Manday Investments Pty Ltd v Commonwealth Bank of Australia

Federal Court of Australia|2011-06-15|Before: McKerracher J

The applicants' motion to amend its pleading in the manner set out in the minute dated 4 May 2011 will be dismissed. 2. The applicants do pay the costs of the respondents thrown away by reason of the claim as to unconscionable conduct advanced by the applicants and now abandoned, such costs to be taxed (if not agreed) and payable on completion of the proceeding. 3. The applicants do pay the respondents' costs of the motion to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 233 of 2008

BAVICH PTY LTD ACN 079 959 836 (FORMERLY AUSTRALIAN VALUATION SERVICES PTY LTD)

JUDGE: MCKERRACHER J DATE: 15 JUNE 2011 PLACE: PERTH

INTRODUCTION 1 The first applicant (Manday) applies for leave to file an amended statement of claim. Manday and the second applicants (Manday's Directors) seek relief against the first respondent (the Bank) and the second respondents (the Valuers) in relation to events having their genesis in 1997. 2 At that time, according to the applicants, the Bank lent funds to Manday under three different loans being advances of: $1,500,000 for two years; $3,047,000 for 10 years; and $700,000 for business expenditure payable on demand. 3 On 16 October 1998, the Bank lent a further $800,000 to Manday to be repaid in five years. Those loans were guaranteed by the Directors and secured by first registered mortgages over various properties (the Properties). 4 The claim which the applicants now seek leave to advance is that in 1999 and 2000 the Bank pressed Manday to restructure its loan facilities for the reason that real estate property values were falling in the area where the Properties were located. Manday disputed the values attributed to the Properties by the Bank at that time but, nevertheless, the Bank proposed a restructure of Manday's loan facilities by replacing them with a single term loan that the Bank said would result in a reduction in debt, with the balance to be payable over 10 years. The loans were consolidated on 15 August 2000 into one new loan of $5,555,531, also guaranteed by the Directors and secured by the Properties (the Consolidated Loan). The applicants now seek to rely in a proposed claim on the pressure exerted by the Bank to refinance into the Consolidated Loan. 5 In the proposed amendment to the current pleading, the applicants seek to rely upon misrepresentations as to the nature and effect of the new Consolidated Loan. They argue that the Bank represented to the applicants that the Consolidated Loan would be a long term facility that would be extended to Manday provided it reduced its borrowings with the Bank by an amount in the order of $180,000 and that the restructure of Manday's loan facilities would be beneficial to Manday and would improve its financial position. The applicants rely upon a facsimile communication of 10 July 2000, a letter of 15 August 2000 from the Bank to Manday and to the Directors respectively and unspecified oral representations made by unspecified officers of the Bank to Mr Anagnostopoulos. 6 The applicants claim that the representations concerning the Consolidated Loan were false because the Consolidated Loan was in fact a very short term loan exposing the applicants to risks to which they would not have been exposed had they continued under their existing loan arrangements. Those new risks were that, at the sole discretion of the Bank, the Consolidated Loan would not be extended; Manday would be required to pay higher fees, charges and interest rates in the event that, at the sole discretion of the Bank, management of the Consolidated Loan was 'transferred to' an internal unit, the Credit Management Unit (CMU) which ultimately pressed for recovery of the loan; and at the sole discretion of the Bank, realisation of all or some of the securities could be demanded to reduce debt. It is said that the making of the representations was misleading and deceptive conduct in the provision of financial services contrary to the provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). 7 The respondents oppose the proposed minute for several reasons. The Valuers support the arguments of the Bank.

THE CURRENT PLEADING 8 Before addressing that question, it is necessary to say a little more about the existing statement of claim. The applicants plead that on or about 6 November 2000, the Bank extended the Consolidated Loan for 12 months in the amount of $5 million and about a year later extended it again for $5,393,481. In the following year, the Bank refused to further extend the Consolidated Loan. Nevertheless, in November 2004, it was replaced with an 11 year loan in the amount of $2,435,000, being the difference between the Consolidated Loan and repayments made by the applicants upon the realisation of some of the Properties. 9 The primary complaint of the applicants has been and remains directed to the process of securing valuations concerned with sale of the Properties. That claim is put this way. The applicants say that in October 2002, the Bank engaged the Valuers to value the Properties (with the cost of that valuation being met in equal parts by the applicants and the Bank). The Valuers informed the Bank that the value of one of the Properties in Hunt Street, South Hedland, Western Australia (the Hunt Street Property) was $1,100,000. The Bank conveyed that information to the applicants. In reality, the applicants say the property was worth closer to $3 million. 10 The applicants say that the erroneous valuation was based on incorrect instructions issued by the Bank, particularly in relation to the occupancy levels of the Hunt Street Property. The representations as to the value of the property were misleading conduct in trade and commerce, according to the applicants. 11 Following the valuation, the applicants say that under the terms of the Consolidated Loan, if the loan to value ratio (the LVR) divided by the value of the securities rose above a certain level (the LVR threshold), then the applicants would be in default of the Consolidated Loan. The Bank was thereupon entitled to transfer the Consolidated Loan to the CMU which unit levied additional charges, fees and higher interest rates. 12 The applicants claim that it was an implied term of the Consolidated Loan (the implied term) that in calculating the LVR, the Bank would only have regard to a current and accurate market value in relation to the Properties. The applicants complain that in November 2002, the Bank calculated the LVR using the valuation obtained from the Valuers and determined that the LVR had risen above the LVR threshold. 13 The applicants complain that in using or placing reliance on the Valuers' valuation, the Bank breached the terms or implied terms of the Consolidated Loan. 14 On the 'transfer of the loan to' the CMU, the interest rate was increased by 2.5% and the Bank declined to extend the Consolidated Loan unless the applicants immediately listed the Properties for sale in order to reduce the LVR below the LVR threshold. The applicants received and rejected offers for sale of one of the Properties but the Bank, it is said, pressured the applicants to sell and subsequently did for $1.68 million. That price is said to have caused the applicants to suffer loss and damage. 15 Regardless of the outcome of this motion, the valuation claim (which is resisted) will remain open to be pursued.

Unconscionable conduct 16 The applicants have abandoned a claim based on unconscionable conduct. As a consequence of that abandonment, the Bank presses for its costs on an indemnity basis connected with arguing the viability of that claim. 17 Put very shortly, the unconscionable conduct claim was that the applicants were at a 'situational special disadvantage', as that term has been used in the authorities, as a result of the Bank's requirement that they sell the securities in order to improve the LVR, in turn causing the applicants to suffer 'dire financial need'. 18 The claim asserted that the Bank knowingly took advantage of the applicants' special disadvantage and but for the special disadvantage, the applicants would not have sold the Properties.

THE APPLICANTS' MOTION 19 The applicants pursue the motion for leave to amend the statement of claim pursuant to O 13 r 2 of the Federal Court Rules (FCR). 20 Relevantly to this motion, O 13 FCR provides: … 2 General (1) Subject to the following provisions of this rule, the Court may, at any stage of any proceeding, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit. (3) Where an application to the Court for leave to make the amendment mentioned in subrules (4), (5), (6) or paragraph (7)(a) is made after any relevant period of limitation current at the date of commencement of the proceeding has expired, the Court may, nevertheless, grant such leave in the circumstances mentioned in that subrule if it thinks it is just to do so. … (7) An amendment may be made even if the effect of the amendment is to add a new claim for relief or foundation in law for a claim for relief (whether by way of substitution for an existing claim for relief or foundation in law or not) if the new claim for relief or foundation in law: (a) arises out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the party applying for leave to make the amendment; or (b) subject to subrule (9), arises, in whole or in part, out of facts or matters that have occurred or arisen since the commencement of the proceeding. … 3A Date when amendment takes effect (1) Unless the Court otherwise orders, an amendment of a document that is made under rule 2 or 3 takes effect: (a) if the amendment is made under paragraph 2(7)(b), subrule 2(8) or subrule 3(3) - on the date when the amendment is made; and (b) in any other case - on the date when the document was first filed. … (emphasis added) 21 The applicants rely on the Court's power to grant leave to amend the amended statement of claim as the new claim for relief arises out of the same or 'substantially the same' facts pleaded in support of an existing claim for relief. Moreover, the applicants point to the fact that the Court may do so notwithstanding the effect of the expiry of any relevant period of limitation (O 13 r 2(3) FCR). 22 The applicants argue that although the alleged misleading representations were made in July and August 2000, the applicants first suffered loss and damage in or about December 2002. As the application was filed on 27 October 2008, it was within the six year limitation period. 23 The applicants claim that the proposed amendments simply 'supplement and put into context' material facts already pleaded and it is those existing material facts, in particular, the conversion of the existing facilities into the Consolidated Loan which was accompanied by false representations. 24 The applicants concede and indeed argue that a broad approach is necessary to this question. They argue that in a broad sense, the new claim for relief concerning alleged misrepresentations arise out of 'substantially the same facts' as those already pleaded to support the existing claims for relief made by the applicants. 25 The applicants contend that there is nothing to suggest that it would be unjust for leave to amend to add the new claim for relief to be granted and, in the absence of evidence of prejudice to the Bank, it would be just for such leave to be granted.

'The same or substantially the same facts' 26 In Darcy v Medtel Pty Ltd (No 3) [2004] FCA 807, Sackville J noted (at [30]) that the language of O 13 r 2(7) FCR requires the Court to focus on the facts currently pleaded and to determine whether the new claim for relief (or new legal foundation for a claim) arises out of the same, or substantially the same facts. At [26]-[28] his Honour said (after discussing the history of displacement of the former rule in Weldon v Neal (1887) 19 QBD 394): 26 …, the only Full Court decision to address the expression 'arising out of the same or substantially the same facts' is Rodgers v Commission of Taxation. The Court referred to the discussion of the phrase 'substantially the same' in In re Burford; Burford v Clifford [1932] 2 Ch 122, at 138, per Lord Hanworth MR, as follows: 'the words "substantially the same" ... relate to the facts which have to be examined for the purpose of ascertaining what is the relief or remedy to which the parties are entitled. "Substantially" must have been put in in order to embrace within the rule something which was not exactly a repetition of the relief or remedy asked for ... where the same facts have to be conned over in order to ascertain the liability and to give some relief to one or other of the parties, in such a case the rule now provides that it is unnecessary to have separate actions and separate proceedings, but that a third party notice may be served.' 27 Although I bear in mind what the Full Court said, in my respectful opinion the observations of Lord Hanworth MR are of limited assistance in construing O 13 r 2(7). This is because In re Burford and the later case of Chatsworth Investments Ltd v Amoco (UK) Ltd [1968] 1 Ch 665, also cited in Rodgers v Commissioner of Taxation, were concerned with a quite different rule, namely Order XVIA, r 12 (later Order 16, r 1). The expression 'substantially the same' in Order XVIA, r 12, was used in relation to any relief or remedy claimed by the plaintiff, or any question or issue arising between the parties. The language of Order XVIA, r 12 and indeed the concepts to which the rule refers are not the same as those incorporated in O 13 r 2(7). 28 Perhaps of more direct relevance to the present case is the conclusion reached by the Court in Rodgers v Commissioner of Taxation. In that case, the liquidator of a company applied for leave to amend an application seeking to set aside payments of group tax made by a corporation that subsequently went into liquidation. The amendment added two payments to the eight that had already been pleaded. The Court reasoned as follows (at 70): 'No doubt it is correct to say each payment amounted to a separate transaction; nonetheless we consider these additional claims arise out of substantially the same facts as those pleaded to support the original claims. The additional claims are said to be part of a pattern of conduct extending over a period of approximately eight months and involve allegations identical in form to those of the earlier claims. The additional payments were both made within five weeks of the date of the last payment specified in the original application. The requirements of O 13, r 2(7) are satisfied in respect of these two payments.' The Full Court's analysis suggests that the scope of O 13 r 2(7) is not to be limited by any narrow approach to the language of the sub-rule. 27 However, the amendment in Rodgers v Commissioner of Taxation (1998) 88 FCR 61 was simply to add as facts, two payments to an existing set of payments sought to be set aside as voidable transactions (at 62): On 19 June 1997, the liquidator filed an application in this Court, pursuant to s 588FF(1) of the Law, for orders that group tax payments made to the Commissioner, totalling $382,192.90, be set aside as voidable transactions and the moneys repaid to the Company. The payments were made between December 1993 and May 1994. The liquidator was not then aware of two further payments. The first of these payments ($8,190) was in respect of group tax penalties and made on 1 June 1994. The second was a group tax payment of $77,481 made on 15 June 1994. 28 In Darcy, on the other hand, the facts relied upon in the amendment were unchanged but the cause of action was added. This is clear (from [31]) where Sackville J said: The proposed amendment to par 66 of the statement of claim adds a plea that the respondents owed a duty of care to the applicant and the Group Members to keep adequate records of the critical components incorporated into each Meta Pacemaker. The material facts relied on to support this duty of care are precisely the same as in the current pleading. That is, the duty is said to arise because of the purposes for which the Pacemakers were manufactured, implanted and used, and the manner in which they were marketed. The facts pleaded may or may not sustain the duty of care on which the applicant wishes to rely. But the proposed amendment to par 66 does not alter or add to the material facts on which the applicant relies. (emphasis added) 29 In contrast, the facts relied upon in the current amendment are new facts. Further, insofar as reliance is placed on oral representations, they are extremely non-specific. 30 The existing pleading concerns a valuation obtained in October 2002 and whether the Bank, in its subsequent dealings with the applicants in 2002 and 2003, breached its contractual duties or acted unconscionably. This is not a case, as in Darcy, where an amendment was sought by the plaintiff after obtaining new evidence from the other side (see [39]). 31 Although the applicants argue that the proposed amendment simply 'relate[s] to, supplement[s] and put[s] into context' the material facts already pleaded, the existing pleading does not contain any reference to the representations which are the foundation of the new misleading claim. 32 There is evidence from the Bank's solicitors that the proposed amendments would raise factual enquiries that were not considered previously by the Bank and have never been raised since 2002. The proposed amendments do not state which Bank officer made the alleged oral representation. 33 The correspondence from the Bank referred to in the minute of proposed amendment appears to have been sent by an identified officer of the Bank. It is now nearly 11 years after the alleged oral representations were made and the Bank has not taken a proof from that officer as to what the Bank did and what was said. 34 It cannot be said, in my view, that the proposed misrepresentation claim is 'based on substantially the same facts'. While some of the facts are common to the existing claim, those are not contested facts. The proposed representation facts are entirely new. On that basis, leave should not be permitted to rely on the new claim. The motion will be dismissed with costs.

The strength of the claim 35 The Bank relies on additional argument to oppose the amendment. For completeness, I will consider it. 36 The amended pleading suggests that Mr Anagnostopoulos believed the new loan dated 15 August 2000 would be for a period of 10 years and refers to letters from the Bank dated 10 July 2000 and 15 August 2000. The correspondence does not appear to categorically represent that it would provide a 10 year loan, in particular: (a) by letter dated 10 July 2000, the Bank stated: Basically, due to the fall in property values ... and the large unsecured content ... for your debts, the minimum restructure arrangement the Bank would most likely accept at this stage would be as follows: ... 2. Monthly loan repayments of $62,000 pm ... to cover principal and interest repayments over 10 years, with a residual debt of $1,500,000 to be renegotiated at the end of that 10 years. (b) by letter dated 11 July 2000, the Bank stated: Therefore I have reworked a repayment schedule for you to consider: ... 3. The facility will be subject to renegotiation at the end of December 2000. (emphasis added). 37 The Bank contends that if Mr Anagnostopoulos was deceived (which it denies) the latest he could have been made aware of the deception was 6 November 2000 when a further loan was entered into (because the loan entered into on 15 August 2000 was about to expire). There is apparently no discovery from the applicants complaining about any misleading statements. To the contrary, the Bank, by affidavit, points to the fact that two years later Mr Anagnostopoulos wrote to the Bank and stated: The directors are aware of the group's financial position and are appreciative of the bank's support during a difficult economic period throughout the Pilbara. 38 At least at the level of first impression, the misrepresentation case appears weak. As noted by Edmonds J in SPI Spirits (Cyprus) Ltd v Diageo Australian Ltd (No 4) [2007] FCA 1035 (at [17]): The general approach is that where a party satisfies the Court that he or she generally desires to amend the pleadings so as to alter an existing claim or to introduce a new claim, leave should be granted unless the proposed amendment is so obviously futile that it would be struck out if it had appeared in the original pleading or would cause substantial injustice which cannot be compensated for in the manner indicated …: Abela v Giew (1964) 81 WN (Pt 1) (NSW) 344 at 345. 39 The applicants have pleaded no specificity in the oral elements of the representations. The letters indicate that the Bank was suggesting consideration of alternative facilities (despite already being secured as mortgagee). The applicants later asked the Bank for its assistance. These elements suggest that the amendment would more likely than not be futile. This is a further reason against permitting the proposed amendment.

Prejudice 40 Finally, in relation to the amendment, there is the consideration of prejudice, if it were permitted. In my view, this is the type of case where, the Court may draw inferences (as Ryan J did in Beck v Corrs Chambers Westgarth [2010] FCA 552 (at [25])), about the effect of the effluxion of time on a party's ability to defend or respond to a claim made against it. In that case, Ryan J said (at [23]-[25]): 23 The specific prejudice which Corrs claim they would suffer if leave were granted in this case arises from the significant lapse of time, said to be akin to that discussed by McHugh J in considering, in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551ff, whether a statutory limitation period should be extended. The same point was made by Kirby J, at 566, where his Honour referred to "the erosion of memory; the loss of documents; and the death, departure or disappearance of witnesses". It was to prejudice of that kind that Counsel for Corrs directed their submissions, the advice at issue having been given, as mentioned, in 1999. It should not be forgotten, however, that McHugh J also emphasised that it is important for the of the (sic-for the) court to identify on the evidence what prejudice would be caused by a grant of leave or an extension of time, rather than to make its assessment on: the basis of judicial generalities about time, the importance of finality and the usual desirability of prompt action for the fair trial of contested issues. 24 It may be accepted that prejudice of this type can be particularly acute where the claim sought to be raised impinges on the professional reputation, competence and probity of the party (see Australian Securities and Investments Commission v Lindberg [2009] VSC 70 per Robson J at [28]-[34]). At the hearing of these motions, however, counsel for Corrs did not point to any specific type of loss or erosion of evidence; it was merely put, as a hypothesis, that the memories of key witnesses will have faded. This is particularly significant here, as I mentioned, because much of what is alleged in the proposed pleading depends upon oral advice, some of it given almost ten years ago. 25 Where the facts are as clear as those in the present case I consider it open - and appropriate - to the Court to draw obvious inferences about the effect of the effluxion of time on a party's ability to defend or to respond to claims made against it. That approach finds support in Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863, where Tadgell and Ormiston JJ, with whom Brooking J agreed, said, at 875; Although there are many cases in which the necessity to establish prejudice has been stated as a condition precedent to the exercise of the power to dismiss for want of prosecution on the basis of delay, it is not correct, in our opinion, to say that the defendant is obliged to allege that prejudice upon affidavit as opposed to asking the court to infer from all the circumstances of the case that prejudice has been or will be likely to be suffered. This is not to deny that prejudice, actual and potential, must be established: it is merely a reminder that proof of any issue can be established by circumstantial evidence and of the necessary process of inference from such evidence. Nor are we suggesting, for it would be contrary to authority, that it is for the plaintiff to disprove prejudice; but the defendant is entitled to point to undisputed facts and ask the court to draw necessary logical inferences from them for this purpose.

Unconscionable conduct claim - indemnity costs 41 In the statement of claim dated 24 October 2008 and the amended statement of claim dated 2 December 2008, the applicants pleaded unconscionability based on an inequality of bargaining position. Between 15 June 2009 and 20 July 2009, the parties conferred regarding whether the Trade Practices Act 1974 (Cth) (TPA) or the ASIC Act applied to the unconscionable claim. On 28 July 2009, orders were made to the effect that the applicants could replace the reference to s 51AC TPA (unconscionable conduct in business transactions) with s 12CA of the ASIC Act (unconscionable conduct within meaning of the unwritten laws of states and territories). 42 On 6 August 2009 and 29 September 2009, the solicitors for the Bank informed the applicants' solicitors that the foreshadowed plea of unconscionability did not have any prospects of success and referred the applicants to Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51. 43 As Buchanan J noted (at [335]-[336]) in Astram Financial Services Pty Ltd v Bank of Queensland Ltd [2010] FCA 1010: 335 Unconscionability, as a concept imported into the TP Act, appears to me to involve the application of a standard, even though in Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 ("National Exchange") a Full Court observed (at [30]) that the circumstances in which relief might be granted under s 51AC were not confined to the circumstances in which the common law would acknowledge grounds for relief. I accept, in accordance with those observations, that the matters to which regard may be had, which are identified in s 51AC, extend beyond matters to which regard might be had if the common law was being applied or if s 51AA arose for consideration. Nevertheless, it seems clear that a conclusion that conduct is unconscionable requires the identification of a standard of behaviour which is not to be equated merely with a list of factors to which a court may have regard. For example, the first such factor identified by s 51AC(3) is: (a) The relative strengths of the bargaining positions of the supplier and the business consumer. 336. An indication that a court may have regard to such a factor does not import a conclusion that unequal bargaining positions have the consequence that use of a superior bargaining position is unconscionable. In Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 ("Berbatis") Gleeson CJ pointed out (at [11]): A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests. and (at [16]): Parties to commercial negotiations frequently use their bargaining power to "extract" concessions from other parties. That is the stuff of ordinary commercial dealing. 44 In connection with the Bank's claim for indemnity costs in relation to the deletion of the unconscionable conduct claim, the applicants accept that normally upon discontinuance of a part of a claim, the respondent is entitled to costs thrown away to be taxed on a party-party basis at the conclusion of the proceeding (O 62 r 3 FCR). 45 The applicants also accept that in special circumstances there may be a departure from the convention: see, for example, Barrett Property Group Ltd v Metricon Homes Pty Ltd (No 2) [2007] FCA 1823 per Gilmour J (at [3]-[5]) where his Honour said: 3 An award of costs is in the discretion of the Court or Judge except as provided by any other Act: Federal Court of Australia Act s 43(2). The discretion must be exercised judicially. In the normal course, costs are ordered to be paid on a party and party basis: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 232; Re Wilcox; Ex parte Ventura Industries Pty Ltd (No 2) (1996) 72 FCR 152 at 158 per Cooper and Merkel JJ. A costs order is not intended to punish the unsuccessful party but rather to compensate the successful party: Hurst and Devlin v Education Queensland (No 2) [2005] FCA 793 at [5]. This is so even where the ordinary practice is departed from. The aim is not to punish or deter future litigants but simply to compensate a party fully for costs which normal party-party costs could not be expected to do, where it was unreasonable for that party to be subjected to any expenditure of costs, such as where a hopeless proceeding is brought: Cirillo v Consolidated Press Property Ltd (No 2) [2007] FCA 179 at [4]- [5]. Any departure from this general rule requires a special reason: Access For All Alliance (Hervey Bay) Inc v Hervey Bay City Council [2007] FCA 974 at [10]; Pacific Publications Pty Ltd v Next Publishing Pty Ltd [2005] FCA 971 at [5]. The categories in respect of which departure from the usual rule are contained are not closed: John S Hayes & Associates Pty Limited v Kimberley-Clarke Australia Pty Limited (1994) 52 FCR 203; Jianshe Southern Pty Ltd v Turnbull Cooktown Pty Ltd (No 2) [2007] FCA 903 at [32]. 4 In Colgate-Palmolive, (at p 233) Sheppard J identified various categories which might give rise to an award of indemnity costs. These include: • the making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud; • evidence of particular misconduct that causes loss of time to the Court and to other parties; • the commencement or continuation of proceedings for an ulterior motive; • wilful disregard of known facts or clearly established law; • the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; and • an imprudent refusal of an offer to compromise. 5 Whatever the case, the Court should not make such an order for costs unless there is some clear basis or "some special or unusual feature in the case": Pacific Publications at [5]. 46 The applicants argue that although their unconscionable conduct claim may not appear strong, it is nevertheless arguable and not as hopeless as would be contended by the Bank. They argue that on the face of the pleading, all requisite elements for establishing the claim were present and it is not possible or appropriate for the Court on an interlocutory hearing to attempt to weigh up evidence to try to determine the strength of the claim. The applicants stress that there is certainly insufficient material before the Court for it to conclude that the applicants have wilfully disregarded known facts or clearly established law, particularly bearing in mind that the law regarding unconscionable conduct would not generally be regarded as 'clearly established'. The applicants stress that there has been no prolongation of the case as a result of 'groundless contentions'. In that regard, the position of the applicants can be contrasted with the circumstances in the Barrett Group case referred to above (see Barrett Property Group Ltd at [16]). 47 In relation to the request that costs be taxed and paid forthwith, the applicants contend there is no evidence that the Bank has incurred any significant costs over and above those which it would have incurred had the applicants not pursued the unconscionable conduct claim.

Conclusion on indemnity costs payable forthwith 48 On this aspect of the argument I rule in favour of the applicants. I accept that there are appropriate cases for the award of costs on an indemnity basis and appropriate cases where costs orders (including indemnity costs) are ordered to be paid forthwith. I do not consider that this is one such case. The applicants' decision not to pursue the unconscionable conduct claim may well be sensible. For the reasons stated by the respondents, it is a claim which would inevitably meet with considerable difficulty. That does not, however, elevate the claim to one which was so inevitably hopeless and unmeritorious from inception that it should never have been advanced. Decisions relied upon by the Bank do support the conclusion that the claim would be unlikely to succeed, at least as pleaded. Whether it was the arguments advanced by the Bank or the applicants' own analysis of their position, it was sensible to discontinue that aspect of the claim having regard to its prospects in the manner in which it had been pleaded which in turn depends upon the facts upon which the pleading could be based. Nevertheless, an order for indemnity costs, let alone indemnity costs payable forthwith (whether 50% of the costs or some other amount), would be reserved only for the more obvious and serious cases. This case does not fall into that category. 49 It is not apparent to me that the Bank would not be appropriately and adequately compensated as to its party and party costs by an order that the applicants do pay the costs of the Bank thrown away as a result of the amendment following taxation (or agreement) at completion of the proceeding and regardless of the outcome of the proceeding.

CONCLUSION 50 For the foregoing reasons, the orders will be: 1. The applicants' motion to amend its pleading in the manner set out in the minute dated 4 May 2011 will be dismissed. 2. The applicants do pay the costs of the respondents thrown away by reason of the claim as to unconscionable conduct advanced by the applicants and now abandoned, such costs to be taxed (if not agreed) and payable on completion of the proceeding. 3. The applicants do pay the respondents' costs of the motion to be taxed if not agreed. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Trade Practices Act 1974(Cth)

At a glance

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Judgment (15 paragraphs)

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Legislation Cited (2)

Cases Cited (18)