Hadid v Australis Media Limited

(Plaintiffs): R V Gyles QC, D A Caspersonn COUNSEL : (First Defendant): D J Hammerschlag (Second Defendant): L J Foster SC (Plaintiffs): McClellands SOLICITORS : (First Defendant): Freehill Hollingdale & Page (Second Defendant): Phillips Fox CATCHWORDS : DAMAGES - breach of warranty of authority - whether costs of suing the putative principal recoverable as damages; DAMAGES - causation - breach of warranty of authority - whether costs of suing the putative principal resulted from breach; JUDGMENTS - breach of warranty of authority but no compensable damage - whether judgment for plaintiff for nominal damages or judgment for defendant; COSTS - Calderbank letter - whether costs recoverable on an indemnity basis. DECISION : (1) Held costs not recoverable as damages; (2) Judgment in favour of defendants; (3) Plaintiffs to pay defendants' costs on a party and party basis to a certain date and on an indemnity basis thereafter.

1 In these proceedings, Mr Hadid ("the plaintiff"), as one of two plaintiffs, sued Australis Media Limited ("Australis") and Dr W L Burt. The claim against Australis was for damages for breach of contract and against Dr Burt for breach of warranty of authority. I delivered a judgment on 30 June 1997, in which I held that but for the absence of authority on the part of Dr Burt to contract on behalf of Australis there would have been a binding agreement between Australis and Mr Hadid, and that there was no such authority. I held, accordingly, that there was a breach of warrant for authority by Dr Burt. (The claim by the other plaintiff fell away in the course of the hearing.)

2 Mr Hadid claims to be entitled to recover against Dr Burt, as damages, the costs of the proceedings against Australis. That issue was not resolved in my judgment of 30 June 1997. I said in that judgment that, subject to any such entitlement, Mr Hadid was entitled to nominal damages only against Dr Burt. No orders were made at that stage. The parties were directed to bring in draft short minutes of the orders sought (respectively), on the basis that counsel would have the opportunity of making further submissions.

3 At the request of the parties - because, as I understand it, of other current litigation - the matter was further adjourned several times and the hearing did not resume until 14 December 1998. I heard argument on that day and the following day, and reserved my decision.

4 Although I said in my judgment of 30 June 1997 that the plaintiff would be entitled to judgment for nominal damages if he was not entitled to recover the costs of the proceedings against Australis as damages - no orders having been made - there was (properly) no objection to my reconsideration of the point if that were necessary.

5 Objection was taken to the claim for costs as damages on the ground that it was not covered by the statement of claim. That is factually so. The claim was first raised in the course of final addresses. The claim was objected to on the further ground that the assessment of costs as damages would require further evidence and, therefore, a reopening of the plaintiff's case. That is also correct. Furthermore, the ordinary course in hearing such a claim would be to decide whether the claim was made out in principle and, if it was, to refer the assessment of damages to a master of the court. The plaintiff argued that the determination of such a claim in this way would amount to the determination of a separate question which could only be done by order, which the plaintiff would also oppose.

6 It appears to me that the plaintiff would not be prejudiced by granting such amendment as may be necessary to allow this claim to proceed nor by determining the additional claim in the way I have mentioned. Accordingly, I will proceed on the basis that the amendment should be allowed and that the claim, if made out in principle, should be determined in the way I have mentioned.

7 The incurring of costs which would not otherwise have been incurred, with no countervailing benefit is capable of constituting damage in law. But there is the question of causation. I find that the costs of suing Australis would not have been incurred but for Dr Burt's representation of authority. Notwithstanding that finding, on the facts as found in my judgment of 30 June 1997, I am not persuaded that the plaintiff incurred the costs of its claim against Australis as a result of that representation and, accordingly, as a result of Dr Burt's breach of warranty of authority.

8 The "but for" test is not necessarily sufficient for the determination of causation in law where more than one factor has contributed to the damage. The test must then be tempered by policy considerations: March v E &M H Stramare Pty Limited (1990-1) 171 CLR 506 (per Mason CJ at 516). In such cases, causation is to be determined by a value judgment involving ordinary notions of language and common sense: March (per Deane J at 524). The decision of the Court of Appeal in Alexander v Cambridge Credit Corporation Limited: (1985) 2 NSWLR 685 illustrates the point:- The plaintiff company claimed damages for trading losses incurred after the auditors ought to have closed the company down for non-compliance with ratios prescribed by the company's debenture deed. But for the auditors' breach of duty, the company would not have incurred the losses because it would not have been trading. Yet the losses were found, on appeal, not to have resulted from the auditors' breach of duty. That was because poor management decisions by the company's directors and adverse economic conditions were seen as being the only real cause of the losses suffered by the company after the relevant date.

9 In the present case, the plaintiff failed to establish that the agreement with Australis, which would have come into existence if Dr Burt had had the requisite authority, would have had a value to the plaintiff. Furthermore, it is not shown that, when the proceedings were instituted and/or for any period thereafter, there was the prospect of establishing that a contract would have had such a value. In these circumstances, the damage constituted by incurring the costs of suing Australis, without a countervailing benefit, cannot reasonably be seen as having been caused by Dr Burt's breach of warranty of authority. The only real cause of such damage was suing Australis and maintaining that action without a case for compensatory damages if it were established that Dr Burt had the necessary authority to contract.

10 For these reasons, the plaintiff is not entitled to recover as damages the costs incurred in suing Australis.

11 The same reasoning applies to the plaintiffs' liability for Australis' costs (as to which, see later in this judgment). 12 It was submitted on behalf of Dr Burt that it was unreasonable for the plaintiff to sue Australis on the basis that Dr Burt was relevantly authorised and that the unreasonableness of so doing negated a causal connection between Dr Burt's breach of warranty of authority (as found) and the plaintiff incurring the costs of suing Australis. The asserted unreasonableness was said to arise from the consideration that both Dr Burt and Australis, in their respective defences, denied that Dr Burt was authorised to make a contract in the terms asserted by the plaintiff. I reject this submission. The denial did not make it unreasonable for the plaintiff to sue Australis in view of Dr Burt's conduct (as found) in representing that he had the relevant authority.

Judgment for nominal damages against Dr Burt or judgment for Dr Burt?

13 In support of Dr Burt's submission that judgment should then be entered in his favour rather than for nominal damages in favour of the plaintiff, reliance is placed on the Court of Appeal's decision in Boulas v Angelopoulos (1991) 5 BPR 11,477. In that case, an auctioneer had knocked a property down to the appellant However, there was a misunderstanding between the auctioneer and the vendor. The auctioneer thought that the property was on the market as a result of a conversation with the vendor, whereas the vendor had not so intended by what was said in the conversation with the auctioneer. When the mistake became apparent the vendor refused to sign the contract for sale. The appellant sued the auctioneer and the vendor.

14 As against the vendor, it was held that there was neither actual nor ostensible authority in the auctioneer to make a contract on behalf of the vendor to sell at less than the original reserve price. As against the auctioneer, it was held that the auctioneer had warranted that he had authority to sell at the lower price. However, the court went on to hold that there was no loss giving rise to an entitlement to damages because the contract which would have come into existence but for the lack of authority on the part of the auctioneer would not have been enforceable. That was because the contract which would have arisen would have been for the sale of land and there was no memorandum in writing as required by s 54A of the Conveyancing Act 1919.

15 So far as is presently relevant, a question then arose in that case as to what order or orders should be made in relation to the appellant's claim against the auctioneer. The appellant had established breach of warranty of authority but had failed to establish an entitlement to compensatory damages. Kirby P said (at 11,491)- "In Lee v Irons [1958] VR 436, Pape J at 447-8 held that, inasmuch as the action for breach of warranty of authority is contractual, the plaintiff was entitled to at least nominal so as to vindicate his contractual rights. There appears to be no English authority in which an award of nominal damages has been made. Mocatta J in V/O Rasnoimport v Guthrie & Co Ltd [1966] 1 Lloyd's Rep 1 at 13, treated the matter as arguable, although only of academic interest in most cases. In Canada, it appears that where the primary contract was unenforceable, no damages will be awarded. See discussion by Leigh, "Breach of Warranty of Authority", in Fridman (ed), Studies in Canadian Business Law, 1971, pp364-5. As the weight of authority appears to be against the award of nominal damages, I would not be inclined to make such an order in this case. It was certainly not the victory the appellant sought to attain." Gleeson CJ and Samuels JA were in agreement.

16 The above statement by Kirby P is in general terms. It is to the effect that a judgment for nominal damages should not be entered in favour of a plaintiff who has established a breach of warranty of authority but not an entitlement to compensatory damages. The passage cannot be received as being applicable only to cases of breach of warranty of authority where the principal contract would have been worthless due to its being unenforceable. Such a restrictive reading of the passage is not open, first, because the passage is in terms which relate to cases of breach of warranty of authority generally without any such qualification and, secondly, because no sensible distinction can be drawn between a case where the principal contract would have been valueless due to the contract not being enforceable and a case where the principal contract would have been valueless for other reasons.

17 In the present case, the plaintiff failed to establish that the principal contract would have been of any value to him. Boulas applies. I am bound by that decision. Accordingly, I hold that the plaintiff is not entitled to nominal damages against Dr Burt, and that Dr Burt is entitled to judgment against the plaintiff.

18 The starting point in relation to orders for costs is that there will be judgment for each defendant against the plaintiff. The ordinary rule is that costs follow the event. Prima facie the defendants are each entitled to an order for costs against the plaintiff. No reason is shown why the ordinary rule should not apply.

19 On Friday 25 October 1996, the hearing had commenced. A number of applications by the plaintiff for amendment had been made and refused. On that date, the solicitors for the respective defendants wrote a "Calderbank" letter to the solicitors for the plaintiff. Each letter was marked "Without prejudice save as to costs". The letters were in materially identical terms. They conveyed an offer to settle the proceedings on the basis of judgment for the defendants, each party to pay its own costs, the offer to remain open until 12.00 noon on Monday 28 October 1996. Mr Hadid was the first witness called in the proceedings. His evidence commenced on Tuesday 29 October 1996.

20 The defendants submit that they are entitled to indemnity costs in respect of the trial as from noon on Monday 28 October 1996. The claim for indemnity costs is not put on any basis other than the "Calderbank" letters.

21 In Multicon Engineering Pty Limited v Federal Airports Corporation (1996) 138 ALR 425, Rolfe J gave a carefully considered judgment on a claim for indemnity costs based on a "Calderbank" letter. His Honour reviewed the relevant authorities at some length. In the course of doing so and after doing so, his Honour made several statements of principle. They are much to the same effect. At 445: "Thus there is a strong and consistent body of authority in this court favouring the predisposition towards an order for indemnity costs if an offer of settlement has been made, rejected and not bettered in the litigation. It provides, at least, the prima facie position and, thereafter, one considers all the facts of the case to decide whether, in the proper exercise of discretion, that prima facie view should prevail." At 446: "(I)n my opinion, the evidence of a Calderbank letter, the rejection of the offer contained therein and the failure to obtain a result better than the offer, places the offeror in the position that a court should approach an application by that party for indemnity costs with a predisposition to holding that it is entitled to indemnity costs." At 448: "(W)hat must be understood is that if that litigant has received an offer which it does not ultimately better, its desire for a judicial determination should, generally speaking, be made subject to its paying the other party's costs on an indemnity basis from the date the offer is made." At 451: "In my opinion the proper approach to take to an offer of compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer." At 452: "(T)he prima facie position having been established the court must be satisfied that an order for indemnity costs is not appropriate. As I have indicated, if that is not done there is a failure to exercise the judicial discretion." 22 I respectfully adopt these statements of principle in the light of the authorities reviewed in the judgment, and for the reasons given in the judgment with which I find myself in full agreement. 23 Prima facie the defendants are entitled to costs on an indemnity basis as from noon on 28 October 1996. No cogent consideration has been advanced against making such an order in the exercise of the court's discretion. 24 On behalf of the plaintiff, it was submitted that it was unreasonable of the defendants to expect that, at the stage which the trial had reached, the plaintiff would be in a position to evaluate and take instructions on the offers of compromise at such short notice. There was no evidence as to when the letters were received by the plaintiff's solicitors. It cannot have been earlier than the morning of Friday 25 October. The deadline was noon on Monday 28 October. Effectively, the plaintiff's solicitors had only the weekend in which to evaluate the offers and take instructions. In submissions, the plaintiff relied on the stage which the trial had reached as leading to a conclusion that it was unreasonable to expect a response within the time specified in the circumstances.

25 I do not think the plaintiff has made good that submission. I would have thought that, before trial, the plaintiff's legal advisers would have evaluated the plaintiff's prospects in the proceedings and would have advised the plaintiff accordingly. I would also have thought that the evaluation would be updated in the light of important developments in the trial - such as the refusal of applications to amend - and that the plaintiff would have been advised accordingly. I would not expect, in these circumstances, that it would have been impracticable to evaluate the offers of compromise and to obtain the plaintiff's instructions over the weekend. 26 It is significant that no evidence was led to establish that there was any such difficulty. I do not say that critically. In view of what I have said, I would not expect that any such evidence could have been called. I mention this consideration only because I am entitled to infer - and I do infer - that no evidence which would have assisted the plaintiff was available. This fortifies my view that it was not unreasonable to expect that the offers could be evaluated and instructions taken on them during the course of the weekend. 27 There is in fact a cogent consideration which fortifies the prima facie entitlement to indemnity costs. It is this. The plaintiff had no case that a contract with Australis (as against Australis) or the contract it would have had (as against Dr Burt) had or would have had a commercial value for the plaintiff. Indeed, on the evidence, as likely as not, the plaintiff would have suffered a loss had such a contract come into existence and gone into effect. The fact that the plaintiff's claim was without merit in this sense is a strong reason in favour of implementing the prima facie entitlement to indemnity costs in the exercise of the court's discretion.

28 For these reasons, the plaintiff should pay the defendants' costs of the proceedings on a party and party basis to noon on Monday 28 October 1996 and thereafter on an indemnity basis.

29 In principle, the costs of the application for an order that the costs of the trial be allowed on an indemnity basis should not themselves be payable on an indemnity basis. However, time occupied in relation to that application, as distinct from other matters argued on 14 and 15 December 1998, was not significant enough to warrant separate treatment.

The appropriate orders to embody these determinations are as follows:

1 (1) Direct the entry of judgment in favour of each defendant against the plaintiffs.

(2) Order the plaintiffs to pay the defendants' costs of the proceedings on a party and party basis until noon on 28 October 1996 and thereafter on an indemnity basis. -oOo-

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