Friday afternoon before the hearing on the following Monday. One of the orders made was that the first defendant file and serve an affidavit of documents addressing the issue raised in correspondence between the parties and in the plaintiff(s)' notices to produce. However, a number of other pre-trial orders were made, including that the plaintiff(s) provide further and better particulars of loss in response to certain paragraphs of the first defendant's request. The first defendant submitted that this appearance resulted from the late amendments to the plaintiff(s)' statements of loss and damage and that in the circumstances it was not unreasonable that the relevance of the documents, if any, which the first defendant had to discover had not been immediately apparent to it, when it had only recently occurred to the plaintiff(s) themselves that such documents might be relevant.

58 Looking at the issues raised at this directions hearing and the orders made, I consider that the appropriate order is that the first defendant should pay the costs on a party and party basis.

59 I consider that the same order should be applied to the final disputed directions hearing on 7 October 2004. The plaintiff(s)' argument for indemnity costs was that the need for the directions hearing was as a result of the first defendant's failure to make proper discovery and/or to respond to the notices to produce. I do not consider that the issues were as clear cut as this. Other matters were raised by both sides and it seems to me that this was another necessary directions hearing prior to the commencement of a complicated damages trial.

60 I move then to the eight disputed days during the damages trial. In respect of the first day of this trial, Monday 18 October 2004, the first defendant submitted that it was entitled to its costs thrown away on a party and party basis as a result of the hearing being adjourned following the plaintiff(s)' opening. It was said that this was brought about by the plaintiff(s) agreeing to give particulars of their claim for loss of opportunity to negotiate and the delivery of revised versions of a number of witness statements.

61 I agree with the plaintiff(s)' submission that counsel for the plaintiff(s) agreed to give particulars of that claim without accepting that they were obliged to do so. Further, it is my recollection, based on a reading of the transcript, that the early adjournment was agreed to be a convenient course for all concerned given the state of preparation of both sides. The plaintiff(s)' opening went well into the afternoon so it could hardly be said that this first day was totally wasted. I therefore consider that the costs of this day should follow the event on a party and party basis.

62 Of the remaining seven hearing days in respect of which the plaintiff(s) sought indemnity costs, namely 27, 28 and 29 October and 1, 3, 4 and 5 November 2004, my overall impression is that the appropriate order would be that the plaintiff(s) are entitled to their costs on an indemnity basis for three of those days.

63 On Wednesday 27 October 2004 the question of the first defendant's incomplete discovery was again raised by the filing of Dr Truslove's witness statement exhibiting a document not previously discovered. At least a quarter of the day was taken up with discovery issues. Mr Mainprize also gave evidence about matters which may not have had to be explored in this way if the first defendant's discovery had been properly carried out. Therefore, I consider that the plaintiff(s) are entitled to an order for indemnity costs in respect of this day.

64 Although some further discovery issues were raised on 28 and 29 October 2004, given that I have allowed indemnity costs for 27 October 2004, I consider that the appropriate order for the next two days is that they follow the event on a party and party basis.

65 The hearing on Monday 1 November 2004 is another of those days where large amounts of time were devoted to the continuing problem of discovery. Orders were made for further discovery. Similar issues were raised at the hearing on Wednesday 3 November 2004. I consider that the plaintiff(s) are entitled to an order for indemnity costs in respect of both of these days.

66 In the light of these orders for indemnity costs I do not consider that the plaintiff(s)' claim for indemnity costs in respect of the hearings on 4 and 5 November 2004 should be upheld. Whatever time was wasted on these days in dealing with the discovery problems or in covering topics in cross-examination which might have been avoided by timely and proper discovery are covered, in my opinion, by the other orders in respect of indemnity costs.

67 Finally, I move to the plaintiff(s)' claim for indemnity costs in respect of four days of preparation during the damages trial, namely Saturday 30 October 2004, Sunday 31 October 2004, Tuesday 2 November 2004 and Sunday 7 November 2004. The plaintiff(s) submitted that their lawyers were required to work over the weekend of 30 and 31 October 2004 in order to review the large volume of documents produced by the first defendant on the preceding Friday. A similar submission was made in respect of the lawyers' attendance on Melbourne Cup Day which was said to have been brought about by the first defendant's ongoing discovery. Again, this was said to be the case in respect of the final Sunday.

68 It was not clear to me, and there was some uncertainty on behalf of the parties, whether the costs of such preparatory work during a hearing would be allowed by the Taxing Master in the normal course. I am strongly of the view that the plaintiff(s) should be entitled to recover some costs from the first defendant in respect of all of this urgent and pressured preparation and I trust that my view will be taken into account, if necessary, by the Taxing Master. However, I am not persuaded that it is appropriate to order that any of this work be recovered on an indemnity basis, rather than on the normal party and party basis.

69 Apart from several claims by the first defendant about its entitlement to certain costs orders dealt with above, the only other issue concerning the first defendant's costs was that there were a number of amendments to pleadings and particulars by the plaintiff(s) which resulted in costs being thrown away on behalf of the first defendant. However, after discussion, Mr Macauley agreed that there was no need to deal specifically with any of these matters, because the question of "the costs of and occasioned by" an amendment was dealt with by the provisions of r.63.17, and no order "otherwise" was sought by him.

70 This brings me to the third and final issue on costs, namely, the claim by the second, third and fourth defendants that they were entitled to an order for costs in their favour. The claims made by the plaintiff(s) against the second, third and fourth defendants failed at the liability judgment stage and normally costs would follow the event.

71 However, the plaintiff(s) submitted that I should make no order against them for the costs of the second, third and fourth defendants, alternatively that I should make a Bullock[39] order or a Sanderson[40] order against the unsuccessful first defendant. As I have reached the view that the appropriate order in respect of the second, third and fourth defendants' costs is that there should be no order as to costs, I say nothing further about the justice of a Bullock or Sanderson order.

72 Any costs arising out of the joinder of the second, third and fourth defendants would be very small indeed given that all of the defendants were represented by the same firm of solicitors and counsel. Mr Macauley very fairly accepted that because of this joint representation, the wording of any costs order could be along the lines that "such costs be limited to the costs of each of the second, third and fourth defendants respectively as exceed the costs of the joint representation of the first, second, third and fourth defendant in the proceedings." However, these proceedings were in reality primarily a dispute between the plaintiff(s) and the first defendant. The limited time devoted to the claims against the second, third and fourth defendants is, I consider, accurately represented by the fact that less than four pages of the 122 page liability judgment concerned those claims.

73 Nevertheless, it is obvious that some costs would have been incurred by the second, third and fourth defendants at the liability hearing and before that in the delivery of defences and the provision of discovery. However, as has been discussed at length above, the discovery by the defendants prior to the liability trial was quite incomplete. Given the problems this caused the plaintiff(s) I see no reason why the second, third and fourth defendants should be entitled to recover from the plaintiff(s) their costs of the proceedings let alone the costs of their most unsatisfactory discovery.

74 Further, apart from the fact that all of the defendants were represented by the same lawyers, the relationship between them was such that it would not be unjust, in my opinion, to regard them as a single entity for the purposes of costs. The second defendant, IOOF Limited (formerly known as IOOF of Victoria Friendly Society Limited), was the ultimate controlling entity of the first defendant at most relevant times.

75 The third defendant, Bendigo Bank Limited, became the ultimate controlling entity of the first defendant on or about 1 April 1999, prior to the first defendant's breach of its agreements with the plaintiff(s) on 1 July 1999. Further, as I have stated in the liability judgment, on 19 May 1999 Mr Turner assured Mr Bice, a senior officer of the third defendant, that the second defendant would resolve the issues with the plaintiff(s) without cost to the third defendant[41], thus bringing the relationship between the defendants even closer.

76 The fourth defendant, Mr Robert Turner, was the Managing Director of the second defendant at all relevant times and was the Chief Executive Officer of the first defendant at some of the early relevant times. As I pointed out in the damages judgment, despite Mr Turner's evidence being absolutely critical on a number of issues, he stayed well away from the witness box.[42]

77 Moreover, the roles played by each of the second, third and fourth defendants were, it seems to me, instrumental in the first defendant's failure to meet its contractual obligations to the plaintiff(s). Indeed, part of the reason why most of the claims failed against the second, third and fourth defendants was their respective positions as the holding company of, or the director of, the first defendant.[43]

78 Finally, in the exercise of my discretion, I consider that it would be most unjust to order the plaintiff(s) to pay the costs of the second, third and fourth defendants, given the high handed attitude adopted by all of the defendants in their relevant dealings with the plaintiff(s) over what was to happen to their respective agreements. Instead of attempting to negotiate some form of compensation, as they had promised to do, the defendants were happy to mislead the plaintiff(s), keep them in the dark and then simply ignore their justified claims.[44]

79 For all of the above reasons, I have concluded that the appropriate order is that there should be no order as to the costs of the second, third and fourth defendants.

80 Therefore, the order for costs which I propose to make in the Foxeden proceeding is as follows:

Order that the first defendant pay the plaintiff's costs of the proceeding, including all reserved costs, on a party and party basis, save and except that the costs of 3 April and 5 April 2002 and of 27 October, 1 November and 3 November 2004 be paid on an indemnity basis. Further order that there be no order as to the costs of the second, third and fourth defendants.

81 The order for costs which I propose to make in the Taylor proceeding is as follows:

Order that the first defendant pay the plaintiffs' costs of the proceeding, including all reserved costs, on a party and party basis, save and except that the costs of 3 April and 5 April 2002 and of 27 October, 1 November and 3 November 2004 be paid on an indemnity basis. Further order that there be no order as to the costs of the second, third and fourth defendants.

[1] [2006] VSC 47

[2] [2003] VSC 356

[3] [1993] VicRp 81; [1993] 2 VR 382

[4] [1993] VicRp 81; [1993] 2 VR 382 at 394 per Fullagar, Marks and JD Phillips JJ

[5] [1993] VicRp 81; [1993] 2 VR 382 at 394 per Fullagar, Marks and JD Phillips JJ

[6] [2005] VSCA 53; (2005) 11 VR 568 at [102]- [103] per Ormiston JA, with whom Buchanan and Eames JJA agreed

[7] [2006] VSC 47 at [117]- [118]

[8] [2006] VSC 47 at [117]- [118]

[9] [1975] HCA 32; (1975) 132 CLR 642

[10] [1975] HCA 32; (1975) 132 CLR 642 at 662 per Stephen J and at 667-8 per Jacobs J

[11] [2006] VSC 47 at [116]

[12] [2006] VSC 47 at [117]

[13] [1975] HCA 32; (1975) 132 CLR 642 at 660

[14] [1975] HCA 32; (1975) 132 CLR 642 at 658

[15] [2005] VSCA 53; (2005) 11 VR 568 at [107]

[16] [2003] VSC 356 at [39]

[17] [2006] VSC 47 at [4]- [19]

[18] [2003] VSC 244 at [61]

[19] [2002] VSCA 24

[20] [2002] VSCA 24 at [34]

[21] [1996] VSC 51; [1997] 2 VR 127 at 147 per Winneke P and at 163-164 per Callaway JA

[22] [1997] 2 VR 5 at 29 per Winneke P

[23] (1996) 70 FCR 236 at 240 per Lindgren J

[24] [1993] FCA 536; (1993) 46 FCR 225 at 232-233 per Sheppard J

[25] [1988] FCA 202; (1988) 81 ALR 397 at 400-401 per Woodward J

[26] [2002] VSCA 24 at [36]

[27] [2002] VSCA 24 at [2]

[28] [2003] VSC 356 at [295]

[29] [1993] VicRp 10; [1993] 1 VR 155

[30] [1993] VicRp 10; [1993] 1 VR 155 at 156-157

[31] Unreported, 25 August 1992

[32] At p.4

[33] At p.10

[34] Unreported, 25 May 1994

[35] At p.11

[36] At pp.11-12

[37] At p.11

[38] At p.9

[39] Bullock v The London General Omnibus Company [1907] 1 KB 264

[40] Sanderson v Blyth Theatre Company [1903] 2 KB 533

[41] [2003] VSC 356 at [251] and [332]

[42] [2006] VSC 47 at [140]

[43] [2003] VSC 356 at [322], [329], [331]-[333], [363] and [365]

[44] [2003] VSC 356 at, for example, [111], [115], [120], [128], [176], [178], [252], [253], [258], [294] and [296]