Mark AC Enterprises PL v Done Diesel Pty Ltd

Uniform Civil Procedure Rules 1999 (Qld), rr 5, 687, 681(1)

Coburn v Brotchie [1890] VicLawRp 4; (1890) 16 VLR 6b, cited

Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, considered

Emmanuel Management Pty Ltd (in liquidation) & Ors v Foster's Brewing Group Ltd & Ors and Coopers & Lybrand & Ors [2003] QSC 299, considered

FCA Finance Pty Ltd v Spartan Holdings Pty Ltd [1989] 1 Qd R 280, considered

Gavin Boyle Constructions Pty Ltd v Fabrok Pty Ltd & Anor [2011] QDC 214, cited

Lauchlan v Hartley [1979] Qd R 305, considered

Lewis v Hillhouse & Anor [2005] QSC 78, considered

Mark AC Enterprises Pty Ltd v Done Diesel Pty Ltd [2012] QDC 229, related

Multi-Service Group Pty Ltd (In Liq) & Anor v Osborne & Anor [2010] QCA 172, considered

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, considered

Sultana Investment Pty Ltd v Cellcom Pty Ltd (No 2) [2008] QCA 398, cited

Swindells v Hosking & Anor (No 2) (2012) QDC 17, cited

Troiani & Anor v Alfost Properties Pty Ltd [2002] QCA 281, considered

Mr M. Campbell of Counsel instructed by Corser Sheldon and Gordon, Solicitors for the Appellant/Applicant

Ms T.A. McGarvie, Solicitor of Suthers Lawyers for the Respondent/Defendant

[1] This proceeding is concerned with applications for costs brought by Mark AC Enterprises Pty Ltd (the appellant) and Done Diesel Pty Ltd (the respondent) in respect of an appeal dealt with by me on 30 August 2012.[1] The appellant seeks costs on an indemnity basis or, in the alternative, on the standard basis. The respondent seeks an order that the appellant pay its costs of the appeal or, in the alternative, that each party should bear its own costs. The respondent contends that it would also be open for me to find sufficient grounds for an Indemnity Certificate under the Appeal Costs Fund Act 1973 (Qld). For the reasons set out below, the order of the court is that each party is to bear its own costs of the appeal.

[2] The respondent commenced proceedings against the appellant suing it for money alleged to be owed for repair works to drilling equipment owned and operated by the appellant.

[3] On 27 June 2011, the respondent filed its statement of claim in the Magistrates Court at Maryborough. It was served on the appellant on 8 July 2011. There being no notice of intention to defend filed within the prescribed time limits, the respondent sought and was granted default judgment on 9 August 2011.

[4] On 29 August 2012, the appellant filed an application to have the judgment set aside. In support of its application, the appellant relied on the affidavit of its solicitor, Mr David Hinton. Mr Hinton set out the reasons why the notice of intention to defend, defence and counterclaim were not filed and served until 9 August 2011, the same date default judgment was entered. In paragraph 15 of his affidavit, Mr Hinton deposed:

"Based upon the instructions provided by the defendant I believe the defendant has a prima facie defence to the plaintiff's claim, as well as a prima facie counter-claim against the plaintiff. In summary the defendant's allegations are that the work performed by the plaintiff was negligent and/or did not provide the outcome promised by the plaintiff, as a consequence of which the defendant has suffered significant loss and damage. Exhibited hereto marked 'DJH4' is a true copy of the proposed defence and counter-claim which I confirm has been prepared based on instructions provided by the defendant."

[5] At the hearing of the application on 5 September 2011, it was not disputed that judgment had been regularly entered on 9 August 2011. Ms McGarvie, solicitor for the respondent, took the point that the affidavit of Mr Hinton could not assist the appellant's case as he was in no position to depose to the facts and circumstances alleged in the proposed defence and counter-claim. The Learned Magistrate dismissed the application on that basis. Such a course was one open to his Honour but it would also have been open to adjourn the application to allow appropriate affidavit material to be filed in support of the application.

[6] A second application was brought by the appellant to have the judgment set aside. On this occasion, an affidavit was sworn by a Mark Crowson, a previous director of the appellant and its drilling advisor. It was not contested before me that Mr Crowson was not in a position to swear up the proposed defence and counter-claim.

[7] On 5 December 2011, the same learned Magistrate dismissed the second application. During that hearing, His Honour relevantly said:

"....I accept the submission made by Ms McGarvie. Clearly it was open to the applicant on the 5th of September to make an appropriate application. I just can't see any change in the circumstances or change in argument and, accordingly, I must rule the same way as I did on the 5th of September. That is the application to set aside the judgment by default of 9th of August 2011 is formally dismissed."

[8] Following the decision of the learned Magistrate the appellant appealed to this court and on 30 August 2012, I handed down my decision granting leave to appeal and allowing the appeal. I also made an order that I would hear from the parties as to costs of the appeal if required.[2]

[9] Written submissions on costs have subsequently been received and the matter has been considered on the papers.

[10] Rule 681(1) of the Uniform Civil Procedure Rules 1999 (UCPR) relevantly provides that costs of a proceeding are in the discretion of the court "but follow the event unless the court orders otherwise". Absent appropriate circumstances, typically then the successful party in litigation is entitled to a costs orders in its favour.

[11] It is well established, that absent special circumstances, costs orders are not made to punish the unsuccessful party in litigation but to compensate the successful party. In Oshlack v Richmond River Council, McHugh J relevantly said:[3]

"The expression the 'usual order as to costs' embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.

As a matter of policy, one beneficial bi-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice."[4]

[12] Pursuant to r 687 of the UCPR, unless the court orders otherwise, cost orders are to be for "assessed costs". Usually costs are to be assessed on the standard basis.[5] However r 703(1) gives the court the discretion to order costs on an indemnity basis in appropriate circumstances. As was observed by Chesterman J (as he then was) in Emmanuel Management Pty Ltd (in liquidation) & Ors v Fosters Brewing Group Ltd & Ors and Cooper & Lybrand & Ors,[6] the authority to which attention is usually directed upon an application for costs on an indemnity basis is that of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd.[7] There, his Honour identified that circumstances justifying cost orders on an indemnity basis might include:

(i) Making allegations of fraud knowing them to be false or making irrelevant allegations of fraud.

(ii) Misconduct that causes loss of time to the court and the opponent.

(iii) Commencing or continuing proceedings for some ulterior motive or in wilful disregard of known facts or clear law.

(v) An imprudent refusal of an offer to compromise.

That list, of course, is not meant to be an exhaustive one.

[13] In Lewis v Hillhouse & Anor,[8] Moynihan J said, "such orders should not be made too readily. There needs to be some special or unusual feature to justify a court departing from the usual practice [...]. The court will look for some evidence of unreasonable although not necessarily vexatious conduct."

[14] It is submitted on behalf of the appellant that it was entitled to costs for the following reasons:[9]

"The respondent's claim against the appellant is a simple, minor debt claim for less than $3,500 [...]

Having regard to the amount of the respondent's claim it was open to the respondent to, and it is submitted the respondent should have, commenced the claim either as a 'minor claim' in the Magistrates Court [...] or preferably in the Queensland Civil & Administrative Tribunal as a minor civil dispute.

The respondent's decision to commence the claim in the Magistrates Court has resulted in both parties incurring significant, and it is submitted unnecessary, costs.

The appellant, by its solicitors, informed the respondent's solicitors shortly after the proceedings were served on the appellant that the appellant intended not only to defend the claim but also to make a counterclaim [...] . Presumably the respondent's solicitors advised their clients of the appellant's intention.

[15] The appellant then went on to draw attention to other matters it says supported a finding for costs including:[10]

(i) that the respondent entered judgment on notice that the defendant was going to file and serve a defence and counter-claim in the immediate future;

(ii) that the notice of intention to defend was filed only one day outside the prescribed time limit; that it had no option but to apply to have the default judgment set aside;

(iii) that it was open to the respondent to consent to the default judgment being set aside upon the second application seeking that relief, and that it has never been argued that the defence and counterclaim did not raise an arguable defence.

The appellant also contended that the respondent had relied on "technicalities" and that its conduct was unreasonable and contrary to the philosophy and "overriding" obligations prescribed in r 5 of the UCPR.

[16] On behalf of the respondent, it was contended that there were circumstances which not only justified departure from the usual rule concerning costs, but also justified an order that the appellant pay its costs. In support of its argument, it was contended that:[11]

(i) it was entitled to commence the proceedings in the Magistrates Court;

(ii) the respondent's solicitors advised the appellant's solicitors that it considered its date for calculating the filing of the notice of intention to defend was incorrect;

(iii) the respondent was under no obligation to consent to the default judgment being set aside on the second application and that, in any event, once it appeared clear on the first application that the application to set aside default judgment was doomed to fail, the appellant should have sought an adjournment and it was open for the appellant to prosecute its claim against the respondent independently of the alleged defence to the respondent's claim; and

(iv) it was not inappropriate for the respondent to defend the judgment on the appeal to this court in circumstances where the court had to consider whether or not the appellant should be granted leave to proceed.

According to the respondent, it was in fact the appellant who was in breach of r 5 of the UCPR as "evidenced by the fact" that:[12]

"The solicitors for the appellant failed to file the defence and counterclaim within the prescribed time under the UCPR despite having been advised by the respondent's solicitors of the date the appellant was served which ought, to have alerted the appellant to the correct the [sic] date by which it calculated its defence and counterclaim were due.

The solicitors for the appellant did not seek an indulgence of time to file a defence.

That the solicitors for the appellant failed to prepare and properly prosecute the first application by not placing the requisite material before the court which caused the proceeding to be delayed and put both parties to additional costs.

That the conduct of the solicitors for the appellant in not seeking to adjourn the first application to obtain the requisite material caused the respondent to expend costs in the second application and subsequently this appeal."

[17] I do not intend to deal individually with each of the matters raised by the parties. I will deal instead with what I consider to be the more important issues raised.

[18] It was open to the respondent to commence its action in the Magistrates Court and it cannot be criticised for doing so. It was also open for it to seek judgment on the expiration of the statutory time limit. However, in circumstances where the respondent's solicitors were advised that a defence and counterclaim was soon to be filed, it was also open for it to grant an indulgence to allow that to be done, or at least give warning of the intention to enter judgment. More is said about this aspect of the respondent's conduct below.

[19] The respondent was entitled to defend the judgment on the first occasion in circumstances where the defence and counterclaim were not supported by appropriate affidavit material. However, on being served with the subsequent affidavit material properly swearing up the defence and counterclaim, it would have been equally open for the respondent to consent to the judgment being set aside subject to the appellant agreeing to pay its costs of signing the judgment and having it set aside.

[20] On the material before me, it appears that neither side proposed this course of action. On behalf of the appellant, it was asserted that "it was open for the respondent at this stage to consent to the second application but failed to do so".[13] No mention is made of any offer to pay the respondent's costs.

[21] It is difficult to be too critical of the respondent for defending the judgment in this court. The appeal involved a consideration of the various competing facts and circumstances. And, but for the reasons I gave distinguishing an application for summary judgment from an application to have a default judgment set aside,[14] the reasoning of Thomas J (as he then was) in FCA Finance[15] was arguably supportive of the respondent's position on appeal.

[22] On behalf of the appellant, it was contended that there was authority for the proposition that when a plaintiff is aware that a defendant is legally represented but then proceeds to enter judgment without notice the plaintiff should not be entitled to its costs. Coburn v Brotchie [1890] VicLawRp 4; (1890) 16 VLR 6b and Gavin Boyle Constructions Pty Ltd v Fabrok Pty Ltd & Anor [2011] QDC 214 were cited in this regard.

[23] In this case, while there was apparently correspondence between the solicitors about the date upon which the time for filing of a notice to defence started to run, no formal notice was given of the intention to enter judgment the day after the expiration of that time limit. This was in circumstances where the respondent's solicitors were well aware that the appellant intended to file a defence and counterclaim in the very near future. As I have said, it was of course open to adopt that approach. However, in my view, it was not the most prudent course to take. An indulgence on the part of the respondent of only one or two days may have avoided this unfortunate state of events. As this case demonstrates, time and money on both sides could have been saved had a more cautious and, in my respectful view, more courteous approach been adopted. In this context, I respectfully agree with the observations made by Judge McGill SC in Gavin Boyle Constructions,[16] namely that conduct of this type is "bad practice".

[24] The respondent contends that Troiani & Anor v Alfost Properties Pty Ltd [17] supports its arguments on costs. In Troiani, McPherson JA relevantly said:

"(The defendants) are required to pay those costs because that is the usual order in a case like this where, having been granted the indulgence they sought at first instance of having a regular judgment set aside, they should as defendants be required to pay the plaintiff's costs of so having it set aside as it should have been in the first place."

[25] Based on that statement, the respondent then asserts:[18]

"Given this appeal is concerned with an analogous situation to that described by McPherson JA in Troiani, it is submitted the appellants should have to pay the respondent's costs of both applications and this appeal."

[26] I do not accept that submission for two reasons. First, interlocutory applications of the type involved here are not, in my respectful opinion, truly "analogous" to appeals such as this. Second, it ignores the fact that in Troiani, the respondent/plaintiff was not awarded its costs of the appeal. Instead, costs were ordered to be its costs in the cause.

[27] It could be argued that the underlying reason for the history of this litigation was the respondent's unreasonable conduct. First, in circumstances where it knew material was being prepared, in not granting the appellant a short extension of time to file its material. And, subsequently, after being served with affidavit material swearing up the proposed defence and counter claim, urging the Learned Magistrate to dismiss the second application with costs to be paid on an indemnity basis.

[28] Had either of those alternate courses of action been taken, this appeal would not have been necessary. And, in failing to adopt either of those courses of action, the respondent, in my respectful opinion, acted contrary to the philosophy underlying rule 5 of the UCPR which provides:

"5 Philosophy - overriding obligations of parties and court

(1) The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.

(2) Accordingly, these rules are to be applied by the courts with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules.

(3) In a proceeding in a court, a party impliedly undertakes to the court and to the other parties to proceed in an expeditious way.

(4) The court may impose appropriate sanctions if a party does not comply with these rules or an order of the court.

[29] On the other hand, there is no doubt that the conduct of the appellant materially contributed to the unfortunate progress of this case thus far. Had the appellant filed its material within the prescribed time or, on the first application, been appropriately prepared, this appeal would not have been necessary. It is also at least of some relevance that, in considering the costs of the appeal, a consequence of the appeal being allowed was that the indemnity costs order imposed below has been set aside.

[30] On balance, I consider the respective arguments of each of the parties effectively cancel each other out. Or, to put it another way, each party is broadly speaking, as responsible as the other for the subject litigation.

[31] Accordingly, I consider that the appropriate orders are that each of the parties to the appeal should bear their own costs. It is therefore not necessary for me to deal separately with the issue of indemnity costs.

[32] For the reasons given, it is also not necessary for me to decide this issue. However, by way of observation, it seems unlikely to me that the respondent would have been entitled to an indemnity certificate in circumstances where its legal representative urged the court below to adopt the course that it did.[19]

1. Each party is to bear its own costs of the appeal.

[1] Mark AC Enterprises Pty Ltd v Done Diesel Pty Ltd [2012] QDC 229.

[3] [1998] HCA 11; (1998) 193 CLR 72, [67]-[68]; recently cited with approval by Dorney QC DCJ in Swindells v Hosking & Anor (No 2) (2012) QDC 17, [20].

[5] Uniform Civil Procedure Rules 1999 (Qld), r 702(1).

[6] [2003] QSC 299, [17].

[7] [1993] FCA 536; (1993) 46 FCR 225.

[8] [2005] QSC 78, [5].

[9] Appellant's written outline, para [3].

[11] Respondent's written submissions, paras [3]-[14].

[13] Appellant's written submissions, para 3.10.

[14] Mark AC Enterprises [2012] QDC 229, [25]-[27].

[15] FCA Finance Pty Ltd v Spartan Holdings Pty Ltd [1989] 1 Qd R 280 (discussed in para [26] of Mark AC Enterprises [2012] QDC 229).

[17] (2002) QCA 281 per McPherson JA, with White and Wilson JJ agreeing.

[18] Para [20] of its written submission.

[19] Refer to para [7] above; see also Transcript of Proceedings 05/12/2011 at T1-2, LL 35-50; Sultana Investments Pty Ltd v Cellcom Pty Ltd (No 2) [2008] QCA 398, [21] citing Lauchlan v Hartley (1970) Qd R 305.