HEARSE & ANOR v PALLISTER & ORS

The claim for indemnity costs 12The first question to be determined is whether or not the plaintiffs, having discontinued proceedings against Mrs Pallister, should be ordered to pay her costs on an indemnity basis. It was noted in the submissions for Mrs Pallister that, upon discontinuing proceedings, the discontinuing party must pay the costs of the other party "unless the Court otherwise orders" : UCPR Rule 42.19. It appears that there is no dispute between the plaintiffs and Mrs Pallister that Mrs Pallister is entitled under that Rule to her costs of the proceedings as against the plaintiffs. 13However, it was argued for Mrs Pallister that her costs should be awarded on an indemnity basis. That is the subject of the costs order sought in paragraph (a) of the notice of motion with which this judgment is concerned. Particular reference, in this respect, was made to the judgment in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225. The observations in that judgment to which attention was drawn in which certain acts giving rise, potentially, to an order for indemnity costs, are set out as follows (at 233-234):- "... The making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud ...; evidence of particular misconduct that causes loss of time to the Court and to other parties ...; the fact that the proceedings were commenced or continued for some ulterior motive ... or in wilful disregard of known facts or clearly established law ...; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions ...; an imprudent refusal of an offer to compromise ...; and an award of costs on an indemnity basis against an contemnor ..." 14The present question is whether the plaintiffs' claim against Mrs Pallister falls within any of these categories or, alternatively, whether there is otherwise a sufficient basis to warrant an order for costs in her favour against the plaintiffs on an indemnity basis. 15It was submitted in this respect on behalf of Mrs Pallister that, the plaintiffs having discontinued their claim against her, they should be required to pay her costs on an indemnity basis where the claim was commenced and continued in what was said to be "... wilful disregard of known facts" : Second Defendant's Outline of Submissions at [17]. 16In this latter respect, the contention was that the case fell into the category of an action having been commenced or continued in circumstances where, properly advised, the plaintiffs should have known that there was no chance of success or, alternatively, in that category of case where a party persists in continuing proceedings in what should, on a proper consideration, have been seen as a hopeless case. 17In the latter respect, the principle was said to be that the Court should measure the conduct of the party against whom the indemnity costs order is sought against the facts as then known or which ought to have been known by that party and with regard to the inquiries that the particular litigant ought reasonably to have made and the legal advice that the litigant ought reasonably to have obtained. Reliance, in this respect, was placed upon the decision in Macedon Rangers Shire Council v Thompson [2009] VCA 209 at [15] per Redlich JA and Beach AJA. 18It was submitted for Mrs Pallister that the case pleaded against her was that she had assumed joint liability with Mr Pallister as a joint purchaser of the property solely upon the basis of a letter from the Solicitors . Reliance had been placed upon the letter written on 19 January 2005 stating that:- "(a)The solicitors had instructions to act for Mrs Pallister; and (b)The solicitors were instructed that Mrs Pallister's name was to be added to the Contract as a co-purchaser with Mr Pallister." 19In support of the present application, Mrs Pallister relied on the fact that the plaintiffs were on notice, by virtue of her defence, that she denied being a party to the contract and further denied authorising the Solicitors to act for her in relation to the proposed purchase of the property. It was said that this contention was confirmed in her affidavit sworn 6 May 2005 at [4] and [6] and in her affidavits sworn 16 June 2005 and 20 March 2007 at [5]. 20As observed in the submissions on behalf of Mrs Pallister at [22], in order for the plaintiffs to succeed against her, it was necessary for them to prove that Mrs Pallister was a party to the contract. No party ever contended that Mrs Pallister signed the contract. Accordingly, the plaintiffs were required to establish that Mrs Pallister became a party to the contract by reason of either her express or actual authority or apparent or ostensible authority in the solicitors to make the contract on her behalf. 21Reliance was placed upon Mrs Pallister's affidavit evidence to which reference has been made in paragraph [19] above to establish that there was no basis for a contention that the Solicitors had Mrs Pallister's actual authority. Accordingly, it was argued, the plaintiffs would be required, in order to succeed against Mrs Pallister, to establish that the Solicitors had her ostensible authority. 22In summary, the claim for indemnity costs in favour of Mrs Pallister to a significant extent is largely based upon her affidavit sworn 6 May 2005 and her subsequent affidavits. It was contended that from, on or about 6 May 2005, the plaintiffs, properly advised, should have known that they had no chance of success in their claim against Mrs Pallister. Reliance was also placed upon my own observation in the judgment setting aside the original judgment that had been entered in Mrs Pallister's absence in which it was stated "There was no evidence ... that Mrs Pallister had, in any way, acted to confer either ostensible or implied authority upon Mr Staunton to contract on her behalf" : Hearse & Anor v Pallister & Ors (unreported, 1 December 2009 at [66]). 23It was submitted for Mrs Pallister ( Second Defendant's Outline of Submissions at [25]):- "... a reasonable plaintiff would have discontinued the claim against Mrs Pallister at or about that time, however the plaintiffs did not discontinue their claim until 22 April 2010." 24The submission was that the conduct of the plaintiff's claim against Mrs Pallister contained the combination of "unreasonableness" and "blameworthiness" which warranted an order that the plaintiffs pay her costs on an indemnity basis. Reliance, in this respect, was placed upon the observations of Basten JA (with whom Giles JA and Young CJ in Eq (as his Honour then was) agreed) in Chaina v Alvaro Homes Pty Limited [2008] NSWCA 353 at [111]-[113].

Reply submissions on behalf of the plaintiffs on the claim for indemnity costs by Mrs Pallister 25In the written submissions on behalf of the plaintiffs, it was submitted that, at the time of commencing proceedings, the evidence available to them suggested that the role of Mrs Pallister in the transaction was one of a co-purchaser based on the letter that had been written by the Solicitors to the solicitors for the plaintiffs dated 19 January 2005, notwithstanding the interpretation ultimately given to that letter in the judgment in Hearse & Anor v Pallister & Ors (unreported, 1 December 2009). 26It was reasonable, in my opinion, for the plaintiffs to rely upon the construction of the letter that they did, that is to say, that it represented that Mrs Pallister had authorised them to amend the Contract for Sale to add her as party. In other words, the letter provided a basis for a triable issue. 27It was observed in the submissions for the plaintiffs that the letter of 19 January 2009 was admissible in proceedings against Mrs Pallister pursuant to s.87(2)(a) of the Evidence Act 1995, as an alleged previous representation constituting an "admission" . 28In relation to the affidavit evidence of Mrs Pallister, in particular, the affidavits sworn on 6 May and 16 June 2005, it was also submitted on behalf of the plaintiffs that her evidence was evidence in contested proceedings. There was no obligation upon the plaintiffs to simply accept that evidence. They were, it was submitted, entitled to test it. Her affidavit evidence, it was submitted, was contrary to the plaintiffs' construction of the letter of 19 January 2005. That letter, it was submitted, would have been available to the plaintiffs at trial to test Mrs Pallister's evidence in the light of the correspondence from the Solicitors . 29It was also submitted that it was not incumbent upon the plaintiffs to accept the evidence of Mr Staunton. They were entitled, it was contended, to challenge it at trial and rely upon the letter of 19 January 2005 as evidence of Mr Staunton's authority. 30In relation to the subsequent history of the proceedings, it was observed that, through no fault of the plaintiffs, there was no appearance by Mrs Pallister at the trial. In those circumstances, her evidence was therefore not read either by Mr Staunton or by Mrs Pallister. 31Judgment had been entered against Mrs Pallister on 28 May 2008 with the evidentiary support of the letter of 19 January 2005 which suggested that Mr Staunton had her authority. 32Following the judgment setting aside the default judgment entered against Mrs Pallister, steps were soon after taken to discontinue the proceedings against her and no significant or substantive steps were taken from that point until the proceedings were formally discontinued. 33The decision to discontinue against Mrs Pallister was then said to have been made in light of all the evidence likely to be read at trial. The plaintiffs, in those circumstances, then did not maintain the case against Mrs Pallister but discontinued the proceedings. 34Accordingly, in the circumstances, the proceedings had been commenced and continued based on admissible evidence which arguably pointed to authority having existed in the Solicitors to act on Mrs Pallister's behalf. It was only a relatively short time after the judgment was set aside that the plaintiffs discontinued the proceedings. 35In these circumstances, it was submitted, the case does not fit into any of the categories of case identified in Colgate-Palmolive (supra). Further, it was contended, the case is not one, having regard to relevant circumstances, that would require an unusual order as to costs. 36It was also noted that the costs of the application to set aside judgment resulted in an order that the plaintiffs pay Mrs Pallister's costs on the ordinary basis. Accordingly, the question of costs in relation thereto has already been determined.

Consideration 37The relevant principles that apply to the application for indemnity costs are well-established. In more recent years they have been enunciated by the Court of Appeal in Chen v Karandonis [2002] NSWCA 412 at [110] per Beazley JA (with whom Heydon and Hodgson JJA agreed) and in Chaina (supra) at [105]-[113]. 38It is sufficient for present purposes to note that, amongst the accepted principles, the following matters have been accepted:- (1)The question of indemnity costs will usually arise in circumstances where it is the losing party which has behaved inappropriately: Chaina (supra) at [106]. (2)An indemnity costs order may be made in an unsuccessful action that has been commenced or continued in circumstances where the applicant (properly advised) should have known that he had no chance of success: Fountain Selected Meats (Sales) Limited v International Produce Merchants Pty Limited [1998] FCA 202; (1998) 81 ALR 397 at 400-401. In that case, it was noted that, in such circumstances, the action must be presumed to have been commenced or continued "... for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law" . (3)The discretion to award indemnity costs may be enlivened where, for whatever reason, a party persists in what should, on a proper construction, be seen to be a hopeless case. An indemnity costs order will be warranted where proceedings were maintained by a party having "no reasonable prospect of success" : Chaina (supra) at [108]. (4)The more recent case-law generally shows a tendency to grant indemnity costs orders more readily than was the case in the past. That may be seen as an element of a broader policy directed to limiting the litigation of cases where there are no reasonable prospects of success: Chaina (supra) at [111]. (5)A test of unreasonableness on a question of indemnity costs should not be upheld on other than clear grounds. That will, in turn, depend upon the findings of fact to be made in a particular case relevant to the question of costs: Chaina (supra) at [113]. 39The issue of indemnity costs in the present proceedings essentially rests upon the proposition that there was no reasonable basis for the plaintiffs to proceed against Mrs Pallister, especially in light of the defence that she had raised and her affidavit evidence subsequently filed in the proceedings. 40As noted above, it was argued that an examination of the position in this case would have and should have lead a legal adviser to conclude that there was no proper basis for maintaining the proceedings upon the basis that the Solicitors had Mrs Pallister's authority to add her as a party to the contract. 41Upon consideration, I have concluded that there was available a basis for bringing and continuing proceedings against Mrs Pallister at least up until judgment was delivered on 1 December 2009 setting aside the judgment that had been earlier entered against Mrs Pallister. There were, as noted earlier, no significant steps taken in the proceedings against Mrs Pallister thereafter prior to the filing of the notice of discontinuance on 22 April 2010. 42The alleged representation contained in the letter of 19 January 2005 to which I have referred did, in my opinion, provide a basis for a contention that the solicitors had Mrs Pallister's authority, that is, that the letter provided the basis for contending that the alleged authority of Mrs Pallister as a triable issue. I appreciate, of course, that the interpretation of that letter as eventually determined in the judgment of 1 September 2010 resulted in the conclusion that the letter did not, in fact, contain the representation alleged, namely, that the Solicitors had Mrs Pallister's authority to add her as a party to the contract. 43However, that was a conclusion that was only arrived at following detailed submissions from counsel and a close analysis of a difficult issue of construction finally resolved in the judgment of 1 September 2010. 44I accept, as was observed in the submissions on behalf of the plaintiffs that, notwithstanding the defences filed, it was no fault of the plaintiffs that there was no appearance by Mrs Pallister by or on her behalf when the default judgment was entered against her. Subsequently, affidavits were filed on behalf of Mrs Pallister in which she put in issue the question of authority. The plaintiffs were entitled to explore and test that evidence. The plaintiffs were faced with a situation where there was some evidence (the letter of 19 January 2005) which arguably contradicted her affidavit evidence. At the least, the question of actual authority, in my opinion, was, as I have stated, a triable issue which the plaintiffs were entitled to explore and test. 45Accordingly, I do not accept that the plaintiffs, properly advised, should have known that they had no chance of success in their claim against Mrs Pallister. In the particular circumstances of this case, I do not consider that the conduct of the plaintiffs can be characterised as either unreasonable or blameworthy or otherwise such as to warrant an order for indemnity costs. 46Accordingly, I decline to grant the application for indemnity costs by the second defendant against the plaintiffs. The notice of motion in that respect is, accordingly, dismissed.

The claim for a Bullock/Sanderson order in respect of the solicitor/cross-defendants' costs of the cross-claim

(1)Submissions on behalf of Mrs Pallister 47It was submitted on behalf of Mrs Pallister that it was both reasonable and appropriate for her to bring the cross-claim against the solicitors, in particular, where:- (1)The plaintiffs' pleaded claim against Mrs Pallister was based solely on representations and information alleged to have been made to the plaintiffs by the Solicitors . (2)The plaintiffs themselves brought a claim against the Solicitors in the alternative to the claim against Mrs Pallister. 48In the claim which Mrs Pallister faced, it was contended that it was "virtually inevitable" that she would claim indemnity from the Solicitors by way of a cross-claim. It would have been, it was submitted, "highly unconventional" had she not done so. In this context, it was submitted that there could be no serious dispute that the plaintiffs' claim had been the "catalyst" for the cross-claim. 49It was additionally argued on behalf of Mrs Pallister that this was not a case where the cross-claim raised what was referred to as "private issues" as between her and the Solicitors . 50It was noted that the cross-claim substantially repeated the allegations in the Amended Statement of Claim and the defence to the cross-claim substantially repeated the solicitors' defence to the Amended Statement of Claim. It was also noted that the only substantive matter in dispute between Mrs Pallister and the Solicitors was whether or not the Solicitors had any authority to act as the solicitors or agents for Mrs Pallister in respect of the proposed purchase. 51The latter question, it was said, was already a fact in issue in the proceedings and, indeed, that it was the critical fact in issue in the plaintiffs' claim against Mrs Pallister and the solicitors. 52Accordingly, it was submitted that the "core factual and legal question" posed by the cross-claim was the same as the claims advanced by the plaintiffs against Mrs Pallister and the solicitors in the Amended Statement of Claim. 53The abovementioned matters were said to be relevant to the question as to whether the costs of the solicitors on the cross-claim "ought fairly be borne" by the plaintiffs: GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited (2003) 201 ALR 55 at [72]. 54The circumstances in which the cross-claim was made by Mrs Pallister was relied upon to support the proposition that "... fairness dictates that the costs of the Solicitors on the Cross-Claim should be borne by the plaintiffs" : Second Defendant's Outline of Submissions at [42].

(2)Submissions on behalf of the plaintiffs 55In his written submissions, Mr Tregenza, of counsel, contended that the cross-claim brought by Mrs Pallister was misconceived. 56He observed that in the First Cross-Claim, it was pleaded in paragraph [3] that:- "If the cross-defendants added the name of the cross-claimant to the contract referred to in the Statement of Claim, or otherwise performed any act whereby the cross-claimant became bound by the said contract, then the cross-defendants are liable to indemnify the cross-claimant in respect thereof." 57Mr Tregenza contended that the authority of the Solicitors to make representations on behalf of Mrs Pallister was alleged in the Statement of Claim to be actual authority . There was no allegation that Mrs Pallister held the Solicitors out such that she was ostensibly liable for their conduct. It was said that this was made clear in paragraphs [13] and [28] of the Further Amended Statement of Claim. The Amended Statement of Claim, it was submitted, did not plead conduct by Mrs Pallister by which she held out or otherwise represented to the plaintiffs that the Solicitors acted on her behalf or had any authority to act on her behalf. 58Any judgment that held Mrs Pallister was liable on the Contract for Sale of Land could have only been on the basis of the Solicitors having been actually authorised, expressly or impliedly, by her to enter into the Contract. In such a case, it was submitted, Mrs Pallister would have necessarily failed on her claim against the Solicitors . 59For the reasons set out in the written submissions for the plaintiffs, it was contended that it was not reasonable for the cross-claim to have been brought.

(3)Consideration 60The general principle is that a principal is only bound by acts of an agent which are within the agent's authority. If the agent acts outside the scope of this authority, the principal will not be bound (unless the principal subsequently ratifies those acts): Laws of Australia at 8.1.26. 61If, for example, the Solicitors were agents for Mrs Pallister but only in terms of her being added to the Transfer as a transferee, then in accordance with the above principle, as there was no actual authority (express or implied) that they were authorised to bind her as a co-purchaser to the Contract for Sale, Mrs Pallister would not have been bound by any representation by them that they had such authority. 62In the present case, on the case as pleaded, it would have been necessary for the plaintiffs to establish that the Solicitors had the actual authority of Mrs Pallister and that they were acting within the scope of that authority. As Mrs Pallister's case was that she never conferred authority on the Solicitors to contract, if accepted, no judgment could have been entered against her for that reason. 63That then raises the question as to the possible utility of the cross-claim. Could there have been any circumstance in which the plaintiffs could have succeeded against Mrs Pallister which would have then provided her with a basis for claim of indemnity against the Solicitors ? There are circumstances in which a solicitor, as agent for a party to legal proceedings, who exceeds his instructions can be liable for breach of contract and hence liable to indemnify his or her principal for such breach. See, for example, Donellan v Watson (1990) 21 NSWLR 335 at 341. 64However, there is no circumstance identified in these proceedings in which it was conceivable that the plaintiffs could have succeeded against Mrs Pallister (on the basis of actual authority of the Solicitors to contract on her behalf) and that she could then have had a right of action against the solicitors for an indemnity. 65Exceptional circumstances can arise where, although an agent exceeds his authority, a principal can be liable if the principal has held the agent out as having authority to represent his own authority. See Northside Developments Pty Limited v Registrar-General (1990) 64 ALJR 427 at 444 per Brennan J. However, that is not the case here. In Northside Developments (supra), Brennan J observed:- "If the company has not so held the agent out, the agent has no authority from the company to misrepresent his own authority; he cannot bind the company by his own statement of his authority and any loss suffered by the other party cannot be sheeted home to the company ... A servant's or agent's representation of authority is never, by itself, sufficient to establish the course of the service or agency and, if the act done is neither within the actual nor within the ostensible authority of the servant or agent, the principal is not liable." 66I have concluded that, in the particular circumstances of this case in which Mrs Pallister had maintained that the Solicitors had no authority from her to bind her as co-purchaser, there was only one of two outcomes. If she was found to have conferred actual authority then, of course, the Solicitors were authorised to contract on her behalf as a co-purchaser. If, as she contended, she never gave such authority, then it would follow that she could not have been found liable to the plaintiffs. In either event, the cross-claim against the Solicitors would have been of no utility as it would have had no work to do in protecting or advancing her interests. 67Accordingly, in the circumstances in which the case arose and as pleaded by the plaintiffs, the cross-claim for an indemnity was not necessary. Indeed, as has been submitted on behalf of the plaintiffs, the cross-claim was, in the circumstances, misconceived. 68Accordingly, I do not consider that Mrs Pallister is entitled to an order that her costs of the cross-claim be paid directly or indirectly by the plaintiffs by way of a Bullock or Sanderson order. The application in that respect is, accordingly, refused. 69The costs of the present application would normally be dealt with on a costs follow the event basis. The parties are to confer in this respect and, if there is any outstanding issue as to the costs of the application, then leave to apply is reserved to either party. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 September 2011