Mond v Berger [2004] VSC 150

2. On 23 February 2004 I published reasons for judgment in this proceeding, in which the plaintiffs sought, inter alia, orders setting aside a Partial Award made on 2 November 2001 on grounds of misconduct by the arbitrators pursuant to section 42 of the Commercial Arbitration Act 1984 (Vic) (`the Act'). The parties were afforded an opportunity to consider the reasons in order to make submissions on orders and costs. The parties by consent sought that the hearing of those matters be adjourned to 29 March 2004.

5. The matter was mentioned on 26 March 2004. The Court was informed that new counsel and solicitors had been retained by the fourth defendant and by the fifth to twenty-fourth defendants. At trial those defendants had had common representation, but they were now separately represented by new counsel.

8. The fourth and fifth to twenty-fourth defendants sought an adjournment in order to enable the newly-retained counsel to familiarise themselves with the matter. The hearing was adjourned to 5 April 2004 and directions were made for the filing and service of written submissions.

(a) The first to third defendants ("the arbitrators") were represented by Mr May, their solicitor.

(b) The fourth defendant ("CHC") was represented by Mr Sifris S.C.

(c) The fifth to seventeenth and nineteenth to twenty-fourth defendants ("the officer defendants") were represented by Mr Anderson of counsel.

(d) The eighteenth defendant (Mr Parasol) was represented by Mr Marasa.

17. Following the hearing on 5 April 2004 the following further written submissions were received:

(i) Plaintiff's further submissions as to relief and orders dated 14 April 2004.

(ii) Fourth defendant's reply dated 23 April 2004.

(iii) Eighteenth defendant's reply dated 23 April 2004.

23. The plaintiffs sought substantive orders, including the setting aside of the Partial Award and the removal of the arbitrators. They also sought that the defendants (including the arbitrators) pay:

(i) The plaintiffs' costs of the proceeding (including reserved costs) on an indemnity basis.

(ii) The plaintiffs' costs of the failed arbitration.

(iii) The plaintiffs' costs thrown away as a result of the fourth to twenty-fourth defendants' application to restrain Mr Hayes Q.C. from appearing on behalf of the plaintiffs at trial.

(a) The costs of and incidental to the consent orders made on 18 April 2002 by Master Evans.

(b) The costs of and incidental to the injunction application before Justice Balmford, consent orders being made on 27 August 2002 restraining the arbitrators from presiding over or participating in any further hearing relating to or stemming from the arbitration agreement.

(c) The costs of and incidental to the consent orders made on 26 November 2002 by Master Kings (no formal order reserving costs).

(d) The costs of and incidental to orders made on 5 May 2003 by Master Kings.

35. 8 The substantive orders sought by the plaintiffs were unopposed. However, the separately represented defendants took a variety of positions in relation to the costs of the proceeding. No submissions were made in opposition to the plaintiffs' claim for reserved costs.

38. CHC submitted that the arbitrators were solely responsible for the misconduct leading to the failure of the arbitration and that in consequence, CHC should not be liable for any costs of the failed arbitration. CHC sought an order that the arbitrators refund the fees paid to them by CHC.

41. The officer defendants (including Mr Parasol) adopted CHC's principal submissions but contended that they should not be personally liable for the costs of the proceeding or alternatively, that they should be indemnified for any such liability by CHC.

44. The first to third defendants (the arbitrators) contended that they had not participated in an adversarial way in the proceeding so as to attract a liability for its costs. Further, there was no finding that they were guilty of moral turpitude, lying under oath, or such other conduct as would justify an order that they pay the costs of the failed arbitration pursuant to section 36 of the Act.

COSTS OF THE PROCEEDINGS - WHETHER TO FOLLOW THE EVENT; WHETHER ON A SOLICITOR-CLIENT OR INDEMNITY BASIS; WHETHER REDUCTION OR APPORTIONMENT APPROPRIATE

48. The plaintiffs seek the costs of the proceeding (including the reserved costs) against the arbitrators and the fourth to twenty-fourth defendants on a solicitor and client or an indemnity basis. [The position of the arbitrators is discussed separately].

51. For the plaintiffs, Mr Magee Q.C. submitted that the plaintiffs were overwhelmingly successful in the proceeding and that costs should follow the event without any apportionment on particular issues or any reduction in relation to the issues abandoned by the plaintiffs at the commencement of trial.

54. The plaintiffs further submitted that the special circumstances of the case justified an award of costs against the fourth to twenty-fourth defendants on an indemnity or solicitor and client basis. They contended that the following circumstances justified a departure from the usual party and party costs order:

(i) The fourth to twenty-fourth defendants were guilty of delinquent conduct giving rise to the litigation.

(ii) The fourth to twenty-fourth defendants were guilty of conduct in the course of the proceeding which caused loss of time to the Court and to the other parties. In particular, the fourth to twenty-fourth defendants prosecuted points which had no chance of success.

(iii) The fourth to twenty-fourth defendants' conduct in relation to Professor Broyde's evidence and in seeking adjournments in relation to the evidence of witnesses including Rabbi Berger and Rabbi Ulman unnecessarily prolonged the proceeding.

(iv) The fourth to twenty-fourth defendants failed to accept the open offer of compromise made on behalf of the plaintiffs in the course of the arbitration hearing.

(v) The fourth to twenty-fourth defendants' delay in making their application to restrain Mr Hayes Q.C. from appearing for the plaintiffs resulted in costs thrown away.

60. Mr Sifris S.C., for the fourth defendant, CHC (whose submissions on this question were adopted by the officer defendants) submitted that the plaintiffs should be awarded only eighty percent of their costs of the proceeding on a party and party basis because:

(a) The plaintiffs' inclusion of substantial issues and allegations which were abandoned on the first day of trial involved the fourth to twenty-fourth defendants in considerable expense. Further, the plaintiffs had not succeeded on every issue at trial.

(a) (b) There was no feature of the case which would justify an award of costs on a solicitor and client or an indemnity basis.

65. The officer defendants contended that they were parties to the arbitration agreement only at the insistence of the first plaintiff and were joined to the proceeding only in their representative capacity. They also submitted that they had an indemnity pursuant to the constitution of CHC. Therefore, they contended that no costs order should be made against them personally, or, if it were, it should be subject to an order that they be indemnified by CHC.

68. Mr Parasol, the separately represented officer defendant, additionally contended that he had resigned from the Board of CHC prior to the trial, had not been informed of the conduct or possible costs consequences of the litigation and had originally been appointed to the Board of CHC only in the capacity of a youth representative. He contended that his position was different from that of the other officer defendants.

72. Section 24(1) of the Supreme Court Act 1986 provides:

" (1) 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, including the administration of estates and trusts, 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".

76. The Court has a wide discretion in relation to costs, which should not be constrained by inflexible rules or the rigid application of precedent. However, the discretion should be exercised judicially, by reference to relevant considerations and guidance derived from the decided cases.

79. Rule 63.31 of the Supreme Court Rules provides:

"Except as provided by these Rules or any order of the Court costs shall be taxed on a party and party basis".

83. 21 The general rule is thus that costs follow the event and that the successful party will be awarded costs on a party and party basis. It is recognised that an award of costs on a party and party basis will be likely to leave the successful party out of pocket.

86. Rule 63.28 of the Supreme Court Rules provides:

"Subject to this Part, costs in a proceeding which are to be taxed shall be taxed on-- (a) a party and party basis; (b) a solicitor and client basis; or (c) an indemnity basis; or (d) such other basis as the Court may direct".

90. Rule 63.30 of the Supreme Court Rules provides:

"On a taxation on a solicitor and client basis all costs reasonably incurred and of reasonable amount shall be allowed".

94. Rule 63.30.1 of the Supreme Court Rules provides:

"(1) Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred. (2) Any doubt which the Taxing Master may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable".

98. In PCRZ Investments Pty Ltd v National Golf Holdings Ltd & Anor[1] Chernov J.A. (with whom Callaway and Buchanan J.J.A agreed) reiterated the policy reasons for maintaining party and party as the usual basis for an award of costs.

101. His Honour stressed that the appellant in that case, although unsuccessful, was clearly entitled to seek the aid of the Court in determining its claim. Although the appellant was unsuccessful, as "it has not been suggested that the appellant has engaged in misconduct in respect of the proceeding or brought it for an ulterior purpose or that the institution of it was patently unreasonable... to require the appellant to pay the costs on a higher level is tantamount to punishing it impermissibly for bringing such an action"[2].

104. Those observations on policy apply with equal force to the position of an unsuccessful defendant who defends a claim bona fide, reasonably and without misconduct in the proceeding.

107. Although recognising that "it may be in practice that the gap between [solicitor and client] costs and party and party costs is now too great" Callaway J.A. observed that the gap "should not lead judges into too readily opting for an extraordinary order"[3].

110. In Colgate Palmolive Company v Cussons Pty Ltd[4] Sheppard J. stated:

"The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis. In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course.... Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud (both referred to by Woodward J in Fountain and also Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo_); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in_ Ragata_) or in wilful disregard of known facts or clearly established law (Woodward J in_ Fountain and French J in J-Corp_; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in_ Ragata_); an imprudent refusal of an offer to compromise (eg_ Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Kent ((SC(NSW)(CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records_). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis_[5]."

114. In Ugly Tribe Co Pty Ltd v Sikola[6] Harper J. stated :

" In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling_. Special circumstances must be present to justify such a departure:_ Australian Electoral Commission v Towney (no. 2_). These include:_ (i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd_. [1988] FCA 202; (1988) 81 A.L.R. 397._ (ii) The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 A.L.R. 131. (iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French, J., 3 May 1991). (iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies, J., 5 March 1993) (v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch.59. (vi) The commencement or continuation of proceedings in wilful disregard of know facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No. 2) [1993] FCA 42; (1993) 46 I.R. 301. (vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided the trial: National Australia Bank v Petit Breuilh (No. 2) (unreported, [1990] VSC 395, 18 October 1999)[7]. The categories of special circumstances are not closed: Tetijo Holdings_,_ supra_. The cases must not, therefore, be read "in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion":_ National Australia Bank v Petit-Breuilh_,_ supra[8]."