Second Third Party/Second Respondent/Second Cross-Respondent

KHEIRS FINANCIAL SERVICES PTY LIMITED (ACN 100 505 324) and

KHEIRS FINANCIAL SERVICES PTY LIMITED (ACN 100 505 324) and

[2010] VSCA 355

Tarik Solak v Bank of Western Australia Ltd [2009] VSC 82

Tarik Solak v Bank of Western Australia Ltd (No 2) (Unreported, Supreme Court of Victoria, Pagone J, 26 March 2009)

COSTS - Third and fourth party proceedings - Where third parties and fourth parties succeed because defendant successful against plaintiff - Liability of plaintiff for costs restricted to issues raised by the statement of claim - Liability for the costs of third and fourth party proceedings - Whether usual rule of 'costs follow the event' applies - Whether costs should be apportioned by analogy with apportionment legislation - Whether costs should be allocated on an 'issues basis' - Need for judicial determination of issues before issues-based costs order can be made - Johnson v Ribbins [1977] 1 All ER 806, applied - Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115, applied.

For Kheirs Financial Services Pty Limited (ACN 100 505 324) and Gamel Kheir

1 This was an appeal - or, more accurately, a series of appeals - about costs. As will appear, the costs questions were more than usually complicated, because the defendant to the principal proceeding joined third parties, and they in turn joined fourth parties. In the end, however, the appeals concern the applicability of 'the usual rule' as to costs, that is, the rule that costs follow the event.

2 The plaintiff in the principal proceeding failed. The claim against the defendant was dismissed. It followed, the judge concluded, that the claims of the defendant against the third parties must also be dismissed and, likewise, the claims by the third parties against the fourth parties. His Honour proceeded, however, to state his conclusions as to the apportionment of liability as between those parties 'in case it becomes relevant hereafter'.

3 Without formally adjudicating upon the issues in the third party proceedings or the fourth party proceedings, but using the State apportionment legislation as a guide, the judge purported to undertake the task of apportioning liability 'in a real and pragmatic sense to identify who is to blame for the loss and who should bear the liability.' He concluded that responsibility should be apportioned as follows: defendant 30 per cent, third parties 0 per cent, fourth parties 70 per cent.

4 Since the investigation of the plaintiff's claims against the defendant had taken, on the judge's assessment, only one-sixth of the trial time, his Honour confined the unsuccessful plaintiff's liability for the defendant's costs to those costs associated with the trial of the issue as between plaintiff and defendant. (That order was not challenged in these appeals). The question which then fell for determination was how to allocate the costs of the balance of the trial.

5 The contention for the third parties was that, as the defendant's claim against them had failed, the defendant should pay their costs of the third party proceeding. Similarly, the fourth parties contended that, as the fourth party claims had been dismissed, the third parties should pay their costs of the fourth party proceeding. His Honour took a different view, however, as he considered that to apply the usual rule in this fashion might work unfairness. His Honour concluded that the apportionment of costs as between those parties should accord with his apportionment of fault amongst them.

6 For reasons which follow, we have concluded that his Honour erred in the apportionment of fault, as he did not adjudicate on all of the issues which had to be determined in the third party and fourth party proceedings. Accordingly, the apportionment was not a proper basis for deciding the costs questions. This was an error of principle, which re-opens the costs discretion. We have concluded that, in the circumstances, the submissions originally made by the third and fourth parties respectively should be upheld. In each case, the defendant parties had successfully defended the claims brought against them, and they were entitled to an order for costs against the unsuccessful party.

7 On 26 March 2009, Pagone J dismissed a claim brought by the plaintiff (Mr Tarik Solak) against the defendant (the Bank of Western Australia Ltd, 'the Bank').[1] Mr Solak had sought a declaration that a mortgage over property which he owned ('the property') did not and could not secure any indebtedness of Mr Solak in favour of the Bank, as the mortgage had been given by a forger who had falsely represented himself to be Mr Solak ('the forger'). Mr Solak was also unsuccessful in obtaining an order securing the discharge of the mortgage registered with the Land Titles Office that appeared as an encumbrance upon the certificate of title to the property. The Bank had been successful in resisting Mr Solak's claims on the basis of the doctrine of indefeasibility of title effected by the Transfer of Land Act 1958, which enabled it to maintain the registration of the mortgage and to enforce the covenant to pay flowing from the forgery.[2]

8 The Bank, in defending its claim against Mr Solak, had joined Aussie Home Loans Pty Ltd ( 'Aussie') as first third party and AHL Investments Pty Ltd ('AHL') as the second third party. In turn, Aussie and AHL brought fourth party proceedings against Kheirs Financial Services Pty Limited ('KFS'), as the first fourth party, and against Mr Gamel Kheir, as the second fourth party. (We will use the abbreviation 'Kheirs' to refer jointly to Mr Kheir and to KFS).

9 The third and fourth party proceedings were based upon arrangements between the parties for the introduction of customers seeking to borrow funds. As will appear, the forger had contacted Mr Kheir seeking to borrow money on the security of the property and had subsequently secured those funds from the Bank in April 2006 through Kheirs and Aussie.

10 Having dismissed the plaintiff's claim against the Bank, his Honour made orders dismissing the Bank's claim against the third parties (paragraph 2) and, in turn, dismissing the third parties' claims against the fourth parties (paragraph 3). As will appear, however, he had not adjudicated on either the third party or the fourth party claims. He further dismissed all claims between the Bank, the third parties and the fourth parties (paragraph 4).

11 His Honour then made orders for costs in the following terms:

6 The Plaintiff [Mr Solak] pay the Defendant's [the Bank's] costs of the issues raised by the statement of claim but not those incurred by the Defendant (or any other party) arising from the Third Party notices, the Fourth Party notices or the notices for contribution between them.

7. The Defendant [the Bank] pay 30 per cent of the Third Parties' [Aussie and AHL's] costs of the proceedings.

8. The Fourth Parties [Kheirs] pay 70 per cent of the First Third Party's [Aussie's] costs of the proceeding to be assessed and paid on a full indemnity basis.

9. The Fourth Parties [Kheirs] pay 70 per cent of the Second Third Party's [AHL's] costs of the proceeding.

12 These appeals concern the orders for costs made in respect of the third party and fourth party proceedings. The effect of those orders was that the costs of the third parties (Aussie and AHL) were to be paid as to 30 per cent by the Bank and as to 70 per cent by the fourth parties.

Costs follow the event in third and fourth party proceedings

13 The Supreme Court has a broad judicial discretion to award costs in the exercise of the power conferred by s 24(1) of the Supreme Court Act 1986, which provides:

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 ... 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.

14 An award of costs made by a trial judge, being discretionary, is thus subject to interference by an appellate court only where the discretion has miscarried, for example, because it has been exercised according to a wrong principle or on a manifestly erroneous view of the facts.[3]

15 The usual rule is, of course, that costs follow the event. In the absence of special circumstances, a successful litigant should receive his or her costs.[4] As Viscount Cave LC said in Ritter v Godfrey:[5]

[T]here is such a settled practice of the Courts that in the absence of special circumstances a successful litigant should receive his costs, that it is necessary to show some ground for exercising a discretion by refusing an order which would give them to him.

16 Importantly for present purposes, the usual rule has been held to apply also to third and fourth party proceedings. The proceeding between a defendant and a third party is viewed as a separate 'event',[6] as is that between a third party and a fourth party.

17 In Burke v Gillett,[7] the plaintiff failed against the defendant, and the defendant in turn failed against the third party (its solicitor), because an agreement drawn by the third party was held to be valid. Tadgell J (with whom Ormiston and Smith JJ agreed) concluded that, as the third party claim had been 'fully litigated'[8] and the third party had been 'ultimately vindicated', the defendant should pay the third party's costs of the proceeding:

Assuming that the defendants acted reasonably in bringing the third party proceedings, that was not sufficient to justify an order either that the third party should not receive its costs or that the defendants should not be made responsible for them.

In my opinion, costs of the third party proceedings and of the third party's appeal should follow the event, as it was indicated in Johnson v Ribbins ... should ordinarily be the case.

18 The reference here to Johnson v Ribbins[9] was to a statement made by Goff LJ, in delivering the judgment of the Court of Appeal, in which he said:[10]

In the exercise of that discretion [to award costs] ... in our judgment the court should be guided by the principle that normally costs follow the event as is expressly provided by RSC Ord 62, r3(2), and should, therefore, normally order the defendant, though successful in the action, to pay the costs of the third party if he also be successful. ...

Counsel for the defendants argued that one cannot apply RSC Ord 62, r 3(2), to third party proceedings, because the only relevant event is the outcome of the proceedings as a whole. One cannot, so he submitted, look at the third party proceedings separately. We cannot accept that view as a general proposition and certainly not as applicable to this case, though it might be true in particular cases. Generally, we think it will be found, and certainly so in this case, that the defendant and the third party stand in relation to one another as if the defendant had brought a separate action against the third party ... In L E Cattan Ltd v A Michaelides & Co, whilst careful to point out that it was a matter of discretion, and that he was not fettering the arbitrator's discretion, Diplock J prescribed this as the normal rule in the not dissimilar case of chain contracts.

19 Johnson v Ribbins[11] involved a claim by a plaintiff mortgagor that the defendant, the mortgagee, had sold the property, a hotel, at a gross undervalue, in the exercise of the mortgagee's power of sale. The defendant was successful in resisting the plaintiff's claim. The trial took 11 days, much of which was occupied in investigating the defendant's allegations that his solicitor had effected the sale with undue haste and that his real estate agents had been negligent. The agents had been joined as third parties. The trial judge rejected the defendant's allegations and dismissed the third party proceedings. In those circumstances, the Court of Appeal held, there was nothing on the facts of the case to justify departure from the usual rule that costs follow the event. It would not be right to deprive the third party of an order for costs to which it was otherwise entitled against the defendant.[12]

20 In Burke v Gillett,[13] Tadgell J was careful to distinguish the circumstances of the case before him from those in Devon Downs Administrators Pty Ltd v Theodoropoulos[14] and Allman v Country Roads Board,[15] where it had been unnecessary to adjudicate on the third party claim. In Allman, the third party proceedings were contingent upon the liability of the defendant being established, and the defendant had been successful in avoiding liability. In considering the nature and purpose of third party proceedings, Pape J said:[16]

In Hordern-Richmond Ltd v Duncan ... Cassels J ... said: 'The cause of action which entitles a defendant to bring a third party before the court is the liability of the third party to make contribution or pay an indemnity. That cause of action has not arisen until the liability of the defendant has been ascertained. Under [the relevant statute and Rules of Court] governing third-party proceedings, notice of them is given to a third party before liability is established. It is one of the peculiarities of that procedure which enables this to take place before there is any liability. But the plaintiff can never get a judgment against the third party; .... Neither, in such proceedings, could the defendant succeed and yet leave the plaintiff with judgment against the third party. It is only on the defendant's being made liable that the defendant has any cause of action against the third party. Whatever for convenience of procedure may be the order for directions for the trial, however the witnesses may be called and heard, or whether the proceedings by the plaintiff against the defendant are tried at the same time as the proceedings by the defendant against the third party matters not. The position is quite clear. The proceedings by the defendant against the third party are independent of and separate from the proceedings by the plaintiff against the defendant, except that, when the defendant is made liable to the plaintiff, he then has his right open against the third party to establish, if he can, that he possesses a right to indemnity and contribution from that party'. ...

In these circumstances I cannot see any justice in ordering a party who is brought into the action solely by way of proceedings to decide his liability to contribute 'in a contingent event', i.e. in the event of the defendant being held liable, to pay the costs of the defendant who succeeds in preventing the contingency from becoming a reality.

21 In relation to costs, his Honour said:[17]

The result is that the plaintiff having failed in this action ... must pay the penalty of all unsuccessful plaintiffs, and bear the defendant's costs. ...

So far as the third party proceedings are concerned, I think it would be incorrect to enter judgment for the third parties against the defendants, because, as I have already shown, these proceedings are contingent on the defendant's liability being established. Since it has not been established, the third party proceedings were never litigated ...

I think in all the circumstances justice will be done if I make no order on the third party proceedings except to order that the third parties ... are to have such costs against the defendant ... as they have incurred by reason of the service upon them of the third party notices, but excluding any costs of the trial. [18]

22 Similarly, in Devon Downs,[19] Kaye J held that there should be no substantive order in the third party proceeding. Applying Allman, Kaye J said:[20]

The defendants, not having been found liable to the plaintiff, the third party proceedings were not determined. Therefore, in my view, no order or judgment ought to be made or pronounced. No issue has been determined between the defendants and the third party, and in particular, the issue of whether there is a right to an indemnity or contribution in the defendants against the third party. ...

In the result, I do not intend to make any order for judgment in respect of either the third or fourth party proceedings.

23 Dealing with costs, Kaye J referred to the relevant Rules of Court, which at the time provided for the Court 'to give such directions as to costs as the justice of the case may require'.[21] He said:[22]

[i]t is clear that the Court has a wide discretion and it may make such order for costs as the justice of the case may require. It would seem therefore that this is hardly a departure from the normal principle that costs follow the event.

24 In considering what the justice of the case required, Kaye J considered the reasonableness of the joinder and the conduct of the party during the litigation, especially with respect to its responsibility for the length of the trial. His Honour concluded that, in the circumstances of the case, the defendant's joinder of the third party was reasonable, and ordered that the third party's costs be paid by the plaintiff directly. He also ordered that the defendant's costs of and incidental to the commencement of the third party proceedings, limited to interlocutory matters and including costs reserved, be paid by the third party. (Tadgell J, in Burke v Gillett,[23] considered that this limited order in favour of the defendants against the third party reflected the inability of the third party, the defendant's solicitors, 'to explain a number of matters which might have shown that the defendants were unreasonable in joining it as a third party'.)

25 The principle in Johnson v Ribbins[24] was applied by the Full Court of the Federal Court in Gladstone Park Shopping Centre Pty Ltd v Wills.[25] That was a proceeding alleging misleading conduct by the owners of a shopping centre inducing entry into a lease. The defendant owners had resisted the applicant's claim and had joined their leasing agents as third parties, seeking an indemnity in the event that the applicant was successful. The owners were successful in defeating the tenant's claim. Their claim against the agents was also rejected.

26 The agents successfully sought an award of costs in their favour against the owners. The owners appealed. In dismissing the appeal, Beaumont J (with whom Northrop and Davies JJ agreed) held that a party which commences a proceeding against another bears the risks of doing so. In their Honours' view, the owners' decision to join the agents:[26]

may be seen as something done with a view to advancing their own interests by seeking to secure immediate indemnity or contribution ... in the event that [the applicant] should succeed in her claim. In those circumstances, it is only just that the appellants [the owners] ... should bear the costs of the attempt to secure such an advantage for their own benefit.

27 In Furber v Stacey,[27] the New South Wales Court of Appeal held that the usual rule was prima facie applicable to third party proceedings, subject to the overriding power of the court to do justice between the parties. Hodgson JA (with whom Einstein J agreed) said:[28]

The prima facie principle to be applied ... is that costs follow the event. ...

However, this principle is subject to the ability of the Court ... to make such orders as it appears to the Court should be made, as the justice of the case may require. In relation to third party proceedings ... it may be appropriate to make further or other orders. There is a useful discussion of this matter by King CJ in Lombard Insurance Co. (Australia) Ltd v Pastro ... as follows:

As the discretion to award costs, like other judicial discretions, must be exercised judicially, the courts have developed principles for the guidance of judges in exercising the discretion. The basic guiding principle is that costs ordinarily follow the event. The application of that principle to unsuccessful third party proceedings presents difficulties as the diverse outcome of the decided cases indicate. There is no great difficulty where a third party claim by a defendant is unsuccessful because the defendant has failed to establish its right to recover from the third party the amount which it is required to pay to the plaintiff, or the amount which it would have been required to pay if the plaintiff's claim had been successful. In such cases the defendant is ordinarily required to pay the costs of the third party and cannot recoup them from the plaintiff. Where, however, the third party claim fails solely because the plaintiff has failed in its claim against the defendant, the position is more complex. The principle that costs follow the event dictates that ordinarily the defendant is liable for the costs of the successful third party.

28 The following principles can be derived from these authorities:

(1) The usual rule as to costs applies to proceedings as between defendant and third party, the 'event' being the success or failure of the defendant's claim against the third party.

(2) Where the third party claim is dismissed because the plaintiff's claim against the defendant fails, the defendant will ordinarily be liable for the third party's costs of the third party proceeding.

(3) The award of costs remains a matter of discretion, however, and there may be circumstances of the case which justify a departure from the usual rule.

(4) In deciding (in a case of the kind referred to in (2)) whether any departure from the usual rule is warranted, the Court will ordinarily need to consider at least the following matters:

• the reasonableness of the defendant's decision to join the third party;
• whether the joinder of the third party was reasonably foreseeable by the plaintiff, such that the plaintiff might be viewed as having some responsibility for the costs of the third party proceeding. (An order for the plaintiff to pay the defendant's costs may thus include the defendant's liability to pay the third party's costs of the third party proceeding.);
• the responsibility of plaintiff, defendant and third party, respectively, for the time taken up in the hearing of the third party proceeding.

These principles would apply equally to fourth party proceedings.

29 Before considering how these principles apply to the case at hand, it is first necessary to consider the procedural background.

30 Kheirs was granted leave to appeal against the costs orders made against them. The respondents to that appeal (proceeding 3748 of 2009) are Aussie and AHL. Aussie has applied for an extension of time to serve a Notice of Cross-Appeal.

31 Aussie has separately sought leave to challenge the costs order made in its favour. The respondents to that application (proceeding 3827 of 2009) are the Bank, AHL, and Kheirs. The Bank has applied for leave to cross-appeal in the event that Aussie is granted leave to appeal.

32 AHL also seeks leave to appeal against the costs order made in its favour. The respondents to that application (proceeding 3836 of 2009) are the Bank, Aussie, and Kheirs. As with Aussie, the Bank has applied for leave to cross-appeal in the event that AHL is granted an extension of time and leave to appeal.

33 All of the applications, and the resulting appeals and cross-appeals, were heard concurrently with the Kheirs appeal.

The reasons of the trial judge on the parties' claims

34 Having rejected the submissions of Mr Solak, and having found for the Bank, his Honour noted that it was therefore 'unnecessary for [him] to consider the claims and cross-claims between defendant, third parties and fourth parties.'[29] He proceeded, however, to 'state [his] findings and [his] conclusions about any apportionment of liability in case it becomes relevant hereafter'.[30]

35 The claims and cross-claims were based upon contractual arrangements between the parties and, inter alia, alleged breaches of the Fair Trading Act 1999 (Vic); Fair Trading Act 1987 (NSW) and s 52 of the Trade Practices Act 1974 (Cth). The claims were said to give rise to apportioned liability on the basis that the forger, Aussie and Kheirs were concurrent wrongdoers under Part IVAA of the Wrongs Act 1958.

36 Of particular significance to those arrangements was the Origination Agreement made in September 2002 between the Bank and Aussie, by which Aussie was appointed as 'the Originator' to refer clients for financial services to the Bank throughout Australia including, relevantly, New South Wales, Victoria and Western Australia. Clause 4.1 of the Origination Agreement provided:

The Originator agrees to comply with the Service Procedures including provision of Client Information and provision of a properly completed and signed signature identification statement in the Bank's standard form.

37 The expression 'signed signature identification statement in the Bank's standard form' was not defined but the Bank did have a form for the identification of customers (a 100 Point Signatory Identification Form) which was incorporated by Aussie as part of its computer program package for home loan applications made available to its brokers for completion.[31] The 100 Point Signatory Identification Form contained the requirement 'Originals must be sighted'. On the front page of Aussie's Home Loan Application Form to the Bank, there was a signature required for the 'Mortgage Adviser' (here, signed by Mr Kheir) after the statement:[32]

I confirm all applicable requirements have been satisfied, including but not limited to the sighting of original documentation for all savings, income and FTRA identification evidence.

38 Clause 9.1 governed indemnities. It read:[33]

The Originator agrees to indemnify and keep indemnified the Bank against any liability or loss, expenses, damages, actions, claims and costs (including legal costs on a solicitor and own client basis) sustained or incurred, arising directly or in connection with:

(a) any Event of Default;

(b) any breach by the Originator of this Agreement;

(c) any default, negligence, act or omission of the Originator or any of its employees, agents and independent contractors in the course of or related to this Agreement; and

(d) any breach of any of the representations and warranties made by the Originator contained in this Agreement.

39 The claim by the Bank against Aussie was, in essence, that the loan application submitted to the Bank on behalf of the forger contravened clause 4.1 of the Origination Agreement. The application included the completed Bank's standard identification form identifying the borrower yet without Aussie (through its Mortgage Adviser, Mr Kheir) having sighted the original identification documents. It was this breach that the Bank argued caused the loss it suffered by giving an advance to the forger.[34] That was the loss for which it claimed indemnity against Aussie pursuant to clause 9.1 of the Origination Agreement, and hence against AHL pursuant to the Novation Deed.

40 Between Aussie and AHL the relevant contract was the Novation Deed by which his Honour found that AHL effectively assumed the obligations of Aussie under the Origination Agreement with effect from 1 July 2004. AHL was thus the party liable to the Bank for Aussie's default (if any).

41 The ground of Aussie's claim against Kheirs was based upon an alleged breach of the "Aussie Representative Contractor Agreement". That agreement entitled KFS, through Mr Kheir, to introduce potential customers to Aussie who would, in turn, be matched to financiers such as the Bank. With respect to the identification of customers, clause 3.4 provided:[35]

In order to reduce the risk of fraud, it is an essential pre-condition of the introduction of a Customer to us that the Customer is personally interviewed and identified. This interview must be conducted by an Aussie Mortgage Adviser. In addition to Aussie's normal Policies and Procedures in this regard, the Aussie Mortgage Adviser must comply with the following.

The person who conducts the interview (the Interviewer) must have a face-to-face interview with each Customer.

(a) During the interview, the Interviewer must establish that the Customer can speak English sufficiently to understand the nature of the transaction. ...

(b) The Interviewer must identify each Customer by original photo-identification. This can be done by sighting a Driver's Licence or Passport or some other photo identification card. ...

42 The Aussie Representative Contractor Agreement also provided for an indemnity in the event of breach. Clause 5, entitled 'Indemnity and Set Off', provided:

(a) You indemnify us against all or any loss, damages, claims, costs and expenses that we incur as a result of you, any Aussie Mortgage Adviser, any Associate, or any other person involved in any way in the introduction of Loans or Cross Sale Products through you to us:

(i) failing to observe any of the provisions of this Agreement ...

43 Mr Kheir never had a face-to-face interview with the forger. Their transaction began when in February 2006 the forger telephoned Mr Kheir and claimed to be Mr Solak. He said he was located in Melbourne (Kheirs being based in New South Wales), had several unencumbered properties and required a loan for some developments he was undertaking in Turkey. Mr Kheir had never met the real Mr Solak but knew of him, as he had watched him appear several times on commercial sports television as a kick boxer. The forger had greeted Mr Kheir with an Islamic greeting, saying he had been referred by someone with whom Mr Kheir had previously dealt, and the two had a general discussion about Mr Kheir's recent pilgrimage to the Haj. Mr Kheir received by fax the identification documents he had asked to be completed, including copies of the real Mr Solak's passport and licence, copies of personal tax returns, financial statements and company tax returns with personal details including the real Mr Solak's name, address, date of birth, and statements of assets and liabilities, including the duplicate certificate of title. Mr Kheir then entered that information into a computer program that would rank available loan offers in terms of the best deal available. He spoke to the forger by phone who then chose the Bank as the preferred lender.

44 Mr Kheir gave evidence that, due to his concern about how to deal with a remote application (given that he was in Sydney and the person purporting to be Mr Solak was in Melbourne), he telephoned a Mr Dean Gillespie at the Bank, who had responsibility for relationships with brokers. Mr Kheir said that he asked Mr Gillespie what he should be doing and Mr Gillespie said that he could fax the application to the client, have him sign it, and that he must retain the original signed application on file. He said that at no time did Mr Gillespie advise him to get an authorised referee of the client, nor tell him of the existence of a form for authorised referees on the Bank's website - the 'acceptable referee form' - separate from the 100 Point Signatory Identification Form he had used. Mr Gillespie gave a different version of the conversation. He said that he 'would' have informed Mr Kheir that he could send Mr Solak to a branch in Melbourne for identification, if identification had been raised. On neither version of the conversation was there any specific discussion about how the actual form that was completed ought to be completed in the case of a remote application.

45 The trial judge found that Mr Gillespie did not in his first conversation with Mr Kheir express any view about how the requirement of identification in the Bank's forms could be satisfied other than by completion according to its terms. He also found that, as Mr Kheir had previously worked with the Commonwealth Bank, was an experienced broker, and was well aware of the obligation to obtain a 100 point identification of persons when opening bank accounts, it was not the case that Mr Kheir was told that he need not have complied with the obligation to satisfy the 100 Point Signatory Identification Forms.

46 After the telephone conversation with Mr Gillespie, Mr Kheir printed out the Bank's Home Loan Application Form from the laptop computer provided by Aussie and faxed it to the person purporting to be Mr Solak for completion. The signed parts of the form were returned to Mr Kheir who checked it for completeness and faxed the 42-page document directly to the Bank. At the bottom of the front page was Mr Kheir's signature directly under the confirmatory statement described above.[36] He gave evidence that he understood that 'FTRA' referred to the requirement to obtain 100 points of identification. The tenth page in the fax was a page completed and signed by him, headed '100 Point Signatory Identification Form' which required, as mentioned above, the sighting of originals. Mr Kheir completed both alternative sections of the form and signed and dated it (the alternatives being, on the one hand, when copies were going to be forwarded to the Bank and, on the other hand, the completion of identity information in a table if the original documents were not being so forwarded, in all cases the originals being 'sighted'). He left blank the section asking: 'Results of check - Has verification been achieved?'.

47 Mr Kheir did not sight the original documents used by the forger to obtain the loan, as required by the terms of the Bank's form provided by Aussie, just as he did not conduct a face-to-face interview with the forger, as required by Aussie under the Aussie Representative Contractor Agreement.

48 The application form sent by Mr Kheir was processed by the Bank. No one at the Bank appeared to have noticed that the 100 Point Signatory Identification Form had not been completed correctly and nor was there compliance with the Bank's own internal procedures of undertaking personal identification before opening an account. On 8 March 2006, the Bank wrote to Mr Kheir informing him that the loan application had been unconditionally approved. The Bank sent further documentation to the forger for completion, as did the solicitors retained to prepare the mortgage documents. All documents were received and completed by the forger and returned. A Bank equity access account was opened in the name of Mr Solak and funds of $560,000 were disbursed on 5 April 2006.

49 In assessing the claims of the various parties with respect to apportionment of liability, the trial judge noted that:[37]

The claim and cross-claims between defendant, third parties and fourth parties raise many interesting and difficult questions concerning the basis of liability and potential apportionment of liability between concurrent wrongdoers based upon potentially different statutory provisions in different jurisdictions.

Little purpose will be served by a detailed examination of the various contentions because, in the end, the critical question is how I would apportion the loss between the concurrent wrongdoers upon a common standard. Accordingly, I shall confine myself to some general observations about the competing claims and deal mainly with my conclusions about apportionment on the facts.

50 His Honour appeared to have accepted that the claim made by the Bank against Aussie and AHL was not an apportionable claim under the Trade Practices Act 1974 (Cth), not being one for damages made under s 82 of that Act within the meaning of 'apportionable claim' in s 87CB. The Bank had also contended that it was not an apportionable claim under any potentially applicable State legislation, namely, the Wrongs Act s 24AF, the Civil Liability Act 2002 (NSW) (the 'NSW Act'), s 34; or the Civil Liability Act 2002 (WA) (the 'WA Act'), s 5AI.

51 The Amended Third Party Notice made it plain that the Bank's claim was for breach of clause 4.1 of the Origination Agreement (the requirement to provide to the Bank a properly completed and signed identification statement in the Bank's standard form). The Bank claimed to be entitled to be indemnified by Aussie under clause 9.1 of the Origination Agreement (and thereby by AHL, pursuant to the Novation Deed) for any loss it suffered as a result of the breach, including legal costs on a solicitor and own client basis.

52 The trial judge approached the Bank's claim against the third parties on the basis that the apportionment legislation of the various jurisdictions depended fundamentally upon whether the claim was one 'arising from a failure to take reasonable care'. It did not matter whether this was precisely how the claims had been pleaded.[38] His Honour said:[39]

The policy in the [apportionment] legislation is to ensure that those in fact who caused the actionable loss are required to bear the portion of the loss referable to their cause. That task ought not be frustrated by arid disputes about pleadings. Support for that conclusion may be found by the circumstance that a 'failure to take reasonable care' can arise as much from an obligation in tort as in contract. In this case [the Bank's] ... claim for indemnity based upon a failure to sight original documents (that is, a breach of contract) may aptly be described as a failure to take reasonable care for the purposes of the apportionment provisions. ... [The Bank's] action is in my view one 'based on an alleged failure' by the third parties to take 'reasonable care'.

53 Approaching the matter in this way, his Honour went on to examine 'in a real and pragmatic sense' who was to blame amongst the various parties. His primary focus was upon the 'causal potency' of the various factors which singularly or collectively brought about the loss caused. He ultimately concluded that responsibility for the Bank's loss should be apportioned as follows:

• Kheirs: 70 per cent;
• the Bank: 30 per cent;
• Aussie: 0 per cent.

54 The judge considered that 70 per cent was appropriate for Kheirs because Mr Kheir was the primary cause of the loss as between the parties before the Court. It was his contractual obligation to identify by sight the person claiming to be Mr Solak. He neither did this nor put the Bank on notice that a vital element of the transaction (sight-identification of the applicant for a home loan and sighting of original documents) had not been completed by him. In his Honour's view, Mr Kheir's failure to take reasonable care also consisted of receiving only signed pages of the loan application document without knowing what other pages the applicant was declaring to be true and correct; receiving tax returns unsigned and later signed and obviously backdated; and receiving faxes from different post office fax machines rather the one to which Mr Kheir sent his faxes, all of which occurred without any follow-up by him.

55 For its part, the Bank was held to be at fault because Mr Gillespie did not turn his mind to the important task of how identification of a customer in the context of a remote application was to be made, or its ramifications. Moreover, the failure of the Bank to have appropriate internal processes to ensure the fraud was prevented also contributed to the loss.

56 His Honour considered Aussie's contribution to the ultimate loss to be insignificant because it was entitled to rely on the proper training it provided and on the systems it had in place to avoid fraud.

57 His Honour said that, if he had been required to take into account the actions of the forger as a cause of the loss,[40] the apportionment would have been: 50 per cent to the forger; 35 per cent to Kheirs and 15 per cent to the Bank, while Aussie's liability remained at 0 per cent.

58 His Honour said that he would 'dismiss the proceeding between plaintiff and defendant with the consequence that the subsequent proceedings between defendant, third parties and fourth parties will also, in effect, be dismissed.'[41] He also said he would re-list the proceedings 'to hear the parties on the form of orders and on any question concerning the costs ...'. On the further hearing, his Honour made orders dismissing all claims.

59 His Honour correctly foresaw that it was the orders on costs that would give rise to the 'more contentious issues'.[42] He was urged by all parties, other than Mr Solak, to follow the usual rule that costs should follow the event. The 'event' was said by the fourth parties to be the failure of the principal proceeding brought by the plaintiff and, flowing with it, all the issues raised in the third and fourth party proceedings. His Honour rejected that argument. He pointed out that a great deal of the trial (about five-sixths of the hearing)[43] had been taken up with issues not agitated by Mr Solak who, he said, had been the innocent victim of a fraud and whose interests had been adversely affected by the conduct of the other parties, especially that of Kheirs. He concluded that it would be wrong to order that Mr Solak bear all the costs of the Bank, including those of the third and fourth parties which 'might flow back up through to the defendant'.

60 In considering the applicability of the usual rule, his Honour said that the 'event' on which Mr Solak had failed was the indefeasibility issue. The costs orders 'should reflect the relative success and failure of the parties on the different issues in the proceeding'.[44] Mr Solak could not be held to have failed on 'the many other factual and legal issues raised by the other parties'. Accordingly, in his Honour's view, Mr Solak's liability for costs should be limited to the costs of the indefeasibility issue. (That order is not under challenge, and will be unaffected by the outcome of those appeals).

61 With respect to the costs incurred by the other parties, his Honour said this:[45]

The costs of the defendant [the Bank], the third party [Aussie and AHL] and the fourth parties [Kheirs] should, in my view, as between themselves, be borne on the basis of the proportionate wrongdoing as I found them to be on the evidence, subject to what I will say about the contractual indemnity which the first third party [Aussie] claims. Accordingly, I will order that the costs of the third parties [Aussie and AHL] be paid by the defendant and by the fourth parties as to 30 per cent and 70 per cent respectively.

62 His Honour went on to consider the indemnity under clause 5 of the Aussie Contractor Representative Agreement, set out above.[46] He qualified his order against Kheirs by saying that:

The quantum of the first third party's [Aussie's] costs payable by the fourth party [Kheirs] is, however, subject to an indemnity in clause 5 of the Aussie Contractor Agreement[47] ...

I will order that the first third party's [Aussie's] costs payable by the fourth parties [Kheirs] be assessed and paid on a full indemnity basis by the fourth parties [Kheirs ].[48]

63 The Bank argued before his Honour that it should recover from Kheirs the difference in costs between the party and party costs which it expected to recover from Mr Solak and the solicitor and client or indemnity costs which would not be paid by Mr Solak, on the basis that it was entitled to recover that difference from Kheirs by reason of their wrongful conduct. His Honour rejected this argument, especially in light of the failures of process he had found to have been committed by the Bank.

64 In his reasons on costs, his Honour made no mention of the indemnity in favour of the Bank against AHL (through Aussie) pursuant to clause 9.1 of the Origination Agreement. He had, however, remarked, in the substantive proceeding, that if it had been necessary to consider whether the Bank's loss included interest for the purposes of the indemnity under clause 9.1, he would have included the interest component claimed by the Bank against AHL (through Aussie) pursuant to the Origination Agreement and the Novation Deed. [49]

65 Aussie's contention is that the trial judge ought to have ordered that Aussie be paid 100 per cent of its costs, and not just the 70 per cent awarded. Aussie seeks an order that, pursuant to the contractual indemnity, 100 per cent of its costs be paid by Kheirs.

66 Aussie argues, on the other hand, that if the appeal by Kheirs is allowed and Aussie is ordered to pay all or part of their costs, then Aussie should be regarded as a wholly successful party vis-à-vis the Bank, and the Bank should be ordered to pay 100 per cent of Aussie's costs of the third party proceedings, of defending the contribution proceedings brought by AHL, and of prosecuting the fourth party proceedings. Further, by way of a 'Bullock' order,[50] the Bank should be ordered to pay all of the costs Aussie is ordered to pay to Kheirs.

67 Aussie explained the delay in seeking leave to appeal by reference to the discussions it had engaged in with the other parties exploring, ultimately unsuccessfully, the possibilities for settlement. It deferred the institution of its cross-appeal[51] until Kheirs had been granted leave to bring their appeal,[52] and the cross-appeal had been foreshadowed at that time. The extension of time was opposed by the Bank.

68 We consider that, in the circumstances, the extensions of time sought should be granted. We also grant leave to Aussie to appeal and to cross-appeal.

69 AHL sought orders, in the event that Kheirs were successful in their appeal, for the Bank to pay 100 per cent of AHL's costs, and, by way of a 'Bullock' order, the costs of Kheirs. The application for an extension of time and for leave to appeal were opposed by the Bank. AHL offered the same explanation for the delay as Aussie. For similar reasons, we consider that an extension of time and leave to appeal should be granted to AHL. It was appropriate for all the issues raised by the appeals and cross-appeals of both Aussie and AHL to be dealt with at the same time.

70 The Bank has not sought to appeal from the trial judge's orders (and is thus not a party to proceeding 3748 of 2009), on the ground that the costs of an appeal would be out of proportion to the costs in issue. We have some sympathy for those misgivings. However, it has applied for leave to cross-appeal in the appeal brought by Aussie, with leave (proceeding 3827 of 2009). The Bank, in its cross-appeal, seeks an order that there be no order as to Aussie's costs; in the alternative, that AHL pay Aussie's costs of defending the Bank's third party claim.

71 The Bank contends that the joinder of both Aussie and AHL was necessitated by the failure until the second day of trial for them to advance a common position as to the operative day of the Novation Deed, and that, in consequence, it should not be liable for Aussie's costs, whatever the outcome of any other costs issues.

72 The Bank has also issued a notice of cross-appeal, provisional on AHL being granted leave to appeal in proceeding 3836 of 2009, and seeks leave to cross-appeal (to the extent necessary). By its cross-appeal, it seeks orders setting aside paragraphs 2 and 7 of the orders (with respect to AHL), and, in lieu of paragraphs 2 and 7, orders that AHL pay the Bank's costs of Mr Solak's claim against the Bank, and the Bank's costs of its claims against Aussie and AHL, both costs to be taxed on an indemnity basis. The Bank says it is entitled to an order that AHL pay its costs because of, or by analogy with, the indemnity provisions of the Originating Agreement with AHL (as novated by the Novation Deed).

73 We grant leave to the Bank to cross-appeal in the appeal brought by Aussie and grant leave for it to cross-appeal in the appeal brought by AHL.

74 On appeal, Kheirs argued - as they had before the judge - that they had been involuntarily brought before the Court at the suit of Aussie and AHL, and had been successful in having those proceedings dismissed. Costs should therefore follow that 'event', in accordance with the usual rule. There was nothing in the facts of the case that would justify departure from the usual rule. It was argued that a third party which elected to bring a fourth party into proceedings necessarily accepted the risk that the claim against the fourth party might fail, with costs following that event. It did not matter, or at least was not conclusive, that it was reasonable for Aussie and AHL to join them. It was quite exceptional for a successful party to be ordered to pay its opponent's costs. The trial judge had not found any disentitling behaviour in Kheirs' conduct of the litigation (as distinguished from their causal or legal responsibility for any loss the Bank might have suffered). Failure by a successful party on some issues did not, in itself, constitute exceptional circumstances. In any event, the submission went, costs were not awarded on an 'issues' basis.

75 This last contention directly challenged the statement of the trial judge, that all of the costs orders were to reflect 'the relative success and failure of the parties on the different issues in the proceeding'.[53] The submission for Kheirs pointed out that costs could not properly have been awarded on an 'issues' basis because there were a number of issues - being issues relevant to the liability of Kheirs to Aussie and AHL, and to the liability of Aussie and AHL to the Bank - on which there had been no adjudication. There were material questions on which no findings had been made and which remained undetermined. Those issues not having been decided, no view could be formed about which party would have had success on which issues.

76 The issues said to have been left undecided were:

(1) the claim by the Bank against AHL of a breach (through Aussie) of clause 4.1 of the Origination Agreement. It had been argued that, in the circumstances of the case, clause 4.1 did not apply;[54]

(2) the effect of the release which the Bank had given to Aussie when the Origination Agreement was novated to AHL;

(3) the question of whether there had been relevant reliance by the Bank on actions taken by Kheirs and whether it had been misled by anything they had done (issues that were argued to have been neither alleged nor proved by the Bank, thus removing the foundation of a misleading conduct claim[55]);

(4) whether KFS and Mr Kheir owed a duty of care to AHL, and the relevance of their being unaware of AHL's involvement in the arrangements between the Bank and Aussie;

(5) the question of causation, namely, the claim that the Bank had not proved that its payments to the forger were caused by the failure of Mr Kheir to sight original identification documents when the loan application was made. It had been submitted at trial that the payments to the forger were caused by the Bank's own failure to take reasonable steps against fraud before paying a substantial sum of money. The Bank had had direct dealings with the forger without the involvement of either KFS or Mr Kheir in relation to the obtaining of a mortgage, the opening of a bank account and the payment of monies;

(6) the claim that the transaction was not one to which the indemnity in clause 5 of the Aussie Representative Contractor Agreement applied. This was argued to be because that agreement governed the introduction of loans and cross sale products to Aussie, not, as here, the direct provision, on behalf of Aussie, of client reference services to the Bank.[56]

77 AHL supported the Kheirs submission that there were issues left undecided. AHL highlighted the absence of findings which would have been necessary if the Court were to determine the Bank's claim for indemnity costs against AHL.

78 Taking the first undecided issue as an example, the question of whether there had been a breach of clause 4.1 of the Origination Agreement depended on what was meant by the phrase 'signature identification statement in the Bank's standard form' referred to in clause 4.1. It was argued at the trial by Kheirs that the phrase referred to a 'Signatory Identification Statement - Acceptable Referee' form (which was not provided by Aussie to KFS and, therefore, never completed by Mr Kheir or provided to the Bank), and not to the '100 Point Signatory Identification Form' (which, as mentioned above, was provided by Mr Kheir to the Bank without the originals of the identifying documents having been sighted). If clause 4.1 referred to the former, a failure with respect to the latter would not constitute a breach of the obligation under clause 4.1. The trial judge made no determination on that issue.

79 Another unresolved question concerned the contention of Kheirs that the Bank had an identification procedure, to be used for the purpose of remote loan applications, involving what was called the 'acceptable referee form' (whether or not this was the form referred to in clause 4.1). This form was known to Aussie and AHL but Aussie had not included it in the computer software provided to Kheirs, and AHL had not required that Aussie include it in that computer software. According to Kheirs, if the Aussie computer had produced the 'acceptable referee form' in response to the inquiry made of it by Mr Kheir for a remote loan, it would have been utilised in the loan application to the Bank. This might well have avoided the fraud or, at least, have prevented the Bank from bringing a proceeding against Aussie and AHL, who would not then have proceeded against Kheirs. This defence was not ruled upon by the trial judge.

80 The failure of Aussie to provide to Kheirs the 'acceptable referee form' was also relevant to the Bank's claim in this Court to enforce against AHL the contractual indemnity under clause 9.1 of the Origination Agreement. It was said that it would not now be safe for this Court to make a finding of breach of contract by Aussie which caused the Bank loss (by reference to the award of costs), as many of the relevant matters (including causation) had not been determined at trial. Those were matters on which evidence would need to be adduced and tested, and hence could not be decided by this Court.

81 Aussie responded to the Kheirs criticisms of the trial judge's reasoning by claiming, unsurprisingly, that the orders made by the trial judge were an appropriate exercise of the Court's discretion. The trial judge was best placed to deal with the costs of the trial[57] and the width of the discretion rendered it 'extraordinarily difficult'[58] to show error at first instance in an award of costs 'if there be some basis for making an order other than the conventional order in favour of the successful party'.[59] Aussie was supported by AHL in these submissions.

82 Aussie (supported again by AHL) argued that the trial judge had followed the usual rule, in ordering that costs follow the 'event' consisting in the loss by Mr Solak on the indefeasibility issue. Once the trial judge had determined that Mr Solak's liability for costs should be restricted, however, the usual rule was disturbed and a further departure from it was justified. As Mr Solak's liability for costs was confined to the costs of the issues raised by the statement of claim, he was not obliged to reimburse the Bank for any costs it was ordered to pay to Aussie and AHL, or that they, in turn, had to pay to Kheirs. According to the argument, this disturbance of the usual rule left the discretion of the trial judge open, and permitted him to find some alternative basis, which he did, for an award of costs for the third and fourth party proceedings.

83 Aussie and AHL submitted that an application of the usual rule to all the costs incurred in the proceeding, without further inquiry as to where the burden of the costs should lie, might have been manifestly unfair. The trial judge was thus entitled to consider the most appropriate way to deal with the costs with respect to the issues other than the indefeasiblity issue. The costs order was to be read as reflecting an 'issues'-based award (as the trial judge had indicated) but with the issues not reflecting 'a precise issue in the technical pleading sense but any disputed question of fact or law.'[60] It was not necessary for the 'issues'-based award to be based upon formal and complete findings made as part of the ratio of the judgment. In that sense, the costs orders appropriately reflected the relative success and failure of the parties on the different issues in the proceeding, reflecting the proportionate wrongdoing as found on the evidence. Those paragraphs reflected, it was submitted, that the conduct of Kheirs had been found to be the substantial cause of the circumstances giving rise to the proceedings, while the weight of the evidence was that Aussie and AHL were blameless and did not cause or contribute to the Bank's loss (the trial judge correctly finding that to be so).[61] It was contended that it was open to the trial judge to adopt this approach.

84 The primary argument of the Bank was that the disposition of costs as between the Bank, AHL and, by extension, Aussie, ought to have been approached on the basis that the Bank had established its claim in contract against AHL and that an order dismissing its claim ought not to have been made. Accordingly, the Bank challenged paragraph 2 of his Honour's orders, and not simply the costs orders that followed. We consider the claim for the enforcement of the contractual indemnity below.

85 In the alternative, the Bank argued that, if the Bank's claim was properly dismissed, the award of costs was in the discretion of the trial judge and, for the reasons submitted by Aussie and AHL, that discretion did not miscarry. The application to the whole proceeding of the usual rule as to costs (as urged by Kheirs) would mean that the Bank should ultimately bear the whole of the costs of Aussie and AHL, including the costs they would be ordered to pay, in accordance with the usual rule, to Kheirs. It was argued that that would be an extraordinary result and one that did not sit well when urged by the party (Kheirs) found to be the principal 'wrongdoer' before the Court.

86 The decision of the trial judge to limit the costs to be paid by the plaintiff necessarily meant that responsibility for the vast proportion of the costs of all other parties remained to be allocated. The Bank argued that it was open to his Honour to allocate them in the way he did. In this alternative submission the Bank was at one with Aussie and AHL; this was not so in relation to the submission that his Honour was entitled to rely - albeit in a hypothetical or proxy way in relation to an award of costs - on the application of the apportionment legislation.

The applicability of the proportionate liability legislation

87 Aussie and AHL defended the trial judge's reliance upon the apportionment legislation, and supported his conclusion that the legislation was applicable on the basis that the Bank's claim for indemnity had the character of a claim for damages arising from a failure to take reasonable care.[62]

88 Kheirs and the Bank argued that the proportionate liability legislation did not apply. Kheirs argued that the trial judge had erred in using as the basis for allocating costs the apportionment of responsibility he decided would have been appropriate under Part IVAA of the Wrongs Act; that is, he erred in taking the hypothetical liability of the parties under legislation relating to concurrent wrongdoers as a proxy for an apportionment with respect to costs. As they stated in their written submissions:

[T]he orders made reflect the hypothetical and obiter findings made as to responsibility to the plaintiff [Mr Solak] under the proportionate liability legislation, made without the trial judge ruling on the defences as to liability raised by [Kheirs].

It was erroneous in principle to award costs based on findings made as to hypothetical responsibility under the proportionate liability legislation, because the basis on which costs are ordered is that of compensating a successful party for its costs of having been sued. ... This is not the basis on which liability for a plaintiff's loss is apportioned under the legislation, which is to avoid the perceived injustice of the joint and several liability rule: St George Bank Limited v Quinerts Pty Ltd.[63]

It was also erroneous in principle, to award costs where there had been no findings on the defences raised by [Aussie, AHL, and Kheirs].

89 The decision of this Court in St George Bank Limited v Quinerts Pty Ltd[64] made clear that the purpose of the proportionate liability legislation is to avoid the perceived injustice of the joint and several liability rule. In that case, the Court (Nettle JA) said:

Proportionate liability provisions of the kind prescribed by Part IVAA were adopted by the Commonwealth and each of the States and Territories as in effect a national co-operative scheme designed to overcome what were perceived to be undesirable consequences of the joint and several liability rule. As Palmer J explained in Yates v Mobile Marine Repairs Pty Ltd:[65]

The object of [the Part] is remedial and it dramatically changes the previous law. Formerly, a plaintiff could choose to sue only one of several wrongdoers who caused the same loss and the Court could enter judgment for the whole of that loss against that defendant. Even if the defendant cross claimed in the proceedings for indemnity or contribution against the other wrongdoers, the plaintiff could enforce a judgment against the defendant alone for the whole of the loss, leaving the defendant to recover from the cross defendants, if it could. Sometimes the defendant obtained judgment against a cross defendant but could not recover the judgment because of the cross defendant's insolvency.

[The Part] is designed to alleviate this perceived injustice. It is intended to visit on each concurrent wrongdoer only that amount of liability which the Court considers 'just', having regard to the comparative responsibilities of all wrongdoers for the plaintiff's loss. How the Court is to assess what is 'just' is not explained. The Court must exercise a large discretionary judgment founded upon the facts proved in each particular case. The principles upon which the Court will exercise this discretionary judgment will come to be developed on a case-by-case basis. However, it seems clear enough that the policy of [the Part] is that a wrongdoer who is, in a real and pragmatic sense, more to blame for the loss than another wrongdoer should bear more of the liability. This calls for the exercise of the same kind of judgment as the Court exercises in apportioning responsibility as between a defendant sued in tort for negligence and a plaintiff who, by his or her own negligence, has been partly responsible for the injury.

It is important to keep in mind, however, that the proportionate liability provisions were not designed to do any more than that.[66]

90 Each of the Wrongs Act, the NSW Act and the WA Act would be applicable only if the Bank's claim against AHL was an 'apportionable claim'; that is, a 'claim ... in an action for damages (whether in contract, tort, under statute or otherwise) arising from a failure to take reasonable care'.[67] The trial judge was wrong, the Bank submitted, when he said that '[the] Bank['s] claim for indemnity based upon a failure to sight original documents (that is, a breach of contract) may aptly be described as a failure to take reasonable care for the purposes of the apportionment provisions'.[68]

91 The Bank argued that the trial judge had erred because there was no evidence capable of supporting a finding of a 'failure to take reasonable care' on the part of Aussie or AHL. Improbably, the Bank also argued that the evidence did not establish that Mr Kheir's failure to sight original identification documents occurred because of a lack of care on his part. This latter argument is difficult to reconcile with the findings by the trial judge that the principal wrongdoing (putting the forger to one side) was engaged in by Kheirs, and that that wrongdoing consisted in the failure to conduct a face-to-face interview or sight the originals of the identifying documents; the failure to ask the Bank expressly what to do in the case of a remote application; receiving only signed pages of the loan application document without knowing what other pages the applicant was declaring to be true and correct; receiving tax returns from the forger which had not been signed and subsequently receiving the pages signed, but obviously backdated, by the forger; and the failure to observe that the post office fax numbers from which the forger sent documents were not those to which he sent the application.

92 More fundamentally, the Bank argued against the applicability of the apportionment legislation for the reason that an 'apportionable claim' does 'not encompass actions for breach of a contractual obligation where the duty to perform is strict in nature - even if the promisor is careless'.[69] On this view, it is the terms of the contractual obligation which will determine whether a claim for its breach is an apportionable claim or not, whether or not a party's lack of care is the explanation for breach.

93 Thus, a claim for damages for breach of a specific warranty is not an apportionable claim, since it does not depend on whether the ultimate explanation for the vendor's default was that its supplier, or an employee of its supplier, was careless at some point in the manufacturing. The lack of care might explain how or why the seller had come to breach the warranty but it would not affect the character of the liability of the seller to the purchaser of the goods as a contractual breach of the warranty. Similarly, AHL had warranted that it would do particular things; it had also bound itself to indemnify the Bank for any loss or expense if things were not done. The obligation which it had assumed was not an obligation (merely) to exercise care; it was an obligation where the duty to perform was strict in nature.

94 An apportionable claim, so the Bank argued, does not go beyond, relevantly, a claim for damages for a failure to take reasonable care,[70] although, as Part IVAA of the Wrongs Act makes clear, a claim in an action for damages may be in tort or in contract.[71] Identifying the source of the obligation nevertheless remains important because, if the source of an obligation is contractual, this must invite attention to the terms in which that obligation is cast. A claim for breach of contract is not an apportionable claim, it was argued, unless the relevant contractual obligation was in terms an obligation to take care.[72] Moreover, the Bank's claim arising from the alleged breach of the Origination Agreement was a claim for indemnity, not a claim in an action for damages, as is required under the apportionment legislation.[73]

95 It is not necessary for us to determine whether or not the apportionment legislation was applicable as, even if it had been applicable, it would have been incumbent upon the trial judge to determine which of the Wrongs Act, the NSW Act or the WA Act applied. This he did not do.

96 It was important that the trial judge determine which (if any) of the State apportionment legislation applied, because both the NSW Act and the WA Act allow for parties to 'contract out' of its provisions.[74] The Wrongs Act does not. If either the NSW Act or the WA Act applied, the relationship between the Bank and Aussie would have been governed by the contractual indemnity, and not by the apportionment legislation because that legislation would have been effectively ousted. To determine which of the NSW Act, the WA Act or the Wrongs Act applied, the trial judge would have needed to determine what law governed the Origination Agreement.

97 The Origination Agreement had a choice of law provision in accordance with which the Agreement was to be 'governed by and is to be construed in accordance with the laws in force in the place where the Agreement is executed by the Bank'.[75] However, there was no evidence led on the question of the place of execution.

98 In default of a finding on the place of the execution of the contract, on the application of a 'closest and most real connection test', the Origination Agreement may have been governed by either the law of New South Wales or the law of Western Australia. The conduct of Kheirs occurred in New South Wales. The Bank's conduct occurred in Western Australia and New South Wales. The trial judge made no ruling on whether either of those legislative regimes applied, or whether the Victorian provisions applied. This was clearly a critical issue that the trial judge failed to determine (as acknowledged by Aussie and AHL).

99 Moreover, even if costs could have been properly allocated on a proportionate liability basis, it was submitted by Kheirs that the particular proportions of responsibility that were decided to have been appropriate under Part IVAA of the Wrongs Act were wrong. The responsibility of the forger should have been, but was not, taken into account in the costs orders (as it was in the assessment of concurrent wrongdoing) and that responsibility was, in any event, not given adequate weight.[76] Moreover, it was argued, there was an inadequate apportionment of responsibility attributed to Aussie and especially to the Bank because of its lack of compliance with its own internal rules and its failure to provide assistance for an unusual transaction.

100 The Bank contested the findings made as to its lack of adherence to its own internal procedures. It was submitted that, as the standard identification form had been dated, signed by Mr Kheir, ticked in the 70 point identification box (reflecting sighting of a passport), ticked in the 40 point identification box (reflecting the sighting of a driver's licence), and had written on it numerals for 70 points and 40 points and written details of the identification documents (such as number, issue date or expiry date), it was entirely reasonable that the Bank's processing department should accept the 100 Point Signatory Identification Form as being in order. The result of this was that the Bank allowed the loan application to proceed, and, ultimately, made the payments to the forger.

101 Having concluded that the claim of Mr Solak against the Bank must be dismissed, the trial judge had to decide whether to proceed to adjudicate on the issues raised in the Bank's proceedings against Aussie and AHL or Aussie and AHL's proceedings against Kheirs. There was no imperative to do so. The failure of the plaintiff's claim meant that the defendant Bank had no cause of action against the third parties, and they in turn had no cause of action against the fourth parties. As Pape J said in Allman v Country Roads Board,[77] 'it is only on the defendant's being made liable that the defendant has any cause of action against the third party'. The Bank having successfully resisted liability, each of the third party and fourth party proceedings had to be dismissed.

102 As his Honour noted, however, there was the possibility that the plaintiff might appeal against the dismissal of his claim. Should that occur and should the appeal succeed, it would be highly desirable for the third party and fourth party claims to have already been adjudicated upon, rather than the matter having to be remitted for that to occur.

103 Whether in any given case a trial judge should proceed to decide issues which, strictly speaking, do not fall for decision is a matter for assessment in the circumstances of the case. But it is an assessment which trial judges should be astute to carry out.[78] This is consistent with the observation made by the High Court, with respect to intermediate appellate courts:[79]

[A]lthough there can be no universal rule, it is important for intermediate courts of appeal to consider whether to deal with all grounds of appeal, not just with what is identified as the decisive ground. If the intermediate court has dealt with all grounds argued and an appeal to this Court succeeds, this Court will be able to consider all the issues between the parties and will not have to remit the matter to the intermediate court for consideration of grounds of appeal not dealt with below.

104 We think his Honour was right to embark on the course of determining liability in the third and fourth party proceedings. All of the relevant evidence had been heard and the submissions made. As we have said, it was likely to be of great benefit to the parties to those proceedings to have his Honour's findings, in the event that an appeal by Mr Solak against the Bank should succeed.

105 The difficulty, however, is that his Honour did not perform the task which he set himself. It was not, with respect, a sufficient adjudication of the third and fourth party proceedings to 'apportion the loss' as between the defendant, the third parties and the fourth parties without determining precisely, for example, the question of causation with respect to that loss or, indeed, whether the State apportionment legislation applied. No view could properly be formed on whether, and to what extent, the third party or the fourth party claims were made out unless his Honour had first adjudicated upon all of the claims, and all of the defences, in the third and fourth party proceedings, and had decided every issue necessary to that final adjudication. Nor, therefore, could the conclusions he had drawn be used as a hypothetical basis from which to rule on costs.

106 What has prompted these appeals is that his Honour decided to treat his 'apportionment of the loss' as the appropriate basis for allocating the burden of the costs incurred by each of the parties. We have already concluded that his Honour's purported apportionment was unsound in law. It was not the product of an adjudication of the relevant claims and defences, nor an adjudication based on whether the apportionment legislation applied. That adjudication not having occurred, his Honour's apportionment cannot be regarded as any indicator of whether and to what extent liability would have been established, either in the third party proceedings or in the fourth party proceedings.

107 The position would, of course, have been different had his Honour sought and obtained the consent of the parties to the approach he adopted. It is possible, given the range and complexity of factual and legal issues which fell for determination in the third and fourth party proceedings and the time which would necessarily have been taken to prepare a full set of reasons dealing with those issues, that the parties would have agreed to accept a 'short form' adjudication on costs of the kind which his Honour undertook. But no such consent was sought or obtained.

108 It follows that the approach of the trial judge to apportioning loss was not a sound basis for allocating the burden of costs. This was, in our view, an error of principle, which vitiated the exercise of his Honour's discretion as to costs as between these parties.

109 Given his conclusions about where fault lay, and in particular his view that Kheirs were 70 per cent responsible for the 'loss', it is not surprising that his Honour considered that a departure from the usual rule as to costs might be warranted. It seems to us that - so far as costs are concerned - the position of a defendant joining a third party, and a third party joining a fourth party, is importantly different from that of a plaintiff commencing a proceeding against a defendant. A plaintiff takes the calculated risk of commencing proceedings and, if the claim fails, cannot resist an order for costs by contending that it had acted reasonably in commencing proceedings. A defendant, on the other hand, is an involuntary party and is entitled to take reasonable steps to protect itself against the risk that the plaintiff's claim will succeed, for example by joining a third party.

110 Should the plaintiff's claim fail, rendering the third party claim redundant (as occurred here), there must be scope for a defendant to argue against an order that it pay the third party's costs, on the basis that its action in joining the third party was reasonable in the circumstances. So much is apparent from the authorities discussed earlier.[80] What conclusion might be reached, and what effect that might have on the costs order, would of course depend on the judge's assessment of all the circumstances. If, for example, the plaintiff's claim was manifestly hopeless, a defendant's assertion that joinder was reasonable might be rejected. If, on the other hand, the plaintiff's claim appeared to have merit and, more particularly, if the defendant could reasonably have concluded that any liability it might have to the plaintiff was prima facie attributable to the conduct of the third party, a quite different conclusion might be reached.

111 It would seem that considerations of this kind led the trial judge to conclude that costs of each of the parties (except for the plaintiff) should be borne in proportion to fault. The difficulty - and it is an insuperable one at this stage - is that the apportionment was not properly or wholly carried out. The discretion having been re-opened, this Court is not in a position to adjudicate on liability, so many issues having been left undecided by the judge. We are also not in a position to make the kind of assessment of reasonableness, as between the defendant and the third party, or as between the third parties and the fourth parties, which the occasion might be said to have warranted.

112 There was no finding of any disentitling conduct on the part either of the third parties or of the fourth parties in their conduct of the litigation. The respective claims against them have been dismissed. There is no basis for the Court for depart from the usual order for costs and, in the circumstances, that is the order which should be made in each of the proceedings.

The indemnity costs awarded in favour of Aussie

113 With respect to the question of the indemnity costs awarded under paragraph 8 of the orders in favour of Aussie and against Kheirs,[81] Aussie submitted that it was open to his Honour to make the order he did, either by reason of the operation of the indemnity under clause 5 of the Aussie Representative Contractor Agreement or by reason of the Court's discretionary power which was exercised so as to 'correspond with the contractual entitlement'.[82]

114 Aussie submitted that the applicability of the Aussie Representative Contractor Agreement to the transactions was not an undecided issue, but was adjudicated upon in their favour by the trial judge.[83] We agree.

115 It argued that the admitted failure to conduct a face-to-face interview was sufficient to establish the breach of clause 3.4 of the Aussie Representative Contractor Agreement which triggered the indemnity under clause 5. Further, if the trial judge's discretion is to be re-opened, Aussie argued, clause 5 ought now to be enforced with the result that Aussie would receive 100 per cent of their costs of the proceeding before the trial judge, on an indemnity basis, and not the 70 per cent he awarded.

116 Kheirs argued that costs should not have been awarded to be paid under the contract between Aussie and Kheirs, whether on an indemnity basis or otherwise. The claim made before the trial judge at the costs hearing under the contract was a free standing claim on an alleged cause of action which had not been made in Aussie's pleadings. By contrast, the claim Aussie had made at the trial was a claim for indemnity only in the event that Aussie was found liable to the Bank or AHL on the claims made by them. The claim was expressly conditional. Aussie conceded before us that the character of the claim for indemnity in the pleadings and at trial was conditional. No such liabilities were determined. The pre-condition for the enforcement of the indemnity clause was thus not made out. The claims made were not freestanding claims for legal costs, yet they were wrongly treated as in effect freestanding claims by the trial judge at the costs hearing. [84]

117 If his Honour awarded costs on the basis of an exercise of the Court's general discretion, with indemnity costs being awarded because the parties had agreed that costs be paid on that basis, that would itself have been an error, it was argued, because the parties had not agreed that costs be paid on an indemnity basis; an agreement to pay costs, even one expressed in the terms of clause 5,[85] is conventionally interpreted as an agreement to pay costs on a party and party basis unless the agreement, by its terms, provides in plain and unambiguous language that costs be paid on a special basis, [86] which clause 5 did not. [87]

118 Furthermore, although Mr Kheir was a party to the Aussie Representative Contractor, this was only as the 'Aussie Mortgage Adviser', and not as the Contractor.[88] The Contractor was KFS. It was KFS that undertook the indemnity obligations under clause 5 and not Mr Kheir personally. Thus paragraph 8 of the orders also suffered from the defect, it was argued, of directing Mr Kheir as well as KFS to pay costs assessed on an indemnity basis. Aussie accepted before us that Mr Kheir was not bound personally by the obligation to indemnify under clause 5.

119 We consider that the award of indemnity costs by the trial judge in favour of Aussie was made in error. We do not consider that it could be justified as, in effect, a means of enforcing the contractual obligation under clause 5, given that the award was only 70 per cent when a breach of the contract would give rise to an entitlement to 100 per cent. If made in the general exercise of discretion, we consider that the discretion ought not to have been informed by the contractual obligation in the manner it was, in the absence of unequivocally plain language that the costs that were agreed to be paid were to be on a solicitor and own client or indemnity costs basis.

120 A further consequence of the absence of findings by his Honour on the substantive claims, most particularly in relation to the defences relied on by Kheirs, is that this Court is not in a position now to make an award of costs by reference to the enforcement of the contractual obligation under clause 5. We say this especially in relation to those defences which sought to challenge whether the payments to the forger were caused by the failure of Mr Kheir to conduct a face-to-face interview and thus whether any potential losses incurred by the Bank were caused by the conduct of KFS and Mr Kheir. It would be wrong to conclude, in the absence of the necessary findings, that the costs incurred by Aussie were 'incur[red] as a result of'[89] a failure by KFS or Mr Kheir to observe any provision of the Aussie Representative Contractor Agreement. It seems to us that those costs might have been incurred in the absence of any breach, Aussie perhaps being joined in any event (and thus incurring costs) simply because an Aussie Mortgage Adviser had introduced the forger to the Bank, regardless of the nature of the interview taken.

121 We consider that the claim made by Aussie in its cross-appeal, based as it was on the enforcement of the contractual indemnity between Aussie, and KFS and Mr Kheir, should be dismissed.

122 The Bank challenges the order made by his Honour dismissing its claim against AHL (paragraph 2 of the orders) and seeks now to reagitate its argument that AHL (through Aussie) had breached clause 4.1 of the Origination Agreement, the consequence of which is that it is entitled to an indemnity by AHL against any liability or loss. The Bank alleged that the breach consisted in Aussie submitting to the Bank a loan application on behalf of the person purporting to be Mr Solak that included the completed Bank's standard identification form identifying the borrower without having sighted original documents. It was this conduct which was contended to be the cause of the Bank's loss for which it claimed indemnity against Aussie pursuant to clause 9.1 of the Origination Agreement (which expressly provided for costs on a solicitor and own client basis) and hence against AHL pursuant to the Novation Deed.

123 We have noted above that his Honour failed to arrive at a completed judicial determination of this claim, dismissing the third party proceeding only as a consequence of the Bank's success in resisting the claims of the plaintiff. The Bank sought to argue that his Honour had made sufficient findings to ground the inference that a breach of contract had occurred and that, the inference being inexorable, and neither AHL nor Aussie having any defence, this Court, on appeal, ought to find that Aussie had committed a breach of contract triggering the indemnity. The relevant finding the Bank relied on, for this purpose, was that: [90]

Mr Kheir did not sight the original documents used by the forger to obtain the loan.

124 The Bank argued that this finding, although ultimately used by his Honour not as a basis upon which a breach of contract could be inferred but as a ground for 'apportion[ing] the loss between the concurrent wrongdoers upon a common standard',[91] could also provide the necessary and sufficient basis upon which this Court could find a breach of contract. It submitted that his Honour, while making the relevant primary finding, failed to conclude that there had been a breach of contract because of the error he made relating to the apportionment legislation and the error he made in concluding that an application of that legislation yielded the result that AHL had no responsibility. Once those errors were set aside, it was submitted, the costs discretion could be exercised afresh and the appropriate order would be an award of costs in favour of the Bank in accordance with the terms of clause 9.1 of the Origination Agreement, that is, its legal costs to be paid by AHL on a solicitor and own client basis.

125 To this AHL responded by submitting that before the trial judge the Bank did not claim an entitlement to indemnity for costs against AHL independently of its being successful on its case against AHL. That case was a conditional one, namely, that an indemnity was claimed only if the Bank was found liable to the plaintiff. There was no claim made at the trial (or at the hearing on costs) for indemnity costs against AHL because the Bank was successful in defending the principal claim.

126 At one point in his Honour's reasons (as mentioned above[92]), when considering whether the Bank's claim against Aussie would include an interest component under clause 9.1, his Honour said that:[93]

The 'loss' contemplated by this clause includes the interest payable on the forged agreement. Accordingly, if I had been required to make an order about this matter, I would have included the interest component claimed by [the] Bank ... against AHL (through Aussie) pursuant to the origination agreement and the novation deed.

127 While this remark comes close to a finding by the trial judge that there was a breach of clause 4.1 that triggered the entitlement to an indemnity under clause 9.1, it remains the case that no necessary finding of breach was made and there were matters relevant to the alleged breach upon which the trial judge had not ruled. [94]

128 Moreover, although the question of the indemnity owed by AHL to the Bank was clearly a matter before his Honour, and of which he was mindful, there was no reflection of it in the award of costs he made (as there was with respect to the indemnity under the Aussie Contractor Representative Agreement). Nor could there have been, as there was no finding of the precondition that would trigger the indemnity.

129 It cannot now be so adjudicated, as we consider that there were matters that remained unresolved by the trial judge on which evidence could have been adduced (most particularly as to the particular form referred to as the 'signature identification statement' in clause 4.1 within the context of the contract between the Bank and Aussie).

130 As we have discussed, in addition there remain, amongst the other undecided questions, the question of causation: was the breach of clause 4.1 (if it was breached) the cause of the Bank's payments to the forger (and thus the costs incurred in defending Mr Solak's claim, and the costs of its third party claim against AHL and Aussie) or were those payments caused solely by the failure of the Bank's internal procedures (if there were failures)? These questions illustrate that there is not a satisfactory basis upon which an appellate court could now arrive at a substantive determination on the enforcement of the contractual indemnity.

131 As mentioned above, AHL relied on the arguments made by Kheirs that findings necessary to support the claim for indemnity costs were not made by the trial judge.[95]

132 We would dismiss the Bank's cross-appeal against AHL.

133 The Bank's cross-appeal having been dismissed, there is no need for us to consider the effect of the Notice of Contribution from AHL to Aussie.

134 The basis of the Bank's cross-appeal to the appeal brought by Aussie against paragraph 7 of the orders (that the Bank pay 30 per cent of Aussie's costs) is that no costs order should have been made in favour of Aussie against the Bank as, implicitly, it was within Aussie's control to have taken no part in the proceeding had it made the Bank aware at the earliest possible date that any liability arising under the Origination Agreement from 1 July 2004 rested with AHL. In those circumstances, the Bank argued, either there should be no order at all in relation to Aussie's costs or AHL should be ordered to pay those costs.

135 The Bank argued that it was not made aware until the second day of the trial that Aussie and AHL both accepted that the operative date of the Novation Deed was 1 July 2004. Thereafter, the Bank 'conducted its case' only against AHL. The operative date of the Novation Deed was something known only to Aussie and AHL, because it was specified in the Novation Deed as the date the business of Aussie was transferred to AHL.

136 During the course of oral submissions before us, the Bank made a new and alternative submission, not raised at trial or at the hearing on costs, or in its written submissions on the appeals and cross-appeals. The submission was that, if the trial judge's discretion was to be disturbed, the Bank should pay no more than a single set of costs with respect to Aussie and AHL, since Aussie and AHL reflected one common interest.[96]

137 Aussie responded[97] by indicating that it had been made apparent in Aussie's pleadings that the Novation Deed took effect from 1 July 2004,[98] and that the Bank could have asked AHL to confirm that date. Moreover, Aussie had raised a proposal, on the second day of the trial, that the Bank might not resist an application for the dismissal of its claim against Aussie but this was not pursued by the Bank.

138 We agree with Aussie that the Bank, on being made aware at trial that any liability arising from the conduct and transactions the subject of the proceeding rested with AHL and not with Aussie, should have discontinued its proceedings against Aussie. That the Bank, after the second day of trial, 'conducted its case' only against AHL did not amount, as a matter of civil procedure, to the discontinuance of a proceeding. Although Aussie had an additional reason for remaining represented at the trial - namely, that it was necessary for it to be there to resist AHL's Notice of Contribution - it was clear that the claim for contribution was treated as only a minor issue in the proceeding.[99] As the Bank's proceedings against Aussie were not discontinued, it was appropriate that Aussie remain represented at the trial.

139 Glen v Union Trustee Co. of Australia Ltd,[100] was the principal authority relied on by the Bank to support the proposition that only a single set of costs should be ordered. But the circumstances of that case were quite different from the circumstances here. The context was the administration of a deceased estate, and the Court held that '[i]n administration proceedings ... the ordinary rule is that where any person entitled to an interest in any estate the subject matter of the proceedings has assigned or encumbered his share or interest, then the assignor and assignee, or encumbrancer, are only entitled to one set of costs between them'.[101] In the Ritz Hotel[102] case, where Glen v Union Trustee[103] was applied in the context of a proceeding for the expungement and removal of trademarks,[104] the very subject-matter of the proceeding (the interests in the trademarks) had been assigned shortly before the commencement of the hearing.

140 The existence of a Notice of Contribution between AHL and Aussie in the proceeding is itself a strong indication that the single set of costs rule ought not be applied in the circumstances of the case,[105] the rule being recognised as at most a rule of practice.

141 Furthermore, it is apparent that the interests of Aussie and AHL were not, relevantly, 'common interests'. Only Aussie could, and did, seek to enforce the indemnity under the Aussie Contractor Representative Agreement between it and KFS and Mr Kheir.[106] It was in Aussie's interest, in order to enforce the indemnity, for it to claim that KFS had failed to observe a provision of the Aussie Contractor Representative Agreement and that the non-observance resulted in the payments being made to the forger and the incurring of costs associated with the proceedings. By contrast AHL, in resisting the Bank's third party claim, sought to argue that it may have been the Bank's failure to observe its internal procedures that caused the payments to the forger (an issue remaining undecided), which thus gave rise to the proceedings and the incurring of costs. It could thus not be concluded that, as between Aussie and AHL, 'there [was] no possibility of conflict of interest'.[107]

142 Furthermore, in the circumstances before the trial judge, it was the Bank that chose, before the trial, to commence and continue proceedings against Aussie (as the first third party) and AHL (as the second third party), in circumstances where it had been aware of the existence of the novation of the Origination Agreement but had not confirmed with AHL the operative date of the novation. It was the Bank that chose, during the trial, to continue to proceed against both Aussie and AHL in the knowledge that the novation had taken effect from 1 July 2004 while the conduct giving rise to the proceeding had occurred from February to April 2006. The Bank made no objection at the trial to the separate representation of Aussie and AHL, nor to the making of separate written and oral submissions by each of them at the trial or the hearing on costs.

144 For the reasons set out above, paragraphs 7, 8 and 9 of the orders must be set aside and the discretion with respect to an award of costs must be exercised afresh. The error of principle satisfies the test in Spotless Group Ltd v Premier Building and Consulting Pty Ltd.[108]

145 More specifically, we would allow the appeal brought by KFS and Mr Kheir against Aussie and AHL (in proceeding 3748 of 2009) and set aside paragraphs 8 and 9 of the orders. So too would we allow the appeals brought by Aussie (proceeding 3827 of 2009) and by AHL (proceeding 3836 of 2009) and set aside paragraph 7 of the orders. We would dismiss the cross-appeals in all three proceedings.

146 We do not consider that the proceedings should be remitted to the trial judge for further determination. We are mindful that the appeals relate only to the question of costs and a further trial of the claims before his Honour, for the purpose of obtaining that determination, would incur costs that would be disproportionate to the costs in issue.

147 Accordingly, for the reasons given earlier, we would order that:

(a) the Bank pay the costs of Aussie and AHL of the third party proceeding; and

(b) Aussie and AHL pay the costs of KFS and Mr Kheir of the fourth party proceeding.

148 The costs to be paid by the Bank to Aussie and AHL should include the costs that Aussie and AHL are ordered to pay to KFS and Mr Kheir. We consider that the proceeding was in substance a 'chain of contracts' case and that ultimate responsibility for the costs incurred by the third parties should, in the circumstances, lie with the defendant.[109] Once the Bank brought third party proceedings against Aussie and AHL, it was inevitable that they would join KFS and Mr Kheir.[110] We consider that the costs of Aussie and AHL, including the costs they are ordered to pay to KFS and Mr Kheir, ought fairly be borne by the Bank, especially as Mr Kheir directly introduced clients to the Bank without the intervention of either Aussie or AHL and the communications between the parties which were relevant to the completion of the transaction with the forger did not involve either Aussie or AHL, but took place directly between Mr Kheir and Mr Gillespie from the Bank.

149 We propose making 'Bullock' orders against the Bank (in the appeals brought against the Bank by Aussie and by AHL respectively) with respect to all of the party and party costs of KFS and Mr Kheir in relation to the fourth party proceedings. While this order for the payment of Aussie and AHL's costs is made by reference to costs they have each been ordered to pay in the appeal brought by KFS and Mr Kheir (proceeding 3748 of 2009), to which the Bank is not a party, we consider that such an order is justified as it relates to costs incurred in the proceeding before the trial judge to which the Bank was a party, and those costs were the subject of a closely related appeal heard at the same time as the cross-appeals brought by the Bank.[111] The Bank was on notice that 'Bullock' orders were sought for any costs that Aussie or AHL might be ordered to pay KFS and Mr Kheir and it was given a proper opportunity to be heard on the making of 'Bullock' orders against it.

Orders for the disposition of the proceedings

150 We propose making orders in the following terms. We have indicated the identity of the relevant parties, by reference to the abbreviations we have stipulated above.

(1) The appeal [brought by KFS and Mr Kheirs] be allowed.

(2) Paragraphs 8 and 9 of the orders of the trial Judge dated 26 March 2009 be set aside and in lieu thereof order that the first respondent to the appeal/the first third party [Aussie] and the second respondent to the appeal/ the second third party [AHL] each pay 50% of the costs incurred by the appellants/ the fourth parties [KFS and Mr Kheirs] arising from the fourth party notices, on a party and party basis.

(3) An extension of time be granted to the first respondent to the appeal/the first third party [Aussie] to seek leave to cross-appeal.

(4) Leave be granted to the first respondent to the appeal/the first third party [Aussie] to cross-appeal.

(5) The cross-appeal [brought by Aussie] be dismissed.

(1) An extension of time be granted for the applicant/ the first third party [Aussie] to apply for leave to appeal.

(2) Leave be granted to the applicant/the first third party [Aussie] to appeal.

(4) With respect to the costs of the appellant/ the first third party [Aussie], paragraph 7 of the orders of the trial Judge dated 26 March 2009 be set aside and in lieu thereof order that the first respondent to the appeal/ the defendant [the Bank] pay the costs incurred by the appellant/the first third party [Aussie] arising from the third party notice, on a party and party basis, and pay those costs of the trial below which the appellant/the first third party [Aussie] has been ordered in proceeding 3748 of 2009 to pay to the fourth parties [KFS and Mr Kheirs], on a party and party basis.

(5) Leave be granted to the first respondent to the appeal/ the defendant [the Bank] to cross-appeal.

(1) An extension of time be granted for the applicant/the second third party [AHL] to apply for leave to appeal.

(2) Leave be granted to the applicant/the second third party [AHL] to appeal.

(4) With respect to the costs of the appellant/ the second third party [AHL], paragraph 7 of the orders of the trial Judge dated 26 March 2009 be set aside and in lieu thereof order that the first respondent to the appeal/the defendant [the Bank] pay the costs incurred by the appellant/the second third party [AHL] arising from the third party notice, on a party and party basis, and pay those costs of the trial below which the appellant/the second third party [AHL] has been ordered in proceeding 3748 of 2009 to pay to the fourth parties [KFS and Mr Kheirs], on a party and party basis.

(5) Leave be granted to the first respondent to the appeal/ the defendant [the Bank] to cross-appeal.

Proposed Orders for Costs of the Proceedings in the Court of Appeal

154 With respect to the costs of the proceedings in the Court of Appeal, we propose making orders in the following terms but will hear from the parties before pronouncing final orders.

(1) The first and second respondents to the appeal [Aussie and AHL] each pay 50% of the appellants' costs of the appeal, on a party and party basis.

(2) The cross-appellant [Aussie] pay the costs of the cross-appeal of the first and second cross-respondents [KFS and Mr Kheir] on a party and party basis, with no order as to costs with respect to the third cross-respondent [AHL].

(1) The first respondent to the appeal [the Bank] pay the costs of the appellant [Aussie] of the appeal with no order as to costs with respect to the costs of the appeal of the second, third and fourth respondents [AHL, KFS and Mr Kheir].

(2) The cross-appellant [the Bank] pay the appellant/first cross-respondent's [Aussie's] costs of the cross-appeal, on a party and party basis, with no order as to costs of the cross-appeal with respect to the second cross-respondent [AHL].

(1) The first respondent to the appeal/the defendant [the Bank] pay the costs of the appellant [AHL] of the appeal with no order as to costs with respect to the costs of the appeal of the second, third and fourth respondents [Aussie, KFS and Mr Kheir].

(2) The cross-appellant [the Bank] pay the costs of the cross-appeal of the appellant/cross-respondent [AHL], on a party and party basis.

[1] Solak v Bank of Western Aust Ltd [2009] VSC 82 ('Solak').

[3] Spotless Group Ltd v Premier Building and Consulting Pty Ltd [2008] VSCA 115, [11].

[4] Donald Campbell and Company, Limited v Pollak [1927] AC 732, 809 at 811. While the former Rule of Court (Rules of the Supreme Court 1916, Ch I, O LXV r 1) provided expressly that, with respect to 'any action, cause, matter or issue ... tried with a jury, the costs shall follow the event' unless good cause was shown, the rule was replaced in 1938 without reference to the usual rule. There is no reference to the usual rule in the current Supreme Court (General Civil Procedure) Rules 2005, Order 63.

[5] [1920] 2 KB 47, 52-3.

[6] Johnson v Ribbins [1977] 1 All ER 806, 811.

[7] [1996] VicRp 11; [1996] 1 VR 196.

[9] [1977] 1 All ER 806.

[10] Ibid 810-11 (emphasis added, citations omitted).

[11] [1977] 1 All ER 806.

[12] This left the defendant to try to recover from the impecunious plaintiff.

[13] [1996] VicRp 11; [1996] 1 VR 196.

[14] (Unreported, Supreme Court of Victoria, Kaye J, 7 April 1982.)

[15] [1959] VicRp 81; [1959] VR 614.

[18] There was a related action involving similar parties which had been commenced earlier that was heard together with Allman v The Country Roads Board. Orders for costs were made in the earlier proceedings and, as Kaye J later said, any further award of costs, including those of the trial, 'was scarcely justified ... the justice of the case no doubt did not necessitate that they [the third parties] should receive double costs incurred because the two actions were heard together': Devon Downs (Unreported, Supreme Court of Victoria, 7 April 1982) 4a.

[19] (Unreported, Supreme Court of Victoria, Kaye J, 7 April 1982.)

[20] (Unreported, Supreme Court of Victoria, 7 April 1982) 1a - 3a.

[21] Rules of the Supreme Court 1957, Ch I, O 16(A), r 13. That rule was later repealed. The general rule governing costs now applies to third party proceedings: Supreme Court (General Civil Procedure) Rules 2005, Order 63.

[22] Devon Downs (Unreported, Supreme Court of Victoria, 7 April 1982) 3a.

[23] [1996] VicRp 11; [1996] 1 VR 196, 200.

[24] [1977] 1 All ER 806.

[25] [1984] FCA 166; (1984) 6 FCR 496 ('Gladstone Park').

[27] [2005] NSWCA 242.

[28] Ibid [30]-[31] (citations omitted, emphasis added). (Basten JA was in dissent.)

[31] Kheirs submitted that the form referred to in clause 4.1 was not the 100 Point Signatory Identification Form. We consider this below, at [78].

[34] An advance of $560,000 was made on 5 April 2006.

[40] See Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505; Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60; Chandra v Perpetual Trustees Victoria Ltd (2007) 13 BPR 24, 675.

[42] Solak v Bank of Western Australia Ltd (No 2) (Unreported, Supreme Court of Victoria, 26 March 2009) ('Solak (No 2)') [9].

[48] Ibid [20]. On the appeal, Aussie conceded that clause 5 only bound Kheirs and not Mr Kheir personally. This point is dealt with below.

[49] The trial judge also ordered that the costs of the adjournment of the costs hearing occasioned by all the parties be paid for by Kheirs.

[50] Bullock v London General Omnibus Co. [1907] 1 K.B. 264, 272; Edgington v Clark [1964] 1 QB 367.

[54] Kheirs and Mr Kheir had raised this issue at trial on the basis that if accepted it would have a 'trickle down' effect to their liability to Aussie and AHL. The argument concerned the type of form to which clause 4.1 referred. We consider this at [78] below.

[55] Vella v Australia and New Zealand Banking Group Ltd [2009] NSWSC 123, [50]-[57].

[56] We consider that the sixth issue was decided by the trial judge, in favour of Aussie (see [114], below).

[57] Hanlon v Brookes (1997) 15 ACLC 1626, 1632.

[58] Transport Accident Commission v O'Reilly [1998] VSCA 106; [1999] 2 VR 436, 457 [46] (Ormiston JA).

[60] Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, 235 [11].

[62] Dartberg Pty Ltd v Welfare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450; Woods v De Gabrielle (2007) 2 BFRA 168; [2007] VSC 177.

[63] [2009] VSCA 245, [57]-[59].

[65] [2007] NSWSC 1463, [93] - [94].

[66] Ibid [57] (some citations omitted).

[67] See the Wrongs Act, s 24AF(1), NSW Act s 34, WA Act s 5AI.

[69] Barbara McDonald and J W Carter, 'The Lottery of Contractual Risk Allocation and Proportionate Liability' (2009) 26 Journal of Contract Law 1, 16.

[70] Commonwealth Bank of Australia v Witherow [2006] VSCA 45, [13].

[71] Wrongs Act, s 24AF(1)(a).

[72] Gunston v Lawley [2008] VSC 97; (2008) 20 VR 33, 39 [20], 41 [27]. (But see Dartberg Pty Ltd v Welfare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450, 458 [30]-[31]; Woods v De Gabrielle (2007) 2 BFRA 168, [2007] VSC 177, [58].)

[73] Wrongs Act, s 24AF(1), Commonwealth Bank of Australia v Witherow [2006] VSCA 45, [10].

[74] See the NSW Act, s 3A(2); WA Act, ss 4A(1) and 5AJ(2)(b).

[76] It was not explained how exactly the forger's liability was to be taken into account in the costs orders, given that he was not a party to the proceeding, but perhaps it was envisaged that his proportionate liability would be subtracted first, before the balance of the liability was otherwise apportioned amongst the parties.

[77] [1959] VicRp 81; [1959] VR 614.

[78] State Securities Pty Ltd v Dromi [2010] VSCA 264 [51] and [53].

[79] Kuru v New South Wales [2008] HCA 26; (2008) 236 CLR 1, 6 [12].

[81] There was no such equivalent order for indemnity costs in favour of AHL.

[82] Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45, [8]; Taree Pty Ltd v Bob Jane Corporation [2008] VSC 228, [43] (Vickery J).

[84] Counsel for Aussie had sought leave to amend its pleadings at the hearing on costs in this respect (and again on appeal) but this was swiftly dismissed by the trial judge on the ground that there was no need to amend as, in effect, no criticism could be made of the pleadings because at the time they were drafted Aussie's loss would not have crystallised. He also said that it was not wrong of Aussie to have failed to have included a claim in its pleadings for costs of the proceeding pursuant to clause 5, because there might have been answering claims, the claim would have had the potential to complicate the proceeding had it been raised in a pleading, and the fourth parties had had ample opportunity to put whatever material they wished before him on the issue of costs.

[85] That is: 'You indemnify us against all or any loss, damages, claims costs and expenses ...'.

[86] Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228, [47].

[87] In this respect, clause 5 stood in contrast to the terms of indemnity in clause 9.1 of the Origination Agreement which referred to 'legal costs on a solicitor and client basis'.

[88] Also referred to as 'you' in the Aussie Representative Contractor Agreement. See the terms of clause 5 set out above [42] which commence 'You indemnify'.

[89] Aussie Representative Contractor Agreement, clause 5.

[94] Most particularly, the defences of Kheirs.

[96] Glen v Union Trustee Co. of Australia Ltd. [1936] HCA 4; (1936) 54 CLR 463, 465 and 468; The Ritz Hotel v Charles of the Ritz Ltd (1989) AIPC 90-567, 38,941.

[97] As the submission had been made for the first time at the hearing, leave was given to AHL, Aussie and the Bank to file further written submissions on the issue.

[98] Paragraph 9.2 of Aussie's Defence to the Amended Third Party Notice dated 16 September 2008. The trial took place on 17-19, 23-25 February 2009.

[99] The contribution claim was admitted in part but not as to negligence.

[100] [1936] HCA 4; (1936) 54 CLR 463.

[101] Glen v Union Trustee Co. of Australia Ltd. [1936] HCA 4; (1936) 54 CLR 463, 467.

[102] (1989) AIPC 90-567, 38.

[104] But see Gray v Guardian Trust Australia [2003] NSWSC 704, [86], where Austin J considers that '[p]roperly understood, the [single set of costs] rule relates to recovery out of trust property or an estate, rather than recovery against a party in litigation'.

[105] Sunday Times Newspapers Co Ltd v McIntosh (1933) 33 SR(NSW) 371, 378; Lysmar Pty Ltd v Lee [2000] NSWSC 662, [28].

[106] As mentioned above, the indemnity was not enforceable against Mr Kheir personally, as was conceded on the appeal.

[107] Statham v Shephard (No 2) [1974] 23 FLR 244, 246-7.

[108] [2008] VSCA 115, [11].

[109] Cattan Ltd v Michaelides & Co. [1958] 2 All ER 125, 128; Edgington v Clark [1964] 1 QB 367.

[110] Roads and Traffic Authority of New South Wales v Dederer [2007] HCA 42; (2007) 234 CLR 330, 382-3 [180].

[111] Symphony Group Plc v Hodgson [1994] QB 179, 191-2; Aiden Shipping Co. Ltd. v Interbulk Ltd [1986] AC 965.