Naomi Marble & Granite P/L v FAI & All Risks Management P/L [1998] QSC 18

Supreme Court of Queensland|1998-03-12|Before: Risks Management P, Shepherdson J

2. Applications by both defendants against Plaintiff for indemnity costs - two bases 2-34

3. First basis of defendants' applications against plaintiff for indemnity costs - 5-15

4. Second basis of defendants' applications against plaintiff for indemnity 15-34

(a) pursuing fraudulent claims against defendants and attempting 15-21

(b) prolonging trial by making allegations of fact which plaintiff 21-27

(d) imprudent refusal of offer to settle made by each defendant 32-34

5. First defendant's claims against non-parties for costs on indemnity basis

[Naomi Marble & Granite P/L v. FAI & All Risks Management P/L]

On 4 April 1997 I handed down my reasons for judgment in this action and gave judgment for each defendant against the plaintiff. I did not then deal with the matter of the costs of the action - this was stood over to a later date as counsel for the first defendant said that his client might well seek orders for costs against persons who were not parties to the action. All parties agreed to the matter of costs being adjourned.

The first defendant has since sought orders that its costs of and incidental to the action including reserved costs be taxed on an indemnity or solicitor and client basis and paid by the plaintiff and four other persons. Those four other persons are:-

(a) Anna Maria Hunter of 438 St Vincents Road, Nudgee (also known as Ann Hunter, Anne Hunter, Anna Maria Morales and Anna Maria Pitts);

(b) Edward Pedro Morales of Arthur Gorrie Correctional Centre;

(d) Anna Morales also known as Ana Morales of 88 Finnie Road, Deagon

The second defendant seeks its costs of and incidental to the action including reserved costs on an indemnity basis against the plaintiff only.

The proceedings now before me are brought on notice of motion by the first defendant addressed to and served personally on each of the above four named persons and also by motion made orally by both defendants against the plaintiff.

Of the above four persons named in and served with the notice of motion only Kenneth John Pitts has appeared and he did so in person . Mr Crowther of Crowther Beattie, the plaintiff's solicitors on the record, appeared as a matter of courtesy - he had no instructions from the plaintiff in regard to the applications for costs against the plaintiff. The plaintiff is now in liquidation. I gave him and his firm leave to withdraw.

The applicant defendants relied on affidavit evidence from Mark William Waller a member of Clayton Utz the solicitors for the first defendant and from Craig Douglas McIver, a solicitor with Carter Newell the solicitors for the second defendant. They also relied on other evidence some of which was in evidence during the trial as well as findings made in my reasons for judgment of 4 April 1997.

On the applications for costs Mr O'Donnell QC appeared for both defendants.

The reasons I now give should be read together with the reasons for judgment I delivered on 4 April 1997.

By order of this Court the plaintiff was placed in liquidation and pursuant to that order the liquidation took effect on and from 6 May 1997. A report of the liquidators Messrs Burns and Moloney shows only one asset of which they are aware - a Falcon GL motor vehicle.

Before I gave Mr Crowther leave to withdraw he satisfied me that the liquidators were aware of the applications for indemnity costs against the plaintiff. I gave leave to the defendants to proceed with these applications for such costs against the plaintiff.

The application against the plaintiff for indemnity costs is on two bases; they are:-

(i) that a Calderbank offer to settle made by each defendant was not accepted by the plaintiff and in the end result was not bettered;

(ii) that there was misconduct on the plaintiff's part in the following respects:-

(a) in pursuing the claims against the first and second defendants which claims I found to be fraudulent, the plaintiff attempted to deceive not only the first and second defendants but also this Court;

(b) prolonging the trial by making allegations of fact which on the findings made by me the plaintiff must have known to be false;

(c) pursuing the claims against the first and second defendants which, given the facts as found by me and as found to have been within the knowledge of the plaintiff, must have been to the plaintiff's knowledge, hopeless;

(d) an imprudent refusal of the offer to settle made by each of the first and second defendants.

On the first basis the defendants can hope to obtain indemnity costs from and including 13 June 1996 whereas on the second basis they hope to obtain indemnity costs of the whole action.

On the application for indemnity costs the starting point is that in the ordinary case costs follow the event and the Court will order the unsuccessful party to pay the costs of the successful party on a party and party basis. That basis falls short of absolute indemnity. The award of costs on an indemnity basis, that is on the basis of solicitor and client, may in the discretion of the court be awarded against an unsuccessful plaintiff. In Halsbury's Laws of Australia Vol.20 at para.325-9600 the authors say that costs on the solicitor and client basis may be awarded against an unsuccessful plaintiff in a number of categories which are set out in that paragraph. Those categories include:-

1. Where a plaintiff has proceeded against a defendant with high handed presumption.

2. Where the court's process has been used for an ulterior purpose.

3. Where some unusual or special feature in the case justifies the court so awarding costs.

4. Where allegations of fraud have been made when the plaintiff knew them to be false or irrelevant to the issues.

5. Where it appears to the court that a plaintiff properly advised should have known he or she had no chance of success.

I have not set out all the categories from para.325-9600 - only those on which the defendants rely.

The categories in which costs on an indemnity basis may be ordered are not closed (re Wilcox; ex parte Venture Industries Pty Ltd (1996) 141 ALR 727 at p.729 and cases there cited).

As Hill J. said in John S Hayes & Associates Pty Ltd v. Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 203:-

"In each case it will be necessary to look at the particular facts and circumstances to see whether an exercise of discretion to order costs on an indemnity basis is warranted."

I therefore do not read para.325-9600 in Halsbury's Laws of Australia as in any way circumscribing the situations in which a court may award costs on an indemnity basis.

I should at this stage say that a number of decisions which are relevant to this matter are decisions of the Federal Court of Australia concerning that court's jurisdiction to award indemnity costs.

In re Wilcox (supra) Cooper and Merkel JJ set out the principles generally applied in the Federal Court. Those principles included the following:-

"In order to exercise the discretion judicially the following principles have been accepted by the court as applicable:

(a) the court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the court in departing from the usual course;

(b) the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the court in departing from the usual course;

(c) while the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis."

In my view those principles are equally applicable in this Court. The decision of Moynihan SJA in re Talk Finance and Insurance Services Pty Ltd (1994) 1 Qd.R 558 at 560 affirms this view.

I turn now to the first basis on which the defendants seek indemnity costs against the plaintiff. That is that a Calderbank offer to settle made by each defendant was not accepted by the plaintiff and in the end result was not bettered.

Before proceeding further I should at this stage say that Order 91 rule 1 of the rules of this Court confers on me power to award costs in this action.

By letter dated 12 June 1996 addressed to the plaintiff's solicitors marked "Without Prejudice" and hand delivered on that day the solicitors for the first defendant said (in reference to this action):-

"Our client has instructed us to offer to settle this matter on the following conditions:-

1. There be judgment in the action for the first defendant against the plaintiff including an order that the plaintiff do pay the first defendant's costs of and incidental to the action to be taxed;

2. The first defendant agree not to enforce any costs so ordered and the plaintiff and the first defendant agree not to enforce any other costs orders made to date;

3. The first defendant release its security over the Morales' residence at 88 Finney (sic) Road, Deagon;

4. The plaintiff execute a deed of release, discharge and indemnity on terms satisfactory to the first defendant;

5. The terms listed in paragraphs 2,3 and 4 remain confidential to the parties except for the purposes of giving effect to those terms.

This offer remains open for acceptance until 1.00 p.m. tomorrow 13 June 1996.

In the event that the offer is not accepted our client will continue to defend this matter to the conclusion of the trial and we reserve our client's rights to bring this letter to the attention of the court in support of a claim for indemnity costs against the plaintiff or anyone who has instigated or supported the action. The principal terms of this offer are not open for negotiation."

This offer was not accepted. I pause to say that 12 June 1996 was the 12th day of the trial and on that day Ann Hunter the managing director of the plaintiff was being cross-examined by counsel for the second defendant. Her cross-examination by counsel for the first defendant had concluded on 6 June 1996. By 12 June 1996 counsel for the second defendant had been cross-examining Ann Hunter for 5 days. Almost all her evidence was given during the first 18 days of the trial - she returned for further cross-examination on 25 and 26th July 1996, the 33rd and 34th days of the trial.

I note that Order 26 rule 9 of the Rules of the Supreme Court does not apply to the present situation where each of the two defendants has succeeded completely against the plaintiff. So far I have mentioned only the offer to settle made by the first defendant.

The second defendant made a written offer by letter also dated 12 June 1996, addressed to the plaintiff's solicitors and again delivered by hand on 12 June 1996. It too was marked "without prejudice" and, omitting formal parts, read:-

"The eleventh day of the trial has now concluded. We maintain the second defendant's earlier stance, that being that the plaintiff's case against it is without merit.

On that basis alone, our client is prepared to make the following one off offer:-

1. There be judgment in the action for the second defendant against the plaintiff including an order that the plaintiff do pay the second defendant's costs of and incidental to the action to be taxed;

2. The second defendant agree not to enforce any costs so ordered and the plaintiff and the second defendant agree not to enforce any other cost orders made to date;

3. The second defendant release its security over the Morales' residence at 88 Finney (sic) Road, Deagon;

4. The plaintiff execute a deed of release, discharge and indemnity on terms satisfactory to the second defendant;

5. The terms listed in paras. 2, 3 and 4 remain confidential to the parties except for the purposes of giving effect to those terms.

This offer remains open for acceptance until 1.00 p.m. Thursday 13 June 1996.

Please note that if the plaintiff does not accept the offer contained in this letter then the second defendant shall reserve its right to produce this letter in argument for costs.

Furthermore, if the plaintiff does not accept this offer, the second defendant reserves its right to seek solicitor and own client costs from the plaintiff together with costs on an indemnity basis from the plaintiff or anyone who supported or instigated the action.

Finally, do not construe this as the first of a series of offers. If it is not accepted we are instructed to proceed with the trial of this action to its finality.

We look forward to hearing from you in response to this letter."

This offer was rejected by the solicitors for the plaintiff.

"Calderbank" used in the term `Calderbank letter' derives from Calderbank v. Calderbank (1976) Fam. 93; (1975) 3 WLR 586; (1975) 3 All E.R.333. In Cutts v. Head (1984) Ch.290 the Court of Appeal held that an offer to settle made by letter marked "without prejudice" but subject to a clearly expressed reservation of the right to refer to it on the issue of costs is admissible for that purpose in all cases where the issue is more than a simple money claim so that a payment into court was not the appropriate way of proceeding. Cutts v. Head extended the Calderbank letter beyond family disputes and into other divisions of the court. Although in the Supreme Court of Queensland payment into court has been replaced by offers to settle (see Order 26) the present action was, in any event, more than a simple money claim.

Cutts v. Head held that when the plaintiff's offer to settle was taken into consideration on the question of costs, the right order could be to award the plaintiff all his costs from the date when his offer ought reasonably to have been accepted. Cutts v. Head has been followed in Queensland - Johns Perry Industries Pty Ltd v. International Rigging (Aust) Pty Ltd (1988) 2 Qd.R.556 (Ryan J) - and in New South Wales (see for example Wallace v. Baulkham Hills Smash Repairs Pty Ltd (1995) 2862 of 1995 reported in Butterworths unreported judgments, (Young J) Messiter v. Hutchinson (1987) 10 NSWLR 525 (Rogers J); Smallacombe v. Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 (Spender J). In MGICA (1992) Ltd v. Kenny & Good Pty Ltd (No 4)(1996) [1996] FCA 862; 140 ALR 707, Lindgren J. applied Messiter v. Hutchinson (supra) and Smallacombe v. Lockyer Investment Co. Pty Ltd (supra).

As mentioned earlier, Order 26 rule 9 does not cover the present situation where the plaintiff failed entirely. In New South Wales the relevant court rule was similar to the Queensland Order 26 rule 9 and in Multicon Engineering Pty Ltd v. Federal Airports Corporation (1996) 138 ALR 425 Rolfe J. of the Supreme Court of New South Wales Common Law Division dealt with the relevant N.S.W. rule. His Honour considered an application by a successful defendant for indemnity costs the basis of which was that the plaintiff had refused an offer of compromise by the defendant. The case head note shows that indemnity costs were sought with respect to an action which had been brought against the defendant under s.52 of the Trade Practices Act 1974 (Commonwealth). The proceedings were instituted on 13 March 1991 and were bitterly contested on all points. The matter went before a referee on 7 May 1992 and the hearing lasted several hundred days. The referee's report was not available until 10 February 1995. The referee's conclusions were that the plaintiff's claim be dismissed, that the defendant was entitled to liquidated damages on its cross-claim in the sum of $1,607,000 of which all but some $293,000 had been paid, that interest be paid on the outstanding amount and that the question of costs be reserved. On 11 March 1996 the referee's conclusions were adopted by the court. The plaintiff did not dispute that it was liable to pay the defendant's costs but put in issue the level at which they were to be paid.

On 17 March 1993 the defendant had written to the plaintiff making an offer of settlement on terms, among others, that judgment be entered for the defendant against the plaintiff, that the defendant withdraw its cross-claim but keep liquidated damages applied to that date, that each party pay its own costs and that the defendant pay the sum of $3M by way of variation payment without any admission of liability. The plaintiff rejected the offer. Just prior to March 1993 key "reliance witnesses" had given evidence for the plaintiff before the referee but had failed to support the plaintiff's case.

On 28 April 1993 the plaintiff made an offer of compromise in accordance with part 22 of the Supreme Court Rules NSW; it stated that the plaintiff agreed to compromise the claim and cross-claim in the proceedings on terms that the defendant pay the plaintiff $5M and such costs as were awarded to the plaintiff by the court. By letter dated 30 April 1993 the defendant rejected the offer but renewed its offer of settlement as set out in the letter of 17 March 1993. On 28 May 1993 the defendant filed a notice of offer of compromise pursuant to part 22 whereby it offered to compromise the action on the basis that the plaintiff pay the sum of $1M in settlement of the claim and cross-claim. The offer was not accepted. On 20 July 1995 after the referee published his report, the defendant wrote to the plaintiff with a proposal to settle on terms that a verdict be entered for the defendant, that the defendant's cross-claim be dismissed, that the defendant retain any liquidated damages already deducted and that the plaintiff pay 60 per cent of the defendant's actual costs. By letter dated 14 November 1995 the plaintiff rejected the offer claiming that there were a number of errors in the referee's report. Rolfe J. decided that the costs of the defendant should be paid by the plaintiff on a party and party basis up to 31 March 1993 and on an indemnity basis from 1 April 1993 to 21 February 1996. He awarded costs on the motion before him on a party and party basis.

In quite lengthy reasons Rolfe J. reviewed a number of authorities concerning Calderbank letters of offer of compromise and their refusal. A number of those authorities showed that a Calderbank letter was but one factor only in the exercise of the discretion to award indemnity costs. Rolfe J. referred to the relevant rules and said (at p.433):-

"Each rule therefore assumes that the party making the "successful offer" ie an offer which is not bettered by the order or judgment in favour of the offeree, is entitled to have costs paid on the bases stated "unless the Court otherwise orders", the justification for that entitlement being nothing more than the making of a "successful offer". Rule 5 assumes that the plaintiff will recover some order or judgment and hence provides for the plaintiff's costs up to the making of the offer. There is no rule which provides for a defendant having made an offer where the plaintiff fails entirely, such that the plaintiff is not entitled to any costs. This is strange and gives rise to some of the difficulties. However, this court has held that where a completely successful defendant has made an offer of compromise, either by a document so entitled or by a Calderbank letter, to both of which I shall refer as an offer or an offer of compromise, the same principle should be applied, viz that as from the date of the offer the plaintiff should pay the defendant's costs on an indemnity basis, unless the court otherwise orders. Thus the obligation is on the plaintiff to satisfy the court that such an order should not be made, the presumption being that the making of the successful order prima facie entitles the defendant to costs at that level."

"In my opinion the proper approach to take to an offer of compromise whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer which unreasonableness is demonstrated prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged. The relevant rules provide that costs will be paid on the basis set out therein `unless the court otherwise orders'. My understanding is that the court is required to proceed on the basis that it should make the order provided for by the Rules unless the party rejecting the offer is able to establish good reason for having done so.

It seems to me anomalous that there is no provision whereby a defendant, which is totally successful, is placed in the same position as a plaintiff, which is totally successful. In my view the Rules should be reviewed. The decisions of this Court have overcome the anomaly by an application of similar reasoning in the event of an offer of compromise by way of a Calderbank letter. Cole J observed that by taking that step the defendant which is ultimately successful has done everything it can to extricate itself from expensive and extensive litigation and it seems to me that if a defendant has done that and his prognostication of the case proves to be correct in the relevant sense it is totally unfair that it should be required to pay costs as if it had not acted in that way. In the circumstances the relevant unreasonableness of the recipient of the offer is the failure to accept what is established to be an appropriate offer. That is well illustrated in this case. FAC took as it turned out a very real commercial risk in making its offer on 17 March 1993. If that offer had been accepted MCE would have been immeasurably financially better off and conversely FAC would have been worse off.

That is the starting point from which I propose to proceed and in my opinion it is not only consistent with the thrust of the Act and Rules, the general philosophy behind the desirability of settlements and the decisions of this court, but it also removes from the arena questions to be considered in relation to indemnity costs which are really only relevant to a consideration of costs on that basis absent any offer of compromise. In saying what I have I acknowledge the force and accept the applicability of the principle that each case must be determined by an exercise of judicial discretion having regard to the particular facts of each case. Thus the prima facie position having been established the court must be satisfied that an order for indemnity costs is not appropriate. As I have indicated, if that is not done there is a failure to exercise the judicial discretion."

Rolfe J. by use of the presumption to which His Honour referred has placed upon the unsuccessful plaintiff the burden of, in effect, satisfying the court why an indemnity costs order should not be made in favour of the totally successful defendant. I must say, given the absence from O.26 of any rule which covers the situation of a totally successful defendant, that in my view this Court in the exercise of its discretion is entitled to make an order, that the totally successful defendant who has earlier made a Calderbank offer be placed in the same position as or at least in no worse position than the plaintiff referred to in O.26, r.9 sub-rule 1. Order 26 Rule 9(1) reads:-

9.(1) Where the plaintiff makes an offer to settle which is not accepted by the defendant and the plaintiff obtains a judgment no less favourable than the offer to settle the Court shall order the defendant to pay the plaintiff's costs fixed on a solicitor and client basis, unless the defendant shows that another order for costs is proper in the circumstances.

In my respectful view, the approach taken by Rolfe J. in using the presumption places the wholly successful defendant in a similar position - though not quite as strong a position - as the successful plaintiff to whom sub-rule 9(1) applies.

I respectfully adopt the approach taken by Rolfe J. in respect of Calderbank offers and in so doing I recognise that in MGICA (1992) Ltd v. Kenny and Good Pty Ltd and another (No 4) (1996) 140 FLR 707 Lindgren J. declined to follow Rolfe J's view that non-acceptance of an offer which the ultimate result established had favoured the offeree, itself, prima facie demonstrated unreasonable conduct and an entitlement to indemnity costs with the result that the offeree bore the onus of showing why indemnity costs should not be ordered.

I also note from MGICA (No 4) that Lindgren J. preferred to follow two single judge decisions of the Federal Court of Australia. In my view MGICA is distinguishable from the present case because of the differences between Order 23 of the Federal Court Rules and Order 26 rule 9(1) and because the relevant rules of the New South Wales Supreme Court considered by Rolfe J. were similar to Order 26 rule 9 of this Court.

In the case before me, comparisons between the offers made by the defendants and the ultimate results obtained by the plaintiff when I delivered judgment shows very clearly how much better off the plaintiff would have been had it accepted the offers. I make these comparisons in order to determine the level of costs to which the defendants as offerors are entitled (see Padmanor Investments Ltd v. Soundcraft Electronics Ltd (1995) 4 All. E.R. 683 at 690-2 and Multicon Engineering (supra) at p.446). I make the following points:-

1. Each offer shows that the costs orders against the plaintiff were costs on a party and party basis only, but more importantly each defendant agreed not to enforce such costs orders and in addition not to enforce other costs orders which had been made against the plaintiff on or before 12 June 1996. In fact on that date the first defendant had costs orders against the plaintiff as follows:-

(a) pursuant to order of Lee J. pronounced 21/09/94 -

(b) pursuant to order of White J. pronounced 02/02/95 -

not taxed but bill in itemised form prepared by May 1995 -

On 12 June 1996 the second defendant had a costs order against the plaintiff pursuant to order of White J. made 2/2/95

2. Each defendant was to release its security over the land and dwelling house at 88 Finnie Road, Deagon, registered in the names of Diego Morales and Anna Morales. This security was limited to $79,000 being security for each defendant's costs. Thus the premises at 88 Finnie Road were to be freed from any encumbrance in favour of the defendants.

3. Confidentiality pursuant to condition 5 was to be ensured.

In making these comparisons I expressly leave out of account the extent to which the plaintiff had, by Ann Hunter its principal witness, given sworn evidence in support of its case against each defendant and the fact that that evidence consisted of lies by her on matters on which I have made findings in my reasons for judgment delivered on 4 April 1997. I shall return to these and other matters which become relevant when I consider the second basis of the defendants' applications for indemnity costs against the plaintiff. The second basis, if successful, will result in the plaintiff being liable for all the defendants' costs of the action on an indemnity basis whereas the unreasonable refusals of Calderbank offers will result in a lesser order for indemnity costs.

In summary then, on 12 June 1996 the plaintiff was presented with the above offers which, if accepted, would have brought the case to a speedy end on the terms and with the benefits for the plaintiff which I have set out above. History records that the plaintiff refused to accept the offers and failed to obtain a result better than each offer. The consequences of those refusals have been quite adverse for the plaintiff..

As I have said, I respectfully adopt the approach of Rolfe J. in Multicon Engineering Pty Ltd v. Federal Airports Corporation (supra) and particularly where His Honour said (at p.451):-

"In my opinion the proper approach to take to an offer of compromise ... made ... pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer."

I also respectfully adopt the following statement made by His Honour:-

"... the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result."

The plaintiff has not attempted to rebut the presumption by showing that a costs order other than on an indemnity basis should be made .

If I should be wrong in adopting the prima facie presumption approach then, if there is no such prima facie presumption, I would nevertheless unhesitatingly conclude that in this case, because the plaintiff unreasonably refused Calderbank offers from each defendant and failed completely in the action against each defendant, it should pay each defendant's costs on an indemnity basis on and from 13 June 1996.

Considering only the first basis of the defendants' claim for costs against the plaintiff, the defendants should not be saddled with any costs in this lengthy trial beyond the 12th day on which day the defendants each made a generous and sensible offer to compromise. In fact the trial (up to the conclusion of addresses) lasted 126 days.

I turn now to the second basis upon which the defendants seek indemnity costs against the plaintiff. If this second basis is made out then the defendants will each be entitled to recover all costs on an indemnity basis and not merely from and including the 13th day of the trial.

b. Second basis of Claim for Indemnity Costs against Plaintiff -Misconduct of Plaintiff

The defendants rely on 4 related strands of what they submit is misconduct in the plaintiff - I have already set them out but now deal with them seriatim.

(1) In pursuing the claims against the first and second defendants which claims I found to be fraudulent, the plaintiff attempted to deceive not only the first and second defendants but also this Court.

I note the following findings made by me in the reasons for judgment delivered on 4 April 1997 ("my reasons") and on which Mr O'Donnell relies:-

(i) In passages at pp.346 and 347 of my reasons I dealt with the topic "The plaintiffs knowledge that the quotations (Exhibits 227 and 252) did not represent the genuine opinions of the authors". These were quotations from Gary Hutchins (the author of Exhibit 227) and Hugh Murphy (the author of Exhibit 252) and relied on by the plaintiff to found a claim against the first defendant based on those exhibits. I do not propose to repeat all I said on those pages but I shall quote a passage from p.347:-

"I am well satisfied that neither of the quotations Exhibits 227 and 252 did represent the genuine opinion of Hutchins and Murphy respectively at the time each signed the quotation. I am satisfied beyond reasonable doubt that Edward Morales knew this and knew that the quotations were excessively high and that he caused the claim to be made relying on those statements by Hutchins and Murphy in the hope that the first defendant would accept or compromise the claim based on Exhibits 227 and 252. Thus I find the claims were fraudulently made. Edward Morales knowledge is imputed to the plaintiff."

(ii) At pp.354 to 358 of my reasons I dealt with a claim by the plaintiff of a replacement cost of $118,118 for 26 pallets of damaged Spanish terracotta roof tiles. At page 357 I found that the plaintiff had allowed this claim to remain at the exorbitantly high figure of $118,118, that it had never sought reduction and had persisted with the claim throughout a very long trial and made it clear to me that it intended at all times, if it could, to extract $118,118 from the first defendant as the cost of replacing these tiles. I found specifically at p.358 of my reasons that "the plaintiff deliberately exaggerated its claim in respect of the terracotta roof tiles." In my view the plaintiff's conduct to which I have just referred was also an attempt to deceive this Court.

(iii) At p.358 of my reasons in dealing with a topic other than the roof tiles, I found that the plaintiff had claimed against the first defendant for items which it had never owned. I quote part of my reasons from that page:-

"In my view the plaintiff, by claiming in respect of the above items of furniture and equipment has attempted to deceive the Court by asserting that it had bona fide acquired them from Ann Hunter's father for $5,000. It follows then that I should find and I do find that the plaintiff by seeking to recover in respect of these items which it knew really belonged to the creditors of the Elegant Group and Jela also sought to deceive the first defendant. It is in my view a good example of a fraudulent claim by which I am satisfied the plaintiff intended to obtain from the first defendant monies to which it was not entitled - and it did so by deceit.

(iv) At p.359 of my reasons I dealt with the topic "Evidence of disparity between cost to the plaintiff to acquire and what it has sought to recover from the first defendant for the same items." I quote part of the reasons from that page:-

"Leaving to one side the last two items in Exhibit 109 namely the rosa aurora tiles and the boardroom table the total acquisition cost to the plaintiff of all the other items listed in Exhibit 109 is $39,576.34. The total amount which the plaintiff has claimed in respect of the same items is $231,085. In my view these figures lead to the inevitable conclusion that the plaintiff has sought to make a profit from the first defendant of the order of $191,508, a figure which is over 4½ times its capital outlay.

In this portion of my reasons I have dealt with the size of the claim in comparison with the total acquisition cost. I am driven to the irresistible conclusion that the plaintiff clearly intended, by deceit, to obtain from the defendant a far greater sum of money than that to which it would lawfully be entitled. To state the matter another way I find that the overestimate of the plaintiff's loss is so excessive that I can infer and do infer that the claim has not been made honestly but was intended to defraud the first

defendant (see "General Principles of Insurance Law" [6th Ed] of Professor Hardy Ivamy at p.437) I should add that, even if I reduced the $191,508 deficiency by some $108,000 (to compensate for what may have been an initial error in calculating the replacement cost of the terracotta roof tiles) the amount of the claim is still more than double the total acquisition costs of the plaintiff of the items which I have been discussing. Even then I consider that such a claim is so substantial that it is fraudulent."

I should at this stage point out that the same amounts were claimed against both defendants. I accept Mr O'Donnell's submission that given the whole claim brought to this Court was to the plaintiff's knowledge an untrue claim, that is a false claim, it was a claim motivated by greed and intention fraudulently to deceive the defendants and this Court.

Mr O'Donnell has helpfully referred me to a decision of the British Columbia Court of Appeal - Oasis Hotel Limited v. Zurich Insurance Co & Others (1981) 124 DLR (3d) p.455. This case was referred to without disapproval by the High Court of Australia in Knight v. FP Special Assets Limited (1992) 174 CLR 178 at pp.192 and 202. Oasis Hotel is relevant also in respect of the award of costs against non-parties to an action. The facts, taken from the Judgment of the Court delivered by Lambert J.A. were:-

"The plaintiff Oasis Hotel Limited acquired the Allison Motor Hotel in Vernon in March 1994. The hotel was the major asset of the company. The income from the hotel declined sharply from 1974 to 1977. Under a contract of insurance made on March 22 1977, the defendant insurance companies agreed to insure and indemnify the plaintiff company for loss or damage from fire or explosion, to the extent of $850,000 and for loss from business interruption for an additional $100,000.

Carl Surowiec and his wife were the sole shareholders, directors and officers of the plaintiff company. On the night of May 22, 1977 Carl Surowiec deliberately set fire to the hotel. It was destroyed. He was charged with arson and on the basis of the evidence led in that case he was acquitted.

The company filed a proof of loss under the insurance policy. It was signed by Carl Surowiec. The insurance companies declined to pay. The company sued for damages of $950,000, pre-judgment interest and costs. Mr Justice Mackoff found that it was clear beyond any doubt the fire was deliberately set and was accelerated by gasoline. He found Mr Surowiec's evidence in every aspect to be patently untrue and totally incapable of belief. He found that the evidence as a whole led to the irresistible conclusion that Mr Surowiec deliberately set the fire. He dismissed the action with costs.

The plaintiff company was insolvent when it commenced its action. After the action was dismissed the defendant insurers applied to Mr Justice Mackoff for an order that the defendants' costs, on a solicitor and client basis, be paid by Carl Surowiec. Mr Justice Mackoff ordered that the defendant should recover their party and party costs from the plaintiff and from Carl Surowiec. Carl Surowiec brings this appeal from that order.

Carl Surowiec created the cause of action. He did so by an act of arson. He attempted to defraud the defendants. He set the process of the Supreme Court of British Columbia in motion as the instrument of his fraud. He attempted to deceive the defendants by filing a false proof of loss. He attempted to deceive the court by giving false evidence. But in this appeal he says that the court has no power to award costs against him because he was not a party to the action. The action was brought by an insolvent limited liability company."

"I conclude that there is no authority in Canada that either binds me or persuades me to the conclusion that in a case where the Court is made the instrument to perpetrate a fraud the Court cannot award the costs of the proceedings that are instigated as part of the fraud to be paid by the active mind that put the fraud into effect and directed the institution of the Court proceedings ... In my opinion where Mr Surowiec with his wife is the sole owner of all the shares in Oasis Hotel Ltd; and where Mr Surowiec conceives a scheme to defraud the insurers of Oasis Hotel Ltd; and where he puts that scheme into effect; and where he uses proceedings in the Supreme Court of British Columbia as the instrument of fraud; and where he attempts to deceive the Court; then the Supreme Court of British Columbia has power to order that Mr Surowiec pay to the insurers their party and party costs of those proceedings, notwithstanding that he is not a party to the record of those proceedings.

"My second observation is that I do not regard this case as a case about the piercing of the corporate veil. The principles that are applicable are principles about costs in a case involving duplicity and abuse of the Court. But I am satisfied that the order made by Mr Justice Mackoff does not violate the sanctity of the corporate personality. This was a case of fraud. In such cases the individual who conceives and carries out the fraud cannot shield behind a corporation that he controls."

His Honour later pointed out that there was no cross-appeal with respect to Mr Justice Mackoff's refusal to award the costs on a solicitor and client basis.

I accept Mr O'Donnell's submission that in the present case the situation is much the same as in the Oasis Hotel case - the present plaintiff sought not only to deceive and defraud the first defendant but in its claim against the second defendant relied on the same fraudulent claim and that was for the same inflated loss. The plaintiff sought to use the proceedings in this Court as the instrument to perfect its fraud.

I see no reason not to follow the approach of the British Columbia Court of Appeal taken in the Oasis Hotel case - it is a case to which I shall refer again when dealing with the claims for costs against the non-parties. For present purposes I rely also on the attempt by the plaintiff before me to use this Court as an instrument of fraud - an attempt which included 126 days of hearing. I find that that attempt amounted to misconduct on which the defendants may rely in support of their claim for indemnity costs against the plaintiff.

On the topic of "using this Court" Mr O'Donnell in the course of his submissions relied on a finding made by me at p.335 of my reasons. This finding was made in the course of my comments on the credibility of a witness named Rachel Weldon. She was a young woman who was aged 18 or 19 in 1993 at the time she had a relationship with Edward Morales who was then 29 or 30. The plaintiff's counsel cross-examined Weldon in an attempt to assert bias or animosity on her part towards Ann Hunter. He cross-examined Weldon in respect of a tape recording said to be of a telephone conversation between Edward Morales and Rachel Weldon. During that cross-examination it was asserted that the tape recording was genuine and accurate and that what appeared in a certain transcript was an accurate transcription of what speech was heard on the tape recording.

I found (at p.335) that neither of those matters was proven by the plaintiff and that indeed Professor Moody who had examined the tape recording and whose evidence I totally accepted had considerable doubt as to the authenticity of the tape recording.

"The plaintiff intimated in the course of the trial it would call evidence to prove the authenticity of the tape recording and transcript but did neither. When I consider the evidence of Professor Moody and the plaintiff's failure to attempt to prove either the tape recording or the accuracy of the transcript I conclude that Rachel Weldon was the victim of what the first defendant's counsel called an unscrupulous attempt to denigrate her in the eyes of the court. I conclude that attempt wholly failed."

These matters concerning Rachel Weldon illustrated further the plaintiff's willingness to use and actually using this Court for an unscrupulous purpose. Again, these matters concerning Rachel Weldon and the use of this Court were matters on which the defendants are entitled to rely to support their claim for indemnity costs against the plaintiff.

(2) Claim of Misconduct by the Plaintiff in prolonging the trial by making allegations of fact which on the findings made by me the plaintiff must have known to be false.

Before turning to evidence said by Mr O'Donnell to be relevant to this particular matter I refer to a decision of Moynihan SJA on which Mr O'Donnell relies. That was re Talk Finance and Insurance Services Pty Ltd (1994) 1 Qd.R 558 a case which strangely enough concerned two persons involved in the present case - Edward Morales and Pedro Tejero Morales. Not only did Talk Finance involve these two persons but the general facts before Moynihan SJA formed part of the evidence in the case before me. Talk Finance & Insurance Services Pty Ltd advanced monies to Jela Imports & Marketing Pty Ltd to finance the importation of certain material by the latter company and to otherwise provide finance for its operations. A number of documents were prepared and executed. One of them was a mortgage debenture which was not registered within the specified time. An application was made for an extension of time. That application was met with material sworn by Edward Morales and Pedro Tjero Morales and their solicitor. The two Morales were directors of Jela and their material put in issue that the mortgage debenture and perhaps other of the documents had not been executed. It was claimed that the signatures on Jela's behalf and the signatures by the Morales in respect of the other documents were not genuine. His Honour found the evidence established that what might be called the disputed signatures were the genuine signatures of the Morales. Talk Finance sought an order for costs not only against the company but also against the two directors and also that the costs be ordered on an indemnity basis. After satisfying himself that he had jurisdiction to make an order for costs against a non-party to the litigation His Honour said (at pp.559-560):-

"On the view I have taken on the matter the two persons against whom the costs order is sought put in issue the execution of the documents and the validity of their signatures in circumstances where, as I have concluded, they must be taken to have known that they were doing so falsely. That consideration also bears on the question of whether the costs should be ordered on what is commonly described as the indemnity basis. It is of course unusual for such an order to be made in contests between party and party but there is no doubt that it can be made if some circumstance, often described as special circumstances can be pointed to as justifying it ... As I have already dealt with the facts of the case which seem to me to found the exercise of the discretion sought by the applicants, it is perhaps unnecessary to remark that, as I have said, the Morales put in issue something which they must, on the view that I have taken of the matter, have known to be falsely put in issue and despite what might be described as a number of opportunities to rectify the position have persisted in leaving the matter in issue necessitating the matter being dealt with today."

His Honour therefore ordered the company and two Morales to pay the costs of the proceeding including reserved costs taxed on a solicitor and own client basis.

Talk Finance is relevant also to the power to order costs against non-parties but it clearly is authority for the court's power to order indemnity costs against a party which makes allegations of fact which it must have known to be false and which prolong a trial.

In addition to Talk Finance the defendants rely on a decision of Holland J. in Degmam Pty Ltd (in liq.) v. Wright No 2 (1983) 2 NSWLR 354. Holland J. held that where an unsuccessful party has prolonged a trial, by deliberately false defences and allegations of fact, an appropriate order for costs may be that such party indemnify other parties in respect of all their costs with the exception only of costs of an unreasonable amount or unreasonably incurred.

"I do not wish to repeat what I had to say in my reasons of judgment about the merits of the defences and causes of action put forward by the defendant or the manner in which she conducted herself in the course to the litigation and in the witness-box. It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant. As well as that she so conducted herself in the proceedings by multiplying allegation upon allegation and by prevaricating in the witness-box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues."

In my view, the underlined portion of His Honour's comments is equally apt to describe the conduct of Ann Hunter, the managing director of the plaintiff when giving her lengthy evidence to support the plaintiff's case. I do not propose to set out here all the factual assertions made by Ann Hunter on behalf of the plaintiff which in my reasons I found to be false and false to the plaintiff's knowledge. I agree with Mr O'Donnell's submissions those factual assertions did take up the bulk of the trial. The major ones were:-

(i) Ann Hunter's assertions that she had no part in the banking transactions on 30 April and 12 May 1993 about which I made findings on pages 60 and 61 of my reasons.

(ii) Ann Hunter's several denials on the plaintiff's behalf that the signature on Exhibit 147 was hers. Exhibit 147 was an application of 12 May 1993 for a $40,000 bank cheque - I made findings concerning this at pp.58 and 59 of my reasons.

(iii) An assertion by Ann Hunter that she ceased to work for the Elegant Group of Companies in mid or late March 1993 - see my findings at p.25 of my reasons.

(iv) Ann Hunter's assertions that 3 bank cheques totalling $135,000 paid to her in April and May 1993 represented back wages and/or compensation due to her by her brother Edward Morales' companies - see my findings at pp.65 to 68 of my reasons.

(v) Assertions that Ann Hunter had no part in assisting Edward Morales and Pedro Morales on 16 May 1993 to strip the Elegant groups offices at Waterfront Place of their furniture - see findings at p.38 of my reasons.

(vi) Ann Hunter's assertions that the plaintiff company had purchased from Diego Morales the items of office furniture and equipment (formerly in the Elegant Groups offices) which ended up in the plaintiff's premises some of which were the subject of the false and fraudulent insurance claim - see my findings at p.325 of my reasons.

(vii) Ann Hunter's assertions that Edward Morales had played no part in the plaintiff company until after the break-in in November 1993 (following which break-in the claim against the first defendant was made) - see my findings at pp.218-9 of my reasons including my finding that I had no reasonable doubt that she did her best to conceal from me the extent of Edward Morales involvement in the plaintiff.

(viii) Assertions by Ann Hunter that financial benefits given to Edward Morales by the plaintiff company were nothing more than loans - see my findings at pp.84 and 91 of my reasons.

(ix) Ann Hunter asserting that she and therefore the plaintiff were unaware that Thynne & Macartney had been acting as Edward Morales' solicitors at relevant times - see my findings at p.87 of my reasons.

(x) Ann Hunter asserting that Kenneth John Pitts had no real involvement in the plaintiff's affairs - see my findings at p.180 et seq. of my reasons.

(xi) Ann Hunter asserting first that she alone had prepared the plaintiff's letter of 2 November 1993 (Exhibit 18), secondly that the plaintiff had never received the invoice dated 21 October 1993 from the insurance broker J.W. Bell & Associates (Exhibit 225) and thirdly asserting that Exhibit 18 had not been prepared by working from the document Exhibit 225. I found these three matters were false to the plaintiff's knowledge - in my reasons see pp.201 and 287 as to the first matter; p.287 as to the second matter and pp.288 - 9 as to the third matter.

(xii) Ann Hunter's assertions concerning her meeting with Darryn Shiels - the major witness of the second defendant - see my findings at pp.208 - 9 of my reasons.

(xiii) Ann Hunter's asserting that she had disclosed to Darryn Shiels the plaintiff's insurance dealings with UAP - see my findings at p.302 of my reasons.

(xix) Ann Hunter asserting that the answer "new venture" to question 56 of the proposal had emanated from Darryn Shiels - see my findings at p.302 of my reasons.

(xx) Ann Hunter asserting that the persons who lived at 7 Grevillea Street, Everton Hills from October 1993 to January 1994 were Ann Hunter and Kenneth John Pitts and not Edward Morales - see my findings at p.325 of my reasons.

(xxi) Ann Hunter's false denials and claims as to lack of knowledge concerning the Talk Finance transaction and ensuing litigation concerning the fact that Edward Morales had sworn a false affidavit in an application to the court (see p.249 of my reasons).

I found that all these matters (save for (xxi)) were not only untrue assertions but were false to the knowledge of Ann Hunter (the managing director of and main witness for the plaintiff).

Overall, there can be no doubt that given findings which I have made in my reasons of 4 April 1997 as to the true state of knowledge of Ann Hunter, Kenneth John Pitts and Edward Morales and others, the plaintiff at all times knew the significance of the UAP Insurance events and knew that those events were highly significant matters to disclose to another insurance company and yet the plaintiff by Ann Hunter and Edward Morales deliberately withheld those events from Mr Shiels and from the first defendant. I should at this stage point out that Kenneth John Pitts at all material times was the partner or fiancee or husband of Ann Hunter and that he was experienced in the insurance industry and employed by an insurance company. I shall return to his evidence later when considering the claim for indemnity costs against him.

Nevertheless the plaintiff continued with the action - as I have already said the action occupied 126 days including addresses and it seemed to me that the plaintiff continued the action in the vain hope that it would perhaps force a settlement by prolonging the case to inordinate lengths such prolongation occurring because of a large number of factual allegations which the plaintiff by its principal witness Ann Hunter knew to be false and must have known required great cost to investigate in a long trial. On this aspect I refer particularly to Ann Hunter's allegations made early in her evidence that she had a row with her brother Edward and left her employ with his companies about mid-March 1993 and did not then again work for his companies. It was not long after that she received 3 bank cheques totalling $135,000 which moneys were traced from the Edward Morales companies (the Elegant Group) into Ann Hunter's bank account and were ultimately used by the plaintiff and its associated company Naomi Tiles Pty Ltd. At this stage I mention the decision of Sheppard J. in Colgate Palmolive Co. & Another v. Cussons Pty Ltd [1993] FCA 536; (1993) 118 ALR 248. His Honour considered a number of authorities on this question of the award of and discretion to award indemnity costs against a party to an action and at pp.256 and 257 set out what he described as principles or guidelines which could be distilled from the authorities to which His Honour had referred. Guideline 5 relevantly read:-

"... 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 knowing them to be false and the making of a irrelevant allegations of fraud; ... the evidence of particular misconduct that causes loss of time to the court and to other parties; ... the fact that the proceedings were commenced or continued for some ulterior motive ... or in 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; ... an imprudent refusal of an offer to compromise."

This decision of Sheppard J. was followed by a Full Court of the Federal Court of Australia in re Wilcox (supra). The matters in Guideline 5 are all relevant to the four aspects of the plaintiff's conduct on which aspects the defendants rely in seeking the indemnity costs orders against the plaintiff. So far I have dealt with two of those aspects and I now come to the third.

(3) Claim of misconduct by plaintiff in pursuing the claims against the first and second defendants which must have been, to the plaintiff's knowledge, hopeless.

Mr O'Donnell's submission is that when the findings which I made in my reasons are looked at, the true facts and the true state of the plaintiff's knowledge of the facts can be seen; that when that has been done I can consider the factual assertions which were made by or on behalf of the plaintiff and the arguments that were advanced by the plaintiff; and that, having done that, it is apparent that the plaintiff ought to have appreciated from the start that its case was hopeless.

Matters on which Mr O'Donnell relies heavily are the issue of the involvement of Edward Morales in the management of the plaintiff, the issue concerning the use of funds from the plaintiff's bank account to pay financial benefits to and for Edward Morales; the issue of whether the plaintiff's business was a continuation of the companies known as the Elegant Group and Jela Imports and Marketing Pty Ltd all of which had been controlled by Edward Morales; and a claim that the plaintiff concealed Edward Morales involvement in it.

In my reasons of 4 April 1997 I resolved these issues against the plaintiff. I found that the personal and insurance history of Edward Morales was relevant for the plaintiff to disclose to the first defendant and to the second defendant but that history was deliberately concealed by Ann Hunter and Edward Morales. I found that Shiels especially asked whether Edward was involved in the plaintiff and was told no. Had his involvement been disclosed his criminal conviction and his past insurance claims had to have been disclosed. It is my view that Ann Hunter, the managing director of the plaintiff knew, at the time she gave evidence, that once reliable evidence to support Edward's involvement and the extent of his involvement with the plaintiff including use of plaintiff's funds before the break in in November 1993 - an involvement which she denied on oath - came before the court, the case was doomed to failure. I accept Mr O'Donnell's submission that Ann Hunter and Edward Morales continued the case to the end in the hope of either deceiving this Court or achieving false findings of fact. A further alternative was that by prolonging the case with false assertions of fact the plaintiff hoped to obtain some sort of offer of settlement from the defendants. On the aspect of hope of forcing a settlement I note that on Day 91 of the trial Mr di Carlo, counsel for the plaintiff said:-

"They must win this case Your Honour because now they have spent 2.4 million trying to recover - when they could have paid out something about one third or one quarter of that amount." (T7637).

I regard this statement as proof of the plaintiff's hope, even at that stage of the trial, of obtaining some compromise offer from the defendants such offer being forced out because of the sheer cost to the defendants of defending the plaintiff's claims.

Apart from the issue of Edward Morales involvement with the plaintiff company I instance the following findings made by me and which in my view pointed to the plaintiff's realisation that its case was hopeless and was such that Ann Hunter had to resort and did resort to lies in order to try to bolster the plaintiff's case.

(i) I shall shortly quote from pp.208 and 209 of my reasons. My quotation refers to events of 4 November 1993 when Ann Hunter met with Darryn Shiels (from the second defendant) at the plaintiff's premises and at a time when Edward Morales was present:-

"When she [Ann Hunter] was being cross-examined by Mr Lennon on the 12th day of the trial concerning the part of the proposal form relating to insurance history, she said she called from the boardroom to Tammy Millard and Tammy Millard got the file, came into the boardroom and read the file herself. She swore that Tammy Millard gaveShiels, who was taking notes, the telephone number and the full name of John Horton [from the plaintiff's former broker J.W. Bell & Associates who had arranged plaintiff's cover with UAP]. Ann Hunter went on to say that she asked Millard to give the whole information or whatever Darryn Shiels needed and that Tammy Millard then proceeded to give Shiels the full details. All this she said occurred in front of Edward and herself. Edward Morales was not called to give evidence.

I thought this evidence concerning Millard's actions was untrue. The document identified by Miss Millard (Exhibit 99) did not mention Horton or his phone number. I thought this lie and other lies Ann Hunter told manifested her realisation that the plaintiff had no case or a very weak case. I consider that Ann Hunter realised that she needed to strengthen her case by attempting to persuade the Court that she had told Shiels about John Horton and UAP and John Horton and the transit claim which the plaintiff had following the damage to marble and granite while moving from 80 to 86A Yarraman Place."

(ii) I now quote from pp.287 and 288 of my reasons:-

"The plaintiff's case as appearing from Ann Hunter's evidence is that Ann Hunter was able to be persuaded by Shiels that the UAP insurance was not relevant because, not having received any clear confirmation in writing that insurance had been taken out, she was able to be persuaded by Shiels that no insurance had existed. In my view Ann Hunter realised that if she received exhibit 225 [invoice of 21/10/93 from JW Bell & Associates] on or shortly after 21 October 1993, then she clearly did have written confirmation that insurance had existed with UAP since 30 July 1993 and further that the cover with UAP specifically excluded `accidental damage to stock, theft or malicious damage to stock in open air.' Obviously she would then have this knowledge prior to the letter of 2 November 1993 (exhibit 18) being drafted. I rejected her evidence denying receipt of exhibit 225. Indeed, I thought Ann Hunter lied on this topic. I thought that she lied because she considered her case against the first defendant was unfounded."

(iii) At p.296 of my reasons I found that Ann Hunter had deliberately withheld from Shiels and from the first defendant the history of the plaintiff's dealings with UAP. I then set out a number of reasons why I had made that finding.

One of those reasons appears at p.302 of my reasons and I now set it out:-

"(k) In the above reasons which I have set out in some detail one matter documented, points strongly to Ann Hunter lying when she told me she disclosed the UAP history to Shiels and, that acting on his advice, the answer "new venture" was given to question 56 in the proposal. That document is exhibit 65 to which I have already referred. I thought that Ann Hunter deliberately lied to me on this aspect of the case and did so because she knew that her case against the first defendant was unfounded or to put it more mildly was weak."

(iv) At p.312 of my reasons in dealing with the issue of the state of the plaintiff's books and records I said:-

"I have no reasonable doubt that in respect of many of the transactions in the cash book and the cheque butts which have been analysed and proved to be transactions involving Edward Morales and/or Pedro Morales, Ann Hunter deliberately made or caused to be made false entries in the plaintiff's's books and records in order to conceal what I find was Edward Morales free and unrestrained use of the plaintiff's funds and thereby to conceal the true relationship of Edward Morales with the plaintiff."

I mention that these findings were also relevant to the second defendant because the second defendant had put in issue the same grounds of non-disclosure as the first defendant had relied on in its defence.

(v) I now refer to some comments made by the plaintiff's counsel Mr Di Carlo on the 104th day of the trial - 4 November 1996. When Mr Di Carlo was cross-examining Shiels an issue arose concerning his right to cross-examine on a particular topic. Objection had been taken (and upheld) on the basis that the topic was not at issue on the pleadings. At p.8701 the following appeared:-

"HIS HONOUR: Mr Di Carlo I am not going to deal with something in a hypothetical situation. If you've got an amendment I want to see it properly formulated and given to the other sides. I'm not going to deal with it ad hoc as you go.

MR DI CARLO: In light of that, Your Honour should allow me to cross-examine on that basis as if the amendment were going to be allowed and then ignore that fact if Your Honour does not allow the amendment.

HIS HONOUR: I'm not going to conduct a trial on that basis at all.

MR DI CARLO: Then Your Honour I seek a short adjournment whilst I formulate the amendment.

HIS HONOUR: No I'm not going to do that either. It is apparent to you from what you said on Friday you will have this witness in the witness box for some time. You can use an adjournment if you want to formulate an amendment application.

MR DI CARLO: But Your Honour I miss out on this questioning.

HIS HONOUR: You can come back to it if you get the amendment. Do I have to spell it all out.

MR DI CARLO: Yes Your Honour because I may not be as long as I had anticipated.

HIS HONOUR: That's the situation at present so that I - I haven't heard from Mr Lennon on that point but I understood him to be saying that it's not an issue raised on the pleadings in your allegation of negligence against the second defendant. That's right is it not Mr Lennon.

MR DI CARLO: Your Honour we may as well walk away from the trial then if that's the case. We may as well walk away from the trial."

(vi) On day 107 of the trial Mr Di Carlo applied for leave to amend the plaintiff's claim.

During the course of his submissions Mr Di Carlo said (T8894):-

"The denial of amendment in this case would be in the overall picture the denial of the action against the second defendant as compared to a worst case scenario of an increase from 104 days by several days which may occur in rebuttal evidence."

At a glance

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Judgment (388 paragraphs)

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Cases Cited (13)