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[2004] VSC 510
Supreme Court of Victoria
2004-12-09
HARPER J
Original judgment source is linked above.
COSTS - Judgment for defendant - Whether plaintiff should pay costs on a solicitor and client basis - Whether allegations of fraud made where the plaintiff knew them to be false or irrelevant - Whether plaintiff imprudently or unreasonably rejected an offer of settlement - Costs awarded on a party/party basis.
1 On 8 November 2004, I published my reasons for judgment in this matter. I found for the defendant. That party now seeks an order that its costs be taxed on a solicitor and client basis.
2 I may in the exercise of my discretion make such an order: r.63.32(1) of the Rules of the Supreme Court. That discretion is not limited to the particular circumstances described in the Rules (that is, where the Court makes an order for the payment to a party of costs out of a fund, or for the payment of costs to a party who sues or is sued as a trustee). Nor are the categories, in respect of which the discretion to award solicitor and client costs may be exercised, closed. The general basis upon which costs are taxed is, however, as between party and party: r.63.31. The discretion to order otherwise must of course be exercised judicially.
3 In Colgate-Palmolive Co v Cussons Pty Ltd[1], Sheppard J, in a passage which helpfully sets out the applicable law, said:
"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 (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 appears to have adopted what was said by Brandon LJ ... in Preston v Preston [1982] Fam. 17; [1981] 3 WLR 619 ...; namely, there should be some special or unusual feature in the case to justify the court in departing from the usual 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 in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court of Australia, 3 May 1991 at 8), ''The categories in which the discretion may be exercised are not closed'. Davies J expressed similar views in Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court of Australia, 5 March 1993 at 6).
Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152); evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior purpose (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No. 2) [1993] FCA 42; (1993) 46 IR 301; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); and imprudent refusal of an offer of compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No. 2) (1992) 27 NSWLR 721; Crisp v Keng (unreported, Court of Appeal, NSW, No. 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry VC in EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59). 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.
It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice."[2]
4 In the present case, the defendant relies upon two bases for the exercise of the discretion to order that costs be taxed as between solicitor and client. Each of them was referred to by Sheppard J in the passage quoted above. First, it is submitted that the plaintiff imprudently or unreasonably rejected an offer of settlement. Secondly, the defendant submits that it was subjected to allegations of fraud made in circumstances where the plaintiff knew them to be false or irrelevant.
5 The plaintiff invoked three causes of action. One of these was a "Barnes v Addy" breach of trust. If the plaintiff were to succeed on this, it was necessary to prove on the balance of probabilities that the defendant knew that a third party (Mr Shane Burke, a fraudulent employee of the plaintiff) was misusing the plaintiff's funds. But no evidence of actual knowledge was either presented, or emerged, at trial. So, the defendant now submits, this is a case in which allegations of fraud were made even though the plaintiff knew them to be false or irrelevant.
6 The courts rightly take the view that fraud should never be pleaded in those circumstances. Allegations of fraud should only be made on the basis of evidence, worthy of serious consideration, which points to dishonesty in the subject of the allegation. Loose allegations of fraud are a blot on the adversarial system, and may - where, for example, they are made in terrorem - amount to an abuse of process. It is therefore important that those inclined to make such a serious allegation on an inadequate, or no, foundation be discouraged in their purpose by the prospect of having to pay costs as between solicitor and client.
7 In my opinion, different considerations apply here. As the plaintiff pitched its case, the allegations that the defendant has characterised as allegations of fraud were certainly not irrelevant. I have no doubt that they were not known to be false either. The truth is that the plaintiff never sought to prove actual fraud in the defendant; its case was that MFA ought, on the basis of what its employees allegedly knew about Mr Burke, to have inferred misconduct on his part. I did not uphold that case. On the other hand, it was not one that involved allegations that the defendant had acted dishonestly. Actual knowledge of the fraudulent nature of Mr Burke's conduct was not pleaded. It is true that, in the particulars under paragraph 20 of the plaintiff's amended statement of claim, there is a reference to "the defendant's knowing assistance in Burke's dishonest and fraudulent design". But these words are immediately preceded by the expression "The constructive trust arises from..." (my emphasis), and must be read in the context of the amended pleading as a whole. This includes the particulars of knowledge provided under paragraph 18 of the amended statement of claim. They made it sufficiently clear, in my opinion, that the plaintiff relied on constructive knowledge alone. Dishonesty in the defendant was not alleged.
8 The defendant also relies on the proposition that the plaintiff imprudently or unreasonably, or both imprudently and unreasonably, rejected the defendant's offer of settlement. In the light of my judgment, the offer might be said to have been generous. Yet the resolution of the dispute involved a journey through difficult and to some extent unexplored territory. The outcome of the claim for money had and received, in particular, was by no means clear-cut. In my opinion, the plaintiff's refusal of the defendant's Calderbank letter was not so imprudent or unreasonable as to justify a departure from the normal rule about the taxation of costs.
9 For these reasons, the defendant's application for an order that its costs be taxed as between solicitor and client is rejected. The defendant is of course entitled to judgment. In the circumstances, the appropriate order is that the plaintiff's claim be dismissed. Consistently with that, there will be judgment for the defendant with costs to be taxed on a party and party basis.
[1] [1993] FCA 536; (1993) 46 FCR 225
[2] Ibid at 233-234
NIML Limited
MAN Financial Australia Limited
(1988) 81 ALR 397
(1989) 92 ALR 131
(1993) 46 IR 301
(1987) 10 NSWLR 525
(1992) 27 NSWLR 721
(1993) 46 FCR 225