Muriti v Prendergast

Civil Procedure Act 2005, s 101(4), (5) LEGISLATION CITED : Supreme Court Act 1970, s 95(4) Uniform Rules

Harrison v Schipp [2001] NSWCA 13 Lahoud v Lahoud [2006] NSWSC 126 CASES CITED : Oshlack v Richmond River Council (1998) 193 CLR 72 Muriti v Prendergast [2005]NSWSC 526 Rosniak v Government Insurance Office (1997) 41 NSWLR 608

Vincent Carl Muriti (First Plaintiff) Keanlong Pty Limited (Second Plaintiff) PARTIES : John Francis Prendergast (First Defendant) Rolcross Pty Ltd (Second Defendant) Worthbrook Pty Ltd (Third Defendant)

FILE NUMBER(S) : SC 5094/04; 2271/05; 2883/05; 2889/05; 4395/05

COUNSEL : Mr J W J Stevenson SC/ Mr G Curtin for Applicants Mr C R Newlinds SC/Mr P E Newton (on 3 August 2005) and Ms J A D Needham SC (on 2 November 2005) for Respondents

SOLICITORS : Henry Davis York for Applicants Levitt Robinson (Phillips Fox and others previously) for Respondents

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5094/04; 2271/05; 2883/05; 2889/05 and 4395/05 - MURITI & ANOR v PRENDERGAST & ORS JUDGMENT ON COSTS 1 HIS HONOUR: These reasons are concerned, in the first instance, with applications by Mr Muriti and Keanlong Pty Limited ("Keanlong") for orders that costs should be payable to them by the respondents (Mr Prendergast and certain companies in which he is interested), in respect of various matters dealt with by the Court involving the parties, on the indemnity basis, and secondly, that an order should be made for the payment by the respondents of interest on the costs payable by them pursuant to the various orders for costs made in these proceedings. 2 I shall deal with the question of indemnity costs before turning to the question of interest on costs. There is no doubt that the Court has a wide discretion in respect of the orders it may make dealing with costs, but the discretion is not an unregulated one, as, for example, is demonstrated by Harrison v Schipp [2001] NSWCA 13 at [132] et seq. The discretion may not be exercised upon grounds which are outside the limits of legal principle. In that case, it was held by the Court of Appeal to be wrong to use an order for indemnity costs as a means of compensating the successful plaintiff more fully for a breach of fiduciary duty. However, Giles JA (with whom Handley and Fitzgerald JJA agreed) said (at [139]): "Departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down. Some of the matters thought to justify it are collected by Sheppard J in Colgate-Palmolive Pty Ltd v Cousins (1993) 46 FCR 225 at 233 - 4."

In a frequently cited passage, Gaudron and Gummow JJ, in their joint judgment in Oshlack v Richmond River Council (1998) 193 CLR 72 at 89, said: "In may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part."

In the light of the decision in Harrison v Schipp the "relevant delinquency" to which their Honours referred must be understood as related in some way to the institution, defence or conduct of the proceedings, not to the nature of the cause of action out of which they have arisen. 3 It is unnecessary for an understanding of the questions raised upon the present application, and of the basis on which I have concluded it must be determined, to examine in detail all of the circumstances that may justify an order for indemnity costs, but I shall refer to one further decision of the Court of Appeal, Rosniak v Government Insurance Office (1997) 41 NSWLR 608. There, Mason P (with whom Clarke AJA relevantly agreed, Meagher JA dissenting, not upon a question of principle, but upon the exercise of the discretion in the circumstances) referred (at 615) to the case as one where the trial judge had held "this was a case where the plaintiff, properly advised, should have known that she had no chance of success on the [particular] issue". After citing several authorities, Mason P said (at 616): "Later cases have emphasised that the discretion to depart from the usual 'party and party' basis for costs is not confined to the situation of what Gummow J described as the 'ethically or morally delinquent party' [his Honour referred to a number of further authorities]. Nevertheless the court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity." 4 The first of the matters in which an order for indemnity costs is sought is a motion for leave to terminate the contract out of which the whole stream of litigation between the parties arises, of which specific performance had been ordered and in relation to which a rectification order had been made only shortly before the motion was taken out. By way of counter-motion, declarations and orders in respect of the contractual rights and obligations of the parties were sought by Mr Muriti and Keanlong. I delivered judgment on 2 June 2005 on these issues, after a hearing which occupied 23, 24, 25 and 26 May 2005: Muriti v Prendergast [2005] NSWSC 526. 5 The basis on which indemnity costs are sought in respect of the proceedings upon the motion for leave to terminate the contract is that the bringing and prosecution of it were, in the circumstances, "unreasonable conduct" in the sense in which Mason P used that expression in Rosniak v Government Insurance Office or a "relevant delinquency" in the sense in which that expression was used by Gaudron and Gummow JJ in Oshlack v Richmond River Council. It is contended that Mr Prendergast, properly advised, should have known his application was bound to fail, and furthermore that the manner in which it was conducted was high-handed, extreme and entirely unjustified. 6 It is unnecessary to describe the issues in detail in these reasons since the judgment to which I have referred is itself quite full. It is sufficient to say that the fundamental basis on which it was attempted to show that Mr Muriti and Keanlong had repudiated the contract was that certain contentions put forward by their solicitors, in relation to the effect of the contract and the basis on which settlement of it should proceed, were so plainly erroneous as to demonstrate a lack of bona fides and a determination not to be bound by the contract according to its true meaning. Not only did the Court reject these contentions, but it also made declarations, upon the counter-motion brought by Mr Muriti and Keanlong, that the propositions their solicitors had maintained were indeed correct. At the hearing of the present application, much was said by counsel for Mr Prendergast and the companies on his side of the record to demonstrate that the propositions for which they had contended, although rejected, were reasonably arguable. It seems to me that this misses the point. Accepting that there was an argument available, and assuming they wished to have it determined, it was open to them to do what Mr Muriti and Keanlong eventually did, that is, to take out a motion for declarations. They did not do that. What they did was assert with much vehemence, but no discernible logical foundation, that the mere raising of the issues by the solicitors for Mr Muriti and Keanlong demonstrated repudiation of the contract. Upon the authorities dealing with repudiation, which are discussed in the earlier judgment, and in the circumstances of the case, this was really a hopeless proposition. In my opinion, the application for indemnity costs succeeds in respect of the costs of and incidental to the motion for leave to terminate the contract for alleged repudiation. But as there were issues to be determined in respect of the propositions which were involved in the counter-motion for declarations and orders in respect of the contractual rights and obligations of the parties, Mr Muriti and Keanlong should have those costs referable only to the counter-motion, which succeeded, but on the usual party and party basis. 7 The second application for indemnity costs relates to certain proceedings for winding up orders in which oppression was alleged by Mr Prendergast and winding up of several of the companies involved was sought on the just and equitable ground. The application for indemnity costs is brought in matter number 2889 of 2005. However, upon the termination of the proceedings in respect of the motion and counter-motion in matter number 5094 of 2004 to which I have just referred, it was accepted that the winding up proceedings could not succeed and orders were made for their dismissal with costs. The costs order, made in unqualified terms, must be construed as an order for party and party costs. It has since been entered, and that was done before the argument of the present application. In those circumstances, there is a difficulty about making now an order for indemnity costs in relation to the application for winding up orders. But in any case, the application did not get very far at all before Mr Prendergast agreed not to proceed with it and quite shortly thereafter agreed to its dismissal. I would not be inclined, in the circumstances, to make an order for indemnity costs in that matter. The "relevant delinquency" related, not so much to it, but to the motion for leave to terminate the contract. 8 The third matter in which indemnity costs are sought is an application which was made for an order requiring the resignation of Mr Prendergast as a director pursuant to a clear and express term of the contract. The application was made in matter number 2883 of 2005. This application involved a relatively small amount of evidence, but Mr Prendergast's resistance of it was plainly without any arguable justification. Yet the attitude adopted by Mr Prendergast was such as to compel Mr Muriti to incur the expense of pursuing the issue to the point of seeking an order authorising a Court official to sign a resignation on Mr Prendergast's behalf before finally Mr Prendergast signed a resignation. In my opinion, Mr Prendergast's defence and persistence in his defence of this application require an order for indemnity costs from the date of service of the application. In respect of the costs up to the date of service and including service, the order should simply be an order for party and party costs. 9 The final matter with which these reasons are concerned is the question of interest on costs, which relates to proceedings number 5094 of 2004 and also the related proceedings in 2271 of 2005, 2883 of 2005, 2889 of 2005 and 4395 of 2005. 10 By s 95(4) of the Supreme Court Act 1970, it was provided: "If an order is made for the payment of costs, the Court may order that interest is to be paid on the amount so ordered, at the prescribed rate referred to in subsection (1), from the date or dates when the amount in respect of costs was duly paid."

By s 101 (4) and (5) of the Civil Procedure Act 2005 it is provided: "(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs. (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the court may order."

By subsection (7) of the same section, "prescribed rate of interest" is to be understood as referring to the rate prescribed by the Uniform Rules for the purposes of s 101. 11 I have been referred to a decision of Campbell J in Lahoud v Lahoud [2006] NSWSC 126, where his Honour said (at [82]): "There is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [10] per Barr J; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [23] - [25] per Einstein J; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10] per Grove J; Davies v Ku-ring-Gai Municipal Council [2003] NSWSC 1010 at [7] per Austin J."

His Honour went on to say: "83 To the extent to which the plaintiffs have been out of pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out of pocket in that way [his Honour cited a number of authorities]. Given the length of time the proceedings have been on foot and the extensive preparation, the amount by which the plaintiffs have been out of pocket could be large. It is relevant that the plaintiffs, and the defendants, each conduct businesses and so the amounts which the plaintiffs have had to pay to finance the litigation is [ sic ] likely to be money which otherwise could have been put to a productive use. Conversely, the defendants, by not being required to pay costs until some time in the future when the costs are agreed or assessed, are likely to have been able to retain, for their own productive use, the amount of those costs. … 85 In all the circumstances, the appropriate way of calculating interest on costs is to ascertain the total of the amounts which the plaintiffs have paid and are liable to pay for costs and disbursements, ascertain the total amount of costs and disbursements allowed on assessment, calculate the percentage which the total amount allowed on assessment bears to the total costs and disbursements which the plaintiffs have paid or are liable to pay, and allow the plaintiffs interest on that percentage of each payment which they have made from time to time on account of costs and disbursements. … 87 I see no reason for ordering interest to accrue at any rate other than the rate set out in Schedule 5 of the Rules . 88 When judgment is given for a sum of money which is ascertained, it is usual for post-judgment interest to run on that sum of money until such time as the judgment has been paid. An order for payment of interest on costs operates somewhat differently, in that the amount of the costs is not quantified at the time of making of the order. Further, a measure of co-operation is needed to quantify that order for costs. If it were to happen that Joseph's interests were to delay in obtaining an assessment of costs, the result could be that Victor was obliged to pay interest, at the comparatively high rates of Schedule 5, during the period that Joseph was delaying. There is no basis in the evidence for concluding that it is likely that Joseph will delay assessment of the costs, but I do not think it right that Victor should be at risk of having to continue to pay interest if Joseph were to delay assessment of the costs, either deliberately, or through some unplanned happening like illness. I will deal with that possibility by making an order that the interest on costs runs until the payment of the costs is made, or further order, and reserving further consideration of the question of whether interest on the costs should continue to run." 12 In my opinion, the considerations to which Campbell J adverted in Lahoud v Lahoud are applicable here. I do not accept an argument presented on behalf of Mr Prendergast contending that, effectively and in substance, the sum of $1.5 million paid by or on behalf of Mr Muriti was contributed to as to fifty per centum by Mr Prendergast. I think the true position is it was wholly attributable to Mr Muriti and, if it had not been paid out in respect of costs and disbursements, including experts' fees and counsel's fees, it would have been productive for business purposes or investments to the benefit of Mr Muriti. In my opinion, an order for interest on costs (expressly including in that expression, for the avoidance of doubt, disbursements) should be made. It should be made in the terms proposed by Campbell J in Lahoud v Lahoud under s 101 of the Civil Procedure Act and the Rules, but if that Act was not available, I would make it under s 95 of the Supreme Court Act. 13 The orders I have indicated should be made in favour of the applicants for costs and interest on costs and the applicants should have their costs of the present applications on the party and party basis except such costs as are solely attributable to the application for indemnity costs in matter number 2889 of 2005, in relation to which the respondents to that application should have their costs solely attributable to it as between party and party. It is so ordered.

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