National Australia Bank v Petit-Breuilh

Ballato v Co-operative Bulk Handling Ltd (unreported, Nicholson J, Federal Court of Australia, 30 January 1990)

Bass Coast Shire Council v King [1997] 2 VR 5

Colgate Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225

Devon Downs Administrators Pty Ltd v Theodoropoulos (unreported, Kaye J, Supreme Court of Victoria, 7 April 1982)

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397

J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) [1993] FCA 42; (1993) 46 IR 301

Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103

Spencer v Dowling [1996] VSC 51; [1997] 2 VR 127

Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, French J, Federal Court of Australia, 3 May 1991)

For the First, Fourth, Fifth, Sixth and Seventhnamed Defendants

2. Judgment in the substantive proceeding in this matter was delivered on 5 October 1999, when I indicated that there would be orders that the claim of the plaintiff ("the bank") be dismissed and, on the counterclaim of the defendants, that the guarantee be set aside. Counsel for the first, fourth, fifth, sixth and seventhnamed defendants ("the five defendants") indicated that should his clients be successful as against the bank, no determination would be sought in the third party proceedings. Submissions as to costs were invited. Those submissions have now been presented. No formal orders have yet been made, counsel indicating that they would prefer that the orders finally determining the proceeding be made at the same time as the orders for costs. These reasons should be read with the reasons for judgment delivered on 5 October.

5. The submission of counsel for all of the defendants is that the bank ought to be ordered to pay their clients' costs on what they describe as "a solicitor-client (indemnity) basis". A similar submission was made by counsel for the third parties in respect of his clients' costs. The bank does not dispute the making of an order for the payment by it of the costs of the defendants, but submits that there is no justification for the exercise of the Court's discretion to order that they be payable otherwise than on a party and party basis. It disputes the making of an order for the payment by it of the costs of the third parties, but submits that if they are to be paid by the bank that payment should also be on a party and party basis.

9. Turning to deal first with the submission of the defendants, it is well established that there is a power to award costs on other than a party and party basis, which power is wholly in the discretion of the Court, but that the discretion must be exercised judicially and not unreasonably. Winneke P said in Bass Coast Shire Council v King [1997] 2 VR 5 at 29:

Although, as a general rule, the court will order costs to be taxed and paid on a party and party basis (see r. 63.31 of the Rules of Civil Procedure) it none the less is invested with the discretion to order costs to be taxed and paid on a solicitor and client basis (see r. 63.32 of the Rules). That discretion is not limited to the particular circumstances described in the rule: see per Batt J. Regal Life Insurance Ltd. v. Pacific Financial Resources Pty. Ltd. (unreported, 16 November 1994). The discretion to award costs on a solicitor and client basis is, thus, an unlimited one although it must be exercised judicially and not unreasonably. The circumstances in which a court might be moved to award costs on the solicitor and client scale should be described as "special" if only to set them apart from the usual basis upon which costs are awarded: see per Callaway J.A. Spencer v. Dowling ([[1997] 2 VR 127]).

I note that Sheppard J in his extensive consideration of the history of the power in Colgate Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 229 cites the English Court of Appeal in Andrews v Barnes (1887) 39 Ch D 133 at 141 to the effect that there was inherent in the Court of Chancery at the time of its abolition a general and discretionary power to award costs as between solicitor and client to a successful party "as and when the justice of the case might require".

Solicitor and client costs or indemnity costs?

15. In Spencer v Dowling, Callaway JA at 164 considered the use of the expressions "solicitor and client costs" and "indemnity costs" which appear sometimes to be used indiscriminately in the cases. His Honour said:

Solicitor and client costs are themselves of different kinds. . . . Sometimes they are taken to afford less than a complete indemnity, but on other occasions their purpose is to do what the court can to ensure that a party is not out of pocket. . . . It was for that reason that Woodward J., in Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. [1988] FCA 202; (1988) 81 ALR 397 at 401-2, decided that costs should be paid on a solicitor and client basis but adopted the language of indemnity in the actual order he made to provide greater certainty.

19. Rogers CJ Comm D in Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103 was dealing with an objection to a bill of costs, an order for indemnity costs having already been made. His Honour considered at some length the reasons for and scope of orders for indemnity costs and said at 105:

As I endeavoured to explain in Qantas Airways Ltd v Dillingham Corporation (Rogers J, 14 May 1987, unreported) it became necessary to make orders for indemnity costs because of the ever widening gap that had opened up between the costs payable by a successful party to his, or her, own solicitors and the amount recoverable on a party and party taxation. It seemed to me wholly inappropriate that a party, forced to take legal proceedings, entirely through the wrongful and inappropriate conduct of the other party, be left badly out of pocket at the successful conclusion of the proceedings, simply by reason of an inappropriate method of taxation of costs.

His Honour adopted the following words of Nicholson J of the Supreme Court of Western Australia in Ballato v Co-operative Bulk Handling Ltd (unreported, 30 January 1990) at 107:

In my opinion the words "on an indemnity basis" have a settled meaning in relation to costs. They mean that all costs incurred will be allowed except any which have been unreasonably incurred or are of an unreasonable amount and in applying these exceptions the receiving party will be given the benefit of any doubt.

25. The order sought by the defendants is set out in their draft minute in terms that the costs to be paid by the plaintiff "include all costs of the defendants except in so far as they are of an unreasonable amount or have been unreasonably incurred and so that, subject to the above exceptions, the defendants will be completely indemnified by the plaintiff for their costs." That submission is presumably based on the terms of the order made by Woodward J in Fountain Selected Meats and is consistent with the passage cited above from Ballato. It is clear that the same principles are applicable to the exercise of the discretion to award indemnity costs as to the exercise of the discretion to award solicitor and client costs per se, and it is not necessary to distinguish between the two in consideration of the relevant authorities. The issue remains in the discretion of the judge.

28. Counsel for the defendants made submissions as to the aspects of the conduct of the matter by the bank on which they relied as justifying the application for the payment of indemnity costs. In reply, counsel for the bank relied on the passage from the judgment of Sheppard J in Colgate Palmolive at 233-234 in which His Honour set out what he described as "some of the circumstances which have been thought to warrant the exercise of the discretion" and suggested that they were "useful to note". Counsel then analysed the submissions for the defendants and submitted that they did not fall within any of the circumstances set out by Sheppard J. However, that approach overlooks the broad statements of principle which are conveniently extracted from the same judgment of Sheppard J, where they appear both before and after the list of "circumstances". His Honour said at 233:

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. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes ((1887) 39 Ch D 133 at 141) said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require.". Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v. Preston ((1982) 1 All ER 41 at 58) namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo [Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, 3 May 1991)], "The categories in which the discretion may be exercised are not closed". Davies J expressed (at 6) similar views in Ragata [Developments Pty Ltd v Westpac Banking Corporation (unreported, ???? Federal Court, 5 March 1993)].

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.

34. And as Winneke P said in Bass Coast Shire at 29, subsequent to the passage cited in paragraph 3 above:

In my view, it is not helpful, in determining whether a trial judge has made an error of principle in the exercise of his discretion, to look at other cases 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. To do so would be to fetter the court's discretion.

39. Paragraphs 5 and 6 of the reasons for judgment read as follows:

There is one other matter relating to the conduct of the hearing to which I should refer. In the two weeks before the commencement of the hearing before me on the listed trial date, 26 July 1999, two separate applications had been made, to different judges of this Court, to vacate that date. One application was made on 15 July by the third parties and the other on 20 July by the defendants. Both were opposed by the bank on the ground that it was ready to proceed and both were, understandably, refused.

However, it transpired that the bank's affidavit of documents, which had been sworn on 7 January 1998, was significantly incomplete. Many documents were discovered by the bank well after the commencement of the hearing, and only after repeated demands by counsel for the defendants. The Frankston branch of the bank was handling the loan to the Co-operative from November 1994, and the statement of claim refers to the Co-operative as "indebted to the Bank on its accounts conducted at the Bank's Frankston Branch". Nevertheless, the substantial file of the Frankston branch, which incorporated relevant material from the Burwood and Moorabbin East branches from 1991 onwards ("the Frankston file"), was not produced until after counsel for the five defendants had closed his case. The evidence of the solicitor who had the handling of this matter for the bank was that that was when the Frankston file "came to light". The latest document on the Frankston file is dated in January 1999, and it includes a note of a conversation with that solicitor in December 1998. Other documents were still being discovered on the final day of evidence, that is day twelve of the hearing. The bank's conduct of its case in this manner affected the ability of counsel for the defendants to present their case. The experienced practitioners representing the bank should be aware of their responsibilities to the Court and to the other parties to litigation in which their client is concerned.

44. It is also relevant that the Frankston file contained the file note of 9 October 1992, which confirmed the evidence of the defendants as to the agreement which had been made "that in the event of a change of committee the new members will sign a fresh guarantee for the amount of the outstanding debt and assume the responsibility to ensure repayments are made". That file note was relevant to the credit of the defendants as well as bearing its own significance in the context of whether the actions of the bank in the transaction involved were "fair, just and reasonable". There were 245 documents on the Frankston file (excluding those which were the subject of privilege). Some of those documents were, in the event, highly relevant in assisting the Court as to particular matters which were necessary to be decided, such as the presence or absence of the warning clause at the time when the guarantee was executed. And there were indications on the file of a lack of action by the bank, which was also relevant.

47. It was submitted for the defendants, and I have no reason to doubt, that had that file been produced in the normal course of discovery, that is, in January 1998, or at some later stage in advance of the hearing, this case, which occupied fourteen days of Court time, could have been significantly shorter, and might well not have proceeded to a hearing at all. Mr Palmer had indicated at page 950 of the transcript that, had he had access to that file before the commencement of the hearing, he would have sought to amend the counterclaim to include a plea of fraud which, on the findings of the Court, would have succeeded. I note that in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd as cited by Sheppard J in Colgate Palmolive at 233 (see paragraph 7 above) French J found that evidence of misconduct that caused loss of time to the Court and to other parties warranted the exercise of the discretion.

50. No explanation was given by the plaintiff for the late discovery of the Frankston file. The bank and its advisers are no strangers to litigation. It must have been apparent to those who prepared the statement of claim that there would have been a relevant file at the Frankston branch of the bank. I cannot find that the bank had no knowledge of the existence of that file, current for twelve months after (and for a number of years before) the swearing of the bank's affidavit of documents, in the branch of the bank where it was claimed that the defendants' debt to the bank existed. And the late discovery of that file and of much other material must be viewed in the light of the successful resistance by the bank, on the ground that it was ready to proceed, of two applications to vacate the listed trial date. The adjective "high-handed", used by Tadgell J in Australian Guarantee Corporation v De Jager, [1984] VicRp 40; [1984] VR 483 at 502 to describe the conduct on which he there based an award of solicitor-client costs, comes to mind.

53. However, this is not, in my view, the case referred to by Woodward J in Fountain Selected Meats, when he said at 401:

I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.

But as French J said in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) [1993] FCA 42; (1993) 46 IR 301 at 303, after referring to Fountain Selected Meats:

. . . it is not a necessary condition of the power to award [indemnity] costs that a collateral purpose or some species of fraud be established.

I would impute to the bank and to those advising it no more than incompetence in the preparation of its case. But it is not for the defendants to bear the burden of that incompetence.

60. I accept that the joinder of the third parties by the five defendants was reasonable in all the circumstances of the case, circumstances which it is not necessary to recapitulate here. (See the decision of Kaye J in Devon Downs Administrators Pty Ltd v Theodoropoulos, decided on 7 April 1982 and cited with approval by Tadgell JA in Burke v Gillett [1996] VicRp 11; [1996] 1 VR 196 at 199.) Further, I accept that it was reasonable that the third party proceeding be heard together with the principal proceeding.

63. Having considered the application of the defendants, in the light of the authorities to which I have referred, I am satisfied that the late discovery of many documents, and particularly of the Frankston file, considered in the context of the case as a whole, was a circumstance which can be said to be "special", in the sense of taking the matter out of the usual basis on which costs are awarded. Accordingly, there will be an order that the plaintiff pay the costs of the defendants, including, for the reasons set out in the preceding paragraph, the costs of the five defendants in respect of the third party proceedings, in the terms of the draft minute submitted by the defendants; that is, "all costs of the defendants except in so far as they are of an unreasonable amount or have been unreasonably incurred and so that, subject to the above exceptions, the defendants will be completely indemnified by the plaintiff for their costs". It is unnecessary to consider the other submissions of the defendants as to other circumstances which might have been regarded as "special" in that sense.

67. As to the third parties, different considerations apply. I have said that the joinder of the third parties was reasonable and that the hearing of the two proceedings together was also reasonable. However, as things turned out, counsel for the third parties took very little part in the proceedings as a whole, the submissions on both sides of the third party proceeding were, in comparison to the balance of the submissions, extremely brief, and as a result of the failure of the bank's case it proved unnecessary to determine the substantive issue in that proceeding. I am unable to find that the matters which ground the order for solicitor and client costs in the principal proceeding affected the third party proceeding in the same way.

70. For these reasons, there will be an order that the plaintiff pay the costs of the third party in respect of the principal proceeding and the third party proceeding, but on a party and party basis.